2001 Full year results-Part 4

CGNU PLC 27 February 2002 Part 4 of 6 --------------------------------------------------------------------- Page 17 Summarised consolidated profit and loss account - modified statutory basis For the year to 31 December 2001 2001 2001 2000 Em Premium income (after reinsurance) Â£m Â£m and investment sales Continuing operations Life premiums, including 27,789 share of associates premiums 17,590 14,848 2,379 Investment sales 1,475 2,501 1,356 Health premiums 841 687 ------ ------ ------ 31,524 19,906 18,036 13,602 General insurance premiums 8,433 8,990 ------ ------ ------ 45,126 Total continuing operations 28,339 27,026 Discontinued operations 1,779 - general insurance premiums 1,103 3,213 ------ ------ ------ 46,905 Total 29,442 30,239 ====== ====== ====== Operating profit 1,941 Modified statutory life profit 1,203 1,190 113 Health 70 68 47 Fund management 29 61 1,524 General insurance 945 412 (3) Non-insurance operations (2) (24) (302) Corporate costs (187) (185) (687) Unallocated interest charges (426) (361) ------ ------ ------ 2,633 1,632 1,161 (160) Wealth management (99) (133) ------ ------ ------ Operating profit - continuing operations before tax, amortisation of goodwill, amortisation of acquired additional value of in-force long-term business and 2,473 exceptional items 1,533 1,028 (34) Discontinued operations (21) (554) ------ ------ ------ 2,439 1,512 474 (140) Amortisation of goodwill (87) (92) Amortisation of acquired additional value of in-force (104) long-term business (64) (29) (50) Financial Services Compensation Scheme levy (31) - (95) Integration costs (59) (425) ------ ------ ------ Operating profit/(loss) 2,050 before tax 1,271 (72) Short-term fluctuation in (1,594) investment return (988) 258 (90) Change in the equalisation provision (56) (27) Profit/(loss) arising on the disposal of subsidiary 463 undertakings 287 (1,058) Loss on withdrawal from London - Market operations - (448) - Merger transaction costs - (59) ------ ------ ------ Profit/(loss) on ordinary 829 activities before tax 514 (1,406) Tax on profit on ordinary (684) activities (424) (255) ------ ------ ------ Profit/(loss) on ordinary 145 activities after tax 90 (1,661) (92) Minority interests (57) (52) ------ ------ ------ Profit/(loss) for the 53 financial year 33 (1,713) (27) Preference dividends (17) (17) ------ ------ ------ Profit/(loss) for the financial year attributable to equity 26 shareholders 16 (1,730) (1,382) Ordinary dividends (857) (855) ------ ------ ------ Retained loss transferred (1,356) to reserves (841) (2,585) ====== ====== ====== ------------------------------------------------------------------------------ Page 18 Earnings per share attributable to equity shareholders - modified statutory basis For the year to 31 December 2001 2001 2000 Operating profit before amortisation of goodwill, amortisation of acquired additional value of in-force long-term business and exceptional items, after tax in respect of continuing operations 43.2p 28.3 p Profit/(loss) for the financial year 0.7p (77.0)p Profit/(loss) for the financial year - diluted 0.7p (76.9)p Dividends per share 38.0p 38.0 p Consolidated statement of total recognised gains and losses For the year to 31 December 2001 2001 2000 Â£m Â£m Profit/(loss) for the financial year 33 (1,713) Movement in internally-generated additional value of in-force long-term business * (761) 73 Foreign exchange (losses)/gains (191) 303 ------ ------ Total recognised losses arising in the year (919) (1,337) ====== ====== * Stated before the effect of foreign exchange movements, which are reported within the foreign exchange (losses)/gains line. Reconciliation of movements in consolidated shareholders' funds For the year to 31 December 2001 2001 2000 Â£m Â£m Shareholders' funds at the beginning of the year 13,633 15,673 Total recognised losses arising in the year (919) (1,337) Dividends (874) (872) Increase in share capital 29 54 Merger reserve arising during the year - 5 Other movements 3 110 ------ ------ Shareholders' funds at the end of the year 11,872 13,633 ====== ====== -------------------------------------------------------------------- Page 19 Summarised consolidated balance sheet As at 31 December 2001 2000 Â£m Â£m Assets Goodwill 1,141 747 ------ ------ Investments Land and buildings 857 820 Investments in Group undertakings and participating interests 282 264 Variable yield securities 4,168 5,868 Fixed interest securities 9,288 13,813 Mortgages and loans, net of non-recourse funding 1,236 1,233 Deposits 1,346 1,112 Additional value of in-force long-term business 5,858 6,605 ------ ------ 23,035 29,715 Reinsurers' share of technical provisions 3,543 3,709 Assets of the long-term business 151,003 149,151 Other assets 9,512 9,996 ------ ------ Total assets 188,234 193,318 ====== ====== Liabilities Shareholders' funds Equity 11,672 13,433 Non-equity 200 200 Minority interests 651 584 ------ ------ 12,523 14,217 Subordinated debt 1,157 - ------ ------ Total capital, reserves and subordinated debt 13,680 14,217 Liabilities of the long-term business 145,540 144,301 General insurance liabilities 17,825 23,786 Borrowings 2,662 2,592 Other creditors and provisions 8,527 8,422 ------ ------ Total liabilities 188,234 193,318 ====== ====== -------------------------------------------------------------------- Page 20 Consolidated cash flow statement For the year to 31 December 2001 2001 2000 Â£m Â£m Net cash inflow from operating activities excluding exceptional items and merger transaction costs 418 738 Exceptional items and merger transaction costs paid (208) (251) Net cash outflow from servicing of finance (246) (257) Corporation tax paid (including advance corporation tax) (39) (210) Net purchases of tangible fixed assets (114) (119) Acquisitions and disposals of subsidiary and associated undertakings 853 (277) Equity dividends paid (856) (816) Proceeds from issue of subordinated debt 1,157 - Net cash inflow from other financing activities 123 493 ------ ------ Net cash flows 1,088 (699) ====== ====== Cash flows were invested as follows: (Decrease)/increase in cash holdings (69) 119 Net portfolio investment Net purchases/(sales) of investments 1,223 (1,541) Non-trading cash (inflow from)/outflow to long-term business operations (66) 723 ------ ------ Net investment of cash flows 1,088 (699) ====== ====== The cash flows presented in this statement relate to non-long-term business transactions only. -------------------------------------------------------------------- Page 21 1. Basis of preparation (a) The merger has been accounted for using the merger accounting principles set out in Financial Reporting Standard 6 'Acquisitions and Mergers'. Accordingly, the financial information for 2000 has been presented as if CGU plc and Norwich Union plc had been combined throughout the year. Merger accounting principles have given rise to a merger reserve. Costs of integrating and reorganising the business are included within operating profit. Merger transaction costs of Â£59 million were incurred in 2000 and are shown after operating profit within the profit on ordinary activities before tax. (b) The preliminary announcement for the year to 31 December 2001 does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. The results on the modified statutory basis for 2001 have been taken from the Group's 2001 Report and Accounts. The auditors have reported on the 2001 accounts and their report was unqualified and did not contain a statement under section 237(2) or (3) of the Companies Act 1985. The CGNU plc 2000 Report and Accounts have been filed with the Registrar of Companies. (c) 'Discontinued operations' disclosures relate to the exit from London Market business in 2000 and the disposal of the general insurance business in the United States, which completed on 1 June 2001. The results of all other operations are entitled 'continuing operations'. (d) The contribution from the Group's share of the alliance with The Royal Bank of Scotland Group plc (RBSG) is incorporated within modified statutory life profit. Goodwill amortised in the period in respect of the Group's holding in the associated company, RBS Life Investments Limited, is included within the 'Amortisation of goodwill' on page 17. (e) In November and December 2000, the Accounting Standards Board issued Financial Reporting Standard (FRS) 17 Retirement Benefits, FRS18 Accounting Policies and FRS19 Deferred Tax. FRS17 will not be mandatory for the Group until the year ended 31 December 2003. Prior to this, phased transitional disclosures are introduced and the table shown in the supplementary analyses on page 35 is an extract from these disclosures. The Group has continued to account for pension costs in accordance with SSAP24. FRS18 is effective for the year ended 31 December 2001 and has not had a material impact on the Group. FRS19 will be effective for the year ended 31 December 2002 and the full impact will be reflected next year. (f) The 31 December 2000 balance sheet includes a reclassification of a Â£600 million internal loan between the long-term and general business balance sheets. There is no impact on shareholders' funds or total assets. -------------------------------------------------------------------- Page 22 2. Exchange rates The principal rates of exchange used for translation are: Average rates 2001 2000 Canada - dollars 2.23 2.25 United States - dollars 1.43 1.51 ------ ------ Closing rates 31 Dec 31 Dec 2001 2000 Canada - dollars 2.32 2.24 United States - dollars 1.46 1.49 ------ ------ The euro rates employed in this announcement are an average rate of 1 euro = Â£0.62 (2000: 1 euro = Â£0.61) and a closing rate of 1 euro = Â£0.61 (31 December 2000: 1 euro = Â£0.63). 3. Acquisitions On 28 June 2001, the Group completed the acquisition of ABN AMRO Magyar Elet es Nyugdijbiztosito Reszvenytarsasag (Mebit), the sixth-largest life insurance business in Hungary, from ABN AMRO Bank N.V. for a cash consideration of Â£64 million, including transaction costs. The embedded value amounted to Â£11 million, giving rise to goodwill of Â£53 million. In June 2001, as part of its bancassurance partnership with Banca Popolare di Lodi (BPL), the Group sold 50% of its wholly-owned subsidiary Finoa S.r.l (Finoa) to BPL. In July 2001, Finoa acquired 50.96% of the issued share capital of Eurovita Italcasse Assicurazioni S.p.A. (Eurovita) from BPL for a cash consideration of Â£33 million. Finoa's share of Eurovita's embedded value was Â£35 million. In December 2001, as part of its bancassurance partnership with UniCredito Italiano, the Group's 55%-owned subsidiary, Commercial Union Vita S.p.A acquired all the issued share capital of Risparmio Vita Assicurazioni S.p.A for a cash consideration of Â£55 million. The embedded value acquired was Â£48 million. The aggregate goodwill on these transactions was Â£5 million. On 3 July, the Group completed the acquisition of Fortis Australia Limited from Fortis Group for a cash consideration of Â£124 million, including transaction costs. The net assets at the date of acquisition were Â£76 million giving rise to goodwill of Â£48 million. On 21 August, the Group entered into a bancassurance agreement with DBS Group Holdings Limited (DBS), the number one bank in Singapore and one of the largest in South East Asia, and acquired 100% of the issued equity share capital of The Insurance Corporation of Singapore (ICS), DBS's life and general insurance subsidiary, for a cash consideration of Â£152 million including transaction costs, and further amounts payable if ICS achieves its performance targets. The net assets on acquisition of ICS were Â£90 million giving rise to goodwill of Â£75 million, after taking into account the estimated value of deferred consideration. In September 2001, the Group entered into a new bancassurance partnership with Unicaja, the eighth largest savings bank in Spain. As part of this transaction, the Group acquired 50% of the issued equity share capital of Unicaja's life and pensions subsidiaries, Unicorp Vida and Ahorro Andaluz (together known as Unicorp Vida) for an initial consideration of Â£95 million including transaction costs, in the form of promissory notes redeemable in the period to December 2006, with further amounts payable if Unicorp Vida achieves certain performance targets. The Group's share of Unicorp Vida's embedded value amounted to Â£14 million. In addition, the Group also entered into a new bancassurance partnership with Caixa Galicia, Spain's fifth largest savings bank. As part of this transaction, the Group acquired 50% of the issued equity share capital of Caixa Galicia's life and pensions subsidiary, Bia Galicia for an initial cash consideration of Â£93 million including transaction costs, with further amounts payable if Bia Galicia achieves certain performance targets. The Group's share of Bia Galicia's embedded value amounted to Â£6 million. In December 2001, the Group completed the bancassurance partnership with Caja Espana, the tenth largest savings bank in Spain. As part of this transaction, the Group acquired 50% of the issued equity share capital of Caja Espana's life and pension subsidiary, Caja Espana Vida, for an initial cash consideration of Â£88 million including transaction costs, with further amounts payable if Caja Espana Vida achieves certain performance targets. The Group's share of Caja Espana Vida's embedded value amounted to Â£12 million. The aggregate goodwill on the transactions was Â£244 million. In November 2001, the Group completed the acquisition of 100% of the share capital of Bank Nagelmackers in Belgium for a total consideration of Â£82 million, including transaction costs. Total net assets were Â£46 million, after fair value adjustments, giving rise to goodwill of Â£36 million. In addition to the goodwill arising on the acquisition of these subsidiary undertakings, the Group acquired the 43.7% minority interest in Commercial Union Sigorta AS, and made a number of smaller acquisitions in continental Europe. These gave rise to an additional amount of Â£35 million goodwill. -------------------------------------------------------------------- Page 23 4. Disposals The net profit/(loss) on the disposal of subsidiary undertakings comprises: 2001 2000 Â£m Â£m Long-term savings businesses Poland - 65 Canada (a) (5) - General insurance businesses Germany - (43) South Africa - (11) New Zealand (b) 52 - United States (e) 125 (1,070) Belgium (d) 46 - Other businesses Australia - 4 UK (c) 70 - Other small operations (1) (3) ------ ------ 287 (1,058) ====== ====== (a) In the first six months of 2001, the Group completed the disposal of its wholly-owned Canadian subsidiaries, Commercial Union Life Holdings Limited and Norwich Union Holdings (Canada) Limited, for a combined consideration of Â£120 million. The embedded value of both businesses at disposal amounted to Â£117 million and the loss on disposal, after transaction costs, was Â£5 million. (b) In February 2001, the Group completed the disposal of its wholly-owned New Zealand subsidiary, State Insurance Limited, for a cash consideration of Â£125 million. The net assets disposed of amounted to Â£69 million and the profit on disposal, after transaction costs, was Â£52 million. (c) In March 2001, the Group completed the disposal of its holding in Quilter Holdings Limited for a cash consideration of Â£102 million. The cash consideration reflected the value of the Group's 56.7% interest in Quilter Holdings Limited following the exercise of management options immediately before the change of ownership. The Group's share of the net assets disposed of amounted to Â£24 million and the profit on disposal, after transaction costs and writing back Â£6 million of goodwill previously charged to reserves, was Â£70 million. (d) In July 2001 the Group completed the disposal of its principal general insurance business in Belgium, CGU SA, for a cash consideration of Â£72 million. The Group's share of net assets disposed amounted to Â£24 million and the profit on disposal, after writing back Â£2 million of goodwill previously charged to reserves, was Â£46 million. (e) On 1 June 2001, the Group completed the sale of its US general insurance operations for US$2,023 million (net of transaction costs of US$40 million), and settlement of an inter-company loan of US$1,100 million, in total being US$3,123 million (Â£2,200 million at 1 June 2001 exchange rates). The settlement comprised cash, the transfer of businesses and subordinated loan notes of US$260 million. The total proceeds for the sale of the US general business were fixed by reference to the operation's net assets as at 31 August 2000 and were not adjusted to reflect the business' results in the period from 1 September 2000 to completion. In addition, the Group did not bear any continuing operating risk from 31 August 2000 nor provide any guarantees in respect of its claims reserves or balance sheet beyond that date. Prior to completion, US$200 million (Â£141 million) was injected into the business as a pre-closing adjustment. Financial Reporting Standard 2 'Accounting for subsidiary undertakings' required the results of the US general business to be consolidated with those of the Group's continuing businesses until completion on 1 June. However, given that the Group retained no economic interest in the operations of this business beyond 31 August 2000, the US general business' post-tax operating loss and investment gains incorporated in the Group's consolidated profit and loss account from 1 September 2000 to completion on 1 June has been offset by a corresponding change to the loss on sale calculated at 31 August 2000. The loss on sale also reflects goodwill previously written off against reserves but which needs to be reinstated and charged to the profit and loss account. The aggregate pre-tax loss on sale recorded in the Group's consolidated profit and loss account reserves at 31 December 2001 is Â£996 million retranslated at the exchange rate prevailing at 1 June 2001, and is further analysed on page 24. During the course of 2001, the Group entered into a binding agreement to dispose of its specialist non-comprehensive insurer, Sabre Insurance Company. This disposal was not completed by 31 December 2001. --------------------------------------------------------------------- Page 24 Impact of disposal of United States general insurance business The impact of the disposal of the United States general insurance business and how this has been reported in the accounts of the Group is as follows: Reported within statement of total recognised Total Reported in profit gains loss on and loss account and losses disposal Exchange rate 2000* 2001 movements Total Â£m Â£m Â£m Â£m Proceeds, net of transaction costs 2,092 - 108 2,200 ====== ====== ====== ====== Net assets to which proceeds apply, including capital injection 3,092 (125) 159 3,126 Goodwill write back 70 - - 70 ------ ------ ------ ------ 3,162 (125) 159 3,196 ------ ------ ------ ------ (Loss)/profit on sale after tax and goodwill write back* (989) 125 (47) (911) Tax attributed to loss on sale (81) - (4) (85) ------ ------ ------ ------ Pre-tax (loss)/ profit on sale (1,070) 125 (51) (996) ====== ====== ====== ====== * In the Group accounts for the full year 2000, the loss on sale was disclosed under 'provision for loss on sale of US general business' reflecting the fact that the transaction had not completed in that period. Total proceeds included cash of Â£1,574 million, loan notes of Â£183 million and the value of businesses and investments retained of Â£443 million. The Group hedged an element of its exposure to the sale proceeds, which reduced the exchange gain from Â£108 million disclosed above by Â£24 million to Â£84 million. Abridged statement of operating and investment gains The Group's consolidated profit and loss account incorporates the following financial information in respect of the US general insurance business: 2001 2000 Â£m Â£m Underwriting result (173) (967) Longer-term investment return 152 417 ------ ------ General insurance operating loss (21) (550) Unallocated interest charges * (21) (42) ------ ------ Operating loss (42) (592) Amortisation of goodwill (1) (3) Short-term fluctuation in investment returns 13 66 ------ ------ Loss on ordinary activities before tax (30) (529) Tax on loss on ordinary activities (93) 110 ------ ------ Loss for the financial year (123) (419) Retranslation to closing rate (2) (4) ------ ------ Retained loss (125) (423) ====== ====== * Unallocated interest charges are eliminated on consolidation --------------------------------------------------------------------- Page 25 5. Integration costs Integration costs in 2001 include Â£49 million in respect of integration incentive plans relating to the integration of the former CGU and Norwich Union businesses which are payable to staff of certain business units and to senior management and are conditional upon the performance of the Group against predefined targets. A charge of Â£10 million is also included in 2001 relating to the exceptional costs of integrating the acquired businesses of Fortis Australia Limited and The Insurance Corporation of Singapore. The items in 2000 comprise merger integration costs and reflect the costs of integrating and reorganising the businesses of the former CGU and Norwich Union operations. 6. Geographical analysis of life and pensions and investment sales - new business and total income New business sales New single New regular premiums premiums 2001 2000 2001 2000 Â£m Â£m Â£m Â£m Life and pensions sales United Kingdom - group 6,434 6,254 591 354 - associates 228 - 12 - ------ ------ ------ ------ 6,662 6,254 603 354 Europe (excluding UK) France 1,961 1,821 37 40 Ireland 468 383 55 41 Italy 924 203 34 38 Netherlands (including Belgium and Luxembourg) 674 487 103 82 Poland - Life 17 10 34 42 - Pensions 2 - 24 139 Spain 885 336 47 23 Other 188 172 72 78 International 619 467 70 53 ------ ------ ------ ------ Total life and pension sales (including share of associates) 12,400 10,133 1,079 890 Investment sales United Kingdom 808 877 8 20 Netherlands 85 1,025 - - Europe (excluding UK) 227 284 - - International 347 295 - - ------ ------ ------ ------ Total long-term savings (including share of associates) 13,867 12,614 1,087 910 ====== ====== ====== ====== Premium income (after reinsurance) and investment sales 2001 2000 Â£m Â£m Life and pensions sales United Kingdom - group 8,913 8,548 - associates 361 - ------ ------ 9,274 8,548 Europe (excluding UK) France 2,185 2,124 Ireland 658 539 Italy 1,116 378 Netherlands (including Belgium and Luxembourg) 1,290 1,078 Poland - Life 295 247 - Pensions 433 371 Spain 1,034 428 Other 492 464 International 813 671 ------ ------ Total life and pension sales (including share of associates) 17,590 14,848 Investment sales United Kingdom 816 897 Netherlands 85 1,025 Europe (excluding UK) 227 284 International 347 295 ------ ------ Total long-term savings (including share of associates) 19,065 17,349 ====== ====== Single premiums are those relating to products issued by the Group, which provide for the payment of one premium only. Regular premiums are those where there is a contractual obligation to pay on an ongoing basis. -------------------------------------------------------------------- Page 26 7. Geographical analysis of modified statutory life operating profit 2001 2000 Â£m Â£m United Kingdom With-profit 275 275 Non-profit 423 497 Europe (excluding UK) France 160 143 Ireland 49 45 Italy 26 21 Netherlands (including Belgium and Luxembourg) 214 162 Poland - Life 39 31 - Pensions 7 (9) Spain 36 14 Other (21) (25) International (5) 36 ------ ------ Total modified statutory life operating profit 1,203 1,190 ====== ====== 8. Geographical analysis of health premiums after reinsurance and operating result (a) Premiums after reinsurance: 2001 2000 Â£m Â£m United Kingdom 242 204 France 100 92 Netherlands 499 391 ------ ------ 841 687 ====== ====== (b) Operating result: Operating Underwriting profit result 2001 2000 2001 2000 Â£m Â£m Â£m Â£m United Kingdom 8 6 4 2 France 9 12 (2) - Netherlands 53 50 (15) (22) ------ ------ ------ ------ 70 68 (13) (20) ====== ====== ====== ====== -------------------------------------------------------------------- Page 27 9. Geographical analysis of general insurance premiums after reinsurance and operating result (a) General insurance premiums after reinsurance: 2001 2000 Â£m Â£m United Kingdom 4,777 4,937 Europe (excluding UK) France 700 640 Ireland 456 382 Netherlands 387 465 Other 499 625 International Australia and New Zealand 583 634 Canada 878 940 Other 153 367 ------ ------ Continuing operations 8,433 8,990 ------ ------ United States 1,103 3,021 London Market - 192 ------ ------ Discontinued operations 1,103 3,213 ------ ------ 9,536 12,203 ====== ====== (b) Operating result: Operating Underwriting profit* result* 2001 2000 2001 2000 Â£m Â£m Â£m Â£m United Kingdom 590 296 (81) (387) Europe (excluding UK) France 58 (115) (33) (208) Ireland 48 21 (7) (30) Netherlands 19 (4) (14) (40) Other 41 20 (25) (55) International Australia and New Zealand 69 82 (1) (7) Canada 72 78 (56) (53) Other 48 34 (7) (41) ------ ------ ------ ------ Continuing operations 945 412 (224) (821) ------ ------ ------ ------ United States (21) (550) (173) (967) London Market - (4) - (59) ------ ------ ------ ------ Discontinued operations (21) (554) (173) (1,026) ------ ------ ------ ------ 924 (142) (397) (1,847) ====== ====== ====== ====== * The general insurance operating profit and underwriting result are stated before the change in the equalisation provision of Â£56 million (2000: Â£27 million) and the Financial Services Compensation Scheme levy of Â£31 million (2000: Â£nil). --------------------------------------------------------------------- Page 28 10. Tax The tax charge in the profit and loss account comprises: 2001 2000 Â£m Â£m UK corporation tax 13 (65) Overseas tax 80 49 Other (38) (103) ------ ------ Total tax charge for the period 55 (119) Tax attributable to the long-term business technical result 369 374 ------ ------ Charge to profit and loss account 424 255 ====== ====== Tax charge analysed between: Operating profit before tax, amortisation of goodwill, amortisation of acquired additional value of in-force long-term business and exceptional items - continuing operations 486 326 - discontinued operations (7) (130) Profit on other ordinary activities (55) 59 ------ ------ 424 255 ====== ====== 11. Dividends (a) The preference dividends in the profit and loss account comprise: 2001 2000 Â£m Â£m Preference dividends 17 17 ====== ====== The preference dividends are in respect of the cumulative irredeemable preference shares of Â£1 each in issue. (b) The ordinary dividends in the profit and loss account comprise: 2001 2000 Â£m Â£m Ordinary dividends Interim - 14.25 pence (2000: 14.25 pence) 321 320 Final - 23.75 pence (2000: 23.75 pence) 536 535 ------ ------ Total ordinary dividends 857 855 ====== ====== Irish shareholders who are due to be paid a dividend denominated in euros will receive a payment at the exchange rate prevailing on 27 February 2002. --------------------------------------------------------------------- Page 29 12. Earnings per share (a) Basic earnings per share 2001 Net of tax, minorities and Before preference Per tax dividend share Â£m Â£m p Operating profit - continuing operations before amortisation of goodwill, amortisation of acquired additional value of in-force long-term business and exceptional items 1,533 973 43.2 Adjusted for the following items: - Operating loss on discontinued operations (21) (14) (0.6) - Amortisation of goodwill (87) (87) (3.9) - Amortisation of acquired additional value of in-force long-term business (64) (49) (2.2) - Financial Services Compensation Scheme levy (31) (22) (1.0) - Integration costs (59) (51) (2.3) - Short-term fluctuation in investment returns (988) (980) (43.5) - Change in the equalisation provision (56) (39) (1.7) - Net profit/(loss) arising on the disposal of subsidiary undertakings 287 285 12.7 - Loss on withdrawal from London Market operations - - - - Merger transaction costs - - - ------ ------ ------ Profit/(loss) attributable to equity shareholders 514 16 0.7 ====== ====== ====== 2000 Net of tax, minorities and Before preference Per tax dividend share Â£m Â£m p Operating profit - continuing operations before amortisation of goodwill, amortisation of acquired additional value of in-force long-term business and exceptional items 1,028 636 28.3 Adjusted for the following items: - Operating loss on discontinued operations (554) (423) (18.8) - Amortisation of goodwill (92) (92) (4.1) - Amortisation of acquired additional value of in-force long-term business (29) (22) (1.0) - Financial Services Compensation Scheme levy - - - - Integration costs (425) (352) (15.7) - Short-term fluctuation in investment returns 258 (117) (5.2) - Change in the equalisation provision (27) (19) (0.8) - Net profit/(loss) arising on the disposal of subsidiary undertakings (1,058) (977) (43.5) - Loss on withdrawal from London Market operations (448) (314) (14.0) - Merger transaction costs (59) (50) (2.2) ------ ------ ------ Profit/(loss) attributable to equity shareholders (1,406) (1,730) (77.0) ====== ====== ====== Earnings per share has been calculated based on the operating profit from continuing operations before amortisation of goodwill, amortisation of acquired additional value of in-force long-term business, exceptional items, after taxation, attributable to equity shareholders, as well as on the profit attributable to equity shareholders, as the directors believe the former earnings per share figure provides a better indication of operating performance. The calculation of basic earnings per share uses a weighted average of 2,250 million (2000: 2,247 million) ordinary shares in issue, after deducting shares owned by the employee share trusts as required by FRS14 'Earnings per share'. The actual number of shares in issue at 31 December 2001 was 2,255 million (31 December 2000: 2,251 million). -------------------------------------------------------------------- Page 30 12. Earnings per share (continued) b) Diluted earnings per share 2001 Weighted average number Per Total of shares share Â£m m p Profit/(loss) attributable to equity shareholders 16 2,250 0.7 Dilutive effect of options - 4 - ------ ------ ------ Diluted earnings 16 2,254 0.7 ====== ====== ====== 2000 Weighted average number Per Total of shares share Â£m m p Profit/(loss) attributable to equity shareholders (1,730) 2,247 (77.0) Dilutive effect of options - 4 0.1 ------ ------ ------ Diluted earnings (1,730) 2,251 (76.9) ====== ====== ====== 13. Longer-term investment return The longer-term investment return is calculated separately for each principal general insurance business and certain long-term business operations. 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. The longer-term rate of investment return is determined using consistent assumptions between operations, having regard to local economic and market forecasts of investment return. The allocated longer-term return for other investments is the actual income receivable for the year. The principal assumptions underlying the calculation of the longer-term investment return are: Longer-term rates of return Equities Properties 2001 2000 2001 2000 % % % % United Kingdom 8.1% 8.1% 6.6% 6.6% France 7.5% 7.5% 6.5% 6.5% Ireland 8.7% 8.7% 6.7% 6.7% Netherlands 8.4% 8.4% 6.5% 6.5% Australia and New Zealand 10.0% 10.0% 8.0% 8.0% Canada 9.3% 9.3% 7.3% 7.3% United States 9.3% 9.3% 7.3% 7.3% The Group intends to retain the same longer-term rates of investment return for the 2002 financial year. --------------------------------------------------------------------- This information is provided by RNS The company news service from the London Stock Exchange MORE TO FOLLOW FR ZGGZZVVRGZZM

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