Final Results Amendment
St. James's Place Capital PLC
25 February 2003
PRESS RELEASE
25 February 2003
St. James's Place Capital plc
Final Results Amendment
The following replaces the Final Results announcement released at 07.00 on
Monday 24 February 2003 under RNS Number 8346H.
The table headed 'Sensitivities' in Section C of the Notes to the Unaudited
Information was incorrect and has been replaced. This has no effect on any
other information.
All other details remain unchanged and the full amended text appears below:
Enquiries:
Martin Moule, Finance Director Tel: 01285 878015
Nitya Bolam, Brunswick Tel: 020 7404 5959
Announcement of annual results for the year ended 31st December 2002
St. James's Place Capital plc (SJPC), the wealth management group, announces its
annual results for the year ended 31st December 2002.
Highlights of the core business, the St. James's Place Group ('the Group'),
include:
• Achieved Profit pre-tax profits £42.4 million (2001: £107.5 million)
• Long term savings:
- new business of £154.7 million, down 22%
- new Sums Assured of £4.6 billion, up 7%
- assets under management £5.9 billion, down 6%
• Wealth management services - continued success:
- gross fees generated of £11.7 million from wealth management services,
up 134%
- total mortgages arranged £2.2 billion
- new bank credit balances £194 million
Maintained final dividend of 1.5p per share giving a total dividend of 2.75p
(2001: 2.75p)
Sir Mark Weinberg, Chairman, said:
'While profits have been hit by the difficult market conditions and one-off
losses on non-core investments, we believe that our core business model is as
sound as ever. With a team of experienced advisors providing a wide and
increasing range of services to relatively affluent clients, we are in a strong
position to benefit from both the changes in regulation due next year and any
recovery in markets.'
SUPPORTING STATEMENT
2002 was a difficult year for companies in the financial services industry and
SJPC was no exception. However, we believe that our business model -
essentially, having our own experienced advisers providing a wide range of
services to relatively affluent clients - is as sound as ever and will benefit
significantly from the regulatory changes known as depolarisation, which are due
to come into force at the end of this year.
Financials
Shareholders will recall the statement we made at the half-year on our change in
financial reporting. Full details of this and of the financial results are given
in the Financial Commentary, which follows this statement and the notes to the
accounts. The Directors remain of the view that the most meaningful measure of
the Company's progress is given by the information on Achieved Profits,
including unit trusts, which is included in this announcement.
The financial results reflect the difficult trading conditions experienced in
2002 - both the fall in new business referred to later and the state of the
stock markets. These conditions together with the one-off losses from our
investments in LAHC and Nascent have led to a small loss for the year on an
achieved profits basis.
In the context of current concerns about the financial health of some UK life
assurance companies, we would like to emphasise that:
SJPC's two wholly owned life assurance companies specialise in unit linked
business and have, as a matter of policy, avoided onerous financial
guarantees (such as with profits business and guaranteed annuity options)
that have led to these concerns; and
It has always been the Group's policy for the life companies' solvency
reserves and free assets to be invested exclusively in deposits and fixed
interest securities.
St. James's Place Partnership and New Business
Against the background of the sharp falls in the stock market, new business for
the year was down 22% compared to 2001, after allowing for a one-off boost in
last year's new business following a change in the tax treatment of pensions
contributions.
Sales of the Group's Wealth Management services continued to progress well with
sales growing every quarter of the year. Total wealth management fees for the
year were £11.7 million (£5.0 million in 2001).
The size of the St. James's Place Partnership decreased by 2% from 1121 to 1101
during the year, reflecting two factors: (1) we recruited fewer advisers than
in 2001, as we stuck to our policy of taking on only high-quality advisers at a
time when many potential joiners, particularly IFAs, delayed making decisions
pending the review of polarisation and (2) we continued our policy of retaining
only those Partners who are likely to be profitable in the medium term and the
difficult market conditions led to an increase in the number of leavers.
However, including those retiring, the Partners who left in 2002 accounted for
only 4% of the Group's new business in 2001.
The favourable impact of de-polarisation on the Partnership is discussed later
in this statement.
Investment Management
In a previous Chairman's Statement, I described the unique features of the St.
James's Place approach to investment management. In view of the pivotal place
it will have in the Group's ability to take full advantage of the opportunities
created by the forthcoming regulatory changes, it is worth re-stating its
features here.
While the Myners Review drew attention a year or so ago to the tendency of
investment institutions to shadow the share indices or the funds of other
investment institutions (the so-called 'herd instinct') rather than to undertake
genuinely active management, the Group decided to adopt a radically different
approach. From the start, we did not employ any investment managers of our own
and contracted out the investment management of all our funds to external
investment management firms. This process has been further refined over the
past four years through retaining independent investment consultants, Stamford
Associates.
The Investment Committee, with the help of Stamford Associates, selects what we
regard as the best available managers for our funds and thereafter continually
monitors the management of those funds. Where we feel it is necessary, we
change any of the managers and select other managers to take over the running of
these funds; since the investor remains invested in the same fund, the change of
manager is seamless from the investor's point of view, with no charges or tax
consequences.
Our approach offers another important advantage for investors. While providing
a wide range of specialised funds to meet differing objectives, we recommend
that investors spread their money between our five Managed Funds for life,
pension or offshore business. The managers of these funds have been selected
not merely on our assessment of their ability and skill but also to ensure a
diversity of investment styles so that 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 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.
Although managers are selected in the hope that they will remain in place for a
long time, our Investment Committee does not hesitate to make a change when, on
the advice of Stamford Associates, it loses confidence in one manager and feels
that another is likely to do a better job for our investors. We have recently
brought in Liontrust as the lead manager for one of our core sets of Managed
Funds and have appointed Wellington Management to take over responsibility for
our Fixed Interest funds. Bank of Ireland Asset Management have been brought in
to handle our European funds.
As a result of the strong emphasis we place on the quality of our investment
process, we have avoided the 'flavour-of-the-year' products that have caused
problems for other groups over the past few years, such as technology funds,
split-capital trusts, derivative-based High Income funds and, more recently,
High Yield Corporate Bond funds which depend on non-investment grade holdings.
We believe that, in the current climate, there will inevitably be greater
interest in income-based products, where we offer a Corporate Bond fund
consisting of high-quality holdings, as well as income-oriented equity funds
that have proved significantly more resilient over the past few years. We are
also working on other products that provide diversification of risk.
We have recently announced that medium-sized pension funds can now invest in a
range of multi-manager funds through members of the Partnership. Each of these
funds is managed by a number of active managers selected and monitored on the
advice of Stamford Associates.
Although our funds have inevitably shared the pain inflicted by falling stock
markets, most of our funds have continued to produce performance superior to
that of our competitors. Investors who spread their money equally between our
core Life or Pension Managed Funds when we started business 11 years ago has
enjoyed top quartile returns relative to the average performance of competitor
funds over the period; an equal investment in our Pension Funds would have come
5th out of 113 funds in the sector (Source: Standard & Poor's Micropal).
Although investment performance should be assessed over the longer term, it is
pleasing to note that, once again, most of our funds performed well relative to
the competition in the difficult conditions of 2002. In the authoritative CAPS
Survey of Pension Funds, three of our five Managed Funds occupied 6th, 7th and
8th place out of the 85 Funds in this Survey for the year 2002. Particular
mention should be made of the Pension Managed Fund looked after for us by Taube
Hodson Stonex Partners, which was ranked in 1st place over both 5 years and 10
years, as well as 6th over 3 years.
In addition, five out of our eleven Unit Trusts were ranked by Micropal in the
top quartile of their classes, with 2 more in the second quartile.
Partners and Staff
In reviewing the year, it is a great pleasure, on behalf of the Directors, to
thank the members of the Partnership and the staff of the Group for their
efforts during the year. In a challenging business environment, I am sure
shareholders would like to join me in expressing my thanks to both Partners and
staff for their continued enthusiasm and dedication. On behalf of the Board, I
would also like to thank John Newman and Jim Spowart, who will be leaving the
board at the next Annual General Meeting, for all their efforts for the company
over the years. I would also like to welcome Grenville Turner and Ian Gascoigne
who joined the Board at the start of the year.
The Future
While the difficult market conditions have depressed sales and profits, what
matters for the future of the company is the soundness of our business model.
At the heart of this is the policy of marketing a wide range of products and
services through our own team of high-quality advisers, the St. James's Place
Partnership. We believe that this approach will benefit significantly from the
regulatory changes known as depolarisation due at the end of this year.
In view of the impact these changes will have on the market, it is worth
analysing in detail both the regulatory changes and our responses to them.
Polarisation, dating back to regulations introduced in 1988, divides those who
give advice on regulated financial products into (1) those who are wholly
independent, at least in theory and (2) those who advise on the products of a
single group.
From its inception in 1992, the St. James's Place Group decided to distribute
its products and services only through its own advisers, as this enabled us to
ensure the quality of people presenting our products to the public.
We engage only experienced advisers with a proven track record; the members of
the Partnership have an average of 14 years' experience in financial services.
This has enabled the Group to build up a reputation for providing a high
standard of service, with the added advantage to the company of high
productivity and, therefore, cost-efficiency relative to the industry.
We were able to mitigate the restrictions of polarisation by the Group's
ground-breaking approach to investment management referred to earlier in this
Statement. Instead of limiting our clients to a single team of in-house
investment managers, they are able to benefit from our approach of seeking '
best-of-breed' external managers as well as from diversification.
The polarisation regulations do not apply to the new types of services we have
introduced over the past two years in the course of expanding into Wealth
Management and in each case we have contracted out these services to third-party
providers with expertise and experience in the respective fields. Without
moving beyond the focus of our own experience, we have been able to bring in
facilities such as the St. James's Place telephone-and-internet Bank (based on
the Halifax/Intelligent Finance platform); a bespoke General Insurance service
through an alliance with a Lloyds' Broker; and our Mortgage Panel where clients'
mortgages are placed with the best available provider.
Taking advantage of the exemption of term life and critical illness plans from
the polarisation rules, we recently announced the creation of a Protection Panel
under which the Partners are able to offer term protection plans from five other
leading life offices (Prudential, Norwich Union, Scottish Equitable, Scottish
Provident and BUPA), as well as an Annuity Panel which acts as a broker to find
the best available annuity for clients introduced by Partners.
The proposed regulations recently announced by the Financial Services Authority
will put an end to polarisation, probably with effect from the end of this year.
We expect to derive two broad sets of advantages from this deregulation:
(a) Since experienced advisers wish to provide a comprehensive service to their
clients, polarisation made it necessary for us to manufacture a very broad
range of regulated products. We will now be able to withdraw from
manufacturing classes of product where we do not wish to compete by
'contracting in' products from other manufacturers. This will enable our
Partners to provide a complete range of 'best of breed' products in those
fields, while continuing to offer a diversified and specialised range of
investment products through our approach to investment management described
earlier.
We are also working on introducing, through joint venture relationships,
accounting, legal services and tax services as well as onshore and offshore
trustee services. We believe that these will enable us to make further
inroads into the High Net Worth market, including facilities for
non-residents with UK links.
Although the Group will benefit from buying in products at a wholesale
price, the margins on these products are likely to be lower than on our own
manufactured products. However we believe that this will be compensated by
attracting a larger volume of business from each client and increasing the
productivity of the Partners.
Over the years an increasing number of our Partners have specialised in one
class of business or service so that, within each of our Offices throughout
the country, there are a number of Partners with a specialised knowledge of
each class of business such as investment, inheritance tax planning or
pensions. As in the case of a professional practice, the Partners in an
Office work together to make the benefit of their respective
specialisations available to each other's clients. As we broaden our range
of services and move up the income scale, we are taking active steps to
increase the range and depth of this specialisation through training and
support.
(b) With the abolition of polarisation in prospect, many IFAs are
re-considering their career options and a significant number are likely to
go for some form of multi-tie. Unlike the old-established life assurance
groups, St. James's Place has nothing to lose from this process, as it has
never distributed business through IFAs.
On the contrary, we can expect to be one of the chief beneficiaries of
decisions by experienced IFAs to change their status: not only is the St.
James's Place Partnership recognised as the highest-quality team of
advisers to join, but the new open architecture we will be adopting by
contracting-in other companies' products, and the long-established open
architecture of our investment approach will make St. James's Place a
particularly attractive home for these IFAs.
We also offer a 'practice buy-out' facility on retirement, which addresses
the long-established problem that IFAs find it difficult to capitalise
their practices on retirement.
It is interesting to note that, at the same time that St. James's Place
will be offering best-of-breed product choices through the Partnership, the
older companies will be seeking to secure tied distribution to replace the
loss of IFA business.
With the advent of depolarisation and the growth in the number of services we
contract in from external providers, the ability to pull together information
from different sources has become an important element of administration and
client service. We are therefore working on the development of technology,
which will pull together information from our various providers, both internally
within SJPC and externally from outside providers. Initially the system will
provide a common front end for processing applications, with the intention in
due course to bring together all of a client's holdings throughout the SJPC
group in the form of a consolidated wealth statement. Given the strong
relationship between the Partners and their clients, there is the potential for
Partners to obtain a substantial increase in funds under management from their
existing client bases.
The members of the Partnership believe that being with St. James's Place is the
best option for them and, very importantly, that it puts them in a position to
offer the best service to their clients. As a result, despite the difficult
market conditions, the morale of the Partners is high.
We have, in our Partners, what we regard as the best distribution team in the
country as well as a wide and increasing range of products and services.
This places us, we believe, in a strong position to benefit from both the
changes in regulation that will come into force over the next year and any
recovery in markets.
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 11
April, making a total of 2.75p for the full year. The proposed dividend payment
date is 16 May.
Sir Mark Weinberg
24th February 2003
Financial Commentary
As mentioned in the Supporting Statement, the results reflect the difficult
conditions experienced for stock markets and new business, together with the
one-off losses from LAHC and Nascent, which are commented on further below.
In our half-year statement, we pointed out that life assurance differs from most
other businesses, in that heavy expenses are incurred at the sale of a product,
with the cash flow benefits flowing from it emerging over a long period in the
future. This complicates the reporting of life companies' financial results and
to overcome this life assurance accounts are usually presented in one of two
ways:
i). the statutory basis (often called the Modified Statutory Solvency
Basis (or MSSB)), which primarily highlights the solvency of the life company
from the regulators' point of view and takes little account of the likely
benefits from future cash flows.
ii). The Achieved Profits (or embedded value) basis which brings into
account the value of those future cash flows.
In the past we - like many quoted groups owning life assurance companies -
presented our accounts on an embedded value basis, with the statutory figures
shown with the body of the accounts. It has now become established practice to
present the accounts themselves on the statutory basis and to show the impact of
future profits from in-force business in Supplementary Information on Achieved
Profits (which is the version of embedded value recommended by the Association
of British Insurers and produces very similar results to the embedded value
basis previously used by us). Full details of the changes are given in the
various notes to the accounts. In addition we also show the unit trust business
on an achieved profit basis.
Life and Pensions business
MSSB: As a relatively young life assurance group, the MSSB results for SJP's
life and pensions business are still showing small losses (as mentioned above
MSSB accounting takes little account of the benefits of future cash flows). The
2001 MSSB pre-tax profit reflects the impact of critical illness provisions,
(detailed in note 11) which explains why the loss has reduced to £0.1 million.
Critical illness claims experience during the year has been broadly in line with
that anticipated when the products were priced. We continue to monitor the
experience closely.
Achieved Profits: Profits on our life and pensions business fell from £78.7
million pre tax in 2001 to £32.4 million on a pre-tax achieved profits basis.
This reflects in part the fall in new business referred to above, but the major
element is a £32 million 'negative investment variance' caused by the poor stock
market performance over the year.
Unit Trust Business
MSSB: Profits from unit trust business were flat in 2002 (£10.3m pre tax profit
against £10.4m in 2001). This reflects the fact that the benefit of new inflows
of funds were offset by both the fall in new business and the reduction in
annual management charges caused by the fall in asset values over the year. In
addition £1.2m of VAT recoveries on investment management fees were received
during the year.
Achieved profits: Unit trust achieved profits have fallen from £26.3 million
pre tax to £14.5 million showing a similar picture to the life and pensions
business. Again this reflects a negative investment variance of £12.0m,
although it was partially offset by a £4.0m benefit from the removal of VAT on
investment management fees.
Other
'Other' shows earnings from the core business other than the group's life and
unit trust companies. This year shows a loss of £4.5 million pre tax against a
profit of £2.5 million pre tax in previous years. The difference is principally
accounted for by lower cash balances, and hence lower interest earnings,
together with the write-down of shares held by the Group's executive share trust
and some one-off property provisions.
Associated Undertakings and Other Investments
LAHC
We announced in our half year statement that our holding in LAHC would be
included in our achieved profit results on an MSSB basis as this is a non-core
investment. The 22.7% holding in LAHC represents only a small part of our
operations: the carrying value of £29.2 million (see note 9 for further
commentary) represents a net asset value of only some 7p per SJPC share. As
announced two weeks ago, earnings from the investment this year have been
severely affected by the fall in value of the LAHC's holding in Aberdeen Asset
Management shares over the year, an increase in provisions for pension
misselling (largely caused by stock market falls) and a reassessment of prior
year tax provisions. As a result LAHC's earnings contribution for the year was
a loss of £27.7 million (2001 loss of £9.3 million).
Nascent
Reference was made in the half-year statement to difficulties in the Italian
market, as a result of which the directors had decided to write down the value
of SJPC's 26% interest in the Nascent joint venture in Italy to nil, resulting
in a one-off write down of £18 million. Towards the end of the year, a decision
was taken by the shareholders to wind up the company, and, after allowing for
the cost of the wind-up, this has resulted in a further cost to SJPC of £1.4
million.
ANNUAL RESULTS ON A
MODIFIED STATUTORY SOLVENCY BASIS
CONSOLIDATED PROFIT AND LOSS ACCOUNT
LONG-TERM BUSINESS TECHNICAL ACCOUNT
Restated
Year Ended Year Ended
31 December 31 December
2002 2001
Notes £' Million £' Million
Earned premiums, net of reinsurance
Gross premiums written 5 1,038.8 1,308.5
Outwards reinsurance premiums 5 (26.8) (26.7)
1,012.0 1,281.8
Investment income 31.4 59.7
Other technical income - 1.5
1,043.4 1,343.0
Claims incurred, net of reinsurance
Claims paid
- Gross amount (285.7) (255.8)
- Reinsurers' share 20.9 19.7
(264.8) (236.1)
Change in the provision for claims
- Gross amount (2.4) (0.8)
- Reinsurers' share 4.0 (0.2)
1.6 (1.0)
(263.2) (237.1)
Changes in other technical provisions, net of
reinsurance
Long-term business provision
- Gross amount 6.2 (34.3)
- Reinsurers' share 9.7 15.1
15.9 (19.2)
Technical provisions for linked liabilities 165.0 (520.2)
Net operating expenses (163.7) (150.2)
Investment expenses and charges (15.5) (17.2)
Unrealised losses on investments (780.4) (407.2)
Other technical charges (6.8) (1.6)
Tax attributable to the long-term business 6.4 (2.4)
(1,042.3) (1,355.1)
Balance on the long-term business technical
account 1.1 (12.1)
CONSOLIDATED PROFIT AND LOSS ACCOUNT
NON-TECHNICAL ACCOUNT
Restated
Year Ended Year Ended
31 December 31 December
2002 2001
Notes £' Million £' Million
Balance on the long-term business technical account 1.1 (12.1)
Tax credit attributable to balance on long-term
business technical account (1.0) (8.3)
Shareholders' profit / (loss) from long-term
business 0.1 (20.4)
Investment income
Income from associated undertaking 9 (27.7) (9.3)
Income from other investments (includes exceptional
charge of £19.4 m) 6 (15.8) 6.2
Investment expenses and charges (0.3) (0.6)
Other income
Income from unit trust operations 10.3 10.4
Other income 4.3 3.0
Other charges (12.1) (6.1)
Operating loss, being loss on ordinary activities
before tax (41.2) (16.8)
Tax on profit on ordinary activities 5 (3.2) 10.2
Loss on ordinary activities after tax, being loss
for the financial year (44.4) (6.6)
Dividends 7 (11.8) (11.8)
Retained loss for the financial year (56.2) (18.4)
Pence Pence
Dividend per share 7 2.75 2.75
Earnings per share 8 (10.4) (1.5)
Adjusted earnings per share 8 (5.9) (1.5)
As detailed in note 8, the diluted earnings per share and diluted adjusted
earnings per share are equivalent to their undiluted counterparts and have
therefore not been shown.
In arriving at operating loss, 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.
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
Restated
Year Ended Year Ended
31 December 31 December
2002 2001
£' Million £' Million
Loss for the financial period (44.4) (6.6)
Share of associated undertaking's total recognised
gains and losses - 19.5
Total recognised gains and losses relating to the
period (44.4) 12.9
Prior year adjustment (262.8)
Total recognised gains and losses since the date of
the last annual report (307.2)
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
Restated
Year Ended Year Ended
31 December 31 December
2002 2001
£' Million £' Million
Opening shareholders' funds previously reported 509.6 458.9
Prior year adjustment* (262.8) (216.4)
Opening shareholders' funds restated 246.8 242.5
Loss for the financial period (44.4) (6.6)
Dividends (11.8) (11.8)
Retained loss for the period (56.2) (18.4)
Issue of share capital 1.4 3.2
Share of associated undertaking's total recognised
gains and losses - 19.5
Net (decrease) / increase to shareholders' funds (54.8) 4.3
Closing shareholders' funds 192.0 246.8
*Adjusted for the elimination of internally generated value of in-force business
CONSOLIDATED BALANCE SHEET AT 31 DECEMBER
Restated
2002 2001
Notes £' Million £' Million
Assets
Investments
Land and buildings 1.3 1.3
Investments in associated undertakings 9 29.2 56.9
Other financial investments
Shares and other variable yield securities 3.4 13.8
Debt securities and other fixed income 46.0 44.8
securities
Deposits with credit institutions 64.0 65.5
113.4 124.1
143.9 182.3
Acquired value of long-term business in force 10 54.0 56.6
Assets held to cover linked liabilities 4,631.6 4,796.6
Reinsurers' share of technical provisions
Long-term business provision 59.8 55.5
Claims outstanding 7.2 3.2
67.0 58.7
Debtors
Debtors arising out of direct insurance operations
- due from policyholders 3.5 5.8
Other debtors 70.2 63.6
73.7 69.4
Other assets
Tangible assets 7.2 8.5
Cash at bank and in hand 32.7 47.4
39.9 55.9
Prepayments and accrued income
Deferred acquisition costs 57.9 55.0
Other prepayments and accrued income 5.3 59.1
63.2 114.1
Total assets 5,073.3 5,333.6
CONSOLIDATED BALANCE SHEET AT 31 DECEMBER
Restated
2002 2001
Notes £' Million £' Million
Liabilities
Capital and reserves
Called up share capital 12 64.6 64.3
Share premium account 13 4.6 3.4
Shares to be issued 13 0.4 0.5
Other reserves 13 2.2 2.2
Profit and loss account 13 120.2 176.4
Equity shareholders' funds 192.0 246.8
Technical provisions
Long-term business provision 11 101.3 107.5
Claims outstanding 15.8 13.4
117.1 120.9
Technical provisions for linked liabilities 4,631.6 4,796.6
Provisions for other risks and charges 14 16.2 19.8
Creditors
Creditors arising out of direct insurance operations 9.8 3.8
Amounts owed to credit institutions 15 45.0 14.6
Amounts due to reinsurers 11 18.3 23.7
Other creditors including taxation and social security 16.4 85.8
Proposed dividends 7 6.4 6.4
95.9 134.3
Accruals and deferred income 20.5 15.2
Total liabilities 5,073.3 5,333.6
CONSOLIDATED CASHFLOW STATEMENT
(EXCLUDING POLICYHOLDER FUNDS)
Year Ended Year Ended
31 December 31 December
2002 2001
Notes £' Million £' Million
Shareholders' net cash outflow from long-term business (20.0) (20.0)
Other operating cashflows attributable to shareholders (0.2) 5.4
Net cash outflow from operating activities 16 (20.2) (14.6)
Interest
Interest received 3.5 5.2
Interest paid (0.3) (0.6)
3.2 4.6
Taxation
Corporation tax recovered / (paid) 0.1 (3.6)
Capital expenditure
Purchase of tangible fixed assets (3.0) (5.4)
Sale of fixed assets 0.9 0.7
(2.1) (4.7)
Acquisitions and disposals
Disposal of subsidiary undertaking - 0.1
Cash disposed of with subsidiary - (0.1)
Investment in shares and other variable yield securities (9.8) (6.9)
(9.8) (6.9)
Equity dividends paid (11.8) (10.7)
Net cash outflow before financing (40.6) (35.9)
Financing
Drawdown / (repayment) of loan 45.0 (7.0)
Issue of ordinary share capital 1.4 3.4
46.4 (3.6)
Net cash inflow / (outflow) in the year 5.8 (39.5)
Net cash outflow was applied as follows:
Increase / (decrease) in cash holdings 8.1 (15.6)
Net portfolio investments
Withdrawals from credit institutions (2.3) (23.9)
Net application of cash flows 5.8 (39.5)
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.
The financial statements are prepared in accordance with applicable accounting
standards, which have been applied consistently except as noted below, and with
the Association of British Insurers' Statement of Recommended Practice on
Accounting for Insurance Business ('ABI SORP') dated December 1998.
FRS 19 'Deferred tax' and certain transitional elements of FRS17 'Retirement
benefits' became effective, and were adopted, during the period. Neither
standard has a material impact on the financial statements.
Change in accounting policies
The December 2001 financial statements commented that the accounting for
insurance groups is in a state of transition. Accordingly, the company has
changed its accounting policy to exclude the value of internally generated
in-force business from its core business and associated undertaking, and the
financial statements have been restated.
This restatement is explained more fully in note 4.
2. PROFIT RECOGNITION RELATING TO THE VALUE OF LONG-TERM BUSINESS IN FORCE
Following the change in accounting policy, profits emerging on long-term
assurance business in-force are determined in accordance with the Modified
Statutory Solvency Basis of reporting, which is consistent with the ABI SORP.
Under this method, the statutory result arising in the period, which includes
the long-term business provision determined in consultation with the Appointed
Actuaries following their annual investigations, 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.
Long-term business provision and technical provisions
The long-term business provision is calculated on actuarial principles. The
calculation is in accordance with statutory reporting for solvency and uses the
gross premium method.
The provisions held for linked liabilities are the unit liabilities together
with certain non-unit provisions.
Whilst the directors consider that the gross long-term business provision and
the related reinsurance recovery is fairly stated on the basis of the
information currently available to them, the ultimate liability will vary as a
result of subsequent information and events and may result in adjustments to the
amount provided.
The provision, estimation technique, and assumptions are periodically reviewed
with any changes in estimates reflected in the long-term business technical
account as they occur.
Present value of acquired long-term business in-force
In accordance with the ABI SORP, the present value of acquired long-term
business in-force ('PVIF') is recognised as an additional asset within the
consolidated balance sheet.
The value is determined at the date of acquisition is amortised over the
anticipated lives of the related contracts in the portfolio. The rate of
amortisation is chosen by considering the profile of the in-force business
acquired and the expected reduction in its value over time. The carrying value
of the amortised PVIF asset is also tested for impairment on an annual basis.
The amortisation charge for the year is charged to the long-term business
technical account, included within other technical charges.
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 2001.
4. IMPACT OF CHANGE IN ACCOUNTING POLICY
The impact of the restatement to exclude the value of the internally generated
in force business and thus present the Group's primary statements in accordance
with the ABI SORP is as follows:
Year Ended
31 December
2001
£' Million
Net assets as previously reported 509.6
Value of long-term business in-force previously (287.9)
reported for the SJP Group
Acquired value of long-term business in-force (after 56.6
amortisation)
Investment in LAHC (31.5)
Restated net assets 246.8
The post-tax result for the year ended 31 December 2001 differs from that
previously reported, due to the change in accounting policy and LAHC, as shown
below.
Year Ended
31 December
2001
£' Million
Profit on ordinary activities after tax as previously 59.2
reported
Movement in internally generated value of long-term (66.2)
business in-force
Movement in investment in participating interest 2.0
Amortisation of acquired value of long-term business (1.6)
in-force
Loss on ordinary activities after tax as restated (6.6)
The audited supplementary information presented in this announcement discloses
the results of the Group's long-term business on an Achieved Profit basis, a
methodology similar to the embedded value basis applied in the prior year's
financial statements. This shows that, for the current year, the loss after tax
would reduce by £22.5 million to a loss of £21.9 million and net assets would
increase by £268.7 million to £460.7 million if the financial statements had
been prepared on a basis consistent with the prior year.
5. SEGMENTAL ANALYSIS
An analysis of premiums written, profit and the net assets of the Group's
principal activities are set out below:
Premiums written
Year Ended Year Ended
31 December 31 December
2002 2001
£' Million £' Million
Life business
Single premiums 581.8 812.1
Regular premiums 101.9 99.3
Reinsurances - Risk (13.0) (13.0)
- Financial - (4.5)
670.7 893.9
Pension business
Single premiums 207.3 245.0
Regular premiums 132.2 140.2
Reinsurances - Risk (1.4) (1.5)
338.1 383.7
Permanent health insurance
Regular premiums 15.6 11.9
Reinsurances - Risk (12.4) (7.7)
3.2 4.2
1,012.0 1,281.8
Gross premiums comprise:
Individual business 904.0 1,254.1
Group contacts 134.8 54.4
1,038.8 1,308.5
Gross new annualised premiums comprise:
Life - single premiums 581.8 812.1
Life - regular premiums 14.3 22.9
Pension - single premiums 207.3 245.0
Pension - regular premiums 18.6 36.5
Permanent health 5.4 4.3
827.4 1,120.8
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 £1.2 million (2001: £5.0 million) arising from the
Group's Italian operation with Nascent, which are fully reassured to Nascent.
The Irish life business written was £211.9 million (2001: £348.6 million).
Excluded from the above figures are total new business figures of £12.4 million
(2001: £9.0 million) arising from the 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 £242.3 million (2001: £313.3 million). The total new
single premium business including unit trusts was £1,031.4 million (2001:
£1,370.4 million).
Loss on ordinary activities
Year Ended Year Ended
31 December 31 December
2002 2001
£' Million £' Million
St. James's Place Group
Life business 0.1 (20.4)
Unit trust business 10.3 10.4
Other (4.5) 2.5
Core business profit/(loss) 5.9 (7.5)
Associated undertakings
LAHC (27.7) (9.3)
Other investments (19.4) -
Loss on ordinary activities before taxation (41.2) (16.8)
Taxation
Life business 1.0 8.3
Unit trust business (3.1) (3.1)
Other (1.1) 2.2
LAHC - 2.8
(3.2) 10.2
Loss on ordinary activities after taxation (44.4) (6.6)
The life loss before tax is analysed as a loss of £5.8 million from the UK life
business(2001 loss: £32.9 million) and a profit of £5.9 million from the Irish
life business (2001 profit: £12.5 million).
6. INCOME FROM OTHER INVESTMENTS
Included in income from other investments is an exceptional charge of £19.4
million arising from the impairment in the value of the holding in Nascent Group
SA.
Due to difficult trading conditions in Italy subsequent to the launch of the
Nascent business, it has proved extremely difficult for the Nascent Group to
establish itself and the results have fallen significantly short of
shareholders' expectations. Accordingly SJPC considers its investment in
Nascent is now fully impaired, resulting in this exceptional charge in the year.
Included as part of this charge is a provision for SJPC's commitment to
subscribe for the further €1,656,600 of convertible loan.
Nascent is in the process of disposing of its operations, before winding up the
remainder of the group. As part of this restructuring plan, Nascent has the
option to require SJPC to acquire Nascent Life and Nascent Services, at 60% of
their net asset value, to manage the run-off of the portfolio of Nascent Life's
clients. This option expires on 31 March 2003. If the option is exercised the
purchase price is expected to be some €2 million.
7. DIVIDENDS
Year Ended Year Ended Year Ended Year Ended
31 December 31 December 31 December 31 December
2002 2001 2002 2001
Pence Pence £' Million £' Million
Per share Per share
Interim dividend
paid 1.25 1.25 5.4 5.4
Final dividend
proposed 1.50 1.50 6.4 6.4
2.75 2.75 11.8 11.8
The proposed dividend of 1.50 pence per share is payable on 16 May 2003 to those
shareholders on the register on 11 April 2003.
8. EARNINGS PER SHARE
Restated
Year Ended Year Ended
31 December 31 December
2002 2001
Pence Pence
Loss on ordinary activities after taxation (10.4) (1.5)
Adjustments - Nascent impairment 4.5 -
Adjusted loss (5.9) (1.5)
The above table sets out earnings per share and the adjusted earnings per share.
In accordance with FRS 14 'Earnings per Share', since diluted loss per share
is reduced, the incremental effect is ignored. The diluted loss per share is
therefore the same as the loss per share.
The following table sets out the various profit figures and number of share
taken into account in the above calculations:
Year Ended Year Ended
31 December 31 December
2002 2001
Loss on ordinary activities after taxation £(44.4m) £(6.6m)
Adjustments - Nascent impairment £19.4m -
Adjusted loss after tax £(25.0m) £(6.6m)
Weighted average number of shares (including shares to
be issued)
428.0 m 427.2 m
Diluted weighted average number of share 445.4 m 452.8 m
Number of share options for which diluted effect taken
account of 55.5 m 57.0 m
9. INVESTMENTS IN ASSOCIATED UNDERTAKINGS
The Group holds an investment of 22.7% (2001: 22.6%) in the shares of Life
Assurance Holding Corporation Limited ('LAHC'). This investment has been dealt
with in the consolidated accounts as an associated undertaking and equity
accounted on the basis of management accounts on the modified statutory solvency
basis covering the year to 31 December 2002.
(a) Change in accounting policy
In accordance with the Group's change in accounting policy outlined in notes 1
and 2, the Group's interest in LAHC has been revised to exclude the internally
generated value of long-term business in-force. The acquired value of long-term
business in-force, valued in accordance with ABI guidance, has been amortised
over the average duration of the underlying policies. In addition the profit on
the transfer of LAHC's asset management business to Aberdeen Asset Management
has been restated to reflect the profit in the Statement of Total Recognised
Gains and Losses.
The impact of these adjustments on the carrying value of LAHC at 31 December
2001 is as follows:
31 December 2001
£' Million £' Million
As previously reported 88.4
Value of long-term business in-force (85.7)
Acquired value of long-term business in-force (after amortisation) 54.2
(31.5)
Restated 56.9
The impact of these adjustments on the profit after tax for the year is as
follows:
31 December 2001
£' Million £' Million
Previously reported (8.5)
Movement in internally generated value of long-term business in-force 21.5
Other recognised gains and losses (19.5)
2.0
Restated (6.5)
(b) Movement in current year
The movement in interest in LAHC for the year to 31 December 2002 is analysed
below:
£' Million
Value at 1 January 2002 56.9
Share of pre-tax loss for the period (27.7)
Share of tax for the period -
Value at 31 December 2002 29.2
The loss for the year is the result of a number of one-off factors: the fall in
value of LAHC's holding in Aberdeen Asset Management; an increase in its
provision for pension misselling (largely caused by stock market falls); and the
reassessment of prior year tax provisions.
(c) Carrying value of LAHC
In 1998 as part of the financing of the acquisition of the GAN group of
companies, LAHC entered into a loan arrangement with a consortium of banks, on
which regular repayments have been made, financed by dividend and loan
repayments from its subsidiaries.
If its subsidiaries were unable to pay a sufficient dividend in order to meet
the instalment payable in May 2003, LAHC would need to approach its bankers to
reschedule the repayments. While this creates uncertainty in relation to the
carrying value of LAHC, the Directors of SJPC can see no reason why the bankers
would not agree to this course of action.
In the light of the above, the Directors of SJPC have reviewed the future cash
flows of LAHC and the dividends attributable to SJPC, prepared by the management
of LAHC. The present value of these dividends, using an after-tax rate of 10%
per annum, exceeds the carrying value of LAHC included in these financial
statements.
10. ACQUIRED VALUE OF LONG-TERM BUSINESS IN-FORCE
Restated
Year Ended Year Ended
31 December 31 December
2002 2001
£' Million £' Million
Value at start of period 56.6 58.2
Amortisation (2.6) (1.6)
Value at end of period 54.0 56.6
11. LONG-TERM BUSINESS TECHNICAL PROVISION
The long-term business provision is determined in consultation with the
Appointed Actuaries following their annual investigations of the long-term
business. The assumptions underlying the calculation of the UK long-term
business provision for statutory solvency purposes have been determined in
accordance with industry accepted actuarial techniques and are detailed in the
returns to the Financial Services Authority. These returns are due to be
submitted by 31 March 2003 and will then be available to any shareholder on
request. The principal sensitive assumptions used in calculating the provisions
for linked and non-linked policies are noted below.
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 (2001: between 4% and
6%), depending on the tax status and territory of the contract;
• a projection of current expenses assuming inflation of between 3% and
4% per annum (2001: between 4% and 4.5%), depending on the territory of the
contract; 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 3.0% and
4.25% (2001: between 4% and 5%), depending on the tax status and territory of
the contract, to calculate the sterling reserve.
Non-linked policies
The long-term provisions are calculated using the gross premium valuation
method. The assumed rate of interest is 3.0% (2001: 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 Company's own
experience, published data, the rates charged by reassurers and industry
experience.
Critical illness experience
As reported in last year's financial statements, the Group entered into a
financial reassurance arrangement with respect to the uncertainty on its
critical illness claims experience. Under the terms of this financial
reassurance arrangement, the reassurer has agreed to maintain the current
reassurance rates, provided it can recover experience in excess of those rates
from profits on future new business written by the Group. These arrangements
remain in place.
Following discussions with its Appointed Actuaries, the Group has included in
its statutory long-term provision prior to reassurance, reserves of £18.3
million (2001: £23.7 million) as a result of the financial reassurance, although
the net provision (after reassurance) remains unchanged. This financial
reassurance has been accounted for in accordance with FRS 5 'Reporting the
substance of transactions' and accordingly a liability of £18.3 million (2001:
£23.7 million) has been established. The cash balance outstanding under the
arrangement at 31 December 2002 was, however, £ nil (2001: £ nil).
Regulatory reviews
During the year the Group has completed the various required regulatory reviews
and therefore there are no provisions outstanding at 31 December 2002 (2001:
£6.7 million).
12. SHARE CAPITAL
Number Nominal Value
Authorised £' Million
Ordinary shares at 15p each
At 1 January 2002 and 31 December 2002 605,000,000 90.8
Number Nominal Value
£' Million
Issued, Allotted and Fully Paid Ordinary
shares at 15p each
At 1 January 2002 428,996,108 64.3
Exercise of options 1,716,146 0.3
At 31 December 2002 430,712,254 64.6
In addition, the authorised share capital includes one Special Rights Redeemable
Preference Share of £1, which was until 20 December 2002 issued to the J.
Rothschild Name Company Limited, an entity formed to protect the use of the name
'J. Rothschild'. Following a request from the holder of the special share, the
Company redeemed the Special Share at par value (being £1) out of distributable
profits on 20 December 2002. It is proposed that the authorised Special Share
is cancelled by way of a special resolution at the forthcoming Annual General
Meeting.
Share Options
On the acquisition of the remaining share capital of St. James's Place Wealth
Management Group 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 1.7 million shares have still to be issued from this
reserve.
During the year options over 3 million shares have been granted at a range of
prices between £1.04 and £2.95. In addition, during July 2002 options over some
25 million SJPC shares, previously issued to members of the St. James's Place
Partnership and a small number of employees at prices ranging from £2.375 to
£4.075 were surrendered and new options over the same number of shares were
issued to the relevant individuals at £1.45.
Options outstanding under the various share option schemes at 31 December 2002
amount to 55.5 million shares (31 December 2001: 57.0 million shares).
Of these, 43.5 million are under option to Partners of the St. James's Place
Partnership, 9.3 million are under option to executives and senior management
and 2.7 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.
Number of share Anticipated
Earliest date options outstanding Proceeds
of exercise Million £' Million
Immediate 16.5 24.1
Jan - Jun 2003 7.0 11.0
Jul - Dec 2003 1.7 3.5
Jan - Jun 2004 1.0 2.4
Jul - Dec 2004 0.6 1.4
Jan - Jun 2005 0.9 2.3
Jul - Dec 2005 16.0 23.7
Jan - Jun 2006 1.2 1.7
Jul - Dec 2006 6.0 8.7
Jan - Jun 2007 1.1 1.6
Jul - Dec 2007 3.1 4.0
Jan - Jun 2008 0.3 0.4
Jul - Dec 2008 0.1 0.1
55.5 84.9
13. RESERVES
Share Shares to Profit
Premium be Issued Other and Loss
Account Reserve* Reserves Account
£' Million £' Million £' Million £' Million
At 1 January 2002 3.4 0.5 228.2 213.2
Prior year adjustment - - (226.0) (36.8)
3.4 0.5 2.2 176.4
Release of reserve on
issue of shares - (0.1) - -
Exercise of options 1.2 - - -
Retained loss for the
year - - - (56.2)
At 31 December 2002 4.6 0.4 2.2 120.2
* The shares to be issued reserve was established on the acquisition of St.
James's Place Wealth Management Group plc ('SJPWM') to account for the share
options in that company that were unexercised at the acquisition date as
detailed in note 12. The movement in the reserve during the year occurred on
the exercise of these options.
As explained in note 4, the Group changed its accounting policies during the
year to exclude the present value of internally generated in-force business.
This resulted in the elimination of £203.5 million previously included in Other
Reserves as a non-distributable reserve, which represented the increase in the
internally generated PVIF recognised in the financial statements each year.
Also included in Other Reserves was an acquisition reserve of £22.5 million
arising from the acquisition of SJPWM. The acquisition fell within Section 131
of the Companies Act 1985 and therefore no share premium account was required to
be established. The acquisition reserve arose on consolidation and represented
the excess of the SJPC share price on the date SJPWM was acquired, over the
nominal value of those shares issued. The goodwill of £150.4 million that arose
on 26 June 1997, following SJPC's acquisition of the then remaining share
capital of St. James's Place Holdings plc, was written off against this reserve.
Following the change in accounting policy, the £22.5 million balance remaining
on this reserve has been transferred to the Profit and Loss account in equal
proportion to the amortisation charge arising on the acquired VIF arising on
this change in policy.
The impact of the prior year adjustment on the Profit and Loss account of £36.8
million relates to the de-recognition of internally generated PVIF relating to
LAHC, and the amortisation of the acquired PVIF of SJPC and LAHC, after taking
into account the £22.5 million reserve transfer discussed above.
14. PROVISIONS FOR OTHER RISKS AND CHARGES
Deferred Other
Tax Provisions Total
£' Million £' Million £' Million
At 1 January 2002 15.2 4.6 19.8
Charge / (credit) to the profit and
loss account 0.7 (2.5) (1.8)
Cash paid - (1.8) (1.8)
At 31 December 2002 15.9 0.3 16.2
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
2002 to reflect the movement of the share price during the year.
The year end deferred tax position is analysed as follows:
31 December 31 December
2002 2001
£' Million £' Million
Deferred acquisition costs 15.9 15.2
15. AMOUNTS OWED TO CREDIT INSTITUTIONS
31 December 31 December
2002 2001
£' Million £' Million
Bank overdraft - 14.6
Bank loan 45.0 -
45.0 14.6
The Group has an unsecured revolving credit facility amounting to £60 million
expiring on 7 November 2007, arranged on a bilateral basis with the Royal Bank
of Scotland plc and the Governor and the Company of Bank of Scotland plc.
At 31 December 2002, the amount outstanding under the facility was £45 million
repayable on 13 February 2003 at an interest rate of 4.905%.
The bank overdraft which was repaid during the year was unsecured, repayable on
demand and was subject to normal commercial overdraft rates of interest.
16. RECONCILIATION OF OPERATING LOSS TO NET CASH OUTFLOW FROM OPERATING ACTIVITIES
31 December 31 December
2002 2001
£' Million £' Million
Operating loss before tax (41.2) (16.8)
Interest paid 0.3 0.6
Interest received (3.5) (5.2)
(Profits) / losses relating to long-term business (0.1) 20.4
Transfer to long-term business fund (20.0) (20.0)
Profit on sale of fixed assets (0.1) (0.1)
Depreciation 3.5 2.9
Profit on disposal of subsidiary undertaking - (0.2)
Share of loss of associated undertakings 27.7 9.3
Write down in shares and other variable yield
securities 21.3 -
Increase in debtors and prepayments (3.9) (5.7)
Decrease in creditors (7.1) (5.9)
Decrease in debtor to long-term business 2.9 6.1
Net cash outflow from operating activities (20.2) (14.6)
17. MOVEMENT IN OPENING AND CLOSING PORTFOLIO INVESTMENTS, NET OF FINANCING
31 December 31 December
2002 2001
£' Million £' Million
Increase / (decrease) in cash holdings 8.1 (15.6)
(Drawdown) / repayment of loan (45.0) 7.0
Portfolio investments: deposits with credit
institutions (2.3) (23.9)
Total movement in portfolio investments, net of
financing (39.2) (32.5)
Portfolio investments, net of financing at
1 January 27.7 60.2
Portfolio investments, net of financing at
31 December (11.5) 27.7
18. RELATED PARTY TRANSACTIONS WITH HBOS plc
SJPC has arms length arrangements with HBOS 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
£4.0 million (2001: £1.0 million).
• Commission from the sale of Stakeholder pensions for Clerical Medical.
The amounts receivable during the year were £2.6 million (2001: £0.7 million).
• Commission from the sale of Halifax mortgages. The amounts receivable
during the year were £1.4 million (2001: £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 11.
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 2002 these deposits amounted to £0.6 million
(2001: £0.5 million).
• As part of a syndicate, the Governor and the Company of Bank of
Scotland plc (a subsidiary of HBOS plc) provided a 50% share of a revolving
combined credit facility of £60m on normal commercial terms.
19. NON-STATUTORY ACCOUNTS
The financial information set out above does not constitute the Company's
statutory accounts for the years ended 31 December 2001 or 2002. Statutory
accounts for 2001 have been delivered to the registrar of companies, and those
for 2002 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.
20. ANNUAL REPORT
The Company's annual report and accounts for the year ended 31 December 2002 is
expected to be posted to the shareholders by 9 April 2003. 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 AN ACHIEVED PROFIT BASIS FOR LIFE BUSINESS ONLY
(UNIT TRUST ON STATUTORY BASIS)
ACHIEVED PROFIT RESULT
The following supplementary information shows the result for the Group adopting
an achieved profit basis for reporting the results of its wholly owned life
businesses.
Summarised income statement
Year Ended Year Ended
31 December 31 December
2002 2001
£' Million £' Million
Achieved profit*
MSSB profit /(loss) 0.1 (20.4)
Increase in value of life in force business 32.3 99.1
Pre tax life achieved profit 32.4 78.7
Tax (8.8) (19.2)
Post tax achieved profit 23.6 59.5
Statutory profit*
(Loss) / profit before tax (41.3) 3.6
Tax (4.2) 1.9
(Loss) / profit after tax (45.5) 5.5
Summary of achieved profit shareholders' funds
MSSB basis 192.0 246.8
Increase in value of life in force business 268.7 246.2
Life achieved profit basis 460.7 493.0
* Achieved profit relates to profits from the Group's wholly owned life
businesses. Statutory profit relates to profits from all other sources.
Year Ended Year Ended
31 December 31 December
2002 2001
£' Million £' Million
Reconciliation of the movement in the life achieved
profit shareholders' funds
Shareholders' funds on an achieved profit basis
brought forward 493.0 417.1
Post tax achieved profit for the year 23.6 59.5
Post tax statutory (loss) / profit for the year (45.5) 5.5
Other recognised gains and losses - 19.5
Issue of share capital 1.4 3.2
Dividends (11.8) (11.8)
Shareholders funds on an achieved profit basis carried
forward 460.7 493.0
NOTES TO THE ACHIEVED PROFIT RESULTS
I. BASIS OF PREPARATION
The enclosed supplementary information shows the Group's life result as measured
on an achieved profit basis, which includes the results of the Group's long-term
assurance business on a basis determined in accordance with the ABI Guidance '
Supplementary Reporting for long-term assurance business (the achieved profits
method)' issued in December 2001. The objective of the Achieved Profit basis is
to provide shareholders with more realistic information on the financial
position and performance of the Group than that provided by the modified
statutory solvency basis.
The Group' s unit trust business is not included on an achieved profit basis
within this supplementary information, although it is shown in the unaudited
financial information.
Smoothed investment return assumptions have been used. A smoothed basis
provides a prudent measure of achieved profit during a period where stock
markets rise. The impact of preparing this information on an unsmoothed basis
is presented in note V.
The results of LAHC have been included on a modified statutory solvency basis as
opposed to an achieved profit basis as LAHC is a non-core investment.
II. METHODOLOGY AND ASSUMPTIONS
The Achieved Profits methodology recognises as profit the discounted value of
the expected future statutory surpluses arising from the contracts in force at
the period end ('the value of long-term business in force'). These future
surpluses are calculated by projecting future cash flows using realistic
assumptions for each component of the cash flow. Actuarial assumptions for the
mortality, morbidity and persistency experience of the contracts and the
expenses and taxation expected to be incurred are based on recent experience and
are reviewed annually. The future economic and investment conditions are based
on the period end conditions and are likely to change from year to year.
Economic Assumptions
The principal economic assumptions used within the cash flows at 30 December
2002 are set out below alongside the comparatives for 31 December 2001. They
have been applied to all the life assurance business and the unit trust
business.
Year Ended Year Ended
31 December 31 December 2001
2002
Risk discount rate (net of tax) 8.00% 8.5%
Future investment returns:
- Fixed Interest 4.50% 5.0%
- Equities 7.00% 7.5%
- Unit-linked funds:
- Capital growth 3.50% 3.75%
- Dividend income 3.00% 3.0%
- Total 6.50% 7.0%
Expense inflation 4.25% 4.5%
Indexation of capital gains 1.75% 2.5%
The risk discount rate is used to discount the projected future cash flows from
the business in-force to a present value. The rate is set by reference to the
assumed future investment returns.
The assumed future pre-tax returns on fixed interest securities are set by
reference to the 15 year gilt yield index. The other investment returns are set
by reference to this assumption.
The expense inflation and indexation of capital gains assumptions are based on
the rate of inflation implicit in the current valuation of 15 year index-linked
gilts.
For the purposes of projecting future unit growth unit linked funds have been
valued on a smoothed basis. Smoothing is achieved by a recursive formula where
smoothed price (t+1) = 0.075 x actual price (t+1) + 0.925 x smoothed price (t) x
(1 + G)
where G is the monthly expected rate of unit growth after tax and charges and
time t is in monthly periods. The smoothing is equivalent to a short term
change in the assumed investment return.
Experience Assumptions
The principal experience assumptions were derived as follows. All experience
assumptions are reviewed annually.
The persistency 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
rates following the introduction of Stakeholder pensions.
Maintenance expenses have been set 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.
A provision of £12.5 million has been set up within the cash flows to provide
for adverse morbidity experience on critical illness plans. This is unchanged
from 31 December 2001.
Other items
The value of new business has been established at the end of the reporting
period. It has been calculated using actual acquisition costs.
In projecting future surpluses allowance has been made for the cost of
maintaining a statutory solvency margin on the business in force.
Future taxation has been determined assuming a continuation of the current tax
legislation.
The achieved profits results are calculated on an after-tax basis and are
grossed up to the pre-tax level for presentation in the profit and loss account.
The rate of tax used was 30% except for the Irish life business, which was
grossed up at 12.5%.
III. COMPONENTS OF LIFE ACHIEVED PROFIT
The pre-tax components of the Achieved Profit result for life business are shown
below.
The basic operating Achieved Profit is determined using the assumptions as set
out above in note II. This value is subsequently adjusted to take into account
items considered to be short-term variations to these longer-term assumptions to
show the total achieved pre- and post-tax profit for the respective periods.
Year Ended Year Ended
31 December 31 December
2002 2001
£' Million £' Million
New business contribution 18.7 49.5
Profit from existing business
Unwind of discount rate 34.4 29.9
Experience variances 5.5 2.3
Operating assumption changes 0.5 5.7
Investment income 2.6 2.0
Life operating achieved profit before tax 61.7 89.4
Investment return variances (32.0) (9.8)
Effect of economic assumption changes 2.7 (0.9)
Life achieved profit before tax 32.4 78.7
Attributed tax (8.8) (19.2)
Life achieved profit after tax 23.6 59.5
The economic assumption changes reflect the effect of the movement in the
economic bases noted in the methodology and assumptions. The operating
assumption changes reflect one off changes to other assumptions used in the
calculation of the achieved profit.
New business contribution after tax is £14.0 million (2001: £36.8 million).
IV. SENSITIVITIES
The table below shows the impact of changes in economic assumptions on the
reported value of new business and value of long-term business in force of
changes to the risk discount rate, the assumed rate of long-term investment
return and market movements.
Change in the post-tax
value of long-term
Change in new business contribution business in-force
Pre-tax Post-tax
£' Million £' Million £' Million
Reported value at 31 December
2002 18.7 14.0 322.7
Risk discount rate +1% (5.4) (3.8) (18.0)
-1% 6.0 4.2 19.0
Investment return +1% 4.0 2.8 13.6
-1% (4.0) (2.8) (13.0)
Current
withdrawal rate x110% (3.7) (2.6) (12.7)
x90% 4.0 2.9 13.8
V. INVESTMENT RETURN ASSUMPTIONS
As discussed in note II, smoothed investment return assumptions are used. The
impact of the removal of smoothing would be to reduce the Achieved Profit from
life assurance business before tax by £43.9 million (2001: £33.3 million) and
reduce the Achieved Profit from life assurance business after tax by £31.4
million (2001: £23.5 million).
The impact on shareholders funds on an Achieved Profit basis of the removal of
smoothing would be a reduction of £54.9 million at 31 December 2002 (2001: £23.5
million).
UNAUDITED INFORMATION INCLUDING LIFE
AND UNIT TRUSTS ON AN ACHIEVED PROFIT BASIS
The following information shows the results for the Group of adopting a
methodology similar to the achieved profit basis for reporting unit trust
business.
Summarised income statement
Year Ended Year Ended
31 December 31 December
2002 2001
£' Million £' Million
Profit from core business
Life business 32.4 78.7
Unit trust business 14.5 26.3
Other (4.5) 2.5
42.4 107.5
Profit / (losses) from other business
LAHC (27.7) (9.3)
Other investments (Nascent) (19.4) -
Achieved profit on ordinary activities before taxation (4.7) 98.2
Taxation
Life business (8.8) (19.2)
Unit trust business (4.3) (7.9)
Other (1.1) 2.2
LAHC - 2.8
(14.2) (22.1)
Achieved profit on ordinary activities after tax (18.9) 76.1
Dividends (11.8) (11.8)
Retained achieved (loss) / profit for the financial
year (30.7) 64.3
Pence Pence
Dividend per share 2.75 2.75
Earnings per share (4.4) 17.8
Adjusted earnings per share 0.1 17.8
Net asset per share 126.3 133.7
The diluted earnings per share and diluted adjusted earnings per share are
equivalent to their undiluted counterparts and have therefore not been shown.
UNAUDITED CONSOLIDATED BALANCE SHEET
AT 31 DECEMBER INCLUDING LIFE AND UNIT TRUST
BUSINESS ON AN ACHIEVED PROFIT BASIS
Assets 2002 2001
£' Million £' Million
Investments
Land and buildings 1.3 1.3
Investments in associated undertakings 29.2 56.9
Other financial investments 113.4 124.1
143.9 182.3
Value of long-term business in force
- Long-term insurance 322.7 302.8
- Unit trusts 83.5 80.5
Assets held to cover linked liabilities 4,631.6 4,796.6
Reinsurers' share of technical provisions 67.0 58.7
Debtors 73.7 69.4
Other assets 39.9 55.9
Prepayments and accrued income 5.3 59.1
Deferred acquisition costs 57.9 55.0
5,425.5 5,660.3
Liabilities
Capital and reserves
Called up share capital 64.6 64.3
Share premium account 4.6 3.4
Shares to be issued 0.4 0.5
Other reserves 474.6 505.3
Equity shareholders' funds 544.2 573.5
Technical provisions 117.1 120.9
Technical provisions for linked liabilities 4,631.6 4,796.6
Provisions for other risks and charges 16.2 19.8
Creditors 95.9 134.3
Accruals and deferred income 20.5 15.2
5,425.5 5,660.3
NOTES TO THE UNAUDITED INFORMATION
A. Basis of preparation
The enclosed information shows the Group's results as measured on an achieved
profit basis, which includes the results of the Group's unit trust business on a
similar basis to the ABI Guidance 'Supplementary Reporting for long-term
assurance business (the achieved profits method)' issued in December 2001.
The results of LAHC have been included on a modified statutory solvency basis as
opposed to an achieved profit basis as LAHC is a non-core investment.
The assumptions used to determine the unit trust achieved profit result are
consistent with those used for life business, which are disclosed within the
supplementary information in this announcement. The unit trust achieved profit
is determined using smoothed unit prices.
B. COMPONENTS OF THE LIFE AND UNIT TRUST ACHIEVED PROFIT
Unit trust business
Year Ended Year Ended
31 December 31 December
2002 2001
£' Million £' Million
New business contribution 14.3 18.7
Profit from existing business
Unwind of discount rate 8.6 7.7
Experience variances 3.8 1.4
Operating achieved profit before tax 26.7 27.8
Investment return variances (12.0) (1.6)
Effect of economic assumption changes (0.2) 0.1
Achieved profit before tax 14.5 26.3
Attributed tax (4.3) (7.9)
Achieved profit after tax 10.2 18.4
The economic assumption changes reflect the effect of the movement in the
economic bases noted in the methodology and assumptions. The operating
assumption changes reflect one off changes to other assumptions used in the
calculation of the achieved profit.
New business contribution after tax is £10.0 million (2001: £13.0 million).
Unit trust and life business combined
Year Ended Year Ended
31 December 31 December
2002 2001
£' Million £' Million
New business contribution 33.0 68.2
Profit from existing business
Unwind of discount rate 43.0 37.6
Experience variances 9.3 3.7
Operating assumption changes 0.5 5.7
Investment income 2.6 2.0
Operating achieved profit before tax 88.4 117.2
Investment return variances (44.0) (11.4)
Effect of economic assumption changes 2.5 (0.8)
Achieved profit before tax 46.9 105.0
Attributed tax (13.1) (27.1)
Achieved profit after tax 33.8 77.9
The economic assumption changes reflect the effect of the movement in the
economic bases noted in the methodology and assumptions. The operating
assumption changes reflect one off changes to other assumptions used in the
calculation of the achieved profit.
New business contribution after tax is £24.0 million (2001: £49.8 million).
C. SENSITIVITIES
The table below shows the impact of changes in economic assumptions on the
reported value of new business and value of long-term business in force of
changes to the risk discount rate, the assumed rate of long-term investment
return and market movements for the combined life and unit trust business.
Change in the post-tax
value of long-term
Change in new business contribution business in-force
Pre-tax Post-tax
£' Million £' Million £' Million
Reported value at 31 December
2002 33.0 24.0 406.2
Risk discount rate +1% (6.4) (4.6) (22.8)
-1% 7.0 5.0 24.2
Investment return +1% 5.0 3.6 19.2
-1% (5.0) (3.6) (18.2)
Current
withdrawal rate x110% (4.6) (3.2) (17.0)
x90% 4.9 3.5 18.5
D. INVESTMENT RETURN ASSUMPTIONS
As discussed in note A, smoothed investment assumptions are used. The impact of
the removal of smoothing would be to reduce the Achieved Profit from life and
unit trust business before tax by £58.2 million (2001: £42.2 million) and reduce
the Achieved Profit from life and unit trust business after tax by £41.4 million
(2001: £29.7 million).
The impact on shareholders funds on an Achieved Profit basis of the removal of
smoothing would be a reduction of £71.1 million at 31 December 2002 (2001: £29.7
million). The net asset value per share would be 109.8p (2001: 126.8p) on an
unsmoothed basis.
E. IMPACT OF CHANGES IN BASIS OF PREPARATION
The note below reconciles the reported result in the 2001 financial statements,
which was prepared on a basis using passive assumptions, to the equivalent
result included in the financial information (smoothed basis).
Profit
Year Ended Year Ended
31 December 31 December
2002 2001
£' Million £' Million
Consolidated profits after taxation as previously
reported 59.2
Inclusion of movement in unit trust value of
in-force business - 10.9
Adoption of FRS 19 - 1.5
Move to 'active' basis of achieved profits -
- life business - 2.3
- unit trust business - 0.2
Changes in LAHC carrying value to modified
statutory solvency basis - 2.0
Consolidated achieved profits after taxation (18.9) 76.1
Less movements in:
Unit trust value of in-force business (3.0) (11.1)
Internally generated long-term insurance value of
in-force (19.9) (70.0)
Current period amortisation of acquired long-term
insurance value of in-force (2.6) (1.6)
Modified Statutory Profits after taxation (44.4) (6.6)
Net Assets
Year Ended Year Ended
31 December 31 December
2002 2001
£' Million £' Million
Net assets as previously reported - 509.6
Inclusion of unit trust value of in-force
business - 79.8
Adoption of FRS 19 - 7.6
Move to 'active' basis of achieved profits
- life business - 7.3
- unit trust business - 0.7
Change in LAHC carrying value to modified
statutory solvency basis - (31.5)
Consolidated net assets under Achieved Profit
basis 544.2 573.5
Less:
Unit trust value of in-force (83.5) (80.5)
Internally generated long-term insurance value
of in-force (322.7) (302.8)
Acquired long-term insurance value of in-force
amortised to date 54.0 56.6
Consolidated net assets under Modified Statutory
Profits 192.0 246.8
This information is provided by RNS
The company news service from the London Stock Exchange
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