Interim Results - Part 3

Aviva PLC 09 August 2006 PART 3 OF 4 IFRS basis ---------------------------------------------------------------------------------------------------------------------- PAGE 46 Summarised consolidated income statement - IFRS basis For the six months ended 30 June 2006 6 months 6 months 6 months Full year 2006 2006 2005 2005 Page â‚¬m Â£m Â£m Â£m Income 71,73 20,157 Premiums written net of reinsurance 13,707 12,672 24,982 ---------------------------------------------------------------------------------------------------------------------- 19,831 Net premiums earned 13,485 12,357 24,859 1,331 Fee and commission income 905 849 1,851 4,197 Net investment income 2,854 10,097 23,722 328 Share of profit after tax of joint ventures and associates 223 16 340 54 216 Other income 147 145 153 ---------------------------------------------------------------------------------------------------------------------- 25,903 17,614 23,464 50,925 Expenses (16,231) Claims and benefits paid, net of recoveries from reinsurers (11,037) (9,360) (19,706) 144 Change in insurance liabilities, net of reinsurance 98 (5,478) (10,376) (2,685) Change in investment contract provisions (1,826) (3,002) (7,814) 916 Change in unallocated divisible surplus 623 (355) (1,474) (3,218) Fee and commission expense (2,188) (2,013) (4,330) (2,265) Other expenses (1,540) (1,538) (3,166) (564) Finance costs (384) (306) (609) ---------------------------------------------------------------------------------------------------------------------- 2,000 Profit before tax 1,360 1,412 3,450 (165) Tax attributable to policyholders' returns (112) (288) (922) ---------------------------------------------------------------------------------------------------------------------- 1,835 Profit before tax attributable to shareholders' profits 1,248 1,124 2,528 Tax expense ----- -------------------------- (396) United Kingdom tax (269) (443) (1,150) ----- (238) Overseas tax (162) (152) (402) ------ -------------------------- (634) (431) (595) (1,552) 165 Less: tax attributable to policyholders' returns 112 288 922 ----- ------------------------ (469) Tax attributable to shareholders' profits (319) (307) (630) ---------------------------------------------------------------------------------------------------------------------- 1,366 Profit for the period 929 817 1,898 ====================================================================================================================== Attributable to: 1,259 Equity shareholders of Aviva plc 856 756 1,767 107 Minority interests 73 61 131 ---------------------------------------------------------------------------------------------------------------------- 1,366 929 817 1,898 ====================================================================================================================== All profit is from continuing operations. 6 months 6 months 6 months Full year 2006 2006 2005 2005 Earnings per share - IFRS basis 61 51.9c Basic (pence per share) 35.3p 32.5p 73.5p 62 51.5c Diluted (pence per share) 35.0p 32.1p 72.9p Subsequent to 30 June 2006, the directors proposed an interim dividend for 2006 of 10.82p (interim 2005:9.83p) per ordinary share, amounting to Â£275 million (interim 2005: Â£233 million) in total. The dividend will be paid on 17 November 2006 and will be accounted for as an appropriation of retained earnings in the year ending 31 December 2006. During the six months to 30 June 2006 the directors declared a final dividend for 2005 of 17.44p per ordinary share (final dividend for 2004: 16.00p) totalling Â£418 million (six months to 30 June 2005: Â£364 million). ---------------------------------------------------------------------------------------------------------------------- PAGE 47 Proforma reconciliation of Group operating profit to retained profit for the period - IFRS basis For the six months ended 30 June 2006 6 Months 6 months 6 months Full year 2006 2006 2005 2005 Page â‚¬m Â£m Â£m Â£m IFRS operating profit before tax attributable to shareholders' profits 55 1,044 Long-term business 710 510 1,065 56 90 Fund management 61 41 124 57 1,274 General insurance and health 866 694 1,551 Other: 58 (16) Other operations (11) (6) (40) 59 (107) Corporate costs (73) (83) (136) 59 (261) Unallocated interest charges (177) (213) (436) --------------------------------------------------------------------------------------------------------------------- IFRS operating profit before tax attributable to 2,024 shareholders' profits 1,376 943 2,128 Adjusted for the following: 70 - Impairment of goodwill - (10) (43) Amortisation and impairment of acquired value of in-force (49) business (33) (44) (73) (28) Amortisation and impairment of intangibles (19) (16) (45) 9 Financial Services Compensation Scheme and other levies 6 - - Short-term fluctuation in return on investments backing 57 (301) general insurance and health business (205) 120 517 54 216 Profit on the disposal of subsidiaries and associates 147 145 153 55 (36) Integration costs (24) (14) (109) --------------------------------------------------------------------------------------------------------------------- 1,835 Profit before tax attributable to shareholders' profits 1,248 1,124 2,528 Tax attributable to shareholders' profits 59 (544) Operating profit (370) (256) (536) 59 75 Other activities 51 (51) (94) --------------------------------------------------------------------------------------------------------------------- 1,366 Profit for the period 929 817 1,898 ===================================================================================================================== 6 months 6 months 6 months Full year 2006 2006 2005 2005 Earnings per share - IFRS operating profit basis 61 56.6c Basic (pence per share) 38.5p 27.1p 60.5p 62 56.0c Diluted (pence per share) 38.1p 26.8p 60.0p --------------------------------------------------------------------------------------------------------------------- PAGE 48 Summarised consolidated statement of recognised income and expense - IFRS basis For the six months ended 30 June 2006 6 months 6 months 6 months Full year 2006 2006 2005 2005 â‚¬m Â£m Â£m Â£m Fair value (losses)/gains on AFS securities, owner-occupied (234) properties and hedging instruments (159) (79) (52) (6) Fair value (losses)/gains transferred to profit (4) 74 411 - Impairment losses on revalued assets - - (45) 696 Actuarial gains/(losses) on pension schemes 473 (46) (547) (15) Foreign exchange rate movements (10) (265) (2) Share of fair value changes in joint ventures and associates - taken to equity - 4 2 3 Aggregate tax effect - policyholder tax 2 - 3 (156) Aggregate tax effect - shareholder tax (106) 18 272 ---------------------------------------------------------------------------------------------------------------------- 288 Net income recognised directly in equity 196 (294) 42 1,366 Profit for the period 929 817 1,898 ---------------------------------------------------------------------------------------------------------------------- 1,654 Total recognised income and expense for the period 1,125 523 1,940 ====================================================================================================================== Attributable to: 1,544 Equity shareholders of Aviva plc 1,050 502 1,827 110 Minority interests 75 21 113 ---------------------------------------------------------------------------------------------------------------------- 1,654 1,125 523 1,940 ====================================================================================================================== Summarised reconciliation of movements in consolidated shareholders' funds - IFRS basis For the six months ended 30 June 2006 6 months 6 months 6 months Full year 2006 2006 2005 2005 â‚¬m Â£m Â£m Â£m 16,075 Balance at 1 January 11,092 8,993 8,993 1,630 Total recognised income and expense for the period 1,125 523 1,940 (619) Dividends and appropriations (note 15) (427) (373) (657) - Issue of share capital for the acquisition of RAC plc - 530 530 68 Other issues of share capital, net of transaction costs 47 27 59 112 Shares issued in lieu of dividends 77 12 100 51 Capital contributions from minority shareholders 35 93 212 (83) Minority share of dividends declared in the period (57) (36) (70) 324 Minority interest in acquired / (disposed) subsidiaries 223 - (36) 7 Reserves credit for equity compensation plans 5 2 22 - Other movements - - (1) ---------------------------------------------------------------------------------------------------------------------- 17,565 Total equity 12,120 9,771 11,092 (2,034) Minority interests (1,404) (988) (1,128) ---------------------------------------------------------------------------------------------------------------------- 15,531 Balance at 30 June / 31 December 10,716 8,783 9,964 ====================================================================================================================== ---------------------------------------------------------------------------------------------------------------------- Page 49 Summarised consolidated balance sheet - IFRS basis As at 30 June 2006 6 months 6 months 6 months Full year 2006 2006 2005 2005 â‚¬m Â£m Â£m Â£m Assets 3,386 Goodwill 2,336 2,289 2,274 1,455 Acquired value of in-force business and intangible assets 1,004 918 803 3,507 Investments in joint ventures 2,420 1,394 2,129 1,300 Investments in associates 897 893 885 1,280 Property and equipment 883 875 885 20,451 Investment property 14,111 11,073 13,275 35,477 Loans 24,479 21,921 24,544 Financial investments 144,132 Debt securities 99,451 98,739 103,917 79,281 Equity securities 54,704 47,905 52,044 44,611 Other investments 30,782 22,734 26,427 10,998 Reinsurance assets 7,589 8,780 7,130 949 Deferred tax assets 655 839 1,018 125 Current tax assets 86 49 87 12,550 Receivables and other financial assets 8,660 9,575 7,706 5,422 Deferred acquisition costs and other assets 3,741 3,215 3,766 4,338 Prepayments and accrued income 2,993 2,580 2,363 22,128 Cash and cash equivalents 15,268 14,405 13,732 1,461 Assets of operations classified as held for sale 1,008 111 462 --------------------------------------------------------------------------------------------------------------------- 392,851 Total assets 271,067 248,295 263,447 ===================================================================================================================== Equity 875 Ordinary share capital 604 594 599 6,493 Capital reserves 4,480 4,411 4,438 1,454 Other reserves 1,003 509 1,140 4,984 Retained earnings 3,439 2,079 2,597 --------------------------------------------------------------------------------------------------------------------- 13,806 Equity attributable to ordinary shareholders of Aviva plc 9,526 7,593 8,774 1,725 Preference share capital and direct capital instrument 1,190 1,190 1,190 2,034 Minority interests 1,404 988 1,128 --------------------------------------------------------------------------------------------------------------------- 17,565 Total equity 12,120 9,771 11,092 ===================================================================================================================== Liabilities 192,852 Gross insurance liabilities 133,068 128,060 132,602 120,081 Gross liability for investment contracts 82,856 71,005 77,309 11,935 Unallocated divisible surplus 8,235 7,732 8,978 4,464 Net asset value attributable to unitholders 3,080 2,469 3,137 3,426 Provisions 2,364 2,501 2,875 3,367 Deferred tax liabilities 2,323 1,655 2,458 1,387 Current tax liabilities 957 1,077 1,033 16,043 Borrowings 11,070 10,700 11,013 13,596 Payables and other financial liabilities 9,381 8,774 9,485 6,935 Other liabilities 4,785 4,518 3,320 1,200 Liabilities of operations classified as held for sale 828 33 145 --------------------------------------------------------------------------------------------------------------------- 375,286 Total liabilities 258,947 238,524 252,355 ===================================================================================================================== --------------------------------------------------------------------------------------------------------------------- 392,851 Total equity and liabilities 271,067 248,295 263,447 ===================================================================================================================== --------------------------------------------------------------------------------------------------------------------- PAGE 50 Summarised consolidated cash flow statement - IFRS basis For the six months ended 30 June 2006 The cash flows presented in this statement cover all the Group's activities and include flows from policyholder and shareholder activities. 6 months Full year 6 months 2006 2005 2005 ---------------------------------- --------- --------- Non-long- Long-term term business business operations operations Group Group Group Â£m Â£m Â£m Â£m Â£m Cash flows from operating activities: Cash generated from operations 1,100 1,365 2,465 2,874 2,784 Tax paid (286) (77) (363) (17) (375) -------------------------------------------------------------------------------------------------------------------- Net cash from operating activities 814 1,288 2,102 2,857 2,409 --------------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Acquisition of subsidiaries, joint ventures and associates, net of cash acquired (95) (110) (205) (700) (1,423) Disposal of subsidiaries, joint ventures and associates, net of cash transferred 114 366 480 192 464 Loans to joint ventures and associates - - - - (128) Purchases of property and equipment (23) (83) (106) (59) (206) Proceeds on sale of property and equipment 8 17 25 15 50 Purchases of intangible assets (2) (22) (24) - (60) -------------------------------------------------------------------------------------------------------------------- Net cash from investing activities 2 168 170 (552) (1,303) -------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Proceeds from issue of shares, net of transaction costs - 47 47 27 59 Net drawdown of borrowings (276) 342 66 55 856 Interest paid on borrowings (124) (260) (384) (277) (609) Preference dividends paid - (9) (9) (9) (17) Ordinary dividends paid - (341) (341) (364) (498) Coupon payments on direct capital instrument - - - - (42) Finance lease payments - (4) (4) (5) (8) Capital contributions from minority shareholders 35 - 35 93 212 Dividends paid to minority interests of subsidiaries (46) (11) (57) (36) (70) Non-trading cash flows between operations (557) 557 - - - -------------------------------------------------------------------------------------------------------------------- Net cash from financing activities (968) 321 (647) (516) (117) -------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- Total cash flow (152) 1,777 1,625 1,789 989 -------------------------------------------------------------------------------------------------------------------- Net(decrease)/increase in cash and cash equivalents: (152) 1,777 1,625 1,789 989 Cash and cash equivalents at 1 January 10,107 2,960 13,067 12,126 12,126 Effect of exchange rate changes on cash and cash equivalents 9 (2) 7 (332) (48) -------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at 30 June/31 December 9,964 4,735 14,699 13,583 13,067 ==================================================================================================================== Cash and cash equivalents at 30 June/31 December comprised: Cash at bank and in hand 2,540 1,313 3,853 4,097 3,530 Cash equivalents 7,605 3,927 11,532 10,308 10,227 -------------------------------------------------------------------------------------------------------------------- 10,145 5,240 15,385 14,405 13,757 Bank overdrafts (181) (505) (686) (822) (690) -------------------------------------------------------------------------------------------------------------------- 9,964 4,735 14,699 13,583 13,067 ==================================================================================================================== Of the total cash and cash equivalents shown above, Â£117 million has been classified as held for sale (full year 2005: Â£25 million). -------------------------------------------------------------------------------------------------------------------- PAGE 51 1. Basis of preparation - IFRS basis (a) The results for the six months to 30 June 2006 have been prepared on the basis of the accounting policies set out in Aviva plc's 2005 Annual Report and Accounts. The results for the six months to 30 June 2006 and 2005 are unaudited but have been reviewed by the auditor, Ernst & Young LLP. The interim accounts do not constitute statutory accounts as defined in section 240 of the Companies Act 1985. The results for the full year 2005 have been taken from the Group's 2005 Annual Report and Accounts. The auditor has reported on the 2005 accounts and the report was unqualified and did not contain a statement under section 237(2) or(3) of the Companies Act 1985. The Group's 2005 Report and Accounts have been filed with the Registrar of Companies. (b) Items included in the financial statements of each of the Group's entities are measured in the currency of the primary economic environment in which that entity operates (the 'functional currency'). The consolidated financial statements are stated in sterling, which is the Company's functional and presentation currency. Unless otherwise noted, the amounts shown in the financial statements are in millions of pounds sterling (Â£m). As supplementary information, consolidated financial information is also presented in Euros. (c) The result of the Group's fund management business in the Netherlands was previously reported within the results of our other operations but is now shown as part of our fund management operations. The result reclassified in the six months to 30 June 2006 is Â£13 million (six months to 30 June 2005: Â£8 million; full year 2005: Â£32 million). The related assets and liabilities reclassified at 30 June 2006 are Â£47 million (30 June 2005: Â£95 million; 31 December 2005: Â£54 million) and Â£18 million (30 June 2005: Â£8 million; 31 December 2005: Â£15 million)respectively. 2. Exchange rates The euro rates employed in this announcement are an average rate of 1 euro = Â£0.68 (six months to 30 June 2005: 1 euro = Â£0.69; full year 2005: 1 euro = Â£0.68)and a closing rate of 1 euro = Â£0.69 (30 June 2005: 1 euro = Â£0.68; 31 December 2005: 1 euro = Â£0.69). -------------------------------------------------------------------------------------------------------------------- PAGE 52 3. Acquisitions (a) Ark Life Assurance Company Limited On 27 January 2006, Hibernian Life Holdings Limited (HLH), the parent company of Hibernian Life & Pensions Limited, acquired all the shares of Ark Life Assurance Company Limited (Ark Life) from Allied Irish Banks plc (AIB) in exchange for a 24.99% stake in the enlarged HLH and a balancing cash payment of â‚¬196 million (Â£134 million) which also reflects the transfer of the management of Ark Life funds to Hibernian Investment Managers Limited, part of the Group's fund management business. A further deferred cash payment of up to â‚¬10 million (Â£7 million) is payable, subject to the fulfilment of certain performance criteria. The results of Ark Life have been included in the consolidated financial statements of the Group with effect from 27 January 2006, and contributed Â£5 million to the consolidated EEV profit before tax and Â£11 million to the IFRS profit before tax. The transaction has been accounted for as the acquisition of 75.01% of Ark Life and the disposal of 24.99% of HLH. The realised gain on disposal of the Group's 24.99% interest in HLH was Â£26 million on an EEV basis and Â£87 million on an IFRS basis. The Ark Life acquisition has given rise to goodwill on acquisition of Â£45 million, calculated as follows: Purchase cost: Â£m Fair value of shares in Hibernian Life Holdings Limited 184 Cash paid 134 Attributable costs 4 ---------------------------------------------------------------------------------------------------------------------- Total consideration 322 ====================================================================================================================== The assets and liabilities at the date of acquisition were: Fair value and accounting Book policy Fair value adjustments value Â£m Â£m Â£m Assets Acquired value of in-force business on insurance and investment contracts - 163 163 Other intangible assets 1 44 45 Investments 2,939 (74) 2,865 Other assets 1,225 (11) 1,214 ---------------------------------------------------------------------------------------------------------------------- Total assets 4,165 122 4,287 ====================================================================================================================== Liabilities Gross insurance liabilities (1,767) (46) (1,813) Gross liability for investment contracts (2,066) 1 (2,065) Other liabilities (154) 111 (43) ---------------------------------------------------------------------------------------------------------------------- Total liabilities (3,987) 66 (3,921) ====================================================================================================================== Total net assets 178 188 366 ====================================================================================================================== Net assets acquired (Group share) 277 ====================================================================================================================== ---------------------------------------------------------------------------------------------------------------------- Goodwill arising on acquisition 45 ====================================================================================================================== Ark Life calculates embedded value and technical insurance assets and liabilities using a bespoke system, which employs different methodologies to those used by the Group. The assets and liabilities as at the acquisition date in the table above are stated as provisional values, calculated using AIB's systems, and may be amended in the Group's full year financial statements in accordance with paragraph 62 of IFRS 3, Business Combinations. The value of the agreement to distribute through AIB's networks has been identified as a separate intangible asset and valued by an independent third party at Â£45 million, using estimated post-tax cash flows and discount rates. It has been assessed as having a life of 25 years and is being amortised over that period, with a corresponding release of the applicable deferred tax provision. The residual goodwill of Â£45 million represents future synergies expected to arise in the combined life operations. ---------------------------------------------------------------------------------------------------------------------- PAGE 53 (b) Eagle Insurance Company Limited On 1 February 2006, the Group acquired a 51% interest in Eagle Insurance Limited (Eagle), the third largest insurer in Sri Lanka, by buying a majority shareholding in Eagle's immediate holding company, NDB Finance Lanka (Pvt) Limited. At the same time, Eagle entered into a 10-year bancassurance agreement with National Development Bank Limited (NDB), Sri Lanka's biggest development bank and Eagle's other major shareholder. The cash consideration, including purchase costs, was Â£15 million. The fair value of the Group's share of net assets acquired was Â£12 million, giving rise to Â£3 million of goodwill on acquisition. (c) Non-adjusting post-balance sheet event On 13 July 2006, the Group announced that it had agreed to acquire 100% of the common stock of AmerUs Group Co. (AmerUs) in a transaction recommended by the Board of AmerUs, for US$69 in cash per common share of AmerUs. AmerUs is a leading provider of equity-indexed life and annuity products to the United States retirement and savings markets and the acquisition will establish a leading presence for the Group in these selected high-growth segments. The total purchase price of approximately US$2.9 billion (Â£1.6 billion) in cash will be partly financed by a Â£900 million placing of the Company's ordinary shares of Â£0.25 nominal value each, with the balance of funding being provided by internal resources and external debt. The placing was completed on 13 July 2006, with 129 million shares issued on 18 July at Â£7 per share. The acquisition, which will be effected through a statutory merger in the United States, remains subject to approval by a majority of AmerUs' common shareholders and certain conditions, including customary insurance and other regulatory consents. The approval process is progressing in line with the Group's expectations and the acquisition is expected to complete during the fourth quarter of 2006. ---------------------------------------------------------------------------------------------------------------------- PAGE 54 4. Other income - profit on the disposal of subsidiaries and associates The profit on the disposal of subsidiaries and associates comprises: 6 months 6 months Full year 2006 2005 2005 Â£m Â£m Â£m United Kingdom (see below) 66 - 10 Ireland (see note 3(a)) 87 - - France - 1 - Asia - 145 165 Other small operations (6) (1) (22) --------------------------------------------------------------------------------------------------------------------- Profit on disposal before tax 147 145 153 Tax on profit on disposal (11) (43) (43) --------------------------------------------------------------------------------------------------------------------- Profit on disposal after tax 136 102 110 ===================================================================================================================== On an EEV basis, the profit on disposal before tax for the first six months of 2006 falls to Â£86 million because, on that basis, the gain on disposal in Ireland was Â£26 million (see note 3(a)). The EEV profit on disposal after tax for the same period was Â£75 million. There is no difference between IFRS and EEV figures for the comparative periods. Sale of RAC non-core businesses During the first six months of 2006, the Group completed the disposal of the Manufacturer Support Services (MSS) and Lex Vehicle Leasing (LVL) divisions, which had been acquired with the RAC. The decision to sell was part of the Group's wider strategy to integrate RAC and exit non-core operations. 6 months 2006 Â£m Proceeds from sale 354 Net assets disposed of (310) Transaction costs (14) --------------------------------------------------------------------------------------------------------------------- Profit before tax and pension curtailment gain 30 Pension curtailment gain 36 --------------------------------------------------------------------------------------------------------------------- Profit on disposal before tax 66 Tax attributable to profit on disposal (11) --------------------------------------------------------------------------------------------------------------------- Profit on disposal after tax 55 ===================================================================================================================== The net assets disposed of, which total Â£310 million, comprised investment in joint ventures of Â£239 million, tangible assets of Â£102 million, other assets of Â£95 million and other liabilities of Â£126 million. The pension curtailment gain arose from the remeasurement of pension liabilities in the RAC plc defined benefit pension scheme, following the MSS and LVL disposals. (a) Sale of MSS The MSS disposal was completed in three stages during the first six months of 2006, following the disposals of certain operational assets and liabilities of Hyundai Cars (UK) and the commercial fleet business of Lex Transfleet in 2005. On 10 January 2006, the Group sold Hyundai Car Finance Limited, which provides vehicle instalment finance and leasing, to Lloyds TSB. On 14 February 2006, the Group sold Lex Autologistics Limited, Lex Commercials Limited and associated properties to Imperial Holdings. On 27 April 2006, the Group completed the sale of the remaining vehicle solutions businesses, comprising Lex Transfleet Limited, Lex Defence Limited, Lex Defence Management Limited and RAC Software Solutions Limited, to VT Group plc. Receipts from the completion of the disposal of the MSS division totalled Â£111 million, resulting in a profit of Â£12 million before tax. In 2005, the Group sold certain operational assets and liabilities of Hyundai Cars (UK) and the commercial fleet business of Lex Transfleet for total consideration of Â£139 million. The sale resulted in a profit of Â£5 million which is included in the 2005 figures above. Of the total consideration of Â£250 million received for MSS disposals in 2005 and 2006, Â£73 million was in respect of liabilities to be settled by the Group. (b) Sale of LVL On 31 May 2006, the sale of Aviva's 50% stake in Lex Vehicle Leasing (Holdings) Limited to HBOS plc was completed. Under the terms of the joint venture agreement, the change of control of RAC provided HBOS with the right to acquire Aviva's interest in LVL which HBOS chose to exercise. The proceeds consisted of a net cash receipt of Â£227 million, from which Aviva's estimated contribution of Â£16 million to the statutory debt funding of the RAC plc defined benefit pension scheme had been deducted. The gross consideration was therefore Â£243 million. In addition to the disposal of the investment in the joint venture of Â£239 million, HBOS will make an equivalent contribution to the statutory debt funding of the defined benefit pension scheme estimated at Â£16 million. The sale resulted in a profit of Â£18 million before tax. No other disposal is considered material for further disclosure. ---------------------------------------------------------------------------------------------------------------------- PAGE 55 5. Integration Costs Â£24 million of integration costs have been included in the results to 30 June 2006. Â£21 million related to the continued restructuring of the combined Norwich Union Insurance and RAC businesses. Â£3 million relates to the integration of Ark Life into the Hibernian business. 6. Operations classified as held for sale The assets and liabilities of operations held for sale as at 30 June 2006 were as follows: 30 June 30 June 31 December 2006 2005 2005 Â£m Â£m Â£m Intangible assets - - 9 Investments and property and equipment 354 5 320 Receivables and other financial assets 506 8 68 Deferred acquisition costs and other assets 31 98 40 Cash and cash equivalents 117 - 25 -------------------------------------------------------------------------------------------------------------------- Total assets 1,008 111 462 -------------------------------------------------------------------------------------------------------------------- Payables and financial liabilities (48) (8) (96) Other liabilities (780) (25) (49) -------------------------------------------------------------------------------------------------------------------- Total liabilities (828) (33) (145) -------------------------------------------------------------------------------------------------------------------- Net assets 180 78 317 ==================================================================================================================== (i) Dutch healthcare operations On 8 June 2006, the Group's Dutch subsidiary, Delta Lloyd NV ('DL'), announced that it intends to merge its health insurance activities with those of two other companies, Agis Zorgverzekeringen and Menzis Zorg & Inkomen, to form a new operation aiming to ensure good, accessible healthcare at competitive prices. Subject to regulatory approval and due diligence, the three parties will start the integration process in October 2006 and complete the transaction during 2007. The percentage stake of each company in the new operation will be determined by the fair values of the net assets each one contributes, as well as its contribution to any future capital requirements. It is currently too early to determine either the value or percentage holding of the DL stake but, on the assumption that its health operations will in future cease to be treated as subsidiaries, their relevant assets and liabilities have been reclassified as held for sale, at their carrying values, in the consolidated balance sheet. (ii) RAC non-core businesses As described in note 4 above, those businesses that were treated as held for sale as at 31 December 2005 have been sold during the first half of 2006. Those that were held for sale at 30 June 2005 were disposed of during the second half of that year. 7. Geographical analysis of life IFRS operating profit 6 months 6 months Full year 2006 2005 2005 Â£m Â£m Â£m France 116 131 258 Ireland 31 14 28 Italy 28 24 53 Netherlands (including Belgium, Germany and Luxembourg) 225 62 172 Poland 56 48 91 Spain 48 39 89 Other (7) (1) (6) Continental Europe 497 317 685 Rest of the World - (16) (2) International 497 301 683 With-profit 68 33 99 Non-profit 145 176 283 United Kingdom 213 209 382 --------------------------------------------------------------------------------------------------------------------- Total 710 510 1,065 ===================================================================================================================== ---------------------------------------------------------------------------------------------------------------------- PAGE 56 8. Geographical analysis of fund management operating profit (a) IFRS basis 6 months 6 months Full year 2006 2005 2005 Â£m Â£m Â£m UK business 23 11 36 International business 8 7 13 --------------------------------------------------------------------------------------------------------------------- Morley 31 18 49 France 16 10 26 Netherlands 13 8 32 Other Europe 1 1 2 Rest of the World 5 4 7 --------------------------------------------------------------------------------------------------------------------- International 35 23 67 Royal Bank of Scotland (4) (3) (1) Norwich Union investment funds (1) 3 9 --------------------------------------------------------------------------------------------------------------------- United Kingdom (5) - 8 --------------------------------------------------------------------------------------------------------------------- Total 61 41 124 ===================================================================================================================== (b) EEV basis 6 months 6 months Full year 2006 2005 2005 Â£m Â£m Â£m UK business 11 5 17 International business 6 6 9 --------------------------------------------------------------------------------------------------------------------- Morley 17 11 26 France 5 2 8 Netherlands 10 8 32 Other Europe 1 1 2 Rest of the World 5 4 7 --------------------------------------------------------------------------------------------------------------------- International 21 15 49 Royal Bank of Scotland (4) (3) (1) Norwich Union investment funds (1) 3 9 --------------------------------------------------------------------------------------------------------------------- United Kingdom (5) - 8 --------------------------------------------------------------------------------------------------------------------- Total 33 26 83 ===================================================================================================================== ---------------------------------------------------------------------------------------------------------------------- PAGE 57 9. Geographical analysis of general insurance and health (a) Operating result Operating profit Underwriting result ----------------------------- ----------------------------- 6 months 6 months Full year 6 months 6 months Full year 2006 2005 2005 2006 2005 2005 Â£m Â£m Â£m Â£m Â£m Â£m France 27 17 35 (1) (12) (21) Ireland 88 83 171 63 53 116 Netherlands 80 55 137 34 14 54 Other 19 19 47 3 2 15 Continental Europe 214 174 390 99 57 164 Canada 85 67 147 24 14 35 Other 12 22 40 (2) 7 3 Rest of the World 97 89 187 22 21 38 International 311 263 577 121 78 202 United Kingdom 555 431 974 225 104 303 --------------------------------------------------------------------------------------------------------------------- Total 866 694 1,551 346 182 505 ===================================================================================================================== Analysed by: General insurance 862 675 1,496 373 192 507 Health 4 19 55 (27) (10) (2) --------------------------------------------------------------------------------------------------------------------- Total 866 694 1,551 346 182 505 ===================================================================================================================== (b) Investment return information Actual investment return Longer-term investment credited to income return ------------------------------ ----------------------------- 6 months 6 months Full year 6 months 6 months Full year 2006 2005 2005 2006 2005 2005 Â£m Â£m Â£m Â£m Â£m Â£m France 17 23 54 28 29 56 Ireland 22 24 43 25 30 55 Netherlands 37 53 88 46 41 83 Other 9 14 17 16 17 32 Continental Europe 85 114 202 115 117 226 Canada 50 44 95 61 53 112 Other 13 15 27 14 15 37 Rest of the World 63 59 122 75 68 149 International 148 173 324 190 185 375 United Kingdom 281 280 646 330 327 671 -------------------------------------------------------------------------------------------------------------------- Total longer-term investment return 520 512 1,046 ============================= Total actual investment income 429 453 970 Realised gains 110 55 216 Unrealised (losses)/gains (224) 124 377 -------------------------------------------------------------------------------------- Total actual investment return 315 632 1,563 ====================================================================================== The total short-term adverse fluctuation in investment return of Â£205 million (six months 30 June 2005: Â£120 million favourable fluctuation; full year 2005: Â£517 million favourable fluctuation) is the difference between the total actual investment return of Â£315 million (six months 30 June 2005: Â£632 million; full year 2005: Â£1,563 million) and the total longer-term investment return of Â£520 million (six months 30 June 2005: Â£512 million; full year 2005: Â£1,046 million). Actual income and longer-term investment return both contain the amortisation of the discount/premium arising on the acquisition of fixed income securities. ---------------------------------------------------------------------------------------------------------------------- PAGE 58 9. Geographical analysis of general insurance and health (continued) The longer-term investment return is calculated separately for each principal general insurance and health business unit. In respect of equities and properties, the return is calculated by multiplying the opening market value of the investments, adjusted for sales and purchases during the period, by the longer-term rate of investment return. The longer-term rate of investment return is determined using consistent assumptions between operations, having regard to local economic and market forecasts of investment return. The allocated longer-term return for other investments is the actual income receivable for the period. The Group has calculated the longer-term investment return for its general insurance and health business using the same start of year economic assumptions for equities and properties as those used for EEV reporting as shown on page 40 of this announcement. The principal assumptions underlying the calculation of the longer-term investment return are: Longer-term rates of return Longer-term rates of return Equities Properties --------------------------- --------------------------- 2006 2005 2006 2005 % % % % United Kingdom 7.1% 7.6% 6.1% 6.6% France 6.3% 6.7% 5.3% 5.7% Ireland 6.3% 6.7% 5.3% 5.7% Netherlands 6.3% 6.7% 5.3% 5.7% Canada 7.0% 7.4% 6.0% 6.4% ---------------------------------------------------------------------------------------------------------------------- The table below shows the sensitivity of the Group's general insurance and health operating profit before tax to changes in the longer-term rates of return: 6 months 6 months 2006 2005 Â£m Â£m Movement in investment return for By Change in By By Equities 1% higher/lower Group operating profit 31 27 Properties 1% higher/lower Group operating profit 3 4 ---------------------------------------------------------------------------------------------------------------------- 10. Analysis of other operations' operating profit (a) IFRS basis 6 months 6 months Full year 2006 2005 2005 Â£m Â£m Â£m RAC 20 11 30 UK Life - Personal finance subsidiaries - 1 4 - Norwich Union Life Services (42) (38) (66) - Lifetime (6) - (14) Other 17 20 6 ---------------------------------------------------------------------------------------------------------------------- (11) (6) (40) ====================================================================================================================== (b) EEV basis 6 months 6 months Full year 2006 2005 2005 Â£m Â£m Â£m RAC 20 11 30 UK Life - Personal finance subsidiaries - 1 4 - Norwich Union Life Services 2 (4) 3 - Lifetime (6) - (14) Other 13 29 5 ---------------------------------------------------------------------------------------------------------------------- 29 37 28 ====================================================================================================================== ---------------------------------------------------------------------------------------------------------------------- PAGE 59 11. Corporate costs 6 months 6 months Full year 2006 2005 2005 Â£m Â£m Â£m Central costs and sharesave schemes (73) (55) (108) Global finance transformation programme - (28) (28) ---------------------------------------------------------------------------------------------------------------------- (73) (83) (136) ====================================================================================================================== 12. Unallocated interest charges 6 months 6 months Full year 2006 2005 2005 Â£m Â£m Â£m External Subordinated debt (84) (85) (169) Other (25) (45) (79) Internal (106) (101) (220) Net finance income on staff pension schemes 38 18 32 ---------------------------------------------------------------------------------------------------------------------- (177) (213) (436) ====================================================================================================================== 13. Tax (a) Tax charged to the income statement 6 months 6 months Full year 2006 2005 2005 Â£m Â£m Â£m Current tax: For the period 417 492 799 Prior year adjustments (118) 21 (212) ---------------------------------------------------------------------------------------------------------------------- Total current tax 299 513 587 ---------------------------------------------------------------------------------------------------------------------- Deferred tax: Origination and reversal of timing differences 132 66 881 Changes in tax rates or tax laws - - (5) Write down of deferred tax assets - 16 89 ---------------------------------------------------------------------------------------------------------------------- Total deferred tax 132 82 965 ---------------------------------------------------------------------------------------------------------------------- Total tax charged to income statement 431 595 1,552 ====================================================================================================================== Tax charge analysed between 6 months 6 months Full year 2006 2005 2005 Â£m Â£m Â£m Tax charge attributable to policyholders' returns 112 288 922 Tax charge on IFRS operating profit before tax attributable to shareholders' profits from continuing operations 370 256 536 Tax (credit)/charge on profit on other activities (51) 51 94 ---------------------------------------------------------------------------------------------------------------------- Total tax charged to income statement 431 595 1,552 ====================================================================================================================== (b) Tax charged/(credited) to equity (i) The total tax charge/(credit) comprises: 6 months 6 months Full year 2006 2005 2005 Â£m Â£m Â£m Current tax credit - - (13) Deferred tax charge/(credit) 104 (18) (262) ---------------------------------------------------------------------------------------------------------------------- Total tax charged/(credited) to equity 104 (18) (275) ====================================================================================================================== (ii) The tax credit attributable to policyholders' returns included in the total above is Â£2 million (6 months 2005: nil, full year 2005: tax credit Â£3 million). ---------------------------------------------------------------------------------------------------------------------- PAGE 60 (c) Tax reconciliation The tax on the Group's net profit before tax differs from the theoretical amount that would arise using the tax rate of the home country of the Company as follows: 6 months 6 months Full year 2006 2005 2005 Â£m Â£m Â£m Profit before tax 1,360 1,412 3,450 ====================================================================================================================== Tax calculated at standard UK corporation tax rate of 30% (2005: 30%) 408 424 1,035 Different basis of tax for UK life insurance 78 164 616 Adjustment to tax charge in respect of prior years (125) 20 (253) Non-assessable dividends (26) (59) (26) Non-taxable (profit)/loss on sale of subsidiaries and associates (33) - (4) Disallowable expenses 24 21 55 Different local basis of tax on overseas profits 204 34 168 Deferred tax assets not recognised (91) 7 (25) Other (8) (16) (14) ---------------------------------------------------------------------------------------------------------------------- Tax charge for the period 431 595 1,552 ====================================================================================================================== 14. Earnings per share (a) Basic earnings per share (i) The profit attributable to ordinary shareholders is: 6 months 6 months Full year 2006 2005 2005 Â£m Â£m Â£m Profit for the period 929 817 1,898 Amount attributable to minority interests (73) (61) (131) Cumulative preference dividends for the period (9) (9) (17) Coupon payments on direct capital instrument, net of tax - - (29) ---------------------------------------------------------------------------------------------------------------------- Profit attributable to ordinary shareholders 847 747 1,721 ====================================================================================================================== ---------------------------------------------------------------------------------------------------------------------- PAGE 61 14. Earnings per share (continued) (ii) Basic earnings per share is calculated as follows: 6 months 2006 6 months 2005 Full year 2005 ----------------------------- --------------------------- --------------------------- Net of tax, Net of tax, Net of tax, minorities minorities minorities and and and preference preference preference dividends dividends dividends Before and DCI Per Before and DCI Per Before and DCI Per tax appropriation share tax appropriation share tax appropriation share Â£m Â£m p Â£m Â£m p Â£m Â£m p Operating profit attributable to ordinary shareholders 1,376 924 38.5 943 623 27.1 2,128 1,415 60.5 Adjusted for the following: - Impairment of goodwill - - - (10) (10) (0.4) (43) (43) (1.8) - Amortisation and net impairment of acquired value of in-force business (33) (33) (1.4) (44) (44) (1.9) (73) (73) (3.1) - Amortisation and net impairment of intangibles (19) (16) (0.7) (16) (14) (0.6) (45) (42) (1.8) - Financial Services Compensation Scheme and other levies 6 4 0.2 - - - - - - - Short-term fluctuation on return on investments backing general insurance and health business (205) (147) (6.1) 120 100 4.3 517 430 18.2 - Profit on the disposal of subsidiaries and associates 147 136 5.7 145 102 4.4 153 110 4.7 - Integration costs (24) (21) (0.9) (14) (10) (0.4) (109) (76) (3.2) ---------------------------------------------------------------------------------------------------------------------- Profit attributable to ordinary shareholders 1,248 847 35.3 1,124 747 32.5 2,528 1,721 73.5 ====================================================================================================================== Earnings per share has been calculated based on the operating profit before impairment of goodwill and other non- operating items, after tax, attributable to ordinary shareholders, as well as on the profit attributable to ordinary shareholders. The directors believe the former earnings per share figures provide a better indication of operating performance. The calculation of basic earnings per share uses a weighted average of 2,401 million (six months 30 June 2005: 2,300 million; full year 2005: 2,340 million) ordinary shares in issue, after deducting shares owned by the employee share trusts. The actual number of shares in issue at 30 June 2006 was 2,415 million (30 June 2005: 2,371 million; 31 December 2005: 2,396 million). As described in note 3(c) the Group issued 129 million shares on 18 July 2006. This issue does not impact on the earnings per share calculations as it is a post balance sheet event. ---------------------------------------------------------------------------------------------------------------------- PAGE 62 14. Earnings per share (continued) (b) Diluted earnings per share: Diluted earnings per share is calculated as follows: 30 June 2006 30 June 2005 Full year 2005 ------------------------- ----------------------- ------------------------- Weighted Weighted Weighted averge average average number of Per number of Per number of Per Total shares share Total shares share Total shares share Â£m m p Â£m m p Â£m m p Profit attributable to ordinary shareholders 847 2,401 35.3 747 2,300 32.5 1,721 2,340 73.5 Dilutive effect of share awards and options - 22 (0.3) - 26 (0.4) - 20 (0.6) --------------------------------------------------------------------------------------------------------------------- Diluted earnings per share 847 2,423 35.0 747 2,326 32.1 1,721 2,360 72.9 ===================================================================================================================== Diluted earnings per share on operating profit attributable to ordinary shareholders is 38.1p (30 June 2005: 26.8p; 31 December 2005: 60.0p). 15. Dividends and appropriations 6 months 6 months Full year 2006 2005 2005 Â£m Â£m Â£m Ordinary dividends declared and charged to equity in the period Final 2004 - 16.00p per share, paid on 17 May 2005 - 364 364 Interim 2005 - 9.83p per share, paid on 17 November 2005 - - 234 Final 2005 - 17.44p per share, paid on 17 May 2006 418 - - ---------------------------- 418 364 598 Preference dividends declared and charged to equity in the period 9 9 17 Coupon payments on direct capital instrument - - 42 ---------------------------- 427 373 657 ============================ Subsequent to 30 June 2006, the directors proposed an interim dividend for 2006 of 10.82p per ordinary share, amounting to Â£275 million in total (based on shares in issue at 30 June 2006 and new shares issued on 18 July 2006 as referred to in note 3(c)). The dividend will be paid on 17 November 2006 and will be accounted for as an appropriation of retained earnings in the year ending 31 December 2006. Interest on the direct capital instrument issued in November 2004 is treated as an appropriation of retained profits and, accordingly, it is accounted for when paid. Tax relief will be obtained at a rate of 30%. Irish shareholders who are due to be paid a dividend denominated in euros will receive a payment at the exchange rate prevailing on 8 August 2006. 16. Segmental information (a) Segmental results - primary reporting format - business segments The principal activity of the Group is financial services, which is managed using the following reportable segments: long-term business, fund management, general insurance and health. Long-term business Our long-term business comprises life insurance, long-term health and accident insurance, savings, pensions and annuity business written by our life insurance subsidiaries including managed pension fund business and our share of the other life and related business written in our associates and joint ventures, as well as the lifetime mortgage business written in the United Kingdom. Fund management activities Our fund management business invests policyholders' and shareholders' funds, provides investment management services for institutional pension fund mandates and manages a range of retail investment products, including investment funds, unit trusts, OEICs and ISAs. Clients include Aviva group businesses and third-party financial institutions, pension funds, public sector organisations, investment professionals and private investors. ---------------------------------------------------------------------------------------------------------------------- PAGE 63 16. Segmental information (continued) General insurance and health Our general insurance and health business provides insurance cover to individuals and to small and medium-sized businesses, for risks associated mainly with motor vehicles, property and liability, such as employers' liability and professional indemnity liability, and medical expenses. Other Other activities not related to the core business segments or which are not reportable segments due to their immateriality, such as RAC non-insurance operations, our banking businesses and service companies are included as 'Other' in the following tables. Head office expenses, such as Group treasury and finance functions are also reported as 'Other', together with eliminations and any other reconciling items. Certain financing costs and taxes are not allocated among the segments. The accounting policies of the segments are the same as those for the Group as a whole. Any transactions between the business segments are on normal commercial terms and market conditions. Segment assets and liabilities comprise operating assets and liabilities, being the majority of the balance sheet but excluding items such as tax and borrowings. (b) Segmental results of the income statement - primary reporting format - business segments for the six months ended 30 June 2006 General Long-term Fund insurance business management and health Other Total Â£m Â£m Â£m Â£m Â£m Segment income from external customers: Net written premiums 8,057 - 5,650 - 13,707 --------------------------------------------------------------------------------------------------------------------- Net earned premiums 8,057 - 5,428 - 13,485 Fee and commission income 318 170 87 330 905 --------------------------------------------------------------------------------------------------------------------- 8,375 170 5,515 330 14,390 Net investment income 2,383 6 349 116 2,854 Inter-segment revenue - 85 - - 85 Other income (3) - 90 60 147 --------------------------------------------------------------------------------------------------------------------- Segment income 10,755 261 5,954 506 17,476 ===================================================================================================================== Claims and benefits paid, net of recoveries from reinsurers (7,659) - (3,378) - (11,037) Change in insurance liabilities, net of reinsurance 197 - (99) - 98 Change in investment contract provisions (1,826) - - - (1,826) Change in unallocated divisible surplus 623 - - - 623 Fee and commission expense (788) (50) (1,337) (13) (2,188) Other operating expenses Depreciation (7) (2) (11) (41) (61) Amortisation of acquired value of in-force business (16) - - - (16) Net impairment of acquired value of in-force business (10) - - - (10) Amortisation and net impairment of intangible assets (9) - (6) (4) (19) Impairment of goodwill - - - - - Other impairment losses recognised in the income statement - - - - - Inter-segment expense (69) - (4) (12) (85) Other expenses (505) (144) (364) (421) (1,434) Finance costs (126) - (3) (146) (275) --------------------------------------------------------------------------------------------------------------------- Segment expenses (10,195) (196) (5,202) (637) (16,230) ====================================================================================================================== Segment result before share of profit/(loss) of joint ventures and associates 560 65 752 (131) 1,246 Share of profit/(loss) of joint ventures and associates 213 (4) - 14 223 --------------------------------------------------------------------------------------------------------------------- Segmental result before tax 773 61 752 (117) 1,469 ------------------------------------------------------------------------------------------------------------ Unallocated costs: Finance costs on central borrowings (109) Tax attributable to policyholders' returns (112) Tax attributable to shareholders' profits (319) --------------------------------------------------------------------------------------------------------------------- Total unallocated costs (540) --------------------------------------------------------------------------------------------------------------------- Profit for the period 929 ===================================================================================================================== --------------------------------------------------------------------------------------------------------------------- PAGE 64 16. Segmental information (continued) (b) Segmental results of the income statement - primary reporting format - business segments for the six months ended 30 June 2006 (continued) Finance costs on central borrowings comprise interest payable on borrowings by holding companies within the Group which are not allocated to operating companies. Proforma reconciliation to operating profit before tax attributable to shareholders' profits for the six months ended 30 June 2006 General Long-term Fund insurance business management and health Other Total Â£m Â£m Â£m Â£m Â£m Segment result before tax 773 61 752 (117) 1,469 Finance costs on central borrowings (109) (109) Adjusted for the following items: Amortisation and impairment of acquired value of in-force business 33 - - - 33 Amortisation and impairment of intangible assets 9 - 6 4 19 Short-term fluctuation on investment return - - 205 - 205 (Profit)/loss on the disposal of subsidiaries and associates 3 - (90) (60) (147) FSCS levy - - (6) - (6) Integration costs 3 - 2 19 24 Unallocated interest - - (5) 5 - Corporate costs reallocation 1 - 2 (3) - --------------------------------------------------------------------------------------------------------------------- 822 61 866 (261) 1,488 Less: Tax attributable to policyholders' returns (112) - - - (112) --------------------------------------------------------------------------------------------------------------------- Operating profit before tax attributable to shareholders' profits 710 61 866 (261) 1,376 ===================================================================================================================== --------------------------------------------------------------------------------------------------------------------- PAGE 65 16. Segmental information (continued) (c) Segmental results of the income statement - primary reporting format - business segments for the six months ended 30 June 2005 General Long-term Fund insurance business management and health Other Total Â£m Â£m Â£m Â£m Â£m Segment income from external customers: Net written premiums 7,468 - 5,204 - 12,672 --------------------------------------------------------------------------------------------------------------------- Net earned premiums 7,468 - 4,889 - 12,357 Fee and commission income 304 137 40 368 849 --------------------------------------------------------------------------------------------------------------------- 7,772 137 4,929 368 13,206 Net investment income 9,311 4 688 94 10,097 Inter-segment revenue - 59 - - 59 Other income - - 42 103 145 --------------------------------------------------------------------------------------------------------------------- Segment income 17,083 200 5,659 565 23,507 ===================================================================================================================== Claims and benefits paid, net of recoveries from reinsurers (6,490) - (2,870) - (9,360) Change in insurance liabilities, net of reinsurance (5,147) - (331) - (5,478) Change in investment contracts provisions (3,002) - - - (3,002) Change in unallocated divisible surplus (355) - - - (355) Fee and commission expense (683) (45) (1,280) (5) (2,013) Other operating expenses Depreciation (7) (2) (5) (28) (42) Amortisation of acquired value of business in-force (28) - - - (28) Net impairment of acquired value of business in-force (7) - - - (7) Amortisation and net impairment of other intangible assets (8) - (5) (3) (16) Impairment of goodwill (10) - - - (10) Other impairment losses recognised in the income statement (4) - - - (4) Inter-segment expense (55) - (3) (1) (59) Other expenses (449) (111) (295) (576) (1,431) Finance costs (118) - (22) (36) (176) --------------------------------------------------------------------------------------------------------------------- Segment expenses (16,363) (158) (4,811) (649) (21,981) ===================================================================================================================== Segment result before share of profit/(loss) of joint ventures and associates 720 42 848 (84) 1,526 Share of profit/(loss) of joint ventures and associates 14 (3) - 5 16 --------------------------------------------------------------------------------------------------------------------- Segmental result before tax 734 39 848 (79) 1,542 ------------------------------------------------------------------------------------------------------------ Unallocated costs: Finance costs on central borrowings (130) Tax attributable to policyholders' returns (288) Tax attributable to shareholders' profits (307) --------------------------------------------------------------------------------------------------------------------- Total unallocated costs (725) --------------------------------------------------------------------------------------------------------------------- Profit for the period 817 ===================================================================================================================== ---------------------------------------------------------------------------------------------------------------------- PAGE 66 16. Segmental information (continued) (c) Segmental results of the income statement - primary reporting format - business segments (continued) Proforma reconciliation to operating profit before tax attributable to shareholders' profits for the six months ended 30 June 2005 General Long-term Fund insurance business management and health Other Total Â£m Â£m Â£m Â£m Â£m Segment result before tax 734 39 848 (79) 1,542 Finance costs on central borrowings - - - (130) (130) Adjusted for the following items: Impairment of goodwill 10 - - - 10 Amortisation of acquired value of in-force business 44 - - - 44 Impairment of other intangible assets 8 - 5 3 16 Short-term fluctuation on investment return - - (120) - (120) Profit on the disposal of subsidiaries and associates - - (41) (104) (145) Integration costs - - - 14 14 Corporate costs reallocation 2 2 2 (6) - --------------------------------------------------------------------------------------------------------------------- 798 41 694 (302) 1,231 Less: Tax attributable to policyholders' returns (288) - - - (288) --------------------------------------------------------------------------------------------------------------------- Operating profit before tax attributable to shareholders' profits 510 41 694 (302) 943 ===================================================================================================================== ---------------------------------------------------------------------------------------------------------------------- PAGE 67 16. Segmental information (continued) (d) Segmental results of the income statement - primary reporting format - business segments for the year ended 31 December 2005 General Long-term Fund insurance business management and health Other Total Â£m Â£m Â£m Â£m Â£m Segment income from external customers: Net written premiums 14,671 - 10,311 - 24,982 ------------------------------------------------------------------------------------------------------------------------ Net earned premiums 14,671 - 10,188 - 24,859 Fee and commission income 598 318 218 717 1,851 --------------------------------------------------------------------------------------------------------------------- 15,269 318 10,406 717 26,710 Net investment income 21,985 15 1,603 119 23,722 Inter-segment revenue - 112 - - 112 Other income (10) - 41 122 153 --------------------------------------------------------------------------------------------------------------------- Segment income 37,244 445 12,050 958 50,697 ===================================================================================================================== Claims and benefits paid, net of recoveries from reinsurers (13,482) - (6,224) - (19,706) Change in insurance liabilities, net of reinsurance (10,004) - (372) - (10,376) Change in investment contract provisions (7,814) - - - (7,814) Change in unallocated divisible surplus (1,474) - - - (1,474) Fee and commission expense (1,481) (78) (2,756) (15) (4,330) Other operating expenses Depreciation (11) (6) (17) (78) (112) Amortisation of acquired value of in-force business (27) - - - (27) Net impairment of acquired value of in-force business (28) - - - (28) Amortisation and net impairment of intangible assets (24) - (5) (16) (45) Impairment of goodwill (14) - - (29) (43) Other impairment losses recognised in the income statement (37) - - - (37) Inter-segment expense (103) - (9) - (112) Other expenses (999) (236) (615) (1,024) (2,874) Finance costs (203) - (58) (100) (361) --------------------------------------------------------------------------------------------------------------------- Segment expenses (35,701) (320) (10,056) (1,262) (47,339) ===================================================================================================================== Segment result before share of profit/(loss) of joint ventures and associates 1,543 125 1,994 (304) 3,358 Share of profit/(loss) of joint ventures and associates 322 (1) 1 18 340 --------------------------------------------------------------------------------------------------------------------- Segmental result before tax 1,865 124 1,995 (286) 3,698 ------------------------------------------------------------------------------------------------------------ Unallocated costs: Finance costs on central borrowings (248) Tax attributable to policyholders' returns (922) Tax attributable to shareholders' profits (630) --------------------------------------------------------------------------------------------------------------------- Total unallocated costs (1,800) --------------------------------------------------------------------------------------------------------------------- Profit for the year 1,898 ===================================================================================================================== Finance costs on central borrowings comprise interest payable on borrowings by holding companies within the Group which are not allocated to operating companies. --------------------------------------------------------------------------------------------------------------------- PAGE 68 16. Segmental information (continued) (d) Segmental results of the income statement - primary reporting format - business segments for the year ended 31 December 2005 (continued) Proforma reconciliation to operating profit before tax attributable to shareholders' profits General Long-term Fund insurance business management and health Other Total Â£m Â£m Â£m Â£m Â£m Segment result before tax 1,865 124 1,995 (286) 3,698 Finance costs on central borrowings - - - (248) (248) Adjusted for the following items: Impairment of goodwill 14 - - 29 43 Amortisation and impairment of acquired value of in-force business 73 - - - 73 Amortisation and impairment of intangible assets 24 - 5 16 45 Short-term fluctuation on investment return - - (517) - (517) (Profit)/loss on the disposal of subsidiaries and associates 10 - (41) (122) (153) Integration costs - - 77 32 109 Unallocated interest - (1) 25 (24) - Corporate costs reallocation 1 1 7 (9) - --------------------------------------------------------------------------------------------------------------------- 1,987 124 1,551 (612) 3,050 Less: Tax attributable to policyholders' returns (922) - - - (922) --------------------------------------------------------------------------------------------------------------------- Operating profit before tax attributable to shareholders' profits 1,065 124 1,551 (612) 2,128 ===================================================================================================================== (e) Segmental balance sheet - primary reporting format - on business segments as at 30 June 2006 General Long-term Fund insurance business management and health Other Total Â£m Â£m Â£m Â£m Â£m Goodwill 661 8 400 1,267 2,336 Acquired value of in-force business and intangible assets 590 19 286 109 1,004 Investments in joint ventures and associates 3,138 45 39 95 3,317 Property and equipment 386 3 126 368 883 Investment property 13,725 - 348 38 14,111 Loans 17,720 - 637 6,122 24,479 Financial investments Debt securities 89,195 1 7,776 2,479 99,451 Equity securities 50,852 12 2,810 1,030 54,704 Other investments 30,262 7 451 62 30,782 Other assets 24,871 445 11,163 2,780 39,259 ---------------------------------------------------------------------------------------------------------------------- Segment assets 231,400 540 24,036 14,350 270,326 ----------------------------------------------------------------------------------------------------------- Unallocated assets - tax assets 741 ---------------------------------------------------------------------------------------------------------------------- Total assets 271,067 ====================================================================================================================== Insurance liabilities 114,934 - 18,134 - 133,068 Liability for investment contracts 82,856 - - - 82,856 Unallocated divisible surplus 8,235 - - - 8,235 Net asset value attributable to unitholders 3,080 - - - 3,080 External borrowings 3,951 - (1) 3,494 7,444 Other liabilities, including inter-segment liabilities 6,876 297 (58) 10,243 17,358 ---------------------------------------------------------------------------------------------------------------------- Segment liabilities 219,932 297 18,075 13,737 252,041 ----------------------------------------------------------------------------------------------------------- Unallocated liabilities Central borrowings 3,626 Tax liabilities 3,280 ---------------------------------------------------------------------------------------------------------------------- Total liabilities 258,947 ====================================================================================================================== Total equity 12,120 ====================================================================================================================== Total equity and liabilities 271,067 ====================================================================================================================== Central borrowings are borrowings by holding companies within the Group which are not allocated to operating companies. ---------------------------------------------------------------------------------------------------------------------- PAGE 69 16. Segmental information (continued) (f) Segmental balance sheet - primary reporting format - on business segments as at 30 June 2005 General Long-term Fund insurance business management and health Other Total Â£m Â£m Â£m Â£m Â£m Goodwill 551 - 359 1,379 2,289 Acquired value of in-force business and intangible assets 425 - 379 114 918 Investments in joint ventures and associates 2,069 40 8 170 2,287 Property and equipment 339 5 133 398 875 Investment property 10,662 - 357 54 11,073 Loans 16,763 - 2,710 2,448 21,921 Financial investments Debt securities 86,818 - 9,320 2,601 98,739 Equity securities 44,843 1 2,460 601 47,905 Other investments 22,455 5 231 43 22,734 Other assets 26,610 519 10,004 1,533 38,666 --------------------------------------------------------------------------------------------------------------------- Segment assets 211,535 570 25,961 9,341 247,407 ----------------------------------------------------------------------------------------------------------- Unallocated assets - tax assets 888 --------------------------------------------------------------------------------------------------------------------- Total assets 248,295 ===================================================================================================================== Insurance liabilities 109,933 - 18,127 - 128,060 Liability for investment contracts 71,005 - - - 71,005 Unallocated divisible surplus 7,732 - - - 7,732 Net asset value attributable to unitholders 2,469 - - - 2,469 External borrowings 3,601 - 2,014 746 6,361 Other liabilities, including inter-segment liabilities 6,968 177 (525) 9,206 15,826 --------------------------------------------------------------------------------------------------------------------- Segment liabilities 201,708 177 19,616 9,952 231,453 ----------------------------------------------------------------------------------------------------------- Unallocated liabilities Central borrowings 4,339 Tax liabilities 2,732 --------------------------------------------------------------------------------------------------------------------- Total liabilities 238,524 ===================================================================================================================== Total equity 9,771 ===================================================================================================================== Total equity and liabilities 248,295 ===================================================================================================================== Central borrowings are borrowings by holding companies within the Group which are not allocated to operating companies. --------------------------------------------------------------------------------------------------------------------- PAGE 70 (g) Segmental balance sheet - primary reporting format - on business segments as at 31 December 2005 General Long-term Fund insurance business management and health Other Total Â£m Â£m Â£m Â£m Â£m Goodwill 631 - 398 1,245 2,274 Acquired value of in-force business and intangible assets 424 - 265 114 803 Investments in joint ventures and associates 2,815 46 39 114 3,014 Property and equipment 367 4 126 388 885 Investment property 12,895 - 338 42 13,275 Loans 18,240 - 3,661 2,643 24,544 Financial investments Debt securities 91,926 2 9,390 2,599 103,917 Equity securities 48,365 12 2,647 1,020 52,044 Other investments 25,920 8 459 40 26,427 Other assets 23,185 490 9,425 2,059 35,159 --------------------------------------------------------------------------------------------------------------------- Segment assets 224,768 562 26,748 10,264 262,342 ----------------------------------------------------------------------------------------------------------- Unallocated assets - tax assets 1,105 --------------------------------------------------------------------------------------------------------------------- Total assets 263,447 ===================================================================================================================== Insurance liabilities 114,176 - 18,426 - 132,602 Liability for investment contracts 77,309 - - - 77,309 Unallocated divisible surplus 8,978 - - - 8,978 Net asset value attributable to unitholders 3,137 - - - 3,137 External borrowings 4,060 - 2,565 578 7,203 Other liabilities,including inter-segment liabilities 6,149 293 (224) 9,607 15,825 --------------------------------------------------------------------------------------------------------------------- Segment liabilities 213,809 293 20,767 10,185 245,054 ----------------------------------------------------------------------------------------------------------- Unallocated liabilities Central borrowings 3,810 Tax liabilities 3,491 --------------------------------------------------------------------------------------------------------------------- Total liabilities 252,355 ===================================================================================================================== Total equity 11,092 ===================================================================================================================== Total equity and liabilities 263,447 ===================================================================================================================== Central borrowings are borrowings by holding companies within the Group which are not allocated to operating companies. (h) Goodwill allocation and impairment testing IFRS requires formal impairment testing to be carried out annually. For impairment testing, goodwill and intangibles with indefinite useful lives have been allocated to cash-generating units by geographical reporting unit and business segment. The carrying amount of goodwill and intangible assets with indefinite useful lives is reviewed at least annually or when circumstances or events indicate there may be uncertainty over this value. The last formal impairment test was carried out at 31 December 2005 which led to an impairment charge of Â£43 million in full year 2005. During 2005, goodwill allocated to a life cash-generating unit in Germany was tested for impairment. Following the impairment test, an impairment charge of Â£21 million was recognised in the income statement. The remaining Â£22 million related to other small European businesses. In the first six months of 2006, there was no impairment charge. Other long-lived assets such as acquired value of in-force business and intangibles are not subject to formal annual impairment testing but are amortised on an annual basis. ---------------------------------------------------------------------------------------------------------------------- PAGE 71 16. Segmental information (continued) (i) Long-term business summary analysis by geographical segment Germany has been reclassified from Other Europe to the Netherlands, Lithuania has been reclassified from Other Europe to Poland and Norwich Union's Dublin-based offshore life and savings business has been reclassified from Other Europe to the United Kingdom. (i) Income statement Net written premiums Fee and commission income Profit before tax ---------------------------- ---------------------------- ---------------------------- 6 months 6 months Full year 6 months 6 months Full year 6 months 6 months Full year 2006 2005 2005 2006 2005 2005 2006 2005 2005 Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m France 2,015 1,803 3,553 90 79 160 109 114 234 Ireland 182 95 182 26 10 23 10 18 56 Italy 1,053 696 1,357 32 32 66 27 14 35 Netherlands 1,153 1,400 2,582 15 44 57 223 56 164 Poland 205 148 312 26 10 45 56 48 90 Spain 610 664 1,248 25 16 39 41 33 75 Other Europe 74 87 152 3 3 4 (7) (2) (5) Continental Europe 5,292 4,893 9,386 217 194 394 459 281 649 Rest of the World 456 347 826 20 11 27 2 (16) 8 International 5,748 5,240 10,212 237 205 421 461 265 657 United Kingdom 2,309 2,228 4,459 81 99 177 312 469 1,208 ---------------------------------------------------------------------------------------------------------------------- Total 8,057 7,468 14,671 318 304 598 773 734 1,865 ====================================================================================================================== The following analysis shows the net written premiums from associates and joint ventures on insurance and participating investment contracts which are not included in the analysis above. 6 months 6 months Full year 2006 2005 2005 Â£m Â£m Â£m RBSG 133 102 217 India 16 6 14 China 13 13 30 ---------------------------------------------------------------------------------------------------------------------- 162 121 261 ====================================================================================================================== (ii) Balance sheet Segmental total assets Segmental net assets ----------------------------- --------------------------- 30 June 30 June 31 December 30 June 30 June 31 December 2006 2005 2005 2006 2005 2005 Â£m Â£m Â£m Â£m Â£m Â£m France 46,303 41,642 44,109 1,324 1,274 1,318 Ireland 10,524 5,102 6,054 1,033 384 628 Italy 11,322 9,686 10,805 563 563 570 Netherlands (including Belgium, Germany and Luxembourg) 28,840 27,485 28,826 2,513 1,998 2,344 Poland 1,840 1,546 1,860 160 150 203 Spain 6,458 5,809 6,355 826 740 805 Other Europe 480 512 515 58 47 59 Continental Europe 105,767 91,782 98,524 6,477 5,156 5,927 Rest of the World 7,355 6,911 7,429 675 730 752 International 113,122 98,693 105,953 7,152 5,886 6,679 United Kingdom 118,278 112,842 118,815 4,316 3,941 4,280 ---------------------------------------------------------------------------------------------------------------------- Total 231,400 211,535 224,768 11,468 9,827 10,959 ====================================================================================================================== ---------------------------------------------------------------------------------------------------------------------- PAGE 72 16. Segmental information (continued) (j) Geographical analysis of life and pensions and investment sales - new business and total income For the purpose of recording life and pensions new business premiums, the Group's policy is to include life insurance, long-term health and accident insurance, savings, pensions and annuity business written by our life insurance subsidiaries, including managed pension fund business and our share of the other life and related business written in our associates and joint ventures as well as the lifetime mortgage business written in the UK. This includes both insurance and investment contracts as defined under IFRS 4, Insurance Contracts and is consistent with the definition of covered business used for our embedded value reporting. An analysis of new long-term business sales is provided below. In this table, single premiums are those relating to products issued by the Group, which provide for the payment of one premium only. Regular premiums are those where there is a contractual obligation to pay on an ongoing basis. Life and pensions total income represents all net written premiums in the year for insurance contracts and investment contracts, excluding non-participating investment contracts which are required to be accounted for under IAS 39, Financial Instruments: Recognition and Measurement and IAS 18, Revenue. New single premiums New regular premiums Total income ---------------------------- ---------------------------- ---------------------------- 6 months 6 months Full year 6 months 6 months Full year 6 months 6 months Full year 2006 2005 2005 2006 2005 2005 2006 2005 2005 Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Life and pensions: France 1,766 1,607 3,077 42 41 76 2,015 1,803 3,553 Ireland 333 191 372 47 32 63 182 95 182 Italy 1,282 1,146 1,940 48 30 58 1,053 696 1,357 Netherlands (including Belgium, Germany and Luxembourg) 588 715 1,245 76 87 146 1,153 1,400 2,582 Poland 120 35 120 24 17 30 205 148 312 Spain 596 638 1,395 52 49 100 610 664 1,248 Other Europe 32 47 406 23 21 80 74 87 152 Continental Europe 4,717 4,379 8,555 312 277 553 5,292 4,893 9,386 Rest of the World 444 326 798 57 56 113 485 366 870 International 5,161 4,705 9,353 369 333 666 5,777 5,259 10,256 United Kingdom 4,002 3,124 6,573 346 230 485 2,442 2,330 4,676 ---------------------------------------------------------------------------------------------------------------------- Total life and pensions (including share of associates) 9,163 7,829 15,926 715 563 1,151 8,219 7,589 14,932 Retail sales of mutual fund type products: Netherlands 211 180 563 - - - 211 180 563 Poland 60 24 49 2 2 4 62 26 53 Other Europe 309 237 410 - - - 309 237 410 Rest of the World 819 538 1,151 - - - 819 538 1,151 International 1,399 979 2,173 2 2 4 1,401 981 2,177 United Kingdom 1,065 504 1,139 18 9 21 1,083 513 1,160 ---------------------------------------------------------------------------------------------------------------------- Total investment sales 2,464 1,483 3,312 20 11 25 2,484 1,494 3,337 ---------------------------------------------------------------------------------------------------------------------- Total long-term savings (including share of associates) 11,627 9,312 19,238 735 574 1,176 10,703 9,083 18,269 ====================================================================================================================== Included within new business sales is Â£3,292 million single premiums and Â£283 million regular premiums (six months 2005: Â£2,104 million single premiums and Â£194 million regular premiums; full year 2005: Â£5,071 million single premiums and Â£357 million regular premiums), in respect of contracts that meet the definition of 'non-participating investment' contracts under IFRS 4, Insurance Contracts. Under IFRS, the premiums on these contracts are not included in the Group income statement under earned premiums, but are included on the balance sheet as a deposit. ---------------------------------------------------------------------------------------------------------------------- PAGE 73 16. Segmental information (continued) (k) General insurance and health business summary analysis by geographical segment (i) Income statement Net written premiums Fee and commission income Profit before tax ---------------------------- ---------------------------- ---------------------------- 6 months 6 months Full year 6 months 6 months Full year 6 months 6 months Full year 2006 2005 2005 2006 2005 2005 2006 2005 2005 Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m France 435 424 726 - - - 9 30 68 Ireland 251 262 499 - - - 181 93 181 Netherlands 955 790 1,270 15 17 22 11 123 171 Other Europe 142 129 259 2 1 5 8 17 17 Continental Europe 1,783 1,605 2,754 17 18 27 209 263 437 Canada 724 627 1,324 4 - 11 40 94 178 Other 70 81 106 - - - 4 61 86 Rest of the World 794 708 1,430 4 - 11 44 155 264 International 2,577 2,313 4,184 21 18 38 253 418 701 United Kingdom 3,073 2,891 6,127 66 22 180 499 430 1,294 ---------------------------------------------------------------------------------------------------------------------- Total 5,650 5,204 10,311 87 40 218 752 848 1,995 ====================================================================================================================== (ii) Balance sheet Segmental total assets Segmental net assets ----------------------------- --------------------------- 30 June 30 June 31 December 30 June 30 June 31 December 2006 2005 2005 2006 2005 2005 Â£m Â£m Â£m Â£m Â£m Â£m France 1,774 1,767 1,698 355 406 414 Ireland 1,863 1,865 1,916 504 481 564 Netherlands 2,991 4,542 5,038 514 500 530 Other Europe 835 879 860 275 126 284 Continental Europe 7,463 9,053 9,512 1,648 1,513 1,792 Canada 3,469 3,291 3,742 668 710 850 Other 360 544 380 247 328 249 Rest of the World 3,829 3,835 4,122 915 1,038 1,099 International 11,292 12,888 13,634 2,563 2,551 2,891 United Kingdom 12,744 13,073 13,114 3,398 3,794 3,090 ---------------------------------------------------------------------------------------------------------------------- Total 24,036 25,961 26,748 5,961 6,345 5,981 ====================================================================================================================== (l) General insurance, fund management and other investments mix at 30 June 2006 United Continental Rest of Kingdom Europe the World Total Â£m Â£m Â£m Â£m Equity securities - fair value 2,110 1,199 543 3,852 Debt and fixed income securities at market value 3,361 5,025 1,870 10,256 Loans secured by mortgages and other loans 617 6,125 17 6,759 Other investments 25 494 1 520 Investments in joint ventures and associates 114 44 21 179 Investment property 276 108 2 386 ---------------------------------------------------------------------------------------------------------------------- Total investments 6,503 12,995 2,454 21,952 ====================================================================================================================== END OF PART 3 OF 4 This information is provided by RNS The company news service from the London Stock Exchange

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