28th Jul 2005 07:03
Legal & General Group PLC28 July 2005 Stock Exchange Release - Part 1 28 July 2005 LEGAL & GENERAL GROUP PLC INTERIM RESULTS FOR THE SIX MONTHS TO 30 JUNE 2005 HIGHLIGHTS • Worldwide new business increased by 28% • Society's resources of £7.6bn exceeded requirement by £4.4bn • Group funds under management grew to over £181bn • Profit before tax on an IFRS basis increased to £476m • Dividend increased by 2.5% to 1.65p per share EEV* basis IFRS** basis 1H 05 1H 04 1H 05 1H 04 £m £m £m £m Operating profit 465 265*** 299 272 Profit from continuing operations before tax 693 346 476 104 Shareholders' equity 6,173 5,691 3,793 3,398 Worldwide new business APE+ 652 511 652 511 Contribution from new business++ 140 130 N/A N/A Shareholders' equity per share 95p 87p 58p 52p Earnings per share (diluted)+++ 4.98p 3.00p 3.15p 3.00p Interim dividend per share 1.65p 1.61p 1.65p 1.61p Group Chief Executive, Sir David Prosser, said: "Legal & General has again produced another good set of results, with excellentsales growth, increased profits and an increased dividend, whilst enhancing itsstrong capital position. Our UK retail savings and protection business has continued to take marketshare, with both life and pensions and unit trusts performing well. We havestrong support for our products and services from all distribution channels andwe believe our joint venture with Cofunds to develop their multi-managerplatform will further strengthen our position for the future. Legal & General Investment Management has maintained its outstanding record ofnew business growth and in this half year increased IFRS profits by 38% overthe first half of 2004. With a strong capital base, a broad product range and a powerful distributionfranchise, Legal & General is in an exceptional position to continue with itsprofitable growth strategy." Notes* European Embedded Value (EEV). The EEV results have been prepared inaccordance with the EEV Principles issued in May 2004 by the European CFO Forum.** International Financial Reporting Standards (IFRS).*** After a net charge of £176m for experience variances and operatingassumption changes principally relating to the adoption of more conservativemortality experience assumptions for annuity business.+ Annual Premium Equivalent (APE) is total new annual premiums + 10% of singlepremiums, including ISAs and unit trusts.++ Contribution before tax from new worldwide life and pensions business after the cost of capital.+++ Based on operating profit after tax and assuming full dilution from theconvertible bond issued in 2001. Full details of the results can be found in Parts 2 (EEV), 3 (IFRS) and 4 (Legal& General Investment Management). NEW BUSINESS £m (APE) 1H 05 1H 04 2Q 05 2Q 04UK life and pensions:- individual 349 277 191 146- group 77 62 27 39 ------- ------- ------- -------- total 426 339 218 185UK ISAs and unit trusts 169 115 94 76 ------- ------- ------- -------Total UK 595 454 312 261International 57 57 32 35 ------- ------- ------- -------Worldwide (including unit trusts) 652 511 344 296 ------- ------- ------- ------- New institutional fund management (£m) 6,875 8,743 3,462 3,312 UK During the first half of the year, new business volumes grew by 31% to £595m APE(1H04: £454m). Within this figure, new life and pensions business grew by 26% to£426m APE (1H04: £339m). Continuing growth in demand for retail products in thesecond quarter resulted in a 20% growth in total new business over thecorresponding period last year to £312m APE (2Q04: £261m) and a 10% growth onthe first quarter of 2005. Individual lifeAnnual premium sales for mortgage related protection business fell to £43m(1H04: £53m) reflecting the impact of a slowing housing market offset partly bythe distribution of our products through Bradford & Bingley, which commenced inJanuary. Other protection business was broadly unchanged at £24m (1H04: £25m).Despite lower overall volumes and increased price competition, we are confidentLegal & General will have maintained its market-leading position in lifeprotection business. Continued strong demand for unit-linked bonds, where first half volumes rose 58%on the corresponding period last year, more than offset the decline inwith-profits bond sales. Our Distribution and Property funds continue to be thefocus of customer interest but further product initiatives are planned for thesecond half of the year. In aggregate, single premium sales rose to £1,042m(1H04: £820m), an increase of 27%. Individual pensionsIndividual pension business made further progress. Annual premiums increased by36% to £83m (1H04: £61m) and single premium new business was up 69% to £948m (1H04: £562m). Sales benefited from growth in both pensions transfers andindividual annuity business. We expect the transfer market to remain buoyantahead of the introduction of pension simplification in April 2006. Our productrange will be expanded with the introduction of a new Self Invested Pension Planin August. ISAs and Unit trustsWhile regular and single payment ISA sales fell, single payment unit trust salesmore than doubled to £1,304m. In total, ISA and unit trust sales grew to £169mAPE (1H04: £115m). We achieved £27m APE of institutional sales (1H04: £37m) and also benefited from the restructuring of a number of Barclays UK funds, the effect of which was to generate £58m APE in new business to Legal & General. Group businessGroup new business increased by 24% to £77m APE (1H04: £62m), driven by furtherprogress in our group risk business together with strong bulk purchase annuitiessales in the first quarter. Group risk new annual premiums of £42m (1H04: £37m)were driven by a particularly strong first quarter when several larger schemeswere won. Single premiums for bulk purchase annuity business were £329m (1H04:£230m) from 115 schemes (1H04: 92 schemes). InternationalIn the USA, new business was lower at £19m APE (1H04: £27m) in more challengingmarket conditions. New business volumes in Europe were resilient and, includingretail investment business, grew to £38m APE (1H04: £30m). Our performance inthe Netherlands was driven by growth in single premium sales. In France weachieved good progress in savings and group protection sales. Legal & General Investment ManagementLegal & General Investment Management has maintained its remarkable record ofaveraging £1bn of new business per month, with new business in the first halftotalling £6,875m (1H04: £8,743m, which included one particularly large mandatefor £1.7bn). Successes in the current year included sales of £758m of activelymanaged bonds. Also, £721m of index fund business was generated from overseascustomers as we continued to broaden the product range and geographic sources ofour business. PROFIT - EEV BASIS 1H 05 1H 04 £m £mProfit from continuing operations:UK life and pensions 340 153*International life and pensions 45 31Institutional fund management 66 51General insurance 4 17Other operational income 10 13 ----------- ----------Operating profit 465 265 Variation from longer term investment return 206 80Effect of economic assumption changes 11 (7)Property income attributable to minority interests 11 8 ----------- ----------Profit from continuing operations before tax 693 346Tax (182) (100)Effect of UK tax changes (276) - ----------- ----------Profit from continuing operations after tax 235 246Profit from discontinued operations 13 2Profit attributable to minority interests (11) (8) ----------- ----------Profit attributable to equity holders 237 240 ----------- ---------- Diluted earnings per share ** 4.98p 3.00p * After a net charge of £176m for experience variances and operatingassumption changes principally relating to the adoption of more conservativemortality experience assumptions for annuity business.** Based on operating profit after tax. UK life and pensionsOperating profit was £340m (1H04: £153m). Growth in life and pensions volumesenabled the new business contribution before tax and after the cost of capitalto increase to £129m (1H04: £120m). The margin on UK new business (expressed asthe value added from new business divided by the present value of new businesspremiums) was 4.1% (1H04: 5.0%) as the consequence of a different business mix,reduced margins on protection business and the impact of the UK tax changes. The contribution from in-force business of £152m was closely aligned to theexpected return with no significant experience variances or operating assumptionchanges. In 2004, the in-force value decreased by £38m following the adoption ofrevised annuitant mortality assumptions. International life and pensionsOperating profit from international life and pensions business was £45m (1H04:£31m), including a new business contribution of £11m net of the cost of capital(1H04: £10m). The contribution from in-force business was £26m (1H04: £14m). In the USA, operating profit was £19m (1H04: £11m) despite the level of claimsexceeding the assumed level. The contribution from new business in the firsthalf of 2005 was £3m (1H04: £1m) and has been calculated assuming no externalfinancing for Triple X reserves. A securitisation transaction to finance such reserves on 2003 and 2004 new business was implemented successfully in the finalquarter of 2004. The operating profit was £16m in the Netherlands (1H04: £14m) and £10m in France(1H04: £6m). The combined contribution from new business after the cost ofcapital was £8m (1H04: £9m). Legal & General Investment ManagementThe profit from our fund management business grew by 29% to £66m (1H04: £51m),with improved results for both new and in-force business for managed pensionfunds. The contribution from new managed pension fund business after the cost ofcapital was £21m (1H04: £17m) reflecting higher average fee rates on that newbusiness. The result for in-force business benefited from both the increasedscale of the business and better than assumed persistency. Group funds under management grew to a record £181bn at 30 June 2005 (30 June2004: £148bn). Funds under management by Legal & General Investment Managementwere £178bn (30 June 2004: £146bn) of which £116bn was managed for externalclients. General insuranceGross written premiums from continuing operations grew 8% to £170m (1H04: £158m)with the growth coming from the household and healthcare business lines. The operating profit on continuing operations was significantly lower at £4m(1H04: £17m). The main impact was the reduced operating profit of £2m (1H04:£11m) from the household account which reflected higher bad weather claims.Other factors contributing to the overall result were a smaller release ofreserves from the mortgage indemnity book and a loss on our motor account. The previously announced sale of our 90% stake in Gresham Insurance Company Ltdto Barclays Bank PLC was completed on 31 March 2005. The sale and first quartertrading result gave rise to a profit from discontinued operations of £13m aftertax. Other operational incomeOther operational income comprises the longer term investment return arisingfrom investments held outside the UK long term fund, interest expense, theresults of the Group's other operations and unallocated corporate expenses. Thecontribution of £10m (1H04: £13m) reflects higher interest expense, the impactof which has been partly offset by lower unallocated corporate and developmentexpenses. Profit on ordinary activitiesThe Group's operating profit before tax was £465m (1H04: £265m). The profit fromcontinuing operations before tax, which includes the effect of variances ininvestment return from the longer term return assumed at the end of 2004, was£693m (1H04: £346m). The investment return on the equity and property portfolioof the UK long term fund was 3.7% above the assumption for the period (1H04:0.9% above assumption). On 3 December 2004, we reported that one proposed change to the taxation of UKlife business would result in a one-off reduction in the embedded value of ourUK long term fund. Legislation was included in the second Finance Act 2005,which received Royal Assent on 20 July 2005. The EEV results are computedassuming current tax rules and any known future changes. The impact is presentedin the EEV income statement as additional tax of £276m. The tax charge in theIFRS results does not reflect the change, as it was not substantively enacted at30 June 2005. PROFIT - IFRS BASIS 1H 05 1H 04 £m £mProfit from continuing operations:Life and pensions 241 210Institutional fund management 44 32General insurance 4 17Other operational income 10 13 ---------- ----------Operating profit 299 272Variation from longer term investment return 50 (26)Shareholder retained capital (SRC) movement 116 (150)*Property income attributable to minority interests 11 8 ---------- ----------Profit from continuing operations before tax 476 104Tax (120) (30) ---------- ----------Profit from continuing operations after tax 356 74Profit from discontinued operations 13 2Profit attributable to minority interests (11) (8) ---------- ----------Profit attributable to equity holders 358 68 ---------- ---------- Diluted earnings per share ** 3.15p 3.00p * After a charge from the previously announced adoption of moreconservative mortality reserving assumptions for annuity business, which waspartly offset by other releases.** Based on operating profit after tax. Operating profit was £299m (1H04: £272m), benefiting from substantiallyincreased profit from institutional fund management and from the impact offavourable investment variances in overseas life and pensions. The UK life and pensions operating profit before tax was £183m (1H04: £178m), asthe slightly lower with-profits contribution was more than offset by anincreased transfer from the non profit business. The accrued transfer from nonprofit business has been determined by reference to a smoothed investment returnon both the shareholder net worth and the embedded value of non profit business,augmented by the distribution in respect of the intra-group subordinated debtcapital attributed to the SRC. The external servicing cost of the related debthas been reflected in interest expense reported within other operational income. The operating profit from our overseas life and pensions businesses was £58m(1H04: £32m). This was primarily as the result of a significantly increasedcontribution from the Netherlands where, under IFRS, assets but not liabilitiesare valued at fair value. Legal & General Investment Management profits grew by 38% to £44m (1H04: £32m).The result reflected the increased scale of the business and tightly controlledcosts. In aggregate, the SRC increased by £116m pre-tax (1H04: a reduction of £150m).This reflected the impact of improved investment returns, the net capitalreleased from the growing book of non profit business and the transfer toshareholders from non profit business. The new business strain on higher volumesof non profit business was broadly offset by the expected release of capitalfrom the existing book of business. CAPITAL STRENGTHLegal & General remains one of the strongest companies in its sector. Ourcapital position underpins our ability to continue to grow new business volumesprofitably. As at 30 June 2005, the value of the assets supporting the UK with-profitsbusiness was estimated to have exceeded realistic liabilities by £970m (31December 2004: £860m). The required Risk Capital Margin (RCM) for thewith-profits fund, calculated by reassessing realistic assets and liabilities infinancially stressed conditions, was £470m at 30 June 2005 (31 December 2004:£640m). The RCM has fallen significantly, primarily as a result of managementactions taken during the first half of 2005 to reduce the with-profits fund'sexposure to financial risks. The total capital resources available to Legal & General Assurance Society Ltd(the Group's main UK operating subsidiary) amounted to £7.6bn at 30 June 2005(£7.0bn at 31 December 2004), which included an implicit item of £755m inrespect of non profit business, and exceeded the total capital requirement by£4.4bn (£4.0bn at 31 December 2004). At Group level, the Insurance Group Directive capital surplus was £1.9bn inexcess of the required capital of £3.4bn. CHIEF EXECUTIVE SUCCESSIONTim Breedon was appointed Deputy Group Chief Executive with effect from 1 June2005. Sir David Prosser will stand down from the Group Board at the end of theyear but will remain in the employment of the Group until his retirement inMarch 2006. Tim Breedon will assume the role of Group Chief Executive from 1January 2006. OUTLOOKThe UK market will continue to offer opportunities to grow our business and weexpect to outperform the market in the second half. However, second halfcomparators are more demanding so the growth rate is likely to be lower. Life protection sales will continue to be impacted by the level of housingmarket transactions but re-mortgaging activity remains relatively resilient.Unit-linked bond sales have been strong reflecting increasing consumerconfidence as equity markets recover. We expect demand for medium term savingsproducts to be further supported by rising equity values and to benefit from theextension of our product range. Pension sales have been buoyant in the first half and we would expect theGovernment's initiatives on pension simplification to have a positive impact in2006. Despite this, the overall level of saving for retirement is insufficientto meet the Government's policy objectives. We look forward to the second reportof the Pensions Commission to be published in the autumn, which will makerecommendations to address the issues identified in the initial report. The advent of depolarisation has led advisors to review their distributionmodels. A number of IFA networks have developed a multi-tie capability and wewere pleased that Sesame recently announced Legal & General's inclusion in theirmulti-tie panel. Home of Choice, the independent mortgage network, has announcedtoday that Legal & General has been appointed to its mortgage protection panel. Our partnership with Cofunds will allow independent advisors to use the Cofundsplatform to offer multi-manager choice within Legal & General bond and pensionsproducts. A Legal & General branded version of the platform will offer thatflexibility to tied advisors and has been adopted by Bradford & Bingley fortheir Portfolio Bond. These important developments reinforce the strength and breadth of Legal &General's product range and distribution capabilities. We also believe thatfurther market share concentration will provide Legal & General with goodopportunities for profitable growth. We have the combination of products, brand,financial strength and distribution to be able to take full advantage of theseopportunities. Enquiries to:Investors:Andrew Palmer, Group Director (Finance) 020 7528 6286Peter Horsman, Head of Investor Relations 020 7528 6362Nicola Marshall, Investor Relations Manager 020 7528 6263 Media:John Morgan, Media Relations Director 020 7528 6213Anthony Carlisle, Citigate Dewe Rogerson 07973 611888 Notes: - The interim financial information has been reviewed byPricewaterhouseCoopers LLP and prepared in conjunction with our consultingactuaries - Tillinghast Towers-Perrin and, in the USA, Milliman USA. - Issued share capital at 30 June 2005 was 6,506,191,429 shares of 2.5peach. - A copy of this announcement can be found in the News and Resultssection of our Shareholder site at http://investor.legalandgeneral.com/releases.cfm - A presentation to analysts and fund managers will take place at 09.30today at Temple Court, 11 Queen Victoria Street, London EC4N 4TP. An audio castof the presentation be available later today at http://investor.legalandgeneral.com/presentations.cfm Financial Calendar: Ex dividend date for interim dividend 7 September 2005Record date for interim dividend 9 September 2005Payment date for interim dividend 3 October 2005Third quarter new business results 20 October 2005 Note: a Dividend Re-investment Plan is available to shareholders This information is provided by RNS The company news service from the London Stock Exchange MORE TO FOLLOWRelated Shares:
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