L&G Interim Results 2006 PT 4
Legal & General Group PLC
27 July 2006
P39
International Financial Reporting Standards
-------------------------------------------
Operating profit income statement
Six months ended 30 June 2006
30.06.06 30.06.05 Full year
Restated 31.12.05
Notes £m £m £m
----------------------------------------------------------------------------------------------------------------------
From continuing operations
Life and pensions 4.2 252 228 489
Investment management 4.3 65 48 103
General insurance 4.4 2 4 14
Other operational income 4.5 15 18 41
----------------------------------------------------------------------------------------------------------------------
Operating profit 334 298 647
Variation from longer term investment return 4.6 7 63 139
Shareholder retained capital (SRC) movement 4.7 39 116 516
Property income attributable to minority interests 21 11 81
----------------------------------------------------------------------------------------------------------------------
Profit from continuing operations before income tax attributable
to equity holders 401 488 1,383
Tax 4.8 (124) (124) (371)
----------------------------------------------------------------------------------------------------------------------
Profit from continuing operations after tax 277 364 1,012
Profit from discontinued operations 4.9 - 13 13
----------------------------------------------------------------------------------------------------------------------
Profit from ordinary activities after tax 277 377 1,025
Profit attributable to minority interests 4.17 (21) (11) (81)
----------------------------------------------------------------------------------------------------------------------
Profit attributable to equity holders of the Company 256 366 944
======================================================================================================================
p p p
----------------------------------------------------------------------------------------------------------------------
Earnings per share 4.10
Based on operating profit from continuing operations after tax 3.69 3.17 7.04
Based on profit attributable to ordinary equity holders of the Company 3.95 5.53 14.33
Diluted earnings per share 4.10
Based on operating profit from continuing operations after tax 3.67 3.13 7.00
Based on profit attributable to ordinary equity holders of the Company 3.93 5.38 13.95
For UK long term insurance business, operating profit is the accrued distributable transfer from the UK Long Term Fund
(LTF) to shareholders, grossed up at the corporate tax rate. For non profit business, it is augmented by the interest
paid on the intra-group subordinated debt capital included within the SRC. Operating profit includes a longer term
investment return on shareholders', general insurance and Netherlands' funds held outside the UK LTF. It excludes
investment variances and the change in the SRC. The income statement comprises returns to shareholders and excludes
policyholders' returns. This supplementary 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.
======================================================================================================================
P40
Consolidated income statement
Six months ended 30 June 2006
30.06.06 30.06.05 Full year
Restated 31.12.05
Notes £m £m £m
----------------------------------------------------------------------------------------------------------------------
Revenue
Gross written premiums 4.11 2,053 2,100 4,084
Outward reinsurance premiums (247) (187) (406)
Net change in provision for unearned premiums (2) (14) (6)
----------------------------------------------------------------------------------------------------------------------
Net premiums earned 1,804 1,899 3,672
Fees from fund management and investment contracts 248 148 348
Investment return 2,730 9,994 26,931
Operational income 23 8 38
----------------------------------------------------------------------------------------------------------------------
Total revenue 4,805 12,049 30,989
----------------------------------------------------------------------------------------------------------------------
Expenses
Claims and change in insurance liabilities 1,717 3,150 6,367
Reinsurance recoveries (514) (344) 19
----------------------------------------------------------------------------------------------------------------------
Net claims and change in insurance liabilities 1,203 2,806 6,386
Change in provisions for investment contract liabilities 2,511 7,669 21,369
Acquisition costs 232 310 550
Finance costs 70 46 116
Other expenses 336 281 619
Transfers to unallocated divisible surplus 60 361 360
----------------------------------------------------------------------------------------------------------------------
Total expenses 4,412 11,473 29,400
----------------------------------------------------------------------------------------------------------------------
Profit before income tax 393 576 1,589
Income tax attributable to policyholder returns 8 (88) (206)
----------------------------------------------------------------------------------------------------------------------
Profit from continuing operations before income tax attributable to
equity holders 401 488 1,383
--------- --------- ---------
Total income tax expense : (116): : (212): : (577):
Less income tax attributable to policyholder returns : (8): : 88 : : 206 :
--------- --------- ---------
Income tax attributable to equity holders (124) (124) (371)
----------------------------------------------------------------------------------------------------------------------
Profit from continuing operations after income tax 277 364 1,012
Profit from discontinued operations - 13 13
----------------------------------------------------------------------------------------------------------------------
Profit from ordinary activities after income tax 277 377 1,025
======================================================================================================================
Attributable to:
Minority interests 21 11 81
Equity holders of the Company 256 366 944
======================================================================================================================
Dividend distributions to ordinary equity holders of the Company
during the period 236 224 331
Distributions during the period on subordinated borrowings
designated as equity - 8 16
Dividend distributions to ordinary equity holders of the Company
proposed after the period end 113 107 236
======================================================================================================================
p p p
----------------------------------------------------------------------------------------------------------------------
Earnings per share
Based on profit from continuing operations after income tax
attributable to ordinary equity holders 3.95 5.33 14.13
Diluted earnings per share
Based on profit from continuing operations after income tax
attributable to ordinary equity holders 3.93 5.19 13.76
======================================================================================================================
======================================================================================================================
P41
Consolidated balance sheet
As at 30 June 2006
At 30.06.06 At 30.06.05 At 31.12.05
Restated
Notes £m £m £m
----------------------------------------------------------------------------------------------------------------------
Assets
Investment in associates 16 19 16
Plant and equipment 34 26 32
Investment property 6,625 5,322 5,774
Financial investments 4.14 182,428 154,212 176,622
Reinsurers' share of contract liabilities 3,194 3,238 2,779
Purchased interests in long term business 29 24 25
Deferred acquisition costs 1,542 1,171 1,375
Income tax recoverable 6 59 79
Other debtors 2,086 1,586 1,162
Cash and cash equivalents 3,981 4,410 4,001
----------------------------------------------------------------------------------------------------------------------
Total assets 199,941 170,067 191,865
======================================================================================================================
Equity
Share capital 163 163 163
Share premium account 920 907 908
Treasury shares (44) (36) (36)
Other reserves 22 34 34
Retained earnings 3,191 2,729 3,188
----------------------------------------------------------------------------------------------------------------------
Capital and reserves attributable to ordinary equity holders of the
Company 4.15 4,252 3,797 4,257
Subordinated borrowings designated as equity 4.16 - 394 394
----------------------------------------------------------------------------------------------------------------------
Capital and reserves attributable to equity holders of the Company 4,252 4,191 4,651
Minority interests 4.17 318 215 285
----------------------------------------------------------------------------------------------------------------------
Total equity 4.18 4,570 4,406 4,936
======================================================================================================================
Liabilities
Subordinated borrowings 4.16 813 407 415
---------- ---------- ----------
Participating insurance contracts : 12,727 : : 12,489 : : 13,180 :
Participating investment contracts : 7,438 : : 7,155 : : 7,476 :
Unallocated divisible surplus : 1,982 : : 1,938 : : 1,894 :
Value of in-force non-participating contracts : (401): : (492): : (379):
---------- ---------- ----------
Participating contract liabilities 21,746 21,090 22,171
---------- ---------- ----------
Non-participating insurance contracts : 23,439 : : 22,347 : : 23,152 :
Non-participating investment contracts :143,687 : :116,340 : :135,804 :
---------- ---------- ----------
Non-participating contract liabilities 167,126 138,687 158,956
Senior borrowings 4.16 1,682 1,566 1,634
Provisions 484 554 582
Deferred income liabilities 373 298 351
Deferred tax liabilities 461 330 492
Income tax liabilities 87 127 197
Other creditors 1,869 1,937 1,303
Net asset value attributable to unitholders 730 665 828
----------------------------------------------------------------------------------------------------------------------
Total liabilities 195,371 165,661 186,929
----------------------------------------------------------------------------------------------------------------------
Total equity and liabilities 199,941 170,067 191,865
======================================================================================================================
======================================================================================================================
P42
Consolidated statement of recognised income and expense
Six months ended 30 June 2006
30.06.06 30.06.05 Full year
Restated 31.12.05
£m £m £m
----------------------------------------------------------------------------------------------------------------------
Fair value losses on cash flow hedges (3) - -
Exchange differences on translation of overseas operations (26) 7 20
Actuarial gains/(losses) on defined benefit pension scheme 64 (28) (55)
Actuarial (gains)/losses on defined benefit pension scheme transferred
to unallocated divisible surplus (28) 11 22
Net change in financial investments designated as available-for-sale (12) - (10)
----------------------------------------------------------------------------------------------------------------------
Net expense recognised directly in equity (5) (10) (23)
Profit from ordinary activities after income tax 277 377 1,025
----------------------------------------------------------------------------------------------------------------------
Total recognised income and expense 272 367 1,002
======================================================================================================================
Attributable to:
Minority interests 21 11 81
Equity holders of the Company 251 356 921
======================================================================================================================
======================================================================================================================
P43
Consolidated cash flow statement
Six months ended 30 June 2006
30.06.06 30.06.05 Full year
Restated 31.12.05
£m £m £m
----------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities
Profit from ordinary activities after income tax 277 377 1,025
Adjustments for non cash movements in net profit for the period:
Realised and unrealised (gains)/losses on financial investments and
investment properties 961 (6,956) (20,962)
Investment income (3,525) (2,894) (5,646)
Interest expense 70 46 116
Income tax payable 116 212 577
Other adjustments 7 20 40
Net (increase)/decrease in operational assets:
Investments designated as held for trading or fair value through profit or loss (7,679) (7,535) (16,519)
Investments designated as available-for-sale (51) 15 86
Other assets (1,382) (668) (294)
Net increase/(decrease) in operational liabilities:
Insurance contracts (86) 1,640 3,071
Transfer to unallocated divisible surplus 88 383 338
Investment contracts 7,836 13,401 33,173
Value of in-force non-participating contracts (22) (58) 55
Other liabilities 345 522 536
----------------------------------------------------------------------------------------------------------------------
Cash used in operations (3,045) (1,495) (4,404)
Interest paid (73) (43) (96)
Interest received 1,653 1,471 2,967
Income tax paid (184) (155) (240)
Dividends received 1,843 1,329 2,576
----------------------------------------------------------------------------------------------------------------------
Net cash flows from operating activities 194 1,107 803
======================================================================================================================
Cash flows from investing activities
Net acquisition of plant and equipment (9) (9) (22)
Net proceeds from disposal of Ventures' investments - - 23
Net proceeds from disposal of Gresham - 73 73
Non-financial investments purchased (2) - (19)
----------------------------------------------------------------------------------------------------------------------
Net cash flows from investing activities (11) 64 55
======================================================================================================================
Cash flows from financing activities
Dividend distributions to ordinary equity holders of the Company during
the period (236) (224) (331)
Distributions during the period on subordinated borrowings designated as
equity - (8) (16)
Proceeds from issue of ordinary share capital 12 - 1
Purchase of treasury shares (9) (11) (15)
Proceeds from borrowings 367 567 764
Repayment of borrowings (322) (74) (257)
Other - - (1)
----------------------------------------------------------------------------------------------------------------------
Net cash flows from financing activities (188) 250 145
======================================================================================================================
Net (decrease)/increase in cash and cash equivalents (5) 1,421 1,003
Exchange (losses)/gains on cash and cash equivalents (15) (3) 6
Cash and cash equivalents at beginning of period 4,001 2,992 2,992
----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period 3,981 4,410 4,001
======================================================================================================================
The Group's consolidated cash flow statement includes all cash and cash equivalent flows, including those relating to
the UK Long Term Fund.
======================================================================================================================
P44
Notes to the financial information
4.1 Restatement of 30 June 2005 comparatives
The 30 June 2005 comparatives have been restated for the following items:
1.After the 2005 Interim Results were presented under International Financial Reporting Standards, the interpretation
of provisions within IAS 32, 'Financial Instruments: Disclosure and Presentation', required the £400m 5.875% undated
subordinated notes to be classified as equity, rather than as a liability. The change in classification resulted in
an increase in reported profit after tax for the six months to 30 June 2005 of £8m, due to the corresponding
reclassification of interest payments as distributions and an increase in total equity of £398m. On 13 March 2006,
the terms were varied and it is now classified as debt.
2.After the 2005 results a decision was made to smooth mismatches in the Netherlands. The Netherlands' operating profit
is affected by various mismatches between asset and liability valuations. An adjustment to partially smooth the
investment return fluctuations was made to the Netherlands' operating profit. This reduced the 30 June 2005 operating
profit by £13m and increased the variation from longer term investment return by the same amount.
3.The results of Retail investments and Institutional fund management were combined to create a new segment called
Investment management. The Retail investments operating profit of £4m for the period ended 30 June 2005 was
reclassified from Other operational income and included in Investment management.
4.2 Life and pensions operating profit
30.06.06 30.06.05 Full year
Restated 31.12.05
Notes £m £m £m
----------------------------------------------------------------------------------------------------------------------
With-profits business 40 32 66
----------------------------------------------------------------------------------------------------------------------
Distribution relating to non profit and shareholder net worth 5.4(a) 157 133 312
Subordinated debt interest 18 18 37
----------------------------------------------------------------------------------------------------------------------
Non profit business 5.3(a) 175 151 349
----------------------------------------------------------------------------------------------------------------------
UK 215 183 415
USA 33 27 52
Netherlands (3) 18 18
France 7 - 4
----------------------------------------------------------------------------------------------------------------------
252 228 489
======================================================================================================================
4.3 Investment management operating profit
30.06.06 30.06.05 Full year
Restated 31.12.05
£m £m £m
----------------------------------------------------------------------------------------------------------------------
Managed pension funds 45 33 74
Ventures 2 2 4
Property 4 3 4
Retail investments 5 4 7
Other external income 4 2 5
Other income 5 4 9
----------------------------------------------------------------------------------------------------------------------
65 48 103
======================================================================================================================
======================================================================================================================
P45
Notes to the financial information
4.4 General insurance operating profit, underwriting result and combined operating ratios
(a) Operating profit
30.06.06 30.06.05 Full year
31.12.05
£m £m £m
----------------------------------------------------------------------------------------------------------------------
From continuing operations
Household 2 2 7
Other business - 2 7
----------------------------------------------------------------------------------------------------------------------
2 4 14
======================================================================================================================
(b) Underwriting result
30.06.06 30.06.05 Full year
31.12.05
£m £m £m
----------------------------------------------------------------------------------------------------------------------
From continuing operations
Household (3) (5) (6)
Other business (3) - 1
----------------------------------------------------------------------------------------------------------------------
(6) (5) (5)
======================================================================================================================
(c) Combined operating ratio
30.06.06 30.06.05 Full year
31.12.05
% % %
----------------------------------------------------------------------------------------------------------------------
From continuing operations
Household 104% 104% 101%
Other business 110% 101% 101%
----------------------------------------------------------------------------------------------------------------------
106% 104% 101%
======================================================================================================================
The combined operating ratio is:
-- --
| Net incurred claims Expenses + Net commission |
|--------------------- + ---------------------------| x 100
| Net earned premiums Net written premiums |
-- --
4.5 Other operational income
30.06.06 30.06.05 Full year
Restated 31.12.05
£m £m £m
----------------------------------------------------------------------------------------------------------------------
Shareholders' other income
Investment return on ordinary shareholders' equity 69 55 127
Interest expense (48) (30) (75)
----------------------------------------------------------------------------------------------------------------------
21 25 52
Other operations(1) (1) (3) (5)
Unallocated corporate and development expenses (5) (4) (6)
----------------------------------------------------------------------------------------------------------------------
15 18 41
======================================================================================================================
1. Principally the Regulated mortgage network.
======================================================================================================================
P46
Notes to the financial information
4.6 Variation from longer term investment return
30.06.06 30.06.05 Full year
Restated 31.12.05
£m £m £m
---------------------------------------------------------------------------------------------------------------------
Netherlands (20) 13 10
General insurance (1) (2) 8
Other operational income 28 52 121
----------------------------------------------------------------------------------------------------------------------
7 63 139
======================================================================================================================
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.
4.7 Shareholder retained capital (SRC) movement
30.06.06 30.06.05 Full year
31.12.05
Notes £m £m £m
----------------------------------------------------------------------------------------------------------------------
Investment income 45 36 67
Interest expense and charges (1) (1) (3)
Realised investment gains 95 48 191
Unrealised investment (losses)/gains (35) 46 132
----------------------------------------------------------------------------------------------------------------------
Investment return on SRC 104 129 387
Net capital released from non profit business 5.3 110 138 478
Distribution of operating profit from non profit business (175) (151) (349)
----------------------------------------------------------------------------------------------------------------------
SRC movement before tax 39 116 516
======================================================================================================================
SRC at beginning of period 2,560 2,196 2,196
SRC movement before tax 39 116 516
Tax charge (33) (18) (148)
SRC movement included in the statement of recognised income and expense 25 7 (4)
----------------------------------------------------------------------------------------------------------------------
SRC at end of period 2,591 2,301 2,560
======================================================================================================================
SRC includes intra-group subordinated debt capital of £602m.
Further analysis is given in note 5.3
======================================================================================================================
P47
Notes to the financial information
4.8 Analysis of tax
30.06.06 30.06.06 30.06.05 30.06.05 Full year Full year
Restated Restated 31.12.05 31.12.05
Profit Tax Profit Tax Profit Tax
before tax before tax before tax
£m £m £m £m £m £m
----------------------------------------------------------------------------------------------------------------------
From continuing operations
UK life and pensions 215 (65) 183 (55) 415 (125)
International life and pensions 37 (14) 45 (19) 74 (25)
----------------------------------------------------------------------------------------------------------------------
252 (79) 228 (74) 489 (150)
Investment management 65 (19) 48 (14) 103 (32)
General insurance 2 - 4 (1) 14 (4)
Other operational income 15 3 18 (4) 41 (5)
----------------------------------------------------------------------------------------------------------------------
Operating profit 334 (95) 298 (93) 647 (191)
Variation from longer term investment return 7 4 63 (13) 139 (32)
SRC movement 39 (33) 116 (18) 516 (148)
Property income attributable to minorities 21 - 11 - 81 -
----------------------------------------------------------------------------------------------------------------------
Profit from continuing operations before
tax / Tax 401 (124) 488 (124) 1,383 (371)
======================================================================================================================
Only the element of total tax attributable to equity holders' profit 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 in the UK Long Term Fund represented by
the 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 £475m (1H05: £644m; FY05: £509m).
4.9 Profit from discontinued operations
Gresham Insurance Company Limited
On 31 March 2005, the Group sold its 90% stake in its subsidiary Gresham to Barclays Bank Plc for a consideration of
£85m, of which £4m was paid in dividends by Gresham and the remainder in cash by Barclays. The transaction resulted in
an exceptional profit before tax of £15m (£15m after tax).
30.06.06 30.06.05 Full year
31.12.05
£m £m £m
----------------------------------------------------------------------------------------------------------------------
Post tax result from discontinued operations to 31 March 2005 - (2) (2)
Gain on disposal - 15 15
----------------------------------------------------------------------------------------------------------------------
- 13 13
======================================================================================================================
======================================================================================================================
P48
Notes to the financial information
4.10 Earnings per share
(a) Earnings per share
30.06.06 30.06.06 30.06.06 30.06.06 30.06.05 30.06.05 30.06.05 30.06.05
Restated Restated Restated Restated
Profit Tax Profit Per share Profit Tax Profit Per share
before tax (charge)/ after tax before tax (charge)/ after tax
credit credit
£m £m £m p £m £m £m p
----------------------------------------------------------------------------------------------------------------------
Operating profit from
continuing operations 334 (95) 239 3.69 298 (93) 205 3.17
Variation from longer term
investment return 7 4 11 0.17 63 (13) 50 0.77
Change in SRC 39 (33) 6 0.09 116 (18) 98 1.51
Profit from discontinued
operations - - - - 12 1 13 0.20
Distributions on subordinated
borrowings designated as
equity - - (8) (0.12)
----------------------------------------------------------------------------------------------------------------------
Earnings per share 380 (124) 256 3.95 489 (123) 358 5.53
======================================================================================================================
Full year Full year Full year Full year
31.12.05 31.12.05 31.12.05 31.12.05
Profit Tax Profit Per share
before tax (charge)/ after tax
credit
£m £m £m p
----------------------------------------------------------------------------------------------------------------------
Operating profit from
continuing operations 647 (191) 456 7.04
Variation from longer term
investment return 139 (32) 107 1.66
Change in SRC 516 (148) 368 5.68
Profit from discontinued
operations 12 1 13 0.20
Distributions on subordinated
borrowings designated as
equity (16) (0.25)
----------------------------------------------------------------------------------------------------------------------
Earnings per share 1,314 (370) 928 14.33
======================================================================================================================
======================================================================================================================
P49
Notes to the financial information
4.10 Earnings per share (continued)
(b) Diluted earnings per share
(i) Based on operating profit from continuing operations after tax
30.06.06 30.06.06 30.06.06 30.06.05 30.06.05 30.06.05
Restated Restated
Profit Number Per share Profit Number Per share
after tax of shares(1) after tax of shares(1)
£m m p £m m p
----------------------------------------------------------------------------------------------------------------------
Operating profit from continuing
operations after tax 239 6,478 3.69 205 6,477 3.17
Net shares under options allocable
for no further consideration - 41 (0.02) - 35 (0.02)
Convertible bonds outstanding(2) 12 285 - 8 285 (0.02)
----------------------------------------------------------------------------------------------------------------------
Diluted earnings per share 251 6,804 3.67 213 6,797 3.13
======================================================================================================================
Full year Full year Full year
31.12.05 31.12.05 31.12.05
Profit Number Per share
after tax of shares(1)
£m m p
----------------------------------------------------------------------------------------------------------------------
Operating profit from continuing
operations after tax 456 6,474 7.04
Net shares under options allocable
for no further consideration - 38 (0.04)
Convertible bonds outstanding 20 285 -
----------------------------------------------------------------------------------------------------------------------
Diluted earnings per share 476 6,797 7.00
======================================================================================================================
(ii) Based on profit attributable to ordinary equity holders of the Company
30.06.06 30.06.06 30.06.06 30.06.05 30.06.05 30.06.05
Profit Number Per share Profit Number Per share
after tax of shares(1) after tax of shares(1)
£m m p £m m p
----------------------------------------------------------------------------------------------------------------------
Profit attributable to ordinary equity
holders of the Company 256 6,478 3.95 358 6,477 5.53
Net shares under options allocable
for no further consideration - 41 (0.02) - 35 (0.03)
Convertible bonds outstanding(2) 12 285 - 8 285 (0.12)
----------------------------------------------------------------------------------------------------------------------
Diluted earnings per share 268 6,804 3.93 366 6,797 5.38
======================================================================================================================
Full year Full year Full year
31.12.05 31.12.05 31.12.05
Profit Number Per share
after tax of shares(1)
£m m p
----------------------------------------------------------------------------------------------------------------------
Profit attributable to ordinary equity
holders of the Company 928 6,474 14.33
Net shares under options allocable
for no further consideration - 38 (0.08)
Convertible bonds outstanding 20 285 (0.30)
----------------------------------------------------------------------------------------------------------------------
Diluted earnings per share 948 6,797 13.95
======================================================================================================================
1. Weighted average number of shares.
2. These shares are antidilutive for the period ended 30 June 2006 as they would increase the net profit per share,
and are therefore ignored along with their associated revenue impact in the calculation of diluted earnings per
share.
======================================================================================================================
P50
Notes to the financial information
4.11 Analysis of gross written premiums
30.06.06 30.06.05 Full year
31.12.05
£m £m £m
----------------------------------------------------------------------------------------------------------------------
From continuing operations
Life and pensions participating business 203 283 485
Life and pensions non-participating business 1,216 1,240 2,428
----------------------------------------------------------------------------------------------------------------------
Total UK life and pensions 1,419 1,523 2,913
USA 174 158 329
Netherlands 147 120 243
France 152 129 265
----------------------------------------------------------------------------------------------------------------------
Total life and pensions 1,892 1,930 3,750
General insurance business
Household 115 115 234
Other business 46 55 100
----------------------------------------------------------------------------------------------------------------------
Total general insurance 161 170 334
----------------------------------------------------------------------------------------------------------------------
Total gross written premiums 2,053 2,100 4,084
======================================================================================================================
======================================================================================================================
P51
Notes to the financial information
4.12 Segmental analysis
(a) By business segments
The Group is organised into three main business segments:
- Long term business
- General insurance
- Investment management
Other operations comprise Shareholders' assets, Regulated mortgage network, Estate agencies and Corporate expenses,
none of which constitute a separately reportable segment.
(i) Income statement analysed by business segments (primary disclosures)
Long term Investment General Other Elimination of Total
business manage- insurance operations inter
ment segment
amounts
Six months ended 30 June 2006 £m £m £m £m £m £m
----------------------------------------------------------------------------------------------------------------------
Total revenue from continuing operations 2,469 2,067 154 225 (110) 4,805
Total expenses from continuing operations 2,245 1,984 158 135 (110) 4,412
Profit from continuing operations after
income tax 151 45 (3) 84 - 277
Profit from discontinued operations - - - - - -
======================================================================================================================
Inter segment revenue - (34) - (76) 110 -
======================================================================================================================
Six months ended 30 June 2005 (Restated)
----------------------------------------------------------------------------------------------------------------------
Total revenue from continuing operations 5,091 6,704 160 205 (111) 12,049
Total expenses from continuing operations 4,717 6,625 154 88 (111) 11,473
Profit from continuing operations after
income tax 227 34 3 100 - 364
Profit from discontinued operations - - 13 - - 13
======================================================================================================================
Inter segment revenue - (28) (1) (82) 111 -
======================================================================================================================
Full year ended 31 December 2005
----------------------------------------------------------------------------------------------------------------------
Total revenue from continuing operations 11,512 18,833 328 559 (243) 30,989
Total expenses from continuing operations 10,373 18,724 311 235 (243) 29,400
Profit from continuing operations after
income tax 650 71 13 278 - 1,012
Profit from discontinued operations - - 13 - - 13
======================================================================================================================
Inter segment revenue - (59) (2) (182) 243 -
======================================================================================================================
======================================================================================================================
P52
Notes to the financial information
4.12 Segmental analysis (continued)
(a) By business segments (continued)
(ii) Balance sheet analysed by business segments (primary disclosures)
Long term Investment General Other Elimination of Total
business manage- insurance operations inter
ment segment
amounts
As at 30 June 2006 £m £m £m £m £m £m
----------------------------------------------------------------------------------------------------------------------
Total assets 67,021 129,559 520 4,443 (1,602) 199,941
Total liabilities 64,713 128,831 356 3,073 (1,602) 195,371
Total equity 2,308 728 164 1,370 - 4,570
======================================================================================================================
As at 30 June 2005 (Restated)
----------------------------------------------------------------------------------------------------------------------
Total assets 60,404 106,555 501 4,244 (1,637) 170,067
Total liabilities 58,488 105,867 340 2,603 (1,637) 165,661
Total equity 1,916 688 161 1,641 - 4,406
======================================================================================================================
As at 31 December 2005
----------------------------------------------------------------------------------------------------------------------
Total assets 65,146 123,304 516 4,676 (1,777) 191,865
Total liabilities 62,901 122,622 351 2,832 (1,777) 186,929
Total equity 2,245 682 165 1,844 - 4,936
======================================================================================================================
(b) By geographic segments
UK USA Netherlands France Elimination of Total
inter
segment
amounts
30 June 2006 £m £m £m £m £m £m
----------------------------------------------------------------------------------------------------------------------
Total revenue from continuing operations 4,410 157 116 122 - 4,805
Segment assets 195,033 1,910 1,309 1,710 (21) 199,941
======================================================================================================================
30 June 2005
----------------------------------------------------------------------------------------------------------------------
Total revenue from continuing operations 11,506 149 191 203 - 12,049
Segment assets 165,478 1,930 1,132 1,546 (19) 170,067
======================================================================================================================
31 December 2005
----------------------------------------------------------------------------------------------------------------------
Total revenue from continuing operations 29,918 321 362 388 - 30,989
Segment assets 186,936 2,016 1,269 1,663 (19) 191,865
======================================================================================================================
4.13 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 and contributions to
such schemes. At 30 June 2006 the combined after tax deficit of these arrangements (net of annuity obligations) has
been estimated at £79m (1H05: £132m; FY05: £148m). These amounts have been recognised in the financial information
with £49m charged against shareholder equity (1H05: £78m; FY05: £88m) and £30m against the unallocated divisible
surplus (1H05: £54m; FY05: £60m).
======================================================================================================================
P53
Notes to the financial information
4.14 Financial investments
At 30.06.06 At 30.06.05 At 31.12.05
£m £m £m
----------------------------------------------------------------------------------------------------------------------
Equities 101,907 85,090 99,277
Unit trusts 3,166 2,117 2,941
Debt securities 75,700 65,855 72,941
Accrued interest 970 817 887
Derivative assets 46 60 30
Loans and receivables 639 273 546
----------------------------------------------------------------------------------------------------------------------
182,428 154,212 176,622
======================================================================================================================
4.15 Segmental analysis of ordinary shareholders' equity
At 30.06.06 At 30.06.05 At 31.12.05
Restated
£m £m £m
----------------------------------------------------------------------------------------------------------------------
SRC(1) 2,591 2,301 2,560
Society shareholder capital(2) 2,042 2,048 1,896
----------------------------------------------------------------------------------------------------------------------
4,633 4,349 4,456
General insurance 164 161 167
Netherlands 88 102 103
France 69 60 64
----------------------------------------------------------------------------------------------------------------------
Total Society shareholders' equity 4,954 4,672 4,790
USA 556 537 570
Investment management 314 274 268
Corporate funds(3) (1,572) (1,686) (1,371)
----------------------------------------------------------------------------------------------------------------------
Ordinary shareholders' equity 4,252 3,797 4,257
======================================================================================================================
1. Includes £602m of intra-group subordinated debt capital attributed to the SRC.
2. Represents surplus capital held outside the UK Long Term Fund, including the rights issue proceeds.
3. Includes the convertible debt of £518m (1H05: £501m; FY05: £509m), senior debt of £602m and subordinated borrowings
of £813m (1H05: £801m; FY05: £809m). £602m has been lent on to the UK Long Term Fund.
======================================================================================================================
P54
Notes to the financial information
4.16 Borrowings
At 30.06.06 At 30.06.05 At 31.12.05
Restated
£m £m £m
----------------------------------------------------------------------------------------------------------------------
Subordinated borrowings designated as equity
5.875% Sterling undated subordinated notes - 394 394
Subordinated borrowings
5.875% Sterling undated subordinated notes 429 - -
4.0% Euro subordinated notes 2025 384 407 415
======================================================================================================================
Total subordinated borrowings 813 801 809
======================================================================================================================
Senior borrowings
2.75% Sterling convertible bond 2006 518 501 509
Sterling medium term notes 2031-2041 602 602 608
Euro commercial paper 2006 111 71 110
Bank loans 2006 25 4 6
Non-recourse financing
- US Dollar Triple X securitisation 2025 286 295 308
- Sterling property partnership loans 2011 140 93 93
----------------------------------------------------------------------------------------------------------------------
Total senior borrowings 1,682 1,566 1,634
======================================================================================================================
Total borrowings 2,495 2,367 2,443
======================================================================================================================
Total borrowings (excluding non-recourse financing) 2,069 1,979 2,042
======================================================================================================================
£48m of interest expense was incurred during the period (1H05: £30m (restated); FY05: £75m).
The convertible bond matures in 2006 and is convertible into ordinary shares of Legal & General Group Plc at 184p per
share. If converted, this bond would give rise to the issue of 285.3m new ordinary shares, which would represent
approximately 4.4% of the current issued share capital.
Legal & General Group Plc has issued €600m of 4% dated subordinated notes. The proceeds were swapped into sterling and
will be used to repay part of the convertible bond which matures in 2006. The notes are callable 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.
Legal & General Group Plc has also issued £400m of 5.875% undated subordinated notes. These notes are callable on
1 April 2019 and every 5 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.
Coupon payments on both subordinated issues may be deferred if no dividend is paid on the Group's ordinary shares.
The undated subordinated notes were classified as equity because their perpetual nature meant that in certain
circumstances, interest could be deferred indefinitely. On 13 March 2006 the Group entered into a supplementary trust
deed to remove the discretionary nature of the interest in respect of the undated subordinated notes which had the
effect of reclassifying the notes from equity to liability and coupon payments from distributions to interest. Upon
reclassification the new debt component was recognised at fair value.
The Euro dated subordinated notes are treated as lower tier II capital for regulatory purposes and the sterling
undated subordinated notes as upper tier II capital.
A subsidiary of Legal & General America has issued US$550m of non-recourse debt in the US domestic capital markets to
meet the Triple X reserve requirements on the US term insurance business. It is secured on the cash flows related to
this business.
The property partnership loans are secured on specific properties.
Of the total borrowings £602m (1H05: £602m; FY05: £602m) is attributed to the SRC.
4.17 Minority interests
Minority interests represent third party interests in property investment vehicles which are consolidated in the
Group's results
======================================================================================================================
P55
Notes to the financial information
4.18 Movement in equity
At 30.06.06 At 30.06.05 At 31.12.05
Restated
£m £m £m
----------------------------------------------------------------------------------------------------------------------
At beginning of period 4,936 4,283 4,283
Total recognised income and expense 272 367 1,002
Issue of ordinary share capital 12 - 1
Net movements in employee share schemes and treasury shares (4) (2) 7
Dividend distributions to ordinary equity holders of the Company
during the period (236) (224) (331)
Distributions during the period on subordinated borrowings designated
as equity - (8) (16)
Movements in minority interests including disposals 12 (10) (10)
Derecognition of subordinated borrowings from equity to debt (394) - -
Fair value loss after tax on recognition of subordinated borrowings as
debt (28) - -
----------------------------------------------------------------------------------------------------------------------
At end of period 4,570 4,406 4,936
======================================================================================================================
4.19 Value of UK Long Term Fund assets
At 30.06.06 At 30.06.05 At 31.12.05
£bn £bn £bn
----------------------------------------------------------------------------------------------------------------------
With-profits business 29.4 27.8 29.7
Non profit business 24.3 20.1 22.7
Sub-fund 0.3 0.3 0.3
SRC 2.6 2.3 2.6
----------------------------------------------------------------------------------------------------------------------
56.6 50.5 55.3
======================================================================================================================
4.20 Non linked invested asset mix and investment return
Investment | With-profits With-profits With-profits Non profit SRC Sub-fund | SSC |
Return | Asset share Non Par Other | |
30 June 2006 2006 % | % % % % % % | % |
----------------------------------------------------------------------------------------------------------------------
Equities 4 | 49 4 (31) 2 81 83 | 56 |
Bonds (3)| 30 84 119 92 - - | 40 |
Property 9 | 18 1 - 4 18 16 | - |
Cash 2 | 3 11 12 2 1 1 | 4 |
----------------------------------------------------------------------------------------------------------------------
| 100 100 100 100 100 100 | 100 |
======================================================================================================================
| | |
Investment return (%) 1 | 3 (1) (5) (2) 4 5| 4 |
======================================================================================================================
| | |
Invested assets (£bn) | 18.4 2.4 1.8 15.0 2.2 0.3| 1.9 |
======================================================================================================================
All investment return percentages are year to date.
======================================================================================================================
P56
Notes to the financial information
4.21 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, by ombudsman
rulings, by industry compensation schemes and by court judgements. 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.
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 liabilities may give rise. The relevant
members of the Group nevertheless consider that each makes prudent provision for such liabilities, 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 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. 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, including interest rate guarantees, as a normal part of their
operating activities or in relation to capital market transactions.
4.22 Foreign exchange rates
(a) Period end exchange rates
At 30.06.06 At 30.06.05 At 31.12.05
----------------------------------------------------------------------------------------------------------------------
United States Dollar 1.85 1.79 1.72
Euro 1.45 1.48 1.46
======================================================================================================================
(b) Average exchange rates
01.01.06- 01.01.05- 01.07.05-
30.06.06 30.06.05 31.12.05
----------------------------------------------------------------------------------------------------------------------
United States Dollar 1.79 1.87 1.77
Euro 1.46 1.46 1.47
======================================================================================================================
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