REG - Legal & General Grp - L&G Half-year Report 2017 Part 2 <Origin Href="QuoteRef">LGEN.L</Origin> - Part 5
09/08/2017 07:07
- Part 5: For the preceding part double click ID:nRSI4600Nd
Adjusted Adjusted
Number Profit Earnings profit earnings
of shares after tax per share1 after tax per share1,2
30.06.16 30.06.16 30.06.16 30.06.16 30.06.16
m £m p £m 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 tax per share1 after tax per share1,2
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 £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
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 £17m, resulting from the disposal of Netherlands (H1 16: excluding the net £4m gain resulting from the disposal of Suffolk Life; FY 16: excluding the net loss after tax of £58m, 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 £141m, 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 £141m 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 E161.0m (£137m). The group carrying value of the investment was £118m, resulting in a current
year profit £17m, net of transaction costs £2m. A further £3m 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
£m £m £m
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 assets1 - - 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 liabilities1 - - 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 £1m, and in other liabilities, £88m, 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 30.06.161 31.12.161
£m £m £m
Equities 194,754 176,194 191,025
Unit trusts 7,584 6,594 6,969
Debt securities2 219,989 203,114 215,331
Accrued interest 1,449 1,403 1,536
Derivative assets3 11,513 15,424 13,121
Loans and receivables 572 508 562
Financial investments 435,861 403,237 428,544
Investment property4 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 £7,597m (H1 16:
£9,543m; FY 16: £8,294m) 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:
£nil; 31 December 2016: £nil).
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 1 Level 2 Level 3
For the six months ended 30 June 2017 £m £m £m £m
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 value1 444,003 316,779 109,601 17,623
1. This table excludes loans and receivables of £572m, 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)
Total1 Level 11 Level 21 Level 3
For the six months ended 30 June 2016 £m £m £m £m
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 value2 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 £508m, 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)
Total1 Level 11 Level 21 Level 3
For the year ended 31 December 2016 £m £m £m £m
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 value2 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 £562m, 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,
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