Legal & General share price: FY profit before tax rises 8%
Legal & General (LON:LGEN) has this morning released its full-year results. Here are the highlights from the company statement with more to follow:
2014 FINANCIAL HIGHLIGHTS
Legal & General delivered another year of strong growth in operational and net cash generation, operating profit and earnings per share. We continue to grow our business stock, which in turn drives our cash and earnings progression. Annuity assets increased 28% to £44.2bn (2013: £34.4bn), Insurance premiums increased 8% to £3.0bn (2013: £2.8bn) and Savings assets increased 10% to £124.2bn (2013: £113.4bn). LGIM further increased its total assets by 16% to £708.5bn (2013: £611.6bn) and revenue by 9% to £645m (2013: £594m).
Net cash generation increased by 10% to £1,104m (2013: £1,002m). Our new business surplus of £3m (2013: strain of £(40)m) is as a result of a £18m improvement in Annuities new business surplus, a £15m reduction in Savings new business strain and a £10m reduction in Insurance new business strain.
Operational cash generation increased by 6% to £1,101m (2013: £1,042m), driven by a 12% increase in LGR cash, up to £292m (2013: £260m), reflecting the increasing stock of annuity assets, and a 10% increase in LGIM cash, up to £262m (2013: £239m) reflecting its growing stock of assets. Operational cash generation included an additional £15m of debt costs following the issuance of £600m of long dated subordinated Tier 2 debt in June 2014, significantly extending the overall average maturity of the group’s borrowings.
Operating profit increased by 10% to £1,275m (2013: £1,158m), reflecting the strong performance of our business. We have changed our approach to the classification of restructuring costs, reflecting the on-going nature of this type of expenditure. Operating profit in 2014 is stated after £31m of restructuring costs, included within Group investment projects and expenses. 2013 has not been restated and includes £17m in restructuring costs within investment and other variances, below operating profit.
Profit before tax increased 8% to £1,238m (2013: £1,144m) including investment and other variances of £(44)m (2013: £(27)m). We have delivered earnings per share up 10% to 16.70 pence (2013: 15.20 pence) and a higher annualised return on equity of 16.9% (2013: 16.1%).
The Board has confidence in the strength and growth prospects for the business. This underpins the Board’s recommendation of a final dividend of 8.35p (2013: 6.90p) giving a full year dividend of 11.25p (2013: 9.30p), 21% higher than 2013. This reflects a net cash cover of 1.65 times. We expect to reduce our net cash coverage of dividend towards 1.5 times in 2015 should our Solvency II surplus be no lower than Solvency I. We will provide updated dividend guidance when Solvency II clarity has fully emerged.
OUTLOOK
In LGIM, the clear intention of the majority of companies to de-risk their defined benefit pension schemes is expected to result in strong LDI new business volumes in the UK and US in 2015. This growth is expected, in part, to offset outflows in our UK passive funds which results from this de-risking trend and pension schemes using funds to pay annuitants.
In LGR, demand for de-risking strategies, including annuity transactions, remains high. Our research indicates that almost two thirds of large defined benefit pension schemes are looking to de-risk. Actual transaction flows of buy-out and buy-in annuity transactions are however dependent on their affordability, which will remain determined on underlying scheme funding levels and prevailing market conditions. Additionally our appetite for bulk annuity transactions and the risks we choose to retain is dependent on the application of Solvency II in the UK.
Our recently announced acquisition of Newlife Home Finance Limited (subject to regulatory
approval), a provider of UK lifetime mortgages, gives us access to this potentially sizeable market. We expect to write over £100m of lifetime mortgages in 2015 and increasing amounts thereafter.
The changes introduced in the March Budget have introduced greater flexibility for individuals in retirement. We expect consumers to demand simple, tax efficient products that allow them to ‘cash-out’ their pensions and we have tailored our new products accordingly. We expect 2015 sales of Individual Annuities to be around 50% of 2014 new business volumes.
As of 07:07 GMT, Wednesday, 04 March, Legal & General Group Plc share price is 278.20p.
