REG - Legal & General Grp - L&G Half-year Report 2017 Part 2 <Origin Href="QuoteRef">LGEN.L</Origin> - Part 3
09/08/2017 07:07
- Part 3: For the preceding part double click ID:nRSI4600Nb
- - - - (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 £57m (H1 16: £64m; FY 16: £60m), Foreign exchange £99m (H1 16: £81m; FY 16: £135m), Capital redemption £17m (H1 16: £17m; FY 16: £17m), Available-for-sale reserves £17m (H1 16: £48m; FY 16: £(1)m) and Hedging reserves £21m (H1 16: £1m; FY 16: £1m).
Employee Capital Equity
scheme redemption attributable Non-
Share Share treasury and other Retained to owners controlling Total
capital premium shares reserves earnings of the parent interests equity
For the six months ended 30 June 2016 £m £m £m £m £m £m £m £m
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
capital premium shares reserves earnings of the parent interests equity
For the year ended 31 December 2016 £m £m £m £m £m £m £m £m
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 30.06.161 31.12.161
Notes £m £m £m
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 paid2 (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 subsidiaries3 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 £6,114m at H1 16 and £10,369m 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 £2,408m at H1 16 and (£1,847m) at FY 16.
2. Tax comprises UK corporation tax paid of £151m (H1 16: £108m; FY 16: £249m), overseas corporate
taxes of £8m (H1 16: £5m; FY 16: £16m), and withholding tax of £139m (H1 16: £104m; FY 16: £159m).
3. Net cash flows from disposals includes cash received of £286m (H1 16: £74m; FY 16: £144m) less cash
and cash equivalents disposed of £nil (H1 16: £414m; FY 16: £416m).
The group's Consolidated Cash Flow Statement includes all cash and cash equivalent flows. The closing
cash position includes £679m (H1 16: £601m; FY 16: £731m) relating to the with-profit fund
policyholders and £12,687m (H1 16: £10,201m; FY 16: £11,764m) 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 financial statements will depend on the interaction of the asset classification 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 £1m (FY 16: reduce by £1m) and increase LGI (UK and Other) H1 16 release from operations by £1m (FY 16:
increase by £1m).
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 LGI1 Insurance Savings costs Total
For the six months ended 30 June 2017 £m £m £m £m £m £m £m £m
Operating profit/(loss) 566 194 142 151 15 52 (132) 988
Investment and other variances1 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
LGR2 LGIM LGC LGI2 Insurance Savings1 costs Total
For the six months ended 30 June 2016 £m £m £m £m £m £m £m £m
Operating profit/(loss) 405 171 135 151 31 49 (165) 777
Investment and other variances1 63 (8) 60 (100) 10 4 21 50
Loss attributable to non-controlling interests -
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