> The UK and RoW adjusted operating profit1 grew to £42 million in 2004.
> Our UK asset management business, OMAM (UK), and leading-edge funds supermarket, Selestia, are now well established.
> OMAM (UK) had £3.4 billion of assets under management at the end of 2004 and is well positioned for growth.
> Selestia was on track in terms of sales, with inflows of £423 million during 2004.
> Our US life business produced over half our life assurance sales and hit new highs. New premiums reached our target of $4 billion with a margin of 23% of APE.
> US asset management produced excellent investment performance, with 72% of assets outperforming their customer benchmarks on a three-year basis.
> Positive equity markets boosted assets under management by 20% to $185 billion.
> Strong net cash flows in the USA resulted in total funds under management rising by 12% to £140 billion.
> We had another very profitable year at our OMSA business and the return on equity, at 24%, continued to be at the high end of our target range. Total funds under management at OMSA increased by 15% to R312 billion.
> Gross sales of unit trusts were up by 52%. Our direct sales force grew and produced an increasing volume of business.
> Nedcor achieved the milestones promised at the time of its rights issue. Tier 1 solvency exceeded the 7.5% goal.
> Mutual & Federal had an excellent year, with an outstanding 7.8% underwriting ratio and a return on equity of 24%.
1 Excluding other shareholders' expenses and debt service costs.
2004 has seen us make significant progress. Adjusted operating earnings per share rose by 53% in Sterling and 46% in Rand, with each major business making a significant contribution. Our South African life business produced its usual strong profit contribution with return on capital of 24%. Nedcor made good progress in its recovery and a welcome return to profitability, while Mutual & Federal performed strongly as the short term insurance cycle reached its peak. Our US businesses increased their combined adjusted operating profit by 25% to $337 million.
Overall, our adjusted embedded value per share rose by 33% to 139.1p and by 21% to R15.08. Good earnings, the recovery in Nedcor's share price and rising equity markets all contributed. The operating return on embedded value was 19.4% and return on equity for our business rose from 14.4% to 19.1%, reflecting the progress in the business and tight capital management.
BUSINESS PERFORMANCE AND DEVELOPMENT
Our US life business now accounts for roughly half of our life new business. Sales were up 29% on an Annual Premium Equivalent (APE) basis to $501 million and, as a result, assets under management in this business grew from $13.3 billion to $17.3 billion. Margins remained at historically high levels under helpful interest rate conditions. We continued to innovate and adapt our product range to changing customer needs, particularly in the equity index annuity and mortgage term insurance markets. In order to bolster our ratings in support of this growth, we added a further $200 million of capital in December, making a total of $300 million for the year. We successfully finalised the transfer of our outsourced back-office functions in order to reduce costs and improve service to customers and agents. We expect our US life business to start paying dividends in 2007.
South African life sales fell by 10%, impacted by disappointing Employee Benefit sales, and we did not recover as well as we hoped in the broker market. More encouragingly, our Personal Financial Advisors (PFA) sales force grew by 14% to over 2,600, individual single premium sales were up 16% and unit trust sales were up 52% to R5.0 billion. Group Schemes sales were up by 10%, and our overall South African life margins remained unchanged at 25%.
Investment performance at Old Mutual Asset Managers (OMAM) South Africa was good - we came top in the Alexander Forbes Global Manager Watch (Large) Survey and 50% of our unit trusts performed in the top quartile of their comparator groups. Our new investment product, Max Investments, which brings the best of the unit trust and life assurance worlds to the customer, was the first product of its type to be launched in the South African market in November. Total funds under management at Old Mutual South Africa (OMSA) increased by 15% to R312 billion.
Nedcor achieved the milestones promised at the time of its rights issue. Tier 1 solvency exceeded the 7.5% goal and new governance is working effectively to control risks. The new management team is in place, with a clearly defined strategy. Profits met our targets for the year and, although growth was subdued overall, there were some notable successes - bancassurance sales rose 57% for example. Our objective remains a 20% return on equity at Nedcor by 2007.
Mutual & Federal had an excellent year, producing an outstanding 7.8% underwriting ratio and a return on equity of 24%. Its reputation for quality service was maintained and it won the three most prestigious customer service awards in the general insurance industry.
We have been working hard to complete the Black Economic Empowerment (BEE) ownership plans that are so important for the growth of all our South African businesses, and expect to be able to make a firm announcement on our detailed plans in this area in the near future.
Our US asset management business continued to produce excellent investment performance, with 72% of assets outperforming their customer benchmarks on a three-year basis. The developing strength of our distribution effort, combined with underlying investment performance, delivered $12.3 billion in net client cash flow which, together with positive equity markets, boosted assets under management by 20% to $185 billion. Almost two-thirds of Group assets under management are now for the account of US clients.
Our UK start-up businesses produced positive results. Selestia, in only its third year of operation, had sales of £423 million, and continued to win awards for its South African built systems and service to independent financial advisors. OMAM (UK) again won accolades for its investment performance, and attracted high margin hedge fund investors to replace unit trust funds withdrawn by Gerrard clients.
Our fledgling business in India is making steady progress and we now have over 40 branches. We have also established a representative office in Beijing to facilitate a Chinese life joint venture in due course. Mike Levett's retirement this year is in many ways the end of an era for the Group. He has served Old Mutual with distinction for over 46 years and has overseen the transformation of the business into its current powerful form. Along with all my colleagues, I thank him for his great contribution to Old Mutual and wish him a well-earned, happy retirement.
Market conditions in our industry are favourable at present, and the South African economy is strong. The momentum we have built up is expected to continue into 2005, although we will spend further amounts on the growth of our US asset management business and SA life distribution systems. We expect Nedcor to make steady progress towards its 2007 goal for return on equity. Old Mutual has shown that it is well able to prosper as an international financial services company, and we look forward to the next phase of our journey with confidence.
Our Group values of Integrity, Respect, Accountability and Pushing beyond Boundaries are central to our diverse businesses