RNS Number:1406K
BarclaysGlbl Inv Endowment Fd II Ld
17 April 2003
Embargoed until 00.01 17 April 2003
Barclays Global Investors Endowment Fund II Limited
Interim Results for the six months ended 28
February 2003
Barclays Global Investors Endowment Fund II Limited
(BGIEF II), launched in December 1996, is a Jersey-
registered closed-ended investment company, which
invests in a range of traded with-profits endowment
policies. These policies, which are written by a
variety of life offices, have a diverse range of
policy terms and maturity dates, thereby seeking to
achieve for shareholders a strategic objective of
an attractive level of capital growth coupled with
low investment risk. It is the intention of the
Directors to redeem one fifth of the original share
capital in each of the years 2005 to 2009.
Financial results for the six months ended 28
February 2003 include:
Fall in Net Asset Value of 20.1% from 122.8p per
share to 98.1p per share
Return per Ordinary share of -24.68p
Share price increased 4.5% (from 77.0p to 80.5p)
compared to a fall of 14% in the FTSE All Share
Index
Prospective returns after Company expenses to an
investor holding shares to redemption (*see
assumptions in Notes to Editors)
16.3% to an investor buying shares at 76.5p on 31
March 2003
3.6% to an initial shareholder who bought shares at
100p
Commenting on the results, Paul Seymour, Chairman,
said:
"It is worth comparing these figures with the 92.1p
per share represented by the life offices
guaranteed sums at 28 February 2003. This figure
backs every share, after payment of all future
premiums but excludes other future Company
expenses."
"We can take comfort, however, that if bonus rates
remain unchanged and are not increased from their
current low levels a new investor at 31 March 2003
share price of 76.5p would receive a compound
return of 16.3% p.a. after all company expenses.
That return is sufficiently high to allow, if
necessary, for further cuts in bonuses and still
deliver a good return to new shareholders."
- Ends-
For further information please contact:
Barclays Global Investors Endowment Fund II Limited
Paul Seymour 01242 547 477
Barclays Global Investors Limited
Dan Nathanson 020 7668 8030
Glenn Houchell 020 7668 9089
Weber Shandwick Square Mile
Roddy Watt 020 7067 0708
Notes to Editors*
Prospective return per annum after all Company expenses
The net asset value at 31.03.03 was 96.44p per
share. The TEP market's valuation currently assumes
that bonus rates will remain unchanged and that the
policies held will grow at an average of 7.8% per
annum to maturity.
Since bonus rates will change over the life of the
Company the following information is provided.
If the guaranteed sums attaching to the policies
held, less the future premiums payable to receive
those guaranteed amounts, are substituted for the
market values of those policies the resulting
figure would be 91.8p# per share. In the table
below, the figures in the column for guaranteed
sums assume that no bonuses are added to the
guaranteed sums in future years and no terminal
bonuses are added at maturity. These figures are
generated from a worst case scenario.
The prospective annual rate of return to an
investor holding shares to redemption, based on the
main assumptions listed below, at current and
alternative policy growth rates would be:
------------------------------------------------------
Policy growth rate Market G'teed 4% 8%
rate sums
7.8%
------------------------------------------------------
a) To an investor
buying shares on 16.3% 4.3% 10.5% 16.9%
31.03.03 at 76.5p
b) To an initial
shareholder who
bought shares at
100p 3.6% -0.9% 1.4% 3.7%
------------------------------------------------------
These figures are for illustrative purposes and are
not guaranteed.
Main assumptions
* No brokerage is charged on share purchases
* All policies are held until maturity
* Policy premiums are paid to maturity
* The issuing life offices honour their
contractual guarantees
* Base rates continue at 3.75% per annum for the
life of the Company
* Administrative costs increase at 2.5% per
annum for the life of the Company
* No benefits arise from early deaths or other
windfall gains
* The Company is exempt from tax on gains
throughout its life
* One fifth of the Company's shares will be
redeemed in each of the years 2005 to 2009
# Note that this figure allows for future premium
payments, but does not take into account other
future Company expenses. The prospective returns
in the table allow for all future expenses.
Chairman's Statement
Overview
Most economies continued to disappoint during the
reporting period, at least partly in response to
fears of terrorism on the domestic front and
tensions in the Middle East. The major stock
markets resumed downward paths, and the asset
shares of with-profits policies suffered further,
with mid-year bonus cuts becoming the norm.
Moreover, it became clear that some life offices
were seriously close to breaching solvency ratios,
and have been obliged to develop radical survival
strategies. Measures undertaken in recent months to
shore up balance sheets have included a number of
rights issues, as well as sales of subsidiaries and
closures to new business. The TEP market in the
meantime has become much more nervous; demand from
UK investors had largely dried up by the autumn in
response to continued bonus cuts, and the Company's
net asset value fell substantially.
Economies and markets
US equities fell in 2002 for a third successive
year, which is only the third time this has ever
happened. Other stock markets tumbled along with
the US, overshadowed by uncertainties surrounding
conflict in the Middle East. Disappointment with
the pace of recovery also helped drive US bond
yields down to their lowest levels since the early
1960s. A string of profit warnings and corporate
scandals added to the pain of investors. In
November the Federal Reserve cut interest rates for
the first time in 11 months in an attempt to kick-
start the lacklustre recovery.
Japan experienced a strong stock market upturn in
the spring of 2002, driven by a recovery in sales
to the US and its Asian neighbours, although
Japan's performance peaked subsequently as the US
recovery faltered. Recovery problems in continental
Europe stemmed instead from rising unemployment and
higher-than-expected inflation, especially higher
energy costs. This prevented policymakers from
cutting interest rates for much of the year,
regardless of the deteriorating economic outlook,
and stock market values declined for most of the
year.
Despite the UK being an exception to the general
European malaise, posting its 10th successive year
of economic growth for the first time since World
War II, and buoyant household spending keeping us
out of recession, this was not sufficient to
prevent a continuing decline in equity prices, with
the FTSE All Share Index falling by the end of the
period to around its lowest level for over seven
years.
Faced with this background, the TEP market has been
in disarray for much of the period. Pricing has
often been confused and turnover slack. Policy
supply to the secondary market has increased as
life offices have been obliged since September to
inform surrendering policyholders of the
alternative possibility of selling to the TEP
market, while policyholders are also fearful that
future payouts will not meet previous expectations.
At the same time demand for TEPs has slackened as
investors have become much more wary of making long
term investments in life funds that are
conspicuously under pressure and cutting bonuses
sharply. Falling bonus rates have hit valuations,
and negative sentiment on with-profits policies has
dented their popularity. Market makers and
investors are now much more selective about what
they buy, though it appears that one or two market
makers are enjoying good sales in overseas markets
where the relatively solid values of UK life
offices are still appreciated.
Shareholder Returns
In the six months to 28 February 2003 the Company's
net asset value dropped 20.1% from 122.8p to 98.1p
per share in response to sharp bonus cuts. Over the
same six months the FTSE All Share Index fell
14.0%, and the FT Actuaries British Government 5-15
Years Index rose 2.4%. Despite this unhappy
situation, the Company's share price increased 4.5%
over the same period from 77p to 80.5p.
It is also worth comparing these figures with the
92.1p per share represented by the life offices
guaranteed sums at 28 February 2003. This figure
backs every share, after payment of all future
premiums but excludes other future Company
expenses. The most recent figures relating to
guarantees can be found on page 10 in the context
of the prospective returns that may be generated
for shareholders holding until the final redemption
of their shares.
Bonus trends
Life office bonus cuts have rarely been out of the
newspaper headlines during the period, with a
number of offices cutting bonuses more than once.
The FSA has taken a robust view, warning life
offices not to attempt to counter bad publicity by
paying out higher bonuses than they can afford,
fearing that life offices could declare excessively
generous bonus rates and so put at risk their
financial strength, already eroded by falling
equity markets.
In the latest round of announcements rates for
annual bonuses have generally been reduced sharply.
In the most extreme cases a few offices decided not
to pay any annual bonus at all. However, a number
of other offices have declared annual bonuses at a
nominal level. Any such bonus represents a further
increase in the guaranteed element backing the
policies of those offices, though the rate of
increase in that guaranteed element has clearly
fallen sharply over the year. It is also worth
noting that despite the upward-only ratchet effect
of the guaranteed element represented by the
attaching bonuses, the net value of the guarantee
can still fall. This arises because the Company's
annual running expenses may exceed the annual
increment in the guaranteed value per share.
The Life Assurance Industry
Faced with a very poor stock market and business
background, many life offices seem to have been
preoccupied with a struggle for survival. In
contrast to recent years, there has been little
talk of demutualisations or inherited estates, and
takeovers and mergers have occurred only in
connection with sales of subsidiaries by one group
to another as part of the process to rationalise
and reduce costs.
It became clear earlier in the year that pressures
on the UK life assurance industry would be longer
and deeper than generally anticipated previously.
In part this was due to existing pressures of
recent years in which the industry had to bear the
costs of pensions mis-selling, and the increasing
costs of reserving to pay for annuity guarantees.
To these has been added the mounting pressure on
solvency margins of the sustained bear market in
equities, which has obliged the FSA to loosen
regulatory restrictions for the fourth time in 17
months.
Strategies for dealing with these pressures have
included a number of rights issues, and in some
cases a willingness to close to new business as
part of their effort to reduce marketing expenses.
It is relevant that the greatest increases in new
business won have come from the overseas
subsidiaries of larger offices which have been able
to bear the costs of establishing that business.
Other cost-saving measures have involved reductions
in dividend payments by proprietary companies, the
sale of assets, sometimes sales of complete
businesses, and inevitably the dismissal of redundant
staff. The picture is very similar in most
other major economies where life offices operate.
Outlook
Exceptionally poor equity markets have had this
year a big impact on the bonuses declared to
policyholders. Nonetheless, the low-risk
credentials of the with-profits contract have once
more played a part, this time helping provide
protection through smoothing from the worst impact
of the falls in equity markets in a way that is
denied to direct investors.
There is a prevailing view that the Middle East
situation will not get out of hand, and that world
growth can then resume swiftly with share prices
sustaining their recent recovery. It seems to me
that the recovery we have seen so far is fragile
and that share prices are likely to remain
volatile. Although analysts believe major markets
valuations to be inexpensive, there are growing
concerns about the prospects for world demand and
the risks of deflation. I consider that any
judgement about the pace of recovery remains
uncertain.
We can take comfort, however, from the accompanying
table at the end of this report. This shows that if
bonus rates remain unchanged and are not increased
from their current low levels a new investor at 31
March 2003 share price of 76.5p would receive a
compound return of 16.3% p.a. after all company
expenses. That return is sufficiently high to
allow, if necessary, for further cuts in bonuses
and still deliver a good return to new
shareholders.
Resignation of Lindsay Tomlinson
Lindsay Tomlinson, who has given invaluable service
as a director of the Company since its inception,
resigned from his position on 11 April 2003. He has
made a very significant contribution and has helped
guide the Company through some exceptional
circumstances. On behalf of shareholders, I would
like to express warmly our gratitude to him.
His place has been filled by the appointment of Dan
Nathanson who undertook the initial work to set up
the Company in 1996 and who has acted as the
Company's principal fund manger since then.
Shareholders will have the opportunity to vote on
the re-appointment of Mr Nathanson at the next
Annual General Meeting in December.
Paul Seymour
Chairman
11 April 2003
Statement of Total Return (Unaudited)
For the six months ended 28 February 2003
--------------------------------------------------------------------
6 months to 6 months to 12 months to
28.02.03 28.02.02 31.08.02
# 000 # 000 # 000
--------------------------------------------------------------------
Capital
Realised gains on
investments 8 168 182
Unrealised losses on
investments (5,609) (2,293) (1,913)
(5,601) (2,125) (1,731)
Revenue
Administrative expenses (304) (323) (635)
Interest income - - 4
(304) (323) (631)
--------------------------------------------------------------------
Net return before
finance costs (5,905) (2,448) (2,362)
Interest payable (266) (220) (465)
--------------------------------------------------------------------
Return on ordinary
activities
for the period (6,171) (2,668) (2,827)
Return per ordinary
share (24.68p) (10.67p) (11.31p)
Dividend per ordinary
share Nil Nil Nil
--------------------------------------------------------------------
Net assets
Attributable to
ordinary shares 24,529 30,859 30,700
Per ordinary share 98.12p 123.44p 122.80p
--------------------------------------------------------------------
The full accounts for the year ended 31 August
2002, which have been summarised above, received an
unqualified auditors' report and have been
delivered to the Financial Services Authority and
the Jersey Financial Services Commission.
Balance Sheet (Unaudited)
As at 28 February 2003
-----------------------------------------------------------
28.02.03 28.02.02 31.08.02
# 000 # 000 # 000
-----------------------------------------------------------
Fixed assets
Investments 37,258 40,782 42,024
Current assets
Debtors 15 185 6
Cash at bank 272 171 201
287 356 207
Creditors
Amounts falling due
within one year (148) (228) (184)
Net current assets 139 128 23
Creditors
Amounts falling due
after more than one
year (12,868) (10,051) (11,347)
-----------------------------------------------------------
Net assets 24,529 30,859 30,700
-----------------------------------------------------------
Capital and reserves
Called up share capital 250 250 250
Share premium 24,750 24,750 24,750
Capital reserve 4,761 9,969 10,363
Revenue reserve (5,232) (4,110) (4,663)
-----------------------------------------------------------
Shareholders' funds 24,529 30,859 30,700
-----------------------------------------------------------
Cash Flow Statement (Unaudited)
For the six months ended 28 February 2003
--------------------------------------------------------------------
6 months to 6 months to 12 months to
28.02.03 28.02.02 31.08.02
# 000 # 000 # 000
--------------------------------------------------------------------
Net cash outflow from
operating activities (344) (549) (687)
Capital expenditure and
financial investment
Payments to acquire
fixed asset investments (130) (318) (486)
Payments of premiums (721) (721) (1,439)
Cash received from
disposal of policies - 116 16
Cash received from
policies ceasing on
death 16 142 172
Receipts from windfalls
on policies - - 178
Net cash outflow from
capital expenditure and
financial investment (835) (781) (1,559)
--------------------------------------------------------------------
Net cash outflow before
financing (1,179) (1,330) (2,246)
Financing
Increase in loan 1,250 1,325 1,950
--------------------------------------------------------------------
Net increase/(decrease)
in cash 71 (5) (296)
--------------------------------------------------------------------
Reconciliation of net
cash flow to movement
in net debt
Increase/(Decrease) in
cash in the period 71 (5) (296)
Drawdown of loan
facility (1,250) (1,325) (1,950)
Increase in borrowings
due to rolled up
interest (271) (321) (671)
Movement of net debt
resulting from cash
flows (1,450) (1,651) (2,917)
Net debt brought
forward (11,146) (8,229) (8,229)
--------------------------------------------------------------------
Net debt carried
forward (12,596) (9,880) (11,146)
--------------------------------------------------------------------
Distribution of Policies
Distribution by value of polices held on 28
February 2003
Maturity date %
------------------------------------------
Up to 31 August 2005 25.0
1 September 2005 to 31 August 2006 16.9
1 September 2006 to 31 August 2007 20.2
1 September 2007 to 31 August 2008 23.5
1 September 2008 to 31 August 2009 10.3
1 September 2009 onwards 4.1
Life office % Life office %
----------------------------------------- -------------------------------------------
Abbey National: Provincial 0.2 GE Life National Mutual 0.4
Scottish Mutual 1.2 Halifax: Clerical Medical 3.7
Scottish Provident 1.4 Legal % General 10.9
Aegon Guardian 1.7 Lloyds TSB: Scottish Widows 3.0
Scottish Equitable 1.1 MGM 0.1
AMP London Life 0.4 NFU Mutual 0.1
Pearl 1.9 Prudential: Prudential 5.5
Aviva: Commercial Union 0.7 Scottish Amicable 7.7
General Accident 2.3 Royal & Sun Royal 2.0
Norwich Union 17.8 Alliance: Sun Alliance 3.7
Provident Mutual 1.1 Royal London: Refuge 0.6
AXA: Equity & Law 0.7 Royal London 0.5
Sun Life 1.1 Scottish Life 2.4
Britannic: Britannia 0.1 Standard Life 16.0
Crusader 0.1 Sun Life of Canada 2.2
Cooperative 1.2 Wesleyan 0.2
Friends Provident:Friends Provident 3.6 Windsor: Gresham 0.2
London & Winterthur: Colonial 1.2
Manchester 0.1 Provident Life 0.8
National Mutual Zurich: Eagle Star 0.9
Life of Australasia 0.1 -------------------------------------------
UK Provident 1.1 Total 100.0
-------------------------------------------
Number of policies held 2,353
Total value of policies #37, 257,650
-------------------------------------------
The majority of policies have original terms of between 20 and 25 years.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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