Old Mutual plc Old Mutual plc Annual Report Annual Report and Accounts 2016 Annual Report & Accounts 2016 Emerging Markets Old Mutual plc Annual Report and Accounts 2016 Strategic report OUR WE ARE STORY CHANGING Implementing our managed separation strategy Old Mutual began in In March 2016, we announced a new strategy for Old Mutual plc that seeks to unlock and create Cape Town in 1845 as significant long-term value for our shareholders. South Africa’s first mutual This will be achieved through the separation of life insurance company, the four underlying businesses – Old Mutual Emerging Markets (OMEM), Old Mutual Wealth offering financial security (OMW), Nedbank and OM Asset Management in uncertain times. Today, (OMAM) – from each other. Implementation of 172 years on, Old Mutual the managed separation will require a balance between value, cost, time and risk and we intend is made up of four strong for it to be materially complete by the end of 2018. businesses operating Since announcing the strategy, Old Mutual plc has successfully in their had three fundamental areas of focus: ensuring the businesses are ready for independent futures; respective markets and executing a number of transactions; and winding enabling positive futures down the plc Head Office. Consequently, we for their stakeholders. are now running Old Mutual plc in the manner of an active portfolio manager and not running it as a Group as in previous years. Contents Business review Strategic report Governance 01 KPIs 80 Board of directors Emerging 02 Chairman’s message 82 Corporate governance Markets 03 Chief Executive’s review 104 Remuneration report 04 Our strategy 06 Business model Financials AOP £619m (+1%) AOP £799m (+6%) 09 At a glance 141 Group financial 10 Old Mutual 10–21 22–29 statements www.oldmutual.co.za www.nedbank.co.za Emerging Markets 309 Financial statements 22 Nedbank of the Company 30 Old Mutual Wealth 318 Shareholder 40 Institutional information Asset Management 48 Financial review 70 Performance measures AOP £260m (-15%) AOP £143m (-5%) 72 Risks 30–39 40–47 www.oldmutual www.omam.com wealth.com ‘Group’ refers to all business ‘plc Head Office’ collectively refers Find out more about Corporate website interests ultimately owned by to the plc holding company and the Old Mutual plc www.oldmutualplc.com the Old Mutual plc entity. other centre companies of the Group, which typically own and manage the Annual Report Positive Futures Plan ‘plc’ refers to Old Mutual plc, investments across the Group. the ultimate parent and holding www.oldmutualplc.com/ www.oldmutualplc.com/ company of the Group companies. reportingcentre reportingcentre Old Mutual plc Annual Report and Accounts 2016 Strategic report 01 OLD MUTUAL PLC FINANCIAL KEY PERFORMANCE INDICATORS (KPIs ) Financial KPIs that we currently use to monitor the performance of our business. We expect to change and adapt these measures to reflect the managed separation strategy. IFRS PROFIT PRE-TAX BASIC EARNINGS PER SHARE £1,216m 11.9p (2015: £1,201m) (2015: 12.7p) Adjusted operating earnings per share1 (p) Adjusted Return on Equity (RoE)2 (%) Actual Growth 2016 19.4p +1% 2016 13.3% 2015 19.3p +8% 2015 14.2% 2014 17.9p -3% 2014 13.3% 2013 18.4p +5% 2013 13.6% 2012 17.5p +11% 2012 13.0% 1 Adjusted operating profit (AOP) is an Alternative Profit Measure used 2 Group adjusted RoE is calculated as AOP (post-tax and NCI) divided alongside basic IFRS profit to assess underlying business performance. by average ordinary shareholders equity (ie excluding the perpetual It is a non-IFRS measure of profitability that reflects the directors’ view of preferred callable securities). It excludes non-core operations. the underlying long-term performance of the Group. The calculation of AOP adjusts basic IFRS profit for a number of items as detailed in note C1. plc managed separation costs (£m) Capital strength (£bn) (The Group Solvency II information has not been audited) Total Financial Financial Group Group Group Group plc wind-down costs 8 Solvency II Solvency II Directive Directive surplus ratio surplus ratio Transaction costs relating to advisory/listing 14 2016 1.3 124% –– Total 22 2015* 1.7 138% 1.9 166% 2014 –– 2.1 164% 2013 –– 2.1 168% * The Group Solvency II and coverage ratio represents 1 January 2016 position. OLD MUTUAL PLC NON-FINANCIAL KEY PERFORMANCE INDICATORS (KPIs ) Our employees Our customers Target range Cultural entropy 9%-13% Customer numbers % Total 2016 11.9 2016 19.4m 2015 11.9 2015 18.9m 2014 12.3 2014 17.5m OMEM Nedbank Other We maintained a positive entropy across the Group. Each business has ownership Customer numbers are an indication of the scale of our business. for ensuring a healthy culture is sustained during the managed separation. Growth indicates that we have an attractive proposition for new customers, and are meeting the needs of our existing customers. Forward-looking statements This report contains certain forward-looking statements with respect to Old Mutual plc’s and its subsidiaries’ plans and expectations relating to their financial condition, performance and results. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances that are beyond Old Mutual plc’s control, including, among other things, UK domestic and general economic and business conditions, market-related risks such as fluctuations in interest rates and exchange rates, policies and actions of regulatory authorities, the impact of competition, inflation, deflation, the timing and impact of other uncertainties or of future acquisitions or combinations within relevant industries, as well as the impact of tax and other legislation and regulations in territories where Old Mutual plc or its subsidiaries operate. As a result, Old Mutual plc’s or its subsidiaries’ actual future financial condition, performance and results may differ materially from the plans and expectations set forth in such forward-looking statements. Old Mutual plc undertakes no obligation to update any forward-looking statements contained in this Report or any other forward-looking statements that it may make. Old Mutual plc Annual Report and Accounts 2016 Strategic report 02 CHAIRMAN’S MESSAGE TO SHAREHOLDERS This has been a year of significant change for the Group and for its four businesses, against a backdrop of unprecedented political and economic turmoil in some of our key markets. Dear Shareholders Managed separation involves dividing Positive Futures Plan requires our four Overview of the year the Group into its four strong businesses – businesses to embed programmes dealing unlocking the value in the current corporate with stakeholders and to position themselves Stock markets and currencies have been structure by allowing each business to be as responsible business leaders in their especially volatile in the aftermath of the held by the most appropriate shareholders regions. I am proud of the progress UK’s EU referendum and the US presidential and removing the risks of the current Group we have made to date and we will election. The forces at play in the financial structure. To ensure that each business can update you as we complete managed world, with increasing emphasis by stand alone, we have begun a process of separation. You can read our Positive regulators and politicians on ring-fencing enhancing underlying performance relative Futures Plan on our corporate website and protectionism, support our strategy to each peer group. This has involved, and at www.oldmutualplc.com/rb. in ways that could not have been foreseen will continue to involve, making material a year ago. improvements to our businesses where Outlook In March 2016, we announced that we necessary. In addition, we are reducing The dual focus of readying the four would unlock value for shareholders by the cost of central activities and reducing businesses for separation and enhancing separating our underlying businesses, in holding company debt. underlying performance, balancing what we are calling a managed separation. stakeholder interests against value, cost, During 2016, teams at the Company’s Since then we have made steady progress time and risk, will continue to demand Head Office and in the businesses have towards this goal; please see our Group exceptional leadership and commitment been developing the optimal strategies, CEO Bruce Hemphill’s statement on page 3. throughout the organisation. Though the board composition, operating models, global outlook is clouded in uncertainty, Despite the challenging external leadership and business composition the Board looks forward to delivering environment, our businesses performed for the businesses as they move towards further milestones on our road to managed resiliently during 2016. AOP earnings per separation. This is a major exercise, separation. We are focused on sustained share were 19.4 pence, broadly flat in especially in OMEM and OMW; your results and the opportunities to enhance constant and reported currency (basic Board has been kept closely informed stakeholder returns. earnings per share was 11.9 pence per and provided oversight and guidance share, 6% lower than 2015). This was a to Bruce Hemphill and his team. We have There has been no alteration to Board satisfactory performance. also spent more time with the subsidiary membership since Paul Hanratty stepped boards than ever before, exchanging down in March 2016. We are very grateful to 2016 was the Group’s first full year under the expertise and insight to position each Paul for his dedication to the Group in both Solvency II regime. Our Solvency II capital business for greater success. South Africa and the UK for over 30 years. ratio at the year-end was 124%, lower than in 2015, largely due to currency movements. I have also had greater interaction with On behalf of my Board colleagues, As in 2015 it did not include the £1.7 billion our various regulators than in previous I would like to sincerely thank all our people, of surplus relating to OMEM and Nedbank, years, to keep them appraised of the Board’s particularly those in the Company’s Head which we are not permitted to include for involvement with the managed separation.