REG - Legal & General Grp - L&G Full Year Results 2015 Part 2 <Origin Href="QuoteRef">LGEN.L</Origin> - Part 4
15/03/2016 07:07
- Part 4: For the preceding part double click ID:nRSO0690Sc
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2.14 Post balance sheet events
On 15 January 2016, the group sold Suffolk Life Group Limited (SLG) to Curtis Banks Group Plc for £45m, subject to
regulatory approval. The assets and liabilities of SLG have accordingly been assessed as a disposal group and have been
classified as held for sale as at 31 December 2015. For held for sale details refer to Note 2.13.
On 21 January 2016, the group made a formal decision to close an office located in Kingswood, Surrey, UK. The group plans
to close the office in 2018. The net cost associated with this closure (including write-off of previously capitalised
property, plant and equipment and expenditure relating to redundancy and rent and rates), is estimated to be £50m, which is
expected to be recognised in the 2016 Consolidated Income Statement. These costs will be treated as restructuring costs and
as such will not be included in operational and net cash generation.
IFRS and Cash
Page 43
2.15 Financial investments and investment property
2015 2014
£m £m
Equities 166,892 162,177
Unit trusts 6,021 7,529
Debt securities1 169,720 178,766
Accrued interest 1,456 1,604
Derivative assets2 9,509 10,035
Loans and receivables 465 503
Financial investments 354,063 360,614
Investment property 8,082 8,152
Total financial investments and investment property 362,145 368,766
1. Detailed analysis of debt securities which shareholders are directly exposed to is disclosed in Note 4.06.
2. Derivatives are used to ensure efficient portfolio management, especially the use of interest rate swaps, inflation swaps, credit default swaps and foreign exchange forward contracts for asset and liability management. Derivative assets are shown gross of derivative liabilities and include £5,795m (2014: £6,011m) held on behalf of unit linked policyholders.
2.16 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:
2015 2014
£m £m
Profit before tax attributable to equity holders 1,355 1,238
Tax calculated at 20.25% (2014: 21.5%) 274 266
Effects of:
Adjustments in respect of prior years (5) 8
Income not subject to tax, such as dividends (11) (9)
Change in valuation of tax losses - (6)
Higher rate of tax on profits taxed overseas 16 8
Additional allowances/non-deductible expenses (4) (7)
Impact of reduction in UK corporate tax rate to 18% from 2020 on deferred tax balances1 1 -
Differences between taxable and accounting investment gains (10) (15)
Other - 1
Tax attributable to equity holders 261 246
Equity holders' effective tax rate2 19.3% 19.9%
1. Following the 2015 Finance Act, the rate of corporation tax will reduce to 19% from 1 April 2017. There will be a further 1% reduction to 18% from 1 April 2020. The enacted rates of 20 - 18% have been used in the calculation of UK's deferred tax assets and liabilities.
2. Equity holders' effective tax rate is calculated by dividing the tax attributable to equity holders over profit before tax attributable to equity holders.
IFRS and Cash
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2.16 Tax (continued)
(b) Deferred Tax
2015 2014
(i) UK deferred tax assets/(liabilities) £m £m
Realised and unrealised gains on investments (146) (168)
Excess of depreciation over capital allowances 18 19
Excess expenses1 74 105
Deferred acquisition expenses (51) (61)
Difference between the tax and accounting value of insurance contracts (83) (143)
Accounting provisions 8 3
Trading losses2 6 45
Pension fund deficit 72 98
Purchased interest in long term business (15) (24)
Net UK deferred tax liabilities (117) (126)
Presented on the Consolidated Balance Sheet as:
UK deferred tax asset 20 54
UK deferred tax liability (137) (180)
Net UK deferred liabilities3 (117) (126)
(ii) Overseas deferred tax assets/(liabilities)
Realised and unrealised gains on investments (8) (53)
Deferred acquisition expenses (308) (295)
Difference between the tax and accounting value of insurance contracts (241) (242)
Accounting provisions (27) (20)
Trading losses 159 186
Purchased interest in long term business (11) (10)
Net Overseas deferred tax liabilities (436) (434)
1. The reduction in the deferred tax asset on excess expenses reflects the unwind of the spread acquisition expenses.
2. LGR and Insurance utilised their remaining losses against profits that arose during the first half of the year. The remaining losses mainly relate to Cofunds.
3. On the Consolidated Balance Sheet the net UK deferred tax liability has been split between an asset of £20m and a liability of £137m where the relevant items cannot be offset.
IFRS and Cash
Page 45
2.17 Payables and other financial liabilities
2015 2014
£m £m
Derivative liabilities 8,047 6,877
Repurchase agreements1 13,343 7,016
Other2 1,319 2,238
Payables and other financial liabilities 22,709 16,131
Due within 12 months 20,027 11,887
Due after 12 months 2,682 4,244
1. The repurchase agreements are presented gross, however they and their related assets are subject to master netting arrangements.
2. Other financial liabilities include net variation margins on derivative contracts, which are maintained daily. Included within the variation margins are collateral held and pledged of £94m and £50m respectively (2014: £107m and £235m respectively). Other also includes the present value of future commission costs which have contingent settlement provisions of £175m (2014: £186m).
Fair value hierarchy
Amortised
Total Level 1 Level 2 Level 3 cost
As at 31 December 2015 £m £m £m £m £m
Derivative liabilities 8,047 1,451 6,596 - -
Repurchase agreements 13,343 - - - 13,343
Other 1,319 5 12 175 1,127
Payables and other financial liabilities 22,709 1,456 6,608 175 14,470
Amortised
Total Level 1 Level 2 Level 3 cost
As at 31 December 2014 £m £m £m £m £m
Derivative liabilities 6,877 593 6,284 - -
Repurchase agreements 7,016 - - - 7,016
Other 2,238 869 29 186 1,154
Payables and other financial liabilities 16,131 1,462 6,313 186 8,170
Future commission costs are modelled using expected cash flows, incorporating expected future persistency. They have therefore been classified as level 3 liabilities. The entire movement in the balance has been reflected in the Consolidated Income Statement during the period. A reasonably possible alternative persistency assumption would have the effect of increasing the liability by £6m (2014: £6m).
Significant transfers between levels There have been no significant transfers between levels 1, 2 and 3 for the period ended 31 December 2015 (2014: No significant transfers between levels 1, 2 and 3).
IFRS and Cash
Page 46
2.18 Dividends
Per Per
Dividend share1 Dividend share1
2015 2015 2014 2014
£m p £m p
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