REG - Legal & General Grp - L&G Full Year Results 2016 Part 2 <Origin Href="QuoteRef">LGEN.L</Origin> - Part 4
08/03/2017 07:07
- Part 4: For the preceding part double click ID:nRSH8033Yc
Cofunds as held for sale (2015: excluding the £25m net loss after tax resulting from the disposal of subsidiary and joint venture investments).
IFRS and Release from Operations
Page 40
2.11 Disposals
During 2016, the group made the following disposals:
- Suffolk Life Group Limited was sold to Curtis Banks Group plc for £45m (excluding transaction costs). The carrying value
of the investment was £40m, realising a profit on disposal of £5m (excluding transaction costs) reported in operational
income in the Consolidated Income Statement. The disposal of Suffolk Life Group Limited was not classified as a
discontinued operation as it does not represent a major line of business or geographical segment of the group.
- The investment in ABI Alpha Limited was sold to a management buyout led by CBPE Capital with cash proceeds for the
group's investment of £29m. The carrying value of the investment was £23m, realising a profit on disposal of £6m reported
in operational income in the Consolidated Income Statement. The majority of the profit on disposal is allocated to the
with-profits fund.
- Air Energi is no longer controlled by the group following its merger with Swift WWR to create Airswift. The group now
holds less than 50% of Airswift and therefore has classified the investment as an associate, included in financial
investments. The investment has been revalued to fair value, increasing the carrying value of the investment by £13m which
has been reported in operational income in the Consolidated Income Statement. The majority of the profit on merger is
allocated to the with-profits fund.
- The investment in The Liberation Group was sold to Caledonia Investments Plc with cash proceeds for the group's
investment of £70m. The carrying value of the investment was £68m, realising a profit on disposal of £2m reported in
operational income in the Consolidated Income Statement. The majority of the profit on disposal is allocated to the
with-profits fund.
- On 2 December 2016 the group transferred its portfolio of insurance and investment contracts originated by Legal &
General Deutschland (LGD) to Canada Life Europe (CLAE) via a Part VII transfer. £120m of insurance liabilities together
with the financial assets held to back them were transferred, and no consideration was received for the transfer. There has
been no impact on profit.
IFRS and Release from Operations
Page 41
2.12 Held for sale
In November, the group reached an agreement in principle
with Chesnara plc (Chesnara) to sell Legal & General
Netherland Levensvervekering Maatschappij N.V. (LGN) to
Chesnara for E160million. On 1 January 2017, the group
completed the disposal of Cofunds Limited(Cofunds) to
Aegon for £147.5m, before transaction costs. The sale
included the Investor Portfolio Service (IPS) platform
as well as Cofunds' retail and institutional business.
Accordingly, the assets and liabilities of LGN and
Cofunds have been assessed separately as disposal groups
and have been classified as held for sale as at 31
December 2016. An impairment loss arising on
classification of Cofunds as held for sale of £64m is
recognised in other expenses in the Consolidated Balance
Sheet. Cofunds forms part of the Savings segment in note
2.09. Neither LGN nor Cofunds is considered to be a
discontinued operation as neither represent a major line
of business or geographical segment of the group.
In addition, two investment properties with a combined
valuation of £91m have been classified as held for sale
as we have entered into advanced sale negotiations.
2016 20151
£m £m
Assets classified as held for sale
Purchased interest in long term business and other 85 28
intangible assets
DAC 12 -
Property, plant and equipment 11 1
Investment property 95 1,140
Financial investments 1,861 1,801
Reinsurers' share of contract liabilities 1 39
Cash and cash equivalents 139 389
Other assets2 62 11
Total assets of the disposal groups 2,266 3,409
Liabilities classified as held for sale
Insurance contract liabilities 1,709 -
Investment contract liabilities - 3,235
Operational borrowings - 102
Tax liabilities 26 5
Payables and other financial liabilities 28 10
Other liabilities2 147 17
Total liabilities of the disposal groups 1,910 3,369
Total net assets of the disposal groups 356 40
1. At 2015, Suffolk Life Group Limited was classified as
held for sale.2. Included in other assets is £1m, and in
other liabilities, £88m, which are balances with other
group entities which are eliminated on the Consolidated
Balance Sheet.
2.13 Post balance sheet events
On 1 January 2017 the group sold Cofunds Limited to Aegon. The sale includes the Investor Portfolio Services (IPS) platform
as well as Cofunds' retail and institutional business. The assets and liabilities of Cofunds Limited have been assessed as
a disposal group and have been classified as held for sale as at 31 December 2016.
IFRS and Release from Operations
Page 42
2.14 Financial investments and investment property
2016 2015
£m £m
Equities 191,025 166,892
Unit trusts 6,969 6,021
Debt securities1 204,970 169,720
Accrued interest 1,528 1,456
Derivative assets2 13,121 9,509
Loans and receivables 562 465
Financial investments 418,175 354,063
Investment property3 8,150 8,082
Total financial investments and investment property 426,325 362,145
1. A 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 £8,294m (2015: £5,795m) held on behalf of unit linked policyholders.
3. A detailed analysis of investment property, which shareholders are directly exposed to, is disclosed in note 4.07.
IFRS and Release from Operations
Page 43
2.15 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:
2016 2015
£m £m
Profit before tax attributable to equity holders 1,582 1,355
Tax calculated at 20.00% (2015: 20.25%) 316 274
Adjusted for the effects of:
Recurring reconciling items:
Income not subject to tax (12) (11)
Higher/(lower) rate of tax on profits taxed overseas 7 16
Non-deductible expenses/(additional allowances) 4 (8)
Differences between taxable and accounting investment gains (11) (3)
Non-recurring reconciling items:
Income not subject to tax (1) -
Non-deductible expenses1 17 4
Differences between taxable and accounting investment gains2 (14) (7)
Adjustments in respect of prior years 13 (5)
Impact of reduction in UK corporate tax rate to 17% from 2020 on deferred tax balances3 (2) 1
Tax attributable to equity holders 317 261
Equity holders' effective tax rate4 20.0% 19.3%
1. Includes costs relating to M&A activity which are non-deductible for tax purposes.
2. £14m relates to a deferred tax asset recognised on losses crystallised in the year.
3. Following the 2016 Finance Act, the rate of corporation tax will reduce progressively to 17% by 1 April 2020. The 19% rate will apply from 1 April 2017 and the 17% rate from 1 April 2020 onwards. The enacted rates of 20-17% have been used in the calculation of UK deferred tax assets and liabilities.
4. 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 44
2.15 Tax
(b) Deferred tax
2016 2015
Deferred tax (liabilities)/assets £m £m
Deferred acquisition expenses (429) (359)
- UK (45) (51)
- Overseas (384) (308)
Difference between the tax and accounting value of insurance contracts (286) (324)
- UK (123) (83)
- Overseas (163) (241)
Realised and unrealised gains on investments (255) (154)
Excess of depreciation over capital allowances 15 18
Excess expenses1 49 74
Accounting provisions and other (51) (19)
Trading losses2 80 165
Pension fund deficit 82 72
Purchased interest in long-term business (13) (26)
Net deferred tax liabilities (808) (553)
Presented on the Consolidated Balance Sheet as:
- UK deferred tax asset3
5 20
- UK deferred tax liability3 (291) (137)
- Overseas deferred tax liability4 (522) (436)
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 £5m (2015: £6m) and £75m (2015: £159m) 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 UK deferred tax liability has been split between an asset of £5m and a liability of £291m where the relevant items cannot be offset.
4. Overseas deferred tax liability is wholly comprised of US balances as at 31 December 2016 (2015: US £424m; LGN £12m).
IFRS and Release from Operations
Page 45
2.16 Payables and other financial liabilities
2016 2015
£m £m
Derivative liabilities 9,014 8,047
Repurchase agreements1 23,163 13,343
Other2 5,170 1,319
Payables and other financial liabilities 37,347 22,709
Due within 12 months 34,517 20,027
Due after 12 months 2,830 2,682
1. The repurchase agreements are presented gross, however they and their related assets are subject to master netting arrangements.
2. Other financial liabilities include obligations in respect of collateral received from derivative contracts of £2.7bn (2015: £0.1bn). Other also includes the present value of future commission costs which have contingent settlement provisions of £177m (2015: £175m).
Fair value hierarchy
Amortised
Total Level 1 Level 2 Level 3 cost
As at 31 December 2016 £m £m £m £m £m
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
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
- More to follow, for following part double click ID:nRSH8033YeRecent news on Legal & General
See all newsREG - Legal & General Grp - Transaction in Own Shares
AnnouncementREG - Legal & General Grp Morgan Stanley - Holding(s) in Company
AnnouncementREG - Legal & General Grp Morgan Stanley - Holding(s) in Company
AnnouncementREG - Legal & General Grp - Transaction in Own Shares
AnnouncementREG - Legal & General Grp Morgan Stanley - Holding(s) in Company
Announcement