REG - Legal & General Grp - L&G Full Year Results 2016 Part 2 <Origin Href="QuoteRef">LGEN.L</Origin> - Part 3
08/03/2017 07:07
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Disposal of subsidiaries3 2.11 (272) (82)
Investment in joint ventures (63) (71)
Net cash flows from investing activities (380) (182)
Cash flows from financing activities
Dividend distributions to ordinary equity holders of the company during the year 2.17 (830) (701)
Proceeds from issue of ordinary share capital 5 7
Purchase of employee scheme shares (net) - (8)
Proceeds from borrowings 219 697
Repayment of borrowings (342) (527)
Net cash flows used in financing activities (948) (532)
Net increase/(decrease) in cash and cash equivalents 4,608 (1,537)
Exchange gains/(losses) on cash and cash equivalents 182 (106)
Cash and cash equivalents at 1 January (before reallocation of held for sale cash) 21,066 22,709
Cash and cash equivalents (before reallocation of held for sale cash) 25,856 21,066
Cash and cash equivalents classified as held for sale 2.12 (139) (389)
Cash and cash equivalents at 31 December 25,717 20,677
1. Tax comprises UK corporation tax paid of £249m (2015: £128m), overseas corporate taxes of £16m (2015: £36m) and withholding tax of £159m (2015: £80m).
2. Net cash flows from acquisitions includes cash paid of £nil (2015: £5m) less cash and cash equivalents acquired of £nil (2015: £nil).
3. Net cash flows from disposals includes cash received of £144m (2015: £242m) less cash and cash equivalents disposed of £416m (2015: £324m).
The group's Consolidated Cash Flow Statement includes all cash and cash equivalent flows. The closing cash position includes £944m (2015: £856m) relating to the with-profit fund policy-holders policyholders and £20,434m (2015: £16,116m) relating to unit-linked policyholders.
IFRS and Release from Operations
Page 36
2.08 Basis of preparation
The group financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs)
issued by the International Accounting Standards Board (IASB) as adopted by the European Union, and with those parts of the
UK Companies Act 2006 applicable to companies reporting under IFRS. The group financial statements also comply with IFRS
and interpretations by the IFRS Interpretations Committee as issued by the IASB and as adopted by the European Union. The
group financial statements have been prepared under the historical cost convention, as modified by the revaluation of land
and buildings, available-for-sale financial assets and financial assets and financial liabilities (including derivative
instruments) at fair value through profit and loss.
The group has selected accounting policies which state fairly its financial position, financial performance and cash flows
for a reporting period. The accounting policies have been consistently applied to all years presented.
Financial assets and financial liabilities are disclosed gross in the Consolidated Balance Sheet unless a legally
enforceable right of offset exists and there is an intention to settle recognised amounts on a net basis. Income and
expenses are not offset in the Consolidated Income Statement unless required or permitted by any accounting standard or
interpretations by the IFRS Interpretations Committee.
Foreign currency transactions are translated into the functional currency using the exchange rate prevailing at the date of
the transactions. The functional currency of the group's foreign operations is the currency of the primary economic
environment in which the entity operates. The assets and liabilities of all of the group's foreign operations are
translated into sterling, the group's presentation currency, at the closing rate at the date of the balance sheet. The
income and expenses for each income statement are translated at average exchange rates. On consolidation, exchange
differences arising from the translation of the net investment in foreign entities and of borrowings and other currency
instruments designated as hedges of such investments, are taken to a separate component of shareholders' equity.
Use of estimates
The preparation of the financial statements 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. Although these estimates are based on management's best knowledge of current circumstances and
future events and actions, actual results may differ from those estimates, possibly significantly. This is particularly
relevant for the determination of fair values of investment property and unquoted and illiquid financial investments and
the estimation of deferred acquisition costs, tax balances and insurance and investment contract liabilities. The basis of
accounting for these areas, and the significant judgements used in determining them, are outlined in the respective notes
to the group's 2016 Annual Report and Accounts.
Key technical terms and definitions
The report refers to various key performance indicators, accounting standards and other technical terms. A comprehensive
list of these definitions is contained within the glossary of the group's 2016 Annual Report and Accounts.
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.
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) and
protection business written in the USA (LGA). LGI comparatives include Legal & General France (LGF), which was sold during
2015.
Savings represents business in platforms, SIPPs, mature savings and with-profits.
The General Insurance segment comprises short-term protection.
During 2016, the Insurance (excluding General Insurance) and LGA segments (excluding General Insurance) were combined to
create the new Legal & General Insurance (LGI) segment. General Insurance is now presented as a separate segment.
During 2016, changes have been made to the organisational structure. The advised sales and India businesses have
transferred to LGI from Savings, and the IDOL business has been transferred to LGR from LGI. Comparatives have been amended
accordingly.
Transactions between reportable segments are on normal commercial terms, and are included within the reported segments.
IFRS and Release from Operations
Page 37
2.09 Segmental analysis (continued)
(a) Profit/(loss) for the year
Group
expenses
General and debt
LGR1 LGIM LGC LGI1 Savings1 Insurance costs Total
For the year ended 31 December 2016 £m £m £m £m £m £m £m £m
Operating profit/(loss) 811 366 257 317 99 52 (340) 1,562
Investment and other variances2 36 (32) 162 (123) (51) 16 5 13
Gains attributable to non-controlling interests - - - - - - 7 7
Profit/(loss) before tax attributable to
equity holders 847 334 419 194 48 68 (328) 1,582
Tax (expense)/credit attributable to equity holders of (149) (68) (52) (71) (22) (13) 58 (317)
the company
Profit/(loss) for the year 698 266 367 123 26 55 (270) 1,265
Group
expenses
General and debt
LGR1 LGIM LGC LGI1 Savings1 Insurance costs Total
For the year ended 31 December 2015 £m £m £m £m £m £m £m £m
Operating profit/(loss) 641 355 233 315 107 51 (247) 1,455
Investment and other variances2 78 (20) (116) (44) 3 (8) (12) (119)
Gains attributable to non-controlling interests - - - - - - 19 19
Profit/(loss) before tax attributable to
equity holders 719 335 117 271 110 43 (240) 1,355
Tax (expense)/credit attributable to equity holders of (131) (74) (9) (93) (16) (8) 70 (261)
the company
Profit/(loss) for the year 588 261 108 178 94 35 (170) 1,094
1. During 2016, changes have been made to the
organisational structure. The advised sales and India
businesses have been transferred to LGI from Savings,
and the IDOL business has been transferred to LGR from
LGI. Comparatives have been amended accordingly. The
impact of the reclassification has been to increase LGR
2015 operating profit by £2m and profit before tax by
£1m, increase Savings 2015 operating profit by £8m and
profit before tax by £8m, and reduce Insurance 2015
operating profit by £10m and profit before tax by £9m.
2. 2016 Investment and other variances - Savings
includes the £60m net loss resulting from the disposal
of subsidiaries during the period (2015: LGI and Savings
include the £43m loss and £18m gain respectively
resulting from the disposal of subsidiary and joint
venture investments during the year).
IFRS and Release from Operations
Page 38
2.09 Segmental analysis (continued)
(b) Income
LGC
General and
LGR1 LGIM LGI1 Savings1 Insurance other2 Total
For the year ended 31 December 2016 £m £m £m £m £m £m £m
Internal income - 270 - - - (270) -
External income 13,851 49,856 2,237 4,362 326 7,337 77,969
Total income 13,851 50,126 2,237 4,362 326 7,067 77,969
LGC
General and
LGR1 LGIM LGI1,3 Savings1 Insurance other2 Total
For the year ended 31 December 2015 £m £m £m £m £m £m £m
Internal income - 267 - - - (267) -
External income 2,554 5,514 2,516 2,473 349 (705) 12,701
Total income 2,554 5,781 2,516 2,473 349 (972) 12,701
1. During 2016, changes have been made to the organisational structure. The advised sales and India businesses have transferred to LGI from Savings, and the IDOL business has been transferred to LGR from LGI. Comparatives have been amended accordingly. The impact of this reclassification has been to increase LGR 2015 external income by £26m, reduce Savings 2015 external income by £5m and reduce LGI 2015 external income by £21m.
2. LGC and other includes LGC, inter-segmental eliminations and group consolidation adjustments.
IFRS and Release from Operations
Page 39
2.10 Earnings per share
(a) Earnings per share
Adjusted Adjusted Adjusted Adjusted
Profit Earnings profit earnings Profit Earnings profit earnings
after tax per share1 after tax per share1,2 after tax per share1 after tax per share1,2
2016 2016 2016 2016 2015 2015 2015 2015
£m p £m p £m p £m p
Operating profit after tax 1,244 20.98 1,244 20.98 1,142 19.29 1,142 19.29
Investment and other variances 14 0.24 72 1.22 (67) (1.13) (42) (0.71)
Earnings per share based on profit
attributable to equity holders 1,258 21.22 1,316 22.20 1,075 18.16 1,100 18.58
1. Earnings per share is calculated by dividing profit after tax derived from continuing operations by the weighted average number of ordinary shares in issue during the period, excluding employee scheme treasury shares.
2. Adjusted earnings per share has been calculated after excluding the net loss after tax, £58m, resulting from the disposal of Suffolk Life and the classification of Cofunds as held for sale (2015: excluding the £25m net loss after tax resulting from the disposal of subsidiary and joint venture investments).
(b) Diluted earnings per share
Adjusted Adjusted
Number Profit Earnings profit earnings
of shares after tax per share1 after tax per share1,2
2016 2016 2016 2016 2016
m £m p £m 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
Adjusted Adjusted
Number Profit Earnings profit earnings
of shares after tax per share1 after tax per share1,2
2015 2015 2015 2015 2015
m £m p £m p
Profit attributable to equity holders of the company 5,920 1,075 18.16 1,100 18.58
Net shares under options allocable for no further consideration 38 - (0.12) - (0.12)
Diluted earnings per share 5,958 1,075 18.04 1,100 18.46
1. For diluted earnings per share, the weighted average number of ordinary shares in issue, excluding employee scheme treasury shares, is adjusted to assume conversion of all potential ordinary shares, such as share options granted to employees.
2. Adjusted earnings per share has been calculated after excluding the net loss after tax, £58m, resulting from the disposal of Suffolk Life and the classification of
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