2001 Full year results-Part 1
CGNU PLC
27 February 2002
CGNU PLC
PART 1 OF 6
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27 February 2002
PRELIMINARY RESULTS
12 MONTHS ENDED 31 DECEMBER 2001
CGNU REPORTS STRONG RESULTS FOR THE YEAR ENDED 31 DECEMBER, THE INTRODUCTION
OF AVIVA AS ITS NEW GLOBAL BRAND AND A REBASED DIVIDEND POLICY WHICH IS
CONSISTENT WITH THE HIGH GROWTH NATURE OF THE REFOCUSED BUSINESS
- Strong results with operating profit* up 41% to £2,004 million in a
challenging environment
On a modified statutory basis, operating profit before tax was £1,533
million (2000: £1,028 million)
- Record sales of long-term savings business delivering profitable
growth
- Outperformance of long-term savings business in major markets
with worldwide new business sales at £15 billion
- New business contribution up 30% to £591 million (2000: £454
million**), with worldwide margins of 25.5% (2000: 23.9%**)
- Worldwide life achieved operating profit up at £1,674 million
(2000: £1,569 million)
- Sustainable returns from general insurance
- Re-shaped general insurance business delivers worldwide combined
operating ratio of 102%
- General insurance operating profit, up 133% to £945 million, due
to action taken to improve performance and to lower weather-
related claims
- Integration successfully completed and cost savings target exceeded
- Proposed change of group name to Aviva*** to reflect the international
nature of the newly integrated business
- For commercial reasons certain strong brands, such as Norwich Union in
the UK, will be retained with the endorsement 'an Aviva company'
- Full year 2001 dividend unchanged at 38.0 pence net per share
- Rebased dividend policy, to support the scale and pace of profitable
long-term savings growth
* From continuing operations including life achieved operating profit
before amortisation of goodwill and exceptional items
** Using the application of 2001 economic assumptions
*** Aviva is a trademark of the CGNU group
All growth rates quoted are at constant rates of exchange.
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Richard Harvey, Group Chief Executive, commented:
'This is a strong set of results. Our life businesses have outperformed in our
major markets in the UK and Europe through organic development, acquisitions,
partnerships and new ventures that extend our distribution capabilities. In
general insurance we have delivered a significant improvement in results
through lower weather-related claims and a focused approach to our realigned
small commercial and personal lines portfolio. Through this action we have
achieved our target combined operating ratio of 102 per cent, which we believe
is capable of being sustained through the underwriting cycle.
'With the integration successfully completed we are now looking to future
growth. The introduction of the Aviva brand will create opportunities for us
to harness the benefits of our size and international capabilities.'
Pehr Gyllenhammar, Chairman, commented:
'The Board has concluded that the realignment of the dividend policy strikes
the appropriate balance between dividend payments and the retention of capital
to take advantage of profitable growth opportunities. This reflects the high
growth nature of our business as we continue to advance in those international
markets where we can build leadership positions.'
Enquiries:
Richard Harvey
Group Chief Executive Telephone +44 (0)20 7662 2286
Mike Biggs
Group Finance Director Telephone +44 (0)20 7662 2031
Analysts:
Steve Riley
Investor Relations Director Telephone +44 (0)20 7662 8115
James Matthews
Head of Investor Relations Telephone +44 (0)20 7662 2137
Media:
Hayley Stimpson
Director of External Affairs Telephone +44 (0)20 7662 7544
Alex Child-Villiers
Financial Dynamics Telephone +44 (0)20 7269 7107
An interview with Richard Harvey, Group Chief Executive, in video, audio and
text will be available after the results have been released today on the
Group's website, www.cgnu-group.com, and www.cantos.com
There will be a conference call today for wire services at 8.15 am on 020 8240
8245. This conference call will be hosted by Richard Harvey, Group Chief
Executive.
A presentation to investors and analysts will take place at 9.30 am at St
Helen's, 1 Undershaft, London, EC3P 3DQ and there will also be a live
teleconference on +44(0)20 8515 2321. The presentation slides will be
available on the Group's website, www.cgnu-group.com. Replay facility will be
available for 2 weeks on +44(0)20 8797 2499 and the pass code is 118402.
The investors and analysts presentation is being filmed for delayed webcast
and will be available on the Group's website, www.cgnu-group.com, later this
afternoon.
Photographs are available from www.newscast.co.uk
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Financial highlights
2001 2000
£m £m
Total premiums written (after reinsurance)
and investment sales - continuing operations,
including share of associates premiums 28,339 27,026
Worldwide long-term savings new
business sales
Life and pensions 13,479 11,023
Retail investments 1,475 2,501
New business contribution (before effect
of solvency margin) 591 483
Achieved operating profit before tax
- continuing operations
Life achieved operating profit 1,674 1,569
Health 70 68
Fund management 29 61
General insurance 945 412
Non-insurance operations (2) (24)
Corporate costs (187) (185)
Unallocated interest charges (426) (361)
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2,103 1,540
Wealth management (99) (133)
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Achieved operating profit before tax
- continuing operations 2,004 1,407
====== ======
Modified statutory operating profit
- continuing operations 1,533 1,028
Achieved operating earnings per share
- continuing operations 56.1 39.7
Modified statutory operating earnings
per share - continuing operations 43.2 28.3
Equity shareholders' funds 11,672 13,433
Total shareholders' funds 11,872 13,633
Dividends per ordinary share
- Interim (paid) 14.25p 14.25p
- Final (proposed) 23.75p 23.75p
- Total 38.0p 38.0p
Net asset value per ordinary share 530p 606p
Assets under management £209bn £220bn
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GROUP CHIEF EXECUTIVE'S STATEMENT
In our first full year as a merged company, I am pleased to report strong
operating profits up 41% to £2,004 million. The strategy we put in place at
the time of the merger is delivering results. We achieved record worldwide
long-term new business sales of £15 billion, at sound margins, with our major
businesses outperforming their markets, and a significant improvement from our
general insurance business reflecting our focused approach and lower weather-
related claims.
Continued success in long-term savings
We had an excellent year for life and pension sales, which grew strongly by
21% to £13.5 billion, while retail investments were lower at £1.5 billion
(2000: £2.5 billion). Total life achieved operating profit increased by 5% to
£1,674 million (2000: £1,569 million).
As the market leader in the UK with a share of 11%, we saw sales grow by 8%
to £8.1 billion reflecting the strength of the Norwich Union brand and our
multi-distribution capability. We are the market leader for investment bonds
and have established the leading position in the stakeholder pensions market,
achieving our target market share of 20%. New business contribution has
increased by 17% to £327 million (2000: £280 million, at 2001 economic
assumptions) while overall margins were 25.8% (2000: 28.6%, at 2001 economic
assumptions) reflecting the greater proportion of lower margin pension sales.
Life achieved operating profit was £859 million (2000: £938 million) as a
result of the increased life expectancy seen in our UK annuity portfolio.
In Continental Europe life and pension sales grew by 39% to £5.5 billion.
Margins improved significantly to 27.0% (2000: 20.4%, at 2001 economic
assumptions) and total life achieved operating profit grew by 25% to £779
million (2000: £602 million). Our business in France, Ireland and the
Netherlands saw continued organic growth and the overall Continental European
margin improved primarily as a result of our bancassurance arrangements in
Spain. Continental European life achieved operating profit accounts for 47%
of our group life business result (2000: 38%).
During 2001 we saw significant growth from our bancassurance partnerships in
Spain and Italy. Our partnership in the UK with The Royal Bank of Scotland
Group has built good momentum. Total worldwide sales from bancassurance grew
to £2.1 billion (2000: £0.5 billion). In addition, we recently announced an
agreement with the DBS Group to extend our bancassurance reach into Hong
Kong, a new and exciting market for us, with significant growth potential.
This, together with our recent agreements with Unicaja, Caixa Galicia and
Caja Espana in Spain and the DBS Group in Singapore, will further develop our
bancassurance business during 2002.
Fund management
We are the second largest UK-based fund manager and one of the top ten in
Europe. The past year has been difficult for our fund management operations
as a result of the volatility in equity markets. Operating profit was lower
at £29 million (2000: £61 million). We continued to build our business from
external consultants and secured £3.5 billion of third party mandates in
2001.
Sustainable general insurance business
Our strategy of focusing on personal lines and small commercial business
together with lower weather-related claims has resulted in an increase in
operating profit from continuing operations of 133% to £945 million. We
achieved a worldwide combined operating ratio (COR) of 102% and have built the
foundations of a business capable of sustaining this through the underwriting
cycle. Our strategy of moving away from commercial lines and long-tail
business has limited our exposure to the tragic events of September 11 and the
Group confirms that the initial prudent estimate of £35 million remains
unchanged and less than half of this amount has been reported within claims to
the end of 2001.
Delivered integration targets
The merger of the operations of CGU and Norwich Union was completed on target
by the end of December 2001. We brought together two major groups and 64,000
people worldwide with great speed and focus and achieved £317 million of
annualised cost savings. This exceeded our target of £275 million and was
accomplished within the integration costs of £425 million, charged in 2000.
Brand strategy
The Board is to seek shareholder approval to change the group name to Aviva
plc. The new name will create a new international financial services brand,
bringing together some 50 different trading names around the world and
creating further opportunities for us to harness the benefits of our size and
international capabilities.
A small number of strong local brands, such as Norwich Union in the UK, will
be retained and the words 'an Aviva company' added to marketing materials.
Most of our other trading businesses will be rebranded Aviva over time, with
the cost of this change funded largely through a redirection of normal
marketing spend.
The new name will make it easier for us to enter new markets, as a result of
heightened awareness of Aviva in markets where we are already
well-established. It will also enable us to make more effective use of our
global marketing spend and create a greater sense of belonging for our 64,000
employees worldwide.
Subject to shareholder approval at the AGM on 23 April 2002, the change of
name to Aviva plc will take place by 31 October 2002.
Dividend
The Board has recommended a final dividend of 23.75 net pence per ordinary
share payable on 17 May 2002 to shareholders on the register at 2 April 2002,
which brings the total dividend for the year to 38.0 net pence per ordinary
share.
Since the new group was formed, we have seen our life and savings business
grow by over 30% in only 18 months. To sustain the scale and pace of
profitable growth, our long-term savings operations require continuous
investment of both cash and capital. The view of the Board is that it is not
possible to maintain the current level of the Group's dividend whilst pursuing
this strategy.
As a result, the Board proposes a re-basing of the 2002 full year dividend to
23 pence (2001: 38 pence). Given our outlook for the business, this strikes
the appropriate balance between dividend payments and the retention of capital
to take advantage of profitable growth opportunities. From this new base, we
expect to adopt a progressive policy of growing dividends by approximately 5%
per annum, whilst looking to sustain a target cover in a range of 1.5 to 2.0
times operating earnings after tax, measured on a modified statutory solvency
basis.
In the past year, we have focused our businesses on the markets where we can
build leadership positions and are now well placed to leverage our position in
these markets and to build shareholder value.
Richard Harvey
Group Chief Executive
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