Regulatory Story
Go to market news section View chart   Print
RNS
Legal & General Group Plc  -  LGEN   

L&G FY 2012 Preliminary Results - Part 2

Released 07:00 06-Mar-2013

RNS Number : 3193Z
Legal & General Group Plc
06 March 2013
 



International Financial Reporting Standards                                                                                                                Page 31

 

Supplementary operating profit information

For the year ended 31 December 2012

  

 


2012 

2011 

 

  

Notes


£m

£m

 

  

 



  

 

  

 



  

 

From continuing operations

 



  

 

Protection and Annuities

2.01(a)


640 

601 

 

Savings

2.02(a)


133 

126 

 

Investment management

2.03


243 

234 

 

US Protection

 


99 

97 

 

Group capital and financing

2.04


22 

51 

 

Investment projects

 


(50)

(56)

 

  

 



  

 

  

 



  

 

Operating profit

 


1,087 

1,053 

 

Investment variances

 


(39)

(97)

 

Losses attributable to non-controlling interests

 


(12)

(3)

 

  

 



  

 

  

 



  

 

Profit before income tax attributable to equity holders of the Company

 


1,036 

953 

 

Tax expense attributable to equity holders of the Company

2.05


(235)

(232)

 

  

 



  

 

  

 



  

 

Profit for the year

 


801 

721 

 

  

 



  

 

  

 



  

 

Attributable to:

 



  

 

Non-controlling interests

 


(12)

(3)

 

Equity holders of the Company

 


813 

724 

 

  

 



  

 

  

 



  

 

  

 



  

 

  

 


p

p

 

  

 



  

 

  

 



  

 

Earnings per share

2.07



  

 

Based on operating profit from continuing operations after tax attributable to equity holders   



  

 

of the Company

 


14.01 

13.47 

 

Based on profit attributable to equity holders of the Company

 


13.90 

12.42 

 

  

 



  

 

Diluted earnings per share

2.07



  

 

Based on operating profit from continuing operations after tax attributable to equity holders



  

 

of the Company

 


13.78 

13.25 

 

Based on profit attributable to equity holders of the Company

 


13.66 

12.22 

 

  

 



  

 

  

 



  

 

1. Supplementary operating profit has been adjusted to reflect the retrospective adoption of ASU 2010-26, issued by the FASB, which specifies the accounting for deferred acquisition costs under US GAAP. Details of this adjustment are outlined in Note 2.19. The impact is to reduce US Protection operating profit by £3m for 2011.

2. Investment projects predominantly relate to Solvency II and other strategic investments.





3. Investment variances include £18m of restructuring costs relating to a number of reorganisation initiatives around the Group, including the restructure of the International segment.

 

This supplementary operating profit information (one of the Group's key performance indicators) provides further analysis of the results reported under IFRS and we believe gives shareholders a better understanding of the underlying performance of the business.

 

During the year, the Group has changed the management lines of the international subsidiaries to reflect the development of our international strategy. This has had the consequence of changing the reportable segments of the Group as outlined below. In accordance with the requirements of IFRS 8, 'Operating Segments', the prior period segmental information has been restated to reflect these changes.

 

Operating profit for the Protection and Annuities segment represents the profit from the annuities business (individual and bulk purchase annuities and longevity insurance) and the profit from the housing and protection businesses (general insurance, and individual and group protection business). It also includes Legal & General France (LGF) and Legal & General Netherlands (LGN). Operating profit reflects the investment returns that the business expects to make on the financial investments that back this business and on shareholder funds retained within our general insurance business. LGN operating profit reflects a longer term expected return on shareholders' funds and index linked policies.

 

Operating profit for the Savings segment represents the profit from the insured savings businesses (non profit investment bonds and non profit pensions (including SIPPs)), the with-profits transfer, the profit of our savings investments business, and our joint venture operation in India. Operating profit for the insured savings business reflects the investment returns that the business expects to make on the financial investments that back this business.

 

Operating profit for the Investment management segment includes a longer term expected investment return on the shareholders' funds within the segment, and operating profit for the US Protection segment comprises the profit before tax from Legal & General America (LGA).

 

Investment return on Group capital incorporates a longer term expected investment return using longer term investment return assumptions applied to the average balance of Group invested assets (including interest bearing intra-group balances) calculated on a monthly basis. Profits or losses arising from actuarial movements on annuities held by the Group's defined benefit pension schemes are excluded from operating profit. Profits or losses arising on the elimination of own debt holdings are also excluded from operating profit. The Group capital and financing segment also includes our joint ventures in Egypt and Gulf.

 

 

International Financial Reporting Standards                                                                                                                Page 32

 

Supplementary operating profit information

2.01 Protection and Annuities

(a) Protection and Annuities operating profit






  


 





2012 

2011 

  


Notes





£m

£m

  


 







  


 







Annuities


 





281 

287 

  


 







  


 







Protection


 





289 

242 

General insurance


2.01(f)





30 

42 

Other


 





(3)

(10)

  


 







  


 







Total UK Housing and Protection operating profit

 





316 

274 

  


 







  


 







Total UK Protection and Annuities operating profit

2.01(b)





597 

561 

  


 







  


 







Netherlands


 





28 

20 

France


 





15 

20 

  


 







  


 







Total Protection and Annuities operating profit





640 

601 

  


 







  


 







 

 

(b) Analysis of UK Protection and Annuities operating profit




  

 



Housing



Housing


  

 



and



and


  

 


Annui-

Protec-


Annui-

Protec-


  

 


ties

tion

Total

ties

tion

Total

  

 


2012 

2012 

2012 

2011 

2011 

2011 

  

Notes


£m

£m

£m

£m

£m

£m

  

 








  

 








UK Protection and Annuities business segment operating profit comprises:






Operational cash generation

 


243 

265 

508 

227 

255 

482 

New business strain

 


14 

(45)

(31)

35 

(66)

(31)

  

 








  

 








Net cash generation

 


257 

220 

477 

262 

189 

451 

Experience variances

2.01(c)




14 



22 

Changes to valuation assumptions

2.01(d)




(2)



24 

Movements in non-cash items

2.01(e)




(41)



(86)

Other

  






  

 








  

 








  

 




450 



411 

Tax gross up

 




147 



150 

  

 








  

 








Total UK Protection and Annuities operating profit




597 



561 

  

 








  

 








  

 








During the year, Netherlands and France paid £14m (2011: £16m) of sustainable dividends to the Group, which has been included in net cash generation for the Protection and Annuities segment.

 

The UK protection and annuities (non profit business) operational cash generation represents the expected surplus to be generated in the period from the in-force non profit business which is broadly equivalent to the expected release of profit from the non profit UK protection and annuities business using best estimate assumptions. The experience variances are calculated with reference to embedded value assumptions, including the apportionment of investment return and tax in the EEV model.

 

Both new business strain and operational cash generation exclude required solvency margin from the liability calculation.

  

 








An analysis of the experience variances, valuation assumption changes and non-cash items, all net of tax, is provided below:

 

 

International Financial Reporting Standards                                                                                                                Page 33

 

Supplementary operating profit information

2.01 Protection and Annuities (continued)

(c) Experience variances

 








  

 








  

 






2012 

2011 

  

 






£m

£m

  

 








  

 








Persistency

 






(4)

(4)

Mortality/morbidity

 






(32)

Expenses

 






(2)

Bulk purchase annuity data loading

 






37 

42 

Project and development costs

 






(10)

(7)

Tax

 






(14)

33 

Other

 






(8)

  

 








  

 








  

 






14 

22 

  

 








  

 








1. Mortality/morbidity in 2011 relates to a number of high value claims in group protection. This has trended back to assumptions in 2012.

2. This relates to 2012 unrelieved expenses carried forward for tax purposes. In 2011 there was a net utilisation of brought forward expenses.

 

 

(d) Changes to valuation assumptions








  

 








  

 






2012 

2011 

  

 






£m

£m

  

 








  

 








Persistency

 






(8)

(1)

Mortality/morbidity

 






(14)

(1)

Expenses

 






(2)

28 

Other

 






22 

(2)

  

 








  

 








  

 






(2)

24 

  

 








  

 








1. This primarily relates to the update of assumptions in the annuities business.

2. Prior year expenses relate to efficiency improvements in Protection and Annuities.

3. Other valuation assumption changes primarily relates to a reduction to the retail protection reserve for reinsurance default and a reduction in reserves applying PS06/14 to a retail protection product.

 

 

(e) Movements in non-cash items








  

 








  

 






2012 

2011 

  

 






£m

£m

  

 








  

 








Deferred tax

 






(32)

(77)

Other

 






(9)

(9)

  

 








  

 








  

 






(41)

(86)

  

 








  

 








1. This amount includes £(72)m (2011: £(80)m) for the utilisation of trading losses within net cash generation. The offsetting items comprise movements in deferred tax from creation of carried forward unrelieved expenses for tax purposes.

 

 

(f) General insurance operating profit







  

 


Net cash


Oper-

Net cash


Oper-

  

 


gener-


ating

gener-


ating

  

 


ation

Tax

profit

ation

Tax

profit

  

 


2012 

2012 

2012 

2011 

2011 

2011 

  

 


£m

£m

£m

£m

£m

£m

  

 








  

 








Household

 


22 

29 

27 

10 

37 

Other business

 


  

 








  

 








  

 


23 

30 

31 

11 

42 

  

 








  

 








 

 

 

International Financial Reporting Standards                                                                                                                Page 34

 

Supplementary operating profit information

2.01 Protection and Annuities (continued)

(g) General insurance underwriting result







  

 






2012 

2011 

  

 






£m

£m

  

 








  

 








Household

 






16 

23 

Other business

 






  

 








  

 








  

 






17 

27 

  

 








  

 








1. The 2012 household underwriting result reflects weather experience consistent with our assumptions. The 2011 result reflects the benign weather experienced during the year.

 

 

(h) General insurance combined operating ratio








 

  





2012 

2011 


 

  





%

%


 

  








 

  







Household

 

  





95 

91 

Other business

 

  





95 

78 


 

  








 

  








 

  





95 

90 


 

  








 

  







1. The calculation of the general insurance combined operating ratio has been amended to incorporate commission and expenses as a percentage of earned premiums, as opposed to premium written. Prior year comparatives have been amended accordingly.

 

 

International Financial Reporting Standards                                                                                                                Page 35

 

Supplementary operating profit information

2.02 Savings

(a) Savings operating profit

 








  

 






2012 

2011 

  

Note






£m

£m

  

 








  

 








Savings investments

 






16 

23 

Insured savings

 






48 

34 

With-profits

 






69 

69 

  

 








  

 








Total Savings operating profit

2.02(b)






133 

126 

  

 








  

 








  

 








1. Savings investments operating profit includes retail and institutional unit trusts and Suffolk Life.

2. Insured savings includes non profit investment bonds and pensions (including workplace savings and SIPPs), Nationwide Life savings business, International (Ireland) and our joint venture operation in India.

3. With-profits business operating profit is the shareholders' share of total with-profits bonuses.

 

 

(b) Analysis of Savings operating profit








  

 






Savings


  

 




Insured

With-

invest-


  

 




savings

profits

ments

Total

  

  




2012 

2012 

2012 

2012 

  

Notes




£m

£m

£m

£m

  

  








  

 








Savings business segment operating profit comprises:






Operational cash generation

 




108 

52 

19 

179 

New business strain

  




(62)

(62)

  

  








  

  








Net cash generation

  




46 

52 

19 

117 

Insured savings

  








Experience variances

2.02(c)







(39)

Changes to valuation assumptions

2.02(d)







20 

Movements in non-cash items and other

2.02(e)







11 

Savings investments

 








Movements in non-cash items and other

 







(9)

  

 








  

 








  

 







100 

Tax gross up

 







33 

  

 








  

 








Total Savings operating profit

 







133 

  

 








 

 

 

International Financial Reporting Standards                                                                                                                Page 36

 

Supplementary operating profit information

2.02 Savings (continued)

(b) Analysis of Savings operating profit (continued)


  

 





Savings



  

 



Insured

With-

invest-



  

 



savings

profits

ments

Total


  

  



2011 

2011 

2011 

2011 


  

Notes



£m

£m

£m

£m


  

  








  

 







Savings business segment operating profit comprises:







Operational cash generation

  

 



101 

51 

22 

174 

New business strain

  

  



(63)

(63)


  

  








  

  







Net cash generation

  

  



38 

51 

22 

111 

Insured savings

  

  







Experience variances

  

2.02(c)






(12)

Changes to valuation assumptions

  

2.02(d)






(5)

Movements in non-cash items and other

2.02(e)






Savings investments

  

 







Movements in non-cash items and other

  






(6)


  

 








  

 








  

 






92 

Tax gross up

  

 






34 


  

 








  

 







Total Savings operating profit

  

 






126 


  

 








  

 








  

 







The insured savings operational cash generation represents the expected surplus generated in the period from the in-force investment bonds and pensions business (non profit savings) which is broadly equivalent to the expected release of profit from non profit savings business using best estimate assumptions and the IFRS profit after tax of the Nationwide Life savings business and International (Ireland). The experience variances are calculated with reference to embedded value assumptions, including the apportionment of investment return and tax in the EEV model.

 

Both new business strain and operational cash generation exclude required solvency margin from the liability calculation.


  

 







An analysis of the experience variances, valuation assumption changes and non-cash items, all net of tax, is provided below:


 

 

(c) Experience variances

 








  

 






2012 

2011 

  

 






£m

£m

  

 








  

 








Persistency

 






(3)

(1)

Mortality/morbidity

 






Expenses

 






(1)

Project and development costs

 






(33)

(12)

Tax

 






(4)

Other

 






(3)

  

 








  

 








  

 






(39)

(12)

  

 








  

  








1. The 2012 project and development costs are primarily driven by the Retail Distribution Review £18m (2011: £3m) with additional expenditure on our workplace proposition (including auto-enrolment) of £12m (2011: £7m). Other costs are £3m (2011: £2m).

 

 

 

International Financial Reporting Standards                                                                                                                Page 37

 

Supplementary operating profit information

2.02 Savings (continued)

(d) Changes to valuation assumptions








  

  






2012 

2011 

  

 






£m

£m

  

 








  

 








Persistency

 






(2)

Mortality/morbidity

 






Expenses

 






17 

(2)

Other

 






(2)

  

 








  

 








  

 






20 

(5)

  

 








  

  








1. Expense valuation assumptions relate to efficiency improvements in workplace pensions.

 

 

(e) Movements in non-cash items and other







  

 






2012 

2011 

  

Note






£m

£m

  

  








  

 








Deferred tax

  






(6)

(6)

Deferred acquisition costs (DAC)

2.02(f)






(9)

(20)

Deferred income liabilities (DIL)

 






14 

27 

Other

 






12 

  

 








  

 








  

 






11 

  

 








  

 








1. Fluctuations to the DAC and DIL movement are caused by changes to economic assumptions and the associated impact on the trail commission asset within the DAC balance and the trail commission liability in the DIL balance.

2. Other includes the operating profit/(loss) attributable to our joint venture in India.

 

 

(f) Deferred acquisition cost movement, net of associated deferred tax




  

 






2012 

2011 

  

 






£m

£m

  

 








  

 








As at 1 January

 






592 

612 

Amortisation through income

 






(28)

(74)

Acquisition costs deferred

 






42 

54 

  

 








  

 








As at 31 December

 






606 

592 

  

 








  

  








1. The DAC amortisation incorporates a one-off increase of £23m relating to the accounting for Trail Commission DOC where estimation techniques used to determine the amortisation profile has been revised and strengthened.


  

 








The Group's balance sheet deferred acquisition costs of £1.9bn (2011: £1.8bn) is presented gross of associated deferred tax. The main contributors to the balance are LGA £0.8bn (2011: £0.7bn), non profit savings of £0.7bn (2011: £0.7bn), retail investments £0.1bn (2011: £0.1bn), savings with-profits £0.1bn (2011: £0.1bn) and other business totalling £0.2bn (2011: £0.2bn).








Expected amortisation profile:







  

 






2012 

2011 

  

 






£m

£m

  

 








  

 








Expected to be amortised within one year






76 

65 

Expected to be amortised between one year and five years




305 

271 

Expected to be amortised in over five years






225 

256 

  

 








  

 








  

 






606 

592 

  

 








  

  








 

 

International Financial Reporting Standards                                                                                                                Page 38

 

Supplementary operating profit information

2.03 Investment management

  







2012 

2011 

  







£m

£m

  









  









Pension funds (managed and segregated)






181 

172 

Other non-pension







22 

25 

Investment management services for internal funds






40 

37 

  









  









Total Investment management operating profit






243 

234 

  









  









1. Other non-pension includes institutional segregated mandates, private equity and property (both in the UK and overseas). Interest income on shareholder funds of £6m (2011: £9m) on an average asset balance of £0.4bn (2011: £0.4bn) has been included within other non-pension operating profit.

 

2.04 Group capital and financing

 

  







2012 

2011 

  







£m

£m

  









  









Investment return







168 

191 

Interest expense







(127)

(123)

Investment expenses







(5)

(5)

Unallocated corporate expenses







(14)

(12)

  









  









Total Group capital and financing operating profit






22 

51 

  









  









1. Interest expense excludes interest on non recourse financing (see Note 2.12).

2. Unallocated corporate expenses includes the operating profit/(loss) attributable to our joint venture operations in Egypt and the Gulf.

 

 

2.05 Analysis of tax attributable to equity holders

  

 






  

  

  

 




Profit/

Tax

Profit/

Tax

  

 




(loss)

(exp-

(loss)

(exp-

  

 




before

ense)/

before

ense)/

  

 




tax

credit

tax

credit

  

 




2012 

2012 

2011 

2011 

  

 






Restated

Restated

  

 




£m

£m

£m

£m

  

 






  

  

  

 






  

  

Protection and Annuities

 




640 

(159)

601 

(162)

Savings

 




133 

(33)

126 

(34)

Investment management

 




243 

(46)

234 

(45)

US Protection

 




99 

(37)

97 

(34)

Group capital and financing

 




22 

(4)

51 

(8)

Investment projects

 




(50)

12 

(56)

15 

  

 






  

  

  

 






  

  

Operating profit/Tax expense

 




1,087 

(267)

1,053 

(268)

Investment variances



(39)

39 

(97)

42 

Impact of change in UK tax rates

 




(7)

(6)

Losses attributable to non-controlling interests



(12)

(3)

  

 






  

  

  

 






  

  

Profit for the year/Tax expense for the year




1,036 

(235)

953 

(232)

  

 






  

  

  

 






  

  

1. Operating profit/Tax expense has been restated to reflect the retrospective adoption of ASU 2010-26, issued by the FASB, which specifies the accounting for deferred acquisition costs under US GAAP. Details of this restatement are outlined in Note 2.19.

  

 






  

  

The equity holders' effective tax rate for the period is 22.7% (2011: 24.4%). The Group's effective tax rate remains slightly below the UK corporation tax rate due to a number of differences between the measurement of accounting and taxable profits. 

 

 

International Financial Reporting Standards                                                                                                                Page 39

 

Consolidated Income Statement

For the year ended 31 December 2012

 




2012 

2011 

 





Restated

 


Notes


£m

£m

 





  

 





  

 

Revenue




  

 

Gross written premiums

2.06


5,668 

5,719 

 

Outward reinsurance premiums



(718)

(620)

 

Net change in provision for unearned premiums



(25)

(18)

 





  

 





  

 

Net premiums earned



4,925 

5,081 

 

Fees from fund management and investment contracts



875 

897 

 

Investment return



28,834 

12,143 

 

Operational income



342 

196 

 





  

 





  

 

Total revenue



34,976 

18,317 

 





  

 





  

 

Expenses




  

 

Claims and change in insurance liabilities



8,588 

7,173 

 

Reinsurance recoveries



(779)

(493)

 





  

 





  

 

Net claims and change in insurance liabilities



7,809 

6,680 

 

Change in provisions for investment contract liabilities



23,656 

9,306 

 

Acquisition costs



784 

783 

 

Finance costs



165 

165 

 

Other expenses



1,194 

1,010 

 

Transfers to/(from) unallocated divisible surplus



158 

(402)

 





  

 





  

 

Total expenses



33,766 

17,542 

 





  

 





  

 

Profit before tax



1,210 

775 

 

Tax (expense)/income attributable to policyholder returns



(174)

178 

 





  

 





  

 

Profit before tax attributable to equity holders of the Company



1,036 

953 

 





  

 





  

 

Total tax expense



(409)

(54)

 

Tax expense/(income) attributable to policyholder returns



174 

(178)

 





  

 





  

 

Tax expense attributable to equity holders

2.05


(235)

(232)

 





  

 





  

 

Profit for the year



801 

721 

 





  

 





  

 





  

 

Attributable to:




  

 

Non-controlling interests



(12)

(3)

 

Equity holders of the Company



813 

724 

 





  

 





  

 





  

 

Dividend distributions to equity holders of the Company during the year

2.08


394 

298 

 

Dividend distributions to equity holders of the Company proposed after the year end

2.08


336 

279 

 





  

 





  

 





  

 





Restated

 




p  

p    

 





  

 





  

 

Earnings per share




  

 

Based on profit attributable to equity holders of the Company

2.07


13.90 

12.42 

 





  

 





  

 

Diluted earnings per share




  

 

Based on profit attributable to equity holders of the Company

2.07


13.66 

12.22 

 





  

 





  

 

1. The Consolidated Income Statement has been restated to reflect the retrospective adoption of ASU 2010-26, issued by the FASB, which specifies the accounting for deferred acquisition costs under US GAAP. Details of this adjustment are outlined in Note 2.19.

 

This financial information was approved by the Board on 5 March 2013.

 

 

International Financial Reporting Standards                                                                                                                Page 40

 

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2012

 




2012 

2011 





Restated




£m

£m











Profit for the year



801 

721 






Other comprehensive income after tax





Exchange differences on translation of overseas operations



(13)

Actuarial (losses) on defined benefit pension schemes



(107)

(121)

Actuarial losses on defined benefit pension schemes transferred to unallocated divisible surplus


41 

48 

Net change in financial investments designated as available-for-sale



32 

15 











Total comprehensive income for the year



754 

663 
















Total comprehensive income attributable to:





Non-controlling interests



(12)

(3)

Equity holders of the Company



766 

666 











 

 

International Financial Reporting Standards                                                                                                                Page 41

 

Consolidated Balance Sheet

As at 31 December 2012

 

  




2012 

2011 

  





Restated

  


Notes


£m

£m

  





  

  





  

Assets





  

Purchased interest in long term businesses and other intangible assets




211 

148 

Deferred acquisition costs




1,904 

1,833 

Investment in associates




87 

60 

Property, plant and equipment




92 

78 

Investment property




5,143 

4,894 

Financial investments


2.09


316,748 

300,604 

Reinsurers' share of contract liabilities




2,499 

2,289 

Deferred tax asset




316 

493 

Current tax recoverable




194 

94 

Other assets




1,564 

1,893 

Assets of operations classified as held for sale




891 

Cash and cash equivalents




16,652 

14,113 

  





  

  





  

Total assets




346,301 

326,499 

  





  

  





  

  





  

Equity





  

Share capital


2.10


148 

147 

Share premium


2.10


956 

941 

Employee scheme treasury shares




(43)

(48)

Capital redemption and other reserves




153 

117 

Retained earnings




4,227 

3,899 

  





  

  





  

Shareholders' equity




5,441 

5,056 

Non-controlling interests




39 

66 

  





  

  





  

Total equity




5,480 

5,122 

  





  

  





  

  





  

Liabilities





  

Subordinated borrowings


2.12


1,890 

1,921 

  





  

Participating insurance contracts


2.13


8,116 

8,750 

Participating investment contracts


2.14


7,403 

7,276 

Unallocated divisible surplus




1,153 

1,038 

Value of in-force non-participating contracts




(242)

(242)

  





  

  





  

Participating contract liabilities




16,430 

16,822 

  





  

  





  

  





  

Non-participating insurance contracts


2.13


37,728 

34,006 

Non-participating investment contracts


2.14


264,958 

251,345 

  





  

  





  

Non-participating contract liabilities




302,686 

285,351 

  





  

  





  

Senior borrowings


2.12


1,475 

1,329 

Provisions  


2.17


983 

891 

Deferred tax liabilities




382 

327 

Current tax liabilities




68 

Payables and other financial liabilities




8,083 

7,643 

Other liabilities




959 

933 

Net asset value attributable to unit holders




7,702 

6,159 

Liabilities of operations classified as held for sale




163 

  





  

  





  

Total liabilities




340,821 

321,377 

  





  

  





  

Total equity and liabilities




346,301 

326,499 

  





  

  





  

1. The consolidated balance sheet has been restated to reflect the retrospective adoption of ASU 2010-26, issued by the FASB, which specifies the accounting for deferred acquisition costs under US GAAP. Details of this adjustment are outlined in Note 2.19.

2. Assets and liabilities of operations classified as held for sale relate to seed capital the Group has invested into newly established funds. They are classified as held for sale as the Group expects it's ownership to reduce below the level for control within 12 months of classification.

 

 

International Financial Reporting Standards                                                                                                                Page 42

 

Consolidated Statement of Changes in Equity



  









  



Employee

Capital





  



scheme

redemption



Non-


  

Share

Share

treasury

and other

Retained


controlling

Total

  

capital

premium

shares

reserves

earnings

Total

interests

equity

For the year ended 31 December 2012

£m

£m

£m

£m

£m

£m

£m

£m

  









  









As at 1 January 2012

147 

941 

(48)

117 

3,899 

5,056 

66 

5,122 

Profit for the year

813 

813 

(12)

801 

Exchange differences on translation of  









overseas operations

(13)

(13)

(13)

Actuarial (losses) on defined benefit  









pension schemes

(107)

(107)

(107)

Actuarial losses on defined benefit  









pension schemes transferred to  









unallocated divisible surplus

41 

41 

41 

Net change in financial investments  









designated as available-for-sale

32 

32 

32 

  









  









Total comprehensive income/(expense)









for the year

19 

747 

766 

(12)

754 

Options exercised under









share option schemes:









- Executive share option schemes

- Savings related share option scheme

14 

15 

15 

Shares purchased

(3)

(3)

(3)

Shares vested

(21)

(13)

(13)

Employee scheme treasury shares:









- Value of employee services

19 

19 

19 

Share scheme transfers









to retained earnings

(6)

(6)

(6)

Dividends

(394)

(394)

(394)

Movement in third party interests

(15)

(15)

Currency translation differences

19 

(19)

  









  









As at 31 December 2012

148 

956 

(43)

153 

4,227 

5,441 

39 

5,480 

  










 








 

 

 

International Financial Reporting Standards                                                                                                                Page 43

 

Consolidated Statement of Changes in Equity (continued)

  



Employee

Capital





  



scheme

redemption



Non-


  

Share

Share

treasury

and other

Retained


controlling

Total

For the year ended 31 December 2011

capital

premium

shares

reserves

earnings

Total

interests

equity

(Restated)

£m

£m

£m

£m

£m

£m

£m

£m

  









  









As at 1 January 2011

147 

938 

(41)

91 

3,546 

4,681 

47 

4,728 

Profit for the year

724 

724 

(3)

721 

Exchange differences on translation of  









overseas operations

Actuarial (losses) on defined benefit  









pension schemes

(121)

(121)

(121)

Actuarial losses on defined benefit  









pension schemes transferred to  









unallocated divisible surplus

48 

48 

48 

Net change in financial investments  









designated as available-for-sale

15 

15 

15 

  









  









Total comprehensive income/(expense)









for the year

15 

651 

666 

(3)

663 

Options exercised under









share option schemes:









- Executive share option schemes

- Savings related share option scheme

Shares purchased

(15)

(15)

(15)

Shares vested

(19)

(11)

(11)

Employee scheme treasury shares:









- Value of employee services

27 

27 

27 

Share scheme transfers









to retained earnings

Dividends

(298)

(298)

(298)

Movement in third party interests

22 

22 

Currency translation differences

(3)

  









  









As at 31 December 2011

147 

941 

(48)

117 

3,899 

5,056 

66 

5,122 

  









  









 

 

International Financial Reporting Standards                                                                                                                Page 44

 

Consolidated Cash Flow Statement

For the year ended 31 December 2012

  



2012 

2011 

  




Restated

  



£m

£m

  





  





Cash flows from operating activities





Profit for the year



801 

721 

Adjustments for non cash movements in net profit for the year





Realised and unrealised gains on financial investments and investment properties



(18,429)

(3,014)

Investment income



(9,470)

(8,971)

Interest expense



165 

165 

Tax expense



409 

54 

Other adjustments



67 

68 

Net (increase)/decrease in operational assets





Investments held for trading or designated as fair value through profit or loss



(1,118)

3,736 

Investments designated as available-for-sale



30 

(29)

Other assets



(3,008)

(1,678)

Net increase in operational liabilities





Insurance contracts



3,221 

2,075 

Transfer from unallocated divisible surplus



115 

(431)

Investment contracts



13,795 

(2,068)

Value of in-force non-participating contracts



135 

Other liabilities



7,026 

2,258 

  





  





Cash used in operations



(6,396)

(6,979)

Interest paid



(164)

(164)

Interest received



5,013 

5,021 

Tax paid



(193)

(193)

Dividends received



4,539 

3,872 

  





  





Net cash flows from operating activities



2,799 

1,557 

  





  





Cash flows from investing activities





Net acquisition of plant, equipment and intangibles



(59)

(41)

Acquisitions (net of cash acquired)



(27)

(11)

Capital injection into overseas joint ventures



(5)

  





  





Net cash flows from investing activities



(86)

(57)

  





  





Cash flows from financing activities





Dividend distributions to ordinary equity holders of the Company during the year



(394)

(298)

Proceeds from issue of ordinary share capital



16 

Purchase of employee scheme shares



(3)

(15)

Proceeds from borrowings



1,318 

1,327 

Repayment of borrowings



(1,105)

(1,428)

  





  





Net cash flows from financing activities



(168)

(411)

  





  





Net increase in cash and cash equivalents



2,545 

1,089 

Exchange (losses) on cash and cash equivalents



(6)

(12)

Cash and cash equivalents at 1 January



14,113 

13,036 

  





  





Cash and cash equivalents at 31 December



16,652 

14,113 

  





  





1. Tax comprises UK corporation tax paid of £60m (2011: £80m), overseas corporate taxes of £8m (2011: £8m) and withholding tax of £125m (2011: £105m).

2. Net cash flows from acquisitions include total net identifiable assets acquired of £33m (2011: £15m) less cash and cash equivalents acquired of £6m (2011: £4m).


The Group's consolidated cash flow statement includes all cash and cash equivalent flows, including those relating to the UK long term fund policyholders.

 

 

International Financial Reporting Standards                                                                                                                Page 45

 

Notes to the Financial Statements

2.06 Gross written premiums on insurance contracts

  









  







2012 

2011 

  







£m

£m

  









  









From continuing operations









Protection and Annuities









Non-participating UK business







3,782 

3,778 

Netherlands (LGN)







172 

194 

France (LGF)







406 

393 

General insurance









- Household







327 

283 

- Other business







22 

21 

  









  









Total Protection and Annuities







4,709 

4,669 

  









Savings









Non-participating Savings business







39 

40 

Participating business







336 

488 

  









  









Total Savings







375 

528 

  









US Protection







584 

522 

  









  









Total gross written premiums







5,668 

5,719 

  









  









 

 

2.07 Earnings per share

(a) Earnings per share

  




  



  


  

Profit

Tax

Profit

Earnings

Profit

Tax

Profit

Earnings

  

before tax

expense

after tax

per share

before tax

expense

after tax

per share

  

2012 

2012 

2012 

2012 

2011 

2011 

2011 

2011 

  




  

Restated

Restated

Restated

Restated

  

£m

£m

£m

p

£m

£m

£m

p

  




  



  


  




  



  


Operating profit  

1,087 

(267)

820 

14.01 

1,053 

(268)

785 

13.47 

Investment variances

(39)

39 

0.01 

(97)

42 

(55)

(0.94)

Impact of change in UK tax rates

(7)

(7)

(0.12)

(6)

(6)

(0.11)

  




  



  


  




  



  


Earnings per share based on profit




  



  


attributable to equity holders

1,048 

(235)

813 

13.90 

956 

(232)

724 

12.42 

  




  



  


  




  



  


 

 

(b) Diluted earnings per share

(i) Based on operating profit after tax


 

 

  




  



  


  



Profit

Number

Earnings

Profit

Number

Earnings

  



after tax

of shares

per share

after tax

of shares

per share

  



2012 

2012 

2012 

2011 

2011 

2011 

  




  


Restated

  

Restated

  



£m

m

p

£m

m

p

  




  



  


  




  



  


Operating profit after tax



820 

5,851 

14.01 

785 

5,828 

13.47 

Net shares under options allocable for no further consideration

99 

(0.23)

97 

(0.22)

  




  



  


  




  


  


Diluted earnings per share



820 

5,950 

13.78 

785 

5,925 

13.25 

  




  



  


  




  



  


 

 

 

International Financial Reporting Standards                                                                                                                Page 46

 

Notes to the Financial Statements

2.07 Earnings per share (continued)

(b) Diluted earnings per share (continued)

(ii) Based on profit attributable to equity holders

  




  



  


  



Profit

Number

Earnings

Profit

Number

Earnings

  



after tax

of shares

per share

after tax

of shares

per share

  



2012 

2012 

2012 

2011 

2011 

2011 

  




  


Restated

  

Restated

  



£m

m

p

£m

m

p

  




  



  


  




  



  


Profit attributable to equity holders of the Company

813 

5,851 

13.90 

724 

5,828 

12.42 

Net shares under options allocable for no further consideration

99 

(0.24)

97 

(0.20)

  




  



  


  




  



  


Diluted earnings per share



813 

5,950 

13.66 

724 

5,925 

12.22 

  




  



  


  




  



  


1. Weighted average number of shares.   




  



  


  




  



  


The number of shares in issue at 31 December 2012 was 5,912,782,826 (31 December 2011: 5,872,166,893).

 

 

2.08 Dividends

  









  





Per


Per


  





share

Total

share

Total

  





2012 

2012 

2011 

2011 

  





p

£m

p

£m

  









  









Ordinary share dividends paid in the year








 - Prior year final dividend  





4.74 

278 

3.42 

201 

 - Current year interim dividend





1.96 

116 

1.66 

97 

  









  













6.70 

394 

5.08 

298 

  









  









Ordinary share dividend proposed





5.69 

336 

4.74 

279 

  









  









1. The dividend proposed has not been included as a liability in the balance sheet.

 

 

2.09 Financial investments

 

  







2012 

2011 

  







£m

£m

  









  









Equities







148,488 

134,594 

Unit trusts







7,238 

7,487 

Debt securities







152,526 

149,711 

Accrued interest







1,669 

1,705 

Derivative assets







6,445 

6,756 

Loans and receivables







382 

351 

  









  









  







316,748 

300,604 

  









  









1. Detailed analysis of debt securities which shareholders are directly exposed to are disclosed in Note 4.02.

2. Derivative exposures arise from efficient portfolio management, especially the use of interest rate swaps, inflation swaps, credit default swaps, foreign exchange forward contracts for asset and liability management and the matching of Guaranteed Equity Bonds within the Nationwide portfolio. Derivative assets are shown gross of derivative liabilities and include £3,296m (2011: £3,174m) held on behalf of unit linked policyholders.

  









There have been no significant transfers between levels 1, 2 and 3 of the fair value hierarchy (as prescribed in IFRS 7 'Financial Instruments: Disclosures') for the year ended 31 December 2012. Further details are provided in Note 4.07.

 

 

International Financial Reporting Standards                                                                                                                Page 47

 

Notes to the Financial Statements

2.10 Share capital and share premium

 





2012 



2011 






Number of

2012 


Number of

2011 

Authorised share capital


shares

£m


shares

£m



















At 31 December: ordinary shares of 2.5p each

9,200,000,000 

230 

9,200,000,000 

230 



































Share

Share







Number of

capital

premium

Issued share capital, fully paid






shares

£m

£m



















As at 1 January 2012





5,872,166,893 

147 

941 

Options exercised under share option schemes






- Executive share option scheme






1,626,478 

- Savings related share option scheme





38,989,455 

14 



















As at 31 December 2012





5,912,782,826 

148 

956 


























Share

Share







Number of

capital

premium

Issued share capital, fully paid






shares

£m

£m



















As at 1 January 2011





5,866,669,323 

147 

938 

Options exercised under share option schemes






- Executive share option scheme






1,736,890 

- Savings related share option scheme





3,760,680 



















As at 31 December 2011





5,872,166,893 

147 

941 



















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.

 

 

International Financial Reporting Standards                                                                                                                Page 48

 

Notes to the Financial Statements

2.11 Segmental analysis of shareholders' equity





  









  







2012 

2011 

  








Restated

  







£m

£m

  









  









Protection and Annuities









General insurance







180 

148 

Netherlands (LGN)







156 

118 

France (LGF)







204 

196 

Other







10 

  









  









Total Protection and Annuities







550 

468 

  









  









  









Savings









Savings investments







138 

136 

Other







52 

48 

  









  









Total Savings







190 

184 

  









  









  









Investment management







360 

351 

  









  









  









US Protection







919 

910 

  









  









  









Group capital and financing







3,422 

3,143 

  









  









Shareholders' equity







5,441 

5,056 

  









  










Overseas shareholder equity is presented on a legal entity basis, whereas UK shareholder equity is based on a management assessment of this business.

  









The Group has five reporting segments comprising Protection and Annuities, Savings, Investment management, US Protection, and Group capital and financing.

 

The Protection and Annuities segment comprises individual and group protection, individual and bulk purchase annuities, longevity and general insurance, together with estate agencies and the housing related business conducted through our regulated mortgage network. It also includes Legal & General France (LGF) and Legal & General Netherlands (LGN).  

 

The Savings segment comprises non profit investment bonds, non profit pensions (including SIPPs), ISAs, retail unit trusts, retail platform businesses, all with-profits products, and our joint venture operation in India.

 

The Investment management segment comprises institutional fund management and LGIM America (LGIMA).

 

The US Protection segment comprises individual protection and universal life contracts written by Legal & General America (LGA).

 

Shareholders' equity supporting the non profit Protection and Annuities and Savings businesses is held within Legal & General Assurance Society Limited and Legal & General Pensions Limited and is managed on a groupwide basis within Group capital and financing. This also includes capital within the Group's treasury function and unit trust funds and property partnerships, which are managed on behalf of clients but are required to be consolidated under IFRS, which do not constitute a separately reportable segment. The Group capital and financing segment also includes our joint ventures in Egypt and the Gulf.

 

 

International Financial Reporting Standards                                                                                                                Page 49

 

Notes to the Financial Statements

2.12 Borrowings

 

  







2012 

2011 

  







£m

£m

  









  









Subordinated borrowings









6.385% Sterling perpetual capital securities (Tier 1)






700 

721 

5.875% Sterling undated subordinated notes (Tier 2)






419 

421 

4.0% Euro subordinated notes 2025 (Tier 2)






479 

483 

10% Sterling subordinated notes 2041 (Tier 2)






309 

309 

Client fund holdings of Group debt







(17)

(13)

  









  









Total subordinated borrowings







1,890 

1,921 

  









  









  









Senior borrowings









Sterling medium term notes 2031-2041







608 

608 

Euro Commercial paper







333 

246 

Bank loans/other







Client fund holdings of Group debt







(53)

(51)

  









  









Total senior borrowings (excluding non recourse)


894 

811 

  









  









Total borrowings (excluding non recourse)





2,784 

2,732 

  









  









  









Non recourse  









- US Dollar Triple X securitisation 2037







272 

286 

- Suffolk Life unit linked borrowings







123 

136 

- LGV 6/LGV 7 Private Equity Fund Limited Partnership





128 

96 

- Consolidated Property Limited Partnerships





58 

  









  









Total senior borrowings (including non recourse)





1,475 

1,329 

  









  









Total borrowings







3,365 

3,250 

  









  









1. £70m (2011: £64m) of the Group's subordinated and senior debt is currently held by Legal & General customers through unit linked products. These borrowings are shown as a deduction from total borrowings in the table above.

 

 

 

International Financial Reporting Standards                                                                                                                Page 50

 

Notes to the Financial Statements

2.12 Borrowings (continued)

 

Subordinated borrowings

 

6.385% Sterling perpetual capital securities

In 2007, Legal & General Group Plc issued £600m of 6.385% Sterling perpetual capital securities. Simultaneous with the issuance, the fixed coupon was swapped into six month LIBOR plus 0.94% pa. These securities are callable at par on 2 May 2017 and every three months thereafter. If not called, the coupon from 2 May 2017 will be reset to three month LIBOR plus 1.93% pa. For regulatory purposes these securities are treated as innovative tier 1 capital. These securities have been classified as liabilities as the interest payments become mandatory in certain circumstances.

 

5.875% Sterling undated subordinated notes

In 2004, Legal & General Group Plc issued £400m of 5.875% Sterling undated subordinated notes. These notes are callable at par on 1 April 2019 and every five years thereafter. If not called, the coupon from 1 April 2019 will be reset to the prevailing five year benchmark gilt yield plus 2.33% pa. These notes are treated as upper tier 2 capital for regulatory purposes. These securities have been classified as liabilities as the interest payments become mandatory in certain circumstances.

 

4.0% Euro subordinated notes 2025

In 2005, Legal & General Group Plc issued €600m of 4.0% Euro dated subordinated notes. The proceeds were swapped into sterling. The notes are callable at par on 8 June 2015 and each year thereafter. If not called, the coupon from 8 June 2015 will reset to a floating rate of interest based on prevailing three month Euribor plus 1.7% pa. These notes mature on 8 June 2025 and are treated as lower tier 2 capital for regulatory purposes.

 

10% Sterling subordinated notes 2041

On 16 July 2009, Legal & General Group Plc issued £300m of 10% dated subordinated notes. The notes are callable at par on 23 July 2021 and every five years thereafter. If not called, the coupon from 23 July 2021 will be reset to the prevailing five year benchmark gilt yield plus 9.325% pa. These notes mature on 23 July 2041 and are treated as lower tier 2 capital for regulatory purposes.

 

Non recourse financing

 

US Dollar Triple X securitisation 2037

In 2006, a subsidiary of LGA issued US$450m of non recourse debt in the US capital markets to meet the Triple X reserve requirements of part of the US term insurance written after 2005 and 2006. It is secured on the cash flows related to that tranche of business.

 

Suffolk Life unit linked borrowings

All of these non recourse borrowings are in relation to commercial properties held within SIPP plans and the borrowings solely relate to client investments.

 

LGV6/LGV7 Private Equity Fund Limited Partnerships

These borrowings are non recourse bank borrowings.

 

Consolidated Property Limited Partnerships

These borrowings are non recourse bank borrowings.

 

Syndicated credit facility

 

As at 31 December 2012, the Group had in place a £1.00bn syndicated committed revolving credit facility provided by a number of its key relationship banks, maturing in October 2017. No drawings were made under this facility during 2012.

 

Holding company short term assets

 

Short term assets available at the holding company level exceeded the amount of non-unit linked short term borrowings of £337m (2011: £254m). They comprise Euro Commercial paper and bank loans.

 

 

International Financial Reporting Standards                                                                                                                Page 51

 

Notes to the Financial Statements

2.13 Insurance contract liabilities

(a) Analysis of insurance contract liabilities


  



 






  



 


Re-


Re-


  



 

Gross

insurance

Gross

insurance


  



 

2012 

2012 

2011 

2011 


  



Notes

£m

£m

£m

£m


  



 






  



 





Participating insurance contracts



2.13(b)

8,116 

(1)

8,750 

(1)

Non-participating insurance contracts



2.13(c)

37,445 

(2,277)

33,761 

(2,110)

General insurance contracts



2.13(d)

283 

(8)

245 

(6)


  



 






  



 





Insurance contract liabilities



 

45,844 

(2,286)

42,756 

(2,117)


  



 






  



 





1. Excluding General insurance contracts.

  



 





 

 

(b) Movement in participating insurance contract liabilities


  



 






  



 


Re-


Re-


  



 

Gross

insurance

Gross

insurance


  



 

2012 

2012 

2011 

2011 


  



 

£m

£m

£m

£m


  



 






  



 





As at 1 January             

  



 

8,750 

(1)

9,383 

(1)

New liabilities in the year

  



 

262 

374 

Liabilities discharged in the year



 

(1,413)

(1,435)

Unwinding of discount rates  



 

78 

85 

Effect of change in non-economic assumptions



 

(26)

Effect of change in economic assumptions



 

329 

357 

Other

  



 

106 

12 


  



 






  



 





As at 31 December

  



 

8,116 

(1)

8,750 

(1)


  



 






  



 





 

 

International Financial Reporting Standards                                                                                                                Page 52

 

Notes to the Financial Statements

2.13 Insurance contract liabilities (continued)

(c) Movement in non-participating insurance contract liabilities


  



 






  



 


Re-


Re-


  



 

Gross

insurance

Gross

insurance


  



 

2012 

2012 

2011 

2011 


  



 

£m

£m

£m

£m


  



 






  



 





As at 1 January             

  



 

33,761 

(2,110)

31,064 

(2,096)

New liabilities in the year



 

2,667 

(392)

2,687 

(309)

Liabilities discharged in the year



 

(2,271)

213 

(2,018)

144 

Unwinding of discount rates  



 

1,311 

(118)

1,321 

(123)

Effect of change in non-economic assumptions



 

(124)

132 

(403)

389 

Effect of change in economic assumptions



 

2,229 

(17)

1,133 

(111)

Foreign exchange adjustments



 

(128)

15 

(23)

(4)


  



 






  



 





As at 31 December

  



 

37,445 

(2,277)

33,761 

(2,110)


  



 






  



 





1. The economic assumptions changes in 2012 principally reflect the narrowing of credit spreads. Movements in credit spreads also increased the value of the corresponding backing assets.

 

 

(d) Analysis of General insurance contract liabilities


  



 


Re-


Re-