Interim Results
ST. JAMES'S PLACE CAPITAL PLC
22 September 1999
Announcement of interim results for the six months ended 30 June 1999.
St. James's Place Capital ('SJPC') today announces its Interim Results for the
six months ended 30 June 1999.
Key Points of Results
* The pre-tax profits of SJPC, at £38.7 million, were 13% higher than in
the equivalent period of 1998 (post-tax £27.7 million, up 19%), whilst
the pre-tax profits of The J. Rothschild Assurance Group ('JRA Group') life
and unit trust businesses, at £29.7 million, were 18% higher than in the
equivalent period of 1998.
* New business for The J. Rothschild Partnership (the sole UK marketing arm
of the J. Rothschild Assurance Group), rose 10% in the first 6 months of
the year. It has increased at a significantly higher rate in July and August.
* The J. Rothschild Partnership increased 5% to 932 (891 at 31 December 1998)
in the 6 months to 30 June 1999.
* Assets under management for the JRA Group at 30 June 1999 were £3.7
billion (£3.1 billion at 31 December 1998).
* J. Rothschild International Assurance to re-launch in Italy in the New
Year.
* The recent agreement to sell the Company's interest in Global Asset
Management (announced 14 September 1999) will strengthen the group's capital
base and enable the Directors to give consideration to adopting a more
progressive dividend policy.
* Interim dividend of 0.75 per share (unchanged).
Sir Mark Weinberg, Chairman of SJPC, said:
'We believe that the advantages of controlling our own distribution and of
selling only through high quality experienced advisers will become
increasingly clear in the competitive market for personal financial services.
We are also confident that the international operations will in due course
make a significant contribution to the future growth and profits of the
Group'.
Enquiries:
SJPC
Sir Mark Weinberg, Chairman 0207 514 1909
Mike Wilson, Chief Executive 0207 514 1909
Martin Moule, Finance Director 0207 514 1909
Brunswick
Alison Hogan / Nitya Bolam / Patrick Meyer 0171 404 5959
Chairman's Statement
Good progress was made in most areas of SJPC's activities during the half
year. The J.Rothschild Assurance Group, the core business of SJPC, achieved a
satisfactory increase in both new business and profits, with the number of
Partners increasing at an annual rate of 10%. In the two months since the end
of the half year, the increase in new business from Partners was at the top
end of the Company's target range.
Considerable headway was made in refocusing the operations of J.Rothschild
International Assurance in Europe.
The recently announced agreement under which Union Bank of Switzerland
proposes to purchase the share capital of Global Asset Management should on
completion provide sufficient capital to meet the Group's needs for expansion
of its core business and to enable the Directors to give consideration to
adopting a more progressive dividend policy.
J. Rothschild Assurance ('JRA')
I foreshadowed in my statement at the full year our belief that, following the
government's pronouncements on stakeholders' pensions, future pensions
contracts would be level-loaded, with commissions and margins spread over the
life of the plan. Since then most of the market has moved the structure of
its pensions contracts to level-load and JRA too introduced a new level-loaded
pension range at the beginning of July. For plans from the previous pension
range taken out between April and July, we included a guarantee allowing the
holders to convert to the new plan free of charge.
The introduction of level-loaded plans has a short-term impact on the cash
flow of members of The J. Rothschild Partnership who sell these plans.
Recognising the great benefit to JRA of controlling its own distribution, the
company is bearing the cost of assisting the transition over a limited period.
Assuming current trends continue, the cost of this is not expected to exceed
£3.5 million pre-tax in the current year.
Benefits of JRA controlling its own distribution
In my Chairman's Statement for the year 1998 issued in April, I drew attention
to our strong belief that, for all but the simplest services and for all but
the least sophisticated customers, advice will remain a key factor in the
customer's decision on where to place his or her business, what type of
products to buy and indeed the resolve to make financial provision at all. I
went on to emphasise that all of the UK business of the JRA Group comes
through The J. Rothschild Partnership, whose members have long experience in
financial services and who have built up strong advisory relationships with
their clients to whom they provide a highly personal service. I also
expressed our view that the sort of people the Partners look after will regard
access to personal service and advice which they can trust as a source of
significant added value.
What is perhaps less understood is the particular benefit enjoyed by JRA as
the only life company which both controls its own distribution and is
represented only by experienced financial advisers. JRA Partners and
Independent Financial Advisers alike will seek to maintain their incomes in
the face of changing market conditions: for example, in the light of reduced
rates of commission on pension business, they will seek to achieve higher
volumes of business and will concentrate more of their time and effort on
selling other classes of business, such as life assurance protection and
investment plans. IFAs owe no loyalty to any life company so that, to the
extent that a particular life company with (say) a high proportion of pension
business depends on receiving this business from IFAs, it faces the risk that
the other classes of business produced by those IFAs are likely to go to other
life companies that are regarded in the market as strong in those other
classes of business.
By contrast, the members of The J. Rothschild Partnership place all their
business with JRA so that any increase in the volume of their business or
change in its pattern will be for the benefit of JRA. Moreover, it has always
been the policy of JRA to design its policies so that, as far as possible, the
company's margins from each class of business represent the same proportion of
the commission earned by the Partners. The result of this is that, by
maintaining their own incomes, the Partners enable the company to maintain its
overall margins.
Controlling its own distribution also makes JRA's flow of new business more
consistent and predictable. The management of JRA believes that the company
can continue to increase both the volume of its new business and the profits
flowing from it by a target range of between 15 and 20% per annum, through
increasing the number of Partners by 5 to 10% and increasing productivity
per Partner by 5 to 10%. In short periods when some life offices receive an
exceptional volume of a particular class of business (for example, in the
first half of 1999, when a number of life offices made limited offers of with
profits bonds and received a considerable amount of this class of business
from IFAs) , JRA does not share in this. JRA can, however, be expected to be
significantly more consistent in achieving its target growth in new business
volumes and profitability than companies dependent on business from IFAs.
The 10% increase in new business from Partners in the first half of 1999,
while lower than the Company's long-term target range, was regarded by
management as highly satisfactory, as new business from Partners in the first
half of 1998 (up 27% on the previous year) had been unusually strong.
In the first two months of the current quarter, the increase in new business
from Partners has been at the top end of the target range referred to above.
J. Rothschild International Assurance ('JRIA')
Following the appointment of Paul Bradshaw as Chief Executive of JRIA, the
company has closed down its limited international operations outside Europe.
Paul Bradshaw has built up a strong management team which will be focusing on
Europe, starting with a relaunch in Italy at the start of next year. We look
forward to this initiative making a significant contribution to the future
growth and profits of the Group.
Financial Results
The JRA Group reports the profits from its life business on an embedded value
basis which takes into account the discounted value of future profits from
business in force. At the end of 1998 we changed the basis of calculation (in
particular the interest rate at which profits are discounted) to bring us into
line with the practice of most other life assurance holding companies.
As the profits for the first half of 1998 were calculated on the old basis,
they are not directly comparable with those for the first half of 1999.
However, as shown in note 5, the value of new business added in the half year
was 14% higher than in the first half of 1998, on a comparable basis.
The costs of closing the international operations outside Europe and of
preparing for the relaunch of the Italian operation amounted to £1.6 million
before tax in the first half and have been included in calculating the life
profits. We anticipate further costs of £3.3 million in the second half as
new computer systems are built and marketing initiatives are undertaken in
advance of the launch.
Following recent guidance received from the Financial Services Authority on
the calculation of redress for Pensions Transfers and Opt-outs, the Directors
of J. Rothschild Assurance plc have maintained the Pensions Transfers and
Opt-out reserve at £11.4 million. Included in this is an allowance for
compensation to FSAVC policyholders. After allowing for payments of £1.5
million over the period, this represents a small increase in the reserve.
I am pleased to report that at long last the action filed by certain investors
in connection with the public offering of common stock in L.F. Rothschild Inc.
in 1986 has been struck out in the US courts. This has allowed us to release
the provisions we held against the proceedings and gives rise to an
exceptional profit of £1.6 million.
Overall, SJPC pre-tax profits for the half year were £38.7 million (compared
with £34.3 million), an increase of 13%, and post-tax £27.7 million (£23.2
million) an increase of 19%.
Global Asset Management ('GAM')
It was announced last week that Union Bank of Switzerland has agreed to
purchase the whole of the issued share capital of GAM. The proposed sale is
subject to a number of conditions, including clearances by the relevant
regulatory authorities, and completion is expected around the end of the year.
It is expected that (at current dollar/pound exchange rates) SJPC will receive
a net pre-tax consideration of between £98 million and £115 million for its
interest, depending on the level of assets under management and other business
criteria at completion. As normal, the agreement contains a number of
indemnities and warranties. SJPC will receive a minimum of about £80 million
in cash at completion, with the balance being retained as interest-bearing
deferred consideration which may be set against any liabilities due under the
Agreement.
The net assets of GAM carried in the accounts of SJPC on an equity accounting
basis at 31 December 1998 were £15.2 million and SJPC's share of the pre-tax
profits for the GAM Group on an equity accounting basis for the financial year
ended on that date was £4.8 million.
I have on a number of occasions pointed out that GAM was a non-core investment
of SJPC and this proposed sale helps underline the extent to which SJPC is in
essence the quoted holding company of the J. Rothschild Assurance Group. At
the same time, the proceeds should, after repaying outstanding debt, finance
the development of the J. Rothschild Assurance Group's UK and
International businesses.
Life Assurance Holding Corporation ('LAHC')
Shareholders will be aware that LAHC was formed to play a significant role in
the restructuring of the UK life assurance industry. During 1998 the company
acquired Aegon Life (UK) and GAN Life (UK) which sharply increased the scale
of the company's operations. The business of Aegon successfully transferred
onto the Windsor Life system in Telford in December 1998 and a significant
proportion of GAN policies have been transferred during the course of the
current year. The profitability of LAHC is heavily dependent on the
acquisition of companies or portfolios and, with no acquisitions so far during
1999, the profits for the half year were lower than those for the preceeding
year.
The sale of GAM leaves SJPC's 23% holding in LAHC as the Company's only
remaining non-core investment. While we continue to have great confidence in
the prospects for this company, the inherent volatility of its earnings are
out of line with the expected consistent growth in the earnings of the JRA
Group on which SJPC's market rating is based. Discussions have been taking
place between the shareholders of LAHC as to the longer term shareholding
structure of that company and (bearing in mind that this holding represents
only somewhere between 5% and 10% of the market capitalisation of SJPC) it
should be expected that SJPC will exit from the shareholding when an
attractive opportunity presents itself.
Year 2000
SJPC has had a programme in place for some time to ensure that all business
areas are fully prepared with regard to the risks associated with the
Millennium issue. Progress is reported regularly to the Group's Executive and
the SJPC Board.
The majority of the Group's processing capability is outsourced so the
programme has focused on the progress made by its key suppliers, including the
Administration Centres, in ensuring that systems are ready for the century
date change. For this reason the Group has not incurred material expenditure
in addressing the Year 2000 issue and expects this to remain the case during
the remainder of 1999.
The Group's key suppliers have confirmed that the corrective work and testing
associated with business critical systems is complete. This work is complete
for important internal systems used within the Group's main operating company,
JRAH.
In addition to such corrective activity, the Group recognises the importance
of putting in place Year 2000 specific business continuity plans. These plans
have been developed and tested within JRAH and the Group is satisfied that its
critical suppliers are equally well advanced in their preparations.
During the remainder of 1999 a number of tasks will be undertaken in support
of these business continuity plans, including those associated with the
transitional period itself. The Group will continue to monitor and review the
progress of its suppliers up to and beyond the end of the year.
The SJPC Board is satisfied with the progress made by GAM and LAHC.
Dividend
The Board has resolved to pay a dividend of 0.75p per share in respect of the
six months to 30 June 1999. The dividend, which will absorb £3.2 million,
will be paid on 12 November 1999 to shareholders on the register at the close
of business on 8 October 1999.
Over the past 3 years, when SJPC's cash resources have been fully committed to
the expansion of the JRA Group, the Directors have adhered to a policy of
freezing the dividend at the level announced at the time that Value
Realisation Trust was hived off to shareholders. When the cash from the sale
of the holding in GAM becomes available, the Directors will give consideration
to adopting a more progressive dividend policy.
Sir Mark Weinberg 21 September 1999
Review Report by the Auditors
To The Board of St. James's Place Capital plc
Introduction
We have been instructed by the company to review the financial information set
out on pages 9 to 18 and we have read the other information contained in
the interim report and considered whether it contains any apparent
misstatements or material inconsistencies with the financial information.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by the directors. The Listing
Rules of the London Stock Exchange require that the accounting policies and
presentation applied to the interim figures should be consistent with those
applied in preparing the preceding annual accounts except where any changes,
and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with guidance in Bulletin 1999/4 issued
by the Auditing Practices Board. A review consists principally of making
enquiries of group management and applying analytical procedures to the
financial information and underlying financial data and based thereon,
assessing whether the accounting policies and presentation have been
consistently applied unless otherwise disclosed. A review excludes audit
procedures such as tests of controls and verification of assets, liabilities
and transactions. It is substantially less in scope than an audit performed
in accordance with Auditing Standards and therefore provides a lower level of
assurance than an audit. Accordingly we do not express an audit opinion on
the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 1999.
PricewaterhouseCoopers
Chartered Accountants
London 21 September 1999
Consolidated Long-Term Business Technical Account
6 Months 6 Months
Ended Ended
30 June 30 June
1999 1998
========== ==========
Note £'Million £'Million
Earned premiums
Gross premiums written 3 353.1 319.3
Outwards reinsurance premiums (8.0) (16.7)
========== ==========
Earned premiums, net of reinsurance 3 345.1 302.6
Increase in value of long-term 35.9 25.5
business in force
Investment income 110.9 163.3
Unrealised gains on investments 135.9 113.0
========== ==========
Total technical income 627.8 604.4
========== ==========
Claims paid
- gross amount (78.5) (60.2)
- reinsurers' share 5.0 3.4
========== ==========
net of reinsurance (73.5) (56.8)
========== ==========
Change in the provision for claims
- gross amount (3.1) (2.8)
- reinsurers' share (0.5) 0.8
========== ==========
- net of reinsurance (3.6) (2.0)
========== ==========
Claims incurred, net of reinsurance (77.1) (58.8)
Change in other technical provisions
Long-term business
provision
- gross amount (10.0) (4.0)
- reinsurers' share 2.8 0.2
========== ==========
- net of reinsurance (7.2) (3.8)
Technical provisions for
linked business (439.2) (449.8)
Net operating expenses (66.0) (37.8)
Investment expenses and charges (5.4) (5.1)
Tax attributable to the
long-term business (13.8) (33.2)
========== ==========
Total technical charges (608.7) (588.5)
========== ==========
Balance on the technical account -
long-term business 19.1 15.9
========== ==========
Consolidated Profit and Loss Account
6 Months 6 Months
Ended Ended
30 June 30 June
1999 1998
========== ==========
Note £'Million £'Million
Balance on technical account -
long-term business 19.1 15.9
Tax credit attributable
to balance on long-term
technical account 8.3 7.1
========== ==========
Shareholders' profit before
taxation from long-term
business technical account 27.4 23.0
Income from associated
undertakings 7.3 9.0
Investment and other income 12.5 8.7
Other expenses and charges (10.1) (6.4)
Exceptional income 6 1.6 -
========== ==========
Profit on ordinary
activities before taxation 2 38.7 34.3
Taxation 7 (11.0) (11.1)
========== ==========
Profit on ordinary activities
after taxation 2 27.6 23.2
Dividend 8 (3.2) (3.1)
========== ==========
Retained profit for the period 24.5 20.1
========== ==========
Pence Pence
Earnings per share 9 6.6 5.7
Adjusted earnings per share 9 6.3 5.7
Fully diluted earnings
per share 9 6.0 5.1
Fully diluted adjusted
earnings per share 9 5.7 5.1
Dividends per share 8 0.75 0.75
Net assets per share 75.22 61.97
The 1998 basic earnings per share has been restated as detailed in note 9.
Consolidated Balance Sheet
30 June 30 June
1999 1998
========== ==========
Note £'Million £'Million
Investments
- in associated undertakings 85.1 74.6
- land and buildings 0.8 0.9
Other investments 98.3 67.3
========== ==========
184.2 142.8
========== ==========
Value of long-term business
in force 167.1 118.5
Assets held to cover linked
liabilities 2,824.2 2,242.7
Reinsurers' share of long-term
business provision 14.9 8.8
Reinsurers' share of
claims outstanding 2.1 1.8
Debtors 38.8 28.6
Other assets - tangible assets 5.3 3.5
- cash and cash
equivalents 29.2 39.7
Prepayments and accrued income 4.2 4.2
Deferred acquisition costs 23.4 44.3
========== ==========
Total assets 3,109.2 2,492.1
========== ==========
Technical provisions (53.6) (35.5)
Technical provision for linked
liabilities (2,824.2) (2,242.7)
Provision for liabilities
and charges (6.3) (17.7)
Amounts owned to credit
institutions (22.9) (21.5)
Other creditors (53.6) (47.4)
Accruals and deferred income (13.3) (9.7)
Proposed dividend (3.2) (3.1)
========== ==========
Total liabilities (2,977.1) (2,377.6)
========== ==========
Total net assets 316.3 257.3
========== ==========
Share capital 10 63.1 61.9
Shares to be issued 11 1.2 2.3
Other reserves 11 252.0 193.1
========== ==========
Equity shareholders' funds 316.3 257.3
========== ==========
Consolidated Statement of Total
Recognised Gains and Losses
6 Months 6 Months
Ended Ended
30 June 30 June
1999 1998
========== ==========
£'Million £'Million
Profit for the period 27.7 23.2
Currency translation movements 0.4 (0.1)
========== ==========
Total recognised gains
for the period 28.1 23.1
========== ==========
Notes to the Accounts
1. Accounting policies
The accounting policies used by the group in the preparation of this interim
report are consistent with those applied in preparing statutory accounts for
the year ended 31 December 1998.
2. Segmental analysis of profits
6 Months 6 Months
Ended Ended
30 June 30 June
1999 1998
======== ========
£'Million £'Million
Group
JRAH's life business 27.4 23.0
JRAH's unit trust business 2.3 2.2
Net investment income 1.1 1.6
Other (1.0) (1.5)
Exceptional 1.6 -
======== ========
31.4 25.3
======== ========
Associated undertakings
LAHC 4.7 6.2
GAM 2.6 2.8
======== ========
7.3 9.0
======== ========
Profit on ordinary activities
before taxation 38.7 34.3
Taxation
JRAH's life business (8.3) (7.1)
JRAH's unit trust business (0.7) (0.7)
Other (0.2) (0.5)
LAHC (1.4) (2.3)
GAM (0.4) (0.5)
======== ========
(11.0) (11.1)
======== ========
======== ========
Profit on ordinary activities
after taxation 27.7 23.2
======== ========
3. Premiums written
6 Months 6 Months
Ended Ended
30 June 30 June
1999 1998
========= =========
£'Million £'Million
Life business
Single premiums 214.2 202.5
Regular premiums 37.1 29.4
Reinsurances - Risk (4.4) (3.3)
- Financial (0.6) (6.8)
======== ========
246.3 221.8
======== ========
Pension business
Single premiums 45.3 39.5
Regular premiums 53.4 45.3
Reinsurances - Risk (0.8) (0.7)
- Financial - (4.0)
======== ========
97.9 80.1
======== ========
Permanent health insurance
Regular premiums 3.1 2.6
Reinsurances - Risk (2.2) (1.9)
======== ========
0.9 0.7
======== ========
======== ========
Total net premiums 345.1 302.6
======== ========
Gross premiums comprise:
Individual business 331.2 300.0
Group contracts 21.9 19.3
======== ========
Total gross premiums 353.1 319.3
======== ========
4. JRA Group's new business
Restated*
6 Months 6 Months
Ended Ended
30 June 30 June
1999 1998
========= =========
£'Million £' Million
Regular premiums (annualised)
Life & PHI 12.5 11.1
Pension 16.1 17.0
===== =====
28.6 28.1
===== =====
Single premiums
Life 214.2 186.1
Pension 45.3 40.2
Unit trusts 85.7 80.5
===== =====
345.2 306.8
===== =====
Total new business
Life & PHI 33.9 29.7
Pension 20.6 21.0
Unit trusts 8.6 8.1
===== =====
63.1 58.8
===== =====
Total new business is calculated on the standard industry measure of
regular premiums plus 1/10 of single premiums.
* The 1998 regular premium PEP business has been restated as single premium
in recognition of how the product is priced and the current treatment of
this business in the calculation of the supplementary unit trust embedded
value figures.
5. New business profitability
The profit from life new business written for the six months to
30 June 1999 was £9.9 million compared to £7.7 million for the six months
to 30 June 1998. However the 1998 figure is not directly comparable to the
current year due to the change in discount rate and other assumptions
('the new basis') in the second half of 1998. The new business
profitability for the period to 30 June 1998 on the new basis would have been
£8.7 million.
SJPC does not account for JRA Group's unit trust business, the
St. James's Place Unit Trust Group Limited ('SJPUTG'), on an embedded
value basis, but if it were to the value of new business in the six months to
30 June 1999 would increase by £3.3 million (30 June 1998: £2.6 million).
The new business profitability for the six months to 30 June 1998 on the
new basis would have been £2.8 million. In addition, the net assets of the
group would increase at 30 June 1999 by £42.9 million (30 June 1998: £34.5
million).
6. Exceptional items
6 Months 6 Months
Ended Ended
30 June 30 June
1999 1998
======== ========
£'Million £'Million
Release of provision held 1.6 -
against litigation
===== =====
The provision has been released following the finalisation of the
L.F.R.litigation disclosed in previous financial statements.
7. Taxation
6 Months 6 Months
Ended Ended
30 June 30 June
1999 1998
======== ========
£'Million £'Million
Attributable to life business 8.3 7.1
Attributable to associates
LAHC 1.4 2.3
GAM 0.4 0.5
Attributable to non life business 0.9 1.2
==== ====
11.0 11.1
==== ====
8. Interim dividend
The Directors have resolved to pay an interim dividend of 0.75p per share
(1998:0.75p). This will absorb £3.2 million (1998: £3.1 million) and will
be paid on 12 November 1999 to shareholders on the register on 8 October 1999.
9. Earnings per share
6 Months 6 Months
Ended Ended
30 June 30 June
1999 1998
======= =======
Pence Pence
Profit on ordinary activities
after taxation 6.6 5.7
Adjustments
Exceptional items (0.3) -
==== ====
6.3 5.7
==== ====
Fully diluted 6.0 5.1
==== ====
Adjusted fully diluted 5.7 5.1
==== ====
The above table sets out earnings per share and adjusted earnings
per share. Adjusted earnings per share figures have been
presented to eliminate the effect of exceptional items. The basic
earnings per share for 30 June 1998 has been adjusted to exclude
those options outstanding (included in the shares to be issued reserve)
that arose on 26 June 1997 following the acquisition of the remaining
share capital of JRAH which was not already owned. In accordance with
FRS14-Earnings per Share issued in October 1998, these options are
contingent upon future events and are therefore excluded from the basic
earnings per share calculation and are included in the diluted earnings
per share calculation. The effect of the restatement on the basic
earnings per share for 30 June 1998 has been to increase it from the
previously reported 5.4p per share to 5.7p per share. The diluted
earnings per share previously reported at 30 June 1998 is unchanged by
the restatement.
The weighted average number of shares in issue, including shares to be
issued, for the six months ended 30 June 1999 was 417.5 million and for
the six months ended 30 June 1998 was 409.6 million (restated).
The fully diluted earnings per share takes account of options over
41.0 million shares including the share options outstanding at the time
of the JRAH acquisition (1998:45.2 million).
10. Share capital
Number £'Million
As at 31 December 1998 415,211,734 62.3
Exercise of options 5,294,806 0.8
=========== =======
As at 30 June 1999 420,506,540 63.1
=========== =======
11. Other reserves
£' Million
As at 31 December 1998 229.1
Profit for the period 27.7
Dividends (3.2)
Transfer to share capital (0.8)
Currency transaction and other movements 0.4
=====
As at 30 June 1999 253.2
=====
12. The financial information shown in this publication is unaudited and
does not constitute statutory accounts. The statutory accounts for the
year ended 31 December 1998 have been delivered to the UK Registrar
of Companies and the report of the auditors on these accounts was unqualified.
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