Strong organic growth...

Old Mutual plc announces sound results although South African business suffers from a provisioning for PFA rulings and a withdrawal of R10bn by the PIC, while the UK benefits from hedge fund returns and the USA shines.

*Adjusted operating profit* (IFRS** basis):

up 29% to £554m (30 June 2004: £428m) and

up 24% to R6,445m (30 June 2004: R5,194m)

*Adjusted operating profit (European embedded value (EEV) basis):

up 28% to £638m (30 June 2004: £497m) and

up 23% to R7,420m (30 June 2004: R6,032m)

* Profit for the period attributable to equity holders:

£387m (30 June 2004: £141m)

R4,509m (30 June 2004: R1,712m)

*Adjusted operating earnings per share* (IFRS basis):

up 22% to 8.4p (30 June 2004: 6.9p) and

up 18% to 98.2c (30 June 2004: 83.1c)

*Adjusted operating earnings per share (EEV basis):

up 25% to 10.1p (30 June 2004: 8.1p) and

up 20% to 117.7c (30 June 2004: 97.7c)

* Basic earnings per share: 11.2p (30 June 2004: 4.1p), 130.2c (30 June 2004: 50.1c)

* Total life assurance sales, on an Annual Premium Equivalent (APE) basis, of £318m, an increase of 12%

* Funds under management £158bn (30 June 2004: £130bn) an increase of 22%, R1,896bn (30 June 2004: R1,469bn) with record $20bn fund inflows in the USA. Selestia funds under management exceed £1bn

*Adjusted embedded value per share (EEV basis):

137.5p, R16.45 at 30 June 2005 (30 June 2004: 114.0p, R12.88)

* Return on equity 17.8% (30 June 2004: 18.7%)

* Interim dividend increased by 5.7% to 1.85p (22.13 cents***)

Commenting on the results, Jim Sutcliffe, Chief Executive, said: "All of our businesses have shown strong organic growth during the first half of 2005, and returns on rising assets and embedded value are encouraging.

SA operations were focused on sales, and the return on capital has exceptional.

The first half of 2005 has been a period of strong organic growth, with the achievement of a number of significant milestones in the Group’s development. Our three main business platforms – in South Africa, the US and the UK – have all established a momentum which their management teams are confident of being able to sustain.

Julian Roberts, group finance director says that the results are strong – in rand and UK pound terms, although rand depreciation, the lower contribution in terms of Nedbank and M&F share prices contributed to lower EV per share. This was at June levels. Subsequent to the interims results the share prices of Nedbank and M&F have improved.

In the UK he says that the hedge fund business was a major contributor to the UK profit margins for the period.

Particular highlights in the period have been significantly improved life assurance and unit trust sales in South Africa, substantial progress in the recovery programme at Nedbank, and record cash flows from our US Asset Management business.

In South Africa, the life business produced a return on capital of 24%, despite profits having been struck after making a provision of R225m for the improved terms offered to customers following the Pension Fund Adjudicator’s rulings on paid-up retirement annuities, specifically when it came to their pensioners, says Sutcliffe.

The life assurance result in South Africa reduced by 3% to R1,758m compared to the first half of 2004. They also reduced the rate at which the Long Term Investment Return accrues, which gave rise to a R250 million negative impact on earnings, together with the impact of increased new business strain.

This increased strain arises particularly due to the introduction of International Financial Reporting Standards (IFRS), more competitive product pricing and the costs of increasing our distribution capability, especially Group Schemes. In fact adjusted operating profits were down 6% for OMSA.

Client funds under management for the business increased slightly from R312 billion as at 31 December 2004 to R316 billion at 30 June 2005.

The uplift from market movements was largely offset by negative net client cash flows. These have been disappointing, with total net client cash flow being negative R17 billion. Within the Life business, Group Business flows were a negative R4 billion as a result of normal fund benefit payments and higher terminations.

Within OMAM, the largest single factor was a withdrawal by the Public Investment Corporation of R10bn, with the other R10bn being withdrawn from other asset managers. The South African asset management business experienced a net outflow of R17 billion.

In addition, OMAM saw outflows as a result of clients rebalancing their portfolios, shifting from balanced mandates to specialised mandates, fragmenting portfolios into smaller pieces, and some smaller funds switching into balanced multi-manager offerings.

Individual Life Business sales in South Africa increased by 10% over the comparative period in 2004. Within this, recurring premiums were up 10%, single premiums were up 11%, and good growth was seen across all product groupings.

Group Schemes sales, whilst only 5% higher for the period in total, recorded strong growth in the second quarter as the strengthening of their distribution gathered pace (with a 16% growth in sales force headcount since the end of 2004).

Within single premium sales, bancassurance saw particularly strong growth, with total Old Mutual life sales through the Nedbank channel being up 52% on an APE basis for the first six months compared to the same period last year.

Within recurring premiums, sales through brokers were slightly down, whereas sales through our agency channel grew strongly, reflecting our continuing investment in growing our advisor headcount. Our advisor force totalled 3,112 at the end of June 2005 – some 440 higher than a year earlier and 150 higher than at the start of the year.

Adjusted embedded value stood at a similar level to the year end at 137.5p/R16.45, with the Rand having been at a significantly higher level at the start of the year.

Net cash flow at our US Asset Management business was very positive, with a record net total of $20 billion, including $5.4 billion of cash collateral assets at our securities lending business. The USA asset management business had excellent net cash flows and profits.

In terms of the US, he says that the businesses have done well. US Life sales were strong. He also announced that Omnia Bermuda is to change its name to Old Mutual Bermuda in the near future, while capital management disciplines remain in place.

The USA life business had very good levels of sales (up 10% to $276 million APE) during the first half, and it remains on track to achieve our stated target of paying dividends in 2007. Record sales of variable annuity products have been recorded at OMNIA Bermuda, which reached $1 billion of assets under management.

Outlook

Over the past five years, we have made substantial strides in using our powerful South African base to build an international franchise, with over half our life sales and more than 75% of our asset management clients now in the US and UK.

Our flexible, multi-brand strategy plays well in the market place, both in the US and elsewhere, as open architecture/multi-manager has become an increasingly powerful trend in life assurance and asset management industries.

Conditions remain broadly favourable, particularly in South Africa, and while markets can always affect the outcome, our operational robustness is now well established.

The strategy remains unchanged. The three areas (SA, UK, and USA) that they operate in are all gaining momentum.

Health warnings:

* Adjusted operating profit represents the directors' view of the underlying performance of the Group. For life assurance and general insurance businesses, adjusted operating profit is based on a long term investment return and includes investment returns on life funds' investments in Group equity and debt instruments.

For all businesses, adjusted operating profit excludes goodwill impairments, fines and penalties, and profit/(loss) on disposal of investments in subsidiaries. Adjusted operating profit also excludes income from hedging activities that do not qualify for hedge accounting.

Adjusted operating earnings per share is calculated on the same basis as adjusted operating profit, but is stated after tax and minority interests, with the calculation of the weighted average number of shares including own shares held in policyholders' funds.

** The financial information has been prepared on the basis of the recognition and measurement requirements of International Financial Reporting Standards as set out in the basis of preparation note on page 28 of this document.

*** Indicative only, being the Rand equivalent of 1.85p converted at the exchange rate prevailing on 30 June 2005. The actual amount to be paid by way of interim dividend to holders of shares on the South African branch register will be calculated by reference to the exchange rate prevailing at the close of business on 6 October 2005, as determined by the Company, and will be announced on 7 October 2005.