Legal & General Group Plc L&G FY 2014 Results -6-
04 März 2015 - 8:01AM
UK Regulatory
(3) Buying additional operational capabilities and developing
strategic partnerships to ensure good access to direct investments
and generate better returns over the medium to longer term. LGC
acquired a 40% stake in Pemberton Asset Management, with a
commitment to invest EUR250m into SME loans across LGR and LGAS,
developing a European Private Placement capability. We also
invested alongside PGGM in a GBP370m UK Commercial Property
portfolio where LGIM are the asset manager.
(4) Supporting Legal & General's social purpose agenda. LGC
are focused on housing, urban regeneration, energy and alternative
finance, where long term capital is failing to meet the demand.
GBP2.8BN FURTHER DIRECT INVESTMENTS COMPLETED
Direct Investments 2014 2013
GBPbn
-------------------- ----- -----
LGR 4.6 2.5
-------------------- ----- -----
LGC 0.7 0.3
-------------------- ----- -----
LGA & Other 0.4 0.1
-------------------- ----- -----
Total 5.7 2.9
-------------------- ----- -----
LGR continues to invest in longer term property leases,
commercial mortgages and infrastructure. In the year this included
GBP845m of additional property investments including the GBP252m
Places for People deal to acquire 4,000 homes and to help finance
7,000 new homes over 7 years. In addition, a further GBP593m of
secured lending and GBP260m of infrastructure investment were
completed during the year.
LGC continues to invest in direct investments;LGC purchased a
40% stake in Pemberton, and provided a GBP77m cash injection into
CALA to acquire Banner Homes. We increased the allocation into UK
commercial property with strategic co-investments and provided
GBP143m of short term loans to strategic partners to facilitate
direct investments.
LGA has invested in commercial mortgages and US private
placements including $544m private placements and USD Commercial
Real Estate Lending.
RESILIENT GROUP-WIDE INVESTMENT STRATEGY
The Group's principal balance sheet of GBP57.2bn is well
positioned for the medium term and is predominantly an Investment
Grade debt portfolio with low bank sub-debt and peripheral European
exposure, and, where applicable, is closely hedged to
liabilities.
Asset portfolio 2014
-----------------------------
GBPbn LGR(1) LGC Other Total
------------------------------- ------- ---- ------ ------
Bonds: 40.7 1.6 3.5 45.8
------------------------------- ------- ---- ------ ------
Sovereigns 7.8 0.2 1.2 9.2
------------------------------- ------- ---- ------ ------
Banks 2.3 0.4 0.2 2.9
------------------------------- ------- ---- ------ ------
Other bonds 30.6 1.0 2.1 33.7
------------------------------- ------- ---- ------ ------
Property 1.9 0.1 - 2.0
------------------------------- ------- ---- ------ ------
Equities 0.3 1.9 0.1 2.3
------------------------------- ------- ---- ------ ------
Derivatives 3.8 0.1 0.1 4.0
------------------------------- ------- ---- ------ ------
Cash, cash equivalents, loans
& receivables 0.7 1.4 0.9 3.0
------------------------------- ------- ---- ------ ------
Total financial investments 47.4 5.1 4.6 57.1
------------------------------- ------- ---- ------ ------
Other assets 0.1 - - 0.1
------------------------------- ------- ---- ------ ------
Total investments 47.5 5.1 4.6 57.2
------------------------------- ------- ---- ------ ------
1. LGR assets represent those used to back the Group's
non-profit annuity business.
The investment variance across the Group was GBP(8)m (2013:
GBP29m) reflecting the positive impact of changes in LGR's
investment portfolio, with greater levels of direct investment,
offset by equity returns in the LGC asset portfolio which were
materially lower in 2014 than our medium term assumptions.
LEGAL & GENERAL AMERICA.
Financial highlights 2014 2013
$m
----------------------------- ------ ------
Operating profit 93 145
----------------------------- ------ ------
Operational cash generation 76 69
----------------------------- ------ ------
Gross premium income 1,117 1,024
----------------------------- ------ ------
New business APE 150 155
----------------------------- ------ ------
INCREASED CONTRIBUTION TO CASH
Operational cash generation increased by 10% to $76m (2013:
$69m). This represents the dividends paid by LGA to the Group and
reflects the focus of LGA to deliver net cash generation. In 2015
LGA has already paid an ordinary dividend of $80m to the Group.
During 2014, LGA adjusted its new business pricing basis,
allowing for the pricing of risk at a more granular level. As a
consequence prices have been raised at lower margin price points
and reduced elsewhere. This resulted in lower new business volumes
of $150m (2013: $155m) over the full year, including a decline of
$13m (15%) in the second half of 2014 compared to the corresponding
period in 2013. New business margin decreased to 9.9% (2013: 11.6%)
with the benefits from this change in business mix being more than
offset by changes to longer term mortality and lapse
assumptions.
Gross premiums increased 9% to $1,117m (2013: $1,024m) as we
continue to benefit from strong relationships with the brokerage
general agents, who distribute term assurance in the US market. LGA
is the 3(rd) largest provider of term life assurance by sum assured
in the US and remains the largest provider through the key
distribution channel of BGAs. LGA now has 1.15 million customers
(2013: 1.04 million).
profit impacted by adverse mortality
Operating profit was significantly lower at $93m (2013: $145m)
as LGA incurred total mortality claims which were $46m higher than
assumptions. Mortality experience was generally unfavourable across
the US life industry in 2014, especially in Q1 and Q4. The lower
interest rate environment in the US also had an adverse impact on
LGA's profitability of around $10m year on year. We will continue
to closely monitor emerging mortality experience in 2015 and take
further management action, including pricing adjustments, as
required.
cash generation.
STRONG CORRELATION BETWEEN CASH GENERATION AND EARNINGS
The table below highlights the linkage between the operational
and net cash generation of the business, and the profit of the
Group.
Op cash Strain Net Variances Profit Tax Profit
cash and other after before
GBPm tax tax
----------------------- -------- ------- ------ ----------- ------- ----- --------
LGR 292 51 343 3 346 82 428
----------------------- -------- ------- ------ ----------- ------- ----- --------
LGIM 262 - 262 - 262 74 336
----------------------- -------- ------- ------ ----------- ------- ----- --------
LGAS 472 (48) 424 (63) 361 99 460
----------------------- -------- ------- ------ ----------- ------- ----- --------
LGC 162 - 162 - 162 41 203
----------------------- -------- ------- ------ ----------- ------- ----- --------
LGA 46 - 46 (14) 32 24 56
----------------------- -------- ------- ------ ----------- ------- ----- --------
Operating profit from
divisions 1,234 3 1,237 (74) 1,163 320 1,483
----------------------- -------- ------- ------ ----------- ------- ----- --------
Group debt and other
costs (133) - (133) (32) (165) (43) (208)
----------------------- -------- ------- ------ ----------- ------- ----- --------
Operating profit 1,101 3 1,104 (106) 998 277 1,275
----------------------- -------- ------- ------ ----------- ------- ----- --------
Investment and other
variances - - - (6) (6) (31) (37)
----------------------- -------- ------- ------ ----------- ------- ----- --------
Total 1,101 3 1,104 (112) 992 246 1,238
----------------------- -------- ------- ------ ----------- ------- ----- --------
Dividend 668 668
----------------------- -------- ------- ------ ----------- ------- ----- --------
Dividend coverage 1.65 1.49
----------------------- -------- ------- ------ ----------- ------- ----- --------
CASH GENERATION BACKED BY DIVIDENDS TO GROUP
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