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Annual Report 2017

Plain-text annual report

Old Mutual plc Annual Report & Accounts 2017 O l d M u t u a l p l c A n n u a l R e p o r t & A c c o u n t s 2 0 1 7 Emerging Markets Our story Old Mutual plc is an international investment, savings, insurance, and banking group. Old Mutual began in Cape Town in 1845 as South Africa’s first mutual life insurance company, offering financial security in uncertain times. In March 2016, we announced a new strategy for Old Mutual plc, called ‘managed separation’ which will result in four strong independent businesses. The strategy aims to unlock and create significant long-term value for our shareholders by separating the businesses into standalone entities. OM Asset Management is now an independent business. Our remaining three businesses are Old Mutual Emerging Markets, Nedbank and Old Mutual Wealth. Our three focus areas Since announcing the managed separation strategy in March 2016, Old Mutual plc has had three fundamental areas of focus: 1 Executing a number of transactions 2 Winding down the plc Head Office 3 Ensuring the businesses are ready for independent future We are now running Old Mutual plc as an active portfolio manager of the underlying businesses. Contents Business review Strategic report 01 02 03 08 KPIs Chairman’s message Chief Executive’s review Review of financial performance Old Mutual Emerging Markets review Nedbank review Old Mutual Wealth review Risks 26 38 48 58 Governance 70 Board of directors 72 Corporate governance 97 Directors’ Remuneration report Financials 129 Group financial statements 330 Financial statements of the Company 340 Shareholder information Emerging Markets 26–37 www.oldmutual.co.za 38–47 www.nedbank.co.za 48–57 www.oldmutual wealth.com ‘Group’ refers to all business interests ultimately owned by the Old Mutual plc entity. ‘plc’ refers to Old Mutual plc, the ultimate parent and holding company of the Group companies. ‘plc Head Office’ collectively refers to the plc holding company and the other centre companies of the Group, which typically own and manage the investments across the Group. For the purposes of this report, references to Old Mutual Emerging Markets (OMEM) and Old Mutual Wealth (OMW) relate to the performance and corporate activity of those businesses prior to the date of this report; references to Old Mutual Limited (OML) and Quilter plc (Quilter) relate to the future actions of those respective independent groups following the completion of Managed Separation. Find out more about Old Mutual plc: Annual Report – www.oldmutualplc.com/reportingcentre Corporate website – www.oldmutualplc.com Disclaimer information is noted on the inside back cover of this report. Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Key performance indicators (KPIs) Key performance indicators (KPIs) Continued momentum across the businesses Continued momentum across the businesses Adjusted operating earnings (AOP) per share1 (p) Adjusted operating earnings (AOP) per share1 (p) Adjusted Return on Equity (RoE)2 (%) Adjusted Return on Equity (RoE)2 (%) 2017 2016 2015 2014 2013 1 Adjusted operating profit (AOP) is an Alternative Performance Measure used Actual 24.3p 19.4p 19.3p 17.9p 18.4p Growth +25% +1% +8% -3% +5% 1 Adjusted operating profit (AOP) is an Alternative Performance Measure used alongside IFRS profit to assess underlying business performance. It is a non-IFRS measure of profitability that reflects the directors’ view of the underlying long-term performance of the Group. The calculation of AOP adjusts IFRS profit for a number alongside IFRS profit to assess underlying business performance. It is a non-IFRS of items as detailed in note C1. The definition of AOP is detailed in the basis of measure of profitability that reflects the directors’ view of the underlying long-term preparation on page 145 performance of the Group. The calculation of AOP adjusts IFRS profit for a number of items as detailed in note C1. The definition of AOP is detailed in the basis of preparation on page 145 2017 2016 2015 2014 2013 2 Group adjusted RoE is calculated as AOP (post-tax and NCI) divided by average 14.6% 13.3% 14.2% 13.3% 13.6% ordinary shareholders’ equity (ie excluding the perpetual preferred callable securities). It excludes non-core operations. The definition of adjusted RoE and basis on which it is calculated is provided on page 23. ordinary shareholders’ equity (ie excluding the perpetual preferred callable securities). It excludes non-core operations. The definition of adjusted RoE and basis on which it is calculated is provided on page 23. 2 Group adjusted RoE is calculated as AOP (post-tax and NCI) divided by average S t r a t e S g t i r c a r t e e g p o c r t r e p o r t i Basic earnings per share (p) Basic earnings per share (p) IFRS Return on Equity (%) IFRS Return on Equity (%) 2017 2016 2015 2014 2013 Actual 19.3p 12.0p 12.7p 12.4p 15.0p Growth +61% -6% +2% -17% -40% 2017 2016 2015 2014 2013 11.3% 7.9% 8.8% 7.9% 9.3% Adjusted operating profit by business Adjusted operating profit by business (Selected Metrics) Capital strength (£bn) Capital strength (£bn) (The 2017 Group Solvency II information has not been audited) (The 2017 Group Solvency II information has not been audited) Group Solvency II surplus Group Solvency II 1.5 surplus 1.2 1.5 1.7 1.2 – 1.7 – – – Group Solvency II ratio Group Solvency II 123% ratio 122% 123% 138% 122% – 138% – – – 20175 20166 20175 2015 20166 2014 2015 2013 2014 5 Based on preliminary estimates. Formal filing due to the PRA by 29 March 2018 2013 6 As reported to the PRA as part of the Annual 2016 Solvency II submission. Financial Group Directive Financial surplus Group Directive – surplus – – 1.9 – 2.1 1.9 2.1 2.1 2.1 Financial Group Directive Financial ratio Group Directive – ratio – – 166% – 164% 166% 168% 164% 168% 5 Based on preliminary estimates. Formal filing due to the PRA by 29 March 2018 6 As reported to the PRA as part of the Annual 2016 Solvency II submission. (Selected Metrics) Old Mutual Emerging Markets3 Old Mutual (Rm) Emerging Markets3 13,326 (Rm) 12,731 13,326 12,418 12,731 11,457 12,418 9,621 11,457 9,621 Nedbank (Rm) Nedbank 16,522 (Rm) 15,925 16,522 14,729 15,925 13,757 14,729 12,026 13,757 12,026 Old Mutual Wealth (£m) Old Mutual Wealth 363 (£m) 260 363 307 260 227 307 217 227 217 2017 2016 2017 2015 2016 2014 2015 2013 2014 3 Old Mutual Emerging Markets AOP has been restated to include the long-term 2013 investment return (LTIR) on excess assets previously shown as a separate item within plc Head Office 3 Old Mutual Emerging Markets AOP has been restated to include the long-term 4 Adjusted operating profit before tax and non-controlling interests. Excludes the investment return (LTIR) on excess assets previously shown as a separate item Institutional Asset Management segment that was sold in 2017. Plc Head Office within plc Head Office is shown before recharges to the businesses 4 Adjusted operating profit before tax and non-controlling interests. Excludes the Plc Head Office4 (£m) Plc Head Office4 (134) (£m) (191) (134) (206) (191) (187) (206) (170) (187) (170) Institutional Asset Management segment that was sold in 2017. Plc Head Office is shown before recharges to the businesses 01 Old Mutual plc Annual Report and Accounts 2017Strategic report i S S t r t a r a t e t e g g c c r e r e p p o o r t r t i Old Mutual plc Old Mutual plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 Chairman’s message Chairman’s message To shareholders To shareholders Patrick O’Sullivan Patrick O’Sullivan Patrick O’Sullivan Chairman Chairman Chairman Dear Shareholders Dear Shareholders When I wrote to you last year, I indicated that readying our four When I wrote to you last year, I indicated that readying our four businesses for separation, while enhancing their underlying businesses for separation, while enhancing their underlying performance, would demand exceptional commitment and performance, would demand exceptional commitment and leadership. I am very pleased to tell you that everyone has leadership. I am very pleased to tell you that everyone has risen to the challenge and this is evident, not only in the risen to the challenge and this is evident, not only in the significant progress on managed separation, but also in significant progress on managed separation, but also in the underlying results of the businesses in challenging markets. the underlying results of the businesses in challenging markets. Management has made significant progress: completing the sale Management has made significant progress: completing the sale of OMAM, our US asset management business; agreed to sell our of OMAM, our US asset management business; agreed to sell our UK single-strategy asset management business to TA Associates; UK single-strategy asset management business to TA Associates; and cleared the way, through reducing debt, for the listings of and cleared the way, through reducing debt, for the listings of Old Mutual Limited, the South African-based emerging markets Old Mutual Limited, the South African-based emerging markets business, and of Quilter plc. business, and of Quilter plc. Performance during the year Performance during the year Our businesses performed ahead of expectations during 2017. Our businesses performed ahead of expectations during 2017. Our adjusted operating earnings per share was 24.3 pence per Our adjusted operating earnings per share was 24.3 pence per share, 25% higher than in 2016 (basic earnings per share was share, 25% higher than in 2016 (basic earnings per share was 19.3 pence per share, 61% higher than 2016). Our Solvency II 19.3 pence per share, 61% higher than 2016). Our Solvency II capital ratio at the end of 2017 was 123%, which is marginally capital ratio at the end of 2017 was 123%, which is marginally higher than in 2016. The solvency capital position of all our higher than in 2016. The solvency capital position of all our individual businesses remains robust. individual businesses remains robust. Board developments and activity Board developments and activity Dr Nkosana Moyo stepped down from the Board on 29 June 2017, Dr Nkosana Moyo stepped down from the Board on 29 June 2017, with Dr Alan Gillespie joining the Group Audit Committee in with Dr Alan Gillespie joining the Group Audit Committee in his place. Nonkululeko (‘Nku‘) Nyembezi left the Board on his place. Nonkululeko (‘Nku‘) Nyembezi left the Board on 31 December 2017, having served the Group as a non-executive 31 December 2017, having served the Group as a non-executive director in various capacities for over seven years. On behalf of director in various capacities for over seven years. On behalf of the Board, I would like to express my gratitude for Nkosana’s and the Board, I would like to express my gratitude for Nkosana’s and Nku’s valuable contributions to the Group and we wish them well Nku’s valuable contributions to the Group and we wish them well for the future. for the future. In 2017, the workload of your Board has significantly increased In 2017, the workload of your Board has significantly increased as the strategy of Old Mutual has moved forward, and execution as the strategy of Old Mutual has moved forward, and execution has happened at pace. All members of the Board have responded has happened at pace. All members of the Board have responded with commitment and cohesion. with commitment and cohesion. Managed Separation Managed Separation During 2017, the Group has continued to make significant progress During 2017, the Group has continued to make significant progress towards its goals. In preparation for managed separation, we have towards its goals. In preparation for managed separation, we have taken steps to build strong foundations for the businesses to grow taken steps to build strong foundations for the businesses to grow in the future and to ensure our businesses have robust, appropriately in the future and to ensure our businesses have robust, appropriately capitalised balance sheets and sustainable dividend policies. capitalised balance sheets and sustainable dividend policies. At Old Mutual Emerging Markets, Trevor Manuel has been appointed At Old Mutual Emerging Markets, Trevor Manuel has been appointed Chairman and, with his support, we have made a number of board Chairman and, with his support, we have made a number of board and management team appointments bringing strong operational and management team appointments bringing strong operational skills and listed financial services company experience. skills and listed financial services company experience. Old Mutual Wealth has also continued to reshape and strengthen Old Mutual Wealth has also continued to reshape and strengthen its executive management team and has appointed a new board its executive management team and has appointed a new board of directors. of directors. The functional capabilities necessary to operate as an independently The functional capabilities necessary to operate as an independently listed entity have been put in place for both businesses. listed entity have been put in place for both businesses. At the Old Mutual plc head office in London, a key focus has been At the Old Mutual plc head office in London, a key focus has been on reducing costs in advance of its eventual closure. We have also on reducing costs in advance of its eventual closure. We have also reduced Group exposures by de-risking the group pension scheme reduced Group exposures by de-risking the group pension scheme and mitigating various other contingent exposures. Where necessary, and mitigating various other contingent exposures. Where necessary, we have engaged with regulators to obtain approvals for the we have engaged with regulators to obtain approvals for the finalisation of managed separation. finalisation of managed separation. Responsible Business Responsible Business We continue to operate as a responsible business during managed We continue to operate as a responsible business during managed separation. 2017 sees the requirement for companies to report separation. 2017 sees the requirement for companies to report against the EU Non-Financial Reporting Directive, and our response against the EU Non-Financial Reporting Directive, and our response can be found in the Governance section of this report on page 94. can be found in the Governance section of this report on page 94. The businesses’ approach to material risks are covered in their The businesses’ approach to material risks are covered in their sections. As we complete what we expect to be our last responsible sections. As we complete what we expect to be our last responsible business reports under the current Group structure, we will business reports under the current Group structure, we will reference our response to the Taskforce for Climate Related reference our response to the Taskforce for Climate Related Financial Disclosure recommendations. As I have previously Financial Disclosure recommendations. As I have previously stated, we are supportive of the aims of the recommendations stated, we are supportive of the aims of the recommendations and our businesses are embedding them into their future reporting and our businesses are embedding them into their future reporting plans. For more information on our approach please visit the plans. For more information on our approach please visit the Old Mutual plc corporate website and the businesses’ websites. Old Mutual plc corporate website and the businesses’ websites. Outlook Outlook In the nearly 20 years since demutualisation, the Old Mutual Group In the nearly 20 years since demutualisation, the Old Mutual Group has witnessed much change and has gained from its international has witnessed much change and has gained from its international presence. Continuing shareholders will inherit two strong companies presence. Continuing shareholders will inherit two strong companies following the de-listing of Old Mutual plc’s shares – Quilter plc and following the de-listing of Old Mutual plc’s shares – Quilter plc and Old Mutual Limited – and then later a direct holding in Nedbank. Old Mutual Limited – and then later a direct holding in Nedbank. Your Board is confident that these businesses will benefit greatly Your Board is confident that these businesses will benefit greatly from separation as they strive for leadership in their respective from separation as they strive for leadership in their respective markets. We thank you for your continued support during the markets. We thank you for your continued support during the extensive period of preparation for managed separation. Finally, extensive period of preparation for managed separation. Finally, our employees have continued to work exceptionally hard to deliver our employees have continued to work exceptionally hard to deliver the new companies for listing. Without this performance, we would the new companies for listing. Without this performance, we would not be where we are. On your behalf, the Board is most not be where we are. On your behalf, the Board is most appreciative of their effort. appreciative of their effort. Patrick O’Sullivan Patrick O’Sullivan Chairman Chairman Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Chief Executive’s review Chief Executive’s review S t r a t e g i c S r t e r p a t o e r t g i c r e p o r t For the purposes of this report, references to OMEM and OMW relate to the performance and corporate activity of those businesses prior to the date of this report; references to OML and For the purposes of this report, references to OMEM and Quilter relate to the future actions of those respective independent OMW relate to the performance and corporate activity of those groups following the completion of managed separation. businesses prior to the date of this report; references to OML and Quilter relate to the future actions of those respective independent Business Review groups following the completion of managed separation. Challenging macro conditions continued The challenging macroeconomic conditions in our largest market Business Review of South Africa continued throughout 2017, with weakness in Challenging macro conditions continued consumer and business confidence creating a tough environment The challenging macroeconomic conditions in our largest market for banking, long-term investment and savings. The South African of South Africa continued throughout 2017, with weakness in government’s sovereign and local currency credit ratings were consumer and business confidence creating a tough environment downgraded in April and November, but markets rallied strongly for banking, long-term investment and savings. The South African in the second half. In February 2018, Cyril Ramaphosa was sworn government’s sovereign and local currency credit ratings were in as the new President of South Africa. We expect that this will downgraded in April and November, but markets rallied strongly lead to a recovery in sentiment and confidence over time despite in the second half. In February 2018, Cyril Ramaphosa was sworn stretched public finances and governance challenges. In the in as the new President of South Africa. We expect that this will UK the macro-environment was characterised by strong equity lead to a recovery in sentiment and confidence over time despite markets but weak currency, considerable political uncertainty stretched public finances and governance challenges. In the around Brexit and the general election; and legislative and UK the macro-environment was characterised by strong equity regulatory developments impacting financial services. In this markets but weak currency, considerable political uncertainty context, our businesses have delivered resilient operational around Brexit and the general election; and legislative and performances demonstrating the underlying strength of regulatory developments impacting financial services. In this their franchises. context, our businesses have delivered resilient operational performances demonstrating the underlying strength of During the year, the average rand rate was 14% stronger against their franchises. sterling compared to 2016, while the average USD rate against sterling was 5% stronger. The average of the FTSE 100 during the During the year, the average rand rate was 14% stronger against year was 14% higher; in the US, the average of the Russell 1000 sterling compared to 2016, while the average USD rate against Value was 14% higher; and the average of the South African JSE sterling was 5% stronger. The average of the FTSE 100 during the All Share was 6% higher. year was 14% higher; in the US, the average of the Russell 1000 Value was 14% higher; and the average of the South African JSE Old Mutual’s operating performance was ahead of our All Share was 6% higher. expectations. Adjusted Operating Profit (AOP) in reported currency was up 22% at £2.0 billion, up 7% in constant currency. AOP in Old Mutual’s operating performance was ahead of our 2016 was impacted by £31 million of MS costs which were not expectations. Adjusted Operating Profit (AOP) in reported currency included in 2017. The IFRS pre-tax profit was up 102% at £617 was up 22% at £2.0 billion, up 7% in constant currency. AOP in million, benefiting from a profit of £164 million from the sale of OM 2016 was impacted by £31 million of MS costs which were not Asset Management (OMAM) and the joint venture with Kotak in included in 2017. The IFRS pre-tax profit was up 102% at £617 India. AOP excluding the Institutional Asset Management segment million, benefiting from a profit of £164 million from the sale of OM (consolidated for the first four months of the year until it was sold) Asset Management (OMAM) and the joint venture with Kotak in was £2.0 billion up 29% on the prior year (£1.5 billion) on a India. AOP excluding the Institutional Asset Management segment reported basis and up 12% in constant currency. (consolidated for the first four months of the year until it was sold) was £2.0 billion up 29% on the prior year (£1.5 billion) on a Old Mutual Emerging Markets reported basis and up 12% in constant currency. OMEM seeks to become a premium African financial services group that offers a broad spectrum of financial solutions to retail Old Mutual Emerging Markets and corporate customers across key market segments in 17 OMEM seeks to become a premium African financial services countries. OMEM primarily operates in seven segments and its group that offers a broad spectrum of financial solutions to retail lines of business include Life and Savings, Property and Casualty, and corporate customers across key market segments in 17 Asset Management and Banking and Lending. It distributes countries. OMEM primarily operates in seven segments and its products and services to customers through a multi-channel lines of business include Life and Savings, Property and Casualty, distribution network spanning tied and independent advisers, Asset Management and Banking and Lending. It distributes branches, bancassurance, direct and digital channels, and products and services to customers through a multi-channel worksites. distribution network spanning tied and independent advisers, branches, bancassurance, direct and digital channels, and worksites. Bruce Hemphill Group Chief Executive Bruce Hemphill Group Chief Executive Group Review and Business Model Our strategy of managed separation aims to unlock and create significant long-term value for our shareholders which is currently Group Review and Business Model trapped within the Group structure and to remove the costs arising Our strategy of managed separation aims to unlock and create from it. This structure inhibits the efficient management and funding significant long-term value for our shareholders which is currently of future growth plans for the individual businesses, restricting them trapped within the Group structure and to remove the costs arising from reaching their full potential. We intend to unlock value through from it. This structure inhibits the efficient management and funding the separation of the three underlying businesses – Old Mutual of future growth plans for the individual businesses, restricting them Emerging Markets (OMEM), Nedbank and Old Mutual Wealth from reaching their full potential. We intend to unlock value through (OMW), with OM Asset Management having already been the separation of the three underlying businesses – Old Mutual separated from the Group. Emerging Markets (OMEM), Nedbank and Old Mutual Wealth (OMW), with OM Asset Management having already been To effect the managed separation, we intend to list two separate separated from the Group. entities, on both the London and Johannesburg stock exchanges. One will consist principally of the OMW operations and on listing To effect the managed separation, we intend to list two separate will be called Quilter plc (Quilter). The other will be the new South entities, on both the London and Johannesburg stock exchanges. African holding company, Old Mutual Limited (OML), which will One will consist principally of the OMW operations and on listing consist of OMEM, the Old Mutual holding in Nedbank and the will be called Quilter plc (Quilter). The other will be the new South residual Old Mutual plc. African holding company, Old Mutual Limited (OML), which will consist of OMEM, the Old Mutual holding in Nedbank and the Once the managed separation is complete, each business will: residual Old Mutual plc. have its local regulator as its lead regulator; continued delivery of enhanced performance and allow the market to value it Once the managed separation is complete, each business will: appropriately; be accountable directly to its shareholders for its have its local regulator as its lead regulator; continued delivery of level of returns and cash generation from capital employed; and enhanced performance and allow the market to value it have direct access to its natural shareholder base. appropriately; be accountable directly to its shareholders for its level of returns and cash generation from capital employed; and During the period of managed separation, our business model is to have direct access to its natural shareholder base. actively manage the separation of the underlying businesses to realise their full potential as standalone entities, in a manner that During the period of managed separation, our business model is to creates value for shareholders over time. Our focus during this actively manage the separation of the underlying businesses to period has been on three areas: ensuring the businesses are ready realise their full potential as standalone entities, in a manner that for separation; executing the transactions needed for managed creates value for shareholders over time. Our focus during this separation and winding down the plc head office. period has been on three areas: ensuring the businesses are ready for separation; executing the transactions needed for managed separation and winding down the plc head office. 2 02 2 3 3 Old Mutual plc Annual Report and Accounts 2017 S S i i t t r r a a t t e e g g c c S r r e t e r p a p o t o e r r t g t i c r e p o r t Old Mutual plc Old Mutual plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Chief Executive’s Chief Executive’s review review Chief Executive’s review Bruce Hemphill Bruce Hemphill Group Chief Executive Group Chief Executive Bruce Hemphill Bruce Hemphill Group Chief Executive Group Chief Executive Group Review and Business Model Group Review and Business Model Our strategy of managed separation aims to unlock and create Our strategy of managed separation aims to unlock and create significant long-term value for our shareholders which is currently significant long-term value for our shareholders which is currently Group Review and Business Model trapped within the Group structure and to remove the costs arising trapped within the Group structure and to remove the costs arising Our strategy of managed separation aims to unlock and create from it. This structure inhibits the efficient management and funding from it. This structure inhibits the efficient management and funding significant long-term value for our shareholders which is currently of future growth plans for the individual businesses, restricting them of future growth plans for the individual businesses, restricting them trapped within the Group structure and to remove the costs arising from reaching their full potential. We intend to unlock value through from reaching their full potential. We intend to unlock value through from it. This structure inhibits the efficient management and funding the separation of the three underlying businesses – Old Mutual the separation of the three underlying businesses – Old Mutual of future growth plans for the individual businesses, restricting them Emerging Markets (OMEM), Nedbank and Old Mutual Wealth Emerging Markets (OMEM), Nedbank and Old Mutual Wealth from reaching their full potential. We intend to unlock value through (OMW), with OM Asset Management having already been (OMW), with OM Asset Management having already been the separation of the three underlying businesses – Old Mutual separated from the Group. separated from the Group. Emerging Markets (OMEM), Nedbank and Old Mutual Wealth (OMW), with OM Asset Management having already been To effect the managed separation, we intend to list two separate To effect the managed separation, we intend to list two separate separated from the Group. entities, on both the London and Johannesburg stock exchanges. entities, on both the London and Johannesburg stock exchanges. One will consist principally of the OMW operations and on listing One will consist principally of the OMW operations and on listing To effect the managed separation, we intend to list two separate will be called Quilter plc (Quilter). The other will be the new South will be called Quilter plc (Quilter). The other will be the new South entities, on both the London and Johannesburg stock exchanges. African holding company, Old Mutual Limited (OML), which will African holding company, Old Mutual Limited (OML), which will One will consist principally of the OMW operations and on listing consist of OMEM, the Old Mutual holding in Nedbank and the consist of OMEM, the Old Mutual holding in Nedbank and the will be called Quilter plc (Quilter). The other will be the new South residual Old Mutual plc. residual Old Mutual plc. African holding company, Old Mutual Limited (OML), which will consist of OMEM, the Old Mutual holding in Nedbank and the Once the managed separation is complete, each business will: Once the managed separation is complete, each business will: residual Old Mutual plc. have its local regulator as its lead regulator; continued delivery of have its local regulator as its lead regulator; continued delivery of enhanced performance and allow the market to value it enhanced performance and allow the market to value it Once the managed separation is complete, each business will: appropriately; be accountable directly to its shareholders for its appropriately; be accountable directly to its shareholders for its have its local regulator as its lead regulator; continued delivery of level of returns and cash generation from capital employed; and level of returns and cash generation from capital employed; and enhanced performance and allow the market to value it have direct access to its natural shareholder base. have direct access to its natural shareholder base. appropriately; be accountable directly to its shareholders for its level of returns and cash generation from capital employed; and During the period of managed separation, our business model is to During the period of managed separation, our business model is to have direct access to its natural shareholder base. actively manage the separation of the underlying businesses to actively manage the separation of the underlying businesses to realise their full potential as standalone entities, in a manner that realise their full potential as standalone entities, in a manner that During the period of managed separation, our business model is to creates value for shareholders over time. Our focus during this creates value for shareholders over time. Our focus during this actively manage the separation of the underlying businesses to period has been on three areas: ensuring the businesses are ready period has been on three areas: ensuring the businesses are ready realise their full potential as standalone entities, in a manner that for separation; executing the transactions needed for managed for separation; executing the transactions needed for managed creates value for shareholders over time. Our focus during this separation and winding down the plc head office. separation and winding down the plc head office. period has been on three areas: ensuring the businesses are ready for separation; executing the transactions needed for managed separation and winding down the plc head office. For the purposes of this report, references to OMEM and For the purposes of this report, references to OMEM and OMW relate to the performance and corporate activity of those OMW relate to the performance and corporate activity of those businesses prior to the date of this report; references to OML and businesses prior to the date of this report; references to OML and For the purposes of this report, references to OMEM and Quilter relate to the future actions of those respective independent Quilter relate to the future actions of those respective independent OMW relate to the performance and corporate activity of those groups following the completion of managed separation. groups following the completion of managed separation. businesses prior to the date of this report; references to OML and Quilter relate to the future actions of those respective independent Business Review Business Review groups following the completion of managed separation. Challenging macro conditions continued Challenging macro conditions continued The challenging macroeconomic conditions in our largest market The challenging macroeconomic conditions in our largest market Business Review of South Africa continued throughout 2017, with weakness in of South Africa continued throughout 2017, with weakness in Challenging macro conditions continued consumer and business confidence creating a tough environment consumer and business confidence creating a tough environment The challenging macroeconomic conditions in our largest market for banking, long-term investment and savings. The South African for banking, long-term investment and savings. The South African of South Africa continued throughout 2017, with weakness in government’s sovereign and local currency credit ratings were government’s sovereign and local currency credit ratings were consumer and business confidence creating a tough environment downgraded in April and November, but markets rallied strongly downgraded in April and November, but markets rallied strongly for banking, long-term investment and savings. The South African in the second half. In February 2018, Cyril Ramaphosa was sworn in the second half. In February 2018, Cyril Ramaphosa was sworn government’s sovereign and local currency credit ratings were in as the new President of South Africa. We expect that this will in as the new President of South Africa. We expect that this will downgraded in April and November, but markets rallied strongly lead to a recovery in sentiment and confidence over time despite lead to a recovery in sentiment and confidence over time despite in the second half. In February 2018, Cyril Ramaphosa was sworn stretched public finances and governance challenges. In the stretched public finances and governance challenges. In the in as the new President of South Africa. We expect that this will UK the macro-environment was characterised by strong equity UK the macro-environment was characterised by strong equity lead to a recovery in sentiment and confidence over time despite markets but weak currency, considerable political uncertainty markets but weak currency, considerable political uncertainty stretched public finances and governance challenges. In the around Brexit and the general election; and legislative and around Brexit and the general election; and legislative and UK the macro-environment was characterised by strong equity regulatory developments impacting financial services. In this regulatory developments impacting financial services. In this markets but weak currency, considerable political uncertainty context, our businesses have delivered resilient operational context, our businesses have delivered resilient operational around Brexit and the general election; and legislative and performances demonstrating the underlying strength of performances demonstrating the underlying strength of regulatory developments impacting financial services. In this their franchises. their franchises. context, our businesses have delivered resilient operational performances demonstrating the underlying strength of During the year, the average rand rate was 14% stronger against During the year, the average rand rate was 14% stronger against their franchises. sterling compared to 2016, while the average USD rate against sterling compared to 2016, while the average USD rate against sterling was 5% stronger. The average of the FTSE 100 during the sterling was 5% stronger. The average of the FTSE 100 during the During the year, the average rand rate was 14% stronger against year was 14% higher; in the US, the average of the Russell 1000 year was 14% higher; in the US, the average of the Russell 1000 sterling compared to 2016, while the average USD rate against Value was 14% higher; and the average of the South African JSE Value was 14% higher; and the average of the South African JSE sterling was 5% stronger. The average of the FTSE 100 during the All Share was 6% higher. All Share was 6% higher. year was 14% higher; in the US, the average of the Russell 1000 Value was 14% higher; and the average of the South African JSE Old Mutual’s operating performance was ahead of our Old Mutual’s operating performance was ahead of our All Share was 6% higher. expectations. Adjusted Operating Profit (AOP) in reported currency expectations. Adjusted Operating Profit (AOP) in reported currency was up 22% at £2.0 billion, up 7% in constant currency. AOP in was up 22% at £2.0 billion, up 7% in constant currency. AOP in Old Mutual’s operating performance was ahead of our 2016 was impacted by £31 million of MS costs which were not 2016 was impacted by £31 million of MS costs which were not expectations. Adjusted Operating Profit (AOP) in reported currency included in 2017. The IFRS pre-tax profit was up 102% at £617 included in 2017. The IFRS pre-tax profit was up 102% at £617 was up 22% at £2.0 billion, up 7% in constant currency. AOP in million, benefiting from a profit of £164 million from the sale of OM million, benefiting from a profit of £164 million from the sale of OM 2016 was impacted by £31 million of MS costs which were not Asset Management (OMAM) and the joint venture with Kotak in Asset Management (OMAM) and the joint venture with Kotak in included in 2017. The IFRS pre-tax profit was up 102% at £617 India. AOP excluding the Institutional Asset Management segment India. AOP excluding the Institutional Asset Management segment million, benefiting from a profit of £164 million from the sale of OM (consolidated for the first four months of the year until it was sold) (consolidated for the first four months of the year until it was sold) Asset Management (OMAM) and the joint venture with Kotak in was £2.0 billion up 29% on the prior year (£1.5 billion) on a was £2.0 billion up 29% on the prior year (£1.5 billion) on a India. AOP excluding the Institutional Asset Management segment reported basis and up 12% in constant currency. reported basis and up 12% in constant currency. (consolidated for the first four months of the year until it was sold) was £2.0 billion up 29% on the prior year (£1.5 billion) on a Old Mutual Emerging Markets Old Mutual Emerging Markets reported basis and up 12% in constant currency. OMEM seeks to become a premium African financial services OMEM seeks to become a premium African financial services group that offers a broad spectrum of financial solutions to retail group that offers a broad spectrum of financial solutions to retail Old Mutual Emerging Markets and corporate customers across key market segments in 17 and corporate customers across key market segments in 17 OMEM seeks to become a premium African financial services countries. OMEM primarily operates in seven segments and its countries. OMEM primarily operates in seven segments and its group that offers a broad spectrum of financial solutions to retail lines of business include Life and Savings, Property and Casualty, lines of business include Life and Savings, Property and Casualty, and corporate customers across key market segments in 17 Asset Management and Banking and Lending. It distributes Asset Management and Banking and Lending. It distributes countries. OMEM primarily operates in seven segments and its products and services to customers through a multi-channel products and services to customers through a multi-channel lines of business include Life and Savings, Property and Casualty, distribution network spanning tied and independent advisers, distribution network spanning tied and independent advisers, Asset Management and Banking and Lending. It distributes branches, bancassurance, direct and digital channels, and branches, bancassurance, direct and digital channels, and products and services to customers through a multi-channel worksites. worksites. distribution network spanning tied and independent advisers, branches, bancassurance, direct and digital channels, and worksites. 3 3 03 3 Old Mutual plc Annual Report and Accounts 2017Strategic report Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Chief Executive’s review continued Chief Executive’s review continued IFRS profit after tax of R10.2 billion increased by 46% from R7.0 billion in the prior year. This was driven primarily by higher actual investment returns in South Africa and Zimbabwe. In the context of IFRS profit after tax of R10.2 billion increased by 46% from R7.0 a tough economic and political landscape across several of billion in the prior year. This was driven primarily by higher actual OMEM’s key markets for much of the year, including South Africa, investment returns in South Africa and Zimbabwe. In the context of Zimbabwe and Kenya, the business delivered resilient financial a tough economic and political landscape across several of results with pre-tax AOP of R13.3 billion, up 5% on the prior year. OMEM’s key markets for much of the year, including South Africa, The improvement in AOP was driven by good progress at Old Zimbabwe and Kenya, the business delivered resilient financial Mutual Insure and Rest of Africa, reflecting signs of a turnaround. results with pre-tax AOP of R13.3 billion, up 5% on the prior year. The improvement in AOP was driven by good progress at Old Key adjusting items of AOP to IFRS profit include higher short-term Mutual Insure and Rest of Africa, reflecting signs of a turnaround. fluctuations on the long-term investment return of R2.2 billion (2016: negative R550 million) driven by Zimbabwe’s equity market Key adjusting items of AOP to IFRS profit include higher short-term performance and the profit on disposal of our joint venture in India fluctuations on the long-term investment return of R2.2 billion of R1.4 billion. This was partly offset by the one-off managed (2016: negative R550 million) driven by Zimbabwe’s equity market separation and standalone costs totalling R237 million (2016: Rnil); performance and the profit on disposal of our joint venture in India and goodwill impairments of R1.5 billion (2016: R1.3 billion) relating of R1.4 billion. This was partly offset by the one-off managed to East Africa and AIVA in Latin America. separation and standalone costs totalling R237 million (2016: Rnil); and goodwill impairments of R1.5 billion (2016: R1.3 billion) relating OMEM’s underlying IFRS operating and administration expenses to East Africa and AIVA in Latin America. of R18.8 billion were up 4% on the prior year below SA inflation in 2017. OMEM’s underlying IFRS operating and administration expenses of R18.8 billion were up 4% on the prior year below SA inflation in Gross flows of R214.4 billion were flat against the prior year, with 2017. growth in the Mass and Foundation Cluster and in Wealth and Investments. Life APE sales of R13.1 billion were 3% behind the Gross flows of R214.4 billion were flat against the prior year, with prior year, mainly due to lower group assurance and annuity sales growth in the Mass and Foundation Cluster and in Wealth and in Corporate. This was offset by strong corporate flows in the Investments. Life APE sales of R13.1 billion were 3% behind the Malawi business. prior year, mainly due to lower group assurance and annuity sales in Corporate. This was offset by strong corporate flows in the Net client cash flow (NCCF) of R14.5 billion was R2.5 billion below Malawi business. the prior year, with a significant non-life outflow in Corporate as well as a R3.3 billion outflow from the Namibian government pension Net client cash flow (NCCF) of R14.5 billion was R2.5 billion below fund. NCCF in 2017 benefited from R3.0 billion of the Old Mutual the prior year, with a significant non-life outflow in Corporate as well International flows that were previously reported in OMW and as a R3.3 billion outflow from the Namibian government pension comparatives have not been restated. Funds under Management fund. NCCF in 2017 benefited from R3.0 billion of the Old Mutual increased to R1.2 trillion, up 10% against the prior year. International flows that were previously reported in OMW and comparatives have not been restated. Funds under Management The Property & Casualty underwriting margin of 2.5% improved increased to R1.2 trillion, up 10% against the prior year. from 1.5% in the prior year. This was driven by a turnaround in OM Insure’s underwriting result following an improvement in claims The Property & Casualty underwriting margin of 2.5% improved experience despite catastrophe losses as well as an improvement from 1.5% in the prior year. This was driven by a turnaround in OM in the claims environment in East Africa following the remediation of Insure’s underwriting result following an improvement in claims the loss-making business. experience despite catastrophe losses as well as an improvement in the claims environment in East Africa following the remediation of the loss-making business. Nedbank Nedbank ranks as a top-5 bank by capital on the African continent and Ecobank, in which Nedbank maintains a 21.2% shareholding, Nedbank ranks within the top-10 banks by assets on the African continent. Nedbank ranks as a top-5 bank by capital on the African continent Nedbank is South Africa's fourth-largest bank by market and Ecobank, in which Nedbank maintains a 21.2% shareholding, capitalisation, total assets and headline earnings. It is also a ranks within the top-10 banks by assets on the African continent. leading corporate bank and a market leader in commercial property Nedbank is South Africa's fourth-largest bank by market and renewable energy finance and has a strong position in capitalisation, total assets and headline earnings. It is also a household motor finance, household deposits and card acquiring. leading corporate bank and a market leader in commercial property It operates a unique asset management model as part of an and renewable energy finance and has a strong position in integrated wealth management business. Through its own household motor finance, household deposits and card acquiring. operations in SADC and Rest of Africa, and through its pan-African It operates a unique asset management model as part of an banking alliance with Ecobank, Nedbank provides the Group’s integrated wealth management business. Through its own customers access to Africa's largest banking network. operations in SADC and Rest of Africa, and through its pan-African banking alliance with Ecobank, Nedbank provides the Group’s Nedbank produced a solid performance in a macro and political customers access to Africa's largest banking network. environment that has proved volatile and challenging. Headline earnings, including losses in associate income from ETI of R744 Nedbank produced a solid performance in a macro and political million, increased by 2.8% to R11.8 billion. This translated into an environment that has proved volatile and challenging. Headline increase in DHEPS of 2.4% to 2,406 cents and an increase in earnings, including losses in associate income from ETI of R744 HEPS of 2.2% to 2,452 cents. million, increased by 2.8% to R11.8 billion. This translated into an increase in DHEPS of 2.4% to 2,406 cents and an increase in As in prior periods, results are highlighted both including and HEPS of 2.2% to 2,452 cents. excluding ETI (referred to as managed operations) to provide a better understanding of the performance of the business given the As in prior periods, results are highlighted both including and volatility in ETI’s results in 2016 and 2017. Managed operations excluding ETI (referred to as managed operations) to provide a produced headline earnings growth of 7.8% to R12.8 billion, with better understanding of the performance of the business given the slower than expected revenue growth, more than offset by reduced volatility in ETI’s results in 2016 and 2017. Managed operations impairments and good cost management. produced headline earnings growth of 7.8% to R12.8 billion, with slower than expected revenue growth, more than offset by reduced ROE (excluding goodwill) and ROE remained flat at 16.4% and impairments and good cost management. 15.3%, respectively. ROE in managed operations (excluding goodwill and ETI) also remained stable at 18.1%. ROA decreased ROE (excluding goodwill) and ROE remained flat at 16.4% and 0.01% to 1.22% and excluding ETI, ROA in managed operations 15.3%, respectively. ROE in managed operations (excluding improved from 1.29% to 1.33%. Return on RWA increased from goodwill and ETI) also remained stable at 18.1%. ROA decreased 2.23% to 2.30%. 0.01% to 1.22% and excluding ETI, ROA in managed operations improved from 1.29% to 1.33%. Return on RWA increased from Nedbank’s CET1 and Tier 1 capital ratios of 12.6% and 13.4% 2.23% to 2.30%. respectively, average LCR for the fourth quarter of 116.2% and an NSFR of above 100%, are all Basel III compliant and are a Nedbank’s CET1 and Tier 1 capital ratios of 12.6% and 13.4% reflection of a strong balance sheet. On the back of solid earnings respectively, average LCR for the fourth quarter of 116.2% and growth in managed operations and a strong capital position, a final an NSFR of above 100%, are all Basel III compliant and are a dividend of 675 cents was declared, an increase of 7.1%. The total reflection of a strong balance sheet. On the back of solid earnings dividend per share increased 7.1% to 1,285 cents, ahead of HEPS growth in managed operations and a strong capital position, a final growth of 2.2%. dividend of 675 cents was declared, an increase of 7.1%. The total dividend per share increased 7.1% to 1,285 cents, ahead of HEPS growth of 2.2%. 04 4 4 Old Mutual plc Annual Report and Accounts 2017Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Chief Executive’s review continued IFRS profit after tax of R10.2 billion increased by 46% from R7.0 billion in the prior year. This was driven primarily by higher actual investment returns in South Africa and Zimbabwe. In the context of a tough economic and political landscape across several of OMEM’s key markets for much of the year, including South Africa, Zimbabwe and Kenya, the business delivered resilient financial results with pre-tax AOP of R13.3 billion, up 5% on the prior year. The improvement in AOP was driven by good progress at Old Mutual Insure and Rest of Africa, reflecting signs of a turnaround. Key adjusting items of AOP to IFRS profit include higher short-term fluctuations on the long-term investment return of R2.2 billion (2016: negative R550 million) driven by Zimbabwe’s equity market performance and the profit on disposal of our joint venture in India of R1.4 billion. This was partly offset by the one-off managed separation and standalone costs totalling R237 million (2016: Rnil); and goodwill impairments of R1.5 billion (2016: R1.3 billion) relating to East Africa and AIVA in Latin America. OMEM’s underlying IFRS operating and administration expenses of R18.8 billion were up 4% on the prior year below SA inflation in 2017. Gross flows of R214.4 billion were flat against the prior year, with growth in the Mass and Foundation Cluster and in Wealth and Investments. Life APE sales of R13.1 billion were 3% behind the prior year, mainly due to lower group assurance and annuity sales in Corporate. This was offset by strong corporate flows in the Malawi business. Net client cash flow (NCCF) of R14.5 billion was R2.5 billion below the prior year, with a significant non-life outflow in Corporate as well as a R3.3 billion outflow from the Namibian government pension fund. NCCF in 2017 benefited from R3.0 billion of the Old Mutual International flows that were previously reported in OMW and comparatives have not been restated. Funds under Management increased to R1.2 trillion, up 10% against the prior year. The Property & Casualty underwriting margin of 2.5% improved from 1.5% in the prior year. This was driven by a turnaround in OM Insure’s underwriting result following an improvement in claims experience despite catastrophe losses as well as an improvement in the claims environment in East Africa following the remediation of the loss-making business. Nedbank Nedbank ranks as a top-5 bank by capital on the African continent and Ecobank, in which Nedbank maintains a 21.2% shareholding, ranks within the top-10 banks by assets on the African continent. Nedbank is South Africa's fourth-largest bank by market capitalisation, total assets and headline earnings. It is also a leading corporate bank and a market leader in commercial property and renewable energy finance and has a strong position in household motor finance, household deposits and card acquiring. It operates a unique asset management model as part of an integrated wealth management business. Through its own operations in SADC and Rest of Africa, and through its pan-African banking alliance with Ecobank, Nedbank provides the Group’s customers access to Africa's largest banking network. Nedbank produced a solid performance in a macro and political environment that has proved volatile and challenging. Headline earnings, including losses in associate income from ETI of R744 million, increased by 2.8% to R11.8 billion. This translated into an increase in DHEPS of 2.4% to 2,406 cents and an increase in HEPS of 2.2% to 2,452 cents. As in prior periods, results are highlighted both including and excluding ETI (referred to as managed operations) to provide a better understanding of the performance of the business given the volatility in ETI’s results in 2016 and 2017. Managed operations produced headline earnings growth of 7.8% to R12.8 billion, with slower than expected revenue growth, more than offset by reduced impairments and good cost management. ROE (excluding goodwill) and ROE remained flat at 16.4% and 15.3%, respectively. ROE in managed operations (excluding goodwill and ETI) also remained stable at 18.1%. ROA decreased 0.01% to 1.22% and excluding ETI, ROA in managed operations improved from 1.29% to 1.33%. Return on RWA increased from 2.23% to 2.30%. Nedbank’s CET1 and Tier 1 capital ratios of 12.6% and 13.4% respectively, average LCR for the fourth quarter of 116.2% and an NSFR of above 100%, are all Basel III compliant and are a reflection of a strong balance sheet. On the back of solid earnings growth in managed operations and a strong capital position, a final dividend of 675 cents was declared, an increase of 7.1%. The total dividend per share increased 7.1% to 1,285 cents, ahead of HEPS growth of 2.2%. Old Mutual Wealth Old Mutual Wealth is a leader in the UK and in selected offshore markets in wealth management, providing advice-led investment solutions and investment platforms to over 900,000 customers, principally in the affluent market segment. At the core of its proposition is a multi-channel wealth offering driving Integrated NCCF with leading advice and investment solutions. Managed Separation Delivery on schedule When we unveiled the managed separation strategy in March 2016, we said that we aimed for it to be materially complete by the end of 2018. Subject to addressing the remaining issues, we are on track to deliver the managed separation as planned. OMW‘s IFRS post-tax profit was £99 million for 2017, compared to a loss of £4 million in 2016, principally due to the exceptional net performance fees in Single Strategy. As part of the listing of Quilter, we intend to hold a secondary offering of up to 9.6% with the proceeds to be retained by Old Mutual plc and its subsidiaries. Reported OMW AOP of £363 million for 2017 was 40% higher than prior year (2016: £260 million), and includes net performance fees of £101 million in 2017 (2016: £26 million). Pre-tax AOP on a standalone basis (reflecting the perimeter of the business post- listing which excludes the results from the Single Strategy business) was up 18% to £209 million (2016: £177 million, which included a £27 million charge for restructuring Heritage fees). Key reconciling items between the IFRS profit and pre-tax Adjusted Operating Profit (AOP) were UK Platform transformation costs of £74 million (2016: £102 million), one-off costs in 2017 relating to Managed Separation of £32 million (in 2016, these one-off costs were included within AOP), costs of £69 million associated with voluntary customer remediation in legacy products, the combined effects of goodwill amortisation and the impact of acquisition accounting totalling £103 million (2016: £140 million), and movements in policyholder tax. Reported NCCF performance was strong at £10.9 billion, up 110% on prior year (2016: £5.2 billion) driven by buoyant market conditions and robust investor confidence. Excluding the flows for the Single Strategy business, the NCCF for the standalone business was also strong, increasing 91% to £6.3 billion (2016: £3.3 billion). Reported Assets under Management/Administration (AuMA) was £138.5 billion, up 20% from the end of 2016 (31 December 2016: £115.3 billion excluding our divested Italian business (£6.2 billion) and South African branches (£2.0 billion) which have been transferred to OMEM). Of the 20% increase in AuMA, 10% (£11.0 billion) is due to positive market performance, 9% (£10.9 billion) resulted from positive NCCF and 1% (£1.3 billion) came from the acquisition of Caerus and Attivo. The unaudited 31 December 2017 Solvency II ratio was 155%. Adjusting for the £200m subordinated debt security issued in February 2018 and the new term loan would result in a pro forma Solvency II ratio of 171% at 31 December 2017 (before any impact of the sale of Single Strategy). We believe this includes sufficient free cash to complete all committed strategic investments (including the UK Platform Transformation Programme) and to allow for any further potential costs associated with the FCA’s Thematic Review, including for any potential fine which may be levied by the FCA, in respect of which no provision has yet been made. The impact of this prudent policy is that Quilter expects to maintain a solvency position in excess of its policy in the near-term. Work to wind-down the plc head office and remove circa £95 million of central costs is on track and progressing well. We continue to expect managed separation one-off costs to remain in line with our previous guidance. The quality of NAV has been materially improved as we have converted uncertainties within the assets into certain cash and continue to manage contingent liabilities and unwind complex arrangements which existed within the Group structure. Subject to addressing the remaining issues we have estimated a cash cost of £130 million for this work. Progress The managed separation of the Group is complex. However, the process has gained momentum and we achieved significant further progress in the second half of 2017 through the conclusion of numerous transactions and other actions to reduce the Group’s liabilities and exposures. Since reporting our 2017 interim results, we have achieved a number of meaningful steps:  In October 2017, the sale of the Indian joint venture with Kotak Mahindra was completed for net proceeds of £138 million  In November 2017, we sold the second tranche of shares of OMAM to HNA Capital and the remaining 5.5% stake for combined proceeds of $345 million  In November 2017, we reduced holding company debt by a further £548 million  In December 2017, we agreed the sale of Old Mutual Wealth’s UK Single Strategy Asset Management business to TA Associates and Single Strategy management for a consideration of c. £600 million  In January 2018, we received approval from the Competition Tribunal for OML to acquire Old Mutual plc – one of the key regulatory approvals for the process to be successful We have spent much of the past two years preparing the underlying businesses for independence and working with the management teams on improving the business performance. We have taken steps to build strong foundations for the future OML and Quilter entities and both of these businesses have good momentum, competitive strategies and excellent future growth prospects. New governance structures fit for listed companies have been established at both businesses. Their standalone balance sheets have now been finalised so as to ensure both businesses are well capitalised to fund growth plans and sustainable future dividend policies. 4 05 5 Old Mutual plc Annual Report and Accounts 2017Strategic report Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 The functions needed for the business to be operating as a standalone listed entity are now fully functional. The functions needed for the business to be operating as a We are prepared for the final wind-down of the plc head office standalone listed entity are now fully functional. in London. As part of this process, we expect around half of the remaining c.130 head office staff to leave by the end of June, We are prepared for the final wind-down of the plc head office with a further 40 by September and a skeleton staff remaining in London. As part of this process, we expect around half of the into 2019. We are on track to achieve the stated operational cost remaining c.130 head office staff to leave by the end of June, savings of c. £95 million per annum by the end of 2018. We have with a further 40 by September and a skeleton staff remaining also reduced Group exposures by de-risking the group pension into 2019. We are on track to achieve the stated operational cost scheme, mitigating various contingent exposures and converting savings of c. £95 million per annum by the end of 2018. We have assets to cash. Following the demerger, Old Mutual plc will become also reduced Group exposures by de-risking the group pension a subsidiary of Old Mutual Limited alongside other operating scheme, mitigating various contingent exposures and converting subsidiaries. Old Mutual plc will need to satisfy the UK Court that assets to cash. Following the demerger, Old Mutual plc will become it will continue to hold sufficient liquid, high quality assets to meet a subsidiary of Old Mutual Limited alongside other operating its liabilities and deal with any contingencies, plus adequate subsidiaries. Old Mutual plc will need to satisfy the UK Court that headroom, taking into account relevant insurances. it will continue to hold sufficient liquid, high quality assets to meet its liabilities and deal with any contingencies, plus adequate Next steps headroom, taking into account relevant insurances. After addressing the remaining issues, we expect that the legal process of separation will include, inter alia, the issuance of Next steps shareholder documentation in relation to managed separation After addressing the remaining issues, we expect that the legal a UK Court approved scheme of arrangement process – which process of separation will include, inter alia, the issuance of will facilitate the demerger of Quilter, the creation of Old Mutual shareholder documentation in relation to managed separation Limited as the holding company of Old Mutual plc, including its a UK Court approved scheme of arrangement process – which residual assets and liabilities, and a reduction in the capital of will facilitate the demerger of Quilter, the creation of Old Mutual Old Mutual plc. Old Mutual plc will become a subsidiary of OML, Limited as the holding company of Old Mutual plc, including its alongside the operating businesses. Quilter and OML will also residual assets and liabilities, and a reduction in the capital of hold capital markets events. Old Mutual plc. Old Mutual plc will become a subsidiary of OML, alongside the operating businesses. Quilter and OML will also The final step of the managed separation will be the anticipated hold capital markets events. distribution of the majority of OML’s holding in Nedbank Group to its shareholders. The timing of the distribution will be determined The final step of the managed separation will be the anticipated by the OML Board but it is expected to be within approximately distribution of the majority of OML’s holding in Nedbank Group to six months of the listing of OML. OML will maintain a holding of its shareholders. The timing of the distribution will be determined 19.9% in Nedbank, forming part of Old Mutual Life Assurance by the OML Board but it is expected to be within approximately Company of South Africa’s capital base. The 19.9% shareholding six months of the listing of OML. OML will maintain a holding of was determined through negotiations with Nedbank and 19.9% in Nedbank, forming part of Old Mutual Life Assurance discussions with the South African Reserve Bank in order to Company of South Africa’s capital base. The 19.9% shareholding provide stability to the broader financial system and the Nedbank was determined through negotiations with Nedbank and and OML investor base during managed separation, whilst also discussions with the South African Reserve Bank in order to supporting our ongoing commercial arrangements. provide stability to the broader financial system and the Nedbank and OML investor base during managed separation, whilst also OML is committed to being a significant holder of Nedbank while supporting our ongoing commercial arrangements. retaining a right to review its precise holding as appropriate from time to time, in accordance with the terms outlined in a new OML is committed to being a significant holder of Nedbank while Nedbank Relationship Agreement, which is expected to be finalised retaining a right to review its precise holding as appropriate from and executed in the coming weeks. time to time, in accordance with the terms outlined in a new Nedbank Relationship Agreement, which is expected to be finalised and executed in the coming weeks. Chief Executive’s review continued Chief Executive’s review continued A strong Board has been formed for OML, under the Chairmanship of Trevor Manuel. Eight new appointments have been made to complement members of the OMEM and Old Mutual Group A strong Board has been formed for OML, under the Chairmanship Holdings Board (the holding company for OMEM and Nedbank of Trevor Manuel. Eight new appointments have been made to which will be replaced by OML) who will also serve on the OML complement members of the OMEM and Old Mutual Group Board. The OML Board will bring a range of operational skills and Holdings Board (the holding company for OMEM and Nedbank listed financial services company experience that will be invaluable which will be replaced by OML) who will also serve on the OML once the business is listed. We appointed a new Chief Executive, Board. The OML Board will bring a range of operational skills and Peter Moyo, in June 2017 and the new Finance Director (and OML listed financial services company experience that will be invaluable Finance Director designate), Casper Troskie, will take up his role once the business is listed. We appointed a new Chief Executive, on 1 April 2018. Until Casper Troskie joins, Ingrid Johnson, Group Peter Moyo, in June 2017 and the new Finance Director (and OML Finance Director, has also been acting as interim Chief Financial Finance Director designate), Casper Troskie, will take up his role Officer of OMEM (and acting OML Finance Director designate). We on 1 April 2018. Until Casper Troskie joins, Ingrid Johnson, Group have improved the governance structures of the business and Finance Director, has also been acting as interim Chief Financial worked with the business to ensure it has appropriate functions to Officer of OMEM (and acting OML Finance Director designate). We operate as an independently listed entity. have improved the governance structures of the business and worked with the business to ensure it has appropriate functions to OMEM conducted a review of its business strategy and operate as an independently listed entity. geographical footprint. It now has a much more focused strategy. Going forward, OML has committed to improving the sustainable OMEM conducted a review of its business strategy and returns from its cash generative businesses in sub-Saharan Africa geographical footprint. It now has a much more focused strategy. and creating value from its recently deployed capital in East and Going forward, OML has committed to improving the sustainable West Africa. The new management team’s initial focus will be on returns from its cash generative businesses in sub-Saharan Africa three areas: consolidating and growing its positions in the South and creating value from its recently deployed capital in East and African segments where it is already a leader; improving the West Africa. The new management team’s initial focus will be on underperforming businesses of Old Mutual Insure, East Africa and three areas: consolidating and growing its positions in the South the Wealth and Investment cluster in South Africa; and building a African segments where it is already a leader; improving the long term competitive advantage through winning the war for talent, underperforming businesses of Old Mutual Insure, East Africa and refreshing its technology offering and becoming a cost leader. the Wealth and Investment cluster in South Africa; and building a There has been good progress on these three areas already and long term competitive advantage through winning the war for talent, OML is committing to deliver R1 billion of pre-tax run rate cost refreshing its technology offering and becoming a cost leader. savings by the end of 2019, net of costs to achieve this. There has been good progress on these three areas already and OML is committing to deliver R1 billion of pre-tax run rate cost In respect of Quilter, the executive management team and Board savings by the end of 2019, net of costs to achieve this. have been reshaped and strengthened in preparation for life as a listed standalone entity. Tim Tookey was appointed as Chief In respect of Quilter, the executive management team and Board Financial Officer in May 2017, Mark Satchel was appointed as have been reshaped and strengthened in preparation for life as a Corporate Finance Director in May 2017, and new appointments listed standalone entity. Tim Tookey was appointed as Chief were made in 2016 and 2017 to the roles of Chief Operating Financial Officer in May 2017, Mark Satchel was appointed as Officer, Chief Risk Officer, Chief Information Officer and a new HR Corporate Finance Director in May 2017, and new appointments Director. Glyn Jones was appointed Chairman of the Board in 2016 were made in 2016 and 2017 to the roles of Chief Operating and a further six new non-executive directors have also been Officer, Chief Risk Officer, Chief Information Officer and a new HR appointed during late 2016 and 2017. Director. Glyn Jones was appointed Chairman of the Board in 2016 and a further six new non-executive directors have also been Quilter’s business model is to be a modern, integrated wealth appointed during late 2016 and 2017. manager. In September 2017, operations were restructured to create a separate distinct multi-asset capability at the core of the Quilter’s business model is to be a modern, integrated wealth offering. In December 2017, agreement was reached to sell its manager. In September 2017, operations were restructured to Single Strategy asset management business to the Single Strategy create a separate distinct multi-asset capability at the core of the management team and funds managed by TA Associates for offering. In December 2017, agreement was reached to sell its approximately £600 million. This value is subject to a number of Single Strategy asset management business to the Single Strategy potential price adjustments depending on the net asset value of management team and funds managed by TA Associates for the business and a number of other factors at the disposal date. approximately £600 million. This value is subject to a number of This transaction is expected to close in the second half of 2018. potential price adjustments depending on the net asset value of Following completion of the disposal of the Single Strategy the business and a number of other factors at the disposal date. business, Quilter will consider a distribution from the surplus This transaction is expected to close in the second half of 2018. proceeds to its shareholders. Following completion of the disposal of the Single Strategy business, Quilter will consider a distribution from the surplus proceeds to its shareholders. 06 6 6 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Capital management policy In March 2016 we announced a new capital management policy for the period of the managed separation. This policy has provided the flexibility to balance the requirements of our multiple stakeholders and our businesses as they prepare for managed separation by enabling them to both continue to invest in order to drive enhanced performance and strengthen their balance sheets in preparation for being standalone businesses. In line with this policy we have today announced a second interim dividend of 3.57p, the rand equivalent is 66.50 cents. This will be paid on 30 April 2018. The total full year dividend for 2017 is 7.10p (2016: 6.06p). The proposed future Capital Management Policy of the independent Old Mutual Limited and Quilter businesses are presented in their respective Business Reviews on pages 26 and 48. The capital management policy is intended to remain in place until Old Mutual plc shares are no longer listed. Adjusted plc NAV per ordinary share The Adjusted Net Asset Value (ANAV) of Old Mutual plc was £11,952 million at 31 December 2017 (31 December 2016: £11,271 million), equivalent to 242.3 pence per share (31 December 2016: 228.6 pence per share). The increase in the ANAV per share largely reflects the OMEM covered business MCEV earnings (12.8p); the impact of the constant currency change in the share price of Nedbank (5.6p), reduced by the Old Mutual plc cash dividends paid in the year (-6.9p). Board changes On 29 June 2017, we announced that Dr Nkosana Moyo was stepping down from the Board of Old Mutual plc in order to pursue his political interests. As a result, Dr Alan Gillespie, the Senior Independent Director, joined the Group Audit Committee with effect from 1 August 2017. Nonkululeko Nyembezi stepped down from the Old Mutual plc Board on 31 December 2017. Ms Nyembezi joined the Old Mutual plc Board in 2012 and had also served on the Board Risk and Nomination and Governance Committees since 2013. Following the finalisation of the managed separation, including approval by shareholders and the court, the Boards of OML and Quilter will have the primary responsibility for the governance of their respective groups. Accordingly, the current governance structure of Old Mutual plc will be replaced and the Board will have fewer members. Until the managed separation transactions are completed, the current Board will continue as presently constituted, with the appropriate resolutions regarding the Directors’ annual reappointment being proposed at the Company’s AGM. Outlook The global economy is recovering which provides a positive backdrop for all of our businesses. In our key market of South Africa, we expect sentiment and confidence to improve following the appointment of the new South African president and we expect improved GDP growth in the coming year. In the UK, while there remains uncertainty over the outcome of the Brexit negotiations, the economy continues to grow. Global markets have performed strongly which combined with geopolitical developments means that there are downside risks to our businesses. Full outlooks for the three underlying businesses are given in their respective business review sections of the annual report and accounts. The following are extracts of current trading commentaries from each: OML’s outlook: The OML Group’s continuing operations have started the year on a positive note. Results from operations are trading in line with expectations since the 2017 year end. Nedbank reported its annual results on Friday 2 March 2018, and further details are available on its website. Quilter: Quilter has continued to trade in line with expectations since the year end. Overall, we continue to remain confident in Quilter’s prospects and it is anticipated that the next trading update will be for the first quarter of 2018, which is expected to be published in April 2018. The managed separation process has already delivered significant value through the reduction in plc debt and in central costs. We believe that further value will be delivered once the managed separation is completed through the following developments:  The removal of the conglomerate discount  c.£95 million of savings in central costs  Continued improvement in the performance of underlying businesses  Each business accessing its natural shareholder base and achieving appropriate valuations  Each business accountable to its shareholders for returns and cash generation from capital employed  And will have its local regulator as its lead regulator Old Mutual plc’s next update will be at our Annual General Meeting on 30 April 2018. Bruce Hemphill Group Chief Executive 07 7 Old Mutual plc Annual Report and Accounts 2017Strategic report Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Old Mutual plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Review of financial performance Review of financial performance Review of financial performance Review of financial performance The Group Finance Director’s review includes a reconciliation between AOP and IFRS profit for each of the Group’s businesses. Further details of the adjusting items between IFRS and AOP The Group Finance Director’s review includes a reconciliation The Group Finance Director’s review includes a reconciliation are provided in the basis of preparation and Note C1 of the between AOP and IFRS profit for each of the Group’s businesses. between AOP and IFRS profit for each of the Group’s businesses. The Group Finance Director’s review includes a reconciliation Old Mutual plc Financial Statements. Further details of the adjusting items between IFRS and AOP Further details of the adjusting items between IFRS and AOP between AOP and IFRS profit for each of the Group’s businesses. are provided in the basis of preparation and Note C1 of the are provided in the basis of preparation and Note C1 of the Further details of the adjusting items between IFRS and AOP 2017 AOP Results Old Mutual plc Financial Statements. Old Mutual plc Financial Statements. are provided in the basis of preparation and Note C1 of the The 2017 pre-tax AOP for the year of £2,037 million was 22% Old Mutual plc Financial Statements. 2017 AOP Results above the prior year (2016: £1,667 million). 2017 AOP Results The 2017 pre-tax AOP for the year of £2,037 million was 22% 2017 AOP Results The 2017 pre-tax AOP for the year of £2,037 million was 22% The weakness in sterling during the year was responsible for above the prior year (2016: £1,667 million). above the prior year (2016: £1,667 million). The 2017 pre-tax AOP for the year of £2,037 million was 22% £241 million of this increase. During 2017 the average sterling to above the prior year (2016: £1,667 million). rand exchange rate reduced to R17.15 (2016: R19.93). This had The weakness in sterling during the year was responsible for The weakness in sterling during the year was responsible for the effect of increasing the sterling reported results of both OMEM £241 million of this increase. During 2017 the average sterling to £241 million of this increase. During 2017 the average sterling to The weakness in sterling during the year was responsible for and Nedbank, which source the majority of their earnings from rand exchange rate reduced to R17.15 (2016: R19.93). This had rand exchange rate reduced to R17.15 (2016: R19.93). This had £241 million of this increase. During 2017 the average sterling to South Africa. the effect of increasing the sterling reported results of both OMEM the effect of increasing the sterling reported results of both OMEM rand exchange rate reduced to R17.15 (2016: R19.93). This had and Nedbank, which source the majority of their earnings from and Nedbank, which source the majority of their earnings from the effect of increasing the sterling reported results of both OMEM During 2017, Old Mutual plc sold its shareholding in OMAM. As a South Africa. South Africa. and Nedbank, which source the majority of their earnings from result, OMAM was consolidated in the Group’s results for only four South Africa. months of 2017 (2016: consolidated for 12 months). Accordingly During 2017, Old Mutual plc sold its shareholding in OMAM. As a During 2017, Old Mutual plc sold its shareholding in OMAM. As a the AOP of the Institutional Asset Management segment, which result, OMAM was consolidated in the Group’s results for only four result, OMAM was consolidated in the Group’s results for only four During 2017, Old Mutual plc sold its shareholding in OMAM. As a included OMAM, reduced from £141 million in 2016 to £64 million months of 2017 (2016: consolidated for 12 months). Accordingly months of 2017 (2016: consolidated for 12 months). Accordingly result, OMAM was consolidated in the Group’s results for only four in 2017. the AOP of the Institutional Asset Management segment, which the AOP of the Institutional Asset Management segment, which months of 2017 (2016: consolidated for 12 months). Accordingly included OMAM, reduced from £141 million in 2016 to £64 million included OMAM, reduced from £141 million in 2016 to £64 million the AOP of the Institutional Asset Management segment, which Excluding Institutional Asset Management and the impact of the in 2017. in 2017. included OMAM, reduced from £141 million in 2016 to £64 million weakness in sterling, pre-tax AOP was 12% higher than 2016. This compares favourably with the nominal GDP growth of 6.6%1 in 2017. Excluding Institutional Asset Management and the impact of the Excluding Institutional Asset Management and the impact of the in South Africa and 4.4%2 in the UK. weakness in sterling, pre-tax AOP was 12% higher than 2016. weakness in sterling, pre-tax AOP was 12% higher than 2016. Excluding Institutional Asset Management and the impact of the This compares favourably with the nominal GDP growth of 6.6%1 This compares favourably with the nominal GDP growth of 6.6%1 weakness in sterling, pre-tax AOP was 12% higher than 2016. Changes to the presentation in South Africa and 4.4%2 in the UK. in South Africa and 4.4%2 in the UK. This compares favourably with the nominal GDP growth of 6.6%1 between segments of AOP in South Africa and 4.4%2 in the UK. Changes to the presentation The following changes have been made in 2017 to the presentation Changes to the presentation between segments of AOP within AOP. Changes to the presentation between segments of AOP The following changes have been made in 2017 to the presentation between segments of AOP The following changes have been made in 2017 to the presentation  2017 OMEM AOP now includes the long-term investment within AOP. within AOP. The following changes have been made in 2017 to the presentation return (LTIR) on excess assets previously shown as a within AOP. separate item within plc Head Office AOP. The LTIR on  2017 OMEM AOP now includes the long-term investment  2017 OMEM AOP now includes the long-term investment excess assets was £20 million in 2017 (2016: £20 million) return (LTIR) on excess assets previously shown as a return (LTIR) on excess assets previously shown as a  2017 OMEM AOP now includes the long-term investment  Corporate costs are now shown before recharges to the separate item within plc Head Office AOP. The LTIR on separate item within plc Head Office AOP. The LTIR on return (LTIR) on excess assets previously shown as a businesses, with the recharges included within other net excess assets was £20 million in 2017 (2016: £20 million) excess assets was £20 million in 2017 (2016: £20 million) separate item within plc Head Office AOP. The LTIR on shareholders income/expenses (OSIE). The recharge in  Corporate costs are now shown before recharges to the  Corporate costs are now shown before recharges to the excess assets was £20 million in 2017 (2016: £20 million) 2017 was £4 million (2016: £19 million). businesses, with the recharges included within other net businesses, with the recharges included within other net  Corporate costs are now shown before recharges to the shareholders income/expenses (OSIE). The recharge in shareholders income/expenses (OSIE). The recharge in businesses, with the recharges included within other net Comparative information has been re-presented to be consistent 2017 was £4 million (2016: £19 million). 2017 was £4 million (2016: £19 million). shareholders income/expenses (OSIE). The recharge in with the treatment of the items described above and does not alter 2017 was £4 million (2016: £19 million). the consolidated AOP result as previously reported. Comparative information has been re-presented to be consistent Comparative information has been re-presented to be consistent with the treatment of the items described above and does not alter with the treatment of the items described above and does not alter Comparative information has been re-presented to be consistent Old Mutual Wealth, Nedbank and Institutional Asset Management the consolidated AOP result as previously reported. the consolidated AOP result as previously reported. with the treatment of the items described above and does not alter are classified as core operations in determining the Group’s AOP. the consolidated AOP result as previously reported. For the IFRS consolidated income statement these businesses are Old Mutual Wealth, Nedbank and Institutional Asset Management Old Mutual Wealth, Nedbank and Institutional Asset Management classified as discontinued operations, and are therefore excluded are classified as core operations in determining the Group’s AOP. are classified as core operations in determining the Group’s AOP. Old Mutual Wealth, Nedbank and Institutional Asset Management from IFRS profit before tax. For the IFRS consolidated income statement these businesses are For the IFRS consolidated income statement these businesses are are classified as core operations in determining the Group’s AOP. classified as discontinued operations, and are therefore excluded classified as discontinued operations, and are therefore excluded For the IFRS consolidated income statement these businesses are from IFRS profit before tax. from IFRS profit before tax. classified as discontinued operations, and are therefore excluded from IFRS profit before tax. Ingrid Johnson Group Finance Director Ingrid Johnson Ingrid Johnson Ingrid Johnson Group Finance Director Group Finance Director Ingrid Johnson Group Finance Director Group Finance Director Analysis of performance for the year ended 31 December 2017 Analysis of performance for the year 2017 IFRS results Analysis of performance for the year ended 31 December 2017 IFRS profit after tax attributable to equity holders was £909 million Analysis of performance for the year ended 31 December 2017 in 2017 compared to £570 million in 2016. This result includes the 2017 IFRS results ended 31 December 2017 2017 IFRS results £107 million benefit from the weakness in sterling compared to the IFRS profit after tax attributable to equity holders was £909 million 2017 IFRS results IFRS profit after tax attributable to equity holders was £909 million prior year. Excluding this impact, the IFRS profit attributable to in 2017 compared to £570 million in 2016. This result includes the in 2017 compared to £570 million in 2016. This result includes the IFRS profit after tax attributable to equity holders was £909 million ordinary equity holders is up 34% reflecting higher profits in Old £107 million benefit from the weakness in sterling compared to the £107 million benefit from the weakness in sterling compared to the in 2017 compared to £570 million in 2016. This result includes the Mutual Wealth, as a result of exceptional net performance fees prior year. Excluding this impact, the IFRS profit attributable to prior year. Excluding this impact, the IFRS profit attributable to £107 million benefit from the weakness in sterling compared to the in its Single Strategy business and higher investment returns in ordinary equity holders is up 34% reflecting higher profits in Old ordinary equity holders is up 34% reflecting higher profits in Old prior year. Excluding this impact, the IFRS profit attributable to OMEM due to Zimbabwe’s significant equity market performance. Mutual Wealth, as a result of exceptional net performance fees Mutual Wealth, as a result of exceptional net performance fees ordinary equity holders is up 34% reflecting higher profits in Old Zimbabwean equity markets have fallen by more than 10% in the in its Single Strategy business and higher investment returns in in its Single Strategy business and higher investment returns in Mutual Wealth, as a result of exceptional net performance fees first two months of 2018. OMEM due to Zimbabwe’s significant equity market performance. OMEM due to Zimbabwe’s significant equity market performance. in its Single Strategy business and higher investment returns in Zimbabwean equity markets have fallen by more than 10% in the Zimbabwean equity markets have fallen by more than 10% in the OMEM due to Zimbabwe’s significant equity market performance. An overview of the financial performance of Old Mutual Emerging first two months of 2018. first two months of 2018. Zimbabwean equity markets have fallen by more than 10% in the Markets (OMEM), Nedbank and Old Mutual Wealth (OMW) is set first two months of 2018. out in the Chief Executive Review. Detailed financial reviews of An overview of the financial performance of Old Mutual Emerging An overview of the financial performance of Old Mutual Emerging these businesses are set out later in this document and an Markets (OMEM), Nedbank and Old Mutual Wealth (OMW) is set Markets (OMEM), Nedbank and Old Mutual Wealth (OMW) is set An overview of the financial performance of Old Mutual Emerging overview of plc Head Office, taxation and non-controlling interests out in the Chief Executive Review. Detailed financial reviews of out in the Chief Executive Review. Detailed financial reviews of Markets (OMEM), Nedbank and Old Mutual Wealth (OMW) is set (NCI) is included on page 12. these businesses are set out later in this document and an these businesses are set out later in this document and an out in the Chief Executive Review. Detailed financial reviews of overview of plc Head Office, taxation and non-controlling interests overview of plc Head Office, taxation and non-controlling interests these businesses are set out later in this document and an Alternative performance measures (NCI) is included on page 12. (NCI) is included on page 12. overview of plc Head Office, taxation and non-controlling interests In addition to IFRS profit, the consolidated Group uses a number (NCI) is included on page 12. of Alternative Performance Measures (APMs) to assess the Alternative performance measures Alternative performance measures performance of the business. Some are applicable to the Group as In addition to IFRS profit, the consolidated Group uses a number Alternative performance measures In addition to IFRS profit, the consolidated Group uses a number a whole, such as Adjusted Operating Profit (AOP). Others are more of Alternative Performance Measures (APMs) to assess the of Alternative Performance Measures (APMs) to assess the In addition to IFRS profit, the consolidated Group uses a number specific to the business lines within the component businesses, for performance of the business. Some are applicable to the Group as performance of the business. Some are applicable to the Group as of Alternative Performance Measures (APMs) to assess the example Net Client Cash Flows (NCCF) and Covered APE Sales. a whole, such as Adjusted Operating Profit (AOP). Others are more a whole, such as Adjusted Operating Profit (AOP). Others are more performance of the business. Some are applicable to the Group as specific to the business lines within the component businesses, for specific to the business lines within the component businesses, for a whole, such as Adjusted Operating Profit (AOP). Others are more Definitions of the principal APMs, explanations of why they are example Net Client Cash Flows (NCCF) and Covered APE Sales. example Net Client Cash Flows (NCCF) and Covered APE Sales. specific to the business lines within the component businesses, for relevant, and details of the basis for calculating each measure are example Net Client Cash Flows (NCCF) and Covered APE Sales. included on pages 23 to 25. Definitions of the principal APMs, explanations of why they are Definitions of the principal APMs, explanations of why they are relevant, and details of the basis for calculating each measure are relevant, and details of the basis for calculating each measure are Definitions of the principal APMs, explanations of why they are included on pages 23 to 25. included on pages 23 to 25. relevant, and details of the basis for calculating each measure are included on pages 23 to 25. 1 The South Africa nominal GDP rate is calculated as the average Consumer Price Index rate of inflation during 2017 of 5.3% plus the 2017 real GDP growth rate in South Africa of 1.3%. 2 The UK nominal GDP rate is calculated as the average Consumer Price Index rate of inflation during 2017 of 2.7% plus the 2017 real GDP growth rate in the UK of 1.7%. 1 The South Africa nominal GDP rate is calculated as the average Consumer Price Index rate of inflation during 2017 of 5.3% plus the 2017 real GDP growth rate in 1 The South Africa nominal GDP rate is calculated as the average Consumer Price Index rate of inflation during 2017 of 5.3% plus the 2017 real GDP growth rate in 2 The UK nominal GDP rate is calculated as the average Consumer Price Index rate of inflation during 2017 of 2.7% plus the 2017 real GDP growth rate in the UK of 1.7%. 1 The South Africa nominal GDP rate is calculated as the average Consumer Price Index rate of inflation during 2017 of 5.3% plus the 2017 real GDP growth rate in 2 The UK nominal GDP rate is calculated as the average Consumer Price Index rate of inflation during 2017 of 2.7% plus the 2017 real GDP growth rate in the UK of 1.7%. South Africa of 1.3%. South Africa of 1.3%. South Africa of 1.3%. 2 The UK nominal GDP rate is calculated as the average Consumer Price Index rate of inflation during 2017 of 2.7% plus the 2017 real GDP growth rate in the UK of 1.7%. 08 34 34 34 34 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Review of financial performance The Group Finance Director’s review includes a reconciliation between AOP and IFRS profit for each of the Group’s businesses. Further details of the adjusting items between IFRS and AOP are provided in the basis of preparation and Note C1 of the Old Mutual plc Financial Statements. 2017 AOP Results The 2017 pre-tax AOP for the year of £2,037 million was 22% above the prior year (2016: £1,667 million). The weakness in sterling during the year was responsible for £241 million of this increase. During 2017 the average sterling to rand exchange rate reduced to R17.15 (2016: R19.93). This had the effect of increasing the sterling reported results of both OMEM and Nedbank, which source the majority of their earnings from South Africa. During 2017, Old Mutual plc sold its shareholding in OMAM. As a result, OMAM was consolidated in the Group’s results for only four months of 2017 (2016: consolidated for 12 months). Accordingly the AOP of the Institutional Asset Management segment, which included OMAM, reduced from £141 million in 2016 to £64 million in 2017. Excluding Institutional Asset Management and the impact of the weakness in sterling, pre-tax AOP was 12% higher than 2016. This compares favourably with the nominal GDP growth of 6.6%1 in South Africa and 4.4%2 in the UK. Changes to the presentation between segments of AOP within AOP.  2017 OMEM AOP now includes the long-term investment return (LTIR) on excess assets previously shown as a separate item within plc Head Office AOP. The LTIR on  Corporate costs are now shown before recharges to the businesses, with the recharges included within other net shareholders income/expenses (OSIE). The recharge in 2017 was £4 million (2016: £19 million). Comparative information has been re-presented to be consistent with the treatment of the items described above and does not alter the consolidated AOP result as previously reported. Old Mutual Wealth, Nedbank and Institutional Asset Management are classified as core operations in determining the Group’s AOP. For the IFRS consolidated income statement these businesses are classified as discontinued operations, and are therefore excluded from IFRS profit before tax. Ingrid Johnson Group Finance Director Analysis of performance for the year ended 31 December 2017 2017 IFRS results IFRS profit after tax attributable to equity holders was £909 million in 2017 compared to £570 million in 2016. This result includes the £107 million benefit from the weakness in sterling compared to the prior year. Excluding this impact, the IFRS profit attributable to ordinary equity holders is up 34% reflecting higher profits in Old Mutual Wealth, as a result of exceptional net performance fees in its Single Strategy business and higher investment returns in OMEM due to Zimbabwe’s significant equity market performance. Zimbabwean equity markets have fallen by more than 10% in the An overview of the financial performance of Old Mutual Emerging Markets (OMEM), Nedbank and Old Mutual Wealth (OMW) is set out in the Chief Executive Review. Detailed financial reviews of these businesses are set out later in this document and an (NCI) is included on page 12. Alternative performance measures In addition to IFRS profit, the consolidated Group uses a number of Alternative Performance Measures (APMs) to assess the performance of the business. Some are applicable to the Group as a whole, such as Adjusted Operating Profit (AOP). Others are more specific to the business lines within the component businesses, for example Net Client Cash Flows (NCCF) and Covered APE Sales. Definitions of the principal APMs, explanations of why they are relevant, and details of the basis for calculating each measure are included on pages 23 to 25. first two months of 2018. The following changes have been made in 2017 to the presentation 1 The South Africa nominal GDP rate is calculated as the average Consumer Price Index rate of inflation during 2017 of 5.3% plus the 2017 real GDP growth rate in South Africa of 1.3%. 2 The UK nominal GDP rate is calculated as the average Consumer Price Index rate of inflation during 2017 of 2.7% plus the 2017 real GDP growth rate in the UK of 1.7%. Old Mutual plc Annual Report and Accounts 2017 The tables below summarise the AOP and IFRS results of the Group in 2017 and 2016: AOP analysis (£m) Old Mutual Emerging Markets Nedbank Old Mutual Wealth Institutional Asset Management (OMAM and Rogge) plc Head Office2: Old Mutual plc finance costs Corporate costs (before recharges) Other net shareholder income/(expenses) (OSIE) Adjusted operating profit before tax Tax on adjusted operating profit Adjusted operating profit after tax Non-controlling interests – ordinary shares Non-controlling interests – preferred securities Adjusted operating profit after tax attributable to ordinary equity holders of the parent Adjusted weighted average number of shares (millions) Adjusted operating earnings per share (pence) IFRS profit analysis (£m) Core operations: Old Mutual Emerging Markets Nedbank Old Mutual Wealth Institutional Asset Management (OMAM and Rogge) plc Head Office2 Non-core operations Consolidation adjustments Discontinued operations excluded from profit before tax3 IFRS profit from continuing items before tax Income tax expense IFRS profit from continuing operations after tax IFRS profit from discontinued operations after tax IFRS profit after tax for the financial year Attributable to: Equity holders of the parent Non-controlling interests Dividends paid to holders of perpetual preferred callable securities, net of tax credits Profit after tax for the financial year Weighted average number of shares (millions) Basic earnings per share (pence) 2016 Re-presented1 639 799 260 1,698 141 % change 22% 21% 40% 24% (55%) (88) (79) (5) 1,667 (398) 1,269 (319) (22) 928 4,773 19.4 25% 27% (20%) 22% (20%) 23% (14%) (55%) 25% − 25% 2017 777 963 363 2,103 64 (66) (58) (6) 2,037 (477) 1,560 (364) (34) 1,162 4,776 24.3 2016 Re-presented3 2017 % change 909 967 173 2,049 29 (242) 26 (24) (1,221) 617 (240) 377 881 1,258 909 315 34 1,258 4,633 19.3 547 737 113 1,398 133 (176) (5) − (1,043) 306 (142) 164 681 845 570 253 22 845 4,635 12.0 66% 31% 53% 47% (78%) (38%) 620% n/a (17%) 102% (69%) 130% 29% 49% 59% 25% 55% 49% − 61% overview of plc Head Office, taxation and non-controlling interests excess assets was £20 million in 2017 (2016: £20 million) 1 AOP has been re-presented to report LTIR on excess assets, which was previously reported as a separate item in plc Head Office, within OMEM. In addition, corporate costs are now shown before recharges to the businesses, with the recharges included within other net shareholders income/expenses (OSIE). 2 Plc Head Office includes the Old Mutual plc parent company and other centre companies. 3 Old Mutual Wealth, Nedbank and Institutional Asset Management are classified as core operations in determining the Group’s adjusted operating profit. For the IFRS consolidated income statement these businesses are classified as discontinued operations, and are therefore excluded from IFRS profit before tax. 34 09 35 Old Mutual plc Annual Report and Accounts 2017Strategic report Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Review of financial performance Review of financial performance continued continued Reconciliation of AOP to IFRS profit attributable to equity holders of the parent: Reconciliation of AOP to IFRS profit attributable to equity holders of the parent: IAM 64 IAM (2) 64 − (2) − − − − (33) − − (33) − − − − − − − − − − (35) − − (35) − − − − 29 − 29 (18) 12 (18) − 12 − 23 (20) 23 9 (20) − 9 12 − 12 777 (88) 777 81 (88) 127 81 (55) 127 − (55) − − − − (14) − (14) − − − − − 51 − − 51 81 − − 81 909 − 909 (214) (19) (214) (81) (19) − (81) 595 − (27) 595 26 (27) − 26 594 − 594 963 7 963 − 7 − − − − − − − − − − (3) − (3) − − − − − 4 − − 4 − − − − 967 − 967 (244) (2) (244) − (2) − − 720 − (351) 720 5 (351) − 5 375 − 375 Non- core Non- − core − − − − − − − − − − − − − − − − − − − − − − − − 26 − − 26 − − 26 − 26 − − − − − (2) − 24 (2) − 24 − − − − 24 − 24 plc Head plc Office Head (130) Office − (130) 92 − − 92 − − − − 2 − (128) 2 (51) (128) (51) (27) − (27) − − (112) − − (112) − − − − (242) − (242) 43 19 43 − 19 − − (180) − − (180) 9 − − 9 (171) − (171) Dis- continued2 Total Dis- 2,037 − continued2 Total − (186) 2,037 − − 197 − (186) − 125 − 197 − (79) − 125 − (33) − (79) − 2 − (33) − (128) − 2 − (100) − (128) − (100) − (27) − (74) − (27) − (69) − (74) − (372) − (69) − 26 − (372) − 147 − 26 (1,221) (1,221) − 147 617 (1,221) (1,221) (1,221) 617 (1,221) − (477) − 46 − (477) − (147) − 46 340 338 − (147) 377 (881) 340 338 − (398) 377 (881) − 49 − (398) 881 881 − 49 909 − 881 881 909 − OMEM Nedbank OMW 363 OMEM Nedbank OMW (103) 363 24 (103) (2) 24 − (2) − − − − − − (32) − (32) − (74) − (69) (74) (256) (69) − (256) 66 − − 66 173 − 173 (44) 36 (44) (66) 36 − (66) 99 − − 99 − − − − 99 − 99 Year ended December 2017 (£m) Adjusted operating profit before tax Year ended December 2017 (£m) Goodwill, intangible and associate charges Adjusted operating profit before tax Profit on business disposals Goodwill, intangible and associate charges Short-term fluctuations in investment return Profit on business disposals Returns on own debt and equity Short-term fluctuations in investment return Institutional Asset Management equity plans Returns on own debt and equity Dividends on preferred securities Institutional Asset Management equity plans Credit-related fair value losses on Group debt Dividends on preferred securities One-off managed separation and business Credit-related fair value losses on Group debt standalone costs One-off managed separation and business Resolution of plc pre-existing items standalone costs OMW UK Platform transformation costs Resolution of plc pre-existing items Voluntary customer remediation provision OMW UK Platform transformation costs Total adjusting items Voluntary customer remediation provision Non-core operations Total adjusting items Income tax attributable to policyholder returns Non-core operations Discontinued operations included in AOP2 Income tax attributable to policyholder returns IFRS profit from continuing operations before Discontinued operations included in AOP2 tax IFRS profit from continuing operations before Tax on adjusted operating profit tax Tax on adjusting items Tax on adjusted operating profit Income tax attributable to policyholder returns Tax on adjusting items Tax on discontinued and non-core operations1 Income tax attributable to policyholder returns IFRS profit from continuing operations after tax Tax on discontinued and non-core operations1 NCI in adjusted operating profit IFRS profit from continuing operations after tax NCI in adjusting items NCI in adjusted operating profit Discontinued operations1 NCI in adjusting items IFRS profit attributable to equity holders after tax Discontinued operations1 IFRS profit attributable to equity holders after tax Con- solidation adjustments1 Con- solidation - adjustments1 - - - - - - (24) - - (24) - - - - - - - - - - - - (24) - - (24) - - - - (24) - (24) - - - - - - - (24) - - (24) - - - - (24) - (24) Consolidation adjustments1 Discontinued2 Total OMEM Nedbank Year ended December 2016 (£m) Consolidation 1,667 − - 799 639 Adjusted operating profit before tax adjustments1 Discontinued2 Total OMEM Nedbank Year ended December 2016 (£m) (278) − - (50) (75) Goodwill, intangible and associate charges 1,667 − - 799 639 Adjusted operating profit before tax 19 − - (12) 3 Profit on business disposals (278) − - (50) (75) Goodwill, intangible and associate charges (26) − - − (27) Short-term fluctuations in investment return 19 − - (12) 3 Profit on business disposals (43) − - − (43) Returns on own debt and equity (26) − - − (27) Short-term fluctuations in investment return (20) − - − − Institutional Asset Management equity plans (43) − - − (43) Returns on own debt and equity 17 − - − − Dividends on preferred securities (20) − - − − Institutional Asset Management equity plans (24) − - − − Credit-related fair value losses on Group debt 17 − - − − Dividends on preferred securities (102) − - − − OMW UK Platform transformation costs (24) − - − − Credit-related fair value losses on Group debt (457) − - (62) (142) Total adjusting items (102) − - − − OMW UK Platform transformation costs (5) − - − − Non-core operations - (62) (142) Total adjusting items (457) − 144 − - − 50 Income tax attributable to policyholder returns (5) − - − − Non-core operations Discontinued operations included in AOP2 (1,043) (1,043) - − − 144 - − − 50 Income tax attributable to policyholder returns 306 (1,043) - 737 547 IFRS profit from continuing operations before tax Discontinued operations included in AOP2 (1,043) (1,043) - − − (398) − - (199) (170) Tax on adjusted operating profit 306 (1,043) - 737 547 IFRS profit from continuing operations before tax 38 − - − 13 Tax on adjusting items (398) − - (199) (170) Tax on adjusted operating profit (144) − - − (50) Income tax attributable to policyholder returns 38 − - − 13 Tax on adjusting items Tax on discontinued operations1 362 362 - − − (144) − - − (50) Income tax attributable to policyholder returns 164 (681) - 538 340 IFRS profit from continuing operations after tax Tax on discontinued operations1 362 362 - − − (341) − - (288) (17) NCI in adjusted operating profit 164 (681) - 538 340 IFRS profit from continuing operations after tax 66 − - 32 30 NCI in adjusting items (341) − - (288) (17) NCI in adjusted operating profit Discontinued operations1 681 681 - − − 66 − - 32 30 NCI in adjusting items 570 − - 282 353 IFRS profit attributable to equity holders after tax Discontinued operations1 681 681 - − − 1 Consolidation adjustments reflects Old Mutual plc shares held by consolidated investment funds, which are treated as treasury shares within IFRS. IFRS profit attributable to equity holders after tax 570 − - 282 353 2 Discontinued operations relate to Nedbank, OMW and Institutional Asset Management earnings included within AOP; but reported as discontinued operations within IFRS. 1 Consolidation adjustments reflects Old Mutual plc shares held by consolidated investment funds, which are treated as treasury shares within IFRS. 2 Discontinued operations relate to Nedbank, OMW and Institutional Asset Management earnings included within AOP; but reported as discontinued operations within IFRS. Office Non-core plc Head − (172) Office Non-core − (7) − (172) − 10 − (7) − − − 10 − − − − − − − − − 17 − − − (24) − 17 − − − (24) − (4) − − (5) − − (4) − − (5) − − − − − (5) (176) − − − 54 (5) (176) − (4) − 54 − − − (4) − − − − (5) (126) − − − − (5) (126) − − − − − − − − (5) (126) − − (5) (126) OMW 260 OMW (140) 260 − (140) 1 − − 1 − − − − − − (102) − (241) (102) − (241) 94 − − 94 113 − (47) 113 24 (47) (94) 24 − (94) (4) − − (4) − − − − (4) − (4) IAM 141 IAM (6) 141 18 (6) − 18 − − (20) − − (20) − − − − (8) − − (8) − − − − 133 − (36) 133 5 (36) − 5 − − 102 − (36) 102 4 (36) − 4 70 − 70 plc Head 10 36 36 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Explanation of adjusting items between AOP and IFRS In determining the AOP of the Group for core operations, certain adjustments are made to IFRS profit before tax to reflect the Directors’ view of the Group’s long-term performance. Details of these adjustments are provided in Note C1 of the Consolidated Financial Statements, and in respect of tax in note D1. A summary of significant adjustments is provided below. Goodwill, intangible and associate charges were £186 million in 2017 (2016: £278 million). In OMEM the charges for 2017 include goodwill impairment of £71 million recognised in the first half of 2017 relating to the UAP-Old Mutual Group entity in East Africa. This followed the simplification of the operating structure of the Rest of Africa portfolio and the consequential alignment of the routine goodwill valuation review in accordance with accounting requirements. A further goodwill impairment of £14 million was recognised in the second half of the year relating to the AIVA business in Uruguay, as a result of weaker than anticipated performance at the time of the impairment review. In OMW, goodwill, intangible and associate charges were £103 million (2016: £140 million). The charge was lower due to an additional £46 million impairment of goodwill and intangibles in 2016 as a result of the anticipated sale of OMW Italy. Profit on business disposals includes a £81 million profit in OMEM on disposal of Kotak Mahindra Old Mutual Life Insurance Limited (Kotak) and a £24 million profit in OMW on disposal of OMW Italy. In the plc Head Office, the £92 million profit on disposal results largely from the sale of our holding in OMAM. Within AOP the investment return on shareholder funds is calculated using a Long Term Investment Return (LTIR) rate. Any short-term fluctuations between the LTIR in AOP and actual returns are included in adjusting items. In 2017, the actual investment return was higher than the LTIR assumed in AOP by £125 million (2016: £26 million lower). This reflects the impact of the significant growth in Zimbabwe’s equity markets which resulted in a short term fluctuation of positive £106 million. Following recent political developments in Zimbabwe, the current macro-economic situation remains fluid, and the market reaction remains volatile. Zimbabwean equity markets have fallen by more than 10% in the first two months of 2018. Adjusting items include a £33 million expense (2016: £20 million) due to the revaluation of Institutional Asset Management equity plans held by Affiliate key employees, and Landmark acquisition related expenses. Credit-related fair value losses on Group debt were £128 million in 2017 (2016: £24 million loss). In 2017 this includes £102 million to reflect the difference between the cash paid to repurchase and redeem debt securities during the year and the IFRS book value of those debt securities at the date of repurchase. In 2017, OMW UK Platform transformation costs were £74 million (2016: £102 million). These costs relate to both the closure of the previous programme and costs associated with the new proposition supplied by FNZ. New adjusting items between AOP and IFRS 2017 An expense of £27 million related to the resolution of plc Head Office pre-existing items includes expenses of £20 million for insuring and de-risking certain indemnities associated with businesses previously owned by the Group. In addition costs of £7 million were incurred in disposing of the Group’s captive insurance entity which covered plc Head Office and subsidiary companies. Further details of costs related to addressing plc Head Office pre-existing items is provided on page 18. One-off managed separation and business standalone costs were £100 million in 2017. In 2016 these costs, which were included within AOP, totalled £31 million. If the 2016 costs were excluded from AOP, the growth in AOP pre-tax would reduce from 22% to 20%. As part of OMW’s ongoing work to promote fair customer outcomes, product reviews consistent with the recommendations from the FCA’s thematic feedback and the FCA’s guidance ‘FG16/8 Fair Treatment of long-standing customers in the life insurance sector’ have been conducted. Following these reviews, it has been decided to commence voluntary remediation to customers in certain legacy products within the Heritage book. As part of this, OMW have decided to cap early encashment charges at 5% for pension customers under 55, to refund all early encashment charges over 5% on pensions products applied since 1 January 2009 and to refund certain paid-up charges also since 1 January 2009. A provision of £69 million has been made within the 2017 results for the aggregate of these remediation costs, and this has been reported outside of AOP because it does not reflect the 2017 operating performance of Old Mutual Wealth and reflects operations in the past. In 2016 the AOP of Old Mutual Wealth included a £27 million charge for the restructuring of Heritage fees. This was largely related to changes to future charges for certain continuing customers of the Heritage business. On the basis of the forward looking nature of these charges the 2016 AOP was not adjusted for this impact. Discontinued and non-core operations For IFRS reporting the results of Nedbank, Old Mutual Wealth and Institutional Asset Management are discontinued operations because they have been classified as held for distribution. These businesses remain within AOP in 2017 reflecting our continued management of these businesses, their contribution to the Group result for the year and to aid comparability. Non-core operations relates to Old Mutual Bermuda IFRS pre-tax profit of £26 million (2016: £5 million loss). The increase in profit largely reflects the favourable developments in the run-off of this closed book of business. 11 37 Old Mutual plc Annual Report and Accounts 2017Strategic reportOld Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Review of financial performance continued Review of financial performance continued (130) 2017 (66) (58) 2017 (6) (66) (58) (130) (6) Plc Head Office AOP The plc Head Office represents the plc Parent Company and the other centre companies of the Group, which typically own and Plc Head Office AOP manage the Group’s interests. The AOP of the plc Head Office is The plc Head Office represents the plc Parent Company and the detailed below: other centre companies of the Group, which typically own and manage the Group’s interests. The AOP of the plc Head Office is 2016 Plc Head Office (£m) detailed below: (88) Old Mutual plc finance costs (79) Corporate costs (before recharges) 2016 Plc Head Office (£m) (5) Other net shareholder income/ Old Mutual plc finance costs (88) (expenses) (OSIE) (79) Corporate costs (before recharges) (172) Total plc Head Office AOP Other net shareholder income/ (5) (expenses) (OSIE) Old Mutual plc finance costs (172) Total plc Head Office AOP Old Mutual plc finance costs reduced from £88 million in 2016 to £66 million in 2017, in-line with the guidance communicated at our Old Mutual plc finance costs 2016 Preliminary Results. The reduction in finance costs largely Old Mutual plc finance costs reduced from £88 million in 2016 to reflects the repayment of £112 million of senior debt in October £66 million in 2017, in-line with the guidance communicated at our 2016 and the repurchase and redemption of £273 million of 2016 Preliminary Results. The reduction in finance costs largely perpetual preferred callable securities in February 2017. reflects the repayment of £112 million of senior debt in October 2016 and the repurchase and redemption of £273 million of Corporate costs before recharges perpetual preferred callable securities in February 2017. Corporate costs before recharges of £58 million in 2017 are £21 million below the prior period (2016: £79 million). Corporate costs before recharges Corporate costs before recharges of £58 million in 2017 are The reduction in corporate costs reflects savings of £11 million £21 million below the prior period (2016: £79 million). as a result of retrenchment activity in 2016 and 2017 and wider repurposing of the plc Head Office, including an over 50% The reduction in corporate costs reflects savings of £11 million reduction in headcount compared with January 2016. These as a result of retrenchment activity in 2016 and 2017 and wider reductions are in-line with our guidance provided at the 2016 repurposing of the plc Head Office, including an over 50% Preliminary Results announcement. reduction in headcount compared with January 2016. These reductions are in-line with our guidance provided at the 2016 The reduction in corporate costs also includes the impact of Preliminary Results announcement. property and insurance costs of £10 million which were previously incurred by plc, and therefore reflected in corporate costs, but The reduction in corporate costs also includes the impact of which are now directly incurred by the businesses. property and insurance costs of £10 million which were previously incurred by plc, and therefore reflected in corporate costs, but Other net shareholder income / (expenses) (OSIE) which are now directly incurred by the businesses. The table below sets out other net shareholder expenses of £6 million in 2017 (2016: £5 million): Other net shareholder income / (expenses) (OSIE) The table below sets out other net shareholder expenses of £6 OSIE (£m) million in 2017 (2016: £5 million): Share based payment charges Solvency II costs and other projects OSIE (£m) Brand costs Share based payment charges Other net expenses Solvency II costs and other projects Recharge of plc Head Office costs Brand costs OSIE, excluding fx, seed capital Other net expenses gains and one-off MS cost Recharge of plc Head Office costs One-off managed separation costs OSIE, excluding fx, seed capital FX (losses)/gains gains and one-off MS cost Seed capital gains One-off managed separation costs Total other net shareholder FX (losses)/gains income/(expenses) (OSIE) Seed capital gains Total other net shareholder income/(expenses) (OSIE) 2017 (9) − 2017 − (9) (7) − 4 − (12) (7) 4 − (12) (1) 7 − (6) (1) 7 (6) 2016 (10) (5) 2016 (8) (10) (7) (5) 19 (8) (11) (7) 19 (22) (11) 20 8 (22) (5) 20 8 (5) In 2017 OSIE includes expenses related to share based payment charges of £9 million (2016: £10 million). In 2016 Solvency II and other project costs of £5 million and OMW brand costs of £8 million In 2017 OSIE includes expenses related to share based payment were also incurred. The on-going brand costs are now incurred charges of £9 million (2016: £10 million). In 2016 Solvency II and directly by OMW. The recharge of plc Head Office costs has other project costs of £5 million and OMW brand costs of £8 million reduced significantly to £4 million (2016: £19 million) as costs were also incurred. The on-going brand costs are now incurred previously incurred by the plc and recharged to OMEM and OMW directly by OMW. The recharge of plc Head Office costs has are now incurred directly by these businesses. reduced significantly to £4 million (2016: £19 million) as costs previously incurred by the plc and recharged to OMEM and OMW One-off plc Head Office costs of managed separation were £22 are now incurred directly by these businesses. million in 2016. These costs have been excluded from AOP in 2017. Foreign exchange losses in 2017 of £1 million (2016: £20 One-off plc Head Office costs of managed separation were £22 million gain) were incurred on US dollar denominated cash and million in 2016. These costs have been excluded from AOP in seed investments. 2017. Foreign exchange losses in 2017 of £1 million (2016: £20 million gain) were incurred on US dollar denominated cash and In 2017 seed capital gains were £7 million (2016: £8 million), seed investments. largely on funds managed by OMAM. The plc Head Office has substantially reduced its seed portfolio as part of the managed In 2017 seed capital gains were £7 million (2016: £8 million), separation. At 31 December 2017 the plc Head Office held seed largely on funds managed by OMAM. The plc Head Office has investments of £6 million (31 December 2016: £148 million). substantially reduced its seed portfolio as part of the managed separation. At 31 December 2017 the plc Head Office held seed Tax investments of £6 million (31 December 2016: £148 million). The AOP effective tax rate (ETR) for the Group is 23% (2016: 24%). The IFRS ETR is more volatile due to the inclusion of Tax policyholder tax, and one-off items which are typically not taxed at The AOP effective tax rate (ETR) for the Group is 23% (2016: the statutory rate. Analysis of the ETR in relation to AOP therefore 24%). The IFRS ETR is more volatile due to the inclusion of gives a more consistent means of understanding the Group tax policyholder tax, and one-off items which are typically not taxed at charge over the longer term. As the majority of the Group’s profits the statutory rate. Analysis of the ETR in relation to AOP therefore arise in OMEM and Nedbank, the tax borne by these businesses gives a more consistent means of understanding the Group tax has a significant impact on the Group ETR. charge over the longer term. As the majority of the Group’s profits arise in OMEM and Nedbank, the tax borne by these businesses The AOP ETR for OMEM, calculated in sterling, has increased has a significant impact on the Group ETR. slightly to the statutory rate of 28% (2016: 27%). The Nedbank AOP ETR remained constant at 25%. The AOP ETR for OMEM, calculated in sterling, has increased slightly to the statutory rate of 28% (2016: 27%). The Nedbank The ETR for the Old Mutual Wealth business is generally lower AOP ETR remained constant at 25%. than in the African businesses given lower headline corporate tax rates in the UK and other markets in which its business operates. The ETR for the Old Mutual Wealth business is generally lower Interest payments and corporate costs incurred by plc Head Office than in the African businesses given lower headline corporate tax in the UK are available to be offset against profits in the Old Mutual rates in the UK and other markets in which its business operates. Wealth business. Interest payments and corporate costs incurred by plc Head Office in the UK are available to be offset against profits in the Old Mutual Non-controlling interests Wealth business. AOP attributable to non-controlling interests increased from £341 million to £398 million. The proportion of Group AOP attributable to Non-controlling interests non-controlling interests has reduced from 27% in 2016 to 26% in AOP attributable to non-controlling interests increased from £341 2017. This reflects the sell-down of OMAM during 2017. million to £398 million. The proportion of Group AOP attributable to non-controlling interests has reduced from 27% in 2016 to 26% in 2017. This reflects the sell-down of OMAM during 2017. 12 38 38 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Managed separation and business standalone one-off and incremental recurring costs The section below summarises the one-off and recurring costs associated with managed separation and includes forward looking estimates of these costs. These estimates are sensitive to how we execute the managed separation, including the timing of execution and are subject to stakeholder and market dependencies. By their nature, forward-looking estimates involve risk and uncertainty because they relate to future events and circumstances which may be beyond Old Mutual plc’s control. Following the managed separation each business may adopt cost definitions different from the Group-wide definition that is currently applied. The tables below include the one-off costs related to plc wind-down and business standalone costs and advisory costs. They compare the costs incurred to date against the original estimates. Costs are likely to be at the upper end of our estimates leaving limited contingency remaining. Removal and transition of plc Head Office operational costs The managed separation will lead to the eventual closure of the plc Head Office and elimination of its operational costs, which totalled £123 million before recharges in 2015, the year before the managed separation began. The table below shows the evolution of these plc Head Office operating costs since 2015: Plc Head Office operational costs before recharges1 (£m) Corporate costs before plc recharge OSIE before plc recharge 2015 80 43 123 2016 79 242 103 2017 58 10 68 Estimated by 2019 − − − 1. Plc Head Office operational costs are stated before recharges of £23 million in 2015; £19 million in 2016 and £4 million in 2017. 2. One-off plc wind down costs of £8 million and transaction advisory costs of £14 million are included in AOP in 2016. From 2017 these costs have been excluded from AOP. An estimated £29 million per annum of plc Head Office operational costs previously incurred by the plc Head Office will ultimately be borne directly by OMEM and OMW. Given the 2015 cost base of £123 million set out above, this will result in an estimated net saving of £94 million per annum. The table below shows the development in the costs of OMW and OMEM as they begin to incur the plc Head Office operational costs directly: Plc Head Office operational costs absorbed by OMW and OMEM (£m) Costs previously recharged and listing related costs now incurred directly by OMEM Costs previously recharged now incurred directly by OMW Listing related costs not recharged now incurred directly by OMW Brand costs not recharged now incurred directly by OMW 2016 − − − − − 2017 4 6 1 7 18 Estimated after MS 7 7 7 8 29 Incremental recurring business standalone costs In addition to the £29 million above, we estimate OMW and OMEM will incur a combined incremental cost of £20 million per annum as a result of being standalone businesses. The table below illustrates the costs incurred to date. Recurring business standalone costs (£m) Old Mutual Emerging Markets Old Mutual Wealth Estimated after MS (annualised) 8 12 20 2017 4 8 12 2016 − − − One-off plc wind down and business standalone costs As communicated at the 2016 Preliminary Results announcement, we estimate the one-off costs to unlock the £94 million of plc Head Office run-rate savings to be in the region of £130 million. This includes costs at the plc Head Office, which we expect to be at the upper end of our £50 million to £65 million range, with the balance to be incurred by OMEM and OMW. The table below sets out the one-off costs that have been incurred to date: One-off plc wind down and business standalone costs1 (£m) Plc Head Office Old Mutual Emerging Markets Old Mutual Wealth 2016 8 1 4 13 2017 31 12 20 63 Total to date 39 13 24 76 Total estimated over MS 130 1. One-off plc wind down and business standalone costs are included in AOP in 2016. From 2017 these costs have been excluded from AOP. Comparatives have not been restated. 13 39 Old Mutual plc Annual Report and Accounts 2017Strategic report Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Review of financial performance Review of financial performance continued continued One-off advisory costs We estimate one-off advisory costs of at least £100 million during the period of implementing the managed separation. This estimate is One-off advisory costs sensitive to how we execute the managed separation and subject to stakeholder and market dependencies. These costs will facilitate We estimate one-off advisory costs of at least £100 million during the period of implementing the managed separation. This estimate is unlocking the current conglomerate discount to the Group’s value. The table below sets out the one-off advisory costs that have been sensitive to how we execute the managed separation and subject to stakeholder and market dependencies. These costs will facilitate incurred to date: unlocking the current conglomerate discount to the Group’s value. The table below sets out the one-off advisory costs that have been incurred to date: 2016 14 2016 1 14 3 1 − 3 18 − 18 One-off advisory costs1 (£m) Plc Head Office2 One-off advisory costs1 (£m) Old Mutual Emerging Markets Plc Head Office2 Old Mutual Wealth Old Mutual Emerging Markets Nedbank Old Mutual Wealth Nedbank 1. One-off advisory costs were included in AOP in 2016. From 2017 these costs have been excluded from AOP. Comparatives have not been restated. 2. Includes costs related to Old Mutual Limited. 1. One-off advisory costs were included in AOP in 2016. From 2017 these costs have been excluded from AOP. Comparatives have not been restated. One-off transaction costs 2. Includes costs related to Old Mutual Limited. Transaction costs incurred as at 31 December totalled £19 million. This includes £16 million of costs related to the sell-down of OMAM One-off transaction costs during 2016 and 2017, which were deducted from proceeds in line with accounting policies and costs which were not deductible from Transaction costs incurred as at 31 December totalled £19 million. This includes £16 million of costs related to the sell-down of OMAM proceeds related to OMEM (£1 million); OMW (£1 million) and plc Head Office (£1 million). Further transaction costs of £20 million to £25 during 2016 and 2017, which were deducted from proceeds in line with accounting policies and costs which were not deductible from million are estimated to be incurred by the plc Head Office and the businesses, excluding any costs associated with the intended proceeds related to OMEM (£1 million); OMW (£1 million) and plc Head Office (£1 million). Further transaction costs of £20 million to £25 secondary offering of Quilter. million are estimated to be incurred by the plc Head Office and the businesses, excluding any costs associated with the intended secondary offering of Quilter. Return on Equity (ROE) Return on Equity (ROE) Total to date 33 Total to date 2 33 14 2 3 14 52 at least 100 3 2017 19 2017 1 19 11 1 3 11 34 3 34 52 at least 100 Total estimated Total over MS estimated over MS 2017 (£m) Adjusted ROE2: 2017 (£m) Old Mutual Emerging Markets Adjusted ROE2: Nedbank Old Mutual Emerging Markets Old Mutual Wealth3 Nedbank Old Mutual Wealth3 Residual plc4 Adjusted ROE Residual plc4 Adjusted ROE IFRS ROE IFRS ROE 2016 (£m) Adjusted ROE2: 2016 (£m) Old Mutual Emerging Markets6 Adjusted ROE2: Nedbank Old Mutual Emerging Markets6 Old Mutual Wealth3 Nedbank Old Mutual Wealth3 Residual plc4 Adjusted ROE Residual plc4 Adjusted ROE IFRS ROE Average shareholder equity Average excl. shareholder equity intangibles1 excl. intangibles1 2,293 2,222 2,293 990 2,222 5,505 990 2,4301,5 5,505 7,935 2,4301,5 7,935 Return on shareholder Return on equity excl. shareholder intangibles equity excl. intangibles 23.4% 16.6% 23.4% 32.2% 16.6% 22.2% 32.2% n/a 22.2% 14.6% n/a 14.6% AOP (post- AOP tax & NCI) (post- tax & NCI) 536 368 536 319 368 1,223 319 (61) 1,223 1,162 (61) 1,162 909 909 AOP (post- AOP tax & NCI) (post- tax & NCI) 452 312 452 213 312 977 213 (49) 977 928 (49) 928 570 Average shareholder Average equity excl. shareholder intangibles1 equity excl. intangibles1 1,805 1,834 1,805 974 1,834 4,613 974 2,3741,5 4,613 6,987 2,3741,5 6,987 Return on shareholder Return on equity excl. shareholder intangibles equity excl. intangibles 25.0% 17.0% 25.0% 21.9% 17.0% 21.2% 21.9% n/a 21.2% 13.3% n/a 13.3% Average shareholder Average equity incl. shareholder intangibles equity incl. intangibles 2,639 2,558 2,639 2,414 2,558 7,611 2,414 324 7,611 7,935 324 7,935 8,019 Return on shareholder Return on equity incl. shareholder intangibles equity incl. intangibles 20.3% 14.4% 20.3% 13.2% 14.4% 16.1% 13.2% n/a 16.1% 14.6% n/a 14.6% 11.3% 8,019 11.3% Average shareholder Average equity incl. shareholder intangibles equity incl. intangibles 2,150 2,094 2,150 2,475 2,094 6,719 2,475 268 6,719 6,987 268 6,987 7,237 Return on shareholder Return on equity incl. shareholder intangibles equity incl. intangibles 21.0% 14.9% 21.0% 8.6% 14.9% 14.5% 8.6% n/a 14.5% 13.3% n/a 13.3% 7.9% callable securities, non-core operations and the decrease in value of equity due to treasury shares held within consolidated investment funds. IFRS ROE 1 The businesses figures exclude the plc share of 'Goodwill and other intangible assets' as reported in the segmental balance sheet; and these assets are included in Residual plc 2 Group Adjusted ROE is calculated as AOP (post-tax and NCI) divided by average ordinary shareholders equity. Ordinary shareholders equity excludes the perpetual preferred 1 The businesses figures exclude the plc share of 'Goodwill and other intangible assets' as reported in the segmental balance sheet; and these assets are included in Residual plc 2 Group Adjusted ROE is calculated as AOP (post-tax and NCI) divided by average ordinary shareholders equity. Ordinary shareholders equity excludes the perpetual preferred 3 The intercompany loan of £566 million provided to Old Mutual Wealth to acquire Quilter Cheviot has been equitised for the purposes of calculating the average equity of Old Mutual callable securities, non-core operations and the decrease in value of equity due to treasury shares held within consolidated investment funds. Wealth. The average shareholders equity including intangibles includes £0.7 billion of goodwill on the acquisition of Skandia which is allocated to Old Mutual Wealth. Excluding this 3 The intercompany loan of £566 million provided to Old Mutual Wealth to acquire Quilter Cheviot has been equitised for the purposes of calculating the average equity of Old Mutual goodwill the return on equity of Old Mutual Wealth is 19%. Wealth. The average shareholders equity including intangibles includes £0.7 billion of goodwill on the acquisition of Skandia which is allocated to Old Mutual Wealth. Excluding this 4 Residual plc includes the plc Head Office and the Institutional Asset Management segments. goodwill the return on equity of Old Mutual Wealth is 19%. 5 Includes plc portion of 'Goodwill and other intangible assets' and excludes the perpetual preferred callable securities (31 December 2017: nil; 31 December 2016: £273 million) that 4 Residual plc includes the plc Head Office and the Institutional Asset Management segments. were repurchased and redeemed in February 2017 and non-core operations (31 December 2017: £124 million; 31 December 2016: £68 million). 5 Includes plc portion of 'Goodwill and other intangible assets' and excludes the perpetual preferred callable securities (31 December 2017: nil; 31 December 2016: £273 million) that 6 2016 OMEM AOP (post-tax and NCI) now includes the LTIR on excess assets previously reported within the plc Head Office. 7,237 570 7.9% were repurchased and redeemed in February 2017 and non-core operations (31 December 2017: £124 million; 31 December 2016: £68 million). 6 2016 OMEM AOP (post-tax and NCI) now includes the LTIR on excess assets previously reported within the plc Head Office. 14 40 40 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Review of financial performance continued We estimate one-off advisory costs of at least £100 million during the period of implementing the managed separation. This estimate is sensitive to how we execute the managed separation and subject to stakeholder and market dependencies. These costs will facilitate unlocking the current conglomerate discount to the Group’s value. The table below sets out the one-off advisory costs that have been 2017 Total to date Total estimated over MS 19 1 11 3 34 33 2 14 3 52 at least 100 2016 14 1 3 − 18 1. One-off advisory costs were included in AOP in 2016. From 2017 these costs have been excluded from AOP. Comparatives have not been restated. Transaction costs incurred as at 31 December totalled £19 million. This includes £16 million of costs related to the sell-down of OMAM during 2016 and 2017, which were deducted from proceeds in line with accounting policies and costs which were not deductible from proceeds related to OMEM (£1 million); OMW (£1 million) and plc Head Office (£1 million). Further transaction costs of £20 million to £25 million are estimated to be incurred by the plc Head Office and the businesses, excluding any costs associated with the intended Average Return on Average Return on AOP shareholder equity shareholder shareholder shareholder (post- tax & NCI) excl. intangibles1 equity excl. intangibles equity incl. intangibles equity incl. intangibles 536 368 319 1,223 (61) 1,162 909 2,293 2,222 990 5,505 2,4301,5 7,935 23.4% 16.6% 32.2% 22.2% n/a 14.6% 2,639 2,558 2,414 7,611 324 7,935 20.3% 14.4% 13.2% 16.1% n/a 14.6% 8,019 11.3% AOP (post- tax & NCI) Average shareholder equity excl. intangibles1 Return on Average Return on shareholder shareholder shareholder equity excl. intangibles equity incl. intangibles equity incl. intangibles 452 312 213 977 (49) 928 570 1,805 1,834 974 4,613 2,3741,5 6,987 25.0% 17.0% 21.9% 21.2% n/a 13.3% 2,150 2,094 2,475 6,719 268 6,987 21.0% 14.9% 8.6% 14.5% n/a 13.3% 7,237 7.9% One-off advisory costs incurred to date: One-off advisory costs1 (£m) Plc Head Office2 Old Mutual Emerging Markets Old Mutual Wealth Nedbank 2. Includes costs related to Old Mutual Limited. One-off transaction costs secondary offering of Quilter. Return on Equity (ROE) 2017 (£m) Adjusted ROE2: Old Mutual Emerging Markets Nedbank Old Mutual Wealth3 Residual plc4 Adjusted ROE IFRS ROE 2016 (£m) Adjusted ROE2: Old Mutual Emerging Markets6 Nedbank Old Mutual Wealth3 Residual plc4 Adjusted ROE IFRS ROE Old Mutual plc Annual Report and Accounts 2017 Adjusted ROE by business has been calculated in sterling in order to give a shareholder view of returns in the reported currency. Old Mutual plc adjusted ROE increased from 13.3% in 2016 to 14.6% in 2017. This largely reflects a higher ROE in OMW, which benefited from exceptional net performance fees in the Single Strategy business in 2017. The IFRS ROE of 11.3% (2016: 7.9%) has increased as a result of the significant increase in IFRS profit attributable to equity holders which benefited from higher profits in Old Mutual Wealth, as a result of exceptional net performance fees in the Single Strategy business and higher investment returns in OMEM due to Zimbabwe’s significant equity market performance. Plc cash flows and liquidity The plc Head Office cash position was £540 million as at 31 December 2017 (£743 million as at 31 December 2016). This is invested in cash and near cash instruments, including money market funds. The plc Head Office also has access to an undrawn committed facility of £800 million (as at 31 December 2016: £800 million). The table below summarises plc Head Office cash flows in 2017 and 2016: Plc cash flows (£m) Opening cash and liquid assets at holding company at 1 January 2017 743 2016 750 Operational flows Operational receipts from OMAM and OMW Impact of foreign currency hedging Operational receipts from OMAM and OMW after hedging Operational receipts from OMEM and Nedbank Impact of foreign currency hedging Operational receipts from OMEM and Nedbank after hedging Corporate costs before recharges Other operational flows Total operational flows Servicing of capital Interest paid Preference dividends Ordinary cash dividends Paid to northern hemisphere shareholders Paid to southern hemisphere shareholders Total servicing of capital Capital movements Debt repaid in the period Capital contribution to OMW Net proceeds from the sell-down of OMAM1 Net proceeds from the sale of OMW Italy1 Net proceeds from the sale of Kotak1 Return of seed capital Resolution of plc Head Office pre-existing items Plc wind-down and advisory costs Other capital movements Total capital movements Closing cash and liquid assets at holding company at 31 December 1 Proceeds from the sell-down of OMAM and sales of OMW Italy and Kotak are stated net of costs and foreign currency hedging 74 (3) 71 345 (14) 331 (58) 34 378 (64) (15) (339) (128) (211) (418) (955) (200) 664 210 138 69 (62) (26) (1) (163) 540 84 (6) 78 410 (37) 373 (79) (27) 345 (72) (17) (451) (160) (291) (540) (112) − 230 − − 31 − (9) 48 188 743 1 The businesses figures exclude the plc share of 'Goodwill and other intangible assets' as reported in the segmental balance sheet; and these assets are included in Residual plc 2 Group Adjusted ROE is calculated as AOP (post-tax and NCI) divided by average ordinary shareholders equity. Ordinary shareholders equity excludes the perpetual preferred callable securities, non-core operations and the decrease in value of equity due to treasury shares held within consolidated investment funds. 3 The intercompany loan of £566 million provided to Old Mutual Wealth to acquire Quilter Cheviot has been equitised for the purposes of calculating the average equity of Old Mutual Wealth. The average shareholders equity including intangibles includes £0.7 billion of goodwill on the acquisition of Skandia which is allocated to Old Mutual Wealth. Excluding this goodwill the return on equity of Old Mutual Wealth is 19%. 4 Residual plc includes the plc Head Office and the Institutional Asset Management segments. 5 Includes plc portion of 'Goodwill and other intangible assets' and excludes the perpetual preferred callable securities (31 December 2017: nil; 31 December 2016: £273 million) that were repurchased and redeemed in February 2017 and non-core operations (31 December 2017: £124 million; 31 December 2016: £68 million). 6 2016 OMEM AOP (post-tax and NCI) now includes the LTIR on excess assets previously reported within the plc Head Office. 40 15 41 Old Mutual plc Annual Report and Accounts 2017Strategic report Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Review of financial performance Review of financial performance continued continued Operational flows Our conservative capital management policy has provided the Operational flows flexibility to pay an appropriate dividend to shareholders during the Our conservative capital management policy has provided the managed separation and enabled the unlisted OMEM and OMW flexibility to pay an appropriate dividend to shareholders during the businesses to prepare for independence with strong standalone managed separation and enabled the unlisted OMEM and OMW balance sheets, improved quality of capital and future dividend businesses to prepare for independence with strong standalone paying capacity. balance sheets, improved quality of capital and future dividend paying capacity. Operational receipts from OMW and OMAM, after foreign currency hedging, were £71 million in 2017 (2016: £78 million). For OMAM, Operational receipts from OMW and OMAM, after foreign currency remittances of £7 million were received in 2017 (2016: £19 million) hedging, were £71 million in 2017 (2016: £78 million). For OMAM, and payments of £35 million were received pursuant to the remittances of £7 million were received in 2017 (2016: £19 million) Deferred Tax Asset Agreement (2016: £32 million). and payments of £35 million were received pursuant to the Deferred Tax Asset Agreement (2016: £32 million). OMEM and Nedbank dividend receipts are available to meet the plc dividend, consistent with the original terms of demutualisation OMEM and Nedbank dividend receipts are available to meet the and in line with plc’s capital management policy. plc dividend, consistent with the original terms of demutualisation and in line with plc’s capital management policy. Other operational flows in 2017 include the impact of collateral movements on foreign currency hedging of both operational and Other operational flows in 2017 include the impact of collateral capital inflows of £29 million (2016: £28 million outflow). movements on foreign currency hedging of both operational and capital inflows of £29 million (2016: £28 million outflow). Servicing of capital Dividend payments to ordinary shareholders of £339 million Servicing of capital (2016: £451 million) have been made in the year in relation to the Dividend payments to ordinary shareholders of £339 million second interim dividend for 2016 of 3.39 pence per share (second (2016: £451 million) have been made in the year in relation to the interim dividend for 2015: 6.25 pence per share) and first interim second interim dividend for 2016 of 3.39 pence per share (second dividend for 2017 of 3.53 pence per share (first interim dividend interim dividend for 2015: 6.25 pence per share) and first interim for 2016: 2.67 pence per share). Of this, £211 million was paid to dividend for 2017 of 3.53 pence per share (first interim dividend shareholders on the South African and other African registers for 2016: 2.67 pence per share). Of this, £211 million was paid to (2016: £291 million). shareholders on the South African and other African registers (2016: £291 million). Preference dividend payments in 2017 reflect interest on the £273 million of perpetual preferred callable securities, which were Preference dividend payments in 2017 reflect interest on the repurchased and fully redeemed on 3 February 2017. The payment £273 million of perpetual preferred callable securities, which were represents 11 months of the interest accrued up to the point the repurchased and fully redeemed on 3 February 2017. The payment security was redeemed. represents 11 months of the interest accrued up to the point the security was redeemed. Interest paid in 2017 was £8 million lower than 2016, due largely to the repayment of £112 million of senior debt in October 2016. Interest paid in 2017 was £8 million lower than 2016, due largely to the repayment of £112 million of senior debt in October 2016. Capital movements Debt repaid in 2017 includes £273 million of perpetual preferred Capital movements callable securities that were repurchased and fully redeemed at Debt repaid in 2017 includes £273 million of perpetual preferred a cost of £288 million in February 2017. In addition, in November callable securities that were repurchased and fully redeemed at 2017 we repurchased and redeemed £389 million of Tier 2 a cost of £288 million in February 2017. In addition, in November subordinated 2025 securities, and £159 million nominal of Tier 2 2017 we repurchased and redeemed £389 million of Tier 2 subordinated 2021 securities for a total cost of £667 million, net of subordinated 2025 securities, and £159 million nominal of Tier 2 interest rate hedging. subordinated 2021 securities for a total cost of £667 million, net of interest rate hedging. Old Mutual Wealth received £200 million of capital in May 2017 from Old Mutual plc with a consequential reduction in the RCF Old Mutual Wealth received £200 million of capital in May 2017 provided by Old Mutual plc to Old Mutual Wealth from £200 million from Old Mutual plc with a consequential reduction in the RCF to £70 million. provided by Old Mutual plc to Old Mutual Wealth from £200 million to £70 million. Cash flows from corporate activity in 2017 include proceeds net of costs and foreign currency hedging of £664 million from the sell- Cash flows from corporate activity in 2017 include proceeds net of down of OMAM during the period, £210 million from the sale of costs and foreign currency hedging of £664 million from the sell- Old Mutual Wealth Italy and £138 million from the sale of Kotak. down of OMAM during the period, £210 million from the sale of Old Mutual Wealth Italy and £138 million from the sale of Kotak. Costs to address plc Head Office pre-existing items largely reflects £27 million paid into two legacy defined benefit pension schemes Costs to address plc Head Office pre-existing items largely reflects to effect the buy-out of the benefits of the two schemes and £27 million paid into two legacy defined benefit pension schemes £20 million related to the costs of insuring and de-risking certain to effect the buy-out of the benefits of the two schemes and indemnities associated with businesses previously owned by the £20 million related to the costs of insuring and de-risking certain Group. In addition cash of £12 million to fund contingent liabilities in indemnities associated with businesses previously owned by the the businesses; which was held on deposit at the plc Head Office, Group. In addition cash of £12 million to fund contingent liabilities in was returned. the businesses; which was held on deposit at the plc Head Office, was returned. During 2017 £69 million (2016: £31 million) of seed capital was returned to the plc, primarily from Rogge and OMAM. During 2017 £69 million (2016: £31 million) of seed capital was returned to the plc, primarily from Rogge and OMAM. Plc wind-down and advisory costs of £26 million were paid in 2017 (2016: £9 million). The amounts included within the IFRS income Plc wind-down and advisory costs of £26 million were paid in 2017 statement also include accruals and provisions primarily related to (2016: £9 million). The amounts included within the IFRS income the wind-down of the plc Head Office. statement also include accruals and provisions primarily related to the wind-down of the plc Head Office. IFRS balance sheet review The analysis below summarises how equity attributable to ordinary IFRS balance sheet review shareholders of the parent is invested in the net assets of the The analysis below summarises how equity attributable to ordinary component businesses including the plc Head Office. It also sets shareholders of the parent is invested in the net assets of the out the composition of plc Head Office net assets. The information component businesses including the plc Head Office. It also sets is sourced from segmental analysis of the Group’s IFRS Balance out the composition of plc Head Office net assets. The information Sheet in note B4 of the financial statements. is sourced from segmental analysis of the Group’s IFRS Balance Sheet in note B4 of the financial statements. 2017 2016 Restated1 2016 7,909 Restated1 7,909 (273) (273) 7,636 8,128 2017 8,128 8,128 − − 8,128 (£m) Equity attributable to (£m) equity holders of the parent Equity attributable to Plc perpetual preferred equity holders of the parent callable securities Plc perpetual preferred Equity attributable to ordinary callable securities shareholders of the parent Equity attributable to ordinary shareholders of the parent OMEM Nedbank OMEM OMW Nedbank Total operating businesses OMW Residual plc NAV: Total operating businesses OMAM Residual plc NAV: OM Bermuda OMAM plc Head Office OM Bermuda Total Residual plc NAV plc Head Office Consolidation adjustments1 Total Residual plc NAV Equity attributable to ordinary Consolidation adjustments1 shareholders of the parent Equity attributable to ordinary shareholders of the parent 1 Consolidation adjustments reflects Old Mutual plc shares held by consolidated 2,768 2,679 2,768 1,818 2,679 7,265 1,818 7,265 − 124 − 902 124 1,026 902 (163) 1,026 8,128 (163) 8,128 7,636 2,484 2,476 2,484 1,868 2,476 6,828 1,868 6,828 527 68 527 358 68 953 358 (145) 953 7,636 (145) 7,636 1 Consolidation adjustments reflects Old Mutual plc shares held by consolidated investment funds, which are treated as treasury shares within IFRS. Comparative information in the consolidated statement of financial position has been restated for investment funds, which are treated as treasury shares within IFRS. Comparative this treatment. information in the consolidated statement of financial position has been restated for this treatment. At 31 December 2017 equity attributable to ordinary shareholders of the parent was £8,128 million (2016: £7,636 million). The £492 At 31 December 2017 equity attributable to ordinary shareholders million increase in equity attributable to ordinary shareholders of of the parent was £8,128 million (2016: £7,636 million). The £492 the parent is principally due to £894 million of IFRS profit after tax million increase in equity attributable to ordinary shareholders of attributable to ordinary equity holders, offset by dividends paid of the parent is principally due to £894 million of IFRS profit after tax £330 million and the impact of translating the Group’s non-UK attributable to ordinary equity holders, offset by dividends paid of operations to sterling of £87 million. £330 million and the impact of translating the Group’s non-UK operations to sterling of £87 million. 16 42 42 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 At 31 December 2017, of the total equity attributable to ordinary shareholders, the equity of Old Mutual plc as a stand-alone company was £6,509 million (2016: £5,369 million), of which distributable reserves were £2,943 million (2016: £2,059 million). The Group is required to adopt two new accounting standards with effect from 1 January 2018, IFRS 9: Financial Instruments (‘IFRS 9’) and IFRS 15: Revenue from Contracts with Customers (IFRS 15). The estimated impact on the Groups’ opening reserves (after tax) of adopting IFRS 9 is £203 million, principally due to impact of the adoption of the expected credit loss for impairments of £176 million and other items relating to classification and measurement. IFRS 15 principally impacts the timing of the recognition of revenue and the current estimated impact on opening reserves is expected to be immaterial. All of these estimates represents managements best estimate of the potential impact of adopting the standards and this could change when the standards are implemented by the Group. Further details are provided in Note A7 of the Old Mutual plc Financial Statements. Equity invested in OMEM, Nedbank and OMW Over 80% of the Group’s equity is invested in OMEM, Nedbank and OMW. Under managed separation these businesses are expected to be largely distributed to shareholders. This IFRS equity is shown after deduction of intercompany funding of £782 million to OMW from the plc Head Office. Within OMEM, as at 31 December 2017, there was R5.9 billion (2016: R9.7 billion) of outstanding intercompany indebtedness between OMLAC(SA), Old Mutual Group Holdings (OMGH) and its subsidiary Old Mutual Portfolio Holdings (OMPH). During the year, R3.8 billion of this intercompany indebtedness was repaid to OMLAC(SA), funded through greater cash retention. We anticipate that the settlement of the remaining intercompany indebtedness will largely be repaid with the transfer of Nedbank shares to OMLAC(SA) up to the desired shareholding of 19.9%. Any residual indebtedness will be settled in cash. Residual plc NAV Residual plc NAV consists of OM Bermuda, plc Head Office and until its sale in November 2017, the value of its remaining shares in OMAM. The Residual plc NAV has increased to £1,026 million in 2017 (2016: £953 million). As part of the process of managed separation we have converted Residual plc into certain cash, reduced contingent liabilities and unwound complex arrangements which existed within the Group structure. Details of the component parts of the Residual plc NAV are discussed below. OMAM The process of reducing our stake in OMAM completed in November 2017, following a number of market sell-downs and the sale of a 24.95% stake to HNA Capital. The gross proceeds from these share sales totalled $879 million. Net of costs of £16 million and a £3 million loss on foreign currency hedging, the proceeds were £664 million. OM Bermuda OM Bermuda continues to execute its run-off strategy. Approximately 50% of its Guaranteed Minimum Accumulation Benefit (GMAB) reinsurance obligations matured in 2017 and the bulk of the remaining maturities take place during H1 2018. Downside risk associated with guarantee top-up payments is managed using a put option programme. This was restructured to lock in market gains to the end of October 2017 and therefore further reduce downside market risks. Residual risks include basis risk and a small portion of market and currency risks that remain unhedged. The reinsurance business remains well capitalised, with a statutory capital coverage ratio of 6.2 times (31 December 2016: 1.8 times). IFRS NAV increased to £124 million ($168 million) at 31 December 2017 (31 December 2016: £68 million), benefiting from the £71 million ($92 million) reduction in GMAB reserves largely as a result of favourable global equity market and currency movements and the run-off of GMAB obligations over the period. This is partly offset by the establishment of a liquidation provision of £13 million ($18 million) to capitalise all anticipated future operational losses as the business is no longer considered a going concern. Within the 31 December 2017 OM Bermuda IFRS NAV are £23 million ($31 million) of loan notes outstanding from the plc Head Office to OM Bermuda. Old Mutual plc Head Office We continue to make progress with the financial wind down and de-risking of the plc Head Office. The crystallisation of plc Head Office NAV into cash allows us to maintain appropriate buffers to manage risks and obligations during the period as a result of the execution of managed separation and the wind down of the plc Head Office. However, there are still actual and potential demands on our cash and liquidity during this period. Cash utilisation will continue not only as a result of the current plc structure, but also to manage the resolution of and meet the remaining managed separation and business standalone costs across the plc Head Office and the underlying businesses. The table below shows the composition of the plc Head Office NAV: plc Head Office NAV (£m) Cash Seed investments Net intercompany funding Third party debt1 Net sundry debtors/(creditors) plc Head Office NAV 2017 540 6 759 (461) 58 902 2016 743 148 816 (1,290) (59) 358 1 Includes plc preferred perpetual callable securities of £273 million in 2016. Cash The plc Head Office had cash balances of £540 million at 31 December 2017 (31 December 2016: £743 million). At our 2016 preliminary results in March 2017, we highlighted that we hold cash and liquidity buffers centrally to support the plc under both normal and stressed conditions. These liquidity buffers and cash will transition from plc Head Office where appropriate as part of the preparations for the independence of the relevant subsidiaries as part of managed separation. In an initial step in preparing OMW’s capital structure and in light of regulatory changes, we contributed £200 million of capital into OMW with a consequential reduction in plc's liquidity support and centrally held liquidity buffers for OMW of £130 million to £70 million. The plc early warning liquidity threshold (“EWT”) is set dynamically, in line with our underlying obligations to ensure adequate liquidity resources are maintained and stood at circa £330 million at 31 December 2017 (31 December 2016: circa £520 million). 17 43 Old Mutual plc Annual Report and Accounts 2017Strategic reportOld Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Review of financial performance continued Review of financial performance continued The lower EWT reflects the reduction in plc's liquidity support for OMW and lower levels of plc Head Office debt. The lower EWT reflects the reduction in plc's liquidity support Seed investments for OMW and lower levels of plc Head Office debt. At 31 December 2017 the plc Head Office held seed investments of £6 million (31 December 2016: £148 million). Seed investments At 31 December 2017 the plc Head Office held seed investments The plc Head Office has substantially reduced its seed portfolio as of £6 million (31 December 2016: £148 million). part of the managed separation. During 2017 the plc redeemed its remaining funds in OMAM and Rogge. The remaining seed The plc Head Office has substantially reduced its seed portfolio as investments are held in OMEM funds. part of the managed separation. During 2017 the plc redeemed its remaining funds in OMAM and Rogge. The remaining seed Net intercompany funding investments are held in OMEM funds. Other non-cash plc Head office assets includes net intercompany funding of £759 million (31 December 2016: £816 million). Net intercompany funding Intercompany funding to OMW is £782 million (31 December Other non-cash plc Head office assets includes net intercompany 2016: £785 million), most of which was provided to support funding of £759 million (31 December 2016: £816 million). the acquisitions of Quilter Cheviot and Intrinsic. Intragroup Intercompany funding to OMW is £782 million (31 December payables represent £23 million of loan notes outstanding at 2016: £785 million), most of which was provided to support 31 December 2017 from Old Mutual plc to OM Bermuda the acquisitions of Quilter Cheviot and Intrinsic. Intragroup (31 December 2016: £58 million). payables represent £23 million of loan notes outstanding at 31 December 2017 from Old Mutual plc to OM Bermuda Intercompany funding in 2016 also included £85 million due (31 December 2016: £58 million). from OMAM, principally relating to the Deferred Tax Asset Deed. Following cash receipts in 2017 and the uncertainty arising from Intercompany funding in 2016 also included £85 million due US tax reform the Deferred Tax Asset Deed is now a provision from OMAM, principally relating to the Deferred Tax Asset Deed. of £9 million. As a result of the sale of OMAM during 2017 this Following cash receipts in 2017 and the uncertainty arising from provision is included in net sundry debtors and creditors. US tax reform the Deferred Tax Asset Deed is now a provision of £9 million. As a result of the sale of OMAM during 2017 this Plc debt provision is included in net sundry debtors and creditors. The total IFRS book value of debt (excluding banking related debt) of £903 million comprises plc holding company debt of £461 million Plc debt and emerging markets non-banking debt of £442 million. The total IFRS book value of debt (excluding banking related debt) of £903 million comprises plc holding company debt of £461 million Plc debt summary 1 and emerging markets non-banking debt of £442 million. Total gearing (gross of holding company cash) – IFRS basis4 Plc debt summary 1 plc holding company book value Total gearing (gross of holding of debt – IFRS basis (£m) company cash) – IFRS basis4 Subsidiary book value of debt plc holding company book value (non-banking)2 – IFRS basis (£m) of debt – IFRS basis (£m) Total book value of debt − Subsidiary book value of debt IFRS basis (£m) (non-banking)2 – IFRS basis (£m) Total interest cover3 Total book value of debt − Hard interest cover3 IFRS basis (£m) Total interest cover3 1 Excludes all banking-related debt 2 For the purposes of calculating gearing, subsidiary debt includes OMAM debt classified Hard interest cover3 as non-current liabilities held for sale (31 December 2017: nil; 31 December 2016: £319 million) and non-banking inter-company borrowings (31 December 2017: £23 million; 31 December 2016: £25 million) 1 Excludes all banking-related debt 2 For the purposes of calculating gearing, subsidiary debt includes OMAM debt classified 3 Interest cover is calculated based on the number of times AOP before finance costs as non-current liabilities held for sale (31 December 2017: nil; 31 December 2016: and tax covers finance costs £319 million) and non-banking inter-company borrowings (31 December 2017: 4 2016 gearing has been recalculated to include the restatement of Group equity £23 million; 31 December 2016: £25 million) 15.0 times 4.5 times 15.0 times 903 4.5 times 11.1 times 3.4 times 11.1 times 2,091 3.4 times 2016 16.1% 2016 1,290 16.1% 2017 7.4% 2017 461 7.4% 801 1,290 2,091 801 442 461 903 442 and tax covers finance costs 3 Interest cover is calculated based on the number of times AOP before finance costs As at 31 December 2017, Old Mutual plc holding company debt comprised of £341 million of Tier 2 debt maturing in June 2021 and 4 2016 gearing has been recalculated to include the restatement of Group equity £61 million of Tier 2 debt maturing in November 2025. The IFRS As at 31 December 2017, Old Mutual plc holding company debt book value of these was £400 million and £61 million respectively comprised of £341 million of Tier 2 debt maturing in June 2021 and leading to an aggregate IFRS value of Old Mutual plc debt of £61 million of Tier 2 debt maturing in November 2025. The IFRS £461 million. This excludes a derivative asset of £33 million, book value of these was £400 million and £61 million respectively related to the remaining £341 million of Tier 2 debt issued in leading to an aggregate IFRS value of Old Mutual plc debt of June 2011. £461 million. This excludes a derivative asset of £33 million, related to the remaining £341 million of Tier 2 debt issued in June 2011. The aggregate IFRS value of Old Mutual plc debt at 31 December 2017 is £829 million lower than at 31 December 2016 due to the repurchase and redemption of the £273 million Preferred Callable The aggregate IFRS value of Old Mutual plc debt at 31 December Securities on 3 February 2017. In addition £389 million of the Tier 2 2017 is £829 million lower than at 31 December 2016 due to the subordinated 2025 securities and £159 million nominal of the Tier 2 repurchase and redemption of the £273 million Preferred Callable subordinated 2021 securities were repurchased and redeemed on Securities on 3 February 2017. In addition £389 million of the Tier 2 24 November 2017. Fair value movements account for the subordinated 2025 securities and £159 million nominal of the Tier 2 remaining difference. subordinated 2021 securities were repurchased and redeemed on 24 November 2017. Fair value movements account for the Gearing as at 31 December 2017 remaining difference. Gross gearing is based on non-banking debt of £870 million (2016: £2,060 million), which is the IFRS book value of non- Gearing as at 31 December 2017 banking debt net of the derivative asset of £33 million (2016: Gross gearing is based on non-banking debt of £870 million £31 million) referred to above. Gross gearing of 7.4% is calculated (2016: £2,060 million), which is the IFRS book value of non- as the percentage of non-banking debt (£870 million) over total banking debt net of the derivative asset of £33 million (2016: Group equity plus non-banking debt (£11,817 million). This has £31 million) referred to above. Gross gearing of 7.4% is calculated reduced since 31 December 2016, due largely to a decrease in as the percentage of non-banking debt (£870 million) over total total debt arising principally from the sale of OMAM, the repurchase Group equity plus non-banking debt (£11,817 million). This has and redemption of the plc £273 million Preferred Perpetual Callable reduced since 31 December 2016, due largely to a decrease in Securities, £389 million of Tier 2 subordinated 2025 securities total debt arising principally from the sale of OMAM, the repurchase and £159 million of nominal of Tier 2 subordinated 2021 securities. and redemption of the plc £273 million Preferred Perpetual Callable This has been partially offset by the issue of R500 million of Securities, £389 million of Tier 2 subordinated 2025 securities Subordinated securities by Old Mutual Insure in November 2017. and £159 million of nominal of Tier 2 subordinated 2021 securities. Net gearing reduces to 2.8% when taking into account cash at the This has been partially offset by the issue of R500 million of holding company. Subordinated securities by Old Mutual Insure in November 2017. Net gearing reduces to 2.8% when taking into account cash at the Net sundry debtors / (creditors) holding company. Net sundry debtors and creditors include both third party and intercompany debtors and creditors that are not related to long term Net sundry debtors / (creditors) funding. At 31 December 2017 net sundry debtors were £58 million Net sundry debtors and creditors include both third party and (31 December 2006: £59 million creditor). The movement is due intercompany debtors and creditors that are not related to long term mainly to the reduction in intercompany creditors in preparation for funding. At 31 December 2017 net sundry debtors were £58 million the finalisation of managed separation. (31 December 2006: £59 million creditor). The movement is due mainly to the reduction in intercompany creditors in preparation for Costs to resolve plc Head Office pre-existing the finalisation of managed separation. items At the 2016 Preliminary results announcement we estimated £130 Costs to resolve plc Head Office pre-existing million would be incurred to accelerate the resolution of pre-existing items Head Office items over the duration of the managed separation. At the 2016 Preliminary results announcement we estimated £130 This estimate is subject to addressing any remaining issues. million would be incurred to accelerate the resolution of pre-existing Head Office items over the duration of the managed separation. During the period, bulk annuity arrangements for two legacy This estimate is subject to addressing any remaining issues. defined benefit schemes, the Old Mutual Staff Pension Fund and the G&N Retirement Benefits Scheme, were agreed with Legal & During the period, bulk annuity arrangements for two legacy General Assurance Society Limited. The agreements resulted in defined benefit schemes, the Old Mutual Staff Pension Fund and the full buy-out of the schemes into individual annuity policies in the G&N Retirement Benefits Scheme, were agreed with Legal & October and wind-up of both schemes completed on 30 November General Assurance Society Limited. The agreements resulted in 2017. Old Mutual plc no longer has any liability in respect of these the full buy-out of the schemes into individual annuity policies in two schemes, including administration and funding. Old Mutual plc October and wind-up of both schemes completed on 30 November had previously been contributing £7 million of cash annually to fund 2017. Old Mutual plc no longer has any liability in respect of these the two schemes. two schemes, including administration and funding. Old Mutual plc had previously been contributing £7 million of cash annually to fund In order to effect the transaction, Old Mutual plc made a one-off the two schemes. contribution of £27 million into the two schemes. In addition the IAS 19 surplus for the schemes of £24 million was written off In order to effect the transaction, Old Mutual plc made a one-off during the year and is recognised in the consolidated statement contribution of £27 million into the two schemes. In addition the of changes in equity. IAS 19 surplus for the schemes of £24 million was written off during the year and is recognised in the consolidated statement of changes in equity. 18 44 44 Old Mutual plc Annual Report and Accounts 2017Old Mutual plc Annual Report and Accounts 2017 Expenses of £20 million were incurred for the costs of insuring and de-risking certain indemnities associated with businesses previously owned by the Group. In addition cash of £12 million to fund contingent liabilities in the businesses, which was held on deposit at the plc Head Office, was returned. Costs of £7 million were incurred in disposing of the Group’s captive insurance entity which covered plc Head Office and subsidiary companies. Adjusted Net Asset Value Adjusted Net Asset Value (ANAV) provides an alternative measure to indicate the value of Old Mutual plc. The ANAV of Old Mutual plc was £11,952 million at 31 December 2017 (31 December 2016: £11,271 million), equivalent to 242.3 pence per share (31 December 2016: 228.6 pence per share). The increase in ANAV per share largely reflects the OMEM covered business MCEV earnings (12.8 pence) and the impact of the constant currency change in the share price of Nedbank (5.6 pence), offset by the Old Mutual plc cash dividends paid in the year (6.9 pence). The ANAV uses an MCEV valuation basis for OMEM covered business and the UK Heritage business in OMW as well as the market value of listed subsidiaries and plc Head Office debt. Other businesses and other assets are generally included at IFRS net asset value. A reconciliation of the IFRS NAV to ANAV is provided in the tables below: 2017 (£m) IFRS equity attributable to equity holders of the parent Life Fund investments in OM plc3 MV adjustments for listed businesses and quoted debt4 Uplift for excess shares held in Trust, ESOP and BEE schemes5 Life Insurance – MCEV uplift6 Other adjustments Intercompany transfers7 Adjusted Group NAV attributable to ordinary shareholders Adjusted Group NAV per share (pence) OMEM Nedbank 2,679 2,768 Old Mutual Wealth 1,8181 270 − − 1,268 − − − − − 1,921 (16) − 4,943 − − − 3,947 146 − 566 2,530 100.2 80.0 51.3 Residual plc NAV IAM − plc Head Office 902 OM Bermuda 124 Other2 (163) Total 8,128 − − − − − − − − − (15) − − − (566) 321 − − − 163 − 433 1,253 86 86 − 1 − 125 − − − 86 2,067 (15) − 11,952 6.5 2.5 1.8 242.3 2016 (£m) Re-presented 2,8 IFRS equity attributable to equity holders of the parent Perpetual preferred callable securities9 Life Fund investments in OM plc3 Market value adjustments for listed businesses and quoted debt4 Uplift for excess shares held in Trust, ESOP and BEE schemes5 Life Insurance – MCEV uplift6 Other adjustments Intercompany transfers7 Adjusted Group NAV attributable to ordinary shareholders Adjusted Group NAV per share (pence) OMEM8 2,484 Nedbank 2,476 Old Mutual Wealth8 1,868 − − 258 − − 1,151 − − − − − 1,780 (19) − 4,503 − − − 3,627 146 − 566 2,580 Residual plc NAV plc Head Office 631 IAM 527 OM Bermuda 68 − − 158 − − − − 685 (273) − (60) − − − (641) (343) − − − − − (25) 75 118 91.3 73.6 52.3 13.9 (6.9) 2.4 Other2 (145) Total 7,909 - (273) 145 - 101 − − − 101 2.0 403 1,249 101 1,926 (44) − 11,271 228.6 1 The Old Mutual Wealth IFRS equity of £1,818 million includes goodwill of £663 million, held by Old Mutual plc and associated with the Old Mutual Wealth business. This will cease to be recognised on the de-merger of Old Mutual Wealth from the Old Mutual plc Group. 2 Reduction to IFRS NAV of £163 million at 31 December 2017 and a corresponding restatement of £145 million at 31 December 2016, on identification in 2017 of Old Mutual plc shares held by consolidated investment funds. These are treated as treasury shares and eliminated on consolidation in IFRS 3 Inclusion of group equity and debt instruments held in the life funds (not included in IFRS equity) 4 Adjustment from IFRS to market value for listed subsidiaries and listed debt 5 An uplift related to excess Old Mutual plc shares held in Trusts, ESOP and BEE schemes in OMEM which are eliminated on consolidation in IFRS 6 Remaining adjustment from an IFRS to MCEV basis for the Life covered business 7 Intercompany loan of £566 million provided to Old Mutual Wealth to acquire Quilter Cheviot 8 £29 million of net assets previously reported in the Old Mutual Wealth segment have been re-presented within Emerging Markets to reflect the transfer of management of Old Mutual Life Assurance Company (South Africa) Limited offshore branches and OMI-Guernsey to Emerging Markets 9 Deduct the book value of the perpetual preferred callable securities. 45 19 Old Mutual plc Annual Report and Accounts 2017Strategic report Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Review of financial performance continued Review of financial performance continued Capital management policy In March 2016 we announced a new capital management policy for the period of the managed separation. This policy has provided the Capital management policy flexibility to balance the requirements of our multiple stakeholders and In March 2016 we announced a new capital management policy for our businesses as they prepare for managed separation by enabling the period of the managed separation. This policy has provided the them to both continue to invest in order to drive enhanced performance flexibility to balance the requirements of our multiple stakeholders and and strengthen their balance sheets in preparation for being standalone our businesses as they prepare for managed separation by enabling businesses. In line with this policy we have today announced a second them to both continue to invest in order to drive enhanced performance interim dividend for the second half of 2017 of 3.57p, the rand and strengthen their balance sheets in preparation for being standalone equivalent is 66.50 cents. This will be paid on 30 April 2018. businesses. In line with this policy we have today announced a second The total full year dividend for 2017 is 7.10p (2016: 6.06p). interim dividend for the second half of 2017 of 3.57p, the rand equivalent is 66.50 cents. This will be paid on 30 April 2018. The 2017 second interim dividend will be the final dividend paid by The total full year dividend for 2017 is 7.10p (2016: 6.06p). plc if the Managed Separation is delivered in line with our expected timetable. The proposed future Capital Management Policy of The 2017 second interim dividend will be the final dividend paid by the independent Old Mutual Limited and Quilter businesses are plc if the Managed Separation is delivered in line with our expected presented in their respective Business Reviews on pages 36 and 57. timetable. The proposed future Capital Management Policy of the independent Old Mutual Limited and Quilter businesses are The capital management policy is intended to remain in place presented in their respective Business Reviews on pages 36 and 57. until Old Mutual plc shares are no longer listed. The capital management policy is intended to remain in place Capital until Old Mutual plc shares are no longer listed. Regulatory capital in accordance with Capital Solvency II rules Regulatory capital in accordance with The Group Solvency II surplus is £1.45 billion at 31 December Solvency II rules 2017 (31 December 2016: £1.25 billion as reported to the Prudential Regulation Authority (PRA)), representing a Solvency II The Group Solvency II surplus is £1.45 billion at 31 December ratio of 123% (31 December 2016: 122%) calculated under the 2017 (31 December 2016: £1.25 billion as reported to the standard formula. Prudential Regulation Authority (PRA)), representing a Solvency II ratio of 123% (31 December 2016: 122%) calculated under the The Group Solvency II ratio continues to be resilient as the Group standard formula. surplus excludes £1.6 billion of surplus from the South African businesses (that remains available for local loss absorption). The Group Solvency II ratio continues to be resilient as the Group The Solvency II information in this preliminary results disclosure surplus excludes £1.6 billion of surplus from the South African has not been audited. businesses (that remains available for local loss absorption). The Solvency II information in this preliminary results disclosure has not been audited. Group regulatory capital (£bn) Own funds Group regulatory capital (£bn) Solvency capital requirements (SCR) Solvency II surplus Own funds Group Solvency II ratio Solvency capital requirements (SCR) Solvency II surplus 1 Based on preliminary estimates. Formal filing due to the PRA by 29 March 2018 Group Solvency II ratio 2 As reported to the PRA as part of the Annual 2016 Solvency II submission. 31 December 20171 Solvency II 7.67 31 December 6.22 20171 1.45 7.67 123% 6.22 1.45 123% 31 December 20162 6.84 31 December 5.59 20162 1.25 6.84 122% 5.59 1.25 122% Solvency II 1 Based on preliminary estimates. Formal filing due to the PRA by 29 March 2018 During the year the Group Solvency II ratio increased due to the 2 As reported to the PRA as part of the Annual 2016 Solvency II submission. impact of corporate activity, in particular the sale of OM Wealth Italy (+2pps), OMAM (+14pps) and Kotak (+3pps), and reduced due to During the year the Group Solvency II ratio increased due to the the redemption and repayment of qualifying debt during the year impact of corporate activity, in particular the sale of OM Wealth Italy (-13pps). Increased capital requirements in the South African (+2pps), OMAM (+14pps) and Kotak (+3pps), and reduced due to businesses and Old Mutual Wealth, including the impact of the the redemption and repayment of qualifying debt during the year rating agency downgrade of South African sovereign debt during (-13pps). Increased capital requirements in the South African the year reduced the Group Solvency II ratio. Other impacts were businesses and Old Mutual Wealth, including the impact of the largely offsetting and included the receipt of South African rating agency downgrade of South African sovereign debt during remittances in lieu of the payments of the 2016 second interim the year reduced the Group Solvency II ratio. Other impacts were dividend and 2017 first interim dividend payments to UK largely offsetting and included the receipt of South African shareholders. remittances in lieu of the payments of the 2016 second interim dividend and 2017 first interim dividend payments to UK As we have previously guided, we will continue to manage the shareholders. Group regulatory capital position in line with our solvency risk As we have previously guided, we will continue to manage the Group regulatory capital position in line with our solvency risk 31 December 2017 7.3 31 December 0.4 2017 7.7 7.3 0.4 7.7 appetite, recognising that there is a trade-off to be considered where we could accept the possibility of going below our early warning threshold of 120% on a Solvency II basis as a result appetite, recognising that there is a trade-off to be considered of cash and capital demands arising from the plc wind down. where we could accept the possibility of going below our early warning threshold of 120% on a Solvency II basis as a result Composition of qualifying Solvency II capital of cash and capital demands arising from the plc wind down. The Group own funds for Solvency II purposes reflect the Composition of qualifying Solvency II capital resources of the underlying businesses after excluding the restricted surplus (mainly relating to the South African businesses). The Group own funds for Solvency II purposes reflect the The Group own funds include the Old Mutual plc issued resources of the underlying businesses after excluding the subordinated debt instruments that qualify as capital under restricted surplus (mainly relating to the South African businesses). Solvency II. The composition of own funds by tier is presented The Group own funds include the Old Mutual plc issued in the table below. subordinated debt instruments that qualify as capital under Solvency II. The composition of own funds by tier is presented 31 December Old Mutual Group in the table below. 20161 Solvency II own funds (£bn) Tier 12 5.7 31 December Old Mutual Group Tier 23 1.1 20161 Solvency II own funds (£bn) 6.8 Total Group Solvency II own funds Tier 12 5.7 Tier 23 1.1 1 As reported to the PRA as part of the Annual 2016 Solvency II submission. 6.8 Total Group Solvency II own funds 2 All Tier 1 capital is unrestricted for tiering purposes 3 Comprises subordinated debt grandfathered under Solvency II and, at 31 December 1 As reported to the PRA as part of the Annual 2016 Solvency II submission. 2016, Solvency II compliant subordinated debt. 2 All Tier 1 capital is unrestricted for tiering purposes 3 Comprises subordinated debt grandfathered under Solvency II and, at 31 December The Group SCR is covered by Tier 1 capital, which represents 117% of the Group SCR of £6.2 billion. Tier 1 capital represents 95% of Group Solvency II own funds. Tier 2 capital, comprising plc The Group SCR is covered by Tier 1 capital, which represents holding company debt, represents 5% of Group Solvency II own 117% of the Group SCR of £6.2 billion. Tier 1 capital represents funds and 26% of Group surplus. 95% of Group Solvency II own funds. Tier 2 capital, comprising plc holding company debt, represents 5% of Group Solvency II own Solvency II capital in comparison to IFRS equity funds and 26% of Group surplus. The table below presents the reconciliation of differences between Solvency II capital in comparison to IFRS equity IFRS equity net of NCI and Solvency II own funds (post restriction). The table below presents the reconciliation of differences between 31 December IFRS compared to Solvency II own IFRS equity net of NCI and Solvency II own funds (post restriction). 2016 funds (£bn) 7.9 IFRS equity attributable to equity 31 December IFRS compared to Solvency II own holders of the parent1 2016 funds (£bn) Removal of goodwill and other 7.9 IFRS equity attributable to equity intangibles (net of NCI)2 (2.9) holders of the parent1 Restatement of technical provisions3 2.6 Removal of goodwill and other Inclusion of Old Mutual plc intangibles (net of NCI)2 (2.9) subordinated debt4 1.1 Restatement of technical provisions3 2.6 Other5 (0.1) Inclusion of Old Mutual plc Fungibility restriction6 (1.8) subordinated debt4 1.1 6.8 Total Group Solvency II own funds Other5 (0.1) Fungibility restriction6 (1.8) 1 Refer to note 2 on page 19. 6.8 Total Group Solvency II own funds 2 Goodwill and other intangibles are recognised under IFRS, however, they are deemed 31 December 2017 8.1 31 December 2017 8.1 (2.2) 2.7 (2.2) 0.4 2.7 0.3 (1.6) 0.4 7.7 0.3 (1.6) 7.7 2016, Solvency II compliant subordinated debt. inadmissible for regulatory purposes. 1 Refer to note 2 on page 19. 3 Solvency II uses a best estimate liability basis to measure insurance liabilities which 2 Goodwill and other intangibles are recognised under IFRS, however, they are deemed recognises future earnings within the liabilities and results in an increase in own funds. inadmissible for regulatory purposes. This is partially offset by the recognition of the risk margin which replaces prudential 3 Solvency II uses a best estimate liability basis to measure insurance liabilities which margins allowed for in IFRS insurance liabilities and deferred tax adjustments. recognises future earnings within the liabilities and results in an increase in own funds. 4 Old Mutual plc subordinated debt comprises Tier 2 debt instruments in Old Mutual plc This is partially offset by the recognition of the risk margin which replaces prudential that qualify towards the Group’s Solvency II capital position. margins allowed for in IFRS insurance liabilities and deferred tax adjustments. 5 Includes removal of IFRS deferred acquisition costs and deferred revenue, sectoral 4 Old Mutual plc subordinated debt comprises Tier 2 debt instruments in Old Mutual plc adjustments for non-insurance entities, out of scope entity adjustments and inclusion that qualify towards the Group’s Solvency II capital position. of OMEM subordinated debt and Old Mutual plc shares held on behalf of policyholder 5 Includes removal of IFRS deferred acquisition costs and deferred revenue, sectoral funds. At 31 December 2016 includes the de-recognition of the Perpetual Preferred adjustments for non-insurance entities, out of scope entity adjustments and inclusion Callable Securities. of OMEM subordinated debt and Old Mutual plc shares held on behalf of policyholder 6 Restriction of Nedbank and OMEM’s surplus when applying Solvency II fungibility and funds. At 31 December 2016 includes the de-recognition of the Perpetual Preferred transferability rules, restricting entirely the surplus available from these businesses as a Callable Securities. result of the exchange controls and demutualisation agreement that apply to remitting 6 Restriction of Nedbank and OMEM’s surplus when applying Solvency II fungibility and capital from South Africa, plus small amounts relating to OMW and OMB. There has transferability rules, restricting entirely the surplus available from these businesses as a been a presentation change relating to the OMW asset management entities at 31 result of the exchange controls and demutualisation agreement that apply to remitting December 2017, with the previous fungibility restriction now incorporated in the SCR. capital from South Africa, plus small amounts relating to OMW and OMB. There has been a presentation change relating to the OMW asset management entities at 31 December 2017, with the previous fungibility restriction now incorporated in the SCR. 20 46 46 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Solvency II sensitivities The table below presents the estimated sensitivity of the Group Solvency II ratio under certain standard financial stresses, which are defined by reasonably possible individual movements in key market parameters, while keeping all other parameters constant. The effects impact both the own funds and capital requirements and consequently the Group Solvency II ratio. In addition we have included a non- financial stress assuming 10% of our insurance business lapses immediately. Group Solvency II capital ratio at 31 December 2017 (£bn) Base Solvency II position Equity markets fall by 25% Impact of 10% of business lapsing immediately1 Interest rates rise by 100 basis points Credit spreads increase by 100 basis points ZAR:GBP exchange rate increases by 30% (R22:£1) ZAR:GBP exchange rate decreases by 10% (R15:£1) 1 Insurance business lapse sensitivity for OMW and OMEM only. Capital Requirements 6.2 6.0 6.0 6.2 6.2 5.1 6.8 Surplus Group ratio 123% 124% 123% 123% 123% 129% 121% 1.5 1.4 1.4 1.4 1.4 1.5 1.5 Restricted surplus 1.6 1.4 1.6 1.6 1.5 1.3 1.8 Solvency of individual businesses Our individual businesses retain strong and resilient local statutory cover and have sufficient capital to support normal trading operations and withstand regulatory and internal stress scenarios. The balance sheets, including action undertaken after 31 December 2017, will deliver appropriately capitalised standalone businesses to the market. The individual entity balance sheets are described in their respective Business Reviews. Post year end transactions and development of Residual plc The narrative within this section includes forward looking estimates of the Residual plc and future potential developments of other Group companies. These estimates are based on assumptions regarding the steps employed for and timing of the managed separation strategy which may change in the future. By their nature, forward-looking estimates involve risk and uncertainty because they relate to future events and circumstances which may be beyond Old Mutual plc’s control. When we unveiled the managed separation strategy in March 2016, we said that we aimed for it to be materially complete by the end of 2018. We are on track to deliver the managed separation as planned. These processes are, by their nature, unpredictable and therefore the outcome and timing cannot be guaranteed. On 13 March 2018, Old Mutual plc announced that The Travelers Companies Inc. and St Pauls Fire and Marine Insurance Company have lodged a claim in the United States District Court for the Southern District of New York in relation to pre-existing plc Head Office legacy items relating to previously disposed businesses. The Group believes that this action is without merit and it will be resisted accordingly. Details of events after the reporting date are provided in Note J8 of the Old Mutual plc Financial Statements. Proforma 31 December 2017 Residual plc IFRS Net Asset Value As part of the allocation of assets and liabilities of the current Old Mutual plc holding company a number of transactions have taken place since 31 December 2017. On 31 January 2018 Old Mutual Wealth acquired the Skandia UK Ltd group of entities from Old Mutual plc. As part of this transaction £566 million of intercompany indebtedness between Old Mutual Wealth and Old Mutual plc has been equitised. On 28 February 2018, £200 million of intercompany indebtedness between Old Mutual Wealth and Old Mutual plc was repaid from new financing arrangements from Old Mutual Wealth. On the same date, the existing £70 million revolving credit facility provided by Old Mutual plc to Old Mutual Wealth was cancelled. Outstanding Old Mutual plc Discount Notes held by Old Mutual Bermuda at 31 December 2017 of £23 million ($31 million) were cancelled on the 28 February 2018. In addition, cash of £44 million ($60 million) was repatriated from the business on the 7 March 2018 following approval from the Bermuda Monetary Authority. 21 47 Old Mutual plc Annual Report and Accounts 2017Strategic report Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Review of financial performance continued Review of financial performance continued The table below illustrates the impact of these transactions on the 31 December 2017 IFRS net asset value: Acquisition of Skandia UK Ltd by Acquisition OMW and of Skandia equitizing UK Ltd by i/co loan OMW and (11) equitizing i/co loan (582) (11) The table below illustrates the impact of these transactions on the 31 December 2017 IFRS net asset value: Proforma 31 December Proforma 2017 31 773 December 6 2017 − 773 (461) 6 77 − 395 (461) 57 77 452 395 57 452 Repayment of £200m OMW intercompany Repayment of loan £200m OMW 200 intercompany loan (200) 200 Distribution of OM Bermuda Distribution surplus of OM 44 Bermuda surplus 23 44 − − − (574) (200) − 19 (574) (574) 19 (582) (574) 23 67 (67) − 67 (67) − 31 December 2017 540 31 December 6 2017 759 540 (461) 6 58 759 902 (461) 124 58 1,026 902 124 1,026 (£m) Cash Seed investments (£m) Net intercompany funding Cash Third party debt Seed investments Net sundry debtors Net intercompany funding Plc Head Office NAV Third party debt OM Bermuda Net sundry debtors Residual plc NAV Plc Head Office NAV OM Bermuda Residual plc NAV Impact of managed separation on Residual plc As part of the managed separation it is proposed that certain remaining operating subsidiaries of Old Mutual plc are transferred to a new South African holding company of the group, Old Mutual Limited. The steps implementing this transfer are anticipated to include a court Impact of managed separation on Residual plc approved reduction in capital of Old Mutual plc which will augment distributable reserves for Old Mutual plc. After these steps Old Mutual As part of the managed separation it is proposed that certain remaining operating subsidiaries of Old Mutual plc are transferred to a new plc will have no on-going businesses and none of the operating companies in the current Old Mutual group will be direct or indirect South African holding company of the group, Old Mutual Limited. The steps implementing this transfer are anticipated to include a court subsidiaries. Old Mutual plc will need to satisfy the court that it will continue to hold sufficient high quality liquid assets to meet its liabilities approved reduction in capital of Old Mutual plc which will augment distributable reserves for Old Mutual plc. After these steps Old Mutual and deal with any contingencies, plus adequate headroom, taking into account relevant insurances. The assets within Old Mutual plc are plc will have no on-going businesses and none of the operating companies in the current Old Mutual group will be direct or indirect expected to largely consist of sterling denominated high quality fixed income securities and cash or near cash instruments to match the subsidiaries. Old Mutual plc will need to satisfy the court that it will continue to hold sufficient high quality liquid assets to meet its liabilities maturity profile of the debt obligations. The speed of release of any surplus from Old Mutual plc is anticipated to be at the discretion of the and deal with any contingencies, plus adequate headroom, taking into account relevant insurances. The assets within Old Mutual plc are UK court in the context of the reduction of capital. expected to largely consist of sterling denominated high quality fixed income securities and cash or near cash instruments to match the maturity profile of the debt obligations. The speed of release of any surplus from Old Mutual plc is anticipated to be at the discretion of the The separation of Quilter is expected to involve the listing and the distribution of 86.6% of the total issued share capital of Quilter to UK court in the context of the reduction of capital. Old Mutual plc Shareholders, as well as the expected divestment of up to 9.6% of its total issued share capital. The remaining 3.8% of the total issued share capital of Quilter is held by a JSOP Trustee and will continue to be held by a JSOP Trustee after such distribution. The separation of Quilter is expected to involve the listing and the distribution of 86.6% of the total issued share capital of Quilter to The proceeds from the expected divestment, or residual shares owned if any, would be retained within Residual plc. Old Mutual plc Shareholders, as well as the expected divestment of up to 9.6% of its total issued share capital. The remaining 3.8% of the total issued share capital of Quilter is held by a JSOP Trustee and will continue to be held by a JSOP Trustee after such distribution. Future Development of Residual plc NAV The proceeds from the expected divestment, or residual shares owned if any, would be retained within Residual plc. As part of the managed separation the Residual plc, which had an IFRS net asset value of £452 million on a proforma basis at 31 December 2017, will become a subsidiary of Old Mutual Limited. Future Development of Residual plc NAV As part of the managed separation the Residual plc, which had an IFRS net asset value of £452 million on a proforma basis at 31 December As at 31 December 2017 the Old Mutual plc holding company debt obligations comprised two fixed interest debt instruments. The first is a 2017, will become a subsidiary of Old Mutual Limited. Tier 2 debt maturing in June 2021 paying a coupon of 8%, with an IFRS book value of £400 million and nominal value of £341 million. The coupon on the debt is circa £27 million per annum on the current outstanding amount. The second is Tier 2 debt maturing in November As at 31 December 2017 the Old Mutual plc holding company debt obligations comprised two fixed interest debt instruments. The first is a 2025 paying a coupon of 7.875%, with an IFRS book value and nominal value of £61 million. The coupon on the debt is circa £5 million Tier 2 debt maturing in June 2021 paying a coupon of 8%, with an IFRS book value of £400 million and nominal value of £341 million. The per annum on the current outstanding amount. On the adoption of IFRS 9, effective from 1 January 2018, the Group has elected to coupon on the debt is circa £27 million per annum on the current outstanding amount. The second is Tier 2 debt maturing in November designate this bond as Fair Value through Profit and Loss. 2025 paying a coupon of 7.875%, with an IFRS book value and nominal value of £61 million. The coupon on the debt is circa £5 million per annum on the current outstanding amount. On the adoption of IFRS 9, effective from 1 January 2018, the Group has elected to We will continue to evaluate the merits of repurchasing and redeeming outstanding Old Mutual plc debt, taking account of our risk designate this bond as Fair Value through Profit and Loss. appetite, regulatory constraints and other stakeholders. We will continue to evaluate the merits of repurchasing and redeeming outstanding Old Mutual plc debt, taking account of our risk Old Mutual plc will continue to incur corporate costs in 2018 until the existing plc Head Office closes. Corporate costs before recharges are appetite, regulatory constraints and other stakeholders. estimated to be circa £50 million in 2018. Significantly reduced recurring plc Head Office corporate costs are anticipated beyond 2018, on the basis that the majority of plc Head Office operations are expected to have ceased by December 2018. Old Mutual plc will continue to incur corporate costs in 2018 until the existing plc Head Office closes. Corporate costs before recharges are estimated to be circa £50 million in 2018. Significantly reduced recurring plc Head Office corporate costs are anticipated beyond 2018, The total one-off costs associated with the wind-down of the plc Head Office are expected to be at the upper end of the £50 million to £65 on the basis that the majority of plc Head Office operations are expected to have ceased by December 2018. million range that we originally estimated in the 2016 Preliminary Results announcement. At 31 December 2017 the plc Head Office had incurred £39 million of these wind down costs. We expect the majority of the remaining costs to be incurred in 2018. The total one-off costs associated with the wind-down of the plc Head Office are expected to be at the upper end of the £50 million to £65 million range that we originally estimated in the 2016 Preliminary Results announcement. At 31 December 2017 the plc Head Office had incurred £39 million of these wind down costs. We expect the majority of the remaining costs to be incurred in 2018. 22 48 48 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Total one-off advisory costs are estimated to be at least £100 million, as communicated at the 2016 Preliminary Results. Total costs incurred as at 31 December 2017 were £52 million. Of the estimated £48 million still to be incurred, approximately £40 million will be incurred by the plc Head Office, largely during 2018. In addition to the wind-down and advisory costs referred to above, one-off transaction costs will be incurred by the plc Head Office in relation to the managed separation. We estimate these costs to be in the range of £15 million to £20 million, excluding any additional costs associated with the intended secondary offering of Quilter. Transaction costs will be deducted from proceeds, where possible, in line with accounting policies and past practices. At the 2016 Preliminary Results announcement we estimated £130 million would be incurred to accelerate the resolution of pre-existing Head Office items over the duration of the managed separation. This estimate is subject to addressing any remaining issues. As at 31 December 2017 £90 million had been incurred. The obligations of OM Bermuda are running off, with the majority of the policies underlying the reinsurance obligations due to mature in the first half of 2018. The business will wind-up activities during 2018 with the remittance of surplus to Old Mutual plc, subject to the relevant regulatory approvals. The second interim dividend of 3.57 pence per share will be paid on 30 April 2018. The cost of this dividend will be £175 million, of which circa £120 million will be funded from dividends received from OMEM and Nedbank during 2018, net of our hedging activities. Performance measures In line with statutory reporting requirements we report profits assessed on an IFRS basis. Consistent with last year, we complement IFRS reporting with additional disclosure on various alternative performance measures (APMs). APMs are not defined by the relevant financial reporting framework (which for the Group is IFRS), but we use them to provide greater insight to the financial performance, financial positions and cash flows of the Group and the way it is managed. Old Mutual plc Summary information about the key APMs used by the consolidated Group in our financial review is provided in the following table. APM Adjusted Operating Profit (AOP) Definition AOP is a normalised profit measure to reflect the underlying operating profit of the Group. It therefore adjusts IFRS profit for the impact of acquisitions and disposals; short-term fluctuations and IFRS accounting treatments that do not fairly reflect the economics of our operations. In addition, AOP excludes the results of non-core operations. The calculation of AOP adjusts the IFRS profit for a number of items as detailed in note C1 in the financial statements. Due to the nature of the Group’s businesses, AOP is an appropriate alternative basis by which to assess the underlying operating results. It enhances the comparability and understanding of the financial performance of the Group. Adjusted Operating Earnings per Share (EPS) Adjusted Operating EPS is calculated as post-tax adjusted operating profit divided by the adjusted weighted average number of shares (WANS) held by our investors. The calculation of Adjusted EPS is detailed in note C2 in the financial statements. Adjusted Operating EPS is an indicator of our profitability that measures how much we earn for each share held. Adjusted Return on Equity (ROE) Adjusted ROE is calculated as AOP (post-tax and NCI) divided by average ordinary shareholders' equity excluding the perpetual preferred callable securities, non-core operations and the decrease in value of equity due to treasury shares held within consolidated investment funds. It is a measure of the return generated for shareholders over the reporting period. Adjusted Plc NAV per ordinary share (ANAV) The ANAV uses a MCEV valuation basis for OMEM covered business and the UK Heritage business in OMW as well as the market value of listed subsidiaries and plc Head Office debt. Other businesses and other assets are generally included at IFRS net asset value. ANAV provides an alternative measure to indicate the value of Old Mutual plc. Constant currency Constant currency figures are calculated by translating local currency prior-period figures at the prevailing exchange rates for the period under review. The exchange rates used to translate the operating results, assets and liabilities of key foreign business segments to pounds sterling are provided in note A1 in the financial statement. This measure eliminates the effects of exchange rate fluctuations when calculating financial performance numbers for various periods. 23 49 Old Mutual plc Annual Report and Accounts 2017Strategic report Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Review of financial performance continued Review of financial performance continued Old Mutual Emerging Markets The following APMs are used by OMEM to provide greater insight into the financial performance, financial position and cash flows of the Group and the way it is managed. Metrics to be used by Old Mutual Limited following the completion of the managed separation are Old Mutual Emerging Markets detailed in the OMEM business review. The following APMs are used by OMEM to provide greater insight into the financial performance, financial position and cash flows of the Group and the way it is managed. Metrics to be used by Old Mutual Limited following the completion of the managed separation are APM detailed in the OMEM business review. Free surplus generation Definition OMEM’s free surplus generation provides additional information on the cash generation of the business that is available for reinvestment or distribution to shareholders. It is calculated in respect of Definition covered business using the free surplus component of MCEV earnings and for non-covered business OMEM’s free surplus generation provides additional information on the cash generation of the as AOP post-tax and NCI adjusted for short-term fluctuations in investment return and movements in business that is available for reinvestment or distribution to shareholders. It is calculated in respect of required capital for Property and Casualty business. covered business using the free surplus component of MCEV earnings and for non-covered business Gross cash flows received from customers during the period by Group businesses engaged in Life as AOP post-tax and NCI adjusted for short-term fluctuations in investment return and movements in and Savings and Asset Management. required capital for Property and Casualty business. The sum of new business recurring premiums (annualised) and 10% of the new single premiums Gross cash flows received from customers during the period by Group businesses engaged in Life written in an annual reporting period. It is a standardised measure of the volume of new life insurance and Savings and Asset Management. business written. The sum of new business recurring premiums (annualised) and 10% of the new single premiums The difference between gross flows and cash returned to customers (e.g. claims, surrenders, written in an annual reporting period. It is a standardised measure of the volume of new life insurance maturities) during the period. business written. APM Free surplus generation Gross flows Life APE sales Gross flows Life APE sales Net client cash flows (NCCF) Funds Under Management Net client cash flows (NCCF) VNB Funds Under Management The total market value of funds managed by OMEM at the point at which funds flow into OMEM. The difference between gross flows and cash returned to customers (e.g. claims, surrenders, maturities) during the period. The discounted value of expected future profits arising from new life insurance business sold in the reporting period. The total market value of funds managed by OMEM at the point at which funds flow into OMEM. VNB margin VNB margin VNB VNB divided by present value of new business premiums ("PVNBP"), where PVNBP is the discounted The discounted value of expected future profits arising from new life insurance business sold in the value of expected future life insurance premiums from new recurring premium business, plus 100% of reporting period. new single premiums. It reflects how much future profit is expected from each future life insurance VNB divided by present value of new business premiums ("PVNBP"), where PVNBP is the discounted premium and therefore measures the profitability of new business sold. value of expected future life insurance premiums from new recurring premium business, plus 100% of Gross written premiums (GWP) The value of premiums that a property and casualty insurer is entitled to receive from its insurance new single premiums. It reflects how much future profit is expected from each future life insurance business in a period before adjustments for reinsurance premiums. It is a measure of sales premium and therefore measures the profitability of new business sold. performance in Group businesses engaged in Property and Casualty Gross written premiums (GWP) The value of premiums that a property and casualty insurer is entitled to receive from its insurance Underwriting margin Underwriting result as a percentage of net premiums earned. It is calculated for the property and business in a period before adjustments for reinsurance premiums. It is a measure of sales casualty insurance businesses across OMEM. performance in Group businesses engaged in Property and Casualty Loans and advances Underwriting margin Net lending margin Loans and advances Net lending margin The balance of gross loans and advances for Group businesses engaged in Banking and Lending. Underwriting result as a percentage of net premiums earned. It is calculated for the property and The amounts are gross of impairments on all performing, arrears and default loans. casualty insurance businesses across OMEM. Net interest income plus non-interest revenue minus credit losses, as a percentage of average loans The balance of gross loans and advances for Group businesses engaged in Banking and Lending. and advances over the period The amounts are gross of impairments on all performing, arrears and default loans. Net interest income plus non-interest revenue minus credit losses, as a percentage of average loans and advances over the period 24 50 50 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Nedbank The key APMs used by Nedbank within their business review are detailed below: APM Headline Earnings per Share (HEPS) Definition Headline Earnings is calculated with reference to Circular 2/2015 issued by the South African Institute of Chartered Accountants. Headline earnings is a way of dividing the IFRS reported profit between re-measurements that are more closely aligned to the operating/trading activities of the entity, and the platform used to create those results. Headline Earnings is an earnings measure that is required by the South African listing authorities. It provides a basis to compare South African listed peers. Efficiency Ratio Calculated as total expenses divided by the sum of net interest income and non-interest revenue. The Efficiency Ratio measures the expense efficiency of the business. Liquidity Coverage Ratio The Liquidity Coverage Ratio (LCR) aims to ensure that a bank holds adequate unencumbered High Quality Liquid Assets to cover total net cash outflows over a 30-day period under a prescribed stress scenario. It provides a view of the short-term resilience of the liquidity risk profile of banks. Economic Profit Calculated as headline earnings less the cost of equity. The cost of equity is calculated as the average ordinary shareholders equity (excluding goodwill) multiplied by the cost of equity. It is a measure of the entity’s ability to generate earnings in excess of the economic cost of the capital contributed. Detail on Nedbank’s results and their APMs are available on the website: www.nedbankgroup.co.za Old Mutual Wealth The key APMs used by Old Mutual Wealth within the financial review are: Normalised operating profit pre-tax The difference between total income and total operating costs. Excludes non-operational items, such as one-off gains or losses from the sale of assets or acquisition costs as per Operating profit with additional normalisation adjustments. Revenue Margin Operating margin It is used to provide users of the financial statements greater insight into the long-term earning ability of the OMW current business on a comparable basis. Represents net management fee, including policyholder tax divided by average Assets under Management & Administration (AUMA). Represents reported operating profit from continuing operations divided by total revenue, including policyholder tax and adviser fees. Operating margin excludes financing costs. An efficiency measure that allows users of our financial statements to assess what percentage of net revenues that become operating profit. Net Client Cash Flows (NCCF) The difference between money received from and returned to customers during the relevant period for the Group (excluding Quilter Life Assurance) or for the business indicated. This measure is a lead indicator of reported net revenue. Integrated net inflows Total NCCF that has flowed through two or more segments within OMW. It is a lead indicator of revenue generation driven by an integrated business model. Assets under Management & Administration (AUMA) Represents the total market value of all financial assets managed and administered on behalf of customers as at 31 December of the financial year. Average AuMA Represents the average total market value of all financial assets managed and administrated on behalf of customers during the financial year ended 31 December. Average AuMA is calculated using a 13-point average of monthly closing AuMA. Net Management Fee Consists of revenue generated from AuMA, fixed fee revenues and policyholder tax contributions, netted off by trail commissions payable. Other Revenue Represents revenue not directly linked to AuMA (e.g. encashment charges, risk result, adviser initial fees and adviser fees linked to AuMA in Quilter Financial Planning (recurring fees)). 25 51 Old Mutual plc Annual Report and Accounts 2017Strategic report Old Mutual plc Old Mutual plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Old Mutual Emerging Markets review Old Mutual Emerging Markets review Old Mutual Emerging Markets review Our business remains highly cash generative, with a robust Our business remains highly cash generative, with a robust balance sheet and liquidity position, as well as a high quality capital balance sheet and liquidity position, as well as a high quality capital base. The estimated OMLAC(SA) SAM solvency ratio for 2017 was base. The estimated OMLAC(SA) SAM solvency ratio for 2017 was Our business remains highly cash generative, with a robust strong at 243%, subject to regulatory approval. We are well- strong at 243%, subject to regulatory approval. We are well- balance sheet and liquidity position, as well as a high quality capital positioned in the right markets to drive added value from our positioned in the right markets to drive added value from our base. The estimated OMLAC(SA) SAM solvency ratio for 2017 was franchises, deliver sustainable profit growth and returns for our franchises, deliver sustainable profit growth and returns for our strong at 243%, subject to regulatory approval. We are well- shareholders as well as creating economic value for all our shareholders as well as creating economic value for all our positioned in the right markets to drive added value from our stakeholders. stakeholders. franchises, deliver sustainable profit growth and returns for our shareholders as well as creating economic value for all our It has been a busy period as we prepare for the listing of Old It has been a busy period as we prepare for the listing of Old stakeholders. Mutual Limited (OML). As it relates to Nedbank, we have agreed Mutual Limited (OML). As it relates to Nedbank, we have agreed the heads of terms in the new relationship agreement with the heads of terms in the new relationship agreement with It has been a busy period as we prepare for the listing of Old Nedbank, which is expected to be finalised and executed in the Nedbank, which is expected to be finalised and executed in the Mutual Limited (OML). As it relates to Nedbank, we have agreed coming weeks. OML will be retaining a shareholding of 19.9% in coming weeks. OML will be retaining a shareholding of 19.9% in the heads of terms in the new relationship agreement with its shareholder funds, and it intends to distribute the remaining its shareholder funds, and it intends to distribute the remaining Nedbank, which is expected to be finalised and executed in the shareholding in Nedbank to its future OML shareholders within shareholding in Nedbank to its future OML shareholders within coming weeks. OML will be retaining a shareholding of 19.9% in approximately six months of the listing. We also reached approximately six months of the listing. We also reached its shareholder funds, and it intends to distribute the remaining agreement with the Economic Development Department regarding agreement with the Economic Development Department regarding shareholding in Nedbank to its future OML shareholders within three critical public interest issues: enterprise and supplier three critical public interest issues: enterprise and supplier approximately six months of the listing. We also reached development, employment within our ecosystem and BEE development, employment within our ecosystem and BEE agreement with the Economic Development Department regarding ownership. ownership. three critical public interest issues: enterprise and supplier development, employment within our ecosystem and BEE Our Pre-Listing Statement will provide more information about the Our Pre-Listing Statement will provide more information about the ownership. OML Group, including its investment case, historic performance OML Group, including its investment case, historic performance and associated risks. and associated risks. Our Pre-Listing Statement will provide more information about the OML Group, including its investment case, historic performance OML will be targeting compounded annual growth (CAGR) in our OML will be targeting compounded annual growth (CAGR) in our and associated risks. Results from Operations of Nominal GDP + 2% over the three Results from Operations of Nominal GDP + 2% over the three years to 2020 and a sustainable Return on Net Asset Value at our years to 2020 and a sustainable Return on Net Asset Value at our OML will be targeting compounded annual growth (CAGR) in our average cost of equity (CoE) + 4%. To support this, we have also average cost of equity (CoE) + 4%. To support this, we have also Results from Operations of Nominal GDP + 2% over the three launched a cost efficiency leadership programme designed to launched a cost efficiency leadership programme designed to years to 2020 and a sustainable Return on Net Asset Value at our deliver R1.0 billion of pre-tax run-rate cost savings by the end of deliver R1.0 billion of pre-tax run-rate cost savings by the end of average cost of equity (CoE) + 4%. To support this, we have also 2019, net of costs to achieve this. 2019, net of costs to achieve this. launched a cost efficiency leadership programme designed to deliver R1.0 billion of pre-tax run-rate cost savings by the end of Exciting opportunities lie ahead for us as an independently listed Exciting opportunities lie ahead for us as an independently listed 2019, net of costs to achieve this. business and we look forward to contributing to the societies in business and we look forward to contributing to the societies in which we operate. which we operate. Exciting opportunities lie ahead for us as an independently listed business and we look forward to contributing to the societies in Peter Moyo Peter Moyo which we operate. OMEM CEO, and OML CEO-designate OMEM CEO, and OML CEO-designate March 2018 March 2018 Peter Moyo OMEM CEO, and OML CEO-designate March 2018 Peter Moyo Peter Moyo OMEM CEO, and OML CEO-designate OMEM CEO, and OML CEO-designate Peter Moyo Peter Moyo OMEM CEO, and OML CEO-designate OMEM CEO, and OML CEO-designate A resilient performance in a tough environment A resilient performance in a tough environment I am very pleased with how well our business has performed I am very pleased with how well our business has performed despite the tough economic and political environment. Consumer despite the tough economic and political environment. Consumer A resilient performance in a tough environment spending in South Africa has been constrained by both modest spending in South Africa has been constrained by both modest I am very pleased with how well our business has performed increases in disposable income and consumer efforts to address increases in disposable income and consumer efforts to address despite the tough economic and political environment. Consumer their level of indebtedness. Further, business confidence was their level of indebtedness. Further, business confidence was spending in South Africa has been constrained by both modest dampened by the foreign and local currency credit rating dampened by the foreign and local currency credit rating increases in disposable income and consumer efforts to address downgrade and political uncertainty. downgrade and political uncertainty. their level of indebtedness. Further, business confidence was dampened by the foreign and local currency credit rating Over the year, we focused on executing on our strategic priorities Over the year, we focused on executing on our strategic priorities downgrade and political uncertainty. and on the eight battlegrounds underpinning them to drive and on the eight battlegrounds underpinning them to drive sustainable profit growth and tight management of our expenses. sustainable profit growth and tight management of our expenses. Over the year, we focused on executing on our strategic priorities We are also re-engineering our businesses to meet changing We are also re-engineering our businesses to meet changing and on the eight battlegrounds underpinning them to drive customer demands and developing new forms of distribution. customer demands and developing new forms of distribution. sustainable profit growth and tight management of our expenses. We are also re-engineering our businesses to meet changing We delivered pre-tax AOP of R13.3 billion, up 5% on the prior year, We delivered pre-tax AOP of R13.3 billion, up 5% on the prior year, customer demands and developing new forms of distribution. following exceptional growth in Old Mutual Insure and our Rest of following exceptional growth in Old Mutual Insure and our Rest of Africa segment. IFRS profits (post-tax and non-controlling interest) Africa segment. IFRS profits (post-tax and non-controlling interest) We delivered pre-tax AOP of R13.3 billion, up 5% on the prior year, of R10.2 billion were up 46% due to profits arising from the disposal of R10.2 billion were up 46% due to profits arising from the disposal following exceptional growth in Old Mutual Insure and our Rest of of our joint venture with Kotak Mahindra Bank in India of R1.4 of our joint venture with Kotak Mahindra Bank in India of R1.4 Africa segment. IFRS profits (post-tax and non-controlling interest) billion and higher actual investment returns of R5.2 billion (2016: billion and higher actual investment returns of R5.2 billion (2016: of R10.2 billion were up 46% due to profits arising from the disposal R2.4 billion) mainly in South Africa and Zimbabwe. Zimbabwean R2.4 billion) mainly in South Africa and Zimbabwe. Zimbabwean of our joint venture with Kotak Mahindra Bank in India of R1.4 equity markets remain volatile, having fallen by more than 10% in equity markets remain volatile, having fallen by more than 10% in billion and higher actual investment returns of R5.2 billion (2016: the first two months of 2018. the first two months of 2018. R2.4 billion) mainly in South Africa and Zimbabwe. Zimbabwean equity markets remain volatile, having fallen by more than 10% in The 2017 financial year was a tale of two halves for our business, The 2017 financial year was a tale of two halves for our business, the first two months of 2018. with good growth in gross flows in the Mass and Foundation with good growth in gross flows in the Mass and Foundation Cluster, Wealth and Investments and in Latin America during the Cluster, Wealth and Investments and in Latin America during the The 2017 financial year was a tale of two halves for our business, second half of 2017. We delivered full year NCCF of R14.5 billion. second half of 2017. We delivered full year NCCF of R14.5 billion. with good growth in gross flows in the Mass and Foundation Particularly pleasing was the Wealth and Investments NCCF of Particularly pleasing was the Wealth and Investments NCCF of Cluster, Wealth and Investments and in Latin America during the R14.1 billion, compared to R1.8 billion at the half year. This R14.1 billion, compared to R1.8 billion at the half year. This second half of 2017. We delivered full year NCCF of R14.5 billion. contributed to our funds under management closing at an contributed to our funds under management closing at an Particularly pleasing was the Wealth and Investments NCCF of impressive R1.2 trillion. impressive R1.2 trillion. R14.1 billion, compared to R1.8 billion at the half year. This contributed to our funds under management closing at an impressive R1.2 trillion. 26 26 26 26 Old Mutual plc Annual Report and Accounts 2017 S i t t r a e g c r e p o r t Old Mutual plc Annual Report and Accounts 2017 Key financial indicators (Rm) IFRS profit (post-tax and NCI)1 AOP (pre-tax and NCI)1 Adjusted Return on Equity (%)2 Free surplus conversion (%)3 OMLAC(SA) SAM solvency ratio (%)4 2016 2017 10,210 13,326 20.6% 74% Restated % change 46% 5% (1.0%) 18% 6,999 12,731 21.6% 56% 243% n/a − 1 IFRS profit and AOP for 2016 were restated to include the actual and long-term investment return (LTIR) on shareholder assets above the capital requirement previously reflected in the Old Mutual plc. The impacts on AOP and IFRS profit were R398 million and R173 million respectively 2 Adjusted return on equity is AOP (post-tax and NCI) divided by average IFRS shareholder equity 3 Free surplus conversion is free surplus generated divided by AOP (post tax and NCI). Free surplus generated now reflects changes in the capital requirements of non- insurance businesses as well as fungibility considerations. Comparatives have therefore been restated 4 Pro-forma at 31 December 2017. The Standard Formula allows for, subject to regulatory approval, certain methodology elections to be made. The estimated SAM solvency positions are presented on the basis of the Group’s preferred methodology which will, once the SAM framework is implemented, be formally presented for Regulatory approval. This is based on our current shareholding in Nedbank. The new operating model and fundamental multi-year transformation of the finance function will commence with the introduction of new cost, customer and capital allocation methodologies from 2018. We believe that this will better reflect the economics of each of the operational segments going forward. However, year-on-year comparability of segmental performance in 2018 and 2019 will be affected, albeit with no impact on the overall Group results. We also announced the appointment of Casper Troskie as the Finance Director of OMEM (and Finance Director-designate of OML) effective 1 April 2018. His broad financial services expertise and experience in the listed environment will be crucial to the business as we prepare for the listing of OML. During the year, a new Wealth & Investments segment was established. This segment comprises Old Mutual Investment Group and Old Mutual Wealth (South Africa), which previously formed part of the Retail Affluent segment. Personal Finance, which was the other part of Retail Affluent, is now managed as a standalone segment. Strategic overview Our vision is to become our customers' most trusted partner and to help them reach their financial goals. This is underpinned by our ambition to become a premium financial services group in sub- Saharan Africa. We completed the sale of the 26% shareholding in Kotak Mahindra Old Mutual Life Insurance in India, for net proceeds to Old Mutual plc of circa.R2.4 billion (£138 million). We also completed the transfer of the international branches of OMLAC(SA) that were previously reported in Old Mutual Wealth (United Kingdom) to align the reporting with the ownership structure. To deliver value in the medium term, our priorities are focused on consolidating and growing our position in markets in which we operate; improving key underperforming businesses; and building long-term competitive advantage. These priorities are defined through our eight battlegrounds:  Defend South African market share in mass market and corporate  Defend and grow in the South African personal finance market  Improve the competitiveness of Wealth and Investments  Continued turnaround of Old Mutual Insure  Turnaround East African business and improve returns across the Rest of Africa  Win the war for talent  Refresh the technology offering  Cost efficiency leadership OMEM operates through seven operational segments that collaborate to serve our customers. We also manage a number of central activities, assets and liabilities, collectively referred to as “Other Group Activities”. We are well-positioned in key sub-Saharan African geographies across multiple lines of business. Our business has an extensive product and service offering delivered through our multi-channel distribution network, with the largest reach compared to our traditional South African peers. Key business developments We have commenced our journey in fundamentally shifting from being a product-led business to becoming a customer-driven organisation. To support this change, we have restructured our leadership and reporting lines by ensuring that all customer-facing managing directors form part of the Executive Committee. This has sharpened our operational focus as we improve our customer service and experience to meet their evolving needs. We successfully completed our collaboration work with Nedbank to unlock synergies in excess of R1.0 billion by the end of 2017. Of this, circa.R0.6 billion accrued to OMEM, and we are fully committed to working with Nedbank in delivering ongoing synergistic benefits on an arm’s length basis. Future synergies will be underpinned by OML’s 19.9% shareholding in Nedbank. Performance highlights OMEM delivered resilient earnings growth of 5% in pre-tax adjusted operating profit (AOP) of R13,326 million. This result reflects the momentum over the second half of the year as we continued to make progress on our battlegrounds, despite the tough macroeconomic environment. Operating segments contributed R10,974 million to AOP, up 6% on the prior year. This was driven by the significant improvement in the underwriting result at Old Mutual Insure (up 290%) and growth in the Rest of Africa (up 33%). We continued to allocate central operating costs directly to the segments, such that only costs incurred for the holding company would be reported centrally. This resulted in R229 million being allocated directly to the segments. Consequently, year-on-year segmental performance is not comparable. We delivered adjusted Return on Equity (RoE) of 20.6% compared to 21.6% in the prior year. The decline largely reflects a 10% increase in the IFRS shareholders’ equity to R46.4 billion following higher actual investment gains in South Africa and Zimbabwe, and the profit on disposal of our 26% stake in Kotak. This was partially offset by the higher income tax expense in the current period. The OMEM AOP effective tax rate of 27.4% was marginally higher than 26.4% in the prior year, mainly due to an increase in non-deductible expenditure incurred. This contributed to AOP (post-tax and NCI) of R9,199 million, which was 2% above the prior year. 27 9 Old Mutual plc Annual Report and Accounts 2017Strategic report Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Old Mutual Emerging Markets review continued Old Mutual Emerging Markets review continued Cost efficiency leadership We continue to focus our efforts on cost optimisation initiatives across the business. A cost base review was undertaken in the Cost efficiency leadership second half of 2017 in order to identify opportunities that enable the We continue to focus our efforts on cost optimisation initiatives business to run more efficiently. We are therefore targeting pre-tax across the business. A cost base review was undertaken in the run-rate cost savings of R1.0 billion by the end of 2019, net of costs second half of 2017 in order to identify opportunities that enable the to achieve this. This will be based on the 2017 underlying IFRS business to run more efficiently. We are therefore targeting pre-tax run-rate cost base, and adjusted for inflation and foreign exchange run-rate cost savings of R1.0 billion by the end of 2019, net of costs movements over 2018 and 2019. to achieve this. This will be based on the 2017 underlying IFRS run-rate cost base, and adjusted for inflation and foreign exchange The 2017 underlying run-rate cost base of R18.4 billion, is movements over 2018 and 2019. adjusted for one-off project costs (e.g. regulatory and IFRS-related projects) and recurring standalone and listing costs. Below is The 2017 underlying run-rate cost base of R18.4 billion, is the reconciliation from underlying IFRS operating and adjusted for one-off project costs (e.g. regulatory and IFRS-related administrative expenses: projects) and recurring standalone and listing costs. Below is the reconciliation from underlying IFRS operating and Rbn administrative expenses: Underlying IFRS operating and administrative expenses1 One-off project costs (e.g. regulatory, IFRS-related, etc.) Incremental recurring standalone and listing costs Rbn Underlying IFRS operating and administrative expenses1 Underlying IFRS operating and administrative One-off project costs (e.g. regulatory, IFRS-related, etc.) expenses on a run-rate basis Incremental recurring standalone and listing costs 2017 18.8 (0.3) 2017 (0.1) 18.8 (0.3) 18.4 (0.1) 1 Refer to Note D9 of the Old Mutual plc Group Financial Statements for further detail. Underlying IFRS operating and administrative expenses on a run-rate basis 18.4 OMEM’s underlying IFRS operating and administrative expenses 1 Refer to Note D9 of the Old Mutual plc Group Financial Statements for further detail. of R18.8 billion were up 4% on the prior year, below South African inflation. The growth in expenses largely reflects higher operating OMEM’s underlying IFRS operating and administrative expenses costs associated with the expansion of MFCs branch footprint and of R18.8 billion were up 4% on the prior year, below South African higher remuneration costs in Old Mutual Insure off a low base in inflation. The growth in expenses largely reflects higher operating the prior year. This was partially offset by the tight cost costs associated with the expansion of MFCs branch footprint and management initiatives across the business. higher remuneration costs in Old Mutual Insure off a low base in the prior year. This was partially offset by the tight cost As previously indicated, we expect to spend up to R100 million per management initiatives across the business. annum in incremental recurring listing costs and between R100 million and R180 million per annum on other incremental recurring As previously indicated, we expect to spend up to R100 million per standalone costs. During the year, we incurred R142 million of annum in incremental recurring listing costs and between R100 recurring standalone and listing costs, including corporate million and R180 million per annum on other incremental recurring insurance and costs associated with setting up capabilities for standalone costs. During the year, we incurred R142 million of a listed company that previously did not exist, such as Investor recurring standalone and listing costs, including corporate Relations. The reported 2017 level of costs do not yet fully reflect insurance and costs associated with setting up capabilities for the run-rate of these costs. a listed company that previously did not exist, such as Investor Relations. The reported 2017 level of costs do not yet fully reflect Win the war for talent the run-rate of these costs. Our people strategy is focused on attracting, developing and retaining the best talent available in the market. Our commitment Win the war for talent to ensuring diversity and inclusion across the workplace is partly Our people strategy is focused on attracting, developing and evidenced through having the most transformed executive retaining the best talent available in the market. Our commitment leadership team in South Africa’s insurance industry in terms to ensuring diversity and inclusion across the workplace is partly of gender and race. evidenced through having the most transformed executive leadership team in South Africa’s insurance industry in terms Our efforts to establish OMEM as the employer of choice were of gender and race. recognised by the Top Employers Institute. OMEM was awarded the accolade of Number 1 Top Employer in South Africa and Our efforts to establish OMEM as the employer of choice were Ghana, and the industry leader in financial services and insurance recognised by the Top Employers Institute. OMEM was awarded for the seventh consecutive year in South Africa. Our businesses the accolade of Number 1 Top Employer in South Africa and in all thirteen countries in which we operate throughout sub- Ghana, and the industry leader in financial services and insurance Saharan Africa were also certified as a Top Employer. for the seventh consecutive year in South Africa. Our businesses in all thirteen countries in which we operate throughout sub- Saharan Africa were also certified as a Top Employer. Refresh the technology offering We are continually investing in our technology platforms so as to maintain the relevance of our customer propositions and to Refresh the technology offering continue to meet evolving customer’s needs. The primary focus We are continually investing in our technology platforms so as of recent initiatives has been on building protection solutions in to maintain the relevance of our customer propositions and to the Mass and Foundation Cluster (MFC) and Personal Finance continue to meet evolving customer’s needs. The primary focus segments which are expected to be activated during 2019. of recent initiatives has been on building protection solutions in the Mass and Foundation Cluster (MFC) and Personal Finance To date R1.9 billion has been spent on these initiatives; the segments which are expected to be activated during 2019. incremental income statement expense has been in the region of R300 million per annum, and the remainder has been capitalised. To date R1.9 billion has been spent on these initiatives; the incremental income statement expense has been in the region of As this technology comes on line in 2019, the commencement of R300 million per annum, and the remainder has been capitalised. depreciation charges, together with continued IT investment in further enhancing customer value propositions and developing As this technology comes on line in 2019, the commencement of digital and analytics capability, is expected to lead to an increase depreciation charges, together with continued IT investment in in the incremental recurring income statement expense. This will further enhancing customer value propositions and developing however be tightly managed consistent with our targeted growth digital and analytics capability, is expected to lead to an increase and RoNAV objectives. in the incremental recurring income statement expense. This will however be tightly managed consistent with our targeted growth Operating environment and RoNAV objectives. Global markets continued on their recovery in 2017, with the US Federal Reserve signalling its intention to tighten monetary policy Operating environment and a weakening of the US dollar. Emerging markets continued Global markets continued on their recovery in 2017, with the US to grow faster than developed markets despite economic and Federal Reserve signalling its intention to tighten monetary policy political challenges. and a weakening of the US dollar. Emerging markets continued to grow faster than developed markets despite economic and In South Africa, political uncertainty throughout the year contributed political challenges. to weaker business and consumer confidence. In November, Standard & Poor’s downgraded South Africa’s local government In South Africa, political uncertainty throughout the year contributed bonds to sub-investment grade following the Medium-Term Budget to weaker business and consumer confidence. In November, Policy Statement. However, the year ended on an optimistic note Standard & Poor’s downgraded South Africa’s local government following the election of a new ANC president at the December bonds to sub-investment grade following the Medium-Term Budget elective conference. Policy Statement. However, the year ended on an optimistic note following the election of a new ANC president at the December Equity markets rallied in the second half of the year, having been elective conference. relatively flat in the first half, with the JSE SWIX closing 17.7% ahead of 2016 at 13,292. Average JSE SWIX market levels were Equity markets rallied in the second half of the year, having been up 5.7% on the prior year. The rand closed the year 9.8% up relatively flat in the first half, with the JSE SWIX closing 17.7% against the dollar at 12.39, while bond yields eased back to below ahead of 2016 at 13,292. Average JSE SWIX market levels were 9.2%, albeit above 8.5% before the medium-term budget review. up 5.7% on the prior year. The rand closed the year 9.8% up In this context, our customers remain under significant financial against the dollar at 12.39, while bond yields eased back to below strain, which has constrained our top-line growth. 9.2%, albeit above 8.5% before the medium-term budget review. In this context, our customers remain under significant financial In our other key markets, economic growth was also adversely strain, which has constrained our top-line growth. impacted by political instability. In Zimbabwe, this culminated in a change in government with Robert Mugabe stepping down as In our other key markets, economic growth was also adversely president. Following an increase in cash shortages, the Zimbabwe impacted by political instability. In Zimbabwe, this culminated in Stock Exchange closed 130.4% ahead of the prior year as a result a change in government with Robert Mugabe stepping down as of investors moving funds into the equity market as an investment president. Following an increase in cash shortages, the Zimbabwe alternative. The current macroeconomic situation in Zimbabwe Stock Exchange closed 130.4% ahead of the prior year as a result continued to be fluid, and the market reaction remains volatile. of investors moving funds into the equity market as an investment During the first two months of 2018, Zimbabwe’s equity markets alternative. The current macroeconomic situation in Zimbabwe had declined by more than 10% since the 2017 year-end position. continued to be fluid, and the market reaction remains volatile. During the first two months of 2018, Zimbabwe’s equity markets On 9 March 2018, the Zimbabwean Government published its had declined by more than 10% since the 2017 year-end position. report on the inquiry into the loss in value for certain policyholders and beneficiaries upon the conversion of pension and insurance On 9 March 2018, the Zimbabwean Government published its benefits after the dollarisation of the economy in 2009. This is report on the inquiry into the loss in value for certain policyholders subject to review by the president and cabinet. and beneficiaries upon the conversion of pension and insurance benefits after the dollarisation of the economy in 2009. This is subject to review by the president and cabinet. 28 10 10 Old Mutual plc Annual Report and Accounts 2017Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Old Mutual Emerging Markets review Old Mutual Emerging Markets review continued continued Cost efficiency leadership Refresh the technology offering We continue to focus our efforts on cost optimisation initiatives We are continually investing in our technology platforms so as across the business. A cost base review was undertaken in the Cost efficiency leadership second half of 2017 in order to identify opportunities that enable the We continue to focus our efforts on cost optimisation initiatives business to run more efficiently. We are therefore targeting pre-tax across the business. A cost base review was undertaken in the run-rate cost savings of R1.0 billion by the end of 2019, net of costs second half of 2017 in order to identify opportunities that enable the to achieve this. This will be based on the 2017 underlying IFRS business to run more efficiently. We are therefore targeting pre-tax run-rate cost base, and adjusted for inflation and foreign exchange run-rate cost savings of R1.0 billion by the end of 2019, net of costs movements over 2018 and 2019. to achieve this. This will be based on the 2017 underlying IFRS run-rate cost base, and adjusted for inflation and foreign exchange The 2017 underlying run-rate cost base of R18.4 billion, is movements over 2018 and 2019. adjusted for one-off project costs (e.g. regulatory and IFRS-related projects) and recurring standalone and listing costs. Below is The 2017 underlying run-rate cost base of R18.4 billion, is the reconciliation from underlying IFRS operating and adjusted for one-off project costs (e.g. regulatory and IFRS-related administrative expenses: projects) and recurring standalone and listing costs. Below is 2017 18.8 (0.3) 2017 (0.1) 18.8 (0.3) 18.4 (0.1) 18.4 Rbn Rbn the reconciliation from underlying IFRS operating and administrative expenses: Underlying IFRS operating and administrative expenses1 One-off project costs (e.g. regulatory, IFRS-related, etc.) Incremental recurring standalone and listing costs Underlying IFRS operating and administrative expenses1 Underlying IFRS operating and administrative One-off project costs (e.g. regulatory, IFRS-related, etc.) expenses on a run-rate basis Incremental recurring standalone and listing costs 1 Refer to Note D9 of the Old Mutual plc Group Financial Statements for further detail. Underlying IFRS operating and administrative expenses on a run-rate basis OMEM’s underlying IFRS operating and administrative expenses 1 Refer to Note D9 of the Old Mutual plc Group Financial Statements for further detail. of R18.8 billion were up 4% on the prior year, below South African inflation. The growth in expenses largely reflects higher operating OMEM’s underlying IFRS operating and administrative expenses costs associated with the expansion of MFCs branch footprint and of R18.8 billion were up 4% on the prior year, below South African higher remuneration costs in Old Mutual Insure off a low base in inflation. The growth in expenses largely reflects higher operating the prior year. This was partially offset by the tight cost costs associated with the expansion of MFCs branch footprint and management initiatives across the business. higher remuneration costs in Old Mutual Insure off a low base in the prior year. This was partially offset by the tight cost As previously indicated, we expect to spend up to R100 million per management initiatives across the business. annum in incremental recurring listing costs and between R100 million and R180 million per annum on other incremental recurring As previously indicated, we expect to spend up to R100 million per standalone costs. During the year, we incurred R142 million of annum in incremental recurring listing costs and between R100 recurring standalone and listing costs, including corporate million and R180 million per annum on other incremental recurring insurance and costs associated with setting up capabilities for standalone costs. During the year, we incurred R142 million of a listed company that previously did not exist, such as Investor recurring standalone and listing costs, including corporate Relations. The reported 2017 level of costs do not yet fully reflect insurance and costs associated with setting up capabilities for the run-rate of these costs. a listed company that previously did not exist, such as Investor Relations. The reported 2017 level of costs do not yet fully reflect Win the war for talent the run-rate of these costs. Our people strategy is focused on attracting, developing and retaining the best talent available in the market. Our commitment Win the war for talent to ensuring diversity and inclusion across the workplace is partly Our people strategy is focused on attracting, developing and evidenced through having the most transformed executive retaining the best talent available in the market. Our commitment leadership team in South Africa’s insurance industry in terms to ensuring diversity and inclusion across the workplace is partly of gender and race. evidenced through having the most transformed executive leadership team in South Africa’s insurance industry in terms Our efforts to establish OMEM as the employer of choice were of gender and race. recognised by the Top Employers Institute. OMEM was awarded the accolade of Number 1 Top Employer in South Africa and Our efforts to establish OMEM as the employer of choice were Ghana, and the industry leader in financial services and insurance recognised by the Top Employers Institute. OMEM was awarded for the seventh consecutive year in South Africa. Our businesses the accolade of Number 1 Top Employer in South Africa and in all thirteen countries in which we operate throughout sub- Ghana, and the industry leader in financial services and insurance Saharan Africa were also certified as a Top Employer. for the seventh consecutive year in South Africa. Our businesses in all thirteen countries in which we operate throughout sub- Saharan Africa were also certified as a Top Employer. to maintain the relevance of our customer propositions and to Refresh the technology offering continue to meet evolving customer’s needs. The primary focus We are continually investing in our technology platforms so as of recent initiatives has been on building protection solutions in to maintain the relevance of our customer propositions and to the Mass and Foundation Cluster (MFC) and Personal Finance continue to meet evolving customer’s needs. The primary focus segments which are expected to be activated during 2019. of recent initiatives has been on building protection solutions in the Mass and Foundation Cluster (MFC) and Personal Finance To date R1.9 billion has been spent on these initiatives; the segments which are expected to be activated during 2019. incremental income statement expense has been in the region of R300 million per annum, and the remainder has been capitalised. To date R1.9 billion has been spent on these initiatives; the incremental income statement expense has been in the region of As this technology comes on line in 2019, the commencement of R300 million per annum, and the remainder has been capitalised. depreciation charges, together with continued IT investment in further enhancing customer value propositions and developing As this technology comes on line in 2019, the commencement of digital and analytics capability, is expected to lead to an increase depreciation charges, together with continued IT investment in in the incremental recurring income statement expense. This will further enhancing customer value propositions and developing however be tightly managed consistent with our targeted growth digital and analytics capability, is expected to lead to an increase and RoNAV objectives. in the incremental recurring income statement expense. This will however be tightly managed consistent with our targeted growth Operating environment and RoNAV objectives. Global markets continued on their recovery in 2017, with the US Federal Reserve signalling its intention to tighten monetary policy Operating environment and a weakening of the US dollar. Emerging markets continued Global markets continued on their recovery in 2017, with the US to grow faster than developed markets despite economic and Federal Reserve signalling its intention to tighten monetary policy political challenges. and a weakening of the US dollar. Emerging markets continued to grow faster than developed markets despite economic and In South Africa, political uncertainty throughout the year contributed political challenges. to weaker business and consumer confidence. In November, Standard & Poor’s downgraded South Africa’s local government In South Africa, political uncertainty throughout the year contributed bonds to sub-investment grade following the Medium-Term Budget to weaker business and consumer confidence. In November, Policy Statement. However, the year ended on an optimistic note Standard & Poor’s downgraded South Africa’s local government following the election of a new ANC president at the December bonds to sub-investment grade following the Medium-Term Budget elective conference. Policy Statement. However, the year ended on an optimistic note following the election of a new ANC president at the December Equity markets rallied in the second half of the year, having been elective conference. relatively flat in the first half, with the JSE SWIX closing 17.7% ahead of 2016 at 13,292. Average JSE SWIX market levels were Equity markets rallied in the second half of the year, having been up 5.7% on the prior year. The rand closed the year 9.8% up relatively flat in the first half, with the JSE SWIX closing 17.7% against the dollar at 12.39, while bond yields eased back to below ahead of 2016 at 13,292. Average JSE SWIX market levels were 9.2%, albeit above 8.5% before the medium-term budget review. up 5.7% on the prior year. The rand closed the year 9.8% up In this context, our customers remain under significant financial against the dollar at 12.39, while bond yields eased back to below strain, which has constrained our top-line growth. 9.2%, albeit above 8.5% before the medium-term budget review. In this context, our customers remain under significant financial In our other key markets, economic growth was also adversely strain, which has constrained our top-line growth. impacted by political instability. In Zimbabwe, this culminated in a change in government with Robert Mugabe stepping down as In our other key markets, economic growth was also adversely president. Following an increase in cash shortages, the Zimbabwe impacted by political instability. In Zimbabwe, this culminated in Stock Exchange closed 130.4% ahead of the prior year as a result a change in government with Robert Mugabe stepping down as of investors moving funds into the equity market as an investment president. Following an increase in cash shortages, the Zimbabwe alternative. The current macroeconomic situation in Zimbabwe Stock Exchange closed 130.4% ahead of the prior year as a result continued to be fluid, and the market reaction remains volatile. of investors moving funds into the equity market as an investment During the first two months of 2018, Zimbabwe’s equity markets alternative. The current macroeconomic situation in Zimbabwe had declined by more than 10% since the 2017 year-end position. continued to be fluid, and the market reaction remains volatile. During the first two months of 2018, Zimbabwe’s equity markets On 9 March 2018, the Zimbabwean Government published its had declined by more than 10% since the 2017 year-end position. report on the inquiry into the loss in value for certain policyholders and beneficiaries upon the conversion of pension and insurance On 9 March 2018, the Zimbabwean Government published its benefits after the dollarisation of the economy in 2009. This is report on the inquiry into the loss in value for certain policyholders subject to review by the president and cabinet. and beneficiaries upon the conversion of pension and insurance benefits after the dollarisation of the economy in 2009. This is subject to review by the president and cabinet. Old Mutual plc Annual Report and Accounts 2017 We are reviewing the full report and its recommendations, and we remain committed to treating our customers fairly. We are preparing a preliminary evaluation of the potential impact on our operations. However we are not yet able to establish whether the commission's findings will have any impact on Old Mutual Zimbabwe. In Kenya, economic growth was impacted by the protracted presidential elections and drought conditions. However, economic growth in 2017 remained strong at 5.0%. IFRS profit (post-tax) Reconciliation of AOP to IFRS (Rm) AOP (pre-tax and NCI) Total adjusting items Goodwill, intangible and associate charges Profit on business disposals Short-term fluctuations in investment return Returns on own debt and equity Managed separation and standalone costs Income tax attributable to policyholder returns IFRS profit (pre-tax and NCI) Income tax expense Non-controlling interests IFRS profit attributable to equity holders after tax1 2016 2017 13,326 892 Restated % change 5% 12,731 131% (2,855) (1,502) 1,390 (1,504) 63 2,176 (935) (550) (864) (237) − 1,391 15,609 (5,377) (22) 1,005 10,881 (4,133) 251 38% 43% (30%) (109%) 10,210 6,999 46% 1 IFRS profit for 2016 was restated to include R173 million of the actual investment return on shareholder assets above the capital requirement previously reflected in the Old Mutual plc. IFRS profit after tax of R10,210 million increased by 46% from R6,999 million in the prior year. Key adjusting items of AOP to IFRS profit include positive short-term fluctuations on LTIR of R2,176 million (2016: negative R550 million). These were largely driven by the significant growth in Zimbabwe’s equity markets which resulted in positive short-term fluctuations of R1,815 million (2016: R312 million). Profit on business disposals of R1,390 million relates to the disposal of our 26% stake in Kotak Mahindra Old Mutual Life Insurance Limited, which completed in October 2017. In line with previous guidance, we expect to incur total one-off costs of up to R300 million in 2017 and 2018 to establish local standalone capabilities. During the year, we incurred R211 million of one-off standalone costs. Further, we incurred R26 million of one-off advisory and transaction costs. ‘Goodwill, intangible and associate charges’ includes goodwill impairments of R1.5 billion (2016: R1.3 billion) relating to East Africa and AIVA within LatAm & Asia. In the first half of 2017, a goodwill impairment of R1.2 billion was recognised relating to UAP-Old Mutual Group in East Africa. This followed the simplification of the operating structure of the Rest of Africa portfolio and the consequential change in operating segment. This resulted in a change in the cash generating units to which goodwill is allocated to and monitored for valuation purposes. Further, a goodwill impairment of R0.3 billion was recognised in the second half of the year relating to the AIVA business in Uruguay, as a result of the tough business environment and the exit by Old Mutual Wealth (UK) from the single strategy business. Segmental performance Adjusted operating profit (pre-tax, Rm) Mass and Foundation Cluster (MFC) Personal Finance Wealth and Investments1 Old Mutual Corporate Old Mutual Insure Rest of Africa LatAm and Asia2 Central expenses and administration costs AOP (pre-LTIR and finance costs) LTIR3 Finance costs Total AOP (pre-tax and NCI) 2016 2017 Restated % change 3,165 3,151 1,623 1,576 312 1,074 609 3,058 3,421 1,592 1,403 80 806 611 3% (8%) 2% 12% 290% 33% − (536) (662) 19% 10,974 2,974 (622) 13,326 10,309 2,951 (529) 12,731 6% 1% (18%) 5% 1 From 2017, Wealth and Investments AOP includes Old Mutual International AOP of R60 million, previously reported in Old Mutual Wealth (UK). Comparatives have not been restated 2 LatAm & Asia AOP includes India profits of R181 million (2016: R177 million). India was sold during the 2017 financial year, and included in the results for nine months to 30 September 2017 3 LTIR on assets in excess of regulatory required capital is now reported in OMEM, previously reported in Old Mutual plc. Comparatives have been restated (2016: R398 million). Mass and Foundation Cluster MFC continues to retain its leading position in the South African mass market. We remain focused on evolving our customer value proposition by investing in growing the branch network, enhancing Money Account (our transactional offering), and rolling out ATMs, whilst we also improve the efficiency of the channels. AOP of R3,165 million was 3% up on the prior year primarily driven by higher new business profits, better cost management and a more favourable product mix towards risk business. This was partly offset by lower net positive actuarial provision releases compared to the prior year. Old Mutual Finance (OMF) AOP of R828 million was up 3% on the prior year. This was due to growth in loan sales supported by an increase in the number of branches, and better collections experience as a result of an improvement in the risk profile of the loan book. Life APE sales grew by 3% to R4,091 million, which contributed to good NCCF of R6.1 billion, which was up 9%. This was driven by the growth in risk sales from higher adviser manpower and better productivity in the second half of the year. The branch network now contributes 29% to total MFC life APE sales (2016: 28%). VNB of R1,236 million was up 17% following pricing reviews on risk business, which led to a VNB margin of 10.6% (2016: 9.4%). MFC grew its branch footprint by 31 to 323 branches and rolled out 22 pilot ATMs. Free Wi-Fi was rolled out to all branches allowing customers access to data connectivity, which has increased the level of activation for Money Account holders. The branch network, which remains key to providing seamless customer experience, continues to deliver better persistency experience and higher productivity than other channels. 10 10 29 11 S i t r a t e g c r e p o r t Old Mutual plc Annual Report and Accounts 2017Strategic report Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Old Mutual Emerging Markets review continued Old Mutual Emerging Markets review continued Loans and advances of R12.1 billion declined by 20%, following the write-off of long outstanding loans deemed to have low recoverability (net of balance sheet impairment provisions), Loans and advances of R12.1 billion declined by 20%, following in line with management’s decision to review the credit quality the write-off of long outstanding loans deemed to have low assessment used for calculating provisions within OMF. recoverability (net of balance sheet impairment provisions), This now takes into account recent payment behaviour in in line with management’s decision to review the credit quality preparation for IFRS 9 – Financial Instruments, effective for assessment used for calculating provisions within OMF. annual periods beginning on or after 1 January 2018. This now takes into account recent payment behaviour in preparation for IFRS 9 – Financial Instruments, effective for This was partly offset by the reclassification of loans where annual periods beginning on or after 1 January 2018. payment behaviour had improved. This treatment is in line with the principles of the SARB directive 7/2015 and has resulted in a This was partly offset by the reclassification of loans where net positive AOP impact of R113 million. This further contributed payment behaviour had improved. This treatment is in line with to a lower net lending margin of 16.2% compared to 16.6% in the the principles of the SARB directive 7/2015 and has resulted in a prior year. net positive AOP impact of R113 million. This further contributed to a lower net lending margin of 16.2% compared to 16.6% in the We allocated R470 million in additional funeral cover to our existing prior year. MFC customers, at no extra cost to them. This was the remainder of the R624 million that we had set aside for customers from our We allocated R470 million in additional funeral cover to our existing 2014 mortality reserve release, to be allocated over a 5-year MFC customers, at no extra cost to them. This was the remainder period. The release followed consistent positive mortality of the R624 million that we had set aside for customers from our experience, mainly due to effective anti-retroviral roll-out by the 2014 mortality reserve release, to be allocated over a 5-year South African government. Accelerating the remaining allocation period. The release followed consistent positive mortality had a R20 million cost impact on MFC’s 2017 AOP, while experience, mainly due to effective anti-retroviral roll-out by the improving the value to customers. South African government. Accelerating the remaining allocation had a R20 million cost impact on MFC’s 2017 AOP, while Personal Finance improving the value to customers. Personal Finance remains focused on strengthening its position in the middle income market, and driving growth through digitally- Personal Finance enabled and innovative customer propositions. In particular, we Personal Finance remains focused on strengthening its position are targeting the black middle income markets and refocusing our in the middle income market, and driving growth through digitally- adviser footprint towards the Gauteng region. We also continued enabled and innovative customer propositions. In particular, we to invest in alternative distribution channels over the current period are targeting the black middle income markets and refocusing our to meet evolving customer needs. adviser footprint towards the Gauteng region. We also continued to invest in alternative distribution channels over the current period AOP of R3,151 million declined by 8% relative to the prior year, to meet evolving customer needs. with the legacy book contributing circa.38% (2016: 20%). The decline in AOP was due primarily to significantly lower net positive AOP of R3,151 million declined by 8% relative to the prior year, provision releases compared to the prior year. with the legacy book contributing circa.38% (2016: 20%). The decline in AOP was due primarily to significantly lower net positive Life APE sales of R2,502 million were 4% behind the prior year provision releases compared to the prior year. largely due to lower Greenlight and conventional annuity sales. VNB grew significantly by 35% to R366 million. This was Life APE sales of R2,502 million were 4% behind the prior year attributable to the change in methodology relating to the allocation largely due to lower Greenlight and conventional annuity sales. of distribution costs to life products and the annual rate increases VNB grew significantly by 35% to R366 million. This was in Greenlight. As a result, the VNB margin improved to 2.4% (2016: attributable to the change in methodology relating to the allocation 1.7%). of distribution costs to life products and the annual rate increases in Greenlight. As a result, the VNB margin improved to 2.4% (2016: Personal Finance’s open book recorded positive NCCF of R6.6 1.7%). billion, offset by net outflows of R(9.4) billion from the legacy book. Total NCCF of R(2.8) billion was R0.3 billion better than the prior Personal Finance’s open book recorded positive NCCF of R6.6 year due to lower maturities and disinvestments than experienced billion, offset by net outflows of R(9.4) billion from the legacy book. in the prior period. Total NCCF of R(2.8) billion was R0.3 billion better than the prior year due to lower maturities and disinvestments than experienced in the prior period. We expanded our digital offering through the successful launch of iWYZE life, a direct channel providing underwritten life cover. We also increased the number of digital offerings that are available We expanded our digital offering through the successful launch on the Old Mutual website, such as funeral cover, stockbroking and of iWYZE life, a direct channel providing underwritten life cover. retirement annuities. This resulted in an increased contribution from We also increased the number of digital offerings that are available these alternative channels to Personal Finance’s life APE sales on the Old Mutual website, such as funeral cover, stockbroking and from 6% to 9% in 2017. retirement annuities. This resulted in an increased contribution from these alternative channels to Personal Finance’s life APE sales In response to the level of indebtedness of middle income customers, from 6% to 9% in 2017. we continued to develop our online financial education tool, Moneyversity, which helps users make the most of their money. In response to the level of indebtedness of middle income customers, We also launched Find-an-Adviser, which helps customers in we continued to develop our online financial education tool, finding a nearby adviser that is best placed to meet their investment Moneyversity, which helps users make the most of their money. needs, using their geo-location. As at the year-end, over 700 We also launched Find-an-Adviser, which helps customers in advisers had registered on the platform. finding a nearby adviser that is best placed to meet their investment needs, using their geo-location. As at the year-end, over 700 In collaboration with OMF, there was a significant increase in the advisers had registered on the platform. take up of Money Accounts and debt consolidations. We have also started working with Corporate to offer Home Solutions to Personal In collaboration with OMF, there was a significant increase in the Finance customers, resulting in a wider range of the customers’ take up of Money Accounts and debt consolidations. We have also needs being met. started working with Corporate to offer Home Solutions to Personal Finance customers, resulting in a wider range of the customers’ Wealth and Investments needs being met. Wealth and Investments continues to capitalise on its focus in the asset management boutique model, in accelerating global Wealth and Investments capabilities and margin, leveraging the OMSFIN proprietary risk Wealth and Investments continues to capitalise on its focus in and investment capability, and building an African alternatives the asset management boutique model, in accelerating global mega-manager in the unlisted space. It also seeks to maximise its capabilities and margin, leveraging the OMSFIN proprietary risk market leading capabilities in future fit areas of passive, smart beta, and investment capability, and building an African alternatives alternatives and liability driven investments. Core to the strategy mega-manager in the unlisted space. It also seeks to maximise its is to refocus on the retail Independent Financial Adviser market, market leading capabilities in future fit areas of passive, smart beta, growing in the wealth market, and further enhancing Old Mutual’s alternatives and liability driven investments. Core to the strategy presence in the high net worth market. is to refocus on the retail Independent Financial Adviser market, growing in the wealth market, and further enhancing Old Mutual’s In the context of relatively flat markets in the first half of 2017, the presence in the high net worth market. segment recorded 2% growth in AOP to R1,623 million. The growth was largely attributable to base fee income on higher assets under In the context of relatively flat markets in the first half of 2017, the management, positive investment returns in Alternatives, and the segment recorded 2% growth in AOP to R1,623 million. The growth first time inclusion of profits from Old Mutual International of R60 was largely attributable to base fee income on higher assets under million. This was partly offset by lower origination income and deal management, positive investment returns in Alternatives, and the flow activity in both the specialised finance and the renewables first time inclusion of profits from Old Mutual International of R60 businesses, as well as higher operating expenses in the asset million. This was partly offset by lower origination income and deal management business. flow activity in both the specialised finance and the renewables businesses, as well as higher operating expenses in the asset The strong growth in gross flows in the second half of 2017 management business. contributed to the NCCF of R14.1 billion for the year, which was significantly up from R1.8 billion in H1 2017. This was due to strong The strong growth in gross flows in the second half of 2017 inflows into Wealth (SA), the Liability Driven Investment boutique contributed to the NCCF of R14.1 billion for the year, which was and a large mandate into the Alternatives boutique in Q4 2017. significantly up from R1.8 billion in H1 2017. This was due to strong inflows into Wealth (SA), the Liability Driven Investment boutique Assets under management (AuM) grew 17% to R736.6 billion, and a large mandate into the Alternatives boutique in Q4 2017. supported by better market performance in the second half of 2017 and the first time inclusion of R39 billion previously reported in Assets under management (AuM) grew 17% to R736.6 billion, OMAM, which was sold by Old Mutual plc during the year. Included supported by better market performance in the second half of 2017 in Wealth and Investment’s AuM is R340.4 billion of funds that are and the first time inclusion of R39 billion previously reported in managed on behalf of other OMEM group entities. OMAM, which was sold by Old Mutual plc during the year. Included in Wealth and Investment’s AuM is R340.4 billion of funds that are managed on behalf of other OMEM group entities. 30 12 12 Old Mutual plc Annual Report and Accounts 2017Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Old Mutual Emerging Markets review continued Old Mutual Emerging Markets review continued Loans and advances of R12.1 billion declined by 20%, following We expanded our digital offering through the successful launch the write-off of long outstanding loans deemed to have low of iWYZE life, a direct channel providing underwritten life cover. recoverability (net of balance sheet impairment provisions), Loans and advances of R12.1 billion declined by 20%, following in line with management’s decision to review the credit quality the write-off of long outstanding loans deemed to have low assessment used for calculating provisions within OMF. recoverability (net of balance sheet impairment provisions), This now takes into account recent payment behaviour in in line with management’s decision to review the credit quality preparation for IFRS 9 – Financial Instruments, effective for assessment used for calculating provisions within OMF. annual periods beginning on or after 1 January 2018. This now takes into account recent payment behaviour in preparation for IFRS 9 – Financial Instruments, effective for This was partly offset by the reclassification of loans where annual periods beginning on or after 1 January 2018. payment behaviour had improved. This treatment is in line with the principles of the SARB directive 7/2015 and has resulted in a This was partly offset by the reclassification of loans where net positive AOP impact of R113 million. This further contributed payment behaviour had improved. This treatment is in line with to a lower net lending margin of 16.2% compared to 16.6% in the the principles of the SARB directive 7/2015 and has resulted in a net positive AOP impact of R113 million. This further contributed prior year. prior year. to a lower net lending margin of 16.2% compared to 16.6% in the We allocated R470 million in additional funeral cover to our existing MFC customers, at no extra cost to them. This was the remainder of the R624 million that we had set aside for customers from our We allocated R470 million in additional funeral cover to our existing 2014 mortality reserve release, to be allocated over a 5-year MFC customers, at no extra cost to them. This was the remainder period. The release followed consistent positive mortality of the R624 million that we had set aside for customers from our experience, mainly due to effective anti-retroviral roll-out by the 2014 mortality reserve release, to be allocated over a 5-year South African government. Accelerating the remaining allocation period. The release followed consistent positive mortality had a R20 million cost impact on MFC’s 2017 AOP, while experience, mainly due to effective anti-retroviral roll-out by the improving the value to customers. South African government. Accelerating the remaining allocation had a R20 million cost impact on MFC’s 2017 AOP, while Personal Finance improving the value to customers. Personal Finance remains focused on strengthening its position in the middle income market, and driving growth through digitally- Personal Finance enabled and innovative customer propositions. In particular, we Personal Finance remains focused on strengthening its position are targeting the black middle income markets and refocusing our in the middle income market, and driving growth through digitally- adviser footprint towards the Gauteng region. We also continued enabled and innovative customer propositions. In particular, we to invest in alternative distribution channels over the current period are targeting the black middle income markets and refocusing our to meet evolving customer needs. adviser footprint towards the Gauteng region. We also continued to invest in alternative distribution channels over the current period AOP of R3,151 million declined by 8% relative to the prior year, to meet evolving customer needs. with the legacy book contributing circa.38% (2016: 20%). The decline in AOP was due primarily to significantly lower net positive AOP of R3,151 million declined by 8% relative to the prior year, provision releases compared to the prior year. with the legacy book contributing circa.38% (2016: 20%). The decline in AOP was due primarily to significantly lower net positive Life APE sales of R2,502 million were 4% behind the prior year provision releases compared to the prior year. largely due to lower Greenlight and conventional annuity sales. VNB grew significantly by 35% to R366 million. This was Life APE sales of R2,502 million were 4% behind the prior year attributable to the change in methodology relating to the allocation largely due to lower Greenlight and conventional annuity sales. of distribution costs to life products and the annual rate increases VNB grew significantly by 35% to R366 million. This was in Greenlight. As a result, the VNB margin improved to 2.4% (2016: attributable to the change in methodology relating to the allocation of distribution costs to life products and the annual rate increases in Greenlight. As a result, the VNB margin improved to 2.4% (2016: Personal Finance’s open book recorded positive NCCF of R6.6 1.7%). billion, offset by net outflows of R(9.4) billion from the legacy book. Total NCCF of R(2.8) billion was R0.3 billion better than the prior Personal Finance’s open book recorded positive NCCF of R6.6 year due to lower maturities and disinvestments than experienced billion, offset by net outflows of R(9.4) billion from the legacy book. Total NCCF of R(2.8) billion was R0.3 billion better than the prior year due to lower maturities and disinvestments than experienced in the prior period. 1.7%). in the prior period. We also increased the number of digital offerings that are available We expanded our digital offering through the successful launch on the Old Mutual website, such as funeral cover, stockbroking and of iWYZE life, a direct channel providing underwritten life cover. retirement annuities. This resulted in an increased contribution from We also increased the number of digital offerings that are available these alternative channels to Personal Finance’s life APE sales on the Old Mutual website, such as funeral cover, stockbroking and from 6% to 9% in 2017. retirement annuities. This resulted in an increased contribution from these alternative channels to Personal Finance’s life APE sales In response to the level of indebtedness of middle income customers, from 6% to 9% in 2017. we continued to develop our online financial education tool, Moneyversity, which helps users make the most of their money. In response to the level of indebtedness of middle income customers, We also launched Find-an-Adviser, which helps customers in we continued to develop our online financial education tool, finding a nearby adviser that is best placed to meet their investment Moneyversity, which helps users make the most of their money. needs, using their geo-location. As at the year-end, over 700 We also launched Find-an-Adviser, which helps customers in advisers had registered on the platform. finding a nearby adviser that is best placed to meet their investment needs, using their geo-location. As at the year-end, over 700 In collaboration with OMF, there was a significant increase in the advisers had registered on the platform. take up of Money Accounts and debt consolidations. We have also started working with Corporate to offer Home Solutions to Personal In collaboration with OMF, there was a significant increase in the Finance customers, resulting in a wider range of the customers’ take up of Money Accounts and debt consolidations. We have also started working with Corporate to offer Home Solutions to Personal needs being met. Finance customers, resulting in a wider range of the customers’ Wealth and Investments needs being met. Wealth and Investments continues to capitalise on its focus in the asset management boutique model, in accelerating global Wealth and Investments capabilities and margin, leveraging the OMSFIN proprietary risk Wealth and Investments continues to capitalise on its focus in and investment capability, and building an African alternatives the asset management boutique model, in accelerating global mega-manager in the unlisted space. It also seeks to maximise its capabilities and margin, leveraging the OMSFIN proprietary risk market leading capabilities in future fit areas of passive, smart beta, and investment capability, and building an African alternatives alternatives and liability driven investments. Core to the strategy mega-manager in the unlisted space. It also seeks to maximise its is to refocus on the retail Independent Financial Adviser market, market leading capabilities in future fit areas of passive, smart beta, growing in the wealth market, and further enhancing Old Mutual’s alternatives and liability driven investments. Core to the strategy presence in the high net worth market. is to refocus on the retail Independent Financial Adviser market, growing in the wealth market, and further enhancing Old Mutual’s In the context of relatively flat markets in the first half of 2017, the presence in the high net worth market. segment recorded 2% growth in AOP to R1,623 million. The growth was largely attributable to base fee income on higher assets under In the context of relatively flat markets in the first half of 2017, the management, positive investment returns in Alternatives, and the segment recorded 2% growth in AOP to R1,623 million. The growth first time inclusion of profits from Old Mutual International of R60 was largely attributable to base fee income on higher assets under million. This was partly offset by lower origination income and deal management, positive investment returns in Alternatives, and the flow activity in both the specialised finance and the renewables first time inclusion of profits from Old Mutual International of R60 businesses, as well as higher operating expenses in the asset million. This was partly offset by lower origination income and deal management business. flow activity in both the specialised finance and the renewables businesses, as well as higher operating expenses in the asset The strong growth in gross flows in the second half of 2017 management business. contributed to the NCCF of R14.1 billion for the year, which was significantly up from R1.8 billion in H1 2017. This was due to strong The strong growth in gross flows in the second half of 2017 inflows into Wealth (SA), the Liability Driven Investment boutique contributed to the NCCF of R14.1 billion for the year, which was and a large mandate into the Alternatives boutique in Q4 2017. significantly up from R1.8 billion in H1 2017. This was due to strong inflows into Wealth (SA), the Liability Driven Investment boutique Assets under management (AuM) grew 17% to R736.6 billion, and a large mandate into the Alternatives boutique in Q4 2017. supported by better market performance in the second half of 2017 and the first time inclusion of R39 billion previously reported in Assets under management (AuM) grew 17% to R736.6 billion, OMAM, which was sold by Old Mutual plc during the year. Included supported by better market performance in the second half of 2017 in Wealth and Investment’s AuM is R340.4 billion of funds that are and the first time inclusion of R39 billion previously reported in managed on behalf of other OMEM group entities. OMAM, which was sold by Old Mutual plc during the year. Included in Wealth and Investment’s AuM is R340.4 billion of funds that are managed on behalf of other OMEM group entities. Old Mutual plc Annual Report and Accounts 2017 OM Insure (previously Mutual & Federal) OM Insure’s turnaround strategy has been focused on the commercial business. The turnaround of the retail business has now been completed and we have made considerable progress in restoring the quality of the commercial lines book. This was achieved through the strengthening of skills to support disciplined underwriting and claims management. Significant progress has also been made to deliver on the growth strategy in iWYZE. As a result, we recorded exceptional growth in the underwriting result of R312 million, a 290% improvement, in a year of unprecedented catastrophe events. The underwriting margin of 3.7% (2016: 0.9%), reflects favourable claims experience (net of reinsurance) in the Commercial and Personal Lines businesses and the growth in iWYZE, which delivered underwriting profit of R20 million (2016: loss of R39 million). We continue to target an underwriting margin of 4% − 6% in the near term. P&C gross written premiums (GWP) of R12,481 million were 3% ahead of the prior year. The constrained growth was attributable to stricter underwriting criteria, lower policy volume growth following the continued remediation of loss making business, whilst generating strong premium growth of 15% in iWYZE. Net earned premiums of R8,409 million were down 2% against the prior year primarily due to changes in the reinsurance agreements at Credit Guarantee Insurance Corporation (CGIC) in 2017. The business strengthened its senior management team following several key appointments during the year, including Nokuthula Manyoha as Finance Director, Franklin Sibanda as Rest of Africa General Insurance Executive, and Thabile Nyaba as Chief Risk Officer. Further, Old Mutual Insure completed the sale of a 25% equity interest in CGIC, the specialist corporate credit insurer, to Atradius. Rest of Africa Our Rest of Africa operations span 12 countries across three regions. The SADC region remains the largest contributor to Rest of Africa profits, where the business seeks to retain its leading market positions while capitalising on pockets of growth. In East Africa, encouraging progress has been made in the P&C turnaround, whilst further work remains in respect of the property portfolio to alleviate the impact on adjusted RoE. In West Africa, we continue to pursue a capital light strategy leveraging our bancassurance partnerships. However, delays in bancassurance regulations in Nigeria have adversely impacted our growth ambitions. The Rest of Africa segment delivered AOP (pre-LTIR) of R1,074 million which was 33% above the prior year (up 38% in constant currency). This excellent result was primarily driven by higher profits in Zimbabwe, East Africa, and Malawi. The asset management business recorded strong investment performance in 2017. In our core retail range, seven out of our ten funds were top quartile over one year, with the flagship retail Balanced Fund now top quartile over one, three, and five years, and all four of the core retail Multi-asset funds attained 4-star Morningstar ratings. The multi-manager multi asset funds are top quartile over one, three, five, seven and ten years. The asset management business remains focused on achieving long-term investment growth for its clients. In January 2018, Khaya Gobodo was appointed as the Managing Director of the Asset Management business. Khaya brings a broad depth of investment experience in running an independent investment boutique as well as his global investment experience and perspectives on aligning asset management, platforms and distribution in South Africa. During the year, a major Flexcube platform upgrade was completed on time and within budget, with no material disruptions to the Wealth business. The upgrade resulted in significant improvement in the administrative capability, which is necessary to enhance adviser and customer experience. Old Mutual Corporate Corporate remains well-positioned to retain its position as industry leader in South Africa as it improves customer and intermediary experience, continues to innovate its offering and delivers sustainable growth. AOP of R1,576 million was 12% ahead of the prior year largely due to growth in asset-based fees and improved investment performance. Group risk underwriting experience deteriorated in the second half of 2017, despite the price remediation and process improvements that took place throughout the year. Management continues to drive actions to deliver improved group risk underwriting experience. Life APE sales of R2,719 million were 10% down on prior year mainly due to lower group risk assurance, retail platform and annuity sales. VNB of R254 million was lower than the prior year as a result of expense allocation changes and lower sales volumes. As a result, the VNB margin declined by 80 bps to 1.0%. Negative NCCF of R(7.1) billion, R10.8 billion lower than the prior year, was driven by higher outflows which included a significant non-life outflow during the fourth quarter, albeit at a low margin. During the year, we launched the SuperFund annuity, underpinned by member education, advice and communication. We also launched the Nucleus Index Fund range on SuperFund, an enhancement to the passive investment offering to provide increased investment choice to customers. Further, we successfully completed the Compass upgrade, which will provide us with improved stability of our administration platform. Corporate continued to drive its collaboration initiatives with the retail segments. We established adviser presence at 65 additional worksites during the year, whilst retail segments acquired circa.23,000 customers through the corporate worksites. This is a key lever in order to improve retention of benefits and funds under management as well as to provide cross-sell opportunities for the retail channels. 12 12 31 13 S i t r a t e g c r e p o r t Old Mutual plc Annual Report and Accounts 2017Strategic report Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Old Mutual Emerging Markets review continued Old Mutual Emerging Markets review continued Faulu loans and advances of R2.1 billion declined by 6% in constant currency, largely reflecting stricter lending criteria following the introduction of interest rate caps in 2016. The net lending Faulu loans and advances of R2.1 billion declined by 6% in margin improved marginally to 12.8% (2016: 12.6%) due to a constant currency, largely reflecting stricter lending criteria following reduction in funding costs. During the year, a new Faulu core the introduction of interest rate caps in 2016. The net lending banking platform was implemented which is expected to improve margin improved marginally to 12.8% (2016: 12.6%) due to a business transactional capabilities. reduction in funding costs. During the year, a new Faulu core banking platform was implemented which is expected to improve West Africa business transactional capabilities. The reported AOP loss (pre-LTIR) of R182 million, was broadly in line with the prior year. In Ghana, growth was driven by increased West Africa sales volumes, better retention and new corporate business. This The reported AOP loss (pre-LTIR) of R182 million, was broadly in was offset by higher reinsurance costs in the P&C business and line with the prior year. In Ghana, growth was driven by increased weaker life underwriting experience in Nigeria. sales volumes, better retention and new corporate business. This was offset by higher reinsurance costs in the P&C business and Life APE sales of R116 million were up 7% on the prior year driven weaker life underwriting experience in Nigeria. by better corporate sales in Nigeria and good new business growth in Ghana. Life APE sales of R116 million were up 7% on the prior year driven by better corporate sales in Nigeria and good new business growth LatAm and Asia in Ghana. LatAm AOP of R469 million was 1% lower than the prior year. In constant currency, AOP was up 6% largely driven by higher LatAm and Asia investment returns in Colombia. LatAm AOP of R469 million was 1% lower than the prior year. In constant currency, AOP was up 6% largely driven by higher Despite the goodwill impairment in AIVA due to the overall investment returns in Colombia. underperformance, AIVA is making good progress in its transformation from regular premium business to private wealth Despite the goodwill impairment in AIVA due to the overall management and is already delivering good sales. underperformance, AIVA is making good progress in its transformation from regular premium business to private wealth Life APE sales of R570 million were 5% above the prior year in management and is already delivering good sales. constant currency mainly due to higher Crea Patrimonio sales in Colombia. Funds under management grew 7% to R126.6 billion Life APE sales of R570 million were 5% above the prior year in during the period. constant currency mainly due to higher Crea Patrimonio sales in Colombia. Funds under management grew 7% to R126.6 billion NCCF of R24.9 billion was R15.3 billion higher than the prior year during the period. due to a few large Private Wealth flows towards the end of the year, and good Old Mutual Global Investors flows through AIVA. NCCF of R24.9 billion was R15.3 billion higher than the prior year These are eliminated at an OMEM level as they are reported by due to a few large Private Wealth flows towards the end of the Old Mutual Wealth (UK) at an Old Mutual plc Group level. year, and good Old Mutual Global Investors flows through AIVA. These are eliminated at an OMEM level as they are reported by In China, our joint venture is focused on distributing higher margin Old Mutual Wealth (UK) at an Old Mutual plc Group level. risk products, which have lower regulatory capital requirements following regulatory changes. As a result, life APE sales of In China, our joint venture is focused on distributing higher margin R300 million declined by 50%. Negative NCCF of R(1.3) billion, risk products, which have lower regulatory capital requirements was R1.0 billion better than the prior year due to lower surrenders following regulatory changes. As a result, life APE sales of from the Universal Life products. R300 million declined by 50%. Negative NCCF of R(1.3) billion, was R1.0 billion better than the prior year due to lower surrenders from the Universal Life products. SADC AOP (pre-LTIR) of R1,520 million grew 6% against the prior period (up 14% in constant currency). This was driven by higher asset SADC based fee income in Zimbabwe due to equity market performance, AOP (pre-LTIR) of R1,520 million grew 6% against the prior period growth in Malawi’s group life underwriting results, as well as good (up 14% in constant currency). This was driven by higher asset investment contract profits in Namibia. based fee income in Zimbabwe due to equity market performance, growth in Malawi’s group life underwriting results, as well as good Gross flows of R17.3 billion were up 11% driven by good investment contract profits in Namibia. non-life sales in Zimbabwe and Namibia, whilst Malawi recorded exceptional growth in the group life sales of its corporate business, Gross flows of R17.3 billion were up 11% driven by good albeit off a low base. NCCF of R1.0 billion, was adversely impacted non-life sales in Zimbabwe and Namibia, whilst Malawi recorded by a R3.3 billion outflow from the government pension fund in exceptional growth in the group life sales of its corporate business, Namibia due to regulatory rebalancing requirements. albeit off a low base. NCCF of R1.0 billion, was adversely impacted by a R3.3 billion outflow from the government pension fund in The P&C underwriting margin of 7.2% (2016: 12.5%) declined Namibia due to regulatory rebalancing requirements. primarily as a result of higher weather-related claims in the region and the impact of higher central cost allocations. P&C The P&C underwriting margin of 7.2% (2016: 12.5%) declined GWP increased by 1% in constant currency to R1,361 million primarily as a result of higher weather-related claims in the driven by growth in new business in Zimbabwe, despite region and the impact of higher central cost allocations. P&C clients reducing the sums they have insured in the current GWP increased by 1% in constant currency to R1,361 million macroeconomic environment. driven by growth in new business in Zimbabwe, despite clients reducing the sums they have insured in the current Loans and advances of R9.2 billion, were up 23% in constant macroeconomic environment. currency, reflecting growth in the mortgage and business loans books in CABS (Zimbabwe). OMF (Namibia) loans and advances Loans and advances of R9.2 billion, were up 23% in constant of R0.6 billion were consolidated into the results the first time currency, reflecting growth in the mortgage and business loans during the year. The lending margin of 11% declined by 55bps books in CABS (Zimbabwe). OMF (Namibia) loans and advances and was further impacted by the introduction of interest rate caps of R0.6 billion were consolidated into the results the first time in Zimbabwe. during the year. The lending margin of 11% declined by 55bps and was further impacted by the introduction of interest rate caps East Africa in Zimbabwe. Whilst we reported a loss (pre-LTIR) of R61 million, this was a significant improvement from a loss (pre-LTIR) of R167 million in East Africa the prior year. It followed good mortality experience on the Group Whilst we reported a loss (pre-LTIR) of R61 million, this was a Life Assurance book and an improvement in the underwriting significant improvement from a loss (pre-LTIR) of R167 million in experience in the P&C business. the prior year. It followed good mortality experience on the Group Life Assurance book and an improvement in the underwriting Occupancy levels in our property portfolio continue to be low given experience in the P&C business. the political environment in both Kenya and South Sudan. Consequently, property income remains under pressure in these Occupancy levels in our property portfolio continue to be low given markets. However, management is focused on initiatives to the political environment in both Kenya and South Sudan. improve the occupancy levels. Consequently, property income remains under pressure in these markets. However, management is focused on initiatives to The P&C underwriting margin (excluding the impact central cost improve the occupancy levels. allocations) improved 320 bps to 4.4% following the remediation on loss-making business and better claims experience. P&C GWP The P&C underwriting margin (excluding the impact central cost declined by 31% in constant currency to R2,145 million, as a result allocations) improved 320 bps to 4.4% following the remediation on of our decision to exit loss making accounts in the health business loss-making business and better claims experience. P&C GWP and a loss of government schemes in Tanzania following regulatory declined by 31% in constant currency to R2,145 million, as a result changes. of our decision to exit loss making accounts in the health business and a loss of government schemes in Tanzania following regulatory Life APE sales of R100 million were 14% below the prior year in changes. constant currency as a result of the non-renewal of a few corporate schemes, a slowdown of sales due to reduced manpower and Life APE sales of R100 million were 14% below the prior year in lower new business during the election period in Kenya. constant currency as a result of the non-renewal of a few corporate schemes, a slowdown of sales due to reduced manpower and lower new business during the election period in Kenya. 32 14 14 Old Mutual plc Annual Report and Accounts 2017Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Old Mutual Emerging Markets review Old Mutual Emerging Markets review continued continued SADC Faulu loans and advances of R2.1 billion declined by 6% in constant currency, largely reflecting stricter lending criteria following the introduction of interest rate caps in 2016. The net lending Faulu loans and advances of R2.1 billion declined by 6% in margin improved marginally to 12.8% (2016: 12.6%) due to a constant currency, largely reflecting stricter lending criteria following reduction in funding costs. During the year, a new Faulu core the introduction of interest rate caps in 2016. The net lending banking platform was implemented which is expected to improve margin improved marginally to 12.8% (2016: 12.6%) due to a business transactional capabilities. reduction in funding costs. During the year, a new Faulu core banking platform was implemented which is expected to improve West Africa business transactional capabilities. West Africa The reported AOP loss (pre-LTIR) of R182 million, was broadly in line with the prior year. In Ghana, growth was driven by increased sales volumes, better retention and new corporate business. This The reported AOP loss (pre-LTIR) of R182 million, was broadly in was offset by higher reinsurance costs in the P&C business and line with the prior year. In Ghana, growth was driven by increased weaker life underwriting experience in Nigeria. sales volumes, better retention and new corporate business. This was offset by higher reinsurance costs in the P&C business and Life APE sales of R116 million were up 7% on the prior year driven weaker life underwriting experience in Nigeria. by better corporate sales in Nigeria and good new business growth in Ghana. Life APE sales of R116 million were up 7% on the prior year driven by better corporate sales in Nigeria and good new business growth LatAm and Asia in Ghana. LatAm AOP of R469 million was 1% lower than the prior year. In constant currency, AOP was up 6% largely driven by higher LatAm and Asia investment returns in Colombia. LatAm AOP of R469 million was 1% lower than the prior year. In constant currency, AOP was up 6% largely driven by higher Despite the goodwill impairment in AIVA due to the overall investment returns in Colombia. underperformance, AIVA is making good progress in its transformation from regular premium business to private wealth Despite the goodwill impairment in AIVA due to the overall management and is already delivering good sales. underperformance, AIVA is making good progress in its transformation from regular premium business to private wealth Life APE sales of R570 million were 5% above the prior year in management and is already delivering good sales. constant currency mainly due to higher Crea Patrimonio sales in Colombia. Funds under management grew 7% to R126.6 billion Life APE sales of R570 million were 5% above the prior year in during the period. constant currency mainly due to higher Crea Patrimonio sales in Colombia. Funds under management grew 7% to R126.6 billion NCCF of R24.9 billion was R15.3 billion higher than the prior year during the period. due to a few large Private Wealth flows towards the end of the year, and good Old Mutual Global Investors flows through AIVA. NCCF of R24.9 billion was R15.3 billion higher than the prior year These are eliminated at an OMEM level as they are reported by due to a few large Private Wealth flows towards the end of the Old Mutual Wealth (UK) at an Old Mutual plc Group level. year, and good Old Mutual Global Investors flows through AIVA. These are eliminated at an OMEM level as they are reported by In China, our joint venture is focused on distributing higher margin Old Mutual Wealth (UK) at an Old Mutual plc Group level. risk products, which have lower regulatory capital requirements following regulatory changes. As a result, life APE sales of In China, our joint venture is focused on distributing higher margin R300 million declined by 50%. Negative NCCF of R(1.3) billion, risk products, which have lower regulatory capital requirements was R1.0 billion better than the prior year due to lower surrenders following regulatory changes. As a result, life APE sales of from the Universal Life products. R300 million declined by 50%. Negative NCCF of R(1.3) billion, was R1.0 billion better than the prior year due to lower surrenders from the Universal Life products. AOP (pre-LTIR) of R1,520 million grew 6% against the prior period SADC (up 14% in constant currency). This was driven by higher asset based fee income in Zimbabwe due to equity market performance, AOP (pre-LTIR) of R1,520 million grew 6% against the prior period growth in Malawi’s group life underwriting results, as well as good (up 14% in constant currency). This was driven by higher asset investment contract profits in Namibia. based fee income in Zimbabwe due to equity market performance, growth in Malawi’s group life underwriting results, as well as good Gross flows of R17.3 billion were up 11% driven by good investment contract profits in Namibia. non-life sales in Zimbabwe and Namibia, whilst Malawi recorded exceptional growth in the group life sales of its corporate business, Gross flows of R17.3 billion were up 11% driven by good albeit off a low base. NCCF of R1.0 billion, was adversely impacted non-life sales in Zimbabwe and Namibia, whilst Malawi recorded by a R3.3 billion outflow from the government pension fund in exceptional growth in the group life sales of its corporate business, Namibia due to regulatory rebalancing requirements. albeit off a low base. NCCF of R1.0 billion, was adversely impacted by a R3.3 billion outflow from the government pension fund in The P&C underwriting margin of 7.2% (2016: 12.5%) declined Namibia due to regulatory rebalancing requirements. primarily as a result of higher weather-related claims in the region and the impact of higher central cost allocations. P&C The P&C underwriting margin of 7.2% (2016: 12.5%) declined GWP increased by 1% in constant currency to R1,361 million primarily as a result of higher weather-related claims in the driven by growth in new business in Zimbabwe, despite region and the impact of higher central cost allocations. P&C clients reducing the sums they have insured in the current GWP increased by 1% in constant currency to R1,361 million macroeconomic environment. driven by growth in new business in Zimbabwe, despite clients reducing the sums they have insured in the current Loans and advances of R9.2 billion, were up 23% in constant macroeconomic environment. currency, reflecting growth in the mortgage and business loans books in CABS (Zimbabwe). OMF (Namibia) loans and advances Loans and advances of R9.2 billion, were up 23% in constant of R0.6 billion were consolidated into the results the first time currency, reflecting growth in the mortgage and business loans during the year. The lending margin of 11% declined by 55bps books in CABS (Zimbabwe). OMF (Namibia) loans and advances and was further impacted by the introduction of interest rate caps of R0.6 billion were consolidated into the results the first time in Zimbabwe. during the year. The lending margin of 11% declined by 55bps and was further impacted by the introduction of interest rate caps East Africa in Zimbabwe. Whilst we reported a loss (pre-LTIR) of R61 million, this was a East Africa significant improvement from a loss (pre-LTIR) of R167 million in the prior year. It followed good mortality experience on the Group Whilst we reported a loss (pre-LTIR) of R61 million, this was a Life Assurance book and an improvement in the underwriting significant improvement from a loss (pre-LTIR) of R167 million in experience in the P&C business. the prior year. It followed good mortality experience on the Group Life Assurance book and an improvement in the underwriting Occupancy levels in our property portfolio continue to be low given experience in the P&C business. the political environment in both Kenya and South Sudan. Consequently, property income remains under pressure in these Occupancy levels in our property portfolio continue to be low given markets. However, management is focused on initiatives to the political environment in both Kenya and South Sudan. improve the occupancy levels. Consequently, property income remains under pressure in these markets. However, management is focused on initiatives to The P&C underwriting margin (excluding the impact central cost improve the occupancy levels. allocations) improved 320 bps to 4.4% following the remediation on loss-making business and better claims experience. P&C GWP The P&C underwriting margin (excluding the impact central cost declined by 31% in constant currency to R2,145 million, as a result allocations) improved 320 bps to 4.4% following the remediation on of our decision to exit loss making accounts in the health business loss-making business and better claims experience. P&C GWP and a loss of government schemes in Tanzania following regulatory declined by 31% in constant currency to R2,145 million, as a result of our decision to exit loss making accounts in the health business changes. and a loss of government schemes in Tanzania following regulatory Life APE sales of R100 million were 14% below the prior year in changes. constant currency as a result of the non-renewal of a few corporate schemes, a slowdown of sales due to reduced manpower and Life APE sales of R100 million were 14% below the prior year in lower new business during the election period in Kenya. constant currency as a result of the non-renewal of a few corporate schemes, a slowdown of sales due to reduced manpower and lower new business during the election period in Kenya. Old Mutual plc Annual Report and Accounts 2017 Central expenses and Other Group Activities Central expenses and administration costs of R536 million were 19% better than the prior year. This was largely driven by the impact of the ongoing refinement of the expense allocation methodology to segments, mainly impacting the life operations in the retail and corporate segments. LTIR of R2,974 million was up 1% on the prior year. Rest of Africa LTIR of R996 million, up 17%, was driven by a higher shareholder asset base following exceptional equity market performance in Zimbabwe. This was offset by a 7% decline in OMLAC(SA)’s LTIR to R1,573 million due to a reduced shareholder asset base. This followed the alignment of the Statutory Valuation Methodology for investment contracts to the IFRS basis. Finance costs of R622 million were up 18% on the prior year. This follows the higher overall interest rates experienced in South Africa over the last twelve months, given OMLAC(SA) has both fixed rate and floating rate bonds in issue. The sovereign downgrade of South Africa’s credit ratings by Standard & Poor’s, which occurred late in 2017, did not have a material impact on finance costs. Embedded Value OMEM reported a slight improvement in the VNB margin to 3.3% (2016: 3.2%), despite a 3% decline in life APE sales. VNB increased by 4% to R2,256 million mainly as a result of a more profitable mix of business and the pricing reviews of the Personal Finance and MFC protection books. Boosted by the strong VNB, the Return on Embedded Value remained strong at 13.8%. MCEV operating earnings (post-tax) declined by 3% on the prior year to R8,133 million, mainly due to the positive one-off impact of the elective transfer of the South African protection book to the new tax fund in South Africa in the prior year. Experience variances remained positive at R146 million driven by expense and risk experience, albeit lower than R452 million in the prior year. Expense profits reflect tighter expense management across the business in response to the challenging economic environment. Lower experience profits on the prior year were due to adverse persistency experience driven by higher benefit payments in Corporate, which is indicative of the financial strain currently faced by these customers. Investment returns were higher than expected, particularly in Zimbabwe, following the significant increase in the equity market levels. The steepening of the South African bond curve over the period had a further positive impact on earnings. Cash and capital OMEM adopts a disciplined approach to capital allocation decisions and manages risks within its financial management framework and related risk appetite. We continue to be a highly cash generative business, with high solvency and a strong, well-diversified and resilient balance sheet that is able to withstand a number of economic shocks. Free surplus generation and utilisation Free surplus generated represents the available cash, after allowing for capital invested into the business. As we prepare for the implementation of SAM, we have undertaken a review of the methodology used in calculating the free surplus generation. Below is a reconciliation of the free surplus generated: Free surplus generation (Rbn) OMEM free surplus − as previously calculated Capital requirements of non- insurance business and other1 Fungibility constraints OMEM free surplus − restated 2017 8.9 (0.1) (2.0) 6.8 2016 % change 6.3 41% (0.4) (75)% (0.9) 5.0 (122)% 36% 1 Other adjustments include the removal of Kotak and adjustments relating to the shift from AOP to Adjusted Headline Earnings. The OMEM free surplus generation calculation now reflects changes in the capital requirements of non-insurance businesses as well as fungibility considerations where there are constraints in remitting profits to the holding company. Local free surplus generated reflects the cash available prior to fungibility considerations During the year, OMEM generated free surplus of R6.8 billion (2016: R5.0 billion), after any fungibility considerations. This represents a conversion rate of 74% of post-tax AOP (2016: 56%). This was largely attributable to higher investment returns particularly in South Africa and the significant improvement in Old Mutual Insure’s underwriting result together with the lower capital requirements from a reduction in net earned premiums. Currently, fungibility constraints primarily impact our Zimbabwean operations, where profits are retained and reinvested to grow the local businesses. The increase reflects abnormally high investment returns particularly in Zimbabwe during the year. Equity market performance in Zimbabwe remains volatile and as such we do not expect to sustain the current level of returns. The mature life business in South Africa, which has traditionally generated strong returns, is the main contributor to the strong free surplus generation. OMEM currently reinvests circa.25% of the free surplus generation into new business initiatives, the majority of which relate to the life business in South Africa. We see this as sound investment in a market where we have continued to demonstrate good returns and robust VNB margins. During the 2017 financial year, OMEM remitted R2.7 billion of the free surplus generated to its shareholder (2016: R4.7 billion). The lower dividend compared to the prior year enabled the business to further strengthen its liquidity and solvency position in preparation for Solvency Assessment and Management (SAM) and standalone capital requirements as well as the repayment of intercompany debt. As at 31 December 2017, there was R5.9 billion (2016: R9.7 billion) of outstanding intercompany indebtedness between OMLAC(SA), Old Mutual Group Holdings (OMGH) and its subsidiary Old Mutual Portfolio Holdings (OMPH). During the year, R3.8 billion of this intercompany indebtedness was repaid to OMLAC(SA), funded through greater cash retention as mentioned above. 14 14 33 15 S i t r a t e g c r e p o r t Old Mutual plc Annual Report and Accounts 2017Strategic report Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Old Mutual Emerging Markets review continued Old Mutual Emerging Markets review continued We anticipate that the remaining intercompany indebtedness will largely be repaid with the transfer of Nedbank shares to OMLAC(SA) up to the desired shareholding of 19.9%. Any residual indebtedness We anticipate that the remaining intercompany indebtedness will will be settled in cash. largely be repaid with the transfer of Nedbank shares to OMLAC(SA) up to the desired shareholding of 19.9%. Any residual indebtedness OMLAC(SA) solvency position will be settled in cash. OMEM discloses solvency capital under the current regulatory capital rules (South African statutory valuation method). As at OMLAC(SA) solvency position 31 December 2017, OMLAC(SA)’s capital coverage was 3.0 times OMEM discloses solvency capital under the current regulatory (2016: 3.2 times). The decline in the OMLAC(SA) solvency position capital rules (South African statutory valuation method). As at was largely driven by the increase in statutory capital requirement 31 December 2017, OMLAC(SA)’s capital coverage was 3.0 times as a result of new business book growth and year-end assumption (2016: 3.2 times). The decline in the OMLAC(SA) solvency position changes relating to expenses and morbidity. was largely driven by the increase in statutory capital requirement as a result of new business book growth and year-end assumption We have adopted the provisional SAM basis for how we manage changes relating to expenses and morbidity. capital, which is expected to become effective in mid-2018, upon the implementation of the Insurance Act. It will impose more We have adopted the provisional SAM basis for how we manage stringent regulatory requirements on both long-term and short-term capital, which is expected to become effective in mid-2018, upon insurers, requiring them to maintain adequate solvency capital the implementation of the Insurance Act. It will impose more based on risks faced on a day-to-day basis. Based on our preferred stringent regulatory requirements on both long-term and short-term methodology which will be formally presented for regulatory insurers, requiring them to maintain adequate solvency capital approval once the SAM framework is implemented, the based on risks faced on a day-to-day basis. Based on our preferred OMLAC(SA) SAM solvency ratio for 2017 was estimated at 243%. methodology which will be formally presented for regulatory approval once the SAM framework is implemented, the Debt as part of the capital structure OMLAC(SA) SAM solvency ratio for 2017 was estimated at 243%. OMLAC(SA) has R3,475 million in fixed rate Tier 2 bonds and R2,525 million in floating rate Tier 2 bonds. The fixed rate bonds Debt as part of the capital structure have first calls in 2019, 2020, 2022 and 2025, while the floating OMLAC(SA) has R3,475 million in fixed rate Tier 2 bonds and rate bonds have first calls in 2019 and 2020. The Revolving Credit R2,525 million in floating rate Tier 2 bonds. The fixed rate bonds Facility of R5,250 million was undrawn at the year-end. The facility have first calls in 2019, 2020, 2022 and 2025, while the floating term runs until mid-2020, and we intend to negotiate a roll-over rate bonds have first calls in 2019 and 2020. The Revolving Credit of the facility leading up to the maturity date. Facility of R5,250 million was undrawn at the year-end. The facility term runs until mid-2020, and we intend to negotiate a roll-over In November 2017, Old Mutual Insure issued a R500 million in of the facility leading up to the maturity date. floating rate Tier 2 bonds, with a coupon rate of 9.157% (JIBAR + 2.09%). The first call date is 2022. The issuance will provide the In November 2017, Old Mutual Insure issued a R500 million in segment with an enhanced regulatory solvency position while also floating rate Tier 2 bonds, with a coupon rate of 9.157% (JIBAR + producing economic benefits that will help the continued turnaround 2.09%). The first call date is 2022. The issuance will provide the of the segment. segment with an enhanced regulatory solvency position while also producing economic benefits that will help the continued turnaround Following Standard and Poor’s rating action on the South of the segment. Africa local currency credit rating, effective 30 November 2017, OMLAC(SA)’s Global Scale Rating was lowered to ‘BB+ Stable’ Following Standard and Poor’s rating action on the South from ‘BBB- Negative’ and its long-term South African National Africa local currency credit rating, effective 30 November 2017, Scale Rating was lowered to ‘zaAA+’ from ‘zaAAA’. Its short-term OMLAC(SA)’s Global Scale Rating was lowered to ‘BB+ Stable’ rating was affirmed at ‘zaA-1+’ whilst its Issuer Credit Rating from ‘BBB- Negative’ and its long-term South African National on the Subordinated Deferrable Debt was lowered to ‘zaA’ Scale Rating was lowered to ‘zaAA+’ from ‘zaAAA’. Its short-term from ‘zaAA’. rating was affirmed at ‘zaA-1+’ whilst its Issuer Credit Rating on the Subordinated Deferrable Debt was lowered to ‘zaA’ from ‘zaAA’. Managed Separation update We have made good progress to date on the managed separation process and we remain on track for independence in 2018. Managed Separation update We have made good progress to date on the managed separation Since the appointment of Trevor Manuel as the Chairman of process and we remain on track for independence in 2018. OMGH (and Chairman-designate of OML), the governance structures above senior management have been strengthened. Since the appointment of Trevor Manuel as the Chairman of The non-executive membership of the reconstituted OMGH Board OMGH (and Chairman-designate of OML), the governance comprises nine directors from the board of directors of OMEM and structures above senior management have been strengthened. seven new non-executive directors. This repositioning of the board The non-executive membership of the reconstituted OMGH Board has brought together strong operational skills and listed financial comprises nine directors from the board of directors of OMEM and services company experience. seven new non-executive directors. This repositioning of the board has brought together strong operational skills and listed financial As a key step in the preparation for the listing of OML, we will be services company experience. publishing a Pre-Listing Statement. The Pre-Listing Statement will include more detailed information in relation to the OML Group, As a key step in the preparation for the listing of OML, we will be including its strengths, strategy and outlook. It will also contain publishing a Pre-Listing Statement. The Pre-Listing Statement will detailed risk factors and other key information relevant to include more detailed information in relation to the OML Group, the business. including its strengths, strategy and outlook. It will also contain detailed risk factors and other key information relevant to In line with our vision, and in accordance with our Responsible the business. Business principles, BEE ownership remains a priority as part of our broader commitment to transformation. Under the Amended In line with our vision, and in accordance with our Responsible Financial Services Charter (FSC), OMEM reported a Level 3 Business principles, BEE ownership remains a priority as part of B-BBEE contributor status and a reduced B-BBEE shareholding our broader commitment to transformation. Under the Amended of 21.5% as at 31 December 2017, due to a change in the Financial Services Charter (FSC), OMEM reported a Level 3 methodology used to determine the value of the South African B-BBEE contributor status and a reduced B-BBEE shareholding businesses. Subsequent to the implementation of the Managed of 21.5% as at 31 December 2017, due to a change in the Separation, we anticipate an increase in the effective B-BBEE methodology used to determine the value of the South African shareholding (which will be measured for the first time as at businesses. Subsequent to the implementation of the Managed 31 December 2018), but may be marginally below the current Separation, we anticipate an increase in the effective B-BBEE Amended FSC target of 25%. We will have greater clarity on shareholding (which will be measured for the first time as at this once the OML Group’s share register has settled. 31 December 2018), but may be marginally below the current Amended FSC target of 25%. We will have greater clarity on On 9 January 2018, we entered into a Framework Agreement with this once the OML Group’s share register has settled. the South African Economic Development Department in relation to the South African aspects of the Managed Separation. Under On 9 January 2018, we entered into a Framework Agreement with this agreement, we have committed to restore the B-BBEE the South African Economic Development Department in relation shareholding, if required, to at least 25% in 3 years from the listing to the South African aspects of the Managed Separation. Under date and to be best in class when measured against comparable this agreement, we have committed to restore the B-BBEE competitors within 5 years (measured on the listing date). OML shareholding, if required, to at least 25% in 3 years from the listing will consider the form and extent of any appropriate B-BBEE date and to be best in class when measured against comparable transactions, should they be required, to achieve these targets. competitors within 5 years (measured on the listing date). OML will consider the form and extent of any appropriate B-BBEE We have also undertaken to allocate an incremental amount of transactions, should they be required, to achieve these targets. R500 million to a ring-fenced Enterprise Supplier Development Fund. It is envisaged that the fund will provide loan funding to small We have also undertaken to allocate an incremental amount of enterprises on behalf of OML to promote enterprise and supplier R500 million to a ring-fenced Enterprise Supplier Development development, with the principal aim of creating additional jobs in Fund. It is envisaged that the fund will provide loan funding to small the OML ecosystem. enterprises on behalf of OML to promote enterprise and supplier development, with the principal aim of creating additional jobs in the OML ecosystem. 34 16 16 Old Mutual plc Annual Report and Accounts 2017Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Old Mutual Emerging Markets review continued Old Mutual Emerging Markets review continued We anticipate that the remaining intercompany indebtedness will largely be repaid with the transfer of Nedbank shares to OMLAC(SA) up to the desired shareholding of 19.9%. Any residual indebtedness We anticipate that the remaining intercompany indebtedness will will be settled in cash. largely be repaid with the transfer of Nedbank shares to OMLAC(SA) up to the desired shareholding of 19.9%. Any residual indebtedness OMLAC(SA) solvency position will be settled in cash. OMEM discloses solvency capital under the current regulatory capital rules (South African statutory valuation method). As at OMLAC(SA) solvency position 31 December 2017, OMLAC(SA)’s capital coverage was 3.0 times OMEM discloses solvency capital under the current regulatory (2016: 3.2 times). The decline in the OMLAC(SA) solvency position capital rules (South African statutory valuation method). As at was largely driven by the increase in statutory capital requirement 31 December 2017, OMLAC(SA)’s capital coverage was 3.0 times as a result of new business book growth and year-end assumption (2016: 3.2 times). The decline in the OMLAC(SA) solvency position changes relating to expenses and morbidity. was largely driven by the increase in statutory capital requirement as a result of new business book growth and year-end assumption We have adopted the provisional SAM basis for how we manage changes relating to expenses and morbidity. capital, which is expected to become effective in mid-2018, upon the implementation of the Insurance Act. It will impose more We have adopted the provisional SAM basis for how we manage stringent regulatory requirements on both long-term and short-term capital, which is expected to become effective in mid-2018, upon insurers, requiring them to maintain adequate solvency capital the implementation of the Insurance Act. It will impose more based on risks faced on a day-to-day basis. Based on our preferred stringent regulatory requirements on both long-term and short-term methodology which will be formally presented for regulatory insurers, requiring them to maintain adequate solvency capital approval once the SAM framework is implemented, the based on risks faced on a day-to-day basis. Based on our preferred OMLAC(SA) SAM solvency ratio for 2017 was estimated at 243%. methodology which will be formally presented for regulatory approval once the SAM framework is implemented, the Debt as part of the capital structure OMLAC(SA) SAM solvency ratio for 2017 was estimated at 243%. OMLAC(SA) has R3,475 million in fixed rate Tier 2 bonds and R2,525 million in floating rate Tier 2 bonds. The fixed rate bonds Debt as part of the capital structure have first calls in 2019, 2020, 2022 and 2025, while the floating OMLAC(SA) has R3,475 million in fixed rate Tier 2 bonds and rate bonds have first calls in 2019 and 2020. The Revolving Credit R2,525 million in floating rate Tier 2 bonds. The fixed rate bonds Facility of R5,250 million was undrawn at the year-end. The facility have first calls in 2019, 2020, 2022 and 2025, while the floating term runs until mid-2020, and we intend to negotiate a roll-over rate bonds have first calls in 2019 and 2020. The Revolving Credit of the facility leading up to the maturity date. Facility of R5,250 million was undrawn at the year-end. The facility term runs until mid-2020, and we intend to negotiate a roll-over In November 2017, Old Mutual Insure issued a R500 million in of the facility leading up to the maturity date. floating rate Tier 2 bonds, with a coupon rate of 9.157% (JIBAR + 2.09%). The first call date is 2022. The issuance will provide the In November 2017, Old Mutual Insure issued a R500 million in segment with an enhanced regulatory solvency position while also floating rate Tier 2 bonds, with a coupon rate of 9.157% (JIBAR + producing economic benefits that will help the continued turnaround 2.09%). The first call date is 2022. The issuance will provide the segment with an enhanced regulatory solvency position while also of the segment. producing economic benefits that will help the continued turnaround Following Standard and Poor’s rating action on the South of the segment. Africa local currency credit rating, effective 30 November 2017, OMLAC(SA)’s Global Scale Rating was lowered to ‘BB+ Stable’ Following Standard and Poor’s rating action on the South from ‘BBB- Negative’ and its long-term South African National Africa local currency credit rating, effective 30 November 2017, Scale Rating was lowered to ‘zaAA+’ from ‘zaAAA’. Its short-term OMLAC(SA)’s Global Scale Rating was lowered to ‘BB+ Stable’ rating was affirmed at ‘zaA-1+’ whilst its Issuer Credit Rating from ‘BBB- Negative’ and its long-term South African National on the Subordinated Deferrable Debt was lowered to ‘zaA’ Scale Rating was lowered to ‘zaAA+’ from ‘zaAAA’. Its short-term from ‘zaAA’. rating was affirmed at ‘zaA-1+’ whilst its Issuer Credit Rating on the Subordinated Deferrable Debt was lowered to ‘zaA’ from ‘zaAA’. Managed Separation update We have made good progress to date on the managed separation process and we remain on track for independence in 2018. Managed Separation update We have made good progress to date on the managed separation Since the appointment of Trevor Manuel as the Chairman of process and we remain on track for independence in 2018. OMGH (and Chairman-designate of OML), the governance structures above senior management have been strengthened. Since the appointment of Trevor Manuel as the Chairman of The non-executive membership of the reconstituted OMGH Board OMGH (and Chairman-designate of OML), the governance comprises nine directors from the board of directors of OMEM and structures above senior management have been strengthened. seven new non-executive directors. This repositioning of the board The non-executive membership of the reconstituted OMGH Board has brought together strong operational skills and listed financial comprises nine directors from the board of directors of OMEM and services company experience. seven new non-executive directors. This repositioning of the board has brought together strong operational skills and listed financial As a key step in the preparation for the listing of OML, we will be services company experience. publishing a Pre-Listing Statement. The Pre-Listing Statement will include more detailed information in relation to the OML Group, As a key step in the preparation for the listing of OML, we will be including its strengths, strategy and outlook. It will also contain publishing a Pre-Listing Statement. The Pre-Listing Statement will detailed risk factors and other key information relevant to include more detailed information in relation to the OML Group, the business. including its strengths, strategy and outlook. It will also contain detailed risk factors and other key information relevant to In line with our vision, and in accordance with our Responsible the business. Business principles, BEE ownership remains a priority as part of our broader commitment to transformation. Under the Amended In line with our vision, and in accordance with our Responsible Financial Services Charter (FSC), OMEM reported a Level 3 Business principles, BEE ownership remains a priority as part of B-BBEE contributor status and a reduced B-BBEE shareholding our broader commitment to transformation. Under the Amended of 21.5% as at 31 December 2017, due to a change in the Financial Services Charter (FSC), OMEM reported a Level 3 methodology used to determine the value of the South African B-BBEE contributor status and a reduced B-BBEE shareholding businesses. Subsequent to the implementation of the Managed of 21.5% as at 31 December 2017, due to a change in the Separation, we anticipate an increase in the effective B-BBEE methodology used to determine the value of the South African shareholding (which will be measured for the first time as at businesses. Subsequent to the implementation of the Managed 31 December 2018), but may be marginally below the current Separation, we anticipate an increase in the effective B-BBEE Amended FSC target of 25%. We will have greater clarity on shareholding (which will be measured for the first time as at this once the OML Group’s share register has settled. 31 December 2018), but may be marginally below the current Amended FSC target of 25%. We will have greater clarity on On 9 January 2018, we entered into a Framework Agreement with this once the OML Group’s share register has settled. the South African Economic Development Department in relation to the South African aspects of the Managed Separation. Under On 9 January 2018, we entered into a Framework Agreement with this agreement, we have committed to restore the B-BBEE the South African Economic Development Department in relation shareholding, if required, to at least 25% in 3 years from the listing to the South African aspects of the Managed Separation. Under date and to be best in class when measured against comparable this agreement, we have committed to restore the B-BBEE competitors within 5 years (measured on the listing date). OML shareholding, if required, to at least 25% in 3 years from the listing will consider the form and extent of any appropriate B-BBEE date and to be best in class when measured against comparable transactions, should they be required, to achieve these targets. competitors within 5 years (measured on the listing date). OML will consider the form and extent of any appropriate B-BBEE We have also undertaken to allocate an incremental amount of transactions, should they be required, to achieve these targets. R500 million to a ring-fenced Enterprise Supplier Development Fund. It is envisaged that the fund will provide loan funding to small We have also undertaken to allocate an incremental amount of enterprises on behalf of OML to promote enterprise and supplier R500 million to a ring-fenced Enterprise Supplier Development development, with the principal aim of creating additional jobs in Fund. It is envisaged that the fund will provide loan funding to small the OML ecosystem. enterprises on behalf of OML to promote enterprise and supplier development, with the principal aim of creating additional jobs in the OML ecosystem. Old Mutual plc Annual Report and Accounts 2017 In January 2018, the Competition Tribunal in South Africa approved the acquisition of Old Mutual plc by the newly incorporated OML, subject to the commitments that OMGH has made in the Framework Agreement. Post the anticipated unbundling of Nedbank (within approximately 6 months of listing), the OML Group will principally consist of OMEM and a 19.9% shareholding in Nedbank. The 19.9% shareholding was determined through negotiations with Nedbank and discussions with the South African Reserve Bank in order to provide stability to the broader financial system and the Nedbank and OML investor base during managed separation, whilst also supporting our ongoing commercial arrangements. OML is committed to being a significant holder of Nedbank while retaining a right to review its precise holding as appropriate from time to time, in accordance with the heads of terms outlined in the new Nedbank Relationship Agreement, which is expected to be finalised and executed in the coming weeks. Other group activities of the OML Group will include the positive net asset value Residual of Old Mutual plc, which largely comprise the wind down of the plc Head Office and the remaining operations in Bermuda that are expected to run off by mid-2018. OML as a standalone business This section summarises certain information on OML’s operations, including certain forward looking statements in relation to operating performance expectations and targets. These should be read in conjunction with all the information in the Pre-Listing Statement when it is published. Key financial indicators (Rm) Adjusted Headline Earnings Return on Net Asset Value (%) Free surplus conversion (%) SAM solvency ratio (%)1 2016 2017 13,409 22.3% 60% 167% Restated % change 25% 10,765 3.4% 18.9% 3% 57% − n/a 1 Pro-forma at 31 December 2017. The Standard Formula allows for, subject to regulatory approval, certain methodology elections to be made. The estimated SAM solvency positions are presented on the basis of the Group’s preferred methodology which will, once the SAM framework is implemented, be formally presented for regulatory approval. Pro-forma Adjusted Headline Earnings Going forward, the OML Group’s primary profit measure will be Adjusted Headline Earnings. Results from Operations will be the primary performance measure of the OML Group’s operating segments, which represents the segments’ contribution to the OML Group’s results. Adjusted Headline Earnings excludes Residual plc and discontinued operations. Adjusted Headline Earnings is calculated as Headline Earnings as defined by the SAICA Circular 2/2015 adjusted for items that are not reflective of the economic performance of the OML Group. “Results from Operations” is calculated as Adjusted Headline Earnings before shareholder tax and minority interest, excluding net investment return on shareholder assets. Below is a reconciliation of AOP, Old Mutual plc’s primary profit measure, to Adjusted Headline Earnings, the future profit measure: Adjusted Headline Earnings (Rm) AOP (pre-LTIR and finance costs) Investment return on insurance funds Amortisation of acquired intangible assets and acquisition costs Impairment of intangible and fixed assets Results from Operations Shareholder investment return Finance costs Income from associates (19.9% of Nedbank) Adjusted Headline Earnings (pre-tax and NCI) Shareholder tax Non-controlling interest Adjusted Headline Earnings 2017 2016 % change 10,974 10,309 6% 200 170 18% (221) (351) 37% 23 10,976 4,920 (622) 67 10,195 2,205 (529) (66%) 8% 123% (18%) 2,346 2,282 3% 17,620 (3,723) (488) 13,409 14,153 (3,148) (240) 10,765 24% (18%) (103%) 25% Investment return on insurance funds of R200 million (2016: R180 million), previously reported as part of LTIR, is now reported in Old Mutual Insure’s Results from Operations. Amortisation of acquired intangible assets and acquisition costs of R221 million (2016: R351 million) relates primarily to intangibles following the acquisition of a controlling stake in OMF in 2014 and African Infrastructure Investment Managers in 2016. Shareholder investment returns are no longer smoothed. The increase in actual investment returns was driven by both South Africa and Zimbabwe’s equity market performance as mentioned earlier. Detail on Nedbank’s results is available on the website: www.nedbankgroup.co.za Below is a reconciliation of Adjusted Headline Earnings to post-tax IFRS profit: IFRS profit (post tax and NCI) (Rm) Adjusted Headline Earnings Investment return for Group equity and debt instruments in life funds Impact of restructuring Discontinued operations Income from associates Residual plc Headline earnings Impairment of goodwill and other intangibles Impairment of investments in associates Profit/(loss) on disposal of subsidiaries, associated undertakings and strategic investments Profit after tax for the financial year attributable to ordinary equity holders of the parent Dividends on preferred securities Profit after tax for the financial year attributable to equity holders of the parent 2017 13,409 2016 % change 25% 10,765 (1,355) (54) 8,002 (2,346) (4,512) 13,144 (864) 124 8,333 (2,282) (3,062) 13,014 (57%) (144%) (4%) (3%) (47%) 1% (1,106) (1,783) 38% 2,081 (557) 474% − 399 − 14,119 253 11,073 278 28% (9%) 14,372 11,351 27% 16 16 35 17 S i t r a t e g c r e p o r t Old Mutual plc Annual Report and Accounts 2017Strategic report Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Old Mutual Emerging Markets review continued Old Mutual Emerging Markets review continued Investment return for Group equity and debt instruments in life funds relates to investment returns on policyholder investments in group equity and debt instruments held by the OML Group's Investment return for Group equity and debt instruments in life life funds. funds relates to investment returns on policyholder investments in group equity and debt instruments held by the OML Group's Restructuring costs represents the elimination of material non- life funds. recurring expenses, specifically related to business restructuring costs such as Managed Separation costs, the costs or income Restructuring costs represents the elimination of material non- associated with completed acquisitions and the release of recurring expenses, specifically related to business restructuring acquisition date provisions. The 2016 financial year includes the costs such as Managed Separation costs, the costs or income release of an acquisition reserve in MFC. associated with completed acquisitions and the release of acquisition date provisions. The 2016 financial year includes the Consistent with our proposed 19.9% shareholding in Nedbank release of an acquisition reserve in MFC. following the anticipated unbundling of Nedbank, income from associates reflects the proportionate headline earnings that would Consistent with our proposed 19.9% shareholding in Nedbank have been earned from the investment in Nedbank. In accordance following the anticipated unbundling of Nedbank, income from with IFRS, the Nedbank shareholding of approximately 55% will be associates reflects the proportionate headline earnings that would classified as held for distribution. have been earned from the investment in Nedbank. In accordance with IFRS, the Nedbank shareholding of approximately 55% will be Return on Net Asset Value (RoNAV) classified as held for distribution. The OML Group RoNAV is defined as Adjusted Headline Earnings divided by average Adjusted IFRS equity. Adjusted IFRS Equity is Return on Net Asset Value (RoNAV) calculated as total Group equity attributable to ordinary equity The OML Group RoNAV is defined as Adjusted Headline Earnings shareholders before adjustments related to consolidation of funds. divided by average Adjusted IFRS equity. Adjusted IFRS Equity is It excludes Residual plc and discontinued operations, and is further calculated as total Group equity attributable to ordinary equity adjusted to recognise the equity attributable to the retained 19.9% shareholders before adjustments related to consolidation of funds. shareholding in Nedbank. From the time of the anticipated It excludes Residual plc and discontinued operations, and is further unbundling of Nedbank the equity attributable to Nedbank will be adjusted to recognise the equity attributable to the retained 19.9% adjusted to remove the one-off fair value adjustment required under shareholding in Nedbank. From the time of the anticipated IFRS at the time of unbundling and the same adjustment will be unbundling of Nedbank the equity attributable to Nedbank will be applied when calculating RoNAV on an ongoing basis. adjusted to remove the one-off fair value adjustment required under IFRS at the time of unbundling and the same adjustment will be As a result, the pro-forma OML RoNAV was 22.3% (2016: 18.9%). applied when calculating RoNAV on an ongoing basis. This was due primarily to higher actual investment returns in South Africa with abnormally high growth in Zimbabwe, which contributed As a result, the pro-forma OML RoNAV was 22.3% (2016: 18.9%). to a 25% increase in Adjusted Headline Earnings and a This was due primarily to higher actual investment returns in South corresponding increase of 5% in average Adjusted IFRS equity Africa with abnormally high growth in Zimbabwe, which contributed over the period. to a 25% increase in Adjusted Headline Earnings and a corresponding increase of 5% in average Adjusted IFRS equity Capital management over the period. The OML Group seeks to maintain a strong solvency and liquidity position through disciplined management of capital resources and Capital management risks. The backing of a financially sound group is important given The OML Group seeks to maintain a strong solvency and liquidity the security and peace of mind that it affords customers, advisors position through disciplined management of capital resources and and regulators. risks. The backing of a financially sound group is important given the security and peace of mind that it affords customers, advisors Scenario analysis is undertaken regularly to ensure the regulatory and regulators. balance sheet could withstand severe and prolonged periods of stress. Our solvency position remains resilient under these stresses. Scenario analysis is undertaken regularly to ensure the regulatory balance sheet could withstand severe and prolonged periods of stress. Our solvency position remains resilient under these stresses. Solvency Assessment and Management (SAM) The OML Group solvency position is calculated by aggregating the results of the solvency calculations under SAM across the entities Solvency Assessment and Management (SAM) that make up the Group. The estimated SAM solvency positions The OML Group solvency position is calculated by aggregating the are presented on the basis of the Group’s preferred methodology results of the solvency calculations under SAM across the entities which will, once the SAM framework is implemented, be formally that make up the Group. The estimated SAM solvency positions presented for regulatory approval. This is based on our current are presented on the basis of the Group’s preferred methodology Nedbank shareholding. which will, once the SAM framework is implemented, be formally presented for regulatory approval. This is based on our current The material South African insurance entities are aggregated using Nedbank shareholding. the accounting consolidation approach which applies the SAM Standard Formula, where capital requirements are calculated The material South African insurance entities are aggregated using assuming a 1-in-200 year event over a one year timeline, to the the accounting consolidation approach which applies the SAM consolidated balance sheet of these entities. Standard Formula, where capital requirements are calculated assuming a 1-in-200 year event over a one year timeline, to the The remainder of the entities are aggregated using the deduction consolidated balance sheet of these entities. and aggregation approach which sums the solvency position for each entity after elimination of intercompany positions, with the The remainder of the entities are aggregated using the deduction basis of inclusion depending on the nature of the entity: and aggregation approach which sums the solvency position for  Other insurance businesses are included using the each entity after elimination of intercompany positions, with the basis of inclusion depending on the nature of the entity:  Banks and other financial entities are included on a  Other insurance businesses are included using the  Other unregulated entities are included at their IFRS NAV.  Banks and other financial entities are included on a Basel III basis. SAM Standard Formula. SAM Standard Formula. Basel III basis. In the OML Group calculation, the own funds in certain entities,  Other unregulated entities are included at their IFRS NAV. such as Zimbabwe, are restricted to the solvency capital requirement of that entity (calculated on a SAM basis) due In the OML Group calculation, the own funds in certain entities, to fungibility and transferability restrictions. such as Zimbabwe, are restricted to the solvency capital requirement of that entity (calculated on a SAM basis) due Currently, any benefit from Residual plc positive NAV is assumed to fungibility and transferability restrictions. not to be fungible and therefore the surplus is excluded from the SAM solvency ratio. Further detail on Old Mutual plc NAV is Currently, any benefit from Residual plc positive NAV is assumed provided in the Old Mutual plc Group Finance Director’s report. not to be fungible and therefore the surplus is excluded from the SAM solvency ratio. Further detail on Old Mutual plc NAV is Based on the latest draft SAM prudential standards, it is expected provided in the Old Mutual plc Group Finance Director’s report. that the regulatory solvency will remain strong, with appropriate capitalisation. As at 31 December 2017, the pro-forma OML Group Based on the latest draft SAM prudential standards, it is expected SAM solvency ratio is estimated to be 167%. that the regulatory solvency will remain strong, with appropriate capitalisation. As at 31 December 2017, the pro-forma OML Group The lower 2017 solvency cover ratio at an OML Group level SAM solvency ratio is estimated to be 167%. compared to OMLAC(SA)’s regulatory SAM solvency ratio is mostly a function of the elimination from OMLAC(SA)’s regulatory The lower 2017 solvency cover ratio at an OML Group level SAM solvency ratio of the contribution made by Nedbank to compared to OMLAC(SA)’s regulatory SAM solvency ratio is OMLAC(SA)s capital on a solo basis as it is included on a Basel III mostly a function of the elimination from OMLAC(SA)’s regulatory basis at the OML Group level. In addition, banking and short term SAM solvency ratio of the contribution made by Nedbank to insurance entities, in common with the industry tend to operate at OMLAC(SA)s capital on a solo basis as it is included on a Basel III lower regulatory solvency levels compared to life insurers. basis at the OML Group level. In addition, banking and short term insurance entities, in common with the industry tend to operate at We expect the capital ratios to remain within their target ranges lower regulatory solvency levels compared to life insurers. under normal economic conditions for both OML and OMLAC(SA). We expect the capital ratios to remain within their target ranges under normal economic conditions for both OML and OMLAC(SA). 36 18 18 Old Mutual plc Annual Report and Accounts 2017S i t r a t e g c r e p o r t Old Mutual plc Annual Report and Accounts 2017 We therefore anticipate a boost in both business and consumer confidence over the medium-term as the rand strengthens, unemployment rates improve and the inflation rate remains within the South African Reserve Bank target range of 3-6%. In light of this, our targets for the OML Group are as follows: Returns RoNAV of average cost of equity + 4%: OML will develop a 12 month weighted average CoE and referenced to where the capital is allocated on a weighted basis. The COE will be published as part of OML’s public reporting cycle. Growth Results from Operations to grow at a CAGR of Nominal GDP + 2% over the three years to 2020. Nominal GDP growth is defined with reference to South Africa. Cost efficiencies R1.0 billion of pre-tax run-rate cost savings by end 2019, net of costs to achieve this. This will be based on the 2017 IFRS administrative cost base (as defined), and adjusted for inflation and foreign exchange movements over 2018 and 2019. Capital strength  SAM solvency for OML: 155% − 175% post the anticipated unbundling of Nedbank  SAM solvency for OMLAC(SA): greater than 200%  OMLAC(SA) Insurance Business solvency ratio: 180% − 210% Dividend policy We target full year ordinary dividends that are covered by Adjusted Headline Earnings between 1.75 and 2.25 times. We target an interim dividend at 40% of the current year interim Adjusted Headline Earnings. Any dividends will take into account OML’s underlying local cash generation, fungibility of earnings, targeted liquidity and solvency levels, business strategy needs and market conditions at the time. Dividends will be set using the full flexibility of the range. OML may, from time to time, distribute additional returns to shareholders outside of the ordinary dividend cover, where it is determined that there is excess permanent capital in the business. Current year trading The OML Group’s continuing operations have started the year on a positive note. Results from operations have traded in line with expectations since the 2017 year end. Further, the recurring and one-off cost estimates in preparation for listing remain unchanged from our previous guidance, with incremental recurring standalone and listing costs reaching their run-rate by the end of 2018, up to R280 million. It is anticipated that the next trading update will be for the first quarter of 2018, which is expected to be published in April 2018. OMLAC(SA) Insurance Business Solvency In addition to the OMLAC(SA) SAM solvency ratio, the Group manages the OMLAC(SA) Insurance Business solvency ratio to a target range of 180% to 210%. This ratio excludes OMLAC(SA)’s holding in strategic assets as the Group would not expect to rely on these to support OMLAC(SA)’s solvency in stress conditions. Strategic assets include the holding in Nedbank that will be retained after the anticipated unbundling of Nedbank. Free surplus generation Below is a reconciliation of the free surplus generated for OML: Free surplus generation (Rbn) OMEM free surplus − restated Nedbank at 19.9% OML free surplus generated 2017 6.8 1.2 8.0 2016 % change 36% − 29% 5.0 1.2 6.2 Nedbank’s contribution to the free surplus generated is based on the dividends received by the OML Group on its minority shareholding. Nedbank’s dividends represent approximately 50% of its Headline Earnings. This also acts to reduce the reported conversion rate of Adjusted Headline Earnings to free surplus generation. Based on the above, the pro-forma OML Group free surplus generated was R8.0 billion (2016: R6.2 billion). This represents a conversion rate of 60% of Adjusted Headline Earnings (2016: 57%). Debt leverage/gearing Based on pro-forma 2017 financial statements, the leverage of the OML Group was 11.5% with interest cover of 29.3 times. These ratios include only our subordinated debt. The subordinated debt is expected to qualify, based on draft SAM provision, in contributing towards the OML Group’s solvency capital and is issued from OMLAC(SA) at R6.0 billion, with a smaller quantum of R500 million from Old Mutual Insure. Senior debt held in our operating entities, debt raised by Nedbank, and Residual plc debt are not included in the OML Group leverage metrics. We expect no more than £402 million of debt to be retained in Residual plc. Further detail on Old Mutual plc debt is provided in the Old Mutual plc Group Finance Director’s report. The OML Group also has a Revolving Credit Facility in place of R5.25 billion which was undrawn as at 31 December 2017. Overall, the current level of gearing on the OML balance sheet is appropriate and we remain within our appetite under stress testing. Outlook for OML as a standalone business The International Monetary Fund (IMF) expects global economic growth to improve to 3.9% in 2018, with emerging markets and developing economies growing by 4.9%. Sub-Saharan Africa is expected to accelerate from 2.7% in 2017 to 3.3% in 2018. In South Africa, economic growth estimates for 2018 have been revised upwards to 1.4%, by the South African Reserve Bank. Following the swearing in of Cyril Ramaphosa, the new President has set out his intentions to restore confidence in the economy, improving the fiscal situation, addressing corruption and reducing the size of the cabinet. This was further reinforced by the messages contained in the recent Budget Speech. 37 19 Old Mutual plc Annual Report and Accounts 2017Strategic report Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Old Mutual plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 Nedbank review Nedbank review Nedbank review Mike Brown Chief Executive, Nedbank Mike Brown Mike Brown Chief Executive, Nedbank Chief Executive, Nedbank A solid performance in a volatile and challenging domestic A solid performance in a volatile A solid performance in a volatile environment. and challenging domestic and challenging domestic environment. environment. Mike Brown Chief Executive, Nedbank Mike Brown Mike Brown Chief Executive, Nedbank Chief Executive, Nedbank A solid performance in a volatile and challenging domestic environment A solid performance in a volatile and A solid performance in a volatile and “Nedbank continued to create value for all our stakeholders in challenging domestic environment challenging domestic environment a challenging political and economic environment. Our headline “Nedbank continued to create value for all our stakeholders in earnings of R11.8 billion, up 2.8%, reflect a good performance from “Nedbank continued to create value for all our stakeholders in a challenging political and economic environment. Our headline our managed operations, with headline earnings growth of 7.8% a challenging political and economic environment. Our headline earnings of R11.8 billion, up 2.8%, reflect a good performance from and a ROE (excluding goodwill) of 18.1%. Slower revenue growth earnings of R11.8 billion, up 2.8%, reflect a good performance from our managed operations, with headline earnings growth of 7.8% was offset by reduced impairments and good cost management, our managed operations, with headline earnings growth of 7.8% and a ROE (excluding goodwill) of 18.1%. Slower revenue growth while our share of the loss from our associate ETI following its and a ROE (excluding goodwill) of 18.1%. Slower revenue growth was offset by reduced impairments and good cost management, Q4 2016 results decreased in the second half of the year as the was offset by reduced impairments and good cost management, while our share of the loss from our associate ETI following its ETI business returned to profitability. while our share of the loss from our associate ETI following its Q4 2016 results decreased in the second half of the year as the Q4 2016 results decreased in the second half of the year as the ETI business returned to profitability. “The achievements of the last few years have provided us with ETI business returned to profitability. a solid base and we continue delivering on our strategies and “The achievements of the last few years have provided us with building the capabilities that will enable us to meet the 2020 targets “The achievements of the last few years have provided us with a solid base and we continue delivering on our strategies and we have now set of an ROE (excluding goodwill) of greater than or a solid base and we continue delivering on our strategies and building the capabilities that will enable us to meet the 2020 targets equal to 18% and an efficiency ratio of less than or equal to 53%. building the capabilities that will enable us to meet the 2020 targets we have now set of an ROE (excluding goodwill) of greater than or We released exciting digital innovations such as the new Nedbank we have now set of an ROE (excluding goodwill) of greater than or equal to 18% and an efficiency ratio of less than or equal to 53%. Money app, the Nedbank Private Wealth app and Karri app, equal to 18% and an efficiency ratio of less than or equal to 53%. We released exciting digital innovations such as the new Nedbank chatbots and UNLOCKED.ME (an exclusive e-commerce We released exciting digital innovations such as the new Nedbank Money app, the Nedbank Private Wealth app and Karri app, marketplace for millennials) and continued to gain share of Money app, the Nedbank Private Wealth app and Karri app, chatbots and UNLOCKED.ME (an exclusive e-commerce transactional banking clients in both our retail and wholesale chatbots and UNLOCKED.ME (an exclusive e-commerce marketplace for millennials) and continued to gain share of businesses. We are actively optimising our cost base, as reflected marketplace for millennials) and continued to gain share of transactional banking clients in both our retail and wholesale in cost growth at 5.1%, and maintained a strong balance sheet as transactional banking clients in both our retail and wholesale businesses. We are actively optimising our cost base, as reflected evident in a CET1 ratio of 12.6%, above the top end of our internal businesses. We are actively optimising our cost base, as reflected in cost growth at 5.1%, and maintained a strong balance sheet as target range. Our strategic enablers are making a difference for in cost growth at 5.1%, and maintained a strong balance sheet as evident in a CET1 ratio of 12.6%, above the top end of our internal our operations and for our clients as we create a more agile, evident in a CET1 ratio of 12.6%, above the top end of our internal target range. Our strategic enablers are making a difference for competitive and digital Nedbank. target range. Our strategic enablers are making a difference for our operations and for our clients as we create a more agile, our operations and for our clients as we create a more agile, competitive and digital Nedbank. “Looking forward, 2018 started with positive changes to SA’s competitive and digital Nedbank. political and socioeconomic landscape and brought renewed “Looking forward, 2018 started with positive changes to SA’s prospects for higher levels of inclusive growth. Nedbank is acutely “Looking forward, 2018 started with positive changes to SA’s political and socioeconomic landscape and brought renewed aware of the increased responsibility that we, and indeed all political and socioeconomic landscape and brought renewed prospects for higher levels of inclusive growth. Nedbank is acutely businesses, have to work alongside government, labour and civil prospects for higher levels of inclusive growth. Nedbank is acutely aware of the increased responsibility that we, and indeed all society to play our part in improving the lives of all South Africans. aware of the increased responsibility that we, and indeed all businesses, have to work alongside government, labour and civil businesses, have to work alongside government, labour and civil society to play our part in improving the lives of all South Africans. “Reflecting on the impact on the group of the greater levels of society to play our part in improving the lives of all South Africans. business and consumer confidence evident in the early part of “Reflecting on the impact on the group of the greater levels of 2018, an improving economic outlook, ongoing delivery on our “Reflecting on the impact on the group of the greater levels of business and consumer confidence evident in the early part of strategy and ETI’s returning to sustained levels of profitability, our business and consumer confidence evident in the early part of 2018, an improving economic outlook, ongoing delivery on our guidance for growth in diluted headline earnings per share for 2018 2018, an improving economic outlook, ongoing delivery on our strategy and ETI’s returning to sustained levels of profitability, our is to be in line with our medium-to-long-term target of greater than strategy and ETI’s returning to sustained levels of profitability, our guidance for growth in diluted headline earnings per share for 2018 or equal to GDP plus CPI plus 5%.” guidance for growth in diluted headline earnings per share for 2018 is to be in line with our medium-to-long-term target of greater than is to be in line with our medium-to-long-term target of greater than or equal to GDP plus CPI plus 5%.” or equal to GDP plus CPI plus 5%.” Old Mutual plc Annual Report and Accounts 2017 Nedbank highlights on a reported basis1 IFRS profit after tax attributable to equity holders of the parent (Rm)2 Reported AOP (pre-tax, Rm)3 Headline earnings (Rm) Net interest income (Rm) Non-interest revenue (Rm) Net interest margin Credit loss ratio Efficiency ratio Return on equity Return on equity (excluding goodwill) Common equity tier 1 ratio 1 As reported by Nedbank 2 IFRS profit after tax attributable to equity holders of Old Mutual plc 3 As reported by Old Mutual Group. Banking and economic environment Economic growth in developed markets improved, despite ongoing geopolitical tensions, supported by accommodative monetary policies and stronger manufacturing production, and reinforced by increased global trade. Emerging and developing economies also improved as a consequence of better-than-expected growth in China and higher global commodity prices. Emerging-market equity and bond markets benefited from increased capital inflows as global investors search for higher yields. SA’s slow economic recovery continued into the second half of the year, with 2017 GDP growth estimated at 0.9%, driven mainly by a recovery in agricultural production following good summer rainfall and some improvement in mining production in response to stronger global demand and firmer international commodity prices. A revival in consumer spending added further momentum in the second half of 2017 as households benefited from lower inflation and the marginal reduction in interest rates in July. Despite this recovery and reflective of weak business and consumer confidence, business volumes in 2017 were generally lower than in the prior year, as evident in client loan applications across multiple products and in slower client trading activity. The pace of economic activity picked up moderately in sub- Saharan Africa, with agricultural and mining output recovering on the upturn in global demand and international commodity prices, and the prolonged El Niño-induced drought finally broke in many countries. According to the International Monetary Fund (IMF), sub- Saharan Africa is expected to record GDP growth of 2.6% in 2017. Domestic inflation averaged 5.3% in 2017, significantly lower than the 6.4% recorded in 2016, brought about mainly by sharply lower food inflation given the strong summer harvest. Relatively moderate and selective consumer demand coupled with a resilient rand also helped contain price pressures during the course of the year. After a year of volatile trade the rand ended 2017 2.5% stronger against the trade-weighted basket of currencies. The largest gains occurred near year-end as sentiment surged following the election of Mr Cyril Ramaphosa as the new leader of the ruling ANC in mid-December on expectations of a change in the country’s leadership, improved governance and structural reforms that are likely to support investment and higher levels of inclusive growth. 2017 6,411 16,522 11,787 27,624 24,063 3.62% 0.49% 58.6% 15.3% 16.4% 12.6% 2016 % change 14% 4% 3% 5% 2% 5,617 15,925 11,465 26,426 23,503 3.41% 0.68% 56.9% 15.3% 16.5% 12.1% After cutting the repo rate by 25 bps to 6.75% in July, SARB’s Monetary Policy Committee left interest rates unchanged at both the September and November 2017 policy meetings. The central bank’s more cautious approach was driven by concerns over the upside risk that the rand posed to the inflation outlook at that time. Fears mounted that SA’s rand-denominated sovereign debt ratings could be downgraded to sub-investment grade by all three major rating agencies, given the escalation in political uncertainty and the sharp deterioration in the country’s fiscal position, as set out in the Medium Term Budget Policy Statement. S t r a t e g i c r e p o r t In November 2017 Fitch affirmed the country’s BB+ rating with a stable outlook (one notch below investment grade). Moody’s placed SA’s Baa3 foreign and local currency ratings on review for downgrade, with the decision to follow the 2018 National Budget in February. However, S&P Global downgraded SA’s local currency rating to BB+ (one notch below investment grade) and our foreign currency rating to BB (two notches below investment grade), while changing the rating outlook to stable. All three rating agencies highlighted similar concerns, including weaker-than-expected public finances, weak economic growth, ineffective government spending and policies as well as the paralysing impact of political infighting and poor governance. Review of results Nedbank produced a solid performance in a domestic macro and political environment that has proved volatile and challenging. Headline earnings, including losses in associate income from ETI of R744 million, increased 2.8% to R11,787 million. This translated into an increase in DHEPS of 2.4% to 2,406 cents and an increase in HEPS of 2.2% to 2,452 cents. As in prior periods, we highlight our results both including and excluding ETI (referred to as managed operations) to provide a better understanding of the operational performance of the business given the volatility in ETI’s results in 2016 and 2017. However, we will revert to group-level reporting in 2019. Our managed operations produced headline earnings growth of 7.8% to R12,762 million, with slower-than- expected revenue growth more than offset by reduced impairments and good cost management. ROE (excluding goodwill) and ROE remained flat at 16.4% and 15.3% respectively. ROE (excluding goodwill) in managed operations also remained stable at 18.1%. ROA decreased 0.01% to 1.22% and, excluding ETI, ROA in managed operations improved from 1.29% to 1.33%. Return on RWA increased from 2.23% to 2.30%. CONFIDENTIAL 38 16 CONFIDENTIAL CONFIDENTIAL 16 16 CONFIDENTIAL 17 Old Mutual plc Annual Report and Accounts 2017 S i t r a t e g c r e p o r t Old Mutual plc Annual Report and Accounts 2017 Nedbank highlights on a reported basis1 IFRS profit after tax attributable to equity holders of the parent (Rm)2 Reported AOP (pre-tax, Rm)3 Headline earnings (Rm) Net interest income (Rm) Non-interest revenue (Rm) Net interest margin Credit loss ratio Efficiency ratio Return on equity Return on equity (excluding goodwill) Common equity tier 1 ratio 1 As reported by Nedbank 2 IFRS profit after tax attributable to equity holders of Old Mutual plc 3 As reported by Old Mutual Group. Banking and economic environment Economic growth in developed markets improved, despite ongoing geopolitical tensions, supported by accommodative monetary policies and stronger manufacturing production, and reinforced by increased global trade. Emerging and developing economies also improved as a consequence of better-than-expected growth in China and higher global commodity prices. Emerging-market equity and bond markets benefited from increased capital inflows as global investors search for higher yields. SA’s slow economic recovery continued into the second half of the year, with 2017 GDP growth estimated at 0.9%, driven mainly by a recovery in agricultural production following good summer rainfall and some improvement in mining production in response to stronger global demand and firmer international commodity prices. A revival in consumer spending added further momentum in the second half of 2017 as households benefited from lower inflation and the marginal reduction in interest rates in July. Despite this recovery and reflective of weak business and consumer confidence, business volumes in 2017 were generally lower than in the prior year, as evident in client loan applications across multiple products and in slower client trading activity. The pace of economic activity picked up moderately in sub- Saharan Africa, with agricultural and mining output recovering on the upturn in global demand and international commodity prices, and the prolonged El Niño-induced drought finally broke in many countries. According to the International Monetary Fund (IMF), sub- Saharan Africa is expected to record GDP growth of 2.6% in 2017. Domestic inflation averaged 5.3% in 2017, significantly lower than the 6.4% recorded in 2016, brought about mainly by sharply lower food inflation given the strong summer harvest. Relatively moderate and selective consumer demand coupled with a resilient rand also helped contain price pressures during the course of the year. After a year of volatile trade the rand ended 2017 2.5% stronger against the trade-weighted basket of currencies. The largest gains occurred near year-end as sentiment surged following the election of Mr Cyril Ramaphosa as the new leader of the ruling ANC in mid-December on expectations of a change in the country’s leadership, improved governance and structural reforms that are likely to support investment and higher levels of inclusive growth. % change 14% 4% 3% 5% 2% 2017 6,411 16,522 11,787 27,624 24,063 3.62% 0.49% 58.6% 15.3% 16.4% 12.6% 2016 5,617 15,925 11,465 26,426 23,503 3.41% 0.68% 56.9% 15.3% 16.5% 12.1% After cutting the repo rate by 25 bps to 6.75% in July, SARB’s Monetary Policy Committee left interest rates unchanged at both the September and November 2017 policy meetings. The central bank’s more cautious approach was driven by concerns over the upside risk that the rand posed to the inflation outlook at that time. Fears mounted that SA’s rand-denominated sovereign debt ratings could be downgraded to sub-investment grade by all three major rating agencies, given the escalation in political uncertainty and the sharp deterioration in the country’s fiscal position, as set out in the Medium Term Budget Policy Statement. In November 2017 Fitch affirmed the country’s BB+ rating with a stable outlook (one notch below investment grade). Moody’s placed SA’s Baa3 foreign and local currency ratings on review for downgrade, with the decision to follow the 2018 National Budget in February. However, S&P Global downgraded SA’s local currency rating to BB+ (one notch below investment grade) and our foreign currency rating to BB (two notches below investment grade), while changing the rating outlook to stable. All three rating agencies highlighted similar concerns, including weaker-than-expected public finances, weak economic growth, ineffective government spending and policies as well as the paralysing impact of political infighting and poor governance. Review of results Nedbank produced a solid performance in a domestic macro and political environment that has proved volatile and challenging. Headline earnings, including losses in associate income from ETI of R744 million, increased 2.8% to R11,787 million. This translated into an increase in DHEPS of 2.4% to 2,406 cents and an increase in HEPS of 2.2% to 2,452 cents. As in prior periods, we highlight our results both including and excluding ETI (referred to as managed operations) to provide a better understanding of the operational performance of the business given the volatility in ETI’s results in 2016 and 2017. However, we will revert to group-level reporting in 2019. Our managed operations produced headline earnings growth of 7.8% to R12,762 million, with slower-than- expected revenue growth more than offset by reduced impairments and good cost management. ROE (excluding goodwill) and ROE remained flat at 16.4% and 15.3% respectively. ROE (excluding goodwill) in managed operations also remained stable at 18.1%. ROA decreased 0.01% to 1.22% and, excluding ETI, ROA in managed operations improved from 1.29% to 1.33%. Return on RWA increased from 2.23% to 2.30%. CONFIDENTIAL 39 17 Old Mutual plc Annual Report and Accounts 2017Strategic report Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Nedbank review continued Nedbank review continued Our CET1 and tier 1 capital ratios of 12.6% and 13.4% respectively, average LCR for the fourth quarter of 116.2% and an NSFR of above 100%, are all Basel III-compliant and are a reflection Our CET1 and tier 1 capital ratios of 12.6% and 13.4% respectively, of a strong balance sheet. On the back of solid earnings growth average LCR for the fourth quarter of 116.2% and an NSFR in managed operations and a strong capital position, a final of above 100%, are all Basel III-compliant and are a reflection dividend of 675 cents was declared, an increase of 7.1%. of a strong balance sheet. On the back of solid earnings growth The total dividend per share increased 7.1% to 1,285 cents. in managed operations and a strong capital position, a final dividend of 675 cents was declared, an increase of 7.1%. Cluster financial performance The total dividend per share increased 7.1% to 1,285 cents. Nedbank’s managed operations generated headline earnings growth of 7.8% to R12,762 million and delivered an ROE Cluster financial performance (excluding goodwill) of 18.1%. CIB and Wealth were impacted Nedbank’s managed operations generated headline earnings the most by the challenging operating environment, RBB made growth of 7.8% to R12,762 million and delivered an ROE a strong earnings contribution and RoA subsidiaries delivered (excluding goodwill) of 18.1%. CIB and Wealth were impacted an improved performance off a low base. the most by the challenging operating environment, RBB made a strong earnings contribution and RoA subsidiaries delivered CIB maintained an attractive ROE of above 20% and produced an improved performance off a low base. solid results, driven by lower credit losses and good expense management. Revenue lines were affected by slowing economic CIB maintained an attractive ROE of above 20% and produced activity as clients postponed projects and borrowed and transacted solid results, driven by lower credit losses and good expense less. Early repayments and managed settlements, together with management. Revenue lines were affected by slowing economic slower drawdowns resulted in weaker advances growth, although activity as clients postponed projects and borrowed and transacted the pipelines remained stable. Credit quality remained strong less. Early repayments and managed settlements, together with through proactive risk management as we continued to monitor slower drawdowns resulted in weaker advances growth, although stressed sectors of the economy, such as certain areas in retail the pipelines remained stable. Credit quality remained strong and certain state-owned enterprises, closely. through proactive risk management as we continued to monitor stressed sectors of the economy, such as certain areas in retail RBB delivered an improved ROE and good headline earnings and certain state-owned enterprises, closely. growth, underpinned by solid transactional NIR growth, lower impairments and expense growth, and achieved PPOP growth of RBB delivered an improved ROE and good headline earnings 4.0%. NII was underpinned by solid growth in advances and strong growth, underpinned by solid transactional NIR growth, lower growth in deposits, offset by a lower NIM due in part to the impact impairments and expense growth, and achieved PPOP growth of of prime–JIBAR squeeze. Lower expense growth reflects the initial 4.0%. NII was underpinned by solid growth in advances and strong impact of optimising processes and operations, including growth in deposits, offset by a lower NIM due in part to the impact headcount reductions. of prime–JIBAR squeeze. Lower expense growth reflects the initial impact of optimising processes and operations, including Nedbank Wealth maintained an attractive ROE, although headline headcount reductions. earnings were impacted by subdued markets and negative investor sentiment, further compounded by entropic weather conditions and Nedbank Wealth maintained an attractive ROE, although headline the strengthening rand, as well the once-off profit from the sale of earnings were impacted by subdued markets and negative investor our Visa share in the 2016 base. sentiment, further compounded by entropic weather conditions and the strengthening rand, as well the once-off profit from the sale of RoA headline earnings were negatively impacted by the fourth- our Visa share in the 2016 base. quarter 2016 ETI associate loss accounted for quarterly in arrear. The loss was reported on in our interim results and was followed RoA headline earnings were negatively impacted by the fourth- by subsequent quarterly profits from ETI up to 30 September 2017. quarter 2016 ETI associate loss accounted for quarterly in arrear. Our subsidiaries grew headline earnings off a low base, supported The loss was reported on in our interim results and was followed by the consolidation of Banco Único (included for three months by subsequent quarterly profits from ETI up to 30 September 2017. in 2016), notwithstanding continued investment in infrastructure, Our subsidiaries grew headline earnings off a low base, supported systems and skills. by the consolidation of Banco Único (included for three months in 2016), notwithstanding continued investment in infrastructure, systems and skills. The improvement in the Centre was largely due to the R350 million release from the central provision, of which R150 million was in the first half of the year, and fair-value gains on certain hedging portfolios. The improvement in the Centre was largely due to the R350 million release from the central provision, of which R150 million was in the Financial performance first half of the year, and fair-value gains on certain hedging portfolios. Net interest income NII increased 4.5% to R27,624 million, ahead of average interest- Financial performance earning banking asset growth of 2.2% (adjusted for the removal Net interest income of the liquid-asset portfolio). NII increased 4.5% to R27,624 million, ahead of average interest- earning banking asset growth of 2.2% (adjusted for the removal NIM expansion of 8 bps to 3.62% (2016: 3.54% rebased) was of the liquid-asset portfolio). largely driven by an endowment benefit of 5 bps and improved asset mix changes of 8 bps. Asset pricing pressure, in part due NIM expansion of 8 bps to 3.62% (2016: 3.54% rebased) was to the NCA interest rate caps, the narrowing of the prime–JIBAR largely driven by an endowment benefit of 5 bps and improved spread and the increased cost associated with enhancing the asset mix changes of 8 bps. Asset pricing pressure, in part due funding profile each reduced NIM by 2 bps. to the NCA interest rate caps, the narrowing of the prime–JIBAR spread and the increased cost associated with enhancing the Impairments charge on loans and advances funding profile each reduced NIM by 2 bps. Impairments decreased by 27.5% to R3,304 million. The CLR declined by 0.19% to 0.49%, driven by lower specific impairments Impairments charge on loans and advances mostly from resolutions and settlements in CIB. The decrease Impairments decreased by 27.5% to R3,304 million. The CLR in impairments reflects the quality of the portfolio across all our declined by 0.19% to 0.49%, driven by lower specific impairments businesses and we have specific coverage ratios levels of 36.2%. mostly from resolutions and settlements in CIB. The decrease in impairments reflects the quality of the portfolio across all our Impairments in CIB declined by 82.4% to R193 million, driven by businesses and we have specific coverage ratios levels of 36.2%. lower specific impairments relating largely to resolutions of historic client matters. Impairments are individually determined in CIB Impairments in CIB declined by 82.4% to R193 million, driven by and 84% of impairments are concentrated in approximately lower specific impairments relating largely to resolutions of historic 10 counters. RBB impairments declined by 1.2% to R3.2 billion client matters. Impairments are individually determined in CIB as a result of ongoing lower risk origination strategies and an and 84% of impairments are concentrated in approximately improvement in collections. The decrease in unsecured lending 10 counters. RBB impairments declined by 1.2% to R3.2 billion and home loan CLRs reflects the benefits of historic selective as a result of ongoing lower risk origination strategies and an origination improving the quality of the book over time and the improvement in collections. The decrease in unsecured lending release of additional impairment overlays previously raised for risks and home loan CLRs reflects the benefits of historic selective and events that did not materialise. Continued proactive collection origination improving the quality of the book over time and the and resolution strategies within CIB and RBB contributed to group release of additional impairment overlays previously raised for risks write-offs decreasing 6.0% to R4,675 million and post write-off and events that did not materialise. Continued proactive collection recoveries increasing 5.8% to R1,224 million. and resolution strategies within CIB and RBB contributed to group write-offs decreasing 6.0% to R4,675 million and post write-off The group’s central provision decreased to R150 million (from recoveries increasing 5.8% to R1,224 million. R500 million at 31 December 2016 and R350 million in June 2017) as a result of risks that had previously been identified but had not The group’s central provision decreased to R150 million (from materialised. The balance is retained for prudency in a volatile R500 million at 31 December 2016 and R350 million in June 2017) macroeconomic environment. Excluding the central provision as a result of risks that had previously been identified but had not release, the group CLR would have been 0.54%. materialised. The balance is retained for prudency in a volatile macroeconomic environment. Excluding the central provision All business units successfully applied selective origination release, the group CLR would have been 0.54%. strategies that enabled an overall de-risking of the advances portfolio, leading to defaulted advances remaining flat at R19.6 All business units successfully applied selective origination billion. Lower defaulted advances in CIB resulting from positive strategies that enabled an overall de-risking of the advances client resolutions were offset by increased defaulted advances portfolio, leading to defaulted advances remaining flat at R19.6 in RBB. billion. Lower defaulted advances in CIB resulting from positive client resolutions were offset by increased defaulted advances in RBB. CONFIDENTIAL 40 18 CONFIDENTIAL 18 Old Mutual plc Annual Report and Accounts 2017Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Nedbank review continued Nedbank review continued Our CET1 and tier 1 capital ratios of 12.6% and 13.4% respectively, The improvement in the Centre was largely due to the R350 million average LCR for the fourth quarter of 116.2% and an NSFR release from the central provision, of which R150 million was in the of above 100%, are all Basel III-compliant and are a reflection Our CET1 and tier 1 capital ratios of 12.6% and 13.4% respectively, of a strong balance sheet. On the back of solid earnings growth average LCR for the fourth quarter of 116.2% and an NSFR in managed operations and a strong capital position, a final of above 100%, are all Basel III-compliant and are a reflection dividend of 675 cents was declared, an increase of 7.1%. of a strong balance sheet. On the back of solid earnings growth The total dividend per share increased 7.1% to 1,285 cents. in managed operations and a strong capital position, a final dividend of 675 cents was declared, an increase of 7.1%. Cluster financial performance The total dividend per share increased 7.1% to 1,285 cents. Nedbank’s managed operations generated headline earnings growth of 7.8% to R12,762 million and delivered an ROE Cluster financial performance (excluding goodwill) of 18.1%. CIB and Wealth were impacted Nedbank’s managed operations generated headline earnings the most by the challenging operating environment, RBB made growth of 7.8% to R12,762 million and delivered an ROE a strong earnings contribution and RoA subsidiaries delivered (excluding goodwill) of 18.1%. CIB and Wealth were impacted an improved performance off a low base. the most by the challenging operating environment, RBB made a strong earnings contribution and RoA subsidiaries delivered CIB maintained an attractive ROE of above 20% and produced an improved performance off a low base. solid results, driven by lower credit losses and good expense management. Revenue lines were affected by slowing economic CIB maintained an attractive ROE of above 20% and produced activity as clients postponed projects and borrowed and transacted solid results, driven by lower credit losses and good expense less. Early repayments and managed settlements, together with management. Revenue lines were affected by slowing economic slower drawdowns resulted in weaker advances growth, although activity as clients postponed projects and borrowed and transacted the pipelines remained stable. Credit quality remained strong less. Early repayments and managed settlements, together with through proactive risk management as we continued to monitor slower drawdowns resulted in weaker advances growth, although stressed sectors of the economy, such as certain areas in retail the pipelines remained stable. Credit quality remained strong and certain state-owned enterprises, closely. through proactive risk management as we continued to monitor stressed sectors of the economy, such as certain areas in retail RBB delivered an improved ROE and good headline earnings and certain state-owned enterprises, closely. growth, underpinned by solid transactional NIR growth, lower impairments and expense growth, and achieved PPOP growth of RBB delivered an improved ROE and good headline earnings 4.0%. NII was underpinned by solid growth in advances and strong growth, underpinned by solid transactional NIR growth, lower growth in deposits, offset by a lower NIM due in part to the impact impairments and expense growth, and achieved PPOP growth of of prime–JIBAR squeeze. Lower expense growth reflects the initial 4.0%. NII was underpinned by solid growth in advances and strong impact of optimising processes and operations, including growth in deposits, offset by a lower NIM due in part to the impact headcount reductions. of prime–JIBAR squeeze. Lower expense growth reflects the initial impact of optimising processes and operations, including Nedbank Wealth maintained an attractive ROE, although headline headcount reductions. earnings were impacted by subdued markets and negative investor sentiment, further compounded by entropic weather conditions and Nedbank Wealth maintained an attractive ROE, although headline the strengthening rand, as well the once-off profit from the sale of earnings were impacted by subdued markets and negative investor our Visa share in the 2016 base. sentiment, further compounded by entropic weather conditions and the strengthening rand, as well the once-off profit from the sale of RoA headline earnings were negatively impacted by the fourth- our Visa share in the 2016 base. quarter 2016 ETI associate loss accounted for quarterly in arrear. The loss was reported on in our interim results and was followed RoA headline earnings were negatively impacted by the fourth- by subsequent quarterly profits from ETI up to 30 September 2017. quarter 2016 ETI associate loss accounted for quarterly in arrear. Our subsidiaries grew headline earnings off a low base, supported The loss was reported on in our interim results and was followed by the consolidation of Banco Único (included for three months by subsequent quarterly profits from ETI up to 30 September 2017. in 2016), notwithstanding continued investment in infrastructure, Our subsidiaries grew headline earnings off a low base, supported systems and skills. by the consolidation of Banco Único (included for three months in 2016), notwithstanding continued investment in infrastructure, systems and skills. first half of the year, and fair-value gains on certain hedging portfolios. The improvement in the Centre was largely due to the R350 million release from the central provision, of which R150 million was in the Financial performance first half of the year, and fair-value gains on certain hedging portfolios. Net interest income NII increased 4.5% to R27,624 million, ahead of average interest- Financial performance earning banking asset growth of 2.2% (adjusted for the removal Net interest income of the liquid-asset portfolio). NII increased 4.5% to R27,624 million, ahead of average interest- earning banking asset growth of 2.2% (adjusted for the removal NIM expansion of 8 bps to 3.62% (2016: 3.54% rebased) was of the liquid-asset portfolio). largely driven by an endowment benefit of 5 bps and improved asset mix changes of 8 bps. Asset pricing pressure, in part due NIM expansion of 8 bps to 3.62% (2016: 3.54% rebased) was to the NCA interest rate caps, the narrowing of the prime–JIBAR largely driven by an endowment benefit of 5 bps and improved spread and the increased cost associated with enhancing the asset mix changes of 8 bps. Asset pricing pressure, in part due funding profile each reduced NIM by 2 bps. to the NCA interest rate caps, the narrowing of the prime–JIBAR spread and the increased cost associated with enhancing the Impairments charge on loans and advances funding profile each reduced NIM by 2 bps. Impairments decreased by 27.5% to R3,304 million. The CLR declined by 0.19% to 0.49%, driven by lower specific impairments Impairments charge on loans and advances mostly from resolutions and settlements in CIB. The decrease Impairments decreased by 27.5% to R3,304 million. The CLR in impairments reflects the quality of the portfolio across all our declined by 0.19% to 0.49%, driven by lower specific impairments businesses and we have specific coverage ratios levels of 36.2%. mostly from resolutions and settlements in CIB. The decrease in impairments reflects the quality of the portfolio across all our Impairments in CIB declined by 82.4% to R193 million, driven by businesses and we have specific coverage ratios levels of 36.2%. lower specific impairments relating largely to resolutions of historic client matters. Impairments are individually determined in CIB Impairments in CIB declined by 82.4% to R193 million, driven by and 84% of impairments are concentrated in approximately lower specific impairments relating largely to resolutions of historic 10 counters. RBB impairments declined by 1.2% to R3.2 billion client matters. Impairments are individually determined in CIB as a result of ongoing lower risk origination strategies and an and 84% of impairments are concentrated in approximately improvement in collections. The decrease in unsecured lending 10 counters. RBB impairments declined by 1.2% to R3.2 billion and home loan CLRs reflects the benefits of historic selective as a result of ongoing lower risk origination strategies and an origination improving the quality of the book over time and the improvement in collections. The decrease in unsecured lending release of additional impairment overlays previously raised for risks and home loan CLRs reflects the benefits of historic selective and events that did not materialise. Continued proactive collection origination improving the quality of the book over time and the and resolution strategies within CIB and RBB contributed to group release of additional impairment overlays previously raised for risks write-offs decreasing 6.0% to R4,675 million and post write-off and events that did not materialise. Continued proactive collection recoveries increasing 5.8% to R1,224 million. and resolution strategies within CIB and RBB contributed to group write-offs decreasing 6.0% to R4,675 million and post write-off The group’s central provision decreased to R150 million (from recoveries increasing 5.8% to R1,224 million. R500 million at 31 December 2016 and R350 million in June 2017) as a result of risks that had previously been identified but had not The group’s central provision decreased to R150 million (from materialised. The balance is retained for prudency in a volatile R500 million at 31 December 2016 and R350 million in June 2017) macroeconomic environment. Excluding the central provision as a result of risks that had previously been identified but had not release, the group CLR would have been 0.54%. materialised. The balance is retained for prudency in a volatile macroeconomic environment. Excluding the central provision All business units successfully applied selective origination release, the group CLR would have been 0.54%. strategies that enabled an overall de-risking of the advances portfolio, leading to defaulted advances remaining flat at R19.6 All business units successfully applied selective origination billion. Lower defaulted advances in CIB resulting from positive strategies that enabled an overall de-risking of the advances client resolutions were offset by increased defaulted advances portfolio, leading to defaulted advances remaining flat at R19.6 in RBB. billion. Lower defaulted advances in CIB resulting from positive client resolutions were offset by increased defaulted advances in RBB. Old Mutual plc Annual Report and Accounts 2017 The decrease in specific coverage from 37.4% to 36.2% was primarily due to lower specific coverage in RBB as well as increased resolutions of various client issues in CIB resulting in lower specific impairments. The lower coverage reflects increased performing defaults in RBB and the recovery success in CIB. Nedbank considers the coverage ratios appropriate given the higher proportion of wholesale lending, compared with the mix of its peers, high recovery rates and the collateralised nature of the commercial-mortgages portfolio, with low loan-to-value ratios. Portfolio coverage increased marginally from 0.69% to 0.70%, reflecting the offsetting effects of higher portfolio impairments due to stronger advances growth in RBB and the reduction of the central provision and RBB overlays. Non-interest revenue NIR growth of 2.4% to R24,063 million reflects the impact of weak business and consumer confidence levels. Commission and fee income grew 4.0% to R17,355 million. RBB reported good transactional NIR growth of 6.0%, notwithstanding an increasing number of clients who are transacting within fixed- rate bundles and spending less. CIB experienced lower corporate activity off a high base the previous year. Insurance income decreased 9.3% to R1,566 million as a result of an abnormal number of significant weather-related claims, lower homeowner’s cover and credit life volumes, and an increase in lapses. Trading income increased 3.7% to R3,900 million, given muted activity levels among wholesale clients, particularly in the second half of the year, and avoidance of the potential negative impacts in markets around event risks such as political changes and credit rating downgrades. Private-equity income, including positive realisations in the Commercial Property Finance portfolio, decreased 23.7% to R708 million, given the high base in the comparative period. Expenses Expense growth of 5.1% to R29,812 million was below inflation and in line with the guidance we provided for the full 2017 year (being growth of mid-single digits), demonstrating disciplined and careful management of discretionary expenses in an environment of slower revenue growth. The underlying movements included:  Staff-related costs increasing at a slower rate of 6.5%, following:  an average annual salary increase of 6.5% and a 859 reduction in staff numbers since December 2016; and  a 0.1% decrease in short-term incentives.  Computer-processing costs increasing 3.8% to R4,201 million off a higher base the previous year.  Fees and insurance costs being 7.8% higher at R3,277 million, due mostly to additional regulatory-related costs. The group’s growth in expenses exceeded total revenue growth (including associate loss) of 2.1% (3.2% in managed operations), resulting in a negative JAWS ratio of 3.0% and an efficiency ratio of 58.6%, compared with 56.9% in 2016. Excluding associate income, our efficiency ratio was 57.8%. Expense growth, excluding RoA where we continued to invest in distribution, technology and new-product rollouts, was 4.3%. Earnings from associates The loss of R838 million in earnings from associates was attributed largely to ETI’s loss of R1,203 million in the fourth quarter of 2016 (announced on 18 April 2017), partly offset by the profit of R459 million reported by ETI for the nine months to 30 September 2017, in line with our policy of accounting for ETI earnings a quarter in arrear. The total effect of ETI on the group’s headline earnings was a loss of R975 million, including the R321 million impact of funding costs. Accounting for this associate loss, together with Nedbank’s share of ETI’s other comprehensive income and movements in Nedbank’s foreign currency translation reserves, resulted in the carrying value of the group’s strategic investment in ETI declining from R4.0 billion at 31 December 2016 to R3.3 billion at 31 December 2017. Since the introduction of the new foreign exchange regime by the Central Bank of Nigeria on 21 April 2017, confidence has improved and the Nigerian banking index has increased by 73%. In line with this ETI’s quoted share price – albeit illiquid – increased by 65% during 2017 which resulted in the market value of the group’s investment in ETI increasing during the year to R3.6 billion at 31 December 2017 and R4.1 billion at 28 February 2018. While risks remain, the actions taken to improve ETI’s financial position and governance, along with an improving macroeconomic environment, is expected to drive an improved financial performance from ETI in 2018. As required by IFRS, the R1 billion impairment provision recognised at 31 December 2016 was reviewed at 31 December 2017 and it was determined that currently no change to the provision was required. A R96 million associate loss was incurred due to operational losses in an associate, which is the cash-processing supplier to the four large banks. Statement of financial position Capital The group continued to strengthen its capital position, with our CET1 ratio of 12.6% now above the top end of our internal target range of 10.5–12.5%, following organic capital generation through earnings growth, lower asset growth and some RWA optimisation. In the current environment of slower advances growth, capital generation has been stronger following lower credit RWA growth and continued refinement of Basel models. This was partially offset by the impact of the rand strengthening at the back end of 2017, which adversely impacted foreign currency translation reserves and led to higher credit valuation adjustment RWA. Higher levels of equity exposure resulted in increased equity RWA. As a result overall RWA increased 3.7% to R528.2 billion. CONFIDENTIAL CONFIDENTIAL 18 18 CONFIDENTIAL 41 19 S i t r a t e g c r e p o r t Old Mutual plc Annual Report and Accounts 2017Strategic report Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Nedbank review continued Nedbank review continued The group’s tier 1 ratio improved to 13.4% and includes the issuance of R600 million of new-style additional tier 1 capital instruments during the year, offsetting the progressive grandfathering The group’s tier 1 ratio improved to 13.4% and includes the of old-style perpetual preference shares as we transition towards issuance of R600 million of new-style additional tier 1 capital end-state Basel III requirements. The group’s total capital ratio instruments during the year, offsetting the progressive grandfathering has improved to 15.5% and includes the issuance of R2.5 billion of old-style perpetual preference shares as we transition towards of new-style tier 2 capital instruments during the year, partially end-state Basel III requirements. The group’s total capital ratio offsetting the redemption of R3.0 billion in old-style tier 2 has improved to 15.5% and includes the issuance of R2.5 billion capital instruments. of new-style tier 2 capital instruments during the year, partially offsetting the redemption of R3.0 billion in old-style tier 2 Funding and liquidity capital instruments. Optimising our funding profile and maintaining a strong liquidity position remain a priority for the group, especially in the current Funding and liquidity environment. Optimising our funding profile and maintaining a strong liquidity position remain a priority for the group, especially in the current The group’s three-month average long-term funding ratio was environment. 27.0% for the fourth quarter of 2017, supported by growth in Nedbank Retail Savings Bonds of R5.7 billion to R24.9 billion The group’s three-month average long-term funding ratio was and the successful capital market issuances of R3.5 billion senior 27.0% for the fourth quarter of 2017, supported by growth in unsecured debt, R2.5 billion new-style tier 2 debt and R1.0 billion Nedbank Retail Savings Bonds of R5.7 billion to R24.9 billion in securitisation notes. and the successful capital market issuances of R3.5 billion senior unsecured debt, R2.5 billion new-style tier 2 debt and R1.0 billion The group's quarterly average LCR of 116.2% exceeded the in securitisation notes. minimum regulatory requirement of 80% in 2017 and 90% effective from 1 January 2018. The group maintains appropriate operational The group's quarterly average LCR of 116.2% exceeded the buffers designed to absorb seasonal and cyclical volatility in minimum regulatory requirement of 80% in 2017 and 90% effective the LCR. from 1 January 2018. The group maintains appropriate operational buffers designed to absorb seasonal and cyclical volatility in Further details on the LCR are available in the table section of the the LCR. Securities Exchange News Service (SENS) announcement. Further details on the LCR are available in the table section of the Nedbank’s portfolio of LCR-compliant HQLA increased by 0.6% Securities Exchange News Service (SENS) announcement. to a quarterly average of R138.2 billion. Notwithstanding the low growth in HQLA, the LCR still increased year-on-year as a result Nedbank’s portfolio of LCR-compliant HQLA increased by 0.6% of a decrease in LCR net cash outflows attributable to a positive to a quarterly average of R138.2 billion. Notwithstanding the low tilt in our deposit mix towards proportionally more Basel III-friendly growth in HQLA, the LCR still increased year-on-year as a result deposits in the form of RBB and Wealth deposits together with of a decrease in LCR net cash outflows attributable to a positive market share gains in commercial deposits. The HQLA portfolio, tilt in our deposit mix towards proportionally more Basel III-friendly taken together with our portfolio of other sources of quick-liquidity, deposits in the form of RBB and Wealth deposits together with resulted in total available sources of quick liquidity of R195.4 billion, market share gains in commercial deposits. The HQLA portfolio, representing 19.9% of total assets. taken together with our portfolio of other sources of quick-liquidity, resulted in total available sources of quick liquidity of R195.4 billion, Nedbank has maintained the NSFR at above 100% on a pro forma representing 19.9% of total assets. basis and is compliant with the minimum regulatory requirements that are effective from 1 January 2018. Nedbank has maintained the NSFR at above 100% on a pro forma basis and is compliant with the minimum regulatory requirements that are effective from 1 January 2018. Loans and advances Loans and advances increased by 0.5% to R710.3 billion, driven by solid growth in RBB offset by a decline in term and other loans Loans and advances in CIB. Loans and advances increased by 0.5% to R710.3 billion, driven by solid growth in RBB offset by a decline in term and other loans RBB loans and advances grew 5.3% to R305.2 billion, with MFC in CIB. (vehicle finance) increasing by 8.6% as new-business volumes improved despite the contracting vehicle sales market. RBB’s RBB loans and advances grew 5.3% to R305.2 billion, with MFC growth was achieved across all asset classes by increasing the (vehicle finance) increasing by 8.6% as new-business volumes contribution from lower-risk clients in line with risk appetite and improved despite the contracting vehicle sales market. RBB’s prudent origination strategies. We take comfort in the quality and growth was achieved across all asset classes by increasing the overall performance of the unsecured-lending portfolio based on contribution from lower-risk clients in line with risk appetite and the conservative rules we apply to consolidation, restructuring prudent origination strategies. We take comfort in the quality and and term strategies. Home loans grew at below-inflation levels, overall performance of the unsecured-lending portfolio based on but market share was maintained. the conservative rules we apply to consolidation, restructuring and term strategies. Home loans grew at below-inflation levels, CIB loans and advances decreased 3.8% to R356.0 billion due to but market share was maintained. a combination of unexpected early repayments and managed sell- downs, which allowed for the diversification of risk. Demand for CIB loans and advances decreased 3.8% to R356.0 billion due to new loans was weak as a result of muted client capital expenditure a combination of unexpected early repayments and managed sell- in a competitive market in the subdued economic climate. downs, which allowed for the diversification of risk. Demand for Commercial-mortgage loans and advances grew by 6.5% to new loans was weak as a result of muted client capital expenditure R161.6 billion, maintaining our leading share of the SA market. The in a competitive market in the subdued economic climate. portfolio contains good-quality collateralised assets with low LTVs, Commercial-mortgage loans and advances grew by 6.5% to underpinned by a large secure asset pool and a strong client base, R161.6 billion, maintaining our leading share of the SA market. The and is managed by a highly experienced property finance team. portfolio contains good-quality collateralised assets with low LTVs, underpinned by a large secure asset pool and a strong client base, Deposits and is managed by a highly experienced property finance team. Deposits grew 1.3% to R771.6 billion, with total funding-related liabilities increasing 1.2% to R823.2 billion, while the loan-to-deposit Deposits ratio improved to 92.1%. Deposits grew 1.3% to R771.6 billion, with total funding-related liabilities increasing 1.2% to R823.2 billion, while the loan-to-deposit Through the active management of the RBB franchise, deposits ratio improved to 92.1%. grew 8.5% to R295.3 billion, resulting in household deposits market share gains increasing year-on-year to 18.9% from 18.7%, Through the active management of the RBB franchise, deposits supported by Nedbank’s strong market share in household current grew 8.5% to R295.3 billion, resulting in household deposits market account deposits of 19.1%. Through the growth in current share gains increasing year-on-year to 18.9% from 18.7%, accounts, savings and fixed deposits and other structured deposits supported by Nedbank’s strong market share in household current Nedbank has successfully reduced the proportion of funding from account deposits of 19.1%. Through the growth in current negotiable certificates of deposit as well as more expensive foreign accounts, savings and fixed deposits and other structured deposits currency funding used in the general rand funding pool. Nedbank has successfully reduced the proportion of funding from negotiable certificates of deposit as well as more expensive foreign This positive tilt towards more Basel III-friendly deposits achieved currency funding used in the general rand funding pool. across RBB, Nedbank Wealth and RoA and through market share gains in commercial deposits has resulted in lower HQLA and long- This positive tilt towards more Basel III-friendly deposits achieved term funding requirements as well as a stronger LCR in terms of across RBB, Nedbank Wealth and RoA and through market share ensuring cost-effective regulatory compliance and a strong balance gains in commercial deposits has resulted in lower HQLA and long- sheet position. term funding requirements as well as a stronger LCR in terms of ensuring cost-effective regulatory compliance and a strong balance sheet position. CONFIDENTIAL 42 20 CONFIDENTIAL 20 Old Mutual plc Annual Report and Accounts 2017Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Nedbank review continued Nedbank review continued The group’s tier 1 ratio improved to 13.4% and includes the issuance of R600 million of new-style additional tier 1 capital instruments during the year, offsetting the progressive grandfathering The group’s tier 1 ratio improved to 13.4% and includes the of old-style perpetual preference shares as we transition towards issuance of R600 million of new-style additional tier 1 capital end-state Basel III requirements. The group’s total capital ratio instruments during the year, offsetting the progressive grandfathering has improved to 15.5% and includes the issuance of R2.5 billion of old-style perpetual preference shares as we transition towards of new-style tier 2 capital instruments during the year, partially end-state Basel III requirements. The group’s total capital ratio offsetting the redemption of R3.0 billion in old-style tier 2 has improved to 15.5% and includes the issuance of R2.5 billion capital instruments. of new-style tier 2 capital instruments during the year, partially offsetting the redemption of R3.0 billion in old-style tier 2 Funding and liquidity capital instruments. Optimising our funding profile and maintaining a strong liquidity position remain a priority for the group, especially in the current Funding and liquidity environment. Optimising our funding profile and maintaining a strong liquidity position remain a priority for the group, especially in the current The group’s three-month average long-term funding ratio was environment. 27.0% for the fourth quarter of 2017, supported by growth in Nedbank Retail Savings Bonds of R5.7 billion to R24.9 billion The group’s three-month average long-term funding ratio was and the successful capital market issuances of R3.5 billion senior 27.0% for the fourth quarter of 2017, supported by growth in unsecured debt, R2.5 billion new-style tier 2 debt and R1.0 billion Nedbank Retail Savings Bonds of R5.7 billion to R24.9 billion in securitisation notes. and the successful capital market issuances of R3.5 billion senior unsecured debt, R2.5 billion new-style tier 2 debt and R1.0 billion The group's quarterly average LCR of 116.2% exceeded the in securitisation notes. minimum regulatory requirement of 80% in 2017 and 90% effective from 1 January 2018. The group maintains appropriate operational The group's quarterly average LCR of 116.2% exceeded the buffers designed to absorb seasonal and cyclical volatility in minimum regulatory requirement of 80% in 2017 and 90% effective the LCR. buffers designed to absorb seasonal and cyclical volatility in Further details on the LCR are available in the table section of the Securities Exchange News Service (SENS) announcement. the LCR. Further details on the LCR are available in the table section of the Nedbank’s portfolio of LCR-compliant HQLA increased by 0.6% Securities Exchange News Service (SENS) announcement. to a quarterly average of R138.2 billion. Notwithstanding the low growth in HQLA, the LCR still increased year-on-year as a result Nedbank’s portfolio of LCR-compliant HQLA increased by 0.6% of a decrease in LCR net cash outflows attributable to a positive to a quarterly average of R138.2 billion. Notwithstanding the low tilt in our deposit mix towards proportionally more Basel III-friendly growth in HQLA, the LCR still increased year-on-year as a result deposits in the form of RBB and Wealth deposits together with of a decrease in LCR net cash outflows attributable to a positive market share gains in commercial deposits. The HQLA portfolio, tilt in our deposit mix towards proportionally more Basel III-friendly taken together with our portfolio of other sources of quick-liquidity, deposits in the form of RBB and Wealth deposits together with resulted in total available sources of quick liquidity of R195.4 billion, market share gains in commercial deposits. The HQLA portfolio, representing 19.9% of total assets. taken together with our portfolio of other sources of quick-liquidity, resulted in total available sources of quick liquidity of R195.4 billion, Nedbank has maintained the NSFR at above 100% on a pro forma representing 19.9% of total assets. basis and is compliant with the minimum regulatory requirements that are effective from 1 January 2018. Nedbank has maintained the NSFR at above 100% on a pro forma basis and is compliant with the minimum regulatory requirements that are effective from 1 January 2018. Loans and advances Loans and advances increased by 0.5% to R710.3 billion, driven by solid growth in RBB offset by a decline in term and other loans Loans and advances in CIB. in CIB. Loans and advances increased by 0.5% to R710.3 billion, driven by solid growth in RBB offset by a decline in term and other loans RBB loans and advances grew 5.3% to R305.2 billion, with MFC (vehicle finance) increasing by 8.6% as new-business volumes improved despite the contracting vehicle sales market. RBB’s RBB loans and advances grew 5.3% to R305.2 billion, with MFC growth was achieved across all asset classes by increasing the (vehicle finance) increasing by 8.6% as new-business volumes contribution from lower-risk clients in line with risk appetite and improved despite the contracting vehicle sales market. RBB’s prudent origination strategies. We take comfort in the quality and growth was achieved across all asset classes by increasing the overall performance of the unsecured-lending portfolio based on contribution from lower-risk clients in line with risk appetite and the conservative rules we apply to consolidation, restructuring prudent origination strategies. We take comfort in the quality and and term strategies. Home loans grew at below-inflation levels, overall performance of the unsecured-lending portfolio based on but market share was maintained. the conservative rules we apply to consolidation, restructuring and term strategies. Home loans grew at below-inflation levels, CIB loans and advances decreased 3.8% to R356.0 billion due to but market share was maintained. a combination of unexpected early repayments and managed sell- downs, which allowed for the diversification of risk. Demand for CIB loans and advances decreased 3.8% to R356.0 billion due to new loans was weak as a result of muted client capital expenditure a combination of unexpected early repayments and managed sell- in a competitive market in the subdued economic climate. downs, which allowed for the diversification of risk. Demand for Commercial-mortgage loans and advances grew by 6.5% to new loans was weak as a result of muted client capital expenditure R161.6 billion, maintaining our leading share of the SA market. The in a competitive market in the subdued economic climate. portfolio contains good-quality collateralised assets with low LTVs, Commercial-mortgage loans and advances grew by 6.5% to underpinned by a large secure asset pool and a strong client base, R161.6 billion, maintaining our leading share of the SA market. The and is managed by a highly experienced property finance team. portfolio contains good-quality collateralised assets with low LTVs, Deposits and is managed by a highly experienced property finance team. Deposits grew 1.3% to R771.6 billion, with total funding-related liabilities increasing 1.2% to R823.2 billion, while the loan-to-deposit Deposits ratio improved to 92.1%. Deposits grew 1.3% to R771.6 billion, with total funding-related liabilities increasing 1.2% to R823.2 billion, while the loan-to-deposit Through the active management of the RBB franchise, deposits ratio improved to 92.1%. grew 8.5% to R295.3 billion, resulting in household deposits market share gains increasing year-on-year to 18.9% from 18.7%, Through the active management of the RBB franchise, deposits supported by Nedbank’s strong market share in household current grew 8.5% to R295.3 billion, resulting in household deposits market account deposits of 19.1%. Through the growth in current share gains increasing year-on-year to 18.9% from 18.7%, accounts, savings and fixed deposits and other structured deposits supported by Nedbank’s strong market share in household current Nedbank has successfully reduced the proportion of funding from account deposits of 19.1%. Through the growth in current negotiable certificates of deposit as well as more expensive foreign accounts, savings and fixed deposits and other structured deposits currency funding used in the general rand funding pool. Nedbank has successfully reduced the proportion of funding from negotiable certificates of deposit as well as more expensive foreign This positive tilt towards more Basel III-friendly deposits achieved currency funding used in the general rand funding pool. across RBB, Nedbank Wealth and RoA and through market share gains in commercial deposits has resulted in lower HQLA and long- This positive tilt towards more Basel III-friendly deposits achieved term funding requirements as well as a stronger LCR in terms of across RBB, Nedbank Wealth and RoA and through market share ensuring cost-effective regulatory compliance and a strong balance gains in commercial deposits has resulted in lower HQLA and long- term funding requirements as well as a stronger LCR in terms of ensuring cost-effective regulatory compliance and a strong balance sheet position. sheet position. from 1 January 2018. The group maintains appropriate operational underpinned by a large secure asset pool and a strong client base, Group strategic focus During 2017 we continued to focus on delivering on our five strategic focus areas designed to make Nedbank a more agile, competitive and digital bank, and underpin sustainable earnings growth and improving returns. Delivering innovative market-leading client experiences We launched various market-leading innovations such as the new Nedbank Private Wealth mobile app. This was one of the first products delivered through our Digital Fast Lane capability. It ranked joint sixth in the global Mobile Apps for Wealth Management 2017 survey and was placed third among 600 apps in the Best Enterprise Solution category at the MTN Business App of the Year Awards. The new Nedbank Money app, which makes banking more convenient for our retail clients, was downloaded more than 300,000 times since November 2017. We launched UNLOCKED.ME, an exclusive e-commerce marketplace for millennials. Karri, our mobile payment app that enables users to make cash- free payments for school activities quickly, securely and hassle- free, has been rolled out to more than 100 schools across the country. In Nedbank Wealth we piloted geyser telemetry, an innovative smart home solution that reduces electricity consumption. As far as our integrated channels are concerned, we have converted 55% of our outlets to new-image branches to date, and our investment in distribution channels over the next three years (until 2020) will result in 73% of our retail clients being exposed to the new-image branch format and self-service offerings. The introduction of chatbots and robo-advisors will continue to enhance client experiences through our contact centre and web- servicing capabilities. We launched NZone, our digital self-service branch at the Sandton Gautrain station, as well as Africa’s first solar-powered branch to enable banking in deep-rural communities. The foundations put in place through Managed Evolution (our core systems and technology platform transformation), digital enhancements and New Ways of Work will lead to ongoing incremental digital benefits and enhanced client service. In 2018 Nedbank will bring further exciting digital innovations to market to enhance client experiences and drive efficiencies. Some of these include a refreshed internet banking experience in line with our mobile banking apps, the ability to sell an unsecured loan bundled with a transactional account, simplified client on- boarding with convenient, FICA-compliant account opening from your couch, a new and exciting loyalty and rewards solution, and further rollout of chatbots, robo-advisors and software robots (robotic process automation). Growing our transactional banking franchise faster than the market Nedbank’s RBB franchise grew its total client base 1.6% to 7.5 million, with 6.0 million clients having a transactional account and 2.8 million main-banked clients supporting retail transactional NIR growth of 6.0%. Our main-banked client numbers remained flat as slower transactional activity caused some of our existing clients to fall outside our main-banked definition, particularly in the youth segment, while the middle-market, professional and small business client segments continued to increase. The newly launched Consulta survey estimates Nedbank’s share of main-banked clients at 12.7%, up from the 10.1% recorded through the 2015 AMPS survey (using a similar methodology) as we aim to reach a share of more than 15% by 2020. Our integrated model in CIB enabled deeper client penetration and increased cross-sell, resulting in 26 primary-bank client wins in 2017. Being operationally excellent in all we do Cost discipline is an imperative in an environment of slower revenue growth. We have ongoing initiatives to ensure this, such as having reduced our core systems from 251 to 129 since inception of the Managed Evolution programme, with us being well on our way to reaching a target end state of less than 60 core systems by 2020; and the reduction of floor space in RBB by more than 30,000 m² by 2020; of which 24,485 m² has been achieved to date. We worked with our sister companies in the Old Mutual Group to deliver synergies of just in excess of R1 billion, R393 million of which accrued to Nedbank. Good progress was also made with our target operating model (TOM) initiatives, which aim at generating R1.0 billion pre-tax benefits for Nedbank by 2019 (and R1.2 billion by 2020) and are linked to our long-term incentive scheme. Most cost initiatives have been identified in RBB and we delivered savings of R621 million in 2017, which includes TOM savings. During the year we reduced headcount by 859 (mostly through natural attrition), optimised our staffed points of presence by closing 32 in-retailer and 53 personal-loan outlets (while maintaining our coverage of the bankable population at 84%). We achieved efficiencies through the recycling of cash through our increased footprint of Intelligent Depositor devices. Four client-servicing functions, previously only accessible through branches, as well as the new Nedbank Money app were launched during the fourth quarter of 2017, while another 33 are planned for deployment across our digital channels by March 2018. We implemented 50 software robots (robotic process automation) to enhance efficiencies and reduce processing errors in administrative-intense processes, with more than 200 planned for rollout in 2018. Managing scarce resources to optimise economic outcomes We maintained our focus on growing activities that generate higher levels of EP, such as growing transactional deposits and increasing transactional banking revenues, with commission and fees in RBB up 5.3%, and achieved earnings growth of 6.9% in RBB and 5.0% in CIB. Our selective origination of personal loans, home loans and commercial-property finance has proactively limited downside risk in this challenging operating climate, enabling a CLR of 0.49%, below the bottom end of our TTC target range. At the same time our balance sheet metrics remain strong and we continue to deliver dividend growth above the rate of HEPS growth. CONFIDENTIAL CONFIDENTIAL 20 20 CONFIDENTIAL 43 21 S i t r a t e g c r e p o r t Old Mutual plc Annual Report and Accounts 2017Strategic report Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 The decrease in OML’s shareholding in Nedbank Group will be achieved through the unbundling of Nedbank Group ordinary shares to OML’s shareholders. This will result in OML, immediately The decrease in OML’s shareholding in Nedbank Group will be after the implementation of unbundling, holding a 19.9% strategic achieved through the unbundling of Nedbank Group ordinary minority shareholding in Nedbank Group. The unbundling will occur shares to OML’s shareholders. This will result in OML, immediately at an appropriate time and in an orderly manner, after the listing after the implementation of unbundling, holding a 19.9% strategic of OML and allowing suitable time for the transition of the OML minority shareholding in Nedbank Group. The unbundling will occur shareholder register to an investor base with an SA and emerging- at an appropriate time and in an orderly manner, after the listing market focus and mandate. After the unbundling, Nedbank Group of OML and allowing suitable time for the transition of the OML is likely to see an increase in the number of its shares held by shareholder register to an investor base with an SA and emerging- emerging-market-mandated index funds, which will adjust market focus and mandate. After the unbundling, Nedbank Group according to the improved free float (from about 45% before is likely to see an increase in the number of its shares held by unbundling to about 80% after unbundling) and a normalisation emerging-market-mandated index funds, which will adjust of SA institutional shareholding (some of which are currently according to the improved free float (from about 45% before underweight on a straight-market-capitalisation basis given some unbundling to about 80% after unbundling) and a normalisation Nedbank Group holding through the Old Mutual plc shareholding). of SA institutional shareholding (some of which are currently As part of this process Nedbank Group will continue to market itself underweight on a straight-market-capitalisation basis given some as an attractive investment for local and international investors. Nedbank Group holding through the Old Mutual plc shareholding). As part of this process Nedbank Group will continue to market itself Nedbank Group will continue business as usual and the managed as an attractive investment for local and international investors. separation will have no impact on our strategy, our day-to-day management or operations, our staff and our clients. Our Nedbank Group will continue business as usual and the managed engagements have been at arm’s length and overseen by separation will have no impact on our strategy, our day-to-day independent board structures. Old Mutual operates predominantly management or operations, our staff and our clients. Our in the investment, savings and insurance industry, which has little engagements have been at arm’s length and overseen by overlap with banking, even though we compete in the areas of independent board structures. Old Mutual operates predominantly wealth and asset management and personal loans. Our technology in the investment, savings and insurance industry, which has little systems, brands and businesses have not been integrated. overlap with banking, even though we compete in the areas of wealth and asset management and personal loans. Our technology As noted before, our collaboration with Old Mutual to unlock systems, brands and businesses have not been integrated. synergies by the end of 2017 was successful. Future synergies will continue to be underpinned by OML’s strategic shareholding As noted before, our collaboration with Old Mutual to unlock in Nedbank Group. We are fully committed to working with OML synergies by the end of 2017 was successful. Future synergies to deliver ongoing synergistic benefits at arm’s length. will continue to be underpinned by OML’s strategic shareholding in Nedbank Group. We are fully committed to working with OML to deliver ongoing synergistic benefits at arm’s length. Nedbank review continued Nedbank review continued Providing our clients with access to the best financial services network in Africa In Central and West Africa ETI remains an important strategic Providing our clients with access to the best investment for Nedbank, providing our clients with access to financial services network in Africa a pan-African transactional banking network across 39 countries In Central and West Africa ETI remains an important strategic and Nedbank with access to dealflow in Central and West Africa. investment for Nedbank, providing our clients with access to We have made good progress in working with ETI’s board and a pan-African transactional banking network across 39 countries other institutional shareholders to strengthen its board and and Nedbank with access to dealflow in Central and West Africa. management. We have increased our board representation and We have made good progress in working with ETI’s board and our involvement in the group as Brian Kennedy joined Mfundo other institutional shareholders to strengthen its board and Nkuhlu on ETI’s board. Mfundo was appointed Chair of the ETI management. We have increased our board representation and Risk Committee and Brian was appointed to the Remuneration our involvement in the group as Brian Kennedy joined Mfundo and Audit Committees. Risk management practices are being Nkuhlu on ETI’s board. Mfundo was appointed Chair of the ETI enhanced and the audit of ETI’s 2017 interim results provides Risk Committee and Brian was appointed to the Remuneration comfort that the risk of another fourth-quarter loss as in 2015 and and Audit Committees. Risk management practices are being 2016 has decreased. We are pleased that ETI reported a profit for enhanced and the audit of ETI’s 2017 interim results provides the nine months to 30 September 2017. We remain supportive comfort that the risk of another fourth-quarter loss as in 2015 and of ETI’s endeavours to deliver an ROE in excess of its COE over 2016 has decreased. We are pleased that ETI reported a profit for time. While risk remains, economic conditions in Nigeria and other the nine months to 30 September 2017. We remain supportive economies in West Africa are improving and ETI should provide of ETI’s endeavours to deliver an ROE in excess of its COE over a strong underpin to Nedbank Group’s earnings growth in 2018. time. While risk remains, economic conditions in Nigeria and other economies in West Africa are improving and ETI should provide In SADC we continue to build scale and optimise costs. Our core a strong underpin to Nedbank Group’s earnings growth in 2018. banking system, Flexcube, which was successfully rolled out in Namibia in 2016, was also implemented in Lesotho, Malawi and In SADC we continue to build scale and optimise costs. Our core Swaziland in 2017 and we plan to roll it out in Zimbabwe during banking system, Flexcube, which was successfully rolled out in 2018. We also launched a number of new digital products and Namibia in 2016, was also implemented in Lesotho, Malawi and we continue to grow our distribution footprint. As a result, clients Swaziland in 2017 and we plan to roll it out in Zimbabwe during increased 14% and online digital activations were up 22%. The 2018. We also launched a number of new digital products and acquisition of a majority stake in Banco Único in 2016 continued we continue to grow our distribution footprint. As a result, clients to deliver value and positioned Nedbank well to leverage off higher increased 14% and online digital activations were up 22%. The levels of economic growth in Mozambique. In 2018 we will rebrand acquisition of a majority stake in Banco Único in 2016 continued MBCA in Zimbabwe to Nedbank while completing the last of our to deliver value and positioned Nedbank well to leverage off higher core banking system implementations in our subsidiaries. levels of economic growth in Mozambique. In 2018 we will rebrand MBCA in Zimbabwe to Nedbank while completing the last of our Old Mutual plc managed separation core banking system implementations in our subsidiaries. On 1 November 2017 Old Mutual plc announced that the strategic minority shareholding to be retained in Nedbank Group Old Mutual plc managed separation by Old Mutual Limited (OML) to underpin the ongoing commercial On 1 November 2017 Old Mutual plc announced that the relationship between the companies has been agreed at 19.9% strategic minority shareholding to be retained in Nedbank Group of the total Nedbank Group ordinary shares in issue, as held by Old Mutual Limited (OML) to underpin the ongoing commercial by shareholder funds. This followed the 11 March 2016 relationship between the companies has been agreed at 19.9% announcement by Old Mutual plc about the Old Mutual managed of the total Nedbank Group ordinary shares in issue, as held separation, and the subsequent communication on 25 May 2017 by shareholder funds. This followed the 11 March 2016 in which Old Mutual plc stated that the new SA holding company, announcement by Old Mutual plc about the Old Mutual managed to be named OML, would retain a strategic minority shareholding separation, and the subsequent communication on 25 May 2017 in Nedbank Group after the implementation of the managed in which Old Mutual plc stated that the new SA holding company, separation. The 19.9% shareholding will be held by OML, which to be named OML, would retain a strategic minority shareholding will have a primary listing on JSE Limited and a secondary listing in Nedbank Group after the implementation of the managed on the London Stock Exchange. OML will be listed at the earliest separation. The 19.9% shareholding will be held by OML, which opportunity in 2018, following the publication of Old Mutual plc’s will have a primary listing on JSE Limited and a secondary listing 2017 full-year results. on the London Stock Exchange. OML will be listed at the earliest opportunity in 2018, following the publication of Old Mutual plc’s 2017 full-year results. CONFIDENTIAL 44 22 CONFIDENTIAL 22 Old Mutual plc Annual Report and Accounts 2017S i t r a t e g c r e p o r t Old Mutual plc Annual Report and Accounts 2017 Prospects Our guidance on financial performance for the full year 2018 is currently as follows:  Average interest-earning banking assets to grow in line with nominal GDP.  NIM to be slightly above the 2017 level of 3.62%.  CLR to increase into the bottom half of our target range of 60 to 100 bps (under IFRS 9).  NIR to grow above mid-single digits.  Associate income to be positive (ETI associate income reported quarterly in arrear).  Expenses to increase by mid-single digits. Given the loss in associate income from ETI in the 2017 base and continued delivery on the Nedbank strategy, our financial guidance is for growth in DHEPS for the full 2018 year to be in line with our medium-to-long-term target of greater than or equal to GDP + the consumer price index + 5%. The outlook for our medium-to-long-term targets in 2018 is as follows, and we have now set ourselves specific 2020 targets of ROE (excluding goodwill) of greater than or equal to 18% and cost to income of lower than or equal to 53% as a pathway to ongoing and sustainable improvements in the key metrics that support shareholder value creation. Economic and regulatory outlook While structural challenges remain, 2018 has started with renewed optimism that these will be addressed and that improving business and consumer confidence should lead to a cyclical upturn off a low base. The SA economy is forecast to grow about 1.6% in 2018 as a resilient world economy and relatively firm international commodity prices are expected to provide further support to domestic production and exports. Business and consumer confidence should also improve from very weak levels in 2017, boosted by newly elected SA President Ramaphosa’s promises to restore good governance, take immediate action against corruption and state capture, and make changes to many cabinet portfolios. Moderate growth in consumer spending and credit are forecast for 2018, while fixed investment, as well as government consumption and capital expenditure, is forecast to remain subdued. The recovery in sub-Saharan Africa is expected to gather pace in 2018, underpinned by the ongoing global commodity price upswing as well as improved government finances and structural reforms in some African countries. The International Monetary Fund expects sub-Saharan Africa to grow faster at 3.4% this year. Domestic inflation is forecast to recede moderately in the early part of 2018, before edging higher towards the end of the year, averaging about 5.1% over the year as a whole. Early in the year a stronger rand, coupled with easing food and fuel prices, should help contain inflation off the higher base that prevailed at the start of 2017. The rand remains the key risk to the inflation outlook. High expectations of political, policy and fiscal reforms have been built into the rand’s recent rally. If the new ANC leadership fails to deliver, especially on the fiscal concerns, SA still runs the risk of being downgraded to universal sub-investment grade status, which could place the rand under pressure and alter the inflation outlook for the year. Given these uncertainties, the anticipated rise in US interest rates, the gradual tapering of quantitative easing programmes by other major central banks and the expected upturn in the domestic inflation cycle towards year-end, the SARB’s Monetary Policy Committee is forecast to keep interest rates unchanged at current levels throughout 2018 and into 2019. Fitch indicated that a failure to implement credible fiscal consolidation and any further economic deterioration could trigger another rating downgrade. S&P will act if both the economy and standards of public governance weaken further, while Moody’s will downgrade the country if the measures to address the fiscal funding gap lack credibility or the chosen structural reforms fail to encourage investment and growth. Overall economic conditions should improve off a low base and, despite the many challenges faced by the SA economy, the SA banking system remains sound, liquid and well capitalised. CONFIDENTIAL 45 23 Old Mutual plc Annual Report and Accounts 2017Strategic report Nedbank review continued Nedbank review continued Cluster performance CIB Cluster performance RBB Wealth CIB RoA subsidiaries RBB Centre Wealth Nedbank managed operations RoA subsidiaries ETI Centre Group Nedbank managed operations ETI Group Credit loss ratio by cluster (%) CIB RBB Credit loss ratio by cluster (%) Wealth CIB RoA RBB Group Wealth RoA Group Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Change 5% Change 7% (10%) 5% 90% 7% 79% (10%) 8% 90% (> 100%) 79% 3% 8% (> 100%) 3% % banking adv ances 47% % banking 46% adv ances 4% 47% 3% 46% 100% 4% 3% 100% Headline earnings (Rm) ROE (excluding goodwill) ROE (excluding goodwill) 2017 Headline 6,315 earnings (Rm) 5,302 2017 1,068 6,315 165 5,302 (88) 1,068 12,762 165 (975) (88) 11,787 12,762 (975) 11,787 2016 6,014 4,960 2016 1,192 6,014 87 4,960 (414) 1,192 11,839 87 (374) (414) 11,465 11,839 (374) 11,465 2017 0.06% 1.06% 2017 0.09% 0.06% 1.02% 1.06% 0.49% 0.09% 1.02% 0.49% 2016 0.34% 1.12% 2016 0.08% 0.34% 0.98% 1.12% 0.68% 0.08% 0.98% 0.68% 2016 21.1% 18.9% 2016 35.2% 21.1% 2.1% 18.9% 35.2% 18.0% 2.1% 2017 20.7% 19.1% 2017 27.5% 20.7% 3.3% 19.1% 27.5% 18.1% 3.3% 16.4% 16.4% 18.1% 16.5% 18.0% 16.5% Through-the-cycle target ranges 0.15%–0.45% Through-the-cycle 1.30%–1.80% target ranges 0.20%–0.40% 0.15%–0.45% 0.65%–1.00% 1.30%–1.80% 0.60%–1.00% 0.20%–0.40% 0.65%–1.00% 0.60%–1.00% Regulatory minimum1 7.25% Regulatory 8.75% minimum1 10.75% 7.25% 8.75% 10.75% Basel III (%) CET1 ratio Tier 1 ratio Basel III (%) Total capital ratio CET1 ratio Tier 1 ratio (Ratios calculated include unappropriated profits.) Total capital ratio 1 The Basel III regulatory requirements are being phased in between 2013 and 2019, and exclude any idiosyncratic or systemically important bank minimum requirements. (Ratios calculated include unappropriated profits.) Internal target range 10.5%–12.5% > 12.0% Internal target range > 14.0% 10.5%–12.5% > 12.0% > 14.0% 2017 12.6% 13.4% 2017 15.5% 12.6% 13.4% 15.5% 2016 12.1% 13.0% 2016 15.3% 12.1% 13.0% 15.3% Nedbank Group LCR 1 The Basel III regulatory requirements are being phased in between 2013 and 2019, and exclude any idiosyncratic or systemically important bank minimum requirements. HQLA (Rm) Net cash outflows (Rm) Nedbank Group LCR Liquidity coverage ratio (%)2 HQLA (Rm) Regulatory minimum (%) Net cash outflows (Rm) Liquidity coverage ratio (%)2 2 Average for the quarter. Regulatory minimum (%) 2017 138,180 118,956 2017 116.2% 138,180 80.0% 118,956 116.2% 80.0% 2016 137,350 125,692 2016 109.3% 137,350 70.0% 125,692 109.3% 70.0% 2 Average for the quarter. Loans and Advances (Rm) CIB Banking activities Loans and Advances (Rm) Trading activities CIB RBB Banking activities Wealth Trading activities RoA RBB Centre3 Wealth Group RoA Centre3 3 Intercompany eliminations. Group 3 Intercompany eliminations. Change (%) (4%) Change (3%) (%) (11%) (4%) 5% (3%) 3% (11%) 5% 5% 27% 3% 0% 5% 27% 0% 2017 356,029 324,673 2017 31,356 356,029 305,198 324,673 29,413 31,356 20,541 305,198 (852) 29,413 710,329 20,541 (852) 710,329 2016 370,199 335,113 2016 35,086 370,199 289,882 335,113 28,577 35,086 19,582 289,882 (1,163) 28,577 707,077 19,582 (1,163) 707,077 CONFIDENTIAL 24 CONFIDENTIAL 46 24 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 S i t r a t e g c r e p o r t Metric 2017 performance ROE (excluding goodwill) Growth in DHEPS CLR NIR-to-expenses ratio Efficiency ratio (including associate income) CET1 capital adequacy ratio (Basel III) Economic capital Dividend cover 4 The COE is forecast at 13.2% in 2018. 16.4% 2.4% 0.49% 80.7% 58.6% 12.6% Full-year 2018 outlook Improves, but remains below target ≥ consumer price index + GDP growth + 5%, supported by ETI recovery Increases into the bottom half of our target range (under IFRS 9) Improves, but remains below target Improves, but remains above target Within or above target Medium-to-long-term target 5% above COE4 (≥ 18% by 2020) > consumer price index + GDP growth + 5% Between 0.6% and 1.0% of average banking advances > 85% 50–53% (≤ 53% by 2020) 10.5–12.5% Internal Capital Adequacy Assessment Process (ICAAP): A debt rating, including 10% capital buffer 1.91 times Within target range 1.75–2.25 times Reconciliation of AOP (pre-tax) to Nedbank's headline earnings Headline earnings5 Exceptional items Amortisation of Wealth Joint Ventures Credit spread (profits) / loss Non-capital trading items Tax as reported by Nedbank Non-controlling interests as reported by Nedbank Adjusted operating profit per Old Mutual (Rm) Analysis by cluster Corporate & Investment Banking Retail & Business Banking Wealth Rest of Africa Centre Adjusted operating profit (Rm) Analysis by line of business Banking Asset management Life & Savings Property & Casualty Adjusted operating profit (Rm) Adjusted operating profit (£m) 5 As reported by Nedbank. 2017 11,787 (73) 86 – (166) 4,209 679 16,522 7,963 7,330 1,417 (683) 495 16,522 15,361 425 485 251 16,522 2016 11,465 2 74 – (128) 3,986 526 15,925 7,763 6,903 1,614 (281) (74) 15,925 14,587 395 567 376 15,925 963 799 Change % 3% (3,750%) 16% – (30%) 6% 29% 4% 3% 6% (12%) (143%) 769% 4% 5% 8% (14%) (33%) 4% 21% CONFIDENTIAL 25 47 Old Mutual plc Annual Report and Accounts 2017Strategic report Old Mutual plc Old Mutual plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Old Mutual Wealth review Old Mutual Wealth review Old Mutual Wealth review Strong results, good progress and ready to list Strong results, good progress and ready to list “I am delighted with our business performance in 2017. The “I am delighted with our business performance in 2017. The Strong results, good progress and ready to list continuation of sustained strong investment performance and continuation of sustained strong investment performance and “I am delighted with our business performance in 2017. The buoyant market conditions is delivering good customer outcomes. buoyant market conditions is delivering good customer outcomes. continuation of sustained strong investment performance and We have attracted very high levels of net flows, and our business We have attracted very high levels of net flows, and our business buoyant market conditions is delivering good customer outcomes. model is proving a huge success in providing what customers model is proving a huge success in providing what customers We have attracted very high levels of net flows, and our business want. I’m particularly pleased that we have been able to maintain want. I’m particularly pleased that we have been able to maintain model is proving a huge success in providing what customers profitability and achieve a 29% operating margin for 2017 for profitability and achieve a 29% operating margin for 2017 for want. I’m particularly pleased that we have been able to maintain the go-forward business, while still investing significantly in the the go-forward business, while still investing significantly in the profitability and achieve a 29% operating margin for 2017 for business. All of this makes me confident of our future prospects business. All of this makes me confident of our future prospects the go-forward business, while still investing significantly in the and growth, with further opportunities to come from the optimisation and growth, with further opportunities to come from the optimisation business. All of this makes me confident of our future prospects initiatives which we intend to pursue post-listing. initiatives which we intend to pursue post-listing. and growth, with further opportunities to come from the optimisation initiatives which we intend to pursue post-listing. “During the year, we have implemented a number of important “During the year, we have implemented a number of important strategic developments towards achieving our goal of becoming the strategic developments towards achieving our goal of becoming the “During the year, we have implemented a number of important UK’s leading wealth manager. We agreed terms for the sale of the UK’s leading wealth manager. We agreed terms for the sale of the strategic developments towards achieving our goal of becoming the Single Strategy business, which simplifies our business and allows Single Strategy business, which simplifies our business and allows UK’s leading wealth manager. We agreed terms for the sale of the us to focus more on our integrated wealth management offering us to focus more on our integrated wealth management offering Single Strategy business, which simplifies our business and allows which is serving customers so well. We have further grown our which is serving customers so well. We have further grown our us to focus more on our integrated wealth management offering distribution capabilities through the acquisition of Caerus. A key distribution capabilities through the acquisition of Caerus. A key which is serving customers so well. We have further grown our project for us, and one which will significantly enhance our offering project for us, and one which will significantly enhance our offering distribution capabilities through the acquisition of Caerus. A key to advisers and their customers, is our UK Platform Transformation to advisers and their customers, is our UK Platform Transformation project for us, and one which will significantly enhance our offering Programme and I am very pleased that this remains on track and Programme and I am very pleased that this remains on track and to advisers and their customers, is our UK Platform Transformation on budget. on budget. Programme and I am very pleased that this remains on track and on budget. “Following comprehensive product reviews of our legacy business, “Following comprehensive product reviews of our legacy business, we are starting voluntary remediation to customers in certain legacy we are starting voluntary remediation to customers in certain legacy “Following comprehensive product reviews of our legacy business, products within the Heritage book. Our core business philosophy products within the Heritage book. Our core business philosophy we are starting voluntary remediation to customers in certain legacy is to do the right thing by our customers, and this product review is to do the right thing by our customers, and this product review products within the Heritage book. Our core business philosophy is part of putting this into action. is part of putting this into action. is to do the right thing by our customers, and this product review is part of putting this into action. “We have a strong balance sheet, a strong capital and liquidity “We have a strong balance sheet, a strong capital and liquidity position and we are financially independent from Old Mutual plc. position and we are financially independent from Old Mutual plc. “We have a strong balance sheet, a strong capital and liquidity We have completed our separation activities and we are ready We have completed our separation activities and we are ready position and we are financially independent from Old Mutual plc. to list as Quilter plc. We expect to publish a Quilter Prospectus to list as Quilter plc. We expect to publish a Quilter Prospectus We have completed our separation activities and we are ready in connection with that listing. This will provide shareholders, in connection with that listing. This will provide shareholders, to list as Quilter plc. We expect to publish a Quilter Prospectus who will become Quilter shareholders at the time separation who will become Quilter shareholders at the time separation in connection with that listing. This will provide shareholders, completes, with a more detailed overview of the Quilter business completes, with a more detailed overview of the Quilter business who will become Quilter shareholders at the time separation and its performance over the last three years. It will also set out and its performance over the last three years. It will also set out completes, with a more detailed overview of the Quilter business what we believe is an attractive investment case for Quilter as what we believe is an attractive investment case for Quilter as and its performance over the last three years. It will also set out a standalone business, and, of course, explain the key risks a standalone business, and, of course, explain the key risks what we believe is an attractive investment case for Quilter as associated with our business. I would urge you to read that associated with our business. I would urge you to read that a standalone business, and, of course, explain the key risks document when it is published. document when it is published. associated with our business. I would urge you to read that document when it is published. “2017 was a proving year for our business. 2018 will be a defining “2017 was a proving year for our business. 2018 will be a defining one and we are excited about the opportunities ahead.” one and we are excited about the opportunities ahead.” “2017 was a proving year for our business. 2018 will be a defining one and we are excited about the opportunities ahead.” Paul Feeney Paul Feeney Paul Feeney CEO, Old Mutual Wealth CEO, Old Mutual Wealth Paul Feeney CEO, Old Mutual Wealth CEO, Old Mutual Wealth During the year, we have During the year, we have implemented a number of implemented a number of During the year, we have important strategic developments important strategic developments implemented a number of towards achieving our goal of towards achieving our goal of important strategic developments becoming the UK’s leading becoming the UK’s leading towards achieving our goal of wealth manager. wealth manager. becoming the UK’s leading wealth manager. Paul Feeney Paul Feeney CEO, Old Mutual Wealth CEO, Old Mutual Wealth Paul Feeney CEO, Old Mutual Wealth 48 16 16 16 Old Mutual plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 Old Mutual plc Old Mutual plc Annual Report and Accounts 2017 Old Mutual Wealth review Old Mutual Wealth review Strong results, good progress and ready to list “I am delighted with our business performance in 2017. The Strong results, good progress and ready to list continuation of sustained strong investment performance and “I am delighted with our business performance in 2017. The buoyant market conditions is delivering good customer outcomes. continuation of sustained strong investment performance and We have attracted very high levels of net flows, and our business buoyant market conditions is delivering good customer outcomes. model is proving a huge success in providing what customers We have attracted very high levels of net flows, and our business want. I’m particularly pleased that we have been able to maintain model is proving a huge success in providing what customers profitability and achieve a 29% operating margin for 2017 for want. I’m particularly pleased that we have been able to maintain the go-forward business, while still investing significantly in the profitability and achieve a 29% operating margin for 2017 for business. All of this makes me confident of our future prospects the go-forward business, while still investing significantly in the and growth, with further opportunities to come from the optimisation business. All of this makes me confident of our future prospects initiatives which we intend to pursue post-listing. and growth, with further opportunities to come from the optimisation initiatives which we intend to pursue post-listing. “During the year, we have implemented a number of important strategic developments towards achieving our goal of becoming the “During the year, we have implemented a number of important UK’s leading wealth manager. We agreed terms for the sale of the strategic developments towards achieving our goal of becoming the Single Strategy business, which simplifies our business and allows UK’s leading wealth manager. We agreed terms for the sale of the us to focus more on our integrated wealth management offering Single Strategy business, which simplifies our business and allows which is serving customers so well. We have further grown our us to focus more on our integrated wealth management offering distribution capabilities through the acquisition of Caerus. A key which is serving customers so well. We have further grown our project for us, and one which will significantly enhance our offering distribution capabilities through the acquisition of Caerus. A key to advisers and their customers, is our UK Platform Transformation project for us, and one which will significantly enhance our offering Programme and I am very pleased that this remains on track and to advisers and their customers, is our UK Platform Transformation on budget. Programme and I am very pleased that this remains on track and on budget. “Following comprehensive product reviews of our legacy business, we are starting voluntary remediation to customers in certain legacy “Following comprehensive product reviews of our legacy business, products within the Heritage book. Our core business philosophy we are starting voluntary remediation to customers in certain legacy is to do the right thing by our customers, and this product review products within the Heritage book. Our core business philosophy is part of putting this into action. is to do the right thing by our customers, and this product review is part of putting this into action. “We have a strong balance sheet, a strong capital and liquidity position and we are financially independent from Old Mutual plc. “We have a strong balance sheet, a strong capital and liquidity We have completed our separation activities and we are ready position and we are financially independent from Old Mutual plc. to list as Quilter plc. We expect to publish a Quilter Prospectus We have completed our separation activities and we are ready in connection with that listing. This will provide shareholders, to list as Quilter plc. We expect to publish a Quilter Prospectus who will become Quilter shareholders at the time separation in connection with that listing. This will provide shareholders, completes, with a more detailed overview of the Quilter business who will become Quilter shareholders at the time separation and its performance over the last three years. It will also set out completes, with a more detailed overview of the Quilter business what we believe is an attractive investment case for Quilter as and its performance over the last three years. It will also set out a standalone business, and, of course, explain the key risks what we believe is an attractive investment case for Quilter as associated with our business. I would urge you to read that a standalone business, and, of course, explain the key risks document when it is published. associated with our business. I would urge you to read that document when it is published. “2017 was a proving year for our business. 2018 will be a defining one and we are excited about the opportunities ahead.” “2017 was a proving year for our business. 2018 will be a defining one and we are excited about the opportunities ahead.” Paul Feeney CEO, Old Mutual Wealth Paul Feeney CEO, Old Mutual Wealth During the year, we have implemented a number of During the year, we have important strategic developments implemented a number of towards achieving our goal of important strategic developments becoming the UK’s leading towards achieving our goal of becoming the UK’s leading wealth manager. wealth manager. Paul Feeney CEO, Old Mutual Wealth Paul Feeney CEO, Old Mutual Wealth Old Mutual plc Annual Report and Accounts 2017 Old Mutual Wealth highlights on a reported basis IFRS profit/(loss) after tax attributable to equity holders of the parent (£m) Reported AOP (pre-tax, £m)1,2 NCCF (£bn) NCCF, excl. Heritage (£bn) NCCF/Opening AuMA (excl. Heritage)5 AuMA (£bn) Pre-tax operating margin3 Revenue margin (bps)4 RoE 2017 99 363 10.9 12.2 12% 138.5 36% 60 19% 2016 % change 40% 110% 114% 12% (4) 260 5.2 5.7 6% 123.5 32% 64 13% 1 Reported AOP includes Single Strategy of £152m in 2017 (2016: £60m), of which performance fees were £101m (2016: £26m). From 2017, the SA branches are reported within Old Mutual Emerging Markets and the 2016 profit of the SA branches was £8m 2 In 2016, Head Office costs were allocated to the business. In 2017, these are shown separately and exclude the one-off costs incurred to prepare the business for separation from Old Mutual plc 3 Includes performance fees, all of which arise in Single Strategy 4 This includes the results of Single Strategy but excludes performance fees 5 NCCF as a % of opening AuMA excludes Italy and SA branches for 2016 and 2017. For the purposes of this report, references to Old Mutual Wealth refer to the reported results above, which include Single Strategy. References to Quilter, including those in the table below, refer to the future standalone business, excluding Single Strategy. Quilter highlights on a standalone basis Operating profit as a standalone business (pre-tax, £m)1 Normalised operating profit (pre-tax, £m)1 NCCF (£bn) NCCF, excl. Heritage (£bn) NCCF/Opening AuMA (excl. Heritage)2 AuMA (£bn) Pre-tax operating margin Revenue margin (bps) Integrated flows (£bn) 2017 209 209 6.3 7.6 9% 114.4 29% 56 4.8 2016 % change 18% 177 − 208 91% 3.3 81% 4.2 6% 98.2 32% 59 1.8 167% 16% 1 A detailed reconciliation of Reported AOP to operating profit as a standalone business to normalised profit can be found within the Performance highlights section 2 NCCF as a % of opening AuMA excludes Italy and SA branches for 2016 and 2017. 2018 will be a defining year for our business and we are excited about the opportunities ahead. Paul Feeney CEO, Old Mutual Wealth Strategy Our vision is to be the UK’s leading wealth manager. We are a purpose-built, full service wealth manager delivering good customer outcomes. We have leading positions in one of the world’s largest wealth markets, and our multi-channel proposition and investment performance are driving integrated flows and long term customer relationships. Together this has delivered attractive top-line growth and there is the opportunity for improved operating leverage following our intended listing as Quilter plc. In 2017, alongside sustained strong investment performance, we have attracted very high levels of net flows, and our business model is proving a huge success in providing what customers want. This has enabled us to maintain our profitability while still investing in the business ahead of listing, and we achieved a 29% operating margin for 2017 for the go-forward business. We have further grown our distribution capabilities through the acquisition of Caerus, and we remain on track and on budget with our UK Platform Transformation Programme. We have a strong balance sheet, strong capital and liquidity positions and we are financially independent from Old Mutual plc. We have also now completed our separation activities and we believe that we are ready to list. 16 16 49 17 S i t r a t e g c r e p o r t Old Mutual plc Annual Report and Accounts 2017Strategic report Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Old Mutual Wealth review continued Old Mutual Wealth review continued Business developments On 2 September 2017, Old Mutual Wealth announced that it would develop the Multi-Asset and Single Strategy businesses within Business developments Old Mutual Global Investors as separate, distinct businesses. On 2 September 2017, Old Mutual Wealth announced that it would On 19 December 2017, we announced that we had agreed to sell develop the Multi-Asset and Single Strategy businesses within our Single Strategy asset management business (‘Single Strategy’) Old Mutual Global Investors as separate, distinct businesses. to the Single Strategy management team and funds managed On 19 December 2017, we announced that we had agreed to sell by TA Associates (together ‘the Acquirer’) for an expected total our Single Strategy asset management business (‘Single Strategy’) consideration of c.£600 million. This value is subject to a number to the Single Strategy management team and funds managed of potential price adjustments depending on the net asset value by TA Associates (together ‘the Acquirer’) for an expected total of the business and a number of other factors at the disposal date. consideration of c.£600 million. This value is subject to a number Once the transaction completes, economic ownership of Single of potential price adjustments depending on the net asset value Strategy will pass to the Acquirer effective from 1 January 2018 of the business and a number of other factors at the disposal date. with all profits and performance fees generated up until Once the transaction completes, economic ownership of Single 31 December 2017 for the account of Old Mutual Wealth. Strategy will pass to the Acquirer effective from 1 January 2018 with all profits and performance fees generated up until For the purposes of this report, references to Old Mutual Wealth 31 December 2017 for the account of Old Mutual Wealth. refer to the reported results, which include Single Strategy. References to Quilter refer to the future standalone business, For the purposes of this report, references to Old Mutual Wealth excluding Single Strategy. refer to the reported results, which include Single Strategy. References to Quilter refer to the future standalone business, Completion of the transaction is subject to various regulatory excluding Single Strategy. approvals (UK FCA, Hong Kong and Switzerland) and it is anticipated that completion will take place in the second half of Completion of the transaction is subject to various regulatory 2018. In addition to regulatory approvals, there are additional approvals (UK FCA, Hong Kong and Switzerland) and it is conditions precedent to the completion of the transaction. The anticipated that completion will take place in the second half of conditions to completion of the transaction include certain steps 2018. In addition to regulatory approvals, there are additional to separate the retained Multi-Asset business. These steps include conditions precedent to the completion of the transaction. The the reorganisation of the management of certain funds and the conditions to completion of the transaction include certain steps transfer of certain assets that form part of the Multi-Asset business to separate the retained Multi-Asset business. These steps include into new funds separate from Single Strategy. The completion of the reorganisation of the management of certain funds and the these steps depends, in part, upon regulatory approvals and on transfer of certain assets that form part of the Multi-Asset business the speed with which certain third party suppliers are able to take into new funds separate from Single Strategy. The completion of actions required to establish these funds and implement these these steps depends, in part, upon regulatory approvals and on transfers. Upon completion, Transitional Service Agreements the speed with which certain third party suppliers are able to take between the Single Strategy and Multi-Asset businesses will be actions required to establish these funds and implement these in place. This will allow for the respective provision of services transfers. Upon completion, Transitional Service Agreements between the two businesses for a period of up to three years between the Single Strategy and Multi-Asset businesses will be on a cost basis. in place. This will allow for the respective provision of services between the two businesses for a period of up to three years As previously announced, on listing, we intend to have two operating on a cost basis. segments: Advice and Wealth Management, and Wealth Platforms. The Advice and Wealth Management segment will include Intrinsic, As previously announced, on listing, we intend to have two operating which we intend to rebrand to Quilter Financial Planning; the multi- segments: Advice and Wealth Management, and Wealth Platforms. asset solutions business (‘Multi-Asset’), which will become Quilter The Advice and Wealth Management segment will include Intrinsic, Investors; and, Quilter Cheviot. The Wealth Platforms segment which we intend to rebrand to Quilter Financial Planning; the multi- will include the UK Platform business, which will become Quilter asset solutions business (‘Multi-Asset’), which will become Quilter Wealth Solutions; our International business, which will become Investors; and, Quilter Cheviot. The Wealth Platforms segment Quilter International; and, our Heritage life assurance business, will include the UK Platform business, which will become Quilter which will become Quilter Life Assurance. Wealth Solutions; our International business, which will become Quilter International; and, our Heritage life assurance business, which will become Quilter Life Assurance. On 9 January 2017, we completed the sale of Old Mutual Wealth Italy to Phlavia Investimenti. The results for Old Mutual Wealth Italy have been excluded from the 2017 results. On 9 January 2017, we completed the sale of Old Mutual Wealth Italy to Phlavia Investimenti. The results for Old Mutual Wealth Italy Caerus Capital Group was acquired on 1 June 2017. Throughout have been excluded from the 2017 results. 2017, we have continued to acquire advice businesses within Old Mutual Wealth Private Client Advisers, creating ‘hubs’ around Caerus Capital Group was acquired on 1 June 2017. Throughout the UK, by careful targeting and acquiring advice businesses that 2017, we have continued to acquire advice businesses within match our target customer profiles and Quilter Cheviot’s Old Mutual Wealth Private Client Advisers, creating ‘hubs’ around geographical footprint, where appropriate. the UK, by careful targeting and acquiring advice businesses that match our target customer profiles and Quilter Cheviot’s On 15 November 2017, we announced that we were closing geographical footprint, where appropriate. our Institutional life business within Heritage to new business. This had AuMA of £4.9 billion at 31 December 2017. It is not On 15 November 2017, we announced that we were closing core to our strategy and it is very low margin business. our Institutional life business within Heritage to new business. This had AuMA of £4.9 billion at 31 December 2017. It is not Performance highlights core to our strategy and it is very low margin business. Net client cash flow (NCCF) NCCF performance for Old Mutual Wealth was strong at £10.9 Performance highlights billion, up 110% on prior year (2016: £5.2 billion) driven by buoyant Net client cash flow (NCCF) market conditions and robust investor confidence. This was 12% NCCF performance for Old Mutual Wealth was strong at £10.9 of opening AuMA, excluding the Heritage assets (which includes billion, up 110% on prior year (2016: £5.2 billion) driven by buoyant the Institutional life business), demonstrating very strong growth, market conditions and robust investor confidence. This was 12% and well ahead of our annualised target growth of 5% over the of opening AuMA, excluding the Heritage assets (which includes medium term. the Institutional life business), demonstrating very strong growth, and well ahead of our annualised target growth of 5% over the Within this, Quilter NCCF was also strong, increasing 91% to medium term. £6.3 billion (2016: £3.3 billion). Excluding the Heritage assets, Quilter NCCF was £7.6 billion and, on this basis, was 9% of Within this, Quilter NCCF was also strong, increasing 91% to opening AuMA. £6.3 billion (2016: £3.3 billion). Excluding the Heritage assets, Quilter NCCF was £7.6 billion and, on this basis, was 9% of The Advice and Wealth Management segment contributed total opening AuMA. NCCF before intra-group eliminations of £4.4 billion (2016: £1.6 billion). Our Multi-Asset business, which is a core part of our The Advice and Wealth Management segment contributed total ongoing proposition and wealth management strategy, received NCCF before intra-group eliminations of £4.4 billion (2016: £1.6 £3.3 billion (2016: £0.8 billion) of these net flows in 2017 driven billion). Our Multi-Asset business, which is a core part of our by robust flows into the Cirilium and WealthSelect fund ranges. ongoing proposition and wealth management strategy, received £3.3 billion (2016: £0.8 billion) of these net flows in 2017 driven NCCF for the Wealth Platforms segment of £4.3 billion was up 95% by robust flows into the Cirilium and WealthSelect fund ranges. from 2016 (£2.2 billion). UK Platform net flows were £4.5 billion, up 61% on 2016 due to strong flows into pension propositions as NCCF for the Wealth Platforms segment of £4.3 billion was up 95% customers continue to consolidate existing pensions. As a result, from 2016 (£2.2 billion). UK Platform net flows were £4.5 billion, sales into the pension propositions accounted for 61% of total UK up 61% on 2016 due to strong flows into pension propositions as Platform sales. Transfers by customers from their defined benefit customers continue to consolidate existing pensions. As a result, pensions into defined contribution schemes accounted for gross sales into the pension propositions accounted for 61% of total UK sales of £1.8 billion in 2017, representing 20% of gross platform Platform sales. Transfers by customers from their defined benefit sales and 6% of total gross sales. Net Heritage outflows were pensions into defined contribution schemes accounted for gross primarily due to expected Institutional business outflows. International sales of £1.8 billion in 2017, representing 20% of gross platform flows more than doubled to £1.4 billion with strong net flows from sales and 6% of total gross sales. Net Heritage outflows were Latin America, the Middle East, UK and Europe. In the International primarily due to expected Institutional business outflows. International business, we benefited from certain large single premium inflows flows more than doubled to £1.4 billion with strong net flows from which, due to their size, have been made at a discount to our usual Latin America, the Middle East, UK and Europe. In the International charging structures. business, we benefited from certain large single premium inflows which, due to their size, have been made at a discount to our usual charging structures. 50 18 18 Old Mutual plc Annual Report and Accounts 2017Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Old Mutual Wealth review continued Old Mutual Wealth review continued Business developments On 2 September 2017, Old Mutual Wealth announced that it would develop the Multi-Asset and Single Strategy businesses within Business developments Old Mutual Global Investors as separate, distinct businesses. On 2 September 2017, Old Mutual Wealth announced that it would On 19 December 2017, we announced that we had agreed to sell develop the Multi-Asset and Single Strategy businesses within our Single Strategy asset management business (‘Single Strategy’) Old Mutual Global Investors as separate, distinct businesses. to the Single Strategy management team and funds managed On 19 December 2017, we announced that we had agreed to sell by TA Associates (together ‘the Acquirer’) for an expected total our Single Strategy asset management business (‘Single Strategy’) consideration of c.£600 million. This value is subject to a number to the Single Strategy management team and funds managed of potential price adjustments depending on the net asset value by TA Associates (together ‘the Acquirer’) for an expected total of the business and a number of other factors at the disposal date. consideration of c.£600 million. This value is subject to a number Once the transaction completes, economic ownership of Single of potential price adjustments depending on the net asset value Strategy will pass to the Acquirer effective from 1 January 2018 of the business and a number of other factors at the disposal date. with all profits and performance fees generated up until Once the transaction completes, economic ownership of Single 31 December 2017 for the account of Old Mutual Wealth. Strategy will pass to the Acquirer effective from 1 January 2018 with all profits and performance fees generated up until For the purposes of this report, references to Old Mutual Wealth 31 December 2017 for the account of Old Mutual Wealth. refer to the reported results, which include Single Strategy. References to Quilter refer to the future standalone business, For the purposes of this report, references to Old Mutual Wealth excluding Single Strategy. refer to the reported results, which include Single Strategy. References to Quilter refer to the future standalone business, Completion of the transaction is subject to various regulatory excluding Single Strategy. approvals (UK FCA, Hong Kong and Switzerland) and it is anticipated that completion will take place in the second half of Completion of the transaction is subject to various regulatory 2018. In addition to regulatory approvals, there are additional approvals (UK FCA, Hong Kong and Switzerland) and it is conditions precedent to the completion of the transaction. The anticipated that completion will take place in the second half of conditions to completion of the transaction include certain steps 2018. In addition to regulatory approvals, there are additional to separate the retained Multi-Asset business. These steps include conditions precedent to the completion of the transaction. The the reorganisation of the management of certain funds and the conditions to completion of the transaction include certain steps transfer of certain assets that form part of the Multi-Asset business to separate the retained Multi-Asset business. These steps include into new funds separate from Single Strategy. The completion of the reorganisation of the management of certain funds and the these steps depends, in part, upon regulatory approvals and on transfer of certain assets that form part of the Multi-Asset business the speed with which certain third party suppliers are able to take into new funds separate from Single Strategy. The completion of actions required to establish these funds and implement these these steps depends, in part, upon regulatory approvals and on transfers. Upon completion, Transitional Service Agreements the speed with which certain third party suppliers are able to take between the Single Strategy and Multi-Asset businesses will be actions required to establish these funds and implement these in place. This will allow for the respective provision of services transfers. Upon completion, Transitional Service Agreements between the two businesses for a period of up to three years between the Single Strategy and Multi-Asset businesses will be on a cost basis. in place. This will allow for the respective provision of services between the two businesses for a period of up to three years As previously announced, on listing, we intend to have two operating on a cost basis. segments: Advice and Wealth Management, and Wealth Platforms. The Advice and Wealth Management segment will include Intrinsic, As previously announced, on listing, we intend to have two operating which we intend to rebrand to Quilter Financial Planning; the multi- segments: Advice and Wealth Management, and Wealth Platforms. asset solutions business (‘Multi-Asset’), which will become Quilter The Advice and Wealth Management segment will include Intrinsic, Investors; and, Quilter Cheviot. The Wealth Platforms segment which we intend to rebrand to Quilter Financial Planning; the multi- will include the UK Platform business, which will become Quilter asset solutions business (‘Multi-Asset’), which will become Quilter Wealth Solutions; our International business, which will become Investors; and, Quilter Cheviot. The Wealth Platforms segment Quilter International; and, our Heritage life assurance business, will include the UK Platform business, which will become Quilter which will become Quilter Life Assurance. Wealth Solutions; our International business, which will become Quilter International; and, our Heritage life assurance business, which will become Quilter Life Assurance. On 9 January 2017, we completed the sale of Old Mutual Wealth Italy to Phlavia Investimenti. The results for Old Mutual Wealth Italy have been excluded from the 2017 results. On 9 January 2017, we completed the sale of Old Mutual Wealth Italy to Phlavia Investimenti. The results for Old Mutual Wealth Italy Caerus Capital Group was acquired on 1 June 2017. Throughout have been excluded from the 2017 results. 2017, we have continued to acquire advice businesses within Old Mutual Wealth Private Client Advisers, creating ‘hubs’ around Caerus Capital Group was acquired on 1 June 2017. Throughout the UK, by careful targeting and acquiring advice businesses that 2017, we have continued to acquire advice businesses within match our target customer profiles and Quilter Cheviot’s Old Mutual Wealth Private Client Advisers, creating ‘hubs’ around geographical footprint, where appropriate. the UK, by careful targeting and acquiring advice businesses that match our target customer profiles and Quilter Cheviot’s On 15 November 2017, we announced that we were closing geographical footprint, where appropriate. our Institutional life business within Heritage to new business. This had AuMA of £4.9 billion at 31 December 2017. It is not On 15 November 2017, we announced that we were closing core to our strategy and it is very low margin business. our Institutional life business within Heritage to new business. This had AuMA of £4.9 billion at 31 December 2017. It is not Performance highlights core to our strategy and it is very low margin business. Net client cash flow (NCCF) NCCF performance for Old Mutual Wealth was strong at £10.9 Performance highlights billion, up 110% on prior year (2016: £5.2 billion) driven by buoyant Net client cash flow (NCCF) market conditions and robust investor confidence. This was 12% NCCF performance for Old Mutual Wealth was strong at £10.9 of opening AuMA, excluding the Heritage assets (which includes billion, up 110% on prior year (2016: £5.2 billion) driven by buoyant the Institutional life business), demonstrating very strong growth, market conditions and robust investor confidence. This was 12% and well ahead of our annualised target growth of 5% over the of opening AuMA, excluding the Heritage assets (which includes medium term. the Institutional life business), demonstrating very strong growth, and well ahead of our annualised target growth of 5% over the Within this, Quilter NCCF was also strong, increasing 91% to medium term. £6.3 billion (2016: £3.3 billion). Excluding the Heritage assets, Quilter NCCF was £7.6 billion and, on this basis, was 9% of Within this, Quilter NCCF was also strong, increasing 91% to opening AuMA. £6.3 billion (2016: £3.3 billion). Excluding the Heritage assets, Quilter NCCF was £7.6 billion and, on this basis, was 9% of The Advice and Wealth Management segment contributed total opening AuMA. NCCF before intra-group eliminations of £4.4 billion (2016: £1.6 billion). Our Multi-Asset business, which is a core part of our The Advice and Wealth Management segment contributed total ongoing proposition and wealth management strategy, received NCCF before intra-group eliminations of £4.4 billion (2016: £1.6 £3.3 billion (2016: £0.8 billion) of these net flows in 2017 driven billion). Our Multi-Asset business, which is a core part of our by robust flows into the Cirilium and WealthSelect fund ranges. ongoing proposition and wealth management strategy, received £3.3 billion (2016: £0.8 billion) of these net flows in 2017 driven NCCF for the Wealth Platforms segment of £4.3 billion was up 95% by robust flows into the Cirilium and WealthSelect fund ranges. from 2016 (£2.2 billion). UK Platform net flows were £4.5 billion, up 61% on 2016 due to strong flows into pension propositions as NCCF for the Wealth Platforms segment of £4.3 billion was up 95% customers continue to consolidate existing pensions. As a result, from 2016 (£2.2 billion). UK Platform net flows were £4.5 billion, sales into the pension propositions accounted for 61% of total UK up 61% on 2016 due to strong flows into pension propositions as Platform sales. Transfers by customers from their defined benefit customers continue to consolidate existing pensions. As a result, pensions into defined contribution schemes accounted for gross sales into the pension propositions accounted for 61% of total UK sales of £1.8 billion in 2017, representing 20% of gross platform Platform sales. Transfers by customers from their defined benefit sales and 6% of total gross sales. Net Heritage outflows were pensions into defined contribution schemes accounted for gross primarily due to expected Institutional business outflows. International sales of £1.8 billion in 2017, representing 20% of gross platform flows more than doubled to £1.4 billion with strong net flows from sales and 6% of total gross sales. Net Heritage outflows were Latin America, the Middle East, UK and Europe. In the International primarily due to expected Institutional business outflows. International business, we benefited from certain large single premium inflows flows more than doubled to £1.4 billion with strong net flows from which, due to their size, have been made at a discount to our usual Latin America, the Middle East, UK and Europe. In the International charging structures. business, we benefited from certain large single premium inflows which, due to their size, have been made at a discount to our usual charging structures. Old Mutual plc Annual Report and Accounts 2017 In total, Quilter integrated flows grew 167% from £1.8 billion in 2016 to £4.8 billion in 2017 (£5.2 billion excluding Heritage outflows). The restricted channel of Intrinsic accounted for £1.2 billion (27%) of UK Platform net inflows in 2017 (2016: £0.9 billion; 32%) and £2.5 billion of net flows into OMGI’s Multi-Asset solutions business in 2017, principally into the Cirilium fund ranges. Integrated net inflows from Intrinsic into Quilter Cheviot amounted to £0.2 billion, over half of which was through OMWPCA. Assets under management/administration (AuMA) Old Mutual Wealth AuMA was £138.5 billion, up 20% from the end of 2016 (31 December 2016: £115.3 billion excluding our divested Italian business (£6.2 billion) and South African branches (£2.0 billion) which have been transferred to OMEM). Of the 20% increase in AuMA, 10% (£11.0 billion) is due to positive market performance, 9% (£10.9 billion) resulted from positive NCCF, and 1% (£1.3 billion) came from the acquisition of Caerus and Attivo. Quilter AuMA, excluding Single Strategy, was £114.4 billion, up 16% from £98.2 billion as at 31 December 2016, also driven by positive market performance and strong NCCF. IFRS post-tax profit £m Adjusted operating profit before tax Goodwill and intangible charges Profit on disposals Short-term fluctuations in investment return Managed Separation and business standalone costs Platform transformation costs Voluntary customer remediation Total adjusting items Income tax attributable to policyholder returns IFRS profit before tax Tax on adjusted operating profit Tax on adjusting items Income tax attributable to policyholder returns IFRS profit/(loss) attributable to equity holders after tax 2017 363 (103) 24 2016 260 (140) − (2) 1 (32) (74) (69) (256) 66 173 (44) 36 − (102) − (241) 94 113 (47) 24 (66) (94) 99 (4) Old Mutual Wealth‘s IFRS post-tax profit was £99 million for 2017, compared to a loss of £4 million in 2016. This improvement was driven by the higher adjusted operating profit, principally resulting from the exceptional net performance fees in Single Strategy. Key reconciling items between the IFRS profit and pre-tax Adjusted Operating Profit (AOP) were UK Platform transformation costs of £74 million (2016: £102 million), one-off costs in 2017 relating to Managed Separation of £32 million (in 2016, these one-off costs of £7 million were included within AOP), costs associated with voluntary customer remediation in certain legacy products described below, the combined effects of intangibles amortisation and the impact of acquisition accounting totalling £103 million (2016: £140 million), and year-on-year movements in policyholder tax. On 3 March 2016, the UK Financial Conduct Authority (‘FCA’) issued a report detailing the findings of its industry-wide thematic review on the fair treatment of long-standing customers invested in closed-book products sold by the life insurance sector (TR 16/2) (‘Thematic Review’). As part of our ongoing work to promote fair customer outcomes, product reviews consistent with the recommendations from the FCA’s thematic feedback and the FCA’s guidance ‘FG16/8 Fair Treatment of long-standing customers in the life insurance sector’ have been conducted. Following these reviews, it has been decided to commence voluntary remediation to customers in certain legacy products within the Heritage book. As part of this, we have decided to cap early encashment charges at 5% for pension customers under 55 going forward, to refund all early encashment charges over 5% on pensions products applied since 1 January 2009 and to refund certain paid-up charges incurred since 1 January 2009. A provision of £69 million has been made within our 2017 results for the aggregate of these remediation costs, and this has been reported outside of Adjusted Operating Profit, firstly because of the significant and historical nature of the cost, and secondly, because it does not reflect the underlying performance of Old Mutual Wealth during 2017. Also on 3 March 2016, the FCA announced that it was initiating an investigation into a number of firms, including Old Mutual Wealth Life Assurance Limited (OMWLA), a subsidiary of Old Mutual Wealth reported within Heritage, in relation to potential breaches of the FCA’s standards relevant to the matters covered by the Thematic Review. We continue to cooperate and work openly with the FCA in connection with their investigation following the Thematic Review. No provision has been made for any potential fine that may be levied by the FCA. Adjusted Operating Profit (‘AOP’) – Reconciliation to result on a standalone basis AOP (£m) Reported AOP Corporate activity1 Reversal of smoothing shareholder investment returns Managed Separation and standalone costs (one-off) Deduction to exclude Single Strategy business Other Operating profit pre-tax on a standalone basis Heritage fee restructure Other Normalised operating profit pre-tax (on a standalone basis) 2017 363 − (2) − (152) − 209 − − 2016 % change 260 40% (35) 4 7 (60) 1 177 27 4 18% 209 208 1 Corporate activity includes Old Mutual Wealth Italy (sold in January 2017) and South Africa branches (transferred to Old Mutual Emerging Markets), consistent with the presentation shown in the Capital Markets Showcase in November 2017. 18 18 51 19 S i t r a t e g c r e p o r t Old Mutual plc Annual Report and Accounts 2017Strategic report Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Old Mutual Wealth review continued Old Mutual Wealth review continued Reported adjusted operating profit Reported Old Mutual Wealth AOP of £363 million for 2017 was 40% higher than prior year (2016: £260 million), and includes net Reported adjusted operating profit performance fees of £101 million in 2017 (2016: £26 million). Reported Old Mutual Wealth AOP of £363 million for 2017 was 40% higher than prior year (2016: £260 million), and includes net Pre-tax AOP for the Single Strategy business increased to performance fees of £101 million in 2017 (2016: £26 million). £152 million, up 153% from prior year of £60 million, driven by the unprecedented level of net performance fees of £101 million Pre-tax AOP for the Single Strategy business increased to (2016: £26 million), of which £84 million was generated in the six £152 million, up 153% from prior year of £60 million, driven by months to December 2017. The net performance fees for 2017 the unprecedented level of net performance fees of £101 million are substantially ahead of the previous year and are considered (2016: £26 million), of which £84 million was generated in the six to be at an unusually high level reflecting exceptional performance months to December 2017. The net performance fees for 2017 from a narrow range of funds in favourable market conditions. are substantially ahead of the previous year and are considered As announced on 19 December 2017, under the terms of the to be at an unusually high level reflecting exceptional performance transaction agreement, Old Mutual Wealth will not benefit from from a narrow range of funds in favourable market conditions. performance fees which may be earned by Single Strategy in 2018. As announced on 19 December 2017, under the terms of the transaction agreement, Old Mutual Wealth will not benefit from Operating profit pre-tax on a standalone basis performance fees which may be earned by Single Strategy in 2018. Operating profit pre-tax on a standalone basis is intended to reflect the perimeter of the business as it will be after listing, and after the Operating profit pre-tax on a standalone basis completion of the sale of Single Strategy, and therefore the results Operating profit pre-tax on a standalone basis is intended to reflect of Single Strategy have been removed from both 2017 and 2016. the perimeter of the business as it will be after listing, and after the In addition, the results of Old Mutual Wealth Italy and the South completion of the sale of Single Strategy, and therefore the results African business have been removed from the comparative period. of Single Strategy have been removed from both 2017 and 2016. On this basis, the operating profit pre-tax for 2017 was up 18% to In addition, the results of Old Mutual Wealth Italy and the South £209 million (2016: £177 million). African business have been removed from the comparative period. On this basis, the operating profit pre-tax for 2017 was up 18% to £209 million (2016: £177 million). £m Advice and Wealth Management Wealth Platforms £m Head Office Advice and Wealth Management Operating profit on Wealth Platforms a standalone basis Head Office Heritage fee restructure Operating profit on Other a standalone basis Normalised Heritage fee restructure operating profit Other 1 Based on normalisation adjustments being allocated to segments Normalised 2 As presented at Capital Markets Showcase in November 2017. 2016 restated1 59 2016 166 restated1 (17) 59 166 208 (17) 2017 82 158 2017 (31) 82 158 209 (31) − − 209 − 209 − 20162 55 139 20162 (17) 55 139 177 (17) 27 4 177 27 208 4 208 208 209 208 208 operating profit 1 Based on normalisation adjustments being allocated to segments 2 As presented at Capital Markets Showcase in November 2017. Normalised operating profit Normalised profit adjusts the comparative period ‘operating profit on a standalone basis’ to eliminate the impact of the changes to Normalised operating profit Heritage fees in 2016, and other normalisation adjustments as Normalised profit adjusts the comparative period ‘operating profit presented at the Capital Markets Showcase. No adjustments have on a standalone basis’ to eliminate the impact of the changes to been made in 2017. This form of presentation is consistent with Heritage fees in 2016, and other normalisation adjustments as the analysis presented during the Company’s Capital Markets presented at the Capital Markets Showcase. No adjustments have Showcase held in November 2017. been made in 2017. This form of presentation is consistent with the analysis presented during the Company’s Capital Markets The 2017 normalised operating profit of £209 million compared Showcase held in November 2017. to prior year (2016: £208 million) is particularly pleasing given that, in recent periods, profits have been invested to grow distribution The 2017 normalised operating profit of £209 million compared and to prepare the business to operate on a standalone basis. to prior year (2016: £208 million) is particularly pleasing given that, The consistent profit pattern is evidence that the business model in recent periods, profits have been invested to grow distribution is proven and that the business has reached scale ahead of its and to prepare the business to operate on a standalone basis. planned listing. The consistent profit pattern is evidence that the business model is proven and that the business has reached scale ahead of its Pre-tax normalised operating profit for the Advice and Wealth planned listing. Management segment increased to £82 million, up 39% from prior year of £59 million. This was driven by significantly increased Pre-tax normalised operating profit for the Advice and Wealth contribution from the Multi-Asset business as a result of increasing Management segment increased to £82 million, up 39% from prior revenues, driven by strong flows generated by other business year of £59 million. This was driven by significantly increased areas and good investment performance. contribution from the Multi-Asset business as a result of increasing revenues, driven by strong flows generated by other business Pre-tax normalised operating profit for the Wealth Platforms areas and good investment performance. segment decreased to £158 million, down 5% from prior year of £166 million. In 2016, the restated profit of £166 million included Pre-tax normalised operating profit for the Wealth Platforms the adjustment to exclude the Heritage fee restructure charge segment decreased to £158 million, down 5% from prior year of of £27 million which impacted the segment. £166 million. In 2016, the restated profit of £166 million included the adjustment to exclude the Heritage fee restructure charge Revenue and revenue margin of £27 million which impacted the segment. Old Mutual Wealth’s reported revenues increased by 21% to £1.0 billion due to higher average AuMA, driven by positive Revenue and revenue margin market performance, strong NCCF and net performance fees. Old Mutual Wealth’s reported revenues increased by 21% to On the same basis, the revenue margin decreased by 4bps during £1.0 billion due to higher average AuMA, driven by positive the year from 64bps to 60bps. market performance, strong NCCF and net performance fees. On the same basis, the revenue margin decreased by 4bps during On a standalone basis, Quilter revenues increased by 13% to the year from 64bps to 60bps. £728 million comprised of net management fee revenue of £591 million and other revenues of £137 million. On a standalone basis, Quilter revenues increased by 13% to £728 million comprised of net management fee revenue of £m £591 million and other revenues of £137 million. Net management fee Other revenue £m Revenue on a Net management fee standalone basis Other revenue Revenue on a The net management fee revenue principally comprises fund- based revenues including fixed fees. Other revenues include advice fees generated in Intrinsic and income generated within The net management fee revenue principally comprises fund- the protection business in Heritage. The revenue margin for the based revenues including fixed fees. Other revenues include standalone Quilter business reduced from 59bps in 2016 to 56bps advice fees generated in Intrinsic and income generated within in 2017. the protection business in Heritage. The revenue margin for the standalone Quilter business reduced from 59bps in 2016 to 56bps in 2017. 2017 591 137 2017 591 728 137 2016 524 122 2016 524 646 122 Variance 13% 12% Variance 13% 13% 12% standalone basis 13% 728 646 52 20 20 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Reported adjusted operating profit Normalised operating profit Reported Old Mutual Wealth AOP of £363 million for 2017 was Normalised profit adjusts the comparative period ‘operating profit Old Mutual Wealth review continued Old Mutual Wealth review continued 40% higher than prior year (2016: £260 million), and includes net Reported adjusted operating profit performance fees of £101 million in 2017 (2016: £26 million). Reported Old Mutual Wealth AOP of £363 million for 2017 was 40% higher than prior year (2016: £260 million), and includes net Pre-tax AOP for the Single Strategy business increased to performance fees of £101 million in 2017 (2016: £26 million). £152 million, up 153% from prior year of £60 million, driven by the unprecedented level of net performance fees of £101 million Pre-tax AOP for the Single Strategy business increased to (2016: £26 million), of which £84 million was generated in the six £152 million, up 153% from prior year of £60 million, driven by months to December 2017. The net performance fees for 2017 the unprecedented level of net performance fees of £101 million are substantially ahead of the previous year and are considered (2016: £26 million), of which £84 million was generated in the six to be at an unusually high level reflecting exceptional performance months to December 2017. The net performance fees for 2017 from a narrow range of funds in favourable market conditions. are substantially ahead of the previous year and are considered As announced on 19 December 2017, under the terms of the to be at an unusually high level reflecting exceptional performance transaction agreement, Old Mutual Wealth will not benefit from from a narrow range of funds in favourable market conditions. performance fees which may be earned by Single Strategy in 2018. As announced on 19 December 2017, under the terms of the transaction agreement, Old Mutual Wealth will not benefit from Operating profit pre-tax on a standalone basis performance fees which may be earned by Single Strategy in 2018. Operating profit pre-tax on a standalone basis is intended to reflect the perimeter of the business as it will be after listing, and after the Operating profit pre-tax on a standalone basis completion of the sale of Single Strategy, and therefore the results Operating profit pre-tax on a standalone basis is intended to reflect of Single Strategy have been removed from both 2017 and 2016. the perimeter of the business as it will be after listing, and after the In addition, the results of Old Mutual Wealth Italy and the South completion of the sale of Single Strategy, and therefore the results African business have been removed from the comparative period. of Single Strategy have been removed from both 2017 and 2016. On this basis, the operating profit pre-tax for 2017 was up 18% to In addition, the results of Old Mutual Wealth Italy and the South £209 million (2016: £177 million). African business have been removed from the comparative period. On this basis, the operating profit pre-tax for 2017 was up 18% to £209 million (2016: £177 million). £m Advice and Wealth Management Advice and Wealth Management Wealth Platforms £m Head Office Operating profit on Wealth Platforms a standalone basis Head Office Heritage fee restructure Operating profit on Other a standalone basis Normalised Heritage fee restructure operating profit Other 2016 restated1 59 2016 166 restated1 (17) 59 166 208 (17) 208 208 2017 82 158 2017 (31) 82 158 209 (31) − − 209 209 − − 20162 55 139 20162 (17) 55 139 177 (17) 27 4 177 27 208 4 1 Based on normalisation adjustments being allocated to segments Normalised 2 As presented at Capital Markets Showcase in November 2017. operating profit 209 208 208 1 Based on normalisation adjustments being allocated to segments 2 As presented at Capital Markets Showcase in November 2017. on a standalone basis’ to eliminate the impact of the changes to Normalised operating profit Heritage fees in 2016, and other normalisation adjustments as Normalised profit adjusts the comparative period ‘operating profit presented at the Capital Markets Showcase. No adjustments have on a standalone basis’ to eliminate the impact of the changes to been made in 2017. This form of presentation is consistent with Heritage fees in 2016, and other normalisation adjustments as the analysis presented during the Company’s Capital Markets presented at the Capital Markets Showcase. No adjustments have Showcase held in November 2017. been made in 2017. This form of presentation is consistent with the analysis presented during the Company’s Capital Markets The 2017 normalised operating profit of £209 million compared Showcase held in November 2017. to prior year (2016: £208 million) is particularly pleasing given that, in recent periods, profits have been invested to grow distribution The 2017 normalised operating profit of £209 million compared and to prepare the business to operate on a standalone basis. to prior year (2016: £208 million) is particularly pleasing given that, The consistent profit pattern is evidence that the business model in recent periods, profits have been invested to grow distribution is proven and that the business has reached scale ahead of its and to prepare the business to operate on a standalone basis. planned listing. The consistent profit pattern is evidence that the business model is proven and that the business has reached scale ahead of its Pre-tax normalised operating profit for the Advice and Wealth planned listing. Management segment increased to £82 million, up 39% from prior year of £59 million. This was driven by significantly increased Pre-tax normalised operating profit for the Advice and Wealth contribution from the Multi-Asset business as a result of increasing Management segment increased to £82 million, up 39% from prior revenues, driven by strong flows generated by other business year of £59 million. This was driven by significantly increased areas and good investment performance. contribution from the Multi-Asset business as a result of increasing revenues, driven by strong flows generated by other business Pre-tax normalised operating profit for the Wealth Platforms areas and good investment performance. segment decreased to £158 million, down 5% from prior year of £166 million. In 2016, the restated profit of £166 million included Pre-tax normalised operating profit for the Wealth Platforms the adjustment to exclude the Heritage fee restructure charge segment decreased to £158 million, down 5% from prior year of of £27 million which impacted the segment. £166 million. In 2016, the restated profit of £166 million included the adjustment to exclude the Heritage fee restructure charge Revenue and revenue margin of £27 million which impacted the segment. Old Mutual Wealth’s reported revenues increased by 21% to £1.0 billion due to higher average AuMA, driven by positive Revenue and revenue margin market performance, strong NCCF and net performance fees. Old Mutual Wealth’s reported revenues increased by 21% to On the same basis, the revenue margin decreased by 4bps during £1.0 billion due to higher average AuMA, driven by positive the year from 64bps to 60bps. market performance, strong NCCF and net performance fees. On the same basis, the revenue margin decreased by 4bps during On a standalone basis, Quilter revenues increased by 13% to the year from 64bps to 60bps. £728 million comprised of net management fee revenue of £591 million and other revenues of £137 million. On a standalone basis, Quilter revenues increased by 13% to £728 million comprised of net management fee revenue of £m £591 million and other revenues of £137 million. Net management fee 591 2017 137 2017 591 728 137 2016 524 122 2016 524 646 122 Variance Variance 13% 12% 13% 13% 12% Other revenue £m Revenue on a Net management fee standalone basis Other revenue Revenue on a The net management fee revenue principally comprises fund- based revenues including fixed fees. Other revenues include standalone basis 646 728 13% advice fees generated in Intrinsic and income generated within The net management fee revenue principally comprises fund- the protection business in Heritage. The revenue margin for the based revenues including fixed fees. Other revenues include standalone Quilter business reduced from 59bps in 2016 to 56bps advice fees generated in Intrinsic and income generated within the protection business in Heritage. The revenue margin for the in 2017. standalone Quilter business reduced from 59bps in 2016 to 56bps in 2017. We currently expect one-off costs in 2018 of c.£36 million in respect of the completion of the Managed Separation from Old Mutual plc. These comprise a mixture of standalone, advisor and other transaction costs, and will be charged outside of operating profit to reflect their one-off nature. Of these, c.£12 million are expected to be in respect of the rebrand of the business from Old Mutual Wealth to Quilter. Operating margin The Old Mutual Wealth operating margin was higher than prior year at 36%, driven by higher net performance fees more than offsetting the impact of increased expenses. Including Single Strategy, but excluding net performance fees, the operating margin is unchanged at 29%. On a standalone basis, the Quilter operating margin declined to 29% compared to 32% in 2016 principally as a result of the increase in operational costs and investment in business initiatives ahead of listing. The increasing proportion of revenues from advice fees, which are largely matched by costs of advisers and investment in the advice model itself, has contributed to the reduction in operating margin. UK Platform Transformation The contracts with IFDS related to the UK Platform Transformation came to an end by mutual agreement effective as of 2 May 2017. At the same time, we announced that we had contracted with FNZ to deliver our UK Platform Transformation Programme. We continue to plan for a soft launch of the enhanced customer and adviser proposition supplied by FNZ by late 2018 or early 2019 with migration of existing advisers and customers to follow swiftly thereafter. Of the estimated UK Platform Transformation Programme costs of £120-160 million announced in May 2017, £21 million had been incurred by 31 December 2017. We currently anticipate spend of c.£75 million in 2018 with the balance arising in 2019. The project remains on time and within budget and excellent progress has been made with all key deliverables to date being within our planned timelines. Expenses Old Mutual Wealth’s reported expenses increased by 13% to £638 million. Single Strategy expenses are £119m in 2017, up from £95 million in 2016 driven by an increase in variable incentives in line with performance, increased headcount and regulatory compliance costs. Old Mutual Wealth Italy and South Africa branches together accounted for £23 million of costs in 2016 (2017: nil). Consistent with the treatment in prior periods, bonuses on gross performance fees are deducted from those performance fees which are reported, on a net basis, within revenue. Quilter expenses on a standalone basis increased by 18% to £519 million. £m Underlying administration expenses Variable incentives Investment in business initiatives Standalone costs (recurring) Expenses on a standalone basis 2017 2016 Variance 402 78 23 16 363 64 11 − 519 438 39 14 12 16 81 The main components of the increase in Quilter expenses on a standalone basis are:  The increase in underlying administration expenses of £39 million reflects a focussed increase in technology spend (£13 million) linked to improving the resiliency of our IT infrastructure; changes in regulation including compliance with GDPR, MIFID II requirements and FSCS costs (£10 million); adverse year-on- year movements in provisions (£6 million); and other organic and inflationary costs (£10 million).  Variable incentives in 2017 amounted to £78 million, an increase of £14 million on 2016 in line with performance. This reflects higher levels of funds under management in the multi-asset business and Quilter Cheviot and higher senior headcount due to the strengthening of senior management ahead of listing.  Investment in new business initiatives principally reflects the costs of expanding Old Mutual Wealth Private Client Advisers and the inclusion of Caerus Capital Group, the acquisition of which completed on 1 June 2017.  Managed Separation and standalone costs of £16 million include £9 million to reflect the strengthening of the business and other recurring standalone costs. 2017 was a transitional year for the business, and the incremental recurring costs of £16 million for 2017 do not yet reflect a full-year run-rate of such costs.  Consistent with previous disclosures, separation is estimated to increase the standalone cost base by £25-30 million per annum compared to 2016, and therefore additional recurring costs beyond the £16 million incurred in 2017, are expected to be incurred in 2018. In line with information provided previously, this increase excludes the impact of the costs for the proposed new long-term incentive plan, and future debt financing costs. Details of future debt financing costs are set out within our cash and capital disclosures. 20 20 53 21 S i t r a t e g c r e p o r t Old Mutual plc Annual Report and Accounts 2017Strategic report Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Old Mutual Wealth review continued Old Mutual Wealth review continued Delivering good customer outcomes During 2017, we established a dedicated Retail Customer Solutions function to focus specifically on those ‘end-to-end’ Delivering good customer outcomes customers whom we serve through our model of financial advice, During 2017, we established a dedicated Retail Customer investment solutions and platform services. The objective of this Solutions function to focus specifically on those ‘end-to-end’ team is to further improve customer orientation in our proposition. customers whom we serve through our model of financial advice, In addition, the team will actively analyse industry trends to enable investment solutions and platform services. The objective of this us to create stronger integrated propositions. team is to further improve customer orientation in our proposition. In addition, the team will actively analyse industry trends to enable Regulatory developments us to create stronger integrated propositions. There are a number of studies and thematic reviews currently underway by the UK regulators. These include the FCA’s Asset Regulatory developments Management Review, the findings of which were published on There are a number of studies and thematic reviews currently 28 June 2017, and the Investment Platforms Market Study, the underway by the UK regulators. These include the FCA’s Asset terms of reference for which were announced on 17 July 2017 and Management Review, the findings of which were published on more recently, in February 2018, the Discussion Paper considering 28 June 2017, and the Investment Platforms Market Study, the “Effective competition in non-workplace pensions”. The FCA terms of reference for which were announced on 17 July 2017 and also published its “Approach to Customers” in November 2017, more recently, in February 2018, the Discussion Paper considering informed by the Financial Lives Survey, the results of which were “Effective competition in non-workplace pensions”. The FCA published last October. We are very supportive of the FCA’s work also published its “Approach to Customers” in November 2017, in these important areas, and believe the outcomes of these will informed by the Financial Lives Survey, the results of which were serve to increase the confidence and credibility of the wealth published last October. We are very supportive of the FCA’s work management industry in this country, ensuring that it provides fair in these important areas, and believe the outcomes of these will outcomes for all customers, whatever stage in life they are at. serve to increase the confidence and credibility of the wealth management industry in this country, ensuring that it provides fair Managing conflicts of interests outcomes for all customers, whatever stage in life they are at. We combine our knowledge and capabilities across the businesses to gain an understanding of our clients and their needs. It is this Managing conflicts of interests knowledge that allows us to deliver products and solutions that We combine our knowledge and capabilities across the businesses meet those needs. Suitable investment solutions are central to to gain an understanding of our clients and their needs. It is this providing good customer outcomes. We aim to blend peer-leading knowledge that allows us to deliver products and solutions that capabilities across our business, but the decision about which meet those needs. Suitable investment solutions are central to investment solutions are right for each client remains with the providing good customer outcomes. We aim to blend peer-leading financial adviser, where client suitability decisions will always capabilities across our business, but the decision about which remain sacrosanct. investment solutions are right for each client remains with the financial adviser, where client suitability decisions will always As part of managing potential conflicts of interest, each part of the remain sacrosanct. business has strong governance in place, with each business being a separate regulated entity that seeks to deliver fair outcomes and As part of managing potential conflicts of interest, each part of the good value for its customers. business has strong governance in place, with each business being a separate regulated entity that seeks to deliver fair outcomes and good value for its customers. Return on equity (‘ROE’) Strong operating performance across our business in 2017 has increased reported ROE to 19% (31 December 2016: 13%). Return on equity (‘ROE’) Excluding Single Strategy, the ROE was 13%. Strong operating performance across our business in 2017 has increased reported ROE to 19% (31 December 2016: 13%). At the time of the acquisition of Quilter Cheviot, it was announced Excluding Single Strategy, the ROE was 13%. that the transaction was expected to generate annual synergies of £15 million by 2017. As at 31 December 2017, the total achieved At the time of the acquisition of Quilter Cheviot, it was announced synergies were £14 million. Beyond these synergies, the return on that the transaction was expected to generate annual synergies of our investment is reflected in Quilter Cheviot’s contribution to our £15 million by 2017. As at 31 December 2017, the total achieved overall wealth management proposition and in the growth of assets synergies were £14 million. Beyond these synergies, the return on under management from £17.4 billion at 28 February 2015 to our investment is reflected in Quilter Cheviot’s contribution to our £23.6 billion at 31 December 2017. As a result, the overall return overall wealth management proposition and in the growth of assets is considered to be in excess of the cost of capital. under management from £17.4 billion at 28 February 2015 to £23.6 billion at 31 December 2017. As a result, the overall return Cash and capital is considered to be in excess of the cost of capital. In 2017, Old Mutual Wealth generated free surplus of £293 million (2016: £179 million), representing a conversion rate of 92% of AOP Cash and capital post-tax (2016: 84%). The free surplus generated was used to fund In 2017, Old Mutual Wealth generated free surplus of £293 million the Platform Transformation Programme, the costs associated with (2016: £179 million), representing a conversion rate of 92% of AOP the Managed Separation, and the investment in new business post-tax (2016: 84%). The free surplus generated was used to fund initiatives including the expansion of Old Mutual Wealth Private the Platform Transformation Programme, the costs associated with Client Advisers and the acquisition of Caerus Capital Group. the Managed Separation, and the investment in new business initiatives including the expansion of Old Mutual Wealth Private At 31 December 2017, Old Mutual Wealth had an unaudited Client Advisers and the acquisition of Caerus Capital Group. 155% Solvency II ratio after a 14% adjustment for the impact of the European Insurance and Occupations Pensions Authority At 31 December 2017, Old Mutual Wealth had an unaudited (‘EIOPA’) update described below and adopted with effect 155% Solvency II ratio after a 14% adjustment for the impact from 31 December 2017. The impact of the EIOPA update of the European Insurance and Occupations Pensions Authority is economically neutral and has no impact on the absolute (‘EIOPA’) update described below and adopted with effect Solvency II surplus but reduces the Solvency II ratio. from 31 December 2017. The impact of the EIOPA update is economically neutral and has no impact on the absolute The EIOPA has recently published updated guidance regarding Solvency II surplus but reduces the Solvency II ratio. the treatment of the Individual Capital Guidance (‘ICG’) requirements in investment firms subject to the internal capital The EIOPA has recently published updated guidance regarding adequacy assessment process (‘ICAAP’) regime. This guidance, the treatment of the Individual Capital Guidance (‘ICG’) which is non-mandatory, applies when calculating the Solvency II requirements in investment firms subject to the internal capital capital ratio on a consolidated basis for groups comprising both adequacy assessment process (‘ICAAP’) regime. This guidance, ICAAP and Solvency II regulated entities. According to the EIOPA which is non-mandatory, applies when calculating the Solvency II guidance, the solvency capital requirement (‘SCR’) under Solvency capital ratio on a consolidated basis for groups comprising both II for ICAAP regulated entities should include both the capital ICAAP and Solvency II regulated entities. According to the EIOPA requirement from the ICAAP and any requirement imposed by the guidance, the solvency capital requirement (‘SCR’) under Solvency regulator. The previous methodology used by Old Mutual Wealth II for ICAAP regulated entities should include both the capital included the Pillar 1 capital requirement for the ICAAP regulated requirement from the ICAAP and any requirement imposed by the entities within the Solvency II capital requirement, with the balance regulator. The previous methodology used by Old Mutual Wealth between this and the total capital requirement being excluded from included the Pillar 1 capital requirement for the ICAAP regulated both the Solvency II Own Funds and the SCR. On a pro forma entities within the Solvency II capital requirement, with the balance basis, the change in treatment would have increased both Own between this and the total capital requirement being excluded from Funds and the SCR by £0.2 billion as at 30 June 2017, which both the Solvency II Own Funds and the SCR. On a pro forma would have reduced the reported 177% ratio to 163% on a pro basis, the change in treatment would have increased both Own forma consolidated basis. Funds and the SCR by £0.2 billion as at 30 June 2017, which would have reduced the reported 177% ratio to 163% on a pro forma consolidated basis. 54 22 22 Old Mutual plc Annual Report and Accounts 2017Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Old Mutual Wealth review continued Old Mutual Wealth review continued Delivering good customer outcomes During 2017, we established a dedicated Retail Customer Solutions function to focus specifically on those ‘end-to-end’ Delivering good customer outcomes customers whom we serve through our model of financial advice, During 2017, we established a dedicated Retail Customer investment solutions and platform services. The objective of this Solutions function to focus specifically on those ‘end-to-end’ team is to further improve customer orientation in our proposition. customers whom we serve through our model of financial advice, In addition, the team will actively analyse industry trends to enable investment solutions and platform services. The objective of this us to create stronger integrated propositions. team is to further improve customer orientation in our proposition. In addition, the team will actively analyse industry trends to enable Regulatory developments us to create stronger integrated propositions. There are a number of studies and thematic reviews currently underway by the UK regulators. These include the FCA’s Asset Regulatory developments Management Review, the findings of which were published on There are a number of studies and thematic reviews currently 28 June 2017, and the Investment Platforms Market Study, the underway by the UK regulators. These include the FCA’s Asset terms of reference for which were announced on 17 July 2017 and Management Review, the findings of which were published on more recently, in February 2018, the Discussion Paper considering 28 June 2017, and the Investment Platforms Market Study, the “Effective competition in non-workplace pensions”. The FCA terms of reference for which were announced on 17 July 2017 and also published its “Approach to Customers” in November 2017, more recently, in February 2018, the Discussion Paper considering informed by the Financial Lives Survey, the results of which were “Effective competition in non-workplace pensions”. The FCA published last October. We are very supportive of the FCA’s work also published its “Approach to Customers” in November 2017, in these important areas, and believe the outcomes of these will informed by the Financial Lives Survey, the results of which were serve to increase the confidence and credibility of the wealth published last October. We are very supportive of the FCA’s work management industry in this country, ensuring that it provides fair in these important areas, and believe the outcomes of these will outcomes for all customers, whatever stage in life they are at. serve to increase the confidence and credibility of the wealth management industry in this country, ensuring that it provides fair Managing conflicts of interests outcomes for all customers, whatever stage in life they are at. We combine our knowledge and capabilities across the businesses to gain an understanding of our clients and their needs. It is this Managing conflicts of interests knowledge that allows us to deliver products and solutions that We combine our knowledge and capabilities across the businesses meet those needs. Suitable investment solutions are central to to gain an understanding of our clients and their needs. It is this providing good customer outcomes. We aim to blend peer-leading knowledge that allows us to deliver products and solutions that capabilities across our business, but the decision about which meet those needs. Suitable investment solutions are central to investment solutions are right for each client remains with the providing good customer outcomes. We aim to blend peer-leading financial adviser, where client suitability decisions will always capabilities across our business, but the decision about which remain sacrosanct. investment solutions are right for each client remains with the remain sacrosanct. financial adviser, where client suitability decisions will always As part of managing potential conflicts of interest, each part of the business has strong governance in place, with each business being a separate regulated entity that seeks to deliver fair outcomes and As part of managing potential conflicts of interest, each part of the good value for its customers. business has strong governance in place, with each business being a separate regulated entity that seeks to deliver fair outcomes and good value for its customers. Return on equity (‘ROE’) Strong operating performance across our business in 2017 has increased reported ROE to 19% (31 December 2016: 13%). Return on equity (‘ROE’) Excluding Single Strategy, the ROE was 13%. Strong operating performance across our business in 2017 has increased reported ROE to 19% (31 December 2016: 13%). At the time of the acquisition of Quilter Cheviot, it was announced Excluding Single Strategy, the ROE was 13%. that the transaction was expected to generate annual synergies of £15 million by 2017. As at 31 December 2017, the total achieved At the time of the acquisition of Quilter Cheviot, it was announced synergies were £14 million. Beyond these synergies, the return on that the transaction was expected to generate annual synergies of our investment is reflected in Quilter Cheviot’s contribution to our £15 million by 2017. As at 31 December 2017, the total achieved overall wealth management proposition and in the growth of assets synergies were £14 million. Beyond these synergies, the return on under management from £17.4 billion at 28 February 2015 to our investment is reflected in Quilter Cheviot’s contribution to our £23.6 billion at 31 December 2017. As a result, the overall return overall wealth management proposition and in the growth of assets is considered to be in excess of the cost of capital. under management from £17.4 billion at 28 February 2015 to £23.6 billion at 31 December 2017. As a result, the overall return Cash and capital is considered to be in excess of the cost of capital. In 2017, Old Mutual Wealth generated free surplus of £293 million Cash and capital (2016: £179 million), representing a conversion rate of 92% of AOP post-tax (2016: 84%). The free surplus generated was used to fund In 2017, Old Mutual Wealth generated free surplus of £293 million the Platform Transformation Programme, the costs associated with (2016: £179 million), representing a conversion rate of 92% of AOP the Managed Separation, and the investment in new business post-tax (2016: 84%). The free surplus generated was used to fund initiatives including the expansion of Old Mutual Wealth Private the Platform Transformation Programme, the costs associated with Client Advisers and the acquisition of Caerus Capital Group. the Managed Separation, and the investment in new business initiatives including the expansion of Old Mutual Wealth Private At 31 December 2017, Old Mutual Wealth had an unaudited Client Advisers and the acquisition of Caerus Capital Group. 155% Solvency II ratio after a 14% adjustment for the impact of the European Insurance and Occupations Pensions Authority At 31 December 2017, Old Mutual Wealth had an unaudited (‘EIOPA’) update described below and adopted with effect 155% Solvency II ratio after a 14% adjustment for the impact from 31 December 2017. The impact of the EIOPA update of the European Insurance and Occupations Pensions Authority is economically neutral and has no impact on the absolute (‘EIOPA’) update described below and adopted with effect Solvency II surplus but reduces the Solvency II ratio. from 31 December 2017. The impact of the EIOPA update is economically neutral and has no impact on the absolute The EIOPA has recently published updated guidance regarding Solvency II surplus but reduces the Solvency II ratio. the treatment of the Individual Capital Guidance (‘ICG’) requirements in investment firms subject to the internal capital The EIOPA has recently published updated guidance regarding adequacy assessment process (‘ICAAP’) regime. This guidance, the treatment of the Individual Capital Guidance (‘ICG’) which is non-mandatory, applies when calculating the Solvency II requirements in investment firms subject to the internal capital capital ratio on a consolidated basis for groups comprising both adequacy assessment process (‘ICAAP’) regime. This guidance, ICAAP and Solvency II regulated entities. According to the EIOPA which is non-mandatory, applies when calculating the Solvency II guidance, the solvency capital requirement (‘SCR’) under Solvency capital ratio on a consolidated basis for groups comprising both II for ICAAP regulated entities should include both the capital ICAAP and Solvency II regulated entities. According to the EIOPA requirement from the ICAAP and any requirement imposed by the guidance, the solvency capital requirement (‘SCR’) under Solvency regulator. The previous methodology used by Old Mutual Wealth II for ICAAP regulated entities should include both the capital included the Pillar 1 capital requirement for the ICAAP regulated requirement from the ICAAP and any requirement imposed by the entities within the Solvency II capital requirement, with the balance regulator. The previous methodology used by Old Mutual Wealth between this and the total capital requirement being excluded from included the Pillar 1 capital requirement for the ICAAP regulated both the Solvency II Own Funds and the SCR. On a pro forma entities within the Solvency II capital requirement, with the balance basis, the change in treatment would have increased both Own between this and the total capital requirement being excluded from Funds and the SCR by £0.2 billion as at 30 June 2017, which both the Solvency II Own Funds and the SCR. On a pro forma would have reduced the reported 177% ratio to 163% on a pro basis, the change in treatment would have increased both Own forma consolidated basis. Funds and the SCR by £0.2 billion as at 30 June 2017, which would have reduced the reported 177% ratio to 163% on a pro forma consolidated basis. Old Mutual plc Annual Report and Accounts 2017 Old Mutual Wealth Management Limited has been given an issuer’s default rating from Fitch of A-. The financial strength of Old Mutual Wealth Life Assurance Limited (our Heritage life assurance business) is rated A by Fitch. Managed Separation and Board developments We made good progress with our programme of activity as we work towards independence as part of the Managed Separation from Old Mutual plc. By the end of 2017, all functions had materially delivered all changes necessary to be standalone. To ensure our organisation is fit for purpose as a listed, standalone entity, we have continued to reshape and strengthen our executive management team and our Board. During 2017, Tim Tookey was appointed as Chief Financial Officer and Mark Satchel assumed the role of Corporate Finance Director. Paul Hucknall was appointed as HR Director and joined the executive committee on 1 January 2018. Rosie Harris, George Reid and Jon Little joined the Old Mutual Wealth Board as Independent Non-Executive Directors during H1 2017. On joining, Rosie was appointed Chair of the Board Risk Committee. George Reid has been appointed Chair of the Board Audit Committee, and Moira Kilcoyne, who was appointed to the Board at the end of 2016, has been appointed Chair of the Board IT Committee. Old Mutual Wealth intends to comply with the UK Corporate Governance Code and the arrangements to achieve compliance are well advanced. We have also strengthened the boards of our principal regulated subsidiaries by increasing the level of independence on those boards, including through additional representation from the Non-Executive directors on the Old Mutual Wealth Board. Funding and future capital structure Quilter plans to maintain a strong solvency and liquidity position through disciplined management of capital resources and risks. The backing of a financially strong group is important given the security and peace of mind that it affords customers and advisers. Quilter will maintain a disciplined approach to capital, in order to balance its current and anticipated liquidity, regulatory capital and investment needs, with a view to returning excess capital to shareholders as appropriate. As part of its disciplined approach to capital, the Group has a prudent capital management and liquidity policy. On 28 February 2018, we entered into, and fully drew down, a senior unsecured term loan of £300 million with a number of relationship banks. This term loan will be repaid in full using proceeds from the sale of Single Strategy following the completion of that transaction. In addition, we have entered into a £125 million revolving credit facility, which is currently undrawn and is expected to remain undrawn during 2018. Also on 28 February 2018, we issued a £200 million subordinated debt security in the form of a 10-year Tier 2 bond with a one-time issuer call option after five years to J.P. Morgan Securities plc, paying a semi-annual coupon of 4.478%. Including the impact of amortisation of bond set-up costs, the issuance of this security will increase operating expenses in the Corporate Head Office segment by approximately £11 million on an annual basis. The debt security is currently undocumented and unlisted and has a Fitch instrument rating of BBB-. We intend to finalise a prospectus and obtain a listing for the bond on the regulated market of the London Stock Exchange, with a view to a potential remarketing and secondary placement of the security in due course. The subordinated debt security, the new term loan and the revolving credit facility have been issued to ensure that Quilter has sufficient capital and liquidity to maintain strong capital ratios and free cash balances to withstand severe but plausible stress scenarios. These include, despite it being considered to be a remote event, the sale of Single Strategy failing to complete. Adjusting the 31 December 2017 Solvency II ratio of 155% for the £200m subordinated debt security and the new term loan would result in a pro forma Solvency II ratio of 171% at 31 December 2017 (before any impact of the sale of Single Strategy). Whilst this pro forma ratio does not include the expected Solvency II benefit arising on completion of the sale of Single Strategy, we believe it includes sufficient free cash to complete all committed strategic investments (including the UK Platform Transformation Programme) and to allow for any further potential costs associated with the FCA’s Thematic Review, including for any potential fine which may be levied by the FCA, in respect of which no provision has yet been made. The impact of this prudent policy is that Quilter expects to maintain a solvency position in excess of its policy in the near-term. 22 22 55 23 S i t r a t e g c r e p o r t Old Mutual plc Annual Report and Accounts 2017Strategic report Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Old Mutual Wealth review continued Old Mutual Wealth review continued The Solvency II impact of the completion of the sale of Single Strategy would have increased the pro forma 31 December 2017 solvency ratio by c. 40 percentage points before any potential The Solvency II impact of the completion of the sale of Single distribution of surplus proceeds to shareholders. Strategy would have increased the pro forma 31 December 2017 solvency ratio by c. 40 percentage points before any potential Subsequent to the year end, and as part of a series of internal distribution of surplus proceeds to shareholders. transactions, £566 million of intercompany indebtedness to other companies within the Old Mutual plc group has been equitised, Subsequent to the year end, and as part of a series of internal with the effect of the intercompany indebtedness being cancelled transactions, £566 million of intercompany indebtedness to other and replaced with equity in the form of share capital and a merger companies within the Old Mutual plc group has been equitised, reserve. The remaining £200 million intercompany indebtedness with the effect of the intercompany indebtedness being cancelled was repaid in full from the new facilities referred to above and from and replaced with equity in the form of share capital and a merger existing cash resources on 28 February 2018. On the same date, reserve. The remaining £200 million intercompany indebtedness the £70 million revolving credit facility with Old Mutual plc was repaid in full from the new facilities referred to above and from was cancelled. existing cash resources on 28 February 2018. On the same date, the £70 million revolving credit facility with Old Mutual plc Outlook for the Quilter business was cancelled. as a standalone business Quilter has continued to trade in line with expectations since the Outlook for the Quilter business year end. Overall, we continue to remain confident in Quilter’s as a standalone business prospects and it is anticipated that the next trading update will be Quilter has continued to trade in line with expectations since the for the first quarter of 2018, which is expected to be published in year end. Overall, we continue to remain confident in Quilter’s April 2018. prospects and it is anticipated that the next trading update will be for the first quarter of 2018, which is expected to be published in As a key step in the preparation of Quilter to be a separately listed April 2018. business, we will be publishing a Prospectus (the “Prospectus”) in relation to our business. The Prospectus will include more detailed As a key step in the preparation of Quilter to be a separately listed information in relation to Quilter’s business, including its strategy business, we will be publishing a Prospectus (the “Prospectus”) in and outlook. It will also contain detailed risk factors and other key relation to our business. The Prospectus will include more detailed information relevant to our business. information in relation to Quilter’s business, including its strategy and outlook. It will also contain detailed risk factors and other key This section summarises certain information on Quilter’s information relevant to our business. business, including certain forward looking information in relation to operating performance expectations and targets which will be This section summarises certain information on Quilter’s set out in detail in the Prospectus, and these statements should business, including certain forward looking information in relation be read in conjunction with all the information in the Prospectus to operating performance expectations and targets which will be when it is published. set out in detail in the Prospectus, and these statements should be read in conjunction with all the information in the Prospectus NCCF when it is published. We believe that the positive structural growth dynamics in the UK wealth market and our leading market positions and full service, NCCF multi-channel model position Quilter for continued success. As a We believe that the positive structural growth dynamics in the UK result, we will target NCCF (excluding Heritage) of 5 per cent. of wealth market and our leading market positions and full service, opening AuMA per annum over the medium term. Should market multi-channel model position Quilter for continued success. As a conditions remain supportive, we expect Quilter to exceed this result, we will target NCCF (excluding Heritage) of 5 per cent. of target in 2018. opening AuMA per annum over the medium term. Should market conditions remain supportive, we expect Quilter to exceed this target in 2018. Revenue margin Subject to delivering currently expected AuMA volumes and business mix, we believe Quilter’s overall annual rate of revenue Revenue margin margin decline should slow in the near-term, and that the revenue Subject to delivering currently expected AuMA volumes and margin should become increasingly stable. business mix, we believe Quilter’s overall annual rate of revenue margin decline should slow in the near-term, and that the revenue Operating margin margin should become increasingly stable. In the second half of 2018, management will review the Quilter standalone cost base and operating model to identify long term Operating margin optimisation initiatives to improve overall business efficiency. In the second half of 2018, management will review the Quilter However, at this stage, the initiatives, potential efficiency savings standalone cost base and operating model to identify long term and restructuring costs to achieve this optimisation have not yet optimisation initiatives to improve overall business efficiency. been scoped. However, at this stage, the initiatives, potential efficiency savings and restructuring costs to achieve this optimisation have not yet Our operating model is designed to capture operating leverage been scoped. from the growth in assets. We currently intend to continue to invest in growing our business over the coming years, and in 2018 and Our operating model is designed to capture operating leverage 2019 we will bear the full impact of a standalone cost base as a from the growth in assets. We currently intend to continue to invest listed company. In the near term, this is likely to lead to a small in growing our business over the coming years, and in 2018 and decrease in our operating margin, before interest costs, below 2019 we will bear the full impact of a standalone cost base as a that reported in 2017. We expect the operating leverage benefits listed company. In the near term, this is likely to lead to a small will develop thereafter, and we are targeting a Quilter operating decrease in our operating margin, before interest costs, below margin, before interest costs, of 30 per cent for the year ending that reported in 2017. We expect the operating leverage benefits 31 December 2020 before we implement any future optimisation will develop thereafter, and we are targeting a Quilter operating initiatives from management’s review. margin, before interest costs, of 30 per cent for the year ending 31 December 2020 before we implement any future optimisation Aside from normal operating expense movements as the business initiatives from management’s review. grows, this operating margin target incorporates the following considerations: Aside from normal operating expense movements as the business grows, this operating margin target incorporates the following  the operating profit impact of potential selective investments considerations:  additional staff costs in 2018 and later years arising from long  the operating profit impact of potential selective investments term incentive plan (“LTIP”) awards under the new Quilter share in advice distribution; plans; and in advice distribution;  additional staff costs in 2018 and later years arising from long  in line with previous statements, Quilter expects up to £30 million term incentive plan (“LTIP”) awards under the new Quilter share per annum of additional fixed costs above 2016 operating plans; and expense levels as a consequence of the Managed Separation  in line with previous statements, Quilter expects up to £30 million and its need to operate on a fully standalone basis. Of the per annum of additional fixed costs above 2016 operating additional expenses, approximately £16 million on an annual expense levels as a consequence of the Managed Separation basis were reflected in 2017 year-end reported results, and and its need to operate on a fully standalone basis. Of the therefore up to an incremental approximately £14 million additional expenses, approximately £16 million on an annual of annual expenses will be incurred during 2018. basis were reflected in 2017 year-end reported results, and therefore up to an incremental approximately £14 million of annual expenses will be incurred during 2018. 56 24 24 Old Mutual plc Annual Report and Accounts 2017Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Solvency II impact of sale of Single Strategy Following the completion of the sale of the Single Strategy business, we expect to report that Quilter’s net asset value will increase by c.£360 million based on current consideration expectations and before allowing for the costs of disposal. In addition, we expect to record a restructuring charge of c.£ 20 million in respect of the establishment of the standalone multi-asset business. Dividend policy Our dividend policy will be to target a dividend pay-out range of 40 to 60 per cent of post-tax operating profit, with the split of interim and final dividends to be approximately one-third and two-thirds respectively. Any dividends will take into account Quilter’s underlying cash generation, cash resources, capital position, distributable reserves and market conditions at the time. The first dividend payment which Quilter will make as a separately listed company is expected to be the final dividend in respect of the year ending 31 December 2018. Quilter currently expects this dividend to be determined by a pay-out ratio at the lower end of the target range and to reflect the expected interim / final dividend split. Following the completion of the sale of Single Strategy, and outside the above dividend policy, Quilter will also consider a distribution from the surplus proceeds to its shareholders. In determining the size of any potential return, a number of factors will be taken into account, including: (i) the repayment in full of the senior unsecured term loan, (ii) the costs associated with the sale of Single Strategy, and (iii) the costs associated with the establishment of the standalone Quilter Investors multi-asset business. Old Mutual Wealth review continued Old Mutual Wealth review continued The Solvency II impact of the completion of the sale of Single Strategy would have increased the pro forma 31 December 2017 solvency ratio by c. 40 percentage points before any potential The Solvency II impact of the completion of the sale of Single distribution of surplus proceeds to shareholders. Strategy would have increased the pro forma 31 December 2017 solvency ratio by c. 40 percentage points before any potential Subsequent to the year end, and as part of a series of internal distribution of surplus proceeds to shareholders. transactions, £566 million of intercompany indebtedness to other companies within the Old Mutual plc group has been equitised, Subsequent to the year end, and as part of a series of internal with the effect of the intercompany indebtedness being cancelled transactions, £566 million of intercompany indebtedness to other and replaced with equity in the form of share capital and a merger companies within the Old Mutual plc group has been equitised, reserve. The remaining £200 million intercompany indebtedness with the effect of the intercompany indebtedness being cancelled was repaid in full from the new facilities referred to above and from and replaced with equity in the form of share capital and a merger existing cash resources on 28 February 2018. On the same date, reserve. The remaining £200 million intercompany indebtedness the £70 million revolving credit facility with Old Mutual plc was repaid in full from the new facilities referred to above and from was cancelled. existing cash resources on 28 February 2018. On the same date, the £70 million revolving credit facility with Old Mutual plc Outlook for the Quilter business was cancelled. as a standalone business Quilter has continued to trade in line with expectations since the Outlook for the Quilter business year end. Overall, we continue to remain confident in Quilter’s as a standalone business prospects and it is anticipated that the next trading update will be Quilter has continued to trade in line with expectations since the for the first quarter of 2018, which is expected to be published in year end. Overall, we continue to remain confident in Quilter’s prospects and it is anticipated that the next trading update will be April 2018. April 2018. for the first quarter of 2018, which is expected to be published in As a key step in the preparation of Quilter to be a separately listed business, we will be publishing a Prospectus (the “Prospectus”) in relation to our business. The Prospectus will include more detailed As a key step in the preparation of Quilter to be a separately listed information in relation to Quilter’s business, including its strategy business, we will be publishing a Prospectus (the “Prospectus”) in and outlook. It will also contain detailed risk factors and other key relation to our business. The Prospectus will include more detailed information relevant to our business. information in relation to Quilter’s business, including its strategy and outlook. It will also contain detailed risk factors and other key This section summarises certain information on Quilter’s information relevant to our business. business, including certain forward looking information in relation to operating performance expectations and targets which will be This section summarises certain information on Quilter’s set out in detail in the Prospectus, and these statements should business, including certain forward looking information in relation be read in conjunction with all the information in the Prospectus to operating performance expectations and targets which will be when it is published. set out in detail in the Prospectus, and these statements should be read in conjunction with all the information in the Prospectus NCCF when it is published. NCCF We believe that the positive structural growth dynamics in the UK wealth market and our leading market positions and full service, multi-channel model position Quilter for continued success. As a We believe that the positive structural growth dynamics in the UK result, we will target NCCF (excluding Heritage) of 5 per cent. of wealth market and our leading market positions and full service, opening AuMA per annum over the medium term. Should market multi-channel model position Quilter for continued success. As a conditions remain supportive, we expect Quilter to exceed this result, we will target NCCF (excluding Heritage) of 5 per cent. of opening AuMA per annum over the medium term. Should market target in 2018. conditions remain supportive, we expect Quilter to exceed this target in 2018. Revenue margin Subject to delivering currently expected AuMA volumes and business mix, we believe Quilter’s overall annual rate of revenue Revenue margin margin decline should slow in the near-term, and that the revenue Subject to delivering currently expected AuMA volumes and margin should become increasingly stable. business mix, we believe Quilter’s overall annual rate of revenue margin decline should slow in the near-term, and that the revenue Operating margin margin should become increasingly stable. In the second half of 2018, management will review the Quilter standalone cost base and operating model to identify long term Operating margin optimisation initiatives to improve overall business efficiency. In the second half of 2018, management will review the Quilter However, at this stage, the initiatives, potential efficiency savings standalone cost base and operating model to identify long term and restructuring costs to achieve this optimisation have not yet optimisation initiatives to improve overall business efficiency. However, at this stage, the initiatives, potential efficiency savings been scoped. and restructuring costs to achieve this optimisation have not yet Our operating model is designed to capture operating leverage been scoped. from the growth in assets. We currently intend to continue to invest in growing our business over the coming years, and in 2018 and Our operating model is designed to capture operating leverage 2019 we will bear the full impact of a standalone cost base as a from the growth in assets. We currently intend to continue to invest listed company. In the near term, this is likely to lead to a small in growing our business over the coming years, and in 2018 and decrease in our operating margin, before interest costs, below 2019 we will bear the full impact of a standalone cost base as a that reported in 2017. We expect the operating leverage benefits listed company. In the near term, this is likely to lead to a small will develop thereafter, and we are targeting a Quilter operating decrease in our operating margin, before interest costs, below margin, before interest costs, of 30 per cent for the year ending that reported in 2017. We expect the operating leverage benefits 31 December 2020 before we implement any future optimisation will develop thereafter, and we are targeting a Quilter operating initiatives from management’s review. margin, before interest costs, of 30 per cent for the year ending 31 December 2020 before we implement any future optimisation Aside from normal operating expense movements as the business initiatives from management’s review. grows, this operating margin target incorporates the following considerations: Aside from normal operating expense movements as the business grows, this operating margin target incorporates the following  the operating profit impact of potential selective investments considerations: in advice distribution;  additional staff costs in 2018 and later years arising from long  the operating profit impact of potential selective investments term incentive plan (“LTIP”) awards under the new Quilter share in advice distribution; plans; and plans; and  additional staff costs in 2018 and later years arising from long  in line with previous statements, Quilter expects up to £30 million term incentive plan (“LTIP”) awards under the new Quilter share per annum of additional fixed costs above 2016 operating expense levels as a consequence of the Managed Separation  in line with previous statements, Quilter expects up to £30 million and its need to operate on a fully standalone basis. Of the per annum of additional fixed costs above 2016 operating additional expenses, approximately £16 million on an annual expense levels as a consequence of the Managed Separation basis were reflected in 2017 year-end reported results, and and its need to operate on a fully standalone basis. Of the therefore up to an incremental approximately £14 million additional expenses, approximately £16 million on an annual of annual expenses will be incurred during 2018. basis were reflected in 2017 year-end reported results, and therefore up to an incremental approximately £14 million of annual expenses will be incurred during 2018. 24 24 57 25 S i t r a t e g c r e p o r t Old Mutual plc Annual Report and Accounts 2017Strategic report Old Mutual plc Annual Report and Accounts 2017 Risks Sue Kean Sue Kean Group Chief Risk Officer Group Chief Risk Officer Plc Head Office and the businesses have made good progress in planning and executing key steps in readiness for the Group’s separation. Sue Kean Group Chief Risk Officer 2017 was a critical year for the delivery of the plc strategy. It marked a transition from planning and preparation to execution and delivery of the managed separation. Plc Head Office and the businesses have made good progress in preparing, planning and executing key steps in readiness for the Group’s separation, including completion of the sell-down of the OMAM business and preparing three strong and appropriately capacitated and capitalised businesses ready to stand alone in 2018. It also completed a number of important corporate finance transactions, including the disposal of OMAM and Kotak and further reduction in plc external debt. Once executed, managed separation will remove a number of key risks inherent to the current structure of the Group. These include currency translation risk, constraints on capital fungibility, and the 1999 demutualisation agreement under which the current plc costs and debt interest must be borne by the non-South African businesses. The risks inherent to the Group structure increased during 2017, as regulation evolved and the Group structure became even more South Africa focused. These longer-term strategic and structural risks are being mitigated to a certain extent by the managed separation. In turn, separation introduces shorter- term risks; but while significant, these are largely manageable, and contingency plans are in place for any unexpected delays. Under the active portfolio manager model introduced at the start of the managed separation, the plc evaluates each of the Group’s businesses as an asset. This model is now fully embedded, with a significant amount of responsibility for meeting local capital and liquidity requirements delegated to the respective business Boards. The OMW and OML Boards and their respective governance frameworks have been redefined and refreshed to ensure their fitness to become listed companies. The managed separation project governance framework has continuously adapted to meet changing project needs. As might be expected with a programme of this size, project plans are complex with many interdependencies, timelines are tight and external factors such as unexpected political and economic events can exert additional pressures. Both financial and non-financial risks to the managed separation are constantly monitored, ensuring that we remain within the plc financial risk appetite metrics: central liquidity resources, capital, and earnings volatility. We also continue to monitor risk culture across the Group. We review each managed separation activity in terms of balancing value, cost, time and risk, relative to diverse stakeholder interests. Extensive stress and scenario testing (including macroeconomic and political risk) ensures that we have a full understanding of the possible impacts of variances within the plan and available management actions, and that the plc can remain within its financial risk appetite limits. We continue to focus on managed separation contingency planning, to ensure that we anticipate and mitigate risks and deploy appropriate responses in the event of unforeseen external issues or project management slippage. 58 16 Old Mutual plc Annual Report and Accounts 2017 S i t r a t e g c r e p o r t Old Mutual plc Annual Report and Accounts 2017 Management of the working environment and stress-related risks has been a focus area for us. We have made good progress in determining and implementing appropriate values for each new standalone business. We have devoted considerable work to ensuring the orderly wind- down of the plc and transitioning activities and capabilities to the businesses. The plc’s contingent liabilities and pre-existing risks such as the plc employee pension scheme and internal reinsurance programme are being addressed. To ensure an effective handover to OML, processes have been decommissioned where possible and data archived where necessary. The various asset disposals, currency hedging activities and debt liability management exercises during 2017 have substantially de-risked the residual plc balance sheet. To further reduce downside cash flow risks from equity markets, OM Bermuda updated its hedging strategy at the end of October. Within the businesses, the principal risks remain broadly consistent with those described in the 2015 and 2016 Annual Reports. However, there is a different emphasis on some risks. Execution risk relating to the managed separation is elevated at plc Head Office and the subsidiaries all have significant strategic execution risks relating to major IT or business change initiatives as well as the managed separation itself. Macroeconomic risk in our principal markets continues to be a focus for the Group, as it is for financial services firms generally. In OMW the risks to capital are small but the risks to earnings are very much dependent on market conditions, given OMW’s reliance on asset-based fees. This contrasts with our African businesses, particularly in South Africa, where macro conditions create risks to earnings, liquidity and local capital in the lending, insurance and asset management operations. In 2017, South Africa suffered several sovereign downgrades that increased economic pressures on the country, and there is a significant risk that the country could be removed from international government bond indices. Although the ANC leadership change at the end of 2017 has been positively received by the markets, political and policy uncertainty will continue in 2018 and potentially until the April 2019 national elections. We undertake extensive stress and scenario tests focusing on these economic and political risks, and business plans have been designed to accommodate this difficult macroeconomic position. Finally, given the high level of organisation change, we are mindful of culture and heightened people risk at plc Head Office and across the businesses. Management of the working environment and stress-related risks has been a focus area for us, using specialist external resources where required. We have made good progress in developing resource contingency plans at plc Head Office, and in determining and implementing appropriate values for each new standalone business. Sue Kean Group Chief Risk Officer 59 17 Old Mutual plc Annual Report and Accounts 2017Strategic report Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Risks continued Risks continued Key risks to the managed separation strategy Old Mutual plc’s key mission is executing the managed separation strategy. When this is complete, the Group will be separated, OMW will become a separately listed entity and OMEM, Nedbank, OMB and the residual plc will be subsumed into OML, the newly-listed holding Key risks to the managed separation strategy company. Given the centrality of managed separation, the risks to its execution are inherently the Group’s top risks, and will remain so Old Mutual plc’s key mission is executing the managed separation strategy. When this is complete, the Group will be separated, OMW until managed separation is complete. Although the managed separation is designed to be capable of being executed in adverse market- will become a separately listed entity and OMEM, Nedbank, OMB and the residual plc will be subsumed into OML, the newly-listed holding situations, volatile markets combined with the complexities of the process could in extreme situations impact the timetable for and/or the company. Given the centrality of managed separation, the risks to its execution are inherently the Group’s top risks, and will remain so value realised from the OMW listing. Therefore the macroeconomic and political risks are included within the key business risk sections until managed separation is complete. Although the managed separation is designed to be capable of being executed in adverse market- (pp63-67) rather than below in the risks to execution of managed separation section. situations, volatile markets combined with the complexities of the process could in extreme situations impact the timetable for and/or the value realised from the OMW listing. Therefore the macroeconomic and political risks are included within the key business risk sections The risks are listed in order of descending materiality. All key risks, and their related mitigating actions, are overseen by the plc Board and (pp63-67) rather than below in the risks to execution of managed separation section. the plc Board Risk Committee. Risk mitigation and management actions The risks are listed in order of descending materiality. All key risks, and their related mitigating actions, are overseen by the plc Board and Current impact and risk outlook the plc Board Risk Committee. OMEM, OMW and Nedbank need to be sufficiently capacitated and capitalised to operate as successful independently listed entities. Current impact and risk outlook For the unlisted businesses to be successful standalone businesses they need to be sufficiently well capacitated and OMEM, OMW and Nedbank need to be sufficiently capacitated and capitalised to operate as successful independently listed entities. capitalised. This means strengthening resource in areas where For the unlisted businesses to be successful standalone plc provided support (eg treasury, investor relations and finance), businesses they need to be sufficiently well capacitated and setting up appropriate Governance arrangements and ensuring capitalised. This means strengthening resource in areas where that each business has adequate capital. plc provided support (eg treasury, investor relations and finance), setting up appropriate Governance arrangements and ensuring Perceived weaknesses in any of the businesses’ balance sheets, that each business has adequate capital. strategies, operations, governance structures or leadership could potentially affect the managed separation approvals and the Perceived weaknesses in any of the businesses’ balance sheets, ultimate value obtained. strategies, operations, governance structures or leadership could potentially affect the managed separation approvals and the OML estimates that, after its primary listing on the JSE, its effective ultimate value obtained. Black Economic Empowerment (BEE) shareholding may be slightly below the Financial Sector Charter (FSC) target of 25%, OML estimates that, after its primary listing on the JSE, its effective but this will only be known once the share register settles. As a Black Economic Empowerment (BEE) shareholding may be JSE primarily listed business, OML’s methodology for calculating slightly below the Financial Sector Charter (FSC) target of 25%, its BEE ownership percentage will change, in line with the but this will only be known once the share register settles. As a provisions of the revised FSC. The BEE shareholding will also be JSE primarily listed business, OML’s methodology for calculating impacted by the corporate transactions involved in the managed its BEE ownership percentage will change, in line with the separation. OMEM will be using the new scoring methodology provisions of the revised FSC. The BEE shareholding will also be for its 2017 scorecard, anticipating the impact of the corporate impacted by the corporate transactions involved in the managed restructure, in line with the provisions of the revised Financial separation. OMEM will be using the new scoring methodology Services Code that came into effect on 1 December 2017. for its 2017 scorecard, anticipating the impact of the corporate restructure, in line with the provisions of the revised Financial Services Code that came into effect on 1 December 2017. Risk mitigation and management actions Good progress has been made in capacitating OML and OMW. Both businesses have appointed strong and independent new Boards, enhanced senior management capability and undertaken Good progress has been made in capacitating OML and OMW. significant work to review and begin implementing new operating Both businesses have appointed strong and independent new models, including enhancing their risk functions. These processes Boards, enhanced senior management capability and undertaken have been tracked and monitored by the plc management team. significant work to review and begin implementing new operating models, including enhancing their risk functions. These processes Significant progress has also been made in developing and have been tracked and monitored by the plc management team. internally agreeing the approach and structure of their initial balance sheets to ensure that capital is appropriate for the risks within the Significant progress has also been made in developing and businesses even after stress scenarios. internally agreeing the approach and structure of their initial balance sheets to ensure that capital is appropriate for the risks within the OML will consider appropriate transitions, if required, to achieve businesses even after stress scenarios. its BEE ownership targets in due course. The OML Board will be tasked with exploring multiple mechanisms to ensure this goal OML will consider appropriate transitions, if required, to achieve is met as agreed. its BEE ownership targets in due course. The OML Board will be tasked with exploring multiple mechanisms to ensure this goal is met as agreed. 60 18 18 Old Mutual plc Annual Report and Accounts 2017 S i t r a t e g c r e p o r t Old Mutual plc Annual Report and Accounts 2017 Current impact and risk outlook Risk mitigation and management actions The managed separation listings and scheme need to be executed in a manner that balances value, time, cost and risk to ensure the best outcome for all stakeholders. Managed separation is an inherently complex project with many inter-dependencies and will require multiple internal and external approvals. Project delivery delays or failure to obtain regulatory or court approvals could potentially impact the separation timelines and increase costs. People stretch, both at plc and within the businesses, remains a key risk to the managed separation execution. The businesses are implementing managed separation and their own internal change projects concurrently. South African political risk could impact or delay the regulatory approvals required for completion of the managed separation. Robust project management and governance frameworks have been implemented, co-ordinated across plc, OML and OMW with adviser support. The managed separation governance frameworks have evolved as the project evolves. The financial and execution risks to managed separation are regularly reviewed and assessed, with action taken to mitigate risks balancing time, cost and value. A number of risks are largely outside Old Mutual’s direct control – such as obtaining timely regulatory and court approvals. We have taken action to mitigate these risks as far as possible: for example, early and proactive engagement on the required regulatory approvals, implementation of a shareholder engagement strategy, and the liability debt management exercise. In 2017, we paid particular attention to people and stretch risk. In plc we reviewed all resourcing and made contingency plans for delays to managed separation. The businesses acquired additional resource or upskilled as required, and each area put in place plans to address their particular concerns. While we remain a Group, plc needs to ensure that we meet our fiduciary duties while winding-down the businesses in an orderly manner. The wind-down of plc needs to be undertaken in a manner that will still allow plc to fulfil its fiduciary duties. Wherever possible the plc contingent liabilities and pre-existing plc risks need to be wound down or addressed to minimise transferring these to either OML or OMW. Plc’s fiduciary duties for the remainder of managed separation have been identified and processes are in place to ensure these are met. In 2017 we made significant progress in addressing plc contingent liabilities and pre-existing risks. Actions included the Kotak sale, the resolution of the two legacy pension schemes and the repayment and repurchase of a significant amount of debt. As a result the plc balance sheet will have a positive net asset value on transfer to OML. As part of the wider managed separation process there are robust plc closure plans in place. Wherever possible, redundant processes and tasks have already been closed down. This will continue into 2018 to ensure a streamlined plc is handed over to OML. We have anticipated the risk of not retaining enough plc Head Office operational capacity and capability to run the residual Group effectively in the event of a delayed separation. Although not considered likely, it has been mitigated through contingency planning. 61 19 Old Mutual plc Annual Report and Accounts 2017Strategic report Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Risks continued Risks continued Current impact and risk outlook Risk mitigation and management actions Some risks arise from the constraints of the existing Group structure, and will be reduced by managed separation. Our Group earnings, dividend and surplus capital are reported Current impact and risk outlook in sterling but the majority of our earnings and surplus capital Some risks arise from the constraints of the existing Group structure, and will be reduced by managed separation. are denominated in South African rand. This creates currency Our Group earnings, dividend and surplus capital are reported translation and foreign exchange control risk, and our reported in sterling but the majority of our earnings and surplus capital Group earnings are particularly sensitive to rand/GBP exchange are denominated in South African rand. This creates currency movements. Managed separation will address this risk, by translation and foreign exchange control risk, and our reported removing the current Group structure. Group earnings are particularly sensitive to rand/GBP exchange The recent regulatory trend in both the UK and South Africa has movements. Managed separation will address this risk, by been to encourage the independence of subsidiary Boards while removing the current Group structure. retaining an expectation of Group oversight and control. Managed The recent regulatory trend in both the UK and South Africa has separation mitigates the potential risks arising from this been to encourage the independence of subsidiary Boards while ambivalence, but any delay could present challenges. retaining an expectation of Group oversight and control. Managed separation mitigates the potential risks arising from this ambivalence, but any delay could present challenges. Managed separation seeks to allow each business to meet its Risk mitigation and management actions capital requirements and debt interest in matched currencies and cash flows. Each business will have the appropriate capital Managed separation seeks to allow each business to meet its to succeed independently and to be more closely aligned to its capital requirements and debt interest in matched currencies natural shareholder base. and cash flows. Each business will have the appropriate capital Regular stress and scenario testing helps us understand and to succeed independently and to be more closely aligned to its monitor the resilience of our capital and liquidity over the managed natural shareholder base. separation time horizon. Our modelling shows we are sufficiently Regular stress and scenario testing helps us understand and capitalised in line with our philosophy of holding capital where the monitor the resilience of our capital and liquidity over the managed risks lie. separation time horizon. Our modelling shows we are sufficiently We have implemented dividend hedging on a six-month forward- capitalised in line with our philosophy of holding capital where the looking basis, in line with the expected timing for the completion risks lie. of managed separation. We have implemented dividend hedging on a six-month forward- Risks presented by conflicting regulatory expectations relating to looking basis, in line with the expected timing for the completion Group control versus subsidiary independence will ultimately be of managed separation. removed as the Group separates. In the meantime, we seek to Risks presented by conflicting regulatory expectations relating to address them through open and timely communication with both Group control versus subsidiary independence will ultimately be our subsidiaries and the regulators, and through the continued role removed as the Group separates. In the meantime, we seek to played by plc executives on the subsidiaries’ Boards. address them through open and timely communication with both We have also expanded our documentation of real or perceived our subsidiaries and the regulators, and through the continued role conflicts of interest, and this is regularly refreshed in light of real played by plc executives on the subsidiaries’ Boards. or perceived case studies. We have also expanded our documentation of real or perceived conflicts of interest, and this is regularly refreshed in light of real or perceived case studies. 62 20 20 Old Mutual plc Annual Report and Accounts 2017 S i t r a t e g c r e p o r t Old Mutual plc Annual Report and Accounts 2017 Key risks to OMEM and Nedbank, and OMW In addition to the risks relating to the execution of the managed separation, OML and OMW are exposed to a number of risks inherent to the products they offer and the markets that they operate in. OMEM and Nedbank (ultimately OML) Current impact and risk outlook Risk mitigation and management actions Volatile or difficult macroeconomic conditions, particularly within South Africa, could potentially increase financial pressure on consumers, impacting OML’s future earnings and credit risk. In 2017 South Africa’s real GDP growth increased marginally to 0.9%, with the IMF forecasting similar rates of growth in 2018. There were also several sovereign downgrades which may trigger South Africa’s subsequent exclusion from the Citi World Government Bond Index. The 21 February 2018 Budget introduced a number of tax increases, which sought to address the rising South African government’s fiscal deficit. One of these was a 1% increase to VAT, which together with a continued low growth rate for the economy could increase financial pressure on consumers. The result of such pressure could be reduced demand for OML’s financial products and services, and an increase in lapses and credit default rates. Nedbank, and to a lesser but growing extent OMEM, have significant exposure to credit risk through their banking businesses. Nedbank has a greater proportion of wholesale funding than the market norm; and it is exposed to significant credit risk within the core South African market and in the Rest of Africa, where there are particular challenges due to low growth. The economic situation in Zimbabwe remains volatile, with a lack of liquidity and substantial increases in equity markets, which may not be sustainable. Local exchange controls may reduce OMEM’s ability to remit dividends back to South Africa. OML continuously monitors its financial risk appetite metrics and builds multiple external economic factors into stress and scenario testing to understand their possible impact on earnings, liquidity and capital resilience. In anticipation of 2017’s sovereign downgrades, we built the possible impacts into OML’s business plans and downside projections. Both Nedbank and OMEM are focused on managing discretionary costs resulting from lower growth and potentially slowing revenues as consumers come under increasing pressure. Within OMEM, market and liquidity risks arising from guaranteed products, and the hedges in place to mitigate them, are actively overseen by the Balance Sheet Management team. OMEM’s Credit Loss Ratio remained within limits during 2017, and work continues to develop an improved credit risk governance framework. Due to the current macroeconomic environment, lending is being further restricted to keep OMEM within risk appetite, and this may impact planned earnings. Nedbank’s credit losses were better than planned, due mainly to good risk management and provisioning. Nedbank remains well positioned to deal with potentially severe stress scenarios. OMEM continuously reviews developments in Zimbabwe and undertakes separate stress and scenario testing to understand exposures and identify possible management actions. Changing government policies and public sentiment, particularly in South Africa, could adversely influence external perceptions of OML and impact regulations (including business ownership and fungibility restrictions within Africa). Global and South African political risk remained elevated throughout 2017, but has stabilised somewhat following the February 2018 leadership transition. In H2 2017 media attention focused on issues relating to corruption and state capture. The resignation of Jacob Zuma as President and the appointment of Cyril Ramaphosa as his successor in February 2018 was well received by markets. Tackling corruption and renewing investor confidence will be government priorities. Key risks to OML include the business received from collective labour organisations and public sector workers, which could present a risk of mass exits from our products following a change in sentiment or could be affected by government cutbacks. South African political risk also creates additional risks in the macroeconomic environment (see above). The recent military-backed transfer of power in Zimbabwe raised concerns around political instability. To date the transition has been orderly and introduces potential upside political risk, particularly if the new leadership is able to introduce measures aimed at supporting economic growth. OML monitors political developments and their possible impacts on the business. Where there are potential systemic risks such as the KPMG allegations, cross-businesses teams are mobilised to review the potential impacts of the event, ascertain the actions that can be taken, and work with external stakeholders. Nedbank’s CEO began engagement with Cyril Ramaphosa after his election as ANC leader, emphasising the need for economic policy certainty. OMEM’s CEO is an active member of Business Leadership South Africa and the Association for Savings and Investments South Africa, and attended and sponsored the JSE South African investment conference in New York in November 2017. During 2017, Nedbank enhanced its monitoring and governance over reputational risk in relation to customers, suppliers and other stakeholders. 63 21 Old Mutual plc Annual Report and Accounts 2017Strategic report Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Risks continued Risks continued Current impact and risk outlook Risk mitigation and management actions All major change programmes are overseen by appropriate Risk mitigation and management actions All major change programmes are overseen by appropriate governance structures and, ultimately, the respective OMEM and Nedbank Boards. Delivery of multiple major change programmes increases the risks of non-delivery and people stretch, and could reduce OML’s ability to operate successfully as a standalone entity. Current impact and risk outlook Both OMEM and Nedbank are currently undertaking multiple Delivery of multiple major change programmes increases the risks of non-delivery and people stretch, and could reduce OML’s ability to operate change programmes. These include the managed separation successfully as a standalone entity. and listing, significant IT transformation, and responding to major Both OMEM and Nedbank are currently undertaking multiple regulatory change including the introduction of Twin Peaks change programmes. These include the managed separation regulation in South Africa, SAM and Basel III. and listing, significant IT transformation, and responding to major The volume of these simultaneous change programmes places regulatory change including the introduction of Twin Peaks strain on management and resourcing, and increases delivery risk. regulation in South Africa, SAM and Basel III. This applies particularly at OMEM, where the additional demands The volume of these simultaneous change programmes places of functioning as an independent organisation and embedding strain on management and resourcing, and increases delivery risk. a new management team have put the business under strain. This applies particularly at OMEM, where the additional demands We also recognise that OMEM needs to develop and embed of functioning as an independent organisation and embedding a new customer-focused and digital culture to support the a new management team have put the business under strain. new strategy. We also recognise that OMEM needs to develop and embed The continuing Cape Town water crisis presents a significant risk a new customer-focused and digital culture to support the of disruption to OMEM’s Cape Town operations. new strategy. People risk will remain elevated throughout the managed separation governance structures and, ultimately, the respective OMEM and is compounded by the increased need to manage costs due and Nedbank Boards. to the depressed South African economic environment. People risk will remain elevated throughout the managed separation Where required, interim and contingency resources will be identified and is compounded by the increased need to manage costs due and deployed. to the depressed South African economic environment. OMEM has a broad range of credible contingency arrangements – Nedbank has launched its People and Culture 2020 journeys, including construction of a grey water collection and filtration plant aimed at increasing efficiency and enhancing execution. on its Cape Town operations centre, due to come onstream in early OMEM has a broad range of credible contingency arrangements – May 2018. including construction of a grey water collection and filtration plant on its Cape Town operations centre, due to come onstream in early May 2018. Nedbank has launched its People and Culture 2020 journeys, Where required, interim and contingency resources will be identified aimed at increasing efficiency and enhancing execution. and deployed. The continuing Cape Town water crisis presents a significant risk Velocity of regulatory change in South Africa and increased risk of regulatory enforcement. of disruption to OMEM’s Cape Town operations. In South Africa, the new Twin Peaks supervisory regime and SAM regulations will be implemented over the next few years. Both will Velocity of regulatory change in South Africa and increased risk of regulatory enforcement. drive significant changes for our businesses. In South Africa, the new Twin Peaks supervisory regime and SAM Development of the SAM regulations continued through 2017. regulations will be implemented over the next few years. Both will Two major issues affecting OMEM and OML are the treatment drive significant changes for our businesses. of the Nedbank holding and the agreement of a transitional period Development of the SAM regulations continued through 2017. for capital. Two major issues affecting OMEM and OML are the treatment Conduct risk remains significant, with an increased focus on the of the Nedbank holding and the agreement of a transitional period quality of advice provided with the distribution of our mass market for capital. products, presenting a risk of regulatory intervention and redress. Conduct risk remains significant, with an increased focus on the Both Nedbank and OMEM will be impacted by the implementation quality of advice provided with the distribution of our mass market of IFRS9 and IFRS17, the FICA Amendment Act and Basel III – products, presenting a risk of regulatory intervention and redress. which come into effect during 2018 and 2019 – and have Both Nedbank and OMEM will be impacted by the implementation programmes underway to ensure compliance. of IFRS9 and IFRS17, the FICA Amendment Act and Basel III – which come into effect during 2018 and 2019 – and have programmes underway to ensure compliance. Change and readiness programmes are underway to ensure compliance with the new regulatory framework, although resourcing within the Risk and Finance functions remains a challenge. Change and readiness programmes are underway to ensure Nedbank began with the design and introduction of a conduct risk compliance with the new regulatory framework, although resourcing framework in 2016. In 2017 it began a full-scale Market Conduct within the Risk and Finance functions remains a challenge. regulatory programme, assisted by EY. Nedbank began with the design and introduction of a conduct risk OMEM is developing a new Market Conduct framework which will framework in 2016. In 2017 it began a full-scale Market Conduct support enhanced oversight of advice risk. regulatory programme, assisted by EY. Both OMEM and Nedbank continue to engage actively with OMEM is developing a new Market Conduct framework which will government, regulators and industry forums to positively influence support enhanced oversight of advice risk. the evolving public policy landscape. Both OMEM and Nedbank continue to engage actively with Nedbank and OMEM continue to embed their Anti Money government, regulators and industry forums to positively influence Laundering (AML) frameworks and controls, particularly in their the evolving public policy landscape. Rest of Africa subsidiaries. Nedbank and OMEM continue to embed their Anti Money Laundering (AML) frameworks and controls, particularly in their Rest of Africa subsidiaries. 64 22 22 Old Mutual plc Annual Report and Accounts 2017 S i t r a t e g c r e p o r t Old Mutual plc Annual Report and Accounts 2017 Current impact and risk outlook Risk mitigation and management actions Failure to adequately anticipate or respond to competitive pressures or changing customer expectations, particularly in relation to enhancing the digital offering. OMEM faces significant competitive pressures in its core markets and there is a risk of being left behind in the customer proposition development race. OMEM is undertaking several strategic investments to improve customer processes and experience, respond to new regulatory requirements, and integrate the UAP business, acquired in 2015, with investment in sales and service enablement in Africa (starting in the Faulu and CABS businesses). Nedbank is currently implementing the digital journey and managed evolution of its existing IT infrastructure. Its Managed Evolution systems roll out, now underway, and digital fast lane strategy are bringing large-scale changes; some increase in IT disruption and impact to systems availability must therefore be expected. OMEM is exposed to risks relating to the stability and maintenance of its existing IT infrastructure in its Rest of Africa businesses. Strategic and governance risks in the Rest of Africa subsidiaries. Nedbank and OMEM’s Rest of Africa businesses have been subject to strategic and governance risks and in some cases underperformance. As some of these subsidiaries are separately listed and not fully owned, there are potential issues relating to information flows and strategic alignment. In addition, businesses in some jurisdictions may be subject to government restrictions on repatriation of profits. Nedbank’s strategic alliance with ETI was significantly affected by the fall in oil prices and the downturn in the Nigerian economy, resulting in losses and lower-than-expected business flows. However, there have been a number of positive developments during the year, including Nigeria exiting recession. OMEM has been working to integrate the UAP business with a focus on embedding governance and control frameworks. The CABS business has the risk of volatile results due to the challenging environment. De-risking and de-scoping OMEM’s IT transformation programme has reduced project delivery risk. A robust project governance framework is in place and progress is monitored by the OMEM Board IT Committee, which has been augmented with experienced non-executive directors. Nedbank has a strong and established IT governance framework and has enhanced second-line oversight. OMEM is currently reviewing its entire IT capability framework to ensure that it can support the future strategy. The Rest of Africa businesses remain closely monitored and overseen by the respective Nedbank and OMEM Group functions and Board committees. Progress has been made in strengthening and aligning governance and control frameworks and the integration of Rest of Africa subsidiaries remains a focus area. Nedbank has identified a need for a centralised and co-ordinated operating framework to align the subsidiaries with the main business, increasing monitoring and oversight at the subsidiary level. This framework is in its early implementation stages. The outlook for the ETI alliance improved during 2017, as Nigeria’s exit from recession helped to boost business performance. ETI governance committees have been strengthened with key appointments. A cybersecurity breach may cause business disruption, reputational damage and material adverse effects on the business’ financial condition, operational results and prospects. Both OMEM and Nedbank are exposed to increasing cyber security risks, with legacy infrastructure particularly vulnerable. Cyber attacks could result in operational losses, interruption of business operations, the loss of critical data and reputational damage. Nedbank has an experienced Chief Information Security Officer and has made significant progress in enhancing cyber-resilience during 2017. Nedbank continues to invest substantially on this front. OMEM has recruited a new Chief Information Security Officer and strengthening its cybersecurity team. The effectiveness of the control environment is assessed by regular external assurance. 65 23 Old Mutual plc Annual Report and Accounts 2017Strategic report Risks continued Risks continued OMW Current impact and risk outlook Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Risk mitigation and management actions OMW Volatile or difficult global macroeconomic conditions could potentially impact OMW’s earnings, particularly asset-based fees. Global markets maintained historic highs in 2017, with market Current impact and risk outlook volatility relatively subdued. However, there is a continuing risk Volatile or difficult global macroeconomic conditions could potentially impact OMW’s earnings, particularly asset-based fees. of a rapid correction or return of increased volatility. Global markets maintained historic highs in 2017, with market FTSE100 equity levels remained high, with a weaker pound volatility relatively subdued. However, there is a continuing risk boosting sterling profitability for many multinational firms in the of a rapid correction or return of increased volatility. index. A potential market correction could impact OMW by FTSE100 equity levels remained high, with a weaker pound reducing asset-based fees. boosting sterling profitability for many multinational firms in the index. A potential market correction could impact OMW by Changing government policies and public sentiment in our key markets could adversely influence external perceptions of OMW and impact reducing asset-based fees. regulatory change. OMW regularly undertakes stress and scenario testing to understand During 2017 OMW incorporated the implications of a ‘hard Brexit’ the effect of severe macroeconomic events and their potential scenario into its stress and scenario testing to understand any impact on the business. possible longer-term implications on capital and liquidity. During 2017 OMW incorporated the implications of a ‘hard Brexit’ scenario into its stress and scenario testing to understand any possible longer-term implications on capital and liquidity. the effect of severe macroeconomic events and their potential impact on the business. OMW regularly undertakes stress and scenario testing to understand Risk mitigation and management actions We continuously monitor political developments and review the Global political risk remained elevated throughout 2017, with Changing government policies and public sentiment in our key markets could adversely influence external perceptions of OMW and impact tensions in the Middle East impacting oil prices, and the ongoing regulatory change. stand-off on the Korean peninsula. Global political risk remained elevated throughout 2017, with In the UK, concerns remain over the implementation of Brexit tensions in the Middle East impacting oil prices, and the ongoing and the impact of the Conservative government losing its stand-off on the Korean peninsula. majority in the April 2017 election. This created additional risk In the UK, concerns remain over the implementation of Brexit in financial markets. and the impact of the Conservative government losing its majority in the April 2017 election. This created additional risk Delivery of multiple major change programmes increases the risk of non-delivery and people stretch, and could reduce OMW’s ability to operate in financial markets. successfully as a standalone entity (including the separation and sale of its single-strategy business, OMGI). During 2017, OMW undertook scenario testing for possible changes in government policy. possible impacts. During 2017, OMW undertook scenario testing for possible changes in government policy. We continuously monitor political developments and review the possible impacts. All major change programmes have appropriate and robust governance structures, and are ultimately overseen by the strengthened OMW management team and Board. OMW is currently undertaking multiple change programmes, Delivery of multiple major change programmes increases the risk of non-delivery and people stretch, and could reduce OMW’s ability to operate including the managed separation and listing, the sale and successfully as a standalone entity (including the separation and sale of its single-strategy business, OMGI). separation of the OMGI single-strategy business, the platform OMW is currently undertaking multiple change programmes, transformation programme, and responding to major regulatory including the managed separation and listing, the sale and changes such as MiFID II and GDPR. separation of the OMGI single-strategy business, the platform This volume of concurrent change inevitably imposes strains on transformation programme, and responding to major regulatory management, particularly resource and project management, changes such as MiFID II and GDPR. increasing delivery risk. There is an increased risk of human This volume of concurrent change inevitably imposes strains on resources process failures regarding employee recruitment, management, particularly resource and project management, retention, reward and development. increasing delivery risk. There is an increased risk of human resources process failures regarding employee recruitment, retention, reward and development. All major change programmes have appropriate and robust To reduce people risk, OMW is identifying those most at risk, governance structures, and are ultimately overseen by the offering coaching, additional resource and wellbeing packages, strengthened OMW management team and Board. and providing monthly people reports to management. To reduce people risk, OMW is identifying those most at risk, offering coaching, additional resource and wellbeing packages, and providing monthly people reports to management. 66 24 24 Old Mutual plc Annual Report and Accounts 2017 S i t r a t e g c r e p o r t Old Mutual plc Annual Report and Accounts 2017 Current impact and risk outlook Risk mitigation and management actions Failure to adequately anticipate or respond to competitive pressures or changing customer expectations, particularly in relation to enhancing and developing a new platform. The new platform transformation programme has a robust governance framework. It is overseen by OMW’s Board IT Committee, which includes non-executive directors with transformation project experience. The programme’s well defined project management framework includes risk identification and monitoring, with a clearly defined risk appetite framework and statements. Its progress has remained on-plan from the outset. Lessons learned from a review of the initial project have been implemented. Actions included ensuring strong second-line oversight and the creation of the OMW Board IT Committee. OMW must continue to anticipate and respond to competitive pressures and customer expectations relating to product design, distribution and customer experience. Failure to do so could result in reduced new business volumes and outflows. This is particularly relevant to OMW’s IT and systems, where key IT initiatives may not deliver what is required either on time or within budget or provide the performance levels required to support current and future needs. Failure to devote significant resources to support existing systems and upgrade legacy systems could impair our ability to gather information for pricing, underwriting and reserving, and to attract and retain customers, for whom online functionality is increasingly important. The initial platform project experienced significant cost and time over-runs and was terminated in 2017. It was replaced by a new platform transformation programme, with FNZ replacing IFDS as lead external partner. Failure of the new programme could materially affect OMW’s financial position and client relationships. Extensive regulatory change in core markets increases the risk of failing to comply with existing and new regulations. OMW is subject to extensive regulation in the UK and internationally and thus faces compliance risks, including conduct risk. The underlying businesses are subject to the risk of adverse changes in the laws, regulations and regulatory requirements in the markets in which they operate. It is difficult to accurately predict the timing, scope or form of future regulatory initiatives, although it is widely expected that there will continue to be a substantial amount of regulatory change. Notable developments include the EU General Data Protection Regulation (GDPR) and UK Senior Managers and Certification Regime (SMCR) and a high degree of supervisory oversight of regulated financial services firms, challenging firms on the extent to which compliance with requirements and the interests of customers have been achieved. OMW is currently under investigation over to the treatment of long-standing customers of closed-book products. OMW has built a regulatory change framework to allow effective planning and management across the organisation, and to ensure prompt identification of regulatory change affecting one or more OMW businesses. OMW-level projects are in place for key regulatory changes such as MiFID II and GDPR to ensure that a consistent approach to both interpretation and implementation is taken across all businesses, tracked by the OMW Regulatory Delivery Committee. A specialist Regulatory Liaison team facilitates effective relations and communications with OMW’s primary regulators, the FCA and PRA, ensuring careful tracking and delivery of regulatory requests and actions. The activities of this team are closely monitored by executive management and the Board Risk Committee. OMW is cooperating with the FCA in its investigation, which is ongoing. A cybersecurity breach may cause business disruption, reputational damage and material adverse effects on the business’ financial condition, operational results and prospects. OMW is increasingly exposed to the risk that third parties or malicious insiders may attempt to use cybercrime techniques, including distributed denial of service attacks, to disrupt the availability, confidentiality and integrity of its IT systems. This could result in disruption to key operations, make it difficult to recover critical services, damage assets and compromise data. OMW have made significant investments across their businesses to increase system security and resilience, and an Information Security Improvement Programme is underway. OMW has appointed a new Chief Information Security Officer and are strengthening the support team. 67 25 Old Mutual plc Annual Report and Accounts 2017Strategic report Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Risks continued Risks continued Risk appetite Plc liquidity and regulatory capital have remained our key risk appetite metrics throughout 2017, supported by earnings volatility Risk appetite and risk and control culture. The financial metrics are projected Plc liquidity and regulatory capital have remained our key risk over the horizon of managed separation: we evolve and appetite metrics throughout 2017, supported by earnings volatility recalibrate them as the managed separation progresses, and risk and control culture. The financial metrics are projected by undertaking extensive stress and scenario testing. over the horizon of managed separation: we evolve and recalibrate them as the managed separation progresses, The businesses have developed their own qualitative and by undertaking extensive stress and scenario testing. quantitative risk appetite metrics reflecting their own business models, industries and risk strategies. These are monitored by The businesses have developed their own qualitative and the business Boards as well as the plc. At both plc and business quantitative risk appetite metrics reflecting their own business levels we use risk appetite limits and early warning thresholds models, industries and risk strategies. These are monitored by (EWTs) to define the boundaries of risk taking and manage our the business Boards as well as the plc. At both plc and business risk/return profile. levels we use risk appetite limits and early warning thresholds (EWTs) to define the boundaries of risk taking and manage our risk/return profile. Overview of the Group’s risk and governance structures Overview of the Group’s risk The active portfolio manager governance model, introduced in 2016 after the announcement of the managed separation strategy, and governance structures is now fully embedded. Under this model we evaluate each of the The active portfolio manager governance model, introduced in Group’s businesses as an asset, with a view to realising maximum 2016 after the announcement of the managed separation strategy, value through separation. is now fully embedded. Under this model we evaluate each of the Group’s businesses as an asset, with a view to realising maximum The businesses, particularly OMW and OML, have developed their value through separation. own governance capabilities – such as appointing independent chairmen, and defining their own values and culture, risk strategies The businesses, particularly OMW and OML, have developed their and appetite frameworks. The plc still oversees these processes own governance capabilities – such as appointing independent and will continue to monitor them centrally until separation. chairmen, and defining their own values and culture, risk strategies and appetite frameworks. The plc still oversees these processes Risk strategy and will continue to monitor them centrally until separation. Our risk strategy remains unchanged from 2016. We continue to use the following principles to guide our actions and choices Risk strategy throughout the managed separation: Our risk strategy remains unchanged from 2016. We continue to use the following principles to guide our actions and choices  All our actions must be directed towards our objective and throughout the managed separation: aligned with these measures of success, within the parameters and risk appetite agreed by the plc Board  All our actions must be directed towards our objective and  We will have to make trade-offs between four principal aligned with these measures of success, within the parameters considerations: the value unlocked, the cost involved in and risk appetite agreed by the plc Board delivering the strategy, the time it takes to do so, and the risks  We will have to make trade-offs between four principal incurred or mitigated by our actions considerations: the value unlocked, the cost involved in delivering the strategy, the time it takes to do so, and the risks meaningful action in a reasonable timeframe at valuations that incurred or mitigated by our actions are perceived to be, at a minimum, fair  To maintain market confidence we must demonstrate  To maintain market confidence we must demonstrate  We are committed to treating shareholders fairly. We will seek to meaningful action in a reasonable timeframe at valuations that communicate our intentions and plans in an open and proactive are perceived to be, at a minimum, fair manner, as appropriate in the context of our fiduciary obligations  We are committed to treating shareholders fairly. We will seek to  We are willing to accept short-term price volatility in our stock as communicate our intentions and plans in an open and proactive the market digests each action and begins to value each manner, as appropriate in the context of our fiduciary obligations business and the plc appropriately  We are willing to accept short-term price volatility in our stock as  We will continue to discharge our fiduciary and regulatory the market digests each action and begins to value each responsibilities in an appropriate manner business and the plc appropriately  We will continue to discharge our fiduciary and regulatory responsibilities in an appropriate manner 68 26 26 Old Mutual plc Annual Report and Accounts 2017Old Mutual plc Annual Report and Accounts 2017 The plc’s appetite and intentions are set out below, with the metrics used to measure each: Capital Earnings Liquidity Culture The Group has no appetite for regulatory intervention (whether perceived or real) during managed separation. As such, we hold a buffer above minimum requirements in order to remain solvent. During 2017, we continued to set Solvency II capital risk appetite at 110% with an EWT at 120%. This reflects the significant level of disallowed surplus capital within South Africa under the Solvency II calculations. We indicated at our 2017 Interim Results that we could accept the possibility of dipping below our EWT when considering options for our capital structure. Our key principle is that all our businesses should be well capitalised as if they were standalone businesses, and that the Group position must be compliant with regulatory requirements at all times. There is ongoing monitoring of our Solvency II position and the impact of managed separation activities on this are projected. We remained above our EWT throughout 2017. Based on stress tests, the Board agreed at the time of the Liability Management exercise in November that the Group could operate below the EWT where the reasons for it do not reflect the underlying economic position of the Group, providing the Group remained above risk appetite of 110%. We accept that as part of our plc strategy of managed separation, and as our businesses consolidate their past expansion, execution risks and earnings volatility are likely to increase. However, we have no appetite for big surprises, such as earnings volatility that cannot be anticipated by the markets we operate in or significant operational losses. The capital management policy introduced with the managed separation strategy allows significant flexibility in managing liquidity. We hold a buffer at Group level to support this, sufficient for a liquidity survival horizon of at least 12 months. We also have a multi-year liquidity view over the managed separation horizon. The Group should be able to meet extreme but plausible short-term losses. We measure our risk and control culture by considering our governance and tone from the top, understanding of risk, attitude to risk, control functions, quality of management information, and remuneration structures. Qualitative assessment of our risk and control culture focuses on the values and behaviours embedded in the businesses that shape risk decisions. S i t r a t e g c r e p o r t Monitoring and management At the plc level, we make The plc liquidity metric is Each business undertakes extensive use of multi-year stress testing to understand the possible impact of risks on dividends and earnings. We also use business-specific monitoring to identify and assess risks within individual businesses. We monitor earnings volatility by reviewing year-to-date pre-tax AOP on a constant currency basis. In 2017, earnings remained above this indicator. continuously monitored and reported to the plc Board. The limits and EWT are calculated dynamically so are refreshed each month. In 2017, plc liquidity remained above both the limits set and the EWT. culture monitoring half-yearly using a 50-question qualitative assessment. We set threshold levels for positive responses, with an EWT of 70% and a limit of 50%. At year end 2017 one business was slightly below EWT but on an improving trend. Ongoing actions are being taken to improve the position. 69 27 Old Mutual plc Annual Report and Accounts 2017Strategic report Old Mutual plc Annual Report and Accounts 2017 Board of Directors Old Mutual plc Annual Report and Accounts 2017 C o r p o r a t e g o v e C r o n r a p n o c r e a t e g o v e r n a n c e Mike Arnold B.Sc., F.I.A. (70, British) Independent non-executive director since September 2009. Chairman of the Board Risk Committee and a member of the Group Audit Committee. Mike Arnold Mike Arnold B.Sc., F.I.A. (70, British) B.Sc., F.I.A. (70, British) Mike Arnold was Principal Consulting Actuary and Head of Life practice at the consulting actuarial firm Milliman from 2002 to 2009. Prior to that, he had been the senior partner at the practice from 1995. He is a past Member of Council and Vice Chairman of the Institute of Actuaries, past Chairman of the Independent non-executive director since September 2009. Chairman of the International Association of Consulting Actuaries and past member of the Board Risk Committee and a member of the Group Audit Committee. Board of Actuarial Standards. Mike Arnold was Principal Consulting Actuary and Head of Life practice at Non-executive director of Financial Information Technology Limited. the consulting actuarial firm Milliman from 2002 to 2009. Prior to that, he had been the senior partner at the practice from 1995. He is a past Member of Council and Vice Chairman of the Institute of Actuaries, past Chairman of the International Association of Consulting Actuaries and past member of the Board of Actuarial Standards. Non-executive director of Financial Information Technology Limited. Zoe Cruz B.A., M.B.A. (63, US) Independent non-executive director since January 2014. Also a member of the Board Risk and Remuneration Committees. Zoe Cruz Zoe Cruz B.A., M.B.A. (63, US) B.A., M.B.A. (63, US) Zoe Cruz was Co-President for Institutional Securities and Wealth Management at Morgan Stanley from 2005 to 2007, where she was responsible for running major revenue-generating businesses, including overseeing their securities risk management and information technology. Independent non-executive director since January 2014. Also a member From 2009 to 2012, she was involved in founding and running her own of the Board Risk and Remuneration Committees. investment management firm, Voras Capital Management. Prior to becoming Zoe Cruz was Co-President for Institutional Securities and Wealth Co-President of Morgan Stanley, she had been its Global Head of Fixed Management at Morgan Stanley from 2005 to 2007, where she was Income, Commodities and Foreign Exchange from 2001 until 2005. She responsible for running major revenue-generating businesses, including joined the company in 1982 and was the third founding member of the overseeing their securities risk management and information technology. foreign exchange group. From 2009 to 2012, she was involved in founding and running her own Founder and CEO of EOZ Global. Non-executive director of Ripple Labs Inc. investment management firm, Voras Capital Management. Prior to becoming Co-President of Morgan Stanley, she had been its Global Head of Fixed Income, Commodities and Foreign Exchange from 2001 until 2005. She joined the company in 1982 and was the third founding member of the foreign exchange group. Founder and CEO of EOZ Global. Non-executive director of Ripple Labs Inc. Alan Gillespie CBE, B.A. Hons, M.A., Ph.D. (67, British) Senior Independent Director since May 2011, having joined the Board as an independent non-executive director in November 2010. Also a member of the Group Audit, Nomination and Governance, and Remuneration Committees. Alan Gillespie CBE, B.A. Hons, M.A., Ph.D. Alan Gillespie (67, British) CBE, B.A. Hons, M.A., Ph.D. (67, British) Alan Gillespie was a partner of Goldman Sachs from 1990, with responsibility for corporate finance and mergers and acquisitions in the UK and Ireland. Senior Independent Director since May 2011, having joined the Board as He jointly led the firm’s financial services practice in Europe and in 1996 an independent non-executive director in November 2010. Also a member established Goldman Sachs’ presence in South Africa. After retiring from of the Group Audit, Nomination and Governance, and Remuneration Goldman Sachs in 1999, he became Chief Executive of the Commonwealth Committees. Development Corporation in the UK. From 2001 to 2008, he was Chairman Alan Gillespie was a partner of Goldman Sachs from 1990, with responsibility of Ulster Bank, a subsidiary of Royal Bank of Scotland plc, and from 2008 for corporate finance and mergers and acquisitions in the UK and Ireland. to 2017 a non-executive director of UBM plc. He jointly led the firm’s financial services practice in Europe and in 1996 Alan Gillespie is also a member of the Audit and Risk, Remuneration, and established Goldman Sachs’ presence in South Africa. After retiring from Nomination Committees of ContourGlobal plc, Chairman of the Economic Goldman Sachs in 1999, he became Chief Executive of the Commonwealth and Social Research Council. Development Corporation in the UK. From 2001 to 2008, he was Chairman of Ulster Bank, a subsidiary of Royal Bank of Scotland plc, and from 2008 to 2017 a non-executive director of UBM plc. Alan Gillespie is also a member of the Audit and Risk, Remuneration, and Nomination Committees of ContourGlobal plc, Chairman of the Economic and Social Research Council. Board of Directors Patrick O’Sullivan Patrick O’Sullivan M.Sc. (Econ), B.B.S., F.C.A. (Ireland) M.Sc. (Econ), B.B.S., F.C.A. (Ireland) (68, Irish) (68, Irish) Chairman of the Board since January 2010. Also chairs the Nomination and Governance Committee Patrick O’Sullivan M.Sc. (Econ), B.B.S., F.C.A. (Ireland) (68, Irish) Patrick O’Sullivan was Vice Chairman of Zurich Financial Services from 2007 to 2009, where he had specific responsibility for its international businesses including those in South Africa. Prior to that, he had been CFO of the ZFS Group and CEO of Eagle Star Insurance Company. He held positions Chairman of the Board since January 2010. Also chairs the Nomination and at Bank of America, Goldman Sachs, Financial Guaranty Insurance Governance Committee Company and Barclays/BZW. Patrick O’Sullivan was Vice Chairman of Zurich Financial Services from 2007 Patrick O’Sullivan has been appointed Chairman of Saga plc with effect to 2009, where he had specific responsibility for its international businesses from 1 May 2018. His previous non-executive roles have included Chairman including those in South Africa. Prior to that, he had been CFO of the ZFS of the UK’s Shareholder Executive, Deputy Governor of the Bank of Ireland, Group and CEO of Eagle Star Insurance Company. He held positions Senior Independent Director at Man Group plc and Chairman of the Audit at Bank of America, Goldman Sachs, Financial Guaranty Insurance Committee at Collins Stewart plc and Cofra Group AG. Company and Barclays/BZW. Patrick O’Sullivan has been appointed Chairman of Saga plc with effect from 1 May 2018. His previous non-executive roles have included Chairman of the UK’s Shareholder Executive, Deputy Governor of the Bank of Ireland, Senior Independent Director at Man Group plc and Chairman of the Audit Committee at Collins Stewart plc and Cofra Group AG. Bruce Hemphill Bruce Hemphill B.A., C.P.E. (54, South African) B.A., C.P.E. (54, South African) Group Chief Executive. Also a non-executive director of Nedbank Group Limited, Nedbank Limited, Old Mutual Group Holdings and Old Mutual Wealth. Bruce Hemphill B.A., C.P.E. (54, South African) Bruce Hemphill has been Group Chief Executive since November 2015. He was previously Chief Executive of Wealth, Insurance and Non-Bank Financial Services at Standard Bank Group, the largest African banking group by assets and earnings. From June 2006 to February 2014, he was Group Chief Executive. Also a non-executive director of Nedbank Group Chief Executive of Liberty Group, an African financial services group listed Limited, Nedbank Limited, Old Mutual Group Holdings and Old Mutual Wealth. on the JSE. He originally trained as a lawyer in the UK, practising law in Bruce Hemphill has been Group Chief Executive since November 2015. both the UK and Hong Kong. After completing a management training He was previously Chief Executive of Wealth, Insurance and Non-Bank programme at Anglo American in South Africa, he joined the corporate Financial Services at Standard Bank Group, the largest African banking finance team at Standard Merchant Bank, where he eventually headed group by assets and earnings. From June 2006 to February 2014, he was up the corporate finance, investment, banking, commercial banking and Chief Executive of Liberty Group, an African financial services group listed cash equities businesses. on the JSE. He originally trained as a lawyer in the UK, practising law in both the UK and Hong Kong. After completing a management training programme at Anglo American in South Africa, he joined the corporate finance team at Standard Merchant Bank, where he eventually headed up the corporate finance, investment, banking, commercial banking and cash equities businesses. Ingrid Johnson Ingrid Johnson C.A. (SA), A.M.P. (Harvard) C.A. (SA), A.M.P. (Harvard) (51, South African) (51, South African) Ingrid Johnson C.A. (SA), A.M.P. (Harvard) (51, South African) Ingrid Johnson has been the Group Finance Director of Old Mutual since July 2014. She is a non-executive director of Old Mutual Wealth, a director of Old Mutual Group Holdings, and is currently acting as its interim Chief Financial Officer, and OML Finance Director-designate until Casper Troskie is fully transitioned into that role, after which she will resume her non-executive role on the Board of Old Mutual Group Holdings. She was previously the Ingrid Johnson has been the Group Finance Director of Old Mutual since Group Managing Executive: Retail and Business Banking from August 2009 July 2014. She is a non-executive director of Old Mutual Wealth, a director and a member of the Nedbank Group Executive Committee and a Prescribed of Old Mutual Group Holdings, and is currently acting as its interim Chief Officer since 2008. Ingrid was responsible for the turnaround of the Nedbank Financial Officer, and OML Finance Director-designate until Casper Troskie Retail Banking cluster, and the integration of Imperial Bank in addition to is fully transitioned into that role, after which she will resume her non-executive retaining her role of leading the commercial cluster, Nedbank Business role on the Board of Old Mutual Group Holdings. She was previously the Banking, which she had held from 2005. Ingrid has over 20 years’ experience Group Managing Executive: Retail and Business Banking from August 2009 in financial services. She is a qualified chartered accountant and completed and a member of the Nedbank Group Executive Committee and a Prescribed the Advanced Management Programme at Harvard Business School. Officer since 2008. Ingrid was responsible for the turnaround of the Nedbank Retail Banking cluster, and the integration of Imperial Bank in addition to retaining her role of leading the commercial cluster, Nedbank Business Banking, which she had held from 2005. Ingrid has over 20 years’ experience in financial services. She is a qualified chartered accountant and completed the Advanced Management Programme at Harvard Business School. 70 3 3 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Danuta Gray Danuta Gray B.Sc., M.Sc., M.B.A. (59, British) B.Sc., M.Sc., M.B.A. (59, British) Trevor Manuel Trevor Manuel B.Tech, A.P.M. (62*, South African) [* as at date of publication] B.Tech, A.P.M. (62, South African) Independent non-executive director since March 2013. Also Chairman of the Remuneration Committee and a member of the Nomination and Governance Committee Danuta Gray was Chairman of Telefónica O2 in Ireland until December 2012, having previously been its Chief Executive from 2001 to 2010. Prior to that, she was a Senior Vice President for BT Europe in Germany, where she gained experience in sales, marketing, customer service and technology and in leading and changing large businesses. She previously served for seven years on the board of Irish Life and Permanent plc and was also a director of Business in the Community. Interim Chairman of Aldermore Group plc, non-executive director of Direct Line Insurance Group plc and a non-executive Defence Board Member and Chair of the People Committee at the UK Ministry of Defence. She is also a non-executive director and Chairman of the Remuneration Committee of PageGroup plc as at the date of this document but will be stepping down from those roles at that company’s AGM in June 2018. Non-executive director since January 2016. Also Chairman of Old Mutual Group Holdings and a member of the Board Risk Committee. Trevor Manuel was a minister in the South African government for more than 20 years, serving under Presidents Mandela, Mbeki, Motlanthe and Zuma. He served as Finance Minister from 1996 to 2009. Before his retirement from public office in 2014, he was Minister in the Presidency responsible for South Africa’s National Planning Commission. Throughout his career, he assumed a number of ex officio positions on international bodies, including the United Nations Commission for Trade and Development (UNCTAD), the World Bank, the International Monetary Fund, the G20, the African Development Bank and the Southern African Development Community. He has also served on a number of voluntary public interest commissions including Africa Commission, Global Commission on Growth and Development, Global Ocean Commission, and the New Climate Economy. He holds a National Diploma in Civil and Structural Engineering from the Peninsula Technikon, South Africa and completed an Executive Management Programme at Stanford University, USA. Member of the International Advisory Board of the Rothschild Group and Deputy Chairman of Rothschild South Africa, which provides financial advisory services to Old Mutual. Also a non-executive director of Swiss Re. Adiba Ighodaro Adiba Ighodaro LL.B., B.L., ACCA (54, British) LL.B., B.L., ACCA (54, British) Independent non-executive director since January 2014. Also a member of the Group Audit Committee. Adiba Ighodaro joined the Commonwealth Development Corporation (CDC) in 1991, first in London, and later in Lagos, with a remit to establish CDC’s Nigerian business. In 1995, her focus moved to the Caribbean as a Senior Investment Executive and Investment Manager, helping to obtain investment for and dispose of some of CDC’s interests in Africa and the Caribbean. Later she became CDC’s Country Manager for Nigeria. She also became Head of West Africa, with responsibility for building the investment business of CDC/Actis across the region. Actis was spun out of CDC in 2004, following which she became a founding principal of Actis’ fundraising group. Today, as a partner of the firm, Adiba both heads fundraising across the Americas and manages a number of Actis’ global strategic relationships. Partner at Actis. Roger Marshall Roger Marshall B.Sc. (Econ.), F.C.A. (69, British) B.Sc. (Econ.), F.C.A. (69, British) Independent non-executive director of the Company and Chairman of the Group Audit Committee since August 2010. Also a member of the Board Risk, and Remuneration Committees Roger Marshall was formerly an audit partner at PricewaterhouseCoopers, where he led the audit of a number of major groups, including Zurich Financial Services and Lloyds TSB. Director of the Financial Reporting Council, Pension Insurance Corporation and EFRAG. Vassi Naidoo Vassi Naidoo C.A. (SA) (62, South African/British) C.A. (SA) (63, South African/British) Non-executive director of the Company and Chairman of Nedbank Group Limited since May 2015. Also a director of Old Mutual Group Holdings and a member of the Group Audit, and Nomination and Governance Committees. Vassi Naidoo was Vice Chairman of Deloitte UK from 2009 to 2014. CEO of Deloitte Southern Africa from 1998 to 2006. Member of the Institute of Chartered Accountants in England and Wales and honorary life member of the South African Institute of Chartered Accountants. 71 4 Old Mutual plc Annual Report and Accounts 2017Governance Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Corporate governance Corporate governance Board Nkosana Moyo and Nonkululeko Nyembezi stepped down from the Board on 29 June and 31 December 2017 respectively. Board There were no other changes in the membership of the Board Nkosana Moyo and Nonkululeko Nyembezi stepped down during the year. We believe the current Board meets our from the Board on 29 June and 31 December 2017 respectively. objective of having the diversity of skills, experience, gender and There were no other changes in the membership of the Board geographical experience relevant to the Company’s business during the year. We believe the current Board meets our profile, having regard to the managed separation strategy. objective of having the diversity of skills, experience, gender and geographical experience relevant to the Company’s business During 2017, the Board’s focus has been on the successful profile, having regard to the managed separation strategy. delivery of the managed separation strategy, while ensuring that the Company’s ongoing responsibilities and obligations During 2017, the Board’s focus has been on the successful as a listed company continue to be well managed. delivery of the managed separation strategy, while ensuring that the Company’s ongoing responsibilities and obligations We will continue to monitor and develop our corporate governance as a listed company continue to be well managed. as we adapt to an ever-changing environment, both externally and internally, bearing in mind the expected life of the Company We will continue to monitor and develop our corporate governance in its current form. Moreover, as the managed separation strategy as we adapt to an ever-changing environment, both externally has moved into the execution phase, it is crucial that the Board and internally, bearing in mind the expected life of the Company ensures its successor businesses are prepared to operate as in its current form. Moreover, as the managed separation strategy standalone entities. has moved into the execution phase, it is crucial that the Board ensures its successor businesses are prepared to operate as Given the planned outcome of the managed separation strategy, standalone entities. it is more important than ever for the Board to focus on the underlying businesses themselves and to work more closely Given the planned outcome of the managed separation strategy, with their boards, as they prepare for life as standalone entities. it is more important than ever for the Board to focus on the At a Board meeting in Johannesburg in June the Board held underlying businesses themselves and to work more closely joint sessions with the boards of each of Old Mutual Emerging with their boards, as they prepare for life as standalone entities. Markets (OMEM) and Nedbank Group Limited. Similarly, the At a Board meeting in Johannesburg in June the Board held Board held joint sessions with the board of Old Mutual Wealth joint sessions with the boards of each of Old Mutual Emerging (OMW) in London in May and October. These meetings were Markets (OMEM) and Nedbank Group Limited. Similarly, the focused on the managed separation, in particular on those Board held joint sessions with the board of Old Mutual Wealth businesses’ strategies and readiness to be separated from the (OMW) in London in May and October. These meetings were Group. The second meeting with the OMW board focused on focused on the managed separation, in particular on those the OMW showcase, where the business presented itself to businesses’ strategies and readiness to be separated from the potential investors for the first time as a standalone proposition. Group. The second meeting with the OMW board focused on the OMW showcase, where the business presented itself to Annual General Meeting (AGM) potential investors for the first time as a standalone proposition. Our AGM will be held in London on 30 April 2018. As usual, the AGM will be webcast via our website and there will be an Annual General Meeting (AGM) opportunity for shareholders to submit questions beforehand Our AGM will be held in London on 30 April 2018. As usual, to be dealt with at the meeting. Our shareholder circular relating the AGM will be webcast via our website and there will be an to the AGM gives further details. opportunity for shareholders to submit questions beforehand to be dealt with at the meeting. Our shareholder circular relating Patrick O’Sullivan to the AGM gives further details. Chairman Patrick O’Sullivan Chairman Patrick O’Sullivan Chairman Patrick O’Sullivan Patrick O’Sullivan Chairman Chairman Board focus during 2017  Execution of the managed separation strategy  Supporting the subsidiary boards as each Board focus during 2017 business prepares for managed separation  Execution of the managed separation strategy  Enhancing business performance.  Supporting the subsidiary boards as each business prepares for managed separation  Enhancing business performance. It is more important than ever for the Board to focus on the underlying businesses and work It is more important than ever more closely with their boards, for the Board to focus on the as they prepare for life as underlying businesses and work standalone entities. more closely with their boards, as they prepare for life as standalone entities. Patrick O’Sullivan Chairman Patrick O’Sullivan Chairman I am pleased to introduce this Corporate Governance report which, amongst other things, explains how the Board and its main standing committees have operated during the past year, and I am pleased to introduce this Corporate Governance report describes how effective stewardship is exercised over the Group’s which, amongst other things, explains how the Board and its main activities in the interests of shareholders and other stakeholders. standing committees have operated during the past year, and We also describe the Company’s compliance with the UK describes how effective stewardship is exercised over the Group’s Corporate Governance Code 2016. activities in the interests of shareholders and other stakeholders. We also describe the Company’s compliance with the UK Corporate Governance Code 2016. 72 24 24 Old Mutual plc Annual Report and Accounts 2017  Old Mutual plc Annual Report and Accounts 2017 What is the Company’s approach to governance? As the Company’s primary listing (known in the UK as a premium listing) is on the London Stock Exchange, this report mainly addresses the matters covered by the UK Corporate Governance Code 2016, but the Company also has appropriate regard to governance expectations in other countries where its shares are listed. Has the Company complied with the UK Corporate Governance Code? Throughout the year ended 31 December 2017 and in the preparation of this Annual Report and Accounts, the Company has complied with the main and supporting principles and provisions set out in the UK Corporate Governance Code 2016 applicable to that period, as described in more detail in the following sections of this report. Each year the Old Mutual plc Nomination and Governance Committee conducts a review of the membership of the Board and its committees. The Committee also considers committee composition at the time of every Board appointment and resignation. Following the resignation from the Board of Dr Nkosana Moyo on 29 June 2017, Alan Gillespie joined the Group Audit Committee (GAC) with effect from 1 August 2017. In view of the expected timetable for managed separation and the range of skills and experience remaining on the committees following Nonkululeko Nyembezi’s departure from the Board, the Nomination and Governance Committee decided not to replace her roles on the Board Risk Committee and the Nomination and Governance Committee; however, the situation will be kept under review in the event of any material delays to the completion of managed separation. Vassi Naidoo is not classified as independent due to his position as Chairman of Nedbank Group Limited. In respect of Vassi’s membership of the GAC, the Nomination and Governance Committee considers that his skills and experience, particularly regarding accounting and auditing matters, augment the composition of the GAC, and his membership is in the Company’s best interests. The GAC is chaired by an independent non- executive director, Roger Marshall, and the three other members are independent non-executive directors. The Committee as a whole, has competence relevant to the sectors in which the Group operates. The Company’s compliance with the provisions of the UK Corporate Governance Code 2016, and the statement relating to the going concern basis adopted in preparing the financial statements set out towards the end of this section of this report, have been reviewed by the Company’s auditor, KPMG LLP, in accordance with guidance published by the UK Auditing Practices Board. The text of the UK Corporate Governance Code 2016 is available on the Financial Reporting Council’s website at: www.frc.org.uk. Approach to governance The Group’s governance framework, the Decision-Making Framework (DMF), sets out how the Company discharges its responsibilities as a shareholder of the Group’s businesses. The DMF was adopted to support the managed separation strategy. Its objectives are:  To establish clear principles of delegation and escalation designed to provide appropriate levels of assurance about the control environment, while retaining flexibility for our businesses to operate efficiently  To set out a clear and comprehensive governance framework – with appropriate procedures, systems and controls – facilitating the satisfactory discharge of the duties and obligations of regulated firms, directors and employees within the Group’s businesses  To articulate clearly what Old Mutual plc (as shareholder) expects from the boards of the businesses when exercising their powers as set out in their respective constitutions  To take due account of the regulatory requirement that boards of regulated entities maintain proper controls over the affairs of their respective businesses  To protect the interests of our various stakeholders, including shareholders, creditors, policyholders and customers, in all of the countries in which we operate How the DMF operates Under the DMF (and the related arrangements with our majority- owned subsidiaries Nedbank and, while it was under the Group’s ownership, OMAM), the Company appoints up to three members of its senior executive management as non-executive directors on the boards of its major subsidiaries to ensure transparent communication of information in both directions. The boards of OMW, Old Mutual Group Holdings (OMGH), Nedbank Group Limited and OMEM are independently regulated and have a majority of independent directors (although for part of the year this was not the case for OMW while membership of its board was being refreshed). The Group’s major subsidiaries also have their own Audit, Risk and Remuneration Committees. OMGH, OMEM, Nedbank and OMW have independent chairmen. The major businesses hold regular review meetings with the Company’s Executive Committee (plc Exco) to monitor their business performance and managed separation preparations. These arrangements sit alongside the submission of monthly financial information. The DMF incorporates the ‘three lines of defence’ principles, assigning roles and responsibilities under three categories: acceptors of risk, overseers of the risks being taken, and independent reviewers and reporters of risk. The governance relationship with Nedbank recognises the latter’s own governance framework as a separately-listed entity on the JSE Limited and that it has minority shareholders. The Company has a relationship agreement with Nedbank that sets out the Company’s requirements and expectations as its majority shareholder and which is available on the Company’s website. C o r p o r a t e g o v e r n a n c e 73 25 Old Mutual plc Annual Report and Accounts 2017Governance Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Corporate governance continued Corporate governance continued The Group contains two ‘domestic systemically important financial institutions’ in South Africa: OMEM and Nedbank. OMGH operates as a holding company for these two businesses, The Group contains two ‘domestic systemically important and was constituted in its current form in response to the expected financial institutions’ in South Africa: OMEM and Nedbank. requirements of South Africa’s Solvency Assessment and OMGH operates as a holding company for these two businesses, Management (SAM) regime. These businesses are also subject and was constituted in its current form in response to the expected to applicable local governance expectations, including those requirements of South Africa’s Solvency Assessment and contained in King III (and King IV, when it comes into effect) and, Management (SAM) regime. These businesses are also subject for Nedbank, the JSE’s Listings Requirements. to applicable local governance expectations, including those contained in King III (and King IV, when it comes into effect) and, During the Group’s period of ownership, OMAM was also listed on for Nedbank, the JSE’s Listings Requirements. the New York Stock Exchange (NYSE) and therefore also subject to the rules of the US Securities and Exchange Commission, During the Group’s period of ownership, OMAM was also listed on the NYSE listing rules and other requirements applicable to the New York Stock Exchange (NYSE) and therefore also subject US publicly-listed entities, including those of the Sarbanes-Oxley to the rules of the US Securities and Exchange Commission, Act of 2002. As part of the arrangements leading up to its IPO in the NYSE listing rules and other requirements applicable to 2014, OMAM entered into a shareholders’ agreement giving the US publicly-listed entities, including those of the Sarbanes-Oxley Company various rights with respect to the management and Act of 2002. As part of the arrangements leading up to its IPO in conduct of OMAM’s affairs. Certain provisions of this agreement 2014, OMAM entered into a shareholders’ agreement giving the were assigned to HNA Capital following completion of the sale Company various rights with respect to the management and of the second tranche of the Group’s shares in OMAM to HNA conduct of OMAM’s affairs. Certain provisions of this agreement Capital on 10 November 2017. were assigned to HNA Capital following completion of the sale of the second tranche of the Group’s shares in OMAM to HNA The table below sets out the Board’s continuing membership in more detail and in order of original appointment. Capital on 10 November 2017. Under the Group’s governance model, a significant amount of responsibility for meeting local capital and liquidity requirements has been delegated to the subsidiary boards. However, the Board Under the Group’s governance model, a significant amount of retains overall responsibility as well as specific responsibility for responsibility for meeting local capital and liquidity requirements Group-level risks and for debt. has been delegated to the subsidiary boards. However, the Board retains overall responsibility as well as specific responsibility for How big is the Board and how is it structured? Group-level risks and for debt. Old Mutual’s Board currently has 11 members: two of whom are executive and nine (including the Chairman) are non-executive. How big is the Board and how is it structured? Old Mutual’s Board currently has 11 members: two of whom are Tenure of non-executive directors executive and nine (including the Chairman) are non-executive. Other than in exceptional circumstances, non-executive directors (including the Chairman) serve a maximum of nine years in office. Tenure of non-executive directors This maximum period consists of two three-year terms, followed Other than in exceptional circumstances, non-executive directors by up to three further one-year terms. Renewal of non-executive (including the Chairman) serve a maximum of nine years in office. directors’ engagements for successive terms is not automatic and This maximum period consists of two three-year terms, followed the continued suitability of each non-executive director is assessed by up to three further one-year terms. Renewal of non-executive by the Nomination and Governance Committee before their directors’ engagements for successive terms is not automatic and appointment is renewed. the continued suitability of each non-executive director is assessed by the Nomination and Governance Committee before their appointment is renewed. The Board’s current membership The table below sets out the Board’s continuing membership in more detail and in order of original appointment. Role Name and nationality The Board’s current membership Non-executive director Mike Arnold (British) Chairman Role Patrick O’Sullivan (Irish) Name and nationality Date of original appointment to the Board Date current term ends, where applicable Current term as director, where applicable September 2009 Date of original January 2010 appointment to the Board September 2018 Date current term ends, January 2019 where applicable 3rd (third period) Current term as director, 3rd (third period) where applicable Roger Marshall (British) Mike Arnold (British) Patrick O’Sullivan (Irish) Danuta Gray (British) Roger Marshall (British) Zoe Cruz (US) Non-executive director Non-executive director Senior Independent Director Alan Gillespie (British) Chairman Non-executive director Non-executive director Non-executive director Senior Independent Director Alan Gillespie (British) Non-executive director Non-executive director Group Finance Director Non-executive director Non-executive director Non-executive director Group Chief Executive Group Finance Director Non-executive director Non-executive director Adiba Ighodaro (British) Danuta Gray (British) Ingrid Johnson (SA) Zoe Cruz (US) Vassi Naidoo (SA/British) May 2015 Adiba Ighodaro (British) Bruce Hemphill (SA) Ingrid Johnson (SA) Trevor Manuel (SA) Vassi Naidoo (SA/British) May 2015 August 2010 September 2009 November 2010 January 2010 March 2013 August 2010 January 2014 November 2010 January 2014 March 2013 July 2014 January 2014 January 2014 November 2015 July 2014 January 2016 Group Chief Executive Bruce Hemphill (SA) November 2015 August 2018 September 2018 November 2018 January 2019 March 2019 August 2018 January 2020 November 2018 January 2020 March 2019 January 2020 May 2018 January 2020 January 2019 May 2018 3rd (second period) 3rd (third period) 3rd (second period) 3rd (third period) 2nd 3rd (second period) 2nd 3rd (second period) 2nd 2nd 2nd 1st 2nd 1st 1st January 2016 Trevor Manuel (SA) Non-executive director What is the Board’s role and how does it operate? The Board’s role is to exercise stewardship of the Company within What is the Board’s role a framework of prudent and effective controls that enables risk to be and how does it operate? assessed and managed. The Board sets the Company’s strategic The Board’s role is to exercise stewardship of the Company within aims, based on recommendations made by the Group Chief Executive, a framework of prudent and effective controls that enables risk to be reviews whether the necessary financial and human resources are assessed and managed. The Board sets the Company’s strategic in place for it to meet its objectives, and monitors management aims, based on recommendations made by the Group Chief Executive, performance and performance reporting. It is kept informed about reviews whether the necessary financial and human resources are major developments affecting the Group through the Group Chief in place for it to meet its objectives, and monitors management Executive’s and Group Finance Director’s regular reports and also performance and performance reporting. It is kept informed about through reports from the Director of Managed Separation and the major developments affecting the Group through the Group Chief Group Chief Risk Officer. The DMF identifies the matters that are Executive’s and Group Finance Director’s regular reports and also through reports from the Director of Managed Separation and the Group Chief Risk Officer. The DMF identifies the matters that are 1st January 2019 specifically reserved for Board decision and protocols governing escalation of issues to it and delegation of powers from it, to ensure clear allocation of responsibility for decision-making. specifically reserved for Board decision and protocols governing escalation of issues to it and delegation of powers from it, to ensure In accordance with the DMF, the Board has delegated its executive clear allocation of responsibility for decision-making. powers to the Group Chief Executive, with power to sub-delegate. The Group Chief Executive is supported by the Company’s Executive In accordance with the DMF, the Board has delegated its executive Committee. The plc Exco supports the Group Chief Executive in powers to the Group Chief Executive, with power to sub-delegate. exercising the powers delegated to him by the Board. During the year, The Group Chief Executive is supported by the Company’s Executive the former Managed Separation Strategy Committee, which was Committee. The plc Exco supports the Group Chief Executive in established in 2016 as the strategic decision-making forum for exercising the powers delegated to him by the Board. During the year, implementation of the managed separation programme, was merged the former Managed Separation Strategy Committee, which was with the plc Exco, in view of the centrality of the managed separation established in 2016 as the strategic decision-making forum for to the Group’s strategy and operations. implementation of the managed separation programme, was merged with the plc Exco, in view of the centrality of the managed separation to the Group’s strategy and operations. 74 26 26 Old Mutual plc Annual Report and Accounts 2017  Old Mutual plc Annual Report and Accounts 2017 Are the non-executive directors independent? Of the eight current non-executive directors (excluding the Chairman), the Board considers six to be independent within the criteria set out in the UK Corporate Governance Code 2016; that is, they are independent in character and judgement and have no relationships or circumstances which are likely to affect their judgement, or could appear to affect it. These six are: Mike Arnold, Zoe Cruz, Alan Gillespie, Danuta Gray, Adiba Ighodaro and Roger Marshall. As previously noted, Vassi Naidoo is not considered independent because he is chairman of Nedbank Group Limited, and circumstances may arise where he has to balance the fiduciary duties owed to both parent and subsidiary having regard to minority interests in the latter. Trevor Manuel is the Chairman of OMGH, the holding company of both OMEM and Nedbank Group Limited, and will become the Chairman of Old Mutual Limited (OML) on its listing. In light of the enhanced role that OMGH is expected to play as the South African Twin Peaks regulation comes into effect, Trevor Manuel was not categorised as an independent non-executive director at plc level when he was appointed in 2016. What was the directors’ attendance record during 2017? The table below sets out the number of meetings held and individual directors’ attendance at meetings of the Board and its principal committees (based on membership of those committees, rather than attendance as an invitee) during 2017. C o r p o r a t e g o v e r n a n c e In addition to its interaction with the two executive directors, the Board interacts with senior executive management (including senior executives of the Group’s main businesses) through their regular participation in Board meetings and other briefing sessions. Separately from the formal Board meeting schedule, the Chairman meets with the non-executive directors, with no executives present, to provide a forum where any issues can be raised. He also conducts an annual one-to-one performance evaluation of each of the non- executive directors, and any resulting action points are reported to the Nomination and Governance Committee. The Company also facilitates informal meetings among the non-executive directors, without the Chairman or any executive present. These meetings include the annual review of the Chairman’s own performance – led by the Senior Independent Director, who also obtains whatever input he considers appropriate from the executive directors. The assignment of responsibilities between Chairman, Patrick O’Sullivan, and Group Chief Executive, Bruce Hemphill, ensures a clear division between running the Board and executive responsibility for running the Company’s business, as set out below: Key roles and responsibilities Chairman  Leading the Board  Ensuring the Board’s effectiveness and setting its agenda  Ensuring that the directors receive accurate, timely and clear information, and adequate time is available for discussion of all agenda items  Ensuring effective communication with shareholders  Promoting a culture of openness and debate  Ensuring constructive relationships between the executive and non executive directors ‑ Group Chief Executive  Defining, creating and implementing strategy and objectives  Developing manageable goals and priorities  Leading and motivating the management teams  Developing proposals to present to the Board on all areas reserved for its judgement  Developing policies for approval by the Board and ensuring their implementation Attendance record Mike Arnold Zoe Cruz Alan Gillespie Danuta Gray Bruce Hemphill Adiba Ighodaro Ingrid Johnson Trevor Manuel Roger Marshall Vassi Naidoo Patrick O’Sullivan Former directors Nkosana Moyo Nonkululeko Nyembezi Board (scheduled only) Board (scheduled and ad hoc) Group Audit Committee Board Risk Committee Remuneration Committee Nomination and Governance Committee Number of meetings attended/number of meetings eligible to attend 8/8 7/8 7/8 8/8 8/8 7/8 8/8 8/8 8/8 8/8 8/8 5/5 8/8 11/11 9/11 10/11 10/11 11/11 8/11 11/11 10/11 11/11 11/11 11/11 6/7 11/11 7/7 – 4/4 – – 6/7 – – 7/7 7/7 – 3/3 – 6/6 5/6 – – – – – 6/6 6/6 – – – 6/6 – 7/9 7/9 9/9 – – – – 9/9 – – 4/5 – – – 6/7 7/7 – – – – – 7/7 7/7 – 4/41 1 Due to the matters under discussion, Nonkululeko Nyembezi agreed in advance with the Committee Chairman that she would not attend three Nomination and Governance Committee meetings held during the year. 75 27 Old Mutual plc Annual Report and Accounts 2017Governance Old Mutual plc Annual Report and Accounts 2017 Corporate governance continued Old Mutual plc Annual Report and Accounts 2017 The Group contains two ‘domestic systemically important financial institutions’ in South Africa: OMEM and Nedbank. OMGH operates as a holding company for these two businesses, Nationality of Board members (as at 31 December 2017) and was constituted in its current form in response to the expected requirements of South Africa’s Solvency Assessment and Management (SAM) regime. These businesses are also subject UK and Europe 50% to applicable local governance expectations, including those contained in King III (and King IV, when it comes into effect) and, for Nedbank, the JSE’s Listings Requirements. African 42% US 8% 1 5 During the Group’s period of ownership, OMAM was also listed on the New York Stock Exchange (NYSE) and therefore also subject to the rules of the US Securities and Exchange Commission, the NYSE listing rules and other requirements applicable to US publicly-listed entities, including those of the Sarbanes-Oxley Act of 2002. As part of the arrangements leading up to its IPO in 2014, OMAM entered into a shareholders’ agreement giving the Company various rights with respect to the management and Note: For the purposes of this table, Vassi Naidoo is treated as South African. conduct of OMAM’s affairs. Certain provisions of this agreement Allocation of Board time during 2017 were assigned to HNA Capital following completion of the sale of the second tranche of the Group’s shares in OMAM to HNA Capital on 10 November 2017. 1. Capital, business performance and 6 1 5 4 The Board’s current membership finance 34% 2. Strategy 34% 3. Risk and regulatory matters 13% 4. Culture, responsible business and stakeholder matters 5% 5. Other 14% Role 3 Non-executive director Chairman Name and nationality Mike Arnold (British) 2 Patrick O’Sullivan (Irish) September 2009 January 2010 Non-executive director Roger Marshall (British) August 2010 Senior Independent Director Alan Gillespie (British) November 2010 March 2013 Zoe Cruz (US) Danuta Gray (British) Non-executive director Who is the Senior Independent Director? Non-executive director Alan Gillespie has been the Senior Independent Director since May Non-executive director 2011. The Senior Independent Director is available to shareholders if they have concerns that are unresolved after contact through the July 2014 Group Finance Director normal channels of the Chairman, Group Chief Executive or Group Vassi Naidoo (SA/British) May 2015 Non-executive director Finance Director, or where such contact would not be appropriate. Group Chief Executive The Senior Independent Director’s contact details can be obtained from the Group Company Secretary. Non-executive director Adiba Ighodaro (British) Bruce Hemphill (SA) Ingrid Johnson (SA) Trevor Manuel (SA) January 2014 January 2014 January 2016 November 2015 Under the Group’s governance model, a significant amount of responsibility for meeting local capital and liquidity requirements has been delegated to the subsidiary boards. However, the Board Non-executive directors’ fees retains overall responsibility as well as specific responsibility for As outlined in the 2016 Annual Report and Accounts, non- Group-level risks and for debt. executive directors’ fees were increased with effect from 1 January 2017. No increase is proposed for the year ending How big is the Board and how is it structured? 31 December 2018, nor is any review of fees anticipated until Old Mutual’s Board currently has 11 members: two of whom are the conclusion of managed separation. executive and nine (including the Chairman) are non-executive. What did the Board do during 2017? Tenure of non-executive directors The implementation and execution of managed separation has Other than in exceptional circumstances, non-executive directors been the Board’s main focus throughout the year, from the sale (including the Chairman) serve a maximum of nine years in office. of OMAM in the first half to the capital markets days for OMW and This maximum period consists of two three-year terms, followed OMEM in the second half. The Board is committed to delivering the by up to three further one-year terms. Renewal of non-executive annualised cost savings and unlocking the conglomerate discount directors’ engagements for successive terms is not automatic and while preparing the constituent businesses for independence by the continued suitability of each non-executive director is assessed enhancing business performance with appropriate standalone by the Nomination and Governance Committee before their balance sheets. appointment is renewed. In parallel, ‘business as usual’ activities included reviewing performance against the 2017 to 2019 business plan, approval of the second interim dividend for 2016 and the contents of the 2016 Annual Report and Accounts and preliminary results announcement. C o r p o r a t e g o v e r n a n c e Date of original appointment to the Board Finally, mindful of the Company’s continuing responsibilities as Current term as director, a listed company, the Board ensured that the following matters where applicable continued to be well managed: September 2018 Date current term ends, where applicable 3rd (third period) January 2019  Governance of the managed separation process, including internal management, decision-making and use of advisers, 3rd (second period) and management of its risks, following recommendations from the Board Risk Committee 3rd (second period) 3rd (third period) November 2018 August 2018  The sale of OMAM, the single-strategy business in OMW and March 2019 2nd of our stake in our joint venture in India January 2020 2nd  Strategy and developments in OMW, including its platform transformation programme January 2020 2nd  The size and composition of the balance sheets of the entities to be listed as a result of the managed separation May 2018 1st  The process for preparing the listing documents to be issued in connection with the managed separation  Performance of the Group’s businesses, as well as the 2018 to January 2019 1st The table below sets out the Board’s continuing membership in more detail and in order of original appointment. How many times did the Board meet What is the Board’s role during 2017, and where did it meet? and how does it operate? The Board met 11 times during 2017, of which eight meetings were scheduled and three were additional meetings. Two Board The Board’s role is to exercise stewardship of the Company within meetings (in June and December) were held in South Africa. a framework of prudent and effective controls that enables risk to be The majority of the rest of the meetings were held at the assessed and managed. The Board sets the Company’s strategic Company’s Head Office in London, with ad hoc meetings being aims, based on recommendations made by the Group Chief Executive, held by telephone. In addition, Board members participated in reviews whether the necessary financial and human resources are regular, informal update calls to keep them informed of progress in place for it to meet its objectives, and monitors management on the managed separation. performance and performance reporting. It is kept informed about major developments affecting the Group through the Group Chief Executive’s and Group Finance Director’s regular reports and also through reports from the Director of Managed Separation and the Group Chief Risk Officer. The DMF identifies the matters that are 2020 business plan and consideration of the first interim dividend for 2017 specifically reserved for Board decision and protocols governing  Advancing arrangements for the wind-down of the Company’s escalation of issues to it and delegation of powers from it, to ensure Head Office, including the continued management of risks and clear allocation of responsibility for decision-making. processes for which the Head Office has been responsible  Management of the Company’s external debt, including the In accordance with the DMF, the Board has delegated its executive tender offers for the repayment and redemption of the powers to the Group Chief Executive, with power to sub-delegate. Company’s Tier 1 and partial redemption of the Tier 2 debt The Group Chief Executive is supported by the Company’s Executive securities Committee. The plc Exco supports the Group Chief Executive in  Briefings on economic, political and regulatory developments exercising the powers delegated to him by the Board. During the year, in South Africa and some of the Group’s other major markets the former Managed Separation Strategy Committee, which was established in 2016 as the strategic decision-making forum for The Board continues to focus on the performance of the implementation of the managed separation programme, was merged businesses, in particular highlighting the effects of volatile markets with the plc Exco, in view of the centrality of the managed separation on the Company and its businesses in the regular reports it to the Group’s strategy and operations. receives from the Group Finance Director. 76 26 3 Old Mutual plc Annual Report and Accounts 2017  Old Mutual plc Annual Report and Accounts 2017 Are directors required to hold shares in the Company and what are their current interests? Under the Directors’ Remuneration Policy, the Group Chief Executive is required to build a holding of shares in the Company equal in value to at least 200% of his annual base salary within five years of appointment. For other executive directors the requirement is 150% of annual base salary within five years of appointment. The Board encourages, but does not require, non-executive directors to build holdings equal to 50% of their annual base fees within 12 months after appointment and to increase this over time to 100% of their annual base fees. The target for the Chairman was set at 50% of his annual base fee, to be achieved over time. Details of directors’ interests (including interests of their connected persons) in the share capital of the Company and its quoted subsidiary, Nedbank Group Limited, at the beginning and end of 2017 are set out in the table below. No director held shares in OMAM while it was under the Company’s control. The interests of the executive directors in share options and forfeitable shares awards are described in the section of the Directors’ Remuneration Report entitled ‘Directors’ shareholdings and share interests’. There were no changes to any of the Directors’ shareholdings and share interests between 31 December 2017 and 14 March 2018. Directors’ interests Mike Arnold Zoe Cruz Alan Gillespie Danuta Gray Bruce Hemphill Adiba Ighodaro Ingrid Johnson Trevor Manuel Roger Marshall Vassi Naidoo Patrick O’Sullivan Former directors Nkosana Moyo (resigned 29 June 2017) Nonkululeko Nyembezi (resigned 31 December 2017) C o r p o r a t e g o v e r n a n c e At 31 December 2017 (or date of resignation, if earlier) At 31 December 2016 Old Mutual plc ordinary shares Nedbank Group Limited shares Old Mutual plc ordinary shares Nedbank Group Limited shares 26,475 34,500 13,000 14,175 96,6001 – 5251 – 45,000 5,000 100,000 10,000 28,667 – – – – – – 142 – – 26,475 34,500 13,000 14,175 48,3001 – 5251 – 45,000 – – – – – – 10,0882 – – 47,135 – 45,785 – – – 100,000 10,000 28,667 – – – 1 These figures do not include rights to forfeitable shares that have not yet vested, which are described in the Directors’ Remuneration Report 2 These shares were held under the terms of the Nedbank Compulsory Bonus Share Scheme and the Nedbank Voluntary Bonus Share Scheme. 77 29 Old Mutual plc Annual Report and Accounts 2017Governance Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Corporate governance continued Corporate governance continued How are directors’ conflicts of interest managed? Processes are in place for any potential conflicts of interest How are directors’ conflicts to be disclosed and for directors to avoid participation in any of interest managed? decisions where they may have any such conflict or potential Processes are in place for any potential conflicts of interest conflict. The Nomination and Governance Committee considers to be disclosed and for directors to avoid participation in any other significant commitments or external interests of potential decisions where they may have any such conflict or potential appointees as part of the selection process and discloses them conflict. The Nomination and Governance Committee considers to the Board when recommending an appointment. Non-executive other significant commitments or external interests of potential directors are required to inform the Board of any subsequent appointees as part of the selection process and discloses them changes to such commitments, which must be pre-cleared with to the Board when recommending an appointment. Non-executive the Chairman, if material. directors are required to inform the Board of any subsequent changes to such commitments, which must be pre-cleared with The presence of our directors and senior management on the the Chairman, if material. boards of our subsidiaries creates a risk that their duties to the company of which they are a director, and to the Company as The presence of our directors and senior management on the shareholder, may conflict. The managed separation has created boards of our subsidiaries creates a risk that their duties to the an increased risk of these conflicts of interests as the strategy company of which they are a director, and to the Company as for these businesses develops and is implemented. shareholder, may conflict. The managed separation has created an increased risk of these conflicts of interests as the strategy In addition to its existing processes, and the duties of those for these businesses develops and is implemented. directors under applicable company law, the Company has established additional procedures for disclosing and managing In addition to its existing processes, and the duties of those those conflicts of interests and those situations which, although directors under applicable company law, the Company has not strictly giving rise to a conflict of interest, might reflect established additional procedures for disclosing and managing differences of interests which need to be carefully managed. those conflicts of interests and those situations which, although not strictly giving rise to a conflict of interest, might reflect The Company’s procedures for dealing with directors’ conflicts of differences of interests which need to be carefully managed. interest continued to operate effectively during 2017 and no director had a material interest in any significant contract with the Company The Company’s procedures for dealing with directors’ conflicts of or any of its subsidiaries during the year. Additional details of interest continued to operate effectively during 2017 and no director various non-material transactions between the directors and the had a material interest in any significant contract with the Company Group are reported on an aggregated basis, along with other or any of its subsidiaries during the year. Additional details of transactions by senior managers of the Group, in Note J3 to various non-material transactions between the directors and the the financial statements. Group are reported on an aggregated basis, along with other transactions by senior managers of the Group, in Note J3 to The executive directors are permitted to hold and retain, for their the financial statements. own benefit, fees from one external (non-Group) non-executive directorship of another listed company (but not a chairmanship), The executive directors are permitted to hold and retain, for their subject to prior clearance by the Board and provided the own benefit, fees from one external (non-Group) non-executive directorship concerned is not in conflict or potential conflict with directorship of another listed company (but not a chairmanship), any of the Group’s businesses. None of the executive directors subject to prior clearance by the Board and provided the currently holds any external non-executive directorships of other directorship concerned is not in conflict or potential conflict with publicly-quoted companies. any of the Group’s businesses. None of the executive directors currently holds any external non-executive directorships of other Has the Company granted publicly-quoted companies. indemnities to its directors? In accordance with the Company’s Articles of Association, each Has the Company granted director is granted an indemnity by the Company in respect of indemnities to its directors? liabilities incurred as a result of their office, to the extent permitted In accordance with the Company’s Articles of Association, each by UK law. The Company has entered into formal deeds of director is granted an indemnity by the Company in respect of indemnity in favour of each of the directors. The indemnities liabilities incurred as a result of their office, to the extent permitted described above were in force throughout 2017 and have remained by UK law. The Company has entered into formal deeds of so up to the date of this report. The Company also maintains indemnity in favour of each of the directors. The indemnities directors’ and officers’ liability insurance. described above were in force throughout 2017 and have remained so up to the date of this report. The Company also maintains directors’ and officers’ liability insurance. plc Board gender split (as at 31 December 2017) Female 42% Male 58% 2018 target = >30% F M plc Exco gender split (as at 31 December 2017) F Female 33% Male 67% 2018 target = >30% Key roles1 gender split F M M Female 22% Male 78% 2018 target = >30% 1. Membership of the Executive Committees of the Company and the three businesses as at 31 December 2017 (49 positions in total) Gender split of permanent employees F Female 58% – 35,666 Male 42% – 25,593 M 78 30 30 Old Mutual plc Annual Report and Accounts 2017  Old Mutual plc Annual Report and Accounts 2017 Leadership and effectiveness Our business relies on the commitment, talent and diversity of our employees. In order to understand and meet the needs of customers better, we strive to have an employee population that is representative of the markets we serve. To attract and retain appropriately skilled employees, managers and executives, we maintain effective HR practices. The Company has a comprehensive induction programme for new non-executive directors. This enables them to familiarise themselves with the Group’s operations, financial affairs and strategic position so that they can make an effective contribution as soon as possible after they have joined the Board. This programme includes sessions with each of the constituent businesses and the Company’s auditors and external legal advisers. How is the performance of the Board and its committees reviewed? Performance reviews of the Board and its standing committees are conducted annually and, under normal circumstances, are carried out by an external expert at least once every three years. Under its current Chairman, the Board has invested a significant amount of effort in understanding its effectiveness through both internally and externally facilitated reviews using a range of approaches. The feedback from the 2016 review resulted in a number of actions being taken during 2017. In particular, these included further increasing the interaction and collaboration between the Board and the subsidiary boards. A need was also identified for deeper understanding of the business capability, capacity and culture required to successfully execute managed separation. This led to the adoption of a set of plc Head Office values, re-establishing the standards which the constituent businesses were seeking to adhere to. These values were recognised to be of particular importance during the managed separation. C o r p o r a t e g o v e r n a n c e The Board effectiveness review for 2017 was conducted internally using an online questionnaire supplemented by one-to-one interviews with each Board member. The questionnaire sought feedback on various aspects of the Board and its committees, including:  Board governance  Managed separation  Decision-making A separate questionnaire was issued to gather feedback on the Chairman. The feedback was collated and reported back to the Board. The review concluded that:  The Chairman, the Board and its committees had operated effectively during 2017, with clarity of purpose and appropriate consideration given to stakeholder expectations.  In the final period leading up to managed separation, the Board should work closely with the subsidiary boards whilst retaining its focus on the Company’s ongoing obligations as a listed company In normal circumstances, under the UK Corporate Governance Code 2016, an externally-facilitated Board effectiveness evaluation would have been undertaken during the year, being the third anniversary of the previous external evaluation. In light of the managed separation, and the limited scope for making changes during the Company’s remaining lifespan as a listed entity, it was agreed that an internally-managed effectiveness evaluation be performed instead. What is the Company’s approach to ensuring diversity? Each business is required to develop an environment that promotes the benefits of equal opportunities and diversity. Recruitment, promotion, selection for training and other aspects of employee management are free from discrimination – including on grounds of gender, race, disability, age, marital status, sexual orientation and religious belief. For our businesses in South Africa, these imperatives have to be balanced against their Broad-Based Black Economic Empowerment (B-BBEE) requirements. We recognise that difference in its broadest sense is critical to our success and, while focus varies by country, increasing gender diversity is a priority for all of our businesses. Despite a reduction in the size of the Board during the year, we continued to exceed our diversity target of at least three female members of the Board, with female membership ranging from 38% (five out of 13) at the start of the year to 42% (five out of 12) during the year, falling back to 36% (four out of 11) following the resignation of Nonkululeko Nyembezi at the year-end. Two of our six-member plc Exco are women. The Company continues to meet the recommendations of the Parker Review’s report into the ethnic diversity of UK boards. Notwithstanding the sale of OMAM, the gender split of key roles within the Group improved slightly during 2017 on account of senior female appointments in OMEM. We remain committed to improving our diversity. We continue to strive towards the 2018 targets that we set in 2013, as shown in the diagrams on the preceding page, and continue to invest significantly in our women’s networks and mentoring initiatives. While the Old Mutual plc Board has not formally adopted its own diversity policy, it remains committed to its earlier targets and commitments, notwithstanding the managed separation strategy. Furthermore, in respect of its UK successor business, Quilter plc, we are pleased that the Board has set a target of 33%, which is in line with the Hampton Alexander Review recommendations and is also considering how it can further improve its broader Board diversity. How do we ensure that Board members have the right knowledge to discharge their duties? The Board’s composition and succession plans are formally considered at least annually. We have developed a skills and industry experience matrix to help the Board assess the composition profiles of the Board and major subsidiary boards. The Nomination and Governance Committee regularly discusses talent and succession plans for the businesses’ Executive Committees. Training and induction of non-executive directors Training for Board members in 2017 covered topics such as Solvency II, UK remuneration trends, and briefings on the process for the listing of OMW and OML – delivered by external speakers from the Group’s auditors and other professional advisers. In addition, internal briefings were provided on political and economic developments in the various territories in which the Group operates, responsible business updates and B-BBEE programmes. 79 31 Old Mutual plc Annual Report and Accounts 2017Governance Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Corporate governance continued Corporate governance continued What are the Board’s standing committees and what did they do during the year? The Board has a number of standing committees to which What are the Board’s standing committees various matters are delegated in line with their terms of reference. and what did they do during the year? The Board has a number of standing committees to which The main change to the committees during 2017 was that various matters are delegated in line with their terms of reference. Alan Gillespie replaced Nkosana Moyo as a member of the Group Audit Committee with effect from 1 August 2017, after The main change to the committees during 2017 was that the latter stepped down from the Board on 29 June 2017. Alan Gillespie replaced Nkosana Moyo as a member of the Group Audit Committee with effect from 1 August 2017, after The current membership of the Board’s main standing the latter stepped down from the Board on 29 June 2017. committees is: The current membership of the Board’s main standing Group Audit Committee committees is: Roger Marshall (Chairman) (since 2010) Mike Arnold (since 2009) Group Audit Committee Alan Gillespie (since August 2017) Roger Marshall (Chairman) (since 2010) Adiba Ighodaro (since 2014) Mike Arnold (since 2009) Vassi Naidoo (since 2016). Alan Gillespie (since August 2017) Adiba Ighodaro (since 2014) Other member of the committee during part of the year: Vassi Naidoo (since 2016). Nkosana Moyo (to June 2017) Other member of the committee during part of the year: Secretary to the committee: Nkosana Moyo (to June 2017) Colin Campbell (since 2016) Secretary to the committee: Board Risk Committee Colin Campbell (since 2016) Mike Arnold (Chairman) (since 2010) Zoe Cruz (since 2014) Board Risk Committee Trevor Manuel (since 2016) Mike Arnold (Chairman) (since 2010) Roger Marshall (since 2010) Zoe Cruz (since 2014) Trevor Manuel (since 2016) Other member of the committee during the year: Roger Marshall (since 2010) Nonkululeko Nyembezi (to December 2017). Other member of the committee during the year: Secretary to the committee: Nonkululeko Nyembezi (to December 2017). Colin Campbell (since 2012). Secretary to the committee: Nomination and Governance Committee Colin Campbell (since 2012). Patrick O’Sullivan (Chairman) (since 2010) Alan Gillespie (since 2010) Nomination and Governance Committee Danuta Gray (since 2013) Patrick O’Sullivan (Chairman) (since 2010) Vassi Naidoo (since 2015) Alan Gillespie (since 2010) Danuta Gray (since 2013) Other member of the committee during the year: Vassi Naidoo (since 2015) Nonkululeko Nyembezi (to December 2017). Other member of the committee during the year: Secretary to the committee: Nonkululeko Nyembezi (to December 2017). Colin Campbell (since 2016) Secretary to the committee: Colin Campbell (since 2016) Remuneration Committee For details of the Remuneration Committee, see the Directors’ Remuneration Report. Remuneration Committee For details of the Remuneration Committee, see the Directors’ Other committees Remuneration Report. The Board establishes special-purpose committees as required, to deal with particular strategic projects or other matters. In connection Other committees with the managed separation, in 2016 the Board established a The Board establishes special-purpose committees as required, to Managed Separation Urgent Issues Committee, consisting of the deal with particular strategic projects or other matters. In connection Chairman, the Senior Independent Director, the Chairmen of the with the managed separation, in 2016 the Board established a Board’s standing committees and the Chairman of OMGH, to take Managed Separation Urgent Issues Committee, consisting of the time-critical decisions in relation to managed separation on the Chairman, the Senior Independent Director, the Chairmen of the Board’s behalf. All members of the Board are, however, entitled to Board’s standing committees and the Chairman of OMGH, to take attend and participate in this committee’s meetings. The Managed time-critical decisions in relation to managed separation on the Separation Urgent Issues Committee met twice during 2017. Board’s behalf. All members of the Board are, however, entitled to attend and participate in this committee’s meetings. The Managed Reports from the Board’s standing committees Separation Urgent Issues Committee met twice during 2017. The following reports on the activities of the Group Audit, Board Risk and Nomination and Governance Committees during 2017 Reports from the Board’s standing committees have been submitted by their respective Chairmen. The activities The following reports on the activities of the Group Audit, Board of the Remuneration Committee are described in the Directors’ Risk and Nomination and Governance Committees during 2017 Remuneration Report later in this document. have been submitted by their respective Chairmen. The activities of the Remuneration Committee are described in the Directors’ Report from the Group Audit Committee Remuneration Report later in this document. Report from the Group Audit Committee Roger Marshall Chairman of the Group Audit Committee Roger Marshall Roger Marshall Chairman of the Group Audit Committee Chairman of the Group Audit Committee The Group Audit Committee (the committee) met seven times during 2017. Four of the meetings were held partly as a joint session with members of the Board Risk Committee to discuss The Group Audit Committee (the committee) met seven times matters of joint interest including Solvency II reporting, cyber- during 2017. Four of the meetings were held partly as a joint security, major IT projects across the Group, the internal control session with members of the Board Risk Committee to discuss framework and matters affecting the Group’s auditors, KPMG, in matters of joint interest including Solvency II reporting, cyber- South Africa. In addition, as part of the preparations for managed security, major IT projects across the Group, the internal control separation, I held regular meetings with the chairmen of the audit framework and matters affecting the Group’s auditors, KPMG, in committees of the three businesses. South Africa. In addition, as part of the preparations for managed separation, I held regular meetings with the chairmen of the audit committees of the three businesses. 80 32 32 Old Mutual plc Annual Report and Accounts 2017 Group Audit Committee focus area Disclosure of businesses held for sale and for distribution The presentation of the 2017 Group financial statements is complicated by managed separation. At 31 December 2017 both Old Mutual Wealth and Nedbank have been classified in the financial statements as held for distribution to shareholders. This reflects the Board’s assessment that distribution is considered to be highly probable within the following 12 months. As a result net income, assets and liabilities are shown as one-line entries in the income statement and statement of financial position rather than fully consolidated. Assumptions related to policyholder liabilities recognised by the Group’s insurance businesses The Group recognised insurance policyholder liabilities of £10,145 million at 31 December 2017 (2016: £9,982 million). Estimation of these routinely involves assessment of risk exposures, expense allocations and business persistency. Loan loss provisions Loan loss provisioning requires the assessment of recoverable amounts, which requires judgement in the estimation of future payments. At 31 December 2017, the Group’s total advances were £44,740 million, with related provisions of (£891 million) (2016: £44,237 million and (£1,129 million)). Loans outstanding are principally from Nedbank. Implementation of new accounting standards IFRS 9 and IFRS 15 The Committee also considered the proposed disclosure of the transitional impact of the new accounting standard, IFRS 9 ‘Financial Instruments’ and 15 ‘Revenue from contracts with customers’, which will be implemented in 2018. Goodwill valuations and impairments Goodwill and intangible assets amounted to £2,460 million at 31 December 2017 (2016: £2,471 million). Old Mutual plc Annual Report and Accounts 2017 C o r p o r a t e g o v e r n a n c e How the matter was reviewed Observations of the Committee We considered the correct accounting with management and KPMG. We considered the remaining risks of managed separation, taking into account the detailed review carried out by the Risk Committee, and concurred with management’s view that there was a high probability of distribution occurring in 2018 and that the businesses are available for immediate distribution. We note that accounting standards require all of the group’s existing interest in Nedbank be shown as held for distribution at 31 December 2017, despite the intention that OML will retain a 19.9% interest. As Nedbank and Old Mutual Wealth are classified as held for distribution, the assets and liabilities are reflected as single line entries on the balance sheet. In order to facilitate the users in understanding year on year comparability, balances contained in this report include balances attributable to Nedbank and Old Mutual Wealth. As such, amounts stated will not agree directly with the Statement of Financial Position. We reviewed reports from the Group Chief Actuary and the external auditors. We also reviewed the conclusions of the subsidiary Audit Committees. Items in particular focus were the bases of cost allocations in OMLACSA which were incorporated into the principles used for insurance product expense assumption setting at 31 December 2017. The committee considered this area in detail, particularly in light of the increased stresses affecting credit conditions in South Africa. Local governance structures provide assurance on the adequacy of loan loss provisioning and key matters arising were routinely highlighted in reports from the subsidiary audit committees. The committee reviewed detailed information related to specific credit exposures where appropriate. A particular focus was the Group’s exposure to Steinhoff and to state-owned enterprises in South Africa. The committee was satisfied that adequate provisions were carried at 31 December 2017 under current accounting standards. The committee reviewed analysis of the expected impact of each standard, and the valuation and disclosure proposals. The Committee also received analysis in support of the robustness of management’s estimate of the IFRS 9 and 15 transitional impacts at 1 January 2018. Although IFRS 15 is not anticipated to have a significant impact for the Group, IFRS 9 is particularly relevant to the Group’s lending businesses. Disclosure of the estimated transitional impact of IFRS 9 and 15 is provided in note A7 to the financial statements. During the year the OMEM business has revised the Cash Generating Units (CGUs) applied in the goodwill valuation models so that these align with the revised operating model of the business. During February 2018 the committee reviewed further impairment calculations in respect of OMEM based on the latest business planning inputs. The committee also considered the sensitivity of the outcomes to declining growth rates and increasing discount rates. In view of the Held for Distribution accounting treatment the valuation reviews of OM Wealth and Nedbank have compared the consolidated NAV with the fair value of these businesses, less costs to distribute. A similar specific assessment was required in respect of the Old Mutual Wealth single strategy business classified as Held for Sale at 31 December 2017. The revised CGUs applied by OMEM during 2017 were the principal cause of a further impairment of R1.2bn that was recorded in relation to the OMEM East Africa businesses at 30 June 2017. Furthermore, as a result of the February 2018 review a further impairment of R0.3bn was recorded in relation to the group’s operations in Latin America at 31 December 2017. Other than these items the analysis supported the committee in concluding that goodwill and intangible assets of OMEM are appropriately valued. No impairments have been required in relation to the Old Mutual Wealth or Nedbank businesses. 81 33 Old Mutual plc Annual Report and Accounts 2017Governance Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Corporate governance continued Corporate governance continued Group Audit Committee focus area Valuation of investments and securities Group Audit Total investments and securities were Committee focus area £116,290 million at 31 December 2017 (2016: £100,388 million) Valuation of investments and securities Total investments and securities were Investments in associated undertakings and £116,290 million at 31 December 2017 joint ventures were £511 million at 31 December (2016: £100,388 million) 2017 (2016: £542 million). Of this balance, £198 million (2016: £235 million) relates Investments in associated undertakings and to Nedbank’s investment in Ecobank joint ventures were £511 million at 31 December Transnational Incorporated (ETI). 2017 (2016: £542 million). Of this balance, £198 million (2016: £235 million) relates Regulatory provisions in Old Mutual Wealth to Nedbank’s investment in Ecobank During Q4 2017, Old Mutual Wealth recognised Transnational Incorporated (ETI). provisions of £69 million in relation to customer remediation costs in connection with the FCA Regulatory provisions in Old Mutual Wealth enforcement action following its thematic review. During Q4 2017, Old Mutual Wealth recognised This action began in 2016 and is still ongoing. provisions of £69 million in relation to customer remediation costs in connection with the FCA enforcement action following its thematic review. This action began in 2016 and is still ongoing. The committee considered the valuation How the matter was reviewed of investments and received reports from management and the external auditors. The vast majority of investments can be valued The committee considered the valuation using current market practices. However, for of investments and received reports from certain private equity investments and others management and the external auditors. where there have not been recent market The vast majority of investments can be valued transactions, more judgement is required. using current market practices. However, for certain private equity investments and others where there have not been recent market transactions, more judgement is required. The committee received and considered reports from the Old Mutual Wealth Audit Committee and KPMG, and also considered the treatment of similar matters by peers. The committee received and considered reports from the Old Mutual Wealth Audit Committee and KPMG, and also considered the treatment of similar matters by peers. How the matter was reviewed Observations of the Committee The committee was satisfied with the valuation Observations of the Committee processes. The committee in particular was satisfied that no additional provision was required against ETI. The committee was satisfied with the valuation processes. The committee in particular was satisfied that no additional provision was required against ETI. The committee is satisfied that it is appropriate to record this provision on the basis of the information available, which indicates that the business is committed to meeting these costs. The committee is satisfied that it is appropriate No provision has been made for any potential to record this provision on the basis of the fine that may be levied by the FCA. information available, which indicates that the business is committed to meeting these costs. The committee notes that the FCA action is No provision has been made for any potential ongoing and that additional provisions may be fine that may be levied by the FCA. required for remediation and/or penalties when the outcome is known. The committee notes that the FCA action is ongoing and that additional provisions may be required for remediation and/or penalties when the outcome is known. Membership of the committee Alan Gillespie replaced Nkosana Moyo on the committee during the year. A majority of the committee’s members have competence Membership of the committee in accounting and auditing, and the committee as a whole has Alan Gillespie replaced Nkosana Moyo on the committee during experience of insurance, banking and investment. the year. A majority of the committee’s members have competence in accounting and auditing, and the committee as a whole has Going concern and viability statement experience of insurance, banking and investment. We reviewed the materials submitted to the Board in support of the going concern statement and longer-term viability statement, Going concern and viability statement and discussed the appropriate duration of and wording for this for We reviewed the materials submitted to the Board in support of the Board to approve. The viability statement has been heavily the going concern statement and longer-term viability statement, modified to reflect the managed separation timetable. and discussed the appropriate duration of and wording for this for the Board to approve. The viability statement has been heavily Set out in the table above is a summary of areas of focus modified to reflect the managed separation timetable. during the year, in addition to the committee’s usual oversight responsibilities, which are described in the table on page 84. Set out in the table above is a summary of areas of focus during the year, in addition to the committee’s usual oversight Financial Reporting Council responsibilities, which are described in the table on page 84. During September 2017, the Financial Reporting Council (FRC) requested information in relation to the calculation and presentation Financial Reporting Council of OMAM, Old Mutual Wealth and OMEM investment performance During September 2017, the Financial Reporting Council (FRC) metrics, included in the Group’s annual report for the year ended requested information in relation to the calculation and presentation 31 December 2016. We understand that this request was part of an of OMAM, Old Mutual Wealth and OMEM investment performance industry wide assessment, not specific to Old Mutual. Prior to the metrics, included in the Group’s annual report for the year ended Group responding to the FRC, the Group Audit Committee 31 December 2016. We understand that this request was part of an considered the matter at the meeting in October 2017. The Group industry wide assessment, not specific to Old Mutual. Prior to the Finance Director responded to the FRC request on 11 October Group responding to the FRC, the Group Audit Committee 2017 and subsequently received a response from the FRC on considered the matter at the meeting in October 2017. The Group 24 October 2017 to the effect that the FRC felt that this was Finance Director responded to the FRC request on 11 October satisfactory and the FRC considered this matter closed. 2017 and subsequently received a response from the FRC on 24 October 2017 to the effect that the FRC felt that this was satisfactory and the FRC considered this matter closed. This response highlighted the Group’s approach to these disclosures, in particular the allocation of costs in calculating investment returns. This response highlighted the Group’s approach to these disclosures, in particular the allocation of costs in calculating The FRC’s review only covered the specific disclosures and investment returns. provides no assurance that the report and accounts are correct in all material respects; the FRC did not seek to verify the information The FRC’s review only covered the specific disclosures and provided but considered compliance with reporting requirements provides no assurance that the report and accounts are correct in consistent with their mandate. all material respects; the FRC did not seek to verify the information provided but considered compliance with reporting requirements Solvency II consistent with their mandate. The committee has received regular reports during the year on the Group’s Solvency II reporting to the PRA and has received reports Solvency II from the Group Chief Actuary and the external auditors concerning The committee has received regular reports during the year on the the Solvency II information as at 31 December 2017 contained Group’s Solvency II reporting to the PRA and has received reports in this Annual Report. from the Group Chief Actuary and the external auditors concerning the Solvency II information as at 31 December 2017 contained Consistent with PRA requirements, the final 2017 Solvency II in this Annual Report. annual submission will not be submitted until June 2018. The committee will review these reports, in support of the Board Consistent with PRA requirements, the final 2017 Solvency II approval process, in due course. annual submission will not be submitted until June 2018. The committee will review these reports, in support of the Board Alternative profit measure approval process, in due course. The Group makes a number of adjustments to IFRS profit to derive an Adjusted Operating Profit (AOP) measure. This is common Alternative profit measure practice among peers. Some of these adjustments eliminate The Group makes a number of adjustments to IFRS profit to derive required IFRS accounting treatments that can distort results, an Adjusted Operating Profit (AOP) measure. This is common such as recognising gains or losses on own debt instruments or practice among peers. Some of these adjustments eliminate recognising certain costs of financing in equity. Other adjustments required IFRS accounting treatments that can distort results, seek to adjust the IFRS result in order to arrive at an outcome such as recognising gains or losses on own debt instruments or that the Board feels is more reflective of underlying profit by, recognising certain costs of financing in equity. Other adjustments seek to adjust the IFRS result in order to arrive at an outcome that the Board feels is more reflective of underlying profit by, 82 34 34 Old Mutual plc Annual Report and Accounts 2017  Old Mutual plc Annual Report and Accounts 2017 for example, substituting a Long-Term Investment Return for the actual investment returns for the year. The committee reviews the appropriateness of the AOP measure on an ongoing basis. It also reviews the Long-Term Investment Return rate annually. The committee seeks to validate that the adjustments made in determining AOP are appropriate to the objective of presenting a measure of the long-term profitability of the business to users of the financial statements and is mindful of the FRC’s expectations in this area. As noted in my 2016 report, additional adjustments have had to be made this year to adjust for certain one-off costs of achieving managed separation, and also to exclude the costs of remediating historic issues in Old Mutual Wealth. The committee has individually reviewed each of the AOP adjustments and also the overall effect of the adjustments on the reported AOP results. External Auditors As a result of emerging EU guidance in relation to audit tender requirements, during 2014, a competitive tender for the Group’s external audit was last carried out. Following this tender the decision was made to reappoint KPMG. During 2017, in line with Group policy, the committee has reviewed KPMG LLP’s effectiveness as our auditor. This review confirmed satisfaction with the quality of the audit. The review analysed critical competencies expected of our external auditor and included feedback from key finance personnel from Group and subsidiary entities and audit committee members at subsidiaries and Group level. The criticisms of KPMG South Africa’s work do not extend beyond South Africa and we consider that KPMG’s audit team in the UK has performed good quality audits of the Group. We therefore recommend that Old Mutual plc reappoint KPMG LLP in relation to the audit for the year ending 31 December 2018 at this year’s AGM. Following the completion of managed separation we expect that the Audit Committees of the South African businesses will continue to review KPMG’s ongoing engagement in light of the findings of the regulatory investigations, but also in the context of the new Mandatory Audit Firm Rotation rules that were introduced in South Africa in June 2017 to be effective from 1 April 2023. As part of assessing the impact of these rules, the South African businesses will need to consider the transitional requirements in relation to auditor independence. Non-audit services The Group operates within a clearly defined policy on the nature and amount of non-audit services that can be provided by its external auditor (see ‘Audit arrangements’ later in this Annual Report). The policy itself is formally reviewed annually. Under the revised policy adopted during the year, total fees for non-audit services are limited to a maximum of 25% of the total fees for external audit services unless I, as Chairman of the committee, specifically approve any fees in excess of this amount. The actual non-audit fee ratio for 2017 was 16%. As Chairman of the committee, I am notified of expenditure on non- audit services monthly and for certain services I will be consulted for pre-approval. The committee reviews compliance with the non- audit services policy each quarter. C o r p o r a t e g o v e r n a n c e The committee spent significant time discussing the implications of significant and widespread concerns over certain work carried out by KPMG in South Africa relating to audits of Gupta-related entities and an investigation on behalf of the South African Revenue Service. At the current time a regulatory investigation (initiated by IRBA) and an independent enquiry (initiated by the South African Institute of Chartered Accountants) are ongoing. These reviews are scrutinising KPMG’s South Africa conduct, and KPMG South Africa has already taken action to address a number of concerns. In light of this situation, we have held discussions with KPMG senior management at global, UK and South African level. These discussions confirmed the contingency plans available in the event that KPMG South Africa became unable to carry out its work on the Group’s South African operations in the short or medium term, or if it was concluded that it was inappropriate for them to continue in this role. This was particularly important given the reporting accountant work required for the public documents to be issued in connection with managed separation. The audit committees of the South African businesses held similar discussions. Despite our concerns about the ethical issues involved, we have determined it would have been impractical to change external auditors in 2017 – not least because of inflexible independence rules in both the EU and South Africa. The committee sought commitment from KPMG globally and in the UK that they would support their South African firm to ensure the 2017 audit and reporting accountant work could be concluded. Furthermore, in order to ensure that the 2017 audit was delivered to the quality we expect of our external auditors, the committee requested that a senior UK KPMG partner review the quality of the 2017 audits of the South African businesses. In line with this request KPMG UK has completed engagement quality review procedures in respect of the OMEM and Nedbank audits and reported that the results of these reviews were satisfactory. The committee is satisfied that KPMG LLP has been engaged by the Group in accordance with the requirements of this policy during 2017. Internal Audit The committee pays close attention to Internal Audit reports and to the progress of management actions to address weaknesses identified. As managed separation proceeded during 2017, Internal Audit implemented a more agile approach to provide coverage of managed separation planning, execution and reporting activities. In addition to the Internal Audit plans covering the core business areas, the committee approved a specific Managed Separation Internal Audit plan. During the year Internal Audit also separated and strengthened its business unit audit teams to ensure they are ready to operate on a standalone basis following managed separation. Internal Audit has embedded recommendations of the Financial Services Internal Audit Code and in particular is encouraged to carry out work in advance of developments or in parallel with them, rather than intervening after the event. Internal Audit’s overall conclusion for 2017 was that it had not observed any unmitigated material issues that would indicate that the overall control environment in the Group was unsatisfactory. We operate a quality assurance process for Internal Audit using an external professional services firm to perform an independent external quality assurance review as mandated by the International Standards for the Professional Practice of Internal Auditing (the Standards) and reporting directly to the committee. This concluded that Internal Audit is of a high quality and generally complies with the Standards. The Group’s Internal Audit Charter was reviewed and updated in February 2017 and is available on the Company’s website. 83 35 Old Mutual plc Annual Report and Accounts 2017Governance Old Mutual plc Annual Report and Accounts 2017 Corporate governance continued Old Mutual plc Annual Report and Accounts 2017 How the matter was reviewed Group Audit Committee focus area Primary responsibilities of the Group Audit Committee Valuation of investments and securities Total investments and securities were Financial and capital reporting £116,290 million at 31 December 2017 (2016: £100,388 million)  Monitor the integrity of the Group’s financial statements and Investments in associated undertakings and review the critical accounting policies joint ventures were £511 million at 31 December  Review and challenge, where necessary, management’s critical 2017 (2016: £542 million). Of this balance, accounting estimates and judgements in relation to the interim £198 million (2016: £235 million) relates and annual financial statements to Nedbank’s investment in Ecobank  Review the content of the Annual Report and Accounts and Transnational Incorporated (ETI). interim results and advise the Board on whether, taken as a whole, the Annual Report is fair, balanced and understandable Regulatory provisions in Old Mutual Wealth  Review the going concern and viability statements so as to be During Q4 2017, Old Mutual Wealth recognised provisions of £69 million in relation to customer able to report the committee’s views on these to the Board remediation costs in connection with the FCA  Consider the Group’s Solvency II capital calculations and enforcement action following its thematic review. This action began in 2016 and is still ongoing. methodologies, with input from the Group Chief Actuary and the external auditor The committee considered the valuation Internal Audit of investments and received reports from management and the external auditors. The vast majority of investments can be valued using current market practices. However, for certain private equity investments and others where there have not been recent market transactions, more judgement is required. The committee received and considered reports from the Old Mutual Wealth Audit Committee and KPMG, and also considered the treatment of similar matters by peers.  Preparation for the implementation of SAM and the Twin Peaks regulatory model in South Africa  Determine whether any training or education sessions are required by the committee on specific issues  Monitor and review the costs of the managed separation. Observations of the Committee The committee was satisfied with the valuation processes. The committee in particular was satisfied that no additional provision was required against ETI.  Approve the appointment of the Group Internal Audit Director  Approve the annual Group Internal Audit plan  Review results of Internal Audit work and management plans to address issues raised  Review Internal Audit’s annual assessment of controls  Monitor external effectiveness reviews of Internal Audit. The committee is satisfied that it is appropriate to record this provision on the basis of the information available, which indicates that the business is committed to meeting these costs. No provision has been made for any potential fine that may be levied by the FCA. The committee notes that the FCA action is ongoing and that additional provisions may be required for remediation and/or penalties when the outcome is known. C o r p o r a t e g o v e r n a n c e External audit Membership of the committee  Make recommendations concerning the appointment, Alan Gillespie replaced Nkosana Moyo on the committee during reappointment and removal of the external auditor the year. A majority of the committee’s members have competence  Be responsible for the Group’s audit tender process in accounting and auditing, and the committee as a whole has  Oversee the relationship with the external auditor, including the experience of insurance, banking and investment. terms of engagement (including remuneration) and their effectiveness, independence and objectivity external auditor Going concern and viability statement  Agree the policy for and provision of non-audit services  Agree the policy on the employment of former employees of the We reviewed the materials submitted to the Board in support of the going concern statement and longer-term viability statement,  Review the qualifications, expertise and resources of the external and discussed the appropriate duration of and wording for this for the Board to approve. The viability statement has been heavily auditor and the effectiveness of the audit process  Approve the annual audit plan, to ensure that it is consistent with modified to reflect the managed separation timetable. the scope of the audit engagement and co-ordinated with the activities of the Group’s Internal Audit function Set out in the table above is a summary of areas of focus  Review the findings of audits with the external auditor and during the year, in addition to the committee’s usual oversight responsibilities, which are described in the table on page 84. consider management’s responsiveness to audit findings and recommendations  Monitor the effectiveness of the external audit by a formal annual Financial Reporting Council assessment and also the results of any reviews published by the During September 2017, the Financial Reporting Council (FRC) Financial Reporting Council’s Audit Quality Review. requested information in relation to the calculation and presentation of OMAM, Old Mutual Wealth and OMEM investment performance metrics, included in the Group’s annual report for the year ended 31 December 2016. We understand that this request was part of an industry wide assessment, not specific to Old Mutual. Prior to the Group responding to the FRC, the Group Audit Committee considered the matter at the meeting in October 2017. The Group Finance Director responded to the FRC request on 11 October 2017 and subsequently received a response from the FRC on 24 October 2017 to the effect that the FRC felt that this was satisfactory and the FRC considered this matter closed. Internal control and risk management  Review the effectiveness of systems for internal control, financial This response highlighted the Group’s approach to these disclosures, in particular the allocation of costs in calculating investment returns.  Liaise with subsidiary audit committees and ensure all relevant reporting and risk management issues are communicated to the committee The FRC’s review only covered the specific disclosures and  Consider the major findings of any internal investigations into provides no assurance that the report and accounts are correct in control weaknesses, fraud or misconduct and management’s all material respects; the FRC did not seek to verify the information response. provided but considered compliance with reporting requirements consistent with their mandate. Whistleblowing Solvency II The committee has received regular reports during the year on the Group’s Solvency II reporting to the PRA and has received reports from the Group Chief Actuary and the external auditors concerning  Review arrangements by which employees may confidentially the Solvency II information as at 31 December 2017 contained in this Annual Report. raise concerns about possible improprieties in financial reporting or other matters. Consistent with PRA requirements, the final 2017 Solvency II annual submission will not be submitted until June 2018. The committee will review these reports, in support of the Board approval process, in due course. Alternative profit measure The Group makes a number of adjustments to IFRS profit to derive an Adjusted Operating Profit (AOP) measure. This is common practice among peers. Some of these adjustments eliminate required IFRS accounting treatments that can distort results, such as recognising gains or losses on own debt instruments or recognising certain costs of financing in equity. Other adjustments seek to adjust the IFRS result in order to arrive at an outcome that the Board feels is more reflective of underlying profit by, 84 34 36 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Report from the Board Risk Committee Areas of focus During our meetings and workshops in 2017, we focused on: Mike Arnold Mike Arnold Chairman of the Board Risk Committee Chairman of the Board Risk Committee The Board is responsible for maintaining sound risk management and internal control systems. In order to meet that objective, it has mandated the Board Risk Committee (the committee) to reinforce a strong risk culture by ensuring that the Group fulfils its strategic objectives within the stated risk framework, that poor practice in risk management is challenged, and that sustained improvements in risk management are made. During 2017, the committee continued to meet that objective by overseeing, reviewing and monitoring the management of risk during the managed separation process, in addition to the ongoing oversight of risk management and governance processes within the Group’s constituent businesses. The committee met formally six times during the year. Parts of four of the scheduled meetings were held jointly with the Group Audit Committee. The Chief Risk Officer, Group Chief Actuary and Group Internal Audit Director attended all the meetings. The external auditor was invited to attend all the meetings. As well as these six meetings, the committee held a workshop session to look more deeply at the risks of the managed separation, in particular the non- financial execution risks. The committee received a report from the Group Chief Risk Officer on risk and regulatory matters at each of its scheduled meetings during 2017, in which changes to the Group’s risk profile were identified and discussed. C o r p o r a t e g o v e r n a n c e  The risks of all aspects of the managed separation, including:  the risks of the strategy itself and the risks to executing it  the effective governance and management of the Company’s risks and regulatory responsibilities as the Company’s Head Office winds down its activities  risk appetite and liquidity impacts, both in general and at different points during execution of the managed separation  The size and composition of the balance sheets of the entities to be listed as a result of the managed separation  The Group’s Own Risk and Solvency Assessment (ORSA), under which the Group identifies and assesses its risks and determines the resources necessary to ensure that its solvency needs are met and are sufficient to achieve its business strategy  Assessments of the Group’s capital and solvency position, including the impact of the external macroeconomic environment and of market volatility  Strategic projects proposed by the Group, including significant IT projects and the tender offers for the Company’s Tier 1 and Tier 2 bonds I received updates between the scheduled meetings through my regular meetings with the Group Chief Risk Officer and Group Chief Actuary. The committee also held a private meeting with the Group Chief Risk Officer. In connection with the finalisation of the Group’s annual results, the committee reviewed and approved the Chief Risk Officer’s report for the Remuneration Committee in order to assist that committee in its deliberations. The committee also undertook a review of its performance against its terms of reference. It complied with the vast majority of these, and put plans in place to ensure that the remaining items could be addressed. During 2017 either Roger Marshall or I personally attended meetings of the Risk and Audit Committees of the major subsidiaries of the Group. We have ongoing dialogue with the independent non-executive directors of those subsidiaries who chair their committees. Plans for 2018 In 2018, the committee will be closely involved in overseeing the execution of the final stages of the Company’s managed separation strategy, as well as maintaining continued oversight over the key risks of the Group’s businesses. The committee will be placing increased reliance on the risk and assurance work undertaken by the businesses themselves as they prepare to be standalone businesses and will be reviewing the concentration risk between OML and OMW. 37 85 Old Mutual plc Annual Report and Accounts 2017Governance Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Old Mutual plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 Corporate governance continued Corporate governance Corporate governance continued continued Report from the Nomination and Governance Committee Report from the Nomination Report from the Nomination and Governance Committee and Governance Committee Patrick O’Sullivan Chairman of the Nomination and Patrick O’Sullivan Patrick O’Sullivan Patrick O’Sullivan Governance Committee Chairman of the Nomination and Chairman of the Nomination and Chairman of the Nomination and Governance Committee Governance Committee Governance Committee Our role as the Nomination and Governance Committee is to review and make recommendations to the Board on the appointment of directors, the structure of the Board and the Our role as the Nomination and Governance Committee is Our role as the Nomination and Governance Committee is appropriate governance arrangements between Old Mutual plc to review and make recommendations to the Board on the to review and make recommendations to the Board on the as the parent company and its underlying major businesses. appointment of directors, the structure of the Board and the appointment of directors, the structure of the Board and the We also review development and succession plans for senior appropriate governance arrangements between Old Mutual plc appropriate governance arrangements between Old Mutual plc executive management and certain appointments to the boards as the parent company and its underlying major businesses. as the parent company and its underlying major businesses. and standing committees of principal subsidiaries in line with the We also review development and succession plans for senior We also review development and succession plans for senior Decision-Making Framework. We receive regular updates on the executive management and certain appointments to the boards executive management and certain appointments to the boards composition of principal subsidiary boards, which include details of and standing committees of principal subsidiaries in line with the and standing committees of principal subsidiaries in line with the the skills represented on them and the subsidiary companies’ own Decision-Making Framework. We receive regular updates on the Decision-Making Framework. We receive regular updates on the succession plans. This has enabled us to ensure that these bodies composition of principal subsidiary boards, which include details of composition of principal subsidiary boards, which include details of are equipped to deliver the Group’s managed separation strategy. the skills represented on them and the subsidiary companies’ own the skills represented on them and the subsidiary companies’ own succession plans. This has enabled us to ensure that these bodies succession plans. This has enabled us to ensure that these bodies In planning for refreshing and renewing the Board’s composition, are equipped to deliver the Group’s managed separation strategy. are equipped to deliver the Group’s managed separation strategy. we aim to ensure that changes take place without undue disruption, that there is an appropriate balance of experience and length of In planning for refreshing and renewing the Board’s composition, In planning for refreshing and renewing the Board’s composition, service, and that our process for identifying and recommending we aim to ensure that changes take place without undue disruption, we aim to ensure that changes take place without undue disruption, candidates as Board directors is formal, rigorous and transparent. that there is an appropriate balance of experience and length of that there is an appropriate balance of experience and length of In identifying candidates and making recommendations, we pay service, and that our process for identifying and recommending service, and that our process for identifying and recommending appropriate regard to the independence of candidates, their ability candidates as Board directors is formal, rigorous and transparent. candidates as Board directors is formal, rigorous and transparent. to meet the expected time commitment involved, and their In identifying candidates and making recommendations, we pay In identifying candidates and making recommendations, we pay suitability and willingness to serve on Board committees. appropriate regard to the independence of candidates, their ability appropriate regard to the independence of candidates, their ability to meet the expected time commitment involved, and their to meet the expected time commitment involved, and their During 2017, the committee recommended that Alan Gillespie join suitability and willingness to serve on Board committees. suitability and willingness to serve on Board committees. the Group Audit Committee (GAC) as a replacement for Nkosana Moyo, who stepped down from the Board. As a former partner of During 2017, the committee recommended that Alan Gillespie join During 2017, the committee recommended that Alan Gillespie join Goldman Sachs in New York from 1990 and a former Chairman the Group Audit Committee (GAC) as a replacement for Nkosana the Group Audit Committee (GAC) as a replacement for Nkosana of Ulster Bank, a subsidiary of Royal Bank of Scotland, from 2001- Moyo, who stepped down from the Board. As a former partner of Moyo, who stepped down from the Board. As a former partner of 2008 – as well as previously being a member of the GAC from Goldman Sachs in New York from 1990 and a former Chairman Goldman Sachs in New York from 1990 and a former Chairman 2010 to 2013 – Alan brings skills and experience that complement of Ulster Bank, a subsidiary of Royal Bank of Scotland, from 2001- of Ulster Bank, a subsidiary of Royal Bank of Scotland, from 2001- those of the existing committee members. Following Nonkululeko 2008 – as well as previously being a member of the GAC from 2008 – as well as previously being a member of the GAC from Nyembezi’s resignation, the committee decided not to replace her 2010 to 2013 – Alan brings skills and experience that complement 2010 to 2013 – Alan brings skills and experience that complement on the Board Risk Committee or on the committee itself, although those of the existing committee members. Following Nonkululeko those of the existing committee members. Following Nonkululeko the situation will be kept under review in the event of any material Nyembezi’s resignation, the committee decided not to replace her Nyembezi’s resignation, the committee decided not to replace her delays to the completion of managed separation. on the Board Risk Committee or on the committee itself, although on the Board Risk Committee or on the committee itself, although the situation will be kept under review in the event of any material the situation will be kept under review in the event of any material delays to the completion of managed separation. delays to the completion of managed separation. As managed separation continues, the committee has further intensified its focus on the composition of the boards and senior executive management of the Group’s constituent businesses, As managed separation continues, the committee has further As managed separation continues, the committee has further including their development and succession plans. In particular, intensified its focus on the composition of the boards and senior intensified its focus on the composition of the boards and senior the committee oversaw the appointment of the CEO, CFO and new executive management of the Group’s constituent businesses, executive management of the Group’s constituent businesses, non-executive directors of Old Mutual Group Holdings (OMGH), including their development and succession plans. In particular, including their development and succession plans. In particular, the South African holding company of OMEM and Nedbank, as the committee oversaw the appointment of the CEO, CFO and new the committee oversaw the appointment of the CEO, CFO and new well as the appointment of a new CFO and Audit Committee non-executive directors of Old Mutual Group Holdings (OMGH), non-executive directors of Old Mutual Group Holdings (OMGH), Chairman at OMW. the South African holding company of OMEM and Nedbank, as the South African holding company of OMEM and Nedbank, as well as the appointment of a new CFO and Audit Committee well as the appointment of a new CFO and Audit Committee In addition to changes mandated by managed separation, the Chairman at OMW. Chairman at OMW. committee has been mindful of the requirements of the Twin Peaks regulation in South Africa to ensure the relevant boards In addition to changes mandated by managed separation, the In addition to changes mandated by managed separation, the have the necessary facilities and governance arrangements to committee has been mindful of the requirements of the Twin committee has been mindful of the requirements of the Twin meet regulatory expectations. We have also considered the timing Peaks regulation in South Africa to ensure the relevant boards Peaks regulation in South Africa to ensure the relevant boards and process for the winding-down of the Company’s Head Office in have the necessary facilities and governance arrangements to have the necessary facilities and governance arrangements to London, including the expected times of departure from the Group meet regulatory expectations. We have also considered the timing meet regulatory expectations. We have also considered the timing of the members of the plc Exco. and process for the winding-down of the Company’s Head Office in and process for the winding-down of the Company’s Head Office in London, including the expected times of departure from the Group London, including the expected times of departure from the Group In addition to our work described above, we continued during of the members of the plc Exco. of the members of the plc Exco. the year to monitor talent management and diversity initiatives, progress against action items identified by the previous year’s In addition to our work described above, we continued during In addition to our work described above, we continued during externally-facilitated Board effectiveness review, and the process the year to monitor talent management and diversity initiatives, the year to monitor talent management and diversity initiatives, for conducting the 2017 review. progress against action items identified by the previous year’s progress against action items identified by the previous year’s externally-facilitated Board effectiveness review, and the process externally-facilitated Board effectiveness review, and the process The committee considers the current Old Mutual plc Board for conducting the 2017 review. for conducting the 2017 review. composition to be suitable for the Group’s business requirements, especially within the context of managed separation and The committee considers the current Old Mutual plc Board The committee considers the current Old Mutual plc Board a company in the process of winding-down its operations. composition to be suitable for the Group’s business requirements, composition to be suitable for the Group’s business requirements, The existing Board will stay in place until the managed separation especially within the context of managed separation and especially within the context of managed separation and process is materially complete, with planned retirements and the a company in the process of winding-down its operations. a company in the process of winding-down its operations. filling of casual vacancies suspended. However, the position remains The existing Board will stay in place until the managed separation The existing Board will stay in place until the managed separation under active review, for example in the event of any unexpected process is materially complete, with planned retirements and the process is materially complete, with planned retirements and the material delay to managed separation or regulatory change. filling of casual vacancies suspended. However, the position remains filling of casual vacancies suspended. However, the position remains under active review, for example in the event of any unexpected under active review, for example in the event of any unexpected Following the expected de-listing of the Company’s shares as part material delay to managed separation or regulatory change. material delay to managed separation or regulatory change. of the managed separation, the Board will be rationalised to suit its status as a subsidiary company with listed debt securities. Following the expected de-listing of the Company’s shares as part Following the expected de-listing of the Company’s shares as part of the managed separation, the Board will be rationalised to suit its of the managed separation, the Board will be rationalised to suit its How did we engage with our shareholders status as a subsidiary company with listed debt securities. status as a subsidiary company with listed debt securities. and how did it change from previous years? Following the launch of the managed separation in 2016, we How did we engage with our shareholders How did we engage with our shareholders adapted our investor relations (IR) programme to support the and how did it change from previous years? and how did it change from previous years? change in plc strategy. We significantly accentuated the Following the launch of the managed separation in 2016, we Following the launch of the managed separation in 2016, we underlying operations of the four businesses, their performance adapted our investor relations (IR) programme to support the adapted our investor relations (IR) programme to support the and their management teams. We also increased the disclosure change in plc strategy. We significantly accentuated the change in plc strategy. We significantly accentuated the around the cost reduction process and the path to closure of the underlying operations of the four businesses, their performance underlying operations of the four businesses, their performance Head Office activity. Accordingly, we de-emphasised the marketing and their management teams. We also increased the disclosure and their management teams. We also increased the disclosure of the equity and debt investment case of Old Mutual plc as a around the cost reduction process and the path to closure of the around the cost reduction process and the path to closure of the single group entity. Head Office activity. Accordingly, we de-emphasised the marketing Head Office activity. Accordingly, we de-emphasised the marketing of the equity and debt investment case of Old Mutual plc as a of the equity and debt investment case of Old Mutual plc as a During 2017 we continued to make significant efforts to educate the single group entity. single group entity. public markets and to communicate openly with our shareholders, institutional debt and equity investors and sell-side analysts During 2017 we continued to make significant efforts to educate the During 2017 we continued to make significant efforts to educate the globally. Old Mutual’s investor base is very diverse in both investor public markets and to communicate openly with our shareholders, public markets and to communicate openly with our shareholders, style and geographic location and the Group has approximately institutional debt and equity investors and sell-side analysts institutional debt and equity investors and sell-side analysts 478,000 retail shareholders. globally. Old Mutual’s investor base is very diverse in both investor globally. Old Mutual’s investor base is very diverse in both investor style and geographic location and the Group has approximately style and geographic location and the Group has approximately 478,000 retail shareholders. 478,000 retail shareholders. 86 38 38 38 Old Mutual plc Annual Report and Accounts 2017  Old Mutual plc Annual Report and Accounts 2017 C o r p o r a t e g o v e r n a n c e We maintained an active dialogue with shareholders through our planned IR activities and also through responding to their queries. In addition, in 2017 we considered the IR needs of the separating businesses. We began targeting specific institutional shareholders relevant to each business and monitored the businesses’ progress in engaging with their future investor bases. As existing listed entities, OMAM and Nedbank already had their own IR teams in place; during 2017 the Finance Directors of OMEM and OMW established IR teams supported by the plc IR team to develop and run their own IR within the centrally coordinated programme. Where did we meet with investors and research analysts in 2017 and how will this change in 2018? During 2017, we conducted investor meetings in the UK, South Africa and North America, involving the executives and/or senior management from the plc, OMEM, Nedbank, OMAM and OMW teams. All four businesses continued to build their own relationships with shareholders, potential investors and sell-side analysts. The most significant outputs of this co-ordinated activity were two capital markets events in November 2017: in Johannesburg for our South African-managed businesses, OMEM and Nedbank, and in London for UK-based OMW. These were attended in person by some 70 and 85 market participants respectively, with many more watching the webcast. Both events provided a strategic overview of the businesses, financial highlights and detailed expositions of the underlying operating divisions. There were extensive opportunities for attendees to interact with the management teams. The events received positive feedback and are summarised below: OMEM and Nedbank Showcase 1 November 2017  Welcome and introduction – Bruce Hemphill, Group Chief Executive, Old Mutual plc  Update on managed separation – Rob Leith, Director of Managed Separation, Old Mutual plc  CEO overview and introduction to the business reviews – Peter Moyo, CEO Designate OML  Nedbank overview – Mike Brown & Raisibe Morathi, Chief Executive & CFO Nedbank  Presentation by each of the OMEM business units CEOs  Financial highlights – Iain Williamson, COO OMEM  Risk and capital – Richard Treagus, CRO OMEM OMW Showcase 15 November 2017  Welcome and introduction – Bruce Hemphill, Group Chief Executive, Old Mutual plc  Strategic Overview – Paul Feeney, CEO OMW  Advice – Andy Thompson, CEO Advice  OMW Investors – Paul Simpson, CEO OMW Investors  Quilter Cheviot – Martin Baines, CEO Quilter Cheviot  UK Platform & Heritage – Steven Levin, CEO UK Platform & Heritage  International – Peter Kenny, MD International  Financials – Tim Tookey, CFO OMW Extensive and tailored international roadshows took place after these events. Centralised feedback was then considered as part of the ongoing strategic planning for the managed separation. Copies of all materials are available on the Group’s website. We anticipate similar capital markets events during 2018 as part of the wider investor marketing of the managed separation process. The Group Finance Director continued one-to-one meetings with sell-side analysts in the UK and South Africa. Currently 12 sell-side analysts actively publish research on the Company. We encourage sell-side analysts to cover the Company, giving investors their opinions on the Group’s valuation, performance and the business environment in which it operates, and also to make meaningful comparisons with our peers. MiFID II came into force from January 2018 and we expect this to further increase direct engagement with the investor bases that we already have. It is widely expected that the number of covering sell-side analysts will decrease in the future. However, given the managed separation, we expect the standalone businesses to develop different and, in aggregate, larger sell-side research coverage over time. The IR teams will take increasing responsibility for the management of research relationships and interactions with our shareholders as well as the management of the prospective new shareholder bases. Copies of all investor presentations and, where appropriate, transcripts are posted on the Company’s website so that they are accessible to shareholders. We anticipate similar capital markets events during 2018 as part of the wider investor marketing of the managed separation process. Number of investor events during 2017 (excluding sell-side and governance meetings)  244 events in total  214 with management (30 IR only)  188 institutions How did we manage corporate governance relationships with investors in 2017 and how will this change in 2018? The Chairman makes contact with our major shareholders and meets them as required. The Senior Independent Director is also available to shareholders. During 2017, we maintained extensive governance dialogue with investors and their advisers as part of the execution of managed separation. Matters raised in these governance-focused meetings during 2017 and early 2018 included the Company’s strategy, regulatory developments, remuneration, succession planning, diversity and transformation. The IR team updates the Board on issues arising from communication with the investment community. In 2018, we expect the Chairmen and non-executives of individual businesses to participate in governance meetings as part of their own preparation processes for managed separation. 87 39 Old Mutual plc Annual Report and Accounts 2017Governance Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Corporate governance continued Corporate governance continued What are the arrangements for Annual General Meetings (AGMs)? The Board uses the AGM, held at the Company’s Head Office in What are the arrangements for London each year, to comment on the Group’s results for the Annual General Meetings (AGMs)? previous year and developments during the current year to date. The Board uses the AGM, held at the Company’s Head Office in Shareholders also have the opportunity to ask the Board questions. London each year, to comment on the Group’s results for the The AGM is webcast and a record of the proceedings is also made previous year and developments during the current year to date. available on the Company’s website shortly after the end of the Shareholders also have the opportunity to ask the Board questions. meeting. All formal business items at the AGM are conducted The AGM is webcast and a record of the proceedings is also made on a poll, rather than by a show of hands. The Company’s share available on the Company’s website shortly after the end of the registrars ensure that all properly submitted proxy votes are meeting. All formal business items at the AGM are conducted counted, and a senior member of the UK registrar’s staff acts on a poll, rather than by a show of hands. The Company’s share as scrutineer to ensure that votes cast are correctly received registrars ensure that all properly submitted proxy votes are and recorded. counted, and a senior member of the UK registrar’s staff acts as scrutineer to ensure that votes cast are correctly received Each substantially separate issue at the AGM is dealt with by and recorded. a separate resolution and the business of the meeting always includes a resolution on the receipt and adoption of the Report Each substantially separate issue at the AGM is dealt with by and Accounts. a separate resolution and the business of the meeting always includes a resolution on the receipt and adoption of the Report The notice of AGM is sent out to shareholders who have elected and Accounts. or are entitled to receive physical documents in time to arrive in the ordinary course of the post at least 20 working days before the The notice of AGM is sent out to shareholders who have elected date of the meeting. or are entitled to receive physical documents in time to arrive in the ordinary course of the post at least 20 working days before the Who will be standing for election date of the meeting. or re-election at this year’s AGM? All the current directors will stand for re-election at this year’s AGM Who will be standing for election and the Board will recommend that every director who is standing or re-election at this year’s AGM? should be re-elected. Brief biographical details of all the directors All the current directors will stand for re-election at this year’s AGM are contained in the Board of Directors section earlier in this and the Board will recommend that every director who is standing Annual Report. Additional information about them, and further should be re-elected. Brief biographical details of all the directors details of the basis on which the Board has assessed each are contained in the Board of Directors section earlier in this director’s performance and recommends their re-election, Annual Report. Additional information about them, and further are set out in the shareholder circular relating to the AGM. details of the basis on which the Board has assessed each director’s performance and recommends their re-election, What is the Company’s issued share capital and are set out in the shareholder circular relating to the AGM. who are the Company’s largest shareholders? The Company’s issued share capital at 31 December 2017 What is the Company’s issued share capital and was £563,738,888 divided into 4,932,715,269 ordinary shares who are the Company’s largest shareholders? of 113⁄7p each (2016: £563,421,277 divided into 4,929,936,178 The Company’s issued share capital at 31 December 2017 ordinary shares of 113⁄7p each). The total number of voting rights was £563,738,888 divided into 4,932,715,269 ordinary shares in the Company’s issued ordinary share capital at 31 December of 113⁄7p each (2016: £563,421,277 divided into 4,929,936,178 2017 was also 4,932,715,269. ordinary shares of 113⁄7p each). The total number of voting rights in the Company’s issued ordinary share capital at 31 December During 2017, the Company issued 2,779,091 ordinary shares of 2017 was also 4,932,715,269. 113⁄7p each under employee share schemes at an average price of £1.5984 per share. During 2017, the Company issued 2,779,091 ordinary shares of 113⁄7p each under employee share schemes at an average price of £1.5984 per share. At 31 December 2017, shareholder authorities were in force enabling the Company to make market purchases of, and/or to purchase pursuant to contingent purchase contracts relating At 31 December 2017, shareholder authorities were in force to each of the overseas exchanges on which its shares are enabling the Company to make market purchases of, and/or listed, its own shares up to an aggregate of 492,992,500 shares. to purchase pursuant to contingent purchase contracts relating It bought back no shares during 2017 or during the period up to to each of the overseas exchanges on which its shares are 14 March 2018. listed, its own shares up to an aggregate of 492,992,500 shares. It bought back no shares during 2017 or during the period up to In the period 1 January to 14 March 2018, the Company issued 14 March 2018. a further 64,308 shares under its employee share schemes at an average price of £1.5907 each. As a result, the Company’s issued In the period 1 January to 14 March 2018, the Company issued share capital at 14 March 2018 was £563,746,237.37 divided into a further 64,308 shares under its employee share schemes at an 4,932,779,577 ordinary shares of 113⁄7p each. The total number of average price of £1.5907 each. As a result, the Company’s issued voting rights at that date was also 4,932,779,577. share capital at 14 March 2018 was £563,746,237.37 divided into 4,932,779,577 ordinary shares of 113⁄7p each. The total number of There have been no other notifications of changes to the interests voting rights at that date was also 4,932,779,577. set out in the table of substantial interests in the Company’s shares (below) between 31 December 2017 and 14 March 2018, save that There have been no other notifications of changes to the interests on 6 February 2018, Coronation Asset Management (Pty) Limited set out in the table of substantial interests in the Company’s shares increased its interests in voting rights in relation to the Company’s (below) between 31 December 2017 and 14 March 2018, save that shares to 198,488,578 or 4.02%. on 6 February 2018, Coronation Asset Management (Pty) Limited increased its interests in voting rights in relation to the Company’s How can I find out about the rights and shares to 198,488,578 or 4.02%. obligations attaching to the Company’s shares? The rights and obligations attaching to the Company’s ordinary How can I find out about the rights and shares are those conventional for a publicly-listed UK company. obligations attaching to the Company’s shares? The Governance section of the Company’s website provides a The rights and obligations attaching to the Company’s ordinary summary of these (along with certain other information relating to shares are those conventional for a publicly-listed UK company. dividends, directors and amendments to the Company’s articles The Governance section of the Company’s website provides a of association) and the Company’s current articles of association. summary of these (along with certain other information relating to dividends, directors and amendments to the Company’s articles What is the Company’s dividend policy of association) and the Company’s current articles of association. and what dividend will be paid for 2017? In March 2016 we announced a new capital management policy What is the Company’s dividend policy for the period of the managed separation, targeting a dividend and what dividend will be paid for 2017? cover equivalent to 2.5 to 3.5 times Group AOP earnings for In March 2016 we announced a new capital management policy each annual reporting period, with the first interim dividend cover for the period of the managed separation, targeting a dividend equivalent to three times Group AOP earnings for the first interim cover equivalent to 2.5 to 3.5 times Group AOP earnings for period. The revised policy has provided the flexibility to balance each annual reporting period, with the first interim dividend cover the requirements of our multiple stakeholders and our businesses equivalent to three times Group AOP earnings for the first interim as they prepare for managed separation by enabling them to period. The revised policy has provided the flexibility to balance both continue to invest in order to drive enhanced performance the requirements of our multiple stakeholders and our businesses and strengthen their balance sheets in preparation for being as they prepare for managed separation by enabling them to standalone businesses. both continue to invest in order to drive enhanced performance and strengthen their balance sheets in preparation for being Consistent with this policy, the Board has declared a second standalone businesses. interim dividend for 2017 of 3.57p per share (or its equivalent in other applicable currencies). This, together with the first interim Consistent with this policy, the Board has declared a second dividend of 3.53p per share paid in October 2017, equates to interim dividend for 2017 of 3.57p per share (or its equivalent in 3.42 times AOP earnings cover for the full year. other applicable currencies). This, together with the first interim dividend of 3.53p per share paid in October 2017, equates to 3.42 times AOP earnings cover for the full year. 88 40 40 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Dividends in currencies other than sterling will be paid in local currency on the basis of the average effective exchange rate after taking into account hedging activities and timing of remittances for the relevant period. Accordingly, shareholders in South Africa and Namibia will receive the full-year effective hedge rate achieved by the Company on rand forward sales undertaken in respect of rand flows supporting the 2017 interim dividends. Dividends to shareholders in Zimbabwe, Malawi and Sweden will be converted into local currency at the daily weighted average exchange rate for the six-month period from 1 July to 31 December 2017. Further information on the second interim dividend for 2017 (including the currency equivalents) is given in the Shareholder Information section at the back of this Annual Report. The capital management policy is intended to remain in place until the shares of Old Mutual plc are de-listed. The proposed future Capital Management Policy of the independent Old Mutual Limited and Quilter businesses are presented in their respective Business Review sections on pages 36 and 57. Substantial interests in the Company’s shares At 31 December 2017, the following substantial interests in voting rights in relation to the Company’s shares had been declared to the Company in accordance with the Disclosure Guidance and Transparency Rules: Public Investment Corporation of the Republic of South Africa BlackRock Inc. Coronation Asset Management (Pty) Limited Norges Bank Shareholder analysis (as at 31 December 2017) 1 9 8 6 7 5 4 3 2 1. South African institutional 44.8% 2. UK institutional 13.8% 3. USA institutional 12.0% 4. Rest of Europe institutional 4.7% 5. Rest of the world institutional 4.3% 6. South African retail 4.7% 7. BEE 1.6% 8. Policyholders 1.3% 9. Miscellaneous 12.8% Source: Nasdaq Why is the Company paying a second interim dividend instead of a final dividend? As with 2016, the final dividend for 2017 has been declared as a second interim dividend, which does not require shareholder approval at the AGM. Consequently, the second interim dividend is revocable by the Board until paid. This means that the Company is able to pay the dividend at the end of April. This also means that, under Solvency II rules, the Company’s ordinary shares continue to qualify as eligible regulatory capital. Number of voting rights % of voting rights 535,592,482 10.86% 261,673,856 151,352,245 147,952,754 5.3% 3.07% 2.99% C o r p o r a t e g o v e r n a n c e What other factors are relevant in determining dividend payments? In addition to giving specific consideration to the Company’s dividend policy, all dividend declarations are assessed by the Board in the context of their impact on the viability of the Company, as described elsewhere in this report. Dividend declarations must also take account of the distributable reserves of the holding company, Old Mutual plc, which were £2,966 million at 31 December 2017. The Group capital management policy also takes account of provisions in the OMLAC(SA) demutualisation agreement which restrict the application of South African dividend remittances to the payment of Company dividends. What dividends were waived during 2017? During 2017, trustees of the Company’s, Quilter Cheviot’s and the Company’s South African subsidiary’s employee benefit trusts waived dividends on certain shares in the Company held by them relating to awards where the scheme participants were not entitled to receive dividends pending vesting. The total number of shares concerned was 32,015,773 for the second interim dividend for 2016 and 30,260,023 for the first interim dividend for 2017. 89 41 Old Mutual plc Annual Report and Accounts 2017Governance Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Corporate governance continued Corporate governance continued Audit arrangements Who is the Company’s external auditor Audit arrangements and how much is it paid? KPMG LLP (or, before 2014, its related associated entity KPMG Who is the Company’s external auditor Audit Plc) has been the Company’s external auditor since 1999. and how much is it paid? We have made arrangements with KPMG LLP for appropriate audit KPMG LLP (or, before 2014, its related associated entity KPMG partner rotation in line with the requirements of the UK Auditing Audit Plc) has been the Company’s external auditor since 1999. Practices Board. The current audit engagement partner in the UK, We have made arrangements with KPMG LLP for appropriate audit Jonathan Holt, assumed this role in June 2016. partner rotation in line with the requirements of the UK Auditing Practices Board. The current audit engagement partner in the UK, The Group Audit Committee report above describes how that Jonathan Holt, assumed this role in June 2016. committee satisfies itself about the external auditor’s performance and its recommendation to reappoint KPMG LLP (which has The Group Audit Committee report above describes how that expressed its willingness to continue in office) as auditor for committee satisfies itself about the external auditor’s performance 2018 at this year’s AGM. The Company has not entered into and its recommendation to reappoint KPMG LLP (which has any contractual restriction preventing it from considering a expressed its willingness to continue in office) as auditor for change of auditor. 2018 at this year’s AGM. The Company has not entered into any contractual restriction preventing it from considering a During the year ended 31 December 2017, fees paid by the Group change of auditor. to KPMG LLP and its associates totalled £18.1 million for audit services (2016: £15.1 million) and £1.8 million for tax compliance, During the year ended 31 December 2017, fees paid by the Group audit-related assurance, corporate finance transactions and other to KPMG LLP and its associates totalled £18.1 million for audit non-audit services (2016: £3.7 million). In addition to the above, services (2016: £15.1 million) and £1.8 million for tax compliance, Nedbank paid a further £4.3 million (2016: £3.3 million) to Deloitte audit-related assurance, corporate finance transactions and other in respect of joint audit arrangements. non-audit services (2016: £3.7 million). In addition to the above, Nedbank paid a further £4.3 million (2016: £3.3 million) to Deloitte The Group Audit Committee has approved detailed guidelines in respect of joint audit arrangements. as part of the Group’s policy on non-audit services, which are summarised in the Corporate Governance section of our website. The Group Audit Committee has approved detailed guidelines as part of the Group’s policy on non-audit services, which are summarised in the Corporate Governance section of our website. The Board has overall responsibility for the Group’s The Board has overall system of internal control and responsibility for the Group’s for reviewing its effectiveness, system of internal control and while the implementation of for reviewing its effectiveness, internal control systems is the while the implementation of responsibility of management. internal control systems is the responsibility of management. Risk assessment and financial control environment Risk assessment and financial What is the Company’s internal control control environment environment and how is it monitored? The Group’s Finance function actively monitors the quality of the What is the Company’s internal control Group’s financial reporting controls, by seeking positive affirmation environment and how is it monitored? from its principal subsidiary businesses twice-yearly that key The Group’s Finance function actively monitors the quality of the controls safeguarding reliable, accurate and timely Group external Group’s financial reporting controls, by seeking positive affirmation IFRS reporting are in place and operating effectively. from its principal subsidiary businesses twice-yearly that key controls safeguarding reliable, accurate and timely Group external Management assessed the effectiveness of this framework at IFRS reporting are in place and operating effectively. 31 December 2017, based on the criteria described in ‘Internal Control – Integrated Framework’ issued by the Committee of Management assessed the effectiveness of this framework at Sponsoring Organizations of the Treadway Commission, and 31 December 2017, based on the criteria described in ‘Internal concluded that it was effective. Management reports on the status Control – Integrated Framework’ issued by the Committee of of these controls to the Group Audit Committee, and this has Sponsoring Organizations of the Treadway Commission, and enabled the committee to support the Board in concluding that concluded that it was effective. Management reports on the status it can rely on the operation of these controls as part of its review of these controls to the Group Audit Committee, and this has of internal control effectiveness referred to above. enabled the committee to support the Board in concluding that it can rely on the operation of these controls as part of its review An ongoing process for identifying, evaluating and managing the of internal control effectiveness referred to above. significant risks faced by the Group and its businesses has been in place for the year ended 31 December 2017 and up to this report’s An ongoing process for identifying, evaluating and managing the date of approval, as described in more detail below. Further details significant risks faced by the Group and its businesses has been in of the Group’s risk and capital management disciplines are place for the year ended 31 December 2017 and up to this report’s described earlier in this Annual Report. date of approval, as described in more detail below. Further details of the Group’s risk and capital management disciplines are The Board has overall responsibility for the Group’s system of described earlier in this Annual Report. internal control and for reviewing its effectiveness, while the implementation of internal control systems is the responsibility The Board has overall responsibility for the Group’s system of of management. Executive management has implemented an internal control and for reviewing its effectiveness, while the internal control system designed to help ensure: implementation of internal control systems is the responsibility of management. Executive management has implemented an  The effective and efficient operation of the Group’s businesses internal control system designed to help ensure: by enabling management to respond appropriately to significant risks to achieving the Group’s business objectives  The effective and efficient operation of the Group’s businesses  The safeguarding of assets from inappropriate use or from loss by enabling management to respond appropriately to significant and fraud and ensuring that liabilities are identified and managed risks to achieving the Group’s business objectives  The quality of internal and external reporting  The safeguarding of assets from inappropriate use or from loss  Compliance with applicable laws and regulations, and with internal policies on the conduct of business. and fraud and ensuring that liabilities are identified and managed internal policies on the conduct of business.  The quality of internal and external reporting  Compliance with applicable laws and regulations, and with The system of internal control is designed to manage, rather than eliminate, the risk of failure to achieve the Group’s business objectives. It can only provide reasonable, and not absolute, The system of internal control is designed to manage, rather assurance against material misstatement or loss. than eliminate, the risk of failure to achieve the Group’s business objectives. It can only provide reasonable, and not absolute, assurance against material misstatement or loss. 90 42 42 Old Mutual plc Annual Report and Accounts 2017  Old Mutual plc Annual Report and Accounts 2017 The Group’s actions to review the effectiveness of the system of internal control include:  An annual review of the risk assessment procedures, control environment considerations, information and communication and monitoring procedures at Group level and within each business. This review covers all material controls including financial, operational and compliance controls and risk management systems  A certification process, under which all businesses are required to confirm that they have undertaken risk management in accordance with the Group risk framework, that they have reviewed the effectiveness of the system of internal controls, that internal policies have been complied with, and that no significant risks or issues are known which have not been reported in accordance with policy  Regular reviews of the effectiveness of the system of internal control by the Group Audit Committee, which receives reports from the Group Internal Audit function. The committee also receives reports from the external auditor, which include details of significant internal control matters that have been identified during the course of its work. These activities supplement the regular risk management activities which are performed on an ongoing basis. The certification process described above does not apply to some joint ventures where the Group does not exercise full management control. In these cases, the Company monitors the internal control environment and the potential impact on the Group through representation on the board of the entity concerned. The Board reviewed the effectiveness of the system of internal control during and at the end of the year. Our annual internal control assessment has not highlighted any material failings. We remain committed to having a robust internal control environment across the Group. The Board confirms that, in accordance with the processes described above and in the Risks section of this Annual Report, it has, in conjunction with the Board Risk Committee, carried out a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. The relevant risks and the manner in which they are being managed or mitigated are explained in more detail in the Risks section of this Annual Report. What is the role of Group Internal Audit? The purpose of Group Internal Audit (GIA) is to help the Board and executive management to protect the assets, reputation and sustainability of the Group. GIA does this by assessing whether all significant risks are identified and appropriately reported by management and the Risk function to the Board and executive management; assessing whether they are adequately controlled; and challenging executive management to improve the effectiveness of governance, risk management and internal controls. GIA’s work is focused on the areas of greatest risk to the Group, both current and emerging, as determined by a comprehensive risk-based planning process. The Group Audit Committee approves the annual Internal Audit plan and any subsequent material amendments to it and also satisfies itself that GIA has adequate resources to discharge its function. The Board is able to confirm that this was the case for 2017. There are Internal Audit teams in each of our major businesses. The heads of Internal Audit in the Group’s wholly-owned subsidiaries report directly to the Group Internal Audit Director (GIAD). Heads of audit in majority-owned subsidiaries have a dual reporting line to the GIAD. During 2017, the GIAD reported functionally to the Chairman of the Group Audit Committee and administratively to the Group Chief Executive. The GIAD attends all meetings of the Group Audit Committee, and has unrestricted access to the Group Chief Executive and the Chairman of the Board, as well as open invitations to attend any meetings of the subsidiary audit committees, the Board Risk Committee and the plc Exco. Internal Audit teams across the Group’s businesses use a single audit methodology which meets the international standards set by the Institute of Internal Auditors. Issues raised by Internal Audit in the course of its work are discussed with management, who are responsible for implementing agreed actions to address them within an appropriate and agreed timeframe. The GIAD submits formal reports to each meeting of the Group Audit Committee, summarising the results of Internal Audit activity, management’s progress in addressing issues and other significant matters. As reported last year, an external quality assurance process is now in place for internal audit. C o r p o r a t e g o v e r n a n c e We remain committed to having a robust internal control environment across the Group. 91 43 Old Mutual plc Annual Report and Accounts 2017Governance Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Corporate governance continued Corporate governance continued Can you confirm that the Company is a going concern? The Group’s financial position, its cash flows, liquidity position and Can you confirm that the Company borrowing facilities are described in the Financial Review and Risks is a going concern? sections of this Annual Report. In addition, Notes F1 to F5 to the The Group’s financial position, its cash flows, liquidity position and financial statements include the Group’s objectives, policies and borrowing facilities are described in the Financial Review and Risks processes for managing its capital (solvency risk) and liquidity sections of this Annual Report. In addition, Notes F1 to F5 to the risks, and sets out details of the principal risks related to financial financial statements include the Group’s objectives, policies and instrument market risk, credit risk and insurance risk as well as processes for managing its capital (solvency risk) and liquidity their sensitivities. risks, and sets out details of the principal risks related to financial instrument market risk, credit risk and insurance risk as well as The preceding sections of the Annual Report referred to above also their sensitivities. explain the basis on which the Group generates and preserves value over the longer term and the strategy for delivering its The preceding sections of the Annual Report referred to above also objectives. The Group’s capital and cash flow under the Solvency II explain the basis on which the Group generates and preserves Directive are stress tested and are within the limits described in the value over the longer term and the strategy for delivering its Risks section in order to identify those risks that would threaten the objectives. The Group’s capital and cash flow under the Solvency II Group’s solvency and liquidity. As a consequence, the directors Directive are stress tested and are within the limits described in the believe that the Group is in a strong financial position and is well Risks section in order to identify those risks that would threaten the placed to manage its business risks successfully. Group’s solvency and liquidity. As a consequence, the directors believe that the Group is in a strong financial position and is well Notwithstanding the Group’s declared strategy of managed placed to manage its business risks successfully. separation, the Board has a reasonable expectation, based on its enquiries, that the Company and Group in their present form Notwithstanding the Group’s declared strategy of managed have adequate resources to continue in operational existence for separation, the Board has a reasonable expectation, based on the next 12 months. Accordingly, it continues to adopt the going its enquiries, that the Company and Group in their present form concern basis in preparing the financial statements. have adequate resources to continue in operational existence for the next 12 months. Accordingly, it continues to adopt the going The Board’s assessment of going concern is underpinned by concern basis in preparing the financial statements. the enquiries and assessments it has made in the course of its assessment of the Group’s viability, which is set out in further The Board’s assessment of going concern is underpinned by detail below. the enquiries and assessments it has made in the course of its assessment of the Group’s viability, which is set out in further Is the Board satisfied that the Group’s detail below. businesses are viable in the longer term? The Board routinely assesses the reasonableness of the Is the Board satisfied that the Group’s expectation that the Company and Group will have adequate businesses are viable in the longer term? resources to continue in operational existence for the foreseeable The Board routinely assesses the reasonableness of the future. In view of the Company’s strategy to divide the Group into expectation that the Company and Group will have adequate its constituent businesses, the Board has had to make an resources to continue in operational existence for the foreseeable assessment that both the Company itself and each of the Group’s future. In view of the Company’s strategy to divide the Group into current businesses will be able to continue in operational existence its constituent businesses, the Board has had to make an on that basis. assessment that both the Company itself and each of the Group’s current businesses will be able to continue in operational existence In addition to enabling the Board to conclude that the Company is a on that basis. going concern, this assessment has enabled the Board to confirm that the Company and wider Group will remain viable, such that In addition to enabling the Board to conclude that the Company is a they are able to settle their liabilities as they fall due in the longer going concern, this assessment has enabled the Board to confirm term – meaning for this purpose the period up to the end of 2020. that the Company and wider Group will remain viable, such that Although, as a result of the managed separation, it is expected that they are able to settle their liabilities as they fall due in the longer the Group will cease to exist in its current form during 2018 and will term – meaning for this purpose the period up to the end of 2020. certainly not exist by 2020, an analysis of the companies which Although, as a result of the managed separation, it is expected that comprise each of the current Group’s three businesses indicates the Group will cease to exist in its current form during 2018 and will that each business will be viable on a standalone basis. In addition, certainly not exist by 2020, an analysis of the companies which although it is expected that the Company will cease to be the listed comprise each of the current Group’s three businesses indicates parent company of the Group in 2018, the Company itself will retain that each business will be viable on a standalone basis. In addition, sufficient resources to meet its obligations in its reduced state and although it is expected that the Company will cease to be the listed parent company of the Group in 2018, the Company itself will retain sufficient resources to meet its obligations in its reduced state and will continue to exist in the new structure. In reaching this conclusion, the Board has assessed projections covering the period from 2018 to 2020, as set out in the Group’s rolling three- will continue to exist in the new structure. In reaching this year business plan, which was formally approved by the Board. conclusion, the Board has assessed projections covering the period from 2018 to 2020, as set out in the Group’s rolling three- These projections include analysis of the Group’s and businesses’ year business plan, which was formally approved by the Board. current and prospective financial performance and cash flows on which forecasts of its regulatory capital, liquidity and financial These projections include analysis of the Group’s and businesses’ positions have been based. current and prospective financial performance and cash flows on which forecasts of its regulatory capital, liquidity and financial The Board considers a three-year outlook when considering the positions have been based. longer-term viability of the businesses of the Group. This is the period for which the Group prepares its detailed business plan The Board considers a three-year outlook when considering the which sets out the businesses’ prospective operating performance longer-term viability of the businesses of the Group. This is the and financial position, including its capital position. period for which the Group prepares its detailed business plan which sets out the businesses’ prospective operating performance Some Group businesses write business that is very long-term in and financial position, including its capital position. nature, especially in the areas of life assurance and pensions. This is accounted for appropriately, applying well-established actuarial Some Group businesses write business that is very long-term in principles. In adopting a three-year time horizon for this viability nature, especially in the areas of life assurance and pensions. This statement, no inference should be drawn about a lack of viability of is accounted for appropriately, applying well-established actuarial the Group in relation to such longer-term commitments. principles. In adopting a three-year time horizon for this viability statement, no inference should be drawn about a lack of viability of In assessing the viability of the Group and the businesses, the Group in relation to such longer-term commitments. consideration has been given to the applicable regulatory capital requirements. This has included an assessment of the Company’s In assessing the viability of the Group and the businesses, Solvency II position over the period of the managed separation. consideration has been given to the applicable regulatory capital This has been addressed by overlaying the financial impacts of a requirements. This has included an assessment of the Company’s number of managed separation scenarios on to the ‘base case’ Solvency II position over the period of the managed separation. business plan. In considering the possible steps required to This has been addressed by overlaying the financial impacts of a undertake the process of managed separation, the Board has number of managed separation scenarios on to the ‘base case’ routinely taken into consideration the adequacy of the Group’s business plan. In considering the possible steps required to capital and resources in the relevant geographies and in light of the undertake the process of managed separation, the Board has appropriate local regulatory obligations to enable it to achieve the routinely taken into consideration the adequacy of the Group’s desired strategic outcome. capital and resources in the relevant geographies and in light of the appropriate local regulatory obligations to enable it to achieve the In addition, as part of the preparations for the listing of OMW and desired strategic outcome. OML, reports are being produced to support the working capital statements which are required by local listing requirements in order In addition, as part of the preparations for the listing of OMW and to provide confidence to investors and other stakeholders that the OML, reports are being produced to support the working capital relevant businesses have sufficient working capital for their present statements which are required by local listing requirements in order requirements. Drafts of these reports were considered by the Board to provide confidence to investors and other stakeholders that the in assessing the viability of the Group and its businesses. relevant businesses have sufficient working capital for their present requirements. Drafts of these reports were considered by the Board in assessing the viability of the Group and its businesses. Although it is intended that the Group will cease to exist in its Although it is intended that the current form during 2018, analysis Group will cease to exist in its of the companies comprising each current form during 2018, analysis of the current Group’s three of the companies comprising each businesses indicates that each of the current Group’s three business will be viable on a businesses indicates that each standalone basis. business will be viable on a standalone basis. 92 44 44 Old Mutual plc Annual Report and Accounts 2017  Old Mutual plc Annual Report and Accounts 2017 As the ongoing viability of the Group and its constituent businesses is additionally subject to certain factors beyond the control of its directors and the directors of the future parent companies of those businesses – such as future macro-environmental conditions and the political situation of the countries in which it operates. Further analysis has therefore been performed to ensure that, barring unforeseen circumstances, these do not pose a material threat to the viability of the Group or its businesses. As a consequence, the base case business plan and related managed separation scenarios have been subject to stress testing and risk assessment. The principal risks considered in these scenarios are consistent with those set out elsewhere in this Annual Report. In addition to the more severe stress tests and scenarios, management and the Board also consider milder downside sensitivities as part of routine Board reports. The Group and Company also maintain contingency plans and resources to deal with potential adverse developments, which have been reviewed by the Board, and equivalent plans and resources have been reviewed by the boards of the future parent companies of those businesses. We remain focused on our purpose to help our customers thrive by enabling them to achieve their lifetime financial goals. Has all relevant information been disclosed to the auditor? The directors who held office at the date of approval of this Annual Report confirm that, so far as they are each aware, there is no relevant audit information of which the Company’s auditor is unaware, and each director has taken all the steps that he or she ought to have taken as a director to make himself or herself aware of any relevant audit information and to establish that the Company’s auditor was aware of that information. Other Directors’ Report matters As an international business active in many countries, the Group operates through subsidiaries, branches, joint ventures and associated companies established in, and subject to the laws and regulations of, many different jurisdictions. Does the Company have any significant agreements involving change of control? The following significant agreement to which the Company is a party contains provisions entitling counterparties to exercise termination or other rights in the event of a change of control of the Company:  £800 million Revolving Credit Facility dated 22 August 2014, as amended, between the Company, various syndicate banks (the Banks) and Bank of America Merrill Lynch International Limited as agent (the Agent). If a person or group of persons acting in concert gains control of the Company, the Company must notify the Agent. The Agent and the Company will negotiate with a view to agreeing terms and conditions acceptable to the Company and all of the Banks for continuing the facility. If such negotiations fail within 30 days of the original notification to the Agent by the Company, the Banks become entitled to declare any outstanding indebtedness repayable by giving notice to the Agent within 15 days of the 30-day period mentioned above. On receiving notice for payment from the Agent, the Company shall pay the outstanding sums within three business days to the relevant Bank(s). What is our approach to being a responsible business? In 2015 we set out our commitment to being a responsible business through our Positive Futures Plan. As we look towards our managed separation we remain focused on our purpose of helping our customers thrive by enabling them to achieve their lifetime financial goals, while investing their funds in ways which create a positive future for them, their families, their communities and the world at large. Responsible business practices remain core components of how we operate as a business and of the Company’s risk management strategy. We maintain a network of people who manage and monitor our responsible business approach. Each business has named a senior executive with overall responsibility for these issues. After our adoption of the managed separation strategy, the role played by the Company in developing the responsible business vision was transferred to the businesses. Each of them is developing its own approach, guided by our Positive Futures Plan. The Company’s Head of Responsible Business uses the Communications, Brand and Stakeholder Forum to ensure that we meet our commitment to remaining a responsible business throughout the managed separation and to support the businesses in developing their responsible business practices as they prepare to stand alone as independent businesses. C o r p o r a t e g o v e r n a n c e 93 45 Old Mutual plc Annual Report and Accounts 2017Governance Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Corporate governance continued Corporate governance continued What is the Company’s approach to non-financial reporting? As part of managed separation (see business model on page 3), What is the Company’s approach the Company is transitioning the management of non-financial to non-financial reporting? matters to our businesses. Accordingly, discussion of the impact of As part of managed separation (see business model on page 3), material non-financial matters on the businesses of Quilter plc and the Company is transitioning the management of non-financial Old Mutual Limited will be discussed in greater detail in the listing matters to our businesses. Accordingly, discussion of the impact of documents of those companies, with further information being material non-financial matters on the businesses of Quilter plc and made available on their respective websites and in other Old Mutual Limited will be discussed in greater detail in the listing standalone reports going forward. documents of those companies, with further information being made available on their respective websites and in other In respect of elements which continue to impact the Group as a standalone reports going forward. whole, or where group-wide policies and procedures continue to apply until the completion of managed separation, we have In respect of elements which continue to impact the Group as a consolidated and will report at a group-wide level. Accordingly, whole, or where group-wide policies and procedures continue to Old Mutual plc will produce a final Carbon Disclosure Project (CDP) apply until the completion of managed separation, we have report, Principles for Responsible Investment (PRI) report and consolidated and will report at a group-wide level. Accordingly, our United Nations Global Compact (UNGC) Communication on Old Mutual plc will produce a final Carbon Disclosure Project (CDP) Progress Report, all of which will be published on the Old Mutual report, Principles for Responsible Investment (PRI) report and plc website. The Group’s Modern Slavery Act statement will be our United Nations Global Compact (UNGC) Communication on produced by Old Mutual plc and focuses primarily on the UK Progress Report, all of which will be published on the Old Mutual business, Old Mutual Wealth, which will become Quilter plc. plc website. The Group’s Modern Slavery Act statement will be In respect of gender pay gap reporting, Old Mutual plc and the produced by Old Mutual plc and focuses primarily on the UK subsidiary legal entities which comprise the Head Office companies business, Old Mutual Wealth, which will become Quilter plc. fall below the minimum employee threshold for reporting on the In respect of gender pay gap reporting, Old Mutual plc and the gender pay gap; however, other subsidiaries (primarily within subsidiary legal entities which comprise the Head Office companies Old Mutual Wealth) are covered by the legislation and will provide fall below the minimum employee threshold for reporting on the reports, for example by the publication of the relevant disclosure gender pay gap; however, other subsidiaries (primarily within on the Quilter plc website. Old Mutual Wealth) are covered by the legislation and will provide reports, for example by the publication of the relevant disclosure Our approach to managing the environment on the Quilter plc website. Across our businesses, we have a responsibility to ensure we are as environmentally efficient as possible. This extends to our Our approach to managing the environment property portfolio as well as our employee-occupied properties. Across our businesses, we have a responsibility to ensure we Through our large presence in South Africa, with its ongoing are as environmentally efficient as possible. This extends to our resource supply constraints, we continue to look for innovative property portfolio as well as our employee-occupied properties. ways of contributing positively to the environment and ensuring Through our large presence in South Africa, with its ongoing our business approach reflects best environmental practices. resource supply constraints, we continue to look for innovative ways of contributing positively to the environment and ensuring We offer investment and savings products, insurance and banking our business approach reflects best environmental practices. services. As a result we are able to invest in sustainable technologies and to offer and promote products that allow our We offer investment and savings products, insurance and banking customers to manage and minimise their own environmental services. As a result we are able to invest in sustainable impacts. Within our own footprint, our approach to responsible technologies and to offer and promote products that allow our environmental management focuses on efficient facilities and customers to manage and minimise their own environmental property management. We also use employee communication impacts. Within our own footprint, our approach to responsible and engagement programmes to ensure that our employees environmental management focuses on efficient facilities and understand how they can minimise the environmental impacts property management. We also use employee communication of the decisions they make at work. Our main environmental and engagement programmes to ensure that our employees impacts come from our energy and water consumption and waste understand how they can minimise the environmental impacts management. We aim to reduce these in a range of ways, from of the decisions they make at work. Our main environmental investing in energy efficient lighting to promoting recycling across impacts come from our energy and water consumption and waste our sites. We encourage employee suggestions and feedback to management. We aim to reduce these in a range of ways, from help us reduce our reliance on scarce resources. investing in energy efficient lighting to promoting recycling across our sites. We encourage employee suggestions and feedback to help us reduce our reliance on scarce resources. Our Responsible Business Policy includes details of how we manage our environmental responsibilities effectively. In 2010 we set a target to reduce our direct carbon emissions by 20% Our Responsible Business Policy includes details of how we by 2020 (from a 2010 baseline) in our property portfolio and manage our environmental responsibilities effectively. In 2010 employee-occupied properties. As we undertake managed we set a target to reduce our direct carbon emissions by 20% separation we are working with the businesses to identify targets by 2020 (from a 2010 baseline) in our property portfolio and that support their move to independence and the long-term employee-occupied properties. As we undertake managed approach they will take. The environment task forces in the separation we are working with the businesses to identify targets businesses will continue to work on implementing our strategy and that support their move to independence and the long-term meeting our targets. Our carbon emissions (using Defra & IEA approach they will take. The environment task forces in the stipulated country-specific emission factors for Scope 1 and 2) businesses will continue to work on implementing our strategy and cover our Scope 1 and 2 emissions in our employee-occupied meeting our targets. Our carbon emissions (using Defra & IEA locations and investment property portfolio. Our total carbon stipulated country-specific emission factors for Scope 1 and 2) footprint (Scope 1 and 2 emissions) was 491,278 tonnes CO2e cover our Scope 1 and 2 emissions in our employee-occupied (2016: 489,949 tonnes). Our carbon intensity for 2017 was locations and investment property portfolio. Our total carbon 2.2 tonnes CO2e/£m FUM (2016: 1.2 tonnes). footprint (Scope 1 and 2 emissions) was 491,278 tonnes CO2e (2016: 489,949 tonnes). Our carbon intensity for 2017 was Our greatest environmental impact comes indirectly from the 2.2 tonnes CO2e/£m FUM (2016: 1.2 tonnes). investments we hold and the policies we underwrite throughout our businesses. We are working to understand the carbon emissions Our greatest environmental impact comes indirectly from the of our investments, and to apply our Responsible Investment investments we hold and the policies we underwrite throughout our Standard to our investment capabilities. The businesses offer businesses. We are working to understand the carbon emissions customers various socially responsible investment and ethical of our investments, and to apply our Responsible Investment funds which allow them to invest in specific environmental projects; Standard to our investment capabilities. The businesses offer however, our aim remains to embed environmental, social and customers various socially responsible investment and ethical governance criteria in all our investment decisions and not just funds which allow them to invest in specific environmental projects; those confined to specialised funds. however, our aim remains to embed environmental, social and governance criteria in all our investment decisions and not just We support the recommendations from the Taskforce on Climate- those confined to specialised funds. related Financial Disclosures and are working with the Group’s businesses to ensure they embed these recommendations as We support the recommendations from the Taskforce on Climate- they prepare for listing and operation as standalone entities going related Financial Disclosures and are working with the Group’s forward. To read more about the Group’s approach to managing businesses to ensure they embed these recommendations as environmental risks in the previous year, please see our CDP, they prepare for listing and operation as standalone entities going UNGC and PRI reports. forward. To read more about the Group’s approach to managing environmental risks in the previous year, please see our CDP, UNGC and PRI reports. We remain committed to increasing diversity throughout We remain committed to our businesses and have set increasing diversity throughout targets to promote this. our businesses and have set targets to promote this. 94 46 46 Old Mutual plc Annual Report and Accounts 2017  Old Mutual plc Annual Report and Accounts 2017 How do we manage social and employee matters? All our businesses uphold the principle of freedom of association, and recognise the right to collective bargaining where permitted by local law. Old Mutual does not, under any circumstances, tolerate forced labour or child labour and we work with our supply chain and investment teams to uphold this position. We remain committed to increasing diversity throughout our businesses and have set targets to promote this. With over 65,000 employees, we see the different backgrounds, perspectives and experiences of our employees as one of our greatest assets. Our people policies at both plc and business level ensure that no employee receives less favourable treatment based on any factor unrelated to the requirements of their position. In South Africa we further address our commitment to employment equality through our approach to Broad-Based Black Economic Empowerment. To find out more please see the Nedbank and OMEM business reviews on pages 38 to 47 and 26 to 37 respectively, and their separate websites. We have a Human Resource Risk Management Policy governing labour standards for all employees in the plc and all our businesses. This covers a range of areas including employee relations and employment, diversity, recruitment, remuneration, performance management and employee welfare. Twice a year, the CEOs of all our businesses are required to sign a Letter of Representation to confirm that both they and their employees have complied with the policy over the previous year and give details if any compliance issues have arisen. Regular internal audit checks covering this and other Group policies support this process. To ensure our suppliers reflect the values we see as important in relation to labour standards, we have strengthened our Responsible Business Policy to include a section on responsible procurement. As part of managed separation we are working with the businesses to ensure they are embedding the aims of the policy and contacting key suppliers regularly. In the UK we provide ongoing employee training to ensure that everyone responsible for procurement understands the relevant requirements and our expectations – our focus for 2017 was the UK Modern Slavery Act 2015 (MSA). As an active and committed member of the communities in which we operate, we invested £20 million in local projects in 2017 (2016: £15 million). £9.8 million was invested in education initiatives in 2017 (2016: £7.4 million). Recognising our role as part of a healthy society, our responsible business policy requires our businesses to be active in their local areas, supporting matters that have a material impact on their business and the communities around them. What is our commitment to human rights? Our commitment to respect human rights and comply with the Universal Declaration of Human Rights is embedded in our Code of Conduct and employment practices. This commitment has not changed as a result of managed separation and we are working to transfer to the businesses our understanding of the risks and responsibilities relating to human rights. As part of the transition, we are building local-level engagement and collaboration with a range of stakeholders, including those in our supply and investment chains, to support the process. Each business embeds its response to our Positive Futures Plan into its business strategy, and responsible investment remains a priority for all of them. We continue to build on our understanding and approach to identifying and managing the human rights risks associated with our investments. We also assess new investments for their impact on respecting and protecting human rights and for potential human rights abuses. Each business continues to identify areas where it can mitigate risk and take steps to ensure it does not cause or contribute to any negative human rights impacts. This work will continue during the managed separation and forms part of our responsible business transition plans. In particular, each business takes account of human rights risks as it puts in place appropriate risk management and responsible business governance structures at local level. In addition to our ongoing global approach we are also required to comply with country-specific legislation, such as MSA legislation which sets out measures on how modern slavery and human trafficking is dealt with in the UK. In light of managed separation, this work has focused on Old Mutual Wealth; our MSA statement is available to download from the Company’s website. Our Code of Conduct emphasises the Group’s human rights stance and is supported by our Human Rights statement. Twice a year, CEOs from all our businesses are required to sign a Letter of Representation to confirm that both they and their employees have complied with the Code over the previous year and give details if any compliance issues have arisen. Regular internal audit checks covering this and other Group policies support this process. How do we manage anti-corruption and anti-bribery? Old Mutual’s Anti-Bribery and Corruption Policy and its Code of Conduct strongly emphasise zero tolerance for bribery and corrupt business practices. We are fully committed to ethical and compliant business conduct across all the countries in which we operate. Our policy requires that each business demonstrates:  A strong ethical tone from top management  A thorough bribery risk assessment as the basis for risk-focused controls  Due diligence on third parties corresponding with the risk posed by the third party or the nature of the business relationship  Employee training and counterparty awareness  Ongoing compliance monitoring Anti-bribery and corruption compliance is overseen by a suitably experienced expert in each of our businesses. Issues are reported to the plc Exco and Board Risk and Group Audit Committees. The Board Risk Committee also receives an annual compliance assessment as part of the group-wide Financial Crime Prevention Report. Each business has established anonymous whistleblowing arrangements facilitating the reporting of suspicions of corrupt behaviour supported by strong investigative capability and rigorous disciplinary processes/sanctions. No significant issues were reported through these arrangements during 2017. C o r p o r a t e g o v e r n a n c e 95 47 Old Mutual plc Annual Report and Accounts 2017Governance Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Corporate governance continued Corporate governance continued Did the Group make any political donations during 2017? The Group made no EU or other political donations during the year. Did the Group make any political donations during 2017? How did the Board approve this Annual Report? The Group made no EU or other political donations during the year. The Board approved this Annual Report at its meeting on 14 March 2018. It confirmed that it considered the Annual How did the Board approve this Annual Report? Report and Accounts, taken as a whole, to be fair, balanced The Board approved this Annual Report at its meeting on and understandable and to provide the information necessary for 14 March 2018. It confirmed that it considered the Annual shareholders to assess the Company’s position and performance, Report and Accounts, taken as a whole, to be fair, balanced business model and strategy. In reaching this conclusion, it took and understandable and to provide the information necessary for into account input from the Group Audit, Remuneration and Board shareholders to assess the Company’s position and performance, Risk Committees, which had previously had the opportunity to business model and strategy. In reaching this conclusion, it took review and comment on drafts of the sections falling within their into account input from the Group Audit, Remuneration and Board respective remits. Risk Committees, which had previously had the opportunity to review and comment on drafts of the sections falling within their Governing law respective remits. The Strategic Report, Financial Review and Risks section and this Corporate Governance report collectively comprise the directors’ Governing law report for the purposes of section 463(1)(a) of the Companies Act The Strategic Report, Financial Review and Risks section and this 2006. The Directors’ Remuneration Report contained in this Annual Corporate Governance report collectively comprise the directors’ Report is the directors’ remuneration report for the purposes of report for the purposes of section 463(1)(a) of the Companies Act section 463(1)(b) of that Act. English law governs the disclosures 2006. The Directors’ Remuneration Report contained in this Annual contained in and liability for the Directors’ Report and the Directors’ Report is the directors’ remuneration report for the purposes of Remuneration Report. section 463(1)(b) of that Act. English law governs the disclosures contained in and liability for the Directors’ Report and the Directors’ Colin Campbell Remuneration Report. Group Company Secretary 14 March 2018 Colin Campbell Group Company Secretary 14 March 2018 Old Mutual is not aware of any bribery or corruption regulatory or law enforcement investigations in relation to its activities nor of any issues arising in its businesses during the year that might require Old Mutual is not aware of any bribery or corruption regulatory or self-reporting to the authorities under either the UK Bribery Act or law enforcement investigations in relation to its activities nor of any the US Foreign Corrupt Practices Act. issues arising in its businesses during the year that might require self-reporting to the authorities under either the UK Bribery Act or All employees across the Group are required to confirm annually the US Foreign Corrupt Practices Act. that they have read their local business’ anti-bribery policy, understand it and will comply with it. CEOs of our businesses are All employees across the Group are required to confirm annually required to confirm their compliance with the Anti-Bribery and that they have read their local business’ anti-bribery policy, Corruption Policy twice a year. understand it and will comply with it. CEOs of our businesses are required to confirm their compliance with the Anti-Bribery and Our Code of Conduct emphasises the Group’s anti-bribery stance Corruption Policy twice a year. and our position on employee conflicts of interest. The Code supplements our policies in this area and aims to ensure the Our Code of Conduct emphasises the Group’s anti-bribery stance overarching message is fully understood and embedded, in line and our position on employee conflicts of interest. The Code with our values. We have robust controls to tackle corruption in all supplements our policies in this area and aims to ensure the its forms. Our working culture and active employee engagement overarching message is fully understood and embedded, in line on this topic help us create positive, proactive networks to work with our values. We have robust controls to tackle corruption in all against corruption. its forms. Our working culture and active employee engagement on this topic help us create positive, proactive networks to work Where can I find the other matters required against corruption. to be included in the Directors’ Report? The Company has taken advantage of paragraph 1A of Schedule 7 Where can I find the other matters required to The Large and Medium-sized Companies and Groups (Accounts to be included in the Directors’ Report? and Reports) Regulations 2008 to disclose certain information that The Company has taken advantage of paragraph 1A of Schedule 7 must be disclosed as part of its Directors’ Report either elsewhere to The Large and Medium-sized Companies and Groups (Accounts in this document or on our website as set out below: and Reports) Regulations 2008 to disclose certain information that must be disclosed as part of its Directors’ Report either elsewhere  Important events relating to the Group since the end of the in this document or on our website as set out below: financial year are included in the Strategic Report as well as in Note J8 to the financial statements  Important events relating to the Group since the end of the  A description of likely future developments of the business financial year are included in the Strategic Report as well as of the Company and its subsidiaries is contained in the in Note J8 to the financial statements Strategic Report and the Financial Review and Risks section  A description of likely future developments of the business  The Group’s involvement in research and development, insofar of the Company and its subsidiaries is contained in the as relevant to its operations, is given in the Strategic Report and Strategic Report and the Financial Review and Risks section the Financial Review and Risks section  The Group’s involvement in research and development, insofar  Our financial risk management objectives and policies are as relevant to its operations, is given in the Strategic Report and described in the Risks section of this Annual Report. Along with the Financial Review and Risks section Notes F1 to F5 to the financial statements, this also addresses the Group’s exposure to price risk, credit risk, liquidity risk and described in the Risks section of this Annual Report. Along with cash flow risk. Notes F1 to F5 to the financial statements, this also addresses the Group’s exposure to price risk, credit risk, liquidity risk and cash flow risk.  Our financial risk management objectives and policies are 96 48 48 Old Mutual plc Annual Report and Accounts 2017Old Mutual plc Annual Report and Accounts 2017 Directors’ Remuneration Report In this section, we describe the Directors’ Remuneration Policy and how our directors were paid during 2017. Annual Report on Remuneration 112 Market benchmarks 112 Single total figures of remuneration for executive directors (audited) 113 Additional requirements in respect of the single total figure table for executive directors 119 Single total figures of remuneration for non-executive directors (audited) 119 Scheme interests awarded during 2017 (audited) 120 Directors’ shareholdings and share interests (audited) 121 Shares in trust and shareholder dilution 122 Payments to past directors (audited) 122 Payments for loss of office (audited) 123 Performance graphs 123 Group Chief Executive’s remuneration over the last eight years 124 Percentage change in the remuneration of the Group Chief Executive 124 Relative importance of spend on pay 125 Implementation of policy in 2018 126 Solvency II 127 Consideration by the directors of matters relating to directors’ remuneration 127 Advisers to the committee 128 Voting at General Meetings 128 Consideration of shareholder views Danuta Gray Chairman of the Remuneration Danuta Gray Committee Chairman of the Remuneration Committee Contents 98−128 Annual Statement 98 Annual Statement from the Chairman of the Remuneration Committee Our remuneration at a glance 101 Performance against targets in 2017 101 Single total figures of remuneration for 2017 (audited) 102 Implementation of policy in 2018 − Summary Directors’ Remuneration Policy 103 Introduction 103 Directors’ Remuneration Policy table (executive directors) Notes to the Directors’ Remuneration Policy table (executive directors) 107 Performance measures and targets 107 External directorships 107 Consideration of employment conditions elsewhere in the Group 107 Approach to remuneration in connection with recruitment 108 Service agreements and payments for loss of office 109 Treatment of incentive awards on termination, change of control or other corporate events 111 How shareholder views are reflected in the policy 111 Dates of directors’ service contracts and letters of appointment 111 Directors’ Remuneration Policy table (non-executive directors) 97 96 Old Mutual plc Annual Report and Accounts 2017Governance Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Directors’ Remuneration Report continued A new holding company, Old Mutual Limited (OML) has been created in South Africa, which will be the listed entity with the operating company, Old Mutual Emerging Markets (OMEM), and Old Mutual plc within its structure. For the purpose of this report, we refer to OMEM for items linked to business performance, but also refer to OML in respect of the strategic execution. Old Mutual Wealth (OMW) is rebranding to Quilter plc. For simplicity of reporting, we will only refer to OMW in this report. Three-year perspective 2015 to 2017 The Group delivered returns for shareholders of 19.2% on the LSE and 21.3% on the JSE ALSI over the past three years (using a three-month average at the beginning and end of the period). Although this return was behind the indices over the period, performance since the beginning of 2018 has closed the gap. EPS grew at a double-digit compound rate over three years on a sterling basis, while RoE was above target over the period. These performance indicators are the principal financial measures that the committee considers in the incentive plans for executives, and the results are reflected in the incentive outcomes measured against performance periods ending 31 December 2017. The committee was mindful of shareholder feedback and the voting result for the 2016 Directors’ Remuneration Report in considering the performance delivered and corresponding outcome of the plans at the end of 2017. The committee assessed performance relative to targets and to key macro-economic factors and was satisfied that the outcomes were appropriate for the performance delivered. This is consistent with our commitment to align executive remuneration to company performance and shareholder interests. Short-Term Incentive – outcome In 2017, the Short-Term Incentive (STI) had two components – a financial component and a personal performance component. The committee has approved an outcome of 100% for both the financial component of the STI, reflecting the very strong performance delivered in 2017 in respect of AOP EPS and RoE, and the personal element, based on an assessment of the performance of each director against a personal scorecard. A summary of key achievements for each of the executive directors in 2017 is given later in this report. Annual Statement On behalf of the Remuneration Committee, I am pleased to present our Directors’ Remuneration Report for 2017. During 2017, the Group met a number of significant objectives that were required to enable it to materially complete managed separation by the end of 2018. These included:  Completion of the sale of OM Asset Management in November 2017, realising good value for its holding  A significant reduction in holding company debt by a further £821 million  The strengthening of the boards and management teams, and the formulation of competitive strategies and strong balance sheets for OML and OMW, in preparation for them becoming successful standalone businesses  Approval from the Competition Tribunal in South Africa for OML to acquire Old Mutual plc (received in January 2018)  The agreed sale of the OMW UK Single Strategy Asset Management business, for an estimated consideration of c.£600 million There is no doubt that we are at a pivotal point in our strategy, with the listing of OML and the demerger and listing of OMW the critical steps toward the completion of managed separation. Review of performance in 2017 The Group’s operating performance was ahead of expectations, with a very strong H2, achieving pre-tax adjusted operating profit (AOP) of £2.0 billion in 2017, up 22% on 2016 on a reported basis and 7% on a constant currency basis. AOP EPS of 24.3p was up 25% on a reported basis and 10% on a constant currency basis, well ahead of nominal GDP over the period in our major markets. This is a key macro-economic indicator when considering the effectiveness of the performance delivered. Adjusted RoE of 14.6% was up 130 basis points on 2016. Our strong businesses delivered resilient operational performance alongside significant progress towards managed separation, all in the context of challenging macro-economic conditions continuing in South Africa through 2017. Although markets were strong in the UK, weak currency, uncertainty around Brexit, and regulatory developments in financial services continued to have an impact. Long-Term Incentive – outcome Awards under the legacy Long-Term Incentive (LTI) plan, originally granted in 2015 (inclusive of the recruitment award granted to Bruce Hemphill), will vest at 66.92% of maximum, reflecting achievement against a scorecard of financial and strategic metrics and a TSR adjustor, all measured up to 31 December 2017. Strong financial outcomes and strategic delivery was offset to some extent by a negative TSR adjustor on the plan outcome. As noted earlier in this statement, the Company’s share price and TSR has improved considerably during the first quarter of 2018, and the TSR adjustment would have been positive if measured at the date of finalisation of this report. However, as this occurred after the end of the performance period it was not reflected in the outcome of the plan. A full assessment of achievement against these metrics is given later in this report. Managed separation and the application of the Directors’ Remuneration Policy in 2018 The policy approved by shareholders on 28 June 2016 aligned the interests of key executives with the execution of the managed separation, and the value it will bring to shareholders. The Managed Separation Incentive Plan (MSIP) has played a key role in ensuring that the executive directors and wider management team execute the strategy while unlocking shareholder value. The outcome of the MSIP will be determined through a balanced assessment of performance across three criteria:  Successful execution of the managed separation strategy balancing time, cost, risk, and value  Continued strong performance of the constituent businesses during the period to separation  Unlocking long-term shareholder value through simplification and disaggregation of the Group These criteria form the three measurement categories of the MSIP: (i) Execution of the managed separation (40%) (ii) Performance of the underlying businesses (25%) (iii) Relative total shareholder return (TSR) (35%). When the Company announced the managed separation strategy, the nature, sequencing, and timing of the steps involved were not precisely defined. The policy and rules of the MSIP were therefore designed to give the committee a reasonable degree of flexibility to implement both in an appropriate manner to reflect the completion of the strategy. During 2017, the committee undertook an extensive review to determine when and how to assess the three measurement categories to reflect accurately the original intent of the MSIP. The committee took external legal advice to ensure that any approaches considered were consistent with the policy and rules of the MSIP, as approved by the Company’s shareholders. C o r p o r a t e g o v e r n a n c e The committee has concluded that the listing of OML and the demerger and listing of OMW will constitute the material completion of managed separation (material completion being the point at which the committee stated it would determine performance outcomes and vest the MSIP awards). This is because it represents the critical point at which the strategy will be materially complete, and oversight from plc executives over the constituent businesses will effectively end. As a result, the committee intends to assess the execution of the managed separation (40% of the award) shortly before the listing of OML and the demerger and listing of OMW (this being contingent on the necessary approvals subsequently being received with a legal obligation on OML to proceed with the unbundling of Nedbank), and will assess the performance of the underlying businesses (25% of the award) shortly after the listing of OML and the demerger and listing of OMW. The intention is for both of those elements of the MSIP to vest following the listing of OML and the demerger and listing of OMW, with a one-year holding period applied to 50% of the net value of the award that vests. In respect of the measurement category relating to TSR (the remaining 35% of the award), the committee is mindful that the way the execution of managed separation has evolved means that the constituent businesses will be listed. The committee has determined that the TSR from the independently- listed businesses should therefore continue to be measured until the end of the holding period applicable to the elements of the MSIP that will vest following the listing of OML and the demerger and listing of OMW. This is consistent with the commitment to maintain shareholder alignment for a period beyond completion and ensure the outcome reflects the shareholder value created through separating the constituent businesses, which will take time. 2018 Short-Term Incentive awards As managed separation is expected to be materially completed in 2018, the committee has concluded that an alternative structure for the STI scorecard to that used in previous years is appropriate. In 2017, the scorecard was weighted 75% financial measures and 25% non-financial measures. In 2018, the committee has determined that the scorecard up to the listing of OML and the demerger and listing of OMW will be weighted 50% financial measures and 50% non-financial measures. The financial measures will be a combination of cost management of the plc Head Office in London, and the performance of the businesses. Non-financial measures will focus on the executives’ continued oversight of the businesses in the management of risk and execution of the strategies. After the listing of OML and the demerger and listing of OMW, the committee believes performance relative to non-financial measures only is appropriate, as Old Mutual plc executive oversight of the businesses will effectively end. The non-financial measures will focus on the principal remaining steps for managed separation, including the complete wind-down plan for the plc Head Office in London, the management of Company debt, and the anticipated unbundling of Nedbank. Further detail is given in the ‘Implementation of policy in 2018’ section of this report. 98 96 97 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Long-Term Incentive – outcome Awards under the legacy Long-Term Incentive (LTI) plan, originally granted in 2015 (inclusive of the recruitment award granted to Bruce Hemphill), will vest at 66.92% of maximum, reflecting achievement against a scorecard of financial and strategic metrics and a TSR adjustor, all measured up to 31 December 2017. Strong financial outcomes and strategic delivery was offset to some extent by a negative TSR adjustor on the plan outcome. As noted earlier in this statement, the Company’s share price and TSR has improved considerably during the first quarter of 2018, and the TSR adjustment would have been positive if measured at the date of finalisation of this report. However, as this occurred after the end of the performance period it was not reflected in the outcome of the plan. A full assessment of achievement against these metrics is given later in this report. Managed separation and the application of the Directors’ Remuneration Policy in 2018 The policy approved by shareholders on 28 June 2016 aligned the interests of key executives with the execution of the managed separation, and the value it will bring to shareholders. The Managed Separation Incentive Plan (MSIP) has played a key role in ensuring that the executive directors and wider management team execute the strategy while unlocking shareholder value. The outcome of the MSIP will be determined through a balanced assessment of performance across three criteria:  Successful execution of the managed separation strategy balancing time, cost, risk, and value  Continued strong performance of the constituent businesses during the period to separation  Unlocking long-term shareholder value through simplification and disaggregation of the Group These criteria form the three measurement categories of the MSIP: (i) Execution of the managed separation (40%) (ii) Performance of the underlying businesses (25%) (iii) Relative total shareholder return (TSR) (35%). When the Company announced the managed separation strategy, the nature, sequencing, and timing of the steps involved were not precisely defined. The policy and rules of the MSIP were therefore designed to give the committee a reasonable degree of flexibility to implement both in an appropriate manner to reflect the completion of the strategy. During 2017, the committee undertook an extensive review to determine when and how to assess the three measurement categories to reflect accurately the original intent of the MSIP. The committee took external legal advice to ensure that any approaches considered were consistent with the policy and rules of the MSIP, as approved by the Company’s shareholders. C o r p o r a t e g o v e r n a n c e The committee has concluded that the listing of OML and the demerger and listing of OMW will constitute the material completion of managed separation (material completion being the point at which the committee stated it would determine performance outcomes and vest the MSIP awards). This is because it represents the critical point at which the strategy will be materially complete, and oversight from plc executives over the constituent businesses will effectively end. As a result, the committee intends to assess the execution of the managed separation (40% of the award) shortly before the listing of OML and the demerger and listing of OMW (this being contingent on the necessary approvals subsequently being received with a legal obligation on OML to proceed with the unbundling of Nedbank), and will assess the performance of the underlying businesses (25% of the award) shortly after the listing of OML and the demerger and listing of OMW. The intention is for both of those elements of the MSIP to vest following the listing of OML and the demerger and listing of OMW, with a one-year holding period applied to 50% of the net value of the award that vests. In respect of the measurement category relating to TSR (the remaining 35% of the award), the committee is mindful that the way the execution of managed separation has evolved means that the constituent businesses will be listed. The committee has determined that the TSR from the independently- listed businesses should therefore continue to be measured until the end of the holding period applicable to the elements of the MSIP that will vest following the listing of OML and the demerger and listing of OMW. This is consistent with the commitment to maintain shareholder alignment for a period beyond completion and ensure the outcome reflects the shareholder value created through separating the constituent businesses, which will take time. 2018 Short-Term Incentive awards As managed separation is expected to be materially completed in 2018, the committee has concluded that an alternative structure for the STI scorecard to that used in previous years is appropriate. In 2017, the scorecard was weighted 75% financial measures and 25% non-financial measures. In 2018, the committee has determined that the scorecard up to the listing of OML and the demerger and listing of OMW will be weighted 50% financial measures and 50% non-financial measures. The financial measures will be a combination of cost management of the plc Head Office in London, and the performance of the businesses. Non-financial measures will focus on the executives’ continued oversight of the businesses in the management of risk and execution of the strategies. After the listing of OML and the demerger and listing of OMW, the committee believes performance relative to non-financial measures only is appropriate, as Old Mutual plc executive oversight of the businesses will effectively end. The non-financial measures will focus on the principal remaining steps for managed separation, including the complete wind-down plan for the plc Head Office in London, the management of Company debt, and the anticipated unbundling of Nedbank. Further detail is given in the ‘Implementation of policy in 2018’ section of this report. 99 97 Old Mutual plc Annual Report and Accounts 2017Governance Old Mutual plc Annual Report and Accounts 2017 Directors’ Remuneration Report continued Remuneration governance after listing Shortly after the listing of OML, the committee in its current form will cease to exist. In order to ensure appropriate oversight of the continued delivery of the MSIP and other elements of remuneration, a new Committee of the Board will be established, made up of myself, Roger Marshall and Mike Arnold, from the current Old Mutual plc board, along with other nominations from the OML board. This committee will be responsible for ensuring that the delivery of the MSIP and other remuneration-related matters continue to be appropriately aligned to the achievement of the executives at the plc Head Office in London. Summary Once again, I would like to thank shareholders for their continued support during a time that has presented both the Group and the committee with unique challenges. The committee will continue to assess the Group’s performance and progress towards managed separation, aligning executives to the key financial and strategic deliverables and shareholder experience, as well as ensuring that it exercises the discretion afforded to it in the policy and the rules of the plans in a responsible and transparent manner. Danuta Gray Chairman of the Remuneration Committee Other incentive awards As the committee has concluded that managed separation will be deemed to be materially complete at the listing of OML and the demerger and listing of OMW (this being contingent on the necessary approvals subsequently being received with a legal obligation on OML to proceed with the unbundling of Nedbank), all unvested deferred STI and LTI awards will vest on or shortly after the listing of OML, in accordance with the rules of the plans and the policy. Executives will continue to have significant alignment to shareholders, business performance, and risk management events. This is achieved through the continued vesting and holding period of a substantial proportion of the MSIP awards and the Company’s ability to apply claw back to vested awards in the event of a significant risk issue. Continued focus on executive pay Although the Group’s focus on managed separation and the resulting limited tenure of the executives means that it is difficult to react to any of the major changes in opinion with respect to the structure of executive pay, the committee has continued to monitor shareholder concerns and the wider governance and regulatory landscape. In particular, the committee has spent a substantial amount of time in 2017 ensuring that the MSIP reflects shareholders’ views, and continues to drive alignment between shareholders and executives. In reaching the decisions set out above, the committee has carefully considered the remuneration requirements of Solvency II, including the requirement to defer a material proportion of variable pay over three years, and to ensure that executives are aligned to the risks inherent in executing the strategy throughout the period over which managed separation is expected to be completed, and for a suitable period of time beyond. The committee is satisfied that the executives will be appropriately aligned through the continued vesting and holding period applicable to the MSIP and the claw back provisions that apply to all incentive plans. 100 98 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Our remuneration at a glance Our approach to remuneration is designed to align our executives to the delivery of our strategy and long-term shareholder value creation. In respect of incentive targets shown in this report, EPS and RoE are calculated on a post-tax AOP basis. Performance against targets in 2017 2017 STI awards (audited) Executive director Bruce Hemphill Ingrid Johnson RoE Metric weight 37.5% 37.5% % of metric achieved 100 100 EPS in constant currency % of metric achieved 100 100 Metric weight 37.5% 37.5% Personal objectives % of metric Metric achieved weight 100 25% 100 25% Weighted outcomes % of maximum 100 100 % of base pay 150 150 £000 1,384 969 LTI awards granted in 2015 Financial metrics Strategic objectives Total weighted outcome Total weighted outcome (as a percentage of maximum) (A) TSR multiplier – % achieved (B) Achievement – % of maximum award (A x B) Weighting 70% 30% % of maximum achieved 81.67 100.00 87.17 75.80 88.28 66.92 C o r p o r a t e g o v e r n a n c e 2015 LTI awards over Old Mutual plc shares due to vest to the executive directors (audited) Executive director Bruce Hemphill Ingrid Johnson Old Mutual shares under option at grant 1,509,686 639,824 Achievement of performance targets 66.92% 66.92% Old Mutual shares under option to vest in 2018 505,141 214,085 Old Mutual shares under option to vest in 2019 505,141 214,085 Average Old Mutual plc share price over Q4 2017 198.38p 198.38p Value of share options to vest in 2018 £000 1,002 425 Value of share options to vest in 2019 £000 1,002 425 Total value of LTI as shown in the single figure table £000 2,004 850 Single total figures of remuneration for 2017 (audited) Executive director Bruce Hemphill Ingrid Johnson Base pay £000 923 646 Taxable benefits £000 104 98 STI £000 1,384 969 LTI £000 2,004 850 Pension- related benefits £000 321 226 Items in the nature of remuneration £000 3 5 Total £000 4,739 2,794 101 99 Old Mutual plc Annual Report and Accounts 2017Governance Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Directors’ Remuneration Report continued Implementation of policy in 2018 − Summary The committee has concluded that the listing of OML and the demerger and listing of OMW constitute the material completion of managed separation. In this context, we set out below a summary of how we will implement each policy element in 2018. Further detail can be found in the ‘Implementation of policy in 2018’ section of this report. Element Base pay Benefits including pension-related benefits STI Application in 2018 2.5% increase No change in application. Up to listing:  50% based on financial measures  50% based on non-financial measures  Subject to claw back After listing:  Non-financial measures only  Subject to claw back MSIP Unvested DSTI and Legacy LTI awards Shareholding requirements 2017 application (provided as a reference)  75% Group financial targets: 50% RoE and 50% EPS (constant currency)  25% personal scorecard metrics  Subject to malus and claw back  The metrics relating to the Execution of the managed separation (40% of the award) will be assessed shortly before the listing of OML and the demerger and listing of OMW. The metrics relating to Performance of the underlying businesses (25% of the award) will be assessed shortly after the listing of OML and the demerger and listing of OMW. 50% of the net value of the vested award will be subject to a one-year post-vesting holding period. Claw back applies during this period to the full value of vested shares  TSR will be measured until the end of the holding period applicable to the elements of the MSIP that will vest following the listing of OML and the demerger and listing of OMW. There will therefore be no post-vesting holding period applied to this part of the MSIP award  As the Old Mutual plc shares will not be tradeable after the listing of OML, the nil cost share options will be rolled-over into OML and OMW shares in the same proportions as will be received by shareholders  Malus will apply during the TSR measurement period and claw back will apply for 12 months thereafter.  Unvested deferred STI and LTI awards will vest on or shortly after the listing of OML, in accordance with the rules of the plans. As the performance period will be complete, there will be no time-based pro-rating applied. As the Old Mutual plc shares will not be tradeable after the listing of OML, the nil cost share options will be exercisable over OML and OMW shares in the same proportions as will be received by shareholders  All LTI awards have completed any relevant performance period and therefore no early testing of performance conditions is required  LTI awards will remain subject to claw back.  No change in application  Bruce Hemphill: 200% of base pay  Ingrid Johnson: 150% of base pay  There is no requirement for the executive directors to hold Company shares post-employment. Directors’ Remuneration Policy Introduction The policy was subject to a binding shareholder vote at a General Meeting held on 28 June 2016. It was approved with 81.71% of votes cast being in favour of its adoption and took effect for a period of up to three years from the date of shareholder approval. The policy is displayed on the Investor Relations section of the Company’s website. Directors’ Remuneration Policy table (executive directors) How the element supports our strategic objectives Base pay Recognises the role and the responsibility for delivery of strategy and results. Operation of the element Maximum potential payout and payment at threshold Performance measures used, weighting and time period applicable  Paid in 12 monthly instalments  Reviewed annually with any changes becoming effective from 1 January.  Base pay is set in the range of peer  None. benchmark groups. The maximum is the top of the range of large insurers  Maximum annual increases will not normally exceed the average increase for the home country workforce. Larger increases may be awarded in certain circumstances, such as an increase in scope or responsibility of the role, or salary progression for a newly appointed director. C o r p o r a t e g o v e r n a n c e Benefits allowance for retirement provision and other elective benefits  The Company provides a benefit  A fixed allowance of 35% of  None. Designed to provide appropriate, market- aligned benefits allowance to fund contributions to base pay. retirement funding arrangements and consistent with the role. other elective benefits  Otherwise paid monthly in cash. Other benefits  Benefits common to employees of the  The cost of core insured benefits  None. home employer, health assessments is determined by the insurance and the opportunity to participate in provider based on experience Sharesave  Travel from home to work, and travel factors in the pool of employees covered and so may vary from for partners to certain Board meetings year to year or corporate events of the Company and its major subsidiaries (including the tax for which settled on the individual’s behalf)  For overseas appointments, flexibility  The Company offers the opportunity to participate in an HMRC-approved Sharesave scheme  All other benefits are direct costs borne by the Company based on to provide benefits in line with those policy agreed by the Remuneration of the executive’s home country and relocation costs for internal or external appointments of executive directors. committee (the committee)  A summary of key items normally paid for on relocation is set out under ‘Approach to remuneration in connection with recruitment’ below. 102 100 101 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Directors’ Remuneration Policy Introduction The policy was subject to a binding shareholder vote at a General Meeting held on 28 June 2016. It was approved with 81.71% of votes cast being in favour of its adoption and took effect for a period of up to three years from the date of shareholder approval. The policy is displayed on the Investor Relations section of the Company’s website. Performance measures used, weighting and time period applicable  None. C o r p o r a t e g o v e r n a n c e  None.  None. Directors’ Remuneration Policy table (executive directors) How the element supports our strategic objectives Base pay Recognises the role and the responsibility for delivery of strategy and results.  Paid in 12 monthly instalments  Reviewed annually with any changes becoming effective from 1 January. Operation of the element Maximum potential payout and payment at threshold  Base pay is set in the range of peer benchmark groups. The maximum is the top of the range of large insurers  Maximum annual increases will not normally exceed the average increase for the home country workforce. Larger increases may be awarded in certain circumstances, such as an increase in scope or responsibility of the role, or salary progression for a newly appointed director. Benefits allowance for retirement provision and other elective benefits Designed to provide appropriate, market- aligned benefits consistent with the role.  The Company provides a benefit allowance to fund contributions to retirement funding arrangements and other elective benefits  A fixed allowance of 35% of base pay.  Otherwise paid monthly in cash. Other benefits  Benefits common to employees of the home employer, health assessments and the opportunity to participate in Sharesave  Travel from home to work, and travel for partners to certain Board meetings or corporate events of the Company and its major subsidiaries (including the tax for which settled on the individual’s behalf)  For overseas appointments, flexibility to provide benefits in line with those of the executive’s home country and relocation costs for internal or external appointments of executive directors.  The cost of core insured benefits is determined by the insurance provider based on experience factors in the pool of employees covered and so may vary from year to year  The Company offers the opportunity to participate in an HMRC-approved Sharesave scheme  All other benefits are direct costs borne by the Company based on policy agreed by the Remuneration committee (the committee)  A summary of key items normally paid for on relocation is set out under ‘Approach to remuneration in connection with recruitment’ below. 103 101 Old Mutual plc Annual Report and Accounts 2017Governance Old Mutual plc Annual Report and Accounts 2017 Directors’ Remuneration Report continued Operation of the element How the element supports our strategic objectives Short-term incentive (STI) Incentivises achievement of annually agreed business objectives and strategic priorities.  Determined annually following the finalisation of annual results  50% of the award vests immediately  50% is deferred for a period of three years into a share award, conditional on continued employment. Dividends are paid during the restricted period  The committee has the discretion to amend deferred STI awards under the rules of the plan, to adjust deferred STI awards in the event of any variation of the share capital of the Company, and to adjust or vest deferred STI awards on a demerger, special dividend or other similar event which affects the market price of the shares to a material extent. Maximum potential payout and payment at threshold Performance measures used, weighting and time period applicable  The maximum opportunity is 150%  Annual measures include:  Financial (minimum 50%);  Operational;  Strategic;  Measures of individual performance (set out in the director’s personal scorecard); and  Risk management (up to 5% formulaic downward adjustment)  The committee has discretion to reduce STI outcomes to nil if required, via a risk management assessment based on a report of risk exposures or to reflect financial underperformance not adequately reflected in the financial measures  The committee has discretion to vary the weighting of the performance measures over the life of the Directors’ Remuneration Policy. of base pay  Vesting against targets is 0% at threshold performance and 100% for meeting stretching targets, with interpolation between these points  The committee has discretion:  To amend, and/or set different performance measures for material changes (such as a change in strategy, acquisition, demerger or market conditions), if it considers such amendments necessary to achieve the original purpose and any new measures are not materially less difficult to satisfy  To adjust the outcome, if it is not aligned to the overall performance of the Company  Any exercise of discretion would, where relevant, be explained in the Annual Report on Remuneration and may, as appropriate, be the subject of consultation with the Company’s major shareholders. 104 102 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Mutual plc shares Operation of the element  Grant of nil cost share options over Old How the element supports our strategic objectives Managed Separation Incentive Plan (MSIP) Incentivises executive directors to: (i) execute the managed separation (ii) deliver performance in the underlying Group businesses (iii) unlock and create long- term shareholder value (iv) operate within a robust risk framework.  Vesting depends on the achievement of performance targets measured at the earlier of the completion of the managed separation or a four-year period ending on 11 March 2020 successor) will make a judgement on the completion of the managed separation based on the strategic objectives announced on 11 March 2016  The Board of Old Mutual plc (or its  The committee (or its successor) will determine when it is appropriate for vesting to occur upon completion of the managed separation  Participants are entitled to receive dividend equivalents representing the dividends or any other distributions they would have received if they had been owners of their vested shares between the date of grant (or 14 March 2016 in the case of the initial awards) and the earliest possible exercise date of their awards  A post-vesting holding period of one year will be applied to 50% of the vested award (on a net of tax basis if applicable), in a form that will track the shareholder experience as closely as possible, which might include a restriction on the ability of the executive to exercise 50% of the option during that one-year period  The committee (or its successor) has discretion:  To amend awards under the rules of the plan  To adjust awards in the event of any variation of the share capital of the Company  To split awards into separate awards, or adjust or vest awards on a demerger  To adjust or vest awards on a special dividend or other similar event which affects the market price of the shares to a material extent.  Over the course of the managed separation period, the form of the award will track the shareholder experience as closely as possible  Awards may in certain situations be automatically surrendered and replaced by awards in a new/acquiring/demerged company. Maximum potential payout and payment at threshold Performance measures used, weighting and time period applicable  The maximum grant will not  Performance conditions include:  Strategic (40%)  Financial (25%)  TSR relative to a bespoke composite peer group benchmark TSR (35%)  Risk management (up to 5% formulaic downward adjustment).  The committee has discretion to reduce MSIP outcomes to nil if required, via a risk management assessment based on a report of risk exposures or to reflect financial underperformance not adequately reflected in the financial measures  Performance is measured over the period up to vesting  Divestment of a business may trigger testing of the financial performance criteria for that business and/or re-weighting of the businesses and TSR indices. C o r p o r a t e g o v e r n a n c e exceed a face value of 1,000% of 2016 base pay (equal to 5,122,367 shares) for the current Group Chief Executive and 750% of 2016 base pay (2,689,243 shares) for the current Group Finance Director. The maximum awards are based on the average Old Mutual plc share price over a 30-day period up to and including the date on which the Company announced the managed separation of the Group (£1.757 per share)  The maximum grant is inclusive of the nil cost share options granted under the Old Mutual plc Performance Share Plan – Restricted Shares on 14 March 2016, which were exchanged for nil cost share options under the Old Mutual plc Managed Separation Incentive Plan  Upon recruitment, the committee may grant awards with a face value of up to 750% of base pay in the year of award. This is in addition to the buying out of unvested awards from a previous employer  Vesting at threshold is 8.75% of the award and 100% vests only for meeting stretching targets, with interpolation between these points  The committee has discretion to:  Amend, and/or set different performance measures for material changes (such as an acquisition, demerger or market conditions), if it considers such amendments necessary to achieve the original purpose and any new measures are not materially less difficult to satisfy  Adjust the outcome if it is not aligned to the overall performance of the Company  Any exercise of discretion would be explained in the Annual Report on Remuneration and may, as appropriate, be the subject of consultation with the Company’s major shareholders. 105 103 Old Mutual plc Annual Report and Accounts 2017Governance Old Mutual plc Annual Report and Accounts 2017 Directors’ Remuneration Report continued Operation of the element Maximum potential payout and payment at threshold How the element Performance measures used, supports our strategic objectives weighting and time period applicable Legacy long-term incentives (LTI) – no further awards will be granted to executive directors under this plan Incentivised attainment of long-term objectives and strengthened the alignment of interests between executive directors and shareholders.  Financial (70%)  Strategic (30%)  TSR multiplier against the FTSE 100 index (50%) and the JSE ALSI (50%).  Vesting is 0% at threshold and 100% for achieving stretching targets, with interpolation between the points  Vesting is subject to the achievement of performance targets measured after a three-year period  Awards granted in 2013 and 2014:  Awards granted in 2015:  Vesting normally occurs 50% after three years and 50% after four years and in no circumstances before three years  The committee has discretion to amend awards under the rules of the plan, to adjust awards in the event of any variation of the share capital of the Company, and to adjust or vest awards on a demerger, special dividend or other similar event which affects the market price of the shares to a material extent.  The committee has discretion to:  Amend, and/or set different performance measures for material changes (such as a change in strategy, acquisition, demerger or market conditions), if it considers such amendments necessary to achieve the original purpose and any new measures are not materially less difficult to satisfy  Financial (60%)  Strategic (40%)  TSR multiplier against the FTSE 100 Index (50%) and the JSE ALSI (50%).  Adjust the outcome if it is not aligned to the overall performance of the Company  Any exercise of discretion would be explained in the Annual Report on Remuneration and may, as appropriate, be the subject of consultation with the Company's major shareholders.  None.  None. Shareholding requirements To strengthen alignment of interests between executive directors and shareholders.  The minimum shareholding requirement as a percentage of base pay is to be achieved within five years of appointment to the role as follows:  Group Chief Executive – 200%  Other executive directors –150%  Unvested and vested but unexercised share awards or options are not taken into account in the calculation. Provisions of previous policy that will continue to apply Any commitment made before the individual became an executive director of the Company and any vesting of outstanding share incentive awards will be honoured, even where it is not consistent with the policy prevailing at the time such commitment is fulfilled or such vesting occurs. Malus and claw back provisions Malus Criteria  Misleading or misstated financial results  Loss due to failure to observe risk management policies  Gross misconduct  Actions leading to reputational damage. Claw back  Misleading or misstated financial results  Loss due to failure to observe risk Applicable to:  Cash STI − during the period between the end of the performance period and the payment date  Unvested deferred STI awards – during the three-year performance period  Unvested legacy LTI awards – three or four years matching the vesting period  Unvested MSIP awards – up to the date of vesting of the award.  Cash STI – for a three-year period following the payment date  Vested legacy LTI awards – for two years if three-year vesting and for one management policies  Gross misconduct. year if four-year vesting  Vested MSIP awards – for one year from vesting. 106 104 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Notes to the Directors’ Remuneration Policy table (executive directors) Performance measures and targets The committee selects performance measures that are central to the Company’s overall strategy and are used by the executive directors and Board in overseeing the operation of the business. The performance targets for the STI are determined annually by the committee. External directorships Executive directors are, subject to prior clearance by the Board, permitted to hold one external non-executive directorship of a listed company and are entitled to retain the fees payable to them for doing so. Consideration of employment conditions elsewhere in the Group The Company’s approach to executive director and wider employee remuneration is based on a common set of remuneration principles and a governance structure which have been implemented across all major subsidiaries. This includes subsidiary remuneration committees with agreed terms of reference, who have oversight over local matters and ensure that the remuneration principles and policies are implemented consistently. Although the committee does not consult directly with employees on the executive director remuneration policy, it reviews proposals in the context of a detailed understanding of remuneration for the broader employee population. The structure of total remuneration packages for executive directors, and for the broader employee population is similar, with the exception of MSIP and LTI awards, which comprises base pay, pension and benefits and eligibility for a discretionary STI based on performance in the financial year. The level of STI and the portion deferred are determined by role and responsibility. Executive directors and selected senior executives participate in the MSIP. As with the MSIP, the legacy LTI plan applied to executive directors and senior executives based at the plc in London. Other LTI plans are in place for senior executives in subsidiary companies. Annual base pay increases for the executive directors are normally limited to the average base pay increase for employees in their home country, unless there has been a change in role or salary progression for a newly appointed director. C o r p o r a t e g o v e r n a n c e Approach to remuneration in connection with recruitment The committee’s approach to remuneration in connection with recruitment is to pay no more than is necessary to attract appropriate candidates to the role. It should be noted that the Company operates in a specialised sector, is undergoing an extraordinary period of transition under the managed separation strategy, and many of its competitors for talent are from outside the UK. Remuneration terms for any new executive directors will be based on the approved remuneration policy and would include the same elements, and be subject to constraints at or below those of the existing executive directors, as shown below: Element of remuneration Base pay Benefit allowance (for retirement, elective benefits or in cash) Other benefits STI MSIP Maximum percentage of base pay N/A 35% Dependent on circumstances and location 150% Up to 750% In determining the MSIP award opportunity to be offered to new executive directors on recruitment, consideration will be given to progress achieved in executing the managed separation strategy and the time elapsed. These considerations will likely lead to a reduction of the level of award opportunity over time as the managed separation progresses. When it is necessary to ‘buy out’ an individual’s unvested awards from a previous employer, the committee will seek to match the expected value of the awards by granting awards that vest over a timeframe similar to those given up, with a commensurate reduction in quantum where the new awards will be subject to performance conditions that are not as stretching as those applicable to the awards given up. Existing annual incentive given up may be bought out on an expected value basis or incorporated in an appropriate way into the executive’s bonus for the first performance year only. Where appropriate, the committee will agree reasonable costs of relocation in line with the Group’s mobility policy which, based on individual circumstances, provides for a settling-in allowance and costs incurred such as travel, shipping, immigration and tax advice, temporary housing, transaction costs on home sale/purchase, home/school search and school fees and, if in relation to a temporary assignment, tax equalisation and a housing allowance. All of these costs will be covered gross of tax incurred by the executive, where applicable. 107 105 Old Mutual plc Annual Report and Accounts 2017Governance Old Mutual plc Annual Report and Accounts 2017 Directors’ Remuneration Report continued Service agreements and payments for loss of office Executive directors’ service agreements are designed to provide an appropriate level of protection for the executive and the Company by: (i) setting out individual entitlements to elements of remuneration consistent with policy; (ii) summarising notice periods and compensation on termination of employment by the Company; and (iii) describing the obligations in relation to confidentiality, data protection, intellectual property and restraint on certain activities. In the event that the employment of an executive director is terminated, any compensation payable will be determined in accordance with the terms of the service agreement between the Company and the executive director, as well as the rules of any incentive plans. The Company’s policy is to make payments in accordance with pre-established contractual arrangements, but with consideration of individual circumstances. These circumstances may include the reason for termination and, for deferred STI, MSIP and legacy LTI share incentive awards, some discretion in the determination of Good Leaver status for vesting of such awards. The policy in this respect is set out in the following table: Standard provision Notice Policy  Policy is to provide a maximum of 12 months' notice. Details  In certain cases, executive directors will not be required to work their notice period and, depending on the circumstances, may be put on 'garden leave' or granted pay in lieu of all or part of their notice period (PILON). PILON, including base pay, benefits and pension-related benefits, would normally be paid monthly and be subject to mitigation when alternative employment is secured but may also be paid as a lump sum  Executive directors are generally subject to annual re-election at the Company's Annual General Meeting. Treatment of STI awards  STI awards will be made to Good Leavers based on an  Paid in cash. Treatment of MSIP awards  All awards lapse except for Good Leavers. overall assessment of corporate and personal performance and pro-rated for the period worked in the performance year of termination. Treatment of unvested legacy LTI and deferred STI share incentive awards  All awards lapse except for Good Leavers.  MSIP vesting for Good Leavers1 is based on the achievement of performance conditions. The number of shares to vest would be calculated on a pro-rata basis, based on the period of time after the date of grant (or 14 March 2016 in the case of the initial awards) and ending on the date of termination relative to the restricted period up to the vesting date. The committee retains the discretion not to apply time-based pro-rating where appropriate.  Legacy LTI vesting for Good Leavers1 is based on the achievement of performance conditions. The number of shares to vest would be calculated on a pro-rata basis, based on the period of time after the date of grant and ending on the date of termination relative to the restricted period  Deferred STI awards for Good Leavers1 vest fully on termination, subject to the committee's discretion to lapse part or all of the award. 1 Subject to further adjustments which may be applied to discretionary Good Leavers as set out in the ‘Treatment of incentive awards on termination, change of control or other corporate events’ section of this policy. 108 106 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Standard provision Compensation for loss of office Policy  Settlement agreements with executive directors may Details  Terms are subject to the signing of a settlement provide for, as appropriate:  Incidental costs related to the termination, such as legal fees for advice on the settlement agreement  Provision of outplacement services  Payment in lieu of accrued, but untaken, holiday entitlements  Exit payments in relation to any legal obligation or damages arising from such obligation  Settlement of any claim arising from the termination  Continuation or payment in lieu of other incidental benefits  In the case of redundancy, two weeks' base pay per year of service.  One month's notice (12 months for the Chairman)  Appointed for an initial three-year term  Normally expected to serve two three-year terms, subject to annual re-election at the Company's Annual General Meeting  A third term (of up to three years, or longer in exceptional circumstances) may be offered on a year- by-year basis after completion of the first two terms. agreement.  Non-executive directors are subject to annual re-election at the Company’s Annual General Meeting. Non-executive directors Treatment of incentive awards on termination, change of control or other corporate events For all deferred short-term incentives, legacy long-term incentives, and MSIP awards, the share incentive plan rules provide for automatic ‘Good Leaver’ status on termination of employment in the event of: (i) death; (ii) injury or disability; (iii) redundancy; (iv) the employing company or business ceasing to be a subsidiary or business of Old Mutual plc; and (v) certain takeovers and other corporate events. In addition, the committee has discretion to award Good Leaver status for any other reason (discretionary Good Leavers). In these circumstances, the committee has discretion to apply less generous terms than would apply under the automatic Good Leaver reasons. The committee’s determination will take into account the particular circumstances of the executive director’s departure and the recent performance of the Company. Following the execution of the managed separation, it is not expected that the executive directors will have roles in the resulting independent entities. This is addressed in the table below: C o r p o r a t e g o v e r n a n c e Component STI Deferred STI Automatic Good Leaver  Pro-rata payment for the period worked in the performance year, based on agreed performance criteria  Paid in cash.  The committee has discretion to vest all awards on termination. 1 Anyone who is not a Good Leaver or a discretionary Good Leaver. Other leaver1  No award will be made. Change of control  At the discretion of the committee. Other corporate events  No impact, but performance targets may need to be reviewed.  Outstanding awards  Vest automatically except in the are forfeit. case of internal re-organisations or mergers (as defined in the rules), where there may be an automatic surrender and replacement of awards in the new/acquiring company.  The committee has the discretion to amend deferred STI awards under the rules of the plan, to adjust deferred STI awards in the event of any variation of the share capital of the Company, and to adjust or vest deferred STI awards on a demerger, special dividend or other similar event, which affects the market price of the shares to a material extent. 109 107 Old Mutual plc Annual Report and Accounts 2017Governance Old Mutual plc Annual Report and Accounts 2017 Directors’ Remuneration Report continued Component MSIP Automatic Good Leaver  Vest on the normal vesting date Other leaver1  Outstanding awards Change of control  Awards may be Exchanged or are forfeit. (except where exceptional reasons apply, when vesting may be immediate), subject to achievement of performance targets, calculated on a pro-rata basis, based on the period of time after the date of grant (or 14 March 2016 in the case of the initial awards) and ending on the date of termination relative to the restricted period  The committee has discretion to disapply automatic time-based pro-rating of awards for Good Leavers before the date at which the managed separation is complete  Options will be granted on the basis that there will be no time- based pro-rating of awards where the managed separation is completed before the end of the four-year long-stop period and the director remains in employment at that time, but the committee retains discretion to apply time- based pro-rating if appropriate.  Vest on the normal vesting date (except in the event of death or where other exceptional compassionate reasons apply, when vesting may be immediate), subject to achievement of performance targets, calculated on a pro-rata basis, based on the period of time after the date of grant and ending on the date of termination relative to the restricted period  The committee has discretion to disapply time-based pro-rating of awards when appropriate.  In line with HMRC rules and the rules of Sharesave. Legacy LTI Sharesave may vest subject to the achievement of performance measures and pro-rated to reflect the reduced period of time between the date of grant (or 14 March 2016 in the case of the initial awards) and vesting (rounded up to the next whole year). The committee may disapply pro-rating if it considers it appropriate to do so. Other corporate events  Demerger: awards may be split into separate awards, Exchanged for new awards over the demerged company, adjusted or vested at the committee’s discretion  Other corporate events: the committee has the discretion to amend MSIP awards under the rules of the plan, to adjust MSIP awards in the event of any variation of the share capital of the Company, and to adjust or vest MSIP awards on a special dividend or other similar event, which affects the market price of the shares to a material extent.  Outstanding awards are forfeit.  Vest subject to the achievement of performance measures and pro-rated from grant date to the anniversary of grant date following change of control. In the case of internal re- organisations or mergers (as defined in the rules), there may be an automatic surrender and replacement of awards in the new/acquiring company. The committee may disapply pro- rating if it considers it appropriate to do so.  The committee has the discretion to amend LTI awards under the rules of the plan, to adjust LTI awards in the event of any variation of the share capital of the Company, and to adjust or vest LTI awards on a demerger, special dividend or other similar event, which affects the market price of the shares to a material extent.  In line with HMRC rules and the rules of Sharesave.  In line with HMRC rules and the rules of Sharesave.  The committee does not have the discretion under the rules of the plan to adjust the number of shares under option. 1 Anyone who is not a Good Leaver or a discretionary Good Leaver. The committee retains the discretion to make reasonable and proportionate changes to the policy if the committee considers this appropriate in order to respond to changing legal or regulatory requirements or guidelines (including but not limited to any PRA guidance relating to Solvency II). This includes the ability to make administrative changes to benefit the operation of the policy and/or to implement such changes ahead of any formal effective date, ensuring timely compliance. Where proposed changes are considered by the committee to be material, the Company will consult its major shareholders. Any changes would be formally incorporated into the policy when it is next put to shareholders for approval. The committee retains the discretion, acting in accordance with the applicable share plan rules, to adjust the delivery of awards at the completion of the managed separation, reflecting the circumstances of the corporate events. 110 108 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 How shareholder views are reflected in the policy The change in strategy prompted the committee to review and propose revised incentive plans, resulting in consultation with shareholders. We discussed the design features of the draft MSIP with our largest shareholders and also shared a substantial amount of information about the proposed design with major shareholder representative bodies in the UK such as ISS and the Investment Association. The feedback received during this period was reflected in the policy. Dates of directors’ service contracts and letters of appointment Executive director Bruce Hemphill Ingrid Johnson Non-executive director Patrick O’Sullivan Mike Arnold Zoe Cruz Alan Gillespie Danuta Gray Adiba Ighodaro Trevor Manuel Roger Marshall Vassi Naidoo Commencement date in current role 1 November 2015 1 July 2014 Continuous service date 1 November 2015 1 September 1993 Notice period 12 months 12 months Date of original appointment 1 January 2010 1 September 2009 6 January 2014 3 November 2010 1 March 2013 6 January 2014 1 January 2016 5 August 2010 1 May 2015 Date of current appointment 1 January 2018 1 September 2017 6 January 2017 3 November 2017 1 March 2016 6 January 2017 1 January 2016 5 August 2017 1 May 2015 Current term as director 3rd (third period) 3rd (third period) 2nd 3rd (second period) 2nd 2nd 1st 3rd (second period) 1st Date current appointment terminates 1 January 2019 1 September 2018 6 January 2020 3 November 2018 1 March 2019 6 January 2020 1 January 2019 5 August 2018 1 May 2018 Directors’ service contracts and letters of engagement for the non-executive directors are available on the Company’s website at www.oldmutualplc.com. C o r p o r a t e g o v e r n a n c e Operation of the elements (fees and benefits)  Fees for non-executive directors (other Directors’ Remuneration Policy table (non-executive directors) How the element supports our strategic objectives To attract non-executive directors who have the broad range of experience and skills required to oversee the implementation of the strategy. than the Chairman) are set by the Board and paid in 12 monthly instalments  The Chairman's fees are set by the committee and paid in 12 monthly instalments Maximum potential pay-out  Fees are set within the range of comparative board and committee fees, benchmarked against an appropriate group of FTSE 100 companies. Average increases will not normally exceed the average increase for the UK workforce, except where:  Committee roles or responsibilities Performance measures used, weighting and time period applicable  Non-executive directors are not eligible to participate in performance-related incentive plans.  Reimbursement and settlement by the Company of travel expenses to Board meetings or corporate events of the Company (including the tax for which settled on the individual's behalf)  Travel for partners to a limited number of Board meetings or corporate events of the Company and its major subsidiaries (including the tax for which settled on the individual's behalf). change significantly  Market fees in relation to certain roles change significantly  Non-executive directors may hold positions on the boards of subsidiary companies and are entitled to retain the fees payable to them for doing so. 111 109 Old Mutual plc Annual Report and Accounts 2017Governance Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Directors’ Remuneration Report continued Additional requirements in respect of the single total figure table for executive directors 2017 STI outcomes (audited) of achievement against those targets: The following charts illustrate the outcome for each element of the 2017 STI performance targets, followed by the underlying detail Annual Report on Remuneration The Annual Report on Remuneration sets out the payments made, and awards granted to the directors in 2017, and how the Company intends to implement the policy in 2018. This, along with the Chairman’s Annual Statement, is subject to an advisory shareholder vote at the 2018 AGM. Market benchmarks In accordance with the policy, benchmarking is only undertaken in relation to the base pay of the executive directors. The primary peer group for benchmarking executive remuneration comprises large insurers and, for 2017 and 2018, included Prudential plc, Aviva plc, RSA Insurance Group plc, Legal & General Group plc, Standard Life Aberdeen plc, Allianz Group and Axa Group. For non-executive directors, benchmarking is performed against non-executive directors’ remuneration in FTSE100 companies using the whole of the FTSE100 population as well as an extract of companies by market capitalisation. Single total figures of remuneration for executive directors (audited) Executive director Bruce Hemphill Ingrid Johnson Base pay 2017 £000 923 646 2016 £000 900 630 Taxable benefits STI LTI 2017 £000 104 98 2016 £000 2016 £000 2017 £000 2017 £000 92 1,384 1,173 2,004 92 850 818 969 Pension- related benefits 2016 2017 £000 £000 313 321 220 226 2016 £000 – 849 Items in the nature of remuneration 2017 £000 3 5 2016 £000 Total 2017 £000 2016 £000 2 4,739 2,480 5 2,794 2,614 Group financial performance achievement (audited) Performance measure RoE EPS in constant currency Weighted outcome Threshold 11.4% 18.8 Target1 12.8% 20.9 Maximum 14.0% 23.0 Actual 14.6% 24.3 1 The committee approved an adjustment to the targets to take consideration of the completion dates of the sales of OM Asset Management and Kotak from the Group. The Group operated within the expected risk framework and policies during 2017. C o r p o r a t e g o v e r n a n c e % of maximum achieved 100% 100% 100% Element Taxable benefits Description  These amounts represent the gross value of benefits paid for by the Company that are chargeable to UK income tax. STI LTI They cover such items as tax advice and use of a car and driver  The increase in taxable benefits relates to the payment of tax advice following Bruce Hemphill's transfer to the UK in 2015. Advice in relation to 2015 and 2016 was charged to the Company during 2017, meaning that there was no comparable cost in 2016.  STI awarded in relation to performance in the year, including 50% deferred for three years in the form of a share award. Vesting of the share award is not subject to the achievement of performance targets but requires the director to remain in office during the vesting period. It is intended that the share award will vest on or shortly after the listing of OML  Malus applies to the shares held under award prior to vesting and claw back applies to the cash element.  The 2017 LTI value has been calculated using the average Old Mutual plc share price over the final quarter of 2017 (198.38p). Malus and claw back apply to the shares held under option. Bruce Hemphill did not have an LTI vest in 2016, so no amount appears in respect of this element in his 2016 remuneration  In respect of Ingrid Johnson, the 2016 LTI value has been restated to show the actual market value of the Nedbank awards that vested or were matched (namely R250.93 per share) converted to sterling using the exchange rate on the date of vesting (R16.81 to £1). 50% of the LTI award over Old Mutual plc shares (granted in August 2014) vested in August 2017 and the value of that part of the award has been restated to reflect the Old Mutual plc share price on the date of vesting (206.4p). The unvested nil cost share option (equal to 50% of the award) has not been revalued. Ingrid Johnson has not exercised her vested nil cost share option. Pension-related benefits  This represents the benefit allowance of 35% of base pay less any amounts sacrificed for the purchase of other benefits. The Company allocated £10,000 (£27,750 in 2016) of Bruce Hemphill’s benefit allowance to the Old Mutual Group Personal Pension Plan, and the corresponding amount for Ingrid Johnson was £10,000 (£19,031 in 2016). Items in the nature of remuneration  This includes non-taxable benefits not considered significant in value. 112 110 111 Old Mutual plc Annual Report and Accounts 2017 C o r p o r a t e g o v e r n a n c e % of maximum achieved 100% 100% 100% Old Mutual plc Annual Report and Accounts 2017 Additional requirements in respect of the single total figure table for executive directors 2017 STI outcomes (audited) The following charts illustrate the outcome for each element of the 2017 STI performance targets, followed by the underlying detail of achievement against those targets: Bruce Hemphill Actual % of maximum opportunity Ingrid Johnson Actual % of maximum opportunity RoE EPS in constant currency Personal scorecard objectives 37.50% 37.50% 37.50% 37.50% 37.50% 37.50% 37.50% 37.50% 25.00% 25.00% 25.00% 25.00% £1,383,750 £1,383,750 £969,000 £969,000 Group financial performance achievement (audited) Performance measure RoE EPS in constant currency Weighted outcome Threshold 11.4% 18.8 Target1 12.8% 20.9 Maximum 14.0% 23.0 Actual 14.6% 24.3 1 The committee approved an adjustment to the targets to take consideration of the completion dates of the sales of OM Asset Management and Kotak from the Group. The Group operated within the expected risk framework and policies during 2017. 113 111 Old Mutual plc Annual Report and Accounts 2017Governance Old Mutual plc Annual Report and Accounts 2017 Directors’ Remuneration Report continued Additional requirements in respect of the single total figure table for executive directors (continued) Personal performance achievement The tables below summarise achievement against the personal objectives of the executive directors in 2017. The committee considered achievement against these objectives in the round. In recognition of the achievement of these objectives whilst exceeding the Group’s financial performance targets and the exceptional leadership demonstrated by the executive directors, the committee determined that it was appropriate to award maximum outcomes on the personal element. Bruce Hemphill Leadership Weight 30% Managed separation 40% Objectives  Work closely with key stakeholders to ensure understanding of all the stages of managed separation and continued support for it  Ensure that all regulatory obligations continue to be fulfilled within the agreed organisational risk appetite  Serve as an example of the organisation’s values as a collaborative leader of the executive team.  Deliver central operational cost savings and a plan for achieving a ‘clean’ Old Mutual plc balance sheet  Capacitate OMEM and OMW senior management teams and boards appropriately for a listed entity. Begin new operating model implementation  Ensure the majority of the Group’s stake in OM Asset Management is sold at an acceptable price, trading-off cost, time and risk considerations. Supporting business delivery 30%  Work with each business’ leadership team to refine the respective strategy to ensure that it can offer an attractive case to the market and deliver business performance improvements  Ensure appropriate business plans are in place for 2018 to 2020, designed to deliver appropriate value uplift for shareholders  Support the subsidiary chief executives in driving cultures that embed values appropriate for high- performing organisations. Performance  Very positive investor and analyst feedback from the OML and OMW capital market showcase events in respect of the equity story and investment cases presented  Regulators have indicated their continued support for the managed separation and the organisation operated within risk appetite limits/satisfied all regulatory obligations during the year  Demonstrated a strong leadership style, which provides clear direction, draws on the strengths of the management teams, and fosters collaboration across the Group  Strong leadership and relationship management to support creation of and working with newly formed boards and teams in OMEM and OMW.  plc Head Office in London operational costs, which totalled £123 million before recharges in 2015, have reduced to £68 million in 2017. We are on track to achieve the stated operational cost savings of c.£95 million per annum by the end of 2018  Holding company debt reduced by a further £821 million. Significant legacy liabilities, such as the transfer of the legacy pension schemes, the captive insurer, and several warranties and certain indemnities emanating from historic M&A transactions, have been resolved in line with management’s original cost estimates  Appointment of a new CEO in OMEM, and support for the strengthening of the management team and implementation of a new operating model  Support for the CEO and the new Board in OMW in preparing the business for managed separation in a year in which they continued momentum with very strong performance  The Group sold its stake in OM Asset Management through a series of transactions at an attractive net realised average price  Transactions generating very positive outcomes for shareholders were in place for the sale of Kotak and the agreed sale of the OMW Single Strategy Asset Management business in which the Group Chief Executive played an active role.  Strong and effective engagement with subsidiary management teams to define their future strategies. Key strategy reviews were completed with OMEM and OMW enabling them to put forward a compelling vision and investment case at the capital market showcase events  All businesses performing well in the context of a volatile business environment (political and economic uncertainty in South Africa, uncertainty around Brexit in the UK, political volatility in the US) with confirmed business plans and identification of critical initiatives over the 2018 to 2020 timeframe, which are expected to generate meaningful value for shareholders  The Group Chief Executive engaged effectively with the subsidiary chief executives throughout the year to determine the necessary culture required in each business and worked with them and their respective boards to define and implement changes that will embed these values in each organisation  As well as a focus on managed separation and all of the activities associated with it, the Group Chief Executive continued to work alongside the businesses to drive performance. Despite uncertainty in South Africa, the South African businesses delivered resilient performance. OMW delivered strong performance in the UK alongside the successful process to sell its Single Strategy Asset Management business. 114 112 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Additional requirements in respect of the single total figure table for executive directors (continued) Ingrid Johnson Leadership Weight 30% Managed separation 40% Objectives  Work closely with key stakeholders to ensure understanding of all the stages of managed separation and continued support for it  Ensure that all regulatory obligations continue to be fulfilled within the agreed organisational risk appetite  Serve as an example of the organisation’s values as a collaborative leader of the executive team.  Deliver central operational cost savings and a plan for achieving a ‘clean’ Old Mutual plc balance sheet  Build strategic balance sheet management capabilities, evaluating financial implications to support managed separation decision making and delivery of objectives Performance  Very positive investor and analyst feedback from the OML and OMW capital market showcase events in respect of the equity story and investment cases presented  Regulators have indicated their continued support for the managed separation and the organisation operated within risk appetite limits/satisfied all regulatory obligations during the year  Collaborative leadership demonstrating strong inclusive values and high standards of delivery. Effectively built stakeholder relationships at Board, peer and team levels and took on an additional direct role to support OMEM in H2 2017.  plc Head Office in London operational costs, which totalled £123 million before recharges in 2015, have reduced to £68 million in 2017. We are on track to achieve the stated operational cost savings of c.£95 million per annum by the end of 2018  Effective liability management strategy in place, broadening the range of strategic options  Significant de-risking of the Company’s balance sheet to facilitate  Ensure effective messaging to shareholders, managed separation execution bondholders and other stakeholders regarding the Company’s performance and managed separation implementation. 30% Supporting business delivery  Operate an appropriate capital management policy for the management of cash, debt and capital within liquidity and solvency risk appetite limits  Reposition functional processes to align with managed separation and oversee production and integrity of all financial information and reporting  Actively participate in board and committee roles and stakeholder engagements.  Holding company debt reduced by a further £821 million. Significant legacy liabilities, such as the transfer of the legacy pension schemes, the captive insurer, and several warranties and certain indemnities emanating from historic M&A transactions, have been resolved in line with management’s original cost estimates  External communication process well executed, with analyst commentary indicating that investors understood the progress and demands of managed separation.  Ensured that the Group operated within liquidity and solvency risk appetite through 2017  Effectively oversaw the Finance function to ensure the appropriate resources, expertise and processes were in place to fulfil information and reporting requirements and support managed separation execution  Continued representation on the OMW Board and stepped in to provide interim CFO support to OMEM during H2 2017, in addition to continuing in the plc executive role  Frequent and active engagement with shareholders, regulators and other third-party stakeholders to facilitate managed separation. C o r p o r a t e g o v e r n a n c e 115 113 Old Mutual plc Annual Report and Accounts 2017Governance Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Directors’ Remuneration Report continued Additional requirements in respect of the single total figure table for executive directors (continued) Outcomes for LTI awards over Old Mutual plc shares granted in 2015 (for the performance period 2015 to 2017) Bruce Hemphill received a grant of nil cost share options in November 2015 when he joined the Company, which are due to vest 50% on 15 November 2018 and 50% on 15 November 2019. Ingrid Johnson received a grant of nil cost share options in April 2015, which are due to vest 50% on 17 April 2018 and 50% on 17 April 2019. The first vesting of the nil cost share options granted in 2015 to Paul Hanratty, a former executive director, is due to occur on 17 April 2018, with the remainder due to vest on 17 April 2019. As the nil cost share options granted in 2015 had not vested at the date of this report, the average share price for the final quarter of 2017 (198.38p) has been used to determine the value for the purposes of the single total figure. The underlying detail of achievement against objectives is set out below: Executive director Financial metrics Execution of the managed separation Total weighted outcome Total weighted outcome (as a percentage of maximum) (A) TSR multiplier – % achieved (B) Achievement – % of maximum award (A x B) Financial metrics (70%) Weighting 70% 30% EPS (p) (IFRS AOP-based CAGR2) post-tax EPS (c) (IFRS AOP-based CAGR2) post-tax RoE (IFRS-AOP based averaged over three years) Threshold1 5.0% 5.0% 12.0% Target 7.5% 7.5% 13.5% Maximum 10.0% 10.0% 15.0% 1 Vesting − 0% at threshold with straight-line interpolation between threshold and maximum. 2 Compound annual growth rate over the three-year performance period. % of maximum achieved 81.67 100.00 87.17 75.80 88.28 66.92 Actual 15.2% 13.6% 13.9% % of maximum achieved 100.00 100.00 63.34 81.67 Execution of the managed separation (30%) The strategic element of the 2015 LTI performance condition was directly aligned with the execution of the managed separation strategy (as approved by shareholders at the General Meeting held on 28 June 2016). An assessment of progress made towards the separation of the Group into four standalone businesses, including the elimination of central costs, has been made in the judgement of the committee at 31 December 2017. The structural steps required to effect the managed separation were fully defined, with detailed project and resource plans in place through to the completion of the managed separation transactions. The separation is on track as originally envisaged from a structural perspective. In particular:  The separation of OM Asset Management has been completed  The wind-down of Old Mutual Bermuda has been planned in detail and its portfolio has been substantially hedged  The demerger and listing of OMW remains on-track, and the sale of its Single Strategy Asset Management business has allowed shareholders to capture the value in this business, which was no longer considered core to the strategy  The listing of OML, in which Old Mutual plc will become a subsidiary of the newly established OML (which will be primary-listed on the JSE Limited) is on-track, with in principle regulatory approval received in early 2018  Preparations for OMW and OML to be capable of operating independently are well advanced and have been delivered within the planned timelines. Additional requirements in respect of the single total figure table for executive directors (continued) The outcome of the Execution of the managed separation performance condition has been measured against the following key criteria: Objectives Performance Appropriate capitalisation of  The strategy for each business has been reviewed and sharpened, and the equity stories for the two unlisted businesses the businesses have been re-articulated, with positive investor feedback at the capital market showcase events in November 2017  In-principle agreement on the structure of the Day 1 balance sheets of the businesses has been reached, subject to final regulatory approval. The businesses will be capitalised appropriately on Day 1, meeting both regulatory and local  The boards and management teams of the two unlisted businesses have been restructured to address gaps in skills and experience and ensure that each business will be managed rigorously with strong oversight by suitably market expectations experienced boards. Time Quality of execution (reflecting the balance of time, cost, risk and value)  The management team is on track to deliver managed separation in line with the timelines communicated to the market  The separation of OM Asset Management was completed as fast as was deemed appropriate given the market environment, buyer interest, and the complexities of executing a sales transaction in this industry  Company debt has been reduced substantially as fast as was possible given the requirement to maintain prudent liquidity  The implementation of managed separation to the end of 2017 has been completed within the cost figures previously  Significant legacy liabilities, such as the transfer of the legacy pension schemes, the captive insurer, and several warranties and certain indemnities emanating from historic M&A transactions, have been resolved in line with management’s original levels throughout the separation process. Cost communicated to the market cost estimates. Value  The projected value realisation for shareholders over time, which is based on an internal sum-of-the-parts-valuation based on the valuation of publicly traded peers, continues to track in line with the original projections  The agreed sale of the OMW Single Strategy Asset Management business in the UK was concluded for an estimated consideration of c.£600 million  The actual valuation gains realised by shareholders can only be determined after the demerger and listing of OMW and the anticipated unbundling of Nedbank. The gains cannot be fully assessed until sometime after these events, given the need for the share registers to settle and for analysts and investors to develop a closer understanding of the  Management has realised more value than initially projected from the sale of the OM Asset Management stake and concluded the series of market placements at sequentially decreasing cost points as market appetite and liquidity C o r p o r a t e g o v e r n a n c e hitherto unlisted businesses improved after each transaction. Risk risk appetite  The operational risks in each business were managed appropriately and they operated within qualitative and quantitative  The market and execution risks inherent in the sale to HNA Capital US and the market sell-down of the OM Asset Management stake, realising a price ahead of the average price during the period, were managed appropriately  Similarly, market and timing risk of Company debt repurchases was managed within the constraints of the Group’s risk appetite in terms of operational and execution risks, and with respect to solvency and liquidity  People risks have been addressed proactively and the execution of managed separation has been de-risked in this  Execution risks in relation to the listing of OML and the demerger and listing of OMW have been mitigated to the regard to the extent possible extent possible  Regulatory risk has been managed at Group level and in each of the businesses with proactive engagement by the respective management teams and/or Group resources  All relevant regulators have been engaged and relevant applications for the remaining separation transactions have been filed or are on track to be filed within the requisite timelines. TSR multiplier A TSR multiplier was used to adjust the outcome of the LTI scorecard in the tables above. TSR was averaged at the start (Q4 2014) and end (Q4 2017) of the three-year performance period. Weighting 50% 50% 4% or more below index1 Equal to index1 4% or more above index1 85% 100% 115% Outcome -3.16% -3.09% Multiplier 88.16% 88.41% Weighted outcome 44.08% 44.20% 88.28% Annualised relative TSR growth (£) Annualised relative TSR growth (R) Weighted total 1 Straight-line interpolation between the points. Risk adjuster The committee received input from the Group’s Chief Risk Officer, endorsed by the Board Risk Committee, which confirmed that the Group had achieved its objectives within the risk policies and risk appetite limits established for the period, and as a result, no downward risk adjustment was recommended. The Committee applied discretion to make a downward adjustment to the outcome of both the LTIs that vested at the end of 2015 and 2016 to take consideration of the time and cost overruns of the OMW IT outsourcing project. It was not considered appropriate to make any further adjustments to the 2015 LTI. 116 114 115 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Additional requirements in respect of the single total figure table for executive directors (continued) The outcome of the Execution of the managed separation performance condition has been measured against the following key criteria: Objectives Appropriate capitalisation of the businesses Performance  The strategy for each business has been reviewed and sharpened, and the equity stories for the two unlisted businesses have been re-articulated, with positive investor feedback at the capital market showcase events in November 2017  In-principle agreement on the structure of the Day 1 balance sheets of the businesses has been reached, subject to final regulatory approval. The businesses will be capitalised appropriately on Day 1, meeting both regulatory and local market expectations  The boards and management teams of the two unlisted businesses have been restructured to address gaps in skills and experience and ensure that each business will be managed rigorously with strong oversight by suitably experienced boards. Quality of execution (reflecting the balance of time, cost, risk and value) Time  The management team is on track to deliver managed separation in line with the timelines communicated to the market  The separation of OM Asset Management was completed as fast as was deemed appropriate given the market C o r p o r a t e g o v e r n a n c e environment, buyer interest, and the complexities of executing a sales transaction in this industry  Company debt has been reduced substantially as fast as was possible given the requirement to maintain prudent liquidity levels throughout the separation process. Cost  The implementation of managed separation to the end of 2017 has been completed within the cost figures previously communicated to the market  Significant legacy liabilities, such as the transfer of the legacy pension schemes, the captive insurer, and several warranties and certain indemnities emanating from historic M&A transactions, have been resolved in line with management’s original cost estimates. Value  The projected value realisation for shareholders over time, which is based on an internal sum-of-the-parts-valuation based on the valuation of publicly traded peers, continues to track in line with the original projections  The agreed sale of the OMW Single Strategy Asset Management business in the UK was concluded for an estimated consideration of c.£600 million  The actual valuation gains realised by shareholders can only be determined after the demerger and listing of OMW and the anticipated unbundling of Nedbank. The gains cannot be fully assessed until sometime after these events, given the need for the share registers to settle and for analysts and investors to develop a closer understanding of the hitherto unlisted businesses  Management has realised more value than initially projected from the sale of the OM Asset Management stake and concluded the series of market placements at sequentially decreasing cost points as market appetite and liquidity improved after each transaction. Risk  The operational risks in each business were managed appropriately and they operated within qualitative and quantitative risk appetite  The market and execution risks inherent in the sale to HNA Capital US and the market sell-down of the OM Asset Management stake, realising a price ahead of the average price during the period, were managed appropriately  Similarly, market and timing risk of Company debt repurchases was managed within the constraints of the Group’s risk appetite in terms of operational and execution risks, and with respect to solvency and liquidity  People risks have been addressed proactively and the execution of managed separation has been de-risked in this regard to the extent possible  Execution risks in relation to the listing of OML and the demerger and listing of OMW have been mitigated to the extent possible  Regulatory risk has been managed at Group level and in each of the businesses with proactive engagement by the respective management teams and/or Group resources  All relevant regulators have been engaged and relevant applications for the remaining separation transactions have been filed or are on track to be filed within the requisite timelines. TSR multiplier A TSR multiplier was used to adjust the outcome of the LTI scorecard in the tables above. TSR was averaged at the start (Q4 2014) and end (Q4 2017) of the three-year performance period. Annualised relative TSR growth (£) Annualised relative TSR growth (R) Weighted total 1 Straight-line interpolation between the points. Weighting 50% 50% 4% or more below index1 Equal to index1 4% or more above index1 85% 100% 115% Outcome -3.16% -3.09% Multiplier 88.16% 88.41% Weighted outcome 44.08% 44.20% 88.28% Risk adjuster The committee received input from the Group’s Chief Risk Officer, endorsed by the Board Risk Committee, which confirmed that the Group had achieved its objectives within the risk policies and risk appetite limits established for the period, and as a result, no downward risk adjustment was recommended. The Committee applied discretion to make a downward adjustment to the outcome of both the LTIs that vested at the end of 2015 and 2016 to take consideration of the time and cost overruns of the OMW IT outsourcing project. It was not considered appropriate to make any further adjustments to the 2015 LTI. 117 115 Old Mutual plc Annual Report and Accounts 2017Governance Old Mutual plc Annual Report and Accounts 2017 Directors’ Remuneration Report continued Additional requirements in respect of the single total figure table for executive directors (continued) 2015 LTI awards over Old Mutual plc shares due to vest to the executive directors (audited) Old Mutual shares under option at grant 1,509,686 639,824 Achievement of performance targets 66.92% 66.92% Old Mutual shares under option to vest in 2018 505,141 214,085 Old Mutual shares under option to vest in 2019 505,141 214,085 Average Old Mutual plc share price over Q4 2017 198.38p 198.38p Value of share options to vest in 2018 £000 1,002 425 Value of share options to vest in 2019 £000 1,002 425 Total value of LTI as shown in the single figure table £000 2,004 850 Executive director Bruce Hemphill Ingrid Johnson MSIP performance update The MSIP comprises objectives and targets in three categories (highlighted in bold below): Objectives Execution of the managed separation (40%) This performance condition is directly aligned with the execution of the managed separation strategy. It is assigned the highest weighting at 40% because it is the core of the strategy. It consists of the managed separation of the Group into four standalone businesses through a series of transactions. The assessment of performance against this condition will be made in the judgement of the committee against the key criteria set by the Board, namely: (i) material completion of the business separation, (ii) appropriate capitalisation of the businesses, and (iii) quality of transaction execution  An update in relation to the progress toward managed separation is given under the ‘Outcomes for LTI awards over Old Mutual plc shares granted in 2015’ section above. Performance of the underlying businesses (25%)  Our strong businesses delivered resilient operational performance alongside significant progress towards managed separation, all in the context of This performance condition is directly aligned with the strategic objective to deliver competitive financial performance in each of the businesses while they are part of the Group, in order to maximise the value creation opportunity on separation challenging macro-economic conditions continuing in South Africa through 2017. Although markets were strong in the UK, weak currency, uncertainty around Brexit, and regulatory developments in financial services continued to have an impact  The financial targets in the MSIP are based on a three-year timeframe. The actual performance of each business will be crystallised as it separates from the Group1  In accordance with the terms of the MSIP, the committee determined the outcome of the financial performance of OM Asset Management at the point of separation from the Group at the end of 2017. OM Asset Management achieved 14.3% growth over the period, resulting in a maximum outcome. This outcome represents 1.7% of the total MSIP award. 1 If the committee considers it necessary to review the financial targets under the discretion afforded in the policy for reasons linked to the macro-economic environment, the phasing of three-year growth plans relative to the timeframe taken to complete the separation of a business, or the reallocation of the Group’s assets, it will do so with transparency and in a way that ensures the targets are as relevant and stretching as originally intended. Alignment with shareholder value (35%)  In accordance with the principles approved in 2016, the weighting of the peer groups is reviewed each time a transaction is completed. Accordingly, in This performance condition is directly aligned with the strategic objective to unlock and create significant long-term value for shareholders through managed separation and will be measured through relative total shareholder return (TSR) November 2017, the weightings were reviewed to reflect the completion of the sale of OM Asset Management. The new weightings that apply from that date are: OMEM 46.4% (43.9%); Nedbank 21.4% (20.3%); OMW 32.2% (30.5%); and OM Asset Management 0% (5.3%)  TSR is monitored throughout the period, with the committee receiving regular updates. TSR will be measured until the end of the holding period applicable to the elements of the MSIP that will vest following the listing of OML and the demerger and listing of OMW. This is consistent with the commitment to maintain shareholder alignment for a period beyond completion and ensure the outcome reflects the shareholder value created through separating the constituent businesses, which will take time. Risk management A quantitative downward adjustment of up to 5% and qualitative assessment of risk management over the entire period with an uncapped discretionary downward adjustment  In 2016 and 2017, the Company exceeded its liquidity and solvency ratio targets, meaning that no quantitative downward adjustment would apply for the period 2016 to 2017 (see 2017 STI outcome for details of the 2017 risk performance). The committee receives annual risk reports from the Group’s Chief Risk Officer, endorsed by the Board Risk Committee, to ensure it has a full understanding of risk events and management’s performance as managed separation progresses. While some risk adjustment was applied to the outcome of incentives at the end of 2016, these were in relation to legacy issues pre-dating the managed separation strategy, so no events have transpired to date that the committee considers should result in a downward-adjustment to the MSIP at completion. The committee will continue to monitor risk management closely. 118 116 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Single total figures of remuneration for non-executive directors (audited) Non-executive directors do not participate in any of the Company’s incentive arrangements, nor do they receive any benefits, other than those described in footnote 1 to the table below. This table shows the single total figures for both 2016 and 2017 for the Chairman and the other non-executive directors: Non-executive director Patrick O’Sullivan Mike Arnold2 Zoe Cruz Alan Gillespie Danuta Gray3 Adiba Ighodaro4 Trevor Manuel5 Roger Marshall6 Vassi Naidoo7 Former non-executive director Nkosana Moyo Nonkululeko Nyembezi8 Fees 2016 £000 380 101 80 95 98 70 161 122 322 80 77 2017 £000 400 126 96 116 120 81 420 157 413 48 104 Taxable benefits1 2017 £000 16 – – – – – – – – 2016 £000 17 – – – – – – – – – – – – Total 2016 £000 397 101 80 95 98 70 161 122 322 80 77 2017 £000 416 126 96 116 120 81 420 157 413 48 104 1 Neither the Chairman nor any of the other non-executive directors received any pension-related benefits, short-term or long-term incentives or any other items in the nature of remuneration in 2016 or 2017. The amounts included in the taxable benefits columns relate to the provision of travel to and from the Company’s office in London. 2 Includes fees of £5,250 in relation to attendance at Old Mutual Wealth Management Limited Risk Committee meetings (£1,481 in 2016). 3 Includes fees of £5,250 in relation to attendance at Old Mutual Wealth Management Limited Remuneration Committee meetings (£1,481 in 2016). 4 Fees payable to Adiba Ighodaro were paid to Actis LLP rather than to her personally. 5 Includes fees of £338,846 in respect of Old Mutual Group Holdings (SA) (Pty) Limited and Old Mutual Emerging Markets Limited (£91,434 in 2016). 6 Includes fees of £21,250 in respect of Old Mutual Wealth Management Limited. Roger Marshall joined the Board of Old Mutual Wealth Management Limited on 10 November 2016 and resigned on 31 March 2017 (£11,987 in 2016). 7 Includes fees of £323,252 in respect of Nedbank Group Limited and Old Mutual Group Holdings (SA) (Pty) Limited (£244,600 in 2016). 8 Includes fees of £14,777 in respect of Old Mutual Group Holdings (SA) (Pty) Limited. Scheme interests awarded during 2017 (audited) The following table shows share incentive awards granted to the executive directors during 2017. The number of shares awarded was calculated using the middle market quotation of Old Mutual plc shares on the business day preceding the date of grant. Date of grant Bruce Hemphill 29 Mar 2017 Ingrid Johnson 29 Mar 2017 Award type Forfeitable shares award Forfeitable shares award Basis of award Old Mutual shares held under award Share price at date of grant Face value at date of grant £000 % receivable if minimum performance is achieved The end of the period over which the performance targets have to be fulfilled Vesting date DSTI 268,824 218.2p 587 100% 29 Mar 2020 DSTI 187,354 218.2p 409 100% 29 Mar 2020 N/A N/A C o r p o r a t e g o v e r n a n c e 119 117 Old Mutual plc Annual Report and Accounts 2017Governance Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Directors’ Remuneration Report continued Directors’ shareholdings and share interests (audited) Share awards and options outstanding at 1 January 2017 and 31 December 2017 Bruce Hemphill Performance targets to be met Market value per share at grant (p) Grant date Number of shares under award or option at 1 Jan 17 No No 05 Nov 15 213.50 182,263 05 Nov 15 213.50 182,263 Award type Forfeitable shares – Buy-out Nil cost share options – Buy-out Yes Yes No No Yes Forfeitable shares – DSTI Nil cost share options – MSIP 05 Nov 15 213.50 754,843 05 Nov 15 213.50 754,843 14 Mar 16 182.00 260,990 29 Mar 17 218.20 – 268,824 11 Jul 16 175.70 1,978,020 Yes 11 Jul 16 175.70 3,144,347 Exercised or released 182,2632 – – – – – – – Number of shares under award or option at 31 Dec 17 Date from which exercisable or releasable – Expiry date1 182,263 05 Nov 18 05 Nov 18 754,843 05 Nov 18 04 Nov 25 754,843 05 Nov 19 04 Nov 25 260,990 14 Mar 19 14 Mar 19 268,824 29 Mar 20 29 Mar 20 Lapsed – – – – – – – 1,978,020 Completion of managed separation – 3,144,347 Completion of managed separation 10 Jul 26 10 Jul 26 Granted – – – – – – – Total 7,257,569 268,824 182,263 – 7,344,130 1 The expiry date is determined by the rules of the plans under which the awards and options were granted. 2 In respect of the forfeitable shares that vested during 2017, the value of Old Mutual plc shares on the date of vesting was 192.9p per share. Ingrid Johnson Directors’ shareholdings and share interests (audited) continued Within a period of five years of appointment to the role, the Group Chief Executive is required to build-up a holding of shares in the Company equal in value to 200% of base pay; the equivalent figure for other executive directors is 150% of base pay. Unvested share awards or share options and vested but unexercised share options are excluded for the purposes of the calculations. There is no requirement for executive directors to hold shares or share interests in the Company once they have ceased employment with the Group. Bruce Hemphill’s and Ingrid Johnson’s interests in Old Mutual plc shares at 31 December 2017 are set out below. Shares have been valued for these purposes using the Old Mutual plc share price on 29 December 2017, which was 231.7p per share. There have been no changes to the current directors’ personal shareholdings or share interests between 31 December 2017 and 15 March 2018 other than in relation to the outcome of the 2015 LTI targets set out earlier in this report. Date Share Number of shares owned Forfeitable shares Nil cost share Nil cost share Sharesave ownership ownership Number of outright Share Vested but awards options options share options requirement requirement shares (including by ownership unexercised not subject to not subject to subject to not subject to to be met (% of base required connected requirement nil cost performance performance performance performance Executive director by pay) to be held Bruce Hemphill 1 Nov 20 Ingrid Johnson 1 Jul 19 200% 796,288 150% 418,213 persons) 96,600 525 met share options No No – 192,419 targets 712,077 528,977 targets targets targets 6,632,053 – 192,419 3,329,067 16,068 There are no share ownership requirements for the non-executive directors. Shares owned by the Chairman and the other non-executive directors holding office at 31 December 2017 (including holdings by connected persons) are shown below (holdings at date of resignation are shown for Nkosana Moyo): Old Mutual plc shares held at 31 December 2017 Non-executive director Patrick O’Sullivan Mike Arnold Zoe Cruz Alan Gillespie Danuta Gray Adiba Ighodaro Trevor Manuel Roger Marshall Vassi Naidoo Former non-executive director Nkosana Moyo (resigned 29 June 2017) Nonkululeko Nyembezi (resigned 31 December 2017) 31 December 2017 and 15 March 2018. Shares in trust and shareholder dilution There have been no changes to the interests in shares owned by the Chairman and the current non-executive directors between At 31 December 2017, there were 109,161,165 shares held in employee share ownership trusts (ESOTs) for the purposes of collaterising some of the obligations under the Group’s employee share incentive schemes. The usual strategy is to ensure that, with the exception of Black Economic Empowerment-related ESOTs, at least sufficient shares are held to satisfy restricted share/forfeitable shares awards. In calculating dilution limits, any awards that are satisfied by transfer of pre-existing issued shares (such as shares acquired by market purchase through ESOTs) and any shares comprised in any share option or share award that has lapsed or has been cash-settled are disregarded. At 31 December 2017, the Company had 4.58% of share capital available under the 5%-in-10-years limit applicable to discretionary share incentive schemes and 8.66% of share capital available under the 10%-in-10-years limit applicable to all share incentive schemes. The Company has complied with these limits at all times. C o r p o r a t e g o v e r n a n c e 100,000 26,475 34,500 13,000 14,175 – – 45,000 5,000 10,000 28,667 Performance targets to be met Market value per share at grant (p) Grant date Number of shares under award or option at 1 Jan 17 Granted Exercised or released Lapsed Number of shares under award or option at 31 Dec 17 Date from which exercisable or releasable Expiry date1 Award type Forfeitable shares – DSTI Nil cost share options – LTI Nil cost share options – MSIP No No No Tested Tested Yes Yes Yes 17 Apr 15 240.30 126,204 14 Mar 16 182.00 215,419 – – 29 Mar 17 218.20 – 187,354 08 Aug 14 190.60 393,494 08 Aug 14 190.60 393,495 17 Apr 15 240.30 319,912 17 Apr 15 240.30 319,912 11 Jul 16 175.70 1,384,614 Yes 11 Jul 16 175.70 1,304,629 Sharesave2 No 05 May 15 186.70 16,068 – – – – – – – 126,204 17 Apr 18 17 Apr 18 215,419 14 Mar 19 14 Mar 19 187,354 29 Mar 20 29 Mar 20 201,075 192,419 08 Aug 17 07 Aug 24 – 201,076 192,419 08 Aug 18 07 Aug 24 – – – – – – 319,912 17 Apr 18 16 Apr 25 319,912 17 Apr 19 16 Apr 25 – 1,384,614 Completion of managed separation – 1,304,629 Completion of managed separation 10 Jul 26 10 Jul 26 – – 16,068 01 Jun 20 30 Nov 20 – – – – – – – Total 4,473,747 187,354 – 402,151 4,258,950 1 The expiry date is determined by the rules of the plans under which the awards and options were granted. 2 The market value per share at grant represents the exercise price of the option granted under the Old Mutual plc 2008 Sharesave Plan, which was set at a 20% discount to the average Old Mutual plc share price over a three-day period immediately preceding the date of invitation. 120 118 119 Old Mutual plc Annual Report and Accounts 2017 C o r p o r a t e g o v e r n a n c e Old Mutual plc Annual Report and Accounts 2017 Directors’ shareholdings and share interests (audited) continued Within a period of five years of appointment to the role, the Group Chief Executive is required to build-up a holding of shares in the Company equal in value to 200% of base pay; the equivalent figure for other executive directors is 150% of base pay. Unvested share awards or share options and vested but unexercised share options are excluded for the purposes of the calculations. There is no requirement for executive directors to hold shares or share interests in the Company once they have ceased employment with the Group. Bruce Hemphill’s and Ingrid Johnson’s interests in Old Mutual plc shares at 31 December 2017 are set out below. Shares have been valued for these purposes using the Old Mutual plc share price on 29 December 2017, which was 231.7p per share. There have been no changes to the current directors’ personal shareholdings or share interests between 31 December 2017 and 15 March 2018 other than in relation to the outcome of the 2015 LTI targets set out earlier in this report. Date ownership requirement to be met Executive director by Bruce Hemphill 1 Nov 20 1 Jul 19 Ingrid Johnson Share ownership requirement (% of base pay) Number of shares required to be held 200% 796,288 150% 418,213 Number of shares owned outright (including by connected persons) 96,600 525 Share ownership requirement met No No Vested but unexercised nil cost share options – 192,419 Forfeitable shares awards not subject to performance targets 712,077 528,977 Nil cost share options not subject to performance targets Nil cost share options subject to performance targets 6,632,053 192,419 3,329,067 Sharesave share options not subject to performance targets – 16,068 There are no share ownership requirements for the non-executive directors. Shares owned by the Chairman and the other non-executive directors holding office at 31 December 2017 (including holdings by connected persons) are shown below (holdings at date of resignation are shown for Nkosana Moyo): Non-executive director Patrick O’Sullivan Mike Arnold Zoe Cruz Alan Gillespie Danuta Gray Adiba Ighodaro Trevor Manuel Roger Marshall Vassi Naidoo Former non-executive director Nkosana Moyo (resigned 29 June 2017) Nonkululeko Nyembezi (resigned 31 December 2017) Old Mutual plc shares held at 31 December 2017 100,000 26,475 34,500 13,000 14,175 – – 45,000 5,000 10,000 28,667 There have been no changes to the interests in shares owned by the Chairman and the current non-executive directors between 31 December 2017 and 15 March 2018. Shares in trust and shareholder dilution At 31 December 2017, there were 109,161,165 shares held in employee share ownership trusts (ESOTs) for the purposes of collaterising some of the obligations under the Group’s employee share incentive schemes. The usual strategy is to ensure that, with the exception of Black Economic Empowerment-related ESOTs, at least sufficient shares are held to satisfy restricted share/forfeitable shares awards. In calculating dilution limits, any awards that are satisfied by transfer of pre-existing issued shares (such as shares acquired by market purchase through ESOTs) and any shares comprised in any share option or share award that has lapsed or has been cash-settled are disregarded. At 31 December 2017, the Company had 4.58% of share capital available under the 5%-in-10-years limit applicable to discretionary share incentive schemes and 8.66% of share capital available under the 10%-in-10-years limit applicable to all share incentive schemes. The Company has complied with these limits at all times. 121 119 Old Mutual plc Annual Report and Accounts 2017Governance Old Mutual plc Annual Report and Accounts 2017 Directors’ Remuneration Report continued Payments to past directors (audited) Julian Roberts LTI awards granted to Julian Roberts, the former Group Chief Executive, vested during 2017 as set out below: Date of grant 8 Apr 13 8 Apr 14 Shares under option at grant 569,059 561,451 Shares forfeited in respect of performance targets and time-based pro-rating 355,002 376,831 Shares vested in 2017 214,057 184,620 Share price on date of vesting 189.7p 189.7p Julian Roberts Paul Hanratty LTI awards granted to Paul Hanratty, the former Group Chief Operating Officer, vested during 2017 as set out below: Date of grant 8 Apr 13 8 Apr 14 8 Aug 14 Shares under option at grant 282,922 278,875 57,844 Shares forfeited in respect of performance targets and time-based pro-rating 158,069 168,137 38,023 Shares vested in 2017 124,853 110,738 19,821 Share price on date of vesting 189.7p 189.7p 206.4p Paul Hanratty Value of share options vested in 2017 £000 406 350 Value of share options vested in 2017 £000 237 210 41 Payments for loss of office (audited) There were no payments for loss of office paid to any of the executive directors of the Company in 2017. 122 120 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Performance graphs The charts below show the Company’s eight-year annual TSR performance against the FTSE 100 Index and JSE ALSI. These indices were selected because: (i) the Company is part of those indices; and (ii) due to the international structure and diversity of the Group’s businesses, the two broad market indices shown are the only relevant market comparators available. The charts show the value of TSR (assuming dividends reinvested) at each year end from 31 December 2009 to 31 December 2017 on £100/R100 invested in Old Mutual plc shares compared with the TSR (calculated on the same basis) on £100/R100 invested in the FTSE 100 Index and the JSE ALSI at the same dates. Old Mutual versus FTSE 100 Old Mutual (LSE) FTSE 100 Old Mutual versus JSE ALSI Old Mutual (JSE) JSE ALSI 700% 650% 600% 550% 500% 450% 400% 350% 300% 250% 200% 150% 100% 0% 31 Dec 08 31 Dec 09 31 Dec 10 31 Dec 11 31 Dec 12 31 Dec 13 31 Dec 14 31 Dec 15 31 Dec 16 31 Dec 17 C o r p o r a t e g o v e r n a n c e 700% 650% 600% 550% 500% 450% 400% 350% 300% 250% 200% 150% 100% Source: Datastream 0% 31 Dec 08 31 Dec 09 31 Dec 10 31 Dec 11 31 Dec 12 31 Dec 13 31 Dec 14 31 Dec 15 31 Dec 16 31 Dec 17 Single figure Group Chief Executive’s remuneration over the last eight years 2012 £000 7,881 – 88% – 80% – Julian Roberts Bruce Hemphill Julian Roberts Bruce Hemphill Julian Roberts Bruce Hemphill STI payout against maximum opportunity LTI vesting against maximum opportunity 2011 £000 8,521 – 92% – 100% – 2009 £000 2,163 – 77% – 0% – 2010 £000 2,447 – 98% – 0% – 2013 £000 4,817 – 85% – 84% – 2014 £000 4,444 – 79% – 69% – 2015 £000 2,270 4,811 86.3% – 71.5% – 2016 £000 – 2,480 – 2017 £000 – 4,739 – 86.9% 100.0% 48.9% – – 66.9% 123 121 Old Mutual plc Annual Report and Accounts 2017Governance Old Mutual plc Annual Report and Accounts 2017 Directors’ Remuneration Report continued Percentage change in the remuneration of the Group Chief Executive The table below shows the percentage change in the remuneration of the Group Chief Executive (from 2016 to 2017) compared to that for UK-based employees of the plc Head Office in London. The committee has selected employees in the plc Head Office in London, as the Group Chief Executive is employed in that office and managed separation has made comparison to other businesses less relevant. Element Base pay Taxable benefits1 STI Group Chief Executive % change 2.5 13 18 Average UK-based employee % change 3.1 14.3 22.8 1 The increase in taxable benefits for the Group Chief Executive relates to the payment of tax advice following his transfer to the UK in 2015. Advice in relation to 2015 and 2016 was charged to the Company during 2017, meaning that there was no comparator for 2016. For other employees the increase is partly attributable to 2017 being the first full calendar year that the lower annual pension cap applied. Relative importance of spend on pay The table below illustrates the Group’s spend on pay compared with distributions to shareholders: Dividends paid to ordinary equity holders Dividends paid to Nedbank non-controlling interests Dividends paid to OMAM non-controlling interests Remuneration paid to all Group employees 2017 £m 330 166 4 2,244 2016 £m 426 132 10 1,782 Year-on-year change £m (96) 34 (6) 462 % (22.5) 26 (60) 26 124 122 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Implementation of policy in 2018 The committee intends to apply the policy in the following manner for 2018: Base pay The table below shows the changes to base pay for 2018, which were equal to the average increase of 2.5% received by other employees in the plc Head Office in London. Executive director Bruce Hemphill Ingrid Johnson 2018 £ 945,565 662,150 2017 £ 922,500 646,000 % increase 2.5 2.5 STI In 2017, the STI scorecard was weighted 75% financial measures and 25% non-financial measures. In 2018, the committee has determined that the STI scorecard up to the point of listing of OML and the demerger and listing of OMW will be weighted 50% financial measures and 50% non-financial measures. The financial measures will be a combination of cost management of the plc Head Office in London, and the performance of the businesses. Non-financial measures will focus on the executives’ continued oversight of the businesses in the management of risk and execution of the strategies. After listing of OML and the demerger and listing of OMW, the committee believes performance relative to non-financial measures only is appropriate, as plc executive oversight of the businesses will effectively end. The non-financial measures will focus on the principal remaining steps for managed separation, including the wind-down plan for the plc Head Office in London, the management of Company debt, and the anticipated unbundling of Nedbank. In relation to the pre-listing metrics only, a potential downward adjustment of up to 5% will apply based on the outcome of two risk-based metrics. Achievement of the target (or better) will result in no adjustment to the outcome; achievement at or below the threshold will result in a 5% downward adjustment to the outcome, with straight-line interpolation between threshold and target. There will also be a qualitative risk assessment undertaken by the Group’s Chief Risk Officer and endorsed by the Board Risk Committee in relation to the pre-listing metrics only, which will cover management of risk in relation to risk management policy and risk appetite limits, audit/governance reports and regulatory breaches. C o r p o r a t e g o v e r n a n c e The maximum award will remain 150% of base pay and the objectives for the executive directors will be as follows: Period Qualitative component (assessed at listing) Performance objectives  Personal objectives linked to the continued oversight of the businesses in the management of risk and execution of the strategies Quantitative component After listing  plc Head Office in London - cost management  OML – Adjusted Headline Earnings  Nedbank – Headline Earnings  OMW – IFRS Profit (excluding amortisation of intangibles and policyholder tax)  plc Head Office in London - cost management  Personal objectives linked to:  Delivery of the wind-down plan for the plc Head Office in London  Supporting the OML management team, including:  Management of remaining Company debt  Preparation for and management of the anticipated Nedbank unbundling 1 The actual category weighting will be determined by the committee on the listing of OML and the demerger and listing of OMW. LTI There will be no long-term incentive awards granted by the Company in 2018. Category weight1 Sub- component weight Minimum of 70% 50% 27.5% 7.5% 7.5% 7.5% Maximum of 30% N/A Legacy deferred STI and LTI awards The committee has concluded that when managed separation is determined to be materially complete at the time of listing of OML and the demerger and listing of OMW (this being contingent on the necessary approvals subsequently being received with a legal obligation on OML to proceed with the unbundling of Nedbank), all unvested deferred STI and LTI awards will vest on or shortly after the listing of OML, in accordance with the rules of the plans and the terms of the policy. As the performance period will be complete, there will be no time- based pro-rating applied. Executives will continue to have significant alignment to shareholders, business performance, and risk management events through the continued vesting and holding period of a substantial proportion of the MSIP awards, and the Company’s ability to apply claw back to vested awards in the event of a significant risk issue. As the Old Mutual plc shares will not be tradeable after the listing of OML, the nil cost share options will be exercisable over OML and OMW shares in the same proportions as will be received by shareholders. 125 123 Old Mutual plc Annual Report and Accounts 2017Governance Old Mutual plc Annual Report and Accounts 2017 Directors’ Remuneration Report continued The Managed Separation Incentive Plan The intention is for the elements of the MSIP relating to the Execution of the managed separation (40% of the award), and Performance of the underlying businesses (25% of the award), to vest following the listing of OML and the demerger and listing of OMW, with a one-year holding period applied to 50% of the net value of the vested award. In respect of the measurement category relating to TSR (the remaining 35% of the award), the committee is mindful that the way the execution of managed separation has evolved means that the constituent businesses will be listed. The committee has determined that the TSR from the independently-listed businesses should therefore continue to be measured until the end of the holding period applicable to the elements of the MSIP that will vest following the listing of OML and the demerger and listing of OMW. This is consistent with the commitment to maintain shareholder alignment for a period beyond completion and ensure the outcome reflects the shareholder value created through separating the constituent businesses, which will take time. As the Old Mutual plc shares will not be tradeable after the listing of OML, the nil cost share options will be rolled-over into OML and OMW shares in the same proportions as will be received by shareholders. The combined application of malus, cross-malus (enabling the committee to apply malus to an unvested award in respect of a risk event that applies to an award that has already vested) and claw back ensures that the committee has appropriate mechanisms to apply reductions to awards up to 12 months following the final vesting date if a significant risk event occurs. Post-employment holding periods The committee has chosen not to require executive directors to hold shares for a period after vesting or exercise, or after leaving the Group. The holding period will apply to 50% of the net value of the vested MSIP award (other than in relation to the TSR metric). Non-executive directors’ fees The annual fees payable to the Chairman and to the other non-executive directors in 2017 and 2018, are set out below, by role. There has been no increase to the fees payable to the Chairman and the other non-executive directors in 2018. Role Chairman Senior Independent Director Board fee Chairman of the Board Risk Committee Member of the Board Risk Committee Chairman of the Group Audit Committee Member of the Group Audit Committee Member of the Nomination and Governance Committee Chairman of the Remuneration Committee Member of the Remuneration Committee 2018 £ 400,000 20,000 66,000 40,000 15,000 40,000 15,000 8,500 40,000 15,000 2017 £ 400,000 20,000 66,000 40,000 15,000 40,000 15,000 8,500 40,000 15,000 Solvency II From 1 January 2016, certain parts of the Group were required to comply with the remuneration requirements of Solvency II. The parts of the Group specifically impacted are Old Mutual plc, OMW and OMEM. The committee, along with the Company’s Management Remuneration Committee, oversees compliance of all relevant businesses in the Group with the Solvency II remuneration requirements. In reaching the decisions relating to existing share awards as a result of the managed separation, the committee carefully considered the remuneration requirements of Solvency II, including the requirement to defer a material proportion of variable pay over three years, and to ensure that executives are aligned to the risks inherent in executing the strategy throughout the period over which managed separation is expected to be completed, and for a suitable period of time beyond. The committee is satisfied that the executives will be appropriately aligned through the continued vesting and holding period applicable to the MSIP and the claw back provisions that apply to all incentive plans. 126 124 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Consideration by the directors of matters relating to directors’ remuneration Committee meetings and members The following, all of whom are or were at the relevant time independent non-executive directors of the Company, served as members of the committee during the year: Non-executive director Position Danuta Gray Zoe Cruz Alan Gillespie Roger Marshall Nkosana Moyo Chairman Member Member Member Member Period on the committee March 2013 to date (Chairman since May 2014) January 2014 to date November 2010 to date (Chairman from May 2013 to May 2014) May 2013 to date January 2014 to June 2017 1 The meetings that Zoe Cruz, Alan Gillespie and Nkosana Moyo did not attend were ad-hoc meetings. They attended all scheduled meetings in 2017. Meetings Attended1 9/9 7/9 7/9 9/9 4/5 The committee Chairman has access to and regular contact with the Group Human Resources Department independently of the executive directors. During 2017, the committee met nine times. The Board accepted the recommendations made by the committee during the year without amendment. Paul Forsythe, Deputy Group Company Secretary, acted as secretary to the committee. Advisers to the committee A review of the committee’s independent adviser was undertaken in 2014 and, following a competitive tender process, the committee appointed PwC as its independent adviser. PwC provides wide-ranging advice and services across the Group on matters including transactions, tax, internal audit and IT security. In its capacity as adviser to the committee, PwC works with management to prepare recommendations for the committee’s consideration and provides advice to the committee on benchmarking of total remuneration packages for the executive directors and other senior employees, the design of short-term and long-term incentive arrangements (including for employees of subsidiary companies), updating the committee on corporate governance best practice, advice in relation to the measurement of performance for incentive purposes and other matters within the committee’s terms of reference. PwC also provides advice to management on remuneration matters. The committee undertakes a review of the advice it receives to assess whether it is objective and independent; it also satisfies itself that there are no conflicts of interest arising between it, the advisers and the Company. PwC is a signatory to the Remuneration Consultants’ Group Code of Conduct. Work undertaken by PwC for the committee is charged on a time basis and for 2017 was £212,300 (2016: £209,699) excluding VAT. Ian Luke (Group Head of Reward) and Rex Tomlinson (Group Chief of Staff) assisted the committee during the year. Group Human Resources provided supporting materials for matters that came before the committee, including comparative data and justifications for proposed base pay, benefits, annual incentive plans, share awards and criteria for performance targets and appraisals against those targets. Patrick O’Sullivan, Bruce Hemphill, and Sue Kean, the Group’s Chief Risk Officer, gave advice to the committee in assessing the performance of the Group Chief Executive, other members of the plc Executive committee and business CEOs, and the assessment of risk, respectively. C o r p o r a t e g o v e r n a n c e 127 125 Old Mutual plc Annual Report and Accounts 2017Governance Old Mutual plc Annual Report and Accounts 2017 Directors’ Remuneration Report continued Voting at General Meetings The voting results at AGMs and GMs on resolutions relating to our Directors’ Remuneration Reports, the Directors’ Remuneration Policy, and other remuneration-related resolutions over the last three years were as follows: Year of report 2016 2015 2014 Type Directors’ Remuneration Report Directors’ Remuneration Report New Policy Adoption of the Managed Separation Incentive Plan Directors’ Remuneration Report Date of AGM/GM 25 May 17 Votes for 2,611,810,916 Votes for % 72.03 Votes against 1,014,151,915 Votes against % Total votes cast (excluding votes withheld) 27.97 3,625,962,831 Votes withheld 47,844,913 28 Jun 16 3,345,897,363 93.17 245,393,581 6.83 3,591,290,944 10,467,799 28 Jun 16 28 Jun 16 2,933,954,378 2,909,574,894 81.71 81.11 656,580,062 677,784,311 18.29 3,590,534,440 18.89 3,587,359,205 25,437,978 28,613,213 14 May 15 3,166,003,379 94.21 194,559,265 5.79 3,360,562,644 11,506,850 The committee is mindful of shareholder feedback and the voting result for the 2016 Directors’ Remuneration Report, demonstrating that a significant minority of shareholders had concerns about the 2016 Directors’ Remuneration report. The committee therefore took this feedback into account in assessing the outcome of the plans for 2017. 2017 outcomes were assessed against internal targets, peer group performance and external macro-economic measures, assuring the committee that the outcomes of the plans were appropriate for the performance delivered over the period. This approach is consistent with our commitment to align executive remuneration with stakeholder interests. Consideration of shareholder views In developing the revised policy and the MSIP in 2016, we consulted with our largest shareholders and also shared a substantial amount of information about the proposals with major shareholder representative bodies in the UK such as ISS and the Investment Association. The feedback received during the consultation period was reflected in the policy and the design of the MSIP. Approved and signed on behalf of the Board of directors. Danuta Gray Chairman of the Remuneration Committee 128 126 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Index to the financial statements Index to the financial statements Contents 129−339 Contents 129−339 130 Statement of directors' responsibilities in respect of the Annual Report and Accounts and financial statements 131 Independent Auditor's report to the members of Old Mutual plc 130 Statement of directors' responsibilities in respect of the Annual 142 Consolidated income statement Report and Accounts and financial statements 143 Consolidated statement of comprehensive income 131 Independent Auditor's report to the members of Old Mutual plc 144 Statement of adjusted operating profit 142 Consolidated income statement 148 Consolidated statement of financial position 143 Consolidated statement of comprehensive income 149 Consolidated statement of cash flows 144 Statement of adjusted operating profit 150 Consolidated statement of changes in equity 148 Consolidated statement of financial position 149 Consolidated statement of cash flows 150 Consolidated statement of changes in equity 154 Notes to the consolidated financial statements 154 A: Significant accounting policies 170 B: Segment information 154 Notes to the consolidated financial statements 180 C: Other key performance information 154 A: Significant accounting policies 189 D: Other consolidated income statement notes 170 B: Segment information 198 E: Financial assets and liabilities 180 C: Other key performance information 216 F: Capital and financial risk management 189 D: Other consolidated income statement notes 224 G: Analysis of financial assets and liabilities 198 E: Financial assets and liabilities 259 H: Non-financial assets and liabilities 216 F: Capital and financial risk management 275 224 G: Analysis of financial assets and liabilities arrangements 259 H: Non-financial assets and liabilities 288 J: Other notes I: Interests in subsidiaries, associates and joint 275 300 K: Accounting policies on financial assets and liabilities arrangements 306 L: Related undertakings of the Group 288 J: Other notes 330 Financial statements of the Company 300 K: Accounting policies on financial assets and liabilities 306 L: Related undertakings of the Group 330 Financial statements of the Company I: Interests in subsidiaries, associates and joint 129 123 123 i i F n a n c F a n s a n c a s i l l i Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Group financial statements Statement of Directors’ responsibilities in respect of the Annual Report and Accounts and the Financial Statements The Directors are responsible for preparing the Annual Report and Accounts and the Group and parent Company financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare Group and parent Company financial statements for each financial year. Under that law they are required to prepare the Group financial statements in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU) and applicable law and have elected to prepare the parent Company financial statements on the same basis. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and parent Company and of their profit or loss for that period. In preparing each of the Group and parent Company financial statements, the directors are required to:  select suitable accounting policies and then apply them consistently;  make judgements and estimates that are reasonable, relevant and reliable;  state whether they have been prepared in accordance with IFRSs as adopted by the EU;  assess the Group and parent Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and  use the going concern basis of accounting unless they either intend to liquidate the Group or the parent Company or to cease operations, or have no realistic alternative but to do so. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent Company's transactions and disclose with reasonable accuracy at any time the financial position of the parent Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. Under applicable law and regulations, the directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that complies with that law and those regulations. The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Responsibility statement of the directors in respect of the annual financial report We confirm that to the best of our knowledge:  the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole; and  the strategic report includes a fair review of the development and performance of the business and the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. We consider the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's position and performance, business model and strategy. Bruce Hemphill Group Chief Executive 14 March 2018 Ingrid Johnson Group Finance Director 130 124 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Independent Auditor’s Report to the Members of Old Mutual plc 1 Our opinion is unmodified We have audited the financial statements of Old Mutual plc (“the Company”) for the year ended 31 December 2017 which comprise the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated and Company Statements of Financial Position, the Consolidated and Company Statements of Cash Flows, the Consolidated and Company Statements of Changes in Equity, the Statement of Adjusted Operating Profit and the related notes, including the accounting policies. In our opinion:  the financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31 December 2017 and of the Group’s profit for the year then ended;  the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU);  the Parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the EU and as applied in accordance with the provisions of the Companies Act 2006; and;  the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities are described below. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion. Our audit opinion is consistent with our report to the Group Audit Committee. We were appointed as auditor of the Company by the Directors following its incorporation on 26 June 1998. Subsequent to the Company’s listing of its shares on the London Stock Exchange on 12 July 1999, we were reappointed as auditor of Old Mutual plc by the shareholders at its AGM on 18 May 2000. The period of total uninterrupted engagement is for the 18 years 8 months ended 31 December 2017 (17 years 7 months since the Company’s listing). We have fulfilled our ethical responsibilities under, and we remain independent of the Group in accordance with, UK ethical requirements including the FRC Ethical Standard as applied to listed public interest entities. No non-audit services prohibited by that standard were provided. 2 Key audit matters: our assessment of risks of material misstatement Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the financial statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. We summarise below the key audit matters (changed from 2016 to include Assets and liabilities held for sale and distribution and remove Investment in Ecobank Transnational Incorporated), in decreasing order of audit significance, in arriving at our audit opinion above, together with our key audit procedures to address those matters and, as required for public interest entities, our results from those procedures. These matters were addressed, and our results are based on procedures undertaken, in the context of, and solely for the purpose of, our audit of the financial statements as a whole, and in forming our opinion thereon, and consequently are incidental to that opinion, and we do not provide a separate opinion on these matters. 131 125 i F n a n c a s i l Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Group financial statements Independent Auditor’s Report to the Members of Old Mutual plc continued Life insurance contract liabilities Continuing: (£9,520 million; 2016: £9,982 million), classified as held for sale and distribution: (£625 million, 2016: £10 million). Risk vs 2016: ◄► Refer to page 81 (Report from the Group Audit Committee), pages 239 to 243 (accounting policy) and the disclosures in notes A3, A4, E and G6 to the financial statements. The risk Our response Subjective valuation Within the life businesses in Emerging Markets and Old Mutual Wealth, judgement is required over the variety of uncertain future outcomes affecting the valuation of policyholder liabilities, including the estimation of economic assumptions, such as investment return, discount rates, and operating assumptions such as, expenses, tax, mortality and persistency and the policy for creating and releasing discretionary margins held. Our procedures included:  Control design: Evaluating controls over the measurement and management of the Group’s calculation of insurance liabilities including their operating effectiveness.  Our sector experience: Assessing the appropriateness of methodologies and assumptions used against our own knowledge of the regulations, industry standards and market practice.  Our actuarial expertise: Using our own actuarial specialists to assist us in challenging certain assumptions and methodology used and the process followed for setting and updating these assumptions, particularly around mortality, morbidity, expense and persistency assumptions. This included assessing the data used in the Group’s analysis prepared to set the assumptions, in the context of our own industry knowledge, external data and our views of experience to date, an understanding of which was enhanced through our attendance at the Group’s own internal Independent Review Committee meetings. Further, we assess the Group’s analysis of movement in the results and, where appropriate, perform independent recalculations of specific liabilities.  Assessing transparency: Assessing whether the disclosures in relation to the life insurance contract liabilities are compliant with IFRS and with the methodologies applied by the directors. Our results  We found the valuation of policyholder liabilities to be acceptable (2016: acceptable). 132 126 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Gross loans and advances Continuing: (£1,456 million; 2016: £44,237 million), classified as held for sale and distribution: (£43,284 million, 2016: £nil). Provisions for impairment Continuing: (£174 million; 2016: £1,129 million), classified as held for sale and distribution: (£717 million, 2016: £nil). Risk vs 2016: ▲ Refer to page 81 (Report from the Group Audit Committee), pages 224 and 300 to 305 (accounting policy) and the disclosures in notes A3, E and G1 to the financial statements. The risk Our response Subjective estimate The loans and advances impairment assessment requires judgement and subjective assumptions, particularly the estimated stream of future cash flows and credit losses on the unsecured and commercial lending portfolios at Nedbank and Old Mutual Finance within Emerging Markets. Collective impairments are calculated using models which rely on expert judgement and large historical datasets. Overlays may be applied to model outputs to cater for additional factors, and the valuation of these overlays can be highly subjective within Nedbank. The Group’s loans and advances are primarily held in South Africa and the ongoing volatility of the wider economy in South Africa increases the risk of estimation uncertainty as well as macroeconomic issues such as the price of oil. Our procedures included:  Control design: Evaluating controls over the identification of impairment losses, the governance processes in place for credit models, inputs and overlays, the credit forums where key judgements are considered, and how the directors ensure they have appropriate oversight over allowances for loan impairments and other credit risk allowances including their operating effectiveness where possible.  Assessing forecasts: Testing the historical accuracy of impairment provision models by assessing the historical projections versus actual credit losses.  Our credit expertise and benchmarking assumptions: Our Nedbank and Emerging Markets component teams involved their own internal credit specialists to assist us in assessing significant impairment models employed by the Group and challenging the Group’s assumptions by comparing them to externally available data in relation to key inputs such as historical default rates, recovery rates, collateral valuation, and economic growth rates.  Our sector experience and tests of detail: Performing detailed testing over the specific provisions held against a sample of loans and advances by inspecting latest correspondence Credit Committee and Risk Committee minutes, challenging assumptions where relevant and assessing collateral values. We also attended the key Nedbank Credit Committee and Emerging Markets Risk Committee meetings.  Assessing transparency: Assessing whether the adequacy of the disclosures made in relation to loan loss provisioning is consistent with IFRS and with the methodologies applied by the directors. Our results  We found the level of provisions for impairment made and valuation of loans and advances to be acceptable (2016: acceptable). 133 127 i F n a n c a s l i Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Group financial statements Independent Auditor’s Report to the Members of Old Mutual plc continued Goodwill and other intangibles Continuing: (£397 million; 2016: £2,471 million), classified as held for sale and distribution: (£2,063 million, 2016: £1,294 million). Risk vs 2016: ▼ Refer to page 81 (Report from the Group Audit Committee), pages 259 to 263 (accounting policy) and the disclosures in notes A3, A4 and H1 to the financial statements. The risk Our response Forecast-based valuation Goodwill and other intangible assets (both acquired and internally generated) represent 0.2% (2016: 1.4%) of total assets of the Group and the determination of their recoverable amount is complex and typically requires a high level of judgement, taking into account the different economic environments in which the Group operates. Goodwill and other intangibles classified as held for sale and distribution represent 1.6% (2016: 15.1%) of total assets classified as held for sale and distribution. The most significant judgements arise over the forecast cash flows, discount rate and growth rate applied in the value-in-use valuation models. The risk has decreased in the current year due to significant goodwill impairments recognised by Emerging Markets management in both the prior year and the period ended 30 June 2017. There have been no impairment reversals in the year and hence there is headroom at year end, resulting in a lower risk assessment. Our procedures included:  Our sector experience: Challenging the cash flow forecasts and the corresponding assumptions, such as discount rates and growth rates based on our understanding of the relevant business and the industry and economic environment in which it operates. Additionally, comparing forecasts to business plans and also previous forecasts to actual results to assess the performance of the business and the accuracy of forecasting and considered the appropriateness of the scenarios used, in the context of our wider business understanding.  Sensitivity analysis: Performing sensitivity analyses on the key assumptions in Old Mutual Wealth and the cash generating units in Emerging Markets.  Our valuation expertise: Our Emerging Markets component team involved their own valuation specialists to assist us in evaluating the key assumptions and methodologies used by the Group, in particular those relating to discount rates, and growth rates, with reference to our own independent expectations, which were based on our industry knowledge and experience.  Assessing transparency: Assessing the adequacy of the disclosures regarding the sensitivity of the relevant financial statement items to changes in the respective key assumptions appropriately reflect the associated risks and comply with the requirements of relevant accounting standards. Our results  We found that the resulting estimate of the recoverable amount of goodwill was acceptable (2016: acceptable). 134 128 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Investments and securities Continuing: (£43,102 million; 2016: £100,388 million), classified as held for sale and distribution: (£73,818 million, 2016: £6,354 million). Risk vs 2016: ▲ Refer to page 82 (Report from the Group Audit Committee), pages 300 to 305 (accounting policy) and the disclosures in notes A4, E and G2 to the financial statements. The risk Our response Subjective valuation We do not consider investment and securities to include a high risk of significant misstatement, or to be subject to a significant level of judgement. However, due to their materiality in the context of the financial statements as a whole, they are considered to be one of the areas which had the greatest effect on our overall audit strategy and allocation of resources in planning and completing our audit. The determination of the fair value of certain financial instruments, held at fair value, is a key source of estimation uncertainty. This applies to both individual financial instruments and also to portfolio valuation adjustments. At 31 December 2017, investments and securities at fair value through profit or loss represented 23.8% (2016: 61.4% which is not required to be restated for those assets held for sale and distribution at 31 December 2017) of total assets, and available-for-sale assets represented 0.03% (2016: 0.6% which is not required to be restated for those assets held for sale and distribution at 31 December 2017) of total assets. At 31 December 2017, investments and securities at fair value through profit or loss classified as held for sale and distribution represented 60.6% (2016: nil%) of total assets classified as held for sale and distribution, and available-for- sale assets classified as held for sale and distribution represented 0.9% (2016: nil%) of total assets classified as held for sale and distribution. The estimation uncertainty is higher for those instruments that are classified as level 3 instruments under the relevant accounting standard, as significant elements of the valuation are not observable. Of the financial instruments carried at fair value, 2.8% (2016: 1.5%) were classified as level 3. Of the financial instruments carried at fair value classified as held for sale and distribution, 1.8% (2016: nil%) were classified as level 3. The risk has increased in the current year due to the ongoing volatility of the wider economy in South Africa increasing the risk of estimation uncertainty as well as macroeconomic issues such as the price of oil. Our procedures included:  Benchmarking assumptions and our sector experience: At 31 December 2017, level 1 and level 2 instruments primarily comprise listed equity and debt securities and unlisted equity and debt securities respectively. For these we selected a sample of these instruments and checked their prices or other observable inputs to independent sources. At 31 December 2017, level 3 instruments primarily comprise unlisted private equity investments and investment securities.  Our valuation expertise: Our Nedbank and Emerging Markets component teams involved their own valuation specialists to challenge the key inputs and assumptions such as estimated cash flows and discount rates which drive the valuation, and to critically assess the valuation methodologies against current market best practice. We considered sensitivities to key factors including:  Assessing the appropriateness of the pricing multiples available from comparable listed companies, adjusted for comparability differences, size and liquidity; and  Assessing the reasonableness of the cash flows and discount rates used by comparing them to similar instruments.  Assessing transparency: Assessing the adequacy of the disclosures including the description of the fair value measurement process and whether the sensitivity to key inputs appropriately reflects the Group’s exposure to financial instruments valuation risk Our results  We found the valuation of investments and securities to be acceptable (2016: acceptable). 135 129 i F n a n c a s l i Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Group financial statements Independent Auditor’s Report to the Members of Old Mutual plc continued Assets and liabilities held for sale and distribution Assets (£130,603 million; 2016: £8,570 million) Liabilities (£121,968 million; 2016: £7,046 million) Risk vs 2016: ▲ (new key audit matter) Refer to page 81 (Report from the Group Audit Committee), page 154 and 160 (accounting policy) and the disclosures in note A4 to the financial statements. The risk Our response Subjective outcome The application of accounting standards to determine the treatment of Nedbank and Old Mutual Wealth as held for distribution, is inherently subjective, particularly in determining whether the distribution is highly probable. The risk has increased from the prior year as it was not the directors’ intention to distribute either Nedbank or Old Mutual Wealth within twelve months of the previous year end. Our procedures included:  Evaluating directors' intent: Assessing and challenging the directors’ assumptions and judgements made behind their classification of both Nedbank and Old Mutual Wealth as held for distribution against the relevant criteria within the relevant accounting standard, including whether the distributions are highly probable to occur within twelve months of 31 December 2017 by evaluating the assumptions and judgements against our own expectations based on our knowledge of the Group and intent of the directors by attending and questioning key Board committee members. We reviewed supporting documentation to consider whether the high probability assessment was met at 31 December 2017, including the potential impacts that the remaining execution risks have on both distributions.  Enquiry of senior management and key Board committees: Performing enquiries with senior management and key Board committees on all significant assumptions made including whether Nedbank and Old Mutual Wealth are available for immediate distribution in their present condition and whether it is highly probable that the distributions will occur within 12 months of the balance sheet date and corroborating these assumptions by reviewing management’s accounting papers, including project plans, timelines, presentations to institutional investors and key Board committee meeting minutes such as the Managed Separation Steering Committee. Additionally, assessing whether the information obtained from the enquiries are consistent with our understanding of the directors’ intent or whether any disconfirming evidence exists.  Assessing transparency: Assessing the adequacy of the disclosures made in relation to the treatment of both Nedbank and Old Mutual Wealth as held for distribution. Our results  We found the group’s assessment of both Nedbank and Old Mutual Wealth being classified as held for distribution to be acceptable (2016: not applicable). 136 130 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Parent Company risks: Investments in Group subsidiaries (£4,150 million; 2016: £5,457 million) Risk vs 2016: ◄► Refer to page 82 (Report from the Group Audit Committee), pages 154 to 155 and 334 (accounting policy) and the disclosures in note 2 to the Company financial statements. The risk Our response Subjective valuation The carrying amount of the Parent Company’s investments in subsidiaries represents 57.4% (2016: 52.4%) of the Parent Company’s total assets. Their recoverability is not at a high risk of significant misstatement or subject to significant judgement. However, due to their materiality in the context of the Parent Company financial statements, this is considered to be the area that had the greatest effect on our overall Parent Company audit. Our procedures included:  Tests of detail: Comparing the carrying amount of a sample of the highest value investments, representing 65% (2016: 100%) of the total investment balance with the relevant subsidiaries’ draft balance sheets to identify whether their net assets, being an approximation of their minimum recoverable amount, were in excess of their carrying amount. Assessing the recoverable value for investments, representing 35% (2016: nil%) of the total investment balance using value-in-use models. Procedures performed over value-in-use models are described in the section on Goodwill and other intangibles above.  Assessing subsidiary audits: As Group auditors, assessing the work performed by the subsidiary audit teams over the net assets of those subsidiaries by reviewing subsidiary audit teams audit procedures and findings. Our results  We found the Company’s assessment of the recoverability of the investments in Group subsidiaries to be acceptable (2016: acceptable). We continue to perform procedures over Investment in Ecobank Transnational Incorporated. However, as the investment market value exceeded carrying value and management concluded that no objective indicators of further impairment or reversal of impairment existed at 31 December 2017, we have not assessed this as one of the most significant risks in our current year audit and, therefore, it is not separately identified in our report this year. 137 131 i F n a n c a s l i Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Group financial statements Independent Auditor’s Report to the Members of Old Mutual plc continued 3 Our application of materiality and an overview of the scope of our audit Materiality for the Group financial statements as a whole was set at £80 million (2016: £69 million), determined with reference to a benchmark of normalised Group profit before tax from continuing and discontinued operations of £2,037 million (2016: £1,667 million). As detailed in note C1 of the Group financial statements, this represents the Group’s profit before tax from continuing operations adjusted for the following items:  the effects of short-term market volatility such as short-term fluctuations in investment return and revaluation of Institutional Asset Management equity plans;  the effect of strategic choices and inorganic activity such as goodwill impairment, the impact of acquisition accounting and net profit/loss on disposal of subsidiaries, associated undertakings and strategic investments, dividends declared to holders of perpetual preferred callable securities, credit-related fair value losses on Group debt instruments, managed separation and business standalone costs, income/(expense) from resolution of plc Head Office pre-existing items, voluntary remediation to customers; and  the impact of significant one-off investments in organic growth such as Old Mutual Wealth restructuring expenditure. For those items excluded from normalised Group profit before tax, the component teams performed procedures on such items relating to their components. The Group is in the process of executing a managed separation into four independent businesses and at an appropriate point in the future, the Group, in its current structure, will no longer exist. We have not identified risks of material misstatement arising from the execution of managed separation for the audit of the financial statements for the year ended 31 December 2017 however, we consider the impact of managed separation in assessing our materiality. Materiality represents 3.9% (2016: 4.1%) of normalised Group profit before tax. Materiality was reassessed on a regular basis and this reassessment considered the impact of the execution of the managed separation of the Group on its normalised Group profit before tax. Materiality for the Parent Company financial statements as a whole was set at £20 million (2016: £20 million), based on component materiality. This is lower than the materiality we would otherwise have determined by reference to total assets, and represents 0.3% (2016: 0.2%) of the Parent Company’s total assets. We agreed to report to the Group Audit Committee any corrected or uncorrected identified misstatements exceeding £4 million (2016: £3.4 million), in addition to other identified misstatements that warranted reporting on qualitative grounds. Scope – Group Of the group’s six (2016: six) reporting components, being Emerging Markets, Old Mutual Wealth, Nedbank, Old Mutual Bermuda, plc Head Office businesses and OMLAC(SA) branches (2016: Emerging Markets, Old Mutual Wealth, Nedbank, Institutional Asset Management, Old Mutual Bermuda and plc Head Office businesses), we subjected six (2016: six) to full scope audits for group purposes. The component audit teams at each of the components undertook their own scoping exercises, with oversight from the Group team, to gain sufficient audit coverage to support their own reporting to the Group team. The component teams performed procedures on those items excluded from normalised Group profit before tax. The components scoped in for Group reporting purposes accounted for 100% (2016: 100%) of total Group revenues; 100% (2016: 100%) of Group profit before tax; and 100% (2016: 100%) of Group total assets. The Group team instructed component auditors as to the significant areas to be covered, including the relevant risks detailed above and the information to be reported back. The Group team approved the component materialities, which ranged from £20 million to £45 million (2016: £20 million to £45 million), having regard to the mix of size and risk profile of the Group across the components. The work on six of the six components (2016: six of the six components) was performed by component auditors. The Group team visited four component locations in Cape Town, Johannesburg and two in London (2016: four component locations in Cape Town, Johannesburg and two in London and met one component from the US in the UK for planning and risk assessment meetings) to assess the audit risk and strategy. The group audit team maintained regular communication with the component auditors at these locations throughout the audit cycle to discuss work progress and identify matters of relevance to our audit of the Group financial statements. At these visits and meetings, the findings and status of any issues reported to the Group team was discussed in detail, and any further work required by the Group team was then performed by the component auditor. The Senior Statutory Auditor, in conjunction with other senior staff in the Group team, also attended Group Audit Committee meetings held at the significant components to understand key risks and audit issues at a component level which may have affected the Group financial statements. Telephone conference meetings were also held with these component auditors and all the others that were not physically visited. 138 132 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Scope – disclosure of IFRS 9 effect The Group is adopting IFRS 9 Financial Instruments from 1 January 2018 and has included an estimate of the financial impact of the change in accounting standard, for the parts of the Group most affected, in accordance with IAS 8 Changes in Accounting Estimates and Errors as set out in note A7 on pages 166 to 169. This disclosure notes that the Group continues to refine its expected credit loss model and embed its operational processes which may change the actual impact on adoption. While further testing of the financial impact will be performed as part of our 2018 year end audit, we have performed sufficient audit procedures for the purposes of assessing the disclosures made in accordance with IAS 8. Specifically for Nedbank, we have:  considered the appropriateness of key technical decisions, judgements, assumptions and elections made by management;  considered key classification and measurement decisions, including business model assessments and Solely Payment of Principal and Interest (SPPI) outcomes;  involved credit risk modelling and economic specialists in the consideration of credit risk modelling decisions and macroeconomic variables, including forward economic guidance and generation of multiple economic scenarios; and  considered transitional controls and governance processes related to the valuation and approval of the estimated transitional impact. 4 We have nothing to report on going concern We are required to report to you if:  we have anything material to add or draw attention to in relation to the directors’ statement in note A1 to the financial statements on the use of the going concern basis of accounting with no material uncertainties that may cast significant doubt over the Group and the Parent Company’s use of that basis for a period of at least twelve months from the date of approval of the financial statements; or  the related statement under the Listing Rules set out on pages 92 to 93 is materially inconsistent with our audit knowledge. We have nothing to report in these respects. 5 We have nothing to report on the other information in the Annual Report and Accounts The directors are responsible for the other information presented in the Annual Report together with the financial statements. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except as explicitly stated below, any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether, based on our financial statements audit work, the information therein is materially misstated or inconsistent with the financial statements or our audit knowledge. Based solely on that work we have not identified material misstatements in the other information. Strategic Report and Directors' Report Based solely on our work on the other information:  we have not identified material misstatements in the Strategic Report and the Directors’ Report;  in our opinion the information given in those reports for the financial year is consistent with the financial statements; and  in our opinion those reports have been prepared in accordance with the Companies Act 2006. Directors' Remuneration Report In our opinion the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006. Disclosures of principal risks and longer-term viability Based on the knowledge we acquired during our financial statements audit, we have nothing material to add or draw attention to in relation to:  the directors’ confirmation within the Directors’ Viability Statement on pages 92 to 93 that they have carried out a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency and liquidity;  the Principal Risks disclosures describing these risks and explaining how they are being managed and mitigated; and  the directors’ explanation in the Directors’ Viability Statement of how they have assessed the prospects of the Group, over what period they have done so and why they considered that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions. Under the Listing Rules we are required to review the Directors’ Viability Statement. We have nothing to report in this respect. 139 133 i F n a n c a s l i Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Group financial statements Independent Auditor’s Report to the Members of Old Mutual plc continued Corporate governance disclosures We are required to report to you if:  we have identified material inconsistencies between the knowledge we acquired during our financial statements audit and the directors’ statement that they consider that the annual report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s position and performance, business model and strategy; or  the section of the annual report describing the work of the Group Audit Committee does not appropriately address matters communicated by us to the Group Audit Committee. We are required to report to you if the Corporate Governance Statement does not properly disclose a departure from the eleven provisions of the UK Corporate Governance Code specified by the Listing Rules for our review. We have nothing to report in these respects. 6 We have nothing to report on the other matters on which we are required to report by exception Under the Companies Act 2006, we are required to report to you if, in our opinion:  adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or  the Parent Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns; or  certain disclosures of directors’ remuneration specified by law are not made; or  we have not received all the information and explanations we require for our audit. We have nothing to report in these respects. 7 Respective responsibilities Directors' responsibilities As explained more fully in their statement set out on page 130, the directors are responsible for: the preparation of the financial statements including being satisfied that they give a true and fair view; such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; assessing the Group and Parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of accounting unless they either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so. Auditor's responsibilities Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or other irregularities (see below), or error, and to issue our opinion in an auditor’s report. Reasonable assurance is a high level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud, other irregularities or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. A fuller description of our responsibilities is provided on the FRC's website at www.frc.org.uk/auditorsresponsibilities. 140 134 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Irregularities – ability to detect We identified areas of laws and regulations that could reasonably be expected to have a material effect on the financial statements from out sector experience, through discussion with the directors and other management (as required by auditing standards), and from inspection of the Group’s regulatory, and legal correspondence. We had regard to laws and regulations in areas that directly affect the financial statements including financial reporting (including related company legislation) and taxation legislation. We considered the extent of compliance with those laws and regulations as part of our procedures on the related financial statement items. In addition we considered the impact of laws and regulations in the specific areas of regulatory capital and liquidity, conduct and financial crime recognising the financial and regulated nature of the Group’s activities. With the exception of any known or possible non-compliance, and as required by auditing standards, our work in respect of these was limited to enquiry of directors and other management and inspection of regulatory correspondence. We considered the effect of any known or possible non-compliance in these areas as part of our procedures on the related financial statement items. We communicated identified laws and regulations throughout our team and remained alert to any indications of non-compliance throughout the audit. This included communication from the Group to component audit teams with a request to report on any instances of non-compliance with laws and regulations including illegal acts at the component or Group level. As with any audit, there remained a higher risk of non-detection of irregularities, as these may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. 8 The purpose of our audit work and to whom we owe our responsibilities This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members, as a body, for our audit work, for this report, or for the opinions we have formed. Jonathan Holt (Senior Statutory Auditor) for and on behalf of KPMG LLP, Statutory Auditor Chartered Accountants 15 Canada Square London E14 5GL 14 March 2018 141 135 i F n a n c a s i l Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Group financial statements Consolidated income statement For the year 31 December Continuing operations Revenue Gross earned premiums Outward reinsurance Net earned premiums Investment return (non-banking) Banking interest and similar income Banking trading, investment and similar income Fee and commission income, and income from service activities Other income Total revenue Expenses Claims and benefits (including change in insurance contract provisions) Reinsurance recoveries Net claims and benefits incurred Change in investment contract liabilities Credit impairment charges Finance costs Banking interest payable and similar expenses Fee and commission expenses, and other acquisition costs Change in third-party interest in consolidated funds Other operating and administrative expenses Total expenses Share of associated undertakings' and joint ventures' profit after tax Profit on disposal of subsidiaries, associated undertakings and strategic investments Profit before tax Income tax expense Profit from continuing operations after tax Discontinued operations Profit from discontinued operations after tax Profit after tax for the financial year Attributable to Equity holders of the parent Non-controlling interests Ordinary shares Preferred securities Profit after tax for the financial year Earnings per ordinary share Basic earnings per share – continuing operations (pence) Basic earnings per share – discontinued operations (pence) Basic earnings per ordinary share (pence) Diluted earnings per share – continuing operations (pence) Diluted earnings per share – discontinued operations (pence) Diluted basic earnings per ordinary share (pence) Notes 2017 £m 2016 (Restated)¹ B2 D2 D3 D4 D5 D6 D7 D8 D9 I2(a) C1(c) D1(a) A4.1(a) H10(a)(i) H10(a)(ii) C2(a) C2(b) 4,225 (391) 3,834 5,477 256 6 673 110 10,356 (5,350) 315 (5,035) (1,770) (42) (234) (75) (524) (665) (1,576) (9,921) 9 173 617 (240) 377 881 1,258 909 315 34 1,258 8.0 11.3 19.3 7.9 11.0 18.9 3,726 (314) 3,412 1,879 229 14 565 63 6,162 (3,483) 222 (3,261) (545) (44) (128) (90) (425) (117) (1,269) (5,879) 10 13 306 (142) 164 681 845 570 253 22 845 3.5 8.5 12.0 3.5 8.2 11.7 1 Other operating and administrative expenses for the year ended 31 December 2016 of £80 million have been reallocated from other operating and administrative expenses to fee and commission expenses, and other acquisition costs. In addition, the earnings per share amounts for the year ended 31 December 2016 have been restated in relation to own shares held by consolidated investment funds. Refer to note B1 for more information. The year ended 31 December 2016 has also been re-presented to reflect Nedbank and Old Mutual Wealth as discontinued operations. Refer to note A4 for more information. 142 136 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Consolidated statement of comprehensive income Consolidated statement of comprehensive income Property revaluations Property revaluations Continuing operations Profit after tax for the financial year Other comprehensive income for the financial year Continuing operations Items that will not be reclassified subsequently to profit or loss Profit after tax for the financial year Fair value movements Other comprehensive income for the financial year Items that will not be reclassified subsequently to profit or loss Measurement losses on defined benefit plans Fair value movements Shadow accounting2 Income tax on items that will not be reclassified subsequently to profit or loss Measurement losses on defined benefit plans Shadow accounting2 Items that may be reclassified subsequently to profit or loss Income tax on items that will not be reclassified subsequently to profit or loss Fair value movements Net investment hedge Items that may be reclassified subsequently to profit or loss Available-for-sale investments Fair value movements Fair value gain/(losses) Net investment hedge Currency translation differences on translating foreign operations Available-for-sale investments Exchange differences and other reserves recycled to profit or loss on disposal of businesses Fair value gain/(losses) Realisation of net investment hedge on sale of a subsidiary Currency translation differences on translating foreign operations Other movements Exchange differences and other reserves recycled to profit or loss on disposal of businesses Income tax on items that may be reclassified subsequently to profit or loss Realisation of net investment hedge on sale of a subsidiary Other movements Total other comprehensive income for the financial year from continuing operations Income tax on items that may be reclassified subsequently to profit or loss Discontinued operations Total other comprehensive income for the financial year from discontinued operations after tax Total other comprehensive income for the financial year from continuing operations Total other comprehensive income for the financial year Discontinued operations Total other comprehensive income for the financial year from discontinued operations after tax Total comprehensive income for the financial year Total other comprehensive income for the financial year Notes Notes D1(c) D1(c) A4.1(b) A4.1(b) £m 2016 (Re-presented)¹ £m 2016 845 (Re-presented)¹ 845 6 (6) (7) 6 2 (6) (5) (7) 2 (5) (104) (1) (104) 2,049 – (1) – 2,049 (8) – 4 – 1,940 (8) 1,935 4 1,940 (182) 1,935 1,753 (182) 2,598 1,753 2,598 1,798 2017 1,258 2017 1,258 8 (56) (9) 8 (6) (56) (63) (9) (6) (63) 26 3 26 (54) (149) 3 156 (54) (15) (149) 3 156 (30) (15) (93) 3 (30) 5 (93) (88) 5 1,170 (88) 1,170 813 i i F n a n c F a n s a n c a s i l l i Attributable to Total comprehensive income for the financial year Equity holders of the parent Non-controlling interests Attributable to Ordinary shares Equity holders of the parent Preferred securities Non-controlling interests Total comprehensive income for the financial year Ordinary shares 778 1,798 22 2,598 778 22 1 The year ended 31 December 2016 has been re-presented to reflect Nedbank and Old Mutual Wealth as discontinued operations. Refer to note A2 and note A4 for 2,598 Total comprehensive income for the financial year 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 1 The year ended 31 December 2016 has been re-presented to reflect Nedbank and Old Mutual Wealth as discontinued operations. Refer to note A2 and note A4 for 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. more information 323 813 34 1,170 323 34 1,170 Preferred securities 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. 143 137 137 Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Statement of adjusted operating profit Statement of adjusted operating profit Adjusted operating profit (AOP) after tax attributable to ordinary equity holders of the parent ordinary equity holders of the parent Core operations Adjusted operating profit (AOP) after tax attributable to Emerging Markets Nedbank Core operations Old Mutual Wealth Emerging Markets Nedbank Institutional Asset Management Old Mutual Wealth plc Head Office Old Mutual plc finance costs Institutional Asset Management Corporate costs (before recharges) plc Head Office Other net shareholder expenses Old Mutual plc finance costs Adjusted operating profit before tax Corporate costs (before recharges) Tax on adjusted operating profit Other net shareholder expenses Adjusted operating profit after tax Adjusted operating profit before tax Non-controlling interests – ordinary shares Tax on adjusted operating profit Non-controlling interests – preferred securities Adjusted operating profit after tax Adjusted operating profit after tax attributable to ordinary equity holders of the parent Non-controlling interests – ordinary shares Adjusted weighted average number of shares (millions) Non-controlling interests – preferred securities Adjusted operating earnings per share (pence) Adjusted operating profit after tax attributable to ordinary equity holders of the parent Adjusted weighted average number of shares (millions) Adjusted operating earnings per share (pence) Reconciliation of adjusted operating profit to profit after tax attributable to the equity holders of the parent Notes B3 Notes B3 B3 B3 B3 B3 B3 B3 B3 D1(d) B3 D1(d) C2(a) C2(c) C2(a) C2(c) Notes to the equity holders of the parent Adjusted operating profit after tax attributable to ordinary equity holders of the parent Reconciliation of adjusted operating profit to profit after tax attributable Adjusting items net of tax and non-controlling interest Non-core operations Adjusted operating profit after tax attributable to ordinary equity holders of the parent Profit after tax attributable to the equity holders of the parent Adjusting items net of tax and non-controlling interest Non-core operations 1 The statement of adjusted operating profit for year ended 31 December 2016 has been re-presented to be on a consistent basis with the year ended 31 December 2017. Profit after tax attributable to the equity holders of the parent 1 The statement of adjusted operating profit for year ended 31 December 2016 has been re-presented to be on a consistent basis with the year ended 31 December 2017. During the current year, the results of Institutional Asset Management have been disclosed separately from core operations. The long-term investment return on excess assets (2017: £20 million; 2016: £20 million), previously shown as a separate item within the AOP of plc Head Office is now included in AOP of Emerging Markets for all years. Corporate costs are now presented before recharges to the businesses (2017: £4 million; 2016: £19 million) and the related recharge income for the plc Head Office is now included within During the current year, the results of Institutional Asset Management have been disclosed separately from core operations. The long-term investment return on excess assets Other net shareholder income/(expenses). These changes did not affect the total AOP of the Group as previously reported. All of these changes are intended to improve the (2017: £20 million; 2016: £20 million), previously shown as a separate item within the AOP of plc Head Office is now included in AOP of Emerging Markets for all years. Corporate transparency of the impact of managed separation on the operating result. Further explanation of these presentational changes can be found in the basis of preparation of costs are now presented before recharges to the businesses (2017: £4 million; 2016: £19 million) and the related recharge income for the plc Head Office is now included within adjusted operating profit. Other net shareholder income/(expenses). These changes did not affect the total AOP of the Group as previously reported. All of these changes are intended to improve the transparency of the impact of managed separation on the operating result. Further explanation of these presentational changes can be found in the basis of preparation of adjusted operating profit. C1(a) Notes B3 C1(a) B3 £m 2016 (Re-presented)¹ £m 2016 639 (Re-presented)¹ 799 260 639 1,698 799 141 260 1,698 (88) 141 (79) (5) (88) 1,667 (79) (398) (5) 1,269 1,667 (319) (398) (22) 1,269 928 (319) 4,773 (22) 19.4 928 4,773 £m 19.4 2016 (Re-presented)¹ £m 928 2016 (353) (Re-presented)¹ (5) 928 570 (353) (5) 570 2017 777 2017 963 363 777 2,103 963 64 363 2,103 (66) 64 (58) (6) (66) 2,037 (58) (477) (6) 1,560 2,037 (364) (477) (34) 1,560 1,162 (364) 4,776 (34) 24.3 1,162 4,776 24.3 2017 1,162 (277) 2017 24 1,162 909 (277) 24 909 144 138 138 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Basis of preparation of adjusted operating profit (AOP) Purpose of AOP Adjusted operating profit (AOP) is an Alternative Profit Measure used alongside IFRS profit to assess underlying business performance. It is a non-IFRS measure of profitability that reflects the Directors’ view of the underlying long-term performance of the Group. The calculation of AOP adjusts the IFRS profit for a number of items as detailed in note C1. AOP 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. Further detail of the performance measures applied in determining management remuneration is available in the remuneration report in pages 97 to 128 of the 2017 Annual Report and Accounts. Management believes that AOP is an appropriate alternative basis by which to assess the underlying operating results of these businesses and the Group as a whole and that it enhances the comparability and understanding of the financial performance of the Group. The adjustments applied to the IFRS profit of the Group in order to calculate AOP remove the impact of strategic activity, fluctuation in shareholder revalued investments, certain IFRS accounting treatments, significant one-off expenses related to implementing managed separation, resolution of pre-existing plc Head Office items and actions to provide customer redress in light of the recommendations of the Financial Conduct Authority (FCA) thematic review in the United Kingdom. The adjustments to IFRS profit intends to remove the impact of strategic activities and include the exclusion of the impairment of goodwill, the impact of accounting for intangible assets acquired in a business combination, costs related to completed acquisitions, impairments of investments in associated undertakings and the profit or loss on disposal of subsidiaries. Further detail can be found in notes C1(b) and C1(c). The adjustment to reflect long-term shareholder investment returns is described in note C1(d). A description of the adjustment to exclude fair value gains and losses on Group debt instruments is included in note C1(h). More details on the revaluations of put options related to long-term incentive schemes in IAM is included in note C1(g). Certain IFRS accounting treatments that are not deemed to be reflective of the underlying operating performance of the business are excluded from the determination of AOP. These include the inclusion of dividends declared to holders of perpetual preferred callable securities (note C1(f)), short-term fluctuations in investment return on shareholder assets (note C1(d)) and the inclusion of returns on investments held by life and consolidated investment funds in Group equity and debt instruments (note C1(e)). Old Mutual Wealth business transformation costs related to the development of Old Mutual Wealth platform capability and outsourcing of UK business administration and continue to be excluded from AOP. These costs are excluded from AOP because management is of the view that this investment in operational capability is capital in nature, and is not reflective of the long-term cost. (note C1(k)). The Group Audit Committee regularly reviews the approach to determining AOP to confirm that it remains an appropriate basis on which to analyse the operating performance of the businesses. The Committee assesses refinements to the policy on a case-by-case basis, and where possible the Group seeks to minimise such changes and maintain consistency over time. 145 139 i F n a n c a s i l Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Statement of adjusted operating profit continued Statement of adjusted operating profit continued Scope of businesses included in AOP AOP excludes the results of non-core operations. At the current time the only such operation is that of Old Mutual Bermuda. Old Mutual Bermuda is closed to new business and in run off and as such its activity is not envisaged to form part of the of the underlying long-term Scope of businesses included in AOP operating performance of the Group. Refer to note B1 for further information on the basis of segmentation. AOP excludes the results of non-core operations. At the current time the only such operation is that of Old Mutual Bermuda. Old Mutual Bermuda is closed to new business and in run off and as such its activity is not envisaged to form part of the of the underlying long-term The results of Old Mutual Wealth and Nedbank that are currently classified as held for distribution and as discontinued operations in operating performance of the Group. Refer to note B1 for further information on the basis of segmentation. the IFRS consolidated income statement, have been included in the determination of AOP as it reflects the contribution made by these businesses to the Group result for the year. The consolidated result (from 1 January 2017 to 19 May 2017) and equity accounted results The results of Old Mutual Wealth and Nedbank that are currently classified as held for distribution and as discontinued operations in (20 May 2017 to 30 June 2017) of Institutional Asset Management have been included in the determination of AOP up to and including the IFRS consolidated income statement, have been included in the determination of AOP as it reflects the contribution made by these the date that the investment in the associate was classified as held for sale on 30 June 2017. businesses to the Group result for the year. The consolidated result (from 1 January 2017 to 19 May 2017) and equity accounted results (20 May 2017 to 30 June 2017) of Institutional Asset Management have been included in the determination of AOP up to and including In the context of the managed separation strategy for the business, the Directors believe the continued inclusion of the results of the the date that the investment in the associate was classified as held for sale on 30 June 2017. businesses presented as discontinued operations in AOP assists with the comparability of year-on-year performance. In the context of the managed separation strategy for the business, the Directors believe the continued inclusion of the results of the Changes in AOP presentation during the year businesses presented as discontinued operations in AOP assists with the comparability of year-on-year performance. AOP is presented on a consistent basis with the year ended 31 December 2016, except for the following: Changes in AOP presentation during the year  The results of Institutional Asset Management has been disclosed separately from core businesses in the statement of adjusted AOP is presented on a consistent basis with the year ended 31 December 2016, except for the following:  The results of Institutional Asset Management has been disclosed separately from core businesses in the statement of adjusted  The long-term investment return on excess assets, previously shown as a separate item within the AOP of plc Head Office is now operating profit (AOP statement). This provides improved transparency of the results of the continuing businesses that will be separately listed following the execution of the managed separation strategy. operating profit (AOP statement). This provides improved transparency of the results of the continuing businesses that will be separately included in the AOP of Emerging Markets for all periods presented. This is consistent with where the excess assets are managed and listed following the execution of the managed separation strategy. where returns will be recognised following managed separation.  The long-term investment return on excess assets, previously shown as a separate item within the AOP of plc Head Office is now  Corporate costs are now presented before recharges to the businesses. The related recharge income received by the Old Mutual plc included in the AOP of Emerging Markets for all periods presented. This is consistent with where the excess assets are managed and Head Office is now included within other net shareholder income/(expenses). where returns will be recognised following managed separation. Head Office is now included within other net shareholder income/(expenses).  Corporate costs are now presented before recharges to the businesses. The related recharge income received by the Old Mutual plc Comparative information was re-presented to be consistent with the treatment of the items described above. These re-presentations of AOP do not alter the AOP result as previously reported. Comparative information was re-presented to be consistent with the treatment of the items described above. These re-presentations of AOP do not alter the AOP result as previously reported. 146 140 140 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Changes in AOP policy during the year For the year ended 31 December 2017, managed separation and business standalone costs recognised in the IFRS income statement have been excluded from the calculation of AOP on the basis that these items are one-off in nature and are not reflective of the underlying operating activity of the Group. These costs include the cost of winding down the plc Head Office, preparing the businesses for being standalone businesses and transaction advice. Comparative information has not been re-presented in respect of similar costs incurred during the year ended 31 December 2016 totalling £31 million. Further disclosure on managed separation costs is included in note C1(i) of these financial statements. For the year ended 31 December 2017, income/(expenses) from resolution of pre-existing plc Head Office items recognised in the IFRS income statement have been excluded from the calculation of AOP. These items are one-off in nature and are not reflective of the underlying operating activity of the Group. Comparative information has not been re-presented (2016: £nil). Further disclosure of the income/(expenses) related to resolution of pre-existing plc Head Office items is included in note C1(j). As detailed in note F5, the Group has provided £69 million (2016: £nil) in respect of voluntary customer remediation following the recommendations of a thematic review by the Financial Conduct Authority (FCA). The provision for these costs has been recognised in the IFRS consolidated statement of financial position on the basis that the business is demonstrably committed to these costs. For the purposes of AOP, these costs have been excluded on the basis that they relate to redress for charges levied in the past, rather than reductions in future customer charges (note C1(l)). Adjusted Operating Profit per share Adjusted operating earnings applied in the calculation of adjusted operating earnings per share is calculated based on AOP after tax and non-controlling interests. It is adjusted to exclude income attributable to Black Economic Empowerment trusts of listed subsidiaries. The calculation of the adjusted weighted average number of shares includes own shares held in policyholders’ funds and Black Economic Empowerment trusts. 147 141 i F n a n c a s i l Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Consolidated statement of financial position Group financial statements Consolidated statement of financial position Consolidated statement of financial position At 31 December At 31 December 2017 Notes Notes H1 H1 Notes H2(a) H2(b) H2(a) H1 H7 H2(b) I2 H7 H2(a) H3 I2 H2(b) G6 H3 H7 G1 G6 I2 G2 G1 H3 G2 G6 H4 G1 G4 H4 G2 G4 A4.2 H4 A4.2 G4 At 31 December Assets Goodwill and other intangible assets Assets Mandatory reserve deposits with central banks Goodwill and other intangible assets Property, plant and equipment Mandatory reserve deposits with central banks Assets Investment property Property, plant and equipment Goodwill and other intangible assets Deferred tax assets Investment property Mandatory reserve deposits with central banks Investments in associated undertakings and joint ventures Deferred tax assets Property, plant and equipment Deferred acquisition costs Investments in associated undertakings and joint ventures Investment property Reinsurers' share of policyholder liabilities Deferred acquisition costs Deferred tax assets Loans and advances Reinsurers' share of policyholder liabilities Investments in associated undertakings and joint ventures Investments and securities Loans and advances Deferred acquisition costs Current tax receivable Investments and securities Reinsurers' share of policyholder liabilities Trade, other receivables and other assets Current tax receivable Loans and advances Derivative financial instruments Trade, other receivables and other assets Investments and securities Cash and cash equivalents Derivative financial instruments Current tax receivable Assets held for sale and distribution Cash and cash equivalents Trade, other receivables and other assets Total assets Assets held for sale and distribution Derivative financial instruments Total assets Cash and cash equivalents Liabilities Assets held for sale and distribution Life insurance contract liabilities Liabilities Total assets Investment contract liabilities Life insurance contract liabilities Property & casualty liabilities Investment contract liabilities Liabilities Third-party interests in consolidated funds Property & casualty liabilities Life insurance contract liabilities Borrowed funds Third-party interests in consolidated funds Investment contract liabilities Provisions and accruals Borrowed funds Property & casualty liabilities Deferred revenue Provisions and accruals Third-party interests in consolidated funds Deferred tax liabilities Deferred revenue Borrowed funds Current tax payable Deferred tax liabilities Provisions and accruals Trade, other payables and other liabilities Current tax payable Deferred revenue Amounts owed to bank depositors Trade, other payables and other liabilities Deferred tax liabilities Derivative financial instruments Amounts owed to bank depositors Current tax payable Liabilities held for sale and distribution Derivative financial instruments Trade, other payables and other liabilities Total liabilities Liabilities held for sale and distribution Amounts owed to bank depositors Net assets Total liabilities Derivative financial instruments Net assets Liabilities held for sale and distribution Shareholders' equity Total liabilities Equity attributable to equity holders of the parent Shareholders' equity Net assets Non-controlling interests Equity attributable to equity holders of the parent Ordinary shares Non-controlling interests Shareholders' equity Preferred securities Ordinary shares Equity attributable to equity holders of the parent Total non-controlling interests Preferred securities Non-controlling interests Total equity Total non-controlling interests Ordinary shares Total equity Preferred securities 1 During 2017 the Group performed a further analysis of the investment and securities held by consolidated investment funds which resulted in the identification of 64 million Old Total non-controlling interests 1 During 2017 the Group performed a further analysis of the investment and securities held by consolidated investment funds which resulted in the identification of 64 million Old Total equity £m 2016 £m (Restated)¹ 2016 (Restated)¹ £m 2,471 2016 1,111 2,471 (Restated)¹ 892 1,111 1,697 892 2,471 96 1,697 1,111 542 96 892 756 542 1,697 3,115 756 96 43,108 3,115 542 100,388 43,108 756 74 100,388 3,115 2,416 74 43,108 1,340 2,416 100,388 4,847 1,340 74 8,570 4,847 2,416 171,423 8,570 1,340 171,423 4,847 8,570 9,982 171,423 77,599 9,982 482 77,599 7,981 482 9,982 4,694 7,981 77,599 160 4,694 482 290 160 7,981 440 290 4,694 144 440 160 5,112 144 290 45,309 5,112 440 1,161 45,309 144 7,046 1,161 5,112 160,400 7,046 45,309 11,023 160,400 1,161 11,023 7,046 160,400 7,909 11,023 7,909 2,773 341 2,773 7,909 3,114 341 11,023 3,114 2,773 11,023 341 3,114 Mutual plc shares at 31 December 2017 (2016: 61 million; 2015: 51 million shares) held by these funds. These shares in Old Mutual plc have been treated as treasury shares and consequentially resulted in a direct decrease in the value of equity and the value of investment and securities of £163 million (2016: £145 million). Comparative information in the 11,023 Mutual plc shares at 31 December 2017 (2016: 61 million; 2015: 51 million shares) held by these funds. These shares in Old Mutual plc have been treated as treasury shares and consolidated statement of financial position, consolidated statement of changes in equity and Comparative information in the consolidated statement of financial position – segment consequentially resulted in a direct decrease in the value of equity and the value of investment and securities of £163 million (2016: £145 million). Comparative information in the information at 31 December 2016 (note B4) have been restated accordingly. An opening adjustment of £116 million was recognised directly in reserves at 1 January 2016. Related consolidated statement of financial position, consolidated statement of changes in equity and Comparative information in the consolidated statement of financial position – segment amounts in the consolidated income statement for the year ended 31 December 2016 have not been restated. Mutual plc shares at 31 December 2017 (2016: 61 million; 2015: 51 million shares) held by these funds. These shares in Old Mutual plc have been treated as treasury shares and information at 31 December 2016 (note B4) have been restated accordingly. An opening adjustment of £116 million was recognised directly in reserves at 1 January 2016. Related consequentially resulted in a direct decrease in the value of equity and the value of investment and securities of £163 million (2016: £145 million). Comparative information in the amounts in the consolidated income statement for the year ended 31 December 2016 have not been restated. consolidated statement of financial position, consolidated statement of changes in equity and Comparative information in the consolidated statement of financial position – segment information at 31 December 2016 (note B4) have been restated accordingly. An opening adjustment of £116 million was recognised directly in reserves at 1 January 2016. Related amounts in the consolidated income statement for the year ended 31 December 2016 have not been restated. 2017 397 6 397 2017 482 6 1,904 482 397 65 1,904 6 107 65 482 184 107 1,904 252 184 65 1,282 252 107 43,102 1,282 184 63 43,102 252 1,304 63 1,282 245 1,304 43,102 1,836 245 63 130,603 1,836 1,304 181,832 130,603 245 181,832 1,836 130,603 9,520 181,832 28,740 9,520 494 28,740 4,868 494 9,520 1,126 4,868 28,740 142 1,126 494 82 142 4,868 304 82 1,126 102 304 142 2,529 102 82 742 2,529 304 268 742 102 121,968 268 2,529 170,885 121,968 742 10,947 170,885 268 10,947 121,968 170,885 8,128 10,947 8,128 2,442 377 2,442 8,128 2,819 377 10,947 2,819 2,442 10,947 377 2,819 10,947 The consolidated financial statements on pages 142 to 329 were approved by the Board of Directors on 14 March 2018. The consolidated financial statements on pages 142 to 329 were approved by the Board of Directors on 14 March 2018. A4.2 G6 G6 G6 G6 G6 G6 G6 G7 G6 H5 G7 G6 H6 H5 H7 H6 G7 H7 H5 H8 H6 G8 H8 H7 G4 G8 A4.2 G4 H8 A4.2 G8 G4 A4.2 1 During 2017 the Group performed a further analysis of the investment and securities held by consolidated investment funds which resulted in the identification of 64 million Old H10(b)(i) H10(b)(ii) H10(b)(i) H10(b)(ii) H10(b)(i) H10(b)(ii) The consolidated financial statements on pages 142 to 329 were approved by the Board of Directors on 14 March 2018. Bruce Hemphill Bruce Hemphill Group Chief Executive Group Chief Executive Bruce Hemphill Group Chief Executive Ingrid Johnson Ingrid Johnson Group Finance Director Group Finance Director Ingrid Johnson Group Finance Director 142 148 142 142 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Consolidated statement of cash flows Consolidated statement of cash flows For the year ended 31 December For the year ended 31 December Cash flows from operating activities Profit before tax Non-cash movements in profit before tax Cash flows from operating activities Net changes in working capital Profit before tax Taxation paid Non-cash movements in profit before tax Net cash inflow from operating activities – continuing operations Net changes in working capital Cash flows from investing activities Taxation paid Net acquisitions of financial investments Net cash inflow from operating activities – continuing operations Acquisition of investment properties Cash flows from investing activities Proceeds from disposal of investment properties Net acquisitions of financial investments Dividends received from associated undertakings Acquisition of investment properties Acquisition of property, plant and equipment Proceeds from disposal of investment properties Proceeds from disposal of property, plant and equipment Dividends received from associated undertakings Acquisition of intangible assets Acquisition of property, plant and equipment Acquisition of interests in subsidiaries, associated undertakings Proceeds from disposal of property, plant and equipment Acquisition of intangible assets Proceeds from the disposal of interests in subsidiaries, associated Acquisition of interests in subsidiaries, associated undertakings undertakings joint ventures and strategic investments joint ventures and strategic investments joint ventures and strategic investments Notes Notes £m 2016 (Re-presented)¹ £m 2016 306 (Re-presented)¹ 335 168 306 (201) 335 608 168 (201) (446) 608 (83) 8 (446) 1 (83) (38) 8 2 1 (29) (38) 2 (61) (29) 2017 617 2017 871 (489) 617 (229) 871 770 (489) (229) (294) 770 (358) 4 (294) 4 (358) (39) 4 14 4 (44) (39) 14 (90) (44) i i F n a n c F a n s a n c a s i l i l undertakings joint ventures and strategic investments Net cash outflow from investing activities – continuing operations Proceeds from the disposal of interests in subsidiaries, associated Cash flows from financing activities Dividends paid to: Net cash outflow from investing activities – continuing operations Ordinary equity holders of the Company Cash flows from financing activities Non-controlling interests and preferred security interests Dividends paid to: Interest paid (excluding banking interest paid) Ordinary equity holders of the Company Proceeds from issue of ordinary shares Non-controlling interests and preferred security interests Net disposal/(acquisition) of treasury shares – ordinary shares Interest paid (excluding banking interest paid) Redemption of perpetual preferred callable securities Proceeds from issue of ordinary shares Proceeds from issue of subordinated and other debt Net disposal/(acquisition) of treasury shares – ordinary shares Subordinated and other debt repaid Redemption of perpetual preferred callable securities Net cash outflow from financing activities – continuing operations Proceeds from issue of subordinated and other debt Net cash outflow – continuing operations Subordinated and other debt repaid Net cash inflow from discontinued operations Net cash outflow from financing activities – continuing operations Effects of exchange rate changes on cash and cash equivalents Net cash outflow – continuing operations Cash and cash equivalents at beginning of the year Net cash inflow from discontinued operations Cash and cash equivalents at end of the year Effects of exchange rate changes on cash and cash equivalents Cash and cash equivalents at beginning of the year Consisting of: Cash and cash equivalents at end of the year Cash and cash equivalents Mandatory reserve deposits with central banks Consisting of: Included within assets held for sale and distribution Cash and cash equivalents Cash and cash equivalents Mandatory reserve deposits with central banks Mandatory reserve deposits with central banks Included within assets held for sale and distribution Total Cash and cash equivalents Mandatory reserve deposits with central banks 1 The year ended 31 December 2016 has been re-presented to reflect Nedbank and Old Mutual Wealth as discontinued operations. Refer to note A4 for more information. Total Cash and cash equivalents in the cash flow statement above include mandatory reserve deposits in line with market practice in South 1 The year ended 31 December 2016 has been re-presented to reflect Nedbank and Old Mutual Wealth as discontinued operations. Refer to note A4 for more information. Africa. Except for mandatory reserve deposits with central banks of £1,153 million (2016: £1,111 million) and cash and cash equivalents consolidated as part of the consolidation of funds of £1,306 million (2016: £976 million), management do not consider that there are any Cash and cash equivalents in the cash flow statement above include mandatory reserve deposits in line with market practice in South material amounts of cash and cash equivalents which are not available for use in the Group's day-to-day operations. The £1,306 million Africa. Except for mandatory reserve deposits with central banks of £1,153 million (2016: £1,111 million) and cash and cash equivalents of cash and cash equivalents included in consolidation of funds at 31 December 2017 includes £920 million held by Old Mutual Wealth consolidated as part of the consolidation of funds of £1,306 million (2016: £976 million), management do not consider that there are any and shown within assets held for sale and distribution. material amounts of cash and cash equivalents which are not available for use in the Group's day-to-day operations. The £1,306 million of cash and cash equivalents included in consolidation of funds at 31 December 2017 includes £920 million held by Old Mutual Wealth and shown within assets held for sale and distribution. 599 (90) (204) 599 (204) (330) (23) (60) (330) 18 (23) 13 (60) (287) 18 100 13 (651) (287) (1,220) 100 (654) (651) 596 (1,220) (8) (654) 6,055 596 5,989 (8) 6,055 5,989 1,836 6 1,836 3,000 6 1,147 5,989 3,000 1,147 5,989 183 (61) (463) 183 (463) (426) (24) (69) (426) 2 (24) (33) (69) – 2 126 (33) (157) – (581) 126 (436) (157) 326 (581) 1,018 (436) 5,147 326 6,055 1,018 5,147 6,055 4,847 1,111 4,847 97 1,111 – 6,055 97 – 6,055 A4.2 A4.2 A4.2 A4.2 A4.1 A4.1 149 143 143 Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Consolidated statement of changes in equity Consolidated statement of changes in equity For the year ended 31 December 2017 For the year ended 31 December 2017 profit or loss Year ended 31 December 2017 Shareholders' equity at beginning of the year Total comprehensive income for the financial year Year ended 31 December 2017 Profit after tax for the financial year Shareholders' equity at beginning of the year Other comprehensive income Total comprehensive income for the financial year Items that will not be reclassified subsequently to Profit after tax for the financial year Other comprehensive income Fair value gains/(losses) Items that will not be reclassified subsequently to Property revaluations profit or loss Measurement loss on defined benefit plans Fair value gains/(losses) Shadow accounting5 Property revaluations Income tax on items that will not be reclassified Measurement loss on defined benefit plans Shadow accounting5 Income tax on items that will not be reclassified Items that may be reclassified subsequently subsequently to profit or loss subsequently to profit or loss to profit or loss Fair value gains/(losses) Items that may be reclassified subsequently Net investment hedge to profit or loss Available-for-sale investments Fair value gains/(losses) Fair value (losses)/gains1 Net investment hedge Currency translation differences on translating Available-for-sale investments foreign operations1 Fair value (losses)/gains1 Exchange differences and other reserves recycled Currency translation differences on translating to profit or loss on disposal of business2 foreign operations1 Millions Number of shares Millions issued and Number of fully paid shares 4,930 issued and fully paid – 4,930 Notes Notes Share capital 563 Share capital – 563 Share premium 1,042 Share premium – 1,042 Merger reserve 1,252 Merger reserve – 1,252 Available- for-sale reserve Available- 38 for-sale reserve – 38 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 4 – – 4 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – (5) – – – (5) C3 C3 subsequently to profit or loss to profit or loss on disposal of business2 Realisation of net investment hedge on sale of a subsidiary2 Exchange differences and other reserves recycled Other movements Share of other comprehensive income of investments Realisation of net investment hedge on sale of a subsidiary2 accounted for using the equity method1 Other movements Income tax on items that may be reclassified Share of other comprehensive income of investments subsequently to profit or loss 3 – accounted for using the equity method1 – – 2 – Total comprehensive income for the financial year Income tax on items that may be reclassified Transactions with the owners of the Company 3 – Contributions and distributions 2 – Total comprehensive income for the financial year Dividends for the year – – Transactions with the owners of the Company Tax relief on dividends paid – – Contributions and distributions Equity share-based payment transactions – – Dividends for the year – – Transfer between reserves3 – – Tax relief on dividends paid – – Proceeds from BEE transactions – 13 Equity share-based payment transactions – – Merger reserve released – – Transfer between reserves3 – – Additional Tier 1 capital instruments issued4 – – Proceeds from BEE transactions – 13 Preferred securities repurchased – – Merger reserve released – – Other movements in share capital6 – 4 Additional Tier 1 capital instruments issued4 – – – 17 Total contributions and distributions Preferred securities repurchased – – Changes in ownership Other movements in share capital6 – 4 Disposal of a non-controlling interest in – 17 Total contributions and distributions OM Asset Management plc – – Changes in ownership Change in participation in subsidiaries – – Disposal of a non-controlling interest in – – Total changes in ownership OM Asset Management plc – – – 17 Total transactions with the owners of the Company Change in participation in subsidiaries – – 40 1,059 Shareholders' equity at end of the year – – Total changes in ownership 1 Included in share of other comprehensive income of investments is a gain of £43 million relating to Ecobank Transnational Incorporated (ETI) – 17 Total transactions with the owners of the Company 2 A net gain of £130 million was realised and recycled to profit or loss on the disposal of OM Asset Management plc (OMAM) comprising £(21) million other reserves, and £151 million 40 1,059 Shareholders' equity at end of the year foreign currency translation gains. A gain of £19 million was realised from the recycling of foreign currency reserves relating to the disposal of Old Mutual Wealth Italy. In addition a 1 Included in share of other comprehensive income of investments is a gain of £43 million relating to Ecobank Transnational Incorporated (ETI) £156 million net investment hedge reserve loss was realised 2 A net gain of £130 million was realised and recycled to profit or loss on the disposal of OM Asset Management plc (OMAM) comprising £(21) million other reserves, and £151 million 3 Transfers between reserves comprise a transfer from the share-based payment reserve to retained earnings as a result of the disposal of OMAM (£61 million) and a transfer for fully foreign currency translation gains. A gain of £19 million was realised from the recycling of foreign currency reserves relating to the disposal of Old Mutual Wealth Italy. In addition a vested share based-payments within plc Head Office (£58 million) £156 million net investment hedge reserve loss was realised classified as equity. Interest is payable quarterly in arrears at a floating rate of 3-month JIBAR plus 5.65%. Refer to note A2 for more information. vested share based-payments within plc Head Office (£58 million) – – – – – – – – – – – – – – – – – – – 3 – 3 – 3 3 – – – – 3 – 4,933 – 3 4,933 4 On 30 June 2017, Nedbank Limited issued R600 million additional Tier 1 capital instruments under its R10 billion Domestic Medium Term Note Programme which has been 3 Transfers between reserves comprise a transfer from the share-based payment reserve to retained earnings as a result of the disposal of OMAM (£61 million) and a transfer for fully – – – – – – – – – – – – – (104) – – – – (104) – – (104) – – (104) – – – – (104) – 1,148 – (104) 1,148 – – – – – – – – – – – – – – – – – – – 1 – 1 – 1 1 – – – – 1 – 564 – 1 564 4 On 30 June 2017, Nedbank Limited issued R600 million additional Tier 1 capital instruments under its R10 billion Domestic Medium Term Note Programme which has been classified as equity. Interest is payable quarterly in arrears at a floating rate of 3-month JIBAR plus 5.65%. Refer to note A2 for more information. 150 144 144 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Property revaluation reserve Property 182 revaluation reserve – 182 Share-based payments reserve Share-based 409 payments reserve – 409 Other reserves1 17 Other reserves1 – 17 Foreign currency translation Foreign reserve currency (1,008) translation reserve – (1,008) Perpetual preferred callable Perpetual securities preferred 273 callable securities 15 273 Attributable to equity holders of the Attributable parent to equity 7,909 holders of the parent 909 7,909 Retained earnings 5,141 Retained earnings 894 5,141 Total non- controlling £m £m Total non- 3,114 controlling interests Total equity 11,023 interests Total equity 1,258 11,023 349 3,114 – 19 – (9) 19 – (7) (9) 3 (7) 3 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 26 – 26 (87) – 894 15 909 349 1,258 (5) (39) – (5) (39) (2) – (46) (2) (46) – (2) – – (2) – – – – – – – – – – – – – – – 14 (39) (9) 14 (39) (9) (9) (43) (9) (43) 26 2 26 (87) 2 5 14 – 5 14 (6) – 13 (6) 13 – 2 – 19 (25) (9) 19 (25) (15) (9) (30) (15) (30) 26 4 26 (42) 2 (129) 4 i i F n a n c F a n s a n c a s i l l i – – – – – – – – – – 3 – 3 – – – – – – – – – – – – – – 3 – 3 – 3 3 – – – – 3 – 188 – 3 188 – – – – – – – – – – – – – – – (38) – (119) – – (38) – (119) – – – – – – (157) – – (157) – – – – (157) – 252 – (157) 252 21 – – – 21 43 – – – 43 64 – 64 – – – – – – – – – – – – – – (22) – (22) – (22) (22) – – – – (22) – 59 – (22) 59 (170) (87) 156 – (170) – 156 – – – (75) – (75) – – – – – – – – – – – – – – – – – – – – – – – – – – (1,083) – – (1,083) (9) – – (13) (9) (19) – (13) (1) (19) 804 (1) 804 (330) – 31 (330) 119 – – 31 104 119 – – (14) 104 5 – (85) (14) 5 (85) – 41 41 – (44) 41 5,901 41 (44) 5,901 – – – – – – – – – – 15 – 15 (15) – – (15) – – – – – – – – (273) – – – (288) (273) – (288) – – – – (288) – – – (288) – (158) (87) 156 (18) (158) 24 156 (18) 2 24 813 2 813 (345) – (7) (345) – – 13 (7) – – – 13 (287) – (9) – (635) (287) (9) (635) – 41 41 – (594) 41 8,128 41 (594) 8,128 9 (42) – 6 9 19 – 6 1 19 357 1 357 (211) – – (211) – – – – – – 35 – – – – 35 (176) – – (176) (550) 74 (476) (550) (652) 74 2,819 (476) (652) 2,819 (149) (129) 156 (12) (149) 43 156 (12) 3 43 1,170 3 1,170 (556) – (7) (556) – – 13 (7) – – 35 13 (287) – (9) 35 (811) (287) (9) (811) (550) 115 (435) (550) (1,246) 115 10,947 (435) (1,246) 10,947 5 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 5 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 6 Other movements in share capital includes a movement in retained earnings of £22 million (2016: £31 million) relating to own shares held by consolidated investment 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 funds. These own shares are treated as treasury shares in the consolidated financial statements. insurance assets and liabilities 6 Other movements in share capital includes a movement in retained earnings of £22 million (2016: £31 million) relating to own shares held by consolidated investment funds. These own shares are treated as treasury shares in the consolidated financial statements. 151 145 145 Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Consolidated statement of changes in equity continued Consolidated statement of changes in equity continued For the year ended 31 December 2016 (Restated)1 Millions For the year ended 31 December 2016 (Restated)1 Property revaluations Property revaluations Shareholders' equity at beginning of the year Total comprehensive income for the financial year Profit after tax for the financial year Shareholders' equity at beginning of the year Other comprehensive income Total comprehensive income for the financial year Profit after tax for the financial year Measurement gains on defined benefit plans Other comprehensive income Shadow accounting Income tax on items that will not be reclassified Measurement gains on defined benefit plans Shadow accounting Income tax on items that will not be reclassified Net investment hedge subsequently to profit or loss Fair value gains Currency translation differences on translating Net investment hedge foreign operations Fair value gains subsequently to profit or loss Notes Notes D1(c) D1(c) Number of shares Millions issued and Number of shares 4,929 issued and fully paid Share capital 563 fully paid Share capital – 563 – 4,929 Share premium 1,040 Share premium – 1,040 Merger reserve 1,252 Merger reserve – 1,252 Available- for-sale reserve Available- 40 for-sale reserve – 40 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – C3 C3 D1(c) D1(c) subsequently to profit or loss – – – – – – – – – – – – – – – 1 – 1 – 1 – 1 Other movements Currency translation differences on translating Share of other comprehensive income of investments foreign operations accounted for using the equity method Other movements Income tax on items that may be reclassified Share of other comprehensive income of investments subsequently to profit or loss accounted for using the equity method Total comprehensive income for the financial year Income tax on items that may be reclassified Transactions with the owners of the Company Contributions and distributions Total comprehensive income for the financial year Dividends for the year Transactions with the owners of the Company Tax relief on dividends paid Contributions and distributions Equity share-based payment transactions Dividends for the year OM Asset Management plc shares buyback Tax relief on dividends paid Additional Tier 1 capital instruments issued Equity share-based payment transactions Preferred securities repurchased OM Asset Management plc shares buyback Other movements in share capital Additional Tier 1 capital instruments issued Total contributions and distributions Preferred securities repurchased Changes in ownership Other movements in share capital Acquisition of shareholding in Banco Unico Total contributions and distributions Disposal of a non-controlling interest in OM Asset Changes in ownership Management plc Acquisition of shareholding in Banco Unico Change in participation in subsidiaries Disposal of a non-controlling interest in OM Asset Total changes in ownership Total transactions with owners of the Company Change in participation in subsidiaries Shareholders' equity at end of the year Total changes in ownership Total transactions with owners of the Company 1 During 2017 the Group performed a further analysis of the investment and securities held by consolidated investment funds which resulted in the identification of 64 million Shareholders' equity at end of the year – – – – – – – 38 – – 38 Old Mutual plc shares at 31 December 2017 (2016: 61 million; 2015: 51 million shares) held by these funds. These shares in Old Mutual plc have been treated as treasury shares and consequentially resulted in a direct decrease in the value of equity and the value of investment and securities of £163 million (2016: £145 million). Comparative information in the consolidated statement of financial position, consolidated statement of changes in equity and Comparative information in the consolidated statement of financial position – segment Old Mutual plc shares at 31 December 2017 (2016: 61 million; 2015: 51 million shares) held by these funds. These shares in Old Mutual plc have been treated as treasury shares information at 31 December 2016 (note B4) have been restated accordingly. An opening adjustment of £116 million was recognised directly in reserves at 1 January 2016. Related and consequentially resulted in a direct decrease in the value of equity and the value of investment and securities of £163 million (2016: £145 million). Comparative information in the amounts in the consolidated income statement for the year ended 31 December 2016 have not been restated. consolidated statement of financial position, consolidated statement of changes in equity and Comparative information in the consolidated statement of financial position – segment information at 31 December 2016 (note B4) have been restated accordingly. An opening adjustment of £116 million was recognised directly in reserves at 1 January 2016. Related amounts in the consolidated income statement for the year ended 31 December 2016 have not been restated. 1 During 2017 the Group performed a further analysis of the investment and securities held by consolidated investment funds which resulted in the identification of 64 million – – – – – 1 – 4,930 – 1 4,930 – – – – – 2 – 1,042 – 2 1,042 – – – – – – – 1,252 – – 1,252 – – – – – – – 563 – – 563 – – – – – – – – – – – – – – – 2 – 2 – 2 – 2 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – Management plc – – – – – – – – – – – (5) – – – (5) 1 – – 1 2 – (2) 2 (2) – – – – – – – – – – – – – – – – – 152 146 146 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Property revaluation reserve Property 184 revaluation – reserve – 184 – 7 – – (7) 7 – – (7) – – – – – – – – (2) – – (2) – – (2) – (2) – – – – – – – – – – – – – – – – – Share-based payments Share-based 367 payments – – 367 – – – – – – – – – – – – – – – – – – – – – – – – – – – – 42 – – – – 42 – – – – 42 – – – 42 reserve Other reserves 30 – reserve Other reserves – 30 – – – – – – – – – – – – – – – – – (12) (1) – (12) – (1) (13) – (13) – – – – – – – – – – – – – – – – – – – – – – – – 182 – – 182 – – – – – 42 – 409 – 42 409 – – – – – – – 17 – – 17 Foreign currency translation Foreign reserve currency (2,243) translation – reserve – (2,243) – – – – – – – – – – (104) – – – (104) 1,365 – – – 1,365 – – – 1,261 – 1,261 – – – – – – – – – – – – – – – (1) – (25) (1) – (26) (25) (26) – (1,008) (26) (26) (1,008) Perpetual preferred callable Perpetual securities preferred 273 callable – securities 14 273 – – 14 – – – – – – – – – – – – – – – – – – – – 14 – 14 (17) 3 – (17) – 3 – – – – – – (14) – – – (14) Attributable to equity holders of the parent Attributable to 6,564 equity holders – of the parent 570 6,564 – 6 570 (18) (7) 6 (18) 5 (7) (14) (104) 5 (3) (14) (104) 1,365 (3) (17) (1) 1,365 (17) 2 (1) 1,798 2 1,798 (443) 3 38 (443) (8) 3 – 38 – (8) (64) – (474) – (64) (7) (474) – – – – – (14) – 273 – (14) 273 13 (7) 15 21 13 (453) 15 7,909 21 (453) 7,909 Total non- controlling interests Total non- 2,254 controlling – interests 275 2,254 – 1 275 (9) – 1 (9) 3 – (5) – 3 (2) (5) – 536 (2) (6) – 536 (6) 2 – 800 2 800 (171) – 5 (171) (3) – 95 5 (26) (3) – 95 (100) (26) – 7 (100) 153 7 – 160 153 60 – 3,114 160 60 3,114 £m £m Total equity 8,818 Total – equity 845 8,818 – 7 845 (27) (7) 7 (27) 8 (7) (19) (104) 8 (5) (19) (104) 1,901 (5) (23) (1) 1,901 (23) 4 (1) 2,598 4 2,598 (614) 3 43 (614) (11) 3 95 43 (26) (11) (64) 95 (574) (26) (64) – (574) 166 – 15 181 166 (393) 15 11,023 181 (393) 11,023 Retained earnings1 5,058 Retained – earnings1 556 5,058 – (1) 556 (18) – (1) (18) 5 – (14) – 5 2 (14) – – 2 (4) – – (4) – – 540 – 540 (426) – (4) (426) (8) – – (4) – (8) (66) – (504) – (66) (6) (504) 38 (6) 15 47 38 (457) 15 5,141 47 (457) 5,141 153 147 147 i i F n a n c F a n s a n c a s i l l i Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements Notes to the consolidated financial statements A: Significant accounting policies A1: Basis of preparation A: Significant accounting policies Statement of compliance A1: Basis of preparation Old Mutual plc ('the Company' or 'plc') is a company incorporated in England and Wales and is the ultimate Parent Company of the Group companies. Plc Head Office collectively refers to the plc Parent Company and the other centre companies of the Group, which typically Statement of compliance own and manage the Group's interests across the Group. Old Mutual plc ('the Company' or 'plc') is a company incorporated in England and Wales and is the ultimate Parent Company of the Group companies. Plc Head Office collectively refers to the plc Parent Company and the other centre companies of the Group, which typically The Group financial statements consolidate those of the Company and its subsidiaries (together referred to as the 'Group') and equity own and manage the Group's interests across the Group. account the Group's interest in associates and joint ventures (other than those held by life assurance funds which are accounted for as investments at fair value through profit or loss). The Parent Company financial statements present information about the Company The Group financial statements consolidate those of the Company and its subsidiaries (together referred to as the 'Group') and equity as a separate entity and not about the Group. account the Group's interest in associates and joint ventures (other than those held by life assurance funds which are accounted for as investments at fair value through profit or loss). The Parent Company financial statements present information about the Company Both the Parent Company financial statements and the Group financial statements have been prepared and approved by the directors as a separate entity and not about the Group. in accordance with IFRS as adopted by the EU. On publishing the Parent Company financial statements here together with the Group financial statements, the Company is taking advantage of the exemption in section 408 of the Companies Act 2006 not to present its Both the Parent Company financial statements and the Group financial statements have been prepared and approved by the directors individual income statement and related notes that form a part of these approved financial statements. in accordance with IFRS as adopted by the EU. On publishing the Parent Company financial statements here together with the Group financial statements, the Company is taking advantage of the exemption in section 408 of the Companies Act 2006 not to present its The accounting policies adopted by the Company and Group, unless otherwise stated, have been applied consistently to all periods individual income statement and related notes that form a part of these approved financial statements. presented in these consolidated financial statements. The accounting policies adopted by the Company and Group, unless otherwise stated, have been applied consistently to all periods The financial statements are prepared on the historical cost basis except that the following assets and liabilities are stated at their fair value presented in these consolidated financial statements. or modified historic cost: derivative financial instruments, financial assets and liabilities designated as fair value through profit or loss or as available-for-sale, owner-occupied property and investment property, cash-settled share-based payments, pension scheme assets and The financial statements are prepared on the historical cost basis except that the following assets and liabilities are stated at their fair value insurance and investment contract liabilities. Assets and disposal groups held for sale and distribution are stated at the lower of the or modified historic cost: derivative financial instruments, financial assets and liabilities designated as fair value through profit or loss or as carrying amount prior to disposal and the fair value less costs to sell. available-for-sale, owner-occupied property and investment property, cash-settled share-based payments, pension scheme assets and insurance and investment contract liabilities. Assets and disposal groups held for sale and distribution are stated at the lower of the The Parent Company financial statements are prepared in accordance with these accounting policies, other than for investments carrying amount prior to disposal and the fair value less costs to sell. in subsidiary undertakings and associates, which are stated at cost less impairments in accordance with IAS 27. The Parent Company financial statements are prepared in accordance with these accounting policies, other than for investments The Company and Group financial statements have been prepared on the going concern basis which the directors believe to be in subsidiary undertakings and associates, which are stated at cost less impairments in accordance with IAS 27. appropriate having taken into consideration the points as set out in the Directors Report in the section headed Going Concern. The Company and Group financial statements have been prepared on the going concern basis which the directors believe to be The Group has prepared the financial statements in accordance with its detailed accounting policies which can be found at appropriate having taken into consideration the points as set out in the Directors Report in the section headed Going Concern. www.oldmutualplc.com/ir. The significant accounting policies are contained in the financial statements and are included in the specific notes to which they relate. The significant accounting policies on financial assets and liabilities are included in note K. Judgements made The Group has prepared the financial statements in accordance with its detailed accounting policies which can be found at by the directors in the applications of these accounting policies that have a significant effect on the financial statements, and estimates www.oldmutualplc.com/ir. The significant accounting policies are contained in the financial statements and are included in the specific with a significant risk of material adjustment in the next year, are discussed in note A3. notes to which they relate. The significant accounting policies on financial assets and liabilities are included in note K. Judgements made by the directors in the applications of these accounting policies that have a significant effect on the financial statements, and estimates Assets and liabilities classified as held for sale and distribution and discontinued operations with a significant risk of material adjustment in the next year, are discussed in note A3. In anticipation of the execution of the Group’s managed separation strategy through distribution of Old Mutual Wealth shares and the planned subsequent distribution of a significant portion of the Group’s stake in Nedbank (resulting in the probable loss of control Assets and liabilities classified as held for sale and distribution and discontinued operations of these businesses), the Group’s interests in the assets and liabilities of these businesses have been classified as held for distribution In anticipation of the execution of the Group’s managed separation strategy through distribution of Old Mutual Wealth shares and in the consolidated statement of financial position at 31 December 2017. Consistent with the requirements of accounting standards, the the planned subsequent distribution of a significant portion of the Group’s stake in Nedbank (resulting in the probable loss of control comparative information in the consolidated statement of financial position has not been re-presented for businesses classified as held of these businesses), the Group’s interests in the assets and liabilities of these businesses have been classified as held for distribution for distribution. In addition, these businesses have been presented as discontinued operations in the consolidated income statement, in the consolidated statement of financial position at 31 December 2017. Consistent with the requirements of accounting standards, the consolidated statement of comprehensive income and consolidated statement of cash flows for the year ended 31 December 2017. comparative information in the consolidated statement of financial position has not been re-presented for businesses classified as held Consistent with the requirements of accounting standards, comparative information in the consolidated income statement, consolidated for distribution. In addition, these businesses have been presented as discontinued operations in the consolidated income statement, statement of comprehensive income and consolidated statement of cash flows for the year ended 31 December 2016 have been consolidated statement of comprehensive income and consolidated statement of cash flows for the year ended 31 December 2017. re-presented to reflect Nedbank and Old Mutual Wealth as discontinued operations. Consistent with the requirements of accounting standards, comparative information in the consolidated income statement, consolidated statement of comprehensive income and consolidated statement of cash flows for the year ended 31 December 2016 have been re-presented to reflect Nedbank and Old Mutual Wealth as discontinued operations. 154 148 148 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Accounting policy elections The following significant accounting policy elections have been made by the Group: Property and equipment  Land and buildings are stated at revalued amounts. Revaluation surpluses are Investment in venture capital divisions and investment-linked insurance funds Financial instruments Investment properties Investments in subsidiaries, associate companies and joint arrangements recognised through other comprehensive income.  In venture capital divisions and investment-linked insurance funds, the Group has elected to carry associate and joint-venture entities at fair value through profit or loss.  The Group has elected to designate certain fixed-rate financial assets and liabilities at fair value through profit or loss to reduce an accounting mismatch.  Regular way purchases or sales of financial assets are recognised and derecognised using trade date accounting.  The Group has elected to recognise all investment properties at fair value, with changes in fair value being recognised in profit or loss for the year.  The Group has elected to recognise these investments at cost in the Company financial statements. Translation of foreign operations 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. Other than in respect of cumulative translation gains and losses up to 1 January 2004, 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 deferred in shareholders' equity, net of attributable amounts in relation to hedged net investments, is recognised in profit or loss. Cumulative translation gains and losses up to 1 January 2004, being the effective date of the Group's conversion to IFRS, were reset to zero. The exchange rates used to translate the operating results, assets and liabilities of key foreign business segments to pounds sterling are: Rand US dollars Euro Year ended 31 December 2017 Statement of financial position (closing rate) 16.7565 1.3524 1.1249 Year ended 31 December 2016 Statement of financial position (closing rate) 16.9551 1.2345 1.1705 Income statement (average rate) 19.9305 1.3558 1.2251 Income statement (average rate) 17.1493 1.2884 1.1407 A2: Significant corporate activity and business changes during the year Acquisitions completed during the year Win Twice Properties (Pty) Limited and Bedford Square Properties (Pty) Limited On 6 October 2017, Old Mutual Life Assurance Company (South Africa) Limited (OMLAC(SA)), part of Emerging Markets, acquired 98.9% of Bedford Square Properties (Pty) Ltd and 96.8% of Win Twice Properties (Pty) Ltd, as these two companies own the land and buildings which comprises the Bedford Shopping Centre. The purchase price of £54 million (R900 million) has been allocated based on a provisional estimate of the fair value of assets acquired and liabilities assumed at the date of acquisition determined in accordance with IFRS 3 'Business Combinations'. The provisional allocation required significant assumptions and it is possible that the preliminary estimates may change materially as the purchase price allocations are finalised. The transaction also includes a contingent consideration payable or receivable, based on turnover and operating income reaching certain milestones within twelve months of acquisition date. The carrying value of assets and liabilities in OMLAC(SA)'s consolidated statement of financial position on acquisition date approximates the fair value of these items determined by the Group. Goodwill of £4 million (R72 million) was recognised on the acquisition, which is attributable to expected future synergies and includes the carrying amount of the contingent consideration. 155 149 i F n a n c a s i l Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued A: Significant accounting policies continued A2: Significant corporate activity and business changes during the year continued A: Significant accounting policies continued Acquisitions completed during the year A2: Significant corporate activity and business changes during the year continued Caerus Capital Group Limited (Caerus) Acquisitions completed during the year On 1 June 2017, Old Mutual Wealth, completed the acquisition of 100% of the share capital of Caerus, a UK based adviser network that operates in a similar manner to Intrinsic and which has approximately £4 billion of funds under advice and over 300 advisers. Caerus Capital Group Limited (Caerus) On 1 June 2017, Old Mutual Wealth, completed the acquisition of 100% of the share capital of Caerus, a UK based adviser network The total consideration of £24 million includes £15 million cash consideration and £3 million that has been deferred for two years and that operates in a similar manner to Intrinsic and which has approximately £4 billion of funds under advice and over 300 advisers. £6 million that has been deferred for three years. The deferred consideration has been included as part of the cost of the acquisition as there is no continuing employment condition applying to the sellers of the business. The deferred consideration payable is dependent The total consideration of £24 million includes £15 million cash consideration and £3 million that has been deferred for two years and on turnover targets post-acquisition and is potentially reduced by the amount of any relevant claims arising from in-force business £6 million that has been deferred for three years. The deferred consideration has been included as part of the cost of the acquisition as existing prior to the payment dates. there is no continuing employment condition applying to the sellers of the business. The deferred consideration payable is dependent on turnover targets post-acquisition and is potentially reduced by the amount of any relevant claims arising from in-force business The purchase price has been allocated based on a provisional estimate of the fair value of assets acquired and liabilities assumed existing prior to the payment dates. at the date of acquisition determined in accordance to IFRS 3 'Business Combinations'. The provisional allocation required significant assumptions and it is possible that the preliminary estimates may change materially as the purchase price allocations are finalised. The purchase price has been allocated based on a provisional estimate of the fair value of assets acquired and liabilities assumed The accounting must be finalised within 12 months of the acquisition date. at the date of acquisition determined in accordance to IFRS 3 'Business Combinations'. The provisional allocation required significant assumptions and it is possible that the preliminary estimates may change materially as the purchase price allocations are finalised. The carrying value of assets and liabilities in Caerus's consolidated statement of financial position on acquisition date approximates the fair The accounting must be finalised within 12 months of the acquisition date. value of these items determined by the Group. In addition, the Group recognised identified intangible assets of £10 million. The intangible assets recognised relate to customer distribution channels. The value of the intangible assets was determined by applying cash flows The carrying value of assets and liabilities in Caerus's consolidated statement of financial position on acquisition date approximates the fair to standard industry valuations models. Goodwill of £10 million was recognised on the acquisition and is attributable to the delivery value of these items determined by the Group. In addition, the Group recognised identified intangible assets of £10 million. The intangible of significant cost and revenue synergies that cannot be linked to identifiable intangible assets. assets recognised relate to customer distribution channels. The value of the intangible assets was determined by applying cash flows to standard industry valuations models. Goodwill of £10 million was recognised on the acquisition and is attributable to the delivery Transaction costs incurred of £1 million relating to the acquisition have been recognised within other operating expenses in the of significant cost and revenue synergies that cannot be linked to identifiable intangible assets. consolidated income statement, but not included within adjusted operating profit. Transaction costs incurred of £1 million relating to the acquisition have been recognised within other operating expenses in the Old Mutual Private Client Advisers (PCA) consolidated income statement, but not included within adjusted operating profit. During 2017, the Group completed the acquisition of eight adviser businesses as part of the expansion of its PCA business that was launched in October 2015. The aim is to develop an Old Mutual Wealth branded, employed adviser business focused upon servicing Old Mutual Private Client Advisers (PCA) upper affluent and high net worth clients, offering a centrally-defined restricted advice proposition focused upon Group's investment During 2017, the Group completed the acquisition of eight adviser businesses as part of the expansion of its PCA business that was solutions and platform. launched in October 2015. The aim is to develop an Old Mutual Wealth branded, employed adviser business focused upon servicing upper affluent and high net worth clients, offering a centrally-defined restricted advice proposition focused upon Group's investment The purchase price for each acquisition has been allocated based on a provisional estimate of the fair value of assets acquired and solutions and platform. liabilities assumed at the dates of acquisition determined in accordance to IFRS 3 'Business Combinations'. The provisional allocations required significant assumptions and it is possible that the preliminary estimates may change materially as the purchase price allocations The purchase price for each acquisition has been allocated based on a provisional estimate of the fair value of assets acquired and are finalised. The accounting must be finalised within 12 months of the acquisition dates. liabilities assumed at the dates of acquisition determined in accordance to IFRS 3 'Business Combinations'. The provisional allocations required significant assumptions and it is possible that the preliminary estimates may change materially as the purchase price allocations The estimated consideration payable is £20 million, of which £10 million was cash consideration and up to £10 million in relation to are finalised. The accounting must be finalised within 12 months of the acquisition dates. deferred payments. The amount of deferred consideration is dependent upon the meeting of certain performance targets, generally relating to the value of funds under management and levels of on-going fee income. The deferred consideration has been included The estimated consideration payable is £20 million, of which £10 million was cash consideration and up to £10 million in relation to as part of the cost of the acquisition. Total other intangible assets of £10 million in respect of customer relationships were recognised deferred payments. The amount of deferred consideration is dependent upon the meeting of certain performance targets, generally as a result of the acquisitions, together with goodwill of £5 million. relating to the value of funds under management and levels of on-going fee income. The deferred consideration has been included as part of the cost of the acquisition. Total other intangible assets of £10 million in respect of customer relationships were recognised Transaction costs incurred of £1 million relating to the acquisitions have been recognised within other operating expenses in the as a result of the acquisitions, together with goodwill of £5 million. consolidated income statement, but not included within adjusted operating profit. Transaction costs incurred of £1 million relating to the acquisitions have been recognised within other operating expenses in the consolidated income statement, but not included within adjusted operating profit. 156 150 150 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Attivo Investment Management Limited (AIM) On 29 March 2017, Old Mutual Wealth, completed the acquisition of 100% of the share capital of AIM, a UK based investment management business offering a comprehensive investment management service. The fair value of the total estimated consideration was £8 million, of which £4 million was cash consideration and £4 million was deferred for two years. The deferred consideration is included within the cost of the acquisition because it is dependent on levels of assets under management being maintained, with no requirement for continuing employment applied to the sellers of the business. The book value of total assets and total net assets of the acquired business were both less than £1 million. The purchase price has been allocated based on a provisional estimate of the fair value of assets acquired and liabilities assumed at the date of acquisition determined in accordance to IFRS 3 'Business Combinations'. The provisional allocation required significant assumptions and it is possible that the preliminary estimates may change materially as the purchase price allocations are finalised. The accounting must be finalised within 12 months of the acquisition date. The carrying value of assets and liabilities in AIM's statement of financial position on acquisition date approximates the fair value of these items determined by the Group. Other intangible assets of £7 million, relating to customer relationships, were recognised as a result of the acquisition. No goodwill was recognised on this transaction. Transaction costs incurred of £0.5m relating to the acquisition have been recognised within other operating expenses in the consolidated income statement, but not included within adjusted operating profit. Disposals completed during the year Sale of OM Asset Management plc (OMAM) During the year, the following transactions involving the Group's ownership of OMAM shares were completed:  on 12 May 2017, OM Group (UK) Limited (OMGUK), a wholly owned subsidiary of Old Mutual plc, sold 11.4 million OMAM shares to HNA Capital US at a price of $15.30 per share;  on 19 May 2017, following the closing of a public offering, OMGUK sold 17.3 million OMAM shares at a price of $14.55 per share. Pursuant to this, on 14 June 2017, the underwriters of the public offer exercised their right to purchase 2.6 million shares at the same price less an underwriting discount;  on 19 May 2017, OMAM repurchased 5.0 million ordinary shares directly from OMGUK at a price of $14.55 per share. Consequently, from 19 May 2017, the Group no longer considered that it held a controlling interest in OMAM.  on 10 November 2017, OMGUK sold 16.0 million OMAM shares to HNA Capital US at a price of $15.75 per share  on 18 November 2017, following the closing of a secondary public offering, OMGUK sold 6.0 million OMAM shares at a price of $15.50 per share. Following the completion of these transactions, the Group currently owns 1,000 ordinary shares in OMAM, representing 0.0008% of its share capital at 31 December 2017. The total net cash proceeds arising from these transactions, after underwriting and other transaction costs, were £667 million and a combined profit on disposal of £83 million, was recognised in profit or loss. Included in the profit on disposal are foreign currency translation reserve gains recycled to profit or loss of £151 million and the release of net investment hedge reserve losses of £182 million. The profit on disposal of OMAM also includes a £42million ($56 million) charge as a result of the write down of part of the original consideration, being the Deferred Tax Asset Deed (DTA) that it would receive from the business upon utilisation of the asset. The write down is due to the reduction of the US corporate tax rate and other provisions of the Tax Cuts and Jobs Act (the Tax Act) enacted on 22 December 2017. There remains a possibility for further payments from OMAM of up to £33 million ($44 million) pending clarification of the Tax Act’s impact on the value of the DTA. Since 30 June 2017 no additional payments have been made under the DTA. In addition, the Group purchased insurance against the provisions of the DTA that allows OMAM to claw back amounts paid in the event that deferred tax assets are not recovered by the OMAM business. Sale of Kotak Mahindra Old Mutual Life Insurance Limited (Kotak) On 13 October 2017, the Group completed the sale of its 26% stake in Kotak to its joint venture partner Kotak Mahindra Bank Limited. The net consideration was approximately INR 11,700 million (£138 million). The conclusion of the transaction also terminated the joint venture arrangement, extinguishing the respective put and call option arrangements between the parties relating to a 23% stake in the joint venture. A profit on disposal of £81 million was recognised on the transaction. In addition, Old Mutual plc recognised a profit of £7 million on the cancellation of the put option it held in relation to 23% of the issued shares of Kotak. Disposal of Old Mutual Wealth Italy On 9 January 2017, the Group completed the disposal of Old Mutual Wealth Italy, part of the Old Mutual Wealth business for cash consideration of £210 million, net of transaction costs. The profit on disposal was £24 million, comprising a gain of £5 million relating to the unwind of a forward currency contract used to hedge the value of the proceeds to be received and a gain of £19 million from the recycling of foreign currency reserves. Merger reserves of £104 million created on the original acquisition of Old Mutual Wealth Italy were transferred to retained earnings and became distributable. During 2016, an impairment of £46 million was incurred against the carrying value of Old Mutual Wealth Italy's goodwill to reflect the expected realisable value. 157 151 i F n a n c a s i l Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued A: Significant accounting policies continued A2: Significant corporate activity and business changes during the year continued A: Significant accounting policies continued Disposals completed during the year continued A2: Significant corporate activity and business changes during the year continued Sale of a minority stake in Credit Guarantee Insurance Company (CGIC) Disposals completed during the year continued On 1 April 2017, Emerging Markets completed the sale of 25% of CGIC to Atradius N.V. for R494 million (£29 million). A gain on disposal of R280 million (£17 million) was recognised directly in equity on completion of the sale. Sale of a minority stake in Credit Guarantee Insurance Company (CGIC) On 1 April 2017, Emerging Markets completed the sale of 25% of CGIC to Atradius N.V. for R494 million (£29 million). A gain on disposal Disposals announced during the year, but not yet completed of R280 million (£17 million) was recognised directly in equity on completion of the sale. Sale of the Single Strategy asset management business of Old Mutual Wealth Disposals announced during the year, but not yet completed On 19 December 2017, the Group announced that it has agreed to sell the Old Mutual Wealth Single Strategy asset management business to a special purpose vehicle ultimately owned by funds managed by TA Associates and certain members of the Single Strategy Sale of the Single Strategy asset management business of Old Mutual Wealth management team, for an expected total consideration of in the region of £600 million, comprising cash consideration of £570 million On 19 December 2017, the Group announced that it has agreed to sell the Old Mutual Wealth Single Strategy asset management payable on or before completion, with approximately £30 million anticipated to be payable thereafter, paid primarily in 2019 to 2021 as business to a special purpose vehicle ultimately owned by funds managed by TA Associates and certain members of the Single Strategy surplus capital associated with the separation from Old Mutual Wealth is released in the business. This deferred consideration is not management team, for an expected total consideration of in the region of £600 million, comprising cash consideration of £570 million subject to performance conditions. payable on or before completion, with approximately £30 million anticipated to be payable thereafter, paid primarily in 2019 to 2021 as surplus capital associated with the separation from Old Mutual Wealth is released in the business. This deferred consideration is not The proposed transaction is subject to customary closing conditions, including regulatory approvals. At 31 December 2017, the related subject to performance conditions. assets and liabilities have been classified as held for sale. Refer to note A4 for more information. The proposed transaction is subject to customary closing conditions, including regulatory approvals. At 31 December 2017, the related Financing activities completed during the year assets and liabilities have been classified as held for sale. Refer to note A4 for more information. Emerging Markets Financing activities completed during the year On 20 November 2017, Old Mutual Insure issued R500 million Unsecured Subordinated Callable Floating Rate Notes under its R1 billion Unsecured Subordinated Callable Note Programme. Interest is payable at a floating rate of 3 Month JIBAR plus 209 bps on 22 February, Emerging Markets 22 May, 22 August and 22 November each year until 22 November 2022. From this date, the floating rate increases to 3 Month JIBAR On 20 November 2017, Old Mutual Insure issued R500 million Unsecured Subordinated Callable Floating Rate Notes under its R1 billion plus 313.5 bps until the final maturity date of 22 November 2027. The first interest payment date is 22 February 2018. Unsecured Subordinated Callable Note Programme. Interest is payable at a floating rate of 3 Month JIBAR plus 209 bps on 22 February, 22 May, 22 August and 22 November each year until 22 November 2022. From this date, the floating rate increases to 3 Month JIBAR Nedbank plus 313.5 bps until the final maturity date of 22 November 2027. The first interest payment date is 22 February 2018. On 30 June 2017, Nedbank Limited issued R600 million additional Tier 1 capital instruments under its R10 billion Domestic Medium Term Note Programme. Interest is payable quarterly in arrears at a floating rate of 3 Month JIBAR plus 5.65%. The first interest payment date is Nedbank 1 October 2017 and the first call date in 1 July 2022. On 30 June 2017, Nedbank Limited issued R600 million additional Tier 1 capital instruments under its R10 billion Domestic Medium Term Note Programme. Interest is payable quarterly in arrears at a floating rate of 3 Month JIBAR plus 5.65%. The first interest payment date is Old Mutual plc 1 October 2017 and the first call date in 1 July 2022. On 24 November 2017, Old Mutual plc repurchased £389 million of its outstanding £450 million 7.875 per cent subordinated debt securities (Tier 2 subordinated 2025 securities) and £159 million of its outstanding £500 million 8 per cent subordinated debt securities Old Mutual plc (Tier 2 subordinated 2021 securities) through tender offers. All repurchased securities were cancelled on 24 November 2017. Following On 24 November 2017, Old Mutual plc repurchased £389 million of its outstanding £450 million 7.875 per cent subordinated debt cancellation of these securities, the aggregate principal amounts outstanding of the £450 million securities was £61 million and the securities (Tier 2 subordinated 2025 securities) and £159 million of its outstanding £500 million 8 per cent subordinated debt securities aggregate principal amount outstanding of £500 million securities was £341 million. The difference of £102 million between the cash (Tier 2 subordinated 2021 securities) through tender offers. All repurchased securities were cancelled on 24 November 2017. Following paid to repurchase and redeem £389 million of Tier 2 subordinated 2025 securities and £159 million nominal of Tier 2 subordinated 2021 cancellation of these securities, the aggregate principal amounts outstanding of the £450 million securities was £61 million and the securities and the IFRS book value of this debt at the date of repurchase has been recognised in profit or loss. Refer to note D6 and note aggregate principal amount outstanding of £500 million securities was £341 million. The difference of £102 million between the cash G7 for more information. paid to repurchase and redeem £389 million of Tier 2 subordinated 2025 securities and £159 million nominal of Tier 2 subordinated 2021 securities and the IFRS book value of this debt at the date of repurchase has been recognised in profit or loss. Refer to note D6 and note On 3 February 2017, Old Mutual plc repurchased all of the £273 million Tier 1 preferred perpetual callable securities using cash from G7 for more information. the Group's existing resources. In addition to repaying the nominal value of the securities, £29 million was paid to holders of the securities for accrued interest and a premium in excess of nominal value. The premium was recognised directly in equity. On 3 February 2017, Old Mutual plc repurchased all of the £273 million Tier 1 preferred perpetual callable securities using cash from the Group's existing resources. In addition to repaying the nominal value of the securities, £29 million was paid to holders of the securities for accrued interest and a premium in excess of nominal value. The premium was recognised directly in equity. 158 152 152 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Other activities during the year Old Mutual plc Legacy Pension Schemes During the year, bulk annuity arrangements for two legacy defined benefit schemes, the Old Mutual Staff Pension Fund and the G&N Retirement Benefits Scheme, were agreed with Legal & General Assurance Society Limited. The agreements resulted in the buy-in of the benefits of the two schemes with effect from 13 June 2017. This was converted to a full buy-out into individual annuity policies in October 2017 and wind-up of both schemes completed on 30 November 2017. In order to effect the transaction, Old Mutual plc made a one off contribution of £27 million into the two schemes, which together with derecognising of the combined existing surplus for the schemes, resulted in a £57 million charge in the consolidated statement of comprehensive income. Old Mutual plc no longer has any liability in respect of these two schemes, including administration and funding. Old Mutual plc had previously been contributing £7 million of cash funding annually to the two schemes. A3: Critical accounting estimates and judgements In the preparation of these financial statements, the Group is required to make estimates and judgements that affect items reported in the consolidated income statement, statement of financial position, other primary statements and related supporting notes. Critical accounting estimates and judgements are those which involve the most complex or subjective judgements or assessments. Where applicable the Group applies estimation and assumption setting techniques that are aligned with relevant actuarial and accounting guidance based on knowledge of the current situation. This requires assumptions and predictions of future events and actions. There have been no significant methodology changes to the critical accounting estimates and judgements that the Group applied at 31 December 2016. The significant accounting policies are described in the relevant notes. In the current year, the Group applied significant judgement determining whether Nedbank and Old Mutual Wealth should be classified as discontinued operations and as assets and liabilities held for sale and distribution. However, these classifications did not have any valuation impact on the underlying assets and liabilities. Refer to note A4 for more information. The key areas of the Group's business that typically require such estimates and the relevant accounting policies and notes are as follows: Area Valuation of financial assets and liabilities Loans and advances Life assurance contract provisions Intangible assets and goodwill Investments in subsidiaries and associated undertakings and joint ventures Tax Policy note K G1 G6 H1 I1 D1 More detail E1/E2/E3 G1 G6 H1 I1/I2/I3 D1/H7/J4 159 153 i F n a n c a s l i Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued A: Significant accounting policies continued A4: Discontinued operations and disposal groups held for sale A: Significant accounting policies continued The Group announced at its preliminary results announcement in 2016, and in various subsequent updates, that the long-term interests of its shareholders and other stakeholders would be best served by a managed separation of the Group into its four constituent businesses: A4: Discontinued operations and disposal groups held for sale The Group announced at its preliminary results announcement in 2016, and in various subsequent updates, that the long-term interests of  Emerging Markets, the South African incorporated emerging markets financial services business with a focus on Africa; its shareholders and other stakeholders would be best served by a managed separation of the Group into its four constituent businesses:  Nedbank Limited (Nedbank), the South African incorporated retail and corporate bank with a significant presence in Africa;  Old Mutual Wealth, the UK incorporated wealth and asset management business; and  Emerging Markets, the South African incorporated emerging markets financial services business with a focus on Africa;  OM Asset Management plc (OMAM), the US incorporated asset management business.  Nedbank Limited (Nedbank), the South African incorporated retail and corporate bank with a significant presence in Africa;  Old Mutual Wealth, the UK incorporated wealth and asset management business; and As described in note A2, the disposal of the majority of the Group's shareholding in OMAM was completed on 18 November 2017  OM Asset Management plc (OMAM), the US incorporated asset management business. and managed separation of the other businesses is planned to be achieved through the execution of the following remaining steps: As described in note A2, the disposal of the majority of the Group's shareholding in OMAM was completed on 18 November 2017  the distribution of the Old Mutual Wealth shares to existing Old Mutual shareholders and the listing of Old Mutual Wealth, which it is and managed separation of the other businesses is planned to be achieved through the execution of the following remaining steps: intended will incorporate a secondary public offering. Old Mutual Wealth will have a premium listing on the LSE and a secondary listing on the JSE.  the distribution of the Old Mutual Wealth shares to existing Old Mutual shareholders and the listing of Old Mutual Wealth, which it is  the creation of a new South African holding company, Old Mutual Limited (OML), which will acquire Old Mutual plc (consisting primarily intended will incorporate a secondary public offering. Old Mutual Wealth will have a premium listing on the LSE and a secondary listing of Emerging Markets and Nedbank pursuant to a scheme of arrangement under UK law). on the JSE.  the distribution of the OML shares to existing Old Mutual plc shareholders and the listing of OML. OML will be primary listed on the JSE  the creation of a new South African holding company, Old Mutual Limited (OML), which will acquire Old Mutual plc (consisting primarily with a standard listing on the LSE and secondary listings on the ZSE, NSX and MSE. of Emerging Markets and Nedbank pursuant to a scheme of arrangement under UK law).  after the listing of OML and a period thereafter to allow for the share register to settle, OML anticipates unbundling (in terms of SA law)  the distribution of the OML shares to existing Old Mutual plc shareholders and the listing of OML. OML will be primary listed on the JSE to its shareholders a significant portion of its shareholding in Nedbank, whilst retaining a strategic minority interest. Nedbank is primary with a standard listing on the LSE and secondary listings on the ZSE, NSX and MSE. listed on the JSE and secondary listed on the NSX.  after the listing of OML and a period thereafter to allow for the share register to settle, OML anticipates unbundling (in terms of SA law) to its shareholders a significant portion of its shareholding in Nedbank, whilst retaining a strategic minority interest. Nedbank is primary listed on the JSE and secondary listed on the NSX. Nedbank and Old Mutual Wealth comprised two of the Groups reported segments. In anticipation of the execution of the Group's managed separation strategy through distribution of Old Mutual Wealth shares and the planned subsequent distribution of a significant portion of the Group's stake in Nedbank (resulting in the probable loss of control of these businesses), the Group's entire interests in the Nedbank and Old Mutual Wealth comprised two of the Groups reported segments. In anticipation of the execution of the Group's assets and liabilities of these businesses have been classified as held for distribution in the consolidated statement of financial position at managed separation strategy through distribution of Old Mutual Wealth shares and the planned subsequent distribution of a significant 31 December 2017. In addition, these businesses have been presented as discontinued operations in the consolidated income statement, portion of the Group's stake in Nedbank (resulting in the probable loss of control of these businesses), the Group's entire interests in the consolidated statement of comprehensive income and consolidated statement of cash flows for the year ended 31 December 2017, as assets and liabilities of these businesses have been classified as held for distribution in the consolidated statement of financial position at required by IFRS. Comparative information have been re-presented accordingly. 31 December 2017. In addition, these businesses have been presented as discontinued operations in the consolidated income statement, consolidated statement of comprehensive income and consolidated statement of cash flows for the year ended 31 December 2017, as This judgement was done based on the facts and circumstances which existed at 31 December 2017 when the Directors made a formal required by IFRS. Comparative information have been re-presented accordingly. assessment of whether the businesses should be classified as held for distribution. It was determined that although a number of minor internal reorganisations remained to be implemented, as at 31 December 2017, the businesses in their current state could have been This judgement was done based on the facts and circumstances which existed at 31 December 2017 when the Directors made a formal distributed. The Directors considered that it was highly probable that the Nedbank and Old Mutual Wealth business would be distributed assessment of whether the businesses should be classified as held for distribution. It was determined that although a number of minor within a period of twelve months based on interactions with South African and UK regulators, positive interactions with the relevant tax internal reorganisations remained to be implemented, as at 31 December 2017, the businesses in their current state could have been authorities and interactions with the South African government. The Directors have also taken into account the likelihood of the Court distributed. The Directors considered that it was highly probable that the Nedbank and Old Mutual Wealth business would be distributed approval of the scheme in concluding that the businesses should be classified as held for distribution. within a period of twelve months based on interactions with South African and UK regulators, positive interactions with the relevant tax authorities and interactions with the South African government. The Directors have also taken into account the likelihood of the Court Note that following the planned distribution of Nedbank shares, the Group will revalue its residual associate interest at the market value approval of the scheme in concluding that the businesses should be classified as held for distribution. prevailing at the time and will commence equity accounting of its interest as a continuing operation from that date. Note that following the planned distribution of Nedbank shares, the Group will revalue its residual associate interest at the market value The phased reduction of the Group's majority stake in OMAM began in 2016. In addition, on 31 May 2016, the Group sold its interest prevailing at the time and will commence equity accounting of its interest as a continuing operation from that date. in Rogge Global Partners Limited (Rogge). These two businesses comprised one of the Group's reported segments, Institutional Asset Management (IAM). As a consequence of the plans to dispose of these businesses, IAM was classified as held for sale in the consolidated The phased reduction of the Group's majority stake in OMAM began in 2016. In addition, on 31 May 2016, the Group sold its interest statement of financial position at 31 December 2016. In addition IAM was presented as a discontinued operation in the consolidated in Rogge Global Partners Limited (Rogge). These two businesses comprised one of the Group's reported segments, Institutional Asset income statement, consolidated statement of comprehensive income and consolidated statement of cash flows for the year ended Management (IAM). As a consequence of the plans to dispose of these businesses, IAM was classified as held for sale in the consolidated 31 December 2016, as required by IFRS. From 18 November 2017, the Group's remaining 0.0008% stake in OMAM was accounted statement of financial position at 31 December 2016. In addition IAM was presented as a discontinued operation in the consolidated at fair value within investments and securities. More information about the accounting treatment following each tranche of the sell down income statement, consolidated statement of comprehensive income and consolidated statement of cash flows for the year ended of the Groups stake in OMAM can be found in note B1. 31 December 2016, as required by IFRS. From 18 November 2017, the Group's remaining 0.0008% stake in OMAM was accounted at fair value within investments and securities. More information about the accounting treatment following each tranche of the sell down Further information on discontinued operations is provided in note A4.1 and further information on assets and liabilities classified as of the Groups stake in OMAM can be found in note B1. held for sale and distribution is provided in note A4.2. Due to the material contribution of Nedbank and Old Mutual Wealth to the Group's consolidated financial statements, the Group elected to present disclosures of certain material assets and liabilities classified as held for Further information on discontinued operations is provided in note A4.1 and further information on assets and liabilities classified as distribution within the respective notes that they relate to. Information on other held for sale assets and liabilities have been included in held for sale and distribution is provided in note A4.2. Due to the material contribution of Nedbank and Old Mutual Wealth to the Group's note A4.2.2. consolidated financial statements, the Group elected to present disclosures of certain material assets and liabilities classified as held for distribution within the respective notes that they relate to. Information on other held for sale assets and liabilities have been included in note A4.2.2. 160 154 154 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 A4.1: Discontinued operations The following tables present the income statement from discontinued operations, after the elimination of intercompany transactions (note A4.1(a)), the statement of comprehensive income from discontinued operations (note A4.1(b)) and net cash flows from discontinued operations (note 4.1(c)) for the year ended 31 December 2017. Comparative information for the year ended 31 December 2016 has been re-presented as required by IFRS. (a) Income statement from discontinued operations Year ended 31 December 2017 Notes £m Year ended 31 December 2016 Revenue Gross earned premiums Outward reinsurance Net earned premiums Investment return (non-banking) Banking interest and similar income Banking trading, investment and similar income Fee and commission income, and income from service activities Other income Total revenue Expenses Claims and benefits (including change in insurance contract provisions) Reinsurance recoveries Net claims and benefits incurred Change in investment contract liabilities Credit impairment charges Finance costs Banking interest payable and similar expenses Fee and commission expenses, and other acquisition costs Change in third-party interest in consolidated funds Other operating and administrative expenses Total expenses Share of associated undertakings' and joint ventures' (losses)/profits after tax Profit on disposal of subsidiaries, associated undertakings and strategic investments Profit before tax from discontinued operations Income tax expense Profit after tax from discontinued operations Attributable to: Equity holders of the parent Non-controlling interests Ordinary shares Preferred securities Profit after tax from discontinued operations 148 (87) 61 5,174 4,382 283 2,577 12 12,489 (155) 139 (16) (4,308) (193) (6) (2,731) (361) (644) (2,988) (11,247) (45) 24 1,221 (340) 881 524 323 34 881 142 (84) 58 6,446 3,677 241 2,570 42 13,034 (199) 169 (30) (5,671) (228) (6) (2,311) (409) (574) (2,773) (12,002) 5 6 1,043 (362) 681 394 265 22 681 D1(e) 161 155 i F n a n c a s l i Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued A: Significant accounting policies continued A4: Discontinued operations and disposal groups held for sale continued A: Significant accounting policies continued A4.1: Discontinued operations continued A4: Discontinued operations and disposal groups held for sale continued (b) Statement of comprehensive income from discontinued operations A4.1: Discontinued operations continued (b) Statement of comprehensive income from discontinued operations Profit after tax from discontinued operations Items that will not be reclassified subsequently to profit or loss Fair value movements – property revaluation Profit after tax from discontinued operations Net measurement gains/(losses) on defined benefit plans Items that will not be reclassified subsequently to profit or loss Income tax on items that will not be reclassified to profit or loss Fair value movements – property revaluation Net measurement gains/(losses) on defined benefit plans Items that may be reclassified subsequently to profit or loss Income tax on items that will not be reclassified to profit or loss Available-for-sale investments – fair value gains/(losses) Currency translation differences/exchange differences on translating foreign operations Items that may be reclassified subsequently to profit or loss Share of other comprehensive income of investments accounted for using the equity method Available-for-sale investments – fair value gains/(losses) Other movements Currency translation differences/exchange differences on translating foreign operations Share of other comprehensive income of investments accounted for using the equity method Total other comprehensive income for the financial year from discontinued operations Other movements Total comprehensive income for the financial year from discontinued operations Total other comprehensive income for the financial year from discontinued operations Attributable to: Equity holders of the parent Total comprehensive income for the financial year from discontinued operations Non-controlling interests Attributable to: Ordinary shares Equity holders of the parent Preferred securities Non-controlling interests Ordinary shares Preferred securities (c) Net cash flows from discontinued operations (c) Net cash flows from discontinued operations Operating activities Investing activities Financing activities1 Operating activities Net cash flows from discontinued operations Investing activities Financing activities1 1 Excludes dividend and financing payments made with Old Mutual plc. Net cash flows from discontinued operations 1 Excludes dividend and financing payments made with Old Mutual plc. Year ended 31 December 2017 Year ended 881 31 December 2017 11 881 31 (9) 11 33 31 (9) 1 33 (75) 43 1 3 (75) (28) 43 5 3 (28) 886 5 £m Year ended 31 December £m 2016 Year ended 681 31 December 2016 1 681 (21) 6 1 (14) (21) 6 (4) (14) (148) (1) (4) (15) (148) (168) (1) (182) (15) (168) 499 (182) 528 886 324 528 34 886 324 34 886 290 499 187 290 22 499 187 22 499 Year ended 31 December 2017 Year ended 6,076 31 December (5,285) 2017 (195) 6,076 596 (5,285) (195) 596 £m Year ended 31 December £m 2016 Year ended 4,190 31 December (4,330) 2016 466 4,190 326 (4,330) 466 326 162 156 156 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 A4.2: Assets and liabilities held for sale and distribution The following table presents detail of the assets and liabilities that have been classified as held for sale and distribution at 31 December 2017. More information on material assets and liabilities held for distribution can be found in the notes to which they relate and information on other held for sale assets and liabilities can be found in note A4.2.2. Accounting standards do not require comparative periods to be re-presented for assets and liabilities classified as held for sale and distribution. The comparative information at 31 December 2016 as presented in the consolidated statement of financial position therefore includes the assets and liabilities of the Group on a line-by-line basis. Note A4.2 should be read in conjunction with the consolidated statement of financial position to obtain a comparable view of the Group's assets and liabilities at 31 December 2017. At 31 December 2017 Held for distribution Held for sale Notes Nedbank Old Mutual Wealth Emerging Markets Nedbank Old Mutual Wealth Assets Goodwill and other intangible assets Mandatory reserve deposits with central banks Property, plant and equipment Investment property Deferred tax assets Investments in associated undertakings and joint ventures Deferred acquisition costs Reinsurers' share of policyholder liabilities Loans and advances Investments and securities Current tax receivable Trade, other receivables and other assets Derivative financial instruments Cash and cash equivalents Total assets Liabilities Life insurance contract liabilities Investment contract liabilities Third-party interests in consolidated funds Borrowed funds Provisions and accruals Deferred revenue Deferred tax liabilities Current tax payable Trade, other payables and other liabilities Amounts owed to bank depositors Derivative financial instruments Inter-segment funding – liabilities Total liabilities Net assets H1 664 1,201 H7(a) H3 G6.1 G1.1 G2.1 G4.1 G6.1 G6.1 G7.1 H5 H6 H7(b) G8.1 G4.1 1,147 531 – 11 401 – 6 42,391 9,468 13 1,044 1,785 1,009 58,470 136 1,082 – 3,078 – – 38 15 1,425 46,047 1,395 – 53,216 5,254 – 18 – 22 3 555 2,908 199 64,350 – 499 87 1,970 71,812 489 59,139 7,605 – 104 214 200 38 1,334 – 433 782 70,338 1,474 – – – 43 – – – – – – – – – – 43 – – – – – – – – – – – – – 43 – – 23 – – – – – – – – – – – 23 – – – – – – – – – – – – – 23 198 – – – 9 – 4 – – – – 204 – 147 562 – – – – – – – 33 186 – – – 219 343 Elimination of intra- segment balances – – – – – – – £m Total 2,063 1,147 572 43 42 404 559 – (23) – – (128) (30) (126) (307) 2,914 42,567 73,818 13 1,619 1,842 3,000 130,603 – – 625 60,221 – (47) – – – – (662) (281) (33) (782) (1,805) 1,498 7,605 3,031 104 214 238 86 2,283 45,766 1,795 – 121,968 8,635 163 157 i F n a n c a s l i Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued A: Significant accounting policies continued A4: Discontinued operations and disposal groups held for sale continued A: Significant accounting policies continued A4.2: Assets and liabilities held for sale and distribution continued A4: Discontinued operations and disposal groups held for sale continued The following table show the assets and liabilities that have been classified as held for sale at 31 December 2016. Refer to note A4.2.2 for more information: A4.2: Assets and liabilities held for sale and distribution continued The following table show the assets and liabilities that have been classified as held for sale at 31 December 2016. Refer to note A4.2.2 for At 31 December 2016 £m more information: Institutional Asset Management Institutional Asset 1,216 Management – 32 1,216 247 – 32 29 247 32 165 29 155 32 83 165 1,959 155 83 – 1,959 – 319 – 3 – – 319 4 3 67 – 388 4 781 67 1,178 388 781 1,178 £m Total 1,294 Total 116 53 1,294 250 116 53 29 250 95 6,354 29 282 95 97 6,354 8,570 282 97 10 8,570 6,154 319 10 6 6,154 5 319 25 6 67 5 460 25 7,046 67 1,524 460 7,046 1,524 At 31 December 2016 Assets Goodwill and other intangible assets Investment properties Assets Property, plant and equipment Goodwill and other intangible assets Deferred tax assets Investment properties Investments in associated undertakings Property, plant and equipment and joint ventures Deferred tax assets Deferred acquisition costs Investments in associated undertakings Investments and securities and joint ventures Other assets Deferred acquisition costs Cash and balances with central banks Investments and securities Total assets Other assets Liabilities Cash and balances with central banks Life insurance contract liabilities Total assets Investment contract liabilities Liabilities Borrowed funds Life insurance contract liabilities Provisions Investment contract liabilities Deferred revenue Borrowed funds Deferred tax liabilities Provisions Current tax payable Deferred revenue Other liabilities Deferred tax liabilities Total liabilities Current tax payable Net assets Other liabilities Total liabilities Net assets Emerging Markets Emerging – Markets 116 3 – – 116 3 – – – – – – – – – 119 – – – 119 – – – – – – – – – – – 1 – 1 – 118 1 1 118 Nedbank – Nedbank – 17 – – – 17 – – – – – – – – – 17 – – – 17 – – – – – – – – – – – – – – – 17 – – 17 Old Mutual Wealth Old Mutual 78 Wealth – 1 78 3 – 1 – 3 63 6,189 – 127 63 14 6,189 6,475 127 14 10 6,475 6,154 – 10 3 6,154 5 – 21 3 – 5 71 21 6,264 – 211 71 6,264 211 164 158 158 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 A4.2.1: Impairment testing relating to the assets held for sale and distribution At 31 December 2017, no impairment losses have been recognised for the Nedbank and Old Mutual Wealth businesses, which have been classified and presented as discontinued operations in the consolidated income statement and as held for distribution in the consolidated statement of financial position in terms of the requirements of IFRS 5 'Non-current Assets Held for Sale and Discontinued Operations'. This reflects the fact that fair value less cost to distribute of each business was determined to be in excess of the carrying value of each business at 31 December 2017. The fair value less cost to distribute of Nedbank was determined by reference to its quoted market price and the ZAR/GBP foreign exchange rate as at 31 December 2017. At 31 December 2017, the fair value less cost to distribute exceeded the carrying value of Nedbank. The Group therefore concluded that goodwill and other intangible assets related to the Nedbank are not impaired. The fair value less cost to distribute of Old Mutual Wealth is not observable in a quoted active market and accordingly it has been determined by reference to external broker valuation reports and an internal valuation performed for goodwill impairment testing. As such, the conclusion of this matter has required significant judgement and the use of estimates. At 31 December 2017, the Group has concluded that the fair value less costs to distribute exceeded the carrying value of Old Mutual Wealth and therefore no impairment losses of goodwill and other intangible assets have been recognised. In addition, no other impairments for property, plant and equipment, investment properties or other intangible assets have been recognised as a result of classifying these businesses as held for distribution. A4.2.2: Analysis of other held for sale assets and liabilities The following provides details of other significant held for sale assets and liabilities not analysed elsewhere in these consolidated financial statements: Emerging Markets Current and prior year At 31 December 2017, Emerging Markets classified as held for sale investment properties with a carrying value of £43 million (December 2016: £116 million) as it is expected that they will be sold within 12 months of the reporting date. Transfer of these properties is expected to complete within the next 12 months of the reporting date. Nedbank Current and prior year Following an internal review of its own office space requirements, at 31 December 2017, Nedbank classified as held for sale buildings with a carrying value of £23 million (2016: £17 million) that are no longer required and which are being marketed for sale. Old Mutual Wealth On 19 December 2017, the Group announced that it has agreed to sell the Single Strategy asset management business of Old Mutual Wealth to the Single Strategy Management team and funds managed by TA Associates. The proposed transaction is subject to customary closing conditions, including regulatory approvals and conditions relating to the transfer of the Multi-asset business to be retained by Old Mutual Wealth. At 31 December 2017, the related assets and liabilities have been classified as held for sale. Refer to note A2 for more information. No impairment loss was recognised in profit or loss for the year ended 31 December 2017, as the expected net proceeds of in the region of £600 million is in excess of the fair value of less cost to sell. Prior year On 9 August 2016, the Group announced that it had agreed to sell Old Mutual Wealth Italy, part of the Old Mutual Wealth business, to ERGO Italia (now renamed Phlavia Investimenti), subject to regulatory approval. From this date the business was disclosed as held for sale. The principal financial assets and liabilities included within these amounts were investments and securities of £6,189 million and investment contract liabilities of £6,164 million, all of which were classified as Level 1 in terms of the fair value hierarchy. A goodwill impairment loss of £46 million was recognised in profit or loss for the year ended 31 December 2016 as the net asset value of the business exceeded the net proceeds. The sale was completed on 9 January 2017. Institutional Asset Management Current and prior year On 9 March 2016, the Group announced its managed separation strategy, which included the phased reduction of its majority stake in OM Asset Management plc (OMAM), part of the Institutional Asset Management segment. As such, the assets and liabilities of OMAM were classified as held for sale at 31 December 2016. At 31 December 2016, the market value of the Group's investment in OMAM, based on its quoted share price, was £863 million, compared to a carrying value of £602 million. The Group therefore concluded that the goodwill related to OMAM was not impaired. At 31 December 2017, the Group held 1,000 shares in OMAM. Refer to note A2 for more information. 165 159 i F n a n c a s i l Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued A: Significant accounting policies continued A5: Liquidity analysis of the consolidated statement of financial position A: Significant accounting policies continued The Group's consolidated statement of financial position is in order of liquidity as is permitted by IAS 1 'Presentation of Financial Statements'. In order to satisfy the requirements of IAS 1, the following analysis is given to describe how the consolidated statement A5: Liquidity analysis of the consolidated statement of financial position of financial position lines are categorised between current and non-current balances, applying the principles laid out in IAS 1. The Group's consolidated statement of financial position is in order of liquidity as is permitted by IAS 1 'Presentation of Financial Statements'. In order to satisfy the requirements of IAS 1, the following analysis is given to describe how the consolidated statement The following consolidated statement of financial position captions are generally classified as current – cash and cash equivalents, non- of financial position lines are categorised between current and non-current balances, applying the principles laid out in IAS 1. current assets held for sale, current tax receivable, third-party interests in the consolidation of funds, current tax payable, liabilities under acceptances and non-current liabilities held for sale. The following balances are generally classified as non-current – goodwill and other The following consolidated statement of financial position captions are generally classified as current – cash and cash equivalents, non- intangible assets, mandatory reserve deposits with central banks, property, plant and equipment, investment property, deferred tax assets, current assets held for sale, current tax receivable, third-party interests in the consolidation of funds, current tax payable, liabilities under investments in associated undertakings and joint ventures, deferred acquisition costs, deposits held with reinsurers, provisions, deferred acceptances and non-current liabilities held for sale. The following balances are generally classified as non-current – goodwill and other revenue and deferred tax liabilities. intangible assets, mandatory reserve deposits with central banks, property, plant and equipment, investment property, deferred tax assets, investments in associated undertakings and joint ventures, deferred acquisition costs, deposits held with reinsurers, provisions, deferred The following balances include both current and non-current portions – reinsurers' shares of life assurance and property & casualty revenue and deferred tax liabilities. business policyholder liabilities, loans and advances, investments and securities, other assets, derivative financial assets and liabilities, life assurance and property & casualty policyholder liabilities, borrowed funds, amounts owed to bank depositors and other liabilities. The following balances include both current and non-current portions – reinsurers' shares of life assurance and property & casualty The split between the current and non-current portions for these assets and liabilities is given either by way of a footnote to the relevant business policyholder liabilities, loans and advances, investments and securities, other assets, derivative financial assets and liabilities, note to the accounts or by way of a maturity analysis (in respect of major financial liability captions). life assurance and property & casualty policyholder liabilities, borrowed funds, amounts owed to bank depositors and other liabilities. The split between the current and non-current portions for these assets and liabilities is given either by way of a footnote to the relevant A6: Standards, amendments to standards, and interpretations adopted in the 2017 annual note to the accounts or by way of a maturity analysis (in respect of major financial liability captions). financial statements A6: Standards, amendments to standards, and interpretations adopted in the 2017 annual The following amendments to the accounting standards, issued by the IASB and endorsed by the EU, have been adopted by the Group from 1 January 2017 with no material impact on the Group's consolidated results, financial position or disclosures: financial statements The following amendments to the accounting standards, issued by the IASB and endorsed by the EU, have been adopted by the Group  Amendments to IAS 12 'Income Taxes', recognition of deferred tax assets for unrealised losses, effective for annual periods beginning from 1 January 2017 with no material impact on the Group's consolidated results, financial position or disclosures: on or after 1 January 2017  Amendments to IAS 7 'Statement of Cash Flows', disclosure initiative, effective for annual periods beginning on or after 1 January 2017;  Amendments to IAS 12 'Income Taxes', recognition of deferred tax assets for unrealised losses, effective for annual periods beginning and on or after 1 January 2017  Amendments to IFRS 12 'Disclosure of Interests in other entities' (part of Improvements to IFRS 2014 to 2016 Cycle).  Amendments to IAS 7 'Statement of Cash Flows', disclosure initiative, effective for annual periods beginning on or after 1 January 2017; and A7: Future standards, amendments to standards and interpretations not early-adopted in the 2017  Amendments to IFRS 12 'Disclosure of Interests in other entities' (part of Improvements to IFRS 2014 to 2016 Cycle). annual financial statements A7: Future standards, amendments to standards and interpretations not early-adopted in the 2017 Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2017 reporting periods and have not been early adopted by the Group: annual financial statements Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2017 reporting  IFRS 9: 'Financial Instruments' periods and have not been early adopted by the Group:  IFRS 15: ‘Revenue from Contracts with Customers’  IFRS 16: ‘Leases’  IFRS 9: 'Financial Instruments'  IFRS 17: ‘Insurance Contracts’  IFRS 15: ‘Revenue from Contracts with Customers’  IFRS 16: ‘Leases’ There are no other standards that are not yet effective and that would be expected to have a material impact on the entity in the current  IFRS 17: ‘Insurance Contracts’ or future reporting periods and on foreseeable future transactions. There are no other standards that are not yet effective and that would be expected to have a material impact on the entity in the current One of the Group's associate investments, ETI, held by its' 55% percent subsidiary, Nedbank, will report results for the year ended or future reporting periods and on foreseeable future transactions. 31 December 2017 subsequent to the release of the Group's audited consolidated financial statements. As allowed by IAS 28, the Group uses ETI's most recent public information (the quarter ended 30 September 2017) to determine its share of ETI's earnings. As ETI's most One of the Group's associate investments, ETI, held by its' 55% percent subsidiary, Nedbank, will report results for the year ended recent public information does not include the transitional impact of IFRS 9 and IFRS 15, the Group's disclosure of the transitional impact 31 December 2017 subsequent to the release of the Group's audited consolidated financial statements. As allowed by IAS 28, the Group of these standards excludes our share of ETI's transitional impact. uses ETI's most recent public information (the quarter ended 30 September 2017) to determine its share of ETI's earnings. As ETI's most recent public information does not include the transitional impact of IFRS 9 and IFRS 15, the Group's disclosure of the transitional impact of these standards excludes our share of ETI's transitional impact. 166 160 160 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 IFRS 9 'Financial Instruments' IFRS 9: 'Financial Instruments' (IFRS 9) was issued in July 2014 and will replace IAS 39: Financial Instruments: Recognition and Measurement. The standard is effective and will be implemented by the Group from 1 January 2018. The final version of this standard incorporates amendments to the classification and measurement, hedge accounting guidance, as well as the accounting requirements for the impairment of financial assets measured at amortised cost and fair value through other comprehensive income. IFRS 7's enhanced disclosure requirements, as a result of the adoption if IFRS 9, will result in improved credit risk disclosures and increased transparency with respect to impairment judgements and estimates. The business that is most impacted by the implementation of IFRS 9 is Nedbank, which has been classified as held for distribution at 31 December 2017. As permitted by the transitional provisions of IFRS 9, the Group has elected not to restate comparative figures. Any adjustments to the carrying amount of financial assets and financial liabilities at the date of transition will be recognised in the opening retained earnings and other reserves at 1 January 2018. The Group has elected to continue to apply the hedge accounting requirements of IAS 39 on adoption of IFRS 9. Furthermore, on the adoption of IFRS 9, the Group has adopted the amendment to IFRS 9 'Prepayment Features with Negative Compensation'. Classification and measurement Financial assets are classified based on (i) the business model within which the financial assets are held and managed and (ii) the contractual cash flow characteristics of the financial assets, whether the cash flows represent 'solely payments of principal and interest'. Financial assets are measured at amortised cost if they are held within a business model whose objective is to hold those assets for the purpose of collecting contractual cashflows and those cashflows comprise solely payments of principal and interest ('hold to collect' business model). Financial assets are measured at fair value through other comprehensive income (FVOCI) if they are held within a business model whose objective is achieved by both collecting contractual cashflows and selling financial assets and those contractual cashflows comprise solely payments of principal and interest ('hold to collect and sell' business model'). Movements in the carrying amount of these financial assets should be taken through other comprehensive income (OCI), except for impairment gains or losses, interest revenue and foreign exchange gains or losses, which are recognised in profit or loss. Where the financial asset is derecognised, the cumulative gain or loss previously recognised in OCI is reclassified from equity to profit or loss. The remaining financial assets are measured at fair value through profit or loss (FVTPL). All derivative instruments that are either financial assets or financial liabilities will continue to be classified as held for trading and measured at fair value through profit or loss. The accounting for financial liabilities is largely unchanged, except for financial liabilities designated at FVTPL. Changes in the fair value of these financial liabilities that are attributable to the Group's own credit risk are recognised in OCI. Where the financial liability is derecognised, the cumulative gain or loss previously recognised in OCI is not reclassified from equity to profit or loss. However, it may be reclassified within equity. For equity investments that are neither held for trading nor contingent consideration, the Group may irrevocably elect to present subsequent changes in fair value of these equity investments in other comprehensive income (OCI). Where the equity investment is derecognised, the cumulative gain or loss previously recognised in OCI is not reclassified from equity to profit or loss. However, it may be reclassified within equity. Alternatively where the Group does not make the aforementioned election, fair value changes are recognised in profit or loss. This election is made on an investment by investment basis. On the initial application of IFRS 9, an entity may revoke its previous designation of financial assets and financial liabilities measured at fair value through profit or loss (fair value option) with the loans being reclassified into amortised cost or FVOCI depending on the entity's business model for the asset. 167 161 i F n a n c a s l i Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued A: Significant accounting policies continued A7: Future standards, amendments to standards and interpretations not early-adopted in the 2017 A: Significant accounting policies continued annual financial statements continued A7: Future standards, amendments to standards and interpretations not early-adopted in the 2017 IFRS 9 'Financial Instruments' continued annual financial statements continued Impairments IFRS 9 'Financial Instruments' continued Impairments in terms of IFRS 9 will be determined based on an expected credit loss (ECL) model rather than the current incurred loss model required by IAS 39. The Group will be required to recognise an allowance for either 12-month or lifetime ECLs, depending on Impairments whether there has been a significant increase in credit risk since initial recognition. Impairments in terms of IFRS 9 will be determined based on an expected credit loss (ECL) model rather than the current incurred loss model required by IAS 39. The Group will be required to recognise an allowance for either 12-month or lifetime ECLs, depending on The measurement of ECLs reflects a probability-weighted outcome, the time value of money and the entity's best available forward-looking whether there has been a significant increase in credit risk since initial recognition. information. The aforementioned probability-weighted outcome must consider the possibility that a credit loss occurs and the possibility that no credit loss occurs, even if the possibility of a credit loss occurring is low. The measurement of ECLs reflects a probability-weighted outcome, the time value of money and the entity's best available forward-looking information. The aforementioned probability-weighted outcome must consider the possibility that a credit loss occurs and the possibility The ECL model applies to financial assets measured at amortised cost and FVOCI, lease receivables and certain loan commitments that no credit loss occurs, even if the possibility of a credit loss occurring is low. as well as financial guarantee contracts. The ECL model applies to financial assets measured at amortised cost and FVOCI, lease receivables and certain loan commitments The IFRS 9 impairment implementation progressed during 2017. The following were the main areas of focus for 2017: as well as financial guarantee contracts.  Finalisation of the IFRS 9 impairment model methodology The IFRS 9 impairment implementation progressed during 2017. The following were the main areas of focus for 2017:  Implementation of an IT framework facilitating efficient model execution and management  Development, build and testing of IFRS 9 impairment models with respect to a substantial portion of the Group's portfolios, leveraging  Finalisation of the IFRS 9 impairment model methodology  Implementation of an IT framework facilitating efficient model execution and management  Documentation and implementation of the relevant control environment and related governance processes.  Development, build and testing of IFRS 9 impairment models with respect to a substantial portion of the Group's portfolios, leveraging off the aforementioned IT framework; and off the aforementioned IT framework; and Transitional impact  Documentation and implementation of the relevant control environment and related governance processes. The implementation of the IFRS 9 ECL requirements increases balance sheet impairments, predominantly in loans and advances, at 1 January 2018 by approximately £244 million with reserves decreasing by approximately £176 million on an after-tax basis. The Transitional impact following areas will continue to receive attention as the implementation of IFRS 9 progresses during the 2018 financial reporting period: The implementation of the IFRS 9 ECL requirements increases balance sheet impairments, predominantly in loans and advances, at 1 January 2018 by approximately £244 million with reserves decreasing by approximately £176 million on an after-tax basis. The  The embedding of the IT framework into the operations of the business following areas will continue to receive attention as the implementation of IFRS 9 progresses during the 2018 financial reporting period:  Further refinement of certain models  the documentation; implementation of the relevant control environment and related governance processes  The embedding of the IT framework into the operations of the business  Finalisation of the reporting and disclosure framework, and completion of the supporting business rules; and  Further refinement of certain models  Observing local and international industry trends with respect to IFRS 9 adoption.  the documentation; implementation of the relevant control environment and related governance processes  Finalisation of the reporting and disclosure framework, and completion of the supporting business rules; and The majority of the impact of the adoption of IFRS 9 ECL requirements will be in Nedbank, which is the Group's 55% owned subsidiary.  Observing local and international industry trends with respect to IFRS 9 adoption. Nedbank has reported that they are expecting increases in balance sheet impairments at 1 January 2018 by approximately £190 million with reserves decreasing by approximately £137 million on an after-tax basis. The majority of the impact of the adoption of IFRS 9 ECL requirements will be in Nedbank, which is the Group's 55% owned subsidiary. Nedbank has reported that they are expecting increases in balance sheet impairments at 1 January 2018 by approximately £190 million The impact on reserves of the new impairment requirements is management's best estimate and this could change when the financial with reserves decreasing by approximately £137 million on an after-tax basis. statements are presented for the year ending 31 December 2018. The impact on reserves of the new impairment requirements is management's best estimate and this could change when the financial The Group has implemented the following classification and measurement changes on adoption of IFRS 9: statements are presented for the year ending 31 December 2018.  Revocation of the fair value through profit or loss designation for certain loans and advances, amounts owed to depositors and long- The Group has implemented the following classification and measurement changes on adoption of IFRS 9:  Revocation of the fair value through profit or loss designation for certain loans and advances, amounts owed to depositors and long- term debt instruments to facilitate the implementation of macro fair-value hedge accounting of interest rate risk and hedge accounting of inflation risk. It is anticipated that the aforementioned changes will reduce accounting volatility experienced with respect to fair value through profit or loss accounting; term debt instruments to facilitate the implementation of macro fair-value hedge accounting of interest rate risk and hedge accounting of inflation risk. It is anticipated that the aforementioned changes will reduce accounting volatility experienced with respect to fair value mismatch; through profit or loss accounting;  Classified certain debt instruments as Fair Value through Profit or loss in order to eliminate or significantly reduce an accounting  Reclassified certain loans from amortised cost including the IFRS 9 ECL impact above to FVOCI and FVTPL due to the Group's  Classified certain debt instruments as Fair Value through Profit or loss in order to eliminate or significantly reduce an accounting business models for the affected portfolios; and mismatch;  Reviewed the effective interest rate calculation for certain loans based on the additional guidance provided in IFRS 9.  Reclassified certain loans from amortised cost including the IFRS 9 ECL impact above to FVOCI and FVTPL due to the Group's business models for the affected portfolios; and  Reviewed the effective interest rate calculation for certain loans based on the additional guidance provided in IFRS 9. 168 162 162 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 The current estimates of the impact of the implementation of the IFRS 9 classification and measurement requirements decreases reserves at 1 January 2018 by approximately £27 million, £12 million of which relating to the businesses classified as held for distribution and £15 million relating to the continuing businesses. Ongoing work is continuing in the group to finalise the implementation of classification and measurement. Therefore, these estimates are based on current information available and accounting policies, assumptions, judgements and estimation techniques which will be regularly reviewed and assessed during the year in preparation for the financial statements for the year ending 31 December 2018. The impact of the adoption in the standards is not expected to result in the capital ratios of the businesses being below their statutory minimum. IFRS 15 'Revenue from Contracts with Customers' IFRS 15 'Revenue from Contracts with Customers' (IFRS 15)replaces all existing revenue requirements in IFRS and applies to all revenue arising from contracts with clients, unless the contracts are in the scope of the standards on leases, insurance contracts and financial instruments. The standard is effective and will be implemented by the Group from 1 January 2018. The Group has applied the standard retrospectively with the cumulative effect of initial application recognised in opening retained earnings at 1 January 2018 and accordingly the Group will not restate comparative figures. The core principle of the standard is that revenue recognised reflects the consideration to which the company expects to be entitled in exchange for the transfer of promised goods or services to the client. The standard incorporates a five-step analysis to determine the amount and timing of revenue recognition. Nedbank performed an assessment to determine the impact of the new standard on the Group's statement of financial position and performance, which has to date resulted in the measurement of the Group's customer loyalty programmes being reviewed. Nedbank has concluded that loyalty points awarded to clients represent consideration payable to our customer's customer in terms of IFRS 15's guidance. IFRS 15 requires revenue to be decreased by the amount expected to be payable to customers, which is recognised as a liability until payment is affected. The liability for the amount expected to be paid to customers under the loyalty programme increases by approximately £18 million on transition and £13 million on an after-tax basis. Based on a high level evaluation by the other businesses the Group has assessed that there should be no material impacts on the adoption of the standard although this work, principally in the asset management business, is ongoing. IFRS 16 'Leases' IFRS 16 'Leases' (IFRS 16) was issued in January 2016 and replaces IAS 17 Leases and its related interpretations for reporting periods beginning on or after 1 January 2019. All of the Group's businesses will be impacted by the adoption of IFRS 16. The Group as lessee: IFRS 16 introduces a 'right of use' model whereby the lessee recognises a right-of-use asset and an associated financial obligation to make lease payments for all leases with a term of more than 12 months. The asset will be amortised over the lease term and the financial liability measured at amortised cost with interest recognised in profit or loss using the effective interest rate method. The Group as lessor: IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17. Accordingly, a lessor continues to classify and account for its leases as operating leases or finance leases. The Group is in the process of assessing the impact of IFRS 16 and which transitional approach it will follow. IFRS 17 'Insurance Contracts' The IASB issued IFRS 17 'Insurance Contracts' (IFRS 17) in May 2017 as a replacement for IFRS 4 Insurance Contracts. The adoption of this standard will primarily impact the Emerging Markets and Old Mutual Wealth businesses. The new IFRS 17 standard is effective for reporting periods beginning on or after 1 January 2021. The new rules will affect the financial statements and key performance indicators of all entities in the Group that issue insurance contracts or investment contracts with discretionary participation features. The Group will commence assessing the impact of IFRS 17 during 2018. 169 163 i F n a n c a s l i Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued B: Segment information B1: Basis of segmentation B: Segment information Segment presentation B1: Basis of segmentation Composition of segments Segment presentation The Group's reported segments are Emerging Markets, Nedbank, Old Mutual Wealth, Institutional Asset Management (IAM) and plc Head Office, (which includes the plc Parent Company and the other centre companies of the Group, which typically own and manage Composition of segments the Group's interests). In determining the Group's adjusted operating profit (AOP), all these businesses have been classified as core The Group's reported segments are Emerging Markets, Nedbank, Old Mutual Wealth, Institutional Asset Management (IAM) and plc operations for all reporting periods. For all reporting periods, Old Mutual Bermuda is classified as non-core in determining the Head Office, (which includes the plc Parent Company and the other centre companies of the Group, which typically own and manage Group's AOP. the Group's interests). In determining the Group's adjusted operating profit (AOP), all these businesses have been classified as core operations for all reporting periods. For all reporting periods, Old Mutual Bermuda is classified as non-core in determining the For the years ended 31 December 2017 and 31 December 2016, Emerging Markets and plc Head Office and Old Mutual Bermuda Group's AOP. have been classified as continuing operations in the IFRS consolidated income statement, while Nedbank and Old Mutual Wealth have been classified as discontinued operations for the years ended 31 December 2017 and 31 December 2016. IAM was classified as a For the years ended 31 December 2017 and 31 December 2016, Emerging Markets and plc Head Office and Old Mutual Bermuda discontinued operation in the IFRS consolidated income statement for the year ended 31 December 2016. The classification of these have been classified as continuing operations in the IFRS consolidated income statement, while Nedbank and Old Mutual Wealth have businesses as discontinued operations is consistent with the requirements of IFRS, given the Group's stated strategic intentions. been classified as discontinued operations for the years ended 31 December 2017 and 31 December 2016. IAM was classified as a discontinued operation in the IFRS consolidated income statement for the year ended 31 December 2016. The classification of these Nedbank and Old Mutual Wealth have further been classified as held for distribution in the consolidated statement of financial position businesses as discontinued operations is consistent with the requirements of IFRS, given the Group's stated strategic intentions. at 31 December 2017. IAM was classified as held for sale at 31 December 2016. Refer to note A4 for more information. Nedbank and Old Mutual Wealth have further been classified as held for distribution in the consolidated statement of financial position Consolidation adjustments comprise the consolidation of investment funds and eliminations of inter-segment transactions. at 31 December 2017. IAM was classified as held for sale at 31 December 2016. Refer to note A4 for more information. Segmental treatment of businesses classified as discontinued operations Consolidation adjustments comprise the consolidation of investment funds and eliminations of inter-segment transactions. Consistent with the Group's AOP policy as described in the basis of preparation of adjusted operating profit on page 145, the Group has continued to recognise Nedbank, Old Mutual Wealth's and IAM operating results within the Group's AOP despite these businesses being Segmental treatment of businesses classified as discontinued operations classified as discontinued operations in the IFRS consolidated income statement. The results of IAM have been included in 2016 and Consistent with the Group's AOP policy as described in the basis of preparation of adjusted operating profit on page 145, the Group has 2017 to the extent that it was a subsidiary or an associate. continued to recognise Nedbank, Old Mutual Wealth's and IAM operating results within the Group's AOP despite these businesses being classified as discontinued operations in the IFRS consolidated income statement. The results of IAM have been included in 2016 and During the year, the Group sold down its holding in IAM through a number of separate transactions which were completed on 18 2017 to the extent that it was a subsidiary or an associate. November 2017. As a result of these transactions the IAM operating segment for the year ended 31 December 2017 includes the consolidated operating results of OMAM for the period from 1 January 2017 to 19 May 2017, at which time Group ceased to have a During the year, the Group sold down its holding in IAM through a number of separate transactions which were completed on 18 controlling interest, and exerted significant influence over OMAM. Consistent with accounting guidance applicable where an associate November 2017. As a result of these transactions the IAM operating segment for the year ended 31 December 2017 includes the investment is classified as held for sale, the Group’s remaining investment in OMAM was recorded as an investment in securities from consolidated operating results of OMAM for the period from 1 January 2017 to 19 May 2017, at which time Group ceased to have a 19 May 2017 to 30 June 2017. From 1 July 2017 to 18 November 2017, the Group’s remaining interest in OMAM was reflected as controlling interest, and exerted significant influence over OMAM. Consistent with accounting guidance applicable where an associate an investment in securities. On 18 November 2017, the Group’s stake in OMAM further reduced to 1,000 shares which are currently investment is classified as held for sale, the Group’s remaining investment in OMAM was recorded as an investment in securities from recorded as investments and securities within the plc Head Office segment. Refer to note A2 for more information. The operating result 19 May 2017 to 30 June 2017. From 1 July 2017 to 18 November 2017, the Group’s remaining interest in OMAM was reflected as of IAM for the year ended 31 December 2016 also includes Rogge Global Partners Limited up to the date of disposal on 31 May 2016. an investment in securities. On 18 November 2017, the Group’s stake in OMAM further reduced to 1,000 shares which are currently Amendments to the segmental basis of preparation of AOP during the year. recorded as investments and securities within the plc Head Office segment. Refer to note A2 for more information. The operating result of IAM for the year ended 31 December 2016 also includes Rogge Global Partners Limited up to the date of disposal on 31 May 2016. The long-term investment return on excess assets, previously shown within plc Head Office segment is now included in AOP of the Amendments to the segmental basis of preparation of AOP during the year. Emerging Markets segment for all periods. This is consistent with where the excess assets are managed and will be managed in the future. Comparative information in the adjusted operating profit statement – segment information for the year ended 31 December 2016 The long-term investment return on excess assets, previously shown within plc Head Office segment is now included in AOP of the has been re-presented accordingly. Emerging Markets segment for all periods. This is consistent with where the excess assets are managed and will be managed in the future. Comparative information in the adjusted operating profit statement – segment information for the year ended 31 December 2016 Effective 1 January 2017, management of Old Mutual Life Assurance Company (South Africa) Limited offshore branches and OMI- has been re-presented accordingly. Guernsey, previously reported in the Old Mutual Wealth segment, have been transferred to Emerging Markets as part of the execution of the Group's managed separation strategy. Comparative information in the consolidated statement of financial position – segment Effective 1 January 2017, management of Old Mutual Life Assurance Company (South Africa) Limited offshore branches and OMI- information at 31 December 2016 (note B4) has been re-presented by transferring total assets of £2,237 million and total liabilities of Guernsey, previously reported in the Old Mutual Wealth segment, have been transferred to Emerging Markets as part of the execution £2,208 million, from Old Mutual Wealth to Emerging Markets. The operating results of these segments have not been re-presented in of the Group's managed separation strategy. Comparative information in the consolidated statement of financial position – segment 2016 as the income statement impact is considered not material. These changes did not affect the total equity, adjusted operating profit information at 31 December 2016 (note B4) has been re-presented by transferring total assets of £2,237 million and total liabilities of or profit after tax of the Group as previously reported. £2,208 million, from Old Mutual Wealth to Emerging Markets. The operating results of these segments have not been re-presented in 2016 as the income statement impact is considered not material. These changes did not affect the total equity, adjusted operating profit Other changes in segmental presentation or profit after tax of the Group as previously reported. During 2017 the Group performed a further analysis of the investment and securities held by consolidated investment funds which resulted in the identification of 64 million Old Mutual plc shares at 31 December 2017 (2016: 61 million; 2015: 51 million shares) held by these Other changes in segmental presentation funds. These shares in Old Mutual plc have been treated as treasury shares and consequentially resulted in a direct decrease in the value During 2017 the Group performed a further analysis of the investment and securities held by consolidated investment funds which resulted of equity and the value of investment and securities of £163 million (2016: £145 million). Comparative information in the consolidated in the identification of 64 million Old Mutual plc shares at 31 December 2017 (2016: 61 million; 2015: 51 million shares) held by these statement of financial position, consolidated statement of changes in equity and Comparative information in the consolidated statement funds. These shares in Old Mutual plc have been treated as treasury shares and consequentially resulted in a direct decrease in the value of financial position – segment information at 31 December 2016 (note B4) have been restated accordingly. An opening adjustment of equity and the value of investment and securities of £163 million (2016: £145 million). Comparative information in the consolidated of £116 million was recognised directly in reserves at 1 January 2016. The consolidated income statement for the year ended statement of financial position, consolidated statement of changes in equity and Comparative information in the consolidated statement 31 December 2016 has not been restated as the impact is considered to be not material. of financial position – segment information at 31 December 2016 (note B4) have been restated accordingly. An opening adjustment of £116 million was recognised directly in reserves at 1 January 2016. The consolidated income statement for the year ended 31 December 2016 has not been restated as the impact is considered to be not material. 170 164 164 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 The consolidated income statement for the year ended 31 December 2016 has been restated for the reallocation of other operating and administrative expenses to fee and commission expenses, and other acquisition costs. This restatement had no impact on the net assets or equity attributable to ordinary equity holders of the Group. Assessment of performance The Group's segmental results are analysed and reported on a basis consistent with the way that management and the Board of Old Mutual plc assesses performance of the underlying businesses and allocates resources. Information is presented to the Board on a consolidated basis in pounds sterling (the presentation currency) and in the functional currency of each business. Adjusted operating profit is one of the key measures reported to the Group's management and Board of directors for their consideration in the allocation of resources to, and the review of, the performance of the segments. As appropriate to the business line, the Board reviews additional measures to assess the performance of each of the segments. These typically include sales, net client cash flows, funds under management, gross earned premiums, underwriting results, net interest income, non-interest revenue and credit losses. Consistent with internal reporting, assets, liabilities, revenues and expenses that are not directly attributable to a particular segment are allocated between segments where appropriate and where there is a reasonable basis for doing so. The Group accounts for inter-segment revenues and transfers as if the transactions were with third parties at current market prices. Revenues generated by the segments The revenues generated in each reported segment can be seen in the analysis of profits and losses in note B3. The segmental information in notes B3 and B4, reflects the adjusted and IFRS measures of profit or loss and the assets and liabilities for each operating segment as provided to management and the Board of directors. There are no differences between the measurement of the assets and liabilities reflected in the primary statements and that reported for the segments. The Group is primarily engaged in the following business activities from which it generates revenue: life assurance (premium income), asset management (fee and commission income), banking (banking interest receivable and investment banking income) and property & casualty (premium income). Other revenue includes gains and losses on investment securities. An analysis of segment revenues and expenses and the Group's revenues and expenses is shown in note B3. The principal lines of business from which each operating segment derives its revenues are as follows: Core operations, continuing businesses:  Emerging Markets – life assurance, property & casualty, asset management and banking Core operations, discontinued businesses:  Nedbank – banking, asset management and life assurance  Old Mutual Wealth – life assurance and asset management  Institutional Asset Management – asset management Non-core operations, continuing businesses: Old Mutual Bermuda – life assurance B2: Gross earned premiums and deposits to investment contracts Year ended 31 December 2017 Life insurance contracts Life assurance – investment contracts with discretionary participation features Property & casualty Gross earned premiums Life assurance – unit-linked and similar contracts and other investment contracts recognised as deposits Year ended 31 December 2016 (Re-presented)¹ Life insurance contracts Life assurance – investment contracts with discretionary participation features Property & casualty Gross earned premiums Life assurance – unit-linked and similar contracts and other investment contracts recognised as deposits 1 The year ended 31 December 2016 has been re-presented to reflect Old Mutual Wealth as a discontinued operation. Refer to note A4 for more information. £m Emerging Markets 1,639 1,645 941 4,225 1,887 £m Emerging Markets 1,393 1,525 808 3,726 1,656 171 165 i F n a n c a s i l Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued B: Segment information continued B3: Adjusted operating profit statement – segment information for the year ended B: Segment information continued 31 December 2017 B3: Adjusted operating profit statement – segment information for the year ended 31 December 2017 Notes Emerging Markets Nedbank B2 Notes B2 D2 D3 D4 D2 D5 D3 D4 D5 Revenue Gross earned premiums Outward reinsurance Revenue Net earned premiums Gross earned premiums Investment return (non-banking) Outward reinsurance Banking interest and similar income Net earned premiums Banking trading, investment and similar income Investment return (non-banking) Fee and commission income, and income from service activities Banking interest and similar income Other income Banking trading, investment and similar income Total revenue2 Fee and commission income, and income from service activities Expenses Other income Claims and benefits (including change in insurance contract provisions) Total revenue2 Reinsurance recoveries Expenses Net claims and benefits incurred Claims and benefits (including change in insurance contract provisions) Change in investment contract liabilities Reinsurance recoveries Credit impairment charges Net claims and benefits incurred Finance costs Change in investment contract liabilities Banking interest payable and similar expenses Credit impairment charges Fee and commission expenses, and other acquisition costs Finance costs Change in third-party interest in consolidated funds Banking interest payable and similar expenses Other operating and administrative expenses Fee and commission expenses, and other acquisition costs Income tax attributable to policyholder returns Change in third-party interest in consolidated funds Total expenses Other operating and administrative expenses Share of associated undertakings' and joint ventures' profits/(losses) after tax Income tax attributable to policyholder returns Profit on disposal of subsidiaries, associated undertakings and strategic investments Total expenses Adjusted operating profit/(loss) before tax and non-controlling interests Share of associated undertakings' and joint ventures' profits/(losses) after tax Income tax expense Profit on disposal of subsidiaries, associated undertakings and strategic investments Non-controlling interests Adjusted operating profit/(loss) before tax and non-controlling interests Adjusted operating profit/(loss) after tax and non-controlling interests Income tax expense Adjusting items after tax and non-controlling interests Non-controlling interests Profit/(loss) after tax from continuing operations Adjusted operating profit/(loss) after tax and non-controlling interests Profit from discontinued operations after tax Adjusting items after tax and non-controlling interests Profit/(loss) after tax attributable to equity holders of the parent Profit/(loss) after tax from continuing operations Profit from discontinued operations after tax 1 The Basis of preparation, in note B1, explains the amendments to the segmental basis of preparation of AOP, the composition of the segments and the segmental treatment Profit/(loss) after tax attributable to equity holders of the parent of businesses classified as discontinued operations 2 Included within total revenue prior to consolidation adjustments are the following amounts derived from inter-segment trading: Emerging Markets: £73 million (2016: £75 million); 1 The Basis of preparation, in note B1, explains the amendments to the segmental basis of preparation of AOP, the composition of the segments and the segmental treatment Emerging 4,225 Markets (391) 3,834 4,225 4,804 (391) 256 3,834 6 4,804 690 256 117 6 9,707 690 117 (5,417) 9,707 315 (5,102) (5,417) (1,770) 315 (42) (5,102) (42) (1,770) (75) (42) (526) (42) – (75) (1,302) (526) (81) – (8,940) (1,302) 10 (81) – (8,940) 777 10 (214) – (27) 777 536 (214) 58 (27) 594 536 – 58 594 594 – 594 – Nedbank – – – – – 4,382 – 283 – 1,101 4,382 24 283 5,790 1,101 24 – 5,790 – – – – – (193) – – – (2,731) (193) (9) – – (2,731) (1,845) (9) – – (4,778) (1,845) (49) – – (4,778) 963 (49) (244) – (351) 963 368 (244) 7 (351) 375 368 – 7 375 375 – 375 Nedbank: £11 million (2016: £9 million); Old Mutual Wealth: £5 million (2016: £2 million) and Institutional Asset Management: £2 million (2016: £6 million). of businesses classified as discontinued operations D9 I2(a) C1(c) I2(a) D1(a) C1(c) D6 D7 D8 D6 D7 D9 D8 D1(a) C1(a) A4.1 C1(a) A4.1 2 Included within total revenue prior to consolidation adjustments are the following amounts derived from inter-segment trading: Emerging Markets: £73 million (2016: £75 million); Nedbank: £11 million (2016: £9 million); Old Mutual Wealth: £5 million (2016: £2 million) and Institutional Asset Management: £2 million (2016: £6 million). 172 166 166 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Old Mutual Wealth Old Mutual 148 Wealth (87) 61 148 4,425 (87) – 61 – 4,425 1,276 – (2) – 5,760 1,276 (2) (155) 5,760 139 (16) (155) (4,308) 139 – (16) – (4,308) – – (295) – – – (712) (295) (66) – (5,397) (712) – (66) – (5,397) 363 – (44) – – 363 319 (44) (220) – 99 319 – (220) 99 99 – 99 Institutional Asset Management Institutional Asset – Management – – – 6 – – – – 6 207 – – – 213 207 – – 213 – – – – – – – (6) – – – (5) (6) – – (147) (5) – – (158) (147) 9 – – (158) 64 9 (18) – (20) 64 26 (18) (14) (20) 12 26 – (14) 12 12 – 12 plc Head Office1 Consolidation adjustments1 plc Head – Office1 – – – 6 – – – – 6 – – – – 6 – – – 6 – – – – – – – (66) – – – – (66) – – (70) – – – (136) (70) – – – (136) (130) – 43 – – (130) (87) 43 (84) – (171) (87) – (84) (171) (171) – (171) Consolidation – adjustments1 – – – 1,390 – – – – 1,390 (12) – (17) – 1,361 (12) (17) – 1,361 – – – – – – – – – – – (70) – (1,309) – 18 (70) – (1,309) (1,361) 18 – – – (1,361) – – – – – – – – (24) – (24) – – (24) (24) (24) – (24) Adjusted operating profit Adjusted operating 4,373 profit (478) 3,895 4,373 10,631 (478) 4,638 3,895 289 10,631 3,262 4,638 122 289 22,837 3,262 122 (5,572) 22,837 454 (5,118) (5,572) (6,078) 454 (235) (5,118) (114) (6,078) (2,806) (235) (905) (114) (1,309) (2,806) (4,058) (905) (147) (1,309) (20,770) (4,058) (30) (147) – (20,770) 2,037 (30) (477) – (398) 2,037 1,162 (477) (277) (398) 885 1,162 – (277) 885 885 – 885 Adjusting items (note C1) Adjusting items – (note C1) – – – 46 – – – – 46 (12) – – – 34 (12) – – 34 – – – – – – – (126) – – – 20 (126) – – (491) 20 147 – (450) (491) (6) 147 197 (450) (225) (6) (101) 197 49 (225) (277) (101) 277 49 – (277) – 277 – – – – Non-core operations1 Discontinued operations1 Non-core – operations1 – – – (26) – – – – (26) – – – – (26) – – 67 (26) – 67 67 – – – 67 – – – – – – – – (15) – – – 52 (15) – – – 52 26 – (2) – – 26 24 (2) – – 24 24 – – 24 24 – 24 Discontinued (148) operations1 87 (61) (148) (5,174) 87 (4,382) (61) (283) (5,174) (2,577) (4,382) (12) (283) (12,489) (2,577) (12) 155 (12,489) (139) 16 155 4,308 (139) 193 16 6 4,308 2,731 193 361 6 644 2,731 2,988 361 – 644 11,247 2,988 45 – (24) 11,247 (1,221) 45 340 (24) – (1,221) (881) 340 – – (881) (881) 881 – – (881) 881 – £m IFRS Income £m statement IFRS Income 4,225 statement (391) 3,834 4,225 5,477 (391) 256 3,834 6 5,477 673 256 110 6 10,356 673 110 (5,350) 10,356 315 (5,035) (5,350) (1,770) 315 (42) (5,035) (234) (1,770) (75) (42) (524) (234) (665) (75) (1,576) (524) – (665) (9,921) (1,576) 9 – 173 (9,921) 617 9 (240) 173 (349) 617 28 (240) – (349) 28 28 881 – 909 28 881 909 173 167 167 i i F n a n c F a n s a n c a s i l i l Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued B: Segment information continued B3: Adjusted operating profit statement – segment information for the year ended B: Segment information continued 31 December 2016 (Restated)1 B3: Adjusted operating profit statement – segment information for the year ended 31 December 2016 (Restated)1 Notes Emerging Markets Nedbank B2 Notes B2 D2 D3 D4 D2 D5 D3 D4 D5 Revenue Gross earned premiums Outward reinsurance Revenue Net earned premiums Gross earned premiums Investment return (non-banking) Outward reinsurance Banking interest and similar income Net earned premiums Banking trading, investment and similar income Investment return (non-banking) Fee and commission income, and income from service activities Banking interest and similar income Other income Banking trading, investment and similar income Total revenue Fee and commission income, and income from service activities Expenses Other income Claims and benefits (including change in insurance contract provisions) Total revenue Reinsurance recoveries Expenses Net claims and benefits incurred Claims and benefits (including change in insurance contract provisions) Change in investment contract liabilities Reinsurance recoveries Credit impairment charges Net claims and benefits incurred Finance costs Change in investment contract liabilities Banking interest payable and similar expenses Credit impairment charges Fee and commission expenses, and other acquisition costs Finance costs Change in third-party interest in consolidated funds Banking interest payable and similar expenses Other operating and administrative expenses Fee and commission expenses, and other acquisition costs Income tax attributable to policyholder returns Change in third-party interest in consolidated funds Total expenses Other operating and administrative expenses Share of associated undertakings' and joint ventures' profits/(losses) after tax Income tax attributable to policyholder returns Loss on disposal of subsidiaries, associated undertakings and strategic investments Total expenses Adjusted operating profit/(loss) before tax and non-controlling interests Share of associated undertakings' and joint ventures' profits/(losses) after tax Income tax expense Loss on disposal of subsidiaries, associated undertakings and strategic investments Non-controlling interests Adjusted operating profit/(loss) before tax and non-controlling interests Adjusted operating profit/(loss) after tax and non-controlling interests Income tax expense Adjusting items after tax and non-controlling interests Non-controlling interests Profit/(loss) after tax from continuing operations Adjusted operating profit/(loss) after tax and non-controlling interests Profit from discontinued operations after tax Adjusting items after tax and non-controlling interests Profit/(loss) after tax attributable to equity holders of the parent Profit/(loss) after tax from continuing operations Profit from discontinued operations after tax 1 The Basis of preparation, in note B1, explains the amendments to the segmental basis of preparation of AOP, the composition of the segments and the segmental treatment of Profit/(loss) after tax attributable to equity holders of the parent businesses classified as discontinued operations. Emerging 3,726 Markets (314) 3,412 3,726 1,834 (314) 229 3,412 14 1,834 588 229 64 14 6,141 588 64 (3,507) 6,141 222 (3,285) (3,507) (545) 222 (44) (3,285) (33) (545) (90) (44) (430) (33) – (90) (1,035) (430) (50) – (5,512) (1,035) 10 (50) – (5,512) 639 10 (170) – (17) 639 452 (170) (100) (17) 352 452 – (100) 352 352 – 352 – Nedbank – – – – – 3,677 – 241 – 922 3,677 24 241 4,864 922 24 – 4,864 – – – – – (228) – – – (2,311) (228) (8) – – (2,311) (1,512) (8) – – (4,059) (1,512) (6) – – (4,059) 799 (6) (199) – (288) 799 312 (199) (30) (288) 282 312 – (30) 282 282 – 282 D9 I2(a) C1(c) I2(a) D1(a) C1(c) D6 D7 D8 D6 D7 D9 D8 D1(a) C1(a) A4.1 C1(a) A4.1 1 The Basis of preparation, in note B1, explains the amendments to the segmental basis of preparation of AOP, the composition of the segments and the segmental treatment of businesses classified as discontinued operations. 174 168 168 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Old Mutual Wealth Old Mutual 142 Wealth (84) 58 142 5,827 (84) – 58 – 5,827 1,168 – 11 – 7,064 1,168 11 (199) 7,064 169 (30) (199) (5,671) 169 – (30) – (5,671) – – (392) – – – (617) (392) (94) – (6,804) (617) – (94) – (6,804) 260 – (47) – – 260 213 (47) (217) – (4) 213 – (217) (4) (4) – (4) Institutional Asset Management Institutional Asset – Management – – – – – – – – – 500 – 1 – 501 500 1 – 501 – – – – – – – (6) – – – (9) (6) – – (356) (9) – – (371) (356) 11 – – (371) 141 11 (36) – (36) 141 69 (36) 3 (36) 72 69 – 3 72 72 – 72 plc Head Office1 plc Head – Office1 – – – 34 – – – – 34 – – – – 34 – – – 34 – – – – – – – (88) – – – – (88) – – (118) – – – (206) (118) – – – (206) (172) – 54 – – (172) (118) 54 (9) – (127) (118) – (9) (127) (127) – (127) Consolidation adjustments1 Consolidation – adjustments1 – – – 712 – – – – 712 (26) – 5 – 691 (26) 5 – 691 – – – – – – – – – – – (19) – (691) – 19 (19) – (691) (691) 19 – – – (691) – – – – – – – – – – – – – – – – – – Adjusted operating profit Adjusted operating 3,868 profit (398) 3,470 3,868 8,407 (398) 3,906 3,470 255 8,407 3,152 3,906 105 255 19,295 3,152 105 (3,706) 19,295 391 (3,315) (3,706) (6,216) 391 (272) (3,315) (127) (6,216) (2,401) (272) (858) (127) (691) (2,401) (3,619) (858) (144) (691) (17,643) (3,619) 15 (144) – (17,643) 1,667 15 (398) – (341) 1,667 928 (398) (353) (341) 575 928 – (353) 575 575 – 575 Adjusting items (note C1) Adjusting items – (note C1) – – – (69) – – – – (69) (17) – – – (86) (17) – – (86) – – – – – – – (7) – – – 24 (7) – – (407) 24 144 – (246) (407) – 144 19 (246) (313) – (106) 19 66 (313) (353) (106) 353 66 – (353) – 353 – – – – Non-core operations1 Discontinued operations1 Non-core – operations1 – – – (13) – – – – (13) – – – – (13) – – 24 (13) – 24 24 – – – 24 – – – – – – – – (16) – – – 8 (16) – – – 8 (5) – – – – (5) (5) – – – (5) (5) – – (5) (5) – (5) Discontinued (142) operations1 84 (58) (142) (6,446) 84 (3,677) (58) (241) (6,446) (2,570) (3,677) (42) (241) (13,034) (2,570) (42) 199 (13,034) (169) 30 199 5,671 (169) 228 30 6 5,671 2,311 228 409 6 574 2,311 2,773 409 – 574 12,002 2,773 (5) – (6) 12,002 (1,043) (5) 362 (6) – (1,043) (681) 362 – – (681) (681) 681 – – (681) 681 – £m IFRS Income £m statement IFRS Income 3,726 statement (314) 3,412 3,726 1,879 (314) 229 3,412 14 1,879 565 229 63 14 6,162 565 63 (3,483) 6,162 222 (3,261) (3,483) (545) 222 (44) (3,261) (128) (545) (90) (44) (425) (128) (117) (90) (1,269) (425) – (117) (5,879) (1,269) 10 – 13 (5,879) 306 10 (142) 13 (275) 306 (111) (142) – (275) (111) (111) 681 – 570 (111) 681 570 i i F n a n c F a n s a n c a s i l l i 175 169 169 Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued B: Segment information continued B4: Consolidated statement of financial position – segment information at 31 December 2017 B: Segment information continued B4: Consolidated statement of financial position – segment information at 31 December 2017 Notes Emerging Markets2 Nedbank – Nedbank – – – – – – – – – – – – – – – – – – – – – – – – – 58,492 – – – 58,492 58,492 – – 58,492 – – – – – – – – – – – – – – – – – – – – – 53,216 – – – 53,216 53,216 5,276 – 53,216 2,679 5,276 2,597 2,220 2,679 377 2,597 2,220 5,276 377 5,276 Assets Goodwill and other intangible assets Mandatory reserve deposits with central banks Assets Property, plant and equipment Goodwill and other intangible assets Investment property Mandatory reserve deposits with central banks Deferred tax assets Property, plant and equipment Investments in associated undertakings and joint ventures Investment property Deferred acquisition costs Deferred tax assets Reinsurers' share of policyholder liabilities Investments in associated undertakings and joint ventures Loans and advances Deferred acquisition costs Investments and securities Reinsurers' share of policyholder liabilities Current tax receivable Loans and advances Trade, other receivables and other assets Investments and securities Derivative financial instruments Current tax receivable Cash and cash equivalents Trade, other receivables and other assets Assets held for sale and distribution Derivative financial instruments Inter-segment funding – assets Cash and cash equivalents Total assets Assets held for sale and distribution Liabilities Inter-segment funding – assets Life insurance contract liabilities Total assets Investment contract liabilities Liabilities Property & casualty liabilities Life insurance contract liabilities Third-party interests in consolidated funds Investment contract liabilities Borrowed funds Property & casualty liabilities Provisions and accruals Third-party interests in consolidated funds Deferred revenue Borrowed funds Deferred tax liabilities Provisions and accruals Current tax payable Deferred revenue Trade, other payables and other liabilities Deferred tax liabilities Amounts owed to bank depositors Current tax payable Derivative financial instruments Trade, other payables and other liabilities Liabilities held for sale and distribution Amounts owed to bank depositors Inter-segment funding – liabilities Derivative financial instruments Total liabilities Liabilities held for sale and distribution Net assets1 Inter-segment funding – liabilities Equity Total liabilities Equity attributable to equity holders of the parent Net assets1 Non-controlling interests Equity Ordinary shares Equity attributable to equity holders of the parent Preferred securities Non-controlling interests Ordinary shares Total equity Preferred securities H1 Notes H2(a) H1 H2(b) H7(a) H2(a) I2(a) H2(b) H3 H7(a) G6 I2(a) G1 H3 G2 G6 G1 H4 G2 G4 H4 A4.2 G4 A4.2 G6 G6 G6 G6 G6 G7 G6 H5 H6 G7 H7(b) H5 H6 H8 H7(b) G8 G4 H8 A4.2 G8 G4 A4.2 H10(b)(i) H10(b)(ii) H10(b)(i) H10(b)(ii) Emerging 397 Markets2 6 482 397 1,904 6 64 482 107 1,904 185 64 439 107 1,282 185 38,944 439 17 1,282 1,159 38,944 242 17 1,511 1,159 43 242 – 1,511 46,782 43 – 9,509 46,782 28,928 494 9,509 – 28,928 688 494 109 – 83 688 304 109 91 83 2,546 304 742 91 298 2,546 – 742 – 298 43,792 – 2,990 – 43,792 2,768 2,990 222 222 2,768 – 222 222 2,990 – of businesses classified as discontinued operations 1 The Basis of preparation, in note B1, explains the amendments to the segmental basis of preparation, the composition of the segments and the segmental treatment Total equity 2 The net assets of Emerging Markets exclude £269 million (2016: £258 million) of investments held by policyholder funds in Group equity and debt instruments. 1 The Basis of preparation, in note B1, explains the amendments to the segmental basis of preparation, the composition of the segments and the segmental treatment These investments are in the Company's ordinary shares and in the subordinated liabilities and preferred securities issued by Nedbank. of businesses classified as discontinued operations 2,990 2 The net assets of Emerging Markets exclude £269 million (2016: £258 million) of investments held by policyholder funds in Group equity and debt instruments. These investments are in the Company's ordinary shares and in the subordinated liabilities and preferred securities issued by Nedbank. 176 170 170 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Old Mutual Wealth plc Head Office1 Non-core operation Consolidation adjustments1 Old Mutual – Wealth – – – – – – – – – – – – – – – – – – – – – – – – – 63,835 – – – 63,835 63,835 – – 63,835 – – – – – – – – – – – – – – – – – – – – – 61,235 – 782 – 62,017 61,235 1,818 782 62,017 1,818 1,818 – – 1,818 – – – 1,818 – plc – Head Office1 – – – – – – – – – – – – – – – 12 – 45 – 99 12 34 45 542 99 – 34 782 542 1,514 – 782 – 1,514 – – – – – 461 – 19 – – 461 – 19 11 – 98 – – 11 – 98 – – 23 – 612 – 902 23 612 902 902 – – 902 – – – 902 – Non-core – operation – – – – – 1 – – – – 1 – – – – 54 – 1 – 2 54 2 1 72 2 – 2 23 72 155 – 23 11 155 – – 11 – – – – 14 – – – – 14 – – 6 – – – – 6 – – – – 31 – 124 – 31 124 124 – – 124 – – – 124 – Consolidation – adjustments1 – – – – – – – – – (1) – (187) – – (1) 4,092 (187) – – 44 4,092 (33) – (289) 44 8,233 (33) (805) (289) 11,054 8,233 (805) – 11,054 (188) – – 4,868 (188) (23) – – 4,868 (1) (23) – – – (1) (121) – – – (30) (121) 7,517 – (805) (30) 11,217 7,517 (163) (805) 11,217 (163) (163) – – (163) – – – (163) – £m Total £m 397 Total 6 482 397 1,904 6 65 482 107 1,904 184 65 252 107 1,282 184 43,102 252 63 1,282 1,304 43,102 245 63 1,836 1,304 130,603 245 – 1,836 181,832 130,603 – 9,520 181,832 28,740 494 9,520 4,868 28,740 1,126 494 142 4,868 82 1,126 304 142 102 82 2,529 304 742 102 268 2,529 121,968 742 – 268 170,885 121,968 10,947 – 170,885 8,128 10,947 2,819 2,442 8,128 377 2,819 2,442 10,947 377 1,818 902 124 (163) 10,947 177 171 171 i i F n a n c F a n s a n c a s i l l i Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued B: Segment information continued B4: Consolidated statement of financial position – segment information B: Segment information continued at 31 December 2016 (Restated)1 B4: Consolidated statement of financial position – segment information at 31 December 2016 (Restated)1 Assets Goodwill and other intangible assets Mandatory reserve deposits with central banks Assets Property, plant and equipment Goodwill and other intangible assets Investment property Mandatory reserve deposits with central banks Deferred tax assets Property, plant and equipment Investments in associated undertakings and joint ventures Investment property Deferred acquisition costs Deferred tax assets Reinsurers' share of policyholder liabilities Investments in associated undertakings and joint ventures Loans and advances Deferred acquisition costs Investments and securities Reinsurers' share of policyholder liabilities Current tax receivable Loans and advances Trade, other receivables and other assets Investments and securities Derivative financial instruments Current tax receivable Cash and cash equivalents Trade, other receivables and other assets Assets held for sale and distribution Derivative financial instruments Inter-segment funding – assets Cash and cash equivalents Total assets Assets held for sale and distribution Liabilities Inter-segment funding – assets Life insurance contract liabilities Total assets Investment contract liabilities Liabilities Property & casualty liabilities Life insurance contract liabilities Third-party interests in consolidated funds Investment contract liabilities Borrowed funds Property & casualty liabilities Provisions and accruals Third-party interests in consolidated funds Deferred revenue Borrowed funds Deferred tax liabilities Provisions and accruals Current tax payable Deferred revenue Trade, other payables and other liabilities Deferred tax liabilities Amounts owed to bank depositors Current tax payable Derivative financial instruments Trade, other payables and other liabilities Liabilities held for sale and distribution Amounts owed to bank depositors Inter-segment funding – liabilities Derivative financial instruments Total liabilities Liabilities held for sale and distribution Net assets Inter-segment funding – liabilities Equity Total liabilities Equity attributable to equity holders of the parent Net assets Non-controlling interests Equity Ordinary shares Equity attributable to equity holders of the parent Preferred securities Non-controlling interests Ordinary shares Total equity Preferred securities Notes H1 Notes H2(a) H1 H2(b) H7(a) H2(a) I2(a) H2(b) H3 H7(a) G6 I2(a) G1 H3 G2 G6 G1 H4 G2 G4 H4 A4.2 G4 A4.2 G6 G6 G6 G6 G6 G7 G6 H5 H6 G7 H7(b) H5 H6 H8 H7(b) G8 G4 H8 A4.2 G8 G4 A4.2 H10(b)(i) H10(b)(ii) H10(b)(i) H10(b)(ii) Emerging Markets Emerging 461 Markets 8 345 461 1,696 8 57 345 143 1,696 179 57 552 143 1,210 179 35,516 552 20 1,210 885 35,516 228 20 1,876 885 119 228 – 1,876 43,295 119 – 9,310 43,295 25,720 482 9,310 – 25,720 694 482 118 – 73 694 203 118 100 73 2,953 203 643 100 295 2,953 1 643 4 295 40,596 1 2,699 4 40,596 2,484 2,699 215 215 2,484 – 215 215 2,699 – Nedbank 576 Nedbank 1,103 529 576 1 1,103 29 529 388 1 – 29 6 388 41,703 – 8,844 6 33 41,703 966 8,844 1,040 33 1,556 966 17 1,040 – 1,556 56,791 17 – 172 56,791 905 – 172 – 905 3,072 – – – 1 3,072 39 – 13 1 2,081 39 44,915 13 784 2,081 – 44,915 – 784 51,982 – 4,809 – 51,982 2,476 4,809 2,333 1,992 2,476 341 2,333 1,992 4,809 341 1 The Basis of preparation, in note B1, explains the amendments to the segmental basis of preparation, the composition of the segments and the segmental treatment of businesses 4,809 Total equity classified as discontinued operations. 2,699 1 The Basis of preparation, in note B1, explains the amendments to the segmental basis of preparation, the composition of the segments and the segmental treatment of businesses classified as discontinued operations. 178 172 172 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Old Mutual Wealth Old Mutual 1,434 Wealth – 18 1,434 – – 8 18 1 – 580 8 2,863 1 220 580 48,966 2,863 21 220 568 48,966 – 21 730 568 6,475 – – 730 61,884 6,475 – 416 61,884 51,281 – 416 – 51,281 – – 29 – 220 – 193 29 21 220 806 193 – 21 1 806 6,264 – 785 1 60,016 6,264 1,868 785 60,016 1,868 1,868 – – 1,868 – – – 1,868 – Institutional Asset Management Institutional Asset – Management – – – – – – – – – – – – – – – – – – – – – – – – – 1,959 – – – 1,959 1,959 – – 1,959 – – – – – – – – – – – – – – – – – – – – – 781 – 85 – 866 781 1,093 85 866 527 1,093 566 566 527 – 566 566 1,093 – Plc Head Office1 Non-core operations Consolidation adjustments1 Plc – Head Office1 – – – – – – – 10 – – – – 10 – – 309 – – – 157 309 31 – 611 157 – 31 874 611 1,992 – 874 – 1,992 – – – – – 1,017 – 6 – – 1,017 5 6 10 – 226 5 – 10 39 226 – – 58 39 1,361 – 631 58 1,361 631 631 – – 631 – – – 631 – Non-core – operations – – – – – 2 – – – – 2 – – – – 53 – – – 3 53 27 – 22 3 – 27 58 22 165 – 58 84 165 – – 84 – – – – 7 – – – – 7 – – 6 – – – – 6 – – – – 97 – 68 – 97 68 68 – – 68 – – – 68 – Consolidation – adjustments1 – – – – – – – – – (3) – (306) – (25) (3) 6,700 (306) – (25) (163) 6,700 14 – 52 (163) – 14 (932) 52 5,337 – (932) – 5,337 (307) – – 7,981 (307) (89) – – 7,981 (4) (89) – – – (4) (960) – (249) – 42 (960) – (249) (932) 42 5,482 – (145) (932) 5,482 (145) (145) – – (145) – – – (145) – £m £m Total 2,471 Total 1,111 892 2,471 1,697 1,111 96 892 542 1,697 756 96 3,115 542 43,108 756 100,388 3,115 74 43,108 2,416 100,388 1,340 74 4,847 2,416 8,570 1,340 – 4,847 171,423 8,570 – 9,982 171,423 77,599 482 9,982 7,981 77,599 4,694 482 160 7,981 290 4,694 440 160 144 290 5,112 440 45,309 144 1,161 5,112 7,046 45,309 – 1,161 160,400 7,046 11,023 – 160,400 7,909 11,023 3,114 2,773 7,909 341 3,114 2,773 11,023 341 1,868 1,093 631 68 (145) 11,023 179 173 173 i i F n a n c F a n s a n c a s i l l i Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued Notes consolidated investment funds consolidated investment funds C: Other key performance information C1: Operating profit adjusting items C: Other key performance information (a) Summary of adjusting items for determination of adjusted operating profit (AOP) C1: Operating profit adjusting items In determining the AOP of the Group for core operations, certain adjustments are made to profit before tax to reflect the directors' view of the underlying long-term performance of the Group. The following table shows an analysis of those adjustments from AOP to profit before (a) Summary of adjusting items for determination of adjusted operating profit (AOP) and after tax. In determining the AOP of the Group for core operations, certain adjustments are made to profit before tax to reflect the directors' view of the underlying long-term performance of the Group. The following table shows an analysis of those adjustments from AOP to profit before £m and after tax. Year ended 31 December £m 2016 Year ended 31 December (278) 2016 19 (26) (278) 19 (43) (26) 17 (20) (43) (24) 17 – (20) – (24) (102) – – – (457) (102) 38 – 66 (457) (353) 38 66 (353) (Expense)/income Goodwill impairment and impact of acquisition accounting Net profit on disposal of subsidiaries, associated undertakings and strategic investments (Expense)/income Short-term fluctuations in investment return Goodwill impairment and impact of acquisition accounting Investment return adjustment for Group equity and debt instruments held in policyholder and Net profit on disposal of subsidiaries, associated undertakings and strategic investments Short-term fluctuations in investment return Dividends declared to holders of perpetual preferred callable securities Investment return adjustment for Group equity and debt instruments held in policyholder and Institutional Asset Management equity plans Credit-related fair value losses on Group debt instruments Dividends declared to holders of perpetual preferred callable securities Managed separation and business standalone costs Institutional Asset Management equity plans Income/(expenses) from resolution of plc Head Office pre-existing items Credit-related fair value losses on Group debt instruments Old Mutual Wealth business transformation costs Managed separation and business standalone costs Voluntary customer remediation provision Income/(expenses) from resolution of plc Head Office pre-existing items Total adjusting items before tax and non-controlling interests Old Mutual Wealth business transformation costs Tax on adjusting items Voluntary customer remediation provision Non-controlling interest on adjusting items Total adjusting items before tax and non-controlling interests Total adjusting items after tax and non-controlling interests Tax on adjusting items Non-controlling interest on adjusting items (b) Goodwill impairment and impact of acquisition accounting Total adjusting items after tax and non-controlling interests The application of acquisition accounting results in deferred acquisition costs and deferred revenue existing in the acquired entity at the point of acquisition that are not recognised under IFRS. These are reversed on acquisition in the consolidated statement of financial (b) Goodwill impairment and impact of acquisition accounting position and are replaced by goodwill and other intangible assets, including the value of the acquired present value of in-force business The application of acquisition accounting results in deferred acquisition costs and deferred revenue existing in the acquired entity at the (acquired PVIF). In determining AOP, the Group recognises deferred revenue, acquisition costs and deferred revenue in relation to point of acquisition that are not recognised under IFRS. These are reversed on acquisition in the consolidated statement of financial businesses sold by acquired businesses prior to the acquisition date. The Group excludes the impairment of goodwill, the impairment position and are replaced by goodwill and other intangible assets, including the value of the acquired present value of in-force business of investments in associated undertakings, the amortisation and impairment of acquired other intangible assets, acquired PVIF and the (acquired PVIF). In determining AOP, the Group recognises deferred revenue, acquisition costs and deferred revenue in relation to movements in certain acquisition date provisions from the determination of AOP. Costs incurred on completed acquisitions are also businesses sold by acquired businesses prior to the acquisition date. The Group excludes the impairment of goodwill, the impairment excluded from AOP. of investments in associated undertakings, the amortisation and impairment of acquired other intangible assets, acquired PVIF and the movements in certain acquisition date provisions from the determination of AOP. Costs incurred on completed acquisitions are also Certain deferred consideration recognised as compensation expenses under accounting rules is excluded from the determination of AOP excluded from AOP. where these payments meet the criteria that suggest they are capital in nature. Certain deferred consideration recognised as compensation expenses under accounting rules is excluded from the determination of AOP The net effect of these adjustments to determine AOP are summarised below: where these payments meet the criteria that suggest they are capital in nature. Year ended 31 December 2017 Year ended 31 December (186) 2017 197 125 (186) 197 (79) 125 2 (33) (79) (128) 2 (100) (33) (27) (128) (74) (100) (69) (27) (372) (74) 46 (69) 49 (372) (277) 46 49 (277) C1(b) Notes C1(c) C1(d) C1(b) C1(c) C1(e) C1(d) C1(f) C1(g) C1(e) C1(h) C1(f) C1(i) C1(g) C1(j) C1(h) C1(k) C1(i) C1(l) C1(j) C1(k) D1(d) C1(l) D1(d) Year ended 31 December 2017 The net effect of these adjustments to determine AOP are summarised below: Continuing Operations Year ended 31 December 2017 and revenue Impairment of goodwill and other intangible assets Amortisation of acquired PVIF Amortisation of acquired deferred costs Impairment of goodwill and other intangible assets Amortisation of acquired PVIF Amortisation of other acquired intangible assets Amortisation of acquired deferred costs Change in acquisition date provisions and revenue Acquisition costs Amortisation of other acquired intangible assets Deferred consideration and other acquisition Change in acquisition date provisions Acquisition costs Deferred consideration and other acquisition date provisions date provisions plc Emerging Continuing Operations Markets Head Office – (85) plc Emerging – (2) Head Office Markets – (85) – – – (2) – (13) – 1 – – – – – (13) – 1 – 11 – – – (88) – 11 – (88) 180 174 174 Discontinued operations Institutional Asset Discontinued operations Management Institutional – Asset – Management – – – (2) – – – (2) – – – (2) – (2) Old Mutual Wealth (1) Old Mutual (37) Wealth (1) 8 (37) (39) (1) 8 (12) (39) (1) (21) (12) (103) (21) (103) Nedbank – – Nedbank – – – (1) – – – (1) – 8 – 7 8 7 £m £m Total (86) (39) Total (86) 8 (39) (55) – 8 (12) (55) – (2) (12) (186) (2) (186) Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Year ended 31 December 2016 Impairment of goodwill and other intangible assets Impairment of investment in associated undertakings Amortisation of acquired PVIF Amortisation of acquired deferred costs and revenue Amortisation of other acquired intangible assets Acquisition costs Deferred consideration and other acquisition date provisions Continuing Operations Emerging Markets (64) plc Head Office – Nedbank – Discontinued operations Institutional Asset Management – Old Mutual Wealth (46) – (3) – (14) – 6 (75) – – – – – (7) (7) (50) – – – – – (50) – (45) 7 (39) (17) – (140) – – – (2) (4) – (6) £m Total (110) (50) (48) 7 (55) (21) (1) (278) The impairment of goodwill and other intangible assets and impairment of investment in associated undertakings relate to: Emerging Markets Of the goodwill impairment charge of £85 million (2016: £64 million) recognised during the year, £69 million (2016: £64 million) relates to the UAP (East Africa cash generating unit) and £16 million (2016: £nil) relates to the Aiva business in Uruguay. Refer to note H1 for more information. Old Mutual Wealth On 9 January 2017, the Group completed the disposal of Old Mutual Wealth Italy. During the year ended 31 December 2016, a goodwill impairment of £46 million was recognised being the excess of the net asset value of the business compared with the expected net proceeds. Refer to note A2 for further information. Nedbank For the year ended 31 December 2016 an impairment loss of £50 million was recognised in relation to Nedbank's investment in Ecobank Transnational Incorporated (ETI), an associated undertaking. No further impairment was recognised during the year ended 31 December 2017. (c) Net profit on disposal of subsidiaries, associated undertakings and strategic investments The net profit on disposal of subsidiaries, associated undertakings and strategic investments is analysed below: Continuing operations Emerging Markets plc Head Office Discontinued operations Nedbank Old Mutual Wealth Institutional Asset Management Total net profit on disposal of subsidiaries, associated undertakings and strategic investments Year ended 31 December 2017 Notes £m Year ended 31 December 2016 81 92 173 – 24 – 197 3 10 13 (12) – 18 19 181 175 i F n a n c a s l i Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued C: Other key performance information continued C1: Operating profit adjusting items continued C: Other key performance information continued (c) Net profit on disposal of subsidiaries, associated undertakings and strategic investments continued C1: Operating profit adjusting items continued Emerging Markets (c) Net profit on disposal of subsidiaries, associated undertakings and strategic investments continued Current year transactions Emerging Markets Sale of Kotak Mahindra Old Mutual Life Insurance Limited (Kotak) Current year transactions On 13 October 2017, the Emerging Markets completed the sale of its 26% stake in Kotak Mahindra Old Mutual Life Insurance Limited (Kotak) to its joint venture partner Kotak Mahindra Bank Limited. A profit on disposal of £81 million was recognised on this transaction. Sale of Kotak Mahindra Old Mutual Life Insurance Limited (Kotak) On 13 October 2017, the Emerging Markets completed the sale of its 26% stake in Kotak Mahindra Old Mutual Life Insurance Limited Refer to note A2 for more information. (Kotak) to its joint venture partner Kotak Mahindra Bank Limited. A profit on disposal of £81 million was recognised on this transaction. Prior year transactions Refer to note A2 for more information. During the year ended 31 December 2016, Emerging Markets reduced or disposed of its holdings in a number of associated undertakings resulting in a net profit on disposal of £3 million. Prior year transactions During the year ended 31 December 2016, Emerging Markets reduced or disposed of its holdings in a number of associated undertakings Plc Head Office resulting in a net profit on disposal of £3 million. Current year transactions Plc Head Office Sale of OM Asset Management plc (OMAM) Current year transactions During the year ended 31 December 2017, plc Head Office sold 58.3 million ordinary shares in OMAM through a number of separate transactions. As a consequence, the Group's effective interest in OMAM's equity decreased from 51.7% to 0.0008%. A total profit on Sale of OM Asset Management plc (OMAM) disposal of £83 million was recognised on these transactions. Refer to note A2 for more information. During the year ended 31 December 2017, plc Head Office sold 58.3 million ordinary shares in OMAM through a number of separate transactions. As a consequence, the Group's effective interest in OMAM's equity decreased from 51.7% to 0.0008%. A total profit on Sale of Kotak Mahindra Old Mutual Life Insurance Limited (Kotak) disposal of £83 million was recognised on these transactions. Refer to note A2 for more information. Old Mutual plc recognised a profit of £7 million on the cancellation of the put option it held in relation to 23% of the issued shares of Kotak. Sale of Kotak Mahindra Old Mutual Life Insurance Limited (Kotak) Other individually immaterial transactions Old Mutual plc recognised a profit of £7 million on the cancellation of the put option it held in relation to 23% of the issued shares of Kotak. During the year ended 31 December 2017, plc Head Office disposed of a number of individually immaterial businesses that resulted in a total net profit on disposal of £2 million. Other individually immaterial transactions During the year ended 31 December 2017, plc Head Office disposed of a number of individually immaterial businesses that resulted Prior year transactions in a total net profit on disposal of £2 million. During the year ended 31 December 2016, plc Head Office received £10 million from Skandia Liv in respect of various matters relating to the completion of the separation of the Skandia Nordic business from the Group. Prior year transactions During the year ended 31 December 2016, plc Head Office received £10 million from Skandia Liv in respect of various matters relating Nedbank to the completion of the separation of the Skandia Nordic business from the Group. Prior year transactions Nedbank On 3 October 2016, Nedbank acquired an additional 10.9% stake in Banco Unico. The accounting related to the step up in ownership from 38.3% to 50% plus one share is such that it effectively requires a simultaneous sale of 38.3% followed by an acquisition of the fair value of Prior year transactions 50% plus one share of the business. Consequently a loss of £11 million, comprising of a loss on step up acquisition of the associate and a On 3 October 2016, Nedbank acquired an additional 10.9% stake in Banco Unico. The accounting related to the step up in ownership from release of foreign currency translation reserves, was realised on the transaction. 38.3% to 50% plus one share is such that it effectively requires a simultaneous sale of 38.3% followed by an acquisition of the fair value of 50% plus one share of the business. Consequently a loss of £11 million, comprising of a loss on step up acquisition of the associate and a In addition, a loss of £1 million was recognised on conversion of preference shares to ordinary shares by ETI. Consistent with usual Group release of foreign currency translation reserves, was realised on the transaction. practice, these losses were recognised in profit or loss but excluded from the determination of AOP. In addition, a loss of £1 million was recognised on conversion of preference shares to ordinary shares by ETI. Consistent with usual Group Old Mutual Wealth practice, these losses were recognised in profit or loss but excluded from the determination of AOP. Current year transactions Old Mutual Wealth On 9 January 2017, the Group completed the disposal of Old Mutual Wealth Italy. A profit on disposal of £24 million, was recognised on the transaction. Refer to note A2 for more information. Current year transactions On 9 January 2017, the Group completed the disposal of Old Mutual Wealth Italy. A profit on disposal of £24 million, was recognised Institutional Asset Management on the transaction. Refer to note A2 for more information. Prior year transactions Institutional Asset Management On 31 May 2016, the Group completed the sale of its interest in Rogge Global Partners Limited (Rogge), a fixed income asset manager, to Allianz Global Investors GmbH. A profit on disposal of £10 million was recognised reflecting the directors' assessment of the likely final Prior year transactions amount recoverable. On 31 May 2016, the Group completed the sale of its interest in Rogge Global Partners Limited (Rogge), a fixed income asset manager, to Allianz Global Investors GmbH. A profit on disposal of £10 million was recognised reflecting the directors' assessment of the likely final amount recoverable. 182 176 176 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 During the year ended 31 December 2016, Institutional Asset Management received additional income of £8 million from earn-outs on affiliates disposed in prior periods. (d) Short-term fluctuations in investment return Profit before tax, as disclosed in the consolidated IFRS income statement, includes actual investment returns earned on the shareholder assets of the Group's life assurance and property & casualty businesses. AOP is stated after recalculating shareholder asset investment returns based on a long-term investment return rate. The difference between the actual and the long-term investment returns is referred to as the short-term fluctuation in investment return. Long-term rates of investment return are based on achieved rates of return appropriate to the underlying asset base, adjusted for current inflation expectations, default assumptions, costs of investment management and consensus economic investment forecasts. The underlying rates are principally derived with reference to 10-year government bond rates, cash and money market rates and an explicit equity risk premium for South African businesses. The rates set out below reflect the apportionment of underlying investments in cash deposits, money market instruments and equity assets. Long-term rates of return are reviewed annually by the Board. The Board's review of the long-term rates of return seeks to ensure that the returns credited to AOP are consistent with the actual returns expected to be earned over the long-term. For Emerging Markets, the return is applied to an average value of investible shareholders' assets, adjusted for net fund flows. For Old Mutual Wealth, the return is applied to average investible assets. Long-term investment rates Emerging Markets Old Mutual Insure1 (2017 & 2016: Cash: 90%; Equities: 10%) Old Mutual South Africa – (2017 & 2016: Cash: 75%; Equities: 25%) Rest of Africa – (2016 & 2017: Cash: 57%; Equities: 43%) Old Mutual Wealth – (2017: Cash: 94%; Equities: 6%; 2016: Cash: 80%; Equities: 20%) 1 The long-term investment rate for Old Mutual Insure relates solely to its South African property & casualty businesses. Analysis of short-term fluctuations in investment return Year ended 31 December 2017 Actual shareholder investment return Less: Long-term investment return Short-term fluctuations in investment return Year ended 31 December 2016 (Re-presented)¹ Actual shareholder investment return Less: Long-term investment return Short-term fluctuations in investment return Year ended 31 December 2017 % Year ended 31 December 2016 7.4 8.0 8.5 1.0 Emerging Markets 300 173 127 Old Mutual Wealth 5 7 (2) Emerging Markets (Re-presented)1 120 147 (27) Old Mutual Wealth 7 6 1 7.4 8.0 8.5 1.0 £m Total 305 180 125 £m Total 127 153 (26) 1 Long-term investment return on excess assets (2016: £20 million), previously shown within the AOP of plc Head Office is now included in AOP of Emerging Markets for all periods. As a result, the related actual shareholder investment return (2016: £9 million) and short-term fluctuations in investment return (December 2016: £(11) million) on these excess assets, previously show within the AOP adjusting items of plc Head Office, are now included in the AOP adjusting items of Emerging Markets for all reporting periods. 183 177 i F n a n c a s i l Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued C: Other key performance information continued C1: Operating profit adjusting items continued C: Other key performance information continued (e) Investment return adjustment for Group equity and debt instruments held in policyholder and C1: Operating profit adjusting items continued consolidated investment funds (e) Investment return adjustment for Group equity and debt instruments held in policyholder and AOP includes investment returns on policyholder investments in Group equity and debt instruments held by the Group's life funds and consolidated investment funds. These include investments in the Company's ordinary shares and the subordinated liabilities and consolidated investment funds ordinary shares issued by the Group. These investment returns are eliminated within the consolidated income statement in arriving at AOP includes investment returns on policyholder investments in Group equity and debt instruments held by the Group's life funds profit before tax, but are included in AOP. This ensures consistency of treatment with the measures of the related policyholder liability. and consolidated investment funds. These include investments in the Company's ordinary shares and the subordinated liabilities and During the year ended 31 December 2017, the investment return adjustment increased AOP by £79 million (year ended ordinary shares issued by the Group. These investment returns are eliminated within the consolidated income statement in arriving at 31 December 2016: £43 million increase). profit before tax, but are included in AOP. This ensures consistency of treatment with the measures of the related policyholder liability. During the year ended 31 December 2017, the investment return adjustment increased AOP by £79 million (year ended (f) Dividends declared to holders of perpetual preferred callable securities 31 December 2016: £43 million increase). Dividends declared to the holders of the Group's perpetual preferred callable securities on an AOP basis were £2 million for the year ended 31 December 2017 (year ended 31 December 2016: £17 million). For the purpose of determining AOP, these are recognised (f) Dividends declared to holders of perpetual preferred callable securities in finance costs on an accrual basis. In accordance with IFRS, the total cash distribution is recognised directly in equity. Dividends declared to the holders of the Group's perpetual preferred callable securities on an AOP basis were £2 million for the year ended 31 December 2017 (year ended 31 December 2016: £17 million). For the purpose of determining AOP, these are recognised (g) Institutional Asset Management equity plans in finance costs on an accrual basis. In accordance with IFRS, the total cash distribution is recognised directly in equity. Institutional Asset Management has a number of long-term incentive arrangements with senior employees in its asset management affiliates. (g) Institutional Asset Management equity plans Institutional Asset Management has a number of long-term incentive arrangements with senior employees in its asset As part of the incentive schemes in the Institutional Asset Management business, the Group has granted put options over the equity of management affiliates. certain affiliates to senior affiliate employees. The impact of revaluing these instruments in accordance with IFRS, is excluded from AOP. At 19 May 2017, the date that OMAM was deconsolidated from the Group, these instruments were revalued, the impact of which was As part of the incentive schemes in the Institutional Asset Management business, the Group has granted put options over the equity of a loss of £33 million (year ended 31 December 2016: loss of £20 million). Refer to note A2 and note B1 for more information. certain affiliates to senior affiliate employees. The impact of revaluing these instruments in accordance with IFRS, is excluded from AOP. At 19 May 2017, the date that OMAM was deconsolidated from the Group, these instruments were revalued, the impact of which was (h) Credit-related fair value losses on Group debt instruments a loss of £33 million (year ended 31 December 2016: loss of £20 million). Refer to note A2 and note B1 for more information. The widening of the credit spread on the Group's debt instruments can cause the market value of these instruments to decrease, resulting in gains being recognised in profit or loss. Conversely, if the credit spread narrows the market value of debt instruments will increase (h) Credit-related fair value losses on Group debt instruments causing losses to be recognised in the consolidated income statement. In the directors' view, such movements are not reflective of the The widening of the credit spread on the Group's debt instruments can cause the market value of these instruments to decrease, resulting underlying performance of the Group and will reverse over time. Therefore they have been excluded from AOP. For the year ended in gains being recognised in profit or loss. Conversely, if the credit spread narrows the market value of debt instruments will increase 31 December 2017, due to narrowing of credit spreads, a net loss of £26 million was recognised (year ended 31 December 2016: causing losses to be recognised in the consolidated income statement. In the directors' view, such movements are not reflective of the net loss of £24 million). underlying performance of the Group and will reverse over time. Therefore they have been excluded from AOP. For the year ended 31 December 2017, due to narrowing of credit spreads, a net loss of £26 million was recognised (year ended 31 December 2016: The difference of £102 million between the cash paid to repurchase and redeem £389 million of Tier 2 subordinated 2025 securities and net loss of £24 million). £159 million nominal of Tier 2 subordinated 2021 securities and the IFRS book value of this debt at the date of repurchase has been recognised in profit or loss. The difference of £102 million between the cash paid to repurchase and redeem £389 million of Tier 2 subordinated 2025 securities and £159 million nominal of Tier 2 subordinated 2021 securities and the IFRS book value of this debt at the date of repurchase has been (i) Managed separation and business standalone costs recognised in profit or loss. For the year ended 31 December 2017, one-off costs related to the implementation of managed separation recognised in the IFRS income statement have been excluded from AOP on the basis that they are not representative of the operating activity of the Group. (i) Managed separation and business standalone costs These costs relate to the wind-down of the Old Mutual plc Head Office, to capacitate the businesses in readiness to operate as standalone For the year ended 31 December 2017, one-off costs related to the implementation of managed separation recognised in the IFRS businesses and the execution of various transactions required to implement the managed separation strategy. They are not expected to income statement have been excluded from AOP on the basis that they are not representative of the operating activity of the Group. persist in the long term as they relate to a fundamental restructuring of the Group, which is not operational in nature, rather than more These costs relate to the wind-down of the Old Mutual plc Head Office, to capacitate the businesses in readiness to operate as standalone routine reorganisations and project activity which would be seen as part of the usual course of business. The treatment and the disclosure businesses and the execution of various transactions required to implement the managed separation strategy. They are not expected to of these costs as an adjusting item is also intended to make these costs more visible to the readers of the financial statements in the persist in the long term as they relate to a fundamental restructuring of the Group, which is not operational in nature, rather than more context of publicly disclosed estimates previously given in relation to these items. routine reorganisations and project activity which would be seen as part of the usual course of business. The treatment and the disclosure of these costs as an adjusting item is also intended to make these costs more visible to the readers of the financial statements in the The table below summarises the managed separation and business standalone costs incurred for the year ended 31 December 2017: context of publicly disclosed estimates previously given in relation to these items. The table below summarises the managed separation and business standalone costs incurred for the year ended 31 December 2017: Plc wind-down costs Business standalone costs Advisory costs Plc wind-down costs Transaction costs Business standalone costs Total managed separation and business standalone costs Advisory costs Transaction costs Total managed separation and business standalone costs 184 178 178 £m Year ended 31 December £m 2017 Year ended (31) 31 December (32) 2017 (34) (31) (3) (32) (100) (34) (3) (100) Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 AOP in prior periods has not been re-presented for managed separation and business standalone costs. The table below summarises the equivalent costs incurred during the year ended 31 December 2016, which were included in AOP: Plc wind-down costs Business standalone costs Transaction advisory costs Total managed separation and business standalone costs £m Year ended 31 December 2016 (8) (5) (18) (31) (j) Income/(expense) from resolution of plc Head Office pre-existing items For the year ended 31 December 2017, income/(expense) from resolution of plc Head Office pre-existing items recognised in the IFRS income statement have been excluded from the calculation of AOP. These items relate to the crystallisation of plc Head Office pre-existing matters and the related income and costs are deemed not to be reflective of the underlying operating activity of the Group. The table below summarises the income/(expense) from resolution of plc Head Office pre-existing items for the year ended 31 December 2017: Insurance and indemnity costs Income/(expense) from resolution of plc Head Office pre-existing items £m Year ended 31 December 2017 (27) (27) Expenses of £20 million were incurred on insuring and de-risking certain indemnities associated with businesses previously owned by the Group. In addition, costs of £7 million were incurred in disposing of the Group’s captive insurance entitiy which covered plc Head Office and subsidiary companies. No amounts related to the resolution of plc Head Office pre-existing items were recorded in the comparative period. (k) Old Mutual Wealth business transformation costs In 2013, Old Mutual Wealth UK business embarked on a significant programme to develop new platform capabilities and to outsource UK business administration. This involved replacing many aspects of the existing UK platform, and on completion the outsourcing of associated business processing under a long-term outsourcing agreement. Contracts related to the UK Platform Transformation with IFDS and DST were ended by mutual agreement effective as of 2 May 2017. At the same time, Old Mutual Wealth announced a contract with FNZ to complete the delivery the UK Platform Transformation Programme. Under IFRS requirements, these costs and the costs of decommissioning existing technology and migrating of services to FNZ are included in IFRS profit or loss. However, long-term costs that are directly attributable to the programme are excluded from AOP on the basis that this significant near term investment relates to a fundamental reorganisation of the business and is not reflective of the underlying costs of the business. For the year ended 31 December 2017, platform transformation costs totalled £74 million (year ended 31 December 2016: £102 million). (l) Voluntary customer remediation provision As detailed in note H5, the Group has provided £69 million (2016: £nil) in respect of voluntary customer remediation following the recommendations of a thematic review by the Financial Conduct Authority (FCA). The provision has been recognised in the IFRS consolidated statement of financial position on the basis that the business is demonstrably committed to these costs. For the purposes of AOP, these costs have been excluded on the basis that they relate to redress for charges levied in the past, rather than reductions in future customer charges. 185 179 i F n a n c a s i l Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued C: Other key performance information continued C2: Earnings and earnings per share C: Other key performance information continued C2: Earnings and earnings per share Basic earnings per share Diluted earnings per share Adjusted operating earnings per share Basic earnings per share Diluted earnings per share Headline earnings per share Adjusted operating earnings per share Diluted headline earnings per share Headline earnings per share 1 Basic, diluted, headline and diluted headline earnings per share for the year ended 31 December 2016 have been restated to reflect the consolidation adjustments related to own Diluted headline earnings per share Source of guidance IFRS IFRS Source of guidance Group policy IFRS IFRS JSE Listing Requirements Group policy JSE Listing Requirements JSE Listing Requirements JSE Listing Requirements Notes C2(a) C2(b) Notes C2(c) C2(a) C2(b) C2(d) C2(c) C2(d) C2(d) C2(d) shares held by consolidated investment funds. Refer to note B1 for more information. shares held by consolidated investment funds. Refer to note B1 for more information. (a) Basic earnings per share 1 Basic, diluted, headline and diluted headline earnings per share for the year ended 31 December 2016 have been restated to reflect the consolidation adjustments related to own 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 (a) Basic earnings per share Share Ownership Plan Trusts (ESOP), Black Economic Empowerment trusts and other consolidated related undertakings. These shares Basic earnings per share is calculated by dividing the profit for the financial year attributable to ordinary equity shareholders of the parent are regarded as treasury shares. 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), Black Economic Empowerment trusts and other consolidated related undertakings. These shares The table below reconciles the profit attributable to equity holders of the parent to profit attributable to ordinary equity holders: are regarded as treasury shares. Year ended 31 December 2017 Year ended 19.3 31 December 18.9 2017 24.3 19.3 18.9 16.5 24.3 16.1 16.5 16.1 Pence Year ended 31 December Pence 2016 Year ended (Restated)1 31 December 12.0 2016 11.7 (Restated)1 19.4 12.0 11.7 14.1 19.4 13.8 14.1 13.8 The table below reconciles the profit attributable to equity holders of the parent to profit attributable to ordinary equity holders: £m Year ended 31 December £m 2016 Year ended (Re-presented)¹ 31 December 2016 176 (Re-presented)¹ Year ended 31 December 2017 Year ended 31 December 385 2017 Notes Notes A4.1 Profit for the financial year attributable to equity holders of the parent from continuing operations Profit for the financial year attributable to equity holders of the parent from Profit for the financial year attributable to equity holders of the parent from discontinued operations continuing operations discontinued operations Profit for the financial year attributable to equity holders of the parent Profit for the financial year attributable to equity holders of the parent from Dividends paid to holders of perpetual preferred callable securities, net of tax credits Profit attributable to ordinary equity holders Profit for the financial year attributable to equity holders of the parent Dividends paid to holders of perpetual preferred callable securities, net of tax credits 1 The year ended 31 December 2016 has been re-presented to reflect Nedbank and Old Mutual Wealth as discontinued operations. Refer to note A4 for more information. Profit attributable to ordinary equity holders Total dividends paid to holders of perpetual preferred callable securities of £15 million for the year ended 31 December 2017 (year ended 1 The year ended 31 December 2016 has been re-presented to reflect Nedbank and Old Mutual Wealth as discontinued operations. Refer to note A4 for more information. 31 December 2016: £14 million) are stated net of tax credits of £nil (year ended 31 December 2016: £3 million). Total dividends paid to holders of perpetual preferred callable securities of £15 million for the year ended 31 December 2017 (year ended 31 December 2016: £14 million) are stated net of tax credits of £nil (year ended 31 December 2016: £3 million). A4.1 524 385 909 (15) 524 894 909 (15) 894 394 176 570 (14) 394 556 570 (14) 556 186 180 180 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 The table below summarises the calculation of the weighted average number of ordinary shares for the purposes of calculating basic earnings per share: Weighted average number of ordinary shares in issue Shares held in charitable foundations and trusts Shares held in ESOP and similar trusts Adjusted weighted average number of ordinary shares Shares held in policyholder and consolidated investment funds Shares held in Black Economic Empowerment trusts Weighted average number of ordinary shares used to calculate basic earnings per share Basic earnings per ordinary share (pence) Year ended 31 December 2017 4,931 (21) (134) 4,776 (141) (2) 4,633 Millions Year ended 31 December 2016 (Restated)¹ 4,929 (21) (135) 4,773 (131) (7) 4,635 19.3 12.0 1 The weighted average number of ordinary shares used to calculate basic earnings per share and basic earnings per ordinary share (pence) for the year ended 31 December 2016 have been restated to reflect the consolidation adjustments related to own shares held by consolidated investment funds. Refer to note B1 for more information. (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: Profit attributable to ordinary equity holders (£m) Dilution effect on profit relating to share options issued by subsidiaries (£m) Diluted profit attributable to ordinary equity holders of the parent (£m) Weighted average number of ordinary shares (millions) Adjustments for share options held by ESOP and similar trusts (millions) Adjustments for shares held in Black Economic Empowerment trusts (millions) Weighted average number of ordinary shares used to calculate diluted earnings per share (millions) Diluted earnings per ordinary share (pence) Notes C2(a) Year ended 31 December 2017 894 (7) 887 4,633 69 3 Year ended 31 December 2016 (Restated)¹ 556 (7) 549 4,635 59 7 4,705 18.9 4,701 11.7 1 The weighted average number of ordinary shares used in to calculate diluted earnings per share and diluted earnings per ordinary share (pence) for the year ended 31 December 2016 have been restated to reflect the consolidation adjustments related to own shares held by consolidated investment funds. Refer to note B1 for more information. (c) Adjusted operating earnings per share The following table presents a reconciliation of profit for the financial year to adjusted operating profit after tax attributable to ordinary equity holders and summarises the calculation of adjusted operating earnings per share: Profit for the financial year attributable to equity holders of the parent Adjusting items Tax on adjusting items Non-core operations Non-controlling interest on adjusting items Adjusted operating profit after tax attributable to ordinary equity holders (£m) Adjusted weighted average number of ordinary shares used to calculate adjusted operating earnings per share (millions) Adjusted operating earnings per share (pence) Notes C1(a) D1(d) B3 C2(a) Year ended 31 December 2017 909 372 (46) (24) (49) 1,162 £m Year ended 31 December 2016 570 457 (38) 5 (66) 928 4,776 24.3 4,773 19.4 187 181 i F n a n c a s i l Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued C: Other key performance information continued C2: Earnings and earnings per share continued C: Other key performance information continued (d) Headline earnings per share C2: Earnings and earnings per share continued The Group is required to calculate headline earnings per share (HEPS) in accordance with the JSE Limited (JSE) Listing Requirements, determined by reference to the South African Institute of Chartered Accountants' circular 02/2015 'Headline Earnings'. The table below (d) Headline earnings per share 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 The Group is required to calculate headline earnings per share (HEPS) in accordance with the JSE Limited (JSE) Listing Requirements, is a commonly used measure of earnings in South Africa. The table below reconciles the profit for the financial year attributable to equity determined by reference to the South African Institute of Chartered Accountants' circular 02/2015 'Headline Earnings'. The table below holders of the parent to headline earnings and summarises the calculation of basic HEPS: 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: Year ended 31 December 2017 Net of tax Year ended and non- 31 December 2017 controlling Net of tax interests and non- controlling 909 interests Gross Gross Notes Notes £m Year ended 31 December 2016 £m (Restated)¹ Year ended Net of tax 31 December 2016 and non- (Restated)¹ controlling Net of tax interests and non- controlling 570 interests Gross Gross Profit for the financial year attributable to equity holders of the parent Dividends paid to holders of perpetual preferred Profit for the financial year attributable to equity holders callable securities callable securities of the parent (14) 570 556 Profit attributable to ordinary equity holders Dividends paid to holders of perpetual preferred Adjustments: (14) Impairments of goodwill and other intangible assets (IAS36) 89 556 Profit attributable to ordinary equity holders Impairment of investment in associated undertakings (IAS28) 28 Adjustments: Loss on disposal of property and equipment (IAS16) 1 Impairments of goodwill and other intangible assets (IAS36) 89 Profit on disposal of subsidiaries, associated undertakings and 28 Impairment of investment in associated undertakings (IAS28) strategic investments (including amounts recycled from the 1 Loss on disposal of property and equipment (IAS16) foreign currency translation reserve) (IFRS3) (20) Profit on disposal of subsidiaries, associated undertakings and 1 Other adjustments strategic investments (including amounts recycled from the 655 Headline earnings (20) foreign currency translation reserve) (IFRS3) Dilution effect on earnings relating to share options issued 1 Other adjustments (7) by subsidiaries 655 Headline earnings 648 Diluted headline earnings (£m) Dilution effect on earnings relating to share options issued 4,635 Weighted average number of ordinary shares (millions) (7) Diluted weighted average number of ordinary 648 Diluted headline earnings (£m) 4,701 4,635 Weighted average number of ordinary shares (millions) 14.1 Headline earnings per share (pence) Diluted weighted average number of ordinary 13.8 Diluted headline earnings per share (pence) 4,701 14.1 Headline earnings per share (pence) 1 The weighted average number of ordinary shares (millions), diluted weighted average number of ordinary shares (millions), headline earning per share and diluted headline earnings 13.8 Diluted headline earnings per share (pence) per share (pence) for the year ended 31 December 2016 have been restated to reflect the consolidation adjustments related to own shares held by consolidated investment funds. Refer to note B1 for more information. (15) 909 894 (15) 59 894 – 1 59 – 1 (193) 4 765 (193) 4 (7) 765 758 4,633 (7) 758 4,705 4,633 16.5 16.1 4,705 16.5 16.1 86 – 3 86 – 3 (197) 10 (98) (197) 10 (98) 113 50 2 113 50 2 (19) 1 147 (19) 1 147 shares (millions) shares (millions) by subsidiaries C2(b) C2(a) C2(a) C2(b) 1 The weighted average number of ordinary shares (millions), diluted weighted average number of ordinary shares (millions), headline earning per share and diluted headline earnings per share (pence) for the year ended 31 December 2016 have been restated to reflect the consolidation adjustments related to own shares held by consolidated investment funds. Refer to note B1 for more information. C3: Dividends C3: Dividends 2015 Second interim dividend paid – 6.25p per 11 3/7p ordinary share 2016 Interim dividend paid – 2.67p per 11 3/7p ordinary share 2016 Second interim dividend paid – 3.39p per 11 3/7p ordinary share 2015 Second interim dividend paid – 6.25p per 11 3/7p ordinary share 2017 Interim dividend paid – 3.53p per 11 3/7p ordinary share 2016 Interim dividend paid – 2.67p per 11 3/7p ordinary share Dividends to ordinary equity holders 2016 Second interim dividend paid – 3.39p per 11 3/7p ordinary share Dividends paid to holders of perpetual preferred callable securities 2017 Interim dividend paid – 3.53p per 11 3/7p ordinary share Dividend payments for the year Dividends to ordinary equity holders Dividends paid to holders of perpetual preferred callable securities Dividend payments for the year Ordinary dividend payment date 26 April 2016 Ordinary dividend 28 October 2016 payment date 28 April 2017 26 April 2016 31 October 2017 28 October 2016 28 April 2017 31 October 2017 Year ended 31 December 2017 Year ended – 31 December – 2017 161 – 169 – 330 161 15 169 345 330 15 345 £m Year ended 31 December £m 2016 Year ended 299 31 December 127 2016 – 299 – 127 426 – 17 – 443 426 17 443 188 182 182 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 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. A second interim dividend of 3.57 pence (or its equivalent in other applicable currencies) per ordinary share in the Company has been declared by the directors. The second interim dividend will be paid on 30 April 2018 to shareholders on the register at the close of business on 6 April 2018. The dividend will absorb an estimated £171 million of shareholders' funds. On 3 February 2017, all of the Group's outstanding perpetual preferred callable securities were redeemed. At this date a final dividend payment of £15 million was made to the holders of the securities. D: Other consolidated income statement notes Except where otherwise indicated, other consolidated income statement notes, included in section D, are presented for continuing operations only. Following the classification of Nedbank and Old Mutual Wealth as discontinued operations, on 31 December 2017, as described in note A4, the income statement line items attributable to these businesses have been represented in a single line in the consolidated income statement. Unless expressly stated otherwise, the comparative information in the consolidated income statement and the related notes have been re-presented in accordance with the requirements of IFRS, to exclude discontinued operations. D1: Income tax expense This note analyses separately, the income tax expense recognised in profit or loss for the year from both continuing and discontinued operations and the various factors that have contributed to the composition of the charge for both continuing and discontinued operations. Current tax Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and includes any adjustment to income tax payable in respect of previous years. Deferred tax Deferred taxation is provided using the temporary difference method. Temporary differences are differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax base. The amount of deferred taxation provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities using tax rates enacted or substantively enacted at the reporting date in the specific jurisdiction. Deferred taxation is charged to profit or loss except to the extent that it relates to a transaction that is recognised directly in other comprehensive income, or a business combination that is an acquisition. The effect on deferred taxation of any changes in tax rates is recognised in profit or loss, except to the extent that it relates to items previously charged or credited directly to other comprehensive income. A deferred tax asset is recognised only to the extent that it is probable that future taxable income will be available, against which the unutilised tax losses and deductible temporary differences can be used. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefits will be realised. In certain circumstances, as permitted by accounting guidance, deferred tax balances are not recognised. In particular where the liability relates to the initial recognition of goodwill, or transactions that are not a business combination and at the time of their occurrence affect neither accounting nor taxable profit. Note H7 includes further detail of circumstances in which the Group does not recognise temporary differences. Critical accounting estimates and judgements – Income tax Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in profit or loss except to the extent that it relates to items recognised directly in other comprehensive income or equity, in which case it is recognised in other comprehensive income and the statement of changes in equity respectively. The Group is subject to income taxes in numerous jurisdictions and the calculation of the Group's tax charge and worldwide provisions for income tax necessarily involves a degree of estimation and judgement. At any given time the Group typically has a number of open tax returns with various tax authorities and engages in active dialogue to resolve this. Taxation provisions relating to these open items are recognised based on the Group's estimate of the most likely outcome, after taking into account external advice where appropriate. Where the final tax outcome of these matters is different from the amounts that were initially recorded such differences will impact profit or loss, current and deferred income tax assets and liabilities in the period such determination is made. 189 183 i F n a n c a s l i Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued D: Other consolidated income statement notes continued D1: Income tax expense continued D: Other consolidated income statement notes continued (a) Analysis of total income tax expense D1: Income tax expense continued The total income tax expense for the year from continuing operations comprises: (a) Analysis of total income tax expense The total income tax expense for the year from continuing operations comprises: £m Year ended 31 December £m 2016 Year ended (Re-presented)¹ 31 December 2016 (23) (Re-presented)¹ Year ended 31 December 2017 Year ended 31 December (45) 2017 Continuing operations Current tax United Kingdom Continuing operations Overseas tax Current tax United Kingdom Overseas tax – South Africa – Rest of Africa – Rest of the world2 – South Africa Withholding taxes – Rest of Africa Adjustments to current tax in respect of prior years – Rest of the world2 Total current tax Withholding taxes Deferred tax Adjustments to current tax in respect of prior years Deferred tax expense/(income) relating to the origination and reversal of temporary differences Total current tax Effect on deferred tax of changes in tax rates Deferred tax Recognition of previously unrecognised deferred tax assets Deferred tax expense/(income) relating to the origination and reversal of temporary differences Adjustments to deferred tax in respect of prior years Effect on deferred tax of changes in tax rates Total deferred tax Recognition of previously unrecognised deferred tax assets Total income tax expense Adjustments to deferred tax in respect of prior years Total deferred tax 1 The year ended 31 December 2016 has been re-presented to reflect Nedbank and Old Mutual Wealth as discontinued operations. Refer to note A4 for more information Total income tax expense 2 Rest of the world includes taxes originating in India, Latin America and the United States. 160 (45) 27 27 160 9 27 (17) 27 161 9 (17) 82 161 – 1 82 (4) – 79 1 240 (4) 79 240 186 (23) 20 9 186 9 20 (19) 9 182 9 (19) (60) 182 20 – (60) – 20 (40) – 142 – (40) 142 1 The year ended 31 December 2016 has been re-presented to reflect Nedbank and Old Mutual Wealth as discontinued operations. Refer to note A4 for more information (b) Reconciliation of total income tax expense 2 Rest of the world includes taxes originating in India, Latin America and the United States. The income tax expense charged to profit or loss differs from the income tax expense that would apply if all of the Group's profits from continuing operations from the different tax jurisdictions had been taxed at the UK standard corporation tax rate. The difference in the (b) Reconciliation of total income tax expense effective rate of the continuing operations is explained below: The income tax expense charged to profit or loss differs from the income tax expense that would apply if all of the Group's profits from continuing operations from the different tax jurisdictions had been taxed at the UK standard corporation tax rate. The difference in the effective rate of the continuing operations is explained below: £m Year ended 31 December £m 2016 Year ended (Re-presented)¹ 31 December 306 2016 61 (Re-presented)¹ 42 306 (103) 61 73 42 (19) (103) 30 73 – (19) 20 30 1 – 37 20 142 1 37 142 Continuing operations Profit before tax Tax at UK standard rate of 19.25% (2016: 20.0%) Continuing operations Different tax rate or basis on overseas operations Profit before tax Untaxed and low taxed income2 Tax at UK standard rate of 19.25% (2016: 20.0%) Disallowable expenses Different tax rate or basis on overseas operations Adjustments to current tax in respect of prior years Untaxed and low taxed income2 Net movement on deferred tax assets not recognised Disallowable expenses Adjustments to deferred tax in respect of prior years Adjustments to current tax in respect of prior years Effect on deferred tax of changes in tax rates Net movement on deferred tax assets not recognised Withholding taxes Adjustments to deferred tax in respect of prior years Income tax attributable to policyholder returns Effect on deferred tax of changes in tax rates Total income tax expense Withholding taxes Income tax attributable to policyholder returns 1 The year ended 31 December 2016 has been re-presented to reflect Nedbank and Old Mutual Wealth as discontinued operations. Refer to note A4 for more information Total income tax expense 2 This includes capital gains taxed at a lower rate than the corporate tax rate. Year ended 31 December 2017 Year ended 617 31 December 119 2017 67 617 (108) 119 115 67 (17) (108) 13 115 (4) (17) – 13 1 (4) 54 – 240 1 54 240 1 The year ended 31 December 2016 has been re-presented to reflect Nedbank and Old Mutual Wealth as discontinued operations. Refer to note A4 for more information 2 This includes capital gains taxed at a lower rate than the corporate tax rate. 190 184 184 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 (c) Income tax relating to components of other comprehensive income The following table presents a reconciliation of profit for the financial year to adjusted operating profit after tax attributable to ordinary equity holders and summarises the calculation of adjusted operating earnings per share: Measurement gains on defined benefit plans Property revaluation Income tax on items that will not be reclassified subsequently to profit or loss Available-for-sale reserves Income tax on items that may be reclassified subsequently to profit or loss Income tax expense relating to components of other comprehensive income Year ended 31 December 2017 8 7 15 (3) (3) 12 £m Year ended 31 December 2016 (8) – (8) (4) (4) (12) (d) Reconciliation of income tax expense in the IFRS income statement to income tax on adjusted operating profit Continuing and discontinued operations Income tax expense – continuing operations Income tax expense – discontinued operations Tax on adjusting items Goodwill impairment and impact of acquisition accounting Net profit on disposal of subsidiaries, associates and strategic investments Short-term fluctuations in investment return Tax on dividends declared to holders of perpetual preferred callable securities recognised in equity Institutional Asset Management equity plans Credit-related fair value losses on Group debt instruments Managed separations and business standalone costs Old Mutual Wealth business transformation costs Old Mutual Wealth voluntary customer remediation provision Total tax on adjusting items Income tax attributable to policyholders returns Tax on non-core operations Income tax on adjusted operating profit £m Year ended 31 December 2016 (Re-presented)¹ 142 362 Year ended 31 December 2017 240 340 11 (13) (14) – 10 20 4 14 14 46 (147) (2) 477 19 (3) – (3) 6 – – 19 – 38 (144) – 398 1 The year ended 31 December 2016 has been re-presented to reflect Nedbank and Old Mutual Wealth as discontinued operations. Refer to note A4 for more information. (e) Discontinued operations: Analysis of total income tax expense The total income tax expense for the year from discontinued operations comprises: Discontinued operations Current tax United Kingdom Overseas tax – South Africa – Rest of Africa – Europe – Rest of the world1 Adjustments to current tax in respect of prior years Total current tax Deferred tax Deferred tax expense/(income) relating to the origination and reversal of temporary differences Effect on deferred tax of changes in tax rates Adjustments to deferred tax in respect of prior years Total deferred tax Total income tax expense 1 Rest of the world includes taxes originating in the United States. Year ended 31 December 2017 £m Year ended 31 December 2016 94 244 11 3 7 (3) 356 (11) (1) (4) (16) 340 79 215 8 15 13 (1) 329 34 1 (2) 33 362 191 185 i F n a n c a s i l Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued D: Other consolidated income statement notes continued D1: Income tax expense continued D: Other consolidated income statement notes continued (f) Discontinued operations: Reconciliation of total income tax expense D1: Income tax expense continued The income tax expense charged to profit or loss differs from the income tax expense that would apply if all of the Group's profits from the different tax jurisdictions had been taxed at the UK standard corporation tax rate. The difference in the effective rate of discontinued (f) Discontinued operations: Reconciliation of total income tax expense operations is explained below: The income tax expense charged to profit or loss differs from the income tax expense that would apply if all of the Group's profits from the different tax jurisdictions had been taxed at the UK standard corporation tax rate. The difference in the effective rate of discontinued operations is explained below: Discontinued operations Profit before tax Tax at UK standard rate of 19.25% (2016: 20%) Discontinued operations Different tax rate or basis on overseas operations Profit before tax Untaxed and low taxed income Tax at UK standard rate of 19.25% (2016: 20%) Disallowable expenses Different tax rate or basis on overseas operations Adjustments to current tax in respect of prior years Untaxed and low taxed income Net movement on deferred tax assets not recognised1 Disallowable expenses Adjustments to deferred tax in respect of prior years Adjustments to current tax in respect of prior years Effect on deferred tax of changes in tax rates Net movement on deferred tax assets not recognised1 Withholding taxes Adjustments to deferred tax in respect of prior years Income tax attributable to policyholder returns Effect on deferred tax of changes in tax rates Total income tax expense Withholding taxes Income tax attributable to policyholder returns 1 This includes recognition of a deferred tax asset in Old Mutual Wealth (£15 million) previously unrecognised. Total income tax expense D2: Investment return (non-banking) 1 This includes recognition of a deferred tax asset in Old Mutual Wealth (£15 million) previously unrecognised. This note analyses the investment return from the non-banking activities of the Group's continuing operations. D2: Investment return (non-banking) This note analyses the investment return from the non-banking activities of the Group's continuing operations. Year ended 31 December 2017 Year ended 1,221 31 December 235 2017 74 1,221 (7) 235 (3) 74 (3) (7) (14) (3) (4) (3) (1) (14) 1 (4) 62 (1) 340 1 62 340 £m Year ended 31 December £m 2016 Year ended 1,043 31 December 209 2016 73 1,043 (23) 209 22 73 (1) (23) 4 22 (2) (1) 1 4 1 (2) 78 1 362 1 78 362 Continuing operations Interest and similar income Loans and advances Continuing operations Investments and securities Interest and similar income Cash and cash equivalents Loans and advances Total interest and similar income Investments and securities Dividend income – investments and securities Cash and cash equivalents Fair value gains recognised in income Total interest and similar income Rental income from investment properties Dividend income – investments and securities Fair value gains on the revaluation of investment property Fair value gains recognised in income Foreign currency (losses)/gains Rental income from investment properties Total amounts recognised in profit or loss Fair value gains on the revaluation of investment property Foreign currency (losses)/gains Total interest income for assets not at fair value through profit or loss Total amounts recognised in profit or loss The fair value gains/(losses) shown above are analysed according to their IAS 39 categorisations Total interest income for assets not at fair value through profit or loss as follows: Year ended 31 December 2017 Year ended 31 December 1 2017 1,305 82 1 1,388 1,305 380 82 3,528 1,388 159 380 26 3,528 (4) 159 5,477 26 (4) 18 5,477 18 as follows: Held-for-trading (including derivatives) The fair value gains/(losses) shown above are analysed according to their IAS 39 categorisations Designated at fair value through profit or loss Held-for-trading (including derivatives) Designated at fair value through profit or loss 1 The year ended 31 December 2016 has been re-presented to reflect Nedbank and Old Mutual Wealth as discontinued operations. Refer to note A4 for more information. (26) 3,554 3,528 (26) 3,554 3,528 1 The year ended 31 December 2016 has been re-presented to reflect Nedbank and Old Mutual Wealth as discontinued operations. Refer to note A4 for more information. 192 186 186 £m Year ended 31 December £m 2016 Year ended (Re-presented)¹ 31 December 2016 1 (Re-presented)¹ 990 75 1 1,066 990 389 75 189 1,066 125 389 92 189 18 125 1,879 92 18 13 1,879 13 (12) 201 189 (12) 201 189 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 D3: Banking interest and similar income This note analyses the interest earned on loans and advances from the banking activities of the Group's continuing operations. Continuing operations Loans and advances Mortgage loans Overdrafts Term loans and other2 Investments and securities Government and government-guaranteed securities Other debt securities, preference shares and debentures Total interest and similar income £m Year ended 31 December 2016 (Re-presented)¹ 217 51 6 160 12 1 11 Year ended 31 December 2017 244 53 6 185 12 9 3 256 229 1 The year ended 31 December 2016 has been re-presented to reflect Nedbank and Old Mutual Wealth as discontinued operations. Refer to note A4 for more information 2 Term loans and other includes commercial mortgages, deposits placed under repurchase agreements, preference shares and debentures and other term loans. D4: Banking trading, investment and similar income This note analyses the investment return from the banking activities of the Group's continuing operations. Continuing operations Rental income from investment property Net exchange and other non-interest income Net trading income2 Total banking trading, investment and similar income £m Year ended 31 December 2016 (Re-presented)¹ 1 1 12 14 Year ended 31 December 2017 1 1 4 6 1 The year ended 31 December 2016 has been re-presented to reflect Nedbank and Old Mutual Wealth as discontinued operations. Refer to note A4 for more information 2 Net trading income comprises all gains and losses from changes in the fair value of financial assets and financial liabilities held-for-trading, together with the related interest, expense, costs and dividends of the Group's continuing banking operations. D5: Fee and commission income, and income from service activities This note analyses the fees and commission, earned by the Group's continuing operations, from negotiating, or participating in the negotiation of a transaction for third-parties, transaction and performance fees earned and movements in deferred origination fees. Year ended 31 December 2017 Continuing operations Fee and commission income Transaction and performance fees Change in deferred revenue Year ended 31 December 2016 (Re-presented)¹ Continuing operations Fee and commission income Transaction and performance fees Change in deferred revenue Life and savings 245 1 11 257 Asset management 290 9 (1) 298 Life and savings 231 1 7 239 Asset management 233 6 (4) 235 Banking 45 24 – 69 Banking 36 18 – 54 Property & casualty 49 – – 49 Property & casualty 34 – 3 37 £m Total 629 34 10 673 £m Total 534 25 6 565 1 The year ended 31 December 2016 has been re-presented to reflect Nedbank and Old Mutual Wealth as discontinued operations. Refer to note A4 for more information. Fee and commission income, and income from service activities include £144 million (2016: £122 million) related to trust and fiduciary fees. 193 187 i F n a n c a s l i Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued D: Other consolidated income statement notes continued D6: Finance costs D: Other consolidated income statement notes continued Finance costs relate to the borrowed funds in the Group's continuing operations, excluding those relating to banking activities. These finance costs include interest payable, and gains and losses on revaluation of these funds and on those derivative instruments which D6: Finance costs are used to hedge these funds in the Group's continuing operations. Finance costs relate to the borrowed funds in the Group's continuing operations, excluding those relating to banking activities. These finance costs include interest payable, and gains and losses on revaluation of these funds and on those derivative instruments which are used to hedge these funds in the Group's continuing operations. Continuing operations Interest payable on borrowed funds Senior debt and term loans Continuing operations Subordinated debt Interest payable on borrowed funds Interest rate swaps Senior debt and term loans Fair value gains and losses on borrowed funds Subordinated debt Borrowed funds2 Interest rate swaps Derivative instruments used as economic hedges Fair value gains and losses on borrowed funds Borrowed funds2 Total finance costs excluding banking activities Derivative instruments used as economic hedges Finance costs from banking activities Total Group finance costs on debt instruments Total finance costs excluding banking activities Finance costs from banking activities The fair value gains and (losses) shown above are analysed according to their IAS 39 Total Group finance costs on debt instruments categorisations as follows: Designated at fair value through profit or loss The fair value gains and (losses) shown above are analysed according to their IAS 39 Note Note D7 D7 Year ended 31 December 2017 Year ended 102 31 December – 2017 115 102 (13) – 132 115 116 (13) 16 132 116 234 16 19 253 234 19 253 132 categorisations as follows: 1 The year ended 31 December 2016 has been re-presented to reflect Nedbank and Old Mutual Wealth as discontinued operations. Refer to note A4 for more information Designated at fair value through profit or loss 2 Fair value gains and losses on borrowed funds for the year ended 31 December 2017 includes £102 million relating to the difference between the cash paid to repurchase and redeem £389 million of Tier 2 subordinated 2025 securities and £159 million nominal of Tier 2 subordinated 2021 securities and the IFRS book value of this debt at the date of repurchase. 1 The year ended 31 December 2016 has been re-presented to reflect Nedbank and Old Mutual Wealth as discontinued operations. Refer to note A4 for more information 2 Fair value gains and losses on borrowed funds for the year ended 31 December 2017 includes £102 million relating to the difference between the cash paid to repurchase and redeem £389 million of Tier 2 subordinated 2025 securities and £159 million nominal of Tier 2 subordinated 2021 securities and the IFRS book value of this debt at the date of repurchase. D7: Banking interest payable and similar expense This note analyses the interest and similar expenses from the banking activities of the Group's continuing operations. D7: Banking interest payable and similar expense This note analyses the interest and similar expenses from the banking activities of the Group's continuing operations. 132 Continuing operations Amounts owed to bank depositors Deposits and loan accounts Continuing operations Current and savings accounts Amounts owed to bank depositors Negotiable certificates of deposit Deposits and loan accounts Long-term debt instruments Current and savings accounts Negotiable certificates of deposit Total interest payable and similar expenses Long-term debt instruments Year ended 31 December 2017 Year ended 75 31 December 16 2017 17 75 23 16 19 17 23 75 19 Notes Notes D6 D6 £m Year ended 31 December £m 2016 Year ended (Re-presented)¹ 31 December 102 2016 7 (Re-presented)¹ 108 102 (13) 7 26 108 34 (13) (8) 26 34 128 (8) 30 158 128 30 158 26 26 £m Year ended 31 December £m 2016 Year ended (Re-presented)¹ 31 December 90 2016 19 (Re-presented)¹ 19 90 22 19 30 19 22 90 30 1 The year ended 31 December 2016 has been re-presented to reflect Nedbank and Old Mutual Wealth as a discontinued operations. Refer to note A4 for more information. Total interest payable and similar expenses 75 90 1 The year ended 31 December 2016 has been re-presented to reflect Nedbank and Old Mutual Wealth as a discontinued operations. Refer to note A4 for more information. 194 188 188 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 D8: Fee and commission expenses, and other acquisition costs This note analyses the fee and commission expenses and other acquisition costs from the Group's continuing operations. Year ended 31 December 2017 Continuing operations Fee and commission expenses Change in deferred acquisition costs Other acquisition costs Year ended 31 December 2016 (Restated)¹ Continuing operations Fee and commission expenses Change in deferred acquisition costs Other acquisition costs Life and savings 185 9 141 335 Asset management 44 (2) – 42 Property & casualty 146 1 – 147 Life and savings 194 1 57 252 Asset management 49 (1) (5) 43 Property & casualty 127 3 – 130 £m Total 375 8 141 524 £m Total 370 3 52 425 1 Fee and commission expenses (Life and savings) for the year ended 31 December 2016 of £80 million have been restated for the reallocation from other operating and administrative expenses. Refer to note B1 for more information. In addition the year ended 31 December 2016 has been re-presented to reflect Nedbank and Old Mutual Wealth as discontinued operations. Refer to note A4 for more information. Fee and commission expenses, and other acquisition costs include £10 million (2016: £10 million) related to trust and fiduciary fees. D9: Other operating and administrative expenses This note gives further detail on the items included within other operating and administrative expenses of the Group's continuing operations as well as an analysis of the operating segments our employees work in. (a)(i) Other operating and administrative expenses include: Continuing operations Staff costs Amortisation of present value of acquired in-force business and other intangible assets Impairment of goodwill and other intangible assets Operating lease rentals – banking Operating lease rentals – non-banking Depreciation Computer, software and processing costs Marketing and communications and travel costs Other operating and administrative expenses Notes D9(b) Year ended 31 December 2017 649 26 86 9 7 33 10 75 681 1,576 £m Year ended 31 December 2016 (Restated)¹ 545 25 67 6 6 25 8 75 512 1,269 1 Other operating and administrative expenses for the year ended 31 December 2016 of £80 million have been restated for the reallocation from other operating and administrative expenses to fee and commission expenses, and other acquisition costs. Refer to note B1 for more information. In addition the year ended 31 December 2016 has been re-presented to reflect Nedbank and Old Mutual Wealth as discontinued operations. Refer to note A4 for more information. Operating lease payments principally represent rentals payable by the Group for the rental of buildings and equipment. 195 189 i F n a n c a s l i Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued D: Other consolidated income statement notes continued D9: Other operating and administrative expenses D: Other consolidated income statement notes continued (a)(ii) Analysis of underlying Emerging Markets other operating and administrative expenses D9: Other operating and administrative expenses The table below provides an analysis of underlying Emerging Markets operating and administrative expenses. (a)(ii) Analysis of underlying Emerging Markets other operating and administrative expenses The table below provides an analysis of underlying Emerging Markets operating and administrative expenses. Notes D9(a)(i) Notes D9(a)(i) Total other operating and administrative expenses Exclude: plc Head Office and Old Mutual Bermuda Total other operating and administrative expenses Consolidation of funds Exclude: Elimination of transactions with discontinued operations and non-AOP costs plc Head Office and Old Mutual Bermuda Emerging Markets operating and administrative expenses Consolidation of funds Expenses excluded from cost base Elimination of transactions with discontinued operations and non-AOP costs Emerging Markets operating and administrative expenses Operational finance costs Expenses excluded from cost base Impairment of other intangible assets Investment management expenses excluded from operating and Impairment of other intangible assets administrative expenses Operational finance costs One-off business standalone costs Investment management expenses excluded from operating and Underlying Emerging Markets operating and administrative expenses administrative expenses One-off business standalone costs (b) Staff costs Underlying Emerging Markets operating and administrative expenses (b) Staff costs Wages and salaries Social security costs Defined contribution plans Wages and salaries Defined benefit plans Social security costs Other retirement benefits Defined contribution plans Bonus and incentive remuneration Defined benefit plans Share-based payments Other retirement benefits Cash settled Bonus and incentive remuneration Equity settled Share-based payments Other Cash settled Equity settled Other Note Note J1(b) J1(b) J1(b) J1(b) J2(e) J2(e) J2(e) J2(e) Continuing operations 453 Continuing 6 operations 10 453 1 6 (2) 10 111 1 (2) 4 111 17 49 4 649 17 49 649 Discontinued operations 916 Discontinued 50 operations 85 916 (11) 50 12 85 357 (11) 12 12 357 49 125 12 1,595 49 125 1,595 Total 1,369 56 Total 95 1,369 (10) 56 10 95 468 (10) 10 16 468 66 174 16 2,244 66 174 2,244 Continuing operations 394 Continuing 7 operations 9 394 2 7 (1) 9 89 2 (1) – 89 13 32 – 545 13 32 545 Year ended 31 December 2017 Year ended 1,576 31 December 2017 (85) 1,576 (30) (159) (85) 1,302 (30) (159) (1) 1,302 (64) (1) (127) (64) (14) 1,096 (127) (14) 1,096 Discontinued operations 808 Discontinued 41 operations 70 808 (9) 41 7 70 344 (9) 7 6 344 51 107 6 1,425 51 107 1,425 £m Year ended 31 December £m 2016 Year ended 1,269 31 December 2016 (134) 1,269 (26) (74) (134) 1,035 (26) (74) (3) 1,035 (44) (3) (82) (44) – 906 (82) – 906 £m £m Total 1,202 48 Total 79 1,202 (7) 48 6 79 433 (7) 6 6 433 64 139 6 1,970 64 139 1,970 Year ended 31 December 2017 Year ended 31 December 2016 Year ended 31 December 2017 Year ended 31 December 2016 196 190 190 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 (b)(i) Average number of employees The average number of persons employed by the Group is as follows: Emerging Markets plc Head Office Non-core operations (Old Mutual Bermuda) Total – continuing operations Old Mutual Wealth Nedbank Institutional Asset Management Total – discontinued operations Total Year ended 31 December 2017 Number Year ended 31 December 2016 28,145 150 18 28,313 3,832 32,752 498 37,082 65,395 28,565 263 18 28,846 3,649 34,875 1,157 39,681 68,527 (c) Fees to Group's auditors Included in other operating and administrative expenses are fees paid to the Group's auditors, which is analysed between continuing and discontinued operations as follows: Fees for audit services Group Subsidiaries Pension schemes Total audit fees Fees for non-audit services Audit-related assurance Taxation compliance Corporate finance transactions Other non-audit services Total non-audit services Total Group auditors' remuneration Continuing operations Year ended 31 December 2017 Discontinued operations Total Continuing operations £m Year ended 31 December 2016 Discontinued operations Total 2.0 5.2 – 7.2 0.2 – 0.2 0.1 0.5 7.7 – 10.7 0.2 10.9 1.0 0.2 – 0.1 1.3 12.2 2.0 15.9 0.2 18.1 1.2 0.2 0.2 0.2 1.8 19.9 1.6 3.5 0.1 5.2 0.5 0.1 – 0.5 1.1 6.3 – 9.8 0.1 9.9 0.4 1.2 – 1.0 2.6 12.5 1.6 13.3 0.2 15.1 0.9 1.3 – 1.5 3.7 18.8 In addition to the above, fees of £4.3 million (2016: £3.3 million) were payable to other auditors in respect of joint audit arrangements of Nedbank. 197 191 i F n a n c a s l i Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued E: Financial assets and liabilities E1: Categories of financial instruments E: Financial assets and liabilities The analysis of assets and liabilities of the Group's continuing operations into their categories as defined in IAS 39 'Financial Instruments: E1: Categories of financial instruments Recognition and Measurement' is set out in the table below. Assets and liabilities of a non-financial nature, or financial assets and liabilities The analysis of assets and liabilities of the Group's continuing operations into their categories as defined in IAS 39 'Financial Instruments: that are specifically excluded from the scope of IAS 39, are reflected in the non-financial assets and liabilities category. Recognition and Measurement' is set out in the table below. Assets and liabilities of a non-financial nature, or financial assets and liabilities that are specifically excluded from the scope of IAS 39, are reflected in the non-financial assets and liabilities category. The categories of financial instruments classified as held for sale and distribution at 31 December 2017 is presented in note E7(a). Consistent with the requirements of accounting standards, the comparative period has not been re-presented for assets and liabilities The categories of financial instruments classified as held for sale and distribution at 31 December 2017 is presented in note E7(a). classified as held for sale and distribution. Consistent with the requirements of accounting standards, the comparative period has not been re-presented for assets and liabilities classified as held for sale and distribution. The comparative information presented at 31 December 2017, therefore includes the categories of financial assets and liabilities for the composition of the Group as at 31 December 2016. This note should be read in conjunction with Note E7(a) to obtain a comparable view The comparative information presented at 31 December 2017, therefore includes the categories of financial assets and liabilities for the of the Group's categories of financial instruments at 31 December 2017. composition of the Group as at 31 December 2016. This note should be read in conjunction with Note E7(a) to obtain a comparable view of the Group's categories of financial instruments at 31 December 2017. All gains and losses on measuring the financial assets and liabilities at each reporting date are included in the determination of profit or loss, with the exception of unrealised gains or losses on financial assets classified as available-for-sale, which are recognised in other All gains and losses on measuring the financial assets and liabilities at each reporting date are included in the determination of profit or comprehensive income. loss, with the exception of unrealised gains or losses on financial assets classified as available-for-sale, which are recognised in other comprehensive income. At 31 December 2017 Measurement basis At 31 December 2017 Measurement basis £m Fair value (note E3) Available- Fair value (note E3) for-sale Available- financial for-sale assets financial assets Held-for- Held-for- trading Designated trading Designated Held-to- maturity Held-to- investments maturity investments Amortised cost (note E5) Financial Amortised cost (note E5) liabilities Financial amortised liabilities cost amortised cost Loans and receivables Loans and receivables £m Non- financial Non- assets and financial liabilities assets and liabilities Assets Mandatory reserve deposits with Assets Mandatory reserve deposits with Investments in associated undertakings central banks central banks and joint ventures1 Investments in associated undertakings Reinsurers' share of policyholder and joint ventures1 liabilities liabilities other assets Reinsurers' share of policyholder Loans and advances Investments and securities Loans and advances Trade, other receivables and Investments and securities Trade, other receivables and Derivative financial instruments Cash and cash equivalents Derivative financial instruments Total assets that include financial Cash and cash equivalents Total assets that include financial Assets held for sale and other assets instruments instruments distribution (note E7(a)) Assets held for sale and Total other non-financial assets distribution (note E7(a)) Total assets Total other non-financial assets Total assets Liabilities Life insurance contract liabilities Liabilities Investment contract liabilities Life insurance contract liabilities Third-party interest in consolidation Investment contract liabilities of funds Third-party interest in consolidation Borrowed funds of funds Trade, other payables and other Borrowed funds liabilities Trade, other payables and other Amounts owed to bank depositors Derivative financial instruments Amounts owed to bank depositors Total liabilities that include financial Derivative financial instruments Total liabilities that include financial Liabilities held for sale and distribution instruments liabilities Total Total 6 6 107 107 252 1,282 252 43,102 1,282 43,102 1,304 245 1,304 1,836 245 1,836 48,134 48,134 130,603 3,095 130,603 181,832 3,095 181,832 9,520 28,740 9,520 28,740 4,868 1,126 4,868 1,126 2,529 742 2,529 268 742 268 47,793 – – – – – – – – – – – 245 – – 245 – 245 245 – – – 245 – 245 – – – – – – – – – – – 268 – 268 268 – – – – – – – 43,047 – 43,047 – – – – – – 43,047 43,047 – – – 43,047 – 43,047 – 17,197 – 17,197 4,868 787 4,868 787 122 – 122 – – – 22,974 – – – – – – – 55 – 55 – – – – – – 55 55 – – – 55 – 55 – – – – – – – – – – – – – – – instruments (note E7(a)) 47,793 121,968 Liabilities held for sale and distribution Total other non-financial liabilities 1,124 (note E7(a)) 121,968 170,885 Total liabilities Total other non-financial liabilities 1,124 1 Investments in associated undertakings and joint ventures classified as non-financial assets and liabilities are equity accounted. 170,885 Total liabilities 22,974 – – – 22,974 – 22,974 268 – – – 268 – 268 – – – – – – – 1 Investments in associated undertakings and joint ventures classified as non-financial assets and liabilities are equity accounted. 198 192 192 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 6 6 – – 1 1,282 1 – 1,282 – 1,234 – 1,234 1,836 – 1,836 4,359 4,359 – – – 4,359 – 4,359 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 339 – 339 1,816 742 1,816 – 742 – 2,897 2,897 – – – 2,897 – 2,897 – – 107 107 251 – 251 – – – 70 – 70 – – – 428 428 130,603 3,095 130,603 134,126 3,095 134,126 9,520 11,543 9,520 11,543 – – – – 591 – 591 – – – 21,654 21,654 121,968 1,124 121,968 144,746 1,124 144,746 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 At 31 December 2016 (Restated)1,2,3,4 Measurement basis Assets Mandatory reserve deposits with central banks Investments in associated undertakings and joint ventures5 Reinsurers' share of policyholder liabilities6 Loans and advances2,3 Investments and securities1 Trade, other receivables and other assets Derivative financial instruments Cash and cash equivalents Total assets that include financial instruments Assets held for sale and distribution Total other non-financial assets Total assets Liabilities Life insurance contract liabilities Investment contract liabilities Third-party interest in consolidation of funds Borrowed funds Trade, other payables and other liabilities Amounts owed to bank depositors4 Derivative financial instruments Total liabilities that include financial instruments Liabilities held for sale and distribution Total other non-financial liabilities Total liabilities Total 1,111 542 3,115 43,108 100,388 2,416 1,340 4,847 156,867 8,570 5,986 171,423 9,982 77,599 7,981 4,694 5,112 45,309 1,161 151,838 7,046 1,516 160,400 Fair value (note E3) Available- for-sale financial assets Held-for- trading Designated Amortised cost (note E5) Financial liabilities amortised cost Loans and receivables Held-to- maturity investments £m Non- financial assets and liabilities – – – 1,264 3,183 268 1,340 – 6,055 – – 6,055 – 139 2,560 3,592 92,970 – – – 99,261 – – 99,261 – – – 67,515 – – 1,293 446 1,161 2,900 – – 2,900 7,981 935 620 3,240 – 80,291 – – 80,291 – – – 2 957 – – – 959 – – 959 – – – – – – – – – – – – – – – 3,278 – – – 3,278 – – 3,278 1,111 – 7 38,239 – 1,429 – 4,847 45,633 – – 45,633 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 3,759 2,049 41,623 – 47,431 – – 47,431 – 403 548 11 – 719 – – 1,681 8,570 5,986 16,237 9,982 10,084 – – 1,150 – – 21,216 7,046 1,516 29,778 i F n a n c a s i l 1 Investments and securities of £46 million were included in the previous year as designated at fair value through profit or loss, whereas these instruments were classified and measured as held for trading. Accordingly, the designated at fair value through profit or loss and held-for-trading and categories have been restated to reflect the correct classification. In addition, investments and securities has been restated for the elimination of own shares held by consolidated investment funds (£145 million) that was identified in the current year. 2 Loans and advances of £801 million were included in the previous year as held-for-trading assets, whereas these instruments were classified and measured as loans and receivables. Accordingly, the held-for-trading and loans and receivables categories have been restated to reflect the correct classification 3 Loans and advances of £197 million were included in the previous year as designated at fair value through profit or loss, whereas these instruments were classified and measured as loans and receivables. Accordingly, the designated at fair value through profit or loss and loans and receivables categories have been restated to reflect the correct classification 4 Amounts owed to depositors of £550 million were included in the previous year as designated at fair value through profit or loss, whereas these instruments were classified and measured as financial liabilities at amortised cost. Accordingly, the designated at fair value through profit or loss and financial liabilities at amortised cost categories have been restated to reflect the correct classification 5 Investments in associated undertakings and joint ventures classified as non-financial assets and liabilities are equity accounted 6 Reinsurers' share of policyholder liabilities categorised as designated at fair value through profit or loss of £2,560 million relate to investment contracts of Old Mutual Wealth where management of assets are ceded to third parties through a reinsurance arrangements. Due to the nature of these arrangements, there is no transfer of insurance risk. 199 193 Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued E: Financial assets and liabilities continued E2: Fair values of financial assets and liabilities E: Financial assets and liabilities continued 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 businesses. 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 (a) Determination of fair value applies to financial assets and liabilities for all the businesses. 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. (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 In general, the following inputs are taken into account when evaluating the fair value of financial instruments: active, or quoted prices cannot be obtained without undue effort, another valuation technique is used.  Assessing whether instruments are trading with sufficient frequency and volume, that they can be considered liquid In general, the following inputs are taken into account when evaluating the fair value of financial instruments:  The inclusion of a measure of the counterparties' non-performance risk in the fair-value measurement of loans and advances, which  Assessing whether instruments are trading with sufficient frequency and volume, that they can be considered liquid  The inclusion of credit valuation adjustment (CVA) and debit valuation adjustment (DVA) in the fair-value measurement of derivative  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 instruments involves the modelling of dynamic credit spreads  The inclusion of own credit risk in the calculation of the fair value of financial liabilities.  The inclusion of credit valuation adjustment (CVA) and debit valuation adjustment (DVA) in the fair-value measurement of derivative instruments There have been no significant changes in the valuation techniques applied when valuing financial instruments. The general principles  The inclusion of own credit risk in the calculation of the fair value of financial liabilities. applied to those instruments measured at fair value are outlined below: There have been no significant changes in the valuation techniques applied when valuing financial instruments. The general principles Reinsurers' share of policyholder liabilities applied to those instruments measured at fair value are outlined below: 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 the fair value of the Reinsurers' share of policyholder liabilities underlying assets contained in the related policy. 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 the fair value of the Loans and advances underlying assets contained in the related policy. Loans and advances include mortgage loans, other asset-based loans, including collateralised debt obligations, and other secured and unsecured loans. Loans and advances Loans and advances include mortgage loans, other asset-based loans, including collateralised debt obligations, and other secured and In the absence of an observable market for these instruments, the fair value is determined by using internally developed models that are unsecured loans. 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. 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 Investments and securities by using a credit-adjusted zero-coupon rate. 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 Investments and securities securities treated as investments and certain other 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 Pooled investments relate to the Group's holdings of shares/units in open-ended investment companies, unit trusts, mutual funds and securities treated as investments and certain other securities. similar investment vehicles and are recognised at fair value. The fair value of pooled investments is based on published prices that are regularly updated or models based on the market prices of investments held in the underlying pooled investment funds. Pooled investments relate to the Group's holdings of shares/units in open-ended investment companies, unit trusts, mutual funds and similar investment vehicles and are recognised at fair value. The fair value of pooled investments is based on published prices that are Other investment and securities that are measured at fair value are measured at observable market prices where available. In the regularly updated or models based on the market prices of investments held in the underlying pooled investment funds. 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 modelling technique. Other investment and securities that are measured 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: Investments in associated undertakings and joint ventures that are measured at fair value discounted cash flows, the application of an EBITDA multiple or any other relevant modelling technique. 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. Investments in associated undertakings and joint ventures that are measured at fair value Investments in associated undertakings and joint ventures are valued using appropriate valuation techniques. These techniques may Derivatives include price earnings multiples, discounted cash flows or the adjusted value of similar completed transactions. 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. Derivatives The fair value of derivatives is determined with reference to the exchange traded prices of the specific instruments. In situations where Investment contract liabilities the derivatives are traded over the counter the fair value of the instruments is determined by the utilisation of option pricing models. 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. 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. 200 194 194 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Third-party interest in consolidation of funds Third-party interests in consolidation of funds are measured at the proportionate share of the fair value of the net assets 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 consolidated statement of financial position, which generally reflects the amount payable on demand. (a) Determination of fair value continued 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 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 liabilities with quoted prices for identical instruments in active markets. Level 2 – valuation techniques using observable inputs: financial assets and liabilities with quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in inactive markets and financial assets and liabilities valued using models where all significant inputs are observable. Level 3 – valuation techniques using significant unobservable inputs: financial assets and liabilities valued using valuation techniques where one or more significant inputs are unobservable. Listed equity securities, listed government securities and other listed debt securities and similar instruments that are actively 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. Unlisted equity and debt securities where the valuation is based on models involving no significant unobservable data, with a majority determined with reference to observable prices. Certain loans and advances, certain privately placed debt instruments, third-party interests in consolidated funds and amounts owed to bank depositors. Unlisted equity and securities with significant unobservable inputs, securities where the market is not considered sufficiently active, including certain inactive pooled investments, 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. The determination of the fair value on an instrument does not necessarily represent the price that the Group accept for the sale of the instrument or the price the Group would pay to exit the liability. (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. 201 195 i F n a n c a s i l Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued E: Financial assets and liabilities continued E3: Disclosure of financial assets and liabilities measured at fair value E: Financial assets and liabilities continued (a) Financial assets and liabilities measured at fair value, classified according to fair value hierarchy E3: Disclosure of financial assets and liabilities measured at fair value The table below presents a summary of the financial assets and liabilities of the Group's continuing operations that are measured at fair value in the consolidated statement of financial position according to their IAS 39 classification, as set out in the accounting policies (a) Financial assets and liabilities measured at fair value, classified according to fair value hierarchy note K and in terms of the fair value hierarchy described in note E2. The table below presents a summary of the financial assets and liabilities of the Group's continuing operations that are measured at fair value in the consolidated statement of financial position according to their IAS 39 classification, as set out in the accounting policies The fair value hierarchy of financial assets and liabilities classified as held for sale and distribution at 31 December 2017 is presented in note K and in terms of the fair value hierarchy described in note E2. note E7(b). Consistent with the requirements of accounting standards, the comparative period has not been re-presented for assets and liabilities classified as held for sale and distribution. The comparative information presented at 31 December 2017, therefore includes the The fair value hierarchy of financial assets and liabilities classified as held for sale and distribution at 31 December 2017 is presented in fair value hierarchy of financial assets and liabilities for the composition of the Group as at 31 December 2016. This note should be read note E7(b). Consistent with the requirements of accounting standards, the comparative period has not been re-presented for assets and in conjunction with Note E7(b) to obtain a comparable view of the Group's fair value hierarchy of financial assets and liabilities at liabilities classified as held for sale and distribution. The comparative information presented at 31 December 2017, therefore includes the 31 December 2017. fair value hierarchy of financial assets and liabilities for the composition of the Group as at 31 December 2016. This note should be read in conjunction with Note E7(b) to obtain a comparable view of the Group's fair value hierarchy of financial assets and liabilities at Detailed analysis 31 December 2017. At 31 December 2017 Detailed analysis Financial assets measured at fair value At 31 December 2017 Held-for-trading (fair value through profit or loss) Derivative financial instruments – assets Financial assets measured at fair value Held-for-trading (fair value through profit or loss) Designated (fair value through profit or loss) Derivative financial instruments – assets Level 1 Level 2 Total Designated (fair value through profit or loss) Available-for-sale financial assets (fair value through other Available-for-sale financial assets (fair value through other Investments and securities Investments and securities comprehensive income) Investments and securities comprehensive income) Investments and securities Total financial assets measured at fair value Financial liabilities measured at fair value Held-for-trading (fair value through profit or loss) Total financial assets measured at fair value Derivative financial instruments – liabilities Financial liabilities measured at fair value Held-for-trading (fair value through profit or loss) Designated (fair value through profit or loss) Derivative financial instruments – liabilities Designated (fair value through profit or loss) Investment contract liabilities1 Third-party interests in consolidated funds Borrowed funds Investment contract liabilities1 Third-party interests in consolidated funds Borrowed funds Other liabilities Total financial liabilities measured at fair value Other liabilities £m Level 3 £m 2 Level 3 2 2 1,217 2 1,217 1,217 1,217 – – – 1,219 – 245 Total 245 245 43,047 245 43,047 43,047 43,047 55 55 55 43,347 55 – Level 1 – – 26,199 – 26,199 26,199 26,199 55 55 55 26,254 55 243 Level 2 243 243 15,631 243 15,631 15,631 15,631 – – – 15,874 – 268 43,347 268 268 22,974 268 17,197 4,868 22,974 787 17,197 122 4,868 787 23,242 122 – 26,254 – – 447 – – – 447 399 – 48 – 399 447 48 268 15,874 268 268 22,527 268 17,197 4,868 22,527 388 17,197 74 4,868 388 22,795 74 – 1,219 – – – – – – – – – – – – – – 1 Investment contract liabilities amount excludes £11,543 million discretionary participating investment contracts. These contracts are classified as non-financial liabilities and are not Total financial liabilities measured at fair value analysed according to their fair value hierarchy as permitted by IFRS 7 'Financial Instruments: Disclosures'. 23,242 22,795 447 – 1 Investment contract liabilities amount excludes £11,543 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'. 202 196 196 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 At 31 December 2016 (Restated)¹ Financial assets measured at fair value Held-for-trading (fair value through profit or loss) Loans and advances Investments and securities Other financial assets Derivative financial instruments – assets Designated (fair value through profit or loss) Investments in associated undertakings and joint ventures Reinsurers' share of policyholder liabilities Loans and advances Investments and securities Available-for-sale financial assets (fair value through other comprehensive income) Loans and advances Investments and securities Total financial assets measured at fair value Financial liabilities measured at fair value Held-for-trading (fair value through profit or loss) Other liabilities Amounts owed to bank depositors Derivative financial instruments – liabilities Designated (fair value through profit or loss) Investment contract liabilities2 Third-party interests in consolidated funds Borrowed funds Other liabilities Amounts owed to bank depositors Total Level 1 Level 2 6,055 1,264 3,183 268 1,340 99,261 139 2,560 3,592 92,970 959 2 957 1,523 346 906 268 3 71,745 – 2,560 206 68,979 55 2 53 4,503 918 2,277 – 1,308 25,948 – – 3,381 22,567 880 – 880 £m Level 3 29 – – – 29 1,568 139 – 5 1,424 24 – 24 106,275 73,323 31,331 1,621 2,900 1,293 446 1,161 80,291 67,515 7,981 935 620 3,240 1,256 1,250 – 6 52,631 52,011 – 570 50 – 1,618 24 446 1,148 27,070 14,914 7,981 365 570 3,240 26 19 – 7 590 590 – – – – 616 i F n a n c a s i l Total financial liabilities measured at fair value 83,191 53,887 28,688 1 The following adjustments have been made to the fair value hierarchy previously presented for December 2016:  loans and advances of £801 million that were presented as held-for-trading assets (Level 2) were reclassified as loans and receivables;  loans and advances of £197 million that were presented as designated at fair value through profit or loss (Level 2) were reclassified as loans and receivables;  investments and securities of £46 million that were presented as held-for-trading (Level 2) were reclassified as designated at fair value through profit or loss (Level 2);  investments and securities of £270 million that were presented as designated at fair value through profit or loss (Level 1) were reclassified as Level 2. In addition, investments and securities designated as fair value through profit or loss (Level 1) have been restated for the elimination of own shares held by consolidated investment funds (£145 million) that was identified in the current year;  borrowed funds of £348 million that were presented as designated fair value through profit or loss (Level 1) were reclassified as Level 2;  amounts owed to bank depositors of £550 million that were presented at fair value through profit or loss (Level 2) were reclassified as financial liabilities at amortised cost. 2 Investment contract liabilities amount excludes £10,084 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'. 203 197 Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued E: Financial assets and liabilities continued E3: Disclosure of financial assets and liabilities measured at fair value continued E: Financial assets and liabilities continued (b) Level 3 fair value hierarchy disclosure E3: Disclosure of financial assets and liabilities measured at fair value continued The tables below reconcile the opening balances of Level 3 financial assets and liabilities to closing balances at the end of the year. Movements during the year include both continuing operations and assets and movements of assets and liabilities classified as held for (b) Level 3 fair value hierarchy disclosure sale and distribution. A single line item at the end of the movement table is included to reflect the carrying value transferred to assets or The tables below reconcile the opening balances of Level 3 financial assets and liabilities to closing balances at the end of the year. liabilities held for sale and distribution at 31 December 2017. Movements during the year include both continuing operations and assets and movements of assets and liabilities classified as held for sale and distribution. A single line item at the end of the movement table is included to reflect the carrying value transferred to assets or Year ended 31 December 2017 liabilities held for sale and distribution at 31 December 2017. Year ended 31 December 2017 Level 3 financial assets At beginning of the year Total net fair value (losses)/gains recognised in: Level 3 financial assets – profit or loss At beginning of the year – other comprehensive income Total net fair value (losses)/gains recognised in: Purchases and issues – profit or loss Sales and settlements – other comprehensive income Transfers in Purchases and issues Transfers out Sales and settlements Foreign exchange and other Transfers in Transferred to assets held for sale Transfers out Foreign exchange and other Total Level 3 financial assets Transferred to assets held for sale and distribution and distribution Unrealised fair value (losses)/gains relating to Total Level 3 financial assets Unrealised fair value (losses)/gains relating to assets held at 31 December 2017 recognised in profit or loss assets held at 31 December 2017 recognised in profit or loss Held-for- trading Designated fair value through profit or loss Held-for- Investments in associated undertakings Investments and joint in associated ventures undertakings and joint 139 ventures trading Designated fair value through profit or loss Investments and securities Investments and 1,424 securities Loans and 5 advances Loans and advances 29 Derivatives Derivatives (26) 29 1 4 (26) (3) 1 – 4 – (3) (3) – – – (3) 2 – 2 (26) 1 139 – 88 1 (39) – – 88 – (39) 2 – – (191) 2 – (191) – – 3 5 – – 3 (5) – – – – (5) (1) – – (2) (1) – (2) – – 53 1,424 – 806 53 (84) – 445 806 (245) (84) 45 445 (245) (1,227) 45 1,217 (1,227) 1,217 72 Available- for-sale Available- for-sale Investments and securities Investments and 24 securities – 24 – – – – – – – – – – – – (24) – – (24) – – £m Total £m Total 1,621 31 1,621 1 898 31 (131) 1 445 898 (245) (131) 43 445 (245) (1,444) 43 1,219 (1,444) 1,219 46 – – – 46 72 At 31 December 2017, the carrying value of Level 3 assets comprised £2 million of derivative assets held by Old Mutual Bermuda (26) business and £1,217 million of investments and securities held by Emerging Markets. The assets held by Emerging Markets principally comprise private company shares and unlisted pooled investments held by policyholder funds for which the bulk of the investment risk is At 31 December 2017, the carrying value of Level 3 assets comprised £2 million of derivative assets held by Old Mutual Bermuda borne by policyholders. As at 31 December 2017, all Level 3 assets held by Old Mutual Wealth and Nedbank had been transferred into business and £1,217 million of investments and securities held by Emerging Markets. The assets held by Emerging Markets principally assets held for sale and distribution and are therefore not included within the closing amounts shown above. Old Mutual Wealth's Level 3 comprise private company shares and unlisted pooled investments held by policyholder funds for which the bulk of the investment risk is assets are held by linked funds, with policyholders bearing all of the investment risk, and are matched exactly by Level 3 investment borne by policyholders. As at 31 December 2017, all Level 3 assets held by Old Mutual Wealth and Nedbank had been transferred into contract liabilities. assets held for sale and distribution and are therefore not included within the closing amounts shown above. Old Mutual Wealth's Level 3 assets are held by linked funds, with policyholders bearing all of the investment risk, and are matched exactly by Level 3 investment Amounts shown as purchases and issues arise principally from the purchase of private company shares and unlisted pooled investments contract liabilities. by Old Mutual Wealth and Emerging Markets and from investments in associated undertakings by Nedbank. Amounts shown as purchases and issues arise principally from the purchase of private company shares and unlisted pooled investments Amounts shown as sales and settlements arise principally from the sale of private company shares and unlisted pooled investments by by Old Mutual Wealth and Emerging Markets and from investments in associated undertakings by Nedbank. Old Mutual Wealth and Emerging Markets and from distributions received in respect of Old Mutual Wealth's holdings in property funds. Amounts shown as sales and settlements arise principally from the sale of private company shares and unlisted pooled investments by Transfers into Level 3 assets principally relates to investments held by Old Mutual Wealth that were previously shown within Level 2 and Old Mutual Wealth and Emerging Markets and from distributions received in respect of Old Mutual Wealth's holdings in property funds. which are no longer being actively priced. Transfers out of Level 3 assets principally comprise investments held by Old Mutual Wealth that were not being repriced and that have been transferred into Level 2 as they are now actively priced. Transfers into Level 3 assets principally relates to investments held by Old Mutual Wealth that were previously shown within Level 2 and which are no longer being actively priced. Transfers out of Level 3 assets principally comprise investments held by Old Mutual Wealth that were not being repriced and that have been transferred into Level 2 as they are now actively priced. 204 198 198 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Year ended 31 December 2017 Held-for- trading Other liabilities Derivatives Designated fair value through profit or loss Investment contract liabilities Level 3 financial liabilities At beginning of the year Total net fair value (gains)losses recognised in profit or loss for the year Purchases and issues Sales and settlements Transfers in Transfers out Foreign exchange and other Transferred to liabilities held for sale and distribution Total Level 3 financial liabilities Unrealised fair value losses/(gains) relating to liabilities held at 31 December 2017 recognised in profit or loss 19 6 – – – – – (25) – – 7 (7) – – – – – – – – 590 (23) 616 (23) 167 (152) (8) (1,167) – £m Total 616 (24) 616 (23) 167 (152) (8) (1,192) – – – i F n a n c a s l i As at December 2017, all Level 3 liabilities held by Old Mutual Wealth and Nedbank have been transferred into liabilities held for sale and distribution and are therefore not included in the closing amounts shown above. No Level 3 liabilities were held by any of the other Group businesses at 31 December 2017. Year ended 31 December 2016 Held-for- trading Designated at fair value through profit or loss Available-for- sale £m Total Level 3 financial assets At beginning of the year Total net fair value (losses)/gains recognised in the profit or loss for the year Purchases and issues Sales and settlements Transfers in Transfers out Foreign exchange and other Transferred to held-for-sale Total Level 3 financial assets Unrealised fair value (losses)/gains relating to assets held at 31 December 2016 recognised in profit or loss Investments in associated undertakings and joint ventures Derivatives 18 51 (4) 25 (15) – – 5 – 29 14 57 (10) – – 27 – 139 (4) 14 Loans and advances Investments and securities Investments and securities 1 – – – 2 – 2 – 5 – 1,280 – 1,350 64 134 (234) 246 (59) 60 (67) 1,424 – – 21 – – 3 – 24 74 216 (238) 248 (59) 97 (67) 1,621 63 – 73 205 199 Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued E: Financial assets and liabilities continued E3: Disclosure of financial assets and liabilities measured at fair value continued E: Financial assets and liabilities continued (b) Level 3 fair value hierarchy disclosure E3: Disclosure of financial assets and liabilities measured at fair value continued Year ended 31 December 2016 (b) Level 3 fair value hierarchy disclosure Year ended 31 December 2016 Level 3 financial liabilities At beginning of the year Total net fair value losses recognised in profit or loss for the year Level 3 financial liabilities Purchases and issues At beginning of the year Sales and settlements Total net fair value losses recognised in profit or loss for the year Transfers in Purchases and issues Transfers out Sales and settlements Foreign exchange and other Transfers in Total Level 3 financial liabilities Transfers out Foreign exchange and other Unrealised fair value gains relating to liabilities held at 31 December 2016 Total Level 3 financial liabilities recognised in profit or loss Other liabilities Other – liabilities 2 15 – – 2 – 15 – – 2 – 19 – 2 19 2 Held-for- trading Held-for- trading Derivatives 4 Derivatives 7 – 4 (4) 7 – – – (4) – – 7 – – 7 7 Designated fair value through profit or loss Designated fair Investment value through contract profit or loss liabilities Investment contract 594 liabilities 13 21 594 (115) 13 188 21 (31) (115) (80) 188 590 (31) (80) 590 13 £m £m Total 598 Total 22 36 598 (119) 22 188 36 (31) (119) (78) 188 616 (31) (78) 616 22 22 2 7 13 recognised in profit or loss Unrealised fair value gains relating to liabilities held at 31 December 2016 E3: Disclosure of financial assets and liabilities measured at Fair Value continued (c)(i) Effect of changes in significant unobservable assumptions to reasonable possible alternatives E3: Disclosure of financial assets and liabilities measured at Fair Value continued 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, (c)(i) Effect of changes in significant unobservable assumptions to reasonable possible alternatives quantification of uncertainty is judgemental. 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, When the fair value of a financial asset or liability is affected by more than one unobservable assumption, the figures shown reflect the quantification of uncertainty is judgemental. most favourable or most unfavourable change from varying the assumptions individually. When the fair value of a financial asset or liability is affected by more than one unobservable assumption, the figures shown reflect the The valuations of the private equity investments are performed on an asset-by-asset basis using a valuation methodology appropriate most favourable or most unfavourable change from varying the assumptions individually. to the specific investment and in line with industry guidelines. In determining the valuation of the investment the principal assumption used is the valuation multiple applied to the main financial indicators (such as adjusted earnings). The source of these multiples may The valuations of the private equity investments are performed on an asset-by-asset basis using a valuation methodology appropriate include multiples for comparable listed companies which have been adjusted for discounts for non-tradability and valuation multiples to the specific investment and in line with industry guidelines. In determining the valuation of the investment the principal assumption earned on transactions in comparable sectors. used is the valuation multiple applied to the main financial indicators (such as adjusted earnings). The source of these multiples may include multiples for comparable listed companies which have been adjusted for discounts for non-tradability and valuation multiples The valuations of asset-backed securities are determined by discounted cash flow models that generate the expected value of the asset, earned on transactions in comparable sectors. incorporating benchmark information on factors such as prepayment patterns, default rates, loss severities and the historical performance of the underlying assets. The outputs from the models used are calibrated with reference to similar securities for which external market The valuations of asset-backed securities are determined by discounted cash flow models that generate the expected value of the asset, information is available. incorporating benchmark information on factors such as prepayment patterns, default rates, loss severities and the historical performance of the underlying assets. The outputs from the models used are calibrated with reference to similar securities for which external market Structured notes and other derivatives are generally valued using option pricing models. For structured notes and other derivatives, information is available. principal assumptions concern the future volatility of asset values and the future correlation between asset values. For such unobservable assumptions, estimates are based on available market data, which may include the use of a proxy method to derive a volatility or Structured notes and other derivatives are generally valued using option pricing models. For structured notes and other derivatives, correlation from comparable assets for which market data is more readily available, and examination of historical levels. principal assumptions concern the future volatility of asset values and the future correlation between asset values. For such unobservable assumptions, estimates are based on available market data, which may include the use of a proxy method to derive a volatility or Details of the valuation techniques applied to the different categories of financial instruments can be found in note E2: Fair values of correlation from comparable assets for which market data is more readily available, and examination of historical levels. financial assets and liabilities. Details of the valuation techniques applied to the different categories of financial instruments can be found in note E2: Fair values of financial assets and liabilities. 206 200 200 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 The table below summarises the significant inputs to value instruments categorised as Level 3 hierarchy in the Group's continuing operations and their sensitivity to changes in the inputs used. The significant inputs to value instruments categorised as Level 3 hierarchy classified as held for sale and distribution at 31 December 2017 are presented in note E7(c). Consistent with the requirements of accounting standards, the comparative period has not been re-presented for financial assets and liabilities classified as held for sale and distribution. The comparative information presented at 31 December 2017, therefore includes the financial assets and liabilities for the composition of the Group as at 31 December 2016. This note should be read in conjunction with Note E7(c) to obtain a comparable view of the Group's significant inputs to value instruments categorised as Level 3 hierarchy at 31 December 2017. Types of financial instruments Fair values Significant unobservable input Fair value measurement sensitivity to unobservable inputs At 31 December 2017 £m At 31 December 2016 £m – 139 Valuation multiples Assets Investments in associated undertakings and joint ventures Investments and securities Loans and advances Derivatives Liabilities Investment contract liabilities Other liabilities Derivatives At 31 December 2017 £m At 31 December 2016 £m Favourable: nil Unfavourable: nil Favourable: 13 Unfavourable: 16 Favourable: 110 Unfavourable: 90 Favourable: 213 Unfavourable: 223 Favourable: nil Unfavourable: nil Favourable: nil Unfavourable: 1 Favourable: 1 Unfavourable: 1 Favourable: 10 Unfavourable: 9 i F n a n c a s l i Valuation multiples Correlations Volatilities Credit spreads Dividend growth rates Internal rates of return, Cost of capital Inflation rates Market adjusted price Exchange price of infrequently traded shares Correlations Volatilities Credit spreads Interest rates Volatilities Interest rates Volatilities Valuation multiples Volatilities Favourable: nil Unfavourable: nil Favourable: nil Unfavourable: nil Favourable: nil Unfavourable: nil Favourable: 59 Unfavourable: 59 Favourable: 1 Unfavourable: 1 Favourable: 7 Unfavourable: 16 1,217 1,448 – 2 – – – 5 29 590 19 7 All the business segments have performed analysis of the impact of reasonable possible assumptions for unobservable inputs based on the specific characteristics of each instrument. As all the changes in the assumptions are unique to each instrument the disclosure of the range of changes in the assumptions would not provide the reader of the financial statements with any additional useful information as this is general information and does not relate to a specific instrument. 207 201 Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued E: Financial assets and liabilities continued E3: Disclosure of financial assets and liabilities measured at Fair Value continued E: Financial assets and liabilities continued (c)(ii) Analysis of investments and securities classified as Level 3 hierarchy E3: Disclosure of financial assets and liabilities measured at Fair Value continued The table below summarises the categories of investments and securities classified as Level 3 hierarchy of the Group's continuing operations only: (c)(ii) Analysis of investments and securities classified as Level 3 hierarchy The table below summarises the categories of investments and securities classified as Level 3 hierarchy of the Group's continuing operations only: At 31 December 2017 At 416 31 December 416 2017 – 416 718 416 4 – 79 718 1,217 4 79 1,217 £m At 31 December £m 2016 At 427 31 December 405 2016 22 427 643 405 344 22 34 643 1,448 344 34 1,448 Pooled investments Unlisted and stale price pooled investments Suspended funds Pooled investments Unlisted debt and equity Unlisted and stale price pooled investments Private equity investments Suspended funds Other Unlisted debt and equity Private equity investments Other The table below summarises the significant unobservable inputs of investments and securities categorised as Level 3 hierarchy. Other investments Commodity prices Interest rates Other investments Inflation rates Commodity prices Interest rates Inflation rates Equity instruments Dividend growth rate Volatilities Equity instruments Internal rate of return Dividend growth rate Market adjusted prices Volatilities Internal rate of return Market adjusted prices Pooled investments The table below summarises the significant unobservable inputs of investments and securities categorised as Level 3 hierarchy. Underlying net asset value Published fund price Pooled investments Credit spreads Underlying net asset value Market adjusted prices Published fund price Credit spreads (d) Alternative assumptions Market adjusted prices Accounting standards require consideration of the effect of reasonable possible alternative assumptions on the fair value of Level 3 financial assets and liabilities. (d) Alternative assumptions Accounting standards require consideration of the effect of reasonable possible alternative assumptions on the fair value of Level 3 Alternative assumptions are assessed in terms of possible favourable and unfavourable changes in the key market inputs for the major financial assets and liabilities. types of Level 3 financial assets and liabilities. Changes in business risk inputs such as lapses and non-performance risk were also considered. Alternative assumptions are assessed in terms of possible favourable and unfavourable changes in the key market inputs for the major types of Level 3 financial assets and liabilities. Changes in business risk inputs such as lapses and non-performance risk were also Management believes that in aggregate, 25% (2016: 25%) of the amounts determined in the sensitivity tables represents a reasonable considered. possible alternative judgement in the context of the current macroeconomic environment in which the various businesses of the Group operates. It is therefore considered that the impact of alternative assumptions will be in the range of £28 million (2016: £59 million) Management believes that in aggregate, 25% (2016: 25%) of the amounts determined in the sensitivity tables represents a reasonable favourable to £62 million (2016: £62 million) unfavourable on profit or loss and assets. The impact on liabilities will be in the range of possible alternative judgement in the context of the current macroeconomic environment in which the various businesses of the Group £nil (2016: £17 million) favourable and £nil (2016: £19 million) unfavourable. operates. It is therefore considered that the impact of alternative assumptions will be in the range of £28 million (2016: £59 million) favourable to £62 million (2016: £62 million) unfavourable on profit or loss and assets. The impact on liabilities will be in the range of £nil (2016: £17 million) favourable and £nil (2016: £19 million) unfavourable. 208 202 202 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 E4: Financial instruments designated as fair value through profit or loss Certain items in the Group's statement of financial position that would otherwise be categorised as loans and receivables under IAS 39 have been designated as fair value through profit or loss. Information relating to the change in fair value of these items as it relates to credit risk is shown in the table below. Consistent with the requirements of accounting standards, the comparative period has not been re-presented for assets and liabilities classified as held for sale and distribution. The comparative information presented at 31 December 2017, therefore includes financial instruments designated as fair value through profit or loss for the composition of the Group as at 31 December 2016. Change in fair value due to change in credit risk Loans and advances Investments and securities At 31 December 2017 Maximum exposure to credit risk – 6,998 6,998 Current financial year – (3) (3) Cumulative – (15) (15) £m At 31 December 2016 Maximum exposure to credit risk 3,609 8,064 11,673 Current financial year (1) (7) (8) Cumulative – (12) (12) The change in fair value due to a change in credit risk shown above is determined as the amount of the change in fair value of the instrument that is not attributable to changes in market conditions that give rise to market risk. For loans and receivables that have been designated as at fair value through profit or loss, individual credit spreads are determined at inception as the difference between the benchmark interest rate and the interest rate charged to the client. Subsequent changes in the benchmark interest rate and the credit spread give rise to changes in fair value of the financial instrument. Loans and advances are reviewed for observable changes in credit risk, and the credit spread is adjusted at subsequent dates if there has been an observable change in credit risk relating to a particular loan or advance. No credit derivatives are used to hedge the credit risk on any of the financial assets designated at fair value through profit or loss. Certain items in the Group's statement of financial position, that would otherwise be categorised as financial liabilities at amortised cost under IAS 39, have been designated as fair value through profit or loss. Information relating to the change in fair value of these items as it relates to credit risk is shown in the table below. Consistent with the requirements of accounting standards, the comparative period has not re-presented for assets and liabilities classified as held for sale and distribution. The comparative information therefore includes items in the Group's statement of financial position that would otherwise be categorised as financial liabilities at amortised cost under IAS 39 for the composition of the Group as at 31 December 2016. i F n a n c a s l i Change in fair value due to change in credit risk Borrowed funds Amounts owed to bank depositors Fair value 787 – 787 Current financial At 31 December 2017 Contractual maturity amount 908 – 908 year Cumulative 124 (26) – – 124 (26) Fair value 935 3,790 4,725 £m At 31 December 2016 Contractual maturity amount 871 3,787 4,658 Current financial year Cumulative 98 9 107 24 4 28 The fair values of other categories of financial liabilities designated as fair value through profit or loss do not change significantly in respect of credit risk. The change in fair value due to credit risk of financial liabilities designated at fair value through profit or loss has been determined as the difference between fair values determined using a liability curve (adjusted for credit) and a risk-free liability curve. This difference is cross- checked to market-related data on credit spreads, where available. The basis for not using credit default swaps to determine the change in fair value due to credit risk is the unavailability of reliable market priced instruments. 209 203 Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued E: Financial assets and liabilities continued E5: Fair value hierarchy for assets and liabilities not measured at fair value E: Financial assets and liabilities continued Certain financial instruments of the Group are not carried at fair value, principally investments and securities categorised as held-to- maturity loans and advances, certain borrowed funds and other financial assets and financial liabilities at amortised cost. The calculation E5: Fair value hierarchy for assets and liabilities not measured at fair value of the fair value of these financial instruments represents the Group's best estimate of the value at which these financial assets could be Certain financial instruments of the Group are not carried at fair value, principally investments and securities categorised as held-to- exchanged, or financial liabilities transferred, between market participants at the measurement date. The Group's estimate of fair value maturity loans and advances, certain borrowed funds and other financial assets and financial liabilities at amortised cost. The calculation does not necessarily represent the amount it would be able to realise on the sale of the asset or transfer the financial liability in an of the fair value of these financial instruments represents the Group's best estimate of the value at which these financial assets could be involuntary liquidation or distressed sale. exchanged, or financial liabilities transferred, between market participants at the measurement date. The Group's estimate of fair value does not necessarily represent the amount it would be able to realise on the sale of the asset or transfer the financial liability in an The table below shows the fair value hierarchy for those assets and liabilities for which the fair value is different to the carrying value and involuntary liquidation or distressed sale. which is being estimated for the purpose of IFRS disclosure. Additional information regarding these and other financial instruments not carried at fair value is provided in the narrative following the table. The table below shows the fair value hierarchy for those assets and liabilities for which the fair value is different to the carrying value and which is being estimated for the purpose of IFRS disclosure. Additional information regarding these and other financial instruments not Fair value hierarchy for assets and liabilities not measured at fair value classified as held for sale and distribution at 31 December 2017, carried at fair value is provided in the narrative following the table. is presented separately from that of the continuing operations. Consistent with the requirements of accounting standards, the comparative period has not been re-presented for assets and liabilities classified as held for sale and distribution. The comparative information Fair value hierarchy for assets and liabilities not measured at fair value classified as held for sale and distribution at 31 December 2017, presented at 31 December 2017 therefore includes the fair value hierarchy for those assets and liabilities for which the fair value is is presented separately from that of the continuing operations. Consistent with the requirements of accounting standards, the comparative different to the carrying value for the composition of the Group as at 31 December 2016. period has not been re-presented for assets and liabilities classified as held for sale and distribution. The comparative information presented at 31 December 2017 therefore includes the fair value hierarchy for those assets and liabilities for which the fair value is different to the carrying value for the composition of the Group as at 31 December 2016. Carrying value Continuing operations at 31 December 2017 Financial liabilities Borrowed funds Continuing operations at 31 December 2017 Financial liabilities Borrowed funds Level 1 Level 2 Level 3 Carrying value 339 76 Level 1 277 Level 2 – Level 3 339 76 277 – Classified as assets and liabilities held for sale and distribution at 31 December 2017 Financial assets Classified as assets and liabilities held for Loans and advances sale and distribution at 31 December 2017 Investments and securities Financial assets Financial liabilities Loans and advances Borrowed funds Investments and securities Financial liabilities Borrowed funds At 31 December 2016 (Restated)1 Carrying value Carrying value Level 1 Level 2 Level 3 37,721 3,227 37,721 3,004 3,227 – Level 1 1,432 – 1,431 1,432 – Level 2 1,500 – 1,533 1,500 37,492 Level 3 – 37,492 – – 3,004 1,431 1,533 – Carrying value Level 1 Level 2 Level 3 – Level 2 1,983 – 1,936 1,983 – Level 1 1,278 – 1,704 1,278 Carrying value 38,239 3,278 38,239 3,759 3,278 At 31 December 2016 (Restated)1 Financial assets Loans and advances Investments and securities Financial assets Financial liabilities Loans and advances Borrowed funds Investments and securities Financial liabilities 1 In Loans and advances of £801 million were included in the previous year as held-for-trading assets, whereas these instruments were classified and measured as financial assets at 3,640 Borrowed funds amortised cost. Loans and advances of £197 million were included in the previous year as designated at fair value through profit or loss, whereas these instruments were classified and measured as financial assets at amortised cost. Accordingly, the held-for-trading, designated at fair value through profit or loss and financial assets at amortised cost categories 1 In Loans and advances of £801 million were included in the previous year as held-for-trading assets, whereas these instruments were classified and measured as financial assets at have been restated to reflect the correct classification. amortised cost. Loans and advances of £197 million were included in the previous year as designated at fair value through profit or loss, whereas these instruments were classified and measured as financial assets at amortised cost. Accordingly, the held-for-trading, designated at fair value through profit or loss and financial assets at amortised cost categories have been restated to reflect the correct classification. Investments and securities For investments and securities shown within notes E1 and E7(a) as either held-to-maturity investments and loans and receivables in terms of IAS 39 and therefore not carried at fair value, the fair value has been determined based either on available market prices (Level 1) or Investments and securities discounted cash flow analysis where an instrument is not quoted or the market is considered to be inactive (Level 2). For investments and securities shown within notes E1 and E7(a) as either held-to-maturity investments and loans and receivables in terms of IAS 39 and therefore not carried at fair value, the fair value has been determined based either on available market prices (Level 1) or As at 31 December 2017, all of the assets of Nedbank had been transferred to assets held for sale and distribution, including all of the discounted cash flow analysis where an instrument is not quoted or the market is considered to be inactive (Level 2). Group's investments and securities classified as either held-to-maturity investments or loans and receivables. All of the Group's remaining investments and securities were carried at fair value. As at 31 December 2017, all of the assets of Nedbank had been transferred to assets held for sale and distribution, including all of the Group's investments and securities classified as either held-to-maturity investments or loans and receivables. All of the Group's remaining investments and securities were carried at fair value. 37,738 Level 3 – 37,738 – – 1,704 1,936 3,759 – £m Fair value Total £m Fair value 353 Total 353 £m Fair value £m Total Fair value 37,492 Total 2,932 37,492 2,964 2,932 2,964 £m Fair value Total £m Fair value 37,738 Total 3,261 37,738 3,640 3,261 210 204 204 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Loans and advances Loans and advances shown within notes E1 and E7(a) as loans and receivables in terms of IAS 39 and therefore not carried at fair value, principally comprise variable rate financial assets and are classified as Level 3. The interest rates on these variable rate-financial assets are adjusted when the applicable benchmark interest rates change. Loans and advances are not actively traded in most markets and it is therefore not possible to determine the fair value of these loans and advances using observable market prices and market inputs. Due to the unique characteristics of the loans and advances portfolio and the fact that there have been no recent transactions involving the disposals of such loans and advances, there is no basis to determine a price that could be negotiated between market participants in an orderly transaction. The Group is not currently in the position of a forced sale of such underlying loans and advances and it would therefore be inappropriate to value the loans and advances on a forced-sale basis. For specifically impaired loans and advances, the carrying value as determined after consideration of the Group's IAS 39 credit impairments, is considered the best estimate of fair value. The Group has developed a methodology and model to determine the fair value of the gross exposures for the performing loans and advances measured at amortised cost. This model incorporates the use of average interest rates and projected monthly cash flows per product type. Future cash flows are discounted using interest rates at which similar loans would be granted to borrowers with similar credit ratings and maturities. Inputs into the model include various assumptions utilised in the pricing of loans and advances. The determination of such inputs is highly subjective and therefore any change to one or more of the assumptions may result in a significant change in the determination of the fair value of loans and advances. As at 31 December 2017, all of the assets of Nedbank were transferred to assets held for sale and distribution, representing most of the Group's loans and advances. The remaining amount of £1,282 million is held by Emerging Markets, for which the carrying value is considered a reasonable approximation of the fair value. Borrowed funds Borrowed funds are shown within notes E1 and E7(a) as financial liabilities at amortised cost in terms of IAS39, and therefore not carried at fair value. The fair value is determined using either available market prices (Level 1), or discounted cash flow analysis where an instrument is not quoted or the market is considered to be inactive (Level 2). During 2017 most of the Group's borrowed funds not held at fair value were either redeemed or transferred to assets held for sale and distribution. Fair value hierarchy for items for which carrying value is considered an approximation of fair value Other financial assets The carrying values of cash and cash equivalents, mandatory deposits with central banks and trade, other receivables and other assets are considered a reasonable approximation of their respective fair values, as they are either short term in nature or are repriced to current market rates at frequent intervals. Trade, other receivables and other assets are classified into Level 3 of the fair value hierarchy. Amounts owed to depositors Amounts owed to depositors principally comprises variable rate liabilities. The carrying value of the amounts owed to depositors approximates fair value because the instruments reprice to current market rates at frequent intervals. In addition, a significant portion of the balance is callable or is short term in nature. Amounts owed to depositors would be classified into Level 2 of the fair value hierarchy. Other financial liabilities The carrying values of trade, other payables, and other liabilities are considered a reasonable approximation of their respective fair values, as they are either short-term in nature or are repriced to current market rates at frequent intervals. Trade, other payables and other liabilities would be classified into Level 3 of the fair value hierarchy. 211 205 i F n a n c a s i l Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued E: Financial assets and liabilities continued E6: Master netting or similar agreements E: Financial assets and liabilities continued The Group offsets financial assets and liabilities in the consolidated statement of financial position when it has a legal enforceable right to do so and intends to settle on a net basis simultaneously. Certain master netting agreements do not provide the Group with the current E6: Master netting or similar agreements legally enforceable right to offset the instruments. The majority of these transactions are governed by the principles of ISDA or similar type The Group offsets financial assets and liabilities in the consolidated statement of financial position when it has a legal enforceable right to of agreements. These agreements aim to protect the parties in the event of default. do so and intends to settle on a net basis simultaneously. Certain master netting agreements do not provide the Group with the current legally enforceable right to offset the instruments. The majority of these transactions are governed by the principles of ISDA or similar type The following table presents information on the potential effect of netting offset arrangements after taking into consideration these types of agreements. These agreements aim to protect the parties in the event of default. of agreements of the Group's continuing operations. Consistent with the requirements of accounting standards, the comparative period has not been re-presented for assets and liabilities classified as held for sale and distribution. The comparative information presented The following table presents information on the potential effect of netting offset arrangements after taking into consideration these types at 31 December 2017, therefore includes the potential effect of netting offsetting arrangements for the composition of the Group as at of agreements of the Group's continuing operations. Consistent with the requirements of accounting standards, the comparative period 31 December 2016. has not been re-presented for assets and liabilities classified as held for sale and distribution. The comparative information presented at 31 December 2017, therefore includes the potential effect of netting offsetting arrangements for the composition of the Group as at At 31 December 2017 31 December 2016. £m At 31 December 2017 Financial assets Derivative financial instruments – assets Cash and cash equivalents Financial assets Financial liabilities Derivative financial instruments – assets Trade, other payables and other liabilities Cash and cash equivalents Derivative financial instruments – liabilities Financial liabilities Trade, other payables and other liabilities Derivative financial instruments – liabilities At 31 December 2016 At 31 December 2016 Amounts offset in the statement of Amounts offset financial in the position statement of financial – position (31) – (31) (31) – (31) – Gross amount of financial instrument Gross amount of financial 245 instrument 1,867 245 2,560 1,867 268 2,560 268 Net amounts of financial instruments Net amounts of presented in financial the statement instruments of financial presented in position the statement of financial 245 position 1,836 245 2,529 1,836 268 2,529 268 Amounts that may be netted off on the Amounts that occurrence of a may be netted future event¹ off on the occurrence of a (209) future event¹ – (209) (6) – (209) (6) (209) £m Position not available to be offset Position not available to be 36 offset 1,836 36 2,523 1,836 59 2,523 59 £m £m Position not available to be offset Position not Financial assets available to be Loans and advances 43,108 offset 364 Derivative financial instruments – assets Financial assets 4,847 Cash and cash equivalents 43,108 Loans and advances Financial liabilities 364 Derivative financial instruments – assets 4,492 Trade, other payables and other liabilities 4,847 Cash and cash equivalents Amounts owed to bank depositors 45,309 Financial liabilities 487 Derivative financial instruments – liabilities 4,492 Trade, other payables and other liabilities 45,309 Amounts owed to bank depositors 1 This represents the amounts that could be offset in the event of default and includes collateral received/pledged at the reporting date. These arrangements are typically governed by 487 Derivative financial instruments – liabilities Gross amount of financial instrument Gross amount of financial 44,788 instrument 1,689 4,974 44,788 1,689 5,239 4,974 46,989 1,510 5,239 46,989 1,510 Amounts offset in the statement of financial Amounts offset position in the statement of financial (1,680) position (349) (127) (1,680) (349) (127) (127) (1,680) (349) (127) (1,680) (349) Amounts that may be netted off on the Amounts that occurrence of a may be netted future event¹ off on the occurrence of a – future event¹ (976) – – (976) (620) – – (674) (620) – (674) Net amounts of financial instruments Net amounts of presented in the financial statement of instruments financial position presented in the statement of 43,108 financial position 1,340 4,847 43,108 1,340 5,112 4,847 45,309 1,161 5,112 45,309 1,161 master netting and collateral arrangements. Details of the Group's security lending arrangements can be found in note G3, Securities Lending. 1 This represents the amounts that could be offset in the event of default and includes collateral received/pledged at the reporting date. These arrangements are typically governed by master netting and collateral arrangements. Details of the Group's security lending arrangements can be found in note G3, Securities Lending. 212 206 206 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 E7: Categories of financial instruments classified as held for sale and distribution (a) Categories of financial assets and liabilities The following table provides an analysis of the categories of financial instruments of assets and liabilities classified as held for sale and distribution. Refer to note A4 for more information about businesses classified as held for sale and distribution. These notes should be read in conjunction with note E1 in order to obtain a comparable view of the Group's categories of financial instruments of assets and liabilities classified as held for sale and distribution at 31 December 2017. At 31 December 2017 Measurement basis Assets Mandatory reserve deposits with central banks Investments in associated undertakings and joint ventures Reinsurers' share of policyholder liabilities Loans and advances Investments and securities Trade, other receivables and other assets Derivative financial instruments Cash and cash equivalents Total assets that include financial instruments Total other non-financial assets Total assets Liabilities Life insurance contract liabilities Investment contract liabilities Third-party interest in consolidation of funds Borrowed funds Trade, other payables and other liabilities Amounts owed to bank depositors Derivative financial instruments Total liabilities that include financial instruments Total other non-financial liabilities Total liabilities Total 1,147 404 2,914 42,567 73,818 1,619 1,842 3,000 127,311 3,292 130,603 625 60,221 7,605 3,031 2,283 45,766 1,795 121,326 642 121,968 Fair value (note E7(b)) Available- for-sale financial assets Held-for- trading Designated £m Amortised cost Financial liabilities amortised cost Loans and receivables Non- financial assets and liabilities Held-to- maturity investments i F n a n c a s l i – – – 1,170 3,277 297 1,842 – 6,586 – 6,586 – 191 – – – – 1,147 – 2,525 3,674 66,136 – 2 1,178 – – 2,962 6 37,721 265 – – – – – – – – – 624 – 3,000 72,526 – 72,526 1,180 – 1,180 2,962 – 2,962 42,763 – 42,763 – – – 60,221 – – 445 1,385 1,795 3,625 – 3,625 7,605 27 – 3,268 – 71,121 – 71,121 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 3,004 697 41,113 – 44,814 – 44,814 – 213 383 – – 698 – – 1,294 3,292 4,586 625 – – – 1,141 – – 1,766 642 2,408 213 207 Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued E: Financial assets and liabilities continued E7: Categories of financial instruments classified as held for sale and distribution continued E: Financial assets and liabilities continued (b) Disclosure of financial assets and liabilities held for sale and distribution measured at fair value E7: Categories of financial instruments classified as held for sale and distribution continued The table below presents a summary of the Group's financial assets and liabilities included in assets and liabilities held for sale and distribution, that are measured at fair value in the consolidated statement of financial position according to their IAS 39 classification, as (b) Disclosure of financial assets and liabilities held for sale and distribution measured at fair value set out in the accounting policies note K and in terms of the fair value hierarchy described in note E2. The majority of the Group's financial The table below presents a summary of the Group's financial assets and liabilities included in assets and liabilities held for sale and assets are measured utilising market observable inputs (Level 1) and there has been no significant change compared to the prior year. distribution, that are measured at fair value in the consolidated statement of financial position according to their IAS 39 classification, as This note should be read in conjunction with note E3 in order to obtain a comparable view of the Group's financial assets and liabilities set out in the accounting policies note K and in terms of the fair value hierarchy described in note E2. The majority of the Group's financial held for sale and distribution measured at fair value at 31 December 2017. assets are measured utilising market observable inputs (Level 1) and there has been no significant change compared to the prior year. This note should be read in conjunction with note E3 in order to obtain a comparable view of the Group's financial assets and liabilities At 31 December 2017 held for sale and distribution measured at fair value at 31 December 2017. Total Level 1 Level 2 £m Level 3 Financial assets held for sale and distribution At 31 December 2017 measured at fair value Held-for-trading (fair value through profit or loss) Financial assets held for sale and distribution Loans and advances measured at fair value Investments and securities Held-for-trading (fair value through profit or loss) Other financial assets Loans and advances Derivative financial instruments – assets Investments and securities Other financial assets Designated (fair value through profit or loss) Derivative financial instruments – assets Investments in associated undertakings and joint ventures Reinsurers' share of policyholder liabilities Designated (fair value through profit or loss) Reinsurers' share of policyholder liabilities Available-for-sale financial assets (fair value through equity) Loans and advances Investments in associated undertakings and joint ventures Investments and securities Loans and advances Investments and securities Loans and advances Investments and securities Loans and advances Investments and securities measured at fair value Available-for-sale financial assets (fair value through equity) Total financial assets held for sale and distribution Financial liabilities held for sale and distribution Total financial assets held for sale and distribution measured at fair value measured at fair value Held-for-trading (fair value through profit or loss) Financial liabilities held for sale and distribution Other liabilities Held-for-trading (fair value through profit or loss) Derivative financial instruments – liabilities Other liabilities measured at fair value Amounts owed to bank depositors Amounts owed to bank depositors Designated (fair value through profit or loss) Derivative financial instruments – liabilities Designated (fair value through profit or loss) Investment contract liabilities Third-party interests in consolidated funds Borrowed funds Investment contract liabilities Third-party interests in consolidated funds Amounts owed to bank depositors Borrowed funds Other liabilities Other liabilities Total financial liabilities held for sale and distribution liabilities Amounts owed to bank depositors measured at fair value Total financial liabilities held for sale and distribution liabilities Total 6,586 1,170 3,277 6,586 297 1,170 1,842 3,277 297 72,526 1,842 191 2,525 72,526 3,674 191 66,136 2,525 3,674 1,180 66,136 2 1,178 1,180 2 1,178 80,292 80,292 3,625 445 1,385 3,625 1,795 445 1,385 71,121 1,795 60,221 7,605 71,121 27 60,221 – 7,605 3,268 27 – 3,268 74,746 Level 1 602 – 304 602 297 – 1 304 297 58,053 1 – 2,525 58,053 184 – 55,344 2,525 184 3 55,344 2 1 3 2 1 58,658 58,658 418 418 – 418 – 418 – 57,399 – 57,399 – 57,399 – 57,399 – – – – – – 57,817 Level 2 5,984 1,170 2,973 5,984 – 1,170 1,841 2,973 – 13,053 1,841 – – 13,053 3,488 – 9,565 – 3,488 1,153 9,565 – 1,153 1,153 – 1,153 20,190 20,190 3,182 2 1,385 3,182 1,795 2 1,385 12,555 1,795 1,655 7,605 12,555 27 1,655 – 7,605 3,268 27 – 3,268 15,737 £m Level 3 – – – – – – – – – 1,420 – 191 – 1,420 2 191 1,227 – 2 24 1,227 – 24 24 – 24 1,444 1,444 25 25 – 25 – 25 – 1,167 – 1,167 – 1,167 – 1,167 – – – – – – 1,192 measured at fair value 74,746 57,817 15,737 1,192 214 208 208 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 (c) Effect of changes in significant unobservable assumptions to reasonable possible alternatives The table below summarises the significant inputs to value instruments categorised as Level 3 of the fair value hierarchy and their sensitivity to changes in the inputs used. Types of financial instruments Fair values Significant unobservable inputs Fair value measurement sensitivity to unobservable inputs At 31 December 2017 £m Favourable: 18 Unfavourable: 22 Favourable: 125 Unfavourable: 127 Valuation multiples Valuation multiples Correlations Volatilities Credit spreads Market adjusted price Exchange price of infrequently traded shares Credit spreads Discount rates Favourable: nil Unfavourable: nil Interest rates Volatilities Discount rates Valuation multiples Favourable: 117 Unfavourable: 117 Favourable: 2 Unfavourable: 3 i F n a n c a s l i Assets Investments in associated undertakings and joint ventures Investments and securities Loans and advances Liabilities Investment contract liabilities Other liabilities At 31 December 2017 £m 191 1,251 2 1,167 25 215 209 Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued F: Capital and financial risk management F1: Capital management F: Capital and financial risk management The managed separation of the Group will free the constituent parts into four strong, independent businesses, each having a capital structure and dividend policy suitable for its own strategy. The Group position must be compliant with regulatory requirements at all times. F1: Capital management The Group has no appetite for regulatory intervention during managed separation, whether perceived or real. As such, we hold a buffer The managed separation of the Group will free the constituent parts into four strong, independent businesses, each having a capital above minimum requirements in order to remain solvent. structure and dividend policy suitable for its own strategy. The Group position must be compliant with regulatory requirements at all times. The Group has no appetite for regulatory intervention during managed separation, whether perceived or real. As such, we hold a buffer The primary sources of capital used by the Group are equity shareholders' funds, subordinated debt and borrowings. Alternative resources above minimum requirements in order to remain solvent. are utilised where appropriate. Targets are established in relation to regulatory solvency, credit ratings, liquidity and dividend capacity and are a key tool in managing capital in accordance with our risk appetite and the requirements of our various stakeholders. The primary sources of capital used by the Group are equity shareholders' funds, subordinated debt and borrowings. Alternative resources are utilised where appropriate. Targets are established in relation to regulatory solvency, credit ratings, liquidity and dividend capacity and The Group measures its Group Solvency in accordance with the EU Solvency II Directive. At 31 December 2017, the unaudited Group are a key tool in managing capital in accordance with our risk appetite and the requirements of our various stakeholders. Solvency II surplus was estimated to be £1.5 billion. Further information on the Group's capital management policy is disclosed in the Finance Review section on page 7. The Group measures its Group Solvency in accordance with the EU Solvency II Directive. At 31 December 2017, the unaudited Group Solvency II surplus was estimated to be £1.5 billion. Further information on the Group's capital management policy is disclosed in the F2: Insurance risk (risk arising within insurance contracts) Finance Review section on page 7. For the purposes of these financial statements, insurance risk is defined as risk other than financial risk. Contracts issued by the Group may include both insurance and financial risk. Contracts with significant insurance risk are classified as insurance contracts, while F2: Insurance risk (risk arising within insurance contracts) contracts with no or insignificant insurance risk are classified as investment contracts. For the purposes of these financial statements, insurance risk is defined as risk other than financial risk. Contracts issued by the Group may include both insurance and financial risk. Contracts with significant insurance risk are classified as insurance contracts, while The Group assumes insurance risk by issuing insurance contracts, under which the Group agrees to compensate the policyholder or other contracts with no or insignificant insurance risk are classified as investment contracts. beneficiary if a specified uncertain future event (the insured event) affecting the policyholder occurs. Insurance risk includes mortality and morbidity risk in the case of life assurance or risk of loss (from fire, accident, or other source) in the case of property & casualty. The Group assumes insurance risk by issuing insurance contracts, under which the Group agrees to compensate the policyholder or other beneficiary if a specified uncertain future event (the insured event) affecting the policyholder occurs. Insurance risk includes mortality and Insurance risk arises through exposure to variable claims experience on life assurance, critical illness and other protection business and morbidity risk in the case of life assurance or risk of loss (from fire, accident, or other source) in the case of property & casualty. exposure to variable operating experience in respect of factors such as persistency levels and management expenses. Unfavourable persistency, expenses and mortality and morbidity claim rates, relative to the actuarial assumptions made in the pricing process, may Insurance risk arises through exposure to variable claims experience on life assurance, critical illness and other protection business and prevent the Group from achieving its profit objectives. exposure to variable operating experience in respect of factors such as persistency levels and management expenses. Unfavourable persistency, expenses and mortality and morbidity claim rates, relative to the actuarial assumptions made in the pricing process, may The Group has developed a risk policy which sets out the practices which are used to monitor and manage insurance risk as well as prevent the Group from achieving its profit objectives. management information and stress testing requirements. The policy is cascaded to all relevant entities across the Group who each have their own risk policy suite aligned to the Group. As well as management of persistency, expense and claims experience, the risk policy The Group has developed a risk policy which sets out the practices which are used to monitor and manage insurance risk as well as sets requirements and standards on matters such as underwriting and claims management practices, and the use of reinsurance to management information and stress testing requirements. The policy is cascaded to all relevant entities across the Group who each have mitigate insurance risk. their own risk policy suite aligned to the Group. As well as management of persistency, expense and claims experience, the risk policy sets requirements and standards on matters such as underwriting and claims management practices, and the use of reinsurance to The insurance risk profile and experience is closely monitored to ensure that the exposure remains acceptable. mitigate insurance risk. The financial impact of insurance risk events is examined by the business through stress tests carried out within the IFRS sensitivities, The insurance risk profile and experience is closely monitored to ensure that the exposure remains acceptable. regulatory capital sensitivities and Economic Capital assessments where applicable. The financial impact of insurance risk events is examined by the business through stress tests carried out within the IFRS sensitivities, Mortality and morbidity regulatory capital sensitivities and Economic Capital assessments where applicable. Mortality and morbidity risk is the risk that death, critical illness and disability claims are different from expected levels. Possible causes are new and unexpected epidemics and widespread changes in lifestyle such as eating, smoking and exercise habits. Higher than expected Mortality and morbidity claims levels will reduce expected emerging profits. For contracts where the insured risk is survival, the most significant factor that is likely Mortality and morbidity risk is the risk that death, critical illness and disability claims are different from expected levels. Possible causes are to adversely impact the claims experience is continued improvement in medical science and social conditions that increase longevity. new and unexpected epidemics and widespread changes in lifestyle such as eating, smoking and exercise habits. Higher than expected claims levels will reduce expected emerging profits. For contracts where the insured risk is survival, the most significant factor that is likely For unit-linked contracts, a risk charge is applied to meet the expected cost of the insured benefit (in excess of the unit value). This risk to adversely impact the claims experience is continued improvement in medical science and social conditions that increase longevity. charge can be altered in the event of significant changes in the expectation for future claims experience, subject to 'Treating Customers Fairly' principles. For unit-linked contracts, a risk charge is applied to meet the expected cost of the insured benefit (in excess of the unit value). This risk charge can be altered in the event of significant changes in the expectation for future claims experience, subject to 'Treating Customers The Group’s businesses operations manage mortality and morbidity risks through its underwriting policy and external reinsurance Fairly' principles. arrangements where the policy is to retain certain types of insurance risks within specified maximum single event loss limits. Exposures above accepted limits are transferred to reinsurance counterparties. The Group’s businesses operations manage mortality and morbidity risks through its underwriting policy and external reinsurance arrangements where the policy is to retain certain types of insurance risks within specified maximum single event loss limits. Exposures above accepted limits are transferred to reinsurance counterparties. 216 210 210 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Persistency Persistency risk is the risk that policyholder surrenders, transfers or premium cessation on contracts occur at levels that are different to expected. In order to limit this risk to an acceptable level, products (including charging and commission structures) are designed to limit the financial loss on surrender, subject to 'Treating Customers Fairly' principles. Persistency statistics are monitored monthly and a detailed persistency analysis at a product level is carried out on an annual basis. Management actions may be triggered if statistics show significant adverse movement or emerging trends in experience. Expenses Expense risk is the risk that actual expenses and expense inflation differ from expected levels. Higher expenses and expense inflation may result in emerging profit falling below the Group's profit objectives. Expense levels are monitored quarterly against budgets and forecasts. An activity-based costing process is used to allocate costs relating to processes and activities to individual product lines. Some products' structures include maintenance charges. These charges are reviewed annually in light of changes in maintenance expense levels. This review may result in changes in charge levels, subject to 'Treating Customers Fairly' principles. Tax Tax risk is the risk that the projected taxation basis for basic life assurance business is incorrect, resulting in contracts being incorrectly priced. Tax risk also represents potential changes in the interpretation or application of prevailing tax legislation applicable to either policyholders or shareholders, resulting in higher taxes reducing profitability or increasing shareholder tax burdens. The taxation position of the operations is projected annually and tax changes will result in changes to new business pricing models as part of the annual control cycle. High risk issues and emerging trends are reported internally on a quarterly basis. F3: Financial risk management The key focus of financial risk management for the Group is ensuring that the proceeds from its financial assets are sufficient to fund the obligations arising from its insurance and banking operations. The most important components of financial risk are credit risk, market risk (arising from changes in equity, bond prices, interest and foreign exchange rates) and liquidity risk. (a) Credit risk (i) Overall exposure to credit risk Credit risk is defined as the risk that one party to a financial instrument will cause a financial loss to the Group by failing to discharge an obligation to repay cash or deliver another financial asset. Credit risk in the Group arises from a number of activities of the Group, namely banking lending, trading, investing and other activities. The Group has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral where appropriate, as a means of mitigating the financial loss from defaults. Credit risk is managed through research and analysis at the time of investment or granting of the loan and then continuously monitored. The Group is exposed to banking credit risk from lending and other financing activities, through its exposure to Nedbank and the banking operations within Emerging Markets business. Nedbank's lending portfolio forms a substantial part of the Group's loans and advances, as analysed in note G1. Credit risk represents the most significant risk type facing Nedbank, accounting for the majority of its economic capital requirements. Nedbank's credit risk profile is managed in terms of the credit risk management framework, which encompasses comprehensive credit risk policy, mandate (limits) and governance structures, and is approved by the Nedbank Board. The Group is exposed to the risk of credit defaults and movements in credit spreads from our insurance businesses. This includes counterparty default risk, which also arises mainly from reinsurance and hedging arrangements. The Group has limited other credit risk exposures in respect of amounts due from policyholders and intermediaries. Loans to policyholders are secured on the surrender value of the relevant policies. 217 211 i F n a n c a s i l Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued F: Capital and financial risk management F3: Financial risk management continued F: Capital and financial risk management (a) Credit risk continued F3: Financial risk management continued (ii) Maximum exposure to credit risk (a) Credit risk continued The table below represents the maximum exposure to credit risk, without taking into account the value of any collateral obtained and are presented for the Group's continuing operations. Consistent with the requirements of accounting standards, the comparative period has (ii) Maximum exposure to credit risk not been re-presented for financial assets and liabilities classified as held for sale and distribution. The comparative information presented The table below represents the maximum exposure to credit risk, without taking into account the value of any collateral obtained and are at 31 December 2017, therefore includes the maximum exposure to credit risk for the composition of the Group as at 31 December 2016. presented for the Group's continuing operations. Consistent with the requirements of accounting standards, the comparative period has not been re-presented for financial assets and liabilities classified as held for sale and distribution. The comparative information presented The maximum exposure to credit risk with regards to derivative financial instruments represents the current fair value of these instruments at 31 December 2017, therefore includes the maximum exposure to credit risk for the composition of the Group as at 31 December 2016. and does not take into account the impact of any positive or adverse changes in the value of the derivative financial instruments. The total credit exposure also includes potential exposure arising from financial guarantees given by the Group and undrawn loan commitments, The maximum exposure to credit risk with regards to derivative financial instruments represents the current fair value of these instruments which are not yet reflected in the Group's statement of financial position. and does not take into account the impact of any positive or adverse changes in the value of the derivative financial instruments. The total credit exposure also includes potential exposure arising from financial guarantees given by the Group and undrawn loan commitments, which are not yet reflected in the Group's statement of financial position. At 31 December 2017 At 6 31 December 252 2017 1,282 6 15,174 252 5,413 1,282 5,403 15,174 4,100 5,413 258 5,403 1,119 4,100 245 258 1,836 1,119 – 245 – 1,836 75,527 – 95,441 – 75,527 95,441 £m At 31 December £m 2016 At 1,111 31 December 3,115 2016 43,108 1,111 25,841 3,115 7,931 43,108 13,463 25,841 4,133 7,931 314 13,463 1,782 4,133 1,340 314 4,847 1,782 1,976 1,340 5,273 4,847 258 1,976 88,651 5,273 258 88,651 Mandatory reserve deposits with central banks Reinsurers' share of policyholder liabilities Loans and advances Mandatory reserve deposits with central banks Investments and securities Reinsurers' share of policyholder liabilities Government and government-guaranteed securities Loans and advances Other debt securities, preference shares and debentures Investments and securities Short-term funds and securities treated as investments Government and government-guaranteed securities Other Other debt securities, preference shares and debentures Other assets Short-term funds and securities treated as investments Derivative financial instruments – assets Other Cash and cash equivalents Other assets Financial guarantees and other credit-related contingent liabilities Derivative financial instruments – assets Loan commitments and other credit-related commitments Cash and cash equivalents Included within assets held for sale and distribution Financial guarantees and other credit-related contingent liabilities Loan commitments and other credit-related commitments Included within assets held for sale and distribution (b) Market risk (i) Overview (b) Market risk Market risk is the risk of a financial impact arising from the changes in values of financial assets or financial liabilities from changes in equity, bond and property prices, interest rates and foreign exchange rates. Market risk arises differently across the Group's businesses (i) Overview depending on the types of financial assets and liabilities held. Market risk is the risk of a financial impact arising from the changes in values of financial assets or financial liabilities from changes in equity, bond and property prices, interest rates and foreign exchange rates. Market risk arises differently across the Group's businesses The Group has developed risk policies which set out the practices which are used to monitor and manage market risk. These policies depending on the types of financial assets and liabilities held. are cascaded to businesses across the Group. Each of the Group's business has their own established set of policies, principles and governance processes to monitor and manage market risk within their individual businesses and in accordance with their local The Group has developed risk policies which set out the practices which are used to monitor and manage market risk. These policies regulatory requirements. are cascaded to businesses across the Group. Each of the Group's business has their own established set of policies, principles and governance processes to monitor and manage market risk within their individual businesses and in accordance with their local The sensitivity of the Group's earnings, capital position and embedded value to market risk is monitored through the Group's embedded regulatory requirements. value and risk appetite reporting processes. The sensitivity of the Group's earnings, capital position and embedded value to market risk is monitored through the Group's embedded value and risk appetite reporting processes. 218 212 212 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 (ii) Insurance operations For the Group's insurance operations, equity, property, volatility and interest rate risk exposure to capital and to earnings are quantified in accordance with the businesses risk appetite framework. Additional detail is provided in the Principal Risks and Uncertainties section. In South Africa the stock selection and investment analysis process is supported by a well-developed research function. For fixed annuities, market risks are managed where possible by investing in fixed interest securities with a duration closely corresponding to those liabilities. Market risk on policies that include guarantees where shareholders carry the investment risk, principally reside in the South African guaranteed non-profit annuity book, which is closely matched with gilts and semi-gilts. Other non-profit policies are also suitably matched based upon comprehensive investment guidelines. Market risk on with-profit policies with guarantees is managed through appropriate asset-liability matching, which includes hedging, as per the PPFM (Principles and Practices of Financial Management). In Old Mutual Wealth's unit-linked assurance operations, policyholders carry the full market risk, with the only risk to the Group being asset-based fee risk from charges on policyholder funds. In respect of Old Mutual Wealth's shareholders' funds, market risk is addressed in Old Mutual Wealth's investment policy, which provides for very limited opportunity for entities to invest their shareholder capital in equities and other volatile assets. For Old Mutual Bermuda, the market risk to shareholders post the sale of the business to Beechwood Bermuda Limited arises from the retention of the Guaranteed Minimum Accumulation Benefits (GMABs), which is reinsured by Old Mutual (Bermuda) Re Limited until the last guarantee has expired in August 2018. These GMABs are US dollar denominated guarantees. The equity market risk and currency risk is managed through a put option hedging strategy that substantially reduces exposure to increases in GMAB funding costs. (iii) Banking operations The principal market risks arising in the Group's banking operations arise from:  Trading risk in Nedbank Capital and  Banking book interest rate risk from repricing and/or maturity mismatches between on- and off-balance sheet components in all banking businesses. A comprehensive market risk framework is used to ensure that market risks are understood and managed. Governance structures are in place to achieve effective independent monitoring and management of market risk. Banking operations – Trading risk Market risk exposures from trading activities at Nedbank Capital are measured using Value-at-Risk (VaR), supplemented by sensitivity analysis, and stress and scenario analysis. Limit structures are set accordingly. The VaR risk measure for Nedbank estimates the potential loss in pre-tax profit over a given holding period for a specified confidence level. The VaR methodology is a statistically defined, probability-based approach that takes into account market volatilities as well as risk diversification by recognising offsetting positions and correlations between products and markets. Risks can be measured consistently across all markets and products, and risk measures can be aggregated to arrive at a single risk number. The one-day 99% VaR number used by Nedbank represents the overnight loss that has less than 1% chance of occurring under normal market conditions. By its nature, VaR is only a single measure and cannot be relied upon on its own as a means of measuring and managing risk. At 31 December Historical VaR (one-day, 99%) by risk type Foreign exchange Interest rate Equity product Other Diversification Total VaR exposure Average 2017 2016 Minimum 2017 2016 Maximum 2017 2016 Year-end 2017 0.3 1.3 0.2 0.6 (0.9) 1.4 0.5 1.0 0.2 0.4 (0.7) 1.5 0.1 0.7 0.1 0.4 – 0.8 0.1 0.5 0.1 0.3 – 0.6 0.7 2.3 0.8 1.0 – 2.4 1.5 2.0 0.5 0.8 – 3.0 0.2 1.9 0.2 0.8 (1.6) 1.4 £m 2016 0.2 0.7 0.1 0.5 (0.5) 1.0 219 213 i F n a n c a s l i Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued F: Capital and Financial risk management continued F3: Financial risk management continued F: Capital and Financial risk management continued (b) Market risk continued F3: Financial risk management continued Banking book interest rate risk (b) Market risk continued Banking book interest rate risk at Nedbank arises because: Banking book interest rate risk  The bank writes a large amount of prime-linked assets and raises fewer prime-linked deposits Banking book interest rate risk at Nedbank arises because:  Funding is prudently raised across the curve at fixed-term deposit rates that re-price only on maturity  Short-term demand-funding products re-price to different short-end base rates  The bank writes a large amount of prime-linked assets and raises fewer prime-linked deposits  Certain ambiguous maturity accounts are non-rate-sensitive  Funding is prudently raised across the curve at fixed-term deposit rates that re-price only on maturity  The bank has a mismatch in net non-rate-sensitive balances, including shareholders' funds that do not re-price for interest rate changes.  Short-term demand-funding products re-price to different short-end base rates  Certain ambiguous maturity accounts are non-rate-sensitive The Group employs various analytical techniques to measure interest rate sensitivity monthly within the banking book on both an earnings  The bank has a mismatch in net non-rate-sensitive balances, including shareholders' funds that do not re-price for interest rate changes. and economic value basis (where appropriate) for banking book balance sheets with the Group with material exposure to interest rate risk in the banking book. Assets, liabilities and derivative financial instruments are modelled and reported based on their contractual repricing The Group employs various analytical techniques to measure interest rate sensitivity monthly within the banking book on both an earnings or maturity characteristics. Where advances are exposed to prepayments and deposits to ambiguous repricing, the Group approves the and economic value basis (where appropriate) for banking book balance sheets with the Group with material exposure to interest rate risk use of prepayment models for the hedging of fixed rate advances and behavioural repricing assumptions for the modelling and reporting in the banking book. Assets, liabilities and derivative financial instruments are modelled and reported based on their contractual repricing of ambiguous repricing deposits, where appropriate. or maturity characteristics. Where advances are exposed to prepayments and deposits to ambiguous repricing, the Group approves the use of prepayment models for the hedging of fixed rate advances and behavioural repricing assumptions for the modelling and reporting At the reporting date, the net interest income sensitivity of the banking book for a one percent parallel reduction in interest rates measured of ambiguous repricing deposits, where appropriate. over 12 months is a decrease in net interest income of approximately £79 million (2016: £69 million), which is within the board's approved risk limit. The Group's net interest income sensitivity exhibits very little convexity and will therefore also result in an increase in pre-tax At the reporting date, the net interest income sensitivity of the banking book for a one percent parallel reduction in interest rates measured net interest income of similar amounts should interest rates increase by one percent. Net interest income sensitivity is actively over 12 months is a decrease in net interest income of approximately £79 million (2016: £69 million), which is within the board's approved managed through on-and off-balance-sheet interest rate risk management strategies for the Group's expected interest rate view risk limit. The Group's net interest income sensitivity exhibits very little convexity and will therefore also result in an increase in pre-tax and impairment sensitivity. net interest income of similar amounts should interest rates increase by one percent. Net interest income sensitivity is actively managed through on-and off-balance-sheet interest rate risk management strategies for the Group's expected interest rate view and impairment sensitivity. 220 214 214 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 F4: Currency translation risk The Group is exposed to movements in exchange rates from changes in the sterling value of surplus assets and earnings denominated in foreign currencies. From a capital perspective, our capital is held where our risks are located and currency translation risk would only be realised if we were to require a transfer of surplus capital between regions during a period of stress. The functional currencies of the Group's principal overseas operations are South African rand, US dollar and euro. Certain of the Group's business operations may undertake activities that are not in their functional currencies. These activities, such as Nedbank, who has a functional currency of South African rand, lending in US dollar, are economically hedged by numerous activities such as the use of currency swaps, currency borrowings and forward foreign exchange contracts. These foreign currency translation tables below have been prepared on the basis that the values of the economic hedging instruments are reflected at their carrying value as opposed to their notional amounts. The table below is therefore a reflection of the foreign currency exposures in their respective currencies for the continuing businsesses. Consistent with the requirements of accounting standards, the comparative period has not been re-presented for assets and liabilities classified as held for sale and distribution. The comparative information presented at 31 December 2017, therefore includes the maximum exposure to credit risk for the composition of the Group as at 31 December 2016. At 31 December 2017 Assets Mandatory reserve deposits with central banks Investments in associated undertakings and joint ventures Reinsurers' share of policyholder liabilities Loans and advances Investments and securities Trade, other receivables and other assets Derivative financial instruments – assets Cash and cash equivalents Total financial assets Assets held for sale and distribution Total non-financial assets Total assets Liabilities Life insurance contract liabilities Investment contract liabilities Third-party interest in consolidation of funds Borrowed funds Trade, other payables and other liabilities Amounts owed to bank depositors Derivative financial instruments – liabilities Total financial liabilities Liabilities held for sale and distribution Total non-financial liabilities Total liabilities ZAR GBP USD EUR Other – – – – 6 85 202 580 33,047 1,105 210 935 36,164 52,296 2,240 90,700 8,922 24,082 4,868 560 2,183 – 267 40,882 47,122 853 88,857 18 – – 567 22 33 570 1,210 64,961 46 66,217 – 121 – 461 95 – – 677 62,499 31 63,207 1 1 495 7,600 105 2 246 8,450 8,574 388 17,412 99 3,135 – 17 63 625 1 3,940 7,432 74 11,446 – – – 144 – – 2 146 1,393 – 1,539 – – – – – – – – 1,291 – 1,291 3 49 207 1,744 72 – 83 2,164 3,379 421 5,964 499 1,402 – 88 188 117 – 2,294 3,624 166 6,084 £m Total 6 107 252 1,282 43,102 1,304 245 1,836 48,134 130,603 3,095 181,832 9,520 28,740 4,868 1,126 2,529 742 268 47,793 121,968 1,124 170,885 221 215 i F n a n c a s l i Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued ZAR USD GBP EUR Other – GBP – USD – EUR 33 Other 1,078 ZAR ventures ventures £m Total £m 1,111 Total F: Capital and financial risk management F4: Currency translation risk continued F: Capital and financial risk management At 31 December 2016 (Restated)1 F4: Currency translation risk continued Assets At 31 December 2016 (Restated)1 Mandatory reserve deposits with central banks Investments in associated undertakings and joint Assets Mandatory reserve deposits with central banks Reinsurers' share of policyholder liabilities Investments in associated undertakings and joint Loans and advances Investments and securities Reinsurers' share of policyholder liabilities Trade, other receivables and other assets Loans and advances Derivative financial instruments – assets Investments and securities Cash and cash equivalents Trade, other receivables and other assets Total financial assets Derivative financial instruments – assets Assets held for sale and distribution Cash and cash equivalents Total non-financial assets Total financial assets Total assets Assets held for sale and distribution Liabilities Total non-financial assets Life insurance contract liabilities Total assets Investment contract liabilities Liabilities Third-party interest in consolidation of funds Life insurance contract liabilities Borrowed funds Investment contract liabilities Trade, other payables and other liabilities Third-party interest in consolidation of funds Amounts owed to bank depositors Borrowed funds Derivative financial instruments – liabilities Trade, other payables and other liabilities Total financial liabilities Amounts owed to bank depositors Liabilities held for sale and distribution Derivative financial instruments – liabilities Total non-financial liabilities Total financial liabilities Total liabilities Liabilities held for sale and distribution Total non-financial liabilities 1 The currency translation risk table (investments in securities) at 31 December 2016 has been restated for the elimination of own shares held by consolidated investment funds Total liabilities 481 1,078 195 38,701 481 37,496 195 1,493 38,701 1,222 37,496 2,216 1,493 82,882 1,222 133 2,216 2,910 82,882 85,925 133 2,910 8,994 85,925 22,582 4,094 8,994 3,561 22,582 3,708 4,094 40,116 3,561 1,037 3,708 84,092 40,116 1 1,037 771 84,092 84,864 1 771 84,864 27 – 2,864 495 27 46,250 2,864 732 495 77 46,250 1,854 732 52,299 77 29 1,854 2,126 52,299 54,454 29 2,126 416 54,454 44,508 3,887 416 1,017 44,508 1,097 3,887 871 1,017 92 1,097 51,888 871 25 92 487 51,888 52,400 25 487 52,400 7 – 2 2,414 7 11,983 2 116 2,414 29 11,983 400 116 14,951 29 2,513 400 412 14,951 17,876 2,513 412 148 17,876 6,768 – 148 36 6,768 73 – 2,647 36 20 73 9,692 2,647 1,335 20 57 9,692 11,084 1,335 57 11,084 – – – 191 – 1,244 – – 191 9 1,244 68 – 1,512 9 5,866 68 4 1,512 7,382 5,866 4 – 7,382 1,028 – – – 1,028 11 – 267 – 10 11 1,316 267 5,656 10 9 1,316 6,981 5,656 9 6,981 27 33 54 1,307 27 3,415 54 75 1,307 3 3,415 309 75 5,223 3 29 309 534 5,223 5,786 29 534 424 5,786 2,713 – 424 80 2,713 223 – 1,408 80 2 223 4,850 1,408 29 2 192 4,850 5,071 29 192 5,071 542 1,111 3,115 43,108 542 100,388 3,115 2,416 43,108 1,340 100,388 4,847 2,416 156,867 1,340 8,570 4,847 5,986 156,867 171,423 8,570 5,986 9,982 171,423 77,599 7,981 9,982 4,694 77,599 5,112 7,981 45,309 4,694 1,161 5,112 151,838 45,309 7,046 1,161 1,516 151,838 160,400 7,046 1,516 160,400 (£145 million) that was identified in the current year. Comparative information at 31 December 2016 has been restated accordingly. 1 The currency translation risk table (investments in securities) at 31 December 2016 has been restated for the elimination of own shares held by consolidated investment funds (£145 million) that was identified in the current year. Comparative information at 31 December 2016 has been restated accordingly. 222 216 216 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 F5: Liquidity risk Liquidity risk is the risk that cash may not be available to pay obligations when due at a reasonable cost. Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has built an appropriate liquidity risk management framework for the management of the Group's short-, medium- and long-term funding and liquidity requirements. The Group manages liquidity by maintaining adequate reserves and banking facilities, continuously monitoring forecast and actual cash flows, and matching the maturity profiles of financial assets and liabilities. Individual businesses separately maintain and manage their local liquidity requirements according to their business needs, within the overall liquidity framework established by Old Mutual plc. Under the Group's managed separation strategy, a revised liquidity capital management policy was introduced that is designed to allow for flexibility in managing liquidity. We hold a buffer at Group level to support this, sufficient to withstand a liquidity survival horizon of at least 12 months. We also have a multi-year liquidity view over the managed separation horizon. The Group should be able to meet short-term plausible but extreme losses. As the businesses transition into separate entities, management will assess their day 1 liquidity requirements, and where appropriate, we will transition liquidity buffers currently held and funded at Old Mutual plc into the businesses. The Group continues to meet Group and individual entity capital requirements, and day-to-day liquidity needs through the Group's available cash resources and, if necessary, available credit facilities. The Group's liquid resources are held in large portfolios of highly marketable securities, for example listed bonds, actively traded pooled investments, equities and cash and cash equivalents. Whilst most of the Group's policyholder and banking liabilities are generally repayable on demand, the Group's expectation is that policyholders and banking depositors will only require funds on an ongoing basis. However, cash resources and other liquid assets are maintained in the event of a need for additional liquidity. Information on the nature of the investments and securities held is given in note G2. Old Mutual plc has access to a £764 million (2016: £764 million) multi-currency revolving credit facility. £73 million of the facility matures in August 2019, a further £73 million of the facility matures in August 2020 and the remaining £618 million of the facility matures in August 2021. At 31 December 2017 none of this facility was drawn. Further details, together with information on the Group's borrowed funds, are given in note G7. The key information reviewed by the Group's Executive Directors and Executive Committee is a detailed management report on the Group's and holding company's current and planned capital and liquidity position, together with summary information on the current and planned liquidity positions of the Group's operating segments. Forecasts are updated regularly based on new information received and also as part of the Group's annual business planning cycle. The Group and holding company's liquidity and capital position and forecast are presented to the Old Mutual plc Board of Directors on a regular basis. Additionally the Group conducts regular stress testing around liquidity requirements, as referenced in the Risk Section (refer pages 58 to 69) Group operating segments are required, both in terms of their local requirements and in accordance with direction from the holding company, to establish their own processes for managing their liquidity and capital needs and these are subject to review by their local oversight functions, with representation from the Group. Further information on liquidity and the holding company cash flows is contained in the financial performance section of the Business Review section. The Group does not have material liquidity exposure to special purpose entities or investment funds. The contractual maturities of the Group's financial liabilities and insurance contracts are set out in notes G4, G6, G7 and G8. 223 217 i F n a n c a s l i Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued G: Analysis of financial assets and liabilities The analysis of financial assets and liabilities of the Group’s continuing operations are set out in the following notes. In order to provide G: Analysis of financial assets and liabilities further insight into significant line items in the statement of financial position for the businesses classified as held for sale and distribution The analysis of financial assets and liabilities of the Group’s continuing operations are set out in the following notes. In order to provide at 31 December 2017, additional information has been presented after the information presented for the continuing operations, within the further insight into significant line items in the statement of financial position for the businesses classified as held for sale and distribution notes to which they relate. at 31 December 2017, additional information has been presented after the information presented for the continuing operations, within the notes to which they relate. The individual notes where additional information on financial assets and liabilities classified as held for sale and distribution are provided are loans and advances (note G1.1), investment and securities (note G2.1); derivative financial investments (note G4.1), insurance and The individual notes where additional information on financial assets and liabilities classified as held for sale and distribution are provided investment contracts (note G6.1), borrowed funds (note G7.1) and amounts owed to bank depositors (note G8.1). are loans and advances (note G1.1), investment and securities (note G2.1); derivative financial investments (note G4.1), insurance and investment contracts (note G6.1), borrowed funds (note G7.1) and amounts owed to bank depositors (note G8.1). All financial assets and liabilities notes which require a movement analysis will include the information for all items, including movements in assets and liabilities classified as held for sale or distribution for the year. Therefore, the amounts reflected in the movement tables will not All financial assets and liabilities notes which require a movement analysis will include the information for all items, including movements in agree to the consolidated income statement amounts presented as the results of the discontinued operations are recognised on a single assets and liabilities classified as held for sale or distribution for the year. Therefore, the amounts reflected in the movement tables will not line in the consolidated income statement. At the end of the movement analysis, a single line item will indicate the value of the assets or agree to the consolidated income statement amounts presented as the results of the discontinued operations are recognised on a single liabilities that have been transferred to assets and liabilities held for sale or distribution. line in the consolidated income statement. At the end of the movement analysis, a single line item will indicate the value of the assets or liabilities that have been transferred to assets and liabilities held for sale or distribution. Consistent with the requirements of accounting standards, the comparative period has not been re-presented for financial assets and liabilities classified as held for sale and distribution. The comparative information presented at 31 December 2017, therefore includes the Consistent with the requirements of accounting standards, the comparative period has not been re-presented for financial assets and financial assets and liabilities for the composition of the Group as at 31 December 2016. liabilities classified as held for sale and distribution. The comparative information presented at 31 December 2017, therefore includes the financial assets and liabilities for the composition of the Group as at 31 December 2016. The notes listed above should be read in conjunction with notes relating to the continuing operations (notes G1, G2, G4, G6, G7 and G8), in order to obtain a comparable view of the Group's significant financial assets and liabilities at 31 December 2017. The notes listed above should be read in conjunction with notes relating to the continuing operations (notes G1, G2, G4, G6, G7 and G8), in order to obtain a comparable view of the Group's significant financial assets and liabilities at 31 December 2017. G1: Loans and advances The Group extends advances to individuals and to the corporate, commercial and public sectors through its banking operations in South G1: Loans and advances Africa, Namibia, Kenya and Zimbabwe. The Group extends advances to individuals and to the corporate, commercial and public sectors through its banking operations in South Africa, Namibia, Kenya and Zimbabwe. Interest earned on loans and advances is analysed in note D3 Banking interest and similar income and credit impairment charges are included in note G1(d) Provision for impairment. Interest earned on loans and advances is analysed in note D3 Banking interest and similar income and credit impairment charges are included in note G1(d) Provision for impairment. Critical accounting estimates and judgements – Provisions for impairment of loans and advances Allowances for loan impairment represent management's estimate of the losses incurred in the loans and advances portfolios at the Critical accounting estimates and judgements – Provisions for impairment of loans and advances reporting date. Allowances for loan impairment represent management's estimate of the losses incurred in the loans and advances portfolios at the reporting date. The Group assesses its loan portfolios for impairment at each reporting date. In determining whether an impairment loss should be recorded in the statement of comprehensive income, the Group makes judgements as to whether there is observable data indicating a The Group assesses its loan portfolios for impairment at each reporting date. In determining whether an impairment loss should be measurable decrease in the estimated future cashflows from a portfolio of loans before the decrease can be allocated to an individual recorded in the statement of comprehensive income, the Group makes judgements as to whether there is observable data indicating a loan in that portfolio. Estimates are made of the duration between the occurrence of a loss event and the identification of a loss on an measurable decrease in the estimated future cashflows from a portfolio of loans before the decrease can be allocated to an individual individual basis. The impairment for performing loans is calculated on a portfolio basis, based on historical loss ratios, adjusted for loan in that portfolio. Estimates are made of the duration between the occurrence of a loss event and the identification of a loss on an national and industry specific economic conditions and other indicators present at the reporting date that correlate with potential future individual basis. The impairment for performing loans is calculated on a portfolio basis, based on historical loss ratios, adjusted for defaults on the portfolio. These include early arrears and other indicators of potential default, such as changes in macroeconomic national and industry specific economic conditions and other indicators present at the reporting date that correlate with potential future conditions and legislation affecting credit recovery. These annual loss ratios are applied to loan balances in the portfolio and scaled defaults on the portfolio. These include early arrears and other indicators of potential default, such as changes in macroeconomic to the estimated-loss emergence period. conditions and legislation affecting credit recovery. These annual loss ratios are applied to loan balances in the portfolio and scaled to the estimated-loss emergence period. Within portfolios, which comprise large numbers of small homogeneous assets with similar risk characteristics where credit-scoring techniques are generally used, statistical techniques are used to calculate impairment allowances on the portfolio, based on historical Within portfolios, which comprise large numbers of small homogeneous assets with similar risk characteristics where credit-scoring recovery rates and assumed emergence periods. These statistical analyses use, as primary inputs, the extent to which accounts in the techniques are generally used, statistical techniques are used to calculate impairment allowances on the portfolio, based on historical portfolio are in arrears and historical information on the eventual losses encountered from such delinquent portfolios. There are many recovery rates and assumed emergence periods. These statistical analyses use, as primary inputs, the extent to which accounts in the such models in use, each tailored to a product, line of business or client category. portfolio are in arrears and historical information on the eventual losses encountered from such delinquent portfolios. There are many such models in use, each tailored to a product, line of business or client category. Judgement and knowledge are needed in selecting the statistical methods to be used when the models are developed or revised. The impairment allowance reflected in the financial statements for these portfolios is considered to be reasonable and supportable. Judgement and knowledge are needed in selecting the statistical methods to be used when the models are developed or revised. The impairment allowance reflected in the financial statements for these portfolios is considered to be reasonable and supportable. For larger exposures impairment allowances are calculated on an individual basis and all relevant considerations that have a bearing on the expected future cashflows are taken into account. For example, the business prospects for the client, the realisable value of For larger exposures impairment allowances are calculated on an individual basis and all relevant considerations that have a bearing collateral, the Group's position relative to other claimants, the reliability of client information and the likely cost and duration of the on the expected future cashflows are taken into account. For example, the business prospects for the client, the realisable value of workout process. The level of the impairment allowance is the difference between the value of the discounted expected future cashflows collateral, the Group's position relative to other claimants, the reliability of client information and the likely cost and duration of the (discounted at the loan's original effective-interest-rate) and its carrying amount. Subjective judgements are made in the calculation of workout process. The level of the impairment allowance is the difference between the value of the discounted expected future cashflows future cashflows. Furthermore, judgements change with time as new information becomes available or as workout strategies evolve, (discounted at the loan's original effective-interest-rate) and its carrying amount. Subjective judgements are made in the calculation of resulting in frequent revisions to the impairment allowance as individual decisions are taken. Changes in these estimates would result future cashflows. Furthermore, judgements change with time as new information becomes available or as workout strategies evolve, in a change in the allowances and have a direct impact on the impairments charge. resulting in frequent revisions to the impairment allowance as individual decisions are taken. Changes in these estimates would result in a change in the allowances and have a direct impact on the impairments charge. 224 218 218 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 (a) Categories of loans and advances The following table provides an analysis of the categories of loans and advances that are provided by the Group. The amounts presented in this table are the carrying value of the underlying assets before provisions for impairment losses: Home loans Commercial mortgages Unsecured retail lending Other term loans Other loans to clients Net finance leases and instalment debtors Deposits placed under reverse purchase agreements Overdrafts Preference shares and debentures Credit cards Factoring accounts Policyholder loans Properties in possession Remittances in transit Gross loans and advances Provisions for impairment Specific provisions Portfolio provisions Total net loans and advances Notes G1(e) G1(d)(ii) G1(d)(ii) At 31 December 2017 198 155 932 1 40 – – 58 – – – 72 – – 1,456 (174) (146) (28) £m At 31 December 2016 8,772 9,085 2,215 6,068 7,099 6,221 923 1,182 1,184 877 296 278 15 22 44,237 (1,129) (820) (309) 1,282 43,108 At 31 December 2017, total net loans and advances of £42,567 million attributable to Nedbank and Old Mutual Wealth have been transferred to assets held for sale and distribution in the consolidated statement of financial position. Refer to note A4 and note G1.1 for more information. (a)(i) Loans and advances by sector Individuals Financial services, insurance and real estate Banks Manufacturing Building and property development Transport, storage and communication Retailers, catering and accommodation Wholesale and trade Mining and quarrying Agriculture, forestry and fishing Government and public sector Other services Total gross loans and advances At 31 December 2017 1,109 15 – 21 1 3 – 156 8 69 2 72 1,456 £m At 31 December 2016 17,178 11,378 1,756 2,230 553 2,535 537 1,963 1,645 1,538 205 2,719 44,237 225 219 i F n a n c a s l i Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued G: Analysis of financial assets and liabilities continued G1: Loans and advances continued G: Analysis of financial assets and liabilities continued (a) Categories of loans and advances continued G1: Loans and advances continued (a)(ii) Loans and advances geographical analysis (a) Categories of loans and advances continued (a)(ii) Loans and advances geographical analysis At 31 December 2017 At 733 31 December 708 2017 – 733 – 708 – – 15 – 1,456 – 15 1,456 £m At 31 December £m 2016 At 38,727 31 December 2,891 2016 1,995 38,727 361 2,891 31 1,995 232 361 44,237 31 232 44,237 South Africa Rest of Africa Europe South Africa Asia Rest of Africa United States Europe Other Asia Total gross loans and advances United States Other (b) Analysis of loans and advances Total gross loans and advances Non-performing loans included above had a book value less impairment provisions of £39 million (2016: £755 million). Loans and advances are generally classified as non-performing, at a minimum, when the client is three complete months in arrears. (b) Analysis of loans and advances Non-performing loans included above had a book value less impairment provisions of £39 million (2016: £755 million). Loans and Of the loans and advances shown above, £529 million (2016: £14,707 million) is receivable within one year of the reporting date and advances are generally classified as non-performing, at a minimum, when the client is three complete months in arrears. is regarded as current. £753 million (2016: £28,401 million) is regarded as non-current based on the maturity profile of the assets. Of the loans and advances shown above, £529 million (2016: £14,707 million) is receivable within one year of the reporting date and Of the gross loans and advances at 31 December 2017 shown above, £1,391 million (2016: £43,978 million) relates to balances held is regarded as current. £753 million (2016: £28,401 million) is regarded as non-current based on the maturity profile of the assets. by the Group's continuing banking operations. Of the gross loans and advances at 31 December 2017 shown above, £1,391 million (2016: £43,978 million) relates to balances held No impairments have been raised against policyholder loans as they are fully secured by amounts owing to policyholder liabilities. by the Group's continuing banking operations. (c) Credit quality of loans and advances No impairments have been raised against policyholder loans as they are fully secured by amounts owing to policyholder liabilities. (c)(i) Age analysis of loans and advances (c) Credit quality of loans and advances The table below gives an age analysis of loans and advances representing primarily the exposures of the Group's banking operations: (c)(i) Age analysis of loans and advances The table below gives an age analysis of loans and advances representing primarily the exposures of the Group's banking operations: At 31 December 2017 At 1,017 31 December 167 2017 89 1,017 53 167 17 89 4 53 4 17 272 4 1,456 4 (174) 272 1,282 1,456 (174) 1,282 £m At 31 December £m 2016 At 41,219 31 December 1,334 2016 814 41,219 505 1,334 1 814 5 505 9 1 1,684 5 44,237 9 (1,129) 1,684 43,108 44,237 (1,129) 43,108 Neither past due nor impaired Past due but not impaired Neither past due nor impaired Past due but not impaired Past due but less than 1 month Past due, greater than 1 month but less than 3 months Past due, greater than 3 months but less than 6 months Past due but less than 1 month Past due, greater than 6 months but less than 1 year Past due, greater than 1 month but less than 3 months Past due more than 1 year Past due, greater than 3 months but less than 6 months Past due, greater than 6 months but less than 1 year Past due more than 1 year Impaired loans and advances individually impaired Gross loans and advances Provisions for impairment Impaired loans and advances individually impaired Total net loans and advances Gross loans and advances Provisions for impairment Total net loans and advances 226 220 220 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 (c)(ii) Credit rating analysis of loans neither past due nor impaired The credit quality of neither past due nor impaired loans and advances can be further analysed by credit rating as follows: At 31 December 2017 At 31 December 2016 Home loans Commercial mortgages Credit cards Overdrafts Policyholder loans Other loans to clients1 Preference shares and debentures Net finance leases and instalment debtors Factoring accounts Trade, other bills and bankers' acceptances Term loans Remittances in transit Deposits placed under reverse purchase agreements Gross loans and advances Investment grade – – – – – – – – – Sub- investment grade – – – – – – – – – – – – – – – – – – – Internally rated 164 118 – 47 72 616 – – – – – – Investment grade 2,016 4,533 108 331 – 4,358 857 201 36 Sub- investment grade 5,339 4,120 622 628 – 2,291 157 5,334 245 Internally rated 500 163 2 121 249 804 170 152 – 1 4,931 2 – 1,914 – – 91 20 Total 164 118 – 47 72 616 – – – – – – £m Total 7,855 8,816 732 1,080 249 7,453 1,184 5,687 281 1 6,936 22 – 1,017 – 1,017 617 17,991 306 20,956 – 2,272 923 41,219 i F n a n c a s i l 1 Other loans to clients include unsecured retail lending, term loans, foreign client lending, preference shares and debentures and other loans. The rating scale of the loans and advances is based on local equivalent rating scales and not international scales. (c)(iii) Collateral Collateral is held as security against certain loans and advances detailed above, with this principally consisting of cash, properties and letters of credit. At 31 December 2017, the Group recognised collateral of £nil (2016: £15 million) in the consolidated statement of financial position. These amounts are being included in the loans and advances above as properties in possession. Financial collateral The Group takes financial collateral to support exposures in its banking and securities and lending activities. Collateral held includes cash and debt securities. Cash collateral is included as part of cash equivalents. These transactions are entered into under terms and conditions that are standard industry practice to securities borrowing and lending activities. Non-financial collateral The Group takes other non-monetary collateral to recover outstanding lending exposures in the event of the borrower being unable or unwilling to fulfil its obligations. This includes mortgage over property (both residential and commercial), and liens over business assets (including, but not limited to plant, vehicles, aircraft, inventories and trade debtors) and guarantees from parties other than the borrower. Where the Group is exposed to syndicated lending, the collateral offered by the borrower is secured by security special purpose vehicles. Should a counterparty be unable to settle its obligations, the Group takes possession of collateral as full or part settlement of such amounts. In general, the Group seeks to dispose of such property and other assets that are not readily convertible into cash as soon as the market for the relevant asset permits. 227 221 Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued G: Analysis of financial assets and liabilities continued G1: Loans and advances continued G: Analysis of financial assets and liabilities continued (d) Provision for impairments G1: Loans and advances continued This section analyses the provisions raised against loans and advances and the movements during the year. (d) Provision for impairments Specific impairments have been raised against those loans identified as impaired. Portfolio impairments are recognised against loans and This section analyses the provisions raised against loans and advances and the movements during the year. advances classified as neither past due nor impaired or past due but not impaired: Specific impairments have been raised against those loans identified as impaired. Portfolio impairments are recognised against loans and £m advances classified as neither past due nor impaired or past due but not impaired: Total £m impairment Balance at beginning of the year 759 Total Acquisitions through business combinations 5 impairment Impairment charge 333 Balance at beginning of the year 759 Credit impairment charges1 272 Acquisitions through business combinations 5 Recoveries of amounts previously written off 61 Impairment charge 333 Amounts written off against the provision2 (252) Credit impairment charges1 272 Foreign exchange and other movements 284 Recoveries of amounts previously written off 61 Transfer to assets held for sale and distribution3 – Amounts written off against the provision2 (252) 1,129 Balance at end of the year Foreign exchange and other movements 284 Transfer to assets held for sale and distribution3 – 1 Included in the credit impairment charge are the transfers between specific and portfolio provisions 1,129 Balance at end of the year 2 Of the £547 million specific impairment written off against the provision, £269 million relates to long outstanding loans Emerging Markets that were written off as they were deemed Year ended 31 December 2017 Specific impairment Year ended 31 December 2017 820 Specific – impairment 298 820 228 – 70 298 (547) 228 (2) 70 (423) (547) 146 (2) (423) 146 Year ended 31 December 2016 Specific impairment Year ended 31 December 2016 529 Specific 1 impairment 338 529 277 1 61 338 (249) 277 201 61 – (249) 820 201 – 820 Total impairment 1,129 Total – impairment 305 1,129 235 – 70 305 (545) 235 2 70 (717) (545) 174 2 (717) 174 Portfolio impairment 309 Portfolio – impairment 7 309 7 – – 7 2 7 4 – (294) 2 28 4 (294) 28 Portfolio impairment 230 Portfolio 4 impairment (5) 230 (5) 4 – (5) (3) (5) 83 – – (3) 309 83 – 309 to be irrecoverable 1 Included in the credit impairment charge are the transfers between specific and portfolio provisions 3 Amounts transferred to assets held for sale and distribution relate to Nedbank and Old Mutual Wealth that have been classified as held for distribution. Refer to note A4 for 2 Of the £547 million specific impairment written off against the provision, £269 million relates to long outstanding loans Emerging Markets that were written off as they were deemed more information. to be irrecoverable 3 Amounts transferred to assets held for sale and distribution relate to Nedbank and Old Mutual Wealth that have been classified as held for distribution. Refer to note A4 for (d)(ii) Impairment of loans and advances – by classification more information. (d)(ii) Impairment of loans and advances – by classification At 31 December 2017 At 31 December 2016 At 31 December 2017 Home loans Commercial mortgages Properties in possession Home loans Credit cards Commercial mortgages Overdrafts Properties in possession Other loans to clients1 Credit cards Net finance lease and instalment debtors Overdrafts Total provision for impairments Other loans to clients1 Net finance lease and instalment debtors 1 Other loans to clients include unsecured retail lending, term loans, foreign client lending, preference shares and debentures and other loans. Total provision for impairments Portfolio impairment – Portfolio – impairment – – – – – – 28 – – – 28 28 – 28 Total impairment 5 Total 4 impairment – 5 – 4 2 – 163 – – 2 174 163 – 174 Specific impairment 5 Specific 4 impairment – 5 – 4 2 – 135 – – 2 146 135 – 146 Specific impairment At 31 December 2016 89 Specific 34 impairment 2 89 69 34 30 2 529 69 67 30 820 529 67 820 Portfolio impairment 37 Portfolio 31 impairment – 37 8 31 7 – 151 8 75 7 309 151 75 309 £m Total £m impairment 126 Total 65 impairment 2 126 77 65 37 2 680 77 142 37 1,129 680 142 1,129 1 Other loans to clients include unsecured retail lending, term loans, foreign client lending, preference shares and debentures and other loans. 228 222 222 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 (e) Finance lease and instalment debtors The maturity of finance lease and instalment debtors are analysed as follows: Amounts receivable under finance leases – At 31 December Within one year In the second to fifth years inclusive After five years Less: unearned finance income Present value of minimum lease payments receivable Minimum lease payments receivable 2016 2,016 5,264 688 7,968 (1,747) 6,221 2017 – – – – – – £m Present value of minimum lease payments receivable 2016 1,586 4,100 535 6,221 – 6,221 2017 – – – – – – None of the continuing operations have entered into any finance lease agreements with customers. G1.1: Assets held for sale and distribution: Loans and advances (a) Categories of loans and advances classified as held for sale and distribution The following table provides an analysis of the categories of loans and advances that are classified as assets held for sale and distribution. The amounts presented in this table are the carrying value of the underlying assets before provisions for impairment losses: Home loans Commercial mortgages Unsecured retail lending Other term loans Other loans to clients Net finance leases and instalment debtors Deposits placed under reverse purchase agreements Overdrafts Preference shares and debentures Credit cards Factoring accounts Policyholder loans1 Properties in possession Remittances in transit Trade, other bills and bankers' acceptances Gross loans and advances Provisions for impairment Specific provisions Portfolio provisions Total net loans and advances 1 Policyholder loans relate to the Old Mutual Wealth business only. Notes G1.1(c)(i) G1.1(c)(i) £m At 31 December 2017 8,945 9,643 1,196 5,879 6,179 6,692 1,031 1,136 1,113 943 326 181 9 10 1 43,284 (717) (423) (294) 42,567 229 223 i F n a n c a s i l Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued G: Analysis of financial assets and liabilities continued G1.1: Assets held for sale and distribution: Loans and advances G: Analysis of financial assets and liabilities continued (a) Categories of loans and advances classified as held for sale and distribution continued G1.1: Assets held for sale and distribution: Loans and advances (a)(i) Loans and advances classified as held for sale and distribution – sector analysis (a) Categories of loans and advances classified as held for sale and distribution continued (a)(i) Loans and advances classified as held for sale and distribution – sector analysis Individuals Financial services, insurance and real estate Banks Individuals Manufacturing Financial services, insurance and real estate Building and property development Banks Transport, storage and communication Manufacturing Retailers, catering and accommodation Building and property development Wholesale and trade Transport, storage and communication Mining and quarrying Retailers, catering and accommodation Agriculture, forestry and fishing Wholesale and trade Government and public sector Mining and quarrying Other services Agriculture, forestry and fishing Total gross loans and advances Government and public sector Other services Total gross loans and advances (a)(ii) Loans and advances classified as held for sale and distribution – geographical analysis (a)(ii) Loans and advances classified as held for sale and distribution – geographical analysis South Africa Rest of Africa Europe South Africa Asia Rest of Africa United States Europe Other Asia Total gross loans and advances United States Other Total gross loans and advances £m At 31 December £m 2017 At 15,776 31 December 12,519 2017 1,223 15,776 3,375 12,519 576 1,223 2,121 3,375 564 576 1,627 2,121 1,673 564 342 1,627 693 1,673 2,795 342 43,284 693 2,795 43,284 £m At 31 December £m 2017 At 39,076 31 December 2,035 2017 1,577 39,076 457 2,035 26 1,577 113 457 43,284 26 113 43,284 230 224 224 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 (b) Credit quality of loans and advances classified as held for sale and distribution (b)(i) Age analysis of loans and advances classified as held for sale and distribution The table below gives an age analysis of loans and advances, representing primarily the exposures of the banking operations, classified as held for sale and distribution: Neither past due nor impaired Past due but not impaired Past due but less than 1 month Past due, greater than 1 month but less than 3 months Past due, greater than 3 months but less than 6 months Past due, greater than 6 months but less than 1 year Past due more than 1 year Impaired loans and advances individually impaired Gross loans and advances Provisions for impairment Total net loans and advances £m At 31 December 2017 40,843 1,272 270 838 122 5 37 1,169 43,284 (717) 42,567 (b)(ii) Credit rating analysis of loans and advances classified as held for sale and distribution neither past due nor impaired The credit quality of loans and advances classified as held for sale and distribution that are neither past due nor impaired can be further analysed by credit rating as follows: Home loans Commercial mortgages Credit cards Overdrafts Policyholder loans Other loans to clients Preference shares and debentures Net finance leases and instalment debtors Factoring accounts Trade, other bills and bankers' acceptances Term loans Deposits placed under reverse purchase agreements Gross loans and advances £m At 31 December 2017 Investment grade 3,807 3,279 98 240 – 4,025 940 208 37 – 4,689 921 18,244 Sub- investment grade 5,380 4,634 680 705 – 1,858 60 5,743 274 1 1,890 110 21,335 Internally rated 199 171 4 82 181 235 113 132 – – 147 – 1,264 Total 9,386 8,084 782 1,027 181 6,118 1,113 6,083 311 1 6,726 1,031 40,843 The rating scale of the loans and advances is based on local equivalent rating scales and not international scales. 231 225 i F n a n c a s l i Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued G: Analysis of financial assets and liabilities continued G1.1: Assets held for sale and distribution: Loans and advances continued G: Analysis of financial assets and liabilities continued (c) Provision for impairments of loans and advances classified as held for sale and distribution G1.1: Assets held for sale and distribution: Loans and advances continued This section analyses the provisions raised against loans and advances. (c) Provision for impairments of loans and advances classified as held for sale and distribution Specific impairments have been raised against those loans identified as impaired. Portfolio impairments are recognised against loans and This section analyses the provisions raised against loans and advances. advances classified as neither past due nor impaired or past due but not impaired. Specific impairments have been raised against those loans identified as impaired. Portfolio impairments are recognised against loans and (c)(i) Provision for impairments of loans and advances classified as held for sale and distribution – analysis of movements advances classified as neither past due nor impaired or past due but not impaired. The table below reconciles the movement in provision for impairments of loans and advances classified as held for sale and distribution for the year ended 31 December 2017: (c)(i) Provision for impairments of loans and advances classified as held for sale and distribution – analysis of movements The table below reconciles the movement in provision for impairments of loans and advances classified as held for sale and distribution for the year ended 31 December 2017: Balance at beginning of the period Impairment charge Credit impairment charges Balance at beginning of the period Recoveries of amounts previously written off Impairment charge Amounts written off against the provision Credit impairment charges Foreign exchange and other movements Recoveries of amounts previously written off Balance at end of the period Amounts written off against the provision Foreign exchange and other movements Balance at end of the period (c)((ii) Impairment of loans and advances classified as held for sale and distribution – by classification £m Year ended 31 December 2017 Total £m impairment Year ended 31 December 2017 717 Total 263 impairment 193 717 70 263 (273) 193 10 70 717 (273) 10 717 Portfolio impairment 285 Portfolio 3 impairment 3 285 – 3 2 3 4 – 294 2 4 294 Specific impairment 432 Specific 260 impairment 190 432 70 260 (275) 190 6 70 423 (275) 6 423 (c)((ii) Impairment of loans and advances classified as held for sale and distribution – by classification Specific impairment Home loans 57 Specific Commercial mortgages 17 impairment Properties in possession 1 Home loans 57 Credit cards 74 Commercial mortgages 17 Overdrafts 38 Properties in possession 1 Other loans to clients1 162 Credit cards 74 Net finance lease and instalment debtors 74 Overdrafts 38 423 Total provision for impairments Other loans to clients1 162 Net finance lease and instalment debtors 74 1 Other loans to clients include unsecured retail lending, term loans, foreign client lending, preference shares and debentures and other loans. 423 Total provision for impairments £m At 31 December 2017 Total £m impairment At 31 December 2017 82 Total 50 impairment 6 82 83 50 39 6 309 83 148 39 717 309 148 717 Portfolio impairment 25 Portfolio 33 impairment 5 25 9 33 1 5 147 9 74 1 294 147 74 294 1 Other loans to clients include unsecured retail lending, term loans, foreign client lending, preference shares and debentures and other loans. 232 226 226 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 G2: Investments and securities The table below analyses the investments and securities that the Group invests in, either for its own proprietary behalf (shareholder funds) or on behalf of third parties (either policyholder funds or pooled investments). Government and government-guaranteed securities Other debt securities, preference shares and debentures Listed Unlisted Equity securities Listed Unlisted Pooled investments Listed Unlisted Short-term funds and securities treated as investments Other Total investments and securities At 31 December 2017 5,413 5,403 1,682 3,721 17,391 16,626 765 10,538 6,452 4,086 4,100 257 43,102 £m At 31 December 2016 (Restated)¹ 7,931 13,971 9,436 4,535 22,614 21,071 1,543 51,426 22,761 28,665 4,133 313 100,388 1 Additional and enhanced availability of investments and securities information has resulted in the reclassification of a number items within investments and securities. These items were previously classified as pooled investments (£2,175) and have be reclassified to other debt securities, preference shares and debentures (£507 million) and equity securities (£1,524 million). Comparative information at 31 December 2016 has been restated accordingly. In addition, equity securities has been restated for the elimination of own shares held by consolidated investment funds (£145 million) that was identified in the current year. Comparative information at 31 December 2016 has been restated accordingly. At 31 December 2017, total investments and securities of £73,818 million attributable to Nedbank and Old Mutual Wealth have been transferred to assets held for sale and distribution in the consolidated statement of financial position. Refer to note A4 and note G2.1 for more information. Investments and securities are regarded as current and non-current assets based on the intention with which the financial assets are held, as well as their contractual maturity profile. Of the amounts shown above, which is the amount expected to be recoverable, £8,690 million (2016: £66,373 million) is regarded as current and £34,412 million (2016: £34,015 million) is regarded as non-current. (a) Debt instruments and similar securities All debt instruments and similar securities are neither past due nor impaired and are analysed in the table below. These debt instruments and similar securities are classified according to their local credit rating (Standard & Poor's or an equivalent), by investment grade: At 31 December 2017 Government and government-guaranteed securities Other debt securities, preference shares and debentures Short-term funds and securities Other At 31 December 2016 (Restated)¹ Government and government-guaranteed securities Other debt securities, preference shares and debentures Short-term funds and securities Other Investment grade (AAA to BBB) 4,112 2,894 2,395 103 9,504 Sub- Investment grade (BB and lower) 185 589 131 17 922 Included through consolidation of funds 772 – 1,058 28 1,858 Internally rated 344 1,920 516 97 2,877 Investment grade (AAA to BBB) 6,293 8,647 2,500 272 17,712 Sub- investment grade (BB and lower) 42 685 3 – 730 Included through consolidation of funds 1,472 2,003 867 12 4,354 Internally rated 124 2,636 763 29 3,552 £m Total 5,413 5,403 4,100 245 15,161 £m Total 7,931 13,971 4,133 313 26,348 1 Additional and enhanced availability of investments and securities information has resulted in the reclassification of a number items within investments and securities. These items were previously classified as pooled investments (£507 million) and have be reclassified to internally rated other debt securities, preference shares and debentures. Comparative information for internally rated other debt securities, preference shares and debentures at 31 December 2016 has been restated accordingly. 233 227 i F n a n c a s i l Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued G: Analysis of financial assets and liabilities continued G2: Investments and securities G: Analysis of financial assets and liabilities continued (b) Equity securities G2: Investments and securities Equity securities are used for a combination of activities. The majority of the listed securities are traded on well-established exchanges such as the New York Stock Exchange, London Stock Exchange and Johannesburg Stock Exchange. (b) Equity securities Equity securities are used for a combination of activities. The majority of the listed securities are traded on well-established exchanges The Group's holdings of unlisted equity securities arise principally from private equity investment and unlisted investment vehicles. such as the New York Stock Exchange, London Stock Exchange and Johannesburg Stock Exchange. G2.1: Assets held for sale and distribution – Investments and securities The Group's holdings of unlisted equity securities arise principally from private equity investment and unlisted investment vehicles. The table below analyses the investments and securities classified as held for sale and distribution at 31 December 2017: G2.1: Assets held for sale and distribution – Investments and securities The table below analyses the investments and securities classified as held for sale and distribution at 31 December 2017: Government and government-guaranteed securities Other debt securities, preference shares and debentures Listed Government and government-guaranteed securities Unlisted Other debt securities, preference shares and debentures Equity securities Listed Listed Unlisted Unlisted Equity securities Pooled investments Listed Listed Unlisted Unlisted Pooled investments Short-term funds and securities treated as investments Listed Other Unlisted Total investments and securities Short-term funds and securities treated as investments Other (a) Debt instruments and similar securities classified as held for sale and distribution Total investments and securities All debt instruments and similar securities are neither past due nor impaired and are analysed in the table below. (a) Debt instruments and similar securities classified as held for sale and distribution These debt instruments and similar securities are classified according to their local credit rating (Standard & Poor's or an equivalent), All debt instruments and similar securities are neither past due nor impaired and are analysed in the table below. by investment grade: These debt instruments and similar securities are classified according to their local credit rating (Standard & Poor's or an equivalent), At 31 December 2017 by investment grade: £m 4,398 8,923 £m 8,742 4,398 181 8,923 13,122 8,742 11,784 181 1,338 13,122 46,553 11,784 17,626 1,338 28,927 46,553 426 17,626 396 28,927 73,818 426 396 73,818 Included through consolidation Included of funds through 2,246 consolidation 1,911 of funds – 2,246 393 1,911 4,550 – 393 4,550 £m £m Total 4,398 8,923 Total 426 4,398 393 8,923 14,140 426 393 14,140 At 31 December 2017 Government and government-guaranteed securities Other debt securities, preference shares and debentures Short-term funds and securities Government and government-guaranteed securities Other Other debt securities, preference shares and debentures Short-term funds and securities Other Investment grade (AAA to BBB) Investment 1,705 grade (AAA to 6,177 BBB) 422 1,705 – 6,177 8,304 422 – 8,304 Sub-Investment grade (BB and Sub-Investment 437 grade (BB and 119 – 437 – 119 556 – – 556 lower) Internally rated 10 716 lower) Internally rated 4 10 – 716 730 4 – 730 234 228 228 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 G3: Securities lending Securities lent The Group participates in securities lending programmes where securities holdings are lent to third parties. These securities are not derecognised from the Group's consolidated statement of financial position and are retained within the relevant investment classification. Collateral is held in respect of the loaned securities. The table below represents the amounts lent and the related collateral received within the continuing operations: Assets lent under securities lending Equity Debt securities Amounts received as collateral for securities lending Cash Debt securities At 31 December 2017 £m At 31 December 2016 292 16 308 286 44 330 416 60 476 474 34 508 Cash collateral has been recognised in the consolidated statement of financial position with a corresponding liability to return the collateral included in trade, other payables and other liabilities. Of the collateral included in the table above, £44 million (2016: £34 million) can be sold or repledged and £nil (2016: £nil) has been sold or repledged. At 31 December 2017 and 31 December 2016, the Group provided cash collateral of £8 million and £10 million respectively for security borrowing arrangements. The businesses classified as held for sale and distribution routinely in the normal course of business enter into various forms of securities lending and securities borrowing transactions. 235 229 i F n a n c a s i l Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued G: Analysis of financial assets and liabilities continued G4: Derivative financial instruments – assets and liabilities G: Analysis of financial assets and liabilities continued The Group utilises derivative instruments for both hedging and trading purposes. Economic hedging occurs when a derivative financial instrument is taken out for the management of financial risk. Only where the accounting treatment results in profit or loss volatility will the G4: Derivative financial instruments – assets and liabilities Group undertake hedge accounting. The derivative instruments become in-the-money or out-of-the-money as a result of fluctuations in The Group utilises derivative instruments for both hedging and trading purposes. Economic hedging occurs when a derivative financial market interest rates, foreign exchange rates or asset prices relative to their terms. The aggregate contractual or notional amount of instrument is taken out for the management of financial risk. Only where the accounting treatment results in profit or loss volatility will the derivative financial instruments on hand, the extent to which instruments are in-the-money or out-of-the-money and, therefore, the Group undertake hedge accounting. The derivative instruments become in-the-money or out-of-the-money as a result of fluctuations in aggregate fair values of derivative financial assets and liabilities can fluctuate significantly from time to time. market interest rates, foreign exchange rates or asset prices relative to their terms. The aggregate contractual or notional amount of derivative financial instruments on hand, the extent to which instruments are in-the-money or out-of-the-money and, therefore, the The Group undertakes transactions involving derivative financial instruments with other financial institutions. Management has established aggregate fair values of derivative financial assets and liabilities can fluctuate significantly from time to time. limits commensurate with the credit quality of the institutions with which it deals and manages the resulting exposures such that a default by any individual counterparty is unlikely to have a materially adverse impact on the Group. The Group undertakes transactions involving derivative financial instruments with other financial institutions. Management has established limits commensurate with the credit quality of the institutions with which it deals and manages the resulting exposures such that a default The following table provides a detailed breakdown of the Group's derivative financial instruments outstanding at year-end. These by any individual counterparty is unlikely to have a materially adverse impact on the Group. instruments allow the Group and its customers to transfer, modify or reduce their credit, equity market, foreign exchange and interest rate risks: The following table provides a detailed breakdown of the Group's derivative financial instruments outstanding at year-end. These instruments allow the Group and its customers to transfer, modify or reduce their credit, equity market, foreign exchange and interest rate risks: Equity derivatives Options written Options purchased Equity derivatives Futures Options written Exchange rate contracts Options purchased Exchange rate contracts Options purchased Forwards Futures Swaps Forwards Futures Swaps Options written Options purchased Interest rate contracts Options written Interest rate contracts Options written Futures Swaps Forward rate agreements Swaps Futures Forward rate agreements £m Derivative financial instruments Liabilities £m 2016 2017 Derivative financial instruments 28 4 Liabilities 8 – 2016 2017 – – 28 4 20 4 8 – 440 – – – 245 – 20 4 167 – 440 – – – 245 – 8 – 167 – 20 – – – 609 263 8 – 576 263 20 – 6 – 609 263 7 – 576 263 20 – 6 – 4 – 7 – – 1 20 – 80 – 4 – 1,161 268 – 1 80 – 1,161 268 2016 36 – 2016 30 36 6 – 545 30 337 6 186 545 14 337 8 186 – 14 689 8 663 – 12 689 – 663 14 12 9 – 9 14 52 9 1,340 9 52 1,340 Assets 2017 27 Assets – 2017 27 27 – – 18 27 1 – 17 18 – 1 – 17 – – 187 – 187 – – 187 – 187 – – – – 13 – – – 245 13 – 245 Credit default swaps Options written Other derivatives Futures Derivatives included through consolidation of funds Credit default swaps Total Other derivatives Derivatives included through consolidation of funds The undiscounted contractual maturities of the cash flows of the derivative liabilities held are as follows: Total Derivative financial liabilities The undiscounted contractual maturities of the cash flows of the derivative liabilities held are as follows: Derivative financial liabilities At 31 December 2017 At 31 December 2016 £m Total 500 1,382 Total 500 At 31 December 2017 At 31 December 2017, total derivative financial assets of £1,842 million and total derivative financial liabilities of £1,795 million attributable 1,382 At 31 December 2016 to Nedbank and Old Mutual Wealth have been transferred to assets and liabilities held for sale and distribution respectively in the consolidated statement of financial position. Refer to note A4 and note G4.1 for more information. At 31 December 2017, total derivative financial assets of £1,842 million and total derivative financial liabilities of £1,795 million attributable to Nedbank and Old Mutual Wealth have been transferred to assets and liabilities held for sale and distribution respectively in the consolidated statement of financial position. Refer to note A4 and note G4.1 for more information. More than 5 years 356 More than 681 5 years 356 681 Less than 3 months 9 Less than 134 3 months 9 134 Carrying amount 268 Carrying 1,161 amount 268 1,161 More than 3 months less than 1 year More than 22 3 months less 277 than 1 year 22 277 Between 1 and 5 years Between 113 1 and 5 290 years 113 290 £m 236 230 230 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 G4.1: Assets and liabilities held for sale and distribution – Derivative financial instruments The following table analyses the derivative assets and derivative liabilities classified as held for sale and distribution at 31 December 2017. At 31 December 2017 Equity derivatives Options written Options purchased Futures Exchange rate contracts Forwards Swaps Options purchased Futures Options written Interest rate contracts Swaps Forward rate agreements Options purchased Futures Caps Credit default swaps Derivatives included through consolidation of funds Total Assets 33 – 25 8 889 530 304 53 2 – 824 753 50 16 4 1 9 87 1,842 The undiscounted contractual maturities of the cash flows of the derivative liabilities are as follows: Derivative financial liabilities At 31 December 2017 Carrying amount 1,795 Less than 3 months 740 More than 3 months less than 1 year 327 Between 1 and 5 years 321 More than 5 years 407 £m Liabilities 72 45 – 27 677 408 228 – 7 34 611 567 30 – 13 1 2 433 1,795 £m Total 1,795 237 231 i F n a n c a s i l Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued G: Analysis of financial assets and liabilities continued G5: Hedge accounting G: Analysis of financial assets and liabilities continued (a) Net investment hedges G5: Hedge accounting The Group uses a combination of currency swaps, forward foreign exchange contracts and debt raised in the currency of the exposure to mitigate the translation effect of holding overseas companies. The following table summarises the Group's open positions with respect to (a) Net investment hedges financial instruments utilised for net investment hedging purposes. There was no ineffectiveness in respect of the net investment hedges The Group uses a combination of currency swaps, forward foreign exchange contracts and debt raised in the currency of the exposure to during the year ended 31 December 2017 and the year ended 31 December 2016. mitigate the translation effect of holding overseas companies. The following table summarises the Group's open positions with respect to financial instruments utilised for net investment hedging purposes. There was no ineffectiveness in respect of the net investment hedges The table below sets out the notional amounts of derivative contracts used as hedging instruments: during the year ended 31 December 2017 and the year ended 31 December 2016. The table below sets out the notional amounts of derivative contracts used as hedging instruments: Open positions Forward contracts Currency swaps Open positions Forward contracts Currency swaps USD 54 USD – 54 54 – 54 At 31 December 2017 EUR ZAR At 31 December 2017 3 – EUR ZAR – – – 3 – 3 – – – 3 USD 109 USD 148 257 109 148 257 Fair value of financial instruments designated as net investment hedges ZAR forward foreign exchange contracts EUR forward foreign exchange contracts Fair value of financial instruments designated as net investment hedges USD forward foreign exchange contracts ZAR forward foreign exchange contracts USD cross currency swap EUR forward foreign exchange contracts USD forward foreign exchange contracts USD cross currency swap The ZAR and USD forward exchange contracts are designated as hedges against foreign currency risk in respect of the Group's investments in its South African and Bermudan operations. The ZAR and USD forward exchange contracts are designated as hedges against foreign currency risk in respect of the Group's (b) Accounting for other economic hedges (fair value through profit or loss – designated) investments in its South African and Bermudan operations. Old Mutual plc has designated £341 million fixed-rate debt as fair value through profit or loss in order to reduce an accounting mismatch. The mismatch that this reduces is the fair value movements on the £341 million of interest rate swaps. The changes in the value of the (b) Accounting for other economic hedges (fair value through profit or loss – designated) swaps, which are recognised as derivative financial instruments, are recognised in profit or loss. These derivative instruments change Old Mutual plc has designated £341 million fixed-rate debt as fair value through profit or loss in order to reduce an accounting mismatch. the interest profile of the fixed-rate debt into a variable coupon, with changes through profit or loss. The mismatch that this reduces is the fair value movements on the £341 million of interest rate swaps. The changes in the value of the swaps, which are recognised as derivative financial instruments, are recognised in profit or loss. These derivative instruments change the interest profile of the fixed-rate debt into a variable coupon, with changes through profit or loss. £m At 31 December 2016 EUR ZAR £m At 31 December 2016 199 136 EUR ZAR – – 199 136 199 136 – – 199 136 £m At 31 December £m 2016 At 31 December (8) 2016 (5) (16) (8) (33) (5) (62) (16) (33) (62) At 31 December 2017 At 31 December – 2017 – 1 – – – 1 1 – 1 238 232 232 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 G6: Insurance and investment contracts Life assurance Classification of contracts Life assurance contracts are categorised into insurance contracts, contracts with a discretionary participation feature or investment contracts, in accordance with the classification criteria set out in the paragraphs below. For the Group's unit-linked assurance business, contracts are separated into an insurance component and an investment component (known as unbundling) and each unbundled component is accounted for separately in accordance with the accounting policy for that component. The treatment of these types of contracts as separate components, (unbundling), only occurs when there is a small or insignificant of insurance risk in the contract. Other kinds of contracts are considered and categorised as a whole. Contracts under which the Group accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder or other beneficiary if a specified uncertain future event (the insured event) adversely affects the policyholder are classified as insurance contracts. Insurance risk is risk other than financial risk. Contracts accounted for as insurance contracts include life assurance contracts and savings contracts providing more than an insignificant amount of life assurance protection. Financial risks are the risks of a possible future change in one or more of an interest rate, security price, security index, commodity price, foreign exchange rate, index of prices or rates, a credit rating or credit index, or other variable, provided, in the case of a non-financial variable, that the variable is not specific to a party to the contract. Contracts with discretionary participating features are those under which the policyholder holds a contractual right to receive additional payments as a supplement to guaranteed minimum payments. These additional payments, the amount and timing of which is at the Group's discretion, represent a significant portion of the total contractual payments. These are contractually based on (i) the performance of a specified pool of contracts or a specified type of contract, (ii) realised and/or unrealised investment returns on a specified pool of assets held by the Group or (iii) the profit or loss of the Group. Investment contracts with discretionary participating features, which have no life assurance protection in the policy terms, are accounted for in the same manner as insurance contracts. Contracts under which the transfer of insurance risk to the Group from the policyholder is not significant (or there is no transfer of insurance risk) and where there is no discretionary participation are classified as investment contracts. Such contracts include unit-linked savings and/or investment contracts sold without life assurance protection and are classified as financial instruments. Premiums on life assurance Premiums and annuity considerations receivable under insurance contracts and investment contracts with a discretionary participating feature are stated gross of commission and exclude taxes and levies. Premiums in respect of unit-linked insurance contracts are recognised when the liability is established. Premiums in respect of other insurance contracts and investment contracts with a discretionary participating feature are recognised when due for payment. Outward reinsurance premiums are recognised when due for payment. Amounts received under investment contracts, other than those with a discretionary participating feature and unit-linked assurance contracts are not recorded through profit or loss, except for fee income and investment income attributable to those contracts, but are accounted for directly through the consolidated statement of financial position as an adjustment to investment contract liabilities. Claims paid on life assurance Claims paid under insurance contracts and investment contracts with a discretionary participating feature include maturities, annuities, surrenders, death and disability payments. Maturity and annuity claims are recorded as they fall due for payment. Death and disability claims and surrenders are accounted for in profit or loss when notified. Reinsurance recoveries in profit or loss are recognised in profit or loss in the same period as the related claim. Amounts paid under investment contracts other than those with a discretionary participating feature and unit-linked assurance contracts are recorded as reductions of the investment contract liabilities. 239 233 i F n a n c a s l i Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued G: Analysis of financial assets and liabilities continued G6: Insurance and investment contracts continued G: Analysis of financial assets and liabilities continued Insurance contract liabilities G6: Insurance and investment contracts continued Insurance contract liabilities for African businesses are computed using a gross premium valuation method. Provisions in respect of African business are made in accordance with the Financial Soundness Valuation basis as set out in the guidelines issued by the Actuarial Insurance contract liabilities Society of South Africa in Standard of Actuarial Practice (SAP) 104 (2012). Under these guidelines, provisions are valued using realistic Insurance contract liabilities for African businesses are computed using a gross premium valuation method. Provisions in respect of expectations of future experience, with margins for prudence and deferral of profit emergence. African business are made in accordance with the Financial Soundness Valuation basis as set out in the guidelines issued by the Actuarial Society of South Africa in Standard of Actuarial Practice (SAP) 104 (2012). Under these guidelines, provisions are valued using realistic Provisions for investment contracts with a discretionary participating feature are also computed using the gross premium valuation method expectations of future experience, with margins for prudence and deferral of profit emergence. in accordance with the Financial Soundness Valuation basis. Surplus allocated to policyholders but not yet distributed related to these contracts is included as part of life assurance policyholder liabilities as discretionary margins. Provisions for investment contracts with a discretionary participating feature are also computed using the gross premium valuation method in accordance with the Financial Soundness Valuation basis. Surplus allocated to policyholders but not yet distributed related to these Reserves for immediate annuities and other guaranteed payments are computed on the prospective deposit method, which produces contracts is included as part of life assurance policyholder liabilities as discretionary margins. reserves equal to the present value of future benefit payments. Reserves for immediate annuities and other guaranteed payments are computed on the prospective deposit method, which produces For other territories, the valuation bases adopted are in accordance with local actuarial practices and methodologies. reserves equal to the present value of future benefit payments. Derivative instruments embedded in an insurance contract are not separated and measured at fair value if the embedded derivative itself For other territories, the valuation bases adopted are in accordance with local actuarial practices and methodologies. qualifies for recognition as an insurance contract. In this case the entire contract is measured as described above. Derivative instruments embedded in an insurance contract are not separated and measured at fair value if the embedded derivative itself The Group performs liability adequacy testing at a business unit level on its insurance liabilities to ensure that the carrying amount of its qualifies for recognition as an insurance contract. In this case the entire contract is measured as described above. liabilities (less related deferred acquisition costs and intangible assets) is sufficient in view of estimated future cash flows. When performing the liability adequacy test, the Group discounts all contractual cash flows and compares this amount to the carrying value of the liability The Group performs liability adequacy testing at a business unit level on its insurance liabilities to ensure that the carrying amount of its at discount rates appropriate to the business in question. Where a shortfall is identified, an additional provision is made by increasing the liabilities (less related deferred acquisition costs and intangible assets) is sufficient in view of estimated future cash flows. When performing liability held. The provision assumptions and estimation techniques are periodically reviewed, with any changes in estimates reflected the liability adequacy test, the Group discounts all contractual cash flows and compares this amount to the carrying value of the liability in profit or loss as they occur. at discount rates appropriate to the business in question. Where a shortfall is identified, an additional provision is made by increasing the liability held. The provision assumptions and estimation techniques are periodically reviewed, with any changes in estimates reflected Whilst the directors consider that the gross insurance contract liabilities and the related reinsurance recoveries are fairly stated on the in profit or loss as they occur. basis of the information currently available to them, the ultimate liability will vary as a result of subsequent information and events and may result in significant adjustments to the amount provided. Whilst the directors consider that the gross insurance contract liabilities and the related reinsurance recoveries are fairly stated on the basis of the information currently available to them, the ultimate liability will vary as a result of subsequent information and events and may In respect of the South Africa life assurance, shadow accounting is applied to insurance contract liabilities where the underlying result in significant adjustments to the amount provided. measurement of the policyholder liability depends directly on the value of owner-occupied property and the unrealised gains and losses on such property, which are recognised in other comprehensive income. The shadow accounting adjustment to insurance contract In respect of the South Africa life assurance, shadow accounting is applied to insurance contract liabilities where the underlying liabilities is recognised in other comprehensive income to the extent that the unrealised gains or losses on owner-occupied property measurement of the policyholder liability depends directly on the value of owner-occupied property and the unrealised gains and losses backing insurance contract liabilities are also recognised directly in other comprehensive income. on such property, which are recognised in other comprehensive income. The shadow accounting adjustment to insurance contract liabilities is recognised in other comprehensive income to the extent that the unrealised gains or losses on owner-occupied property Financial guarantee contracts, issued in insurance contracts are recognised as part of the overall measurement of insurance contracts. backing insurance contract liabilities are also recognised directly in other comprehensive income. Liability adequacy testing is performed to ensure that the carrying amount of the liability for financial guarantee contracts is sufficient. Financial guarantee contracts, issued in insurance contracts are recognised as part of the overall measurement of insurance contracts. Investment contract liabilities Liability adequacy testing is performed to ensure that the carrying amount of the liability for financial guarantee contracts is sufficient. Investment contract liabilities in respect of the Group's business other than unit-linked business are recorded at amortised cost unless they are designated at fair value through profit or loss in order to eliminate or significantly reduce a measurement or recognition inconsistency, Investment contract liabilities for example where the corresponding assets are recorded at fair value through profit or loss. Investment contract liabilities in respect of the Group's business other than unit-linked business are recorded at amortised cost unless they are designated at fair value through profit or loss in order to eliminate or significantly reduce a measurement or recognition inconsistency, Investment contract liabilities in respect of the Group's unit-linked business are recorded at fair value. For such liabilities, including the for example where the corresponding assets are recorded at fair value through profit or loss. deposit component of unbundled unit-linked assurance contracts, fair value is calculated as the account balance, which is the value of the units allocated to the policyholder, based on the bid price of the assets in the underlying fund (adjusted for tax). Investment contract liabilities in respect of the Group's unit-linked business are recorded at fair value. For such liabilities, including the deposit component of unbundled unit-linked assurance contracts, fair value is calculated as the account balance, which is the value of the Investment contract liabilities measured at fair value are subject to a 'deposit floor' such that the liability established cannot be less than the units allocated to the policyholder, based on the bid price of the assets in the underlying fund (adjusted for tax). amount repayable on demand. Investment contract liabilities measured at fair value are subject to a 'deposit floor' such that the liability established cannot be less than the amount repayable on demand. 240 234 234 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Acquisition costs Acquisition costs for insurance contracts comprise all direct and indirect costs arising from the sale of insurance contracts. As the gross premium valuation method used in African territories to determine insurance contract liabilities makes implicit allowance for the deferral of acquisition costs, no explicit deferred acquisition cost asset is recognised in the consolidated statement of financial position for the contracts issued in these areas. Deferral of costs on insurance business in other territories is limited to the extent that they are deemed recoverable from available future margins. Costs incurred in acquiring investment management service contracts Incremental costs that are directly attributable to securing an investment management service contract are recognised as an asset if they can be identified separately and measured reliably and it is probable that they will be recovered. Deferred acquisition costs represent the contractual right to benefit from providing investment management services and are amortised as the related revenue is recognised. Costs attributable to investment management service contracts in the asset management businesses are also recognised on this basis. Revenue on investment management service contracts Fees charged for investment management services provided in conjunction with an investment contract are recognised as revenue as the services are provided. Initial fees, which exceed the level of recurring fees and relate to the future provision of services are deferred and amortised over the anticipated period in which services will be provided. Fees charged for investment management service contracts by asset management businesses are also recognised on this basis. Property & casualty Contracts under which the Group accepts significant insurance risk from another party and which are not classified as life insurance are classified as property & casualty. All classes of property & casualty business are accounted for on an annual basis. Premiums on property & casualty Premiums are stated gross of commissions, exclude taxes and levies and are accounted for in the period in which the risk commences. The proportion of the premiums written relating to periods of risk after the reporting date is carried forward to subsequent accounting periods as unearned premiums as a liability, so that earned premiums relate to risks carried during the accounting period. Claims on property & casualty Claims incurred, which are recognised in profit or loss, comprise the settlement and handling costs of paid and outstanding claims arising during the year and adjustments to prior year claim provisions. Outstanding claims comprise claims incurred up to, but not paid, at the end of the accounting period, whether reported or not. Outstanding claims do not include any provision for possible future claims where the claims arise under contracts not in existence at the reporting date. The Group performs liability adequacy testing at a business unit level on its claim liabilities to ensure that the carrying amount of its liabilities (less related deferred acquisition costs and the unearned premium reserve) is sufficient in view of estimated future undiscounted cash flows. Whilst the directors consider that the gross provisions for claims and the related reinsurance recoveries are fairly stated on the basis of the information currently available to them, the ultimate liability will vary as a result of subsequent information and events, and may result in significant adjustments to the amount provided. Adjustments to the amounts of claims provisions established in prior years are reflected in profit or loss in the financial statements for the period in which the adjustments are made, and disclosed separately if material. The methods used and estimates made are reviewed regularly. Acquisition costs on property & casualty Acquisition costs, which represent commission and other related expenses, are deferred and amortised over the period in which the related general insurance premiums are earned. 241 235 i F n a n c a s i l Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued G: Analysis of financial assets and liabilities continued G6: Insurance and investment contracts continued G: Analysis of financial assets and liabilities continued Reinsurance G6: Insurance and investment contracts continued The Group cedes reinsurance in the normal course of business for the purpose of limiting its net loss potential through the diversification of its risks. Assets, liabilities and income and expense arising from ceded reinsurance contracts are presented separately from the related Reinsurance assets, liabilities, income and expense from the related insurance contracts because the reinsurance arrangements do not relieve the The Group cedes reinsurance in the normal course of business for the purpose of limiting its net loss potential through the diversification Group from its direct obligations to its policyholders. of its risks. Assets, liabilities and income and expense arising from ceded reinsurance contracts are presented separately from the related assets, liabilities, income and expense from the related insurance contracts because the reinsurance arrangements do not relieve the Only rights under contracts that give rise to a significant transfer of insurance risk are accounted for as reinsurance assets. Rights under Group from its direct obligations to its policyholders. contracts that do not transfer significant insurance risk are accounted for as financial instruments. Only rights under contracts that give rise to a significant transfer of insurance risk are accounted for as reinsurance assets. Rights under Reinsurance premiums for ceded reinsurance are recognised as an expense on a basis that is consistent with the recognition basis for the contracts that do not transfer significant insurance risk are accounted for as financial instruments. premiums on the related insurance contracts. For property & casualty business, reinsurance premiums are expensed over the period that the reinsurance cover is provided based on the expected pattern of the reinsured risks. The unexpensed portion of ceded reinsurance Reinsurance premiums for ceded reinsurance are recognised as an expense on a basis that is consistent with the recognition basis for the premiums is included in reinsurance assets. premiums on the related insurance contracts. For property & casualty business, reinsurance premiums are expensed over the period that the reinsurance cover is provided based on the expected pattern of the reinsured risks. The unexpensed portion of ceded reinsurance The amounts recognised as reinsurance assets are measured on a basis that is consistent with the measurement of the insurance premiums is included in reinsurance assets. liabilities held in respect of the related insurance contracts. Reinsurance assets include recoveries due from reinsurance companies in respect of claims paid. The amounts recognised as reinsurance assets are measured on a basis that is consistent with the measurement of the insurance liabilities held in respect of the related insurance contracts. Reinsurance assets include recoveries due from reinsurance companies Reinsurance assets are assessed for impairment at each reporting date. An asset is deemed impaired if there is objective evidence, in respect of claims paid. as a result of an event that occurred after its initial recognition, that the Group may not recover all amounts due, and that the event has a reliably measurable impact on the amounts that the Group will receive from the reinsurer. Reinsurance assets are assessed for impairment at each reporting date. An asset is deemed impaired if there is objective evidence, as a result of an event that occurred after its initial recognition, that the Group may not recover all amounts due, and that the event has a reliably measurable impact on the amounts that the Group will receive from the reinsurer. Critical accounting estimates and judgements – Policyholder liabilities Emerging Markets Financial Soundness Valuation discount rate Critical accounting estimates and judgements – Policyholder liabilities The calculation of the Group's South African life assurance contract liabilities is sensitive to the discount rate used to value the liabilities. The methodology applied by the Group requires discount rates to be set according to the South African professional guidance note Emerging Markets Financial Soundness Valuation discount rate (SAP 104). In line with these principles, the reference rate is selected as the Bond Exchange of South Africa (BESA) bond 10-year yield. The calculation of the Group's South African life assurance contract liabilities is sensitive to the discount rate used to value the liabilities. The methodology applied by the Group requires discount rates to be set according to the South African professional guidance note The reference rate was relatively volatile over 2017, ranging from 8.5% to 9.8% (2016: 8.6% to 10.0%). At 31 December 2017, the (SAP 104). In line with these principles, the reference rate is selected as the Bond Exchange of South Africa (BESA) bond 10-year yield. reference discount rate was 9.0% (2016: 9.1%). The volatile interest rate environment continued to have a negligible impact on the operating profit for the South African life assurance businesses during 2017, given the continuance of the hedging program and The reference rate was relatively volatile over 2017, ranging from 8.5% to 9.8% (2016: 8.6% to 10.0%). At 31 December 2017, the discretionary margins put in place to mitigate these impacts. reference discount rate was 9.0% (2016: 9.1%). The volatile interest rate environment continued to have a negligible impact on the operating profit for the South African life assurance businesses during 2017, given the continuance of the hedging program and The Group estimates that a 1% reduction in the reference discount rate would result in an increase in insurance contract liabilities and discretionary margins put in place to mitigate these impacts. a decrease in profit after tax as at 31 December 2017 of £9 million (2016: £3 million), allowing for the mitigating impacts of the hedging programme and discretionary margins in place. The Group estimates that a 1% reduction in the reference discount rate would result in an increase in insurance contract liabilities and a decrease in profit after tax as at 31 December 2017 of £9 million (2016: £3 million), allowing for the mitigating impacts of the hedging This is due to further management actions to reduce the impact of volatile interest rates on profit in 2017. programme and discretionary margins in place. This is due to further management actions to reduce the impact of volatile interest rates on profit in 2017. 242 236 236 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Emerging Markets discretionary reserves Technical provisions in South Africa are determined as the aggregate of:  Best estimate liabilities, with assumptions allowing for the best estimate of future experience and a market-consistent valuation of financial options and guarantees  Compulsory margins, prescribed in terms of the Long Term Insurance Act, 1998 and South African professional actuarial guidance note (SAP 104) as explicit changes to actuarial assumptions that increase the level of technical provisions held, and  Discretionary margins, permitted by the Long Term Insurance Act, 1998 and SAP 104, to allow for the uncertainty inherent in estimates of future experience after considering available options of managing that experience over time, or to defer the release of profits consistent with policy design or company practice. Discretionary margins are held as either implicit or explicit margins. Explicit discretionary margins are derived as conscious changes to assumptions used to project future experience to increase technical provisions. Implicit discretionary margins arise where the method used to calculate overall technical provisions results in liabilities that are greater than the sum of best estimate liabilities and compulsory margins. Explicit discretionary margins of R8,021 million (£479 million) (1.4% of total technical provisions) were held at 31 December 2017 (2016: R7,823 million (£461 million), 1.5% of total technical provisions). This consisted largely of:  Margins held for Mass Foundation Cluster protection business, which allow for the uncertainty related to mortality experience in South Africa, as well as future lapse experience and future investment returns, and to ensure that profit is released appropriately over the term of the policies  Margins to allow for the uncertainty inherent in the assumptions used to value financial options and guarantees, implied volatility assumptions in particular, which are difficult to hedge due to the short term nature of the equity option market in South Africa  Margins on non-profit annuities, due to the inability to fully match assets to liabilities as a result of the limited availability of long-dated bonds, and to provide for longevity risk, and  Margins for the uncertainty inherent in future economic assumptions used to calculate, mainly protection product liabilities, in the Retail Affluent and Mass Foundation Cluster businesses. Although interest rate hedging is used to manage interest rate risk on these products, the volatility of bond yields in South Africa means that it is difficult to maintain appropriate hedging positions without incurring significant trading costs. The discretionary margin therefore caters for the residual uncertainty present after allowing for the hedge programme that is in place. Old Mutual Bermuda guarantees Old Mutual Bermuda no longer owns any underlying policies or manages any policyholder funds. The Guaranteed Minimum Accumulation Benefits (GMAB) risk on the remaining active variable annuity contracts is to be retained until the last GMAB policy with a Universal Guarantee Option (UGO) rider passes its 10-year anniversary, which will be no later than August 2018. All remaining business operations, subject to regulatory approvals, are expected to be substantially wound down by 31 December 2018. Almost all of the remaining GMAB risk relates to policies sold with UGOs. Products sold with a Capital Guarantee Option (CGO) GMAB, a product predecessor to the UGO, hold less onerous guarantees and do not give rise to significant risk. The GMAB UGOs guarantee policyholders a return of 120% of invested premiums and, subject to policyholder election, also a Highest Anniversary Value (HAV) guarantee. These guarantees crystallize on the 10-year anniversary of policies, the remainder of which will be reached in 2018. The market risk attached to the GUO guarantees, and relating to equity and foreign exchange downside risks, is currently being managed by OTM quanto put options which covered circa 102% of the remaining equity and foreign exchange UGO GMAB exposures as at 31 December 2017. This slightly over-hedged position was mainly due to the higher than expected lapses in 2017. GMAB reserves have decreased from £85 million ($104 million) at 31 December 2016 to £9 million ($12 million) at 31 December 2017, a decrease of £76 million ($92 million), mainly due to the expiration of GMAB guarantees and favourable equity and foreign exchange markets in 2017. If the Group were to stress the underlying assets and liabilities, by adding 10% to the current level of volatility, it would increase the underlying assets by £2 million and increase the value of the liability by £1 million, which would result in a net profit for the Group of circa £1 million. If the Group were to stress the underlying assets and liabilities, by decreasing the current level of volatility by 10%, it would decrease the underlying assets £2 million and decrease the value of the liability by £1 million, which would result in a net loss for the Group of £1 million. 243 237 i F n a n c a s l i Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued G: Analysis of financial assets and liabilities continued G6: Insurance and investment contracts continued G: Analysis of financial assets and liabilities continued (a) Policyholder liabilities G6: Insurance and investment contracts continued The Group's insurance and investment contracts are analysed as follows: (a) Policyholder liabilities The Group's insurance and investment contracts are analysed as follows: At 31 December 2017 At 31 December 2016 Life assurance policyholder liabilities Total life insurance contract liabilities Life insurance contract liabilities Life assurance policyholder liabilities Outstanding claims Total life insurance contract liabilities Life insurance contract liabilities Investment contract liabilities Outstanding claims Unit-linked investment contracts and similar Gross Reinsurance Net Gross Reinsurance At 31 December 2017 9,520 (34) Gross Reinsurance (34) 9,379 – 141 (34) 9,520 (34) 9,379 – 28,740 – 141 9,486 Net 9,345 141 9,486 9,345 28,740 141 At 31 December 2016 9,982 (358) Gross Reinsurance (345) 9,844 (13) 138 (358) 9,982 (345) 9,844 (2,560) 77,599 (13) 138 £m Net £m 9,624 Net 9,499 125 9,624 9,499 75,039 125 contracts – – – – – – (34) – 66,543 77,599 972 10,084 66,543 972 87,581 10,084 (2,560) (2,560) – – (2,560) – (2,918) – 17,125 28,740 72 11,543 17,125 72 38,226 11,543 17,125 28,740 72 11,543 17,125 72 38,260 11,543 contracts Investment contract liabilities Other investment contracts Unit-linked investment contracts and similar Discretionary participating investment contracts Other investment contracts Total life assurance policyholder liabilities Discretionary participating investment contracts Property & casualty liabilities Claims incurred but not reported 79 38,260 Total life assurance policyholder liabilities Unearned premiums 154 Property & casualty liabilities Outstanding claims 261 Claims incurred but not reported 79 494 Total property & casualty liabilities Unearned premiums 154 Total policyholder liabilities 38,754 Outstanding claims 261 494 Total property & casualty liabilities At 31 December 2017, total gross policyholder liabilities of £60,846 million and total reinsurance share of policyholder liabilities of 38,754 Total policyholder liabilities £2,914 million attributable to Nedbank and Old Mutual Wealth have been transferred to liabilities held for sale and distribution and assets held for sale and distribution respectively in the consolidated statement of financial position. Refer to note A4 and note G6.1 At 31 December 2017, total gross policyholder liabilities of £60,846 million and total reinsurance share of policyholder liabilities of for more information. £2,914 million attributable to Nedbank and Old Mutual Wealth have been transferred to liabilities held for sale and distribution and assets held for sale and distribution respectively in the consolidated statement of financial position. Refer to note A4 and note G6.1 Of the £252 million (2016: £3,115 million) included in reinsurer's share of life assurance policyholder and property & casualty liabilities for more information. is an amount of £192 million (2016: £2,919 million) which is classified as current, the remainder being non-current. Of the £252 million (2016: £3,115 million) included in reinsurer's share of life assurance policyholder and property & casualty liabilities is an amount of £192 million (2016: £2,919 million) which is classified as current, the remainder being non-current. (14) (2,918) (76) (107) (14) (197) (76) (3,115) (107) (197) (3,115) 73 87,581 163 246 73 482 163 88,063 246 482 88,063 60 38,226 83 133 60 276 83 38,502 133 276 38,502 (19) (34) (71) (128) (19) (218) (71) (252) (128) (218) (252) 63,983 75,039 972 10,084 63,983 972 84,663 10,084 59 84,663 87 139 59 285 87 84,948 139 285 84,948 244 238 238 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 (b) Life insurance contracts liabilities Movements in the amounts outstanding in respect of life assurance policyholder liabilities, other than outstanding claims, are set out below: Balance at beginning of the year Income Premium income Investment income Other income Expenses Claims and policy benefits Operating expenses Currency translation loss(gain) Other charges and transfers Taxation Transfer to operating profit Transfer to liabilities held for sale and distribution1 Balance at end of the year Gross Reinsurance (345) 9,844 At 31 December 2017 Net 9,499 £m At 31 December 2016 Net 7,411 Gross Reinsurance (206) 7,617 1,893 1,042 1 (1,912) (569) 75 26 (24) (381) (616) 9,379 (95) – – 79 – – (90) – 37 380 (34) 1,798 1,042 1 (1,833) (569) 75 (64) (24) (344) (236) 9,345 1,634 678 3 (1,673) (468) 2,414 10 (10) (352) (9) 9,844 (88) – – 57 – (13) (115) – 20 – (345) 1,546 678 3 (1,616) (468) 2,401 (105) (10) (332) (9) 9,499 1 Amounts transferred to liabilities held for sale and distribution at 31 December 2017 relate to Nedbank and Old Mutual Wealth that have been classified as held distribution. Amounts transferred to liabilities held for sale and distribution at 31 December 2016 relate to the disposal of Old Mutual Wealth Italy. Refer to note A2 and A4 for more information. (c) Unit-linked investment contracts and similar contracts, and other investment contracts Balance at beginning of the year Contributions received Maturities Withdrawals and surrenders Fair value movements Foreign exchange and other movements Transfer to liabilities held for sale and distribution1 Balance at end of the year At 31 December 2017 67,515 12,802 (297) (8,317) 6,309 (594) (60,221) 17,197 £m At 31 December 2016 60,769 10,100 (244) (7,381) 6,296 3,855 (5,880) 67,515 1 Amounts transferred to liabilities held for sale at 31 December 2017 relate to Nedbank and Old Mutual Wealth that have been classified as held distribution. Amounts transferred to liabilities held for sale and distribution at 31 December 2016 relate to the disposal of Old Mutual Wealth Italy. Refer to note A2 and A4 for more information. (d) Discretionary participating investment contracts Discretionary participating investment contracts relate to the continuing operations only. None of the businesses classified as held for sale and distribution have issued any discretionary participating investment contracts. At 31 December 2017 10,084 £m At 31 December 2016 7,085 1,645 1,516 7 (1,484) (68) (74) (12) 42 (113) 11,543 1,525 366 – (1,170) (56) (6) (2) 2,438 (96) 10,084 Balance at beginning of the year Income Premium income Investment and other income Other income Expenses Claims and policy benefits Operating expenses Other charges and transfers Taxation Currency translation losses Transfer to operating profit Balance at end of the year 245 239 i F n a n c a s l i Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued G: Analysis of financial assets and liabilities continued G6: Insurance and investment contracts continued G: Analysis of financial assets and liabilities continued (e) Contractual maturity analysis G6: Insurance and investment contracts continued The following table shows a maturity analysis of liability cash flows based on contractual maturity dates for investment contract liabilities and discretionary participating financial instruments, and expected claim dates for insurance contracts. Investment contract policyholders (e) Contractual maturity analysis have the option to terminate or transfer their contracts at any time and to receive the surrender or transfer value of their policies. Although The following table shows a maturity analysis of liability cash flows based on contractual maturity dates for investment contract liabilities these liabilities are payable on demand, and are therefore included in the contractual maturity analysis as due in less than three months and discretionary participating financial instruments, and expected claim dates for insurance contracts. Investment contract policyholders and more than three months less than one year, the Group does not expect all these amounts to be paid out within one year of the have the option to terminate or transfer their contracts at any time and to receive the surrender or transfer value of their policies. Although reporting date. these liabilities are payable on demand, and are therefore included in the contractual maturity analysis as due in less than three months and more than three months less than one year, the Group does not expect all these amounts to be paid out within one year of the The undiscounted cash flows of discretionary participating investment contracts only include amounts vested or to be vested, while their reporting date. carrying amount include reserves that are payable at the discretion of the Group. The undiscounted cash flows of discretionary participating investment contracts only include amounts vested or to be vested, while their The Group acknowledges that for property & casualty the unearned premium provision, which will be recognised as earned premium in carrying amount include reserves that are payable at the discretion of the Group. the future, will most likely not lead to claim cash outflows equal to this provision. The Group has estimated the potential claim outflows that may be associated with this unearned premium. The Group acknowledges that for property & casualty the unearned premium provision, which will be recognised as earned premium in the future, will most likely not lead to claim cash outflows equal to this provision. The Group has estimated the potential claim outflows that At 31 December 2017 £m may be associated with this unearned premium. Undiscounted cash flows At 31 December 2017 Life assurance policyholder liabilities Total life insurance contract liabilities Life insurance contract liabilities Life assurance policyholder liabilities Outstanding claims Total life insurance contract liabilities Investment contract liabilities Life insurance contract liabilities Unit-linked investment contracts and similar Outstanding claims contracts Investment contract liabilities Other investment contracts Unit-linked investment contracts and similar Discretionary participating investment contracts Other investment contracts Total life assurance policyholder liabilities Discretionary participating investment contracts contracts Property & casualty liabilities Total life assurance policyholder liabilities Claims incurred but not reported Unearned premiums Property & casualty liabilities Outstanding claims Claims incurred but not reported Total property & casualty liabilities Unearned premiums Outstanding claims Total policyholder liabilities Total property & casualty liabilities Carrying amount Carrying 9,520 amount 9,379 141 9,520 28,740 9,379 141 17,125 28,740 72 11,543 17,125 72 38,260 11,543 38,260 79 154 261 79 494 154 261 38,754 494 Between Undiscounted cash flows 1 and 5 years More than 5 years Less than 3 months Less than 718 3 months 577 141 718 24,690 577 141 12,694 24,690 78 11,918 12,694 78 25,408 11,918 More than 3 months less than 1 year More than 3 months less 1,182 than 1 year 1,182 – 1,182 35 1,182 – 13 35 17 5 13 17 1,217 5 Between 6,024 1 and 5 years 6,024 – 6,024 117 6,024 – 68 117 40 9 68 40 6,141 9 25,408 14 71 142 14 227 71 142 25,635 227 1,217 40 38 56 40 134 38 56 1,351 134 6,141 18 33 55 18 106 33 55 6,247 106 More than 20,166 5 years 20,166 – 20,166 4,981 20,166 – 4,788 4,981 3 190 4,788 3 25,147 190 25,147 7 15 8 7 30 15 8 25,177 30 £m Total 28,090 Total 27,949 141 28,090 29,823 27,949 141 17,563 29,823 138 12,122 17,563 138 57,913 12,122 57,913 79 157 261 79 497 157 261 58,410 497 Total policyholder liabilities 38,754 25,635 1,351 6,247 25,177 58,410 246 240 240 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 At 31 December 2016 Life assurance policyholder liabilities Total life insurance contract liabilities Life insurance contract liabilities Outstanding claims Investment contract liabilities Unit-linked investment contracts and similar contracts Other investment contracts Discretionary participating investment contracts Carrying amount Less than 3 months More than 3 months less than 1 year Between 1 and 5 years More than 5 years Undiscounted cash flows 9,982 9,844 138 77,599 66,543 972 10,084 752 614 138 76,062 64,832 978 10,252 1,289 1,289 – 41 18 16 7 6,243 6,243 – 191 124 49 18 21,445 21,445 – 1,901 1,739 3 159 £m Total 29,729 29,591 138 78,195 66,713 1,046 10,436 Total life assurance policyholder liabilities 87,581 76,814 1,330 6,434 23,346 107,924 Property & casualty liabilities Claims incurred but not reported Unearned premiums Outstanding claims Total property & casualty liabilities 73 163 246 482 33 34 122 189 17 65 64 146 15 47 52 114 8 18 8 34 73 164 246 483 Total policyholder liabilities 88,063 77,003 1,476 6,548 23,380 108,407 (f) Sensitivity analysis – life assurance Changes in key assumptions used to value insurance contracts would result in increases or decreases to the insurance contract provisions recorded, with impact on profit/(loss) and/or shareholders' equity. The effect of a change in assumption is mitigated by the offset (partial or full) to the bonus stabilisation reserve in the case of smoothed bonus products in South Africa. The tables below demonstrate the effect of a change in a key assumption to policyholder liabilities while other assumptions remain unchanged: At 31 December 2017 Assumption Mortality and morbidity rates – assurance Mortality rates – annuities Discontinuance rates Expenses maintenance At 31 December 2016 Assumption Mortality and morbidity rates – assurance Mortality rates – annuities Discontinuance rates Expenses maintenance % Change £m Emerging Markets 10 (10) 10 10 311 60 7 66 % Change £m Emerging Markets £m Old Mutual Wealth 10 (10) 10 10 316 56 6 65 2 – (2) 2 247 241 i F n a n c a s i l Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued G: Analysis of financial assets and liabilities continued G6: Insurance and investment contracts continued G: Analysis of financial assets and liabilities continued (f) Sensitivity analysis – life assurance continued G6: Insurance and investment contracts continued Emerging Markets (f) Sensitivity analysis – life assurance continued The changes in insurance contract liabilities shown are calculated using the specified increase or decrease to the rates, with no change in charges paid by policyholders. Emerging Markets The changes in insurance contract liabilities shown are calculated using the specified increase or decrease to the rates, with no change The insurance contract liabilities recorded for the Emerging Market business are also impacted by the valuation discount rate assumed. in charges paid by policyholders. Lowering this rate by 1% (with a corresponding reduction in the valuation inflation rate assumption) would result in an increase for insurance contract liabilities and a reduction in net profit after tax of £9 million (2016: £3 million). This impact is calculated with no change The insurance contract liabilities recorded for the Emerging Market business are also impacted by the valuation discount rate assumed. in charges paid by policyholders. The impact in 2017 remains small due to management actions taken to reduce the impact of changing Lowering this rate by 1% (with a corresponding reduction in the valuation inflation rate assumption) would result in an increase for interest rates on operating profit. insurance contract liabilities and a reduction in net profit after tax of £9 million (2016: £3 million). This impact is calculated with no change in charges paid by policyholders. The impact in 2017 remains small due to management actions taken to reduce the impact of changing It should be noted that where the assets and liabilities of a product are closely matched (e.g. non-profit annuity business) or where the interest rates on operating profit. impact of a lower valuation discount rate is hedged or partially hedged, the net effect has been shown since the asset movement fully or partially offsets the liability movement. It should be noted that where the assets and liabilities of a product are closely matched (e.g. non-profit annuity business) or where the impact of a lower valuation discount rate is hedged or partially hedged, the net effect has been shown since the asset movement fully Old Mutual Bermuda or partially offsets the liability movement. Post the sale of Old Mutual (Bermuda) Limited (renamed Beechwood OMNIA on 30 June 2016) on 31 December 2015, the Group does not own any underlying policies or manage policyholder funds. Beechwood OMNIA, was renamed (OMNIA) effective 29 June 2017, Old Mutual Bermuda shortly before it was sold to Eli Global ("Global Bankers") on 30 June 2017. The Group continues to provide (re)insurance coverage Post the sale of Old Mutual (Bermuda) Limited (renamed Beechwood OMNIA on 30 June 2016) on 31 December 2015, the Group does to OMNIA) in connection with the Guaranteed Minimum Accumulation Benefit (GMAB) guarantees embedded within certain not own any underlying policies or manage policyholder funds. Beechwood OMNIA, was renamed (OMNIA) effective 29 June 2017, OMNIA policies. shortly before it was sold to Eli Global ("Global Bankers") on 30 June 2017. The Group continues to provide (re)insurance coverage to OMNIA) in connection with the Guaranteed Minimum Accumulation Benefit (GMAB) guarantees embedded within certain Lapses and partial withdrawals of the underlying (re)insured policies have the largest impact where increased activity reduces the OMNIA policies. guarantee since less living benefit exposure is expected in the future. Mortality plays a much smaller part in Bermuda since the reinsured business is a minimum guaranteed accumulation benefit. Increased deaths likewise reduce future guarantees; however the effect is Lapses and partial withdrawals of the underlying (re)insured policies have the largest impact where increased activity reduces the negligible due to the short term nature of the benefit. Additionally in the calculation of insurance contract liabilities for 2017, provision guarantee since less living benefit exposure is expected in the future. Mortality plays a much smaller part in Bermuda since the reinsured was made for projected claims management expenses. As such expense level also has an impact on Old Mutual Bermuda's business is a minimum guaranteed accumulation benefit. Increased deaths likewise reduce future guarantees; however the effect is insurance liabilities. negligible due to the short term nature of the benefit. Additionally in the calculation of insurance contract liabilities for 2017, provision was made for projected claims management expenses. As such expense level also has an impact on Old Mutual Bermuda's This (re)insurance will extend through to the final GMAB maturity in August 2018. insurance liabilities. (g) Sensitivity analysis – property & casualty This (re)insurance will extend through to the final GMAB maturity in August 2018. An increase of 10% in the average cost of claims would require the recognition of an additional loss after tax of £51 million (2016: £34 million) net of reinsurance. Similarly, an increase of 10% in the ultimate number of claims would result in an additional (g) Sensitivity analysis – property & casualty loss of £51 million (2016: £34 million) net of reinsurance. An increase of 10% in the average cost of claims would require the recognition of an additional loss after tax of £51 million (2016: £34 million) net of reinsurance. Similarly, an increase of 10% in the ultimate number of claims would result in an additional The majority of the Group's property & casualty contracts are classified as 'short-tailed', meaning that any claim is settled within a year loss of £51 million (2016: £34 million) net of reinsurance. after the loss date. This contrasts with the 'long-tailed' classes where the claims cost take longer to materialise and settle. The Group's property & casualty long-tailed business is generally limited to accident, third-party motor, liability and some engineering classes. In total The majority of the Group's property & casualty contracts are classified as 'short-tailed', meaning that any claim is settled within a year the long-tail business comprises less than five per cent of an average year's claim costs. after the loss date. This contrasts with the 'long-tailed' classes where the claims cost take longer to materialise and settle. The Group's property & casualty long-tailed business is generally limited to accident, third-party motor, liability and some engineering classes. In total (h) Reinsurance assets – credit risk the long-tail business comprises less than five per cent of an average year's claim costs. None of the Group's reinsurance assets are either past due or impaired. Of the reinsurance assets shown in the consolidated statement of financial position all are considered investment grade with the exception of £87 million of unrated exposures (2016: £189 million). (h) Reinsurance assets – credit risk Collateral is not taken against reinsurance assets or deposits held with reinsurers other than in limited circumstances. None of the Group's reinsurance assets are either past due or impaired. Of the reinsurance assets shown in the consolidated statement of financial position all are considered investment grade with the exception of £87 million of unrated exposures (2016: £189 million). Collateral is not taken against reinsurance assets or deposits held with reinsurers other than in limited circumstances. 248 242 242 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 G6.1: Liabilities held for sale and distribution – Insurance and investment contracts The insurance and investment contracts classified as liabilities held for sale and distribution are analysed as follows: At 31 December 2017 Life assurance policyholder liabilities Total life insurance contract liabilities Life insurance contract liabilities Outstanding claims Investment contract liabilities Unit-linked investment contracts and similar contracts Other investment contracts Gross Reinsurance 625 616 9 60,221 59,139 1,082 (388) (380) (8) (2,526) (2,526) – £m Net 237 236 1 57,695 56,613 1,082 Total policyholder liabilities 60,846 (2,914) 57,932 The reinsurers' share of unit-linked investment contracts and similar contracts of £2,526 million (2016: £2,560 million) relate to investment contracts in in Old Mutual Wealth where the direct management of assets are ceded to a third party through a reinsurance arrangement. Due to the nature of the arrangement, there is no transfer of insurance risk. G7: Borrowed funds Types of securities Senior debt securities and term loans Term and other loan Revolving credit facilities Subordinated debt securities Total Borrowed funds Notes G7(a)(iii) G7(b) G7(d) At 31 December 2017 Old Mutual plc – – – 461 461 Emerging Markets 210 210 67 388 665 £m Total 210 210 67 849 1,126 At 31 December 2017, total borrowed funds of £3,031 million attributable to Nedbank have been transferred to liabilities held for sale and distribution in the consolidated statement of financial position. Refer to note A4 and note G7.1 for more information. Types of securities Senior debt securities and term loans Floating rate notes Fixed rate notes Term loans Revolving credit facilities Mortgage-backed securities Subordinated debt securities Total Borrowed funds Notes Old Mutual plc – – – – – – 1,017 1,017 G7(a)(i) G7(a)(ii) G7(a)(iii) G7(b) G7(c) G7(d) At 31 December 2016 Emerging Markets 287 – – 287 34 – 348 669 Nedbank 2,088 1,046 1,042 – – 153 767 3,008 £m Total 2,375 1,046 1,042 287 34 153 2,132 4,694 249 243 i F n a n c a s i l Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued G: Analysis of financial assets and liabilities continued G7: Borrowed funds continued G: Analysis of financial assets and liabilities continued Maturity analysis G7: Borrowed funds continued The table below provides the maturity profile of the anticipated future cash flows, based on contractual maturity dates for borrowed funds, including interest. It is presented on an undiscounted basis, and will therefore, differ from both the carrying value and fair value of Maturity analysis borrowed funds: The table below provides the maturity profile of the anticipated future cash flows, based on contractual maturity dates for borrowed funds, including interest. It is presented on an undiscounted basis, and will therefore, differ from both the carrying value and fair value of borrowed funds: £m At December £m 2017 At 74 December 625 2017 685 74 1,384 625 76 685 217 1,384 6 76 299 217 1,683 6 299 £m 1,683 At December £m 2016 At 134 December 1,017 2016 1,206 134 2,357 1,017 485 1,206 1,705 2,357 1,120 485 3,310 1,705 5,667 1,120 3,310 5,667 Less than 1 year Greater than 1 year and less than 5 years Greater than 5 years Less than 1 year Total non-banking Greater than 1 year and less than 5 years Less than 1 year Greater than 5 years Greater than 1 year and less than 5 years Total non-banking Greater than 5 years Less than 1 year Total banking Greater than 1 year and less than 5 years Total Greater than 5 years Total banking Total Less than 1 year Greater than 1 year and less than 5 years Greater than 5 years Less than 1 year Total non-banking Greater than 1 year and less than 5 years Less than 1 year Greater than 5 years Greater than 1 year and less than 5 years Total non-banking Greater than 5 years Less than 1 year Total banking Greater than 1 year and less than 5 years Total Greater than 5 years Total banking Total Old Mutual plc 32 Old Mutual 428 plc 75 32 535 428 – 75 – 535 – – – – 535 – – 535 Emerging Markets 59 Emerging 235 Markets 614 59 908 235 115 614 118 908 5 115 238 118 1,146 5 238 1,146 Emerging Markets 42 Emerging 197 Markets 610 42 849 197 76 610 217 849 6 76 299 217 1,148 6 299 1,148 Nedbank – – Nedbank – – – – 370 – 1,587 – 1,115 370 3,072 1,587 3,072 1,115 3,072 3,072 Old Mutual plc 75 782 Old Mutual plc 592 75 1,449 782 – 592 – 1,449 – – – – 1,449 – – 1,449 250 244 244 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Interest rate profile The interest rate profiles of the Group's borrowed funds are analysed as follows: Fixed rate Floating rate Total Fixed rate Floating rate Total Old Mutual plc1 461 – 461 Emerging Markets 264 401 665 Old Mutual plc1 1,017 – 1,017 Emerging Markets 278 391 669 Nedbank 1,042 1,966 3,008 £m At 31 December 2017 725 401 1,126 £m At 31 December 2016 2,337 2,357 4,694 1 Old Mutual plc has interest rate swaps related to £341 million Tier 2 debt. Old Mutual plc receives fixed interest and pays floating interest. These instruments are designated as fair value through profit or loss. Currency exposure The currency exposures of the Group's borrowed funds are analysed as follows: ZAR GBP USD Other Total ZAR GBP USD Other Total Old Mutual plc – 461 – – 461 Emerging Markets 597 – 29 39 665 Old Mutual plc – 1,017 – – 1,017 Emerging Markets 524 – 101 44 669 Nedbank 3,008 – – – 3,008 £m At 31 December 2017 597 461 29 39 1,126 £m At 31 December 2016 3,532 1,017 101 44 4,694 251 245 i F n a n c a s i l Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued G: Analysis of financial assets and liabilities continued G7: Borrowed funds continued G: Analysis of financial assets and liabilities continued Analysis of security types G7: Borrowed funds continued (a) Senior debt securities and term loans Analysis of security types (i) Floating rate notes (net of Group holdings) (a) Senior debt securities and term loans (i) Floating rate notes (net of Group holdings) Maturity date Banking – Nedbank Floating rate unsecured senior debt R405 million at JIBAR plus 1.30% R1,035 million at JIBAR plus 0.85% Banking – Nedbank Floating rate unsecured senior debt R806 million at JIBAR plus 0.90% R405 million at JIBAR plus 1.30% R786 million at JIBAR plus 1.30% R1,035 million at JIBAR plus 0.85% R241 million at JIBAR plus 1.12% R806 million at JIBAR plus 0.90% R472 million at JIBAR plus 1.25% R786 million at JIBAR plus 1.30% R1,427 million at JIBAR plus 1.30% R241 million at JIBAR plus 1.12% R1,427 million at JIBAR plus 1.45% R472 million at JIBAR plus 1.25% R1,472 million at JIBAR plus 1.45% R1,427 million at JIBAR plus 1.30% R612 million at JIBAR plus 1.40% R1,427 million at JIBAR plus 1.45% R90 million at JIBAR plus 1.45% R1,472 million at JIBAR plus 1.45% R80 million at JIBAR plus 2.15% R612 million at JIBAR plus 1.40% R476 million at JIBAR plus 1.55% R90 million at JIBAR plus 1.45% R830 million at JIBAR plus 1.80% R80 million at JIBAR plus 2.15% R1,054 million at JIBAR plus 1.80% R476 million at JIBAR plus 1.55% R650 million at JIBAR plus 1.30% R830 million at JIBAR plus 1.80% R287 million at JIBAR plus1.75% R1,054 million at JIBAR plus 1.80% R12 million at JIBAR plus 1.55% R650 million at JIBAR plus 1.30% R270 million at JIBAR plus 2.00% R287 million at JIBAR plus1.75% R528 million at JIBAR plus 2.00% R12 million at JIBAR plus 1.55% R1,980 million at JIBAR plus 2.00% R270 million at JIBAR plus 2.00% R500 million at JIBAR plus 2.10% R528 million at JIBAR plus 2.00% R750 million at JIBAR plus 2.25% R1,980 million at JIBAR plus 2.00% R302 million at JIBAR plus 2.20% R500 million at JIBAR plus 2.10% Total floating rate notes R750 million at JIBAR plus 2.25% R302 million at JIBAR plus 2.20% At 31 December 2017, total floating rate notes of £1,027 million attributable to Nedbank have been transferred to liabilities held for sale Total floating rate notes and distribution in the consolidated statement of financial position. Refer to note A4 and note G7.1 for more information. At 31 December 2017, total floating rate notes of £1,027 million attributable to Nedbank have been transferred to liabilities held for sale and distribution in the consolidated statement of financial position. Refer to note A4 and note G7.1 for more information. Repaid Maturity date Repaid Repaid Repaid Repaid Repaid Repaid Repaid February 2018 Repaid June 2018 Repaid February 2019 February 2018 May 2019 June 2018 August 2019 February 2019 February 2020 May 2019 April 2020 August 2019 November 2020 February 2020 February 2021 April 2020 May 2021 November 2020 June 2021 February 2021 August 2021 May 2021 February 2022 June 2021 February 2023 August 2021 May 2023 February 2022 February 2025 February 2023 April 2026 May 2023 May 2026 February 2025 July 2026 April 2026 May 2026 July 2026 At 31 December 2017 At 31 December – 2017 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – £m At 31 December £m 2016 At 31 December 22 2016 61 48 22 27 61 14 48 28 27 85 14 85 28 149 85 37 85 5 149 5 37 28 5 49 5 88 28 38 49 17 88 1 38 16 17 32 1 118 16 30 32 45 118 18 30 1,046 45 18 1,046 252 246 246 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 (ii) Fixed rate notes (net of Group holdings) Banking – Nedbank Fixed rate unsecured senior debt R1,273 million at 11.39% R380 million at 9.26% R1,888 million at 8.92% R855 million at 9.38% R417 million at 10.68% R500 million at 9.29% R215 million at 8.79% R280 million at 9.64% R250 million at 10.66% R334 million at 10.01% R952 million at 10.07% R391 million at 9.73% R660 million at zero coupon R2,607 million at 9.44% R884 million at 10.69% R800 million at 9.95% R360 million at 11.15% R1,739 million at 10.36% R423 million at 10.50% R2,000 million at 10.63% R666 million at 10.94% Less: held by other Group companies Total fixed rate notes (net of Group holdings) Maturity date September 2019 June 2020 November 2020 March 2021 May 2021 June 2021 February 2022 June 2022 February 2023 August 2023 November 2023 March 2024 October 2024 February 2025 November 2025 April 2026 May 2026 June 2026 July 2026 July 2027 November 2027 At 31 December 2017 £m At 31 December 2016 – – – – – – – – – – – – – – – – – – – – – – – – 80 23 112 52 25 30 13 17 15 21 57 24 18 159 53 48 22 103 26 124 40 1,062 (20) 1,042 At 31 December 2017, total fixed rate notes (net of Group holdings) of £1,107 million attributable to Nedbank have been transferred to liabilities held for sale and distribution in the consolidated statement of financial position. Refer to note A4 and note G7.1 for more information. 253 247 i F n a n c a s i l Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued G: Analysis of financial assets and liabilities continued G7: Borrowed funds continued G: Analysis of financial assets and liabilities continued (a) Senior debt securities and term loans continued G7: Borrowed funds continued (iii) Term and other loans (a) Senior debt securities and term loans continued (iii) Term and other loans Maturity date Repaid Maturity date Reclassification7 Repaid Repaid July 2018 Reclassification7 July 2020 Repaid August 2020 July 2018 March 2021 July 2020 September 2021 August 2020 July 2022 March 2021 November 2022 September 2021 July 2022 November 2022 Repaid Repaid Repaid Repaid June 2018 Repaid June 2018 Repaid December 2018 June 2018 April 2019 June 2018 July 2019 December 2018 May 2020 April 2019 August 2020 July 2019 October 2020 May 2020 July 2022 August 2020 August 2022 October 2020 September 2022 July 2022 June 2023 August 2022 June 2023 September 2022 June 2023 June 2023 December 2023 June 2023 June 2023 December 2023 Emerging Markets Floating rate loans KES450 million at GOK4 182 days TB plus 2.50%1 $65 million at 3 month JIBAR plus 2.80%2 Emerging Markets Floating rate loans KES950 million rate at KBRR1,3 KES450 million at GOK4 182 days TB plus 2.50%1 R800 million at JIBAR plus 2.75%1 $65 million at 3 month JIBAR plus 2.80%2 R1,500 million at JIBAR plus 2.75%1 KES950 million rate at KBRR1,3 KES750 million at CBR5 plus 2.50%1 R800 million at JIBAR plus 2.75%1 R66 million at 3 month JIBAR plus 5.50%2 R1,500 million at JIBAR plus 2.75%1 $31 million at 3 month LIBOR plus 3.50%2 KES750 million at CBR5 plus 2.50%1 R50 million at 3 month JIBAR plus 5.50%2 R66 million at 3 month JIBAR plus 5.50%2 KES900 million rate at GOK1,4 $31 million at 3 month LIBOR plus 3.50%2 R50 million at 3 month JIBAR plus 5.50%2 Emerging Markets Fixed rate loans KES900 million rate at GOK1,4 $2 million at 8.24%1 $3 million at 8.72%1 Emerging Markets Fixed rate loans $3 million at 8.31%1 $2 million at 8.24%1 KES101 million at 13.00%1 $3 million at 8.72%1 KES102 million at 13.50%1 $3 million at 8.31%1 KES607 million at 12.50%1 KES101 million at 13.00%1 $10 million at 8.31%1 KES102 million at 13.50%1 KES2,000m at 13.00%2 KES607 million at 12.50%1 KES412 million at 11.50%1 $10 million at 8.31%1 KES1,183 million at 9.20%1 KES2,000m at 13.00%2 $10 million at 8.57%1 KES412 million at 11.50%1 KES200 million at 5.00%1 KES1,183 million at 9.20%1 $20 million at 8.75%2 $10 million at 8.57%1 $5 million at 13.00%1 KES200 million at 5.00%1 $5 million at 6.50%2 $20 million at 8.75%2 $5 million at 6.50%2 $5 million at 13.00%1 $6 million at 6.50%2 $5 million at 6.50%2 $10 million at 12.00%1 $5 million at 6.50%2 Total term and other loans $6 million at 6.50%2 Less: Term loans held by other Group companies $10 million at 12.00%1 Total term and other loans (net of Group holding) Total term and other loans Total term and other loans are further analysed as: Less: Term loans held by other Group companies Banking Total term and other loans (net of Group holding) Non-banking Total term and other loans are further analysed as: Total term and other loans6 Banking Non-banking 1 Banking term and other loans Total term and other loans6 2 Non-Banking and other loans 3 Kenya Bank's Reference Rate 1 Banking term and other loans 4 Government of Kenya 2 Non-Banking and other loans 5 Central Bank Rate 3 Kenya Bank's Reference Rate 6 Emerging Markets term loan facilities totalling £53 million ($74 million) in value, with £39 million ($53 million) drawn, were identified as being in breach of covenant at 31 December 4 Government of Kenya 2017. These breaches were not considered to threaten the availability of these facilities. At 9 March 2018, waivers had been received from borrowers with facilities of £29 million 5 Central Bank Rate ($39 millon) and drawn amounts of £24 million ($32 million) had formally received waivers. The resolution of all other breaches is expected to conclude by 31 March 2018. 6 Emerging Markets term loan facilities totalling £53 million ($74 million) in value, with £39 million ($53 million) drawn, were identified as being in breach of covenant at 31 December 7 During the year this loan has been evaluated and classified as other liabilities as it does not relate to corporate borrowing. Comparative information has not been restated 2017. These breaches were not considered to threaten the availability of these facilities. At 9 March 2018, waivers had been received from borrowers with facilities of £29 million as it is not deemed material to the consolidated statements of financial position. ($39 millon) and drawn amounts of £24 million ($32 million) had formally received waivers. The resolution of all other breaches is expected to conclude by 31 March 2018. 7 During the year this loan has been evaluated and classified as other liabilities as it does not relate to corporate borrowing. Comparative information has not been restated At 31 December 2017 At 31 December – 2017 – – – 48 – 90 – 5 48 3 90 23 5 2 3 5 23 2 5 – – – – 1 – 1 – 4 1 3 1 14 4 3 3 4 14 8 3 1 4 2 8 2 1 3 2 3 2 3 3 5 3 233 3 (23) 5 210 233 (23) 180 210 53 233 180 53 233 £m At 31 December £m 2016 At 31 December 3 2016 55 7 3 47 55 94 7 1 47 – 94 25 1 – – – 25 – – 2 5 5 2 1 5 1 5 5 1 2 1 17 5 3 2 4 17 – 3 2 4 12 – 3 2 3 12 3 3 5 3 7 3 312 5 (25) 7 287 312 (25) 192 287 120 312 192 120 312 as it is not deemed material to the consolidated statements of financial position. 254 248 248 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 (b) Revolving credit facilities Non-banking Emerging Markets – R3,125 million facility at 3 month JIBAR plus 1.60% Banking Emerging Markets – R2,200 million facility at 3 month JIBAR plus 2.50% N$200 million at prime overdraft rate less 1.00% Total revolving credit facilities Maturity date February 2019 July 2019 November 2020 At 31 December 2017 £m At 31 December 2016 – 58 9 67 16 18 – 34 Old Mutual plc has access to a £764 million (2016: £764 million) multi-currency revolving credit facility. £73 million facility matures in August 2019, a further £73 million of facility matures in August 2020 and the remaining £618 million of the facility matures in August 2021. At 31 December 2017, this facility was undrawn. In July 2015, Emerging Markets obtained access to a R1,200 million revolving credit facility. In July 2017 the facility has been increased to R2,200 million and its maturity extended to July 2019. At 31 December 2017, R975 million (£58 million) of this facility was drawn (2016: R300 million (£18 million)). In December 2015, Emerging Markets obtained access to an external R3,125 million revolving credit facility which expires in January 2019 with an option to renew for a further year. At 31 December 2017, this facility was undrawn (2016: R260 million (£16 million)). In March 2017, Emerging Markets obtained access to an unsecured revolving credit facility from Standard Bank Namibia Limited of N$200 million. The facility bears interest at the prime overdraft rate less 1% which is repayable monthly. A commitment fee of 0.95% is payable monthly on any undrawn capital. The capital is repayable on 24 November 2020. Certain revolving credit facility arrangements may include guarantees by other subsidiary companies which, in the case of non- performance by the borrower, may limit the amount of distribution the guarantor declares to its parent. (c) Mortgage-backed securities (net of Group holdings) Banking – Nedbank R600 million JIBAR plus 1.34% R300 million JIBAR plus 1.54% R900 million (class A3) at JIBAR plus 1.54% R110 million (class B) at JIBAR plus 1.90% R558 million at JIBAR plus 1.20% R100 million at JIBAR plus 1.45% R680 million at JIBAR plus 1.55% R80 million at JIBAR plus 2.20% R65 million at JIBAR plus 3.00% Total mortgage-backed securities Less: Mortgage-backed securities held by other Group companies Total mortgage-backed securities (net of Group holdings) Tier Maturity date Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 January 2028 January 2028 October 2039 October 2039 February 2042 February 2042 February 2042 February 2042 February 2042 At 31 December 2017 £m At 31 December 2016 – – – – – – – – – – – – 30 16 50 7 19 6 40 5 4 177 (24) 153 At 31 December 2017, total mortgage-backed securities (net of Group holdings) of £151 million attributable to Nedbank have been transferred to liabilities held for sale and distribution in the consolidated statement of financial position. Refer to note A4 and note G7.1 for more information. 255 249 i F n a n c a s i l Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued G: Analysis of financial assets and liabilities continued G7: Borrowed funds continued G: Analysis of financial assets and liabilities continued (d) Subordinated debt securities (net of Group holdings) G7: Borrowed funds continued (d) Subordinated debt securities (net of Group holdings) Tier Maturity date Non-banking – Old Mutual plc £341 million at 8.00%; (2016: £500 million at 8.00%)1 £61 million at 7.88%; (2016: £450 million at 7.88%)1 Non-banking – Old Mutual plc £341 million at 8.00%; (2016: £500 million at 8.00%)1 Non-banking – Emerging Markets £61 million at 7.88%; (2016: £450 million at 7.88%)1 R300 million at 9.26% R700 million at 3 month JIBAR plus 2.20% Non-banking – Emerging Markets R537 million at 3 month JIBAR plus 2.30% R300 million at 9.26% R425 million at 9.76% R700 million at 3 month JIBAR plus 2.20% R1,288 million at 3 month JIBAR plus 2.25% R537 million at 3 month JIBAR plus 2.30% R409 million at 10.32% R425 million at 9.76% R568 million at 10.90% R1,288 million at 3 month JIBAR plus 2.25% R500 million at JIBAR plus 2.09%2 R409 million at 10.32% R1,150 million at 10.96% R568 million at 10.90% R623 million at 11.35% R500 million at JIBAR plus 2.09%2 R1,150 million at 10.96% Banking – Nedbank R623 million at 11.35% $100 million at 3 month USD LIBOR R2,000 million at JIBAR plus 0.47% Banking – Nedbank R1,800 million at JIBAR plus 2.75% $100 million at 3 month USD LIBOR R1,200 million at JIBAR plus 2.55% R2,000 million at JIBAR plus 0.47% R450 million at JIBAR plus 10.49% R1,800 million at JIBAR plus 2.75% R1,737 million at 3 month JIBAR plus 2.55% R1,200 million at JIBAR plus 2.55% R300 million at JIBAR plus 2.75% R450 million at JIBAR plus 10.49% R225 million at JIBAR plus2.75% R1,737 million at 3 month JIBAR plus 2.55% R1,624 million at JIBAR plus 3.5% R300 million at JIBAR plus 2.75% R407 million at 11.29% R225 million at JIBAR plus2.75% R2,000 million at JIBAR plus 4.00% R1,624 million at JIBAR plus 3.5% R407 million at 11.29% Less: Banking subordinated debt securities held by other Group companies R2,000 million at JIBAR plus 4.00% Banking subordinated securities (net of Group holdings) Less: Banking subordinated debt securities held by other Group companies Total subordinated debt securities Banking subordinated securities (net of Group holdings) Tier 2 Tier Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 (secondary) Tier 2 Tier 2 Tier 2 (secondary) Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 June 2021 Maturity date November 2025 June 2021 November 2025 November 2024 November 2024 March 2025 November 2024 March 2025 November 2024 September 2025 March 2025 March 2027 March 2025 September 2027 September 2025 November 2027 March 2027 March 2030 September 2027 September 2030 November 2027 March 2030 September 2030 March 2022 July 2022 July 2023 March 2022 November 2023 July 2022 April 2024 July 2023 April 2024 November 2023 October 2024 April 2024 January 2025 April 2024 July 2025 October 2024 July 2025 January 2025 September 2026 July 2025 July 2025 September 2026 At 31 December 2017 At 31 December 400 2017 61 461 400 61 18 461 42 32 18 25 42 78 32 24 25 35 78 30 24 67 35 37 30 388 67 37 – 388 – – – – – – – – – – – – – – – – – – – – – – – – – – 849 – £m At 31 December £m 2016 At 31 December 569 2016 448 1,017 569 448 17 1,017 41 32 17 25 41 76 32 23 25 33 76 – 23 65 33 36 – 348 65 36 81 348 120 108 81 71 120 27 108 105 71 18 27 14 105 98 18 25 14 118 98 785 25 (18) 118 767 785 (18) 2,132 767 1 On 24 November 2017, Old Mutual plc repurchased £389 million of its outstanding £450 million 7.875 per cent subordinated debt securities (Tier 2 subordinated 2025 securities) Total subordinated debt securities and £159 million of its outstanding £500 million 8 per cent subordinated debt securities (Tier 2 subordinated 2021 securities) through tender offers. All repurchased securities were cancelled on 24 November 2017. Following cancellation of these securities, the aggregate principal amounts outstanding of the £450 million securities was £61 million and the 1 On 24 November 2017, Old Mutual plc repurchased £389 million of its outstanding £450 million 7.875 per cent subordinated debt securities (Tier 2 subordinated 2025 securities) aggregate principal amount outstanding of £500 million securities was £341 million and £159 million of its outstanding £500 million 8 per cent subordinated debt securities (Tier 2 subordinated 2021 securities) through tender offers. All repurchased securities were 2 On 20 November 2017, Old Mutual Insure issued R500 million Unsecured Subordinated Callable Floating Rate Notes under its R1 billion Unsecured Subordinated Callable Note cancelled on 24 November 2017. Following cancellation of these securities, the aggregate principal amounts outstanding of the £450 million securities was £61 million and the Programme dated 13 November 2017. Interest is payable at a floating rate of 3 Month JIBAR plus 209 bps on 22 February, 22 May, 22 August and 22 November each year until aggregate principal amount outstanding of £500 million securities was £341 million 22 November 2022, the first call date. The first interest payment date is 22 February 2018 849 2,132 2 On 20 November 2017, Old Mutual Insure issued R500 million Unsecured Subordinated Callable Floating Rate Notes under its R1 billion Unsecured Subordinated Callable Note 3 All callable subordinated debt securities have a first call date five years before the maturity date. Programme dated 13 November 2017. Interest is payable at a floating rate of 3 Month JIBAR plus 209 bps on 22 February, 22 May, 22 August and 22 November each year until 22 November 2022, the first call date. The first interest payment date is 22 February 2018 At 31 December 2017, total subordinated debt securities of £746 million attributable to Nedbank have been transferred to liabilities held 3 All callable subordinated debt securities have a first call date five years before the maturity date. for sale and distribution in the consolidated statement of financial position. Refer to note A4 and note G7.1 for more information. At 31 December 2017, total subordinated debt securities of £746 million attributable to Nedbank have been transferred to liabilities held for sale and distribution in the consolidated statement of financial position. Refer to note A4 and note G7.1 for more information. 256 250 250 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 (e) Reconciliation of borrowed funds arising from financing activities Balance at beginning of the year Changes from financing cash flows Proceeds from issue of new borrowed funds Redemption of borrowed funds Non-cash changes Fair value changes Effect of changes in foreign exchange rates Transfer to liabilities held for sale and distribution Balance at end of the year £m At 31 December 2017 2,132 (547) 189 (736) (736) (8) 18 (746) 849 G7.1: Liabilities held for sale and distribution – Borrowed funds The table below summarises the Group's borrowed funds classified within liabilities held for sale and distribution as at 31 December 2017. All amounts disclosed relate to the Nedbank segment and banking business. Types of securities Senior debt securities and term loans1 Floating rate notes Fixed rate notes Term and other loan Mortgage-backed securities2 Subordinated debt securities3 Total Borrowed funds £m At 31 December 2017 2,134 1,027 1,107 – 151 746 3,031 1 During 2017, five senior debt securities and term loans were repaid and four senior unsecured debt instruments were issued. A sum of £36.9 million was issued with a fixed interest- rate of 9.60%, repayable on 20 February 2024. A sum of £173 million was issued with variable-interest-rates ranging between JIBAR plus 1.29% to 1.50%, repayable by 26 February 2024 2 During 2017, seven Mortgage-backed securities were repaid and seven securitised liabilities were issued. A sum of £80 million was issued at floating interest rates ranging between JIBAR plus 1.05% to 2.70%. These instruments are repayable by 20 February 2022 3 During 2017, two subordinated debt securities were repaid and two subordinated debt instruments were issued. A sum of £6 million was issued at a fixed interest rate of 10.82%, which is repayable 31 July 2029. In addition, a sum of £6 million was issued at a variable interest rate of Jibar plus 2.45%, which is repayable on 2 August 2027. Two Basel III subordinated debt securities were also issued. A sum of £149 million was issued with variable rates ranging between Jibar plus 3.75% to 3.80%. These instruments are redeemable by 26 May 2022. 257 251 i F n a n c a s l i Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued G: Analysis of financial assets and liabilities continued G8: Amounts owed to bank depositors G: Analysis of financial assets and liabilities continued In the Group's banking business the Group receives cash from bank depositors. The depositors receive interest on the amounts owed depending on the value of the amount borrowed and the terms of the deposit. G8: Amounts owed to bank depositors In the Group's banking business the Group receives cash from bank depositors. The depositors receive interest on the amounts owed The table below provides the maturity profile of the anticipated future cash flows, based on contractual maturity dates for amounts owed to depending on the value of the amount borrowed and the terms of the deposit. bank depositors, including interest. It is presented on an undiscounted basis, and will therefore, differ from the carrying amount of amounts owed to bank depositors: The table below provides the maturity profile of the anticipated future cash flows, based on contractual maturity dates for amounts owed to bank depositors, including interest. It is presented on an undiscounted basis, and will therefore, differ from the carrying amount of amounts At 31 December 2017 £m owed to bank depositors: Between 1 and 5 years 2 Between 66 1 and 5 years 68 2 66 68 More than 5 years 25 More than – 5 years 25 25 – 25 £m Total 130 751 Total 881 130 751 £m 881 At 31 December 2017 Savings deposits Negotiable certificates of deposit Amounts owed to bank depositors Savings deposits Negotiable certificates of deposit At 31 December 2016 Amounts owed to bank depositors At 31 December 2016 Carrying amount 130 Carrying 612 amount 742 130 612 742 Carrying amount 4,681 Carrying 1,774 amount 31,896 4,681 5,814 1,774 1,144 31,896 45,309 5,814 1,144 45,309 Less than 3 months 71 Less than 588 3 months 659 71 588 659 Less than 3 months 4,636 Less than 1,770 3 months 24,370 4,636 1,632 1,770 1,145 24,370 33,553 1,632 1,145 33,553 More than 3 months less than 1 year More than 32 3 months less 97 than 1 year 129 32 97 129 More than 3 months less than 1 year More than 38 3 months less – than 1 year 5,235 38 3,386 – – 5,235 8,659 3,386 – 8,659 £m Total 4,674 1,781 Total 32,853 4,674 6,585 1,781 1,145 32,853 47,038 6,585 1,145 47,038 Between 1 and 5 years – Between 3 1 and 5 years 2,714 – 1,490 3 – 2,714 4,207 1,490 – 4,207 More than 5 years – More than 8 5 years 534 – 77 8 – 534 619 77 – 619 Current accounts Savings deposits Other deposits and loan accounts Current accounts Negotiable certificates of deposit Savings deposits Deposits received under repurchase agreements Other deposits and loan accounts Amounts owed to bank depositors Negotiable certificates of deposit Deposits received under repurchase agreements At 31 December 2017, amounts owed to bank depositors of £45,766 million attributable to Nedbank have been transferred to liabilities Amounts owed to bank depositors held for sale and distribution in the consolidated statement of financial position. Refer to note A4 and note G8.1 for more information. At 31 December 2017, amounts owed to bank depositors of £45,766 million attributable to Nedbank have been transferred to liabilities G8.1: Liabilities held for sale and distribution – Amounts owed to bank depositors held for sale and distribution in the consolidated statement of financial position. Refer to note A4 and note G8.1 for more information. The table below provides the maturity profile of the anticipated future cash flows, based on contractual maturity dates for amounts owed to bank depositors, including interest. It relates to amount owed to bank depositors classified as liabilities held for sale and distribution G8.1: Liabilities held for sale and distribution – Amounts owed to bank depositors at 31 December 2017 and is presented on an undiscounted basis that will therefore, differ from the carrying amount of amounts owed The table below provides the maturity profile of the anticipated future cash flows, based on contractual maturity dates for amounts owed to bank depositors: to bank depositors, including interest. It relates to amount owed to bank depositors classified as liabilities held for sale and distribution at 31 December 2017 and is presented on an undiscounted basis that will therefore, differ from the carrying amount of amounts owed to bank depositors: More than 5 years Current accounts – More than Savings deposits – 5 years Other deposits and loan accounts 457 Current accounts – Negotiable certificates of deposit – Savings deposits – Deposits received under repurchase agreements1 – Other deposits and loan accounts 457 Amounts owed to bank depositors 457 Negotiable certificates of deposit – Deposits received under repurchase agreements1 – 1 The Group, through its South African banking business Nedbank, has pledged debt securities and negotiable certificates of deposit amounting to £1,761 million 457 Amounts owed to bank depositors Between 1 and 5 years – Between 3 1 and 5 years 2,802 – 1,126 3 – 2,802 3,931 1,126 – 3,931 Less than 3 months 4,825 Less than 1,826 3 months 25,067 4,825 1,066 1,826 1,481 25,067 34,265 1,066 1,481 34,265 Carrying amount 4,824 Carrying 1,830 amount 33,005 4,824 4,627 1,830 1,480 33,005 45,766 4,627 1,480 45,766 More than 3 months less than 1 year More than – 3 months less 1 than 1 year 5,866 – 2,943 1 – 5,866 8,810 2,943 – 8,810 (2016: £1,128 million) as collateral for deposits received under re-purchase agreements. These amounts represent assets that have been transferred but do not qualify for derecognition under IAS 39. These transactions are entered into under terms and conditions that are standard industry practice for securities borrowing and lending activities. £m Total 4,825 1,830 Total 34,192 4,825 5,135 1,830 1,481 34,192 47,463 5,135 1,481 47,463 £m 1 The Group, through its South African banking business Nedbank, has pledged debt securities and negotiable certificates of deposit amounting to £1,761 million (2016: £1,128 million) as collateral for deposits received under re-purchase agreements. These amounts represent assets that have been transferred but do not qualify for derecognition under IAS 39. These transactions are entered into under terms and conditions that are standard industry practice for securities borrowing and lending activities. 258 252 252 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 H: Non-financial assets and liabilities All non-financial assets and liabilities notes which require a movement analysis will include the information for all items, including movements in assets and liabilities classified as held for sale or distribution for the year. Therefore, the amounts reflected in the movement tables will not agree to the consolidated income statement amounts presented as the results of the discontinued operations are recognised on a single line in the consolidated income statement. At the end of the movement analysis, a single line item will indicate the value of the assets or liabilities that have been transferred to assets and liabilities held for sale or distribution. Consistent with the requirements of accounting standards, the comparative period has not been re-presented for non-financial assets and liabilities classified as held for sale and distribution. The comparative information presented at 31 December 2017, therefore includes the non-financial assets and liabilities for the composition of the Group as at 31 December 2016. H1: Goodwill and other intangible assets Goodwill arises on the acquisition of a business and represents the premium of the amount paid over the fair value of identifiable assets and liabilities. Goodwill is not amortised but is subject to annual impairment reviews. Other intangible assets include those assets which were initially recognised on a business combination and software development costs relate to amounts recognised for in-house systems development. (a) Goodwill and goodwill impairment Goodwill arising on the acquisition of a subsidiary undertaking is recognised as an asset at the date that control is achieved (the acquisition date). Goodwill is measured as the excess of the fair value of the consideration paid over the net of the acquisition date amounts of the identifiable assets acquired and the liabilities assumed. If the net fair value of the acquiree's identifiable net assets exceeds the sum of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of the acquirer's previously-held equity interest (if any), this excess is recognised immediately in profit or loss as a bargain purchase gain. Goodwill is not amortised, but is reviewed for impairment at least once annually. Any impairment loss is recognised immediately in profit or loss and is not subsequently reversed. On loss of control of a subsidiary undertaking, any attributable goodwill is included in the determination of any profit or loss on disposal. On disposal of a business, where goodwill on acquisition is allocated to the entire cash-generating unit (CGU), goodwill is allocated to the disposal on a relative basis. Goodwill is allocated to one or more CGUs, being the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or group of assets. (b) Present value of acquired in-force for insurance and investment contract business The present value of acquired in-force for insurance and investment contract business is capitalised in the consolidated statement of financial position as an intangible asset. The capitalised value is the present value of cash flows anticipated in the future from the relevant book of insurance and investment contract policies acquired at the date of the acquisition of a business. This is calculated by performing a cash flow projection of the associated life assurance fund and book of in-force policies in order to estimate future after tax profits attributable to shareholders. The valuation is based on actuarial principles taking into account future premium income, mortality, disease and surrender probabilities, together with future costs and investment returns on the assets supporting the fund. These profits are discounted at a rate of return allowing for the risk of uncertainty of the future cash flows. The key assumptions impacting the valuation are discount rate, future investment returns and the rate at which policies discontinue. The asset is amortised over the expected profit recognition period on a systematic basis over the anticipated lives of the related contracts. The amortisation charge is stated net of any unwind in the discount rate used to calculate the asset. The recoverable amount of the asset is re-calculated at each reporting date and any impairment losses recognised accordingly. (c) Other intangible assets acquired as part of a business combination Contractual banking and asset management customer relationships, relationships with distribution channels and similar intangible assets, acquired as a part of a business combination, are capitalised at their fair value, represented by the estimated net present value of the future cash flows from the relevant relationships acquired at the date of acquisition. Brands and similar items acquired as part of a business combination are capitalised at their fair value based on a 'relief from royalty' valuation methodology. Subsequent to initial recognition such acquired intangible assets, if not categorised as infinite life, are amortised on a straight-line basis over their estimated useful lives as set out below:  Distribution channels  Customer relationships  Brands 10 years 10 years 15 – 20 years The estimated useful life is re-evaluated annually. Other intangible assets acquired in a business combination are impaired if the carrying value is greater than the net recoverable amount. 259 253 i F n a n c a s i l Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued H: Non-financial assets and liabilities continued H1: Goodwill and other intangible assets continued H: Non-financial assets and liabilities continued (d) Internally developed software H1: Goodwill and other intangible assets continued Internally developed software (software) is amortised over its estimated useful life, where applicable. Such assets are stated at cost less (d) Internally developed software accumulated amortisation and impairment losses. Software is recognised in the consolidated statement of financial position if, and only if, it is Internally developed software (software) is amortised over its estimated useful life, where applicable. Such assets are stated at cost less probable that the relevant future economic benefits attributable to the software will flow to the Group and its cost can be measured reliably. accumulated amortisation and impairment losses. Software is recognised in the consolidated statement of financial position if, and only if, it is probable that the relevant future economic benefits attributable to the software will flow to the Group and its cost can be measured reliably. Costs incurred in the research phase are expensed in profit or loss whereas costs incurred in the development phase are capitalised subject to meeting specific criteria, set out in the relevant accounting guidance. The main criteria being that future economic benefits can Costs incurred in the research phase are expensed in profit or loss whereas costs incurred in the development phase are capitalised be identified as a result of the development expenditure. Amortisation is charged to profit or loss on a straight-line basis over the estimated subject to meeting specific criteria, set out in the relevant accounting guidance. The main criteria being that future economic benefits can useful lives of the relevant software, which range between two and ten years, depending on the nature and use of the software. be identified as a result of the development expenditure. Amortisation is charged to profit or loss on a straight-line basis over the estimated (e) Subsequent expenditure useful lives of the relevant software, which range between two and ten years, depending on the nature and use of the software. Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefits embodied (e) Subsequent expenditure in the specific asset to which it relates. All other expenditure is expensed as incurred. Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred. (f) Analysis of goodwill and other intangible assets The table below shows the movements in cost, amortisation and impairment of goodwill and other intangible assets for the year ended (f) Analysis of goodwill and other intangible assets 31 December 2017 and year ended 31 December 2016. The table below shows the movements in cost, amortisation and impairment of goodwill and other intangible assets for the year ended 31 December 2017 and year ended 31 December 2016. £m Present value of acquired in-force business Present value of development acquired in-force costs business 2016 development costs 2016 982 2017 2017 Goodwill 2016 Goodwill 2016 3,129 Software development costs Software 2016 development costs 2016 598 2017 Other intangible assets Other 2016 intangible assets 2016 710 2017 2017 £m Total 2016 Total 2016 5,419 2017 913 2017 772 2017 914 2017 2,089 2017 4,688 distribution4 distribution4 combinations1,2 2,089 19 – 19 – – – – (10) – (10) (1,679) 419 (1,679) 419 (471) – (471) (85) – – (85) 9 – 9 394 Cost Balance at beginning of the year Cost Acquisitions through business Balance at beginning of the year Acquisitions through business Purchase price adjustments combinations1,2 Additions Purchase price adjustments Disposals or retirements Additions Foreign exchange and other movements Disposals or retirements Transfer to assets held for sale and Foreign exchange and other movements Transfer to assets held for sale and Cost at end of the year Amortisation and impairment losses Cost at end of the year Balance at beginning of the year Amortisation and impairment losses Amortisation charge for the year Impairment losses3 Balance at beginning of the year Amortisation charge for the year Disposals or retirements Impairment losses3 Foreign exchange and other movements Disposals or retirements Transfer to assets held for sale and Foreign exchange and other movements Transfer to assets held for sale and Accumulated amortisation and distribution4 impairment losses at end of Accumulated amortisation and the year impairment losses at end of Carrying amount the year Balance at beginning of the year Carrying amount Balance at end of the year Balance at beginning of the year 1 Goodwill acquired through business combinations for the year ended 31 December 2017 of £19 million relates to the acquisition of Caerus Capital Group Limited (£10 million), Balance at end of the year (2,217) (15) 3,276 182 2,471 – 3,276 182 2,471 – several acquisitions by the Old Mutual Wealth Private Client Advisors business (£5 million) and the acquisition of WinTwice Properties (Pty) Ltd and Bedford Square Properties (Pty) Ltd (£4 million). Refer to note A2 for more information 4,688 46 – 46 187 – (22) 187 (4) (22) (4) (4,172) 723 (4,172) 723 (2,217) (152) (2,217) (86) (152) 18 (86) 2 18 2 2,109 5,419 201 5 201 141 5 (12) 141 647 (12) 647 (1,713) 4,688 (1,713) 4,688 (2,143) (155) (2,143) (113) (155) 10 (113) (233) 10 (233) 417 3,129 124 (12) 124 – (12) – – 409 – 409 (1,561) 2,089 (1,561) 2,089 (617) – (617) (110) – – (110) (81) – (81) 337 598 1 – 1 132 – (12) 132 194 (12) 194 – 913 – 913 (403) (51) (403) (3) (51) 10 (3) (121) 10 (121) – 914 – – – – – – – – – – (899) 15 (899) 15 (732) (39) (732) – (39) – (1) – – (1) 757 982 – – – – – 12 – 12 (80) 914 (80) 914 (751) (49) (751) – (49) – – (9) – (9) 77 772 27 – 27 2 – (2) 2 (13) (2) (13) (687) 99 (687) 99 (446) (53) (446) – (53) 2 – 7 2 7 421 913 – – – 185 – (20) 185 19 (20) 19 (907) 190 (907) 190 (568) (60) (568) (1) (60) 16 (1) (13) 16 (13) 537 710 76 17 76 9 17 – 9 32 – 32 (72) 772 (72) 772 (372) (55) (372) – (55) – – (22) – (22) 3 (153) 1,618 266 1,618 266 (471) 2,512 1,618 2,512 1,618 (326) 2,471 397 2,471 397 1 Goodwill acquired through business combinations for the year ended 31 December 2017 of £19 million relates to the acquisition of Caerus Capital Group Limited (£10 million), 2 Other intangible assets acquired through business combinations for the year ended 31 December 2017 of £27 million relates to the acquisitions of Caerus Capital Group Limited several acquisitions by the Old Mutual Wealth Private Client Advisors business (£5 million) and the acquisition of WinTwice Properties (Pty) Ltd and Bedford Square Properties (Pty) (£10 million), Attivo Investment Management Limited (£7 million) and several acquisitions by the Old Mutual Wealth Private Client Advisors business (£10 million). Refer to note A2 Ltd (£4 million). Refer to note A2 for more information for more information (568) 195 345 195 345 (732) 231 182 231 182 (446) 338 326 338 326 2 Other intangible assets acquired through business combinations for the year ended 31 December 2017 of £27 million relates to the acquisitions of Caerus Capital Group Limited 3 The goodwill impairment loss of £85 million for the year ended 31 December 2017 relate to the East Africa cash generating unit (£69 million) and the Uruguay cash generating unit (£10 million), Attivo Investment Management Limited (£7 million) and several acquisitions by the Old Mutual Wealth Private Client Advisors business (£10 million). Refer to note A2 (£16 million) within Emerging Markets. Of the impairment losses of £110 million for the year ended 31 December 2016, £46 million relates to the disposal of Old Mutual Italy, which for more information completed on 9 January 2017, and £64 million relates to the OMSEA Cash Generating Units within Emerging Markets. Refer to note H1(h) for more information 3 The goodwill impairment loss of £85 million for the year ended 31 December 2017 relate to the East Africa cash generating unit (£69 million) and the Uruguay cash generating unit 4 At 31 December 2017, goodwill and other intangible assets attributable to Nedbank and Old Mutual Wealth have been transferred to assets held for sale and distribution in the (£16 million) within Emerging Markets. Of the impairment losses of £110 million for the year ended 31 December 2016, £46 million relates to the disposal of Old Mutual Italy, which consolidated statement of financial position. Refer to note A4 for more information. completed on 9 January 2017, and £64 million relates to the OMSEA Cash Generating Units within Emerging Markets. Refer to note H1(h) for more information (69) 326 30 326 30 (89) 345 101 345 101 417 (2,217) 2,109 (326) distribution4 – (568) 77 (732) 394 (153) 337 (471) 3 (446) 421 (69) 757 (15) 537 (89) 4 At 31 December 2017, goodwill and other intangible assets attributable to Nedbank and Old Mutual Wealth have been transferred to assets held for sale and distribution in the consolidated statement of financial position. Refer to note A4 for more information. 260 254 254 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 (g) Allocation of goodwill to cash generating units The carrying amount of goodwill relates to the following cash generating units (CGUs): Emerging Markets Latin America Columbia Mexico Uruguay Old Mutual Southern and East Africa East Africa Namibia Old Mutual South Africa OM Insure Mass Foundation segment Corporate segment Investment segment Old Mutual Wealth¹ Nedbank¹ Goodwill, net of impairment losses At 31 December 2017 266 – 51 4 – 34 4 – 3 114 6 50 – – 266 £m At 31 December 2016 348 70 – – 114 – – 164 – – – – 973 297 1,618 1 At 31 December 2017, goodwill attributable to Nedbank (£297 million) and Old Mutual Wealth (£988 million) have been transferred to assets held for sale and distribution in the consolidated statement of financial position. Refer to note A4 for more information. Critical accounting estimates and judgements – Goodwill and intangible assets (h) Annual impairment testing of goodwill In accordance with the requirements of IAS 36 'Impairment of Assets', goodwill is tested annually for impairment for each Cash Generating Units (CGU), by comparing the carrying amount of each CGU to its recoverable amount, being the higher of that CGU's value in use or fair value less costs to sell. The appropriateness of the CGUs is evaluated on an annual basis. An impairment charge is recognised when the recoverable amount is less than the carrying value. Emerging Market's CGU's generate revenue through their life assurance, asset management, property & casualty and banking businesses in several regions, but principally in Africa and Latin America. Determination of Cash Generating Units At 30 June 2017, the change in the operating structure prompted the separation of the previously reported single Old Mutual Southern and East Africa (OMSEA) CGU into two CGUs for Southern Africa and East Africa. The composition of the East African CGU includes the former Old Mutual Kenya and the recently acquired business interests in UAP and Faulu. The goodwill balance of £114 million of the OMSEA CGU at 31 December 2016 was allocated in its entirety to the East African CGU, which is primarily located in Kenya, on the basis that it related to the acquisitions of UAP and Faulu within that region. At 31 December 2017, in light of managed separation and the monitoring of the performance of the business, the management of Emerging Markets reconsidered the appropriateness of its CGU's and based on evidence concluded the lowest attributable CGU's should be based on individual countries. The South African CGU have been further allocated into five CGU's being Retail, Mass Foundation, Corporate, Investment and OM Insure, on which basis management have performed goodwill impairment testing. Therefore, the results of the goodwill testing performed are not directly comparable on a year on year basis. Value in Use models In the performance of goodwill impairment testing the Emerging Markets used a discounted cash flow model, which incorporated planned business performance and a risk adjusted discounted rate. 261 255 i F n a n c a s i l Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued H: Non-financial assets and liabilities continued H1: Goodwill and other intangible assets continued H: Non-financial assets and liabilities continued H1: Goodwill and other intangible assets continued Critical accounting estimates and judgements – Goodwill and intangible assets continued (h) Annual impairment testing of goodwill Critical accounting estimates and judgements – Goodwill and intangible assets continued Impairment losses recognised during H1 2017 (h) Annual impairment testing of goodwill An impairment charge of £69 million was recognised in the Emerging Markets segment at 30 June 2017. This impairment of goodwill was principally the result of changes in the CGU definition following the simplification of the Rest of Africa businesses’ operating Impairment losses recognised during H1 2017 structure. Weaker performance in the East Africa businesses than was anticipated at the time of the previous impairment review also An impairment charge of £69 million was recognised in the Emerging Markets segment at 30 June 2017. This impairment of goodwill had a minor impact. The following key assumptions were used in the goodwill impairment test performed at 30 June 2017 which was principally the result of changes in the CGU definition following the simplification of the Rest of Africa businesses’ operating included a risk adjusted long-term discount rate of 17.00% and cash flows in year 1 to 3 of 70.0% of the planned business performance; structure. Weaker performance in the East Africa businesses than was anticipated at the time of the previous impairment review also growth in cash flows of 13.0% for years 4 and five and terminal growth rate of 8.5%. had a minor impact. The following key assumptions were used in the goodwill impairment test performed at 30 June 2017 which included a risk adjusted long-term discount rate of 17.00% and cash flows in year 1 to 3 of 70.0% of the planned business performance; The result of using the above assumptions resulted in the Group recognising an impairment of £69 million in profit or loss relating to growth in cash flows of 13.0% for years 4 and five and terminal growth rate of 8.5%. the East African CGU. The impairment of goodwill has been allocated to equity holders of the parent (£42 million) and non-controlling interests (£27 million). The result of using the above assumptions resulted in the Group recognising an impairment of £69 million in profit or loss relating to the East African CGU. The impairment of goodwill has been allocated to equity holders of the parent (£42 million) and non-controlling Impairment losses recognised during H2 2017 interests (£27 million). A goodwill impairment charge of £16 million has been recognised in 2017 following further impairment reviews in H2 2017. This was recognised in relation to the Aiva business in Uruguay. This impairment was reflective of the challenging business environment Impairment losses recognised during H2 2017 in the country. A goodwill impairment charge of £16 million has been recognised in 2017 following further impairment reviews in H2 2017. This was recognised in relation to the Aiva business in Uruguay. This impairment was reflective of the challenging business environment Apart for the goodwill impairment losses for East Africa and Uruguay, no other goodwill impairment losses have been recognised in in the country. profit or loss for the year ended 31 December 2017. Apart for the goodwill impairment losses for East Africa and Uruguay, no other goodwill impairment losses have been recognised in The following key assumptions have been used in the performance of goodwill impairment testing for the year ended profit or loss for the year ended 31 December 2017. 31 December 2017: Cash flows The following key assumptions have been used in the performance of goodwill impairment testing for the year ended 31 December 2017: Uruguay Columbia Mexico East Africa Uruguay Namibia Columbia Mexico OM Insure East Africa Investment segment Namibia Corporate segment OM Insure Mass Foundation segment Investment segment Corporate segment Sensitivities and headroom analysis Mass Foundation segment The aggregated results of the goodwill testing indicated total headroom of £2,976 million at 31 December 2017. Excluding the results of goodwill impairment testing for the Uruguay CGU, a 1% increase in the discount rate on any of the CGUs' identified would not result Sensitivities and headroom analysis in any goodwill impairment being recognised. The aggregated results of the goodwill testing indicated total headroom of £2,976 million at 31 December 2017. Excluding the results of goodwill impairment testing for the Uruguay CGU, a 1% increase in the discount rate on any of the CGUs' identified would not result The following sensitivities on inputs used in the goodwill impairment testing have indicate that: in any goodwill impairment being recognised. Discount rate 14.35% 14.35% Discount rate 17.00% 14.35% 18.56% 14.35% 13.06% 17.00% 13.06% 18.56% 13.06% 13.06% 13.06% 13.06% 13.06% 13.06% Year 1 -3 (business plan) 100% Year 1 -3 100% (business plan) 85% 100% 100% 100% 100% 85% 100% 100% 100% 100% 100% 100% 100% 100% Terminal growth rates 1.88% Terminal 2.87% growth rates 8.50% 1.88% 4.00% 2.87% 2.40% 8.50% 2.40% 4.00% 2.40% 2.40% 2.40% 2.40% 2.40% 2.40% Year 4 -5 growth rate 3.75% Year 4 -5 5.73% growth rate 13.00% 3.75% 8.00% 5.73% 4.80% 13.00% 4.80% 8.00% 4.80% 4.80% 4.80% 4.80% 4.80% 4.80% Cash flows  A 1% increase in the discount rate would decrease headroom by £416 million; and The following sensitivities on inputs used in the goodwill impairment testing have indicate that:  A 1% decrease in the discount rate would increase headroom by £509 million.  A 1% increase in the discount rate would decrease headroom by £416 million; and Impairment losses recognised during 2016  A 1% decrease in the discount rate would increase headroom by £509 million. A goodwill impairment charge of £64 million for the year ended 31 December 2016 was recognised for the OMSEA CGU.The following key assumptions were used in the performance of goodwill testing for the year ended 31 December 2016: Impairment losses recognised during 2016 A goodwill impairment charge of £64 million for the year ended 31 December 2016 was recognised for the OMSEA CGU.The following key assumptions were used in the performance of goodwill testing for the year ended 31 December 2016: Cash flows Latin America Old Mutual Southern and East Africa Old Mutual South Africa Latin America Old Mutual Southern and East Africa Old Mutual South Africa Discount rate 14.90% 22.30% Discount rate 14.30% 14.90% 22.30% 14.30% 262 256 256 Year 1 -3 (business plan) 100% Year 1 -3 100% (business plan) 100% 100% 100% 100% Cash flows Year 4 -5 growth rate 17.00% Year 4 -5 18.00% growth rate 7.50% 17.00% 18.00% 7.50% Terminal growth rates 1.50% Terminal 4.50% growth rates 2.40% 1.50% 4.50% 2.40% Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Impairment testing relating to the assets held for sale and distribution At 31 December 2017, no impairment losses have been recognised for the Nedbank and Old Mutual Wealth businesses, which have been classified and presented as discontinued operations in the consolidated income statement and as held for distribution in the consolidated statement of financial position in terms of the requirements of IFRS 5 'Non-current Assets Held for Sale and Discontinued Operations'. Impairment losses are determined as the deficit between fair value less cost to distribute of each business and the carrying value of each business at 31 December 2017. The fair value less cost to distribute of Nedbank was determined by reference to its quoted market price and the ZAR/GBP foreign exchange rate as at 31 December 2017. At 31 December 2017, the fair value less cost to distribute exceeded the carrying value of Nedbank and the Group therefore concluded that goodwill and other intangible assets related to the Nedbank are not impaired. The fair value less cost to distribute of Old Mutual Wealth is not observable in a quoted active market and accordingly it has been determined by reference to external broker valuation reports and an internal valuation performed for goodwill impairment testing. As such, the conclusion of this matter has required significant judgement and the use of estimates. At 31 December 2017, the Group has concluded that the fair value less costs to distribute exceeded the carrying value of Old Mutual Wealth and therefore no impairment losses of goodwill and other intangible assets have been recognised. In addition, no other impairments for property, plant and equipment, investment properties or other intangible assets have been recognised as a result of classifying these businesses as held for distribution. 263 257 i F n a n c a s i l Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued H: Non-financial assets and liabilities continued H2: Fixed assets H: Non-financial assets and liabilities continued H2(a): Property, plant and equipment H2: Fixed assets This following table analyses land, buildings and equipment. H2(a): Property, plant and equipment At 31 December This following table analyses land, buildings and equipment. £m Total 2016 £m Total 1,134 2016 129 10 1,134 11 129 10 (18) 11 – (18) (31) – 328 (31) (84) 328 1,479 (84) 1,479 (434) (102) 25 (434) (102) (120) 25 44 (120) (587) 44 700 (587) 892 700 892 At 31 December Gross carrying amount Balance at beginning of the year Additions Gross carrying amount Additions from business combinations Balance at beginning of the year Net increase arising from revaluation Additions Transfers from/(to) investment Additions from business combinations Net increase arising from revaluation Reclassification within property, plant Transfers from/(to) investment properties and equipment properties Disposals Reclassification within property, plant Foreign exchange and other Disposals Transfer to assets held for sale and Foreign exchange and other and equipment movements distribution1 movements Transfer to assets held for sale and Accumulated depreciation and distribution1 impairment losses impairment losses Balance at beginning of the year Accumulated depreciation and Depreciation charge for the year Disposals Balance at beginning of the year Foreign exchange and other Depreciation charge for the year Disposals Transfer to assets held for sale and Foreign exchange and other movements 2017 113 2017 – – 113 1 – – 5 1 (14) 5 (1) (14) (3) (1) (57) (3) 44 (57) 44 – – – – – – – Land 2016 Land 77 2016 – – 77 2 – – 2 2 – 2 – – 35 – (3) 35 113 (3) 113 – – – – – – – Buildings 2016 Buildings 501 2016 22 – 501 9 22 – (20) 9 Plant and equipment 2016 2017 Plant and equipment 556 2016 107 10 556 – 107 10 – – 730 2017 110 – 730 – 110 – – – – (20) (9) – 141 (9) (8) 141 636 (8) 636 (81) (24) 6 (81) (24) (18) 6 – – (25) – 11 (25) (587) 11 239 (587) 239 (470) (92) 16 (470) (92) (10) 16 – – (22) – 152 (22) (73) 152 730 (73) 730 (353) (78) 19 (353) (78) (102) 19 2017 636 2017 23 – 636 18 23 – 151 18 14 151 (14) 14 (4) (14) (440) (4) 384 (440) 384 (117) (30) 6 (117) (30) 5 6 2017 1,479 2017 133 – 1,479 19 133 – 156 19 – 156 (40) – 4 (40) (1,084) 4 667 (1,084) 667 (587) (122) 22 (587) (122) (5) 22 distribution1 movements – – – – 77 – 113 77 113 consolidated statement of financial position. Refer to note A4 for more information. Balance at end of the year Transfer to assets held for sale and Carrying amount distribution1 Balance at beginning of the year Balance at end of the year Balance at end of the year Carrying amount Balance at beginning of the year 1 At 31 December 2017, property, plant and equipment attributable to Nedbank and Old Mutual Wealth have been transferred to assets held for sale and distribution in the Balance at end of the year 395 (10) (161) 395 260 (161) 78 260 78 507 (5) (185) 507 892 (185) 482 892 482 – (18) (117) – 420 (117) 519 420 519 44 (102) (470) 44 203 (470) 260 203 260 112 5 (24) 112 519 (24) 360 519 360 – – – – 113 – 44 113 44 consolidated statement of financial position. Refer to note A4 for more information. 1 At 31 December 2017, property, plant and equipment attributable to Nedbank and Old Mutual Wealth have been transferred to assets held for sale and distribution in the The carrying value of property, plant and equipment leased to third parties under operating leases included in the above is £52 million (2016: £19 million) and comprises land of £13 million (2016: £3 million) and buildings of £39 million (2016: £16 million). The carrying value of property, plant and equipment leased to third parties under operating leases included in the above is £52 million The value of property, plant and equipment pledged as security is £19 million (2016: £23 million). (2016: £19 million) and comprises land of £13 million (2016: £3 million) and buildings of £39 million (2016: £16 million). The revaluation of land and buildings relates to Emerging Markets and Nedbank. In 2017, Emerging Markets made revaluation gains The value of property, plant and equipment pledged as security is £19 million (2016: £23 million). of £nil on land (2016: £2 million) and £7 million (2016: £5 million) on buildings. Nedbank made revaluation gains of £1 million on land (2016: £nil) and £11 million on buildings (2016: £4 million). The revaluation of land and buildings relates to Emerging Markets and Nedbank. In 2017, Emerging Markets made revaluation gains of £nil on land (2016: £2 million) and £7 million (2016: £5 million) on buildings. Nedbank made revaluation gains of £1 million on land For Emerging Markets, land and buildings are valued as at 31 December each year by internal professional valuers and external (2016: £nil) and £11 million on buildings (2016: £4 million). valuations are obtained once every three years. For Nedbank, valuations are performed every three years by external professional valuers. For each business, the valuation methodology adopted is dependent upon the nature of the property. Income generating For Emerging Markets, land and buildings are valued as at 31 December each year by internal professional valuers and external assets are valued using discounted cash flows and vacant land and property are valued according to sales of comparable properties. valuations are obtained once every three years. For Nedbank, valuations are performed every three years by external professional valuers. For each business, the valuation methodology adopted is dependent upon the nature of the property. Income generating As at 31 December 2017 all the assets of Nedbank had been reclassified as assets held for sale and distribution. As a consequence the assets are valued using discounted cash flows and vacant land and property are valued according to sales of comparable properties. carrying value property, plant and equipment as at 31 December 2017 relates to Emerging Markets only. As at 31 December 2017 all the assets of Nedbank had been reclassified as assets held for sale and distribution. As a consequence the The carrying value that would have been recognised had the land and buildings been carried under the historic cost model would be carrying value property, plant and equipment as at 31 December 2017 relates to Emerging Markets only. £23 million (2016: £49 million) and £37 million (2016: £311 million). The carrying value that would have been recognised had the land and buildings been carried under the historic cost model would be Property, plant and equipment are classified as Level 3 in terms of the fair value hierarchy. Level 3 fair value measurements are those that £23 million (2016: £49 million) and £37 million (2016: £311 million). include the use of significant unobservable inputs. Property, plant and equipment are classified as Level 3 in terms of the fair value hierarchy. Level 3 fair value measurements are those that include the use of significant unobservable inputs. 264 258 258 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 H2(b): Investment property Balance at beginning of the year Additions Disposals Net gain from fair value adjustments Transferred from/(to) property, plant and equipment Foreign exchange and other movements Transfer from/(to) assets held for sale and distribution Balance at end of the year Year ended 31 December 2017 1,697 358 (4) 30 (156) (38) 17 1,904 £m Year ended 31 December 2016 1,233 83 (8) 94 18 362 (85) 1,697 All of the Group's investment property is held by the Emerging Markets segment, principally within its policyholder funds. The fair value of investment property leased to third parties under operating leases is as follows: Freehold Leasehold Rental income from investment property Direct operating expense arising from investment property that generated rental income Year ended 31 December 2017 1,802 102 1,904 £m Year ended 31 December 2016 1,499 198 1,697 160 (32) 128 126 (33) 93 The carrying amount of investment property is the fair value of the property as determined by a registered independent valuer at least every three years, and annually by locally qualified staff, having an appropriate recognised professional qualification and recent experience in the location and category of the property being valued. Fair values are determined having regard to recent market transactions for similar properties in the same location as the Group's investment property. The Group's current lease arrangements, which are entered into on an arm's length basis and which are comparable to those for similar properties in the same location, are taken into account. All of the Group's investment properties are located in Africa. H2(c): Fair value hierarchy of the Group's property The fair value of the Group's properties are categorised into Level 3 of the fair value hierarchy. The table below reconciles the fair value measurements of the investment and owner-occupied property: Balance at beginning of the year Additions and acquisitions Disposals Net gain from fair value adjustments1 Impairments and depreciation Reclassification from / (to) other categories of property, plant and equipment Foreign exchange and other movements Transfer to assets held for sale and distribution Balance at end of the year 1 These gains and losses have been included in investment return (non-banking). Year ended 31 December 2017 2,216 381 (12) 48 (30) 9 (37) (311) 2,264 £m Year ended 31 December 2016 1,653 105 (11) 103 (24) (2) 485 (93) 2,216 265 259 i F n a n c a s l i Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued H: Non-financial assets and liabilities continued H2: Fixed assets continued H: Non-financial assets and liabilities continued H2(c): Fair value hierarchy of the Group's property continued H2: Fixed assets continued The following table shows the valuation techniques used in the determination of the fair values for investment and owner-occupied H2(c): Fair value hierarchy of the Group's property continued properties, as well as the unobservable inputs used in the valuation models. The following table shows the valuation techniques used in the determination of the fair values for investment and owner-occupied Inter-relationship between properties, as well as the unobservable inputs used in the valuation models. unobservable inputs and key fair value measurement Inter-relationship between  The estimated fair value unobservable inputs and key fair would increase/ (decrease) if: value measurement  The estimated fair value  net rental income would increase/ (decrease) if: increases/ (decreases) or Type of property  Commercial, retail and industrial properties Type of property  Commercial, retail and  Owner-occupied property industrial properties Key unobservable inputs  Rental income per square metre and capitalisation rates Valuation approach  Discounted cash flow (market related rentals achievable for Valuation approach the property, discounted at  Discounted cash flow (market the appropriate discount rate) related rentals achievable for the property, discounted at the appropriate discount rate)  Owner-occupied property Key unobservable inputs  Rental income per square  Long-term net operating metre and capitalisation rates margin and capitalisation rates  Long-term net operating margin and capitalisation  Vacancies rates  net rental income  capitalisation rates increases/ (decreases) or decrease/ (increase)  capitalisation rates  The estimated fair value decrease/ (increase) would increase/ (decrease) if:  The estimated fair value  long term operating margin would increase/ (decrease) if: increase/ (decrease); or  long term operating margin  capitalisation rates increase/ (decrease); or decrease/ (increase)  capitalisation rates  The estimated fair value decrease/ (increase) would increase/ (decrease) if price per square metre  The estimated fair value increase/ (decrease) would increase/ (decrease) if price per square metre increase/ (decrease)  Recent sales and local  Recent sales and local government valuation rolls provide an indication of what the property may be sold for government valuation rolls provide an indication of what the property may be sold for  Vacancies  Holiday accommodation  Average of market  Price per square metre  Residential property  Holiday accommodation  Residential property  Near vacant properties comparable valuations  Average of market  Replacement cost comparable valuations  Land value  Replacement cost  Land value less the  Land value estimated cost of demolition  Near vacant properties  Land value less the estimated cost of demolition  Price per square metre  Recent sales of land in the area and local government valuation rolls adjusted for  Recent sales of land in the estimated cost of demolition area and local government valuation rolls adjusted for estimated cost of demolition 266 260 260 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 H3: Deferred acquisition costs Deferred acquisition costs relate to costs that the Group incurred to obtain new business. These acquisition costs are capitalised in the statement of financial position and are amortised in profit or loss over the life of the contracts. The table below analyses the movements in deferred acquisition costs relating to insurance, investment and asset management contracts. At 31 December Balance at beginning of the year New business Amortisation Foreign exchange and other movements Transfer to assets held for sale and distribution1 Balance at end of the year Insurance contracts 2016 39 5 (5) 4 – 43 2017 43 6 (5) (1) (10) 33 Investment contracts Asset management 2017 632 97 (116) 4 (541) 76 2016 681 113 (129) 27 (60) 632 2017 81 20 (21) 3 (8) 75 2016 64 14 (24) 56 (29) 81 Total 2017 756 123 (142) 6 (559) 184 £m 2016 784 132 (158) 87 (89) 756 i F n a n c a s l i 1 At 31 December 2017, deferred acquisition costs attributable to Old Mutual Wealth have been transferred to assets held for sale and distribution in the consolidated statement of financial position. At 31 December 2016, deferred acquisition costs attributable to Old Mutual Wealth Italy and Institutional Asset Management were transferred to assets held for sale and distribution in the consolidated statement of financial position Refer to note A4 for more information. H4: Trade, other receivables and other assets Debtors arising from direct insurance operations Amounts owed by policyholders Amounts owed by intermediaries Other Debtors arising from reinsurance operations Outstanding settlements Post-employment benefits Other receivables Accrued interest and rent Trading securities and spot positions Prepayments and accrued income Other assets Total trade, other receivables and other assets At 31 December 2017 Note £m At 31 December 2016 J1 136 44 172 352 70 157 40 128 211 – 55 291 1,304 97 44 25 166 54 522 205 442 242 268 175 342 2,416 At 31 December 2017, total trade, other receivables and other assets of £1,619 million attributable to Nedbank and Old Mutual Wealth have been transferred to assets held for sale and distribution in the consolidated statement of financial position. Refer to note A4 for more information. Based on the maturity profile of the above assets, £793 million (2016: £1,649 million) is regarded as current and £511 million (2016: £767 million) as non-current. No significant balances are past due or impaired. 267 261 Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued H: Non-financial assets and liabilities continued H5: Provisions and accruals H: Non-financial assets and liabilities continued Year ended 31 December 2017 H5: Provisions and accruals Year ended 31 December 2017 Balance at beginning of the year Unused amounts reversed Charge to profit or loss Balance at beginning of the year Utilised during the year Unused amounts reversed Transfer to other liabilities Charge to profit or loss Foreign exchange and other movements Utilised during the year Transfer to liabilities held for sale and Transfer to other liabilities Foreign exchange and other movements Balance at end of the year Transfer to liabilities held for sale and Compensation provisions 36 Compensation – provisions 73 36 (6) – (1) 73 1 (6) (1) (81) 1 22 (81) 22 distribution1 distribution1 Restructuring provisions – Restructuring – provisions 27 – – – – 27 (1) – – – (1) 26 – 26 Surplus Property 5 Surplus – Property 6 5 (1) – – 6 – (1) – (4) – 6 (4) 6 Provision for donations 64 Provision for (2) donations – 64 – (2) – – – – – – – 62 – 62 Other 55 (15) Other 16 55 (5) (15) (7) 16 1 (5) (7) (19) 1 26 (19) 26 £m Total £m 160 (17) Total 122 160 (12) (17) (8) 122 1 (12) (8) (104) 1 142 (104) 142 1 At 31 December 2017, provisions and accruals attributable to Nedbank and Old Mutual Wealth have been transferred to liabilities held for sale and distribution in the consolidated Balance at end of the year statement of financial position. Refer to note A4 for more information. statement of financial position. Refer to note A4 for more information. 1 At 31 December 2017, provisions and accruals attributable to Nedbank and Old Mutual Wealth have been transferred to liabilities held for sale and distribution in the consolidated Analysis of provisions and accruals Compensation provisions Analysis of provisions and accruals At 31 December 2017, compensation provisions totalled £22 million (2016: £36 million), with £11 million (2016: £10 million) relating to regulatory uncertainty and multiple causal events and £11 million (2016: £13 million) relating to the provision for claw-back of prescribed Compensation provisions claims. This provision is held to allow for the probable future payment of claims that have been previously reversed. Due to the nature of At 31 December 2017, compensation provisions totalled £22 million (2016: £36 million), with £11 million (2016: £10 million) relating to the provision, the timing of the expected cash outflows is uncertain. Estimates of this provision are reviewed annually and are adjusted as regulatory uncertainty and multiple causal events and £11 million (2016: £13 million) relating to the provision for claw-back of prescribed and when new circumstances arise. claims. This provision is held to allow for the probable future payment of claims that have been previously reversed. Due to the nature of the provision, the timing of the expected cash outflows is uncertain. Estimates of this provision are reviewed annually and are adjusted as Of the total client compensation provisions, £21 million (2016: £21 million) is estimated to be payable after more than one year. and when new circumstances arise. Surplus property provisions Of the total client compensation provisions, £21 million (2016: £21 million) is estimated to be payable after more than one year. The provision for surplus properties in 2017 amounted to £6 million (2016: £5 million). These relates to onerous costs of vacant properties leased by the Group of which £5 million (2016: £5 million) is estimated to be payable after more than one year. Surplus property provisions The provision for surplus properties in 2017 amounted to £6 million (2016: £5 million). These relates to onerous costs of vacant properties Restructuring provisions leased by the Group of which £5 million (2016: £5 million) is estimated to be payable after more than one year. During 2017, plc Head Office and Old Mutual Bermuda recognised £13 million and £14 million restructuring provisions respectively. The plc Head Office restructuring provision relates to redundancy costs expected to be incurred in the wind-down of its operations during 2018. Restructuring provisions Similar costs of £14 million are provided for Old Mutual Bermuda in relation to its wind-down. During 2017, plc Head Office and Old Mutual Bermuda recognised £13 million and £14 million restructuring provisions respectively. The plc Head Office restructuring provision relates to redundancy costs expected to be incurred in the wind-down of its operations during 2018. Provisions for donations Similar costs of £14 million are provided for Old Mutual Bermuda in relation to its wind-down. The provision for donations is held by Emerging Markets in respect of commitments made by the South African business to the future funding of charitable donations. The funds were made available on the closure of the Group's unclaimed shares trusts which were set up Provisions for donations as part of the demutualisation in 1999 and closed in 2006. £62 million (2016: £64 million) is estimated to be payable after more than one The provision for donations is held by Emerging Markets in respect of commitments made by the South African business to the future year due to the long-term nature of the agreements in place. funding of charitable donations. The funds were made available on the closure of the Group's unclaimed shares trusts which were set up as part of the demutualisation in 1999 and closed in 2006. £62 million (2016: £64 million) is estimated to be payable after more than one Other provisions year due to the long-term nature of the agreements in place. Other provisions include long-term staff benefits and amounts for the resolution of legal uncertainties and the settlement of other claims raised by contracting parties. These provisions are generally individually immaterial. Other provisions Other provisions include long-term staff benefits and amounts for the resolution of legal uncertainties and the settlement of other claims Where material, provisions and accruals are discounted at discount rates specific to the risks inherent in the liability. The timing and final raised by contracting parties. These provisions are generally individually immaterial. amounts of payments in respect of some of the provisions, particularly those in respect of litigation claims and similar actions against the Group, are uncertain and could result in adjustments to the amounts recorded. Of the total provisions recorded above, £97 million (2016: Where material, provisions and accruals are discounted at discount rates specific to the risks inherent in the liability. The timing and final £121 million) is estimated to be payable after one year. amounts of payments in respect of some of the provisions, particularly those in respect of litigation claims and similar actions against the Group, are uncertain and could result in adjustments to the amounts recorded. Of the total provisions recorded above, £97 million (2016: £121 million) is estimated to be payable after one year. 268 262 262 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Provisions and accruals classified as held for sale and held for distribution Compensation provisions: Voluntary remediation provision As part of its ongoing work to promote fair customer outcomes, the company has conducted product reviews consistent with the recommendations from the FCA's thematic feedback and the FCA's guidance 'FG16/8 Fair treatment of long-standing customers in the life insurance sector'. Following these reviews, the company has decided to commence voluntary remediation to customers in certain legacy products, resulting in an additional provision raised during the year of £69 million, including £7 million of programme costs and £13 million of estimated interest. The voluntary remediation relates to early encashment charges and contribution servicing charges made on pension products and following the re-introduction of annual reviews, compensation payable to a subset of Protection plan holders. The redress comprises retrospective refunds and compensation, going back to 1 January 2009, and prospective 5% caps on early encashment charges. An FCA press release (3 March 2016) stated that its investigation will focus on disclosure of exit and paid-up charges after December 2008. From 2004 to 2007 the Financial Services Authority published a number of communications on treating customers fairly (TCF) which made it clear that all firms were required to have regard to customers’ information needs through the life cycle of a product. Firms were required to implement changes to complete their TCF work no later than December 2008. The company intends to substantially complete the remediation by the end of 2018. Key estimates and assumptions in relation to the provision are:  Protection policy sustainability period assumption of 4 years; and; and  The programme costs of carrying out the remediation activity and interest on remediation payments. If past reviews had been carried out correctly, policies would be expected to have funds sufficient to provide up to four years’ cover from the current reporting date, on the basis that future premium increases are not applied. This assumption has been used to determine the cost of reconstructing the impacted Protection policies to their expected values. The programme costs of conducting the remediation activity are highly variable and are subject to a number of uncertainties. In calculating the best estimate of these costs, consideration has been given to such matters as the identification of impacted customers, access to and the quality of customer files, likelihood of the customer contesting the offer, the complexity of the calculations, the level of quality assurance and checking, the ease of contacting and communicating with customers and the level of customer interactions. Sensitivities relating to the assumptions and uncertainties are provided in the table below: Assumption Protection policy sustainability period assumption reduced to 3 years Protection policy sustainability period Programme cost per case of conducting the review Change in assumption Protection policy sustainability period assumption reduced to 3 years Protection policy sustainability period assumption increased to 5 years +/- 20% of the cost per case Consequential change in provision - £3.1 million +£3.3 million +/- £1.4 million The Group has not provided for any future potential enforced redress and associated penalties. Disclosure of related contingent liabilities is included in note J4. Of the total provisions for the businesses classified has held for sale and held for distribution of £104 million, £13 million is estimated to be payable after one year. H6: Deferred revenue Deferred revenue relates to initial fees received for the future provision of services that the Group will render on investment management contracts. These fees are capitalised in the consolidated statement of financial position and are amortised in profit or loss over the expected life of the contracts. The table below analyses the movements in deferred revenue. Year ended 31 December Balance at beginning of the year Fees and commission income deferred Amortisation Foreign exchange and other movements Transfer to liabilities held for sale and distribution1 Balance at end of the year Life and Savings 2016 241 18 (29) (6) 2017 220 17 (26) 18 (213) 16 (4) 220 Asset Management 2017 55 13 (16) 1 (1) 52 2016 18 – (12) 49 – 55 Property & Casualty 2017 9 – – (1) 2016 9 – – – Banking 2017 6 1 – (1) 2016 6 – – – – 8 – 9 – 6 – 6 £m 2016 274 18 (41) 43 (4) 290 Total 2017 290 31 (42) 17 (214) 82 1 At 31 December 2017, deferred revenue attributable to Old Mutual Wealth has been transferred to liabilities held for sale and distribution in the consolidated statement of financial position. Refer to note A4 for more information. 269 263 i F n a n c a s i l Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued H: Non-financial assets and liabilities continued H7: Deferred tax assets and liabilities H: Non-financial assets and liabilities continued Deferred income taxes are calculated on all temporary differences at the tax rate applicable to the jurisdiction in which the timing H7: Deferred tax assets and liabilities differences arise. Deferred income taxes are calculated on all temporary differences at the tax rate applicable to the jurisdiction in which the timing (a) Deferred tax assets differences arise. Deferred tax assets are recognised for tax losses carried forward only to the extent that realisation of the related tax benefit is probable, being where on the basis of all available evidence it is considered more likely than not that there will be suitable taxable profits against (a) Deferred tax assets which the reversal of the deferred tax asset can be deducted. Deferred tax assets are recognised for tax losses carried forward only to the extent that realisation of the related tax benefit is probable, being where on the basis of all available evidence it is considered more likely than not that there will be suitable taxable profits against The movement on the deferred tax assets account is as follows: which the reversal of the deferred tax asset can be deducted. Year ended 31 December 2017 The movement on the deferred tax assets account is as follows: Year ended 31 December 2017 Tax losses carried forward Accelerated capital allowances Other temporary differences Tax losses carried forward Deferred fee income Accelerated capital allowances Netted against liabilities Other temporary differences Deferred fee income Netted against liabilities Year ended 31 December 2016 Year ended 31 December 2016 At beginning of the year At 25 beginning – of the year 137 25 5 – (71) 137 96 5 (71) 96 At beginning of the year At 27 beginning 1 of the year 323 27 (15) 1 8 323 (60) (15) 284 8 (60) 284 Income statement (charge)/ Income credit statement (19) (charge)/ – credit 27 (19) (2) – 4 27 10 (2) 4 10 Income statement (charge)/ Income credit statement (7) (charge)/ 1 credit (1) (7) (1) 1 (3) (1) 5 (1) (6) (3) 5 (6) Recognised in the SOCI – Recognised in – the SOCI (5) – – – – (5) (5) – – (5) Recognised in the SOCI – Recognised in – the SOCI 4 – – – – 4 – – 4 – – 4 Foreign exchange and other Foreign movements1 exchange 14 and other – movements1 79 14 (1) – (86) 79 6 (1) (86) 6 Foreign exchange and other Foreign movements1 exchange 10 and other (1) movements1 54 10 16 (1) – 54 (15) 16 64 – (15) 64 Transfer to assets held for sale and Transfer to distribution2 assets held (12) for sale and – distribution2 (179) (12) (2) – 151 (179) (42) (2) 151 (42) Transfer to assets held for sale and Transfer to distribution2 assets held (5) for sale and (1) distribution2 (243) (5) – (1) – (243) (1) – (250) – (1) (250) £m At £m end of the year At 8 end of the – year 59 8 – – (2) 59 65 – (2) £m 65 At £m end of the year At 25 end of the – year 137 25 – – 5 137 (71) – 96 5 (71) 96 Tax losses carried forward Accelerated capital allowances Other temporary differences Tax losses carried forward Policyholders tax Accelerated capital allowances Deferred fee income Other temporary differences Netted against liabilities Policyholders tax Deferred fee income Netted against liabilities 1 Includes reclassification of timing differences between categories 2 At 31 December 2017, deferred tax assets attributable to Nedbank and Old Mutual Wealth have been transferred to assets held for sale and distribution in the consolidated statement of financial position. At 31 December 2016, deferred tax assets attributable to Old Mutual Wealth Italy and Institutional Asset Management were transferred to liabilities held for sale and distribution in the consolidated statement of financial position. Refer to note A4 for more information. 1 Includes reclassification of timing differences between categories 2 At 31 December 2017, deferred tax assets attributable to Nedbank and Old Mutual Wealth have been transferred to assets held for sale and distribution in the consolidated statement of financial position. At 31 December 2016, deferred tax assets attributable to Old Mutual Wealth Italy and Institutional Asset Management were transferred to liabilities held for sale and distribution in the consolidated statement of financial position. Refer to note A4 for more information. 270 264 264 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 The amounts for which no deferred tax asset has been recognised comprise: Unrelieved tax losses Expiring in less than a year Expiring in the second to fifth years inclusive Expiring after five years Accelerated capital allowances Other timing differences Gross amount At 31 December 2017 Tax Gross amount £m At 31 December 2016 Tax 29 48 1,142 1,219 24 263 1,506 8 15 194 217 4 44 265 11 68 1,824 1,903 191 573 2,667 3 18 312 333 33 97 463 In addition to the amounts disclosed in the table above, at 31 December 2017 there was additional unrecognised deferred tax assets totalling £866 million gross amount (£145 million tax) relating to businesses classified as held for sale and distribution. (b) Deferred tax liabilities The movement on the deferred tax liabilities account is as follows: Year ended 31 December 2017 Accelerated tax depreciation Deferred acquisition costs PVIF Other acquired intangibles Available for sale securities Other temporary differences Capital gains tax Policyholder tax Netted against assets Year ended 31 December 2016 Accelerated tax depreciation Deferred acquisition costs PVIF Other acquired intangibles Available for sale securities Other temporary differences Capital gains tax Policyholder tax Netted against assets At beginning of the year 58 – 19 68 4 207 20 135 (71) 440 At beginning of the year 48 29 29 61 2 188 41 79 (60) 417 Income statement (credit)/ charge 7 4 (5) (11) – 26 46 1 4 72 Income statement (credit)/ charge – (4) (7) (9) – 62 (32) (28) 5 (13) Foreign exchange and other movements1 (4) 57 – – – 120 52 (122) (86) 17 Transfer to liabilities held for sale and distribution2 (34) (20) (14) (57) (2) (257) (5) – 151 (238) Credited to equity – – – – (2) 11 4 – – 13 Foreign exchange and other movements1 10 (25) (3) 12 3 (62) 21 73 (15) 14 Transfer to liabilities held for sale and distribution2 – – – 4 – 21 (10) 11 (1) 25 Charged to equity – – – – (1) (2) – – – (3) £m At end of the year 27 41 – – – 107 117 14 (2) 304 £m At end of the year 58 – 19 68 4 207 20 135 (71) 440 1 Includes reclassification of timing differences between categories 2 At 31 December 2017, deferred tax liabilities attributable to Nedbank and Old Mutual Wealth have been transferred to liabilities held for sale and distribution in the consolidated statement of financial position. At 31 December 2016, deferred tax liabilities attributable to Old Mutual Wealth Italy and Institutional Asset Management were transferred to liabilities held for sale and distribution in the consolidated statement of financial position. Refer to note A4 for more information. The aggregate amount of temporary differences on which further tax might be due in respect of investments in subsidiaries and branches is estimated at £4.9 billion (2016: £4.6 billion), of which £2.4 billion relates to continuing operations and £2.5 billion to discontinued operations. It is not expected that the disposals of Wealth Management and Nedbank as a result of Managed Separation will give rise to corporate tax charge and there is therefore no requirement to provide for any associated tax. As the Group is able to control the reversal of temporary differences in respect of investments in the continuing operations there is no need to provide for any associated deferred tax liabilities. 271 265 i F n a n c a s l i Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued H: Non-financial assets and liabilities continued H8: Trade, other payables and other liabilities H: Non-financial assets and liabilities continued H8: Trade, other payables and other liabilities Amounts payable on direct insurance business Amounts payable on direct insurance business Funds held under reinsurance business ceded Amounts owed to policyholders Amounts owed to intermediaries Funds held under reinsurance business ceded Amounts owed to policyholders Amounts owed to intermediaries Other direct insurance operation creditors Note Note At 31 December 2017 At 31 December – 2017 233 47 – 61 233 341 47 54 61 207 341 38 54 – 207 – 38 19 – 510 – 6 19 297 510 1,057 6 2,529 297 1,057 2,529 £m At 31 December £m 2016 At 31 December 14 2016 394 82 14 17 394 507 82 47 17 370 507 83 47 48 370 139 83 1,006 48 795 139 620 1,006 491 795 1,006 620 5,112 491 1,006 5,112 J1 Accounts payable on reinsurance business Other direct insurance operation creditors Accruals and deferred income Post-employment benefits Accounts payable on reinsurance business Liability for long-service leave Accruals and deferred income Short trading securities, spot positions and other Post-employment benefits Trade creditors Liability for long-service leave Outstanding settlements Short trading securities, spot positions and other Securities sold under agreements to repurchase Trade creditors Obligations in relation to collateral holdings Outstanding settlements Other liabilities Securities sold under agreements to repurchase Total trade, other payables and other liabilities Obligations in relation to collateral holdings Other liabilities At 31 December 2017, total trade, other payables and other liabilities of £2,283 million attributable to Nedbank and Old Mutual Wealth Total trade, other payables and other liabilities have been transferred to liabilities held for sale and distribution in the consolidated statement of financial position. Refer to note A4 for more information. At 31 December 2017, total trade, other payables and other liabilities of £2,283 million attributable to Nedbank and Old Mutual Wealth have been transferred to liabilities held for sale and distribution in the consolidated statement of financial position. Refer to note A4 for Included in the amounts shown above are £2,195 million (2016: £3,046 million) that are regarded as current, with the remainder regarded more information. as non-current. Included in the amounts shown above are £2,195 million (2016: £3,046 million) that are regarded as current, with the remainder regarded H9: Equity as non-current. J1 (a) Share capital H9: Equity Financial instruments issued are classified as equity when there is no contractual obligation to transfer cash, other financial assets or issue a variable number of own equity instruments. Incremental costs directly attributable to the issue of equity instruments are shown in equity (a) Share capital as a deduction from the proceeds, net of tax. Financial instruments issued are classified as equity when there is no contractual obligation to transfer cash, other financial assets or issue a variable number of own equity instruments. Incremental costs directly attributable to the issue of equity instruments are shown in equity £m as a deduction from the proceeds, net of tax. At 31 December £m 2016 At 563 31 December 2016 563 (b) Perpetual preferred callable securities 4,932.7 million (2016: 4,929.9 million) Issued ordinary shares of 113/7p each On 3 February 2017, the Group repurchased all of its outstanding Tier 1 preferred perpetual callable securities using cash from the Group's existing resources. In addition to repaying the nominal value of the securities, £29 million was paid to holders of the securities (b) Perpetual preferred callable securities for accrued interest and a market premium in excess of nominal value. The premium was recognised directly in equity. On 3 February 2017, the Group repurchased all of its outstanding Tier 1 preferred perpetual callable securities using cash from the Group's existing resources. In addition to repaying the nominal value of the securities, £29 million was paid to holders of the securities for accrued interest and a market premium in excess of nominal value. The premium was recognised directly in equity. At 31 December 2017 At 564 31 December 2017 564 4,932.7 million (2016: 4,929.9 million) Issued ordinary shares of 113/7p each 272 266 266 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 H10: Non-controlling interests (a) Profit or loss (i) Ordinary shares The non-controlling interests' share of profit for the financial year has been calculated on the basis of the Group's effective ownership of the subsidiaries in which it does not own 100% of the ordinary equity. The principal subsidiaries where a non-controlling interest exists is Nedbank, the Group's South African banking business and OM Asset Management plc, the Group's US asset management business. For the year ended 31 December 2017 the non-controlling interests attributable to ordinary shares was £315 million (2016: £253 million). (ii) Preferred securities Nedbank R3,222 million (2016: R3,222 million) non-cumulative preference shares R2,600 million (2016: R2,000 million) subordinated callable notes At 31 December 2017 £m At 31 December 2016 19 15 34 18 4 22 (iii) Non-controlling interests – adjusted operating profit The following table reconciles non-controlling interests' share of profit for the financial year to non-controlling interests' share of adjusted operating profit: Reconciliation of non-controlling interests' share of profit for the financial year The non-controlling interests' share is analysed as follows: Non-controlling interests – ordinary shares Impact of acquisition accounting Income attributable to Black Economic Empowerment trusts of listed subsidiaries Attributable to Institutional Asset Management equity plans Non-controlling interests' share of adjusted operating profit Year ended 31 December 2017 £m Year ended 31 December 2016 315 34 6 9 364 253 53 10 3 319 The Group uses an adjusted weighted average effective ownership interests when calculating the non-controllable interest applicable to the adjusted operating profit of its Southern African banking businesses. These reflect the legal ownership of this business following the implementation for Black Economic Empowerment (BEE) schemes in 2005. In accordance with IFRS accounting rules the shares issued for BEE purposes are deemed to be, in substance, options. Therefore the effective ownership interest of the minorities reflected in arriving at profit after tax in the consolidated income statement is lower than that applied in arriving at adjusted operating profit after tax. In 2017 the increase in adjusted operating profit attributable to non-controlling interests as a result of this was £6 million (2016: £10 million). (b) Consolidated statement of financial position (i) Ordinary shares Reconciliation of movements in non-controlling interests Balance at beginning of the year Non-controlling interests' share of profit Non-controlling interests' share of dividends paid Disposal of interest in OM Asset Management plc Change in participation in subsidiaries Foreign exchange and other movements Balance at end of the year At 31 December 2017 2,773 315 (177) (550) 74 7 2,442 £m At 31 December 2016 1,982 253 (149) 153 – 534 2,773 273 267 i F n a n c a s l i Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued H: Other statement of financial position notes continued H10: Non-controlling interests continued H: Other statement of financial position notes continued (ii) Preferred securities H10: Non-controlling interests continued (ii) Preferred securities At 31 December 2017 At 31 December 272 2017 (26) 246 272 131 (26) 377 246 131 377 £m At 31 December £m 2016 At 31 December 272 2016 (26) 246 272 95 (26) 341 246 95 341 Nedbank 358.3 million (2016: 358.3 million) non-cumulative preference shares Repurchased by Nedbank subsidiaries Nedbank 358.3 million (2016: 358.3 million) non-cumulative preference shares R2,600 million (2016: R2,000 million) Tier 1 perpetual subordinated instruments Repurchased by Nedbank subsidiaries Total R2,600 million (2016: R2,000 million) Tier 1 perpetual subordinated instruments Preferred securities are held at the value of consideration received less unamortised issue costs and are stated net of securities held by Total Group companies. Preferred securities are held at the value of consideration received less unamortised issue costs and are stated net of securities held by Non-cumulative preference shares Group companies. These preference shares were issued by Nedbank Limited (Nedbank), the Group's banking subsidiary. Non-cumulative preference shares Each preference share confers on the holder the right to capital of the company in the form of a cash dividend prior to payment of These preference shares were issued by Nedbank Limited (Nedbank), the Group's banking subsidiary. dividends to any other class of shareholder. The rate is limited to 83,33% of the prevailing prime rate on a deemed value of R10 and is never compounded. Each preference share confers on the holder the right to capital of the company in the form of a cash dividend prior to payment of dividends to any other class of shareholder. The rate is limited to 83,33% of the prevailing prime rate on a deemed value of R10 and is If a preference dividend is not declared, the dividend will not accumulate and will never become payable by the company, whether in never compounded. preference to payments to any other class of share or otherwise. If a preference dividend is not declared, the dividend will not accumulate and will never become payable by the company, whether in Each preference share confers on the holder the right to a return of capital on the winding-up of the company prior to any payment to any preference to payments to any other class of share or otherwise. other class of share, but holders are not entitled to any further participation in the profits, assets or any surplus assets of the company in such circumstances. Each preference share confers on the holder the right to a return of capital on the winding-up of the company prior to any payment to any other class of share, but holders are not entitled to any further participation in the profits, assets or any surplus assets of the company in Preference shareholders are only entitled to vote during periods when a dividend or any part of it remains unpaid after the due date for such circumstances. payment or when resolutions are proposed that directly affect any rights attaching to the shares or the rights of the holders. Preference shareholders are only entitled to vote during periods when a dividend or any part of it remains unpaid after the due date for Tier 1 perpetual subordinated instruments payment or when resolutions are proposed that directly affect any rights attaching to the shares or the rights of the holders. On 20 May 2016, Nedbank Limited issued a R1,500 million new-style (Basel III-compliant) additional Tier 1 capital instrument at 3-month JIBAR plus 7.0% with a call date of 21 May 2021. Tier 1 perpetual subordinated instruments On 20 May 2016, Nedbank Limited issued a R1,500 million new-style (Basel III-compliant) additional Tier 1 capital instrument at 3-month On 25 November 2016, Nedbank Limited issued a R500 million new-style (Basel III-compliant) additional Tier 1 capital instrument at JIBAR plus 7.0% with a call date of 21 May 2021. 3-month JIBAR plus 6.3% with a call date of 26 November 2021. On 25 November 2016, Nedbank Limited issued a R500 million new-style (Basel III-compliant) additional Tier 1 capital instrument at On 30 June 2017, Nedbank Limited issued a R600 million new-style (Basel III-compliant) additional Tier 1 capital instrument at 3-month 3-month JIBAR plus 6.3% with a call date of 26 November 2021. JIBAR plus 5.65% with a call date of 1 July 2022. On 30 June 2017, Nedbank Limited issued a R600 million new-style (Basel III-compliant) additional Tier 1 capital instrument at 3-month These Tier 1 capital instruments are perpetual and subordinated with no redemption date. They are redeemable subject to regulatory JIBAR plus 5.65% with a call date of 1 July 2022. approval at the sole discretion of the issuer, Nedbank Limited from the applicable call date and following a regulatory event or following a tax event. The payment of interest is at the discretion of the issuer and interest payments are non-cumulative. In addition, if certain These Tier 1 capital instruments are perpetual and subordinated with no redemption date. They are redeemable subject to regulatory conditions are reached the regulator may prohibit Nedbank from making interest payments. Accordingly the instruments are classified approval at the sole discretion of the issuer, Nedbank Limited from the applicable call date and following a regulatory event or following as equity instruments and disclosed as non-controlling interest. a tax event. The payment of interest is at the discretion of the issuer and interest payments are non-cumulative. In addition, if certain conditions are reached the regulator may prohibit Nedbank from making interest payments. Accordingly the instruments are classified as equity instruments and disclosed as non-controlling interest. 274 268 268 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 I: Interests in subsidiaries, associates and joint arrangements Critical accounting estimates and judgements – Investments in subsidiaries, associated undertakings and joint arrangements The Group has applied the following key judgements in the application of the requirements of the consolidation set of standards (IFRS 10 'Consolidated Financial Statements' and IFRS 11 'Joint Arrangements'): Consolidation of investment funds and securitisation vehicles The Group acts as a fund manager to a number of investment funds. In determining whether the Group controls such a fund, it will focus on an assessment of the aggregate economic interests of the Group (comprising any carried interests and expected management fees) and the investor's rights to remove the fund manager. This general assessment is supplemented by an assessment of third-party rights in the investment funds, with regards to their practical ability to allow the Group not to control the fund. The Group assesses, on an annual basis, such interests to determine if the fund will be consolidated. The non-controlling interests in investment funds consolidated by the Group are classified as third-party interests in consolidated funds, a financial liability, in the consolidated statement of financial position. These interests are classified at fair value through profit or loss and measured at fair value, which is equal to the bid value of the number of units of the investment funds' scheme not owned by the Group. Any investments held in Old Mutual plc shares are treated as treasury shares and are eliminated as a direct decrease in the value of equity and the value of investment and securities. The Group has sponsored certain asset backed financing (securitisation) vehicles under its securitisation programme which are run according to pre-determined criteria that are part of the initial design of the vehicles. The Group is exposed to variability of returns from the vehicles through its holding of junior debt securities in the vehicles. It has concluded that it controls these vehicles and therefore has consolidated these asset backed financing vehicles. Structured entities The Group is required to make judgements on what constitutes a structured entity. Accounting standards define a structured entity as an entity designed so that its activities are not governed by way of voting rights. In assessing whether the Group has power over such investees in which it has an economic interest, the Group considers numerous factors. These factors may include the purpose and design of the investee, its practical ability to direct the relevant activities of the investee, the nature of its relationship with the investee and the size of its exposure to the variability of returns of the investee. The Group has evaluated all exposures and has concluded that all investments in investment funds as well as certain securitisation vehicles and other funding vehicles represent investments in structured entities. Information on structured entities is included in note I3. Accounting for the investment in Zimbabwe Following recent political developments in Zimbabwe, the current macro-economic situation remains fluid, and the market reaction remains volatile. The current risks for our Zimbabwean businesses include the shortage of US dollars, uncertainty of the current levels and growth of equity markets and property prices and reputational issues arising from the postponement of all bonus declarations in light of the current market uncertainty. The Group has total assets and total liabilities of £2,278 million (2016: £1,777million) and £1,803 million (2016: £1,406 million) respectively in the Zimbabwean business of which £1,031 million (2016: £472 million) are listed financial assets at fair value. In addition the Group has £1,080 million (2016: £775 million) of policyholder liabilities which are backed by primarily investment and securities held by the Group. The Group has concluded on the following key judgements in the preparation of the Group financial statements: the control and functional currency of the Zimbabwean businesses and the fair value of locally listed financial assets and liabilities. The Group has concluded that it will consolidate the Zimbabwean businesses as it still has the ability to exercise control. The functional currency of the Zimbabwean businesses, consistent with prior years, is US Dollars. This is evidenced by trade in Zimbabwe being principally conducted in US dollar and that all major goods and services are priced in US Dollar. The fair value of any financial assets or liabilities was based on the unadjusted quoted prices as the Group believes the traded prices represent fair value in an active and orderly market. The Group has evidenced this through the reviewing the volume and value of trades conducted on the Zimbabwe Stock Exchange (ZSE). The value of the ZSE index was 144.53 at 31 December 2016, 195.97 at 30 June 2017 and 323.98 at 31 December 2017. Subsequent to year end the ZSE index was 294.55 at 28 February 2018.The ZSE index provides the underlying context of the investment returns earned by the Zimbabwean business. 275 269 i F n a n c a s i l Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued I: Interests in subsidiaries, associates and joint arrangements continued I1: Subsidiaries I: Interests in subsidiaries, associates and joint arrangements continued (a) Principal subsidiaries and Group enterprises I1: Subsidiaries The following table lists the principal Group undertakings whose results are included in the consolidated financial statements. All shares held are ordinary shares and, except for OM Group (UK) Limited and Old Mutual Wealth Management Limited, are held indirectly by the (a) Principal subsidiaries and Group enterprises Company. Refer to note L for a detailed list of the Group's related undertakings. The following table lists the principal Group undertakings whose results are included in the consolidated financial statements. All shares held are ordinary shares and, except for OM Group (UK) Limited and Old Mutual Wealth Management Limited, are held indirectly by the Company. Refer to note L for a detailed list of the Group's related undertakings. Nature of business Name Holding company Old Mutual Group Holdings (SA) (Pty) Limited Holding company AIVA Holding Group S.A Nature of business Name Lending Faulu Microfinance Bank Limited Holding company Old Mutual Group Holdings (SA) (Pty) Limited Property & casualty Old Mutual Insure Limited Holding company AIVA Holding Group S.A Nedbank Group Limited1,4 Banking Lending Faulu Microfinance Bank Limited Nedbank Limited2,4 Banking Property & casualty Old Mutual Insure Limited Banco Único, SA4 Banking Nedbank Group Limited1,4 Banking Holding company Old Mutual (Africa) Holdings (Pty) Limited Nedbank Limited2,4 Banking Holding company Old Mutual (Netherlands) B.V. Banco Único, SA4 Banking Holding company Old Mutual Emerging Markets Limited Holding company Old Mutual (Africa) Holdings (Pty) Limited Lending Old Mutual Finance (Pty) Ltd Holding company Old Mutual (Netherlands) B.V. Asset management Old Mutual Investment Group (Pty) Limited Holding company Old Mutual Emerging Markets Limited Holding company Old Mutual Investment Group Holdings (Pty) Limited Lending Old Mutual Finance (Pty) Ltd Life assurance Old Mutual Life Assurance Company (Namibia) Limited Asset management Old Mutual Investment Group (Pty) Limited Life assurance Old Mutual Life Assurance Company (South Africa) Limited Holding company Old Mutual Investment Group Holdings (Pty) Limited Old Mutual Wealth Management Limited4 Holding company Life assurance Old Mutual Life Assurance Company (Namibia) Limited Life assurance Old Mutual Zimbabwe Limited Life assurance Old Mutual Life Assurance Company (South Africa) Limited Holding company OM Group (UK) Limited Old Mutual Wealth Management Limited4 Holding company Holding company OM Latin America Holdco UK Limited Life assurance Old Mutual Zimbabwe Limited Quilter Cheviot Limited4 Asset management Holding company OM Group (UK) Limited UAP Holdings Limited3 Holding company Holding company OM Latin America Holdco UK Limited Quilter Cheviot Limited4 Asset management 1 Nedbank Group Limited is a publicly listed company, with its primary listing on the JSE (Johannesburg, South Africa) UAP Holdings Limited3 Holding company 2 Nedbank Limited is a 100% subsidiary of Nedbank Group Limited. The Group's effective ownership is 55% 3 Two significant minority anchor shareholders in UAP have the rights to collectively put up to an aggregate 6% shareholding in UAP to the Group at any time before the third 1 Nedbank Group Limited is a publicly listed company, with its primary listing on the JSE (Johannesburg, South Africa) anniversary of the effective date of the UAP shareholders agreement (i.e. in September 2018), while the Group owns less than a 66.67% shareholding in UAP at a price 2 Nedbank Limited is a 100% subsidiary of Nedbank Group Limited. The Group's effective ownership is 55% determinable in accordance with the UAP shareholders' agreement. The exercise price of the minority anchor shareholders' put option at the Last Practicable Date is in the 3 Two significant minority anchor shareholders in UAP have the rights to collectively put up to an aggregate 6% shareholding in UAP to the Group at any time before the third order of £24 million (R400 million) anniversary of the effective date of the UAP shareholders agreement (i.e. in September 2018), while the Group owns less than a 66.67% shareholding in UAP at a price 4 Entities are part of the businesses classified as held for distribution. determinable in accordance with the UAP shareholders' agreement. The exercise price of the minority anchor shareholders' put option at the Last Practicable Date is in the order of £24 million (R400 million) Country of incorporation Republic of South Africa Panama Country of incorporation Kenya Republic of South Africa Republic of South Africa Panama Republic of South Africa Kenya Republic of South Africa Republic of South Africa Republic of Mozambique Republic of South Africa Republic of South Africa Republic of South Africa Netherlands Republic of Mozambique Republic of South Africa Republic of South Africa Republic of South Africa Netherlands Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Namibia Republic of South Africa Republic of South Africa Republic of South Africa England and Wales Namibia Zimbabwe Republic of South Africa England and Wales England and Wales England and Wales Zimbabwe England and Wales England and Wales Kenya England and Wales England and Wales Kenya Percentage holding 100 Percentage 100 holding 67 100 100 100 55 67 100 100 50 55 100 100 100 50 100 100 75 100 100 100 100 75 100 100 100 100 100 100 75 100 100 100 100 75 100 100 61 100 100 61 All the above companies have a year-end of 31 December and their financial results have been incorporated and are included in the 4 Entities are part of the businesses classified as held for distribution. Group financial statements from the effective date that the Group controls the entity. All the above companies have a year-end of 31 December and their financial results have been incorporated and are included in the There are certain funds in which the Group owns more than 50% of the equity but does not consolidate these because of certain Group financial statements from the effective date that the Group controls the entity. management contracts which give other parties the power to control these funds. These management contracts may include that the ability to control is delegated to a third party with no rights of removal on similar types of contractual agreements. There are certain funds in which the Group owns more than 50% of the equity but does not consolidate these because of certain management contracts which give other parties the power to control these funds. These management contracts may include that the ability to control is delegated to a third party with no rights of removal on similar types of contractual agreements. 276 270 270 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 (b) Non-controlling interests in subsidiaries The following table summarises the information relating to the Group's subsidiaries that have material non-controlling interests: At 31 December 2017 Consolidated statement of financial position Total assets Total liabilities Net assets Non-controlling interests Consolidated income statement Total revenue Profit before tax Income tax expense Profit after tax for the financial year Non-controlling interests Nedbank Group Limited OM Asset Management plc Old Mutual Finance (Pty) Limited UAP Holdings Limited1 Other subsidiaries Total Emerging Markets £m Total 58,492 (53,216) 5,276 2,597 5,790 966 (246) 720 346 – – – – 213 30 (6) 24 2 648 (524) 124 62 214 48 (16) 32 8 417 (282) 135 80 155 16 (4) 12 (22) 6,435 (5,413) 1,022 80 1,677 266 (47) 219 15 7,500 (6,219) 1,281 222 65,992 (59,435) 6,557 2,819 2,046 330 (67) 263 1 8,049 1,326 (319) 1,007 349 1 The financial information of UAP Holdings Limited (UAP) represents the results of UAP for year ended 31 December 2017 and the consolidated statement of financial position at 31 December 2017 as consolidated by the Group. This consolidated result may vary significantly from the full year results published by UAP due to acquisition entries recognised by the Group. During the year ended 31 December 2017, dividends of £166 million (2016: £154 million) was paid to non-controlling interests in Nedbank Group Limited and £4 million (2016: £10 million) was paid to the non-controlling interest in OM Asset Management plc (OMAM) up to 19 May 2017, the date OMAM was deconsolidated from the Group. Refer to note A2 for more information on the disposal of OMAM. At 31 December 2016 Nedbank Group Limited OM Asset Management plc Old Mutual Finance (Pty) Limited UAP Holdings Limited Other subsidiaries Total Emerging Markets £m Total Consolidated statement of financial position Total assets Total liabilities Net assets Non-controlling interests Consolidated income statement Total revenue Profit before tax Income tax (expense)/credit Profit after tax for the financial year Non-controlling interests 56,791 (51,982) 4,809 2,333 4,863 737 (199) 538 256 1,959 (867) 1,092 566 490 124 (30) 94 31 842 (629) 213 57 193 41 (15) 26 (7) 455 (315) 140 109 142 10 (2) 8 (3) 3,811 (3,469) 342 49 5,108 (4,413) 695 215 63,858 (57,262) 6,596 3,114 845 159 (26) 133 (2) 1,180 210 (43) 167 (12) 6,533 1,071 (272) 799 275 277 271 i F n a n c a s i l Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued I: Interests in subsidiaries, associates and joint arrangements continued I1: Subsidiaries continued I: Interests in subsidiaries, associates and joint arrangements continued (c) Restrictions on the Group's ability to obtain funds from its subsidiaries I1: Subsidiaries continued Statutory and regulatory restrictions in terms of the South African Reserve Bank controls and solvency restrictions imposed by the Financial Services Board in South Africa to comply with statutory capital statutory requirements, restrict the amount of funds that can (c) Restrictions on the Group's ability to obtain funds from its subsidiaries be transferred out of South Africa to the Group. In addition, the banking subsidiary companies are restricted by Basel regulations and Statutory and regulatory restrictions in terms of the South African Reserve Bank controls and solvency restrictions imposed by the prudential requirements with regard to the distributions of funds to their holding company. Regulated entities may only be permitted Financial Services Board in South Africa to comply with statutory capital statutory requirements, restrict the amount of funds that can to remit dividends in terms of local capital requirements and/or permission being obtained from the regulator to distribute such funds. be transferred out of South Africa to the Group. In addition, the banking subsidiary companies are restricted by Basel regulations and prudential requirements with regard to the distributions of funds to their holding company. Regulated entities may only be permitted The non-controlling interests do not have any ability to restrict the cash flows to the Group. to remit dividends in terms of local capital requirements and/or permission being obtained from the regulator to distribute such funds. (d) Guarantees provided by the Group to subsidiaries The non-controlling interests do not have any ability to restrict the cash flows to the Group. No significant guarantees have been provided by the Group during the financial year. (d) Guarantees provided by the Group to subsidiaries The Group provides financial support in certain cases where funds require seed capital and also provides liquidity funding in the case of No significant guarantees have been provided by the Group during the financial year. large divestments from unit trust funds. The Group provides financial support in certain cases where funds require seed capital and also provides liquidity funding in the case of (e) Loss of control of subsidiaries large divestments from unit trust funds. During the year, the Group's sold down its stake in OMAM through a series of transactions as described in note A2. As a result, the Group no longer considered that it exercised control over the business in accordance with the requirements set out in IFRS 10 'Consolidated (e) Loss of control of subsidiaries Financial Statements', from 19 May 2017. This resulted in OMAM being deconsolidated from the Group financial statements from this During the year, the Group's sold down its stake in OMAM through a series of transactions as described in note A2. As a result, the Group date. On 18 November 2017, the Group's stake in OMAM further reduced to 1,000 shares which have been accounted for as investments no longer considered that it exercised control over the business in accordance with the requirements set out in IFRS 10 'Consolidated and securities within the plc Head Office segment. Refer to note A2 and note B1 for more information. Financial Statements', from 19 May 2017. This resulted in OMAM being deconsolidated from the Group financial statements from this date. On 18 November 2017, the Group's stake in OMAM further reduced to 1,000 shares which have been accounted for as investments and securities within the plc Head Office segment. Refer to note A2 and note B1 for more information. 278 272 272 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 I2: Investments in associated undertakings and joint ventures (a) Investments in associated undertakings and joint ventures The Group's equity accounted and fair value investments in associated undertakings and joint ventures are as follows: At 31 December 2017 Private equity associates and associate companies Individually immaterial associates Unlisted Kotak Mahindra Old Mutual Life Insurance1,6 Two Rivers Lifestyle Centre2 Squarestone Growth LLP3 Kabokweni Plaza Shareblock Proprietary Limited4 Newtown Motor Dealership (Pty) Ltd4 Other individually immaterial associates Other Total investment in associate undertakings Joint ventures Unlisted Old Mutual Guodian Life Insurance Company Ltd5 Total investment in Joint ventures Total investments in associates and joint ventures Nature of activities Percentage holding Measurement method Carrying value £m Group share of profit £m Life assurance Property Property Property Property 26% Equity accounted 50% Equity accounted 32% Equity accounted 49% Equity accounted 50% Equity accounted Life assurance 50% Equity accounted – 31 18 6 6 12 73 34 34 107 11 (2) 1 1 – – 11 (2) (2) 9 1 Country of operation: India 2 Country of operation: Kenya 3 Country of operation: United Kingdom 4 Country of operation: Republic of South Africa 5 Country of operation: China 6 On 13 October 2017, the Group completed the sale of its 26% stake in Kotak to its joint venture partner Kotak Mahindra Bank Limited. The conclusion of the transaction also terminated the joint venture arrangement, extinguishing the respective put and call option arrangements between the parties relating to a 23% stake in the joint venture. Refer to note A2 for more information. Of the total carrying value of associates and joint ventures, £nil (2016: £139 million) relates to those which are measured at fair value and £107 million (2016: £403 million) relates to those which have been equity accounted. All of the joint ventures are strategic in the Group's underlying operating model. The joint ventures are evaluated according to the Groups' contractual rights to jointly control the entity. 279 273 i F n a n c a s i l Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued – 9 – – 9 – – – – – – 1 – 10 – 1 10 (2) 2 – (2) – 2 10 – – 10 Group share of profit Group £m share of (Re-presented)1 profit £m (Re-presented)1 – Carrying value £m Carrying value £m 235 235 45 54 16 45 4 54 16 4 36 73 40 36 503 73 40 503 I: Interests in subsidiaries, associates and joint arrangements continued I2: Investments in associated undertakings and joint ventures continued I: Interests in subsidiaries, associates and joint arrangements continued At 31 December 2016 I2: Investments in associated undertakings and joint ventures continued At 31 December 2016 Percentage Nature of activities holding Measurement method Nature of activities Banking Ecobank Transnational Incorporated Private equity associates and associate companies Listed Private equity associates and associate companies Individually immaterial associates Listed Unlisted Ecobank Transnational Incorporated Banking Kotak Mahindra Old Mutual Life Insurance Life assurance Individually immaterial associates Property Two Rivers Lifestyle Centre Unlisted Masingita Property Investment Holdings (Pty) Ltd Property Development Life assurance Kotak Mahindra Old Mutual Life Insurance Odyssey Developments (Pty) Ltd Property Development Property Two Rivers Lifestyle Centre Other individually immaterial associates Masingita Property Investment Holdings (Pty) Ltd Property Development Odyssey Developments (Pty) Ltd Property Development Various Other individually immaterial associates Various Various Various Private-equity associates (property investment) Private-equity associates (Manufacturing, Private-equity associates (property investment) Private-equity associates (Manufacturing, industrial, leisure and other) Percentage holding Measurement method Equity accounted 21% 21% 26% 50% 35% 26% 49% 50% 35% 49% Equity accounted Equity accounted Equity accounted Fair value Equity accounted Fair value Equity accounted Fair value Fair value Fair value Fair value Fair value Fair value industrial, leisure and other) Other Total investments in associate undertakings Other Joint ventures Total investments in associate undertakings Unlisted Old Mutual Guodian Life Insurance Company Ltd Joint ventures Banco Unico, S.A. Unlisted Curo Fund Services Old Mutual Guodian Life Insurance Company Ltd Total investments in joint ventures Banco Unico, S.A. Total investments in associates and joint ventures Curo Fund Services Total investments in joint ventures 1 The Group share of profit from investments in associated undertakings and joint ventures for the year ended 31 December 2016 has been re-presented to reflect Nedbank and Total investments in associates and joint ventures Life assurance Banking Asset Management Life assurance Banking Asset Management Equity accounted Equity accounted Equity accounted Equity accounted Equity accounted Equity accounted Old Mutual Wealth as discontinued operations. Refer to note A4 for more information. 36 – 3 36 39 – 542 3 39 542 50% 38% 50% 50% 38% 50% 1 The Group share of profit from investments in associated undertakings and joint ventures for the year ended 31 December 2016 has been re-presented to reflect Nedbank and Old Mutual Wealth as discontinued operations. Refer to note A4 for more information. 280 274 274 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 (b) Aggregate financial information of material investments in associated undertakings and joint ventures The Group's investment in Ecobank Transnational Incorporated (ETI) has been classified as assets held for sale and distribution as part of the assets of Nedbank. The carrying value of the investment in ETI at 31 December 2017 was £198 million. The aggregate financial information for ETI is as follows: At 31 December Fair-value of investment in Ecobank Transnational Incorporated based on the closing quoted price on the Nigerian Stock Exchange Statement of comprehensive income Revenue Profit from continuing operations Post-tax loss from discontinued operations Other comprehensive income/(loss) Total comprehensive income/(loss) Statement of financial position Current assets Non-current assets Current liabilities Non-current liabilities Net assets Ecobank Transnational Incorporated 2017 £m Ecobank Transnational Incorporated 2016 215 144 1,050 147 1 81 229 8,759 6,613 7,401 6,479 1,492 1,043 158 (1) (471) (314) 9,678 7,238 8,309 7,037 1,570 As in previous financial years, one of the Group's associate investments, ETI, will report results for the year ended 31 December 2017 subsequent to the release of the Group's audited consolidated financial statements. Therefore, as allowed by IAS 28, the Group uses the most recent public information of ETI as at 30 September 2017 (i.e. a quarter in arrears) to determine its share of ETI's earnings. In addition, as required by IAS 28, the Group considers whether adjustments for significant transactions or events between 30 September 2017 and 31 December 2017 are required based on publicly available information. The resulting equity accounted earnings is translated from US dollar to rand at the average exchange rate applicable for the quarter in which the Group accounts for the earnings. The Group's share of the net assets of ETI is translated from US dollars to rand at the closing exchange rate. After application of the equity method, an entity determines whether there are indicators of impairment in terms of IAS 39. If impairment is indicated, the amount to be recognised as an impairment loss is calculated by reference to IAS 36. In terms of IAS 39 indicators of impairment include a significant or prolonged decline in the fair value of an associate below its carrying value. In addition, information about significant changes with an adverse effect that have taken place in the technological, market, economic or legal environment in which the associate operates are also indicators that the carrying value of the associate may not be recovered. The carrying value of the Group’s strategic investment in ETI decreased from £235 million (R4.0 billion) to £198 million (R3.3 billion) during the year, due to a combination of the rand strengthening against the US dollar and the Group's share of losses incurred by ETI during the 12 months to 30 September 2017. The market value of the Group’s investment in ETI, based on its quoted share price, was £198 million (R3.6 billion) on 31 December 2017 and £252 million (R4.1 billion) on 28 February 2018. Based on the Group's 2016 value-in-use (VIU) calculation, management determined that an impairment provision of £50 million (R1.0 billion) was appropriate. This reduced the carrying value of the Group’s investment in ETI to £235 million (R4.0 billion) at 31 December 2016. This calculation is required to be revisited at each reporting period where the indicators of impairment are reconsidered and the VIU calculation reassessed taking into account any future changes in estimates and assumptions. Based on management's 2017 assessment there are no observable indicators of further impairment at 31 December 2017 and insufficient observable indicators that the impairment loss recognised in 2016 has decreased. The £50 million (R1.0 billion) impairment recognised in 2016 has therefore not been reversed in the current reporting period. ETI has been an important long-term investment for Nedbank, providing our clients with a pan-African transactional banking network across 39 countries and access to dealflow in Central and West Africa since its acquisition in 2014. The Group remains supportive of ETI’s endeavours of delivering an ROE in excess of its COE in due course. Conditions in the key markets in which ETI operates have improved in 2017 and management expects further improvements in 2018 and beyond. 281 275 i F n a n c a s l i Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued I: Interests in subsidiaries, associates and joint arrangements continued I2: Investments in associated undertakings and joint ventures continued I: Interests in subsidiaries, associates and joint arrangements continued (c) Aggregate financial information of other investment in associated undertakings and joint ventures I2: Investments in associated undertakings and joint ventures continued The aggregate amounts for investment in associated undertakings and joint ventures at 31 December 2017 presented in the table below are in respect of the Group's continuing operations. Consistent with the requirements of accounting standards, the comparative period has (c) Aggregate financial information of other investment in associated undertakings and joint ventures not been re-presented for the aggregate amounts for investment in associated undertakings and joint ventures in respect of businesses The aggregate amounts for investment in associated undertakings and joint ventures at 31 December 2017 presented in the table below classified as held for distribution. The comparative information presented at 31 December 2017, therefore includes the capital are in respect of the Group's continuing operations. Consistent with the requirements of accounting standards, the comparative period has commitments for the composition of the Group as at 31 December 2016. not been re-presented for the aggregate amounts for investment in associated undertakings and joint ventures in respect of businesses classified as held for distribution. The comparative information presented at 31 December 2017, therefore includes the capital commitments for the composition of the Group as at 31 December 2016. Year ended 31 December 2017 Year ended 1,700 31 December (1,193) 2017 438 1,700 (1,193) 438 £m Year ended 31 December £m 2016 Year ended 4,147 31 December (3,610) 2016 699 4,147 (3,610) 699 Total assets Total liabilities Total revenues Total assets Total liabilities Total revenues (d) Aggregate Group investment in associated undertakings and joint ventures The aggregate amounts for the Group's investment in associated undertakings and joint ventures are as follows: (d) Aggregate Group investment in associated undertakings and joint ventures The aggregate amounts for the Group's investment in associated undertakings and joint ventures are as follows: £m Year ended Year ended 31 December 31 December £m 2016 2017 Year ended Year ended Balance at beginning of the year 514 542 31 December 31 December Net additions of investment in associated undertakings and joint ventures 93 61 2016 2017 Share of profit after tax 4 (36) Balance at beginning of the year 514 542 Transfer of investments in associate companies to investments in subsidiaries (13) – Net additions of investment in associated undertakings and joint ventures 93 61 Impairment provision for investments in associate companies (50) – Share of profit after tax 4 (36) Dividends paid (19) (4) Transfer of investments in associate companies to investments in subsidiaries (13) – Disposal of investment in associated undertakings and joint ventures – (58) Impairment provision for investments in associate companies (50) – Foreign exchange and other movements 39 6 Dividends paid (19) (4) Transfer to assets held for sale and distribution1 (26) (404) Disposal of investment in associated undertakings and joint ventures – (58) 542 107 Balance at end of the year Foreign exchange and other movements 39 6 Transfer to assets held for sale and distribution1 (26) (404) 1 At 31 December 2017, investments in associated undertakings and joint ventures attributable to Nedbank and Old Mutual Wealth have been transferred to assets held for sale and 542 107 Balance at end of the year distribution in the consolidated statement of financial position. At 31 December 2016, investments in associated undertakings and joint ventures attributable to Institutional Asset Management were transferred to assets held for sale and distribution in the consolidated statement of financial position. Refer to note A4 for more information. 1 At 31 December 2017, investments in associated undertakings and joint ventures attributable to Nedbank and Old Mutual Wealth have been transferred to assets held for sale and distribution in the consolidated statement of financial position. At 31 December 2016, investments in associated undertakings and joint ventures attributable to Institutional Asset The above table includes those investments that are carried at fair value. The Group has no significant investments in which it owns less Management were transferred to assets held for sale and distribution in the consolidated statement of financial position. Refer to note A4 for more information. than 20% of the ordinary share capital that it accounts for using the equity method. The above table includes those investments that are carried at fair value. The Group has no significant investments in which it owns less (e) Restriction on the Group's ability to obtain funds from its associate undertakings and joint ventures than 20% of the ordinary share capital that it accounts for using the equity method. Statutory and regulatory restrictions in terms of the South African Reserve Bank controls and solvency restrictions imposed by the Financial Service Board in South Africa to comply with statutory capital requirements restrict the amount of funds that can be transferred (e) Restriction on the Group's ability to obtain funds from its associate undertakings and joint ventures out of the country to the Group. In addition, the banking subsidiary companies are restricted by Basel regulations and prudential Statutory and regulatory restrictions in terms of the South African Reserve Bank controls and solvency restrictions imposed by the requirements with regard to the distributions of funds to their holding company. Regulated entities may only be permitted to remit Financial Service Board in South Africa to comply with statutory capital requirements restrict the amount of funds that can be transferred dividends in terms of local capital requirements and/or permission being obtained from the regulator to distribute such funds. out of the country to the Group. In addition, the banking subsidiary companies are restricted by Basel regulations and prudential requirements with regard to the distributions of funds to their holding company. Regulated entities may only be permitted to remit No significant guarantees were provided by the Group to associated undertakings and joint ventures during the financial year. dividends in terms of local capital requirements and/or permission being obtained from the regulator to distribute such funds. (f) Contingent liabilities and commitments No significant guarantees were provided by the Group to associated undertakings and joint ventures during the financial year. At 31 December 2017 and 31 December 2016, the Group had no significant contingent liabilities or commitments relating to investments in associated undertakings and joint ventures. (f) Contingent liabilities and commitments At 31 December 2017 and 31 December 2016, the Group had no significant contingent liabilities or commitments relating to investments (g) Other Group holdings in associated undertakings and joint ventures. The above does not include companies whereby the Group has a holding of more than 20%, but does not have significant influence over these companies by virtue of the Group not having any direct involvement in decision making or the other owners possessing veto rights. (g) Other Group holdings The above does not include companies whereby the Group has a holding of more than 20%, but does not have significant influence over these companies by virtue of the Group not having any direct involvement in decision making or the other owners possessing veto rights. 282 276 276 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 I3: Structured entities (a) Group’s involvement in structured entities In structured entities’ voting rights are not the predominant factor in deciding who controls the entity but rather the Group's exposure to the variability of returns from these entities. The Group acts as fund manager to a number of investment funds. Determining whether the Group controls such an investment fund usually focuses on the assessment of decision making rights as fund manager, the investor's rights to remove the fund manager and the aggregate economic interests of the Group in the fund in the form of interest held and exposure to variable returns. In most instances the Group's decision-making authority, in its capacity as fund manager, with regard to these funds is regarded to be well-defined. Discretion is exercised when decisions regarding the relevant activities of these funds are being made. For funds managed by the Group where the investors have the right to remove the Group as fund manager without cause, the fees earned by the Group, are considered to be market related. These agreements include only terms, conditions or amounts that are customarily present in arrangements for similar services and level of skills negotiated on an arm's length basis. The Group has concluded that it acts as agent on behalf of the investors in all instances. The Group is considered to be acting as principal where the Group is the fund manager and is able to make the investment decisions on behalf of the unit holders, earn a variable fee, and there are no kick out rights that would remove the Group as fund manager. The Group has not provided any non-contractual support to any consolidated or unconsolidated structured entities. The Group has committed to providing certain liquidity facilities for certain securitisation vehicles. The table below summarises the types of structured entities the Group does not consolidate, but may have an interest in: Type of structured entity – Securitisation vehicles Nature – Finance the Group’s own for loans and advances assets through the issue of notes to investors – Investment funds – Manage client funds through the investment in assets – Securitisation vehicles – Finance third party receivables for third-party receivables – Security vehicles and are financed through loans from third party note holders and bank borrowing – Hold and realise assets as a result of the default of a client Purpose – Generate: – Funding for the Group’s lending activities – Margin through sale of assets to investors – Fees for loan servicing – Generate fees from managing assets on behalf of third-party investors – Generate fees from arranging the structure. Interest income may be earned on the notes held by the Group – These entities seek to protect the collateral of the Group on the default of a loan Interest held by the Group – Investment in senior and junior notes issued by the vehicles – Investments in units issued by the fund – Interest in these vehicles is through notes that are traded in the market – Ownership interest will be in proportion of the lending. At 31 December 2017, the Group held no value in security vehicles – Clients investment – Hold client investment assets – Generates various sources of – None entities income for the Group – Black Economic – Fund the acquisition of shares – Generates interest on the funding – Loans to BEE schemes Empowerment (BEE) funding by a BEE partner provided. The Group's holdings in investment vehicles are subject to the terms and conditions of the respective investment vehicle's offering documentation and are susceptible to market price risk arising from uncertainties about future values of those investment vehicles. All of the investment vehicles in the investment portfolios are managed by portfolio managers who are compensated by the respective investment vehicles for their services. Such compensation generally consists of an asset-based fee and a performance based incentive fee, and is reflected in the valuation of the investment vehicles. 283 277 i F n a n c a s l i Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued I: Interests in subsidiaries, associates, and joint arrangements continued I3: Structured entities continued I: Interests in subsidiaries, associates, and joint arrangements continued (b) Securitisation vehicles consolidated in the Group's statement of financial position I3: Structured entities continued Nedbank Securitisations (b) Securitisation vehicles consolidated in the Group's statement of financial position Nedbank Group Ltd, which has been classified as held for distribution at 31 December 2017, uses securitisation primarily as a funding diversification tool and to add flexibility in mitigating structural liquidity risk. The Group currently has four active traditional Nedbank Securitisations securitisation transactions: Nedbank Group Ltd, which has been classified as held for distribution at 31 December 2017, uses securitisation primarily as a funding diversification tool and to add flexibility in mitigating structural liquidity risk. The Group currently has four active traditional  Greenhouse Funding (RF) Limited (Greenhouse), a residential-mortgage-backed securitisation programme securitisation transactions:  Greenhouse Funding III (RF) Limited (Greenhouse III), a residential-mortgage-backed securitisation programme  Precinct Funding 1 (RF) Limited (Precinct Funding 1), a commercial-mortgage-backed securitisation programme, and  Greenhouse Funding (RF) Limited (Greenhouse), a residential-mortgage-backed securitisation programme  Precinct Funding 2 (RF) Limited (Precinct Funding 2), a commercial-mortgage-backed securitisation programme.  Greenhouse Funding III (RF) Limited (Greenhouse III), a residential-mortgage-backed securitisation programme  Precinct Funding 1 (RF) Limited (Precinct Funding 1), a commercial-mortgage-backed securitisation programme, and Synthesis Funding Ltd  Precinct Funding 2 (RF) Limited (Precinct Funding 2), a commercial-mortgage-backed securitisation programme. Synthesis primarily invests in long-term rated bonds and offers capital market funding to SA corporates. These assets are funded through the issuance of short-dated investment-grade commercial paper to institutional investors. During 2017 all the remaining assets were sold Synthesis Funding Ltd and the commercial paper was repaid. As at 31 December 2017 Synthesis' operations had ceased and the company was dormant. Synthesis primarily invests in long-term rated bonds and offers capital market funding to SA corporates. These assets are funded through the issuance of short-dated investment-grade commercial paper to institutional investors. During 2017 all the remaining assets were sold Greenhouse Funding (RF) Limited (Greenhouse) and the commercial paper was repaid. As at 31 December 2017 Synthesis' operations had ceased and the company was dormant. Greenhouse was a securitisation vehicle through which the rights, title, interest and related security in respect of residential home loans were acquired from Nedbank Limited under a segregated-series-medium-term-note programme. Greenhouse Funding (RF) Limited (Greenhouse) Greenhouse was a securitisation vehicle through which the rights, title, interest and related security in respect of residential home loans During December 2007 the first Greenhouse transaction was created and £119 million (R2 billion) of home loans from Nedbank Limited were acquired from Nedbank Limited under a segregated-series-medium-term-note programme. were securitised. Greenhouse was subsequently restructured and refinanced on 19 November 2012 as a static amortising structure. The proceeds from the refinance of this transaction, through the issuance of new notes and subordinated loans, were utilised to repay During December 2007 the first Greenhouse transaction was created and £119 million (R2 billion) of home loans from Nedbank Limited the £78 million (R1 billion) existing notes and subordinated loans on their scheduled maturity, and to acquire additional home loans from were securitised. Greenhouse was subsequently restructured and refinanced on 19 November 2012 as a static amortising structure. Nedbank Limited. The senior notes, which were rated by Moody's and listed on the JSE, were placed with third-party investors, and the The proceeds from the refinance of this transaction, through the issuance of new notes and subordinated loans, were utilised to repay junior notes and subordinated loans retained by the Group. The home loans transferred to Greenhouse had continued to be recognised the £78 million (R1 billion) existing notes and subordinated loans on their scheduled maturity, and to acquire additional home loans from as financial assets held by Nedbank Limited. Nedbank Limited. The senior notes, which were rated by Moody's and listed on the JSE, were placed with third-party investors, and the junior notes and subordinated loans retained by the Group. The home loans transferred to Greenhouse had continued to be recognised The maturity of the Greenhouse securitisation transaction was on 25 October 2017. As such all the outstanding notes issued by as financial assets held by Nedbank Limited. Greenhouse have been redeemed. The maturity of the Greenhouse securitisation transaction was on 25 October 2017. As such all the outstanding notes issued by Greenhouse have been redeemed. 284 278 278 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Greenhouse Funding III (RF) Limited (Greenhouse III) Greenhouse III is a securitisation vehicle through which the rights, title, interest and related security in respect of residential home loans were acquired from Nedbank Limited under a segregated-series-medium-term-note programme. Greenhouse III is a residential-mortgage-backed securitisation programme implemented during 2014. Greenhouse III securitised £119 million (R2 billion) worth of home loans originated by Nedbank Limited through the issuance of senior notes to the capital market and subordinated notes and a subordinated loan provided by Nedbank Limited. The notes issued by Greenhouse III are listed on the JSE and rated by Moody's. The home loans transferred to Greenhouse III continue to be recognised as financial assets held by Nedbank Limited. Greenhouse III makes use of an internal risk management policy, and utilises the Nedbank Group credit risk monitoring process to govern lending activities to external parties. Nedbank Limited provided Greenhouse III with an interest-bearing subordinated loan at the commencement of the programme to provide part of the initial funding. Interest is payable on a quarterly basis, as part of the priority of payments. The full capital amount outstanding plus any accrued interest will be payable in full on the final maturity date, provided that all outstanding notes have been redeemed in full and all secured creditors have been settled. In the Greenhouse III structure Nedbank holds the class D note, amounting to £6 million (R100 million). These notes are subordinated to the higher-ranking notes in terms of the priority of payments. Precinct Funding 1 (RF) Limited (Precinct Funding 1) Precinct Funding 1 is a commercial-mortgage-backed securitisation programme (CMBS). The originator, seller and servicer of the commercial property mortgage loan portfolio is Nedbank CIB Property Finance, the market leader in commercial property finance in SA. The Precinct Funding 1 CMBS Programme was implemented during 2013. Precinct Funding 1 securitised £149 million (R3 billion) worth of commercial property loans originated by Nedbank Limited through the issuance of senior notes to the capital market and subordinated notes and a subordinated loan provided by Nedbank Limited. The notes issued by Precinct Funding 1 are listed on the JSE and rated by Moody's. The class A and class B notes were placed with third-party investors and the junior notes and subordinated loan retained by Nedbank Limited. The Precinct Funding 1 structure takes the form of a static pool of small commercial property loans with limited substitution and redraws or further advance capabilities. Precinct Funding 1 makes use of an internal risk management policy and utilises the Nedbank Group Limited credit risk monitoring process to govern lending activities to external parties. The primary measures used to identify, monitor and report on the level of exposure to credit risk include individual loan and loan portfolio aging and performance analysis, analysis of impairment adequacy ratios, analysis of loss ratio trends and analysis of loan portfolio profitability. The maximum credit exposure to credit risk in respect of the mortgage loans is the balance of outstanding advances before taking into account the value of collateral held as security against such exposures and impairments raised. The collateral held as security for the mortgage asset exposure is in the form of first indemnity bonds over fixed commercial property. Nedbank Limited provided Precinct Funding 1 with an interest-bearing subordinated loan at the commencement of the programme to provide part of the initial funding. Interest is payable on a quarterly basis as part of the priority of payments. The full capital amount outstanding plus any accrued interest will be payable in full on the final maturity date, provided that all outstanding notes have been redeemed in full and all secured creditors have been settled. Nedbank holds the class C and class D notes of Precinct Funding 1 amounting to £5 million (R87 million). These notes are subordinated to the higher-ranking notes in terms of the priority of payments. 285 279 i F n a n c a s l i Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued I: Interests in subsidiaries, associates, and joint arrangements continued I3: Structured entities continued I: Interests in subsidiaries, associates, and joint arrangements continued Precinct Funding 2 (RF) Limited (Precinct Funding 2) I3: Structured entities continued Precinct Funding 2 is a commercial-mortgage-backed securitisation programme (CMBS). The originator, seller and servicer of the commercial property mortgage loan portfolio is Nedbank CIB Property Finance, the market leader in commercial property finance in SA. Precinct Funding 2 (RF) Limited (Precinct Funding 2) Precinct Funding 2 is a commercial-mortgage-backed securitisation programme (CMBS). The originator, seller and servicer of the The Precinct Funding 2 CMBS Programme was implemented during 2017. Precinct Funding 2 securitised £60 million (R1 billion) worth commercial property mortgage loan portfolio is Nedbank CIB Property Finance, the market leader in commercial property finance in SA. of commercial property mortgage loans originated by Nedbank Limited through the issuance of senior notes to the capital market and subordinated notes and a subordinated loan provided by Nedbank Limited. The notes issued by Precinct Funding 2 are listed on the JSE The Precinct Funding 2 CMBS Programme was implemented during 2017. Precinct Funding 2 securitised £60 million (R1 billion) worth and rated by Moody's. The class A and class B notes were placed with third-party investors and the junior notes and subordinated loan of commercial property mortgage loans originated by Nedbank Limited through the issuance of senior notes to the capital market and retained by Nedbank Limited. subordinated notes and a subordinated loan provided by Nedbank Limited. The notes issued by Precinct Funding 2 are listed on the JSE and rated by Moody's. The class A and class B notes were placed with third-party investors and the junior notes and subordinated loan In comparison to Precinct Funding 1, the Precinct Funding 2 Structure allows for more flexibility to substitute loans. However, loan retained by Nedbank Limited. substitutions are subject to certain portfolio covenants and eligibility criteria. In comparison to Precinct Funding 1, the Precinct Funding 2 Structure allows for more flexibility to substitute loans. However, loan Precinct Funding 2 makes use of an internal risk management policy and utilises the Nedbank Group Limited credit risk monitoring substitutions are subject to certain portfolio covenants and eligibility criteria. process to govern lending activities to external parties. The primary measures used to identify, monitor and report on the level of exposure to credit risk include individual loan and loan portfolio aging and performance analysis, analysis of impairment adequacy ratios, analysis Precinct Funding 2 makes use of an internal risk management policy and utilises the Nedbank Group Limited credit risk monitoring of loss ratio trends and analysis of loan portfolio profitability. The maximum credit exposure to credit risk in respect of the mortgage loans process to govern lending activities to external parties. The primary measures used to identify, monitor and report on the level of exposure is the balance of outstanding advances before taking into account the value of collateral held as security against such exposures and to credit risk include individual loan and loan portfolio aging and performance analysis, analysis of impairment adequacy ratios, analysis impairments raised. The collateral held as security for the mortgage asset exposure is in the form of first indemnity bonds over fixed of loss ratio trends and analysis of loan portfolio profitability. The maximum credit exposure to credit risk in respect of the mortgage loans commercial property. is the balance of outstanding advances before taking into account the value of collateral held as security against such exposures and impairments raised. The collateral held as security for the mortgage asset exposure is in the form of first indemnity bonds over fixed Nedbank Limited provided Precinct Funding 2 with an interest-bearing subordinated loan at the commencement of the programme commercial property. to provide part of the initial funding. Interest is payable on a quarterly basis as part of the priority of payments. The full capital amount outstanding plus any accrued interest will be payable in full on the final maturity date, provided that all outstanding notes have been Nedbank Limited provided Precinct Funding 2 with an interest-bearing subordinated loan at the commencement of the programme redeemed in full and all secured creditors have been settled. to provide part of the initial funding. Interest is payable on a quarterly basis as part of the priority of payments. The full capital amount outstanding plus any accrued interest will be payable in full on the final maturity date, provided that all outstanding notes have been Nedbank holds the class C and class D notes of Precinct Funding 2 amounting to £5 million (R80 million). These notes are subordinated redeemed in full and all secured creditors have been settled. to the higher-ranking notes in terms of the priority of payments. Nedbank holds the class C and class D notes of Precinct Funding 2 amounting to £5 million (R80 million). These notes are subordinated (b) Securitisation vehicles consolidated in the Group's statement of financial position to the higher-ranking notes in terms of the priority of payments. The following table shows the carrying amount of securitised assets together with the associated liabilities, or each category of asset in the statement of financial position1: (b) Securitisation vehicles consolidated in the Group's statement of financial position The following table shows the carrying amount of securitised assets together with the associated liabilities, or each category of asset in the £m statement of financial position1: At 31 December 2016 At 31 December 2017 Loans and advances to customers Residential mortgage loans Commercial mortgage loans Loans and advances to customers Residential mortgage loans Other financial assets Commercial mortgage loans Corporate and bank paper Other securities Other financial assets Commercial paper Corporate and bank paper Total Other securities Commercial paper 1 The value of any derivative instruments taken out to hedge any financial asset or liability is adjusted against such instrument in this disclosure. Total The table above presents the gross balances within the securitisation schemes and does not reflect any elimination of intercompany and 1 The value of any derivative instruments taken out to hedge any financial asset or liability is adjusted against such instrument in this disclosure. cash balances held by the various securitisation vehicles. The table above presents the gross balances within the securitisation schemes and does not reflect any elimination of intercompany and cash balances held by the various securitisation vehicles. Associated 79 liabilities 81 79 81 – – – 160 – 166 160 Carrying £m Associated amount of At 31 December 2016 assets liabilities Carrying amount of 166 assets 58 166 58 12 28 – 12 264 28 – 264 Associated 187 liabilities 76 187 76 – – 40 – 303 – 40 303 Carrying Associated amount of At 31 December 2017 assets liabilities Carrying amount of 87 assets 79 87 79 – – – 166 – 286 280 280 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 (c) Interest in unconsolidated structured entities The Group invests in unconsolidated structured entities as part of its normal investment and trading activities. The Group's total interest in unconsolidated structured entities is classified as investments and securities held at fair value through profit or loss. The Group does not sponsor any of the unconsolidated structured entities. The table below provides a summary of the carrying value of the Group's interest in unconsolidated structured entities for both continuing operations and those classified as held for distribution: Debt securities, preference shares and debentures Equity securities – Unlisted Pooled investments Total At 31 December 2017 101 118 50,936 51,155 At 31 December 2016 131 101 47,003 47,235 The Group's maximum exposure to loss with regard to the interests presented above is the carrying amount of the Group's investments. Once the Group has disposed of its shares or units in a fund, it ceases to be exposed to any risk from that fund. The Group's holdings in the above unconsolidated structured entities are largely less than 50% and as such the net asset value of these structured entities are likely to be significantly higher than their carrying value. (d) Other interests in unconsolidated structured entities The Group receives management fees and other fees in respect of its asset management businesses that manage investments in which the Group has no holding. These also represent interests in unconsolidated structured entities. As these investments are not held by the Group, the investment risk is borne by the external investors and therefore the Group's maximum exposure to loss relates to future management fees. The Group does not sponsor any of the funds or investment vehicles from which it receives fees. The table below shows the assets under management of entities that the Group manages but does not have a holding in and the fees earned from those entities. The information is presented for both continuing operations and those classified as held for distribution. Pooled investments – Unit trusts Total At 31 December 2017 Assets under management 4,562 4,562 Fees earned 13 13 £m At 31 December 2016 Assets under management 4,223 4,223 Fees earned 11 11 287 281 i F n a n c a s i l Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued J: Other notes J1: Post-employment benefits J: Other notes The Group operates a number of pension schemes around the world. These schemes have been designed and are administered in accordance with local conditions and practices in the countries concerned and include both defined contribution and defined benefit J1: Post-employment benefits schemes. The assets of these schemes are held in separate trustee administered funds. Pension costs and contributions relating to The Group operates a number of pension schemes around the world. These schemes have been designed and are administered in defined benefit schemes are assessed in accordance with the advice of qualified actuaries. Actuarial advice confirms that the current accordance with local conditions and practices in the countries concerned and include both defined contribution and defined benefit level of contributions payable to each pension scheme, together with existing assets, are adequate to secure members' benefits over schemes. The assets of these schemes are held in separate trustee administered funds. Pension costs and contributions relating to the remaining service lives of participating employees. The schemes are reviewed at least on a triennial basis or in accordance with defined benefit schemes are assessed in accordance with the advice of qualified actuaries. Actuarial advice confirms that the current local practice and regulations. In the intervening years the actuary reviews the continuing appropriateness of the assumptions applied. level of contributions payable to each pension scheme, together with existing assets, are adequate to secure members' benefits over The actuarial assumptions used to calculate the projected benefit obligations of the Group's pension schemes vary according to the the remaining service lives of participating employees. The schemes are reviewed at least on a triennial basis or in accordance with economic conditions of the countries in which they operate. local practice and regulations. In the intervening years the actuary reviews the continuing appropriateness of the assumptions applied. The actuarial assumptions used to calculate the projected benefit obligations of the Group's pension schemes vary according to the The movement analysis of post-employment benefits presented in note J1(a) includes the information for all of the Group's pension economic conditions of the countries in which they operate. schemes, including movements in plan assets and projected benefit obligations classified as held for sale or distribution for the year. At the end of the movement analysis, a single line item will indicate the value of the net plan assets that have been transferred to assets The movement analysis of post-employment benefits presented in note J1(a) includes the information for all of the Group's pension and liabilities held for sale or distribution. schemes, including movements in plan assets and projected benefit obligations classified as held for sale or distribution for the year. At the end of the movement analysis, a single line item will indicate the value of the net plan assets that have been transferred to assets (a) Liability for defined benefit obligations and liabilities held for sale or distribution. Other post-retirement benefit schemes 2017 Other post-retirement benefit schemes £m £m 2016 Year ended 31 December (a) Liability for defined benefit obligations Year ended 31 December Pension plans 2017 2016 Pension plans Changes in projected benefit obligation Projected benefit obligation at beginning of the year Current service cost Changes in projected benefit obligation Interest cost on benefit obligation Projected benefit obligation at beginning of the year Measurement losses/(gains) arising from experience adjustments Current service cost Benefits paid Interest cost on benefit obligation Assets divested as a result of scheme buy-outs Measurement losses/(gains) arising from experience adjustments Foreign exchange and other movements Benefits paid Projected benefit obligation at end of the year Assets divested as a result of scheme buy-outs Change in plan assets Foreign exchange and other movements Plan assets at fair value at beginning of the year Projected benefit obligation at end of the year Actual return on plan assets Change in plan assets Company contributions Plan assets at fair value at beginning of the year Employee contributions Actual return on plan assets Benefits paid Company contributions Liabilities divested as a result of scheme buy-outs Employee contributions Foreign exchange and other movements Benefits paid Plan assets at fair value at end of the year Liabilities divested as a result of scheme buy-outs Net assets/(liabilities) of plan Foreign exchange and other movements Unrecognised assets Plan assets at fair value at end of the year Other amounts recognised in statement of financial position Net assets/(liabilities) of plan Transfer to assets/liabilities held for sale and distribution1 Unrecognised assets Net amount recognised in consolidated statement Other amounts recognised in statement of financial position Transfer to assets/liabilities held for sale and distribution1 Net amount recognised in consolidated statement Disclosed as follows: – Within trade, other receivables and other assets – Within trade, other payables and other liabilities Disclosed as follows: – Within trade, other receivables and other assets – Within trade, other payables and other liabilities 1 At 31 December 2017, the total net recognised positions of the post-employment schemes attributable to Nedbank and Old Mutual Wealth have been transferred to assets and 618 2017 2 32 618 (12) 2 (35) 32 (234) (12) 9 (35) 380 (234) 9 772 380 5 33 772 1 5 (35) 33 (228) 1 11 (35) 559 (228) 179 11 (19) 559 (3) 179 (179) (19) (3) (22) (179) 240 2017 7 20 240 (11) 7 (8) 20 – (11) 6 (8) 254 – 6 222 254 18 4 222 – 18 (8) 4 – – 6 (8) 242 – (12) 6 – 242 – (12) 36 – – 24 36 491 2016 3 31 491 46 3 (30) 31 – 46 77 (30) 618 – 77 616 618 54 10 616 1 54 (30) 10 – 1 121 (30) 772 – 154 121 (11) 772 (3) 154 – (11) (3) 140 – of financial position of financial position 154 2016 5 16 154 4 5 (6) 16 – 4 67 (6) 240 – 67 158 240 13 3 158 – 13 (6) 3 – – 54 (6) 222 – (18) 54 – 222 – (18) – – – (18) – liabilities held for sale and distribution in the consolidated statement of financial position. Refer to note A4 for more information. 140 169 (29) 140 169 (29) 140 (18) 36 (54) (18) 36 (54) (18) (22) – (22) (22) – (22) (22) 24 40 (16) 24 40 (16) 24 1 At 31 December 2017, the total net recognised positions of the post-employment schemes attributable to Nedbank and Old Mutual Wealth have been transferred to assets and liabilities held for sale and distribution in the consolidated statement of financial position. Refer to note A4 for more information. 288 282 282 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Details of the Group's post-employment schemes are as follows: Old Mutual plc During the year, bulk annuity arrangements for two legacy defined benefit schemes, the Old Mutual Staff Pension Fund and the G&N Retirement Benefits Scheme, were agreed with Legal & General Assurance Society Limited. The agreements resulted in the buy-in of the benefits of the two schemes with effect from 13 June 2017. This was converted to a full buy-out into individual annuity policies in October 2017 and wind-up of both schemes completed on 30 November 2017. In order to effect the transaction, Old Mutual plc made a one off contribution of £27 million into the two schemes, which together with derecognising of the combined existing surplus for the schemes, resulted in a £57 million charge in the consolidated statement of comprehensive income. Old Mutual plc no longer has any liability in respect of these two schemes, including administration and funding. Old Mutual plc had previously been contributing £7 million of cash funding annually to the two schemes. Nedbank Nedbank has a number of defined-benefit and defined-contribution plans in terms of which it provides pension, postretirement medical aid and long-term disability benefits to employees and their dependants on retirement, death or disability. All eligible employees and former employees are members of trustee-administered or underwritten schemes within the Group, financed by company and employee contributions. The benefits provided by the defined-benefit schemes are based on years of membership and/or salary levels. These benefits are provided from contributions by employees, Nedbank, and income from the assets of these schemes. The benefits provided by the defined-contribution schemes are determined by the accumulated contributions and investment earnings. At 31 December 2017, Nedbank's pension schemes had a total recognised net surplus of £179 million and its other post-retirement schemes had a total net deficit of £36 million. These amounts were transferred to assets held for sale and distribution and liabilities held for sale and distribution respectively. At 31 December 2017, the total assets and total liabilities of all of Nedbank's post-retirement schemes were £606 million and £458 million respectively. Old Mutual Wealth Old Mutual Wealth operates two defined benefit (final salary) pension schemes within Quilter Cheviot, the Quilter Cheviot Limited Retirement Benefits Scheme (the "UK Final Salary Scheme") and the Quilter Cheviot Channel Islands Retirement Benefits Scheme (the "CI Final Salary Scheme"). The UK Final Salary Scheme was closed to new entrants from 31 December 1997 and the CI Final Salary Scheme was closed to new entrants from 29 April 2005. In addition, the schemes are closed to future accruals, all members are now deferred members or pensioners (not accruing any further service benefits) and pension increases are linked to salary at the time of closure (1 January 2015) and now receive statutory increases, predominantly based on the Consumer Price Index. At 31 December 2017, the two schemes had a total surplus of £13 million, none of which was recognised in the consolidated statement of financial position. At 31 December 2017, the total assets and total liabilities of the two schemes were £61 million and £48 million respectively. Restriction on the ability to access individual pension fund surpluses The Group has pension fund surpluses whose ability to access the surpluses is regulated by local laws and regulations. In all situations the Group does not have the unilateral right to access these surpluses as the use of the surplus must be approved by the relevant governing bodies of the pension funds. (b) Expense/(income) recognised in the consolidated income statement Year ended 31 December (Re-presented)¹ Continuing businesses Current service costs Net interest (income)/cost Other post retirement plan costs Total (included in staff costs) Pension plans 2017 – 1 – 1 2016 – 2 – 2 £m Other post-retirement benefit schemes 2017 1 (3) – (2) 2016 1 (4) 2 (1) 1 The year ended 31 December 2016 has been re-presented to reflect Nedbank and Old Mutual Wealth as discontinued operations. Refer to note A4 for more information. Actuarial assumptions used in calculating the projected benefit obligation are based on mortality estimates relevant to the countries in which they operate, with a specific allowance made for future improvements in mortality which is broadly in line with that adopted for the 92 series of mortality tables prepared by the Continuous Mortality Investigation Bureau of the Institute of Actuaries. The effect to the Group's obligation of a 1% increase and 1% decrease in the assumed health cost trend rates would be an increase of £28 million and decrease of £30 million (2016: increase of £31 million and decrease of £25 million) respectively. Total contributions expected to be paid to the Group pension plans for the year ending 31 December 2018 are £1 million (subject to any reassessments to be completed in the year). 289 283 i F n a n c a s l i Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued J: Other notes continued J1: Post-employment benefits continued J: Other notes continued (c) Plan asset allocation J1: Post-employment benefits continued Plan asset allocation relates to all of the Group’s pension schemes. (c) Plan asset allocation At 31 December Plan asset allocation relates to all of the Group’s pension schemes. At 31 December % % 2016 39.2 16.7 2016 4.6 39.2 24.9 16.7 14.6 4.6 100.0 24.9 14.6 100.0 Other post-retirement benefit schemes Other post-retirement benefit schemes 2017 39.3 16.8 2017 4.6 39.3 24.7 16.8 14.6 4.6 100.0 24.7 14.6 100.0 Pension plans 2017 28.6 25.2 2017 4.2 28.6 19.2 25.2 22.8 4.2 100.0 19.2 22.8 100.0 2016 29.8 46.4 2016 3.4 29.8 3.4 46.4 17.0 3.4 100.0 3.4 17.0 100.0 Options over shares in Old Mutual plc (London Stock Exchange) Pension plans Equity securities Debt securities Property Equity securities Cash Debt securities Annuities and other Property Cash Annuities and other J2: Share-based payments (a) Reconciliation of movements in options J2: Share-based payments During the year ended 31 December 2017, the Group had a number of share-based payment arrangements. The movement in the options outstanding under these arrangements during the year is detailed below: (a) Reconciliation of movements in options During the year ended 31 December 2017, the Group had a number of share-based payment arrangements. The movement in the Options over shares in Old Mutual plc (London Stock Exchange) options outstanding under these arrangements during the year is detailed below: Year ended 31 December 2017 Weighted average Year ended 31 December 2017 exercise price Weighted £1.59 average – exercise price £1.60 £1.59 £1.60 – – £1.60 £1.59 £1.60 £1.60 – £1.59 £1.60 Number of options 13,360,129 Number of – options (1,047,292) 13,360,129 (2,580,849) – – (1,047,292) 9,731,988 (2,580,849) 340,060 – 9,731,988 340,060 Year ended 31 December 2016 Weighted average Year ended 31 December 2016 exercise price Weighted £1.73 average £1.51 exercise price £1.79 £1.73 £1.55 £1.51 £1.74 £1.79 £1.59 £1.55 £1.63 £1.74 £1.59 £1.63 Number of options 11,950,545 Number of 7,925,248 options (5,142,900) 11,950,545 (1,362,406) 7,925,248 (10,358) (5,142,900) 13,360,129 (1,362,406) 74,527 (10,358) 13,360,129 74,527 Outstanding at beginning of the year Granted during the year Forfeited during the year Outstanding at beginning of the year Exercised during the year Granted during the year Expired during the year Forfeited during the year Outstanding at end of the year Exercised during the year Exercisable at 31 December Expired during the year Outstanding at end of the year The options outstanding at 31 December 2017 have an exercise price in the range of £1.28 to £1.87 (2016: £1.28 to £1.87) and a Exercisable at 31 December weighted average remaining contractual life of 1.2 years (2016: 1.8 years). The weighted average share price at date of exercise for options exercised during the year was £1.94 (2016: £1.93). The options outstanding at 31 December 2017 have an exercise price in the range of £1.28 to £1.87 (2016: £1.28 to £1.87) and a weighted average remaining contractual life of 1.2 years (2016: 1.8 years). The weighted average share price at date of exercise for Options over shares in Old Mutual plc (Johannesburg Stock Exchange) options exercised during the year was £1.94 (2016: £1.93). Year ended 31 December 2016 Weighted average Year ended 31 December 2016 exercise price Weighted Outstanding at beginning of the year R 15.05 average Exercised during the year R 14.76 exercise price R 15.80 Outstanding at end of the year Outstanding at beginning of the year R 15.05 R 15.80 Exercisable at 31 December R 14.76 Exercised during the year R 15.80 Outstanding at end of the year All outstanding options over Old Mutual plc shares (Johannesburg Stock Exchange) have been exercised during the year. These options R 15.80 Exercisable at 31 December were no longer granted after 2011. The weighted average share price of options exercised during the year was R34.53. All outstanding options over Old Mutual plc shares (Johannesburg Stock Exchange) have been exercised during the year. These options were no longer granted after 2011. The weighted average share price of options exercised during the year was R34.53. Year ended 31 December 2017 Weighted average Year ended 31 December 2017 exercise price Weighted R15.80 average R15.80 exercise price – R15.80 – R15.80 – – Number of options 2,068,440 Number of (1,487,985) options 580,455 2,068,440 580,455 (1,487,985) 580,455 580,455 Number of options 580,455 Number of (580,455) options – 580,455 – (580,455) – – Options over shares in Old Mutual plc (Johannesburg Stock Exchange) 290 284 284 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 (b) Measurements and assumptions The fair value of services received in return for share options granted are measured by reference to the fair value of share options granted. The estimate of the fair value of share options granted is measured using a Black-Scholes option pricing model. Share options are granted under a service and non-market based performance condition. Such conditions are not taken into account in the grant date fair value measurement of the share options granted. There are no market conditions associated with the share option grants. The grant date for the UK and South African plan awards is deemed to be 1 January in the year prior to the date of issue. As such the Group is required to estimate, at the reporting date, the number and fair value of the options that will be granted in the following year. The fair value of awards expected to be granted in 2017 which will have an IFRS 2 grant date of 1 January 2017, is shown separately below. The grant date for all other awards is the award issue date. (c) Forfeitable/Restricted share grants The following summarises the fair value of restricted shares granted by the Group during the year: Instruments granted and purchased during the year Shares in Old Mutual plc (London Stock Exchange) Shares in Old Mutual plc (Johannesburg Stock Exchange) Number granted 1,195,323 25,126,598 17,812,646 20,284,617 2017 2016 2017 2016 Weighted average fair value £2.18 £1.67 R34.86 R39.71 The share price at measurement date was used to determine the fair value of the restricted shares. Expected dividends were not incorporated into the measurement of fair value where the holder of the restricted share is entitled to dividends throughout the vesting period. (d) Annual bonus awards The UK and South Africa Plan Awards give rise to annual bonus awards. The level of annual bonus awards is contingent upon the satisfactory completion of individual and company performance targets, measured over the financial year prior to the date the employees receive the award. The accounting grant date for the South African and UK annual bonus plans (other than the new joiner and newly qualified grants) has therefore been determined as 1 January in the year prior to the date of issue of the grants. The Group anticipates awards under the South African scheme of 8,181,885 restricted shares (2016: 6,222,592). The restricted shares have been valued using a share price of R38.00 (2016: R34.44). The Group estimate of the total fair value of the annual bonus expected to be paid in the form of options and forfeitable shares is outlined below. The fair value is determined by making an estimate of the level of bonus to be paid out following the attainment of personal and company performance conditions. UK Plans (e) Financial impact Expense arising from equity settled share and share option plans Expense arising from cash settled share and share option plans Year ended 31 December 2017 Vesting period 4.2 years Total fair value £m 3 Year ended 31 December 2016 Vesting Total fair value period £m 4.2 years 11 £m Year ended 31 December 2016 (Re-presented)¹ 13 – 13 Year ended 31 December 2017 17 4 21 1 The year ended 31 December 2016 has been re-presented to reflect Nedbank and Old Mutual Wealth as discontinued operations. Refer to note A4 for more information. 291 285 i F n a n c a s l i Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued J: Other notes continued J3: Related parties J: Other notes continued (a) Transactions with key management personnel, remuneration and other compensation J3: Related parties Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, including any director (whether executive or otherwise) of the Group. Details of the compensation paid (a) Transactions with key management personnel, remuneration and other compensation to the Board of directors as well as their shareholdings in the Company are disclosed in the Remuneration Report on page 97 to 128. Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, including any director (whether executive or otherwise) of the Group. Details of the compensation paid (b) Key management personnel remuneration and other compensation to the Board of directors as well as their shareholdings in the Company are disclosed in the Remuneration Report on page 97 to 128. Year ended 31 December 2017 Year ended 31 December 2016 (b) Key management personnel remuneration and other compensation Year ended 31 December 2017 Year ended 31 December 2016 Directors' fees Remuneration Cash remuneration Directors' fees Remuneration Cash remuneration Short-term employee benefits Long-term employee benefits Share-based payments Short-term employee benefits Long-term employee benefits Share-based payments Share options Share options Outstanding at beginning of the year Granted during the year Exercised during the year Outstanding at beginning of the year Outstanding at end of the year Granted during the year Exercised during the year Restricted shares Outstanding at end of the year Restricted shares Outstanding at beginning of the year Leavers New appointments Outstanding at beginning of the year Granted during the year Leavers Exercised during the year New appointments Vested during the year Granted during the year Outstanding at end of the year Exercised during the year Vested during the year Outstanding at end of the year Year ended 31 December 2017 Year ended 31 December 2016 Year ended 31 December 2017 Year ended 31 December 2016 Number of personnel 11 Number of personnel 9 11 10 9 9 9 10 9 9 Number of personnel 4 Number of personnel 4 3 Number of personnel 10 Number of (2) personnel 1 10 (2) 1 £'000 2,081 21,758 £'000 4,830 2,081 5,444 21,758 123 4,830 11,361 5,444 123 23,839 11,361 23,839 Number of options/shares '000s Number of 58 options/shares '000s (23) 58 35 (23) 35 Number of options/shares '000s Number of 23,494 options/shares (1,346) '000s 1,087 23,494 948 (1,346) (673) 1,087 (952) 948 22,558 (673) (952) 22,558 Number of personnel 11 Number of personnel 14 11 14 14 14 11 14 14 11 Number of personnel 4 Number of personnel 4 4 Number of personnel 10 Number of (2) personnel 2 10 (2) 2 10 10 £'000 1,584 25,133 £'000 6,228 1,584 9,828 25,133 280 6,228 8,797 9,828 280 26,717 8,797 26,717 Number of options/shares '000s Number of 52 options/shares 6 '000s – 52 58 6 – 58 Number of options/shares '000s Number of 11,346 options/shares (2,974) '000s 5,215 11,346 11,659 (2,974) (236) 5,215 (1,516) 11,659 23,494 (236) (1,516) 23,494 Year ended 31 December 2017 3 Year ended 31 December 2016 4 Year ended 31 December 2017 Year ended 31 December 2016 9 9 292 286 286 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 (c) Key management personnel transactions Key management personnel and members of their close family have undertaken transactions with Old Mutual plc and its subsidiaries, joint ventures and associated undertakings in the normal course of business, details of which are given below. For current accounts positive values indicate assets of the individual whilst for credit cards and mortgages positive values indicate liabilities of the individual. Current accounts Balance at beginning of the year Net movement during the year Balance at end of the year Credit cards Balance at beginning of the year Net movement during the year Balance at end of the year Mortgages Balance at beginning of the year Net movement during the year Balance at end of the year Property & casualty contracts Total premium paid during the year Claim paid during the year Life insurance products Total sum assured/value of investment at end of the year Pensions, termination benefits paid Value of pension plans as at end of the year Year ended 31 December 2017 Year ended 31 December 2016 Number of personnel 4 5 4 5 1 3 2 1 9 9 £000s 2,951 870 3,821 30 2 32 121 85 206 6 9 24,375 8,461 Number of personnel 5 4 5 4 3 1 1 – 9 9 £000s 2,208 743 2,951 20 10 30 110 11 121 6 – 23,325 3,339 Various members of key management personnel hold or have at various times during the year held, investments managed by asset management businesses of the Group. These include unit trusts, mutual funds and hedge funds. None of the amounts concerned are material in the context of the funds managed by the Group business concerned, and all of the investments have been made by the individuals concerned either on terms which are the same as those available to external clients generally or, where that is not the case, on the same preferential terms as were available to employees of the business generally. (d) Other transactions with related parties Peter Moyo, the Chief Executive Officer of Old Mutual Life Assurance Company (South Africa) Limited, (OMLAC(SA)), a wholly owned subsidiary of the Group, and one of the Company’s key management personnel, is also a founder and Executive Director of NMT Capital, and holds an equity interest in NMT Capital and NMT Group Proprietary Limited (NMT Group). (OMLAC(SA)) has provided equity and preference share funding to the NMT Group and has also provided preference share funding to a family trust of Peter Moyo, which trust has an equity interest in NMT Capital. Included in dividend income from associated undertakings for the year eneded 31 December 2017, is £0.1 million (R2 milllion) of preference share dividends received from NMT Capital (Pty) Ltd. OMLAC(SA) has invested in preference shares to the value of £4 million (R62 million) in NMT Capital and has also invested in ordinary and preference share capital of NMT Group (Pty Ltd) £8 million (R142 million), and the preference share capital of Amabubesi Capital Travelling (Pty) Ltd of £1 million (R18 million), RZT Zeply 4971 (Pty) Ltd of £0.7 million (R13 million), RZT Zeply 4973 (Pty) Ltd of £0.7 million (R13 million) and STS Capital (Pty) Ltd of £0.7 million (R13 million), all of which are considered to be related parties of NMT Capital (Pty) Ltd. Preference share dividends totalling £0.5 million (R8 million) was received by OMLAC(SA) during the year. The Group also holds £1 million (R14 million) of the ordinary share capital in NMT capital. 293 287 i F n a n c a s l i Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued J: Other notes continued J4: Contingent liabilities J: Other notes continued Contingent liabilities at 31 December 2017 presented in the table below are in respect of the Group's continuing operations. Consistent with the requirements of accounting standards, the comparative period has not been re-presented for contingent liabilities in respect of J4: Contingent liabilities businesses classified as held for distribution. The comparative information presented at 31 December 2017, therefore includes the Contingent liabilities at 31 December 2017 presented in the table below are in respect of the Group's continuing operations. Consistent contingent liabilities for the composition of the Group as at 31 December 2016. with the requirements of accounting standards, the comparative period has not been re-presented for contingent liabilities in respect of businesses classified as held for distribution. The comparative information presented at 31 December 2017, therefore includes the contingent liabilities for the composition of the Group as at 31 December 2016. At 31 December 2017 At 11 31 December – 2017 – 11 16 – – 16 £m At 31 December £m 2016 At 965 31 December 806 2016 210 965 10 806 210 10 Guarantees and assets pledged as collateral security Secured lending Irrevocable letters of credit Guarantees and assets pledged as collateral security Other contingent liabilities Secured lending Irrevocable letters of credit The table below presents the contingent liabilities, in respect of the businesses classified as held for sale and distribution as at Other contingent liabilities 31 December 2017: The table below presents the contingent liabilities, in respect of the businesses classified as held for sale and distribution as at £m 31 December 2017: Guarantees and assets pledged as collateral security 1,695 Secured lending 375 £m Irrevocable letters of credit 192 Guarantees and assets pledged as collateral security 1,695 Secured lending 375 The Group has provided certain guarantees for specific client obligations, in return for which the Group has received a fee. The Group has Irrevocable letters of credit 192 evaluated the extent of the possibility of the guarantees being called on and has provided appropriately. The Group has provided certain guarantees for specific client obligations, in return for which the Group has received a fee. The Group has Contingent liabilities – tax evaluated the extent of the possibility of the guarantees being called on and has provided appropriately. The Revenue authorities in the principal jurisdictions in which the Group operates (South Africa and the United Kingdom) routinely review historic transactions undertaken and tax law interpretations made by the Group. The Group is committed to conducting its tax affairs in Contingent liabilities – tax accordance with the tax legislation of the jurisdictions in which they operate. All interpretations made by management are made with The Revenue authorities in the principal jurisdictions in which the Group operates (South Africa and the United Kingdom) routinely review reference to the specific facts and circumstances of the transaction and the relevant legislation. historic transactions undertaken and tax law interpretations made by the Group. The Group is committed to conducting its tax affairs in accordance with the tax legislation of the jurisdictions in which they operate. All interpretations made by management are made with There are occasions where the Group's interpretation of tax law may be challenged by the Revenue authorities. The financial statements reference to the specific facts and circumstances of the transaction and the relevant legislation. include provisions that reflect the Group's assessment of liabilities which might reasonably be expected to materialise as part of their review. The Board is satisfied that adequate provisions have been made to cater for the resolution of tax uncertainties and that the There are occasions where the Group's interpretation of tax law may be challenged by the Revenue authorities. The financial statements resources required to fund such potential settlements are sufficient. include provisions that reflect the Group's assessment of liabilities which might reasonably be expected to materialise as part of their review. The Board is satisfied that adequate provisions have been made to cater for the resolution of tax uncertainties and that the Due to the level of estimation required in determining tax provisions amounts eventually payable may differ from the provision recognised. resources required to fund such potential settlements are sufficient. Nedbank litigation Due to the level of estimation required in determining tax provisions amounts eventually payable may differ from the provision recognised. There are a number of legal or potential claims against Nedbank Group Ltd and its subsidiary companies, the outcome of which cannot at present be foreseen. Nedbank litigation There are a number of legal or potential claims against Nedbank Group Ltd and its subsidiary companies, the outcome of which cannot at The largest potential claim relates to Pinnacle Point Group Limited, where ABSA Bank Limited (ABSA) has initiated an action in the High present be foreseen. Court against Nedbank Limited (Nedbank) for the sum of £46 million (R773 million), where ABSA alleges that Nedbank had a legal duty of care to it in relation to certain single stock futures transactions. The largest potential claim relates to Pinnacle Point Group Limited, where ABSA Bank Limited (ABSA) has initiated an action in the High Court against Nedbank Limited (Nedbank) for the sum of £46 million (R773 million), where ABSA alleges that Nedbank had a legal duty In a matter relating to the same events, New Port Finance Company (Pty) Ltd and Winifred Trust have sued ABSA for £24 million of care to it in relation to certain single stock futures transactions. (R405 million) and £4 million (R65 million) respectively, alleging that ABSA had a duty of care towards them. During November 2016 ABSA joined Nedbank as a third party to that action claiming that, should ABSA be held liable, then ABSA would be entitled to claim In a matter relating to the same events, New Port Finance Company (Pty) Ltd and Winifred Trust have sued ABSA for £24 million a contribution from Nedbank. (R405 million) and £4 million (R65 million) respectively, alleging that ABSA had a duty of care towards them. During November 2016 ABSA joined Nedbank as a third party to that action claiming that, should ABSA be held liable, then ABSA would be entitled to claim Nedbank's counsel is of the view that Nedbank has a strong case to successfully resist both matters. a contribution from Nedbank. Nedbank's counsel is of the view that Nedbank has a strong case to successfully resist both matters. 294 288 288 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Consumer protection The Group is committed to treating customers fairly and supporting its customers in meeting their lifetime goals is central to how our businesses operate. We routinely engage with customers and regulators to ensure that we meet this commitment, but there is the risk of regulatory intervention across various jurisdictions, giving rise to the potential for customer redress which can result in retrospective changes to policyholder benefits, penalties or fines. The Group monitors the exposure to these actions and makes provision for the related costs as appropriate. As detailed in note H5, the Group has recognised a provision of £69 million in 2017 for the cost of voluntarily redress for affected customers following the publication by the UK Financial Conduct Authority (FCA) of a report detailing its findings of their industry-wide thematic review on the fair treatment of long-standing customers invested in closed-book products sold by the life insurance sector (TR 16/2) (Thematic Review) and the subsequent announcement that it was initiating an investigation into a number of firms, including Old Mutual Wealth Life Assurance Limited (OMWLA), a subsidiary of the Group, in relation to potential breaches of the FCA's standards relevant to the matters covered by the Thematic Review. The potential for future enforced redress and associated penalties by the FCA cannot be estimated with any reliability and therefore no provision has been recognised in the financial statements. Implications of the Managed Separation strategy The Group routinely monitors and reassesses contingent liabilities arising from pre-existing plc Head Office legacy items such as litigation, and warranties and indemnities relating to past acquisitions and disposals. The adoption of the Managed Separation strategy on 11 March 2016 does not affect the nature of such items, however it is possible that the Group may seek to resolve certain matters as part of the implementation of the Managed Separation strategy. Outcome of Zimbabwean Commission Enquiry On 31 December 2016, the Zimbabwean Government concluded its inquiry into the loss in value for certain policyholders and beneficiaries upon the conversion of pension and insurance benefits after the dollarization of the economy in 2009. On 9 March 2018, the results of the Zimbabwean Government’s inquiry were made public. Emerging Markets is committed to treating its customers fairly and is currently reviewing the report and preparing a preliminary evaluation of the potential impact on Emerging Markets’ operations. We are not currently able to establish what impact the commission's findings will have on Old Mutual Zimbabwe. 295 289 i F n a n c a s l i Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued J: Other notes continued J5: Commitments J: Other notes continued Capital commitments J5: Commitments Capital commitments at 31 December 2017 presented in the table below are in respect of the Group's continuing operations. Consistent with the requirements of accounting standards, the comparative period has not been re-presented for capital commitments in respect of Capital commitments businesses classified as held for distribution. The comparative information presented at 31 December 2017, therefore includes the capital Capital commitments at 31 December 2017 presented in the table below are in respect of the Group's continuing operations. Consistent commitments for the composition of the Group as at 31 December 2016. with the requirements of accounting standards, the comparative period has not been re-presented for capital commitments in respect of businesses classified as held for distribution. The comparative information presented at 31 December 2017, therefore includes the capital The Group's management is confident that future net revenues and existing funding arrangements will be sufficient to cover these commitments for the composition of the Group as at 31 December 2016. commitments. The Group's management is confident that future net revenues and existing funding arrangements will be sufficient to cover these commitments. At 31 December 2017 At 74 31 December 2 2017 28 74 2 28 £m At 31 December £m 2016 At 64 31 December 106 2016 48 64 106 48 £m – 173 £m 46 – 173 46 Investment property Property, plant and equipment Intangible assets Investment property Property, plant and equipment The table below presents the capital commitments, in respect of the businesses classified as held for sale and distribution as at Intangible assets 31 December 2017: The table below presents the capital commitments, in respect of the businesses classified as held for sale and distribution as at 31 December 2017: Investment property Property, plant and equipment Intangible assets Investment property Property, plant and equipment Intangible assets J5: Commitments continued Commitments to extend credit to customers J5: Commitments continued The following table presents the contractual amounts of the Group's financial instruments not included in the consolidated statement of financial position that commit it to extend credit to customers in respect of the continuing operations. Consistent with the requirements Commitments to extend credit to customers of accounting standards, the comparative period has not been re-presented for commitments to extend credit to customers in respect of The following table presents the contractual amounts of the Group's financial instruments not included in the consolidated statement of businesses classified as held for distribution. The comparative information presented at 31 December 2017, therefore includes the capital financial position that commit it to extend credit to customers in respect of the continuing operations. Consistent with the requirements commitments for the composition of the Group as at 31 December 2016. of accounting standards, the comparative period has not been re-presented for commitments to extend credit to customers in respect of businesses classified as held for distribution. The comparative information presented at 31 December 2017, therefore includes the capital £m commitments for the composition of the Group as at 31 December 2016. At 31 December £m 2016 At 140 31 December 805 2016 4,375 140 805 4,375 Original term to maturity of one year or less Original term to maturity of more than one year Other commitments, note issuance facilities and revolving underwriting facilities Original term to maturity of one year or less Original term to maturity of more than one year The table below presents the commitments to extend credit to customers in respect of the businesses classified as held for sale and Other commitments, note issuance facilities and revolving underwriting facilities distribution as at 31 December 2017: The table below presents the commitments to extend credit to customers in respect of the businesses classified as held for sale and £m distribution as at 31 December 2017: Original term to maturity of one year or less 865 Original term to maturity of more than one year 1,348 £m Other commitments, note issuance facilities and revolving underwriting facilities 3,967 Original term to maturity of one year or less 865 Original term to maturity of more than one year 1,348 Assets are pledged as collateral under repurchase agreements with other financial institutions and for security deposits relating to local Other commitments, note issuance facilities and revolving underwriting facilities 3,967 futures, options and stock exchange memberships. Mandatory reserve deposits are also held with local Central Banks in accordance with local statutory requirements. These deposits are not available to finance the Group's day-to-day operations. Assets are pledged as collateral under repurchase agreements with other financial institutions and for security deposits relating to local futures, options and stock exchange memberships. Mandatory reserve deposits are also held with local Central Banks in accordance with Commitments under the Group's operating lease arrangements are described in note J6. local statutory requirements. These deposits are not available to finance the Group's day-to-day operations. At 31 December 2017 At – 31 December 67 2017 – – 67 – Commitments under the Group's operating lease arrangements are described in note J6. 296 290 290 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Future potential commitments The Group and the Business Doctor Consortium Limited and its associates (Business Doctor) established Old Mutual Finance as a 50/50 start-up strategic alliance in 2008. The Group increased its shareholding in Old Mutual Finance (Pty) Ltd (Old Mutual Finance) from 50% to 75% in 2014 by acquiring a 25% shareholding in Old Mutual Finance from Business Doctor for £66 million (R1.1 billion). The Group has a call option to acquire the remaining 25% shareholding in Old Mutual Finance held by Business Doctor at market value under certain circumstances, inter alia in the event of a change of control within Business Doctor and on the eighth and tenth anniversary of the effective date of the Old Mutual Finance shareholders' agreement (i.e. in 2022 and 2024 respectively), whilst Business Doctor has a put option to sell its remaining 25% shareholding in Old Mutual Finance to the Group at market value under certain circumstances, inter alia in the event of a change of control within the Old Mutual plc Group (which will occur when Old Mutual Limited becomes the holding company of Old Mutual plc) and on the eighth and tenth anniversary of the effective date of the Old Mutual Finance shareholders' agreement (i.e. in 2022 and 2024 respectively). Commitments under derivative instruments The Group enters into option contracts, financial features contracts, forward rate and interest rate swap agreements and other financial agreements in the normal course of business. Note G4 provides further information on the Group's derivative financial instruments. The Group has got options to acquire further stakes in businesses dependant on various circumstances which are regarded by the Group as collectively and individually immaterial. Other Commitments Old Mutual Life Assurance Company (South Africa) Limited has entered into agreements where it has committed to provide capital to funds and partnerships that it has invested in. The total undrawn commitment is £465 million at 31 December 2017(2016: £33 million). J6: Operating lease arrangements The following tables present the operating lease arrangements in respect of the Group's continuing opeation. Consistent with the requirements of accounting standards, the comparative period has not been re-presented for operating lease arrangements in respect of businesses classified as held for distribution. The comparative information presented at 31 December 2017, therefore includes the capital commitments for the composition of the Group as at 31 December 2016. At 31 December 2017 At 31 December 2016 Banking 1 5 1 7 Non- banking 9 15 1 25 Total 10 20 2 32 Banking 116 89 115 320 Non- banking 14 40 34 88 £m Total 130 129 149 408 i F n a n c a s i l (a) The Group as lessee Outstanding commitments under non-cancellable operating leases, fall due as follows: Within one year In the second to fifth years inclusive After five years (b) The Group as lessor Assets subject to operating leases Land Buildings Investment property Future undiscounted minimum lease payments of contracts with tenants Within one year In the second to fifth years inclusive After five years At 31 December 2017 13 39 1,904 1,956 At 31 December 2017 106 244 96 446 £m At 31 December 2016 3 16 1,697 1,716 £m At 31 December 2016 99 257 118 474 J7: Fiduciary activities The Group provides custody, trustee, corporate administration and investment management and advisory services to third parties that involve the Group making allocation and purchase and sale decisions in relation to a wide range of financial instruments. Those assets that are held in a fiduciary capacity are not included in these financial statements. Some of these arrangements involve the Group accepting targets for benchmark levels of returns for the assets under the Group's care. These services give rise to the risk that the Group will be accused of misadministration or under-performance. The fiduciary activities are carried out by both the businesses classified as held for distribution and the continuing operations. 297 291 Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued J: Other notes continued J8: Events after the reporting date J: Other notes continued US legacy items J8: Events after the reporting date On 13 March 2018, Old Mutual plc announced that The Travelers Companies, Inc. and St. Paul Fire and Marine Insurance Company had lodged a claim in the United States District Court for the Southern District of New York in relation to pre-existing plc Head Office US legacy items legacy items relating to previously disposed of US assets. Old Mutual plc considers this action to be without merit and it will be On 13 March 2018, Old Mutual plc announced that The Travelers Companies, Inc. and St. Paul Fire and Marine Insurance Company resisted accordingly. had lodged a claim in the United States District Court for the Southern District of New York in relation to pre-existing plc Head Office legacy items relating to previously disposed of US assets. Old Mutual plc considers this action to be without merit and it will be Emerging Markets post-employment benefits resisted accordingly. Old Mutual Life Assurance Company (South Africa) Limited is obligated to provide post-employment benefits in the form of medical aid contributions to existing employees and pensioners. During a previous financial period the company entered into an insurance policy Emerging Markets post-employment benefits issued by the MMI Holdings Ltd group of companies (MMI) to fund the obligation. In turn MMI reinsured some of the insurance risks Old Mutual Life Assurance Company (South Africa) Limited is obligated to provide post-employment benefits in the form of medical aid with the company. Due to the nature of the insurance policy issued by MMI, the insurance policy is treated as a qualifying insurance contributions to existing employees and pensioners. During a previous financial period the company entered into an insurance policy policy and included in the plan assets of the company. At 31 December 2017 the surplus asset held in the post-retirement medical issued by the MMI Holdings Ltd group of companies (MMI) to fund the obligation. In turn MMI reinsured some of the insurance risks aid fund was approximately R664 million (£40 million) (consisting of plan assets of £120 million (R2,010 million) and an obligation with the company. Due to the nature of the insurance policy issued by MMI, the insurance policy is treated as a qualifying insurance of £80 million (R1,346 million). policy and included in the plan assets of the company. At 31 December 2017 the surplus asset held in the post-retirement medical aid fund was approximately R664 million (£40 million) (consisting of plan assets of £120 million (R2,010 million) and an obligation The company has been negotiating with MMI the transfer of the qualifying insurance policy and related policyholder assets to Old Mutual of £80 million (R1,346 million). Alternative Risk Transfer Ltd (OMART), a 100% subsidiary of the company. An agreement was reached and the effective date of the transfer was on the 31st of January 2018. The accounting treatment and disclosure in the company and consolidated financial statements The company has been negotiating with MMI the transfer of the qualifying insurance policy and related policyholder assets to Old Mutual for the financial year ended 31 December 2017 were left unchanged from previous financial periods. Alternative Risk Transfer Ltd (OMART), a 100% subsidiary of the company. An agreement was reached and the effective date of the transfer was on the 31st of January 2018. The accounting treatment and disclosure in the company and consolidated financial statements In the financial statements for the financial year ending 31 December 2018 the insurance policy will not qualify as a qualifying insurance for the financial year ended 31 December 2017 were left unchanged from previous financial periods. policy. The change in the classification of the insurance policy will result in the insurance policy and post-retirement medical aid obligation being disclosed as separate items on the balance sheet of the company. In the consolidated financial statements for the financial period In the financial statements for the financial year ending 31 December 2018 the insurance policy will not qualify as a qualifying insurance ending 31 December 2018 the insurance and reinsurance policies between the company and OMART will be eliminated resulting in the policy. The change in the classification of the insurance policy will result in the insurance policy and post-retirement medical aid obligation consolidated balance sheet and income statement reflecting the obligation to employees and pensioners as well as the assets held by being disclosed as separate items on the balance sheet of the company. In the consolidated financial statements for the financial period OMART to back the policyholder liability to the company. ending 31 December 2018 the insurance and reinsurance policies between the company and OMART will be eliminated resulting in the consolidated balance sheet and income statement reflecting the obligation to employees and pensioners as well as the assets held by Old Mutual Wealth acquisition of Skandia UK Limited from Old Mutual plc OMART to back the policyholder liability to the company. On 31 January 2018, Old Mutual Wealth acquired the Skandia UK Limited group of entities from Old Mutual plc. This group of entities comprises five plc Head Office entities with a combined net asset value of £591 million. The transfer was financed by the issue of a share Old Mutual Wealth acquisition of Skandia UK Limited from Old Mutual plc and with the balance represented by a merger reserve. No debt was taken on as a result of this transaction. The most significant asset On 31 January 2018, Old Mutual Wealth acquired the Skandia UK Limited group of entities from Old Mutual plc. This group of entities within these entities is a £566 million receivable which corresponds to an equivalent payable within the Group's statement of financial comprises five plc Head Office entities with a combined net asset value of £591 million. The transfer was financed by the issue of a share position. The net effect of this transaction for the Group is to replace a payable due to Old Mutual plc with equity. and with the balance represented by a merger reserve. No debt was taken on as a result of this transaction. The most significant asset within these entities is a £566 million receivable which corresponds to an equivalent payable within the Group's statement of financial position. The net effect of this transaction for the Group is to replace a payable due to Old Mutual plc with equity. 298 292 292 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Old Mutual Wealth financing arrangements On 28 February 2018, the Group entered into, and fully drew down, the New Term Loan, a £300 million senior unsecured term loan with a number of relationship banks with an annual coupon of 45 basis points above LIBOR, to be updated every three months. The New Term Loan will be repaid in full using proceeds from the sale of the Single Strategy Business following the completion of the OMGI Transaction. Also on 28 February 2018, the Group issued a £200 million subordinated debt security in the form of a 10-year Tier 2 bond with a one-time issuer call option after 5 years to J.P. Morgan Securities plc, paying a semi-annual coupon of 4.478% (Tier 2 Bond). Including the impact of amortisation of bond set-up costs, the issuance of the Tier 2 Bond security will increase operating expenses in the Head Office segment by approximately £11 million on an annual basis. The debt security is currently undocumented and unlisted and has a Fitch instrument rating of BBB-. The Group intends to finalise a prospectus and obtain a listing for the Tier 2 Bond on the regulated market of the London Stock Exchange, with a view to a potential remarketing and secondary placement of the Tier 2 Bond in due course. In addition, the Group entered into the New Revolving Facility, a £125 million revolving credit facility which is currently undrawn and is expected to remain undrawn during 2018. Subsequent to the year end, and as part of a series of internal transactions, £566 million of intercompany indebtedness to other companies within the Old Mutual plc group has been equitised, with the effect of the intercompany indebtedness being cancelled and replaced with equity in the form of share capital and a merger reserve. The overall indebtedness also reduced by £16 million from ordinary course transactions. The remaining £200 million intercompany indebtedness was repaid in full from the new facilities referred to above and from existing cash resources on 28 February 2018. On the same date, the £70 million revolving credit facility with Old Mutual plc was cancelled. 299 293 i F n a n c a s i l Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued K: Accounting policies on financial assets and liabilities The Group is exposed to financial risk through its financial assets (investments and loans), financial liabilities (investment contracts, customer deposits and borrowings), reinsurance assets and insurance liabilities. The key focus of financial risk management for the K: Accounting policies on financial assets and liabilities Group is ensuring that the proceeds from its financial assets are sufficient to fund the obligations arising from its insurance and banking The Group is exposed to financial risk through its financial assets (investments and loans), financial liabilities (investment contracts, operations. The most important components of financial risk are credit risk, market risk (arising from changes in equity, bond prices, customer deposits and borrowings), reinsurance assets and insurance liabilities. The key focus of financial risk management for the interest and foreign exchange rates) and liquidity risk. Group is ensuring that the proceeds from its financial assets are sufficient to fund the obligations arising from its insurance and banking operations. The most important components of financial risk are credit risk, market risk (arising from changes in equity, bond prices, (a) Recognition and derecognition interest and foreign exchange rates) and liquidity risk. A financial asset or liability is recognised when, and only when, the Group becomes a party to the contractual provisions of the financial instrument. (a) Recognition and derecognition A financial asset or liability is recognised when, and only when, the Group becomes a party to the contractual provisions of the The Group derecognises a financial asset when, and only when: financial instrument. not retain control. not retain control.  The contractual rights to the cash flows arising from the financial assets have expired or been forfeited by the Group; or The Group derecognises a financial asset when, and only when:  It transfers the financial asset including substantially all the risks and rewards of ownership of the asset; or  It transfers the financial asset and neither transfers nor retains substantially all the risks and rewards of ownership and does  The contractual rights to the cash flows arising from the financial assets have expired or been forfeited by the Group; or  It transfers the financial asset including substantially all the risks and rewards of ownership of the asset; or  It transfers the financial asset and neither transfers nor retains substantially all the risks and rewards of ownership and does A financial liability is derecognised when, and only when the liability is extinguished. That is when the obligation specified in the contract is discharged, assigned, cancelled or has expired. A financial liability is derecognised when, and only when the liability is extinguished. That is when the obligation specified in the contract The difference between the carrying amount of a financial liability (or part thereof) extinguished or transferred to another party and is discharged, assigned, cancelled or has expired. consideration received, including any non-cash assets transferred or liabilities assumed, is recognised in profit or loss. The difference between the carrying amount of a financial liability (or part thereof) extinguished or transferred to another party and All purchases and sales of financial assets that require delivery within the timeframe established by regulation or market convention consideration received, including any non-cash assets transferred or liabilities assumed, is recognised in profit or loss. ('regular way' purchases and sales) are recognised at trade date, which is the date that the Group commits to purchase or sell the asset. Loans and receivables are recognised (at fair value plus attributable transaction costs) when cash is advanced to borrowers. All purchases and sales of financial assets that require delivery within the timeframe established by regulation or market convention ('regular way' purchases and sales) are recognised at trade date, which is the date that the Group commits to purchase or sell the asset. (b) Initial measurement Loans and receivables are recognised (at fair value plus attributable transaction costs) when cash is advanced to borrowers. Financial instruments are initially recognised at fair value plus, in the case of a financial asset or for a financial liability not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability. (b) Initial measurement Financial instruments are initially recognised at fair value plus, in the case of a financial asset or for a financial liability not at fair value (c) Derivative financial instruments through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability. Derivative financial instruments are recognised in the consolidated statement of financial position at fair value. Fair values are obtained from quoted market prices, discounted cash flow models and option pricing models as appropriate. All derivatives are carried as assets (c) Derivative financial instruments when their fair value is positive and as liabilities when their fair value is negative. Derivative financial instruments are recognised in the consolidated statement of financial position at fair value. Fair values are obtained from quoted market prices, discounted cash flow models and option pricing models as appropriate. All derivatives are carried as assets Changes in the fair value of derivatives not designated as hedges for hedge accounting purposes are recognised in profit or loss and are when their fair value is positive and as liabilities when their fair value is negative. included in investment return or finance costs as appropriate. Changes in the fair value of derivatives not designated as hedges for hedge accounting purposes are recognised in profit or loss and are (d) Hedge accounting included in investment return or finance costs as appropriate. Qualifying hedging instruments must either be derivative financial instruments or non-derivative financial instruments used to hedge the risk of changes in foreign currency exchange rates, changes in fair value or changes in cash flows. Changes in the value of the financial (d) Hedge accounting instrument should be expected to offset changes in the fair value or cash flows of the underlying hedged item. Qualifying hedging instruments must either be derivative financial instruments or non-derivative financial instruments used to hedge the risk of changes in foreign currency exchange rates, changes in fair value or changes in cash flows. Changes in the value of the financial The Group designates certain qualifying hedging instruments as either (1) a hedge of the exposure to changes in fair value of a instrument should be expected to offset changes in the fair value or cash flows of the underlying hedged item. recognised asset or liability or an unrecognised firm commitment (fair value hedge) or (2) a hedge of a future cash flow attributable to a recognised asset or liability, or a forecasted transaction, and could affect profit or loss (cash flow hedge) or (3) a hedge of a net The Group designates certain qualifying hedging instruments as either (1) a hedge of the exposure to changes in fair value of a investment in a foreign operation. Hedge accounting is used for qualifying hedging instruments designated in this way provided certain recognised asset or liability or an unrecognised firm commitment (fair value hedge) or (2) a hedge of a future cash flow attributable criteria are met. to a recognised asset or liability, or a forecasted transaction, and could affect profit or loss (cash flow hedge) or (3) a hedge of a net investment in a foreign operation. Hedge accounting is used for qualifying hedging instruments designated in this way provided certain The Group's criteria in accordance with reporting standards for a qualifying hedging instrument to be accounted for as a hedge include: criteria are met.  Upfront formal documentation of the hedging instrument, hedged item or transaction, risk management objective and strategy, The Group's criteria in accordance with reporting standards for a qualifying hedging instrument to be accounted for as a hedge include: the nature of the risk being hedged and the effectiveness measurement methodology that will be applied is prepared before hedge accounting is adopted  Upfront formal documentation of the hedging instrument, hedged item or transaction, risk management objective and strategy,  The hedge is documented showing that it is expected to be highly effective in offsetting the changes in the fair value or cash flows the nature of the risk being hedged and the effectiveness measurement methodology that will be applied is prepared before hedge attributable to the hedged risk, consistent with the risk management and strategy detailed in the upfront hedge documentation accounting is adopted  The effectiveness of the hedge can be reliably measured  The hedge is documented showing that it is expected to be highly effective in offsetting the changes in the fair value or cash flows  The hedge is assessed and determined to have been highly effective on an ongoing basis attributable to the hedged risk, consistent with the risk management and strategy detailed in the upfront hedge documentation  The effectiveness of the hedge can be reliably measured  The hedge is assessed and determined to have been highly effective on an ongoing basis 300 294 294 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017  For cash flow hedges of a forecast transaction, an assessment that it is highly probable that the hedged transaction will occur and will carry profit or loss risk. (d) Hedge accounting continued Changes in the fair value of derivatives that are designated and qualify as fair value hedges and that prove to be highly effective in relation to hedged risk, are recorded in profit or loss, along with the corresponding change in fair value of the hedged asset or liability that is attributable to that specific hedged risk. Changes in the fair value of derivatives that are designated and qualify as cash flow hedges or hedges of a net investment in a foreign operation, and that prove to be highly effective in relation to the hedged risk, are recognised in other comprehensive income. Any ineffective portion of changes in the fair value of the derivative is recognised in profit or loss. If the hedge no longer meets the criteria for hedge accounting, hedge accounting is discontinued prospectively. For fair value hedge accounting, any previous adjustment to the carrying amount of a hedged interest-bearing financial instrument carried at amortised cost (as a result of previous hedge accounting), is amortised in profit or loss from the date hedge accounting ceases, to the maturity date of the financial instrument, based on the effective interest method. For hedges of a net investment in a foreign operation, any cumulative gains or losses in equity are recognised in profit or loss on disposal of the foreign operation. The Group does not apply significant cash flow or fair value hedging. (e) Embedded derivatives Certain derivatives embedded in financial and non-financial instruments, such as the conversion option in a convertible bond, are treated as separate derivatives and recognised as such on a standalone basis, when a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative, their risks and characteristics are not closely related to those of the host contract and the host contract is not carried at fair value with unrealised gains and losses reported in profit or loss. If it is not possible to determine the fair value of the embedded derivative, the entire hybrid instrument is categorised as fair value through profit or loss and measured at fair value. (f) Offsetting financial instruments and related income Financial assets and liabilities are offset and the net amount reported in the consolidated statement of financial position only when there is currently a legally enforceable right to set off and there is intention to settle on a net basis, or to realise the asset and settle the liability simultaneously. Income and expense items are offset only to the extent that their related instruments have been offset in the consolidated statement of financial position, with the exception of those relating to hedges, which are disclosed in accordance with profit or loss effect of the hedged item. (g) Interest income and expense Interest income and expense in relation to financial instruments carried at amortised cost or held as available-for-sale are recognised in profit or loss using the effective interest method, taking into account the expected timing and amount of cash flows. Interest income and expense include the amortisation of any discount or premium or other differences between the initial carrying amount of an interest- bearing instrument and its amount at maturity calculated on an effective interest basis. Interest income and expense on financial instruments carried at fair value through profit or loss are presented as part of interest income or expense. (h) Non-interest revenue Non-interest revenue in respect of financial instruments principally comprises fees and commission and other operating income. These are accounted for as set out below. Fees and commission income Loan origination fees, for loans that are probable of being drawn down, are deferred (together with related direct costs) and recognised as an adjustment to the effective yield on the loan. Fees and commission arising from negotiating, or participating in the negotiation of a transaction for a third-party, such as the acquisition of loans, shares or other securities or the purchase or sale of businesses, are recognised on completion of the underlying transaction. Other income Revenue other than interest, fees and commission (including fees and insurance premiums), which includes exchange and securities trading income, dividends from investments and net gains on the sale of banking assets, is recognised in profit or loss when the amount of revenue from the transaction or service can be measured reliably and it is probable that the economic benefits of the transaction or service will flow to the Group. 301 295 i F n a n c a s i l Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued K: Accounting policies on financial assets and liabilities continued (i) Financial assets K: Accounting policies on financial assets and liabilities continued Non-derivative financial assets are recorded as held-for-trading, designated as fair value through profit or loss, loans and receivables, held-to-maturity or available-for-sale. An analysis of the Group's consolidated statement of financial position, showing the categorisation (i) Financial assets of financial assets, together with financial liabilities is set out in note E1. Non-derivative financial assets are recorded as held-for-trading, designated as fair value through profit or loss, loans and receivables, held-to-maturity or available-for-sale. An analysis of the Group's consolidated statement of financial position, showing the categorisation (j) Classification of financial instruments of financial assets, together with financial liabilities is set out in note E1. Held-for-trading financial assets (j) Classification of financial instruments Held-for-trading financial assets are those that were either acquired for generating a profit from short-term fluctuations in price or dealer's margin, or are securities included in a portfolio in which a pattern of short-term profit taking exists, or are derivatives that are not Held-for-trading financial assets designated as effective hedging instruments. Held-for-trading financial assets are those that were either acquired for generating a profit from short-term fluctuations in price or dealer's margin, or are securities included in a portfolio in which a pattern of short-term profit taking exists, or are derivatives that are not Financial assets designated as fair value through profit or loss designated as effective hedging instruments. Financial assets that the Group has elected to designate as fair value through profit or loss are those where the treatment either eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise when using a different measurement basis Financial assets designated as fair value through profit or loss (for instance with respect to financial assets supporting insurance contract liabilities) or are managed, evaluated and reported using a fair Financial assets that the Group has elected to designate as fair value through profit or loss are those where the treatment either eliminates value basis (for instance financial assets supporting shareholders' funds). or significantly reduces a measurement or recognition inconsistency that would otherwise arise when using a different measurement basis (for instance with respect to financial assets supporting insurance contract liabilities) or are managed, evaluated and reported using a fair All financial assets carried at fair value through profit or loss, whether held-for-trading or designated, are initially recognised at fair value value basis (for instance financial assets supporting shareholders' funds). and subsequently remeasured at fair value based on bid prices quoted in active markets. If such price information is not available for these instruments, the Group uses other valuation techniques, including internal models, to measure these instruments. These techniques use All financial assets carried at fair value through profit or loss, whether held-for-trading or designated, are initially recognised at fair value market observable inputs where available, derived from similar assets and liabilities in similar and active markets, from recent transaction and subsequently remeasured at fair value based on bid prices quoted in active markets. If such price information is not available for these prices for comparable items or from other observable market data. For positions where observable reference data are not available for instruments, the Group uses other valuation techniques, including internal models, to measure these instruments. These techniques use some or all parameters, the Group estimates the non-market observable inputs used in its valuation models. Where discounted cash flow market observable inputs where available, derived from similar assets and liabilities in similar and active markets, from recent transaction techniques are used, estimated future cash flows are based on management's best estimates and the discount rate used is a market- prices for comparable items or from other observable market data. For positions where observable reference data are not available for related rate at the reporting date for an instrument with similar terms and conditions. some or all parameters, the Group estimates the non-market observable inputs used in its valuation models. Where discounted cash flow techniques are used, estimated future cash flows are based on management's best estimates and the discount rate used is a market- Fair values of certain financial instruments, such as over-the-counter (OTC) derivative instruments, are determined using pricing models related rate at the reporting date for an instrument with similar terms and conditions. that consider, among other factors, contractual and market prices, correlations, yield curves, credit spreads, and volatility factors. Fair values of certain financial instruments, such as over-the-counter (OTC) derivative instruments, are determined using pricing models Realised and unrealised fair value gains and losses on all financial assets carried at fair value through profit or loss are included in that consider, among other factors, contractual and market prices, correlations, yield curves, credit spreads, and volatility factors. investment return (non-banking) or in banking trading, investment and similar income as appropriate. Realised and unrealised fair value gains and losses on all financial assets carried at fair value through profit or loss are included in Interest earned whilst holding financial assets at fair value through profit or loss is reported within investment return (non-banking) or investment return (non-banking) or in banking trading, investment and similar income as appropriate. banking interest and similar income, as appropriate. Dividends receivable are included separately in dividend income, within investment return (non-banking) or banking trading, investment and similar income, when a dividend is declared. Interest earned whilst holding financial assets at fair value through profit or loss is reported within investment return (non-banking) or banking interest and similar income, as appropriate. Dividends receivable are included separately in dividend income, within investment Loans and receivables return (non-banking) or banking trading, investment and similar income, when a dividend is declared. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than those classified by the Group as fair value through profit or loss or available-for-sale. Loans and receivables are carried at Loans and receivables amortised cost less any impairment write-downs. Third-party expenses such as legal fees incurred in securing a loan are treated as part Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, of the cost of the transaction. other than those classified by the Group as fair value through profit or loss or available-for-sale. Loans and receivables are carried at amortised cost less any impairment write-downs. Third-party expenses such as legal fees incurred in securing a loan are treated as part Held-to-maturity financial assets of the cost of the transaction. Financial assets with fixed maturity dates which are quoted in an active market and where management has both the intent and the ability to hold the asset to maturity are classified as held-to-maturity. These assets are carried at amortised cost less any impairment write- Held-to-maturity financial assets downs. Interest earned on held-to-maturity financial assets is reported within investment return (non-banking) or banking interest and Financial assets with fixed maturity dates which are quoted in an active market and where management has both the intent and the ability similar income, as appropriate. to hold the asset to maturity are classified as held-to-maturity. These assets are carried at amortised cost less any impairment write- downs. Interest earned on held-to-maturity financial assets is reported within investment return (non-banking) or banking interest and Available-for-sale financial assets similar income, as appropriate. Financial assets intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices other than those designated fair value through profit or loss or as loans and receivables, Available-for-sale financial assets are classified as available-for-sale. Management determines the appropriate classification of its investments at the time of the purchase. Financial assets intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices other than those designated fair value through profit or loss or as loans and receivables, Available-for-sale financial assets are measured at fair value based on bid prices quoted in active markets. If such prices are unavailable are classified as available-for-sale. Management determines the appropriate classification of its investments at the time of the purchase. or determined to be unreliable, the fair value of the financial asset is estimated using pricing models or discounted cash flow techniques. Where discounted cash flow techniques are used, estimated future cash flows are based on management's best estimates and the Available-for-sale financial assets are measured at fair value based on bid prices quoted in active markets. If such prices are unavailable discount rate used is a market-related rate at the reporting date for an instrument with similar terms and conditions. Where pricing models or determined to be unreliable, the fair value of the financial asset is estimated using pricing models or discounted cash flow techniques. are used, inputs are based on observable market data where available at the reporting date. Where discounted cash flow techniques are used, estimated future cash flows are based on management's best estimates and the discount rate used is a market-related rate at the reporting date for an instrument with similar terms and conditions. Where pricing models are used, inputs are based on observable market data where available at the reporting date. 302 296 296 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Unrealised gains and losses arising from changes in the fair value of available-for-sale financial assets are recognised in other comprehensive income. When available-for-sale financial assets are disposed, the related accumulated fair value adjustments are included in profit or loss as gains and losses from available-for-sale financial assets. When available-for-sale assets are impaired the resulting loss is shown separately in profit or loss as an impairment charge. Interest earned on available-for-sale financial assets is reported within investment return (non-banking) or banking interest and similar income, as appropriate. Dividends receivable are included separately in dividend income, within investment return (non-banking) or banking trading, investment and similar income, as appropriate when a dividend is declared. Financial liabilities (other than investment contracts and derivatives) Non-derivative financial liabilities, including borrowed funds, amounts owed to depositors and liabilities under acceptances are recorded as held-for-trading, designated as fair value through profit or loss or as financial liabilities at amortised cost. Liabilities that the Group has elected to designate as fair value through profit or loss are those where the treatment either eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise when using a different measurement basis or are managed, evaluated and reported using a fair value basis. For financial liabilities recorded at fair value and which contain a demand feature, the fair value of the liability is not less than the amount payable on demand, discounted from the first date that the amount could be required to be paid. Financial liabilities categorised at amortised cost are recognised initially at fair value, which is normally represented by the transaction price, less directly attributable transaction costs. Subsequent to initial recognition these financial liabilities are stated at amortised cost with any difference between cost and redemption value being recognised in profit or loss over the period of the borrowings on an effective interest basis. Equity classified conversion options included within financial liabilities are recorded separately in shareholders' equity. The Group does not recognise any change in the value of this option in subsequent periods. The remaining obligation to make future payments of principal and interest to bondholders is calculated using a market interest rate for an equivalent non-convertible bond and is presented on the amortised cost basis in other borrowed funds until extinguished on conversion or maturity of the bonds. If the Group purchases its own debt, it is removed from the consolidated statement of financial position and the difference between the carrying amount of a liability and the consideration paid is recognised in profit or loss and are included in finance costs. (k) Reclassifications of financial assets A non-derivative financial asset that would have met the definition of loans and receivables at initial recognition that was required to be categorised as held-for-trading (on the basis that it was held for the purpose of selling or repurchasing in the near term) may under exceptional circumstances be reclassified out of the fair value through profit or loss category if the Group intends and is able to hold the financial asset for the foreseeable future or until maturity. If a financial asset is so reclassified, it is reclassified at its fair value on the date of reclassification. Any gain or loss already recognised in profit or loss is not reversed. The fair value at the date of reclassification becomes its new cost or amortised cost, as applicable. Other non-derivative financial assets that were required to be categorised as held-for-trading at initial recognition may be reclassified out of the fair value through profit or loss category in rare circumstances. If a financial asset is so reclassified, it is reclassified at its fair value on the date of reclassification. Any gain or loss already recognised in profit or loss is not reversed. Measurement of the asset after reclassification depends on the subsequent categorisation. A non-derivative financial asset that would have met the definition of loans and receivables at initial recognition that was designated as available-for-sale may under exceptional circumstances be reclassified out of the available-for-sale category to the loans and receivables category if it meets the loans and receivables definition at the date of reclassification and if the Group intends and is able to hold the financial asset for the foreseeable future or until maturity. If a financial asset is so reclassified, it is reclassified at its fair value on the date of reclassification. The fair value at the date of reclassification becomes its new cost or amortised cost, as applicable. In the case of a financial asset with a fixed maturity, the gain or loss already recognised in the available-for-sale reserve in equity is amortised to profit or loss over the remaining life using the effective interest method together with any difference between the new amortised cost and the maturity amount. In the case of a financial asset that does not have a fixed maturity, the gain or loss already recognised in the available- for-sale reserve in equity is recognised in profit or loss when the financial asset is sold or otherwise disposed. 303 297 i F n a n c a s i l Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued K: Accounting policies on financial assets and liabilities continued (i) Financial assets K: Accounting policies on financial assets and liabilities continued Non-derivative financial assets are recorded as held-for-trading, designated as fair value through profit or loss, loans and receivables, held-to-maturity or available-for-sale. An analysis of the Group's consolidated statement of financial position, showing the categorisation (l) Sale and repurchase agreements and lending of securities of financial assets, together with financial liabilities is set out in note E1. Securities sold subject to linked repurchase agreements are retained in the financial statements as appropriate when considering the de-recognition criteria contained within IAS 39. The securities retained in the financial statements are reflected as trading or investment (j) Classification of financial instruments securities and the counterparty liability is included in amounts owed to other depositors, deposits from other banks, or other money market deposits, as appropriate. Cash paid for securities purchased under agreements to resell at a pre-determined price are recorded as loans Held-for-trading financial assets and advances to other banks or customers as appropriate. The difference between the sale and repurchase price is treated as interest Held-for-trading financial assets are those that were either acquired for generating a profit from short-term fluctuations in price or dealer's and accrued over the life of the agreement using the effective interest method. margin, or are securities included in a portfolio in which a pattern of short-term profit taking exists, or are derivatives that are not designated as effective hedging instruments. Securities lent to counterparties are retained in the financial statements and any interest earned recognised in profit or loss using the effective interest method. Financial assets designated as fair value through profit or loss Financial assets that the Group has elected to designate as fair value through profit or loss are those where the treatment either eliminates Securities borrowed are not recognised in the financial statements, unless these are sold to third parties, in which case the purchase or significantly reduces a measurement or recognition inconsistency that would otherwise arise when using a different measurement basis and sale are recorded with the gain or loss included in trading income. The obligation to return them is recorded at fair value as a (for instance with respect to financial assets supporting insurance contract liabilities) or are managed, evaluated and reported using a fair trading liability. value basis (for instance financial assets supporting shareholders' funds). (m) Parent Company investments in subsidiary undertakings and associates All financial assets carried at fair value through profit or loss, whether held-for-trading or designated, are initially recognised at fair value and subsequently remeasured at fair value based on bid prices quoted in active markets. If such price information is not available for these Parent Company investments in subsidiary undertakings and associates are recorded at cost. Impairments of Parent Company instruments, the Group uses other valuation techniques, including internal models, to measure these instruments. These techniques use investments in subsidiary undertakings and associates are accounted for in the same way as impairments of other non-financial assets. market observable inputs where available, derived from similar assets and liabilities in similar and active markets, from recent transaction prices for comparable items or from other observable market data. For positions where observable reference data are not available for (n) Impairments of financial assets some or all parameters, the Group estimates the non-market observable inputs used in its valuation models. Where discounted cash flow Indicators of impairment techniques are used, estimated future cash flows are based on management's best estimates and the discount rate used is a market- A provision for impairment is established if there is objective evidence that the Group will not be able to recover all amounts relating related rate at the reporting date for an instrument with similar terms and conditions. to the financial asset. Observable data that could come to the attention of the Group that could lead to a provision for impairment to be made include: Fair values of certain financial instruments, such as over-the-counter (OTC) derivative instruments, are determined using pricing models that consider, among other factors, contractual and market prices, correlations, yield curves, credit spreads, and volatility factors.  Significant financial difficulty of the counterparty  A breach of contract, such as a default or delinquency in interest or principal payments Realised and unrealised fair value gains and losses on all financial assets carried at fair value through profit or loss are included in  The Group, for economic or legal reasons relating to the counterparty's financial difficulty, grants to the counterparty a concession that investment return (non-banking) or in banking trading, investment and similar income as appropriate. the Group would not otherwise consider  It becoming probable that the counterparty will enter bankruptcy or other financial reorganisation Interest earned whilst holding financial assets at fair value through profit or loss is reported within investment return (non-banking) or  Observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of assets since the initial banking interest and similar income, as appropriate. Dividends receivable are included separately in dividend income, within investment recognition of those assets, although the decrease cannot yet be identified with the individual financial assets, including: return (non-banking) or banking trading, investment and similar income, when a dividend is declared.  adverse changes in the payment status of counterparties in the group of financial assets; or  national or local economic conditions that correlate with defaults on the assets in the group of financial assets. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, In addition, for an available-for-sale financial asset, a significant or prolonged decline in the fair value below its cost is also objective other than those classified by the Group as fair value through profit or loss or available-for-sale. Loans and receivables are carried at evidence of impairment. amortised cost less any impairment write-downs. Third-party expenses such as legal fees incurred in securing a loan are treated as part of the cost of the transaction. Held-to-maturity financial assets Financial assets with fixed maturity dates which are quoted in an active market and where management has both the intent and the ability to hold the asset to maturity are classified as held-to-maturity. These assets are carried at amortised cost less any impairment write- downs. Interest earned on held-to-maturity financial assets is reported within investment return (non-banking) or banking interest and similar income, as appropriate. Available-for-sale financial assets Financial assets intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices other than those designated fair value through profit or loss or as loans and receivables, are classified as available-for-sale. Management determines the appropriate classification of its investments at the time of the purchase. Available-for-sale financial assets are measured at fair value based on bid prices quoted in active markets. If such prices are unavailable or determined to be unreliable, the fair value of the financial asset is estimated using pricing models or discounted cash flow techniques. Where discounted cash flow techniques are used, estimated future cash flows are based on management's best estimates and the discount rate used is a market-related rate at the reporting date for an instrument with similar terms and conditions. Where pricing models are used, inputs are based on observable market data where available at the reporting date. 304 296 298 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Financial assets at amortised cost The amount of the impairment of a financial asset held at amortised cost is the difference between the carrying amount and the recoverable amount, being the value of expected cash flows, including amounts recoverable from guarantees and collateral, discounted based on the effective interest rate at initial recognition. In estimating future expected cash flows the Group looks at the contractual cash flows of the assets and adjusts these contractual cash flows for historical loss experience of assets with similar credit risks, with this adjusted to reflect any additional conditions that are expected to arise or to account for those which no longer exist. This is done to predict inherent losses which exist in the asset as at the reporting date but have not been reported. The impairment provision also covers losses where there is objective evidence that losses are present in components of the loan portfolio at the reporting date, but these components have not yet been specifically identified. When a loan is uncollectable, it is written-off against the related impairment provision. If the amount of impairment subsequently decreases due to an event occurring after the write-down, the release of the impairment provision is credited to profit or loss. Impairment reversals are limited to what the carrying amount would have been, had no impairment losses been recognised. Interest income on impaired loans and receivables is recognised on the impaired amount using the original effective interest rate before the impairment. Available-for-sale financial assets The amount of the impairment loss of an available-for-sale financial asset is the cumulative loss that has been recognised in other comprehensive income, being the difference between the acquisition cost and the asset's current fair value, less any impairment loss on that asset previously recognised in profit or loss. For available-for-sale debt securities, fair value is determined as the present value of expected future cash flows discounted at the current market rate of interest. All such impairments are recognised in profit or loss. The reversal of an impairment allowance in respect of a debt instrument categorised as available-for-sale is credited to profit or loss, the release in respect of an equity instrument categorised as available-for-sale is credited to the available-for-sale reserve within equity. 305 299 i F n a n c a s i l Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued 100 100 100 100 100 100 Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Shareholding Ordinary Shareholding Ordinary Ordinary Percentage holding Percentage 100 holding 100 100 Country of incorporation Country of Republic of South Africa incorporation Republic of South Africa Republic of South Africa L: Related undertakings of the Group The following provides a list of the Group’s related undertakings. These disclosures are required by Section 409 of the Companies L: Related undertakings of the Group Act 2006. It should be noted that this is a statutory disclosure and does not represent the way that the Group accounts for these The following provides a list of the Group’s related undertakings. These disclosures are required by Section 409 of the Companies entities. Act 2006. It should be noted that this is a statutory disclosure and does not represent the way that the Group accounts for these entities. (a) Group subsidiaries The table below sets out the Group's subsidiary undertakings (including investment funds and collective investment schemes controlled by (a) Group subsidiaries the Company). All shares are held indirectly by the Company (unless indicated) and their results are included in the Company’s The table below sets out the Group's subsidiary undertakings (including investment funds and collective investment schemes controlled by consolidated financial statements. the Company). All shares are held indirectly by the Company (unless indicated) and their results are included in the Company’s consolidated financial statements. Name 310 Halfway House Ext 13 Investments (Pty) Ltd Name 312 Halfway House Ext 13 310 Halfway House Ext 13 Investments (Pty) Ltd Investments (Pty) Ltd 314 Halfway House Ext 13 312 Halfway House Ext 13 Investments (Pty) Ltd Investments (Pty) Ltd 315 Halfway House Ext 13 314 Halfway House Ext 13 Investments (Pty) Ltd Investments (Pty) Ltd 316 Halfway House Ext 13 315 Halfway House Ext 13 Investments (Pty) Ltd Investments (Pty) Ltd 317 Halfway House Ext 13 316 Halfway House Ext 13 Investments (Pty) Ltd Investments (Pty) Ltd 318 Halfway House Ext 13 317 Halfway House Ext 13 Investments (Pty) Ltd Investments (Pty) Ltd 319 Halfway House Ext 13 318 Halfway House Ext 13 Investments (Pty) Ltd Investments (Pty) Ltd 32 Randjesfontein Investments (Pty) 319 Halfway House Ext 13 Ltd Investments (Pty) Ltd 320 Halfway House Ext 13 32 Randjesfontein Investments (Pty) Investments (Pty) Ltd Ltd 321 Halfway House Ext 13 320 Halfway House Ext 13 Investments (Pty) Ltd Investments (Pty) Ltd AAM Advisory PTE Limited 321 Halfway House Ext 13 Investments (Pty) Ltd Acsis (Pty) Ltd AAM Advisory PTE Limited Acsis Licence Group (Pty) Ltd Acsis (Pty) Ltd Adviceworx (Pty) Ltd Acsis Licence Group (Pty) Ltd Adviceworx Old Mutual Inflation Plus Adviceworx (Pty) Ltd 4-5% Fund of Funds Affordable Rental and Investment Adviceworx Old Mutual Inflation Plus Fund South Africa Trust 4-5% Fund of Funds African Fund Managers (Mauritius) Affordable Rental and Investment Fund South Africa Trust African Infrastructure Investment African Fund Managers (Mauritius) Fund African Infrastructure Investment African Infrastructure Investment Fund 2 Partnership Fund African Infrastructure Investment Fund 2 Partnership Registered Office Address Grand Central Airport, New road and Pretoria main road, Midrand, Gauteng, 1685 Registered Office Address Grand Central Airport, New road and Pretoria main Grand Central Airport, New road and Pretoria main road, Midrand, Gauteng, 1685 road, Midrand, Gauteng, 1685 Grand Central Airport, New road and Pretoria main Grand Central Airport, New road and Pretoria main road, Midrand, Gauteng, 1685 road, Midrand, Gauteng, 1685 Grand Central Airport, New road and Pretoria main Grand Central Airport, New road and Pretoria main road, Midrand, Gauteng, 1685 road, Midrand, Gauteng, 1685 Grand Central Airport, New road and Pretoria main Grand Central Airport, New road and Pretoria main road, Midrand, Gauteng, 1685 road, Midrand, Gauteng, 1685 Grand Central Airport, New road and Pretoria main Grand Central Airport, New road and Pretoria main road, Midrand, Gauteng, 1685 road, Midrand, Gauteng, 1685 Grand Central Airport, New road and Pretoria main Grand Central Airport, New road and Pretoria main road, Midrand, Gauteng, 1685 road, Midrand, Gauteng, 1685 Grand Central Airport, New road and Pretoria main Grand Central Airport, New road and Pretoria main road, Midrand, Gauteng, 1685 road, Midrand, Gauteng, 1685 Grand Central Airport, New road and Pretoria main Grand Central Airport, New road and Pretoria main road, Midrand, Gauteng, 1685 road, Midrand, Gauteng, 1685 Grand Central Airport, New road and Pretoria main Grand Central Airport, New road and Pretoria main road, Midrand, Gauteng, 1685 road, Midrand, Gauteng, 1685 Grand Central Airport, New road and Pretoria main Grand Central Airport, New road and Pretoria main road, Midrand, Gauteng, 1685 road, Midrand, Gauteng, 1685 CapitaGreen #06-01, 138 Market Street, Singapore Grand Central Airport, New road and Pretoria main 048946 road, Midrand, Gauteng, 1685 Mutualpark, Jan Smuts Drive, Pinelands, 7405 CapitaGreen #06-01, 138 Market Street, Singapore 048946 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutualpark, Jan Smuts Drive, Pinelands, 7405 1st Floor Building 5, Commerce Square, 39 Rivonia Road, Sandhurst, 2194 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutualpark, Jan Smuts Drive, Pinelands 7405 1st Floor Building 5, Commerce Square, 39 Rivonia Road, Sandhurst, 2194 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutualpark, Jan Smuts Drive, Pinelands 7405 c/o Cim Fund Services Ltd, 33 Edith Cavell Street, Port Mutualpark, Jan Smuts Drive, Pinelands, 7405 Louis Ground Floor, Colinton House, The Oval, 1 Oakdale c/o Cim Fund Services Ltd, 33 Edith Cavell Street, Port Street, Newlands, Cape Town, 7700 Louis Ground Floor, Colinton House, The Oval, 1 Oakdale Ground Floor, Colinton House, The Oval, 1 Oakdale Street, Newlands, Cape Town 7700 Street, Newlands, Cape Town, 7700 Ground Floor, Colinton House, The Oval, 1 Oakdale Street, Newlands, Cape Town 7700 Ordinary Ordinary Ordinary Ordinary Class A and Class B shares Ordinary Class B1 shares Class A and Class B shares Trust does not issue Class B1 shares shares Ordinary Trust does not issue shares one class of share Ordinary Republic of South Africa Singapore Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Singapore Republic of South Africa Republic of South Africa Mauritius Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Mauritius Republic of South Africa 100 100 100 100 100 100 32 100 Republic of South Africa one class of share one class of share one class of share Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary 100 100 100 100 41 100 100 100 100 100 100 100 100 100 100 32 100 100 100 100 44 41 44 306 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Percentage holding 100 Shareholding Ordinary Country of incorporation Republic of South Africa Name African Infrastructure Investment Fund 3 GP (Pty) African Infrastructure Investment Holding Company 2 (Mauritius) African Infrastructure Investment Managers (Pty) Limited AIIF2 Power Holdings AIIF2 Towers SA (Pty) Limited AIIM Hydropower Holdings (Pty) Limited AIIM Seed General Partner (Pty) Limited AIIM Seed GP Partnership AIIM Staff GP (Pty) Limited Aiva Florida Inc. AIVA Health S.A. AIVA Holding Group S.A. AIVA Investments S.A. AIVA S.A. AIVA TPA Services S.A. ALFI Rogge Partners S.A. Amber Mountain Investment 3 (Pty) Ltd Apollo Advisors (Pty) Ltd Apollo II GP Partnership General Partner Apollo Investment Partnership II En Commandite Partnership Azaadville Gardens (RF) (Pty) Ltd Balanced Fund 50 100 69 100 99 100 96 100 100 100 100 100 100 100 100 100 93 93 51 65 72 Banco Unico Barprop (Pty) Ltd Beaumont Robinson Limited 50% + 1 100 100 Bedford Square Properties (Pty) Ltd 99 Bene Inventa (Pty) Ltd Blaauwberg Insurance Company Limited Black Distributors SPV Limited 100 100 100 Bloemfontein Board of Executors and Trust Company Ltd 100 Blue Downs 3 Property Developments (Pty) Ltd 100 Blueprint Distribution Limited 100 Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Class A, A3, B1, B2, C and R shares Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary and cumulative redeemable preference shares Ordinary and cumulative redeemable preference shares Ordinary Mauritius Republic of South Africa Republic of South Africa Republic of South Africa Mauritius Republic of South Africa Republic of South Africa Republic of South Africa Florida, USA Uruguay Panama Uruguay Uruguay Uruguay England and Wales Republic of South Africa Registered Office Address Ground Floor, Colinton House, The Oval, 1 Oakdale Street, Newlands, Cape Town, 7700 c/o Cim Fund Services Ltd, 33 Edith Cavell Street, Port Louis Colinton House, Ground Floor, The Oval, 1 Oakdale Street, Newlands, Cape Town, 7700 c/o Cim Fund Services Ltd, 33 Edith Cavell Street, Port Louis Ground Floor, Colinton House, The Oval, 1 OakdaleStreet, Newlands, Cape Town, 7700 c/o Cim Fund Services Ltd, 33 Edith Cavell Street, Port Louis, Mauritius Ground Floor, Colinton House, The Oval, 1 Oakdale Street, Newlands, Cape Town, 7700 Ground Floor, Colinton House, The Oval, 1 Oakdale Street, Newlands, Cape Town, 7700 Ground Floor, Colinton House, The Oval, 1 Oakdale Street, Newlands, Cape Town, 7700 201 South Biscayne, Boulevard. Suite 1500 BB Miami Florida Zonamerica - Ruta 8 km 17500 Edif. Beta 3, Of 011 Costa del Este, Av Roberto Motta Edificio Capital Plaza Piso 8 - Panama- Republica de Panama Zonamerica - Ruta 8km 17500 Edif. Beta 3, Of.011 Luis Alberto de Herrera 1245 WTC Torre I - Of.1406 Zonamerica - Ruta 8 Km 17 500 Edif. Beta 3, Of.011 5th Floor Millennium Bridge House 2, Lambeth Hill, London, EC4V 4GG 127 Cape Road, Mount Croix, Port Elizabeth 6001 i F n a n c a s i l Republic of South Africa Ground Floor, Colinton House,The Oval, 1 Oakdale Street, Newlands, Cape Town 7701 Republic of South Africa Walkers SPV Limited, Walker House, 87 Mary Street, Republic of South Africa Republic of South Africa Republic of South Africa Mozambique Republic of South Africa England & Wales Republic of South Africa Republic of South Africa Isle of Man England & Wales Republic of South Africa George Town, Grand Cayman KY1-9002, Cayman Islands Ground Floor, Colinton House, The Oval, 1 Oakdale Street, Newlands, Cape Town, 7700 11th floor, Nedbank Corner, 96 Jorissen Street, Braamfontein, Johannesburg, Gauteng 2017 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Julius Nyerere Avenue, n'500 Maputo, Mozambique Mutualpark, Jan Smuts Drive, Pinelands, 7405 Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG Illovo Edge - 3rd Floor Building 3, Cnr Harries and Fricker Roads, Illovo 135 Rivonia Road, Sandown, Sandton, 2196 Third Floor, St George's Court, Upper Church Street, Douglas, Isle of Man. IM1 1EE Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG 135 Rivonia Road, Sandown, Sandton, 2196 Republic of South Africa Old Mutual West Campus Entrance 2, Mutual Park, 2 Jan Smuts Drive, Pinelands, 7405 England & Wales Wiltshire Court, Farnsby Street, Swindon, England, SN1 5AH Wiltshire Court, Farnsby Street, Swindon, England, SN1 5AH Blueprint Financial Services Limited 100 Ordinary England & Wales 307 299 Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued Name Blueprint Organisation Limited Name BNS Nominees (Pty) Ltd Blueprint Organisation Limited BoE 187 Investments (Pty) Ltd BoE Developments (Pty) Ltd BNS Nominees (Pty) Ltd BoE Holdings (Pty) Ltd BoE 187 Investments (Pty) Ltd BoE Link Nominees (Proprietary) BoE Developments (Pty) Ltd Limited (RF) BoE Holdings (Pty) Ltd BoE Private Client & Trust Company BoE Link Nominees (Proprietary) (Pty) Ltd Limited (RF) BoE Private Equity Investments (Pty) BoE Private Client & Trust Company Ltd (Pty) Ltd Boness Development Phase 3 (Pty) BoE Private Equity Investments (Pty) Ltd Ltd BPCC Security Company (Pty) Ltd Boness Development Phase 3 (Pty) Ltd BPCC Security Company (Pty) Ltd C.I.P.M. Nominees Limited Cabs Custodial Services (Private) Limited (formerly known as Three C.I.P.M. Nominees Limited Anchor Investments (Pvt) Ltd) Cabs Custodial Services (Private) Caerus Bureau Services Limited Limited (formerly known as Three Anchor Investments (Pvt) Ltd) Caerus Capital Group Limited Caerus Bureau Services Limited Caerus Financial Limited Caerus Capital Group Limited Caerus Holdings Limited Caerus Financial Limited Percentage holding 100 Percentage holding 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 Caerus Portfolio Management Limited 100 100 Caerus Holdings Limited Caerus Wealth Limited 100 Caerus Portfolio Management Limited 100 Caerus Wealth Solutions Limited Caerus Wealth Limited Capegate Crescent Development Caerus Wealth Solutions Limited (Pty) Ltd Capital Development Limited Capegate Crescent Development (Pty) Ltd Capital Growth Investments Trust Capital Development Limited Capital Investments Limited Capital Growth Investments Trust CBN Nominees (Pty) Ltd Capital Investments Limited CCF Old Mutual Multi-Style Global CBN Nominees (Pty) Ltd Equity CCF Old Mutual Opp Global Equity CCF Old Mutual Multi-Style Global Celestis Broker Services (Pty) Ltd Equity Central Africa Building Society CCF Old Mutual Opp Global Equity Cheviot Capital (Nominees) Limited Celestis Broker Services (Pty) Ltd Cheviot Exodus LP Central Africa Building Society City Centre Properties (Pvt) Ltd Cheviot Capital (Nominees) Limited Cheviot Exodus LP City Centre Properties (Pvt) Ltd 100 100 100 100 100 100 100 100 51 100 100 51 100 100 80 100 100 100 80 100 100 100 100 93 100 100 93 Shareholding Ordinary Shareholding Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary and cumulative Ordinary redeemable preference shares Ordinary and cumulative Ordinary redeemable preference Ordinary shares Ordinary Ordinary ordinary ordinary ordinary ordinary ordinary ordinary ordinary ordinary ordinary ordinary ordinary ordinary ordinary Ordinary ordinary Ordinary Ordinary Trust does not issue Ordinary shares Ordinary Trust does not issue shares Ordinary Ordinary Class A and C shares Ordinary Class A and C shares Class A and C shares Ordinary Ordinary Class A and C shares Ordinary Ordinary partnership contribution Ordinary Ordinary Ordinary partnership contribution Ordinary Country of incorporation England & Wales Country of incorporation Republic of South Africa England & Wales Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Registered Office Address Wiltshire Court, Farnsby Street, Swindon, England, SN1 5AH Registered Office Address 135 Rivonia Road, Sandown, Sandton, 2196 Wiltshire Court, Farnsby Street, Swindon, England, 135 Rivonia Road, Sandown, Sandton, 2196 SN1 5AH 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 Mutualpark, Jan Smuts Drive, Pinelands, 7405 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Republic of South Africa Republic of South Africa 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 Republic of South Africa Republic of South Africa 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 Republic of South Africa Republic of South Africa 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 Republic of South Africa Jersey Zimbabwe Jersey Zimbabwe England & Wales England & Wales England & Wales England & Wales England & Wales England & Wales England & Wales England & Wales England & Wales England & Wales England & Wales England & Wales England & Wales Republic of South Africa England & Wales Malawi Republic of South Africa Zimbabwe Malawi Malawi Zimbabwe Namibia Malawi Ireland Namibia Ireland Ireland Republic of South Africa Zimbabwe Ireland England & Wales Republic of South Africa England & Wales Zimbabwe Zimbabwe England & Wales England & Wales Zimbabwe 135 Rivonia Road, Sandown, Sandton, 2196 4th Floor 28/30 The Parade St Helier Jersey JE2 3QQ Mutual Gardens, 100 The Chase West Emerald Hill, Harare 4th Floor 28/30 The Parade St Helier Jersey JE2 3QQ Mutual Gardens, 100 The Chase West Emerald Hill, Wiltshire Court, Farnsby Street, Swindon, England, Harare SN1 5AH Wiltshire Court, Farnsby Street, Swindon, England, Wiltshire Court, Farnsby Street, Swindon, England, SN1 5AH SN1 5AH Wiltshire Court, Farnsby Street, Swindon, England, Wiltshire Court, Farnsby Street, Swindon, England, SN1 5AH SN1 5AH Wiltshire Court, Farnsby Street, Swindon, England, Wiltshire Court, Farnsby Street, Swindon, England, SN1 5AH SN1 5AH Wiltshire Court, Farnsby Street, Swindon, England, Wiltshire Court, Farnsby Street, Swindon, England, SN1 5AH SN1 5AH Wiltshire Court, Farnsby Street, Swindon, England, Wiltshire Court, Farnsby Street, Swindon, England, SN1 5AH SN1 5AH Wiltshire Court, Farnsby Street, Swindon, England, Wiltshire Court, Farnsby Street, Swindon, England, SN1 5AH SN1 5AH Ground Floor Vineyards Square South, The Vineyards Wiltshire Court, Farnsby Street, Swindon, England, Office Estate, 99 Jip De Jager Road, Tygervalley SN1 5AH Old Mutal Building, Robert Mugabe Crescent, PO Box Ground Floor Vineyards Square South, The Vineyards 30459, Lilongwe 3 Office Estate, 99 Jip De Jager Road, Tygervalley Mutual Gardens, 100 The Chase West Emerald Hill, Old Mutal Building, Robert Mugabe Crescent, PO Box Harare 30459, Lilongwe 3 Old Mutal Building, Robert Mugabe Crescent, PO Box Mutual Gardens, 100 The Chase West Emerald Hill, 30459, Lilongwe 3 Harare 8th Floor, Namdeb Sentre, 10 Dr Frans Indongo Str, Old Mutal Building, Robert Mugabe Crescent, PO Box Windhoek 30459, Lilongwe 3 78 Sir John Rogerson’s Quay, Dublin 2, Ireland 8th Floor, Namdeb Sentre, 10 Dr Frans Indongo Str, Windhoek 78 Sir John Rogerson’s Quay, Dublin 2, Ireland 78 Sir John Rogerson’s Quay, Dublin 2, Ireland Mutualpark, Jan smuts Drive, Pinelands, 7405 Northend Close Northridge Park, Highlands, Harare 78 Sir John Rogerson’s Quay, Dublin 2, Ireland One Kingsway, London WC2B 6AN Mutualpark, Jan smuts Drive, Pinelands, 7405 90 Long Acre, London, WC2E 9RA Northend Close Northridge Park, Highlands, Harare Mutual Gardens, 100 The Chase West Emerald Hill, One Kingsway, London WC2B 6AN HARARE 90 Long Acre, London, WC2E 9RA Mutual Gardens, 100 The Chase West Emerald Hill, HARARE 308 300 300 Old Mutual plc Annual Report and Accounts 2017 Republic of South Africa Mutualpark, Jan Smuts Drive, Pinelands, 7405 Old Mutual plc Annual Report and Accounts 2017 Name Commsale 2000 Limited Percentage holding 100 Shareholding ordinary Country of incorporation England & Wales Community Property Company (Pty) Limited Community Property Holdings Limited 100 100 Consumer Credit (Swaziland) (Pty) Ltd Corporate Aone Trade & Invest 9 Pty Ltd Cougar Investment Holding Company Limited Credit Guarantee Insurance Corporation of Africa Ltd Crystal Park Developments (RF) (Pty) Ltd 100 100 100 86 100 Crystal Park Housing Portfolio (RF) (Pty) Ltd Crystal Park Trust CU Property Holdings (Pvt) Ltd Depfin Investments (Pty) Ltd Dodd Murray Limited 100 100 100 100 100 Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Republic of South Africa Republic of South Africa Swaziland Republic of South Africa Republic of South Africa Republic of South Africa Ordinary Republic of South Africa Trust does not issue shares Ordinary Republic of South Africa Zimbabwe Ordinary ordinary Republic of South Africa England & Wales DQS Financial Management Limited 100 Ordinary England & Wales Education SPV Limited 100 Ordinary England & Wales Eighty One Main Street Nominees Ltd 100 100 Equibond (Pty) Ltd 100 Erf 7 Sandown (Pty) Ltd Esimio Trading 101 (Pty) Ltd Fairbairn Investment Company Limited Fairbairn Investments (UK) Limited (OM Seed Investment (UK) Limited) Fairbairn Nominees (Pty) Ltd Fairbairn UK Limited (OMFS Company 1 Limited) Faulu Microfinance Bank Limited 100 100 100 100 100 67 Featherwood Apartments (Pty) Ltd 74 Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary and cumulative redeemable preference shares Ordinary Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa England & Wales England & Wales Republic of South Africa England & Wales Kenya Republic of South Africa Featherwood Rental (Pty) Ltd 74 Ordinary Republic of South Africa Fidelity Multi Asset Adventurous Fund 65 Accumulation England & Wales 100 Fidelity Nominees (RF) (Pty) Ltd Finlac Trust (Pty) Ltd 100 First Trade and Invest 9 (RF) (Pty) Ltd 100 Ordinary Ordinary Ordinary Republic of South Africa Republic of South Africa Republic of South Africa Frittlewell Investments (Pvt) Limited 100 Ordinary Zimbabwe Front Line Investment Limited Futuregrowth Agri Fund Futuregrowth Agri Fund 2 Futuregrowth Agri-fund (South Africa)-1GP (Pty) Ltd Futuregrowth Asset Management (Pty) Ltd G.E.O.C. Nominees Ltd Galilean Properties (Pty) Ltd Global Bond Feeder Fund 70 43 99 100 100 100 100 39 Registered Office Address Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG 3rd Floor Great Westerford, 240 Main Road, Rondebosch, 7700 3rd Floor Great Westerford, 240 Main Road, Rondebosch, 7700 Deloitte & Touche, 1st floor, Embassy House, Cnr Allister Milller and Morris Strs, Mbabane, Swaziland c/o Old Mutual Alterantive Investments, Mutual Park, Jan Smuts Drive, Pinelands. Mutualpark, Jan Smuts Drive, Pinelands, 7405 i F n a n c a s l i Are Of Old Mutual Investment Group, 3rd Floor Omig Building, West Campus,Mutual Park,Jan Smuts D, Western Cape Province, 7405 384 Johan Road, cnr Johan and Taylor Road, Honeydew, Johannesburg, Gauteng 2140 c/o Old Mutual Alterantive Investments, Mutual Park, Jan Smuts Drive, Pinelands Royal Mutual House, 45 Nelson Mandela, Harare, Zimbabwe 135 Rivonia Road, Sandown, Sandton, 2196 Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 Building 7, 1st Floor, Pinewood Office Park, 33 Riley Road,Woodmead 24 Archter Road, Paulshof, 2191 Millennium Bridge House 2, Lambeth Hill, London, EC4V 4GG Millennium Bridge House 2, Lambeth Hill, London, EC4V 4GG Mutualpark, Jan Smuts Drive, Pinelands, 7405 Millennium Bridge House 2, Lambeth Hill, London, EC4V 4GG Business Support Centre, Ngong Lane, Off Ngong Road P. O. Box 60240-00200, Nairobi c/o Old Mutual Alterantive Investments, Mutual Park, Jan Smuts Drive, Pinelands. c/o Old Mutual Alterantive Investments, Mutual Park, Jan Smuts Drive, Pinelands. Oakhill House 150 Tonbridge Road Hildenborough Tonbridge Kent TN11 9DZ 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 Old Mutual West Campus Entrance 2, Mutual Park, 2 Jan Smuts Drive, Pinelands, 7405 Mutual Gardens, 100 The Chase West Emerald Hill, Harare Old Mutal Building, Robert Mugabe Crescent, PO Box 30459, Lilongwe 3 Mutual Park Jan Smuts Drive, Pinelands, 7405 Mutual Park Jan Smuts Drive, Pinelands, 7405 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Ordinary Malawi one class of share one class of share Ordinary Republic of South Africa Republic of South Africa Republic of South Africa Ordinary Republic of South Africa Mutualpark, Jan Smuts Drive, Pinelands, 7405 Ordinary Ordinary Class A and B2 shares Republic of South Africa Republic of South Africa Republic of South Africa 135 Rivonia Road, Sandown, Sandton, 2196 135 Daisy Street, Sandton, Sandown, 2196 Mutualpark, Jan Smuts Drive, Pinelands, 7405 309 301 Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued Name Global Currency Feeder Fund Name Global Edge Technologies (Pty) Global Currency Feeder Fund Limited Golddunn Property Developments Global Edge Technologies (Pty) (Pty) Ltd Limited Grand Central Airport (Pty) Ltd Golddunn Property Developments (Pty) Ltd Grand Central Investments Share Grand Central Airport (Pty) Ltd Block (Pty) Ltd Green Horizon Environment Grand Central Investments Share Rehabilitation Company (NPC) Block (Pty) Ltd Greenfield Developments Company Green Horizon Environment (Pty) Ltd Rehabilitation Company (NPC) HIFSA Housing Impact Fund South Greenfield Developments Company Africa (Pty) Ltd High Yield Opportunity Fund HIFSA Housing Impact Fund South Africa Housing Impact Fund South Africa Trust High Yield Opportunity Fund Housing Investment Partners (Pty) Housing Impact Fund South Africa Ltd Trust IBL Asset Finance and Services (Pty) Housing Investment Partners (Pty) Ltd Ltd Ideas Nedbank AIIF Investors Trust IBL Asset Finance and Services (Pty) Ltd IFA Holding Company Limited Ideas Nedbank AIIF Investors Trust IFA Services Holdings Company IFA Holding Company Limited Limited IMFUNDO SPV Holdings (Pty) Ltd IFA Services Holdings Company Limited Imvelo Facilities Management (Pty) Ltd IMFUNDO SPV Holdings (Pty) Ltd Incentive Investment Consultants Imvelo Facilities Management (Pty) (Pty) Ltd Ltd Infiniti Financial Planning & Incentive Investment Consultants Investment Management Limited (Pty) Ltd Institutional Money Market Fund Infiniti Financial Planning & Investment Management Limited Intrinsic Cirilium Investment Company Limited Institutional Money Market Fund Intrinsic Financial Planning Limited Intrinsic Cirilium Investment Company Limited Intrinsic Financial Services Limited Intrinsic Financial Planning Limited Percentage holding Percentage 33 holding 100 33 100 100 100 100 100 100 100 100 100 100 43 100 38 43 54 38 68 54 100 68 60 100 100 60 100 100 100 100 60 100 100 60 100 100 100 100 100 100 100 100 100 100 Intrinsic Financial Solutions Limited Intrinsic Financial Services Limited 100 100 Intrinsic Mortgage Planning Limited Intrinsic Financial Solutions Limited 100 100 Intrinsic Valuation Services Limited Intrinsic Mortgage Planning Limited 100 100 100 100 100 100 Intrinsic Wealth Financial Solutions Intrinsic Valuation Services Limited Limited Intrinsic Wealth Limited Intrinsic Wealth Financial Solutions Limited 100 Investage 91 (Pty) Ltd 100 Intrinsic Wealth Limited K2012150042 (South Africa) (Pty) Ltd 100 100 Investage 91 (Pty) Ltd K2013236459 (South Africa) (Pty) Ltd 100 K2012150042 (South Africa) (Pty) Ltd 100 Kagiso Infrastructure Empowerment 100 Fund K2013236459 (South Africa) (Pty) Ltd 100 100 KDGC (Pty) Ltd 100 Kagiso Infrastructure Empowerment Fund Kingsmead Properties (Pty) Ltd KDGC (Pty) Ltd Kirkney Securitisation (Pty) Ltd Kingsmead Properties (Pty) Ltd L & S Properties Limited Kirkney Securitisation (Pty) Ltd 100 100 100 100 100 100 LIBERO International SICAV PLC L & S Properties Limited Lighthouse Development (Pty) Ltd LIBERO International SICAV PLC Linton Projects (Pty) Ltd Lighthouse Development (Pty) Ltd M.C.Z. (Pvt) Ltd Linton Projects (Pty) Ltd M.C.Z. (Pvt) Ltd 100 100 100 100 100 100 70 100 70 Shareholding Class A, B1, B2 and C shares Shareholding ordinary Class A, B1, B2 and C shares Ordinary ordinary Country of incorporation Country of Republic of South Africa incorporation South Africa Republic of South Africa Registered Office Address Mutualpark, Jan Smuts Drive, Pinelands, 7405 Registered Office Address Mutual Gardens, Mowbray, Cape Town Mutualpark, Jan Smuts Drive, Pinelands, 7405 Republic of South Africa South Africa 665 Duncan Street, Hillcrest, Pretoria, 0001 Mutual Gardens, Mowbray, Cape Town Ordinary Ordinary Republic of South Africa Republic of South Africa Class A and Class B Ordinary shares Ordinary Class A and Class B shares Ordinary Ordinary Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Ordinary Ordinary Republic of South Africa Republic of South Africa Class A, B and C shares Republic of South Africa Republic of South Africa Ordinary Republic of South Africa Ordinary Class A, B and C shares Republic of South Africa Republic of South Africa Ordinary Republic of South Africa Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary ordinary Ordinary Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa England & Wales Republic of South Africa England & Wales England & Wales Republic of South Africa England & Wales Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa England & Wales Republic of South Africa Class B1 and B2 shares Republic of South Africa ordinary Ordinary Class B1 and B2 shares Republic of South Africa Ordinary Ordinary England & Wales England & Wales England & Wales England & Wales Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary one class of share Ordinary Ordinary one class of share Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary England & Wales England & Wales England & Wales England & Wales England & Wales England & Wales England & Wales England & Wales England & Wales England & Wales England & Wales England & Wales Republic of South Africa England & Wales Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Guernsey Republic of South Africa Malta Guernsey Republic of South Africa Malta Republic of South Africa Republic of South Africa Zimbabwe Republic of South Africa Zimbabwe 310 302 302 Grand Central Airport, New Road And Pretoria Main 665 Duncan Street, Hillcrest, Pretoria, 0001 Road, Midrand, Gauteng, 1685 Grand Central Airport, New Road And Pretoria Main Grand Central Airport, New Road And Pretoria Main Road, Midrand, Gauteng, 1685 Road, Midrand, Gauteng, 1685 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Grand Central Airport, New Road And Pretoria Main Road, Midrand, Gauteng, 1685 3rd floor, OMIG Building Entrance 2, West Campus, Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutual Park, Jan Smuts Drive, Pinelands 7405 2nd Floor Summit Place, Cnr Rivonia & School Road, 3rd floor, OMIG Building Entrance 2, West Campus, Morningside, 2196 Mutual Park, Jan Smuts Drive, Pinelands 7405 Mutualpark, Jan Smuts Drive, Pinelands, 7405 2nd Floor Summit Place, Cnr Rivonia & School Road, Morningside, 2196 2nd Floor Summit Place, Cnr Rivonia & School Road, Morningside, 2196 Mutualpark, Jan Smuts Drive, Pinelands, 7405 2nd Floor, Summit Square, 15 School Road, Cnr 2nd Floor Summit Place, Cnr Rivonia & School Road, Rivonia Road, Morningside, Sandton, 2196 Morningside, 2196 135 Rivonia Road, Sandown, Sandton, 2196 2nd Floor, Summit Square, 15 School Road, Cnr Rivonia Road, Morningside, Sandton, 2196 PO Box 72112, Parkview, 2122 135 Rivonia Road, Sandown, Sandton, 2196 Old Mutual House, Portland Terrace, Southampton SO14 7EJ PO Box 72112, Parkview, 2122 Old Mutual House, Portland Terrace, Southampton Old Mutual House, Portland Terrace, Southampton SO14 7EJ SO14 7EJ Mutualpark, Jan Smuts Drive, Pinelands, 7405 Old Mutual House, Portland Terrace, Southampton SO14 7EJ 71 Cottswold Drive, Westville, Durban, Kwa Zulu Natal, 3629 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Room 2, The White House, 27 Courtenay Street, 71 Cottswold Drive, Westville, Durban, Kwa Zulu Natal, George, 6530 3629 Millennium Bridge House, 2 Lambeth Hill, London Room 2, The White House, 27 Courtenay Street, EC4V 4GG George, 6530 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG Wiltshire Court, Farnsby Street, Swindon, England, SN1 5AH Mutualpark, Jan Smuts Drive, Pinelands, 7405 Wiltshire Court, Farnsby Street, Swindon, England, Wiltshire Court, Farnsby Street, Swindon, England, SN1 5AH SN1 5AH Wiltshire Court, Farnsby Street, Swindon, England, Wiltshire Court, Farnsby Street, Swindon, England, SN1 5AH SN1 5AH Wiltshire Court, Farnsby Street, Swindon, England, Wiltshire Court, Farnsby Street, Swindon, England, SN1 5AH SN1 5AH Wiltshire Court, Farnsby Street, Swindon, England, Wiltshire Court, Farnsby Street, Swindon, England, SN1 5AH SN1 5AH Wiltshire Court, Farnsby Street, Swindon, England, Wiltshire Court, Farnsby Street, Swindon, England, SN1 5AH SN1 5AH Wiltshire Court, Farnsby Street, Swindon, England, Wiltshire Court, Farnsby Street, Swindon, England, SN1 5AH SN1 5AH Wiltshire Court, Farnsby Street, Swindon, England, Wiltshire Court, Farnsby Street, Swindon, England, SN1 5AH SN1 5AH 135 Rivonia Road, Sandown, Sandton, 2196 Wiltshire Court, Farnsby Street, Swindon, England, SN1 5AH Mutualpark, Jan Smuts Drive, Pinelands, 7405 135 Rivonia Road, Sandown, Sandton, 2196 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Ground Floor, Colinton House, The Oval, 1 Oakdale Road, Newlands, 7700 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Die Klubhuis, Cnr 18th Street and Pinnaster Avenue, Ground Floor, Colinton House, The Oval, 1 Oakdale Hazelwood, Gauteng, 0081 Road, Newlands, 7700 135 Rivonia Road, Sandown, Sandton, 2196 Die Klubhuis, Cnr 18th Street and Pinnaster Avenue, Hazelwood, Gauteng, 0081 11th Floor Nedbank Corner, 96 Jorissen Street, Braamfontein, Gauteng, 2001 135 Rivonia Road, Sandown, Sandton, 2196 Albert House, South Esplanade, St Peter Port, 11th Floor Nedbank Corner, 96 Jorissen Street, Guernsey GY1 1AW Braamfontein, Gauteng, 2001 One Kingsway, London, WC2B 6AN Albert House, South Esplanade, St Peter Port, Guernsey GY1 1AW 135 Rivonia Road, Sandown, Sandton, 2196 One Kingsway, London, WC2B 6AN 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 Mutual Gardens, 100 The Chase West Emerald Hill, Harare 135 Rivonia Road, Sandown, Sandton, 2196 Mutual Gardens, 100 The Chase West Emerald Hill, Harare Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Name Maestro Financial Services Limited Percentage holding 100 Shareholding ordinary MBCA Nominees (Private) Ltd 100 Ordinary Zimbabwe Malawian Dividend Access Trust 100 Marriott Asset Management (Pty) Ltd 100 Marriott Corporate Services (Pty) Ltd 100 100 Marriott Isle of Man Limited Marriott Property Services (Pty) Ltd Marriott Retirement Fund Administrators (Pty) Ltd Marriott Unit Trust Management Company (RF) (Pty) Ltd Masisizane Fund NPC Masisizane Trust 100 100 100 100 100 75 Masthead (Pty) Limited Masthead Financial Advisors (Pty) Ltd 100 100 Masthead Financial Planning (Pty) Ltd Masthead Holdings (Pty) Ltd Max Payment Solutions (Pty) Ltd MBCA Bank Ltd 100 100 100 Mercury Securities (Pty) Ltd 100 Metropolis Health Services (Pty) Ltd 100 100 MHF Properties (Pty) Ltd 100 Michael Waite Independent Financial Advice Limited Millpencil Ltd 100 Morened (Pty) Ltd Mortgage Investment Corporation (Pty) Ltd MPICO Limited MPICO Malls Limited 100 100 72 84 MTHA Financial Services Trust 100 100 100 Mutual & Federal Company of Zimbabwe (Pvt) Ltd Mutual & Federal Investments (Pty) Ltd Mutual & Federal Management Incentive Trust Mutual & Federal Risk Financing Ltd 100 100 Mutual & Federal Senior Black Management Incentive Trust Mutual Place (NPC) N.B.S.A. Ltd 100 100 100 N.H.S. Properties (Pty) Ltd Nasionale Dorpsontwikkelingskorperasie Ltd National Board (P.E.) Ltd National Board of Executors Ltd Ned Investment Trust Ned Settle Services (Pty) Ltd Nedamericas Investments Ltd Nedbank (Lesotho) Ltd Nedbank (Malawi) Ltd Nedbank (Swaziland) Ltd Nedbank Group Insurance Company Ltd Nedbank Group Insurance Holdings Ltd Nedbank Group Ltd Nedbank Ltd Nedbank Namibia Ltd Nedbank Nominees (RF) (Pty) Ltd Nedbank Private Wealth Ltd 100 100 100 100 100 100 75 100 100 65 100 100 N/A 100 100 100 100 Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Country of incorporation England & Wales Malawi Registered Office Address Millennium Bridge House, 2 Lambeth Hill, London,, EC4V 4GG Old Mutual Building, 30 Glyn Jones Road, Blantyre Republic of South Africa Republic of South Africa Isle of Man Republic of South Africa Republic of South Africa 2 Delamore Road, Hillcrest, 3610 2 Delamore Road, Hillcrest, 3610 IOMA House, Hope Street, Douglas IM1 !AP Isle of Man Mutualpark, Jan Smuts Drive, Pinelands, 7405 2 Delamore Road, Hillcrest, 3610 Republic of South Africa Mutualpark, Jan Smuts Drive, Pinelands, 7405 Republic of South Africa Republic of South Africa Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Republic of South Africa Republic of South Africa Republic of South Africa Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Trust does not issue shares Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Trust does not issue shares Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Republic of South Africa Republic of South Africa Zimbabwe Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Republic of South Africa Republic of South Africa Republic of South Africa England & Wales England & Wales Republic of South Africa Republic of South Africa Malawi Malawi Trust does not issue shares Ordinary Republic of South Africa Zimbabwe Ordinary Republic of South Africa Trust does not issue shares Ordinary Trust does not issue shares Ordinary Ordinary Namibia Republic of South Africa Namibia Republic of South Africa England & Wales Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Mauritius Lesotho Malawi Swaziland Isle of Man Republic of South Africa i F n a n c a s l i Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutualpark, Jan Smuts Drive, Pinelands, 7405 14th floor Old Mutual centre, 3rd Street/ John Mayo Avenue, Port Louis, Mauritius 14th floor Old Mutual centre, 3rd Street/ John Mayo Avenue, Harare, Zimbabwe 135 Rivonia Road, Sandown, Sandton, 2196 Mutualpark, Jan Smuts Drive, Pinelands, 7405 135 Rivonia Road, Sandown, Sandton, 2196 Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG Millennium Bridge House 2, Lambeth Hill, London, EC4V 4GG 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 Old Mutual House, City Centre, P.O. Box 30459, Lilongwe 3. Malawi Old Mutal Building, Robert Mugabe Crescent, PO Box 30459, Lilongwe 3 3 Rockridge Road, Pilgrin House, Parktown, 2193 M&F Centre, 227 Independence Avenue, Windhoek, Namibia Mutualpark, Jan Smuts Drive, Pinelands, 7405 11th Floor Mutual Tower 223 Independence Avenue Windhoek Mutualpark, Jan Smuts Drive, Pinelands, 7405 11th Floor Mutual Tower 223 Independence Avenue Windhoek Mutual Park Jan Smuts Drive, Pinelands, 7405 Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 1st floor, Fairfax House, 21 Mgr Gonin street, Port Louis Mauritius Kingsway Road, Maseru Plantation House, Victoria Avenue, Blantyre Third Floor, Nedcentre Building, Cnr Dr Sishayi & Sozisa Roads, Swaziland IOM Assurance Co. Ltd, Prospect Hill, Douglas, IOM IM ET British Isles 135 Rivonia Road, Sandown, Sandton, 2196 Republic of South Africa Republic of South Africa Namibia Republic of South Africa Isle of Man 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 12-20 Dr Frans Indongo Street, Windhoek 135 Rivonia Road, Sandown, Sandton, 2196 St Mary's Court, 20 Hill Street, Douglas, Isle of Man 311 303 Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued Percentage holding 100 Percentage holding 100 100 Shareholding Ordinary Shareholding Ordinary Ordinary Name Nedcap International Ltd Name Nedcapital Investment Holdings (Pty) Nedcap International Ltd Ltd NedCapital Namibia (Pty) Ltd Nedcapital Investment Holdings (Pty) Ltd Nedcor Bank Nominees (RF) (Pty) NedCapital Namibia (Pty) Ltd Ltd Nedcor Investments Ltd Nedcor Bank Nominees (RF) (Pty) Nedcor Trade Services (Asia) Ltd Ltd Nedcor Investments Ltd Nedcor Trade Services Ltd Nedcor Trade Services (Asia) Ltd Nedeurope Ltd Nedcor Trade Services Ltd 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 Nedgroup Administrators (Pty) Ltd Nedeurope Ltd Nedgroup Beneficiary Solutions (Pty) Ltd Nedgroup Administrators (Pty) Ltd Nedgroup Beta Solutions (Pty) Ltd Nedgroup Beneficiary Solutions (Pty) Nedgroup Collective Investments Ltd (RF) (Pty) Ltd 100 Nedgroup Beta Solutions (Pty) Ltd Nedgroup Financial Services 104 Ltd 100 100 Nedgroup Collective Investments Nedgroup Insurance Administrators 100 (RF) (Pty) Ltd Ltd Nedgroup Financial Services 104 Ltd 100 100 Nedgroup Insurance Company Ltd 100 Nedgroup Insurance Administrators Nedgroup International Holdings Ltd 100 Ltd 100 Nedgroup Insurance Company Ltd Nedgroup Investment 102 Ltd 100 Nedgroup International Holdings Ltd 100 100 Nedgroup Investment Advisors (UK) Ltd Nedgroup Investment 102 Ltd Nedgroup Investment Advisors Ltd Nedgroup Investment Advisors (UK) Nedgroup Investments (IOM) Ltd Ltd Nedgroup Investment Advisors Ltd Nedgroup Investments (Pty) Ltd Nedgroup Investments (IOM) Ltd NedGroup Investments Africa 100 100 100 100 100 100 100 100 Nedgroup Investments (Pty) Ltd Nedgroup Life Assurance Company NedGroup Investments Africa Ltd Nedgroup Private Wealth (Pty) Ltd Nedgroup Life Assurance Company Nedgroup Private Wealth Corporate Ltd Services Ltd Nedgroup Private Wealth (Pty) Ltd Nedgroup Private Wealth Directors Nedgroup Private Wealth Corporate Ltd Services Ltd Nedgroup Private Wealth Fiduciary Nedgroup Private Wealth Directors Services Ltd Ltd Nedgroup Private Wealth Nominees Nedgroup Private Wealth Fiduciary (IOM) Ltd Services Ltd Nedgroup Private Wealth Nominees Nedgroup Private Wealth Nominees (Jersey) Ltd (IOM) Ltd Nedgroup Private Wealth Nominees Nedgroup Private Wealth Nominees (RF) (Pty) Ltd (Jersey) Ltd Nedgroup Private Wealth Nominees Nedgroup Private Wealth Nominees (UK) Ltd (RF) (Pty) Ltd Nedgroup Private Wealth Secretarial Nedgroup Private Wealth Nominees Ltd (UK) Ltd Nedgroup Private Wealth Nedgroup Private Wealth Secretarial Stockbrokers (Pty) Ltd Ltd Nedgroup Secretariat Services (Pty) Nedgroup Private Wealth Ltd Stockbrokers (Pty) Ltd Nedgroup Securities (Pty) Ltd Nedgroup Secretariat Services (Pty) Nedgroup Structured Life Ltd Ltd Nedgroup Trust (Jersey) Ltd Nedgroup Securities (Pty) Ltd Nedgroup Structured Life Ltd Nedgroup Trust (KZN) (Pty) Ltd Nedgroup Trust (Jersey) Ltd Nedgroup Trust (Pty) Ltd Nedgroup Trust Ltd Nedgroup Trust (KZN) (Pty) Ltd Nedgroup Wealth Management (Pty) Nedgroup Trust (Pty) Ltd Ltd Nedgroup Trust Ltd Nedgroup Wealth Management (Pty) Ltd 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Class A and Class B shares Ordinary Ordinary Ordinary Class A and Ordinary Class B shares Ordinary Ordinary Ordinary Ordinary Class A and Class B shares Ordinary Ordinary Ordinary Class A and Ordinary Class B shares Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Country of incorporation Isle of Man Country of incorporation Namibia Isle of Man Namibia Namibia Republic of South Africa Namibia Republic of South Africa Republic of South Africa Hong Kong Republic of South Africa Mauritius Hong Kong Isle of Man Mauritius Republic of South Africa Isle of Man Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Registered Office Address Falcon Cliff, Palace Road, Douglas, Isle of Man, IM2 4LB Registered Office Address 55 Rehobother Road, Ausspannplatz, Falcon Cliff, Palace Road, Douglas, Isle of Man, IM2 Windhoek,Namibia 4LB 55 Rehobother Road, Ausspannplatz, 55 Rehobother Road, Ausspannplatz, Windhoek,Namibia Windhoek,Namibia 135 Rivonia Road, Sandown, Sandton, 2196 55 Rehobother Road, Ausspannplatz, Windhoek,Namibia 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 1808-1811 Great Eagle Centre, 23 harbour, Road, Hong Kong 135 Rivonia Road, Sandown, Sandton, 2196 10th Floor, Standard Chartered Tower, 19 Cybercity, 1808-1811 Great Eagle Centre, 23 harbour, Road, Ebene, Mauritius Hong Kong Falcon Cliff, Palace Road, Douglas, Isle of Man, IM2 10th Floor, Standard Chartered Tower, 19 Cybercity, 4LB Ebene, Mauritius 135 Rivonia Road, Sandown, Sandton, 2196 Falcon Cliff, Palace Road, Douglas, Isle of Man, IM2 135 Rivonia Road, Sandown, Sandton, 2196 4LB 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 Republic of South Africa Republic of South Africa Republic of South Africa Isle of Man Republic of South Africa Republic of South Africa Isle of Man England & Wales Republic of South Africa Republic of South Africa England & Wales Isle of Man Republic of South Africa Republic of South Africa Isle of Man Mauritius Republic of South Africa Republic of South Africa Mauritius Republic of South Africa Republic of South Africa Jersey Republic of South Africa Guernsey Jersey Jersey Guernsey Isle of Man Jersey Jersey Isle of Man Republic of South Africa Jersey Isle of Man Republic of South Africa 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 1st Floor, Samual Harris House, St George's Street, Douglas, Isle of Man 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 1st Floor, Samual Harris House, St George's Street, 5th Floor, 44-48 Dover Street, London, W1S 4NX Douglas, Isle of Man 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 5th Floor, 44-48 Dover Street, London, W1S 4NX Samuel Harris House, St Georges Street, Douglas, IOM 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 Samuel Harris House, St Georges Street, Douglas, 10th Floor, Standard Chartered Tower, 19 Cybercity, IOM Ebene, Mauritius 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 10th Floor, Standard Chartered Tower, 19 Cybercity, Ebene, Mauritius 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 Fairbairn House, 31 Esplanade, St Hielier, Jersey, Channel Islands 135 Rivonia Road, Sandown, Sandton, 2196 Fairbairn House, Rohais, St Peter Port Fairbairn House, 31 Esplanade, St Hielier, Jersey, Channel Islands Fairbairn House, 31 Esplanade, St Hielier, Jersey, Fairbairn House, Rohais, St Peter Port Channel Islands St Mary's Court, 20 Hill Street, Douglas, Isle of Man Fairbairn House, 31 Esplanade, St Hielier, Jersey, Channel Islands Fairbairn House, 31 Esplanade, St Hielier, Jersey, St Mary's Court, 20 Hill Street, Douglas, Isle of Man Channel Islands 135 Rivonia Road, Sandown, Sandton, 2196 Fairbairn House, 31 Esplanade, St Hielier, Jersey, Channel Islands St Mary's Court, 20 Hill Street, Douglas, Isle of Man 135 Rivonia Road, Sandown, Sandton, 2196 Guernsey Isle of Man Fairbairn House, Rohais, St Peter Port St Mary's Court, 20 Hill Street, Douglas, Isle of Man Republic of South Africa Guernsey 135 Rivonia Road, Sandown, Sandton, 2196 Fairbairn House, Rohais, St Peter Port Republic of South Africa Republic of South Africa 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 Republic of South Africa Republic of South Africa Republic of South Africa Jersey Republic of South Africa Republic of South Africa Republic of South Africa Jersey Republic of South Africa Guernsey Republic of South Africa Republic of South Africa Republic of South Africa Guernsey Republic of South Africa 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 Fairbairn House, 31 Esplanade, St Hielier, Jersey, 135 Rivonia Road, Sandown, Sandton, 2196 Channel Islands 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 Fairbairn House, 31 Esplanade, St Hielier, Jersey, 135 Rivonia Road, Sandown, Sandton, 2196 Channel Islands Fairburn House, Rohais, St Peter Port 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 Fairburn House, Rohais, St Peter Port 135 Rivonia Road, Sandown, Sandton, 2196 312 304 304 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Percentage holding 100 100 100 100 Shareholding Ordinary Ordinary Ordinary Ordinary Country of incorporation Republic of South Africa Namibia Namibia Namibia Registered Office Address 135 Rivonia Road, Sandown, Sandton, 2196 12-20 Dr Frans Indongo Street, Windhoek 12-20 Dr Frans Indongo Street, Windhoek 12-20 Dr Frans Indongo Street, Windhoek Old Mutual (Blantyre) Nominees Ltd 100 Ordinary Name Nedinvest (Pty) Ltd NedLoans (Pty) Ltd NedNamibia Holdings Ltd NedNamibia Life Assurance Company Ltd NedPlan Insurance Brokers Namibia (Pty) Ltd Nedport Developments (Pty) Ltd NedProperties (Pty) Ltd NES Investments (Pty) Ltd New Capital Properties Limited 100 100 100 100 100 Newtown Leasing (Pty) Ltd Newtown Motor Dealership (Pty) Ltd 50 100 NIB 61 Share Block (Pty) Ltd NIB Blue Capital Investments (Pty) Ltd NPL FINANCIAL LIMITED Oakleaf Investment Holding 83 (Pty) Ltd Old Mint (Pty) Ltd Old Mutual (Africa) Holdings (Pty) Limited Old Mutual (Bermuda) Holdings Limited Old Mutual (Bermuda) Re Limited 100 100 100 100 100 100 100 100 Old Mutual (Malawi) Ltd Old Mutual (Namibia) Management Incentive Trust Old Mutual (Namibia) Nominees (Pty) Ltd Old Mutual (Netherlands) B.V. 100 100 100 100 Old Mutual (South Africa) Holdings (Pty) Ltd Old Mutual (South Africa) Nominees (Pty) (RF) Ltd Old Mutual (South Africa) Share Trust 100 100 100 100 100 100 48 Old Mutual (Swaziland) Investments (Pty) Ltd Old Mutual (Zimbabwe) Unclaimed Share Trust Old Mutual 130/30 (Pty) Limited Old Mutual Absolute Return Government Bond Fund Old Mutual Actuaries & Consultants (Pty) Ltd Old Mutual Administradora De Fondos De Pensiones Y Cesantias S.A. Old Mutual Africa Private Equity Fund of Funds Old Mutual Africa Property Asset Management Company Old Mutual African Frontier Fd 92 Old Mutual Albaraka Balanced Fund 36 100 100 100 100 Old Mutual Alternative Investment Holdings (Pty) Ltd Old Mutual Alternative Investments (Namibia) (Pty) Ltd Old Mutual Alternative Investments (Pty) Ltd Old Mutual Alternative Investments GP (Pty) Ltd Old Mutual Alternative Risk Transfer Ltd 100 100 100 100 100 Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary ordinary Class A and Class B shares, Class A preference shares and class B redeemable cumulative preference shares one class of share Ordinary Ordinary Ordinary Ordinary Trust does not issue shares Ordinary Ordinary Ordinary Ordinary Trust does not issue shares Ordinary Trust does not issue shares Ordinary Accumulation Ordinary Ordinary Namibia 12-20 Dr Frans Indongo Street, Windhoek Republic of South Africa Namibia Republic of South Africa Malawi Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa 135 Rivonia Road, Sandown, Sandton, 2196 9 Feld Street, Windhoek, Namibia 138 Rivonia Road, Sandown, Sandton, 2196 Old Mutal Building, Robert Mugabe Crescent, PO Box 30459, Lilongwe 3 135 Rivonia Road, Sandown, Sandton, 2196 Die Klubhuis, Cnr 18th Street and Pinnaster Avenue, Hazelwood, Gauteng, 0081 Mutualpark, Jan Smuts Drive, Pinelands, 7405 135 Rivonia Road, Sandown, Sandton, 2196 England & Wales Republic of South Africa Millennium Bridge House, 2 Lambeth Hill, London, EC4V 4GG Mutualpark, Jan Smuts Drive, Pinelands, 7405 Republic of South Africa Republic of South Africa Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutualpark, Jan Smuts Drive, Pinelands, 7406 Bermuda Bermuda Malawi Malawi Namibia Namibia Netherlands Republic of South Africa Crawford House, 50 Cedar Avenue, Hamilton HM11, Bermuda Crawford House, 50 Cedar Avenue, Hamilton HM11, Bermuda 30 Glyn Jones Road, Old Mutual Building, P.O. Box 393, Blantyre, Malawi 31 Glyn Jones Road, Old Mutual Building, P.O. Box 393, Blantyre, Malawi 11th Floor Mutual Tower 223 Independence Avenue Windhoek 11th Floor Mutual Tower 223 Independence Avenue Windhoek Luna ArenA, Herikerbergweg 182, 1101 CM Amsterdam, The Netherlands Mutualpark, Jan Smuts Drive, Pinelands, 7405 Republic of South Africa Mutualpark, Jan Smuts Drive, Pinelands, 7405 Republic of South Africa Mutualpark, Jan Smuts Drive, Pinelands, 7405 Swaziland Zimbabwe Republic of South Africa England & Wales Republic of South Africa Old Mutual Swaziland, 4th Floor, Public Services Pension Fund Building. Mhlambanyatsi Rd. Mbabane Old Mutual Zimbabwe Limited, Mutual Gardens, No. 100 The Chase (West),Emerald Hill, Harare, Zimbabwe Mutualpark, Jan Smuts Drive, Pinelands, 7405 Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG Mutualpark, Jan Smuts Drive, Pinelands, 7405 Colombia Av. 19 109 A30, Bogotá, Colombia i F n a n c a s l i Class A shares Ireland Ashley House, Morehampton Road, Dublin 4, Ireland Ordinary Republic of South Africa Ireland Republic of South Africa C/O Abax Corporate Services Ltd, 6th Floor, Tower A, 1 Cyber City, Ebene, Mauritius 78 Sir John Rogerson’s Quay, Dublin 2, Ireland Mutualpark, Jan Smuts Drive, Pinelands, 7405 Class B shares Class A, B1, B0 and B2 shares Ordinary Ordinary Ordinary Ordinary Ordinary, Class N1, N3, N4, N5, N6, N8, N9 Variable Rate Redeemable Preference Shares Republic of South Africa Mutualpark, Jan Smuts Drive, Pinelands 7405 Namibia Republic of South Africa 11th Floor Mutual Tower 223 Independence Avenue Windhoek Mutualpark, Jan Smuts Drive, Pinelands, 7405 Republic of South Africa Mutualpark, Jan Smuts Drive, Pinelands, 7405 Republic of South Africa Mutualpark, Jan Smuts Drive, Pinelands, 7405 313 305 Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued Percentage Name holding Percentage 100 Old Mutual Alternative Solutions holding Name Limited 100 Old Mutual Alternative Solutions 95 Old Mutual Aristeia QI Hedge Fund Limited Old Mutual Asian Equity Income Fund 95 95 Old Mutual Aristeia QI Hedge Fund Old Mutual Asian Equity Income Fund 95 Old Mutual Asistencia Professional S.A. de C.V. Old Mutual Asistencia Professional Old Mutual Asset Managers (East S.A. de C.V. Africa) Limited 100 Old Mutual Asset Managers (East Old Mutual Asset Managers (Pvt) Ltd 100 Africa) Limited Old Mutual Asset Managers (Pvt) Ltd 100 Old Mutual Asset Solutions Limited 100 100 100 100 37 37 71 100 100 100 72 100 100 72 100 100 100 Old Mutual Asset Solutions Limited Old Mutual Bermuda Business Services Inc. Old Mutual Bermuda Business Old Mutual Bond Services Inc. Old Mutual Bond Old Mutual Broad Based (Namibia Employee Share Trust) Old Mutual Broad Based (Namibia Old Mutual Broad Based Employee Share Trust) Empowerment (Namibia) (Pty) Ltd Old Mutual Broad Based Old Mutual Business Services Empowerment (Namibia) (Pty) Ltd (Mauritius) Limited 100 Old Mutual Business Services Old Mutual Business Services Limited 100 (Mauritius) Limited Old Mutual Business Services Limited 100 Old Mutual Capital Holding (Pty) Ltd 100 Old Mutual Capital Partners (Pty) Ltd 100 Old Mutual Capital Holding (Pty) Ltd 100 Old Mutual Capped SWIX Index Old Mutual Capital Partners (Pty) Ltd 100 Old Mutual Chronos QI Hedge Fund 100 Old Mutual Capped SWIX Index Old Mutual Cirilium Adventurous Old Mutual Chronos QI Hedge Fund 100 Passive Portfolio Old Mutual Cirilium Adventurous Old Mutual Cirilium Adventurous Passive Portfolio Portfolio Old Mutual Cirilium Adventurous Old Mutual Cirilium Balanced Fund Portfolio Old Mutual Cirilium Balanced Fund Old Mutual Cirilium Balanced Passive Fund Old Mutual Cirilium Balanced Passive Old Mutual Cirilium Conservative Fund Fund Old Mutual Cirilium Conservative Old Mutual Cirilium Conservative Fund Passive Fund Old Mutual Cirilium Conservative Old Mutual Cirilium Dynamic Passive Passive Fund Fund Old Mutual Cirilium Dynamic Passive Old Mutual Cirilium Moderate Passive Fund Fund Old Mutual Cirilium Moderate Passive Old Mutual Cirilium Moderate Fund Portfolio Old Mutual Cirilium Moderate Old Mutual Compania De Seguros Portfolio De Vida S.A. Old Mutual Compania De Seguros Old Mutual Compass Portfolio 2 De Vida S.A. Old Mutual Compass Portfolio 2 Old Mutual Compass Portfolio 3 55 39 52 55 94 73 73 84 65 50 64 47 71 64 47 65 39 94 50 58 58 52 Old Mutual Compass Portfolio 3 Old Mutual Compass Portfolio 4 Old Mutual Compass Portfolio 4 Old Mutual Compass Portfolio 5 84 81 81 97 97 Old Mutual Compass Portfolio 5 Old Mutual Core Conservative Fund 98 70 Old Mutual Core Diversified Fund Old Mutual Core Conservative Fund 98 70 Old Mutual Core Diversified Fund 100 Old Mutual Corporate Real Estate Asset Management (Pty) Ltd Old Mutual Corporate Real Estate Old Mutual Creation Adventurous Asset Management (Pty) Ltd Portfolio Old Mutual Creation Adventurous Old Mutual Creation Balanced Portfolio Portolio (was OM Spectrum 4 Fund) Old Mutual Creation Balanced Old Mutual Creation Conservative Portolio (was OM Spectrum 4 Fund) Portolio (was OM Spectrum 3 Fund) Old Mutual Creation Conservative Old Mutual Creation Dynamic Portolio (was OM Spectrum 3 Fund) Portfolio (was OM Spectrum 7 Fund) Old Mutual Creation Dynamic Portfolio (was OM Spectrum 7 Fund) 100 92 100 100 92 92 92 89 89 Country of incorporation Shareholding Country of Republic of South Africa Ordinary incorporation Shareholding Republic of South Africa Ordinary Class D1 and D3 shares Republic of South Africa Ordinary Class D1 and D3 shares Republic of South Africa Ordinary Ordinary England & Wales Mexico England & Wales Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Mexico Kenya Kenya Zimbabwe Zimbabwe England & Wales England & Wales Delaware, USA Ordinary Class B1, B2, C and R shares Class B1, B2, C and R Trust does not issue shares shares Trust does not issue Ordinary shares Ordinary Ordinary Delaware, USA Republic of South Africa Republic of South Africa Namibia Namibia Namibia Namibia Mauritius Ordinary Ordinary Mauritius England & Wales England & Wales Ordinary Republic of South Africa Ordinary Republic of South Africa Ordinary Republic of South Africa Ordinary Republic of South Africa Class A and B1 shares Republic of South Africa Ordinary Class D1 and D3 shares Republic of South Africa Republic of South Africa Class A and B1 shares ordinary England & Wales Class D1 and D3 shares Republic of South Africa ordinary ordinary England & Wales England & Wales ordinary Accumulation England & Wales England & Wales Accumulation Accumulation England & Wales England & Wales Accumulation Accumulation England & Wales England & Wales Accumulation Accumulation England & Wales England & Wales Accumulation Accumulation England & Wales England & Wales Accumulation Accumulation England & Wales England & Wales Accumulation ordinary England & Wales England & Wales ordinary Ordinary Ordinary Hedged Hedged Hedged Hedged Hedged Hedged Hedged England & Wales Colombia Colombia England & Wales England & Wales England & Wales England & Wales England & Wales England & Wales England & Wales England & Wales Hedged Class B1, and B2 shares Republic of South Africa Republic of South Africa Class A, A2, B1 and B2 Class B1, and B2 shares Republic of South Africa shares Republic of South Africa Class A, A2, B1 and B2 Republic of South Africa Ordinary shares Ordinary ordinary Republic of South Africa England & Wales ordinary Accumulation England & Wales England & Wales Accumulation Accumulation England & Wales England & Wales Accumulation Accumulation England & Wales England & Wales Accumulation England & Wales 314 306 306 Registered Office Address Mutualpark, Jan Smuts Drive, Pinelands, 7405 Registered Office Address Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Millennium Bridge House, 2 Lambeth Hill, London Mutualpark, Jan Smuts Drive, Pinelands, 7405 EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London Bosques de Ciruelos 162, Bosques de las Lomas, C.P. EC4V 4GG 11700, Ciudad de Mexico Bosques de Ciruelos 162, Bosques de las Lomas, C.P. LR Number 209/12331, Mutual building, Mara/Ragati 11700, Ciudad de Mexico road, PO BOX 30059 - 00100 LR Number 209/12331, Mutual building, Mara/Ragati Mutual Gardens, 100 The Chase West Emerald Hill, road, PO BOX 30059 - 00100 Harare Mutual Gardens, 100 The Chase West Emerald Hill, Old Mutual House, Portland Terrace, Southampton Harare SO14 7AY Old Mutual House, Portland Terrace, Southampton c/o United Corporate Services, Inc., 874 Walker Road, SO14 7AY Suite C, Dover, Delaware 19904 c/o United Corporate Services, Inc., 874 Walker Road, Mutualpark, Jan Smuts Drive, Pinelands, 7405 Suite C, Dover, Delaware 19904 Mutualpark, Jan Smuts Drive, Pinelands, 7405 11th Floor Mutual Tower 223 Independence Avenue Windhoek 11th Floor Mutual Tower 223 Independence Avenue 11th Floor Mutual Tower 223 Independence Avenue Windhoek Windhoek 11th Floor Mutual Tower 223 Independence Avenue 10th floor, Standard Chartered Tower, 19 Cybercity, Windhoek Ebene, Mauritius 10th floor, Standard Chartered Tower, 19 Cybercity, Millennium Bridge House 2, Lambeth Hill, London, Ebene, Mauritius EC4V 4GG Millennium Bridge House 2, Lambeth Hill, London, Mutualpark, Jan Smuts Drive, Pinelands, 7405 EC4V 4GG Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Millennium Bridge House, 2 Lambeth Hill, London, Mutualpark, Jan Smuts Drive, Pinelands, 7405 EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London, Millennium Bridge House, 2 Lambeth Hill, London, EC4V 4GG EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London, Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London Millennium Bridge House, 2 Lambeth Hill, London, EC4V 4GG EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London, Av. 19 109 A30, Bogotá, Colombia EC4V 4GG Av. 19 109 A30, Bogotá, Colombia Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London Mutualpark, Jan Smuts Drive, Pinelands, 7405 EC4V 4GG Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Millennium Bridge House, 2 Lambeth Hill, London, EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London, Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG Old Mutual plc Annual Report and Accounts 2017 Percentage holding 92 100 100 Name Old Mutual Creation Moderate Portfolio (was OM Spectrum 6 Fund) Old Mutual Credit Investments Holdings (Pty) Limited Old Mutual Customised Solutions (Pty) Ltd Old Mutual Deuda Corto Plazo, S.A. de C.V. Fondo de Inversión en Instrumentos de Deuda Old Mutual Deuda Estratégica, S.A. de C.V. Fondo de Inversión en Instrumentos de Deuda Old Mutual Direct Holdings (Pty) Ltd 100 100 Old Mutual Dividend Access Company (Pty) Ltd Old Mutual Dividend Access Trust 100 100 100 Old Mutual Dynamic Floor Old Mutual Emerging Market Debt Fund Old Mutual Emerging Markets Ltd Old Mutual Europe Ex UK Smaller companies Fund Old Mutual Europe GmbH Old Mutual Finance (Namibia) (Pty) Ltd Old Mutual Finance (Private) Ltd 34 43 100 47 100 75 100 Old Mutual Finance (RF) (Pty) Ltd 75 Old Mutual Finance House 1 (Pty) Limited Old Mutual Financial Services (UK) Limited Old Mutual Financial Services Botswana (Pty) Ltd Old Mutual Financials Contingent Capital Fund Old Mutual Flexible 100 100 100 75 68 Old Mutual Foundation (Charitable Trust) Old Mutual Foundation Management (Pty) Limited Old Mutual Foundation Trust 100 100 100 100 100 100 Old Mutual Fund Administration Services (Pty) Ltd Old Mutual Funding Company (RF) Ltd Old Mutual FundsNet Nominees (Pty) Ltd Old Mutual Global AGG Bond OLD MUTUAL GLOBAL CURRENCY FUND Old Mutual GLOBAL DEFENSIVE FUND Old Mutual Global Emerging Markets 85 89 78 100 Old Mutual Global Investors (Asia Pacific) Limited Old Mutual Global Investors (Singapore) PTE Limited Old Mutual Global Investors (Switzerland) LLC Old Mutual Global Investors (UK) Limited Old Mutual Global Investors Holdings Limited OLD MUTUAL GLOBAL MANAGED ALPHA FUND Old Mutual Global Managed Volatility Fund OLD MUTUAL GLOBAL PAN AFRICAN U3 HYB 100 100 100 100 100 100 100 94 Old Mutual plc Annual Report and Accounts 2017 Shareholding Accumulation Ordinary Ordinary Country of incorporation England & Wales Republic of South Africa Registered Office Address Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG Mutualpark, Jan Smuts Drive, Pinelands, 7405 Republic of South Africa Mutualpark, Jan Smuts Drive, Pinelands, 7405 Investment Fund Mexico Investment Fund Mexico Bosque de Circuelos 162 first floor, Col. Bosque de las Lomas, ZIP code 11700, Mexico City Bosque de Circuelos 162 first floor, Col. Bosque de las Lomas, ZIP code 11700, Mexico City Ordinary Ordinary Republic of South Africa Republic of South Africa Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Trust does not issue shares Class A1, B1, B2 and C shares ordinary Ordinary Hedged Ordinary Ordinary Ordinary Classes of shares include class A, B, C, D, E and F redeemable cumulative preference shares and ordinary shares. Ordinary Ordinary Ordinary ordinary Class A1, B1, B2, C and R shares Trust does not issue shares Ordinary Republic of South Africa Mutualpark, Jan Smuts Drive, Pinelands, 7405 Republic of South Africa Mutualpark, Jan Smuts Drive, Pinelands, 7405 England & Wales Republic of South Africa England & Wales Germany Namibia Zimbabwe Republic of South Africa Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG Mutualpark, Jan Smuts Drive, Pinelands, 7405 Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG Kaiserin-Augusta-Allee 108, 10553 Berlin, Germany 11th Floor Mutual Tower 223 Independence Avenue Windhoek Mutual Gardens, 100 The Chase West Emerald Hill, Harare Mutualpark, Jan Smuts Drive, Pinelands, 7405 Republic of South Africa Mutualpark, Jan Smuts Drive, Pinelands, 7405 England & Wales Botswana England & Wales Republic of South Africa Millennium Bridge House 2, Lambeth Hill, London, EC4V 4GG Plot 163/4 Unit 5, Gaborone International Commerce Park, Gaborone, Botswana Millennium Bridge House, 2 Lambeth Hill, London, EC4V 4GG Mutualpark, Jan Smuts Drive, Pinelands, 7405 Namibia Republic of South Africa 11th Floor Mutual Tower 223 Independence Avenue Windhoek Mutualpark, Jan Smuts Drive, Pinelands, 7405 Trust does not issue shares Ordinary Zimbabwe Republic of South Africa Mutual Gardens, 100 The Chase West Emerald Hill, Harare Mutualpark, Jan Smuts Drive, Pinelands, 7405 Ordinary Ordinary Republic of South Africa Mutualpark, Jan Smuts Drive, Pinelands, 7405 Republic of South Africa Mutualpark, Jan Smuts Drive, Pinelands, 7405 i F n a n c a s l i Class A shares Class A, B and C shares Ireland Ireland Class A shares Ireland Ordinary and Class A, B, B Income, C, I, S, U2, R shares Ordinary Ordinary Ordinary Ordinary Ordinary England & Wales Hong Kong Singapore England & Wales England & Wales Class A shares Class A shares Class U3 shares Ireland Ireland Ireland 315 307 78 Sir John Rogerson’s Quay, Dublin 2, Ireland 78 Sir John Rogerson’s Quay, Dublin 2, Ireland Russell Investments Ireland Limited, 78 Sir John Rogerson’s Quay, Dublin 2, Ireland Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG 24th Floor, Henley Building, 5 Queen's Road, Central Hong Kong 8 Marina Boulevard #05-02 Marina Bay Financial Centre Singapore (018981) Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG Russell Investments Ireland Limited, 78 Sir John Rogerson’s Quay, Dublin 2, Ireland 78 Sir John Rogerson’s Quay, Dublin 2, Ireland Russell Investments Ireland Limited, 78 Sir John Rogerson’s Quay, Dublin 2, Ireland Switzerland Schützengasse 4, 8001, Zürich, Switzerland Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued Percentage holding Percentage 100 holding 100 100 100 100 100 100 100 100 100 63 100 100 100 63 100 100 100 100 100 100 95 100 99 95 99 100 100 100 100 100 100 100 Name Old Mutual Global Portfolios – Balanced Fund Name Old Mutual Global Portfolios – Old Mutual Global Portfolios – Cautious Fund Balanced Fund Old Mutual Global Portfolios – Old Mutual Global Portfolios – Dynamic Fund Cautious Fund Old Mutual Global REIT Fund Old Mutual Global Portfolios – Dynamic Fund Old Mutual Global Strategic Absolute Return Bond Fund (was Old Mutual Old Mutual Global REIT Fund Global Strategic Bond Fund) Old Mutual Global Strategic Absolute Old Mutual Group Holdings (SA) (Pty) Return Bond Fund (was Old Mutual Ltd Global Strategic Bond Fund) Old Mutual Health Insurance Ltd Old Mutual Group Holdings (SA) (Pty) Ltd Old Mutual Holding Company (Ghana) Limited Old Mutual Health Insurance Ltd Old Mutual Holding De Colombia S.A. 94 Old Mutual Holding Company (Ghana) Limited Old Mutual Holdings (Guernsey) Limited Old Mutual Holding De Colombia S.A. 94 Old Mutual Holdings (Mauritius) Old Mutual Holdings (Guernsey) Limited Limited Old Mutual Holdings (Namibia) (Pty) Old Mutual Holdings (Mauritius) Ltd Limited Old Mutual Holdings (Pty) Ltd Old Mutual Holdings (Namibia) (Pty) Ltd Old Mutual Holdings Limited Old Mutual Holdings (Pty) Ltd Old Mutual Insurance Company (Pvt) Old Mutual Holdings Limited Ltd Old Mutual Insure Limited (previously Old Mutual Insurance Company (Pvt) known as Mutual & Federal Ltd Insurance Company Limited) Old Mutual Insure Limited (previously Old Mutual Interest Plus Fund known as Mutual & Federal Insurance Company Limited) Old Mutual International (Guernsey) Old Mutual Interest Plus Fund Ltd Old Mutual International (Middle East) Old Mutual International (Guernsey) Limited Ltd Old Mutual International Business Old Mutual International (Middle East) Services Limited Limited Old Mutual International Holdings Old Mutual International Business Limited Services Limited Old Mutual International Ireland dac Old Mutual International Holdings Limited Old Mutual International Isle of Man Old Mutual International Ireland dac Limited Old Mutual International Trust Old Mutual International Isle of Man Company Limited Limited Old Mutual Investment Administrators Old Mutual International Trust (Pty) Limited Company Limited Old Mutual Investment Grade Old Mutual Investment Administrators Corporate Bond (Pty) Limited Old Mutual Investment Group Old Mutual Investment Grade (Namibia) (Pty) Ltd Corporate Bond Old Mutual Investment Group (Pty) Old Mutual Investment Group Ltd (Namibia) (Pty) Ltd Old Mutual Investment Group (Pty) Old Mutual Investment Group Ltd Holdings (Pty) Ltd Old Mutual Investment Group Limited 100 100 Old Mutual Investment Group Holdings (Pty) Ltd 100 Old Mutual Investment Group Limited (Kenya) Old Mutual Investment Group Limited 100 100 Old Mutual Investment Group 100 Old Mutual Investment Group Limited Swaziland (Pty) Ltd (Kenya) Old Mutual Investment Group Old Mutual Investment Group Zimbabwe (Pvt) Limited Swaziland (Pty) Ltd Old Mutual Investment Management Old Mutual Investment Group Limited Zimbabwe (Pvt) Limited Old Mutual Investment Services Old Mutual Investment Management (Kenya) Limited Limited Old Mutual Investment Services Old Mutual Investment Services (Namibia) (Pty) Ltd (Kenya) Limited Old Mutual Investment Services (Namibia) (Pty) Ltd 100 100 100 100 100 100 48 100 100 48 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 Shareholding Ordinary Shareholding Ordinary Ordinary Country of incorporation Country of Luxembourg incorporation Luxembourg Luxembourg Ordinary Ordinary Luxembourg Luxembourg Class A and C shares Ordinary Hedged Class A and C shares Hedged Ordinary Ireland Luxembourg England & Wales Ireland England & Wales Republic of South Africa Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Class A, B1, B3, B5 and C shares Ordinary Class A, B1, B3, B5 and C shares Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Hedged Ordinary Ordinary Hedged Republic of South Africa Republic of South Africa Ghana Republic of South Africa Colombia Ghana Guernsey Colombia Mauritius Guernsey Namibia Mauritius Republic of South Africa Namibia Kenya Republic of South Africa Zimbabwe Kenya Republic of South Africa Zimbabwe Republic of South Africa Republic of South Africa Guernsey Republic of South Africa Dubai Guernsey Isle of Man Dubai Isle of Man Isle of Man Ireland Isle of Man Isle of Man Ireland Isle of Man Isle of Man Republic of South Africa Isle of Man England & Wales Republic of South Africa Namibia England & Wales Ordinary shares and Class Ordinary A, B, C, D, E, F, H and I ordinary par value shares Ordinary shares and Class Ordinary A, B, C, D, E, F, H and I ordinary par value shares Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Republic of South Africa Namibia Republic of South Africa Republic of South Africa Malawi Republic of South Africa Kenya Malawi Swaziland Kenya Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Zimbabwe Swaziland England & Wales Zimbabwe Kenya England & Wales Namibia Kenya Namibia 316 308 308 Registered Office Address 4, Rue Jean Monnet L-2180 Luxembourg Grand Duchy of Luxembourg Registered Office Address 4, Rue Jean Monnet L-2180 Luxembourg Grand Duchy 4, Rue Jean Monnet L-2180 Luxembourg Grand Duchy of Luxembourg of Luxembourg 4, Rue Jean Monnet L-2180 Luxembourg Grand Duchy 4, Rue Jean Monnet L-2180 Luxembourg Grand Duchy of Luxembourg of Luxembourg 78 Sir John Rogerson’s Quay, Dublin 2, Ireland 4, Rue Jean Monnet L-2180 Luxembourg Grand Duchy of Luxembourg Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG 78 Sir John Rogerson’s Quay, Dublin 2, Ireland Millennium Bridge House, 2 Lambeth Hill, London Mutualpark, Jan Smuts Drive, Pinelands, 7405 EC4V 4GG Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Provident Towers, Ring Road Central, P.O. Box 5754 Accra, Ghana Mutualpark, Jan Smuts Drive, Pinelands, 7405 Av. 19 109 A30, Bogotá, Colombia Provident Towers, Ring Road Central, P.O. Box 5754 Accra, Ghana Albert House, South Esplanade, St Peter Port, Guernsey GY1 1AW Av. 19 109 A30, Bogotá, Colombia 10th Floor, Raffles Tower, 19 Cybercity, Ebene, Albert House, South Esplanade, St Peter Port, Mauritius Guernsey GY1 1AW 11th Floor Mutual Tower 223 Independence Avenue 10th Floor, Raffles Tower, 19 Cybercity, Ebene, Windhoek Mauritius Mutualpark, Jan Smuts Drive, Pinelands, 7405 11th Floor Mutual Tower 223 Independence Avenue Windhoek LR Number 209/12331, Mutual building, Mara/Ragati road, PO BOX 30059 - 00100 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutual Gardens, 100 The Chase West Emerald Hill, LR Number 209/12331, Mutual building, Mara/Ragati Harare road, PO BOX 30059 - 00100 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutual Gardens, 100 The Chase West Emerald Hill, Harare Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Albert House, South Esplanade, St Peter Port, Mutualpark, Jan Smuts Drive, Pinelands, 7405 Guernsey GY1 1AW 7 & 8,Level 2, Gate Village 7, Dubai International Albert House, South Esplanade, St Peter Port, Financial Centre, Dubai, 482062, United Arab Emirates Guernsey GY1 1AW King Edward Bay House, King Edward Road, Onchan, 7 & 8,Level 2, Gate Village 7, Dubai International IM99 1NU, Isle of Man Financial Centre, Dubai, 482062, United Arab Emirates King Edward Bay House, King Edward Road, Onchan, King Edward Bay House, King Edward Road, Onchan, IM99 1NU, Isle of Man IM99 1NU, Isle of Man Arthur Cox Building, Earlsfort Terrace, Dublin 2, D02 King Edward Bay House, King Edward Road, Onchan, CK83 IM99 1NU, Isle of Man King Edward Bay House, King Edward Road, Onchan, Arthur Cox Building, Earlsfort Terrace, Dublin 2, D02 IM99 1NU, Isle of Man CK83 King Edward Bay House, King Edward Road, Onchan, King Edward Bay House, King Edward Road, Onchan, IM99 1NU, Isle of Man IM99 1NU, Isle of Man Mutualpark, Jan Smuts Drive, Pinelands, 7405 King Edward Bay House, King Edward Road, Onchan, IM99 1NU, Isle of Man Millennium Bridge House, 2 Lambeth Hill, London Mutualpark, Jan Smuts Drive, Pinelands, 7405 EC4V 4GG 11th Floor Mutual Tower 223 Independence Avenue Millennium Bridge House, 2 Lambeth Hill, London Windhoek EC4V 4GG Mutualpark, Jan Smuts Drive, Pinelands, 7405 11th Floor Mutual Tower 223 Independence Avenue Windhoek Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Old Mutual Building, 30 Glyn Jones Road, Blantyre Mutualpark, Jan Smuts Drive, Pinelands, 7405 LR Number 209/12331, Mutual building, Mara/Ragati road, PO BOX 30059 - 00100 Old Mutual Building, 30 Glyn Jones Road, Blantyre Old Mutual Swaziland, 4th Floor, Public Services LR Number 209/12331, Mutual building, Mara/Ragati Pension Fund Building. Mhlambanyatsi Rd. Mbabane road, PO BOX 30059 - 00100 Mutual Gardens, 100 The Chase West Emerald Hill, Old Mutual Swaziland, 4th Floor, Public Services Harare Pension Fund Building. Mhlambanyatsi Rd. Mbabane Millennium Bridge House, 2 Lambeth Hill, London Mutual Gardens, 100 The Chase West Emerald Hill, EC4V 4GG Harare LR Number 209/12331, Mutual building, Mara/Ragati Millennium Bridge House, 2 Lambeth Hill, London road, PO BOX 30059 - 00100 EC4V 4GG 11th Floor Mutual Tower 223 Independence Avenue LR Number 209/12331, Mutual building, Mara/Ragati Windhoek road, PO BOX 30059 - 00100 11th Floor Mutual Tower 223 Independence Avenue Windhoek Old Mutual plc Annual Report and Accounts 2017 Name Old Mutual Investment Services (Pty) Ltd Old Mutual Investment Services Nominees (Namibia) (Pty) Ltd Old Mutual Investment Services Nominees (Pty) Ltd Old Mutual Japanese Equity Old Mutual JPM US Growth Advantage Fund (was OM Threadneedle American Select Fund) Old Mutual Life Assurance Co (Swaziland) Ltd Old Mutual Life Assurance Company (Ghana) Limited Old Mutual Life Assurance Company (Malawi) Ltd Old Mutual Life Assurance Company (Namibia) Ltd Old Mutual Life Assurance Company (South Africa) Ltd Old Mutual Life Assurance Company Ltd Old Mutual Life Assurance Company Zimbabwe Ltd Old Mutual Life Insurance Company (Botswana) Limited Old Mutual Life S.A. de C.V. Old Mutual Local Currency Emerging Market Debt Fund Old Mutual Managed Alpha QI Hedge Fund Old Mutual Managed Fund Old Mutual Maximum Return FoF 100 100 55 100 85 100 100 100 100 63 100 100 100 61 100 24 53 100 100 Old Mutual Medium Term Incentive Trust Old Mutual Metis Alternative Fund (Pty) Ltd Old Mutual Metis Alternative Fund Trust Old Mutual Mexico Holdings, S.A.de.C.V Old Mutual Moderate Balanced Fund 68 44 Old Mutual Money Market Fund 100 100 35 44 98 Old Mutual Monthly income High yield Bond Fund Old Mutual MSCI Emerging ESG Index Fund Old Mutual MSCI World ESG Index Fund Old Mutual Multi-Managers Defensive Fund of Funds Old Mutual Multi-Managers Equity Fund of Funds Old Mutual Multi-Managers Agg Bal FoF Old Mutual Multi-Managers Balanced Fund of Funds Old Mutual Multi-Managers Caut FoF 55 62 72 49 55 Old Mutual Multi-Managers Enhanced Income Fund of Funds Old Mutual Multi-Managers Inflation Plus Fund No.3 Old Mutual Multi-Managers Inflation Plus Fund No.4 Old Mutual Multi-Managers Inflation Plus Fund No.5 Old Mutual Multi-Managers Inflation Plus Fund No.7 Old Mutual Multi-Managers Max Ret FoF Old Mutual Multi-Managers Money Market Fund 63 100 100 100 100 52 38 Old Mutual plc Annual Report and Accounts 2017 Percentage holding 100 Shareholding Ordinary Country of incorporation Republic of South Africa Registered Office Address Mutualpark, Jan Smuts Drive, Pinelands, 7405 Ordinary shares and Class A, B, C, D, E, F, H and I ordinary par value shares Ordinary Namibia 11th Floor Mutual Tower 223 Independence Avenue Windhoek Republic of South Africa Mutualpark, Jan Smuts Drive, Pinelands, 7405 Hedged England & Wales Accumulation England & Wales Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG Swaziland Ghana Malawi Namibia Republic of South Africa Kenya Zimbabwe Botswana Mexico England & Wales Republic of South Africa England & Wales Republic of South Africa Old Mutual Swaziland, 4th Floor, Public Services Pension Fund Building. Mhlambanyatsi Rd. Mbabane 42 Ring Road Central, Accra 30 Glyn Jones Road, Old Mutual Building, P.O. Box 393, Blantyre, Malawi 11th Floor Mutual Tower 223 Independence Avenue Windhoek Mutualpark, Jan Smuts Drive, Pinelands, 7405 LR Number 209/12331, Mutual building, Mara/Ragati road, PO BOX 30059 - 00100 Mutual Gardens, 100 The Chase West Emerald Hill, Harare Plot 64511 Fairgrounds Gaborone Bosque de Ciruelos No. 162, Bosques de las Lomas, 11700, México, D.F., Mexico Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG Mutualpark, Jan Smuts Drive, Pinelands, 7405 Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG Mutualpark, Jan Smuts Drive, Pinelands, 7405 Republic of South Africa Mutualpark, Jan Smuts Drive, Pinelands, 7405 Republic of South Africa Mutualpark, Jan Smuts Drive, Pinelands, 7405 i F n a n c a s l i Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Hedged Class D1, D2 and D4 shares Accumulation Class A, B1, B2 and C shares Trust does not issue shares Ordinary Trust does not issue shares Ordinary Republic of South Africa Mexico Class A and B1 shares Class A, A2, B1, B2, B3, B5 and C shares Hedged Republic of South Africa Republic of South Africa England & Wales Class C and D shares Ireland Class B, C, and D shares Ireland Class A and B4 shares Republic of South Africa Maitland House 1, River Park, River Lane, Mowbray, 7700, South Africa Bosque de Ciruelos No. 162, Bosques de las Lomas, 11700, México, D.F., Mexico Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG Russell Investments Ireland Limited, 78 Sir John Rogerson’s Quay, Dublin 2, Ireland Russell Investments Ireland Limited, 78 Sir John Rogerson’s Quay, Dublin 2, Ireland Mutualpark, Jan Smuts Drive, Pinelands, 7405 Class A, B2, B4, C and C2 shares Class A and B4 shares Republic of South Africa Mutualpark, Jan Smuts Drive, Pinelands, 7405 Republic of South Africa Mutualpark, Jan Smuts Drive, Pinelands, 7405 Republic of South Africa Class A, B2, B4, C and C2 shares Class B4, C2, A and C shares Class A, B2, B4, C and C2 shares Class B1 and B2 shares Republic of South Africa Republic of South Africa Republic of South Africa Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Class B1, B2 and B3 shares Class B1 and B2 shares Republic of South Africa Republic of South Africa Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Class B1 and B2 shares Republic of South Africa Mutualpark, Jan Smuts Drive, Pinelands, 7405 Class A and B4 shares Republic of South Africa Mutualpark, Jan Smuts Drive, Pinelands, 7405 Class A, B4 and C shares Republic of South Africa Mutualpark, Jan Smuts Drive, Pinelands, 7405 317 309 Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued Country of incorporation Country of Republic of South Africa incorporation Republic of South Africa Republic of South Africa Registered Office Address Mutualpark, Jan Smuts Drive, Pinelands, 7405 Registered Office Address Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Republic of South Africa Republic of South Africa Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Republic of South Africa Republic of South Africa Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Republic of South Africa Republic of South Africa Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Percentage holding Percentage 74 holding 100 74 100 100 Name Old Mutual Multi-Managers Satellite Equity Fund No.1 Name Old Mutual Multi-Managers Satellite Old Mutual Multi-Managers Satellite Equity Fund No.2 Equity Fund No.1 Old Mutual Multi-Managers Satellite Old Mutual Multi-Managers Satellite Equity Fund No.4 Equity Fund No.2 Old Mutual Multi-Mgrs Satellite Equity Old Mutual Multi-Managers Satellite Fund No. 3 Equity Fund No.4 Old Mutual Multi-Strategy Trust Old Mutual Multi-Mgrs Satellite Equity Fund No. 3 Old Mutual Multi-Style Global Equity 99 100 Old Mutual Multi-Strategy Trust 68 Old Mutual Namibia Dynamic Floor Fund Old Mutual Multi-Style Global Equity 99 59 Old Mutual Namibia Enhanced 68 Old Mutual Namibia Dynamic Floor Income Fund Fund Old Mutual Namibia Growth Fund Old Mutual Namibia Enhanced Income Fund Old Mutual Namibia Income Fund Old Mutual Namibia Growth Fund 100 35 35 100 42 52 52 59 Shareholding Class B1, B2, B3 and B5 shares Shareholding Class B1, B2, B3 and B5 Class B1, B2, B3 and B5 shares shares Class B1, B2 and B3 Class B1, B2, B3 and B5 shares shares Class B2, B3 and B5 Class B1, B2 and B3 shares shares Trust does not issue Class B2, B3 and B5 shares shares Class B1 and B2 shares Trust does not issue shares one class of share Class B1 and B2 shares one class of share one class of share Old Mutual Namibia Managed Fund 59 42 Old Mutual Namibia Income Fund one class of share one class of share Namibia Namibia 100 95 100 70 100 70 100 100 100 100 100 45 100 100 100 100 70 70 Old Mutual Namibia Real Income 45 Old Mutual Namibia Managed Fund 59 Fund Old Mutual Namibian Dividend Old Mutual Namibia Real Income Access Trust Fund Old Mutual Newton UK Income Fund Old Mutual Namibian Dividend (was OM Newton UK Income Fund) Access Trust Old Mutual Newton UK opportunities Old Mutual Newton UK Income Fund Fund (was OM BlackRock UK (was OM Newton UK Income Fund) Special Situations Fund) Old Mutual Newton UK opportunities Old Mutual Nigeria General Insurance Fund (was OM BlackRock UK Company Limited Special Situations Fund) Old Mutual Nigeria Life Assurance Old Mutual Nigeria General Insurance Company Limited Company Limited Old Mutual Nominees (Pty) Ltd Old Mutual Nigeria Life Assurance Company Limited Old Mutual Nominees (Swaziland) (Pty) Ltd Old Mutual Nominees (Pty) Ltd Old Mutual Operadora De Fondos, Old Mutual Nominees (Swaziland) S.A. de C.V. Sociedad Operadora de (Pty) Ltd Fondos de Inversión Old Mutual Operadora De Fondos, Old Mutual Pan African Fund S.A. de C.V. Sociedad Operadora de Fondos de Inversión Old Mutual Pension Services Old Mutual Pan African Fund Company Limited Old Mutual Pensions Trust Ghana Old Mutual Pension Services Limited Company Limited Old Mutual Planeación Financiera Old Mutual Pensions Trust Ghana S.A. Limited Old Mutual Properties (Namibia) (Pty) Old Mutual Planeación Financiera Ltd S.A. Old Mutual Property (Pty) Ltd Old Mutual Properties (Namibia) (Pty) Ltd Old Mutual Property (Pty) Ltd Old Mutual Property Investment Corporation (Pvt) Ltd Old Mutual Property Zimbabwe (Pvt) Old Mutual Property Investment Limited Corporation (Pvt) Ltd Old Mutual RAFI 40 Index Old Mutual Property Zimbabwe (Pvt) Limited Old Mutual Real Estate Holding Old Mutual RAFI 40 Index Company (Pty) Ltd Old Mutual Real Estate Zimbabwe Old Mutual Real Estate Holding (Pvt) Limited Company (Pty) Ltd Old Mutual Real Income Old Mutual Real Estate Zimbabwe (Pvt) Limited Old Mutual Reinsurance (Mauritius) Old Mutual Real Income Limited Old Mutual Renta Variable Old Mutual Reinsurance (Mauritius) Estratégica, S.A. de C.V. Fondo de Limited Inversión de Renta Variable Old Mutual Renta Variable Estratégica, S.A. de C.V. Fondo de Inversión de Renta Variable 99 100 100 84 100 100 84 100 100 46 100 100 46 99 100 100 95 100 100 100 100 100 100 100 100 100 100 Nigeria Nigeria 235 Ikorodu Rd, Illupeju, Lagos, Nigeria 20 Adetokunbo Ademola Street, Victoria Island, Lagos 78 Sir John Rogerson’s Quay, Dublin 2, Ireland Mutualpark, Jan Smuts Drive, Pinelands, 7405 11th Floor Mutual Tower 223 Independence Avenue Windhoek 78 Sir John Rogerson’s Quay, Dublin 2, Ireland 11th Floor Mutual Tower 223 Independence Avenue 11th Floor Mutual Tower 223 Independence Avenue Windhoek Windhoek 11th Floor Mutual Tower 223 Independence Avenue 11th Floor Mutual Tower 223 Independence Avenue Windhoek Windhoek 11th Floor Mutual Tower 223 Independence Avenue 11th Floor Mutual Tower 223 Independence Avenue Windhoek Windhoek 11th Floor Mutual Tower 223 Independence Avenue 11th Floor Mutual Tower 223 Independence Avenue Windhoek Windhoek 11th Floor Mutual Tower 223 Independence Avenue 11th Floor Mutual Tower 223 Independence Avenue Windhoek Windhoek 11th Floor Mutual Tower 223 Independence Avenue 11th Floor Mutual Tower 223 Independence Avenue Windhoek Windhoek Millennium Bridge House, 2 Lambeth Hill, London 11th Floor Mutual Tower 223 Independence Avenue EC4V 4GG Windhoek Millennium Bridge House, 2 Lambeth Hill, London Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London 20 Adetokunbo Ademola Street, Victoria Island, Lagos EC4V 4GG Mutualpark, Jan Smuts Drive, Pinelands, 7405 235 Ikorodu Rd, Illupeju, Lagos, Nigeria Old Mutual Swaziland, 4th Floor, Public Services Pension Fund Building. Mhlambanyatsi Rd. Mbabane Mutualpark, Jan Smuts Drive, Pinelands, 7405 Bosque de Ciruelos No. 162, Bosques de las Lomas, Old Mutual Swaziland, 4th Floor, Public Services 11700, México, D.F., Mexico Pension Fund Building. Mhlambanyatsi Rd. Mbabane Bosque de Ciruelos No. 162, Bosques de las Lomas, Millennium Bridge House, 2 Lambeth Hill, London 11700, México, D.F., Mexico EC4V 4GG Old Mutual Building 30 Glyn Jones Road, Blantyre, Millennium Bridge House, 2 Lambeth Hill, London Malawi EC4V 4GG Provident Towers, Ring Road Central, Accra, Ghana Old Mutual Building 30 Glyn Jones Road, Blantyre, Malawi Av. 19 109 A30, Bogotá, Colombia Provident Towers, Ring Road Central, Accra, Ghana 11th Floor Mutual Tower 223 Independence Avenue Av. 19 109 A30, Bogotá, Colombia Windhoek Mutualpark, Jan Smuts Drive, Pinelands, 7405 11th Floor Mutual Tower 223 Independence Avenue Windhoek Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutual Gardens, 100 The Chase West Emerald Hill, Harare Mutual Gardens, 100 The Chase West Emerald Hill, Mutual Gardens, 100 The Chase West Emerald Hill, Harare Harare Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutual Gardens, 100 The Chase West Emerald Hill, Harare Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutual Gardens, 100 The Chase West Emerald Hill, Mutualpark, Jan Smuts Drive, Pinelands, 7405 Harare Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutual Gardens, 100 The Chase West Emerald Hill, Harare 10th floor, Standard Chartered Tower, 19 Cybercity, Mutualpark, Jan Smuts Drive, Pinelands, 7405 Ebene, Mauritius Bosque de Circuelos, 162 first floor, Col. Bosques de 10th floor, Standard Chartered Tower, 19 Cybercity, las Lomas, ZIP code 11700, Mexico City Ebene, Mauritius Bosque de Circuelos, 162 first floor, Col. Bosques de las Lomas, ZIP code 11700, Mexico City Ireland Republic of South Africa Namibia Ireland Namibia Namibia one class of share one class of share Namibia Namibia one class of share one class of share Namibia Namibia one class of share one class of share Namibia Namibia Namibia Namibia Trust does not issue one class of share shares Income and Accumulation England & Wales Trust does not issue shares Accumulation England & Wales Income and Accumulation England & Wales Namibia Accumulation Ordinary England & Wales Nigeria Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Republic of South Africa Nigeria Swaziland Republic of South Africa Mexico Swaziland Mexico England & Wales Malawi England & Wales Ghana Malawi Colombia Ghana Namibia Colombia Ordinary shares and Class Ordinary A ordinary par value shares Ordinary shares and Class Ordinary A ordinary par value shares Ordinary Ordinary Class A, B1, B2 and C Ordinary shares Ordinary & Linked Units Class A, B1, B2 and C shares Ordinary Ordinary & Linked Units Class A, B1, B2 and C Ordinary shares Ordinary Class A, B1, B2 and C shares Investment Fund Ordinary Republic of South Africa Namibia Republic of South Africa Zimbabwe Zimbabwe Zimbabwe Republic of South Africa Zimbabwe Republic of South Africa Republic of South Africa Zimbabwe Republic of South Africa Republic of South Africa Zimbabwe Mauritius Republic of South Africa Mexico Mauritius Investment Fund Mexico 318 310 310 Old Mutual plc Annual Report and Accounts 2017 Name Old Mutual Renta Variable México, S.A. de C.V. Fondo de Inversión de Renta Variable Old Mutual Retirement Accommodation Fund (Pty) Ltd Old Mutual S.A. de C.V. Old Mutual Schroder European Alpha Income Fund Old Mutual Securities (Pvt) Limited Old Mutual Securities Limited 100 99 100 70 70 100 100 Old Mutual Securities Nominees (Pvt) Limited Old Mutual Servicios Mexico S.A. de C.V. Old Mutual Shared Services (Pvt) Limited Old Mutual Short Term Insurance Company (Namibia) Limited Old Mutual Short-Term Insurance (Botswana) Ltd Old Mutual Sociedad Fiduciaria S.A. 87 Old Mutual Specialised Finance (Pty) Ltd 100 100 100 100 Old Mutual Specialty Insurance Limited Old Mutual Stable Growth Old Mutual Style Premia Absolute Return Fund Old Mutual Swaziland (Pty) Ltd 100 56 96 100 Old Mutual Swaziland Agri-Fund GP (Pty) Ltd Old Mutual Swaziland Balanced Fund 87 100 Old Mutual Swaziland Money Market 36 Old Mutual Technology Holdings (Pty) Ltd OLD MUTUAL TITAN GLOBAL EQUITY FUND Old Mutual Transaction Services (Pty) Ltd Old Mutual Transactional Service (Pty) Ltd Old Mutual Trust (Pty) Ltd Old Mutual Trust Company Limited Old Mutual Unit Trust Company (Malawi) Ltd Old Mutual Unit Trust Management Co. (Pvt) Ltd Old Mutual Unit Trust Management Company (Namibia) Ltd Old Mutual Unit Trust Managers (RF) (Pty) Ltd Old Mutual Unit Trusts (Pty) Ltd Old Mutual VAF (Pty) Ltd Old Mutual VAF 2 (Pty) Ltd Old Mutual VAF 2 TRUST Old Mutual VAF 3 (Propietary) Limited Old Mutual VAF 3 Trust Old Mutual VAF Trust Old Mutual Valores S.A. Comisionista de Bolsa Old Mutual Volatility Arbitrage QI Hedge Fund Old Mutual Wealth (Namibia) (Pty) Ltd 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 99 100 Old Mutual plc Annual Report and Accounts 2017 Percentage holding 100 Shareholding Investment Fund Country of incorporation Mexico Registered Office Address Bosque de Circuelos 162 first floor, Col. Bosque de las Lomas, Zip code 11700, Mexico City Republic of South Africa Mutualpark, Jan Smuts Drive, Pinelands, 7405 Ordinary Ordinary ordinary Ordinary Ordinary Ordinary Class B Ordinary Ordinary Ordinary Mexico England & Wales Zimbabwe Kenya Zimbabwe Mexico Zimbabwe Namibia Botswana Ordinary Ordinary, Class B Preference Share, Redeemable Prefernce Shares Ordinary Colombia Republic of South Africa Mauritius Class A, B1, B2, B3 and C shares Hedged Republic of South Africa England & Wales Ordinary Ordinary Class A, B, C and D shares Class A, B, C and D shares Ordinary Swaziland Swaziland Swaziland Swaziland Republic of South Africa Class A shares Ireland Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Republic of South Africa Namibia Republic of South Africa Ghana Malawi Zimbabwe Namibia Ordinary & Redeemable Preference Share Ordinary Republic of South Africa Swaziland Ordinary Ordinary Trust does not issue shares Class C and L shares Trust does not issue shares Trust does not issue shares Ordinary Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Colombia i F n a n c a s l i Bosque de Ciruelos No. 162, Bosques de las Lomas, 11700, México, D.F., Mexico Millennium Bridge House, 2 Lambeth Hill, London, EC4V 4GG Mutual Gardens, 100 The Chase West Emerald Hill, Harare IPS Building, 6th Floor Kimathi Street, P.O. Box 50338- 00200, Nairobi, Kenya Mutual Gardens, 100 The Chase West Emerald Hill, Harare Bosque de Ciruelos No. 162, Bosques de las Lomas, 11700, México, D.F., Mexico Mutual Gardens, 100 The Chase West Emerald Hill, Harare M&F Centre, 227 Independence Avenue, Windhoek, Namibia Fairgrounds Office Park, Ground Floor Building B, Plot 50676, Gaborone, Botswana Av. 19 109 A30, Bogotá, Colombia Mutualpark, Jan Smuts Drive, Pinelands, 7405 10th floor, Standard Chartered Tower, 19 Cybercity, Ebene, Mauritius Mutualpark, Jan Smuts Drive, Pinelands, 7405 Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG Old Mutual Swaziland, 4th Floor, Public Services Pension Fund Building. Mhlambanyatsi Rd. Mbabane P.O. Box 95, Mbabane 4th Floor, PSPF Building, Mhlambanyatsi Road, Mbabane, Swaziland 4th Floor, PSPF Building, Mhlambanyatsi Road, Mbabane, Swaziland Mutualpark, Jan Smuts Drive, Pinelands, 7405 Russell Investments Ireland Limited, 78 Sir John Rogerson’s Quay, Dublin 2, Ireland Mutualpark, Jan Smuts Drive, Pinelands, 7405 11th Floor Mutual Tower 223 Independence Avenue Windhoek 135 Rivonia Road, Sandown, Sandton, 2196 42 Ring Road Central, Accra 30 Glyn Jones Road, Old Mutual Building, P.O. Box 393, Blantyre, Malawi Mutual Gardens, 100 The Chase West Emerald Hill, Harare 11th Floor Mutual Tower 223 Independence Avenue Windhoek Mutualpark, Jan Smuts Drive, Pinelands, 7405 Old Mutual Swaziland, 4th Floor, Public Services Pension Fund Building. Mhlambanyatsi Rd. Mbabane Mutualpark (West Campus), Jan Smuts Drive, Pinelands, 7405 Mutualpark (West Campus), Jan Smuts Drive, Pinelands, 7405 Mutual House 1, River Park, River Lane, Mobray, 7700, South Africa Old Mutual Investment Group, West Campus, Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutual House 1, River Park, River Lane, Mobray, 7700, South Africa Mutual House 1, River Park, River Lane, Mobray, 7700, South Africa Av. 19 109 A30, Bogotá, Colombia Class D1 and D3 shares Republic of South Africa Mutualpark, Jan Smuts Drive, Pinelands, 7405 Ordinary Namibia 11th Floor Mutual Tower 223 Independence Avenue Windhoek 319 311 Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued Republic of South Africa Republic of South Africa Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutualpark, Jan Smuts Drive, Pinelands, 7405 100 100 100 100 100 100 Percentage holding Name Percentage 100 Old Mutual Wealth Business Services holding Name Limited Old Mutual Wealth Holdings Limited 100 100 Old Mutual Wealth Business Services Limited Old Mutual Wealth Life & Pensions 100 Old Mutual Wealth Holdings Limited 100 Limited Old Mutual Wealth Life Assurance Old Mutual Wealth Life & Pensions Limited Limited Old Mutual Wealth Limited Old Mutual Wealth Life Assurance Limited Old Mutual Wealth Management Old Mutual Wealth Limited Limited Old Mutual Wealth Nominees Limited 100 100 Old Mutual Wealth Management Limited Old Mutual Wealth Pensions Trustee 100 Old Mutual Wealth Nominees Limited 100 Limited Old Mutual Wealth Private Client Old Mutual Wealth Pensions Trustee Advisers Limited Limited Old Mutual Wealth Proprietary Old Mutual Wealth Private Client Limited Advisers Limited Old Mutual Wealth Services Old Mutual Wealth Proprietary Company Proprietary Limited Limited Old Mutual Wealth Trust Company Old Mutual Wealth Services (Pty) Ltd Company Proprietary Limited Old Mutual Wealth UK Holding Old Mutual Wealth Trust Company Limited (Pty) Ltd Old Mutual West Africa Company Old Mutual Wealth UK Holding Limited Limited Old Mutual Woodford Equity Income 100 100 Old Mutual West Africa Company Limited Old Mutual World Equity Old Mutual Woodford Equity Income 100 100 100 100 100 100 100 100 100 100 100 100 100 37 Old Mutual Zimbabwe Dividend Old Mutual World Equity Access Trust Old Mutual Zimbabwe Ltd Old Mutual Zimbabwe Dividend Access Trust Old Mutual Zimbabwe Nominees Old Mutual Zimbabwe Ltd (Pvt) Ltd OM Aberdeen Asia Pacific Fund Old Mutual Zimbabwe Nominees (Pvt) Ltd OM Artemis Income Fund OM Aberdeen Asia Pacific Fund 100 37 79 100 100 79 100 100 100 100 OM Artemis UK Special Situations OM Artemis Income Fund Fund OM Asia Pacific Fund OM Artemis UK Special Situations Fund OM Blackrock Gold & General Fund 100 OM Asia Pacific Fund 44 100 100 100 44 Shareholding Ordinary Shareholding Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Country of incorporation Country of England & Wales incorporation England & Wales England & Wales England & Wales England & Wales England & Wales England & Wales England & Wales England & Wales Held by OM plc Ordinary England & Wales England & Wales Ordinary Held by OM plc England & Wales England & Wales Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary England & Wales England & Wales England & Wales England & Wales Republic of South Africa England & Wales Republic of South Africa Republic of South Africa England & Wales Republic of South Africa Nigeria England & Wales Accumulation Ordinary England & Wales Nigeria Hedged Accumulation England & Wales England & Wales Trust does not issue Hedged shares Ordinary Trust does not issue shares Ordinary Ordinary Zimbabwe England & Wales Zimbabwe Zimbabwe Zimbabwe Zimbabwe Accumulation Ordinary England & Wales Zimbabwe Accumulation Accumulation England & Wales England & Wales Accumulation Accumulation England & Wales England & Wales Accumulation Accumulation England & Wales England & Wales Accumulation Accumulation England & Wales England & Wales OM Bond 1 Fund 100 OM Blackrock Gold & General Fund 100 Income Accumulation England & Wales England & Wales OM Bond 2 Fund OM Bond 1 Fund OM Bond 3 Fund OM Bond 2 Fund OM Botswana Holdco Limited OM Bond 3 Fund OM Corporate Bond Fund OM Botswana Holdco Limited OM Equity 1 Fund OM Corporate Bond Fund OM Equity 2 Fund OM Equity 1 Fund OM Ethical Fund OM Equity 2 Fund 100 100 100 100 100 100 50 100 100 50 100 100 62 100 Income and Accumulation England & Wales England & Wales Income Income and Accumulation England & Wales Income and Accumulation England & Wales Ordinary England & Wales Income and Accumulation England & Wales Income and Accumulation England & Wales England & Wales Ordinary Accumulation England & Wales Income and Accumulation England & Wales Accumulation Accumulation England & Wales England & Wales Accumulation Accumulation England & Wales England & Wales OM European Equity (ex UK) Fund OM Ethical Fund 77 62 Accumulation Accumulation England & Wales England & Wales OM Fidelity Global Focus Fund OM European Equity (ex UK) Fund 100 77 Accumulation Accumulation England & Wales England & Wales OM Fidelity Moneybuilder Income OM Fidelity Global Focus Fund Fund OM Fidelity Strategic Bond Fund OM Fidelity Moneybuilder Income Fund OM Fidelity Strategic Bond Fund 100 100 100 100 100 Income and Accumulation England & Wales England & Wales Accumulation Income and Accumulation England & Wales Income and Accumulation England & Wales Income and Accumulation England & Wales 320 312 312 Registered Office Address Old Mutual House, Portland Terrace, Southampton Registered Office Address SO14 7EJ Old Mutual House, Portland Terrace, Southampton Old Mutual House, Portland Terrace, Southampton SO14 7EJ SO14 7EJ Old Mutual House, Portland Terrace, Southampton Old Mutual House, Portland Terrace, Southampton SO14 7EJ SO14 7EJ Old Mutual House, Portland Terrace, Southampton Old Mutual House, Portland Terrace, Southampton SO14 7EJ SO14 7EJ Old Mutual House, Portland Terrace, Southampton Old Mutual House, Portland Terrace, Southampton SO14 7EJ SO14 7EJ Old Mutual House, Portland Terrace, Southampton Old Mutual House, Portland Terrace, Southampton SO14 7EJ SO14 7EJ Old Mutual House, Portland Terrace, Southampton Old Mutual House, Portland Terrace, Southampton SO14 7EJ SO14 7EJ Old Mutual House, Portland Terrace, Southampton Old Mutual House, Portland Terrace, Southampton SO14 7EJ SO14 7EJ Millennium Bridge House, 2 Lambeth Hill, London Old Mutual House, Portland Terrace, Southampton EC4V 4GG SO14 7EJ Mutualpark, Jan Smuts Drive, Pinelands, 7405 Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Old Mutual House, Portland Terrace, Southampton Mutualpark, Jan Smuts Drive, Pinelands, 7405 SO14 7EJ 235 Ikorodu Rd, Illupeju, Lagos, Nigeria Old Mutual House, Portland Terrace, Southampton SO14 7EJ Millennium Bridge House, 2 Lambeth Hill, London 235 Ikorodu Rd, Illupeju, Lagos, Nigeria EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG EC4V 4GG Mutual Gardens, 100 The Chase West Emerald Hill, Millennium Bridge House, 2 Lambeth Hill, London Harare EC4V 4GG Mutual Gardens, 100 The Chase West Emerald Hill, Mutual Gardens, 100 The Chase West Emerald Hill, Harare Harare Mutual Gardens, 100 The Chase West Emerald Hill, Mutual Gardens, 100 The Chase West Emerald Hill, Harare Harare Millennium Bridge House, 2 Lambeth Hill, London Mutual Gardens, 100 The Chase West Emerald Hill, EC4V 4GG Harare Millennium Bridge House, 2 Lambeth Hill, London Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London, Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London Millennium Bridge House, 2 Lambeth Hill, London, EC4V 4GG EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Name OM Foundation 3 Fund OM Foundation 4 Fund OM Foundation 5 Fund OM Generation Target 3 Fund OM Generation Target 4 Fund OM Generation Target 5 Fund OM Gilt Fund OM GLOBAL BALANCED FUND HY A OM Global Best Ideas Fund Percentage holding Shareholding Country of incorporation 97 100 100 76 85 73 100 100 58 Income and Accumulation England & Wales Income and Accumulation England & Wales Income and Accumulation England & Wales Income and Accumulation England & Wales Income and Accumulation England & Wales Income and Accumulation England & Wales Income and Accumulation England & Wales Class A shares Republic of South Africa Accumulation England & Wales OM GLOBAL EMERGING OP FUND 48 Class A shares Ireland OM Global Equity Income Fund 88 Income and Accumulation England & Wales OM Global Property Securities Fund 73 Income and Accumulation England & Wales OM Group (UK) Limited OM Henderson China Opportunities Fund OM Henderson European Growth Fund (was OM Henderson European Fund) OM Invesco Perpetual Asian Fund OM Invesco Perpetual Corporate Bond Fund OM JPM Emerging Markets Fund 100 100 100 100 100 100 Ordinary England & Wales Accumulation England & Wales Accumulation England & Wales Accumulation England & Wales Income and Accumulation England & Wales Accumulation England & Wales OM JPM Natural Resources Fund 99 Accumulation England & Wales OM Latin America Holdco UK Limited 100 Ordinary England & Wales OM Monthly Income Bond Fund 79 Income and Accumulation England & Wales OM Newton Global Income Fund 100 Income and Accumulation England & Wales OM North American Equity Fund 28 Accumulation England & Wales OM Portfolio Holdings (South Africa) (Pty) Ltd OM Portfolio Holdings Zimbabwe Ltd 100 100 Ordinary Ordinary Republic of South Africa Zimbabwe OM Schroder Tokyo Fund 100 Accumulation England & Wales OM Schroder US Mid Cap Fund 100 Income and Accumulation England & Wales OM Threadneedle European Select Fund OM Threadneedle High Yield Bond Fund OM UK Equity Income Fund OM UK Index Fund OM Voyager Diversified Fund OM Voyager Global Dynamic Equity Fund OM Voyager Strategic Bond Fund OM World Index Fund OM Zimbabwe Holdco Limited 100 100 67 100 99 96 94 100 100 OMAM Axiom Investments (Pty) Ltd 100 100 OMF (IOM) Limited Accumulation England & Wales Income and Accumulation England & Wales Income and Accumulation England & Wales Accumulation England & Wales Accumulation England & Wales Accumulation England & Wales Income and Accumulation England & Wales Accumulation England & Wales Ordinary Ordinary Ordinary England & Wales Republic of South Africa Isle of Man OMFS (GGP) Limited 100 Ordinary England & Wales Registered Office Address EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG Mutualpark, Jan Smuts Drive, Pinelands, 7405 Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG Russell Investments Ireland Limited, 78 Sir John Rogerson’s Quay, Dublin 2, Ireland Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG Millennium Bridge House 2, Lambeth Hill, London, EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutual Gardens, 100 The Chase West Emerald Hill, Harare Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG Mutualpark, Jan Smuts Drive, Pinelands, 7405 King Edward Bay House, King Edward Road Onchan Isle of Man IM99 INU Millennium Bridge House 2, Lambeth Hill, London, EC4V 4GG 321 313 i F n a n c a s l i Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued Name OMIFM LIMITED Name OMIFM LIMITED OMIGSA Alternative Assets Trust OMIGSA Alternative Assets Trust OMIGSA Alternative Strategies plc OMIGSA Alternative Strategies plc OMIGSA Black Management Trust OMIGSA Black Management Trust OMIGSA Green Hands Trust OMIGSA Green Hands Trust OMIGSA Imfundo Trust OMIGSA Imfundo Trust OMIGSA INTERNATIONAL PRIVATE EQUITY FUND OF OMIGSA INTERNATIONAL FUNDS I PRIVATE EQUITY FUND OF OMIGSA INTERNATIONAL FUNDS I PRIVATE EQUITY FUND OF OMIGSA INTERNATIONAL FUNDS II PRIVATE EQUITY FUND OF OMIGSA Management Company FUNDS II Limited OMIGSA Management Company OMIGSA Management Trust Limited OMIGSA Management Trust OMIGSA New Retail Fund II Trust OMIGSA New Retail Fund II Trust OMLA Holdings Limited OMLA Holdings Limited OMP Africa Holdco Pty Ltd Percentage holding Percentage 100 holding 100 100 100 100 100 100 100 100 100 100 100 99 99 100 100 100 100 100 100 100 100 100 100 100 100 OMP Africa Holdco Pty Ltd 100 OMP Africa Investment (Pty) Ltd OMP Management Services (Pty) Ltd 100 100 OMP Africa Investment (Pty) Ltd OMP SS1 100 OMP Management Services (Pty) Ltd 100 100 OMP SS1 100 OMP SS2 OMP SS2 OMP SS3 OMP SS3 OMP SS4 OMP SS4 OMP SS5 OMP SS5 OMPAI-NPIC Investments Ltd 100 100 100 100 100 100 100 100 100 OMPAI-NPIC Investments Ltd OMPE Fund IV Co-Investment Trust 100 OMPE Fund IV Co-Investment Trust 100 OMPE Fund IV Executive Trust 100 100 OMPE Fund IV Executive Trust OMQI Managed Alpha GP (Pty) Ltd 100 100 OMSA Broad-Based Employee OMQI Managed Alpha GP (Pty) Ltd 100 Share Trust 100 OMSA Broad-Based Employee OMSA Management Incentive Trust 100 Share Trust OMSA Management Incentive Trust 100 OMW COSEC SERVICES LIMITED 100 OMW COSEC SERVICES LIMITED 100 Onrus Manor (Pty) Ltd 100 Pamela J Cum & Associates (Pty) Ltd 100 100 Onrus Manor (Pty) Ltd Pembroke Quilter (Ireland) Nominees 100 Pamela J Cum & Associates (Pty) Ltd 100 Limited 100 Pembroke Quilter (Ireland) Nominees 100 Peoples Mortgage Ltd Limited 100 Positive Solutions (Financial 100 Peoples Mortgage Ltd Services) Limited 100 Positive Solutions (Financial 100 Premier Planning Limited Services) Limited Premier Planning Limited Premier Wealth Limited 100 100 Premier Wealth Limited Prestige College OPCO (RF) NPC Prestige Deal Property Company Prestige College OPCO (RF) NPC (RF) Proprietary Limited Prestige Deal Property Company Private Equity Fund IV (RF) Proprietary Limited Private Equity Multi-Managed Fund Private Equity Fund IV Proclare (Pty) Ltd Private Equity Multi-Managed Fund Proclare (Pty) Ltd 100 100 50 100 50 94 100 94 100 100 100 Shareholding ordinary Shareholding ordinary Trust does not issue shares Trust does not issue Ordinary shares Ordinary Trust does not issue shares Trust does not issue Trust does not issue shares shares Trust does not issue Trust does not issue shares shares Trust does not issue Class A and B shares shares Class A and B shares Class C and F shares Class C and F shares Ordinary Ordinary Trust does not issue shares Trust does not issue Trust does not issue shares shares Trust does not issue Ordinary shares Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Trust does not issue shares Trust does not issue Trust does not issue shares shares Trust does not issue Ordinary shares Trust does not issue Ordinary shares Trust does not issue Trust does not issue shares shares Trust does not issue ordinary shares ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary ordinary ordinary ordinary ordinary Class B1 shares Ordinary Class B1 shares Ordinary one class of share one class of share one class of share Class A and C shares one class of share Class A and C shares Country of incorporation Country of England & Wales incorporation England & Wales Republic of South Africa Republic of South Africa Ireland Ireland Republic of South Africa Republic of South Africa Republic of South Africa Registered Office Address Millennium Bridge House, 2 Lambeth Hill, London, Registered Office Address EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London, Mutualpark, Jan Smuts Drive, Pinelands, 7405 EC4V 4GG Mutualpark, Jan Smuts Drive, Pinelands, 7405 New Century House, Mayor Street, International Financial Services Centre, Dublin 1 Ireland New Century House, Mayor Street, International Mutualpark, Jan Smuts Drive, Pinelands, 7405 Financial Services Centre, Dublin 1 Ireland Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Republic of South Africa Republic of South Africa Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Republic of South Africa Ireland Mutualpark, Jan Smuts Drive, Pinelands, 7405 Ashley House, Morehampton Road, Dublin 4, Ireland Ireland Ireland Ireland Ireland Ashley House, Morehampton Road, Dublin 4, Ireland Ashley House, Morehampton Road, Dublin 4, Ireland Ashley House, Morehampton Road, Dublin 4, Ireland 78 Sir John Rogerso's Quay Dublin 2 D02 RK57 Ireland Republic of South Africa 78 Sir John Rogerso's Quay Dublin 2 D02 RK57 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Republic of South Africa Republic of South Africa Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Republic of South Africa England & Wales England & Wales Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Mauritius Republic of South Africa Mauritius Mauritius Mauritius Mauritius Mauritius Mauritius Mauritius Mauritius Mauritius Mauritius Mauritius Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa England & Wales England & Wales Republic of South Africa Republic of South Africa Republic of South Africa Ireland Republic of South Africa Ireland Republic of South Africa England & Wales Republic of South Africa England & Wales England & Wales England & Wales England & Wales England & Wales Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Mutualpark, Jan Smuts Drive, Pinelands, 7405 Millennium Bridge House 2, Lambeth Hill, London, EC4V 4GG Millennium Bridge House 2, Lambeth Hill, London, c/o Abax Corporate Services Ltd, 6th Floor Tower A 1 EC4V 4GG Cybercity, Ebene c/o Abax Corporate Services Ltd, 6th Floor Tower A 1 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Cybercity, Ebene Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutualpark, Jan Smuts Drive, Pinelands, 7405 c/o Abax Corporate Services Ltd, 6th Floor Tower A 1 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Cybercity, Ebene c/o Abax Corporate Services Ltd, 6th Floor Tower A 1 c/o Abax Corporate Services Ltd, 6th Floor Tower A 1 Cybercity, Ebene Cybercity, Ebene c/o Abax Corporate Services Ltd, 6th Floor Tower A 1 c/o Abax Corporate Services Ltd, 6th Floor Tower A 1 Cybercity, Ebene Cybercity, Ebene c/o Abax Corporate Services Ltd, 6th Floor Tower A 1 c/o Abax Corporate Services Ltd, 6th Floor Tower A 1 Cybercity, Ebene Cybercity, Ebene c/o Abax Corporate Services Ltd, 6th Floor Tower A 1 c/o Abax Corporate Services Ltd, 6th Floor Tower A 1 Cybercity, Ebene Cybercity, Ebene c/o Abax Corporate Services Ltd, 6th Floor Tower A 1 c/o Abax Corporate Services Ltd, 6th Floor Tower A 1 Cybercity, Ebene Cybercity, Ebene c/o Abax Corporate Services Ltd, 6th Floor Tower A 1 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Cybercity, Ebene Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Millennium Bridge House, 2 Lambeth Hill, London, EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London, 135 Rivonia Road, Sandown, Sandton, 2196 EC4V 4GG PO Box 1245, Northriding 2162 135 Rivonia Road, Sandown, Sandton, 2196 Hambledon House, 2nd Floor, 19/26 Lower Pembroke PO Box 1245, Northriding 2162 Street, Dublin 2, Ireland Hambledon House, 2nd Floor, 19/26 Lower Pembroke 135 Rivonia Road, Sandown, Sandton, 2196 Street, Dublin 2, Ireland Riverside House, The Waterfront, Newcastle upon 135 Rivonia Road, Sandown, Sandton, 2196 Tyne NE15 8NY Riverside House, The Waterfront, Newcastle upon Millennium Bridge House, 2 Lambeth Hill, London Tyne NE15 8NY EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London 164 Nicolson Street, Brooklyn, Pretoria EC4V 4GG 164 Nicolson Street, Brooklyn, Pretoria 164 Nicolson Street, Brooklyn, Pretoria 164 Nicolson Street, Brooklyn, Pretoria Mutual Park, Jan Smuts Drive, Pinelands, 7405 Mutual Park, Jan Smuts Drive, Pinelands, 7405 Mutual Park, Jan Smuts Drive, Pinelands, 7405 135 Rivonia Road, Sandown, Sandton, 2196 Mutual Park, Jan Smuts Drive, Pinelands, 7405 135 Rivonia Road, Sandown, Sandton, 2196 322 314 314 Old Mutual plc Annual Report and Accounts 2017 Name Pyraned (Pty) Ltd QGCI Nominees Limited QUILPEP Nominees Limited Quilter Cheviot Holdings Limited QUILTER CHEVIOT INVESTMENT MANAGEMENT LIMITED Quilter Cheviot Limited QUILTER FINANCIAL PLANNING LIMITED Quilter Group Limited (was Cheviot GP Limited) QUILTER INTERNATIONAL LIMITED QUILTER INVESTORS LIMITED QUILTER LIFE ASSURANCE LIMITED QUILTER LIMITED 100 100 100 100 100 100 100 Quilter Nominees Limited QUILTER PRIVATE CLIENT ADVISERS LIMITED QUILTER WEALTH SOLUTIONS LIMITED Rainbow Beach Trading 180 (Pty) Ltd 100 100 100 100 Real Living Spaces (Pty) Ltd (RF) 50 RGP share Co Ltd 100 RIC OLD MUTUAL QUALITY GLOBAL EQUITY FUND A Richmond Park Development Company (Pty) Ltd Richmond Park Investments (Pty) Ltd 45 31 38 RM Insurance Holdings Ltd RMB Holdings Ltd Rodina Investments (Pty) Ltd Royal Deal Operations Company (RF) NPC Royals Deal Property (RF) (Pty) Ltd SA Quoted Property Fund School and Education Grant Impact Fund of South Africa NPC Seaward Development (Pty) Ltd Selcourt Housing Portfolio (RF) (Pty) Ltd Selestia Investments Limited SIS Equity FoF SIS Flexible Income FoF SIS Inflation Matching SIS Inflation plus 1 - 3 SIS Inflation plus 3 - 5 SIS International Flexible FoF SIS Nominees (Pty) Ltd SIS Property Equity FoF 92 100 100 100 100 58 100 100 100 100 34 37 39 32 38 48 100 33 Skandia Global Investments S.A. 94 Skandia UK Limited 100 SMK Genomineerdes (Edms) Bpk 100 Spectrum Nominees Ltd Squarestone Growth LLP 100 64 Old Mutual plc Annual Report and Accounts 2017 Percentage holding 100 100 100 100 100 Shareholding Class A and C shares Ordinary Ordinary Ordinary ordinary Country of incorporation Republic of South Africa Jersey England & Wales England & Wales England & Wales Ordinary ordinary Ordinary ordinary ordinary ordinary ordinary Ordinary ordinary ordinary England & Wales England & Wales England & Wales England & Wales England & Wales England & Wales England & Wales England & Wales England & Wales England & Wales Class A, B1, B0 and B2 shares Class A shares Republic of South Africa Republic of South Africa Class A, A3, B1, B2, C and R shares Class A shares Switzerland Ireland Ordinary Ordinary Republic of South Africa Republic of South Africa Zimbabwe Jersey Class B1, B2, C and R shares Class A1, B1, B2 and B3 shares Ordinary & Redeemable Preference Share Ordinary Class A1, B1, B2 and C shares Class A, B1, B2, B4, C and C3 shares Class A and C shares Republic of South Africa Republic of South Africa Republic of South Africa Class A, B and C shares Republic of South Africa Republic of South Africa Ordinary Ordinary England & Wales Class B6 shares Republic of South Africa Class B6 shares Republic of South Africa Class B shares Class B shares Class B shares Class B6 and R share class Class A, B and C shares Republic of South Africa Republic of South Africa Class B6 shares Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Class A2, B2 and R shares Class B1 and B2 shares Colombia England & Wales Republic of South Africa Class A, B1, B3, B5 and C shares Class A, B1, B2, C and R shares Members Interest in the limited liability partnership 323 315 Registered Office Address 135 Rivonia Road, Sandown, Sandton, 2196 4th Floor 28/30 The Parade St Helier Jersey JE2 3QQ One Kingsway, London WC2B 6AN One Kingsway, London WC2B 6AN Millennium Bridge House, 2 Lambeth Hill, London, EC4V 4GG One Kingsway, London WC2B 6AN Millennium Bridge House, 2 Lambeth Hill, London, EC4V 4GG One Kingsway, London WC2B 6AN Millennium Bridge House, 2 Lambeth Hill, London, EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London, EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London, EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London, EC4V 4GG One Kingsway, London WC2B 6AN Millennium Bridge House, 2 Lambeth Hill, London, EC4V 4GG Millennium Bridge House, 2 Lambeth Hill, London, EC4V 4GG Mutualpark, Jan Smuts Drive, Pinelands, 7405 C/O Old Mutual Alternative I, Mutual Park Jan Smuts Drive, Pinelands, Western Cape, 7405 Cours de Rive 14, 1204 Genève Russell Investments Ireland Limited, 78 Sir John Rogerson’s Quay, Dublin 2, Ireland Die Klubhuis, Cnr 18th Street and Pinnaster Avenue, Hazelwood, Gauteng, 0082 Die Klubhuis, Cnr 18th Street and Pinnaster Avenue, Hazelwood, Gauteng, 0081 Mutual Gardens, 100 The Chase West Emerald Hill, Harare Po Box 51, 57 Bath Street, St Helier, JE4 0XP i F n a n c a s l i 310 W F Nkomo Street, Pretoria, Gauteng Province, Gauteng, 0002 Mutualpark, Jan Smuts Drive, Pinelands, 7405 OMIGSA Building, West Campus 2, Jan Smuts Drive, Pinelands 7406 135 Rivonia Road, Sandown, Sandton, 2196 Unit 205, 2nd Floor, De Jonker Centre, Morkel Street, Mostertsdrift, Stellenbosch, 7600 Old Mutual House, Portland Terrace, Southampton SO14 7EJ 6th Floor, The Terraces, 25 Protea Road, Claremont, 7735 6th Floor, The Terraces, 25 Protea Road, Claremont, 7735 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutualpark, Jan Smuts Drive, Pinelands, 7405 6th Floor, The Terraces, 25 Protea Road, Claremont, 7735 Mutualpark, Jan Smuts Drive, Pinelands, 7405 6th Floor, The Terraces, 25 Protea Road, Claremont, 7735 Av. 19 109 A30, Bogotá, Colombia Millennium Bridge House 2, Lambeth Hill, London, EC4V 4GG 135 Rivonia Road, Sandown, Sandton, 2196 Guernsey Fairbairn House, Rohais, St Peter Port England & Wales 5th Floor, Standbrook House, 2-5 Old Bond Street, London, United Kingdom 1S4PD Republic of South Africa Mutualpark, Jan Smuts Drive, Pinelands, 7405 Republic of South Africa Mutualpark, Jan Smuts Drive, Pinelands, 7405 Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued Percentage holding Percentage 100 holding 100 100 100 - 100 - 100 100 100 100 100 50 50 100 100 100 100 100 Name Strategic Implementation Services Name Administration (Pty) Ltd Strategic Implementation Services Strategic Investment Services Life Administration (Pty) Ltd Company Limited Strategic Investment Services Life Strategic Investment Services Company Limited Management Company Limited Strategic Investment Services Sustainable Housing Investment (RF) Management Company Limited (Pty) Ltd Sustainable Housing Investment (RF) Syfrets Ltd (Pty) Ltd Syfrets Mortgage Nominees (RF) Syfrets Ltd (Pty) Ltd Syfrets Mortgage Nominees (RF) Syfrets Nominees Ltd (Pty) Ltd Syfrets Nominees Ltd Syfrets Participation Bond Managers (Pty) Ltd 100 Syfrets Participation Bond Managers 100 Syfrets Property Brokers (Pty) Ltd (Pty) Ltd 100 Syfrets Securities Ltd 100 Syfrets Property Brokers (Pty) Ltd 100 Syfrets Securities Ltd Syfrets Securities Nominees (Pty) Ltd 100 Syfrets Trust & Executor (Eastern 100 Syfrets Securities Nominees (Pty) Ltd 100 Cape) Ltd 100 Syfrets Trust & Executor (Eastern 100 Syfrets Trust & Executor Cape) Ltd (Grahamstown) Co. Ltd Syfrets Trust & Executor Synthesis Funding Ltd (Grahamstown) Co. Ltd Synthesis Funding Ltd Telle Investments (Pty) Ltd 100 100 Telle Investments (Pty) Ltd The Board of Executors 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 The Board of Executors The Board of Executors Mortgages (Pty) Ltd The Board of Executors Mortgages The C.O.C. Trust Company Ltd (Pty) Ltd The C.O.C. Trust Company Ltd The Colonial Orphan Chamber & Trust Company The Colonial Orphan Chamber & The Correlation Fund (Pty) Ltd Trust Company The Correlation Fund Trust The Correlation Fund (Pty) Ltd The Correlation Fund Trust The General Estate & Orphan Chamber The General Estate & Orphan The Kirkney Securitisation Owner Chamber Trust The Kirkney Securitisation Owner The Masisizane Fund Trust The Motor Finance Corporation (Pty) The Masisizane Fund Ltd The Motor Finance Corporation (Pty) The Mutual & Federal Black Broker Ltd Trust The Mutual & Federal Black Broker The Mutual & Federal Community Trust Trust The Mutual & Federal Community The Mutual & Federal Management Trust Incentive Trust The Mutual & Federal Management The Mutual & Federal Namibia Incentive Trust Discretionary Trust The Mutual & Federal Namibia The Mutual & Federal Namibia Discretionary Trust Management Incentive Trust The Mutual & Federal Namibia The Mutual & Federal Namibia Senior Management Incentive Trust Black Management Trust The Mutual & Federal Namibia Senior The Mutual & Federal Senior Black Black Management Trust Management Incentive Trust The Mutual & Federal Senior Black The Old Mutual (South Africa) Management Incentive Trust Foundation The Old Mutual (South Africa) The Old Mutual Black Distributors Foundation Trust The Old Mutual Black Distributors The Old Mutual Education Trust Trust 100 The Old Mutual Education Trust 100 The South African Association 100 Thembokwesi SPV (Pty) Ltd 100 The South African Association 100 Think Synergy Limited 100 Thembokwesi SPV (Pty) Ltd 100 Think Synergy Limited Toontjiesrivier Landgoed (Edms) Bpk 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 Shareholding Ordinary Shareholding Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Country of incorporation Country of Republic of South Africa incorporation Republic of South Africa Republic of South Africa Registered Office Address Mutual Park Jan Smuts Drive, Pinelands, 7405 Registered Office Address Mutual Park Jan Smuts Drive, Pinelands, 7405 Mutual Park Jan Smuts Drive, Pinelands, 7405 Republic of South Africa Republic of South Africa Mutual Park Jan Smuts Drive, Pinelands, 7405 Mutual Park Jan Smuts Drive, Pinelands, 7405 Republic of South Africa Republic of South Africa Mutual Park Jan Smuts Drive, Pinelands, 7405 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Republic of South Africa Republic of South Africa Republic of South Africa Ordinary Class B1 and B3 shares Republic of South Africa Class B1, B2 and B3 Republic of South Africa Class B1 and B3 shares Republic of South Africa shares Republic of South Africa Class B1, B2 and B3 Republic of South Africa Class B1, B2 and B3 shares shares Class B1, B2 and B3 Class B1, B2 and B3 shares shares Republic of South Africa Class B1, B2 and B3 Class B1 and B2 shares Republic of South Africa shares Class B1, B2 and B3 Republic of South Africa Class B1 and B2 shares Republic of South Africa shares Republic of South Africa Class B1, B2 and B3 Class B1 and B2 shares Republic of South Africa shares Class B1, B2 and B3 Republic of South Africa Class B1 and B2 shares Republic of South Africa shares Republic of South Africa Class B1, B2 and B3 Class B1 and B2 shares Republic of South Africa shares Class B1 and B2 shares Republic of South Africa Republic of South Africa Mutualpark, Jan Smuts Drive, Pinelands, 7405 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 138 Rivonia Road, Sandown, Sandton, 2196 Class A, B1, B2 and C shares Class A, B1, B2 and C Class A, B1, B2, B4, C and shares C3 shares Class A, B1, B2, B4, C and Class A, B1, B2, B3 and C C3 shares shares Class A, B1, B2, B3 and C Class A, A12 and B1 shares shares Class A, A12 and B1 Class C and L shares shares Class C and L shares Class A shares Trust does not issue Class A shares shares Trust does not issue Class C and F shares shares Class C and F shares Trust does not issue shares Trust does not issue one class of share shares Ordinary one class of share Ordinary Trust does not issue shares Trust does not issue Trust does not issue shares shares Trust does not issue Trust does not issue shares shares Trust does not issue Trust does not issue shares shares Trust does not issue Trust does not issue shares shares Trust does not issue Trust does not issue shares shares Trust does not issue Trust does not issue shares shares Trust does not issue Trust does not issue shares shares Trust does not issue Trust does not issue shares shares Trust does not issue Trust does not issue shares shares Trust does not issue Ordinary shares Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Republic of South Africa Republic of South Africa 138 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 Republic of South Africa Republic of South Africa 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 Republic of South Africa Republic of South Africa 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 Republic of South Africa Republic of South Africa 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 Republic of South Africa Republic of South Africa 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa 135 Rivonia Road, Sandown, Sandton, 2196 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutualpark, Jan Smuts Drive, Pinelands, 7405 135 Rivonia Road, Sandown, Sandton, 2196 Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Namibia Namibia Namibia Namibia Namibia Namibia Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa 135 Rivonia Road, Sandown, Sandton, 2196 Maitland House 1, River Park, Gloucester Road, Mowbray, Cape Town 7700 Maitland House 1, River Park, Gloucester Road, Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mowbray, Cape Town 7700 135 Rivonia Road, Sandown, Sandton, 2196 Mutualpark, Jan Smuts Drive, Pinelands, 7405 135 Rivonia Road, Sandown, Sandton, 2196 Mutual & Federal Centre, 75 President Street, Johannesburg Mutual & Federal Centre, 75 President Street, Mutual & Federal Centre, 75 President Street, Johannesburg Johannesburg Mutual & Federal Centre, 75 President Street, Mutual & Federal Centre, 75 President Street, JHB Johannesburg Mutual & Federal Centre, 75 President Street, JHB 11th Floor Mutual Tower 223 Independence Avenue Windhoek 11th Floor Mutual Tower 223 Independence Avenue 11th Floor Mutual Tower 223 Independence Avenue Windhoek Windhoek 11th Floor Mutual Tower 223 Independence Avenue 11th Floor Mutual Tower 223 Independence Avenue Windhoek Windhoek 11th Floor Mutual Tower 223 Independence Avenue Mutual & Federal Centre, 75 Helen Joseph Street, Windhoek Johannesburg Mutual & Federal Centre, 75 Helen Joseph Street, Mutualpark, Jan Smuts Drive, Pinelands, 7405 Johannesburg Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Republic of South Africa Republic of South Africa Mutualpark, Jan Smuts Drive, Pinelands, 7405 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa England & Wales Republic of South Africa England & Wales Republic of South Africa Mutualpark, Jan Smuts Drive, Pinelands, 7405 135 Rivonia Road, Sandown, Sandton, 2196 Mutualpark, Jan Smuts Drive, Pinelands, 7405 135 Rivonia Road, Sandown, Sandton, 2196 Riverside House, The Waterfront, Newcastle upon Mutualpark, Jan Smuts Drive, Pinelands, 7405 Tyne NE15 8NY Riverside House, The Waterfront, Newcastle upon 135 Rivonia Road, Sandown, Sandton, 2196 Tyne NE15 8NY 135 Rivonia Road, Sandown, Sandton, 2196 Toontjiesrivier Landgoed (Edms) Bpk 100 Ordinary Republic of South Africa 324 316 316 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Country of incorporation Republic of South Africa Registered Office Address Mutualpark, Jan Smuts Drive, Pinelands, 7405 Name Top Companies Fund Percentage holding 41 Triangle Real Estate India Fund 99 Shareholding Class A, B1, B2, C and R shares Ordinary UAM UK Holdings Limited UAP Africa Limited 100 100 Ordinary Ordinary UAP Credit Services Limited (Kenya) 100 Ordinary UAP Financial Services Limited 94 UAP Global Services Ltd UAP Holdings Limited 100 61 Ordinary Ordinary Ordinary UAP Insurance Company Limited 100 Ordinary Mauritius Scotland Mauritius Kenya Uganda Mauritius Kenya Kenya UAP Insurance Rwanda Limited 100 Ordinary Rwanda UAP Insurance South Sudan Limited 100 Ordinary South Sudan UAP Insurance Tanzania Limited 100 Ordinary Tanzania Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary ordinary Ordinary Kenya Kenya Uganda Uganda Kenya Mauritius South Sudan Uganda Kenya Republic of South Africa Republic of South Africa Republic of South Africa England & Wales Republic of South Africa Trust : No shares issued Republic of South Africa Ordinary Nigeria UAP Investments Limited UAP Life Assurance Limited 100 100 UAP Life Assurance Uganda Limited 53 UAP Old Mutual Insurance Uganda Ltd UAP Properties Kenya Limited UAP Properties Limited UAP Properties Limited (South Sudan) UAP Properties Limited (Uganda) UAP Trust Corporation Urban Impact Properties Limited Uvest Housing Portfolio 2 (RF) Proprietary Limited Villager Investments No. 1 (Pty) Ltd VIOLET NO.2 LIMITED Visigro Investments (Pty) Ltd Weekend Trust WEST AFRICAN INFRASTRUCTURE INVESTMENT MANAGERS LIMITED Win Twice Properties (Pty) Ltd Winter Breeze Investment Holding Company (Pty) Ltd ZLE Developments (Pty) Ltd 53 100 100 70 100 100 100 100 100 100 100 100 83 97 100 50 1 Held directly by the Company c/o Abax Corporate Services Ltd, Level 6, One Cathedral Square Building, Jules Koenig Street, Port Louis, Mauritius Quartermile Two, 2 Lister Square, Edinburgh, Midlothian, EH3 9GL 2nd Floor, The AXIS, 26 Bank Street, Cybercity, Ebene 72201 Bishops Garden Towers 7th Floor Bishops Road P.O. Box 43013 – 00100 Nakawa Business Park, 6th Floor, Plot 3 – 5, New Portbell Road; P.O. Box 1610, Kampala 2nd Floor, The AXIS, 26 Bank Street, Cybercity, Ebene 72201, Mauritius Bishops Garden Towers 8th Floor Bishops Road; P.O. Box 43013 – 00100 Bishops Garden Towers, 7th Floor, Bishops Road; P.O. Box 43013 – 00100 Grand Pension Plaza, 7th Floor BP 6644 Kigali Rwanda UAP Plaza, Hai Cinema Opposite Al-Sabah Children Hospital P.O. Box 201 Juba Barclays House, 4th Floor, Ohio Street; P.O. Box 71009, Dar es Salaam 3rd Floor I&M Building, 2nd Ngong Avenue, Nairobi, Kenya Bishops Garden Towers Mezzanine Floor Bishops Road P.O. Box 23842 – 00100 Nakawa Business Park 6th Floor Plot 3 – 5, New Portbell Road P.O. Box 1610, Kampala Plot 1, Kimathi Avenue P.O. Box 7185 Kampala Uganda Tel. +256 414 332 700 Bishops Garden Towers 7th Floor Bishops Road P.O. Box 30165 – 00100 C/o Axis Fiduciary Ltd, 2nd Floor, The AXIS, 26 Cybercity, Ebene 72201, Mauritius UAP Plaza, Hai Cinema Opposite Al-Sabah Children Hospital P.O. Box 201 Juba Plot 1, Kimathi Avenue P.O. Box 7185 Kampala Uganda Bishops Garden Towers 7th Floor Bishops Road P.O. Box 43013 – 00100 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Madison Square, 5th Floor, 4 Howick Close, Corner Bill Bezuidenhout Avenue & Carl Cronje Avenue 135 Rivonia Road, Sandown, Sandton, 2196 Millennium Bridge House, 2 Lambeth Hill, London, EC4V 4GG Haumann Rodger, Shiraz House, The Vineyards Office Estate, 99 Jip De Jager Road, Bellville, 7536 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Heritage Place (7th Floor), 21 Lugard Road, Ikoyi, Lagos i F n a n c a s i l Ordinary Ordinary Republic of South Africa Republic of South Africa Illovo Edge - 3rd Floor Building 3, Cnr Harries And Fricker Roads, Illovo, Mutualpark, Jan Smuts Drive, Pinelands, 7405 Ordinary & preference Republic of South Africa Tygervalley Chambers Four, 2nd Floor, 27 Willie van Schoor drive, Bellville, Western cape 7530 325 317 Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued (b) Investments in associated undertakings The table below sets out the Group's investments in associated undertakings and entities where the Company directly or indirectly owns at least 20% of the voting rights. All shares are held indirectly by the Company (unless indicated). (b) Investments in associated undertakings The table below sets out the Group's investments in associated undertakings and entities where the Company directly or indirectly owns at least 20% of the voting rights. All shares are held indirectly by the Company (unless indicated). Name 169 On Main (Pty) Ltd Shareholding Ordinary Percentage holding 50 Percentage holding 49 50 13 49 Name 2 Oceans School Property Company 169 On Main (Pty) Ltd (Pty) Ltd 360 dot net Limited 2 Oceans School Property Company (Pty) Ltd ACED Great Karoo Wind Farm (Pty) 360 dot net Limited Ltd Aquarella Investments 509 (Pty) Ltd 28 40 ACED Great Karoo Wind Farm (Pty) Ltd Aquarella Investments 509 (Pty) Ltd 28 Bea Ned (Pty) Ltd 50 29 Bond Choice (Pty) Ltd 40 13 Bea Ned (Pty) Ltd Campuskey (Pty) Ltd Bond Choice (Pty) Ltd Cape Commodities Traders and Investors 9 (Pty) Ltd Campuskey (Pty) Ltd Capricorn Business and Technology Cape Commodities Traders and Park (Pty) Ltd Investors 9 (Pty) Ltd Circlevest Securitisation (RF) (Pty) Capricorn Business and Technology Ltd Park (Pty) Ltd Commercial Property Investments Circlevest Securitisation (RF) (Pty) (Pty) Ltd Ltd Comsol Networks (Pty) Ltd Commercial Property Investments (Pty) Ltd Consep Developments (Pty) Ltd Comsol Networks (Pty) Ltd 50 20 29 35 20 33 35 22 33 50 22 25 50 31 25 40 31 43 40 40 CRD Management Company (Pty) Consep Developments (Pty) Ltd Ltd Crossroads Distribution (Pty) Ltd CRD Management Company (Pty) Datacraft Americas Trading Ltd Ltd (Bermuda) Crossroads Distribution (Pty) Ltd Datacraft Mexico SA de CV Datacraft Americas Trading Ltd (Bermuda) DM10 Corretora de Seguros e Datacraft Mexico SA de CV Assessoria LTDA. EPP Ecobank Transnational Incorporated 21 20 DM10 Corretora de Seguros e 40 Edinvest Schools Propco (RF) (Pty) Assessoria LTDA. EPP Ltd Ecobank Transnational Incorporated 21 21 Entersekt (Pty) Ltd 40 Edinvest Schools Propco (RF) (Pty) Ltd Entersekt International Ltd Entersekt (Pty) Ltd 43 30 40 20 30 21 21 Eveready (Pty) Ltd Entersekt International Ltd Farm Bothasfontein (Kyalami) (Pty) Ltd Eveready (Pty) Ltd Friedshelf 1168 (Pty) Ltd Farm Bothasfontein (Kyalami) (Pty) Friedshelf 1514 (Pty) Ltd Ltd Gateway Central Park (Pty) Ltd Friedshelf 1168 (Pty) Ltd Gateway Park Avenue (Pty) Ltd Friedshelf 1514 (Pty) Ltd Golddurb Investments (Pty) Ltd Gateway Central Park (Pty) Ltd Gateway Park Avenue (Pty) Ltd Golden Pond Trading 350 (Pty) Ltd Golddurb Investments (Pty) Ltd Hazeldean Retreat (Pty) Ltd Golden Pond Trading 350 (Pty) Ltd Ideal Infinity Services (Pty) Ltd Hazeldean Retreat (Pty) Ltd Iliza Elitsha JV Co (Pty) Ltd Ideal Infinity Services (Pty) Ltd Iliza Elitsha JV Co (Pty) Ltd 20 21 30 20 36 30 40 30 36 45 40 25 30 45 20 25 20 20 20 20 33 20 33 Shareholding Preference Ordinary Ordinary Preference Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Quotas Ordinary Ordinary Quotas Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Registered Office Address 1st Floor Suite 101, Mill Square Offices, 12 Plein Street, Stellenbosch 7599 Registered Office Address 19 Queen Bess Road, Lansdowne, Cape Town 1st Floor Suite 101, Mill Square Offices, 12 Plein Street, Stellenbosch 7599 12-14 Upper Marlborough Road, St Albans, 19 Queen Bess Road, Lansdowne, Cape Town Hertfordshire AL1 3UR 2nd Floor, Fernwood House The Oval, 1 Oakdale 12-14 Upper Marlborough Road, St Albans, Road, Newlands, Cape Town, 7700 Hertfordshire AL1 3UR Suite 415 1st Floor Block 4, Island Office Park, 35-37 2nd Floor, Fernwood House The Oval, 1 Oakdale Island Circle, Riverhorse Valley East, Kwa-Zulu Natal, Road, Newlands, Cape Town, 7700 4017 Suite 415 1st Floor Block 4, Island Office Park, 35-37 4th Floor, 151 Musgrave Road, Durban, 4001 Island Circle, Riverhorse Valley East, Kwa-Zulu Natal, 3rd Floor Bond Choice Building, 2 Silverton Road, 4017 Musgrave, Durban, 4001 4th Floor, 151 Musgrave Road, Durban, 4001 2 Groeneweide Street, Stellenbosch 7600 3rd Floor Bond Choice Building, 2 Silverton Road, Legacy House, 5 Autumn Street, Rivonia 2128 Musgrave, Durban, 4001 2 Groeneweide Street, Stellenbosch 7600 87 Capricorn Boulevard, Capricorn Park, Muizenberg, Legacy House, 5 Autumn Street, Rivonia 2128 Western Cape 7945 Emwil house West, 15 Pony Street, Tijgervallei Office, 87 Capricorn Boulevard, Capricorn Park, Muizenberg, Silver Lakes, 0081 Western Cape 7945 Stratway Office Park, 5th Block 1st Floor Valley Road, Emwil house West, 15 Pony Street, Tijgervallei Office, Broadacres Gauteng 2012 Silver Lakes, 0081 152 Roan Crescent Corporate Park North Midrand Stratway Office Park, 5th Block 1st Floor Valley Road, 1862 Broadacres Gauteng 2012 Unilong House, Cnr Georginia & Paul Kruger St, 152 Roan Crescent Corporate Park North Midrand Horizon, Roodepoort, 1724 1862 6 Goodenough Avenue Epping 2 Goodwood, 7460 Unilong House, Cnr Georginia & Paul Kruger St, Horizon, Roodepoort, 1724 6 Goodenough Avenue Epping 2 Goodwood, 7460 6 Goodenough Avenue Epping 2 Goodwood, 7460 Milner House, 18 Parliament Street, Hamilton, Bermuda 6 Goodenough Avenue Epping 2 Goodwood, 7460 Av Insurgentes, Sur 1106, 11 Piso, Nochebuena 03720 Milner House, 18 Parliament Street, Hamilton, Mexico D.F. Bermuda Avenida José Silva de Azevedo Neto, Nº 200, Bolco Av Insurgentes, Sur 1106, 11 Piso, Nochebuena 03720 04, sala 308, Barra da Tijuuca, Rio de Janeiro Mexico D.F. 2365 Boulevard du Mono, Lome, Republic of Togo Avenida José Silva de Azevedo Neto, Nº 200, Bolco 7 - 8 Bronzite Building, Abrey Eco Park, 5 Abrey Road, 04, sala 308, Barra da Tijuuca, Rio de Janeiro Kloof, KZN, 3610 2365 Boulevard du Mono, Lome, Republic of Togo Entersekt House 6 Electron Street Technopark 7 - 8 Bronzite Building, Abrey Eco Park, 5 Abrey Road, Stellenbosch 7600 Kloof, KZN, 3610 Intercontinental Trust Level 3, Alexaner House 35 Entersekt House 6 Electron Street Technopark Cybercity Ebene Mauritius 72201 Stellenbosch 7600 30 Bird street, Central, Port Elizabeth, 6001 Intercontinental Trust Level 3, Alexaner House 35 Gatehouse, Kyalami Grand Prix Circuit, Allandate and Cybercity Ebene Mauritius 72201 Kyalami Main Road, Midrand, 1683 30 Bird street, Central, Port Elizabeth, 6001 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Gatehouse, Kyalami Grand Prix Circuit, Allandate and 6 Goodenough Avenue Epping 2 Goodwood, 7460 Kyalami Main Road, Midrand, 1683 6 Beverley Drive, Westville, 3629 Mutualpark, Jan Smuts Drive, Pinelands, 7405 6 Beverley Drive, Westville, 3629 6 Goodenough Avenue Epping 2 Goodwood, 7460 94 Regency Drive, Cnr Soverein & Regency Drive, 6 Beverley Drive, Westville, 3629 Route 21 Corporate Park, Irene 0062 6 Beverley Drive, Westville, 3629 1st Floor Northern Entrance, 24 Richefond Circle, 94 Regency Drive, Cnr Soverein & Regency Drive, Ridgeside Office Park, Umhlance Rocks 4319 Route 21 Corporate Park, Irene 0062 1st Floor, Gleneagles Building, Fairway Office Park, 52 1st Floor Northern Entrance, 24 Richefond Circle, Grosvenor Road, Bryanston, 2021 Ridgeside Office Park, Umhlance Rocks 4319 33 Ashford Road, Parkwood, Johannesburg 2193 1st Floor, Gleneagles Building, Fairway Office Park, 52 Abcon House, Fairway Office Park 52 Grosvenor Road Grosvenor Road, Bryanston, 2021 Bryanston, Bryanston, 2021. 33 Ashford Road, Parkwood, Johannesburg 2193 Abcon House, Fairway Office Park 52 Grosvenor Road Bryanston, Bryanston, 2021. Country of incorporation Republic of South Africa Country of incorporation Republic of South Africa Republic of South Africa England & Wales Republic of South Africa Republic of South Africa England & Wales Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Bermuda Republic of South Africa Mexico Bermuda Brazil Mexico Togo Brazil Republic of South Africa Togo Republic of South Africa Republic of South Africa Mauritius Republic of South Africa Republic of South Africa Mauritius Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa 326 318 318 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Percentage holding 24 Shareholding Ordinary Name Imbumba Aganang Private Party (Pty) Limited Isegen South Africa (Pty) Ltd 45 27 33 49 23 20 35 Izwe Loans Securitisation (Pty) Ltd Klein Steenberg (Pty) Ltd Lulama Property Management (Pty) Ltd (in deregistration) Main Street 1457 (Pty) Ltd Manappu Investments (Pty) Ltd Masingita Property Investment Holdings (Pty) Ltd Mercury Administrator and Underwriter Agency (Pty) Ltd Merx Underwriting Managers (Pty) Ltd NamClear (Pty) Ltd 25 Nedbank Mogale ESD (Pty) Ltd SPV 49 35 Nedglen Property Developments (Pty) Ltd Northants Property Enterprises (Pty) Ltd Nxuba Wind Farm (RF) (Pty) Ltd 50 40 49 25 Odyssey Developments (Pty) Ltd Off The Shelf Investments Forty One (Pty) Ltd Old Mutual Trust (Namibia) LTD Old Mutual US Dollar Money Market Fund Olievenhout Plaza (Pty) Ltd Onyx Developments (Pty) Ltd Oukraal Developments (Pty) Ltd 49 33 50 50 25 50 30 Pacific Eagle Properties 13 (Pty) Ltd 25 Payments Association of Lesotho Ltd 20 Pearldale Property Developers (Pty) Ltd Platin Underwriting Managers (Pty) Ltd Positivo (Pty) Ltd 35 40 30 Povimix (Pty) Ltd 30 Pro-Active Health Solutions (Pty) Ltd 38 QCP1 Investments (Pty) Ltd Quintado 126 (Pty) Ltd Raiden Investments (Pty) Ltd 30 25 40 Real People Home Improvement Finance (Pty) Ltd Rejem Linton One (Pty) Ltd 40 Robow Investments No 47 (Pty) Ltd 50 25 RSPCE Devco (Pty) Ltd RZT Zelby 4558 (Pty) Ltd S.B.V. Services (Pty) Ltd Schools and Education Investment Impact Fund of South Africa 30 35 25 20 Sethekgo Private Party (RF) (Pty) Limited Setsing Financial Services (Pty) Ltd 35 49 Seventy Five on Maude (Pty) Ltd Silver Meadow Trading 255 (Pty) Ltd 40 35 Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Trust does not issue shares i F n a n c a s l i Country of incorporation Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Registered Office Address 79 Hyde Lane, First Floor, South Block, Hyde Park, 2196 284 Refinery Road, Sapref Park, isipingo,Kwazulu Natal, 4110 9 Wellington Road, Parktown, 2193 30 Bird Street, Central, Port Elizabeth Mutualpark, Jan Smuts Drive, Pinelands, 7405 Republic of South Africa Republic of South Africa Republic of South Africa 20 Anvil Road Isando Johannesburg 1609 33 Ashford Road, Parkwood, Johannesburg 2193 4 Wabord Road, Parktown, Johannesburg 2193 Republic of South Africa 19&21 Totius Str, Potchefstroom2531 Republic of South Africa 31 E Riley Road, Bedfordview Namibia Republic of South Africa Republic of South Africa Republic of South Africa c/o Deloitte and Touche, PO Box 47, Windhoek 135 Rivonia Road, Sandown, Sandton, 2196 Mazars House, Rialto Road, Grand Moorings Precinct, Century City, 7441 135 Rivonia Road, Sandown, Sandton, 2196 Republic of South Africa Republic of South Africa Republic of South Africa Namibia Mauritius Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Lesotho Republic of South Africa 2nd Floor, Fernwood House, The Oval, 1 Oakdale Road, Newlands, 7700 La Rocca Office Park, Block B 1st Floor, C/O main and Petunia Road, Byranston 2191 The President Office Suites, 4 Alexander Road Bantry Bay, Cape Town, WC 8001 12-20 Dr Frans Indongo Str, Windhoek, Namibia NTS Office, Level 5, Barkly Wharf, Caudan Waterfront, Port Louis, Mauritius / C/o NTS Office, 5th Floor Barkly Wharf, Caudan Waterfront, Port Louis, Mauritius Sokatumi Estate, Leyden Avenue, Clubview Centurion, Gauteng, 0157 Mazars House, Rialto Road, Grand Moorings Precinct, Century City 7441 Abcon House, Fairway Office Park 52 Grosvenor Road Bryanston, Bryanston, 2021. Ridgeside Campus, 2 Ncondo Place, Umhlanga, 4320 Central Bank of Lesotho, P.O.Box 1184, Corner Airport and Moshoeshoe Roads, Maseru 100, Lesotho 46 Main Road, Bergvleit, 7945 Republic of South Africa 152 Bryanston Drive, Sandton, 2191 Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Suite 9C Waterkloof Rand Shopping C, C/R Rigel Avenue and Buffeldrift ST, Erasmusrand, Gauteng, 0181 37 Third street, Delmas,2210 323 Lynnwood Road, Menlo Park 0081 1st Floor, Block A, Upper Grayston Office Park, 150 Linden Road, 2031 Ground Floor Douglas Murray House, 18 Protea Road, Claremont, Western Cape, 7708. 1st Floor Suite 101, Mill Square Offices, 12 Plein Street, Stellenbosch 7599 Unit B, 3rd Floor, 20 The Piazza, Melrose Arch, Atholl Oaklands Road, Melrose North, Johannesburg, 2196 Real People Views, 12 Esplanade Road, Quigney, East London 5201 7 Danie Theron Street, Alberante Ext, Alberton, 1449 1st Floor, North Wing, Nedbank Clock Tower, V&A Waterfront, 8001 26 Charles De Gaulle Street, The Greens Office Park, Highveld, Gauteng, 0157 5th Floor, The Spinnaker, Albert Terrace, Durban Sbv House,Corner Of 11th Avenue & 8th Street, Houghton,2198, Jhb Old Mutual Investment Group (South Africa) (Proprietary) Limited, Mutual Park, Jan Smuts Drive, Pinelands, 7405 Cape Town 10 Fricker Road, Illovo Boulevard, Illovo, 2196 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Legacy House, 5 Autumn Street, Rivonia Inframax House, Sunrise Park, Prestige Drive, Sunrise Circle, Ndabeni, 7405 327 319 Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Group financial statements Group financial statements Notes to the consolidated financial statements continued Notes to the consolidated financial statements continued Percentage holding Name 40 Skynet South Africa (Pty) Ltd Percentage 23 South African Bankers Services holding Name Company Ltd 40 Skynet South Africa (Pty) Ltd South African Roll Company (Pty) Ltd 50 23 South African Bankers Services Stay at South Point Properties (Pty) 15 Company Ltd Ltd South African Roll Company (Pty) Ltd 50 33 Stella SGS Investments (Pty) Ltd 15 Stay at South Point Properties (Pty) Swaziland Royal Insurance Corp 16 Ltd Ten Kaiser Wilhelm Strasse (Pty) Ltd 50 33 Stella SGS Investments (Pty) Ltd The Heron Banks Development Trust 50 16 Swaziland Royal Insurance Corp Ten Kaiser Wilhelm Strasse (Pty) Ltd 50 The Waterbuck Trust 40 The Heron Banks Development Trust 50 20 The Woodlands Property Trust 27 UFFM Management (Pty) Ltd 40 The Waterbuck Trust Walvis Bay Land Syndicate (Pty) Ltd 50 20 The Woodlands Property Trust 98 Whirlprops 33 (Pty) Ltd 27 UFFM Management (Pty) Ltd Winelands Business Park (Pty) Ltd 40 Walvis Bay Land Syndicate (Pty) Ltd 50 98 Whirlprops 33 (Pty) Ltd 33 Women Investment Portfolio 40 Winelands Business Park (Pty) Ltd Holdings Ltd 1 Held directly by the Company Women Investment Portfolio Holdings Ltd 33 Shareholding Ordinary Ordinary Shareholding Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Country of incorporation Republic of South Africa Country of Republic of South Africa incorporation Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Swaziland Namibia Republic of South Africa Republic of South Africa Swaziland Namibia Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Namibia Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Namibia Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Registered Office Address 6 Goodenough Avenue Epping 2 Goodwood, 7460 243 Booysen Road, Selby, Jhb, 2001 Registered Office Address 6 Goodenough Avenue Epping 2 Goodwood, 7460 8 McColm Boulevard, Vanderbijlpark, 1911 243 Booysen Road, Selby, Jhb, 2001 1st Floor, Mvelelo House, 19 Melle Street, Braamfontein, 2017 8 McColm Boulevard, Vanderbijlpark, 1911 60 Craddock Avenue, Dunkeld 2196 1st Floor, Mvelelo House, 19 Melle Street, 2nd Floor, Lilunga House, Gilfillan Street, Mbabane Braamfontein, 2017 10 Sam Nujoma Street, Swakopmund 60 Craddock Avenue, Dunkeld 2196 Abcon House, Fairway Office Park 52 Grosvenor Road 2nd Floor, Lilunga House, Gilfillan Street, Mbabane Bryanston, Bryanston, 2021. 10 Sam Nujoma Street, Swakopmund 17 Kosi Place, Umgeni Business Park, Durban, 4091 Abcon House, Fairway Office Park 52 Grosvenor Road 6th Floor, 4 Sandown Valley Crescent, Sandton, 2196 Bryanston, Bryanston, 2021. Moores Rowland 1 Thibault Square Cape Town 8001 17 Kosi Place, Umgeni Business Park, Durban, 4091 38, 11th Road, Walvis Bay 6th Floor, 4 Sandown Valley Crescent, Sandton, 2196 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Moores Rowland 1 Thibault Square Cape Town 8001 Ground Floor, Douglas MurrayHouse, 18 Protea Road, 38, 11th Road, Walvis Bay Claremont ,7708 Mutualpark, Jan Smuts Drive, Pinelands, 7405 29 Central Street, Houghton, 2198 Ground Floor, Douglas MurrayHouse, 18 Protea Road, Claremont ,7708 29 Central Street, Houghton, 2198 (c) Investments in joint ventures 1 Held directly by the Company The table below includes the Group’s investments in joint ventures. All shares are indirectly held by the Company and the financial year end of all companies is 31 December, unless otherwise stated. All of the joint ventures are strategic in the Group’s underlying (c) Investments in joint ventures operating model. The joint ventures are evaluated according to the Groups’ contractual rights to jointly control the entity. The table below includes the Group’s investments in joint ventures. All shares are indirectly held by the Company and the financial year end of all companies is 31 December, unless otherwise stated. All of the joint ventures are strategic in the Group’s underlying operating model. The joint ventures are evaluated according to the Groups’ contractual rights to jointly control the entity. Name ACED De Aar Solar PV Park 2 (Pty) Ltd 50 Country of incorporation Republic of South Africa Percentage holding Percentage holding Name ACED De Aar Solar PV Park 2 (Pty) Ltd 50 ACED Renewables Hidden Valley (Pty) 50 Ltd ACED Renewables Hidden Valley (Pty) ACED Soetwater Wind Farm (Pty) Ltd Ltd ACED Soetwater Wind Farm (Pty) Ltd African Clean Energy Developments (Pty) Ltd African Infrastructure Investment Fund 2 African Clean Energy Developments GP (Pty) Ltd (Pty) Ltd African Infrastructure Investment Fund 2 AIIM Hydroneo (Pty) Ltd GP (Pty) Ltd Curo Fund Services (Pty) Ltd AIIM Hydroneo (Pty) Ltd Imbumba Aganang Facility Management Curo Fund Services (Pty) Ltd Company (Pty) Limited Infrastructure Empowerment Fund Imbumba Aganang Facility Management Managers (Pty) Ltd Company (Pty) Limited Old Mutual Guodian Life Insurance Infrastructure Empowerment Fund Company Ltd Managers (Pty) Ltd Old Mutual Guodian Life Insurance Company Ltd 50 50 50 50 100 50 100 50 50 50 50 50 50 50 50 50 50 Registered Office Address 2nd Floor, Fernwood House The Oval, 1 Oakdale Road, Newlands, Cape Town, Registered Office Address 7700 2nd Floor, Fernwood House The Oval, 1 2nd Floor, Fernwood House The Oval, 1 Oakdale Road, Newlands, Cape Town, Oakdale Road, Newlands, Cape Town, 7700 7700 2nd Floor, Fernwood House The Oval, 1 2nd Floor, Fernwood House The Oval, 1 Oakdale Road, Newlands, Cape Town, Oakdale Road, Newlands, Cape Town, 7700 7700 2nd Floor, Fernwood House The Oval, 1 Ground Floor, Colinton House, The Oval, Oakdale Road, Newlands, Cape Town, Oakdale Road, Claremont 7700 Colinton House, The Oval, 1 Oakdale Ground Floor, Colinton House, The Oval, Street, Newlands, Cape Town, 7700, Oakdale Road, Claremont South Africa. Colinton House, The Oval, 1 Oakdale c/o Cim Fund Services Ltd, 33 Edith Street, Newlands, Cape Town, 7700, Cavell Street, Port Louis, Mauritius South Africa. Building 2, Mispel Street, Parc du Cap, c/o Cim Fund Services Ltd, 33 Edith 7530 Belville Cavell Street, Port Louis, Mauritius 79 Hyde Lane, First Floor, South Block, Building 2, Mispel Street, Parc du Cap, Hyde Park, 2196 7530 Belville Ground Floor, Colinton House, The Oval, 79 Hyde Lane, First Floor, South Block, 1 Oakdale Road, Newlands, 7700 Hyde Park, 2196 10th Floor, Building 1 of China Center, Ground Floor, Colinton House, The Oval, No. 81 Jianguo Road, Beijing, PRC 1 Oakdale Road, Newlands, 7700 10th Floor, Building 1 of China Center, No. 81 Jianguo Road, Beijing, PRC Country of incorporation Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Mauritius Republic of South Africa Mauritius Mauritius Republic of South Africa Mauritius Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Peoples Republic of China Republic of South Africa Peoples Republic of China 328 320 320 Old Mutual plc Annual Report and Accounts 2017 Name Fund Ltd Old Mutual US Dollar Money Market 50 Mauritius Percentage holding Country of incorporation Registered Office Address OMIGPI Kerr Property Developers (Pty) 50 Republic of South Africa 71 Cotswold Drive,Westville,, 3629 Limited OMPE GP IV (Pty) Ltd 50 50 Orchards Developments (Pty) Ltd Republic of South Africa Republic of South Africa Mutualpark, Jan Smuts Drive, Pinelands, Pixley Ka Seme PV Park (Pty) Ltd 50 Republic of South Africa Savanna City Developments (RF) (Pty) 50 Republic of South Africa Mutualpark, Jan Smuts Drive, Pinelands, Space Securitisation (Pty) Ltd 50 Republic of South Africa Tirasano Facilities Management (Pty) 50 Limited Triangle Real Estate India Fund 50 Managers Private Ltd Two Rivers Lifestyle Centre Limited 50 Mauritius Mauritius Republic of South Africa Tsebo House, 7 Arnold Road, Rosebank, NTS Office, Level 5, Barkly Wharf, Caudan Waterfront, Port Louis, Mauritius / C/o NTS Office, 5th Floor Barkly Wharf, Caudan Waterfront, Port Louis, Mauritius 7405 7700 7405 2196 11th floor, Nedbank Corner, 96 Jorissen Street, Braamfontein, Johannesburg, Gauteng 2017 2nd Floor, Fernwood House The Oval, 1 Oakdale Road, Newlands, Cape Town, Old Mutual Alternative Investments, OMIG Building Entrance 2 West Campus, Mutual Park Jan Smuts Drive Pinelands, Western Cape 7405 c/o Abax Corporate Services Ltd, Level 6, One Cathedral Square Building, Jules Koenig Street, Port Louis, Mauritius C/O Abax Corporate Serices Mauritius (d) Other qualifying undertakings The Company is indirectly a member of the following Limited Partnerships which are consolidated into the Company’s group financial statements Name Dr Holsboer Benefit Fund Glenmore Seaside Resort (Pty) Ltd Greenhouse Funding (RF) Ltd Greenhouse Funding 4 (RF) Ltd Greenhouse Funding 5 (RF) Ltd Greenhouse Funding 6 (RF) Ltd Greenhouse Funding III (RF) Ltd Ndala Investments No 1 (RF) Ltd Ndala Investments No 2 (RF) Ltd Octane ABS1 (Pty) Ltd Octane ABS2 (Pty) Ltd Precinct Funding 1 (RF) Ltd Precinct Funding 2 (RF) Ltd Country of incorporation Registered Office Address Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 Swaziland Automated Electronic Clearing House Republic of South Africa - (SAECH) West Road South No 3 (RF) Ltd Republic of South Africa 135 Rivonia Road, Sandown, Sandton, 2196 F i n a n c i a l s 321 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Name Old Mutual US Dollar Money Market Fund Percentage holding 50 OMIGPI Kerr Property Developers (Pty) Limited OMPE GP IV (Pty) Ltd Orchards Developments (Pty) Ltd 50 50 50 Country of incorporation Mauritius Republic of South Africa Republic of South Africa Republic of South Africa Pixley Ka Seme PV Park (Pty) Ltd 50 Republic of South Africa Savanna City Developments (RF) (Pty) Ltd Space Securitisation (Pty) Ltd 50 50 Tirasano Facilities Management (Pty) Limited Triangle Real Estate India Fund Managers Private Ltd 50 50 Two Rivers Lifestyle Centre Limited 50 Republic of South Africa Republic of South Africa Republic of South Africa Mauritius Mauritius Registered Office Address NTS Office, Level 5, Barkly Wharf, Caudan Waterfront, Port Louis, Mauritius / C/o NTS Office, 5th Floor Barkly Wharf, Caudan Waterfront, Port Louis, Mauritius 71 Cotswold Drive,Westville,, 3629 Mutualpark, Jan Smuts Drive, Pinelands, 7405 11th floor, Nedbank Corner, 96 Jorissen Street, Braamfontein, Johannesburg, Gauteng 2017 2nd Floor, Fernwood House The Oval, 1 Oakdale Road, Newlands, Cape Town, 7700 Mutualpark, Jan Smuts Drive, Pinelands, 7405 Old Mutual Alternative Investments, OMIG Building Entrance 2 West Campus, Mutual Park Jan Smuts Drive Pinelands, Western Cape 7405 Tsebo House, 7 Arnold Road, Rosebank, 2196 c/o Abax Corporate Services Ltd, Level 6, One Cathedral Square Building, Jules Koenig Street, Port Louis, Mauritius C/O Abax Corporate Serices Mauritius (d) Other qualifying undertakings The Company is indirectly a member of the following Limited Partnerships which are consolidated into the Company’s group financial statements Name Dr Holsboer Benefit Fund Glenmore Seaside Resort (Pty) Ltd Greenhouse Funding (RF) Ltd Greenhouse Funding 4 (RF) Ltd Greenhouse Funding 5 (RF) Ltd Greenhouse Funding 6 (RF) Ltd Greenhouse Funding III (RF) Ltd Ndala Investments No 1 (RF) Ltd Ndala Investments No 2 (RF) Ltd Octane ABS1 (Pty) Ltd Octane ABS2 (Pty) Ltd Precinct Funding 1 (RF) Ltd Precinct Funding 2 (RF) Ltd Swaziland Automated Electronic Clearing House - (SAECH) West Road South No 3 (RF) Ltd Country of incorporation Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Republic of South Africa Registered Office Address 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 135 Rivonia Road, Sandown, Sandton, 2196 Republic of South Africa 135 Rivonia Road, Sandown, Sandton, 2196 329 321 i F n a n c a s l i Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Financial statements of the Company Financial statements of the Company Company statement of financial position Company statement of financial position For the year ended 31 December 2017 For the year ended 31 December 2017 Notes Assets Investments in Group subsidiaries Investments and securities Assets Investments in associated undertakings and joint ventures Investments in Group subsidiaries Trade, other receivables and other assets Investments and securities Derivative financial instruments – assets Investments in associated undertakings and joint ventures Cash and cash equivalents Trade, other receivables and other assets Assets held for sale and distribution Derivative financial instruments – assets Total assets Cash and cash equivalents Liabilities Assets held for sale and distribution Borrowed funds Total assets Provisions Liabilities Trade, other payables and other liabilities Borrowed funds Derivative financial instruments – liabilities Provisions Total liabilities Trade, other payables and other liabilities Net assets Derivative financial instruments – liabilities Equity Total liabilities Equity attributable to equity holders of the parent Net assets Total equity Equity Equity attributable to equity holders of the parent The Company’s financial statements on pages 330 to 339 were approved by the Board of Directors on 14 March 2018. Total equity 2 Notes 3 4 2 5 3 6 4 5 13 6 13 7 8 9 7 6 8 9 6 At 31 December 2017 At 31 December 4,150 2017 – – 4,150 366 – 34 – 539 366 2,135 34 7,224 539 2,135 461 7,224 – 254 461 – – 715 254 6,509 – 715 6,509 6,509 6,509 6,509 6,509 £m At 31 December £m 2016 At 31 December 5,457 2016 163 26 5,457 4,119 163 77 26 570 4,119 – 77 10,412 570 – 1,023 10,412 7 3,944 1,023 69 7 5,043 3,944 5,369 69 5,043 5,369 5,369 5,369 5,369 5,369 The Company’s financial statements on pages 330 to 339 were approved by the Board of Directors on 14 March 2018. Jonathan Bruce Hemphill Group Chief Executive Jonathan Bruce Hemphill Group Chief Executive Company registered number: 03591559 Company registered number: 03591559 Ingrid Johnson Group Finance Director Ingrid Johnson Group Finance Director 330 332 332 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Financial statements of the Company Financial statements of the Company Company statement of cash flows Company statement of cash flows For the year ended 31 December 2017 For the year ended 31 December 2017 Profit/(Loss) after tax Recognition of impairment losses Profit arising on disposal of subsidiaries, associates, joint ventures and strategic investments Profit/(Loss) after tax Fair value movement on derivatives and borrowed funds Recognition of impairment losses Foreign exchange movement on assets and liabilities Profit arising on disposal of subsidiaries, associates, joint ventures and strategic investments Non cash movements in profit after tax Fair value movement on derivatives and borrowed funds Other operating assets and liabilities Foreign exchange movement on assets and liabilities Changes in working capital Non cash movements in profit after tax Net cash inflow from operating activities Other operating assets and liabilities Net acquisition/(disposal) of financial investments Changes in working capital Net movement of interests in subsidiaries, associates, joint ventures and strategic investments Net cash inflow from operating activities Disposal of interests in subsidiaries, associates, joint ventures and strategic investments Net acquisition/(disposal) of financial investments Other investing cash flows Net movement of interests in subsidiaries, associates, joint ventures and strategic investments Net cash inflow from investing activities Disposal of interests in subsidiaries, associates, joint ventures and strategic investments External interest received Other investing cash flows External interest paid Net cash inflow from investing activities Intercompany interest paid External interest received Dividends received from Subsidiaries External interest paid Dividends paid to: Intercompany interest paid Ordinary shareholders of the Company Dividends received from Subsidiaries Preferred security interests Dividends paid to: Net proceeds from issue of ordinary shares Ordinary shareholders of the Company Subordinated and other debt repaid Preferred security interests Loan financing received from Group companies Net proceeds from issue of ordinary shares Net cash outflow from financing activities Subordinated and other debt repaid Loan financing received from Group companies Net (decrease)/increase in cash and cash equivalents Net cash outflow from financing activities Cash and cash equivalents at beginning of the period Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at end of the year Cash and cash equivalents at beginning of the period Cash and cash equivalents at end of the year Year ended 31 December 2017 Year ended 1,564 31 December 110 2017 (102) 1,564 27 110 7 (102) 42 27 (1,057) 7 (1,057) 42 549 (1,057) 161 (1,057) (213) 549 137 161 (24) (213) 61 137 39 (24) (63) 61 (90) 39 262 (63) (90) (129) 262 (13) 4 (129) (956) (13) 305 4 (641) (956) 305 (31) (641) £m Year ended 31 December £m 2016 Year ended (169) 31 December 89 2016 (10) (169) 83 89 (12) (10) 150 83 150 (12) 150 150 131 150 (7) 150 – 131 44 (7) 71 – 108 44 38 71 (63) 108 (151) 38 – (63) (151) (160) – (15) 2 (160) (116) (15) 353 2 (112) (116) 353 127 (112) 570 (31) 539 570 539 443 127 570 443 570 331 333 333 i i F n a n c a F s n a n c a s l i i l Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Financial statements of the Company Financial statements of the Company Company statement of changes in equity Company statement of changes in equity For the year ended 31 December 2017 For the year ended 31 December 2017 Shareholders equity of the Company at beginning of the year Profit for the year Shareholders equity of the Company at Items that will not be reclassified beginning of the year subsequently to profit and loss Profit for the year Actuarial loss on defined benefit plan Items that will not be reclassified Total comprehensive income for the year subsequently to profit and loss Dividends for the year Actuarial loss on defined benefit plan Merger reserve realised Total comprehensive income for the year Preferred securities purchased Dividends for the year Other movements in share capital and Merger reserve realised share-based payment reserve Preferred securities purchased Fair value of equity settled share options Other movements in share capital and Shareholders' equity of the Company share-based payment reserve at end of the year Fair value of equity settled share options Shareholders' equity of the Company at end of the year Year ended 31 December 2016 Year ended 31 December 2016 Shareholders equity of the Company at beginning of the year Loss for the year Shareholders equity of the Company at Items that will not be reclassified beginning of the year subsequently to profit and loss Loss for the year Actuarial loss on defined benefit plan Items that will not be reclassified Total comprehensive income for the year subsequently to profit and loss Dividends for the year Actuarial loss on defined benefit plan Tax relief on dividends paid Total comprehensive income for the year Other movements in share capital and Dividends for the year share-based payment reserve Tax relief on dividends paid Fair value of equity settled share options Other movements in share capital and Shareholders' equity of the Company share-based payment reserve at end of the year Fair value of equity settled share options Shareholders' equity of the Company at end of the year Millions Number of shares Millions issued and Number of fully paid shares issued and 4,930 fully paid – 4,930 – – – – – – – – – – 3 – – 3 4,933 – 4,933 Millions Number of shares Millions issued and Number of fully paid shares issued and 4,928 fully paid – 4,928 – – – – – – – – 2 – – 2 4,930 – Share capital Share premium Other reserves Retained earnings Share 563 capital – Share 1,042 premium – Other 1,428 reserves – Retained 2,063 earnings 1,549 563 – – – – – – – – – – 1 – – 1 564 – 1,042 – – – – – – – – – – 17 – – 17 1,059 – 1,428 – – – – – (104) – – – (104) – – (109) – 1,215 (109) 2,063 1,549 (22) 1,527 (128) (22) 104 1,527 (15) (128) 104 (3) (15) 123 (3) 3,671 123 564 1,059 1,215 3,671 Share capital Share premium Other reserves Retained earnings Share 563 capital – Share 1,040 premium – Other 1,400 reserves – Retained 2,458 earnings (183) 563 – – – – – – – – – – – – 563 – 1,040 – – – – – – – – 2 – – 2 1,042 – 1,400 – – – – – – – – – – 28 – 1,428 28 2,458 (183) (10) (193) (159) (10) (3) (193) (159) (40) (3) – (40) 2,063 – Perpetual preferred callable Perpetual securities preferred callable 273 securities 15 273 15 – 15 (15) – – 15 (273) (15) – – (273) – – – – – Perpetual preferred callable Perpetual securities preferred callable 273 securities 14 273 14 – 14 (17) – 3 14 (17) – 3 – – 273 – £m £m Total 5,369 Total 1,564 5,369 1,564 (22) 1,542 (143) (22) – 1,542 (288) (143) – 15 (288) 14 15 6,509 14 6,509 £m £m Total 5,734 Total (169) 5,734 (169) (10) (179) (176) (10) – (179) (176) (38) – 28 (38) 5,369 28 4,930 563 1,042 1,428 2,063 273 5,369 £m At 31 December £m 2016 At 1,252 31 December 152 2016 24 1,252 1,428 152 24 1,428 Other reserves Merger reserve Share-based payment reserve Other reserves Cancellation of treasury shares Merger reserve Attributable to equity holders of Company at end of the year Share-based payment reserve Cancellation of treasury shares Attributable to equity holders of Company at end of the year At 31 December 2017 At 1,148 31 December 43 2017 24 1,148 1,215 43 24 1,215 332 334 334 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Financial statements of the Company Financial statements of the Company Notes to the Company financial statements Notes to the Company financial statements For the year ended 31 December 2017 1 Financial assets and liabilities For the year ended 31 December 2017 Company statement of financial position 1 Financial assets and liabilities The Company is principally involved in the management of its investments in subsidiaries, with its risks considered to be consistent with those in the operations themselves. Full details of the financial risks are provided in the Group financial statements, note F3. The most Company statement of financial position important components of financial risk for the Company itself are interest rate risk, currency risk, liquidity risk and credit risk. These risks The Company is principally involved in the management of its investments in subsidiaries, with its risks considered to be consistent with arise from open positions in interest rate, currency and equity products, all of which are exposed to general and specific market those in the operations themselves. Full details of the financial risks are provided in the Group financial statements, note F3. The most movements. important components of financial risk for the Company itself are interest rate risk, currency risk, liquidity risk and credit risk. These risks arise from open positions in interest rate, currency and equity products, all of which are exposed to general and specific market The Company financial statements have been prepared on the going concern basis which the Directors believe to be appropriate having movements. taken into consideration the points as set out in the Governance section headed Going concern viability statements. The Company financial statements have been prepared on the going concern basis which the Directors believe to be appropriate having (a) Categories of financial instruments taken into consideration the points as set out in the Governance section headed Going concern viability statements. The financial instruments of the Company consist of derivative assets and liabilities, both of which are treated as held-for-trading, other assets and cash and cash equivalents which are treated as loan and receivables, borrowed funds of which £570 million is designated as (a) Categories of financial instruments fair value through the income statement and £453 million at amortised cost (2016: £535million and £567 million respectively) and other The financial instruments of the Company consist of derivative assets and liabilities, both of which are treated as held-for-trading, other liabilities which are also measured at amortised cost. For borrowed funds, as the financial instruments measured at fair value through the assets and cash and cash equivalents which are treated as loan and receivables, borrowed funds of which £570 million is designated as income statement, the hierarchy classification (as detailed in the Group financial statements, note G4) is level 1. fair value through the income statement and £453 million at amortised cost (2016: £535million and £567 million respectively) and other liabilities which are also measured at amortised cost. For borrowed funds, as the financial instruments measured at fair value through the (b) Capital risk management income statement, the hierarchy classification (as detailed in the Group financial statements, note G4) is level 1. Old Mutual plc is the holding company of the Group and is responsible for the raising and allocation of capital in line with the Group’s capital management policies set out in note F1 to the consolidated financial statements and for ensuring the operational funding and (b) Capital risk management regulatory capital needs of the holding company and its subsidiaries are met at all times. Old Mutual plc is the holding company of the Group and is responsible for the raising and allocation of capital in line with the Group’s capital management policies set out in note F1 to the consolidated financial statements and for ensuring the operational funding and (c) Currency risk regulatory capital needs of the holding company and its subsidiaries are met at all times. The Company is exposed to effects of fluctuations in the prevailing foreign currency exchange rates on its statement of financial position and cash flows. The principal foreign currency risk arises from the fact that the Group’s functional currencies is Pounds Sterling, whereas (c) Currency risk the functional currency of its principal operations are South African rand and US dollar. The exposure of the Group to currency risk is The Company is exposed to effects of fluctuations in the prevailing foreign currency exchange rates on its statement of financial position disclosed in the Group consolidated financial statements, note F4. The Company hedges some of this currency translation risk through and cash flows. The principal foreign currency risk arises from the fact that the Group’s functional currencies is Pounds Sterling, whereas currency swaps, currency borrowings and forward foreign exchange rate contracts. Exchange rate exposures are managed within the functional currency of its principal operations are South African rand and US dollar. The exposure of the Group to currency risk is approved policy parameters utilising forward exchange contracts and currency swap agreements. A 10% deterioration in the values of the disclosed in the Group consolidated financial statements, note F4. The Company hedges some of this currency translation risk through major currencies the Company is exposed to in relation to GBP would result in a decrease in the Company’s equity holders’ funds of £11 currency swaps, currency borrowings and forward foreign exchange rate contracts. Exchange rate exposures are managed within million (2016: decrease of £49 million). approved policy parameters utilising forward exchange contracts and currency swap agreements. A 10% deterioration in the values of the major currencies the Company is exposed to in relation to GBP would result in a decrease in the Company’s equity holders’ funds of £11 (d) Credit risk million (2016: decrease of £49 million). The Company is principally exposed to credit risk through its derivative asset positions, investment and securities, holdings of cash and cash equivalents which it holds to back shareholder liabilities and the ability of its subsidiaries to repay amounts due to the Company. The (d) Credit risk exposure of the Group to credit risk is disclosed in the consolidated financial statements, note F3(a). Credit risk is managed by placing The Company is principally exposed to credit risk through its derivative asset positions, investment and securities, holdings of cash and limits on exposures to any single counterparty, or groups of counterparties and to geographical and industry segments. Credit risk is cash equivalents which it holds to back shareholder liabilities and the ability of its subsidiaries to repay amounts due to the Company. The monitored with reference to established credit rating agencies, with limits placed on exposure to below investment grade holdings, or the exposure of the Group to credit risk is disclosed in the consolidated financial statements, note F3(a). Credit risk is managed by placing financial position of companies within the Group. Of the Company’s financial assets bearing credit risk, derivative assets, investment and limits on exposures to any single counterparty, or groups of counterparties and to geographical and industry segments. Credit risk is securities, bonds and cash and cash equivalents are rated as investment grade (being AAA to BBB for Standard & Poor’s or an monitored with reference to established credit rating agencies, with limits placed on exposure to below investment grade holdings, or the equivalent). The other financial assets bearing credit risk are not rated. financial position of companies within the Group. Of the Company’s financial assets bearing credit risk, derivative assets, investment and securities, bonds and cash and cash equivalents are rated as investment grade (being AAA to BBB for Standard & Poor’s or an (e) Interest rate risk equivalent). The other financial assets bearing credit risk are not rated. Interest rate risk is the risk that fluctuating interest rates will unfavourably affect the Company’s earnings and the value of its assets, liabilities and capital. (e) Interest rate risk Interest rate risk is the risk that fluctuating interest rates will unfavourably affect the Company’s earnings and the value of its assets, The Company employs currency and interest rate swap transactions to mitigate against the impact of changes in the fair values of its liabilities and capital. borrowed funds. Details of the arrangements in place are shown in the Group financial statements note G5 Hedge accounting. The Company employs currency and interest rate swap transactions to mitigate against the impact of changes in the fair values of its (f) Liquidity risk borrowed funds. Details of the arrangements in place are shown in the Group financial statements note G5 Hedge accounting. Liquidity risk is the risk that cash may not be available to pay obligations when due at a reasonable cost. Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has built an appropriate liquidity risk management framework for the (f) Liquidity risk management of the Company’s short, medium and long-term funding and liquidity management requirements. The Company has net Liquidity risk is the risk that cash may not be available to pay obligations when due at a reasonable cost. Ultimate responsibility for liquidity current assets of £681 million (2016: net current liabilities £534 million), all of which represent assets, including inter group short dated risk management rests with the Board of Directors, which has built an appropriate liquidity risk management framework for the loans, to other Group companies. The Company manages liquidity risk by maintaining adequate reserves, banking facilities and management of the Company’s short, medium and long-term funding and liquidity management requirements. The Company has net continuously monitoring forecast and actual cash flows of both the Company and its subsidiaries. current assets of £681 million (2016: net current liabilities £534 million), all of which represent assets, including inter group short dated loans, to other Group companies. The Company manages liquidity risk by maintaining adequate reserves, banking facilities and continuously monitoring forecast and actual cash flows of both the Company and its subsidiaries. 333 335 335 i i F n a n c F a n s a n c a s i l i l Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Financial statements of the Company Financial statements of the Company Notes to the Company financial statements continued Notes to the Company financial statements continued For the year ended 31 December 2017 1 Financial assets and liabilities (continued) For the year ended 31 December 2017 The key information reviewed by the Company’s executive directors and Executive Committee, together with the Capital Management Committee, is a detailed management report on the Company’s current and planned capital and liquidity position. Forecasts are updated 1 Financial assets and liabilities (continued) regularly based on when new information is received, and as part of the annual business planning cycle. The Company’s liquidity and The key information reviewed by the Company’s executive directors and Executive Committee, together with the Capital Management capital position and forecast are presented to the Company’s Board of Directors on a regular basis. Committee, is a detailed management report on the Company’s current and planned capital and liquidity position. Forecasts are updated regularly based on when new information is received, and as part of the annual business planning cycle. The Company’s liquidity and Further information on liquidity and the Company’s cash flows is contained in other sections of this Annual Report, for example the capital position and forecast are presented to the Company’s Board of Directors on a regular basis. business review and Group Finance Director’s statement. Further information on liquidity and the Company’s cash flows is contained in other sections of this Annual Report, for example the (g) Future standards, amendments to standards and interpretations not early-adopted in the 2017 annual business review and Group Finance Director’s statement. financial statements. (g) Future standards, amendments to standards and interpretations not early-adopted in the 2017 annual IFRS 9 Financial Instruments financial statements. The impact on the Company’s financial position is discussed in the Group Consolidated Financial Statement, note A7. IFRS 9 Financial Instruments 2 Principal subsidiaries The impact on the Company’s financial position is discussed in the Group Consolidated Financial Statement, note A7. 2 Principal subsidiaries At 31 December 2017 At 5,457 31 December 665 2017 293 5,457 (20) 665 (110) 293 (2,135) (20) 4,150 (110) (2,135) 4,150 £m At 31 December £m 2016 At 5,562 31 December – 2016 28 5,562 (44) – (89) 28 – (44) 5,457 (89) – 5,457 Balance at beginning of the year Acquisitions Additions Balance at beginning of the year Disposals Acquisitions Impairments Additions Transfer to assets held for sale and distribution Disposals Balance at end of the year Impairments Transfer to assets held for sale and distribution On 3 February 2017, the Company injected £4,000,000 in cash to its subsidiary Constantia Insurance Company (Guernsey) Limited. Balance at end of the year On 4 May 2017, the Company injected £200,000,000 in cash to its subsidiary Old Mutual Wealth Management Limited. On 3 February 2017, the Company injected £4,000,000 in cash to its subsidiary Constantia Insurance Company (Guernsey) Limited. On 15 September 2017, the Company acquired the entire issued share capital of Fairbairn Investment (UK) Limited for £5,016,000 from On 4 May 2017, the Company injected £200,000,000 in cash to its subsidiary Old Mutual Wealth Management Limited. OM Group (UK) Limited. On 15 September 2017, the Company acquired the entire issued share capital of Fairbairn Investment (UK) Limited for £5,016,000 from On 15 September 2017, the Company sold its investment in Skandia UK Limited for £1 to OM Group (UK) Limited. OM Group (UK) Limited. On 15 September 2017, the Company acquired the entire issued share capital of Old Mutual Business Services Limited for £58,067,000 On 15 September 2017, the Company sold its investment in Skandia UK Limited for £1 to OM Group (UK) Limited. from OMFS (GGP) Limited. On 15 September 2017, the Company acquired the entire issued share capital of Old Mutual Business Services Limited for £58,067,000 On 22 September 2017, the Company acquired the entire issued share capital of OM Holdings (Guernsey) Limited for £7,437,000 from from OMFS (GGP) Limited. OM Group (UK) Limited. On 22 September 2017, the Company acquired the entire issued share capital of OM Holdings (Guernsey) Limited for £7,437,000 from On 29 September 2017, the Company sold its investment Old Mutual Europe GmbH for £14,880,000 to OM Group (UK) Limited. As a OM Group (UK) Limited. result of the sale, the Company made a profit of £14,608,000. On 29 September 2017, the Company sold its investment Old Mutual Europe GmbH for £14,880,000 to OM Group (UK) Limited. As a On 29 September 2017, the Company sold its investment in Commsale 2000 Limited for £287,000 to Old Mutual Wealth Management result of the sale, the Company made a profit of £14,608,000. Limited. As a result of the sale, the Company made a loss of £157,000. On 29 September 2017, the Company sold its investment in Commsale 2000 Limited for £287,000 to Old Mutual Wealth Management On 9 October 2017, the Company acquired the entire issued share capital of UAM UK Holdings Limited for £1,058,000 from OM Group Limited. As a result of the sale, the Company made a loss of £157,000. (UK) Limited. On 9 October 2017, the Company acquired the entire issued share capital of UAM UK Holdings Limited for £1,058,000 from OM Group On 17 October 2017, OM Holdings (Guernsey) Limited returned capital to the Company by transferring the entire issued share capital of (UK) Limited. Old Mutual International (Guernsey) Ltd and L & S Properties Ltd for £3,627,000 and £3,301,000 respectively. On 17 October 2017, OM Holdings (Guernsey) Limited returned capital to the Company by transferring the entire issued share capital of Old Mutual International (Guernsey) Ltd and L & S Properties Ltd for £3,627,000 and £3,301,000 respectively. 334 336 336 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 2 Principal subsidiaries (continued) On 24 November 2017, the Company acquired the entire issued share capital of Skandia UK Limited by way of a distribution in specie of £594,128,000 from OM Group (UK) Limited. On 1 December 2017, the Company injected £8,822,000 in cash to its subsidiary Constantia Insurance Company (Guernsey) Limited. On 21 December 2017, Old Mutual Wealth Management Limited issued the Company with one ordinary £1 share with a premium of £58,143,000 in consideration for extinguishing receivables due to the Company. On 29 December 2017, the Company sold its investment in Constantia Insurance Company (Guernsey) Limited for £1,466,000 to Randall & Quilter II Holdings Limited. As a result of the sale, the Company made a loss of £11,494,000. During 2017, the Company impaired its investments in Constantia Insurance Company (Guernsey) Limited, Old Mutual Business Services Limited, Commsale 20000 Limited, UAM UK Holdings Limited, OM Holdings (Guernsey) Limited and Old Mutual Asset Solutions Limited by £25 million, £3 million, £0.5 million, £0.6 million, £0.5 million and £2 million respectively. The Company routinely makes share awards to employees of subsidiaries companies, for which no consideration is paid by these entities. The applicable accounting standard requires that this is reflected as a share-based payment expense in the subsidiary company and to be reflected as an increase in the value of the investment in the subsidiary, with a corresponding increase in the share-based payment reserve in the Company. The impact of these transactions in the financial statements was an addition of £15 million (2016: £28 million) and an impairment of £78m (2016: nil). The principal subsidiary undertakings of the Company are as follows: At 31 December 2017 OM Group (UK) Limited Old Mutual Wealth Management Limited Country of incorporation England & Wales England & Wales Class of shares Ordinary Ordinary % interest held 100 100 A complete list of subsidiaries is in note L2 of the Group consolidated financial statements. 3 Investments and securities Other debt securities, preference shares and debentures Total investment and securities In the prior year, other debt securities, preference shares and debentures were all rated AAA-BBB. 4 Investments in associated undertakings and joint ventures The Company held the following interest in associated undertakings: At 31 December 2017 – – £m At 31 December 2016 163 163 Kotak Mahindra Old Mutual Life Insurance Limited Country of operation India % interest held 26 At 31 December 2017 – £m At 31 December 2016 26 On 13 October 2017, the Company sold its 26% stake in Kotak Mahindra Old Mutual Life Insurance Limited for £149,393,000 to its joint venture partner Kotak Mahindra Bank Limited. As a result of the sale, the Company has recognised a profit on disposal of £121,733,000, net of sale costs. 5 Trade, other receivables and other assets Other receivables Corporation tax receivable Accrued interest and rent Other prepayments and accrued income Amounts owed by Group undertakings Amounts falling due within one year Amounts falling due after one year Total other assets 335 337 At 31 December 2017 1 45 2 1 £m At 31 December 2016 28 – 3 2 234 83 366 12 4,074 4,119 i F n a n c a s l i Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Financial statements of the Company Financial statements of the Company Notes to the Company financial statements continued Notes to the Company financial statements continued For the year ended 31 December 2017 6 Derivative financial instruments For the year ended 31 December 2017 The following tables provide a detailed breakdown of the fair values of the Company’s derivative financial instruments outstanding at the 6 Derivative financial instruments year end. These instruments allow the Company to transfer, modify or reduce foreign exchange and interest rate risks. The following tables provide a detailed breakdown of the fair values of the Company’s derivative financial instruments outstanding at the The Company undertakes transactions involving derivative financial instruments with other financial institutions. Management has year end. These instruments allow the Company to transfer, modify or reduce foreign exchange and interest rate risks. established limits commensurate with the credit quality of the institutions with whom it deals, and manages the resulting exposures such The Company undertakes transactions involving derivative financial instruments with other financial institutions. Management has that a default by any individual counterparty is unlikely to have a materially adverse impact on the Company. established limits commensurate with the credit quality of the institutions with whom it deals, and manages the resulting exposures such that a default by any individual counterparty is unlikely to have a materially adverse impact on the Company. £m Exchange rate contracts Swaps Exchange rate contracts Options Swaps Forwards Options Forwards Interest rate contracts Swaps Interest rate contracts Total Swaps The contractual maturities of the derivative liabilities held are as follows: Total The contractual maturities of the derivative liabilities held are as follows: Balance Sheet Balance amount Sheet amount – – 69 69 Less than 3 months Less than 3 months – – 29 29 More than 3 months More than less than 3 months 1 year less than 1 year – – – – At 31 December 2017 Derivative financial liabilities At 31 December 2017 At 31 December 2016 Derivative financial liabilities Derivative financial liabilities At 31 December 2016 Derivative financial liabilities 7 Borrowed funds 7 Borrowed funds Subordinated debt securities Total borrowed funds Subordinated debt securities Total borrowed funds At December 2017 Fair values At December 2017 Fair values Assets Liabilities At December 2016 Fair values At December 2016 Fair values Assets £m Liabilities Assets – – – 1 – 1 1 1 33 34 33 34 Between 1 and 5 Between years 1 and 5 years – – 40 40 Liabilities – – – – – – – – – – – – Assets – – – 13 – 13 13 13 64 77 64 77 No contractual No maturity contractual date maturity date – – – – More than 5 years More than 5 years – – – – Liabilities 33 7 33 29 7 69 29 69 – 69 – 69 £m £m Total Total – – 69 69 At 31 December At 2017 31 December 461 2017 461 461 461 £m At £m 31 December At 2016 31 December 1,023 2016 1,023 1,023 1,023 £m At £m 31 December At 2016 31 December Fair valued through income statement 570 2016 453 Amortised cost 570 Fair valued through income statement 1,023 Total borrowed funds 453 Amortised cost 1,023 The following table is a maturity analysis of liability cash flows based on contractual maturity dates for borrowed funds. Maturity analysis is Total borrowed funds undiscounted and based on year end exchange rates. In addition to the contractual cash flows detailed below, the Company is obligated The following table is a maturity analysis of liability cash flows based on contractual maturity dates for borrowed funds. Maturity analysis is to make interest payments on borrowed funds, details of which are in the Group consolidated financial statements in note G7. undiscounted and based on year end exchange rates. In addition to the contractual cash flows detailed below, the Company is obligated to make interest payments on borrowed funds, details of which are in the Group consolidated financial statements in note G7. £m At £m 31 December At 2016 31 December 500 2016 450 500 950 450 950 Greater than 1 year and less than 5 years Greater than 5 years Greater than 1 year and less than 5 years Borrowed funds Greater than 5 years Additional details of these borrowings and undrawn facilities are included in Group consolidated financial statements in note G7. Borrowed funds At 31 December At 2017 31 December 400 2017 61 400 461 61 461 At 31 December At 2017 31 December 341 2017 61 341 402 61 402 Additional details of these borrowings and undrawn facilities are included in Group consolidated financial statements in note G7. 336 338 338 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 8 Provisions Post-employment benefits Total provisions 9 Trade, other payables and other liabilities Accruals and deferred income Corporation tax Amounts owed to Group undertakings: Amount falling due within one year Amount falling due after one year Total other liabilities At 31 December 2017 – – £m At 31 December 2016 7 7 Note 10 At 31 December 2017 6 11 £m At 31 December 2016 15 21 125 112 254 1,263 2,645 3,944 10 Post-employment benefits During the period, a bulk annuity arrangement for the Company’s legacy defined benefit scheme, the Old Mutual Staff Pension Fund, was agreed with Legal & General Assurance Society Limited. The agreement resulted in the buy-in of the benefits of the scheme with effect from 13 June 2017. This was converted to a full buy-out into individual annuity policies in October 2017 and wind-up of the scheme was completed on 30 November 2017. In order to effect the transaction, the Company has made a one off contribution of £22.6 million into the scheme, which together with writing off the existing IAS 19 deficit for the scheme, resulted in a £17.3 million reduction in IFRS NAV recognised in the statement of changes in equity. The Company no longer has any liability in respect of this scheme, including administration and funding. The Company had previously been contributing annually £3.6 million of cash funding to the scheme. During the year two employees (2017: two) were directly employed by the Company. The costs for these Directors are disclosed within the Remuneration Report on pages 97 to 128. £m Pension plans Year to 31 December 2017 Year to 31 December 2016 102 (6) 2 (2) (96) – – 95 2 (2) 25 (96) (24) – – – 79 – 3 (3) – 23 102 79 – (3) 4 – 15 95 (7) – Liability for defined benefit obligation Change in projected benefit obligation Projected benefit obligation at beginning of the year Past service cost Interest cost on benefit obligation Benefits paid Settlement payments Actuarial (gains)/losses Projected benefit obligation at end of the year Change in plan assets Plan assets at fair value at beginning of the year Actual return on plan assets Benefits paid Company contributions Settlement payments Actuarial (gains)/losses Plan assets at fair value at end of the year Net liability recognised in balance sheet Expense recognised in the income statement 337 339 i F n a n c a s i l Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Financial statements of the Company Financial statements of the Company Notes to the Company financial statements continued Notes to the Company financial statements continued For the year ended 31 December 2017 10 Post-employment benefits (continued) For the year ended 31 December 2017 Actuarial assumptions used in calculating the projected benefit obligation are based on relevant mortality estimates, with a specific allowance made for future improvements in mortality which is broadly in line with that adopted for the 92 series of mortality tables prepared 10 Post-employment benefits (continued) by the Continuous Mortality Investigation Bureau of the Institute of Actuaries. The expected returns on plan assets have been determined Actuarial assumptions used in calculating the projected benefit obligation are based on relevant mortality estimates, with a specific on the basis of long-term expectations, the carrying value of the assets and the market conditions at the balance sheet date specific to the allowance made for future improvements in mortality which is broadly in line with that adopted for the 92 series of mortality tables prepared relevant locations. The detailed actuarial assumptions can viewed on the Group’s website at www.oldmutualplc.com. by the Continuous Mortality Investigation Bureau of the Institute of Actuaries. The expected returns on plan assets have been determined on the basis of long-term expectations, the carrying value of the assets and the market conditions at the balance sheet date specific to the % relevant locations. The detailed actuarial assumptions can viewed on the Group’s website at www.oldmutualplc.com. Pension plans Pension plans At 31 December 2017 At – 31 December – 2017 – – – – – – At % 31 December Plan asset allocation 2016 At 26 Equity securities 31 December 65 Debt securities Plan asset allocation 2016 8 Cash 26 Equity securities 1 Other investments 65 Debt securities 8 Cash 1 Other investments 11 Contingent liabilities In February 2008, the Company issued a guarantee to a third party over OMNIA obligations, a non-group company under the reinsurance contracts relating to the offshore investment products sold by a third party. The maximum payment under this guarantee is $250 million. 11 Contingent liabilities This guarantee is accounted for as an insurance contract and payments will only arise should OMNIA be unable to meet its obligations In February 2008, the Company issued a guarantee to a third party over OMNIA obligations, a non-group company under the reinsurance under the relevant reinsurance contracts as they fall due. contracts relating to the offshore investment products sold by a third party. The maximum payment under this guarantee is $250 million. This guarantee is accounted for as an insurance contract and payments will only arise should OMNIA be unable to meet its obligations OMNIA was formerly known as Old Mutual Bermuda and currently complies with all capital requirements of the Bermuda Monetary under the relevant reinsurance contracts as they fall due. Authority. OMNIA was formerly known as Old Mutual Bermuda and currently complies with all capital requirements of the Bermuda Monetary The Company routinely monitors and reassesses contingent liabilities arising from matters such as litigation, and warranties and Authority. indemnities relating to past acquisitions and disposals. The adoption of the Group’s Managed Separation strategy on 11 March 2016 does not affect the nature of such items, however it is possible that the Company may seek to resolve certain matters as part of the The Company routinely monitors and reassesses contingent liabilities arising from matters such as litigation, and warranties and implementation of the Group’s Managed Separation strategy. indemnities relating to past acquisitions and disposals. The adoption of the Group’s Managed Separation strategy on 11 March 2016 does not affect the nature of such items, however it is possible that the Company may seek to resolve certain matters as part of the This guarantee has terminated in February 2018, with no further amounts currently being requested under this guarantee. implementation of the Group’s Managed Separation strategy. 12 Related parties This guarantee has terminated in February 2018, with no further amounts currently being requested under this guarantee. Old Mutual plc enters into transactions with its subsidiaries in the normal course of business. These are principally related to funding of the Group’s businesses and head office functions. Details of loans, including balances due from/to the Company, are set out below. 12 Related parties Disclosures in respect of the key management personnel of the Company are included in the Group’s related parties disclosures in Old Mutual plc enters into transactions with its subsidiaries in the normal course of business. These are principally related to funding note J3. of the Group’s businesses and head office functions. Details of loans, including balances due from/to the Company, are set out below. Disclosures in respect of the key management personnel of the Company are included in the Group’s related parties disclosures in There are no transactions entered into by the Company with associated undertakings. note J3. There are no transactions entered into by the Company with associated undertakings. Balances due from subsidiaries Balances due to subsidiaries Balances due from other related parties – Nedgroup Trust Limited Balances due from subsidiaries Balances due to subsidiaries Balances due from other related parties – Nedgroup Trust Limited Income statement information At 31 December Income statement information At 31 December Subsidiaries Subsidiaries Year ended 31 December 2017 Interest Year ended 31 December 2017 received 44 Interest received 44 Ordinary dividends received Ordinary 1,739 dividends received 1,739 Other amounts paid Other (117) amounts paid (117) 338 340 340 At 31 December 2017 At 301 31 December (236) 2017 16 301 (236) 16 £m At 31 December £m 2016 At 4,070 31 December (3,908) 2016 16 4,070 (3,908) 16 £m Year ended 31 December 2016 Interest Year ended 31 December 2016 received 74 Interest received 74 Ordinary dividends received Ordinary 95 dividends received 95 Other £m Amounts paid Other (108) Amounts paid (108) Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 13 Assets held for sale and distribution Old Mutual plc announced at its preliminary results announcement in 2016, and in various subsequent updates, that the long-term interests of its shareholders and other stakeholders would be best served by a managed separation of the Group into its four constituent businesses:  Emerging Markets, the South African incorporated emerging markets financial services business with a focus on Africa;  Nedbank Limited (Nedbank), the South African incorporated retail and corporate bank with a significant presence in Africa;  Old Mutual Wealth, the UK incorporated wealth and asset management business; and  OM Asset Management plc (OMAM), the US incorporated asset management business. The OMAM shareholding has now been reduced to 1,000 shares. The process of managed separation of the businesses is planned to be achieved through the execution of the following remaining steps:  the distribution of the Old Mutual Wealth shares to existing Old Mutual shareholders and the listing of Old Mutual Wealth, which it is intended will incorporate a secondary offering. Old Mutual Wealth will have a primary listing on the LSE and a secondary listing on the JSE.  the creation of a new South African holding company, Old Mutual Limited (OML), which will acquire Old Mutual plc (consisting primarily of Emerging Markets and Nedbank pursuant to a scheme of arrangement under UK law).  the distribution of the OML shares to existing Old Mutual plc shareholders and the listing of OML. OML will be primary listed on the JSE with a standard listing on the LSE and secondary listings on the ZSE, NSX and MSE.  after the listing of OML and a period thereafter to allow for the share register to settle, OML anticipates unbundling (in terms of SA law) to its shareholders a significant portion of its shareholding in Nedbank, whilst retaining a strategic minority interest. Nedbank is primary listed on the JSE and secondary listed on the NSX. In anticipation of the execution of the Group’s managed separation strategy, through the distribution of Old Mutual Wealth shares, the company’s investment in Old Mutual Wealth has been classified as held for sale and distribution in the statement of financial position at 31 December 2017. This judgement was done based on the facts and circumstances which existed at 31 December 2017 when the Directors made a formal assessment of whether the businesses should be classified as held for distribution. Although there may be a few minor internal reorganisations that may occur before distributions, as at 31 December 2017, the businesses in their current state could have been distributed. The Directors considered that it was highly probable that the Old Mutual Wealth business would be distributed within a period of twelve months based on interactions with South African and UK regulators, positive interactions with the relevant tax authorities and interactions with the South African government. The Directors have also taken into account the likelihood of the Court approval of the scheme and have come to the conclusion that the business should be classified as held for distribution. Nedbank is not a directly held subsidiary of Old Mutual plc and therefore cannot be considered as held for sale or held for distribution in the Company Financial Statements. 14 Events after the reporting date On 31 January 2018, the Company sold its entire investment in Skandia UK Limited to Old Mutual Wealth Management Limited for a consideration of £591,361,000. As a result of the sale, the Company made a loss of £2,767,000. 339 341 i F n a n c a s l i Old Mutual plc Annual Report and Accounts 2017Financials Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Old Mutual plc Annual Report and Accounts 2017 Shareholder information Shareholder information Shareholder information Shareholder information Listings and shares in issue (unaudited) Listings and shares in issue (unaudited) The Company’s shares are listed on the London, Malawi, Namibian and Zimbabwe Stock Exchanges and on the JSE Limited (JSE). The Company’s shares are listed on the London, Malawi, Namibian and Zimbabwe Stock Exchanges and on the JSE Limited (JSE). Listings and shares in issue (unaudited) Listings and shares in issue (unaudited) The primary listing, which is known as a premium listing, is on the London Stock Exchange and the other listings are all secondary listings. The primary listing, which is known as a premium listing, is on the London Stock Exchange and the other listings are all secondary listings. The Company’s shares are listed on the London, Malawi, Namibian and Zimbabwe Stock Exchanges and on the JSE Limited (JSE). The Company’s shares are listed on the London, Malawi, Namibian and Zimbabwe Stock Exchanges and on the JSE Limited (JSE). The Company’s shares are also traded on the external list of the Nasdaq Nordic Exchange. The Company’s shares are also traded on the external list of the Nasdaq Nordic Exchange. The primary listing, which is known as a premium listing, is on the London Stock Exchange and the other listings are all secondary listings. The primary listing, which is known as a premium listing, is on the London Stock Exchange and the other listings are all secondary listings. The Company’s shares are also traded on the external list of the Nasdaq Nordic Exchange. The ISIN number of the Company’s ordinary shares of 113⁄7p each is GB00B77J0862 and the SEDOL is B77J086. The Company’s shares are also traded on the external list of the Nasdaq Nordic Exchange. The ISIN number of the Company’s ordinary shares of 113⁄7p each is GB00B77J0862 and the SEDOL is B77J086. The ISIN number of the Company’s ordinary shares of 113⁄7p each is GB00B77J0862 and the SEDOL is B77J086. The ISIN number of the Company’s ordinary shares of 113⁄7p each is GB00B77J0862 and the SEDOL is B77J086. The 113⁄7p nominal value of the Company’s shares reflects the seven-for-eight share consolidation that took place in April 2012. If your The 113⁄7p nominal value of the Company’s shares reflects the seven-for-eight share consolidation that took place in April 2012. If your shareholding is certificated and you have not yet surrendered your old certificate for shares of 10p each for replacement by a certificate shareholding is certificated and you have not yet surrendered your old certificate for shares of 10p each for replacement by a certificate The 113⁄7p nominal value of the Company’s shares reflects the seven-for-eight share consolidation that took place in April 2012. If your The 113⁄7p nominal value of the Company’s shares reflects the seven-for-eight share consolidation that took place in April 2012. If your representing your consolidated shareholding, please contact our share registrars, whose details are set out later in this section. representing your consolidated shareholding, please contact our share registrars, whose details are set out later in this section. shareholding is certificated and you have not yet surrendered your old certificate for shares of 10p each for replacement by a certificate shareholding is certificated and you have not yet surrendered your old certificate for shares of 10p each for replacement by a certificate representing your consolidated shareholding, please contact our share registrars, whose details are set out later in this section. representing your consolidated shareholding, please contact our share registrars, whose details are set out later in this section. The high and low closing prices of the Company’s shares during 2017 and 2016 on the two main markets on which they are listed were The high and low closing prices of the Company’s shares during 2017 and 2016 on the two main markets on which they are listed were as follows: as follows: The high and low closing prices of the Company’s shares during 2017 and 2016 on the two main markets on which they are listed were The high and low closing prices of the Company’s shares during 2017 and 2016 on the two main markets on which they are listed were as follows: as follows: 2016 Low London Stock Exchange 2016 148.1p London Stock Exchange Low JSE R31.20 JSE London Stock Exchange 148.1p London Stock Exchange At 31 December 2017, the Company had approximately 478,634 underlying shareholders. Many of our retail shareholders hold their At 31 December 2017, the Company had approximately 478,634 underlying shareholders. Many of our retail shareholders hold their JSE R31.20 JSE shares through Company-sponsored nominee arrangements, as described in the footnote to the second table below. shares through Company-sponsored nominee arrangements, as described in the footnote to the second table below. At 31 December 2017, the Company had approximately 478,634 underlying shareholders. Many of our retail shareholders hold their At 31 December 2017, the Company had approximately 478,634 underlying shareholders. Many of our retail shareholders hold their shares through Company-sponsored nominee arrangements, as described in the footnote to the second table below. shares through Company-sponsored nominee arrangements, as described in the footnote to the second table below. In more detail, the geographical analysis and shareholder profile of our share register at 31 December 2017 were as follows: In more detail, the geographical analysis and shareholder profile of our share register at 31 December 2017 were as follows: 2017 Low 2017 188.0p Low R31.69 188.0p R31.69 2017 Low 2017 188.0p Low R31.69 188.0p R31.69 High 231.7p High R38.34 231.7p R38.34 High 225.5p High R44.60 225.5p R44.60 High 231.7p High R38.34 231.7p R38.34 High 225.5p High R44.60 225.5p R44.60 2016 Low 2016 148.1p Low R31.20 148.1p R31.20 In more detail, the geographical analysis and shareholder profile of our share register at 31 December 2017 were as follows: In more detail, the geographical analysis and shareholder profile of our share register at 31 December 2017 were as follows: Register Register UK UK Register Register South Africa South Africa UK UK Zimbabwe Zimbabwe South Africa South Africa Namibia Namibia Zimbabwe Zimbabwe Malawi Malawi Namibia Namibia Total Total Malawi Malawi Source: Equiniti/Link Market Services Source: Equiniti/Link Market Services Total Total Total shares Total shares 1,875,209,959 1,875,209,959 Total shares Total shares 2,985,250,445 2,985,250,445 1,875,209,959 1,875,209,959 60,162,319 60,162,319 2,985,250,445 2,985,250,445 7,092,686 7,092,686 60,162,319 60,162,319 4,999,860 4,999,860 7,092,686 7,092,686 4,932,715,269 4,932,715,269 4,999,860 4,999,860 4,932,715,269 4,932,715,269 % of whole 38.02% % of whole 60.52% 38.02% 1.22% 60.52% 0.14% 1.22% 0.10% 0.14% 100% 0.10% 100% % of whole 38.02% % of whole 60.52% 38.02% 1.22% 60.52% 0.14% 1.22% 0.10% 0.14% 100% 0.10% 100% Number 9,194 Number 25,973 9,194 26,246 25,973 484 26,246 4,422 484 66,319 4,422 66,319 Number 9,194 Number 25,973 9,194 26,246 25,973 484 26,246 4,422 484 66,319 4,422 66,319 Source: Equiniti/Link Market Services Source: Equiniti/Link Market Services Register Register 1-1,000 1-1,000 Register Register 1,001-10,000 1,001-10,000 1-1,000 1-1,000 10,001-100,000 10,001-100,000 1,001-10,000 1,001-10,000 100,001-250,000 100,001-250,000 10,001-100,000 10,001-100,000 250,001+ 250,001+ 100,001-250,000 100,001-250,000 Total Total 250,001+ 250,001+ Source: Equiniti/Link Market Services Source: Equiniti/Link Market Services Total Total Total shares Total shares 17,963,781 17,963,781 Total shares Total shares 18,000,450 18,000,450 17,963,781 17,963,781 24,032,589 24,032,589 18,000,450 18,000,450 40,485,797 40,485,797 24,032,589 24,032,589 4,832,232,652 4,832,232,652 40,485,797 40,485,797 4,932,715,269 4,932,715,269 4,832,232,652 4,832,232,652 4,932,715,269 4,932,715,269 % of whole % of whole 0.36 0.36 % of whole % of whole 0.36 0.36 0.36 0.36 0.49 0.49 0.36 0.36 0.82 0.82 0.49 0.49 97.96 97.96 0.82 0.82 100 100 97.96 97.96 100 100 Number 58,068 Number 6,931 58,068 796 6,931 180 796 344 180 66,319 344 66,319 Number 58,068 Number 6,931 58,068 796 6,931 180 796 344 180 66,319 344 66,319 Source: Equiniti/Link Market Services Note The registered shareholdings on the South African branch register included PLC Nominees (Pty) Limited, which held a total of Note 2,963,768,350 shares, including 402,396 beneficial owners. The registered shareholdings on the Zimbabwean branch register included The registered shareholdings on the South African branch register included PLC Nominees (Pty) Limited, which held a total of Old Mutual Zimbabwe Nominees (Pvt) Limited, which held a total of 669,463 shares as nominee for 3,432 underlying beneficial owners. 2,963,768,350 shares, including 402,396 beneficial owners. The registered shareholdings on the Zimbabwean branch register included The registered shareholdings on the Namibian section of the principal register included Old Mutual (Namibia) Nominees (Pty) Limited, Old Mutual Zimbabwe Nominees (Pvt) Limited, which held a total of 669,463 shares as nominee for 3,432 underlying beneficial owners. which held a total of 6,626,320 shares as nominee for 6,355 underlying beneficial owners. The registered shareholdings on the Malawian The registered shareholdings on the Namibian section of the principal register included Old Mutual (Namibia) Nominees (Pty) Limited, branch register included Old Mutual (Blantyre) Nominees Limited, which held a total 35,327 shares as nominee 132 underlying beneficial which held a total of 6,626,320 shares as nominee for 6,355 underlying beneficial owners. The registered shareholdings on the Malawian owners. branch register included Old Mutual (Blantyre) Nominees Limited, which held a total 35,327 shares as nominee 132 underlying beneficial owners. Source: Equiniti/Link Market Services Note The registered shareholdings on the South African branch register included PLC Nominees (Pty) Limited, which held a total of Note 2,963,768,350 shares, including 402,396 beneficial owners. The registered shareholdings on the Zimbabwean branch register included The registered shareholdings on the South African branch register included PLC Nominees (Pty) Limited, which held a total of Old Mutual Zimbabwe Nominees (Pvt) Limited, which held a total of 669,463 shares as nominee for 3,432 underlying beneficial owners. 2,963,768,350 shares, including 402,396 beneficial owners. The registered shareholdings on the Zimbabwean branch register included The registered shareholdings on the Namibian section of the principal register included Old Mutual (Namibia) Nominees (Pty) Limited, Old Mutual Zimbabwe Nominees (Pvt) Limited, which held a total of 669,463 shares as nominee for 3,432 underlying beneficial owners. which held a total of 6,626,320 shares as nominee for 6,355 underlying beneficial owners. The registered shareholdings on the Malawian The registered shareholdings on the Namibian section of the principal register included Old Mutual (Namibia) Nominees (Pty) Limited, branch register included Old Mutual (Blantyre) Nominees Limited, which held a total 35,327 shares as nominee 132 underlying beneficial which held a total of 6,626,320 shares as nominee for 6,355 underlying beneficial owners. The registered shareholdings on the Malawian owners. branch register included Old Mutual (Blantyre) Nominees Limited, which held a total 35,327 shares as nominee 132 underlying beneficial owners. 342 340 342 342 342 343 Old Mutual plc Annual Report and Accounts 2017 Dealings in the Company’s shares on the JSE All transactions in the Company’s shares on the JSE are required to be settled electronically through Strate, and share certificates are no longer good for delivery in respect of such transactions. Shareholders who have any enquiries about the effect of Strate on their holdings in the Company should contact Link Market Services in Johannesburg on +27 (0)86 140 0110 or +27 (0)11 029 0253 Dealings in the Company’s shares on the Zimbabwe Stock Exchange With effect from March 2015, all transactions in the Company’s shares on the Zimbabwe Stock Exchange have been required to be settled in dematerialised form, and share certificates are no longer good for delivery in respect of such transactions. The Company sent a circular to its registered shareholders on the Zimbabwe branch register during the first quarter of 2015 to explain the consequences of this and inviting them to dematerialise their certificated shareholdings through an Issuer-Sponsored Nominee Programme. Shareholders on the Zimbabwe branch register who have any enquiries about dematerialising their holdings in the Company should refer to this circular (which is also available on the Company’s website) or, in case of doubt, contact Corpserve Registrars on +263 (0)4 751559/61. Electronic communications and electronic proxy appointment The Company wrote to shareholders on its South African branch register and on the principal and Namibian sections of its UK register in November 2012 to inform them that it was moving to e- comms as the default form of communication, in line with provisions in the UK Companies Act 2006 and the Company’s Articles of Association. Shareholders who wished to continue to receive physical copies of shareholder communications, rather than accessing these from the Company’s website, were required to notify the Company’s registrars of their election to do so by 4 January 2013. A similar process was followed, with different applicable dates, for new shareholders who bought shares between November 2012 and 15 August 2014. Further exercises to extend these arrangements to shareholders on the Malawian and Zimbabwean branch registers took place during 2014 and 2015 respectively. S t r a t e g i c r e p o r t Registrars The Company’s share register is administered by the Global Share Alliance (comprising Equiniti Limited in the UK and Link Market Services South Africa (Pty) Ltd in South Africa) in conjunction with local representatives in the other territories where the Company’s shares are listed. The following are the relevant contact details: UK Equiniti Limited Aspect House, Spencer Road, Lancing West Sussex BN99 6DA Tel no: 0371 384 2878 (if calling from the UK) Tel no: +44 121 415 0833 (from overseas) Website for shareholder information and queries: www.shareview.co.uk South Africa Link Market Services South Africa (Pty) Ltd 13th Floor Rennie House, 19 Ameshoff Street Braamfontein, Johannesburg 2001 PO Box 10462, Johannesburg, 2000 Tel no: +27 (0)86 140 0110/ +27(0)11 029 0253/ +27 (0)086 154 6566/ +27 (0)11 715 3000 Email: oldmutualenquiries@linkmarketservices.co.za www.investorcentre.linkmarketservices.co.za Malawi National Bank of Malawi Legal Department NBM Towers, 7 Henderson Street Blantyre (PO Box 1438, Blantyre, Malawi) Email: nbminvestment@natbankmw.com Tel no: +265 182 0622/0054 Fax no: +265 182 1591 Namibia Transfer Secretaries (Pty) Limited 4 Robert Mugabe Avenue, Windhoek (PO Box 2401, Windhoek) Tel no: +264 (0)61 227647 Fax: +264 (0)61 248531 Email: ts@nsx.com.na Zimbabwe Corpserve Registrars (Pvt) Ltd 2nd Floor, ZB Centre Cnr 1st Street and K. Nkrumah Avenue Harare (PO Box 2208, Harare, Zimbabwe) Tel no: +263 (0)4 751559/61 Fax: +263 (0)4 752629 Email: corpserve@escrowgroup.org www.corpserveregistars.com Old Mutual plc Annual Report and Accounts 2017 S i t r a t e g c r e p o r t Old Mutual plc Annual Report and Accounts 2017 Dealings in the Company’s shares on the JSE All transactions in the Company’s shares on the JSE are required to be settled electronically through Strate, and share certificates are no longer good for delivery in respect of such transactions. Shareholders who have any enquiries about the effect of Strate on their holdings in the Company should contact Link Market Services in Johannesburg on +27 (0)86 140 0110 or +27 (0)11 029 0253 Dealings in the Company’s shares on the Zimbabwe Stock Exchange With effect from March 2015, all transactions in the Company’s shares on the Zimbabwe Stock Exchange have been required to be settled in dematerialised form, and share certificates are no longer good for delivery in respect of such transactions. The Company sent a circular to its registered shareholders on the Zimbabwe branch register during the first quarter of 2015 to explain the consequences of this and inviting them to dematerialise their certificated shareholdings through an Issuer-Sponsored Nominee Programme. Shareholders on the Zimbabwe branch register who have any enquiries about dematerialising their holdings in the Company should refer to this circular (which is also available on the Company’s website) or, in case of doubt, contact Corpserve Registrars on +263 (0)4 751559/61. Electronic communications and electronic proxy appointment The Company wrote to shareholders on its South African branch register and on the principal and Namibian sections of its UK register in November 2012 to inform them that it was moving to e- comms as the default form of communication, in line with provisions in the UK Companies Act 2006 and the Company’s Articles of Association. Shareholders who wished to continue to receive physical copies of shareholder communications, rather than accessing these from the Company’s website, were required to notify the Company’s registrars of their election to do so by 4 January 2013. A similar process was followed, with different applicable dates, for new shareholders who bought shares between November 2012 and 15 August 2014. Further exercises to extend these arrangements to shareholders on the Malawian and Zimbabwean branch registers took place during 2014 and 2015 respectively. Registrars The Company’s share register is administered by the Global Share Alliance (comprising Equiniti Limited in the UK and Link Market Services South Africa (Pty) Ltd in South Africa) in conjunction with local representatives in the other territories where the Company’s shares are listed. The following are the relevant contact details: UK Equiniti Limited Aspect House, Spencer Road, Lancing West Sussex BN99 6DA Tel no: 0371 384 2878 (if calling from the UK) Tel no: +44 121 415 0833 (from overseas) Website for shareholder information and queries: www.shareview.co.uk South Africa Link Market Services South Africa (Pty) Ltd 13th Floor Rennie House, 19 Ameshoff Street Braamfontein, Johannesburg 2001 PO Box 10462, Johannesburg, 2000 Tel no: +27 (0)86 140 0110/ +27(0)11 029 0253/ +27 (0)086 154 6566/ +27 (0)11 715 3000 Email: oldmutualenquiries@linkmarketservices.co.za www.investorcentre.linkmarketservices.co.za Malawi National Bank of Malawi Legal Department NBM Towers, 7 Henderson Street Blantyre (PO Box 1438, Blantyre, Malawi) Email: nbminvestment@natbankmw.com Tel no: +265 182 0622/0054 Fax no: +265 182 1591 Namibia Transfer Secretaries (Pty) Limited 4 Robert Mugabe Avenue, Windhoek (PO Box 2401, Windhoek) Tel no: +264 (0)61 227647 Fax: +264 (0)61 248531 Email: ts@nsx.com.na Zimbabwe Corpserve Registrars (Pvt) Ltd 2nd Floor, ZB Centre Cnr 1st Street and K. Nkrumah Avenue Harare (PO Box 2208, Harare, Zimbabwe) Tel no: +263 (0)4 751559/61 Fax: +263 (0)4 752629 Email: corpserve@escrowgroup.org www.corpserveregistars.com 341 343 Old Mutual plc Annual Report and Accounts 2017Financials Shareholder information continued Shareholder information continued If you are currently still receiving documents by post, but would like to receive notification of future communications from the Company by email: If you are currently still receiving documents by post, but would like to receive notification of future communications from the  If your shares are on the principal UK register, please log on to Company by email:  If your shares are on the South African branch register,  If your shares are on the Zimbabwean or Malawian branch our website, www.oldmutual.com, select ‘Investor Relations’, then ‘Shareholder Centre’, then click on ‘Shareholder investor centre’  If your shares are on the principal UK register, please log on to and follow the instructions to log into the Shareholder Investor our website, www.oldmutual.com, select ‘Investor Relations’, then Centre. In order to register, you will need your Shareholder ‘Shareholder Centre’, then click on ‘Shareholder investor centre’ Reference Number, which can be found on the payment advice and follow the instructions to log into the Shareholder Investor notice or tax voucher accompanying your last dividend payment Centre. In order to register, you will need your Shareholder or notification. Before you register, you will be asked to agree Reference Number, which can be found on the payment advice to the Terms and Conditions for Electronic Communications notice or tax voucher accompanying your last dividend payment with Shareholders. It is important that you read these Terms or notification. Before you register, you will be asked to agree and Conditions carefully, as they set out the basis on which to the Terms and Conditions for Electronic Communications electronic communications will be sent to you with Shareholders. It is important that you read these Terms and Conditions carefully, as they set out the basis on which please call the contact centre of Link Market Services on electronic communications will be sent to you +27 (0)86 140 0110 or email them at  If your shares are on the South African branch register, oldmutualenquiries@linkmarketservices.co.za please call the contact centre of Link Market Services on  If your shares are on the Zimbabwean or Malawian branch +27 (0)86 140 0110 or email them at registers or the Namibian section of the principal register, please oldmutualenquiries@linkmarketservices.co.za contact the applicable local share register representatives, whose details are set out above. registers or the Namibian section of the principal register, please contact the applicable local share register representatives, whose details are set out above. Any election to receive documents electronically will generally remain in force until you contact the Company’s registrars to terminate or change such election. Any election to receive documents electronically will generally remain in force until you contact the Company’s registrars to Electronic proxy appointment is available for this year’s Annual terminate or change such election. General Meeting. This enables proxy votes to be submitted electronically, as an alternative to filling out and posting a form Electronic proxy appointment is available for this year’s Annual of proxy. Further details are set out on the form of proxy, which can General Meeting. This enables proxy votes to be submitted be accessed in the AGM section of the Shareholder Information electronically, as an alternative to filling out and posting a form part of our website. of proxy. Further details are set out on the form of proxy, which can be accessed in the AGM section of the Shareholder Information Second interim dividend for the year ended part of our website. 31 December 2017 and timetable for payment The Board has declared a second interim dividend (the ‘Second Second interim dividend for the year ended Interim Dividend’) for the year ended 31 December 2017 of 31 December 2017 and timetable for payment 3.57 pence per share, which will be paid on 30 April 2018. The Board has declared a second interim dividend (the ‘Second Shareholders on the South African, Zimbabwean and Malawian Interim Dividend’) for the year ended 31 December 2017 of branch registers and the Namibian section of the principal register 3.57 pence per share, which will be paid on 30 April 2018. will be paid local currency cash equivalents of the Second Interim Shareholders on the South African, Zimbabwean and Malawian Dividend under dividend access trust or similar arrangements branch registers and the Namibian section of the principal register established in each country. Shareholders who hold their shares will be paid local currency cash equivalents of the Second Interim through Euroclear Sweden AB, the Swedish nominee, will be Dividend under dividend access trust or similar arrangements paid the cash equivalent of the Second Interim Dividend in established in each country. Shareholders who hold their shares Swedish kronor. through Euroclear Sweden AB, the Swedish nominee, will be paid the cash equivalent of the Second Interim Dividend in Swedish kronor. The currency equivalents of the Second Interim Dividend are as follows: The currency equivalents of the Second Interim Dividend are as South Africa South African cents per share follows: Malawian kwacha per share Malawi Namibian cents per share Namibia South African cents per share South Africa US cents per share Zimbabwe Malawian kwacha per share Malawi Swedish kronor per share Sweden Namibian cents per share Namibia These currency equivalents have been calculated using the US cents per share Zimbabwe following exchange rates: Swedish kronor per share Sweden 66.50482 34.14 66.50482 66.50482 4.71 34.14 0.39 66.50482 4.71 0.39 Rand/£ Malawian kwacha/£ Namibian dollars/£ Rand/£ US dollars/£ Malawian kwacha/£ Swedish kronor/£ Namibian dollars/£ US dollars/£ Swedish kronor/£ These currency equivalents have been calculated using the South Africa 18.6288 following exchange rates: Malawi 956.38 18.6288 Namibia 18.6288 South Africa 1.3182 Zimbabwe 956.38 Malawi 10.8460 Sweden 18.6288 Namibia Dividend Tax will be withheld at the rate of 20% from the 1.3182 Zimbabwe amount of the gross dividend of 66.50482 South African cents per 10.8460 Sweden share paid to South African shareholders unless a shareholder Dividend Tax will be withheld at the rate of 20% from the qualifies for exemption. After Dividend Tax has been withheld, amount of the gross dividend of 66.50482 South African cents per the net dividend will be 53.20386 South African cents per share. share paid to South African shareholders unless a shareholder The Company had a total of 4,932,779,577 shares in issue at qualifies for exemption. After Dividend Tax has been withheld, the date on which the dividend was announced, 15 March 2018. the net dividend will be 53.20386 South African cents per share. In South Africa, the dividend will be distributed by Old Mutual The Company had a total of 4,932,779,577 shares in issue at Dividend Access Company (Pty) Limited, a South African the date on which the dividend was announced, 15 March 2018. company with tax registration number 9460/144/14/1, In South Africa, the dividend will be distributed by Old Mutual in terms of the Company’s dividend access share arrangements. Dividend Access Company (Pty) Limited, a South African company with tax registration number 9460/144/14/1, The record date for this dividend payment is the close of business in terms of the Company’s dividend access share arrangements. on 6 April 2018 for all the exchanges where the Company’s shares are listed. The last day to trade cum-dividend will be The record date for this dividend payment is the close of business 28 March 2018 on the Malawi Stock Exchange, 3 April 2018 on the on 6 April 2018 for all the exchanges where the Company’s JSE and on the Namibian and Zimbabwean Stock Exchanges and shares are listed. The last day to trade cum-dividend will be 4 April 2018 on the London Stock Exchange. The shares will trade 28 March 2018 on the Malawi Stock Exchange, 3 April 2018 on the ex-dividend from the opening of business on 29 March 2018 on JSE and on the Namibian and Zimbabwean Stock Exchanges and the Malawi Stock Exchange, from the opening of business on 4 April 2018 on the London Stock Exchange. The shares will trade 4 April 2018 on the JSE and on the Namibian and Zimbabwean ex-dividend from the opening of business on 29 March 2018 on Stock Exchanges and from the opening of business on 5 April 2018 the Malawi Stock Exchange, from the opening of business on on the London Stock Exchange. 4 April 2018 on the JSE and on the Namibian and Zimbabwean Stock Exchanges and from the opening of business on 5 April 2018 No dematerialisation or rematerialisation within Strate and on the London Stock Exchange. no transfers between registers may take place in the period from 3 April 2018 to 6 April 2018, both dates inclusive. No dematerialisation or rematerialisation within Strate and Financial calendar for the rest of 2018 no transfers between registers may take place in the period from 3 April 2018 to 6 April 2018, both dates inclusive. The Company’s financial calendar for the rest of 2018 is as follows: Financial calendar for the rest of 2018 Annual General Meeting The Company’s financial calendar for the rest of 2018 is as follows: Final results for 2018 30 April 2018 March 2019 Annual General Meeting Final results for 2018 30 April 2018 March 2019 342 Old Mutual plc Annual Report and Accounts 2017 Notes If you are currently still receiving documents by post, but would The currency equivalents of the Second Interim Dividend are as like to receive notification of future communications from the follows: Shareholder information continued Shareholder information continued Company by email: If you are currently still receiving documents by post, but would like to receive notification of future communications from the  If your shares are on the principal UK register, please log on to Company by email: our website, www.oldmutual.com, select ‘Investor Relations’, then ‘Shareholder Centre’, then click on ‘Shareholder investor centre’  If your shares are on the principal UK register, please log on to and follow the instructions to log into the Shareholder Investor our website, www.oldmutual.com, select ‘Investor Relations’, then Centre. In order to register, you will need your Shareholder ‘Shareholder Centre’, then click on ‘Shareholder investor centre’ Reference Number, which can be found on the payment advice and follow the instructions to log into the Shareholder Investor notice or tax voucher accompanying your last dividend payment Centre. In order to register, you will need your Shareholder or notification. Before you register, you will be asked to agree Reference Number, which can be found on the payment advice to the Terms and Conditions for Electronic Communications notice or tax voucher accompanying your last dividend payment with Shareholders. It is important that you read these Terms or notification. Before you register, you will be asked to agree and Conditions carefully, as they set out the basis on which to the Terms and Conditions for Electronic Communications electronic communications will be sent to you with Shareholders. It is important that you read these Terms  If your shares are on the South African branch register, and Conditions carefully, as they set out the basis on which please call the contact centre of Link Market Services on electronic communications will be sent to you +27 (0)86 140 0110 or email them at  If your shares are on the South African branch register, oldmutualenquiries@linkmarketservices.co.za please call the contact centre of Link Market Services on  If your shares are on the Zimbabwean or Malawian branch +27 (0)86 140 0110 or email them at registers or the Namibian section of the principal register, please oldmutualenquiries@linkmarketservices.co.za contact the applicable local share register representatives, whose  If your shares are on the Zimbabwean or Malawian branch details are set out above. registers or the Namibian section of the principal register, please Any election to receive documents electronically will generally contact the applicable local share register representatives, whose remain in force until you contact the Company’s registrars to details are set out above. terminate or change such election. Any election to receive documents electronically will generally remain in force until you contact the Company’s registrars to Electronic proxy appointment is available for this year’s Annual terminate or change such election. General Meeting. This enables proxy votes to be submitted electronically, as an alternative to filling out and posting a form Electronic proxy appointment is available for this year’s Annual of proxy. Further details are set out on the form of proxy, which can General Meeting. This enables proxy votes to be submitted be accessed in the AGM section of the Shareholder Information electronically, as an alternative to filling out and posting a form part of our website. of proxy. Further details are set out on the form of proxy, which can part of our website. be accessed in the AGM section of the Shareholder Information Second interim dividend for the year ended 31 December 2017 and timetable for payment The Board has declared a second interim dividend (the ‘Second Second interim dividend for the year ended Interim Dividend’) for the year ended 31 December 2017 of 31 December 2017 and timetable for payment 3.57 pence per share, which will be paid on 30 April 2018. The Board has declared a second interim dividend (the ‘Second Shareholders on the South African, Zimbabwean and Malawian Interim Dividend’) for the year ended 31 December 2017 of branch registers and the Namibian section of the principal register 3.57 pence per share, which will be paid on 30 April 2018. will be paid local currency cash equivalents of the Second Interim Shareholders on the South African, Zimbabwean and Malawian Dividend under dividend access trust or similar arrangements branch registers and the Namibian section of the principal register established in each country. Shareholders who hold their shares will be paid local currency cash equivalents of the Second Interim through Euroclear Sweden AB, the Swedish nominee, will be Dividend under dividend access trust or similar arrangements paid the cash equivalent of the Second Interim Dividend in established in each country. Shareholders who hold their shares Swedish kronor. through Euroclear Sweden AB, the Swedish nominee, will be paid the cash equivalent of the Second Interim Dividend in Swedish kronor. The currency equivalents of the Second Interim Dividend are as South African cents per share South Africa 66.50482 follows: Malawi Namibia South Africa Zimbabwe Malawi Sweden Namibia 34.14 66.50482 66.50482 4.71 34.14 0.39 66.50482 Malawian kwacha per share Namibian cents per share South African cents per share US cents per share Malawian kwacha per share Swedish kronor per share Namibian cents per share These currency equivalents have been calculated using the US cents per share Zimbabwe 4.71 following exchange rates: Sweden 0.39 Swedish kronor per share These currency equivalents have been calculated using the South Africa 18.6288 Rand/£ following exchange rates: Malawi 956.38 Namibia South Africa Zimbabwe Malawi Sweden Namibia 18.6288 18.6288 1.3182 956.38 10.8460 18.6288 Malawian kwacha/£ Namibian dollars/£ Rand/£ US dollars/£ Malawian kwacha/£ Swedish kronor/£ Namibian dollars/£ Dividend Tax will be withheld at the rate of 20% from the US dollars/£ Zimbabwe 1.3182 amount of the gross dividend of 66.50482 South African cents per Swedish kronor/£ Sweden 10.8460 share paid to South African shareholders unless a shareholder Dividend Tax will be withheld at the rate of 20% from the qualifies for exemption. After Dividend Tax has been withheld, amount of the gross dividend of 66.50482 South African cents per the net dividend will be 53.20386 South African cents per share. share paid to South African shareholders unless a shareholder The Company had a total of 4,932,779,577 shares in issue at qualifies for exemption. After Dividend Tax has been withheld, the date on which the dividend was announced, 15 March 2018. the net dividend will be 53.20386 South African cents per share. In South Africa, the dividend will be distributed by Old Mutual The Company had a total of 4,932,779,577 shares in issue at Dividend Access Company (Pty) Limited, a South African the date on which the dividend was announced, 15 March 2018. company with tax registration number 9460/144/14/1, In South Africa, the dividend will be distributed by Old Mutual in terms of the Company’s dividend access share arrangements. Dividend Access Company (Pty) Limited, a South African company with tax registration number 9460/144/14/1, The record date for this dividend payment is the close of business in terms of the Company’s dividend access share arrangements. on 6 April 2018 for all the exchanges where the Company’s shares are listed. The last day to trade cum-dividend will be The record date for this dividend payment is the close of business 28 March 2018 on the Malawi Stock Exchange, 3 April 2018 on the on 6 April 2018 for all the exchanges where the Company’s JSE and on the Namibian and Zimbabwean Stock Exchanges and shares are listed. The last day to trade cum-dividend will be 4 April 2018 on the London Stock Exchange. The shares will trade 28 March 2018 on the Malawi Stock Exchange, 3 April 2018 on the ex-dividend from the opening of business on 29 March 2018 on JSE and on the Namibian and Zimbabwean Stock Exchanges and the Malawi Stock Exchange, from the opening of business on 4 April 2018 on the London Stock Exchange. The shares will trade 4 April 2018 on the JSE and on the Namibian and Zimbabwean ex-dividend from the opening of business on 29 March 2018 on Stock Exchanges and from the opening of business on 5 April 2018 the Malawi Stock Exchange, from the opening of business on on the London Stock Exchange. 4 April 2018 on the JSE and on the Namibian and Zimbabwean Stock Exchanges and from the opening of business on 5 April 2018 No dematerialisation or rematerialisation within Strate and on the London Stock Exchange. no transfers between registers may take place in the period from 3 April 2018 to 6 April 2018, both dates inclusive. No dematerialisation or rematerialisation within Strate and no transfers between registers may take place in the period from Financial calendar for the rest of 2018 3 April 2018 to 6 April 2018, both dates inclusive. The Company’s financial calendar for the rest of 2018 is as follows: Financial calendar for the rest of 2018 Annual General Meeting 30 April 2018 The Company’s financial calendar for the rest of 2018 is as follows: Final results for 2018 March 2019 Annual General Meeting Final results for 2018 30 April 2018 March 2019 343 Old Mutual plc Annual Report and Accounts 2017 Notes 344 Old Mutual plc Annual Report and Accounts 2017Disclaimer These materials do not constitute or form a part of, and should not be construed as, any offer or solicitation or advertisement to purchase and/or subscribe for Securities in South Africa, including an offer to the public for the sale of, or subscription for, or the solicitation or advertisement of an offer to buy and/or subscribe for, securities as defined in the South African Companies Act, 71 of 2008 (as amended) or otherwise (the “Act”) and will not be distributed to any person in South Africa in any manner that could be construed as an offer to the public in terms of the Act. These materials do not constitute a prospectus registered and/or issued in terms of the Act. Nothing in these materials should be viewed, or construed, as “advice”, as that term is used in the South African Financial Markets Act, 19 of 2012, as amended, and/or Financial Advisory and Intermediary Services Act, 37 of 2002, as amended. These materials are not an offer to sell, or a solicitation of an offer to purchase, securities in the United States or in any other jurisdiction. The securities to which these materials relate have not been registered under the US Securities Act of 1933, as amended (the “Securities Act”), and may not be offered or sold in the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. There will be no public offering of the securities in the United States. These materials may contain certain forward-looking statements with respect to certain of Old Mutual plc’s, Quilter’s and OML’s plans and their current goals and expectations relating to its future financial condition, performance and results and, the execution of the Managed Separation. By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances which are beyond Old Mutual plc’s, Quilter’s and OML’s control including amongst other things, UK and South Africa domestic and global economic and business conditions, market related risks such as fluctuations in interest rates and exchange rates, the policies and actions of regulatory authorities, the impact of competition, inflation, deflation, the timing and impact of other uncertainties of future acquisitions or combinations within relevant industries, the delivery of the Managed Separation in accordance with the expected timetable and cost projections, as well as the impact of tax and other legislation and other regulations in the jurisdictions in which Old Mutual plc, Quilter and OML and their affiliates operate. As a result, Old Mutual plc’s, Quilter’s and OML’s actual future financial condition, performance and results may differ materially from the plans, goals and expectations set forth in Old Mutual plc’s, Quilter’s and OML’s forward looking statements. Old Mutual plc, Quilter and OML undertake no obligation to update the forward-looking statements contained in these materials or any other forward-looking statements it may make. Acknowledgements Designed and produced by MerchantCantos www.merchantcantos.com Printed by Park Communications on FSC® certified paper. Park is EMAS certified company and its Environmental Management System is certified to ISO 14001. 100% of the inks used are vegetable oil based, 95% of press chemicals are recycled for further use and, on average 99% of any waste associated with this production will be recycled. This document is printed on Revive 100 Silk and Revive 75 Matt, papers containing recycled and virgin fibre sourced from a well-managed, responsible forests certified by the FSC®. The pulp used in this product is bleached using an elemental chlorine free (ECF) process. www.oldmutualplc.com Registered Office: 5th Floor Millennium Bridge House 2 Lambeth Hill London EC4V 4GG Old Mutual plc Registered in England and Wales No. 3591559 and as an external company in each of South Africa (No. 1999/004855/10), Malawi (No. 5282), Namibia (No. F/3591559) and Zimbabwe (No. E1/99) O l d M u t u a l p l c A n n u a l R e p o r t & A c c o u n t s 2 0 1 7 

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