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Legal & General first-half profits fall as volatility weighs on investment portfolio

L&G said it was on track to deliver 10% increase in earnings per share each year until 2020
L&G raised its interim dividend to 4.6p from 4.3p last year

Legal & General Group PLC (LON:LGEN) reported a 9% drop in first-half pre-tax profit as volatility in global financial markets weighed on its investment portfolio.

Pre-tax profit attributable to shareholders in the first six months of the year fell to £942mln from £1.04bn the same period a year ago.  The figures exclude last year’s release of £126mln in mortality reserves set aside for pension payments.

Mixed performance across divisions 

L&G Capital, the group’s early-stage investment arm that injects new capital in housing, infrastructure and small and medium-sized businesses, saw its pre-tax profit fall 57.7% to £82mln due to a £90mln loss from the traded assets portfolio, which was hit by a weaker-than-expected market.

The investment management division saw pre-tax profit rise 4.7% to £199mln and assets under management grew 4% to £985bn, boosted by positive flows from its defined contribution, retail, defined benefit solutions and international businesses.

READ: L&G expects asset management arm to deliver profit growth as strategy pays off

The L&G Retirement business posted a 6.5% fall in pre-tax profit to £565mln as the mortality rate rose and annuity sales plunged 45% to £1.1bn.

The L&G insurance division’s pre-tax profit decreased by 18.7% to £117mln on the back of higher claims, although gross written premiums increased 3% to £1.4bn.  The general insurance unit was hit by claims related to adverse weather and swung to a loss of £14mln from a profit of £21mln last year.

Operating profit, however, rose 7% to £1.05bn with growth across all divisions apart from general insurance.

The Solvency II capital ratio – a measure of financial strength – increased to 193% from 186% with surplus generation up 11% to £700mln.

L&G hikes dividend 

L&G raised its interim dividend to 4.6p from 4.3p last year.

The company said expects a strong second half of the year, supported by a pipeline of new business in de-risking corporate pension schemes.

Looking further ahead, the group said it was on track to deliver 10% increase in earnings per share per year out to 2020 as it focuses on “attractive high-growth markets” within investment management, investing and annuities, and insurance.

“L&G is well placed to grow further and take advantage of organic growth opportunities, bolt-on M&A, sourcing direct investments, and investing in our existing infrastructure,” it said.

“To support these plans, we will invest in technology in a measured way across the group, as previously reported.”

In late morning trading, L&G shares were down 1.1% at 261.5p

Numis repeated an 'add' rating and target price of 265p.

The broker said: "Interim results overall results are up 7% and much in line with consensus, but the results are complicated by 1/ profits from the savings business which has been sold (£56mln) and 2/ because 2017 contained a substantial mortality release (£126mln from base mortality)."

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The group manages £7.8bn of funds: £2.8bn in the UK; £2.9bn in Sweden; and £2.1bn in the Netherlands.

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