3 Months 2000 Results - Pt.2
CGU PLC
10 May 2000
Part 2
OTHER FINANCIAL HIGHLIGHTS
SHAREHOLDERS' FUNDS
Shareholders' funds amounted to £9,853m (31 Dec 1999 £9,567m) after deducting
the equalisation provision of £132m (31 Dec 1999 £134m). A good increase in
shareholders' funds included an increase of £169m in the valuation of
in-force life business, before the effect of exchange rate changes, in
addition to the profit attributable to ordinary shareholders as set out
on page 18. Movements in rates of exchange had a negative effect of £117m
of which £41m related to the reserve arising on the valuation of in-force
life business.
UNALLOCATED EXPENSES
Unallocated expenses amounted to £26m (1999 £18m). These expenses included
a number of business development initiatives and worldwide staff profit
sharing expenses.
UNALLOCATED INTEREST CHARGES
Unallocated interest charges include interest on intra-group loans with the
centre and external borrowings not allocated to territorial operations.
These charges amounted to £67m (1999 £47m) and included external loan
interest of £21m (1999 £16m). The increase reflected acquisitions, higher
interest rates and the purchase of strategic investments.
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 are:-
Longer term rates of return
Equities Properties
2000 1999 2000 1999
% % % %
UK 8.1 6.9 6.6 5.4
France 7.5 5.9 6.5 4.9
Netherlands 8.4 6.8 6.5 4.9
United States 9.3 7.7 7.3 5.7
Canada 9.3 7.9 7.3 5.9
Australia & NZ 10.0 8.0 8.0 6.0
The euro
Our businesses in the euro zone are continuing to work actively to prepare
for the final conversion. Costs incurred to date for the introduction of the
euro amount to £37m, with £4m included in these results. The expected total
cost of preparation for the euro is some £70m, excluding the UK.
EARNINGS PER SHARE CALCULATION
3 months 2000 3 months 1999
Earnings per share Net of Net of
tax, tax,
minorities minorities
Before and Per Before and Per
tax preference Share tax preference share
dividend dividend
£m £m p £m £m p
Operating profit,
including life
achieved profits,
before goodwill
amortisation and
exceptional items 396 275 21.0 255 173 13.2
Deduct life achieved
profits (289) (191) (14.6) (181) (118) (9.0)
Add modified
statutory life profit 127 81 6.2 116 78 6.0
Operating profit,
including modified
statutory life
profits,
before goodwill
amortisation and
exceptional items 234 165 12.6 190 133 10.2
Goodwill amortisation (5) (5) (0.4) (4) (4) (0.3)
Operating profit
before exceptional
items 229 160 12.2 186 129 9.9
Exceptional items - - - (20) (17) (1.3)
Operating profit 229 160 12.2 166 112 8.6
Short-term
fluctuations
in investment
returns 154 70 5.3 8 18 1.4
Change in the
equalisation
provision - - - (11) (11) (0.9)
Profit attributable
to equity
shareholders 383 230 17.5 163 119 9.1
Earnings per share were calculated using a weighted average of 1312.7m
(31 March 1999 average of 1309.4m) ordinary shares in issue.
Unaudited financial statements, a statistical appendix,
and achieved profits assumptions follow.
UNAUDITED FINANCIAL STATEMENTS
(Using Modified Statutory Life Profits)
3 months to March 2000
3 months 3 months 3 months 12 months
2000 Profit and loss account 2000 1999 1999
Unaudited Unaudited Restated Restated
Euro m £m £m £m
Premium income and investment
sales after reinsurance
Life premiums and
4,079 investment sales 2,487 2,437 9,596
376 Health premiums 229 44 225
3,943 General insurance premiums 2,404 2,294 8,621
----- ----- ----- ------
8,398 Total 5,120 4,775 18,442
===== ===== ===== ======
Operating profit before taxation
208 Modified statutory life profits 127 116 522
15 Health 9 7 24
271 General insurance 165 113 456
2 Associated undertakings 1 6 10
41 Asset management 25 13 52
----- ----- ----- -----
537 Business unit operating profit 327 255 1,064
Unallocated expenses and
(153) interest charges (93) (65) (306)
----- ----- ----- -----
Operating profit before goodwill
amortisation and exceptional
384 items 234 190 758
(8) Goodwill amortisation (5) (4) (19)
----- ----- ----- -----
Operating profit before
376 exceptional items 229 186 739
- Exceptional items - (20) (151)
----- ----- ----- -----
376 Operating profit before taxation 229 166 588
Short-term fluctuation in
253 investment returns 154 8 239
Change in the equalisation
- provision - (11) (28)
Net loss arising from sale
- of subsidiary undertakings - - (8)
----- ----- ----- -----
Profit on ordinary activities
629 before taxation 383 163 791
Tax on profit on ordinary
(235) activities (143) (24) (226)
----- ----- ----- -----
Profit on ordinary activities
394 after taxation 240 139 565
(10) Minority interests (6) (16) (50)
----- ----- ----- -----
384 Profit for the period 234 123 515
(7) Preference dividends (4) (4) (17)
----- ----- ----- -----
Profit for the period attributable
377 to ordinary shareholders 230 119 498
----- ----- ----- -----
Ordinary dividends
- Interim - - (187)
- Final - - (311)
----- ----- ----- -----
- - - (498)
----- ----- ----- -----
377 Transfer to retained profits 230 119 -
===== ===== ===== ======
----------------------------------------------------------------------------
Earnings per share (note 2)
Operating profit before exceptional
items and goodwill amortisation,
after taxation, attributable to
20.7c equity shareholders 12.6p 10.2p 42.6p
Profit attributable to equity
28.7c shareholders 17.5p 9.1p 38.0p
Profit attributable to equity
28.5c shareholders - diluted 17.4p 9.0p 37.8p
----------------------------------------------------------------------------
Notes:
(1) Following the implementation of FRS16 'Current tax', dividend income is
no longer grossed up for notional tax credits. Comparative results have
been restated accordingly. The impact on operating profit before tax
in the current period is a reduction of £1m (3 months 1999 £2m;
12 months 1999 £13m). There is no impact on profit after tax. 1999
results have also been restated to reflect a number of changes in
presentation, which had no effect on the overall operating profit.
(2) Earnings per share are analysed on page 17.
(3) Total ordinary shares in issue at 31 March 2000 were 1313.5m
(31 March 1999 1309.7m).
(4) 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:
3 months 2000 3 months 1999 12 months 1999
French franc 10.74 9.57 9.99
Netherlands florin 3.61 3.22 3.35
United States dollar 1.60 1.63 1.62
Canadian dollar 2.33 2.46 2.40
(5) The results have been translated into euros using the average rate for
the 3 months to March 2000 of 1 Euro = £0.610.
3 months 3 months 12 months
2000 1999 1999
Unaudited Unaudited Audited
£m £m £m
Operating profit before goodwill
amortisation and exceptional items
United Kingdom 114 82 427
France 21 24 89
Netherlands 55 47 164
Other Europe 14 10 75
United States 84 64 195
Canada 13 11 96
Australia & NZ 17 9 3
Rest of World 6 3 14
Group reinsurance 3 5 1
----- ----- -----
327 255 1,064
Unallocated expenses (26) (18) (98)
Unallocated interest charges (67) (47) (208)
----- ----- -----
234 190 758
===== ===== =====
Summarised reconciliation of movements in consolidated shareholders' funds
Profit for the period 234 123 515
----- ----- -----
Movement in the valuation of in-force
long term business 169 110 818
Foreign exchange rate movements on this
valuation (41) (55) (120)
----- ----- -----
128 55 698
Other foreign exchange rate movements (76) (53) (191)
----- ----- -----
Total recognised gains and losses arising
in the period 286 125 1,022
Dividends (4) (4) (515)
Increase in capital and shares in lieu
of dividends 6 3 22
Other movements (2) (1) (1)
----- ----- -----
Total movements in the period 286 123 528
Shareholders' funds at 1 January 9,567 9,039 9,039
----- ----- -----
Balance at end of period 9,853 9,162 9,567
===== ===== =====
Summarised consolidated balance sheet
Group Group Group
as at as at as at
31 Mar 00 31 Mar 99 31 Dec 99
Unaudited Unaudited Audited
Assets £m £m £m
Goodwill 288 247 191
Investments
----- ----- -----
Land and buildings 793 794 738
Participating interests 210 295 266
Variable yield securities 6,011 5,151 6,625
Fixed interest securities 10,921 11,186 10,062
Mortgages and loans 418 285 400
Deposits 908 768 703
Valuation of in-force long term business 3,992 3,177 3,832
----- ----- -----
23,253 21,656 22,626
Reinsurers' share of technical provisions 2,242 2,267 2,317
Assets of the long term business 84,787 75,854 83,858
Other assets 8,349 6,316 7,705
------- ------- -------
Total assets 118,919 106,340 116,697
------- ------- -------
Liabilities
Shareholders' funds
Equity 9,653 8,960 9,367
Non-equity 200 202 200
Minority interests 503 515 527
----- ----- -----
Total capital and reserves 10,356 9,677 10,094
Liabilities of the long term business 82,997 74,189 81,983
------ ------ ------
General insurance liabilities 18,297 17,967 17,949
Borrowings 1,574 990 1,231
Other creditors and provisions 5,695 3,517 5,440
------ ------ ------
Total other liabilities 25,566 22,474 24,620
------- ------- -------
Total liabilities 118,919 106,340 116,697
------- ------- -------
3 months 3 months 12 months
2000 1999 1999
Unaudited Unaudited Audited
£m £m £m
Consolidated cash flow statement
Net cash inflow from operating activities
excluding exceptional items and
merger transaction costs 37 43 368
Exceptional items and merger transaction
costs paid (17) (27) (219)
Net cash outflow from servicing of finance (37) (24) (101)
Corporation tax paid (including advance
corporation tax) (26) (25) (101)
Net purchases of tangible fixed assets (4) (17) (75)
Acquisitions and disposals of subsidiary and
associated undertakings (225) (13) (23)
Equity dividends paid - - (474)
Net cash inflow from financing activities 367 55 219
----- ----- -----
Net cash flows 95 (8) (406)
----- ----- -----
Cash flows were invested as follows:
Increase/(decrease) in cash holdings 11 (88) 19
Net portfolio investment
Net purchases/(sales) of investments 77 53 (510)
Non-trading cash flow to long term
business operations 7 27 85
----- ----- -----
95 (8) (406)
----- ----- -----
ACHIEVED PROFITS ASSUMPTIONS
The key economic assumptions are listed below:
United Nether-
Kingdom France lands Italy Poland Poland
life pensions
EV Op. EV Op. EV Op. EV Op. EV Op. EV Op.
prof. prof. prof. prof. prof. prof.
% % % % % % % % % % % %
Risk margin 4.0 4.0 5.2 5.2 4.5 4.5 4.4 4.4 10.5 10.5 8.0 8.0
After tax
discount rate 3.5 3.6 3.2 3.3 3.6 3.6 3.2 3.2 8.4 8.4 8.4 8.4
(excluding risk
margin)
Risk discount
rate 7.6 7.8 8.6 8.7 8.3 8.3 7.7 7.7 19.8 19.8 17.1 17.1
Pre-tax investment
returns:
Base Government
fixed interest
return * 5.0 5.2 5.3 5.5 5.5 5.5 5.6 5.6 12.5 12.5 12.5 12.5
Ordinary
shares 7.5 7.7 7.3 7.5 8.4 8.4 8.6 8.6 12.5 12.5 12.5 12.5
Property 6.5 6.7 6.8 7.0 7.0 7.0 7.1 7.1 - - - -
Future expense
inflation 4.1 3.7 2.5 2.5 2.5 2.5 2.5 2.5 9.2 9.2 9.2 9.2
Tax rate for
grossing up
profits and
new business
contribution 30.0 40.0 25.0 43.0 33.0 33.0
* The assumed return for fixed interest investments depends upon the actual
duration of the assets.
Note : There is no longer any risk margin differential for unit-linked
business.
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