Due to the unprecedented adverse market conditions in 2008 and early 2009, the Board took the decision to cut the 2008 final dividend by 50% (final dividend: 2.05p per share, total dividend paid £120m, full year dividend 4.06p, total dividend paid of £239m). Although the Group’s cash generation was sufficient to maintain the dividend at the 2007 level, the principal concern was to sustain the strength of the Group’s capital base at a time when financial markets were in turmoil. In August, we also announced a reduction in the 2009 half year dividend of 45% (£65m) from the 2008 level. Total cash payment to shareholders fell from £367m in 2008 to £185m in 2009.
During the second half of 2009, investment markets have recovered and shown more stability, and whilst many remain cautious about the recovery, the financial and economic outlook is now more optimistic. The Group has generated £726m of operational cash, whilst incurring £27m of strain in writing new business, resulting in £699m of net cash. The [IGD] surplus is estimated to have increased from £1.8bn at end 2008 to £3.1bn at the end 2009 after accrual of the dividend, reflecting improved financial strength. The Board has therefore recommended that the 2009 final dividend be based on a 33% step-up from 2008 levels resulting in a final dividend per share of 2.73p. With the half year dividend of 1.11p, this will bring total dividends for 2009 to 3.84p.
In arriving at future dividend recommendations, the Board will continue to take account of market conditions, cash generation within the businesses and the stability of the Group’s capital base. We expect to demonstrate continued progress in the ability of the Group to generate cash and, as a result, we envisage that we will grow the dividend in line with medium term cash generation. We anticipate that the dividend will be comfortably covered by net cash generation.
