L&G Half-year results 2015 Part 1

Stock Exchange Release

05 August 2015

 

OPERATING PROFIT UP 18%, net cash up 11%, roe¹ 19%

 

financial highlights: 

 

·      Net cash GENERATION up 11% to £629m (h1 2014: £567m)

·      OPERATIONAL CASH GENERATION UP 8% TO £624M (h1 2014: £578m)

·      OPERATING PROFIT up 18% to £750M (h1 2014: £636m)

·      Profit after tax up 8% to £547m (h1 2014: £507m)

·      Earnings per share UP 7% to 9.11P (h1 2014: 8.51p)

·      adjusted Earnings per share² UP 15% to 9.79P (h1 2014: 8.51p)

·      return on equity¹ 19.1% (h1 2014: 17.6%)

·      interim DIVIDEND UP 19% TO 3.45P PER SHARE (h1 2014: 2.90p)

 

business highlights:

 

·      lgim AUM up 12% to £714.6BN (H1 2014: £640.0BN)

·      LGIM EXTERNAL NET FLOWS UP 62% TO £13.8BN (H1 2014: £8.5BN)

·      annuity assets up 13% to £43.4bn (h1 2014: £38.5bn)

·      BULK PURCHASE ANNUITY PREMIUMS OF £1,146M (h1 2014: £3,135M)

·      uk protection premiums up 4% to £774m (h1 2014: £743m)

·      DIRECT INVESTMENTs UP 35% TO £6.2BN (h1 2014: £4.6BN)

 

 

Nigel Wilson, Group Chief Executive, said:

"Legal & General continues to deliver strong organic growth in the UK and the US from both our developing and established, market leading businesses. In addition we are disposing of, or closing non-core businesses and reducing costs in real and nominal terms.

The actions that we are taking allow us to focus on our chosen markets, enable us to continue to deliver low prices and better value for our increasing customer base and deliver attractive returns for our shareholders.

This financial and strategic discipline is driving our sixth year of double digit growth in net cash, operating profit and dividends - particularly noteworthy in H1 was the diversity of the strong operational and financial delivery, with an 18% increase in operating profit to £750m, the  19% increase in dividend per share to 3.45p and the 19% ROE."

 

 

1.   Return on equity is calculated by taking annualised profit after tax attributable to equity holders of the Company (twice the half-year number), as an average of shareholders' equity during the period. This excludes a £40m expense in relation to Legal & General France and Legal & General Gulf as a consequence of both operations being classified as held for sale.

2.   Adjusted earnings per share is calculated by dividing profit after tax by the weighted average number of ordinary shares in issue during the period, excluding the £40m expense as per note 1.

FINANCIAL SUMMARY

FINANCIAL HIGHLIGHTS £m		H1 2015	H1 2014	Growth %
Analysis of operating profit
Legal & General Retirement		280	188	49
Legal & General Investment Management		176	149	18
Insurance		192	179	7
Savings		50	54	(7)
Legal & General Capital		115	102	13
Legal & General America		40	43	(7)
Operating profit from divisions		853	715	19
Group debt costs		(75)	(63)	(19)
Investment projects and expenses		(28)	(16)	(75)
Operating profit		750	636	18
Investment and other variances (inc. minority interests) 1		(78)	-	n/a
Profit before tax attributable to equity holders		672	636	6
Operational cash generation		624	578	8
New business surplus / (strain)		5	(11)	n/a
Net cash generation		629	567	11

 

LEGAL & GENERAL RETIREMENT (LGR)

£m		H1 2015	H1 2014	Growth %
Annuity assets (£bn)		43.4	38.5	13
Annuity sales		1,326	3,518	(62)
Lifetime mortgage advances		37	-	n/a

 

LEGAL & GENERAL INVESTMENT MANAGEMENT (LGIM)

£bn		H1 2015	H1 2014	Growth %
LGIM total AUM2, 3		714.6	640.0	12
LGIM total international AUM		115.8	69.2	67
External AUM net flows		13.8	8.5	62
Advisory assets		11.3	13.7	(18)
Workplace AUA		13.1	9.5	38
Asset management revenue (£m)		347	309	12

 

INSURANCE

£m		H1 2015	H1 2014	Growth %
UK Protection gross premiums		774	743	4
UK Protection new business annual premiums		119	123	(3)

 

SAVINGS

£bn		H1 2015	H1 2014	Growth %
Savings AUA		110.8	103.8	7

 

LEGAL & GENERAL CAPITAL (LGC)

£bn		H1 2015	H1 2014	Growth %
LGC assets		4.8	5.2	(8)
of which: direct investments		0.8	0.6	25

 

LEGAL & GENERAL AMERICA (LGA)

$m		H1 2015	H1 2014	Growth %
LGA gross premiums		588	553	6

1.    Investment and other variances include a £40m expense as a result of classifying Legal & General France and Legal & General Gulf as held for sale.

2.       LGIM total AUM includes £208.1bn (H1 2014: £174.9bn) of derivative overlay assets associated with the Solutions business.

3.       LGIM AUM includes £43.4bn (H1 2014: £38.5bn) managed on behalf of LGR and £34.0bn (H1 2014: £34.4bn) managed on behalf of Savings.

 

strategy

The Group continues to execute on its clear and focused strategy based on five key macro trends: ageing populations; globalisation of asset markets; welfare reform; digital lifestyles and retrenching banks, through both organic growth and selective bolt-on acquisitions. Our responses to these trends and the diversification within our business model have enabled us to deliver broad based and sustained growth in our cash and earnings. We believe that aligning our strategy to the five macro trends creates resilience in our business model and we see continuing opportunities for growth in our chosen markets. External uncertainties, including regulatory change, do remain and we are adapting with these changes, but the fundamental pillars of opportunity and growth remain attractive and we remain focused on delivering good returns for our shareholders.

The Group pursues a focused and disciplined approach to the execution of its strategy. We are exiting, closing or selling non-core or sub-scale businesses including closing our With-profits fund and disposing of assets from our venture capital business (LGV). We have also sold our Irish business in July 2015, have entered into agreements to sell our Egyptian and Gulf businesses and intend to dispose of our French and German businesses in the near future. We anticipate the on-going impact on the Group's cash and profits, resulting from these transactions, to be immaterial. At the same time we are implementing cost savings across the business including through headcount reductions and a review of our UK and US locations: the programme is on track to deliver £80m in savings in 2015, with expected restructuring costs of £40m.

AGEING POPULATIONS

Demand for de-risking solutions remains high as companies seek to manage the earnings volatility caused by legacy defined benefit pension schemes and the associated financial obligations placed on the sponsoring employer. We have positioned our Investment Management (LGIM) and Retirement (LGR) businesses to provide de-risking solutions for the estimated $10 trillion of defined benefit pension liabilities globally, of which around £1.8 trillion resides in the UK.

LGIM has cemented its position in H1 2015 as the market leader of Liability Driven Investment solutions (LDI) in the UK, with over 40% of the market. Solutions assets increased 22% to £308.2bn (H1 2014: £253.1bn), including net flows of £12.3bn (H1 2014: £15.9bn) in the period.  In LGR, for bulk annuities, we are evolving our new business strategy to become more 'capital-lite' in response to the potential market demand and the expected increased regulatory capital requirements for annuities under Solvency II. Bulk annuity sales for H1 2015 were £1,146m (H1 2014: £3,135m). We are increasingly using reinsurance to optimise our return on capital in this market and have reinsured £5.4bn of longevity risk and selectively used asset reinsurance in relation to the large bulk annuity transactions we have completed in the last 18 months. The opportunity remains significant and our unique skillset and capabilities will enable us to deliver consistently attractive returns.

Globalisation of asset markets

LGIM continues to expand internationally, especially in the US and Asia, which resulted in total international external AUM net flows of £5.4bn (H1 2014: £5.8bn). We have strengthened relationships and expanded distribution to accelerate our international growth and continue to see strong demand for our Solutions and Active Fixed Income (AFI) products.

In H1 2015 we successfully won our first multi-billion dollar US Index mandate, and in Asia won mandates in Japan, Taiwan and Korea, expected to fund in H2. Total international AUM increased by 67% to £115.8bn (H1 2014: £69.2bn), including the transfer of £37.5bn of US assets to LGIM's Chicago office in H2 2014. 

Welfare reform

It is clear that the provision for retirement by individuals in the UK needs to increase as the government continues to reduce welfare spending by the State. Pensions auto-enrolment continues to see over 90% of members choosing to stay enrolled. Statutory minimum contribution rates increase from 2% of salary today to 5% in 2017 and 8% in 2018 resulting in an expected tripling in Defined Contribution (DC) savings over the next 10 years. Our Workplace DC platform continues to resonate with employers of all sizes in the UK. We have had success with major employers reviewing their provision, and by the end of 2015 we will be providing pension schemes to 30 of the largest high street retailers. Alongside this the number of companies using our Worksave Pension Plan (our SME auto-enrolment solution) has grown by over 25% during the first half of 2015. Our Workplace proposition is significantly enhancing the customer base of the Group, which is expected to provide new product opportunities as the state contribution to welfare continues to reduce.

Total DC Assets increased 15% to £42.8bn (H1 2014: £37.2bn) including net flows of £1.0bn (H1 2014: £1.1bn). This includes Workplace Savings assets up 38% to £13.1bn (H1 2014: £9.5bn) with net flows of £0.9bn (H1 2014: £1.0bn).

Digital Lifestyles

Digital technology is becoming increasingly pervasive in our lives, including in how individuals and companies interact with financial institutions. We are addressing the opportunities and challenges presented by this change. We have achieved this with our market leading Retail Protection business and are now challenging ourselves to replicate this success elsewhere in our business, for example, with our digital proposition in Workplace for SMEs and by launching a 'GI digital' D2C platform this year.

Bank Retrenchment

Bank retrenchment, alongside the long-dated illiquid nature of our annuity fund, is enabling us to invest in real assets over the long term. This provides opportunities for greater returns across our Capital (LGC), Retirement (LGR) and Investment Management (LGIM) divisions. Direct Investments across the Group increased 35% to £6.2bn (H1 2014: £4.6bn).

In July 2015 Pemberton Asset Management, our pan-European SME lending joint venture announced a successful €447m first close of the European Mid-Market Debt Fund, bringing the total AUM to €547m including an additional €100m segregated mandate. Our principal focus for direct investment is housing, urban regeneration, alternative finance and clean energy asset classes. Our expertise is increasingly attracting institutional partners to invest alongside us.

 

DIVIDEND

The Board has confidence in the strength and growth prospects for the business. We have increased the interim dividend by 19% to 3.45 pence (H1 2014: 2.90 pence) per share, in line with our dividend policy. We intend to provide an updated dividend policy as part of our 2015 preliminary results in March 2016.

 

SOLVENCY ii

We are working closely with the Prudential Regulatory Authority (PRA) in respect of Solvency II and have submitted applications in Q2 2015 for our internal model to calculate our Solvency Capital Requirement, the use of transitionals, matching adjustments and deduction and aggregation for Legal & General America. We are engaged in on-going dialogue with the PRA and expect this process to conclude in Q4 2015. This regulatory framework will be applicable from 1 January 2016 and will rely, in part, on components of the 31 December 2015 balance sheet for its calculation. We will provide further updates on this process as clarity emerges. We note recent clarification from the PRA to the effect that transitional capital will count as Tier One capital, including for assessments of dividend-paying capacity.

 

OUTLOOK

Our businesses remain focused on large markets where we see long term structural growth potential. Our strategic clarity and unique skillset, together with our scale, efficiency and track record mean that we are very well placed to take advantage of macro trends. No business can be completely immunised from external factors and we are evolving our business model in response.

The demand for pension risk transfer strategies remains high, with our research indicating that almost two thirds of large defined benefit (DB) schemes in the UK are looking to take de-risking action, with almost half looking to do so over the next five years. The opportunity remains significant for Legal & General and as market leader in the UK, we are extremely well placed to deploy our unique and integrated specialist experience in longevity, investment management and asset transitioning, across our LGR, LGIM and LGC divisions to facilitate pension risk transfer. Actual transactions flows, particularly for large bulk annuity transactions, will vary between reporting periods.

We have accelerated the implementation of our 'capital-lite' model for new annuity business in response to the potential market demand and the expected increased regulatory capital requirements for annuities under Solvency II. This will result in less risk, in respect of new business, being retained on our balance sheet, whilst seeking to optimise the return on capital we deploy in this market. For each new annuity contract we expect this to result in a higher proportion of profit emerging in the year of sale. However we expect less total profit to emerge over the duration of the contract when compared to retaining all of the risk. We will use direct investments and selective de-risking actions to optimise returns from the long term predictable run-off of our £43bn annuity back book.

Following our successful entry into the lifetime mortgage market we have doubled our target and now expect to write c£200m of lifetime mortgages new business this year and increasing amounts thereafter. We expect individual annuities sales to remain subdued, with the market remaining challenging both in respect of the Budget reforms and in light of regulatory change.

As the market leader in LDI in the UK, LGIM will continue to develop its range of solutions, particularly as the pooled market and delegated solutions are expected to grow more rapidly as many pension schemes increasingly seek these solutions. We will continue to invest internationally and are expanding our distribution in the US, Asia, the Gulf and Europe. In the US our business is well positioned to continue its positive momentum. We have experienced more success in winning index mandates from international clients and we expect this trend to continue.

Our insurance business is attractively placed to continue to deliver strong cash generation. We see further opportunities in the UK insurance market and have a strong Group protection pipeline for H2 2015. We expect new business volumes and margins across our UK protection businesses for 2015 to be broadly in line with 2014.

We intend to invest £15bn in direct investment across the Group, over the medium term, matching the illiquid nature of our liabilities and solvency capital requirements to deliver more attractive risk adjusted returns to our shareholders.

We are on track to deliver c£80m of operating cost savings across the Group, reducing costs from £1,250m in 2014 to c£1,170m, whilst incurring £40m of restructuring costs in 2015.  We remain confident in delivering the 2015 operational cash guidance we gave at the time of the 2014 full year results.

 

LEGAL & GENERAL RETIREMENT

FINANCIAL HIGHLIGHTS £m			H1 2015	H1 2014
Operational cash generation			170	146
New business surplus			22	20
Net cash generation			192	166
Experience variances, assumption changes, tax and non-cash movements			88	22
Operating profit			280	188
Bulk annuity single premiums			1,146	3,135
Individual annuity single premiums			180	383
Lifetime mortgage advances			37	-
Total LGR new business			1,363	3,518
Annuity net inflows (£bn)			(0.1)	2.5
Bulk annuity assets (£bn)			28.8	24.6
Individual annuity assets (£bn)			14.6	13.9
Total annuity assets (£bn)			43.4	38.5
of which: direct investments			4.9	3.7
Longevity insurance gross premiums			164	167

 

record operational cash, sustained new business SURPLUS

Operational cash generation increased 16% to £170m (H1 2014: £146m) reflecting the increased scale of the business with annuity assets up 13% to £43.4bn (H1 2014: £38.5bn).

New business surplus of £22m (H1 2014: £20m) reflects our continued ability to source attractively priced assets, with direct investments backing our annuity business increasing 31% to £4.9bn, (H1 2014: £3.7bn). New business surplus further benefitted from our selected use of longevity and asset reinsurance as our business model evolves to reflect the size of the market opportunities and the forthcoming Solvency II regime.

Operating profit increased 49% to £280m (H1 2014: £188m) reflecting both the increased scale of the business and the 'capital-lite' model we are deploying for new annuity business. Operating profit benefitted from £21m of positive experience variances following selective reinsurance of longevity and asset risk related to bulk annuity transactions written in the last 18 months, consistent with this strategy, and £37m resulting from a change in mortality reserving assumptions in relation to unreported deaths of deferred annuitants.

 

significant global demand for pension risk transfer

Bulk annuity sales were £1,146m, from 23 policies, (H1 2014: £3,135m from 25 policies).

The global risk transfer market is already very significant and continues to grow as corporates seek to reduce or remove their exposure to their legacy defined benefit pension liabilities, estimated at approximately $10 trillion globally. We anticipate growing demand for our established expertise, proven track record and unique skillset in the bulk annuity market across all sizes of pension schemes. Actual transaction flows will be determined by prevailing market conditions and scheme funding levels, with larger schemes unevenly distributed between quarterly reporting periods.

ACCELERATING THE IMPLEMENTATION OF our 'CAPITAL-LITE' FRONT BOOK MODEL

In the context of these significant opportunities, we have implemented our 'capital-lite' model for bulk annuity new business. We have accelerated this evolution in our business model as, without any changes, the regulatory capital required in respect of new business under Solvency II is likely to be higher than Solvency I. Our actions include:

-    Increasing use of longevity reinsurance. Of the £7.1bn of external bulk annuity transactions we have completed since the start of 2014, we have reinsured the longevity risk in respect of £5.4bn of these.

-    Increasing use of combined asset and longevity reinsurance, which we have used selectively (£278m in H1 2015) to enhance shareholder returns.

-    Continuing our increased use of self-manufactured assets (direct investments) to back our annuity liabilities, where the illiquid nature of the liabilities enables us to enhance risk-adjusted returns.

-    We have reduced unit costs associated with our existing book of bulk annuity business by c5%, compared to H1 2014.  

managing cash generation AND PROFITS from the back book

We will continue to use direct investments and selective de-risking actions to actively manage our £43bn annuity back book. As a result our current expectation is that the back book should be able to generate material levels of profit for around 15 years.

anticipated Financial implications

The financial consequences of our 'capital-lite' strategy differ between the back and front books. For new business our 'capital-lite' model seeks to optimise return on capital and will mean more of the cash generation and profits being realised at the point of sale than has been the case previously, whilst risk retained in respect of this new business (asset and partial longevity) will continue to create future, albeit lower, sources of value for shareholders in the subsequent years of each new annuity contract.

INTERNATIONAL DIVERSIFICATION

Outside the UK, we have appointed George Palms as head of US Retirement, together with a team based in Stamford Connecticut, to facilitate our entry into the US pension risk transfer market. Legal & General America (LGA) will act as the insurance carrier for our US pension risk transfer business and provide the associated customer administration.

 

 

individual retirement solutions

We completed the acquisition of Newlife Home Finance, a provider of lifetime mortgages in April 2015. Lifetime mortgage sales were £37m year to date. We have subsequently rebranded our proposition as Legal & General Home Finance. The number of people over 60 years old is expected to grow by 6.3 million in the next 20 years. This growth, coupled with an estimated £1.3 trillion of housing equity currently owned by the over 60s in the UK, means that the lifetime mortgage market is forecast to grow to over £2.3bn by 2019.  We have doubled our target to writing £200m of lifetime mortgages in 2015.

Individual Annuity sales were down 53% to £180m (H1 2014: £383m). We expect the market to decline further.

 

LEGAL & GENERAL investment management

 

FINANCIAL HIGHLIGHTS £m			H1 2015	H1 20141
Total revenue			347	309
Total costs			168	150
Asset management operating profit			179	159
Workplace Savings			(3)	(10)
Operating profit			176	149
Net cash generation			138	117
Cost:income ratio2 (%)			48	49
External net flows (£bn)			13.8	8.5
Internal net flows (£bn)			(1.2)	1.6
Total net flows (£bn)			12.6	10.1
Of which international (£bn)			5.4	5.8

 

 

£bn			H1 2015	H1 2014
Assets under management, including overlay assets3			714.6	640.0
Advisory assets			11.3	13.7
Total assets			725.9	653.7
Of which:
- International assets under management, including overlay assets3			115.8	69.2
- Advisory assets			11.3	13.7
- Total international assets			127.1	82.9
Assets under administration - Workplace Savings			13.1	9.5

1.    LGIM includes the Workplace Savings business which was previously reported in Savings. Prior year comparatives have been amended.

2.    Excluding Workplace Savings.

3.    Assets under management include overlay assets, which represent the notional value of derivative instruments on which LGIM earns fees. Fees are charged on notional values and as such are not subject to positive or negative market movements. Prior period comparatives have been amended to reflect this change.

 

CONTINUED PROFIT AND CASH GROWTH FROM A diversified BUSINESS

LGIM continues to develop a range of innovative solutions, which has enabled delivery of strong results with operating profit up 13% to £179m (H1 2014: £159m) from asset management activities.

In Workplace Savings, the operating loss was £3m (H1 2014: loss of £10m), an improvement year on year following an on-going focus on unit cost management and increasing scale. Total net flows were £0.9bn (H1 2014: £1.0bn).

LGIM continues to invest in the business whilst maintaining a cost:income ratio, excluding Workplace, of 48% (H1 2014: 49%). Total revenues increased 12% to £347m (H1 2014: £309m) with total assets under management up 12% to £714.6bn (H1 2014: £640.0bn).

Total external net flows increased 62% year on year to £13.8bn (H1 2014: £8.5bn) driven by strong performance in the UK and the US across our Active Fixed Income (AFI), Solutions and Property asset classes.

 

market leading de-risking solutions

 

			Active
Asset movements		Index	fixed	Solu-		Active	Total	Advisory	Total
£bn		funds	income	tions	Property	equities	AUM	assets	assets
At 1 January 2015		274.8	103.8	293.3	13.6	8.2	693.7	14.8	708.5
External inflows		15.9	4.8	3.9	0.7	-	25.3		25.3
External outflows		(17.1)	(2.5)	(3.4)	(0.3)	-	(23.3)		(23.3)
Overlay asset net flows		-	-	11.8	-	-	11.8	-	11.8
Advisory net flows		-	-	-	-	-	-	(3.5)	(3.5)
External net flows		(1.2)	2.3	12.3	0.4	-	13.8	(3.5)	10.3
Internal net flows		(0.3)	(0.8)	-	0.2	(0.3)	(1.2)	-	(1.2)
Total net flows		(1.5)	1.5	12.3	0.6	(0.3)	12.6	(3.5)	9.1
Cash management movements		-	1.7	-	-	-	1.7	-	1.7
Market and other movements		1.4	0.3	2.6	1.6	0.7	6.6	-	6.6
At 30 June 2015		274.7	107.3	308.2	15.8	8.6	714.6	11.3	725.9

 

Total AUM increased 12% to £714.6bn (H1 2014: £640.0bn). Total net inflows were up 25% to £12.6bn (H1 2014: £10.1bn), driven by on-going client appetite for LGIM's LDI and Real Assets capabilities, Active Fixed Income and Multi-Asset strategies, and strong demand for LGIM's workplace proposition.

The Solutions business achieved total net inflows of £12.3bn (H1 2014: £15.9bn) driven by demand for an expanded range of products. It is anticipated that clients' demand for de-risking strategies will continue and LGIM is well positioned to benefit from this trend. LGIM's recently launched delegated solutions proposition offers a natural extension for clients seeking this alternative. LGIM is also well placed to grow its LDI pooled fund business and experienced record inflows into these funds during the first half of the year.

Index external net flows significantly improved on last year to net outflows of £1.2bn (H1 2014: £8.3bn). This was primarily due to better execution on our retention strategy as more clients moved to LGIM's non-index products as they executed de-risking strategies. We are also experiencing greater success in winning Index mandates from international clients, many of which are expected to fund in H2 2015.

Net external inflows into Active Fixed Income of £2.3bn (H1 2014: £1.0bn) were driven by increased demand by institutional clients in the UK and continued strong demand for LGIM's credit capabilities in the US.

Property achieved total net inflows of £0.6bn (H1 2014: £1.1bn) as a result of clients' continued appetite for this asset class. LGIM is experiencing growing demand from international clients and the closure of the second UK Property Income Fund (PIF II) represented commitments from 16 investors from ten countries. Property AUM has increased 23% to £15.8bn (H1 2014: £12.8bn).

 

GROWTH IN UK DEFINED CONTRIBUTION

Net inflows in LGIM's Defined Contribution (DC) business were £1.0bn (H1 2014: £1.1bn). Following the transfer of Workplace Savings, LGIM is able to offer a comprehensive range of products and services to its customers. This has already been demonstrated by significant mandate wins during the first half of the year, with several commencing during the latter part of 2015.  Total DC assets have increased by 15% to £42.8bn (H1 2014: £37.2bn).

 

CONTINUED INTERNATIONAL EXPANSION

Internationally LGIM experienced strong net inflows of £5.4bn (H1 2014: £5.8bn), primarily driven by growth in the US. LGIM won its first multi-billion dollar US Index mandates and continued to attract significant LDI and Active Fixed Income inflows, resulting in total net inflows in the US of £4.8bn (H1 2014: £4.6bn). A collective investment trust fund range was launched in June 2015 which is expected to appeal to the US market. In Asia and the Gulf, LGIM continues to strengthen relationships and expand its distribution, which resulted in healthy flows of £0.9bn (H1 2014: £1.0bn).

 

INSURANCE

FINANCIAL HIGHLIGHTS £m			H1 2015	H1 2014
Operational cash generation			165	166
New business surplus			-	(8)
Net cash generation			165	158
Experience variances, assumption changes, tax and non-cash movements			27	21
Operating profit			192	179
UK Protection new business annual premiums			119	123
UK Protection gross premiums			774	743
General Insurance gross premiums			164	178
Total UK gross premiums			938	921

 

SUSTAINED CASH AND PROFITS

Operational cash was £165m (H1 2014: £166m). New business strain of nil (H1 2014: £(8)m) was driven primarily by strong new business volumes and favourable market conditions. Operating profit was 7% higher at £192m (H1 2014: £179m). General Insurance delivered a strong performance with a combined operating ratio of 82% (H1 2014: 88%).

 

continued growth in premiums

Retail Protection gross premiums increased 6% to £545m (H1 2014: £514m), with new business of £79m (H1 2014: £83m), with the strong first quarter in 2014 not repeated in Q1 2015. Q2 2015 new business sales were in line with the previous year, at £41m.

Our Retail Protection business continues to benefit from the strength and breadth of our distribution covering IFAs, banks and building societies. We announced a new distribution agreement with Intrinsic in May for retail protection products. Our direct distribution channel delivered retail protection new business sales of £14m, representing 11% growth on H1 2014 and now accounts for 18% of new business (H1 2014: £13m, 16% of new business).

Group Protection gross premium was £229m (H1 2014: £229m) with new business of £40m (H1 2014: £40m).

Our mortgage club and surveying business are important components of our Retail Protection distribution model. The Legal & General Network facilitated over £20bn of mortgages in H1 2015 (H1 2014: £18bn), continuing its excellent growth and reinforcing its position as the leading mortgage club in the market. Our surveying business completed almost 240k surveys in H1 2015, representing an increase of 92% over H1 2014 reflecting new contracts signed in 2014.

General Insurance gross premiums reduced to £164m (H1 2014: £178m) as we maintained pricing discipline in a competitive market. Our direct business delivered household GWP of £47m in H1 2015, representing 15% growth on H1 2014 and now accounts for 29% of gross premiums (H1 2014: £41m, 23% of gross premiums).

 

savings

FINANCIAL HIGHLIGHTS £m			H1 2015	H1 20141
Operational cash generation			64	64
New business strain			(5)	(8)
Net cash generation			59	56
Experience variances, assumption changes, tax and non-cash movements			(9)	(2)
Operating profit			50	54

1.    Savings does not include the Workplace Savings business which has been transferred to LGIM. Prior year comparatives have been amended.

 

Operational cash generation remained flat at £64m (H1 2014: £64m) as we continue to manage the reducing contribution from our mature savings business.  Net cash generation was marginally higher at £59m (H1 2014: £56m) as we reduce the cost base associated with this business.

Savings operating profit reduced to £50m (H1 2014: £54m) resulting from marginally lower contributions from our with-profits and retail bonds businesses as we manage the gradual run-off of these mature product lines.

				Digital
								Mature
						Suffolk		Retail		Consol	Total
				Platforms		Life		Savings		Adj	Savings
Assets under administration				£bn		£bn		£bn		£bn	£bn
At 1 January 2015				71.9		7.7		36.0		(6.9)	108.7
Gross inflows				3.8		0.6		0.7		(0.2)	4.9
Gross outflows				(2.7)		(0.3)		(2.2)		0.4	(4.8)
Net flows				1.1		0.3		(1.5)		0.2	0.1
Market and other movements				1.6		0.3		0.3		(0.2)	2.0
At 30 June 2015				74.6		8.3		34.8		(6.9)	110.8

 

Our Platforms business delivered net flows of £1.1bn (H1 2014: £2.5bn) resulting in assets under administration (AUA) up 11% to £74.6bn (H1 2014: £67.4bn). Cofunds continues to lead the market, with a 21% share of platform assets. Cofunds is on track to deliver a £11m per annum reduction in costs by the end of 2015, targeted at the time of the acquisition.

Our SIPP business, Suffolk Life delivered net flows of £0.3bn (H1 2014: £0.4bn) resulting in AUA up 15% to £8.3bn (H1 2014: £7.2bn).

In Mature Savings, assets were £34.8bn (H1 2014: £35.9bn). Following the closure of our With-profits fund to new business in January 2015, net outflows of £(1.5)bn (H1 2014: £(1.5)bn), were in line with our expectations and were partially offset by positive market movements of £0.3bn (H1 2014: £1.1bn).

On 1 July 2015 we completed the disposal of Legal & General (Ireland) Limited to Canada Life Group. AUA of £2.8bn relating to this disposal are included within the total Mature Savings AUA of £34.8bn as at 30 June 2015.

 

freedom and choice

 

Since the introduction of the Pensions Reform legislation we have seen an increase in the proportion of customers wishing to take their pension pots as cash withdrawals, with approximately 90%, or 3,000 customers, electing to take cash payments. Our average payment size is £12k. This compares to approximately 60% of customers taking cash before the reform legislation was announced.

LEGAL & GENERAL CAPITAL

FINANCIAL HIGHLIGHTS £m			H1 2015	H1 2014
Operational cash generation			92	82
Operating profit			115	102

 

GROSS ASSET ALLOCATION £m			H1 2015	H1 2014
Equities			1,422	1,177
Fixed Income			937	1,125
Multi-Asset			493	169
Strategic Direct Investments			781	670
Cash			527	760
			4,160	3,901
Treasury assets1			621	1,280
TOTAL			4,781	5,181

1.    Treasury assets have reduced predominately due the repayment of €600m of lower Tier 2 capital in June 2015.

 

growing profits

Legal & General Capital (LGC) increased operating profits by 13% to £115m (H1 2014: £102m) representing the smoothed expected return on LGC assets after expenses and equates to an assumed annualised investment return of 4.4% (H1 2014: 4.4%) on an average asset base of £5.3bn (H1 2014: £4.7bn).

Achieved annualised investment return was 4.2% (H1 2014: 2.5%), attributed to direct investments and equity markets outperforming longer term expected returns despite the negative equity market performance in the last few days of June 2015, which subsequently reversed.

increasing strategic direct investment

LGC's key objective is to invest strategically into businesses that require long term investment, utilising the long term illiquid nature of the Group's liabilities and capital requirements, whilst providing wider benefit to the Group with improved access to assets and fee revenue. European bank retrenchment, limited public finance and under-investment continue to provide opportunities for us in our selected areas of housing, urban regeneration, alternative finance and clean energy.

Housing expanded into Built to Rent

CALA Homes has performed strongly during the period and is on course for a record year in terms of both revenue and profit with the full year to 30 June 2015 representing the first year of significant volume increase as part of the Group's growth plans.

LGC has committed £119m through the purchase of regeneration sites in Walthamstow and Salford, which we intend to develop into approximately 500 homes. We expect to play a significant role in this sector to form a new institutional asset class and are seeing a strong pipeline of opportunities. We intend to bring in co-investment partners as our Build to Rent portfolio grows in H2 2015 and beyond.

LGC has also obtained full planning consent to build 1,000 houses on a 250 acre site at Crowthorne, part of our substantial strategic land bank.

 

Further Urban Regeneration partnerships

We are investing £240m, in partnership with Schroder UK Real Estate, for the development of a modern retail, leisure and residential complex in Bracknell Town centre. We have also invested a further £503m in developing a world class media hub, MediaCityUK in Salford, co-investing with the Peel Group. We are partnering with the UK Government's Regeneration Investment Organisation (RIO) to source further projects and attract foreign investment. We will seek to allocate up to £1.5bn in similar infrastructure projects.

Alternative Finance launched

LGC, through its 40% investment in Pemberton Asset Management, a pan-European SME lending business, is developing a European private placement capability. In July 2015, Pemberton announced a successful €447m first close on its European Mid-Market Debt Fund, which brings together investors from large blue-chip financial services and insurance companies across Europe. Including segregated mandates this brings the total AUM to €547m as we continue to take advantage of the significant opportunities presented by bank deleveraging. The fund is looking to build a diversified portfolio of bilateral, club and syndicated loans to companies with turnover between €75m and €1bn and has successfully started lending in H1 2015.

 

Clean Energy Strategy

The UK will require significant deployment of private long term capital in energy efficient power generation to reach international 2020 and longer term emission standards. LGC are working with several potential partners to consider investing in developments in renewable energy including solar and on-shore wind power. Legal & General has invested in two solar parks to date.

LEGAL & GENERAL AMERICA

FINANCIAL HIGHLIGHTS $m			H1 2015	H1 2014
Operational cash generation			80	73
Operating profit			61	72
Gross premium income			588	553
New business sales			62	78

INCREASED CONTRIBUTION TO CASH

Operational cash generation increased by 10% to $80m (H1 2014: $73m). This represents the dividends paid by LGA to the Group in Q1 and reflects the focus of LGA to deliver net cash generation.

LGA adjusted its new business pricing in 2014 and made further adjustments in Q2 2015. These changes allow for the pricing of risk at a more granular level. As a consequence prices have been raised at lower margin price points and reduced elsewhere. This has resulted in lower new business volumes of $62m (H1 2014: $78m), in line with our expectations.

Gross premiums increased 6% to $588m (H1 2014: $553m) as we continue to benefit from strong relationships with the brokerage general agents (BGAs), who distribute term assurance in the US market. LGA is the 5th largest provider of term life assurance by annual premium equivalent in the US and remains the 2nd largest provider through the key distribution channel of BGAs. LGA now has 1.18 million customers (H1 2014: 1.11 million).

pricing for emerging us MORTALITY trends

Operating profit was lower at $61m (H1 2014: $72m) including $13m of adverse mortality experience. We are maintaining pricing discipline and have reflected revised industry mortality tables in our new business pricing. This is expected to result in new business levels c20-25% lower for 2015 when compared to 2014, with gross written premium c5% higher.

 

In July 2015 Gene Gilbertson was appointed as Chief Executive Officer and President after serving in an interim capacity since 4 March 2015 as we move our US Protection and pension risk transfer businesses forward.

 

Disposing of non-core ACTIVITIES

We continue to de-clutter our business model to focus on core activities where we believe we can achieve significant scale and attractive returns on capital. Following the disposal of Legal & General Ireland for £16m, the Group agreed to sell our Egyptian business for an estimated consideration of £34m. The final consideration will be dependent on trading up to the date of completion. The sale is anticipated to realise a profit on disposal, which has not been recognised in this set of financial results.

 

We are currently in the process of disposing of Legal & General France and Legal & General Gulf and as a consequence have classified these businesses as held for sale in our H1 results. As a result we have reflected a £40m expense within investment and other variances representing the difference between previous carrying values and anticipated sale proceeds.

 

borrowings

Legal & General continues to have a strong liquidity position reflecting its requirements for working capital and derivative collateral.  The Group's outstanding core borrowings total £2.5bn (FY 2014: £3.0bn). There is also a further £0.6bn (FY 2014: £0.7bn) of operational borrowings including £0.7bn (FY 2014: £0.7bn) of non recourse borrowings. In June 2015 we redeemed €600m of 4.0% Euro dated subordinated notes at par.

 

Group debt costs of £75m (H1 2014: £63m) reflect an average cost of debt of 5.1% per annum (H1 2014: 5.2% per annum) on average nominal value of debt balances of £3.0bn (H1 2014: £2.5bn).

 

taxation - effective tax rate of 18.6%

 

Equity holders' Effective Tax Rate (%)			H1 2015	H1 2014
Total Effective Tax Rate			18.6	20.3
Annualised rate of UK corporation tax			20.25	21.50

 

In H1 2015, the Group's effective tax rate remained slightly below the UK corporation tax rate due to a number of differences between the measurement of accounting profit and taxable profits.

The UK has a deferred tax asset of £10m in respect of trading losses carried forward in Group companies (FY 2014: £45m) mainly relating to Cofunds.  Trading losses within LGR have been fully utilised at H1 2015.  The contribution to net cash generation in LGR and Insurance from the utilisation of tax losses is spread over the full year and is £15m for H1 2015 (H1 2014: £35m). 

 

CASH GENERATION 

The sources of our cash generation are transparent and the table below highlights the cash generation by segment. Net cash generation increased by 11%. This includes the full year ordinary dividend of $80m from LGA which was received in Q1 2015.

£m			H1 2015	H1 2014
LGR			170	146
Insurance excluding General Insurance			135	144
Savings			64	64
LGA			52	44
LGC			92	82
Sub-total			513	480
LGIM			150	132
General Insurance			30	22
Operational cash generation from divisions			693	634
Group debt costs			(60)	(49)
Other costs			(9)	(7)
Total operational cash generation			624	578
New business surplus / (strain)			5	(11)
Net cash generation			629	567

The table above is set out in the format of the cash guidance for 2015 given at the time of the 2014 results announcement.

 

CLEAR VISIBILITY between cash generation and earnings

The table below highlights the linkage between the operational and net cash generation of the business, and the profit of the Group.

 

		Op	Strain	Net	Variances	Profit	Tax	Profit
		Cash		Cash	and	after		before
£m					other	tax		tax
LGR		170	22	192	39	231	49	280
Insurance		165	-	165	(13)	152	40	192
Savings		64	(5)	59	(19)	40	10	50
LGIM		150	(12)	138	(1)	137	39	176
- LGIM (excluding Workplace)		139	-	139	-	139	40	179
- Workplace Savings		11	(12)	(1)	(1)	(2)	(1)	(3)
LGC		92	-	92	-	92	23	115
LGA		52	-	52	(34)	18	22	40
Operating profit from divisions		693	5	698	(28)	670	183	853
Group debt and other costs		(69)	-	(69)	(13)	(82)	(21)	(103)
Operating profit		624	5	629	(41)	588	162	750
Investment and other variances		-	-	-	(41)	(41)	(37)	(78)
Total		624	5	629	(82)	547	125	672
Per share		10.49		10.58		9.20
Dividend per share				3.45		3.45

 

IGD Capital resources

As at 30 June 2015 the Insurance Group's Directive (IGD) surplus was £3.8bn (FY 2014: £3.9bn).

The Group's capital resources totalled £7.7bn, covering the capital resources requirement of £3.9bn by 1.98 times. Profits generated in the first half of 2015 offset the repayment of €600m of Euro subordinated notes, classified as Lower Tier 2 capital prior to redemption, resulting in a broadly flat IGD surplus.

In LGPL, the Group's main annuity company, we maintain a provision of £2.3bn (FY 2014: £2.3bn) to provide for the risk of credit default. Over the last five years we have experienced total actual defaults of less than £10m.

 

Capital (£bn)			H1 2015	FY 2014
Group capital resources			7.7	7.7
Group capital resources requirements			3.9	3.8
IGD surplus			3.8	3.9
Coverage ratio (%)			198	201

economic capital

Economic capital is the amount of capital that the Board believes the Group needs to hold, over and above its liabilities, in order to meet the Group's strategic objectives. These numbers do not represent our view of the Solvency II outcome for the Group.  Solvency II has elements which L&G considers to be inconsistent with the Group's definition of economic capital, so there will be differences between the two balance sheets. We expect the final outcome of Solvency II to result in a lower Group capital surplus and solvency ratio than the Economic Capital basis. Our Economic Capital model has not been reviewed by the Prudential Regulatory Authority (PRA), nor will it be.

As at 30 June 2015 Legal & General Group had an economic capital surplus of £6.4bn (FY 2014: £7.0bn), corresponding to an economic capital coverage ratio of 220% (FY 2014: 229%).

Eligible own funds decreased by £0.7bn to £11.8bn (FY 2014: £12.5bn) primarily as a result of the payment of the 2014 final dividend of £496m and the repayment of €600m of subordinated debt in June 2015.

The economic capital requirement remained broadly flat at £5.4bn (FY 2014: £5.5bn), with new business written in H1 2015 being marginally positive.

 

Capital (£bn)			H1 2015		FY 2014
Eligible own funds			11.8		12.5
Economic capital requirement			5.4		5.5
Economic capital surplus			6.4		7.0
1-in-200 coverage ratio			220		229
Analysis of movement from 1 January  to 30 June 2015 (£bn)				Economic Capital surplus
Economic solvency position as at 1 January 2015				7.0
New business surplus				0.1
Existing business expected release				0.4
Subordinated debt redemption				(0.5)
Dividends declared in the period				(0.5)
Other capital movements				(0.1)
Economic solvency position as at 30 June 2015				6.4

 

supplementary eev disclosure

EEV highlights (Pence)			H1 2015	H1 2014
Equity per share including LGIM			211	196
Equity per share			184	166
Analysis of EEV results (£m)			H1 2015	H1 2014
Contribution from new business			196	421
Expected return from in-force business			238	238
Experience variances and assumption changes			38	9
Development costs			(9)	(14)
Contribution from shareholder net worth			102	93
EEV operating profit on covered business			565	747
Business reported on an IFRS basis			107	103
EEV operating profit			672	850
Economic variances			(55)	8
Gains attributable to non-controlling interests			8	6
EEV profit before tax			625	864
Tax and other			(105)	(145)
EEV profit after tax			520	719

 

New business contribution

Contribution from new business reduced to £196m (H1 2014: £421m) as a result of lower new business for LGR, with H1 2014 benefitting from the £3bn bulk annuity transaction with the ICI pension fund.

Worldwide EEV new business margin reduced to 3.9% (H1 2014: 5.4%) primarily due to reduced new business margin in LGR of 7.2% (H1 2014: 8.4%). This is as a consequence of increased levels of longevity reinsurance being used for new bulk annuity business written.

 

principal risks and UNCERTAINTIES

Legal & General runs a portfolio of risk taking businesses; we accept risk in the normal course of business and aim to deliver sustainable returns on risk based capital to our investors in excess of our cost of capital. We manage the portfolio of risk that we accept to build a sustainable franchise for the interests of all our stakeholders; we do not aim to eliminate that risk. We have an appetite for risks that we understand deeply and are rewarded for, and which are consistent with delivery of our strategic objectives. Risk management is embedded within the business. The Group is exposed to a number of key risk categories.

 

 

RISKS AND UNCERTAINTIES	TREND, OUTLOOK AND MITIGATION
Reserves for long-term business may require revision as a result of changes in experience, regulation or legislation. The writing of long-term insurance business requires the setting of assumptions for long-term trends in factors such as mortality, lapse rates and persistency, valuation interest rates, expenses and credit defaults. Actual experience may result in the need to recalibrate these assumptions reducing profitability. Forced changes in reserves can also be required because of regulatory or legislative intervention in the way that products are priced, reducing profitability and future earnings.	We regularly appraise the assumptions underpinning the business that we write. In our annuities business we are, however, exposed to factors such as dramatic advances in medical science beyond those anticipated leading to unexpected changes in life expectancy. In protection business we remain inherently exposed to rates of mortality diverging from assumptions and to loss from events that cause widespread mortality/morbidity or significant policy lapse rates. There also remains potential for legislative intervention in the pricing of insurance products irrespective of risk factors, such as age or health.   We undertake significant analysis of longevity and mortality risks to ensure an appropriate premium is charged for the risks we take on and that our reserves remain appropriate. We remain focused on developing a comprehensive understanding of annuitant mortality and we continue to evolve and develop our underwriting capabilities. We seek to ensure that legislators understand the benefits to consumers of pricing insurance products based on the risk factors that each policy presents.
Investment market performance or conditions in the broader economy may adversely impact our earnings and profitability. The performance and liquidity of investment markets, interest rate movements and inflation impact the value of investments we hold in shareholders' funds and those to meet the obligations from insurance business. Interest rate movement and inflation can also change the value of our obligations. We use a range of techniques to manage mismatches between assets and liabilities. However, loss can still arise from adverse markets. In addition, significant falls in investment values can reduce fee income to our investment management business, while broader economic conditions can impact the purchase and the retention of retail financial services products, impacting profitability.	Whilst global investment markets have returned to pre-financial crisis levels, in the current environment there is still limited resilience in financial markets for shocks; with potential for significant falls in asset values should markets reassess returns. Factors of continuing uncertainty that may result in shocks include a deterioration in geo-political stability for example as a consequence of tensions in Eastern Europe and the  Middle East; an abrupt change in the  monetary policies of the leading economies; or a further crisis in the Euro zone. Financial markets may also reappraise asset valuations as a result of changes in the outlook for the global economy.   We model our business plans across a broad range of economic scenarios and take account of alternative economic outlooks within our overall business strategy. As part of our business plans we have sought to ensure focus upon those market segments that we expect to be resilient in projected conditions.
In dealing with issuers of debt and other types of counterparty the Group is exposed to the risk of financial loss. A systematic default event within the  corporate sector, or a major sovereign debt event, could result in dislocation of bond markets, significantly widening credit spreads, and may result in default of even strongly rated issuers of debt, exposing us to financial loss. We are also exposed to banking, money market and reinsurance counterparties, and settlement, custody and other bespoke business services, a failure of which could expose us to both financial loss and operational disruption of our business processes.	In 2015 we have continued to see stable credit spreads reflecting market confidence in the issuers of investment grade bonds, and at Legal & General we continue to experience low levels of default on our corporate bond portfolio. There remains, however, a range of factors that could trigger defaults by the issuers of debt, leading to reduced profitability or financial loss. These include a Sovereign debt event or a banking crisis developing, for example in emerging markets. An economic shock or significant change in the current economic outlook may also increase potential for a supplier of business services being unable to meet their obligations to us.   We actively manage our exposure to default risks, setting counterparty selection criteria and exposure limits and hold reserves against our assessment of counterparty debt defaults. We continue to diversify the asset classes backing our annuities business, to include the use of property lending, sale and leaseback and other forms of direct investment.
Changes in regulation or legislation may have a detrimental effect on our strategy. Legislation and government fiscal policy influence our product design, the period of retention of products and our required reserves for future liabilities. Regulation defines the overall framework for the design, marketing and distribution of our products; and the prudential capital that we hold. Significant changes in legislation or regulation may reduce our future revenues and profitability or require us to hold more capital. The prominence of the risk increases where change is implemented without prior engagement with the sector. The nature of long term business can also result in some changes in regulation, and the re-interpretation of regulation over time, having a retrospective effect on our in force books of business, impacting the value of embedded future profits.	The regulatory landscape continues to evolve. The Solvency II capital regime will be implemented by the PRA on 1 January 2016; however, the capital that we will be required to hold under the regime will not be certain until PRA agreement of our internal model. We also continue to see the development of consumer regulation by the FCA including a focus on the way products have been designed and sold in the past. More broadly, as illustrated by the emergency budget in July, the government continues to evolve its approach to retirement, with consultation proposed for a radical change to the pension savings system.   We remain vigilant to the risk that future legislative and regulatory change may have unintended consequences for the sectors in which we operate. We seek to actively participate with Government and regulatory bodies in the UK and Europe to assist in the evaluation of change so as to develop outcomes that meet the needs of all stakeholders. Internally, we evaluate the impact of all legislative and regulatory change as part of our formal risk identification and assessment processes, with material matters being considered at the Group Risk Committee and the Group Board. We maintain a flexible business model to respond to changing regulation and market trends.
As a UK based Group, our earnings are influenced by the performance and perception of the UK financial services sector as a whole. The financial crisis, subsequent investment performance and low interest rate environment, together with regulatory actions in the sector, may impact consumer attitudes to long-term savings and insurance products. Regulatory actions may also lead to changes to the regulatory and legislative environment in which we operate.	As a significant participant in the long-term savings and insurance markets, we are exposed to changes in consumer sentiment. We are also exposed to increased costs of regulatory compliance through regulatory and legislative responses to events in the financial services sector.   We actively manage our brand and seek to differentiate our business model from that of our competitors, focusing on our customers' needs through a diversified portfolio of risk, savings and investment businesses. We also actively engage with our regulators to support understanding of the risk drivers in the markets in which we operate, and highlight matters where we believe the industry needs to change.
The Group may not maximise opportunities from structural and other changes within the financial services sector, adversely impacting future earnings. Significant changes in the markets in which we operate may require the review and realignment of elements of our business strategy. A failure to be sufficiently responsive to potential change and understand the implication to our businesses, or the incorrect execution of change may impact the achievement of our strategic objectives.	Macro trends in the markets in which we operate remain those of an ageing population; reform in the provision of state welfare; retrenchment by the banks; the globalisation of asset markets; and the increasing use of digital technologies. Responding to these trends potentially creates people and change risks, such as organisational challenges and management stretch across the range of initiatives. Regulatory changes and political risks may also present complexity in delivering our responses.   We've defined clear strategies to respond to the macro trends. We monitor as part of our on-going risk review processes factors that may impact our responses to these macro trends and seek to ensure appropriate risk mitigation plans are put in place.

 

A material failure in our business processes may result in unanticipated financial loss or reputation damage. We have constructed our framework of internal controls to minimise the risk of unanticipated financial loss or damage to our reputation. However, no system of internal control can completely eliminate the risk of error, financial loss, fraudulent actions or reputational damage.	Our plans for growth inherently will increase the profile of operational risks across our businesses. We continue to invest in our system capabilities and business processes to ensure that we meet the expectations of our customers; comply with regulatory, legal and financial reporting requirements; and mitigate the risks of loss or reputational damage from operational risk events.   Our "three lines of defence" risk governance model seeks to ensure that business management are actively engaged in maintaining  an appropriate control environment, supported by risk functions led by the group chief risk officer, with independent assurance from Group Internal Audit.
The financial services sector is increasingly becoming a target of 'cyber-crime'. As we and our business partners increasingly digitalise our businesses, we are inherently exposed to the risk that third parties may seek to disrupt our on-line business operations, steal customer data or perpetrate acts of fraud using digital media. A significant cyber-event could result in reputation damage and financial loss.	The financial services sector continues to see attempts by third parties to seek and exploit perceived vulnerabilities in IT systems. Potential threats include denial of service attacks, network intrusions to steal data for the furtherance of financial crime, and the electronic diversion of funds.   We're focused on maintaining a robust and secure IT environment. Working with our business partners, we seek to ensure the security of our systems with proactive response to emerging threats; however, the evolving nature of cyber threats means that residual risks continue to remain.

 

ENQUIRIES

Investors:

Laura Doyle                   Head of Investor Relations                                                                       020 3124 2088

Stephen Thomas            Investor Relations Manager                                                                     020 3124 2047

Media:

John Godfrey                 Corporate Affairs Director                                                                        020 3124 2090

Richard King                  Head of Group Corporate Communications                                               020 3124 2095
Michelle Clarke              Tulchan Communications                                                                        020 7353 4200

Notes

A copy of this announcement can be found in "Results", under the "Financial information" section of our shareholder website at http://www.legalandgeneralgroup.com/investors/results.cfm.

A presentation to analysts and fund managers will take place at 9.30am UK time today at One Coleman Street, London, EC2R 5AA. There will be a live webcast of the presentation which can be accessed at http://investor.legalandgeneral.com/results.cfm. A replay will be available on this website later today.

There will be a live listen only teleconference link to the presentation. Details below:

 

 

PARTICIPANT DIAL-IN NUMBERS
LOCATION YOU ARE DIALLING IN FROM	NUMBER YOU SHOULD DIAL
UNITED KINGDOM	020 3059 8125
ALL OTHER LOCATIONS	+44 20 3059 8125

 

2015 Financial Calendar				Date
Ex-dividend date			13 August 2015
Record date			14 August 2015
Payment date of 2015 interim dividend			17 September 2015
Q3 Interim Management Statement 2015			5 November 2015

 

DEFINITIONS

Operational cash generation is the expected release from in-force business for the UK non-profit Insurance and Savings and LGR businesses, the shareholder's share of bonuses on with-profits business, the post-tax operating profit on other UK businesses, including the expected investment return on LGC invested assets, and dividends remitted from our international businesses.

Net cash generation is defined as operational cash generation less new business strain.

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 LGA which excludes unrealised investment returns to align with the liability measurement under US GAAP. Variances between actual and smoothed assumptions are reported below operating profit. Exceptional income and expenses which arise outside the normal course of business in the year, such as merger and acquisition, start-up and closure costs, are excluded from operating profit.

Adjusted earnings per share is calculated by dividing profit after tax from continuing operations, attributable to equity holders of the Company, excluding gains and losses associated with held for sale and completed business disposals, by the weighted average number of ordinary shares in issue during the period, excluding employee scheme treasury shares.

Annualised return on equity is calculated by taking annualised profit after tax attributable to equity holders of the Company, excluding gains and losses associated with held for sale and completed business disposals, as a percentage of the average shareholders' capital employed, being an average of the opening and closing shareholders' equity during the period.

 

FORWARD LOOKING STATEMENTS

This announcement may contain certain forward-looking statements relating to Legal & General, its plans and its current goals and expectations relating to future financial condition, performance and results. By their nature, forward-looking statements involve uncertainty because they relate to future events and circumstances which are beyond Legal & General's control, including, among others, UK domestic and global economic and business conditions, market related risks such as fluctuations in interest rates and exchange rates, the policies and actions of regulatory and Governmental authorities, the impact of competition, the timing impact of these events and other uncertainties of future acquisition or combinations within relevant industries. As a result, Legal & General's actual future condition, performance and results may differ materially from the plans, goals and expectations set out in these forward-looking statements and persons reading this announcement should not place reliance on forward-looking statements. These forward-looking statements are made only as at the date on which such statements are made and Legal & General Group Plc does not undertake to update forward-looking statements contained in this announcement or any other forward-looking statement it may make.

 

GOING CONCERN STATEMENT

The Group's business activities, together with the factors likely to affect its future development, performance and position in the current economic climate are set out in this Interim Management Report. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the Group Results. Principal risks and uncertainties are detailed above. In addition, the financial statements include, amongst other things, notes on the Group's objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and hedging activities; and its exposures to credit risk and liquidity risk.

Whilst the economy has improved in 2015, the general climate remains, to a degree, uncertain. However, based on the available information on the future, the directors consider that the Group has the plans and resources to manage its business risks successfully as it has a diverse range of businesses and remains financially strong.

Having reassessed the principal risks, the directors considered it appropriate to adopt the going concern basis of accounting in preparing the interim financial information.

 

DIRECTOR'S RESPONSIBILITY STATEMENT

We confirm to the best of our knowledge that:

 

i.    The consolidated interim financial statements have been prepared in accordance with IAS 34 as adopted by the European Union;

 

ii.    The interim management report includes a fair review of the information required by DTR 4.2.7, namely an indication of important events that have occurred during the first six months of the financial period and their impact on the consolidated interim financial statements, as well as a description of the principal risks and uncertainties faced by the company and the undertakings included in the consolidation taken as a whole for the remaining six months of the financial year;

 

iii.   The interim management report includes, as required by DTR 4.2.8, a fair review of material related party transactions that have taken place in the first six months of the financial period and any material changes in the related party transactions described in the last Annual Report;

 

iv.   The group embedded value summary and explanatory notes to the supplementary interim financial information have been prepared on the European Embedded Value basis as set out in Note 5.06; and

 

v.    The directors of Legal & General Group Plc are listed in the Legal & General Group Plc Annual Report for 31 December 2014, with the exception of Lindsay Tomlinson who retired as non-executive director of the company on 21 May 2015  and John Pollock who retired as an executive director of the company on 21 May 2015. A list of current directors is maintained on the Legal & General Group Plc website: legalandgeneralgroup.com.

 

 

 

By order of the Board

 

 

 

Nigel Wilson                                          Mark Gregory

Group Chief Executive                            Group Chief Financial Officer

4 August 2015                                       4 August 2015