Key Performance Indicators (KPIs) are the measures by which the development, performance or position of the business can be measured effectively.
The Group Board reviews the KPIs annually and updates them where appropriate.
|| 2016 PERFORMANCE
|| 2015 PERFORMANCE
| Net release from operations 1
| Earnings per share
| Adjusted return on equity 2
| Full year dividend
| Profit before tax (PBT) attributable to equity holders
| Worldwide employee engagement index
| Total shareholder return (TSR)
(Over the three year period ended 31 December)
1. Net release from operations has replaced the term Net cash generation. There is no change in how it is determined.
2. Adjusted return on equity is calculated by taking profit after tax attributable to equity holders of the Company, excluding the £60m net loss on disposals (2015: £25m net loss) divided by the average shareholders’ equity during the period.
For more information on the purpose of our KPIs please select from the table below.
KPI purpose: Operating profit provides an insight into the group's ability to generate cash flows to support dividends.
Operating profit increased 7% to £1,562m (2015: £1,455m)
- LGR achieved record operating profits of £811m driven by strong performance from our front and back books, as well as benefitting from higher levels of longevity reinsurance on new business. Longevity experience in the year was once again positive compared to our assumptions. Despite this outcome, we have not materially adjusted our forward-looking longevity reserves.
- LGIM operating profit increased by 3%. The combined contribution from positive net flows of £31.2bn (2015: £33.3bn) and higher asset values in the second half, was partially offset by planned investment to grow the business, as well as the impact of on-going industry fee pressure.
- LGC operating profit increased by 10% due to strong performance in the division’s £1.1bn (2015: £0.9bn) direct investment portfolio which delivered £121m (2015: £69m) operating profit, of which 44% (2015: 28%) came from earnings in LGC’s operating businesses, including CALA Homes.
- LGI operating profit was flat year-on-year, in part as a consequence of a £39m lower expected release from the UK retail protection back book, and adverse claims experience of £43m, primarily in group protection. The 2015 comparator for LGI was impacted by one-off reserve strengthening primarily relating to the modelling of reinsurance contracts in retail protection.
- General insurance operating profit increased to £52m (2015: £51m) with a combined operating ratio of 89% (2015: 89%). This was despite the introduction of the annual Flood Re levy of £9m which added 3% to the combined operating ratio.
- Operating profit in Mature Savings remains strong at £99m (2015: £107m). The introduction of robotics has increased automation to reduce unit costs.
Net release from operations
KPI purpose: Net release from operations demonstrates the ability of the Group to pay returns to shareholders.
- The Group delivered £1,411m net release from operations comprising £1,256m (2015: £1,217m) release from operations and £155m (2015: £39m) new business surplus. The increase in release from operations was consistent with the guidance we issued in August 2016. The £116m year-on-year increase in new business surplus was primarily a result of significantly higher new business volumes in LGR, with new annuity sales up 155% at £7.0bn.
Earnings per share
KPI purpose: EPS demonstrates the link between performance and shareholder return.
EPS increased by 17% (21.2p) driven by a 16% increase in the group profit after tax (up from £1,094 million in 2015 to £1,265 million in 2016).
Adjusted return on equity (ROE)
KPI purpose: ROE provides a link between performance and balance sheet management and ensures an appropriate balance is maintained between the two.
- The group continues to demonstrate careful use of capital across all divisions, with return on equity increasing to 19.6%, excluding the impact of M&A activity during the year. This is up 2.0 percentage points on 2015. Including the impact of M&A, the ROE was 18.8%.
Full year dividend
KPI purpose: Full year dividend demonstrates the level of distribution to shareholders.
- In line with our new progressive dividend policy reflecting the group’s expected medium-term underlying business growth, including net release from operations and operating earnings, the Board has recommended an increase of 7% in the full year to 14.35p (2015: 13.40p). The cost of the full year dividend is £616 million (2015: £797 million).
Profit before tax (PBT) attributable to equity holders
KPI purpose: PBT attributable to equity holders measures the actual distributable earnings before tax attributable to shareholders of the group, reflecting actual returns on investments, net of investment in future group-wide capabilities and new business ventures.
- Profit before tax attributable to equity holders is up 17% on 2015 driven by the increase in operating profits and favourable investment variances caused by FX gains on LGC’s traded US dollar assets, together with strong returns on its traded equity assets portfolio. These are partly offset by the impact of a decline in government bond yields, which are used in the calculation of reserves for the Protection business, and the net loss on disposal on M&A activity.
Worldwide employee engagement index
KPI purpose: The worldwide employee engagement index measures the extent to which employees are committed to the goals of Legal & General and are motivated to contribute to the overall success of the company, whilst at the same time working with their manager to enhance their own sense of development and wellbeing.
- Over 6,800 people in our businesses in the UK, US and India took part in our annual ‘What Matters’ Employee Survey, with an overall response rate of 85%. The 2016, the worldwide ‘Employee Engagement Index’ increased from 67% in 2015 to 76% in 2016. This increase in scores reflects the hard work undertaken by our Business Divisions to support our people through change by offering an agile, flexible and working environment, whilst equipping them with tools to work positively through change. The focus to support our people’s level of engagement will continue over next year as we continue to share our strategic goals and ambitions whilst supporting managers and our peoples’ wellbeing.
Total shareholder return (TSR)
KPI purpose: TSR measures total return to shareholders, including dividends and share price movements over time.
- We delivered a TSR of 29% over a three year period (as at 30th December 2016) outperforming nearly all of our UK peers, despite an 8% decrease in our share price during 2016.