Final Results - Year Ended 31 Dec 1999, Part 2

St. James's Place Capital PLC 22 March 2000 PART 2 CONSOLIDATED TECHNICAL ACCOUNT Year Ended Year Ended 31 December 31 December 1999 1998 ======= ======= £'Million £'Million Earned premiums, net of reinsurance Gross premiums written 752.2 634.3 Outwards reinsurance premiums (27.0) (24.0) ======= ======= 725.2 610.3 Increase in value of long-term business in force 60.5 58.2 Investment income 249.7 207.1 Unrealised gains on investments 434.3 57.8 Other technical income 9.0 - ======= ======= 1,478.7 933.4 ======= ======= Claims incurred, net of reinsurance Claims paid - gross amount (165.9) (155.4) - reinsurers' share 13.2 21.3 ======= ======= (152.7) (134.1) Change in provision for claims - gross amount (2.8) (1.0) - reinsurers' share 0.1 0.6 ======= ======= (2.7) (0.4) ======= ======= (155.4) (134.5) Changes in other technical provisions, net of reinsurance Long-term business provision - gross amount (31.8) (12.1) - reinsurers' share 5.8 4.0 ======= ======= (26.0) (8.1) Technical provisions for linked liabilities (1,095.9) (591.6) Net operating expenses (129.2) (116.7) Investment expenses and charges (10.1) (8.1) Tax attributable to the long-term business (25.1) (34.2) ======= ======= (1,441.7) (893.2) ======= ======= Balance on the long-term business technical account 37.0 40.2 ======= ======= The notes and information following form part of this announcement. CONSOLIDATED NON TECHNICAL ACCOUNT Year Ended Year Ended 31 December 31 December Notes 1999 1998 ======= ======= £'Million £'Million Balance on the long-term business technical account 10 37.0 40.2 Taxation attributable to balance on long-term business technical account 16.0 17.3 ======= ======= Shareholders' pre-tax profit from long-term business 53.0 57.5 Investment income Income from associates 15 - continuing 27.4 17.6 - discontinued 5.8 4.7 Income from other investments 4.3 4.1 Investment expenses and charges (1.8) (1.7) Other income 8 27.0 21.8 Other charges 9 (22.5) (17.7) ======= ======= Operating profit (both continuing and discontinued) 93.2 86.3 Disposal of associate (discontinued) 15 81.6 - ======= ======= Profit on ordinary activities before taxation Continuing 87.4 81.6 Discontinued 87.4 4.7 ======= ======= 174.8 86.3 Taxation (both continuing and discontinued) 12 (49.3) (25.3) ======= ======= Profit on ordinary activities after taxation 125.5 61.0 Dividend (7.4) (6.2) ======= ======= Retained profit for the financial year 118.1 54.8 ======= ======= Pence Pence Dividend per share 13 1.75 1.5 Earnings per share 14 30.0 14.9 Adjusted earnings per share 14 13.9 13.9 Fully diluted earnings per share 14 28.6 13.8 Fully diluted adjusted earnings per share 14 13.2 12.9 Unless otherwise stated, all amounts are in respect of continuing operations. The adjusted 1998 earnings per share figures have been amended as detailed in note 14. CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES Year Ended Year Ended 31 December 31 December 1999 1998 ======= ======= £'Million £'Million Profit for the financial year 125.5 61.0 Currency translation movements 0.6 (0.8) ======= ======= Total gains recognised during the year 126.1 60.2 ======= ======= CONSOLIDATED BALANCE SHEET AT 31 DECEMBER Notes 1999 1998 ======= ======= £'Million £'Million ASSETS Investments Land and buildings 1.1 0.8 Investment in associated undertakings 15 85.4 81.5 Other financial investments Debt securities and other fixed income securities 23.0 17.0 Deposits with credit institutions 121.1 76.6 Deposits with ceding undertakings 3.8 3.9 ======= ======= 234.4 179.8 Value of long-term business in force 11 184.4 141.7 Assets held to cover linked liabilities 3,479.7 2,383.8 Reinsurers' share of technical provisions Long-term business provision 18.0 12.2 Claims outstanding 1.7 1.6 ======= ======= 19.7 13.8 Debtors Debtors arising out of direct insurance operations 4.0 4.4 Other debtors 42.6 29.7 ======= ======= 46.6 34.1 Other assets Tangible assets 6.0 4.4 Cash at bank and in hand 47.3 28.7 ======= ======= 53.3 33.1 Prepayments and accrued income Deferred acquisition costs 30.6 26.9 Other prepayments and accrued income 21.0 4.6 ======= ======= 51.6 31.5 ======= ======= Total assets 4,069.7 2,817.8 ======= ======= LIABILITIES Notes 1999 1998 ======= ======= £'Million £'Million Capital and reserves Called up share capital 16 63.3 62.3 Share premium account 0.1 0.1 Shares to be issued 1.0 2.0 Other reserves 124.7 82.4 Profit and loss account 221.0 144.6 ======= ======= Equity shareholders funds 410.1 291.4 Technical provisions Long-term business provision 75.4 43.6 Claims outstanding 7.5 4.7 ======= ======= 82.9 48.3 Technical provisions for linked liabilities 3,479.7 2,383.8 Provisions for other risks and charges 9.2 9.4 Creditors Creditors arising out of direct insurance operations 8.1 5.2 Amounts owed to credit institutions 11.7 29.6 Other creditors including taxation and social security 48.4 33.0 Proposed dividend 4.2 3.1 ======= ======= 72.4 70.9 Accruals and deferred income 15.4 14.0 ======= ======= Total liabilities 4,069.7 2,817.8 ======= ======= NOTES TO THE ANNOUNCEMENT 1. BASIS OF PREPARATION The consolidated financial statements have been prepared in accordance with the provisions of Section 255A of, and the special provisions relating to insurance companies of Schedule 9A to, the Companies Act 1985 and with the Association of British Insurers' Statement of Recommended Practice on Accounting for Insurance Business ('ABI SORP') dated December 1998. 2. LONG-TERM BUSINESS PROFIT RECOGNITION Profits from the long-term assurance business continue to be determined on the embedded value basis which recognises as profit the statutory surplus arising in the period, determined by the subsidiary companies' Appointed Actuaries following their annual investigations, together with the change in the present value of future surpluses expected to emerge from the business currently in force. The embedded valuation is determined in consultation with independent actuaries on an annual basis. The statutory surplus arising in the period which is recognised in the long-term business technical account 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, to give the modified statutory surplus. The excess of the embedded value profit arising in the period over the modified statutory surplus is reported separately within the long-term business technical account as the 'increase in value of long-term business in force'. The value of long-term business in force included in the balance sheet is net of taxation and includes both acquired and self-generated business. The amortisation of acquired in force business is not material and is included within the increase in value of long-term business in force. The embedded value profits are initially calculated at the post-tax level and are grossed up on the basis that they will be taxed in the UK at the underlying rate of tax. The post tax excess of embedded value profit over the modified statutory surplus arising in the period is transferred to non-distributable reserves and will be treated as non-distributable until such time as it emerges as part of the surplus arising during subsequent years. 3. OTHER ACCOUNTING POLICIES The other accounting policies used by the Group in preparing the results are also consistent with those applied in preparing statutory accounts for the year ended 31 December 1998. 4. SEGMENTAL ANALYSIS Year Ended Year Ended 31 December 31 December 1999 1998 ======= ======= £'Million £'Million Group JRAH's life business 53.0 57.5 JRAH's unit trust business 5.7 5.0 Other (0.5) 1.5 Release of provision against litigation 1.8 - ======= ======= 60.0 64.0 ======= ======= Associated undertakings LAHC 27.4 17.6 GAM 5.8 4.7 ======= ======= 33.2 22.3 ======= ======= Exceptionals - Disposal of GAM 81.6 - ======= ======= Profit on ordinary activities before taxation 174.8 86.3 Taxation JRAH's life business (16.0) (17.3) JRAH's unit trust business (1.7) (1.5) Other 0.3 (0.2) LAHC (8.3) (5.3) GAM (0.9) (1.0) Exceptionals - Disposal of GAM (22.7) - ======= ======= (49.3) (25.3) ======= ======= Profit on ordinary activities ======= ======= after taxation 125.5 61.0 ======= ======= An analysis of the profits arising from the Group's life business is considered in note 10. The net asset value per share at 31 December 1999, calculated on the number of shares in issue at that date, was 97.2 pence (1998: 70.2 pence). 5. GROSS NEW BUSINESS Year Ended Year Ended 31 December 31 December 1999 1998 ======= ======= £'Million £'Million Regular Premiums (annualised) Life 27.1 24.9 Pension 34.3 32.3 ======= ======= 61.4 57.2 ======= ======= Single Premiums Life 477.6 379.2 Pension 82.1 93.8 Unit trust 154.0 129.3 ======= ======= 713.7 602.3 ======= ======= Total New Business Life 74.9 62.8 Pension 42.5 41.7 Unit trust 15.4 12.9 ======= ======= 132.8 117.4 ======= ======= Total New Business has been calculated on the ABI basis of RP plus 1/10th SP. 6. THE J. ROTHSCHILD PARTNERSHIP Members of The J. Rothschild Partnership numbered 972 at 31 December 1999 (31 December 1998: 891) representing a growth of 9%. 7. JRA GROUP ASSETS UNDER MANAGEMENT Assets under management for JRAH totalled £4.6 billion at 31 December 1999 (31 December 1998: £3.1 billion), representing a growth of 46%. 8. OTHER INCOME Year Ended Year Ended 31 December 31 December 1999 1998 ======= ======= £'Million £'Million Unit trust income 14.2 12.3 Fees for provision of management services 10.1 8.3 Other 0.9 1.2 Release of provision held against litigation 1.8 - ======= ======= 27.0 21.8 ======= ======= The release of the provision follows the finalisation of the L.F.R. litigation disclosed in previous financial statements. 9. OTHER CHARGES Year Ended Year Ended 31 December 31 December 1999 1998 ======= ======= £'Million £'Million Unit trust expenses 8.5 7.3 Cost of provision of management services 11.1 8.3 Other 2.9 2.1 ======= ======= 22.5 17.7 ======= ======= 10. PROFIT FROM LIFE BUSINESS As shown in note 4, the after tax profits for JRAH's life and pensions business is £37.0 million. Year Ended Year Ended 31 December 31 December 1999 1998 ======= ======= £'Million £'Million Basic operating profit 43.9 40.1 Change in economic basis - 5.4 Pension transfers and opt outs (3.5) (5.3) Reconstruction costs of international business (3.3) - Endowment compensation (3.3) - Pensions transitional commission (3.1) - PI insurance settlement 6.3 - ======= ======= 37.0 40.2 ======= ======= Change in Economic Basis At the start of 1998 the Company changed the assumptions used in calculating its embedded value. The effect of this was a one off increase in profits of £5.4 million after tax (£7.7 million before tax). Pension Transfers and Opt Outs After allowing for payments made during the year, the reserve for Pension Transfers increased by £3.5 million after tax (£5.0 million before tax). The 1998 figures have been amended to show the equivalent figure for last year. Reconstruction Costs of International Business The costs of closing the international operations outside Europe and of preparing to relaunch the Italian operation amounted to £3.3 million after tax (£4.7 million before tax). Endowment Compensation An amount of £3.3 million after tax (£4.7 million before tax) has been set aside for endowment compensation. Further details are provided in note 20. Pensions Transitional Commission Following the governments's pronouncements on stakeholder's pensions, in keeping with most of the market, the Company has moved the structure of its pension contracts from front end loaded to level loaded commission. To assist its Distributions Channel in this change, the Company has borne a share of the cost of moving the pensions commission structure by paying a transitional commission. This amounted to £3.1 million after tax (£4.4 million before tax). PI Insurance Settlement During the year, a settlement was successfully negotiated with the Company's 1993/1994 professional indemnity insurers in relation to a claim for pension review costs. After expenses, the proceeds of the settlement were £6.3 million after tax (£9.0 million before tax). After taking into account all of the above items, the basic operating profit of JRAH's life and pension business was £43.9 million after tax (£62.8 million before tax) compared with £40.1 million after tax £57.3 million before tax) for the previous year. The principal embedded value assumptions used are detailed in Note 11. A further analysis of the life business, together with JRAH's unit trust business is provided in the supplementary information. 11. EMBEDDED VALUE ASSUMPTIONS * The principal economic assumptions used were as follows: 1999 1998 Risk discount rate 10.0% 10.0% Future investment returns - Fixed interest 6.0% 6.0% - Unit linked funds - - Capital growth 5.75% 5.75% - Dividend income 2.5% 2.5% - Total 8.25% 8.25% Indexation of capital gains 3.5% 3.5% Investment smoothing Yes Yes Expense inflation 5.0% 5.0% Target surplus Yes Yes *The risk discount rate is used to discount projected future cash flows from the business in force to a present value. The rate represents the best estimate of the long term rate of return on Government bonds together with a margin for risk. *Future investment returns represent the best estimate of the long term rates of return that will be achieved. They have been determined having regard to past, current and expected future experience. *The expense inflation and indexation of capital gains assumptions represent best estimates of the long term rates, consistent with the assumptions for investment returns. *All assets have been valued at market value. *For the purposes of projecting future unit growth in the embedded value calculation, unit linked funds have been valued on a smoothed basis. ('Investment Smoothing') *The value of new business has been calculated using actual acquisition 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. *Lapse experience is derived where possible from the company's own experience, or otherwise from external industry experience. *Government proposals on pensions have exerted significant influence on the pensions market, in particular pushing down the levels of charges built into contracts. The pensions market remains volatile and it is possible some existing business will be transferred to stakeholder arrangements. The Directors are confident that the strength of the existing proposition offered to clients (the expert distribution, the wide range of investment choices and the quality of administration) will ensure the retention of existing business and lapse rates have not been adjusted. In projecting future surpluses allowance has been made for the cost of maintaining the statutory solvency margin on the business in force. ('Target Surplus') *Maintenance expenses have been set to be in line with the costs charged by the company's Third Party Administrators, together with an allowance for the company's own direct maintenance costs. *All experience assumptions are reviewed annually. 12. TAXATION Year Ended Year Ended 31 December 31 December 1999 1998 ======= ======= £'Million £'Million Attributable to life business 16.0 17.3 Attributable to associates LAHC 8.3 5.3 GAM 0.9 1.0 Disposal of GAM 22.7 - Attributable to non life business 1.4 1.7 ======= ======= 49.3 25.3 ======= ======= 13. DIVIDEND Year Ended Year Ended Year Ended Year Ended 31 December 31 December 31 December 31 December 1999 1998 1999 1998 ======= ======= ======= ======= Pence per Pence per £'Million £'Million share share Interim dividend 0.75 0.75 3.2 3.1 paid Final dividend 1.00 0.75 4.2 3.1 proposed ======= ======= ======= ======= 1.75 1.50 7.4 6.2 ======= ======= ======= ======= The proposed dividend of 1.00p per share is payable on 12 May 2000 to those shareholders on the register on 7 April 2000. 14. EARNINGS PER SHARE Year Ended Year Ended 31 December 31 December 1999 1998 ======= ======= Pence Pence per share per share Profit on ordinary activities after taxation 30.0 14.9 Adjustments JRAH life business basis change - (1.4) JRAH life business exceptionals 1.7 1.3 LAHC basis change (2.1) - Disposal of GAM (14.1) - Discontinued activities (1.2) (0.9) Release of provision held against litigation (0.4) - ======= ======= Adjusted earnings 13.9 13.9 ======= ======= Fully diluted earnings 28.6 13.8 ======= ======= Fully diluted adjusted earnings 13.2 12.9 ======= ======= The above table sets out earnings per share, adjusted earnings per share and their fully diluted counterparts. Adjusted earnings per share figures have been presented to eliminate the items discussed in note 10 and the effect of the disposal of GAM, the release of the L.F.R. provision and the LAHC basis change, as discussed in note 15. The weighted average number of shares in issue, for the year ended 31 December 1999 was 418.1 million (1998: 410.7 million). The fully diluted earnings per share takes account of options over 40.4 million shares including the share options outstanding at the time of the JRAH acquisition (1998: 48.2 million). The 1998 earnings per share figures have been amended to allow for pension transfers and opt outs and the elimination of discontinued activities in arriving at the adjusted earnings per share figures. The effect of the amendment to the adjusted earnings per share has been to increase it from the previously reported 13.5 p per share to 13.9 p per share. The diluted adjusted earnings per share figure previously reported in 1998 has also been amended from 12.1 p per share to 12.9 p per share. 15. ASSOCIATED UNDERTAKINGS LAHC GAM Total ======= ======= ======= £'Million £'Million £'Million Carrying Value At 1 January 1999 66.3 15.2 81.5 Share of pre-tax results 27.4 5.8 33.2 Share of tax in year (8.3) (0.9) (9.2) Dividends - (2.2) (2.2) Disposal of GAM - (17.9) (17.9) ======= ======= ======= As at 31 December 1999 85.4 - 85.4 ======= ======= ======= LAHC Year Ended Year Ended 31 December 31 December 1999 1998 ======= ======= £'Million £'Million Profit after taxation for the year 85.5 79.8 ======= ======= Capital and reserves 377.6 292.1 ======= ======= The profit after taxation for the year includes £40.3 million (£57.8 million before tax) as a result of a change in the assumptions used to calculate the embedded value. The SJPC share of this is £9.0 million after tax (£12.9 million before tax). The investment in LAHC has been equity accounted. The carrying value is equal to 22.8% (1998: 22.9%) of LAHC's net assets after allowing for a management incentive scheme. GAM The investment in GAM (equivalent to 29.7% of GAM's net assets) was disposed of on 17 December 1999. The profit arising on disposal was calculated as follows: £'Million Proceeds of sale, net of disposal costs 99.5 Carrying value (17.9) ======= Profit before taxation on disposal 81.6 Taxation (22.7) ======= Profit after taxation on disposal 58.9 ======= 16. SHARE CAPITAL Number Nominal value =========== ============= Authorised £'Million Ordinary shares at 15p each At 1 January 1999 and 31 December 1999 605,000,000 90.8 =========== ============= In addition, the authorised share capital includes one Special Rights Redeemable Preference Share of £1 to the J. Rothschild Name Company Limited, an entity formed to protect the use of the name 'J. Rothschild.' Number Nominal value =========== ============= £'Million Issued, allotted and fully paid Ordinary shares at 15p each At 1 January 1999 415,211,734 62.3 Exercise of options 6,515,733 1.0 =========== ======= At 31 December 1999 421,727,467 63.3 =========== ======= In addition the company has issued one Special Rights Redeemable Preference Share of £1. This share may be redeemed at par by the shareholder at any time by giving notice to the company. MORE TO FOLLOW

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