In designing the Group Transactions, the Group developed a set of principles aimed at sustainable, broad-based empowerment. These principles include:

• Transformation – The Group has designed the Group Transactions to accelerate operational transformation. This extends to employment equity, particularly at the management level, client acquisition, strategies for underserved markets, profiling the Group and community involvement. The Group Transactions are being implemented as part of the Group’s comprehensive, overarching approach to rapid transformation.
• Broad-based approach – The Group Transactions are designed to directly or indirectly benefit more than half a million black South Africans across the country, including employees and management, clients and women’s groupings, black trade union members, entrepreneurs and communities. The Group has sought to achieve an equitable balance between individuals that are internal and external to the Group. In the process, the ultimate beneficiaries of the Group Transactions have been reviewed to ensure that no individual benefits unduly. Employees and management will be the prime beneficiaries of the Group Transactions.
• Alignment of value added to benefits received – No one individual or ultimate beneficiary will be rewarded out of proportion to the value that they add.
  • Performance agreements (in the form of binding memoranda of understanding) have been negotiated with the Black Business Partners to ensure mutually beneficial, enduring partnerships. The performance agreements have been designed to incentivise the Black Business Partners by aligning their rewards which they receive under the performance agreements to the value that they add to the businesses;
  • The Group Transactions aim to balance the economic participation by internal and external individuals, the consequence of which is that no single external individual benefits more than the Group’s most highly paid South African employee; and
  • The Group Transactions seek to ensure that benefits are earned incrementally over the term of the agreements.
• Full economic benefits and voting rights – From the inception of the Group Transactions, shareholders and beneficiaries must have the full benefits of the voting rights and the economic benefits attached to equity ownership. Trusts, which have been or will be formed to acquire and hold Old Mutual plc, Nedcor or Mutual & Federal shares, have been or will be structured so as to comply with the ownership and control requirements of the FSC in that the majority of trustees will be independent black people and beneficiaries will be black people.
• Estimated benefits to exceed the estimated costs of the Group Transactions – In designing the Group Transactions, the Group sought to ensure that over time the commercial benefits of implementing the Group Transactions would outweigh the costs, and that the costs are in line with BEE transactions concluded in the financial sector to date.
• Existing black shareholding to be excluded from the calculation of black ownership in terms of the Group Transaction – Old Mutual plc had 1.46% (at 1 January 2004) existing black shareholding which translates into 3.50% of the value of Old Mutual (SA). In calculating the black ownership in Old Mutual (SA) post the implementation of the Group Transactions, existing black shareholding has not been taken into account.
• Maximising long-term shareholder value – The overall cost of the Group Transactions equates to approximately 3.31% of the value of the Group’s South African businesses. The initial impact is a reduction in embedded value per share of 2.2%. Initial costs associated with implementation of the Group Transactions have been excluded from adjusted operating profit such that the impact on adjusted operating earnings per share of 3.3% results from costs associated with managing the schemes and the dilution of the Old Mutual Group’s holdings in Nedcor and Mutual & Federal.

While the Group Transactions are dilutive to earnings and embedded value per share in the short term, they will reposition the Old Mutual Group in the longer term enabling it to transform and grow within South Africa. The Group expects the benefits of the different elements of the Group Transactions to significantly outweigh the costs over the longer term.