REG - Phoenix Grp Hldgs - 2016 Interim Results <Origin Href="QuoteRef">PHNX.L</Origin> - Part 3
25/08/2016 07:07
- Part 3: For the preceding part double click ID:nRSY0803Ib
comprehensive (expense)/income for the period - - - (7) 4 204 201 48 249
Issue of ordinary share capital, net of associated commissions and expenses - 2 - - - - 2 - 2
Dividends paid on ordinary shares - (120) - - - - (120) - (120)
Dividends paid to non-controlling interests - - - - - - - (23) (23)
Coupon paid to non-controlling interests, net of tax relief - - - - - - - (15) (15)
Credit to equity for equity-settled share-based payments - - - - - 4 4 - 4
Shares subscribed for by non-controlling interests - - - - - - - 35 35
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 - - 9 - - (9) - - -
Shares acquired by employee benefit trust - - (6) - - - (6) - (6)
At 31 December 2015 - 861 (5) 96 4 1,478 2,434 570 3,004
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 2016 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 18 to 50 and were authorised by the Board of Directors for issue
on 24 August 2016. The interim financial statements are unaudited but have been reviewed by the auditors, Ernst & Young LLP
and their review report appears on page 17.
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 2015 consolidated financial statements except for the adoption of new standards and
interpretations effective from 1 January 2016 as referred to below.
The interim financial statements do not include all the information and disclosures required in the 2015 consolidated
financial statements, and should be read in conjunction with the Group's 2015 Annual Report and Accounts.
In preparing the interim financial statements the Group has adopted the following standards, interpretations and amendments
effective from 1 January 2016:
· Annual Improvements to IFRS 2012 - 2014 cycle;
· Disclosure initiative (amendments to IAS 1); and
· Clarification of acceptable methods of depreciation and amortisation (amendments to IAS 16 and IAS 38).
These standards, interpretations or amendments that have been applied for the first time in 2016 do not impact the 2016
interim financial statements, and are not expected to have a significant impact on the 2016 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. ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS
The accounting policies adopted in the preparation of the interim financial statements are consistent with those followed
in the preparation of the 2015 consolidated financial statements.
As a result of the deconsolidation of the UK Commercial Property Trust Limited and the subsequent recognition of the
Group's remaining interest in the structure as an associate during the period (see note 3.2.4), the Group accounting policy
for associates is as noted below:
Investments in associates that are held for investment purposes are accounted for under IAS 39 Financial Instruments:
Recognition and Measurement as permitted by IAS 28 Investments in Associates and Joint Ventures. These are measured at fair
value through profit or loss. There are no investments in associates which are of a strategic nature.
The preparation of the interim financial statements requires management to make judgements, estimates and assumptions that
affect the application of policies and reported amounts of assets and liabilities, income and expenses. Following the
implementation of the Solvency II regulatory regime effective from 1 January 2016, the Group has made certain changes to
the assumptions and estimates used in the valuation of insurance contracts. Further details of the changes are included in
note 12.3.
3. ACQUISITIONS, ASSETS AND LIABILITIES HELD FOR SALE AND DISPOSALS
3.1 ACQUISITIONS
On 27 May 2016, the Group announced that Pearl Life Holdings Limited, a subsidiary undertaking of the Group, had entered
into conditional agreements with AXA UK plc to acquire AXA Wealth's pensions and protection businesses. Cash consideration
of £375 million (net of adjustment for expected items as at completion) will be payable on completion and will be funded
through a combination of the net proceeds of an equity placing (see note 9) and a new short-term debt facility (see note
13).
Completion is expected to occur in the fourth quarter of 2016, subject to regulatory approvals.
3.2 ASSETS AND LIABILITIES OF OPERATIONS CLASSIFIED AS HELD FOR SALE AND DISPOSALS
The balances transferred to assets and liabilities classified as held for sale in the condensed statement of consolidated
financial position as at 30 June 2016 relate to the anticipated Part VII transfer of a portfolio of annuity liabilities to
ReAssure Limited (see note 3.2.1). The balances as at 30 June 2015 related to the anticipated Part VII transfer and the
agreement to sell Scottish Mutual International (see note 3.2.2). The balances as at 31 December 2015 related to the
anticipated Part VII transfer and the agreement to sell the Group's interest in an investment property joint venture held
by Pearl Breakfast Unit Trust (see note 3.2.3).
Details of the loss of control of UK Commercial Property Trust Limited and the disposal of Castle Hill Credit Opportunities
Holdings Limited are included in notes 3.2.4 and 3.2.5 respectively.
Carrying amount Carrying amount Carrying amount
30 Jun 30 Jun 31 Dec
2016 2015 2015
£m £m £m
Assets classified as held for sale:
Financial assets - 177 -
Reinsurer's share of insurance contract liabilities 1,599 1,630 1,521
Investment in joint venture - - 149
Cash and cash equivalents - 51 -
Other assets - 3 -
1,599 1,861 1,670
Liabilities classified as held for sale:
Liabilities under insurance contracts 1,671 1,893 1,587
Payables related to direct insurance contracts - 1 -
Other liabilities - 1 -
1,671 1,895 1,587
3.2.1 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 ReAssure Life Limited (formerly Guardian Assurance Limited) 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 Markets Act 2000 to transfer the annuity liabilities to ReAssure Limited, a fellow subsidiary
of ReAssure Life Limited. Management's expectations are that the necessary approvals will be in place by the end of 2016
and all parties remain committed to completing 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 ReAssure Life Limited and directly
attributable expense reserves where they will be extinguished at the time of transfer. Assets classified as held for sale
include the associated reinsurer's share of insurance contract liabilities.
Under the terms of this reinsurance agreement, ReAssure Life Limited holds assets in a collateral account over which the
Group has a fixed charge.
3.2.2 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. Assets and
liabilities of SMI were classified as held for sale as at 30 June 2015.
On 2 December 2015, the Group completed the sale for gross consideration of £14 million following a pre-completion capital
reduction. The carrying value of the net assets transferred was £1 million, which excluded £11 million of recoverables
under an intercompany reinsurance agreement that was previously eliminated on consolidation. Transaction costs were £2
million and no profit or loss was recognised on disposal.
3.2.3 PEARL BREAKFAST UNIT TRUST
On 25 February 2016, the Group completed the sale of its entire interest in the Pearl Breakfast Unit Trust. The units in
the Pearl Breakfast Unit Trust were sold to Tesco Property Holdings (No.2) Limited and Tesco Property Holdings Limited. As
part of the sale agreement Tesco plc also purchased the Group's investment in Tesco Property Partner (GP) Limited.
3.2.4 UK COMMERCIAL PROPERTY TRUST LIMITED ('UKCPT')
In February 2016, the Group reduced its holding in the issued share capital of UKCPT to 48.9%. The Group deems that it no
longer exercises control over UKCPT. The reduction in its ownership percentage below 50% coupled with the existence of a
relationship agreement and a lack of representation on the Board has removed the Group's unilateral power of veto in
general meetings and has placed additional restrictions on the ability of the Group to exercise control. Consequently,
UKCPT has been deconsolidated from the date of this loss of control. No gain or loss arose on this effective disposal. The
Group's investment in UKCPT is now treated as an associate and held at fair value.
The Group's remaining interest in UKCPT continues to be held in the with-profit funds of the Group's life companies.
Therefore, the shareholder exposure to fair value movements in the Group's investment in UKCPT continues to be limited to
the impact of those movements on the shareholder share of distributed profits of the relevant fund.
Net assets disposed of were as follows:
Carrying amount on the date of loss of control
£m
Cash received 2
Fair value of associate retained 498
Change in insurance contract liabilities 64
Less: Group's share of net assets at the date of loss of control
Investment property (1,308)
Collective investment schemes (51)
Other receivables (15)
Cash and cash equivalents (30)
Borrowings 248
Derivative liabilities 3
Other payables 25
Non-controlling interest 564
Profit recognised on loss of control -
3.2.5 CASTLE HILL CREDIT OPPORTUNITIES Holdings LIMITED ('CHCOHL')
During the second half of 2015, the Group completed the disposal of its entire investment in the sterling (class A) loan
notes of CHCOHL. No gain or loss arose on the disposal of the investment as the net assets of the structure were carried at
fair value in the consolidated financial statements.
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 only had the
Phoenix Life operating segment during the reporting period.
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 2016
Phoenix Unallocated Group Total
Life £m £m
£m
Net premiums written 424 - 424
Fees 36 - 36
Net investment income 4,413 37 4,450
Other operating income 16 - 16
Net income 4,889 37 4,926
Net policyholder claims and benefits incurred (4,224) - (4,224)
Amortisation:
Amortisation of acquired in-force business (38) - (38)
Amortisation of customer relationships (7) - (7)
(45) - (45)
Other expenses (517) (18) (535)
Total expenses (4,786) (18) (4,804)
Profit before finance costs and tax 103 19 122
Finance costs (28) (34) (62)
Profit/(loss) before tax 75 (15) 60
Tax attributable to policyholders' returns (70) - (70)
Segmental result before the tax attributable to owners 5 (15) (10)
Half year ended 30 June 2015
Phoenix Unallocated Group Total
Life £m £m
£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)
Amortisation:
Amortisation of acquired in-force business (45) - (45)
Amortisation of customer relationships (7) - (7)
(52) - (52)
Other expenses (346) (18) (364)
Total expenses (675) (18) (693)
Profit/(loss) before finance costs and tax 127 (10) 117
Finance costs (32) (37) (69)
Profit/(loss) before tax 95 (47) 48
Tax attributable to policyholders' returns 31 - 31
Segmental result before the tax attributable to owners 126 (47) 79
Year ended 31 December 2015
Phoenix Unallocated Group Total
Life £m £m
£m
Net premiums written (474) - (474)
Fees 95 - 95
Net investment income 1,048 16 1,064
Other operating income 7 - 7
Net income 676 16 692
Net policyholder claims and benefits incurred 441 - 441
Amortisation and impairment:
Amortisation and impairment of acquired in-force business (148) - (148)
Amortisation of customer relationships (15) - (15)
(163) - (163)
Other expenses (651) (31) (682)
Total operating expenses (373) (31) (404)
Profit/(loss) before finance costs and tax 303 (15) 288
Finance costs (60) (76) (136)
Profit/(loss) before tax 243 (91) 152
Tax attributable to policyholders' returns 33 - 33
Segmental result before the tax attributable to owners 276 (91) 185
4.2 RECONCILIATION OF OPERATING PROFIT/(LOSS) BEFORE ADJUSTING ITEMS TO THE SEGMENTAL RESULT
Half year ended 30 June 2016
Phoenix Unallocated Group Total
Life £m £m
£m
Operating profit/(loss) before adjusting items 108 (1) 107
Investment return variances and economic assumption changes on long-term business (147) - (147)
Variance on owners' funds 102 28 130
Amortisation of acquired in-force business (33) - (33)
Amortisation of customer relationships (7) - (7)
Non-recurring items (6) (8) (14)
Finance costs attributable to owners (12) (34) (46)
Segment result before the tax attributable to owners 5 (15) (10)
Non-recurring items include:
a gain of £14 million arising as a result of a premium adjustment on the reassurance arrangement with RGA International
following completion of a data review;
positive impact of pension increase exchange exercise of £3 million in respect of PGL Pension Scheme (see note 11);
the costs of providing for claims relating to creditor insurance underwritten prior to 2016 by a subsidiary of the Group,
PA(GI) Limited, of £16 million;
corporate project costs of £12 million; and
net other one-off items totalling a cost of £3 million.
Half year ended 30 June 2015
Phoenix Unallocated Total
Life Group £m
£m £m
Operating profit/(loss) before adjusting items 141 (6) 135
Investment return variances and economic assumption changes on long-term business 44 - 44
Variance on owners' funds (1) (3) (4)
Amortisation of acquired in-force business (41) - (41)
Amortisation of customer relationships (7) - (7)
Non-recurring items 2 (1) 1
Finance costs attributable to owners (12) (37) (49)
Segment result before the tax attributable to owners 126 (47) 79
Non-recurring items include:
the release of cost provisions associated with external regulatory changes, including the cap on workplace pension charges
and the pension guidance levy of £11 million;
corporate project costs of £8 million; and
net other one-off items totalling a cost of £2 million.
Year ended 31 December 2015
Phoenix Unallocated Total
Life Group £m
£m £m
Operating profit/(loss) before adjusting items 336 (12) 324
Investment return variances and economic assumption changes on long-term business 13 - 13
Variance on owners' funds (7) (5) (12)
Amortisation of acquired in-force business (75) - (75)
Amortisation of customer relationships (15) - (15)
Non-recurring items 47 2 49
Finance costs attributable to owners (23) (76) (99)
Segment result before the tax attributable to owners 276 (91) 185
Non-recurring items include:
gain of £49 million (net of £64 million impairment of associated acquired in-force business) arising as a result of the
reassurance arrangement entered into with RGA International;
release of provisions associated with external regulatory changes, including the cap on workplace pension charges and the
pension guidance levy, of £17 million;
corporate project costs of £13 million; and
net other one-off items (including Solvency II implementation and systems transformation costs) totalling a cost of £4
million.
5. INVESTMENT RETURN VARIANCES AND ECONOMIC ASSUMPTION CHANGES
The long-term nature of much of the Group's operations means that, for internal performance management, the effects of
short-term economic volatility are treated as non-operating items. The Group focuses instead on an operating profit measure
that incorporates an expected return on investments supporting its long-term business. The methodology for the
determination of the expected investment return is explained below together with an analysis of investment return variances
and economic assumption changes recognised outside of operating profit.
5.1 CALCULATION OF THE LONG-TERM INVESTMENT RETURN
The expected return on investments for both owner and policyholder funds is based on opening economic assumptions applied
to the funds under management at the beginning of the reporting period. Expected investment return assumptions are derived
actively, based on risk-free yields at the start of each financial year. In line with changes made to align assumptions and
estimates used in the valuation of insurance contracts with the requirements of the Solvency II regime (see note 12.3), the
assumptions used in the calculation of the long-term investment return have also been updated.
From 1 January 2016, the long-term risk-free rate used as a basis for deriving the long-term investment return is set by
reference to the EIOPA swap curve plus 10bps (30 June 2015 and 31 December 2015: Annualised return on the FTSE UK gilt
index plus 10bps). A risk premium of 350bps is added to the risk-free yield for equities (30 June 2015 and 31 December
2015: 300bps), 250bps for properties (30 June 2015 and 31 December 2015: 200bps), 150bps for other fixed interest assets
(30 June 2015 and 31 December 2015: 100bps) and 50bps for gilts (30 June 2015 and 31 December 2015: nil). If the current
period long-term investment return had been calculated using a gilts plus 10bps reference rate adjusted for the relevant
risk premium (as used in prior periods), the impact on operating profit for the period would be negligible.
The principal assumptions underlying the calculation of the long-term investment return are:
Half year ended Half year ended Year
30 Jun 30 Jun ended
2016 2015 31 Dec
% % 2015
%
Equities 5.6 5.3 5.3
Properties 4.6 4.3 4.3
Gilts 2.6 2.3 2.3
Other fixed interest 3.6 3.3 3.3
5.2 LIFE ASSURANCE BUSINESS
Operating profit for life assurance business is based on expected investment returns on financial investments backing
owners' and policyholder funds over the reporting period, with consistent allowance for the corresponding expected
movements in liabilities. Operating profit includes the effect of variance in experience for non-economic items, for
example mortality, persistency and expenses, and the effect of changes in non-economic assumptions. Changes due to economic
items, for example market value movements and interest rate changes, which give rise to variances between actual and
expected investment returns, and the impact of changes in economic assumptions on liabilities, are disclosed separately
outside operating profit.
The movement in liabilities included in operating profit reflects both the change in liabilities due to the expected return
on investments and the impact of experience variances and assumption changes for non-economic items.
The effect of differences between actual and expected economic experience on liabilities, and changes to economic
assumptions used to value liabilities, are taken outside operating profit. For many types of long-term business, including
unit-linked and with-profit funds, movements in asset values are offset by corresponding changes in liabilities, limiting
the net impact on profit. For other long-term business the profit impact of economic volatility depends on the degree of
matching of assets and liabilities, and exposure to financial options and guarantees.
The investment variances and economic assumption changes excluded from the long-term business operating profit are as
follows:
Half year ended Half year Year
30 Jun ended ended
2016 30 Jun 31 Dec
£m 2015 2015
£m £m
Investment return variances and economic assumption changes on long-term business (147) 44 13
Negative investment return variances and economic assumption changes on long-term business of £147 million in the first
half of 2016 (half year ended 30 June 2015: positive £44 million; year ended 31 December 2015: positive £13 million)
resulted from the adverse impact of a fall in yields on the life funds. Offsetting impacts have arisen in the owners' funds
which hold interest rate hedging positions (see note 5.3). The investment return variances have also been adversely
impacted by losses arising on equity hedging positions held by life funds following equity market gains in the period.
Included in the negative variance is the minority share of the result of the consolidated UKCPT property investment
structure prior to its derecognition as a subsidiary in the period of £1 million (half year ended 30 June 2015: £26
million; year ended 31 December 2015: £46 million).
5.3 OWNERS' FUNDS
For non-long-term business including owners' funds, the total investment income, including fair value gains, is analysed
between a calculated longer-term return and short-term fluctuations.
The variances excluded from operating profit in relation to owners' funds are as follows:
Half year ended Half year Year
30 Jun ended ended
2016 30 Jun 31 Dec 2015
£m 2015 £m
£m
Variance on owners' funds of subsidiary undertakings 130 (4) (12)
The positive variance on owners' funds of subsidiary undertakings of £130 million (30 June 2015: negative £4 million; 31
December 2015: negative £12 million) is principally driven by fair value gains on interest rate hedging positions held by
the shareholder funds and holding companies. The majority of the gain reflects the impact of falling yields on interest
rate hedging positions undertaken to protect the Life Company capital positions.
6. TAX CHARGE/(CREDIT)
6.1 CURRENT PERIOD TAX CHARGE/(CREDIT)
Half year ended Half year Year
30 Jun ended ended
2016 30 Jun 31 Dec
£m 2015 2015
£m £m
Current tax:
UK corporation tax 63 7 11
Overseas tax - 6 8
63 13 19
Adjustment in respect of prior years (5) (10) (99)
Total current tax charge/(credit) 58 3 (80)
Deferred tax:
Origination and reversal of temporary differences (2) (33) 7
Change in the rate of UK corporation tax 1 - (24)
Total deferred tax credit (1) (33) (17)
Total tax charge/(credit) 57 (30) (97)
Attributable to:
- policyholders 70 (31) (33)
- owners (13) 1 (64)
Total tax charge/(credit) 57 (30) (97)
The Group, as a proxy for policyholders in the UK, is required to pay taxes on investment income and gains each year.
Accordingly, the tax credit or expense attributable to UK life assurance policyholder earnings is included in income tax
expense. The tax charge/(credit) attributable to policyholder earnings was £70 million (half year ended 30 June 2015: £(31)
million; year ended 31 December 2015: £(33) million).
6.2 TAX CHARGED/(CREDITED) TO OTHER COMPREHENSIVE INCOME
Half year ended Half year Year
30 Jun ended ended
2016 30 Jun 31 Dec 2015
£m 2015 £m
£m
Current tax credit on share schemes - - (1)
Deferred tax charge on defined benefit schemes 1 - 5
Deferred tax (credit)/charge on share schemes - (1) 1
Total tax charged/(credited) to other comprehensive income 1 (1) 5
6.3 RECONCILIATION OF TAX CHARGE/(CREDIT)
Half year ended Half year Year
30 Jun ended ended
2016 30 Jun 31 Dec 2015
£m 2015 £m
£m
Profit before tax 60 48 152
Policyholder tax (charge)/credit (70) 31 33
(Loss)/profit before the tax attributable to owners (10) 79 185
Tax charge at standard UK1 rate of 20% (30 June 2015: 20.25%; 31 December 2015: 20.25%) (2) 16 37
Non-taxable income and gains (6) (12) (13)
Disallowable expenses 7 3 6
Prior year tax (credit)/charge for shareholders (2) 5 (41)
Movement on acquired in-force amortisation at less than 20% (30 June 2015: 20.25%; 31 December 2015: 20.25%) - 1 15
Profits taxed at rates other than 20% (30 June 2015: 20.25%; 31 December 2015: 20.25%) (4) (10) (36)
Recognition of previously unrecognised deferred tax assets (7) (3) (6)
Deferred tax rate change 1 - (24)
Temporary differences not valued - - (1)
Other - 1 (1)
Owners' tax (credit)/charge (13) 1 (64)
Policyholder tax charge/(credit) 70 (31) (33)
Total tax charge/(credit) for the period 57 (30) (97)
1. The Phoenix Life operating segment operates predominately in the UK. The reconciliation of the tax charge/(credit)
has therefore been completed by reference to the standard rate of UK tax rather than by reference to the Jersey income tax
rate of 0% which is applicable to Phoenix Group Holdings.
The Finance Act 2014 set the rate of corporation tax at 20% from 1 April 2015. Finance (No.2) Act 2015 reduces the rate of
corporation tax to 19% from April 2017 and 18% from April 2020. Consequently, a blended rate of tax has been used for the
purposes of providing for deferred tax in these financial statements.
A further 1% reduction, to 17%, effective from April 2020 was announced in the 2016 Budget and will be introduced by future
legislation. The benefit to the Group's net assets arising from the further 1% reduction in the tax rate is estimated at £7
million in total and will be recognised when the legislation is substantively enacted.
Deferred income tax assets are recognised for tax losses carried forward only to the extent that realisation of the related
tax benefit is probable.
Half year Half year Year
ended ended ended
30 Jun 30 Jun 31 Dec
2016 2015 2015
£m £m £m
Deferred tax assets have not been recognised in respect of:
Tax losses carried forward 17 18 16
Provisions and other temporary differences - 6 4
Deferred tax assets not recognised on capital losses2 87 114 89
2 These can only be recognised against future capital gains and have no expiry date.
7. EARNINGS PER SHARE
The Group calculates its basic earnings per share based on the present shares in issue using the earnings attributable to
ordinary equity holders of the parent, divided by the weighted average number of ordinary shares in issue during the
period.
Diluted earnings per share are calculated based on the potential future shares in issue assuming the conversion of all
potentially dilutive ordinary shares. The weighted average number of ordinary shares in issue is adjusted to assume
conversion of dilutive share awards granted to employees and warrants.
7.1 BASIC EARNINGS PER SHARE
The result attributable to owners of the parent for the purposes of computing earnings per share has been calculated as set
out below. This is after adjusting for the result attributable to non-controlling interests.
Half year ended Half year Year
30 Jun ended ended
2016 30 Jun 31 Dec
£m 2015 2015
£m £m
Profit for the period 3 78 249
Share of result attributable to non-controlling interests (1) (27) (48)
Profit attributable to owners of the parent 2 51 201
The weighted average number of ordinary shares outstanding during the period is calculated as follows:
Half year ended Half year Year
30 Jun ended ended
2016 30 Jun 31 Dec
Number 2015 2015
million Number Number
million million
Issued ordinary shares at beginning of the period 225 225 225
Effect of ordinary shares issued 4 - -
Own shares held by employee benefit trust (1) (1) (1)
Weighted average number of ordinary shares 228 224 224
Basic earnings per share is as follows:
Half year Half year ended Year
ended 30 Jun ended
30 Jun 2015 31 Dec
2016 pence 2015
pence pence
Basic earnings per share 0.2 22.7 89.8
7.2 DILUTED EARNINGS PER SHARE
The result attributable to owners for the parent used in the calculation of diluted earnings per share is the same as that
used in the basic earnings per share calculation in note 7.1 above. The diluted weighted average number of ordinary shares
outstanding during the period is 229 million (half year ended 30 June 2015: 225 million; year ended 31 December 2015: 225
million). The Group's deferred bonus share schemes and sharesave share-based schemes increased the weighted average number
of shares on a diluted basis by 373,129 for the half year ended 30 June 2016 (half year ended 30 June 2015: 637,830; year
ended 31 December 2015: 490,276).
Diluted earnings per share is as follows:
Half year ended Half year Year
30 Jun ended ended
2016 30 Jun 31 Dec
pence 2015 2015
pence pence
Diluted earnings per share 0.2 22.7 89.6
The following instruments could potentially dilute basic earnings per share in the future but have not been included in the
diluted earnings per share figure because they did not have a dilutive effect for the periods presented due to the exercise
price of the warrants being significantly higher than the share price of the Company:
· 5 million warrants issued to certain entities providing finance to the Group on 2 September 2009.
8. DIVIDENDS ON ORDINARY SHARES
Half year ended Half year Year
30 Jun ended ended
2016 30 Jun 31 Dec
£m 2015 2015
£m £m
Dividend declared and paid 60 60 120
On 22 March 2016, the Board recommended a dividend of 26.7p per share in respect of the year ended 31 December 2015. The
dividend was approved at the Company's Annual General Meeting, which was held on 11 May 2016. The dividend amounted to £60
million and was paid on 13 May 2016.
9. SHARE CAPITAL
30 Jun 30 Jun 31 Dec
2016 2015 2015
£ £ £
Authorised:
410 million (30 June 2015: 410 million; 31 December 2015: 410 million) ordinary shares of E0.0001 each 31,750 31,750 31,750
Issued and fully paid:
248.1 million (30 June 2015: 225.3 million; 31 December 2015: 225.4 million) ordinary shares of E0.0001 each 20,219 18,457 18,463
Movements in share capital during the period:
Number £
Shares in issue at 1 January 2016 225,419,446 18,463
Placement of ordinary shares 22,542,000 1,748
Other ordinary shares issued in the period 103,528 8
Shares in issue at 30 June 2016 248,064,974 20,219
On 1 June 2016, the Group completed an equity placing of 22,542,000 new ordinary shares in association with the proposed
acquisition of AXA Wealth's pensions and protection business (see note 3.1), which raised gross proceeds of £194 million.
The proceeds from the equity placing, net of deduction of commissions and expenses, were £190 million.
During the year, the Company issued 103,528 shares at a total premium of £1 million in order to satisfy its obligation to
employees under the Group's sharesave schemes.
Number £
Shares in issue at 1 January 2015 225,090,284 18,439
Other ordinary shares issued in the period 256,156 18
Shares in issue at 30 June 2015 225,346,440 18,457
Other ordinary shares issued in the period 73,006 6
Shares in issue at 31 December 2015 225,419,446 18,463
During 2015, the Company issued 329,162 shares at a total premium of £2 million in order to satisfy its obligation to
employees under the Group's sharesave schemes.
10. NON-CONTROLLING INTERESTS
Perpetual UK Commercial Total
Reset Property £m
Capital Trust
Securities Limited
£m £m
At 1 January 2016 7 563 570
Profit for the period - 1 1
Coupons paid, net of tax relief (1) - (1)
Redemption of Notes (6) - (6)
Derecognition of non-controlling interest following loss of control - (564) (564)
At 30 June 2016 - - -
Perpetual UK Total
Reset Commercial £m
Capital Property
Securities Trust
£m Limited
£m
At 1 January 2015 408 505 913
Profit for the period 1 26 27
Dividends paid - (11) (11)
Coupons paid, net of tax relief (15) - (15)
Exchange of Notes for subordinated notes (388) - (388)
Shares in subsidiaries subscribed for by non-controlling interests - 10 10
At 30 June 2015 6 530 536
Profit for the period 1 20 21
Dividends paid - (12) (12)
Shares in subsidiaries subscribed for by non-controlling interests - 25 25
At 31 December 2015 7 563 570
10.1 PERPETUAL RESET CAPITAL SECURITIES
On 1 January 2010, Pearl Group Holdings (No.1) Limited ('PGH1') had in issue £500 million of Perpetual Reset Capital
Securities ('the Notes'). Following amendments made to the Notes during 2010, the aggregate amount payable on redemption of
the Notes was £425 million. On 23 January 2015, the Group exchanged 99% of the Notes for £428 million of new subordinated
notes, issued by PGH Capital Limited and £3 million of cash. £32 million of the new notes are held by Group Companies. The
exchange resulted in a loss of £12 million which was recognised in equity. On 23 January 2015, the coupon that was due on
the Notes was settled with the noteholders that exchanged their Notes. On 25 April 2015, the 2015 coupon was settled in
full with the remaining noteholders.
On 25 April 2016, the coupon that was due on the remaining Notes was settled and PGH1 redeemed the remaining £6 million of
Notes at par.
10.2 UK COMMERCIAL PROPERTY TRUST LIMITED ('UKCPT')
UKCPT is a property investment company which is domiciled in Guernsey and is admitted to the Official List of the UK
Listing Authority and to trading on the London Stock Exchange. In February 2016, the Group reduced its holdings to 48.9%
(half year ended 30 June 2015: 52%; year ended 31 December 2015: 50%) of the issued share capital of UKCPT. The Group
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