Dr. Nigel Wilson
Group Chief Financial Officer
During 2009 material progress has been made in generating cash and improving cost management. Actions to reduce Groupwide costs, including a 17% reduction in total headcount, led to an overall annual reduction in costs of £69 million.
Furthermore, action to reduce commission and focus on capital efficient new business led to a material reduction in new business strain to only £27m (2008: £334m). These effects, together with improvements in the operating profit of [LGIM], General insurance and Retail investments led to net cash generation of £699m during 2009, a significant improvement on 2008 (£320m) and the £450m target set in March 2009. Operational cash generated in 2009 increased by 11% to £726m (2008: £654m) primarily as a result of the release of the mature in-force risk business.
One of the principal aims of the Group is to optimise the cash profile of its products. Regardless of financial reporting methodology, total cash earned by a product over its lifetime will be the same.
Reported profit relating to non profit Risk and Savings products can be volatile in any particular year – being impacted by non-recurring items such as reserving changes, large investment variances and non cash items which may be significant. We therefore focus on the expected cash profile of our products to give us a better understanding of the Group’s ability to sustain dividend payments to shareholders and finance new business over the medium term.
The Group’s ability to generate cash is considerable and is supported by our Risk, Savings, Investment management and International businesses.
