27th Jul 2006 07:02
Legal & General Group PLC27 July 2006 P39International Financial Reporting Standards------------------------------------------- Operating profit income statementSix months ended 30 June 2006 30.06.06 30.06.05 Full year Restated 31.12.05 Notes £m £m £m----------------------------------------------------------------------------------------------------------------------From continuing operationsLife and pensions 4.2 252 228 489Investment management 4.3 65 48 103General insurance 4.4 2 4 14Other operational income 4.5 15 18 41----------------------------------------------------------------------------------------------------------------------Operating profit 334 298 647Variation from longer term investment return 4.6 7 63 139Shareholder retained capital (SRC) movement 4.7 39 116 516Property income attributable to minority interests 21 11 81----------------------------------------------------------------------------------------------------------------------Profit from continuing operations before income tax attributable to equity holders 401 488 1,383Tax 4.8 (124) (124) (371)----------------------------------------------------------------------------------------------------------------------Profit from continuing operations after tax 277 364 1,012Profit from discontinued operations 4.9 - 13 13----------------------------------------------------------------------------------------------------------------------Profit from ordinary activities after tax 277 377 1,025Profit 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 4.10Based on operating profit from continuing operations after tax 3.69 3.17 7.04Based on profit attributable to ordinary equity holders of the Company 3.95 5.53 14.33 Diluted earnings per share 4.10Based on operating profit from continuing operations after tax 3.67 3.13 7.00Based 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 excludesinvestment 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. ====================================================================================================================== P40Consolidated income statementSix months ended 30 June 2006 30.06.06 30.06.05 Full year Restated 31.12.05 Notes £m £m £m----------------------------------------------------------------------------------------------------------------------RevenueGross written premiums 4.11 2,053 2,100 4,084Outward reinsurance premiums (247) (187) (406)Net change in provision for unearned premiums (2) (14) (6)----------------------------------------------------------------------------------------------------------------------Net premiums earned 1,804 1,899 3,672Fees from fund management and investment contracts 248 148 348Investment return 2,730 9,994 26,931Operational income 23 8 38----------------------------------------------------------------------------------------------------------------------Total revenue 4,805 12,049 30,989----------------------------------------------------------------------------------------------------------------------ExpensesClaims and change in insurance liabilities 1,717 3,150 6,367Reinsurance recoveries (514) (344) 19----------------------------------------------------------------------------------------------------------------------Net claims and change in insurance liabilities 1,203 2,806 6,386Change in provisions for investment contract liabilities 2,511 7,669 21,369Acquisition costs 232 310 550Finance costs 70 46 116Other expenses 336 281 619Transfers to unallocated divisible surplus 60 361 360----------------------------------------------------------------------------------------------------------------------Total expenses 4,412 11,473 29,400----------------------------------------------------------------------------------------------------------------------Profit before income tax 393 576 1,589Income 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 1,012Profit from discontinued operations - 13 13----------------------------------------------------------------------------------------------------------------------Profit from ordinary activities after income tax 277 377 1,025====================================================================================================================== Attributable to: Minority interests 21 11 81Equity holders of the Company 256 366 944====================================================================================================================== Dividend distributions to ordinary equity holders of the Company during the period 236 224 331Distributions during the period on subordinated borrowings designated as equity - 8 16Dividend distributions to ordinary equity holders of the Company proposed after the period end 113 107 236====================================================================================================================== p p p----------------------------------------------------------------------------------------------------------------------Earnings per shareBased on profit from continuing operations after income tax attributable to ordinary equity holders 3.95 5.33 14.13 Diluted earnings per shareBased on profit from continuing operations after income tax attributable to ordinary equity holders 3.93 5.19 13.76====================================================================================================================== ====================================================================================================================== P41Consolidated balance sheetAs at 30 June 2006 At 30.06.06 At 30.06.05 At 31.12.05 Restated Notes £m £m £m----------------------------------------------------------------------------------------------------------------------AssetsInvestment in associates 16 19 16Plant and equipment 34 26 32Investment property 6,625 5,322 5,774Financial investments 4.14 182,428 154,212 176,622Reinsurers' share of contract liabilities 3,194 3,238 2,779Purchased interests in long term business 29 24 25Deferred acquisition costs 1,542 1,171 1,375Income tax recoverable 6 59 79Other debtors 2,086 1,586 1,162Cash and cash equivalents 3,981 4,410 4,001----------------------------------------------------------------------------------------------------------------------Total assets 199,941 170,067 191,865====================================================================================================================== EquityShare capital 163 163 163Share premium account 920 907 908Treasury shares (44) (36) (36)Other reserves 22 34 34Retained earnings 3,191 2,729 3,188----------------------------------------------------------------------------------------------------------------------Capital and reserves attributable to ordinary equity holders of the Company 4.15 4,252 3,797 4,257Subordinated borrowings designated as equity 4.16 - 394 394----------------------------------------------------------------------------------------------------------------------Capital and reserves attributable to equity holders of the Company 4,252 4,191 4,651Minority interests 4.17 318 215 285----------------------------------------------------------------------------------------------------------------------Total equity 4.18 4,570 4,406 4,936====================================================================================================================== LiabilitiesSubordinated 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 167,126 138,687 158,956Senior borrowings 4.16 1,682 1,566 1,634Provisions 484 554 582Deferred income liabilities 373 298 351Deferred tax liabilities 461 330 492Income tax liabilities 87 127 197Other creditors 1,869 1,937 1,303Net 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====================================================================================================================== ====================================================================================================================== P42Consolidated statement of recognised income and expenseSix 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 20Actuarial 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 22Net 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 81Equity holders of the Company 251 356 921====================================================================================================================== ====================================================================================================================== P43Consolidated cash flow statementSix months ended 30 June 2006 30.06.06 30.06.05 Full year Restated 31.12.05 £m £m £m----------------------------------------------------------------------------------------------------------------------Cash flows from operating activitiesProfit from ordinary activities after income tax 277 377 1,025Adjustments 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 116Income tax payable 116 212 577Other adjustments 7 20 40Net (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 86Other assets (1,382) (668) (294)Net increase/(decrease) in operational liabilities:Insurance contracts (86) 1,640 3,071Transfer to unallocated divisible surplus 88 383 338Investment contracts 7,836 13,401 33,173Value of in-force non-participating contracts (22) (58) 55Other 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 2,967Income 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 - - 23Net proceeds from disposal of Gresham - 73 73Non-financial investments purchased (2) - (19)----------------------------------------------------------------------------------------------------------------------Net cash flows from investing activities (11) 64 55======================================================================================================================Cash flows from financing activitiesDividend 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 - 1Purchase of treasury shares (9) (11) (15)Proceeds from borrowings 367 567 764Repayment 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 1,003Exchange (losses)/gains on cash and cash equivalents (15) (3) 6Cash 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. ====================================================================================================================== P44Notes 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 312Subordinated debt interest 18 18 37----------------------------------------------------------------------------------------------------------------------Non profit business 5.3(a) 175 151 349----------------------------------------------------------------------------------------------------------------------UK 215 183 415USA 33 27 52Netherlands (3) 18 18France 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 74Ventures 2 2 4Property 4 3 4Retail investments 5 4 7Other external income 4 2 5Other income 5 4 9---------------------------------------------------------------------------------------------------------------------- 65 48 103====================================================================================================================== ====================================================================================================================== P45Notes 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 operationsHousehold 2 2 7Other 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 operationsHousehold (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 operationsHousehold 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 incomeInvestment return on ordinary shareholders' equity 69 55 127Interest expense (48) (30) (75)---------------------------------------------------------------------------------------------------------------------- 21 25 52Other operations(1) (1) (3) (5)Unallocated corporate and development expenses (5) (4) (6)---------------------------------------------------------------------------------------------------------------------- 15 18 41======================================================================================================================1. Principally the Regulated mortgage network. ====================================================================================================================== P46Notes 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 10General insurance (1) (2) 8Other 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 67Interest expense and charges (1) (1) (3)Realised investment gains 95 48 191Unrealised investment (losses)/gains (35) 46 132----------------------------------------------------------------------------------------------------------------------Investment return on SRC 104 129 387Net capital released from non profit business 5.3 110 138 478Distribution 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 2,196SRC movement before tax 39 116 516Tax 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 operationsUK 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====================================================================================================================== ====================================================================================================================== P48Notes 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 3.17Variation from longer term investment return 7 4 11 0.17 63 (13) 50 0.77Change in SRC 39 (33) 6 0.09 116 (18) 98 1.51Profit from discontinued operations - - - - 12 1 13 0.20Distributions 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 7.04Variation from longer term investment return 139 (32) 107 1.66Change in SRC 516 (148) 368 5.68Profit from discontinued operations 12 1 13 0.20Distributions on subordinated borrowings designated as equity (16) (0.25)----------------------------------------------------------------------------------------------------------------------Earnings per share 1,314 (370) 928 14.33====================================================================================================================== ====================================================================================================================== P49Notes 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 3.17Net 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 7.04Net 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 5.53Net 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 14.33Net 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. ====================================================================================================================== P50Notes 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 operationsLife and pensions participating business 203 283 485Life and pensions non-participating business 1,216 1,240 2,428----------------------------------------------------------------------------------------------------------------------Total UK life and pensions 1,419 1,523 2,913USA 174 158 329Netherlands 147 120 243France 152 129 265----------------------------------------------------------------------------------------------------------------------Total life and pensions 1,892 1,930 3,750 General insurance businessHousehold 115 115 234Other business 46 55 100----------------------------------------------------------------------------------------------------------------------Total general insurance 161 170 334----------------------------------------------------------------------------------------------------------------------Total gross written premiums 2,053 2,100 4,084====================================================================================================================== ====================================================================================================================== P51Notes 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 managementOther 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 amountsSix months ended 30 June 2006 £m £m £m £m £m £m----------------------------------------------------------------------------------------------------------------------Total revenue from continuing operations 2,469 2,067 154 225 (110) 4,805Total expenses from continuing operations 2,245 1,984 158 135 (110) 4,412Profit from continuing operations after income tax 151 45 (3) 84 - 277Profit 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) 12,049Total expenses from continuing operations 4,717 6,625 154 88 (111) 11,473Profit from continuing operations after income tax 227 34 3 100 - 364Profit 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) 30,989Total expenses from continuing operations 10,373 18,724 311 235 (243) 29,400Profit from continuing operations after income tax 650 71 13 278 - 1,012Profit from discontinued operations - - 13 - - 13====================================================================================================================== Inter segment revenue - (59) (2) (182) 243 -====================================================================================================================== ====================================================================================================================== P52Notes 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 amountsAs at 30 June 2006 £m £m £m £m £m £m----------------------------------------------------------------------------------------------------------------------Total assets 67,021 129,559 520 4,443 (1,602) 199,941Total liabilities 64,713 128,831 356 3,073 (1,602) 195,371Total 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) 170,067Total liabilities 58,488 105,867 340 2,603 (1,637) 165,661Total 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) 191,865Total liabilities 62,901 122,622 351 2,832 (1,777) 186,929Total equity 2,245 682 165 1,844 - 4,936====================================================================================================================== (b) By geographic segments UK USA Netherlands France Elimination of Total inter segment amounts30 June 2006 £m £m £m £m £m £m----------------------------------------------------------------------------------------------------------------------Total revenue from continuing operations 4,410 157 116 122 - 4,805Segment 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 - 12,049Segment 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 - 30,989Segment 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 tosuch 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). ====================================================================================================================== P53Notes 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 99,277Unit trusts 3,166 2,117 2,941Debt securities 75,700 65,855 72,941Accrued interest 970 817 887Derivative assets 46 60 30Loans 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 2,560Society shareholder capital(2) 2,042 2,048 1,896---------------------------------------------------------------------------------------------------------------------- 4,633 4,349 4,456General insurance 164 161 167Netherlands 88 102 103France 69 60 64----------------------------------------------------------------------------------------------------------------------Total Society shareholders' equity 4,954 4,672 4,790USA 556 537 570Investment management 314 274 268Corporate 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. ====================================================================================================================== P54Notes 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 equity5.875% Sterling undated subordinated notes - 394 394 Subordinated borrowings5.875% Sterling undated subordinated notes 429 - -4.0% Euro subordinated notes 2025 384 407 415======================================================================================================================Total subordinated borrowings 813 801 809====================================================================================================================== Senior borrowings2.75% Sterling convertible bond 2006 518 501 509Sterling medium term notes 2031-2041 602 602 608Euro commercial paper 2006 111 71 110Bank loans 2006 25 4 6Non-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 representapproximately 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. Uponreclassification 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 ====================================================================================================================== P55Notes 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 4,283Total recognised income and expense 272 367 1,002Issue of ordinary share capital 12 - 1Net movements in employee share schemes and treasury shares (4) (2) 7Dividend 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 29.7Non profit business 24.3 20.1 22.7Sub-fund 0.3 0.3 0.3SRC 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. ====================================================================================================================== P56Notes 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 statutorymerger 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 orprovision 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 1.72Euro 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 1.77Euro 1.46 1.46 1.47====================================================================================================================== This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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