Interim Results

St. James's Place Capital PLC 29 July 2003 INTERIM RESULTS FOR THE SIX MONTHS TO 30 JUNE 2003 St. James's Place Capital plc ('SJPC'), the wealth management group, today announces its new business and financial results for the half year ended 30 June 2003. The text of the announcement is attached: Enquiries: Sir Mark Weinberg, Chairman Tel: 020 7514 1960 Andrew Croft, Group Finance Director Tel: 020 7514 1985 Nitya Bolam, Brunswick Tel: 020 7404 5959 ST. JAMES'S PLACE GROUP INTERIM RESULTS FOR THE SIX MONTHS TO 30 JUNE 2003 FUNDS UNDER MANAGEMENT UP 14% St. James's Place Capital plc ('SJPC'), the wealth management group, today announces its new business and financial results (which are presented on an unsmoothed basis in line with the rest of the industry) for the half year ended 30 June 2003. Key points include: •While operating profit of £25.1 million (2002: £45.4 million) was down on the prior year, the strong growth in funds under management resulted in profits from core business of £36.4 million, up 78% •New business down 17% compared with first half of 2002 •New business for second quarter 19% higher than first quarter •Protection regular premium business up 12% compared with first half of 2002 •Funds under management at £6.7 billion up 14% since the start of the year (2% over twelve months) •Size of partnership up 2% since the start of the year and applications up 63% on the corresponding period last year •Fees from wealth management up 70% to £8.0 million compared with £4.7 million for half year 2002 •Net asset value per share 115.3p •Dividend maintained at 1.25p per share Sir Mark Weinberg, Chairman commented: 'We are pleased with the 12% increase in regular premium Protection sales over the past six months and the 70% growth in fees in our Wealth Management Services. Our strategy of marketing a wide range of best of breed products and services through our team of high quality advisers, the St. James's Place Partnership, has benefited us in these challenging marketing conditions. 'We believe as strongly as ever in our advice-based business model and at a time when distribution is key, we have seen a 63% increase in applications from experienced advisers to become members of the Partnership.' CONTENTS PART 1 NEW BUSINESS FIGURES PART 2 CHAIRMAN'S STATEMENT AND FINANCIAL COMMENTARY PART 3 ACHIEVED PROFIT RESULTS PART 4 MODIFIED STATUTORY SOLVENCY BASIS RESULTS PART 1 ST. JAMES'S PLACE GROUP NEW BUSINESS FIGURES FOR THE SIX MONTHS TO 30 JUNE 2003 LONG-TERM SAVINGS --------------------- ---------------------- Unaudited Unaudited 3 Months to 6 Months to 30 June 2003 30 June 2003 NEW PREMIUMS 2003 2002 Change 2003 2002 Change £'m £'m % £'m £'m % New Regular Premiums Pensions* 7.0 8.1 (14%) 13.2 15.5 (15%) Protection 6.2 5.3 17% 10.9 9.7 12% 13.2 13.4 (1%) 24.1 25.2 (4%) New Single Premiums Investment 134.3 160.8 (16%) 253.7 306.9 (17%) Pensions 46.6 48.4 (4%) 87.4 113.4 (23%) 180.9 209.2 (14%) 341.1 420.3 (19%) Unit Trust Sales (including PEPs and ISAs) 60.7 94.2 (36%) 106.5 157.2 (32%) ------- ------ ------- ------- ------ ------- Unaudited Unaudited 3 Months to 6 Months to 30 June 2003 30 June 2003 NEW BUSINESS (RP + 1/10th 2003 2002 Change 2003 2002 Change SP) £'m £'m % £'m £'m % Investment 19.6 25.6 (23%) 36.1 46.6 (23%) Pensions 11.6 12.8 (9%) 21.8 26.6 (18%) Protection 6.2 5.3 17% 10.9 9.7 12% ---- ---- --- ---- ---- ---- Total 37.4 43.7 (14%) 68.8 82.9 (17%) ---- ---- --- ---- ---- ---- * see note 2 to the New Business figures ST. JAMES'S PLACE GROUP ADDITIONAL WEALTH MANAGEMENT SERVICES KEY BUSINESS HIGHLIGHTS FOR THE SIX MONTHS TO 30 JUNE 2003 Unaudited Gross fees generated from additional wealth management services £8.0m up 70% (2002: £4.7m) St. James's Place Bank *Number of facilities 10,063 Number of new accounts 3,218 New mortgage advances £321.9m New credit balances £58.0m Panel Mortgages (panel of providers excluding St. James's Place Bank) New mortgage advances £969.8m Portfolio Management Services (Laing and Cruickshank, Quilters) New portfolios £12.5m Employee Benefits (Swiss Life) Sums Assured: Group life £28.5m Critical illness £6.6m PHI £1.2m p.a. Trust and Estate Planning Services (Simmons & Simmons, Halliwell Landau, Turcan Connell) Number of cases 1,296 *Number of facilities denotes the number of individual mortgages, personal loans, credit cards, current accounts and savings accounts, where one client may hold a number of facilities. The average number of facilities per client is 2.79. ST. JAMES'S PLACE GROUP NEW BUSINESS FIGURES FOR THE SIX MONTHS TO 30 JUNE 2003 Notes 1. New Business from Long-Term Savings is calculated following the convention in the life assurance industry, by adding together new regular premiums and one-tenth of single premiums. New Lump Sums are calculated by adding new single premiums to new unit trust sales. 2. Pensions regular premiums include £0.1 million of investment regular premiums for the six months to 30 June 2003 (2002: £0.2 million). 3. Sales of Stakeholder pensions by St. James's Place Partnership have been included in the reported figures. These have been included under 'Pensions' and amount to £5.9 million regular premiums (2002: £4.9 million) and £11.2 million single premiums (2002: £11.8 million). This equates to £7.0 million New Business premiums (2002: £6.1 million). 4. Sales of other Protection business comprising Protection business through a panel of leading providers have been included in the reported figures. These have been included under 'Regular Premiums Protection' and amount to £3.1 million of new regular premiums (2002: £0.4 million). This equates to £3.1 million New Business premiums (2002: £0.4 million) PART 2 CHAIRMAN'S STATEMENT Financials Shareholders will be aware that, while we present our accounts on a statutory basis, we also give our results on an Achieved Profit basis, which we believe gives a more meaningful measure of the Company's progress. While some years ago, to prevent the impact of sharply rising stock markets flattering our results, we adopted a measure of 'smoothing' the movement in investment values over a period, we are now, in line with the rest of the industry, presenting our Achieved Profit figures on an unsmoothed basis. The results on a smoothed basis are set out in the notes for purposes of comparison. The continued weakness in sales of our core investment business has caused the operating profits for the half year, based on long term economic assumptions, to fall from £45.4 million pre-tax in the first half of 2002 to £25.1 million. However, the strong growth in funds under management has resulted in overall profits from our core business to rise by 78% from £20.5 million to £36.4 million. Total profits before tax for the Company as a whole, including a positive contribution of £3.4 million from LAHC, amounted to £39.8 million. This compares with the loss of £5.2 million for the first half of 2002, which reflected losses from LAHC and the now closed Italian joint venture, Nascent. Dividend The Board has resolved to pay an interim dividend of 1.25p a share in respect of the six months to 30th June 2003 (2002:1.25p per share). The dividend will be paid on 9th September 2003 to those on the Register at the close of business on 8th August 2003. New Business Shareholders will be aware that, although the FTSE All-Share Index finished the half year 4% higher than at the end of 2002, the Stock Market was highly volatile during the period. This has been reflected in a continued reluctance of investors to commit money to investment markets. New Business from long-term savings was down 17% compared with the first half of 2002 and investments and pensions were down 23% and 18% respectively. By contrast New Business from protection was up 12%, as we benefited from our decision to introduce a panel of leading providers of this class of business. Some encouragement might also be drawn from the fact that New Business for the second quarter of the year was 19% higher than for the first quarter; by comparison, business in the second quarter of 2002 had been only 11% higher than the first. The additional Wealth Management Services developed by the Group over the past few years continue to expand healthily. Gross fees generated by these services in the half year were £8 million, which is 70% higher than for the first half of 2002 and compares with fees of £11.7 million for the whole of 2002. Total mortgages from the St. James's Place Bank and our Mortgage Panel amounted to nearly £1.3 billion. While net fees from these services make a useful contribution, the major benefit of these services is in helping Partners acquiring new clients and securing more business from existing clients. They are also an important factor in attracting further high quality advisers to the Partnership. The St. James's Place Partnership The membership of the St. James's Place Partnership increased by 2% during the half year from 1,101 to 1,127. In the Chairman's Statement issued in February, we said that St. James's Place could expect to be one of the chief beneficiaries of decisions by experienced IFAs to change their status in the run-up to the phasing out of polarisation from the end of 2003. Recruiting activity has indeed been particularly strong over recent months. While the number of people who have actually joined the Partnership in the past six months has been the same as in the first half of 2002, the number of candidates who have attended our induction courses has increased by 63%, compared with the first half of last year. The majority of the successful applicants who have not yet joined are currently serving out their notice periods. Despite these encouraging figures on recruiting, market conditions have proved particularly difficult for the lower-producing members of the Partnership. We are determined to maintain our standards by retaining only Partners who are profitable to the Group. We therefore anticipate that there will be a small number of leavers amongst these lower-producing members, which is quite likely to result in a reduction in the number of Partners for the year overall. As was the case last year, the contribution from such Partners to Group's total new business in 2003 is likely to be small. Investment Funds In the volatile investment conditions of the past six months, it is pleasing to be able to report that our distinctive approach to investment management has once again produced above-average performance. Money spread across our five Pension Managed Funds grew 8.2% pa over the period, with two of our funds occupying 2nd and 6th place among 85 funds (CAPS Pooled Pension Funds update 30.6.2003). Investment results should always be judged over the longer term and an equal investment in these five funds has outperformed the average balanced fund performance over 3, 5 and 10 years. Our THSP Pension Managed Fund remains the top-performing fund in the survey over 10 years. The favourable performance of our funds combined with the low rates of withdrawal by our investors was reflected in the 14% increase in funds under management since the beginning of the year, to £6.7 billion. I have referred before to the fact that, thanks to the strong emphasis we place on the quality of our investment process, we have avoided the 'flavour of the year' products - such as technology funds and split capital trusts - that have caused problems for other groups. To this list can now be added the so-called 'precipice bonds' which offered conspicuously high yields but, because of small print conditions relating to payments at maturity, repaid only a fraction of the capital value to investors. LAHC Following a review of its future strategy and its financing arrangements, LAHC has decided to concentrate its operations on the run off of the existing book of business in order to optimise the level of cash generation and future dividends. LAHC does not intend to undertake any significant acquisitions. This is being implemented in the form of consequential changes to the management structure and the nature and scale of LAHC's operations. I have commented in previous financial statements that we regard LAHC as a non-core investment. In view of the change of strategy outlined above, we have taken the opportunity to reduce the amount of directors' time spent on LAHC's affairs. Accordingly, Derek Netherton and I have resigned from the LAHC Board. In addition, SJPC entered into an irrevocable deed to restrict its voting interests in LAHC to 19.9%. As a consequence of the above, the SJPC Board has reviewed the accounting treatment for its holding in LAHC, which will now be treated as an investment with effect from 25th July 2003. Future Opportunities It is perhaps understandable that, in judging the prospects for the Company, commentators tend to place heavy emphasis on recent sales trends and current investor sentiment. In assessing the outlook for the Company, the Board starts from a fundamentally different position. We believe that the business model - marketing a wide range of products and services through our own team of high quality advisers - is as sound as ever and indeed that current regulatory and other changes are likely to play even more directly to the strengths of our distribution. Depolarisation The Chairman's statement issued in February spelled out the advantages to the Company of being able, when polarisation ceases to apply at the end of this year, to improve and broaden the range of products we can offer through the Partnership by ceasing to manufacture products which do not have satisfactory financial characteristics from our point of view and 'contracting in' products from other manufacturers. Even within the constraints of polarisation we have been able to offer 'best of breed' products in the fields of term assurance, mortgages and annuities and have recently announced a panel of providers for Stakeholder Pensions. This will be taken further when the rules allow us to extend the process to what are called 'regulated' products. We will continue to manufacture and offer through the Partners a diversified and specialised range of our own investment products through our distinctive approach to investment management. Work is underway to extend the range that we are able to offer over the course of the next year or two to include other asset classes such as property and forms of alternative investment. Wherever possible, we will seek to 'manufacture' the funds ourselves and to buy in investment management skills along the lines of our present successful approach to investment management. We continue to work on introducing, through joint venture relationships, accounting, legal services and tax services as well as onshore and offshore trustee services which we believe will enable us to make further inroads into the High Net Worth market, including non-residents with UK links. As mentioned above, the Chairman's statement earlier this year identified a further potential benefit to the Company of depolarisation: the prospect of these changes was leading many IFAs to reconsider their career options and the St. James's Place Partnership offered a particularly attractive home for the higher quality experienced IFA. The notable increase in recruitment referred to earlier in this Statement confirms the validity of this prediction and we believe that this process will continue for some time to come. Pensions Green Paper We see the simplification of the pensions tax rules announced late last year - widely referred to as the Pensions Green Paper - as particularly favourable for our business model. By defining tax limits in terms of the fund size relating to each individual member, it removes the distinction between defined benefit (or final salary) pensions and defined contribution pensions, and removes much of the rationale for an employer to continue with an in-house defined benefit scheme. It will focus the individual investor on how his or her pension pot is actually growing. It also introduces greater flexibility in retirement, so individuals can end up having a pension pot which can be invested throughout their retirement, rather than having to convert it into an annuity. The overall effect of these changes is that the demand for quality advice on pension planning tailored to the individual's circumstances will increase dramatically. The impact on St. James's Place will be two-fold. Short-term, in the lead-up to the deadline of April 2005, individuals will need advice on how to arrange their pensions to take advantage of the significant transitional provisions. Longer term, the market will become like the United States, where the person-on-the-street worries about how his or her 'section 401k' is invested. There will be many more people, in our target market of the mass affluent, having to make investment decisions. They will need asset allocation advice, they will need access to a trusted adviser and they will need access to a high quality process for selecting investment managers for their money. Outlook The need for people to provide for retirement and other long-term needs is as strong as ever, heightened by the current low rates of return on cash and other fixed interest investments and the risk that inflation may yet return and erode the value of their savings. We believe that people will increasingly recognise this and will start to move the longer-term savings they have been accumulating in cash back into investments related to the stock market and the other asset classes that we offer and will be offering through the Partnership. In the meantime, in the context of the difficult conditions that have affected our industry over the past two years, we are confident of our business model and consider that the prospects for the rest of the year are looking rather more positive. Our solvency margins are comparatively strong and are invested, as a matter of policy, in gilts or AA rated deposits and bonds. However, we keep our business and the way we manage it under careful review in the context of possible future changes and opportunities for growth. Succession Plans and Board Changes We were pleased to be able to announce, earlier this month, that Mark Lund, 46, who has wide experience in retail financial services at the highest levels, is to join the Group in January 2004 as Deputy Chief Executive and Chief Executive Designate. This followed an extensive search for a candidate with skills that complement those of the other executive directors. It is intended that Mark Lund will become Chief Executive no later than December 2004, when Mike Wilson will become full-time Chairman of the Group. At the same time, I will step down from the Board, but will continue to be closely involved with the Group as an active President, concentrating on chairing the Investment Committee and giving strategic advice. This structure was part of our succession planning when we began the search for a future Chief Executive some eighteen months ago. In view of his close involvement in the building up of the Partnership, the Board is of the view that it is strongly in the interests of the Company for Mike Wilson to become Chairman on handing over the role of Chief Executive to Mark Lund. In June we announced Martin Moule's resignation as Group Finance Director and we wish him all the best in his new role. He has been succeeded as Group Finance Director by Andrew Croft, 39. Andrew, a Chartered Accountant, has been with the Group for over ten years and had already been earmarked as the successor to Martin Moule. Sir Mark Weinberg 29 July 2003 FINANCIAL COMMENTARY This Financial Commentary is divided into two sections; a section providing a commentary on the results for the six month period and a second section providing an explanation of the Group's expense position, how the expenses vary with new business volumes and how the various expense categories are treated in the calculation of the Achieved Profit result. Section 1: Commentary on the results for the six months period In common with last year, we have presented our results on a Modified Statutory Solvency Basis (MSSB), which reflects the current year cash flows, and an Achieved Profit basis, which brings into account the value of future cash flows on the business in force. We have previously reported our Achieved Profits using smoothed investment assumptions and disclosed by way of a note the result of adopting an unsmoothed methodology. For these results we have changed our presentation to show the Achieved Profits on an unsmoothed methodology which is in line with the rest of the industry. As mentioned in the Chairman's Statement, the results reflect the continuing difficult trading conditions. Life and Pension business MSSB: The MSSB result for the six month period shows a loss of £10.3 million pre-tax compared to a loss of £8.1 million pre-tax for the prior year. The higher loss in the current year reflects the fall in new business, which has reduced the margins available to fund the expenses of the business. Achieved Profit: Operating profit (before investment variance and one off items) for the period was £16.2 million pre-tax (2002: £33.2 million pre-tax). The operating profit has been impacted by lower new business volumes and the fixed nature of the expense base to maintain the Group's infrastructure (section 2 of this financial commentary provides further explanation on the group's expenses). These factors resulted in the contribution from new business falling from £11.7 million pre-tax in 2002 to £1.8 million pre-tax in the current six months. In addition there has been a negative experience variance of £3.0 million pre-tax in the six months compared to a positive experience variance of £2.9 million pre-tax in the corresponding period last year. This adverse movement reflects a £5.5 million negative for tax effects and a positive £2.5 million from other variances. With the continued fall in the stock markets last year our life funds have accumulated significant amounts of realised and unrealised capital losses, resulting in the UK life company being unable to obtain tax relief for the current year's expenses within the assumed timescales. Therefore the period before tax relief is obtained is deferred and the value of the tax losses reduces accordingly. One off charge - the profit for the year has been adversely impacted by a one off charge following an increase in the shareholder proportion of the Group's tax charge resulting from a 2003 Budget announcement. This one off charge reduces profit by £7.6 million pre-tax (2002: £nil). Investment return variance - the recent rally in world stock market has given rise to an average increase in our fund prices of 7%, some 4% above the achieved profit assumption. This has given rise to a positive investment return variance of £12.7 million pre-tax. For the prior year the average fund prices fell by approximately 3% being some 6% below the achieved profit assumption. This resulted in a negative investment variance of £20.7 million pre tax. After taking into account the investment return variance and the one off charge, the achieved profit result for the six months was £21.3 million pre-tax (2002: £12.5 million). Unit Trust business MSSB: Profits from the unit trust business were £4.7 million pre-tax (2002: £5.1 million pre tax). This fall reflects the reduction in annual management charges due to lower fund values than in the same period last year. Achieved Profits: Operating profits (before investment variance), fell from £12.2 million pre-tax for 2002 to £9.2 million pre-tax for the current year. This fall reflects both the lower new business levels and the lower earnings on the value of unit trust business in force. This latter point comes about as the value of unit trust business at the start of 2002 was before the dramatic fall in the stock markets experienced during 2003 and therefore the in force earnings were correspondingly higher in 2002. Investment variance - similar to the life and pension business there has been a positive investment return variance of £6.2 million pre-tax compared to a negative variance for the prior year of £4.2 million pre-tax. After taking into account the investment return variance in the period, the achieved profit for the six months was £15.4 million pre-tax (2002: £8.0 million pre-tax). Other Other shows earnings from the core business other than the Group's life and unit trust business and the result is the same on both the MSSB and the Achieved Profit basis. For the six month period there was a small loss of £0.3m pre-tax (2002: £nil). LAHC For the six months ended 30 June 2003, the result from LAHC was a small profit of £3.4 million pre-tax (2002: £7.7 million loss pre-tax). As noted in the Chairman's Statement the accounting treatment of LAHC has been reviewed and in the future it will be treated as an investment rather than an associated undertaking. Section 2: Explanation of Group Expenses Note 4 of the accounts provides details of the categories of expenses incurred by the Group's life companies during the six month period. Following a number of questions from shareholders and analysts, we have noted below the nature of these expenses and how they can be expected to vary with new business volumes. The figures in brackets indicate the proportion of each category of expenses to the total. i). Commission ( 37%) - this represents both initial and renewal commission. The initial commission will vary in line with production and renewal commission is funded from policy charges. ii). Third party administration costs ( 11%) - these costs are incurred under the contracts with our third party administrators and consist of both charges for new business and in force renewal charges. The new business costs are variable in line with production, whilst the renewal costs are funded from policy charges. iii). Other production related costs ( 7%) - these are costs met by the company which are related to the level of production, such as salesforce incentivisation, and are semi variable in nature. As production rises or falls, these costs will move in the same direction, although at a slower pace. iv). Establishment costs ( 35%) - these are the running costs of the Group's infrastructure and are fixed in nature in the short term. Consequently as new business volumes fall, the Group continues to bear these costs, and similarly, as new business volumes rise, these expenses do not rise in line with new business growth. v). Investment costs ( 9%) - these are the costs paid to the third party fund managers to whom we outsource our investment management. These costs are variable with the value of the funds under management and are charged to the internal linked funds. When calculating the Achieved Profit result the methodology adopted by SJPC in respect of these expenses is as follows: a). Maintenance expense assumptions have been set in line initially with the costs charged by the Group's third party administrators, together with an allowance for the Company's own maintenance costs and are assumed to increase in line with the average earnings index each year. b). Renewal commission and investment cost assumptions are matched to the corresponding income arising from the policy charges. c). Establishment costs together with the other production related costs, initial commission and new business third party admin costs, are treated as acquisition costs. These costs are therefore deducted from the new business contribution line in the analysis of the achieved profit result. PART 3 COMBINED LIFE AND UNIT TRUST ACHIEVED PROFIT RESULT The following information shows the result for the Group, adopting an achieved profit basis for reporting life and unit trust business on an unsmoothed basis. The comparative figures have been restated from a smoothed to an unsmoothed basis - further information is given in the basis of preparation note. SUMMARISED CONSOLIDATED PROFIT & LOSS ACCOUNT ACHIEVED PROFIT BASIS FOR CORE BUSINESS (unaudited) Unsmoothed Unsmoothed Unsmoothed Restated Restated 6 Months 6 Months 12 Months Ended Ended Ended 30 June 30 June 31 December 2003 2002 2002 ---------- --------- --------- £' Million £' Million £' Million Life business 16.2 33.2 59.3 Unit trust business 9.2 12.2 26.1 Other (0.3) - (4.5) --------- --------- --------- Operating profit 25.1 45.4 80.9 One off budget changes (7.6) - - Investment return variances 18.9 (24.9) (99.0) Economic assumption changes - - 2.3 --------- --------- --------- Profit / (loss) from core 36.4 20.5 (15.8) business LAHC 3.4 (7.7) (27.7) Other investments (Nascent) - (18.0) (19.4) --------- --------- --------- Profit / (loss) on ordinary activities before taxation 39.8 (5.2) (62.9) Taxation Life business (5.6) (2.9) 3.7 Unit trust business (4.6) (2.4) - Other 0.5 (0.5) (1.1) LAHC (1.0) 2.3 - --------- --------- --------- (10.7) (3.5) 2.6 Profit / (loss) on ordinary 29.1 (8.7) (60.3) activities after tax Dividends (5.3) (5.4) (11.8) --------- --------- --------- Retained profit / (loss) for the 23.8 (14.1) (72.1) financial year ========= ========= ========= Pence Pence Pence Dividend per share 1.25 1.25 2.75 Earnings per share 6.8 (2.0) (14.1) Adjusted Earnings per share 6.8 2.2 (9.6) Net Asset per share 115.3 124.0 109.7 CONSOLIDATED BALANCE SHEET COMBINED LIFE AND UNIT TRUST ACHIEVED PROFIT BASIS Unsmoothed Unsmoothed Unsmoothed Restated Restated 30 June 30 June 31 December 2003 2002 2002 ---------- --------- --------- £' Million £' Million £' Million Investments Investments in associated 31.6 51.5 29.2 undertakings Land and buildings 1.3 1.2 1.3 Other financial 80.6 81.0 113.4 investments ------- ------- ------- 113.5 133.7 143.9 ------- ------- ------- Value of long-term business in force - long-term insurance 288.7 296.6 267.8 - unit trusts 74.8 76.2 67.3 Assets held to cover linked 5,243.8 5,126.0 4,631.6 liabilities Reinsurers' share of technical 75.0 63.2 67.0 provisions Debtors 85.2 76.3 73.7 Other assets Tangible assets 6.4 8.6 7.2 Cash and cash equivalents 63.6 53.1 32.7 Prepayments and accrued 6.3 6.0 5.3 income Deferred acquisition costs 57.3 56.2 57.9 ------- ------- ------- Total assets 6,014.6 5,895.9 5,354.4 ------- ------- ------- Technical provisions (131.6) (123.4) (117.1) Technical provisions for linked (5,243.8) (5,126.0) (4,631.6) liabilities Provisions for other risks and (15.9) (19.6) (16.2) charges Creditors Amounts owed to credit (51.0) (15.0) (45.0) institutions Amount due to reassurers (18.3) (23.7) (18.3) Other creditors (27.4) (33.0) (26.2) Proposed dividend (5.4) (5.4) (6.4) Accruals and deferred income (24.2) (15.1) (20.5) ------- ------- ------- Total liabilities (5,517.6) (5,361.2) (4,881.3) ------- ------- ------- Total net assets 497.0 534.7 473.1 ======= ======= ======= Capital and reserves Share capital 64.7 64.5 64.6 Share premium 4.7 4.1 4.6 Shares to be issued 0.3 0.4 0.4 Other reserves 427.3 465.7 403.5 ------- ------- ------- Equity shareholders' funds 497.0 534.7 473.1 ======= ======= ======= NOTES TO THE ACHIEVED PROFIT RESULTS I. BASIS OF PREPARATION The enclosed information shows the Group's results as measured on an achieved profit basis, which includes the results of both the Group's long-term assurance and unit trust 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. Except as noted below, the accounting policies used by the Group in the preparation of this interim report are consistent with those applied in preparing the achieved profit results in the financial statements for the year ended 31 December 2002. The 2002 financial statements included achieved profit results for both long-term assurance and unit trust business, which for the purposes of projecting future unit growth, valued the unit linked funds on a smoothed basis using a recursive formula. In this Interim Report, the basis of projecting future unit growth has been changed to an unsmoothed basis and the prior year results have been disclosed on this basis. The effect of this change was disclosed in the 2002 financial statements. Note V to these results discloses the equivalent smoothed results. 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 June 2003 are set out below. 30 June 30 June 31 December 2003 2002 2002 Risk discount rate (net of tax) 8.0% 8.5% 8.0% Future investment returns: - Fixed Interest 4.5% 5.0% 4.5% - Equities 7.0% 7.5% 7.0% - Unit-linked funds: - Capital growth 3.5% 4.5% 3.5% - Dividend income 3.0% 2.5% 3.0% - Total 6.5% 7.0% 6.5% Expense inflation 4.25% 4.5% 4.25% Indexation of capital gains 1.75% 2.5% 1.75% 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 rates of expense inflation and indexation of capital gains are set by reference to the rate of inflation implicit in the current valuation of 15 year index-linked gilts. 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. 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. At the end of 2001, a provision of £12.5 million was set up within the cash flows following concerns over potential adverse morbidity experience on critical illness plans. This provision has remained unchanged from 31 December 2002. 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 AND UNIT TRUST ACHIEVED PROFIT The pre-tax components of the achieved profit result on an unsmoothed basis for life and unit trust business are shown below. Life business Unsmoothed Unsmoothed Unsmoothed 6 Months 6 Months 12 Months Ended Ended Ended 30 June 30 June 31 December 2003 2002 2002 ---------- --------- --------- £'Million £'Million £'Million New business contribution 1.8 11.7 18.7 Profit from existing business Unwind of discount rate 15.9 17.3 31.8 Experience variances (3.0) 2.9 5.7 Operating assumption - - 0.5 changes Investment income 1.5 1.3 2.6 ---------- --------- --------- Life operating profit before 16.2 33.2 59.3 tax Investment return variances 12.7 (20.7) (73.3) One off budget changes (7.6) - - Effect of economic assumption - - 2.5 changes ---------- --------- --------- Life profit before tax 21.3 12.5 (11.5) Attributed tax (5.6) (2.9) 3.7 ---------- --------- --------- Life profit after tax 15.7 9.6 (7.8) ========== ========= ========= New business contribution after tax is £1.6 million (30 June 2002: £8.9 million). Unit trust business Unsmoothed Unsmoothed Unsmoothed 6 Months 6 Months 12 Months Ended Ended Ended 30 June 30 June 31 December 2003 2002 2002 ---------- --------- --------- £' Million £' Million £' Million New business contribution 5.1 8.3 14.3 Profit from existing business Unwind of discount rate 3.7 4.3 7.9 Experience variances 0.4 (0.4) 3.9 ---------- --------- --------- Unit trust operating profit 9.2 12.2 26.1 before tax Investment return 6.2 (4.2) (25.7) variances Effect of economic - - (0.2) assumption changes ---------- --------- --------- Unit trust profit before 15.4 8.0 0.2 tax Attributed tax (4.6) (2.4) - ---------- --------- --------- Unit trust profit after 10.8 5.6 0.2 tax ========== ========= ========= New business contribution after tax is £3.6 million (30 June 2002: £5.8 million). Unsmoothed Unsmoothed Unsmoothed Unit trust and life business 6 Months 6 Months 12 Months combined Ended Ended Ended 30 June 30 June 31 December 2003 2002 2002 ---------- --------- --------- £' Million £' Million £' Million New business contribution 6.9 20.0 33.0 Profit from existing business Unwind of discount rate 19.6 21.6 39.7 Experience variances (2.6) 2.5 9.6 Operating assumption - - 0.5 changes Investment income 1.5 1.3 2.6 ---------- --------- --------- Operating profit before tax 25.4 45.4 85.4 Investment return variances 18.9 (24.9) (99.0) One off budget changes (7.6) - - Effect of economic assumption - - 2.3 changes ---------- --------- --------- Profit before tax 36.7 20.5 (11.3) Attributed tax (10.2) (5.3) 3.7 ---------- --------- --------- Profit after tax 26.5 15.2 (7.6) ========== ========= ========= New business contribution after tax is £5.2 million (30 June 2002: £14.7 million). The one off budget changes reflect the effect of the 2003 Budget announcement which reduced the rate of tax on policyholder 'profits' from 22% to 20% and thereby increased the tax burden on the Company. IV. SENSITIVITIES The table below shows the impact of changes in economic assumptions on the combined life and unit trust 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 Change in new business contribution long-term business in-force Pre-tax Post-tax ---------- --------- ---------- £' Million £' Million £' Million Reported value at 30 June 6.9 5.2 363.5 2003 Risk discount +1% (2.4) (1.7) (20.7) rate -1% 2.7 1.9 21.9 Investment +1% 2.1 1.5 21.4 return -1% (2.0) (1.4) (24.0) Current x110% (1.6) (1.1) (14.0) Withdrawal x90% 1.7 1.2 14.6 rate Unit values +10% - - 26.2 -10% - - (23.5) V. ACHIEVED PROFIT ON A SMOOTHED BASIS The pre-tax components of the achieved profit result on a smoothed basis for life and unit trust business are shown below. Smoothed Smoothed Smoothed 6 Months 6 Months 12 Months Ended Ended Ended 30 June 30 June 31 December Life business 2003 2002 2002 ---------- --------- --------- £'Million £'Million £'Million New business contribution 1.8 11.7 18.7 Profit from existing business Unwind of discount rate 18.7 18.6 34.4 Experience variances (2.6) 2.7 5.5 Operating assumption - - 0.5 changes Investment income 1.5 1.3 2.6 ---------- --------- --------- Life operating profit before 19.4 34.3 61.7 tax Investment return variances (23.2) (4.8) (32.0) One off budget changes (9.0) - - Effect of economic assumption - - 2.7 changes ---------- --------- --------- Life profit before tax (12.8) 29.5 32.4 Attributed tax 4.2 (7.7) (8.8) ---------- --------- --------- Life profit after tax (8.6) 21.8 23.6 ========== ========= ========= Smoothed Smoothed Smoothed 6 Months 6 Months 12 Months Ended Ended Ended 30 June 30 June 31 December Unit trust business 2003 2002 2002 ---------- --------- --------- £' Million £' Million £' Million New business contribution 5.1 8.3 14.3 Profit from existing business Unwind of discount rate 4.6 4.6 8.6 Experience variances 0.6 (0.5) 3.8 ---------- --------- --------- Unit trust operating profit 10.3 12.4 26.7 before tax Investment return (10.3) (2.4) (12.0) variances Effect of economic - - (0.2) assumption changes ---------- --------- --------- Unit trust profit before - 10.0 14.5 tax Attributed tax - (3.0) (4.3) ---------- --------- --------- Unit trust profit after - 7.0 10.2 tax ========== ========= ========= Smoothed Smoothed Smoothed 6 Months 6 Months 12 Months Ended Ended Ended 30 June 30 June 31 December Unit trust and life business 2003 2002 2002 combined ---------- --------- --------- £' Million £' Million £' Million New business contribution 6.9 20.0 33.0 Profit from existing business Unwind of discount rate 23.3 23.2 43.0 Experience variances (2.0) 2.2 9.3 Operating assumption - - 0.5 changes Investment income 1.5 1.3 2.6 ---------- --------- --------- Operating profit before tax 29.7 46.7 88.4 Investment return variances (33.5) (7.2) (44.0) One off budget changes (9.0) - - Effect of economic assumption - - 2.5 changes ---------- --------- --------- Profit before tax (12.8) 39.5 46.9 Attributed tax 4.2 (10.7) (13.1) ---------- --------- --------- Profit after tax (8.6) 28.8 33.8 ========== ========= ========= PART 4 MODIFIED STATUTORY SOLVENCY BASIS CONSOLIDATED PROFIT & LOSS ACCOUNT LONG TERM BUSINESS TECHNICAL ACCOUNT (unaudited) 6 Months 6 Months 12 Months Ended Ended Ended 30 June 30 June 31 December 2003 2002 2002 ---------- --------- --------- Note £' Million £' Million £' Million Earned premiums, net of reinsurance Gross premiums 3 446.9 535.9 1,038.8 written Outwards reinsurance (12.8) (11.1) (26.8) premiums ---------- --------- --------- 434.1 524.8 1,012.0 Investment income 83.1 98.9 143.5 Unrealised gains on 497.5 - - investments Other technical income 0.3 - - ---------- --------- --------- 1,015.0 623.7 1,155.5 ---------- --------- --------- Claims incurred, net of reinsurance Claims paid - gross amount (156.5) (137.4) (285.7) - reinsurers' share 8.7 6.9 20.9 ---------- --------- --------- (147.8) (130.5) (264.8) Change in the provision for claims - gross amount 0.6 (1.4) (2.4) - reinsurers' share 0.3 2.8 4.0 ---------- --------- --------- 0.9 1.4 1.6 ---------- --------- --------- (146.9) (129.1) (263.2) ---------- --------- --------- Change in other technical provisions, net of reinsurance Long term business provision - gross amount (6.5) (1.1) 6.2 - reinsurers' share 7.7 1.7 9.7 ---------- --------- --------- 1.2 0.6 15.9 Technical provisions for linked liabilities (587.1) (329.4) 165.0 Net operating expenses 4 (73.1) (78.1) (163.7) Investment expenses and charges Investment expenses 4 (7.2) (6.9) (15.5) Realised losses on (200.3) (4.8) (112.1) investments Unrealised losses on - (75.6) (780.4) investments Other technical (1.4) (3.0) (6.8) charges Tax attributable to the long-term business (6.8) (2.3) 6.4 ---------- --------- --------- (1,021.6) (628.6) (1,154.4) ---------- --------- --------- Balance on the long-term business technical account (6.6) (4.9) 1.1 ========== ========= ========= CONSOLIDATED PROFIT & LOSS ACCOUNT NON-TECHNICAL ACCOUNT 6 Months 6 Months 12 Months Ended Ended Ended 30 June 30 June 31 December 2003 2002 2002 --------- --------- --------- Note £' Million £' Million £' Million Balance on the long-term business technical account (6.6) (4.9) 1.1 Tax credit attributable to balance on the long-term business technical account (3.7) (3.2) (1.0) --------- --------- --------- Shareholders' (loss)/profit from long-term business (10.3) (8.1) 0.1 Investment income Income from associated 7 3.4 (7.7) (27.7) undertakings Income from other 2.2 1.6 (15.8) investments Other income Income from unit trust 4.7 5.1 10.3 operations Other 9.0 2.9 4.3 Investment expenses and (0.1) - (0.3) charges Other expenses and charges (11.4) (22.5) (12.1) --------- --------- --------- Loss on ordinary activities 2 (2.5) (28.7) (41.2) before tax Tax on ordinary activities 2 1.8 3.5 (3.2) --------- --------- --------- Loss on ordinary activities 2 (0.7) (25.2) (44.4) after tax Dividends (5.3) (5.4) (11.8) --------- --------- --------- Retained loss for the (6.0) (30.6) (56.2) period ========= ========= ========= Pence Pence Pence Dividend per share 5 1.25 1.25 2.75 Earnings per share 6 (0.2) (5.9) (10.4) Adjusted earnings per 6 (0.2) (1.7) (5.9) share There are no other recognised gains and losses and therefore a separate statement of total recognised gains and losses has not been presented. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS 6 Months 6 Months 12 Months Ended Ended Ended 30 June 30 June 31 December 2003 2002 2002 --------- --------- ---------- £' Million £' Million £' Million Opening shareholders' funds 192.0 246.8 246.8 Loss for the financial period (0.7) (25.2) (44.4) Dividends (5.3) (5.4) (11.8) --------- --------- ---------- Retained loss for the period (6.0) (30.6) (56.2) Issue of share capital 0.1 0.8 1.4 --------- --------- ---------- Net decrease to shareholders' (5.9) (29.8) (54.8) funds --------- --------- ---------- Closing shareholders' funds 186.1 217.0 192.0 ========= ========= ========== CONSOLIDATED BALANCE SHEET 30 June 30 June 31 December 2003 2002 2002 --------- --------- ---------- Note £' Million £' Million £' Million Investments Investments in 7 31.6 51.5 29.2 associated undertakings Land and 1.3 1.2 1.3 buildings Other financial 80.6 81.0 113.4 investments --------- --------- ---------- 113.5 133.7 143.9 --------- --------- ---------- Acquired value of long-term business in force 8 52.6 55.1 54.0 Assets held to cover 5,243.8 5,126.0 4,631.6 linked liabilities Reinsurers' share of 75.0 63.2 67.0 technical provisions Debtors 85.2 76.3 73.7 Other assets Tangible assets 6.4 8.6 7.2 Cash and cash 63.6 53.1 32.7 equivalents Prepayments and 6.3 6.0 5.3 accrued income Deferred acquisition 57.3 56.2 57.9 costs --------- --------- ---------- Total assets 5,703.7 5,578.2 5,073.3 --------- --------- ---------- Technical (131.6) (123.4) (117.1) provisions Technical provisions (5,243.8) (5,126.0) (4,631.6) for linked liabilities Provisions for other 9 (15.9) (19.6) (16.2) risks and charges Creditors Amounts owed to (51.0) (15.0) (45.0) credit institutions Amount due to (18.3) (23.7) (18.3) reassurers Other creditors (27.4) (33.0) (26.2) Proposed dividend 5 (5.4) (5.4) (6.4) Accruals and deferred (24.2) (15.1) (20.5) income --------- --------- ---------- Total liabilities (5,517.6) (5,361.2) (4,881.3) --------- --------- ---------- Total net assets 186.1 217.0 192.0 ========= ========= ========== Capital and reserves Share capital 10 64.7 64.5 64.6 Share premium 4.7 4.1 4.6 Shares to be 0.3 0.4 0.4 issued Other reserves 2.2 2.2 2.2 Profit and loss 11 114.2 145.8 120.2 account --------- --------- ---------- Equity shareholders' 186.1 217.0 192.0 funds --------- --------- ---------- CONSOLIDATED CASH FLOW STATEMENT (EXCLUDING POLICYHOLDER FUNDS) 6 Months 6 Months 12 Months Ended Ended Ended 30 June 30 June 31 December 2003 2002 2002 --------- --------- ---------- Note £' Million £' Million £' Million Shareholders' net cash outflow from long-term business - - (20.0) Other operating cash flows attributable to shareholders 3.3 9.5 (0.2) --------- --------- ---------- Net cash inflow /(outflow) from operating activities 12 3.3 9.5 (20.2) Interest Interest received 2.2 1.6 3.5 Interest paid (1.3) - (0.3) --------- --------- ---------- 0.9 1.6 3.2 Taxation Corporation tax - 2.7 0.1 recovered Capital expenditure Purchase of tangible fixed (0.7) (2.2) (3.0) assets Sale of fixed assets 0.2 0.5 0.9 --------- --------- ---------- (0.5) (1.7) (2.1) Acquisitions and disposals Investment in shares and other variable yield securities (3.0) (1.6) (9.8) Cash acquired with 0.1 - - subsidiary --------- --------- ---------- (2.9) (1.6) (9.8) Equity dividends paid (6.4) (6.4) (11.8) --------- --------- ---------- Net cash (outflow) / inflow before financing (5.6) 4.1 (40.6) Financing Issue of ordinary share 0.1 0.7 1.4 capital Drawdown of loan 6.0 - 45.0 --------- --------- ---------- 6.1 0.7 46.4 --------- --------- ---------- Net cash inflow in the 0.5 4.8 5.8 period ========= ========= ========== The net cash inflow was applied as follows: (Decrease) / increase in cash (1.3) 8.9 8.1 holdings Net portfolio investments --------- --------- ---------- Deposits / (withdrawals) from 1.8 (4.1) (2.3) credit institutions --------- --------- ---------- Net application of cash flows 0.5 4.8 5.8 ========= ========= ========== NOTES TO THE ACCOUNTS 1. PRINCIPAL ACCOUNTING POLICIES 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. The accounting policies used by the Group in the preparation of this Interim Report are consistent with those applied in preparing the financial statements for the year ended 31 December 2002. 2. SEGMENTAL ANALYSIS OF PROFITS 6 Months 6 Months 12 Months Ended Ended Ended 30 June 30 June 31 December 2003 2002 2002 --------- --------- ---------- £' Million £' Million £' Million St. James's Place Group Life business (10.3) (8.1) 0.1 Unit trust business 4.7 5.1 10.3 Other (0.3) - (4.5) --------- --------- ---------- Core business (loss)/profit (5.9) (3.0) 5.9 --------- --------- ---------- Associated undertakings LAHC 3.4 (7.7) (27.7) Other investments - (18.0) (19.4) --------- --------- ---------- Loss on ordinary activities before taxation (2.5) (28.7) (41.2) --------- --------- ---------- Taxation Life business 3.7 3.2 1.0 Unit trust business (1.4) (1.5) (3.1) Other 0.5 (0.5) (1.1) LAHC (1.0) 2.3 - --------- --------- ---------- 1.8 3.5 (3.2) --------- --------- ---------- Loss on ordinary activities (0.7) (25.2) (44.4) after taxation ========= ========= ========== 3. PREMIUMS WRITTEN 6 Months 6 Months 12 Months Ended Ended Ended 30 June 30 June 31 December 2003 2002 2002 --------- --------- ---------- £' Million £' Million £' Million Life business Single premiums 253.7 309.5 581.8 Regular premiums 47.3 48.6 101.9 Reinsurances (6.2) (5.7) (13.0) --------- --------- ---------- 294.8 352.4 670.7 --------- --------- ---------- Pension business Single premiums 76.2 101.6 207.3 Regular premiums 61.2 69.1 132.2 Reinsurances (0.7) (0.7) (1.4) --------- --------- ---------- 136.7 170.0 338.1 --------- --------- ---------- Permanent health insurance Regular premiums 8.5 7.1 15.6 Reinsurances (5.9) (4.7) (12.4) --------- --------- ---------- 2.6 2.4 3.2 --------- --------- ---------- Total net premiums 434.1 524.8 1,012.0 ========= ========= ========== Gross premiums comprise: Individual business 402.5 476.4 904.0 Group contracts 44.4 59.5 134.8 --------- --------- ---------- Total gross premiums 446.9 535.9 1,038.8 ========= ========= ========== Premiums written do not include stakeholder and protection business written by other providers. 4. EXPENSES Technical account The expenses suffered by the technical account may be analysed as follows: 6 Months 6 Months 12 Months Ended Ended Ended 30 June 30 June 31 December 2003 2002 2002 ---------- --------- --------- £' Million £' Million £' Million Commission 30.0 35.8 71.0 Third party administration 8.9 8.6 16.9 Other production related 5.9 6.9 13.4 Establishment 27.7 27.2 64.0 DAC movement 0.6 (0.4) (1.6) ---------- --------- --------- Net operating expenses 73.1 78.1 163.7 Investment expenses 7.2 6.9 15.5 ---------- --------- --------- Total expenses 80.3 85.0 179.2 ========== ========= ========= 5. INTERIM DIVIDEND The Directors have resolved to pay an interim dividend of 1.25p per share (2002: 1.25p). This amounts to £5.4 million (2002: £5.4 million) and will be paid on 9 September 2003 to shareholders on the register on 8 August 2003. 6. EARNINGS PER SHARE 6 Months 6 Months 12 Months Ended Ended Ended 30 June 30 June 31 December 2003 2002 2002 --------- --------- --------- Pence Pence Pence Loss on ordinary activities after (0.2) (5.9) (10.4) taxation Adjustments - Nascent investment - 4.2 4.5 --------- --------- --------- Adjusted loss (0.2) (1.7) (5.9) ========= ========= ========= The above table sets out earnings per share and the adjusted earnings per share. In accordance with FRS 14 'Earnings per Share', since the 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 shares taken into account in the above calculations: 6 Months 6 Months 12 Months Ended Ended Ended 30 June 30 June 31 December 2003 2002 2002 --------- --------- --------- (Loss) / profit on ordinary activities after taxation £(0.7 m) £(25.2 m) £(44.4 m) Adjustments - Nascent investment - £18.0 m £19.4 m --------- --------- --------- Adjusted (loss) / profit after tax £(0.7 m) £(7.2 m) £(25.0 m) ========= ========= ========= Weighted average number of shares (including shares to be issued) 430.1 428.8 428.0 ========= ========= ========= Diluted weighted average number of shares 433.7 443.5 445.4 ========= ========= ========= Number of share options for which diluted effect taken account of 55.4 58.4 55.5 ========= ========= ========= 7. INVESTMENTS IN ASSOCIATED UNDERTAKINGS The Group holds an investment of 22.7% (2002: 22.7%) 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 period to 30 June 2003. The movement in interest in LAHC during the 6 months to June 2003 is analysed below: £' Million ---------- Value at 1 January 2003 29.2 Share of pre-tax profit for the period 3.4 Share of tax for the period (1.0) ---------- Value at 30 June 2003 31.6 ========== As a result of a number of issues that have arisen in recent years, LAHC has carried out a review of its future strategy and its financing arrangements. This has led to the decision that the operations will concentrate on the run-off of the existing book of business in order to optimise the level of cash generation and future dividends. LAHC does not propose to undertake any significant acquisitions. This is being implemented in the form of consequential changes to the management structure and the nature and scale of LAHC's operations. Sir Mark Weinberg resigned as Chairman of LAHC on 23 July 2003. SJPC has commented in previous financial statements that it regards LAHC as a non-core investment. In view of the change of strategy outlined above, SJPC has taken the opportunity to reduce significantly the amount of directors' time spent on LAHC's affairs. Accordingly, Sir Mark Weinberg and Derek Netherton resigned from the LAHC Board on 25 July 2003. In addition, and with the agreement of LAHC's other shareholders, SJPC entered into an irrevocable deed to restrict its voting interest in LAHC to 19.9% on 25 July 2003. As a consequence of the above, the SJPC Board reviewed the accounting treatment for the holding in LAHC, which is to be treated as an investment from 25 July 2003. 8. ACQUIRED VALUE OF LONG-TERM BUSINESS IN FORCE 6 Months 6 Months 12 Months Ended Ended Ended 30 June 30 June 31 December 2003 2002 2002 --------- ---------- --------- £' Million £' Million £' Million Value at start of period 54.0 56.6 56.6 Amortisation (1.4) (1.5) (2.6) --------- ---------- --------- Value at end of period 52.6 55.1 54.0 ========= ========== ========= 9. PROVISIONS FOR OTHER RISKS AND CHARGES Other Deferred Tax Provisions Total ------------ ---------- --------- £' Million £' Million £' Million At 1 January 2003 15.9 0.3 16.2 Movement in the period (0.2) (0.1) (0.3) ------------ ---------- --------- At 30 June 2003 15.7 0.2 15.9 ============ ========== ========= 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. 10. SHARE CAPITAL Number £'Million ---------- --------- At 1 January 2003 430,712,254 64.6 Exercise of options 514,560 0.1 ---------- --------- At 30 June 2003 431,226,814 64.7 ========== ========= Options outstanding under the various share option schemes at 30 June 2003 now amount to 59.7 million shares, of which 55.4 million will result in the issue of new shares and the balance will be met by shares currently held in an Employee Share Option Trust. Of the total 59.7 million shares, 42.9 million are under option to Partners of St. James's Place Partnership, 13.1 million are under option to executives and senior management and 3.7 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 exercise their shares at the first available opportunity. Number of share Earliest date of exercise Average options Anticipated exercise price outstanding proceeds £ Million £' Million ---------------- ----------- ----------- Immediate 1.52 16.4 24.9 Jul - Dec 2003 1.52 9.3 14.1 Jan - Jun 2004 1.90 1.0 1.9 Jul - Dec 2004 2.17 0.6 1.3 Jan - Jun 2005 2.06 1.6 3.3 Jul - Dec 2005 1.61 7.2 11.6 Jan - Jun 2006 0.98 5.9 5.8 Jul - Dec 2006 1.43 6.7 9.6 Jan - Jun 2007 1.42 1.9 2.7 Jul - Dec 2007 1.42 6.2 8.8 Jan - Jun 2008 0.88 2.6 2.3 Jul - Dec 2008 2.00 0.1 0.2 Jan - Jun 2009 1.00 0.2 0.2 ---------- ---------- 59.7 86.7 ========== ========== 11. PROFIT AND LOSS ACCOUNT £' Million ---------- At 1 January 2003 120.2 Loss for the period (0.7) Dividends (5.3) ---------- At 30 June 2003 114.2 ========== 12. RECONCILIATION OF OPERATING LOSS TO NET CASH INFLOW FROM OPERATING ACTIVITIES 6 Months 6 Months 12 Months Ended Ended Ended 30 June 30 June 31 December 2003 2002 2002 ---------- ---------- ----------- £' Million £' Million £' Million Operating loss before taxation (2.5) (28.7) (41.2) Continuing activities Interest paid 1.3 - 0.3 Interest received (2.2) (1.6) (3.5) Losses / (profits) relating to long-term business 10.3 8.1 (0.1) Transfer to long-term business (0.5) - (20.0) fund Depreciation 1.4 1.6 3.5 Profit on sale of fixed assets - (0.1) (0.1) Share of (profit) / loss of associated undertaking (3.4) 7.7 27.7 Write down in shares and other variable yield securities - 18.0 21.3 Increase in debtors and (7.0) (4.3) (3.9) prepayments Decrease in debtor to long-term business fund - 11.6 2.9 Decrease in creditor to long-term business fund 2.6 - - Increase / (decrease) in 3.3 (2.8) (7.1) creditors ---------- ---------- ----------- Net cash inflow / (outflow) from operating activities 3.3 9.5 (20.2) ========== ========== =========== 13. MOVEMENT IN OPENING AND CLOSING PORTFOLIO INVESTMENTS, NET OF FINANCING 6 Months 6 Months 12 Months Ended Ended Ended 30 June 30 June 31 December 2003 2002 2002 ---------- ---------- ----------- £' Million £' Million £' Million (Decrease) / increase in cash (1.3) 8.9 8.1 holdings Drawdown of loan (6.0) - (45.0) Portfolio investments: deposits with credit institutions 1.8 (4.1) (2.3) ---------- ---------- ----------- Total movement in portfolio investments, net of financing (5.5) 4.8 (39.2) Portfolio investments, net of financing at 1 January (11.5) 27.7 27.7 ---------- ---------- ----------- Portfolio investments, net of financing at 30 June (17.0) 32.5 (11.5) ========== ========== =========== 14. STATUTORY ACCOUNTS The financial information shown in this publication is unaudited and does not constitute statutory accounts. The comparative figures for the financial year ended 31 December 2002 are not the Company's statutory accounts for that financial year. Those accounts have been reported on by the Company's auditors and delivered to the Registrar of Companies. The report of the auditors was unqualified and did not contain a statement under section 237 (2) or (3) of the Companies Act 1985. This information is provided by RNS The company news service from the London Stock Exchange

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