�

# All references to 'Operating profit' throughout this report represent 'Group adjusted operating profit', an alternative performance measure defined in the glossary.

�

IFRS Disclosures on performance and Release from operations�� Page 34

�

1.03 Analysis of LGR and LGI operating profit

For the year ended 31 December 2019

�

�	�	LGR	LGI	LGR	LGI
�	�	2019	2019	2018	2018
�	�	�m	�m	�m	�m
�	�	�	�	�	�
�	�	�	�	�	�
Net release from operations	�	925	252	768	236
�	�	�	�	�	�
�	�	�	�	�	�
Experience variances	�	�	�	�	�
�- Persistency	�	(4)	(9)	8	(12)
�- Mortality/morbidity	�	6	(5)	73	(7)
�- Expenses	�	(23)	-	(13)	2
�- Project and development costs	�	(12)	-	(11)	-
�- Other¹	�	(20)	3	(24)	41
�	�	�	�	�	�
�	�	�	�	�	�
Total experience variances	�	(53)	(11)	33	24
�	�	�	�	�	�
�	�	�	�	�	�
Changes to valuation assumptions	�	�	�	�	�
�- Persistency	�	-	(16)	-	(4)
�- Mortality/morbidity²	�	352	39	444	25
�- Expenses	�	5	-	-	17
�- Other³	�	33	21	-	(3)
�	�	�	�	�	�
�	�	�	�	�	�
Total changes to valuation assumptions	�	390	44	444	35
�	�	�	�	�	�
�	�	�	�	�	�
Movement in non-cash items			�	�	�
�- Acquisition expense tax relief	�	-	(2)	-	(11)
�- Other⁴	�	91	(10)	40	(8)
�	�	�	�	�	�
�	�	�	�	�	�
Total movement in non-cash items	�	91	(12)	40	(19)
�	�	�	�	�	�
�	�	�	�	�	�
Other	�	-	4	-	(7)
�	�	�	�	�	�
�	�	�	�	�	�
Operating profit after tax	�	1,353	277	1,285	269
�	�	�	�	�	�
�	�	�	�	�	�
Tax gross up	�	216	37	263	39
�	�	�	�	�	�
�	�	�	�	�	�
Operating profit before tax	�	1,569	314	1,548	308
�	�	�	�	�	�
�	�	�	�	�	�
1. Other experience variances for LGI in 2018 reflected a number of modelling requirements which were not repeated in 2019.
2. Mortality assumption changes for LGR include a one off release of �134m (net of tax) from an update in the longevity trend assumption from adjusted CMI 2016 to adjusted CMI 2017. In 2018, the comparable one off release of �359m was from adjusted CMI 2015 to adjusted CMI 2016. Other positive longevity variances are driven by routine updates to our assumptions relating to base mortality rates.
3. LGR Other changes to valuation assumptions reflect a change in assumption on the future exercise of an option within a longevity swap contract.
4. LGR Other movement in non-cash items is driven by the net effect of the capitalisation and unwind of future asset management profits on activity managed by LGIM, and is a function of new business volumes and movements in the main unit cost assumptions.

�

IFRS Disclosures on performance and Release from operations�� Page 35

�

1.04 LGIM operating profit

�

�	�	�	�	2019	2018
�	�	�	�	�m	�m
�	�	�	�	�	�
�	�	�	�	�	�
Asset management revenue (excluding 3rd party market data)^1,2			�	889	820
Asset management transactional revenue³			�	23	27
Asset management expenses (excluding 3rd party market data)^1,2			�	(491)	(443)
Workplace Savings operating profit⁴			�	2	3
�	�	�	�	�	�
Total LGIM operating profit			�	423	407
�	�	�	�	�	�
1. Asset management revenue and expenses exclude income and costs of �24m in relation to the provision of third party market data (2018: �19m).
2. The ETF operating result is included as part of asset management revenue and expenses, which represents a change in the presentation from previous periods. Asset management revenue (excluding 3rd party market data) and Asset management expenses (excluding 3rd party market data) have therefore been restated for the full year ended 31 December 2018 to reflect this change.
3. Transactional revenue from external clients includes execution fees, asset transition income, trigger fees, arrangement fees on property transactions and performance fees.�
4. Workplace Savings represents administration business.

�

1.05 LGC operating profit

�	�	�	�	�	�
�	�	�	�	2019	2018
�	�	�	�	�m	�m
�	�	�	�	�	�
�	�	�	�	�	�
Direct investments¹		�	�	217	188
Traded investment portfolio including treasury assets²		�	�	146	134
�	�	�	�	�	�
�	�	�	�	�	�
Total LGC operating profit		�	�	363	322
�	�	�	�	�	�
�	�	�	�	�	�
1. Direct Investments represents LGC's portfolio of assets across future cities (including urban regeneration and clean energy), housing and SME finance.
2. The traded investment portfolio holds a diversified set of exposures across equities, fixed income, multi-asset funds and cash.

�

1.06 Investment and other variances

�	�	�	�	�	�
�	�	�	�	2019	2018
�	�	�	�	�m	�m
�	�	�	�	�	�
�	�	�	�	�	�
Investment variance¹	�	�	�	(27)	(126)
M&A related and other variances²	�	�	�	(123)	(62)
�	�	�	�	�	�
�	�	�	�	�	�
Total investment and other variances	�	�	�	(150)	(188)
�	�	�	�	�	�
�	�	�	�	�	�
1. Investment variance includes differences between actual and smoothed investment return on traded and real assets, economic assumption changes (e.g. credit default and inflation) and the impact of any difference between the actual allocated asset mix and the target long-term asset mix on new pension risk transfer business written during the period and held at a period end.
2. M&A related and other variances includes gains and losses, expenses and intangible amortisation relating to acquisitions and disposals. 2019 reflects the impact of impairing �55m of capitalised software intangibles following a groupwide review, as well as a �43m gain on the disposal of the group's stake in IndiaFirst Life Insurance Company Limited.

�

IFRS Disclosures on performance and Release from operations�� Page 36

�

1.07 Earnings per share

�

�(a) Basic earnings per share

�	�	�	�	After tax	Per share¹	After tax	Per share¹
�	�	�	�	2019	2019	2018	2018
�	�	�	�	�m	p	�m	p
�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�
Profit for the year attributable to equity holders				1,834	30.92	1,827	30.79
Less: earnings derived from discontinued operations			�	(23)	(0.39)	(43)	(0.72)
Basic earnings derived from continuing operations		�	�	1,811	30.53	1,784	30.07
�	�	�	�	�	�	�	�
1. Basic earnings per share is calculated by dividing profit after tax by the weighted average number of ordinary shares in issue during the period, excluding employee scheme treasury shares.

�

(b) Diluted earnings per share

�	�	�	�	�	After tax	Weighted average number of shares	Per share¹
�	�	�	�	�	2019	2019	2019
�	�	�	�	�	�m	m	p
�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�
Profit for the year attributable to equity holders				�	1,834	5,932	30.92
Net shares under options allocable for no further consideration				�	-	33	(0.17)
�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�
Total diluted earnings	�	�	�	�	1,834	5,965	30.75
Less: diluted earnings derived from discontinued operations				�	(23)	-	(0.39)
Diluted earnings derived from continuing operations				�	1,811	5,965	30.36
�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�
�	�	�	�	�	After tax	Weighted average number of shares	Per share¹
�	�	�	�	�	2018	2018	2018
�	�	�	�	�	�m	m	p
�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�
Profit for the year attributable to equity holders					1,827	5,933	30.79
Net shares under options allocable for no further consideration					-	29	(0.15)
�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�
Total diluted earnings					1,827	5,962	30.64
Less: diluted earnings derived from discontinued operations				�	(64)	-	(0.72)
Diluted earnings derived from continuing operations				�	1,763	5,962	29.92
1. For diluted earnings per share, the weighted average number of ordinary shares in issue, excluding employee scheme treasury shares, is adjusted to assume conversion of all potential ordinary shares, such as share options granted to employees.

�

IFRS Disclosures on performance and Release from operations�� Page 37

�

1.08 Segmental analysis

�

Reportable segments

�

The group has four reportable segments that are continuing operations, comprising LGR, LGIM, LGC and LGI, as set out in Note 1.01. Group central expenses and debt costs are reported separately. Transactions between reportable segments are on normal commercial terms, and are included within the reported segments.

�

Continuing operations exclude the results of the Mature Savings and General Insurance divisions which have been classified as discontinued following the group's announcements to sell these businesses to ReAssure Limited (a subsidiary of Swiss Re) and Allianz respectively.

�

Reporting of assets and liabilities by reportable segment has not been included, as this is not information that is provided to key decision makers on a regular basis. The group's assets and liabilities are managed on a legal entity rather than reportable segment basis, in line with regulatory requirements.

�

Financial information on the reportable segments is further broken down where relevant in order to better explain the drivers of the group's results.

�

(a) Profit/(loss) for the year		�	�	�	�	�
�	�	�	�	�	Group	�
�	�	�	�	�	expenses	Total
�	�	�	�	�	and debt	continuing
�	LGR	LGIM	LGC	LGI	costs	operations
For the year ended 31 December 2019	�m	�m	�m	�m	�m	�m
�	�	�	�	�	�	�
�	�	�	�	�	�	�
Operating profit/(loss)^#	1,569	423	363	314	(394)	2,275
Investment and other variances	43	(9)	91	(234)	(58)	(167)
Losses attributable to non-controlling interests	-	-	-	-	(24)	(24)
�	�	�	�	�	�	�
Profit/(loss) before tax attributable to equity holders	1,612	414	454	80	(476)	2,084
Tax (expense)/credit attributable to equity holders	(234)	(81)	(75)	12	81	(297)
�	�	�	�	�	�	�
�	�	�	�	�	�	�
Profit/(loss) for the year	1,378	333	379	92	(395)	1,787
�	�	�	�	�	�	�
�	�	�	�	�	�	�
�	�	�	�	�	�	�
�
�	�	�	�	�	Group	�
�	�	�	�	�	expenses	Total
�	�	�	�	�	and debt	continuing
�	LGR	LGIM	LGC	LGI	costs	operations
For the year ended 31 December 2018	�m	�m	�m	�m	�m	�m
�	�	�	�	�	�	�
�	�	�	�	�	�	�
Operating profit/(loss)^#	1,548	407	322	308	(329)	2,256
Investment and other variances	95	(4)	(273)	(1)	22	(161)
Losses attributable to non-controlling interests	-	-	-	-	(19)	(19)
�	�	�	�	�	�	�
�	�	�	�	�	�	�
Profit/(loss) before tax attributable to equity holders	1,643	403	49	307	(326)	2,076
Tax (expense)/credit attributable to equity holders	(267)	(81)	13	(39)	63	(311)
�	�	�	�	�	�	�
�	�	�	�	�	�	�
Profit/(loss) for the year	1,376	322	62	268	(263)	1,765
�	�	�	�	�	�	�
�	�	�	�	�	�	�
�
�
# Operating profit for total continuing operations represents 'Group adjusted operating profit', an alternative performance measure defined in the glossary.

�

IFRS Disclosures on performance and Release from operations�� Page 38

�

1.08 Segmental analysis (continued)

�

(b) Total income	�	�	�	�	�
�	�	�	�	�	�
�	�	�	�	LGC and	Total continuing
�	LGR	LGIM^1,2	LGI	other³	operations
For the year ended 31 December 2019	�m	�m	�m	�m	�m
�	�	�	�	�	�
�	�	�	�	�	�
Internal income	-	188	-	(188)	-
External income	16,385	43,836	1,593	4,972	66,786
�	�	�	�	�	�
�	�	�	�	�	�
Total income	16,385	44,024	1,593	4,784	66,786
�	�	�	�	�	�
�	�	�	�	�	�
�	�	�	�	�	�
�	�	�	�	�	�
�	�	�	�	LGC and	Total continuing
�	LGR	LGIM^1,2	LGI	other³	operations
For the year ended 31 December 2018	�m	�m	�m	�m	�m
�	�	�	�	�	�
�	�	�	�	�	�
Internal income	-	172	-	(172)	-
External income	8,507	(10,654)	1,742	1,299	894
�	�	�	�	�	�
�	�	�	�	�	�
Total income	8,507	(10,482)	1,742	1,127	894
�	�	�	�	�	�
�	�	�	�	�	�
1. LGIM internal income relates to investment management services provided to other segments.
2. LGIM external income primarily includes fees from fund management and investment returns on unit linked funds.					�
3. LGC and other includes LGC income, intra-segmental eliminations and group consolidation adjustments.

�

IFRS Primary Financial Statements�� Page 39

�

2.01 Consolidated Income Statement

�		�		2019		2018		�
For the year ended 31 December 2019		Notes		�m		�m		�
�		�		�		�		�
�		�		�		�		�
Income		�		�		�		�
Gross written premiums		�		15,203		12,843		�
Outward reinsurance premiums		�		(3,452)		(2,114)		�
Net change in provision for unearned premiums		�		(66)		-		�
�		�		�		�		�
�		�		�		�		�
Net premiums earned		�		11,685		10,729		�
Fees from fund management and investment contracts		�		834		802		�
Investment return		�		53,014		(11,843)		�
Other operational income		�		1,253		1,206		�
�		�		�		�		�
�		�		�		�		�
Total income		1.08		66,786		894		�
�		�		�		�		�
�		�		�		�		�
Expenses		�		�		�		�
Claims and change in insurance contract liabilities		�		19,005		8,370		�
Reinsurance recoveries		�		(3,502)		(1,051)		�
�		�		�		�		�
�		�		�		�		�
Net claims and change in insurance contract liabilities		�		15,503		7,319		�
Change in investment contract liabilities		�		45,809		(11,304)		�
Acquisition costs		�		805		780		�
Finance costs		�		269		238		�
Other expenses		�		2,244		1,732		�
�		�		�		�		�
�		�		�		�		�
Total expenses		�		64,630		(1,235)		�
�		�		�		�		�
�		�		�		�		�
Profit before tax		�		2,156		2,129		�
Tax expense attributable to policyholder returns		�		(72)		(53)		�
�		�		�		�		�
�		�		�		�		�
Profit before tax attributable to equity holders		�		2,084		2,076		�
�		�		�		�		�
�		�		�		�		�
Total tax expense		�		(369)		(364)		�
Tax expense attributable to policyholder returns		�		72		53		�
�		�		�		�		�
�		�		�		�		�
Tax expense attributable to equity holders		3.07		(297)		(311)		�
�		�		�		�		�
�		�		�		�		�
Profit after tax from continuing operations		1.08		1,787		1,765		�
Profit after tax from discontinued operations¹		3.04		23		43		�
�		�		�		�		�
�		�		�		�		�
Profit for the year		�		1,810		1,808		�
�		�		�		�		�
�		�		�		�		�
Attributable to:		�		�		�		�
Non-controlling interests		�		(24)		(19)		�
Equity holders		�		1,834		1,827		�
�		�		�		�		�
�		�		�		�		�
�		�		�		�		�
Dividend distributions to equity holders during the year		3.05		998		932		�
Dividend distributions to equity holders proposed after the year end		3.05		753		704		�
�		�		�		�		�
�		�		�		�		�
�		�		�		�		�
�		�		�		�		�
�		�		p		p		�
Total basic earnings per share²		1.07		30.92		30.79		�
Total diluted earnings per share²		1.07		30.75		30.64		�
�		�		�		�		�
Basic earnings per share derived from continuing operations²		1.07		30.53		30.07		�
Diluted earnings per share derived from continuing operations²		1.07		30.36		29.92		�
�		�		�		�		�
�	�		�		�		�
�	�		�		�		�
1. Discontinued operations reflect the results of the Mature Savings and General Insurance divisions following the group's announcements to sell these businesses to ReAssure Limited (a subsidiary of Swiss Re) and Allianz respectively. The sale of the General Insurance business completed on 31 December 2019.
2. All earnings per share calculations are based on profit attributable to equity holders of the company.
�	�	�	�	�	�	�	�	�

�

IFRS Primary Financial Statements�� Page 40

�

2.02 Consolidated Statement of Comprehensive Income

�	2019	2018
For the year ended 31 December 2019	�m	�m
�	�	�
�	�	�
Profit for the year	1,810	1,808
Items that will not be reclassified subsequently to profit or loss	�	�
Actuarial (losses)/gains on defined benefit pension schemes	(62)	117
Tax on actuarial (losses)/gains on defined benefit pension schemes	11	(22)
�	�	�
�	�	�
Total items that will not be reclassified subsequently to profit or loss	(51)	95
�	�	�
�	�	�
Items that may be reclassified subsequently to profit or loss	�	�
Exchange differences on translation of overseas operations	(67)	62
Movement in cross-currency hedge	13	34
Tax on movement in cross-currency hedge	(1)	(5)
Movement in financial investments designated as available-for-sale	72	(36)
Tax on movement in financial investments designated as available-for-sale	(15)	5
�	�	�
�	�	�
Total items that may be reclassified subsequently to profit or loss	2	60
�	�	�
�	�	�
Other comprehensive (expense)/income after tax	(49)	155
�	�	�
�	�	�
Total comprehensive income for the year	1,761	1,963
�	�	�
�	�	�
Total comprehensive income for the year attributable to:	�	�
Continuing operations	1,738	1,920
Discontinued operations	23	43
�	�	�
Total comprehensive income/(expense) for the year attributable to:	�	�
Non-controlling interests	(24)	(19)
Equity holders	1,785	1,982
�	�	�
�	�	�

�

IFRS Primary Financial Statements�� Page 41

�

2.03 Consolidated Balance Sheet

�

�	�	2019	2018
As at 31 December 2019	Notes	�m	�m
�	�	�	�
�	�	�	�
Assets	�	�	�
Goodwill	�	64	65
Purchased interest in long term businesses and other intangible assets	�	190	223
Deferred acquisition costs	�	75	140
Investment in associates and joint ventures accounted for using the equity method	�	324	259
Property, plant and equipment¹	�	298	57
Investment property	3.06	7,695	6,965
Financial investments	3.06	498,376	430,498
Reinsurers' share of contract liabilities	�	5,810	4,737
Deferred tax assets	3.07	8	7
Current tax assets	�	468	418
Receivables and other assets	�	8,532	5,593
Assets of operations classified as held for sale	3.04	24,844	26,234
Cash and cash equivalents	�	13,923	17,321
�	�	�	�
�	�	�	�
Total assets	�	560,607	492,517
�	�	�	�
�	�	�	�
�	�	�	�
Equity	�	�	�
Share capital	3.08	149	149
Share premium	3.08	1,000	992
Employee scheme treasury shares	�	(65)	(52)
Capital redemption and other reserves	�	250	230
Retained earnings	�	8,033	7,261
�	�	�	�
�	�	�	�
Attributable to owners of the parent	�	9,367	8,580
Non-controlling interests	3.09	55	72
�	�	�	�
�	�	�	�
Total equity	�	9,422	8,652
�	�	�	�
�	�	�	�
�	�	�	�
Liabilities	�	�	�
Non-participating insurance contract liabilities	�	77,317	64,707
Non-participating investment contract liabilities	�	320,594	293,080
Core borrowings	3.1	4,091	3,922
Operational borrowings	3.11	1,020	1,026
Provisions	3.15	1,220	1,140
UK deferred tax liabilities	3.07	189	144
Overseas deferred tax liabilities	3.07	182	185
Current tax liabilities	�	107	171
Payables and other financial liabilities	3.12	84,039	62,548
Other liabilities	�	804	619
Net asset value attributable to unit holders	�	31,507	26,481
Liabilities of operations classified as held for sale	3.04	30,115	29,842
�	�	�	�
�	�	�	�
Total liabilities	�	551,185	483,865
�	�	�	�
�	�	�	�
Total equity and liabilities	�	560,607	492,517
�	�	�	�
�	�	�	�
1. Property, plant and equipment for 2019 includes �238m of right of use assets that have arisen on the implementation of IFRS 16.

�

IFRS Primary Financial Statements�� Page 42

�

2.04 Consolidated Statement of Changes in Equity

�

�	�	�	Employee	Capital	�	Equity	�	�
�	�	�	scheme	redemption	�	�attributable	Non-	�
�	Share	Share	treasury	and other	Retained	to owners	controlling	Total
For the year ended 31 December 2019	capital	premium	shares	reserves¹	earnings	of the parent	interests	equity
For the year ended 31 December 2019	�m	�m	�m	�m	�m	�m	�m	�m
�	�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�	�
As at 1 January 2019	149	992	(52)	230	7,261	8,580	72	8,652
�	�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�	�
Profit for the year	-	-	-	-	1,834	1,834	(24)	1,810
Exchange differences on translation of overseas operations	-	-	-	(67)	-	(67)	-	(67)
Net movement in cross-currency hedge	-	-	-	12	-	12	-	12
Net actuarial losses on defined benefit pension schemes	-	-	-	-	(51)	(51)	-	(51)
Net movement in financial investments designated as available-for-sale	-	-	-	57	-	57	-	57
�	�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�	�
Total comprehensive income for the year	-	-	-	2	1,783	1,785	(24)	1,761
Options exercised under share option schemes	-	8	-	-	-	8	-	8
Shares purchased	-	-	(20)	-	-	(20)	-	(20)
Shares vested	-	-	7	(35)	-	(28)	-	(28)
Employee scheme treasury shares: - Value of employee services	-	-	-	39	-	39	-	39
Share scheme transfers to retained earnings	-	-	-	-	1	1	-	1
Dividends	-	-	-	-	(998)	(998)	-	(998)
Movement in third party interests	-	-	-	-	-	-	7	7
Currency translation differences	-	-	-	14	(14)	-	-	-
�	�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�	�
As at 31 December 2019	149	1,000	(65)	250	8,033	9,367	55	9,422
�	�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�	�
1. Capital redemption and other reserves as at 31 December 2019 include share-based payments �85m, foreign exchange �68m, capital redemption �17m, hedging reserves �32m and available-for-sale reserves �48m.

�

IFRS Primary Financial Statements�� Page 43

�

2.04 Consolidated Statement of Changes in Equity (continued)

�

�	�	�	Employee	Capital	�	Equity	�	�
�	�	�	scheme	redemption	�	�attributable	Non-	�
�	Share	Share	treasury	and other	Retained	to owners	controlling	Total
For the year ended 31 December 2018	capital	premium	shares	reserves¹	earnings	of the parent	interests	equity
For the year ended 31 December 2018	�m	�m	�m	�m	�m	�m	�m	�m
�	�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�	�
As at 1 January 2018	149	988	(40)	168	6,251	7,516	76	7,592
�	�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�	�
Profit for the year	-	-	-	-	1,827	1,827	(19)	1,808
Exchange differences on translation of overseas operations	-	-	-	62	-	62	-	62
Net movement in cross-currency hedge	-	-	-	29	-	29	-	29
Net actuarial gains on defined benefit pension schemes	-	-	-	-	95	95	-	95
Net movement in financial investments designated as available-for-sale	-	-	-	(31)	-	(31)	-	(31)
�	�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�	�
Total comprehensive income for the year	-	-	-	60	1,922	1,982	(19)	1,963
Options exercised under share option schemes	-	4	-	-	-	4	-	4
Shares purchased	-	-	(17)	-	-	(17)	-	(17)
Shares vested	-	-	5	(26)	-	(21)	-	(21)
Employee scheme treasury shares: - Value of employee services	-	-	-	38	-	38	-	38
Share scheme transfers to retained earnings	-	-	-	-	10	10	-	10
Dividends	-	-	-	-	(932)	(932)	-	(932)
Movement in third party interests	-	-	-	-	-	-	15	15
Currency translation differences	-	-	-	(10)	10	-	-	-
�	�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�	�
As at 31 December 2018	149	992	(52)	230	7,261	8,580	72	8,652
�	�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�	�
1. Capital redemption and other reserves as at 31 December 2018 include share-based payments �81m, foreign exchange �121m, capital redemption �17m, hedging reserves �20m and available-for-sale reserves �(9)m.

�

IFRS Primary Financial Statements�� Page 44

�

2.05 Consolidated Statement of Cash Flows

�

�	�	2019	2018
For the year ended 31 December 2019	Notes	�m	�m
�	�	�	�
�	�	�	�
Cash flows from operating activities	�	�	�
Profit for the year	�	1,810	1,808
Adjustments for non cash movements in net profit for the year	�	�	�
Net (gains)/losses on financial investments and investment property	�	(45,516)	23,132
Investment income	�	(10,501)	(10,182)
Interest expense	�	322	293
Tax expense	�	598	210
Other adjustments	�	117	183
Net (increase)/decrease in operational assets	�	�	�
Investments held for trading or designated as fair value through profit or loss	�	(18,031)	(10,381)
Investments designated as available-for-sale	�	(179)	(248)
Other assets	�	(4,660)	1,258
Net increase/(decrease) in operational liabilities	�	�	�
Insurance contracts	�	13,089	3,257
Investment contracts	�	27,514	(22,571)
Other liabilities	�	21,313	12,057
Net increase/(decrease) in held for sale net liabilities	�	1,206	(8,500)
�	�	�	�
�	�	�	�
Cash utilised in operations	�	(12,918)	(9,684)
Interest paid	�	(263)	(215)
Interest received	�	5,047	4,841
Tax paid¹	�	(540)	(504)
Dividends received	�	5,389	5,201
�	�	�	�
�	�	�	�
Net cash flows utilised in operating activities	�	(3,285)	(361)
�	�	�	�
�	�	�	�
Cash flows from investing activities	�	�	�
Net acquisition of plant, equipment, intangibles and other assets	�	(89)	(401)
Net disposal/(acquisition) of operations, net of cash (transferred)/acquired	3.02, 3.03	198	326
Net disposal/(investment) in associates and joint ventures	�	29	(130)
�	�	�	�
�	�	�	�
Net cash flows generated/(utilised) from investing activities	�	138	(205)
�	�	�	�
�	�	�	�
Cash flows from financing activities	�	�	�
Dividend distributions to ordinary equity holders during the year	3.05	(998)	(932)
Options exercised under share option schemes	3.08	8	4
Treasury shares purchased for employee share schemes	�	(20)	12
Payment of lease liabilities	�	(33)	-
Proceeds from borrowings	�	1,309	960
Repayment of borrowings	�	(958)	(325)
�	�	�	�
�	�	�	�
Net cash flows utilised in financing activities	�	(692)	(281)
�	�	�	�
�	�	�	�
Net (decrease)/increase in cash and cash equivalents	�	(3,839)	(847)
Exchange (losses)/gains on cash and cash equivalents	�	(16)	16
Cash and cash equivalents at 1 January (before reallocation of held for sale cash)	�	18,088	18,919
�	�	�	�
�	�	�	�
Total cash and cash equivalents	�	14,233	18,088
Less: cash and cash equivalents of operations classified as held for sale	3.04	(310)	(767)
�	�	�	�
�	�	�	�
Cash and cash equivalents at 31 December	�	13,923	17,321
�	�	�	�
�	�	�	�
1. Tax comprises UK corporation tax paid of �381m (2018: �359m), withholding tax of �166m (2018: �120m) and an overseas corporate tax refund of �7m (2018: tax paid �25m).

�

IFRS Disclosure Notes�� Page 45

�

3.01 Basis of preparation

�

The preliminary announcement for the year ended 31 December 2019 does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The financial information in this preliminary announcement has been derived from the group financial statements within the group's 2019 Annual report and accounts, which will be available on the group's website on 12 March 2020. The group's 2018 Annual report and accounts have been filed with the Registrar of Companies, and those for 2019 will be delivered in due course. KPMG have reported on the 2019 and 2018 report and accounts. Both their reports were (i) unqualified, (ii) did not include a reference to any matters to which they drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

�

The group financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB) and as adopted by the European Union, and with those parts of the UK Companies Act 2006 applicable to companies reporting under IFRS. The group financial statements also comply with IFRS and interpretations by the IFRS Interpretations Committee as issued by the IASB and as adopted by the European Union. The group financial statements have been prepared under the historical cost convention, as modified by the revaluation of land and buildings, available-for-sale financial assets and financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss.

�

The group has selected accounting policies which state fairly its financial position, financial performance and cash flows for a reporting period. The accounting policies have been consistently applied to all years presented, unless otherwise stated.

�

Financial assets and financial liabilities are disclosed gross in the Consolidated Balance Sheet unless a legally enforceable right of offset exists and there is an intention to settle recognised amounts on a net basis. Income and expenses are not offset in the Consolidated Income Statement unless required or permitted by any accounting standard or interpretations by the IFRS Interpretations Committee.

�

Foreign currency transactions are translated into the functional currency using the exchange rate prevailing at the date of the transactions. The functional currency of the group's foreign operations is the currency of the primary economic environment in which the entity operates. The assets and liabilities of all of the group's foreign operations are translated into sterling, the group's presentation currency, at the closing rate at the date of the balance sheet. The income and expenses for the income statement are translated at average exchange rates. On consolidation, exchange differences arising from the translation of the net investment in foreign entities and of borrowings and other currency instruments designated as hedges of such investments, are taken to a separate component of shareholders' equity.

�

Critical accounting policies and the use of estimates

The preparation of the financial statements includes the use of estimates and assumptions which affect items reported in the Consolidated Balance Sheet and Income Statement and the disclosure of contingent assets and liabilities at the date of the financial statements. Although these estimates are based on management's best knowledge of current circumstances and future events and actions, actual results may differ from those estimates, possibly significantly. This is particularly relevant for the valuation of insurance and investment contract liabilities, unquoted illiquid assets, investment property, and the determination of defined benefit pension plan assumptions. From a policy application perspective, the major areas of judgement are the assessment of whether a contract transfers significant insurance risk to the group, and whether the group controls underlying entities and should therefore consolidate them. The basis of accounting for these areas, and the significant judgements used in determining them, are outlined in the respective notes to the group's 2019 Annual Report and Accounts.

�

Key technical terms and definitions

The report refers to various key performance indicators, accounting standards and other technical terms. A comprehensive list of these definitions is contained within the glossary.

�

Tax attributable to policyholders and equity holders

The total tax expense shown in the group's Consolidated Income Statement includes income tax borne by both policyholders and shareholders. This has been apportioned between that attributable to policyholders' returns and equity holders' profits. This represents the fact that the group's long-term business in the UK pays tax on policyholder investment return, in addition to the corporation tax charge charged on shareholder profit. The separate presentation is intended to provide more relevant information about the tax that the group pays on the profits that it makes.

�

For this apportionment, the equity holders' tax on long-term business is estimated by applying the statutory tax rate to profits attributed to equity holders. This is considered to approximate the corporation tax attributable to shareholders as calculated under UK tax rules. The balance of income tax associated with UK long-term business is attributed to income tax attributable to policyholders' returns and approximates the corporation tax attributable to policyholders as calculated under UK tax rules.

�

IFRS Disclosure Notes�� Page 46

�

3.02 Acquisitions

�

Accelerated Digital Ventures Limited

�

On 31 August 2019 the group increased its shareholding in Accelerated Digital Ventures Ltd to 97% from 48.5%.

�

The transaction has been accounted for as a stepped acquisition in accordance with IFRS 3 'Business combinations'. The assets and liabilities acquired at the point of the transaction have been recorded at the fair value for the purposes of the acquisition balance sheet and included in the consolidated accounts of the group using the group's accounting policies in accordance with IFRS.

�

The total deemed consideration for the 97% stake was �41m compared to �49m of net assets at fair value net of non-controlling interest, giving rise to a one off gain of �8m, which has been recognised within other operational income in the Consolidated Income Statement.

�

3.03 Disposals

�

IndiaFirst Life Insurance Company Limited
On 7 February 2019, the group completed the disposal of its stake in IndiaFirst Life Insurance Company Limited ("IndiaFirst Life") to an affiliate of Warburg Pincus LLC for INR 7.1bn (c.�76m at GBP:INR 1:92). A pre-tax gain on disposal of �43m, net of transaction costs, has been recognised in other operational income in the Consolidated Income Statement. The operations of IndiaFirst Life have not been classified as discontinued operations since they do not represent a major line of business of the group.
�	�	�	�	�	�	�	�	�
Legal & General Insurance Limited
On 31 May 2019 the group announced the sale of its General Insurance ("GI") business to Allianz, and the transaction completed on 31 December 2019 for an estimated consideration of �255m. The carrying value of the GI business on disposal was �231m, resulting in a profit on disposal of �2m, net of transaction and separation costs of �22m. � The result arising from the GI business until its disposal, as well as the gain on the sale, have been recognised in the Consolidated Income Statement, as part of profit from discontinued operations. � The GI balance sheet on disposal is presented below:
�	�	�	�	�	�	�	�	Total
�	�	�	�	�	�	�	�	2019
�	�	�	�	�	�	�	�	�m
�	�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�	�
Deferred acquisition costs	�	�	�	�	�	�	�	65
Financial investments	�	�	�	�	�	�	�	368
Receivables	�	�	�	�	�	�	�	160
Intangible assets	�	�	�	�	�	�	�	44
Reinsurers' share of contract liabilities	�	�	�	�	�	�	�	24
Cash and cash equivalents	�	�	�	�	�	�	�	26
Other assets	�	�	�	�	�	�	�	9
�	�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�	�
Total assets				�	�	�	�	696
�	�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�	�
Insurance contract liabilities	�	�	�	�	�	�	�	378
Tax liabilities	�	�	�	�	�	�	�	49
Other liabilities	�	�	�	�	�	�	�	38
�	�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�	�
Total liabilities				�	�	�	�	465
�	�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�	�
Net assets on disposal					�	�	�	231

�

IFRS Disclosure Notes�� Page 47

�

3.04 Assets and liabilities of operations classified as held for sale

�

Mature Savings

On 6 December 2017 the group announced the sale of its Mature Savings business to the ReAssure Limited, a subsidiary of Swiss Re Limited ('Swiss Re') for a consideration of �650m. As part of the transaction, on 1 January 2018 the group entered into a risk transfer agreement with Swiss Re, whereby the group transferred all economic risks and rewards of the Mature Savings business to ReAssure limited. The risk transfer agreement operates until the business is transferred under a court approved scheme under Part VII of the Financial Services and Markets Act 2000. The sale is expected to finalise in 2020 following the completion of the Part VII transfer.� As the legal transfer of the business has not yet occurred the Mature Savings business has been classified as held for sale on the Group's balance sheet as at 31 December 2019. The profit arising from the Mature Savings business in accordance with the risk transfer agreement has been recognised as "Profit after tax from discontinued operations" in the Consolidated Income Statement. Up until the Part VII this reflects the unwind of expected underlying profits, which will offset the final profit on disposal.

�

Swiss Re has since announced the sale of ReAssure Limited to Phoenix Group Holdings. The announcement is not expected to have any direct impact on the transfer of the Mature Savings business to ReAssure Limited.

�

3.05 Dividends and appropriations

�	�	�	�	�	�
�	�	Dividend	Per share¹	Dividend	Per share¹
�	�	2019	2019	2018	2018
�	�	�m	p	�m	p
�	�	�	�	�	�
�	�	�	�	�	�
Ordinary dividends paid and charged to equity in the year:		�	�	�	�
�- Final 2017 dividend paid in June 2018	�	-	-	658	11.05
�- Interim 2018 dividend paid in September 2018	�	-	-	274	4.60
�- Final 2018 dividend paid in June 2019	�	704	11.82	-	-
�- Interim 2019 dividend paid in September 2019	�	294	4.93	-	-
�	�	�	�	�	�
�	�	�	�	�	�
Total dividends	�	998	16.75	932	15.65
�	�	�	�	�	�
�	�	�	�	�	�
Ordinary share dividend proposed²	�	753	12.64	704	11.82
�	�	�	�	�	�
�	�	�	�	�	�
1. The dividend per share calculation is based on the number of equity shares registered on the ex-dividend date.
2. Subsequent to 31 December 2019, the directors declared a final dividend for 2019 of 12.64 pence per ordinary share. This dividend will be paid on 4 June 2020. It will be accounted for as an appropriation of retained earnings in the year ended 31 December 2020 and is not included as a liability in the Consolidated Balance Sheet as at 31 December 2019.

�

IFRS Disclosure Notes�� Page 48

�

3.06 Financial investments and investment property

�

�	�	�	�	2019	2018
�	�	�	�	�m	�m
�	�	�	�	�	�
�	�	�	�	�	�
Equities¹	�	�	�	200,365	177,566
Debt securities²	�	�	�	286,916	254,452
Accrued interest	�	�	�	1,647	1,635
Derivative assets³	�	�	�	14,828	10,065
Loans⁴	�	�	�	16,814	9,662
�	�	�	�	�	�
�	�	�	�	�	�
Financial investments	�	�	�	520,570	453,380
�	�	�	�	�	�
�	�	�	�	�	�
Investment property	�	�	�	9,107	8,608
�	�	�	�	�	�
�	�	�	�	�	�
Total financial investments and investment property	�	�	�	529,677	461,988
Less: financial investments and investment property of operations classified as held for sale				(23,606)	(24,525)
Financial investments and investment property				506,071	437,463
1. Equity securities include investments in unit trusts of �13,046m (2018: �10,553m).
2. A detailed analysis of debt securities to which shareholders are directly exposed is disclosed in Note 6.03.
3. Derivatives are used for efficient portfolio management, especially the use of interest rate swaps, inflation swaps, credit default swaps and foreign exchange forward contracts for asset and liability management. Derivative assets are shown gross of derivative liabilities of �13,113m (2018: �7,791m).
4. Loans include �437m (2018: �456m) of loans valued at amortised cost.

�

IFRS Disclosure Notes�� Page 49

�

3.07 Tax

�

(a) Tax charge in the Consolidated Income Statement			�	�
�	�	�	�	�
The tax attributable to equity holders differs from the tax calculated at the standard UK corporation tax rate as follows:
�	�	�	�	�
�	Continuing	�	Continuing	�
�	operations	Total	operations	Total
�	2019	2019	2018	2018
�	�m	�m	�m	�m
�	�	�	�	�
�	�	�	�	�
Profit before tax attributable to equity holders	2,084	2,112	2,076	2,128
Tax calculated at 19.00%	396	401	394	404
�	�	�	�	�
Adjusted for the effects of:	�	�	�	�
Recurring reconciling items:	�	�	�	�
Income not subject to tax	(4)	(4)	-	-
(Lower)/higher rate of tax on profits taxed overseas¹	(117)	(117)	(55)	(55)
Non-deductible expenses	2	2	5	5
Differences between taxable and accounting investment gains	(10)	(10)	(4)	(4)
Property income attributable to minority interests	4	4	-	-
Foreign tax	6	6	-	-
Unrecognised tax losses	14	14	-	-
�	�	�	�	�
Non-recurring reconciling items:	�	�	�	�
Income not subject to tax	(6)	(6)	(10)	(10)
Non-deductible expenses	6	6	5	5
Adjustments in respect of prior years²	9	9	(35)	(36)
Impact of changes in corporate tax rates on deferred tax balances	(2)	(2)	11	11
Other	(1)	(1)	-	-
�	�	�	-	-
�	�	�	�	�
Tax attributable to equity holders	297	302	311	320
�	�	�	�	�
�	�	�	�	�
Equity holders' effective tax rate³	14.3%	14.3%	15.0%	15.0%
�	�	�	�	�
�
1. The lower rate of tax on overseas profits is principally driven by the 0% rate of taxation arising in our Bermudan reinsurance company, which provides our business with regulatory capital flexibility for both our PRT business and our US term insurance business. This is partially offset by the effect of our US operations taxed at 21%.
2. Adjustments in respect of prior years relate to revisions to earlier estimates.
3. Equity holders' effective tax rate is calculated by dividing the tax attributable to equity holders over profit before tax attributable to equity holders.

�

IFRS Disclosure Notes�� Page 50

�

3.07 Tax

�

(b) Deferred tax	�	�	�	�	�	�	�
�	�	�	�	�	2019	2018	�
Deferred tax (liabilities)/assets	�	�	�	�	�m	�m	�
�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�
Deferred acquisition expenses		�	�	�	35	25	�
�� - UK	�	�	�	�	(40)	(40)	�
�� - Overseas	�	�	�	�	75	65	�
Difference between the tax and accounting value of insurance contracts	�	�	�	�	(630)	(577)	�
�� - UK	�	�	�	�	(198)	(171)	�
�� - Overseas	�	�	�	�	(432)	(406)	�
Unrealised gains on investments	�	�	�	�	(184)	(72)	�
Excess of depreciation over capital allowances	�	�	�	�	15	12	�
Excess expenses	�	�	�	�	20	21	�
Accounting provisions and other	�	�	�	�	(44)	(28)	�
Trading losses¹	�	�	�	�	217	163	�
Pension fund deficit	�	�	�	�	28	41	�
Acquired intangibles	�	�	�	�	(2)	(4)	�
�	�	�	�	�	�	�	�
Total net deferred tax liabilities²	�	�	�	�	(545)	(419)	�
Less: net deferred tax liabilities of operations classified as held for sale	�	�	�	�	182	97	�
�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�
Net deferred tax liabilities	�	�	�	�	(363)	(322)	�
Analysed by:	�	�	�	�	�	�	�
�- Deferred tax assets	�	�	�	�	8	7	�
�- UK deferred tax liabilities	�	�	�	�	(189)	(144)	�
�- Overseas deferred tax liabilities	�	�	�	�	(182)	(185)	�
�	�	�	�	�	�	�	�
Net deferred tax liabilities	�	�	�	�	(363)	(322)	�
1. Trading losses include deferred tax on UK trade and US operating losses of �4m (2018: �4m) and �213m (2018: �159m) respectively.							�
2. Total net deferred tax liabilities are presented gross of held for sale liabilities in 2019. Disclosure relating to liabilities of operations classified as held for sale is included in Note 3.04.							�

�

IFRS Disclosure Notes�� Page 51

�

3.08 Share capital and share premium

�

�	�	�	�	2019	�	�	2018	�
�	�	�	�	Number of	2019	�	Number of	2018
Authorised share capital			�	shares	�m	�	shares	�m
�	�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�	�
At 31 December: ordinary shares of 2.5p each			9,200,000,000		230	9,200,000,000		230
�	�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	Share	Share
�	�	�	�	�	�	Number of	capital	premium
Issued share capital, fully paid	�	�	�	�	�	shares	�m	�m
�	�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�	�
As at 1 January 2019	�	�	�	�	5,960,768,234		149	992
Options exercised under share option schemes				�	4,581,373		-	8
�	�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�	�
As at 31 December 2019	�	�	�	�	5,965,349,607		149	1,000
�	�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	Share	Share
�	�	�	�	�	�	Number of	capital	premium
Issued share capital, fully paid	�	�	�	�	�	shares	�m	�m
�	�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�	�
As at 1 January 2018	�	�	�	�	5,958,438,193		149	988
Options exercised under share option schemes				�	2,330,041		-	4
�	�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�	�
As at 31 December 2018	�	�	�	�	5,960,768,234		149	992
�	�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�	�
There is one class of ordinary shares of 2.5p each. All shares issued carry equal voting rights.
�	�	�	�	�	�	�	�	�
The holders of the company's ordinary shares are entitled to receive dividends as declared and are entitled to one vote per share at shareholder meetings of the company.

�

3.09 Non-controlling interests

�

Non-controlling interests represent third party interests in direct equity investments as well as investments in private equity and property investment vehicles which are consolidated in the group's results.

�

No individual non-controlling interest is considered to be material on the basis of the year end carrying value or share of profit or loss.

�

IFRS Disclosure Notes�� Page 52

�

3.10 Core borrowings

�

�	�	Carrying	Coupon	�	Carrying	Coupon	�
�	�	amount	rate	Fair value	amount	rate	Fair value
�	�	2019	2019	2019	2018	2018	2018
�	�	�m	%	�m	�m	%	�m
�	�	�	�	�	�	�	�
Subordinated borrowings	�	�	�	�	�	�	�
5.875% Sterling undated subordinated notes (Tier 2)		-	-	-	405	5.88	409
10% Sterling subordinated notes 2041 (Tier 2)		312	10.00	353	312	10.00	366
5.5% Sterling subordinated notes 2064 (Tier 2)		589	5.50	726	589	5.50	569
5.375% Sterling subordinated notes 2045 (Tier 2)		603	5.38	691	603	5.38	627
5.25% US Dollar subordinated notes 2047 (Tier 2)		648	5.25	704	659	5.25	612
5.55% US Dollar subordinated notes 2052 (Tier 2)		380	5.55	405	387	5.55	356
5.125% Sterling subordinated notes 2048 (Tier 2)	�	399	5.13	459	399	5.13	401
3.75% Sterling subordinated notes 2049 (Tier 2)	�	598	3.75	613	-	-	-
Client fund holdings of group debt (Tier 2)¹	�	(38)	-	(44)	(31)	-	(30)
Total subordinated borrowings		3,491	�	3,907	3,323	�	3,310
�	�	�	�	�	�	�	�
Senior borrowings	�	�	�	�	�	�	�
Sterling medium term notes 2031-2041		609	5.88	877	609	5.88	824
Client fund holdings of group debt¹	�	(9)	-	(13)	(10)	-	(13)
Total senior borrowings	�	600	�	864	599	�	811
Total core borrowings	�	4,091	�	4,771	3,922	�	4,121
1. �47m (2018: �41m) of the group's subordinated and senior borrowings are held by Legal & General customers through unit linked products. These borrowings are shown as a deduction from total core borrowings in the table above.
The presented fair values of the group's core borrowings reflect quoted prices in active markets and they have been classified as level 1 in the fair value hierarchy.

�

IFRS Disclosure Notes�� Page 53

�

3.10 Core borrowings (continued)

�

Subordinated borrowings

5.875% Sterling undated subordinated notes

In 2004, Legal & General Group Plc issued �400m of 5.875% Sterling undated subordinated notes. These notes were called at par on 1 April 2019.

�

10% Sterling subordinated notes 2041

In 2009, Legal & General Group Plc issued �300m of 10% dated subordinated notes. The notes are callable at par on 23 July 2021 and every five years thereafter. If not called, the coupon from 23 July 2021 will be reset to the prevailing five year benchmark gilt yield plus 9.325% p.a. These notes mature on 23 July 2041.

�

5.5% Sterling subordinated notes 2064

In 2014, Legal & General Group Plc issued �600m of 5.5% dated subordinated notes. The notes are callable at par on 27 June 2044 and every five years thereafter. If not called, the coupon from 27 June 2044 will be reset to the prevailing five year benchmark gilt yield plus 3.17% p.a. These notes mature on 27 June 2064.

�

5.375% Sterling subordinated notes 2045

In 2015, Legal & General Group Plc issued �600m of 5.375% dated subordinated notes. The notes are callable at par on 27 October 2025 and every five years thereafter. If not called, the coupon from 27 October 2025 will be reset to the prevailing five year benchmark gilt yield plus 4.58% p.a. These notes mature on 27 October 2045.

�

5.25% US Dollar subordinated notes 2047

On 21 March 2017, Legal & General Group Plc issued $850m of 5.25% dated subordinated notes. The notes are callable at par on 21 March 2027 and every five years thereafter. If not called, the coupon from 21 March 2027 will be reset to the prevailing US Dollar mid-swap rate plus 3.687% p.a. These notes mature on 21 March 2047.

�

5.55% US Dollar subordinated notes 2052

On 24 April 2017, Legal & General Group Plc issued $500m of 5.55% dated subordinated notes. The notes are callable at par on 24 April 2032 and every five years thereafter. If not called, the coupon from 24 April 2032 will be reset to the prevailing US Dollar mid-swap rate plus 4.19% p.a. These notes mature on 24 April 2052.

�

5.125% Sterling subordinated notes 2048

On 14 November 2018, Legal & General Group Plc issued �400m of 5.125% dated subordinated notes. The notes are callable at par on 14 November 2028 and every five years thereafter. If not called, the coupon from 14 November 2028 will be reset to the prevailing five year benchmark gilt yield plus 4.65% p.a. These notes mature on 14 November 2048.

�

3.75% Sterling subordinated notes 2049

On 26 November 2019, Legal & General Group Plc issued �600m of 3.75% dated subordinated notes. The notes are callable at par on 26 November 2029 and every five years thereafter. If not called, the coupon from 26 November 2029 will be reset to the prevailing five year benchmark gilt yield plus 4.05% p.a. These notes mature on 26 November 2049.

�

All of the above subordinated notes are treated as tier 2 own funds for Solvency II purposes.

�

Senior borrowings

�

Between 2000 and 2002 Legal & General Finance Plc issued �600m of senior unsecured Sterling medium term notes 2031-2041 at coupons between 5.75% and 5.875%. These notes have various maturity dates between 2031 and 2041.

�

IFRS Disclosure Notes�� Page 54

�

3.11 Operational borrowings

�

�	�	�	�	�	�	�
�	Carrying	Interest	�	Carrying	Interest	�
�	amount	rate	Fair value	amount	rate	Fair value
�	2019	2019	2019	2018	2018	2018
�	�m	%	�m	�m	%	�m
�	�	�	�	�	�	�
�	�	�	�	�	�	�
Short term operational borrowings	�	�	�	�	�	�
Euro Commercial Paper	200	0.93	200	293	0.93	293
�	�	�	�	�	�	�
Non recourse borrowings	�	�	�	�	�	�
Consolidated Property Limited Partnerships	58	2.36	58	57	2.46	57
Later Living portfolio	72	3.47	72	76	3.45	76
CALA revolving credit facility	178	3.37	178	188	3.37	188
Class B Surplus Notes	489	4.33	489	296	5.61	296
Affordable Homes revolving credit facility	29	2.66	29	-	-	-
L&G Homes Limited revolving credit facility	16	3.44	16	-	-	-
�	�	�	�	�	�	�
Bank loans and overdrafts	-	-	-	83	-	83
�	�	�	�	�	�	�
�	�	�	�	�	�	�
Total operational borrowings¹	1,042	�	1,042	993	�	993
Less: liabilities of operations classified as held for sale²	(29)	2.36	(29)	(28)	2.46	(28)
�	�	�	�	�	�	�
�	�	�	�	�	�	�
Operational borrowings	1,013	�	1,013	965	�	965
�	�	�	�	�	�	�
�	�	�	�	�	�	�
1. Unit linked borrowings with a carrying value of �7m (2018: �61m) are excluded from the analysis above as the risk is retained by policyholders. Operational borrowings including unit linked borrowings are �1,020m (2018: �1,026m).
2. Disclosure related to liabilities of operations classified as held for sale is included in Note 3.04.
�	�	�	�	�	�	�
Non recourse borrowings	�	�	�	�	�	�
- Consolidated Property Limited Partnerships loans have a charge on the assets of the relevant Property Fund � - Loan facilities to Later Living portfolio have a charge on all assets of each individual SPV company. � - CALA Group (Holdings) Limited's revolving credit facility is secured by way of a bond and floating charge, and guarantees and fixed charges granted by CALA Group Limited and its main subsidiaries (CALA 1999 Limited, CALA Limited, and CALA Management Limited). A number of other bonds and floating charges, fixed securities, debentures and share pledges over land and assets have been granted by certain subsidiaries of CALA Group Limited in favour of the lenders. � - The Class B Surplus Notes have been issued by a US subsidiary of the group as part of a coinsurance structure for the purpose of US statutory regulations. The notes were issued in exchange for bonds of the same value from an unrelated party, included within financial investments on the group's Consolidated Balance Sheet. � - The revolving credit facility to Affordable Homes is subject to agreed covenants, the breach of which could result in a charge on the land and work in progress of L&G Affordable Homes (Development 2) Limited. � - The revolving credit facility to L&G Homes Limited is secured by way of a charge on the land assets of L&G Homes Limited.
�	�	�	�	�	�	�
The carrying value of operational borrowings approximates their fair value. The presented fair values reflect observable market information and have been classified as Level 2 in the fair value hierarchy with the exception of the Later Living portfolio, Affordable Homes and L&G Homes Limited revolving credit facilities which have been classified as Level 3.

�

�	�	�	�	�	�	�	�
As at 31 December 2019, the group had in place a �1.0bn syndicated committed revolving credit facility provided by a number of its key relationship banks, maturing in December 2022. No amounts were outstanding at 31 December 2019.

�

IFRS Disclosure Notes�� Page 55

�

3.12 Payables and other financial liabilities

�	�	�	�	�	�	2019	2018
�	�	�	�	�	�	�m	�m
�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�
Derivative liabilities				�	�	13,113	7,791
Repurchase agreements¹				�	�	56,884	43,775
Other financial liabilities²				�	�	14,476	11,406
�	�	�	�	�	�	�	�
Total payables and other financial liabilities				�	�	84,473	62,972
Less: Payables and other liabilities of operations classified as held for sale³				�	�	(434)	(424)
�	�	�	�	�	�	�	�
Payables and other financial liabilities			�	�	�	84,039	62,548
�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�
Due within 12 months⁴				�	�	64,689	51,178
Due after 12 months⁴				�	�	19,784	11,794
1. The repurchase agreements are presented gross, however they and their related assets (included within debt securities) are subject to master netting arrangements. The vast majority of the repurchase agreements are unit linked.
2. Other financial liabilities includes trail commission, lease liabilities, reinsurance payables and collateral repayable on short position reverse repurchase agreements. The value of collateral repayable on short position reverse repurchase agreements was �7,673m (2018: �4,883m).
3. Disclosure relating to liabilities of operations classified as held for sale is included in Note 3.04.
4. The maturity analysis of the liabilities between less and more than 12 months is based on the Total payables and other financial liabilities.
�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�
Fair value hierarchy	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�
�	�	�	Total	Level 1	Level 2	Level 3	Amortised cost
As at 31 December 2019	�	�	�m	�m	�m	�m	�m
�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�
Derivative liabilities			13,113	283	12,828	2	-
Repurchase agreements	�	�	56,884	-	56,884	-	-
Other financial liabilities	�	�	14,476	7,822	9	139	6,506
Total payables and other financial liabilities			84,473	8,105	69,721	141	6,506
�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	Amortised
�	�	�	Total	Level 1	Level 2	Level 3	cost
As at 31 December 2018	�	�	�m	�m	�m	�m	�m
�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�
Derivative liabilities			7,791	337	7,452	2	-
Repurchase agreements			43,775	-	43,775	-	-
Other financial liabilities			11,406	4,718	35	496	6,157
�	�	�	�	�	�	�	�
Total payables and other financial liabilities			62,972	5,055	51,262	498	6,157
�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�
Trail commission (included within Other financial liabilities) is modelled using expected cash flows, incorporating expected future persistency. It has therefore been classified as Level 3 liabilities. A reasonably possible alternative persistency assumption would have the effect of increasing the trail commission liability by �4m (2018: �4m).
�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�
Significant transfers between levels � There have been no significant transfers of liabilities between Levels 1, 2 and 3 for the year ended 31 December 2019 (2018: no significant transfers).

�

IFRS Disclosure Notes�� Page 56

�

3.13 Sensitivity analysis

�	�	�	�	�	Impact on	�	Impact on	�
�	�	�	�	�	pre-tax	Impact on	pre-tax	Impact on
�	�	�	�	�	group profit	group equity	group profit	group equity
�	�	�	�	�	net of re-	net of re-	net of re-	net of re-
�	�	�	�	�	insurance	insurance	insurance	insurance
�	�	�	�	�	2019	2019	2018	2018
�	�	�	�	�	�m	�m	�m	�m
�	�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�	�
Economic sensitivity	�	�	�	�	�	�	�	�
Long-term insurance	�	�	�	�	�	�	�	�
100bps increase in interest rates		�	�	�	257	130	384	209
50bps decrease in interest rates		�	�	�	(188)	(109)	(220)	(122)
50bps increase in future inflation expectations				�	53	43	65	53
Credit spreads widen by 100bps with no change in expected defaults				�	(220)	(273)	(138)	(213)
25% rise in equity markets	�	�	�	�	434	383	458	399
25% fall in equity markets	�	�	�	�	(434)	(383)	(459)	(399)
15% rise in property values	�	�	�	�	899	744	738	606
15% fall in property values	�	�	�	�	(958)	(791)	(761)	(623)
10bps increase in credit default assumptions					(717)	(580)	(551)	(446)
10bps decrease in credit default assumptions					633	512	558	451
�		�	�	�	�	�	�	�
Non-economic sensitivity	�	�	�	�	�	�	�	�
Long-term insurance	�	�	�	�	�	�	�	�
1% increase in annuitant mortality					195	221	157	192
1% decrease in annuitant mortality				�	(201)	(225)	(147)	(183)
5% increase in assurance mortality				�	(385)	(305)	(375)	(298)
�	�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�	�

�	�	�	�	�	Changes in valuation assump- tions	�	�	Operating profit/ (loss) after tax	�	Operating profit/ (loss) before tax
�	�	New business surplus/ (strain)	Net release from operations	�		�	�		�
�	Release from operations¹			Exper- ience variances		Non-cash items	Other		Tax expense/ (credit)
�
For the year ended
31 December 2019	�m	�m	�m	�m	�m	�m	�m	�m	�m	�m
�	�	�	�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�	�	�	�
LGR	598	327	925	(53)	390	91	-	1,353	216	1,569
�- LGRI	418	265	683	(40)	313	88	-	1,044	172	1,216
�- LGRR	180	62	242	(13)	77	3	-	309	44	353
LGIM	366	(20)	346	(1)	-	(4)	-	341	82	423
�- LGIM (excluding	�	�	�	�	�	�	�	�	�	�
�� Workplace Savings)²	339	-	339	-	-	-	-	339	82	421
�- Workplace Savings³	27	(20)	7	(1)	-	(4)	-	2	-	2
LGC	295	-	295	-	-	-	-	295	68	363
LGI	259	(7)	252	(11)	44	(12)	4	277	37	314
�- UK and Other	165	(7)	158	(11)	44	(12)	4	183	40	223
�- US (LGIA)	94	-	94	-	-	-	-	94	(3)	91
�	�	�	�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�	�	�	�
From continuing operations	1,518	300	1,818	(65)	434	75	4	2,266	403	2,669
From discontinued operations⁴	9	-	9	-	-	-	-	9	2	11
�	�	�	�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�	�	�	�
Total from divisions	1,527	300	1,827	(65)	434	75	4	2,275	405	2,680
�	�	�	�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�	�	�	�
Group debt costs	(168)	-	(168)	-	-	-	-	(168)	(40)	(208)
Group investment projects and expenses	(44)	-	(44)	-	-	-	(102)	(146)	(40)	(186)
�	�	�	�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�	�	�	�
Total	1,315	300	1,615	(65)	434	75	(98)	1,961	325	2,286
�	�	�	�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�	�	�	�
1. Release from operations within US (LGIA) includes �81m of dividends from the US.
2. LGIM (excluding Workplace Savings) includes profits on fund management services.
3. Workplace Savings represents administration business only.
4. Discontinued operations include the results of the Mature Savings and General Insurance divisions following the group's announcement to sell these businesses to ReAssure Limited (a subsidiary of Swiss Re) and Allianz respectively. The sale of the General Insurance business completed on 31 December 2019 and the recognised operating loss for the year is �35m (2018: �nil).
�
Release from operations for LGR, LGIM - Workplace Savings and LGI represents the expected IFRS surplus generated in the year from the in-force non profit annuities, workplace savings and UK protection businesses using best estimate assumptions. The LGIM release from operations also includes operating profit after tax from the institutional and retail investment management businesses. The LGI release from operations also includes dividends remitted from LGIA. The release from operations within discontinued operations primarily reflects the unwind of expected profits after tax under the risk transfer agreement with ReAssure Limited (a subsidiary of Swiss Re) from the Mature Savings business, offset by losses from the General Insurance business in 2019.
�	�	�	�	�	�	�	�	�	�	�
New business surplus/strain for LGR, LGIM - Workplace Savings and LGI represents the cost of acquiring new business and setting up prudent reserves in respect of the new business for UK non profit annuities, workplace savings and protection, net of tax. The new business surplus and release from operations for LGR, LGIM and LGI excludes any capital held in excess of the prudent reserves from the liability calculation.
�	�	�	�	�	�	�	�	�	�	�
LGR's new business metrics are presented based on a target long-term asset portfolio. At certain period ends, depending upon the quantum and timing pf pension risk transfer (PRT) volumes, we may continue to source high quality assets to support that business after the period end, as appropriate, taking into account the alternative risks and rewards of traded credit. At year end, any difference between the actual assets and the long-term asset mix is reflected in investment variance.
�	�	�	�	�	�	�	�	�	�	�
Net release from operations for LGR, LGIM - Workplace Savings, LGI and discontinued operations is defined as release from operations plus new business surplus/(strain).
�	�	�	�	�	�	�	�	�	�	�
Release from operations and net release from operations for LGC and LGIM represents the operating profit (net of tax).
�	�	�	�	�	�	�	�	�	�	�
See Note 1.03 for more detail on experience variances, changes to valuation assumptions and non-cash items.
�	�	�	�	�	�	�	�	�	�	�
# All references to 'Operating profit' throughout this report represent 'Group adjusted operating profit', an alternative performance measure defined in the glossary.

Principal rates of exchange used for translation are:		�	�	�	�
�	�	�	�	�	�
Year end exchange rates	�	�	�	2019	2018
�	�	�	�	�	�
�	�	�	�	�	�
United States dollar	�	�	�	1.33	1.28
Euro	�	�	�	1.18	1.11
�	�	�	�	�	�
�	�	�	�	�	�
�	�	�	�	�	�
Average exchange rates	�	�	�	2019	2018
�	�	�	�	�	�
�	�	�	�	�	�
United States dollar	�	�	�	1.28	1.34
Euro	�	�	�	1.14	1.13
�	�	�	�	�	�
�	�	�	�	�	�

3.17 Related party transactions	�	�	�	�	�	�
(i) Key management personnel transactions and compensation			�
�	�	�	�	�	�	�
There were no material transactions between key management and the Legal & General group of companies during the year. All transactions between the group and its key management are on commercial terms which are no more favourable than those available to employees in general. Contributions to the post-employment defined benefit plans were �86m (2018: �84m) for all employees.
At 31 December 2019 and 31 December 2018 there were no loans outstanding to officers of the company.
�		�				�
The aggregate compensation for key management personnel, including executive and non-executive directors, is as follows:
�	�	�	�	�	2019	2018
�	�	�	�	�	�m	�m
�	�	�	�	�	�	�
�	�	�	�	�	�	�
Salaries	�	�	�	�	12	10
Post-employment benefits	�	�	�	�	-	-
Share-based incentive awards	�	�	�	�	7	6
�	�	�	�	�	�	�
�	�	�	�	�	�	�
Key management personnel compensation¹			�	�	19	16
�	�	�	�	�	�	�
1. Information relating to individual directors' emoluments, interests and transactions is given in the Directors' Report on Remuneration in the Annual Report and Accounts.
�	�	�	�	�	�	�