Interim Results - Part 1

CGU PLC 11 August 1999 Part 1 CGU plc UNAUDITED RESULTS - 6 MONTHS ENDED 30 JUNE 1999 * Operating profit of £420m (1998 £399m) before tax and merger integration costs, and operating earnings per share up 19% at 22.7p. * Interim dividend increased by 7.5% to 14.25p. * New life and savings business up 29% to £3.7bn with the post-tax value of new business increasing by 23%. Statutory life profits up 10% to £250m. * General insurance profits up 7% to £287m. * Estimated annualised merger cost savings increased to £325m per annum by mid 2000, from £270m. The cost to achieve this increased to £380m, from £320m. 6 months 6 months 1998 1999 Restated Unaudited Unaudited Life premium income £4,634m £3,434m General premium income £4,562m £4,636m Pre-tax operating profit before merger integration costs £420m £399m Operating earnings before merger integration costs per ordinary share 22.7p 19.1p Merger integration costs £70m Nil Profit attributable to ordinary shareholders £18m £811m Interim dividend per ordinary share 14.25p 13.25p Shareholders' funds £9,130m £9,039m (31 Dec 1998) Enquiries: Bob Scott, Group Chief Executive Telephone : 0171 662 2003 Peter Foster, Group Finance Director Telephone : 0171 662 2007 Bob Scott, Group Chief Executive: Encouraging progress was made in the first 6 months of 1999 with strong growth in life and savings new business and the identification of a higher level of merger cost savings. The operating profit of £420m, before tax and merger integration costs, was 5% higher. Operating earnings per share increased by 19% and the interim dividend is being increased by 7.5% to 14.25p. Excellent progress is being made with the integration of our businesses. One year after the merger our estimate of annualised future cost savings by June 2000, with reference to 1997 prices and exchange rates, has been increased to £325m per annum from £270m, primarily reflecting additional savings in the United Kingdom general insurance business. The estimated cost of achieving these savings has increased to £380m, of which £330m has been charged to date, including £70m in these results. Annualised cost savings achieved to date amounted to £190m and some two thirds of staff reductions, of 6,000, which remains our target, have been achieved. Our life and savings businesses continue to capitalise on the growth opportunities, especially in the United Kingdom and Continental Europe. Life and savings new business increased by 29% while life new annualised premium income, a commonly used industry measure, increased by 23%. In Poland, we have had exceptional success in the privatisation of pensions and have gained in excess of 25% of the market. As contributions are redirected from the state scheme, this will boost future annual premiums by over £250m per annum. The value of the new business contribution, after the cost of capital, increased by 18% before tax and 23% after tax calculated on the alternative method of reporting life profits, known as achieved profits, shown on pages 5 to 7. Statutory life profits increased by 10% to £250m, after charging start up costs of £5m for sales of Polish pensions. Achieved operating life profits were £89m higher than statutory profits. In general insurance, the profit increased by £18m to £287m. This reflected an improvement of £69m in the underwriting result, partly offset by lower longer term investment returns. The underwriting result benefited from a reduction of £35m in the level of expenses and of £75m in the cost of weather claims, which led to an improved underwriting result in our largest businesses in the United Kingdom and the United States. We are focusing on the more profitable products and market segments, continuing to pay close attention to improving underwriting and increasing premium rates wherever possible. In the Netherlands, we announced the proposed merger of our Dutch subsidiary, Delta Lloyd, with NUTS OHRA. This will create the 3rd largest insurer in the Netherlands, with strong market positions and enhanced distribution capabilities. We have had a long standing and profitable relationship with the leading French bank Societe Generale since its privatisation in 1987 when we acquired a shareholding. This has performed well and we have recently increased our holding from 3% to 6.9% to protect our commercial relationship with them. This was against the background of preliminary and exploratory discussions on forming bancassurance joint ventures in France and other European countries, as well as on fundamental investment grounds. The discussions were suspended pending the resolution of the hostile Banque Nationale de Paris offer for Societe Generale. Competition remains strong in many of our markets. Costs are being reduced and vigorous action is being taken to grow our life and savings business profitably and improve our general insurance results. RESULTS HIGHLIGHTS The pre-tax operating profit before merger integration costs improved to £420m (1998 £399m). Operating earnings per share before merger integration costs also benefited from a reduction in the tax charge and increased by 19% to 22.7p. Merger integration costs provided in the first half were £70m (1998 nil). The interim dividend has been increased by 7.5% to 14.25p per share. Life & savings There was strong growth in life and savings new business, up 29% to £3.7bn at constant rates of exchange. New annual premiums increased to £239m, up 17% and new single premiums were 28% higher at £3,019m. Sales of PEPs, ISAs, unit trusts and UCITS were 44% higher at £483m. There was strong new business growth in the UK, up 36%, with good performances in France, the Netherlands and Italy. In Poland we are the market leader in the new private pensions and have gained in excess of 25% of the market. The value of new business written after tax and the cost of capital increased by 23%. In the United Kingdom, product margins were broadly maintained but the value of new business written was similar to last year reflecting changes in the business mix towards pensions and single premium bond products. New business increased in value by 63% in France, mainly reflecting the contribution from increased AFER sales, and by 30% in Italy reflecting strong premium growth and good margins. Statutory life profits increased by 10% to £250m after charging £5m of start up costs for the new Polish pensions business. Profits increased strongly in Italy and good profit growth was achieved in the UK. Using the achieved profit method of calculating the life result, the life operating profit would have been £339m, £89m higher than the published statutory figure. Supplementary information on achieved profits is shown on pages 5 to 7. General insurance General insurance profits benefited from an improved underwriting result in the UK and the US and grew by 7% to £287m, despite the effect of lower longer term investment returns. The cost of weather claims reduced by £75m to £155m. The general insurance expense ratio for the Group declined to 13.7% (6 months 1998 14.1%). The longer term investment return was 8% lower at £623m reflecting the effect of lower interest rates, a reduction in cash flow and the unwinding of the discount on certain claims provisions. Our focus remains on improving results in our worldwide general insurance businesses. Our strong stance on rate increases and our refusal to write some Y2K business saw premium income reduce by 12% in the UK, and worldwide, premium income was 2% lower at £4,562m. Asset management Total assets and additional funds under management increased to £128bn (31 Dec 1998 £121bn). Morley Fund Management, our UK asset management company, produced a good increase in profits to £11m (1998 £5m) in favourable market conditions. Year 2000 ('Y2K') and the euro The vast majority of our Y2K preparations are now complete and we are conducting extensive 21st century simulation testing. Our general insurance businesses have introduced exclusion clauses wherever possible to reduce the impact of potential claims arising from Y2K failure. Total Y2K IT costs are estimated at £135m (£105m incurred to date), with £21m included in these results. The cost incurred to date for the introduction of the euro amounted to £22m, with £4m included in these results. Shareholders' funds Shareholders' funds at 30 June 1999 were £9,130m (31 Dec 1998 £9,039m). Net assets per ordinary share at 30 June 1999 were 681p (31 Dec 1998 675p) after deducting the equalisation provision. Adding back the equalisation provision, they were 691p (31 Dec 1998 684p). At 6 August 1999, net assets per ordinary share were estimated at 664p (674p adding back the equalisation provision). The solvency margin (excluding life) was 50% (31 Dec 1998 51%). Return on equity The group's 'normalised' after tax return on equity for the 12 months to 30 June 1999 was 10% (3 year average 12%). The normalised return is based on the published after tax operating profits before exceptional items, including achieved life profits, and the opening equity capital. NOTES TO EDITORS CGU is Europe's 5th largest insurance group and the largest in the UK (based on worldwide sales). CGU is one of the top 20 fund managers in Europe, with worldwide assets and additional funds under management of £128 billion at 30 June 1999. In the first 6 months of 1999, total life premiums and retail investment sales accounted for 53% of total business. The distribution of total premiums and retail investment sales of £17.6 billion for the 12 months to 30 June 1999 was as follows: Life and savings General Total % % % UK 22 16 38 France 12 4 16 Netherlands 5 2 7 Other Europe 10 3 13 United States 1 15 16 Canada - 5 5 Australia & NZ - 3 3 Rest of World - 2 2 All growth rates are quoted in local currency. Overseas currency results are translated at average exchange rates. CGU's corporate press releases and results presentations are available on the Internet: www.cgugroup.com A detailed review of CGU's business performance follows BUSINESS REVIEW STATUTORY LIFE PROFITS Statutory life profits of £250m were 10% higher at constant rates of exchange, reflecting excellent growth in Italy and a good performance from our largest life operation in the UK. Statutory profits 6 months 6 months 1999 1998 £m £m UK 122 107 France 45 42 Netherlands 63 61 Other Europe - Italy 12 3 - Poland life 11 13 - Poland pensions (5) - - Other (4) (9) Rest of World 6 5 --- --- Profit on continuing business 250 222 Profit on discontinued - 4 business (note) --- --- 250 226 --- --- Note: Our life operation in South Africa was disposed of at the end of 1998. UK: CGU Life, the 6th largest UK life office, produced a good increase in profit, up 13% to £122m. Our strong life funds put us in an excellent position to grow new business sales and UK margins remain robust. France: In France, where we are the 7th largest life company, profits increased by 6% to £45m. Netherlands: Delta Lloyd, a major group pensions provider, currently ranks 5th overall in the Dutch life market, and produced life profits of £63m in the first six months. In Italy, excellent new business growth in 1998 boosted life profits to £12m. Life profits of £6m in Poland included start up costs of £5m for the new pensions business, where CU Polska is the market leader. SUPPLEMENTARY INFORMATION ON ACHIEVED PROFITS On the achieved profits basis of reporting life profits, the group's life and savings operating profit increased to £339m from £321m. The new business contribution on continuing business, after charging for the cost of capital, grew by 18% to £98m and after taxation, the growth was 23%. New annualised premiums also grew by 23%. Interest roll up on the opening embedded value, which is the major element of profits on the business in force and net assets, was £14m less in 1999 than 1998, due to the substantial reductions in interest rate assumptions from June 1998. Profit on New Analysis of life and business in business savings profits force contribution Total and net assets 6 months 6 months 6 months 1999 1998 1999 1998 1999 1998 £m £m £m £m £m £m Life operating profit before taxation UK 90 97 56 55 146 152 France 46 41 10 6 56 47 Netherlands 65 53 - (3) 65 50 Italy 4 7 22 16 26 23 Poland - life 17 17 10 11 27 28 Poland - pensions 1 - - - 1 - Other 3 5 - (2) 3 3 --- --- --- --- --- --- Life operating profit on 226 220 98 83 324 303 continuing business Operating profit on - 5 - 1 - 6 discontinued business (note) --- --- --- --- --- --- Life operating profit 226 225 98 84 324 309 before taxation --- --- --- --- --- --- Operating profit on other life & savings activities 15 12 before taxation --- --- Operating profit before 339 321 taxation --- --- Effect of changes in interest rates and 421 352 investment return fluctuations --- --- Achieved profit before 760 673 taxation Taxation (226) (231) --- --- Achieved profit after taxation 534 442 --- --- Note: Our life operation in South Africa was disposed of at the end of 1998. New business contribution New annualised New business premiums contribution 6 months 6 months 1999 1998 1999 1998 £m £m £m £m UK 216 188 56 55 France 72 60 10 6 Netherlands 55 46 - (3) Italy 97 78 22 16 Poland - life 32 30 10 11 Poland - pensions 2 - - - Other 67 36 - (2) --- --- --- --- Total 541 438 98 83 --- --- --- --- Note: Annualised premiums are annual premiums plus 10% of single premiums. The United Kingdom again made a major new business contribution. Product margins were broadly maintained but a change in business mix towards pensions and single premium bonds resulted in a similar new business contribution. In France, there was a good increase in the new business contribution due to increased AFER sales and improved profitability on other savings products. In the Netherlands, an improved new business contribution was achieved by increasing the profitability of unit linked business. Italy has continued to benefit from strong premium growth and good margins. In Poland, life business produced a good performance with very satisfactory margins, despite some increase in competition. Pensions business in Poland will grow rapidly when contributions are redirected from the state scheme. This will generate substantial future new business contributions. The analysis of embedded value and information on methodology and assumptions is provided following the statistical appendix. LIFE AND SAVINGS NEW BUSINESS There was excellent new business growth in the first six months of 1999, with worldwide life and savings sales 29% higher in local currency at £3.7 billion. New single New annual PEPs/ISAs premiums premiums unit trusts/ TOTAL UCITS (ii) Local Local Local Local 6 mths currency 6 mths currency 6 mths currency currency 1999 growth 1999 growth 1999 growth growth £m % £m % £m % % UK 1,335 32 82 (6) 427 62 36 France 652 17 7 11 17 Netherlands 167 11 38 19 13 Other Europe - Italy 615 23 36 23 23 - Poland 6 119 34 24 32 - Germany 67 n/a 15 n/a n/a - Other 74 148 5 29 56 (21) 29 Rest of World 103 1 22 21 4 ----- --- --- --- --- --- --- TOTAL 3,019 28 239 17 483 44 29 ----- --- --- --- --- --- --- Notes: (i) Premiums are gross of reassurance. (ii) UCITS are collective investments sold throughout Europe and Asia. (iii) Growth excludes sales from discontinued business. UK : CGU Life's total sales of new life, pensions and investment business rose by 36% to £1.8bn in the first half of 1999, with strong and profitable growth through our multi-distribution network. In terms of NAPI (new annual premiums plus a tenth of new single premiums and investment products), new business increased by 21% to £258m. New life single premiums were 32% higher at £1,335m, boosted by strong sales of our flagship investment product, the Portfolio Bond. New annual premiums were 6% lower, reflecting reduced sales of profitable mortgage endowment products. New investments in PEPs, unit trusts and ISAs rose 62% to £427m. ISA sales have increased steadily with sales in June 1999 ahead of PEP sales in June last year. France : Single premium sales were up 17% to £652m, boosted by a 66% increase in AFER sales to £351m (there was an additional £56m in unit-linked AFER sales), ahead of growth in the French market. Netherlands : New annual premiums were 19% higher at £38m, reflecting good growth in pensions business and a 36% increase to £8m in sales of Delta Life, our unit-linked universal life policy. Single premiums were up 11% to £167m, following the acquisition of a new group pension scheme in the first quarter. Italy : Annual premium new business was up 23% at £36m, reflecting strong sales of our unit-linked product range. Single premiums were also 23% higher at £615m, following buoyant sales in the second quarter. Poland : CU Polska, Poland's second largest life company, has captured in excess of 25% of the new privatised pensions market and is the market leader, with over 1.3m pension applications received to date. £2m of annual premium pensions were included in the second quarter, with substantial volumes expected in the second half, as pension payments are re-directed from the state scheme. New annual pension premiums will increase by over £250m over the next year. We have capitalised on the cross-selling opportunities provided by the new private pensions, with annual premium life sales up 18% to £32m and single premium sales doubled to £6m. Germany : New business is gaining momentum at Berlinische Leben since we acquired the company in July 1998. Annual premium sales of £8m in the second quarter, making £15m for the first six months, were well ahead of last year. Single premium sales of £67m have more than doubled over the same period. The development of Berlinische is focused on increasing unit-linked and group pensions business. In Ireland, single premium investment bond sales were £63m in the first half of 1999. UCITS sales from our cross-border marketing business in Luxembourg added £56m. Annual premiums more than doubled to £7m in Turkey, reflecting strong sales from our growing direct salesforce, and annual premium increased by 66% to £2m in Greece. In the United States, new annual premiums were 10% lower at £11m, after we stopped writing certain group health business, and single premium sales were similar to last year at £89m. In Canada, new annual premiums were up 19% to £4m following good sales of protection products and single premiums were 7% higher at £14m, reflecting good annuity sales. Life premium income is shown below: 6 months 6 months 1999 1998 £m £m UK 1,815 1,494 France 1,166 686 Netherlands 422 380 Other Europe - Italy 709 552 - Poland 103 76 - Other 260 50 United States 125 121 Canada 30 26 Rest of World 4 49 ----- ----- 4,634 3,434 ----- ----- Note: Life premiums in France include £432m (1998 £63m) of transfers from existing contracts. GENERAL INSURANCE General insurance profits of £287m were 7% higher at constant exchange rates. The underwriting result benefited from a reduction of £35m in the level of expenses and of £75m in the cost of weather claims which led to an improved underwriting result in our largest businesses in the United Kingdom and the United States. Actions already taken to improve underwriting performance will increasingly become evident in the second half of the year. The longer term investment return ('LTIR'), applicable to general insurance business, was £623m (1998 £674m). The reduction reflected lower interest rates, reduced cash flow and the unwinding of the discount on certain claims provisions. Details of the principal assumptions for calculating the LTIR are outlined on page 12. General insurance Underwriting profit result Premiums Local 6 mths 6 mths 6 mths 6 mths 6 mths 6 mths Currency 1999 1998 1999 1998 1999 1998 growth £m £m £m £m £m £m % UK 48 71 (137) (158) 1,366 1,549 (12) France 26 28 (19) (14) 429 391 7 Netherlands 21 29 (10) (4) 216 199 6 Other Europe 7 12 (31) (20) 330 269 20 United States 102 49 (89) (141) 1,332 1,280 1 Canada 38 27 (18) (30) 387 425 (8) Australia & NZ 12 23 (22) (15) 275 271 2 Rest of World 16 15 (10) (15) 188 213 (2) Group reinsurance 17 15 - (8) 39 39 (2) --- --- --- --- ----- ----- --- 287 269 (336) (405) 4,562 4,636 (2) --- --- --- --- ----- ----- --- UK: The underwriting loss improved by £21m in the first half of 1999. This reflected more favourable weather claims, £41m lower, and a £22m reduction in expenses, partly offset by increasing claims inflation, most notably in respect of motor business, and the effect of pricing competition last year. The homeowners class, which accounts for some 20% of UK business, made a good underwriting profit. In private and commercial motor, we are leading the market with rate increases and rates were up on average by 18% and 20% respectively over the same period last year. Household rates have been increased by 5% and employers' liability rates are up 7%. In the London marine market, which remains very competitive, we are prepared to continue to decline business. Overall premiums were 12% lower, reflecting management actions to improve underwriting results and to avoid unacceptable year 2000 risks. France: Underwriting results reflected an improvement in the last 3 months and excellent results continued to be achieved from our health portfolio. Modest rate increases have been applied to property and motor classes. The acquisition of the direct writer, Tellit Assurance, making CGU the second largest direct writer in France, will provide increased scale to our operations and produce synergy benefits. Integration of the business into Eurofil is underway. Netherlands: Underwriting profits were achieved in property, and in personal accident, where we implemented a 10% rate increase in January 1999. Higher injury claims affected motor results, where rates were increased by 10% in December 1998. Other Europe: Conditions in our smaller markets throughout Europe remain generally competitive, although motor rates are hardening in most markets. Premiums were 20% higher following the acquisition of a small Italian general insurer in 1998. United States: Our business is the 16th largest in the US, with strong market positions in the North Eastern States and in agri and inland marine classes. A £52m improvement in the underwriting result for the first half included better personal lines results, an improved profit in workers' compensation and the absence of a charge for business no longer written. The cost of weather claims was £21m lower, despite the May tornados in Oklahoma which cost us £13m. Extensive pricing and product reviews are being carried out in all classes, with modest rate increases being applied in agri, package and parts of the auto portfolio. Canada: Improved underwriting results benefited from a reduction of £16m in winter weather claims. Premium volumes were 8% lower, reflecting our firm stance on rating in competitive conditions and Y2K exclusions. Australia: A good underlying performance was achieved in competitive conditions, although claims from the Sydney hailstorm in April cost £16m. Merger cost savings benefited results, and firm rating stances have been taken in compensation, compulsory third party and travel business. New Zealand continued to perform well, achieving an underwriting profit against a competitive background. ASSOCIATES Profits from associates increased to £8m (1998 £6m). This increase reflected higher profits from our Irish associate, the Hibernian Group, included six months in arrears, and improved results from the British Aviation Insurance Company. ASSET MANAGEMENT AND OTHER FINANCIAL SERVICES CGU managed assets of £128 billion at 30 June 1999, making it one of the top 20 fund managers in Europe. In the UK, our strategy to grow in the third party pensions management market is underpinned by a top 5 investment performance over the last 5 years. Profits from asset management and other financial services increased to £17m (1998 £12m), including £11m from Morley Fund Management in the UK. Our UK estate agent chain produced a loss of £5m (1998 loss £6m). UNALLOCATED EXPENSES Unallocated expenses, including higher allocations to worldwide staff profit sharing schemes and corporate expenses, amounted to £38m (1998 £30m). UNALLOCATED INTEREST CHARGES Unallocated interest charges include interest on intra-group loans with the centre and external borrowings not allocated to territorial operations. These amounted to £94m (1998 £83m) and included external loan interest of £33m (1998 £38m). SHAREHOLDERS' FUNDS Shareholders' funds increased to £9,130m (31 Dec 1998 £9,039m) after deducting the equalisation provision of £131m (31 Dec 1998 £114m). The profit attributable to ordinary shareholders of £18m (1998 £811m) included short term downward fluctuations in investment values of £197m pre-tax (1998 gains of £762m pre-tax). Other movements in shareholders' funds included an increase of £342m in the valuation of in-force life business before the effect of exchange rate changes. Movements in rates of exchange had a negative effect of £88m of which £71m related to the reserve arising on the valuation of in-force life business. Ordinary and preference dividends cost £196m. DIVIDEND DETAILS (ORDINARY SHARES) The interim dividend has been increased by 7.5% to 14.25p (1998 13.25p) per share, and will be paid on 17 November 1999 to shareholders on the register at the close of business on 27 August 1999 (ex-dividend date 23 August 1999). The cost will be £187m. A dividend reinvestment plan will again be available. RATES OF EXCHANGE The translation effect of changes in average rates of exchange compared to the 12 months to 30 June 1998, increased the pre-tax operating profit before exceptional items by £2m. Changes in rates of exchange since 31 December 1998 decreased shareholders' funds by £88m. Published results have been translated at average rates of exchange for the respective periods, whilst assets and liabilities use closing rates. LONGER TERM INVESTMENT RETURN (LTIR) The longer term investment return applicable to general business results is calculated separately for each principal general insurance business unit. In respect of equities and properties, the return is calculated by multiplying the opening market value of the investments, adjusted for sales and purchases during the year, by the longer term rate of investment return. For other investments, the actual income receivable is included. The principal assumptions underlying the calculation of the LTIR, which are consistent with the assumptions for life embedded value calculations, are: Longer term rates of return Equities Properties 1999 1998 1999 1998 % % % % UK 6.9 8.1 5.4 7.4 France 5.9 6.5 4.9 6.5 Netherlands 6.8 7.1 4.9 6.1 United States 7.7 7.8 5.7 6.8 Canada 7.9 8.0 5.9 7.0 Australia & NZ 8.0 8.0 6.0 7.0 INTERIM REPORT The financial information set out in this press release is unaudited and does not constitute the company's interim report for the six months ended 30 June 1999. The interim report, which has been reviewed by our auditors, will be circulated to shareholders on 19 August 1999. It can be obtained after this date by telephoning the Shareholder Relations Service on 0171 662 8866. ------------------------------------------------------- Unaudited financial statements, a statistical appendix, analysis of embedded value and achieved profits methodology and assumptions follow. ------------------------------------------------------- FINANCIAL STATEMENTS CGU plc 6 months to June 1999 6 months 6 months 1998 12 months Profit and loss account 1999 Restated 1998 ----------------------- Unaudited Unaudited Audited Premium income after reinsurance £m £m £m Life premiums 4,634 3,434 6,952 General insurance premiums 4,562 4,636 8,772 ----- ----- ------ Total premiums 9,196 8,070 15,724 ===== ===== ====== Operating profit Life assurance 250 226 498 General insurance 287 269 504 Associated undertakings 8 6 14 Asset management/other financial services 17 12 14 ----- ----- ------ 562 513 1,030 Unallocated expenses, interest charges and goodwill amortisation (142) (114) (262) ----- ----- ------ Operating profit before taxation and exceptional items 420 399 768 Exceptional items (note 2) (70) - (610) ----- ----- ------ Operating profit before taxation 350 399 158 Short-term fluctuation in investment returns (197) 762 647 Change in the equalisation provision (23) (18) 55 Net loss arising from sale of subsidiary undertakings (9) - (14) Merger transaction costs - (70) (75) ----- ----- ------ Profit on ordinary activities before taxation 121 1,073 771 Tax on profit on ordinary activities Operating profit before exceptional items (92) (117) (192) Other 24 (109) (51) ----- ----- ------ (68) (226) (243) ----- ----- ------ Profit on ordinary activities after taxation 53 847 528 Minority interests (26) (27) (30) ----- ----- ------ Profit for the period 27 820 498 Preference dividends (9) (9) (17) ----- ----- ------ Profit attributable to ordinary shareholders 18 811 481 Ordinary dividends Interim (187) (174) (174) Final - - (287) ----- ----- ------ (187) (174) (461) ----- ----- ------ Transfer to retained profits (169) 637 20 ===== ===== ====== Earnings per share (note 3) Operating profit after taxation, before exceptional items, attributable to equity shareholders 22.7p 19.1p 40.2p Profit attributable to equity shareholders 1.4p 62.9p 37.1p Profit attributable to equity shareholders - diluted 1.4p 62.5p 36.8p Dividend per ordinary share 14.25p 13.25p 35.15p Notes: (1) 6 months 1998 results have been restated to reflect the changes in accounting for investment returns. (2) Exceptional items in 1999 comprise merger integration costs. (Full year 1998 comprise merger integration costs of £260m and an additional claims provision of £350m.) (3) Earnings per share were calculated using a weighted average of 1309.9m (6 months 1998 average of 1289.0m) ordinary shares in issue. (4) Total ordinary shares in issue at 30 June 1999 were 1311.0m (30 June 1998 1290.3m). (5) Profit on ordinary activities includes non-life unrealised gains previously taken to the revaluation reserve. The general insurance result includes an allocation of total gains and income based on the longer term return. 6 months 1998 results have been restated accordingly. (6) Published results have been translated at average rates of exchange, while assets and liabilities have been translated at closing rates of exchange. The principal average rates were: 6 months 1999 6 months 1998 12 months 1998 French franc 9.78 10.03 9.78 Netherlands florin 3.29 3.37 3.29 United States dollar 1.61 1.65 1.66 Canadian dollar 2.41 2.38 2.47 6 months 6 months 1998 12 months 1999 Restated 1998 Unaudited Unaudited Audited Operating profit before taxation £m £m £m and exceptional items -------------------------------- UK 180 180 280 France 76 74 167 Netherlands 89 95 196 Other Europe 26 25 46 United States 110 55 156 Canada 39 29 76 Australia & NZ 12 23 56 Rest of World 13 17 29 Group reinsurance 17 15 24 ---- ---- ----- 562 513 1,030 Unallocated expenses (38) (30) (80) Unallocated interest charges (94) (83) (175) Goodwill amortisation (10) (1) (7) ---- ---- ----- 420 399 768 ==== ==== ===== Summarised reconciliation of movements in consolidated shareholders' funds -------------------------------------- Restatement of profit for the period Profit as previously reported 276 Unrealised investment gains 544 --- Profit for the period 27 820 498 Movement in the valuation of in-force long term business 342 581 611 Foreign exchange rate movements on this valuation (71) (17) 49 ---- ---- ---- 271 564 660 Other foreign exchange rate movements (17) (170) 73 ---- ----- ---- Total recognised gains and losses arising in the period 281 1,214 1,231 Dividends (196) (183) (478) Increase in capital and shares in lieu of dividends 11 39 249 Merger reserve arising in the period - 11 11 Other movements (5) (5) 9 ---- ------ ----- Total movements in the period 91 1,076 1,022 Balance at 1 January As previously reported - Commercial Union 4,486 4,486 - General Accident 3,781 3,781 Merger adjustment - GA preference shares (250) (250) ------ ------ Shareholders' funds at 1 January 9,039 8,017 8,017 ----- ----- ----- Balance at end of period 9,130 9,093 9,039 ----- ----- ----- Summarised consolidated balance sheet ------------------------------------- Group Group as at Group as at 30 June 98 as at 30 June 99 Restated 31 Dec 98 Unaudited Unaudited Audited Assets £m £m £m Goodwill 266 15 253 Investments Land and buildings 795 828 798 Participating interests 312 330 304 Variable yield securities 5,305 5,256 5,221 Fixed interest securities 10,765 10,709 10,999 Mortgages and loans 327 274 267 Deposits 828 888 707 Valuation of in-force long term business 3,389 3,014 3,141 ------- ------ ------- 21,721 21,299 21,437 Reinsurers' share of technical provisions 2,308 2,035 2,141 Assets of the long term business 80,039 68,730 76,196 Other assets 6,280 5,799 5,837 ------- ------ ------- Total assets 110,614 97,878 105,864 ------- ------ ------- Liabilities Shareholders' funds 9,130 9,093 9,039 Minority interests 489 502 512 ------- ------ ------- Total capital and reserves 9,619 9,595 9,551 Liabilities of the long term business 78,393 67,024 74,457 General insurance liabilities 18,122 16,981 17,504 Borrowings 993 954 950 Other creditors and provisions 3,487 3,324 3,402 ------- ------ ------- Total other liabilities 22,602 21,259 21,856 ------- ------ ------- Total liabilities 110,614 97,878 105,864 ------- ------ ------- 6 months 6 months 12 months 1999 1998 1998 Consolidated cash flow statement Unaudited Unaudited Audited -------------------------------- £m £m £m Net cash inflow from operating activities excluding exceptional items and merger transaction costs 215 376 511 Exceptional items and merger transaction costs paid (54) (54) (161) Net cash outflow from servicing of finance (65) (58) (114) Corporation tax paid (including advance corporation tax) (65) (93) (318) Net purchases of tangible fixed assets (38) (35) (65) Acquisitions and disposals of subsidiary and associated undertakings (55) (6) (101) Equity dividends paid (286) (199) (495) Net cash inflow/(outflow) from financing activities 66 (32) (54) ----- ----- ----- Net cash flows (282) (101) (797) ----- ----- ----- Cash flows were invested as follows: (Decrease)/increase in cash holdings (158) 48 31 Net portfolio investment Net sales of investments (128) (133) (894) Non-trading cash flow to/(from) long term business operations 4 (16) 66 ----- ----- ----- (282) (101) (797) ----- ----- ----- MORE TO FOLLOW IR ARORKKNKWAUR

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