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RNS
Old Mutual Limited   -  OMU   

OML Reviewed Preliminary Annual Results

Released 07:00 11-Mar-2019

RNS Number : 4233S
Old Mutual Limited
11 March 2019
 

Old Mutual Limited

Incorporated in the Republic of South Africa

Registration number: 2017/235138/06

ISIN: ZAE000255360

LEI: 213800MON84ZWWPQCN47

JSE Share Code: OMU

NSX Share Code: OMM

("Old Mutual" or "the Company")

 

Ref 01/19

11 March 2019

 

STRATEGIC DELIVERY

 

Delivering against many of our eight

battlegrounds, continued progress

in the turnaround of Old Mutual

Insure and strong sales in Corporate,

Wealth and Investments as well as Mass and

Foundation Cluster

 

Successful listing of Old Mutual Limited

on five stock exchanges on 26 June 2018 and

the unbundling of 32% of Nedbank on 15 October 2018

marked the completion of Managed Separation.

We were awarded deal of year at the 19th annual Deal

Makers awards

 

R45.9 billion returned to shareholders in 2018,

with further returns of at least R5.6 billion

expected in 2019 reflecting final dividend and share buyback

 

Achieved approximately R750 million of recurring

expense savings in 2018. On track to achieve expense

efficiency target of R1 billion of run rate savings

by the end of 2019 and to manage expense growth within

inflation thereafter

 

Good progress on technology

refresh and customer experience

improvements. On track to deliver

further enhancements in 2019

 

Segment leadership positions filled

at Old Mutual Insure and Wealth and

Investments

 

FINANCIAL RESULTS

 

HEADLINE EARNINGS (HE)

 

R14,241 million

(FY 2017: R13,144 million)

 

IFRS PROFIT AFTER TAX ATTRIBUTABLE TO

EQUITY HOLDERS OF THE PARENT

 

R36,566 million

(FY 2017: R14,372 million)

 

RESULTS FROM OPERATIONS (RFO)

 

R9,963 million

(FY 2017: R10,367 million)

 

ADJUSTED HEADLINE EARNINGS (AHE)

 

R11,512 million

(FY 2017: R12,947 million)

 

AHE PER SHARE

 

239.1 cents per share

(FY 2017: 271.1 cents per share)

 

FINAL DIVIDEND

 

72 cents per share

 

RONAV

 

18.6%

(FY 2017: 22.9%)

 

GROUP SOLVENCY RATIO

 

170%

(FY 2017: 161%)

 

MESSAGE FROM THE CEO

 

"I am pleased with the progress we

made on our eight battlegrounds.

We delivered particularly good sales

and NCCF in a tough economic and

competitive environment. We delivered

very well against the promises we made

to investors. Sadly we did not meet our

Results from Operations (RFO) growth

target of GDP+2%. We are still confident

that we will meet all our targets in

the medium term noting that the

RFO target will be difficult given the

negative growth in 2018.

We have improved our customer

experience through digital enhance-

ments and the delivery of key phases

of our IT refresh journey. Whilst we

continue to see economic headwinds

in the near term, our Group is resilient,

well capitalised and managing its costs

tightly."

 

 

PETER MOYO

 

2018 was a momentous year for our Group. We completed

the Managed Separation, highlighted by our successful

listing on 26 June 2018. This was followed by the unbundling

of 32% of Nedbank on 15 October 2018, returning a total

of R38.8 billion to our shareholders and retaining 19.9%. In

addition, we have distributed and declared R10.7 billion

in special and ordinary dividends. We have also made

good progress on accelerating the conversion of Residual

plc net asset value to cash with the repayment of all

outstanding international debt. We delivered well against

the commitments we made to our investors, with the

exception of Results from Operations. I am pleased with

the progress we made on our eight battlegrounds. These

results were delivered in a difficult operating environment.

We have conducted our operations in a responsible way

and managed the business within our risk appetite.

 

OPERATING ENVIRONMENT

2018 was characterised by volatility in global equity, currency

and bond markets due to escalating global trade tensions.

These global dynamics, in addition to weak local economic

data, negatively affected the South African economic

landscape resulting in low GDP growth in 2018.

 

Persistently high unemployment rates, a Value Added Tax

(VAT) rate increase and fuel hikes contributed to lower

real disposable incomes for our retail customers in South

Africa. This adversely affected our customer acquisition and

 

persistency, especially in the middle income market. The

economic outlook has marginally improved relative to the

previous year, when political uncertainty prevailed and credit

downgrades led to an even weaker operating environment.

Improvements in governance and accountability taking

place at State Owned Entities (SOEs) have resulted in some

increase in business and consumer confidence. However,

investor confidence is still fragile with concerns around

government debt levels and policy uncertainty particularly

around the proposed policy on land expropriation without

compensation.

 

The South African equity market declined with the JSE

SWIX down 14% in the year and down 9% from the end of

the first half of 2018.

 

Inflation continued to remain within the South African

Reserve Bank (SARB) target range at a 12-month average of

4.6% for 2018. The inflation outlook is benign, although it is

expected to be closer to the upper end of the target range

in the short to medium term due to upward pressures from

effects such as rising utility, transport costs and oil prices.

 

Although a new government under President Mnangagwa

came into power in the year, economic and political

instability still persists in Zimbabwe. Equity markets were

volatile, with a 40% rise in the second half of the year,

resulting in substantial mark to market gains. In order to

mitigate shortages of physical currency (US dollars) in

 

Zimbabwe, the use of electronic money was encouraged.

This is facilitated through the Real Time Gross Settlement

(RTGS) system. The increased reliance on RTGS, which

is purely a mechanism for settlement of Bond Notes,

effectively became a de facto currency. On 20 February 2019,

the Reserve Bank of Zimbabwe announced that the RTGS

would be recognised as an official currency and that an

inter-bank foreign exchange market would be established

to formalise trading in RTGS balances with other currencies.

In line with industry consensus on this matter we have

applied a reporting change to the functional currency for

our businesses in Zimbabwe from 1 October 2018. This

change has reduced both reported profits and net asset

value in 2018.

 

Macroeconomic indicators in Kenya remained broadly

stable in 2018 with overall inflation within target, GDP

growth and short term interest rates remaining low. Equity

markets remained volatile with a decline in the levels over

the period.

 

In Nigeria, economic growth accelerated in the third quarter

of 2018, assisted by improved dynamics in both the oil and

non-oil economy. Oil output increased in the second half of

the year following a reduction in pipeline disruptions.

 

FINANCIAL PERFORMANCE

We delivered our 2018 financial results in tough economic

and market conditions in our key markets. Strong sales and

 

excellent Net Client Cash Flow (NCCF) supported average

Funds under Management (FUM) levels which rose in the

year. Closing FUM of R1.044 billion declined by 3% from the

end of 2017, largely reflecting lower equity market levels in

the fourth quarter.

 

Return on Net Asset Value (RoNAV) of 18.6% was ahead of

our Cost of Equity (COE)+4% target of 17.4%.

 

Results from Operations (RFO) of R9,963 million decreased

by 4% over the period reflecting net reserve movements,

and mortality and morbidity losses in Personal Finance in

the first half of 2018 and the change in functional currency

in Zimbabwe.

 

We delivered Adjusted Headline Earnings (AHE) of

R11,512  million, a decrease of 11% compared to the prior

period. The primary cause of this was the lower RFO, lower

investment income in South Africa as a result of weaker

equity markets and in Zimbabwe, the change in functional

currency in the fourth quarter. This decrease was partially

offset by higher income from associates, reflecting higher

earnings from our stake in Nedbank.

 

We have delivered R750 million of cost savings, putting us

in a good position to meet our R1 billion efficiency target

next year.

 

The Group solvency ratio1 increased to 170% (FY 2017: 161%),

reflecting the robust capital position of the Group.

 

OUR BATTLEGROUND SCORECARD REVIEWS

We remain committed to delivering value in the medium term through our strategic priorities, which are

defined through our eight battlegrounds.

 

DEFEND AND GROW        Mass and Foundation Cluster 

SOUTH AFRICAN MARKET   - Maintained strong sales in the mass market despite ongoing

SHARE IN MASS AND        competition from existing players and new entrants

CORPORATE MARKETS

                       - Opened 25 branches, increasing our branch footprint to 348 branches,

                         contributing to strong sales growth

 

                       - Growth in loan book, with low credit losses, as we continued to lend

                         responsibly

 

                       - Investment in technology has resulted in reduced claims payout

                         time from 24 hours to 8 hours, and 4 hours for those initiated via the

                         Money Account app

 

                       - Online funeral policy launched in 2018

                        

                       Old Mutual Corporate

                       - Market leader with attractive offering for customers, excellent cost of

                         delivery and strong underwriting capabilities, backed by our strong

                         balance sheet

 

                       - Strong flows into our umbrella proposition, producing an improved

                         business mix, even with the lumpy nature of the business

 

                       - Good traction on management actions to improve Group Risk

                         underwriting experience

 

                       - Launch of self service portal for retirement members

 

(1)  The Group solvency ratio is presented consistent with the disclosure in the pre-listing statement except for the use of the iterative risk margin approach.

 

DEFEND AND GROW IN     -   A number of initiatives launched to meet customer needs and

THE SOUTH AFRICAN          enhance our product offering, including the launch of Old Mutual

PERSONAL FINANCE           Rewards and enhancements to our savings and risk propositions

MARKET                    

                       -   Mortality losses stabilised in H2 2018, management actions

                           determined at H1 2018 to improve mortality and morbidity profits are

                           being implemented. We continue to actively monitor the experience

                           in this area

 

                       -   Overall sales were affected by the tough environment but we

                           continue to maintain and grow our position in this market

 

                       -   Distribution channels contributed a total of R69.2 billion in gross

                           flows, R37.2 billion to Wealth and Investments

 

IMPROVE THE            -   Improved investment performance across diversified asset base

COMPETITIVENESS

OF WEALTH AND          -   Strong NCCF and record high transaction activity in Specialised

INVESTMENTS                Finance

 

                       -   Made good progress on building our internal distribution capability

 

CONTINUED TURNAROUND   -   Improved underwriting margin, now at upper end of target range

OF OLD MUTUAL INSURE

                       -   Substantial completion of remediation and claims management

                           processes

 

                       -   Launch of MyOMInsure, a digital platform for claims registration

 

TURNAROUND EAST        -   Staff reorganisation completed in East Africa during the first half

AFRICAN BUSINESS AND       of 2018 to optimise staffing levels and eliminate duplication. This is

IMPROVE RETURNS            expected to create savings going forward

ACROSS THE REST OF

AFRICA                 -   Positive RFO delivered by East Africa for the first time since acquisition

 

                       -   Southern Africa continues to generate strong profit growth, particularly

                           in Malawi and Zimbabwe

 

                       -   Appointment of a new Managing Director of West Africa in November 

                           2018

 

                       -   Launched Dream Enabler, a sales and servicing mobile application

 

WIN THE WAR            -   Embarked on a cultural transformation journey to align

FOR TALENT                 behaviours to our values

 

                       -   Attracting and retaining the talent that we want in the

                           organisation, evident in the appointment of Garth Napier and Khaya

                           Gobodo as Managing Directors of Old Mutual Insure and Wealth and

                           Investments, respectively

 

REFRESH THE            -   Focused on execution, with protection solutions for Mass and

TECHNOLOGY OFFERING        Foundation Cluster and Personal Finance segments expected to be

                           activated during 2019

 

                       -   Introduced robotics processes and system automations which have

                           improved our customer service turnaround time

 

                       -   Launched MyOldMutual, a new secure customer portal, on cloud

                           infrastructure

 

COST EFFICIENCY        -   In 2018 we saved approximately R750 million of recurring cost

LEADERSHIP

                       -   On track to meet R1 billion target and contain expense growth

                           within inflation thereafter

 

NEDBANK UNBUNDLING

We completed the distribution of 158,726,732 Nedbank

shares worth R38.8 billion to our shareholders in the

fourth quarter of 2018. We continue to view our remaining

shareholding of 19.9% as a long-term investment and this ownership

underpins significant commercial benefits we derive from

the continuation of this relationship. During 2018, around

R900 million of insurance premiums arose in Old Mutual

Limited sourced via the Nedbank distribution channels.

 

OUR ROLE IN SOCIETY

Having entered a new phase in our journey following

the completion of Managed Separation, we continue to

build a business with a conscience. During 2018 we paid

R91.5 billion in claims and benefits. This includes insurance

claims, annuity payouts and investment maturities. We

also regularly review the value our products provided to

customers and assess whether they adequately provide for

the identified need.

 

Developing our people is crucial to achieving our targets.

As such, we supported our employees through learning and

development activities to the value of c. R165 million.

 

We remain committed to uplifting the communities in

which we operate. During 2018 we allocated R500 million

to a ring-fenced Enterprise Supplier Development Fund to

support small and black-owned businesses, in recognition of

the commitment made under the Framework Agreement

agreed with the Minister of Economic Development ahead

of the listing of Old Mutual Limited. The Fund's intention

is to generate additional jobs in the Group's ecosystem to

be evidenced by the end of June 2021. By the end of 2018,

R50 million of the Fund had been allocated to the Black

Distributors Trust, an entity that promotes the development

and advancement of black advisers in the tied and

broker segment of the insurance industry. The remaining

R450 million will be allocated in the near term.

 

The completion of our water filtration plant at our Mutualpark

office will help us save 10 million litres of municipal water

per month. This will help alleviate the water requirement

pressures faced by Cape Town.

 

We remain committed to transforming our organisation to

reflect the societies we operate in.

 

For the 2018 period, we maintained a level 2 B-BBEE

contributor status.

 

As part of our Managed Separation and listing process

we committed to the Economic Development Department in

South Africa to achieve an effective black ownership level

of 25% within three years of listing and to be best in class,

as measured at the time of listing, within five years of

listing. We are formulating a plan to achieve this through

internal and if necessary external mechanisms. This will be

guided by a close review of the shareholder value to be created

by achieving the score and facilitating transformation

in South Africa.

 

CAPITAL MANAGEMENT, DIVIDENDS AND SHARE BUYBACK

We continue to develop our capital management to support

the delivery of total return to shareholders both in recurring

and sustainable ordinary dividend and one-off capital

returns where appropriate.

 

For 2018, we have declared a final dividend of 72 cents per

share to be paid on 29 April 2019. In accordance with our

stated dividend policy, consideration has been given to

the Group's underlying cash generation, fungibility of

earnings, targeted liquidity and solvency levels, business

strategic requirements and market conditions. We paid an

interim dividend of 45 cents per share in October 2018 which

brings the total ordinary dividend for 2018 to 117 cents per

share and is covered 2.04 times by AHE per share. This is in line with

our dividend policy. Further details of the timetable for the

exchange rate conversion for dividends payable in currencies

other than Rand will be communicated in due course.

 

We are also pleased to announce a share buyback

programme. Following a review of all capital available at

31 December 2018, and taking into account capital and

liquidity projections to the end of the 2019 financial year,

we have identified sufficient excess capital available to

conduct on market share buybacks for up to R2 billion.

 

Going forward, we anticipate future cash inflows from the

completion of the sale of Latin America and further inter

company dividends as we carry on converting Residual plc

net asset value into cash. We will assess the capacity for further

returns when such proceeds are received, taking into account

our solvency capital position and projections at the time.

 

OUTLOOK

Global growth is still expected to continue for 2019,

assuming trade tensions and equity market risks do not

result in a loss of confidence. This presents the opportunity

for our operations in those regions to grow our consumer

base and develop our product lines.

 

GDP forecast for 2019

 

 

 

South Africa

1.4%

Sub Saharan Africa

3.5%

Zimbabwe

4.2%

Nigeria

2.0%

Ghana

7.6%

East Africa

6.1% - 7.8%

Source: International Monetary Fund

 

National elections are planned for 8 May 2019 in South

Africa and elections in several other key markets are also

planned, and in the case of Nigeria, have occurred during

the first half of 2019.

 

At a segment level we are encouraged by the strong flows

secured in Corporate and operational improvements in Old

Mutual Insure. In Mass and Foundation Cluster and Personal

Finance, we are focussed on driving further growth through

expanding our multi-channel distribution capabilities. We

remain on track to deliver R1 billion in recurring expense

savings in 2019, and grow expenses within inflation thereafter.

 

Our RFO target of GDP+2% CAGR will become increasingly challenging

to achieve over our three year target period due to negative RFO

growth in 2018. AHE will continue to be influenced by investment returns

in South Africa and the Rest of Africa. Despite the weak growth outlook

in South Africa, the above macroeconomic risks and strong competitive

pressures, we remain confident in delivering our medium term targets.

 

FINANCIAL REVIEW

 

GROUP HIGHLIGHTS

 

 

 

Rm (unless otherwise indicated)

FY 2018

FY 2017

% change

Key financial indicators

 

 

 

Gross flows(1)

181,800

173,317

5%

Life APE sales(1)

12,311

11,512

7%

NCCF (Rbn)(1)

10.7

5.6

91%

FUM (Rbn)(1)

1,043.7

1,072.3

(3%)

Results from Operations (RFO)(1)

9,963

10,367

(4%)

Adjusted Headline Earnings (AHE)(1)

11,512

12,947

(11%)

Return on net asset value (RoNAV)(1) (%)

18.6%

22.9%

(430 bps)

Free Surplus Generated from Operations(1)

6,585

7,842

(16%)

% of AHE converted to free surplus(1)

57%

61%

(400 bps)

Solvency ratio (%)(2)

170%

161%

900 bps

IFRS profit after tax attributable to equity holders of the parent

36,566

14,372

>100%

Headline earnings (HE)

14,241

13,144

8%

Basic earnings per share (cents)

788.1

304.7

>100%

Adjusted Headline Earnings per share (cents)(3)

239.1

271.1

(12%)

Final Dividend per share (cents)

72

n/a

n/a

 

(1)   Comparatives have been re-presented to exclude Latin America and India (sold in October 2017) as these businesses have been classified as discontinued

      operations.

(2)   The Group solvency ratio includes our remaining stake in Nedbank and is presented consistent with the disclosure in the pre-listing statement, except for the

      use of the iterative risk margin

(3)   WANS used in the calculation of Adjusted Headline Earnings per share is 4,815 million (FY 2017: 4,776 million).

 

IMPACT OF THE CHANGE IN FUNCTIONAL CURRENCY OF ZIMBABWE

 

 

 

 

 

 

 

 

 

FY 2018

 

FY 2018

%change

 

 

Rm (unless otherwise indicated)

Before FC(1)

Impact(1)

Reported(2)

Before FC

FY 2018

FY 2017  

Gross flows

183,538

(1,738)

181,800

6%

5%

173,317  

NCCF (Rbn)

11.2

(0.5)

10.7

100%

91%

5.6  

FUM (Rbn)

1,083.8

(40.1)

1,043.7

1%

(3%)

1,072.3  

Loans and advances

31,913

(8,175)

23,738

37%

2%

23,311  

Results from Operations (RFO)

10,186

(223)

9,963

(2%)

(4%)

10,367  

Adjusted Headline Earnings (AHE)

13,057

(1,545)

11,512

1%

(11%)

12,947  

Return on Net Asset Value (RoNAV) (%)

20.1%

(150 bps)

18.6%

(280 bps)

(430 bps)

22.9%  

Free Surplus Generated from

 

 

 

 

 

 

Operations

6,585

-

6,585

(16%)

(16%)

7,842  

Group Solvency ratio (%)

161%

900 bps

170%

-

900 bps

161%  

 

(1)   Reflects the key financial indicators of the Group before applying the functional currency change.

(2)   The application of the change in functional currency has been applied prospectively in our financial results for the 2018 reporting period. For inclusion

      in the condensed consolidated income statement of the Group, Zimbabwe results have been translated at the average US dollar exchange rate for the period up to

      30 September 2018 and at a RTGS US Dollar exchange rate of 3.3 to 1 for the remaining three months of the financial year. For inclusion in the condensed

      consolidated statement of financial position, Zimbabwe results have been translated RTGS US Dollar exchange rate of 3.3 to 1.

 

ACCOUNTING IMPLICATIONS OF

MANAGED SEPARATION

Managed Separation resulted in the separate listings of Old

Mutual Limited and Quilter. The majority of the shares in

Quilter (86.6%) were distributed to existing Old Mutual plc

shareholders with the sale of 9.6% to new shareholders. The

listing of Old Mutual Limited was effected via a UK court

scheme of arrangement which inserted Old Mutual Limited

as the new holding company of Old Mutual plc, after the

Quilter distribution, by way of a share for share exchange.

 

From an accounting perspective Managed Separation was

treated as a reorganisation of an existing group. The insertion

of a holding company between shareholders and an existing

group does not result in any change in the economic

substance of the reported group. As such, the condensed

consolidated financial statements of Old Mutual Limited

have been prepared on a predecessor basis. Consequently,

the current period results up to listing and the comparatives

presented for Old Mutual Limited reflect the values from

the financial statements of the previous Old

Mutual plc Group with the exception of the equity structure

that has been adjusted to reflect that of the new entity,

being Old Mutual Limited. Refer to Note A1 in the condensed

consolidated financial statements for additional information.

 

Other accounting impacts of Managed Separation

include the recognition of a profit of R4,023 million and

R19,152 million in respect of the distribution and sale of

Quilter shares and the unbundling of circa 32% of Nedbank

Group Limited, respectively. The profit on the distribution of

Quilter includes a profit on the recycling of foreign currency

translation reserves of R1,352 million. The profit recognised

on the unbundling of Nedbank has been calculated as the

difference between the market value and the consolidated

net asset value of the Group's shareholding in Nedbank on

the date of distribution. Directly attributable costs incurred

to execute these transactions has been offset against the

profits recognised. Refer to Note G5 in the condensed

consolidated financial statements for additional information.

The share for share exchange and the distribution of Quilter

and Nedbank shares led to an after tax accelerated vesting

charge of R354 million recognised in the condensed consolidated

income statement. This was as a result of the modification

of the underlying share awards subject to the existing share-

based payment arrangements of the former Old Mutual

plc Group.

 

ACCOUNTING IMPACT OF ZIMBABWE

 

The continued US dollar shortages experienced in Zimbabwe

have led to the increased use of electronic money through

the Real Time Gross Settlement (RTGS) system, giving rise to

parallel market activities and multiple pricing mechanisms

where bond notes and RTGS balances have been trading at

a discount to the official US dollar exchange rate. Consensus

has developed to apply a change in functional currency for

our businesses operating in Zimbabwe from 1 October 2018,

being the date that the Reserve Bank of Zimbabwe (RBZ)

directed all banks to ring-fence Nostro foreign currency

accounts (FCAs) by separating them into two categories,

namely Nostro FCAs and RTGS FCAs.

 

During February 2019, a trading mechanism for RTGS

balance and bond notes with international currencies was

established, however before this, authorities maintained

that the US dollars represented in the RTGS system were

at a 1:1 exchange rate. We have estimated a RTGS US dollar

exchange rate of 3.3 to 1 (RTGS rate) by assessing various

inputs that impact inflation. The inputs considered in this

estimate include the relative food and fuel prices and the

official inflation rate. A further observable input taken into

consideration was the premium at which the Old Mutual

and PPC shares trade on the Zimbabwe stock exchange

relative to the Johannesburg Stock Exchange.

 

The application of the change in functional currency has

been applied prospectively in our financial results for the

2018 reporting period. For inclusion in the condensed consolidated

income statement of the Group, results in respect of

Zimbabwe have been translated at the average US dollar

exchange rate for the period up to 30 September 2018 and

at the estimated RTGS rate for the remaining three months

of the financial year. For inclusion in the condensed consolidated

statement of financial position, results have been translated

at the estimated RTGS rate.

 

The following table highlights the sensitivity of our key

financial measures to the estimated RTGS rate.

 

 

 

 

 

 

 

 

RTGS:

Reported

RTGS:  

 

 

USD

FY 2018

USD  

Metric (Rm)

 

2.5:1

3.3:1

5:1  

Adjusted Headline Earnings

 

11,754

11,512

11,279  

RoNAV (%)

 

18.8%

18.6%

18.3%  

Profit after tax attributable

 

36,809

36,566

36,333  

to equity holders of

 

 

 

 

the parent

 

 

 

 

Equity attributable to the

 

 

 

 

equity holders of the parent

 

78,792

78,021

77,203  

 

 

 

 

 

SUPPLEMENTARY INCOME STATEMENT

 

 

 

 

Rm

% change  

Note

FY 2018

FY 2017

 

Mass and Foundation Cluster

 

3,129

3,052

3%  

Personal Finance

 

2,021

3,150

(36%)  

Wealth and Investments

 

1,611

1,490

8%  

Old Mutual Corporate

 

1,703

1,576

8%  

Old Mutual Insure

 

670

524

28%  

Rest of Africa

 

1,254

1,081

16%  

Central expenses

A

(425)

(506)

16%  

Results from Operations

 

9,963

10,367

(4%)  

Shareholder investment return

B

2,880

4,920

(41%)  

Finance costs

C

(601)

(622)

3%  

Income from associates

D

2,593

2,305

13%  

Adjusted Headline Earnings before tax and

 

 

 

 

non-controlling interests

 

14,835

16,970

(13%)  

Shareholder tax

 

(2,947)

(3,535)

17%  

Non-controlling interests

 

(376)

(488)

23%  

Adjusted Headline Earnings

 

11,512

12,947

(11%)  

 

RFO is the primary measure of the business performance

of each of the operating segments. Activities related to the

Group's management of the capital structure and central

costs form part of the Other Group Activities segment, to

the extent that they are not managed as part of operating

segments.

 

A Central Expenses

Central expenses were R425 million in 2018, a decrease of

16% or R81 million from R506 million in the prior period. The

main driver for the decrease was a change in the central cost

allocation methodology implemented by the Group in 2018.

As part of an increased effort to more accurately measure the

economic contribution of each segment, project costs that

were previously accounted for centrally have been allocated

to segments. This was offset by an increase in costs to establish

and capacitate reporting and management functions for Old

Mutual Limited as a standalone listed entity.

 

B Shareholder investment return

Shareholder investment return was R2,880 million in 2018,

a decrease of 41% or R2,040 million from R4,920 million in

the prior period. South African equity markets declined by

14% during the year which contributed to lower shareholder

investment return. The majority of the shareholder return

in Rest of Africa is generated by Zimbabwe, where equity

markets have continued to be volatile, with a 40% rise in

the second half of the year, resulting in substantial mark to

market gains. The positive investment returns generated in

Zimbabwe equity markets was impacted by the translation

of shareholder investment return at the RTGS rate for the last

three months of the year.

 

C Finance costs

Finance costs on long term debt, that supports the capital

structure of the Group, decreased by 3% to R601 million in 2018

(FY 2017: R622 million). Finance costs related to subordinated

debt instruments issued by Old Mutual Insure in November

2017, to the nominal value of R500 million were incurred for

the full period contributing to an increase in finance costs. Fair

value gains earned on interest rate swaps more than offset the

increase in finance costs during the period.

 

D Income from associates

After the completion of the Nedbank unbundling, effective

15 October 2018, the Group retained a minority shareholding

of 19.9% in Nedbank in its shareholder funds. Nedbank is

managed as part of Other Group Activities and it has been

included on this basis in AHE. An odd-lot offer was executed

by Nedbank on 21 December 2018 which increased the

Group's shareholding to 20.2%. Income from associates, as

reflected in AHE, increased by 13% to R2,593 million (FY 2017:

R2,305 million) as Ecobank Transnational Incorporated

(ETI) returned to profitability which had a positive impact

on Nedbank's headline earnings. Our investment in China,

which is also reported in income from associates generated

a loss of R88 million (FY 2017: R41 million loss).

 

RECONCILIATION OF AHE TO IFRS PROFIT AFTER TAX

 

Rm

Note

FY 2018

FY 2017

% change  

Adjusted Headline Earnings

 

11,512

12,947

(11%)  

Investment return for Group equity and debt instruments in

 

 

 

 

life funds(1)

 

(219)

(1,355)

84%  

Impact of restructuring(2)

 

(700)

(54)

>(100%)  

Discontinued operations

A

8,129

8,870

(8%)  

Income from associates(3)

 

(2,132)

(2,346)

9%  

Residual plc

B

(2,349)

(4,918)

52%  

Headline earnings

 

14,241

13,144

8%  

Impairment of goodwill and other intangibles

 

(627)

(1,080)

42%  

Impairment of associated undertakings

 

(265)

-

(100%)  

Profit/(loss) on disposal of fixed assets

 

51

(26)

>100%  

Profit on disposal of subsidiaries, associated undertakings

 

 

 

 

and strategic investments(4)

 

23,166

2,081

>100%  

Profit after tax for the financial year attributable to

 

 

 

 

ordinary equity holders of the parent

 

36,566

14,119

>100%  

Dividends on preferred securities

 

-

253

(100%)  

Profit after tax for the financial year attributable to

 

 

 

 

equity holders of the parent

 

36,566

14,372

>100%  

 

(1) IFRS does not allow the recognition of investment returns on Group debt and equity instruments held by life policyholder funds, however, these returns are

    recognised in the valuation of the related policyholder liabilities. This creates a mismatch in IFRS, which is eliminated in AHE. The movement is a function of the

    fair value movement for the period.

 

(2) Represents the elimination of non-recurring expenses or income related to material acquisitions, disposals or a fundamental restructuring of the Group. These

    items are removed from AHE as they do not represent operating activities of the Group. Amounts in the current period largely reflect the accelerated vesting

    of the IFRS 2 charge as a result of the share for share exchange and the distribution of Nedbank and Quilter shares. Current and comparative period includes

    Managed Separation costs.

 

(3) AHE includes associate income in respect of 19.9% shareholding in Nedbank for the full period as if the unbundling took place on 1 January 2018. Earnings for 9.5 months

    are removed as part of this reconciliation as the associate earnings for the 2.5 months post unbundling is included in the IFRS results.

 

(4) The majority of the profit on disposal of subsidiaries, associated undertakings and strategic investments relates to the profit on distribution of Quilter and Nedbank,

 

A Discontinued operations

 

Nedbank

Nedbank delivered a resilient financial performance with

Headline Earnings of R13.5 billion, an increase of 14%, assisted

by the ongoing turnaround in the share of associate income

from ETI. Strong performance was further supported by

accelerated revenue growth in the second half of the year

partially offset by a gradual increase in impairments.

 

Nedbank was classified as held for distribution and

presented as part of discontinued operations up to the date

of unbundling, effective 15 October 2018. We subsequently

ceased to consolidate Nedbank in our financial results and

have equity accounted our retained stake, in shareholder

funds, as an associated undertaking. The retained portion of

Nedbank shares was recorded at the market value prevailing

on the effective date of unbundling. An IFRS profit of

R19,152 million was recognised as a result of the transaction.

 

Latin America

Profits of our businesses in Latin America increased to

R318 million (FY17: R7 million loss). We saw continued

good profits as a result of the growth in pension offerings

in Colombia and higher asset based fees in Mexico, and

good expense management. AIVA profits also grew

following reduction in expenses and growth in Funds under

Management.

 

The sale of our businesses in Latin America is subject to

required regulatory approvals in the relevant jurisdictions.

All required regulatory approvals have been received. As the

date of this announcement, the sale of businesses in Latin

America remains on track to be completed in the first half

of 2019.

 

Quilter

As a result of applying predecessor accounting our results

for 2018 includes profit generated by Quilter up to its listing

on 25 June 2018. Quilter's contribution to the Group's

profit from discontinued operations , in addition to the profit on

distribution was R1,275 million (FY 2017: R1,451 million). Refer to

Note G5 in the condensed consolidated financial statements for additional

Information on discontinued operations.

 

Old Mutual Bermuda

Old Mutual Bermuda was deregistered as an insurer with the

Bermuda Monetary Authority in October 2018 subsequent

to all of the Guaranteed Minimum Accumulations Benefit

(GMAB) reinsurance obligations maturing. Old Mutual

Bermuda contributed R34 million to the Group's profit,

reflecting favourable developments in the run-off of the

book during 2018. The liquidation provision established at

the end of December 2017 has been sufficient to cover all

operational losses incurred during 2018.

 

B Residual plc

The loss in Residual plc reduced by 52% to R2,349 million

largely due to lower finance costs incurred during 2018. The

purchase of remaining debt securities, at a lower premium

than that in 2017 when previous tranches of debt securities

were repurchased contributed towards lower finance costs in

2018. Higher advisory costs were incurred given the heightened

activity leading up to the listing of both Old Mutual Limited

and Quilter in the first half of 2018. Other income increased

following the release of a deferred tax provision.

 

IFRS PROFIT AFTER TAX

Profit after tax increased by more than 100% from the prior period largely due the distribution and sale of Quilter shares

and the unbundling of Nedbank shares resulting in the recognition of a profit of R23,175 million in the consolidated results.

Included within this profit is a loss on the recycling of foreign currency translation reserves of R1,352 million.

 

Rm

FY 2018

FY 2017

% change  

Mass and Foundation Cluster

2,167

2,104

3%  

Personal Finance

1,461

2,270

(36%)  

Wealth and Investments

1,173

1,399

(16%)  

Old Mutual Corporate

1,389

1,134

22%  

Old Mutual Insure

528

736

(28%)  

Rest of Africa

1,659

2,505

(34%)  

Other Group Activities(1)

(2,984)

(6,302)

(53%)  

Consolidation adjustments(2)

(396)

(465)

(15%)  

IFRS profit from continuing operations after tax

4,997

3,381

48%  

IFRS profit from discontinued operations after tax(3)

37,711

16,983

>100%  

IFRS profit after tax for the financial year

42,708

20,364

>100%   

Attributable to:

 

 

 

Equity holders of the parent

36,566

14,372

>100%   

Non-controlling interests

6,142

5,992

3%   

Profit after tax for the financial year

42,708

20,364

>100%   

Basic earnings per share (cents)(4)

788.1

304.7

>100%   

 

(1) Includes central areas, Residual plc and our investment in China.

(2) These entries relate to the elimination of inter-company transactions between continuing and discontinued operations.

(3) Discontinued operations includes the results of Nedbank, Latin America, Quilter, Old Mutual Bermuda and India in the comparative period and the profit on the

    sale and distribution of Quilter shares as well as the Nedbank unbundling.

(4) WANS used in the calculation of basic earnings per share is 4,815 million in FY 2018 (FY 2017: 4,776 million)

 

 

 

FREE SURPLUS GENERATION AND UTILISATION  

 

 

 

FY 2018

 

 

FY 2017

 

 

Free

 

 

Free

 

 

Rm

Surplus

AHE

%

Surplus

AHE

%  

Gross operating segments

8,912

8,831

101%

10,904

10,601

>100%  

Capital requirements

(2,510)

-

-

(2,237)

-

-  

Net operating segments

6,402

8,831

72%

8,667

10,601

82%  

Nedbank (19.9%)

1,340

2,681

50%

1,173

2,346

50%  

Before fungibility restriction

7,742

11,512

67%

9,840

12,947

76%  

Fungibility restriction(1)

(1,157)

-

-

(1,998)

-

-  

Free Surplus generated from

 

 

 

 

 

 

Operations

6,585

11,512

57%

7,842

12,947

61%  

 

(1)  Fungibility restriction represents the free surplus generated in Zimbabwe which cannot be remitted.

 

Operating segments generated gross free surplus of

R8,912 million, representing 101% of AHE, demonstrating

the high level of cash earnings generated by our businesses.

After allowing for capital requirements the free surplus

conversion decreases to 72% of AHE, compared to 82% in

the prior period. The increase in capital requirements

reflects an increase in capital requirements in our Banking

and Lending business in line with the increase in Loans and

Advances. We also increased the levels of capital held in

our Life and Savings businesses during 2018. This increase

in capital held at subsidiary level is to ensure that each of

our operating subsidiaries has appropriate levels of capital

where the risks are managed. In the prior year the amount

of capital required benefitted from a release of capital

related to the Property and Casualty business as a result

of the transition to the Prudential Standards. Nedbank

generates free surplus of 50% of AHE, which is in line with

their dividend policy of 1.75 - 2.25x covered by Headline Earnings. Cash

generated by our business in Zimbabwe is not recognised in

our free surplus measure as it is not fungible. The lower cash

conversion rate of Nedbank earnings and the fungibility

restriction in respect of Zimbabwe earnings reduce the

overall group free surplus generation to 57% of AHE.

 

 

 

 

 

BALANCE SHEET METRICS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rbn (unless otherwise indicated)

Note

FY 2018

FY 2017

 % change

Operating Segments(1)

 

46.0

43.3

6%

Non-core operations(2)

A

4.9

17.2

(72%)

Investment in Associates(3)

 

24.8

-

100%

Assets held for sale or distribution(4)

 

4.1

78.9

(95%)

Consolidation adjustments(5)

 

(1.8)

(2.7)

33%

Equity attributable to ordinary shareholders of the parent

 

78.0

136.7

(43%)

South Africa

 

36.3

31.8

14%

Rest of Africa

 

9.7

11.5

(16%)

Equity attributable to operating segments

 

46.0

43.3

6%

Nedbank at 19.9%(3)

 

18.6

16.4

13%

Closing Adjusted IFRS Equity

 

64.6

59.7

8%

South Africa

 

51.4

45.7

12%

Rest of Africa(6)

 

10.7

10.8

(1%)

Average Adjusted IFRS Equity

 

62.1

56.5

10%

South Africa

 

17.8%

21.0%

(320 bps)

Rest of Africa

 

22.0%

31.1%

(910 bps)

RoNAV

B

18.6%

22.9%

(430 bps)

South Africa

 

23.2

22.2

5%

Rest of Africa

 

11.3

14.4

(22%)

Invested Shareholder Assets(7)

C

34.5

36.6

(6%)

Gearing ratio(8)

D

12.5%

13.0%

50 bps

Interest cover

 

25.7

28.3

(9%)

 

(1)   Comprises of the net asset value of the operating segments of the Group. This net asset value forms the basis for key balance sheet metrics on which the Group

      is managed from a capital perspective, and is the same perimeter on which AHE is presented.

(2)   Comprises mostly of the net asset value of Old Mutual plc of R4.9 billion at 31 December 2018 (R15.1 billion at 31 December 2017) and Old Mutual Bermuda of

      R50 million at 31 December 2018 (R2.1 billion at 31 December 2017).

(3)   Per IFRS requirements, we recorded our remaining stake in Nedbank at fair value on the date of unbundling. For purposes of calculating RoNAV, our stake in

      Nedbank is included at net assets value in Closing Adjusted IFRS equity.

(4)   Comprises of the net asset value of assets classified as held for sale which includes Latin America. 54% of Nedbank and Quilter's net asset value is included in

      the comparative period.

(5)   Consolidation adjustments reflect own shares held by consolidated investment funds, which are treated as treasury shares under IFRS.

(6)   Average Adjusted IFRS Equity for Rest of Africa, before the functional currency change, is R13.4 billion for FY 2018.

(7)   The prior period has been re-presented to better reflect management's view of invested shareholder assets.

(8)   Gearing ratios are calculated based on the IFRS equity attributable to operating segments. As such this excludes equity related to non-core entities and assets

      held for sale

 

Capital management

We actively manage the supply and demand of the

Group's capital to maximise shareholder value, within

our risk appetite. In achieving this objective, we balance

the requirements of key stakeholders including investors,

regulators and our customers.

 

In terms of the supply of capital, we manage debt and equity

levels to minimise the weighted average cost of capital,

within our risk appetite, which allows the Group to maintain

strong interest coverage and an acceptable leverage ratio

post a moderate stress event. Our target gearing ratio is in

the range of 15% to 20%.

 

In term of capital demand, RoNAV serves as the Group's key

capital efficiency measure for directing capital investments.

We aim to maximize shareholder value by deploying capital

to entities and initiatives that are able to deliver a RoNAV that

supports the Group achieving its target of cost of equity +4%.

 

The Group has an optimal solvency capital coverage ratio

target of 155% - 175%. The range has been set to ensure

that we maintain a strong balance sheet to protect

policyholders whilst returning excess capital to shareholders.

As at 31 December 2018, the Group had a capital coverage of

170% which is within the target ratio.

 

All material entities within the Group have solvency capital

coverage targets to ensure that appropriate capital is held

where risks are managed. The risk appetite and requirements

of relevant regulators, customers and other key stakeholders

are considered when determining the level of capital that is

required for the relevant entities.

 

We target a dividend cover, based on AHE, of 1.75x to 2.25x.

When determining the appropriateness of a dividend, we

consider the underlying cash generated from operations,

fungibility of earnings, targeted liquidity and solvency levels

as well as the Group's strategy.

 

On 21 February 2019, Standard & Poor's (S&P) affirmed a

South African National Scale Rating of zaAAA for OMLACSA

and zaAA- for its subordinated debt. Further to this, S&P

upgraded the capital and earnings strength rating of

OMLACSA due to continued improvement in OMLACSA's

capital adequacy and management.

 

A Residual plc

Old Mutual Bermuda has completed its run off process, with

the last reinsurance obligations maturing in August 2018.

Old Mutual Bermuda has been deregistered as an insurer

with the Bermuda Monetary Authority in October 2018, and

surplus capital of R389 million ($27 million) was repatriated

to Old Mutual plc. This brings the total capital repatriated

during 2018 from Old Mutual Bermuda to Old Mutual plc

to R2,127 million ($167 million). The remainder of the surplus

capital is expected to be repatriated following the ultimate

closure and final dissolution of the business during early 2019.

 

Following the listing of Old Mutual Limited, Old Mutual plc

(which was re-registered as a Private Company Limited in

February 2019 under the name of OM Residual UK Limited) is

now a wholly owned, non-operating subsidiary of the Group.

The decrease in net asset value of 68% to R4.9 billion at 31

December 2018 (R15.1 billion at 31 December 2017) is largely

due to the payment of dividends of R4,681 million to Old

Mutual Limited in the second half of the year. The settlement

of certain intercompany loans between Old Mutual plc and

Quilter in anticipation of the listing of Quilter had a negative

impact on net asset value. This decrease was offset by the

cash proceeds received by Old Mutual plc following the sale

offer of 9.6% of Quilter shares to new shareholders.

 

During 2018, Old Mutual plc settled the final transaction

and advisory costs incurred to execute Managed Separation.

Certain corporate costs continue to be incurred until the

head office wind down is completed. These costs remain in

line with previous guidance.

 

The realisable economic value of Residual plc at

December 2018 is estimated at R4,052 million (GBP221 million),

a decrease of R3,634 million (GBP203 million) from June 2018.

This decrease is largely due to the dividends paid to Old

Mutual Limited partially offset by a release of R979 million

(GBP54 million) of surplus following the settlement of debt.

 

Further dividends to Old Mutual Limited will remain subject

to inter alia, the undertaking to the UK Court as described in

the announcement dated 20 June 2018 in respect of Old

Mutual plc. The UK court scheme allows for reviews of the

surplus assets on a quarterly basis that commenced on

1 October 2018. Any potential transfer will need to take

into account the developments and future assessments

by the board of OM Residual UK Limited, at such a point in time,

of liabilities and contingent liabilities and in line with its

fiduciary duties. The final development of economic value

and surplus assets is subject to changes in estimates and

uncertainty.

 

B RoNAV

RoNAV decreased by 430 bps to 18.6% (FY 2017: 22.9%).

The change in functional currency of Zimbabwe negatively

impacted RoNAV by 150 bps.

 

RoNAV in South Africa decreased by 320 bps to 17.8%

(FY 2017: 21.0%). AHE attributable to South Africa reduced

by 5% due to reduced investment income and lower

profit in Personal Finance. The increase in average equity of 12%

was a result of the dividend received from Residual plc of

R4,681 million (GBP255 million) and retained profits partially

offset by dividends paid to external shareholders and the

impact of IFRS 9 - Financial Instruments which results in

higher day one provisions for expected credit losses.

 

RoNAV in Rest of Africa decreased by 910 bps to 22.0%

(FY 2017: 31.1%). Before the application of the functional

currency change for Zimbabwe, RFO for Rest of Africa

increased by R396 million or 37% in 2018 as a result of strong

operational performance. AHE for Rest of Africa increased by

R603 million or 18% mainly due to an increase in shareholder

investment return from strong equity market performance

in Zimbabwe albeit lower than in the second half of 2017.

The increase in operating profits and the weakening of the

Rand against the Kenyan Shilling were the main drivers of an

increase in average Adjusted IFRS equity of 24%(before functional

currency change).

 

Reported AHE for Rest of Africa decreased by 29% with

a corresponding decline in average Adjusted IFRS equity

of 1% mainly due to the change in functional currency

change that resulted in the translation of Zimbabwe results

at the RTGS rate.

 

C Invested Shareholder Assets

Invested shareholder assets decreased by 6% to R34.5 billion

(FY 2017: R36.6 billion). The asset base in South Africa saw a

R1 billion or 5% increase over the period, mostly due to net

increase in cash reflecting profits earned less dividends paid

out and continued positive shareholder investment returns.

 

Despite strong shareholder investment return generated

in Zimbabwe during the period which increased the asset

base, there was a decrease of R3.1 billion or 22% in Rest of

Africa. This was largely a result of the change in functional

currency in Zimbabwe which resulted in the translation of

shareholder asset balances at the RTGS rate.

 

For the listed equities held in South Africa we aim to

limit capital losses through the use of hedges. The impact

of weak equity markets in 2018 was reduced due to our

hedging strategy. The hedging strategy is executed in the

form of a zero-cost collar where the downside is limited to

5% - 15% whilst capping the upside.

 

D Gearing

Gearing ratios as calculated for the Group exclude the

equity and debt relating to non-core and assets held for

sale and distribution. The gearing ratio decreased by 50 bps

in 2018 mainly due an increase of R2,698 million or 6% in

equity attributable to operating segments. The increase is

largely a result of a dividend of R4,681 million (GBP255 million)

received from Residual plc in addition to operating profits.

 

This was partially offset by higher dividends paid to external

shareholders, considering the special dividend of 100 cents

per share, and the impact of IFRS 9 - Financial Instruments

which results in higher day one provisions for expected

credit losses. Interest cover decreased to 25.7 times (FY 2017:

28.3 times) mainly as a result of a decrease of 11% in AHE

from the prior period.

 

EMBEDDED VALUE

The table below sets out the components of embedded value.

 

 

 

 

 

Rm/%

FY 2018

FY 2017

% change

Adjusted Net Worth (ANW)

34,542

29,966

15%  

Value in Force (VIF)

31,856

33,695

(5%)  

Embedded Value

66,398

63,661

4%  

Return on Embedded value

12.6%

14.1%

(150 bps)  

 

 

 

 

The return on embedded value remained strong at 12.6%,

despite a decrease of 150 bps from 14.1% for FY 2017.

Operating EV earnings decreased by 3% to R7,990 million

(FY 2017: R8,244 million) mainly due to a less profitable mix

of new business sold in Rest of Africa during the year and

lower positive assumption changes when compared to the

prior period.

 

Positive experience variances, which increased by R253 million

compared to the prior period, coupled with improved

expense variances had a positive impact on Operating EV

earnings. This was partially offset by worse claims experience

in Personal Finance. Persistency experience improved during

the year, but remained negative reflecting the continued

challenges created by the macro environment. Overall claims

experience was positive despite the unfavourable experience

in Personal Finance. Poor group disability experience in

Old Mutual Corporate with some improvement during the

period. Recurring expenses remained lower than assumed,

reflecting continued progress in achieving our cost efficiency

targets across the business. Investment returns on equities

were significantly lower than in 2017, resulting in a negative

investment variances compared to positive variances in the

prior year.

 

 

 

 

 

SOLVENCY

 

 

 

 

 

 

 

 

  

 

Optimal

FY 2018

 

FY 2017(1)  

Rbn

target range

Pro forma

Change%

Pro forma

OMLACSA

 

 

 

 

Eligible Own Funds

 

78.2

2%

76.4  

Solvency Capital Requirement (SCR)

 

34.8

4%

33.4  

Estimated solvency ratio (%)

>200%

225%

(400 bps)

229%  

Group

 

 

 

 

Eligible Own Funds

 

100.6

4%

97  

Solvency Capital Requirement (SCR)

 

59.1

(2%)

60.4  

Solvency ratio (%) (Pro forma)

155% to 175%

170%

900 bps

161%  

 

(1)  FY 2017 amounts have been re-presented to exclude the use of the iterative risk margin approach in calculating solvency capital requirements.

 

The Insurance Act came into effect on 1 July 2018 and to

date we have not yet been designated as an Insurance

Group. For OMLACSA we have presented our best estimate

of the solvency ratio based on approvals received from the

Prudential Authority to date. The Group solvency ratio is

presented consistent with the disclosure in the pre-listing

statement, except for the use of the iterative risk margin

approach in calculating solvency capital requirements.

 

The increase of the Group solvency ratio to 170% at

December 2018, was largely due the remittance of

dividends from Old Mutual plc to Old Mutual Limited and

the change in the functional currency in Zimbabwe. The

change in the functional currency for Zimbabwe reduces

its contribution to the Group, increasing the solvency ratio.

 

Own Funds of Zimbabwe are deemed non-fungible, and

therefore only an amount equal to its Solvency Capital

Requirement is taken into account for the Group solvency

ratio. As at 31 December 2018, the Group was and is

expected to remain financially sound on a regulatory basis

for the foreseeable future.

 

OUTLOOK

 

 

PERFORMANCE

 

 

KPI

FINANCIAL TARGET

 

OUTLOOK

 

 

 

FY 2018

 

RETURNS

 

 

 

 

 

 

Average COE + 4%

 

 

 

 

(weighted average

18.6%

Improving

 

RoNAV

COE of 13.4%1)

 

 

 

 

 

 

 

 

 

CAGR of Nominal GDP

 

 

GROWTH

 

 

 

 

 

Results

 

 

Improving

 

from

+ 2% over the three years to

 

but

 

Operations

2020 (average nominal GDP

-4%

challenging

 

 

growth for FY 2018: c. 4.7%)

 

 

 

 

 

 

 

 

 

R1 billion by the end of 2019

 

 

 

Cost

Pre-tax run-rate cost savings,

 

 

 

efficiencies

net of costs to achieve it. Based

R750 million

On track

 

 

off 2017 IFRS operating and

 

 

EFFICIENCY

 

administrative cost base.

 

 

 

 

Expect to maintain cost growth within

 

 

 

 

inflation thereafter.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Underwriting

OM Insure underwriting

 

Upper

 

result

margin of 4% - 6% in

5.3%

end of

 

 

near term

 

range

 

 

 

 

 

 

Solvency

 

 

Upper

 

Ratio

Old Mutual Limited: 155% - 175%

170%

end of

 

 

 

 

range

CAPITAL

 

 

 

 

 

 

 

 

Upper

 

 

OMLACSA: Greater than 200%

225%

end of

 

 

 

 

range

CASH

 

Full year ordinary dividends covered

 

 

RETURNS

 

by AHE between 1.75 to 2.25 times

 

 

 

 

 

 

 

 

Dividend

Interim dividend at 40% of the

 

Within

 

cover

current year interim AHE.

117 cents

range

 

 

 

 

 

 

DIVIDEND DECLARATIONS

The Board of directors has approved and declared a final dividend of 72 cents per ordinary share.

The final dividend of 72 cents per share, results in a full dividend cover of 2.04 for the 2018 year which is in line with

Old Mutual Limited's dividend cover target of 1.75x to 2.25x. The final dividend will be paid out of distributable reserves

and is payable on 29 April 2019 to all ordinary shareholders recorded on the record date. The dividend of 72 cents

per ordinary share will be subject to a local dividend tax rate of 20% which will result in a net final dividend, to those

shareholders who are not exempt from paying dividend tax, of 57.6 cents per ordinary share. International shareholders

who are not exempt or are not subject to a reduced rate in terms of a double taxation agreement will be subject to

dividend withholding tax at a rate of 20%.

 

Shareholders on the London, Malawian, Namibian and Zimbabwean registers will be paid in the local currency

equivalents of the final dividend. In Malawi, Namibia and Zimbabwe these distributions will be made through dividend

access trust or similar arrangements established in each country and will not be subject to South African withholding tax.

 

Old Mutual Limited's income tax number is 9267358233. The number of ordinary shares in issue in the company's share

register at the date of declaration is 4,942,048,355.

 

Declaration date

Monday, 11 March 2019  

Finalisation announcement and exchange rates announced

Monday, 18 March 2019  

Transfers suspended between registers

Close of business on  

 

Monday, 18 March 2019  

Last day to trade cum dividend for shareholders on the South African Register

Tuesday, 26 March 2019  

and Malawi, Namibia and Zimbabwe branch registers

 

Ex-dividend date for shareholders on the South African Register and Malawi,

Wednesday, 27 March 2019  

Namibia and Zimbabwe branch registers

 

Last day to trade cum dividend for shareholders on the UK register

Wednesday, 27 March 2019  

Ex-dividend date for shareholders on the UK register

Thursday, 28 March 2019  

Record date (all registers)

Close of business on  

 

Friday, 29 March 2019  

Transfers between registers restart

Opening of business on  

 

Monday, 1 April 2019  

Final Dividend payment date

Monday, 29 April 2019  

 

Share certificates for shareholders on the South African register may not be dematerialised or rematerialised between

Wednesday, 27 March and Friday, 29 March 2019, both dates inclusive. Transfers between the registers may not take

place between Tuesday, 19 March and Friday, 29 March 2019, both dates inclusive. Trading in shares held on the

Namibian section of the principal register through Old Mutual (Namibia) Nominees (Pty) Limited will not be permitted

between Tuesday, 19 March and Friday, 29 March 2019, both dates inclusive.

 

Shareholders that are tax resident in jurisdictions other than South Africa may qualify for a reduced rate

under a double taxation agreement with South Africa. To apply for this reduced rate, non-SA taxpayers should

complete and submit a declaration form to the respective registrars. The declaration form can be found at:

https://www.oldmutual.com/investor-relations/dividend-information/dividend-tax-considerations.

 

SHARE REPURCHASE

Shareholders are advised that Old Mutual Limited ("OML" or "the Company") intends to commence a share repurchase

programme of the Company's ordinary shares up to a maximum consideration of R2.0 billion. The repurchase of OML

shares will take place on both the Johannesburg and London Stock Exchanges during the period 12 March 2019 until the

next annual general meeting ("AGM") of the Company on 24 May 2019. The share repurchase programme will be effected

in accordance with the General Authority received by way of a shareholder resolution passed at the AGM, held on 6 March

2018, allowing the Company to repurchase up to 247 102 418 ordinary shares, equivalent to 5% of the issued share capital

of the Company. OML has received approval from the Prudential Authority for the share repurchase programme.

 

The OML Board believes that OML is trading at a discount to its intrinsic value and is of the view that a share repurchase

programme will deliver longer term incremental value to shareholders. The management team remains committed to

following a disciplined trading approach under the share repurchase programme and will only repurchase shares to the

extent that market conditions are favourable. The purpose of the repurchase programme is to reduce the share capital

of the Company.

 

SEGMENT REVIEWS

 

MASS AND FOUNDATION CLUSTER REVIEW

 

DEFEND AND GROW OUR SHARE OF THE SOUTH AFRICAN MASS MARKET

 

We maintained our leading position in the mass market despite a challenging macroeconomic environment and

increased competitor activity in our market. Consumers remain under pressure with high unemployment rates, VAT

and fuel price increases through 2018 contributing to lower disposable income.

 

We opened 25 new branches in 2018 increasing our total retail branch network to 348. Improved sales force productivity

has translated into strong life and loan sales growth, even though challenging market conditions persisted in H2 2018.

Old Mutual Money Account remains one of the most competitive transactional solutions in the South African market.

We have opened 1 million Money Accounts since inception of which 0.4 million were during 2018. The number of

active accounts increased by 67% in 2018 with nearly a quarter of accounts opened to date being active. We have

made continuous process improvements to pay funeral claims faster, which led to an improved customer experience.

We have reduced pay out times of qualifying funeral claims from 24 hours to less than 8 hours. Claims initiated via the

Money Account app and call centre are typically paid within 4 hours.

 

 

 

 

 

Rm (except where otherwise indicated)

FY 2018

FY 2017

% change

RFO

3,129

3,052

3%

Gross flows

13,700

12,022

14%

Life APE sales

4,579

4,091

12%

NCCF (Rbn)

6.5

6.1

7%

FUM (Rbn)

12.7

12.4

2%

VNB

1,222

1,236

(1%)

VNB margin (%)

10.3%

10.6%

(30 bps)

Loans and Advances

16,518

12,070

37%

Net lending margin (%)

13.7%

16.2%

(250 bps)

 

PERFORMANCE HIGHLIGHTS

Gross flows increased by 14% to R13,700 million due to

strong life sales and annual premium increases on in-force

book, combined with good growth in savings flows into

Money Accounts. Life APE sales of R4,579 million showed

strong growth of 12%, despite the expected moderation

that took place in H2 2018 due to continued pressure on

the consumer. The increase in life sales is largely due to

growth in adviser headcount and productivity, premium

increases and higher credit life sales off the back of growth

in loans disbursed, which contributed to a R0.4 billion or

7% increase in NCCF to R6.5 billion. The retail branch

network contributed 30% of Life APE sales and continues to

deliver better persistency and productivity experience than

other distribution channels.

 

Gross loans and advances increased by 37% to R16,518 million.

Process enhancements in terms of customer take-on

increased consultant productivity and we deployed a more

risk sensitive scorecard that aligned the market offering in

terms of loan size and term to the risk profile of our customer

base. This allowed us to better compete, and achieve

significant growth, in lower risk scored customers while

keeping overall loan approval rates consistent with prior

years. After taking into account growth in disbursements in

2018, we still have less than 10% of the unsecured lending

market and we see opportunities for further market share

growth.

 

The net lending margin of 13.7% decreased by 250 bps in

line with expectations as good credit experience was offset

by higher financing charges resulting from the growth in

our book.

 

RFO of R3,129 million marginally increased by 3% with flat

Life and Savings profits and 29% growth in Banking and

Lending profits. Life and Savings profits were affected by a

12% reduction in credit life profits following price cuts for

lower risk rated customers giving better customer value

for money. The remainder of Life and Savings profits were

impacted by positive growth in the book and good cost

management which was partially offset by less positive year

end assumption changes and lower new business profits.

Banking and Lending profits mostly benefited from the

decrease in amortisation of acquired intangibles related

to Old Mutual Finance compared to 2017. The provision for

loans disbursed following the implementation of IFRS 9 -

Financial Instruments was R90 million higher than it would

have been under the previous applicable IFRS standard. This

was more than offset by the unwind of R214 million of the

day one transitional adjustment provision recorded in equity

as a result of excellent collections experience and improved

behavioural scores during 2018. The current year provision

release is in line with a prior year release that related to the

alignment of provisioning models to payment behaviour in

anticipation of IFRS 9 - Financial Instruments.

 

The credit loss ratio of 5.9% was 90 bps worse than 2017,

mainly due to a decrease in the collections experience of

previously written off bad debts and is influenced by both

the size and the pace of growth of the loan book. The ratio

remains well within our expected range. Whilst we plan to

grow our market share, the pace of growth could moderate

in future periods.

 

 

VNB of R1,222 million decreased by 1% but remains healthy

at a margin of 10.3% despite the decrease of 30 bps during

the year. This is due to the margin mix of risk products sold

during the period driven by sales promotions. An increase

in the portion of debit order sales versus payroll deduction

further negatively impacted VNB.

 

OUTLOOK FOR 2019

 

The start of the year is seasonally slow from a sales perspective with the added backdrop of a strained consumer

environment. High levels of competitor activity in our market means we will need to drive our business to maintain

our market position.

 

We will continue to grow our retail branch network and gradually add to the number of Old Mutual branded ATMs.

One Financial Plan, an advice enablement tool, is being rolled out to our tied agent force, further strengthening our

advice value proposition to customers. We remain vigilant on collections experience on both insurance and lending,

actively supporting customers during the tougher economic times. We will do this by highlighting appropriate

features in our product solutions, like premium holidays and premium cashback benefits, and promoting our

affordable transactional account with fully accessible savings functionality.

 

PERSONAL FINANCE REVIEW

 

DEFEND AND GROW IN THE SOUTH AFRICAN PERSONAL FINANCE MARKET

 

Consumer confidence remained subdued in the second half of the year due to a continued weak economic

environment. Lower than inflation average salary increases and VAT and fuel price increases have had an adverse

impact on consumer disposable income, customer acquisition and retention especially in the middle income market.

Intense competition remains a characteristic of this market.

 

A number of management actions and initiatives were taken during 2018 to drive flows and sales in the tough

economic environment. These included the re-pricing of guaranteed annuity products and tactical improvements to

the pricing of disability and severe illness to improve competitiveness. We launched the Old Mutual Rewards loyalty

programme in an effort to strengthen our penetration in the middle income market. In the fourth quarter of 2018 we

extended our risk product proposition with the launch of Greenlight Sickness Benefits to support recurring risk sales.

 

Our distribution channels performed well, generating gross flows of R69.2 billion in 2018 with a contribution of

R37.2 billion to Wealth and Investments and R6.5 billion to Corporate. Good growth was seen in new digital channels

with saving sales up 29%, and Life APE sales sold through iWYZE was up more than 300% albeit off a low base. Our adviser

force in Old Mutual Finance branches grew by 67% to 315 advisers and we now have presence in over 181 branches country wide.

In line with our vision to become life time financial partners to our customers through meeting their core needs every day,

we have been able to meetn3+ needs of 33.3% of our customer base. In the Black Middle Income group, a key growth market segment for us, nearly

half of our customers have 3+ needs met with Old Mutual.

 

Rm (except where otherwise indicated)

FY 2018

FY 2017

% change  

RFO

2,021

3,150

(36%)  

Gross flows

26,165

24,947

5%  

Life APE sales

2,556

2,502

2%  

NCCF (Rbn)

(3.6)

(2.8)

(29%)  

FUM (Rbn)

181.4

193.7

(6%)  

VNB

418

366

14%  

VNB margin

2.6%

2.4%

20 bps  

 

PERFORMANCE HIGHLIGHTS

Gross flows increased by 5% to R26,165 million mainly

due to 9% increase in single premium sales and positive

growth in recurring flows across Life and Savings and Asset

Management businesses.

 

Despite improvement in mortality and morbidity claim

levels in the second half of the year, NCCF for the year was

adversely affected by poor claims experience and higher

disinvestments. Negative NCCF of R3.6 billion was recorded for

the year, a decrease of R0.8 billion from the prior year.

Legacy NCCF was recorded at negative R9.8 billion (R0.4 billion lower

than the prior year) while NCCF related to new generation products was

R6.2 billion, R0.4 billion lower than the prior year. NCCF

outflows and the decline in the South African equity

markets contributed to a decrease of 6% in FUM to R181.4

billion at 31 December 2018.

 

Life APE sales grew modestly by 2% to R2,556 million

due to good growth in single premium savings sales and

guaranteed annuity sales due to improved pricing. Growth

was partially offset by slightly lower recurring premium sales

on savings and risk products reflecting pricing competition

in the market.

 

RFO of R2,021 million decreased by 36% when compared to

the prior period. Net positive reserve releases that occurred

in 2017 were not repeated and had a negative impact on

the year on year profit growth rate. Higher than expected

death and disability claims, with a number of larger death

claims which fell below the reinsurance threshold during

the first half of 2018 negatively impacted profit levels. Claims

experience was approximately R300 million higher than

expected as a result. Claims levels returned to expected

levels in the second half of the year. Several management

actions have been put in place in response to the negative   

claims experience including an analysis of causes of death,  

non-disclosure trends and a review of medical testing        

practices.

                                                   

VNB increased by 14% to R418 million mainly due to           

higher sales in annuity products at improved margin. This    

was partially offset by lower margin due to mix on other     

products which negatively impacted VNB. The VNB margin       

increased by 20 bps to 2.6%.                                 

 

OUTLOOK FOR 2019

 

Although we saw some improvement in mortality experience in the second half of 2018 we will continue to monitor our

claims experience carefully during 2019. The actions we are taking in response to the mortality experience will only have

impacts on our financial results in the second half of 2019.

 

We expect a constrained environment for our customers if the challenging economic climate and political uncertainty

persists in South Africa. This may reduce their ability to make investment decisions and could therefore have an adverse

effect on our growth.

 

We are on track to launch a new protection proposition, a technology enabled advice model, in the first half of 2019. This

will provide enhanced product features and will simplify and digitise journeys for the intermediaries and customers to

improve overall customer experience.

 

WEALTH AND INVESTMENTS REVIEW

 

IMPROVE THE COMPETITIVENESS OF WEALTH AND INVESTMENTS

 

We delivered a good set of results in the context of a challenging macroeconomic environment, declining equity

markets and high levels of competition. Strong retail NCCF was supported by an improved Wealth proposition and

solid investment performance in our core funds. This outcome demonstrates a strengthened market position in tough

industry conditions. The institutional flows in our Asset Management business held steady with marginally positive

NCCF, despite absorbing approximately R5 billion of net outflows relating to index funds that were internalised

by the relevant fund providers in line with industry trends. Record high transaction activity in Specialised Finance

and the benefit from our continued participation in South Africa's renewable energy sector through Alternatives

demonstrate the diversification benefits of our segment. Khaya Gobodo was appointed as Managing Director, effective

1 January 2019, succeeding Dave Macready who retired at the end of December 2018.

 

Rm (except where otherwise indicated)

FY 2018

FY 2017

% change  

RFO

1,611

1,490

8%  

Gross flows

89,214

88,250

1%  

NCCF (Rbn)

10.8

14.1

(23%)  

AUM (Rbn)(1)

724.4

736.6

(2%)  

FUM

502.7

498.1

1%  

Intergroup assets

334.3

340.4

(2%)  

AuMA(2)

837.0

838.5

(0.2%)  

Assets under administration

(112.6)

(101.9)

(11%)  

Total revenue

5,013

4,889

3%  

Annuity

4,498

4,358

3%  

Non-annuity

515

531

(3%)  

 

(1)  AUM comprises FUM as defined for the Group, as well as funds managed on behalf of other entities

     in the Group, which is reported as FUM in respect of segments. Assets under administration that are

     managed externally are not included in AUM.

(2)  AuMA is AUM including Assets under Administration.

 

PERFORMANCE HIGHLIGHTS

Gross flows of R89,214 million increased marginally by 1%

due to strong sales in Old Mutual International and the

retail Wealth platform, partially offset by lower institutional

inflows to Asset Management. Positive NCCF of R10.8

billion was supported by strong flows into the retail Wealth

platform, up 35% from prior year, and good flows in the

institutional Asset Management business resulting from

improved investment performance. Outflows were higher

due to mandate terminations by certain multi-managers

following their decision to internalise indexation capabilities

and asset realisations in Alternatives. AUM was slightly

down from the prior year, with the positive impact of strong

retail and institutional inflows offset by outflows in the form

of asset realisations, and weak equity market performance

during 2018.

 

Total revenue increased by 3% to R5,013 million. Annuity      

revenue increased by 3% compared to the prior period          

supported by an increase in average AUM compared to the       

prior period despite closing AuM ending 2% lower than         

2017. This growth was pleasing in an environment which        

exhibited some margin compression, primarily in the retail    

business. Non-annuity revenue has been at exceptional         

levels in 2017 and 2018. For 2018, development fees earned    

on renewable energy investments in Alternatives and            

strong gains in the credit portfolio of Specialised Finance   

combined with origination income contributed to non-          

annuity revenue. Non-annuity revenue is down 3% as result     

of high non-recurring investment returns in the Alternatives  

boutique in the prior period.                                 

 

RFO was R1,611 million, an increase of 8% from the prior

year. The increase is largely attributable to acquisition-

related intangibles being fully amortised in 2017 and higher

asset based fees on the 7% higher average AUM during the

period. The diversified asset base of the Wealth and Asset

Management businesses, which include bonds, cash and

offshore equities, supported growth in RFO.

 

RFO for the Wealth and Asset Management business

increased by 3% compared to 2017. The diversified nature of

assets it manages mitigated the impact of poor performance

of South African equities. However, the industry margin

pressure, primarily in the retail space resulted in some drag

on the earnings growth.

 

Our Alternatives business had an exceptionally strong year

in RFO, up by 89% from 2017 due to high non-annuity

revenue, largely contributed by development fees in the

unlisted infrastructure space. The goodwill amortisation

in 2017 was not repeated in 2018 and contributed to the

increase in RFO. Annuity fee income held up well during

the year in line with average AUM, despite closing AUM

ending slightly lower at year end as a result of distributing

value to investors through asset realisations in one of the

infrastructure funds.

 

The Specialised Finance business performed well during

2018 benefitting from higher asset origination levels. The

quality of the balance sheet portfolio reduced the impact of

market wide credit spread contraction. The RFO decreased

by 8% largely due to increased funding cost as a result of

the implementation of a revised Group funding approach.

 

Our core funds continue to show strong investment

performance. Retail funds performed well with 75% of

core funds above median over three years and 88% over

five years. Institutional funds also performed well with

75% of core funds above median over three and five years.

Our multi-asset funds performed strongly in 2018 with all

eight core retail and institutional offerings above median

over 3 years. The Flexible Fund remains top quartile over

three and five years with our flagship retail Balanced Fund

top quartile over three years. All four core retail multi-asset

funds are 4* Morning star rated.

 

OUTLOOK FOR 2019

 

During 2018, our business generated high levels of annuity revenue that contributed 90% of the total revenues.

In particular our Wealth and Asset Management businesses contributed 80% of the annuity revenue. The outlook

remains challenging for 2019 given increasing pressure on revenue margins in the industry, despite some recovery in

equity market levels during the early part of the year.

 

Our business is geared to equity market levels which are influenced by the broader economic environment and

investor confidence, We anticipate some challenges ahead with limited GDP growth forecast for the near term. The

Alternatives business, which is the biggest contributor to the non-annuity flows, is likely to experience limitations

around deal flow and fund raising if these conditions persist.

 

OLD MUTUAL CORPORATE REVIEW

 

DEFEND AND GROW OUR SHARE OF THE SOUTH AFRICAN CORPORATE MARKET

 

After more than 50 years of delivering value to our customers, we are pleased that members of retirement funds can

continue to invest in our industry leading smoothed bonus investment offering subsequent to the introduction of the

new default investment portfolios regulations 37.

 

We continue to invest in improving the customer experience of the Old Mutual SuperFund umbrella with the launch

of a new self-service portal in 2018. The SuperFund umbrella continues to attract good flows from both converting

standalone schemes as well as customers moving from competitor umbrella funds. OMCC OnTrack is our new

consulting tool that measures the health of retirement outcomes at member level and promotes awareness of

retirement goals and planning. This will be a valuable tool to improve retirement outcomes.

 

Management actions undertaken to improve Group Risk underwriting experience gained good traction. These actions

included income protection re-pricing and the launch of the new Well4Work range of four flexible Group Income

Protection benefits that allow clients to tailor the desired balance between benefits and price. Management actions

continue to be taken to further improve Group Income Protection underwriting margins to expected long-term levels.

 

We continued to strengthen our industry profile and thought leadership credentials by winning in three categories

at the 2018 Imbasa Yegolide Awards. These awards recognise service providers in the employee benefits industry who

meet the needs and expectations of retirement fund members by delivering excellent service. In addition, the Institute

of Retirement Funds awarded Old Mutual Corporate with two best practice certificates for "Financial Management

and Reporting" and "Stakeholder Engagement and Education".

 

 

 

 

Rm (except where otherwise indicated)

FY 2018

FY2017

% change  

RFO

1,703

1,576

8%  

Gross flows

42,669

35,671

20%  

Life APE sales

3,133

2,719

15%  

NCCF (Rbn)

2.0

(7.1)

>100%  

FUM (Rbn)

254.6

255.6

(0.4%)  

VNB

309

254

22%  

VNB margin

1.1%

1.0%

10 bps  

 

PERFORMANCE HIGHLIGHTS

Gross flows increased by 20% to R42,669 million due to

a combination of improved Life APE sales and strong

institutional multi-manager flows. Life APE sales achieved

growth of 15% to R3,133 million, despite a large recurring

premium SuperFund deal in the prior period, with good

growth across all major product lines except annuities.

Strong inflows from new mandates together with improved

termination experience contributed to a significant

improvement in NCCF of R9.1 billion to R2.0 billion. FUM of

R254.6 billion remained flat with the growth in NCCF being

more than offset by the impact of declining equity markets.

 

At R309 million, VNB grew by 22% largely as a result of sales

growth and a change in capital allocation across products

and segments to align with the new regulatory solvency

system. The VNB margin improved by 10 bps to 1.1%.

 

RFO of R1,703 million increased by 8% from the prior year

due to significantly improved Group Risk underwriting

experience, underpinned by lower Group Life Assurance

claims volumes and improved Group Income Protection

pricing. In addition, active management and a resolution of

risk exposures resulted in a net one off release of provisions

of approximately R85 million.

 

OUTLOOK FOR 2019

 

We continue to invest in Old Mutual Superfund to improve customer experience and drive growth of the umbrella

offering. We have a good pipeline of deals we are working on. It is important to note there is a time lag between the

recognition of the recurring premium flow (in respect of future service contributions) and the single premium flow

in respect of the related asset transfer on these types of deals due to the section 14 transfer process. Management

actions continue to be taken to further improve Group Disability underwriting margins to expected long-term levels.

Earnings will continue to be impacted by market levels during 2019

 

OLD MUTUAL INSURE REVIEW

 

CONTINUED TURNAROUND OF OLD MUTUAL INSURE

 

Old Mutual Insure reported a solid underwriting result for the year, through a deliberate focus on improved service to

brokers and disciplined underwriting. The absence of catastrophe events and improved weather conditions in South

Africa supported the result. In addition, claims cost control initiatives and the ongoing remediation of the large risk

pool have led to a reduction in attritional claims for intermediated businesses.

 

Organic growth continued to be muted by tough market conditions and slower than anticipated new business

volumes. Inorganic growth was targeted through a significant focus on building pipeline opportunities and specific

initiatives, including strategic partnerships with four underwriting manager agencies during 2018 to support our

diversification strategy. These partnerships are expected to contribute to growth in 2019.

 

We have made significant improvement in our digital service channels to continuously improve customer experience

during the claims process. The rollout of MyOMInsure, a digital platform for claims registration and scheduling

appointments with approved auto body repairers, is a key initiative in growing our digital business. We appointed

Garth Napier as Managing Director of Old Mutual Insure in October 2018. His focus will be on the reconstruction of the

portfolio and further improvement of the underwriting and claims processes.

 

Rm (except where otherwise indicated)

FY 2018

FY 2017

% change  

Gross written premiums

13,218

12,481

6%  

Personal

3,677

3,445

7%  

Commercial

4,261

4,216

1%  

Specialty

4,115

3,710

11%  

CGIC

1,165

1,110

5%  

Personal(1)

380

179

>100%  

Commercial

102

166

(39%)  

Specialty

(55)

(90)

39%  

CGIC

102

60

70  

Central expenses

(49)

(3)

>(100%)  

Underwriting result

480

312

54%  

Investment return on insurance funds

244

200

22%  

Other income and expenses

(54)

12

>(100%)  

Results from Operations

670

524

28%  

Underwriting margin

5.3%

3.7%

160 bps  

Insurance margin

7.4%

6.1%

130 bps

(1) Includes iWYZE profit.

 

 

 

 

PERFORMANCE HIGHLIGHTS

Gross written premiums increased by 6% to R13,218 million

in challenging market conditions. The increase from the

prior year is a result of pricing increases and strategic

partnerships with underwriting manager agencies to

generate new business. Strong growth was delivered by

iWYZE, pursuing a profitable growth strategy that leverages

operational efficiencies, strategic partnerships and focused

marketing. CGIC reported good top line growth, despite the

low real annual GDP growth rate which is directly linked to

CGIC's GWP performance. This was partially offset by lower

growth in commercial and agriculture portfolios as a result

of specific remediation of the loss-making risk pool, tough

market conditions and the impact of weather conditions

delaying planting season for farmers.

 

RFO was R670 million, an increase of 28% compared to

2017, largely due to an improved underwriting margin,

as a result of improved claims process efficiencies, and

procurement optimisation, especially in the Personal lines

portfolio. Profit growth was also supported by the general

environment with a relatively benign claims environment

and with lower significant catastrophe losses. This was

partially offset by the cost of a financial liability relating to

strategic partnerships that was recognised for the first time

in 2018, and the increased cost of reinsurance following the

adverse large loss and catastrophe experience of 2017 in

South Africa.

 

The strong improvement in the net underwriting result in

2018 led to an improved net underwriting margin of 5.3%

which is at the upper end of the Group's target range of

between 4% and 6%. The insurance margin improved by

130 bps to 7.4% as a result of an increase of 60 bps in the

return on insurance funds due to an increase in interest

rates compared to the prior period.

 

We had exceptionally good claims experience in Personal

and Commercial lines in the first half of the year following

favourable weather conditions and no catastrophe claims.

 

Attritional losses and the volume of larger losses increased

during the second half of the year across all of our core

divisions in line with normal seasonality trends.

 

Personal lines reported an excellent underwriting profit for

the year of R320 million, an increase of 101%. This was a

result of a favourable claims experience in the market with

claims efficiencies across the division which led to lower

attritional losses. No significant catastrophe losses have

been reported in the period. Solid year to date results were

reported by iWYZE with a profit of R60 million, more than

100% increase from the R20 million in 2017, due to improved

claims management, a favourable claims environment and

benefits arising from a review of technical reserves.

 

The net underwriting result of the commercial lines portfolio

was negatively impacted by large fire claims reported

for the year, with a largely adverse experience in the last

quarter of the year. The agriculture portfolio was negatively

impacted by the adverse hail claims experience in the first

half of the year.

 

Both the Specialty division and CGIC took strain from

large claims reported during the period with losses mostly

incurred in CGIC's bonds portfolio, constituting only 2% of

the total CGIC book. The core trade credit business of CGIC,

however, delivered strong underwriting results in poor

economic conditions, well above results reported by peers

in the market. In the Specialty division, losses reported

in 2018 exceeded both the 13-year average as well as the

prior year.

 

Attritional losses across our core divisions reduced in 2018

when compared to 2017 and 2016. This was due to the

remediation performed on the large risk pool over a three

year period, improved weather conditions in South Africa

and claims process efficiencies implemented which has

started to have a noticeable positive impact on the overall

underwriting performance.

 

OUTLOOK FOR 2019

 

Despite 2018 being a year characterised by a relatively benign claims environment, the economic climate remained

challenging for the short-term insurance industry. Continued low real annual GDP growth and volatility in the Rand

had a negative impact on policy unit growth as well as claims costs. The construction industry in particular has been

under pressure, with an increased number of businesses entering into business rescue arrangements.

 

We will continue to focus on first class service delivery, a modernised distribution strategy, product upgrades and the

continuous improvement or enhancement of our claims processes. We expect headwinds in 2019 if a normalised

claims environment returns, but remain confident in the delivery of 2019 targets.

 

REST OF AFRICA REVIEW

 

TURNAROUND EAST AFRICAN BUSINESS AND IMPROVE RETURNS

ACROSS THE REST OF AFRICA

 

During the first half of 2018 we completed a staff reorganisation to optimise staffing levels and eliminate duplication

across our East African businesses. This reorganisation was facilitated through the automation of several processes and

the merging of disparate IT systems within the business. The reorganisation cost approximately R70 million, which is

expected to drive ongoing savings despite the impact to profits in 2018. In our property business we have actively increased

occupancy levels across our portfolio of properties. Our Banking and Lending business has focused the majority of its

lending on lower risk loan portfolios and this had a positive impact on non-performing loans.

 

Southern Africa continues to be the key contributor to Rest of Africa results. The strong performance is despite the continued

recession in Namibia and the currency challenges faced in Zimbabwe. The continued US dollar shortages in Zimbabwe during

2018 has led to the increased use of electronic and plastic money through the Real Time Gross Settlement ('RTGS')

system. During February 2019, a trading mechanism for RTGS balance and bond notes with international currencies was

established, however before this, authorities maintained that the US dollars represented in the RTGS system were at a

1:1 exchange rate. We have estimated a RTGS: US dollar exchange rate of 3.3 to 1 by assessing various inputs that impact

inflation. The application of the change in functional currency has been applied prospectively in our financial results for

the 2018 reporting period. For inclusion in the condensed consolidated income statement of the Group, Zimbabwe results have been

translated at the average US dollar exchange rate for the period up to 30 September 2018 and at the estimated RTGS rate

for the remaining three months of the financial year. For inclusion in the condensed consolidated statement of financial position,

Zimbabwe results have been translated at the RTGS rate.

 

In Nigeria, following the delayed Bancassurance license approval in May 2018, we now have a presence in 113 Ecobank

branches across the country. Our Property and Casualty business experienced significant oil and gas claims in the first half

of the year which adversely impacted underwriting results. Management actions have been taken in the second half of the

year to limit further exposure. We appointed a new Managing Director in West Africa in November 2018, who will focus on

developing an executable and credible business plan to support the capital that we deploy in the region.

 

 

FY 2018

 

Reported

Before FC

 

FY 2018            

Rm

Before FC(1)

Impact(1)

FY 2018(2)

%

%

FY 2017  

Results from Operations(3)

1,477

(223)

1,254

37%

16%

1,081  

Gross flows

22,597

(1,738)

20,859

6%

(2%)

21,306  

Life APE sales

1,178

(50)

1,128

(13%)

(16%)

1,347  

NCCF (Rbn)

4.4

(0.5)

3.9

100%

77%

2.2  

FUM (Rbn)

137.6

(40.1)

97.5

32%

(6%)

104.0  

VNB

113

(12)

101

(58%)

(62%)

267  

VNB margin (%)

1.9%

-

1.9%

(240 bps)

(240 bps)

4.3%  

Banking and Lending(4)

 

 

 

 

 

 

Loans and advances

15,394

(8,175)

7,219

37%

(36%)

11,241  

Net lending margin (%(5)

10.9%

(0.2%)

10.7%

(50 bps)

(70 bps)

11.4%  

Credit loss ratio (%)

1.2%

n/a

1.2%

80 bps

80 bps

0.4%  

Property and Casualty

 

 

 

 

 

 

Gross written premiums

3,629

(117)

3,512

(1%)

(4%)

3,654  

Net earned premiums

2,719

n/a

2,719

(3%)

(3%)

2,800  

Underwriting margin (%)(6)

(4.3%)

n/a

(4.3%)

(320 bps)

(320 bps)

(1.1%)  

 

 

(1) Reflects the key financial indicators of the Group before applying the functional currency change.

(2) The application of the change in functional currency has been applied prospectively in our financial results for the 2018 reporting period. For inclusion in the condensed

    consolidated income statement of the Group, Zimbabwe results have been translated at the average US dollar exchange rate for the period up to 30 September

    2018 and at a RTGS:US Dollar exchange rate of 3.3 to 1 for the remaining three months of the financial year. For inclusion in the condensed consolidated statement of financial position,

    Zimbabwe results have been translated at a RTGS:US Dollar exchange rate of 3.3 to 1.

(3) Results from Operations for Rest of Africa includes central regional expenses of R91 million (H1 2018: 57 million, H1 2017: R82 million, FY 2017: R188 million).

(4) Includes Faulu in Kenya, CABS in Zimbabwe and OMF Namibia.

(5) Net interest income plus non-interest revenue minus credit losses, as percentage of average loans and advances over the period.

(6) Underwriting margin is calculated with reference to Results from Operations.

 

PERFORMANCE HIGHLIGHTS

Life and Savings RFO increased by 28% from the prior year

mainly driven by the reversal of a stamp duty provision raised

in the prior year and the securing of a large government group

life assurance (GLA) contract in Malawi. Zimbabwe and Malawi

delivered strong Life APE sales as a result of strategic focus on

growing retail sales through increased advisor productivity.

This was supported by improved expense performance in East

Afica. Asset Management RFO grew by 73% from the prior year

driven by higher fees on the back of growth in funds under

management in Zimbabwe and good inflows into money

market funds in Malawi. Banking and Lending RFO increased

by 8% due to good growth in loan books across our regions on

a lower risk portfolio driving higher non-interest income and

net interest income. Property and Casualty RFO decreased by

360% mainly due to significantly lower top line growth across

all regions, higher expenses and negative claims experience in

Zimbabwe, East and West Africa.

 

OUTLOOK FOR 2019

 

Elections are planned to take place in Namibia, Malawi, Botswana and Nigeria but we expect 2019 to be politically

stable. In Zimbabwe, monetary policy reforms are contributing to continued uncertainty whilst the peace deal signed

recently in South Sudan is expected to result in an improved economic environment. Despite challenging operating

conditions experienced in 2018, we believe the markets we operate in present attractive growth opportunities. Real

GDP growth is expected to be muted in our dominant Southern Africa markets as both Namibia and Zimbabwe face

economic headwinds. Strong GDP growth is expected in both our East and West African markets.

 

We have begun to see positive results from the continued turnaround of the East African businesses. We will continue

to drive profit growth predominantly through enhancing our customer value propositions in our Property and

Casualty business, expanding our Banking and Lending offerings and improving occupancy levels in the property

portfolio. In West Africa we will focus on the remediation of our business by right-sizing the cost base and growing

our business through strategic partnerships in these markets.

 

 

 

 

SOUTHERN AFRICA

 

 

 

Change

 

 

FY 2018

 

Reported

Before FC

FY 2018

 

Rm  

Before FC1

Impact(1)

FY 2018(2)

%

%

FY 2017

Results from Operations

1,812

(223)

1,589

19%

5%

1,519  

Gross flows

19,021

(1,738)

17,283

10%

(0%)

17,291  

Life APE sales

964

(50)

914

(15%)

(19%)

1,131  

NCCF (Rbn)

3.5

(0.5)

3.0

>100%

>100%

1.0  

FUM (Rbn)

107.2

(40.1)

67.1

35%

(15%)

79.3  

VNB

184

(12)

172

(45%)

(49%)

337  

VNB margin (%)

3.5%

-

3.5%

(250 bps)

(250 bps)

6.0%  

Banking and Lending

 

 

 

 

 

 

Loans and advances

12,690

(8,175)

4,515

38%

(51%)

9,167  

Net lending margin(%)(3)

10.4%

(0.3%)

10.1%

(60 bps)

(90 bps)

11.0%  

Credit loss ratio(%)

1.4%

0.1%

1.5%

120 bps

130 bps

0.2%  

Property and Casualty

 

 

 

 

 

 

Gross written premiums

1,423

(117)

1,306

5%

(4%)

1,361  

Net earned premiums

955

n/a

955

(6%)

(6%)

1,016  

Underwriting margin (%)4

4.6%

n/a

4.6%

(260 bps)

(260 bps)

7.2%  

 

 

 

 

 

 

 

 

(1) Reflects the key financial indicators of the Group before applying the functional currency change.

(2) The application of the change in functional currency has been applied prospectively in our financial results for the 2018 reporting period. For inclusion in the condensed

    consolidated income statement of the Group, Zimbabwe results have been translated at the average US dollar exchange rate for the period up to 30 September 2018

    and at a RTGS US Dollar exchange rate of 3.3 to 1 for the remaining three months of the financial year. For inclusion in the condensed consolidated statement of

    financial position, Zimbabwe results have been translated RTGS US Dollar exchange rate of 3.3 to 1.

(3) Net interest margin plus non-interest revenue minus credit losses, as a percentage of average loans and advances over the period.

(4) Underwriting margin is calculated with reference to Results from Operations.

 

                        Lines of business

 

 

LIFE AND

ASSET

BANKING AND

PROPERTY AND

 

SAVINGS

MANAGEMENT

LENDING

CASUALTY

 

 

 

 

 

Southern Africa

 

 

 

 

 

 

 

-

 

   Botswana

 

-

 

 

   Malawi

 

-

 

-

   Namibia

-

-

-

-

   eSwatini

 

-

 

-

   Zimbabwe

-

-

-

-

 

 

 

 

 

 

PERFORMANCE HIGHLIGHTS

The application of the change in functional currency has

been applied prospectively in our financial results for

the 2018 reporting period. As it relates to sales and profit

related KPIs, Zimbabwe results have been translated at

the average US dollar exchange rate for the period up to

30 September 2018 and at estimated RTGS rate for the

remaining three months of the financial year. As it relates to

balance sheet KPIs, Zimbabwe results have been translated

at the RTGS rate. The commentary below references amounts

before the functional currency change.

 

Gross flows improved by 10% to R19,021 million despite

the tough economic conditions in Namibia and the

currency crisis in Zimbabwe. There were good inflows into

money market funds and one-off flows secured in Malawi.

In Zimbabwe the increase in gross flows was due to higher

unit trust and asset management inflows from our existing

customer base and a one-off flow related to a property

mandate secured during the year. NCCF rose by more than

100% to R3.5 billion due to strong inflows into Money Market

Funds in Malawi and the non-repeat of large outflows of

R3.2 billion that occurred in the prior year due to a portfolio

rebalancing by SOEs in Namibia. In Zimbabwe, effective

management actions to improve retention of flows

combined with good claims experience contributed to the

improved NCCF.

 

Life APE sales decreased by 15% to R964 million primarily

driven by lower retail sales in Namibia where productivity

was impacted by the downturn in the economy and lower

credit life sales following regulatory changes. The lower APE

sales witnessed in Malawi were due to a material sale to the

Public Service Fund in 2017 of R227 million that was not

repeated in 2018. This adverse performance in Namibia and

Malawi was partially offset by higher retail sales driven by

good productivity in Zimbabwe.

 

Gross written premiums increased by 5% to R1,423 million,

driven by growth in Zimbabwe as a result of management

actions to acquire new business. Namibia experienced flat

growth due to tough economic conditions which led to

increased competitive pricing. This together with adverse

claims experience in Zimbabwe led to a decrease of 260 bps

in underwriting margin.

 

Loans and advances increased by 38% to R12,690 million

driven by strong growth in OMF Namibia as a result of access

to the government payroll which introduced a new market

segment and continued economic pressure on household

liquidity which has led to increased borrowing. The growth

in the CABS loan book is attributable to an increase in

new business and personal loans as the business seeks to

continue growing in lower risk markets. Despite the growth

in loans and advances in the tough economic climate, there

was an improvement in our non-performing loans.

 

RFO increased by 19% to R1,812 million largely due to

strong performance in Zimbabwe and Malawi. RFO for

Zimbabwe increased by 22% from the prior year due to

strong performance across all lines of businesses, except for

Property and Casualty due to higher claims and increased

operating expenses. Profits benefited from the quality of

the lending book in CABS and tight expense management.

 Malawi contributed to RFO growth

through improved life profits in group life assurance (GLA)

driven by top line growth in the second half of year. Increased

rental income due to improved occupancy rates and higher

asset management fee income further contributed to profit

growth. This was partially offset by lower profits in Namibia

as a result of weak revenue conditions in Life and Savings as

well as our Property and Casualty businesses.

 

VNB decreased by 45% to R184 million with a corresponding

decrease in VNB margin of 250 bps. This was mainly due to

a less profitable mix of new business sold during the year,

discount promotions on risk products and assumption

changes related to future terminations of the smoothed

bonus product in Namibia.

 

EAST AFRICA

 

 

 

Rm (except where otherwise indicated)

FY 2018

FY 2017

% change  

RFO

11

(67)

>100%  

Gross flows

3,259

3,735

(13%)  

Life APE sales

123

100

23%  

NCCF (Rbn)

0.7

1.1

(36%)  

FUM (Rbn)

29.3

23.8

23%  

VNB

(25)

(38)

34%  

VNB margin

(11.8%)

(22.2%)

1 040 bps  

Loans and advances

2,704

2,074

30%  

Net lending margin

13.2%

12.8%

40 bps  

Gross written premiums

2,101

2,145

(2%)  

Net earned premiums

1,726

1,741

(1%)  

Underwriting margin

(1.8%)

(0.9%)

(90 bps)  

 

 

 

 

 

 

 

 

 

 

 

 

 

                       Lines of business

 

 

 

 

 

 

LIFE AND

ASSET

BANKING AND

PROPERTY AND

 

SAVINGS

MANAGEMENT

LENDING

CASUALTY

 

 

 

 

 

East Africa

 

 

 

 

   Kenya

-

-

-

-

   Rwanda

 

 

-

 

   South Sudan

 

-

-

 

   Tanzania

 

 

-

 

   Uganda

 

-

-

 

 

 

 

 

 

 

PERFORMANCE HIGHLIGHTS

Gross flows decreased by 13% driven by a decline in asset

management flows and a slowdown in money market

inflows as yields became less attractive compared to other

cash deposit offerings. Life APE sales increased by 23%

to R123 million due to improved productivity in the retail

business and higher corporate business in Kenya. This was

partly offset by lower sales in Uganda and South Sudan from

lower productivity and a shrinking market as a result of the

civil conflict, respectively. NCCF decreased by 36% to R0.7

billion due to a significant decline in asset management

inflows despite lower withdrawals.

 

Gross written premiums decreased by 2% to R2,101 million.

This was due to increased competitor activity in Kenya and

Uganda that led to the loss of key accounts and tough

economic conditions. This lead to a 90 bps decrease in

underwriting margin.

 

Loans and advances increased by 30% to R2,704 million due

to a focused effort in Faulu to grow its lower risk loans through

payroll deductions which had a positive contribution to profit.

RFO of R11 million is significantly above prior year reflecting

the ongoing efforts of the East Africa turnaround strategy. This

improvement was despite the impact the staff reorganisation

of c. R70 million had on profit. Higher asset management

income earned on average FUM and improved property rental

income from higher occupancy rates in Kenya contributed

to improved RFO. This was partially offset by losses in our

Property and Casualty business due to constrained top line

growth and an adverse claims experience.

 

East Africa's negative VNB of R25 million reflects an

improvement of 34% compared to 2017. The increase is mainly

due to an increase in volumes of products sold with a better

margin mix. This has resulted in an improvement in the VNB

margin of 1 040 bps.

 

 

 

 

 

 

 

 

 

 

 

 

WEST AFRICA

 

 

 

Rm (except where otherwise indicated)

FY 2018

FY 2017

% change  

RFO

(255)

(183)

(39%)  

Gross flows

317

280

13%  

Life APE sales

91

116

(22%)  

NCCF (Rbn)

0.2

0.2

0%  

FUM (Rbn)

1.2

0.9

33%  

VNB

(47)

(32)

(47%)  

VNB margin

(17.3%)

(8.1%)

(920 bps)  

Gross written premiums

104

148

(30%)  

Net earned premiums

39

43

(9%)  

Underwriting margin (%)

(246.4%)

(104.7%)

(14 170 bps)

 

 

 

 

 

 

 

 

 

 

 

 

 

Lines of business

 

 

 

 

 

LIFE AND

ASSET

PROPERTY AND

 

SAVINGS

MANAGEMENT

CASUALTY

West Africa

 

 

 

Ghana

-

 

-

Nigeria

-

-

 

 

 

 

PERFORMANCE HIGHLIGHTS

Gross flows increased by 13% to R317 million as a result of

a large one off flow related to the pension administration

business in Ghana in the second half of the year. Life APE

sales in Nigeria underperformed relative to the prior year

as a result of regulatory changes and lower credit life flows

as a result of the continued slowdown in the Banking

and Lending industry. The Life and Savings business

in Ghana faced challenges with the collections and

on boarding of Bancassurance customers.

 

Gross written premiums is 30% down due to a challenging

business environment. Lower business volumes in Nigeria

followed the caution in writing new business in the oil

and gas business as a result of poor industry wide claims

experience. This led to a significant decrease of 14 170 bps in

underwriting margin.

 

RFO decreased by 39% to a loss of R255 million from the

prior year mostly due to claims experience in the Property

and Casualty business as well as an increase in actuarial

reserving in the Life and Savings business.

 

Negative VNB of R47 million, a decrease of 47% from the

prior year is largely due to lower sales volumes in Nigeria

and Ghana. Lower sales in Nigeria is mainly a result of the

regulator's directive for improved pricing of risk products

in the corporate business. As a result the mix of new

business was weighted towards retail products which are

less profitable. This has resulted in a decrease in the VNB

margin of 920 bps.

 

REVIEWED CONDENSED FINANCIAL STATEMENTS

 

BACKGROUND INFORMATION

In March 2016, Old Mutual plc announced that its board believed that the long term interests of Old Mutual plc

shareholders and other stakeholders would be best served by separating the four businesses then owned by the Old

Mutual plc Group from each other so that they could operate as fully independent businesses. These four businesses

were Old Mutual Emerging Markets, OM Asset Management plc (OMAM, now Brightsphere Investment Group),

Nedbank and Old Mutual Wealth (now Quilter plc). As at 31 December 2017, OMAM had already been separated from

the Old Mutual plc Group following a phased sell-down.

 

To effect the above strategy, referred to as Managed Separation, the following steps were executed during year

ended 31 December 2018:

 

-   The listing of Quilter plc on the London Stock Exchange (LSE) and the Johannesburg Stock Exchange (JSE), the

    distribution of 86.6% of its total share capital to Old Mutual plc shareholders and the sale of up to 9.6% by way of

    a cash placing to institutional investors on 25 June 2018.

 

-   The formation and listing on the JSE (primary), LSE and the stock exchanges of Malawi, Namibia and Zimbabwe,

    of a new entity, being Old Mutual Limited on 26 June 2018. Immediately prior to the listing, Old Mutual Limited

    became the new holding company of Old Mutual plc and its subsidiaries, which mainly comprised the remaining

    operating businesses namely Old Mutual Emerging Markets and Nedbank. The results and position of this new

    Group have been presented within this set of condensed consolidated financial statements (financial statements).

    More details on the basis of preparation and the comparative information presented in these financial statements

    has been presented in note A1.

 

-   The unbundling (in terms of South African law) of the issued share capital of Nedbank to shareholders of Old Mutual

    Limited, whilst retaining a minority interest of 19.9% in the shareholder funds on 15 October 2018. An odd lot offer

    was executed by Nedbank on 21 December 2018, which increased the Group's shareholding to 20.2%. Due to the

    close proximity to year end, the Group continued to equity account for its stake in Nedbank at 19.9%.

 

Further details on Managed Separation and the transactions that have occurred during the period are set out in note

A2. More information on the businesses classified as held for sale and distribution and as discontinued operations

is set out in note G5.

 

Independent auditors' review report on condensed

consolidated financial statements

 

TO THE SHAREHOLDERS OF OLD MUTUAL LIMITED

We have reviewed the condensed consolidated financial statements of Old Mutual Limited, contained in the accompanying

preliminary report set out on pages 57 to 122, which comprise the condensed consolidated statement of financial position as at

31 December 2018 and the condensed consolidated income statement, condensed consolidated statement of comprehensive

income, condensed consolidated supplementary income statement, condensed consolidated statement of changes in equity

and condensed consolidated statement of cash flows for the year then ended, and selected explanatory notes.

 

DIRECTORS' RESPONSIBILITY FOR THE CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

The directors are responsible for the preparation and presentation of these condensed consolidated financial statements in

accordance with the requirements of the JSE Limited Listings Requirements for preliminary reports, as set out in note A1 to

the financial statements, and the requirements of the Companies Act of South Africa, and for such internal control as the

directors determine is necessary to enable the preparation of financial statements that are free from material misstatement,

whether due to fraud or error.

 

AUDITORS' RESPONSIBILITY

Our responsibility is to express a conclusion on these condensed consolidated financial statements. We conducted our review in accordance with

International Standard on Review Engagements (ISRE) 2410, which applies to a review of historical information performed

by the independent auditor of the entity. ISRE 2410 requires us to conclude whether anything has come to our attention

that causes us to believe that the financial statements are not prepared in all material respects in accordance with the

applicable financial reporting framework. This standard also requires us to comply with relevant ethical requirements.

 

A review of financial statements in accordance with ISRE 2410 is a limited assurance engagement. We perform procedures,

primarily consisting of making inquiries of management and others within the entity, as appropriate, and applying analytical

procedures, and evaluate the evidence obtained.

 

The procedures performed in a review are substantially less than those performed in an audit conducted in accordance

with International Standards on Auditing. Accordingly, we do not express an audit opinion on these financial statements.

 

CONCLUSION

Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated financial

statements of Old Mutual Limited for the year ended 31 December 2018 are not prepared, in all material respects, in

accordance with the requirements of the JSE Limited Listings Requirements for preliminary reports, as set out in note A1 to

the financial statements, and the requirements of the Companies Act of South Africa.

 

KPMG Inc.

 

Per: Gary Pickering

Chartered Accountant (SA)

Registered Auditor

Director

 

10 March 2019

 

KPMG Crescent

85 Empire Road

Parktown

2193

 

Deloitte & Touche

 

Per: Alex Arterton

Chartered Accountant (SA)

Registered Auditor

Partner

 

10 March 2019

 

1st Floor The Square

Cape Quarter

27 Somerset Road

Green Point

8005

 

 

 

 

 

 

 

 

Condensed consolidated income statement

 

 

 

For the year ended 31 December 2018

 

 

 

 

 

 

 

 

 

 

2017  

Rm

Notes

2018

(Re-presented)(1)  

Continuing operations

 

 

 

Revenue

 

 

 

Gross insurance premium revenue

 

78,729

72,323  

Outward reinsurance

 

(6,683)

(6,693)  

Net earned premiums

 

72,046

65,630  

Investment return (non-banking)

 

20,511

94,232  

Banking interest and similar income

 

4,532

4,118  

Banking trading, investment and similar income

 

90

97  

Fee and commission income, and income from service activities

 

11,031

9,990  

Other income

 

1,667

1,860  

Total revenue

 

109,877

175,927  

Expenses

 

 

 

Gross claims and benefits (including change in insurance

 

 

 

contract provisions)

 

(65,488)

(92,787)  

Reinsurance recoveries

 

5,607

5,404  

Net claims and benefits incurred

 

(59,881)

(87,383)  

Change in investment contract liabilities

 

5,855

(30,358)  

Credit impairment charges

 

(1,060)

(715)  

Finance costs

 

(1,338)

(4,024)  

Banking interest payable and similar expenses

 

(1,005)

(1,002)  

Fee and commission expenses, and other acquisition costs(2)

 

(9,773)

(8,873)  

Change in third-party interest in consolidated funds

 

(8,928)

(11,405)  

Other operating and administrative expenses(2)

 

(25,845)

(25,052)  

Total expenses

 

(101,975)

(168,812)  

Income from associated undertakings and joint ventures profit/(loss) after tax

 

550

(23)  

(Loss)/profit on disposal of subsidiaries and associated undertakings

 

(2)

30

Profit before tax

 

8,450

7,122  

Income tax expense

 

(3,453)

(3,741)  

Profit after tax from continuing operations

 

4,997

3,381  

Discontinued operations

 

 

 

Profit after tax from discontinued operations

G5

37,711

16,983  

Profit after tax for the financial year

 

42,708

20,364  

Attributable to

 

 

 

Equity holders of the parent

 

36,566

14,372  

Non-controlling interests

 

 

 

Ordinary shares

 

5,641

5,402  

Preferred securities

 

501

590  

Profit after tax for the financial year

 

42,708

20,364  

Earnings per ordinary share

 

 

 

Basic earnings per share - continuing operations (cents)

 

105.1

70.5  

Basic earnings per share - discontinued operations (cents)

 

683.0

234.2  

Basic earnings per ordinary share (cents)

C1(a)

788.1

304.7  

Diluted earnings per share - continuing operations (cents)

 

104.0

69.4  

Diluted earnings per share - discontinued operations (cents)

 

674.1

228.1  

Diluted earnings per ordinary share (cents)

C1(b)

778.1

297.5  

 

(1) The year ended 31 December 2017 has been re-presented to reflect the Latin American businesses, Kotak Mahindra Old Mutual Life Insurance Limited (Kotak) and

    Old Mutual Bermuda as discontinued operations. Refer to notes A2 and G5 for more information.

(2) During the year ended 31 December 2018, the Group reviewed the classification of certain expenses included in the condensed consolidated income statement.

    As a result of this review certain expenses relating to the disbursement of loans and advances were reclassified from other operating and administrative expenses

    to fee and commission expenses, and other acquisition costs (R514m) to better reflect the nature of these costs and align the treatment of these expenses with

    the treatment of similar expenses related to the distribution of life insurance contracts.

 

 

Condensed consolidated statement of comprehensive income

For the year ended 31 December 2018

 

Rm

Notes

2018

(Re-presented)(1)  

Continuing operations

 

 

 

Profit after tax for the financial year

 

42,708

20,364  

Other comprehensive income for the financial year

 

 

 

Items that will not be reclassified to profit or loss

 

 

 

Gains on property revaluations

 

176

109  

Remeasurement gains/(losses) on defined benefit plans

 

46

(966)  

Equity accounted investees - Share of other comprehensive income

 

(5)

-  

Shadow accounting(2)

 

(201)

(154)  

Income tax on items that will not be reclassified to profit or loss

 

10

(95)  

 

 

26

(1,106)  

Items that may be reclassified to profit or loss

 

 

 

Fair value adjustments on net investment hedges

 

44

446  

Fair value adjustments on available-for-sale investments

 

-

46  

Debt investments at FVOCI: Net change in fair value

 

(62)

-  

Fair value movement related to credit risk on borrowed funds

 

250

-  

Currency translation differences on translating foreign operations

 

(253)

(3,200)  

Exchange differences recycled to profit or loss on disposal of businesses

 

(1,352)

(1,343)  

Realisation of net investment hedge on disposal of businesses

 

-

2,680  

Equity accounted investees - Share of other comprehensive income

 

(150)

-  

Other movements

 

243

(321)  

Income tax on items that may be reclassified to profit or loss

 

-

43  

 

 

(1,280)

(1,649)  

Total other comprehensive income for the financial year from

 

 

 

continuing operations

 

(1,254)

(2,755)  

Discontinued operations

 

 

 

Total other comprehensive income for the financial year from

 

 

 

discontinued operations after tax

G5

496

149  

Total other comprehensive income for the financial year

 

(758)

(2,606)  

Total comprehensive income for the financial year

 

41,950

17,758  

Attributable to

 

 

 

Equity holders of the parent

 

35,707

12,036  

Non-controlling interests

 

 

 

Ordinary shares

 

5,742

5,132  

Preferred securities

 

501

590  

Total comprehensive income for the financial year

 

41,950

17,758  

 

(1) The year ended 31 December 2017 has been re-presented to reflect the Latin American businesses, Kotak and Old Mutual Bermuda as discontinued operations.

    Refer to notes A2 and G5 for more information.

(2) Shadow accounting is an adjustment, permitted by IFRS 4 'Insurance contracts', to allow for the impact of recognising unrealised gains or losses on insurance

    assets and liabilities in a consistent manner to the recognition of the unrealised gain or loss on financial assets that have a direct effect on the measurement of

    the related insurance assets and liabilities.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Condensed consolidated supplementary income statement

For the year ended 31 December 2018

 

Rm

 

2018

2017

 

 

 

 

Mass and Foundation Cluster

 

3,129

3,052

Personal Finance

 

2,021

3,150

Wealth and Investments

 

1,611

1,490

Old Mutual Corporate

 

1,703

1,576

Old Mutual Insure

 

670

524

Rest of Africa

 

1,254

1,081

Central expenses

 

(425)

(506)

 

 

 

 

Results from Operations

 

9,963

10,367

Shareholder investment return

 

2,880

4,920

Finance costs

 

(601)

(622)

Income from associated undertakings and joint ventures

 

2,593

2,305

 

 

 

 

Adjusted Headline Earnings before tax and non-controlling interests

 

14,835

16,970

Shareholder tax

 

(2,947)

(3,535)

Non-controlling interests

 

(376)

(488)

 

 

 

 

Adjusted Headline Earnings

 

11,512

12,947

 

 

 

 

 

Reconciliation of Adjusted Headline Earnings to IFRS profit after tax

Rm

Notes

2018

2017

 

 

 

 

Adjusted Headline Earnings

 

11,512

12,947

Investment return on Group equity and debt instruments held in

 

 

 

policyholder funds

B3(a)

(219)

(1,355)

Impact of restructuring

B3(b)

(700)

(54)

Discontinued operations

B3(c)

8,129

8,870

Income from associated undertakings

B3(d)

(2,132)

(2,346)

Residual plc

B3(e)

(2,349)

(4,918)

 

 

 

 

Headline earnings

 

14,241

13,144

Impairment of goodwill and other intangible assets

 

(627)

(1,080)

Impairment of associated undertakings

 

(265)

-

Profit/(loss) on disposal of property, plant and equipment

 

51

(26)

Profit on disposal of subsidiaries and associated undertakings after tax

 

23,166

2,081

 

 

 

 

Profit after tax for the year attributable to ordinary equity holders of the parent

 

36,566

14,119

Dividends on preferred securities

 

-

253

 

 

 

 

Profit after tax for the financial year attributable to equity holders of the parent

 

36,566

14,372

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Condensed consolidated statement of financial position

At 31 December 2018

 

Rm

Notes

2018

2017  

Assets

 

 

 

Goodwill and other intangible assets

 

5,831

6,653  

Mandatory reserve deposits with central banks

 

145

94  

Property, plant and equipment

 

7,741

8,081  

Investment property

 

34,512

31,903  

Deferred tax assets

 

938

1,084  

Investments in associated undertakings and joint ventures

 

26,679

1,789  

Deferred acquisition costs

 

1,925

3,086  

Reinsurers' share of policyholder liabilities

F1

7,902

4,220  

Loans and advances

 

21,243

21,483  

Investments and securities

 

708,050

722,249  

Current tax receivable

 

429

1,064  

Trade, other receivables and other assets

 

18,315

21,875  

Derivative financial instruments

 

2,779

4,101  

Cash and cash equivalents

 

32,339

30,761  

Assets held for sale and distribution

 

12,787

2,188,443  

Total assets

 

881,615

3,046,886  

Liabilities

 

 

 

Life insurance contract liabilities

F1

143,926

159,514  

Investment contract liabilities with discretionary participating features

F1

188,355

193,425  

Investment contract liabilities

F1

287,774

288,164  

Property and Casualty liabilities

F1

9,099

8,285  

Third-party interests in consolidated funds

 

77,445

81,573  

Borrowed funds

F2

16,888

18,866  

Provisions and accruals

 

1,799

2,385  

Deferred revenue

 

472

1,378  

Deferred tax liabilities

 

4,059

5,088  

Current tax payable

 

1,385

1,711  

Trade, other payables and other liabilities

 

47,737

42,355  

Amounts owed to bank depositors

 

7,213

12,440  

Derivative financial instruments

 

5,327

4,498  

Liabilities held for sale and distribution

 

8,716

2,043,759  

Total liabilities

 

800,195

2,863,441  

Net assets

 

81,420

183,445  

Shareholders' equity

 

 

 

Equity attributable to equity holders of the parent

 

78,021

136,678  

Non-controlling interests

 

 

 

Ordinary shares

 

3,399

40,910  

Preferred securities

 

-

5,857  

Total non-controlling interests

 

3,399

46,767  

Total equity

 

81,420

183,445  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Condensed consolidated statement of cash flows

For the year ended 31 December 2018

 

 

 

 

2017  

Rm

 

2018

(Re-presented)(1)  

Cash flows from operating activities

 

 

 

Profit before tax

 

8,450

7,122  

Non-cash movements in profit before tax

 

21,841

18,049  

Net changes in working capital

 

(1,375)

(8,646)  

Taxation paid

 

(3,979)

(3,869)  

Net cash inflow from operating activities - continuing operations

 

24,937

12,656  

Cash flows from investing activities

 

 

 

Net acquisitions of financial investments

 

(4,608)

(3,929)  

Acquisition of investment properties

 

(2,352)

(6,139)  

Proceeds from disposal of investment properties

 

427

69  

Dividends received from associated undertakings

 

29

67  

Acquisition of property, plant and equipment

 

(550)

(653)  

Proceeds from disposal of property, plant and equipment

 

209

240  

Acquisition of intangible assets

 

(53)

(728)  

Acquisition of associated undertakings and joint ventures

 

(1,213)

(1,520)  

Proceeds from disposal of subsidiaries, associated undertakings and joint ventures

 

4,206

12,622

Net cash (outflow)/inflow from investing activities - continuing

 

 

 

operations

 

(3,905)

29  

Cash flows from financing activities

 

 

 

Dividends paid to

 

 

 

Ordinary equity holders of the Company

 

(9,965)

(5,667)  

Non-controlling interests and preferred security interests

 

(272)

(394)  

Interest paid (excluding banking interest paid)

 

(899)

(1,029)  

Proceeds from issue of ordinary shares

 

251

294  

Net disposal of treasury shares - ordinary shares

 

1,137

223  

Redemption of perpetual preferred callable securities

 

-

(4,923)  

Proceeds from issue of subordinated and other debt

 

5,736

1,715  

Subordinated and other debt repaid

 

(8,625)

(11,164)  

Net cash outflow from financing activities - continuing operations

 

(12,637)

(20,945)  

Net cash inflow/(outflow) - continuing operations

 

8,395

(8,260)  

Net cash (outflow)/inflow from discontinued operations

 

(76,420)

7,244  

Effects of exchange rate changes on cash and cash equivalents

 

569

(1,290)  

Cash and cash equivalents at beginning of the year

 

100,334

102,640  

Cash and cash equivalents at end of the year

 

32,878

100,334  

Comprising:

 

 

 

Mandatory reserve deposits with central banks

 

145

94  

Cash and cash equivalents

 

32,339

30,761  

Included in assets held for sale and distribution

 

 

 

Mandatory reserve deposits with central banks

 

-

19,222  

Cash and cash equivalents

 

394

50,257  

Total

 

32,878

100,334  

 

(1) The year ended 31 December 2017 has been re-presented to reflect the Latin American businesses, Kotak and Old Mutual Bermuda as discontinued operations.

    Refer to notes A2 and G5 for more information.

 

In line with market practice in South Africa, cash and cash equivalents in the condensed consolidated statement of cash flows above

include mandatory reserve deposits with central banks.

Except for mandatory reserve deposits with central banks of R145 million (2017: R19,316 million) and cash and cash equivalents

consolidated as part of the consolidation of funds of R7,058 million (2017: R21,872 million), management do not consider that

there are any material amounts of cash and cash equivalents which are not available for use in the Group's day-to-day operations.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Condensed consolidated statement of changes in equity

For the year ended 31 December 2018

 

 

 

Millions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number

 

 

 

 

 

 

 

 

 

 

 

 

 

 

of shares

 

 

 

 

 

Share-

 

Foreign

 

Attributable

 

 

 

 

issued

 

 

 

 

Property

based

 

currency

 

to equity

Total non-

 

 

 

and

Share

Share

Merger

Fair-value(2)

revaluation

payments

Other

translation

Retained

holders of

controlling

Total

Rm

Notes

fully paid

capital(1)

premium(1)

reserve

reserve

reserve

reserve

reserves(3)

reserve

earnings

the parent

interests

equity

Shareholders' equity at beginning of the year

 

4,933

10,150

19,324

20,639

190

2,744

3,813

969

(3,932)

82,781

136,678

46,767

183,445

Impact of adopting IFRS 9 and IFRS 15, net of taxation

H2

-

-

-

-

620

-

-

(914)

-

(2,384)

(2,678)

(1,659)

(4,337)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restated opening balance

 

4,933

10,150

19,324

20,639

810

2,744

3,813

55

(3,932)

80,397

134,000

45,108

179,108

Total comprehensive income for the financial year

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit after tax for the financial year

 

-

-

-

-

-

-

-

-

-

36,566

36,566

6,142

42,708

Other comprehensive income

 

 

 

 

 

(446)

(107)

 

340

(625)

(21)

(859)

101

(758)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income for the financial year

 

-

-

-

-

(446)

(107)

-

340

(625)

36,545

35,707

6,243

41,950

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transactions with the owners of the Company

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contributions and distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends for the year

C3

-

-

-

-

-

-

-

-

-

(9,965)

(9,965)

(3,938)

(13,903)

Equity share-based payment transactions

 

-

-

-

-

-

-

674

-

-

-

674

-

674

Transfer between reserves(4)

 

-

-

-

-

(350)

(1,879)

(3,325)

(1,085)

949

5,690

-

-

-

Demerger of Quilter from Old Mutual plc

 

-

-

-

-

-

-

-

-

-

(42,935)

(42,935)

-

(42,935)

Merger reserve released from demerger of Quilter plc5

 

-

-

-

(19,506)

-

-

-

-

-

19,506

-

-

-

Unbundling of Nedbank6

 

-

-

-

-

-

-

-

-

-

(38,867)

(38,867)

-

(38,867)

Other movements in share capital

 

9

18

233

-

-

-

-

-

-

(466)

(215)

222

7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total contributions and distributions

 

9

18

233

(19,506)

(350)

(1,879)

(2,651)

(1,085)

949

(67,037)

(91,308)

(3,716)

(95,024)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in ownership and capital structure

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital reduction of Old Mutual plc(1)

 

-

(10,079)

(19,557)

-

-

-

-

-

-

29,636

-

-

-

Unbundling non-controlling interest in Nedbank

 

-

-

-

-

-

-

-

-

-

-

-

(44,532)

(44,532)

Change in participation in subsidiaries

 

-

-

-

-

-

-

-

-

-

(378)

(378)

296

(82)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total changes in ownership and capital structure

 

-

(10,079)

(19,557)

-

-

-

-

-

-

29,258

(378)

(44,236)

(44,614)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total transactions with the owners of the Company

 

9

(10,061)

(19,324)

(19,506)

(350)

(1,879)

(2,651)

(1,085)

949

(37,779)

(91,686)

(47,952)

(139,638)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders' equity at end of the year

 

4,942

89

-

1,133

14

758

1,162

(690)

(3,608)

79,163

78,021

3,399

81,420                                                

 

  

(1) On 22 June 2018, Old Mutual plc reduced the nominal value of its ordinary share capital and cancelled its share premium accounts through the creation of         

    distributable reserves. As a result, R10,079 million and R19,557 million respectively was transferred to retained earnings. Refer to note A2 for more information.

(2) The available-for-sale reserve is no longer applicable from 1 January 2018 due to the implementation of IFRS 9. Refer to note H for more information.            

(3) Included in the closing balance for other reserves is R442 million liability credit reserve on borrowed funds. The Group recognises fair value gains and losses  

    on the borrowed funds designated at fair value through profit or loss. The cumulative fair value gains and losses as a result of changes in the credit risk of the

    issued bonds are recognised in other comprehensive income and not in profit or loss. The balance of the total fair value gains and losses on these instruments

    is recognised in profit or loss.

(4) Transfers between reserves include R1,136 million transferred from the share-based payment reserve to retained earnings relating to Quilter as a result of the

    accelerated vesting of employee share schemes.

(5) As a result of the distribution and initial public offering of Old Mutual plc's entire shareholding in Quilter, merger reserves of R19,506 million were transferred to

    retained earnings.

(6) Distribution of the fair value of the investment in Nedbank not retained after unbundling. Refer to note A2 for more information.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Condensed consolidated statement of changes in equity

For the year ended 31 December 2017

 

 

 

Millions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number

 

 

 

 

 

Share-

 

Foreign

 

Perpetual

Attributable

 

 

 

 

of shares

 

 

 

Available-

Property

based

 

currency

 

preferred

to equity

Total non-

 

 

 

issued and

Share

Share

Merger

for-sale

revaluation

payments

Other

translation

Retained

callable

holders of

controlling

 

Rm

Notes

fully paid

capital

premium

reserve

reserve

reserve

reserve

reserves

reserve

earnings

securities

the parent

interests

Total equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders' equity at beginning of the year

 

4,930

10,145

19,036

22,422

163

2,624

6,492

266

(2,043)

71,041

4,532

134,678

52,234

186,912

Total comprehensive income for the

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

financial year

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit after tax for the financial year

 

-

-

-

-

-

-

-

-

-

14,119

253

14,372

5,992

20,364

Other comprehensive income

 

 

 

 

 

27

54

-

1,088

(1,889)

(1,616)

-

(2,336)

(270)

(2,606)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income for the 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

financial year

 

-

-

-

-

27

54

-

1,088

(1,889)

12,503

253

12,036

5,722

17,758

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transactions with the owners of the Company

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contributions and distributions 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends for the year

C3

-

-

-

-

-

-

-

-

-

(5,667)

(259)

(5,926)

(3,617)

(9,543)

Tax relief on dividends paid

 

-

-

-

-

-

-

-

-

-

-

6

6

-

6

Equity share-based payment transactions

 

-

-

-

-

-

-

(639)

-

-

532

-

(107)

-

(107)

Transfer between reserves

 

-

-

-

-

-

-

(2,040)

-

-

2,040

-

-

-

-

Proceeds from BEE transactions

 

-

-

218

-

-

-

-

-

-

-

-

218

-

218

Merger reserve released

 

-

-

-

(1,783)

-

-

-

-

-

1,783

-

-

-

-

Additional Tier 1 capital instruments issued

 

-

-

-

-

-

-

-

-

-

-

-

-

600

600

Preferred securities repurchased

 

-

-

-

-

-

-

-

-

-

(240)

(4,532)

(4,772)

-

(4,772)

Other movements in share capital

 

3

5

70

-

-

66

-

(385)

-

86

-

(158)

-

(158)

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total contributions and distributions

 

3

5

288

(1,783)

-

66

(2,679)

(385)

-

(1,466)

(4,785)

(10,739)

(3,017)

(13,756)

Changes in ownership  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Disposal of a non-controlling interest in OM Asset

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Management plc

 

-

-

-

-

-

-

-

-

-

-

-

-

(9,432)

(9,432)

Change in participation in subsidiaries

 

-

-

-

-

-

-

-

-

-

703

-

703

1,260

1,963

    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total changes in ownership

 

-

-

-

-

-

-

-

-

-

703

-

703

(8,172)

(7,469)

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total transactions with the owners of the   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company

 

3

5

288

(1,783)

-

66

(2,679)

(385)

-

(763)

(4,785)

(10,036)

(11,189)

(21,225)

    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders' equity at end of the year

 

4,933

10,150

19,324

20,639

190

2,744

3,813

969

(3,932)

82,781

-

136,678

46,767

183,445

 

Notes to the Condensed Consolidated Financial Statements

For the year ended 31 December 2018

 

A:     SIGNIFICANT ACCOUNTING POLICIES

A1:    Basis of preparation

 

Old Mutual Limited (the Company) is a company incorporated in South Africa. On 25 June 2018, the Company became

the parent of Old Mutual plc through a share for share exchange, with the Company receiving the entire net asset value

of Old Mutual plc, the original parent company of the Old Mutual Group and its subsidiaries (mainly Old Mutual Emerging

Markets and Nedbank), in exchange for the issue of ordinary shares of the Company to the original shareholders of Old

Mutual plc. This was a reorganisation of the existing Group and, although there was a change in legal ownership, there was

no change in the economic substance of the reporting entity. Therefore the transaction was not a business combination as

defined by IFRS 3 'Business Combinations' and the condensed consolidated financial statements (financial statements) have

consequently been prepared as a continuation of the existing Group.

 

The financial statements for the year ended 31 December 2018 consolidate the results of the Company and its subsidiaries

(together 'the Group') and equity account the Group's interest in associates and joint ventures (other than those held by

investment-linked insurance funds which are accounted for as investments at fair value through profit or loss).

 

The financial statements comprise the condensed consolidated statement of financial position at 31 December 2018,

condensed consolidated income statement, condensed consolidated statement of comprehensive income, condensed

consolidated supplementary income statement, condensed consolidated statement of changes in equity, and condensed

consolidated statement of cash flows for the year ended 31 December 2018 and explanatory notes. The financial statements

have been prepared under the supervision of C.G. Troskie CA(SA) (Chief Financial Officer) on the going concern basis, which

the directors believe is appropriate. The Directors of the Group take full responsibility for the preparation of this report. The

Group's independent auditors KPMG Inc. and Deloitte & Touche reviewed these financial statements and their unmodified

review conclusion is presented on page 56. The auditors' review report does not necessarily report on all of the information

contained in these reviewed preliminary annual results. Shareholders are therefore advised that in order to obtain a full understanding of

the nature of the auditors' engagement they should refer to the auditors' review report on page 56. Any reference to future

financial performance has not been reviewed by or reported on by the Group's auditors.

 

The financial statements are prepared in accordance with the requirements of the JSE Limited Listings Requirements for

preliminary reports and the requirements of the Companies Act No 71 of 2008 of South Africa. The Listings Requirements

require preliminary reports to be prepared in accordance with the framework concepts and the measurement and

recognition requirements of International Financial Reporting Standards (IFRS) and the SAICA Financial Reporting

Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by Financial Reporting

Standards Council and to also, as a minimum, contain the information required by IAS 34 Interim Financial Reporting.

 

The accounting policies applied in the preparation of these financial statements are in terms of IFRS and are consistent with

those applied in the preparation of the Group's 2017 consolidated financial statements, except for standards, amendments

to standards and interpretation adopted in the 2018 condensed consolidated financial statements. Refer to note H for

more information.

 

Details for businesses classified as held for sale and distribution and as discontinued operations are set out in note G5.

 

Comparative information

Comparative information presented at and for the year ended 31 December 2017 within these financial statements has

been correctly extracted from the Group's audited consolidated financial statements for the year ended 31 December 2017

(prior year financial statements), re-presented for businesses classified as discontinued operations during the year ended

31 December 2018, if appropriate, as described in note G5.

 

The prior year financial statements were prepared for the purposes of Group reporting in accordance with IFRS and

consolidate the financial information of Old Mutual plc and its subsidiaries and equity accounts the interest in associated

undertakings and joint ventures (other than those held by investment-linked insurance funds and venture capital divisions

which are accounted for as investments at fair value through profit or loss), after converting it to rand. This is consistent

with the preparation of the Historical Financial Information of Old Mutual plc (HFI) as at and for the three years ended 31

December 2017 that was prepared solely for the inclusion in the Old Mutual Limited Prospectus and Pre Listing Statement

published on 20 April 2018.

 

The accounting policies adopted in the preparation of both the prior year financial statements and the HFI have been

applied consistently to all periods presented.

 

The information presented in the financial statements is equivalent to that presented in the HFI with the exception of the

condensed consolidated statement of changes in equity. In preparation of the Old Mutual Limited financial statements, in accordance

with IFRS, certain components of equity have been re-presented as at 1 January 2015. The Group believes that it is more

appropriate to reflect rand only components of equity at the historical rand rate as opposed to the exchange rate used at

1 January 2015, when converting Old Mutual plc balances from sterling to rand for the purposes of the HFI. The reserves

and related amounts impacted are reductions to the available for sale reserve (R503 million), property revaluation reserve

(R660 million) and share-based payment reserve (R1,001 million), with a corresponding increase of R2,164 million to retained

earnings. Overall, this re-presentation is a transfer between reserves and has no impact on the shareholders equity or non-

controlling interests of the Group.

 

Accounting policy elections

The following significant accounting policy elections have been made by the Group:

 

Area                                                   Details

 

Financial instruments                                  The Group has elected to designate certain financial assets

                                                       and liabilities at fair value through profit and loss to reduce

                                                       the accounting mismatch that would arise otherwise.

                                                       This measurement election is typically utilised in respect

                                                       of financial assets held to support liabilities in respect of

                                                       contracts with policyholders.

                                                       Regular way purchases or sales of financial assets are

                                                       recognised and derecognised using trade date accounting.

 

Investment properties                                  The Group has elected to recognise all investment

                                                       properties at fair value, with changes in fair value being

                                                       recognised in profit or loss.

 

Owner-occupied property                                Owner-occupied property is stated at revalued amounts.

                                                       Revaluation surpluses are recognised through other

                                                       comprehensive income.

 

Investment in venture capital divisions and            In venture capital divisions and investment-linked insurance

investment-linked insurance funds                      funds, the Group has elected to carry associate and joint-

                                                       venture entities at fair value through profit or loss.

 

Investments in subsidiaries, associate companies and   The Group has elected to recognise these investments at

joint ventures                                         cost in the Company financial statements.

 

Foreign currency translation

Foreign currency transactions

 

The presentation currency of the Company and the Group is South African rand (ZAR). Transactions in foreign currencies

are converted into the relevant functional currency at the rate of exchange ruling at the date of the transaction. Monetary

assets and liabilities denominated in foreign currencies are translated into the relevant functional currency at rates of

exchange ruling at the reporting date. Non-monetary assets and liabilities denominated in foreign currencies that are

stated at fair value are translated into the functional currency at foreign exchange rates ruling at the dates the fair values

were determined. Non-monetary assets and liabilities denominated in foreign currencies that are stated at historical cost

are converted into the functional currency at the rate of exchange ruling at the date of the initial recognition of the asset

and liability and are not subsequently retranslated. Exchange gains and losses on the translation and settlement during

the period of foreign currency assets and liabilities are recognised in profit or loss. Exchange differences for non-monetary

items are recognised in the condensed consolidated statement of other comprehensive income when the changes in the fair value of

the non-monetary item are recognised in the condensed consolidated statement of other comprehensive income, and in profit or loss

if the changes in fair value of the non-monetary item are recognised in profit or loss.

 

Changes in functional currency

The functional currency reflects the underlying transactions, events and conditions. As a result, a change in functional

currency is considered a rare event. Changes in functional currency are accounted for prospectively from the date of the

change. Assets and liabilities accounted for in the previous functional currency is translated into the new functional currency

at the spot exchange rate at the date of change. The impact of translating foreign currency balances is recognised in profit

or loss as a foreign exchange gain or loss. The translated amounts of non-monetary assets and liabilities are considered as

the historical cost of these items.

 

Translation of foreign operations into the Group's presentation currency

The assets and liabilities of foreign operations are translated from their respective functional currencies into the Group's

presentation currency, using the year-end exchange rates, and their income and expenses using the average exchange rates

for the year. Cumulative translation gains and losses up to 1 January 2015, being the effective date of the Group's conversion

to IFRS, were reset to zero. Other than in respect of cumulative translation gains and losses up to 1 January 2015, cumulative

unrealised gains or losses resulting from translation of functional currencies to the presentation currency are included as a

separate component of shareholders' equity. To the extent that these gains and losses are effectively hedged, the cumulative

effect of such gains and losses arising on the hedging instruments are also included in that component of shareholders'

equity. Upon the disposal of subsidiaries, the cumulative amount of exchange differences post 1 January 2015, deferred in

shareholders' equity, net of attributable amounts in relation to hedged net investments, is recognised in profit or loss.

 

The exchange rates used to translate the operating results, assets and liabilities of key foreign businesses to rand are:

 

 

2018

2017                    

 

 

Statement

 

Statement  

 

Income

of financial

Income

of financial  

 

statement

position

statement

position (closing  

 

(average rate)

(closing rate)

(average rate)

rate)  

Pound sterling

17.6892

18.2978

17.1493

16.7565  

US dollar

13.2500

14.3467

13.3107

12.3902  

Kenyan shilling

0.1308

0.1410

0.1287

0.1201  

 

 

Change in functional currency of Group entities in Zimbabwe

Entities in Zimbabwe have been operating in a multi-currency regime since the adoption of multiple currencies by

the Zimbabwean Government in 2009. The US dollar and South African rand were initially used the most, however,

over time the US dollar was designated as the functional and presentation currency for our businesses in Zimbabwe

entities. The continued dollar shortages experienced in Zimbabwe has led to the increased use of electronic and

plastic money through the Real Time Gross Settlement (RTGS) system, giving rise to parallel market activities and

multiple pricing mechanisms where bond notes and RTGS balances have been trading at a discount to the official

US dollar exchange rate. The increased reliance on RTGS bank balances, which was introduced as a settlement

mechanism, effectively resulted in RTGS becoming a de facto currency.

 

On 1 October 2018, the Reserve Bank of Zimbabwe (RBZ) directed all banks to ring-fence Nostro foreign currency

accounts (FCAs) by separating them into two categories, namely Nostro FCAs and RTGS FCAs. Authorities maintained

that the US Dollar represented in the RTGS system was at a 1:1 exchange ratio, however, there was growing consensus

amongst market participants that the economic reality was different. In line with industry consensus on the matter,

this event and industry discussion that followed led to a change in functional currency to RTGS for our businesses

operating in Zimbabwe, with effect from 1 October 2018. The vast majority of premiums and fees from our customers

are received and settled in Bond Notes and RTGS.

 

On 20 February 2019 the reserve bank of Zimbabwe announced that the RTGS would be recognised as an official

currency and that an inter-bank foreign exchange market would be established to formalise trading in RTGS

balances with other currencies. For the purposes of 2018 reporting an RTGS US dollar exchange rate of 3.3 to 1 (RTGS

rate) has been estimated. The inputs considered in this estimate include the recent announcement to increase the

fuel price for those settling in RTGS, global relative fuel prices and the official inflation rate. Another observable input

taken into consideration was the premium at which the Old Mutual and PPC shares trade on the Zimbabwe stock

exchange versus The Johannesburg Stock Exchange.

 

The application of the change in functional currency has been applied prospectively in our financial results for the

period. For inclusion in the condensed consolidated income statement and condensed consolidated cash flow statement of the Group. Results for our

businesses have been translated at the average US dollar exchange rate for the period up to 30 September 2018 and

at the estimated RTGS rate for the remaining three months of the financial year. For inclusion in the condensed consolidated statement of

financial position, Zimbabwe results have been translated at the RTGS rate.

 

The table below summarises the exchange rates at which our businesses in Zimbabwe have been translated into

South African rand:

 

 

 

 

 

 

 

 

 

Period

Functional currency

Average rate

Closing rate

 

 

 

 

1 January 2018 to 30 September 2018

US dollar

12.89

n/a

1 October 2018 to 31 December 2018

RTGS

4.321(1)

4.352(2)

 

 

 

 

(1)   Calculated using the average US dollar to rand exchange rate of R14.24 for the period 1 October 2018 to 31 December 2018 divided by the RTGS rate

      of 3.3 to 1 US dollar.

(2)   Calculated using the closing US dollar to rand exchange of R14.35 at 31 December 2018 divided by the RTGS rate of 3.3 to 1 US dollar.

 

The RTGS ratio is sensitive to a number of variables. The sensitivity table below outlines the impact to Adjusted

Headline Earnings, IFRS profit and loss and net asset value for changes in the RTGS rate:

 

 

RTGS:

 

RTGS:  

 

USD

As reported

USD  

Rm

2.5:1

3.3:1

5:1  

Adjusted Headline Earnings

11,754

11,512

11,279  

Profit after tax attributable to equity holders of the parent

36,809

36,566

36,333  

Equity attributable to the equity holders of the parent

78,792

78,021

77,203  

 

Basis of preparation of Adjusted Headline Earnings and Adjusted Headline Earnings per share

Purpose of Adjusted Headline Earnings

Adjusted Headline Earnings (AHE) is an alternative non-IFRS profit measure used alongside IFRS profit to assess performance

of the Group. It is calculated as headline earnings adjusted for items not reflective of the long-term economic performance

of the Group (note B4).

 

AHE is one of the key performance indicators by which operational performance is monitored and managed, and it is one

of a range of measures by which management performance and remuneration is assessed. In addition it is used in setting

the dividend to be paid to shareholders.

 

Due to the complexity introduced into IFRS profit by the transactions required to execute Managed Separation and the long-

term nature of the Group's operating businesses, management considers that AHE is an appropriate alternative basis by

which to assess the operating results of the Group and that it enhances the comparability and understanding of the financial

performance of the Group. AHE utilises headline earnings as defined by SAICA Circular 4/2018 as its base. Adjustments

applied to headline earnings in order to calculate AHE remove the impact of certain IFRS accounting treatments where

the asset treatment under IFRS is inconsistent with the measurement of the related policyholder liability, significant non-

recurring expenses or income specifically related to material acquisitions, disposals or fundamental restructuring (such as

Managed Separation), the results of businesses classified as discontinued operations and the results of Residual plc.

 

The Group Audit Committee regularly reviews the determination of AHE and the use of adjusting items to confirm that

it remains an appropriate basis on which to analyse the operating performance of the Group. The Committee assesses

refinements to the policy on a case-by-case basis, and seeks to minimise such changes in order to maintain consistency

over time.

 

Scope of businesses included in AHE

AHE includes the operating results of the Mass and Foundation Cluster, Personal Finance, Wealth and Investments, Old

Mutual Corporate, Old Mutual Insure, Rest of Africa and Other Group Activities segments. These are considered to be the

core continuing operations of the Group. Residual plc is considered to be non-core as it is not part of the Group's principal

operations due to the fact that it is in the process of winding down. Consequently it is removed from AHE. Refer to note B3

for more information.

 

The results of Nedbank, Quilter, the Latin American businesses, Old Mutual Bermuda and Kotak Mahindra Old Mutual Life

Insurance Limited are currently classified as discontinued operations in the condensed consolidated income statement, and have

therefore been excluded in the determination of AHE to aid comparability between financial years. Refer to notes A2 and G5.

 

A2:     Significant corporate activity and business changes during the year

Transactions during the year required to implement Managed Separation

Reorganisation of the Group structure

The following transactions were effected during the year as part of the execution of Managed Separation:

 

-   On 6 March 2018, Old Mutual Limited was converted to a public company.

 

-   On 22 June 2018, Old Mutual plc reduced the nominal value of its ordinary share capital and cancelled its share

    premium account through the creation of distributable reserves in terms of a UK court sanctioned scheme. As a result,

    R10,079 million and R19,557 million respectively were transferred to retained earnings. On 25 June 2018, Old Mutual plc

    reclassified certain of its existing ordinary shares into 'A-ordinary shares'. These A-ordinary shares were then cancelled

    and an equivalent number of new ordinary shares were issued to Old Mutual Limited, the new parent company of Old

    Mutual plc. On 25 June 2018, the ordinary shares that were not classified as A-ordinary shares were transferred to Old

    Mutual Limited. Following these transactions, Old Mutual plc became a wholly owned subsidiary of Old Mutual Limited.

    Consequently, Old Mutual plc is no longer listed on the London Stock Exchange (LSE), Johannesburg Stock Exchange

    (JSE), Zimbabwe Stock Exchange (ZSE), Namibian Stock Exchange (NSX) or Malawi Stock Exchange (MSE).

 

-   On 25 June 2018, Old Mutual plc announced the closing of the initial public offering of 182.5 million shares, representing

    9.6% of the total issued share capital of Quilter at a price of 2,588 cents (145 pence) per share by way of primary listing

    of Quilter shares on the LSE and secondary listing on the JSE. Total net proceeds arising from this transaction, after

    underwriting and other transaction costs, were R4,206 million. Further, on 25 June 2018, Old Mutual plc distributed

    R42,935 million, representing 86.6% of the total issued share capital of Quilter to the Old Mutual plc shareholders. The

    remaining 3.8% of the total issued share capital of Quilter is held by the Joint Share Ownership Plan (JSOP) Trustee on

    behalf of certain management and staff of Quilter.

 

-   A profit on the demerger of Quilter of R4,023 million has been recognised in profit or loss. This includes foreign currency

    translation gain recycled to profit or loss of R1,352 million. In addition, merger reserves of R19,506 million have been

    transferred to retained earnings.

 

-   Included in the initial public offering of 182.5 million shares, were 16.5 million shares that were subject to an over-allotment

    option. On 26 July 2018, 2.7 million of these shares were partially exercised by underwriters, raising cash proceeds of R66

    million (GBP3.8 million). On 21 August 2018, the remaining 13.8 million shares were sold, raising cash proceeds of R379 million

    (GBP20.5 million).

 

-   On 26 June 2018, Old Mutual Limited listed on the Main Board of the JSE with a standard listing on the LSE and

    secondary listings on the stock exchanges of Malawi, Namibia and Zimbabwe.

 

-   On 15 October 2018, the Group announced the completion of the unbundling of the majority of its shareholding in

    Nedbank Group Limited to its shareholders. Pursuant to the unbundling, each eligible shareholder received 3.21176

    Nedbank shares for every 100 Old Mutual Limited shares held on Friday 12 October 2018. As a consequence of the

    unbundling, the Group's stake in Nedbank's equity decreased from 54% (on an IFRS basis) to an equity accounted

    interest of 19.9% and a policyholder interest of 1.46% at fair value through profit or loss at 15 October 2018. In accordance

    with the criteria set out in IFRS 10 'Consolidated Financial Statements', the Group no longer considered that it exercised

    control over the business from 15 October 2018. This resulted in Nedbank being deconsolidated from the Group financial

    statements and instead being equity accounted for as an associated undertaking. At the point of deconsolidation, the

    residual holding in Nedbank was revalued based on the market value prevailing at that time.

 

On 21 December 2018, an odd lot offer was executed by Nedbank, increasing the Group's shareholding to 20.2%. Due to the

close proximity to year end, the equity accounted earnings attributable to the Group's investment in Nedbank has been

included in the condensed consolidated income statement at an effective rate of 19.9%.

 

The total fair value of the deemed distribution of all Nedbank shares owned by the Group, net of transaction and underwriting

costs was R66,225 million. A profit of R19,152 million was realised as a result of the deemed distribution of Nedbank shares,

comprising the difference between the market value of all shares held by the Group, net of transaction cost (R66,225 million)

and the Group's share of the consolidated net asset value of Nedbank (R47,072 million) on 15 October 2018.

 

The fair value of the deemed distribution at 15 October 2018 comprised:

 

-   The fair value of the portion distributed to Old Mutual Limited shareholders of R38,867 million plus,

 

-   The fair value of the 19.90% retained interest of R24,376 million plus,

 

-   The fair value of the 1.46% policyholder interest of R1,762 million plus,

 

-   Transaction costs and the fair value of shares held by share trusts and investment funds of R1,220 million.

 

Following the Group reorganisation, Old Mutual Limited consists of the Group's operating segments (Mass and Foundation

Cluster, Personal Finance, Old Mutual Corporate, Wealth and Investments, Old Mutual Insure, Rest of Africa and Other Group

Activities), the Group's 20.2% holding in Nedbank and Residual plc.

 

Existing share-based payment arrangements

 

Following Managed Separation and the respective listings of Quilter and Old Mutual Limited, the ordinary shares held

by various employee share schemes of the Old Mutual plc Group have been replaced by the ordinary shares of Quilter,

Nedbank and Old Mutual Limited. The end result of the execution of the schemes was that for every three Old Mutual plc

shares held, employee shareholders received one ordinary share in Quilter and three ordinary shares in Old Mutual Limited.

Following the unbundling of Nedbank, each employee shareholder received 3.21176 Nedbank shares for every 100 Old

Mutual Limited shares held. This resulted in a modification of the underlying share awards as Quilter and Nedbank shares

became unrestricted in the hands of employees, subject to existing share-based payment arrangements of the Old Mutual

plc Group.

 

The distribution of Quilter and Nedbank shares to employee shareholders was a return of capital to shareholders and

therefore employees were no longer subject to any vesting conditions of the existing share-based payment arrangements.

As such it is viewed to be a partial settlement of the award which leads to an accelerated vesting of the IFRS 2 charge as it

relates to the Quilter and Nedbank portions of the original award.

 

The share for share exchange and the distribution of Quilter and Nedbank shares has led to an after tax accelerated

vesting charge of R354 million recognised in the condensed consolidated income statement. This charge has been removed in the

determination of AHE.

 

Disposals announced during the period but not yet completed

 

Disposal of the Latin American businesses

 

On 16 March 2018, the Group announced its agreement to sell the Latin American businesses, comprising OM Latin America

Holdco UK Limited and AIVA Holding Group S.A, to Lily Bermuda Capital Limited (SPV domiciled in Bermuda), owned by

CMIG International Holding Private Limited. The transaction is currently subject to usual regulatory approvals and customary

closing conditions. As at 31 December 2018, the sale of the Latin American businesses remains on track to be completed in

the first half of 2019. The use of proceeds from the sale, expected to be R4,412 million ($307.5 million), will be assessed as

part of the Group's Capital framework, taking into account our solvency capital position and projections at the time.

 

As a consequence of the agreed sale, the Latin American businesses have been classified as held for sale and consequently

as discontinued operations at 31 December 2018. Refer to note G5 for more information.

 

Other activities during the year

 

Lions Head Investments

 

On 23 May 2018, OMP Investment Company Proprietary Limited (OMP Investco), a subsidiary of Old Mutual Real Estate

Holding Company Proprietary Limited (OMREHC) purchased a controlling 60.81% stake in Lions Head Investments (LHI),

a property management company based in Bulgaria. The transaction has been accounted for as a business combination in

accordance with IFRS 3 'Business Combinations'. The purchase price paid for LHI amounted to R226 million (EUR15.5 million).

The net asset value for the stake purchased was R229 million (EUR15.7 million). Consequently a gain on bargain purchase of

R3 million (EUR0.2 million) has been recognised.

 

On 14 June 2018, OMP Investco, through LHI, also purchased 100% of the equity of Portland Trust Developments s.r.l (Portland

A&B/Oregon). The transaction has been accounted for as a business combination in accordance with IFRS 3 'Business

Combinations'. The purchase price paid was R673 million (EUR45.8 million). The net asset value at the date of purchase was

R657 million (EUR44.7 million), resulting in goodwill of R16 million (EUR1.1 million) being recognised.

 

On 20 July 2018, OMP Investco, through LHI, also purchased 100% of the equity of Megapark OOD (Megapark). The transaction

has been accounted for as a business combination in accordance with IFRS 3 'Business Combinations'. The purchase price

paid was R238 million (EUR15.1 million). The net asset value at the date of purchase was R176 million (EUR11.2 million), resulting in

goodwill of R62 million (EUR3.9 million) being recognised.

 

Total investment properties acquired as a result of these transactions amounted to R3,788 million (EUR252.4 million). These

investment properties form part of the Group's long term insurance policyholder investment portfolio, backing linked and

with-profit insurance and investment contracts.

 

A3:    Critical accounting estimates and judgements

 

The preparation of financial statements requires management to make judgements, estimates and assumptions that affect

the application of accounting policies and reported amounts of assets, liabilities, income and expenses. Actual results may

differ from these estimates.

 

The critical accounting estimates and judgements made by management in applying the Group's accounting policies and

the key sources of estimation uncertainty for the year ended 31 December 2018 were the same as those that applied to the

condensed consolidated financial statements of Old Mutual Limited for the year ended 31 December 2017, with the exception of new

critical accounting estimates detailed in note L arising from the changes in accounting policies.

 

In the current and prior years, the Group applied significant judgement in the classification of Nedbank, Quilter, the Latin

American businesses and Old Mutual Bermuda as discontinued operations and the Latin American businesses as assets and

liabilities held for sale and distribution.

 

These classifications did not have any valuation impact on the underlying assets and liabilities. Refer to note G5 for more

information.

 

B:     SEGMENT INFORMATION

 

B1:    Basis of segmentation

 

The execution of Managed Separation, as described in note A1 and note A2, constituted a reorganisation of the

previous Old Mutual plc Group, resulting in the formation of two new groups, Old Mutual Limited and Quilter. The executive

management team of Old Mutual Limited, with the support of the Board, was responsible for the assessment of performance

and the allocation of resources of the continuing business operations during the period under review. The reorganisation

resulted in a change in the composition of the Group's operating segments that is reported to the Chief Operating Decision

Maker (CODM), viewed to be the executive management team of Old Mutual Limited. As such, the new segment structure

has been reflected in the required disclosures in both the current year and comparative information.

 

The Group manages its business through the following operational segments, which are supported by central shareholder

activities and enabling functions.

 

-    Mass and Foundation Cluster: A retail segment that operates in Life and Savings, Banking and Lending. It provides

     simple financial services products to customers in the low-income and lower-middle income markets. These products are

     divided into four categories being (i) risk, including funeral cover, (ii) savings, (iii) lending and (iv) transactional products.

 

-    Personal Finance: A retail segment that operates primarily in Life and Savings. It provides holistic financial advice and

     long-term savings, investment, income and risk products and targets the middle-income market.

 

-    Wealth and Investments: Operates across Life and Savings and Asset Management through four distinct businesses:

     (i) Wealth, a retail segment targeting high income and high net worth individuals, that provides vertically integrated

     advice, investment solutions and funds, and other financial solutions, (ii) Asset Management comprising eight investment

     boutiques that provide asset management services to retirement and benefit funds and to the retail market in partnership

     with Wealth, (iii) Alternatives, an unlisted alternatives investment business, and (iv) Specialised Finance, a proprietary risk

     and investment capability which manages and supports the origination of assets.

 

-    Old Mutual Corporate: Operates in Life and Savings and primarily provides Group risk, investments, annuities and

     consulting services to employee-sponsored retirement and benefit funds.

 

-    Old Mutual Insure: Provides Property and Casualty insurance products through three operational businesses: (i) personal,

     (ii) commercial, and (iii) corporate.

 

-    Rest of Africa: Operates in Life and Savings, Property and Casualty (including health insurance), Banking and Lending

     (including micro-lending) and Asset Management. The segment operates in 12 countries across three regions:

     Southern Africa, East Africa and West Africa.

 

-    Other Group Activities: Comprises the activities related to the management of the Group's capital structure. This

     includes the management of shareholder investment assets including the associated shareholder investment return and

     third-party borrowings including the associated finance costs. Also included are net assets and operations of Residual

     plc and investments in associated undertakings. Subsequent to the Nedbank unbundling, the Group retained a minority

     shareholding of 19.9%, managed as part of Other Group Activities.

 

Presentation and disclosure

 

Results from Operations measures the operational performance of the Group and together with items such as investment

return, finance costs and income from associated undertakings, the Group's profit measure, AHE is derived. AHE by definition

excludes discontinued operations and Residual plc, which do not form part of core continuing businesses of Group, and

certain of the discontinued operations are a function of the reorganisation and the application of predecessor accounting.

 

Nedbank, Quilter, the Latin American businesses, Kotak and Old Mutual Bermuda have been classified as discontinued

operations. In line with IFRS 8 par 28 (b), discontinued operations have been disclosed as a reconciling item between the

segment profit measure and total IFRS profit after tax of the Group.

 

The Group is in the process of a fundamental multi-year transformation of its finance function, transitioning from a legal

entity view to a segment approach to better reflect the balance sheet economics and levers to drive value.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

B2:   Reconciliation of Results from operations to Profit after tax

 

Year ended 31 December 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mass and

 

 

 

 

 

 

Elimination of

Total

 

 

 

Foundation

Personal

Wealth and

Old Mutual

Old Mutual

 

Other Group

intra-segment

continuing

Discontinued

Total  

Rm

Cluster

Finance

Investments

Corporate

Insure

Rest of Africa

Activities

transactions

operations

operations

IFRS  

Results from operations

3,129

2,021

1,611

1,703

670

1,254

(425)

-

9,963

-

9,963  

Shareholder investment return

-

-

-

-

185

1,805

890

-

2,880

-

2,880  

Finance costs

-

-

-

-

(46)

-

(555)

-

(601)

-

(601)  

Income from associated undertakings

-

-

-

-

-

-

2,593

-

2,593

-

2,593  

Adjusted Headline Earnings before tax and non-controlling interests

3,129

2,021

1,611

1,703

809

3,059

2,503

-

14,835

-

14,835  

Shareholder tax

(945)

(547)

(358)

(470)

(208)

(515)

96

-

(2,947)

-

(2,947)  

Non-controlling interests

(150)

1

(1)

-

(34)

(192)

-

-

(376)

-

(376)  

Adjusted Headline Earnings

2,034

1,475

1,252

1,233

567

2,352

2,599

-

11,512

-

11,512  

Investment return adjustment for Group equity and debt instruments held in

 

 

 

 

 

 

 

 

 

 

 

policyholder funds

18

43

18

173

-

-

(471)

-

(219)

-

(219)  

Impact of restructuring

(36)

(58)

(54)

(26)

(70)

(66)

(390)

-

(700)

-

(700)  

Profit from discontinued operations after tax

-

-

-

-

-

-

-

(387)

(387)

8 516

8,129  

Income from associated undertakings - 19.9% of Nedbank

-

-

-

-

-

-

(2,132)

-

(2,132)

-

(2,132)  

Residual plc

-

-

-

-

-

-

(2,349)

-

(2,349)

-

(2,349)  

Headline earnings

2,016

1,460

1,216

1,380

497

2,286

(2,743)

(387)

5,725

8,516

14,241  

Headline earnings adjustments

1

2

(44)

9

(3)

(552)

(254)

(9)

(850)

23,175

22,325  

Profit for the financial year attributable to equity holders

2,017

1,462

1,172

1,389

494

1,734

(2,997)

(396)

4,875

31,691

36,566  

Non-controlling interests

 

 

 

 

 

 

 

 

 

 

 

Ordinary shares

150

(1)

1

-

34

(75)

13

-

122

5,519

5,641  

Preferred securities

-

-

-

-

-

-

-

-

-

501

501  

Profit after tax for the financial year

2,167

1,461

1,173

1,389

528

1,659

(2,984)

(396)

4,997

37,711

42,708  

 

Year ended 31 December 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mass and

 

 

 

 

 

 

Elimination of

Total

 

 

 

Foundation

Personal

Wealth and

Old Mutual

Old Mutual

 

Other Group

intra-segment

continuing

Discontinued

Total

 

Cluster

Finance

Investments

Corporate

Insure

Rest of Africa

Activities

transactions

operations

operations

 IFRS

Results from operations

3,052

3,150

1,490

1,576

524

1,081

(506)

-

10,367

-

10,367  

Shareholder investment return

-

-

-

-

436

3,071

1,413

-

4,920

-

4,920  

Finance costs

-

-

-

-

-

-

(622)

-

(622)

-

(622)  

Income from associated undertakings

-

-

-

-

-

-

2,305

-

2,305

-

2,305  

Adjusted Headline Earnings before tax and non-controlling interests

3,052

3,150

1,490

1,576

960

4,152

2,590

-

16,970

-

16,970  

Shareholder tax

(948)

(880)

(304)

(442)

(213)

(453)

(295)

-

(3,535)

-

(3,535)  

Non-controlling interests

(135)

2

(2)

-

(17)

(344)

8

-

(488)

-

(488)  

Adjusted Headline Earnings

1,969

2,272

1,184

1,134

730

3,355

2,303

-

12,947

-

12,947  

Investment return adjustment for Group equity and debt instruments held in

 

 

 

 

 

 

 

 

 

 

 

policy holder funds

-

-

-

-

-

-

(1,355)

-

(1,355)

-

(1,355)  

Impact of restructuring

-

-

213

-

-

-

(267)

-

(54)

-

(54)  

Profit from discontinued operations after tax

-

-

-

-

-

-

-

(465)

(465)

9,335

8,870  

Income from associated undertakings - 19.9% of Nedbank

-

-

-

-

-

-

(2,346)

-

(2,346)

-

(2,346)  

Residual plc

-

-

-

-

-

-

(4,918)

-

(4,918)

-

(4,918)  

Headline earnings

1,969

2,272

1,397

1,134

730

3,355

(6,583)

(465)

3,809

9,335

13,144  

Headline earnings adjustments

-

-

-

-

(11)

(728)

197

-

(542)

1,517

975  

Dividends from preferred securities

-

-

-

-

-

-

253

-

253

-

253  

Profit for the financial year attributable to equity holders

1,969

2,272

1,397

1,134

719

2,627

(6,133)

(465)

3,520

10,852

14,372  

Non-controlling interests

 

 

 

 

 

 

 

 

 

 

 

Ordinary shares

135

(2)

2

-

17

(122)

(169)

-

(139)

5 541

5 402  

Preferred securities

-

-

-

-

-

-

-

-

-

590

590  

Profit after tax for the financial year

2,104

2,270

1,399

1,134

736

2,505

(6,302)

(465)

3,381

16,983

20,364  

 

B3:    Headline earnings adjusting items

 

Adjusted Headline Earnings (AHE) is the Group's alternative profit measure used by management to assess the performance

of the Group. It is calculated as headline earnings in accordance with JSE Listing Requirements and SAICA circular 04/2018 adjusted for items not

reflective of the long term economic performance of the Group. The adjustments from headline earnings to AHE are

explained below.

 

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

 

Represents the investment returns on policyholder investments in Group equity and debt instruments held by the Group's

policyholder funds. This include investments in the Company's ordinary shares and the subordinated debt and ordinary

shares issued by subsidiaries of the Group. These investment returns are eliminated within the condensed consolidated income

statement in arriving at profit before tax, but are added back in the calculation of AHE. This ensures consistency with the

measurement of the related policyholder liability.

 

(b)    Impact of restructuring

 

Represents the elimination of non-recurring expenses or income related to material acquisitions, disposals or a fundamental

restructuring of the Group (such as Managed Separation). This adjustment would therefore include items such as the costs

or income associated with completed acquisitions or disposals and the release of any acquisition date provisions. These

items are removed from AHE as they are not representative of the operating activity of the Group and by their nature they

are not expected to persist in the long term.

 

(c)    Discontinued operations

 

Represents the removal of the profit after tax associated with discontinued operations. These businesses are not considered

part of the Group's principal operations due to the fact they have been or are in the process of being sold or distributed and

therefore will not form part of the Group going forward. The profit attributable to these businesses is therefore removed

from AHE. For the year ended 31 December 2018 this adjustment includes the profit attributable to Quilter, Nedbank, the

Latin American businesses and Old Mutual Bermuda. For the year ended 31 December 2017, discontinued operations also

includes the profit related to Kotak.

 

(d)    Income from associated undertakings

 

Represents the reversal of any differences between the IFRS accounting treatment in respect of our shareholding in Nedbank

and the treatment applied in AHE. In AHE we account for the headline earnings related to 19.9% of Nedbank. This represents

our effective ownership held in the shareholder funds of Old Mutual Life Assurance Company (South Africa) Limited post the

unbundling transaction which occurred on 15 October 2018. During December 2018 Nedbank completed an odd lot offer

which had the effect of increasing our effective ownership to 20.2%. This will have a marginal positive impact on earnings

reported in the 2019 financial year. In accordance with IFRS, the Nedbank shareholding of approximately 54% held until

the point of the unbundling transaction was classified as held for distribution and our related share of Nedbank's profits

presented as part of the discontinued operations in the condensed consolidated income statement until the point of unbundling. These

earnings are therefore included in the adjustment labelled as discontinued operations. This adjustment ensures that these

earnings are not double counted in the reconciliation. Any difference between our share of Nedbank's headline earnings

reported as part of AHE and the share of associated undertakings profit after tax relating to Nedbank reported in our IFRS

income statement are also adjusted for in this line item.

 

(e)    Residual plc

 

Represents the elimination of the results of businesses or operations classified as non core. In the current and comparative

period this represents the net losses associated with the operations of Residual plc. Residual plc is not considered part of

the Group's principal operations due to the fact that it is in the process of winding down and therefore the associated costs

are removed from AHE. During the year ended 31 December 2018, the loss attributable to the Residual plc of R2,349 million

(2017: R4,918 million) mainly related to transaction costs associated with the finalisation of Managed Separation and costs

incurred in winding down the former Old Mutual plc head office operations.

 

C:     OTHER KEY PERFORMANCE INFORMATION

 

C1:    Earnings and earnings per share

 

 

 

 

 

Cents

Source of guidance

Notes

2018

2017  

Basic earnings per share

IFRS

C1(a)

788.1

304.7  

Diluted earnings per share

IFRS

C1(b)

778.1

297.5  

Headline earnings per share

JSE Listings Requirements

 

 

 

 

SAICA cicular 04/2018

C1(c)

306.9

283.7  

Diluted headline earnings per share

JSE Listings Requirements

 

 

 

 

SAICA cicular 04/2018

C1(c)

301.7

276.8  

 

 

 

 

 

(a)    Basic earnings per share

 

Basic earnings per share is calculated by dividing the profit for the financial year attributable to ordinary equity shareholders

of the parent by the weighted average number of ordinary shares in issue during the year excluding own shares held in

policyholder funds, Employee Share Ownership Plan Trusts (ESOP) and Black Economic Empowerment trusts. These shares

are regarded as treasury shares.

 

The table below reconciles the profit attributable to equity holders of the parent to profit attributable to ordinary equity

holders:

 

 

 

 

 

 

 

2017  

Rm

Notes

2018

(Re-presented)(1)  

Profit for the financial year attributable to equity holders of the parent

 

 

 

from continuing operations

 

4,875

3,520  

Profit for the financial year attributable to equity holders of the parent

 

 

 

from discontinued operations

 

31,691

10,852  

Profit for the financial year attributable to equity holders of the

 

 

 

parent

 

36,566

14,372  

Dividends paid to holders of perpetual preferred callable securities, net of

 

 

 

tax credits

 

-

(253)  

Profit attributable to ordinary equity holders

 

36,566

14,119  

 

(1) The year ended 31 December 2017 have been re-presented to reflect the Latin American businesses, Kotak and Old Mutual Bermuda as discontinued operations.

    Refer to notes A2 and G5 for more information.

 

Dividends paid to holders of perpetual preferred callable securities of R253 million for the year ended 31 December 2017

are stated net of tax credits of R6 million. All of the outstanding perpetual preferred callable securities were redeemed on

3 February 2017.

 

The table below summarises the calculation of the weighted average number of ordinary shares for the purposes of

calculating basic earnings per share:

 

Millions

2018

2017  

Weighted average number of ordinary shares in issue

4,938

4,931  

Shares held in charitable foundations and trusts

(19)

(21)  

Shares held in ESOP and similar trusts

(104)

(134)  

Shares held in policyholder and consolidated investment funds

(173)

(141)  

Shares held in Black Economic Empowerment trusts

(2)

(2)  

Weighted average number of ordinary shares used to calculate basic earnings

 

 

per share

4,640

4,633  

Basic earnings per ordinary share (cents)

788.1

304.7  

 

(b)    Diluted earnings per share

 

Diluted earnings per share recognises the dilutive impact of shares and options held in ESOP and similar trusts and Black

Economic Empowerment trusts, to the extent they have value, in the calculation of the weighted average number of shares,

as if the relevant shares were in issue for the full year.

 

The table below reconciles the profit attributable to ordinary equity holders to diluted profit attributable to ordinary equity

holders and summarises the calculation of weighted average number of shares for the purpose of calculating diluted basic

earnings per share:

 

 

Notes

2018

2017  

Profit attributable to ordinary equity holders (Rm)

 

36,566

14,119  

Dilution effect on profit relating to share options issued by subsidiaries (Rm)

 

(98)

(120)  

Diluted profit attributable to ordinary equity holders (Rm)

 

36,468

13,999  

Weighted average number of ordinary shares (millions)

C1(a)

4,640

4,633  

Adjustments for share options held by ESOP and similar trusts (millions)

 

45

70  

Adjustments for shares held in Black Economic Empowerment trusts

 

 

 

(millions)

 

2

2  

Weighted average number of ordinary shares used to calculate diluted

 

 

 

earnings per share (millions)

 

4,687

4,705  

Diluted earnings per ordinary share (cents)

 

778.1

297.5  

 

(c)    Headline earnings per share

 

The Group is required to calculate headline earnings per share (HEPS) in accordance with the Johannesburg Stock

Exchange (JSE) Listing Requirements, determined by reference to the South African Institute of Chartered Accountants'

circular 04/2018 'Headline Earnings'. The table below sets out a reconciliation of basic EPS and HEPS in accordance with that

circular. Disclosure of HEPS is not a requirement of IFRS, but it is a commonly used measure of earnings in South Africa. The

table below reconciles the profit for the financial year attributable to equity holders of the parent to headline earnings and

summarises the calculation of basic HEPS:

 

 

 

                                                                                              2018

2017

 

 

 

Net of tax

 

Net of tax  

 

 

 

and non-

 

and non-  

 

 

 

controlling

 

controlling  

Rm

 

Gross

interests

Gross

interests  

Profit for the financial period attributable to

 

 

 

 

 

equity holders of the parent

 

 

36,566

 

14,372  

Dividends paid to holders of perpetual preferred

 

 

 

 

 

callable securities

 

 

-

 

(253)  

Profit attributable to ordinary equity holders

 

 

36,566

 

14,119  

Adjustments:

 

 

-

 

-  

Impairments of goodwill and other intangible

 

 

 

 

 

assets, property, plant, equipment and

 

 

 

 

 

associated undertakings (IAS36)

 

1,196

892

1,667

1,080  

(Profit)/loss on disposal of property and

 

 

 

 

 

equipment (IAS16)

 

(103)

(51)

42

26  

Profit on disposal of subsidiaries, associated

 

 

 

 

 

undertakings and joint ventures (IFRS3)(1)

 

(23,173)

(23,166)

(2,151)

(2,081)  

Total adjustments

 

(22,080)

(22,325)

(442)

(975)  

Headline earnings

 

 

14,241

 

13,144  

Dilution effect on earnings relating to share options

 

 

 

 

 

issued by subsidiaries

 

 

(98)

 

(120)  

Diluted headline earnings (Rm)

 

 

14,143

 

13,024  

Weighted average number of ordinary shares

 

 

 

 

 

(millions)

C1(a)

 

4,640

 

4,633  

Diluted weighted average number of ordinary

 

 

 

 

 

shares (millions)

C1(b)

 

4,687

 

4,705  

Headline earnings per share (cents)

 

 

306.9

 

283.7  

Diluted headline earnings per share (cents)

 

 

301.7

 

276.8

 

(1) Profit on disposal of subsidiaries, associated undertakings and joint ventures of R23,173 million comprises profit on disposal of

    discontinued operations of R23,175 million (note G1) and a loss on disposal of immaterial investments and associated undertakings of R2 million.

 

C2:    Net asset value per share and tangible net asset value per share

 

Net asset value per share is calculated as total assets minus total liabilities divided by the total number of ordinary shares

in issue at year end.

 

Net tangible asset value per share is calculated as total assets minus goodwill and other intangible assets minus total

liabilities divided by the total number of shares in issue at year end.

 

 

Rand

2018

2017  

Net asset value per share

16.5

37.2  

Net tangible asset value per share

15.3

35.8  

 

 

 

 

 

 

 

C3: Dividends

 

 

 

 

Ordinary

 

 

 

dividend

 

 

Rm

payment date

2018

2017  

2016 Second interim dividend paid

 

 

 

- 3.39p (53.55c) per 11 3/7p share

28 April 2017

-

2,549  

2017 Interim dividend paid

 

 

 

- 3.53p (65.35c) per 11 3/7p share

31 October 2017

-

3,118  

2017 Second interim dividend paid

 

 

 

- 3.57p (66.50c) per 11 3/7p share

30 April 2018

3,113

-  

2018 Interim dividend and special dividend paid

 

 

 

- 45.00c and 100c per share respectively

16 October 2018

6,852

-  

Dividends to ordinary equity holders

 

9,965

5,667  

Dividends paid to holders of perpetual preferred callable securities

 

-

259  

Dividend payments for the period

 

9,965

5,926  

 

The total dividend paid to ordinary equity holders is calculated using the number of shares in issue at the record date less

own shares held in ESOP trusts, life funds of Group entities, Black Economic Empowerment trusts and related undertakings.

 

As a consequence of the exchange control arrangements in place in certain African territories, dividends to ordinary equity

holders on the branch registers of those countries (or, in the case of Namibia, the Namibian section of the principal register)

are settled through Dividend Access Trusts established for that purpose.

 

The Directors have declared a final dividend of 72 cents per ordinary share. These dividends will be paid on 29 April 2019 to

shareholders on the South African register and Malawi, Namibia and Zimbabwe branch registers at the close of business on

29 April 2019 and to shareholders on the UK register at the close of business on 29 March 2019.

 

On 3 February 2017, all of the Group's outstanding perpetual preferred callable securities were redeemed. At this date a final

dividend payment of R259 million was made to the holders of the securities.

 

D:     OTHER OPERATING AND ADMINISTRATIVE EXPENSES

 

D1:    Analysis of managed other operating and administrative expense base

 

The table below provides an analysis of the underlying operating and administrative expense base:

 

 

 

 

 

2017  

Rm

2018

(Re-presented)(1)  

Total other operating and administrative expenses

25,845

25,052  

Perimeter adjustments

 

 

Residual plc and Old Mutual Bermuda

(2,459)

(2,551)  

Consolidation of funds

(1,119)

(515)  

Elimination of transactions with discontinued operations

176

350  

Expenses excluded from cost base

 

 

Amortisation of acquired intangible assets

(41)

(252)  

Impairment of goodwill and other intangible assets

(1,154)

(1,202)  

Restructuring costs including one-off business standalone costs

(663)

(237)  

Operational finance costs

(1,269)

(1,096)  

Investment management expenses

(1,949)

(2,173)  

Managed operating and administrative expense base

17,367

17,376  

 

(1) The year ended 31 December 2017 has been re-presented to reflect the Latin American businesses, Kotak and Old Mutual Bermuda as discontinued operations.

    Refer to notes A2 and G5 for more information.

 

E:   FINANCIAL ASSETS AND LIABILITIES

 

Accounting policy

 

Classification and measurement of financial assets and financial liabilities

 

IFRS 9: 'Financial Instruments' replaces the provisions of IAS 39: 'Financial instruments': Recognition and measurement'

that relate to the recognition, classification and measurement of financial instruments, impairment of financial

assets and hedge accounting.

 

The adoption of IFRS 9 from 1 January 2018 resulted in changes in accounting policies and adjustments to the

amounts recognised in the financial statements. The new accounting policies effective from 1 January 2018 are set

out below.

 

Initial recognition of financial assets

 

On initial recognition, a financial asset is classified as measured at:

 

-   Amortised cost;

 

-   Fair Value through Other Comprehensive Income (FVOCI) which may include debt or equity instruments; or

 

-   Fair Value through Profit and Loss (FVTPL).

 

The classification of financial assets under IFRS 9 is based on whether the financial assets are equity instruments,

debt instruments held or derivative assets. The classification and measurement of debt instruments is dependent on

the business model in which the financial asset is managed and its contractual cash flow characteristics.

 

The business model refers to how the Group is managing its financial instruments to generate cash flows. Business

model assessments are performed on shareholder and policyholder portfolios and consider investment mandates,

how the portfolios are being managed to generate cash flows and performance indicators. The Group first assess the

business model before considering whether an instrument meets the definition of the contractual cash flow test.

Only if the financial instruments are held in a business model to collect contractual cash flows or a business model

whose objective is achieved by both collecting contractual cash flows and selling financial assets, the cash flows

characteristics test is performed.

 

Equity instruments and derivative assets are mandatorily categorised as financial assets at FVTPL. Derivatives

embedded in contracts where the host is a financial asset in the scope of the standard are not accounted for

separately. Instead, the hybrid financial instrument as a whole is assessed for classification.

 

A debt instrument is classified as a financial asset at amortised cost if it meets both of the following conditions (and

is not designated as at FVTPL):

 

-   it is held within a business model where the objective is to hold assets to collect contractual cash flows; and

 

-   its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest

    on the principal amount outstanding.

 

Financial assets held in a 'hold to collect contractual cash flows business model' are managed to realise cash flows

by collecting contractual payments over the life of the instrument.

 

A debt instrument is measured at FVOCI if it meets both of the following conditions (and is not designated as at

FVTPL):

 

-   it is held within a business model where the objective is achieved by both collecting contractual cash flows and

    selling financial assets; and

 

-   its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest

    on the principal amount outstanding.

 

Financial assets held in this type of business model are managed to realise cash flows by both collecting contractual

cash flows and selling the financial instrument. Both these activities are fundamental to achieving the objective of

the business model.

 

On initial recognition of an equity instrument that is not held for trading, the instrument may be irrevocably

designated at FVOCI. In such an instance changes in the equity instrument's fair value are recorded in other

comprehensive income (OCI). This election is made on an investment-by-investment basis.

 

All debt instrument financial assets that were not classified as measured at amortised cost or FVOCI are measured at

FVTPL. On initial recognition, the Group may irrevocably designate a debt instrument financial asset that otherwise

meets the requirements to be measured at amortised cost or at FVOCI at FVTPL if doing so eliminates or significantly

reduces an accounting mismatch that would otherwise arise.

 

Transaction costs that are directly attributable to the acquisition of financial assets are expensed in profit or loss for

financial assets initially classified at FVTPL. For financial assets not classified at FVTPL, transaction costs are added to

or deducted from the fair value at initial recognition.

 

Subsequent measurement of financial assets

 

The following accounting policies apply to the subsequent measurement of financial assets.

 

 Financial assets at FVTPL                          These assets are subsequently measured at fair value. Net fair value

                                                    gains and losses, including any interest or dividend income, are

                                                    recognised in profit or loss.

 

 Financial assets at amortised cost                 These assets are subsequently measured at amortised cost using

                                                    the effective interest method. The amortised cost is reduced by

                                                    expected credit losses. Interest income, foreign exchange gains

                                                    and losses and impairment losses are recognised in profit or loss.

                                                    Any gain or loss on derecognition is recognised in profit or loss.

 

 Debt investments at FVOCI                          These assets are subsequently measured at fair value. Interest

                                                    income calculated using the effective interest method, foreign

                                                    exchange gains and losses and impairment are recognised in

                                                    profit or loss. Fair value gains and losses are recognised in OCI. On

                                                    derecognition, gains and losses accumulated in OCI are reclassified

                                                    to profit or loss.

 

 Equity investments at FVOCI                        These assets are subsequently measured at fair value. Dividends

                                                    are recognised as income in profit or loss unless the dividend

                                                    clearly represents a recovery of part of the cost of the investment.

                                                    Other net gains and losses are recognised in OCI and are never

                                                    reclassified to profit or loss.

 

Under IAS 39 the classification and measurement of financial assets were based on definitions set out in the

standard. By comparison the classification and measurement principles in IFRS 9 aim to result in accounting

treatment that mirrors how the financial assets are applied within the Group. Held to Maturity Financial Assets and

Available for Sale Financial Assets were not included in IFRS 9.

 

Initial recognition of financial liabilities

 

IFRS 9 largely retains the requirements in IAS 39 for the classification and measurement of financial liabilities. On

initial recognition financial liabilities are measured at fair value plus or minus, in the case of financial liabilities not

classified at FVTPL, transaction costs that are incremental and directly attributable to the issue of the financial

liability. Transaction costs of financial liabilities carried at FVTPL are expensed in profit or loss.

 

Subsequent measurement of financial liabilities

Fair value movements attributable to changes in the credit risk of a financial liability designated at FVTPL is recorded

in other comprehensive income and not recycled to profit or loss. The balance of the fair value movement is

recorded in profit or loss. Allocating fair value changes on these financial liabilities between profit or loss and other

comprehensive income was not required by IAS 39.

 

 Financial liabilities at amortised cost            These liabilities are subsequently measured at amortised cost

                                                    using the effective interest method. Interest expense and foreign

                                                    currency exchange gains and losses are recognised in profit or loss.

                                                    Any gain or loss on derecognition is recognised in profit or loss.

 

 Financial liabilities at fair value through        These liabilities are subsequently measured at fair value. Net

 profit or loss                                     fair value gains and losses, including any interest expense are

                                                    recognised in profit or loss.

 

 Financial guarantee contracts                      Financial guarantee contracts are subsequently measured at the

                                                    higher of the expected credit loss allowance and the amount

                                                    initially recognised, less cumulative income recognised to date.

Expected credit losses

 

The expected credit loss (ECL) model applies to financial assets measured at amortised cost (for example mandatory

reserve deposits with central banks, loans and advances, trade and other receivables, cash and cash equivalents and

debt securities held by the Group) and debt investments measured at FVOCI.

 

The ECL impairment loss allowance is an unbiased, probability-weighted amount determined by evaluating a range

of possible outcomes that reflects reasonable and supportable information that is available without undue cost or

effort of past events, current conditions and forecasts of forward-looking economic conditions.

 

The Group has elected to apply the IFRS 9 simplified approach in measuring expected credit losses for all trade

receivables, contract assets and lease receivables. In terms of the simplified approach the ECL provision is calculated

using lifetime expected credit losses. The Group made use of the provision matrix to calculate the lifetime expected

loss allowance.

 

The Group elected to make use of the low credit risk exemption and consequently financial assets that are deemed

of low credit risk are automatically allocated to stage 1 of the expected credit loss model. The consequence of this

simplification is that entities are not required to assess whether a significant increase in credit risk since origination

took place on these assets. At every reporting date the Group assesses whether the low credit risk exemption can

still be applied to the relevant financial instruments. A financial instrument is considered to qualify for the low credit

risk exemption if it has a credit rating equivalent to 'investment grade' quality assets.

 

ECLs are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the

Group in accordance with the contract and the cash flows that the Group expects to receive). ECLs are discounted

at the effective interest rate of the financial asset.

 

For presentation the ECL allowances are deducted from the gross carrying amount of the assets. ECLs are presented

separately in the condensed consolidated income statement.

 

In terms of IAS 39 impairment losses were calculated based on the incurred loss model. The incurred loss model considered

current and historical information to determine whether a loss has been incurred and to measure the impairment loss.

In comparison IFRS 9 places emphasis on the use of forward-looking information. The expected credit loss model should

result in impairment losses being recognised earlier when compared to the incurred loss model.

 

The analysis of financial assets and liabilities of the Group's continuing businesses into their categories as defined in

IFRS 9 'Financial Instruments' is set out in the tables below. Assets and liabilities of a non-financial nature, or financial

assets and liabilities that are specifically excluded from the scope of IFRS 9, are reflected in the non-financial assets

and liabilities category. The Group has taken advantage of the exemption in paragraph 7.2.15 of IFRS 9 from restating

prior periods in respect of IFRS 9's classification and measurement (including impairment) requirements.

 

E1:    Categories of financial instruments

 

The analysis of financial assets and liabilities of the Group's continuing businesses into their categories as defined in IFRS 9

'Financial Instruments' is set out in the tables below. Assets and liabilities of a non-financial nature, or financial assets and

liabilities that are specifically excluded from the scope of IFRS 9, are reflected in the non-financial assets and liabilities

category. The Group has taken advantage of the exemption in paragraph 7.2.15 of IFRS 9 from restating prior periods in

respect of IFRS 9's classification and measurement (including impairment) requirements.

 

Information about the methods and assumptions used in determining fair value is included in note E2.

 

The following tables analyse financial assets and liabilities in accordance with the categories of financial instruments as

defined by IFRS 9 at 31 December 2018 and as defined by IAS 39 at 31 December 2017. Assets and liabilities outside the scope

of these standards are shown within non-financial assets liabilities.

 

 

 

 

 

 

 

 

At 31 December 2018

 

 

 

 

 

 

 

 

 

 

 

Fair value

 

Non-financial  

 

 

through

 

assets and  

Rm

Total

profit or loss

Amortised cost

liabilities  

Assets

 

 

 

 

Mandatory reserve deposits with central banks

145

-

145

-  

Investments in associated undertakings and

 

 

 

 

joint ventures(1)

26,679

-

-

26,679  

Reinsurers' share of policyholder liabilities

7,902

3,007

27

4,868  

Loans and advances

21,243

-

21,243

-  

Investments and securities

708,050

703,399

4,651

-  

Trade, other receivables and other assets

18,315

-

13,541

4,774  

Derivative financial instruments

2,779

2,779

-

-  

Cash and cash equivalents

32,339

-

32,339

-  

Total assets that include financial instruments

817,452

709,185

71,946

36,321  

Assets held for sale and distribution

12,787

-

-

12,787  

Total other non-financial assets

51,376

-

-

51,376  

Total assets

881,615

709,185

71,946

100,484  

Liabilities

 

 

 

 

Life insurance contract liabilities

143,926

-

-

143,926  

Investment contract liabilities with discretionary

 

 

 

 

participating features

188,355

-

-

188,355  

Investment contract liabilities

287,774

286,710

1,064

-  

Third-party interest in consolidated funds

77,445

77,445

-

-  

Borrowed funds

16,888

6,581

10,307

-  

Trade, other payables and other liabilities

47,737

-

41,712

6,025  

Amounts owed to bank depositors

7,213

-

7,213

-  

Derivative financial instruments

5,327

5,327

-

-  

Total liabilities that include financial instruments

774,665

376,063

60,296

338,306  

Liabilities held for sale and distribution

8,716

-

-

8,716  

Total other non-financial liabilities

16,814

-

-

16,814  

Total liabilities

800,195

376,063

60,296

363,836  

 

(1) Investments in associated undertakings and joint ventures classified as non-financial assets and liabilities are equity accounted.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 31 December 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value (note E3)

        Amortised cost

 

 

 

 

 

Available-

 

Financial

Non-  

 

 

 

 

for-sale

 

liabilities

financial  

 

 

Held-for-

 

financial

Loans and

amortised

assets and  

Rm

Total

trading

Designated

assets

receivables

cost

liabilities  

Assets

 

 

 

 

 

 

 

Mandatory reserve deposits

 

 

 

 

 

 

 

with central banks

94

-

-

-

94

-

-  

Investments in associated

 

 

 

 

 

 

 

undertakings and joint

 

 

 

 

 

 

 

ventures(1)

1,789

-

-

-

-

-

1,789  

Reinsurers' share of

 

 

 

 

 

 

 

policyholder liabilities

4,220

-

-

-

25

-

4,195  

Loans and advances

21,483

-

-

-

21,483

-

-  

Investments and securities

722,249

-

721,328

921

-

-

-  

Trade, other receivables and

 

 

 

 

 

 

 

other assets

21,875

-

-

-

20,675

-

1,200  

Derivative financial instruments

4,101

4,101

-

-

-

-

-  

Cash and cash equivalents

30,761

-

-

-

30,761

-

-  

Total assets that include

 

 

 

 

 

 

 

financial instruments

806,572

4,101

721,328

921

73,038

-

7,184  

Assets held for sale and

 

 

 

 

 

 

 

distribution

2,188,443

-

-

-

-

-

2,188,443  

Total other non-financial assets

51,871

-

-

-

-

-

51,871  

Total assets

3,046,886

4,101

721,328

921

73,038

-

2,247,498  

Liabilities

 

 

 

 

 

 

 

Life insurance contract

 

 

 

 

 

 

 

liabilities

159,514

-

-

-

-

-

159,514  

Investment contract liabilities

 

 

 

 

 

 

 

with discretionary participating

 

 

 

 

 

 

 

features

193,425

-

-

-

-

-

193,425  

Investment contract liabilities

288,164

-

288,164

-

-

-

-  

Borrowed funds

18,866

-

13,191

-

-

5,675

-  

Third-party interest in

 

 

 

 

 

 

 

consolidated funds

81,573

-

81,573

-

-

-

-  

Trade, other payables and other

 

 

 

 

 

 

 

liabilities

42,355

-

2,039

-

-

30,437

9,879  

Amounts owed to bank

 

 

 

 

 

 

 

depositors

12,440

-

-

-

-

12,440

-  

Derivative financial instruments

4,498

4,498

-

-

-

-

-  

Total liabilities that include

 

 

 

 

 

 

 

financial instruments

800,835

4,498

384,967

-

-

48,552

362,818  

Liabilities held for sale and

 

 

 

 

 

 

 

distribution

2,043,759

-

-

-

-

-

2,043,759  

Total other non-financial

 

 

 

 

 

 

 

liabilities

18,847

-

-

-

-

-

18,847  

Total liabilities

2,863,441

4,498

384,967

-

-

48,552

2,425,424  

 

(1)  Investments in associated undertakings and joint ventures classified as non-financial assets and liabilities are equity accounted.

 

E2:    Fair values of financial assets and liabilities

 

The description of the determination of fair value and the fair value hierarchies of financial assets and liabilities described in

this section applies to financial assets and liabilities for all the Group's businesses.

 

(a)    Determination of fair value

 

The best evidence of fair value is a quoted price in an active market. In the event that the market for a financial asset or

liability is not active, or quoted prices cannot be obtained without undue effort, another valuation technique is used.

 

In general, the following inputs are taken into account when evaluating the fair value of financial instruments:

 

-     Assessing whether instruments are trading with sufficient frequency and volume, that they can be considered liquid.

 

-     The inclusion of a measure of the counterparties' non-performance risk in the fair-value measurement of loans and

      advances, which involves the modelling of dynamic credit spreads.

 

-     The inclusion of credit valuation adjustment and debit valuation adjustment in the fair-value measurement of derivative

      instruments.

 

-     The inclusion of own credit risk in the calculation of the fair value of financial liabilities.

 

There have been no significant changes in the valuation techniques applied when valuing financial instruments. The general

principles applied to those instruments measured at fair value are outlined below:

 

Reinsurers' share of policyholder liabilities

 

Reinsurers' share of policyholder liabilities are measured on a basis that is consistent with the measurement of the provisions

held in respect of the related insurance contracts. Reinsurance contracts which cover financial risk are measured at fair value

of the underlying assets.

 

Loans and advances

 

Loans and advances include mortgage loans, other asset-based loans, including collateralised debt obligations, and other

secured and unsecured loans.

 

In the absence of an observable market for these instruments, the fair value is determined by using internally developed

models that are specific to the instrument and that incorporate all available observable inputs. These models involve

discounting the contractual cash flows by using a credit-adjusted zero-coupon rate.

 

Investments and securities

 

Investments and securities include government and government-guaranteed securities, listed and unlisted debt securities,

preference shares and debentures, listed and unlisted equity securities, listed and unlisted pooled investments (see below),

short-term funds and securities treated as investments, and certain other securities.

 

Pooled investments represent the Group's holdings of shares/units in open-ended investment companies, unit trusts, mutual

funds and similar investment vehicles. Pooled investments are recognised at fair value. The fair values of pooled investments

are based on widely published prices that are regularly updated or models based on the market prices of investments held

in the underlying pooled investment funds.

 

Other investments and securities that are recognised at fair value are measured at observable market prices where available.

In the absence of observable market prices, these investments and securities are fair valued utilising one or more of the

following techniques: discounted cash flows, the application of an EBITDA multiple or any other relevant technique.

 

Investments in associated undertakings and joint ventures held by investment-linked insurance funds and

venture capital divisions

 

Investments in associated undertakings and joint ventures are valued using appropriate valuation techniques. These

techniques may include price earnings multiples, discounted cash flows or the adjusted value of similar completed

transactions.

 

Derivative financial instruments

 

The fair value of derivatives is determined with reference to the exchange traded prices of the specific instruments. In

situations where the derivatives are traded over the counter the fair value of the instruments is determined by the utilisation

of option pricing models.

 

Investment contract liabilities

 

The fair value of the investment contract liabilities is determined with reference to the fair value of the underlying funds that

are held by the Group.

 

Third-party interests in consolidation of funds

 

Third-party interests in consolidation of funds are measured at the attributable net asset value of each fund.

 

Amounts owed to bank depositors

 

The fair values of amounts owed to bank depositors correspond with the carrying amount shown in the condensed consolidated

statement of financial position, which generally reflects the amount payable on demand.

 

Borrowed funds

 

The fair values of amounts included in borrowed funds are based on quoted market prices at the reporting date where

applicable, or by reference to quoted prices of similar instruments.

 

Other financial assets and liabilities

 

The fair values of other financial assets and liabilities (comprising cash and cash equivalents; cash with central banks; trade,

other receivables and other assets; and trade, other payables and other liabilities) reasonably approximate their carrying

amounts as included in the condensed consolidated statement of financial position as they are short-term in nature or re-priced to

current market rates frequently.

 

(b)    Fair value hierarchy

 

Fair values are determined according to the following hierarchy.

 

 

 Description of hierarchy                                    Types of instruments classified in the respective levels

 

 Level 1 - quoted market prices: financial assets and        Listed equity securities, listed government securities and other

 liabilities with quoted prices for identical instruments    listed debt securities and similar instruments that are actively

 in active markets.                                          traded, actively traded pooled investments, certain quoted

                                                             derivative assets and liabilities, listed borrowed funds, reinsurers'

                                                             share of policyholder liabilities and investment contract

                                                             liabilities directly linked to other Level 1 financial assets.

 

 Level 2 - valuation techniques using observable inputs:     Unlisted equity and debt securities where the valuation is

 financial assets and liabilities with quoted prices for     based on models involving no significant unobservable data,

 similar instruments in active markets or quoted prices      with a majority determined with reference to observable prices.

 for identical or similar instruments in inactive markets

 and financial assets and liabilities valued using models    Certain loans and advances, certain privately placed debt

 where all significant inputs are observable.                instruments, third-party interests in consolidated funds and

                                                             amounts owed to bank depositors.

 

 Level 3 - valuation techniques using significant            Unlisted equity and securities with significant unobservable

 unobservable inputs: financial assets and liabilities       inputs, securities where the market is not considered

 valued using valuation techniques where one or more         sufficiently active, including certain inactive pooled investments,

 significant inputs are unobservable.                        and derivatives embedded in certain portfolios of insurance

                                                             contracts where the derivative is not closely related to the host

                                                             contract and the valuation contains significant unobservable

                                                             inputs.

 

The judgement as to whether a market is active may include, for example, consideration of factors such as the magnitude

and frequency of trading activity, the availability of prices and the size of bid/offer spreads. In inactive markets, obtaining

assurance that the transaction price provides evidence of fair value or determining the adjustments to transaction prices

that are necessary to measure the fair value of the asset or liability requires additional work during the valuation process.

All businesses have significant processes in place to perform reviews of the appropriateness of the valuation of Level 3

instruments.

 

The majority of valuation techniques employ only observable data and so the reliability of the fair value measurement is

high. However, certain financial assets and liabilities are valued on the basis of valuation techniques that feature one or more

significant inputs that are unobservable and, for them, the derivation of fair value is more judgemental. A financial asset or

liability in its entirety is classified as valued using significant unobservable inputs if a significant proportion of that asset or

liability's carrying amount is driven by unobservable inputs.

 

In this context, 'unobservable' means that there is little or no current market data available for which to determine the

price at which an arm's length transaction would be likely to occur. It generally does not mean that there is no market

data available at all upon which to base a determination of fair value. Furthermore, in some cases the majority of the fair

value derived from a valuation technique with significant unobservable data may be attributable to observable inputs.

Consequently, the effect of uncertainty in determining unobservable inputs will generally be restricted to uncertainty about

the overall fair value of the asset or liability being measured.

 

(c)    Transfer between fair value hierarchies

 

The Group deems a transfer to have occurred between Level 1 and Level 2 when an active, traded primary market ceases to

exist for that financial instrument. A transfer between Level 2 and Level 3 occurs when the majority of the significant inputs

used to determine fair value of the instrument become unobservable.

 

E3:    Disclosure of financial assets and liabilities measured at fair value

 

(a)    Financial assets and liabilities measured at fair value, classified according to fair value hierarchy

 

The table below presents a summary of the financial assets and liabilities of the Group's continuing businesses that are

measured at fair value in the consolidated statement of financial position according to their IFRS 9 classification, as set out

in note E1.

 

At 31 December 2018

 

 

 

 

 

 

 

 

 

Rm

Total

Level 1

Level 2

Level 3  

Financial assets measured at fair value

 

 

 

 

Reinsurers' share of policyholder liabilities

3,007

3,007

-

-  

Investments and securities

703,399

386,316

286,664

30,419  

Derivative financial instruments - assets

2,779

-

2,779

-  

Total financial assets measured at fair value

709,185

389,323

289,443

30,419  

Financial liabilities measured at fair value

 

 

 

 

Investment contract liabilities(1)

286,710

-

286,710

-  

Third-party interests in consolidated funds

77,445

-

77,445

-  

Borrowed funds

6 581

-

6 581

-  

Derivative financial instruments - liabilities

5,327

-

5,327

-  

Total financial liabilities measured at fair value

376,063

-

376,063

-  

 

(1) Investment contract liabilities amount excludes R188 355 million discretionary participating investment contracts. These contracts are classified as non-financial

    liabilities and are not analysed according to their fair value hierarchy as permitted by IFRS 7 'Financial Instruments: Disclosures'.

 

 

 

 

 

At 31 December 2017

 

 

 

 

 

 

 

 

 

Rm

Total

Level 1

Level 2

Level 3  

Financial assets measured at fair value

 

 

 

 

Held-for-trading (fair value through profit or loss)

4,101

-

4,072

29  

Derivative financial instruments - assets

4,101

-

4,072

29  

Designated (fair value through profit or loss)

721,328

439,007

261,924

20,397  

Investments and securities

721,328

439,007

261,924

20,397  

Available-for-sale financial assets (fair value through other

 

 

 

 

comprehensive income)

921

921

-

-  

Investments and securities

921

921

-

-  

Total financial assets measured at fair value

726,350

439,928

265,996

20,426  

Financial liabilities measured at fair value

 

 

 

 

Held-for-trading (fair value through profit or loss)

4,498

-

4,498

-  

Derivative financial instruments - liabilities

4,498

-

4,498

-  

Designated (fair value through profit or loss)

384,967

7,488

377,479

-  

Investment contract liabilities(1)

288,164

-

288,164

-  

Third-party interests in consolidated funds

81,573

-

81,573

-  

Borrowed funds

13,191

6,696

6,495

-  

Other liabilities

2,039

792

1,247

-  

Total financial liabilities measured at fair value

389,465

7,488

381,977

-  

 

(1) Investment contract liabilities amount excludes R193,425 million discretionary participating investment contracts. These contracts are classified as non-financial

    liabilities and are not analysed according to their fair value hierarchy as permitted by IFRS 7 'Financial Instruments: Disclosures'.

 

(b)    Level 3 fair value hierarchy disclosure

 

The tables below reconcile the opening balances of Level 3 financial assets and liabilities to closing balances at the end

of the period. Movements during the period include both continuing operations and assets and movements of assets and

liabilities classified as held for sale and distribution during the period.

 

Year ended 31 December 2018

 

 

 

 

 

 

 

Total  

Rm

Level 3

movements  

Level 3 financial assets

 

 

At beginning of the year

 

20,426  

Total net fair value (losses)/gains recognised in profit or loss

 

(662)  

Purchases and issues

 

3,664  

Sales and settlements

 

(1,311)  

Transfers in

 

9,458  

Transfers out

 

(184)  

Foreign exchange and other

 

(972)  

Total Level 3 financial assets

 

30,419  

Unrealised fair value gains relating to assets held at 31 December 2018 recognised in profit or loss

 

8,557  

 

During the year there were financial instruments for which the significant inputs into the valuation model became

unobservable or where the valuation basis has changed. This resulted in transfers from Level 2 to Level 3.

 

At 31 December 2018, Level 3 financial assets comprised unlisted private company shares, unlisted debt securities and unlisted pooled

investments mainly held by policyholder funds for which the bulk of the investment risk is borne by policyholders. At 31

December 2017, all level 3 assets held by the Quilter and Nedbank businesses were transferred into assets held for sale and

distribution and are therefore not included within any of the amounts disclosed in the table above.

 

The Group did not have any Level 3 financial liabilities at 31 December 2018 and 31 December 2017.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended 31 December 2017

 

 

 

 

 

 

 

 

 

 

 

 

Held for

 

Designated at fair value through

Available

 

 

trading

 

profit or loss

for sale

 

 

 

Investments

 

 

 

 

 

 

in associated

 

 

 

 

 

 

undertakings

 

Investments

Investments

 

 

 

and joint

Loans and

and

and

 

Rm

Derivatives

ventures

advances

securities

securities

Total  

Level 3 financial assets

 

 

 

 

 

 

At beginning of the year

490

2,357

77

24,141

410

27,475  

Total net fair value (losses)/gains

 

 

 

 

 

 

recognised in:

 

 

 

 

 

 

-   profit or loss

(444)

10

45

915

-

526  

-   other comprehensive income

18

(8)

-

6

-

16  

Purchases and issues

70

1,513

-

13,814

-

15,397  

Sales and settlements

(58)

(668)

(89)

(1,436)

-

(2,251)  

Transfers in

-

-

-

7,632

-

7,632  

Transfers out

-

-

-

(4,198)

-

(4,198)  

Foreign exchange and other

(46)

(1)

-

77

-

30  

Transferred to assets held for sale

 

 

 

 

 

 

and distribution

(24,201)  

(1)

 

(3,203)

 

(33)

 

(20,554)

 

(410)  

 

 

Total Level 3 financial assets

29

-

-

20,397

-

20,426  

Unrealised fair value (losses)/

 

 

 

 

 

 

gains relating to assets held at 31

 

 

 

 

 

 

December 2017 recognised in profit

 

 

 

 

 

 

or loss

(444)

-

-

1,230

-

786  

 

 

 

 

 

 

 

 

 

Designated

 

 

 

 

fair value

 

 

 

 

through

 

Year ended 31 December 2017

 

Held-for-trading

profit or loss

 

 

 

 

Investment

 

 

Other

 

contract

 

Rm

liabilities

Derivatives

liabilities

Total  

Level 3 financial liabilities

 

 

 

 

At beginning of the year

330

120

10,004

10,454  

Total net fair value losses/(gains) recognised in profit or loss

105

(122)

(388)

(405)  

Purchases and issues

-

-

10,557

10,557  

Sales and settlements

-

-

(403)

(403)  

Transfers in

-

-

2,869

2,869  

Transfers out

-

-

(2,613)

(2,613)  

Foreign exchange and other

-

2

(476)

(474)  

Transferred to liabilities held for sale and distribution

(435)

-

(19,550)

(19,985)  

Total Level 3 financial liabilities

-

-

-

-  

Unrealised fair value losses/(gains) relating to liabilities held

 

 

 

 

at 31 December 2017 recognised in profit or loss

-

-

-

-  

 

(c)(i)   Effect of changes in significant unobservable assumptions to reasonable possible alternatives

 

Favourable and unfavourable changes are determined on the basis of changes in the value of the financial asset or liability

as a result of varying the levels of the unobservable parameters using statistical techniques. When parameters are not

amenable to statistical analysis, quantificatio