L&G Half-year Results Part 3a

RNS Number : 6222A

Legal & General Group Plc

05 August 2008

 



European Embedded Value										Page 23
Consolidated income statement
Six months ended 30 June 2008
										Full year
								30.06.08	30.06.07	31.12.07
						Notes		£m	£m	£m
From continuing operations
Life and pensions						3.01/3.02		564	551	856
Investment management						3.06		111	90	196
General insurance						4.03		(4)	(38)	(67)
Other operational income						3.07		(45)	(14)	(73)
Operating profit								626	589	912
Variation from longer term investment return						3.08		(538)	197	116
Effect of economic assumption changes						3.01		(10)	(6)	57
Property (expense)/income attributable to minority interests								(13)	17	(6)
Corporate restructure								-	-	161
Profit from continuing operations before tax attributable to equity holders								65	797	1,240
Tax charge on profit from ordinary activities						3.09		(9)	(218)	(327)
Effect of UK Budget tax changes								-	93	93
Tax impact of corporate restructure								-	-	206
Profit from ordinary activities after tax								56	672	1,212
Loss/(profit) attributable to minority interests						4.15		13	(17)	6
Profit attributable to equity holders of the Company								69	655	1,218
								p	p	p
Earnings per share						3.10
Based on operating profit from continuing operations after tax attributable to
equity holders								7.33	6.62	9.81
Based on profit attributable to equity holders of the Company								1.14	10.08	18.90
Diluted earnings per share						3.10
Based on operating profit from continuing operations after tax attributable to
equity holders								7.30	6.59	9.76
Based on profit attributable to equity holders of the Company								1.13	10.03	18.80
European Embedded Value										Page 24
Consolidated balance sheet
As at 30 June 2008
								At 30.06.08	At 30.06.07	At 31.12.07
						Notes		£m	£m	£m
Assets
Investments								267,674	235,303	276,438
Long term in-force business asset								3,331	2,872	3,041
Other assets								6,567	5,743	4,828
								277,572	243,918	284,307
Equity and liabilities
Shareholders' equity						3.12/3.13		7,781	8,365	8,468
Minority interests						4.15		175	456	178
Total equity								7,956	8,821	8,646
Subordinated borrowings						4.14		1,444	1,371	1,461
Unallocated divisible surplus								1,411	2,277	1,721
Participating contract liabilities								17,230	19,231	18,849
Non-participating contract liabilities								241,284	205,771	247,779
Senior borrowings						4.14		1,742	1,332	1,327
Other liabilities and provisions								6,505	5,115	4,524
								277,572	243,918	284,307
Consolidated statement of recognised income and expense
Six months ended 30 June 2008
										Full year
								30.06.08	30.06.07	31.12.07
								£m	£m	£m
Exchange differences on translation of overseas operations								19	(1)	18
Actuarial gains/(losses) on defined benefit pension schemes								12	36	(23)
Actuarial (gains)/losses on defined benefit pension schemes transferred to unallocated divisible surplus								(8)	(25)	16
Income recognised directly in equity, net of tax								23	10	11
Profit from ordinary activities after tax								56	672	1,212
Total recognised income and expense								79	682	1,223
Attributable to:
Minority interests								(13)	17	(6)
Equity holders of the Company								92	665	1,229
European Embedded Value										Page 25
Notes to the Financial Statements
3.01  Profit from continuing operations after tax from covered business
						UK1	Interna-	Life and	Investment	Total
							tional	pensions	manage-
								total	ment2
For the six months ended 30 June 2008					Notes	£m	£m	£m	£m	£m
Contribution from new business after cost of capital						178	16	194	41	235
Contribution from in-force business:
- expected return3						149	47	196	18	214
- experience variances					3.03	4	(13)	(9)	23	14
- operating assumption changes					3.04	18	-	18	19	37
Development costs						(21)	-	(21)	(1)	(22)
Contribution from shareholder net worth4						178	8	186	4	190
Operating profit						506	58	564	104	668
Variation from longer term investment return5						(442)	(48)	(490)	(68)	(558)
Effect of economic assumption changes						4	(16)	(12)	2	(10)
Profit from continuing operations before tax						68	(6)	62	38	100
Tax						(12)	3	(9)	(10)	(19)
Profit from continuing operations after tax						56	(3)	53	28	81
For the six months ended 30 June 2007
Contribution from new business after cost of capital						165	13	178	41	219
Contribution from in-force business:
- expected return						127	40	167	15	182
- experience variances					3.03	74	(6)	68	13	81
- operating assumption changes					3.04	(10)	-	(10)	3	(7)
Development costs						(10)	-	(10)	(1)	(11)
Contribution from shareholder net worth						151	7	158	4	162
Operating profit						497	54	551	75	626
Variation from longer term investment return5						191	(15)	176	3	179
Effect of economic assumption changes						(12)	3	(9)	3	(6)
Profit from continuing operations before tax						676	42	718	81	799
Tax						(189)	(13)	(202)	(23)	(225)
Effect of UK Budget tax changes						86	-	86	7	93
Profit from continuing operations after tax						573	29	602	65	667
1. On 31 January 2008 the Group acquired 100% of the shares of Nationwide Life. The results for Nationwide Life have been included in the profit from the covered business with effect from this date, and have contributed £9m to operating profit, and a £1m loss to profit after tax.  On 6 May 2008 the Group acquired 100% of the shares of Suffolk Life. The results for Suffolk Life have been included in the profit from the covered business with effect from this date, and have contributed £5m to operating profit, and £4m to profit after tax. Further information on both acquisitions can be found in Note 4.09.  2. For covered business, Investment management comprises managed pension funds and is included in the total Investment management operating profit of £111m (H1 07: £90m; FY 07: £196m). 3. The UK expected return on in-force is based on the unwind of the discount rate for six months on the opening, adjusted base value of in-force (VIF). The opening base VIF was £2,846m in 2008. This is adjusted for the effects of opening model changes (-£27m) to give an adjusted opening base VIF of £2,819m.  This is then multiplied by the opening risk discount rate of 7.5% and the result grossed up at the notional attributed tax rate of 28% to give a return of £144m.  This is added to the expected return on the in-force of businesses acquired in the year (£5m) to give a total UK expected return of £149m. 4. The 2008 UK contribution from shareholder net worth (SNW) of £178m is based on a mechanical calculation from opening balance sheet values. There are two elements to this calculation: The first element reflects the pre-tax smoothed investment return of £136m on SNW assets, including £4m of smoothed investment return on businesses acquired during the year. This is offset by pre-tax corporate expenses charged to shareholders' funds of £7m. The second element (£32m) is based on the unwind of the discount rate for six months on the opening contingent loan between Society and LGPL. • The opening value of the contingent loan was £614m in 2008. • This value is multiplied by the opening risk discount rate of 7.5% and the result grossed up at the notional attributed tax rate of 28% to give a return of £32m.  Finally, the contribution from SNW includes an adjustment for opening tax and other modelling changes of £17m.  5. UK life and pensions variation from longer term investment return comprises £25m (H1 07: £97m; FY 07: £246m) relating to the VIF business and negative £467m (H1 07: £94m; FY 07: negative £118m) relating to SNW.
European Embedded Value										Page 26
Notes to the Financial Statements
3.01  Profit from continuing operations after tax from covered business (continued)
						UK	Interna-	Life and	Investment	Total
							tional	pensions	manage-
								total	ment1
For the year ended 31 December 2007					Notes	£m	£m	£m	£m	£m
Contribution from new business after cost of capital						321	38	359	109	468
Contribution from in-force business:
- expected return						262	80	342	30	372
- experience variances					3.03	98	3	101	21	122
- operating assumption changes					3.04	(239)	2	(237)	9	(228)
Development costs						(41)	-	(41)	(2)	(43)
Contribution from shareholder net worth						319	13	332	8	340
Operating profit						720	136	856	175	1,031
Variation from longer term investment return2						128	(8)	120	4	124
Effect of economic assumption changes						70	(18)	52	5	57
Corporate restructure						161	-	161	-	161
Profit from continuing operations before tax						1,079	110	1,189	184	1,373
Tax						(287)	(32)	(319)	(52)	(371)
Effect of UK Budget tax changes						86	-	86	7	93
Tax impact of corporate restructure						206	-	206	-	206
Profit from continuing operations after tax						1,084	78	1,162	139	1,301
1. For covered business, Investment management comprises managed pension funds and is included in the total Investment management operating profit of £111m (H1 07: £90m; FY 07: £196m). 2. UK life and pensions variation from longer term investment return comprises £25m (H1 07: £97m; FY 07: £246m) relating to the value of in-force business and negative £467m (H1 07: £94m; FY 07: negative £118m) relating to SNW.
3.02  Life and pensions operating profit
										Full year
								30.06.08	30.06.07	31.12.07
								£m	£m	£m
UK								506	497	720
USA								26	23	75
Netherlands								17	19	32
France								15	12	29
								564	551	856
European Embedded Value										Page 27
Notes to the Financial Statements
3.03  Analysis of experience variances
						UK	Interna-	Life and	Investment	Total
							tional	pensions	manage-
								total	ment
For the six months ended 30 June 2008						£m	£m	£m	£m	£m
Persistency						3	1	4	3	7
Mortality/morbidity						10	(1)	9	-	9
Expenses						(2)	(1)	(3)	1	(2)
Other						(7)	(12)	(19)	19	-
						4	(13)	(9)	23	14
Full experience investigations are not undertaken at the half year. A conservative estimate is made of both positive and negative variances. Investment management other experience variances of £19m relates primarily to the effect of higher than assumed fees and other income.
For the six months ended 30 June 2007
Persistency						(3)	(2)	(5)	6	1
Mortality/morbidity						5	6	11	-	11
Expenses						(9)	(3)	(12)	(2)	(14)
Other						81	(7)	74	9	83
						74	(6)	68	13	81
UK other experience variances of £81m principally comprise the impact of introducing market referenced fees for the investment management services provided to Society's with-profits business by Legal & General Investment Management (£88m) which are recognised on a look through basis. Investment management other experience variance of £9m includes the effect of higher than assumed 'other income' and average fees.
For the year ended 31 December 2007
Persistency						(25)	(1)	(26)	5	(21)
Mortality/morbidity						36	16	52	-	52
Expenses						(19)	1	(18)	(8)	(26)
Other						106	(13)	93	24	117
						98	3	101	21	122
2007 UK other experience variances of £106m principally comprise the impact of introducing market referenced fees for the investment management services provided to Society's with-profits business by Legal & General Investment Management (£83m), which are recognised on a look through basis. 2007 Investment management other experience variances of £24m relates primarily to the effect of higher than assumed 'other income' and average fees.
European Embedded Value										Page 27
Notes to the Financial Statements
3.04  Analysis of operating assumption changes
						UK	Interna-	Life and	Investment	Total
							tional	pensions	manage-
								total	ment
For the six months ended 30 June 2008						£m	£m	£m	£m	£m
Persistency						(14)	-	(14)	-	(14)
Mortality/morbidity						-	-	-	-	-
Expenses						43	-	43	(8)	35
Other						(11)	-	(11)	27	16
						18	-	18	19	37
Full experience investigations are not undertaken at the half year. A conservative approach is taken when revising any future operating assumptions. UK expense assumption changes primarily reflect unit cost efficiencies in the individual protection business. Investment management other operating assumption changes of £27m primarily comprise the continuation of the ten year lapse rate assumption for all contracts through the extension of the modelling period (£12m), and higher fee and income assumptions (£15m).
For the six months ended 30 June 2007
Persistency						-	-	-	-	-
Mortality/morbidity						-	-	-	-	-
Expenses						(6)	-	(6)	(9)	(15)
Other						(4)	-	(4)	12	8
						(10)	-	(10)	3	(7)
Investment management other operating assumption changes of £12m comprise the continuation of the ten year lapse assumption for all contracts through the extension of the modelling period.
For the year ended 31 December 2007
Persistency						(41)	(4)	(45)	-	(45)
Mortality/morbidity						(191)	21	(170)	-	(170)
Expenses						(32)	(4)	(36)	(12)	(48)
Other						25	(11)	14	21	35
						(239)	2	(237)	9	(228)
2007 UK mortality/morbidity operating assumption changes of -£191m relate primarily to the strengthening of assumptions for annuitant mortality (-£269m) offset by a change in assumptions for the proportion of annuitants married (£42m) and improved mortality on individual protection and other projects (£36m). 2007 Investment management other operating assumption changes of £21m primarily arise from the continuation of the ten year lapse assumption for all contracts through the extension of the modelling period.
European Embedded Value										Page 29
Notes to the Financial Statements
3.05  Time value of options and guarantees
								At 30.06.08	At 30.06.07	At 31.12.07
								£m	£m	£m
Life and pensions
UK non profit								-	4	4
UK with-profits								1	1	1
International								11	11	13
								12	16	18
3.06  Investment management income statement
										Full year
								30.06.08	30.06.07	31.12.07
								£m	£m	£m
From continuing operations1
Managed pension funds								104	75	175
Property								4	5	6
Retail investments								(1)	6	8
Other income2								4	4	7
Operating profit from investment management								111	90	196
Variation from longer term investment return								(68)	3	4
Effect of economic assumption changes								2	3	5
Profit on ordinary activities before tax								45	96	205
Tax3								(8)	(27)	(53)
Profit on ordinary activities after tax								37	69	152
Investment management comprises the managed pension funds business on an EEV basis and other investment management business on an IFRS basis. 1. Operating profit excludes £19m (H1 07: £4m (LGPL only); FY 07: £23m) of profits arising from the provision of investment management services at market referenced rates to the covered business. These are reported on a look through basis and as a consequence are included in the UK life and pensions covered business on an EEV basis. 2. Other income excludes the element relating to managed pension funds on the IFRS basis. 3. H1 07 and FY 07 includes the effect of UK Budget tax changes of £7m.
3.07  Other operational income
										Full year
								30.06.08	30.06.07	31.12.07
								£m	£m	£m
Shareholders' other income
Investment return on shareholders' equity1								29	59	51
Interest expense2								(66)	(55)	(119)
								(37)	4	(68)
Other operations3								(1)	-	1
Unallocated corporate and development expenses								(7)	(18)	(6)
								(45)	(14)	(73)
1. Investment return on shareholders' equity excludes investment return on Society shareholder capital in H1 08 and FY 07, which is included in UK life and pensions. 2. Interest expense relates to average borrowings (excluding non recourse financing) (see Note 4.14). 3. Principally the regulated mortgage network and Cofunds.
European Embedded Value										Page 30
Notes to the Financial Statements
3.08  Variation from longer term investment return
										Full year
								30.06.08	30.06.07	31.12.07
								£m	£m	£m
Total covered business1								(558)	179	124
Investment management2								-	(1)	-
General insurance								(11)	(9)	(9)
Other operational income								31	28	1
								(538)	197	116
1. H1 08 and FY 07 include the variation from longer term investment return on total Society shareholder capital. 2. Non-covered Investment management business.

 

END

 

 

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