TIDMLGEN
RNS Number : 1115V
Legal & General Group Plc
05 August 2015
Stock Exchange Release
05 August 2015
OPERATING PROFIT UP 18%, net cash up 11%, roe(1) 19%
financial highlights:
-- Net cash GENERATION up 11% to GBP629m (h1 2014: GBP567m)
-- OPERATIONAL CASH GENERATION UP 8% TO GBP624M (h1 2014: GBP578m)
-- OPERATING PROFIT up 18% to GBP750M (h1 2014: GBP636m)
-- Profit after tax up 8% to GBP547m (h1 2014: GBP507m)
-- Earnings per share UP 7% to 9.11P (h1 2014: 8.51p)
-- adjusted Earnings per share(2) UP 15% to 9.79P (h1 2014: 8.51p)
-- return on equity(1) 19.1% (h1 2014: 17.6%)
-- interim DIVIDEND UP 19% TO 3.45P PER SHARE (h1 2014: 2.90p)
business highlights:
-- lgim AUM up 12% to GBP714.6BN (H1 2014: GBP640.0BN)
-- LGIM EXTERNAL NET FLOWS UP 62% TO GBP13.8BN (H1 2014: GBP8.5BN)
-- annuity assets up 13% to GBP43.4bn (h1 2014: GBP38.5bn)
-- BULK PURCHASE ANNUITY PREMIUMS OF GBP1,146M (h1 2014: GBP3,135M)
-- uk protection premiums up 4% to GBP774m (h1 2014: GBP743m)
-- DIRECT INVESTMENTs UP 35% TO GBP6.2BN (h1 2014: GBP4.6BN)
Nigel Wilson, Group Chief Executive, said:
"Legal & General continues to deliver strong organic growth
in the UK and the US from both our developing and established,
market leading businesses. In addition we are disposing of, or
closing non-core businesses and reducing costs in real and nominal
terms.
The actions that we are taking allow us to focus on our chosen
markets, enable us to continue to deliver low prices and better
value for our increasing customer base and deliver attractive
returns for our shareholders.
This financial and strategic discipline is driving our sixth
year of double digit growth in net cash, operating profit and
dividends - particularly noteworthy in H1 was the diversity of the
strong operational and financial delivery, with an 18% increase in
operating profit to GBP750m, the 19% increase in dividend per share
to 3.45p and the 19% ROE."
1. Return on equity is calculated by taking annualised profit
after tax attributable to equity holders of the Company (twice the
half-year number), as an average of shareholders' equity during the
period. This excludes a GBP40m expense in relation to Legal &
General France and Legal & General Gulf as a consequence of
both operations being classified as held for sale.
2. Adjusted earnings per share is calculated by dividing profit
after tax by the weighted average number of ordinary shares in
issue during the period, excluding the GBP40m expense as per note
1.
FINANCIAL SUMMARY
FINANCIAL HIGHLIGHTS GBPm H1 2015 H1 2014 Growth
%
Analysis of operating profit
Legal & General Retirement 280 188 49
Legal & General Investment Management 176 149 18
Insurance 192 179 7
Savings 50 54 (7)
Legal & General Capital 115 102 13
Legal & General America 40 43 (7)
Operating profit from divisions 853 715 19
Group debt costs (75) (63) (19)
Investment projects and expenses (28) (16) (75)
Operating profit 750 636 18
Investment and other variances (inc. minority
interests) (1) (78) - n/a
Profit before tax attributable to equity holders 672 636 6
Operational cash generation 624 578 8
New business surplus / (strain) 5 (11) n/a
Net cash generation 629 567 11
LEGAL & GENERAL RETIREMENT (LGR)
GBPm H1 2015 H1 2014 Growth
%
Annuity assets (GBPbn) 43.4 38.5 13
Annuity sales 1,326 3,518 (62)
Lifetime mortgage advances 37 - n/a
LEGAL & GENERAL INVESTMENT MANAGEMENT (LGIM)
GBPbn H1 2015 H1 2014 Growth
%
LGIM total AUM(2, 3) 714.6 640.0 12
LGIM total international AUM 115.8 69.2 67
External AUM net flows 13.8 8.5 62
Advisory assets 11.3 13.7 (18)
Workplace AUA 13.1 9.5 38
Asset management revenue (GBPm) 347 309 12
INSURANCE
GBPm H1 2015 H1 2014 Growth
%
UK Protection gross premiums 774 743 4
UK Protection new business annual premiums 119 123 (3)
SAVINGS
GBPbn H1 2015 H1 2014 Growth
%
Savings AUA 110.8 103.8 7
LEGAL & GENERAL CAPITAL (LGC)
GBPbn H1 2015 H1 2014 Growth
%
LGC assets 4.8 5.2 (8)
of which: direct investments 0.8 0.6 25
LEGAL & GENERAL AMERICA (LGA)
$m H1 2015 H1 2014 Growth
%
LGA gross premiums 588 553 6
1. Investment and other variances include a GBP40m expense as a
result of classifying Legal & General France and Legal &
General Gulf as held for sale.
2. LGIM total AUM includes GBP208.1bn (H1 2014: GBP174.9bn) of
derivative overlay assets associated with the Solutions
business.
3. LGIM AUM includes GBP43.4bn (H1 2014: GBP38.5bn) managed on
behalf of LGR and GBP34.0bn (H1 2014: GBP34.4bn) managed on behalf
of Savings.
strategy
The Group continues to execute on its clear and focused strategy
based on five key macro trends: ageing populations; globalisation
of asset markets; welfare reform; digital lifestyles and
retrenching banks, through both organic growth and selective
bolt-on acquisitions. Our responses to these trends and the
diversification within our business model have enabled us to
deliver broad based and sustained growth in our cash and earnings.
We believe that aligning our strategy to the five macro trends
creates resilience in our business model and we see continuing
opportunities for growth in our chosen markets. External
uncertainties, including regulatory change, do remain and we are
adapting with these changes, but the fundamental pillars of
opportunity and growth remain attractive and we remain focused on
delivering good returns for our shareholders.
The Group pursues a focused and disciplined approach to the
execution of its strategy. We are exiting, closing or selling
non-core or sub-scale businesses including closing our With-profits
fund and disposing of assets from our venture capital business
(LGV). We have also sold our Irish business in July 2015, have
entered into agreements to sell our Egyptian and Gulf businesses
and intend to dispose of our French and German businesses in the
near future. We anticipate the on-going impact on the Group's cash
and profits, resulting from these transactions, to be immaterial.
At the same time we are implementing cost savings across the
business including through headcount reductions and a review of our
UK and US locations: the programme is on track to deliver GBP80m in
savings in 2015, with expected restructuring costs of GBP40m.
AGEING POPULATIONS
Demand for de-risking solutions remains high as companies seek
to manage the earnings volatility caused by legacy defined benefit
pension schemes and the associated financial obligations placed on
the sponsoring employer. We have positioned our Investment
Management (LGIM) and Retirement (LGR) businesses to provide
de-risking solutions for the estimated $10 trillion of defined
benefit pension liabilities globally, of which around GBP1.8
trillion resides in the UK.
LGIM has cemented its position in H1 2015 as the market leader
of Liability Driven Investment solutions (LDI) in the UK, with over
40% of the market. Solutions assets increased 22% to GBP308.2bn (H1
2014: GBP253.1bn), including net flows of GBP12.3bn (H1 2014:
GBP15.9bn) in the period. In LGR, for bulk annuities, we are
evolving our new business strategy to become more 'capital-lite' in
response to the potential market demand and the expected increased
regulatory capital requirements for annuities under Solvency II.
Bulk annuity sales for H1 2015 were GBP1,146m (H1 2014: GBP3,135m).
We are increasingly using reinsurance to optimise our return on
capital in this market and have reinsured GBP5.4bn of longevity
risk and selectively used asset reinsurance in relation to the
large bulk annuity transactions we have completed in the last 18
months. The opportunity remains significant and our unique skillset
and capabilities will enable us to deliver consistently attractive
returns.
Globalisation of asset markets
LGIM continues to expand internationally, especially in the US
and Asia, which resulted in total international external AUM net
flows of GBP5.4bn (H1 2014: GBP5.8bn). We have strengthened
relationships and expanded distribution to accelerate our
international growth and continue to see strong demand for our
Solutions and Active Fixed Income (AFI) products.
In H1 2015 we successfully won our first multi-billion dollar US
Index mandate, and in Asia won mandates in Japan, Taiwan and Korea,
expected to fund in H2. Total international AUM increased by 67% to
GBP115.8bn (H1 2014: GBP69.2bn), including the transfer of
GBP37.5bn of US assets to LGIM's Chicago office in H2 2014.
Welfare reform
It is clear that the provision for retirement by individuals in
the UK needs to increase as the government continues to reduce
welfare spending by the State. Pensions auto-enrolment continues to
see over 90% of members choosing to stay enrolled. Statutory
minimum contribution rates increase from 2% of salary today to 5%
in 2017 and 8% in 2018 resulting in an expected tripling in Defined
Contribution (DC) savings over the next 10 years. Our Workplace DC
platform continues to resonate with employers of all sizes in the
UK. We have had success with major employers reviewing their
provision, and by the end of 2015 we will be providing pension
schemes to 30 of the largest high street retailers. Alongside this
the number of companies using our Worksave Pension Plan (our SME
auto-enrolment solution) has grown by over 25% during the first
half of 2015. Our Workplace proposition is significantly enhancing
the customer base of the Group, which is expected to provide new
product opportunities as the state contribution to welfare
continues to reduce.
Total DC Assets increased 15% to GBP42.8bn (H1 2014: GBP37.2bn)
including net flows of GBP1.0bn (H1 2014: GBP1.1bn). This includes
Workplace Savings assets up 38% to GBP13.1bn (H1 2014: GBP9.5bn)
with net flows of GBP0.9bn (H1 2014: GBP1.0bn).
Digital Lifestyles
Digital technology is becoming increasingly pervasive in our
lives, including in how individuals and companies interact with
financial institutions. We are addressing the opportunities and
challenges presented by this change. We have achieved this with our
market leading Retail Protection business and are now challenging
ourselves to replicate this success elsewhere in our business, for
example, with our digital proposition in Workplace for SMEs and by
launching a 'GI digital' D2C platform this year.
Bank Retrenchment
Bank retrenchment, alongside the long-dated illiquid nature of
our annuity fund, is enabling us to invest in real assets over the
long term. This provides opportunities for greater returns across
our Capital (LGC), Retirement (LGR) and Investment Management
(LGIM) divisions. Direct Investments across the Group increased 35%
to GBP6.2bn (H1 2014: GBP4.6bn).
In July 2015 Pemberton Asset Management, our pan-European SME
lending joint venture announced a successful EUR447m first close of
the European Mid-Market Debt Fund, bringing the total AUM to
EUR547m including an additional EUR100m segregated mandate. Our
principal focus for direct investment is housing, urban
regeneration, alternative finance and clean energy asset classes.
Our expertise is increasingly attracting institutional partners to
invest alongside us.
DIVIDEND
The Board has confidence in the strength and growth prospects
for the business. We have increased the interim dividend by 19% to
3.45 pence (H1 2014: 2.90 pence) per share, in line with our
dividend policy. We intend to provide an updated dividend policy as
part of our 2015 preliminary results in March 2016.
SOLVENCY ii
We are working closely with the Prudential Regulatory Authority
(PRA) in respect of Solvency II and have submitted applications in
Q2 2015 for our internal model to calculate our Solvency Capital
Requirement, the use of transitionals, matching adjustments and
deduction and aggregation for Legal & General America. We are
engaged in on-going dialogue with the PRA and expect this process
to conclude in Q4 2015. This regulatory framework will be
applicable from 1 January 2016 and will rely, in part, on
components of the 31 December 2015 balance sheet for its
calculation. We will provide further updates on this process as
clarity emerges. We note recent clarification from the PRA to the
effect that transitional capital will count as Tier One capital,
including for assessments of dividend-paying capacity.
OUTLOOK
Our businesses remain focused on large markets where we see long
term structural growth potential. Our strategic clarity and unique
skillset, together with our scale, efficiency and track record mean
that we are very well placed to take advantage of macro trends. No
business can be completely immunised from external factors and we
are evolving our business model in response.
The demand for pension risk transfer strategies remains high,
with our research indicating that almost two thirds of large
defined benefit (DB) schemes in the UK are looking to take
de-risking action, with almost half looking to do so over the next
five years. The opportunity remains significant for Legal &
General and as market leader in the UK, we are extremely well
placed to deploy our unique and integrated specialist experience in
longevity, investment management and asset transitioning, across
our LGR, LGIM and LGC divisions to facilitate pension risk
transfer. Actual transactions flows, particularly for large bulk
annuity transactions, will vary between reporting periods.
We have accelerated the implementation of our 'capital-lite'
model for new annuity business in response to the potential market
demand and the expected increased regulatory capital requirements
for annuities under Solvency II. This will result in less risk, in
respect of new business, being retained on our balance sheet,
whilst seeking to optimise the return on capital we deploy in this
market. For each new annuity contract we expect this to result in a
higher proportion of profit emerging in the year of sale. However
we expect less total profit to emerge over the duration of the
contract when compared to retaining all of the risk. We will use
direct investments and selective de-risking actions to optimise
returns from the long term predictable run-off of our GBP43bn
annuity back book.
Following our successful entry into the lifetime mortgage market
we have doubled our target and now expect to write cGBP200m of
lifetime mortgages new business this year and increasing amounts
thereafter. We expect individual annuities sales to remain subdued,
with the market remaining challenging both in respect of the Budget
reforms and in light of regulatory change.
As the market leader in LDI in the UK, LGIM will continue to
develop its range of solutions, particularly as the pooled market
and delegated solutions are expected to grow more rapidly as many
pension schemes increasingly seek these solutions. We will continue
to invest internationally and are expanding our distribution in the
US, Asia, the Gulf and Europe. In the US our business is well
positioned to continue its positive momentum. We have experienced
more success in winning index mandates from international clients
and we expect this trend to continue.
Our insurance business is attractively placed to continue to
deliver strong cash generation. We see further opportunities in the
UK insurance market and have a strong Group protection pipeline for
H2 2015. We expect new business volumes and margins across our UK
protection businesses for 2015 to be broadly in line with 2014.
We intend to invest GBP15bn in direct investment across the
Group, over the medium term, matching the illiquid nature of our
liabilities and solvency capital requirements to deliver more
attractive risk adjusted returns to our shareholders.
We are on track to deliver cGBP80m of operating cost savings
across the Group, reducing costs from GBP1,250m in 2014 to
cGBP1,170m, whilst incurring GBP40m of restructuring costs in 2015.
We remain confident in delivering the 2015 operational cash
guidance we gave at the time of the 2014 full year results.
LEGAL & GENERAL RETIREMENT
FINANCIAL HIGHLIGHTS GBPm H1 2015 H1 2014
Operational cash generation 170 146
New business surplus 22 20
Net cash generation 192 166
Experience variances, assumption changes, tax
and non-cash movements 88 22
Operating profit 280 188
Bulk annuity single premiums 1,146 3,135
Individual annuity single premiums 180 383
Lifetime mortgage advances 37 -
Total LGR new business 1,363 3,518
Annuity net inflows (GBPbn) (0.1) 2.5
Bulk annuity assets (GBPbn) 28.8 24.6
Individual annuity assets (GBPbn) 14.6 13.9
Total annuity assets (GBPbn) 43.4 38.5
of which: direct investments 4.9 3.7
Longevity insurance gross premiums 164 167
record operational cash, sustained new business SURPLUS
Operational cash generation increased 16% to GBP170m (H1 2014:
GBP146m) reflecting the increased scale of the business with
annuity assets up 13% to GBP43.4bn (H1 2014: GBP38.5bn).
New business surplus of GBP22m (H1 2014: GBP20m) reflects our
continued ability to source attractively priced assets, with direct
investments backing our annuity business increasing 31% to
GBP4.9bn, (H1 2014: GBP3.7bn). New business surplus further
benefitted from our selected use of longevity and asset reinsurance
as our business model evolves to reflect the size of the market
opportunities and the forthcoming Solvency II regime.
Operating profit increased 49% to GBP280m (H1 2014: GBP188m)
reflecting both the increased scale of the business and the
'capital-lite' model we are deploying for new annuity business.
Operating profit benefitted from GBP21m of positive experience
variances following selective reinsurance of longevity and asset
risk related to bulk annuity transactions written in the last 18
months, consistent with this strategy, and GBP37m resulting from a
change in mortality reserving assumptions in relation to unreported
deaths of deferred annuitants.
significant global demand for pension risk transfer
Bulk annuity sales were GBP1,146m, from 23 policies, (H1 2014:
GBP3,135m from 25 policies).
The global risk transfer market is already very significant and
continues to grow as corporates seek to reduce or remove their
exposure to their legacy defined benefit pension liabilities,
estimated at approximately $10 trillion globally. We anticipate
growing demand for our established expertise, proven track record
and unique skillset in the bulk annuity market across all sizes of
pension schemes. Actual transaction flows will be determined by
prevailing market conditions and scheme funding levels, with larger
schemes unevenly distributed between quarterly reporting
periods.
ACCELERATING THE IMPLEMENTATION OF our 'CAPITAL-LITE' FRONT BOOK
MODEL
In the context of these significant opportunities, we have
implemented our 'capital-lite' model for bulk annuity new business.
We have accelerated this evolution in our business model as,
without any changes, the regulatory capital required in respect of
new business under Solvency II is likely to be higher than Solvency
I. Our actions include:
- Increasing use of longevity reinsurance. Of the GBP7.1bn of
external bulk annuity transactions we have completed since the
start of 2014, we have reinsured the longevity risk in respect of
GBP5.4bn of these.
- Increasing use of combined asset and longevity reinsurance,
which we have used selectively (GBP278m in H1 2015) to enhance
shareholder returns.
- Continuing our increased use of self-manufactured assets
(direct investments) to back our annuity liabilities, where the
illiquid nature of the liabilities enables us to enhance
risk-adjusted returns.
- We have reduced unit costs associated with our existing book
of bulk annuity business by c5%, compared to H1 2014.
managing cash generation AND PROFITS from the back book
We will continue to use direct investments and selective
de-risking actions to actively manage our GBP43bn annuity back
book. As a result our current expectation is that the back book
should be able to generate material levels of profit for around 15
years.
anticipated Financial implications
The financial consequences of our 'capital-lite' strategy differ
between the back and front books. For new business our
'capital-lite' model seeks to optimise return on capital and will
mean more of the cash generation and profits being realised at the
point of sale than has been the case previously, whilst risk
retained in respect of this new business (asset and partial
longevity) will continue to create future, albeit lower, sources of
value for shareholders in the subsequent years of each new annuity
contract.
INTERNATIONAL DIVERSIFICATION
Outside the UK, we have appointed George Palms as head of US
Retirement, together with a team based in Stamford Connecticut, to
facilitate our entry into the US pension risk transfer market.
Legal & General America (LGA) will act as the insurance carrier
for our US pension risk transfer business and provide the
associated customer administration.
individual retirement solutions
We completed the acquisition of Newlife Home Finance, a provider
of lifetime mortgages in April 2015. Lifetime mortgage sales were
GBP37m year to date. We have subsequently rebranded our proposition
as Legal & General Home Finance. The number of people over 60
years old is expected to grow by 6.3 million in the next 20 years.
This growth, coupled with an estimated GBP1.3 trillion of housing
equity currently owned by the over 60s in the UK, means that the
lifetime mortgage market is forecast to grow to over GBP2.3bn by
2019. We have doubled our target to writing GBP200m of lifetime
mortgages in 2015.
Individual Annuity sales were down 53% to GBP180m (H1 2014:
GBP383m). We expect the market to decline further.
LEGAL & GENERAL investment management
FINANCIAL HIGHLIGHTS GBPm H1 2015 H1 2014(1)
Total revenue 347 309
Total costs 168 150
Asset management operating profit 179 159
Workplace Savings (3) (10)
============================================================== ======= ===========
Operating profit 176 149
Net cash generation 138 117
Cost:income ratio(2) (%) 48 49
External net flows (GBPbn) 13.8 8.5
Internal net flows (GBPbn) (1.2) 1.6
Total net flows (GBPbn) 12.6 10.1
Of which international (GBPbn) 5.4 5.8
GBPbn H1 2015 H1 2014
Assets under management, including overlay
assets(3) 714.6 640.0
Advisory assets 11.3 13.7
Total assets 725.9 653.7
Of which:
- International assets under management, including
overlay assets(3) 115.8 69.2
- Advisory assets 11.3 13.7
========================================================================= ======= ========
- Total international assets 127.1 82.9
Assets under administration - Workplace Savings 13.1 9.5
1. LGIM includes the Workplace Savings business which was
previously reported in Savings. Prior year comparatives have been
amended.
2. Excluding Workplace Savings.
3. Assets under management include overlay assets, which
represent the notional value of derivative instruments on which
LGIM earns fees. Fees are charged on notional values and as such
are not subject to positive or negative market movements. Prior
period comparatives have been amended to reflect this change.
CONTINUED PROFIT AND CASH GROWTH FROM A diversified BUSINESS
LGIM continues to develop a range of innovative solutions, which
has enabled delivery of strong results with operating profit up 13%
to GBP179m (H1 2014: GBP159m) from asset management activities.
In Workplace Savings, the operating loss was GBP3m (H1 2014:
loss of GBP10m), an improvement year on year following an on-going
focus on unit cost management and increasing scale. Total net flows
were GBP0.9bn (H1 2014: GBP1.0bn).
LGIM continues to invest in the business whilst maintaining a
cost:income ratio, excluding Workplace, of 48% (H1 2014: 49%).
Total revenues increased 12% to GBP347m (H1 2014: GBP309m) with
total assets under management up 12% to GBP714.6bn (H1 2014:
GBP640.0bn).
Total external net flows increased 62% year on year to GBP13.8bn
(H1 2014: GBP8.5bn) driven by strong performance in the UK and the
US across our Active Fixed Income (AFI), Solutions and Property
asset classes.
market leading de-risking solutions
Active
Asset movements Index fixed Solu- Active Total Advisory Total
GBPbn funds income tions Property equities AUM assets assets
At 1 January 2015 274.8 103.8 293.3 13.6 8.2 693.7 14.8 708.5
External inflows 15.9 4.8 3.9 0.7 - 25.3 25.3
-------- --------
External outflows (17.1) (2.5) (3.4) (0.3) - (23.3) (23.3)
--------
Overlay asset net
flows - - 11.8 - - 11.8 - 11.8
Advisory net flows - - - - - - (3.5) (3.5)
External net flows (1.2) 2.3 12.3 0.4 - 13.8 (3.5) 10.3
Internal net flows (0.3) (0.8) - 0.2 (0.3) (1.2) - (1.2)
Total net flows (1.5) 1.5 12.3 0.6 (0.3) 12.6 (3.5) 9.1
Cash management
movements - 1.7 - - - 1.7 - 1.7
Market and other
movements 1.4 0.3 2.6 1.6 0.7 6.6 - 6.6
At 30 June 2015 274.7 107.3 308.2 15.8 8.6 714.6 11.3 725.9
Total AUM increased 12% to GBP714.6bn (H1 2014: GBP640.0bn).
Total net inflows were up 25% to GBP12.6bn (H1 2014: GBP10.1bn),
driven by on-going client appetite for LGIM's LDI and Real Assets
capabilities, Active Fixed Income and Multi-Asset strategies, and
strong demand for LGIM's workplace proposition.
The Solutions business achieved total net inflows of GBP12.3bn
(H1 2014: GBP15.9bn) driven by demand for an expanded range of
products. It is anticipated that clients' demand for de-risking
strategies will continue and LGIM is well positioned to benefit
from this trend. LGIM's recently launched delegated solutions
proposition offers a natural extension for clients seeking this
alternative. LGIM is also well placed to grow its LDI pooled fund
business and experienced record inflows into these funds during the
first half of the year.
Index external net flows significantly improved on last year to
net outflows of GBP1.2bn (H1 2014: GBP8.3bn). This was primarily
due to better execution on our retention strategy as more clients
moved to LGIM's non-index products as they executed de-risking
strategies. We are also experiencing greater success in winning
Index mandates from international clients, many of which are
expected to fund in H2 2015.
Net external inflows into Active Fixed Income of GBP2.3bn (H1
2014: GBP1.0bn) were driven by increased demand by institutional
clients in the UK and continued strong demand for LGIM's credit
capabilities in the US.
Property achieved total net inflows of GBP0.6bn (H1 2014:
GBP1.1bn) as a result of clients' continued appetite for this asset
class. LGIM is experiencing growing demand from international
clients and the closure of the second UK Property Income Fund (PIF
II) represented commitments from 16 investors from ten countries.
Property AUM has increased 23% to GBP15.8bn (H1 2014:
GBP12.8bn).
GROWTH IN UK DEFINED CONTRIBUTION
Net inflows in LGIM's Defined Contribution (DC) business were
GBP1.0bn (H1 2014: GBP1.1bn). Following the transfer of Workplace
Savings, LGIM is able to offer a comprehensive range of products
and services to its customers. This has already been demonstrated
by significant mandate wins during the first half of the year, with
several commencing during the latter part of 2015. Total DC assets
have increased by 15% to GBP42.8bn (H1 2014: GBP37.2bn).
CONTINUED INTERNATIONAL EXPANSION
Internationally LGIM experienced strong net inflows of GBP5.4bn
(H1 2014: GBP5.8bn), primarily driven by growth in the US. LGIM won
its first multi-billion dollar US Index mandates and continued to
attract significant LDI and Active Fixed Income inflows, resulting
in total net inflows in the US of GBP4.8bn (H1 2014: GBP4.6bn). A
collective investment trust fund range was launched in June 2015
which is expected to appeal to the US market. In Asia and the Gulf,
LGIM continues to strengthen relationships and expand its
distribution, which resulted in healthy flows of GBP0.9bn (H1 2014:
GBP1.0bn).
INSURANCE
FINANCIAL HIGHLIGHTS GBPm H1 2015 H1 2014
Operational cash generation 165 166
New business surplus - (8)
Net cash generation 165 158
Experience variances, assumption changes, tax
and non-cash movements 27 21
Operating profit 192 179
UK Protection new business annual premiums 119 123
UK Protection gross premiums 774 743
General Insurance gross premiums 164 178
Total UK gross premiums 938 921
SUSTAINED CASH AND PROFITS
Operational cash was GBP165m (H1 2014: GBP166m). New business
strain of nil (H1 2014: GBP(8)m) was driven primarily by strong new
business volumes and favourable market conditions. Operating profit
was 7% higher at GBP192m (H1 2014: GBP179m). General Insurance
delivered a strong performance with a combined operating ratio of
82% (H1 2014: 88%).
continued growth in premiums
Retail Protection gross premiums increased 6% to GBP545m (H1
2014: GBP514m), with new business of GBP79m (H1 2014: GBP83m), with
the strong first quarter in 2014 not repeated in Q1 2015. Q2 2015
new business sales were in line with the previous year, at
GBP41m.
Our Retail Protection business continues to benefit from the
strength and breadth of our distribution covering IFAs, banks and
building societies. We announced a new distribution agreement with
Intrinsic in May for retail protection products. Our direct
distribution channel delivered retail protection new business sales
of GBP14m, representing 11% growth on H1 2014 and now accounts for
18% of new business (H1 2014: GBP13m, 16% of new business).
Group Protection gross premium was GBP229m (H1 2014: GBP229m)
with new business of GBP40m (H1 2014: GBP40m).
Our mortgage club and surveying business are important
components of our Retail Protection distribution model. The Legal
& General Network facilitated over GBP20bn of mortgages in H1
2015 (H1 2014: GBP18bn), continuing its excellent growth and
reinforcing its position as the leading mortgage club in the
market. Our surveying business completed almost 240k surveys in H1
2015, representing an increase of 92% over H1 2014 reflecting new
contracts signed in 2014.
General Insurance gross premiums reduced to GBP164m (H1 2014:
GBP178m) as we maintained pricing discipline in a competitive
market. Our direct business delivered household GWP of GBP47m in H1
2015, representing 15% growth on H1 2014 and now accounts for 29%
of gross premiums (H1 2014: GBP41m, 23% of gross premiums).
savings
FINANCIAL HIGHLIGHTS GBPm H1 2015 H1 2014(1)
Operational cash generation 64 64
New business strain (5) (8)
Net cash generation 59 56
Experience variances, assumption changes, tax
and non-cash movements (9) (2)
Operating profit 50 54
------------------------------------------------ ------- -----------
1. Savings does not include the Workplace Savings business which
has been transferred to LGIM. Prior year comparatives have been
amended.
Operational cash generation remained flat at GBP64m (H1 2014:
GBP64m) as we continue to manage the reducing contribution from our
mature savings business. Net cash generation was marginally higher
at GBP59m (H1 2014: GBP56m) as we reduce the cost base associated
with this business.
Savings operating profit reduced to GBP50m (H1 2014: GBP54m)
resulting from marginally lower contributions from our with-profits
and retail bonds businesses as we manage the gradual run-off of
these mature product lines.
Digital
Mature
Suffolk Retail Consol Total
Platforms Life Savings Adj Savings
Assets under administration GBPbn GBPbn GBPbn GBPbn GBPbn
At 1 January 2015 71.9 7.7 36.0 (6.9) 108.7
Gross inflows 3.8 0.6 0.7 (0.2) 4.9
Gross outflows (2.7) (0.3) (2.2) 0.4 (4.8)
Net flows 1.1 0.3 (1.5) 0.2 0.1
Market and other movements 1.6 0.3 0.3 (0.2) 2.0
At 30 June 2015 74.6 8.3 34.8 (6.9) 110.8
Our Platforms business delivered net flows of GBP1.1bn (H1 2014:
GBP2.5bn) resulting in assets under administration (AUA) up 11% to
GBP74.6bn (H1 2014: GBP67.4bn). Cofunds continues to lead the
market, with a 21% share of platform assets. Cofunds is on track to
deliver a GBP11m per annum reduction in costs by the end of 2015,
targeted at the time of the acquisition.
Our SIPP business, Suffolk Life delivered net flows of GBP0.3bn
(H1 2014: GBP0.4bn) resulting in AUA up 15% to GBP8.3bn (H1 2014:
GBP7.2bn).
In Mature Savings, assets were GBP34.8bn (H1 2014: GBP35.9bn).
Following the closure of our With-profits fund to new business in
January 2015, net outflows of GBP(1.5)bn (H1 2014: GBP(1.5)bn),
were in line with our expectations and were partially offset by
positive market movements of GBP0.3bn (H1 2014: GBP1.1bn).
On 1 July 2015 we completed the disposal of Legal & General
(Ireland) Limited to Canada Life Group. AUA of GBP2.8bn relating to
this disposal are included within the total Mature Savings AUA of
GBP34.8bn as at 30 June 2015.
freedom and choice
Since the introduction of the Pensions Reform legislation we
have seen an increase in the proportion of customers wishing to
take their pension pots as cash withdrawals, with approximately
90%, or 3,000 customers, electing to take cash payments. Our
average payment size is GBP12k. This compares to approximately 60%
of customers taking cash before the reform legislation was
announced.
LEGAL & GENERAL CAPITAL
FINANCIAL HIGHLIGHTS GBPm H1 2015 H1 2014
Operational cash generation 92 82
Operating profit 115 102
GROSS ASSET ALLOCATION GBPm H1 2015 H1 2014
Equities 1,422 1,177
Fixed Income 937 1,125
Multi-Asset 493 169
Strategic Direct Investments 781 670
Cash 527 760
4,160 3,901
Treasury assets(1) 621 1,280
------------------------------- ------- --------
TOTAL 4,781 5,181
1. Treasury assets have reduced predominately due the repayment
of EUR600m of lower Tier 2 capital in June 2015.
growing profits
Legal & General Capital (LGC) increased operating profits by
13% to GBP115m (H1 2014: GBP102m) representing the smoothed
expected return on LGC assets after expenses and equates to an
assumed annualised investment return of 4.4% (H1 2014: 4.4%) on an
average asset base of GBP5.3bn (H1 2014: GBP4.7bn).
Achieved annualised investment return was 4.2% (H1 2014: 2.5%),
attributed to direct investments and equity markets outperforming
longer term expected returns despite the negative equity market
performance in the last few days of June 2015, which subsequently
reversed.
increasing strategic direct investment
LGC's key objective is to invest strategically into businesses
that require long term investment, utilising the long term illiquid
nature of the Group's liabilities and capital requirements, whilst
providing wider benefit to the Group with improved access to assets
and fee revenue. European bank retrenchment, limited public finance
and under-investment continue to provide opportunities for us in
our selected areas of housing, urban regeneration, alternative
finance and clean energy.
Housing expanded into Built to Rent
CALA Homes has performed strongly during the period and is on
course for a record year in terms of both revenue and profit with
the full year to 30 June 2015 representing the first year of
significant volume increase as part of the Group's growth
plans.
LGC has committed GBP119m through the purchase of regeneration
sites in Walthamstow and Salford, which we intend to develop into
approximately 500 homes. We expect to play a significant role in
this sector to form a new institutional asset class and are seeing
a strong pipeline of opportunities. We intend to bring in
co-investment partners as our Build to Rent portfolio grows in H2
2015 and beyond.
LGC has also obtained full planning consent to build 1,000
houses on a 250 acre site at Crowthorne, part of our substantial
strategic land bank.
Further Urban Regeneration partnerships
We are investing GBP240m, in partnership with Schroder UK Real
Estate, for the development of a modern retail, leisure and
residential complex in Bracknell Town centre. We have also invested
a further GBP503m in developing a world class media hub,
MediaCityUK in Salford, co-investing with the Peel Group. We are
partnering with the UK Government's Regeneration Investment
Organisation (RIO) to source further projects and attract foreign
investment. We will seek to allocate up to GBP1.5bn in similar
infrastructure projects.
Alternative Finance launched
LGC, through its 40% investment in Pemberton Asset Management, a
pan-European SME lending business, is developing a European private
placement capability. In July 2015, Pemberton announced a
successful EUR447m first close on its European Mid-Market Debt
Fund, which brings together investors from large blue-chip
financial services and insurance companies across Europe. Including
segregated mandates this brings the total AUM to EUR547m as we
continue to take advantage of the significant opportunities
presented by bank deleveraging. The fund is looking to build a
diversified portfolio of bilateral, club and syndicated loans to
companies with turnover between EUR75m and EUR1bn and has
successfully started lending in H1 2015.
Clean Energy Strategy
The UK will require significant deployment of private long term
capital in energy efficient power generation to reach international
2020 and longer term emission standards. LGC are working with
several potential partners to consider investing in developments in
renewable energy including solar and on-shore wind power. Legal
& General has invested in two solar parks to date.
LEGAL & GENERAL AMERICA
FINANCIAL HIGHLIGHTS $m H1 2015 H1 2014
Operational cash generation 80 73
Operating profit 61 72
Gross premium income 588 553
New business sales 62 78
INCREASED CONTRIBUTION TO CASH
Operational cash generation increased by 10% to $80m (H1 2014:
$73m). This represents the dividends paid by LGA to the Group in Q1
and reflects the focus of LGA to deliver net cash generation.
LGA adjusted its new business pricing in 2014 and made further
adjustments in Q2 2015. These changes allow 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 has
resulted in lower new business volumes of $62m (H1 2014: $78m), in
line with our expectations.
Gross premiums increased 6% to $588m (H1 2014: $553m) as we
continue to benefit from strong relationships with the brokerage
general agents (BGAs), who distribute term assurance in the US
market. LGA is the 5th largest provider of term life assurance by
annual premium equivalent in the US and remains the 2nd largest
provider through the key distribution channel of BGAs. LGA now has
1.18 million customers (H1 2014: 1.11 million).
pricing for emerging us MORTALITY trends
Operating profit was lower at $61m (H1 2014: $72m) including
$13m of adverse mortality experience. We are maintaining pricing
discipline and have reflected revised industry mortality tables in
our new business pricing. This is expected to result in new
business levels c20-25% lower for 2015 when compared to 2014, with
gross written premium c5% higher.
In July 2015 Gene Gilbertson was appointed as Chief Executive
Officer and President after serving in an interim capacity since 4
March 2015 as we move our US Protection and pension risk transfer
businesses forward.
Disposing of non-core ACTIVITIES
We continue to de-clutter our business model to focus on core
activities where we believe we can achieve significant scale and
attractive returns on capital. Following the disposal of Legal
& General Ireland for GBP16m, the Group agreed to sell our
Egyptian business for an estimated consideration of GBP34m. The
final consideration will be dependent on trading up to the date of
completion. The sale is anticipated to realise a profit on
disposal, which has not been recognised in this set of financial
results.
We are currently in the process of disposing of Legal &
General France and Legal & General Gulf and as a consequence
have classified these businesses as held for sale in our H1
results. As a result we have reflected a GBP40m expense within
investment and other variances representing the difference between
previous carrying values and anticipated sale proceeds.
borrowings
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 GBP2.5bn (FY 2014: GBP3.0bn). There is also a further
GBP0.6bn (FY 2014: GBP0.7bn) of operational borrowings including
GBP0.7bn (FY 2014: GBP0.7bn) of non recourse borrowings. In June
2015 we redeemed EUR600m of 4.0% Euro dated subordinated notes at
par.
Group debt costs of GBP75m (H1 2014: GBP63m) reflect an average
cost of debt of 5.1% per annum (H1 2014: 5.2% per annum) on average
nominal value of debt balances of GBP3.0bn (H1 2014: GBP2.5bn).
taxation - effective tax rate of 18.6%
Equity holders' Effective Tax Rate (%) H1 2015 H1 2014
Total Effective Tax Rate 18.6 20.3
Annualised rate of UK corporation tax 20.25 21.50
In H1 2015, 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 GBP10m in respect of trading
losses carried forward in Group companies (FY 2014: GBP45m) mainly
relating to Cofunds. Trading losses within LGR have been fully
utilised at H1 2015. The contribution to net cash generation in LGR
and Insurance from the utilisation of tax losses is spread over the
full year and is GBP15m for H1 2015 (H1 2014: GBP35m).
CASH GENERATION
The sources of our cash generation are transparent and the table
below highlights the cash generation by segment. Net cash
generation increased by 11%. This includes the full year ordinary
dividend of $80m from LGA which was received in Q1 2015.
GBPm H1 2015 H1 2014
LGR 170 146
Insurance excluding General Insurance 135 144
Savings 64 64
LGA 52 44
LGC 92 82
Sub-total 513 480
LGIM 150 132
General Insurance 30 22
Operational cash generation from divisions 693 634
Group debt costs (60) (49)
Other costs (9) (7)
Total operational cash generation 624 578
New business surplus / (strain) 5 (11)
Net cash generation 629 567
The table above is set out in the format of the cash guidance
for 2015 given at the time of the 2014 results announcement.
CLEAR VISIBILITY 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 Strain Net Variances Profit Tax Profit
Cash Cash and after before
GBPm other tax tax
LGR 170 22 192 39 231 49 280
--------- ----
Insurance 165 - 165 (13) 152 40 192
----
Savings 64 (5) 59 (19) 40 10 50
LGIM 150 (12) 138 (1) 137 39 176
- LGIM (excluding Workplace) 139 - 139 - 139 40 179
- Workplace Savings 11 (12) (1) (1) (2) (1) (3)
LGC 92 - 92 - 92 23 115
LGA 52 - 52 (34) 18 22 40
Operating profit from
divisions 693 5 698 (28) 670 183 853
Group debt and other
costs (69) - (69) (13) (82) (21) (103)
Operating profit 624 5 629 (41) 588 162 750
Investment and other
variances - - - (41) (41) (37) (78)
Total 624 5 629 (82) 547 125 672
Per share 10.49 10.58 9.20
Dividend per share 3.45 3.45
IGD Capital resources
As at 30 June 2015 the Insurance Group's Directive (IGD) surplus
was GBP3.8bn (FY 2014: GBP3.9bn).
The Group's capital resources totalled GBP7.7bn, covering the
capital resources requirement of GBP3.9bn by 1.98 times. Profits
generated in the first half of 2015 offset the repayment of EUR600m
of Euro subordinated notes, classified as Lower Tier 2 capital
prior to redemption, resulting in a broadly flat IGD surplus.
In LGPL, the Group's main annuity company, we maintain a
provision of GBP2.3bn (FY 2014: GBP2.3bn) to provide for the risk
of credit default. Over the last five years we have experienced
total actual defaults of less than GBP10m.
Capital (GBPbn) H1 2015 FY 2014
Group capital resources 7.7 7.7
Group capital resources requirements 3.9 3.8
IGD surplus 3.8 3.9
Coverage ratio (%) 198 201
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. We expect the final
outcome of Solvency II to result in a lower Group capital surplus
and solvency ratio than the Economic Capital basis. Our Economic
Capital model has not been reviewed by the Prudential Regulatory
Authority (PRA), nor will it be.
As at 30 June 2015 Legal & General Group had an economic
capital surplus of GBP6.4bn (FY 2014: GBP7.0bn), corresponding to
an economic capital coverage ratio of 220% (FY 2014: 229%).
Eligible own funds decreased by GBP0.7bn to GBP11.8bn (FY 2014:
GBP12.5bn) primarily as a result of the payment of the 2014 final
dividend of GBP496m and the repayment of EUR600m of subordinated
debt in June 2015.
The economic capital requirement remained broadly flat at
GBP5.4bn (FY 2014: GBP5.5bn), with new business written in H1 2015
being marginally positive.
Capital (GBPbn) H1 2015 FY 2014
Eligible own funds 11.8 12.5
Economic capital requirement 5.4 5.5
Economic capital surplus 6.4 7.0
1-in-200 coverage ratio 220 229
Economic
Analysis of movement from 1 January to 30 June Capital
2015 (GBPbn) surplus
Economic solvency position as at 1 January
2015 7.0
New business surplus 0.1
Existing business expected release 0.4
Subordinated debt redemption (0.5)
Dividends declared in the period (0.5)
Other capital movements (0.1)
Economic solvency position as at 30 June 2015 6.4
supplementary eev disclosure
EEV highlights (Pence) H1 2015 H1 2014
Equity per share including LGIM 211 196
Equity per share 184 166
Analysis of EEV results (GBPm) H1 2015 H1 2014
Contribution from new business 196 421
Expected return from in-force business 238 238
Experience variances and assumption changes 38 9
Development costs (9) (14)
Contribution from shareholder net worth 102 93
EEV operating profit on covered business 565 747
Business reported on an IFRS basis 107 103
EEV operating profit 672 850
Economic variances (55) 8
Gains attributable to non-controlling interests 8 6
EEV profit before tax 625 864
Tax and other (105) (145)
EEV profit after tax 520 719
New business contribution
Contribution from new business reduced to GBP196m (H1 2014:
GBP421m) as a result of lower new business for LGR, with H1 2014
benefitting from the GBP3bn bulk annuity transaction with the ICI
pension fund.
Worldwide EEV new business margin reduced to 3.9% (H1 2014:
5.4%) primarily due to reduced new business margin in LGR of 7.2%
(H1 2014: 8.4%). This is as a consequence of increased levels of
longevity reinsurance being used for new bulk annuity business
written.
principal risks and UNCERTAINTIES
Legal & General runs a portfolio of risk taking businesses;
we accept risk in the normal course of business and aim to deliver
sustainable returns on risk based capital to our investors in
excess of our cost of capital. We manage the portfolio of risk that
we accept to build a sustainable franchise for the interests of all
our stakeholders; we do not aim to eliminate that risk. We have an
appetite for risks that we understand deeply and are rewarded for,
and which are consistent with delivery of our strategic objectives.
Risk management is embedded within the business. The Group is
exposed to a number of key risk categories.
RISKS AND UNCERTAINTIES TREND, OUTLOOK AND MITIGATION
Reserves for long-term business We regularly appraise the assumptions
may require revision as a result underpinning the business that we write.
of changes in experience, regulation In our annuities business we are, however,
or legislation. exposed to factors such as dramatic
The writing of long-term insurance advances in medical science beyond
business requires the setting of those anticipated leading to unexpected
assumptions for long-term trends changes in life expectancy. In protection
in factors such as mortality, lapse business we remain inherently exposed
rates and persistency, valuation to rates of mortality diverging from
interest rates, expenses and credit assumptions and to loss from events
defaults. Actual experience may that cause widespread mortality/morbidity
result in the need to recalibrate or significant policy lapse rates.
these assumptions reducing profitability. There also remains potential for legislative
Forced changes in reserves can intervention in the pricing of insurance
also be required because of regulatory products irrespective of risk factors,
or legislative intervention in such as age or health.
the way that products are priced,
reducing profitability and future We undertake significant analysis of
earnings. longevity and mortality risks to ensure
an appropriate premium is charged for
the risks we take on and that our reserves
remain appropriate. We remain focused
on developing a comprehensive understanding
of annuitant mortality and we continue
to evolve and develop our underwriting
capabilities. We seek to ensure that
legislators understand the benefits
to consumers of pricing insurance products
based on the risk factors that each
policy presents.
Investment market performance or Whilst global investment markets have
conditions in the broader economy returned to pre-financial crisis levels,
may adversely impact our earnings in the current environment there is
and profitability. still limited resilience in financial
The performance and liquidity of markets for shocks; with potential
investment markets, interest rate for significant falls in asset values
movements and inflation impact should markets reassess returns. Factors
the value of investments we hold of continuing uncertainty that may
in shareholders' funds and those result in shocks include a deterioration
to meet the obligations from insurance in geo-political stability for example
business. Interest rate movement as a consequence of tensions in Eastern
and inflation can also change the Europe and the Middle East; an abrupt
value of our obligations. We use change in the monetary policies of
a range of techniques to manage the leading economies; or a further
mismatches between assets and liabilities. crisis in the Euro zone. Financial
However, loss can still arise from markets may also reappraise asset valuations
adverse markets. In addition, significant as a result of changes in the outlook
falls in investment values can for the global economy.
reduce fee income to our investment
management business, while broader We model our business plans across
economic conditions can impact a broad range of economic scenarios
the purchase and the retention and take account of alternative economic
of retail financial services products, outlooks within our overall business
impacting profitability. strategy. As part of our business plans
we have sought to ensure focus upon
those market segments that we expect
to be resilient in projected conditions.
In dealing with issuers of debt In 2015 we have continued to see stable
and other types of counterparty credit spreads reflecting market confidence
the Group is exposed to the risk in the issuers of investment grade
of financial loss. bonds, and at Legal & General we continue
A systematic default event within to experience low levels of default
the corporate sector, or a major on our corporate bond portfolio. There
sovereign debt event, could result remains, however, a range of factors
in dislocation of bond markets, that could trigger defaults by the
significantly widening credit spreads, issuers of debt, leading to reduced
and may result in default of even profitability or financial loss. These
strongly rated issuers of debt, include a Sovereign debt event or a
exposing us to financial loss. banking crisis developing, for example
We are also exposed to banking, in emerging markets. An economic shock
money market and reinsurance counterparties, or significant change in the current
and settlement, custody and other economic outlook may also increase
bespoke business services, a failure potential for a supplier of business
of which could expose us to both services being unable to meet their
financial loss and operational obligations to us.
disruption of our business processes.
We actively manage our exposure to
default risks, setting counterparty
selection criteria and exposure limits
and hold reserves against our assessment
of counterparty debt defaults. We continue
to diversify the asset classes backing
our annuities business, to include
the use of property lending, sale and
leaseback and other forms of direct
investment.
Changes in regulation or legislation The regulatory landscape continues
may have a detrimental effect on to evolve. The Solvency II capital
our strategy. regime will be implemented by the PRA
Legislation and government fiscal on 1 January 2016; however, the capital
policy influence our product design, that we will be required to hold under
the period of retention of products the regime will not be certain until
and our required reserves for future PRA agreement of our internal model.
liabilities. Regulation defines We also continue to see the development
the overall framework for the design, of consumer regulation by the FCA including
marketing and distribution of our a focus on the way products have been
products; and the prudential capital designed and sold in the past. More
that we hold. Significant changes broadly, as illustrated by the emergency
in legislation or regulation may budget in July, the government continues
reduce our future revenues and to evolve its approach to retirement,
profitability or require us to with consultation proposed for a radical
hold more capital. The prominence change to the pension savings system.
of the risk increases where change
is implemented without prior engagement We remain vigilant to the risk that
with the sector. The nature of future legislative and regulatory change
long term business can also result may have unintended consequences for
in some changes in regulation, the sectors in which we operate. We
and the re-interpretation of regulation seek to actively participate with Government
over time, having a retrospective and regulatory bodies in the UK and
effect on our in force books of Europe to assist in the evaluation
business, impacting the value of of change so as to develop outcomes
embedded future profits. that meet the needs of all stakeholders.
Internally, we evaluate the impact
of all legislative and regulatory change
as part of our formal risk identification
and assessment processes, with material
matters being considered at the Group
Risk Committee and the Group Board.
We maintain a flexible business model
to respond to changing regulation and
market trends.
As a UK based Group, our earnings As a significant participant in the
are influenced by the performance long-term savings and insurance markets,
and perception of the UK financial we are exposed to changes in consumer
services sector as a whole. sentiment. We are also exposed to increased
The financial crisis, subsequent costs of regulatory compliance through
investment performance and low regulatory and legislative responses
interest rate environment, together to events in the financial services
with regulatory actions in the sector.
sector, may impact consumer attitudes
to long-term savings and insurance We actively manage our brand and seek
products. Regulatory actions may to differentiate our business model
also lead to changes to the regulatory from that of our competitors, focusing
and legislative environment in on our customers' needs through a diversified
which we operate. portfolio of risk, savings and investment
businesses. We also actively engage
with our regulators to support understanding
of the risk drivers in the markets
in which we operate, and highlight
matters where we believe the industry
needs to change.
The Group may not maximise opportunities Macro trends in the markets in which
from structural and other changes we operate remain those of an ageing
within the financial services sector, population; reform in the provision
adversely impacting future earnings. of state welfare; retrenchment by the
Significant changes in the markets banks; the globalisation of asset markets;
in which we operate may require and the increasing use of digital technologies.
the review and realignment of elements Responding to these trends potentially
of our business strategy. A failure creates people and change risks, such
to be sufficiently responsive to as organisational challenges and management
potential change and understand stretch across the range of initiatives.
the implication to our businesses, Regulatory changes and political risks
or the incorrect execution of change may also present complexity in delivering
may impact the achievement of our our responses.
strategic objectives.
We've defined clear strategies to respond
to the macro trends. We monitor as
part of our on-going risk review processes
factors that may impact our responses
to these macro trends and seek to ensure
appropriate risk mitigation plans are
put in place.
A material failure in our business Our plans for growth inherently will
processes may result in unanticipated increase the profile of operational
financial loss or reputation damage. risks across our businesses. We continue
We have constructed our framework to invest in our system capabilities
of internal controls to minimise and business processes to ensure that
the risk of unanticipated financial we meet the expectations of our customers;
loss or damage to our reputation. comply with regulatory, legal and financial
However, no system of internal reporting requirements; and mitigate
control can completely eliminate the risks of loss or reputational damage
the risk of error, financial loss, from operational risk events.
fraudulent actions or reputational
damage. Our "three lines of defence" risk governance
model seeks to ensure that business
management are actively engaged in
maintaining an appropriate control
environment, supported by risk functions
led by the group chief risk officer,
with independent assurance from Group
Internal Audit.
The financial services sector is The financial services sector continues
increasingly becoming a target to see attempts by third parties to
of 'cyber-crime'. seek and exploit perceived vulnerabilities
As we and our business partners in IT systems. Potential threats include
increasingly digitalise our businesses, denial of service attacks, network
we are inherently exposed to the intrusions to steal data for the furtherance
risk that third parties may seek of financial crime, and the electronic
to disrupt our on-line business diversion of funds.
operations, steal customer data
or perpetrate acts of fraud using We're focused on maintaining a robust
digital media. A significant cyber-event and secure IT environment. Working
could result in reputation damage with our business partners, we seek
and financial loss. to ensure the security of our systems
with proactive response to emerging
threats; however, the evolving nature
of cyber threats means that residual
risks continue to remain.
ENQUIRIES
Investors:
Laura Doyle Head of Investor Relations 020 3124 2088
Stephen Thomas Investor Relations Manager 020 3124 2047
Media:
John Godfrey Corporate Affairs Director 020 3124 2090
Richard King Head of Group Corporate Communications
020 3124 2095
Michelle Clarke Tulchan Communications 020 7353 4200
Notes
A copy of this announcement can be found in "Results", under the
"Financial information" section of our shareholder website at
http://www.legalandgeneralgroup.com/investors/results.cfm.
A presentation to analysts and fund managers will take place at
9.30am UK time today at One Coleman Street, London, EC2R 5AA. There
will be a live webcast of the presentation which can be accessed at
http://investor.legalandgeneral.com/results.cfm. A replay will be
available on this website later today.
There will be a live listen only teleconference link to the
presentation. Details below:
PARTICIPANT DIAL-IN NUMBERS
LOCATION YOU ARE DIALLING IN FROM NUMBER YOU SHOULD DIAL
UNITED KINGDOM 020 3059 8125
ALL OTHER LOCATIONS +44 20 3059 8125
2015 Financial Calendar Date
Ex-dividend date 13 August 2015
Record date 14 August 2015
Payment date of 2015 interim dividend 17 September
2015
Q3 Interim Management Statement 2015 5 November 2015
DEFINITIONS
Operational cash generation is the expected release from
in-force business for the UK non-profit Insurance and Savings and
LGR businesses, the shareholder's share of bonuses on with-profits
business, the post-tax operating profit on other UK businesses,
including the expected investment return on LGC invested assets,
and dividends remitted from our international businesses.
Net cash generation is defined as operational cash generation
less new business strain.
Operating profit measures the pre-tax result excluding the
impact of investment volatility, economic assumption changes and
exceptional items. Operating profit therefore reflects longer-term
economic assumptions for the Group's insurance businesses and
shareholder funds, except for LGA which excludes unrealised
investment returns to align with the liability measurement under US
GAAP. Variances between actual and smoothed assumptions are
reported below operating profit. Exceptional income and expenses
which arise outside the normal course of business in the year, such
as merger and acquisition, start-up and closure costs, are excluded
from operating profit.
Adjusted earnings per share is calculated by dividing profit
after tax from continuing operations, attributable to equity
holders of the Company, excluding gains and losses associated with
held for sale and completed business disposals, by the weighted
average number of ordinary shares in issue during the period,
excluding employee scheme treasury shares.
Annualised return on equity is calculated by taking annualised
profit after tax attributable to equity holders of the Company,
excluding gains and losses associated with held for sale and
completed business disposals, as a percentage of the average
shareholders' capital employed, being an average of the opening and
closing shareholders' equity during the period.
FORWARD LOOKING STATEMENTS
This announcement may contain certain forward-looking statements
relating to Legal & General, its plans and its current goals
and expectations relating to future financial condition,
performance and results. By their nature, forward-looking
statements involve uncertainty because they relate to future events
and circumstances which are beyond Legal & General's control,
including, among others, UK domestic and global economic and
business conditions, market related risks such as fluctuations in
interest rates and exchange rates, the policies and actions of
regulatory and Governmental authorities, the impact of competition,
the timing impact of these events and other uncertainties of future
acquisition or combinations within relevant industries. As a
result, Legal & General's actual future condition, performance
and results may differ materially from the plans, goals and
expectations set out in these forward-looking statements and
persons reading this announcement should not place reliance on
forward-looking statements. These forward-looking statements are
made only as at the date on which such statements are made and
Legal & General Group Plc does not undertake to update
forward-looking statements contained in this announcement or any
other forward-looking statement it may make.
GOING CONCERN STATEMENT
The Group's business activities, together with the factors
likely to affect its future development, performance and position
in the current economic climate are set out in this Interim
Management Report. The financial position of the Group, its cash
flows, liquidity position and borrowing facilities are described in
the Group Results. Principal risks and uncertainties are detailed
above. In addition, the financial statements include, amongst other
things, notes on the Group's objectives, policies and processes for
managing its capital; its financial risk management objectives;
details of its financial instruments and hedging activities; and
its exposures to credit risk and liquidity risk.
Whilst the economy has improved in 2015, the general climate
remains, to a degree, uncertain. However, based on the available
information on the future, the directors consider that the Group
has the plans and resources to manage its business risks
successfully as it has a diverse range of businesses and remains
financially strong.
Having reassessed the principal risks, the directors considered
it appropriate to adopt the going concern basis of accounting in
preparing the interim financial information.
DIRECTOR'S RESPONSIBILITY STATEMENT
We confirm to the best of our knowledge that:
i. The consolidated interim financial statements have been
prepared in accordance with IAS 34 as adopted by the European
Union;
ii. The interim management report includes a fair review of the
information required by DTR 4.2.7, namely an indication of
important events that have occurred during the first six months of
the financial period and their impact on the consolidated interim
financial statements, as well as a description of the principal
risks and uncertainties faced by the company and the undertakings
included in the consolidation taken as a whole for the remaining
six months of the financial year;
iii. The interim management report includes, as required by DTR
4.2.8, a fair review of material related party transactions that
have taken place in the first six months of the financial period
and any material changes in the related party transactions
described in the last Annual Report;
iv. The group embedded value summary and explanatory notes to
the supplementary interim financial information have been prepared
on the European Embedded Value basis as set out in Note 5.06;
and
v. The directors of Legal & General Group Plc are listed in
the Legal & General Group Plc Annual Report for 31 December
2014, with the exception of Lindsay Tomlinson who retired as
non-executive director of the company on 21 May 2015 and John
Pollock who retired as an executive director of the company on 21
May 2015. A list of current directors is maintained on the Legal
& General Group Plc website: legalandgeneralgroup.com.
By order of the Board
Nigel Wilson Mark Gregory
Group Chief Executive Group Chief Financial Officer
4 August 2015 4 August 2015
This information is provided by RNS
The company news service from the London Stock Exchange
END
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