L&G Half-year Results Part 4d

RNS Number : 6253A

Legal & General Group Plc

05 August 2008

 



International Financial Reporting Standards									Page 58
Notes to the Financial Statements
4.12  Share capital and share premium
								Share	Share
							Number of	capital	premium
Issued share capital, fully paid							shares	£m	£m
As at 1 January 2008						6,296,321,160		157	927
Shares cancelled under share buyback programme1						(329,936,896)		(8)	-
Options exercised under share option schemes
- Executive share option scheme							550,346	-	-
- Savings related share option scheme						12,075,304		-	7
As at 30 June 2008						5,979,009,914		149	934
								Share	Share
							Number of	capital	premium
Issued share capital, fully paid							shares	£m	£m
As at 1 January 2007						6,532,261,961		163	923
Options exercised under share option schemes
- Executive share option scheme							1,659,031	-	2
- Savings related share option scheme							1,596,379	-	1
As at 30 June 2007						6,535,517,371		163	926
								Share	Share
							Number of	capital	premium
Issued share capital, fully paid							shares	£m	£m
As at 1 January 2007						6,532,261,961		163	923
Shares cancelled under share buyback programme						(241,207,267)		(6)	-
Options exercised under share option schemes
- Executive share option scheme							1,961,215	-	2
- Savings related share option scheme						3,305,251		-	2
As at 31 December 2007						6,296,321,160		157	927
1. During the period, 329,936,896 shares were repurchased and cancelled under the share buyback programme representing 5.2% of opening issued share capital, at a cost of £408m including expenses. At 29 July 2008, a further 37,963,364 ordinary shares had been purchased for cancellation at a total cost of £37m including expenses.
There is one class of ordinary shares. All shares issued carry equal voting rights. The holders of the Company's ordinary shares are entitled to receive dividends as declared and are entitled to one vote per share at shareholder meetings of the Company.
4.13  Segmental analysis of ordinary shareholders' equity
							At 30.06.08	At 30.06.07	At 31.12.07
							£m	£m	£m
Society shareholder capital							4,824	4,830	4,832
General insurance							98	136	114
Netherlands							104	93	107
France							146	112	130
Total Society shareholders' equity							5,172	5,171	5,183
USA							650	598	643
Investment management							469	361	349
Corporate funds1							(1,616)	(615)	(729)
Shareholders' equity							4,675	5,515	5,446
1. Corporate funds includes general corporate assets held at Group level including those used to support the ongoing share buyback programme, subordinated borrowings and senior borrowings.
International Financial Reporting Standards									Page 59
Notes to the Financial Statements
4.14  Analysis of borrowings
							At 30.06.08	At 30.06.07	At 31.12.07
							£m	£m	£m
Subordinated borrowings
6.385% Sterling perpetual capital securities							589	580	620
5.875% Sterling undated subordinated notes							427	428	427
4.0% Euro subordinated notes 2025							428	363	414
Total subordinated borrowings							1,444	1,371	1,461
Senior borrowings
Sterling medium term notes 2031-2041							602	602	608
Euro commercial paper							347	114	118
Bank loans							54	18	13
Non recourse financing
- US Dollar Triple X securitisation 2025							266	264	266
- US Dollar Triple X securitisation 2037							223	220	223
- Suffolk Life linked borrowings							152	-	-
- Sterling property partnership loans 2011							98	114	99
Total senior borrowings							1,742	1,332	1,327
Total borrowings							3,186	2,703	2,788
Total borrowings (excluding non recourse financing)							2,447	2,105	2,200
Subordinated borrowings For regulatory purposes the sterling perpetual capital securities are treated as innovative tier I capital, the sterling undated subordinated notes as upper tier II capital and the Euro subordinated notes as lower tier II capital. 6.385% Sterling perpetual capital securities In 2007, Legal & General Group Plc issued £600m of 6.385% sterling perpetual capital securities. These securities are callable on 2 May 2017 and every three months thereafter. If not called, the coupon from 2 May 2017 will be reset to three month LIBOR plus 1.93% per annum. Simultaneous with the issuance, the fixed coupon was swapped into six month LIBOR plus 0.94% per annum. 5.875% Sterling undated subordinated notes These notes are callable on 1 April 2019 and every five years thereafter. If not called, the coupon from 1 April 2019 will be reset to the prevailing five year benchmark gilt yield plus 2.33% per annum.  4.0% Euro subordinated notes 2025 These notes are callable on 8 June 2015 and each year thereafter. If not called, the coupon from 8 June 2015 will reset to a floating rate of interest based on prevailing three month Euribor plus 1.7% per annum. The proceeds were swapped into sterling. Non recourse financing US Dollar Triple X securitisations This non recourse debt was issued by a subsidiary of Legal & General America Inc in the US capital markets to meet the Triple X reserve requirements on the US term insurance business. They are secured on the cash flows related to this business. Suffolk Life linked borrowings These borrowings relate solely to client investments. Sterling property partnership loans 2011 These loans are secured on specific properties.
4.15  Minority interests
Minority interests represent third party interests in property investment vehicles which are consolidated in the Group's results.
International Financial Reporting Standards									Page 60
Notes to the Financial Statements
4.16  Total equity
									Full year
							30.06.08	30.06.07	31.12.07
							£m	£m	£m
As at 1 January							5,624	5,839	5,839
Total recognised income and expense							(26)	361	699
Issue of share capital							7	3	4
Share buyback							(408)	-	(320)
Closed period share buyback reserve							(100)	-	-
Net movements in employee scheme shares							(9)	(9)	1
Dividend distributions to equity holders of the Company during the period							(248)	(248)	(369)
Movements in minority interests including disposals							10	25	(230)
As at 30 June / 31 December							4,850	5,971	5,624
4.17  Value of policyholder assets held in Society and LGPL
							At 30.06.08	At 30.06.07	At 31.12.07
							£bn	£bn	£bn
With-profits business							26.8	30.1	29.5
Non profit business							31.3	28.1	30.7
							58.1	58.2	60.2
4.18  Non-linked business and Society shareholder capital invested asset mix and investment return
				Investment	With-profits	With-profits	With-profits	Non profit	Society
				return	asset share	non par	other		shareholder
									capital
As at 30 June 2008				%	%	%	%	%	%
Equities				(10)	43	4	(41)	-	67
Bonds				(3)	37	80	131	98	14
Property				(6)	17	2	-	-	8
Cash				3	3	14	10	2	11
					100	100	100	100	100
Investment return (%)				(5)	(7)	(4)	1	(3)	(3)
Invested assets (£bn)					14.8	2.3	1.7	18.2	3.7
As at 30 June 2007
Equities				9	50	5	(50)	-	68
Bonds				(4)	28	81	127	99	10
Property				4	19	2	1	-	13
Cash				3	3	12	22	1	9
					100	100	100	100	100
Investment return (%)				-	4	(2)	(9)	(4)	5
Invested assets (£bn)					18.1	2.4	1.6	15.0	4.3
As at 31 December 2007
Equities				9	45	4	(43)	-	69
Bonds				1	35	83	129	99	12
Property				(5)	17	2	-	-	12
Cash				5	3	11	14	1	7
					100	100	100	100	100
Investment return (%)				3	4	3	6	-	6
Invested assets (£bn)					17.1	2.4	1.8	16.6	4.0
All investment return percentages reflect average returns for the period.
International Financial Reporting Standards									Page 61
Notes to the Financial Statements
4.19  Pension cost
The Legal & General Group UK Pension and Assurance Fund and the Legal & General Group UK Senior Pension Scheme are defined benefit pension arrangements and account for all UK and the majority of worldwide assets of, and contributions to, such arrangements. At 30 June 2008, the combined after tax deficit arising from these arrangements (net of annuity obligations insured by Society) has been estimated at £135m (H1 07: £75m; FY 07: £130m). These amounts have been recognised in the financial statements with £80m charged against shareholder equity (H1 07: £45m; FY 07: £77m) and £55m against unallocated divisible surplus (H1 07: £30m; FY 07: £53m).
4.20  Contingent liabilities, guarantees and indemnities
Provision for the liabilities arising under contracts with policyholders is based on certain assumptions. The variance of actual experience from that assumed may result in such liabilities differing from the provisions made for them. Liabilities may also arise in respect of claims relating to the interpretation of such contracts, or the circumstances in which policyholders have entered into them (together in this paragraph 'liabilities'). The extent of such liabilities is influenced by a number of factors including the actions and requirements of the Financial Services Authority (FSA), by ombudsman rulings, by industry compensation schemes and by court judgements. The continuing general profile and emphasis being given by the FSA and other bodies to the suitability of the past sales of endowment policies in the context of some mortgage transactions has led to the continuing receipt of claims from holders of endowment policies. The recent Consultation Paper 08/11 issued by the FSA proposes certain changes which would preclude the discharge out of any with-profits fund of compensation and redress (including for mis-selling claims) to holders of policies allocated to such with-profits fund. The effect of the FSA's proposals appears to be that the cost of such payments would in future, have to be met out of assets attributable to the shareholders. These proposals are only currently at a consultation stage and the Group is intending to make representations in respect of these. Until the extent of the actual rule changes becomes clearer, it is not possible to say with any reasonable certainty what the financial impact on the Group will be.  Various Group companies receive claims and become involved in actual or threatened litigation and regulatory issues from time to time. Provision for liabilities continues to be made and is regularly reviewed. However, it is not possible to predict, with certainty, the extent and the timing of the financial impact to which these claims, litigation or issues may give rise. The relevant members of the Group nevertheless consider that each makes prudent provision, as and when circumstances calling for such provision become clear, and that each has adequate capital and reserves to meet all reasonably foreseeable eventualities.  In 1975, Legal & General Assurance Society Limited ('the Society') was required by the Institute of London Underwriters (ILU) to execute the ILU form of guarantee in respect of policies issued through the ILU's Policy Signing Office on behalf of NRG Victory Reinsurance Company Ltd (Victory), a company which was then a subsidiary of the Society. In 1990, Nederlandse Reassurantie Groep Holding NV (the assets and liabilities of which have since been assumed by Nederlandse Reassurantie Groep NV under a statutory merger in the Netherlands) acquired Victory and provided an indemnity to the Society against any liability the Society may have as a result of the ILU's requirement, and the ILU agreed that its requirement of the Society would not apply to policies written or renewed after the acquisition. Nederlandse Reassurantie Groep NV is now owned by Columbia Insurance Company, a subsidiary of Berkshire Hathaway Inc. Whether the Society has any liability as a result of the ILU's requirement and, if so, the amount of its potential liability is uncertain. The Society has made no payment or provision in respect of this matter. The Society has been discussing with Her Majesty's Revenue & Customs the application of certain tax legislation specific to life assurance companies for the years 1999 to 2006. It has not been possible to reach agreement and a reference will be made in 2009 to the Special Commissioners. The maximum exposure is estimated to be £230m. No amount is included in respect of this issue in the income tax provision at 30 June 2008, as the Group's view, supported by leading tax counsel, is that no amount will be payable. Group companies have given indemnities and guarantees, including interest rate guarantees, as a normal part of their operating activities or in relation to capital market transactions.
4.21  Events after the balance sheet date
Since 30 June 2008, additional shares have been purchased under the Company's buyback programme. At 29 July 2008, a further 37,963,364 ordinary shares (representing 0.6% of Legal & General Group Plc's issued share capital at 30 June 2008) had been purchased for cancellation at a total cost of £37m including expenses, at an average cost of 96.9p per share. Cumulatively, a total of 609,107,527 shares have been repurchased at a total cost of £764m.
4.22  Foreign exchange rates
Period end exchange rates							At 30.06.08	At 30.06.07	At 31.12.07
United States Dollar							1.99	2.01	1.99
Euro							1.26	1.49	1.36
							01.01.08-	01.01.07-	01.01.07-
Average exchange rates							30.06.08	30.06.07	31.12.07
United States Dollar							1.97	1.97	2.00
Euro							1.29	1.48	1.46
International Financial Reporting Standards									Page 62
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