L&G 2002 Final Results Pt1
Legal & General Group PLC
27 February 2003
Stock Exchange Release - Part 1
27 February 2003
Legal & General Group Plc
=========================
Results for the year ended 31 December 2002
===========================================
Highlights -
============
Achieved Profits basis Modified Statutory Solvency
basis
2002 Change 2002 Change
Operating profit before tax (Note 1) £695m -7% £493m unchanged
Shareholders' funds (Note 2) £5,061m +1% £3,184m +11%
Earnings per share (diluted) (Note 3) 7.52p -20% 5.25p -13%
Worldwide new business APE (Note 4) £906m +13% £906m +13%
Contribution from new business (Note 5) £249m +15% N/A N/A
Final dividend per share (Note 6) 3.25p +2.5% 3.25p +2.5%
Note 1 - From continuing operations.
Note 2 - Shareholders' funds after providing for dividends.
Note 3 - Based on Operating profit from continuing operations after tax and
assuming full dilution from the convertible bond issued in 2001.
Note 4 - Annual Premium Equivalent (APE) is total new annual premiums + 10% of
single premiums, including ISAs and unit trusts.
Note 5 - Contribution before tax from new worldwide life and pensions business.
Note 6 - Change is shown after adjusting the 2001 final dividend for the bonus
element of the rights issue.
The Achieved Profits highlights are based on the methodology issued by the
Association of British Insurers in December 2001. Full details of the results
can be found in Parts 2 (Achieved Profits), 3 (MSS) and 4 (Legal & General
Investment Management).
Group Chief Executive, David Prosser, said: 'In a difficult operating
environment, our core UK individual new business grew by 26%, continuing our
record of profitable growth in market share. Worldwide new business grew by 13%
to £906m APE and Legal & General Investment Management had another record year,
gaining £14bn of new funds.
Despite changed assumptions to reflect expected improvements in annuitant
mortality, Achieved Profits operating profit at £695m was only £52m below last
year. Setting aside the impact of these changed assumptions, operating profit
would have grown by 12%. The contribution from new life and pensions business
increased by 15% and we also achieved strong profit growth from both Legal &
General Investment Management and general insurance.
Our capital base, reinforced by the rights issue, has been managed to ensure we
remain financially strong. In a market where financial strength is a
differentiator, our position as the only major European life insurer to retain a
AAA financial strength rating from Standard & Poor's gives us an important
competitive advantage.
Although the trading environment has been tough so far in 2003, we believe we
have the strategy and financial strength to continue to outperform.'
Overview of results - Achieved Profits basis
============================================
Legal & General's UK strategy continues to be focused on providing a broad range
of competitive products through multi-channel distribution. The success of this
strategy is reflected in these results with further profitable growth in volumes
and market share. Over the year our market share of individual new business,
including ISAs and unit trusts, grew from 6.1% to 7.8%.
• New UK life and pensions business grew by 4% to £608m APE (2001: £584m)
with the benefit of our strategic alliances with Alliance & Leicester,
Barclays and Northern Rock reflected in the growth in individual life and
pensions business of 17%. International new life and pensions business grew
by 6%, with increased volumes in the United States and stable volumes in
Europe.
• The contribution before tax from new life and pensions business grew by
15% to £249m reflecting increased new business volumes and improved margins
on some product lines.
• Legal & General Investment Management again delivered impressive results,
winning £14bn of new funds. Operating profit grew by 21% from £76m to £92m.
• The Group's operating profit before tax from continuing operations was
£695m (2001: £747m) with a reduced life and pensions profit, which reflected
changed assumptions for expected improvements in annuitant mortality.
Setting aside the impact of these changed assumptions, operating profit
would have grown by 12%.
• After adjusting for the sale of Legal & General Bank, Group funds under
management at the year end were unchanged at £116bn despite further equity
market falls.
• At the year end, group shareholders' funds amounted to £5,358m (2001:
£4,994m) before providing for dividends of £297m.
• The Board has declared a final dividend of 3.25p per share, an increase of
2.5% on the previous year. The interim dividend of 1.67p also increased by
2.5% and, adjusted for the bonus element of the rights issue, would have
been 1.53p.
Capital strength
================
Legal & General's financial strength provides an important source of competitive
advantage in a rapidly consolidating marketplace. At the end of January 2003,
Standard & Poor's reaffirmed the AAA rating for the financial strength of our UK
Long Term Fund - albeit with a negative outlook. We are now the only major
European life insurer with a AAA rating.
Management's estimate of the Form 9 free asset ratio for the Group's UK long
term business, including an implicit item, was 12.0% at 31 December 2002 (2001:
15.3%).
Analysis of results - Achieved Profits basis
============================================
UK life and pensions
====================
Operating profit was £501m (2001: £532m). The contribution before tax from new
business increased by 15% to £211m (2001: £183m). In a challenging market
environment where capital has been scarce, we have been able to obtain a higher
return on the investment in new business. As a percentage of APE, the
contribution increased to 35% (2001: 31%).
The contribution from in-force business was £134m (2001: £252m). As previously
indicated, the changed assumptions for expected improvements in annuitant
mortality and related demographic factors accounted for a £140m reduction. The
impact of development costs was much lower at £3m (2001: £26m).
The contribution from shareholder net worth was £159m (2001: £123m) reflecting a
full year contribution from the intra-group subordinated debt capital invested
in the UK Long Term Fund.
International life and pensions
===============================
Operating profit from international life and pensions business was £80m (2001:
£101m), with reduced contributions from the USA and France outweighing improved
results in the Netherlands.
USA
---
New business grew by 10% to £57m APE (2001: £52m) as we continued to develop our
chosen market niche of term assurance for upper income customers. Legal &
General America is now a top ten provider in the term assurance market.
Operating profit fell 25% to £50m (2001: £67m). An increased contribution from
new business reflected the growth in premium volumes but the contribution from
in-force business was reduced by £17m as a result of a higher than expected
level of claims.
Europe
------
Our European businesses continued to experience difficult market conditions but
new business of £35m APE was held at 2001 levels. Operating profit was lower at
£30m (2001: £34m).
Legal & General Investment Management
=====================================
Operating profit from Legal & General Investment Management increased by 21% to
£92m (2001: £76m). This included a profit of £83m (2001: £70m) from the UK
managed pension funds business which benefited from an increased contribution
from new business.
Over the year, Legal & General Investment Management maintained its highly
successful track record, winning new funds of £14.0bn (2001: £13.2bn). This
result has been achieved despite a significant fall in equity values over the
year and has ensured that we maintained our record of averaging over £1bn of new
UK pension fund investment business per month over the last five years.
General insurance
=================
All classes of business have been profitable in 2002, resulting in a 24% growth
in operating profit to £46m (2001: £37m). Net written premiums grew 13% to £304m
(2001: £269m). The household account, which represents over three-quarters of
net premiums written, produced an operating profit of £18m, as the impact of
increased premiums was partially offset by bad weather claims.
The operating profit for mortgage indemnity business was £12m (2001: £14m). £4m
of the total profit arose from the release of provisions for pre-1993 mortgage
indemnity contracts, for which the remaining provision is now only £5m.
Operating profit for other business, mainly ASU, healthcare and motor, doubled
to £16m (2001: £8m).
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 loss of £24m (2001: £1m profit) primarily arose from interest expense on
higher borrowings.
The Group's other operations (primarily the retail investment and estate agency
businesses) produced a loss of £14m (2001: £17m loss). This reflected increased
acquisition costs incurred in respect of new retail investment business, which
grew by 61% over the year. These costs were only partially offset by a modest
profit from estate agency.
Profit on ordinary activities
=============================
The Group's operating profit from continuing operations before tax was £695m
(2001: £747m). The loss on ordinary activities before tax of £450m (2001: £62m
profit) 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. The negative investment return variance of £1,174m
(2001: negative variance of £688m) reflected the worldwide fall in equity
markets. The investment return on the UK Long Term Fund equity and property
portfolio was 23.4% below the assumption for the period (2001: 16.9% below
assumption). The loss on ordinary activities before tax also included an
exceptional profit of £36m from the sale of our banking operations to Northern
Rock plc.
The effect of economic assumption changes resulted in a decrease of £6m,
compared with a £3m decrease in 2001.
Balance sheet
=============
At 31 December 2002, the embedded value of the Group's long term businesses was
£4,790m (2001: £5,317m). Shareholders' funds on the Achieved Profits basis
increased to £5,061m benefiting from the proceeds of the recent rights issue
(2001: £4,994m), equivalent to 78p per share.
Overview of results - Modified Statutory Solvency (MSS) basis
=============================================================
Operating profit before tax from continuing operations was unchanged over the
year at £493m, with improved results from Legal & General Investment Management
and general insurance offset by increased interest expense within other
operational income.
The UK life and pensions operating profit before tax rose to £366m (2001:
£353m). Since 1996 the transfer from our UK Long Term Fund has been moving
progressively towards a formula comprising 10% of the with-profits surplus plus
a smoothed investment return, which is determined by reference to the embedded
value of the shareholder retained capital and the non-profit business. The 2002
transfer has reached this formula level, augmented by the distribution in
respect of the intra-group subordinated debt capital held within the shareholder
retained capital. The servicing cost of the related external debt has been
reflected in interest expense reported within other operational income. The
transfer in respect of with-profits business fell as the impact of lower bonus
rates was only partially offset by growth in the book of business.
Results for the USA have benefited from strong growth in the book of business
over recent years. The result from our European operations has been impacted by
the lack of realised gains in current investment markets and from the
strengthening of regulatory provisions in France.
The contribution from shareholder retained capital in the UK Long Term Fund was
a negative £571m (2001: a negative of £550m). This reflected lower investment
returns, the net capital released from non-profit business and an increased
transfer to shareholders from this business. The net capital released benefits
from a growing book of business and includes an exceptional release from
non-profit reserves. This exceptional release emerged as we refined our
reserving for protection business and the asset / liability management of our
annuity book and has more than offset the impact of annuitant mortality and the
net new business strain.
Payment of dividend
===================
The final dividend of 3.25p per share will be paid on 1 May 2003 to shareholders
registered at the close of business on 4 April 2003. The shares go ex-dividend
on 2 April 2003. A Dividend Re-investment Plan is available to shareholders.
Enquiries to:
Investors:
----------
Andrew Palmer, Group Director (Finance) 020 7528 6286
e-mail: andrew.w.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@citgatedr.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 25 March 2003 and
delivered to the Registrar of Companies after the Annual General Meeting on
30 April 2003.
• Issued share capital at 31 December 2002: 6,502,264,641 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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