You report on both an EEV and IFRS basis and these show very different results. So, can you just talk me through the details here?

To understand our results you need to look at three different bases. You need to look at embedded value, you need to look at IFRS and you need to look at cash. Embedded value gives the long-term value of the business that we’re writing.

On that basis profits are down 3%. Within that, the new business profit has gone up a lot; we’ve increased new business and the profitability of that new business. But that’s been offset by the fact that we have less money to invest and our expectations of returns on investments have come down and, therefore, the total profit is down by 3%.

IFRS suffers the new business strain – the cost of writing that new business – and that’s a charge in the accounts. But that’s offset by the fact that the business that we wrote in previous years is now beginning to generate more surplus and that surplus has gone up in the year.

And then, importantly, we have a one-off basis change for the way we do reserving and that’s generated a large profit in the year. Overall, that means that the IFRS profit is up by 79%. The cash basis picks up the entire cost of the new business, but also the entire benefit of the one offs and, therefore, we’ve generated £340m of cash in the year. After financing and cost of the dividend, that’s a modest outflow of £55m for the year.

Just to pick you up on one of those things you said there. Going back to embedded value you said a 3% underlying drop in profits. But if you look at the pre tax profit level it’s down by 34%. It’s a big number. Are you concerned by that?

No. The difference between the underlying and the total profit is really the outperformance or under performance of the investment markets in the year. Last year, as you say, we had £312m profit and that reflected equity markets going up. This year equity markets have gone up, but that’s been offset by the fact that the capital value of bonds has gone down as interest rates have gone up and, therefore, we only have a £7m profit on that this year.

So underlying profits under IFRS are up by 79%. What’s the picture there?

Yes, the underlying EPS is up strongly at 17.9p. With a dividend at 7.85p per share that’s dividend cover of 2.3 times. Now, that includes the one off reserving basis changes. So, if you strip those out, earnings per share is 11.7p, which is a dividend cover of 1.5 times. The effect of those on an IFRS basis is £156m and on the cash basis is £274m.

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