L&G Half-year Results Part 4b

RNS Number : 6249A

Legal & General Group Plc

05 August 2008

 



International Financial Reporting Standards											Page 48
Notes to the Financial Statements
4.01  Life and pensions operating profit
(a)  Analysis of life and pensions operating profit											Full year
									30.06.08	30.06.07	31.12.07
										Restated
							Notes		£m	£m	£m
Net capital released from non profit business							4.01(b)		95	153	161
Investment return1									154	154	317
Other expenses									(10)	(15)	(27)
Non profit business									239	292	451
With-profits business									60	50	106
UK									299	342	557
USA									30	32	59
Netherlands									8	4	11
France									10	5	16
									347	383	643
1. The smoothed investment return of £154m reflects an average return of 3% (H1 2007: 3%, FY 2007: 7%) on the average balance of invested assets held within Society Shareholder Capital (SSC) (including interest bearing intra group balances) calculated on a quarterly basis. The invested assets (including interest bearing intra group balances) held within the SSC amounted to £4.5bn at 30 June 2008 (H1 2007: £4.6bn, FY 2007: £4.7bn).
(b)  Analysis of net capital released from non profit business
											Full year
									30.06.08	30.06.07	31.12.07
							Notes		£m	£m	£m
Net capital released from non profit business comprises:
	New business
	- Strain before financing arrangements								(237)	(142)	(344)
	Existing business
	- Expected capital release, before financing arrangements								241	211	406
	Experience variances						4.01(c)		(27)	49	115
	Changes to non-economic assumptions						4.01(d)		(7)	(6)	(137)
	Changes to FSA reporting and capital rules								-	-	37
	Movements in non-cash items						4.01(e)		95	7	74
	Other								3	(12)	(38)
									68	107	113
	Tax gross-up								27	46	48
									95	153	161
Expected capital release represents the capital and profit generated in the period from the in-force non profit business if the embedded value 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 expected capital release exclude required solvency margin, as this is not accounted for under IFRS. On average, the capital invested in new non profit business, including solvency margin, is repaid from product cash flows in approximately 7 years.
International Financial Reporting Standards											Page 49
Notes to the Financial Statements
4.01  Life and pensions operating profit (continued)
An analysis of the experience variances, non-economic assumption changes and non-cash items, all net of tax, is provided below:
(c)  Experience variances
											Full year
									30.06.08	30.06.07	31.12.07
									£m	£m	£m
Persistency									-	1	10
Mortality/morbidity									11	5	22
Expenses									(24)	(27)	(57)
BPA data loading									23	12	3
Investment									20	67	134
Tax1									(55)	(4)	10
Other									(2)	(5)	(7)
									(27)	49	115
1. The current tax credit for the period was lower than expected as a result of the fall in investment markets. The consequent unrelieved expenses gave rise to a deferred tax credit, reflected in non-cash items (Note 4.01(e)).
(d)  Changes to non-economic assumptions
											Full year
									30.06.08	30.06.07	31.12.07
									£m	£m	£m
Mortality/morbidity1									(4)	-	(121)
Expenses									(9)	(1)	(37)
Other									6	(5)	21
									(7)	(6)	(137)
1. FY 07 includes £(214)m relating to the strengthening of assumptions for annuitant longevity on existing business, offset by £64m relating to changes to the assumptions for the proportions married.
(e)  Movements in non-cash items
											Full year
									30.06.08	30.06.07	31.12.07
									£m	£m	£m
Non linked deferred tax									82	(18)	(17)
Deferred acquisition costs									31	64	114
Deferred income liabilities									(1)	(42)	(72)
Other									(17)	3	49
									95	7	74
4.02  Investment management operating profit
											Full year
									30.06.08	30.06.07	31.12.07
									£m	£m	£m
Managed pension funds									63	51	103
Property									4	5	6
Retail investments									(1)	6	8
Other income1									27	11	38
									93	73	155
1. Other income includes £19m of profits arising from the provision of investment management services charged to the Group's UK life and pensions businesses (H1 07: £4m (LGPL only); FY 07: £23m).
International Financial Reporting Standards											Page 50
Notes to the Financial Statements
4.03  General insurance operating profit, underwriting result and combined operating ratios
(a)  Operating profit
											Full year
									30.06.08	30.06.07	31.12.07
									£m	£m	£m
Household1									(7)	(52)	(86)
Other business2									3	14	19
									(4)	(38)	(67)
1. Household business in 2007 includes a loss of £76m (H1 07: £40m) net of reinsurance as a result of flood related claims in June and July 2007. 2. Other business in 2007 includes £6m profit (H1 07: £6m) following the withdrawal from the healthcare business in the first quarter.
(b)  Underwriting result
											Full year
									30.06.08	30.06.07	31.12.07
									£m	£m	£m
Household									(14)	(59)	(101)
Other business									3	11	15
									(11)	(48)	(86)
(c)  Combined operating ratio
											Full year
									30.06.08	30.06.07	31.12.07
									%	%	%
Household									110	153	145
Other business1									88	68	74
									107	134	131
1. Other business combined ratio in 2007 includes the £6m profit following the withdrawal from the healthcare business in the first quarter.
The combined operating ratio is:
	Net incurred claims	+	Expenses + Net commission				X 100
	Net earned premiums		Net written premiums
4.04  Other operational income
											Full year
									30.06.08	30.06.07	31.12.07
										Restated
									£m	£m	£m
Shareholders' other income
Investment return on shareholders' equity1									29	27	51
Interest expense2									(66)	(55)	(119)
									(37)	(28)	(68)
Other operations3									(1)	1	1
Unallocated corporate and development expenses									(7)	(5)	(6)
									(45)	(32)	(73)
1. Investment return on shareholders' equity excludes investment return on Society shareholder capital, which is included in UK life and pensions. 2. Interest expense relates to average borrowings, excluding non recourse financing (see Note 4.14). 3. Principally the regulated mortgage network and Cofunds.
International Financial Reporting Standards											Page 51
Notes to the Financial Statements
4.05  Variation from longer term investment return
											Full year
									30.06.08	30.06.07	31.12.07
										Restated
									£m	£m	£m
UK life and pensions									(425)	92	(75)
Netherlands									(13)	(12)	(11)
Investment management									(4)	(1)	4
General insurance									(11)	(9)	(9)
Other operational income									31	26	1
									(422)	96	(90)
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.
4.06  Analysis of tax
										Profit
						Profit/(loss)		Profit		before tax	Tax
						before tax	Tax	before tax	Tax	Full year	Full year
						30.06.08	30.06.08	30.06.07	30.06.07	31.12.07	31.12.07
								Restated	Restated
						£m	£m	£m	£m	£m	£m
From continuing operations
UK life and pensions						299	(89)	342	(119)	557	(173)
International life and pensions						48	(15)	41	(13)	86	(25)
						347	(104)	383	(132)	643	(198)
Investment management						93	(22)	73	(23)	155	(47)
General insurance						(4)	1	(38)	12	(67)	19
Other operational income						(45)	14	(32)	12	(73)	30
Operating profit						391	(111)	386	(131)	658	(196)
Variation from longer term investment return						(422)	128	96	(39)	(90)	31
Property income attributable to minority interests						(13)	-	17	-	(6)	-
Release of 1996 Sub-fund						-	-	-	-	321	-
(Loss)/profit from continuing operations before tax / Tax						(44)	17	499	(170)	883	(165)
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. Deferred tax is provided at the incremental rate on the undeclared surplus in Society's LTF represented by the Shareholder Retained Capital (SRC). At 30 June 2008 and 31 December 2007, the incremental rate in respect of the undeclared surplus of £1,892m (December 2007: £2,047m) was zero.   At 30 June 2007, no deferred tax was provided, on the grounds that, at the balance sheet date, no obligation to make a declaration of surplus actually existed and there was no expectation that such a declaration would occur. The maximum amount of incremental tax which would have crystallised on such a declaration of surplus at 30 June 2007 was estimated to be £295m.
International Financial Reporting Standards											Page 52
Notes to the Financial Statements
4.07  Earnings per share
(a)  Earnings per share
				Profit	Tax	Profit	Earnings	Profit	Tax	Profit	Earnings
				before tax	(charge)/	after tax	per share	before tax	(charge)/	after tax	per share
					credit				credit
				30.06.08	30.06.08	30.06.08	30.06.08	30.06.07	30.06.07	30.06.07	30.06.07
								Restated	Restated	Restated	Restated
				£m	£m	£m	p	£m	£m	£m	p
Operating profit from continuing operations				391	(111)	280	4.61	386	(131)	255	3.93
Variation from longer term investment return				(422)	128	(294)	(4.84)	96	(39)	57	0.87
Earnings per share based on (loss)/profit
attributable to equity holders				(31)	17	(14)	(0.23)	482	(170)	312	4.80
								Profit	Tax	Profit	Earnings
								before tax	charge	after tax	per share
								Full year	Full year	Full year	Full year
								31.12.07	31.12.07	31.12.07	31.12.07
								£m	£m	£m	p
Operating profit from continuing operations								658	(196)	462	7.17
Variation from longer term investment return								(90)	31	(59)	(0.91)
Release of 1996 Sub-fund								321	-	321	4.98
Earnings per share based on profit
attributable to equity holders								889	(165)	724	11.24
(b)  Diluted earnings per share
(i)  Based on operating profit from continuing operations after tax
						Profit	Number	Earnings	Profit	Number	Earnings
						after tax	of shares1	per share	after tax	of shares1	per share
						30.06.08	30.06.08	30.06.08	30.06.07	30.06.07	30.06.07
									Restated		Restated
						£m	m	p	£m	m	p
Operating profit from continuing operations after tax						280	6,073	4.61	255	6,493	3.93
Net shares under options allocable for no further consideration						-	22	(0.02)	-	37	(0.02)
Diluted earnings per share						280	6,095	4.59	255	6,530	3.91
									Profit	Number	Earnings
									after tax	of shares1	per share
									Full year	Full year	Full year
									31.12.07	31.12.07	31.12.07
									£m	m	p
Operating profit from continuing operations after tax									462	6,444	7.17
Net shares under options allocable for no further consideration									-	34	(0.04)
Diluted earnings per share									462	6,478	7.13
(ii)  Based on profit attributable to equity holders of the Company
						Profit	Number	Earnings	Profit	Number	Earnings
						after tax	of shares1	per share	after tax	of shares1	per share
						30.06.08	30.06.08	30.06.08	30.06.07	30.06.07	30.06.07
						£m	m	p	£m	m	p
Profit attributable to equity holders of the Company						(14)	6,073	(0.23)	312	6,493	4.80
Net shares under options allocable for no further consideration						-	22	-	-	37	(0.03)
Diluted earnings per share						(14)	6,095	(0.23)	312	6,530	4.77
									Profit	Number	Earnings
									after tax	of shares1	per share
									31.12.07	31.12.07	31.12.07
									£m	m	p
Profit attributable to equity holders of the Company									724	6,444	11.24
Net shares under options allocable for no further consideration									-	34	(0.06)
Diluted earnings per share									724	6,478	11.18
The number of shares in issue at 30 June 2008 was 5,979,009,914 (H1 07: 6,535,517,371; FY 07: 6,296,321,160). 1. Weighted average number of shares.

 

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