Interim Results 2004 - Part 2

Legal & General Group PLC 29 July 2004 Part 2 Legal & General Group Plc P1 Consolidated Profit and Loss Account - Achieved Profits Basis Six months ended 30 June 2004 -------------------------------------------------------------------------------- Notes Full year 30.6.04 30.6.03 2003 restated restated Â£m Â£m Â£m Profit on continuing operations Life and pensions 1 205 306 620 Institutional fund management 50 37 82 General insurance 4 20 19 41 Other operational income 5 17 3 18 --------- --------- --------- Operating profit 292 365 761 Variation from longer term investment return 7 88 86 422 Change in equalisation provision (4) (4) (7) Effect of economic assumption changes 8 (11) (8) (32) Effect of UK Budget tax change 9 - (27) (27) --------- --------- --------- Profit on ordinary activities before tax 365 412 1,117 Tax charge 9 (110) (105) (258) --------- --------- --------- Profit for the financial period 255 307 859 Dividends (104) (102) (318) --------- --------- --------- Retained profit 151 205 541 ================================================================================ Earnings per share 11 p p p Based on operating profit after tax 3.26 4.01 8.49 Based on profit for the financial period 3.93 4.73 13.24 Diluted earnings per share 11 Based on operating profit after tax 3.20 3.92 8.28 Based on profit for the financial period 3.84 4.61 12.83 Dividend per share 1.61 1.57 4.90 ================================================================================ These financial statements were approved by the Board on 28 July 2004. The results for the six months to 30 June 2004 and 30 June 2003 are unaudited, but have been subject to a review by the auditors and constitute non statutory accounts within the meaning of Section 240 of the Companies Act 1985. They have been prepared on a basis which is consistent with the financial statements for the year ended 31 December 2003 except that the Urgent Issues Task Force abstract 38, 'Accounting for ESOP trusts' has been adopted and the shareholders' investment return of Institutional fund management has been reanalysed to provide a longer term rate of return within operating profit, 2003 comparatives have been restated accordingly. The results for year ended 2003 have been taken from the supplementary financial statements for the year ended 2003 which have been filed with the Registrar of Companies and include an auditors' report which is unqualified and does not contain a statement under either Sections 237(2) or 237(3) of the Companies Act 1985. These figures have been prepared for long term business using the Achieved Profits (AP) basis. The Modified Statutory Solvency (MSS) results are included in Part 3. ================================================================================ Legal & General Group Plc P2 Consolidated Balance Sheet - Achieved Profits Basis Six months ended 30 June 2004 -------------------------------------------------------------------------------- Notes At At At 30.6.04 30.6.03 31.12.03 Restated Restated Assets Â£m Â£m Â£m Investments 12 35,262 33,872 35,268 Assets held to cover linked liabilities 93,986 75,733 84,308 Long term in-force business asset 2,556 2,028 2,365 Other assets 5,900 5,548 5,320 --------- --------- --------- 137,704 117,181 127,261 ========= ========= ========= Liabilities Shareholders' funds 15 5,723 5,260 5,584 Fund for future appropriations 1,434 633 1,498 Technical provisions ********* ********* ********* - Technical provisions for linked : : : : : : liabilities : 91,943: : 74,305: : 83,730: - Long term business provisions : 34,016: : 32,350: : 33,206: - General insurance provisions : 433: : 360: : 405: ********* ********* ********* 126,392 107,015 117,341 Borrowings 14 1,512 1,409 1,475 Other creditors 2,643 2,864 1,363 --------- --------- --------- 137,704 117,181 127,261 ================================================================================ Statement of Total Recognised Gains and Losses At 30.6.04 At 30.6.03 At 31.12.03 Â£m Â£m Â£m Profit for the financial period 255 307 859 Exchange (losses)/gains (11) 6 (7) --------- --------- --------- Total recognised gains and losses 244 313 852 ================================================================================ Legal & General Group Plc P3 New business Six months ended 30 June 2004 -------------------------------------------------------------------------------- New Annual Premium Equivalent Full year 30.6.04 30.6.03 2003 Â£m Â£m Â£m Insurance business Life 197 135 296 Pensions 142 148 296 --------- --------- --------- UK 339 283 592 ********* ********* ********* USA : 27 : : 28 : : 48 : Netherlands : 12 : : 10 : : 22 : France : 17 : : 9 : : 19 : ********* ********* ********* 56 47 89 --------- --------- --------- Insurance total 395 330 681 Retail investment business UK 115 122 202 France 1 1 2 --------- --------- --------- Total new business 511 453 885 ========= ========= ========= International insurance new business expressed at 30 June 2004 exchange rates USA 26 47 Netherlands 10 21 France 9 18 --------- --------- 45 86 ========= ========= Annual Premium Equivalent (APE) is calculated for total new business, including ISAs and unit trusts but excluding institutional fund management, and comprises the new annual premiums together with 10% of single premiums. Full year 30.6.04 30.6.03 2003 Institutional fund management Â£m Â£m Â£m Managed pension funds * - Pooled funds 7,610 5,207 11,066 - Segregated funds 1,063 359 1,504 - Limited partnerships 61 239 242 --------- --------- --------- 8,734 5,805 12,812 Other funds 9 175 240 --------- --------- --------- 8,743 5,980 13,052 ========= ========= ========= * Excludes Â£2.2bn (1H03: Â£1.0bn; FY03: Â£4.0bn) which is held on a temporary basis, generally as part of a portfolio reconstruction. ================================================================================ Legal & General Group Plc P4 New business Six months ended 30 June 2004 -------------------------------------------------------------------------------- 6 months 3 months 3 months 6 months 3 months 3 months 30.6.04 30.6.04 31.3.04 30.6.03 30.6.03 31.3.03 Â£m Â£m Â£m Â£m Â£m Â£m UK annual premiums Insurance business Life - Mortgage-related 53 28 25 48 27 21 - Protection 25 13 12 23 12 11 - Group risk 37 24 13 13 6 7 Pensions - Individual pensions 61 33 28 57 28 29 - Group pensions 2 1 1 2 1 1 --------- --------- --------- --------- --------- --------- 178 99 79 143 74 69 Retail investment business ISAs 13 7 6 15 9 6 Unit trusts 1 0 1 4 3 1 --------- --------- --------- --------- --------- --------- Total 192 106 86 162 86 76 ================================================================================ UK single premiums Insurance business Bonds - With-profits 224 101 123 329 134 195 - Unit linked 596 335 261 186 108 78 Pensions - Individual pensions 179 92 87 165 75 90 - Annuities - individual 366 184 182 314 154 160 - Annuities - bulk purchase 230 139 91 367 119 248 - Other group business 2 1 1 3 2 1 - DWP rebates 17 13 4 37 20 17 --------- --------- --------- --------- --------- --------- 1,614 865 749 1,401 612 789 Retail investment business ISAs 389 267 122 393 273 120 Unit trusts 621 420 201 632 304 328 --------- --------- --------- --------- --------- --------- Total 2,624 1,552 1,072 2,426 1,189 1,237 ================================================================================ UK APE Individual life and pensions 277 146 131 231 116 115 Retail investments by channel 115 76 39 122 70 52 ********* ********* ********* ********* ********* ********* - Independent : : : : : : : : : : : : financial advisers: 234 : : 133 : : 101 : : 188 : : 93 : : 95 : - Business : : : : : : : : : : : : partnerships : 118 : : 62 : : 56 : : 123 : : 65 : : 58 : - Business : : : : : : : : : : : : partnerships : : : : : : : : : : : : direct : 17 : : 15 : : 2 : : 19 : : 13 : : 6 : - Direct : 23 : : 12 : : 11 : : 23 : : 15 : : 8 : ********* ********* ********* ********* ********* ********* Total UK individual 392 222 170 353 186 167 Group 62 39 23 52 19 33 --------- --------- --------- --------- --------- --------- Total 454 261 193 405 205 200 ================================================================================ Legal & General Group Plc P5 New business Six months ended 30 June 2004 -------------------------------------------------------------------------------- 6 months 3 months 3 months 6 months 3 months 3 months 30.6.04 30.6.04 31.3.04 30.6.03 30.6.03 31.3.03 Â£m Â£m Â£m Â£m Â£m Â£m International annual premiums Insurance business USA 27 15 12 27 13 14 Netherlands 6 3 3 6 4 2 France 10 10 0 4 3 1 --------- --------- --------- --------- --------- --------- Total 43 28 15 37 20 17 ================================================================================ International single premiums Insurance business USA 0 0 0 8 7 1 Netherlands 64 24 40 46 17 29 France 68 38 30 49 23 26 --------- --------- --------- --------- --------- --------- 132 62 70 103 47 56 Retail investment business France 8 5 3 10 5 5 --------- --------- --------- --------- --------- --------- Total 140 67 73 113 52 61 ================================================================================ Legal & General Group Plc P6 Notes to Financial Statements - Achieved Profits Basis Six months ended 30 June 2004 -------------------------------------------------------------------------------- 1. Operating profit from long term business Life and Managed Inter- pensions pension UK national Total funds * Total Six months ended 30.6.04 Â£m Â£m Â£m Â£m Â£m Contribution from: New business 134 17 151 17 168 In-force business - expected return 135 25 160 8 168 - experience variances 40 (6) 34 8 42 - operating assumption changes** (212) (1) (213) 8 (205) Shareholder net worth 68 5 73 3 76 --------- --------- --------- --------- --------- Operating profit 165 40 205 44 249 ========= ========= ========= ========= ========= Six months ended 30.6.03 Contribution from: New business 131 19 150 12 162 In-force business - expected return 108 22 130 6 136 - experience variances 0 (2) (2) 1 (1) - operating assumption changes** (50) 0 (50) 10 (40) Shareholder net worth 71 7 78 3 81 --------- --------- --------- --------- --------- Operating profit 260 46 306 32 338 ========= ========= ========= ========= ========= Full year ended 31.12.03 Contribution from: New business 271 34 305 31 336 In-force business - expected return 215 45 260 13 273 - experience variances 9 (8) 1 5 6 - operating assumption changes** (107) 1 (106) 20 (86) Development costs (2) - (2) (1) (3) Shareholder net worth 151 11 162 3 165 --------- --------- --------- --------- --------- Operating profit 537 83 620 71 691 ========= ========= ========= ========= ========= * Included in the Institutional fund management result of Â£50m (1H03: Â£37m; FY03: Â£82m). ** The largest impact on UK life and pensions business in 2004 was from the strengthening of assumptions for annuitant longevity, and in 2003, was from provisions relating to the endowment book. ================================================================================ Legal & General Group Plc P7 Notes to Financial Statements - Achieved Profits Basis Six months ended 30 June 2004 -------------------------------------------------------------------------------- 2. Life and pensions gross premiums and operating profit Full year Full year 30.6.04 30.6.04 30.6.03 30.6.03 2003 2003 Premiums Operating Premiums Operating Premiums Operating written profit written profit written profit Â£m Â£m Â£m Â£m Â£m Â£m UK 2,334 165 2,193 260 4,541 537 USA 148 18 154 28 292 50 Netherlands 98 15 75 14 155 24 France 99 7 73 4 171 9 --------- --------- --------- --------- --------- --------- 2,679 205 2,495 306 5,159 620 ========= ========= ========= ========= ========= ========= International life and pensions gross premiums and operating profit expressed at 30 June 2004 exchange rates are: Full year Full year 30.6.03 30.6.03 2003 2003 Premiums Operating Premiums Operating written profit written profit Â£m Â£m Â£m Â£m USA 140 26 289 49 Netherlands 72 14 148 23 France 71 4 163 9 ================================================================================ 3. Sterling exchange rates used 30.6.04 30.6.03 31.12.03 United States dollar 1.81 1.65 1.79 Euro 1.49 1.44 1.42 ================================================================================ 4. General insurance net premiums and operating profit Full year Full year 30.6.04 30.6.04 30.6.03 30.6.03 2003 2003 Premiums Operating Premiums Operating Premiums Operating written profit written profit written profit Â£m Â£m Â£m Â£m Â£m Â£m Household 171 13 146 10 308 17 Other business 44 7 38 9 79 24 --------- --------- --------- --------- --------- --------- Total 215 20 184 19 387 41 ================================================================================ Legal & General Group Plc P8 Notes to Financial Statements - Achieved Profits Basis Six months ended 30 June 2004 -------------------------------------------------------------------------------- 5. Other operational income Full year 30.6.04 30.6.03 2003 Â£m Â£m Â£m Shareholders' other income - Investment return on shareholders' funds 55 50 100 - Interest expense (29) (30) (58) --------- --------- --------- 26 20 42 Other operations (1) (10) (14) Unallocated corporate and development expenses (8) (7) (10) --------- --------- --------- 17 3 18 ================================================================================ 6. General insurance and shareholders' investment return Full year 30.6.04 30.6.03 2003 restated restated Â£m Â£m Â£m Investment income 52 46 92 Interest expense and charges (30) (31) (60) Realised investment gains/(losses) 8 (8) (12) Unrealised investment (depreciation)/appreciation (16) 45 101 --------- --------- --------- 14 52 121 ========= ========= ========= reported within: Institutional fund management 4 3 5 General insurance 10 9 18 Other operational income 26 20 42 Variation from longer term investment return ********* ********* ********* - Institutional fund management : (2): : 0 : : (2): - General insurance : (6): : 1 : : 5 : - Other operational income : (18): : 19 : : 53 : ********* ********* ********* (26) 20 56 The investment return shown represents the return on the General insurance and Corporate funds. Shareholders' other income, reported within Other operational income, has been allocated based on a longer term rate of investment return with the variation from the actual return being reported as Variation from longer term investment return. ================================================================================ Legal & General Group Plc P9 Notes to Financial Statements - Achieved Profits Basis Six months ended 30 June 2004 -------------------------------------------------------------------------------- 7. Variation from longer term investment return Full year 30.6.04 30.6.03 2003 restated restated Â£m Â£m Â£m Life and pensions - UK 120 56 346 - International (8) 7 4 --------- --------- --------- Total life and pensions 112 63 350 Managed pension funds 2 3 16 --------- --------- --------- Total long term business 114 66 366 ********* ********* ********* Institutional fund management : (2): : 0 : : (2): General insurance : (6): : 1 : : 5 : Other operational income : (18): : 19 : : 53 : ********* ********* ********* (26) 20 56 --------- --------- --------- 88 86 422 ========= ========= ========= For long-term business, the variation from longer term investment return represents the effect of the investment performance and changes to investment policy in respect of shareholder net worth and in-force business, compared with embedded value assumptions at the beginning of the period. ================================================================================ 8. Effect of economic assumption changes Full year 30.6.04 30.6.03 2003 Â£m Â£m Â£m Life and pensions - UK (9) (1) (16) - International (1) (7) (16) --------- --------- --------- Total life and pensions (10) (8) (32) Managed pension funds (1) - - --------- --------- --------- Total long term business (11) (8) (32) ================================================================================ Legal & General Group Plc P10 Notes to Financial Statements - Achieved Profits Basis Six months ended 30 June 2004 -------------------------------------------------------------------------------- 9. Analysis of tax Full year Full year 30.6.04 30.6.04 30.6.03 30.6.03 2003 2003 Profit Tax Profit Tax Profit Tax before (charge)/ before (charge)/ before (charge)/ tax credit tax credit tax credit Profit on continuing Â£m Â£m Â£m Â£m Â£m Â£m operations UK life and pensions 165 (45) 260 (73) 537 (150) International life and pensions 40 (14) 46 (16) 83 (29) --------- --------- --------- --------- --------- --------- 205 (59) 306 (89) 620 (179) Institutional fund management 50 (16) 37 (11) 82 (24) General insurance 20 (6) 19 (6) 41 (13) Other operational income 17 1 3 1 18 6 --------- --------- --------- --------- --------- --------- Operating profit 292 (80) 365 (105) 761 (210) Variation from longer term investment return 88 (35) 86 (12) 422 (67) Change in equalisation provision (4) 1 (4) 1 (7) 2 Effect of economic assumption changes (11) 4 (8) 3 (32) 9 Effect of UK Budget tax change * - - (27) 8 (27) 8 --------- --------- --------- --------- --------- --------- Profit on ordinary activities and tax 365 (110) 412 (105) 1,117 (258) ========= ========= ========= ========= ========= ========= * Changes in the 2003 Budget to the corporation tax rates applicable to the policyholders' share of certain income and gains reduced the UK life and pensions embedded value by Â£19m. The effect was reported as a charge before tax of Â£27m. ================================================================================ 10. Pension costs 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 approximately 98% of worldwide assets and contributions to such schemes. At 30.6.04 the combined after tax deficit of these arrangements has been estimated at Â£68m (1H03: Â£32m; FY03: Â£65m). If these amounts had been recognised in the financial statements, Â£50m would have been charged against shareholder funds (1H03: Â£24m; FY03: Â£49m) and Â£18m against the Fund for Future Appropriations (1H03: Â£8m; FY03: Â£16m) in accordance with the guidelines contained in the December 2003 ABI SORP. ================================================================================ Legal & General Group Plc P11 Notes to Financial Statements - Achieved Profits Basis Six months ended 30 June 2004 -------------------------------------------------------------------------------- 11. Earnings per share (EPS) Weighted Earnings average Profit/ per number (loss) share of shares Â£m p m Six months ended 30.6.04 Operating profit after tax on continuing operations 212 3.26 6,491 Variation from longer term investment return 53 0.81 Change in equalisation provision (3) (0.04) Effect of economic assumption changes (7) (0.10) --------- --------- --------- Profit for the period/EPS 255 3.93 6,491 Net shares under options allocable for no further consideration - - 22 Convertible bonds outstanding 6 (0.09) 285 --------- --------- --------- Diluted profit for the period/EPS 261 3.84 6,798 ========= ========= ========= Six months ended 30.6.03 Operating profit after tax on continuing operations 260 4.01 6,489 Variation from longer term investment return 74 1.14 Change in equalisation provision (3) (0.05) Effect of economic assumption changes (5) (0.08) Effect of UK Budget changes (19) (0.29) --------- --------- --------- Profit for the period/EPS 307 4.73 6,489 Net shares under options allocable for no further consideration - - 9 Convertible bonds outstanding 6 (0.12) 285 --------- --------- --------- Diluted profit for the period/EPS 313 4.61 6,783 ========= ========= ========= Full year ended 31.12.03 Operating profit after tax on continuing operations 551 8.49 6,490 Variation from longer term investment return 355 5.47 Change in equalisation provision (5) (0.08) Effect of economic assumption changes (23) (0.35) Effect of UK Budget changes (19) (0.29) --------- --------- --------- Profit for the financial year/EPS 859 13.24 6,490 Net shares under options allocable for no further consideration - - 15 Convertible bonds outstanding 12 (0.41) 285 --------- --------- --------- Diluted profit for the financial year/EPS 871 12.83 6,790 ================================================================================ Legal & General Group Plc P12 Notes to Financial Statements - Achieved Profits Basis Six months ended 30 June 2004 -------------------------------------------------------------------------------- 12. Funds under management At At At 30.6.04 30.6.03 31.12.03 Restated Restated Â£m Â£m Â£m Land and buildings 4,159 3,839 4,228 Shares, variable yield securities and unit trusts 10,429 11,088 11,494 Debt and other fixed income securities 19,734 17,679 18,277 Loans secured by mortgages 243 191 183 Other loans and investments 69 85 74 Deposits with credit institutions 801 1,156 1,181 --------- --------- --------- 35,435 34,038 35,437 Less amounts payable under a margining arrangement (173) (166) (169) --------- --------- --------- Total investments 35,262 33,872 35,268 Assets held to cover linked liabilities 93,986 75,733 84,308 --------- --------- --------- Funds included in the consolidated balance sheet 129,248 109,605 119,576 Segregated funds 11,784 8,714 11,235 Unit trusts, ISAs and PEPs 7,418 6,176 6,975 --------- --------- --------- Total funds under management 148,450 124,495 137,786 ========= ========= ========= representing: Managed in the UK - Active 45,257 39,158 42,214 - Index tracking 99,552 82,265 92,047 - For overseas subsidiaries 1,045 1,160 1,076 --------- --------- --------- 145,854 122,583 135,337 Other including managed overseas 2,596 1,912 2,449 --------- --------- --------- 148,450 124,495 137,786 ========= ========= ========= including Institutional funds under management: Managed pension funds - Pooled 81,502 64,600 72,841 - Segregated 9,327 6,980 8,522 --------- --------- --------- 90,829 71,580 81,363 Other funds 2,594 3,084 2,713 --------- --------- --------- 93,423 74,664 84,076 ================================================================================ Legal & General Assurance Society has entered into OTC swap transactions related to cashflows of approximately Â£140m over the next 10 years in order to ensure a more accurate matching of expected liability cash flows with the projected proceeds of investments. ================================================================================ Legal & General Group Plc P13 Notes to Financial Statements - Achieved Profits Basis Six months ended 30 June 2004 -------------------------------------------------------------------------------- 13. Embedded value of long term business Life and Managed Inter- pensions pension UK national Total funds Total Â£m Â£m Â£m Â£m Â£m Six months ended 30.6.04 At 1 January 4,253 657 4,910 305 5,215 Exchange rate movements - (14) (14) - (14) --------- --------- --------- --------- --------- 4,253 643 4,896 305 5,201 Profit after tax 201 20 221 31 252 Capital movements - 1 1 - 1 Distributions (125) - (125) - (125) --------- --------- --------- --------- --------- At end of period 4,329 664 4,993 336 5,329 ========= ========= ========= ========= ========= comprising: Value of in-force business 2,849 471 3,320 175 3,495 Shareholder net worth * 1,480 193 1,673 161 1,834 --------- --------- --------- --------- --------- 4,329 664 4,993 336 5,329 ========= ========= ========= ========= ========= Six months ended 30.6.03 At 1 January 3,876 641 4,517 262 4,779 Exchange rate movements - (2) (2) - (2) --------- --------- --------- --------- --------- 3,876 639 4,515 262 4,777 Profit after tax 209 29 238 25 263 Distributions (122) - (122) - (122) --------- --------- --------- --------- --------- At end of period 3,963 668 4,631 287 4,918 ========= ========= ========= ========= ========= comprising: Value of in-force business 2,296 432 2,728 142 2,870 Shareholder net worth * 1,667 236 1,903 145 2,048 --------- -------- -------- -------- -------- 3,963 668 4,631 287 4,918 ================================================================================ Legal & General Group Plc P14 Notes to Financial Statements - Achieved Profits Basis Six months ended 30 June 2004 -------------------------------------------------------------------------------- 13. Embedded value of long term business (continued) Life and Managed Inter- pensions pension UK national Total funds Total Â£m Â£m Â£m Â£m Â£m Full year ended 31.12.03 At 1 January 3,876 641 4,517 262 4,779 Exchange rate movements - (37) (37) - (37) --------- --------- --------- --------- --------- 3,876 604 4,480 262 4,742 Profit after tax 636 47 683 61 744 Capital movements - 6 6 - 6 Distributions (259) - (259) (18) (277) --------- --------- --------- --------- --------- At 31 December 4,253 657 4,910 305 5,215 ========= ========= ========= ========= ========= comprising: Value of in-force business 2,668 429 3,097 162 3,259 Shareholder net worth * 1,585 228 1,813 143 1,956 --------- --------- --------- --------- --------- 4,253 657 4,910 305 5,215 ========= ========= ========= ========= ========= * For the UK life and pensions business, shareholder net worth comprises the shareholder retained capital (SRC) on the MSS basis, adjusted for deferred acquisition costs, and the sub-fund, both net of an appropriate allowance for tax. It also includes intra-group subordinated debt capital of Â£602m. ================================================================================ Legal & General Group Plc P15 Notes to Financial Statements - Achieved Profits basis Six months ended 30 June 2004 -------------------------------------------------------------------------------- 13. Embedded value of long term business (continued) Reconciliation of in-force business At At At 30.6.04 30.6.03 31.12.03 Â£m Â£m Â£m Long term in-force business asset included in the balance sheet 2,556 2,028 2,365 Sub-fund (228) (202) (223) Deferred acquisition costs 743 723 709 Deferred tax on contribution * 357 228 366 Other adjustments 67 93 42 --------- --------- --------- Value of in-force business 3,495 2,870 3,259 ========= ========= ========= Reconciliation of shareholder net worth of long term business operations UK (SRC) ** 2,099 2,243 2,212 USA 458 460 443 Netherlands 40 31 36 France 46 38 45 Managed pension funds 161 145 143 --------- --------- --------- Shareholder net worth on the MSS basis 2,804 2,917 2,879 Purchased interests in long term business (31) (27) (29) Sub-fund 228 202 223 Deferred acquisition costs (743) (723) (709) Deferred tax on contribution * (357) (228) (366) Other adjustments (67) (93) (42) --------- --------- --------- Shareholder net worth on the AP basis 1,834 2,048 1,956 ========= ========= ========= * Deferred tax represents all tax which is expected to be paid under current legislation, including tax which would arise if shareholders' backing assets were eventually distributed. ** Including Â£602m of intra-group subordinated debt capital attributed to the SRC. ================================================================================ 14. Borrowings At At At 30.6.04 30.6.03 31.12.03 Â£m Â£m Â£m 2.75% Convertible bond 2006 519 517 518 Medium Term Notes 2031-2041 597 597 597 Undated subordinated notes 394 - - Medium Term Notes 2004-2005 - 36 6 Commercial paper 2004 - 258 352 Bank loans 2004 2 1 2 --------- --------- --------- Total borrowings 1,512 1,409 1,475 ========= ========= ========= The convertible bond matures in 2006 and is convertible into ordinary shares of the Company at 184p per share. If converted, this bond would give rise to the issue of 285.3m new ordinary shares which represents approximately 4.4% of the current issued share capital. ================================================================================ Legal & General Group Plc P16 Notes to Financial Statements - Achieved Profits Basis Six months ended 30 June 2004 -------------------------------------------------------------------------------- 15. Shareholders' funds Segmental analysis At At At 30.6.04 30.6.03 31.12.03 Restated Restated Embedded value of life and pensions businesses: Â£m Â£m Â£m - UK* 4,329 3,963 4,253 - USA 463 492 460 - Netherlands 117 101 112 - France 84 75 85 --------- --------- --------- 4,993 4,631 4,910 Institutional fund management** 371 321 338 --------- --------- --------- 5,364 4,952 5,248 General insurance 136 108 120 Corporate funds *** 223 200 216 --------- --------- --------- 5,723 5,260 5,584 ========= ========= ========= Movement At 1 January as originally published 5,584 5,061 5,061 Prior year adjustment in respect of UITF 38**** - (13) (13) --------- --------- --------- At 1 January as restated 5,584 5,048 5,048 Profit for the financial period 255 307 859 Exchange rate movements (11) 6 (7) Dividends (104) (102) (318) Increase in share capital/share premium 0 0 1 Allocation of ESOT shares (1) 1 1 --------- --------- --------- At end of period 5,723 5,260 5,584 ========= ========= ========= * Includes Â£602m of intra-group subordinated debt capital attributed to the SRC. ** Includes Â£335m (1H03: Â£287m; FY03: Â£305m) net assets of managed pension funds business. *** Includes Â£519m (1H03: Â£517m; FY03: Â£518m) of convertible debt, Â£602m of senior debt which has been onlent to the Long Term Fund (LTF), Â£788m representing the net proceeds from the 2002 Rights Issue and Â£122m (1H03: Â£65m; FY03: Â£139m) representing the aggregated investment returns. **** UITF abstract 38 'Accounting for ESOP trusts' requires that own shares held within the Employee Share Ownership Trust (ESOT) should be accounted for as a deduction from shareholders' funds rather than be disclosed as an investment as was previously required. The 2003 amounts have been restated accordingly. ================================================================================ Legal & General Group Plc P17 Notes to Financial Statements - Achieved Profits Basis Six months ended 30 June 2004 -------------------------------------------------------------------------------- 16. Embedded value assumptions UK life and pensions Key economic assumptions are set out below and should be read in conjunction with the notes to the supplementary financial statements in the 2003 Report and Accounts. The assumed future pre-tax return on fixed interest securities is set by reference to redemption yields available in the market at the end of the reporting period. The corresponding return on equities and property and the risk discount rate have been set by reference to the gilt return assumption. 30.6.04 30.6.03 31.12.03 31.12.02 % pa % pa % pa % pa UK Investment return - Gilts - Fixed interest 5.0 4.3 4.7 4.5 - RPI linked 5.0 4.2 4.6 4.4 - Non-gilts - Fixed interest 5.4 - 5.8 4.8 - 5.5 5.1 - 5.5 4.9 - 5.8 - RPI linked 5.2 - 5.6 4.8 - 5.2 5.1 - 5.4 4.8 - 5.3 - Equities and property 7.6 6.9 7.3 7.1 Risk discount rate (after tax) 7.5 6.8 7.2 7.0 Inflation - Expenses/earnings 4.0 3.5 3.8 3.3 - Indexation 3.0 2.5 2.8 2.3 USA Reinvestment rate 5.3 4.3 4.8 4.8 Risk discount rate (after tax) 7.2 6.1 6.8 6.4 Europe Government bond return 4.5 4.0 4.5 4.5 Risk discount rate (after tax) 8.0 7.5 8.0 8.0 Operational assumptions, which are reviewed annually to reflect recent operating experience, are largely unchanged from those made at the end of 2003 except for changes to the annuitant longevity assumptions which were announced on 2 July 2004. The value of new business has been calculated using actual acquisition costs. ================================================================================ 17. Alternative assumptions The discount rate appropriate to any investor will depend on the investor's own requirements, tax and perception of the risks associated with the anticipated cash flows to shareholders. The table below shows the effect of alternative discount rates and equity and property yields on the UK life and pensions embedded value and new business contribution for the period. 1% lower 1% higher 1% higher risk risk equities/ As discount discount property published rate rate yields Â£m Â£m Â£m Â£m Effect on embedded value at 30 June 2004 4,329 +280 -250 +200 Effect on new business contribution for the period 134 +20 -18 +10 It should be noted that in calculating the alternative values all other assumptions are left unchanged. ================================================================================ Legal & General Group Plc P18 Notes to Financial Statements - Achieved Profits Basis Six months ended 30 June 2004 -------------------------------------------------------------------------------- 18. 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. On 27th November 2003, Legal & General Assurance Society Limited ('the Society') referred to the Financial Services and Markets Tribunal ('Tribunal') a Decision Notice issued by the FSA in relation to the sale of a small proportion of its mortgage related endowment policies issued between 1997 and 1999 ('Notice'). The matters contained in the Notice will be determined by the Tribunal later this year. Provision for liabilities continues to be made and is regularly reviewed. However, it is not possible to predict, with certainty, the extent and the timing of the financial impact to which these liabilities may give rise. The relevant members of the Group nevertheless consider that each makes prudent provision for such liabilities, as and when circumstances calling for such provision become clear, and that each has adequate capital and reserves to meet all reasonably foreseeable eventualities. In 1975 the Society was required by the Institute of London Underwriters (ILU) to execute the ILU form of guarantee in respect of policies issued through the ILU's Policy Signing Office on behalf of NRG Victory Reinsurance Company Ltd (Victory), a company which was then a subsidiary of the Society. In 1990, Nederlandse Reassurantie Groep Holding nv (the assets and liabilities of which have since been assumed by Nederlandse Reassurantie Groep NV under a statutory merger in the Netherlands) acquired Victory and provided an indemnity to the Society against any liability the Society may have as a result of the ILU's requirement, and the ILU agreed that its requirement of the Society would not apply to policies written or renewed after the acquisition. Whether the Society has any liability as a result of the ILU's requirement and, if so, the amount of its potential liability is uncertain. The Society has made no payment or provision in respect of this matter. Group companies have given indemnities and guarantees, including interest rate guarantees, as a normal part of their operating activities or in relation to capital market transactions. This information is provided by RNS The company news service from the London Stock Exchange

Companies

Legal & General Group (LGEN)

Wednesday, 22nd May 2024

COMPANIES COVERED:

MKS SDRY RS1

Marks and Spencer jumps on significant profit turn around and RS Group slides lower as investors mull declining returns, whilst Superdry’s delisting plans receive a stellar reception leaving short sellers exposed.

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12 hours ago Abrdn Property Income Trust Limited
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13 hours ago HGCapital Trust

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