REG - Phoenix Grp Hldgs - 2017 Interim Results <Origin Href="QuoteRef">PHNX.L</Origin> - Part 3
24/08/2017 07:06
- Part 3: For the preceding part double click ID:nRSX8386Ob
Total comprehensive (expense)/income for the period (52) 241 118
Attributable to:
Owners of the parent (52) 240 117
Non-controlling interests - 1 1
(52) 241 118
PRO FORMA RECONCILIATION OF GROUP OPERATING PROFIT TO RESULT ATTRIBUTABLE TO
OWNERS
For the half year ended 30 June 2017
Notes Half year ended 30 June 2017 Half year ended 30 June 2016 Year ended 31 Dec 2016
£m £m £m
Operating profit
Phoenix Life 226 108 357
Group costs (11) (1) (6)
Total operating profit 215 107 351
Investment return variances and economic assumption changes on long-term business 5.2 (56) (147) (207)
Variance on owners' funds 5.3 (77) 130 (5)
Amortisation on acquired in-force business (42) (33) (68)
Amortisation of other intangibles (8) (7) (14)
Other non-operating items 4.2 (82) (14) (95)
(Loss)/profit before finance costs attributable to owners (50) 36 (38)
Finance costs attributable to owners (51) (46) (90)
Loss before tax attributable to owners 4.2 (101) (10) (128)
Tax credit attributable to owners 5 13 28
(Loss)/profit for the period attributable to owners (96) 3 (100)
CONDENSED STATEMENT OF CONSOLIDATED FINANCIAL POSITION
As at 30 June 2017
Notes 30 June 2017 30 June 2016 31 Dec 2016
£m £m £m
EQUITY AND LIABILITIES
Equity attributable to owners of the parent
Share capital 9 - - -
Share premium 1,550 991 1,643
Shares held by employee benefit trust (2) (3) (7)
Foreign currency translation reserve 96 96 96
Owner-occupied property revaluation reserve 5 4 4
Retained earnings 1,539 1,718 1,597
Total equity attributable to owners of the parent 3,188 2,806 3,333
Liabilities
Pension scheme liability 10 658 - 680
Insurance contract liabilities
Liabilities under insurance contracts 11 44,831 42,642 45,807
Unallocated surplus 956 845 879
45,787 43,487 46,686
Financial liabilities
Investment contracts 27,392 7,867 27,332
Borrowings 12 2,011 1,748 2,036
Deposits received from reinsurers 374 414 392
Derivatives 1,425 1,780 1,567
Net asset value attributable to unitholders 1,083 6,499 1,040
Obligations for repayment of collateral received 1,522 2,064 1,623
13 33,807 20,372 33,990
Provisions 140 41 109
Deferred tax 366 355 378
Reinsurance payables 20 18 21
Payables related to direct insurance contracts 541 367 484
Current tax 25 17 12
Accruals and deferred income 160 146 204
Other payables 494 717 102
Liabilities classified as held for sale 3.2 - 1,671 -
Total liabilities 81,998 67,191 82,666
Total equity and liabilities 85,186 69,997 85,999
Notes 30 June 2017 30 June 2016 31 Dec 2016
£m £m £m
ASSETS
Pension scheme asset 10 280 763 225
Intangible assets
Goodwill 57 39 57
Acquired in-force business 1,361 1,227 1,407
Other intangibles 211 207 214
1,629 1,473 1,678
Property, plant and equipment 28 19 25
Investment property 650 596 646
Financial assets
Loans and receivables 1,327 928 1,232
Derivatives 2,608 3,881 3,003
Equities 17,816 12,322 17,759
Investment in associate 573 458 525
Fixed and variable rate income securities 29,253 34,028 29,290
Collective investment schemes 17,964 3,312 18,432
Reinsurers' share of investment contract liabilities 6,606 - 6,808
13 76,147 54,929 77,049
Insurance assets
Reinsurers' share of insurance contract liabilities 3,588 3,928 3,744
Reinsurance receivables 33 29 37
Insurance contract receivables 8 6 11
3,629 3,963 3,792
Current tax 36 2 44
Prepayments and accrued income 360 369 361
Other receivables 659 663 513
Cash and cash equivalents 1,768 5,621 1,666
Assets classified as held for sale 3.2 - 1,599 -
Total assets 85,186 69,997 85,999
CONDENSED STATEMENT OF CONSOLIDATED
CASH FLOWS
For the half year ended 30 June 2017
Notes Half year ended 30 June 2017 Half year ended 30 June 2016 Year ended 31 Dec 2016
£m £m £m
Cash flows from operating activities
Cash generated/(utilised) by operations 14 276 1,601 (1,845)
Taxation paid (13) (4) (52)
Net cash flows from operating activities 263 1,597 (1,897)
Cash flows from investing activities
Acquisition of AXA subsidiaries, net of cash acquired - - (343)
Acquisition of Abbey Life subsidiaries, net of cash acquired - - (886)
Net cash flows from investing activities - - (1,229)
Cash flows from financing activities
Proceeds from issuing ordinary shares, net of associated commission and expenses 1 190 908
Ordinary share dividends paid 8 (94) (60) (126)
Coupon paid on Perpetual Reset Capital Securities - (1) (1)
Cash settlement of Perpetual Reset Capital Securities - (6) (6)
Fees associated with the amendment of existing bank facility - (3) (3)
Repayment of policyholder borrowings (14) (13) (38)
Repayment of shareholder borrowings (503) - (882)
Proceeds from new shareholder borrowings, net of associated expenses 446 - 1,079
Proceeds from sale of internal holding in £428 million subordinated notes 32 - -
Interest paid on policyholder borrowings - - (6)
Interest paid on shareholder borrowings (29) (23) (73)
Net cash flows from financing activities (161) 84 852
Net increase/(decrease) in cash and cash equivalents 102 1,681 (2,274)
Cash and cash equivalents at the beginning of the period 1,666 3,940 3,940
Cash and cash equivalents at the end of the period 1,768 5,621 1,666
CONDENSED STATEMENT OF CONSOLIDATED CHANGES IN EQUITY
For the half year ended 30 June 2017
Share Share premium Shares held Foreign currency translation reserve Owner-occupied property revaluation reserve Retained earnings Total
capital £m by employee benefit trust £m £m £m £m
(note 9) £m
£m
At 1 January 2017 - 1,643 (7) 96 4 1,597 3,333
Loss for the period - - - - - (96) (96)
Other comprehensive income for the period - - - - 1 43 44
Total comprehensive income for the period - - - - 1 (53) (52)
Issue of ordinary share capital, net of associated commissions and expenses - 1 - - - - 1
Dividends paid on ordinary shares - (94) - - - - (94)
Credit to equity for equity-settled - - - - - 4 4
share-based payments
Shares distributed by employee benefit trust - - 9 - - (9) -
Shares acquired by the employee benefit trust - - (4) - - - (4)
At 30 June 2017 - 1,550 (2) 96 5 1,539 3,188
CONDENSED STATEMENT OF CONSOLIDATED CHANGES IN EQUITY
For the half year ended 30 June 2016
Share Share premium Shares held Foreign currency translation reserve Owner-occupied property revaluation reserve Retained earnings Total Non-controlling interests Total
capital £m by employee benefit trust £m £m £m £m £m £m
(note 9) £m
£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, - 190 - - - - 190 - 190
net of associated commissions and expenses
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 year ended 31 December 2016
Share Share premium Shares held by employee benefit trust Foreign currency translation reserve Owner-occupied property revaluation reserve Retained earnings Total Non- controlling interests Total
capital £m £m £m £m £m £m £m £m
(note 9)
£m
At 1 January 2016 - 861 (5) 96 4 1,478 2,434 570 3,004
(Loss)/Profit for the period - - - - (101) (101) 1 (100)
Other comprehensive income for the period - - - - - 218 218 - 218
Total comprehensive income for the period - - - - - 117 117 1 118
Issue of ordinary share capital, net of associated commissions and expenses - 908 - - - - 908 - 908
Dividends paid on ordinary shares - (126) - - - - (126) - (126)
Coupon paid to non-controlling interests, net of tax relief - - - - - - - (1) (1)
Credit to equity for equity-settled share based payments - - - - - 7 7 - 7
Redemption of non-controlling interests - - - - - - - (6) (6)
Elimination of non-controlling interest following loss of control - - - - - - - (564) (564)
Shares distributed by employee benefit trust - - 5 - - (5) - - -
Shares acquired by employee benefit trust - - (7) - - - (7) - (7)
At 31 December 2016 - 1,643 (7) 96 4 1,597 3,333 - 3,333
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 2017 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 22 to
54 and were authorised by the Board of Directors for issue on 23 August 2017.
The interim financial statements are unaudited but have been reviewed by the
auditors, Ernst & Young LLP and their review report appears on page 21.
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 2016
consolidated financial statements except for the adoption of new standards and
interpretations effective from 1 January 2017 as referred to below.
The interim financial statements do not include all the information and
disclosures required in the 2016 consolidated financial statements, and should
be read in conjunction with the Group's 2016 Annual Report and Accounts, which
have been prepared in accordance with International Financial Reporting
Standards as issued by the IASB.
In preparing the interim financial statements the Group has adopted the
following standards, interpretations and amendments effective from 1 January
2017:
- Amendments to IAS 7 Statement of Cash Flows: Disclosure Initiative
The amendments require entities to provide disclosures about changes in their
liabilities arising from financing activities, including both changes arising
from cash flows and non-cash changes (such as foreign exchange gains or
losses). On initial application of the amendment, entities are not required to
provide comparative information for preceding periods. The Group is not
required to provide additional disclosures in its condensed interim
consolidated financial statements, but will disclose additional information in
its annual consolidated financial statements for the year ended 31 December
2017 where applicable.
- Amendments to IAS 12 Income Taxes: Recognition of Deferred Tax Assets
for Unrecognised Losses
These amendments clarify that an entity needs to consider whether tax law
restricts the sources of taxable profits against which it may make deductions
on the reversal of that deductible temporary difference. Furthermore, the
amendments provide guidance on how an entity should determine future taxable
profits and explain the circumstances in which taxable profit may include the
recovery of some assets for more than their carrying amount. There is no
impact on the Group of applying these amendments.
- Annual Improvements Cycle - 2014-2016: Amendments to IFRS 12 Disclosure
of Interests in Other Entities: Clarification of the scope of disclosure
requirements in IFRS 12
The amendments clarify that the disclosure requirements in IFRS 12, other than
those in paragraphs B10-B16, apply to an entity's interest in a subsidiary, a
joint venture or an associate (or a portion of its interest in a joint venture
or an associate) that is classified (or included in a disposal group that is
classified) as held for sale. There is no impact on the Group of applying
these amendments.
The Group has not early adopted any other standard, interpretation or
amendment that has been issued but is not yet effective. Since the 2016
consolidated financial statements were issued, the Group has completed a high
level assessment of the impact of IFRS 15 Revenue from Contracts with
Customers on the Group. IFRS 15 establishes a single comprehensive framework
for determining whether, how and when revenue is recognised. The standard does
not apply to insurance contracts or financial instruments within the scope of
IAS 39. Following the completion of the high level assessment, the Group
anticipates that the application of IFRS 15 in 2018 will have limited impact
on the measurement and presentation of amounts reported in the Group's
financial statements. Further detailed assessments are being performed in 2017
which will include an assessment of the impact of the disclosure requirements
of IFRS 15.
In May 2017, the IASB issued IFRS 17 Insurance Contracts which is effective
for periods beginning on or after 1 January 2021. The standard is expected to
significantly change the way the Group measures and reports its insurance
contracts. As a consequence, the Group has commenced a project to assess the
impact of the standard on the Group and its subsidiaries and to produce a
detailed implementation plan.
After making enquiries, the Directors consider it appropriate to adopt the
going concern basis in preparing these interim financial statements.
2. Accounting policies
The accounting policies adopted in the preparation of the interim financial
statements are consistent with those followed in the preparation of the 2016
consolidated financial statements.
3. ACQUISITIONS, ASSETS AND LIABILITIES HELD FOR SALE AND DISPOSALS
3.1 ACQUISITIONS AND DISPOSALS
3.1.1 ACQUISITION OF AXA BUSINESSES
On 1 November 2016, the Group acquired 100% of the issued share capital of AXA
Wealth Limited ('AWL'), AXA Wealth Services Limited, AXA Sun Life Direct
Limited, Winterthur Life UK Holdings Limited and AXA Trustee Services Limited
from AXA UK plc for a total cash consideration of £373 million. The fair
values of the identifiable assets acquired and liabilities assumed as at the
date of the acquisition were disclosed in the notes to the 2016 consolidated
financial statements.
3.1.2 ACQUISITION OF ABBEY LIFE
On 30 December 2016, the Group acquired 100% of the issued share capital of
Abbey Life Assurance Company Limited ('Abbey Life'), Abbey Life Trustee
Services Limited and Abbey Life Trust Securities Limited from Deutsche
Holdings No.4 Ltd (a wholly owned subsidiary of Deutsche Bank AG) for total
cash consideration of £933 million. The fair values of the identifiable assets
acquired and liabilities assumed as at the date of the acquisition were
disclosed in the notes to the 2016 consolidated financial statements.
3.1.3 DISPOSAL OF PEARL BREAKFAST UNIT TRUST
On 25 February 2016, the Group completed the sale of its entire interest in an
investment property joint venture which was held by 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. No gain or loss arose on this disposal.
3.1.4 LOSS OF CONTROL OF INVESTMENT IN 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 holding in the issued share capital of
UKCPT to 48.9%. The Group deems that it no longer controls its investment in
UKCPT as it no longer has a unilateral power of veto in general meetings and
also because the Group is restricted by the terms of the existing relationship
agreement it has with UKCPT. 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.
As at 30 June 2017, the Group held 47.9% (half year ended 30 June 2016: 48.9%;
year ended 31 December 2016: 47.9%) of the issued share capital of UKCPT.
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
2016 related to the Part VII transfer of a portfolio of annuity liabilities to
ReAssure Limited.
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 were held in the Group's with-profit funds.
On 30 December 2016, the reinsurance agreement was replaced by a formal scheme
under Part VII of the Financial Services and Market Act 2000 to transfer the
annuity liabilities to ReAssure Limited, a fellow subsidiary of ReAssure Life
Limited. Assets (Reinsurer's share of insurance contract liabilitities) and
liabilities (Liabilities under insurance contracts) classified as held for
sale as at 30 June 2016 were extinguished at the time of transfer.
Net liabilities of £70 million were transferred for consideration of £18
million resulting in a gain on transfer of the business of £52 million. As the
portfolio of annuities was previously held in unsupported with-profit funds,
the gain was offset by an equivalent increase in policyholder liabilities and
there was no net impact on the Group's result for the year ended 31 December
2016.
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. For reporting purposes, business units are
aggregated where they share similar economic characteristics including the
nature of products and services, types of customers and the nature of the
regulatory environment.
As such, Phoenix Life is considered to be the Group's only reportable segment,
which includes the Group's operating insurance entities.
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 2017
Phoenix Unallocated Group Total
Life £m £m
£m
Net premiums written 487 - 487
Fees 63 - 63
Net investment income 2,414 (20) 2,394
Other operating income 1 - 1
Net income 2,965 (20) 2,945
Net policyholder claims and benefits incurred (1,032) - (1,032)
Amortisation of acquired in-force business (46) - (46)
Amortisation of other intangibles (8) - (8)
(54) - (54)
Other expenses (1,802) (62) (1,864)
Total operating expenses (2,888) (62) (2,950)
Profit/(loss) before finance costs and tax 77 (82) (5)
Finance costs (25) (39) (64)
Profit/(loss) before tax 52 (121) (69)
Tax attributable to policyholders' returns (32) - (32)
Segmental result before the tax attributable to owners 20 (121) (101)
Half year ended 30 June 2016
Phoenix Unallocated Total
Life Group £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 acquired in-force business (38) - (38)
Amortisation of other intangibles (7) - (7)
(45) - (45)
Other expenses (517) (18) (535)
Total operating 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)
Year ended 31 December 2016
Phoenix Unallocated Total
Life Group £m
£m £m
Net premiums written 924 - 924
Fees 88 - 88
Net investment income 6,357 4 6,361
Gain on transfer of business 52 - 52
Other operating income 20 - 20
Net income 7,441 4 7,445
Net policyholder claims and benefits incurred (5,517) - (5,517)
Amortisation of acquired in-force business (76) - (76)
Amortisation of other intangibles (14) - (14)
(90) - (90)
Other expenses (1,680) (106) (1,786)
Total operating expenses (7,287) (106) (7,393)
Profit/(loss) before finance costs and tax 154 (102) 52
Finance costs (56) (66) (122)
Profit/(loss) before tax 98 (168) (70)
Tax attributable to policyholders' returns (58) - (58)
Segmental result before the tax attributable to owners 40 (168) (128)
4.2 RECONCILIATION OF OPERATING PROFIT/(LOSS) TO THE SEGMENTAL RESULT
Half year ended 30 June 2017
Phoenix Unallocated Total
Life Group £m
£m £m
Operating profit/(loss) 226 (11) 215
Investment return variances and economic assumption changes on long-term business (56) - (56)
Variance on owners' funds (61) (16) (77)
Amortisation of acquired in-force business (42) - (42)
Amortisation of other intangibles (8) - (8)
Other non-operating items (27) (55) (82)
Financing costs attributable to owners (12) (39) (51)
Segmental result before the tax attributable to owners 20 (121) (101)
Other non-operating items include:
- a premium of £25 million paid on redemption of £178 million principal
of the senior unsecured bond;
- costs of £18 million in respect of integration and restructuring of the
Abbey Life and AXA Wealth businesses;
- a provision of £28 million in respect of a commitment to the reduction
of ongoing charges for Workplace Pension products;
- an £8 million increase in the provision for costs for claims relating
to historic creditor insurance underwritten by a subsidiary of the Group,
PA(GI) Limited; and
- net other one-off items totalling a cost of £3 million, including
corporate project costs.
Half year ended 30 June 2016
Phoenix Unallocated Total
Life Group £m
£m £m
Operating profit/(loss) 108 (1)
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