CGNU Interim Results 2001-Pt4

CGNU PLC 2 August 2001 PART 4 OF 6 -------------------------------------------------------------------- Page 16 Summarised consolidated profit and loss account - modified statutory basis For the six months to 30 June 2001 6 6 6 Full months months months year 2001 2001 2000 2000 Em Premium income (after reinsurance) £m £m £m and investment sales Ongoing business 13,254 Life premiums 8,218 7,130 14,848 1,231 Investment sales 763 1,392 2,501 821 Health premiums 509 428 687 ------ ------ ------ ------- 15,306 9,490 8,950 18,036 7,020 General insurance premiums 4,352 4,596 8,990 ------ ------ ------ ------ 22,326 Total ongoing business 13,842 13,546 27,026 Businesses discontinued - general 1,779 insurance premiums 1,103 1,587 3,213 ------ ------ ------ ------ 24,105 Total 14,945 15,133 30,239 ====== ====== ====== ====== Operating profit 980 Modified statutory life profit 608 606 1,190 52 Health 32 34 68 39 Fund management 24 22 61 689 General insurance 427 193 412 (11) Non-insurance operations (7) (19) (24) (131) Corporate costs (81) (97) (185) (347) Unallocated interest charges (215) (167) (361) ------ ------ ------ ------ 1,271 788 572 1,161 (97) Wealth management (60) (41) (133) ------ ------ ------ ------ Operating profit - ongoing business before tax, amortisation of goodwill, amortisation of acquired additional value of in-force long-term business 1,174 and exceptional items 728 531 1,028 (34) Businesses discontinued (21) 121 (554) ------ ------ ------ ------ 1,140 707 652 474 (48) Amortisation of goodwill (30) (18) (92) Amortisation of acquired additional value of in-force (27) long-term business (17) (10) (29) Policyholders' Protection (23) Board levy (14) - - - Exceptional items - - (425) ------ ------ ------ ------ Operating profit/ 1,042 (loss) before tax 646 624 (72) Short-term fluctuation (719) in investment returns (446) 123 258 Change in the (36) equalisation provision (22) (12) (27) Profit/(loss) arising on the sale of 398 subsidiary undertakings 247 - (1,058) Loss on withdrawal - from London Market operations - - (448) - Merger transaction costs - (57) (59) ------ ------ ------ ------ Profit/(loss) on 685 ordinary activities before tax 425 678 (1,406) Tax on profit on (435) ordinary activities (270) (251) (255) ------ ------ ------ ------ Profit/(loss) on 250 ordinary activities after tax 155 427 (1,661) (40) Minority interests (25) (21) (52) ------ ------ ------ ------ Profit/(loss) for 210 the financial period 130 406 (1,713) (15) Preference dividends (9) (9) (17) ------ ------ ------ ------ Profit/(loss) for the financial period attributable to 195 equity shareholders 121 397 (1,730) (517) Ordinary dividends (321) (320) (855) ------ ------ ------ ------ Retained (loss)/profit (322) transferred to reserves (200) 77 (2,585) ====== ====== ====== ====== -------------------------------------------------------------------- Page 17 Earnings per share - modified statutory basis For the six months to 30 June 2001 6 months 6 months Full year 2001 2000 2000 Operating profit before amortisation of goodwill, amortisation of acquired additional value of in-force long-term business and exceptional items, after taxation, attributable to equity shareholders in respect of ongoing business 20.6p 16.3p 28.3p Profit/(loss) attributable to equity shareholders 5.4p 17.7p (77.0)p Profit/(loss) attributable to equity shareholders - diluted 5.4p 17.6p (76.9)p Dividends per share 14.25p 14.25p 38.0p Consolidated statement of total recognised gains and losses For the six months to 30 June 2001 6 months 6 months Full year 2001 2000 2000 £m £m £m Profit/(loss) for the financial period 130 406 (1,713) Movement in internally-generated additional value of in-force long-term business * (228) 66 73 Foreign exchange gains 35 359 303 ------ ------ ------ Total recognised gains and losses arising in the period (63) 831 (1,337) ====== ====== ====== * Stated before the effect of foreign exchange movements which are reported within the foreign exchange gains line. Reconciliation of movements in consolidated shareholders' funds For the six months to 30 June 2001 6 months 6 months Full year 2001 2000 2000 £m £m £m Shareholders' funds at the beginning of the period 13,633 15,673 15,673 Total recognised gains and losses arising in the period (63) 831 (1,337) Dividends (330) (329) (872) Increase in capital 16 21 54 Merger reserve arising during the period - 5 5 Other movements 5 (8) 110 ------ ------ ------ Shareholders' funds at the end of the period 13,261 16,193 13,633 ====== ====== ====== -------------------------------------------------------------------- Page 18 Summarised consolidated balance sheet 30 30 31 June June December 2001 2000 2000 £m £m £m Assets Goodwill 750 544 747 ------ ------ ------ Investments Land and buildings 768 805 820 Investments in Group undertakings and participating interests 284 231 264 Variable yield securities 5,016 7,416 5,868 Fixed interest securities 8,300 13,531 13,813 Mortgages and loans, net of non-recourse funding 1,139 1,305 1,233 Deposits 1,839 1,077 1,112 Additional value of in-force long-term business 6,321 6,554 6,605 ------ ------ ------ 23,667 30,919 29,715 Reinsurers' share of technical provisions 2,924 2,684 3,709 Assets of the long-term business 144,399 144,894 148,551 Other assets 9,241 9,897 10,596 ------ ------ ------ Total assets 180,981 188,938 193,318 ====== ====== ====== Liabilities Shareholders' funds Equity 13,061 15,993 13,433 Non-equity 200 200 200 Minority interests 560 588 584 ------ ------ ------ Total capital and reserves 13,821 16,781 14,217 Liabilities of the long-term business 139,951 140,447 144,301 General insurance liabilities 18,014 23,206 23,786 Borrowings 2,686 2,834 2,592 Other creditors and provisions 6,509 5,670 8,422 ------ ------ ------ Total liabilities 180,981 188,938 193,318 ====== ====== ====== Approved by the Board on 1 August 2001 -------------------------------------------------------------------- Page 19 Consolidated cash flow statement For the six months to 30 June 2001 Full 6 months 6 months year 2001 2000 2000 £m £m £m Net cash inflow from operating activities excluding exceptional items and merger transaction costs (17) 215 738 Exceptional items and merger transaction costs paid (97) (83) (251) Net cash outflow from servicing of finance (82) (119) (257) Corporation tax paid (including advance corporation tax) (77) (92) (210) Net purchases of tangible fixed assets (76) (39) (119) Acquisitions and disposals of subsidiary and associated undertakings 1,261 (235) (277) Equity dividends paid (535) (496) (816) Net cash inflow from financing activities 84 691 493 ------ ------ ------ Net cash flows 461 (158) (699) ====== ====== ====== Cash flows were invested as follows: (Decrease)/increase in cash holdings (114) (146) 119 Net portfolio investment Net purchases/(sales) of investments 481 52 (1,541) Non-trading cash outflow to/ (inflow from) long-term business operations 94 (64) 723 ------ ------ ------ Net investment of cash flows 461 (158) (699) ====== ====== ====== The cash flows presented in this statement relate to non-life transactions only. -------------------------------------------------------------------- Page 20 1. Basis of preparation (a) On 21 February 2000, CGU plc and Norwich Union plc announced plans to merge their respective businesses to form CGNU plc. The merger was effected by way of a scheme of arrangement of Norwich Union plc under section 425 of the Companies Act 1985. Under the terms of the scheme, Norwich Union shareholders had their existing shares replaced by new shares in CGNU plc. CGU shareholders' rights were unaffected. The merger became effective on 30 May 2000 and on that date 931 million new shares in CGNU plc, with a total market value of £9,528 million, were issued to Norwich Union plc shareholders in return for Norwich Union plc shares in a ratio of 48 CGNU plc shares for every 100 Norwich Union plc shares. 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 £59 million were incurred in 2000 and are shown after operating profit within the profit on ordinary activities before taxation. (b) The results for the six months to 30 June 2001 have been prepared on the basis of the accounting policies set out in CGNU plc's 2000 Annual Report and Accounts. (c) The results for the six months to 30 June 2001 and 30 June 2000 are unaudited but have been reviewed by the auditors. The interim accounts do not constitute statutory accounts as defined in section 240 of the Companies Act 1985. The results for the full year 2000 have been taken from the Group's 2000 Report and Accounts. The auditors have reported on the 2000 accounts and their reports were 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. (d) 'Business discontinued' disclosures relate to the exit from London Market business in 2000 and the sale of the general insurance business in the United States which completed on 1 June 2001. The results of all other operations are entitled 'Ongoing business'. (e) 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 16. -------------------------------------------------------------------- Page 21 2. Exchange rates The principal rates of exchange used for translation are: Average rates 6 months 6 months Full year 2001 2000 2000 Canada - dollars 2.20 2.30 2.25 United States - dollars 1.43 1.57 1.51 Closing rates 30 June 30 June 31 December 2001 2000 2000 Canada - dollars 2.13 2.24 2.24 United States - dollars 1.41 1.51 1.49 The euro rates employed in this announcement are an average rate of 1 euro = £0.62 (six months to 30 June 2000: 1 euro = £0.61, full year 2000: 1 euro = £0.61) and a closing rate of 1 euro = £0.60 (30 June 2000: 1 euro = £0.64, 31 December 2000: 1 euro = £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 £63 million. The embedded value amounted to £11 million, giving rise to goodwill of £51 million after transaction costs. The transaction has been accounted for as an acquisition. 4. Disposals The net profit/(loss) on the disposal of subsidiary undertakings comprises: 6 months 6 months Full year 2001 2000 2000 £m £m £m Long-term savings businesses Poland - - 65 Canada (a) (5) - - General insurance businesses Germany - - (43) South Africa - - (11) New Zealand (b) 52 - - United States (d) 125 - (1,070) Other businesses Australia - - 4 UK (c) 70 - - Other small operations 5 - (3) ------ ------ ------ 247 - (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 £120 million. The embedded value of both businesses at disposal amounted to £118 million and the loss on disposal, after transaction costs, was £5 million. -------------------------------------------------------------------- Page 22 (b) In February 2001, the Group completed the disposal of its wholly-owned New Zealand subsidiary, State Insurance Limited, for a cash consideration of £125 million. The net assets disposed of amounted to £69 million and the profit on disposal, after transaction costs, was £52 million. (c) In March 2001, the Group completed the disposal of its holding in Quilter Holdings Limited for a cash consideration of £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 £24 million and the profit on disposal, after transaction costs and writing back £6 million of goodwill previously charged to reserves, was £70 million. (d) On 1 June, the Group completed the sale of the 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 (£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 this date. Prior to completion US$200 million (£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 ongoing operations 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 pre-tax loss on sale recorded in the Group's consolidated profit and loss account reserves at 30 June 2001 is £996 million retranslated at the exchange rate prevailing at 1 June 2001. 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 Reported of total in profit recognised Total and loss gains loss on account and losses disposal ---------- ----------- ---------- Full 6 Exchange year months rate 2000* 2001 movements Total £m £m £m £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. The Group hedged an element of its exposure to the sale proceeds, which reduced the exchange gain from £108 million disclosed above by £24 million to £84 million. -------------------------------------------------------------------- Page 23 (i) 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: 6 months 6 months Full 2001 2000 year 2000 £m £m £m Underwriting result (173) (96) (967) Longer-term investment return 152 211 417 ------ ------ ------ General insurance operating (loss)/profit (21) 115 (550) Unallocated interest charges * (21) (23) (42) ------ ------ ------ Operating (loss)/profit (42) 92 (592) Amortisation of goodwill (1) (1) (3) Short-term fluctuation in investment returns 13 (64) 66 ------ ------ ------ (Loss)/profit on ordinary activities before tax (30) 27 (529) Tax on (loss)/ profit on ordinary activities (93) (15) 110 ------ ------ ------ (Loss)/profit for the financial period (123) 12 (419) Retranslation to closing rate (2) - (4) ------ ------ ------ Retained (loss)/profit (125) 12 (423) ====== ====== ====== * Unallocated interest charges are eliminated at Group level. (ii) Analysis of sale proceeds An analysis of the sale proceeds is as follows: US$m £m Proceeds, net of transaction costs, including repayment of inter-company loan 3,123 2,200 ====== ====== Comprising: Loan notes 260 183 Value of businesses and investments retained 630 443 Cash proceeds 2,233 1,574 ------ ------ 3,123 2,200 ====== ====== The net cash received on completion by the Group was US$2,033 million (£1,433 million) comprising the cash proceeds identified above less the pre-closing adjustment (capital injection) of US$200 million (£141 million). -------------------------------------------------------------------- Page 24 5. Exceptional items Exceptional items in 2000 comprise merger integration costs and reflect the costs of integrating and reorganising the businesses of the former CGU plc and Norwich Union plc. 6. Geographical analysis of life and pensions and investment sales - new business and total income New business sales Premium income New New (after reinsurance) single regular and premiums premiums investment sales 6 6 6 6 6 6 Full months months months months months months year 2001 2000 2001 2000 2001 2000 2000 £m £m £m £m £m £m £m Life and pensions sales United Kingdom 3,286 2,966 277 182 4,370 4,138 8,548 Europe (excluding UK) France 1,015 968 20 21 1,127 1,100 2,124 Ireland 229 198 28 25 321 279 539 Italy 369 119 18 6 440 204 378 Netherlands (including Belgium and Luxembourg) 277 214 47 36 670 536 1,078 Poland - Life 3 5 17 22 145 120 247 - Pensions - - 13 109 231 182 371 Spain 271 37 23 5 351 66 428 Other 80 53 31 32 218 181 464 International 254 228 32 23 345 324 671 ------ ------ ------ ------ ------ ------ ------ Total life and pensions 5,784 4,788 506 461 8,218 7,130 14,848 Investment sales United Kingdom 550 510 7 11 557 521 897 Netherlands 40 584 - - 40 584 1,025 Europe (excluding UK) 82 121 - - 82 121 284 International 84 166 - - 84 166 295 ------ ------ ------ ------ ------ ------ ------ Total long-term savings 6,540 6,169 513 472 8,981 8,522 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 25 7. Geographical analysis of modified statutory life profit Full 6 months 6 months year 2001 2000 2000 £m £m £m United Kingdom With-profit 146 127 275 Non-profit 256 286 497 Europe (excluding UK) France 75 69 143 Ireland 15 19 45 Italy 5 9 21 Netherlands (including Belgium and Luxembourg) 68 73 162 Poland - Life 19 13 31 - Pensions 7 (5) (9) Spain 12 5 14 Other * (9) (10) (25) International * 14 20 36 ------ ------ ------ Total modified statutory life profit 608 606 1,190 ====== ====== ====== * The modified statutory life profit for Turkey of £3 million in the six months to 30 June 2000 has been re-classified from International to Other Europe, consistent with current and full year disclosure. 8. Geographical analysis of health premiums after reinsurance and operating result a) Premiums after reinsurance: Full 6 months 6 months year 2001 2000 2000 £m £m £m United Kingdom 128 103 204 France 53 47 92 Netherlands 328 278 391 ------ ------ ------ 509 428 687 ====== ====== ====== b) Operating result: Operating profit Underwriting result 6 6 Full 6 6 Full months months year months months year 2001 2000 2000 2001 2000 2000 £m £m £m £m £m £m United Kingdom 4 2 6 2 - 2 France 4 6 12 (1) - - Netherlands * 24 26 50 (11) (10) (22) ------ ------ ------ ------ ------ ------ 32 34 68 (10) (10) (20) ====== ====== ====== ====== ====== ====== * The basis for allocating the longer-term investment return between general business and health business was refined at the end of 2000 and is based on underlying technical and associated solvency assets. The effect of this refinement on the six months to 30 June 2000 was to re-classify £13 million of longer-term investment return from general insurance into health. -------------------------------------------------------------------- Page 26 9. Geographical analysis of general insurance premiums after reinsurance and operating result a) General insurance premiums after reinsurance: 6 months 6 months Full 2001 2000 year 2000 £m £m £m United Kingdom 2,454 2,488 4,937 Europe (excluding UK) France 389 353 640 Ireland 236 184 382 Netherlands 227 226 465 Other *** 301 343 625 International Australia and New Zealand 256 313 634 Canada 436 454 940 Other *** 53 235 367 ------ ------ ------ Ongoing business 4,352 4,596 8,990 ------ ------ ------ United States 1,103 1,425 3,021 London Market - 162 192 ------ ----- ------ Businesses discontinued 1,103 1,587 3,213 ------ ------ ------ 5,455 6,183 12,203 ====== ====== ====== b) Operating result: Operating profit * Underwriting result * 6 6 Full 6 6 Full months months year months months year 2001 2000 2000 2001 2000 2000 £m £m £m £m £m £m United Kingdom 254 196 296 (69) (126) (387) Europe (excluding UK) France 34 (120) (115) (15) (167) (208) Ireland 17 11 21 (10) (13) (30) Netherlands ** 5 (3) (4) (12) (21) (40) Other *** 15 8 20 (20) (33) (55) International Australia and New Zealand 26 33 82 (8) (12) (7) Canada 50 44 78 (16) (18) (53) Other *** 26 24 34 (2) (17) (41) ------ ------ ------ ------ ------ ------ Ongoing business 427 193 412 (152) (407) (821) ------ ------ ------ ------ ------ ------ United States (21) 115 (550) (173) (96) (967) London Market - 6 (4) - (31) (59) ------ ------ ------ ------ ------ ------ Businesses discontinued (21) 121 (554) (173) (127) (1,026) ------ ------ ------ ------ ------ ------ 406 314 (142) (325) (534) (1,847) ====== ====== ====== ====== ====== ====== * The general insurance operating profit and underwriting result are stated before the change in the equalisation provision of £22 million (six months to 30 June 2000: £12 million, full year 2000: £27 million) and the Policyholders' Protection Board levy of £14 million (six months to 30 June 2000 and full year 2000: £nil). ** The basis for allocating the longer-term investment return between general business and health business was refined in 2000 and is based on underlying technical and associated solvency assets. The effect of this refinement on the six months to 30 June 2000 was to re-classify £13 million of longer-term investment return from general insurance into health. *** The premium, operating profit and underwriting result for Turkey of £14 million, £7 million and £1 million respectively in the six months to 30 June 2000 has been re-classified from International to Other Europe, consistent with current and full year disclosure. -------------------------------------------------------------------- Page 27 10. Taxation The tax charge in the profit and loss account comprises: 6 months 6 months Full year 2001 2000 2000 £m £m £m UK corporation tax (18) 16 (65) Overseas tax 90 134 49 Other 16 (85) (103) ------ ------ ------ Total taxation charge for the period 88 65 (119) Tax attributable to the long-term business technical result 182 186 374 ------ ------ ------ Charge to profit and loss account 270 251 255 ====== ====== ====== 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 - ongoing business 231 140 326 - businesses discontinued (7) 36 (130) Profit on other ordinary activities 46 75 59 ------ ------ ------ 270 251 255 ====== ====== ====== 11. Dividends a) The preference dividends in the profit and loss account comprise: Full 6 months 6 months year 2001 2000 2000 £m £m £m Preference dividends 9 9 17 ====== ====== ====== The preference dividends are in respect of the cumulative irredeemable preference shares of £1 each in issue, payable on 31 March and 30 June 2001. b) The ordinary dividends in the profit and loss account comprise: Full 6 months 6 months year 2001 2000 2000 £m £m £m Ordinary dividends Interim - 14.25 pence (2000: 14.25 pence) 321 320 320 Final - (2000: 23.75 pence) - - 535 ------ ------ ------ Total ordinary dividends 321 320 855 ====== ====== ====== The directors declare an interim dividend for the period of £321 million, representing 14.25 pence net per share of the company, payable on 15 November 2001 to members on the register at 28 September 2001. Irish shareholders who are due to be paid a dividend denominated in Irish punts will receive a payment at the exchange rate prevailing on 1 August 2001. -------------------------------------------------------------------- MORE TO FOLLOW

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