REG - Phoenix Grp Hldgs - 2016 Interim Results <Origin Href="QuoteRef">PHNX.L</Origin> - Part 2
25/08/2016 07:07
- Part 2: For the preceding part double click ID:nRSY0803Ia
Group's capital position.
Adverse changes in experience versus actuarial assumptions. The Group has liabilities under annuities and other policies that are sensitive to future longevity, mortality and persistency The Group undertakes regular reviews of experience and annuitant survival checks to identify any variances in assumptions. The Group has also entered into reinsurance contracts to manage this risk within appetite. ¯Policyholder take-up of valuable guarantees expected to increase in a low interest rate environment.
rates. Changes in assumptions may lead to changes in the assessed level of liabilities to policyholders. The amount of
additional capital required to meet those liabilities could have a material adverse impact on the Group's results, financial
condition and prospects.
Significant counterparty failure. Assets held to meet obligations to policyholders include debt securities. Phoenix Life is exposed to deterioration in the actual The Group regularly monitors its counterparty exposure and has specific limits relating to individual holdings, counterparty credit rating, sector and geography. Where possible, exposures are diversified through the use of a range of counterparty providers. All material reinsurance and derivative positions are appropriately collateralised and guaranteed. «The Group continues to monitor counterparty exposures holistically across all counterparty obligations, both in respect of debt securities and trading.In some cases individual counterparty holdings have been adjusted to ensure the Group remains within risk appetite.
or perceived creditworthiness or default of issuers. An increase in credit spreads on debt securities, particularly if it is
accompanied by a higher level of actual or expected issuer defaults, could have a material adverse impact on the Group's
financial condition.The Group is also exposed to trading counterparties failing to meet all or part of their obligations, such
as reinsurers failing to meet obligations assumed under reinsurance arrangements or stock-borrowers failing to pay as required.
Changes in the regulatory and legislative landscape may impact the way that Phoenix Life engages with its customers. The move to the conduct-focused regulator has seen a continued move away from rules-based regulation with a greater focus on The Group puts considerable effort into managing relationships with its regulators so that it is able to maintain a forward view regarding potential changes to the regulatory landscape. The Group assesses the risks of regulatory change and the impact on our operations and lobbies where appropriate. «Phoenix has focused on activities identified following publication of the 'Fair Treatment of Customers in Closed Books' review to enhance our management of conduct risk.Phoenix is making the necessary preparations for the introduction of the proposed 1% cap on exit charges for those over 55 accessing pension freedoms and the secondary annuity market. The financial impacts of these are not expected to be material.
customer outcomes. This may challenge the existing approach and/or may result in remediation exercises.
The current assessment of the residual risk in respect of each of the Group's principal risks is illustrated in the chart
opposite.
The residual risk is the remaining risk after controls and mitigating actions have been taken into account.
The Group's senior management and Board also take emerging risks into account when considering potentially adverse outcomes
and appropriate management actions prior to the risk crystallising.
Some of the current emerging risks the Group considers are listed in the table below.
Risk Description Risk Universe Category
Title
Regulatory Thematic Reviews The unknown consequences and the potential impact, including retrospective activity, as a result of Thematic Reviews conducted by regulators. Customer
Voluntary Charges Cap The FCA has noted that they are seeking a 'voluntary solution' on paid up and exit charges for legacy products. Customer
Political Risk Unexpected changes in the legislative environment and the impacts on financial markets driven by the political agenda following the UK's decision to leave the European Union. Strategic
Tax Risk Changes announced in the Spring Budget propose limiting the credit that life companies can take for offsetting incurred losses against future profits from April 2017. Financial Soundness
Financials
In this section
Statement of Directors' responsibilities 16
Auditor's review report 17
Condensed consolidated interim financial statements 18
Notes to the condensed consolidated interim financial statements 26
Additional life company asset disclosures 51
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Board of Directors of Phoenix Group Holdings (as listed below) hereby declares that, to the best of its knowledge:
the condensed consolidated interim financial statements for the half year ended 30 June 2016, which have been prepared in
accordance with IAS 34 Interim Financial Reporting, gives a fair view of the assets, liabilities, financial position and
results of Phoenix Group Holdings and its consolidated subsidiaries taken as whole;
the Interim Report includes a fair view of the state of affairs of Phoenix Group Holdings and its consolidated subsidiaries
as at 30 June 2016 and for the financial half year to which the Interim Report relates, as required by DTR 4.2.7 of the
Disclosure and Transparency Rules. This includes a description of the important events that occurred during the first half
of the year and refers to the principal risks and uncertainties facing Phoenix Group Holdings and its consolidated
subsidiaries for the remaining six months of the year; and
the Interim Report includes, as required by DTR 4.2.8, a fair view of the information required on material transactions
with related parties and any material changes in related party transactions described in the last annual report.
CLIVE BANNISTER JAMES MCCONVILLE
Group Chief Executive Officer Group Finance Director
St Helier, Jersey
24 AUGUST 2016
PHOENIX GROUP HOLDINGS BOARD OF DIRECTORS
CHAIRMAN
Henry Staunton
EXECUTIVE DIRECTORS
Clive Bannister
James Mcconville
NON-EXECUTIVE DIRECTORS
René-Pierre Azria
Alastair Barbour
Ian Cormack
Isabel Hudson
Kory Sorenson
David Woods
AUDITOR'S REVIEW REPORT
To: The Board of Directors of Phoenix Group Holdings
INTRODUCTION
We have been engaged by the Company to review the condensed set of financial statements in the interim financial report for
the six months ended 30 June 2016 which comprises the condensed consolidated income statement, the condensed statement of
consolidated comprehensive income, the pro forma reconciliation of Group operating profit to result attributable to owners,
the condensed statement of consolidated financial position, the condensed statement of consolidated cash flows, the
condensed statement of consolidated changes in equity and the related notes on pages 26 to 50. We have read the other
information contained in the interim financial report and considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set of financial statements.
This report is made solely to the Company in accordance with guidance contained in International Standard on Review
Engagements 2410 (UK and Ireland) 'Review of Interim Financial Information Performed by the Independent Auditor of the
Entity' issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company, for our work, for this report, or for the conclusions we have formed.
DIRECTORS' RESPONSIBILITIES
The interim financial report is the responsibility of, and has been approved by, the Directors.
As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with International
Financial Reporting Standards ('IFRSs'). The condensed set of financial statements included in this interim financial
report has been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting'.
OUR RESPONSIBILITY
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the interim
financial report based on our review.
SCOPE
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board
for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons
responsible for financial and accounting matters, and applying analytical and other review procedures. A review is
substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland)
and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit opinion.
CONCLUSION
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial
statements in the interim financial report for the six months ended 30 June 2016 is not prepared, in all material respects,
in accordance with International Accounting Standard 34 and the Disclosure and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
Ernst & Young LLP
London
24 August 2016
CONDENSED CONSOLIDATED INCOME STATEMENT
For the half year ended 30 June 2016
Notes Half year ended Half year Year
30 Jun ended ended
2016 30 Jun 31 Dec
£m 2015 2015
£m £m
Gross premiums written 449 415 902
Less: premiums ceded to reinsurers (25) (28) (1,376)
Net premiums written 424 387 (474)
Fees 36 47 95
Net investment income 4,450 372 1,064
Total revenue, net of reinsurance payable 4,910 806 685
Other operating income 16 4 7
Net income 4,926 810 692
Policyholder claims (1,783) (1,851) (3,931)
Less: reinsurance recoveries 218 150 326
Change in insurance contract liabilities (2,727) 1,617 2,959
Change in reinsurers' share of insurance contract liabilities 36 (233) 1,003
Transfer from unallocated surplus 32 40 84
Net policyholder claims and benefits incurred (4,224) (277) 441
Change in investment contract liabilities (277) (126) (232)
Acquisition costs (3) (4) (7)
Change in present value of future profits (5) (4) (6)
Amortisation and impairment of acquired in-force business (38) (45) (148)
Amortisation of customer relationships (7) (7) (15)
Administrative expenses (225) (218) (430)
Net income attributable to unitholders (25) (12) (7)
Total operating expenses (4,804) (693) (404)
Profit before finance costs and tax 122 117 288
Finance costs (62) (69) (136)
Profit for the period before tax 60 48 152
Tax (charge)/credit attributable to policyholders' returns 6 (70) 31 33
(Loss)/profit before the tax attributable to owners (10) 79 185
Tax (charge)/credit 6 (57) 30 97
Add: tax attributable to policyholders' returns 6 70 (31) (33)
Tax credit/(charge) attributable to owners 6 13 (1) 64
Profit for the period attributable to owners 3 78 249
Attributable to:
Owners of the parent 2 51 201
Non-controlling interests 10 1 27 48
3 78 249
Earnings per share
Basic (pence per share) 7 0.2p 22.7p 89.8p
Diluted (pence per share) 7 0.2p 22.7p 89.6p
CONDENSED STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME
For the half year ended 30 June 2016
Notes Half year ended Half year Year
30 Jun ended ended
2016 30 Jun 31 Dec
£m 2015 2015
£m £m
Profit for the year 3 78 249
Other comprehensive income/(expense):
Items that are or may be reclassified to profit or loss:
Reclassification adjustments relating to foreign collective investment schemes disposed of in the period - (10) (10)
Items that will not be reclassified to profit or loss:
Owner-occupied property revaluation gains - - 4
Remeasurements of net defined benefit asset 239 (43) 11
Tax (charge)/credit relating to other comprehensive income items 6 (1) 1 (5)
Total other comprehensive income/(expense) for the period 238 (52) -
Total comprehensive income for the period 241 26 249
Attributable to:
Owners of the parent 240 (1) 201
Non-controlling interests 10 1 27 48
241 26 249
PRO FORMA RECONCILIATION OF GROUP OPERATING PROFIT TO RESULT ATTRIBUTABLE TO OWNERS
For the half year ended 30 June 2016
Notes Half year ended Half year ended Year
30 Jun 30 Jun ended
2016 2015 31 Dec
£m £m 2015
£m
Operating profit
Phoenix Life 108 141 336
Group costs (1) (6) (12)
Total operating profit before adjusting items 107 135 324
Investment return variances and economic assumption changes on long-term business 5.2 (147) 44 13
Variance on owners' funds 5.3 130 (4) (12)
Amortisation on acquired in-force business (33) (41) (75)
Amortisation of customer relationships (7) (7) (15)
Non-recurring items 4.2 (14) 1 49
Profit before finance costs attributable to owners 36 128 284
Finance costs attributable to owners (46) (49) (99)
(Loss)/profit before tax attributable to owners 4.2 (10) 79 185
Tax credit/(charge) attributable to owners 13 (1) 64
Profit for the period attributable to owners 3 78 249
CONDENSED STATEMENT OF CONSOLIDATED FINANCIAL POSITION
As at 30 June 2016
Notes 30 Jun 30 Jun 31 Dec
2016 2015 2015
£m £m £m
EQUITY AND LIABILITIES
Equity attributable to owners of the parent
Share capital 9 - - -
Share premium 991 921 861
Shares held by employee benefit trust (3) (5) (5)
Foreign currency translation reserve 96 93 96
Owner-occupied property revaluation reserve 4 - 4
Retained earnings 1,718 1,287 1,478
Total equity attributable to owners of the parent 2,806 2,296 2,434
Non-controlling interests 10 - 536 570
Total equity 2,806 2,832 3,004
Liabilities
Insurance contract liabilities
Liabilities under insurance contracts 12 42,642 41,184 39,983
Unallocated surplus 845 925 877
43,487 42,109 40,860
Financial liabilities
Investment contracts 7,867 8,250 7,905
Borrowings 13 1,748 2,108 1,998
Deposits received from reinsurers 414 385 378
Derivatives 1,780 1,700 1,360
Net asset value attributable to unitholders 6,499 5,218 5,120
Obligations for repayment of collateral received 2,064 818 725
14 20,372 18,479 17,486
Provisions 41 22 28
Deferred tax 355 331 354
Reinsurance payables 18 10 19
Payables related to direct insurance contracts 367 389 364
Current tax 17 58 7
Accruals and deferred income 146 146 128
Other payables 717 999 677
Liabilities classified as held for sale 3.2 1,671 1,895 1,587
Total liabilities 67,191 64,438 61,510
Total equity and liabilities 69,997 67,270 64,514
Notes 30 Jun 30 Jun 31 Dec
2016 2015 2015
£m £m £m
ASSETS
Pension scheme asset 11 763 396 506
Intangible assets
Goodwill 39 39 39
Acquired in-force business 1,227 1,368 1,265
Customer relationships 195 210 202
Present value of future profits 12 19 17
1,473 1,636 1,523
Property, plant and equipment 19 15 19
Investment property 596 1,817 1,942
Financial assets
Loans and receivables 928 454 577
Derivatives 3,881 1,660 1,498
Equities 12,322 12,765 12,351
Investment in associate 458 - -
Investment in joint venture - 138 -
Fixed and variable rate income securities 34,028 35,871 31,814
Collective investment schemes 3,312 3,668 3,826
14 54,929 54,556 50,066
Insurance assets
Reinsurers' share of insurance contract liabilities 3,928 2,601 3,954
Reinsurance receivables 29 32 29
Insurance contract receivables 6 9 9
3,963 2,642 3,992
Current tax 2 5 47
Prepayments and accrued income 369 402 335
Other receivables 663 695 474
Cash and cash equivalents 5,621 3,245 3,940
Assets classified as held for sale 3.2 1,599 1,861 1,670
Total assets 69,997 67,270 64,514
CONDENSED STATEMENT OF CONSOLIDATED CASH FLOWS
For the half year ended 30 June 2016
Notes Half year ended Half year ended Year
30 Jun 2016 30 Jun ended
£m 2015 31 Dec 2015
£m £m
Cash flows from operating activities
Cash generated/(utilised) by operations 15 1,601 (1,551) (576)
Taxation paid (4) (103) (110)
Net cash flows from operating activities 1,597 (1,654) (686)
Cash flows from financing activities
Proceeds from issuing ordinary shares, net of associated commission and expenses 190 2 2
Proceeds from issuing shares in subsidiaries to non-controlling interests - 10 35
Ordinary share dividends paid 8 (60) (60) (120)
Coupon paid on Perpetual Reset Capital Securities 10.1 (1) (20) (20)
Cash settlement of Perpetual Reset Capital Securities 10.1 (6) (3) (3)
Fees associated with the issuance of subordinated notes 13 - (3) (3)
Fees associated with the amendment of existing bank facility (3) - -
Dividends paid to non-controlling interests 10 - (11) (23)
Repayment of policyholder borrowings (13) (94) (118)
Repayment of shareholder borrowings - (60) (190)
Proceeds from new policyholder borrowings, net of associated expenses - 99 99
Interest paid on policyholder borrowings - (3) (15)
Interest paid on shareholder borrowings (23) (25) (85)
Net cash flows from financing activities 84 (168) (441)
Net increase/(decrease) in cash and cash equivalents 1,681 (1,822) (1,127)
Cash and cash equivalents at the beginning of the period 3,940 5,067 5,067
Cash and cash equivalents at the end of the period 5,621 3,245 3,940
CONDENSED STATEMENT OF CONSOLIDATED CHANGES IN EQUITY
For the half year ended 30 June 2016
Share capital (note 9) Share premium £m Shares Foreign currency translation reserve Owner-occupied property revaluation reserve Retained earnings £m Total Non- controlling interests (note 10) £m Total
£m held by employee benefit £m £m £m £m
trust
£m
At 1 January 2016 - 861 (5) 96 4 1,478 2,434 570 3,004
Profit for the period - - - - - 2 2 1 3
Other comprehensive income for the period - - - - - 238 238 - 238
Total comprehensive income for the period - - - - - 240 240 1 241
Issue of ordinary share capital, net of associated commissions and expenses - 190 - - - - 190 - 190
Dividends paid on ordinary shares - (60) - - - - (60) - (60)
Coupon paid to non-controlling interests, net of tax relief - - - - - - - (1) (1)
Credit to equity for equity-settled share-based payments - - - - - 2 2 - 2
Redemption of non-controlling interests - - - - - - - (6) (6)
Elimination of non-controlling interest following loss of control - - - - - - - (564) (564)
Shares distributed by employee benefit trust - - 2 - - (2) - - -
At 30 June 2016 - 991 (3) 96 4 1,718 2,806 - 2,806
CONDENSED STATEMENT OF CONSOLIDATED CHANGES IN EQUITY
For the half year ended 30 June 2015
Share Share premium £m Shares held by employee benefit Foreign currency translation reserve Retained earnings Total Non- controlling interests (note 10) Total
capital trust £m £m £m £m £m
(note 9) £m
£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
Share Share premium Shares held by employee benefit Foreign currency translation reserve Owner-occupied property revaluation reserve Retained earnings Total Non- controlling interests (note 10) Total
capital £m trust £m £m £m £m £m £m
(note 9) £m
£m
At 1 January 2015 - 979 (8) 103 - 1,291 2,365 913 3,278
Profit for the period - - - 3 - 198 201 48 249
Other comprehensive (expense)/income for the period - - - (10) 4 6 - - -
Total
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