Legal & General Group Plc L&G FY 2014 Results -7-
04 März 2015 - 8:01AM
UK Regulatory
In 2014, 86% of the net cash generation was distributed to the
Group (2013: 88%). This demonstrates the high quality, liquid
nature of the cash generation.
2014 2013
--------------------------------- -------------------------------
Net cash Dividend Dividend Net cash Dividend Dividend
GBPm GBPm % of cash GBPm GBPm % of
GBPm cash
---------------------- --------- --------- ----------- --------- --------- ---------
LGR, LGAS and LGC 929 685 74 831 627 75
---------------------- --------- --------- ----------- --------- --------- ---------
LGIM 262 213 81 239 213 89
---------------------- --------- --------- ----------- --------- --------- ---------
LGA 46 46 100 44 44 100
---------------------- --------- --------- ----------- --------- --------- ---------
Sub-total 1,237 947 76 1,114 884 79
---------------------- --------- --------- ----------- --------- --------- ---------
Group debt and other
costs (133) (112) -
---------------------- --------- --------- ----------- --------- --------- ---------
Total 1,104 944 86 1,002 884 88
---------------------- --------- --------- ----------- --------- --------- ---------
OPERATIONAL CASH GENERATION GUIDANCE
2015 2014
GBPm Guidance
----------------------------------- --------- ------
LGR 340 292
----------------------------------- --------- ------
Insurance excluding General
Insurance 290 286
----------------------------------- --------- ------
Savings(1) 135 127
----------------------------------- --------- ------
LGA(2) 50 46
----------------------------------- --------- ------
LGC 170 162
----------------------------------- --------- ------
Sub-total 985 913
----------------------------------- --------- ------
LGIM 275
----------------------------------- --------- ------
LGAS General Insurance 46
----------------------------------- --------- ------
Operational cash generation
from divisions 1,234
----------------------------------- --------- ------
Group debt costs (116) (112)
----------------------------------- --------- ------
Other costs (21)
----------------------------------- --------- ------
Total operational cash generation 1,101
----------------------------------- --------- ------
New business surplus 3
----------------------------------- --------- ------
Net cash generation 1,104
----------------------------------- --------- ------
1. Workplace savings is excluded from Savings operational cash
and cash guidance, and included within LGIM operational cash.
2. LGA has already paid its 2015 ordinary dividend of $80m in
February 2015.
For LGR, LGA, LGC, Savings, Insurance excluding General
Insurance and Group debt costs, we estimate operational cash
generation will increase in 2015 by 8% to GBP869m (2013:
GBP801m).
TAXATION.
GROUP TAX RATES - EFFECTIVE TAX RATE OF 19.9%
Equity holders' effective tax rate 2014 2013
%
------------------------------------ ------ ------
Total Effective Tax Rate 19.9 20.8
------------------------------------ ------ ------
Annualised rate of UK corporation
tax 21.5 23.25
------------------------------------ ------ ------
In 2014, the Group's effective tax rate remained slightly below
the UK corporation tax rate due to a number of differences between
the measurement of accounting profit and taxable profits.
The UK has a deferred tax asset of GBP45m in respect of trading
losses carried forward in Group companies (2013: GBP93m). The
movement in the year includes a GBP71m (2013: GBP70m) contribution
to net cash generation in LGR and LGAS Protection from the
utilisation of tax losses. It is expected that the trading losses
within LGR will be fully utilised during 2015.
BALANCE SHEET STRENGTH.
EXTENDING THE DEBT MATURITY OF THE GROUP
Legal & General continues to have a strong liquidity
position reflecting its requirements for working capital and
derivative collateral. The Group's outstanding core borrowings
total GBP3.0bn (2013: GBP2.5bn). There is also a further GBP0.7bn
(2013: GBP0.7bn) of operational borrowings including GBP0.7bn
(2013: GBP0.6bn) of non recourse borrowings. In June 2014 we issued
GBP600m of subordinated Tier 2 debt, with a maturity date of 2064
(with an initial call date of 2044), and coupon rate of 5.5% and
extended the overall average maturity of the group's borrowings
significantly.
Group debt costs of GBP142m (2013: GBP127m) reflect an average
cost of debt of 5.2% per annum (2013: 4.9% per annum) on average
nominal value of debt balances of GBP2.7bn (2013: GBP2.6bn).
IGD Capital resources
As at 31 December 2014 the Insurance Group's Directive (IGD)
surplus was GBP3.9bn (2013: GBP4.0bn).
The Group's capital resources totalled GBP7.7bn, covering the
capital resources requirement of GBP3.8bn by 2.01 times.
Capital resources increased by GBP0.4bn, primarily as a result
of net cash generation of GBP1.1bn and the issuance of GBP0.6bn of
additional Lower Tier 2 debt in June, offset by GBP(0.7)bn of
dividends, including allowance for the final dividend of GBP496m
(2013: final dividend of GBP408m) and GBP(0.2)bn of additional
provision for pension deficit payments during the year.
The Group's capital requirement increased by GBP0.5bn primarily
as a result of an additional GBP0.4bn deployed in writing new
business, offset by GBP(0.2)bn released from the run-off of
existing business. The Group's capital surplus was impacted by a
further GBP(0.3)bn resulting from sensitivity to asset market
movements. In LGPL, the Group's main annuity company, we maintain a
provision of GBP2.3bn (2013: GBP1.8bn) to provide for the risk of
credit default. Over the last five years we have experienced total
actual defaults of less than GBP10m.
Capital 2014 2013
GBPbn
------------------------------------- ----- -----------
Group capital resources 7.7 7.3
------------------------------------- ----- -----------
Group capital resources requirement 3.8 3.3
------------------------------------- ----- -----------
IGD surplus 3.9 4.0
------------------------------------- ----- -----------
Coverage ratio (%) 201 221
------------------------------------- ----- -----------
ECONOMIC CAPITAL
Economic capital is the amount of capital that the Board
believes the Group needs to hold, over and above its liabilities,
in order to meet the Group's strategic objectives. These numbers do
not represent our view of the Solvency II outcome for the Group.
Solvency II has elements which L&G considers to be inconsistent
with the Group's definition of economic capital, so there will be
differences between the two balance sheets. Our Economic Capital
model has not been reviewed by the Prudential Regulatory Authority
(PRA), nor will it be.
As at 31 December 2014 Legal & General Group had an economic
capital surplus of GBP7.0bn (2013: GBP6.9bn), corresponding to an
economic capital coverage ratio of 229% (2013: 251%).
Eligible own funds increased by GBP1.1bn to GBP12.5bn (2013:
GBP11.4bn) primarily as a result of own funds generated by new
business written, releases on the back book and the issuance of
GBP0.6bn of debt, offset by dividends.
The economic capital requirement increased by GBP1.0bn to
GBP5.5bn (2013: GBP4.5bn) primarily as a result of changes in
market conditions, increases in surplus assets which attract risk
capital and the capital requirements on new business written.
Overall the new business written in 2014 has covered its capital
requirements.
Capital 2014 2013
GBPbn
------------------------------ ----- -----
Eligible own funds 12.5 11.4
------------------------------ ----- -----
Economic capital requirement 5.5 4.5
------------------------------ ----- -----
Economic capital surplus 7.0 6.9
------------------------------ ----- -----
1-in-200 coverage ratio (%) 229 251
------------------------------ ----- -----
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