A growth story

Operating profit

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 and changes in insurance risks such as mortality and longevity 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 period, such as merger and acquisition, start-up and closure costs, are excluded from operating profit.

KPI Purpose: operating profit provides an insight into the group’s ability to generate cash flows to support dividends

 

Net cash generation1
2014
£m

Experience variances
2014
£m

Changes in valuation assumptions
2014
£m

Non-cash items and other2
2014
£m

Operating profit/(loss) after tax
2014
£m

Tax expense/(credit)
2014
£m

Operating profit/(loss) before tax
2014
£m

1.

Net cash generation is defined in the glossary and further analysis is provided in Note 2.

2.

Investment gains and losses, profits and losses retained by international subsidiaries, certain restructuring costs (see Note 2(i)) and other.

3.

A reconciliation from operating profit to IFRS profit before tax is provided in Note 2.

Legal & General Assurance Society

424

(18)

32

(77)

361

99

460

Legal & General Retirement

343

(13)

48

(32)

346

82

428

Legal & General Investment Management

262

262

74

336

Legal & General Capital

162

162

41

203

Legal & General America

46

(14)

32

24

56

Operating profit from divisions

1,237

(31)

80

(123)

1,163

320

1,483

Group investment projects, interest and expenses

(133)

(32)

(165)

(43)

(208)

Operating profit3

1,104

(31)

80

(155)

998

277

1,275

 

Net cash generation1
2013
£m

Experience variances
2013
£m

Changes in valuation assumptions
2013
£m

Non-cash items and other2
2013
£m

Operating profit/(loss) after tax
2013
£m

Tax expense/(credit)
2013
£m

Operating profit/(loss) before tax
2013
£m

1.

Net cash generation is defined in the glossary and further analysis is provided in Note 2.

2.

Investment gains and losses, profits and losses retained by international subsidiaries, certain restructuring costs (see Note 2(i)) and other.

3.

A reconciliation from operating profit to IFRS profit before tax is provided in Note 2.

Legal & General Assurance Society

401

(34)

31

59

339

105

444

Legal & General Retirement

293

9

(13)

(48)

241

69

310

Legal & General Investment Management

239

239

65

304

Legal & General Capital

137

137

42

179

Legal & General America

44

14

58

34

92

Operating profit from divisions

1,114

(25)

18

(93)

1,014

315

1,329

Group investment projects, interest and expenses

(112)

(19)

(131)

(40)


(171)

Operating profit3

1,002

(25)

18

(112)

883

275

1,158

BUSINESS SEGMENT

Legal & General Assurance Society

Insurance operating profit includes the general insurance, retail and group protection businesses and profit from our France and Netherlands businesses. Operating profit reflects the investment returns that the business expects to make on the financial investments that back this business and on shareholder funds retained within general insurance.

Savings operating profit represents the profit from the insured savings businesses (non profit investment bonds and non profit pensions, including SIPPs), the with-profits transfer and the profit from our investment savings businesses. Operating profit for the insured savings business reflects the investment returns that the business expects to make on the financial investments that back this business.

OPERATING PROFIT

£370m
Insurance operating profit
(2013: £355m)

Insurance operating profit has increased by 4%, benefiting from an increased contribution from our market leading retail protection business. This was partially offset by lower profits from our general insurance business following adverse weather experience in the first quarter of 2014.

£90m
Savings operating profit
(2013: £89m)

Savings operating profit has remained in line with 2013 with workplace savings losses decreasing to £(15) million (2013: £(29) million) as our auto-enrolment proposition moves towards break-even levels of assets under administration. Mature savings continues to positively contribute to LGAS operating profits.

Legal & General Retirement

Operating profit from the retirement business represents the profit from individual and bulk purchase annuities and longevity insurance. This reflects the surplus released by the actual development of the business during the year and the current assessment of longer term assumptions for the future.

£428m
(2013: £310m)

LGR operating profit has increased by 38% to £428 million reflecting the continued steady profit from our back-book, favourable mortality experience compared to assumptions and £51 million of new business surplus.

Legal & General Investment Management

Operating profit for the investment management division represents the operating profit before tax on our managed and segregated pension business, institutional mandates, property business, retail unit trusts and internal funds.

£336m
(2013: £304m)

LGIM operating profit was up 11% on 2013. This reflected an increase in assets, due to market returns and our growing higher margin active fixed income and property businesses. The cost to income ratio has remained steady at 48% despite investment in our business as it continues to grow.

Legal & General Capital

LGC operating profit represents the expected return on group invested assets using medium-term expected investment returns, net of investment management expenses.

£203m
(2013: £179m)

LGC operating profit has grown by 13% reflecting an increase in the average balance of invested assets and changes in the portfolio mix, including our growing direct investment portfolio, driving higher assumed returns.

Legal & General America

Operating profit for LGA represents the profit on our protection and universal life products written in the US. For LGA, unrealised investment returns are excluded from operating profits to align with the liability measurement under US GAAP.

£56m
(2013: £92m)

Operating profit has decreased 39% to £56 million. LGA has suffered from adverse mortality in 2014 ($46 million against assumptions), and the experience will continue to be closely monitored going forwards.

Guide to symbols

This is a key performance indicatorKey performance indicator (KPI)

Key measure in the remuneration of executivesKey measure in the remuneration of executives