L&G 2002 Final Results Pt4
Legal & General Group PLC
27 February 2003
Part 4
Legal & General Investment Management
- supplementary information
Profits - MSS basis
In another successful year, profits from institutional fund management grew 22%
to £50m (2001: £41m).
Despite the falls in global equity markets during 2002, corporate pensions
produced an unchanged operating profit of £34m. Revenue growth benefited from
record new business levels of £13.4bn (2001: £13.2bn) together with a modest
increase in average pooled fund fee rates. Although the number of pension fund
clients rose by 8% to 2,220, rigorous cost management ensured that the
associated expenses grew by only 4% year on year. Our growing client-base of
index-tracking customers provides an opportunity to cross-sell higher fee rate
actively managed products.
The Property fund management subsidiary achieved further external asset growth
in 2002, leading to enhanced profitability. External property partners new
business was £159m during the year and external property funds under management
now total over £1bn.
Legal & General Ventures, the private equity arm, achieved an increased profit
of £5m (2001: £3m). Over the year, it made three new investments and
successfully completed three realisations.
Total funds under management increased to £114bn (2001: £113bn), despite a 25%
fall in the FTSE All Share index. The stability of funds under management
reflected both £14bn of gross new funds won and a 42% exposure to fixed
interest, property and cash in the funds under management.
Profits - Achieved Profits basis
Managed pension funds 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.
Institutional fund management business profits increased by 21% to £92m (2001:
£76m) of which managed pension funds represented £83m (2001: £70m). The new
business contribution from managed pension funds increased by 19% to £32m (2001:
£27m) reflecting changes in the mix of business. The contribution from in-force
business was unchanged at £45m.
Fund Performance
Legal & General Investment Management delivered good investment performance
across its range of funds in 2002. All index funds met their tracking
parameters. The majority of actively-managed funds outperformed their benchmark
or peer group median. Performance in Fixed Interest was particularly strong: the
Corporate Bond pensions managed fund was the top performing fund in its peer
group in the three years to end-2002, and our flagship retail funds, the Fixed
Interest Trust and the High Income Trust, delivered top quartile performance.
Part 4
Legal & General Investment Management P1
Consolidated Profit and Loss Account
- Modified Statutory Solvency basis
Year ended 31 December 2002
--------------------------------------------------------------------------------------------------------------------
2002 2001
£m £m
Profit on continuing operations
Corporate pensions 34 34
Ventures 5 3
Property 2 1
Other external income 1 0
Other operational income 8 3
--------------- ---------------
Profit on ordinary activities before tax 50 41
Tax charge on profit on ordinary activities (14) (11)
--------------- ---------------
Profit for the financial period 36 30
=============== ===============
These financial statements were approved by the Group Board on 26 February 2003
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 constitute non statutory accounts within the meaning of Section 240
of the Companies Act 1985 and are extracted from the Group's financial
statements for the year ended 31 December 2002. The Group's financial statements
include the auditor's unqualified report and do 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
Year ended 31 December 2002
--------------------------------------------------------------------------------------------------------------------
At 31.12.02 At 31.12.01
£m £m
Total investments 113,992 113,248
=============== ===============
Represented by
Index tracking funds:
- UK equities 35,940 40,037
- Overseas equities 17,999 18,595
- Fixed interest 15,107 13,090
- Index linked 7,481 6,376
- Cash/deposits 328 157
--------------- ---------------
Total index tracking funds 76,855 78,255
Actively managed funds 37,137 34,993
--------------- ---------------
113,992 113,248
=============== ===============
By fund management approach
Indexed equities 53,939 58,632
Active bonds (including index linked funds) 25,035 21,480
Indexed bonds (including index linked funds) 22,916 19,623
Active equities 6,526 8,357
Property 5,137 4,673
Private equity (ventures) 439 483
--------------- ---------------
113,992 113,248
=============== ===============
By source of business
Institutional funds under management*:
- Managed pension funds pooled 60,397 61,674
- Managed pension funds segregated 6,308 5,130
- Other 2,662 2,430
--------------- ---------------
Total institutional funds under management 69,367 69,234
UK Operations (unit trusts - excluding life fund investment) 5,094 4,507
UK Operations (life and general insurance funds) 39,531 39,507
--------------- ---------------
113,992 113,248
=============== ===============
* excludes institutional investments in unit trust funds
====================================================================================================================
Legal & General Investment Management P3
New business
Year ended 31 December 2002
--------------------------------------------------------------------------------------------------------------------
2002 2001
New business £m £m
Managed pension funds*
- Pooled funds 12,359 10,608
- Segregated funds 1,039 2,571
--------------- ---------------
13,398 13,179
Other funds 569 40
--------------- ---------------
13,967 13,219
=============== ===============
By fund management approach
Active equities 0.1% 0.2%
Active bonds (including cash) 0.5% 0.4%
Indexed equities 73.0% 65.5%
Indexed bonds (including cash) 25.0% 33.6%
Property 1.1% 0.2%
Private equity 0.3% 0.1%
--------------- ---------------
100.0% 100.0%
=============== ===============
* New monies from pension fund clients of Legal & General Assurance (Pensions
Management) Ltd.
Other includes segregated property, property partnerships, ventures and
institutional clients excluding trusts.
Corporate pensions gross new business excludes £2,068m (2001: £2,546m) of money
which is held on a temporary basis, generally as part of a portfolio
reconstruction.
====================================================================================================================
Legal & General Investment Management P4
Consolidated Profit and Loss Account
- Achieved Profits basis
Year ended 31 December 2002
--------------------------------------------------------------------------------------------------------------------
2002 2001
Profit on continuing operations £m £m
Managed pension funds:
Contribution from:
New business 32 27
In-force business
- expected return 15 14
- expected variances 14 20
- operating assumption changes 16 11
Development costs (1) (2)
Shareholder net worth 7 -
--------------- ---------------
Total 83 70
Ventures 5 2
Property 2 1
LGIM 2 -
Other operational income - 3
--------------- ---------------
Operating profit from institutional fund management 92 76
Variation from longer term investment return* (48) (31)
--------------- ---------------
Profit on ordinary activities before tax 44 45
Tax charge on profit on ordinary activities (12) (14)
--------------- ---------------
Profit for the financial period 32 31
=============== ===============
*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 value
2002 2001
£m £m
At 1 January 252 134
Profit after tax 25 26
Distributions and capital movements (15) 92
--------------- ---------------
At 31 December 262 252
--------------- ---------------
comprising:
Value of in-force business 132 136
Shareholder net worth 130 116
--------------- ---------------
262 252
====================================================================================================================
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