Interim Results - PART 1

LLOYDS TSB GROUP PLC 30 July 1999 Part 1 RESULTS FOR HALF-YEAR TO 30 JUNE 1999 PRESENTATION OF RESULTS In 1998 three factors had a significant impact on Lloyds TSB Group's results on a statutory basis: the provision for redress to past purchasers of pension policies, the disposal of a number of businesses, and a reduced contribution from Emerging Markets Debt. In order to facilitate comparisons, certain financial information and commentaries were presented on a Continuing Businesses basis which excluded the effect of these factors. In the first half of 1999, the impact of these issues was not significant and the Group's results have therefore been presented on a statutory basis. The impact of the pension provision and disposal gains has been excluded from 1998 figures, where appropriate, to facilitate performance comparisons. 1999 INTERIM RESULTS HIGHLIGHTS Comparisons with the first half of 1998, excluding the impact of the £400 million pension provision and disposal gains announced in the first half of 1998. Profit before tax up 16 per cent to £1,853 million from £1,596 million. Income up 8 per cent to £3,926 million. Operating expenses reduced by 2 per cent. Trading surplus up 17 per cent to £2,251 million. Efficiency ratio improved to 42.7 per cent from 46.5 per cent in the first half of 1998. Economic profit increased by 22 per cent to £962 million. Earnings per share up 16 per cent to 24.2p. Post-tax return on shareholders' equity 33.5 per cent. UK Retail Financial Services profit up £190 million, or 17 per cent, to £1,324 million. This represents 71 per cent of total Group profit. Total capital ratio further strengthened to 12.2 per cent, tier 1 capital ratio 9.9 per cent. Interim dividend increased by 21 per cent to 8.1p per share. On 23 June 1999, the Group announced an agreement with Scottish Widows providing for the transfer of Scottish Widows' business to the Lloyds TSB Group. Commenting on the results Lloyds TSB Group chairman, Sir Brian Pitman, said:- 'Both in terms of growth and return, this was another successful half-year. Average shareholders' funds grew by £1.1 billion, or 16 per cent, from a year ago and the post-tax return on the enlarged equity rose to 33.5 per cent. This strong performance enabled the board to increase the interim dividend by 21 per cent. We expect further progress in the second half of the year.' SUMMARY OF RESULTS (Unaudited) Half-year to Increase Half-year to 30 June (Decrease) 31 December 1999 1998 % 1998 SHAREHOLDER VALUE Closing market price per share 860p 839p 3 855p Total market value of shareholders' equity £46.8bn £45.6bn 3 £46.5bn Dividends per share 8.1p 6.7p 21 15.5p RESULTS (excluding the £m £m £m 1998 pension provision and disposal gains) Total income 3,926 3,634 8 3,844 Operating expense 1,675 1,706 (2) 1,766 Trading surplus 2,251 1,928 17 2,078 Provisions for bad and doubtful debts 315 266 18 262 Profit before tax 1,853 1,596 16 1,735 Profit attributable to shareholders 1,315 1,120 17 1,196 Economic profit (page 30, note 2) 962 790 22 827 RESULTS (statutory basis) £m £m £m Total income 3,926 3,234 21 3,844 Operating expenses 1,675 1,706 (2) 1,766 Trading surplus 2,251 1,528 47 2,078 Provisions for bad and doubtful debts 315 266 18 262 Profit before tax 1,853 1,280 45 1,735 Profit attributable to shareholders 1,315 924 42 1,196 Economic profit 962 587 64 830 PER SHARE p p p Earnings (excluding the 24.2 20.8 16 22.1 1998 pension provision and disposal gains) Earnings (statutory basis) 24.2 17.2 41 22.1 Net assets 153 129 19 136 PERFORMANCE MEASURES % % % Post-tax return on average shareholders' equity 33.5 27.4 32.7 Post-tax return on average assets* 1.81 1.37 1.68 Post-tax return on average risk-weighted assets 3.19 2.42 2.90 BALANCE SHEET £m £m £m Shareholders' equity 8,417 7,068 19 7,475 Total assets 173,361 163,168 6 167,997 RISK ASSET RATIOS % % % Total capital 12.2 12.1 11.3 Tier 1 capital 9.9 9.1 8.7 * Assets exclude long-term assurance assets attributable to policyholders. GROUP CHIEF EXECUTIVE'S SUMMARY OF RESULTS The Group continued to make very good progress in the first half of 1999. Profit before tax on a statutory basis rose by £573 million, or 45 per cent, to £1,853 million from £1,280 million in the first half of 1998, which included a £400 million pension provision and disposal gains totalling £84 million. Earnings per share increased by 41 per cent to 24.2p. The post-tax return on assets improved to 1.81 per cent from 1.37 per cent and the post-tax return on average risk-weighted assets, a key measure of the efficient use of capital, improved to 3.19 per cent, up from 2.42 per cent in the first half of 1998 and 2.90 per cent in the second half of 1998. Shareholders' equity rose by 19 per cent to £8,417 million and we earned a post-tax return of 33.5 per cent on the enlarged equity. Economic profit increased by 64 per cent to £962 million. Total income rose by 21 per cent while operating expenses were further reduced by 2 per cent, producing a 47 per cent increase in the trading surplus to £2,251 million. Customer lending and deposits continued to grow and, despite intensifying competition, we were able to improve the net interest margin by 7 basis points to 3.87 per cent. Excluding the impact of the 1998 pension provision and disposal gains, profit before tax rose by £257 million, or 16 per cent, to £1,853 million from £1,596 million in the first half of 1998. Total income increased by 8 per cent and there was a 17 per cent increase in the trading surplus. Shareholders' equity increased by 19 per cent, profit attributable to shareholders increased by 17 per cent and economic profit increased by 22 per cent, helped by a reduction in the Group's cost of equity to 9 per cent from 10 per cent in 1998 (page 30, note 2). Underlying operating expenses (page 25) have reduced by a further £19 million bringing total costs saved since the merger of Lloyds Bank and TSB Group and the integration of Lloyds Abbey Life to £370 million. Further cost savings will be made in the second half of the year to ensure achievement of the £400 million per annum cost savings promised by 1999, and we expect reductions to continue in the year 2000. The efficiency ratio improved further to 42.7 per cent from 46.5 per cent in the first half of 1998 and 45.0 per cent in the second half. The total charge for bad and doubtful debts (page 26) was 18 per cent higher at £315 million, compared with £266 million in the first half of 1998. The domestic charge increased to £260 million, or 0.60 per cent of average lending, from £183 million, or 0.46 per cent of average lending, largely due to some deterioration in the personal lending and credit card portfolios in the first quarter of the year. Provisions overseas decreased to £55 million from £83 million mainly as a result of a lower provisions charge from the Losango consumer finance business in Brazil. At the end of the half-year specific provisions for bad debts for the Group totalled £1,864 million, representing over 160 per cent of non-performing loans. Excluding the impact of the £400 million pension provision made in the first half of 1998, profit before tax from UK Retail Financial Services (page 10), encompassing UK Retail Banking, Mortgages, and Insurance and Investments, increased by £190 million, or 17 per cent, to £1,324 million. This represents 71 per cent of total Group profit (1998 first half: 68 per cent). Pre-tax profit from UK Retail Banking (page 11) rose by £40 million, or 12 per cent, to £382 million. Good growth in revenue and tight control of costs was partly offset by increased bad debts, particularly in the first quarter of the year. Pre-tax profit from Mortgages (page 12) increased by £122 million, or 35 per cent, to £469 million. In the face of aggressive competition during the first half of 1999, C&G elected to maintain profitable growth rather than pursue market share based on uneconomic pricing. The estimated market share of net new lending was 7.0 per cent. The efficiency ratio of the Group's total mortgage business further improved to 20.1 per cent, from 25.5 per cent in the first half of 1998. Pre-tax profit from Insurance and Investments (page 13), rose by £28 million, or 6 per cent, to £473 million, from £445 million, excluding the impact of the 1998 pension provision. A strong performance in the general insurance business offset a reduction of £11 million in the profit before tax from our life and pensions businesses, largely caused by the change in the embedded value discount rate from 12.5 per cent to 10 per cent in 1998. In Wholesale Markets, profit before tax was £8 million, or 2 per cent, higher at £331 million. Total income increased by 4 per cent to £584 million and, as a result of lower costs in both Treasury and Corporate and Institutional Banking, operating expenses fell by 6 per cent to £225 million, producing a 12 per cent increase in the trading surplus. In International Banking, profit before tax was £24 million higher at £218 million compared with the first half of 1998 and £64 million, or 42 per cent, higher than in the second half. In New Zealand we started to see the benefits of the integration of Countrywide Bank and The National Bank of New Zealand and profits were also up in the international private banking and offshore banking operations. Profits from our Latin American businesses held up well despite difficult local economic conditions, particularly in Argentina and Colombia, and our consumer finance business in Brazil, Losango Consumer Finance, made a pre-tax profit of £13 million, compared with a loss of £4 million in the first half of 1998. The total capital ratio further strengthened to 12.2 per cent and the tier 1 capital ratio increased to 9.9 per cent. Balance sheet assets increased by £10 billion, or 6 per cent, to £173 billion, as a result of further growth in mortgages and other customer lending. Risk-weighted assets decreased slightly to £83.0 billion from £83.3 billion at the end of 1998 and the post-tax return on average risk- weighted assets improved to 3.19 per cent, from 2.42 per cent in the first half of 1998. On 23 June 1999, the Group announced an agreement with Scottish Widows providing for the transfer of Scottish Widows' business to the Lloyds TSB Group. The transfer is subject to approval by Scottish Widows members, satisfactory discussions with relevant regulatory authorities and the sanction of the Court of Session. The transfer is expected to be completed in early 2000. Completion of the proposed transaction will bring together Lloyds TSB's and Scottish Widows' life, pensions, unit trust and fund management businesses and create a business capable of achieving greater sales and lower unit costs. This is a further manifestation of one of the Group's strategic aims to become a leader in its chosen markets, and the addition of Scottish Widows to the Lloyds TSB Group will enable the Group to achieve this aim in the rapidly growing long-term savings and pensions market. It will bring to the Group a powerful and leading brand, and expertise and presence in the important Independent Financial Adviser market. On 28 June 1999 the national roll-out of the single Lloyds TSB brand was completed following the enactment of the Lloyds TSB Act 1998. This has brought together some 2,400 former Lloyds and TSB branches under the Lloyds TSB name and has laid the foundations for the generation of increased revenue from higher sales, increased cost effectiveness from a simplified branch network and the move towards a single IT platform, and material service enhancements for our customers. In addition to the move to the single Lloyds TSB brand, we have continued to develop a number of alternative distribution channels in order to offer the broadest possible range of access points for our customers. PhoneBank, our telephone banking operation, is now one of the largest in Europe with 1.3 million customers. It handled some 8 million calls in the first half of the year and was further enhanced with the launch, in March 1999, of PhoneBank Express which incorporates leading edge interactive voice recognition systems. Our supermarket banking operation, branded easibank, continues to expand and we now have 15 branches in ASDA stores or large shopping centres. Our personal customer Internet Banking Service, successfully launched in November 1998, now has some 67,000 registered customers and continues to register a further 350 customers a day and, in March 1999, we successfully launched a new Internet Banking Service for business customers. In March 1999 the Group announced an agreement with Post Office Counters Limited that allows personal customers of Lloyds TSB to carry out straightforward banking transactions at over 15,500 post offices in England and Wales. This is a significant enhancement to our customer service, allowing Lloyds TSB customers access to deposit and withdrawal services throughout England and Wales. Outlook Our governing objective to maximise shareholder value over time is underpinned by our three strategic aims of being a leader in our chosen markets, being first choice for our customers and driving down our day-to-day operational costs through increased effectiveness. Despite greater competition in our market-place, particularly from new entrants and single-line product providers, we have delivered a strong performance in the first half of the year. We expect to make further progress in the second half of the year, particularly in our core UK Retail Financial Services business. The increase in the interim dividend of 21 per cent reflects the confidence of the board in the prospects for the Group and the continued strong internal generation of capital. The quality of our earnings remains high, our efficiency ratio continues to improve and we are well positioned to continue delivering value for our customers, our staff and our shareholders. Peter Ellwood Group Chief Executive CONSOLIDATED PROFIT AND LOSS ACCOUNT (Unaudited) Half-year to Half-year to 30 June 31 December 1999 1998 1998 £m £m £m Interest receivable: Interest receivable and similar income arising from debt securities 217 240 286 Other interest receivable and similar income 5,259 5,371 5,443 Interest payable 3,112 3,439 3,453 Write-down of finance lease receivables - 32 - Net interest income 2,364 2,140 2,276 Other income Dividend income from equity shares 1 2 3 Fees and commissions receivable 1,237 1,159 1,188 Fees and commissions payable (214) (188) (200) Dealing profits (before expenses) 107 100 97 Income from long-term assurance business: Income before pension provision 161 165 214 Pension provision - (400) - General insurance premium income 190 158 177 Other operating income 80 98 89 1,562 1,094 1,568 Total income 3,926 3,234 3,844 Operating expenses Administrative expenses 1,561 1,597 1,615 Restructuring provision - - 38 Total administrative expenses 1,561 1,597 1,653 Depreciation 108 109 109 Amortisation of goodwill 6 - 4 Depreciation and amortisation 114 109 113 Total operating expenses 1,675 1,706 1,766 Trading surplus 2,251 1,528 2,078 General insurance claims 84 74 72 Provisions for bad and doubtful debts Specific 315 266 269 General - - (7) 315 266 262 Amounts written off fixed asset investments 4 3 12 Operating profit 1,848 1,185 1,732 Income from associated undertaking 5 11 3 Profit on sale of businesses - 84 - Profit on ordinary activities before tax 1,853 1,280 1,735 Tax on profit on ordinary activities 536 349 533 Profit on ordinary activities after tax 1,317 931 1,202 Minority interests (equity) 2 7 6 Profit for the period attributable to shareholders 1,315 924 1,196 Dividends 437 359 845 Retained profit 878 565 351 CONSOLIDATED BALANCE SHEET (Unaudited) 30 June 30 June 31 December 1999 1998 1998 £m £m £m Assets Cash and balances at central banks 689 801 1,073 Items in course of collection from banks 2,111 2,607 1,728 Treasury bills and other eligible bills 1,776 3,174 3,152 Loans and advances to banks 21,508 22,482 18,463 Loans and advances to customers 99,620 89,033 95,556 Debt securities 11,999 11,274 12,428 Equity shares 216 232 204 Interests in associated undertakings 25 27 25 Intangible assets 233 - 216 Tangible fixed assets 1,617 1,601 1,634 Own shares 11 28 21 Other assets 3,636 4,077 5,353 Prepayments and accrued income 2,523 2,667 2,469 Long-term assurance business attributable to shareholders 2,317 1,678 1,983 148,281 139,681 144,305 Long-term assurance assets attributable to policyholders 25,080 23,487 23,692 Total assets 173,361 163,168 167,997 Liabilities Deposits by banks 15,606 17,315 17,091 Customer accounts 94,499 88,098 89,734 Items in course of transmission to banks 902 1,188 800 Debt securities in issue 13,957 9,946 11,853 Other liabilities 5,731 7,559 8,390 Accruals and deferred income 3,223 3,347 3,163 Provisions for liabilities and charges: Deferred tax 1,261 522 1,227 Other provisions for liabilities and charges 482 600 509 Subordinated liabilities: Undated loan capital 1,577 1,493 1,518 Dated loan capital 2,584 2,503 2,503 Minority interests (equity) 42 42 42 Called-up share capital 1,381 1,377 1,379 Share premium account 151 93 101 Revaluation reserve (200) (219) (201) Merger reserve 343 343 343 Profit and loss account 6,742 5,474 5,853 Shareholders' funds (equity) 8,417 7,068 7,475 148,281 139,681 144,305 Long-term assurance liabilities to policyholders 25,080 23,487 23,692 Total liabilities 173,361 163,168 167,997 STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES (Unaudited) Half-year to Half-year to 30 June 31 December 1999 1998 1998 £m £m £m Profit attributable to shareholders 1,315 924 1,196 Currency translation differences on foreign currency net investments 12 (52) 46 Total recognised gains and losses relating to the period 1,327 872 1,242 HISTORICAL COST PROFITS AND LOSSES There was no material difference between the results as reported and the results that would have been reported on an unmodified historical cost basis. Accordingly, no note of historical cost profits and losses has been included. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS Half-year to Half-year to 30 June 31 December 1999 1998 1998 £m £m £m Profit attributable to shareholders 1,315 924 1,196 Dividends (437) (359) (845) Retained profit 878 565 351 Currency translation differences on foreign currency net investments 12 (52) 46 Issue of shares 52 170 10 Goodwill written back on sale of businesses (page 31, note 5) - 131 - Net increase in shareholders' funds 942 814 407 Shareholders' funds at beginning of period 7,475 6,254 7,068 Shareholders' funds at end of period 8,417 7,068 7,475 PERFORMANCE BY SECTOR Profit before tax by main businesses Half-year to Half-year to 30 June 31 December 1999 1998 1998 £m £m £m UK Retail Banking 382 342 453 Mortgages 469 347 393 Insurance and Investments 473 445 503 UK Retail Financial Services 1,324 1,134 1,349 Wholesale Markets 331 323 295 International Banking 218 194 154 Central group items (20) 61 (25) Pension provision - (400) - Write-down of finance leases - (32) - Restructuring provision - - (38) Profit before tax 1,853 1,280 1,735 1998 figures have been restated to take account of changes in internal cost allocation. UK Retail Financial Services Total profit before tax, excluding the impact of the £400 million pension provision in the first half of 1998, from UK Retail Financial Services encompassing UK Retail Banking, Mortgages, and Insurance and Investments, increased by £190 million, or 17 per cent, to £1,324 million from £1,134 million in the first half of 1998. UK Retail Banking and Mortgages Total profit before tax from UK Retail Banking and Mortgages rose by £162 million, or 24 per cent, to £851 million. Total income increased by 10 per cent and costs were reduced by 2 per cent, giving a 24 per cent increase in the trading surplus. Bad debt provisions increased by £47 million, or 25 per cent, to £236 million, largely due to some deterioration in the personal lending and credit card portfolios in the first quarter of the year. Half-year to Half-year to 30 June 31 December 1999 1998 1998 £m £m £m Net interest income 1,633 1,482 1,552 Other income 423 389 434 Total income 2,056 1,871 1,986 Operating expenses 969 993 957 Trading surplus 1,087 878 1,029 Provisions for bad and doubtful debts 236 189 183 Profit before tax 851 689 846 Profit before tax UK Retail Banking 382 342 453 Mortgages 469 347 393 851 689 846 Efficiency ratio 47.1% 53.1% 48.2% Total assets (period-end) £68.0bn £65.2bn £66.5bn Total risk-weighted assets (period-end) £44.6bn £42.7bn £44.0bn UK Retail Banking (the UK retail businesses of Lloyds TSB, providing banking and financial services to personal and small business customers, and Lloyds UDT) Pre-tax profit from UK Retail Banking rose by £40 million, or 12 per cent, to £382 million. On 28 June 1999 the national roll-out of the single Lloyds TSB brand was completed following the enactment of the Lloyds TSB Act 1998. This has brought together some 2,400 former Lloyds or TSB branches under the Lloyds TSB name and has laid the foundations for the generation of increased revenue from higher sales, increased cost effectiveness from a simplified branch network and the move towards a single IT platform, and material service enhancements for our customers. In addition to the move to the single Lloyds TSB brand, we have continued to develop a number of alternative distribution channels in order to offer the broadest possible range of access points for our customers. Our telephone banking operation is now one of the largest in Europe with 1.3 million customers. It handled some 8 million calls in the first half of the year and was further enhanced with the launch, in March 1999, of PhoneBank Express, which incorporates leading edge interactive voice recognition systems. Our supermarket banking operation, branded 'easibank', continues to expand and we now have 15 branches in ASDA stores or large shopping centres. Our personal customer Internet Banking Service, successfully launched in November 1998, now has some 67,000 registered customers and continues to register a further 350 customers a day. In March 1999, following a pilot involving more than 800 post offices, the Group announced an agreement with Post Office Counters Limited that allows personal customers of Lloyds TSB to carry out straightforward banking transactions at over 15,500 post offices in England and Wales. Personal loans and credit card lending increased by 13 per cent and balances on current accounts and savings and investment accounts grew by 5 per cent, supported by the launch of a number of new products. A new free-in-credit current account was launched in January 1999 and the popularity of the Group's Added Value accounts continued with Lloyds TSB now the market leader in this area with 1.2 million accounts in operation. A new range of credit cards was also successfully launched in the first half of the year. Business Banking attracted a record number of customers, helped in particular by the launch in March 1999 of the new Internet Banking Service for business customers, and by consolidating the Group's position as a market leader in the recruitment of start- up businesses. More than 55,000 new business customers chose Lloyds TSB in the half-year. Profitability has again improved with growth in both lending and deposits, and bad debts continuing at a very low level. Mortgages (covering the Group's total UK mortgage business through Cheltenham & Gloucester, Lloyds TSB, Lloyds TSB Scotland and C&G Mortgage Direct) Half-year to Half-year to 30 June 31 December 1999 1998 1998 Profit before tax £469m £347m £393m Efficiency ratio 20.1% 25.5% 23.6% Gross new mortgage lending £4.7bn £4.2bn £5.1bn Market share of gross new mortgage lending 9.6% 10.6% 10.3% Net new mortgage lending £1.1bn £1.5bn £1.4bn Market share of net new mortgage lending 7.0% 14.7% 9.5% Mortgages outstanding (period-end) £45.8bn £43.3bn £44.7bn Market share of mortgages outstanding 9.6% 9.7% 9.7% Pre-tax profit from Mortgages increased by £122 million, or 35 per cent, to £469 million. Competition for business increased dramatically during the first half of 1999 as traditional lenders and new entrants to the mortgage market competed aggressively for market share. During this period C&G elected to maintain profitable growth rather than pursue market share based on uneconomic pricing. This strategy has resulted in strong half-year profits but a slight reduction in the Group's market share of net new lending. Although fixed and capped-rate mortgages remained popular, still accounting for around two-thirds of total new lending, the continuing reduction in bank base rates also stimulated renewed customer interest in variable rate mortgages. Against this background gross new lending was £4.7 billion, compared to £4.2 billion a year ago, and net new lending was £1.1 billion compared to £1.5 billion in the first half of last year. This represented an estimated market share of net new lending of 7.0 per cent. C&G continues to benefit from mortgage sales distribution through the Lloyds TSB branch network, the IFA market and from the strength of the C&G brand. Once again the provision of a first class service has been a significant factor with independent financial advisers awarding C&G its fourth consecutive 5-star rating in the 1998 Financial Adviser service awards. Business levels sourced from intermediaries remain strong. Operating expenses continue to be kept under tight control and the efficiency ratio of the Group's total mortgage business improved to 20.1 per cent from 25.5 per cent in the first half of 1998. A relatively low arrears position and the beneficial effect of house price increases have meant that bad debt provisions remained at a low level, falling to £4 million from £13 million in the first half of 1998. The provisions charge as a percentage of annualised average lending reduced to 0.02 per cent from 0.06 per cent in the first half of last year. The quality of our mortgage lending remains very satisfactory and arrears continue to be well below the industry average. Insurance and Investments (the life, pensions and unit trust businesses of Lloyds TSB Life, Lloyds TSB Unit Trusts and Abbey Life; general insurance underwriting and broking; UK private banking and retail stockbroking; and Hill Samuel Asset Management) Half-year to Half-year to 30 June 31 December 1999 1998 1998 £m £m £m Life and pensions (including unit trusts) Bancassurance 103 103 161 Abbey Life 81 92 66 184 195 227 General insurance 228 191 230 Total profit from Insurance 412 386 457 Other businesses 61 59 46 Total profit before tax and pension provision 473 445 503 Pension provision - 400 - Profit before tax from Insurance and Investments increased by 6 per cent to £473 million from £445 million. This included £412 million from the insurance businesses, up 7 per cent from £386 million a year ago. In the first half of 1998, the results were adversely affected by a further pension provision of £400 million for redress to past purchasers of pension policies, which raised the total provisions made for this purpose to £700 million. We continually review the adequacy of the existing total provision of £700 million and, whilst it is impossible to be precise, based on the information available at present we remain satisfied that no further provision is necessary at this stage. At 30 June 1999 £341 million of the £700 million provision had been used. UK Private Banking had another successful half-year. Income growth was strong as a result of high levels of new business and favourable equity markets. £0.9 billion of new funds were gained in the first half and total funds managed and administered now stand at some £12 billion. Lloyds TSB Stockbrokers, one of the largest retail stockbrokers in the UK, continued to perform well as a result of high transaction levels and efficiency gains. Insurance and Investments Hill Samuel Asset Management saw good income growth, again largely as a result of buoyant equity markets but also from a number of new external business mandates gained. Funds under management in Hill Samuel Asset Management now total approximately £41 billion, up 11 per cent from £37 billion at the end of 1998. It was announced on 15 July 1999 that Hill Samuel Asset Management is to assume responsibility for the investment management of Abbey Life's 70 funds and unit trusts, currently managed by Abbey Life Investment Services. This will increase the total funds under management at Hill Samuel Asset Management to in excess of £50 billion. Life and pensions (including unit trusts) Half-year to Half-year to 30 June 31 December 1999 1998 1998 £m £m £m Profit before tax*: New business 53 74 49 Existing business 130 133 175 Investment earnings 17 22 14 Unit trusts 68 44 61 Distribution costs (84) (78) (72) 184 195 227 *excluding pension provision Sales of life, pensions and unit trusts in our bancassurance businesses rose by 15 per cent, with unit trusts and individual savings accounts (ISAs) performing strongly. Single premium ISA/PEP sales were 26 per cent up on the first half of 1998 and new regular premium mortgage-related sales increased by 15 per cent in the same period. Single premium unit trust sales increased by 36 per cent. In Abbey Life, weighted sales were down by 3 per cent. While sales of life products increased by 8 per cent, the sales of regular premium pensions and single premium unit trusts fell back. Despite the 11 per cent increase in combined weighted sales, total life and pensions pre-tax profit decreased by £11 million to £184 million. This was caused by three factors. First, the change in the embedded value discount rate from 12.5 per cent to 10 per cent in 1998 reduced ongoing profits by £10 million in the first half of 1999. Second, there is a continuing switch to unit trusts and ISAs which are not accounted for on an embedded value basis, resulting in lower profits in the first year of a transaction. Third, the first half of 1998 benefited from the harmonisation of actuarial bases following the merger of the Hill Samuel and Abbey Life long-term assurance funds. Half-year to Half-year to 30 June 31 December 1999 1998 1998 £m £m £m Total new business premium income and unit trust sales: Regular premiums 69.5 72.9 70.6 Single premiums 408.2 334.1 396.2 Unit trusts 872.9 687.7 518.6 Weighted sales (regular + 1/10 single) 233.1 210.0 193.0 Bancassurance Regular premiums: Life - mortgage related 16.5 14.3 16.9 - non-mortgage related 4.7 4.9 4.8 Pensions 17.3 20.5 15.3 Health 2.6 1.8 2.3 Total regular premiums 41.1 41.5 39.3 Single premiums: Life 198.4 187.0 211.7 Annuities 47.7 42.6 44.0 Pensions 34.5 16.7 33.1 Total single premiums 280.6 246.3 288.8 External unit trust sales: Regular payments 38.5 37.9 33.6 Single amounts 793.0 583.8 435.0 Total external unit trust sales 831.5 621.7 468.6 Abbey Life Regular premiums: Life - mortgage related 4.2 3.4 4.0 - non-mortgage related 5.7 5.7 6.6 Pensions 17.7 21.6 19.8 Health 0.8 0.7 0.9 Total regular premiums 28.4 31.4 31.3 Single premiums: Life 14.8 14.3 11.9 Annuities 58.9 50.2 51.1 Pensions 53.9 23.3 44.4 Total single premiums 127.6 87.8 107.4 External unit trust sales: Regular payments 0.9 0.9 0.7 Single amounts 40.5 65.1 49.3 Total external unit trust sales 41.4 66.0 50.0 Total life funds under management 25,080 23,487 23,692 General Insurance Half-year to Half-year to 30 June 31 December 1999 1998 1998 £m £m £m Premium income from underwriting Creditor 65 53 57 Home 98 82 96 Health 28 24 25 Other 1 1 1 Re-insurance premiums (2) (2) (2) 190 158 177 Commissions from insurance broking Creditor 80 54 83 Home 18 18 20 Health 10 12 12 Other 42 51 46 150 135 161 Profit before tax 228 191 230 Pre-tax profit from general insurance operations, comprising underwriting and broking, rose by £37 million, or 19 per cent, to £228 million. Income from creditor insurance increased by 36 per cent, reflecting higher personal sector lending levels and higher loan values as well as higher sales of business loan protection. Sales of regular premium household and health insurance policies by branches increased by 8 per cent. The overall increase in sales, together with renewal business, produced an 11 per cent increase in commission income from broking and a 20 per cent increase in earned premium income from underwriting. Investment income increased by 7 per cent to £34 million, mainly due to good returns in the equity markets. The overall claims ratio of 43.8 per cent was lower than in the first half of 1998 (46.3 per cent) but higher than the claims ratio in the second half of 1998 of 40.2 per cent. This reflects the higher seasonal claims in the first half of the year. MORE TO FOLLOW IR ALLEADAIAFAA

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