Notes to the Operating Profit Income Statement (IFRS basis) - Interim Report 2006

14. Basis of preparation

For UK long term insurance business, operating profit is the accrued distributable transfer from the UK Long Term Fund (LTF) to shareholders, grossed up at the corporate tax rate. For non profit business, it is augmented by the interest paid on the intra-group subordinated debt capital included within the SRC. Operating profit includes a longer term investment return on shareholders’, General insurance and Netherlands’ funds held outside the UK LTF. It excludes investment variances and the change in the SRC. The income statement comprises returns to shareholders and excludes policyholders’ returns. This supplementary information provides further analysis of the results reported under IFRS and we believe gives shareholders a better understanding of the underlying performance of the business.

In addition to the restatement described in Note 21, the 30 June 2005 comparatives for operating profit have also been adjusted for the following items:

An adjustment to partially smooth the investment return fluctuations has been made to the Netherlands’ operating profit, which is affected by various mismatches between asset and liability valuations. This reduced the 30 June 2005 operating profit by £13m and increased the variation from longer term investment return by the same amount.
At 31 December 2005, the results of Retail investments and Institutional fund management were combined to create a new segment called Investment management. The Retail investments operating profit of £4m for the period ending 30 June 2005 has been reclassified from Other operational income and included in Investment management.

15. Life and pensions operating profit

Note 15. Life and pensions operating profit
	30.06.06 £m	30.06.05 Restated £m	Full year 2005 £m
With-profits business	40	32	66
Non profit business	175	151	349
UK	215	183	415
USA	33	27	52
Netherlands	(3)	18	18
France	7	–	4
Worldwide	252	228	489

16. Investment management operating profit

Note 16. Investment management operating profit
	30.06.06 £m	30.06.05 Restated £m	Full year 2005 £m
Managed pension funds	45	33	74
Ventures	2	2	4
Property	4	3	4
Retail investments	5	4	7
Other external income	4	2	5
Other income	5	4	9
	65	48	103

17. General insurance gross premiums and operating profit

Note 17. General insurance gross premiums and operating profit
	30.06.06 Premiums written £m	30.06.06 Operating profit £m	30.06.05 Premiums written £m	30.06.05 Operating profit £m	Full year 2005 Premiums written £m	Full year 2005 Operating profit £m
From continuing operations
Household	115	2	115	2	234	7
Other businesses	46	–	55	2	100	7
	161	2	170	4	334	14

18. Other operational income

Note 18. Other operational income
	30.06.06 £m	30.06.05 Restated £m	Full year 2005 £m
Shareholders’ other income
Investment return on ordinary shareholders' equity	69	55	127
Interest expense	(48)	(30)	(75)
	21	25	52
Other operations¹	(1)	(3)	(5)
Unallocated corporate and development expenses	(5)	(4)	(6)
	15	18	41

1. Principally the Regulated mortgage network.

19. Movement in SRC

Note 19. Movement in SRC
	30.06.06 £m	30.06.05 Restated £m	Full year 2005 £m

Investment income	45	36	67
Interest expense and charges	(1)	(1)	(3)
Realised investment gains	95	48	191
Unrealised investment (losses)/gains	(35)	46	132
Investment return on SRC	104	129	387
Net capital released from non profit business	110	138	478
Distribution of operating profit from non profit business	(175)	(151)	(349)
SRC movement before tax	39	116	516
SRC at beginning of period	2,560	2,196	2,196
SRC movement before tax	39	116	516
Tax charge	(33)	(18)	(148)
SRC movement included in the statement of recognised income and expense	25	7	(4)
SRC at end of period	2,591	2,301	2,560

SRC includes intra-group subordinated debt capital of £602m.

Supplementary Operating Profit Information based on results reported under International Financial Reporting Standards