L&G Full Year Results 2016 Part 2

Legal & General Full Year Results 2016 Part 2

 

IFRS and Release from Operations                                                                                                                Page 25

 

Operating profit

For the year ended 31 December 2016

			2016	2015
		Notes	£m	£m
From continuing operations
Legal & General Retirement (LGR)		2.02	811	641
Legal & General Investment Management (LGIM)		2.03	366	355
Legal & General Capital (LGC)		2.05	257	233
Legal & General Insurance (LGI)		2.02	317	315
- UK and Other			232	232
- US			85	83
Savings		2.02	99	107
General Insurance		2.04	52	51
Operating profit from divisions			1,902	1,702
Group debt costs1			(172)	(153)
Group investment projects and expenses2		2.06	(102)	(86)
Adjusted operating profit			1,628	1,463
Kingswood office closure costs			(66)	(8)
Operating profit			1,562	1,455
Investment and other variances		2.07	13	(119)
Gains on non-controlling interests			7	19
Profit before tax attributable to equity holders			1,582	1,355
Tax expense attributable to equity holders of the company		2.15	(317)	(261)
Profit for the year			1,265	1,094
Profit attributable to equity holders of the company			1,258	1,075
			p	p
Earnings per share3		2.10	21.22	18.16
Diluted earnings per share3		2.10	21.13	18.04
1. Group debt costs exclude interest on non recourse financing.
2. Group investment projects and expenses in 2016 include restructuring costs of £54m (2015: £42m).
3. All earnings per share calculations are based on profit attributable to equity holders of the company.

 

This supplementary operating profit information (one of the group's key performance indicators) provides further analysis of the results reported under IFRS and the group believes it provides shareholders with a better understanding of the underlying performance of the business in the year.

 

During 2016, Insurance and LGA segments (excluding General Insurance) were combined to create the new Legal & General Insurance (LGI) segment. General Insurance is now presented as a separate segment.

 

LGR represents worldwide pension risk transfer business (including longevity insurance), individual retirement and lifetime mortgages.

 

The LGIM segment represents institutional and retail investment management and workplace savings businesses.

 

LGC represents shareholder assets invested in direct investments, and traded and treasury assets.

 

LGI represents business in retail protection, group protection, networks, Legal & General Netherlands (LGN) and protection business written in the USA (LGA). LGI comparatives include Legal & General France (LGF), which was sold during 2015.

 

Savings represents business in platforms, SIPPs and mature savings including with-profits.

 

The General Insurance segment comprises short-term protection.

 

During 2016, changes have been made to the organisational structure. The advised sales and India businesses have transferred to LGI from Savings, and Investment Discounts On Line Limited (the IDOL) has been transferred to LGR from LGI. Comparatives have been amended accordingly. The impact of this reclassification has been to increase LGR 2015 operating profit by £2m, increase Savings 2015 operating profit by £8m and reduce LGI 2015 operating profit by £10m.

 

Operating profit measures the pre-tax result excluding the impact of investment volatility, economic assumption changes and exceptional items. Operating profit therefore reflects longer-term economic assumptions for the group's insurance businesses and shareholder funds, except for LGC's trading businesses (which reflects IFRS profit before tax) and LGA (which excludes unrealised investment returns to align with the liability measurement under US GAAP). Variances between actual and smoothed investment return assumptions are reported below operating profit. Exceptional income and expenses which arise outside the normal course of business in the year, such as merger and acquisition, and start-up costs, are also excluded from operating profit.

 

 

 

IFRS and Release from Operations                                                                                                                Page 26

 

2.01 Reconciliation of release from operations to operating profit before tax

 

The table below provides an analysis of the release from operations by each of the group's business segments, together with a reconciliation to operating profit before tax.
					Changes					Operating
		New	Net		in			Operating		profit/
	Release	business	release	Exper-	valuation	Non-cash	Inter-	profit/	Tax	(loss)
	from	surplus/	from	ience	assump-	items and	national	(loss)	expense/	before
For the year ended	operations1	(strain)	operations	variances	tions	other	and other2	after tax	(credit)	tax
31 December 2016	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
LGR	433	159	592	34	40	6	-	672	139	811
LGIM	308	(22)	286	(1)	-	-	-	285	81	366
- LGIM excluding Workplace
Savings (admin only)	290	-	290	-	-	-	-	290	82	372
- Workplace Savings (admin
only)3	18	(22)	(4)	(1)	-	-	-	(5)	(1)	(6)
LGC	214	-	214	-	-	-	-	214	43	257
LGI	317	23	340	(11)	5	(29)	(79)	226	91	317
- UK and Other	254	23	277	(11)	5	(29)	(57)	185	47	232
- US	63	-	63	-	-	-	(22)	41	44	85
Savings	104	(5)	99	4	8	(32)	-	79	20	99
General Insurance	42	-	42	-	-	-	-	42	10	52
Total from divisions	1,418	155	1,573	26	53	(55)	(79)	1,518	384	1,902
Group debt costs	(138)	-	(138)	-	-	-	-	(138)	(34)	(172)
Group investment projects
and expenses	(24)	-	(24)	-	-	-	(59)	(83)	(19)	(102)
Adjusted total	1,256	155	1,411	26	53	(55)	(138)	1,297	331	1,628
Kingswood office closure costs4	-	-	-	-	-	-	(53)	(53)	(13)	(66)
Total	1,256	155	1,411	26	53	(55)	(191)	1,244	318	1,562
1. Release from operations includes dividends remitted from LGN of £70m (2015: £28m) within the LGI UK and Other line and US of £63m (2015: £54m).
2. International and other includes £43m (2015: £34m) of restructuring costs (£54m before tax) (2015: £42m before tax) within the Group investment projects and expenses line.
3. This represents Workplace Savings admin only and excludes fund management profits.
4. The Kingswood office closure costs reflect expenditure in relation to rent and rates, as well as the write-off of previously capitalised expenditure.
Release from operations for LGR, LGIM, LGI and Savings represents the expected IFRS surplus generated in the year from the in-force non profit annuities, workplace savings, protection and savings businesses using best estimate assumptions. The LGIM release from operations also includes operating profit after tax from the institutional and retail investment management businesses. The LGI release from operations also includes dividends remitted from LGN and LGA and operating profit after tax from the remaining LGI businesses. The Savings release from operations includes the shareholders' share of bonuses on with-profits business and operating profit after tax from the remaining Savings businesses.
New business surplus/strain for LGR, LGIM, LGI and Savings represents the cost of acquiring new business and setting up prudent reserves in respect of the new business for UK non profit annuities, workplace savings, protection and savings, net of tax. The new business surplus and release from operations for LGR, LGIM, LGI and Savings exclude any capital held in excess of the prudent reserves from the liability calculation.
Net release from operations for LGR, LGIM, LGI and Savings is defined as release from operations less new business strain.
Release from operations and net release from operations for LGC and General Insurance represents the operating profit (net of tax).
During 2016, changes have been made to the organisational structure. The advised sales and India businesses have been transferred to LGI from Savings, and the IDOL business has been transferred to LGR from LGI. Comparatives have been amended accordingly.
See Note 2.02 for more detail on experience variances, changes to valuation assumptions and non-cash items.

 

 

 

IFRS and Release from Operations                                                                                                                Page 27

 

2.01 Reconciliation of release from operations to operating profit before tax (continued)

 

					Changes					Operating
		New	Net		in			Operating		profit/
	Release	business	release	Exper-	valuation	Non-cash	Inter-	profit/	Tax	(loss)
	from	surplus/	from	ience	assump-	items and	national	(loss)	expense/	before
For the year ended	operations1	(strain)	operations	variances	tions	other	and other2	after tax	(credit)	tax
31 December 2015	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
LGR4	374	45	419	13	114	(20)	-	526	115	641
LGIM	303	(22)	281	(1)	1	(2)	-	279	76	355
- LGIM excluding Workplace
Savings (admin only)	282	-	282	-	-	-	-	282	77	359
- Workplace Savings (admin3
only)	21	(22)	(1)	(1)	1	(2)	-	(3)	(1)	(4)
LGC	187	-	187	-	-	-	-	187	46	233
LGI4	328	25	353	(14)	(45)	(46)	(28)	220	95	315
- UK and Other	274	25	299	(14)	(45)	(46)	(11)	183	49	232
- US	54	-	54	-	-	-	(17)	37	46	83
Savings4	125	(9)	116	(9)	-	(23)	2	86	21	107
General Insurance	41	-	41	-	-	-	-	41	10	51
Total from divisions	1,358	39	1,397	(11)	70	(91)	(26)	1,339	363	1,702
Group debt costs	(122)	-	(122)	-	-	-	-	(122)	(31)	(153)
Group investment projects
and expenses	(19)	-	(19)	-	-	-	(50)	(69)	(17)	(86)
Adjusted total	1,217	39	1,256	(11)	70	(91)	(76)	1,148	315	1,463
Kingswood office closure costs	-	-	-	-	-	-	(6)	(6)	(2)	(8)
Total	1,217	39	1,256	(11)	70	(91)	(82)	1,142	313	1,455
1. Release from operations includes dividends remitted from LGF of £1m and LGN of £28m within the LGI UK and Other line and US of £54m.
2. International and other includes £34m of restructuring costs (£42m before tax) within the Group investment projects and expenses line.
3. This represents Workplace Savings admin only and excludes fund management profits.
4. LGR includes the IDOL business which was previously reported in LGI, and LGI includes the advised sales and India businesses which were previously reflected in Savings. The impact of this reclassification has been to increase LGR 2015 release from operations by £2m, increase Savings 2015 release from operations by £6m and reduce LGI 2015 release from operations by £8m.

 

 

 

IFRS and Release from Operations                                                                                                                Page 28

 

2.02 Analysis of LGR, LGI and Savings operating profit

 

				LGR		LGI	Savings	LGR	LGI	Savings
				2016		2016	2016	2015	2015	2015
				£m		£m	£m	£m	£m	£m
Net release from operations				592		340	99	419	353	116
Experience variances
Persistency				2		(2)	-	4	5	(2)
Mortality/morbidity1				47		(34)	-	18	(16)	-
Expenses				(9)		4	7	-	2	3
Project and development costs				(21)		2	(4)	(20)	(2)	(2)
Other				15		19	1	11	(3)	(8)
Total experience variances				34		(11)	4	13	(14)	(9)
Changes to valuation assumptions
Persistency2				-		(52)	5	-	48	-
Mortality/morbidity3				40		4	-	97	(20)	-
Expenses4				-		53	-	17	27	(2)
Reinsurance modelling5				-		-	-	-	(93)	-
Other				-		-	3	-	(7)	2
Total valuation assumption changes				40		5	8	114	(45)	-
Movement in non-cash items
Deferred tax				-		-	1	-	-	2
Utilisation of brought forward trading losses				-		-	-	(25)	(6)	-
Acquisition expense tax relief 6				-		(27)	(3)	-	(30)	(4)
Deferred Acquisition Costs (DAC)7				-		-	(28)	-	-	(54)
Deferred Income Liabilities (DIL)7				-		-	9	-	-	39
Other				6		(2)	(11)	5	(10)	(6)
Total non-cash movement items				6		(29)	(32)	(20)	(46)	(23)
International and other8				-		(79)	-	-	(28)	2
Operating profit after tax				672		226	79	526	220	86
Tax gross up				139		91	20	115	95	21
Operating profit before tax				811		317	99	641	315	107
1. The LGR mortality/morbidity experience variance reflects higher than expected annuitant deaths experience over 2016. LGI mortality/morbidity experience variance in 2016 primarily reflects adverse claims experience on the group protection book of business.
2. The LGI persistency valuation assumption change in 2016 is the result of a review of prudence within the lapse assumption for level and decreasing term assurance products.
3. The mortality/morbidity valuation assumption change in LGR primarily reflects a change in the treatment to historic longevity insurance deals where future fees in excess of prudent estimates of longevity and expense experience are now included as an offset to IFRS reserves. The 2015 LGR mortality/morbidity change to valuation assumptions primarily reflected a change in mortality reserving assumptions in relation to unreported deaths of deferred annuitants.
4. The LGI expense valuation assumption change is the result of the reduction in unit costs following recent expense savings actions, together with a review of the prudence within renewal expenses on our protection products.
5. The reinsurance modelling for our UK protection business was enhanced in 2015. Recent reinsurance contracts have been written on a risk premium basis (as opposed to level premium) and the model change ensured that for these treaties, sufficient prudence was being held in later years. The one-off impact reduced operating profit by £93m in 2015. This also deferred a higher proportion of release from operations into the later years of these reinsurance contracts.
6. Net release from operations for LGI and Savings recognises tax relief from prior year acquisition expenses, which are spread evenly over seven years under relevant 'I-E' tax legislation in the period the cash flows actually occur. In contrast, operating profit typically recognises the value of these future cash flows in the same period as the underlying expense as deferred tax amounts. The reconciling amounts arising from these items are included in the table above. Following the removal of new retail protection business from the 'I-E' tax regime, and the removal of commission from new insured savings business under the Retail Distribution Review at the end of 2012, no material amount of deferred tax assets arise on new acquisition expenses and the value of these future cash flows for post-2013 acquisition expenses have been reflected within net release from operations. The residual prior year acquisition expenses will run off predictably to 2018.
7. The DAC in Savings represents the amortisation charges offset by new acquisition costs deferred in the year. The DIL reflects initial fees on insured savings business which relate to the future provision of services and are deferred and amortised over the anticipated period in which these services are provided.
8. LGI Other in 2016 reflects the difference between the dividend (release from operations) remitted from LGN and LGA of £70m and £63m respectively (2015: dividends remitted from LGN of £28m, LGF of £1m and LGA of £54m) and the LGN, LGA and India operating profit after tax (2015: LGN, LGF, LGA and India operating profit after tax).

 

 

 

IFRS and Release from Operations                                                                                                                Page 29

 

2.03 LGIM

 

						2016	2015
						£m	£m
Investment management revenue						744	694
Investment management expenses						(372)	(335)
Workplace Savings (admin only) operating loss1						(6)	(4)
Total LGIM operating profit						366	355
1. This represents Workplace Savings admin only and excludes fund management profits.

 

2.04 General Insurance operating profit and combined operating ratio 

							2016	2015
							£m	£m
General Insurance operating profit1							52	51
General Insurance combined operating ratio (%)2							89	89
1. The General Insurance operating profit includes the underwriting result and smoothed investment return.
2. The calculation of the General Insurance combined operating ratio incorporates claims, commission and expenses as a percentage of net earned premiums.

 

2.05 LGC

							2016	2015
							£m	£m
Direct investments							121	69
Traded portfolio including treasury operations							136	164
Total LGC operating profit							257	233

 

2.06 Group investment projects and expenses

							2016	2015
							£m	£m
Group investment projects and central expenses							(48)	(44)
Restructuring costs1							(54)	(42)
Total Group investment projects and expenses							(102)	(86)
1. Restructuring costs exclude the Kingswood office closure costs which have been presented separately.

 

2.07 Investment and other variances

							2016	2015
							£m	£m
Investment variance1							147	(57)
M&A related2							(102)	(57)
Other3							(32)	(5)
Total Investment and other variances							13	(119)
1. 2016 investment variance is positive, primarily driven by foreign exchange gains on US dollar assets, the outperformance of equity markets to expectations and a lack of defaults on the group's bond portfolios, partially offset by the negative impact of interest rate changes during the period. The defined benefit pension scheme variance of £29m contained within this line (2015: £(15)m) reflects the actuarial gains and losses, and valuation differences arising on annuity assets held by defined benefit pension schemes that have been purchased from Legal & General Assurance Society Limited. A segmental analysis of Investment and other variances can be found in note 2.09 (a).
2. M&A related includes gains and losses, expenses and intangible amortisation relating to acquisitions and disposals. 2016 includes the £60m net loss resulting from the classification of Cofunds Plc as held for sale (£64m loss) and the disposal of Suffolk Life (£4m gain).(2015: includes the £25m net loss resulting from the disposal of subsidiary and joint venture investments during the year).
3. Other includes new business start-up costs and other non-investment related variance items.

 

 

 

IFRS and Release from Operations                                                                                                                Page 30

 

Consolidated Income Statement

For the year ended 31 December 2016

 

			2016	2015
		Notes	£m	£m
Income
Gross written premiums			10,325	6,321
Outward reinsurance premiums			(1,573)	(1,603)
Net change in provision for unearned premiums			4	21
Net premiums earned			8,756	4,739
Fees from fund management and investment contracts			1,068	1,139
Investment return			67,824	5,947
Operational income			321	876
Total income		2.09	77,969	12,701
Expenses
Claims and change in insurance liabilities			17,896	5,080
Reinsurance recoveries			(2,745)	(2,466)
Net claims and change in insurance liabilities			15,151	2,614
Change in provisions for investment contract liabilities			58,578	5,615
Acquisition costs			793	838
Finance costs			198	186
Other expenses			1,569	1,893
Transfers (from)/to unallocated divisible surplus			(187)	141
Total expenses			76,102	11,287
Profit before tax			1,867	1,414
Tax expense attributable to policyholder returns			(285)	(59)
Profit before tax attributable to equity holders			1,582	1,355
Total tax expense			(602)	(320)
Tax expense attributable to policyholder returns			285	59
Tax expense attributable to equity holders		2.15	(317)	(261)
Profit for the year			1,265	1,094
Attributable to:
Non-controlling interests		2.24	7	19
Equity holders of the company			1,258	1,075
Dividend distributions to equity holders of the company during the year		2.17	830	701
Dividend distributions to equity holders of the company proposed after the year end		2.17	616	592
			p	p
Earnings per share1		2.10	21.22	18.16
Diluted earnings per share1		2.10	21.13	18.04
1. All earnings per share calculations are based on profit attributable to equity holders of the company.

 

 

 

IFRS and Release from Operations                                                                                                                Page 31

 

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2016

 

 

			2016	2015
			£m	£m
Profit for the year			1,265	1,094
Items that will not be reclassified subsequently to profit or loss
Actuarial (losses)/gains on defined benefit pension schemes			(138)	47
Tax on actuarial (losses)/gains on defined benefit pension schemes			17	(11)
Actuarial gains/(losses) on defined benefit pension schemes transferred to unallocated divisible surplus			51	(17)
Tax on actuarial gains/(losses) on defined benefit pension schemes transferred to unallocated divisible surplus			(6)	4
Total items that will not be reclassified to profit or loss subsequently			(76)	23
Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of overseas operations			190	25
Net change in financial investments designated as available-for-sale			(4)	(64)
Tax on net change in financial investments designated as available-for-sale			1	22
Total items that may be reclassified to profit or loss subsequently			187	(17)
Other comprehensive income after tax			111	6
Total comprehensive income for the year			1,376	1,100
Total comprehensive income attributable to:
Non-controlling interests			7	19
Equity holders of the company			1,369	1,081

 

 

 

IFRS and Release from Operations                                                                                                                Page 32

 

Consolidated Balance Sheet

As at 31 December 2016

 

				2016	2015
			Notes	£m	£m
Assets
Goodwill				11	83
Purchased interest in long term businesses and other intangible assets				155	292
Deferred acquisition costs				2,105	1,887
Investment in associates and joint ventures				283	220
Property, plant and equipment				76	92
Investment property			2.14/3.04	8,150	8,082
Financial investments			2.14/3.04	418,175	354,063
Reinsurers' share of contract liabilities				5,593	4,120
UK deferred tax asset			2.15	5	20
Current tax recoverable				297	236
Other assets				5,022	3,618
Assets of operations classified as held for sale			2.12	2,265	3,409
Cash and cash equivalents				25,717	20,677
Total assets				467,854	396,799
Equity
Share capital			2.18	149	149
Share premium			2.18	981	976
Employee scheme treasury shares				(30)	(30)
Capital redemption and other reserves				212	89
Retained earnings				5,633	5,220
Attributable to owners of the parent				6,945	6,404
Non-controlling interests			2.24	338	289
Total equity				7,283	6,693
Liabilities
Participating insurance contracts			2.21	5,794	5,618
Participating investment contracts			2.22	5,271	4,912
Unallocated divisible surplus				661	893
Value of in-force non-participating contracts				(206)	(184)
Participating contract liabilities				11,520	11,239
Non-participating insurance contracts			2.21	60,779	49,754
Non-participating investment contracts			2.22	321,177	278,554
Non-participating contract liabilities				381,956	328,308
Core borrowings			2.19	3,071	3,092
Operational borrowings			2.20	430	536
Provisions			2.27	1,328	1,171
UK deferred tax liabilities			2.15	291	137
Overseas deferred tax liabilities			2.15	522	436
Current tax liabilities				117	95
Payables and other financial liabilities			2.16	37,347	22,709
Other liabilities				594	737
Net asset value attributable to unit holders				21,573	18,277
Liabilities of operations classified as held for sale			2.12	1,822	3,369
Total liabilities				460,571	390,106
Total equity and liabilities				467,854	396,799

 

 

 

IFRS and Release from Operations                                                                                                                Page 33

 

Consolidated Statement of Changes in Equity

 

			Employee	Capital		Equity
			scheme	redemption		attributable	Non-
	Share	Share	treasury	and other	Retained	to owners	controlling	Total
	capital	premium	shares	reserves1	earnings	of the parent	interests	equity
For the year ended 31 December 2016	£m	£m	£m	£m	£m	£m	£m	£m
As at 1 January 2016	149	976	(30)	89	5,220	6,404	289	6,693
Profit for the year	-	-	-	-	1,258	1,258	7	1,265
Exchange differences on translation of
overseas operations	-	-	-	190	-	190	-	190
Actuarial losses on defined benefit
pension schemes	-	-	-	-	(121)	(121)	-	(121)
Actuarial losses on defined benefit
pension schemes transferred to
unallocated divisible surplus	-	-	-	-	45	45	-	45
Net change in financial investments
designated as available-for-sale	-	-	-	(3)	-	(3)	-	(3)
Total comprehensive income/(expense)
for the year	-	-	-	187	1,182	1,369	7	1,376
Options exercised under share option
schemes:
- Savings related share option scheme	-	5	-	-	-	5	-	5
Shares purchased	-	-	(10)	-	-	(10)	-	(10)
Shares vested	-	-	10	(33)	-	(23)	-	(23)
Employee scheme treasury shares:
- Value of employee services	-	-	-	24	-	24	-	24
Share scheme transfers to retained earnings	-	-	-	-	6	6	-	6
Dividends	-	-	-	-	(830)	(830)	-	(830)
Movement in third party interests	-	-	-	-	-	-	42	42
Currency translation differences	-	-	-	(55)	55	-	-	-
As at 31 December 2016	149	981	(30)	212	5,633	6,945	338	7,283
1. Capital redemption and other reserves include Share-based payments £60m (2015: £69m), Foreign exchange £135m (2015: £nil), Capital redemption £17m (2015: £17m), Available-for-sale reserves £(1)m (2015: £2m) and Hedging reserves £1m (2015: £1m).

 

 

 

IFRS and Release from Operations                                                                                                                Page 34

 

Consolidated Statement of Changes in Equity (continued)

			Employee	Capital		Equity
			scheme	redemption		attributable	Non-
	Share	Share	treasury	and other	Retained	to owners	controlling	Total
	capital	premium	shares	reserves1	earnings	of the parent	interests	equity
For the year ended 31 December 2015	£m	£m	£m	£m	£m	£m	£m	£m
As at 1 January 2015	149	969	(37)	117	4,830	6,028	275	6,303
Profit for the year	-	-	-	-	1,075	1,075	19	1,094
Exchange differences on translation of						-
overseas operations	-	-	-	25	-	25	-	25
Actuarial gains on defined benefit						-
pension schemes	-	-	-	-	36	36	-	36
Actuarial gains on defined benefit
pension schemes transferred to
unallocated divisible surplus	-	-	-	-	(13)	(13)	-	(13)
Net change in financial investments						-		-
designated as available-for-sale	-	-	-	(42)	-	(42)	-	(42)
Total comprehensive income/(expense)
for the year	-	-	-	(17)	1,098	1,081	19	1,100
Options exercised under share option scheme:
- Savings related share option scheme	-	7	-	-	-	7	-	7
Shares purchased	-	-	(3)	-	-	(3)	-	(3)
Shares vested	-	-	10	(23)	-	(13)	-	(13)
Employee scheme treasury shares:						-
- Value of employee services	-	-	-	26	-	26	-	26
Share scheme transfers to retained earnings	-	-	-	-	(21)	(21)	-	(21)
Dividends	-	-	-	-	(701)	(701)	-	(701)
Movement in third party interests	-	-	-	-	-	-	(5)	(5)
Currency translation differences	-	-	-	(14)	14	-	-	-
As at 31 December 2015	149	976	(30)	89	5,220	6,404	289	6,693
1. Capital redemption and other reserves include Share-based payments £69m, Foreign exchange £nil, Capital redemption £17m, Available-for-sale reserves £2m and Hedging reserves £1m.

 

 

 

IFRS and Release from Operations                                                                                                                Page 35

 

Consolidated Cash Flow Statement

For the year ended 31 December 2016

 

			2016	2015
		Notes	£m	£m
Cash flows from operating activities
Profit for the year			1,265	1,094
Adjustments for non cash movements in net profit for the year
Realised and unrealised (gains)/losses on financial investments and investment properties			(53,262)	4,077
Investment income			(9,390)	(9,760)
Interest expense			198	186
Tax expense			602	320
Other adjustments			(45)	(70)
Net (increase)/decrease in operational assets
Investments held for trading or designated as fair value through profit or loss			(9,363)	1,007
Investments designated as available-for-sale			246	158
Other assets			(2,658)	(2,594)
Net increase/(decrease) in operational liabilities
Insurance contracts			12,910	(1,083)
Transfer from unallocated divisible surplus			(232)	(90)
Investment contracts			39,747	(9,524)
Value of in-force non-participating contracts			(22)	24
Other liabilities			17,023	6,645
Cash used in operations			(2,981)	(9,610)
Interest paid			(198)	(186)
Interest received			4,863	5,286
Tax paid1			(424)	(244)
Dividends received			4,676	3,931
Net cash flows from/(used in) operating activities			5,936	(823)
Cash flows from investing activities
Net acquisition of plant, equipment and intangibles			(45)	(24)
Acquisitions2			-	(5)
Disposal of subsidiaries3		2.11	(272)	(82)
Investment in joint ventures			(63)	(71)
Net cash flows from investing activities			(380)	(182)
Cash flows from financing activities
Dividend distributions to ordinary equity holders of the company during the year		2.17	(830)	(701)
Proceeds from issue of ordinary share capital			5	7
Purchase of employee scheme shares (net)			-	(8)
Proceeds from borrowings			219	697
Repayment of borrowings			(342)	(527)
Net cash flows used in financing activities			(948)	(532)
Net increase/(decrease) in cash and cash equivalents			4,608	(1,537)
Exchange gains/(losses) on cash and cash equivalents			182	(106)
Cash and cash equivalents at 1 January (before reallocation of held for sale cash)			21,066	22,709
Cash and cash equivalents (before reallocation of held for sale cash)			25,856	21,066
Cash and cash equivalents classified as held for sale		2.12	(139)	(389)
Cash and cash equivalents at 31 December			25,717	20,677
1. Tax comprises UK corporation tax paid of £249m (2015: £128m), overseas corporate taxes of £16m (2015: £36m) and withholding tax of £159m (2015: £80m).
2. Net cash flows from acquisitions includes cash paid of £nil (2015: £5m) less cash and cash equivalents acquired of £nil (2015: £nil).
3. Net cash flows from disposals includes cash received of £144m (2015: £242m) less cash and cash equivalents disposed of £416m (2015: £324m).
The group's Consolidated Cash Flow Statement includes all cash and cash equivalent flows.  The closing cash position includes £944m (2015: £856m) relating to the with-profit fund policy-holders policyholders and £20,434m (2015: £16,116m) relating to unit-linked policyholders.