2006 2005
(restated)
£m £m
Profit before tax 482.3 354.0
Policyholder tax 75.3 (80.9)
Profit after policyholder tax 557.6 273.1
Tax at standard UK rate (30%) 167.3 81.9
Profit on acquisition of Abbey’s life businesses not subject to tax (77.2) – Gain on transfers from with-profit funds not subject to tax (14.3) –
Untaxed (income)/expenses (15.4) (21.2)
Disallowable expenses 5.8 2.7
Adjustment to tax charge in respect of prior years (2.2) –
Recognition of losses/tax assets not previously valued (85.2) – Increase in deferred tax on movement in non-profit surplus 20.3 48.4 Impact of tax on acquired in-force amortisation at less than 30% 13.7 –
Other 13.5 (0.5)
Equity holders’ tax 26.3 111.3
Policyholder tax (75.3) 80.9
Total tax (credit)/charge for the year (49.0) 192.2
15. Earnings per share
The profit attributable to ordinary shareholders for the purposes of computing earnings per share has been calculated as set out below. This is after deducting preference share dividends paid in the year, profits attributable to other minority interests and the coupon paid in the year on the perpetual reset capital securities.
2006 2005
£m £m
Profit for the year attributable to equity holders 531.3 161.8
Less: Dividends paid on minority interest preference shares (4.9) –
Profit attributable to other minority interests (2.0) –
Coupon paid on perpetual reset capital securities (14.3) –
510.1 161.8
The basic earnings per share of 97.8p (2005: 56.8p adjusted) has been based on the profit of £510.1 million (2005: £161.8 million) and a weighted average number of ordinary shares outstanding during the year of 521,720,524 (2005: 248,939,286), calculated as follows. The comparative amount is stated after adjustment for the bonus element of the rights issue which completed on 9 August 2006.
2006 2005
No. No.
Issued ordinary shares at beginning of year 361,088,494 196,658,549
Effect of ordinary shares issued 127,507,657 52,280,737
Effects of bonus element of rights issue 33,124,373 –
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The diluted earnings per share of 97.3p (2005: 56.3p adjusted) has been based on the profit of £510.1 million (2005: £161.8 million) and a diluted weighted average number of ordinary shares outstanding during the year of 524,085,976 (2005: 251,314,072) calculated as follows. The comparative amount is stated after adjustment for the bonus element of the rights issue which completed on 9 August 2006.
2006 2005
No. No.
Weighted average number of ordinary shares at end of year 521,720,524 248,939,286
Effect of ordinary share options in issue 2,365,452 2,374,786
Weighted average number of ordinary shares (diluted) 524,085,976 251,314,072
The bonus element is calculated by reference to the closing share price immediately prior to the date that the ordinary shares became ex-rights of 654.5p per ordinary share and the additional 322.4 million new ordinary shares issued at 480.0p per ordinary share.
16. Statement of changes in equity
Perpetual
Share reset capital Retained Minority
capital Share securities Reserves earnings interests
(note 17) premium (note 19) (note 20) (note 21) (note 22) Total
£m £m £m £m £m £m £m
At 1 January 2006 18.1 42.5 496.5 1,045.3 834.3 108.2 2,544.9
Total recognised income and expense for the year
attributable to equity holders – – – 0.5 528.4 2.0 530.9
Dividends on ordinary shares – – – – (93.2) – (93.2)
Coupon paid on perpetual reset capital securities,
net of tax relief – – – – (10.0) – (10.0)
Dividends on preference shares – – – – (4.9) (8.2) (13.1)
18.1 42.5 496.5 1,045.8 1,254.6 102.0 2,959.5
Issue of ordinary share capital – rights issue 16.1 1,531.2 – – – – 1,547.3
Issue of ordinary share capital – share option schemes 0.1 2.4 – (0.6) 0.6 – 2.5
Issue of ordinary shares to minority shareholders
in UK Commercial Property Trust Limited – – – – – 152.0 152.0
Issue costs – (41.8) – – – – (41.8)
Equity share options issued – – – 2.5 – – 2.5
Purchase of minority interest preference shares – – – – – (87.3) (87.3)
Gain on purchase of minority interest preference shares – – – – 12.7 (12.7) –
Notes to the consolidated
financial statements
(continued)
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16. Statement of changes in equity(continued)
Perpetual Retained
Share reset capital earnings Minority
capital Share securities Reserves (note 21) interests Total (note 17) premium (note 19) (note 20) (restated) (note 22) (restated)
£m £m £m £m £m £m £m
At 1 January 2005, as previously reported 9.8 47.2 – 0.9 714.0 – 771.9 Transfer from unallocated surplus (note 24) – – – – 10.0 – 10.0
At 1 January 2005, as restated 9.8 47.2 – 0.9 724.0 – 781.9
Total recognised income and expense for the
year attributable to equity holders – – – 0.1 158.5 – 158.6
Dividends on ordinary shares – – – – (48.2) – (48.2)
9.8 47.2 – 1.0 834.3 – 892.3
Issue of ordinary share capital 8.3 0.6 – 1,043.0 – – 1,051.9
Issue costs – (5.3) – – – – (5.3)
Equity share options issued – – – 1.3 – – 1.3
Preference shares of acquired business – – – – – 108.2 108.2
Issue of perpetual reset capital securities – – 500.0 – – – 500.0
Issue costs, net of tax relief – – (3.5) – – – (3.5)
At 31 December 2005 18.1 42.5 496.5 1,045.3 834.3 108.2 2,544.9
Tax relief on the costs of issuing the perpetual reset capital securities amounts to £1.5 million.
17. Share capital
2006 2005
£m £m
Authorised: 1,000 million (2005: 500 million) ordinary shares of 5p each 50.0 25.0 Issued and fully paid: 685.2 million (2005: 361.1 million) ordinary shares of 5p each 34.3 18.1
2006 2005
million million
Shares in issue at 1 January 361.1 196.7
Shares issued through rights issue 322.4 –
Shares issued under share option schemes 1.7 0.2
Shares issued on acquisition of Resolution Life Group Limited – 164.2
Shares in issue at 31 December 685.2 361.1
At an Extraordinary General Meeting of the Company held on 17 July 2006 the authorised share capital of the Company was increased by 500 million ordinary shares of 5p each to 1,000 million ordinary shares of 5p each.
On 9 August 2006 the Company completed a rights issue to qualifying ordinary shareholders. The terms of the rights issue were 8 new ordinary shares for every 9 existing ordinary shares at an issue price of 480.0p per new ordinary share. The issue price represented a discount of approximately 26.7 per cent to the closing share price immediately prior to the rights issue of 654.5p per existing ordinary share. A total of 322,359,030 new ordinary shares were issued pursuant to the rights issue and the proceeds amounted to £1.55 billion before expenses. The new ordinary shares ranked for the interim dividend declared by the directors on 19 September 2006.
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Ordinary shareholders of the Company are entitled:
• To attend general meetings of the Company and to vote at such meetings. Ordinary shareholders have one vote on a show of hands if present at a general meeting or, if a poll is called, one vote for each share held.
• To receive a copy of the annual accounts, auditors’ report, directors’ report and any accompanying reports of the Company not less than 21 days before the date of the annual general meeting.
• To receive dividends, including interim dividends declared by the Board, except where shares are issued on terms providing that they will rank for dividend as from a particular date. The Company may not declare, pay or distribute a dividend on the ordinary shares or redeem, purchase or otherwise acquire its ordinary shares for so long as a deferred coupon payment of the perpetual reset capital securities has not been satisfied.
Where an ordinary shareholder has not been traced for a period of twelve years the Company is entitled to sell the shares of that member. The proceeds of sale are retained by the Company and the amount is held as a debt due to the former member of the Company. No interest accrues on the debt.
18. Share options
The share-based payment arrangements in existence during the year are set out below.
Following the rights issue on 9 August 2006, the number of options granted and the option prices were revised for all schemes at that date to reflect the bonus element of the rights issue. This did not result in an increase in the fair value of the share options granted under these schemes. The bonus element is calculated by reference to the closing share price immediately prior to the date that the ordinary shares became ex-rights of 654.5p per existing ordinary share and the additional 322.4 million new ordinary shares issued at 480.0p per ordinary share.
For share options granted before 7 November 2002, the recognition and measurement principles of IFRS 2Share- based Paymenthave not been applied, as permitted by the transitional provisions in IFRS 1.
The weighted average share price of the Company in 2006 amounted to 635.6p (2005: 552.3p).
The total expense for the year arising from share-based payment transactions was £2.5 million (2005: £1.3 million), all of which relates to equity-settled share-based payments.
The share option equity reserve at 31 December 2006 was £4.7 million (2005: £2.2 million).