L&G HY 09 Results Part 3

RNS Number : 8045W

Legal & General Group Plc

04 August 2009

 



International Financial Reporting Standards																	Page 33
Operating profit income statement
For the six months ended 30 June 2009
																	Full year
													30.06.09		30.06.08		31.12.08
									Notes				£m		£m		£m
From continuing operations
Risk1									3.01(a)				(128)		75		(603)
Savings2									3.01(b)				(5)		111		66
Investment management									3.02				70		91		165
International									3.03				65		48		59
Group capital and financing									3.04				29		66		124
Operating profit/(loss)													31		391		(189)
Variation from longer term investment return									3.06				(154)		(422)		(1,239)
Property losses attributable to minority interests													(20)		(13)		(63)
Loss from continuing operations before tax attributable to
equity holders of the Company													(143)		(44)		(1,491)
Tax credit attributable to equity holders of the Company									3.07				52		17		361
Loss from ordinary activities after tax													(91)		(27)		(1,130)
Loss attributable to minority interests									3.15				20		13		63
Loss attributable to equity holders of the Company													(71)		(14)		(1,067)
													p		p		p
Earnings per share									3.08
Based on operating profit/(loss) from continuing operations
after tax attributable to equity holders of the Company													0.58		4.61		(2.18)
Based on loss attributable to equity holders of the Company													(1.22)		(0.23)		(17.88)
Diluted earnings per share									3.08
Based on operating profit/(loss) from continuing operations
after tax attributable to equity holders of the Company													0.58		4.59		(2.18)
Based on loss attributable to equity holders of the Company													(1.22)		(0.23)		(17.88)
This supplementary operating profit information provides further analysis of the results reported under IFRS and we believe gives shareholders a better understanding of the underlying performance of the business. Supplementary IFRS operating profit is one of the Group's key performance indicators.
Operating profit for the Risk segment represents the net capital invested/released from the non profit Risk businesses (individual and group protection, and individual and bulk purchase annuities) and the operating profit of our General insurance business. This incorporates the total investment return on assets backing the liabilities of the non profit Risk businesses. General insurance operating profit includes a longer term expected investment return on shareholders' funds.
Operating profit for the Savings segment represents the net capital invested/released from the non profit Savings businesses (non profit investment bonds and non profit pensions (including SIPPs)), the with-profits transfer and the operating profit of our core retail investments business.
Operating profit for the Investment management and International segments incorporates a longer term expected investment return on the shareholders' funds within the Investment management and Netherlands' operations.
Investment return on Group capital incorporates a longer term expected investment return using longer term investment return assumptions applied to the average balance of Group invested assets (including interest bearing intra-group balances) calculated on a quarterly basis.
1. The H1 09 Risk operating loss includes negative investment experience variances of £359m which primarily reflect the net effect of strengthening the credit default provision (£55m), the impact of action taken to sell a number of credits (£75m) and the impact on investment performance of the holdings in cash during a period when credit spreads have narrowed (£206m). The FY 08 Risk operating loss included £650m of additional reserves for non profit annuity credit default.
2. The H1 08 Savings operating profit included one-off reserving benefits that have not been repeated in H1 09.
International Financial Reporting Standards																	Page 34
Consolidated income statement
For the six months ended 30 June 2009
																	Full year
													30.06.09		30.06.08		31.12.08
									Notes				£m		£m		£m
Revenue
Gross written premiums									3.09				3,110		3,301		5,895
Outward reinsurance premiums													(283)		(269)		(569)
Net change in provision for unearned premiums													3		(1)		1
Net premiums earned													2,830		3,031		5,327
Fees from fund management and investment contracts													345		358		740
Investment return													(1,778)		(17,196)		(37,749)
Operational income													44		22		38
Total revenue													1,441		(13,785)		(31,644)
Expenses
Claims and change in insurance liabilities													3,132		1,748		3,287
Reinsurance recoveries													(345)		(370)		(587)
Net claims and change in insurance liabilities													2,787		1,378		2,700
Change in provisions for investment contract liabilities													(2,209)		(15,434)		(33,313)
Acquisition costs													358		354		776
Finance costs													148		189		379
Other expenses													401		425		773
Transfers from unallocated divisible surplus													30		(313)		(806)
Total expenses													1,515		(13,401)		(29,491)
Loss before income tax													(74)		(384)		(2,153)
Income tax (expense)/credit attributable to policyholder returns													(69)		340		662
Loss from continuing operations before income tax attributable
to equity holders of the Company													(143)		(44)		(1,491)
Total income tax (expense)/credit													(17)		357		1,023
Income tax expense/(credit) attributable to policyholder returns													69		(340)		(662)
Income tax credit attributable to equity holders									3.07				52		17		361
Loss from ordinary activities after income tax													(91)		(27)		(1,130)
Loss from ordinary activities after income tax attributable to:
Minority interests													(20)		(13)		(63)
Equity holders of the Company													(71)		(14)		(1,067)
Dividend distributions to equity holders of the Company during the period													120		248		367
Dividend distributions to equity holders of the Company proposed after the period end													65		115		120
													p		p		p
Earnings per share
Based on loss attributable to equity holders of the Company									3.08				(1.22)		(0.23)		(17.88)
Diluted earnings per share
Based on loss attributable to equity holders of the Company									3.08				(1.22)		(0.23)		(17.88)
International Financial Reporting Standards																	Page 35
Consolidated statement of comprehensive income
For the six months ended 30 June 2009
																	Full year
													30.06.09		30.06.08		31.12.08
													£m		£m		£m
Loss from ordinary activities after income tax													(91)		(27)		(1,130)
Other comprehensive income after tax
Exchange differences on translation of overseas operations													(75)		8		139
Actuarial (losses)/gains on defined benefit pension schemes													(89)		20		18
Actuarial (gains)/losses on defined benefit pension schemes transferred to
unallocated divisible surplus													36		(8)		(8)
Net change in financial investments designated as available-for-sale													20		(19)		(56)
Total comprehensive expense													(199)		(26)		(1,037)
Total comprehensive expense attributable to:
Minority interests													(20)		(13)		(63)
Equity holders of the Company													(179)		(13)		(974)
International Financial Reporting Standards																	Page 36
Consolidated balance sheet
As at 30 June 2009
													At 30.06.09		At 30.06.08		At 31.12.08
									Notes				£m		£m		£m
Assets
Investment in associates													21		13		14
Plant and equipment													71		78		75
Investment property													3,501		5,595		3,969
Financial investments									3.11				237,771		251,247		234,514
Reinsurers' share of contract liabilities													2,125		1,981		1,997
Purchased interest in long term businesses and other intangible assets													205		225		227
Deferred acquisition costs													1,985		1,795		2,112
Deferred tax asset													1,081		276		988
Income tax recoverable													11		5		8
Other assets													2,398		2,432		2,135
Cash and cash equivalents													11,138		10,819		10,688
Total assets													260,307		274,466		256,727
Equity
Share capital													147		149		147
Share premium account													936		934		936
Employee scheme shares													(42)		(46)		(46)
Capital redemption and other reserves													3		(65)		(42)
Retained earnings													2,251		3,703		2,593
Shareholders' equity									3.13				3,295		4,675		3,588
Minority interests									3.15				149		175		144
Total equity													3,444		4,850		3,732
Liabilities
Subordinated borrowings									3.14				1,552		1,444		1,657
Participating insurance contracts													8,881		10,386		9,384
Participating investment contracts													6,689		7,099		6,992
Unallocated divisible surplus													902		1,411		913
Value of in-force non-participating contracts													(268)		(255)		(171)
Participating contract liabilities													16,204		18,641		17,118
Non-participating insurance contracts													26,720		24,879		25,841
Non-participating investment contracts													201,032		216,405		196,698
Non-participating contract liabilities													227,752		241,284		222,539
Senior borrowings									3.14				1,933		1,742		2,314
Provisions													855		742		741
Deferred tax liabilities													252		197		259
Income tax liabilities													155		18		5
Payables and other financial liabilities													6,168		3,805		6,613
Other liabilities													835		819		997
Net asset value attributable to unit holders													1,157		924		752
Total liabilities													256,863		269,616		252,995
Total equity and liabilities													260,307		274,466		256,727
International Financial Reporting Standards																	Page 37
Consolidated statement of changes in equity
									Capital
					Share		Employee		redemption
			Share		premium		scheme		and other		Retained				Minority		Total
			capital		account		shares		reserves		earnings		Total		interests		equity
For the six months ended 30 June 2009			£m		£m		£m		£m		£m		£m		£m		£m
As at 1 January			147		936		(46)		(42)		2,593		3,588		144		3,732
Total comprehensive expense for the period			-		-		-		(55)		(124)		(179)		(20)		(199)
Net movement in employee scheme shares			-		-		4		7		(5)		6		-		6
Dividends			-		-		-		-		(120)		(120)		-		(120)
Movement in third party interests			-		-		-		-		-		-		25		25
Currency translation differences			-		-		-		93		(93)		-		-		-
As at 30 June			147		936		(42)		3		2,251		3,295		149		3,444
For the six months ended 30 June 2008
As at 1 January			157		927		(42)		59		4,345		5,446		178		5,624
Total comprehensive expense for the period			-		-		-		(11)		(2)		(13)		(13)		(26)
Share buyback1			(8)		-		-		8		(408)		(408)		-		(408)
Closed period share buyback reserve			-		-		-		(100)		-		(100)		-		(100)
Options exercised under share option schemes:			-		7		-		-		-		7		-		7
Net movement in employee scheme shares			-		-		(4)		(9)		4		(9)		-		(9)
Dividends			-		-		-		-		(248)		(248)		-		(248)
Movement in third party interests			-		-		-		-		-		-		10		10
Currency translation differences			-		-		-		(12)		12		-		-		-
As at 30 June			149		934		(46)		(65)		3,703		4,675		175		4,850
For the year ended 31 December 2008
As at 1 January			157		927		(42)		59		4,345		5,446		178		5,624
Total comprehensive income/(expense) for the period			-		-		-		83		(1,057)		(974)		(63)		(1,037)
Share buyback1			(11)		-		-		11		(523)		(523)		-		(523)
Options exercised under share option schemes:			1		9		-		-		-		10		-		10
Net movement in employee scheme shares			-		-		(4)		(3)		3		(4)		-		(4)
Dividends			-		-		-		-		(367)		(367)		-		(367)
Movement in third party interests			-		-		-		-		-		-		29		29
Currency translation differences			-		-		-		(192)		192		-		-		-
As at 31 December			147		936		(46)		(42)		2,593		3,588		144		3,732
1. During 2008, shares were repurchased and cancelled under a share buyback programme at a cost of £523m (H1 08: £408m) including expenses.
International Financial Reporting Standards																	Page 38
Consolidated cash flow statement
For the six months ended 30 June 2009
																	Full year
													30.06.09		30.06.08		31.12.08
									Notes				£m		£m		£m
Cash flows from operating activities
Loss from ordinary activities after income tax													(91)		(27)		(1,130)
Adjustments for non cash movements in net loss for the period
Realised and unrealised losses on financial investments and
investment properties													6,553		22,801		48,376
Investment income													(4,656)		(5,304)		(10,086)
Interest expense													148		189		379
Income tax expense/(credit)													17		(357)		(1,023)
Other adjustments													36		38		77
Net (increase)/decrease in operational assets
Investments designated as held for trading or fair value through profit or loss													(7,763)		167		2,161
Investments designated as available-for-sale													(54)		(44)		(93)
Other assets													(711)		(950)		(1,702)
Net increase/(decrease) in operational liabilities
Insurance contracts													858		(579)		(1,479)
Transfer to unallocated divisible surplus													(15)		(305)		(798)
Investment contracts													(728)		(20,186)		(43,485)
Value of in-force non-participating contracts													(97)		20		105
Other liabilities													2,905		1,292		541
Cash used in operating activities													(3,598)		(3,245)		(8,157)
Interest paid													(148)		(196)		(377)
Interest received													2,529		2,609		5,214
Income tax received/(paid)													91		(165)		(208)
Dividends received													2,096		2,463		4,614
Net cash flows from operating activities													970		1,466		1,086
Cash flows from investing activities
Net acquisition of plant and equipment													(5)		(10)		(14)
Acquisitions (net of cash acquired)									3.10				-		1,004		1,004
Capital injection into Gulf joint venture													(8)		-		-
Net cash flows from investing activities													(13)		994		990
Cash flows from financing activities
Dividend distributions to equity holders of the Company during the year													(120)		(248)		(367)
Proceeds from issue of share capital													-		7		10
Purchase of employee scheme shares													(2)		(8)		(9)
Purchase of shares under share buyback programme													-		(408)		(523)
Proceeds from borrowings													1,451		983		3,568
Repayment of borrowings													(1,768)		(723)		(2,960)
Net cash flows from financing activities													(439)		(397)		(281)
Net increase in cash and cash equivalents													518		2,063		1,795
Exchange (losses)/gains on cash and cash equivalents													(68)		19		156
Cash and cash equivalents at 1 January													10,688		8,737		8,737
Cash and cash equivalents at 30 June / 31 December													11,138		10,819		10,688
The Group's consolidated cash flow statement includes all cash and cash equivalent flows, including those relating to the UK long term fund policyholders.
International Financial Reporting Standards																	Page 39
Notes to the Financial Statements
3.01 Risk and Savings operating profit
(a) Risk operating profit																	Full year
													30.06.09		30.06.08		31.12.08
													£m		£m		£m
Non profit Risk1													(141)		86		(602)
General insurance													6		(4)		(2)
Other2													7		(7)		1
Total Risk operating (loss)/profit													(128)		75		(603)
1. The H1 09 Risk operating loss includes negative investment experience variances of £359m which primarily reflect the net effect of strengthening the credit default provision (£55m), the impact of action taken to sell a number of credits (£75m) and the impact on investment performance of the holdings in cash during a period when credit spreads have narrowed (£206m). FY 08 included £650m of additional reserves for non profit annuity credit default.
2. Other comprises estate agencies and housing related business conducted through our regulated mortgage network. It also includes Nationwide Life Risk business and business unit costs of £2m (H1 08: £1m; FY 08: £3m) allocated to the Risk business.
(b) Savings operating profit																	Full year
													30.06.09		30.06.08		31.12.08
													£m		£m		£m
Non profit Savings1													(20)		51		(20)
With-profits business2													29		60		107
													9		111		87
Core retail investments													(1)		2		-
Other3													(13)		(2)		(21)
Total Savings operating (loss)/profit													(5)		111		66
1. Non profit Savings businesses includes non profit investment bonds and non profit pensions (including SIPPs). The H1 08 Savings operating profit included one-off reserving benefits that have not been repeated in H1 09.
2. With-profits business operating profit is the shareholders' share of policyholder bonuses.
3. Other includes Suffolk Life, operations in Ireland, Nationwide Life Savings business and business unit costs of £2m (H1 08: £1m; FY 08: £3m), allocated to the Savings business.
(c) Analysis of net capital released from Risk and Savings non profit business
																	Full year
													30.06.09		30.06.08		31.12.08
									Notes				£m		£m		£m
Non profit business operating (loss)/profit comprises:
Operational cash generation													238		234		453
New business strain													(31)		(233)		(334)
Experience variances									3.01(d)				(352)		(23)		(315)
Changes to valuation assumptions									3.01(e)				13		(8)		(660)
Changes to FSA reporting and capital rules													38		-		-
Movements in non-cash items									3.01(f)				25		92		380
Other													(46)		36		31
													(115)		98		(445)
Tax gross-up													(46)		39		(177)
													(161)		137		(622)
Attributable to:
Non profit Risk businesses													(141)		86		(602)
Non profit Savings businesses													(20)		51		(20)
Non profit business operational cash generation represents the capital and profit expected to be generated in the period from the in-force non profit business if the embedded value and valuation assumptions are borne out in practice. The experience variances are calculated with reference to embedded value assumptions, including the apportionment of investment return and tax in the EEV model.
Both new business strain and operational cash generation exclude required solvency margin from the liability calculation as is required by the ABI SORP.
In 2006, the FSA introduced a more realistic reserving framework for certain non profit business (Policy statement (PS) 06/14). In 2009, the Group has chosen to implement PS 06/14 rule changes relating to the calculation of the regulatory sterling reserves on non profit unit linked contracts. The impact of this is reflected within changes to FSA reporting and capital rules above. However, sterling reserves are eliminated from IFRS reporting and the corresponding reduction is reported through Other.
International Financial Reporting Standards																	Page 40
Notes to the Financial Statements
3.01 Risk and Savings operating profit (continued)
An analysis of the experience variances, valuation assumption changes and non-cash items, all net of tax, is provided below:
(d) Experience variances
																	Full year
													30.06.09		30.06.08		31.12.08
													£m		£m		£m
Persistency													(11)		-		7
Mortality/morbidity													(2)		11		25
Expenses													(24)		5		11
BPA data loading													35		23		22
Project and development costs1													(26)		(29)		(95)
Investment2													(351)		24		(296)
Other													27		(57)		11
													(352)		(23)		(315)
1. Project and development costs of £26m (H1 08: £29m; FY 08: £95m) relate to continued investment in internal and other customer facing systems.
2. H1 09 includes £351m of negative investment variances which primarily reflect the net effect of strengthening the credit default provision (£55m), the impact of action taken to sell a number of credits (£75m) and the impact on investment performance of the holdings in cash during a period when credit spreads have narrowed (£206m). FY 08 included £296m of negative investment variances, of which more than half arose from the deferral of tax relief on expenses as a result of movements in investment markets and was fully offset by a movement in the deferred tax asset element of non cash items. The remainder related to the annuity business where the valuation basis was strengthened due to the reduction in gilt yields.
(e) Changes to valuation assumptions																	Full year
													30.06.09		30.06.08		31.12.08
													£m		£m		£m
Persistency													-		-		12
Mortality/morbidity													-		(4)		(26)
Expenses													(1)		(10)		(57)
Short term default allowance1													-		-		(650)
Other													14		6		61
													13		(8)		(660)
1. FY 08 included a £650m increase in the non profit annuity credit default reserve. The tax effect of the short term default allowance was included in the deferred tax element of non-cash items.
(f) Movement in non-cash items
																	Full year
													30.06.09		30.06.08		31.12.08
													£m		£m		£m
Deferred tax													9		77		413
Deferred acquisition costs													(4)		33		20
Deferred income liabilities													27		(1)		30
Other													(7)		(17)		(83)
													25		92		380
International Financial Reporting Standards																	Page 41
Notes to the Financial Statements
3.02 Investment management operating profit
																	Full year
													30.06.09		30.06.08		31.12.08
													£m		£m		£m
Managed pension funds													55		63		117
Private equity													(1)		-		(1)
Property													1		4		4
Other income1													19		27		52
Legal & General Investment Management													74		94		172
Institutional unit trusts2													(4)		(3)		(7)
Total Investment management operating profit													70		91		165
1. Other income includes £12m of profits arising from the provision of investment management services charged to the Group's Risk and Savings businesses (H1 08: £19m; FY 08: £35m).
2. Investment management operating profit excludes core retail investments, of £(1)m (H1 08: £2m; FY 08: £nil), which has been disclosed as part of Savings. The comparatives have been reclassified accordingly.
3.03 International operating profit
																	Full year
													30.06.09		30.06.08		31.12.08
													£m		£m		£m
USA													45		30		39
Netherlands													16		8		6
France													4		10		14
Total International operating profit													65		48		59
Exchange rates are provided in Note 3.20.
3.04 Group capital and financing operating profit
																	Full year
													30.06.09		30.06.08		31.12.08
															Restated		Restated
													£m		£m		£m
Investment return1,2													95		164		298
Interest expense2,3													(65)		(70)		(145)
Investment expenses													(2)		(3)		(5)
Unallocated corporate expenses													(3)		(6)		(9)
Defined benefit pension scheme4													4		(19)		(15)
Total Group capital and financing operating profit													29		66		124
1. The longer term expected investment return of £95m (H1 08: £164m; FY 08: £298m) reflects an average return of 3% (H1 08: 3%; FY 08: 7%) on the average balance of invested assets held within Group capital and financing calculated on a quarterly basis. The invested assets held within Group capital and financing amounted to £2.7bn at 30 June 2009 (30 June 2008: £4.5bn; 31 December 2008: £3.9bn).
2. The smoothed investment return has been restated to exclude interest received on intra-group balances of £26m at 30 June 2008 and £53m at 31 December 2008, with a corresponding reduction in interest expense.
3. Interest expense excludes interest on non-recourse financing (see Note 3.14).
4. The defined benefit pension scheme income/(expense) includes the actuarial gains and losses arising on annuity assets held by the schemes that have been purchased from Legal & General Assurance Society Limited. Under IFRS, these annuity assets cannot be classified as plan assets in accordance with IAS 19 and so the associated actuarial gains and losses cannot be taken to the statement of comprehensive income (H1 09 income: £4m; H1 08 expense: £19m; FY 08 expense: £15m).
International Financial Reporting Standards																	Page 42
Notes to the Financial Statements
3.05 General insurance operating profit, underwriting result and combined operating ratios
(a) Operating profit
																	Full year
													30.06.09		30.06.08		31.12.08
													£m		£m		£m
Household													6		(7)		(12)
Other business													-		3		10
													6		(4)		(2)
(b) Underwriting result
																	Full year
													30.06.09		30.06.08		31.12.08
													£m		£m		£m
Household													-		(14)		(26)
Other business													(1)		3		8
													(1)		(11)		(18)
(c) Combined operating ratio
																	Full year
													30.06.09		30.06.08		31.12.08
													%		%		%
Household													98		110		110
Other business													103		88		86
													99		107		108
The combined operating ratio is:
	Net incurred claims + Expenses + Net commission x 100 Net earned premiums Net written premiums
3.06 Variation from longer term investment return
																	Full year
													30.06.09		30.06.08		31.12.08
													£m		£m		£m
General insurance													(10)		(11)		(29)
Investment management													(1)		(4)		7
Netherlands													(10)		(13)		4
Group capital and financing1													(133)		(394)		(1,221)
													(154)		(422)		(1,239)
Investment return is allocated to operating profit by reference to a longer term rate of investment return for the respective invested funds. The difference between the amount allocated to operating profit and actual investment return is the variation from longer term investment return analysed above.
1. Comprises £(157)m (H1 08: £(425)m; FY 08: £(1,096)m) relating to Society shareholder capital and £24m (H1 08: £31m; FY 08: £(125)m) predominantly relating to the Group's treasury function.
International Financial Reporting Standards																	Page 43
Notes to the Financial Statements
3.07 Analysis of tax
																	Tax
									Tax				Tax		Profit/(loss)		(expense)/
							Profit/(loss)		(expense)/		Profit/(loss)		(expense)/		before tax		credit
							before tax		credit		before tax		credit		Full year		Full year
							30.06.09		30.06.09		30.06.08		30.06.08		31.12.08		31.12.08
							£m		£m		£m		£m		£m		£m
From continuing operations
Risk							(128)		37		75		(22)		(603)		164
Savings							(5)		1		111		(28)		66		(7)
Investment management							70		(19)		91		(25)		165		(50)
International							65		(21)		48		(15)		59		(20)
Group capital and financing							29		5		66		(21)		124		(28)
Operating profit/(loss)							31		3		391		(111)		(189)		59
Variation from longer term investment return							(154)		49		(422)		128		(1,239)		302
Property losses attributable to minority interests							(20)		-		(13)		-		(63)		-
Loss from continuing operations before tax / Tax							(143)		52		(44)		17		(1,491)		361
Only the element of total tax attributable to equity holders' profit/loss is shown explicitly in the analysis above; the tax attributable to policyholder returns is included within expenses in the operating profit income statement.
No deferred tax is provided at the incremental rate on the undeclared surplus of £456m (H1 08: £1,892m; FY 08: £527m) in Legal & General Assurance Society Limited's long term fund (LTF) represented by the Shareholder Retained Capital (SRC), on the grounds that, at the balance sheet date, no obligation to make a declaration of surplus actually exists and there is no expectation that such a declaration will occur. The maximum amount of incremental tax which would crystallise on such a declaration of surplus is estimated to be £nil (H1 08: £nil; FY 08: £nil).
At 30 June 2009 and at 31 December 2008, a partial provision is held for an issue which Legal & General Assurance Society Limited has been in dispute with HM Revenue & Customs, in relation to the application of certain tax legislation specific to life assurance companies for the years 1999 to 2006. The maximum exposure in relation to this issue is £230m plus interest (FY 08: £230m plus interest). In the 30 June 08 accounts, this issue was disclosed as a contingent liability.
International Financial Reporting Standards																	Page 44
Notes to the Financial Statements
3.08 Earnings per share
(a) Earnings per share
					Tax								Tax
			Profit/(loss)		(expense)/		Profit/(loss)		Earnings		Profit/(loss)		(expense)/		Profit/(loss)		Earnings
			before tax		credit		after tax		per share		before tax		credit		after tax		per share
			30.06.09		30.06.09		30.06.09		30.06.09		30.06.08		30.06.08		30.06.08		30.06.08
			£m		£m		£m		p		£m		£m		£m		p
Operating profit from continuing operations			31		3		34		0.58		391		(111)		280		4.61
Variation from longer term investment return			(154)		49		(105)		(1.80)		(422)		128		(294)		(4.84)
Earnings per share based on loss
attributable to equity holders			(123)		52		(71)		(1.22)		(31)		17		(14)		(0.23)
													Tax
											Loss		(expense)/		Loss		Earnings
											before tax		credit		after tax		per share
											Full year		Full year		Full year		Full year
											31.12.08		31.12.08		31.12.08		31.12.08
											£m		£m		£m		p
Operating loss from continuing operations											(189)		59		(130)		(2.18)
Variation from longer term investment return											(1,239)		302		(937)		(15.70)
Earnings per share based on loss
attributable to equity holders											(1,428)		361		(1,067)		(17.88)
(b) Diluted earnings per share
(i) Based on operating profit/(loss) from continuing operations after tax
							Profit		Number		Earnings		Profit		Number		Earnings
							after tax		of shares1		per share		after tax		of shares1		per share
							30.06.09		30.06.09		30.06.09		30.06.08		30.06.08		30.06.08
							£m		m		p		£m		m		p
Operating profit from continuing operations after tax							34		5,822		0.58		280		6,073		4.61
Net shares under options allocable for no further consideration							-		8		-		-		22		(0.02)
Diluted earnings per share							34		5,830		0.58		280		6,095		4.59
													Loss		Number		Earnings
													after tax		of shares1		per share
													Full year		Full year		Full year
													31.12.08		31.12.08		31.12.08
													£m		m		p
Operating loss from continuing operations after tax													(130)		5,968		(2.18)
Net shares under options allocable for no further consideration													-		22		-
Diluted earnings per share													(130)		5,990		(2.18)
(ii) Based on loss attributable to equity holders of the Company
							Loss		Number		Earnings		Loss		Number		Earnings
							after tax		of shares1		per share		after tax		of shares1		per share
							30.06.09		30.06.09		30.06.09		30.06.08		30.06.08		30.06.08
							£m		m		p		£m		m		p
Loss attributable to equity holders of the Company							(71)		5,822		(1.22)		(14)		6,073		(0.23)
Net shares under options allocable for no further consideration							-		8		-		-		22		-
Diluted earnings per share							(71)		5,830		(1.22)		(14)		6,095		(0.23)
													Loss		Number		Earnings
													after tax		of shares1		per share
													31.12.08		31.12.08		31.12.08
													£m		m		p
Loss attributable to equity holders of the Company													(1,067)		5,968		(17.88)
Net shares under options allocable for no further consideration2													-		22		-
Diluted earnings per share													(1,067)		5,990		(17.88)
The number of shares in issue at 30 June 2009 was 5,861,679,365 (30.06.08: 5,979,009,914; 31.12.08: 5,861,627,994).
1. Weighted average number of shares.
2. Net shares under options allocable for no further consideration are anti-dilutive and have therefore been excluded from the diluted earnings per share calculation.
International Financial Reporting Standards																	Page 45
Notes to the Financial Statements
3.09 Gross written premiums
																	Full year
													30.06.09		30.06.08		31.12.08
													£m		£m		£m
From continuing operations
Risk
Non-participating Risk business													1,953		2,391		4,038
General insurance
- Household													123		129		267
- Other business													13		13		29
Total Risk													2,089		2,533		4,334
Savings
Non-participating Savings business													21		27		49
Participating business													416		249		551
Total Savings													437		276		600
International
USA													251		182		397
Netherlands													153		158		278
France													180		152		286
Total International													584		492		961
Total gross written premiums													3,110		3,301		5,895
3.10 Acquisitions
On 31 January 2008, the Group acquired 100% of the shares of Nationwide Life Limited and Nationwide Unit Trust Managers Limited. In addition, on 6 May 2008 the Group acquired 100% of the shares of Suffolk Life Group Plc. The total cost of these acquisitions was £365m.
3.11 Financial investments
													At 30.06.09		At 30.06.08		At 31.12.08
													£m		£m		£m
Equities													109,015		133,566		107,408
Unit trusts													5,398		4,716		5,456
Debt securities													116,140		107,501		112,013
Accrued interest													1,446		1,425		1,607
Derivative assets1													3,823		2,600		6,130
Loans and receivables													1,949		1,439		1,900
													237,771		251,247		234,514
1. Derivative assets include £2,068m (H1 08: £1,165m; FY 08: £3,765m) held on behalf of unit linked policyholders. Derivative assets are shown gross of derivative liabilities. Exposures arise from:
a. The use of derivatives for efficient portfolio management, especially the use of interest rate swaps, inflation swaps, credit default swaps and foreign exchange forward contracts for asset and liability management.
b. Derivatives matching Guaranteed Equity Bonds within the Nationwide Life portfolio.
3.12 Ordinary shares
									Number of				Number of				Number of
									shares				shares				shares
									30.06.09				30.06.08				31.12.08
As at 1 January							5,861,627,994				6,296,321,160				6,296,321,160
Shares cancelled under share buyback programme							-				(329,936,896)				(449,891,914)
Options exercised under share option schemes							51,371				12,625,650				15,198,748
As at 30 June / 31 December							5,861,679,365				5,979,009,914				5,861,627,994
There is one class of ordinary shares of 2.5p each. All shares issued carry equal voting rights.
The holders of the Company's ordinary shares are entitled to receive dividends as declared and are entitled to one vote per share at shareholder meetings of the Company.
International Financial Reporting Standards																	Page 46
Notes to the Financial Statements
3.13 Segmental analysis of shareholders' equity
													At 30.06.09		At 30.06.08		At 31.12.08
													£m		£m		£m
Risk
General insurance													95		98		99
Other													(1)		3		2
Total Risk													94		101		101
Savings
Core retail investments													57		72		59
Other													13		14		14
Total Savings													70		86		73
Investment management													369		397		322
International
USA													858		650		932
Netherlands													124		110		135
France													171		146		193
Emerging markets													10		2		12
Total International													1,163		908		1,272
Group capital and financing													1,599		3,183		1,820
Shareholders' equity													3,295		4,675		3,588
The Group has five reporting segments comprising Risk, Savings, Investment management, International, and Group capital and financing.
The Risk segment comprises individual and group protection, individual and bulk purchase annuities, and general insurance, together with estate agencies and the housing related business conducted through our regulated mortgage network.
The Savings segment comprises non profit investment bonds, non profit pensions (including SIPPs), ISAs, retail unit trusts, and all with-profits products. 'Other' principally comprises the Group's interest in Cofunds.
The Investment management segment comprises institutional fund management and institutional unit trust business.
The International segment comprises businesses in the United States, France, the Netherlands and Emerging markets.
Shareholders' equity supporting the non profit Risk and Savings businesses is held within Legal & General Assurance Society Limited and Legal & General Pensions Limited and is managed on a groupwide basis within Group capital and financing. This also includes capital within the Group's treasury function and unit trust funds and property partnerships, which are managed on behalf of clients but are required to be consolidated under IFRS, which do not constitute a separately reportable segment.
Transactions between reportable segments are on normal commercial terms, and are included within the reported segments.
The Group assesses performance and allocates resources on the basis of IFRS operating profit before tax, (set out in the Operating profit income statement). Segmental IFRS operating profit before tax is reconciled to the consolidated profit from continuing operations before tax attributable to equity holders and consolidated profit from ordinary activities after income tax.
The Group considers additional performance measures in assessing the performance of the segments. These include new business levels (Notes 2.01-2.11) and EEV Reporting (Notes 4.01-4.16).
International Financial Reporting Standards																	Page 47
Notes to the Financial Statements
3.14 Analysis of borrowings
													At 30.06.09		At 30.06.08		At 31.12.08
													£m		£m		£m
Subordinated borrowings
6.385% Sterling perpetual capital securities													659		589		692
5.875% Sterling undated subordinated notes													425		427		426
4.0% Euro subordinated notes 2025													468		428		539
Total subordinated borrowings													1,552		1,444		1,657
Senior borrowings
Sterling medium term notes 2031-2041													602		602		608
Euro commercial paper 2009													428		347		609
Bank loans 2009													17		54		160
Non-recourse financing
- US Dollar Triple X securitisation 2025													322		266		369
- US Dollar Triple X securitisation 2037													269		223		308
- Sterling property partnership loans 2011													97		98		101
- Suffolk Life borrowings													157		152		159
- LGV 6 Private Equity Fund Limited Partnership													41		-		-
Total senior borrowings													1,933		1,742		2,314
Total borrowings													3,485		3,186		3,971
Total borrowings (excluding non-recourse financing)													2,599		2,447		3,034
At 30 June 2009, the Group had in place a £960m syndicated committed revolving credit facility provided by a number of its key relationship banks, maturing in December 2012. Short term assets available at the holding company level exceeded the amount of short term borrowings of £445m (Euro Commercial Paper and Bank Loans).
Subordinated borrowings
6.385% Sterling perpetual capital securities
In 2007, Legal & General Group Plc issued £600m of 6.385% sterling perpetual capital securities. Simultaneous with the issuance, the fixed coupon was swapped into six month LIBOR plus 0.94% per annum. These securities are callable at par on 2 May 2017 and every three months thereafter. If not called, the coupon from 2 May 2017 will be reset to three month LIBOR plus 1.93% per annum. For regulatory purposes these securities are treated as innovative tier I capital. These securities have been classified as liabilities as the interest payments become mandatory in certain circumstances.
5.875% Sterling undated subordinated notes
In 2004, Legal & General Group Plc issued £400m of 5.875% Sterling undated subordinated notes. These notes are callable at par on 1 April 2019 and every five years thereafter. If not called, the coupon from 1 April 2019 will be reset to the prevailing five year benchmark gilt yield plus 2.33% per annum. These notes are treated as upper tier II capital for regulatory purposes. These securities have been classified as liabilities as the interest payments become mandatory in certain circumstances.
4.0% Euro subordinated notes 2025
In 2005, Legal & General Group Plc issued €600m of 4.0% Euro dated subordinated notes. The proceeds were swapped into sterling. The notes are callable at par on 8 June 2015 and each year thereafter. If not called, the coupon from 8 June 2015 will reset to a floating rate of interest based on prevailing three month Euribor plus 1.7% per annum. These notes mature on 8 June 2025 and are treated as lower tier II capital for regulatory purposes.
Post balance sheet event
10% Sterling subordinated notes 2041
On 16 July 2009, Legal & General Group Plc issued £300m of 10% dated subordinated notes. The notes are callable at par on 23 July 2021 and every five years thereafter. If not called, the coupon from 23 July 2021 will be reset to the prevailing five year benchmark gilt yield plus 9.325% per annum. These notes mature on 23 July 2041 and are treated as lower tier II capital for regulatory purposes.
Non-recourse financing
US Dollar Triple X securitisation 2025
In 2004, a subsidiary of Legal & General America Inc issued US$550m of non-recourse debt in the US capital markets to meet the Triple X reserve requirements of part of the US term insurance written up to 2005. It is secured on the cash flows related to that tranche of business.
International Financial Reporting Standards																	Page 48
Notes to the Financial Statements
3.14 Analysis of borrowings (continued)
Non-recourse financing (continued)
US Dollar Triple X securitisation 2037
In 2006, a subsidiary of Legal & General America Inc issued US$450m of non-recourse debt in the US capital markets to meet the Triple X reserve requirements of part of the US term insurance written after 2005 and 2006. It is secured on the cash flows related to that tranche of business.
Sterling property partnership loans 2011
The property partnership loans are secured on specific properties.
Suffolk Life borrowings
These borrowings relate solely to client investments.
LGV 6 Private Equity Fund Limited Partnership
These borrowings are non-recourse bank borrowings.
3.15 Minority interests
Minority interests represent third party interests in property investment entities which are consolidated in the Group's results.
3.16 Value of policyholder assets held in Society and LGPL
													At 30.06.09		At 30.06.08		At 31.12.08
													£bn		£bn		£bn
With-profits business													23.2		26.8		24.0
Non profit business													32.0		31.3		30.4
													55.2		58.1		54.4
International Financial Reporting Standards																	Page 49
Notes to the Financial Statements
3.17 Non-linked business and Society shareholder capital invested asset mix and investment return
							Investment		With-profits		With-profits		With-profits		Non profit		Society
							return		asset share		non par		other				shareholder
																	capital
As at 30 June 2009							%		%		%		%		%		%
Equities							(1)		35		4		(56)		-		32
Bonds							1		44		86		137		94		31
Property							(10)		14		1		-		-		7
Cash							1		7		9		19		6		30
									100		100		100		100		100
Investment return (% pa)							-		(1)		-		(4)		3		(4)
Invested assets (£bn) net of derivative liabilities									12.1		2.2		1.8		20.3		2.2
Invested assets (£bn) gross of derivative liabilities									12.1		2.2		1.8		21.7		2.2
As at 30 June 2008
Equities							(10)		43		4		(41)		-		67
Bonds							(3)		37		80		131		98		14
Property							(6)		17		2		-		-		8
Cash							3		3		14		10		2		11
									100		100		100		100		100
Investment return (% pa)							(5)		(7)		(4)		1		(3)		(8)
Invested assets (£bn) net of derivative liabilities									14.8		2.3		1.7		18.2		3.7
Invested assets (£bn) gross of derivative liabilities									14.9		2.3		1.7		18.5		3.7
As at 31 December 2008
Equities							(25)		39		3		(51)		-		43
Bonds							(5)		40		83		121		97		24
Property							(27)		16		1		-		-		6
Cash							4		5		13		30		3		27
									100		100		100		100		100
Investment return (% pa)							(11)		(18)		(2)		27		(7)		(23)
Invested assets (£bn) net of derivative liabilities									12.5		2.3		2.1		18.8		2.9
Invested assets (£bn) gross of derivative liabilities									12.6		2.3		2.1		20.6		2.9
All investment return percentages reflect actual investment returns on average asset holdings for the period.
At 30 June 2009, the percentage of Group capital invested in equities and property was 19% and 4% (FY 08: 25% and 4%) respectively.
An analysis of Group capital can be found in Note 6.05.
International Financial Reporting Standards																	Page 50
Notes to the Financial Statements
3.18 Pension cost
The Legal & General Group UK Pension and Assurance Fund and the Legal & General Group UK Senior Pension Scheme are defined benefit pension arrangements and account for all UK and the majority of worldwide assets of, and contributions to, such arrangements. At 30 June 2009, the combined after tax deficit arising from these arrangements (net of annuity obligations insured by Society) has been estimated at £179m (H1 08: £135m; FY 08: £101m). These amounts have been recognised in the financial statements with £106m charged against shareholder equity (H1 08: £80m; FY 08: £59m) and £73m against unallocated divisible surplus (H1 08: £55m; FY 08: £42m).
3.19 Contingent liabilities, guarantees and indemnities
Provision for the liabilities arising under contracts with policyholders is based on certain assumptions. The variance of actual experience from that assumed may result in such liabilities differing from the provisions made for them. Liabilities may also arise in respect of claims relating to the interpretation of such contracts, or the circumstances in which policyholders have entered into them (together in this paragraph 'liabilities'). The extent of such liabilities is influenced by a number of factors including the actions and requirements of the FSA, ombudsman rulings, industry compensation schemes and court judgments. The continuing general profile and emphasis being given by the FSA and other bodies to the suitability of the past sales of endowment policies, in the context of some mortgage transactions, has led to the continuing receipt of claims from holders of endowment policies.
Various Group companies receive claims and become involved in actual or threatened litigation and regulatory issues from time to time. Provision for liabilities continues to be made and is regularly reviewed. However, it is not possible to predict, with certainty, the extent and the timing of the financial impact to which these claims, litigation or issues may give rise to. The relevant members of the Group nevertheless ensure that each makes prudent provision, as and when circumstances calling for such provision become clear, and that each has adequate capital and reserves to meet all reasonably foreseeable eventualities.
In 1975, Legal & General Assurance Society Limited ('the Society') was required by the Institute of London Underwriters (ILU) to execute the ILU form of guarantee in respect of policies issued through the ILU's Policy Signing Office on behalf of NRG Victory Reinsurance Company Ltd (Victory), a company which was then a subsidiary of the Society. In 1990, Nederlandse Reassurantie Groep Holding NV (the assets and liabilities of which have since been assumed by Nederlandse Reassurantie Groep NV under a statutory merger in the Netherlands) acquired Victory and provided an indemnity to the Society against any liability the Society may have as a result of the ILU's requirement, and the ILU agreed that its requirement of the Society would not apply to policies written or renewed after the acquisition. Nederlandse Reassurantie Groep NV is now owned by Columbia Insurance Company, a subsidiary of Berkshire Hathaway Inc. Whether the Society has any liability as a result of the ILU's requirement and, if so, the amount of its potential liability, is uncertain. The Society has made no payment or provision in respect of this matter.
Group companies have given indemnities and guarantees as a normal part of their operating activities or in relation to capital market transactions.
3.20 Foreign exchange rates
Period end exchange rates													At 30.06.09		At 30.06.08		At 31.12.08
United States Dollar													1.65		1.99		1.44
Euro													1.17		1.26		1.03
													01.01.09-		01.01.08-		01.01.08-
Average exchange rates													30.06.09		30.06.08		31.12.08
United States Dollar													1.49		1.97		1.85
Euro													1.12		1.29		1.26

 

END

 

 

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