L&G Interim Results 2001-Pt.1
Legal & General Group PLC
25 July 2001
Stock Exchange Release - Part 1
Legal & General Group Plc
Interim Results for the six months to 30 June 2001
New business
------------
UK life and pensions APE (see 1 below) £266m +30%
Worldwide (including unit trusts) APE (see 1 below)
£373m +18%
UK fund management business £6.0bn +2%
Achieved Profits basis -
----------------------
Operating profit before tax £351m +4%
Contribution from new business (see 2 below) £114m +31%
Shareholders' funds (see 3 below) £5,318m +1%
Earnings per share (diluted) (see 4 below) 4.80p +3%
Modified Statutory Solvency basis -
---------------------------------
Operating profit before tax £231m -1%
Earnings per share (diluted) (see 4 below) 3.01p -6%
Dividend per share 1.63p +10%
1 Annual Premium Equivalent (APE) is total new annual premiums + 10% of
new single premiums.
2 Contribution before tax from new worldwide life and pensions business.
3 Change from 31/12/00.
4 Based on Operating profit from continuing operations after tax.
Full details of these results can be found in Parts 2 and 3.
Group Chief Executive, David Prosser said: ' Legal & General has
produced excellent new business value added and volumes in the first
half. Our value for money strategy has delivered strong, profitable
growth in market share. The UK life and pensions APE has grown by 30%
to a new record, and our fund managers have won over £6 billion in new
business.
Our multi-channel distribution strategy continues to develop with
important new partners such as Barclays and Alliance & Leicester
choosing Legal & General and expanding our customer reach significantly.
Despite the current weak equity markets, we are confident of achieving
substantial further profitable growth in market share once these
alliances become fully operational in the next few months.
Legal & General is a financially strong business with a trusted brand
and this is important to all our customers and distribution partners.
We have had a first half of real achievement and there is more to come.'
Analysis of profit - Achieved Profits basis
===========================================
1H 01 1H 00
£m £m
UK Life and Pensions operating profit before tax 265 216
Worldwide operating profit before tax 351 339
Variation from longer term investment return (199) (90)
Profit before tax 193 256
Profit for the half year showed a good increase at the operating level,
resulting largely from very positive growth in the contribution from our
core UK life and pensions business. However, weak investment markets
gave rise to a combined investment return for that business from
equities and property 8.1% lower (1H 00: 4.3% lower) than the assumption
for the six month period. This increased negative variance contrasts
with strong positive variances seen in earlier periods, and has led in
the current half year to a reduction in profit before tax compared with
2000. The total of investment variances since we started reporting this
number in 1997 has been positive.
The contribution from worldwide new business, including Managed Funds,
was up by 31% to £114m (1H00: £87m). Within this, the contribution from
new life and pensions business grew 41% to £97m (1H00: £69m), compared
with the 21% growth in APE. The contribution from our growing book of
in-force business improved to £165m (1H00: £148m) but the contribution
from shareholder net worth reduced to £68m (1H00: £75m) due to the lower
assumed rate of return.
The changes in UK double tax relief, highlighted in our last results
release, were the primary cause of the operating profit from our
investment management business falling to £31m (1H00: £40m).
Shareholders' funds increased to £5,318m (31 December 2000: £5,274m),
after payment of the dividend of £83m.
Analysis of Profit - Modified Statutory Solvency basis
======================================================
1H 01 1H 00
£m £m
UK Life and pensions operating profit before tax 176 156
Worldwide operating profit before tax 231 234
Profit before tax 57 287
Operating profit before tax fell marginally compared with last year.
Although there was growth in both life and pensions operating profit,
driven largely by a 10% increase in the transfer from the UK Long Term
Fund, and in General Insurance profit, these were offset by a fall in
the investment management profit, following the tax change referred to
above, and by the Other operational income. The reversal in Other
operational income was largely caused by falling investment markets.
The contribution from Shareholder Retained Capital was affected by the
adverse investment markets and by the increased level of capital
invested to support the excellent growth we have achieved in new
business volumes. Mainly as a result of this, profit before tax fell to
£57m (1H00: £287m).
The high reported rate of tax results from there being no tax credit
available for unrealised depreciation in equity values.
Analysis of new business
========================
1H 01 1H 00 Increase/
£m £m (decrease)
New business(APE)
-----------------
UK life and pensions 266 205 30%
- individual 202 175 15%
- corporate 64 30 113%
UK unit trusts and ISAs 59 55 7%
Total UK 325 260 25%
International life and pensions 46 53 (13)%
Worldwide (including unit trusts) 373 315 18%
New UK fund management 6,012 5,869 2%
UK new business
===============
Our UK new business grew by 25% in the first half of 2001, with second
quarter growth of 35% especially positive against the equivalent period
last year. 59% of our individual new business came from the IFA sector,
where we have experienced strong support from the fee-earning segment of
the market. Our major new partnerships, described in more detail below,
made a modest contribution to the half year but their real impact will
begin to be seen later this year.
Individual pensions.
--------------------
Annual premium business grew by 19% to £50m (1H00: £42m) as a
consequence of Legal & General's strong competitive position, with £42m
being written on Stakeholder terms. Single premium pension sales were
£353m, down from £372m in the first half of 2000, as a consequence of
lower annuity volumes.
Individual life.
----------------
Annual premium sales increased to £67m (1H00: £63m), benefiting from the
strong position we have built up in the life protection market. Our
competitive stance will help to offset the new business impact of our
decision to withdraw our ISA mortgage repayment product in May. Single
premium bond sales were up sharply at £498m, an increase of 52%,
reflecting continuing high levels of demand, especially for with-profits
bonds.
ISAs and unit trusts.
---------------------
In a subdued market, it is pleasing to report that sales of our regular
savings ISA products were up 45% on the first half of 2000 at £16m.
Single payment sales were broadly maintained at £430m (1H00: £440m).
Corporate business.
-------------------
Corporate new business increased to £64m APE (1H00: £30m) as a result of
our strength in the bulk purchase annuity market. For the first half,
bulk purchase annuity premiums increased by 336% to £397m (1H00: £91m).
Although the flow of business in this market tends to be lumpy,
quotation volumes remain high.
In the group risk market, Legal & General maintained its strong
performance with new annual premiums up 14% at £16m (1H00: £14m).
Product initiatives have included the introduction of voluntary group
risk schemes, which can be sold alongside employers' Stakeholder pension
schemes.
Expanding distribution
======================
In January, Legal & General and Barclays Bank Plc announced an important
new strategic alliance whereby Legal & General's long term savings and
protection products would be sold through the Barclays Bank branch and
virtual networks. Barclays have offered Legal & General's Stakeholder
pensions and group life assurance since April and from the beginning of
August a broad range of Legal & General products will become available
through these channels. Legal & General and Barclays have so far been
designated as Stakeholder pensions provider by over 24,000 employers
covering nearly 600,000 potential scheme members.
In February, Alliance & Leicester announced its intention to offer Legal
& General long term savings and investment products through its 309
strong branch network. Initial indications from the arrangement, which
came into effect early in May, are very positive, with sales exceeding
our expectations.
In July, The Woolwich announced it would offer Legal & General
protection products, usually connected with house purchase or
re-mortgage transactions, through its branch network from 1 October
2001.
These initiatives, of which more are expected in the future, represent a
massive expansion in our customer reach. That reach is being further
expanded by the success of our internet site www.legalandgeneral.com.
The site has generated sales growth consistently for each month of this
year and producing direct sales of £4m APE in the first half. We are
also now receiving 15% of term applications from IFAs on line.
Increased activity on the site is expected following its relaunch
earlier this week.
International businesses
========================
The operating profits from the Group's international businesses grew
strongly by 33% to £32m (1H00: £24m).
USA
---
New business APE in the first half of 2001 was $36m, a 9% increase over
the preceding six month period. Comparisons with the first half of 2000
are distorted by the effect of the introduction of the 'Triple X'
solvency requirements, which boosted sales recorded at the beginning of
that year.
Growth in our US business has, allowing for the 'Triple X' impact, been
rapid over recent years. Operating profit before tax of $36m was up 24%
(1H00: $29m), reflecting the benefit of this growth.
Netherlands
-----------
New business APE again grew rapidly, increasing by 78% to EUR. 16m
(1H00: EUR. 9m). Annual premium business increased to EUR> 6m (1H00:
EUR. 5m) reflecting the strong support we have received for our
competitive term assurance products. Single premium sales were
particularly buoyant, increasing 194% to EUR. 103m (1H00: EUR. 35m)
boosted by an annuity product launch late last year.
Operating profit before tax grew by 67% to EUR. 10m (1H00: EUR.6m)
reflecting the continued strong growth in this business.
France
------
New business APE increased by 38% to EUR. 22m (1H00: EUR. 16m). Within
this result, annual premium life and pension business more than doubled
to EUR. 9m (1H00: EUR. 4m). Unit trust sales increased by 19% over the
year to EUR. 37m (1H00: EUR. 31m). The operating profit from this
business was unchanged at EUR. 2m.
Investment management
=====================
In the first half of 2001, our investment management team maintained its
impressive track record, winning a further £6.0bn (1H00: £5.9bn) of new
institutional funds. We now have over 2000 corporate clients and our
new AAA Fixed Interest Fund has so far attracted over £1.5bn of funds.
The profit from the management of external clients' funds was £22m
(1H00: £29m). As mentioned earlier this business no longer benefits
from UK double tax relief (1H00: £7m benefit). The result for our unit
trust and ISA/PEP business is now reported within Other operational
income, following a shift in its corporate ownership within the Group.
Group funds under management were £113bn at 30 June 2001, of which 62%
was held for external clients.
General insurance
=================
All classes of business have achieved underwriting profits in the first
half of 2001, contributing to the 78% growth in operating profit to £16m
(1H00: £9m). The household account, which represents nearly three-
quarters of net premiums written, produced an unchanged operating profit
of £6m.
The operating profit for mortgage indemnity business was £6m (1H00: £10m).
This included £2m (1H00: £4m) arising from the pre-1993 mortgage
indemnity reserves, reflecting settlements made. The remaining
provision for pre-1993 business is £12m.
Other personal lines business produced an operating profit of £4m (1H00:
£7m loss). The 2000 result included a final settlement in respect of
business written through Andrew Weir Insurance Company Limited.
Other operational income
========================
Other operational income comprises income 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 for
this half year of £15m (1H 00: £15m profit) was largely as a result of
the weaker investment markets, which caused the net investment return to
fall by £22m to a £4m loss.
In the seven months to 30 June 2001, the Group raised £197m of debt on
attractive long term rates of interest. This debt, which has been lent
on an intra-group subordinated basis to the UK Long Term Fund, underpins
our anticipated rapid new business growth. It has been set against
Corporate Funds and its servicing cost of £5m has been reflected within
interest expense. The investment return on the corresponding assets is
included in the SRC contribution to profit.
The Group's other operations produced a loss of £6m (1H 00: £1m loss).
Within this, the unit trust and ISA/PEP business result, which included
the impact of lower equity values on fee income and systems development
costs on both the Barclays fund integration and our planned funds
supermarket, was only partially offset by a banking profit.
Shareholder retained capital (SRC)
==================================
For the first half of 2001, the SRC contribution, grossed up to a
pre-tax amount, was a decrease of £165m (1H00: an increase of £60m) and
comprised:
- the release of capital and profits from business written in previous
years. In the current period, this has largely been offset by the
investment of capital to support the rapidly growing volumes of non-
profit new business. In aggregate, these items amounted to an
increase in the SRC of £9m compared with an increase of £160m in the
first half of 2000; less
- a decrease of £67m (1H00: a decrease of £12m), primarily resulting
from realised and unrealised depreciation of equities; and
- the distribution from non-profit business, already included in the
life and pensions operating profit, of £107m (1H00: £88m).
Outlook
=======
Legal & General has performed strongly in the first half of 2001 and at
the same time has laid the foundations for an even stronger future. We
have a well recognised and widely admired brand; we provide quality
products which offer our customers good value for money and, of
increasing importance in difficult investment markets, our UK Long Term
Fund has acknowledged financial strength. Similarly key to our success
has been our multi-channel distribution strategy now further
strengthened by our partnerships with Barclays, The Woolwich and
Alliance & Leicester.
These attributes will serve Legal & General well in the marketplace in
which we compete. In the first half of 2001, Legal & General has
progressed and succeeded on many fronts. The outlook for the second
half of this year and beyond remains positive.
Dividend
========
The interim dividend has been increased by 10% to 1.63p and will be paid
on 1 October to shareholders registered at the close of business on 14
September. The shares go ex-dividend on 12 September. The interim
report will be sent to shareholders on 3 August together with details of
our new Dividend Re-investment Plan.
Notes:
- A copy of this announcement can be found in the News and Results
section of our Shareholder site at www.legalandgeneral.com.
- The results presentation to analysts and fund managers will also
be available on our Shareholder site by 14.00 British Summer
Time (BST).
- Institutional fund managers and analysts who cannot attend our
results presentation may join a conference call at 15.00 BST
today. To join the conference please call +44 (0)20 8515 2329
from 14.50 BST. Investors in the USA and Canada may call toll
free on 1 800 218 8862. No PIN is required - quote Legal &
General and Andrew Palmer as chairperson.
Enquiries to:
Investors:
Andrew Palmer, Group Director (Finance) 020 7528 6290
e-mail: andrew.palmer@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 07973 611888
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