REG - Phoenix Grp Hldgs - 2014 Interim Results <Origin Href="QuoteRef">PHNX.L</Origin> - Part 5
29/10/2014 14:21
- Part 5: For the preceding part double click ID:nRSU6799Pd
rate income securities 25,119 9,586 938 35,643
Investment in joint ventures - - 118 118
Collective investment schemes 1,413 947 115 2,475
39,639 10,681 1,785 52,105
Less amounts classified as held for sale (note 3.2) (1) (36) - (37)
Total financial assets at fair value 39,652 11,980 1,785 53,417
Level 1 Level 2 Level 3 Total
£m £m £m fair value
£m
Financial liabilities at fair value
Derivatives 6 1,605 5 1,616
Financial liabilities designated at fair value through profit or loss upon initial recognition:
Investment contract liabilities - 8,508 - 8,508
Borrowings - - 185 185
Net asset value attributable to unitholders 5,431 - - 5,431
5,431 8,508 185 14,124
Total financial liabilities at fair value 5,437 10,113 190 15,740
At 30 June 2013
Level 1 Level 2 Level 3 Total
Restated Restated Restated fair value
£m £m £m Restated
£m
Financial assets at fair value
Derivatives 27 2,643 4 2,674
Financial assets designated at fair value through profit
or loss upon initial recognition:
Equities 12,599 143 797 13,539
Investment in joint ventures - - 104 104
Fixed and variable rate income securities 28,559 9,621 400 38,580
Collective investment schemes 2,864 1,055 173 4,092
44,022 10,819 1,474 56,315
Less amounts classified as held for sale (note 3.2) (55) - - (55)
Total financial assets at fair value 43,994 13,462 1,478 58,934
Level 1 Level 2 Level 3 Total
Restated Restated £m fair value
£m £m Restated
£m
Financial liabilities at fair value
Derivatives 13 2,770 - 2,783
Financial liabilities designated at fair value through profit
or loss upon initial recognition:
Investment contract liabilities - 8,327 - 8,327
Borrowings - 192 - 192
Net asset value attributable to unitholders 5,729 - 38 5,767
5,729 8,519 38 14,286
Total financial liabilities at fair value 5,742 11,289 38 17,069
At 31 December 2013
Level 1 Level 2 Level 3 Total
Restated Restated Restated fair value
£m £m £m Restated
£m
Financial assets at fair value
Derivatives 49 1,917 - 1,966
Financial assets designated at fair value through profit
or loss upon initial recognition:
Equities 13,136 149 628 13,913
Investment in joint ventures - - 125 125
Fixed and variable rate income securities 25,494 9,081 935 35,510
Collective investment schemes 2,591 1,065 116 3,772
41,221 10,295 1,804 53,320
Less amounts classified as held for sale (note 3.2) (55) - - (55)
Total financial assets at fair value 41,215 12,212 1,804 55,231
At 31 December 2013
Level 1 Level 2 Level 3 Total
Restated Restated Restated fair value
£m £m £m Restated
£m
Financial liabilities at fair value
Derivatives 40 2,118 3 2,161
Financial liabilities designated at fair value through profit
or loss upon initial recognition:
Investment contract liabilities - 8,578 - 8,578
Borrowings - - 186 186
Net asset value attributable to unitholders 5,744 - - 5,744
5,744 8,578 186 14,508
Total financial liabilities at fair value 5,784 10,696 189 16,669
14.2.3 Level 3 financial instrument sensitivities
Included in Level 3 investments are two property investment structures with a value of £29 million within fixed and
variable rate income securities (30 June 2013 Restated: £18 million; 31 December 2013 Restated: £15 million) and £118
million within investment in joint ventures (30 June 2013 Restated: £104 million; 31 December 2013 Restated: £125
million).
Both investments have been valued by taking the fair value of the property within the structures, which have been
independently valued, less the fair value of the debt within the structures. The valuations are sensitive to movements in
yields on the underlying property portfolio. An increase in yields of 25bps would reduce the value of the first investment
by £8 million (30 June 2013: £9 million; 31 December 2013: £8 million) and the second investment by £21 million (30 June
2013: £22 million; 31 December 2013: £23 million). A reduction in yields of 25bps would increase the value of the first
investments by £9 million (30 June 2013: £10 million; 31 December 2013: £9 million) and the second investment by £25
million (30 June 2013: £25 million; 31 December 2013: £25 million).
Level 3 investments in indirect property, equities (including private equity) and collective investment schemes (including
hedge funds) are valued using net asset statements provided by independent third parties, and therefore no sensitivity
analysis has been prepared.
Debt securities categorised as Level 3 investments are valued using broker quotes. Although such valuations are sensitive
to estimates, it is believed that changing one or more of the assumptions to reasonably possible alternative assumptions
would not change the fair value significantly.
Borrowings measured at fair value and categorised as Level 3 financial liabilities comprise the property reversion loans,
measured using an internally developed model. The valuation is sensitive to increases (decreases) in the fair value of
relevant residential property reversions which would result in a higher (lower) fair value of property reversion loans.
Details of the valuation of the underlying residential property reversions are included in note 13.
14.2.4 Transfers of financial instruments between Level 1 and Level 2
30 June 2014
From From
Level 1 to Level 2 to
Level 2 Level 1
£m £m
Financial assets at fair value
Financial assets designated at fair value through profit or loss upon initial recognition:
Fixed and variable rate income securities 86 539
Collective investment schemes 2 -
30 June 2013
From From
Level 1 to Level 2 to
Level 2 Level 1
£m £m
Financial assets at fair value
Financial assets designated at fair value through profit or loss upon initial recognition:
Fixed and variable rate income securities 241 528
Collective investment schemes 210 -
31 December 2013
From From
Level 1 to Level 2 to
Level 2 Level 1
Restated Restated
£m £m
Financial assets at fair value
Financial assets designated at fair value through profit or loss upon initial recognition:
Derivatives - 5
Fixed and variable rate income securities 724 238
Collective investment schemes 243 -
Financial liabilities at fair value
Derivatives - 20
Consistent with the prior year, all the Group's Level 1 and Level 2 assets have been valued using standard market pricing
sources.
The application of the Group's fair value hierarchy classification methodology at an individual security level in
particular observations with regard to measures of market depth and bid-ask spreads, have resulted in an overall net
movement of financial assets from Level 2 to Level 1 in the period.
14.2.5 Movement in Level 3 financial instruments measured at fair value
30 June 2014
At 1 January 2014 Total gains/ Purchases Sales Transfers from Transfers to At 30 June Unrealised gains on assets held at end of period
£m (losses) in income statement £m £m Level 1 and Level 1 and 2014 £m
£m Level 2 Level 2 £m
£m £m
Financial assets
Financial assets designated at fair value through profit or loss upon initial recognition:
Equities 628 18 28 (61) 1 - 614 9
Investment in joint ventures 125 (7) - - - - 118 -
Fixed and variable rate income securities 935 29 193 (202) 34 (51) 938 25
Collective investment schemes 116 8 - (16) 7 - 115 6
Total financial assets 1,804 48 221 (279) 42 (51) 1,785 40
30 June 2014
At 1 January 2014 Total losses in income statement Purchases Sales Transfers from Transfers to At 30 June Unrealised gains on liabilities held at end of period
£m £m £m £m Level 1 and Level 1 and 2014 £m
Level 2 Level 2 £m
£m £m
Financial liabilities
Derivatives 3 2 - - - - 5 (1)
Financial liabilities designated at fair value through profit or loss upon initial recognition:
Borrowings 186 14 - (15) - - 185 (1)
Total financial liabilities 189 16 - (15) - - 190 (2)
During the period, updates to the Group's observations with regard to the extent to which inputs to the valuation of fixed
and variable rate income securities are market observable resulted in a net transfer from Level 3 to Levels 1 and 2.
Gains and losses on Level 3 financial instruments are included in net investment income in the consolidated income
statement. There were no gains or losses recognised in other comprehensive income.
30 June 2013
At 1 January 2013 Total (losses)/gains in income statement Purchases Sales Transfers from Transfers to At 30 June Unrealised (losses)/gains on assets held at end of period
Restated Restated Restated Restated Level 1 and Level 1 and 2013 Restated
£m £m £m £m Level 2 Level 2 Restated £m
Restated Restated £m
£m £m
Financial assets
Derivatives 12 (7) - (1) - - 4 (8)
Financial assets designated at fair value through profit or loss upon initial recognition:
Equities 715 23 53 (30) 41 (5) 797 47
Investment in joint ventures 95 9 - - - - 104 -
Fixed and variable rate income securities 500 27 12 (115) 13 (37) 400 23
Collective investment schemes 158 17 17 (36) 17 - 173 15
1,468 76 82 (181) 71 (42) 1,474 85
Total financial assets 1,480 69 82 (182) 71 (42) 1,478 77
30 June 2013
At 1 January 2013 Total (gains)/losses in income statement Purchases Sales Transfers from Transfers to At 30 June Unrealised losses on liabilities held at end of period
£m £m £m £m Level 1 and Level 1 and 2013 £m
Level 2 Level 2 £m
£m £m
Financial liabilities
Derivatives 3 (3) - - - - - -
Financial liabilities designated at fair value through profit or loss upon initial recognition:
Net asset value attributable to unitholders 70 6 - (38) - - 38 6
Total financial liabilities 73 3 - (38) - - 38 6
31 December 2013
At 1 January 2013 Total Purchases Sales Transfers from Level 1 and Transfers to At Unrealised
Restated (losses)/gains £m Restated Level 2 Level 1 and 31 December 2013 (losses)/gains on assets
£m in income statement £m £m Level 2 Restated held at end
Restated £m £m of period
£m Restated
£m
Financial assets
Derivatives 12 (12) - - - - - (12)
Financial assets designated at fair value through profit or loss upon initial recognition:
Equities 715 (45) 50 (131) 39 - 628 2
Investment in joint ventures 95 30 - - - - 125 -
Fixed and variable rate income securities 500 104 827 (862) 390 (24) 935 70
Collective investment schemes 158 10 1 (40) 1 (14) 116 10
1,468 99 878 (1,033) 430 (38) 1,804 82
Total financial assets 1,480 87 878 (1,033) 430 (38) 1,804 70
At 1 January 2013 Total losses Purchases Sales Transfers from Level 1 and Transfers to At Unrealised
£m in income statement Restated Restated Level 2 Level 1 and 31 December 2013 (gains)/losses on liabilities
Restated £m £m £m Level 2 Restated held at end
£m £m £m of period
£m
Financial liabilities
Derivatives 3 4 - (4) - - 3 (8)
Financial liabilities designated at fair value through profit or loss upon initial recognition:
Borrowings - 14 - (22) 194 - 186 (15)
Net asset value attributable to unitholders 70 -- -- (70) - - -- --
70 14 -- (92) 194 - 186 (15)
Total financial liabilities 73 18 -- (96) 194 - 189 (23)
15. Cash flows from operating activities
Half year ended Half year ended Year ended
30 Jun 2014 30 Jun 2013Restated 31 Dec 2013Restated
£m £m £m
Profit/(loss) for the period before tax from continuing operations 290 (13) 241
Loss for the period before tax from discontinued operations (note 3.1) (27) (28) (51)
Profit/(loss) for the period before tax 263 (41) 190
Non-cash movements in profit/(loss) for the period before tax
Fair value (gains)/losses on:
Investment property (120) 10 (72)
Financial assets (670) 285 (299)
Change in fair value of borrowings 20 24 36
Depreciation of property, plant and equipment - 2 3
Amortisation of intangible assets 60 67 130
Change in present value of future profits 8 (6) (9)
Change in unallocated surplus 19 38 77
Share-based payment charge - 3 6
Interest expense on borrowings 82 129 230
Net interest (income)/expense on Group defined benefit pension scheme asset/liability (6) (1) 1
Other losses on pension schemes - - 12
Gain on transfer of business (4) - (42)
Decrease in investment assets 2,073 2,854 6,913
(Increase)/decrease in reinsurance assets (4) 481 349
Decrease in insurance contract and investment contract liabilities (133) (1,890) (2,519)
Decrease in deposits received from reinsurers (1) (42) (69)
Decrease in obligation for repayment of collateral received (1,961) (1,114) (3,174)
Net increase in working capital 64 (34) (740)
Cash (utilised)/generated by operations (310) 765 1,023
Cash flows from operating activities generated by discontinued operations are disclosed in note 3.1.
16. Related party transactions
The nature of the related party transactions of the Group has not changed from those referred to in the Group's
consolidated financial statements for the year ended 31 December 2013.
During the period, the PGL Pension Scheme entered into a longevity swap with PLL with effect from 1 January 2014, under
which the Scheme has transferred the risk of longevity improvements in respect of its in-payment members to PLL. This
transaction has been eliminated upon consolidation and therefore has had no impact on the interim financial statements.
There were no other transactions with related parties during the six months ended 30 June 2014, which have had a material
effect on the results or financial position of the Group.
17. Contingent liabilities
In the normal course of business the Group is exposed to certain legal issues, which involve litigation and arbitration. At
the period end, the Group has a number of contingent liabilities in this regard, none of which are considered by the
directors to be material.
18. Events after the reporting period
On 1 July 2014 the Group completed the divestment of Ignis Asset Management to Standard Life Investments and gross cash
consideration of £390 million was received. £250 million of these proceeds were used to prepay the Impala loan facility.
On 7 July 2014 the Group's new financing subsidiary, PGH Capital Limited, issued a £300 million 7 year senior unsecured
bond at an annual coupon rate of 5.75%. The net proceeds from the bond issue of £296 million were used to prepay the Impala
loan facility.
On 23 July 2014 PGH Capital Limited entered into a new £900 million 5 year unsecured bank facility which along with a £206
million debt prepayment from internal resources was used to refinance the entirety of the Group's existing two bank
facilities and PIK notes, replacing the Pearl and Impala loan facilities with a single debt facility.
The new facility comprises a £450 million revolving credit facility ('RCF') loan and a £450 million amortising term loan.
Both loans are repayable by July 2019 with an option to request an extension to the term of the RCF loan by two years to
July 2021. Further terms of the facilities agreement include:
− Term facility repayment instalments of £30 million are due semi-annually on 30 June and 31 December each year.
Additional target repayments of £30 million may be paid semi-annually on 30 June and 31 December each year from 30 June
2015, non-payment of which would trigger restrictions on the Group regarding the declaration of dividends;
− The term loan bears interest at LIBOR plus an opening margin of 3.50% p.a. and the RCF loan at LIBOR plus an opening
margin of 3.25% p.a.. After six months the margins will change in accordance with a margin ratchet which operates by
reference to the Group's gearing ratio. Margins will reduce by 0.50% on achievement of an investment grade rating.
− Amongst other fees, a utilisation fee of 0.25% p.a. is payable in respect of the RCF loan for so long as the amount
outstanding under the RCF exceeds 50% of the total commitments of the RCF loan.
On 31 July 2014 the Group entered into a reinsurance agreement, effective 1 January 2014, to transfer approximately £1.7
billion of annuity in-payment liabilities, currently held within the Group's with-profit funds, to Guardian Assurance
Limited ('Guardian'). On 11 August 2014 the Group made an associated transfer of £1.7 billion of assets to Guardian as the
related reinsurance premium for the transferred annuity liabilities.
On 20 August 2014, the Board declared an interim dividend per share of 26.7p for the half year ended 30 June 2014 (30 June
2013: 26.7p). The cost of this dividend has not been recognised as a liability in the interim financial statements for the
period to 30 June 2014 and will be charged to the statement of consolidated changes in equity when paid.
ADDITIONAL LIFE COMPANY ASSET DISCLOSURES
The analysis of the asset portfolio provided below comprises the assets held by the Group's life companies including stock
lending collateral. It excludes other Group assets such as cash held in the holding and service companies and Ignis; the
assets held by the non-controlling interest in collective investment schemes and UKCPT and is net of derivative
liabilities.
The following table provides an overview of the exposure by asset category of the Group's life companies' shareholder and
policyholder funds:
30 June 2014
Carrying value Shareholderand non-profitfunds1£m Participating1supported Participating2non-supported Unit-linked2£m Total3£m
£m £m
Cash and cash equivalents1 1,734 754 5,521 1,033 9,042
Debt securities - gilts 1,203 2,108 8,089 647 12,047
Debt securities - bonds 6,098 1,828 8,711 774 17,411
Equity securities 334 64 6,015 8,041 14,454
Property investments 151 81 1,002 344 1,578
Other investments4 328 (59) 1,704 1 1,974
As at 30 June 2014 9,848 4,776 31,042 10,840 56,506
Collective investment schemes 5,477
UKCPT 667
Cash held in other Group entities 1,086
Total Group consolidated assets 63,736
Comprised of:
Investment property 1,683
Financial assets 54,977
Cash and cash equivalents 8,692
Derivative liabilities (1,616)
63,736
1 Includes assets where shareholders of the life companies bear the investment risk.
2 Includes assets where policyholders bear most of the investment risk.
3 This information is presented on a look through basis to underlying funds where available.
4 Includes repurchase loans of £1,404 million, policy loans of £29 million, other loans of £12 million, net derivatives
liabilities of £186 million and other investments of £715 million.
31 December 2013 Restated
Carrying value Shareholderand non-profitfunds1£m Participating1supported Participating2non-supported Unit-linked2£m Total3£m
£m £m
Cash and cash equivalents 1,439 849 6,221 994 9,503
Debt securities - gilts 1,216 2,132 8,442 486 12,276
Debt securities - bonds 5,974 1,889 9,223 1,009 18,095
Equity securities 380 28 6,104 8,260 14,772
Property investments 199 80 876 286 1,441
Other investments5 292 (88) 2,204 58 2,466
As at 31 December 2013 9,500 4,890 33,070 11,093 58,553
Total3Restated
£m
Collective investment schemes 5,717
UKCPT 584
Cash held in other Group entities 1,085
General insurance business 9
Corporate derivative liabilities (5)
Adjustments on consolidation 1
Total Group consolidated assets 65,944
Comprised of:
Investment property 1,603
Financial assets 57,208
Cash and cash equivalents 9,294
Derivative liabilities (2,161)
65,944
5 Includes repurchase loans of £1,789 million, policy loans of £13 million, other loans of £67 million, net derivatives
of £211 million and other investments of £807 million.
The following table analyses by type the debt securities of the life companies:
30 June 2014
Analysis by type of debt securities Shareholder and non-profit funds Participating Participating Unit-linked Total
£m supported non-supported £m £m
£m £m
Gilts 1,203 2,108 8,089 647 12,047
Other government and supranational6 1,099 709 2,552 110 4,470
Corporate - financial institutions 2,084 474 3,111 173 5,842
Corporate - other 2,344 304 2,191 430 5,269
Asset backed securities ('ABS') 571 341 857 61 1,830
As at 30 June 2014 7,301 3,936 16,800 1,421 29,458
6 Includes debt issued by governments; public and statutory bodies; government backed institutions and supranationals.
31 December 2013
Analysis by type of debt securities Shareholder and non-profit funds Participating Participating Unit-linked Total
£m supported non-supported £m £m
£m £m
Gilts 1,216 2,132 8,442 486 12,276
Other government and supranational6 1,061 678 2,517 290 4,546
Corporate - financial institutions 2,051 513 3,417 216 6,197
Corporate - other 2,285 349 2,238 439 5,311
Asset backed securities ('ABS') 577 349 1,051 64 2,041
As at 31 December 2013 7,190 4,021 17,665 1,495 30,371
The following table sets out a breakdown of the life companies' sovereign and supranational debt security holdings by
country:
30 June 2014
Analysis of sovereign and supranational debt security holdings by country Shareholder and non-profit funds Participating Participating Unit-linked Total
£m supported non-supported £m £m
£m £m
UK 1,321 2,177 8,525 661 12,684
European Investment Bank 524 324 709 27 1,584
USA 3 6 58 11 78
Germany 380 230 868 28 1,506
France 44 55 56 - 155
Netherlands - 1 - - 1
Portugal - - - - -
Italy - - - 2 2
Ireland - - - - -
Greece - - - - -
Spain - 5 - 2 7
Other - non-Eurozone 16 10 333 23 382
Other - Eurozone 14 9 92 3 118
As at 30 June 2014 2,302 2,817 10,641 757 16,517
31 December 2013
Analysis of sovereign and supranational debt security holdings by country Shareholder and non-profit funds Participating supported Participating Unit-linked Total
£m £m non-supported £m £m
£m
UK 1,326 2,207 8,831 671 13,035
European Investment Bank 507 324 669 37 1,537
USA 3 16 42 11 72
Germany 406 243 1,010 23 1,682
France 4 - 6 1 11
Netherlands 7 - 22 1 30
Portugal - - - - -
Italy - - - 3 3
Ireland - - - - -
Greece - - - - -
Spain - 4 - 2 6
Other - non-Eurozone 13 7 305 24 349
Other - Eurozone 11 9 74 3 97
As at 31 December 2013 2,277 2,810 10,959 776 16,822
The following table sets out a breakdown of the life companies' financial institution corporate debt security holdings by
country:
30 June 2014
Analysis of financial institution corporate debt security holdings by country Shareholder and non-profit funds Participating supported Participating Unit-linked Total
£m £m non-supported £m £m
£m
UK 1,085 278 1,231 79 2,673
USA 380 77 536 13 1,006
Germany 66 6 83 3 158
France 131 14 243 12 400
Netherlands 217 57 517 39 830
Portugal - -
- More to follow, for following part double click ID:nRSU6799PfRecent news on Phoenix group
See all newsREG - Phoenix Group Hldgs - Result of AGM
AnnouncementREG - Phoenix Group Hldgs - Director/PDMR Shareholding
AnnouncementREG - Phoenix Group Hldgs - Total Voting Rights
AnnouncementREG - Phoenix Group Hldgs - Director/PDMR Shareholding
AnnouncementREG - Phoenix Group Hldgs - Director/PDMR Shareholding
Announcement