L&G 2001 Results - Part 2

Legal & General Group PLC 28 February 2002 Part 2 Legal & General Group Plc P1 Consolidated Profit and Loss Account - Achieved Profits basis Year ended 31 December 2001 ---------------------------------------------------------------------- Notes 2001 2000 Â£m Â£m Profit on continuing operations Life and pensions 1 633 540 Institutional fund management 76 82 General insurance 5 37 20 Other operational income 6 5 42 --------- --------- 751 684 Profit on discontinued operations Other operational income - Fairmount Group 0 2 --------- --------- Operating profit 751 686 Variation from longer term investment return 8 (688) (314) Change in equalisation provision (6) (6) Effect of economic assumption changes 9 (3) 26 Profit on sale of Fairmount Group 10 8 - --------- --------- Profit on ordinary activities before tax 62 392 Tax on profit on ordinary activities 11 (105) (149) --------- --------- (Loss)/profit for the financial period (43) 243 Dividends (261) (243) --------- --------- Retained (loss)/profit (304) 0 ====================================================================== Earnings per share p p Based on operating profit on continuing operations after tax 10.65 9.70 Based on (loss)/profit for the financial period (0.84) 4.74 Diluted earnings per share Based on operating profit on continuing operations after tax 10.15 9.68 Based on (loss)/profit for the financial period (0.84) 4.73 Dividend per share 5.09 4.71 ====================================================================== These supplementary financial statements were approved by the Board on 27 February 2002 and have been prepared for long term business using the Achieved Profits (AP) basis. The Modified Statutory Solvency (MSS) results are included in Part 3. The results constitute non-statutory accounts within the meaning of Section 240 of the Companies Act 1985 and are extracted from the Company's financial statements for the year ended 31 December 2001. Legal & General Group Plc P2 Consolidated Balance Sheet - Achieved Profits basis As at 31 December 2001 ---------------------------------------------------------------------- Notes 2001 2000 Assets Â£m Â£m Investments 12 34,464 35,077 Assets held to cover linked liabilities 70,982 70,678 Long term in-force business asset 2,262 2,135 Other assets 2,804 2,378 ___________ ___________ 110,512 110,268 =========== =========== Liabilities Shareholders' funds 14 4,994 5,274 Fund for future appropriations 2,250 4,331 Technical provisions ___________ ----------- - Technical provisions : : : : for linked liabilities : 70,848 : : 70,566 : - Long term business provisions : 28,536 : : 26,692 : - General insurance provisions : 336 : : 350 : :_________: :_________: 99,720 97,608 Borrowings 15 1,642 571 Bank customer deposits 1,043 1,307 Other creditors 863 1,177 ___________ ___________ 110,512 110,268 ====================================================================== Statement of Total Recognised Gains and Losses Â£m Â£m (Loss)/profit for the financial period (43) 243 Exchange (losses)/gains (1) 13 ___________ ___________ Total recognised gains and losses (44) 256 ====================================================================== Legal & General Group Plc P3 Notes to Financial Statements - Achieved Profits basis Year ended 31 December 2001 ---------------------------------------------------------------------- 1. Operating profit from long term business Managed Life and pension UK Intern- pensions funds* ational Total UK Total 2001 Â£m Â£m Â£m Â£m Â£m Contribution from: - New business 183 34 217 27 244 - In-force business - expected return 242 45 287 14 301 - experience variances 43 (5) 38 20 58 - operating assumption changes (33) 11 (22) 11 (11) - Development costs (26) 0 (26) (2) (28) - Shareholder net worth 123 16 139 - 139 ------ ------ ------ ------ ------ Operating profit 532 101 633 70 703 ====== ====== ====== ====== ====== 2000 Contribution from: - New business 118 43 161 35 196 - In-force business - expected return 256 41 297 14 311 - experience variances (71) (7) (78) 23 (55) - operating assumption changes 38 (9) 29 3 32 - Development costs (14) 0 (14) 0 (14) - Shareholder net worth 127 18 145 - 145 ------ ------ ------ ------ ------ Operating profit 454 86 540 75 615 ====== ====== ====== ====== ====== * Included in the Institutional fund management result of Â£76m (2000: Â£82m). ====================================================================== Legal & General Group Plc P4 Notes to Financial Statements - Achieved Profits basis Year ended 31 December 2001 ---------------------------------------------------------------------- 2. Life and pensions premiums and operating profit 2001 2000 Oper- Oper- Gross ating Gross ating premiums profit premiums profit Â£m Â£m Â£m Â£m UK 4,250 532 3,334 454 USA 272 67 256 45 Netherlands 131 18 98 17 France 146 16 140 24 ------- ------- ------- ------- 4,799 633 3,828 540 ======= ======= ======= ======= International life and pensions gross premiums and operating profit for 2000 expressed at 31 December 2001 exchange rates are: Gross Operating premiums profit Â£m Â£m USA 261 46 Netherlands 96 17 France 137 23 ====================================================================== 3. Principal sterling exchange rates used 2001 2000 United States dollar 1.46 1.49 Euro 1.63 1.59 ====================================================================== 4. Half yearly analysis of operating profit from continuing operations 2001 2000 Second First Second First half half half half Â£m Â£m Â£m Â£m Life and pensions 314 319 266 274 Institutional fund management 45 31 42 40 General insurance 21 16 11 9 Other operational income 2 3 20 22 ------- ------- ------- ------- 382 369 339 345 ====================================================================== 5. General insurance premiums and operating profit 2001 2000 Oper- Net Oper- Net ating premiums ating premiums profit/ written profit written (loss) Â£m Â£m Â£m Â£m Household 204 15 181 5 Mortgage indemnity 1 14 2 21 Other business (including overseas) 64 8 66 (6) ------- ------- ------- ------- Total 269 37 249 20 ====================================================================== Legal & General Group Plc P5 Notes to Financial Statements - Achieved Profits basis Year ended 31 December 2001 ---------------------------------------------------------------------- 6. Other operational income 2001 2000 Â£m Â£m Shareholders' other income - Investment return on shareholders' funds 52 54 - Interest expense (24) (9) --------- --------- 28 45 Other operations* (13) 2 Unallocated corporate and development expenses (10) (5) --------- --------- 5 42 ========= ========= * Other operations includes a loss of Â£16m (2000: Â£3m profit) in respect of retail investment business previously reported within Institutional fund management. ====================================================================== 7. General insurance and shareholder investment return 2001 2000 Â£m Â£m Investment income 62 61 Interest expense and charges (25) (10) Realised investment (losses)/gains (12) 19 Unrealised investment depreciation (42) (19) --------- --------- (17) 51 ========= ========= reported within: General insurance 18 19 Other operational income 28 45 Variation from longer term investment return --------- --------- - General insurance : (25): : (5): - Other operational income : (38): : (8): --------- --------- (63) (13) The investment return shown represents the return on the general insurance and corporate funds. Shareholders' other income, reported within Other operational income, has been allocated based on a longer term rate of investment return with the variation from the actual return being reported as Variation from longer term investment return. The prior year has been restated. ====================================================================== Legal & General Group Plc P6 Notes to Financial Statements - Achieved Profits basis Year ended 31 December 2001 ---------------------------------------------------------------------- 8. Investment return variances 2001 2000 Â£m Â£m Life and pensions - UK (579) (274) - International (15) (9) --------- --------- Total life and pensions (594) (283) UK managed pension funds (31) (18) --------- --------- Total long term business (625) (301) General insurance (25) (5) Other operational income (38) (8) --------- --------- (688) (314) ========= ========= For long term business, the variation from longer term investment return represents the effect of the investment performance in respect of shareholder net worth and in-force business, compared with embedded value assumptions at the beginning of the period. ====================================================================== 9. Effect of economic assumption changes 2001 2000 Â£m Â£m Life and pensions - UK 2 10 - International (5) 14 --------- --------- Total life and pensions (3) 24 UK managed pension funds 0 2 --------- --------- Total long term business (3) 26 ====================================================================== Legal & General Group Plc P7 Notes to Financial Statements - Achieved Profits basis Year ended 31 December 2001 ---------------------------------------------------------------------- 10.Sale of Fairmount Group The sale of Fairmount Group plc, a wholly owned subsidiary, to Brown Shipley & Co Ltd was completed on 16 August 2001. This transaction resulted in an exceptional profit before tax of Â£8m (Â£8m after tax). The results to the date of sale have been reported as discontinued business. This transaction, after an interim dividend of Â£2m, generated net proceeds of Â£35m against which goodwill of Â£20m, previously written off against reserves, has been charged. ====================================================================== 11.Analysis of tax 2001 2000 Profit Tax Profit Tax before (charge) before (charge) tax /credit tax /credit Â£m Â£m Â£m Â£m Profit from continuing operations UK life and pensions 532 (137) 454 (112) International life and pensions ------- ------- ------- ------- - USA : 67 : : (24): : 45 : : (16): - Netherlands : 18 : : (6): : 17 : : (6): - France : 16 : : (5): : 24 : : (9): ------- ------- ------- ------- 101 (35) 86 (31) ------- ------- ------- ------- 633 (172) 540 (143) Institutional fund management 76 (22) 82 (26) General insurance 37 (8) 20 (6) Other operational income 5 (1) 42 (13) ------- ------- ------- ------- 751 (203) 684 (188) Profit from discontinued operations Other operational income - Fairmount Group 0 0 2 0 ------- ------- ------- ------- Operating profit 751 (203) 686 (188) Variation from longer term investment return (688) 90 (314) 41 Change in equalisation provision (6) 2 (6) 2 Effect of economic assumption changes (3) 6 26 (4) Profit on sale of Fairmount Group 8 0 - - ------- ------- ------- ------- Profit on ordinary activities and tax 62 (105) 392 (149) ====================================================================== Legal & General Group Plc P8 Notes to Financial Statements - Achieved Profits basis Year ended 31 December 2001 ---------------------------------------------------------------------- 12.Funds under management 2001 2000 Â£m Â£m Land and buildings 3,526 3,582 Shares, variable yield securities and unit trusts 12,964 15,069 Debt and other fixed income securities 14,270 13,451 Loans secured by mortgages 1,394 1,289 Other loans and investments 382 384 Deposits with credit institutions 1,928 1,302 ---------- ---------- Total investments 34,464 35,077 Assets held to cover linked liabilities 70,982 70,678 ---------- ---------- Funds included in the consolidated balance sheet 105,446 105,755 Segregated funds 7,561 4,565 Unit trusts, ISAs and PEPs 4,535 3,867 ---------- ---------- Total funds under management 117,542 114,187 ========== ========== representing: Managed in the UK - Active 33,832 34,751 - Index tracking 78,255 74,913 - For overseas subsidiaries 1,161 1,089 ---------- ---------- 113,248 110,753 Managed overseas 2,661 1,699 ---------- ---------- 115,909 112,452 Mortgages and other 1,633 1,735 ---------- ---------- 117,542 114,187 ========== ========== including Institutional funds under management: UK Managed pension funds - Pooled 61,675 61,832 - Segregated 5,130 2,213 ---------- ---------- 66,805 64,045 Other funds 2,575 2,434 ---------- ---------- 69,380 66,479 ========== ========== The reported asset mix shown above does not reflect the use of derivatives. The effect of outstanding futures contracts is to change the mix as if the value as reported for shares, variable yield securities and unit trusts increased by Â£136m (2000: decrease Â£15m); deposits would be changed by corresponding amounts. The effect of other derivatives was not considered significant enough to be reported separately. ====================================================================== Legal & General Group Plc P9 Notes to Financial Statements - Achieved Profits basis Year ended 31 December 2001 ---------------------------------------------------------------------- 13.Embedded value Life Managed and pension Intern- pensions funds UK ational Total UK Total Â£m Â£m Â£m Â£m Â£m 2001 At 1 January 3,868 578 4,446 134 4,580 Exchange rate movements - 6 6 - 6 ------- ------- ------- ------- ------- 3,868 584 4,452 134 4,586 (Loss)/profit after tax (109) 52 (57) 26 (31) Capital movements * 920 (1) 919 116 1,035 Distributions (247) (2) (249) (24) (273) ------- ------- ------- ------- ------- At 31 December 4,432 633 5,065 252 5,317 ======= ======= ======= ======= ======= comprising: Value of in-force business 2,439 394 2,833 136 2,969 Shareholder net worth ** 1,993 239 2,232 116 2,348 ------- ------- ------- ------- ------- 4,432 633 5,065 252 5,317 ======= ======= ======= ======= ======= 2000 At 1 January 3,824 461 4,285 130 4,415 Exchange rate movements - 28 28 - 28 ------- ------- ------- ------- ------- 3,824 489 4,313 130 4,443 Profit after tax 115 59 174 41 215 Capital movements 147 34 181 - 181 Distributions (218) (4) (222) (37) (259) ------- ------- ------- ------- ------- At 31 December 3,868 578 4,446 134 4,580 ======= ======= ======= ======= ======= comprising: Value of in-force business 2,334 356 2,690 134 2,824 Shareholder net worth ** 1,534 222 1,756 - 1,756 ------- ------- ------- ------- ------- 3,868 578 4,446 134 4,580 ======= ======= ======= ======= ======= * Following the transfer of the investment management businesses the UK long term fund (LTF) subsidiaries which were the holding companies for these businesses, are no longer considered as operational. Their net assets of Â£580m are now attributed to UK life and pensions. This impact, together with the further increase in subordinated debt of Â£355m less net capital invested in operational subsidiaries of Â£15m, is reported as a capital movement. Also following this transfer, the shareholder net worth attributable to UK managed pension funds is the shareholders' funds on the MSS basis of Â£116m and this has been reported as a capital movement which took place at the year end. ** For the UK life and pensions business, shareholder net worth comprises the shareholder retained capital (SRC) on the MSS basis, adjusted for deferred acquisition costs, and the sub-fund, both net of an appropriate allowance for tax. It also includes intra-group subordinated debt capital of Â£502m (2000: Â£147m) but excludes the net assets of Â£68m (2000: Â£201m net of value of in-force business) of LTF operational subsidiaries. ====================================================================== Legal & General Group Plc P10 Notes to Financial Statements - Achieved Profits basis Year ended 31 December 2001 ---------------------------------------------------------------------- 14.Shareholders' funds Segmental analysis 2001 2000 Â£m Â£m Embedded value of life and pensions businesses: - UK* 4,432 3,868 - USA 492 443 - Netherlands 74 67 - France 67 68 --------- --------- 5,065 4,446 Institutional fund management** 283 251 --------- --------- 5,348 4,697 General insurance 91 76 Banking 92 92 Corporate funds*** (537) 409 --------- --------- 4,994 5,274 ========= ========= Movement At 1 January 5,274 5,250 (Loss)/profit for the financial period (43) 243 Exchange movements (1) 13 Dividends (261) (243) Increase in share capital/share premium 5 11 Goodwill written back on sale of Fairmount Group plc 20 - --------- --------- At 31 December 4,994 5,274 ========= ========= * Including Â£502m (2000: Â£147m) of intra-group subordinated debt capital attributed to the SRC previously reported within Corporate funds. ** Including Â£252m (2000: Â£240m) net assets of UK managed pension funds business. *** Corporate funds includes the convertible debt of Â£515m and the senior debt of Â£502m (2000: Â£147m) which has been lent to the UK LTF. ====================================================================== Legal & General Group Plc P11 Notes to Financial Statements - Achieved Profits basis Year ended 31 December 2001 ---------------------------------------------------------------------- 15.Borrowings 2001 2000 Â£m Â£m Convertible bond 515 - Mortgage-related 529 279 Attributed to the SRC 502 147 Other 96 145 --------- --------- Total borrowings 1,642 571 ========= ========= The convertible bond is due in 2006 with a coupon of 2.75% p.a. and is convertible into ordinary shares of the Company at 204p per share. If converted, this bond would give rise to the issue of 257.4m new ordinary shares which represents approximately 5% of the current issued share capital. ====================================================================== Legal & General Group Plc P12 Notes to Financial Statements - Achieved Profits basis Year ended 31 December 2001 ---------------------------------------------------------------------- 16.Embedded value assumptions UK life and pensions i) For the LTF all assets which, following the reclassification of the SRC in 1996, have been treated as 'backing assets' and thus encumbered, will continue to be treated as such. Capital reported as transferred into the LTF since 1996, in the form of subordinated debt and the excess of the consideration over the net asset value of subsidiaries transferred from the LTF in December 2001, is treated as residual. ii) The assumed future pre-tax returns on fixed interest and RPI linked securities are set by reference to redemption yields available in the market at the end of the reporting period. The corresponding return on equities and property is set by reference to the fixed interest gilt assumption. As at 31.12.2001 As at 31.12.2000 Investment return % p.a. % p.a. - Gilts - Fixed interest 5.0 4.7 - RPI linked 5.0 4.7 - Non-gilts - Fixed interest 5.4 - 6.3 5.3 - 6.5 - RPI linked 5.1 - 5.8 5.0 - 6.0 - Equities and property 7.6 7.3 Risk discount rate (after tax) 7.5 7.2 Inflation - Expenses/earnings 3.5 3.6 - Indexation 2.5 2.6 The assumed returns on non-gilt securities are net of an allowance for default risk of 0.15% p.a., other than for certain government-supported securities where no such allowance is made. In 2000 an overall allowance of 0.05% p.a. was used. iii) Assets are valued at market value. For the projection of fixed interest and RPI linked investment returns, asset values are adjusted to reflect the assumed interest and inflation rates. iv) The value of the sub-fund is the discounted value of projected investment returns for a period of 20 years (2000: 20 years). v) Development costs relate to new strategic administration systems, stakeholder pensions, and in 2001, start up costs relating to the Barclays strategic alliance. vi) Future bonus rates have been set at levels which would fully utilise the assets supporting with-profits business. The proportion of profits derived from with-profits business allocated to shareholders has been assumed to be 10% throughout. vii) The value of the in-force business reflects the cost of providing for benefit enhancement to certain products and for compensation in relation to pension transfers and opt-outs, including administration expenses. Legal & General Group Plc P13 Notes to Financial Statements - Achieved Profits basis Year ended 31 December 2001 ---------------------------------------------------------------------- 16.Embedded value assumptions (continued) viii) Other actuarial assumptions have been set at levels commensurate with recent operating experience, including those for mortality, persistency and maintenance expenses (excluding the development costs referred to above). These are reviewed annually. An allowance is made for secular trends in annuitant mortality based on externally published data with the end 2001 assumptions taking into account the improvement factors contained in CMI Report No.17. ix) Business in force comprises previously written single premium, regular premium and recurrent single premium contracts. For this purpose, DSS rebates have not been treated as recurrent and their value is included in the value of new business as the premiums are received. x) Projected tax has been determined assuming current tax legislation and rates, except where future changes have been announced. xi) AP results are computed on an after tax basis and are grossed up to the pre-tax level for presentation in the profit and loss account. The tax rate used for grossing-up is the corporation tax rate of 30% (2000: 30%), except for the profit attributable to shareholder net worth, where the rate used is derived from the tax attributed to the contribution from the shareholder net worth in the MSS accounts. UK managed pension funds The UK life and pensions economic assumptions are used. All contracts are assumed to lapse after ten years. Fees are projected on a basis which reflects current charges and, if less, anticipated charges. New business consists of monies received from new clients and incremental receipts from existing clients, and excludes the roll-up of the investment returns. Development costs relate to product and geographical coverage initiatives. Legal & General Group Plc P14 Notes to Financial Statements - Achieved Profits basis Year ended 31 December 2001 ---------------------------------------------------------------------- 16.Embedded value assumptions (continued) International Key assumptions are: As at 31.12.2001 As at 31.12.2000 % p.a. % p.a. USA Reinvestment rate 6.5 7.0 Risk discount rate (net of tax) 7.6 7.7 The assumed future pre-tax return is projected from the actual investment portfolio less specific margins for the risks associated with the investments. As at 31.12.2001 As at 31.12.2000 % p.a. % p.a. Europe Government bond return 5.0 5.2 Risk discount rate (net of tax) 8.5 8.5 ====================================================================== 17.Alternative assumptions The discount rate appropriate to any investor will depend on the investor's own requirements, tax and perception of the risks associated with the anticipated cash flows to shareholders. The table below shows the effect of alternative discount rates and equity and property yields on the UK life and pensions embedded value and new business contribution for the period. 1% higher 1% lower1% higher equities risk risk and discount discount property As published rate rate yields Â£m Â£m Â£m Â£m Effect on embedded value at 31 December 2001 4,432 +280 -240 +270 Effect on new business contribution for the period 183 +33 -28 +19 It should be noted that in calculating the alternative values all other assumptions are left unchanged. ====================================================================== Legal & General Group Plc P15 New business Year ended 31 December 2001 ---------------------------------------------------------------------- Life and pensions 2001 2000 Annual Single Annual Single Â£m Â£m Â£m Â£m Life 170 1,238 160 751 Pensions 137 1,536 86 1,205 ------- ------- ------- ------- UK 307 2,774 246 1,956 USA 52 1 62 1 Netherlands 8 91 7 54 France 7 109 5 107 ------- ------- ------- ------- Insurance total 374 2,975 320 2,118 Retail investment business ISAs 38 467 27 403 Unit trusts - UK 1 405 - 269 - France - 35 - 41 ------- ------- ------- ------- Total new business 413 3,882 347 2,831 ======= ======= ======= ======= Annual Premium Equivalent (APE) is calculated for total new business, including unit trusts and ISAs but excluding institutional fund management, and comprises the new annual premiums together with 10% of single premiums. APE from insurance business has increased to Â£671m (2000: Â£532m). APE from total new business in the same period has increased to Â£801m (2000: Â£630m). International new insurance premiums for 2000 expressed at 31 December 2001 exchange rates are: Annual Single Â£m Â£m USA 63 1 Netherlands 7 53 France 5 104 ====================================================================== Legal & General Group Plc P16 New UK business Year ended 31 December 2001 ---------------------------------------------------------------------- New UK annual premiums 2001 2000 Full Second First Full Second First year half half year half half Â£m Â£m Â£m Â£m Â£m Â£m Insurance business Life: - Mortgage-related 101 50 51 112 55 57 - Protection 37 21 16 17 11 6 - Group risk 32 16 16 31 17 14 Pensions: - Individual pensions 123 73 50 77 35 42 - Group pensions 14 10 4 9 6 3 Retail investment business - ISAs 38 22 16 27 16 11 - Unit trusts 1 1 - - - - ------- ------- ------- ------- ------- ------- Total New UK Annual Business 346 193 153 273 140 133 ======= ======= ======= ======= ======= ======= New UK single premiums Insurance business Bonds: - With-profits 1,134 675 459 648 381 267 - Other 104 65 39 103 43 60 Pensions: - Individual pensions 266 108 158 342 185 157 - Annuities - individual 335 175 160 426 237 189 - Annuities - bulk purchase 741 344 397 258 167 91 - Other group business 74 37 37 68 35 33 - DSS rebates 120 85 35 111 85 26 Retail investment business - ISAs 467 157 310 403 107 296 - Unit trusts 405 285 120 269 125 144 ------- ------- ------- ------- ------- ------- Total New UK Single Business 3,646 1,931 1,715 2,628 1,365 1,263 ======= ======= ======= ======= ======= ======= New UK APE Total individual life and pensions APE 457 255 202 369 194 175 Total retail investments APE 126 67 59 94 39 55 ------- ------- ------- ------- ------- ------- Total individual APE 583 322 261 463 233 230 Total group APE 127 63 64 73 43 30 ------- ------- ------- ------- ------- ------- Total UK APE 710 385 325 536 276 260 ======= ======= ======= ======= ======= ======= Institutional fund management UK Managed Pension Funds* - Pooled funds 10,608 5,011 5,597 11,040 6,067 4,973 - Segregated funds 2,571 2,169 402 327 38 289 ------- ------- ------- ------- ------- ------- 13,179 7,180 5,999 11,367 6,105 5,262 Other funds 40 27 13 1,310 703 607 ------- ------- ------- ------- ------- ------- 13,219 7,207 6,012 12,677 6,808 5,869 ======= ======= ======= ======= ======= ======= * New monies from the pension fund clients of Legal & General Assurance (Pensions Management) Ltd. ====================================================================== This information is provided by RNS The company news service from the London Stock Exchange MORE TO FOLLOW FR ILFVRFTIDFIF

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