OLD MUTUAL PLC ANNUAL REPORT and ACCOUNTS 2004 We Are an International Financial Services Group, Whose Activities Are Focused on Asset Gathering and Asset Management
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OLD MUTUAL PLC ANNUAL REPORT AND ACCOUNTS 2004 We are an international financial services group, whose activities are focused on asset gathering and asset management. We offer a diverse range of financial services in three principal geographies, South Africa, the United States and the United Kingdom. We have a talented team across all of our regions, sharing skills to help deliver our vision. Contents 01 Financial Highlights 60 Reconciliation of Movements 04 Chairman’s Statement in Consolidated Equity 06 Chief Executive’s Statement Shareholders’ Funds 10 Group Business Review 61 Consolidated Balance Sheet 21 Corporate Citizenship 63 Company Balance Sheet 26 Corporate Governance 64 Consolidated Cash Flow Statement and Directors’ Report 65 Notes to the Financial Statements 42 Board of Directors 138 Supplementary Disclosures 44 Remuneration Report 140 Achieved Profits – Statement 53 Statement of Directors’ of Directors’ Responsibilities Responsibilities 141 Achieved Profits – Independent 54 Summary Consolidated Auditors’ Report Profit and Loss Account 142 Achieved Profits Basis 56 Independent Auditors’ Report Supplementary Information 57 Consolidated Profit and 156 Financial History Loss Account 160 Notice of Annual General Meeting 60 Consolidated Statement of Total 165 Shareholder Information Recognised Gains and Losses Financial Highlights | 01 Financial Highlights £956m £908m > Adjusted operating profit* up 47% > Operating profit: to £956 million (2003: £650 million), £908 million (2003: £475 million), and up 40% to R11,296 million R10,711 million (2003: R5,884 million) (2003: R8,041 million) 15.3p 14.1p > Adjusted operating earnings per share* > Basic operating earnings per share: up 53% to 15.3p (2003: 10.0p), and 14.1p (2003: 8.0p), 166.2c (2003: 99.1c) up 46% to 181.1c (2003: 123.8c) £140bn 139.1p > Funds under management: £140 billion > Adjusted embedded value per share: (2003: £125 billion), an increase of 12%, 139.1p, R15.08 at 31 December 2004 R1,520 billion (2003: R1,495 billion) (2003: 104.6p, R12.49) 19.1% 13% > Return on equity: 19.1% > Final dividend increased by 13% to 3.5p (2003: 14.4%**) making 5.25p for the year*** Wherever the items asterisked in the Financial Highlights are used, whether in the Financial Highlights, the Chairman’s Statement, the Chief Executive’s Statement or the Group Business Review, the following apply: * Adjusted operating profit represents the directors’ view of the underlying performance of the Group. For life assurance and general insurance businesses, adjusted operating profit is based on a long term investment return and includes investment returns on own shares held within the policyholders’ funds. For banking business, adjusted operating profit excludes the loss on disposal of investment in Dimension Data Holdings plc, restructuring and integration costs and the transitional impact of the change in credit provisioning methodology. For all businesses, adjusted operating profit excludes goodwill amortisation and impairment, and fines and penalties. Adjusted operating earnings per share is similarly based, but is stated after tax and minority interests, with the calculation of the weighted average number of shares including own shares held in policyholders’ funds. The segmental analysis has been prepared on a gross of inter-segment transactions basis. ** Comparative figures have been restated to reflect the adoption of Urgent Issues Taskforce Abstract 38 “Accounting for ESOP Trusts”. *** The dividend recommended (final 3.5p per share, making 5.25p per share for the year) will be converted, for payment to shareholders on the branch registers and the Namibian section of the principal register, into local currencies at exchange rates ruling at the close of business on 31 March 2005 (or 30 March 2005 in the case of Zimbabwe). 02 | Financial Highlights A year of delivery... The Company achieved strong results Adjusted embedded value (£ or R million) in 2004 with profit, earnings per share, assets under management and embedded value all increased. A return on equity R61,831 R59,883 R58,134 £5,465 of 19.1% and net cash inflow at our R52,890 £5,359 US business of $12.3 billion further R47,929 £4,015 demonstrate the power underlying £3,828 this performance. £3,437 2000 2001 2002 2003 2004 Shareholders’ adjusted net worth Value of in-force business Market value adjustments New business annual premium equivalent (£ or R million) UK UK £25 R291 USA USA £274 R3,225 SA SA £247 R2,924 2004: £546 2004: R6,440 Year £ million R million 2000 338 3,556 2001 361 4,546 2002 557 8,791 2003 529 6,532 2004 546 6,440 Financial Highlights | 03 Dividend per share Funds under management 2004 £140bn R1,520bn 5.25p UK UK 58.5c *** Year p c 2000 4.70 49.5 USA USA 2001 4.80 72.3 2002 4.80 66.0 2003 4.80 56.0 2004 5.25 58.5*** SA SA *** Indicative only Year £ billion R billion Adjusted operating profit for 2004 2000 168 1,903 (£ or R million) 2001 143 2,489 2002 123 1,704 2003 125 1,495 2004 140 1,520 R11,431 R11,296 R10,601 R9,585 £956 £911 £856 R8,041 £724 £650 2000 2001 2002 2003 2004 04 | Chairman’s Statement I retire this year, knowing that the business is in good hands and set fair for the future Mike Levett, Chairman Chairman’s Statement | 05 DEAR SHAREHOLDER, BOARD Old Mutual’s results rebounded in 2004, with good performances from Chris Liebenberg retired from the Board in October 2004, having served all businesses, and as a result earnings per share increased by 53% to as a non-executive director of the Company since 1999. I am most grateful 15.3 pence, a very pleasing outcome. to him for his contribution to the Group, and wish him a long and happy retirement. On behalf of the Board and all the Company’s shareholders, I would like to thank management and employees in each business for their Russell Edey joined the Board as a non-executive director in June 2004 continued dedication and commitment to the Group. and we have also appointed Wiseman Nkuhlu as a non-executive director with effect from 1 March 2005. I am delighted to welcome This commitment will ensure that your Company is well placed to them to the Board. continue to build in the future on the momentum that has been created. I shall be retiring as Chairman of the Company at the end of the Investment performance was strong at Old Mutual South Africa, AGM on 11 May 2005, thereby ending over 46 years with the Group. benefiting sales of unit trusts, and our South African general insurance During that period Old Mutual has transformed itself from a major business, Mutual & Federal, had a spectacularly good result. Nedcor Southern African mutual life assurer into the international financial is well on the recovery path that we have outlined. We are continuing to services group it is today. No greater changes have happened during develop our plans in South Africa to address Black Economic Empowerment. that time than those that have occurred since the Group demutualised and listed in 1999, which was the springboard for our subsequent In the USA, our asset management business had a successful year, international development. At the end of 2004, 38% of the Group’s net and we were able to resolve the regulatory issues that had arisen at assets were in countries other than South Africa and 52% of the value Pilgrim Baxter & Associates, Ltd. Our US life business continued to of life new business came from those countries during the year. write a significant amount of new business. I have no doubt that the decision to demutualise and seek a primary In the UK our asset management operations continued to make listing on the London Stock Exchange was the right one, and this year’s good progress. figures clearly demonstrate this. DIVIDEND Your Company is financially strong, with a high return on equity, Your directors are proposing a final dividend of 3.5p per share, in line talented management and staff, and a dedicated Board. I retire this with our progressive dividend policy, making a total dividend for the year, knowing that the business is in good hands and set fair for year of 5.25p per share, an increase of 9.4%. the future. ANNUAL GENERAL MEETING 2005 I wish my successor as Chairman, Chris Collins, the Board and all There are a number of items of special business included in the others involved with Old Mutual good fortune as the Group continues agenda for our AGM, which is to be held at our offices in London to develop in the years ahead. on 11 May 2005. The notice of the AGM is set out on pages 160 to 164. The explanatory notes accompanying that notice provide further details Mike Levett of these matters. Chairman 28 February 2005 We are proposing that the existing authorities for the Company to buy back its shares on the five exchanges where they are listed be renewed for a further year at the AGM, and that the Company be authorised to hold any shares that are bought back in treasury, as permitted by UK company law, as an alternative to their being cancelled. The equivalent authorities were not activated during 2004, and we have no immediate plans to use them in the forthcoming year, but they do provide the Company with desirable flexibility in its capital management. The directors recommend that you vote in favour of all of the items of business at the AGM, as they intend to do in respect of their personal shareholdings in the Company. 06 | Chief Executive’s Statement We have established a momentum in our business that has the potential to take us much further, as we pursue our ambition to build a world class financial services group Jim Sutcliffe, Chief Executive Chief Executive’s Statement | 07 We are using our high UK > The UK and RoW adjusted operating profit1 grew to quality and powerful £42 million in 2004.