Legal & General share price in focus as cash generation rises
Legal & General Group Plc (LON:LGEN) has this morning updated investors on its first-quarter performance, posting a rise in operational cash generation and annuity sales.
**Highlights from the company statement:**
Operational cash generation for the Group is up 11% to £330m in the first three months of the year (Q1 2014: £297m). We have grown our stock of assets: increasing annuity assets in LGR; assets under management in LGIM and shareholder assets in LGC. This growth, together with an increased contribution from General Insurance and increased dividends received from LGA, with the ordinary dividend of $80m, equating to £52m, up 10% on 2014 (Q1 2014: $73m equating to £44m) has driven record operational cash generation for the Group
New business strain of £4m (Q1 2014: surplus of £4m) primarily resulted from lower levels of bulk annuity transactions in the quarter. As a result net cash generation increased by 8% to £326m (Q1 2014: £301m).
Nigel Wilson, Group Chief Executive, said:
“Legal & General’s cash generation in Q1 of 2015 was a record, operational cash of £330m was up 11% year on year. Cash is driven by our stock of assets and premiums, which we have grown strongly and consistently across our businesses. LGIM assets increased 17% to £737bn, annuity assets increased 19% to £46bn and direct investment increased 62% to £6.3bn.
We are constantly developing, evolving and streamlining our business to deliver better value products for customers and better returns for investors. We have set a high bar for management actions and performance including our cost reduction target of £80m this year.
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Our business is aligned to long term macro growth trends. We are adapting well to regulatory and political challenges, for example, managing the switch to ‘pension freedom’ with a new range of cash and retirement products, which now includes lifetime mortgages. The Group is benefiting as we leverage our leading position in pension de-risking, selectively expand our international footprint in the US and Asia, and invest in the future success of the UK through our partnership in Media City in Salford and entry into the private rental sector in 2015.”
The Group continues to execute on its clear and focused growth strategy based on five key macro trends: ageing populations; globalisation of asset markets; welfare reform; digital lifestyles and retrenching banks. We are delivering this both organically and by selective bolt-on acquisitions. Our responses to these trends and the diversification within our business model have enabled us to deliver sustained growth in our cash. External political and regulatory uncertainties remain but by aligning our strategy to these five macro trends we believe we have created a high degree of resilience in our business model.
We are working closely with the Prudential Regulatory Authority (PRA) in respect of Solvency II and will submit applications in Q2 2015 for our internal model to calculate our Solvency Capital Requirement, the use of transitionals and a matching adjustment. 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 we will provide a further update on this process as clarity emerges.
Internationally our business continues to gather momentum with the encouraging start to the year continuing into the second quarter. LGIM has had notable successes in the US, winning our first Index mandate, and in Asia, winning further mandates across the region. In LGR, we continue to explore opportunities to use our specialist experience in the global de-risking market, including in the US and the Netherlands.
We see further opportunities in the UK Insurance market with our retail protection business securing further intermediary distribution arrangements in Q2 2015 and a strong group protection sales pipeline. We expect new business volumes and margins across our UK Protection businesses for 2015 to be broadly in line with 2014.
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 are decluttering our business model to focus on core strategies and have contracted to sell Legal & General International (Ireland) Limited, representing £2.7bn of AUA, which is expected to complete in Q2 2015.
We remain confident in delivering the 2015 operational cash guidance we gave at the time of the 2014 full year results.
As of 07:12 BST, Wednesday, 06 May, Legal & General Group Plc share price is 257.90p.