Sir Rob Margetts
Chairman
A Strategy for Long Term Growth
Legal & General’s strategy remains consistent year on year, as does our continued determination to improve our delivery of that strategy. In 2007 we focused on widespread implementation of operational improvements across Legal & General. We took important steps to restructure our balance sheet and improve our competitive position through more effective deployment of our resources – our staff and your capital.
We added to our range of partnerships with leading UK financial institutions, signed a Memorandum of Understanding with two major Indian banks to set up a joint venture in India, and continued to drive further improvements to technology, efficiency and customer service. In several areas, this studied approach to building the business organically has yielded outstanding results, none more so than in Legal & General Investment Management, where we finished the year with total funds under management of £297bn, up an impressive £64bn during the year.
Financial Highlights
UK Life and Pensions delivered increased new business sales, up 8% to £1,160m on an Annual Premium Equivalent (APE) basis, and worldwide new business increased by 10% to £1,437m APE. European Embedded Value (EEV) Operating Profit after significant one-off effects in 2006 and 2007 was £912m (2006: £1,233m). The Company retains its AA+ financial strength rating, one of the strongest in the sector.
“Your Company again performed well in 2007, making significant operational progress. A broad range of products, accessible through a variety of channels, and backed by a strong balance sheet combine to create a powerful proposition for customers in a competitive market.”
Chairman
Shareholder Return, Dividend and Share Buyback
The Total Shareholder Return (TSR) for 2007 was -14%. This reflects the fact that our share price, like those of other companies in the sector, fell during the year. The comparable figure for 2006 was +34%. The Board continues to pursue its progressive dividend policy. In July 2007 we increased the interim dividend by 7.5% to 1.87p. We now recommend an increase of 7.6% or 0.29p to the final dividend, making a full year increase of 7.6% or 0.42p. This will be paid on 19 May. In July, we updated the stock market on our capital position and announced a share buyback of £1 billion. As at 17 March the buyback has returned over £568m to shareholders. Our recommended dividend and our capital return programme are based on a thorough review of the Company’s financial strength and current market conditions, bearing in mind our commitment to a strong credit rating and continued profitable growth.
Board Changes
Robin Phipps retired from the Board in July having served for 11 years as an executive director, latterly with responsibility for UK Operations. During a distinguished 25 year career with Legal & General, Robin was instrumental in building your company’s UK business to become one of the country’s leading providers of protection, annuity and savings products, and we are very grateful for his immense contribution. Following Robin’s retirement, executive directors John Pollock and Kate Avery have continued in their existing UK business management roles, reporting directly to Group Chief Executive Tim Breedon. John and Kate have been members of the Board since 2003 and 2001, with responsibilities for our Risk and Savings businesses, respectively. Beverley Hodson stood down from the Board at the 2007 Annual General Meeting (AGM). We would like to thank her for her contribution over six and a half years as a non-executive director.
Our Staff
During 2007, we celebrated 10 years of partnership with Unite (formerly Amicus), our Trade Union. Together we have worked hard to bring about a working environment which we feel offers an excellent context for over 9,000 UK staff. They again responded magnificently to the challenges of the business. I and the whole Board would like to express our appreciation of their hard work in making your Company the success it is today. Their engagement in the business drives the unique Legal & General culture, and enables the Company to make powerful progress and to play a positive role in the wider communities in which we operate.
Shareholder Communications and AGM
Last year we introduced a new shorter alternative to the Annual Report and Accounts: the Summary Financial Statements. This was positively received by shareholders, and this year our communications continue to evolve. When we sent out the Interim Report, we offered you some choices as to how you would prefer to receive information in future. We are now responding by sending you information in your preferred format. For the majority, this means receiving Annual Report materials electronically. Of those who elected to receive a printed document, most wanted to receive the shorter Summary Financial Statements. I am delighted that we have been able to work with you to make this transition, which is not only better for the environment but also saves us printing and mailing large volumes of paper.
Outlook
Our combination of clear strategic goals and a commitment to continuous operational improvement positions us well in a changing environment. In the coming year we expect the more difficult conditions to continue with, in particular, a slower housing market and less confidence among UK consumers and investors. Despite this, we believe our business is robust, capable of generating sustained profitable growth and value, and increasingly well positioned competitively for the future. Your Company is in a long term business, and we believe the underlying demographics of our market continue to offer very considerable potential for Legal & General as a leading UK risk, savings and investment management business.
Chairman
