Interim Results 2000 - Part 1
Legal & General Group PLC
26 July 2000
PART 1
Legal & General Group Plc
Interim Results - 2000
New life and pensions business EPI (see 1 below)
----------------------------------
Worldwide £258m + 5%
UK individual £175m + 11%
International £54m + 32%
Modified Statutory Solvency basis -
---------------------------------
Operating profit before tax £231m + 19%
Earnings per share (fully diluted) (see 2 below)
3.19p + 15%
Dividend per share 1.48p + 14%
Achieved Profits basis -
----------------------
Operating profit before tax £336m + 30%
Contribution from new business (see 3 below) £69m + 13%
Shareholders' funds £5,356m
Fund Management -
---------------
New UK business £5.9bn
Funds under management £111bn
1 Equivalent Premium Income (EPI) is total new annual premiums
+ 10% of new single premiums.
2 Based on operating profit after tax.
3 Contribution before tax from worldwide life and pensions
business.
Group Chief Executive David Prosser said: 'This is another set of
good results, building on a very successful period. Over the last
five years our UK new business has almost trebled and we continue
to deliver profitable market share growth. Our UK investment
management operation has once again produced an excellent
performance winning £5.9bn of new business.
The plans for e-enabling our business are moving ahead strongly.
Low cost servicing and distribution via the worksite, complemented
by our well-known brand and our leading index-tracking skills,
will be key differentiators in the forthcoming Stakeholder world.
We look forward to the challenges ahead and have the resources and
determination to succeed. We have a strong future as a leader in
the UK's savings and protection business.'
Overview of results
===================
Operating profit before tax, on the Modified Statutory Solvency basis,
grew by 19% driven by a 13% increase in the profit from the Group's
life and pensions businesses, and a more than doubled contribution
from investment management.
The operating and financial strength of the Group provides a secure
base for the Board to continue its progressive dividend policy. A 14%
increase in the interim dividend has been declared.
Operating profit before tax on the Achieved Profits basis grew by 30%
to £336m, driven by the strong increase in the profits of the
worldwide life and pensions businesses, which grew by 38% to £274m.
The new business contribution from the Group's life and pensions
businesses, on the Achieved Profits basis, amounted to £69m pre tax,
compared with £61m in the first half of 1999, with margins maintained.
Our investment management business has once again delivered impressive
new business results winning an exceptional £5.9bn of new
institutional funds in the first six months of the year
(1H99: £6.0bn). Our success underlines Legal & General's position as
one of the two dominant players in the UK index-tracking investment
market. At the end of June 2000, the Group had £111bn of funds under
management, more than double the position three years ago.
The 25% growth in group personal pensions business is both an
encouraging indicator in advance of the launch of Stakeholder Pensions
next year and an endorsement of our good value product proposition.
New individual pension and annuity business (including group personal
pensions) increased 10% to £79m EPI (1H99: £72m).
New individual life annual premium business grew by 17% to £63m
(1H99 : £54 m). We have more than doubled both volumes and market
share in this area in the last five years. Single premium bond sales
increased from £320m to £327m, whilst our group risk business
reinforced its good performance in 1999 by growing new annual premiums
by 40% to £14m.
The profits from the Group's international businesses grew by 41%.
New business in the United States grew 22% to $59.8m. Our French and
Dutch subsidiaries grew new business by 31% and 27% respectively.
Over the year to 30 June 2000, shareholders funds, on the Achieved
Profits basis, grew from £4.84bn to £5.36bn, an increase of 15% before
the dividend.
Key Figures
===========
1H2000 1H1999
New business(EPI)
- UK individual life and pensions £175m £157m
- UK corporate life and pensions £30m £47m
- UK unit trusts and ISAs £55m £63m
- International (including unit trusts) £56m £43m
- Worldwide £315m £310m
New UK fund management £5.9bn £6.0bn
Modified statutory solvency (MSS) basis
Operating profit before tax £231m £194m
Profit before tax £287m £290m
Profit after tax £185m £244m
Dividend 1.48p 1.30p
UK life and pensions
====================
The UK insurance market is currently experiencing a period of very
rapid change.
Consumers are demanding simpler, more transparent products delivering
ever better value for money. Fast moving technology is changing the
way people buy from us. Government and regulators are also promoting
change through Stakeholder Pensions, new product frameworks such as
the Individual Savings and Pension Accounts and a series of new
regulations.
Legal & General is at the forefront in reacting to this fast changing
world. We are redefining the market landscape, and transforming our
business to an e-enabled and low cost base. We have developed products
to provide value for money and to fulfil customers' aspirations for
clarity and flexibility. Our efforts are being rewarded with both
market share growth and industry recognition.
Our share of the UK life and pensions market grew by more than a fifth
between Q1 1999 and Q1 2000, whilst last month Legal & General was
named the British Insurance Awards Life Insurer of the Year. This is
the second time in three years Legal & General has won this prestigious
award.
Individual pensions.
--------------------
In the run-up to the launch of Stakeholder Pensions in April 2001,
Legal & General has continued to achieve significant new business
growth in the closely related group personal pension market. Aided by
our 'Stakeholder Guarantee', our new group personal pension business
grew by an impressive 25% to £26m. Another important contributor
to the 15% growth achieved in new individual pensions business
(excluding DSS rebates) was the Compulsory Purchase Annuity
area. This area, which includes our recently launched With-Profits
Annuity product, saw business grow by 49% to £150m (1H99: £101m).
Individual life.
----------------
Increased demand for our ISA backed mortgage repayment product enabled
our mortgage-related new annual premium sales to grow by 27% to £57m
EPI. Also contributing to this impressive growth has been the further
development of our Mortgage Club panel of major lenders, which will
shortly be supported by a further range of efficient, internet-based
services. Mortgage completions through the Club grew by over a third
to £1.9bn in the first half of 2000.
Unit trusts and ISAs.
---------------------
Regular saving ISA sales were up sharply to £11m (1H99: £4m). The
single payment unit trust and ISA market was influenced earlier in the
year by the high level of interest among retail investors for
technology stocks. Legal & General decided not to introduce
specialist high technology funds and, as a consequence, sales of
single payment unit trust and ISAs did not match the strong final PEP
season in 1999 (1H00:£440m against 1H99: £592m). 16% of ISA enquiries
to our Direct operation this year have come via the internet, a very
positive indicator of our customers' willingness to use this low cost
medium.
Corporate business.
-------------------
Corporate new business was £30m EPI (1H99: £47m EPI). The bulk
purchase annuity market was affected by a recent ruling from the
Ombudsman about the equalisation of Guaranteed Minimum Pension rights
between male and female pensioners. The ruling, which is subject to
appeal, has caused some pension trustees to defer plans to wind-up
their schemes, thereby temporarily reducing market size. Business in
the first half of 1999 benefited from a single mandate comprising £19m
EPI.
In the group risk market, Legal & General delivered another strong
performance with new annual premiums 40% up at £14m (1H99: £10m).
Operating Profit.
-----------------
The UK life and pensions operating profit before tax rose to £156m
(1H99: £142m), reflecting a 10% growth in the net transfer from the UK
long term fund.
International life and pensions
===============================
The profits from the Group's international businesses grew by 41% to
£24m (1H99: £17m).
USA
---
This business continues to prosper, with both sales and profits
growing strongly. New business, which is predominantly annual
premium, grew by 22% in the first half of 2000 to reach $59.8m (1H99
$49.1m). It benefited from strong demand prior to the implementation
of the Triple X solvency requirements.
Legal & General America has been successful in achieving a major and
profitable position in the high net worth term assurance market.
Using the internet to enhance business to business processing with its
distributors, this highly regarded company grew profits in the first
half by 52% to $29.3m (1H99: $19.3m).
Netherlands
-----------
Sales grew by 27% to EUR. 8.4m EPI (1H99: EUR. 6.6m). Operating
profit before tax was up 24% to EUR. 6.3m (1H99: EUR. 5.1m).
France
------
New business grew by 31% to EUR. 16.3m EPI (1H99: EUR. 12.4m)
following the introduction of a range of new products. The profit of
EUR. 2.3m was 35% up from EUR. 1.7m in the first half of 1999.
Investment management
=====================
Legal & General is distinct in its market in having a large,
successful and profitable investment management business. Its scale,
especially in index tracking, represents a key strategic asset in the
new marketplace - especially for Stakeholder Pensions. Our investment
management business provides fund management expertise to trustees of
pension schemes, other institutional clients and to the Group's
corporate and retail businesses. Total funds under management were
£111bn at 30 June 2000, of which over 60% are held for external
clients.
Our investment management business has once again delivered impressive
new business results winning £5.9bn of new institutional funds nearly
matching the exceptional result of £6.0bn achieved in the first half
of 1999. Of the £5.9bn won this year, £5.3bn came from UK pension
funds and the balance of £0.6bn came from other institutional clients.
The profits from the management of external client funds more than
doubled to £29m (1H99: £13m). This result reflects the strong growth
in external funds under management over a number of years and the
absence of the one-off unit trust systems costs, which impacted 1999.
General insurance
=================
The operating profit grew to £6m (1H99: £5m), after a transfer of £3m
to equalisation provision. The household account remains the major
component of the Group's general insurance business and includes our
joint venture with Woolwich plc. The household account produced an
improved operating result of £3m (1H99: breakeven), with little
adverse weather in the first half of 2000.
The healthcare and ASU business, which continues to grow strongly,
again produced a breakeven operating result. The motor business also
produced a breakeven result following rate increases (1H99: £2m loss).
The operating profit for mortgage indemnity business was £10m
(1H99: £7m). This includes a profit of £4m (1H99: breakeven) arising
from the pre-1993 mortgage indemnity reserves, reflecting settlements
made.
The overseas result reflects a final settlement in respect of marine
business written before 1980 through Andrew Weir Insurance Company
Limited, a company now in administration.
Other income
============
Banking
-------
New mortgage advances grew by 32% to £139m, driven primarily by the
success of our range of flexible mortgage products for residential
and buy to let properties; mortgage loans now total £883m. The value
of bank deposits has increased significantly since the launch of Legal
& General's 'Easy Access' LIBOR tracker account late last year.
Deposits now stand at £1.2bn (1H99: £1.0bn), with a customer base of
81,000. Despite this increase in new business, banking achieved a
breakeven result (1H99: £1m loss).
Other income
------------
Other income was stable at £16m (1H99: £17m).
Change in shareholders' retained capital (SRC)
==============================================
The value of the SRC is but one component of the embedded value of
the UK long-term fund, which grew to £3.80bn net of tax (30 June
1999: £3.50bn), after the accrued transfer to shareholders.
Accounting standards require that the change in the amount of the SRC
is included in the profit and loss account.
For the first half of 2000, the change in the SRC, grossed up to a
pre-tax amount, was an increase of £60m (1H99: an increase of £94m)
and comprised:
- the investment return on the SRC, which amounted to a negative
£12m (1H99: a positive £141m), reflecting weak UK equity markets
in the first half of 2000.
- the release of capital and profits from business written in
previous years, which has been partially offset by the investment
of the SRC in the funding of new business not written in the
with-profits fund. In aggregate, these items amounted to an
increase of £160m compared to an increase of £31m in the first
half of 1999 - a period in which we strengthened our mortality
assumptions for annuitants.
- less the accrued transfer from the SRC of £88m (1H99: £78m),
already included in the life and pensions operating profit.
Achieved Profits results
========================
The Achieved Profits results show a strong increase of 30% in the
operating profit before tax to £336m (1H99:£259m). This result
benefited from strong growth in the profits from our life and pensions
businesses, which in total increased by 38% to £274m (1H99: £199m).
The result included an increased worldwide new business contribution
of £87m (1H99: £86m). Of this total, £49m (1H99: £45m) arose from UK
life and pensions where new business EPI increased from £204m to £205m.
The lower contribution from UK managed funds reflected a reduction
in new pension fund business from the exceptional levels of 1999.
The contribution from in-force business grew strongly to £148m
compared with £87m in 1999, as the in-force business continued to grow
strongly and the significant systems expenditure in 1999 was not
repeated. The contribution from shareholders' net worth grew to £75m
(1H99: £67m).
Shareholders' funds grew from £4.84bn at 30 June 1999 to £5.36bn at
30 June 2000 after the payment of dividends of £223m during the period.
The Achieved Profits results are set out in Part 3 of this release.
Financial strength
==================
The growth of Legal & General is supported by its financial strength.
A core asset of the Group is the triple A rated UK long term fund,
which is a source of considerable competitive advantage. Its strength
gives us the resources to grow our business, the freedom as to how and
when we invest assets and the capital to ensure that we have an
efficient and flexible infrastructure.
At the end of 1999, assets of £26.9bn within the UK long term fund
supported its with-profits business. This amount substantially
exceeded that required to meet guaranteed benefits, expected future
bonuses and all other liabilities. The excess comprises working
capital provided by shareholders over many years and retained in the
with-profits fund. We can now report that at the end of 1999, this
excess amounted to at least £2.3bn after all reserves and provisions,
compared with £1.9bn reported as at the end of 1997.
Outlook
=======
Legal & General is well positioned for the market place of tomorrow.
Our brand is widely recognised and respected, a strength that will
prove especially advantageous as the range of products distributed
over the internet increases. We are already closely identified with
the emerging Stakeholder Pension market, which will be so important in
the future. Our skill in index tracking is a key asset in both the
retail and corporate markets.
A low cost base, worksite capabilities, index tracking investment
expertise and financial strength will all be central to the new
financial services marketplace. We believe that our business is
prepared for this new world. The Group's firm foundations will
ensure a strong and successful future and will continue to create
significant shareholder value.
Dividend Payment Date
=====================
The 2000 interim dividend has been increased by 14% to 1.48p and will
be paid on 2 October 2000 to shareholders registered at the close of
business on 15 September 2000. The shares go ex-dividend on 11
September 2000. The interim report will be sent to shareholders on 11
August 2000.
Enquiries to:
Investors:
Anthony Hobson, Group Director (Finance) 020 7528 6290
e-mail: tony.hobson@group.landg.com
Peter Horsman, Investor Relations Manager 020 7528 6362
e-mail: peter.horsman@group.landg.com
Media:
John Morgan, Head of Public Relations 020 7528 6213
Anthony Carlisle, Citigate Dewe Rogerson 0973 611888
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