TIDMLGEN
RNS Number : 4600N
Legal & General Group Plc
09 August 2017
Legal & General Group Plc
Half-year Results 2017 Part 2
IFRS and Release from Operations Page 25
Operating profit
For the six months ended 30 June 2017
Full year
30.06.17 30.06.16 31.12.16
Notes GBPm GBPm GBPm
From continuing operations
Legal & General Retirement (LGR) 2.02 566 405 809
Legal & General Investment Management (LGIM) 2.03 194 171 366
Legal & General Capital (LGC) 2.05 142 135 257
Legal & General Insurance (LGI) 2.02 151 151 319
-------- -------- ---------
- UK and Other 94 108 234
- US 57 43 85
-------- -------- ---------
General Insurance 2.04 15 31 52
Savings 2.02 52 49 99
Operating profit from divisions 1,120 942 1,902
Group debt costs(1) (92) (86) (172)
Group investment projects and expenses(2) 2.06 (40) (34) (102)
Kingswood office closure costs - (45) (66)
Operating profit 988 777 1,562
Investment and other variances 2.07 169 50 13
Gains/(losses) on non-controlling interests 6 (1) 7
Profit before tax attributable to equity holders 1,163 826 1,582
Tax expense attributable to equity holders
of the company 2.14 (211) (159) (317)
Profit for the period 952 667 1,265
Profit attributable to equity holders of the
company 946 668 1,258
p p p
Earnings per share(3) 2.10 15.94 11.27 21.22
Diluted earnings per share(3) 2.10 15.88 11.23 21.13
1. Group debt costs exclude interest on non recourse financing.
2. Group investment projects and expenses in H1 17 include restructuring
costs of GBP12m (H1 16: GBP16m; FY 16: GBP54m).
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 shareholder assets invested in direct
investments, and traded and treasury assets.
LGI represents business in retail protection, group protection,
networks, Legal & General Netherlands (LGN) (which was sold
during April 2017) and protection business written in the USA (LGI
US).
Savings represents business in platforms, SIPPs and mature
savings including with-profits.
The General Insurance segment comprises short-term
protection.
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 LGI US (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.
During 2017, changes have been made to the organisational
structure. Investment Discounts On Line Limited (the IDOL) has been
transferred to LGI from LGR. Comparatives have been amended
accordingly. The impact of this reclassification has been to reduce
LGR H1 16 operating profit by GBP1m (FY 16: reduce by GBP2m), and
increase LGI (UK and Other) H1 16 operating profit by GBP1m (FY 16:
increase by GBP2m).
During 2016, the Insurance (excluding General Insurance) and LGA
segments were combined to create the new Legal & General
Insurance (LGI) segment. General Insurance is now presented as a
separate segment.
IFRS and Release from Operations Page 26
2.01 Reconciliation of release from operations to operating
profit before tax
The table below provides an analysis of the release from operations
by each of the group's business segments, together with a reconciliation
to operating profit before tax.
Changes Operating
New Net in Operating profit/
Release business release Exper- valuation Non-cash Inter- profit/ Tax (loss)
from surplus/ from ience assump- items national (loss) expense/ before
and
For the six operations(1) (strain) operations variances tions other and after (credit) tax
months other(2) tax
ended
30 June 2017 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
LGR(3) 256 51 307 59 104 (3) - 467 99 566
LGIM 165 (11) 154 - (2) 1 - 153 41 194
------------- -------- ---------- --------- --------- -------- -------- --------- -------- ---------
- LGIM
excluding
Workplace
Savings
(admin
only) 153 - 153 - - - - 153 41 194
- Workplace
Savings
(admin
only)(4) 12 (11) 1 - (2) 1 - - - -
------------- -------- ---------- --------- --------- -------- -------- --------- -------- ---------
LGC 119 - 119 - - - - 119 23 142
LGI 166 3 169 (28) 23 (13) (43) 108 43 151
------------- -------- ---------- --------- --------- -------- -------- --------- -------- ---------
- UK and
Other(3) 86 3 89 (28) 23 (13) 4 75 19 94
- US 80 - 80 - - - (47) 33 24 57
------------- -------- ---------- --------- --------- -------- -------- --------- -------- ---------
General
Insurance 12 - 12 - - - - 12 3 15
Savings 53 (2) 51 - 2 (11) - 42 10 52
Total from
divisions 771 41 812 31 127 (26) (43) 901 219 1,120
Group debt
costs (74) - (74) - - - - (74) (18) (92)
Group
investment
projects
and expenses (14) - (14) - - - (18) (32) (8) (40)
Total 683 41 724 31 127 (26) (61) 795 193 988
Attributable
to:
Retained
business 683 41 724 31 127 (26) (64) 792 192 984
Disposed
operations - - - - - - 3 3 1 4
1. Release from operations includes dividends remitted from LGN of GBPnil
(H1 16: GBP48m; FY 16: GBP70m) within the LGI (UK and Other) line and
US dividends of GBP80m (H1 16: GBP61m; FY 16: GBP63m) within the LGI
(US) line.
2. International and other includes GBP10m (H1 16: GBP13m; FY 16: GBP43m)
of restructuring costs (GBP12m before tax) (H1 16: GBP16m before tax;
FY 16: GBP54m before tax) within the Group investment projects and expenses
line.
3. During 2017, changes have been made to the organisational structure.
The IDOL business has been transferred to LGI from LGR. Comparatives
have been amended accordingly. The impact of this reclassification has
been to reduce LGR H1 16 release from operations by GBP1m (FY 16: reduce
by GBP1m) and increase LGI (UK and Other) H1 16 release from operations
by GBP1m (FY 16: increase by GBP1m).
4. This represents Workplace Savings admin only and excludes fund management
profits.
Release from operations for LGR, LGIM, LGI 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 release from operations also includes
operating profit after tax from the institutional and retail investment
management businesses. The LGI release from operations also includes
dividends remitted from LGN and LGI US and operating profit after tax
from the remaining LGI businesses. The Savings release from operations
includes the shareholders' share of bonuses on with-profits business
and operating profit after tax from the other Savings businesses.
New business surplus/strain for LGR, LGIM, LGI 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 release
from operations for LGR, LGIM, LGI and Savings exclude any capital held
in excess of the prudent reserves from the liability calculation.
Net release from operations for LGR, LGIM, LGI and Savings is defined
as release from operations less new business strain.
Release from operations and net release from operations for LGC and
General Insurance represents the operating profit (net of tax).
See Note 2.02 for more detail on experience variances, changes to valuation
assumptions and non-cash items.
IFRS and Release from Operations Page 27
2.01 Reconciliation of release from operations to operating
profit before tax (continued)
Changes Operating
New Net in Operating profit/
Release business release Exper- valuation Non-cash Inter- profit/ Tax (loss)
from surplus/ from ience assump- items national (loss) expense/ before
and
For the six operations(1) (strain) operations 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(3) 204 79 283 (11) 48 13 - 333 72 405
LGIM 145 (11) 134 1 - (1) - 134 37 171
------------- -------- ---------- --------- --------- -------- -------- --------- -------- ---------
- LGIM
excluding
Workplace
Savings
(admin
only) 136 - 136 - - - - 136 38 174
- Workplace
Savings
(admin
only)(4) 9 (11) (2) 1 - (1) - (2) (1) (3)
------------- -------- ---------- --------- --------- -------- -------- --------- -------- ---------
LGC 113 - 113 - - - - 113 22 135
LGI 196 7 203 (16) 17 (13) (87) 104 47 151
------------- -------- ---------- --------- --------- -------- -------- --------- -------- ---------
- UK and
Other(3) 135 7 142 (16) 17 (13) (44) 86 22 108
- US 61 - 61 - - - (43) 18 25 43
------------- -------- ---------- --------- --------- -------- -------- --------- -------- ---------
General
Insurance 25 - 25 - - - - 25 6 31
Savings 51 (3) 48 - 5 (14) - 39 10 49
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)
Kingswood
office
closure
costs(5) - - - - - - (36) (36) (9) (45)
Total 655 72 727 (26) 70 (15) (140) 616 161 777
Attributable
to:
Retained
business 609 72 681 (26) 70 (12) (96) 617 161 778
Disposed
operations 46 - 46 - - (3) (44) (1) - (1)
1. Operational cash generation includes dividends remitted from LGN
of GBP48m within the LGI (UK and Other) line and LGI (US) of GBP61m.
2. International and other includes GBP13m of restructuring costs (GBP16m
before tax) within the group investment projects and expenses line.
3. LGI (UK and Other) includes the IDOL business which was previously
reported in LGR. Comparatives have been restated accordingly.
4. This represents Workplace Savings admin only and excludes fund management
profits.
5. The Kingswood office closure costs reflect expenditure in relation
to rent and rates, as well as the write-off of previously capitalised
expenditure.
IFRS and Release from Operations Page 28
2.01 Reconciliation of release from operations to operating
profit before tax (continued)
Changes Operating
New Net in Operating profit/
Release business release Exper- valuation Non-cash Inter- profit/ Tax (loss)
from surplus/ from ience assump- items national (loss) expense/ before
and
For the year operations(1) (strain) operations variances tions other and after (credit) tax
ended other(2) tax
31 December GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
2016
LGR 432 159 591 34 40 6 - 671 138 809
LGIM 308 (22) 286 (1) - - - 285 81 366
------------- -------- ---------- --------- --------- -------- -------- --------- -------- ---------
- LGIM
excluding
Workplace
Savings
(admin
only) 290 - 290 - - - - 290 82 372
- Workplace
Savings
(admin(3)
only) 18 (22) (4) (1) - - - (5) (1) (6)
------------- -------- ---------- --------- --------- -------- -------- --------- -------- ---------
LGC 214 - 214 - - - - 214 43 257
LGI 318 23 341 (11) 5 (29) (79) 227 92 319
------------- -------- ---------- --------- --------- -------- -------- --------- -------- ---------
- UK and
Other 255 23 278 (11) 5 (29) (57) 186 48 234
- US 63 - 63 - - - (22) 41 44 85
------------- -------- ---------- --------- --------- -------- -------- --------- -------- ---------
General
Insurance 42 - 42 - - - - 42 10 52
Savings 104 (5) 99 4 8 (32) - 79 20 99
Total from
divisions 1,418 155 1,573 26 53 (55) (79) 1,518 384 1,902
Group debt
costs (138) - (138) - - - - (138) (34) (172)
Group
investment
projects
and expenses (24) - (24) - - - (59) (83) (19) (102)
Kingswood
office
closure
costs(4) - - - - - - (53) (53) (13) (66)
Total 1,256 155 1,411 26 53 (55) (191) 1,244 318 1,562
Attributable
to:
Retained
business 1,186 155 1,341 26 53 (50) (133) 1,237 315 1,552
Disposed
operations 70 - 70 - - (5) (58) 7 3 10
1. Release from operations includes dividends remitted from LGN of GBP70m
within the LGI (UK and Other) line and LGI (US) of GBP63m.
2. International and other includes GBP43m of restructuring costs (GBP54m
before tax) within the Group investment projects and expenses line.
3. This represents Workplace Savings admin only and excludes fund management
profits.
4. The Kingswood office closure costs reflect expenditure in relation
to rent and rates, as well as the write-off of previously capitalised
expenditure.
IFRS and Release from Operations Page 29
2.02 Analysis of LGR, LGI and Savings operating profit
LGR LGI Savings LGR LGI Savings
30.06.17 30.06.17 30.06.17 30.06.16 30.06.16 30.06.16
GBPm GBPm GBPm GBPm GBPm GBPm
Net release from operations 307 169 51 283 203 48
Experience variances
Persistency(1) - (13) - - 1 -
Mortality/morbidity(2) 3 (16) - 2 (15) -
Expenses (6) 2 1 (7) 3 2
Project and development
costs (2) (1) (2) (1) (1) -
Other(3) 64 - 1 (5) (4) (2)
Total experience variances 59 (28) - (11) (16) -
Changes to valuation assumptions
Persistency - - - - - 5
Mortality/morbidity(4) 104 25 - 48 2 -
Expenses - - - - 25 -
Other - (2) 2 - (10) -
Total changes in valuation
assumptions 104 23 2 48 17 5
Movement in non-cash items
Deferred tax - - - - 1 -
Acquisition expense tax
relief (5) - (9) (1) - (13) (2)
Deferred Acquisition Costs
(DAC)(6) - - (15) - - (15)
Deferred Income Liabilities
(DIL)(6) - - 5 - - 6
Other (3) (4) - 13 (1) (3)
Total non-cash movement
items and other (3) (13) (11) 13 (13) (14)
International and other(7) - (43) - - (87) -
Operating profit after tax 467 108 42 333 104 39
Tax gross up 99 43 10 72 47 10
Operating profit before
tax 566 151 52 405 151 49
1. The H1 17 LGI persistency experience variance primarily reflects
a higher number of group protection scheme renewals than anticipated,
coupled with retail protection negative lapse experience and cancellations.
2. LGI mortality/morbidity experience variance in H1 17 primarily
reflects adverse claims experience on the group protection book of
business.
3. The H1 17 positive LGR other experience variance is primarily due
to the GBP60m release of reserves from moving to finalised PRT scheme
data, and a GBP16m model change to improve consistency between deferred
and immediate annuity liability valuation models. This is partially
offset by a GBP12m negative impact from prudent mortality experience
assumptions during the period where full death data is not yet available.
4. The H1 17 LGR mortality/morbidity valuation assumption changes
primarily reflect an update of the portfolio base mortality assumptions
following the review of mortality rates seen over the last few years.
The LGI mortality/morbidity valuation assumption changes reflects
an improvement in individual protection mortality reserving basis
modelling. The H1 16 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.
5. Net release from operations for LGI 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 release from operations. 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. LGI Other in H1 17 reflects the difference between the dividend
(release from operations) remitted from LGA of GBP80m (H1 2016: dividends
remitted from LGN of GBP48m and LGA of GBP61m) and the LGA and India
operating profit after tax (H1 16: LGN, LGA and India operating profit
after tax).
IFRS and Release from Operations Page 30
2.02 Analysis of LGR, LGI and Savings operating profit
(continued)
LGR LGI Savings
Full year Full year Full year
31.12.16 31.12.16 31.12.16
GBPm GBPm GBPm
Net release from operations 591 341 99
Experience variances
Persistency 2 (2) -
Mortality/morbidity(1) 47 (34) -
Expenses (9) 4 7
Project and development costs (21) 2 (4)
Other 15 19 1
Total experience variances 34 (11) 4
Changes to valuation assumptions
Persistency(2) - (52) 5
Mortality/morbidity(3) 40 4 -
Expenses(4) - 53 -
Other - - 3
Total valuation assumption changes 40 5 8
Movement in non-cash items
Deferred tax - - 1
Acquisition expense tax relief (5) - (27) (3)
Deferred Acquisition Costs (DAC)(6) - - (28)
Deferred Income Liabilities (DIL)(6) - - 9
Other 6 (2) (11)
Total non-cash movement items 6 (29) (32)
International and other(7) - (79) -
Operating profit after tax 671 227 79
Tax gross up 138 92 20
Operating profit before tax 809 319 99
1. The LGR mortality/morbidity experience variance reflects higher than
expected annuitant deaths experience over FY 16. LGI mortality/morbidity
experience variance in FY 16 primarily reflects adverse claims experience
on the group protection book of business.
2. The LGI persistency valuation assumption change in FY 16 is the result
of a review of prudence within the lapse assumption for level and decreasing
term assurance products.
3. 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.
4. The LGI expense valuation assumption change is the result of the reduction
in unit costs following recent expense savings actions, together with
a review of the prudence within renewal expenses on our protection products.
5. Net release from operations for LGI 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
release from operations. 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. LGI Other in FY 16 reflects the difference between the dividend (release
from operations) remitted from LGN and LGI (US) of GBP70m and GBP63m
respectively and the LGN, LGI (US) and India operating profit after tax.
IFRS and Release from Operations Page 31
2.03 LGIM operating profit
Full year
30.06.17 30.06.16 31.12.16
GBPm GBPm GBPm
Investment management revenue (excluding
3rd party market data)(1) 382 332 700
Investment management transactional revenue(2) 12 16 30
Investment management expenses (excluding
3rd party market data)(1) (200) (174) (358)
Workplace Savings (admin only) operating
loss(3) - (3) (6)
Total LGIM operating profit 194 171 366
1. Investment management revenue and expenses excludes income and costs
of GBP8m in relation to provision of 3rd party market data (H1 16: GBP5m
each; FY 16: GBP14m each).
2. Transactional revenue includes execution fees, asset transition income,
trigger fees, arrangement fees on property transactions and performance
fees for property funds.
3. This represents Workplace Savings admin only and excludes fund management
profits.
2.04 General Insurance operating profit and combined operating
ratio
Full year
30.06.17 30.06.16 31.12.16
GBPm GBPm GBPm
General Insurance operating profit(1) 15 31 52
General Insurance combined operating ratio (%)(2) 95 85 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 operating profit
Full year
30.06.17 30.06.16 31.12.16
GBPm GBPm GBPm
Direct investments 69 68 121
Traded portfolio including
treasury operations 73 67 136
Total LGC operating profit 142 135 257
2.06 Group investment projects and central expenses
Full year
30.06.17 30.06.16 31.12.16
GBPm GBPm GBPm
Group investment projects and central
expenses (28) (18) (48)
Restructuring costs(1) (12) (16) (54)
Total group investment projects and expenses (40) (34) (102)
1. Restructuring costs exclude the Kingswood office closure costs which
have been presented separately.
IFRS and Release from Operations Page 32
2.07 Investment and other variances
Full year
30.06.17 30.06.16 31.12.16
GBPm GBPm GBPm
Investment variance(1) 198 58 147
M&A related(2) 6 (4) (102)
Other(3) (35) (4) (32)
Total investment and
other variances 169 50 13
1. H1 17 investment variance is positive, primarily driven by the outperformance
of UK equity markets to expectations. The defined benefit pension scheme
variance of GBP111m contained within this line (H1 16: GBP31m; FY 16:
GBP29m) primarily reflects the impact of the acquisition of annuities
as an asset of the scheme from LGR, and the interest rate difference
between the IAS 19 and annuity discount rates. 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 17 includes the GBP17m net
gain resulting from the disposal of Legal & General Netherlands. (H1
16: includes the GBP4m net gain resulting from the disposal of subsidiaries
during the period; FY 16: includes the GBP60m net loss resulting from
the classification of Cofunds as held for sale (GBP64m loss) and the
disposal of Suffolk Life (GBP4m gain)).
3. Other includes new business start-up costs and other non-investment
related variance items.
IFRS and Release from Operations Page 33
Consolidated Income Statement
For the six months ended 30 June 2017
Full year
30.06.17 30.06.16 31.12.16
Notes GBPm GBPm GBPm
Income
Gross written premiums 4.02 3,716 5,492 10,325
Outward reinsurance premiums (866) (719) (1,573)
Net change in provision for unearned premiums (11) 6 4
Net premiums earned 2,839 4,779 8,756
Fees from fund management and investment contracts 481 523 1,068
Investment return 15,457 36,978 67,824
Operational income 141 243 321
Total income 2.09 18,918 42,523 77,969
Expenses
Claims and change in insurance liabilities 3,449 11,377 17,896
Reinsurance recoveries (494) (1,454) (2,745)
Net claims and change in insurance liabilities 2,955 9,923 15,151
Change in provisions for investment contract
liabilities 13,618 30,569 58,578
Acquisition costs 377 375 793
Finance costs 106 98 198
Other expenses 468 748 1,569
Transfers to/(from) unallocated divisible surplus 84 (174) (187)
Total expenses 17,608 41,539 76,102
Profit before tax 1,310 984 1,867
Tax expense attributable to policyholder returns (147) (158) (285)
Profit before tax attributable to equity holders 1,163 826 1,582
Total tax expense (358) (317) (602)
Tax expense attributable to policyholder returns 147 158 285
Tax expense attributable to equity holders 2.14 (211) (159) (317)
Profit for the period 2.09 952 667 1,265
Attributable to:
Non-controlling interests 2.20 6 (1) 7
Equity holders of the company 946 668 1,258
Dividend distributions to equity holders of
the company during the period 2.16 616 592 830
Dividend distributions to equity holders of
the company proposed after the period end 2.16 256 238 616
p p p
Earnings per share(1) 2.10 15.94 11.27 21.22
Diluted earnings per share(1) 2.10 15.88 11.23 21.13
1. All earnings per share calculations are based on profit attributable
to equity holders of the company.
IFRS and Release from Operations Page 34
Consolidated Statement of Comprehensive Income
For the six months ended 30 June 2017
30.06.17 30.06.16 31.12.16
GBPm GBPm GBPm
Profit for the period 952 667 1,265
Items that will not be reclassified subsequently
to profit or loss
Actuarial losses on defined benefit pension
schemes (89) (62) (138)
Tax on actuarial losses on defined benefit pension
schemes 16 12 17
Actuarial gains on defined benefit pension schemes
transferred to unallocated divisible surplus 33 23 51
Tax on actuarial gains on defined benefit pension
schemes transferred to unallocated divisible surplus (6) (4) (6)
Total items that will not be reclassified to
profit or loss subsequently (46) (31) (76)
Items that may be reclassified subsequently
to profit or loss
Exchange differences on translation of overseas
operations (44) 116 190
Movement in cross-currency hedge 20 - -
Net change in financial investments designated
as available-for-sale 28 66 (4)
Tax on net change in financial investments
designated as available-for-sale (10) (23) 1
Total items that may be reclassified to profit
or loss subsequently (6) 159 187
Other comprehensive (expense)/income after
tax (52) 128 111
Total comprehensive income for the period 900 795 1,376
Total comprehensive income attributable to:
Non-controlling interests 6 (1) 7
Equity holders of the company 894 796 1,369
IFRS and Release from Operations Page 35
Consolidated Balance Sheet
As at 30 June 2017
30.06.17 30.06.16(1) 31.12.16(1)
Notes GBPm GBPm GBPm
Assets
Goodwill 11 79 11
Purchased interest in long term businesses and
other intangible assets 133 251 155
Deferred acquisition costs 2,032 2,007 2,105
Investment in associates and joint ventures 305 237 283
Property, plant and equipment 69 97 76
Investment property 2.13/3.04 8,714 8,227 8,150
Financial investments 2.13/3.04 435,861 403,237 428,544
Reinsurers' share of contract liabilities 5,300 4,955 5,593
Deferred tax asset 2.14 5 5 5
Current tax recoverable 358 271 297
Other assets 11,262 10,900 5,022
Assets of operations classified as held for sale 2.12 - - 2,265
Cash and cash equivalents 15,805 12,842 15,348
Total assets 479,855 443,108 467,854
Equity
Share capital 2.17 149 149 149
Share premium 985 978 981
Employee scheme treasury shares (40) (32) (30)
Capital redemption and other reserves 211 211 212
Retained earnings 5,910 5,285 5,633
Attributable to owners of the parent 7,215 6,591 6,945
Non-controlling interests 2.20 350 292 338
Total equity 7,565 6,883 7,283
Liabilities
Participating insurance contracts 5,579 5,864 5,794
Participating investment contracts 5,180 5,260 5,271
Unallocated divisible surplus 719 693 661
Value of in-force non-participating contracts (145) (135) (206)
Participating contract liabilities 11,333 11,682 11,520
Non-participating insurance contracts 61,097 58,437 60,779
Non-participating investment contracts 325,059 300,605 321,177
Non-participating contract liabilities 386,156 359,042 381,956
Core borrowings 2.18 3,499 3,064 3,071
Operational borrowings 2.19 553 411 430
Provisions 1,358 1,205 1,328
Deferred tax liabilities 2.14 840 729 813
Current tax liabilities 171 120 117
Payables and other financial liabilities 2.15 43,709 36,756 37,347
Other liabilities 509 617 594
Net asset value attributable to unit holders 24,162 22,599 21,573
Liabilities of operations classified as held
for sale 2.12 - - 1,822
Total liabilities 472,290 436,225 460,571
Total equity and liabilities 479,855 443,108 467,854
1. H1 16 and FY 16 Cash Equivalents and Financial Investments values
have been restated. Refer to footnote 1 in the Consolidated Cash Flow
Statement.
IFRS and Release from Operations Page 36
Condensed Consolidated Statement of Changes in Equity
Employee Capital Equity
scheme redemption attributable Non-
Share Share treasury and other Retained to owners controlling Total
of the
capital premium shares reserves(1) earnings parent interests equity
For the six GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
months
ended 30 June
2017
As at 1 January
2017 149 981 (30) 212 5,633 6,945 338 7,283
Total
comprehensive
(expense)/income
for the period - - - (6) 900 894 6 900
Options exercised
under
share option
schemes - 4 - - - 4 - 4
Net movement in
employee
scheme
treasury shares - - (10) (3) 1 (12) - (12)
Dividends - - - - (616) (616) - (616)
Movement in third
party
interests - - - - - - 6 6
Currency
translation
differences - - - 8 (8) - - -
As at 30 June
2017 149 985 (40) 211 5,910 7,215 350 7,565
1. Capital redemption and other reserves include Share-based payments
GBP57m (H1 16: GBP64m; FY 16: GBP60m), Foreign exchange GBP99m (H1 16:
GBP81m; FY 16: GBP135m), Capital redemption GBP17m (H1 16: GBP17m; FY
16: GBP17m), Available-for-sale reserves GBP17m (H1 16: GBP48m; FY 16:
GBP(1)m) and Hedging reserves GBP21m (H1 16: GBP1m; FY 16: GBP1m).
Employee Capital Equity
scheme redemption attributable Non-
Share Share treasury and other Retained to owners controlling Total
of the
capital premium shares reserves earnings parent interests equity
For the six GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
months
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 Equity
scheme redemption attributable Non-
Share Share treasury and other Retained to owners controlling Total
of the
capital premium shares reserves earnings parent interests equity
For the year GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
ended
31 December 2016
As at 1 January
2016 149 976 (30) 89 5,220 6,404 289 6,693
Total
comprehensive
income
for the year - - - 187 1,182 1,369 7 1,376
Options exercised
under
share option
scheme - 5 - -(-) - 5 - 5
Net movement in
employee
scheme
treasury shares - - - (9)(-) 6 (3) - (3)
Dividends - - - - (830) (830) - (830)
Movement in third
party
interests - - - - - - 42 42
Currency
translation
differences - - - (55) 55 - - -
As at 31 December
2016 149 981 (30) 212(-) 5,633 6,945 338 7,283
IFRS and Release from Operations Page 37
Consolidated Cash Flow Statement
For the six months ended 30 June 2017
Full year
30.06.17 30.06.16(1) 31.12.16(1)
Notes GBPm GBPm GBPm
Cash flows from operating activities
Profit for the period 952 667 1,265
Adjustments for non cash movements in net profit
for the period
Realised and unrealised (gains) on financial
investments and investment properties (9,588) (31,213) (53,262)
Investment income (5,396) (5,164) (9,390)
Interest expense 106 98 198
Tax expense 358 317 602
Other adjustments 33 (7) (45)
Net (increase)/decrease in operational assets
Investments held for trading or designated
as fair value through profit or loss 418 485 (11,210)
Investments designated as available-for-sale (4) 327 246
Other assets (6,116) (7,947) (2,658)
Net increase/(decrease) in operational liabilities
Insurance contracts 259 8,921 12,910
Transfer to unallocated divisible surplus 57 (200) (232)
Investment contracts 3,790 19,164 39,747
Value of in-force non-participating contracts 62 49 (22)
Other liabilities 10,517 10,674 17,023
Cash used in operations (4,552) (3,829) (4,828)
Interest paid (104) (75) (198)
Interest received 2,353 2,740 4,863
Tax paid(2) (298) (217) (424)
Dividends received 2,851 2,622 4,676
Net cash flows from operating activities 250 1,241 4,089
Cash flows from investing activities
Net acquisition of plant, equipment and intangibles (30) (29) (45)
Disposal of subsidiaries(3) 2.11 286 (340) (272)
Investment in joint ventures - (17) (63)
Net cash flows from/(used in) investing activities 256 (386) (380)
Cash flows from financing activities
Dividend distributions to ordinary equity holders
of the company during the period 2.16 (616) (589) (830)
Proceeds from issue of ordinary share capital 3 3 5
Purchase of employee scheme shares (net) 9 2 -
Proceeds from borrowings 1,211 253 219
Repayment of borrowings (619) (315) (342)
Net cash flows used in financing activities (12) (646) (948)
Net increase in cash and cash equivalents 494 209 2,761
Exchange (losses)/gains on cash and cash equivalents (37) 89 182
Cash and cash equivalents at 1 January (before
reallocation of held for sale cash) 15,348 12,544 12,544
Cash and cash equivalents (before reallocation
of held for sale cash) 15,805 12,842 15,487
Cash and cash equivalents classified as held
for sale 2.12 - - (139)
Cash and cash equivalents at 30 June/31 December 15,805 12,842 15,348
1. Following a review of certain short dated instruments held by the
group, certain assets have been reclassified from Cash and Cash Equivalents
to Financial Instruments as their tenure is greater than 3 months. These
amounts totalled GBP6,114m at H1 16 and GBP10,369m at FY 16. There is
a net nil impact on the Consolidated Income Statement. The reclassification
has resulted in an adjustment to the Investments held for trading or
designated as fair value through profit or loss in the Consolidated
Cash Flow Statement of GBP2,408m at H1 16 and (GBP1,847m) at FY 16.
2. Tax comprises UK corporation tax paid of GBP151m (H1 16: GBP108m;
FY 16: GBP249m), overseas corporate taxes of GBP8m (H1 16: GBP5m; FY
16: GBP16m), and withholding tax of GBP139m (H1 16: GBP104m; FY 16:
GBP159m).
3. Net cash flows from disposals includes cash received of GBP286m (H1
16: GBP74m; FY 16: GBP144m) less cash and cash equivalents disposed
of GBPnil (H1 16: GBP414m; FY 16: GBP416m).
The group's Consolidated Cash Flow Statement includes all cash and cash
equivalent flows. The closing cash position includes GBP679m (H1 16:
GBP601m; FY 16: GBP731m) relating to the with-profit fund policyholders
and GBP12,687m (H1 16: GBP10,201m; FY 16: GBP11,764m) relating to unit-linked
policyholders.
IFRS and Release from Operations Page 38
2.08 Basis of preparation
The group's financial information for the six months ended 30
June 2017 has been prepared in accordance with the Disclosure 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 2017 year end. These policies are
consistent with the principal accounting policies which were set
out in the group's 2016 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.
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 2016 financial statements except for the changes
outlined in Note 2.02.
The results for the six months ended 30 June 2017 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 2016
have been taken from the group's 2016 Annual Report and Accounts,
restated as described in footnote 1 of the Consolidated Cash Flow
Statement. Therefore, these interim accounts should be read in
conjunction with the 2016 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 2016 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 2016 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 release from operations, net release from
operations 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.
Future accounting developments
Revenue from Contracts with Customers
IFRS 15, 'Revenue from Contracts with Customers', issued in May
2014, is effective, for annual periods beginning on or after 1
January 2018. This standard provides clear guidance over when and
how much revenue should be recognised. It provides a
principles-based approach for revenue recognition, and introduces
the concept of recognising revenue for obligations as they are
satisfied. An assessment is currently on-going to determine the
impact upon the group, focussing in particular on our investment
management business including the assessment of performance fees.
The standard does not apply to business classified as insurance
contracts. The group does not intend to early adopt this
standard.
Insurance Contracts
IFRS 17, 'Insurance Contracts' was issued in May 2017 and is
effective for annual periods beginning on or after 1 January 2021
(subject to EU endorsement). The standard provides a comprehensive
approach for accounting for insurance contracts including their
valuation, income statement presentation and disclosure. The group
has mobilised a project to assess the financial and operational
implications of the standard.
Financial Instruments
In July 2014, the IASB issued IFRS 9, 'Financial Instruments'
which is effective for annual periods beginning on or after 1
January 2018. The ISAB subsequently issued 'Amendments to IFRS 4:
Applying IFRS 9 Financial Instruments with IFRS 4 Insurance
Contracts' which allows entities which meet certain requirements to
defer their implementation of IFRS 9 (subject to EU endorsement)
until adoption of IFRS 17 or 1 January 2021, whichever is the
earlier. As disclosed in the 31 December 2016 financial statements,
the group will qualify, and expects to apply this deferral of IFRS
9.
The impact of IFRS 9 on the group's nancial statements will
depend on the interaction of the asset classi cation and
measurement with the insurance contract measurement at the date of
transition, particularly for liabilities which are measured using
locked in discount rates.
Leases
In January 2016, the IASB issued IFRS 16, 'Leases', effective
for annual periods beginning on or after 1 January 2019, subject to
EU endorsement. IFRS 16 requires lessees to recognise a lease
liability reflecting future lease payments and a 'right-of-use
asset' for virtually all lease contracts, bringing commitments in
relation to operating leases (as currently defined in IAS 17,
'Leases') onto the balance sheet. The impact of the standard on
lessor accounting is significantly smaller with the provisions
remaining closely aligned to those in IAS 17 although the IASB have
issued updated guidance on the definition of a lease. An assessment
of the impacts of the standard on the group's financial statements
will be completed in due course. The group does not intend to early
adopt this standard.
Tax attributable to policyholders and equity holders
The total tax expense shown in the group's Consolidated Income
Statement includes income tax borne by both policyholders and
shareholders. This 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
pays tax on policyholder investment return, in addition to the
corporation tax charge charged on shareholder profit. 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 by applying the statutory tax rate to profits
attributed to equity holders. This is considered to approximate the
corporation tax attributable to shareholders as calculated under UK
tax rules. The balance of income tax associated with UK long-term
business is attributed to income tax attributable to policyholders'
returns and approximates the corporation tax attributable to
policyholders as calculated under UK tax rules.
IFRS and Release from Operations Page 39
2.09 Segmental analysis
Reportable segments
The group has six reportable segments comprising LGR, LGIM, LGC,
LGI, Savings and General Insurance. 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 shareholder assets in direct investments, and
traded and treasury assets.
LGI represents UK retail protection, group protection and
network business, Legal & General Netherlands (LGN) (which was
sold during April 2017) and protection business written in the USA
(LGI US).
Savings represents business in platforms, SIPPs, mature savings
and with-profits.
The General Insurance segment comprises short-term
protection.
During 2017, changes have been made to the organisational
structure. The IDOL business has been transferred to LGI from LGR.
Comparatives have been amended accordingly. The impact of this
reclassification has been to reduce LGR H1 16 release from
operations by GBP1m (FY 16: reduce by GBP1m) and increase LGI (UK
and Other) H1 16 release from operations by GBP1m (FY 16: increase
by GBP1m).
During 2016, the Insurance (excluding General Insurance) and LGA
segments were combined to create the new Legal & General
Insurance (LGI) segment. General Insurance is now presented as a
separate segment.
Transactions between reportable segments are on normal
commercial terms, and are included within the reported
segments.
IFRS and Release from Operations Page 40
2.09 Segmental analysis (continued)
(a) Profit/(loss) for the period
Group
expenses
General and debt
LGR LGIM LGC LGI(1) Insurance Savings costs Total
For the six months GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
ended 30 June 2017
Operating profit/(loss) 566 194 142 151 15 52 (132) 988
Investment and other
variances(1) 38 (4) 52 7 6 (7) 77 169
Gains attributable
to non-controlling
interests - - - - - - 6 6
Profit/(loss) before
tax attributable to
equity holders 604 190 194 158 21 45 (49) 1,163
Tax (expense)/credit
attributable to equity
holders of the company (108) (40) (25) (41) (4) (9) 16 (211)
Profit/(loss) for the
period 496 150 169 117 17 36 (33) 952
Group
expenses
General and debt
LGR(2) LGIM LGC LGI(2) Insurance Savings(1) costs Total
For the six months GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
ended 30 June 2016
Operating profit/(loss) 405 171 135 151 31 49 (165) 777
Investment and other
variances(1) 63 (8) 60 (100) 10 4 21 50
Loss attributable to
non-controlling interests - - - - - - (1) (1)
Profit/(loss) before
tax attributable to
equity holders 468 163 195 51 41 53 (145) 826
Tax (expense)/credit
attributable to equity
holders of the company (82) (35) (24) (30) (6) (10) 28 (159)
Profit/(loss) for the
period 386 128 171 21 35 43 (117) 667
=========================== ====== ==== ==== ====== ========= ========== ======== =====
Group
expenses
General and debt
LGR(2) LGIM LGC LGI(2) Insurance Savings(1) costs Total
For the year ended GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
31 December 2016
Operating profit/(loss) 809 366 257 319 52 99 (340) 1,562
Investment and other
variances(1) 37 (32) 162 (124) 16 (51) 5 13
Gains attributable
to non-controlling
interests - - - - - - 7 7
Profit/(loss) before
tax attributable to
equity holders 846 334 419 195 68 48 (328) 1,582
Tax (expense)/credit
attributable to equity
holders of the company (148) (68) (52) (72) (13) (22) 58 (317)
Profit/(loss) for the
period 698 266 367 123 55 26 (270) 1,265
1. H1 17 Investment and other variances - LGI includes the GBP17m net
gain resulting from the disposal of subsidiaries during the period (H1
16: Savings includes the GBP4m net gain resulting from the disposal
of subsidiaries during the period; FY 16: Savings includes the GBP60m
net loss resulting from the disposal of subsidiaries during the year).
2. During 2017, changes have been made to the organisational structure.
The IDOL business has been transferred to LGI from LGR. Comparatives
have been restated accordingly. The impact of this reclassification
has been to reduce LGR H1 16 operating profit by GBP1m and profit before
tax by GBP1m (FY 16: reduce LGR operating profit by GBP2m and profit
before tax by GBP1m). LGI operating profit and profit before tax are
showing corresponding increases.
IFRS and Release from Operations Page 41
2.09 Segmental analysis (continued)
(b) Income
LGC
General and
LGR LGIM(1) LGI Insurance Savings other(2) Total
For the six months ended GBPm GBPm GBPm GBPm GBPm GBPm GBPm
30 June 2017
Internal income - 78 - - - (78) -
External income 2,810 12,988 896 167 1,436 621 18,918
Total income 2,810 13,066 896 167 1,436 543 18,918
LGC
General and
LGR(3) LGIM(1,4) LGI Insurance Savings(4) other(2,4) Total
For the six months ended GBPm GBPm GBPm GBPm GBPm GBPm GBPm
30 June 2016
Internal income - 66 - - - (66) -
External income 9,075 24,129 1,182 159 2,368 5,610 42,523
Total income 9,075 24,195 1,182 159 2,368 5,544 42,523
LGC
General and
LGR(3) LGIM(1,4) LGI Insurance Savings(4) other(2,4) Total
For the year ended 31 December GBPm GBPm GBPm GBPm GBPm GBPm GBPm
2016
Internal income - 139 - - - (139) -
External income 13,831 49,812 2,257 326 4,406 7,337 77,969
Total income 13,831 49,951 2,257 326 4,406 7,198 77,969
1. LGIM internal revenue relates to investment management services provided
to other segments.
2. LGC and other includes LGC, inter-segmental eliminations and group
consolidation adjustments.
3. During 2017, changes have been made to the organisational structure.
The IDOL business has been transferred to LGI from LGR. Comparatives
have been amended accordingly. The impact of this reclassification has
been to reduce LGR H1 16 external income by GBP8m (FY 16: reduce by
GBP20m) with corresponding increases in LGI external income.
4. An internal transaction (H1 16: GBP79m; FY 16: GBP175m) has been
reclassified between LGIM, Savings and LGC and other internal and external
income.
IFRS and Release from Operations Page 42
2.10 Earnings per share
(a) Earning 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
30.06.17 30.06.17 30.06.17 30.06.17 30.06.16 30.06.16 30.06.16 30.06.16
GBPm p GBPm p GBPm p GBPm p
Operating profit
after
tax 795 13.40 795 13.40 616 10.39 616 10.39
Investment and
other
variances 151 2.54 134 2.26 52 0.88 48 0.81
Earnings per
share
based on profit
attributable to
equity
holders 946 15.94 929 15.66 668 11.27 664 11.20
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
31.12.16 31.12.16 31.12.16 31.12.16
GBPm p GBPm p
Operating profit
after
tax 1,244 20.98 1,244 20.98
Investment and
other
variances 14 0.24 72 1.22
Earnings per
share
based on profit
attributable to
equity
holders 1,258 21.22 1,316 22.20
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 after excluding the
net current year profit after tax of GBP17m, resulting from the disposal
of L&G Netherlands. (H1 16: excluding the net gain of GBP4m, resulting
from the disposal of Suffolk Life; FY 16: excluding the net loss after
tax of GBP58m, resulting from the disposal of Suffolk Life and the classification
of Cofunds as held for sale).
IFRS and Release from Operations Page 43
2.10 Earnings per share (continued)
(b) Diluted earnings per share
Adjusted Adjusted
Number Profit Earnings profit earnings
of shares after per share(1) after per share(1,2)
tax tax
30.06.17 30.06.17 30.06.17 30.06.17 30.06.17
m GBPm p GBPm p
Profit attributable to equity holders of the
company 5,933 946 15.94 929 15.66
Net shares under options allocable for no further
consideration 25 - (0.06) - (0.06)
Diluted earnings per
share 5,958 946 15.88 929 15.60
Adjusted Adjusted
Number Profit Earnings profit earnings
of shares after per share(1) after per share(1,2)
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 after per share(1) after per share(1,2)
tax tax
Full year Full year Full year Full year Full year
31.12.16 31.12.16 31.12.16 31.12.16 31.12.16
m GBPm p GBPm p
Profit attributable to equity holders of the
company 5,929 1,258 21.22 1,316 22.20
Net shares under options allocable for no further
consideration 24 - (0.09) - (0.09)
Diluted earnings per
share 5,953 1,258 21.13 1,316 22.11
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 after excluding the
net current year profit after tax of GBP17m, resulting from the disposal
of Netherlands (H1 16: excluding the net GBP4m gain resulting from the
disposal of Suffolk Life; FY 16: excluding the net loss after tax of
GBP58m, resulting from the disposal of Suffolk Life and the classification
of Cofunds as held for sale).
IFRS and Release from Operations Page 44
2.11 Disposals
During H1 17, the group made the following disposals:
-On 1 January 2017, the group completed the disposal of Cofunds
Limited (Cofunds) to Aegon for GBP141m, net of transaction costs.
The sale included the Investor Portfolio Service (IPS) platform as
well as Cofunds' retail and institutional business. The group
carrying value of the investment was GBP141m resulting in a net nil
impact to the group.
-On 6 April 2017, the group completed the sale of Legal &
General Netherland Levensvervekering Maatschappij N.V. (LGN) to
Chesnara plc (Chesnara) for EUR161.0m (GBP137m). The group carrying
value of the investment was GBP118m, resulting in a current year
profit GBP17m, net of transaction costs GBP2m. A further GBP3m of
transaction costs were incurred in the prior year.
2.12 Held for sale
In H1 17 no assets or liabilities have been classified as held for sale.
The FY 16 balances related to planned disposals of Investment property,
LGN and Cofunds, which were disposed of in 2017 (detailed in note 2.11).
30.06.17 30.06.16 31.12.16
GBPm GBPm GBPm
Assets classified as held for
sale
Purchased interest in long term business
and other intangible assets - - 85
DAC - - 12
Property, plant and equipment - - 11
Investment property - - 95
Financial investments - - 1,861
Reinsurers' share of
contract liabilities - - 1
Cash and cash equivalents - - 139
Other assets(1) - - 62
Total assets of the disposal
groups - - 2,266
Liabilities classified as held for sale
Insurance contract liabilities - - 1,709
Tax liabilities - - 26
Payables and other financial
liabilities - - 28
Other liabilities(1) - - 147
Total liabilities of the disposal
groups - - 1,910
Total net assets of the disposal
groups - - 356
1. Included in the FY 16 other assets is GBP1m, and in other liabilities,
GBP88m, which are both balances with other group entities that are eliminated
on the Consolidated Balance Sheet.
IFRS and Release from Operations Page 45
2.13 Financial investments and investment property
30.06.17 30.06.16(1) 31.12.16(1)
GBPm GBPm GBPm
Equities 194,754 176,194 191,025
Unit trusts 7,584 6,594 6,969
Debt securities(2) 219,989 203,114 215,331
Accrued interest 1,449 1,403 1,536
Derivative assets(3) 11,513 15,424 13,121
Loans and receivables 572 508 562
Financial investments 435,861 403,237 428,544
Investment property(4) 8,714 8,227 8,150
Total financial investments and investment property 444,575 411,464 436,694
1. H1 16 and FY 16 Cash Equivalents and Financial Investments values
have been restated. Refer to footnote 1 in the Consolidated Cash Flow
Statement.
2. A detailed analysis of debt securities, which shareholders are directly
exposed to, is disclosed in note 4.06.
3. 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
GBP7,597m (H1 16: GBP9,543m; FY 16: GBP8,294m) held on behalf of unit
linked policyholders.
4. A 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 30 June 2017 (30 June 2016: GBPnil; 31 December 2016:
GBPnil).
The table on the following page presents the group's assets by IFRS 13
hierarchy levels.
IFRS and Release from Operations 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 2017 GBPm GBPm GBPm GBPm
Shareholder
Equity securities 2,352 1,718 2 632
Debt securities 4,533 1,030 3,105 398
Accrued interest 24 6 15 3
Derivative assets 50 25 25 -
Investment property 200 - - 200
Non profit non-unit linked
Equity securities 268 264 4 -
Debt securities 51,067 8,127 35,781 7,159
Accrued interest 469 40 417 12
Derivative assets 3,773 74 3,694 5
Investment property 2,687 - - 2,687
With-profits
Equity securities 3,241 3,014 18 209
Debt securities 6,741 2,888 3,848 5
Accrued interest 56 18 38 -
Derivative assets 93 40 53 -
Investment property 740 - - 740
Unit linked
Equity securities 196,477 192,628 3,370 479
Debt securities 157,648 105,951 51,690 7
Accrued interest 900 349 551 -
Derivative assets 7,597 607 6,990 -
Investment property 5,087 - - 5,087
Total financial investments and investment
property at fair value(1) 444,003 316,779 109,601 17,623
1. This table excludes loans and receivables of GBP572m, which are held
at amortised cost.
IFRS and Release from Operations Page 47
2.13 Financial investments and investment property
(continued)
(a) Fair value hierarchy (continued)
Total(1) Level Level Level
1(1) 2(1) 3
For the six months ended 30 June 2016 GBPm GBPm GBPm GBPm
Shareholder
Equity securities 2,331 2,025 - 306
Debt securities 5,255 2,317 2,581 357
Accrued interest 34 16 15 3
Derivative assets 62 6 56 -
Investment property 200 - - 200
Non profit non-unit linked
Equity securities 56 52 4 -
Debt securities 47,675 7,124 37,108 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 7,122 3,696 3,416 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 143,063 98,817 44,246 -
Accrued interest 803 295 508 -
Derivative assets 9,543 225 9,318 -
Investment property 4,850 - - 4,850
Total financial investments and investment
property at fair value(2) 410,956 291,738 106,252 12,966
1. H1 16 and FY 16 Cash Equivalents and Financial Investment values
have been restated. Refer to footnote 1 in the Consolidated Cash Flow
Statement.
2. This table excludes loans and receivables of GBP508m, which are held
at amortised cost.
IFRS and Release from Operations Page 48
2.13 Financial investments and investment property
(continued)
(a) Fair value hierarchy (continued)
Total(1) Level Level Level
1(1) 2(1) 3
For the year ended 31 December 2016 GBPm GBPm GBPm GBPm
Shareholder
Equity securities 1,928 1,478 1 449
Debt securities 4,945 1,513 3,046 386
Accrued interest 31 7 21 3
Derivative assets 82 59 23 -
Investment property 162 - - 162
Non profit non-unit linked
Equity securities 393 389 4 -
Debt securities 49,380 8,351 37,067 3,962
Accrued interest 496 42 448 6
Derivative assets 4,611 115 4,474 22
Investment property 2,442 - - 2,442
With-profits
Equity securities 3,432 3,216 9 207
Debt securities 6,827 3,467 3,349 11
Accrued interest 63 22 41 -
Derivative assets 134 31 103 -
Investment property 738 - - 738
Unit linked
Equity securities 192,242 188,769 3,028 445
Debt securities 154,178 106,224 47,954 -
Accrued interest 946 333 613 -
Derivative assets 8,294 332 7,962 -
Investment property 4,808 - - 4,808
Total financial investments and investment
property at fair value(2) 436,132 314,348 108,143 13,641
1. H1 16 and FY 16 Cash Equivalents and Financial Investment values
have been restated. Refer to footnote 1 in the Consolidated Cash Flow
Statement.
2. This table excludes loans and receivables of GBP562m, which are held
at amortised cost.
IFRS and Release from Operations Page 49
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, income strips 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 the categorisation of
financial assets at the end of each reporting period and to
recognise transfers between levels at that point in time.
IFRS and Release from Operations Page 50
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
30.06.17 30.06.17 30.06.17 30.06.17 30.06.16 30.06.16 30.06.16 30.06.16
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
As at 1 January 1,101 4,390 8,150 13,641 863 1,456 8,082 10,401
Total gains / (losses)
for the period
recognised in profit:
- in other comprehensive
income - 7 - 7 - 15 - 15
- realised and unrealised
(losses) / gains(2) (23) 234 217 428 9 269 (51) 227
Purchases / Additions 156 1,283 402 1,841 260 586 283 1,129
Sales / Disposals (34) (39) (166) (239) (244) (112) (87) (443)
Transfers into level
3(3) 118 1,714 101 1,933 26 1,670 - 1,696
Transfers out of level
3(3) - (5) - (5) (3) (56) - (59)
Other 2 5 10 17 - - - -
As at 30 June 1,320 7,589 8,714 17,623 911 3,828(-) 8,227 12,966
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 H1 17, transfers into level 3 include GBP874m of private placement
and GBP795m of income strips, which were previously classified as level
2. In H1 16, transfers into level 3 included GBP1.6bn 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
31.12.16 31.12.16 31.12.16 31.12.16
GBPm GBPm GBPm GBPm
As at 1 January 863 1,456 8,082 10,401
Total gains / (losses) for the
year
recognised in profit:
- in other comprehensive
income - 5 - 5
- realised and unrealised
gains / (losses)(2) 40 350 (78) 312
Purchases / Additions 473 1,161 692 2,326
Sales / Disposals (302) (139) (494) (935)
Transfers into level
3(3) 22 1,590 - 1,612
Transfers out of level
3(3) - (33) - (33)
Transfers to held for
sale - - (53) (53)
Other 5 - 1 6
========================== ========== ========= ========== ======== ========== ========= ========== =========
As at 31 December 1,101 4,390 8,150 13,641
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.
In 2016, transfers into level 3 included GBP1.6bn of commercial real
estate loans, which were previously classified as level 2.
IFRS and Release from Operations 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
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 2017
Financial instruments and investment assumptions GBPm GBPm GBPm
property
Assets
Shareholder
- Unquoted investments in property
vehicles(1) Property yield 565 15 (15)
Cash flows; expected
- Untraded and other debt securities(2) defaults 401 4 (4)
Cash flows; expected
- Unquoted and other securities(2) defaults 67 3 (3)
- Investment property(1) Property yield 200 23 (23)
Non profit non-linked
- Lifetime mortgage
loans Market spreads; LTVs 1,433 77 (83)
Cash flows; expected
- Untraded and other debt securities(2) defaults 3,602 102 (100)
- Commercial real Cash flows; expected
estate loans defaults 2,136 43 (43)
Cash flows; property
- Investment property(1) yield 2,687 138 (138)
- Other Cash flows 5 - -
With-profits
- Unquoted investments in property
vehicles(1) Property yield 209 13 (13)
Cash flows; expected
- Untraded and other debt securities(2) defaults 5 - -
Cash flows; Property
- Investment property(1) yield 740 38 (38)
Unit linked
- Unquoted investments in property Cash flows; Property
vehicles(1) yield 92 6 (6)
Estimated recoverable
- Suspended securities amount 26 - -
Cash flows; expected
- Untraded and other debt securities(3) defaults 7 - -
Cash flows; expected
- Unquoted and other securities(2) defaults 361 18 (18)
Cash flows; Property
- Investment property(1) yield 5,087 256 (256)
Total 17,623 736 (740)
1. 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.
2. No reasonably possible increases or decreases in fair values have
been given for securities where the broker valuation methodology is
unknown.
3. 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.
IFRS and Release from Operations 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 six months ended 30 June Main value value value
2016
Financial instruments and assumptions GBPm GBPm GBPm
investment 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
Market Spreads;
- Lifetime Mortgage loans LTV's 440 8 (7)
Cash flows; expected
- Untraded and other debt securities(3) defaults 1,197 - -
Cash flows; expected
- Commercial real estate loans defaults 1,811 32 (32)
Cash flows; Property
- Investment property(2) 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
- Unquoted and other securities(3) defaults 10 - -
- Investment property(2) Property yield 920 47 (92)
Unit linked
- Unquoted investments in property
vehicles(2) Property yield 369 19 (38)
- Private equity investment vehicles(1) Price earnings multiple 1 - -
Cash flows; expected
- Suspended securities defaults 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 valuation methodology is
unknown.
IFRS and Release from Operations Page 53
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
2016
Financial instruments and assumptions GBPm GBPm GBPm
investment property
Assets
Shareholder
Unquoted investments in property
vehicles(1) Property yield 292 19 (19)
Cash flows; expected
Untraded and other debt securities(2) defaults 474 12 (12)
Cash flows; expected
Unquoted and other securities(2) defaults 72 2 (3)
Investment property(1) Property yield 162 8 (9)
Non profit non-linked
Lifetime mortgage loans Market spreads; LTVs 852 10 (18)
Cash flows; expected
Untraded and other debt securities(2) defaults 1,270 2 (2)
Commercial real estate Cash flows; expected
loans defaults 1,776 11 (16)
Investment property(1) Property yield 2,442 127 (127)
Other Cash flows 92 - -
With-profits
Private equity investment vehicles Price earnings multiple 8 - -
Unquoted investments in property
vehicles(1) Property yield 200 12 (12)
Cash flows; expected
Untraded and other debt securities(2) defaults 10 - -
Investment property(1) Property yield 738 38 (38)
Unit linked
Unquoted investments in property
vehicles(1) Property yield 87 5 (5)
Cash flows; expected
Untraded and other debt securities(2) defaults 23 - -
Cash flows; expected
Unquoted and other securities(2) defaults 335 17 (17)
Investment property(1) Property yield 4,808 235 (235)
Total 13,641 498 (513)
1. 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.
2. No reasonably possible increases or decreases in fair values have
been given for securities where the broker valuation methodology is
unknown.
IFRS and Release from Operations Page 54
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
30.06.17 30.06.16 31.12.16
GBPm GBPm GBPm
Profit before tax attributable
to equity holders 1,163 826 1,582
Tax calculated at 19.25% (H1 16:
20.00%; FY 16: 20.00%) 224 165 316
Adjusted for the effects
of:
Recurring reconciling
items:
Income not subject to tax (6) (4) (12)
Higher/(lower) rate of tax
on profits taxed overseas 3 4 7
Non-deductible expenses - 2 4
Differences between taxable and accounting investment
gains (4) (2) (11)
Non-recurring reconciling
items:
Income not subject to tax(1) (4) (1) (1)
Non-deductible expenses 1 - 17
Differences between taxable and accounting investment
gains - (3) (14)
Adjustments in respect of prior years (3) - 13
Impact of reduction in UK corporate tax rate to 17%
from 2020 on deferred tax balances - (2) (2)
Tax attributable to
equity holders 211 159 317
Equity holders' effective
tax rate(2) 18.1% 19.2% 20.0%
1. Includes gains relating to M&A activity which are non taxable.
2. Equity holders' effective tax rate is calculated by dividing the
tax attributable to equity holders over profit before tax attributable
to equity holders. Refer to note 2.08 for detail on the methodology
of the split of policyholder and equity holders' tax.
IFRS and Release from Operations Page 55
2.14 Tax (continued)
(b) Deferred tax
30.06.17 30.06.16 31.12.16
Deferred tax (liabilities)/assets GBPm GBPm GBPm
Deferred acquisition expenses (414) (392) (429)
-------- -------- --------
- UK (43) (48) (45)
- Overseas (371) (344) (384)
-------- -------- --------
Difference between the tax and accounting value of
insurance contracts (288) (305) (286)
-------- -------- --------
- UK (134) (125) (123)
- Overseas (154) (180) (163)
-------- -------- --------
Realised and unrealised gains on investments (275) (210) (255)
Excess of depreciation over capital allowances 16 16 15
Excess expenses(1) 40 62 49
Accounting provisions and other (51) (29) (51)
Trading losses(2) 63 88 80
Pension fund deficit 77 71 82
Purchased interest in long-term business (3) (25) (13)
====================================================== ======== ======== ========
Net deferred tax liabilities (835) (724) (808)
Analysed by:
- UK deferred tax asset 2 5 5
- Overseas deferred
tax asset 3 - -
- UK deferred tax liability (316) (206) (291)
- Overseas deferred tax liability (524) (523) (522)
Net deferred tax liabilities(3) (835) (724) (808)
1. The reduction in the UK deferred tax asset on excess expenses reflects
the unwind of the spread acquisition expenses.
2. Trading losses include UK trade and US operating losses of GBP8m
(H1 16: GBP7m; FY 16: GBP5m) and GBP55m (H1 16: GBP81m; FY 16: GBP75m)
respectively. The reduction in the deferred tax asset primarily reflects
utilisation of brought forward US operating losses against US profits.
3. On the Consolidated Balance Sheet, the net deferred tax liability
has been split between an asset of GBP5m and a liability of GBP840m
where the relevant items cannot be offset.
IFRS and Release from Operations Page 56
2.15 Payables and other financial liabilities
Full year
30.06.17 30.06.16 31.12.16
GBPm GBPm GBPm
Derivative liabilities 7,376 15,473 9,014
Repurchase agreements(1) 28,076 17,295 23,163
Other 8,257 3,988 5,170
Payables and other financial
liabilities 43,709 36,756 37,347
1. The repurchase agreements are presented gross, however they and their
related assets are subject to master netting arrangements.
Fair value hierarchy
Amortised
Total Level Level Level cost
1 2 3
As at 30 June 2017 GBPm GBPm GBPm GBPm GBPm
Derivative liabilities 7,376 482 6,894 - -
Repurchase agreements 28,076 - - - 28,076
Other 8,257 2,550 15 179 5,513
Payables and other financial
liabilities 43,709 3,032 6,909 179 33,589
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 31 December 2016 GBPm GBPm GBPm GBPm GBPm
Derivative liabilities 9,014 884 8,130 - -
Repurchase agreements 23,163 - - - 23,163
Other 5,170 806 8 177 4,179
Payables and other financial
liabilities 37,347 1,690 8,138 177 27,342
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 year. A reasonably possible
alternative persistency assumption would have the effect of increasing
the liability by GBP5m (H1 16: GBP4m; FY 16: GBP5m).
Significant transfers between levels
There have been no significant transfers between levels 1, 2 and 3 for
the period ended 30 June 2017 (30 June 2016 and 31 December 2016: no
significant transfers between levels 1, 2 and 3).
IFRS and Release from Operations Page 57
2.16 Dividends
Full year
Per(1) Per(1) Full year Per(1)
Dividend share Dividend share Dividend share
30.06.17 30.06.17 30.06.16 30.06.16 31.12.16 31.12.16
GBPm p GBPm p GBPm p
Ordinary share dividends paid in
the period:
- Prior year final
dividend 616 10.35 592 9.95 592 9.95
- Current year interim
dividend - - - - 238 4.00
616 10.35 592 9.95 830 13.95
Ordinary share dividend
proposed(2) 256 4.30 238 4.00 616 10.35
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 in the Consolidated
Balance Sheet.
2.17 Share capital
Number of Number of Number of
shares shares shares
Full year
30.06.17 30.06.16 31.12.16
As at 1 January 5,954,656,466 5,948,788,480 5,948,788,480
Options exercised under share
option schemes:
- Savings related share option
scheme 2,061,874 3,465,839 5,867,986
As at 30 June / 31 December 5,956,718,340 5,952,254,319 5,954,656,466
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 which are authorised and are no longer at the discretion of
the company.
IFRS and Release from Operations Page 58
2.18 Core Borrowings
Carrying Fair Carrying Fair Carrying Fair
amount value amount value amount value
30.06.17 30.06.17 30.06.16 30.06.16 31.12.16 31.12.16
GBPm GBPm GBPm GBPm GBPm GBPm
Subordinated borrowings
6.385% Sterling perpetual
capital securities (Tier
1) - - 626 615 615 609
5.875% Sterling undated subordinated
notes (Tier 2) 410 432 412 412 411 418
5.25% US Dollar subordinated
notes 2047 (Tier 2) 658 700 - - - -
5.55% US Dollar subordinated
notes 2052 (Tier 2) 387 399 - - - -
10% Sterling subordinated
notes 2041 (Tier 2) 311 406 310 392 310 403
5.5% Sterling subordinated
notes 2064 (Tier 2) 589 651 589 534 589 603
5.375% Sterling subordinated
notes 2045 (Tier 2) 602 670 602 607 602 627
Client fund holdings of group
debt(1) (33) (33) (33) (32) (31) (31)
Total subordinated borrowings 2,924 3,225 2,506 2,528 2,496 2,629
Senior borrowings
Sterling medium term notes
2031-2041 602 848 602 801 609 845
Client fund holdings of group
debt(1) (27) (27) (44) (58) (34) (34)
Total senior borrowings 575 821 558 743 575 811
Total core borrowings 3,499 4,046 3,064 3,271 3,071 3,440
1. GBP60m (H1 16: GBP77m; FY 16: GBP65m) 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 were called
at par on 2 May 2017.
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.
5.25% US Dollar subordinated notes 2047
On 21 March 2017, Legal & General Group Plc issued $850m of
5.25% dated subordinated notes. The notes are callable at par on 21
March 2027 and every five years thereafter. If not called, the
coupon from 21 March 2027 will be reset to the prevailing USD
mid-swap rate plus 3.687% pa. These notes mature on 21 March 2047.
They are treated as tier 2 own funds for Solvency II purposes.
5.55% US Dollar subordinated notes 2052
On 24 April 2017, Legal & General Group Plc issued $500m of
5.55% dated subordinated notes. The notes are callable at par on 24
April 2032 and every five years thereafter. If not called, the
coupon from 24 April 2032 will be reset to the prevailing USD
mid-swap rate plus 4.19% pa. These notes mature on 24 April 2052.
They 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
In 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 Release from Operations Page 59
2.19 Operational borrowings
Carrying Fair Carrying Fair Carrying Fair
amount value amount value amount value
30.06.17 30.06.17 30.06.16 30.06.16 31.12.16 31.12.16
GBPm GBPm GBPm GBPm GBPm GBPm
Short term operational borrowings
Euro Commercial paper 322 322 103 103 216 216
Bank loans and overdrafts 20 20 69 69 6 6
Total short term operational borrowings 342 342 172 172 222 222
Non recourse borrowings
LGV 6/LGV 7 Private Equity Fund
Limited Partnership - - 42 42 - -
Consolidated Property Limited Partnerships 211 211 197 197 208 208
Total non recourse borrowings 211 211 239 239 208 208
Total operational borrowings 553 553 411 411 430 430
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 short term operational borrowings of GBP342m
(H1 16: GBP172m; FY 16: GBP222m.). Short term operational
borrowings comprise Euro Commercial paper, bank loans and
overdrafts.
Non recourse borrowings
LGV 6/LGV 7 Private Equity Fund Limited Partnerships
These borrowings were non recourse bank borrowings.
Consolidated Property Limited Partnerships
These borrowings are non recourse bank borrowings.
Syndicated credit facility
As at 30 June 2017, 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 2021.
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
2017 are in relation to investments in the Leisure Fund Unit Trust,
the Performance Retail Unit Trust, the Legal & General UK
Property Ungeared Fund Limited Partnership, and Thorpe Park
Developments Limited.
2.21 Foreign exchange rates
Principal rates of exchange
used for translation are:
Period end exchange At 31.12.16
rates At 30.06.17 At 30.06.16
United States Dollar 1.30 1.34 1.24
Euro 1.14 1.20 1.17
01.01.17 01.01.16 01.01.16
- - -
Average exchange rates 30.06.17 30.06.16 31.12.16
United States Dollar 1.26 1.43 1.36
Euro 1.16 1.28 1.22
IFRS and Release from Operations Page 60
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 GBP36m (H1 16: GBP34m;
FY 16: GBP75m) for all employees.
At 30 June 2017, 30 June 2016 and 31 December 2016 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:
30.06.17 30.06.16 31.12.16
GBPm GBPm GBPm
Salaries 2 2 9
Social security costs 1 1 2
Post-employment benefits - - -
Share-based incentive
awards 2 2 5
Key management personnel
compensation 5 5 16
Number of key management
personnel 16 16 15
The group has the following related party transactions:
- Annuity contracts issued by Society for consideration of GBP161m (H1
16: GBP4m; FY 16: GBP3m) 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. All transactions between the
group and these collective investment vehicles are on commercial terms
which are no more favourable than those available to companies in general.
The net investments into associate investment vehicles totalled GBP10m
during the period (H1 16: 27m; FY 16: GBP47m). The group received investment
management fees of GBP1m during the period (H1 16: GBP1m; FY 16: GBP2m).
Distributions from these investment vehicles to the group totalled GBP15m
(H1 16: GBP6m; FY 16: GBP20m);
- Loans outstanding from CALA at 30 June 2017 total GBP68m (30 June
2016: GBP63m; 31 December 2016: GBP65m);
- The equity investment in Pemberton is now fully drawn at GBP18m. A
commitment of GBP220m was previously made to Pemberton's inaugural European
Mid-Market Debt Fund, of which GBP125m was drawn as at 30 June 2017.
In addition, a GBP50m commitment was made to the Pemberton U.K. Mid-Market
Direct Lending Fund, of which GBP25m has been drawn down to date;
- Loans outstanding from MediaCity at 30 June 2017 total GBP55m (H1
2016: GBP55m; FY 2016: GBP55m);
- Preference shares outstanding from Thorpe Park at 30 June 2017 total
GBP30m (H1 16: GBP12m; FY 16: GBP18m);
- A 50/50 joint venture in Access Development Partnership, developing
build to rent properties. LGC has a total commitment of GBP150m, of
which GBP28m has been drawn down to date;
- A 46% investment in Accelerated Digital Ventures, a venture investment
company, for a total commitment of GBP34m, of which GBP17m has been
drawn to date;
- Further contingent capital commitments of GBP2m for NTR Asset Management
Europe DAC, with a total commitment of GBP5m. A commitment of GBP103m
to the NTR Wind 1 Limited fund, of which GBP80m has been drawn to date;
IFRS and Release from Operations Page 61
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 2017, the combined after tax deficit
arising from these arrangements (net of annuity obligations insured
by Society) has been estimated at GBP347m (30 June 2016: GBP306m;
31 December 2016: GBP374m). These amounts have been recognised in
the financial statements with GBP219m charged against shareholder
equity (30 June 2016: GBP193m; 31 December 2016: GBP236m) and
GBP128m against the unallocated divisible surplus (30 June 2016:
GBP113m; 31 December 2016: GBP138m).
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.
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. The
Society 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 Release from Operations Page 62
2.25 Independent review report to Legal & General Group Plc
- IFRS
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 2017. 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 Guidance and Transparency Rules sourcebook 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 2017;
-- 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 25 to 61).
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
Guidance and Transparency Rules sourcebook 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 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 Guidance and Transparency Rules sourcebook 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 Guidance and Transparency Rules sourcebook 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.
IFRS and Release from Operations Page 63
2.25 Independent review report to Legal & General Group Plc
- IFRS (continued)
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) 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 2017
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 Release from Operations Page 64
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