L&G 2001 Results - Part 1
Legal & General Group PLC
28 February 2002
Part 1
Legal & General Group Plc
Results for the year ended 31 December 2001
Highlights -
* Operating profit before tax (Note 1) £751m +10%
* New business APE (Note 2) £801m +27%
* Contribution from new business (Note 3) £217m +35%
* Shareholders' funds (Note 4) £4,994m -5%
* Earnings per share (diluted) (Note 5) 10.15p +5%
* Dividend per share 5.09p +8%
Note 1: From continuing operations.
Note 2: Annual Premium Equivalent (APE) is total new annual premiums + 10%
of single premiums.
Note 3: Contribution before tax from new worldwide life and pensions
business.
Note 4: Shareholders' funds after providing for dividends of £261m.
Note 5: Based on Operating profit on continuing operations after tax and
assuming full dilution from the convertible bond issued in 2001.
These highlights are based on the Achieved Profits methodology issued by
the Association of British Insurers in December 2001. Full details of the
results can be found in Parts 2 and 3.
Group Chief Executive, David Prosser, said: '2001 has been a year of
substantial achievement for Legal & General. With the support of new and
existing business partners, we produced record new business volumes with
32% growth in UK life and pensions. Our share of new business in the UK
individual market exceeded 7% in the fourth quarter and has grown in each
of the last seven years. Institutional fund management business has again
delivered impressive results winning £13bn of new funds, taking funds
under management for the Group to over £117bn.
At operating profit level we have made good progress with Achieved Profits
results up 10% to £751m. Within that result, the contribution from new UK
life and pensions business grew by 55% to £183m, an improvement in the
value to premium ratio over 2000.
Against the backdrop of slowing growth in major economies and weak
investment markets, we have managed our capital base to ensure that we
remain financially strong. Standard and Poor's awarded its AAA rating for
our UK long term fund in November 2001 and A M Best has also given us its
highest rating, A++ in January 2002.
The proposed product distribution changes in the UK will produce
challenges and opportunities. I believe that, given our high quality
brand and our extensive experience in multi-channel distribution, Legal &
General is well positioned to continue delivering profitable, above
market growth.'
Overview of results - Achieved Profits basis
============================================
Legal & General's strategy continues to be focused on providing a broad
range of good value products through multi-channel distribution. The
success of that strategy is reflected in these results with further
growth in volumes, market share and profit.
* New UK life and pensions business grew by 32% to £584m APE (2000:
£442m) with the results reflecting the benefit of our strategic
alliances with both Alliance & Leicester and Barclays.
International new business fell by 3% as lower volumes in the United
States, following the exceptional results in the first part of 2000,
were almost offset by growth in Europe.
* The contribution before tax from new worldwide life and pensions
business amounted to £217m, an increase of 35% over 2000, reflecting
increased new business volumes and a favourable mix of business.
Within that result the contribution before tax from new UK life and
pensions business grew by 55% to £183m.
* Our institutional fund management business again delivered
impressive results, winning £13.2bn of new funds. Excluding UK
double taxation relief, which contributed £16m in 2000, underlying
operating profits grew from £66m to £76m.
* The Group's operating profit before tax from continuing operations
grew by 10% to £751m, driven by the growth in profits from the
Group's life and pensions businesses.
* Despite the fall in equity values which occurred during the year,
funds under management by the Group exceeded £117bn (2000: £114bn)
at the year end.
* At the year end, Group shareholders' funds amounted to £5,255m
(2000: £5,274m) before providing for dividends of £261m.
* Against the backdrop of slowing growth in major economies and weak
investment markets, the Board has declared a final dividend of 3.46p
per share, an increase of 7%. The total dividend for the year has
therefore grown by 8% to reach 5.09p per share.
Analysis of results
===================
UK life and pensions
====================
Operating profit grew 17% to £532m (2000: £454m). The contribution before
tax from new life and pensions business was up 55% to £183m. In an
increasingly competitive market, we have again written new business which
delivers significant value for our shareholders. As a percentage of APE,
the contribution increased to 31% (2000: 27%) as a result of a
particularly favourable mix of new business.
The contribution from in-force business increased to £252m (2000: £223m).
Largely as a result of one-off start up costs in connection with the
Barclays alliance, the impact of development expenditure increased to £26m
(2000: £14m).
The contribution from shareholder net worth was £123m (2000: £127m).
The reduction was almost entirely due to the lower risk discount rate.
International life and pensions
===============================
Operating profit from international life and pensions business was £101m
(2000: £86m), including a new business contribution of £34m (2000: £43m).
The contribution from in-force business more than doubled to £51m (2000:
£25m).
USA
---
New annual premium business fell to £52m (2000: £62m) following
exceptional results in the first part of 2000, when sales were distorted
by the impact of the introduction of the Triple X reserving requirements.
From a lower base, volumes have grown throughout 2001 with fourth quarter
new business 24% ahead of the corresponding period in 2000 in local
currency terms.
Operating profit grew 49% to £67m (2000: £45m). The contribution from new
business of £24m (2000: £34m) reflected the reduced premium volumes
following the exceptional levels of new business in the early part of
2000. Capital management and re-pricing measures continue to be taken as
the market adjusts to the Triple X regime. Claims resulting from the
terrorist attacks of 11 September amounted to £5m net of reinsurance.
Europe
------
Sales in the Netherlands continued to outperform the wider market, growing
by an impressive 42% to £17m APE (2000: £12m). In France, against
difficult market conditions, new business including unit trusts increased
by 10% to £22m APE (2000: £20m), supported by strong growth in annual
premium business.
The operating profits of the Dutch and French businesses were £18m (2000:
£17m) and £16m (2000: £24m) respectively. The combined contribution from
new business was £10m (2000: £9m).
Earlier this week, we announced the launch of our German business. This
green-field development will target high net worth customers through a
direct internet and telesales operation offering simple, low cost and
transparent products.
Institutional fund management
=============================
Operating profit from institutional fund management was £76m (2000: £82m).
This included a reduced profit of £70m (2000: £75m) from the UK managed
pension funds business which no longer benefits from double taxation
relief. Excluding this benefit, which contributed £16m in 2000,
underlying profits from institutional fund management grew from £66m to
£76m.
Our success in winning both equity and bond mandates for our range of
indexed and active funds brought new business of £13.2bn (2000: £12.7bn).
The contribution from new business declined to £27m (2000: £35m)
reflecting the lower fee levels on large bond mandates won during the
year. Some existing customers have also increased their exposure to bonds
switching from equities.
General insurance
=================
All classes of business have been profitable in 2001, resulting in an 85%
growth in operating profit to £37m (2000: £20m). Net written premiums
grew 8% to £269m (2000: £249m). The household account, which represents
over three-quarters of net premiums written, produced an increased
operating profit of £15m (2000: £5m), benefiting from a lower level of bad
weather claims.
The operating profit for mortgage indemnity business was £14m (2000:
£21m). One third of the total profit arose from the release of provisions
for pre-1993 mortgage indemnity contracts where the remaining provision is
now only £10m.
Other personal lines business produced an operating profit of £8m (2000:
£6m loss). The 2000 result was distorted by the closure of an overseas
account.
Other operational income
========================
Other operational income comprises the longer term investment return
arising from investments held outside the UK long term fund, interest
expense, unallocated corporate expenses and the results of the Group's
other operations. The reduced profit of £5m (2000: £42m) arose from
increased interest expense, the growth of our retail investment business
and the costs related to European developments.
The Group's other operations (retail investment business, banking and
estate agency) produced a loss of £13m (2000: £2m profit). The loss from
the retail investment business, which is reported on a Modified Statutory
Solvency basis, was £16m (2000: £3m profit). It reflected the financing
strain of new business, the impact of lower equity values on fee income,
project costs on the Barclays' funds integration and the development of
our funds supermarket, launched in January 2002. This loss was only
partially offset by a banking profit.
Profit on ordinary activities
=============================
The Group's operating profit from continuing operations before tax was
£751m (2000: £684m). Profit on ordinary activities before tax, which
includes the effect of variances in investment return from the longer-term
return assumed at the end of the previous year, together with economic
assumption changes, was £62m (2000: £392m). This includes a negative
investment return variance of £688m (2000: a negative variance of £314m)
reflecting the worldwide fall in equity markets. The largest impact came
from UK life and pensions where there was a negative variance of £579m
(2000: a negative variance of £274m). The investment return on the equity
and property portfolio was 16.9% below the assumption for the period
(2000: 9.0% below assumption).
The effect of economic assumption changes resulted in a decrease of £3m,
compared with a £26m increase in 2000.
The reported tax charge for 2001 was greater than the profit before tax,
principally because no tax credit was available for unrealised
depreciation on equities within shareholder net worth.
Balance sheet
=============
During 2001, the embedded value of the Group's long term businesses grew
to £5,317m (2000: £4,580m). In December 2001, the Group holding company
acquired the fund management subsidiaries previously held within the UK
long term fund. The transfer also boosted the UK long term fund's
regulatory capital by around £400m, thereby further strengthening the fund
and, together with an additional £355m of intra-group subordinated debt,
supporting its ability to continue to develop the business.
Modified Statutory Solvency (MSS) basis
=======================================
Operating profit from continuing operations grew modestly over the year to
£497m (2000: £485m), with improved results from life and pensions and
general insurance offset by the loss of double taxation relief from
institutional fund management and lower results from other operational
income.
In view of the current low rates of inflation and lower levels of
investment markets, the directors have concluded that it is appropriate
to revise their projected compound growth rate of the transfer from the UK
long term fund to 7% per annum effective from the second half of 2001.
The UK life and pensions operating profit before tax rose to £353m (2000:
£312m), reflecting a 10% growth in the net transfer from the long term
fund in the first half of the year, reducing to 7% growth in the second
half. The transfer for non-profit business is augmented by the
distribution in respect of the intra-group subordinated debt capital held
within the shareholder retained capital. The external servicing cost of
that debt has been reflected in interest expense reported within Other
operational income.
The contribution from shareholder retained capital in the UK long term
fund was a negative £585m (2000: a positive of £30m). This reflected
significantly lower investment returns and the net strain associated with
substantial volumes of new non-profit business, especially in the second
half. This business was the source of a major proportion of the increased
new business contribution reported in our Achieved Profits results.
Results for the USA and the Netherlands have benefited from strong growth
in the book of business over recent years. The loss from our French
subsidiary resulted from the lack of realised gains in current investment
markets and strengthening of regulatory provisions.
Payment of dividend
===================
The final dividend of 3.46p per share will be paid on 1 May to
shareholders registered at the close of business on 5 April. The shares
go ex-dividend on 3 April. A Dividend Re-investment Plan is available
to shareholders.
Enquiries to:
Investors:
Andrew Palmer, Group Director (Finance) 020 7528 6286
e-mail: andrew.palmer@group.landg.com
-----------------------------
Peter Horsman, Head of Investor Relations 020 7528 6362
e-mail: peter.horsman@group.landg.com
-----------------------------
Media:
John Morgan, Head of Public Relations 020 7528 6213
e-mail: john.morgan@group.landg.com
---------------------------
Anthony Carlisle, Citigate Dewe Rogerson 07973 611888
e-mail: anthony.carlisle@citigatedr.co.uk
---------------------------------
Notes:
- The statements in Part 2 of this release have been prepared in
accordance with the methodology for Supplementary Accounting for
long term insurance business (The Achieved Profits Method) issued
in December 2001 by the Association of British Insurers in all
material aspects. This methodology sets out a more realistic
method for recognising shareholders' profits from long term
business than the MSS basis contained in Part 3. These financial
statements have been reviewed by PricewaterhouseCoopers and
prepared in conjunction with our consulting actuaries -
Tillinghast Towers-Perrin and, in the USA, Milliman USA.
- The annual report will be sent to shareholders on 20 March 2002
and delivered to the Registrar of Companies after the Annual
General Meeting on 30 April 2002.
- Issued share capital at 31 December 2001: 5,156,165,888 shares of
2.5p each.
- A copy of this announcement can be found in the News and Results
section of our Shareholder site at:
http://investor.legalandgeneral.com/releases.cfm
------------------------------------------------
- The results presentation to analysts and fund managers will also
be available later today at:
http://investor.legalandgeneral.com/presentations.cfm
-----------------------------------------------------
This information is provided by RNS
The company news service from the London Stock Exchange
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