PROFIT BEFORE TAX
RETURN ON EQUITY
EARNINGS PER SHARE
FULL YEAR DIVIDEND
PROFIT BEFORE TAX (PBT)
Profit before tax measures profit attributable to shareholders incorporating actual investment returns experienced during the year.
IFRS profit before tax is up 8.7% on 2011 despite a £39m adverse investment variance and £12m losses relating to non-controlling interests.
RETURN ON EQUITY (ROE)
ROE measures the return by shareholders on shareholder capital retained within the business. ROE is calculated as IFRS profit after tax divided by average IFRS shareholders’ funds.
KPI Purpose: ROE provides a link between performance and balance sheet management and ensures an appropriate balance is maintained between the two.
EARNINGS PER SHARE (EPS)
EPS is a common financial metric, which can be used to measure the profitability and strength of a company over time. It is the total earnings divided by the number of shares outstanding. Basic EPS uses a weighted average of shares outstanding during the year.
The Group has delivered outstanding EPS growth of 12% driven by the growth in the underlying profits of the business units. This demonstrates the clear linkage between cash generation and returns.
FULL YEAR DIVIDEND
Full year dividend is the total dividends for the year (including interim dividends) divided by the number of outstanding ordinary shares in issue.
KPI Purpose: Full year dividend per share demonstrates the level of distribution to shareholders.
Double digit growth in earnings per share and a robust capital position coupled with the high level of visibility of future cash flows has led the Board to recommend an increase of 20% in the final dividend to 5.69p (2011: 4.74p) bringing the full year dividend to 7.65p (2011: 6.40p). The cost of the full year dividend is £452m (2011: £375m) and is covered 1.91 times by the net cash generation.
TOTAL SHAREHOLDER RETURN
EEV PER SHARE
TOTAL SHAREHOLDER RETURN (TSR)
TSR is a measure used to compare the performance of different companies’ stocks and shares over time. It combines the share price appreciation and dividends paid to show the total return to shareholders.
KPI Purpose: TSR measures total return to shareholders including dividends and share price movements.
Based on TSR performance, we are in the top quartile of the FTSE 100 (12th position as at 31 December 2012) after giving our investors a 50% return on their investment. On a longer-term view, our three-year TSR performance is 112% (over the three years to 31 December 2012).
INSURANCE GROUP DIRECTIVE (IGD) SURPLUS
The IGD surplus is an FSA regulatory measure, which calculates surplus capital within the Group. IGD surplus is defined as Group regulatory capital less the Group regulatory capital requirement, after accrual for proposed dividends. Surplus capital held within Society’s Long Term Fund cannot be included in the IGD definition of capital employed.
KPI Purpose: IGD surplus is the Group regulatory surplus capital measure.
The Group has a very strong IGD surplus of £4.1bn with a coverage ratio of 234%, after allowing for accrual of final dividend (2011: £3.8bn; 220% coverage). This surplus supports us in our ability to grow the business. The growth in surplus reflects the strong cash generation of the Group and the benefits of the US capital efficiency programme, which through the use of reinsurance solutions has benefited the Group surplus by £260m in 2012. The LGPL credit default provision of £1.7bn (2011: £1.6bn) remains in place to fund against the risk of credit defaults and is equivalent to 60bps (2011: 61bps) of defaults over the life of the portfolio.
EUROPEAN EMBEDDED VALUE (EEV) PER SHARE
KPI Purpose: EEV per share provides shareholders with an insight into the value of the existing book of business at the balance sheet date.
The Group has delivered £734m (2011: £1,231m) of EEV profit after tax, which after external dividend payments of £394m and foreign exchange, pension deficit and other adjustments of £(48)m, increased EEV shareholders’ equity to £8,900m (2011: £8,608m).
The number of shares increased to 5,913m (2011: 5,872m) principally due to the vesting of three-year Save As You Earn (SAYE) options granted to our employees in 2009. This movement in equity coupled with the increase in the number of shares equates to a shareholder’s equity per share of 151p (2011: 147p).
Including the external assets of LGIM on an embedded value basis increases the Group EEV shareholders’ equity by £1.3bn, resulting in an EEV per share of 173p (2011: 167p).