CGNU PLC Q1 2001 Results-Pt 3
CGNU PLC
3 May 2001
CGNU plc Q1 2001 Results
PART 3 OF 5
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Page 15
Summarised consolidated profit and loss account - modified statutory basis
For the three months to 31 March 2001
3 3 3 Full
months months months year
2001 2001 2000 2000
Em Premium income (after reinsurance) and £m £m £m
investment sales
Ongoing business
6,957 Life premiums 4,383 3,589 14,848
654 Investment sales 412 772 2,501
502 Health premiums 316 282 687
------ ------- ------- -------
8,113 5,111 4,643 18,036
3,563 General insurance premiums 2,245 2,295 8,990
------ ------- ------- -------
11,676 Total ongoing business 7,356 6,938 27,026
Businesses discontinued and to be discontinued
General insurance premiums
1,019 - United States (to be discontinued) 642 680 3,021
- - London Market (discontinued) - 112 192
------ ------- ------- -------
12,695 Total 7,998 7,730 30,239
====== ======= ======= =======
Operating profit
491 Modified statutory life profit 309 290 1,190
27 Health 17 16 68
25 Fund management 16 10 61
246 General insurance 155 113 412
(6) Non-insurance operations (4) (4) (24)
(64) Corporate costs (40) (41) (185)
(176) Unallocated interest charges (111) (77) (361)
------ ------- ------- -------
543 342 307 1,161
(51) Wealth management (32) (9) (133)
------ ------- ------- -------
Operating profit - ongoing business
before tax, amortisation of goodwill,
amortisation of acquired additional
value of in-force long-term business
492 and exceptional items 310 298 1,028
Businesses discontinued and to be
discontinued
United States general insurance
43 (to be discontinued) 27 79 (550)
- London Market (discontinued) - 7 (4)
------ ------- ------- -------
535 337 384 474
(22) Amortisation of goodwill (14) (9) (92)
Amortisation of acquired additional
(15) value of in-force long-term business (9) (1) (29)
- Exceptional items - - (425)
------ ------- ------- -------
498 Operating profit/(loss) before tax 314 374 (72)
Short-term fluctuation in investment
(450) returns (284) 135 258
(21) Change in the equalisation provision (13) (6) (27)
Net profit arising on the sale of
198 subsidiary undertakings 125 - 12
Provision for loss on sale for
businesses to be discontinued
21 - United States general insurance 13 - (1,070)
Loss on withdrawal from London Market
- operations - - (448)
- Merger transaction costs - - (59)
------ ------- ------- -------
Profit/(loss) on ordinary activities
246 before tax 155 503 (1,406)
(306) Tax on profit on ordinary activities (193) (197) (255)
------ ------- ------- -------
(Loss)/profit on ordinary activities
(60) after tax (38) 306 (1,661)
(23) Minority interests (14) (10) (52)
------ ------- ------- -------
(83) (Loss)/profit for the financial period (52) 296 (1,713)
(6) Preference dividends (4) (4) (17)
------ ------- ------- -------
(Loss)/profit for the financial period
(89) attributable to equity shareholders (56) 292 (1,730)
- Ordinary dividends - - (855)
------ ------- ------- -------
Retained (loss)/profit transferred
(89) to reserves (56) 292 (2,585)
====== ======= ======= =======
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Page 16
Earnings per share - modified statutory basis
For the three months to 31 March 2001
3 months 3 months Full year
2001 2000 2000
Operating profit before amortisation of
goodwill, amortisation of acquired additional
value of in-force long-term business and
exceptional items, after taxation,
attributable to equity shareholders in
respect of ongoing business 8.6 p 8.8p 28.3 p
(Loss)/profit attributable to equity
shareholders (2.5)p 13.0p (77.0)p
(Loss)/profit attributable to equity
shareholders - diluted (2.5)p 13.0p (76.9)p
Consolidated statement of total recognised gains and losses
For the three months to 31 March 2001
3 months 3 months Full year
2001 2000 2000
£m £m £m
(Loss)/profit for the financial period (52) 296 (1,713)
Movement in internally-generated additional
value of in-force long-term business* (255) 127 73
Foreign exchange (losses)/gains (48) (157) 303
------- ------- -------
Total recognised gains and losses arising
in the period (355) 266 (1,337)
======= ======= =======
* Stated before the effect of foreign exchange movements which are
reported within the foreign exchange (losses)/gains line.
Reconciliation of movements in consolidated shareholders' funds
For the three months to 31 March 2001
3 months 3 months Full year
2001 2000 2000
£m £m £m
Shareholders' funds at the beginning of the
period 13,633 15,673 15,673
Total recognised gains and losses arising
in the period (355) 266 (1,337)
Dividends (4) (4) (872)
Increase in capital 1 6 54
Merger reserve arising during the period - - 5
Other movements 7 (2) 110
------- ------- -------
Shareholders' funds at the end of the period 13,282 15,939 13,633
======= ======= =======
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Page 17
Summarised consolidated balance sheet
31 March 31 March 31 December
2001 2000 2000
£m £m £m
Assets
Goodwill 733 541 747
------- ------- -------
Investments
Land and buildings 817 818 820
Investments in Group undertakings and
participating interests 287 210 264
Variable yield securities 5,052 6,956 5,868
Fixed interest securities 14,477 13,303 13,813
Mortgages and loans, net of non-recourse
funding 1,236 1,098 1,233
Deposits 921 1,265 1,112
Additional value of in-force long-term
business 6,352 6,533 6,605
------- ------- -------
29,142 30,183 29,715
Reinsurers' share of technical provisions 3,702 2,607 3,709
Assets of the long-term business 148,495 142,189 148,551
Other assets 10,716 10,684 10,596
------- ------- -------
Total assets 192,788 186,204 193,318
======= ======= =======
Liabilities
Shareholders' funds
Equity 13,082 15,739 13,433
Non-equity 200 200 200
Minority interests 538 562 584
------- ------- -------
Total capital and reserves 13,820 16,501 14,217
Liabilities of the long-term business 144,169 138,088 144,301
General insurance liabilities 23,815 22,463 23,786
Borrowings 2,530 2,131 2,592
Other creditors and provisions 8,454 7,021 8,422
------- ------- -------
Total liabilities 192,788 186,204 193,318
======= ======= =======
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Page 18
Consolidated cash flow statement
For the three months to 31 March 2001
3 months 3 months Full year
2001 2000 2000
£m £m £m
Net cash inflow from operating activities
excluding exceptional items and
merger transaction costs 34 46 738
Exceptional items and merger transaction
costs paid (63) (17) (251)
Net cash outflow from servicing of finance (39) (53) (257)
Corporation tax paid
(including advance corporation tax) (16) (26) (210)
Net purchases of tangible fixed assets (6) (15) (119)
Acquisitions and disposals of subsidiary
and associated undertakings 192 (225) (277)
Equity dividends paid - - (816)
Net cash (outflow)/inflow from financing
activities (82) 394 493
------- ------- -------
Net cash flows 20 104 (699)
======= ======= =======
Cash flows were invested as follows:
Increase/(decrease) in cash holdings 56 (11) 119
Net portfolio investment
Net (sales)/purchases of investments (143) 133 (1,541)
Non-trading cash outflow to/(inflow from)
long-term business operations 107 (18) 723
------- ------- -------
Net investment of cash flows 20 104 (699)
======= ======= =======
The cash flows presented in this statement relate to non-life transactions
only.
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Page 19
1. Basis of preparation
(a) On 21 February 2000, CGU plc and Norwich Union plc announced plans to
merge their respective businesses to form CGNU plc. The merger was
effected by way of a scheme of arrangement of Norwich Union plc under
section 425 of the Companies Act 1985. Under the terms of the scheme,
Norwich Union shareholders had their existing shares replaced by new
shares in CGNU plc. CGU shareholders' rights were unaffected. The
merger became effective on 30 May 2000 and on that date 931 million
new shares in CGNU plc, with a total market value of £9,528 million,
were issued to Norwich Union plc shareholders in return for Norwich
Union plc shares in a ratio of 48 CGNU plc shares for every 100
Norwich Union plc shares.
The merger has been accounted for using the merger accounting
principles set out in Financial Reporting Standard 6 'Acquisitions and
Mergers'. Accordingly, the financial information for 2000 has been
presented as if CGU plc and Norwich Union plc had been combined
throughout the year. Merger accounting principles have given rise to a
merger reserve.
Costs of integrating and reorganising the business are included within
operating profit. Merger transaction costs of £59 million were
incurred in 2000 and are shown after operating profit within the
profit on ordinary activities before taxation.
(b) The results for the three months to 31 March 2001 have been prepared
on the basis of the accounting policies set out in CGNU plc's 2000
Annual Report and Accounts. In preparing the comparative information
for the three months to 31 March 2000, certain adjustments from
previously published information were made to align the accounting
policies to those adopted by CGNU plc. The accounting policies aligned
were such that:
(i) Certain general business fixed income and debt securities held
by Norwich Union plc were revalued from an amortised cost basis
to a market value basis;
(ii) Project costs which had formerly been capitalised by Norwich
Union plc have been eliminated;
(iii) Embedded value assumptions used by both companies have been
brought onto a common basis.
The impact of these changes was to increase profit before tax for the
three months to 31 March 2000 by £9 million (full year 2000: increase
by £7 million) and increase shareholders' funds at 31 March 2000 by
£75 million (31 December 2000: increase by £110 million).
(c) The results for the three months to 31 March 2001 and 31 March 2000 are
unaudited. The accounts do not constitute statutory accounts as defined
in section 240 of the Companies Act 1985. The results for the full year
2000 have been taken from the Group's 2000 Report and Accounts. The
joint auditors have reported on the 2000 accounts and their reports
were unqualified and did not contain a statement under Section 237(2)
or (3) of the Companies Act 1985. The CGNU plc 2000 Report and Accounts
have been filed with the Registrar of Companies.
(d) 'Business discontinued' disclosures relate solely to the exit from
London Market business in 2000.
'Business to be discontinued' relate solely to the general insurance
business in the United States, a material discrete operation where
sales contracts have been exchanged with a prospective purchaser but
all conditions of sale have not been achieved, and sales proceeds have
not yet been received by the Group. The results of all other
operations are entitled 'Ongoing business'. In instances where the
carrying value of businesses to be disposed of is more than the likely
sales proceeds, a provision for loss on sale has been included in the
results.
(e) The contribution from the Group's share of the alliance with The Royal
Bank of Scotland Group plc (RBSG) is incorporated with the total life
revenues and modified statutory life profits. Goodwill amortised in the
period in respect of the Group's holding in the associated company, RBS
Life Investments Limited, is included within the 'Amortisation of
goodwill' on page 15.
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Page 20
2. Exchange rates
The principal rates of exchange used for translation are:
Average rates
3 months 3 months Full year
2001 2000 2000
Canada - dollars 2.22 2.33 2.25
United States - dollars 1.45 1.60 1.51
Closing rates
31 March 31 March 31 December
2001 2000 2000
Canada - dollars 2.24 2.32 2.24
United States - dollars 1.42 1.59 1.49
The euro rates employed in this announcement are an average rate of 1 euro =
£0.63 (three months to 31 March 2000: 1 euro = £0.61, full year 2000: 1 euro =
£0.61) and a closing rate of 1 euro = £0.62 (31 March 2000: 1 euro = £0.60,
31 December 2000: 1 euro = £0.63).
3. Disposals and business to be discontinued
(a) Disposals
In February 2001, the Group completed the disposal of its wholly-owned New
Zealand subsidiary, State Insurance Limited, for a cash consideration of
£125 million. The net assets disposed of amounted to £69 million and the
profit on disposal, after transaction costs, was £52 million.
In March 2001, the Group completed the disposal of its holding in Quilter
Holdings Limited for a cash consideration of £102 million. The cash
consideration reflected the value of the Group's 56.7% interest in Quilter
Holdings Limited following the exercise of management options immediately
before the change of ownership. The Group's share of the net assets disposed
of amounted to £24 million and the profit on disposal, after transaction costs
and writing back £6 million of goodwill previously charged to reserves, was
£70 million.
The disposal of other smaller operations gave rise to a net gain of
£3 million.
(b) Business to be discontinued - United States general insurance
The Group has entered into an agreement to sell its US general insurance
operations for US$2,063 million and, in addition, an inter-company loan of
US$1,100 million will be repaid to the Group. The settlement will comprise
cash, the transfer of businesses to be retained and subordinated loan notes of
US$260 million. This sale is subject to the satisfaction of certain
conditions, including US regulatory approval, and is expected to be completed
later this year.
Subject to the satisfaction of certain conditions:
- The total proceeds for the sale of the US general business of
US$3,163 million were fixed by reference to the operation's net assets as
at 31 August 2000 and will not be adjusted to reflect the business'
results in the period from 1 September 2000 to completion; and
- The Group will not bear any continuing operating risk from 31 August
2000 nor provide any guarantees in respect of its claims reserves or
balance sheet beyond this date.
Consequently, had the transaction been completed on 31 August, the post-tax
loss on sale would have been US$2,007 million.
Financial Reporting Standard 2 'Accounting for subsidiary undertakings'
requires the results of the US general business to be consolidated with those
of the Group's ongoing operations until the completion of the transaction.
However, given that, subject to completion, the Group has retained no economic
interest in the operations of this business beyond 31 August 2000, the US
general business' post-tax operating loss and investment gains incorporated in
the Group's consolidated profit and loss account from 1 September 2000 to
completion will be offset by a corresponding change to the loss on sale
calculated at 31 August 2000. The loss on sale also reflects goodwill
previously written off against reserves but which needs to be reinstated and
charged to the profit and loss account.
The after-tax provision for the loss on the sale, including pre-closing
adjustments of US$200 million (£141 million), recorded in the Group's
consolidated profit and loss account at 31 March 2001 is US$1,453 million or
£1,023 million retranslated at the exchange rate prevailing at 31 March 2001.
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Page 21
3. Business to be discontinued - United States general insurance
(continued)
Impact of disposal of United States general insurance business
Full Exchange 3
year Trading rate months
2000 movements movements 2001
£m £m £m £m
Value to the Group 2,092 - 106 2,198
======= ======= ======= =======
Represented by:
Net assets to which proceeds apply,
including capital injection 3,092 (13) 157 3,236
Goodwill write back 70 - - 70
------- ------- ------- -------
3,162 (13) 157 3,306
------- ------- ------- -------
Loss on sale
- Provision for loss on sale after
tax and goodwill write back (989) 13 (47) (1,023)
- Tax attributed to loss on sale (81) - (4) (85)
------- ------- ------- -------
Pre-tax provision for loss on sale (1,070) 13 (51) (1,108)
------- ------- ------- -------
Proceeds, net of transaction costs 2,092 - 106 2,198
======= ======= ======= =======
The cash component of the proceeds, net of the pre-closing adjustment, of
US$1,846 million (£1,298 million) is receivable upon completion.
The Group has hedged an element of its exposure to the sales proceeds, the
effect of which is to reduce the exchange gain from £106 million disclosed
above to £83 million.
The final accounting loss on completion will differ from the post-tax loss of
£1,023 million above. This is due to the consolidation of profits or losses of
this business from 1 April 2001 to the date of completion, and fluctuations in
the exchange rate.
The Group's consolidated profit and loss account and balance sheet incorporate
the following financial information in respect of the US general insurance
business:
Abridged statement of operating and 3 3 Full
investment gains months months year
2001 2000 2000
£m £m £m
Underwriting result (66) (26) (967)
Longer-term investment return 93 105 417
------- ------- -------
General insurance operating profit/(loss) 27 79 (550)
Unallocated interest charges* (12) (11) (42)
------- ------- -------
Operating profit/(loss) 15 68 (592)
Amortisation of goodwill (1) (1) (3)
Short-term fluctuation in investment returns 76 34 66
------- ------- -------
Profit/(loss) on ordinary activities before
tax 90 101 (529)
Tax on profit/(loss) on ordinary activities (103) (3) 110
------- ------- -------
Profit/(loss) for the financial period (13) 98 (419)
Retranslation to closing rate - 1 (4)
------- ------- -------
Retained profit/(loss) (13) 99 (423)
======= ======= =======
* Unallocated interest charges are eliminated at Group level.
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Page 22
4. Exceptional items
Exceptional items in 2000 comprise merger integration costs and reflect the
costs of integrating and reorganising the businesses of the former CGU plc and
Norwich Union plc.
5. Geographical analysis of life and pensions and investment sales - new
business and total income.
New business sales Premium income
New single New regular (after reinsurance)
premiums premiums and investment
sales
3 3 3 3 3 3 Full
months months months months months months year
2001 2000 2001 2000 2001 2000 2000
£m £m £m £m £m £m £m
Life and pensions
sales
United Kingdom 1,736 1,450 120 83 2,272 2,029 8,548
Europe
(excluding UK)
France 554 511 10 12 640 584 2,124
Ireland 109 103 14 14 173 147 539
Italy 232 61 6 1 283 101 378
Netherlands 146 109 15 15 421 298 1,030
Poland
- Life 2 3 9 12 71 61 247
- Pensions - - 8 86 112 87 371
Spain 121 22 12 3 168 38 428
Other 48 25 19 21 72 98 512
International 121 107 14 11 171 146 671
------ ------ ------ ------ ------ ------ ------
Total life and
pensions 3,069 2,391 227 258 4,383 3,589 14,848
Investment sales
United Kingdom 308 247 2 1 310 248 897
Netherlands 15 371 - - 15 371 1,025
Europe
(excluding UK) 45 68 - - 45 68 284
International 42 85 - - 42 85 295
------ ------ ------ ------ ------ ------ ------
Total long-term
business 3,479 3,162 229 259 4,795 4,361 17,349
====== ====== ====== ====== ====== ====== ======
Single premiums are those relating to products issued by the Group, which
provide for the payment of one premium only.
Regular premiums are those where there is a contractual obligation to pay on
an ongoing basis.
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Page 23
6. Geographical analysis of modified statutory life profit
Full
3 months 3 months year
2001 2000 2000
£m £m £m
United Kingdom
With-profit 72 65 275
Non-profit 132 140 497
Europe (excluding UK)
France 38 31 143
Ireland 7 12 45
Italy 3 3 21
Netherlands 38 32 159
Poland
- Life 10 7 31
- Pensions 3 (5) (9)
Spain 5 2 14
Other (5) (10) (22)
International 6 13 36
------ ------ ------
Total modified statutory life profit 309 290 1,190
====== ====== ======
7. Geographical analysis of health premiums after reinsurance and
operating result
a) Premiums after reinsurance:
Full
3 months 3 months year
2001 2000 2000
£m £m £m
United Kingdom 65 53 204
France 29 25 92
Netherlands 222 204 391
------ ------ ------
316 282 687
====== ====== ======
b) Operating result:
Operating profit Underwriting result
3 3 Full 3 3 Full
months months year months months year
2001 2000 2000 2001 2000 2000
£m £m £m £m £m £m
United Kingdom (1) - 6 (2) (1) 2
France 1 3 12 (1) 1 -
Netherlands* 17 13 50 (6) (6) (22)
------- ------- ------- ------- ------- -------
17 16 68 (9) (6) (20)
======= ======= ======= ======= ======= =======
* The basis for allocating the longer-term investment return between
general business and health business was refined in 2000 and is based
on underlying technical and associated solvency assets. The effect of
this refinement on the three months to 31 March 2000 has been to
reclassify £7 million of longer-term investment return from general
insurance into health.
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Page 24
8. Geographical analysis of general insurance premiums after reinsurance
and operating result
a) General insurance premiums after reinsurance:
Full
3 months 3 months year
2001 2000 2000
£m £m £m
United Kingdom 1,209 1,216 4,937
Europe (excluding UK)
France 244 218 640
Ireland 112 90 382
Netherlands 112 103 465
Other 162 190 625
International
Australia and New Zealand 128 158 634
Canada 197 195 940
Other 81 125 367
------- ------- -------
Ongoing business 2,245 2,295 8,990
Businesses discontinued and to be discontinued
United States 642 680 3,021
London Market - 112 192
------- ------- -------
2,887 3,087 12,203
======= ======= =======
b) Operating result:
Operating profit* Underwriting result*
3 3 Full 3 3 Full
months months year months months year
2001 2000 2000 2001 2000 2000
£m £m £m £m £m £m
United Kingdom 100 79 296 (57) (77) (387)
Europe (excluding UK)
France 10 (13) (115) (15) (37) (208)
Ireland 5 5 21 (8) (7) (30)
Netherlands** - (1) (4) (9) (10) (40)
Other 7 1 20 (11) (21) (55)
International
Australia and New
Zealand 11 20 82 (7) (4) (7)
Canada 11 12 78 (21) (19) (53)
Other 11 10 34 (1) (16) (41)
------- ------- ------- ------- ------- -------
Ongoing business 155 113 412 (129) (191) (821)
Businesses
discontinued and to
be discontinued
United States 27 79 (550) (66) (26) (967)
London Market - 7 (4) - (11) (59)
------- ------- ------- ------- ------- -------
182 199 (142) (195) (228) (1,847)
======= ======= ======= ======= ======= =======
* The general insurance operating profit and underwriting result are
stated before the change in the equalisation provision of
£13 million (three months to 31 March 2000: £6 million, full year 2000:
£27 million).
** The basis for allocating the longer-term investment return between
general business and health business was refined in 2000 and is based
on underlying technical and associated solvency assets. The effect of
this refinement on the three months to 31 March 2000 has been to
reclassify £7 million of longer-term investment return from general
insurance into health.
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Page 25
9. Taxation
The tax charge in the profit and loss account comprises:
3 months 3 months Full year
2001 2000 2000
£m £m £m
UK corporation tax 5 34 (65)
Overseas tax 90 48 49
Other 3 25 (103)
------- ------- -------
Total taxation charge for the period 98 107 (119)
Tax attributable to the long-term business
technical result 95 90 374
------- ------- -------
Charge to profit and loss account 193 197 255
======= ======= =======
Tax charge analysed between:
Operating profit before tax, amortisation
of goodwill, amortisation of acquired
additional value of in-force long-term
business and exceptional items
- ongoing business 98 88 326
- businesses discontinued and to be discontinued 9 18 (130)
Profit on other ordinary activities 86 91 59
------- ------- -------
193 197 255
======= ======= =======
10. Dividends
a) The preference dividends in the profit and loss account
comprise:
3 months 3 months Full year
2001 2000 2000
£m £m £m
Preference dividends 4 4 17
======= ======= =======
The preference dividends are in respect of the cumulative irredeemable
preference shares of £1 each in issue.
b) The ordinary dividends in the profit and loss account comprise:
3 months 3 months Full year
2001 2000 2000
£m £m £m
Ordinary dividends
Interim - 14.25 pence - - 320
Final - 23.75 pence - - 535
------- ------- -------
Total ordinary dividends - - 855
======= ======= =======
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END OF PART 3 OF 5
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