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.
|| 2015 PERFORMANCE
|| 2014 PERFORMANCE
| Operating profit
| IFRS profit before tax
| Net cash generation
| Return on equity1
| Earnings per share (EPS)2
| Total shareholder return (TSR)
| (Over the three-year period ended 31 December)
| Full year dividend
| Employee engagement index
1. Return on equity is calculated by taking profit after tax attributable to equity holders of the Company, divided by the average shareholders’ equity during the period. This excludes a £25m net loss in relation to the disposals of Legal & General France, Legal & General Gulf, Legal & General Egypt and Legal & General International (Ireland).
2. Adjusted earnings per share is calculated by dividing profit after tax by the weighted average number of ordinary shares in issue during the period, excluding the £25m loss as per note 1. Unadjusted earnings per share was 18.16p (2014: 16.70p).
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.
Group operating profit was up 14% on 2014 to £1,455m. This was as due to:
- LGR operating profit has increased by 49% to £639 million reflecting the continued steady profit from our back book, a favourable change in reserving assumptions in relation to unreported deaths of deferred annuitants, the benefit from selective reinsurance of longevity and asset risk and cost savings.
- LGIM continues to diversify its business by offering a broader range of innovative solutions across client segments and markets, which has enabled delivery of strong results with operating profit up 11% to £355 million (2014: £321 million).
- LGC operating profit has grown by 15% 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.
- Savings operating profit has reduced in line with the maturing book of business. Cofunds continue to positively contribute to Savings operating profits.
- Insurance operating profit has reduced by 21%. Whilst our retail protection business continues to generate significant levels of profit, both on the existing book and the new business being written in the year, one-off changes in valuation assumptions contributed to an overall reduction to operating profit. The reinsurance modelling for our UK Protection business has been enhanced. Recent reinsurance contracts have been written on a risk premium basis (as opposed to level premium), and the model change ensures that for these treaties, sufficient prudence is being held in later years. The one-off impact reduced operating profit by £93 million in 2015. This also defers a higher proportion of cash generation into later years of these reinsurance contracts. In addition, we experienced lower profits from our general insurance business following adverse weather experience in the Q4 2015, with storm costs of circa £15 million adversely impacting profits.
- LGA Operating profit has increased by 48% to £83 million. This is driven by continued premium growth and strong expense management, coupled with favourable mortality experience in 2015 compared to 2014.
IRS profit before tax (PBT)
KPI purpose: PBT measures the actual distributable earnings of the group, reflecting actual returns on investments, net of investment in future groupwide capabilities and new business ventures.
- Profit before tax is up 9% on 2014 due to strong operating profits including favourable new business surplus arising in our retirement business. This has more than offset the impact of equity market falls and widening spreads in government bonds in the group’s investment portfolio in the second half of the year and the impact of disposals made by the group during 2015.
Net cash generation
KPI purpose: Net cash generation demonstrates the ability of the Group to pay returns to shareholders.
Net cash generation is up 14% on 2014. This was due to:
- LGR net cash generation has increased by 22% reflecting a strong back book of business as well as a favourable new business surplus of £45 million which has benefited from our capital-lite model, with selective placement of longevity and asset reinsurance, and disciplined pricing.
- In LGIM, strong growth in total assets and revenue has been accompanied by tight cost control. Whilst continuing to invest in the business LGIM has maintained a cost to income ratio, excluding workplace, of 48% (2014: 48%). This has resulted in a 14% increase in net cash generation to £281 million (2014: £246 million).
- The average balance of LGC assets, excluding treasury, has grown from £3.9 billion in 2014 to £4.2 billion in 2015 with the assumed average return on assets growing from 5.0% to 5.3%. This has resulted in a 15% increase in the net cash generated.
- Insurance net cash generation has increased by 6%, driven by our strong commercial focus and disciplined cost management on our retail protection business, while continuing to deliver value to both customers and shareholders. In addition, we have experienced increased fees from reinsuring more business from L&G America. This was partially offset by adverse weather experienced in Q4 2015 affecting our general insurance business.
- Savings net cash has reduced 3% reflecting the expected run-off profile of the mature non profit and with-profit businesses. This is partially offset by Cofunds which continues to positively contribute to Savings cash results through accelerated cost reduction and operational efficiencies.
- The dividend paid by LGA to the group increased by 9% to $83 million and reflects the focus of LGA to deliver growing net cash generation. Adjusting for foreign exchange movements, this represents a 17% increase to £54 million.
Return on equity (ROE)
KPI purpose: Full year dividend demonstrates the level of distribution to shareholders.
- The group continues to demonstrate careful use of capital across all divisions, generating a strong 17.7% return on equity, excluding the one-off impact of M&A activity during 2015. This is up 0.8 percentage points on 2014. Including the impact of M&A, the ROE was 17.3%.
Full year dividend
KPI purpose: Full year dividend demonstrates
the level of distribution to shareholders.
Consistent with our previous dividend guidance
to reduce our net cash coverage of dividend
towards 1.5 times, the Board has recommended
an increase of 19% in the full year to 13.40p
(2014: 11.25p). The cost of the full year dividend
is £797 million (2014: £668 million) and is
covered 1.58 times by the net cash generated.
Going forward, the Board has adopted a
progressive dividend policy, reflecting the
Group’s medium-term underlying business
growth, including net cash generation and
Please refer to page 32
of this report for further
details on our dividend guidance.
Employee engagement index
KPI purpose: The 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 well being. In 2015, we surveyed 7,501 employees based in the UK and United States. 6,413 people shared their views, equating to an 85% response rate.
- Change programmes and headcount reduction around the business reduced levels of engagement in some locations and business areas.
- Our ‘Wellbeing’ campaign continued in 2015 with our employees being motivated to understand the importance of healthy choices in their own lives and to help improve the health of our communities.
- Through our matching schemes including turning volunteering time in cash for charities, our employees raised over £1.9 million for good causes and their communities.
Total shareholder returns
KPI purpose: TSR measures total return to shareholders, including dividends and share price movements over time.
- Based on a three year TSR performance as at 31 December 2015, we are in the FTSE 100 top quartile after giving investors a 114% return over a three year period. We were also one of the world’s top performing life insurance companies in the FTSE Global Index during this period.
Earnings per share
KPI purpose: EPS demonstrates the link between performance and shareholder return.
We’ve delivered another year of EPS growth, driven by a 10% increase in the group profit after tax (up from £992 million in 2014 to £1,094 million in 2015). Excluding the one-off impact of mergers and acquisitions, this resulted in a 11% (1.88p) increase in EPS. Including the impact of mergers and acquisitions, the EPS was 18.16p.