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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Legal & General Group Plc | LSE:LGEN | London | Ordinary Share | GB0005603997 | ORD 2 1/2P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| -1.20 | -0.49% | 243.80 | 243.70 | 243.90 | 244.20 | 241.80 | 243.50 | 4,151,857 | 13:22:45 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Ins Agents,brokers & Service | 36.48B | 457M | 0.0764 | 31.90 | 14.57B |
From Apr 2019 to Apr 2024
TIDMLGEN
RNS Number : 2643X
Legal & General Group Plc
09 August 2018
Legal & General Half-year Report 2018 Part 2
Page 27
INDEPENT REVIEW REPORT TO LEGAL & GENERAL GROUP PLC
Conclusion
We have been engaged by Legal & General Group plc ("the Group") to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2018 which comprises the Consolidated Balance Sheet, the Consolidated Income Statement and Consolidated Statement of Comprehensive Income, the Consolidated Cash Flow Statement, the Condensed Consolidated Statement of Changes in Equity (pages 41 to 46), and the related explanatory notes to the interim financial statements (pages 29 to 40 and 47 to 66).
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2018 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted by the EU and the Disclosure Guidance and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA").
Scope of review
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 UK. 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. We read the other information contained in the half-yearly financial report and consider whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
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.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA.
The annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards as adopted by the EU. The directors are responsible for preparing the condensed set of financial statements included in the half-yearly financial report in accordance with IAS 34 as adopted by the EU.
Our responsibility
Our responsibility is to express to the Group a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
The purpose of our review work and to whom we owe our responsibilities
This report is made solely to the Group in accordance with the terms of our engagement to assist the Group in meeting the requirements of the DTR of the UK FCA. Our review has been undertaken so that we might state to the Group those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Group for our review work, for this report, or for the conclusions we have reached.
Rees Aronson
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
London
E14 5GL
8 August 2018
Page 28
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IFRS Disclosures on Performance and Release from Operations Page 29
2.01 Operating profit
For the six month period to 30 June 2018
Hot Features
Premium
6 months 6 months Full year
2018 2017 2017
Notes GBPm GBPm GBPm
From continuing operations
Legal & General Retirement (LGR) 2.03 480 566 1,247
--------- -------- ---------
- LGR Institutional (LGRI) 361 402 906
- LGR Retail (LGRR) 119 164 341
--------- -------- ---------
Legal & General Investment Management
(LGIM) 2.04 203 194 400
Legal & General Capital (LGC) 2.06 172 142 272
Legal & General Insurance (LGI) 2.03 154 147 303
--------- -------- ---------
- UK and Other 136 90 209
- US (LGIA) 18 57 94
--------- -------- ---------
General Insurance 2.05 (6) 15 37
Operating profit from divisions:
From continuing operations 1,003 1,064 2,259
From discontinued operations(1) 56 56 107
Operating profit from divisions 1,059 1,120 2,366
Group debt costs(2) (97) (92) (191)
Group investment projects and
central expenses 2.07 (53) (40) (120)
Operating profit 909 988 2,055
Investment and other variances 2.08 32 169 24
Gains on non-controlling interests 1 6 11
Profit before tax attributable
to equity holders 942 1,163 2,090
Tax expense attributable to equity
holders 4.06 (170) (211) (188)
Profit for the period 772 952 1,902
Profit attributable to equity
holders 771 946 1,891
Earnings per share:
Basic (pence per share)(3) 2.09 13.00p 15.94p 31.87p
Diluted (pence per share)(3) 2.09 12.94p 15.88p 31.73p
1. Discontinued operating profit from divisions primarily reflects
the operating profit of the Savings division following the announcement
in December 2017 to sell the Mature Savings business to Swiss Re.
For these operating profit disclosures, discontinued operations
in 2017 also includes the results of Legal & General Netherlands
(LGN) which was sold during 2017 and was a component of the LGI
(UK and Other) division. During 2017, LGN was not classified as
discontinued and hence the Profit before tax attributable to equity
holders in the Consolidated Income Statement (H1 2017: GBP1,118m;
FY 2017: GBP1,991m) excludes the profit before tax associated with
discontinued operations of LGN (H1 2017: GBP45m; FY 2017: GBP99m).
2. Group debt costs exclude interest on non recourse financing.
3. All earnings per share calculations are based on profit attributable
to equity holders of the company.
This supplementary operating profit information (one of the group's key performance indicators) provides further analysis of the results reported under IFRS and the group believes it provides shareholders with a better understanding of the underlying performance of the business in the period.
-- For LGR, worldwide pension risk transfer business (including longevity insurance) is within LGRI, and individual retirement and lifetime mortgages is within LGRR.
-- LGIM represents institutional and retail investment management and workplace savings businesses.
-- LGC represents shareholder assets invested in direct investments, and traded and treasury assets.
-- LGI represents business in retail and group protection written in the UK, networks, and protection business written in the US (LGIA).
-- General Insurance comprises short-term household and other personal insurance.
-- Discontinued operations represent businesses that have either been sold or announced to sell subject to formal transfer, namely Mature Savings (including with-profits). In 2017 the discontinued operations include Mature Savings (sale announced in December 2017) and Legal & General Netherlands (LGN) (sold in April 2017). LGN was not classified as discontinued in previously reported results for the half year ended 30 June 2017.
Operating profit measures the pre-tax result excluding the impact of investment volatility, economic assumption changes and exceptional items. Operating profit therefore reflects longer-term economic assumptions for the group's insurance businesses and shareholder funds, except for LGC's trading businesses (which reflects the IFRS profit before tax) and LGA non-term business (which excludes unrealised investment returns to align with the liability measurement under US GAAP). Variances between actual and smoothed investment return assumptions are reported below operating profit. Exceptional income and expenses which arise outside the normal course of business in the period, such as merger and acquisition, and start-up costs, are also excluded from operating profit.
IFRS Disclosures on Performance and Release from Operations Page 30
2.02 Reconciliation of release from operations to operating profit before tax
Changes Operating
New Net in Operating profit/
Release business release Exper- valuation Non-cash Inter- profit/ Tax (loss)
from surplus/ from ience assump- items national (loss) expense/ before
and
For the six operations(1) (strain) operations variances tions other and after (credit) tax
month other(2) tax
period
to 30 June GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
2018
LGR 275 23 298 51 57 (6) - 400 80 480
------------- -------- ---------- --------- --------- -------- -------- --------- -------- ---------
- LGRI 192 12 204 50 54 (7) - 301 60 361
- LGRR 83 11 94 1 3 1 - 99 20 119
------------- -------- ---------- --------- --------- -------- -------- --------- -------- ---------
LGIM 177 (13) 164 (1) - (1) - 162 41 203
------------- -------- ---------- --------- --------- -------- -------- --------- -------- ---------
- LGIM
(excluding
Workplace
Savings) 161 - 161 - - - - 161 40 201
- Workplace
Savings(3) 16 (13) 3 (1) - (1) - 1 1 2
------------- -------- ---------- --------- --------- -------- -------- --------- -------- ---------
LGC 138 - 138 - - - - 138 34 172
LGI 165 (8) 157 31 8 (9) (76) 111 43 154
------------- -------- ---------- --------- --------- -------- -------- --------- -------- ---------
- UK and
Other 88 (8) 80 31 8 (9) 1 111 25 136
- US (LGIA) 77 - 77 - - - (77) - 18 18
------------- -------- ---------- --------- --------- -------- -------- --------- -------- ---------
General
Insurance (5) - (5) - - - - (5) (1) (6)
From
continuing
operations 750 2 752 81 65 (16) (76) 806 197 1,003
From
discontinued
operations(4) 22 - 22 (3) - 26 - 45 11 56
Total from
divisions 772 2 774 78 65 10 (76) 851 208 1,059
Group debt
costs (79) - (79) - - - - (79) (18) (97)
Group
investment
projects and
expenses (15) - (15) - - - (25) (40) (13) (53)
Total 678 2 680 78 65 10 (101) 732 177 909
1. Release from operations includes dividends from the US of GBP77m
within the US (LGIA) line.
2. International and other includes GBP9m of restructuring costs (GBP11m
before tax) within the group investment projects and expenses line.
3. Workplace Savings represents administration business only. Profits
on fund management services are included within LGIM (excluding Workplace
Savings).
4. Discontinued operations primarily reflects the result of the Savings
division following the announcement in December 2017 to sell the Mature
Savings business to Swiss Re.
Release from operations for LGR, LGIM and LGI represents the expected
IFRS surplus generated in the year from the in-force non profit annuities,
workplace savings and protection businesses using best estimate assumptions.
The LGIM release from operations also includes operating profit after
tax from the institutional and retail investment management businesses.
The LGI release from operations also includes dividends remitted from
LGIA and operating profit after tax from the remaining LGI businesses.
The release from operations within discontinued operations primarily
reflects the unwind of expected profits after tax under the risk transfer
agreement with ReAssure from the Mature Savings business.
New business surplus/strain for LGR, LGIM and LGI represents the cost
of acquiring new business and setting up prudent reserves in respect
of the new business for UK non profit annuities, workplace savings
and protection, net of tax. The new business surplus and release from
operations for LGR, LGIM and LGI excludes any capital held in excess
of the prudent reserves from the liability calculation.
Net release from operations for LGR, LGIM, LGI and discontinued operations
is defined as release from operations plus/(less) new business surplus/(strain).
Release from operations and net release from operations for LGC and
General Insurance represents the operating profit (net of tax).
See Note 2.03 for more detail on experience variances, changes to valuation
assumptions and non-cash items.
IFRS Disclosures on Performance and Release from Operations Page 31
2.02 Reconciliation of release from operations to operating profit before tax (continued)
Changes Operating
New Net in Operating profit/
Release business release Exper- valuation Non-cash Inter- profit/ Tax (loss)
from surplus/ from ience assump- items national (loss) expense/ before
and
For the six operations(1) (strain) operations variances tions other and after (credit) tax
month other(2) tax
period
to 30 June GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
2017
LGR 256 51 307 59 104 (3) - 467 99 566
------------- -------- ---------- --------- --------- -------- -------- --------- -------- ---------
- LGRI 174 40 214 62 57 (4) - 329 73 402
- LGRR 82 11 93 (3) 47 1 - 138 26 164
------------- -------- ---------- --------- --------- -------- -------- --------- -------- ---------
LGIM 165 (11) 154 - (2) 1 - 153 41 194
------------- -------- ---------- --------- --------- -------- -------- --------- -------- ---------
- LGIM
(excluding
Workplace
Savings) 153 - 153 - - - - 153 41 194
- Workplace
Savings(3) 12 (11) 1 - (2) 1 - - - -
------------- -------- ---------- --------- --------- -------- -------- --------- -------- ---------
LGC 119 - 119 - - - - 119 23 142
LGI 166 3 169 (28) 23 (13) (46) 105 42 147
------------- -------- ---------- --------- --------- -------- -------- --------- -------- ---------
- UK and
Other 86 3 89 (28) 23 (13) 1 72 18 90
- US (LGIA) 80 - 80 - - - (47) 33 24 57
------------- -------- ---------- --------- --------- -------- -------- --------- -------- ---------
General
Insurance 12 - 12 - - - - 12 3 15
From
continuing
operations 718 43 761 31 125 (15) (46) 856 208 1,064
From
discontinued
operations(4) 53 (2) 51 - 2 (11) 3 45 11 56
Total from
divisions 771 41 812 31 127 (26) (43) 901 219 1,120 Group debt costs (74) - (74) - - - - (74) (18) (92) Group investment projects and expenses (14) - (14) - - - (18) (32) (8) (40) Total 683 41 724 31 127 (26) (61) 795 193 988 1. Release from operations includes US dividends of GBP80m within the US (LGIA) line. 2. International and other includes GBP10m of restructuring costs (GBP12m before tax) within the Group investment projects and expenses line. 3. Workplace Savings represents administration business only. Profits on fund management services are included within LGIM (excluding Workplace Savings). 4. Discontinued operations primarily reflects the result of the Savings division following the announcement in December 2017 to sell the Mature Savings business to Swiss Re. For this reconciliation, discontinued operations also include the results of Legal & General Netherlands. This business was sold during 2017 and was previously reflected in the LGI (UK and Other) divisional results.
IFRS Disclosures on Performance and Release from Operations Page 32
2.02 Reconciliation of release from operations to operating profit before tax (continued)
Changes Operating
New Net in Operating profit/
Release business release Exper- valuation Non-cash Inter- profit/ Tax (loss)
from surplus/ from ience assump- items national (loss) expense/ before
and
For the year operations(1) (strain) operations variances tions other and after (credit) tax
ended other(2) tax
31 December GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
2017
LGR 508 180 688 72 274 3 - 1,037 210 1,247
------------- -------- ---------- --------- --------- -------- -------- --------- -------- ---------
- LGRI 347 152 499 66 190 1 - 756 150 906
- LGRR 161 28 189 6 84 2 - 281 60 341
------------- -------- ---------- --------- --------- -------- -------- --------- -------- ---------
LGIM 342 (21) 321 (4) (1) 2 - 318 82 400
------------- -------- ---------- --------- --------- -------- -------- --------- -------- ---------
- LGIM
(excluding
Workplace
Savings) 318 - 318 - - - - 318 82 400
- Workplace
Savings
(3) 24 (21) 3 (4) (1) 2 - - - -
------------- -------- ---------- --------- --------- -------- -------- --------- -------- ---------
LGC 224 - 224 - - - - 224 48 272
LGI 273 2 275 (50) 48 (25) (26) 222 81 303
------------- -------- ---------- --------- --------- -------- -------- --------- -------- ---------
- UK and
Other 193 2 195 (50) 48 (25) 1 169 40 209
- US (LGIA) 80 - 80 - - - (27) 53 41 94
------------- -------- ---------- --------- --------- -------- -------- --------- -------- ---------
General
Insurance 30 - 30 - - - - 30 7 37
From
continuing
operations 1,377 161 1,538 18 321 (20) (26) 1,831 428 2,259
From
discontinued
operations(4) 107 (5) 102 (1) 3 (21) 3 86 21 107
Total from
divisions 1,484 156 1,640 17 324 (41) (23) 1,917 449 2,366
Group debt
costs (154) - (154) - - - - (154) (37) (191)
Group
investment
projects
and expenses (32) - (32) - - - (64) (96) (24) (120)
Total 1,298 156 1,454 17 324 (41) (87) 1,667 388 2,055
1. Release from operations includes dividends from the US of GBP80m
within the US (LGIA) line.
2. International and other includes GBP48m of restructuring costs (GBP59m
before tax) within the group investment projects and expenses line.
3. Workplace Savings represents administration business only. Profits
on fund management services are included within LGIM (excluding Workplace
Savings).
4. Discontinued operations primarily reflects the result of the Savings
division following the announcement in December 2017 to sell the Mature
Savings business to Swiss Re. For this reconciliation, discontinued
operations also include the results of Legal & General Netherlands.
This business was sold during 2017 and was previously reflected in the
LGI (UK and Other) divisional results.
IFRS Disclosures on Performance and Release from Operations Page 33
2.03 Analysis of LGR and LGI operating profit
For the six month period to 30 June 2018
LGR LGI LGR LGI LGR LGI
6 months 6 months 6 months 6 months Full year Full year
2018 2018 2017 2017 2017 2017
GBPm GBPm GBPm GBPm GBPm GBPm
Net release from operations 298 157 307 169 688 275
Experience variances
Persistency 3 (9) - (13) 9 (18)
Mortality/morbidity 9 (12) 3 (16) 30 (26)
Expenses (6) 3 (6) 2 (21) 3
Project and development
costs (3) - (2) (1) (15) (3)
Other(1,2) 48 49 64 - 69 (6)
Total experience variances 51 31 59 (28) 72 (50)
Changes to valuation
assumptions
Persistency - - - - - (11)
Mortality/morbidity(3) 57 10 104 25 303 51
Expenses - - - - (20) 9
Other - (2) - (2) (9) (1)
Total changes in valuation
assumptions 57 8 104 23 274 48
Movement in non-cash items
Acquisition expense
tax relief - (5) - (9) - (18)
Other (6) (4) (3) (4) 3 (7)
Total movement in non-cash
items (6) (9) (3) (13) 3 (25)
International and other - (76) - (46) - (26)
Operating profit after
tax 400 111 467 105 1,037 222
Tax gross up 80 43 99 42 210 81
Operating profit before
tax 480 154 566 147 1,247 303
1. Other experience variances for LGR in the period to 30 June 2018
include the impact of an improvement in the quality of scheme data
relating to bulk annuities.
2. Other experience variances for LGI in the period to 30 June 2018
reflect a number of modelling refinements for lapsing policies and
interest rate application across product groups.
3. Mortality assumption changes for LGR in the period to 30 June 2018
include the one off release of certain scheme specific mortality reserves
below a de minimis limit, as well as the benefit arising from an update
to the Irish and Dutch long term assumptions for base mortality and
future improvements.
IFRS Disclosures on Performance and Release from Operations Page 34
2.04 LGIM operating profit
6 months 6 months Full year
2018 2017 2017
GBPm GBPm GBPm
Asset management revenue (excluding 3rd party
market data)(1) 396 382 780
Asset management transactional revenue(2) 16 12 25
Asset management expenses (excluding 3rd party
market data)(1) (210) (200) (405)
ETF operating loss(3) (1) - -
Workplace Savings operating profit(4) 2 - -
Total LGIM operating profit 203 194 400
1. Asset management revenue and expenses excludes income and costs of
GBP8m in relation to provision of third party market data (H1 17: GBP8m
each; FY 17: GBP17m each).
2. Transactional revenue includes execution fees, asset transition income,
trigger fees, arrangement fees on property transactions and performance
fees for property funds.
3. ETF represents the results of the Canvas ETF business, the acquisition
of which completed in March 2018.
4. Workplace Savings represents administration
business only.
2.05 General Insurance operating profit and combined operating ratio
6 months 6 months Full year
2018 2017 2017
GBPm GBPm GBPm
General Insurance operating (loss)/profit(1) (6) 15 37
General Insurance combined operating ratio
(2) 107% 95% 93%
1. Includes the General Insurance underwriting result and smoothed investment
return.
2. The calculation of the General Insurance combined operating ratio
incorporates claims, commission and expenses as a percentage of net
earned premiums.
2.06 LGC operating profit
6 months 6 months Full year
2018 2017 2017
GBPm GBPm GBPm
Direct Investments(1) 104 69 124
Traded investment portfolio including treasury
assets(2) 68 73 148
Total LGC operating profit 172 142 272
1. Direct Investments represents LGC's portfolio of assets across infrastructure,
housing (including CALA Homes) and SME finance.
2. The traded book holds a diversified set of exposures across equities,
fixed income, multi-asset funds and cash.
2.07 Group investment projects and central expenses
6 months 6 months Full year
2018 2017 2017
GBPm GBPm GBPm
Group investment projects and central expenses 42 28 61
Restructuring and other costs 11 12 59
Total group investment projects and expenses 53 40 120
IFRS Disclosures on Performance and Release from Operations Page 35
2.08 Investment and other variances
6 months 6 months Full year
2018 2017 2017
GBPm GBPm GBPm
Investment variance(1) 54 198 129
M&A related and other variances(2) (22) (29) (105)
Total investment and other
variances 32 169 24
1. Includes a positive variance in respect of the defined benefit pension
scheme of GBP94m (H1 17: GBP111m; FY 17: GBP94m) reflecting a one-off
payment by the with profits fund, (which forms part of the Mature Savings
business sold to Swiss Re) as well as the impact of the acquisition
of annuity assets from LGR and the beneficial rate difference between
the IAS19 and annuity discount rates, as well as , to the shareholder
fund in exchange for the removal of all future obligations in respect
of the group's pension schemes.
2. Includes gains and losses, expenses and intangible amortisation relating
to acquisitions and disposals. H1 18 includes the recognition of a one-off
profit of GBP20m arising on the stepped acquisition of CALA Homes (see
note 4.02).
IFRS Disclosures on Performance and Release from Operations Page 36
2.09 Earnings per share
(a) Basic earnings per share
For the six month period to 30 June 2018
After Per share(1) After Per share(1) After Per share(1)
tax tax tax
6 months 6 months 6 months 6 months Full year Full year
2018 2018 2017 2017 2017 2017
GBPm p GBPm p GBPm p
Operating profit 732 12.34 795 13.40 1,667 28.10
Investment and other
variances 39 0.66 151 2.54 224 3.77
Total earnings based on profit
attributable to equity holders 771 13.00 946 15.94 1,891 31.87
Less: earnings derived from discontinued
operations (44) (0.75) (36) (0.61) (80) (1.35)
----------------------------------------- -------- ------------ -------- ------------ --------- ------------
Earnings derived from continuing
operations 727 12.25 910 15.33 1,811 30.52
---------------------------------------- -------- ------------ -------- ------------ --------- ------------
1. Earnings per share is calculated by dividing profit after tax by
the weighted average number of ordinary shares in issue during the period,
excluding employee scheme treasury shares.
(b) Diluted earnings per share
For the six month period to 30 June 2018
After tax Weighted Per share(1)
average
number
of shares
GBPm m p
Profit attributable to equity holders 771 5,933 13.00
Net shares under options allocable for
no further consideration - 25 (0.06)
Total diluted earnings 771 5,958 12.94
Less: diluted earnings derived from discontinued
operations (44) - (0.74)
----------------------------------------------------- --------- ---------- ------------
Diluted earnings derived from continuing
operations 727 5,958 12.20
----------------------------------------------------- --------- ---------- ------------
After tax Weighted Per share(1)
average
number
of shares
For the six month period GBPm m p
to 30 June 2017
Profit attributable to equity holders 946 5,933 15.94
Net shares under options allocable for no further
consideration - 25 (0.06)
Total diluted earnings 946 5,958 15.88
Less: diluted earnings derived from discontinued
operations (36) - (0.61)
----------------------------------------------------- --------- ---------- ------------
Diluted earnings derived from continuing
operations 910 5,958 15.27
----------------------------------------------------- --------- ---------- ------------
After tax Weighted Per share(1)
average
number
of shares
For the year ended GBPm m p
31 December 2017
Profit attributable to equity holders 1,891 5,933 31.87 Net shares under options allocable for no further consideration - 27 (0.14) Total diluted earnings 1,891 5,960 31.73 Less: diluted earnings derived from discontinued operations (80) - (1.35) ----------------------------------------------------- --------- ---------- ------------ Diluted earnings derived from continuing operations 1,811 5,960 30.38 ----------------------------------------------------- --------- ---------- ------------ 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.
IFRS Disclosures on Performance and Release from Operations Page 37
2.10 Segmental analysis
Reportable segments
The group has five reportable segments that are continuing operations, comprising LGR, LGIM, LGC, LGI and General Insurance, as set out in the Operating profit section.
Central group expenses and debt costs are reported separately.
Transactions between reportable segments are on normal commercial terms, and are included within the reported segments.
Reporting of assets and liabilities by reportable segment has not been included as this is not information that is provided to key decision makers on a regular basis. The group's assets and liabilities are managed on a legal entity rather than reportable segment basis, in line with regulatory requirements.
Analysis of segmental information for continuing operations
(a) Total income
Total
General LGC and continuing
LGR LGIM(1,2) LGI Insurance other(3) operations(4)
For the six month period to GBPm GBPm GBPm GBPm GBPm GBPm
30 June 2018
Internal income - 81 - - (81) -
External income (101) 1,324 1,073 183 11 2,490
Total income (101) 1,405 1,073 183 (70) 2,490
Total
General LGC and continuing
LGR LGIM(1,2) LGI(5) Insurance other(3,5) operations(4)
For the six month period to GBPm GBPm GBPm GBPm GBPm GBPm
30 June 2017
Internal income - 78 - - (78) -
External income 2,810 12,988 1,075 167 442 17,482
Total income 2,810 13,066 1,075 167 364 17,482
Total
General LGC and continuing
LGR LGIM(1,2) LGI(5) Insurance other(3,5) operations(4)
For the year ended 31 December GBPm GBPm GBPm GBPm GBPm GBPm
2017
Internal income - 158 - - (158) -
External income 6,862 28,779 2,027 342 2,382 40,392
Total income 6,862 28,937 2,027 342 2,224 40,392
1. LGIM internal income relates to investment management services
provided to other segments.
2. LGIM external income includes fees from fund management
and investment return.
3. LGC and other includes LGC income, intra-segmental eliminations
and group consolidation adjustments.
4. Continuing operations exclude the results of the Mature Savings
division which has been classified as discontinued following the
announcement in December 2017 to sell the Mature Savings business
to Swiss Re. For the six month period to 30 June 2017 and the year
ended 31 December 2017, continuing operations also excludes income
relating to Legal & General Netherlands, which was sold during
2017 and was previously reflected in the LGI divisional results.
5. Following a review of the segmentation of income between certain
business divisions we have reallocated GBP179m for the period ended
30 June 2017, and GBP518m for the year ended 31 December 2017,
from LGI to LGC and other, as this better reflects the nature of
that income.
IFRS Disclosures on Performance and Release from Operations Page 38
2.10 Segmental analysis (continued)
(b) Fees from fund management and investment contracts
Total
continuing
LGIM LGI LGC and operations(2)
other(1)
For the six month period to 30 June 2018 GBPm GBPm GBPm GBPm
Investment contracts 38 1 - 39
Investment management fees 393 - (53) 340
Transaction fees 16 - (1) 15
Total fees from fund management and investment
contracts(3) 447 1 (54) 394
Total
continuing
LGIM LGI(2) LGC and operations(2)
other(1)
For the six month period to 30 June 2017 GBPm GBPm GBPm GBPm
Investment contracts 38 1 - 39
Investment management fees 375 - (51) 324
Transaction fees 12 - 1 13
Total fees from fund management and investment
contracts(3) 425 1 (50) 376
Total
continuing
LGIM LGI(2) LGC and operations(2)
other(1)
For the year ended 31 December 2017 GBPm GBPm GBPm GBPm
Investment contracts 77 1 - 78
Investment management fees 768 1 (101) 668
Transaction fees 25 - - 25
Total fees from fund management and investment
contracts(3) 870 2 (101) 771
1. LGC and other includes LGC income, intra-segmental eliminations
and group consolidation adjustments.
2. Continuing operations exclude the results of the Mature Savings
division which has been classified as discontinued following the
announcement in December 2017 to sell the Mature Savings business
to Swiss Re. For the six month period to 30 June 2017 and the year
ended 31 December 2017, continuing operations also excludes income
relating to Legal & General Netherlands, which was sold during
2017 and was previously reflected in the LGI divisional results.
3. Fees from fund management and investment contracts are a component
of Total income disclosed in Note 2.10 (a).
IFRS Disclosures on Performance and Release from Operations Page 39
2.10 Segmental analysis (continued)
(c) Other operational income from contracts with customers
Total
continuing
LGR LGIM LGI LGC and operations(2)
other(1)
For the six month period to 30 June GBPm GBPm GBPm GBPm GBPm
2018
House building - - - 501 501
Professional services fees - 1 77 (2) 76
Insurance broker - - 11 - 11
Total other operational income from
contracts with
customers - 1 88 499 588
Other income(3) 2 - (1) 27 28
Total other operational
income(4) 2 1 87 526 616
Total
continuing
LGR LGIM LGI LGC and operations(2,4)
other(1)
For the six month period to 30 June GBPm GBPm GBPm GBPm GBPm
2017
House building - - - - -
Professional services fees 1 1 91 (19) 74
Insurance broker - - 9 - 9
Total other operational income from
contracts with
customers 1 1 100 (19) 83
Other income(3) 1 - 2 41 44
Total other operational
income(4) 2 1 102 22 127
Total
continuing
LGR LGIM LGI LGC and operations(2,4)
other(1)
For the year ended 31 December 2017 GBPm GBPm GBPm GBPm GBPm
House building - - - 5 5
Professional services fees 1 2 168 (19) 152
Insurance broker - - 24 - 24
Total other operational income from
contracts with
customers 1 2 192 (14) 181
Other income(3) 3 - 2 12 17
Total other operational
income(4) 4 2 194 (2) 198
1. LGC and other includes LGC income, intra-segmental eliminations
and group consolidation adjustments. H1 18 reflects the consolidation
of the results of CALA Homes.
2. Continuing operations exclude the results of the Mature Savings
division which has been classified as discontinued following the
announcement in December 2017 to sell the Mature Savings business
to Swiss Re. For the six month period to 30 June 2017 and the year
ended 31 December 2017, continuing operations also excludes income
relating to Legal & General Netherlands, which was sold during
2017 and was previously reflected in the LGI divisional results.
3. Other income includes the net impact of GBP3m of share of profit
from associates (H1 17: GBP25m; FY 17:GBP39m) and intra-segmental
eliminations and group consolidation adjustments. Other income
in H1 18 also includes a one-off profit of GBP20m on the stepped
acquisition of CALA Homes (details are provided in Note 4.02).
4. Total other operational income is a component of Total income
disclosed in Note 2.10 (a).
IFRS Disclosures on Performance and Release from Operations Page 40
2.10 Segmental analysis (continued)
(d) Profit/(loss) for the period
Group
expenses Total
General and debt Continuing
For the six month period LGR LGIM LGC LGI Insurance costs operations(1)
to
30 June 2018 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Operating profit/(loss) 480 203 172 154 (6) (150) 853
Investment and other
variances 85 (4) (90) (37) (8) 86 32
Gains attributable to
non-controlling interests - - - - - 1 1
Profit/(loss) before
tax attributable to
equity holders 565 199 82 117 (14) (63) 886
Tax (expense)/credit
attributable to equity
holders (102) (39) (14) (35) 3 29 (158)
Profit/(loss) for the
period 463 160 68 82 (11) (34) 728
Group
expenses Total
General and debt Continuing
For the six month period LGR LGIM LGC LGI Insurance costs operations(1)
to
30 June 2017 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Operating profit/(loss) 566 194 142 147 15 (132) 932
Investment and other
variances 38 (4) 52 (3) 6 77 166
Gains attributable to
non-controlling interests - - - - - 6 6
Profit/(loss) before
tax attributable to
equity holders 604 190 194 144 21 (49) 1,104
Tax (expense)/credit
attributable to equity
holders (108) (40) (25) (41) (4) 16 (202)
Profit/(loss) for the
period 496 150 169 103 17 (33) 902
Group
expenses Total
General and debt Continuing
For the year ended LGR LGIM LGC LGI(2) Insurance costs operations(1)
31 December 2017 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Operating profit/(loss) 1,247 400 272 303 37 (311) 1,948
Investment and other
variances 4 (9) 91 (60) 6 (14) 18
Gains attributable to
non-controlling interests - - - - - 11 11
Profit/(loss) before
tax attributable to
equity holders 1,251 391 363 243 43 (314) 1,977
Tax (expense)/credit
attributable to equity
holders (225) (84) (77) 182 (8) 43 (169)
Profit/(loss) for the
year 1,026 307 286 425 35 (271) 1,808
1. Continuing operations exclude the results of the Mature Savings
division which has been classified as discontinued following
the announcement in December 2017 to sell the Mature Savings
business to Swiss Re. For the six month period to 30 June 2017
and the year ended 31 December 2017, continuing operations also
exclude profits relating to Legal & General Netherlands, which
was sold during 2017 and was previously reflected in the LGI
divisional results.
2. The LGI tax credit of GBP182m in 2017 primarily reflects the
impact of a one-off US tax benefit of GBP246m arising from the
revaluation of net deferred tax liabilities as a result of the
reduction in the US corporate income tax rate in 2017.
IFRS Primary Financial Statements Page 41
3.01 Consolidated Income Statement
For the six month period to 30 June 2018
6 months 6 months Full year
2018 2017 2017
Notes GBPm GBPm GBPm
Income
Gross written premiums 2,756 3,684 7,932
Less: Outward reinsurance premiums (862) (864) (1,858)
Less: Net change in provision for
unearned premiums (9) (11) (23)
Net premiums earned 1,885 2,809 6,051
Fees from fund management and investment
contracts 394 376 771
Investment return (405) 14,028 33,457
Other operational income 616 141 212
Total income 2.10 2,490 17,354 40,491
Expenses
Claims and change in insurance liabilities 966 3,327 8,326
Less: Reinsurance recoveries (1,128) (492) (1,776)
Net claims and change in insurance
liabilities (162) 2,835 6,550
Change in provisions for investment
contract liabilities 292 12,489 29,848
Acquisition costs 428 353 734
Finance costs 113 103 212
Other expenses 873 380 1,086
Total expenses 1,544 16,160 38,430
Profit before tax 946 1,194 2,061
Tax expense attributable to policyholders'
returns (60) (76) (70)
Profit before tax attributable to
equity holders 886 1,118 1,991
Total tax expense (218) (278) (239)
Tax expense attributable to policyholders'
returns 60 76 70
Tax expense attributable to equity
holders 4.06 (158) (202) (169)
Profit after tax from continuing
operations 2.10 728 916 1,822
Profit after tax from discontinued
operations(1) 44 36 80 Profit for the period 772 952 1,902 ------------------------------------------- ----- -------- -------- --------- Attributable to: Non-controlling interests 1 6 11 Equity holders 771 946 1,891 Dividend distributions to equity holders during the period 4.04 658 616 872 Dividend distributions to equity holders proposed after the period end 4.04 274 256 658 Earnings per share: Basic (pence per share)(2) 2.09 13.00p 15.94p 31.87p Diluted (pence per share)(2) 2.09 12.94p 15.88p 31.73p ------------------------------------------- ----- -------- -------- --------- Basic earnings per share derived from continuing operations(2) 2.09 12.25p 15.33p 30.52p Diluted earnings per share derived from continuing operations(2) 2.09 12.20p 15.27p 30.38p ------------------------------------------- ----- -------- -------- --------- 1. Discontinued operations primarily reflects the results of the Savings division following the group's announcement in December 2017 to sell the Mature Savings business to Swiss Re. 2. All earnings per share calculations are based on profit attributable to equity holders of the company.
IFRS Primary Financial Statements Page 42
3.02 Consolidated Statement of Comprehensive Income
For the six month period to 30 June 2018
6 months 6 months Full year
2018 2017 2017
GBPm GBPm GBPm
Profit for the period 772 952 1,902
Items that will not be reclassified subsequently
to profit or loss
Actuarial gains/(losses) on defined benefit
pension schemes 143 (56) (55)
Tax on actuarial gains/(losses) on defined
benefit pension schemes (26) 10 10
Total items that will not be reclassified
subsequently to profit or loss 117 (46) (45)
Items that may be reclassified subsequently
to profit or loss
Exchange differences on translation of overseas
operations 13 (44) (99)
Movement in cross-currency hedge 9 20 (12)
Tax on movement in cross-currency hedge (2) - 2
Net change in financial investments designated
as available-for-sale (41) 28 27
Tax on net change in financial investments
designated as available-for-sale 9 (10) (4)
Total items that may be reclassified subsequently
to profit or loss (12) (6) (86)
Other comprehensive income/(expense) after
tax 105 (52) (131)
Total comprehensive income for the period 877 900 1,771
Total comprehensive income for the period
attributable to:
Continuing operations 833 864 1,691
Discontinued operations 44 36 80
-------------------------------------------------- -------- -------- ---------
877 900 1,771
Total comprehensive income attributable to:
Non-controlling interests 1 6 11
Equity holders 876 894 1,760
IFRS Primary Financial Statements Page 43
3.03 Consolidated Balance Sheet
As at 30 June 2018
As at As at As at
30 Jun 2018 30 Jun 2017(1,2) 31 Dec 2017(1)
Notes GBPm GBPm GBPm
Assets
Goodwill 65 11 11
Purchased interest in long term businesses
and other intangible assets 194 133 138
Deferred acquisition costs 128 752 331
Investment in associates and joint
ventures 51 305 252
Property, plant and equipment 63 69 59
Investment property 4.05 7,231 8,714 7,110
Financial investments 4.05 428,117 442,063 443,162
Reinsurers' share of contract liabilities 5,734 5,300 5,703
Deferred tax assets 4.06 7 5 7
Current tax assets 388 358 342
Other assets 9,383 5,060 6,083
Assets of operations classified as
held for sale 4.03 21,932 - 22,584
Cash and cash equivalents 20,178 15,805 18,919
Total assets 493,471 478,575 504,701
Equity
Share capital 4.07 149 149 149
Share premium 4.07 990 985 988
Employee scheme treasury shares (52) (40) (40)
Capital redemption and other reserves 158 211 168
Retained earnings 6,456 5,615 6,224
Attributable to owners of the parent 7,701 6,920 7,489
Non-controlling interests 4.08 77 350 76
Total equity 7,778 7,270 7,565
Liabilities
Participating insurance contracts - 5,579 -
Participating investment contracts - 5,180 -
Unallocated divisible surplus - 719 -
Value of in-force non-participating
contracts - (145) -
Participating contract liabilities - 11,333 -
Non-participating insurance contracts 59,713 60,271 61,589
Non-participating investment contracts 302,280 325,059 315,651
Non-participating contract liabilities 361,993 385,330 377,240
Core borrowings 4.09 3,489 3,499 3,459
Operational borrowings 4.10 957 553 538
Provisions 1,153 1,358 1,335
UK deferred tax liabilities 4.06 73 316 13
Overseas deferred tax liabilities 4.06 235 365 244
Current tax liabilities 255 171 223
Payables and other financial liabilities 4.11 59,152 43,709 52,246
Other liabilities 438 509 563
Net asset value attributable to unit
holders 25,434 24,162 27,317
Liabilities of operations classified
as held for sale 4.03 32,514 - 33,958
Total liabilities 485,693 471,305 497,136
Total equity and liabilities 493,471 478,575 504,701
1. Following a change in accounting policy for LGIA term life reserves,
a number of balance sheet items have been restated, notably deferred
acquisition costs, non-participating insurance contracts and deferred
tax liabilities. The overall net impact on the group's retained
earnings as at 30 June 2017 and 31 December 2017 is a reduction
of GBP245m and GBP354m respectively. Further detail on the change
in accounting policy is provided in Note 4.01.
2. As at 30 June 2017, GBP6,202m of reverse repurchase agreements
were classified in Other assets. On review, we have determined
that these instruments meet the definition of a financial asset
and therefore should have been included within Financial Investments.
Accordingly, balances as at 30 June 2017 have been restated resulting
in a decrease in Other assets of GBP6,202m and an increase in Financial
investments of GBP6,202m. The instruments have been classified
as Loans at fair value and assessed as fair value Level 2. The restatement has nil impact on the valuation of the instruments, and a net nil impact on Total assets in the Consolidated Balance Sheet.
IFRS Primary Financial Statements Page 44
3.04 Condensed Consolidated Statement of Changes in Equity
Employee Capital Equity
scheme redemption attributable Non-
Share Share treasury and other Retained to owners controlling Total
For the six month period of the
to 30 June 2018 capital premium shares reserves(1) earnings parent interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
As at 1 January 2018 149 988 (40) 168 6,224 7,489 76 7,565
Total comprehensive
(expense)/income for
the period - - - (12) 888 876 1 877
Options exercised under
share option schemes - 2 (12) (22) - (32) - (32)
Net movement in employee
scheme treasury shares - - - 23 3 26 - 26
Dividends - - - - (658) (658) - (658)
Movement in third party - - - - - - - -
interests
Currency translation
differences - - - 1 (1) - - -
As at 30 June 2018 149 990 (52) 158 6,456 7,701 77 7,778
1. Capital redemption and other reserves include share-based payments
GBP70m, foreign exchange GBP83m, capital redemption GBP17m, available-for-sale
reserves GBP(10)m and hedging reserves GBP(2)m.
Employee Capital Equity
scheme redemption attributable Non-
Share Share treasury and other Retained to owners controlling Total
For the six month period of the
to 30 June 2017 capital premium shares reserves(1) earnings parent interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
As at 1 January 2017 149 981 (30) 212 5,633 6,945 338 7,283
Total comprehensive
(expsenses)/income for
the period - - - (6) 900 894 6 900
Options exercised under
share option schemes - 4 - - - 4 - 4
Net movement in employee
scheme treasury shares - - (10) (3) 1 (12) - (12)
Dividends - - - - (616) (616) - (616)
Movement in third party
interests - - - - - - 6 6
Currency translation
differences - - - 8 (8) - - -
Changes in accounting
policy(2) - - - - (295) (295) - (295)
Restated as at 30 June
2017 149 985 (40) 211 5,615 6,920 350 7,270
1. Capital redemption and other reserves include share-based payments
GBP57m, foreign exchange GBP99m, capital redemption GBP17m, available-for-sale
reserves GBP17m and hedging reserves GBP21m.
2. Changes in accounting policy represents the cumulative impact
on retained earnings of the change in accounting policy related
to the recognition of US term assurance liabilities, described in
Note 4.01. The change has been applied retrospectively, and this
adjustment represents the effect of that change across half year
2017 and all prior periods. The impact of this change on retained
earnings as at 1 January 2017 was a reduction of GBP277m.
IFRS Primary Financial Statements Page 45
3.04 Condensed Consolidated Statement of Changes in Equity (continued)
Employee Capital Equity
scheme redemption attributable Non-
Share Share treasury and other Retained to owners controlling Total
For the year ended 31 of the
December 2017 capital premium shares reserves(1) earnings parent interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
As at 1 January 2017 149 981 (30) 212 5,633 6,945 338 7,283
Total comprehensive
(expenses)/income for
the year - - - (86) 1,846 1,760 11 1,771
Options exercised under
share option schemes - 7 (10) (19) - (22) - (22)
Net movement in employee
scheme treasury shares - - - 28 4 32 - 32
Dividends - - - - (872) (872) - (872)
Movement in third party
interests - - - - - - (273) (273)
Currency translation
differences - - - 33 (33) - - -
Changes in accounting
policy(2) - - - - (354) (354) - (354)
Restated as at 31 December
2017 149 988 (40) 168 6,224 7,489 76 7,565
1. Capital redemption and other reserves include share-based payments
GBP69m, foreign exchange GBP69m, capital redemption GBP17m, available-for-sale
reserves GBP22m and hedging reserves GBP(9)m.
2. Changes in accounting policy represents the cumulative impact
on retained earnings of the change in accounting policy related
to the recognition of US term assurance liabilities, described in
Note 4.01. The change has been applied retrospectively, and this
adjustment represents the effect of that change across 2017 and
all prior years. The impact of this change on retained earnings
as at 1 January 2017 was a reduction of GBP277m.
IFRS Primary Financial Statements Page 46
3.05 Consolidated Statement of Cash Flows
For the six month period to 30 June 2018
6 months 6 months Full year
2018 2017 2017
Notes GBPm GBPm GBPm
Cash flows from operating activities
Profit for the period 772 952 1,902
Adjustments for non cash movements in net profit
for the period
Realised and unrealised losses/(gains) on financial
investments and investment properties 6,025 (9,588) (25,024)
Investment income (5,386) (5,396) (9,953)
Interest expense 140 106 220
Tax expense 210 358 377
Other adjustments 105 33 154
Net (increase)/decrease in operational assets
Investments held for trading or designated
as fair value through profit or loss 7,306 418 11,794
Investments designated as available-for-sale 387 (4) 277
Other assets (2,012) (6,116) (2,344)
Net increase/(decrease) in operational liabilities
Insurance contracts (2,001) 259 (3,989)
Investment contracts (13,370) 3,790 (10,798)
Value of in-force non-participating contracts - 62 206
Other liabilities 5,923 10,574 20,444
Net (decrease)/increase in held for sale assets/liabilities (538) - 12,139
Cash used in operations (2,439) (4,552) (4,595)
Interest paid (142) (104) (221)
Interest received 1,816 2,353 4,528
Tax paid(1) (286) (298) (497) Dividends received 2,802 2,851 5,196 Net cash flows from operating activities 1,751 250 4,411 Cash flows from investing activities Net acquisition of plant, equipment, intangibles and other assets (97) (30) (230) Net disposal/(acquisition) of operations 326 286 223 Investment in joint ventures and associates - - (7) Net cash flows used in investing activities 229 256 (14) Cash flows from financing activities Dividend distributions to ordinary equity holders during the period 4.04 (658) (616) (872) Issue of ordinary share capital 2 3 7 Purchase of employee scheme shares (net) 12 9 10 Proceeds from borrowings 148 1,211 1,232 Repayment of borrowings (11) (619) (600) Movement in non-controlling interests 1 - (262) Net cash flows used in financing activities (506) (12) (485) Net increase in cash and cash equivalents 1,474 494 3,912 Exchange gains/(losses) on cash and cash equivalents 6 (37) (19) Cash and cash equivalents at 1 January (before reallocation of held for sale cash) 18,919 15,348 15,348 Total cash and cash equivalents 20,399 15,805 19,241 Cash and cash equivalents classified as held for sale (221) - (322) Cash and cash equivalents at 30 June/ 31 December 20,178 15,805 18,919 1. Tax comprises UK corporation tax paid of GBP170m (H1 17: GBP151m; FY 17: GBP290m), overseas corporate taxes of GBP23m (H1 17: GBP8m; FY 17: GBP12m), and withholding tax of GBP93m (H1 17: GBP139m; FY 17: GBP195m).
IFRS Disclosure Notes Page 47
4.01 Basis of preparation
The group financial information for the six months ended 30 June 2018 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 which the group expects to adopt for the 2018 year end. These policies are consistent with the principal accounting policies which were set out in the group's 2017 consolidated financial statements, except where changes have been outlined in "New standards, interpretations and amendments to published standards that have been adopted by the group" and "Change in accounting policy" outlined below. These are 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 2017 financial statements except for the changes outlined in the "Change in accounting policy" below.
The results for the half year ended 30 June 2018 are unaudited but have been reviewed by KPMG 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 2017 have been taken from the group's 2017 Annual Report and Accounts, restated as described in the changes in accounting policy section below. Therefore, these interim accounts should be read in conjunction with the 2017 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 2017 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 2017 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 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.
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.
(a) New standards, interpretations and amendments to published standards that have been adopted by the group
The group has applied the following standards and amendments for the first time in its annual reporting period commencing 1 January 2018.
IFRS15 Revenue from Contracts with Customers
IFRS 15, 'Revenue from Contracts with Customers', is the new revenue recognition reporting standard, which became effective from 1 January 2018. IFRS 15 has replaced all of the previous revenue standards and interpretations in IFRS, in particular IAS 18 'Revenue' and IAS 11 'Construction Contracts'.
The standard introduces a five-step model to account for revenue arising from contracts with customers, the core principle of which is that an entity will recognise revenue at an amount that reflects the consideration to which it expects to be entitled in exchange for transferring goods or services to a customer in the reporting period.
The standard also specifies the accounting for the incremental costs of obtaining a contract and the costs directly related to fulfilling a contract.
The group has adopted IFRS 15 using the full retrospective method. Revenue arising from insurance contracts, financial instruments and leases is out of scope of the standard. There are two categories of revenue in the group's income statement that remain in scope:
(i) 'Fees from fund management and investment contracts'; and (ii) Components of the account 'Other operational income'.
IFRS Disclosure Notes Page 48
Fees from fund management and investment contracts
The group generates revenue from acting as the investment manager for clients. Fees charged on investment management services are based on the contractual fee arrangements applied to assets under management and recognised as earned when the service has been provided or as they are provided.
Other operational income
Other operational income predominantly includes revenue from house building, and professional and intermediary services. Revenue is recognised at a point in time when the service has been completed.
There has been no material impact on the group's consolidated financial statements from the implementation of IFRS 15 and therefore the group's financial statements have not been restated.
Amendments to IAS 40 Transfers of Investment Property
The amendments clarify when an entity should transfer property, including property under construction or development, into or out of investment property. The amendments state that a change in use occurs when the property meets, or ceases to meet, the definition of investment property and there is evidence of the change in use. A mere change in management's intentions for the use of a property does not provide evidence of a change in use. These amendments do not have any impact on the group's consolidated financial statements.
Amendments to IFRS 2 Classification and Measurement of Share-based Payment Transactions
The IASB issued amendments to IFRS 2 Share-based Payment that address three main areas: the effects of vesting conditions on the measurement of a cash-settled share-based payment transaction; the classification of a share-based payment transaction with net settlement features for withholding tax obligations; and accounting where a modification to the terms and conditions of a share-based payment transaction changes its classification from cash settled to equity settled. On adoption, entities are required to apply the amendments without restating prior periods, but retrospective application is permitted if elected for all three amendments and other criteria are met. The group already accounts for net settlement features as equity settled and therefore there is no impact on the group's consolidated financial statements.
Amendments to IAS 28 Investments in Associates and Joint Ventures - Clarification that measuring investees at fair value through profit or loss is an investment-by-investment choice
The amendments clarify that an entity that is a venture capital organisation, or other qualifying entity, may elect, at initial recognition on an investment-by-investment basis, to measure its investments in associates and joint ventures at fair value through profit or loss. If an entity, that is not itself an investment entity, has an interest in an associate or joint venture that is an investment entity, the entity may, when applying the equity method, elect to retain the fair value measurement applied by that investment entity associate or joint venture to the investment entity associate's or joint venture's interests in subsidiaries. This election is made separately for each investment in an associate or joint venture, at the later of the date on which: (a) the investment in an associate or joint venture is initially recognised; (b) the associate or joint venture becomes an investment entity; and (c) the investment in an associate or joint venture first becomes a parent. These amendments do not have any impact on the group's consolidated financial statements.
Amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards - Deletion of short-term exemptions for first-time adopters
Short-term exemptions in paragraphs E3-E7 of IFRS 1 were deleted because they have now served their intended purpose. These amendments do not have any impact on the group's consolidated financial statements.
IFRIC Interpretation 22 Foreign Currency Transactions and Advanced Consideration
The Interpretation clarifies that, in determining the spot exchange rate to use on initial recognition of a related asset, over the then expense or income (or part of it) on the derecognition of a non-monetary asset or non-monetary liability relating to advance consideration, the date of the transaction is the date on which an entity initially recognises the non-monetary asset or non-monetary liability arising from the advance consideration. If there are multiple payments or receipts in advance, then the entity must determine a date of the transactions for each payment or receipt of advance consideration. This Interpretation does not have any impact on the group's consolidated financial statements.
(b) Change in accounting policy
LGIA (Legal & General Insurance America) Term Assurance
During the period, the group has changed its accounting policy for term assurance liabilities on business transacted by its US subsidiaries, which was previously based on recognised actuarial methods reflecting US GAAP. From 1 January 2018, the group has calculated such liabilities on the basis of current information using the gross premium valuation method, which is in line with how similar products are accounted for in other parts of the business.
The group believes the new policy is preferable as it more closely aligns the accounting for this business with that of business written in the UK, and therefore results in the financial statements providing reliable and more relevant information about the impact of term assurance business on the group's financial position, financial performance or cash flows, in line with IFRS requirements.
This represents a voluntary change in accounting policy and has been applied retrospectively, with prior periods retained earnings adjusted accordingly.
The principal impact of the change on the prior period consolidated financial statements is an increase in long term insurance contract liabilities and the derecognition of deferred acquisition costs where the associated cash flows are now recognised within the insurance contract liability calculation.
IFRS Disclosure Notes Page 49
The impact on each line item of the consolidated balance sheets
presented is shown in the table below:
As reported Adjustments Restated
30 Jun 31 Dec 30 Jun 31 Dec 30 Jun 31 Dec
2017 2017 2017 2017 2017 2017
GBPm GBPm GBPm GBPm GBPm GBPm
Deferred acquisition
costs 2,032 1,507 (1,280) (1,176) 752 331
Non-participating insurance
contracts 61,097 62,318 (826) (729) 60,271 61,589
Overseas deferred tax
liability 524 337 (159) (93) 365 244
Retained earnings 5,910 6,578 (295) (354) 5,615 6,224
As a consequence of the change highlighted above, the group has reclassified GBP164m (as of 1 January 2017) of financial investments backing term assurance business from designated as available for sale to designated as fair value through profit or loss. This represents a further change in accounting policy permitted by IFRS 4 'Insurance Contracts'.
Whole of Life Mortality Assumptions
During the period, the group changed its accounting policy for whole of life mortality improvers. This change has arisen following the change in regulatory regime to Solvency II. The old regime only allowed improvers to be added where reserves would be increased, in line with INSPRU requirements. Under the new policy mortality improvement assumptions can now be applied consistently across all types of mortality business. The change covers all term assurance and whole of life products, and results in the group no longer needing to comply with INSPRU 1.2.60 section 5a. The group believes that the new policy better reflects the risks that the business is exposed to, providing more reliable and relevant information to users of the financial statements.
This represents a voluntary change in accounting policy. However, because the impact of this change on prior periods is considered insignificant, the group has applied the change prospectively.
Future accounting developments
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 IASB 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 until adoption of IFRS 17 or 1 January 2021, whichever is the earlier. As disclosed in the 31 December 2017 financial statements, the group has qualified for the deferral and has chosen to apply it.
The impact of IFRS 9 on the group's nancial statements will depend on the interaction of the asset classi cation 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. 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. The impact on the group is not expected to be material. The group has not early adopted this standard.
IFRS Disclosure Notes Page 50
4.02 Acquisitions
CALA Group (Holdings) Limited
On 12 March 2018 the group increased its shareholding in CALA Group (Holdings) Limited ('CALA Homes') to 100% by acquiring the remaining 52.12% shareholding of the company it did not previously own. Under the agreement, the counterparty for GBP152m of loan notes payable by CALA Homes was novated to the group and the loan notes subsequently cancelled which reduced the fair value of purchase considerations from GBP605m to GBP453m.
The transaction has been accounted for as a stepped acquisition in accordance with IFRS 3 'Business Combinations', resulting in the recognition of a one-off profit of GBP20m.
The assets and liabilities acquired at the point of the transaction have been recorded at their fair values for the purposes of the acquisition balance sheet and included in the consolidated accounts of the group using the group's accounting policies in accordance with IFRS.
The following table summarises the consideration for the acquisition, the fair value of the assets acquired, liabilities assumed, and resulting allocation of goodwill.
Fair Value
GBPm
------------------------------------------------------------ ----------------
Assets
Intangible assets (Brand) 25
Other non-current assets 4
Land and inventories 1,006
Receivables 34
Cash 18
============================================================== ================
Total assets 1,087
Liabilities
Loans and borrowings 362
Trade and other payables 271
Other liabilities 33
============================================================== ================
Total Liabilities 666
Fair value of net assets acquired 421
============================================================== ================
Fair value of purchase consideration 453
============================================================== ================
Goodwill arising on acquisition 32
Fair value adjustments arising on acquisition were in relation to
identifiable intangible assets, land and inventories, and related
deferred tax liabilities. The residual goodwill recognised on acquisition,
none of which is expected to be deductible for tax purposes, is
attributable to the network of customers and contractors and the
pipeline of future land and homes that could not be directly attributed
to homes currently under construction or the brand acquired.
There were no contingent consideration arrangements or indemnification
assets recognised on acquisition.
Other acquisitions
During the period ended 30 June 2018 the group completed the acquisitions of Canvas European exchange-traded fund ('Canvas') and Buddies Enterprises Limited.
The assets and liabilities of the acquired business have been recorded at their fair values for the purposes of the acquisition balance sheet and included in the consolidated accounts of the group using the group's accounting policies in accordance with IFRS.
A total residual goodwill of GBP22m has been recognised in respect of these acquisitions.
IFRS Disclosure Notes Page 51
4.03 Assets and liabilities of operations classified as held for sale
Mature Savings
On 6 December 2017 the group announced the sale of its Mature Savings
business to the ReAssure division of Swiss Re Limited ('Swiss Re') for
a consideration of GBP650m. As part of the transaction, on 1 January
2018 the group entered into a risk transfer agreement with Swiss Re,
whereby the group will transfer all economic risks and rewards of the
Mature Savings business to Swiss Re from that date. The risk transfer
agreement operates until the business is transferred under a court approved
scheme under Part VII of the Financial Services and Markets Act 2000,
which is expected to complete in 2019. The consideration of GBP650m
was received in January 2018.
As a result of the transaction, the Mature Savings business has been
classified as held for sale. Profit arising from the Mature Savings
business has been classified as "Profit after tax from discontinued
operations" in the Consolidated Income Statement.
IndiaFirst Life Insurance Company Limited
On 1 June 2018 the group announced the sale of its stake in IndiaFirst
Life Insurance Company Limited ("IndiaFirst Life"). The group has reached
an agreement in principle with an affiliate of Warburg Pincus LLC to
sell the group's stake for INR 7.1bn (c.GBP79m at GBP:Rs 1:90). The
transaction is subject to the approval of regulatory authorities and
is expected to complete by the end of 2018. As a result of the announcement,
the group's interest in IndiaFirst Life has been classified as held
for sale as at 30 June 2018.
4.04 Dividends and appropriations
Dividend Per share(1) Dividend Per share(1) Dividend Per share(1)
6 months 6 months 6 months 6 months Full Full
2018 2018 2017 2017 year year
2017 2017
GBPm p GBPm p GBPm p
Ordinary dividends paid and charged
to equity in the period:
- Final 2017 dividend
paid in June 2018 658 11.05 - - - -
- Final 2016 dividend
paid in June 2017 - - 616 10.35 616 10.35
- Interim 2017 dividend
paid in September 2017 - - - - 256 4.30
658 11.05 616 10.35 872 14.65
1. The dividend per share calculation is based on the number of
equity shares registered on the ex-dividend date.
Subsequent to 30 June 2018, the directors declared an interim dividend
for 2018 of 4.6 pence per ordinary share. This dividend will be
paid on 27 September 2018. It will be accounted for as an appropriation
of retained earnings in the year ended 31 December 2018 and is not
included as a liability in the Consolidated Balance Sheet.
IFRS Disclosure Notes Page 52
4.05 Financial investments and investment property
30 June 30 June 31 December
2018 2017 2017
GBPm GBPm GBPm
Equities 181,535 194,754 199,858
Unit trusts 10,005 7,584 9,147
Debt securities(1) 233,977 219,989 230,941
Accrued interest 1,502 1,449 1,518
Derivative assets(2) 10,132 11,513 12,595
Loans(3) 10,271 6,774 9,165
Financial investments 447,422 442,063 463,224
Investment property(4) 8,505 8,714 8,337
Total financial investments
and investment property 455,927 450,777 471,561
------------------------------------------------- --------- ------- -----------
Less: financial investments and investment
property classified as held for sale (20,579) (21,289)
--------- ------- -----------
Financial investments and investment
property 435,348 450,272
--------- ------- -----------
1. A detailed analysis of debt securities to which shareholders
are directly exposed, is disclosed in Note 7.03.
2. Derivatives are used for 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
of GBP7,652m (30 June 2017: GBP7,376m; 31 December 2017: GBP8,173m).
3. As at 30 June 2017, GBP6,202m of reverse repurchase agreements
were classified in Other assets. On review, we have determined
that these instruments meet the definition of a financial asset
and therefore should have been included within Financial investments.
Accordingly, the balances as at 30 June 2017 have been restated
resulting in a decrease in Other assets of GBP6,202m and an increase
in Financial investments of GBP6,202m. The instruments have been
classified as Loans at fair value, and assessed as fair value Level
2. The restatement has nil impact on the valuation of the instruments,
and a net nil impact on Total assets in the Consolidated Balance
Sheet. This classification is consistent with the treatment of
reverse repurchase agreements as at 31 December 2017.
4. Total Financial investments and investment property is presented
gross of held for sale assets as at 31 December 2017 and 30 June
2018.
(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 IHS Markit, ICE and Bloomberg, or Index Providers such as Barclays, Merrill Lynch or JPMorgan. Each uses mathematical modeling and multiple source validation in order to determine consensus prices, with the exception of OTC Derivative holdings; OTCs are marked to market using an in-house system (Lombard Oberon), external vendor (IHS Markit), internal model or Counterparty Broker marks. 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 therefore classified them as Level 2.
The group's policy is to re-assess categorisation of financial assets at the end of each reporting period and to recognise transfers between levels at that point in time.
There have been no significant transfers between Level 1 and Level 2 in the six month period to 30 June 2018 (30 June 2017: GBP666m of forward currency contracts were reclassified from Level 1 to Level 2). Transfers into and out of Level 3 are disclosed in Note 4.06 (b).
IFRS Disclosure Notes Page 53
4.05 Financial investments and investment property (continued)
(a) Fair value hierarchy (continued)
Total Level Level Level
1 2 3
For the six month period to 30 June 2018 GBPm GBPm GBPm GBPm
Shareholder
Equity securities 2,317 1,535 - 782
Debt securities 4,947 1,688 2,886 373
Accrued interest 32 15 14 3
Derivative assets 12 4 8 -
Investment property 109 - - 109
Loans at fair value 352 - 352 -
=============================================== ======= ======= ======= ======
Non profit non-unit linked
Equity securities 285 281 4 -
Debt securities 50,406 6,641 33,373 10,392
Accrued interest 441 29 391 21
Derivative assets 4,213 - 4,181 32
Investment property 2,791 - - 2,791
Loans at fair value 573 - 398 175
=============================================== ======= ======= ======= ======
With-profits
Equity securities 3,276 3,087 - 189
Debt securities 6,083 1,746 4,333 4
Accrued interest 50 14 36 -
Derivative assets 57 4 53 -
Investment property 551 - - 551
Loans at fair value 117 - 117 -
=============================================== ======= ======= ======= ======
Unit linked
Equity securities 185,662 185,009 36 617
Debt securities 172,541 120,048 52,484 9
Accrued interest 979 439 540 -
Derivative assets 5,850 218 5,632 -
Investment property 5,054 - - 5,054
Loans at fair value 8,786 - 8,786 -
=============================================== ======= ======= ======= ======
Total financial investments and investment
property at fair value(1) 455,484 320,758 113,624 21,102
=============================================== ======= ------- ------- ------
1. This table excludes loans of GBP443m, which are held at amortised
cost.
IFRS Disclosure Notes Page 54
4.05 Financial investments and investment property (continued)
(a) Fair value hierarchy (continued)
Total Level Level Level
1 2 3
For the six month period to 30 June 2017 GBPm GBPm GBPm GBPm
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(1) 50 6 44 -
Investment property 200 - - 200
Loans at fair value(2) 343 - 343 -
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(1) 3,773 - 3,768 5
Investment property 2,687 - - 2,687
Loans at fair value(2) 199 - 199 -
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(1) 93 22 71 -
Investment property 740 - - 740
Loans at fair value(2) 102 - 102 -
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(1) 7,597 52 7,545 -
Investment property 5,087 - - 5,087
Loans at fair value(2) 5,558 - 5,558 -
Total financial investments and investment
property at fair value(3) 450,205 316,113 116,469 17,623
1. Within derivative assets, GBP666m of forward currency contracts
have been reclassified from Level 1 to Level 2 following a review
of the inputs required in their valuation. The reclassification
had nil impact on the valuation of the instruments, and therefore
nil impact on the Consolidated Balance Sheet.
2. As at 30 June 2017, GBP6,202m of reverse repurchase agreements
were classified in Other assets. On review, we have determined that
these instruments meet the definition of a financial asset and therefore
should have been included within Financial investments. Accordingly,
the balances as at 30 June 2017 have been restated resulting in
a decrease in Other assets of GBP6,202m and an increase in Financial
investments of GBP6,202m. The instruments have been classified as
Loans at fair value, and assessed as fair value Level 2. The restatement
has nil impact on the valuation of the instruments, and a net nil
impact on Total assets in the Consolidated Balance Sheet. This classification
is consistent with the treatment of reverse repurchase agreements
as at 31 December 2017.
3. This table excludes loans and receivables of GBP572m, which are
held at amortised cost.
IFRS Disclosure Notes Page 55
4.05 Financial investments and investment property (continued)
(a) Fair value hierarchy (continued)
Total Level Level Level
1 2 3
For the year ended 31 December 2017 GBPm GBPm GBPm GBPm
Shareholder
Equity securities 2,418 1,743 1 674
Debt securities 4,575 1,134 3,076 365
Accrued interest 24 7 14 3
Derivative assets 44 33 11 -
Investment property 110 - - 110
Loans at fair value 316 - 316 -
Non profit non-unit linked
Equity securities 282 278 - 4
Debt securities 52,008 7,436 35,084 9,488
Accrued interest 468 38 410 20
Derivative assets 4,018 - 4,018 -
Investment property 2,722 - - 2,722
Loans at fair value 363 - 363 -
With-profits
Equity securities 3,260 3,074 4 182
Debt securities 6,162 2,105 4,053 4
Accrued interest 54 17 37 -
Derivative assets 99 16 83 -
Investment property 658 - - 658
Loans at fair value 116 - 116 -
Unit linked
Equity securities 203,045 199,524 2,930 591
Debt securities 168,196 115,470 52,718 8
Accrued interest 972 416 556 -
Derivative assets 8,434 124 8,310 -
Investment property 4,847 - - 4,847
Loans at fair value 7,874 - 7,874 -
Total financial investments and investment
property at fair value(1) 471,065 331,415 119,974 19,676
1. This table excludes loans of GBP496m, which are held at amortised
cost.
IFRS Disclosure Notes Page 56
4.05 Financial investments and investment property (continued)
(b) Level 3 assets measured at fair value
Level 3 assets comprise property, unquoted equities, untraded debt securities and securities where the broker methodology is unknown. Unquoted securities 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 most significant assets classified as Level 3, and their valuation methodologies, are described below.
Equity securities
Level 3 equity securities amount to GBP1,588m (30 June 2017: GBP1,320m; 31 December 2017: GBP1,451m) and are valued by a number of third party specialists using a range of techniques, including earnings multiples and price/earnings ratios, which are deemed to be unobservable.
Other financial investments
Lifetime mortgage loans amount to GBP2,674m (30 June 2017: GBP1,433m; 31 December 2017: GBP2,023m). They are valued using a discounted cash flow model by projecting best-estimate net asset proceeds and discounting using rates inferred from current LTM pricing, thereby ensuring the value of loans at outset is consistent with the purchase price of the loan, and ensuring consistency between new and in-force loans. Inputs to the model include property growth rates and voluntary early redemptions. The valuation at 30 June 2018 reflects a long-term property growth rate assumption of RPI + 0.5%.
Commercial real estate loans amount to GBP2,193m (30 June 2017: GBP2,079m; 31 December 2017: GBP2,169m). Their valuation has been outsourced to IHS Markit, who use a discounted cash flow model taking into consideration the average weighted Yield to Maturity of a basket of agreed comparator bonds. Comparator bonds are selected based on suitability criteria including sector, duration and credit rating.
Income strip assets amount to GBP1,190m (30 June 2017: GBP1,047m; 31 December 2017: GBP1,153m). Their valuation is outsourced to Knight Frank and CBRE who apply a yield to maturity to discounted future cash flows to derive valuations. The overall valuation takes into account the property location, tenant details, tenure, rent, rental break terms, lease expiries and underlying residual value of the property.
Private placements held by the US business amount to GBP337m (30 June 2017: GBP361m; 31 December 2017: GBP346m). They are valued using a pricing matrix comprised of a public spread matrix, internal ratings assigned to each holding, average life of each holding, and a premium spread matrix. These are added to the risk-free rate to calculate the discounted cashflows and establish a market value for each investment grade private placement.
Commercial mortgage loans amount to GBP504m (30 June 2017: GBP373m; 31 December 2017: GBP342m) and are determined by incorporating credit risk for performing loans at the portfolio level and for loans identified to be distressed at the loan level. The projected cash flows of each loan are discounted along stochastic risk free rate paths and are inclusive of an Option Adjusted Spread (OAS), derived from current internal pricing on new loans, along with the best observable inputs. These are further adjusted for credit improvements due to seasoning and illiquidity premiums.
Other debt securities which are not traded in an active market have been valued using third party or counterparty valuations. These prices are considered to be unobservable due to infrequent market transactions.
Investment property
Level 3 investment property amounting to GBP8,505m (30 June 2017: GBP8,714m; 31 December 2017: GBP8,337m) is valued with the involvement of external valuers. All property valuations are carried out in accordance with the latest edition of the Valuation Standards published by the Royal Institute of Chartered Surveyors, and are undertaken by appropriately qualified valuers as defined therein. Whilst transaction evidence underpins the valuation process, the definition of market value, including the commentary, in practice requires the valuer to reflect the realities of the current market. In this context valuers must use their market knowledge and professional judgement and not rely only upon historic market sentiment based on historic transactional comparables.
Fair values are subject to a control framework designed to ensure that input variables and outputs are assessed independent of the risk taker. These inputs and outputs are reviewed and approved by a valuation committee and validated independently as appropriate.
The group's policy is to re-assess the categorisation of financial assets at the end of each reporting period and to recognise transfers between levels at that point in time.
IFRS Disclosure Notes Page 57
4.05 Financial investments and investment property (continued)
(b) Level 3 assets measured at fair value (continued)
Other Other
financial financial
Equity invest- Investment Equity invest- Investment
securities ments(1) property Total securities ments(1) property Total
30 June 30 June 30 June 30 June 30 June 30 June 30 June 30 June
2018 2018 2018 2018 2017 2017 2017 2017
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
As at 1 January 1,451 9,888 8,337 19,676 1,101 4,390 8,150 13,641
Total gains / (losses)
for the period
recognised
in profit:
- in other
comprehensive
income 7 (113) - (106) - 7 - 7
- realised and
unrealised
gains / (losses)(2) 41 20 70 131 (23) 234 217 428
Purchases / Additions 147 1,338 397 1,882 156 1,283 402 1,841
Sales / Disposals (47) (214) (299) (560) (34) (39) (166) (239)
Transfers into Level
3 - 90 - 90 118 1,714 101 1,933
Transfers out of Level
3 (11) - - (11) - (5) - (5)
Other - - - - 2 5 10 17
As at 30 June 1,588 11,009 8,505 21,102 1,320 7,589 8,714 17,623
1. Other financial investments comprise debt securities, lifetime mortgages
and derivative assets.
2. The realised and unrealised gains and losses have been recognised
in investment return in the Consolidated Income Statement.
Other
financial
Equity invest- Investment
securities ments(1) property Total
31 December 31 December 31 December 31 December
2017 2017 2017 2017
GBPm GBPm GBPm GBPm
As at 1 January 1,101 4,390 8,150 13,641
Total gains / (losses)
for the year
recognised
in profit:
- in other
comprehensive
income - 37 - 37
- realised and
unrealised
gains / (losses)(2) 104 266 456 826
Purchases / Additions 316 3,595 1,218 5,129
Sales / Disposals (267) (118) (975) (1,360)
Transfers into Level
3(3) 138 1,718 - 1,856
Other(4) 59 - (512) (453)
====================== ========== ========= ========== ======= =========== =========== =========== ===========
As at 31 December 1,451 9,888 8,337 19,676
1. Other financial investments comprise debt securities, lifetime mortgages
and derivative assets.
2. The realised and unrealised gains and losses have been recognised
in investment return in the Consolidated Income Statement.
3. The group holds regular discussions with its pricing providers to
determine whether transfers between levels of the fair value hierarchy
have occurred. The above transfers occurred as a result of this process
and further internal investigations. In 2017, transfers into Level
3 included GBP874m of private placement and GBP795m of income strips,
which were previously classified as Level 2.
4. Other Level 3 movements primarily reflects the deconsolidation of
the group's investment in a property fund.
IFRS Disclosure Notes Page 58
4.05 Financial investments and investment property (continued)
(c) Effect on changes in assumptions on Level 3
Fair values of financial instruments are, in certain circumstances, measured using valuation techniques that incorporate assumptions that are not evidenced by prices from observable current market transactions in the same instrument and are not based on observable market data.
Where possible, the group assesses the sensitivity of fair values of Level 3 investments to changes in unobservable inputs to reasonable alternative assumptions. As outlined above, Level 3 investments are valued using internally-modelled valuations or independent third parties. Where internally-modelled valuations are used, sensitivities are determined by adjusting various inputs of the model and assigning them a weighting. Where independent third parties are used, sensitivities are determined as outlined below:
-- Unquoted investments in property vehicles and direct holdings in investment property are valued using valuations provided by independent valuers on the basis of open market value as defined in the appraisal and valuation manual of the Royal Institute of Chartered Surveyors. Reasonably possible alternative valuations have been determined using alternative yields.
-- Private equity investments are valued in accordance with the International Private Equity and Venture Capital Valuation Guidelines. Reasonably possible alternative valuations have been determined using alternative price earnings multiples.
-- No reasonably possible increases or decreases in fair values have been given for securities where the broker valuation methodology is unknown.
The group is therefore able to perform a sensitivity analysis for its Level 3 investments, which amount to GBP21.1bn (30 June 2017: GBP17.6bn; 31 December 2017: GBP19.7bn). The effect of changes in significant unobservable valuation inputs to reasonable alternative assumptions would result in a change in fair value of +/- GBP1.0bn (30 June 2017: +/-GBP0.9bn; 31 December 2017: +/-GBP1.2bn), which represents 5% (30 June 2017: 5%; 31 December 2017: 6%) of the total value of Level 3 investments.
IFRS Disclosure Notes Page 59
4.06 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:
Continuing Continuing Continuing
operations Total operations Total operations Total
6 months 6 months 6 months 6 months Full year Full year
2018 2018 2017 2017 2017 2017
GBPm GBPm GBPm GBPm GBPm GBPm
Profit before tax attributable
to equity holders 886 942 1,118 1,163 1,991 2,090
Tax calculated at 19.00%
(H1 17: 19.25%; FY 17: 19.25%) 168 179 215 224 383 402
Adjusted for the effects
of:
Recurring reconciling items:
Income not subject to tax (1) (1) (6) (6) (11) (11)
Higher rate of tax on overseas
profits 12 12 3 3 1 1
Non-deductible expenses - - - - 1 1
Differences between taxable
and accounting investment
gains (1) (1) (4) (4) (3) (3)
Property income attributable
to minority interests (1) (1) - - - -
Unrecognised tax losses - - - - 1 1
Non-recurring reconciling
items:
Income not subject to tax (4) (4) (4) (4) (4) (4)
Non-deductible expenses 1 1 1 1 10 10
Differences between taxable
and accounting investment
gains - - - - 10 10
Adjustments in respect of
prior years (15) (15) (3) (3) 23 23
Impact of reduction in UK
and US corporate tax rates
on deferred tax balances(1) 2 2 - - (242) (242)
Other (3) (2) - - - -
Tax attributable to equity
holders 158 170 202 211 169 188
Equity holders' effective
tax rate(2) 17.8% 18.0% 18.1% 18.1% 8.5% 9.0%
1. The US federal corporate income tax rate was reduced from 35%
to 21% from 1 January 2018. The enacted rate of 21% has been applied
to US temporary differences to calculate US deferred assets and
liabilities on the basis of when temporary differences are expected
to reverse.
2. 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 4.01 for detail on the methodology
of the split of policyholder and equity holders' tax.
IFRS Disclosure Notes Page 60
4.06 Tax (continued)
(b) Deferred tax
30 June 30 June 31 December
2018 2017(4) 2017(4)
Deferred tax (liabilities)/assets GBPm GBPm GBPm
Deferred acquisition expenses 14 34 (11)
------- ------- -----------
- UK (38) (43) (40)
- Overseas 52 77 29
------- ------- -----------
Difference between the tax and accounting
value of insurance contracts (377) (577) (331)
------- ------- -----------
- UK (74) (134) (69)
- Overseas (303) (443) (262)
------- ------- -----------
Realised and unrealised gains on investments (243) (275) (282)
Excess of depreciation over capital allowances 14 16 15
Excess expenses 22 40 31
Accounting provisions and other (11) (51) (33)
Trading losses(1) 29 63 31
Pension fund deficit 39 77 70
Purchased interest in long-term business (24) (3) (2)
================================================== ======= ======= ===========
Total net deferred tax liabilities(2) (537) (676) (512)
Less: net deferred tax liabilities classified
as held for sale 236 - 262
Net deferred tax liabilities (301) (676) (250)
Analysed by:
- UK deferred tax assets 2 2 2
- UK deferred tax liabilities (73) (316) (13)
- Overseas deferred tax
assets 5 3 5
- Overseas deferred tax liabilities(3) (235) (365) (244)
Net deferred tax liabilities (301) (676) (250)
1. Trading losses include UK trade and US operating losses of GBP2m
(H1 17: GBP8m; FY 17: GBP4m) and GBP27m (H1 17: GBP55m; FY 17: GBP27m)
respectively.
2. Total net deferred tax liabilities are presented gross of held
for sale liabilities for HY 2018 and FY 2017 and net of held for
sale liabilities for HY 2017.
3. Overseas deferred tax liability is wholly comprised of US balances
as at 30 June 2018.
4. US deferred tax liabilities in respect of deferred acquisition
costs and non-participating insurance contracts have been restated
following the change in accounting policy for LGIA Term Life reserves.
See Note 4.01. The net impact to overseas deferred tax liabilities
is a reduction of GBP159m at 30 June 2017 and GBP93m at 31 December
2017.
IFRS Disclosure Notes Page 61
4.07 Share capital and share premium
Number
of
Authorised share capital shares GBPm
At 30 June 2018, 30 June 2017 and 31 December
2017: ordinary shares of 2.5p each 9,200,000,000 230
Share Share
Number capital premium
of
Issued share capital, shares GBPm GBPm
fully paid
As at 1 January
2018 5,958,438,193 149 988
Options exercised under share option
schemes:
- Savings related share option scheme 1,435,336 - 2
As at 30 June 2018 5,959,873,529 149 990
Share Share
Number capital premium
of
Issued share capital, shares GBPm GBPm
fully paid
As at 1 January
2017 5,954,656,466 149 981
Options exercised under share option
schemes:
- Savings related share option scheme 2,061,874 - 4
As at 30 June 2017 5,956,718,340 149 985
Options exercised under share option
schemes:
- Savings related share option scheme 1,719,853 - 3
As at 31 December
2017 5,958,438,193 149 988
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 as declared and are entitled to one vote per share at
shareholder meetings of the company.
4.08 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.
No individual non-controlling interest is considered to be material on the basis of the half year carrying value or share of profit or loss.
IFRS Disclosure Notes Page 62
4.09 Core borrowings
Carrying Fair Carrying Fair Carrying Fair
amount value amount value amount value
30 June 30 June 30 June 30 June 31 December 31 December
2018 2018 2017 2017 2017 2017
GBPm GBPm GBPm GBPm GBPm GBPm
Subordinated borrowings
5.875% Sterling undated subordinated
notes (Tier 2) 405 415 410 432 408 428
10% Sterling subordinated
notes 2041 (Tier 2) 311 380 311 406 311 397
5.5% Sterling subordinated
notes 2064 (Tier 2) 589 629 589 651 589 710
5.375% Sterling subordinated
notes 2045 (Tier 2) 603 657 602 670 603 694
5.25% US Dollar subordinated
notes 2047 (Tier 2) 640 617 658 700 628 679
5.55% US Dollar subordinated
notes 2052 (Tier 2) 376 361 387 399 369 397
Client fund holdings of
group debt(1) (27) (29) (33) (33) (32) (38)
Total subordinated borrowings 2,897 3,030 2,924 3,225 2,876 3,267
Senior borrowings
Sterling medium term notes
2031-2041 603 812 602 848 609 857
Client fund holdings of
group debt(1) (11) (14) (27) (27) (26) (37)
Total senior borrowings 592 798 575 821 583 820
Total core borrowings 3,489 3,828 3,499 4,046 3,459 4,087
1. GBP38m (30 June 2017: GBP60m; 31 December 2017: GBP58m) of the
group's subordinated and senior borrowings' carrying amount are
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
5.875% Sterling undated subordinated notes
In 2004, Legal & General Group Plc issued GBP400m 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.
10% Sterling subordinated notes 2041
In 2009, Legal & General Group Plc issued GBP300m 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.
5.5% Sterling subordinated notes 2064
In 2014, Legal & General Group Plc issued GBP600m 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.
5.375% Sterling subordinated notes 2045
In 2015, Legal & General Group Plc issued GBP600m 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.
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 US Dollar mid-swap rate plus 3.687% pa. These notes mature on 21 March 2047.
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 US Dollar mid-swap rate plus 4.19% pa. These notes mature on 24 April 2052.
All of the above subordinated notes are treated as tier 2 own funds for Solvency II purposes.
Senior borrowings
Between 2000 and 2002 Legal & General Finance Plc issued GBP600m of senior unsecured Sterling medium term notes 2031-2041 at coupons between 5.75% and 5.875%. These notes have various maturity dates between 2031 and 2041.
IFRS Disclosure Notes Page 63
4.10 Operational borrowings
Carrying Fair Carrying Fair Carrying Fair
amount value amount value amount value
30 June 30 June 30 June 30 June 31 December 31 December
2018 2018 2017 2017 2017 2017
GBPm GBPm GBPm GBPm GBPm GBPm
Short term operational borrowings
Euro Commercial paper 497 497 322 322 349 349
Bank loans and overdrafts(1) 209 209 20 20 87 87
Total short term operational
borrowings 706 706 342 342 436 436
Non recourse borrowings 251 251 211 211 102 102
Total operational borrowings 957 957 553 553 538 538
1. Bank loans and overdrafts include GBP9m (30 June 2017: GBP17m,
31 December 2017: GBP87m) of unit-linked borrowings where risk
is retained by policyholders.
Total operational borrowings increased during the period to GBP957m (H1 17: GBP553m, FY 17: GBP538m), primarily reflecting both higher commercial paper as the group took advantage of attractive rates and markets following our debt upgrade by Moody's in May, as well as the impact of consolidating CALA Homes following the acquisition of the remaining share capital in March (see note 4.02 for further details).
Short term operational borrowings
Short term assets available at the holding company level exceeded the amount of short term operational borrowings of GBP706m (30 June 2017: GBP342m; 31 December 2017: GBP436m).
Syndicated credit facility
As at 30 June 2018, the group had in place a GBP1.0bn syndicated committed revolving credit facility provided by a number of its key relationship banks, maturing in December 2022. No amounts were outstanding at 30 June 2018.
IFRS Disclosure Notes Page 64
4.11 Payables and other financial liabilities
30 June 30 June 31 December
2018 2017 2017
GBPm GBPm GBPm
Derivative liabilities 7,652 7,376 8,173
Repurchase agreements(1) 36,919 28,110 32,357
Other 15,016 8,223 12,026
Total payables and other financial liabilities(2) 59,587 43,709 52,556
Less: liabilities classified
as held for sale (435) (310)
Payables and other financial liabilities 59,152 43,709 52,246
1. The repurchase agreements are presented gross, however they and
their related assets (included within debt securities) are subject
to master netting arrangements.
2. Total payables and other financial liabilities are presented
gross of held for sale liabilities as at 30 June 2018 and 31 December
2017.
Fair value hierarchy
Total Level Level Level Amortised
1 2 3 cost
As at 30 June 2018 GBPm GBPm GBPm GBPm GBPm
Derivative liabilities 7,652 1,312 6,340 - -
Repurchase agreements 36,919 - 36,919 - -
Other 15,016 5,580 25 126 9,285
------
Total payables and other financial
liabilities 59,587 6,892 43,284 126 9,285
Amortised
Total Level Level Level cost
1 2 3
As at 30 June 2017 GBPm GBPm GBPm GBPm GBPm
Derivative liabilities(1) 7,376 102 7,274 - -
Repurchase agreements(2) 28,110 - 28,110 - -
Other(2) 8,223 2,550 15 179 5,479
Total payables and other financial
liabilities 43,709 2,652 35,399 179 5,479
1. Within derivative liabilities, GBP380m of forward currency contracts
were reclassified from Level 1 to Level 2, following a review of
the inputs required in their valuation. The reclassification had
nil impact on the valuation of the instruments, and therefore nil
impact on the Consolidated Balance Sheet.
2. GBP28,076m of repurchase agreements have been restated from amortised
cost to fair value (Level 2) to properly reflect their classification
as fair value through profit and loss. At the same time GBP34m of
accrued interest on repurchase agreements has been reclassified
from Other to Repurchase agreements.
Amortised
Total Level Level Level cost
1 2 3
As at 31 December 2017 GBPm GBPm GBPm GBPm GBPm
Derivative liabilities 8,173 193 7,969 11 -
Repurchase agreements 32,357 - 32,357 - -
Other 12,026 4,793 7 140 7,086
Total payables and other financial
liabilities 52,556 4,986 40,333 151 7,086
Future commission costs (included within Other) 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 period. A reasonably possible alternative
persistency assumption would have the effect of increasing the liability
(including held for sale liabilities) by GBP4m (30 June 2017: GBP5m;
31 December 2017: GBP4m).
Significant transfers between levels
There have been no significant transfers of liabilities between
Levels 1, 2 and 3 for the six months ended 30 June 2018 (30 June
2017 and 31 December 2017: no significant transfers), other than
those noted above.
IFRS Disclosure Notes Page 65
4.12 Foreign exchange rates
Principal rates of exchange
used for translation are:
Period end exchange 30 June 30 June 31 December
rates 2018 2017 2017
United States Dollar 1.32 1.30 1.35
Euro 1.13 1.14 1.13
6 months 6 months Full year
Average exchange rates 2018 2017 2017
United States Dollar 1.38 1.26 1.29
Euro 1.14 1.16 1.14
4.13 Retirement benefit obligations
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. As at 30 June 2018, the combined after tax deficit arising from these arrangements (net of annuity obligations insured by Legal & General Assurance Society) has been estimated at GBP179m (30 June 2017: GBP347m; 31 December 2017: GBP317m).
4.14 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 and General Assurance Society Limited ("LGAS") 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 LGAS. 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 LGAS against any liability LGAS may have as a result of the ILU's requirement, and the ILU agreed that its requirement of LGAS 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 LGAS has any liability as a result of the ILU's requirement and, if so, the amount of its potential liability is uncertain. LGAS 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. LGAS 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 Disclosure Notes Page 66
4.15 Related party transactions
There were no material transactions between key management and the
Legal & General group of companies during the year. 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 GBP39m (H1 17: GBP36m; FY 17: GBP93m) for all employees.
At 30 June 2018, 30 June 2017 and 31 December 2017 there were no
loans outstanding to officers of the company.
(i) Key management personnel
compensation
The aggregate compensation for key management personnel, including
executive and non-executive directors, is as follows:
6 months 6 months Full year
2018 2017(1) 2017
GBPm GBPm GBPm
Salaries 2 2 10
Post-employment benefits - - -
Share-based incentive
awards 2 2 4
Key management personnel compensation 4 4 14
Number of key management
personnel 15 16 15
1. For the six months ended 30 June 2017, key management personnel
compensation included social security costs. These costs should
not have been included in the analysis, as they are not an employee
benefit. The table has therefore been restated to exclude these
costs. The restatement has no impact on either Total expenses or
Profit before income tax in the Company's Statement of Comprehensive
Income for the six months ended 30 June 2017.
(ii) Related party transactions
The group has the following related party transactions:
- Annuity contracts issued by Legal & General Assurance Society Limited (LGAS) for consideration of GBP59m (H1 17: GBP161m; FY 17: GBP161m) 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. There were no investments into associate investment vehicles during the period (H1 17: GBP10m; FY: GBP32m). The group received investment management fees of GBP1m during the period (H1 17: GBP1m; FY 17: GBP3m). Distributions from these investment vehicles to the group amount to GBP14m (H1 17: GBP15m; FY 17: GBP17m);
- The equity investment in Pemberton is now fully drawn at GBP18m. A commitment of GBP221m was previously made to Pemberton's inaugural European Mid-Market Debt Fund, of which GBP184m was drawn as at 30 June 2018. A commitment of GBP167m was also made to Pemberton's Mid-Market Debt Fund II, of which GBP79m was drawn as at 30 June 2018. In addition, a GBP50m commitment was previously made to the Pemberton U.K. Mid-Market Direct Lending Fund, of which GBP20m has been drawn at 30 June 2018;
- Loans outstanding from MediaCity at 30 June 2018 of GBP55m (30 June 2017 and 31 December 2017: GBP55m);
- Preference shares outstanding from Thorpe Park at 30 June 2018 of GBP87m (30 June 2017: GBP30m; 31 December 2017: GBP59m);
- A 50/50 joint venture in Access Development Partnership, developing build to rent properties. LGC has a total commitment of GBP200m, of which GBP45m has been drawn at 30 June 2018;
- A 46% investment in Accelerated Digital Ventures, a venture investment company, for a total commitment of GBP34m, of which GBP20m has been drawn at 30 June 2018;
- Further contingent capital commitments of GBP1m for NTR Asset Management Europe DAC, with a total commitment of GBP5m. A commitment of GBP103m to the NTR Wind 1 Limited fund, of which GBP80m has been drawn at 30 June 2018;
- A 49% investment in Inspired Villages Group, an operating company for the Later Living investments, with a total loan commitment of GBP10m, the current loan balance being GBP3m; and
- Investment in SalaryFinance, an early-stage financial wellbeing fintech platform, LGI has a commitment of GBP7m, of which GBP2m has been drawn down at 30 June 2018.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
IR UWAWRWRAWRAR
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