CGNU PLC Q1 2001 Results-Pt 3

CGNU PLC 3 May 2001 CGNU plc Q1 2001 Results PART 3 OF 5 -------------------------------------------------------------------- Page 15 Summarised consolidated profit and loss account - modified statutory basis For the three months to 31 March 2001 3 3 3 Full months months months year 2001 2001 2000 2000 Em Premium income (after reinsurance) and £m £m £m investment sales Ongoing business 6,957 Life premiums 4,383 3,589 14,848 654 Investment sales 412 772 2,501 502 Health premiums 316 282 687 ------ ------- ------- ------- 8,113 5,111 4,643 18,036 3,563 General insurance premiums 2,245 2,295 8,990 ------ ------- ------- ------- 11,676 Total ongoing business 7,356 6,938 27,026 Businesses discontinued and to be discontinued General insurance premiums 1,019 - United States (to be discontinued) 642 680 3,021 - - London Market (discontinued) - 112 192 ------ ------- ------- ------- 12,695 Total 7,998 7,730 30,239 ====== ======= ======= ======= Operating profit 491 Modified statutory life profit 309 290 1,190 27 Health 17 16 68 25 Fund management 16 10 61 246 General insurance 155 113 412 (6) Non-insurance operations (4) (4) (24) (64) Corporate costs (40) (41) (185) (176) Unallocated interest charges (111) (77) (361) ------ ------- ------- ------- 543 342 307 1,161 (51) Wealth management (32) (9) (133) ------ ------- ------- ------- Operating profit - ongoing business before tax, amortisation of goodwill, amortisation of acquired additional value of in-force long-term business 492 and exceptional items 310 298 1,028 Businesses discontinued and to be discontinued United States general insurance 43 (to be discontinued) 27 79 (550) - London Market (discontinued) - 7 (4) ------ ------- ------- ------- 535 337 384 474 (22) Amortisation of goodwill (14) (9) (92) Amortisation of acquired additional (15) value of in-force long-term business (9) (1) (29) - Exceptional items - - (425) ------ ------- ------- ------- 498 Operating profit/(loss) before tax 314 374 (72) Short-term fluctuation in investment (450) returns (284) 135 258 (21) Change in the equalisation provision (13) (6) (27) Net profit arising on the sale of 198 subsidiary undertakings 125 - 12 Provision for loss on sale for businesses to be discontinued 21 - United States general insurance 13 - (1,070) Loss on withdrawal from London Market - operations - - (448) - Merger transaction costs - - (59) ------ ------- ------- ------- Profit/(loss) on ordinary activities 246 before tax 155 503 (1,406) (306) Tax on profit on ordinary activities (193) (197) (255) ------ ------- ------- ------- (Loss)/profit on ordinary activities (60) after tax (38) 306 (1,661) (23) Minority interests (14) (10) (52) ------ ------- ------- ------- (83) (Loss)/profit for the financial period (52) 296 (1,713) (6) Preference dividends (4) (4) (17) ------ ------- ------- ------- (Loss)/profit for the financial period (89) attributable to equity shareholders (56) 292 (1,730) - Ordinary dividends - - (855) ------ ------- ------- ------- Retained (loss)/profit transferred (89) to reserves (56) 292 (2,585) ====== ======= ======= ======= -------------------------------------------------------------------- Page 16 Earnings per share - modified statutory basis For the three months to 31 March 2001 3 months 3 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 8.6 p 8.8p 28.3 p (Loss)/profit attributable to equity shareholders (2.5)p 13.0p (77.0)p (Loss)/profit attributable to equity shareholders - diluted (2.5)p 13.0p (76.9)p Consolidated statement of total recognised gains and losses For the three months to 31 March 2001 3 months 3 months Full year 2001 2000 2000 £m £m £m (Loss)/profit for the financial period (52) 296 (1,713) Movement in internally-generated additional value of in-force long-term business* (255) 127 73 Foreign exchange (losses)/gains (48) (157) 303 ------- ------- ------- Total recognised gains and losses arising in the period (355) 266 (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 three months to 31 March 2001 3 months 3 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 (355) 266 (1,337) Dividends (4) (4) (872) Increase in capital 1 6 54 Merger reserve arising during the period - - 5 Other movements 7 (2) 110 ------- ------- ------- Shareholders' funds at the end of the period 13,282 15,939 13,633 ======= ======= ======= -------------------------------------------------------------------- Page 17 Summarised consolidated balance sheet 31 March 31 March 31 December 2001 2000 2000 £m £m £m Assets Goodwill 733 541 747 ------- ------- ------- Investments Land and buildings 817 818 820 Investments in Group undertakings and participating interests 287 210 264 Variable yield securities 5,052 6,956 5,868 Fixed interest securities 14,477 13,303 13,813 Mortgages and loans, net of non-recourse funding 1,236 1,098 1,233 Deposits 921 1,265 1,112 Additional value of in-force long-term business 6,352 6,533 6,605 ------- ------- ------- 29,142 30,183 29,715 Reinsurers' share of technical provisions 3,702 2,607 3,709 Assets of the long-term business 148,495 142,189 148,551 Other assets 10,716 10,684 10,596 ------- ------- ------- Total assets 192,788 186,204 193,318 ======= ======= ======= Liabilities Shareholders' funds Equity 13,082 15,739 13,433 Non-equity 200 200 200 Minority interests 538 562 584 ------- ------- ------- Total capital and reserves 13,820 16,501 14,217 Liabilities of the long-term business 144,169 138,088 144,301 General insurance liabilities 23,815 22,463 23,786 Borrowings 2,530 2,131 2,592 Other creditors and provisions 8,454 7,021 8,422 ------- ------- ------- Total liabilities 192,788 186,204 193,318 ======= ======= ======= -------------------------------------------------------------------- Page 18 Consolidated cash flow statement For the three months to 31 March 2001 3 months 3 months Full year 2001 2000 2000 £m £m £m Net cash inflow from operating activities excluding exceptional items and merger transaction costs 34 46 738 Exceptional items and merger transaction costs paid (63) (17) (251) Net cash outflow from servicing of finance (39) (53) (257) Corporation tax paid (including advance corporation tax) (16) (26) (210) Net purchases of tangible fixed assets (6) (15) (119) Acquisitions and disposals of subsidiary and associated undertakings 192 (225) (277) Equity dividends paid - - (816) Net cash (outflow)/inflow from financing activities (82) 394 493 ------- ------- ------- Net cash flows 20 104 (699) ======= ======= ======= Cash flows were invested as follows: Increase/(decrease) in cash holdings 56 (11) 119 Net portfolio investment Net (sales)/purchases of investments (143) 133 (1,541) Non-trading cash outflow to/(inflow from) long-term business operations 107 (18) 723 ------- ------- ------- Net investment of cash flows 20 104 (699) ======= ======= ======= The cash flows presented in this statement relate to non-life transactions only. -------------------------------------------------------------------- Page 19 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 three months to 31 March 2001 have been prepared on the basis of the accounting policies set out in CGNU plc's 2000 Annual Report and Accounts. In preparing the comparative information for the three months to 31 March 2000, certain adjustments from previously published information were made to align the accounting policies to those adopted by CGNU plc. The accounting policies aligned were such that: (i) Certain general business fixed income and debt securities held by Norwich Union plc were revalued from an amortised cost basis to a market value basis; (ii) Project costs which had formerly been capitalised by Norwich Union plc have been eliminated; (iii) Embedded value assumptions used by both companies have been brought onto a common basis. The impact of these changes was to increase profit before tax for the three months to 31 March 2000 by £9 million (full year 2000: increase by £7 million) and increase shareholders' funds at 31 March 2000 by £75 million (31 December 2000: increase by £110 million). (c) The results for the three months to 31 March 2001 and 31 March 2000 are unaudited. The 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 joint 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 solely to the exit from London Market business in 2000. 'Business to be discontinued' relate solely to the general insurance business in the United States, a material discrete operation where sales contracts have been exchanged with a prospective purchaser but all conditions of sale have not been achieved, and sales proceeds have not yet been received by the Group. The results of all other operations are entitled 'Ongoing business'. In instances where the carrying value of businesses to be disposed of is more than the likely sales proceeds, a provision for loss on sale has been included in the results. (e) The contribution from the Group's share of the alliance with The Royal Bank of Scotland Group plc (RBSG) is incorporated with the total life revenues and modified statutory life profits. 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 15. -------------------------------------------------------------------- Page 20 2. Exchange rates The principal rates of exchange used for translation are: Average rates 3 months 3 months Full year 2001 2000 2000 Canada - dollars 2.22 2.33 2.25 United States - dollars 1.45 1.60 1.51 Closing rates 31 March 31 March 31 December 2001 2000 2000 Canada - dollars 2.24 2.32 2.24 United States - dollars 1.42 1.59 1.49 The euro rates employed in this announcement are an average rate of 1 euro = £0.63 (three months to 31 March 2000: 1 euro = £0.61, full year 2000: 1 euro = £0.61) and a closing rate of 1 euro = £0.62 (31 March 2000: 1 euro = £0.60, 31 December 2000: 1 euro = £0.63). 3. Disposals and business to be discontinued (a) Disposals 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. 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. The disposal of other smaller operations gave rise to a net gain of £3 million. (b) Business to be discontinued - United States general insurance The Group has entered into an agreement to sell its US general insurance operations for US$2,063 million and, in addition, an inter-company loan of US$1,100 million will be repaid to the Group. The settlement will comprise cash, the transfer of businesses to be retained and subordinated loan notes of US$260 million. This sale is subject to the satisfaction of certain conditions, including US regulatory approval, and is expected to be completed later this year. Subject to the satisfaction of certain conditions: - The total proceeds for the sale of the US general business of US$3,163 million were fixed by reference to the operation's net assets as at 31 August 2000 and will not be adjusted to reflect the business' results in the period from 1 September 2000 to completion; and - The Group will 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. Consequently, had the transaction been completed on 31 August, the post-tax loss on sale would have been US$2,007 million. Financial Reporting Standard 2 'Accounting for subsidiary undertakings' requires the results of the US general business to be consolidated with those of the Group's ongoing operations until the completion of the transaction. However, given that, subject to completion, the Group has 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 will be 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 after-tax provision for the loss on the sale, including pre-closing adjustments of US$200 million (£141 million), recorded in the Group's consolidated profit and loss account at 31 March 2001 is US$1,453 million or £1,023 million retranslated at the exchange rate prevailing at 31 March 2001. -------------------------------------------------------------------- Page 21 3. Business to be discontinued - United States general insurance (continued) Impact of disposal of United States general insurance business Full Exchange 3 year Trading rate months 2000 movements movements 2001 £m £m £m £m Value to the Group 2,092 - 106 2,198 ======= ======= ======= ======= Represented by: Net assets to which proceeds apply, including capital injection 3,092 (13) 157 3,236 Goodwill write back 70 - - 70 ------- ------- ------- ------- 3,162 (13) 157 3,306 ------- ------- ------- ------- Loss on sale - Provision for loss on sale after tax and goodwill write back (989) 13 (47) (1,023) - Tax attributed to loss on sale (81) - (4) (85) ------- ------- ------- ------- Pre-tax provision for loss on sale (1,070) 13 (51) (1,108) ------- ------- ------- ------- Proceeds, net of transaction costs 2,092 - 106 2,198 ======= ======= ======= ======= The cash component of the proceeds, net of the pre-closing adjustment, of US$1,846 million (£1,298 million) is receivable upon completion. The Group has hedged an element of its exposure to the sales proceeds, the effect of which is to reduce the exchange gain from £106 million disclosed above to £83 million. The final accounting loss on completion will differ from the post-tax loss of £1,023 million above. This is due to the consolidation of profits or losses of this business from 1 April 2001 to the date of completion, and fluctuations in the exchange rate. The Group's consolidated profit and loss account and balance sheet incorporate the following financial information in respect of the US general insurance business: Abridged statement of operating and 3 3 Full investment gains months months year 2001 2000 2000 £m £m £m Underwriting result (66) (26) (967) Longer-term investment return 93 105 417 ------- ------- ------- General insurance operating profit/(loss) 27 79 (550) Unallocated interest charges* (12) (11) (42) ------- ------- ------- Operating profit/(loss) 15 68 (592) Amortisation of goodwill (1) (1) (3) Short-term fluctuation in investment returns 76 34 66 ------- ------- ------- Profit/(loss) on ordinary activities before tax 90 101 (529) Tax on profit/(loss) on ordinary activities (103) (3) 110 ------- ------- ------- Profit/(loss) for the financial period (13) 98 (419) Retranslation to closing rate - 1 (4) ------- ------- ------- Retained profit/(loss) (13) 99 (423) ======= ======= ======= * Unallocated interest charges are eliminated at Group level. --------------------------------------------------------------------- Page 22 4. 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. 5. Geographical analysis of life and pensions and investment sales - new business and total income. New business sales Premium income New single New regular (after reinsurance) premiums premiums and investment sales 3 3 3 3 3 3 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 1,736 1,450 120 83 2,272 2,029 8,548 Europe (excluding UK) France 554 511 10 12 640 584 2,124 Ireland 109 103 14 14 173 147 539 Italy 232 61 6 1 283 101 378 Netherlands 146 109 15 15 421 298 1,030 Poland - Life 2 3 9 12 71 61 247 - Pensions - - 8 86 112 87 371 Spain 121 22 12 3 168 38 428 Other 48 25 19 21 72 98 512 International 121 107 14 11 171 146 671 ------ ------ ------ ------ ------ ------ ------ Total life and pensions 3,069 2,391 227 258 4,383 3,589 14,848 Investment sales United Kingdom 308 247 2 1 310 248 897 Netherlands 15 371 - - 15 371 1,025 Europe (excluding UK) 45 68 - - 45 68 284 International 42 85 - - 42 85 295 ------ ------ ------ ------ ------ ------ ------ Total long-term business 3,479 3,162 229 259 4,795 4,361 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 23 6. Geographical analysis of modified statutory life profit Full 3 months 3 months year 2001 2000 2000 £m £m £m United Kingdom With-profit 72 65 275 Non-profit 132 140 497 Europe (excluding UK) France 38 31 143 Ireland 7 12 45 Italy 3 3 21 Netherlands 38 32 159 Poland - Life 10 7 31 - Pensions 3 (5) (9) Spain 5 2 14 Other (5) (10) (22) International 6 13 36 ------ ------ ------ Total modified statutory life profit 309 290 1,190 ====== ====== ====== 7. Geographical analysis of health premiums after reinsurance and operating result a) Premiums after reinsurance: Full 3 months 3 months year 2001 2000 2000 £m £m £m United Kingdom 65 53 204 France 29 25 92 Netherlands 222 204 391 ------ ------ ------ 316 282 687 ====== ====== ====== b) Operating result: Operating profit Underwriting result 3 3 Full 3 3 Full months months year months months year 2001 2000 2000 2001 2000 2000 £m £m £m £m £m £m United Kingdom (1) - 6 (2) (1) 2 France 1 3 12 (1) 1 - Netherlands* 17 13 50 (6) (6) (22) ------- ------- ------- ------- ------- ------- 17 16 68 (9) (6) (20) ======= ======= ======= ======= ======= ======= * 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 three months to 31 March 2000 has been to reclassify £7 million of longer-term investment return from general insurance into health. -------------------------------------------------------------------- Page 24 8. Geographical analysis of general insurance premiums after reinsurance and operating result a) General insurance premiums after reinsurance: Full 3 months 3 months year 2001 2000 2000 £m £m £m United Kingdom 1,209 1,216 4,937 Europe (excluding UK) France 244 218 640 Ireland 112 90 382 Netherlands 112 103 465 Other 162 190 625 International Australia and New Zealand 128 158 634 Canada 197 195 940 Other 81 125 367 ------- ------- ------- Ongoing business 2,245 2,295 8,990 Businesses discontinued and to be discontinued United States 642 680 3,021 London Market - 112 192 ------- ------- ------- 2,887 3,087 12,203 ======= ======= ======= b) Operating result: Operating profit* Underwriting result* 3 3 Full 3 3 Full months months year months months year 2001 2000 2000 2001 2000 2000 £m £m £m £m £m £m United Kingdom 100 79 296 (57) (77) (387) Europe (excluding UK) France 10 (13) (115) (15) (37) (208) Ireland 5 5 21 (8) (7) (30) Netherlands** - (1) (4) (9) (10) (40) Other 7 1 20 (11) (21) (55) International Australia and New Zealand 11 20 82 (7) (4) (7) Canada 11 12 78 (21) (19) (53) Other 11 10 34 (1) (16) (41) ------- ------- ------- ------- ------- ------- Ongoing business 155 113 412 (129) (191) (821) Businesses discontinued and to be discontinued United States 27 79 (550) (66) (26) (967) London Market - 7 (4) - (11) (59) ------- ------- ------- ------- ------- ------- 182 199 (142) (195) (228) (1,847) ======= ======= ======= ======= ======= ======= * The general insurance operating profit and underwriting result are stated before the change in the equalisation provision of £13 million (three months to 31 March 2000: £6 million, full year 2000: £27 million). ** 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 three months to 31 March 2000 has been to reclassify £7 million of longer-term investment return from general insurance into health. -------------------------------------------------------------------- Page 25 9. Taxation The tax charge in the profit and loss account comprises: 3 months 3 months Full year 2001 2000 2000 £m £m £m UK corporation tax 5 34 (65) Overseas tax 90 48 49 Other 3 25 (103) ------- ------- ------- Total taxation charge for the period 98 107 (119) Tax attributable to the long-term business technical result 95 90 374 ------- ------- ------- Charge to profit and loss account 193 197 255 ======= ======= ======= 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 98 88 326 - businesses discontinued and to be discontinued 9 18 (130) Profit on other ordinary activities 86 91 59 ------- ------- ------- 193 197 255 ======= ======= ======= 10. Dividends a) The preference dividends in the profit and loss account comprise: 3 months 3 months Full year 2001 2000 2000 £m £m £m Preference dividends 4 4 17 ======= ======= ======= The preference dividends are in respect of the cumulative irredeemable preference shares of £1 each in issue. b) The ordinary dividends in the profit and loss account comprise: 3 months 3 months Full year 2001 2000 2000 £m £m £m Ordinary dividends Interim - 14.25 pence - - 320 Final - 23.75 pence - - 535 ------- ------- ------- Total ordinary dividends - - 855 ======= ======= ======= ------------------------------------------------------------------- END OF PART 3 OF 5 MORE TO FOLLOW

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