Reconciliation of operational cash generation to IFRS profit.

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Reconciliation of operational cash generation to IFRS profit
Year ended 31 December 2009	Opera- tional cash gener- ation £m	New busi- ness strain £m	Net cash £m	Inter- national £m	Vari- ances £m	Invest- ment gains and losses £m	Other £m	IFRS profit/ (loss) after tax £m	Tax expense/ (credit) £m	IFRS profit/ (loss) before tax £m
Total Risk	454	50	504	–	27	–	–	531	204	735
Total Savings	110	(77)	33	–	16	–	(8)	41	14	55
Investment management	121	–	121	–	–	–	–	121	46	167
International	8	–	8	78	–	–	–	86	41	127
Group capital and financing	33	–	33	–	–	16	–	49	8	57
Investment projects	–	–	–	–	–	–	(23)	(23)	(9)	(32)
Operating profit	726	(27)	699	78	43	16	(31)	805	304	1,109
Investment variance	–	–	–	–	–	58	–	58	(74)	(16)
Minority interests	–	–	–	–	–	–	(19)	(19)	–	(19)
Total	726	(27)	699	78	43	74	(50)	844	230	1,074

NEW BUSINESS

Group [APE] for 2009 of £1.4bn was 7% lower than last year. This in part reflects trading conditions during the year but also management action to overhaul the product mix. As markets contracted and commissions were cut volumes declined in most markets. However, Legal & General Investment Management new funds and demand for [SIPPs], unit trusts, [ISAs] and products with an element of guarantee continued to grow.

Changes to the definition of supplementary IFRS operating profit

Supplementary IFRS operating profit is one of the key performance indicators for the Group. We believe this measure gives shareholders a better understanding of the underlying performance of the business. We have changed its definition to enhance its clarity and insight into the factors driving Group profitability, in particular to remove the impact of economic volatility from the underlying performance of the business.

The new definition extends our use of expected investment returns to the non profit Risk and Savings results, bringing this business into line with our other UK segments. It is also more closely aligned with the basis used for European Embedded Value (EEV) reporting.

The change in definition does not affect the underlying performance, the economics of our business, the profit before tax attributable to shareholders or the profit for the year. It only changes the allocation of profit between operating and non-operating elements.

The key changes to our definition of IFRS operating profit are:

i. Operating profit for the Risk and Savings businesses is now based on the investment returns that the Group expects to make on the financial investments which back the non profit business over the reporting period, rather than the actual returns on these investments. The difference between the expected return and the actual return on investments, and the corresponding impact on liabilities, is shown below the operating profit line. This adjustment includes the removal of accounting volatility arising from the mismatch of asset and liability valuations for deferred tax balances within unit linked funds under IFRS.

ii. Group capital and financing operating profit now excludes the profit or loss arising from actuarial gains and losses on annuities held by the Group’s defined benefit pension schemes. As this is driven by bond market yields the effect has also been classified as variation from longer term investment return.

iii. The profit impact arising from the elimination of own debt holdings is reflected below operating profit. In previous reporting periods this amount has been nil.

The following table sets out the effect of the above changes to IFRS operating profit for the year ended 31 December 2008:

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	As reported 2008 £m	Effect of restating the definition of IFRS operating profit £m	Restated 2008 £m
Operating profit
Risk	(603)	825	222
Savings	66	(59)	7
Investment management	165	–	165
International	59	–	59
Group capital and financing	124	15	139
Operating profit	(189)	781	592
Variation from longer term investment return	(1,239)	(781)	(2,020)
Property losses attributable to minority interests	(63)	–	(63)
Profit/(loss) from continuing operations before tax attributable to equity holders of the Company	(1,491)	–	(1,491)
Tax credit attributable to equity holders of the Company	361	–	361
Profit/(loss) from ordinary activities after tax	(1,130)	–	(1,130)
Loss attributable to minority interests	63	–	63
(Loss)/profit attributable to equity holders of the Company	(1,067)	–	(1,067)