Final Results - Year Ended 31 Dec 1999, Part 2
CGU PLC
21 February 2000
Part 2
----------------------------------------------
A review of CGU's business performance follows
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BUSINESS REVIEW
LIFE
ACHIEVED LIFE PROFITS
Life profits benefited from strong new business growth of 33%. Life achieved
operating profits amounted to £891m a 15% increase in underlying terms, after
allowing for the benefit of £235m in last year's results from an increase in
the assumed margins for the return on equities above fixed interest
securities.
In view of the sizeable movement in interest rates, the 1998 new business
contribution has also been shown using the same economic assumptions as have
been applied in 1999 to allow a better underlying comparison between 1999 and
1998.
Profit on
business in New
Analysis of life force business Total
profits and net contribution
assets
------------ ------------------- -------------------
1999 1998 1999 1998 1998 1999 1998 1998
(i) pub- (i) pub-
lished lished
£m £m £m £m £m £m £m £m
Life operating profit
before taxation
UK 281 276 134 102 119 415 378 395
France 75 65 22 10 10 97 75 75
Netherlands 165 154 3 (9) - 168 145 154
Italy 13 28 29 26 26 42 54 54
Poland
- life 52 42 28 28 26 80 70 68
Poland
- pensions 1 1 42 - - 43 1 1
Other Europe (2) (3) (9) (6) (6) (11) (9)
(9)
Other life
businesses 16 12 8 4 3 24 16 15
--- --- --- --- --- --- --- ---
601 575 257 155 178 858 730 753
--- --- --- --- ---
Other life & savings 33 21 21
activities (ii) --- --- ---
Life operating profit
on continuing
business before
equity return
adjustment 891 751 774
Equity return
adjustment - - 235
Operating profit on
business disposed - 12 12
of (iii) ----- ---- -----
Life operating profit
before taxation 891 763 1,021
---
Effect of changes in
interest rates and
investment return
fluctuations 1,052 168
----- -----
Achieved profit
before taxation 1,943 1,189
Taxation (595) (358)
----- -----
Achieved profit after
taxation 1,348 831
===== =====
Notes:
(i) New business contribution has been shown using 1999 economic
assumptions.
(ii) Profits of other life and savings activities, which include service
companies, have been calculated on a statutory basis and amount to £33m
in 1999 (UK £31m and Poland £2m; 1998 UK £21m).
(iii)Our life operation in South Africa was disposed of at the end of
1998. It produced a profit on business in force and net assets of £10m
and a new business contribution of £2m in that year.
LIFE AND SAVINGS NEW BUSINESS
Following an excellent performance by our life and savings business in
1999, record new business sales of £7.1bn were up 33% over last year.
There was strong life and pensions growth in the UK, good performances in
France and the Netherlands, and our Polish business captured a large share
of the new pensions market, with new annual premiums of £282m in 1999.
The contribution to life achieved operating profits from new
business after the charge for capital increased by 46% using economic
assumptions consistent with those applied in 1999.
New single New annual Investment
premiums premiums sales (ii) Total
Local Local Local Local
currency currency currency currency
1999 growth 1999 growth 1999 growth growth
£m % £m % £m % %
----------------------------------------------------------------------------
UK 2,655 34 171 1 641 36 33
France 1,328 20 13 12 20
Netherlands(iv) 340 16 84 9 15
Italy 768 21 42 (14) 19
Poland
- life 13 163 57 12 25
Poland
- pensions - n/a 282 n/a n/a
Germany 90 n/a 39 n/a n/a
Other Europe 185 140 12 21 129 5 55
Other life
businesses 201 (5) 44 16 (1)
----- --- --- --- --- --- ---
Total 5,580 29 744 76 770 29 33
----- --- --- --- --- --- ---
----------------------------------------------------------------------------
Notes:
(i) Premiums are gross of reassurance.
(ii) Includes ISAs, PEPs, unit trusts and UCITS (collective investments
sold throughout Europe and Asia).
(iii) Growth excludes sales from businesses disposed of.
(iv) Netherlands figures include £3m in single premiums and £0.5m in annual
premiums from Nuts Ohra.
New business contribution
New annualised New business contribution
premiums (i)
1999 1998 1999 1998
at 1999 1998
assumptions published
(ii)
£m £m £m £m £m
---------------------------------------------------------------------------
UK 437 367 134 102 119
France 146 125 22 10 10
Netherlands 118 109 3 (9) -
Italy 119 115 29 26 26
Poland - life 58 57 28 28 26
Poland - pensions 282 - 42 - -
Other Europe 78 39 (9) (6) (6)
Other life businesses 64 57 8 4 3
----- --- --- --- ---
Total 1,302 869 257 155 178
----- --- --- --- ---
---------------------------------------------------------------------------
Notes:
(i) Annualised premiums are annual premiums plus 10% of single premiums.
(ii) 1998 new business contribution has been shown using the application
of 1999 economic assumptions.
UK : CGU Life is one of the UK's strongest life offices, with an estate of
some £5 billion in the with-profits funds, low unit costs and a multi-
distribution capability.
The profit from new business increased by 31% to £134m, with a strong
contribution from with-profit bonds helping offset lower endowment sales
and the effect of a competitive pensions market. Overall product margins
were similar to 1998.
Total sales increased by 33% to £3.5bn, with strong growth in with-profit
bonds, protection and pension products, where the option for a penalty-free
transfer into a new stakeholder pension enabled us to outperform a
declining pensions market. CGU Life gained market share in its first full
year after the merger and was the third largest seller of life and savings
products in 1999.
France : The profit contribution from new business more than doubled to
£22m reflecting strong AFER growth and improved margins on other savings
products. Single premium sales were up 20% to £1,328m against market
growth of some 13%. AFER's excellent investment return record helped boost
bond sales to £712m, up 45%, and the recently announced investment yield of
6.23% for 1999 will ensure a competitive position in 2000. Unit-linked
sales (including £135m in unit-linked AFER sales) and other savings
products were up 2% at £482m and group protection sales were £134m (1998
£144m).
Netherlands : The acquisition of NUTS OHRA was completed in the fourth
quarter of 1999 with the combined company, Delta Lloyd Nuts Ohra, ranking as
the third largest life and pensions player. Delta Lloyd Nuts Ohra produced a
good performance in 1999. New annual premiums increased by 9% to £84m,
reflecting strong sales of Delta Life, our unit-linked universal life
product, which were up 37% to £18m. Increased pensions business boosted new
single premiums 16% to £340m.
The contribution from new business improved to £3m after the cost of
capital, reflecting increased sales of profitable individual life
products which contributed £13m. Group business profitability was impaired
by low interest rates but policy changes introduced in December 1999 together
with increased interest rates have significantly increased the profitability
outlook for this business.
Italy : Total new business sales were higher than in 1998 and new business
profits were up £3m to £29m in underlying terms. Single premium sales
increased to £768m and annual premiums were £42m. Strong growth in sales of
unit-linked savings products through our developing bancassurance
arrangements with Banca delle Marche and Banca Popolare di Lodi, partly
offset a reduction from the Credito Italiano distribution arrangement which
finished in June 1999.
Poland : We have achieved exceptional success in capitalising on the major
opportunity provided by the privatisation of pension provision. We are the
leading pensions business, capturing a market share of over 20% by number of
customers and 30% by funds under management. New business profits grew
strongly, reflecting an excellent contribution from pensions business and a
good performance from life assurance, despite increased competition.
New annual pension premiums of £282m were written in 1999, representing the
processing of 1.6m pensions cases, with a further 0.5m applications in the
pipeline to be processed during 2000.
The pensions business has built on the success of our existing life
operations and created a major business in Poland, with a customer base of
over 3 million and the potential to cross-sell our products. In a year where
our sales team focused on the pensions opportunity, a 12% increase in annual
premium life sales to £57m and a 163% increase to £13m in single premiums
represents an excellent performance.
Other: Elsewhere, development costs held back the value of new business,
although sales continued to grow strongly in Germany, Ireland and Turkey.
Profit on business in-force and net assets
Expected Effect Effect of
return of changes to experience and
using 1-1-99 risk margins other changes Total
assumptions
1999 1999 1999 1999 1998(i)
£m £m £m £m £m
----------------------------------------------------------------------------
UK 184 81 16 281 276
France 103 - (28) 75 65
Netherlands 121 - 44 165 154
Italy 11 - 2 13 28
Poland - life 24 8 20 52 42
Poland - pensions 5 - (4) 1 1
Other life businesses 31 - (17) 14 9
--- --- --- --- ---
479 89 33 601 575
Equity risk adjustment - - - - 235
--- --- --- --- ---
Total 479 89 33 601 810
=== === === === ===
----------------------------------------------------------------------------
(i) 1998 figures exclude operations disposed of (£10m).
Profit on business in force and net assets has been split into three
components.
(i) The 'Expected return' is the investment return we anticipated earning
on the start of year embedded value. It comprises earnings at the
risk discount rate on the start of the year value of in force business
and at the long term investment return on the net assets. The rates
used are those applicable at the beginning of 1999.
(ii) The 'Effect of changes to risk margins' has been separately identified.
(iii)The 'Effect of experience and other changes' comprises any impact
from such items as changes in mortality, lapse and expense
assumptions, together with experience variations in 1999. There
has been a strong overall positive contribution in 1999.
In the UK, following a review of market conditions, a change in risk margin
had a positive effect of £81m and there was a £19m profit from the
reinsurance of the business portfolio of our British & European Reinsurance
subsidiary.
In France, the contribution has been reduced by the decision to pay renewal
commission on AFER business, which is expected to contribute to future
growth and profitability.
The Netherlands benefited from good mortality experience in 1999. The
result was also boosted by a one-off £27m due to changes in the assumed
profit sharing basis.
The Poland life contribution includes £16m from continued good mortality
experience and £8m from a reduction in the risk margin, as our business
becomes more established. In Poland pensions, there was an expense loss
due to start-up costs.
The other life businesses are currently incurring modest losses as they
develop.
Analysis of embedded value
Valuation of in- Total
Net assets force Embedded value
1999 1998 1999 1998 1999 1998
£m £m £m £m £m £m
----------------------------------------------------------------------------
UK 180 174 2,169 1,761 2,349 1,935
France 468 478 418 393 886 871
Netherlands 855 763 925 767 1,780 1,530
Italy 61 60 63 48 124 108
Poland - life 37 30 90 64 127 94
Poland - pensions 18 22 40 - 58 22
Other Europe 28 31 83 69 111 100
Other life
businesses 196 169 44 39 240 208
----------------------------------------------------------------------------
Total 1,843 1,727 3,832 3,141 5,675 4,868
----------------------------------------------------------------------------
Analysis of movement in embedded value
1999 1998
£m £m
----------------------------------------------------------------
Opening balance 4,868 3,995
Value of new business 257 180
Expected return 479 519
Effect of other experience items 122 66
Change in assumed equity returns - 235
----- -----
Operating profit 858 1,000
Effect of changes in interest rates and
investment return fluctuations 1,052 168
----- -----
Achieved profits (excluding other life and
savings activities) 1,910 1,168
Capital injections 176 82
Dividends (339) (178)
Tax (585) (352)
Exchange movements (355) 153
----------------------------------------------------------------
Closing balance 5,675 4,868
----------------------------------------------------------------
Sensitivity to a 1 percentage point increase in interest rates and in risk
margin
New business
contribution Embedded value
------------------ ------------------
Interest Risk Interest Risk
rates margin rates margin
£m £m £m £m
UK 10 (15) (150) (150)
France 5 (5) (25) (60)
Netherlands 10 (10) (50) (100)
Italy 2 (5) - (5)
Poland - life - (2) - (5)
Poland - pensions 2 (5) - (5)
Other 1 (3) - (10)
--- --- --- ---
Group 30 (45) (225) (335)
--- --- --- ---
-------------------------------------------------------------------
The above table gives the impact on the new business contribution and
embedded value of a 1 percentage point increase in interest rates and risk
margin.
Profits are affected by the change of underlying interest rates. When
interest rates change, expected future investment returns will also change
and this in turn will affect projected cash flows. A change in interest rates
will also result in a change in the discount rate used to calculate the
present value of the projected cash flows.
The risk margin is one element of the discount rate used to calculate the
present value of projected cash flows. It is an allowance for the
possibility that experience in future years may differ from the assumptions.
An analysis of worldwide life premium income and investment sales is shown
below:
1999 1998
£m £m
------------------------------------------------
Life
UK 3,703 2,891
France 2,148 1,709
Netherlands 837 753
Italy 943 788
Poland 322 166
Ireland 137 40
Other Europe 421 215
United States 243 250
Canada 60 51
Other life businesses 12 89
----- -----
8,826 6,952
----- -----
Investment sales
UK 641 473
Other Europe 129 129
----- -----
770 602
----- -----
Total 9,596 7,554
===== =====
-------------------------------------------------
Note: Life premiums in France include £654m (1998 £413m) of transfers
from existing contracts.
MODIFIED STATUTORY LIFE PROFITS
Modified statutory profits of £548m were 12% higher at constant rates of
exchange, after a loss of £15m in the Polish pension business reflecting
start-up costs.
Modified statutory profits
1999 1998
£m £m
-------------------------------------------------------
UK 271 227
France 88 87
Netherlands 140 138
Italy 17 9
Poland - life 31 24
Poland - pensions (15) -
Other Europe 1 (7)
Other life businesses 15 16
--- ---
Profit on continuing business 548 494
Profit on business disposed of - 4
(note) --- ---
Total 548 498
--- ---
------------------------------------------------------
Note: Our life operation in South Africa was disposed of at
the end of 1998.
HEALTH
Underwriting
Health profit result Premiums Local
1999 1998 1999 1998 1999 1998 currency
growth
---------------------------------------------------------------------------
£m £m £m £m £m £m %
France 13 12 2 - 97 95 4
Netherlands 11 10 (3) 4 128 28 365
-- -- -- -- --- --- ---
Total 24 22 (1) 4 225 123 87
-- -- -- -- --- --- ---
---------------------------------------------------------------------------
Health business became more significant following the acquisition in the
fourth quarter of NUTS OHRA in the Netherlands and is now reported
separately. The Group sees opportunities in selected health markets, driven
by ageing populations and the resulting pressures on state funded health
schemes. In the Netherlands, health business is often sold through employee
packages, providing synergies with group pension sales, where we have a
strong market position.
Operating profits for health business are reported on a statutory basis.
Premiums of £97m and £128m have been reclassified from the existing
French and Netherlands general insurance business.
GENERAL INSURANCE
Underwriting results showed an improvement of £111m over last year. The
improvement reflected management actions, merger expense savings and the
absence of a charge for asbestos and environmental pollution claims from
business no longer written. There were better results in our largest
businesses in the United Kingdom and the United States, together with
a strong performance in Canada. In the fourth quarter, progress was
held back by claims from the severe storms that swept through Continental
Europe, which cost the Group £70m. Overall, claims from adverse weather were
at a similar level to 1998.
The longer term investment return ('LTIR'), applicable to general insurance
business, was £1,209m (1998 £1,343m). The reduction reflected lower interest
rates, cash outflow and the unwinding of the discount on certain claims
provisions. Details of the principal assumptions for calculating the LTIR,
which are consistent with the assumptions used for the embedded value
calculations, are outlined on page 19.
General insurance profits for the year amounted to £459m (1998 £482m), with
the group combined operating ratio improving to 109% (1998 110%). The
general insurance expense ratio improved to 14.4% (1998 15.0%) with the
benefit from merger cost savings being partly offset by the effect of lower
premiums.
General
insurance Underwriting Premiums
profit result Local
1999 1998 1999 1998 1999 1998 currency
growth
£m £m £m £m £m £m %
---------------------------------------------------------------------------
UK 134 52 (247) (390) 2,611 2,888 (10)
France (note) (8) 58 (80) (22) 657 629 7
Netherlands (note) 7 42 (32) (20) 339 313 10
Other Europe 31 10 (38) (57) 589 539 12
United States 178 138 (204) (248) 2,621 2,487 3
Canada 93 72 (25) (47) 788 792 (3)
Australia & NZ 3 56 (63) (27) 568 542 1
Rest of World 20 30 (30) (32) 364 400 (4)
Group reinsurance 1 24 (31) (18) 84 59 42
--- --- --- --- ----- ----- --
Total 459 482 (750) (861) 8,621 8,649 (1)
--- --- --- --- ----- ----- --
Note: Health business has been removed from France and the Netherlands and
reported separately.
UK: Underwriting results continued to respond to rate increases, portfolio
improvements and cost savings and the underwriting result in the final
quarter was the best for 11 quarters. Improved results were achieved in the
motor classes where premium rates have risen over the last 12 months by 20%
in both private and commercial lines. The homeowners class, which accounts
for over 20% of UK business, made a good underwriting profit. Employers'
liability rates are up 10% and need to increase further to achieve adequacy.
The London marine market remains competitive and we continue to decline
business at unacceptable rates. Overall premiums were 10% lower, reflecting
management actions to improve underwriting results and to avoid under-rated
risks, although the rate of reduction has slowed as market conditions
improve.
France: Underwriting profits were achieved in property classes, despite
claims from the severe storms at the end of December totalling £38m after
reinsurance. A further £31m of storm losses was incurred in Group
reinsurance retentions. The motor underwriting result was impacted during
the fourth quarter by adverse claims experience and losses on prior year
claims.
Good progress was made in integrating Tellit Assurance with Eurofil, our
direct writing company. CGU is now the second largest direct writer in
France.
Netherlands: Motor and liability results were affected by a further increase
in the cost of bodily injury claims. Rate increases of 10% have been
achieved in the motor account. Underwriting profits were achieved in the
domestic and commercial property classes.
Other Europe: Results for the year showed the benefit of management actions
and rating improvements following a particularly strong fourth quarter
result. There were particularly good improvements in Ireland, Germany and
Italy. Claims from storms in Germany, Belgium and Switzerland at the end of
December amounted to £1m. Premiums were 12% higher following the acquisition
of a small Italian general insurer in 1998, acquired as part of a
bancassurance arrangement for the life operations.
United States: A £44m improvement in the underwriting result for the year
included better results from most classes of business.
Results benefited from merger expense savings and the absence of a charge
for business no longer written. In the second half of the year, the rating
environment improved for commercial lines business with rate increases being
achieved in segments of the package, agri, inland marine, general liability
and commercial auto portfolios. Extensive pricing and profitability reviews
are being carried out in all classes to improve profitability further.
Canada: Our market leading Canadian business produced a £22m improvement in
underwriting results in soft market conditions, producing a combined
operating ratio of 103%. Results benefited from a focused and disciplined
underwriting approach and more favourable weather conditions. Premium
volumes were 3% lower, reflecting our firm stance on rating in competitive
conditions and Y2K exclusions.
The acquisition of GAN Canada, at the end of the year, increases our share of
the profitable personal lines affinity scheme market. The business is being
integrated quickly into our own branch network.
Australia: Underwriting results were affected by adverse claims experience
including £16m from the Sydney hailstorm in April and a one-off charge of
£12m due to the reassessment of claims reserves following the introduction of
a Goods and Services Tax. Rate increases averaging 5% are being implemented
in private property and motor, with significant increases in workers'
compensation.
ASSOCIATES
Profits from associates decreased to £10m (1998 £14m). This included higher
profits of £8m from our share of the Hibernian Group (to become a subsidiary
in 2000 following its acquisition), offset by a drop in the result of our
French associate Sogessur.
ASSET MANAGEMENT AND OTHER FINANCIAL SERVICES
CGU managed assets of £136,426m at 31 December 1999 (1998 £121,204m), making
it one of the top 20 European fund managers. The group's strategy is to
grow in the third party fund management market and mandates for new funds and
other third party funds of over £1 billion were received during the year.
Profits from asset management and other financial services increased to £36m
(1998 £14m), including £23m from Morley Fund Management in the UK, reflecting
increased fee income and merger expense savings.
The UK estate agent chain was re-launched as 'Your Move' during the year, and
will be developed alongside our online home sales portal initiative. A loss
of £13m (1998 loss £12m) was reported, which was after a charge for the
investment in the new brand, which affected results in the fourth quarter.
OTHER FINANCIAL HIGHLIGHTS
SHAREHOLDERS' FUNDS
Shareholders' funds amounted to £9,567m (31 Dec 1998 £9,039m) after deducting
the equalisation provision of £134m (31 Dec 1998 £114m). The strong
increase in shareholders' funds included an increase of £818m 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 21. Movements in rates of exchange had a negative effect of £311m of
which £120m related to the reserve arising on the valuation of in-force life
business.
Net assets per ordinary share at 31 December 1999 were 714p (31 Dec 1998
675p) after deducting the equalisation provision. Adding back the
equalisation provision, they were 724p (31 Dec 1998 684p). At 17 February
2000, net assets per ordinary share were estimated at 698p (708p adding back
the equalisation provision).
The solvency margin (excluding life) was 49% (31 Dec 1998 51%).
UNALLOCATED EXPENSES
Unallocated expenses amounted to £98m (1998 £80m). These expenses included
an increase in various corporate expenses of £62m (1998 £47m), reflecting a
number of business development initiatives and allocations to worldwide staff
profit sharing schemes of £36m (1998 £33m).
The Trustees of the Group's UK and Republic of Ireland Approved Profit
Sharing Schemes, General Accident and Trustee Company Limited and Bank of
Ireland respectively, intend to acquire in aggregate some £20m worth of CGU
plc ordinary shares in the week following the posting of the Listing
Particulars. The shares will be purchased in connection with the
appropriation of profits under those schemes in respect of the 1999
Financial Year.
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 £208m (1998 £175m) and included external loan
interest of £74m (1998 £78m).
DIVIDEND DETAILS (ORDINARY SHARES)
The recommended final dividend of 23.75p per share (1998 21.90p) will be
paid on 17 May 2000 to shareholders on the register at the close of
business on 10 March 2000 (ex-dividend 6 March 2000). Together with the
interim dividend of 14.25p, this makes a total of 38.00p per share for the
year (1998 35.15p), and will cost £498m (1998 £461m). A dividend
reinvestment plan will again be available.
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
2000 1999 1998 2000 1999 1998
% % % % % %
--------------------------------------------------------------
UK 8.1 6.9 8.1 6.6 5.4 7.4
France 7.5 5.9 6.5 6.5 4.9 6.5
Netherlands 8.4 6.8 7.1 6.5 4.9 6.1
United States 9.3 7.7 7.8 7.3 5.7 6.8
Canada 9.3 7.9 8.0 7.3 5.9 7.0
Australia & NZ 10.0 8.0 8.0 8.0 6.0 7.0
--------------------------------------------------------------
ANNUAL REVIEW AND REPORT AND ACCOUNTS
Copies of the summary Annual Review (or the full Group Accounts), which
have not yet been reported on by the auditors, will be circulated to
shareholders on 15 March 2000. These documents can be obtained by
telephoning the Shareholders Relations Service on 020 7662 8866.
The financial information set out in this announcement is unaudited and
does not constitute the company's statutory accounts for the years ended 31
December 1999 or 1998. Statutory accounts for 1998 have been delivered to
the Registrar of Companies, whereas those for 1999 will be delivered
following the company's annual general meeting on 19 April 2000. The
auditors have reported on the accounts for 1998. Their report was
unqualified and did not contain a statement under section 237 (2) or (3) of
the Companies Act 1985.
AGM
The Company will be seeking through a special resolution at the Annual
General Meeting to renew its powers to make market purchases of ordinary
shares of 25p each. In addition the Company will be seeking new powers to
make market purchases of its cumulative irredeemable £1 preference shares.
The Directors have no present intention of exercising these authorities but
will keep the matter under review. Details of the proposed resolutions will
be included in the Notice of Annual General Meeting to be sent to
shareholders shortly.
EARNINGS PER SHARE CALCULATION
1999 1998
------------------------- ---------------------------
Earnings per share Net of Net of
tax, tax,
minorities minorities
and and
Before preference Per Before preference Per
tax dividend share tax dividend share
£m £m p £m £m p
----------------------------------------------------------------------------
Operating profit,
including life
achieved profits,
before goodwill
amortisation and
exceptional items 1,114 774 59.0 1,298 876 67.5
Deduct life
achieved profits (891) (596) (45.5) (1,021) (689) (53.1)
Add modified
statutory life
profit 548 377 28.8 498 341 26.3
-----------------------------------------------------------------------------
Operating profit,
including
modified statutory
life profits,
before goodwill
amortisation
and exceptional
items 771 555 42.3 775 528 40.7
Goodwill amortisation (19) (19) (1.4) (7) (7) (0.5)
-----------------------------------------------------------------------------
Operating profit
before
exceptional items 752 536 40.9 768 521 40.2
Exceptional items (151) (120) (9.2) (610) (475) (36.6)
-----------------------------------------------------------------------------
Operating profit 601 416 31.7 158 46 3.6
Short-term
fluctuations
in investment
returns 243 111 8.5 647 481 37.1
Change in the
equalisation
provision (28) (21) (1.6) 55 38 2.9
Net loss
arising from
sale of subsidiary
undertakings (8) (8) (0.6) (14) (9) (0.7)
Merger
transaction
costs - - - (75) (75) (5.8)
----------------------------------------------------------------------------
Profit
attributable
to equity
shareholders 808 498 38.0 771 481 37.1
-----------------------------------------------------------------------------
Earnings per share were calculated using a weighted average of 1310.9m (1998
average of 1297.8m) ordinary shares in issue.
Unaudited financial statements, a statistical appendix,
and achieved profits assumptions follow.
UNAUDITED FINANCIAL STATEMENTS
USING MODIFIED STATUTORY LIFE PROFITS
12 months to December 1999
12 months 12 months 12 months
1999 Profit and loss account 1999 1998
Unaudited Unaudited Audited
Euro m Premium income and investment sales £m £m
after reinsurance
14,586 Life premiums and investment sales 9,596 7,554
342 Health premiums 225 123
13,104 General insurance premiums 8,621 8,649
------ ------ ------
28,032 Total 18,442 16,326
====== ====== ======
Operating profit before taxation
833 Modified statutory life profits 548 498
36 Health 24 22
698 General insurance 459 482
15 Associated undertakings 10 14
55 Asset management/other financial services 36 14
------ ------ ------
1,637 Business unit operating profit 1,077 1,030
(465) Unallocated expenses and interest charges (306) (255)
------ ------ ------
Operating profit before goodwill
1,172 amortisation and exceptional items 771 775
(29) Goodwill amortisation (19) (7)
----- --- ---
1,143 Operating profit before exceptional items 752 768
(230) Exceptional items (151) (610)
----- --- ---
913 Operating profit before taxation 601 158
Short-term fluctuation in investment
369 returns 243 647
(42) Change in the equalisation provision (28) 55
(12) Net profit/(loss) arising from sale
of subsidiary undertakings (8) (14)
- Merger transaction costs - (75)
----- --- ---
Profit on ordinary activities before
1,228 taxation 808 771
(369) Tax on profit on ordinary activities (243) (243)
----- --- ---
Profit on ordinary activities after
859 taxation 565 528
(76) Minority interests (50) (30)
--- --- ---
783 Profit for the financial year 515 498
(26) Preference dividends (17) (17)
---- ---- ----
Profit for the financial year
757 attributable to ordinary shareholders 498 481
Ordinary dividends
(284) Interim (187) (174)
(473) Final (311) (287)
(757) (498) (461)
---- ---- ----
- Transfer to retained profits - 20
==== ==== ====
Earnings per share (note 2)
Operating profit before goodwill
amortisation and exceptional items,
after taxation, attributable to
64.3c equity shareholders 42.3p 40.7p
57.8c Profit attributable to equity shareholders 38.0p 37.1p
57.4c Profit attributable to equity
shareholders - diluted 37.8p 36.8p
57.8c Dividend per ordinary share 38.00p 35.15p
Notes:
(1) Exceptional items in 1999 comprise merger integration costs of
£120m and integration incentive plans of £31m. (1998 comprise
merger integration costs of £260m and an additional claims
provision of £350m.)
(2) Earnings per share are analysed on page 20.
(3) Total ordinary shares in issue at 31 December 1999 were 1312.5m
(31 December 1998 1309.2m).
(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:
12 months 1999 12 months 1998
French franc 9.99 9.78
Netherlands florin 3.35 3.29
United States dollar 1.62 1.66
Canadian dollar 2.40 2.47
(5) The results have been translated into euros using the average rate
for the year of 1 Euro =£0.658.
CGU plc
12 months to December 1999
12 months 12 months
1999 1998
Unaudited Audited
Operating profit before goodwill
amortisation and exceptional items £m £m
UK 427 280
France 102 167
Netherlands 164 196
Other Europe 75 46
United States 195 156
Canada 96 76
Australia & NZ 3 56
Rest of World 14 29
Group reinsurance 1 24
----- -----
1,077 1,030
Unallocated expenses (98) (80)
Unallocated interest charges (208) (175)
----- ----
771 775
===== ====
Summarised reconciliation of movements in consolidated shareholders funds
Profit for the financial year 515 498
Movement in the valuation of in-force long
term business 818 611
Foreign exchange rate movements on this
valuation (120) 49
698 660
Other foreign exchange rate movements (191) 73
Total recognised gains and losses arising in ----- -----
the year 1,022 1,231
Dividends (515) (478)
Increase in capital and shares in lieu of
dividends 22 249
Merger reserve arising in the year - 11
Other movements (1) 9
---- -----
Total movements in the year 528 1,022
Shareholders funds at 1 January 9,039 8,017
----- -----
Balance at 31 December 9,567 9,039
===== =====
CGU plc
At 31 December 1999
Summarised consolidated balance sheet
Group Group
as at as at
31 Dec 99 31 Dec 98
Unaudited Audited
Assets £m £m
Goodwill 191 253
Investments
Land and buildings 738 798
Participating interests 266 304
Variable yield securities 6,625 5,221
Fixed interest securities 10,062 10,999
Mortgages and loans 400 267
Deposits 703 707
Valuation of in-force long term business 3,832 3,141
22,626 21,437
Reinsurers share of technical provisions 2,317 2,141
Assets of the long term business 83,858 76,196
Other assets 7,705 5,837
------- -------
Total assets 116,697 105,864
======= =======
Liabilities
Shareholders' funds
Equity 9,367 8,837
Non-equity 200 202
Minority interests 527 512
------ -------
Total capital and reserves 10,094 9,551
Liabilities of the long term business 81,983 74,457
General insurance liabilities 17,949 17,504
Borrowings 1,231 950
Other creditors and provisions 5,440 3,402
Total other liabilities 24,620 21,856
-------- -------
Total liabilities 116,697 105,864
======== =======
CGU plc
12 months to December 1999
12 months 12 months
Consolidated cash flow statement 1999 1998
-------------------------------- Unaudited Audited
£m £m
Net cash inflow from operating activities
excluding exceptional items and merger
transaction costs 368 511
Exceptional items and merger transaction
costs paid (219) (161)
Net cash outflow from servicing of finance (101) (114)
Corporation tax paid (including advance
corporation tax) (101) (318)
Net purchases of tangible fixed assets (75) (65)
Acquisitions and disposals of subsidiary and
associated undertakings (23) (101)
Equity dividends paid (474) (495)
Net cash inflow/(outflow) from financing activities 219 (54)
_____ _____
Net cash flows (406) (797)
-------------- _____ _____
Cash flows were invested as follows:
------------------------------------
Increase in cash holdings 19 31
Net portfolio investment
------------------------
Net sales of investments (510) (894)
Non-trading cash flow to long term business
operations 85 66
_____ _____
(406) (797)
_____ _____
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 3.6* 3.6* 5.2 5.2 4.5 4.5 4.4 4.4 10.5 10.5 8.0 8.0
After tax
discount rate 4.5 3.3 3.3 2.3 3.6 2.6 3.2 2.3 8.4 8.1 8.4 8.1
(excluding risk
margin)
Risk discount
rate 8.3* 7.0* 8.7 7.7 8.3 7.2 7.7 6.8 19.8 19.5 17.1 16.7
Pre-tax investment
returns:
Base Government
fixed interest
return ** 5.6 4.4 5.5 3.9 5.5 3.9 5.6 4.0 12.5 12.5 12.5 12.5
Ordinary
shares 8.1 6.9 7.5 5.9 8.4 6.8 8.6 7.0 12.5 12.5 12.5 12.5
Property 6.6 5.4 6.5 4.9 6.5 4.9 6.6 5.0 - - - -
Future expense
inflation 4.0 3.0 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
-----------------------------------------------------------------------------
* For unit-linked business, the risk margin is 4.1%
** The Base Government fixed interest return depends upon the actual
duration of the assets.
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