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HIGHLIGHTS OF THE YEAR WHO WE ARE WHERE WE ARE CHAIRMAN'S STATEMENT FINANCIAL HIGHLIGHTS BUILDING A PREMIER INTERNATIONAL SAVINGS AND WEALTH MANAGEMENT BUSINESS CHIEF EXECUTIVE'S REVIEW STRATEGY PRIORITIES STRONG BRANDS WORLDWIDE GROUP FINANCE DIRECTOR'S REPORT BOARD OF DIRECTORS CORPORATE RESPONSIBILITY FINANCIAL INFORMATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1 Accounting policies 2 Foreign currencies 3 Segment information 4 Operating profit adjusting items 5 Income tax expense 6 Minority interests - Income statement 7 Earnings and earnings per share 8 Investment return (non-banking) 9 Banking interest and similar income 10 Banking trading, investment and similar income 11 Fee and commission income, and income from service activities 12 Finance costs 13 Banking interest payable and similar expense 14 Fee and commission expense, and other acquisition costs 15 Other operating and administrative expenses 16 Acquisition of subsidiaries 17 Goodwill and other intangible assets 18 Property, plant and equipment 19 Investment property 20 Operating lease arrangements 21 Deferred tax assets and liabilities 22 Investments in associated undertakings 23 Deferred acquisition costs 24 Long-term and general business policyholder liabilities 25 Loans and advances 26 Investments and securities 27 Other assets 28 Derivative financial instruments - assets and liabilities 29 Hedge accounting 30 Fair values of financial assets and liabilities 31 Analysis of movements in impairment account 32 Group balance sheet - categories of financial instruments 33 Discontinued operations, assets and liabilities held-for-sale 34 Borrowed funds 35 Provisions 36 Deferred revenue 37 Other liabilities 38 Amounts owed to bank depositors 39 Equity 40 Minority interests - balance sheet 41 Post employment benefits 42 Share-based payments 43 Dividends 44 Contingent liabilities 45 Commitments 46 Related parties 47 Principal subsidiaries and Group enterprises 48 Financial risk 49 Insurance risk 50 Reclassifications
FINANCIAL STATEMENTS OF THE COMPANY NOTES TO THE COMPANY FINANCIAL STATEMENTS EUROPEAN EMBEDDED VALUE BASIS SUPPLEMENTARY INFORMATION NOTES TO THE EUROPEAN EMBEDDED VALUE BASIS SHAREHOLDER INFORMATION

Notes to the consolidated financial statements

For the year ended 31 December 2007

46 Related parties

The Group provides certain pension fund, insurance, banking and financial services to related parties. These are conducted on an arm's length basis and are not material to the Group's results.

(i) 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.

(ii) Key management personnel remuneration and other compensation

Year ended
31 December
2007
Year ended
31 December
2006
 
Number of
personnel
Value
£000s
Number of
personnel
Value
£000s
Directors' fees
9
1,014
11
963
Remuneration
13,989
13,533
Cash remuneration
13
8,616
15
9,022
Short-term employee benefits
20
1,319
17
865
Other long-term benefits
12
326
15
849
Share-based payments
17
3,728
11
2,797
 
15,003
14,496

Year ended
31 December
2007
Year ended
31 December
2006
 
Number of
personnel
Number of
options/shares
'000s
Number of
personnel
Number of
options/shares
'000s
Share options
Outstanding at beginning of the year
11
15,458
9
16,061
New appointments
2
1,370
4
2,366
Granted during the year
8
1,888
7
1,104
Exercised during the year
11
(6,110)
10
(3,313)
Lapsed during the year
1
(14)
3
(760)
Outstanding at end of the year
11
12,592
11
15,458

Year ended
31 December
2007
Year ended
31 December
2006
 
Number of
personnel
Number of
options/shares
'000s
Number of
personnel
Number of
options/shares
'000s
Restricted shares
Outstanding at beginning of the year
13
4,257
8
2,603
New appointments
3
1,333
5
183
Granted during the year
8
1,695
11
1,942
Released during the year
10
(1,015)
3
(471)
Outstanding at end of the year
11
6,270
13
4,257

(iii) Key management personnel transactions
Key management personnel and members of their close family have undertaken transactions with Old Mutual plc and its subsidiaries, jointly controlled entities 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 December
2007
Year ended
31 December
2006
 
Number of
personnel
Value
£000s
Number of
personnel
Value
£000s
Current accounts
Balance at beginning of the year
7
2,323
2
(116)
Net movement during the year
(2,283)
2,415
Foreign exchange movement
-
24
Balance at end of the year
6
40
7
2,323
Credit cards
Balance at beginning of the year
4
12
2
8
Net movement during the year
4
6
Foreign exchange movement
-
(2)
Balance at end of the year
5
16
4
12
Mortgages
Balance at beginning of the year
5
1,643
1
79
Net movement during the year
2,201
1,943
Interest charged
210
93
Less repayments
(2,048)
(299)
Foreign exchange movement
8
(173)
Balance at end of the year
5
2,014
5
1,643
General insurance contracts
Total premium paid during the year
7
21
5
25
Claims paid during the year
2
11
1
3
Life insurance products
Total sum assured/value of investment at end of the year
7
3,157
7
1,927
Pensions, termination benefits paid
Value of pension plan as at end of the year
13
8,404
12
8,501

Various members of key management personnel hold, and/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.

(iv) Skandia Liv
Livförsäkringsaktiebolaget Skandia (publ) (Skandia Liv), is a related party to the Old Mutual Group. Skandia Liv is a wholly-owned subsidiary of Skandia and its business is conducted on a mutual basis. For the reasons given in the accounting policies Skandia Liv's result is not consolidated in these financial statements.

Material transactions between the Group and the Skandia Liv group in twelve months ended 31 December 2007 were as follows:

  1. Agreement in principle and framework agreement on co-operation covering market-related functions and certain staff functions - this involves distribution and distribution support, customer service, market communication, administration of group insurance products, and staff and service functions. Skandia Liv paid £86 million (2006: £104 million) for services rendered under this agreement.
  2. Premises - the Group rents office premises from Skandia Liv. The Group paid market rents of £14 million (2006: £13 million) for these premises.
  3. Occupational pensions - Skandia Liv provides occupational pensions for the employees of the Group, for which the Group paid £14 million (2006: £12 million).
  4. Agreement on IT services - the Group provides IT services to Skandia Liv. The amount charged to Skandia Liv was £7 million (2006: £7 million).
  5. With effect on 1 January 2007, Skandia and Skandia Liv entered into a new agreement on the handling of administrative services within the joint-group occupational pensions concept. This agreement entirely supersedes the previous agreement that applied. Under the previous agreement, Skandia outsourced the acquisition and a large share of the administration of unit-linked assurance business in the occupational pensions concept to Skandia Liv. Skandia Liv was remunerated for these services both through policyholder fees and through fees from Skandia. These fees were to cover Skandia Liv's acquisition and administrative costs for this unit-linked assurance. In connection with the new occupational pensions agreement, the parties have agreed that Skandia have paid a sum to release itself from its future payment obligation under the old agreement. A one-time payment of £174 million (SEK2,360 million) has been made by Skandia to Skandia Liv. Through this one-time settlement, the companies have settled all claims pertaining to services in previous years in the aforementioned outsourced business conducted aside from Skandia Liv's ordinary activity as insurer. Skandia has capitalised this payment as an acquisition cost, and the asset will be amortised over the term of the underlying insurance contracts. The payment was financed by a loan from Skandia's subsidiary Skandia Capital, which in turn financed the transaction through a loan from Skandia's parent company, Old Mutual plc.

The balance outstanding at 31 December 2007 due from Skandia Liv is £13 million (2006: £37 million).

Various other arrangements exist between the Group and Skandia Liv, principally in respect of provision of accounting, legal and treasury functions, all of which are transacted on an arm's length basis.

(v) Aka Capital (Proprietory) Limited
A Group subsidiary, Nedbank Ltd, sold its 20 per cent interest in Aka Capital (Proprietary) Limited ("Aka Capital") at arm's length, in August 2006, to the other existing Aka Capital shareholders. These included Mr RJ Khoza, who is a non-executive director of Old Mutual plc, who acquired an additional 4.2 per cent of Aka Capital through a special purpose vehicle (SPV) for R11.0 million. Nedbank Ltd's Capital Investment Committee approved this transaction in line with its mandate in the normal course of business. The funding for the acquisition by Mr Khoza's SPV was financed by Nedbank Ltd on arm's length terms, with R12.8 million of such funding being outstanding at year-end.

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