Final Results
St. James's Place Capital PLC
28 February 2002
PRESS RELEASE
28 February 2002
St. James's Place Capital Preliminary Announcement
St. James's Place Capital plc has announced its annual results for the year
ended 31 December 2001.
The text of the announcement is attached.
Enquiries:
Sir Mark Weinberg, Chairman Tel: 020 7514 1909
Martin Moule, Finance Director
Nitya Bolam, Brunswick Tel: 020 7404 5959
Announcement of annual results for the year ended 31st December 2001
St. James's Place Capital plc (SJPC) announces its annual result for the year
ended 31st December 2001.
Highlights of our core business, the St. James's Place Group ('the Group'):
• pre-tax profits up 16% to £92.4 million (2000: £79.5 million)
• satisfactory growth in total new business of 11%, with a 15% increase in
life and pensions new business
• size of the Partnership up 7% to 1,121
• assets under management up 10% to £6.3 billion
• St. James's Place Bank and other wealth management services successfully
launched
Final dividend of 1.5p per share making a total dividend for the year of 2.75p
(2000:2.25p) up 22%.
Sir Mark Weinberg, Chairman, commented:
'We are pleased with the 16% growth in profits from our core life, pensions and
investment business. The Group is well positioned to benefit from any
improvement in market conditions, as well as from the proposed regulatory
changes.'
SUPPORTING STATEMENT
Financial Results
The results for the Group's core business show pleasing growth in pre-tax
profits of 16% (from £79.5 million in 2000 to £92.4 million in 2001), reflecting
the growth in new business both this year and in previous years.
Life and Pensions: Pre-tax profits from the Group's life and pension business
grew by 20% from £66.4 million to £79.5 million. These profits were affected by
a number of items:
Investment Performance: Although (as will be indicated later in this statement)
the Group's investment funds performed well relative to the markets, the fact
that actual investment performance fell behind the assumptions implicit in the
embedded value calculations impacted profits adversely by £10.3 million pre-tax.
Critical Illness: Following discussions with its reassurers, the Company has
set aside £12.5 million pre-tax against future critical illness claims
experience. Further details are given in note 9.
Expenses: During the year the Group renegotiated the fees it pays to its Third
Party Administrators and also transferred Dublin staff to the newly established
Italian joint venture Nascent. Both initiatives realised substantial reductions
in costs, giving a benefit of £10.9 million pre-tax.
Unit trusts: Unit trust business pre-tax profits grew by 55% from £6.7 million
to £10.4 million reflecting the very large growth in funds under management in
recent years.
Wealth Management Services: After allowing for set-up costs and payments to
Partners, the wealth management services described later broke even, which was a
significantly more favourable outcome than had been anticipated for the first
year of trading. While the main benefit from these services will be the ability
of Partners to sell more core business to existing and new clients, we look
forward to this business generating profits in future periods.
Participating Interests: LAHC shows a full year loss of £12.2 million pre-tax,
although its accounts are dominated by one-off items, including the impact of
the falling stock market. As reported in the notes to the Interim Statement,
the loss for the year includes the effect of adopting a proposed change in
accounting methodology which resulted in a deduction of £60.9 million. The
major part of this amount represents SJPC's share of the present value of
profits from future DSS contributions which is no longer taken into account in
calculating SJPC's share of LAHC's embedded value. It will instead emerge as an
addition to the profits of future years as these contributions are collected
from the DSS. After stripping out the various one-off effects, SJPC's share of
the underlying profits from the business would have been £18.9 million. Full
details are given in note 7.
Nascent: As announced in the Interim Statement in July 2001, the introduction of
GS Capital Partners into this venture reduced our holding to just over 26%,
which will ultimately reduce to just under 20% when allowing for the effect of
shares held in an employee trust. The holding is treated as an investment and
is not equity accounted (see note 8).
Despite continuing difficult conditions in the Italian market flowing from the
falls in equity prices, Nascent Group has made further progress in establishing
its presence. Starting the year 2001 with a sales force of 62, it now has a
sales force of 258 (including insurance advisers), operating from 25 locations
which cover most areas of the country. Investment sales for its first full year
of operation totalled £101.2 million, of which £70.1 million were the Group's
own products and £31.1 million those of other fund management firms.
Accounting Basis: We continue to publish our results on an 'embedded value'
basis using conservative assumptions. The Directors believe this provides the
most meaningful, consistent and appropriate measure of our performance.
However, the accounting standards for insurance groups are in a state of
transition and are likely to change in the short term, as a result of
initiatives led by accounting standard setting boards and the industry.
The St. James's Place Partnership and New Business
2001: The Group continues to attract experienced high quality advisers. The
size of the Partnership grew by 7% from 1,050 to 1,121 during the year.
It will be recalled that in the year 2000, the Group's total new business (on
the standard industry measure) was 42% higher than for the previous year, much
the greater part of which reflected a large increase in productivity per
Partner. Against this background, as well as the difficult market conditions of
the year, the 11% increase in total new business during 2001 should be regarded
as highly satisfactory. Only 5% of this new business was Stakeholder pensions.
New life and pension sales increased by 15% in the year. The problems created
by the second year of weak stock markets was underlined by the 21% fall in sales
suffered by the unit trust industry as a whole, while our unit trust business
was down only 8%.
The resilience of the Partnership was demonstrated by the fact that, even in
these conditions and following the very large increase in productivity the
previous year, productivity per Partner increased marginally during 2001.
2002: The unsettled markets in the current year continue to affect investment
business. This is illustrated by the 41% fall in ISA/PEP sales for the industry
for January 2002 reported by AUTIF.
The level of new business for St. James's Place in the opening weeks of the
current year has been running at about 10% lower than in the corresponding
period last year. This did not reflect a reduction in activity as the number of
cases per Partner was the same as last year but rather a reduction in the
average case size.
We have frequently referred to the strength that the Group derives from having
its own distribution, the St. James's Place Partnership, which in turn has shown
its ability to adapt to changing market conditions. However, this should not be
judged over the short term. Our longer-term target remains a growth in new
business of between 15% and 20% per annum and we believe that we particularly
well-positioned to benefit when market conditions improve.
Wealth Management Services
In my statement last year, I referred to the steps we were taking to introduce,
through joint ventures, a range of additional financial services which would
enable the members of the Partnership to position themselves as providers of a
broadly-based wealth management service. Considerable progress was made during
the year in introducing facilities for what is known in the Group as 'the Wheel
', with the Partnership as the hub and the range of services they can offer as
the spokes.
The most important development of the year was the launch, at the end of June,
of St. James's Place Bank, offering our own branded version of the Halifax
Intelligent Finance suite of services. In the six months since then, 4,590
clients have joined the St. James's Place Bank through members of the
Partnership. Mortgages taken out through the Bank in the period amounted to
£221.6 million; when added to the mortgages taken out through our existing panel
of providers, mortgages placed by the Partnership during the year exceeded £1
billion. Current and savings account balances totalled £128.9 million.
The Portfolio Management Service, launched in March with Laing and Cruickshank
and Morgan Stanley Quilters, produced portfolios of £67.6 million, while the
Trust and Estates Planning Service, launched with two leading firms of
solicitors, resulted in 221 completed cases, of which 21 involved properties
exceeding £1 million.
Group Employee Benefits, launched in May through Swiss Life, produced life sums
assured of £10.2 million, critical illness cover of £5 million and permanent
health insurance of £2.2 million per annum.
Gross fees generated from these services before payments to Partners were £5
million.
We are particularly pleased that we have exceeded both our initial sales and
financial targets in our entry into wealth management. This contrasts with the
experience of many large financial groups that had announced ambitious plans in
this field, involving the expenditure of large amounts of money, and then
abandoned or cut back their operations during the course of the year.
The experience of these groups has led to a belief in some quarters that the
concept of catering for the needs of the 'mass affluent' is flawed. We believe,
however, that our experience has validated the point made in this statement last
year. Rather than, as the banks do, starting with a mere transactional
relationship and expecting the customer either to develop a personal advisory
relationship or to sort out his or her needs on the internet, we start with a
trusting personal relationship between the client and the Partner, who then
makes the much less difficult introduction to the banking and other services.
While we continue to give our clients on-line access to information on their
investments, and indeed to enhance this service, we are committed to making our
products available solely on an advisory basis through members of the
Partnership. As the Partnership consists entirely of experienced financial
advisers, who on average have been in the financial services industry for 14
years, we believe that we are particularly well placed to make major inroads
into the market for wealth management.
A number of additional services will be added to the 'Wheel'. Projects that are
under consideration for the coming year include a general insurance broking
service, medical insurance and a corporate banking service. While the existing
and new services can be expected to produce fees for the Partners and profits
for the Group, the primary drive behind these developments is our belief that
putting Partners in a position to offer a fuller range of services for their
clients will lead to improved growth prospects for our core business, both by
increasing the productivity of our existing Partners and by attracting more high
quality advisers to join the Partnership.
In addition to catering for the needs of the mass affluent, we continue to see
signs that the Partners are gaining the confidence of high net worth individuals
and families who have until now tended to use only the services of traditional
private banks.
Investing in Systems to Improve Service and Efficiency
In order to make the broadening range of services as seamless as possible, from
the point of view of both clients and the Partners, we are investing some £6
million over the next year to develop an automated new business processing
system and systems infrastructure.
The new systems infrastructure will underpin the various processes and systems
we will use to support our wealth management requirements and reporting. This
will enable us to deliver management summaries to clients across all the areas
that make up the wheel: Building and preserving capital (lump sum and regular
contribution investments); Managing cash and borrowings (banking and mortgage
products); and Financial protection against risk (life and health risks and
general insurance).
We are aware that many of our competitors, including new entrants to the wealth
management arena, have invested huge amounts in their support systems with
little likelihood of a return on their investments within a reasonable
timescale. We believe that our approach of realistic yet cautious investment in
our systems and infrastructure, with a clear return on capital deployed, is the
right strategy to adopt.
The St. James's Place Approach to Investment Management
Second in importance only to the unique quality of the Partnership, a key
differentiator between St. James's Place and other financial services
organisations is the St. James's Place Approach to Investment Management.
Investment management for both pension funds and individuals has come under
scrutiny from a number of quarters, not least by the recent report of the Myners
Review. Attention has been drawn to the tendency of investment institutions to
shadow the stock indices or the funds of other investment institutions in the
management of portfolios (the so-called 'herd instinct') rather than to
undertake genuinely active management.
From the start, our Group decided to adopt a radically different approach, by
not employing any investment managers of our own and contracting out the
investment management of all our funds to external investment management firms.
This process has been further refined over the past three years through
retaining independent investment consultants, Stamford Associates.
Our Investment Committee, of which I am Chairman, with the help of Stamford
Associates, selects what we regard as the best available managers for our funds
and thereafter continuously monitors the management of those funds. Where
deemed appropriate, we remove any of the managers and select other managers to
take over the investment of these funds; since the investor remains invested in
the same fund, the change of manager is seamless from his or her point of view
and there are no charges or tax consequences for the investor.
Our approach offers one other important advantage for our investors. While
providing a wide range of specialised funds to meet differing objectives of our
clients, we recommend that investors spread their money between our five Managed
Funds for either life or pension business. As the managers of these five funds
have been selected not merely on our assessment of their ability and skill but
also to ensure a diversity of investment styles, an investment spread between
the five Managed Funds gives investors very wide diversification of risk. This
policy of encouraging investors to spread their money amongst the five Managed
Funds also enables us to select managers who adopt a genuinely active investment
approach so as to offer scope for significant added value.
While recognising that past performance is no guarantee of future performance,
it is reassuring to be able to record (as indeed I have been able to record in
previous years) that our approach has resulted in superior performance over the
longer term.
An investor who spread his or her money equally between the three life or
pension Managed Funds that have been in existence since we started business 10
years ago has enjoyed top quartile return relative to the average performance of
funds in the market over the period, with the pension funds coming 4th out of
106 funds in the sector (source: Standard & Poor's Micropal).
Although investment performance should be assessed over the longer term, it is
pleasing to note once again that most of our funds have performed well in the
difficult conditions of the year 2001.
In the authoritative CAPS survey of pension funds, three of our five Managed
Funds occupied 1st, 2nd and 10th place out of the 83 funds in the survey for the
year 2001, with our GAM managed fund the only fund in the survey to show a
positive return for the year.
Particular mention should also be made of the pension Managed Fund looked after
by Taube Hodson Stonex Partners which was ranked 2nd by CAPS over 3 years and
1st over 5 years and 10 years.
In addition six out of our eleven unit trusts were ranked by Micropal in the top
quartile of their classes, with four more in the second quartile.
Polarisation
The proposals put forward by the Financial Services Authority in its recent
consultation paper on Polarisation were more radical than had been expected in
most quarters. While a great deal will depend on the results of the
consultation and on the detailed wording of the rules that emerge, the broad
lines of the new regime appear clear: that polarisation (the division of
financial advisers into those tied to a single provider and 'independents' who
are free to sell the products of all providers) will be abolished, leaving it to
improved disclosure requirements to accompany the provision to consumers of a
range of choices. The paper also recommends that advisers should only be able
to describe themselves as 'independent' if they are remunerated by fees rather
than commission.
We have long argued that allowing product providers such as us to make products
of other companies available through their advisers would lead to a better
service for consumers. We have indeed already followed this approach in areas
not covered by the polarisation rules, such as the offering of Group Employee
Benefits through Swiss Life, and this change in the regime will enable us to
provide a significantly better service to our clients. We also believe that
experienced financial advisers who decide to join a company will be all the more
likely to choose to join the Partnership when St. James's Place is able to
provide an even wider range of products and services.
Final Dividend
Subject to the approval of shareholders at the Annual General Meeting, a final
dividend of 1.5p per share will be paid to shareholders on the register on 19th
April 2002 making a total of 2.75p for the full year. This represents a 22%
increase over 2000, when the total dividend was 2.25p per share.
Sir Mark Weinberg 28 February 2002
CONSOLIDATED PROFIT AND LOSS ACCOUNT
LONG-TERM BUSINESS TECHNICAL ACCOUNT
Year Ended Year Ended
31 December 31 December
2001 2000
Notes £' Million £' Million
Earned premiums, net of reinsurance
Gross premiums written 4 1,308.5 1,135.0
Outwards reinsurance premiums (26.7) (22.9)
4 1,281.8 1,112.1
Investment income 59.7 560.2
Other technical income 1.5 8.0
1,343.0 1,680.3
Claims incurred, net of reinsurance
Claims paid
- Gross amount (255.8) (236.6)
- Reinsurers' share 19.7 18.6
(236.1) (218.0)
Change in the provision for claims
- Gross amount (0.8) (5.1)
- Reinsurers' share (0.2) 1.7
(1.0) (3.4)
(237.1) (221.4)
Changes in other technical provisions,
net of reinsurance
Long-term business provision
- Gross amount (34.3) 2.2
- Reinsurers' share 15.1 (1.3)
(19.2) 0.9
Technical provisions for linked liabilities (520.2) (796.7)
Net operating expenses (150.2) (161.3)
Investment expenses and charges (17.2) (12.7)
Unrealised losses on investments (407.2) (452.4)
Tax attributable to the long-term business (2.4) (32.5)
(1,353.5) (1,676.1)
Balance on the long-term business technical account before the
increase in value of long-term business in force
(10.5) 4.2
Increase in value of long-term business in 66.2 37.3
force
Balance on the long-term business
technical account 55.7 41.5
The notes and information following form part of this announcement.
CONSOLIDATED PROFIT AND LOSS ACCOUNT
NON-TECHNICAL ACCOUNT
Restated
Year Ended Year Ended
31 December 31 December
2001 2000
Notes £' Million £' Million
Balance on the long-term business
technical account 55.7 41.5
Tax credit attributable to balance on long term
business technical account 23.8 16.0
Shareholders' profit from long-term business 79.5 57.5
Investment income
Income from participating interests (12.2) 16.4
Income from other investments 6.2 7.3
Investment expenses and charges (0.6) (0.5)
Other income
Income from unit trust operations 10.4 6.7
Other income 3.0 3.3
Other charges (6.1) (8.0)
Operating profit, being profit on ordinary
activities before tax 4 80.2 82.7
Tax on profit on ordinary activities 4 (21.0) (24.9)
Profit on ordinary activities after tax, being
profit for the financial year 4 59.2 57.8
Dividends 5 (11.8) (9.5)
Retained profit for the financial year 47.4 48.3
Pence Pence
Dividend per share 5 2.75 2.25
Earnings per share 6 13.9 13.7
Adjusted earnings per share 6 13.9 16.3
Diluted earning per share 6 13.1 13.1
Diluted adjusted earnings per share 6 13.1 15.7
In arriving at operating profit, unless otherwise stated, all amounts are in
respect of continuing operations in both the current and previous year.
In accordance with the amendment to FRS3 published in June 1999, no note of
historical cost profits has been prepared as the Group's only material gains and
losses on assets relate to the holding and disposal of investments.
The Company has no other recognised gains and losses during the current and
previous year and therefore a separate statement of total recognised gains and
losses has not been presented.
The notes and information following form part of this announcement.
CONSOLIDATED BALANCE SHEET AT 31 DECEMBER
2001 2000
Notes £' Million £' Million
ASSETS
Investments
Land and buildings 1.3 1.2
Investments in participating interests 7 88.4 96.9
Other financial investments
Shares and other variable yield securities 8 13.8 6.6
Debt securities and other fixed income securities 44.8 37.3
Deposits with credit institutions 65.5 108.4
124.1 152.3
213.8 250.4
Value of long-term business in force 11 287.9 221.7
Assets held to cover linked liabilities 4,796.6 4,276.4
Reinsurers' share of technical provisions
Long-term business provision 55.5 16.7
Claims outstanding 3.2 3.4
58.7 20.1
Debtors
Debtors arising out of direct insurance operations
- due from policyholders 5.8 8.4
Other debtors 63.6 55.9
69.4 64.3
Other assets
Tangible assets 8.5 6.4
Cash at bank and in hand 47.4 51.4
55.9 57.8
Prepayments and accrued income
Deferred acquisition costs 55.0 37.3
Other prepayments and accrued income 59.1 41.4
114.1 78.7
Total assets 5,596.4 4,969.4
The notes and information following form part of this announcement.
CONSOLIDATED BALANCE SHEET AT 31 DECEMBER
2001 2000
Notes £' Million £' Million
LIABILITIES
Capital and reserves
Called up share capital 14 64.3 63.8
Share premium account 3.4 0.5
Shares to be issued 0.5 0.6
Other reserves 228.2 162.0
Profit and loss account 213.2 232.0
Equity shareholders' funds 16 509.6 458.9
Technical provisions
Long-term business provision 10 107.5 73.2
Claims outstanding 13.4 12.6
120.9 85.8
Technical provisions for linked liabilities 4,796.6 4,276.4
Provisions for other risks and charges 17 19.8 16.9
Creditors
Creditors arising out of direct insurance operations 3.8 10.8
Amounts owed to credit institutions 14.6 10.8
Amounts due to reinsurers 9 23.7 -
Other creditors including taxation and social security 85.8 83.4
Proposed dividend 5 6.4 5.3
134.3 110.3
Accruals and deferred income 15.2 21.1
Total liabilities 5,596.4 4,969.4
The notes and information following form part of this announcement.
CONSOLIDATED CASH FLOW STATEMENT
(EXCLUDING POLICYHOLDER FUNDS)
Year Ended Year Ended
31 December 31 December
2001 2000
Notes £' Million £' Million
Shareholders' net cash outflow from long-term business (20.0) -
Other operating cashflows attributable to shareholders 5.4 (3.2)
Net cash outflow from operating activities 18 (14.6) (3.2)
Interest
Interest received 5.2 6.9
Interest paid (0.6) (0.5)
4.6 6.4
Taxation
Corporation tax paid (3.5) (17.8)
Capital expenditure
Purchase of tangible fixed assets (5.4) (3.8)
Sale of fixed assets 0.7 0.5
(4.7) (3.3)
Acquisitions and disposals
Disposal of subsidiary undertaking 0.1 -
Cash disposed of with subsidiary (0.1) -
Investment in shares and other variable yield (6.9) -
securities
(6.9) -
Equity dividends paid (10.7) (8.4)
Financing
Repayment of loan (7.0) -
Issue of ordinary share capital 3.3 0.5
(3.7) 0.5
Net cash outflow in the year (39.5) (25.8)
Net cash outflow was applied as follows:
Decrease in cash holdings (15.6) (0.2)
Net portfolio investments
Withdrawals from credit institutions (23.9) (25.6)
Net application of cash flows 19 (39.5) (25.8)
The notes and information following form part of this announcement.
NOTES TO THE ANNOUNCEMENT
1. Basis of preparation
The consolidated financial statements of the Company and its wholly
owned life insurance and non insurance subsidiary undertakings, have been
prepared in accordance with the provisions of section 255A of, and the special
provisions relating to insurance groups of Schedule 9A to, the Companies Act
1985 and with applicable accounting standards.
The financial statements are prepared in accordance with applicable
accounting standards and with the Association of British Insurers' Statement of
Recommended Practice on Accounting for Insurance Business ('ABI SORP') dated
December 1998, other than the recognition of the present value of in-force
long-term assurance business, which has been included as an additional asset in
these financial statements. The Directors consider this provides a more
meaningful, consistent and appropriate presentation for the shareholders and
other users of the financial statements.
The Group adopted the elements of FRS 18 'Accounting Policies' which
apply for the year ending 31 December 2001. The relevant disclosures are shown
in notes 10 and 11.
2. Profit recognition and value of long-term business in force
Profits from the long-term assurance business are determined on a basis
which recognises as profit the statutory result arising in the period,
determined by the subsidiary companies' Appointed Actuaries following their
annual investigations, together with the change in the present value of future
surpluses expected to emerge from the business currently in force. This is
determined annually in consultation with independent actuaries.
The statutory result arising in the period is required to be adjusted
under the Companies Act 1985 (Insurance Companies Accounts) Regulations 1993 for
certain items, including the deferral of acquisition costs and movements in
certain reserves, which are recognised in the long-term business technical
account. The movement in the present value of future surpluses expected to
emerge from the business currently in force is reported separately within the
long-term business technical account as the 'increase in value of long-term
business in force'. The value of long-term business in force included in the
balance sheet is net of taxation and includes both acquired and self-generated
business.
The movement in the present value of long-term business in force is
initially calculated at the post-tax level and is grossed up on the basis that
it will be taxed in the UK at the underlying rate of tax. The post tax movement
in the present value of long-term business in force arising in the period is
transferred to non-distributable reserves and is treated as non-distributable
until such time as it emerges as part of the statutory result arising during
subsequent years.
3. Other accounting policies
The other accounting policies used by the Group in preparing the
results are also consistent with those applied in preparing statutory accounts
for the year ended 31 December 2000.
4. Segmental analysis
Premiums written
Year Ended Year Ended
31 December 31 December
2001 2000
£' Million £' Million
Life Business
Single premiums 812.1 779.0
Regular premiums 99.3 89.2
Reinsurances - Risk (13.0) (11.3)
- Financial (4.5) (4.1)
893.9 852.8
Pension Business
Single premiums 245.0 133.1
Regular premiums 140.2 124.2
Reinsurances - Risk (1.5) (1.7)
383.7 255.6
Permanent health insurance
Regular premiums 11.9 9.5
Reinsurances - Risk (7.7) (5.8)
4.2 3.7
1,281.8 1,112.1
Gross premiums comprise:
Individual business 1,254.1 1,043.1
Group contracts 54.4 91.9
Total gross premiums 1,308.5 1,135.0
Gross new annualised premiums comprise:
Life - single premiums 812.1 779.0
Life - regular premiums 22.9 23.9
Pension - single premiums 245.0 133.1
Pension - regular premiums 36.5 36.4
Permanent health 4.3 1.6
1,120.8 974.0
The insurance business written by the Group relates to only direct insurance
that is principally sold in the UK. However, included in the above figures are
total new business figures of £5.0 million (2000: £2.1 million) arising from the
Group's Italian operation with Nascent, which are fully reassured to Nascent.
The Irish life business written was £348.6 million (2000: £347.8 million)
Excluded from the above figures are total new business figures of £9.0 million
(2000: £Nil) arising from sales of Stakeholder pensions through Clerical Medical
by St. James's Place Partnership.
In addition to the new long-term business, the Group issued new single premium
unit trust business of £313.3 million (2000: £341.6 million). The total new
single premium business including unit trusts was £1,370.4 million (2000:
£1,253.7 million).
Profit on ordinary activities
Year Ended Year Ended
31 December 31 December
2001 2001
£' Million £' Million
St. James's Place Group
Life business (before exceptionals) 79.5 66.4
Unit trust business 10.4 6.7
Other 2.5 6.4
92.4 79.5
Participating interests
LAHC (12.2) 16.4
Profit before exceptional items 80.2 95.9
Exceptionals
- Halifax transaction and re-branding costs - (13.2)
Profit on ordinary activities before taxation 80.2 82.7
Taxation
Life business (23.8) (18.0)
Unit trust business (3.1) (2.0)
Other 2.2 (1.9)
LAHC 3.7 (4.9)
Exceptionals
- Halifax transaction and re-branding costs - 1.9
(21.0) (24.9)
Profit on ordinary activities after taxation 59.2 57.8
The acquisition of 60% of the share capital of SJPC by Halifax Group plc was
completed on 2 June 2000 and resulted in the occurrence of a number of one-off
transaction and re-branding costs. In the prior year comparative figures, in
addition to the £8.9 million charged in the technical account, a further £4.3
million was charged to the non-technical account giving total exceptional costs
of £13.2 million. These exceptional items related wholly to continuing
operations.
The net asset value per share at 31 December 2001, calculated on the number of
shares in issue at that date, was 118.8 pence (2000: 107.9 pence).
5. Dividends
Year Ended Year Ended Year Ended Year Ended
31 December 31 December 31 December 31 December
2001 2000 2001 2000
Pence Pence
per share per share £' Million £' Million
Interim
dividend paid 1.25 1.00 5.4 4.2
Final
dividend proposed 1.50 1.25 6.4 5.3
2.75 2.25 11.8 9.5
The proposed dividend of 1.50p per share is payable on 17 May 2002 to
those shareholders on the register on 19 April 2002.
6. Earnings per share
Year Ended Year Ended
31 December 31 December
2001 2000
Pence per share Pence per share
Profits on ordinary activities after taxation 13.9 13.7
Adjustments
Halifax exceptional costs - 2.6
Adjusted earnings 13.9 16.3
Diluted earnings 13.1 13.1
Diluted adjusted earnings 13.1 15.7
The above table sets out earnings per share, adjusted earnings per share and
their diluted counterparts. Prior year adjusted earnings per share figures have
been presented to eliminate the exceptional items.
The earnings per share has been calculated using the profit on ordinary
activities after tax of £59.2 million (2000: £57.8 million) and a weighted
average number of shares in issue for the year ended 31 December 2001 of 427.2
million (2000: 423.2 million).
The adjusted earnings per share has been calculated using an adjusted profit
after tax of £59.2 million (2000: £69.1 million).
The diluted earnings per share has been calculated using 452.8 million shares
(2000: 441.3 million) which takes account of the dilutive effect of options over
57.0 million shares (2000: 58.3 million).
7. Investments in participating interests
LAHC
The Group holds an investment of 22.6% (2000: 22.6%) in the 1 pence
shares of Life Assurance Holding Corporation Limited ('LAHC'). This
investment is held indirectly by the Company and has been dealt with in
the consolidated accounts as a participating interest and equity accounted
on the basis of management accounts covering the year ended 31 December
2001.
The movement in the interest in LAHC is analysed below:
£' Million
Carrying Value Note
At 1 January 2001 96.9
Underlying profit 18.9
Investment variance a (29.6)
Modification to calculation basis b (60.9)
Aberdeen transaction c 27.4
Commutation of indemnities d 32.0
Share of pre-tax results in year (12.2)
Share of tax in year 3.7
As at 31 December 2001 88.4
Notes:
a) investment variance reflects the difference between the long term
investment assumptions and actual experience.
b) LAHC has adjusted the basis of calculation of the value of in
force business. The principal effect of this has been to eliminate future
DSS rebate business and the profit effect of future DSS rebates will be
reflected in future years as they are received.
c) Non-recurring gains arose on the transfer of LAHC's investment management
operation to Aberdeen Asset Managers Limited.
d) Non-recurring gains arose on the re-negotiation of certain indemnities
held by LAHC as a result of its acquisition of various life businesses
in earlier years.
LAHC is registered in England and Wales and operates principally in the United
Kingdom.
Year Ended Year Ended Year Ended Year Ended
31 December 31 December 31 December 31 December
2001 2001 2000 2000
LAHC SJPC Share LAHC SJPC Share
£'Million £'Million £'Million £'Million
(Loss)/profit before tax (53.8) (12.2) 72.7 16.4
(Loss)/profit after tax (37.6) (8.5) 50.9 11.5
Capital and reserves 390.9 88.4 428.5 96.9
8. Shares and Variable Yield Securities
Nascent Group SA ('Nascent')
Nascent is a holding company incorporated in Luxembourg, owning an
Italian financial services business. As another party controls in excess
of 50% of the voting capital of Nascent, SJPC considers that the level of
influence it may exercise over the management of Nascent to be restricted.
As a result, the Directors consider the holding in Nascent to be an
investment. The holding has been brought into the accounts at a value of
£13.4 million, being the cost of the investment.
The classes of share and the percentage held in Nascent are as
detailed below.
Class of share No %
Ordinary shares of €1.25* 41,497 19.5
12.5% cumulative redeemable
preference shares of €1.25** 173,483 26.7
*SJPC also has voting power over 17,758 ordinary shares in an employee
trust giving it voting control of 27.8% of the ordinary shares.
**Dependent on future conditions, the cumulative preference shares may
be either redeemed or converted into ordinary shares.
9. Critical illness experience
During the last quarter of 2001 the Group entered discussions with its
reassurers over an increase in recent claims experience on its critical illness
plans. As a result of the uncertainty over future experience, the Company
entered into a financial reassurance arrangement where the reassurer agreed to
maintain the current rates provided it could recover experience in excess of
those rates from profits on future new business written by the Group. The effect
of this reassurance is that there is no deterioration in the Group's solvency
position as at 31 December 2001.
Following discussions with its Appointed Actuaries the Group has increased its
statutory long-term provision prior to reassurance by £23.7 million, although
the net provision (after reassurance) remains unchanged as a result of the
financial reassurance. This financial reassurance has been accounted for in
accordance with FRS 5 'Reporting the substance of transactions' and accordingly
a liability of £23.7 million has been established. The cash balance outstanding
under the arrangement at 31 December 2001 was, however, £nil.
After adjusting the statutory long-term business provision for certain elements,
which have been taken to the value of long-term business in force, the impact on
the reported profit for the year is £12.5 million before tax, as disclosed in
note 11.
10. Long-term business technical provision
The long-term business provision is determined by the Appointed
Actuaries following their annual investigations of the long-term business.
Non-linked policies
The long-term provisions are calculated using the gross premium
valuation method. The assumed rate of interest is 3.25% for life business.
Mortality rates are based on recognised mortality tables suitably adjusted to
reflect actual experience. Morbidity rates are derived from the rates charged by
reassurers and industry experience.
Linked policies
The long-term provision consists of sterling reserves designed to cover
any future cash flows without recourse to additional capital. The cash flows
are projected assuming:
- unit growth rates between 4% and 6% per annum depending
on the tax status and territory of the contract;
- a projection of current expenses assuming inflation between 4%
and 4.5% again depending on territory; and
- mortality and morbidity costs are derived from actual rates
charged by reassurers and industry experience.
The resulting cash flows are discounted at a rate of interest between
4.0% and 5.0% (depending on the tax status and territory of the contract)
to calculate the sterling reserve.
During the year SJPC has experienced a deterioration in its morbidity experience
on critical illness plans. The effects on long-term provisions of this are
described in note 9.
11. Value of long-term business in force
The value of the long-term business in force represents the discounted value of
future surpluses. These future surpluses are calculated by projecting future
cashflows based on the assumptions below which are set on a passive basis.
Economic Assumptions
The principal economic assumptions used within the cashflows, for both 2000 and
2001 were as follows:
Risk discount rate (net of tax) 10.0%
Future investment returns:
- Fixed interest 6.0%
- Unit-linked funds:
- Capital growth 5.75%
- Dividend income 2.5%
- Total 8.25%
Expense inflation 5.0%
Indexation of capital gains 3.5%
The risk discount rate is used to discount projected future cash flows from the
business in force to a present value. The rate represents the best estimate of
the long term rate of return on Government bonds together with a margin for
risk.
Future investment returns represent the best estimate of the long term rates of
return that will be achieved. They have been determined having regard to past,
current and expected future experience.
The expense inflation and indexation of capital gains assumptions represent best
estimates of the long term rates, consistent with the assumptions for investment
returns.
All assets have been valued at market value.
For the purposes of projecting future unit growth, unit linked funds have been
valued on a smoothed basis.
Experience Assumptions
The principal experience assumptions were derived as follows. All experience
assumptions are reviewed annually.
The value of new business has been calculated using actual acquisition costs.
Lapse experience is derived where possible from the company's own experience, or
otherwise from external industry experience. Lapse rates for pension policies
have been adjusted to take into account a one-off increase in off rates
following the introduction of Stakeholder pensions.
In projecting future surpluses allowance has been made for the target surplus
being the cost of maintaining a statutory solvency margin on the business in
force.
Maintenance expenses have been set to be in line with the costs charged by the
Company's third party administrators, together with an allowance for the
Company's own maintenance costs.
Mortality and morbidity assumptions have been set by reference to the Company's
own experience, published industry data and the rates charged by the Company's
reassurers. As described in note 9 the Group has experienced a recent
deterioration in morbidity experience and a provision has been made within the
cashflows to allow for this. The net effect has been to reduce the profits
before tax by £12.5 million.
The treatment of commission accruing to certain sales representatives has
changed during the year, these cash flows now being retained within the
insurance company. The impact of this change has increased the pre-tax value of
long-term business in force of the life company by £7.3 million.
These assumptions have been determined in accordance with industry accepted
actuarial techniques.
12. Regulatory matters
In common with many other UK life companies, the Group has liabilities in
respect of pension transfer and opt-out business, and also freestanding
additional voluntary contribution business.
The accounts include both a long-term business provision for policyholder
compensation and review costs and also an allowance for recoveries from
professional indemnity insurers. The net effect of these is to include a
liability of £5.7 million at 31 December 2001 (2000: £6.9 million) for
policyholder compensation. In addition, a provision of £1 million has been
included for other regulatory review expenses.
Taking into account payments during the year, this represents an increase in
pre-tax liabilities of £3.2 million.
13. Financial reassurance
In addition to the disclosure in note 9, the Group had arrangements in
place at the beginning of the year whereby a proportion of future margins under
certain classes of contract were to be paid to the reassurers up to a maximum of
the current deficit account. Claims recovered and premiums paid are included in
the technical account and have been deducted from claims and premiums
respectively. The arrangement was terminated during the year and all balances
repaid. The cash balance outstanding at 31 December 2001 was £nil (2000: £6.1
million).
14. Share capital
Authorised Number Nominal value
£' Million
Ordinary shares at 15p each
At 1 January 2001 and 31 December 2001 605,000,000 90.8
In addition, the authorised share capital includes one Special Rights Redeemable
Preference Share of £1 to the J. Rothschild Name Company Limited, an entity
formed to protect the use of the name 'J. Rothschild'.
Issued, Allotted and Fully Paid
Ordinary shares at 15p each Number Nominal value
£' Million
At 1 January 2001 425,407,362 63.8
Exercise of options 3,588,746 0.5
At 31 December 2001 428,996,108 64.3
In addition the company has issued one Special Rights Redeemable
Preference Share of £1. This share may be redeemed at par by the Shareholder at
any time by giving notice to the company. The holder of the Special Rights
Redeemable Preference Share is entitled to repayment of the capital paid up on
the Special Share in priority to any repayment of capital to any other member,
but does not have the right to participate in the profits of the Company. The
holder of the Special Share is entitled to receive notice of, and to attend and
speak at general meetings, but is not entitled to vote at general meetings
except on resolutions changing the names of any subsidiary so as to exclude the
words J. Rothschild.
15. Share options
On the acquisition of the remaining share capital of St. James's Place
Holdings plc (formerly J. Rothschild Assurance Holdings plc ('JRAH')) in 1997,
SJPC agreed to issue further shares, up to a maximum of 25.8 million, to satisfy
the exercise of options held over JRAH shares at the time of acquisition. A
reserve for shares to be issued was established in recognition of the commitment
and 2.3 million shares have still to be issued from this reserve.
During the year options over 8.7 million shares have been granted at a
range of prices between £3.001/2 and £4.29.
On 2 June 2000, Halifax Group plc acquired 60% of the SJPC share
capital. Under the terms of the existing share option schemes at that date, on
completion of the acquisition, those SJPC share options became exercisable. SJPC
share option holders were given the opportunity to cancel their existing share
options in consideration for a grant of replacement options (over SJPC shares)
on similar terms to the existing SJPC share options. These replacement options
were issued over the same number of SJPC shares as the previous SJPC share
options (existing prior to 2 June 2000) and at the same option price.
Options outstanding under the various share option schemes at 31
December 2001 amount to 57.0 million shares. Of these, 46.4 million are under
option to Partners of the St. James's Place Partnership, 9.1 million are under
option to executives and senior management and 1.5 million are under option
through the SAYE scheme. These are exercisable on a range of future dates. The
following table sets out the anticipated proceeds if all option holders
exercised their shares at the first available opportunity.
Earliest date Number of share Anticipated
of exercise options outstanding proceeds
Million £'Million
Immediate 13.5 31.3
Jan - Jun 2002 7.7 12.3
Jul - Dec 2002 2.8 4.0
Jan - Jun 2003 7.6 12.0
Jul - Dec 2003 4.5 10.4
Jan - Jun 2004 2.0 5.8
Jul - Dec 2004 5.8 14.8
Jan - Jun 2005 1.9 7.4
Jul - Dec 2005 6.4 17.5
Jan - Jun 2006 0.2 0.7
Jul - Dec 2006 4.4 11.5
Jan - Jun 2007 0.1 0.1
Jul - Dec 2007 0.1 0.5
57.0 128.3
16. Reconciliation of movements in equity shareholders' funds
Year Ended Year Ended
31 December 31 December
2001 2000
£'Million £'Million
Profit for the financial year 59.2 57.8
Dividends (11.8) (9.5)
Retained profit for the year 47.4 48.3
Issue of share capital 3.3 0.5
Net addition to shareholders' funds 50.7 48.8
Opening shareholders' funds 458.9 410.1
Closing shareholders' funds 509.6 458.9
17. Provisions for other risks and charges
Deferred Tax Other
Provisions
Total
£'Million £'Million £'Million
At 1 January 2001 10.9 6.00 16.9
Charge/(credit) to the profit and 4.3 (0.9) 3.4
loss account
Cash paid - (0.5) (0.5)
At 31 December 2001 15.2 4.6 19.8
The other provisions are principally to meet obligations arising as a result of
the Halifax acquisition of 60% of the share capital of SJPC plc in June 2000.
As a result of this transaction, a number of share options lost their approved
tax status and SJPC has agreed to compensate share option holders to ensure the
effect on individuals is neutral.
The value of this provision is dependent, amongst other things, on the current
SJPC share price and accordingly the provision has been adjusted at 31 December
2001 to reflect the movement of the share price during the year.
A further consequence of the Halifax transaction was the adoption of the St.
James's Place brand throughout the group.
The year end deferred tax provision is analysed as follows:
31 December 31 December
2001 2000
£'Million £'Million
Deferred acquisition costs 15.2 10.9
The Group has made provisions in respect of all material deferred
tax liabilities. Provision has been made for all unrealised gains on
investments included within the long-term business provision.
18. Reconciliation of operating profit to net cash inflow from operating
activities
Year Ended Year Ended
31 December 31 December
2001 2000
£'Million £' Million
Operating profit before tax 80.2 82.7
Interest paid 0.6 0.5
Interest received (5.2) (6.9)
Profits relating to long-term business (79.5) (57.5)
Transfer to long-term business fund (20.0) -
Profit on sale of fixed assets (0.1) (0.1)
Depreciation 2.9 2.9
Profit on disposal of subsidiary undertaking (0.2) -
Share of loss/(profit) of associated undertakings 12.2 (16.4)
Increase in debtors and prepayments (5.7) (11.9)
(Decrease)/increase in creditors (5.9) 20.6
Decrease/(increase) in debtor to long-term business
fund 6.1 (17.1)
Net cash outflow from operating activities (14.6) (3.2)
19. Movement in opening and closing portfolio investments, net of financing
Year Ended Year Ended
31 December 31 December
2001 2000
£' Million £' Million
Decrease in cash holdings (15.6) (0.2)
Repayment of loan 7.0 -
Portfolio investments: deposits with credit (23.9) (25.6)
institutions
Total movement in portfolio investments, net
of financing (32.5) (25.8)
Portfolio investments, net of financing at
1 January 60.2 86.0
Portfolio investments, net of financing at
31 December 27.7 60.2
20. Related party transactions with HBOS plc
SJPC has arms length arrangements with the HBOS Group as follows:
• Commission from the sale of banking services for St. James's Place Bank
(a division of Halifax plc). The amounts receivable during the year were £1.0
million.
• Commission from the sale of Stakeholder pensions for Clerical Medical.
The amounts receivable during the year were £0.7 million.
• Commission for the sale of Halifax mortgages. The amounts receivable
during the year were £1.2 million.
• HBOS plc provided a guarantee to the Company's reassurers in respect of
the Company's obligations in relation to the arrangements described in note 9.
The guarantee, which is on normal commercial terms, continues for a maximum of
ten years with an annual amount payable by the Company of £0.5 million.
• During the year, deposits were placed with Bank of Scotland on normal
commercial terms. At 31 December 2001 these deposits amounted to £0.5 million.
21. Non-statutory accounts
The financial information set out above does not constitute the Company's
statutory accounts for the years ended 31 December 2000 or 2001. Statutory
accounts for 2000 have been delivered to the registrar of companies, and those
for 2001 will be delivered following the Company's Annual General Meeting. The
auditors have reported on those accounts; their reports were unqualified and did
not contain statements under section 237 (2) or (3) of the Companies Act 1985.
22. Annual report
The Company's annual report and accounts for the year ended 31 December 2001 is
expected to be posted to the shareholders by 15 April 2002. Copies of both this
announcement and the annual report and accounts will be available to the public
at the Company's registered office at St. James's Place House, Dollar Street,
Cirencester GL7 2AQ and through the Company's website at www.sjpc.co.uk.
Supplementary information on Group life and unit trust 'embedded values'
The following information is provided for the combined 'embedded value' of the
Group's life and unit trust business.
Year Ended Year Ended
31 December 2001 31 December 2000
Post tax profits £'Million £'Million £'Million £'Million
Life 28.5 23.6
Unit trust 7.1 35.6 5.0 28.6
Other
Life (1.9) (1.8)
Unit trust (1.2) (3.1) 11.1 9.3
Basic operating profit after taxation
Life 55.7 48.4
Unit trust 18.2 73.9 29.2 77.6
Exceptionals
Life - (6.9)
Unit trust - - (6.9)
Profit after taxation
Life 55.7 41.5
Unit trust 18.2 29.2
73.9 70.7
Notes
1. The figures show the earnings for the Group's life business calculated on
the basis described in note 11. The Group's unit trust 'embedded value' has been
calculated on a similar basis.
2. The 'embedded value' profits before taxation for unit trust business were
£26.0 million (2000: £41.7 million) which include earnings of £10.4 million
(2000: £6.7 million) as shown in note 4 of the accounts.
3. Inclusion of the unit trust value of in force business would increase
group net assets by £79.8 million (2000: £68.9 million). This would increase the
net assets per share from 118.8 pence to 137.4 pence.
4. Unit trust funds under management amounted to £1.5 billion at 31 December
2001 (2000: £1.4 billion).
5. The exceptional items mainly relate to costs associated with the
acquisition of SJPC shares by the Halifax Group plc in June 2000.
6. Value of 2001 new business (post-tax) - sensitivity:
Decrease discount rate Increase unit growth by
by 1% to 9% 1% to 9.25%
£'Million £'Million
Value of new life business 32.9 32.3
Value of new unit trust business 13.3 13.4
Total 46.2 45.7
This information is provided by RNS
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