REG - Legal & General Grp - L&G Half Year Results 2016 Part 2 <Origin Href="QuoteRef">LGEN.L</Origin> - Part 3
09/08/2016 07:08
- Part 3: For the preceding part double click ID:nRSI5967Gb
(31,213) 4,236 4,077
Investment income (5,164) (4,928) (9,760)
Interest expense 98 91 186
Tax expense 317 282 320
Other adjustments (7) (35) (70)
Net (increase)/decrease in operational assets
Investments held for trading or designated as fair value through profit or loss (1,923) (2,450) 1,007
Investments designated as available-for-sale 327 210 158
Other assets (7,947) (1,518) (2,594)
Net increase/(decrease) in operational liabilities
Insurance contracts 8,921 (784) (1,083)
Transfer (from)/to unallocated divisible surplus (200) 68 (90)
Investment contracts 19,164 (5,254) (9,524)
Value of in-force non-participating contracts 49 (15) 24
Other liabilities 10,674 3,249 6,645
Cash used in operations (6,237) (6,301) (9,610)
Interest paid (75) (129) (186)
Interest received 2,740 2,413 5,286
Tax paid1 (217) (84) (244)
Dividends received 2,622 2,282 3,931
Net cash flows used in operating activities (1,167) (1,819) (823)
Cash flows from investing activities
Net acquisition of plant, equipment and intangibles (29) (11) (24)
Acquisitions2 - (5) (5)
Disposal of subsidiaries3 2.11 (340) 34 (82)
Investment in joint ventures (17) (65) (71)
Net cash flows from investing activities (386) (47) (182)
Cash flows from financing activities
Dividend distributions to ordinary equity holders of the company during the period 2.16 (589) (496) (701)
Proceeds from issue of ordinary share capital 3 4 7
Purchase of employee scheme shares 2 (7) (8)
Proceeds from borrowings 253 194 697
Repayment of borrowings (315) (649) (527)
Net cash flows used in financing activities (646) (954) (532)
Net decrease in cash and cash equivalents (2,199) (2,820) (1,537)
Exchange gains/(losses) on cash and cash equivalents 89 (65) (106)
Cash and cash equivalents at 1 January (before reallocation of held for sale cash) 21,066 22,709 22,709
Cash and cash equivalents (before reallocation of held for sale cash) 18,956 19,824 21,066
Cash and cash equivalents classified as held for sale 2.12 - (241) (389)
Cash and cash equivalents at 30 June/31 December 18,956 19,583 20,677
1. Tax comprises UK corporation tax paid of £108m (H1 15: £8m; FY 15: £128m), overseas corporate taxes of £5m (H1 15: £18m; FY 15: £36m) and withholding tax of £104m (H1 15: £58m; FY 15: £80m).
2. Net cash flows from acquisitions includes cash paid of £nil (H1 15: £5m; FY 15: £5m) less cash and cash equivalents acquired of £nil (H1 15: £nil; FY 15: £nil).
3. Net cash flows from disposals includes cash received of £74m (H1 15: £nil; FY 15: £242m) less cash and cash equivalents disposed of £414m (H1 15: £nil; FY 15: £324m).
The group's Consolidated Cash Flow Statement includes all cash and cash equivalent flows, including £669m (H1 15: £541m; FY 15: £856m) relating to the with-profit fund policyholders and £15,540m (H1 15: £,16,928m; FY 15: £16,116m) relating to unit-linked policyholders.
IFRS and Operational Cash Generation
Page 38
2.08 Basis of preparation
The group's financial information for the six months ended 30 June 2016 has been prepared in accordance with the Disclosure
Rules 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 2016 year end. These policies are consistent with the principal
accounting policies which were set out in the group's 2015 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. Following an amendment to IAS 1 more detail is provided around the methodology of the split of policyholder and
shareholder tax.
For presentation, the tax shown in the Consolidated Income Statement 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
incurs tax on policyholder investment return, in addition to the corporation tax charge charged on shareholder profit. Both
types of tax are accounted for in the total tax charge in the group's Consolidated Income Statement, and 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 using equity holders' profit after tax,
which is grossed up at the statutory tax rate. The balance of income tax associated with UK long term business is
classified as income tax attributable to policyholders' returns.
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
2015 financial statements except for the changes outlined in Note 2.02.
The results for the six months ended 30 June 2016 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 2015 have been taken from the group's 2015 Annual Report and Accounts. Therefore, these interim accounts
should be read in conjunction with the 2015 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 2015 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 2015 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 operational cash generation, net cash
generation 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.
2.09 Segmental analysis
Reportable segments
The group has six reportable segments comprising LGR, LGIM, LGC, Insurance, Savings and LGA. 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 the IFRS profit before tax on its trading businesses and investment return (less expenses) on its other
group invested assets. LGC and group expenses also incorporate inter-segmental eliminations, consolidated unit trusts and
property partnerships managed on behalf of clients, which do not constitute a separately reportable segment.
Insurance represents business in retail protection, group protection, general insurance, networks and Legal & General
Netherlands (LGN). Insurance comparatives include Legal & General France (LGF), which was sold during 2015.
Savings represents business in platforms, SIPPs, mature savings and with-profits.
The LGA segment represents protection business written in the USA.
During 2016, changes have been made to the organisational structure. The advised sales and India businesses have
transferred to Insurance from Savings, and the IDOL business has been transferred to LGR from Insurance. Comparatives have
been amended accordingly. The impact of this reclassification has been to increase LGR H1 15 operating profit by £1m (FY
15: increase by £2m), increase Savings H1 15 operating profit by £5m (FY 15: increase by £8m) and reduce Insurance H1 15
operating profit by £6m (FY 15: reduce by £10m).
Transactions between reportable segments are on normal commercial terms, and are included within the reported segments.
IFRS and Operational Cash Generation
Page 39
2.09 Segmental analysis (continued) 588 261 108 184 94 29 (170) 1,094
1. During 2016, changes have been made to the
organisational structure. The advised sales and India
businesses have been transferred to Insurance from
Savings, and the IDOL business has been transferred to
LGR from Insurance. Comparatives have been amended
accordingly. The impact of the reclassification has been
to increase LGR H1 15 operating profit by £1m and profit
before tax by £1m (FY 15: increase by £2m and £1m
respectively), increase Savings H1 operating profit by
£5m and profit before tax by £5m (FY 15: increase by £8m
and £8m respectively), and reduce Insurance H1 15
operating profit by £6m and profit before tax by £6m (FY
15: reduce by £10m and £9m respectively).
2. H1 16 Investment and other variances - Insurance and
Savings include the £4m net gain resulting from the
disposal of subsidiaries during the period (H1 15:
includes the £40m impairment loss resulting from the
classification of disposal groups as held for sale; FY
15: includes the £25m net loss resulting from the
disposal of subsidiary and joint venture investments
during the year).
IFRS and Operational Cash Generation
Page 40
2.09 Segmental analysis (continued)
(b) Income
LGC
and
LGR1 LGIM Insurance1 Savings1 LGA other2 Total
For the six months ended 30 June 2016 £m £m £m £m £m £m £m
Internal income - 121 357 - 136 (614) -
External income 9,083 24,153 912 2,344 421 5,610 42,523
Total income 9,083 24,274 1,269 2,344 557 4,996 42,523
LGC
and
LGR1 LGIM Insurance1 Savings1 LGA other2,3 Total
For the six months ended 30 June 2015 £m £m £m £m £m £m £m
Internal income - 43 197 - 109 (349) -
External income3 571 4,752 1,169 1,711 399 (213) 8,389
Total income 571 4,795 1,366 1,711 508 (562) 8,389
LGC
and
LGR1 LGIM Insurance1 Savings1 LGA other2,3 Total
For the year ended 31 December 2015 £m £m £m £m £m £m £m
Internal income - 267 495 - 238 (1,000) -
External income3 2,554 5,514 2,111 2,473 754 (704) 12,702
Total income 2,554 5,781 2,606 2,473 992 (1,704) 12,702
1. During 2016, changes have been made to the organisational
structure. The advised sales and India businesses have
transferred to Insurance from Savings, and the IDOL business has
been transferred to LGR from Insurance. Comparatives have been
amended accordingly. The impact of this reclassification has
been to increase LGR H1 15 external income by £10m (FY 15:
increase by £26m), reduce Savings H1 15 external income by £3m
(FY 15: reduce by £5m) and reduce Insurance H1 15 external
income by £7m (FY 15: reduce by £21m).
2. LGC and other includes LGC, inter-segmental eliminations and
group consolidation adjustments.
3. LGC and other internal revenue includes inter-segmental
eliminations previously classified as LGA (H1 15: £195m; FY 15:
£441m). In addition, external revenue has been reclassified to
exclude an internal transaction between LGC and other and LGA.
Total revenue includes investment return of £36,978m (H1 15:
£5,062m; FY 15: £5,947m).
IFRS and Operational Cash Generation
Page 41
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
30.06.16 30.06.16 30.06.16 30.06.16 30.06.15 30.06.15 30.06.15 30.06.15
£m p £m p £m p £m p
Operating profit after tax 616 10.39 616 10.39 588 9.94 588 9.94
Investment and other variances 52 0.88 48 0.81 (49) (0.83) (9) (0.15)
Earnings per share based on profit
attributable to equity holders 668 11.27 664 11.20 539 9.11 579 9.79
Adjusted Adjusted
Profit Earnings profit earnings
after tax per share1 after tax per share1,2
Full year Full year Full year Full year
31.12.15 31.12.15 31.12.15 31.12.15
£m p £m p
Operating profit after tax 1,142 19.29 1,142 19.29
Investment and other variances (67) (1.13) (42) (0.71)
Earnings per share based on profit
attributable to equity holders 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 excluding the net gain, £4m, resulting from the disposal of subsidiaries (H1 15: excluding the £40m
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