REG - Phoenix Grp Hldgs - 2015 Interim Results <Origin Href="QuoteRef">PHNX.L</Origin> - Part 3
20/08/2015 07:01
- Part 3: For the preceding part double click ID:nRST5619Wb
TO RESULT ATTRIBUTABLE TO OWNERS
For the half year ended 30 June 2015
Notes Half year ended 30 Jun 2015 £m Half year ended 30 Jun 2014 £m Year ended 31 Dec 2014 £m
Operating profit
Phoenix Life 141 256 487
Ignis - discontinued operations - 17 17
141 273 504
Group costs (6) (7) (21)
Total operating profit before adjusting items 135 266 483
Investment return variances and economic assumption changes on long-term business 5.1 44 59 12
Variance on owners' funds 5.2 (4) - (14)
Amortisation on acquired in-force business (41) (48) (88)
Amortisation of customer relationships and other intangibles (7) (7) (15)
Non-recurring items 4.2 1 9 126
Profit before finance costs attributable to owners 128 279 504
Finance costs attributable to owners (49) (48) (88)
Profit/(loss) before the tax attributable to owners:
From continuing operations 79 258 336
From discontinued operations - (27) 80
4.2 79 231 416
Tax charge attributable to owners from continuing operations (1) (49) (22)
Tax credit attributable to owners from discontinued operations - 9 12
Profit for the period attributable to owners 78 191 406
CONDENSED STATEMENT OF CONSOLIDATED
FINANCIAL POSITION
As at 30 June 2015
Notes 30 Jun 2015 £m 30 Jun 2014 £m 31 Dec 2014 £m
EQUITY AND LIABILITIES
Equity attributable to owners of the parent
Share capital 9 - - -
Share premium 921 1,038 979
Shares held by employee benefit trust and Group entities (5) (14) (8)
Foreign currency translation reserve 93 85 103
Retained earnings 1,287 951 1,291
Total equity attributable to owners of the parent 2,296 2,060 2,365
Non-controlling interests 10 536 825 913
Total equity 2,832 2,885 3,278
Liabilities
Pension scheme liability 11 - 98 -
Insurance contract liabilities
Liabilities under insurance contracts 12 41,184 42,657 42,930
Unallocated surplus 925 989 981
42,109 43,646 43,911
Financial liabilities
Investment contracts 8,250 8,508 8,451
Borrowings 13 2,108 2,285 1,762
Deposits received from reinsurers 385 384 408
Derivatives 1,700 1,616 2,192
Net asset value attributable to unitholders 5,218 5,431 4,659
Obligations for repayment of collateral received 818 5,324 954
14 18,479 23,548 18,426
Provisions 22 26 26
Deferred tax 331 335 364
Reinsurance payables 10 12 9
Payables related to direct insurance contracts 389 402 358
Current tax 58 149 165
Accruals and deferred income 146 92 130
Other payables 999 1,514 360
Liabilities classified as held for sale 3.2 1,895 111 1,776
Total liabilities 64,438 69,933 65,525
Total equity and liabilities 67,270 72,818 68,803
Notes 30 Jun 2015 £m 30 Jun 2014 £m 31 Dec 2014 £m
ASSETS
Pension scheme asset 11 396 276 426
Intangible assets
Goodwill 39 39 39
Acquired in-force business 1,368 1,458 1,413
Customer relationships and other intangibles 210 225 217
Present value of future profits 19 24 23
1,636 1,746 1,692
Property, plant and equipment 15 15 15
Investment property 1,817 1,683 1,858
Financial assets
Loans and receivables 454 1,560 196
Derivatives 1,660 1,349 2,558
Equities 12,765 13,869 13,168
Investment in joint ventures 138 118 133
Fixed and variable rate income securities 35,871 35,643 34,384
Collective investment schemes 3,668 2,438 3,583
14 54,556 54,977 54,022
Insurance assets
Reinsurers' share of insurance contract liabilities 2,601 2,854 2,772
Reinsurance receivables 32 35 67
Insurance contract receivables 9 10 8
2,642 2,899 2,847
Current tax 5 7 8
Prepayments and accrued income 402 421 405
Other receivables 695 1,737 750
Cash and cash equivalents 3,245 8,692 5,067
Assets classified as held for sale 3.2 1,861 365 1,713
Total assets 67,270 72,818 68,803
CONDENSED STATEMENT OF CONSOLIDATED
CASH FLOWS
For the half year ended 30 June 2015
Notes Half year ended 30 Jun 2015 £m Half year ended 30 Jun 2014 £m Year ended 31 Dec 2014 £m
Cash flows from operating activities
Cash utilised by operations 15 (1,551) (310) (3,716)
Taxation paid (103) (30) (54)
Net cash flows from operating activities (1,654) (340) (3,770)
Cash flows from investing activities
Proceeds from disposal of businesses, net of cash disposed of - 21 332
Net cash flows from investing activities - 21 332
Cash flows from financing activities
Proceeds from issuing ordinary shares, net of associated commission and expenses 9 2 - 1
Proceeds from issuing shares in subsidiaries to non-controlling interests 10 10 33 82
Ordinary share dividends paid 8 (60) (60) (120)
Coupon paid on Perpetual Reset Capital Securities 10.1 (20) (26) (26)
Cash settlement of Perpetual Reset Capital Securities 10.1 (3) - -
Fees associated with the issuance of subordinated notes 13 (3) - -
Dividends paid to non-controlling interests 10 (11) (12) (22)
Repayment of policyholder borrowings (94) (15) (35)
Repayment of shareholder borrowings (60) (83) (1,769)
Proceeds from new policyholder borrowings, net of associated expenses 99 - -
Proceeds from new shareholder borrowings, net of associated expenses - - 1,184
Interest paid on policyholder borrowings (3) (4) (17)
Interest paid on shareholder borrowings (25) (48) (67)
Net cash flows from financing activities (168) (215) (789)
Net decrease in cash and cash equivalents (1,822) (534) (4,227)
Cash and cash equivalents at the beginning of the period 5,067 9,294 9,294
Cash and cash equivalents at the end of the period 3,245 8,760 5,067
Separate disclosure of the cash flows relating to discontinued operations is provided in note 3.1.
CONDENSED STATEMENT OF CONSOLIDATED
CHANGES IN EQUITY
For the half year ended 30 June 2015
Share capital (note 9) £m Share premium £m Shares Foreign currency translation reserve £m Retained earnings £m Total £m Non- controlling interests (note 10) £m Total £m
held by employee benefit trust and Group entities £m
At 1 January 2015 - 979 (8) 103 1,291 2,365 913 3,278
Profit for the period - - - - 51 51 27 78
Other comprehensive expense for the period - - - (10) (42) (52) - (52)
Total comprehensive (expense)/income for the period - - - (10) 9 (1) 27 26
Issue of ordinary share capital, net of associated commissions and expenses - 2 - - - 2 - 2
Dividends paid on ordinary shares - (60) - - - (60) - (60)
Dividends paid to non-controlling interests - - - - - - (11) (11)
Coupon paid to non-controlling interests, net of tax relief - - - - - - (15) (15)
Credit to equity for equity-settled share based payments - - - - 2 2 - 2
Shares subscribed for by non-controlling interests - - - - - - 10 10
Exchange of non-controlling interests for subordinated notes - - - - - - (388) (388)
Loss on exchange of non-controlling interests - - - - (12) (12) - (12)
Shares distributed by employee benefit trust - - 3 - (3) - - -
At 30 June 2015 - 921 (5) 93 1,287 2,296 536 2,832
CONDENSED STATEMENT OF CONSOLIDATED
CHANGES IN EQUITY
For the half year ended 30 June 2014
Share capital Share premium £m Shares held by employee benefit trust and Group entities £m Foreign currency translation reserve £m Retained earnings £m Total £m Non- controlling interests (note 10) £m Total £m
(note 9) £m
At 1 January 2014 - 1,097 (13) 93 732 1,909 778 2,687
Profit for the period - - - - 144 144 47 191
Other comprehensive (expense)/income for the period - - - (8) 79 71 - 71
Total comprehensive (expense)/income for the period - - - (8) 223 215 47 262
Dividends paid on ordinary shares - (60) - - - (60) - (60)
Dividends paid on shares held by the employee benefit trust and Group entities - 1 - - - 1 - 1
Dividends paid to non-controlling interests - - - - - - (12) (12)
Coupon paid to non-controlling interests, net of tax relief - - - - - - (21) (21)
Credit to equity for equity-settled share based payments - - - - 3 3 - 3
Shares subscribed for by non-controlling interests - - - - - - 33 33
Shares distributed by employee benefit trust - - 7 - (7) - - -
Shares acquired by employee benefit trust - - (8) - - (8) - (8)
At 30 June 2014 - 1,038 (14) 85 951 2,060 825 2,885
For the year ended 31 DECEMBER 2014
Share capital (note 9) £m Share premium £m Shares held by employee benefit trust and Group entities £m Foreign currency translation reserve £m Retained earnings £m Total £m Non- controlling interests (note 10) £m Total £m
At 1 January 2014 - 1,097 (13) 93 732 1,909 778 2,687
Profit for the period - - - - 310 310 96 406
Other comprehensive income for the period - - - 10 251 261 - 261
Total comprehensive income for the period - - - 10 561 571 96 667
Issue of ordinary share capital, net of associated commissions and expenses - 1 - - - 1 - 1
Dividends paid on ordinary shares - (120) - - - (120) - (120)
Dividends paid on shares held by the employee benefit trust and Group entities - 1 - - - 1 - 1
Dividends paid to non-controlling interests - - - - - - (22) (22)
Coupon paid to non-controlling interests, net of tax relief - - - - - - (21) (21)
Credit to equity for equity-settled share based payments - - - - 7 7 - 7
Shares subscribed for by non-controlling interests - - - - - - 82 82
Shares distributed by employee benefit trust - - 10 - (10) - - -
Shares acquired by employee benefit trust - - (8) - - (8) - (8)
Shares sold by Group entities - - 3 - 1 4 - 4
At 31 December 2014 - 979 (8) 103 1,291 2,365 913 3,278
NOTES TO THE CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS
1. Basis of preparation
The condensed consolidated interim financial statements ('the interim financial statements') for the half year ended 30
June 2015 comprise the interim financial statements of Phoenix Group Holdings ('the Company') and its subsidiaries
(together referred to as 'the Group') as set out on pages 23 to 51 and were authorised by the Board of Directors for issue
on 19 August 2015. The interim financial statements are unaudited but have been reviewed by the auditors, Ernst & Young LLP
and their review report appears on page 22.
The interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting as issued by the
International Accounting Standards Board ('IASB'). The accounting policies applied in the interim financial statements are
consistent with those set out in the 2014 consolidated financial statements except for the adoption of new standards and
interpretations effective from 1 January 2015 as referred to below.
The interim financial statements do not include all the information and disclosures required in the 2014 consolidated
financial statements, and should be read in conjunction with the Group's 2014 Annual Report and Accounts.
In preparing the interim financial statements the Group has adopted the following standards, interpretations and amendments
effective from 1 January 2015:
- Annual Improvements 2010 - 2012 cycle; and
- Annual Improvements 2011 - 2013 cycle.
These standards, interpretations or amendments that have been applied for the first time in 2015 do not impact the 2015
interim financial statements, and are not expected to have a significant impact on the 2015 consolidated financial
statements. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not
yet effective.
After making enquiries, the Directors consider it appropriate to adopt the going concern basis in preparing these interim
financial statements.
2. Changes in accounting policies AND PRESENTATIONAL CHANGES
The accounting policies adopted in the preparation of the interim financial statements are consistent with those followed
in the preparation of the 2014 consolidated financial statements except as noted below.
The Group's accounting policy has previously been to carry loans and receivables at their amortised cost. During the
period, a portfolio of loans was acquired that management determined should be designated at fair value through profit or
loss. Such a designation was deemed reflective of the manner in which the financial assets are managed and reduces a
measurement inconsistency that would otherwise arise with regard to the insurance liabilities that the assets are backing.
As a result, these assets are stated in the condensed statement of consolidated financial position at their fair value. All
other loans and receivables continue to be carried at their amortised cost.
In respect of the half year ended 30 June 2014, a presentational change has been made to fees and net investment income
within the condensed consolidated income statement to remove the impact of a gross-up of those line items for asset
management fee rebates received by the Group's Life companies. The impact of the adjustment is to reduce fees by £9 million
and increase net investment income by an equivalent amount. There is no impact on the result for the period.
3. DISCONTINUED OPERATIONS AND Assets and liabilities held for sale
This note provides details of discontinued operations and assets and liabilities held for sale at the period end.
3.1 Discontinued operations
On 25 March 2014, the Group and Standard Life Investments (Holdings) Limited ('Standard Life Investments') signed a
disposal agreement under which Standard Life Investments agreed to acquire the entire issued share capital of Ignis in
return for gross cash consideration of £390 million. The divestment was completed on 1 July 2014. A post completion payment
of £6 million, calculated in accordance with the sale and purchase agreement, was paid to Standard Life Investments on 24
September 2014. The business has been included in the Ignis operating segment at 30 June 2014 and 31 December 2014. The
results of Ignis are as follows:
3.1.1 Results of discontinued operations
Half year ended 30 Jun 2015 £m Half year ended 30 Jun 2014 £m Year ended 31 Dec 2014 £m
Fees - 26 26
Net investment income - (6) (6)
Total revenue - 20 20
Amortisation of customer relationships - - -
Administrative expenses - (47) (47)
Total operating expenses - (47) (47)
Loss before tax - (27) (27)
Attributable tax credit - 9 9
- (18) (18)
Gain on disposal of discontinued operations - - 107
Attributable tax credit - - 3
- - 110
(Loss)/profit for the period from discontinued operations - (18) 92
The loss before tax for discontinued operations for half year ended 30 June 2014 and year ended 31 December 2014 excludes
intra-group fee income of £38 million. This intra-group fee income represents the difference between the loss before tax
for the period from discontinued operations and the Ignis segmental result before tax attributable to owners result shown
in note 4.1.
The (loss)/profit for the period from discontinued operations was attributable entirely to the owners of the parent.
The gain on disposal for the period from discontinued operations of £110 million, recognised in the results for the year
ended 31 December 2014, comprised net consideration received of £384 million less net assets and liabilities disposed of
£254 million, transaction costs and tax.
3.1.2 Cash flows generated by discontinued operations
The net cash flows generated by Ignis (including cash flows relating to the divestment) are as follows:
Half year ended 30 Jun 2015 £m Half year ended 30 Jun 2014 £m Year ended 31 Dec 2014 £m
Cash flows from operating activities - 31 31
Cash flows from investing activities - - 311
Cash flows from financing activities - (29) (29)
Net cash inflow - 2 313
Cash flows from investing activities of £311 million comprised net consideration received of £384 million less attributable
transaction costs of £5 million, less cash and cash equivalents disposed of £68 million.
3.2 ASSETS AND LIABILITIES OF OPERATIONS CLASSIFIED AS HELD FOR SALE
The balances transferred to assets and liabilities classified as held for sale in the condensed statement of consolidated
financial position as at 30 June 2015 relate to the anticipated Part VII transfer of a portfolio of annuity liabilities to
Guardian Assurance Limited ('Guardian') (see note 3.3) and the agreement to sell Scottish Mutual International (see note
3.4). The balances as at 30 June 2014 relate to Ignis (see note 3.1) and the balances as at 31 December 2014 relate to the
anticipated Part VII transfer to Guardian.
Carrying amount 30 Jun 2015£m Carrying amount 30 Jun 2014£m Carrying amount 31 Dec 2014£m
Assets classified as held for sale:
Goodwill - 57 -
Customer relationships and other intangibles - 136 -
Financial assets 177 37 -
Reinsurer's share of insurance contract liabilities 1,630 - 1,713
Property, plant and equipment - 8 -
Cash and cash equivalents 51 68 -
Other assets 3 59 -
1,861 365 1,713
Liabilities classified as held for sale:
Insurance contract liabilities 1,893 - 1,776
Deferred tax liabilities - 27 -
Payables related to direct insurance contracts 1 - -
Provisions - 23 -
Other liabilities 1 61 -
1,895 111 1,776
3.3 Annuity liabilities transfer
On 31 July 2014, the Group entered into a reinsurance agreement, effective from 1 January 2014 to reinsure certain
portfolios of the Group's annuity liabilities to Guardian in exchange for the transfer of financial assets of £1.7 billion.
The annuity in-payment liabilities are currently held in the Group's with-profit funds. It is highly probable that the
reinsurance agreement will be replaced by a formal scheme under Part VII of the Financial Services and Market Act 2000 to
transfer the annuity liabilities to Guardian. Management's expectations are that the necessary approvals will be in place
during the second half of 2016. Both parties remain committed to fulfilling their contractual obligations in relation to
the Part VII. Accordingly the assets and liabilities to be transferred have been classified as held for sale.
Liabilities classified as held for sale include the annuity liabilities reinsured to Guardian and directly attributable
expense reserves where they will be extinguished at the time of transfer. Assets classified as held for sale include the
associated reinsurers' share of insurance contract liabilities.
Under the terms of this reinsurance agreement Guardian holds assets in a collateral account over which the Group has a
fixed charge.
3.4 scottish mutual international ('SMI')
On 29 June 2015, the Group and Harcourt Life Assurance Company Limited ('HLAC'), a subsidiary of Life Company Consolidation
Group, signed a disposal agreement under which HLAC agreed to acquire the entire issued share capital of SMI in return for
gross cash consideration of £14 million and a pre-completion return of capital by SMI. Assets and liabilities classified as
held for sale are £231 million and £204 million respectively, excluding £12 million of recoverables under an intercompany
reinsurance agreement that is eliminated on consolidation. Subject to the satisfaction of certain conditions the disposal
is expected to be completed by the end of the year.
4. Segmental analysis
The Group defines and presents operating segments based on the information which is provided to the Board.
An operating segment is a component of the Group that engages in business activities from which it may earn revenues and
incur expenses, including revenues and expenses relating to transactions with other components of the Group.
For management purposes, the Group is organised into business units based on their products and services and had only the
Phoenix Life operating segment during the reporting period. In the comparative period, the Group had two operating segments
as follows:
- Phoenix Life - this segment manages a range of whole life, term assurance and pension products; and
- Ignis - this segment provides investment management services to the life companies within the Group and to third
parties, covering both retail and institutional investors. This segment was disposed of effective 1 July 2014 (see note
3.1).
Segment performance is evaluated based on profit or loss which, in certain respects, is presented differently from profit
or loss in the consolidated financial statements. Group financing (including finance costs) and owners' taxes are managed
on a Group basis and are not allocated to individual operating segments.
Inter-segment transactions are set on an arm's length basis in a manner similar to transactions with third parties. Segment
results include those transfers between business segments which are then eliminated on consolidation.
4.1 Segmental result
Half year ended 30 June 2015
Phoenix Life £m Unallocated Group £m Total £m
Net premiums written 387 - 387
Fees 47 - 47
Net investment income 364 8 372
Other operating income 4 - 4
Net income 802 8 810
Net policyholder claims and benefits incurred (277) - (277)
Impairment and amortisation:
Amortisation of acquired in-force business (45) - (45)
Amortisation of customer relationships (7) - (7)
(52) - (52)
Other operating expenses:
Recurring (348) (17) (365)
Non-recurring 2 (1) 1
(346) (18) (364)
Total operating expenses (675) (18) (693)
Profit/(loss) before finance costs and tax 127 (10) 117
Finance costs (20) (49) (69)
Profit/(loss) before tax 107 (59) 48
Tax attributable to policyholders' returns 31 - 31
Segmental result before the tax attributable to owners 138 (59) 79
Half year ended 30 June 2014
Phoenix Life £m Ignis £m Unallocated Group £m Eliminations £m Discontinued operationseliminations £m Total £m
Net premiums written from:
External customers 482 - - - - 482
Fees from:
External customers 50 26 - - (26) 50
Other segment - 38 - (38) - -
50 64 - (38) (26) 50
Net investment income:
Recurring 2,044 - 6 - - 2,050
Non-recurring - (6) 2 - 6 2
2,044 (6) 8 - 6 2,052
Other operating income:
Recurring 5 - - - - 5
Gain on transfer of business:
Non-recurring - - 4 - - 4
Net income 2,581 58 12 (38) (20) 2,593
Net policyholder claims and benefits incurred:
Recurring (1,730) - - - - (1,730)
Impairment and amortisation:
Amortisation of acquired in-force business (53) - - - - (53)
Amortisation of customer relationships (7) - - - - (7)
(60) - - - - (60)
Other operating expenses:
Recurring (464) (47) (14) 38 47 (440)
Non-recurring
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