REG - Phoenix Grp Hldgs - Phoenix Group Holdings - 2014 Annual Results <Origin Href="QuoteRef">PHNX.L</Origin> - Part 18
18/03/2015 07:01
- Part 18: For the preceding part double click ID:nRSR7166Hq
movement in equity - Group MCEV
basis, Group MCEV analysis of earnings, Reconciliation of Group IFRS equity to MCEV net worth and related notes 1 to 7. The
Phoenix Group MCEV supplementary information has been prepared by the Directors of Phoenix Group Holdings ('the Group') in
accordance with the basis of preparation set out on pages 216 to 218.
DIRECTORS' RESPONSIBILITIES FOR THE PHOENIX GROUP MCEV SUPPLEMENTARY INFORMATION
The Directors are responsible for the preparation of the Phoenix Group MCEV supplementary information in accordance with
the basis of preparation set out on pages 216 to 218 and for such internal control as the Directors determine is necessary
to enable the preparation of supplementary information that is free from material misstatement, whether due to fraud or
error.
AUDITOR'S RESPONSIBILITY
Our responsibility is to express an opinion on the Phoenix Group MCEV supplementary information based on our audit. We
conducted our audit in accordance with International Standards on Auditing. Those standards require us to comply with
ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the Phoenix Group MCEV
supplementary information is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Phoenix Group
MCEV supplementary information. The procedures selected depend on the auditor's judgement, including the assessment of the
risks of material misstatement of the Phoenix Group MCEV supplementary information, whether due to fraud or error. In
making those risk assessments, we consider internal control relevant to the Group's preparation of the Phoenix Group MCEV
supplementary information in order to design audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the Group's internal control. An audit also includes evaluating
the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by the
Directors, as well as evaluating the overall presentation of the Phoenix Group MCEV supplementary information.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
opinion.
OPINION
In our opinion the Phoenix Group MCEV supplementary information, for the year ended 31 December 2014, has been prepared, in
all material respects, in accordance with the basis of preparation set out on pages 216 to 218.
BASIS OF ACCOUNTING AND RESTRICTION ON USE
Without modifying our opinion, we draw attention to pages 216 to 218 of the Phoenix Group MCEV supplementary information,
which describe the basis of preparation. The Phoenix Group MCEV supplementary information is prepared by Phoenix Group
Holdings in accordance with the basis of preparation set out on pages 216 to 218. As a result, the Phoenix Group MCEV
supplementary information may not be suitable for another purpose. This report, including the opinion, has been prepared
for and only for the Group's Directors as a body in accordance with our letter of engagement dated 1 August 2014 and for no
other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other
person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in
writing.
OTHER MATTER
We have reported separately on the IFRS consolidated financial statements of Phoenix Group Holdings for the year ended 31
December 2014. The information contained in the Phoenix Group MCEV supplementary information should be read in conjunction
with the consolidated financial statements prepared on an IFRS basis.
Ernst & Young LLP
London
17 March 2015
SUMMARISED CONSOLIDATED INCOME STATEMENT - GROUP MCEV BASIS
For the year ended 31 December 2014
2014 2013
£m £m
Life MCEV operating earnings 341 401
Management services operating profit 36 32
Ignis operating profit - discontinued operations 17 49
Group costs (28) (27)
Group MCEV operating earnings before tax 366 455
Economic variances on life business 54 138
Economic variances on non-life business (64) (48)
Other non-operating variances on life business (94) (35)
Non-recurring items on non-life business 317 (61)
Finance costs attributable to owners (90) (140)
Group MCEV earnings before tax 489 309
Tax on operating earnings (78) (105)
Tax on non-operating earnings - (42)
Total tax (78) (147)
Group MCEV earnings after tax 411 162
Analysed between:
Group MCEV earnings after tax from continuing operations 429 204
Group MCEV earnings after tax from discontinued operations (18) (42)
Group MCEV earnings after tax 411 162
MCEV EARNINGS PER ORDINARY SHARE
For the year ended 31 December 2014
2014 2013
Group MCEV operating earnings after tax
Basic1 128.4p 165.5p
Diluted2 128.2p 165.3p
Group MCEV earnings after tax
Basic1 183.2p 76.2p
Diluted2 182.8p 76.1p
1 Based on 225 million shares (2013: 212 million) as set out in note 15 of the IFRS consolidated financial statements.
2 Based on 225 million shares (2013: 212 million) as set out in note 15 of the IFRS consolidated financial statements.
The earnings on life business are calculated on a post-tax basis and are grossed up at the effective rate of shareholder
tax for presentation in the income statement. The tax rate used is the UK corporate tax rate of 21.5% (2013: 23.25%).
STATEMENT OF CONSOLIDATED COMPREHENSIVE
INCOME - GROUP MCEV BASIS
For the year ended 31 December 2014
2014 2013
£m £m
Group MCEV earnings for the year after tax 411 162
Other comprehensive income
Remeasurements and pension scheme contributions on defined benefit pension schemes (net of tax) (27) (16)
Total comprehensive income for the year 384 146
RECONCILIATION OF MOVEMENT IN
EQUITY - GROUP MCEV BASIS
For the year ended 31 December 2014
2014 2013
£m £m
Group MCEV equity at 1 January 2,378 2,122
Total comprehensive income for the year 384 146
Issue of ordinary share capital, net of associated commissions and expenses 1 233
Dividends paid on ordinary shares (120) (120)
Dividends paid on shares held by the employee trust and Group entities 1 2
Shares sold by Group entities 4 -
Movement in equity for equity-settled share-based payments 7 6
Shares acquired by the employee trust (8) (11)
Total capital and dividend flows - external (115) 110
Group MCEV equity at 31 December 2,647 2,378
GROUP MCEV ANALYSIS OF EARNINGS
For the year ended 31 December 2014
Non-covered business
Covered business Management services AssetManagement1IFRS Other Groupcompanies2IFRS Group
MCEV IFRS £m £m MCEV
£m £m £m
Group MCEV at 1 January 2014 3,059 134 108 (923) 2,378
Operating MCEV earnings (after tax) 268 28 14 (22) 288
Non-operating MCEV earnings (after tax) (32) (8) (2) 165 123
Total MCEV earnings 236 20 12 143 411
Other comprehensive income - - - (27) (27)
Divested businesses3 (18) - (91) 109 -
Capital and dividend flows - internal (421) (12) (29) 462 -
Capital and dividend flows - external - - - (115) (115)
Closing value at 31 December 2014 2,856 142 - (351) 2,647
1 Relating to the Ignis division disposed of on 1 July 2014 (see note 1), classified as discontinued operations. The Asset
Management MCEV earnings after tax
of £12 million includes intragroup fee income after tax of £30 million.
2 Comprises the Group holding companies that do not form part of the Phoenix Life and Ignis divisions.
3 Comprises capital flows relating to the disposals of Ignis and BA(GI) Limited (see note 1)
For the year ended 31 December 2013
Non-covered business
Covered Management services AssetManagement1IFRS Other Groupcompanies2IFRS Group
business IFRS £m £m MCEV
MCEV £m £m
£m
Group MCEV at 1 January 2013 3,263 115 86 (1,342) 2,122
Operating MCEV earnings (after tax) 308 25 38 (21) 350
Non-operating MCEV earnings (after tax) 79 (8) (2) (257) (188)
Total MCEV earnings 387 17 36 (278) 162
Other comprehensive income - - - (16) (16)
Capital and dividend flows - internal (591) 2 (14) 603 -
Capital and dividend flows - external - - - 110 110
Closing value at 31 December 2013 3,059 134 108 (923) 2,378
1 Relates to the Ignis division disposed of on 1 July 2014 (see note 1), classified as discontinued operations. The Asset
Management MCEV earnings after tax of £36 million includes intragroup income of £70 million.
2 Comprises the Group holding companies that do not form part of the Phoenix Life and Ignis divisions.
RECONCILIATION OF GROUP IFRS EQUITY
TO MCEV NET WORTH
For the year ended 31 December 2014
2014 2013
£m £m
Group net assets attributable to owners of the parent as reported under IFRS 2,365 1,909
Goodwill and other intangibles in accordance with IFRS removed (net of tax) (217) (391)
Value of in-force business in accordance with IFRS removed (net of tax) (1,011) (1,083)
Adjustments to IFRS reserving (130) (144)
Tax adjustments 33 33
Revalue listed debt to market value (68) 5
Fair value adjustments1 - 8
Eliminate after tax pension scheme surpluses (including IFRIC 14 adjustments)2 (492) (210)
Other adjustments 3 (14) (6)
MCEV net worth attributable to owners of the parent 466 121
MCEV value of in-force business included (net of tax) as set out in note 2 2,181 2,257
Closing Group MCEV 2,647 2,378
1 Investments carried at amortised cost under IFRS are revalued at market value.
2 Pension scheme surpluses valued on an IFRS basis are removed. This includes the IFRIC 14 adjustments as described in
note 30 to the IFRS consolidated financial statements.
3 Includes adjustments to revalue unlisted debt carried at amortised cost under IFRS at face value.
NOTES TO THE MCEV FINANCIAL STATEMENTS
1. BASIS OF PREPARATION
OVERVIEW
The supplementary information on pages 212 to 223 has been prepared on a Market Consistent Embedded Value ('MCEV') basis
except for the items described further below.
The MCEV methodology adopted by the Group is in accordance with the MCEV principles and guidance published by the CFO Forum
in June 2008 and amended in October 2009, except that:
- risk-free rates have been defined as the annually compounded UK Government nominal spot curve plus 10 basis points
rather than as a swap rate curve;
- no allowance for the cost of residual non-hedgeable risk ('CNHR') has been made because, in the opinion of the
Directors, the Group operates a robust outsourcer model in terms of operational risk, does not write new business, is
focused entirely on the back book, and has succeeded in closing out significant legacy risks. The theoretical value of CNHR
is disclosed separately in note 1(b); and
- the asset management and management service companies' values are calculated and presented on a basis consistent with
IFRS. Under CFO Forum principles and guidance productivity gains should not be recognised until achieved. This treatment is
inconsistent with the cost profile of a closed fund where continual cost reductions are expected to maintain unit costs as
the business runs off. In the opinion of the directors, if the MCEV principles and guidance were to be applied to the asset
management and the management service companies, it would not provide a fair reflection of the Group's financial position.
These companies are therefore reported alongside the Group's other holding companies at their IFRS net asset value.
On 18 March 2014, the Group completed the sale of its entire interest in BA(GI) Limited to National Indemnity Company for
cash consideration of £21 million. A gain on disposal of £4 million has been recognised in 'non-recurring items on non-life
business'.
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 and the results for the
business have been included in the MCEV Supplementary Information up to this date. 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.
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