Interim Results 2004 - Part 4
Legal & General Group PLC
29 July 2004
Part 4
Legal & General Investment Management
- supplementary information
During the first half of 2004, Legal & General Investment Management built on
its position as the largest UK fund manager. Strong new business and lower than
anticipated outflows helped push total funds under management to a record
£146bn. Fund management success was also highlighted at the 2004 Professional
Pensions Awards, where Legal & General Investment Management won Fixed Interest
Manager of the Year and Pooled Fund Manager of the Year.
Profits - Modified Statutory Solvency basis
Operating profit from institutional fund management was up 28% to £32m (1H03:
£25m).
Corporate Pensions profitability increased 35% from £17m to £23m. New business
levels have been exceptional, with gross new business for the first half of 2004
up 55%, at £8.7bn (1H03: £5.6bn). There has been continued success in attracting
active fixed interest clients. Sales of these products represented 19% (1H03:
12%) of gross new business. Despite a general market shift out of UK equity
assets, principally into fixed interest and some overseas equities, the fee rate
achieved on the core business has remained stable. Client numbers at the end of
June 2004 were 2,549 compared with 2,425 at the end of 2003, an increase of 5%.
Tight cost control meant that total costs were lower than in the equivalent
period in 2003.
Legal & General Ventures, the private equity arm, successfully completed 8
exits realising over £280m of cash for investors and made 2 new investments in
the period. Additionally, the 2004 annual partnership closed with commitments in
excess of £180m, an increase of 17% over the prior year's partnership. Profit
for the period was £1m (1H03: £2m).
The Property fund management subsidiary benefited from a full period's revenue
on its seven external property partnerships, generating profits of £2m (1H03:
£1m).
Total funds under management increased by 19% to £146bn (1H03: £123bn).
Excluding internal funds managed for Legal & General Assurance Society Ltd,
total funds under management exceeded £100bn for the first time.
Profits - Achieved Profits basis
Managed pension fund business is written as a long-term contract and so the
results of the business are also presented on an Achieved Profits basis. The
embedded value assumptions are detailed in Part 2 of this announcement.
Operating profit from institutional fund management was up 35% at £50m (1H03:
£37m). The contribution from in-force business was higher at £24m (1H03: £17m).
Lapse experience in the first six months of 2004 was significantly below long
term expectations, compared with the first half 2003 where the experience was
in-line with expectations. The new business contribution was up 42%, to £17m
(1H03: £12m), on the back of the higher level of new business. Profit before
tax increased to £49m (1H03: £40m)
Fund Performance
The flagship actively managed pooled corporate pension funds, including the
balanced, UK equity and fixed interest funds, were all above benchmark over the
one-year to May 2004. 75% of the retail flagship actively managed funds were
above median over one year, while the performance of the smaller/specialist
retail active funds was mixed. Index funds met their tracking parameters in the
year to June 2004.
Part 4
Legal & General Investment Management P1
Consolidated Profit and Loss Account
- Modified Statutory Solvency Basis
Six months ended 30 June 2004
-------------------------------------------------------------------------------
Full
year
30.6.04 30.6.03 2003
restated restated
£m £m £m
Profit on continuing operations
Corporate pensions 23 17 41
Ventures 1 2 3
Property 2 1 3
Other external income 2 1 3
Other operational income 4 4 5
-------- -------- --------
Operating profit 32 25 55
Variation from longer term
investment return (2) 0 (2)
-------- -------- --------
Profit on ordinary activities
before tax 30 25 53
Tax charge on profit on ordinary
activities (9) (7) (16)
-------- -------- --------
Profit for the financial period 21 18 37
======== ======== ========
These financial statements were approved by the Group Board on 28 July 2004 and
have been prepared for long term business using the Modified Statutory Solvency
basis. The Achieved Profits results are included in page 4.
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 for shareholders investment return of
Institutional fund management which has been reanalysed to provide a longer term
rate of return within operating profit, 2003 comparatives have been restated
accordingly.
The 2003 Accounts 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.
===============================================================================
Legal & General Investment Management P2
Funds under management
Six months ended 30 June 2004
-------------------------------------------------------------------------------
At 30.6.04 At 30.6.03 At 31.12.03
£m £m £m
Total investments 145,854 122,583 135,337
======== ======== ========
Represented by
Index tracking funds:
- UK equities 44,806 38,442 42,944
- Overseas equities 22,898 19,813 21,144
- Fixed interest 18,295 15,051 16,950
- Index linked 13,071 8,666 10,650
- Cash/deposits 482 293 359
-------- -------- --------
Total index tracking funds 99,552 82,265 92,047
Actively managed funds 46,302 40,318 43,290
-------- -------- --------
145,854 122,583 135,337
======== ======== ========
By fund management approach
Indexed equities 67,704 58,255 64,088
Active bonds (including
index linked funds) 31,760 26,911 28,883
Indexed bonds (including
index linked funds) 31,848 24,010 27,959
Active equities 8,123 7,336 7,905
Property 6,118 5,614 6,022
Private equity (ventures) 301 457 480
-------- -------- --------
145,854 122,583 135,337
======== ======== ========
By source of business
Institutional funds under
management*:
- Managed pension funds pooled 81,502 64,600 72,841
- Managed pension funds segregated 9,327 6,980 8,522
- Other 2,594 3,084 2,713
-------- -------- --------
Total institutional funds under
management 93,423 74,664 84,076
UK Operations (unit trusts -
excluding life fund investment) 7,392 6,150 6,948
UK Operations (life and general
insurance funds) 45,039 41,769 44,313
-------- -------- --------
145,854 122,583 135,337
======== ======== ========
* excludes institutional investments in unit trust funds
===============================================================================
Legal & General Investment Management P3
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
£m £m £m £m £m £m
Managed pension
funds*
- Pooled funds 7,610 3,198 4,412 5,207 2,456 2,751
- Segregatedfunds 1,063 101 962 359 347 12
-------- -------- -------- -------- -------- --------
8,673 3,299 5,374 5,566 2,803 2,763
Other funds 70 13 57 414 349 65
-------- -------- -------- -------- -------- --------
8,743 3,312 5,431 5,980 3,152 2,828
======== ======== ======== ======== ======== ========
Full
year
30.6.04 30.6.03 2003
£m £m £m
Managed pension
funds*
- Pooled funds 7,610 5,207 11,066
- Segregated funds 1,063 359 1,504
-------- -------- --------
8,673 5,566 12,570
Other funds** 70 414 482
-------- -------- --------
8,743 5,980 13,052
======== ======== ========
By fund management approach
Active equities 5.6% 1.4% 0.0%
Active bonds (including cash) 21.8% 11.6% 11.8%
Indexed equities 46.4% 51.4% 59.0%
Indexed bonds (including cash) 21.8% 31.6% 27.3%
Property 4.2% 3.6% 1.7%
Private equity 0.2% 0.4% 0.2%
-------- -------- --------
100.0% 100.0% 100.0%
======== ======== ========
* New monies from pension fund clients of Legal & General Assurance (Pensions
Management) Ltd.
Corporate pensions gross new business excludes £2.2bn (1H03: £1.0bn; FY03:
£4.0bn) which was held through the year on a temporary basis, generally as part
of a portfolio reconstruction.
** Includes segregated property, property partnerships, ventures and
institutional clients excluding trusts.
===============================================================================
Legal & General Investment Management P4
Consolidated Profit and Loss Account
- Achieved Profits Basis
Six months ended 30 June 2004
-------------------------------------------------------------------------------
Full
year
30.6.04 30.6.03 2003
restated restated
Profit on continuing operations £m £m £m
Managed pension funds:
Contribution from:
New business 17 12 31
In-force business
- expected return 8 6 13
- experience variances 8 1 5
- operating assumption changes 8 10 20
Development costs 0 0 (1)
Shareholder net worth 3 3 5
-------- -------- --------
Total 44 32 73
Ventures 1 2 3
Property 2 1 3
LGIM 2 1 3
Other operational income 1 1 -
-------- -------- --------
Operating profit from
institutional fund management 50 37 82
Variation from longer term
investment return* 0 3 14
Effect of economic
assumption changes (1) - -
-------- -------- --------
Profit on ordinary activities
before tax 49 40 96
Tax charge on profit on
ordinary activities (16) (12) (29)
-------- -------- --------
Profit for the financial period 33 28 67
======== ======== ========
*The variation from longer term investment return represents the effect of the
investment performance in respect of shareholder net worth and in-force
business, compared with embedded value assumptions at the beginning of the
period.
Managed pension funds embedded Full
value year
30.6.04 30.6.03 2003
£m £m £m
At 1 January 305 262 262
Profit after tax 31 25 61
Distributions and capital
movements - - (18)
-------- -------- --------
At period end 336 287 305
======== ======== ========
Comprising:
Value of in-force business 175 142 162
Shareholder net worth 161 145 143
-------- -------- --------
336 287 305
===============================================================================
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