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