L&G Half-year Results Part 4a

International Financial Reporting Standards

Page 43

Operating profit income statement

Six months ended 30 June 2008

Full year

30.06.08

30.06.07

31.12.07

Restated

Notes

£m

£m

£m

From continuing operations

Life and pensions

4.01 

347 

383 

643 

Investment management

4.02 

93 

73 

155 

General insurance

4.03 

(4)

(38)

(67)

Other operational income

4.04 

(45)

(32)

(73)

Operating profit

391 

386 

658 

Variation from longer term investment return

4.05 

(422)

96 

(90)

Property (expense)/income attributable to minority interests

4.15 

(13)

17 

(6)

Release of 1996 Sub-fund

- 

- 

321 

(Loss)/profit from continuing operations before tax attributable to equity holders

(44)

499 

883 

Tax attributable to equity holders

4.06 

17 

(170)

(165)

(Loss)/profit from ordinary activities after tax

(27)

329 

718 

Loss/(profit) attributable to minority interests

4.15 

13 

(17)

6 

(Loss)/profit attributable to equity holders

(14)

312 

724 

p

p

p

Earnings per share

4.07 

Based on operating profit from continuing operations after tax attributable to 

equity holders

4.61 

3.93 

7.17 

Based on (loss)/profit attributable to equity holders of the Company

(0.23)

4.80 

11.24 

Diluted earnings per share

4.07 

Based on operating profit from continuing operations after tax attributable to 

equity holders

4.59 

3.91 

7.13 

Based on (loss)/profit attributable to equity holders of the Company

(0.23)

4.77 

11.18 

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.

IFRS supplementary operating profit is one of the Group's key performance indicators and was restated in the 2007 Annual Report & Accounts to reflect changes in the Group's structure. Operating profit for UK life and pensions business on the IFRS basis is defined to include the net capital released from non profit business and a smoothed investment return on total Society shareholders' assets held both within and outside of Society's long term fund. The change in the definition of UK life and pensions operating profit since the 2007 interim financial statements had the effect of increasing H1 2007 reported operating profit by £44m. Profit before tax and shareholders' equity were unaffected by this change. 

Investment return on non profit business is calculated on a smoothed basis using EEV assumptions applied to the average balance of Society shareholder capital invested assets (including interest bearing intra-group balances) calculated on a quarterly basis.

Operating profit also includes a longer term investment return on the shareholders' funds in our General insurance, Investment management and Netherlands' operations.

International Financial Reporting Standards

Page 44

Consolidated income statement

Six months ended 30 June 2008

Full year

30.06.08

30.06.07

31.12.07

Notes

£m

£m

£m

Revenue

Gross written premiums

4.08 

3,301 

2,289 

4,793 

Outward reinsurance premiums

(269)

(255)

(517)

Net change in provision for unearned premiums

(1)

(5)

7 

Net premiums earned

3,031 

2,029 

4,283 

Fees from fund management and investment contracts

358 

313 

640 

Investment return

(17,196)

6,588 

13,225 

Operational income

22 

28 

54 

Total revenue

4.10 

(13,785)

8,958 

18,202 

Expenses

Claims and change in insurance liabilities

1,748 

1,409 

4,467 

Reinsurance recoveries

(370)

(232)

(345)

Net claims and change in insurance liabilities

1,378 

1,177 

4,122 

Change in provisions for investment contract liabilities

(15,434)

6,325 

11,999 

Acquisition costs

354 

346 

848 

Finance costs

189 

80 

214 

Other expenses

425 

431 

662 

Transfers (from)/to unallocated divisible surplus1

(313)

74 

(438)

Total expenses

4.10 

(13,401)

8,433 

17,407 

(Loss)/profit before income tax 

(384)

525 

795 

Income tax attributable to policyholder returns

340 

(26)

88 

(Loss)/profit from continuing operations before income tax attributable to equity holders

(44)

499 

883 

Total income tax credit/(expense)

357 

(196)

(77)

Income tax attributable to policyholder returns

(340)

26 

(88)

Income tax attributable to equity holders

17 

(170)

(165)

(Loss)/profit from ordinary activities after income tax

4.10 

(27)

329 

718 

Attributable to:

Minority interests

(13)

17 

(6)

Equity holders of the Company

(14)

312 

724 

Dividend distributions to equity holders of the Company during the period

248 

248 

369 

Dividend distributions to equity holders of the Company proposed after the period end

115 

122 

247 

p

p

p

Earnings per share

4.07

Based on (loss)/profit from continuing operations after income tax attributable to equity holders

(0.23)

4.80 

11.24 

Diluted earnings per share

4.07

Based on (loss)/profit from continuing operations after income tax attributable to equity holders

(0.23)

4.77 

11.18 

1. Includes £321m release of 1996 Sub-fund in full year 2007.

International Financial Reporting Standards

Page 45

Consolidated balance sheet

As at 30 June 2008

At 30.06.08

At 30.06.07

At 31.12.07

Notes

£m

£m

£m

Assets

Investment in associates

13 

16 

14 

Plant and equipment

78 

78 

79 

Investment property

5,595 

6,992 

5,969 

Financial investments

4.11 

251,247 

221,860 

261,718 

Reinsurers' share of contract liabilities

1,981 

1,642 

1,530 

Purchased interest in long term businesses

225 

22 

19 

Deferred acquisition costs

1,795 

1,587 

1,696 

Deferred tax asset

276 

- 

- 

Income tax recoverable

5 

- 

4 

Other assets

2,432 

2,436 

1,519 

Cash and cash equivalents

10,819 

6,435 

8,737 

Total assets

4.10 

274,466 

241,068 

281,285 

Equity

Share capital

149 

163 

157 

Share premium account

934 

926 

927 

Employee scheme shares

(46)

(42)

(42)

Other reserves1

(65)

44 

59 

Retained earnings

3,703 

4,424 

4,345 

Capital and reserves attributable to equity holders of the Company

4.13 

4,675 

5,515 

5,446 

Minority interests

4.15 

175 

456 

178 

Total equity

4.16 

4,850 

5,971 

5,624 

Liabilities

Subordinated borrowings

4.14 

1,444 

1,371 

1,461 

Participating insurance contracts

10,386 

12,251 

11,663 

Participating investment contracts

7,099 

7,393 

7,462 

Unallocated divisible surplus

1,411 

2,277 

1,721 

Value of in-force non-participating contracts

(255)

(413)

(276)

Participating contract liabilities

18,641 

21,508 

20,570 

Non-participating insurance contracts

24,879 

21,330 

22,873 

Non-participating investment contracts

216,405 

184,441 

224,906 

Non-participating contract liabilities

241,284 

205,771 

247,779 

Senior borrowings

4.14 

1,742 

1,332 

1,327 

Provisions

583 

485 

595 

Deferred income liabilities

491 

461 

493 

Deferred tax liabilities

197 

595 

296 

Income tax liabilities

18 

51 

113 

Other liabilities

4,292 

2,652 

2,115 

Net asset value attributable to unit holders

924 

871 

912 

Total liabilities

4.10

269,616 

235,097 

275,661 

Total equity and liabilities

274,466 

241,068 

281,285 

1. On 30 June 2008 Legal & General Group Plc entered into an irrevocable agreement to acquire up to £100m of ordinary shares during the closed period from 1 July 2008 to 4 August 2008. Accordingly, a liability of £100m has been recorded in the balance sheet with a corresponding amount in equity. This balance will be eliminated on expiry of the contract.

International Financial Reporting Standards

Page 46

Consolidated statement of recognised income and expense

Six months ended 30 June 2008

Full year

30.06.08

30.06.07

31.12.07

£m

£m

£m

Exchange differences on translation of overseas operations

8 

(1)

4 

Actuarial gains/(losses) on defined benefit pension schemes

20 

62 

(40)

Actuarial (gains)/losses on defined benefit pension schemes transferred to unallocated divisible surplus

(8)

(25)

16 

Net change in financial investments designated as available-for-sale

(19)

(4)

1 

Income/(expense) recognised directly in equity, net of tax

1 

32 

(19)

(Loss)/profit from ordinary activities after income tax

(27)

329 

718 

Total recognised income and expense

(26)

361 

699 

Attributable to:

Minority interests

(13)

17 

(6)

Equity holders of the Company

(13)

344 

705 

International Financial Reporting Standards

Page 47

Consolidated cash flow statement

For the six months ended 30 June 2008

Full year

30.06.08

30.06.07

31.12.07

Notes

£m

£m

£m

Cash flows from operating activities

(Loss)/profit from ordinary activities after income tax

(27)

329 

718 

Adjustments for non cash movements in net loss/profit for the period

Realised and unrealised losses/(gains) on financial investments and 

investment properties

22,801 

(2,448)

(4,862)

Investment income

(5,304)

(3,939)

(7,797)

Interest expense

189 

80 

214 

Income tax (receivable)/payable

(357)

196 

77 

Other adjustments

38 

21 

46 

Net decrease/(increase) in operational assets

Investments designated as held for trading or fair value through profit or loss

167 

(5,372)

(8,322)

Investments designated as available-for-sale

(44)

29 

(98)

Other assets

(950)

(821)

(230)

Net (decrease)/increase in operational liabilities

Insurance contracts

(579)

(641)

152 

Transfer to unallocated divisible surplus

(305)

99 

(455)

Investment contracts

(20,186)

9,559 

17,686 

Value of in-force non-participating contracts

20 

(22)

115 

Other liabilities

1,292 

926 

(73)

Cash used in operating activities

(3,245)

(2,004)

(2,829)

Interest paid

(196)

(91)

(214)

Interest received

2,609 

1,946 

4,202 

Income tax paid

(165)

(141)

(244)

Dividends received

2,463 

1,756 

3,312 

Net cash flows from operating activities

1,466 

1,466 

4,227 

Cash flows from investing activities

Net acquisition of plant and equipment

(10)

(43)

(58)

Acquisitions (net of cash acquired)

4.09

1,004 

- 

- 

Net cash flows from investing activities

994 

(43)

(58)

Cash flows from financing activities

Dividend distributions to equity holders of the Company during the year

(248)

(248)

(369)

Proceeds from issue of share capital

7 

3 

4 

Purchase of employee scheme shares

(8)

(3)

(5)

Purchase of shares under share buyback programme

(408)

- 

(320)

Proceeds from borrowings

983 

1,627 

1,948 

Repayment of borrowings

(723)

(1,288)

(1,637)

Net cash flows from financing activities

(397)

91 

(379)

Net increase in cash and cash equivalents

2,063 

1,514 

3,790 

Exchange gains/(losses) on cash and cash equivalents

19 

(9)

17 

Cash and cash equivalents at 1 January

8,737 

4,930 

4,930 

Cash and cash equivalents at 30 June / 31 December

10,819 

6,435 

8,737 

The Group's consolidated cash flow statement includes all cash and cash equivalent flows, including those relating to the UK long term fund policyholders.