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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Old Mutual | LSE:OML | London | Ordinary Share | GB00B77J0862 | ORD 11 3/7P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 210.90 | 211.10 | 211.30 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Jul 2019 to Jul 2024
TIDMOML
RNS Number : 7788H
Old Mutual PLC
15 March 2018
Old Mutual plc
Ref 138/18
15 March 2018
annual financial report 2017
Old Mutual plc (the "Company") has today published its Annual Financial Report for 2017 on the Company's website at www.oldmutualplc.com. A copy of the Annual Financial Report, including the Strategic Report for 2017, will be submitted to the National Storage Mechanism and will shortly be available for inspection at www.morningstar.co.uk/uk/NSM. From the end of March 2018 copies of the Annual Financial Report may also be obtained from Investor Relations, Old Mutual plc, 5th Floor, Millennium Bridge House, 2 Lambeth Hill, London EC4V 4GG, UK or from the Company Secretary, 6th Floor, K Block, Mutualpark, Jan Smuts Drive, Pinelands, 7415, Cape Town, South Africa.
In compliance with the Company's obligations under DTR 6.3.5, additional information is set out below which has been extracted in full unedited text from the Annual Financial Report. Accordingly, page references and section numbers in the text below refer to page numbers and section numbers in the Annual Financial Report. This extracted information should be read in conjunction with the Company's results announcement for the year ended 31 December 2017, which the Company has also released today.
"Risks
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.
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
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 company. Given the centrality of managed separation, the risks to its execution are inherently the Group's top risks, and will remain so until managed separation is complete. Although the managed separation is designed to be capable of being executed in adverse market-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 (pp21-25) rather than below in the risks to execution of managed separation section.
The risks are listed in order of descending materiality. All key risks, and their related mitigating actions, are overseen by the plc Board and the plc Board Risk Committee.
Current impact and risk Risk mitigation and management outlook actions ---------------------------------- --------------------------------- OMEM, OMW and Nedbank need to be sufficiently capacitated and capitalised to operate as successful independently listed entities. --------------------------------------------------------------------- For the unlisted businesses Good progress has been made to be successful standalone in capacitating OML and businesses they need to OMW. Both businesses have be sufficiently well capacitated appointed strong and independent and capitalised. This means new Boards, enhanced senior strengthening resource in management capability and areas where plc provided undertaken significant work support (eg treasury, investor to review and begin implementing relations and finance), new operating models, including setting up appropriate Governance enhancing their risk functions. arrangements and ensuring These processes have been that each business has adequate tracked and monitored by capital. the plc management team. Perceived weaknesses in Significant progress has any of the businesses' balance also been made in developing sheets, strategies, operations, and internally agreeing governance structures or the approach and structure leadership could potentially of their initial balance affect the managed separation sheets to ensure that capital approvals and the ultimate is appropriate for the risks value obtained. within the businesses even
Hot Features
Premium
OML estimates that, after after stress scenarios.
its primary listing on the OML will consider appropriate
JSE, its effective Black transitions, if required,
Economic Empowerment (BEE) to achieve its BEE ownership
shareholding may be slightly targets in due course. The
below the Financial Sector OML Board will be tasked
Charter (FSC) target of with exploring multiple
25%, but this will only mechanisms to ensure this
be known once the share goal is met as agreed.
register settles. As a JSE
primarily listed business,
OML's methodology for calculating
its BEE ownership percentage
will change, in line with
the provisions of the revised
FSC. The BEE shareholding
will also be impacted by
the corporate transactions
involved in the managed
separation. OMEM will be
using the new scoring methodology
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.
---------------------------------- ---------------------------------
Current impact and risk Risk mitigation and management
outlook 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 Robust project management
inherently complex project and governance frameworks
with many inter-dependencies have been implemented, co-ordinated
and will require multiple across plc, OML and OMW
internal and external approvals. with adviser support. The
Project delivery delays managed separation governance
or failure to obtain regulatory frameworks have evolved
or court approvals could as the project evolves.
potentially impact the separation The financial and execution
timelines and increase costs. risks to managed separation
People stretch, both at are regularly reviewed and
plc and within the businesses, assessed, with action taken
remains a key risk to the to mitigate risks balancing
managed separation execution. time, cost and value.
The businesses are implementing A number of risks are largely
managed separation and their outside Old Mutual's direct
own internal change projects control - such as obtaining
concurrently. timely regulatory and court
South African political approvals. We have taken
risk could impact or delay action to mitigate these
the regulatory approvals risks as far as possible:
required for completion for example, early and proactive
of the managed separation. 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 Plc's fiduciary duties for
to be undertaken in a manner the remainder of managed
that will still allow plc separation have been identified
to fulfil its fiduciary and processes are in place
duties. Wherever possible to ensure these are met.
the plc contingent liabilities In 2017 we made significant
and pre-existing plc risks progress in addressing plc
need to be wound down or contingent liabilities and
addressed to minimise transferring pre-existing risks. Actions
these to either OML or OMW. 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.
----------------------------------- -------------------------------------
Current impact and risk Risk mitigation and management
outlook actions
-------------------------------- ---------------------------------------
Some risks arise from the constraints of the existing
Group structure, and will be reduced by managed separation.
-------------------------------------------------------------------------
Our Group earnings, dividend Managed separation seeks
and surplus capital are to allow each business to
reported in sterling but meet its capital requirements
the majority of our earnings and debt interest in matched
and surplus capital are currencies and cash flows.
denominated in South African Each business will have
rand. This creates currency the appropriate capital
translation and foreign to succeed independently
exchange control risk, and and to be more closely aligned
our reported Group earnings to its natural shareholder
are particularly sensitive base.
to rand/GBP exchange movements. Regular stress and scenario
Managed separation will testing helps us understand
address this risk, by removing and monitor the resilience
the current Group structure. of our capital and liquidity
The recent regulatory trend over the managed separation
in both the UK and South time horizon. Our modelling
Africa has been to encourage shows we are sufficiently
the independence of subsidiary capitalised in line with
Boards while retaining an our philosophy of holding
expectation of Group oversight capital where the risks
and control. Managed separation lie.
mitigates the potential We have implemented dividend
risks arising from this hedging on a six-month forward-looking
ambivalence, but any delay basis, in line with the
could present challenges. expected timing for the
completion of managed separation.
Risks presented by conflicting
regulatory expectations
relating to Group control
versus subsidiary independence
will ultimately be removed
as the Group separates.
In the meantime, we seek
to address them through
open and timely communication
with both our subsidiaries
and the regulators, and
through the continued role
played by plc executives
on the subsidiaries' Boards.
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.
-------------------------------- ---------------------------------------
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 OML continuously monitors
GDP growth increased marginally its financial risk appetite
to 0.9%, with the IMF forecasting metrics and builds multiple
similar rates of growth external economic factors
in 2018. There were also into stress and scenario
several sovereign downgrades testing to understand their
which may trigger South possible impact on earnings,
Africa's subsequent exclusion liquidity and capital resilience.
from the Citi World Government In anticipation of 2017's
Bond Index. sovereign downgrades, we
built the possible impacts
The 21 February 2018 Budget into OML's business plans
introduced a number of tax and downside projections.
increases, which sought Both Nedbank and OMEM are
to address the rising South focused on managing discretionary
African government's fiscal costs resulting from lower
deficit. One of these was growth and potentially slowing
a 1% increase to VAT, which revenues as consumers come
together with a continued under increasing pressure.
low growth rate for the Within OMEM, market and
economy could increase financial liquidity risks arising
pressure on consumers. The from guaranteed products,
result of such pressure and the hedges in place
could be reduced demand to mitigate them, are actively
for OML's financial products overseen by the Balance
and services, and an increase Sheet Management team.
in lapses and credit default OMEM's Credit Loss Ratio
rates. remained within limits during
Nedbank, and to a lesser 2017, and work continues
but growing extent OMEM, to develop an improved credit
have significant exposure risk governance framework.
to credit risk through their Due to the current macroeconomic
banking businesses. Nedbank environment, lending is
has a greater proportion being further restricted
of wholesale funding than to keep OMEM within risk
the market norm; and it appetite, and this may impact
is exposed to significant planned earnings.
credit risk within the core Nedbank's credit losses
South African market and were better than planned,
in the Rest of Africa, where due mainly to good risk
there are particular challenges management and provisioning.
due to low growth. Nedbank remains well positioned
The economic situation in to deal with potentially
Zimbabwe remains volatile, severe stress scenarios.
with a lack of liquidity OMEM continuously reviews
and substantial increases developments in Zimbabwe
in equity, which may not and undertakes separate
be sustainable. Local exchange stress and scenario testing
controls may reduce OMEM's to understand exposures
ability to remit dividends and identify possible management
back to South Africa. 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 OML monitors political developments
political risk remained and their possible impacts
elevated throughout 2017, on the business.
but has stabilised somewhat Where there are potential
following the February 2018 systemic risks such as the
leadership transition. In KPMG allegations, cross-businesses
H2 2017 media attention teams are mobilised to review
focused on issues relating the potential impacts of
to corruption and state the event, ascertain the
capture. The resignation actions that can be taken,
of Jacob Zuma as President and work with external stakeholders.
and the appointment of Cyril Nedbank's CEO began engagement
Ramaphosa as his successor with Cyril Ramaphosa after
in February 2018 was well his election as ANC leader,
received by markets. Tackling emphasising the need for
corruption and renewing economic policy certainty.
investor confidence will OMEM's CEO is an active
be government priorities. member of Business Leadership
Key risks to OML include South Africa and the Association
the business received from for Savings and Investments
collective labour organisations South Africa, and attended
and public sector workers, and sponsored the JSE South
which could present a risk African investment conference
of mass exits from our products in New York in November
following a change in sentiment 2017.
or could be affected by
government cutbacks. During 2017, Nedbank enhanced
South African political its monitoring and governance
risk also creates additional over reputational risk in
risks in the macroeconomic relation to customers, suppliers
environment (see above). and other stakeholders.
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.
------------------------------------ -------------------------------------
Current impact and risk outlook Risk mitigation and management
actions
------------------------------------ -------------------------------------
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.
---------------------------------------------------------------------------
Both OMEM and Nedbank are All major change programmes
currently undertaking multiple are overseen by appropriate
change programmes. These governance structures and,
include the managed separation ultimately, the respective
and listing, significant OMEM and Nedbank Boards.
IT transformation, and responding People risk will remain
to major regulatory change elevated throughout the
including the introduction managed separation and is
of Twin Peaks regulation compounded by the increased
in South Africa, SAM and need to manage costs due
Basel III. to the depressed South African
The volume of these simultaneous economic environment.
change programmes places Where required, interim
strain on management and and contingency resources
resourcing, and increases will be identified and deployed.
delivery risk. This applies Nedbank has launched its
particularly at OMEM, where People and Culture 2020
the additional demands of journeys, aimed at increasing
functioning as an independent efficiency and enhancing
organisation and embedding execution.
a new management team have
put the business under strain. OMEM has a broad range of
We also recognise that OMEM credible contingency arrangements
needs to develop and embed - including construction
a new customer-focused and of a grey water collection
digital culture to support and filtration plant on
the new strategy. its Cape Town operations
The continuing Cape Town centre, due to come onstream
water crisis presents a in early May 2018.
significant risk of disruption
to OMEM's Cape Town operations.
------------------------------------ -------------------------------------
Velocity of regulatory change in South Africa and
increased risk of regulatory enforcement.
---------------------------------------------------------------------------
In South Africa, the new Change and readiness programmes
Twin Peaks supervisory regime are underway to ensure compliance
and SAM regulations will with the new regulatory
be implemented over the framework, although resourcing
next few years. Both will within the Risk and Finance
drive significant changes functions remains a challenge.
for our businesses. Nedbank began with the design
Development of the SAM regulations and introduction of a conduct
has continued through 2017. risk framework in 2016.
Two major issues affecting In 2017 it began a full-scale
OMEM and OML are the treatment Market Conduct regulatory
of the Nedbank holding and programme, assisted by EY.
the agreement of a transitional OMEM is developing a new
period for capital. Market Conduct framework
Conduct risk remains significant, which will support enhanced
with an increased focus oversight of advice risk.
on the quality of advice Both OMEM and Nedbank continue
provided with the distribution to engage actively with
of our mass market products, government, regulators and
presenting a risk of regulatory industry forums to positively
intervention and redress. influence the evolving public
Both Nedbank and OMEM will policy landscape.
be impacted by the implementation Nedbank and OMEM continue
of IFRS9 and IFRS17, the to embed their Anti Money
FICA Amendment Act and Basel Laundering (AML) frameworks
III - which come into effect and controls, particularly
during 2018 and 2019 - and in their Rest of Africa
have programmes underway subsidiaries.
to ensure compliance.
------------------------------------ -------------------------------------
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 De-risking and de-scoping
pressures in its core markets OMEM's IT transformation
and there is a risk of being programme has reduced project
left behind in the customer delivery risk. A robust
proposition development project governance framework
race. is in place and progress
OMEM is undertaking several is monitored by the OMEM
strategic investments to Board IT Committee, which
improve customer processes has been augmented with
and experience, respond experienced non-executive
to new regulatory requirements, directors.
and integrate the UAP business, Nedbank has a strong and
acquired in 2015, with investment established IT governance
in sales and service enablement framework and has enhanced
in Africa (starting in the second-line oversight. OMEM
Faulu and CABS businesses). is currently reviewing its
Nedbank is currently implementing entire IT capability framework
the digital journey and to ensure that it can support
managed evolution of its the future strategy.
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 The Rest of Africa businesses
of Africa businesses have remain closely monitored
been subject to strategic and overseen by the respective
and governance risks and Nedbank and OMEM Group functions
in some cases underperformance. and Board committees. Progress
As some of these subsidiaries has been made in strengthening
are separately listed and and aligning governance
not fully owned, there are and control frameworks and
potential issues relating the integration of Rest
to information flows and of Africa subsidiaries remains
strategic alignment. In a focus area.
addition, businesses in Nedbank has identified a
some jurisdictions may be need for a centralised and
subject to government restrictions co-ordinated operating framework
on repatriation of profits. to align the subsidiaries
Nedbank's strategic alliance with the main business,
with ETI was significantly increasing monitoring and
affected by the fall in oversight at the subsidiary
oil prices and the downturn level. This framework is
in the Nigerian economy, in its early implementation
resulting in losses and stages.
lower-than-expected business The outlook for the ETI
flows. However, there have alliance improved during
been a number of positive 2017, as Nigeria's exit
developments during the from recession helped to
year, including Nigeria boost business performance.
exiting recession. ETI governance committees
OMEM has been working to have been strengthened with
integrate the UAP business key appointments.
with a focus on embedding
governance and control frameworks.
The CABS business has the
risk of volatile results
due to the challenging environment.
------------------------------------ ---------------------------------------
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 Nedbank has an experienced
exposed to increasing cyber Chief Information Security
security risks, with legacy Officer and has made significant
infrastructure particularly progress in enhancing cyber-resilience
vulnerable. Cyber attacks during 2017. Nedbank continues
could result in operational to invest substantially
losses, interruption of on this front.
business operations, the
loss of critical data and OMEM has recruited a new
reputational damage. Chief Information Security
Officer and strengthening
its cybersecurity team.
The effectiveness of the
control environment is assessed
by regular external assurance.
------------------------------------ ---------------------------------------
OMW
Current impact and risk outlook Risk mitigation and management
actions
--------------------------------------- ------------------------------
Volatile or difficult global macroeconomic conditions
could potentially impact OMW's earnings, particularly
asset-based fees.
-----------------------------------------------------------------------
Global markets maintained OMW regularly undertakes
historic highs in 2017, stress and scenario testing
with market volatility relatively to understand the effect
subdued. However, there of severe macroeconomic
is a continuing risk of events and their potential
a rapid correction or return impact on the business.
of increased volatility. During 2017 OMW incorporated
FTSE100 equity levels remained the implications of a 'hard
high, with a weaker pound Brexit' scenario into its
boosting sterling profitability stress and scenario testing
for many multinational firms to understand any possible
in the index. A potential longer-term implications
market correction could on capital and liquidity.
impact OMW by reducing asset-based
fees.
--------------------------------------- ------------------------------
Changing government policies and public sentiment
in our key markets could adversely influence external
perceptions of OMW and impact regulatory change.
-----------------------------------------------------------------------
Global political risk remained We continuously monitor
elevated throughout 2017, political developments and
with tensions in the Middle review the possible impacts.
East impacting oil prices, During 2017, OMW undertook
and the ongoing stand-off scenario testing for possible
on the Korean peninsula. changes in government policy.
In the UK, concerns remain
over the implementation
of Brexit and the impact
of the Conservative government
losing its majority in the
April 2017 election. This
created additional risk
in financial markets.
--------------------------------------- ------------------------------
Delivery of multiple major change programmes increases
the risk of non-delivery and people stretch, and
could reduce OMW's ability to operate successfully
as a standalone entity (including the separation
and sale of its single-strategy business, OMGI).
-----------------------------------------------------------------------
OMW is currently undertaking All major change programmes
multiple change programmes, have appropriate and robust
including the managed separation governance structures, and
and listing, the sale and are ultimately overseen
separation of the OMGI single-strategy by the strengthened OMW
business, the platform transformation management team and Board.
programme, and responding To reduce people risk, OMW
to major regulatory changes is identifying those most
such as MiFID II and GDPR. at risk, offering coaching,
This volume of concurrent additional resource and
change inevitably imposes wellbeing packages, and
strains on management, particularly providing monthly people
resource and project management, reports to management.
increasing delivery risk.
There is an increased risk
of human resources process
failures regarding employee
recruitment, retention,
reward and development.
--------------------------------------- ------------------------------
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.
---------------------------------------------------------------------------
OMW must continue to anticipate The new platform transformation
and respond to competitive programme has a robust governance
pressures and customer expectations framework. It is overseen
relating to product design, by OMW's Board IT Committee,
distribution and customer which includes non-executive
experience. Failure to do directors with transformation
so could result in reduced project experience. The
new business volumes and programme's well defined
outflows. project management framework
This is particularly relevant includes risk identification
to OMW's IT and systems, and monitoring, with a clearly
where key IT initiatives defined risk appetite framework
may not deliver what is and statements. Its progress
required either on time has remained on-plan from
or within budget or provide the outset.
the performance levels required Lessons learned from a review
to support current and future of the initial project have
needs. been implemented. Actions
Failure to devote significant included ensuring strong
resources to support existing second-line oversight and
systems and upgrade legacy the creation of the OMW
systems could impair our Board IT Committee.
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 OMW has built a regulatory
regulation in the UK and change framework to allow
internationally and thus effective planning and management
faces compliance risks, across the organisation,
including conduct risk. and to ensure prompt identification
The underlying businesses of regulatory change affecting
are subject to the risk one or more OMW businesses.
of adverse changes in the OMW-level projects are in
laws, regulations and regulatory place for key regulatory
requirements in the markets changes such as MiFID II
in which they operate. It and GDPR to ensure that
is difficult to accurately a consistent approach to
predict the timing, scope both interpretation and
or form of future regulatory implementation is taken
initiatives, although it across all businesses, tracked
is widely expected that by the OMW Regulatory Delivery
there will continue to be Committee.
a substantial amount of A specialist Regulatory
regulatory change. Notable Liaison team facilitates
developments include the effective relations and
EU General Data Protection communications with OMW's
Regulation (GDPR) and UK primary regulators, the
Senior Managers and Certification FCA and PRA, ensuring careful
Regime (SMCR) and a high tracking and delivery of
degree of supervisory oversight regulatory requests and
of regulated financial services actions. The activities
firms, challenging firms of this team are closely
on the extent to which compliance monitored by executive management
with requirements and the and the Board Risk Committee.
interests of customers have OMW is cooperating with
been achieved. the FCA in its investigation,
OMW is currently under investigation which is ongoing.
over to the treatment of
long-standing customers
of closed-book products.
------------------------------------- ------------------------------------
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 We have made significant
to the risk that third parties investments across OMWs
or malicious insiders may businesses to increase system
attempt to use cybercrime security and resilience,
techniques, including distributed and an Information Security
denial of service attacks, Improvement Programme is
to disrupt the availability, underway. We have appointed
confidentiality and integrity a new Chief Information
of its IT systems. This Security Officer and are
could result in disruption strengthening the support
to key operations, make team.
it difficult to recover
critical services, damage
assets and compromise data.
------------------------------------- ------------------------------------
Overview of the Group's risk and governance structures
The active portfolio manager governance model, introduced in 2016 after the announcement of the managed separation strategy, is now fully embedded. Under this model we evaluate each of the Group's businesses as an asset, with a view to realising maximum value through separation.
The businesses, particularly OMW and OML, have developed their own governance capabilities - such as appointing independent chairmen, and defining their own values and culture, risk strategies and appetite frameworks. The plc still oversees these processes and will continue to monitor them centrally until separation.
Risk strategy
Our risk strategy remains unchanged from 2016. We continue to use the following principles to guide our actions and choices throughout the managed separation:
- All our actions must be directed towards our objective and aligned with these measures of success, within the parameters and risk appetite agreed by the plc Board
- We will have to make trade-offs between four principal considerations: the value unlocked, the cost involved in delivering the strategy, the time it takes to do so, and the risks incurred or mitigated by our actions
- To maintain market confidence we must demonstrate meaningful action in a reasonable timeframe at valuations that are perceived to be, at a minimum, fair
- We are committed to treating shareholders fairly. We will seek to communicate our intentions and plans in an open and proactive manner, as appropriate in the context of our fiduciary obligations
- We are willing to accept short-term price volatility in our stock as the market digests each action and begins to value each business and the plc appropriately
- We will continue to discharge our fiduciary and regulatory responsibilities in an appropriate manner.
Risk appetite
Plc liquidity and regulatory capital have remained our key risk appetite metrics throughout 2017, supported by earnings volatility and risk and control culture. The financial metrics are projected over the horizon of managed separation: we evolve and recalibrate them as the managed separation progresses, by undertaking extensive stress and scenario testing.
The businesses have developed their own qualitative and quantitative risk appetite metrics reflecting their own business models, industries and risk strategies. These are monitored by the business Boards as well as the plc. At both plc and business levels we use risk appetite limits and early warning thresholds (EWTs) to define the boundaries of risk taking and manage our risk/return profile.
The plc's appetite and intentions are set out below, with the metrics used to measure each:
Capital Earnings Liquidity Culture ----------------------- ----------------------- ----------------------- ----------------------- The Group has We accept that The capital We measure no appetite as part of our management policy our risk and for regulatory plc strategy introduced with control culture intervention of managed separation, the managed by considering (whether perceived and as our businesses separation strategy our governance or real) during consolidate allows significant and tone from managed separation. their past expansion, flexibility the top, understanding As such, we execution risks in managing of risk, attitude hold a buffer and earnings liquidity. to risk, control above minimum volatility are We hold a buffer functions, requirements likely to increase. at Group level quality of in order to However, we to support this, management remain solvent. have no appetite sufficient for information, During 2017, for big surprises, a liquidity and remuneration we continued such as earnings survival horizon structures. to set Solvency volatility that of at least Qualitative II capital risk cannot be anticipated 12 months. We assessment appetite at by the market also have a of our risk 110% with an we operate in multi-year liquidity and control EWT at 120%. or significant view over the culture focuses This reflects operational managed separation on the values the significant losses. horizon. The and behaviours level of disallowed Group should embedded in surplus capital be able to meet the businesses within South extreme but that shape Africa under plausible short-term risk decisions. the Solvency losses. 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. ----------------------- ----------------------- ----------------------- ----------------------- Monitoring and management -------------------------------------------------------------------------------------------------- Our key principle At the plc level, The plc liquidity Each business is that all we make extensive metric is continuously undertakes our businesses use of multi-year monitored and culture monitoring should be well stress testing reported to half-yearly capitalised to understand the plc Board. using a 50-question as if they were the possible The limits and qualitative standalone businesses, impact of risks EWT are calculated assessment. and that the on dividends dynamically We set threshold Group position and earnings. so are refreshed levels for must be compliant We also use each month. positive responses, with regulatory business-specific In 2017, plc with an EWT requirements monitoring to liquidity remained of 70% and at all times. identify and above both the a limit of There is ongoing assess risks limits set and 50%. monitoring of within individual the EWT. At year end our Solvency businesses. 2017 one business II position We monitor earnings was slightly and the impact volatility by below EWT but of managed separation reviewing year-to-date on an improving activities on pre-tax AOP trend. Ongoing this are projected. on a constant actions are We remained currency basis. being taken above our EWT In 2017, earnings to improve throughout 2017. remained above the position. Based on stress this indicator. 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%. ----------------------- ----------------------- ----------------------- -----------------------
"Related parties
(a) Transactions with key management personnel, remuneration and other compensation
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 to the Board of directors as well as their shareholdings in the Company are disclosed in the Remuneration Report on page 97 to 128.
(b) Key management personnel remuneration and other compensation
Year ended 31 Year ended 31
December 2017 December 2016
--------------------------------- ---------------------------------
Number Number
of personnel GBP'000 of personnel GBP'000
---------------------------------- ------------- ------------------ ------------- ------------------
Directors' fees 11 2,081 11 1,584
Remuneration 21,758 25,133
------------- ------------------ ------------- ------------------
Cash remuneration 9 4,830 14 6,228
Short-term employee benefits 10 5,444 14 9,828
Long-term employee benefits 9 123 14 280
Share-based payments 9 11,361 11 8,797
------------- ------------------ ------------- ------------------
23,839 26,717
---------------------------------- ------------- ------------------ ------------- ------------------
Share options
------------- ------------------ ------------- ------------------
Year ended 31 Year ended 31
December 2017 December 2016
--------------------------------- ---------------------------------
Number Number
Number of options/shares Number of options/shares
of personnel '000s of personnel '000s
---------------------------------- ------------- ------------------ ------------- ------------------
Outstanding at beginning
of the year 4 58 4 52
Granted during the year 6
Exercised during the year (23) -
---------------------------------- ------------- ------------------ ------------- ------------------
Outstanding at end of the
year 3 35 4 58
---------------------------------- ------------- ------------------ ------------- ------------------
Year ended 31 Year ended 31
Restricted shares December 2017 December 2016
--------------------------------- ---------------------------------
Number Number
Number of options/shares Number of options/shares
of personnel '000s of personnel '000s
---------------------------------- ------------- ------------------ ------------- ------------------ Outstanding at beginning of the year 10 23,494 10 11,346 Leavers (2) (1,346) (2) (2,974) New appointments 1 1,087 2 5,215 Granted during the year 948 11,659 Exercised during the year (673) (236) Vested during the year (952) (1,516) ---------------------------------- ------------- ------------------ ------------- ------------------ Outstanding at end of the year 9 22,558 10 23,494 ---------------------------------- ------------- ------------------ ------------- ------------------
(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.
Year ended 31 Year ended 31
December 2017 December 2016
---------------------- -----------------------
Number Number
of personnel GBP000s of personnel GBP000s
------------------------------- ------------- ------- ------------- --------
Current accounts
Balance at beginning of
the year 4 2,951 5 2,208
Net movement during the
year 870 743
------------------------------- ------------- ------- ------------- --------
Balance at end of the year 5 3,821 4 2,951
------------------------------- ------------- ------- ------------- --------
Credit cards
Balance at beginning of
the year 4 30 5 20
Net movement during the
year 2 10
------------------------------- ------------- ------- ------------- --------
Balance at end of the year 5 32 4 30
------------------------------- ------------- ------- ------------- --------
Mortgages
Balance at beginning of
the year 1 121 3 110
Net movement during the
year 85 11
------------------------------- ------------- ------- ------------- --------
Balance at end of the year 3 206 1 121
------------------------------- ------------- ------- ------------- --------
Property & casualty contracts
Total premium paid during
the year 2 6 1 6
Claim paid during the year 1 9 - -
Life insurance products
Total sum assured/value
of investment at end of
the year 9 24,375 9 23,325
------------------------------- ------------- ------- ------------- --------
Pensions, termination benefits
paid
Value of pension plans
as at end of the year 9 8,461 9 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 GBP0.1 million (R2 milllion) of preference share dividends received from NMT Capital (Pty) Ltd. OMLAC(SA) has invested in preference shares to the value of GBP4 million (R62 million) in NMT Capital and has also invested in ordinary and preference share capital of NMT Group (Pty Ltd) GBP8 million (R142 million), and the preference share capital of Amabubesi Capital Travelling (Pty) Ltd of GBP1 million (R18 million), RZT Zeply 4971 (Pty) Ltd of GBP0.7 million (R13 million), RZT Zeply 4973 (Pty) Ltd of GBP0.7 million (R13 million) and STS Capital (Pty) Ltd of GBP0.7 million (R13 million), all of which are considered to be related parties of NMT Capital (Pty) Ltd. Preference share dividends totalling GBP0.5 million (R8 million) was received by OMLAC(SA) during the year.
The Group also holds GBP1 million (R14 million) of the ordinary share capital in NMT capital."
"Related parties
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. Disclosures in respect of the key management personnel of the Company are included in the Group's related parties disclosures in note J3.
There are no transactions entered into by the Company with associated undertakings.
GBPm
------------ ------------
At At
31 December 31 December
2017 2016
----------------------------------------------------------------- ------------ ------------
Balances due from subsidiaries 301 4,070
Balances due to subsidiaries (236) (3,908)
Balances due from other related parties - Nedgroup Trust Limited 16 16
----------------------------------------------------------------- ------------ ------------
Income statement information
At 31 December GBPm
--------------- --------- ---------- -------- --------- ---------- --------
Year ended 31 December Year ended 31 December
2017 2016
--------------- ------------------------------- -------------------------------
Ordinary Other Ordinary Other
Interest dividends amounts Interest dividends Amounts
received received paid received received paid
--------------- --------- ---------- -------- --------- ---------- --------
Subsidiaries 44 1,739 (117) 74 95 (108)
--------------- --------- ---------- -------- --------- ---------- --------
"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 Ingrid Johnson Group Chief Executive Group Finance Director
14 March 2018"
Enquiries
External communications
Patrick Bowes +44 20 7002 7440
Investor relations
Dominic Lagan (Old Mutual plc) +44 20 7002 7190 John-Paul Crutchley (Old Mutual Wealth) +44 20 7002 7016 Nwabisa Piki (Old Mutual Emerging Markets) +27 11 217 1951
Media
William Baldwin-Charles +44 20 7002 7133
+44 7834 524833
Notes to Editors
About Old Mutual plc
Old Mutual plc is a holding company for several financial services companies. In March 2016, it announced a new strategy of managed separation entailing the separation of its underlying businesses into independently-listed, standalone entities.
The managed separation strategy seeks to preserve and release the value currently trapped within the group structure. The managed separation will be materially complete by the end of 2018.
OM Asset Management, a US based institutional asset manager, is now independent from Old Mutual. The remaining underlying businesses are:
Old Mutual Emerging Markets: Old Mutual Emerging Markets seeks to become a premium African financial services group that offers a broad spectrum of financial solutions to retail and corporate customers across key market segments in 17 countries.
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.
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.
For the year ended 31 December 2017, Old Mutual reported an adjusted operating profit before tax of GBP2.0 billion. For further information on Old Mutual plc and the underlying businesses, please visit the corporate website at www.oldmutualplc.com.
This information is provided by RNS
The company news service from the London Stock Exchange
END
ACSFMGMFFKKGRZG
(END) Dow Jones Newswires
March 15, 2018 03:02 ET (07:02 GMT)
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