TIDMLGEN
RNS Number : 5967G
Legal & General Group Plc
09 August 2016
Legal & General Group Plc
Half Year Results 2016 Part 2
IFRS and Operational Cash Generation Page 27
Operating profit
For the six months ended 30 June 2016
Full year
30.06.16 30.06.15 31.12.15
Notes GBPm GBPm GBPm
From continuing operations
Legal & General Retirement (LGR) 2.02 406 281 641
Legal & General Investment Management (LGIM) 2.03 171 176 355
Legal & General Capital (LGC) 2.05 135 115 233
Insurance 2.02 138 186 283
Savings 2.02 49 55 107
Legal & General America (LGA) 43 40 83
Operating profit from divisions 942 853 1,702
Group debt costs(1) (86) (75) (153)
Group investment projects and expenses(2) 2.06 (34) (28) (86)
Adjusted operating profit 822 750 1,463
Kingswood office closure costs (45) - (8)
Operating profit 777 750 1,455
Investment and other variances 2.07 50 (86) (119)
(Losses)/gains on non-controlling interests (1) 8 19
Profit before tax attributable to equity holders 826 672 1,355
Tax expense attributable to equity holders
of the company 2.14 (159) (125) (261)
Profit for the period 667 547 1,094
Profit attributable to equity holders of the
company 668 539 1,075
p p p
Earnings per share(3) 2.10 11.27 9.11 18.16
Diluted earnings per share(3) 2.10 11.23 9.05 18.04
1. Group debt costs exclude interest on non recourse financing.
2. Group investment projects and expenses in H1 16 include restructuring
costs of GBP16m (H1 15: GBP9m; FY 15: GBP42m).
3. All earnings per share calculations are based on profit attributable
to equity holders of the company.
This supplementary operating profit information (one of the
group's key performance indicators) provides further analysis of
the results reported under IFRS and the group believes it provides
shareholders with a better understanding of the underlying
performance of the business in the year.
LGR represents worldwide pension risk transfer business
(including longevity insurance), individual retirement and lifetime
mortgages.
The LGIM segment represents institutional and retail investment
management and workplace savings businesses.
LGC represents the IFRS profit before tax on its trading
businesses and medium term expected investment return (less
expenses) on its other group invested assets, using assumptions
applied to the average balance of group invested assets (including
interest bearing intra-group balances).
Insurance represents business in retail protection, group
protection, general insurance, networks and Legal & General
Netherlands (LGN). Insurance comparatives include Legal &
General France (LGF), which was sold during 2015.
Savings represents business in platforms, SIPPs, mature savings
and with-profits.
The LGA segment comprises protection business written in the
USA.
During 2016, changes have been made to the organisational
structure. The advised sales and India businesses have transferred
to Insurance from Savings, and Investment Discounts On Line Limited
(the IDOL) has been transferred to LGR from Insurance. Comparatives
have been amended accordingly. The impact of this reclassification
has been to increase LGR H1 15 operating profit by GBP1m (FY 15:
increase by GBP2m), increase Savings H1 15 operating profit by
GBP5m (FY 15: increase by GBP8m) and reduce Insurance H1 15
operating profit by GBP6m (FY 15: reduce by GBP10m).
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 LGC's trading businesses (which
reflects IFRS profit before tax) and LGA (which excludes unrealised
investment returns to align with the liability measurement under US
GAAP). Variances between actual and smoothed investment return
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, and start-up costs, are
also excluded from operating profit.
IFRS and Operational Cash Generation Page 28
2.01 Reconciliation of operational cash generation to operating
profit before tax
The table below provides an analysis of the operational cash generation
by each of the group's business segments, together with a reconciliation
to operating profit before tax.
Opera- Changes Operating
tional New Net in Operating profit/
cash business cash Exper- valuation Non-cash Inter- profit/ Tax (loss)
gene- surplus/ gene- ience assump- items national (loss) expense/ before
and
For the six ration(1) (strain) ration variances tions other and after (credit) tax
months other(2) tax
ended
30 June 2016 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
LGR 205 79 284 (11) 48 13 - 334 72 406
LGIM 145 (11) 134 1 - (1) - 134 37 171
- LGIM
excluding
Workplace
Savings 136 - 136 - - - - 136 38 174
- Workplace
Savings 9 (11) (2) 1 - (1) - (2) (1) (3)
LGC 113 - 113 - - - - 113 22 135
Insurance 159 7 166 (16) 17 (13) (44) 110 28 138
Savings 51 (3) 48 - 5 (14) - 39 10 49
LGA 61 - 61 - - - (43) 18 25 43
Total from
divisions 734 72 806 (26) 70 (15) (87) 748 194 942
Group debt
costs (69) - (69) - - - - (69) (17) (86)
Group
investment
projects
and expenses (10) - (10) - - - (17) (27) (7) (34)
Adjusted
total 655 72 727 (26) 70 (15) (104) 652 170 822
Kingswood
office
closure
costs(3) - - - - - - (36) (36) (9) (45)
Total 655 72 727 (26) 70 (15) (140) 616 161 777
1. Operational cash generation includes dividends remitted from LGN
of GBP48m (H1 15: GBP18m; FY 15: GBP28m) within the Insurance line and
LGA of GBP61m (H1 15: GBP52m; FY 15: GBP54m).
2. International and other includes GBP13m (H1 15: GBP7m; FY 15: GBP34m)
of restructuring costs (GBP16m before tax) (H1 15: GBP9m before tax;
FY 15: GBP42m before tax) within the group investment projects and expenses
line.
3. The Kingswood office closure costs reflect expenditure in relation
to redundancy, rent and rates. Further costs resulting from the write-off
of previously capitalised property, plant and equipment will be recognised
in later periods.
Operational cash generation for LGR, LGIM, Insurance and Savings represents
the expected IFRS surplus generated in the year from the in-force non
profit annuities, workplace savings, protection and savings businesses
using best estimate assumptions. The LGIM operational cash generation
also includes operating profit after tax from the institutional and
retail investment management businesses. The Insurance operational cash
generation also includes dividends remitted from LGN and operating profit
after tax from general insurance and the remaining Insurance businesses.
The Savings operational cash generation also includes the shareholders'
share of bonuses on with-profits business and operating profit after
tax from the remaining Savings businesses.
New business surplus/strain for LGR, LGIM, Insurance and Savings represents
the cost of acquiring new business and setting up prudent reserves in
respect of the new business for UK non profit annuities, workplace savings,
protection and savings, net of tax. The new business surplus and operational
cash generation for LGR, LGIM, Insurance and Savings exclude any capital
held in excess of the prudent reserves from the liability calculation.
Net cash generation for LGR, LGIM, Insurance and Savings is defined
as operational cash generation less new business strain.
Operational cash generation and net cash generation for LGC represents
the operating profit (net of tax).
The operational cash generation for LGA represents the dividends received.
During 2016, changes have been made to the organisational structure.
The advised sales and India businesses have been transferred to Insurance
from Savings, and the IDOL business has been transferred to LGR from
Insurance. Comparatives have been amended accordingly. The impact of
this reclassification has been to increase LGR H1 15 operational cash
generation by GBP1m (FY 15: increase by GBP2m), increase Savings H1
15 operational cash generation by GBP3m (FY 15: increase by GBP6m) and
reduce Insurance H1 15 operational cash generation by GBP4m (FY 15:
reduce by GBP8m).
See Note 2.02 for more detail on experience variances, changes to valuation
assumptions and non-cash items.
IFRS and Operational Cash Generation Page 29
2.01 Reconciliation of operational cash generation to operating
profit before tax (continued)
Opera- Changes Operating
tional New Net in Operating profit/
cash business cash Exper- valuation Non-cash Inter- profit/ Tax (loss)
gene- surplus/ gene- ience assump- items national (loss) expense/ before
and
For the six ration(1) (strain) ration variances tions other and after (credit) tax
months other(2) tax
ended
30 June 2015 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
LGR(3) 171 22 193 15 37 (13) - 232 49 281
LGIM 150 (12) 138 (2) - 1 - 137 39 176
- LGIM
excluding
Workplace
Savings 139 - 139 - - - - 139 40 179
- Workplace
Savings 11 (12) (1) (2) - 1 - (2) (1) (3)
LGC 92 - 92 - - - - 92 23 115
Insurance(3) 161 - 161 7 2 (15) (8) 147 39 186
Savings(3) 67 (5) 62 (1) - (18) 1 44 11 55
LGA 52 - 52 - - - (34) 18 22 40
Total from
divisions 693 5 698 19 39 (45) (41) 670 183 853
Group debt
costs (60) - (60) - - - - (60) (15) (75)
Group
investment
projects
and expenses (9) - (9) - - - (13) (22) (6) (28)
Adjusted
total 624 5 629 19 39 (45) (54) 588 162 750
Total 624 5 629 19 39 (45) (54) 588 162 750
1. Operational cash generation includes dividends remitted from LGN
of GBP18m and LGF of GBP1m within the Insurance line and LGA of GBP52m.
2. International and other includes GBP7m of restructuring costs (GBP9m
before tax) within the group investment projects and expenses line.
3. LGR includes the IDOL business which was previously reported in Insurance,
and Insurance includes the advised sales and India businesses which
were previously reflected in Savings. Comparatives have been amended
accordingly.
Opera- Changes Operating
tional New Net in Operating profit/
cash business cash Exper- valuation Non-cash Inter- profit/ Tax (loss)
gene- surplus/ gene- ience assump- items national (loss) expense/ before
and
For the year ration(1) (strain) ration variances tions other and after (credit) tax
ended other(2) tax
31 December GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
2015
LGR(3) 374 45 419 13 114 (20) - 526 115 641
LGIM 303 (22) 281 (1) 1 (2) - 279 76 355
- LGIM
excluding
Workplace
Savings 282 - 282 - - - - 282 77 359
- Workplace
Savings 21 (22) (1) (1) 1 (2) - (3) (1) (4)
LGC 187 - 187 - - - - 187 46 233
Insurance(3) 315 25 340 (14) (45) (46) (11) 224 59 283
Savings(3) 125 (9) 116 (9) - (23) 2 86 21 107
LGA 54 - 54 - - - (17) 37 46 83
Total from
divisions 1,358 39 1,397 (11) 70 (91) (26) 1,339 363 1,702
Group debt
costs (122) - (122) - - - - (122) (31) (153)
Group
investment
projects
and expenses (19) - (19) - - - (50) (69) (17) (86)
Adjusted
total 1,217 39 1,256 (11) 70 (91) (76) 1,148 315 1,463
Kingswood
office
closure
costs - - - - - - (6) (6) (2) (8)
Total 1,217 39 1,256 (11) 70 (91) (82) 1,142 313 1,455
1. Operational cash generation includes dividends remitted from LGF
of GBP1m and LGN of GBP28m within the Insurance line and LGA of GBP54m.
2. International and other includes GBP34m of restructuring costs (GBP42m
before tax) within the group investment projects and expenses line.
3. LGR includes the IDOL business which was previously reported in Insurance,
and Insurance includes the advised sales and India businesses which
were previously reflected in Savings. Comparatives have been amended
accordingly.
IFRS and Operational Cash Generation Page 30
2.02 Analysis of LGR, Insurance and Savings operating profit
LGR Insurance Savings LGR Insurance Savings
30.06.16 30.06.16 30.06.16 30.06.15 30.06.15 30.06.15
GBPm GBPm GBPm GBPm GBPm GBPm
Net cash generation 284 166 48 193 161 62
Experience variances
Persistency - 1 - - 1 (4)
Mortality/Morbidity(1) 2 (15) - 4 4 -
Expenses (7) 3 2 - 4 -
Project and development
costs (1) (1) - (6) (1) -
Other (5) (4) (2) 17 (1) 3
Total experience variances (11) (16) - 15 7 (1)
Changes to valuation assumptions
Persistency - - 5 - - -
Mortality/Morbidity(2) 48 2 - 37 3 -
Expenses(3) - 25 - - 1 -
Other(4) - (10) - - (2) -
Total valuation assumption
changes 48 17 5 37 2 -
Movement in non-cash items
Deferred tax - 1 - - 2 -
Utilisation of brought forward
trading losses - - - (13) (2) (2)
Acquisition expense tax
relief (5) - (13) (2) - (17) -
Deferred Acquisition Costs
(DAC)(6) - - (15) - - (27)
Deferred Income Liabilities
(DIL)(6) - - 6 - - 17
Other(7) 13 (1) (3) - 2 (6)
Total non-cash movement items 13 (13) (14) (13) (15) (18)
Other(8) - (44) - - (8) 1
Operating profit after tax 334 110 39 232 147 44
Tax gross up 72 28 10 49 39 11
Operating profit before tax 406 138 49 281 186 55
1. The Insurance mortality/morbidity experience variance in 2016 reflects
adverse claims experience on the group protection book of business.
2. The mortality/morbidity valuation assumption change in LGR primarily
reflects a change in the treatment to historic longevity insurance deals
where future fees in excess of prudent estimates of longevity and expense
experience are now included as an offset to IFRS reserves. The H1 15
LGR mortality/morbidity change to valuation assumptions primarily reflected
a change in mortality reserving assumptions in relation to unreported
deaths of deferred annuitants.
3. The Insurance expense valuation assumption change is the result of
a review of the prudence within renewal expenses on our protection products.
4. The Insurance other valuation assumption change has arisen from the
increase of the reinsurance counterparty reserves driven by increased
reinsured exposure.
5. Net cash for Insurance and Savings recognises tax relief from prior
year acquisition expenses, which are spread evenly over seven years
under relevant 'I-E' tax legislation in the period the cash flows actually
occur. In contrast, operating profit typically recognises the value
of these future cash flows in the same period as the underlying expense
as deferred tax amounts. The reconciling amounts arising from these
items are included in the table above. Following the removal of new
retail protection business from the 'I-E' tax regime, and the removal
of commission from new insured savings business under the Retail Distribution
Review at the end of 2012, no material amount of deferred tax assets
arise on new acquisition expenses and the value of these future cash
flows for post-2013 acquisition expenses have been reflected within
net cash. The residual prior year acquisition expenses will run off
predictably to 2018.
6. The DAC in Savings represents the amortisation charges offset by
new acquisition costs deferred in the year. The DIL reflects initial
fees on insured savings business which relate to the future provision
of services and are deferred and amortised over the anticipated period
in which these services are provided.
7. The other movement in non-cash items for LGR is primarily driven
by market reference fees as a result of writing higher volumes.
8. Insurance Other in 2016 reflects the difference between the dividend
(operational cash generation) remitted from LGN of GBP48m (H1 15: dividends
remitted from LGN of GBP18m and LGF of GBP1m) and the LGN operating
profit after tax (H1 15: LGN and LGF operating profit after tax).
IFRS and Operational Cash Generation Page 31
2.02 Analysis of LGR, Insurance and Savings operating profit (continued)
LGR Insurance Savings
Full year Full year Full year
31.12.15 31.12.15 31.12.15
GBPm GBPm GBPm
Net cash generation 419 340 116
Experience variances
Persistency 4 5 (2)
Mortality/Morbidity 18 (16) -
Expenses - 2 3
Project and development
costs (20) (2) (2)
Other(1) 11 (3) (8)
Total experience variances 13 (14) (9)
Changes to valuation assumptions
Persistency(2) - 48 -
Mortality/Morbidity(3) 97 (20) -
Expenses(4) 17 27 (2)
Reinsurance modelling(5) - (93) -
Other - (7) 2
Total valuation assumption
changes 114 (45) -
Movement in non-cash items
Deferred tax - - 2
Utilisation of brought forward
trading losses (25) (6) -
Acquisition expense tax
relief (6) - (30) (4)
Deferred Acquisition Costs
(DAC)(7) - - (54)
Deferred Income Liabilities
(DIL)(7) - - 39
Other 5 (10) (6)
Total non-cash movement items (20) (46) (23)
Other - (11) 2
Operating profit after tax 526 224 86
Tax gross up 115 59 21
Operating profit before tax 641 283 107
1. The Other LGR experience variance reflects the benefit to profit
of selective longevity and asset reinsurance related to bulk annuity
transactions, offset by other smaller experience variances.
2. The Insurance persistency valuation assumption change reflects continued
improvement in retail protection lapse rates.
3. The mortality/morbidity valuation assumption change in LGR primarily
reflects late retirement factor assumption changes and a change in mortality
reserving assumptions in relation to unreported deaths of deferred annuitants.
The Insurance mortality/morbidity valuation assumption change has arisen
on the strengthening of the reserving basis on the Whole Life Protection
product to reflect the current expectation of future mortality improvement
on this business.
4. The LGR and Insurance positive expense valuation assumption changes
represents the continued operational efficiency reducing the existing
business cost base.
5. The reinsurance modelling for our UK protection business has been
enhanced. Recent reinsurance contracts have been written on a risk premium
basis (as opposed to level premium) and the model change ensures that
for these treaties, sufficient prudence is being held in later years.
The one-off impact reduced operating profit by GBP93m in 2015. This
also defers a higher proportion of cash generation into later years
of these reinsurance contracts.
6. Net cash for Insurance and Savings recognises tax relief from prior
year acquisition expenses, which are spread evenly over seven years
under relevant 'I-E' tax legislation in the period the cash flows actually
occur. In contrast, operating profit typically recognises the value
of these future cash flows in the same period as the underlying expense
as deferred tax amounts. The reconciling amounts arising from these
items are included in the table above. Following the removal of new
retail protection business from the 'I-E' tax regime, and the removal
of commission from new insured savings business under the Retail Distribution
Review at the end of 2012, no material amount of deferred tax assets
arise on new acquisition expenses and the value of these future cash
flows for post-2013 acquisition expenses have been reflected within
net cash. The residual prior year acquisition expenses will run off
predictably to 2018.
7. The DAC in Savings represents the amortisation charges offset by
new acquisition costs deferred in the year. The DIL reflects initial
fees on insured savings business which relate to the future provision
of services and are deferred and amortised over the anticipated period
in which these services are provided.
IFRS and Operational Cash Generation Page 32
2.03 LGIM
Full year
30.06.16 30.06.15 31.12.15
GBPm GBPm GBPm
Investment management
revenue(1) 353 347 694
Investment management
expenses(1) (179) (168) (335)
Workplace Savings operating
loss (3) (3) (4)
Total LGIM operating profit 171 176 355
1. Revenue and expenses are grossed up for costs that are paid to third
parties for certain fund related services provided to Index clients
and are passed directly onto the clients within their fees.
2.04 General insurance operating profit and combined operating
ratio
Full year
30.06.16 30.06.15 31.12.15
GBPm GBPm GBPm
General insurance operating profit(1) 31 38 51
General insurance combined operating ratio (%)(2) 85 82 89
1. The general insurance operating profit includes the underwriting
result and smoothed investment return.
2. The calculation of the general insurance combined operating ratio
incorporates claims, commission and expenses as a percentage of net
earned premiums.
2.05 LGC
Full year
30.06.16 30.06.15 31.12.15
GBPm GBPm GBPm
Direct investments 68 32 69
Traded portfolio including
treasury operations 67 83 164
Total LGC operating profit 135 115 233
2.06 Group investment projects and expenses
Full year
30.06.16 30.06.15 31.12.15
GBPm GBPm GBPm
Group investment projects and central
expenses (18) (19) (44)
Restructuring costs(1) (16) (9) (42)
Total group investment projects and expenses (34) (28) (86)
1. Restructuring costs exclude the Kingswood office closure costs which
have been presented separately.
2.07 Investment and other variances
Full year
30.06.16 30.06.15 31.12.15
GBPm GBPm GBPm
Investment variance(1) 58 (29) (57)
M&A related(2) (4) (55) (57)
Other(3) (4) (2) (5)
Total Investment and
other variances 50 (86) (119)
1. H1 16 investment variance is positive, primarily driven by foreign
exchange gains on US dollar assets, a lack of defaults on the group's
bond portfolios and selective de-risking of investment portfolios, partially
offset by the negative impact of rate changes during the period. The
defined pension benefit scheme variance of GBP31m contained within this
line (H1 15: GBP(26)m; FY 15: GBP(15)m) reflects the actuarial losses
and gains and valuation differences arising on annuity assets held by
defined benefit pension schemes that have been purchased from Legal
& General Assurance Society Limited (Society). A segmental analysis
of Investment and other variances can be found in note 2.09 (a).
2. M&A related includes gains and losses, expenses and intangible amortisation
relating to acquisitions and disposals. H1 16 includes the GBP4m net
gain resulting from the disposal of subsidiaries during the period (H1
15: includes the GBP40m impairment loss resulting from the classification
of disposal groups as held for sale; FY 15: includes the GBP25m net
loss resulting from the disposal of subsidiary and joint venture investments
during the year).
3. Other includes new business start-up costs and other non-investment
related variance items.
IFRS and Operational Cash Generation Page 33
Consolidated Income Statement
For the six months ended 30 June 2016
Full year
30.06.16 30.06.15 31.12.15
Notes GBPm GBPm GBPm
Income
Gross written premiums 4.03 5,492 3,170 6,321
Outward reinsurance premiums (719) (865) (1,603)
Net change in provision for unearned premiums 6 14 21
Net premiums earned 4,779 2,319 4,739
Fees from fund management and investment contracts 523 564 1,139
Investment return 2.09 36,978 5,062 5,947
Operational income 243 444 876
Total income 2.09 42,523 8,389 12,701
Expenses
Claims and change in insurance liabilities 11,377 2,090 5,080
Reinsurance recoveries (1,454) (999) (2,466)
Net claims and change in insurance liabilities 9,923 1,091 2,614
Change in provisions for investment contract
liabilities 30,569 4,958 5,615
Acquisition costs 375 429 838
Finance costs 98 91 186
Other expenses 748 930 1,893
Transfers (from)/to unallocated divisible surplus (174) 61 141
Total expenses 41,539 7,560 11,287
Profit before tax 984 829 1,414
Tax expense attributable to policyholder returns (158) (157) (59)
Profit before tax attributable to equity holders 826 672 1,355
Total tax expense (317) (282) (320)
Tax expense attributable to policyholder returns 158 157 59
Tax expense attributable to equity holders 2.14 (159) (125) (261)
Profit for the period 667 547 1,094
Attributable to:
Non-controlling interests 2.20 (1) 8 19
Equity holders of the company 668 539 1,075
Dividend distributions to equity holders of
the company during the period 2.16 592 496 701
Dividend distributions to equity holders of
the company proposed after the period end 2.16 238 205 592
p p p
Earnings per share(1) 2.10 11.27 9.11 18.16
Diluted earnings per share(1) 2.10 11.23 9.05 18.04
1. All earnings per share calculations are based on profit attributable
to equity holders of the company.
IFRS and Operational Cash Generation Page 34
Consolidated Statement of Comprehensive Income
For the six months ended 30 June 2016
Full year
30.06.16 30.06.15 31.12.15
GBPm GBPm GBPm
Profit for the period 667 547 1,094
Items that will not be reclassified subsequently
to profit or loss
Actuarial (losses)/gains on defined benefit
pension schemes (62) 27 47
Tax on actuarial (losses)/gains on defined benefit
pension schemes 12 (5) (11)
Actuarial gains/(losses) on defined benefit pension
schemes transferred to unallocated divisible surplus 23 (10) (17)
Tax on actuarial gains/(losses) on defined benefit
pension schemes transferred to unallocated divisible
surplus (4) 2 4
Total items that will not be reclassified to
profit or loss subsequently (31) 14 23
Items that may be reclassified subsequently
to profit or loss
Exchange differences on translation of overseas
operations 116 (25) 25
Net change in financial investments designated
as available-for-sale 66 (27) (64)
Tax on net change in financial investments
designated as available-for-sale (23) 9 22
Total items that may be reclassified to profit
or loss subsequently 159 (43) (17)
Other comprehensive income/(expense) after
tax 128 (29) 6
Total comprehensive income for the period 795 518 1,100
Total comprehensive income attributable to:
Non-controlling interests (1) 8 19
Equity holders of the company 796 510 1,081
IFRS and Operational Cash Generation Page 35
Consolidated Balance Sheet
As at 30 June 2016
30.06.16 30.06.15 31.12.15
Notes GBPm GBPm GBPm
Assets
Goodwill 79 82 83
Purchased interest in long term businesses and
other intangible assets 251 328 292
Deferred acquisition costs 2,007 1,822 1,887
Investment in associates and joint ventures 237 207 220
Property, plant and equipment 97 86 92
Investment property 2.13/3.04 8,227 8,779 8,082
Financial investments 2.13/3.04 397,123 351,159 354,063
Reinsurers' share of contract liabilities 4,955 3,360 4,120
UK deferred tax asset 2.14 5 33 20
Current tax recoverable 271 185 236
Other assets 10,900 3,539 3,618
Assets of operations classified as held for sale 2.12 - 6,149 3,409
Cash and cash equivalents 18,956 19,583 20,677
Total assets 443,108 395,312 396,799
Equity
Share capital 2.17 149 149 149
Share premium 978 973 976
Employee scheme treasury shares (32) (31) (30)
Capital redemption and other reserves 211 98 89
Retained earnings 5,285 4,843 5,220
Shareholders' equity 6,591 6,032 6,404
Non-controlling interests 2.20 292 281 289
Total equity 6,883 6,313 6,693
Liabilities
Participating insurance contracts 5,864 5,901 5,618
Participating investment contracts 5,260 5,093 4,912
Unallocated divisible surplus 693 798 893
Value of in-force non-participating contracts (135) (223) (184)
Participating contract liabilities 11,682 11,569 11,239
Non-participating insurance contracts 58,437 49,274 49,754
Non-participating investment contracts 300,605 280,472 278,554
Non-participating contract liabilities 359,042 329,746 328,308
Core borrowings 2.18 3,064 2,490 3,092
Operational borrowings 2.19 411 645 536
Provisions 2.23 1,205 1,189 1,171
UK deferred tax liabilities 2.14 206 277 137
Overseas deferred tax liabilities 2.14 523 414 436
Current tax liabilities 120 40 95
Payables and other financial liabilities 2.15 36,756 18,449 22,709
Other liabilities 617 671 737
Net asset value attributable to unit holders 22,599 17,513 18,277
Liabilities of operations classified as held
for sale 2.12 - 5,996 3,369
Total liabilities 436,225 388,999 390,106
Total equity and liabilities 443,108 395,312 396,799
IFRS and Operational Cash Generation Page 36
Condensed Consolidated Statement of Changes in Equity
Employee Capital
scheme redemption Non-
Share Share treasury and other Retained controlling Total
capital premium shares reserves earnings Total interests equity
For the six months GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
ended 30 June 2016
As at 1 January 2016 149 976 (30) 89 5,220 6,404 289 6,693
Total comprehensive
income/(expense)
for the period - - - 159 637 796 (1) 795
Options exercised under
share option schemes - 2 - - - 2 - 2
Net movement in employee
scheme
treasury shares - - (2) (5) (12) (19) - (19)
Dividends - - - - (592) (592) - (592)
Movement in third party
interests - - - - - - 4 4
Currency translation
differences - - - (32) 32 - - -
As at 30 June 2016 149 978 (32) 211 5,285 6,591 292 6,883
Employee Capital
scheme redemption Non-
Share Share treasury and other Retained controlling Total
capital premium shares reserves earnings Total interests equity
For the six months GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
ended 30 June 2015
As at 1 January 2015 149 969 (37) 117 4,830 6,028 275 6,303
Total comprehensive
income/(expense)
for the period - - - (43) 553 510 8 518
Options exercised under
share option schemes - 4 - - - 4 - 4
Net movement in employee
scheme
treasury shares - - 6 (4) (16) (14) - (14)
Dividends - - - - (496) (496) - (496)
Movement in third party
interests - - - - - - (2) (2)
Currency translation
differences - - - 28 (28) - - -
As at 30 June 2015 149 973 (31) 98 4,843 6,032 281 6,313
Employee Capital
scheme redemption Non-
Share Share treasury and other Retained controlling Total
capital premium shares reserves earnings Total interests equity
For the year ended GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
31 December 2015
As at 1 January 2015 149 969 (37) 117 4,830 6,028 275 6,303
Total comprehensive
income/(expense)
for the year - - - (17) 1,098 1,081 19 1,100
Options exercised under
share option schemes - 7 - - - 7 - 7
Net movement in employee
scheme
treasury shares - - 7 3 (21) (11) - (11)
Dividends - - - - (701) (701) - (701)
Movement in third party
interests - - - - - - (5) (5)
Currency translation
differences - - - (14) 14 - - -
As at 31 December 2015 149 976 (30) 89 5,220 6,404 289 6,693
IFRS and Operational Cash Generation Page 37
Consolidated Cash Flow Statement
For the six months ended 30 June 2016
30.06.16 30.06.15 31.12.15
Notes GBPm GBPm GBPm
Cash flows from operating activities
Profit for the period 667 547 1,094
Adjustments for non cash movements in net profit
for the period
Realised and unrealised (gains)/losses on financial
investments and investment properties (31,213) 4,236 4,077
Investment income (5,164) (4,928) (9,760)
Interest expense 98 91 186
Tax expense 317 282 320
Other adjustments (7) (35) (70)
Net (increase)/decrease in operational assets
Investments held for trading or designated
as fair value through profit or loss (1,923) (2,450) 1,007
Investments designated as available-for-sale 327 210 158
Other assets (7,947) (1,518) (2,594)
Net increase/(decrease) in operational liabilities
Insurance contracts 8,921 (784) (1,083)
Transfer (from)/to unallocated divisible surplus (200) 68 (90)
Investment contracts 19,164 (5,254) (9,524)
Value of in-force non-participating contracts 49 (15) 24
Other liabilities 10,674 3,249 6,645
Cash used in operations (6,237) (6,301) (9,610)
Interest paid (75) (129) (186)
Interest received 2,740 2,413 5,286
Tax paid(1) (217) (84) (244)
Dividends received 2,622 2,282 3,931
Net cash flows used in operating activities (1,167) (1,819) (823)
Cash flows from investing activities
Net acquisition of plant, equipment and intangibles (29) (11) (24)
Acquisitions(2) - (5) (5)
Disposal of subsidiaries(3) 2.11 (340) 34 (82)
Investment in joint ventures (17) (65) (71)
Net cash flows from investing activities (386) (47) (182)
Cash flows from financing activities
Dividend distributions to ordinary equity holders
of the company during the period 2.16 (589) (496) (701)
Proceeds from issue of ordinary share capital 3 4 7
Purchase of employee scheme shares 2 (7) (8)
Proceeds from borrowings 253 194 697
Repayment of borrowings (315) (649) (527)
Net cash flows used in financing activities (646) (954) (532)
Net decrease in cash and cash equivalents (2,199) (2,820) (1,537)
Exchange gains/(losses) on cash and cash equivalents 89 (65) (106)
Cash and cash equivalents at 1 January (before
reallocation of held for sale cash) 21,066 22,709 22,709
Cash and cash equivalents (before reallocation
of held for sale cash) 18,956 19,824 21,066
Cash and cash equivalents classified as held
for sale 2.12 - (241) (389)
Cash and cash equivalents at 30 June/31 December 18,956 19,583 20,677
1. Tax comprises UK corporation tax paid of GBP108m (H1 15: GBP8m; FY
15: GBP128m), overseas corporate taxes of GBP5m (H1 15: GBP18m; FY 15:
GBP36m) and withholding tax of GBP104m (H1 15: GBP58m; FY 15: GBP80m).
2. Net cash flows from acquisitions includes cash paid of GBPnil (H1
15: GBP5m; FY 15: GBP5m) less cash and cash equivalents acquired of
GBPnil (H1 15: GBPnil; FY 15: GBPnil).
3. Net cash flows from disposals includes cash received of GBP74m (H1
15: GBPnil; FY 15: GBP242m) less cash and cash equivalents disposed
of GBP414m (H1 15: GBPnil; FY 15: GBP324m).
The group's Consolidated Cash Flow Statement includes all cash and cash
equivalent flows, including GBP669m (H1 15: GBP541m; FY 15: GBP856m)
relating to the with-profit fund policyholders and GBP15,540m (H1 15:
GBP,16,928m; FY 15: GBP16,116m) relating to unit-linked policyholders.
IFRS and Operational Cash Generation Page 38
2.08 Basis of preparation
The group's financial information for the six months ended 30
June 2016 has been prepared in accordance with the Disclosure Rules
and Transparency Rules of the United Kingdom's Financial Conduct
Authority and with IAS 34, 'Interim Financial Reporting'. The
group's financial information has also been prepared in line with
the accounting policies and methods of computation which the group
expects to adopt for the 2016 year end. These policies are
consistent with the principal accounting policies which were set
out in the group's 2015 consolidated financial statements which
were consistent with IFRSs issued by the International Accounting
Standards Board as adopted by the European Commission for use in
the European Union. Following an amendment to IAS 1 more detail is
provided around the methodology of the split of policyholder and
shareholder tax.
For presentation, the tax shown in the Consolidated Income
Statement has been apportioned between that attributable to
policyholders' returns and equity holders' profits. This represents
the fact that the group's long-term business in the UK incurs tax
on policyholder investment return, in addition to the corporation
tax charge charged on shareholder profit. Both types of tax are
accounted for in the total tax charge in the group's Consolidated
Income Statement, and the separate presentation is intended to
provide more relevant information about the tax that the group pays
on the profits that it makes.
For this apportionment, the equity holders' tax on long-term
business is estimated using equity holders' profit after tax, which
is grossed up at the statutory tax rate. The balance of income tax
associated with UK long term business is classified as income tax
attributable to policyholders' returns.
The preparation of the interim management report includes the
use of estimates and assumptions which affect items reported in the
consolidated balance sheet and income statement and the disclosure
of contingent assets and liabilities at the date of the financial
statements. The economic and non-economic actuarial assumptions
used to establish the liabilities in relation to insurance and
investment contracts are significant. For half-year financial
reporting, economic assumptions have been updated to reflect market
conditions. Non-economic assumptions are consistent with those used
in the 31 December 2015 financial statements except for the changes
outlined in Note 2.02.
The results for the six months ended 30 June 2016 are unaudited
but have been reviewed by PricewaterhouseCoopers LLP. The interim
results do not constitute statutory accounts as defined in Section
434 of the Companies Act 2006. The results from the full year 2015
have been taken from the group's 2015 Annual Report and Accounts.
Therefore, these interim accounts should be read in conjunction
with the 2015 Annual Report and Accounts that have been prepared in
accordance with International Financial Reporting Standards as
issued by the International Accounting Standards Board and adopted
by the European Commission for use in the European Union.
PricewaterhouseCoopers LLP reported on the 2015 financial
statements and their report was unqualified and did not contain a
statement under Section 498 (2) or (3) of the Companies Act 2006.
The group's 2015 Annual Report and Accounts has been filed with the
Registrar of Companies.
Key technical terms and definitions
The interim management report refers to various key performance
indicators, accounting standards and other technical terms. A
comprehensive list of these definitions is contained within the
glossary section of these interim financial statements.
Alternative performance measures
The group uses a number of alternative performance measures
(APMs), including operational cash generation, net cash generation
and operating profit, in the discussion of its business performance
and financial position as the group believes that they provide a
better indication of performance. Definitions of key APMs can be
found in the glossary.
2.09 Segmental analysis
Reportable segments
The group has six reportable segments comprising LGR, LGIM, LGC,
Insurance, Savings and LGA. Central group expenses and debt costs
are reported separately.
LGR represents worldwide pension risk transfer business
(including longevity insurance), individual retirement and lifetime
mortgages.
The LGIM segment represents institutional and retail investment
management and workplace savings businesses.
LGC represents the IFRS profit before tax on its trading
businesses and investment return (less expenses) on its other group
invested assets. LGC and group expenses also incorporate
inter-segmental eliminations, consolidated unit trusts and property
partnerships managed on behalf of clients, which do not constitute
a separately reportable segment.
Insurance represents business in retail protection, group
protection, general insurance, networks and Legal & General
Netherlands (LGN). Insurance comparatives include Legal &
General France (LGF), which was sold during 2015.
Savings represents business in platforms, SIPPs, mature savings
and with-profits.
The LGA segment represents protection business written in the
USA.
During 2016, changes have been made to the organisational
structure. The advised sales and India businesses have transferred
to Insurance from Savings, and the IDOL business has been
transferred to LGR from Insurance. Comparatives have been amended
accordingly. The impact of this reclassification has been to
increase LGR H1 15 operating profit by GBP1m (FY 15: increase by
GBP2m), increase Savings H1 15 operating profit by GBP5m (FY 15:
increase by GBP8m) and reduce Insurance H1 15 operating profit by
GBP6m (FY 15: reduce by GBP10m).
Transactions between reportable segments are on normal
commercial terms, and are included within the reported
segments.
IFRS and Operational Cash Generation Page 39
2.09 Segmental analysis (continued)
(a) Profit/(loss) for
the period
Group
expenses
and debt
LGR(1) LGIM LGC Insurance(1) Savings(1) LGA costs Total
For the six months ended GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
30 June 2016
Operating profit/(loss) 406 171 135 138 49 43 (165) 777
Investment and other
variances(2) 63 (8) 60 (92) 4 2 21 50
Losses attributable
to non-controlling
interests - - - - - - (1) (1)
Profit/(loss) before
tax attributable to
equity holders 469 163 195 46 53 45 (145) 826
Tax (expense)/credit
attributable to equity
holders of the company (82) (35) (24) (11) (10) (25) 28 (159)
Profit/(loss) for the
period 387 128 171 35 43 20 (117) 667
Group
expenses
and debt
LGR(1) LGIM LGC Insurance(1) Savings(1) LGA costs Total
For the six months ended GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
30 June 2015
Operating profit/(loss) 281 176 115 186 55 40 (103) 750
Investment and other
variances(2) 11 (5) (4) (48) (20) 1 (21) (86)
Gains attributable to
non-controlling
interests - - - - - - 8 8
Profit/(loss) before
tax attributable to
equity holders 292 171 111 138 35 41 (116) 672
Tax (expense)/credit
attributable to equity
holders of the company (50) (38) (2) (37) (7) (22) 31 (125)
Profit/(loss) for the
period 242 133 109 101 28 19 (85) 547
========================== ====== ==== ===== ============ ========== ==== ======== =====
Group
expenses
and debt
LGR(1) LGIM LGC Insurance(1) Savings(1) LGA costs Total
For the year ended 31 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
December 2015
Operating profit/(loss) 641 355 233 283 107 83 (247) 1,455
Investment and other
variances(2) 78 (20) (116) (39) 3 (13) (12) (119)
Gains attributable to
non-controlling
interests - - - - - - 19 19
Profit/(loss) before
tax attributable to
equity holders 719 335 117 244 110 70 (240) 1,355
Tax (expense)/credit
attributable to equity
holders of the company (131) (74) (9) (60) (16) (41) 70 (261)
Profit/(loss) for the
year 588 261 108 184 94 29 (170) 1,094
1. During 2016, changes have been made to the organisational structure.
The advised sales and India businesses have been transferred to Insurance
from Savings, and the IDOL business has been transferred to LGR from
Insurance. Comparatives have been amended accordingly. The impact of
the reclassification has been to increase LGR H1 15 operating profit
by GBP1m and profit before tax by GBP1m (FY 15: increase by GBP2m and
GBP1m respectively), increase Savings H1 operating profit by GBP5m and
profit before tax by GBP5m (FY 15: increase by GBP8m and GBP8m respectively),
and reduce Insurance H1 15 operating profit by GBP6m and profit before
tax by GBP6m (FY 15: reduce by GBP10m and GBP9m respectively).
2. H1 16 Investment and other variances - Insurance and Savings include
the GBP4m net gain resulting from the disposal of subsidiaries during
the period (H1 15: includes the GBP40m impairment loss resulting from
the classification of disposal groups as held for sale; FY 15: includes
the GBP25m net loss resulting from the disposal of subsidiary and joint
venture investments during the year).
IFRS and Operational Cash Generation Page 40
2.09 Segmental analysis (continued)
(b) Income
LGC
and
LGR(1) LGIM Insurance(1) Savings(1) LGA other(2) Total
For the six months ended GBPm GBPm GBPm GBPm GBPm GBPm GBPm
30 June 2016
Internal income - 121 357 - 136 (614) -
External income 9,083 24,153 912 2,344 421 5,610 42,523
Total income 9,083 24,274 1,269 2,344 557 4,996 42,523
LGC
and
LGR(1) LGIM Insurance(1) Savings(1) LGA other(2,3) Total
For the six months ended GBPm GBPm GBPm GBPm GBPm GBPm GBPm
30 June 2015
Internal income - 43 197 - 109 (349) -
External income(3) 571 4,752 1,169 1,711 399 (213) 8,389
Total income 571 4,795 1,366 1,711 508 (562) 8,389
LGC
and
LGR(1) LGIM Insurance(1) Savings(1) LGA other(2,3) Total
For the year ended 31 December GBPm GBPm GBPm GBPm GBPm GBPm GBPm
2015
Internal income - 267 495 - 238 (1,000) -
External income(3) 2,554 5,514 2,111 2,473 754 (704) 12,702
Total income 2,554 5,781 2,606 2,473 992 (1,704) 12,702
1. During 2016, changes have been made to the organisational structure.
The advised sales and India businesses have transferred to Insurance
from Savings, and the IDOL business has been transferred to LGR from
Insurance. Comparatives have been amended accordingly. The impact of
this reclassification has been to increase LGR H1 15 external income
by GBP10m (FY 15: increase by GBP26m), reduce Savings H1 15 external
income by GBP3m (FY 15: reduce by GBP5m) and reduce Insurance H1 15
external income by GBP7m (FY 15: reduce by GBP21m).
2. LGC and other includes LGC, inter-segmental eliminations and group
consolidation adjustments.
3. LGC and other internal revenue includes inter-segmental eliminations
previously classified as LGA (H1 15: GBP195m; FY 15: GBP441m). In addition,
external revenue has been reclassified to exclude an internal transaction
between LGC and other and LGA.
Total revenue includes investment return of GBP36,978m (H1 15: GBP5,062m;
FY 15: GBP5,947m).
IFRS and Operational Cash Generation Page 41
2.10 Earnings per share
(a) Earnings per share
Adjusted Adjusted Adjusted Adjusted
Profit Earnings profit earnings Profit Earnings profit earnings
after per share(1) after per share(1,2) after per share(1) after per share(1,2)
tax tax tax tax
30.06.16 30.06.16 30.06.16 30.06.16 30.06.15 30.06.15 30.06.15 30.06.15
GBPm p GBPm p GBPm p GBPm p
Operating profit
after
tax 616 10.39 616 10.39 588 9.94 588 9.94
Investment and
other
variances 52 0.88 48 0.81 (49) (0.83) (9) (0.15)
Earnings per
share
based on profit
attributable to
equity
holders 668 11.27 664 11.20 539 9.11 579 9.79
Adjusted Adjusted
Profit Earnings profit earnings
after per share(1) after per share(1,2)
tax tax
Full year Full year Full year Full year
31.12.15 31.12.15 31.12.15 31.12.15
GBPm p GBPm p
Operating profit
after
tax 1,142 19.29 1,142 19.29
Investment and
other
variances (67) (1.13) (42) (0.71)
Earnings per
share
based on profit
attributable to
equity
holders 1,075 18.16 1,100 18.58
1. Earnings per share is calculated by dividing profit after tax derived
from continuing operations by the weighted average number of ordinary
shares in issue during the period, excluding employee scheme treasury
shares.
2. Adjusted earnings per share has been calculated excluding the net
gain, GBP4m, resulting from the disposal of subsidiaries (H1 15: excluding
the GBP40m impairment loss resulting from classification of disposal
groups as held for sale; FY 15: excluding the GBP25m net loss resulting
from the disposal of subsidiary and joint venture investments).
IFRS and Operational Cash Generation Page 42
2.10 Earnings per share (continued)
(b) Diluted earnings per share
Adjusted Adjusted
Number Profit Earnings profit earnings
of shares(1) after per share after per share(2)
tax tax
30.06.16 30.06.16 30.06.16 30.06.16 30.06.16
m GBPm p GBPm p
Profit attributable to equity holders of the
company 5,927 668 11.27 664 11.20
Net shares under options allocable for no further
consideration 22 - (0.04) - (0.04)
Diluted earnings per
share 5,949 668 11.23 664 11.16
Adjusted Adjusted
Number Profit Earnings profit earnings
of shares(1) after per share after per share(2)
tax tax
30.06.15 30.06.15 30.06.15 30.06.15 30.06.15
m GBPm p GBPm p
Profit attributable to equity holders of the
company 5,915 539 9.11 579 9.79
Net shares under options allocable for no further
consideration 38 - (0.06) - (0.06)
Diluted earnings per
share 5,953 539 9.05 579 9.73
Adjusted Adjusted
Number Profit Earnings profit earnings
of shares(1) after per share after per share(2)
tax tax
31.12.15 31.12.15 31.12.15 31.12.15 31.12.15
m GBPm p GBPm p
Profit attributable to equity holders of the
company 5,920 1,075 18.16 1,100 18.58
Net shares under options allocable for no further
consideration 38 - (0.12) - (0.12)
Diluted earnings per
share 5,958 1,075 18.04 1,100 18.46
1. For diluted earnings per share, the weighted average number of ordinary
shares in issue, excluding employee scheme treasury shares, is adjusted
to assume conversion of all potential ordinary shares, such as share
options granted to employees.
2. Adjusted earnings per share has been calculated excluding the net
GBP4m gain, resulting from the disposal of subsidiaries (H1 15: excluding
the GBP40m impairment loss resulting from classification of disposal
groups as held for sale; FY 15: excluding GBP25m net loss resulting
from the disposal of subsidiary and joint venture investments).
2.11 Disposals
During H1 2016, the group made the following disposals:
- Suffolk Life Group Limited was sold to Curtis Banks Group plc
for GBP45m (excluding transaction costs). The carrying value of the
investment was GBP40m, realising a profit on disposal of GBP5m
(excluding transaction costs) reported in operational income in the
Consolidated Income Statement. The disposal of Suffolk Life Group
Limited was not classified as a discontinued operation as it does
not represent a major line of business or geographical segment of
the group.
- The investment in ABI Alpha Limited was sold to a management
buyout led by CBPE Capital with cash proceeds for the group's
investment of GBP29m. The carrying value of the investment was
GBP23m, realising a profit on disposal of GBP6m reported in
operational income in the Consolidated Income Statement. The
majority of the profit on disposal is allocated to the with-profits
fund.
- Air Energi is no longer controlled by the group following its
merger with Swift WWR to create Airswift. The group now holds less
than 50% of Airswift and therefore has classified the investment as
an associate included in financial investments. The investment has
been revalued to fair value, increasing the carrying value of the
investment by GBP13m which has been reported in operational income
in the Consolidated Income Statement. The majority of the profit on
merger is allocated to the with-profits fund.
IFRS and Operational Cash Generation Page 43
2.12 Held for sale
Full year
30.06.16 30.06.15(1) 31.12.15(2)
GBPm GBPm GBPm
Assets classified as held for sale
Purchased interest in long term business and
other intangible assets - - 28
DAC - 71 -
Investment in associates - 12 -
Property, plant and
equipment - 45 1
Investment property - - 1,140
Financial investments - 5,601 1,801
Reinsurers' share of
contract liabilities - 10 39
Cash and cash equivalents - 241 389
Other assets - 169 11
Total assets of the disposal group - 6,149 3,409
Liabilities classified as held for sale
Insurance contract liabilities - (320) -
Investment contract
liabilities - (5,187) (3,235)
Unallocated divisible
surplus - (229) -
Operational borrowings - - (102)
Tax liabilities - (22) (5)
Other liabilities - (238) (27)
Total liabilities of the disposal group - (5,996) (3,369)
Total net assets of the disposal group - 153 40
1. At H1 15, Legal & General International (Ireland) Limited, Commercial
International Life Insurance Company SAE, Legal & General Gulf BSC,
and Legal & General Holdings (France) S.A. were classified as held for
sale.
2. At FY 15, Suffolk Life Group Limited was classified as held for sale.
IFRS and Operational Cash Generation Page 44
2.13 Financial investments and investment property
Full year
30.06.16 30.06.15 31.12.15
GBPm GBPm GBPm
Equities 176,194 161,507 166,892
Unit trusts 6,594 7,303 6,021
Debt securities(1) 197,008 170,910 169,720
Accrued interest 1,395 1,393 1,456
Derivative assets(2) 15,424 9,625 9,509
Loans and receivables 508 421 465
Financial investments 397,123 351,159 354,063
Investment property(3) 8,227 8,779 8,082
Total financial investments and investment property 405,350 359,938 362,145
1. Detailed analysis of debt securities which shareholders are directly
exposed to is disclosed in Note 4.06.
2. Derivatives are used to ensure efficient portfolio management, especially
the use of interest rate swaps, inflation swaps, credit default swaps
and foreign exchange forward contracts for asset and liability management.
Derivative assets are shown gross of derivative liabilities and include
GBP9,543m (H1 15: GBP5,819m; FY 15: GBP5,795m) held on behalf of unit
linked policyholders.
3. Detailed analysis of investment property which shareholders are directly
exposed to is disclosed in Note 4.07.
(a) Fair value hierarchy
Fair value is the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants
at the measurement date.
Fair value measurements are based on observable and unobservable inputs.
Observable inputs reflect market data obtained from independent sources,
while unobservable inputs reflect the group's view of market assumptions
in the absence of observable market information. The group utilises
techniques that maximise the use of observable inputs and minimise the
use of unobservable inputs.
The levels of fair value measurement bases are defined as follows:
Level 1: fair values measured using quoted prices (unadjusted) in active
markets for identical assets or liabilities.
Level 2: fair values measured using valuation techniques for all inputs
significant to the measurement other than quoted prices included within
level 1 that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices).
Level 3: fair values measured using valuation techniques for any input
for the asset or liability significant to the measurement that is not
based on observable market data (unobservable inputs).
All of the group's level 2 assets have been valued using standard market
pricing sources, such as iBoxx, IDC and Bloomberg, which use mathematical
modelling and multiple source validation in order to determine "consensus"
prices, except for bespoke CDO and swaps holdings (see below). In normal
market conditions, we would consider these market prices to be observable
market prices. Following consultation with our pricing providers and
a number of their contributing brokers, we have considered that these
prices are not from a suitably active market and have classified them
as level 2.
CDOs are valued using an external valuation based on observable market
inputs, which include CDX and iTraxx index tranches and CDS spreads
on underlying reference entities. This valuation is then validated against
the internal valuation. Accordingly, these assets have also been classified
in level 2.
There have been no significant transfers between level 1 and level 2
for the period ended 30 June 2016 (30 June 2015: GBPnil; 31 December
2015: GBPnil).
The table on the following page presents the group's assets by IFRS
13 hierarchy levels:
IFRS and Operational Cash Generation Page 45
2.13 Financial investments and investment property (continued)
(a) Fair value hierarchy
(continued)
Total Level Level Level
1 2 3
For the six months ended 30 June 2016 GBPm GBPm GBPm GBPm
Shareholder
Equity securities 2,331 2,025 - 306
Debt securities 4,789 2,071 2,361 357
Accrued interest 33 15 15 3
Derivative assets 62 6 56 -
Investment property 200 - - 200
Non profit non-unit linked
Equity securities 56 52 4 -
Debt securities 47,436 6,998 36,995 3,443
Accrued interest 496 38 453 5
Derivative assets 5,661 325 5,326 10
Investment property 2,257 - - 2,257
With-profits
Equity securities 3,607 3,382 1 224
Debt securities 7,054 3,660 3,384 10
Accrued interest 69 29 40 -
Derivative assets 158 40 118 -
Investment property 920 - - 920
Unit linked
Equity securities 176,794 173,351 3,062 381
Debt securities 137,729 96,007 41,722 -
Accrued interest 797 291 506 -
Derivative assets 9,543 225 9,318 -
Investment property 4,850 - - 4,850
Total financial investments and investment
property at fair value(1) 404,842 288,515 103,361 12,966
1. This table excludes loans and receivables of GBP508m, which are held
at amortised cost.
IFRS and Operational Cash Generation Page 46
2.13 Financial investments and investment property (continued)
(a) Fair value hierarchy (continued)
Total Level Level Level
1 2 3
For the six months ended 30 June 2015 GBPm GBPm GBPm GBPm
Shareholder
Equity securities 1,932 1,681 - 251
Debt securities 4,570 1,861 2,445 264
Accrued interest 30 11 15 4
Derivative assets 87 81 6 -
Investment property 183 - - 183
Non profit non-unit linked
Equity securities 307 296 11 -
Debt securities 38,851 5,845 32,155 851
Accrued interest 445 32 407 6
Derivative assets 3,664 264 3,400 -
Investment property 2,037 - - 2,037
With-profits
Equity securities 3,596 3,084 2 510
Debt securities 6,886 3,265 3,604 17
Accrued interest 79 35 44 -
Derivative assets 55 37 18 -
Investment property 1,057 - - 1,057
Unit linked
Equity securities 162,975 159,401 3,331 243
Debt securities 120,603 79,895 40,701 7
Accrued interest 839 295 544 -
Derivative assets 5,819 960 4,859 -
Investment property 5,502 - - 5,502
Total financial investments and investment
property at fair value(1) 359,517 257,043 91,542 10,932
1. This table excludes loans and receivables of GBP421m, which are held
at amortised cost.
IFRS and Operational Cash Generation Page 47
2.13 Financial investments and investment property (continued)
(a) Fair value hierarchy (continued)
Total Level Level Level
1 2 3
For the year ended 31 December 2015 GBPm GBPm GBPm GBPm
Shareholder
Equity securities 1,923 1,663 - 260
Debt securities 4,516 1,966 2,188 362
Accrued interest 32 16 14 2
Derivative assets 36 13 23 -
Investment property 190 - - 190
Non profit non-unit
linked
Equity securities 149 138 11 -
Debt securities 38,888 5,174 32,646 1,068
Accrued interest 465 34 426 5
Derivative assets 3,640 74 3,566 -
Investment property 2,157 - - 2,157
With-profits
Equity securities 3,365 3,002 6 357
Debt securities 6,385 3,029 3,343 13
Accrued interest 69 24 45 -
Derivative assets 38 11 27 -
Investment property 930 - - 930
Unit linked
Equity securities 167,476 164,118 3,112 246
Debt securities 119,931 82,388 37,537 6
Accrued interest 890 310 580 -
Derivative assets 5,795 332 5,463 -
Investment property 4,805 - - 4,805
Total financial investments and investment
property at fair value(1) 361,680 262,292 88,987 10,401
1. This table excludes loans and receivables of GBP465m, which are held
at amortised cost.
IFRS and Operational Cash Generation Page 48
2.13 Financial investments and investment property
(continued)
(b) Assets measured at fair value based on level 3
Level 3 assets where internal models are used, represent a small
proportion of assets to which shareholders are exposed. These
comprise property, unquoted equities, untraded debt securities and
securities where the broker methodology is unknown. Unquoted
equities include suspended securities and investments in private
equity and property vehicles. Untraded debt securities include
private placements, commercial real estate loans and lifetime
mortgages.
In many situations, inputs used to measure the fair value of an
asset or liability may fall into different levels of the fair value
hierarchy. In these situations, the group determines the level in
which the fair value falls based upon the lowest level input that
is significant to the determination of the fair value. As a result,
both observable and unobservable inputs may be used in the
determination of fair values that the group has classified within
level 3.
The group determines the fair values of certain financial assets
and liabilities based on quoted market prices, where available. The
group also determines fair value based on estimated future cash
flows discounted at the appropriate current market rate. As
appropriate, fair values reflect adjustments for counterparty
credit quality, the group's credit standing, liquidity and risk
margins on unobservable inputs.
Where quoted market prices are not available, fair value
estimates are made at a point in time, based on relevant market
data, as well as the best information about the individual
financial instrument. Illiquid market conditions have resulted in
inactive markets for certain of the group's financial instruments.
As a result, there is generally no or limited observable market
data for these assets and liabilities. Fair value estimates for
financial instruments deemed to be in an illiquid market are based
on judgments regarding current economic conditions, liquidity
discounts, currency, credit and interest rate risks, loss
experience and other factors. These fair values are estimates and
involve considerable uncertainty and variability as a result of the
inputs selected and may differ significantly from the values that
would have been used had a ready market existed, and the
differences could be material. As a result, such calculated fair
value estimates may not be realisable in an immediate sale or
settlement of the instrument. In addition, changes in the
underlying assumptions used in the fair value measurement technique
could significantly affect these fair value estimates.
Fair values are subject to a control framework designed to
ensure that input variables and outputs are assessed independent of
the risk taker. These inputs and outputs are reviewed and approved
by a valuation committee and validated independently as
appropriate.
The group's policy is to re-assess categorisation of financial
assets at the end of each reporting period and to recognise
transfers between levels at that point in time.
IFRS and Operational Cash Generation Page 49
2.13 Financial investments and investment property (continued)
(b) Assets measured at fair value based on level 3 (continued)
Other Other
financial financial
Equity invest- Investment Equity invest- Investment
securities ments(1) property Total securities ments(1) property Total
30.06.16 30.06.16 30.06.16 30.06.16 30.06.15 30.06.15 30.06.15 30.06.15
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
As at 1 January 863 1,456 8,082 10,401 1,142 1,243 8,152 10,537
Total gains or (losses) for the
period
recognised in profit:
- in other comprehensive
income - 15 - 15 - - - -
- realised and unrealised
gains or (losses)(2) 9 269 (51) 227 97 (21) 226 302
Purchases / Additions 260 586 283 1,129 26 164 512 702
Improvements - - - - - - 63 63
Sales / Disposals (244) (112) (87) (443) (140) (105) (174) (419)
Transfers into level
3(3) 26 1,670 - 1,696 12 5 - 17
Transfers out of level
3(3) (3) (56) - (59) (126) (144) - (270)
Other - - - - (7) 7 - -
As at 30 June 911 3,828(-) 8,227 12,966 1,004 1,149(-) 8,779 10,932
1. Other financial investments comprise debt securities, lifetime mortgages
and derivative assets.
2. The realised and unrealised gains and losses have been recognised
in investment return in the Consolidated Income Statement.
3. The group holds regular discussions with its pricing providers to
determine whether transfers between levels of the fair value hierarchy
have occurred. The above transfers occurred as a result of this process.
In 2016, transfers into level 3 included GBP1,670m of commercial real
estate loans, which were previously classified as level 2.
Other
financial
Equity invest- Investment
securities ments(1) property Total
Full year Full year Full year Full year
31.12.15 31.12.15 31.12.15 31.12.15
GBPm GBPm GBPm GBPm
As at 1 January 1,142 1,243 8,152 10,537
Total gains or (losses) for the
year
recognised in profit:
- in other comprehensive
income - (12) - (12)
- realised and unrealised
gains or (losses)(2) 110 (10) 486 586
Purchases / Additions 68 394 1,061 1,523
Sales / Disposals (246) (234) (482) (962)
Transfers into level
3(3) 66 76 - 142
Transfers out of level
3(3) (260) - - (260)
Transfers to held for
sale(4) (17) (1) (1,135) (1,153)
As at 31 December 863 1,456 8,082 10,401
1. Other financial investments comprise debt securities, lifetime mortgages
and derivative assets.
2. The realised and unrealised gains and losses have been recognised
in investment return in the Consolidated Income Statement.
3. The group holds regular discussion with its pricing providers to
determine whether transfers between levels of the fair value hierarchy
have occurred. The above transfers occurred as result of this process.
4. The Suffolk Life Group was sold in May 2016 and therefore was classified
as held for sale at 31 December 2015.
IFRS and Operational Cash Generation Page 50
2.13 Financial investments and investment property (continued)
(c) Effect of changes in significant unobservable inputs to reasonably
possible alternative assumptions on level 3 assets
Fair values of financial instruments are, in certain circumstances,
measured using valuation techniques that incorporate assumptions that
are not evidenced by prices from observable current market transactions
in the same instrument and are not based on observable market data.
The following table shows the level 3 financial instruments carried
at fair value as at the balance sheet date, the valuation basis, main
assumptions used in the valuation of these instruments and reasonably
possible increases or decreases in fair value based on reasonably possible
alternative assumptions.
Reasonably possible
alternative assumptions
===========================
Current Increase Decrease
fair in fair in fair
For the six months ended Main value value value
30 June 2016
Financial instruments and investment assumptions GBPm GBPm GBPm
property
Assets
Shareholder
- Private equity investment vehicles(1) Price earnings multiple 16 1 (1)
- Unquoted investments in property
vehicles(2) Property yield 283 1 (2)
Cash flows; expected
- Asset backed securities defaults 2 - -
Cash flows; expected
- Untraded and other debt securities(3) defaults 358 2 (2)
Cash flows; expected
- Unquoted and other securities(3) defaults 7 - -
- Investment property(2) Property yield 200 10 (20)
Non profit non-linked
- Lifetime mortgage
loans Market spreads; LTVs 440 8 (7)
Cash flows; expected
- Untraded and other debt securities(3) defaults 1,197 - -
- Commercial real Cash flows; expected
estate loans defaults 1,811 32 (32)
Cash flows; property
- Investment property(2,4) yield 2,257 56 (113)
- Other Cash flows 10 - -
With-profits
- Private equity investment vehicles(1) Price earnings multiple 17 - -
- Unquoted investments in property
vehicles(2) Property yield 207 13 (25)
Cash flows; expected
- Untraded and other debt securities(3) defaults 10 - -
- Investment property(2) Property yield 920 47 (92)
Unit linked
- Private equity investment vehicles(1) Price earnings multiple 1 - -
- Unquoted investments in property
vehicles(2) Property yield 369 19 (38)
Estimated recoverable
- Suspended securities amount 11 - -
- Investment property(2) Property yield 4,850 247 (485)
Total 12,966 436 (817)
1. Private equity investments are valued in accordance with the International
Private Equity and Venture Capital Valuation Guidelines. Reasonably
possible alternative valuations have been determined using alternative
price earnings multiples.
2. Unquoted investments in property vehicles and direct holdings in
investment property are valued using valuations provided by independent
valuers on the basis of open market value as defined in the appraisal
and valuation manual of the Royal Institute of Chartered Surveyors.
Reasonably possible alternative valuations have been determined using
alternative yields.
3. No reasonably possible increases or decreases in fair values have
been given for securities where the broker methodology is unknown.
4. The sensitivity of the non profit non-linked property to reasonably
possible alternative assumptions is primarily driven by the vacant property
value at the end of the lease, which represents only a partial component
of the overall valuation calculation. The properties are primarily let
to investment grade tenants on long-term leases and as a consequence
of this, the cash flows received from these leases are deemed less sensitive
to market fluctuation by the group.
IFRS and Operational Cash Generation Page 51
2.13 Financial investments and investment property (continued)
(c) Effect of changes in significant unobservable inputs to reasonably
possible alternative assumptions on level 3 assets (continued)
Reasonably possible
alternative assumptions
===========================
Current Increase Decrease
fair in fair in fair
For the six months ended 30 June Main value value value
2015
Financial instruments and assumptions GBPm GBPm GBPm
investment property
Assets
Shareholder
- Private equity investment vehicles(1) Price earnings multiple 15 1 (1)
- Unquoted investments in property
vehicles(2) Property yield 137 7 (7)
Cash flows; expected
- Untraded and other debt securities(3) defaults 268 13 (13)
Cash flows; expected
- Unquoted and other securities(3) defaults 99 3 (3)
- Investment property(2) Property yield 183 9 (9)
Non profit non-linked
Cash flows; expected
- Asset backed securities defaults 725 36 (36)
Cash flows; expected
- Untraded and other debt securities(3) defaults 3 - -
Cash flows; expected
- Unquoted and other securities(3) defaults 129 6 (6)
- Investment property(2) Property yield 2,037 102 (102)
With-profits
- Private equity investment vehicles(1) Price earnings multiple 140 8 (8)
Cash flows; expected
- Asset backed securities defaults 5 - -
Cash flows; expected
- Unquoted and other securities(3) defaults 379 19 (19)
- Other 3 - -
- Investment property(2) Property yield 1,057 53 (53)
Unit linked
- Unquoted investments in property
vehicles(2) Property yield 37 2 (2)
Estimated recoverable
- Suspended securities amount 11 1 (1)
Cash flows; expected
- Asset backed securities defaults 4 - -
Cash flows; expected
- Untraded and other debt securities(3) defaults 2 - -
Cash flows; expected
- Unquoted and other securities(3) defaults 196 22 (22)
- Investment property(2) Property yield 5,502 276 (276)
Total 10,932 558 (558)
1. Private equity investments are valued in accordance with the International
Private Equity and Venture Capital Valuation Guidelines. Reasonably
possible alternative valuations have been determined using alternative
price earnings multiples.
2. Unquoted investments in property vehicles and direct holdings in
investment property are valued using valuations provided by independent
valuers on the basis of open market value as defined in the appraisal
and valuation manual of the Royal Institute of Chartered Surveyors.
Reasonably possible alternative valuations have been determined using
alternative yields.
3. No reasonably possible increases or decreases in fair values have
been given for securities where the broker methodology is unknown.
IFRS and Operational Cash Generation Page 52
2.13 Financial investments and investment property
(continued)
(c) Effect of changes in significant unobservable inputs to reasonably
possible alternative assumptions on level 3 assets (continued)
Reasonably possible
alternative assumptions
===========================
Current Increase Decrease
fair in fair in fair
For the year ended 31 December Main value value value
2015
Financial instruments and assumptions GBPm GBPm GBPm
investment property
Assets
Shareholder
Private equity investment vehicles(1) Price earnings multiple 9 1 (1)
Unquoted investments in property
vehicles(2) Property yield 244 11 (11)
Cash flows; expected
Untraded and other debt securities(3) defaults 364 1 (1)
Cash flows; expected
Unquoted and other securities(3) defaults 7 - -
Investment property(2) Property yield 190 9 (9)
Non profit non-linked
Lifetime mortgage loans Market spreads; LTVs 206 5 (7)
Cash flows; expected
Untraded and other debt securities(3) defaults 867 - -
Investment property(2) Property yield 2,157 110 (110)
With-profits
Private equity investment vehicles(1) Price earnings multiple 11 1 (1)
Unquoted investments in property
vehicles(2) Property yield 346 21 (21)
Cash flows; expected
Untraded and other debt securities(3) defaults 13 - -
Investment property(2) Property yield 930 47 (47)
Unit linked
Private equity investment vehicles(1) Price earnings multiple 8 - -
Unquoted investments in property
vehicles(2) Property yield 133 8 (8)
Cash flows; expected
Untraded and other debt securities(3) defaults 6 - -
Cash flows; expected
Unquoted and other securities(3) defaults 105 5 (5)
Investment property(2) Property yield 4,805 243 (243)
Total 10,401 462 (464)
1. Private equity investments are valued in accordance with the International
Private Equity and Venture Capital Valuation Guidelines. Reasonably
possible alternative valuations have been determined using alternative
price earnings multiples.
2. Unquoted investments in property vehicles and direct holdings in
investment property are valued using valuations provided by independent
valuers on the basis of open market value as defined in the appraisal
and valuation manual of the Royal Institute of Chartered Surveyors.
Reasonably possible alternative valuations have been determined using
alternative yields.
3. No reasonably possible increases or decreases in fair values have
been given for securities where the broker methodology is unknown.
IFRS and Operational Cash Generation Page 53
2.14 Tax
(a) Tax charge in the Consolidated Income Statement
The tax attributable to equity holders differs from the tax calculated
at the standard UK corporation tax rate as follows:
Full year
30.06.16 30.06.15 31.12.15
GBPm GBPm GBPm
Profit before tax attributable
to equity holders 826 672 1,355
Tax calculated at 20.00% (H1 15:
20.25%; FY 15: 20.25%) 165 136 274
Effects of:
Adjustments in respect of prior years - - (5)
Income not subject to tax, such
as dividends (5) (3) (11)
Higher rate of tax on profits
taxed overseas 4 10 16
Additional allowances/non-deductible
expenses 2 (4) (4)
Impact of reduction in UK corporate tax rate
to 18% from 2020 on deferred tax balances(1) (2) - 1
Differences between taxable and accounting
investment gains (5) (11) (10)
Other - (3) -
Tax attributable to
equity holders 159 125 261
Equity holders' effective
tax rate(2) 19.2% 18.6% 19.3%
1. The impact of future corporation tax reductions announced in March
2016 has not been included in the Half Year 2016 results. The impact
will be included in the FY 16 results when permitted under IAS 12.
2. Equity holders' effective tax rate is calculated by dividing the
tax attributable to equity holders over profit before tax attributable
to equity holders. Please refer to note 2.08 for detail on the methodology
of the split of policyholder and equity holders' tax.
IFRS and Operational Cash Generation Page 54
2.14 Tax (continued)
(b) Deferred Tax
Full year
30.06.16 30.06.15 31.12.15
(i) UK deferred tax GBPm GBPm GBPm
(liabilities)/assets
Realised and unrealised gains on investments (172) (256) (146)
Excess of depreciation over capital allowances 14 17 18
Management expenses 62 89 74
Deferred acquisition expenses (48) (56) (51)
Difference between the tax and accounting value of
insurance contracts (125) (126) (83)
Accounting provisions 4 16 8
Trading losses 7 10 6
Pension fund deficit 71 85 72
Purchased interest in long term business (14) (23) (15)
Net UK deferred tax liabilities (201) (244) (117)
Presented on the Consolidated Balance
Sheet as:
UK deferred tax asset 5 33 20
UK deferred tax liability (206) (277) (137)
Net UK deferred liabilities(1) (201) (244) (117)
(ii) Overseas deferred tax (liabilities)/assets
Realised and unrealised gains on investments (38) (32) (8)
Deferred acquisition expenses (344) (284) (308)
Difference between the tax and accounting value of
insurance contracts (180) (234) (241)
Accounting provisions (33) (19) (27)
Trading losses 81 164 159
Pension fund deficit - 2 -
Purchased interest in long term business (11) (11) (11)
Excess of depreciation over capital allowances 2 - -
Net Overseas deferred tax liabilities (523) (414) (436)
1. On the Consolidated Balance Sheet the net UK deferred tax liability
has been split between an asset of GBP5m and a liability of GBP206m
where the relevant items cannot be offset.
IFRS and Operational Cash Generation Page 55
2.15 Payables and other financial liabilities
Full year
30.06.16 30.06.15 31.12.15
GBPm GBPm GBPm
Derivative liabilities 15,473 5,806 8,047
Repurchase agreements(1) 17,295 9,532 13,343
Other(2) 3,988 3,111 1,319
Payables and other financial
liabilities 36,756 18,449 22,709
1. The repurchase agreements are presented gross, however they and their
related assets are subject to master netting arrangements.
2. Other financial liabilities include net variation margins on derivative
contracts, which are maintained daily. Included within the variation
margins are collateral held and pledged of GBP8m and GBP979m respectively
(H1 15: GBP384m and GBP20m; FY 15: GBP94m and GBP50m). Other also includes
the present value of future commission costs which have contingent settlement
provisions of GBP175m (H1 15: GBP182m; FY 15: GBP175m).
Fair value hierarchy
Amortised
Total Level Level Level cost
1 2 3
As at 30 June 2016 GBPm GBPm GBPm GBPm GBPm
Derivative liabilities 15,473 5,519 9,954 - -
Repurchase agreements 17,295 - - - 17,295
Other 3,988 522 14 174 3,278
Payables and other financial
liabilities 36,756 6,041 9,968 174 20,573
Amortised
Total Level Level Level cost
1 2 3
As at 30 June 2015 GBPm GBPm GBPm GBPm GBPm
Derivative liabilities 5,806 843 4,963 - -
Repurchase agreements 9,532 - - - 9,532
Other 3,111 260 14 184 2,653
Payables and other financial
liabilities 18,449 1,103 4,977 184 12,185
Amortised
Total Level Level Level cost
1 2 3
As at 31 December 2015 GBPm GBPm GBPm GBPm GBPm
Derivative liabilities 8,047 1,451 6,596 - -
Repurchase agreements 13,343 - - - 13,343
Other 1,319 5 12 175 1,127
Payables and other financial
liabilities 22,709 1,456 6,608 175 14,470
Future commission costs are modelled using expected cash flows, incorporating
expected future persistency. They have therefore been classified as
level 3 liabilities. The entire movement in the balance has been reflected
in the Consolidated Income Statement during the period. A reasonably
possible alternative persistency assumption would have the effect of
increasing/decreasing the liability by GBP4m (H1 15: GBP6m; FY 15: GBP6m).
Significant transfers between levels
There have been no significant transfers between levels 1, 2 and 3 for
the period ended 30 June 2016 (H1 15 and FY 15: No significant transfers
between levels 1, 2 and 3).
IFRS and Operational Cash Generation Page 56
2.16 Dividends
Per Per Per
Dividend share(1) Dividend(1) share(1) Dividend share(1)
30.06.16 30.06.16 30.06.15 30.06.15 31.12.15 31.12.15
GBPm p GBPm p GBPm p
Ordinary share dividends paid in
the period:
- Prior year final
dividend 592 9.95 496 8.35 496 8.35
- Current year interim
dividend - - - - 205 3.45
592 9.95 496 8.35 701 11.80
Ordinary share dividend
proposed(2) 238 4.00 205 3.45 592 9.95
1. The dividend per share calculation is based on the number of equity
shares registered on the ex-dividend date.
2. The dividend proposed is not included as a liability on the Consolidated
Balance Sheet.
2.17 Share capital
Number of Number of Number of
shares shares shares
Full year
30.06.16 30.06.15 31.12.15
As at 1 January 5,948,788,480 5,942,070,229 5,942,070,229
Options exercised under share
option schemes:
- Savings related share option
scheme 3,465,839 3,704,493 6,718,251
As at 30 June / 31 December 5,952,254,319 5,945,774,722 5,948,788,480
There is one class of ordinary shares of 2.5p each. All shares issued
carry equal voting rights.
The holders of the company's ordinary shares are entitled to receive
dividends as declared and are entitled to one vote per share at shareholder
meetings of the company.
IFRS and Operational Cash Generation Page 57
2.18 Core Borrowings
Carrying Fair Carrying Fair Carrying Fair
amount value amount value amount value
Full year Full year
30.06.16 30.06.16 30.06.15 30.06.15 31.12.15 31.12.15
GBPm GBPm GBPm GBPm GBPm GBPm
Subordinated borrowings
6.385% Sterling perpetual
capital securities (Tier
1) 626 615 647 634 637 631
5.875% Sterling undated subordinated
notes (Tier 2) 412 412 414 423 413 426
10% Sterling subordinated
notes 2041 (Tier 2) 310 392 310 394 310 398
5.5% Sterling subordinated
notes 2064 (Tier 2) 589 534 588 622 589 570
5.375% Sterling subordinated
notes 2045 (Tier 2) 602 607 - - 602 611
Client fund holdings of group
debt(1) (33) (32) (28) (29) (26) (27)
Total subordinated borrowings 2,506 2,528 1,931 2,044 2,525 2,609
Senior borrowings
Sterling medium term notes
2031-2041 602 801 602 762 609 779
Client fund holdings of group
debt(1) (44) (58) (43) (55) (42) (54)
Total senior borrowings 558 743 559 707 567 725
Total core borrowings 3,064 3,271 2,490 2,751 3,092 3,334
1. GBP77m (H1 15: GBP71m; FY15: GBP68m) of the group's subordinated
and senior borrowings are currently held by Legal & General customers
through unit linked products. These borrowings are shown as a deduction
from total core borrowings in the table above.
All of the group's core borrowings are measured using amortised cost.
The presented fair values of the group's core borrowings reflect quoted
prices in active markets and they are classified as level 1 in the fair
value hierarchy.
Subordinated borrowings
6.385% Sterling perpetual capital securities
In 2007, Legal & General Group Plc issued GBP600m of 6.385%
Sterling perpetual capital securities. These securities are
callable at par on 2 May 2017 and every three months thereafter. If
not called, the coupon from 2 May 2017 will be reset to three month
LIBOR plus 1.93% pa. For Solvency II purposes these securities are
treated as tier 1 own funds.
5.875% Sterling undated subordinated notes
In 2004, Legal & General Group Plc issued GBP400m of 5.875%
Sterling undated subordinated notes. These notes are callable at
par on 1 April 2019 and every five years thereafter. If not called,
the coupon from 1 April 2019 will be reset to the prevailing five
year benchmark gilt yield plus 2.33% pa. These notes are treated as
tier 2 own funds for Solvency II purposes.
10% Sterling subordinated notes 2041
In 2009, Legal & General Group Plc issued GBP300m of 10%
dated subordinated notes. The notes are callable at par on 23 July
2021 and every five years thereafter. If not called, the coupon
from 23 July 2021 will be reset to the prevailing five year
benchmark gilt yield plus 9.325% pa. These notes mature on 23 July
2041. They are treated as tier 2 own funds for Solvency II
purposes.
5.5% Sterling subordinated notes 2064
In 2014, Legal & General Group Plc issued GBP600m of 5.5%
dated subordinated notes. The notes are callable at par on 27 June
2044 and every five years thereafter. If not called, the coupon
from 27 June 2044 will be reset to the prevailing five year
benchmark gilt yield plus 3.17% pa. These notes mature on 27 June
2064. They are treated as tier 2 own funds for Solvency II
purposes.
5.375% Sterling subordinated notes 2045
On 27 October 2015, Legal & General Group Plc issued GBP600m
of 5.375% dated subordinated notes. The notes are callable at par
on 27 October 2025 and every five years thereafter. If not called,
the coupon from 27 October 2025 will be reset to the prevailing
five year benchmark gilt yield plus 4.58% pa. These notes mature on
27 October 2045. They are treated as tier 2 own funds for Solvency
II purposes.
IFRS and Operational Cash Generation Page 58
2.19 Operational borrowings
Carrying Fair Carrying Fair Carrying Fair
amount value amount value amount value
Full year Full year
30.06.16 30.06.16 30.06.15 30.06.15 31.12.2015 31.12.2015
GBPm GBPm GBPm GBPm GBPm GBPm
Short term operational borrowings
Euro Commercial paper 103 103 41 41 15 15
Bank loans and overdrafts 69 69 7 7 2 2
Total short term operational borrowings 172 172 48 48 17 17
Non recourse borrowings
US Dollar Triple X securitisation
2037 - - 283 239 302 258
Suffolk Life unit linked
borrowings(1) - - 99 99 - -
LGV 6/LGV 7 Private Equity Fund
Limited Partnership 42 42 123 123 98 98
Consolidated Property Limited Partnerships 197 197 153 153 184 184
Total non recourse borrowings 239 239 658 614 584 540
Group holding of operational
borrowings(2) - - (61) (51) (65) (56)
Total operational borrowings 411 411 645 611 536 501
1. On 25 May 2016, the group sold Suffolk Life Group Limited to Curtis
Banks Group. At FY 15, the Suffolk Life unit linked borrowings were
transferred to held for sale, refer to Note 2.12.
2. Group investments in operational borrowings have been eliminated
from the Consolidated Balance Sheet.
The presented fair values of the group's operational borrowings
reflect observable market information and have been classified as
level 2 in the fair value hierarchy.
Short term operational borrowings
Short term assets available at the holding company level
exceeded the amount of the short term Euro Commercial paper, bank
loans and overdrafts of GBP172m (H1 15: GBP48m; FY 15: GBP17m).
Non recourse borrowings
US Dollar Triple X securitisation 2037
In 2006, a subsidiary of LGA issued US$450m of non recourse debt
in the US capital markets to meet the Triple X reserve requirements
of part of the US term insurance written in 2005 and 2006. It was
secured on the cash flows related to that tranche of business. On
15 June 2016, this securitisation was redeemed at par.
Suffolk Life unit linked borrowings
All of these non recourse borrowings were in relation to
commercial properties held within SIPP plans and the borrowings
solely related to client investments. On 25 May 2016, the group
sold Suffolk Life Group (SLG) to Curtis Banks Group plc.
LGV 6/LGV 7 Private Equity Fund Limited Partnerships
These borrowings are non recourse bank borrowings.
Consolidated Property Limited Partnerships
These borrowings are non recourse bank borrowings.
Syndicated credit facility
As at 30 June 2016, the group had in place a GBP1.00bn
syndicated committed revolving credit facility provided by a number
of its key relationship banks, maturing in December 2020. No
drawings were made under this facility year to date.
2.20 Non-controlling interests
Non-controlling interests represent third party interests in
direct equity investments as well as investments in private equity
and property investment vehicles which are consolidated in the
group's results. The majority of the non-controlling interests in
2016 are in relation to investments in the Leisure Fund Unit Trust,
the Legal & General UK Property Ungeared Fund Limited
Partnership and Thorpe Park Developments Limited.
IFRS and Operational Cash Generation Page 59
2.21 Foreign exchange rates
Principal rates of exchange
used for translation are:
Period end exchange At 31.12.15
rates At 30.06.16 At 30.06.15
United States Dollar 1.34 1.57 1.47
Euro 1.20 1.41 1.36
01.01.16 01.01.15 01.01.15
- - -
Average exchange rates 30.06.16 30.06.15 31.12.15
United States Dollar 1.43 1.52 1.53
Euro 1.28 1.37 1.38
2.22 Related party transactions
There were no material transactions between key management and the Legal
& General group of companies during the period. All transactions between
the group and its key management are on commercial terms which are no
more favourable than those available to employees in general. Contributions
to the post-employment defined benefit plans were GBP34m (H1 15: GBP54m;
FY 15: GBP93m) for all employees.
At 30 June 2016, 30 June 2015 and 31 December 2015 there were no loans
outstanding to officers of the company.
Key management personnel
compensation
The aggregate compensation for key management personnel, including executive
and non-executive directors, is as follows:
30.06.16 30.06.15 31.12.15
GBPm GBPm GBPm
Salaries 2 3 10
Social security costs 1 2 2
Post-employment benefits - 1 1
Share-based incentive
awards 2 2 5
Key management personnel
compensation 5 8 18
Number of key management
personnel 16 16 16
The group has the following related party transactions:
- Annuity contracts issued by Society for consideration of GBP4m (H1
15: GBP28m; FY 15: GBP105m) purchased by the group's UK defined benefit
pension schemes during the period, priced on an arm's length basis;
- Investments in venture capital, property and financial investments
held via collective investment vehicles. The net investments into associate
investment vehicles totalled GBP27m during the period (H1 15: GBP7m;
FY 15: GBPnil). The group received investment management fees of GBP1m
during the period (H1 15: GBP1m; FY 15: GBP2m). Distributions from these
investment vehicles to the group totalled GBP6m (H1 15: GBP7m; FY 15:
GBP10m);
- Loans outstanding from CALA at 30 June 2016 total GBP63m (H1 15: GBP57m;
FY 15: GBP59m);
- Further conditional commitments of GBP4m (H1 15: GBP9m; FY 15: GBP8m)
in the equity stake in Pemberton of GBP12.0m (H1 15: GBP5.8m; FY 15:
GBP7.0m). A commitment of GBP198m (H1 15: GBP177m; FY 15: GBP182m) was
previously made to Pemberton's first co-mingled funds, 75% of which
was drawn as at 30 June 2016;
- A 50/50 joint venture in MediaCity in the form of GBP61m (H1 15: GBP61m;
FY 15: GBP61m) equity and GBP55m (H1 15: GBP55m; FY 15: GBP55m) loan
notes. The loans outstanding from MediaCity total GBP55m as at 30 June
2016 (H1 15: GBP55m; FY 15: GBP55m);
- An 18% equity stake in NTR Wind Management Limited, an asset management
company set up to manage wind farms entered into in December 2015, of
GBP2m. The equity stake was increased to 25% and further investment
of GBP1m was made during the year, with a commitment of a further GBP1.8m.
The fund reached final close at its hard cap of GBP195m (EUR246m) in
February 2016 and L&G Capital has committed 47.5% of the funds;
- A 50/50 joint venture in Access Development Partnership entered into
in March 2016 for GBP23m equity for build-to-rent developments in Walthamstow,
Salford and Bristol.
IFRS and Operational Cash Generation Page 60
2.23 Pension costs
The Legal & General Group UK Pension and Assurance Fund and
the Legal & General Group UK Senior Pension Scheme are defined
benefit pension arrangements and account for all UK and the
majority of worldwide assets of, and contributions to, such
arrangements. The schemes were closed to future accrual on 31
December 2015. At 30 June 2016, the combined after tax deficit
arising from these arrangements (net of annuity obligations insured
by Society) has been estimated at GBP306m (H1 15: GBP351m; FY 15:
GBP308m). These amounts have been recognised in the financial
statements with GBP193m charged against shareholder equity (H1 15:
GBP221m; FY 15: GBP194m) and GBP113m against the unallocated
divisible surplus (H1 15: GBP130m; FY 15: GBP114m).
2.24 Contingent liabilities, guarantees and indemnities
Provision for the liabilities arising under contracts with
policyholders is based on certain assumptions. The variance between
actual experience from that assumed may result in those liabilities
differing from the provisions made for them. Liabilities may also
arise in respect of claims relating to the interpretation of
policyholder contracts, or the circumstances in which policyholders
have entered into them. The extent of these liabilities is
influenced by a number of factors including the actions and
requirements of the PRA, FCA, ombudsman rulings, industry
compensation schemes and court judgments.
Various group companies receive claims and become involved in
actual or threatened litigation and regulatory issues from time to
time. The relevant members of the group ensure that they make
prudent provision as and when circumstances calling for such
provision become clear, and that each has adequate capital and
reserves to meet reasonably foreseeable eventualities. The
provisions made are regularly reviewed. It is not possible to
predict, with certainty, the extent and the timing of the financial
impact of these claims, litigation or issues. Legal & General
(Portfolio Management Services) Limited (PMS) is currently
co-operating with an investigation by FCA into Structured Deposits
products issued by PMS between 2006 and 2014. PMS has responded to
FCA's requests for information and awaits FCA's feedback. This
matter is at an early stage and the probability, timing and amount
of any outflows is uncertain. As matters progress, management and
legal advisers will evaluate on an ongoing basis whether a
provision should be recognised.
In 1975, Legal & General Assurance Society Limited (the
Society) was required by the Institute of London Underwriters (ILU)
to execute the ILU form of guarantee in respect of policies issued
through the ILU's Policy Signing Office on behalf of NRG Victory
Reinsurance Company Ltd (Victory), a company which was then a
subsidiary of the Society. In 1990, Nederlandse Reassurantie Groep
Holding NV (the assets and liabilities of which have since been
assumed by Nederlandse Reassurantie Groep NV under a statutory
merger in the Netherlands) acquired Victory and provided an
indemnity to the Society against any liability the Society may have
as a result of the ILU's requirement, and the ILU agreed that its
requirement of the Society would not apply to policies written or
renewed after the acquisition. Nederlandse Reassurantie Groep NV is
now owned by Columbia Insurance Company, a subsidiary of Berkshire
Hathaway Inc. Whether the Society has any liability as a result of
the ILU's requirement and, if so, the amount of its potential
liability is uncertain. The Society has made no payment or
provision in respect of this matter.
Group companies have given warranties, indemnities and
guarantees as a normal part of their business and operating
activities or in relation to capital market transactions or
corporate disposals. Legal & General Group Plc has provided
indemnities and guarantees in respect of the liabilities of group
companies in support of their business activities including Pension
Protection Fund compliant guarantees in respect of certain group
companies' liabilities under the group pension fund and scheme.
LGAS has provided indemnities, a liquidity and expense risk
agreement, a deed of support and a cash and securities liquidity
facility in respect of the liabilities of group companies to
facilitate the group's matching adjustment reorganisation pursuant
to Solvency II.
IFRS and Operational Cash Generation Page 61
Independent review report to Legal & General Group Plc
Report on the consolidated interim financial statements
Our conclusion
We have reviewed Legal & General Group Plc's consolidated
interim financial statements (the "interim financial statements")
in the Interim Management Statement of Legal & General Group
Plc for the 6 month period ended 30 June 2016. Based on our review,
nothing has come to our attention that causes us to believe that
the interim financial statements are not prepared, in all material
respects, in accordance with International Accounting Standard 34,
'Interim Financial Reporting', as adopted by the European Union and
the Disclosure Rules and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
-- the Consolidated Balance Sheet as at 30 June 2016;
-- the Consolidated Income Statement and Consolidated Statement
of Comprehensive Income for the period then ended;
-- the Consolidated Cash Flow Statement for the period then ended;
-- the Condensed Consolidated Statement of Changes in Equity for
the period then ended; and
-- the explanatory notes to the interim financial statements (pages 27 to 60).
The interim financial statements included in the Interim
Management Statement have been prepared in accordance with
International Accounting Standard 34, 'Interim Financial
Reporting', as adopted by the European Union and the Disclosure
Rules and Transparency Rules of the United Kingdom's Financial
Conduct Authority.
As disclosed in note 2.08 to the interim financial statements,
the financial reporting framework that has been applied in the
preparation of the full annual financial statements of the group is
applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union.
Responsibilities for the consolidated interim financial
statements and the review
Our responsibilities and those of the directors
The Interim Management Statement, including the interim
financial statements, is the responsibility of, and has been
approved by, the directors. The directors are responsible for
preparing the Interim Management Statement in accordance with the
Disclosure Rules and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim
financial statements in the Interim Management Statement based on
our review. This report, including the conclusion, has been
prepared for and only for the company for the purpose of complying
with the Disclosure Rules and Transparency Rules of the United
Kingdom's Financial Conduct Authority and for no other purpose. We
do not, in giving this conclusion, accept or assume responsibility
for any other purpose or to any other person to whom this report is
shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK and
Ireland) and, consequently, does not enable us to obtain assurance
that we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit
opinion.
We have read the other information contained in the Interim
Management Statement and considered whether it contains any
apparent misstatements or material inconsistencies with the
information in the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London
8 August 2016
a) The maintenance and integrity of the Legal & General
Group Plc website is the responsibility of the directors; the work
carried out by the auditors does not involve consideration of these
matters and, accordingly, the auditors accept no responsibility for
any changes that may have occurred to the interim financial
statements since they were initially presented on the website.
b) Legislation in the United Kingdom governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
IFRS and Operational Cash Generation Page 62
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Asset and premium flows Page 63
3.01 Legal & General investment management total assets
Active
fixed Solu- Real Active Total Advisory Total
For the six months Index income tions(1) assets equities AUM assets assets
ended 30 June 2016 GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
At 1 January 2016 274.3 106.8 338.2 18.3 8.5 746.1 10.5 756.6
External inflows 17.6 3.5 6.6 0.8 - 28.5 28.5
--------
External outflows (16.0) (2.2) (6.6) (0.7) (0.1) (25.6) (25.6)
--------
Overlay/advisory
net flows - - 6.7 - - 6.7 (0.3) 6.4
External net flows(2) 1.6 1.3 6.7 0.1 (0.1) 9.6 (0.3) 9.3
Internal net flows (0.4) 0.7 (0.1) 0.1 - 0.3 - 0.3
Total net flows 1.2 2.0 6.6 0.2 (0.1) 9.9 (0.3) 9.6
Cash management
movements(3) - (0.6) - - - (0.6) - (0.6)
Market and other
movements(2) 24.9 17.6 44.3 (0.1) (0.6) 86.1 1.4 87.5
At 30 June 2016(4) 300.4 125.8 389.1 18.4 7.8 841.5 11.6 853.1
Assets attributable
to:
External 749.8 11.6 761.4
Internal 91.7 - 91.7
Assets attributable
to:
UK 689.6 - 689.6
International 151.9 11.6 163.5
Active
fixed Solu- Real Active Total Advisory Total
For the six months Index income tions(1) assets equities AUM assets assets
ended 30 June 2015 GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
At 1 January 2015 274.8 102.9 293.3 14.5 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/advisory
net flows - - 11.8 - - 11.8 (3.5) 8.3
External net flows(2) (1.2) 2.3 12.3 0.4 - 13.8 (3.5) 10.3
Internal net flows (0.3) (0.8) - 0.4 (0.3) (1.0) - (1.0)
Total net flows (1.5) 1.5 12.3 0.8 (0.3) 12.8 (3.5) 9.3
Cash management
movements(3) - 1.7 - - - 1.7 - 1.7
Market and other
movements(2) 1.4 0.3 2.6 1.4 0.7 6.4 - 6.4
At 30 June 2015(4) 274.7 106.4 308.2 16.7 8.6 714.6 11.3 725.9
Assets attributable
to:
External 624.8 11.3 636.1
Internal 89.8 - 89.8
Assets attributable
to:
UK 598.8 - 598.8
International 115.8 11.3 127.1
1. Solutions include liability driven investments, multi-asset funds,
and include GBP244.0bn at 30 June 2016 (30 June 2015: GBP208.1bn) of
derivative notionals associated with the Solutions business.
2. External net flows exclude movements in short-term solutions assets,
with maturity as determined by client agreements and are subject to
a higher degree of variability. The total value of these assets at 30
June 2016 was GBP71.0bn (30 June 2015: GBP48.2bn) and the movement in
these assets is included in market and other movements for Solutions
assets.
3. Cash management movements include external holdings in money market
funds and other cash mandates held for clients' liquidity management
purposes.
4. Total assets under management have been reconciled to the financial
investments and investment property held on the Consolidated Balance
Sheet in note 3.04.
Asset and premium flows Page 64
3.01 Legal & General investment management total assets
(continued)
Active
fixed Solu- Real Active Total Advisory Total
For the year ended Index income tions(1) assets equities AUM assets assets
31 December 2015 GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
At 1 January 2015 274.8 102.9 293.3 14.5 8.2 693.7 14.8 708.5
External inflows(2) 33.4 11.1 16.3 1.4 - 62.2 62.2
--------
External outflows (30.9) (4.3) (6.6) (0.9) - (42.7) (42.7)
Overlay/advisory
net flows - - 18.2 - - 18.2 (4.6) 13.6
External net flows(3) 2.5 6.8 27.9 0.5 - 37.7 (4.6) 33.1
Internal net flows (0.7) (1.9) - 0.9 (0.4) (2.1) - (2.1)
Disposal of LGF(4) - (2.3) - - - (2.3) - (2.3)
Total net flows 1.8 2.6 27.9 1.4 (0.4) 33.3 (4.6) 28.7
Cash management
movements(5) - 0.8 - - - 0.8 - 0.8
Market and other
movements(3) (2.3) 0.5 17.0 2.4 0.7 18.3 0.3 18.6
At 31 December 2015(6) 274.3 106.8 338.2 18.3 8.5 746.1 10.5 756.6
Assets attributable
to:
External 661.0 10.5 671.5
Internal 85.1 - 85.1
Assets attributable
to:
UK 623.7 - 623.7
International 122.4 10.5 132.9
1. Solutions include liability driven investments, multi-asset funds
and included GBP226.2bn at 31 December 2015 of derivative notionals
associated with the Solutions business.
2. Solutions external inflows include GBP11.7bn of assets associated
with the transfer of National Grid UK Pension Scheme after the purchase
of their asset manager Aerion Fund Management.
3. External net flows exclude movements in short-term solutions assets,
with maturity as determined by client agreements and are subject to
a higher degree of variability. The total value of these assets at 31
December 2015 was GBP59.9bn (30 June 2015: GBP48.2bn), and the movement
in these assets is included in market and other movements for Solutions
assets.
4. On 31 December 2015, the group sold Legal & General Holdings (France)
S.A. to APICIL Prévoyance.
5. Cash management movements include external holdings in money market
funds and other cash mandates held for clients' liquidity management
purposes.
6. Total assets under management have been reconciled to the financial
investments and investment property held on the Consolidated Balance
Sheet in note 3.04.
Asset and premium flows Page 65
3.02 Legal & General investment management total assets half-yearly
progression
Active
fixed Solu- Real Active Total Advisory Total
For the year ended Index income tions(1) assets equities AUM assets assets
31 December 2015 GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
At 1 January 2015 274.8 102.9 293.3 14.5 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/advisory
net flows - - 11.8 - - 11.8 (3.5) 8.3
External net flows(3) (1.2) 2.3 12.3 0.4 - 13.8 (3.5) 10.3
Internal net flows (0.3) (0.8) - 0.4 (0.3) (1.0) - (1.0)
Total net flows (1.5) 1.5 12.3 0.8 (0.3) 12.8 (3.5) 9.3
Cash management
movements(5) - 1.7 - - - 1.7 - 1.7
Market and other
movements(3) 1.4 0.3 2.6 1.4 0.7 6.4 - 6.4
At 30 June 2015 274.7 106.4 308.2 16.7 8.6 714.6 11.3 725.9
External inflows(2) 17.5 6.3 12.4 0.7 - 36.9 36.9
--------
External outflows (13.8) (1.8) (3.2) (0.6) - (19.4) (19.4)
--------
Overlay/advisory
net flows - - 6.4 - - 6.4 (1.1) 5.3
External net flows(3) 3.7 4.5 15.6 0.1 - 23.9 (1.1) 22.8
Internal net flows (0.4) (1.1) - 0.5 (0.1) (1.1) - (1.1)
Disposal of LGF(4) - (2.3) - - - (2.3) - (2.3)
Total net flows 3.3 1.1 15.6 0.6 (0.1) 20.5 (1.1) 19.4
Cash management
movements(5) - (0.9) - - - (0.9) - (0.9)
Market and other
movements(3) (3.7) 0.2 14.4 1.0 - 11.9 0.3 12.2
At 31 December 2015(6) 274.3 106.8 338.2 18.3 8.5 746.1 10.5 756.6
1. Solutions include liability driven investments, multi-asset funds,
and include GBP226.2bn at 31 December 2015 (30 June 2015: GBP208.1bn)
of derivative notionals associated with the Solutions business.
2. Solutions external inflows include GBP11.7bn of assets associated
with the transfer of National Grid UK Pension Scheme after the purchase
of their asset manager Aerion Fund Management.
3. External net flows exclude movements in short-term solutions assets,
with maturity as determined by client agreements and are subject to
a higher degree of variability. The total value of these assets at 31
December 2015 was GBP59.9bn (30 June 2015: GBP48.2bn), and the movement
in these assets is included in market and other movements for Solutions
assets.
4. On 31 December 2015, the group sold Legal & General Holdings (France)
S.A. to APICIL Prévoyance.
5. Cash management movements include external holdings in money market
funds and other cash mandates held for clients' liquidity management
purposes.
6. Total assets under management have been reconciled to the financial
investments and investment property on the Consolidated Balance Sheet
in note 3.04.
Asset and premium flows Page 66
3.02 Legal & General investment management total assets half-yearly
progression (continued)
As at As at As at
30.06.16 31.12.15 30.06.15
GBPbn GBPbn GBPbn
Total assets attributable
to:(1)
External 761.4 671.5 636.1
Internal 91.7 85.1 89.8
Total assets attributable
to:(1)
UK 689.6 623.7 598.8
International 163.5 132.9 127.1
1. Total assets at 30 June 2016 include GBP11.6bn of advisory assets
(30 June 2015: GBP11.3bn; 31 December 2015: GBP10.5bn).
3.03 Legal & General investment management total external assets under
management net flows
6 6 6
months months months
to to to
30.06.16 31.12.15 30.06.15
GBPbn GBPbn GBPbn
LGIM total external
AUM net flows(1) 9.6 23.9 13.8
Attributable to:
International 6.7 4.1 5.4
UK Institutional
- Defined contribution 0.8 1.9 1.0
- Defined benefit(2) 1.4 17.0 7.1
UK Retail 0.7 0.9 0.3
1. External net flows exclude movements in short term overlay assets,
with maturity as determined by client agreements and cash management
movements.
2. External inflows in the 6 months to 31 December 2015 include GBP11.7bn
of assets associated with the transfer of National Grid UK Pension Scheme
after the purchase of their asset manager Aerion Fund Management.
3.04 Assets under management reconciliation to Consolidated Balance
Sheet financial assets
As at As at As at
30.06.16 31.12.15 30.06.15
GBPbn GBPbn GBPbn
Assets under management 841.5 746.1 714.6
Derivative notionals (244.0) (226.2) (208.1)
Third party assets (202.3) (157.9) (147.6)
Derivative liabilities 15.4 8.0 5.8
Other(1) (5.2) (7.9) (4.8)
Total group financial investments and investment
property 405.4 362.1 359.9
1. Other includes assets that are managed by third parties on behalf
of the group, cash and broker balances.
Asset and premium flows Page 67
3.05 Assets under administration
LGIM
Consol-
Mature idation Retail
Suffolk Retail adjust- Total Nethe- Work- Invest-
For the six months Platforms(2) Life Savings(3) ment(4) Savings rlands place ments(5) Annuities
ended 30 June GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
2016
At 1 January
2016 76.9 8.6 29.6 (6.8) 108.3 1.6 14.7 22.6 43.4
Gross inflows(1) 2.2 0.5 0.5 (0.2) 3.0 0.1 2.3 3.0 4.0
Gross outflows (2.9) (0.3) (1.8) 0.3 (4.7) (0.1) (0.5) (3.2) -
Payments to pensioners - - - - - - - - (1.4)
Net flows (0.7) 0.2 (1.3) 0.1 (1.7) - 1.8 (0.2) 2.6
Market and other
movements 1.3 - 1.1 - 2.4 0.2 0.8 0.9 5.0
Disposals(6) - (8.8) - 1.8 (7.0) - - - -
At 30 June 2016 77.5 - 29.4 (4.9) 102.0 1.8 17.3 23.3 51.0
LGIM
Consol- France
Mature idation and Retail
Suffolk Retail adjust- Total Nethe- Work- Invest-
For the six months Platforms(2) Life Savings(3) ment(4) Savings rlands place ments(5) Annuities
ended 30 June GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
2015
As at 1 January
2015 71.9 7.7 36.0 (6.9) 108.7 4.4 11.1 21.3 44.2
Gross inflows(1) 3.8 0.6 0.7 (0.2) 4.9 0.2 1.2 3.0 1.0
Gross outflows (2.7) (0.3) (2.2) 0.4 (4.8) (0.2) (0.3) (3.0) -
Payments to pensioners - - - - - - - - (1.1)
Net flows 1.1 0.3 (1.5) 0.2 0.1 - 0.9 - (0.1)
Market and other
movements 1.6 0.3 0.3 (0.2) 2.0 (0.2) 1.1 1.2 (0.7)
At 30 June 2015 74.6 8.3 34.8 (6.9) 110.8 4.2 13.1 22.5 43.4
LGIM
Consol- France
Mature idation and Retail
Suffolk Retail adjust- Total Nethe- Work- Invest-
For the year Platforms(2) Life Savings(3) ment(4) Savings rlands place
ended ments(5) Annuities
31 December 2015 GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
At 1 January
2015 71.9 7.7 36.0 (6.9) 108.7 4.4 11.1 21.3 44.2
Gross inflows(1) 8.7 1.2 1.1 (0.5) 10.5 0.4 3.3 5.9 3.0
Gross outflows (5.2) (0.5) (4.1) 0.8 (9.1) (0.3) (0.7) (5.7) -
Payments to pensioners - - - - - - - - (2.6)
Disposals(7) - - (2.8) - (2.8) (2.7) - - -
Net flows 3.5 0.7 (5.8) 0.3 (1.4) (2.6) 2.6 0.2 0.4
Market and other
movements 1.5 0.2 (0.6) (0.2) 1.0 (0.2) 1.0 1.1 (1.2)
At 31 December
2015 76.9 8.6 29.6 (6.8) 108.3 1.6 14.7 22.6 43.4
1. Platforms gross inflows include Cofunds institutional net flows.
30 June 2016 Platforms comprise GBP77.5bn of which GBP37.2bn is retail
assets (30 June 2015: GBP37.9bn; 31 December 2015: GBP37.5bn) and GBP40.3bn
(30 June 2015: GBP36.7bn; 31 December 2015: GBP39.4bn) of assets held
on behalf of institutional clients.
2. Platforms AUA comprise ISAs: GBP20.1bn (30 June 2015: GBP20.0bn;
31 December 2015: GBP19.9bn); onshore bonds GBP2.8bn (30 June 2015:
GBP3.2bn; 31 December 2015: GBP3.0bn); offshore bonds GBP0.1bn (30 June
2015: GBP0.1bn; 31 December 2015: GBP0.1bn); platform SIPPs GBP3.6bn
(30 June 2015: GBP3.4bn; 31 December 2015: GBP3.5bn) and non-wrapped
funds GBP49.5bn (30 June 2015: GBP46.7bn; 31 December 2015: GBP50.4bn).
3. Mature Retail Savings products include with-profits products,
bonds and retail pensions.
4. Consolidation adjustment represents Suffolk Life and Mature Retail
Savings assets included in the Platforms column.
5. Retail Investments include GBP1.8bn (30 June 2015: GBP1.8bn; 31 December
2015: GBP2.0bn) of LGIM unit trust assets held on our Cofunds platform
and GBP3.4bn (30 June 2015: GBP3.3bn; 31 December 2015: GBP3.2bn) of
LGIM unit trust assets held on our IPS platform.
6. Suffolk Life was sold on 25 May 2016 to Curtis Banks Group plc.
7. GBP2.8bn of assets relating to Legal & General International (Ireland)
Limited, were sold to Canada Life Group on 1 July 2015. GBP2.7bn of
assets relating to Legal & General Holdings (France) S.A. were sold
on 31 December 2015 to APICIL Prévoyance.
Asset and premium flows Page 68
3.06 Assets under administration half-yearly progression
LGIM
Consol- France
Mature idation and Retail
Suffolk Retail adjust- Total Nether- Work- Invest-
For the year Platforms(2) Life Savings(3) ment(4) Savings lands place ments(6) Annuities
ended
31 December 2015 GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
At 1 January
2015 71.9 7.7 36.0 (6.9) 108.7 4.4 11.1 21.3 44.2
Gross inflows(1) 3.8 0.6 0.7 (0.2) 4.9 0.2 1.2 3.0 1.4
Gross outflows (2.7) (0.3) (2.2) 0.4 (4.8) (0.2) (0.3) (3.0) -
Payments to pensioners - - - - - - - - (1.2)
Net flows 1.1 0.3 (1.5) 0.2 0.1 - 0.9 - 0.2
Market and other
movements 1.6 0.3 0.3 (0.2) 2.0 (0.2) 1.1 1.2 (1.0)
At 30 June 2015 74.6 8.3 34.8 (6.9) 110.8 4.2 13.1 22.5 43.4
Gross inflows(1) 4.9 0.6 0.4 (0.3) 5.6 0.2 2.1 2.9 1.6
Gross outflows (2.5) (0.2) (1.9) 0.4 (4.2) (0.1) (0.4) (2.7) -
Payments to pensioners - - - - - - - - (1.4)
Disposals(5) - - (2.8) - (2.8) (2.7) - - -
Net flows 2.4 0.4 (4.3) 0.1 (1.4) (2.6) 1.7 0.2 0.2
Market and other
movements (0.1) (0.1) (0.9) - (1.1) - (0.1) (0.1) (0.2)
At 31 December
2015 76.9 8.6 29.6 (6.8) 108.3 1.6 14.7 22.6 43.4
1. Platforms gross inflows include Cofunds institutional net flows.
At 31 December 2015 Platforms comprised GBP37.5bn (30 June 2015: GBP37.9bn)
of retail assets and GBP39.4bn (30 June 2015: GBP36.7bn) of assets held
on behalf of institutional clients.
2. At 31 December 2015 Platforms AUA comprise ISAs: GBP19.9bn (30 June
2015: GBP20.0bn); onshore bonds GBP3.0bn (30 June 2015: GBP3.2bn); offshore
bonds GBP0.1bn (30 June 2015: GBP0.1bn); platform SIPPs GBP3.5bn (30
June 2015: GBP3.4bn) and non-wrapped funds GBP50.4bn (30 June 2015:
GBP46.7bn).
3. Mature Retail Savings products include with-profits products,
bonds and retail pensions.
4. Consolidation adjustment represents Suffolk Life and Retail Savings
assets included in the Platforms column.
5. GBP2.8bn of assets relating to Legal & General International (Ireland)
Limited, were sold to Canada Life Group on 1 July 2015. GBP2.7bn of
assets relating to Legal & General Holdings (France) S.A. were sold
on 31 December 2015 to APICIL Prévoyance.
6. At 31 December 2015 Retail Investments included GBP2.0bn (30 June
2015: GBP1.8bn) of LGIM unit trust assets held on our Cofunds platform
and GBP3.2bn (30 June 2015: GBP3.3bn) of LGIM unit trust assets held
on our IPS platform.
Asset and premium flows Page 69
3.07 LGR new business
6 6 6
months months months
to to to
30.06.16 31.12.15 30.06.15
GBPm GBPm GBPm
Bulk Purchase Annuities
- UK 3,585 831 1,146
- USA 45 295 -
- Netherlands - 145 -
Individual Annuities 158 147 180
Lifetime Mortgage Advances(1) 231 164 37
Total LGR new business 4,019 1,582 1,363
1. In H1 15, GBP12m of these advances were funded by L&G prior
to the group's acquisition of New Life Home Finance Ltd.
3.08 Insurance new business annual premiums
6 6 6
months months months
to to to
30.06.16 31.12.15 30.06.15
GBPm GBPm GBPm
UK Retail Protection 82 83 79
UK Group Protection 36 29 40
France Protection(1) - - 30
Netherlands Protection 2 2 3
US Protection 28 29 41
Total Insurance new
business 148 143 193
1. Legal & General Holdings (France) S.A. was sold on 31 December 2015
to APICIL Prévoyance.
3.09 Gross written premiums on Insurance business
6 6 6
months months months
to to to
30.06.16 31.12.15 30.06.15
GBPm GBPm GBPm
UK Retail Protection 582 567 545
UK Group Protection 233 101 229
General Insurance 156 173 164
France Protection(1) - 83 85
Netherlands Protection 25 22 24
US Protection 420 387 386
Longevity Insurance 161 162 164
Total gross written
premiums on insurance
business 1,577 1,495 1,597
1. Legal & General Holdings (France) S.A. was sold on 31 December 2015
to APICIL Prévoyance.
Asset and premium flows Page 70
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This information is provided by RNS
The company news service from the London Stock Exchange
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IR AKFDKOBKDCFK
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