REG - Legal & General Grp - L&G Half-year Report 2017 Part 2 <Origin Href="QuoteRef">LGEN.L</Origin> - Part 8
09/08/2017 07:07
- Part 8: For the preceding part double click ID:nRSI4600Ng
Derivative liabilities 15,473 5,519 9,954 - -
Repurchase agreements 17,295 - - - 17,295
Other 3,988 522 14 174 3,278
Payables and other financial liabilities 36,756 6,041 9,968 174 20,573
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
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 year. A reasonably possible alternative persistency assumption would have the effect of increasing the liability by £5m (H1 16: £4m; FY 16: £5m).
Significant transfers between levels There have been no significant transfers between levels 1, 2 and 3 for the period ended 30 June 2017 (30 June 2016 and 31 December 2016: no significant transfers between levels 1, 2 and 3).
IFRS and Release from Operations
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2.16 Dividends
Full year
Per1 Per1 Full year Per1
Dividend share Dividend share Dividend share
30.06.17 30.06.17 30.06.16 30.06.16 31.12.16 31.12.16
£m p £m p £m p
Ordinary share dividends paid in the period:
- Prior year final dividend 616 10.35 592 9.95 592 9.95
- Current year interim dividend - - - - 238 4.00
616 10.35 592 9.95 830 13.95
Ordinary share dividend proposed2 256 4.30 238 4.00 616 10.35
1. The dividend per share calculation is based on the number of equity shares registered on the ex-dividend date.
2. The dividend proposed is not included as a liability in the Consolidated Balance Sheet.
2.17 Share capital
Number of Number of Number of
shares shares shares
Full year
30.06.17 30.06.16 31.12.16
As at 1 January 5,954,656,466 5,948,788,480 5,948,788,480
Options exercised under share option schemes:
- Savings related share option scheme 2,061,874 3,465,839 5,867,986
As at 30 June / 31 December 5,956,718,340 5,952,254,319 5,954,656,466
There is one class of ordinary shares of 2.5p each. All shares issued carry equal voting rights.
The holders of the company's ordinary shares are entitled to receive dividends which are authorised and are no longer at the discretion of the company.
IFRS and Release from Operations
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2.18 Core Borrowings
Carrying Fair Carrying Fair Carrying Fair
amount value amount value amount value
30.06.17 30.06.17 30.06.16 30.06.16 31.12.16 31.12.16
£m £m £m £m £m £m
Subordinated borrowings
6.385% Sterling perpetual capital securities (Tier 1) - - 626 615 615 609
5.875% Sterling undated subordinated notes (Tier 2) 410 432 412 412 411 418
5.25% US Dollar subordinated notes 2047 (Tier 2) 658 700 - - - -
5.55% US Dollar subordinated notes 2052 (Tier 2) 387 399 - - - -
10% Sterling subordinated notes 2041 (Tier 2) 311 406 310 392 310 403
5.5% Sterling subordinated notes 2064 (Tier 2) 589 651 589 534 589 603
5.375% Sterling subordinated notes 2045 (Tier 2) 602 670 602 607 602 627
Client fund holdings of group debt1 (33) (33) (33) (32) (31) (31)
Total subordinated borrowings 2,924 3,225 2,506 2,528 2,496 2,629
Senior borrowings
Sterling medium term notes 2031-2041 602 848 602 801 609 845
Client fund holdings of group debt1 (27) (27) (44) (58) (34) (34)
Total senior borrowings 575 821 558 743 575 811
Total core borrowings 3,499 4,046 3,064 3,271 3,071 3,440
1. £60m (H1 16: £77m; FY 16: £65m) of the group's subordinated and senior borrowings are currently held by Legal & General customers through unit linked products. These borrowings are shown as a deduction from total core borrowings in the table above.
All of the group's core borrowings are measured using amortised cost. The presented fair values of the group's core borrowings reflect quoted prices in active markets and they are classified as level 1 in the fair value hierarchy.
Subordinated borrowings
6.385% Sterling perpetual capital securities
In 2007, Legal & General Group Plc issued £600m of 6.385% Sterling perpetual capital securities. These securities were
called at par on 2 May 2017.
5.875% Sterling undated subordinated notes
In 2004, Legal & General Group Plc issued £400m of 5.875% Sterling undated subordinated notes. These notes are callable at
par on 1 April 2019 and every five years thereafter. If not called, the coupon from 1 April 2019 will be reset to the
prevailing five year benchmark gilt yield plus 2.33% pa. These notes are treated as tier 2 own funds for Solvency II
purposes.
5.25% US Dollar subordinated notes 2047
On 21 March 2017, Legal & General Group Plc issued $850m of 5.25% dated subordinated notes. The notes are callable at par
on 21 March 2027 and every five years thereafter. If not called, the coupon from 21 March 2027 will be reset to the
prevailing USD mid-swap rate plus 3.687% pa. These notes mature on 21 March 2047. They are treated as tier 2 own funds for
Solvency II purposes.
5.55% US Dollar subordinated notes 2052
On 24 April 2017, Legal & General Group Plc issued $500m of 5.55% dated subordinated notes. The notes are callable at par
on 24 April 2032 and every five years thereafter. If not called, the coupon from 24 April 2032 will be reset to the
prevailing USD mid-swap rate plus 4.19% pa. These notes mature on 24 April 2052. They are treated as tier 2 own funds for
Solvency II purposes.
10% Sterling subordinated notes 2041
In 2009, Legal & General Group Plc issued £300m of 10% dated subordinated notes. The notes are callable at par on 23 July
2021 and every five years thereafter. If not called, the coupon from 23 July 2021 will be reset to the prevailing five year
benchmark gilt yield plus 9.325% pa. These notes mature on 23 July 2041. They are treated as tier 2 own funds for Solvency
II purposes.
5.5% Sterling subordinated notes 2064
In 2014, Legal & General Group Plc issued £600m of 5.5% dated subordinated notes. The notes are callable at par on 27 June
2044 and every five years thereafter. If not called, the coupon from 27 June 2044 will be reset to the prevailing five year
benchmark gilt yield plus 3.17% pa. These notes mature on 27 June 2064. They are treated as tier 2 own funds for Solvency
II purposes.
5.375% Sterling subordinated notes 2045
In 2015, Legal & General Group Plc issued £600m of 5.375% dated subordinated notes. The notes are callable at par on 27
October 2025 and every five years thereafter. If not called, the coupon from 27 October 2025 will be reset to the
prevailing five year benchmark gilt yield plus 4.58% pa. These notes mature on 27 October 2045. They are treated as tier 2
own funds for Solvency II purposes.
IFRS and Release from Operations
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2.19 Operational borrowings
Carrying Fair Carrying Fair Carrying Fair
amount value amount value amount value
30.06.17 30.06.17 30.06.16 30.06.16 31.12.16 31.12.16
£m £m £m £m £m £m
Short term operational borrowings
Euro Commercial paper 322 322 103 103 216 216
Bank loans and overdrafts 20 20 69 69 6 6
Total short term operational borrowings 342 342 172 172 222 222
Non recourse borrowings
LGV 6/LGV 7 Private Equity Fund Limited Partnership - - 42 42 - -
Consolidated Property Limited Partnerships 211 211 197 197 208 208
Total non recourse borrowings 211 211 239 239 208 208
Total operational borrowings 553 553 411 411 430 430
The presented fair values of the group's operational borrowings reflect observable market information and have been
classified as level 2 in the fair value hierarchy.
Short term operational borrowings
Short term assets available at the holding company level exceeded the amount of short term operational borrowings of £342m
(H1 16: £172m; FY 16: £222m.). Short term operational borrowings comprise Euro Commercial paper, bank loans and
overdrafts.
Non recourse borrowings
LGV 6/LGV 7 Private Equity Fund Limited Partnerships
These borrowings were non recourse bank borrowings.
Consolidated Property Limited Partnerships
These borrowings are non recourse bank borrowings.
Syndicated credit facility
As at 30 June 2017, the group had in place a £1.00bn syndicated committed revolving credit facility provided by a number of
its key relationship banks, maturing in December 2021.
2.20 Non-controlling interests
Non-controlling interests represent third party interests in direct equity investments as well as investments in private
equity and property investment vehicles which are consolidated in the group's results. The majority of the non-controlling
interests in 2017 are in relation to investments in the Leisure Fund Unit Trust, the Performance Retail Unit Trust, the
Legal & General UK Property Ungeared Fund Limited Partnership, and Thorpe Park Developments Limited.
2.21 Foreign exchange rates
Principal rates of exchange used for translation are:
Period end exchange rates At 30.06.17 At 30.06.16 At 31.12.16
United States Dollar 1.30 1.34 1.24
Euro 1.14 1.20 1.17
01.01.17 - 01.01.16 - 01.01.16 -
Average exchange rates 30.06.17 30.06.16 31.12.16
United States Dollar 1.26 1.43 1.36
Euro 1.16 1.28 1.22
IFRS and Release from Operations
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2.22 Related party transactions
There were no material transactions between
key management and the Legal & General group
of companies during the period. All
transactions between the group and its key
management are on commercial terms which are
no more favourable than those available to
employees in general. Contributions to the
post-employment defined benefit plans were
£36m (H1 16: £34m; FY 16: £75m) for all
employees.
At 30 June 2017, 30 June 2016 and 31 December
2016 there were no loans outstanding to
officers of the company.
Key management personnel compensation
The aggregate compensation for key management
personnel, including executive and non
-executive directors, is as follows:
30.06.17 30.06.16 31.12.16
£m £m £m
Salaries 2 2 9
Social security costs 1 1 2
Post-employment benefits - - -
Share-based incentive awards 2 2 5
Key management personnel compensation 5 5 16
Number of key management personnel 16 16 15
The group has the following related party
transactions:
- Annuity contracts issued by Society for
consideration of £161m (H1 16: £4m; FY 16:
£3m) purchased by the group's UK defined
benefit pension schemes during the period,
priced on an arm's length basis;
- Investments in venture capital, property and
financial investments held via collective
investment vehicles. All transactions between
the group and these collective investment
vehicles are on commercial terms which are no
more favourable than those available to
companies in general. The net investments into
associate investment vehicles totalled £10m
during the period (H1 16: 27m; FY 16: £47m).
The group received investment management fees
of £1m during the period (H1 16: £1m; FY 16:
£2m). Distributions from these investment
vehicles to the group totalled £15m (H1 16:
£6m; FY 16: £20m);
- Loans outstanding from CALA at 30 June 2017
total £68m (30 June 2016: £63m; 31 December
2016: £65m);
- The equity investment in Pemberton is now
fully drawn at £18m. A commitment of £220m was
previously made to Pemberton's inaugural
European Mid-Market Debt Fund, of which £125m
was drawn as at 30 June 2017. In addition, a
£50m commitment was made to the Pemberton U.K.
Mid-Market Direct Lending Fund, of which £25m
has been drawn down to date;
- Loans outstanding from MediaCity at 30 June
2017 total £55m (H1 2016: £55m; FY 2016:
£55m);
- Preference shares outstanding from Thorpe
Park at 30 June 2017 total £30m (H1 16: £12m;
FY 16: £18m);
- A 50/50 joint venture in Access Development
Partnership, developing build to rent
properties. LGC has a total commitment of
£150m, of which £28m has been drawn down to
date;
- A 46% investment in Accelerated Digital
Ventures, a venture investment company, for a
total commitment of £34m, of which £17m has
been drawn to date;
- Further contingent capital commitments of
£2m for NTR Asset Management Europe DAC, with
a total commitment of £5m. A commitment of
£103m to the NTR Wind 1 Limited fund, of which
£80m has been drawn to date;
IFRS and Release from Operations
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2.23 Pension costs
The Legal & General Group UK Pension and Assurance Fund and the Legal & General Group UK Senior Pension Scheme are defined
benefit pension arrangements and account for all UK and the majority of worldwide assets of, and contributions to, such
arrangements. The schemes were closed to future accrual on 31 December 2015. At 30 June 2017, the combined after tax
deficit arising from these arrangements (net of annuity obligations insured by Society) has been estimated at £347m (30
June 2016: £306m; 31 December 2016: £374m). These amounts have been recognised in the financial statements with £219m
charged against shareholder equity (30 June 2016: £193m; 31 December 2016: £236m) and £128m against the unallocated
divisible surplus (30 June 2016: £113m; 31 December 2016: £138m).
2.24 Contingent liabilities, guarantees and indemnities
Provision for the liabilities arising under contracts with policyholders is based on certain assumptions. The variance
between actual experience from that assumed may result in those liabilities differing from the provisions made for them.
Liabilities may also arise in respect of claims relating to the interpretation of policyholder contracts, or the
circumstances in which policyholders have entered into them. The extent of these liabilities is influenced by a number of
factors including the actions and requirements of the PRA, FCA, ombudsman rulings, industry compensation schemes and court
judgments.
Various group companies receive claims and become involved in actual or threatened litigation and regulatory issues from
time to time. The relevant members of the group ensure that they make prudent provision as and when circumstances calling
for such provision become clear, and that each has adequate capital and reserves to meet reasonably foreseeable
eventualities. The provisions made are regularly reviewed. It is not possible to predict, with certainty, the extent and
the timing of the financial impact of these claims, litigation or issues.
In 1975, Legal & General Assurance Society Limited (the Society) was required by the Institute of London Underwriters (ILU)
to execute the ILU form of guarantee in respect of policies issued through the ILU's Policy Signing Office on behalf of NRG
Victory Reinsurance Company Ltd (Victory), a company which was then a subsidiary of the Society. In 1990, Nederlandse
Reassurantie Groep Holding NV (the assets and liabilities of which have since been assumed by Nederlandse Reassurantie
Groep NV under a statutory merger in the Netherlands) acquired Victory and provided an indemnity to the Society against any
liability the Society may have as a result of the ILU's requirement, and the ILU agreed that its requirement of the Society
would not apply to policies written or renewed after the acquisition. Nederlandse Reassurantie Groep NV is now owned by
Columbia Insurance Company, a subsidiary of Berkshire Hathaway Inc. Whether the Society has any liability as a result of
the ILU's requirement and, if so, the amount of its potential liability is uncertain. The Society has made no payment or
provision in respect of this matter.
Group companies have given warranties, indemnities and guarantees as a normal part of their business and operating
activities or in relation to capital market transactions or corporate disposals. Legal & General Group Plc has provided
indemnities and guarantees in respect of the liabilities of group companies in support of their business activities
including Pension Protection Fund compliant guarantees in respect of certain group companies' liabilities under the group
pension fund and scheme. The Society has provided indemnities, a liquidity and expense risk agreement, a deed of support
and a cash and securities liquidity facility in respect of the liabilities of group companies to facilitate the group's
matching adjustment reorganisation pursuant to Solvency II.
IFRS and Release from Operations
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2.25 Independent review report to Legal & General Group Plc - IFRS
Report on the consolidated interim financial statements
Our conclusion
We have reviewed Legal & General Group Plc's consolidated interim financial statements (the "interim financial statements")
in the Interim Management Statement of Legal & General Group Plc for the 6 month period ended 30 June 2017. Based on our
review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared,
in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as
adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
· the Consolidated Balance Sheet as at 30 June 2017;
· the Consolidated Income Statement and Consolidated Statement of Comprehensive Income for the period then ended;
· the Consolidated Cash Flow Statement for the period then ended;
· the Condensed Consolidated Statement of Changes in Equity for the period then ended; and
· the explanatory notes to the interim financial statements (pages 25 to 61).
The interim financial statements included in the Interim Management Statement have been prepared in accordance with
International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure
Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
As disclosed in note 2.08 to the interim financial statements, the financial reporting framework that has been applied in
the preparation of the full annual financial statements of the Group is applicable law and International Financial
Reporting Standards (IFRSs) as adopted by the European Union.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the directors
The Interim Management Statement, including the interim financial statements, is the responsibility of, and has been
approved by, the directors. The directors are responsible for preparing the Interim Management Statement in accordance with
the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim financial statements in the Interim Management Statement based
on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of
complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct
Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other
purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by
our prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board
for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons
responsible for financial and accounting matters, and applying analytical and other review procedures.
IFRS and Release from Operations
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2.25 Independent review report to Legal & General Group Plc - IFRS (continued)
A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK)
and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might
be identified in an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the Interim Management Statement and considered whether it contains any
apparent misstatements or material inconsistencies with the information in the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London
8 August 2017
a) The maintenance and integrity of the Legal & General Group Plc website is the responsibility of the directors; the
work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no
responsibility for any changes that may have occurred to the interim financial statements since they were initially
presented on the website.
b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
IFRS and Release from Operations
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