The majority of the Group’s non-participating investment contract liabilities are unit-linked. These unit-linked products are invested in accordance with unit fund mandates. Clauses are included in policyholder contracts to permit the deferral of sales, where necessary, so that linked assets can be realised without being a forced seller.
Non-cash and other items (7,808) (2,496) 11,382 1 These OEICs (Open-ended investment companies) are mutual funds which are consolidated if the Group manages the funds and also has a sufficient beneficial interest. The population of OEICs to be consolidated varies at each reporting date as external investors acquire and divest holdings in the various funds. The consolidation of these funds is effected by the inclusion of the fund investments and a matching liability to the unitholders; and changes in funds consolidated represent a non-cash movement on the balance sheet.
Included within cash and cash equivalents at 31 December 2015 is £13,545 million (2014: £12,855 million; 2013: £14,058 million) held within the Group’s life funds, which is not immediately available for use in the business.
Liabilities arising from insurance contracts and participating investment contracts (3,828) – (451)
The Group announced on 30 June 2015 that all relevant regulatory clearances for the sale of its remaining 40.01 per cent holding in TSB had been received and that the sale was therefore unconditional in all respects; the proceeds were received on 10 July 2015.
IFRS 15 Revenue from Contracts with Customers IFRS 15 replaces IAS 18 Revenue and IAS 11 Construction Contracts. Financial instruments, leases and insurance contracts are out of scope and so this standard is not expected to have a significant impact on the Group.
IFRS 15 is effective for annual periods beginning on or after 1 January 2018.
Amendments to IAS 7 Statement of Cash Flows and IAS 12 Income Taxes In January 2016, the IASB issued amendments to IAS 7 Statement of Cash Flows which require additional disclosure about an entity’s financing activities and IAS 12 Income Taxes which clarify when a deferred tax asset should be recognised for unrealised losses. These revised requirements, which are effective for annual periods beginning on or after 1 January 2017, are not expected to have a significant impact on the Group.
The directors approved the parent company financial statements on 24 February 2016.
Other employee award schemes – – – 172 172 – 172 1 Total comprehensive income comprises only the profit (loss) for the year; no statement of comprehensive income has been shown for the parent company, as permitted by section 408 of the Companies Act 2006.
1 During the year ended 31 December 2015, the Company redeemed all of its outstanding 6.0884% Non-cumulative Fixed to Floating Rate Preference Shares and 5.92% Non-cumulative Fixed to Floating Rate Preference Shares callable 2015 at their combined par value of £131 million. These preference shares had been accounted for as subordinated liabilities. On redemption an amount of £131 million was transferred from the distributable merger reserve to the share premium account.
Issue costs of other equity instruments, net of tax – (21) –
NOTE 6: SUBORDINATED LIABILITIES These liabilities will, in the event of the winding-up of the issuer, be subordinated to the claims of depositors and all other creditors of the issuer. Any repayments of subordinated liabilities require the consent of the Prudential Regulation Authority.
5.92% Non-cumulative Fixed to Floating Rate Preference Shares callable 20151 (140) – – (140)
Foreign exchange and other movements 22 – 69 91 1 During the year ended 31 December 2015, the Company redeemed all of its outstanding 6.0884% Non-cumulative Fixed to Floating Rate Preference Shares and 5.92% Non-cumulative Fixed to Floating Rate Preference Shares callable 2015 at their combined par value of £131 million. These preference shares had been accounted for as subordinated liabilities. On redemption an amount of £131 million was transferred from the distributable merger reserve to the share premium account.
NOTE 8: RELATED PARTY TRANSACTIONS In January 2009 HM Treasury became a related party of the Company and has remained so until 11 May 2015. From 1 January 2011, in accordance with IAS 24, UK Government-controlled entities also became related parties of the Group. Further information on the relationship and transactions with HM Treasury and UK Government-controlled entities is given in note 48 to the consolidated financial statements.
Key management personnel The key management personnel of the Group and the Company are the same. The relevant disclosures are given in note 48 to the consolidated financial statements.
NOTE 9: FINANCIAL INSTRUMENTS Measurement basis of financial assets and liabilities The accounting policies in note 2 to the consolidated financial statements describe how different classes of financial instruments are measured, and how income and expenses, including fair value gains and losses, are recognised. The following table analyses the carrying amounts of the Company’s financial assets and liabilities by category and by balance sheet heading.
The derivative assets designated as hedging instruments represent level 2 portfolios. The derivative assets classified as held for trading (not being designated as hedging instruments) shown above represent level 3 portfolios. The level 3 derivatives reflect the value of the equity conversion feature of the Enhanced Capital Notes issued in December 2009 as part of Lloyds Banking Group’s recapitalisation and exit from the Government Asset Protection Scheme.
The following reconciliation shows the movements in derivative financial instrument assets within level 3 portfolios: 2015 £m 2014 £m
NOTE 9: FINANCIAL INSTRUMENTS continued Liquidity risk The table below analyses financial instrument liabilities of the Company, on an undiscounted future cash flow basis according to contractual maturity, into relevant maturity groupings based on the remaining period at the balance sheet date; balances with no fixed maturity are included in the over 5 years category.
Fair values of financial assets and liabilities The valuation techniques for the Company’s financial instruments are as discussed in note 53 to the consolidated financial statements.
1 Ranges represent the highest and lowest inputs used in the level 3 valuations.
Annual general meeting (AGM) The AGM will be held at the Edinburgh International Conference Centre, The Exchange, Edinburgh EH3 8EE on Thursday 12 May 2016 at 11.00 am. Further details about the meeting, including the proposed resolutions, can be found in our Notice of AGM which will be available shortly on our website at www.lloydsbankinggroup.com
Reports and communications The Group issues regulatory announcements through the Regulatory News Service (RNS); shareholders can subscribe for free via the ‘Investors & Performance’ section of our website at www.lloydsbankinggroup.com, where our statutory reports and shareholder communications are available. A summary of the reports and communications to be issued in 2016 are listed below: Available format
Despite changes to regulations which remove the requirement to issue interim management statements, Lloyds Banking Group still intends to issue these reports.
Analysis of shareholders At 31 December 2015 Shareholders Number of ordinary shares
This Annual Report contains certain forward looking statements with respect to the business, strategy and plans of Lloyds Banking Group and its current goals and expectations relating to its future financial condition and performance. Statements that are not historical facts, including statements about Lloyds Banking Group’s or its directors’ and/or management’s beliefs and expectations, are forward looking statements. Words such as ‘believes’, ‘anticipates’, ‘estimates’, ‘expects’, ‘intends’, ‘aims’, ‘potential’, ’will’, ‘would’, ‘could’, ‘considered’, ‘likely’, ‘estimate’ and variations of these words and similar future or conditional expressions are intended to identify forward looking statements but are not the exclusive means of identifying such statements. By their nature, forward looking statements involve risk and uncertainty because they relate to events and depend upon circumstances that will or may occur in the future.
Investment grade This refers to the highest range of credit ratings, from ‘AAA’ to ‘BBB’ as measured by external credit rating agencies.
Net Stable Funding Ratio (NSFR) The ratio of available stable funding to required stable funding over a one year time horizon, assuming a stressed scenario. The ratio is required to be over 100% with effect from 2018. Available stable funding would include such items as equity capital, preferred stock with a maturity of over 1 year, or liabilities with a maturity of over 1 year.
Subordinated liabilities Liabilities which, in the event of insolvency or liquidation of the issuer, are subordinated to the claims of depositors and other creditors of the issuer. Details of the Group’s subordinated liabilities are set out in note 41.
Fair values of financial assets and liabilities 252, 255, 260, 261, 287
Risk Governance and risk management strategies/business model 5 Summarise prominently the bank’s risk management organisation, processes and key functions. 118-119 6 Describe risk culture and how procedures and strategies are applied to support the culture. 112 7 Describe the key risks that arise from the bank’s business models and activities, the bank’s risk appetite in the context of its business models and how the bank manages such risks. 113, 120-169 8 Describe the use of stress testing within the bank’s risk governance and capital frameworks. 115 Capital adequacy and risk-weighted assets 9 Pillar 1 capital requirements and the application of counter-cyclical and capital conservation buffers or the minimum internal ratio established by management.
13 Explain how risk-weighted assets (RWAs) relate to business activities and related risks. 113, 163-164, Pillar 3 14 Present a table showing the capital requirements for each method used for calculating RWAs for each Basel asset class. Pillar 3 15 Tabulate credit risk for Basel asset classes. Pillar 3 16 Present a flow statement that reconciles movements in RWAs for the period for each RWA risk type. 164 17 Provide narrative putting Basel Pillar 3 back-testing requirements into context. Pillar 3
Associated undertakings The Group has a participating interest in the following undertakings: Name of undertaking % of class held by immediate parent company
Euro Liquidity Fund 51% (93%) ABERDEEN INVESTMENT CASH OEIC PLC Aberdeen Sterling Investment Cash Fund, (Ireland) iv 50% (60%)
Scottish Widows Pooled Property ACS Fund 2 100% AGFE UK REAL ESTATE SENIOR DEBT MUTUAL FUND xiii 83%
US Equities Fund 100% SCOTTISH WIDOWS MANAGED INVESTMENT FUNDS ICVC iii