CASH GENERATION.


The Group has delivered excellent results for cash metrics in 2011. This underlines the diversification and sustainability of the Group’s cash generation. In 2011 we have ensured that cash generation is translated into cash in the balance sheet, and that the legal entities that generate the net cash pay dividends to the Group. This clearly demonstrates the tangible nature of the Group’s cash metric.

[Operational cash generation] in the year was up 12% to £940m (2010: £840m) with all business units delivering higher operational cash than in 2010. There has been a steady growth of 13% per annum in the last five years.

Net cash generation: 2007 £236m; 2008 £320m; 2009 £699m; 2010 £760m; 2011 £846m (bar chart)

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[Net cash generation] was up 11% to £846m (2010: £760m) with the proportion backed by dividends to the Group of 83% (2010: 63%). Cash generation is diversified and we expect to achieve further increases to net cash generation over the coming years.

Alongside this diversification the Group has grown its core businesses with worldwide [APE] up 7% to £1,907m (2010: £1,781m) and worldwide assets under management increased to £379bn (2010: £365bn), demonstrating that we can successfully deliver both growth and improved cash generation.

We have also taken steps to demonstrate that cash can be extracted from the businesses for the benefit of shareholders. During 2011, Legal and General Assurance Society has approved an annual dividend of £500m (2010: £300m) payable to the Group which relates to the net cash generated from its Risk and Savings business units, and Legal & General Investment Management has approved an annual dividend of £150m (2010: £132m).

Despite the difficult macroeconomic environment, asset related investment variance has only fallen back to slightly below our long-term investment return targets. This has led to a reduction in [IFRS] profit before tax.

The Group Capital and financing assets have also received special dividends from our operations in the Netherlands of €35m (2010: nil) and also settlement of intra Group debtors. After the payment of the external dividend, the Group Capital and Financing assets have grown by £0.7bn in the year to £4.3bn.

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RECONCILIATION OF OPERATIONAL CASH GENERATION TO IFRS PROFIT

Year ended 31 December 2011

Opera-
tional
cash
gener-
ation
£m

New
busi-
ness
strain
£m

Net
cash
gener-
ation1
£m

Exper-
ience
vari-
ances
£m

Changes
in valua-
tion as-
sump-
tions
£m

Non-
cash
items
£m

Other2
£m

IFRS profit/ (loss) after tax
£m

Tax ex-
pense/ (credit)
£m

IFRS profit/ (loss) before tax
£m

1

Net cash generation and Operational cash generation are defined in the Glossary. Operational cash generation comprises, for Risk, the post-tax expected release for the Annuity (£227m) and Protection (£224m) businesses and the post-tax IFRS result for General Insurance (£31m); for Savings, the post-tax expected release or profit from the Insured Savings (£101m) and Savings investments (£22m) businesses, and the shareholders’ share of bonuses on With-profits business (£51m); for Investment management, the post-tax IFRS profit (£189m); for Group capital and financing the post-tax operating profit excluding expected gains/losses on equities (£44m), and dividends remitted from our International businesses from sustainable cash generation (£51m).

2

Investment gains and losses, international and other.

Total Risk operating profit

482

(31)

451

22

24

(86)

411

150

561

Total Savings operating profit

174

(63)

111

(12)

(5)

6

(6)

94

34

128

Investment management operating profit

189

189

189

45

234

International

51

51

39

90

47

137

Group capital and financing

44

44

44

8

52

Investment projects

(41)

(41)

(15)

(56)

Operating profit

940

(94)

846

10

19

(80)

(8)

787

269

1,056

Investment variance

(55)

(55)

(42)

(97)

Impact of change in UK tax rates and other

(9)

(9)

6

(3)

Total

940

(94)

846

10

19

(80)

(72)

723

233

956

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