4 Aug 2016 10:11
INFORMATION FOR FRIENDS LIFE HOLDINGS PLC
SUBORDINATED DEBT HOLDERS
FRIENDS LIFE HOLDINGS PLC
Unaudited results for the six months ended 30 June 2016
These results are published for the benefit of the subordinated debt holders of Friends Life Holdings plc ("the Company") for the six months ended 30 June 2016. The Company has three debt instruments, subordinated debt due in 2021 (LT2, £162 million principal), subordinated debt due 2022 (LT2, £500 million principal) and reset perpetual subordinated debt (UT2, $575 million) listed on the London Stock Exchange.
On 19 January 2015, Friends Life Group Limited (FLGL), the ultimate parent company of the Company at that time, published details of the proposed acquisition by Aviva plc of the entire ordinary share capital of FLGL by way of a Scheme of Arrangement in accordance with Guernsey company law. Following approval by FLGL's shareholders, Aviva's shareholders and the Guernsey Court, the Scheme became effective on 10 April 2015 and at that point the Company became part of the Aviva Group. FLGL became a wholly-owned subsidiary of Aviva plc. This resulted in a restructuring of the former Friends Life Group companies within the Aviva group of companies, which involved the Company's interests in its principal subsidiaries being transferred to other Aviva Group companies. Details of the transactions were included in the Company's Financial Statements for the year ended 31 December 2015.
The principal risks and uncertainties facing the Company are (1) interest rate risk, as the net asset value of the Company's financial resources is exposed to potential fluctuations in interest rates; and (2) foreign exchange risk through the Company's issuance of US$575 million reset perpetual subordinated notes and EUR & USD denominated syndicated loans which have been fully settled as at 30 June 2016. Exposure to interest rate risk is managed through the monitoring of several risk measures. Exposure to foreign exchange risk in respect of the USD loan has been fully hedged.
Equity shareholders' funds of the Aviva Group, prepared using accounting policies under IFRS, increased during the period by £911 million from £16,002 million restated at 31 December 2015 to £16,913 million at 30 June 2016. Operating profit of the Aviva Group at £1,325 million was 13% higher than for the six months to 30 June 2015 (£1,170 million) and net operating cash inflow for the six months to 30 June 2016 were £1,128 million (six months to 30 June 2015: £2,822 million).
Consolidated Income Statement
For the half year ended 30 June 2016 | Notes | Unaudited results 6 months to 30 June 2016£m | Unaudited results 6 months to 30 June 2015£m |
Revenue |
|
|
|
Investment return |
| 112 | 83 |
Total revenue |
| 112 | 83 |
Administrative and other expenses |
| - | (20) |
Finance costs |
| (93) | (46) |
Foreign exchange loss |
| (10) | - |
Total expenses |
| (103) | (66) |
Profit before tax from continuing operations |
| 9 | 17 |
Tax charge from continuing operations |
| (2) | (1) |
Profit after tax from continuing operations |
| 7 | 16 |
Profit after tax from discontinued operations | 1(a)(ii) | - | 4 |
Profit for the period |
| 7 | 20 |
Attributable to: |
|
|
|
Equity holders of the Company: |
|
|
|
- From continuing operations |
| 7 | 1 |
- From discontinued operations | 1(a)(ii) | - | 4 |
Step-up Tier one Insurance Capital Securities ("STICS") holders |
| - | 15 |
Profit for the period |
| 7 | 20 |
Consolidated Statement of Comprehensive Income
For the half year ended 30 June 2016 | Note | Unaudited results 6 months to 30 June 2016£m | Unaudited results 6 months to 30 June 2015£m |
| ||
Profit from continuing operations(i) |
| 7 | 16 |
| ||
Profit from discontinued operations |
| - | 4 |
| ||
Profit for the period |
| 7 | 20 |
| ||
Items that may be reclassified to profit and loss: |
|
|
|
| ||
Investments classified as available for sale - fair value losses |
| (17) | (48) |
| ||
Tax relating to items that may be reclassified to profit or loss |
| 3 | 10 |
| ||
Total items that may be reclassified to profit and loss |
| (14) | (38) |
| ||
Other comprehensive loss, net of tax, from continuing operations |
| (14) | (38) |
| ||
Other comprehensive loss, net of tax, from discontinued operations |
| - | (17) |
| ||
Total other comprehensive loss, net of tax |
| (14) | (55) |
| ||
Total comprehensive loss, net of tax, from continuing operations | 1(a)(ii) | (7) | (22) |
| ||
Total comprehensive loss, net of tax, from discontinued operations |
| - | (13) |
| ||
Total comprehensive loss, net of tax |
| (7) | (35) |
| ||
|
|
|
|
| ||
| (i) | The profit from continuing operations includes £nil (30 June 2015: £15 million) attributable to STICS holders. There are no amounts included in other comprehensive income which are attributable to STICS holders in either 2016 or 2015. | ||||
Consolidated Statement of Changes in Equity
| Attributable to equity holders of the Company |
|
|
| ||
For the half year ended 30 June 2016 |
|
|
|
| Non- |
|
Share | Other |
| STICS | controlling |
| |
capital | reserves | Total | holders | interests | Total | |
£m | £m | £m | £m | £m | £m | |
At 1 January 2016 | 515 | 46 | 561 | - | - | 561 |
Profit for the period | - | 7 | 7 | - | - | 7 |
Other comprehensive loss | - | (14) | (14) | - | - | (14) |
Total comprehensive loss | - | (7) | (7) | - | - | (7) |
At 30 June 2016 | 515 | 39 | 554 | - | - | 554 |
| Attributable to equity holders of the Company |
|
|
| ||
For the half year ended 30 June 2015 |
|
|
|
| Non- |
|
Share | Other |
| STICS | controlling |
| |
capital | reserves | Total | holders | interests | Total | |
£m | £m | £m | £m | £m | £m | |
At 1 January 2015 | 515 | 3,860 | 4,375 | 318 | 1 | 4,694 |
Profit for the period | - | 5 | 5 | 15 | - | 20 |
Other comprehensive income | - | (55) | (55) | - | - | (55) |
Total comprehensive (loss)/income | - | (50) | (50) | 15 | - | (35) |
Dividends paid | - | (3,547) | (3,547) | - | - | (3,547) |
Interest paid on STICS | - | - | - | (7) | - | (7) |
Appropriations of profit | - | (3,547) | (3,547) | (7) | - | (3,554) |
Capital contribution(i) | - | 1,229 | 1,229 | - | - | 1,229 |
Reclassification of STICS as a | - | (94) | (94) | (191) | - | (285) |
financial liability(ii) |
|
|
|
|
|
|
Tax on reclassification of STICS as a | - | 18 | 18 | - | - | 18 |
financial liability |
|
|
|
|
|
|
Tax relief on STICS interest | - | 1 | 1 | - | - | 1 |
Share-based payments, net of settlement (iii) | - | (3) | (3) | - | - | (3) |
Funding of Employee Benefit Trust(iv) | - | 8 | 8 | - | - | 8 |
Attributable to non-controlling interest | - | - | - | - | (1) | (1) |
At 30 June 2015 | 515 | 1,422 | 1,937 | 135 | - | 2,072 |
(i) The profit on disposal arising from the group reorganisation is recognised as a capital transaction.
Refer to note 1(a)(i).
(ii) Loss on reclassification of 2005 STICS as a financial liability, as a result of the Company giving notice to the
STICS holders on 29 May 2015 of intent to redeem on 1 July 2015.
(iii) The movement in other reserves for share-based payment schemes of £(3) million for the year represents an
expense of £1 million for all schemes that vested early on the acquisition of the Group by Aviva and £(4) million
for the reclassification of the FLG LTIP from an equity-settled scheme to a cash-settled scheme as rewards will
now be paid in cash.
(iv) In April 2015, the EBT repaid cash of £8 million to the Company.
Consolidated Statement of Financial Position
|
| Unaudited 30 June 2016 | 31 December 2015 |
£m | £m | ||
Assets |
|
|
|
Financial assets |
| 1,407 | 1,539 |
Current tax assets |
| - | 14 |
Deferred tax assets |
| 12 | 9 |
Insurance and other receivables |
| 37 | 65 |
Cash and cash equivalents |
| 263 | 95 |
Total assets |
| 1,719 | 1,722 |
Liabilities |
|
|
|
Loans and borrowings |
| 1,100 | 1,054 |
Insurance payables, other payables and deferred income |
| 63 | 107 |
Current tax liability |
| 2 | - |
Total liabilities |
| 1,165 | 1,161 |
Equity attributable to equity holders of the Company |
|
|
|
Share capital |
| 515 | 515 |
Other reserves |
| 39 | 46 |
Total equity |
| 554 | 561 |
Total equity and liabilities |
| 1,719 | 1,722 |
|
|
|
|
Consolidated Statement of Cash Flows
| Note | Unaudited 30 June 2016 £m | Unaudited 30 June 2015 £m |
Operating activities |
|
|
|
Net cash inflow from operating activities |
| 80 | 63 |
Income tax receipt |
| 10 | - |
Net cash inflow from operating activities |
| 90 | 63 |
Investing activities |
|
|
|
Disposal of held for sale assets, net of cash transferred | 1(a)(iii) | - | (6,954) |
Net disposal of financial investments |
| 164 | - |
Net cash inflow/(outflow) from investing activities |
| 164 | (6,954) |
Financing activities |
|
|
|
Receipt of repayment of loan to AGH |
| - | 145 |
Funding of EBT |
| - | 8 |
Finance costs |
| (76) | (73) |
STICS interest |
| - | (7) |
Net movement in other borrowings, net of expenses |
| - | (13) |
Dividends paid |
| - | (250) |
Net cash outflow from financing activities |
| (76) | (190) |
Increase/(decrease) in cash and cash equivalents |
| 178 | (7,081) |
Balance at beginning of the period |
| 95 | 7,503 |
Effect of exchange rate movement on cash and cash equivalents |
| (10) | - |
Exchange adjustments on the translation of foreign operations |
| - | 3 |
Balance at end of the period |
| 263 | 425 |
|
|
|
|
Notes
1. Business disposals
(a) Disposal of discontinued operations
On 13 April 2015 the former Friends Life Group companies were restructured within the Aviva group of companies. As part of this restructuring the Company disposed of its interests in FPG, FLI and FLFL. The Company's shareholdings in FLI and FLFL plus 68% of the Company's interest in FPG were transferred to the Company's parent undertaking, FLG Holdings Limited, by way of a dividend in specie of £3,297 million. The Company's remaining 32% shareholding in FPG was transferred to Aviva Group Holdings Limited ("AGH") in exchange for consideration of £1,544 million in the form of a loan payable by AGH. The loan was fully settled as at 31 December 2015.
The Company retained its interest in £500 million of STICS of Friends Life Limited ("FLL") ("internal STICS"), an insurance undertaking of the disposal Group.
(i) The profit on the restructure is recognised as a capital contribution:
| 13 April |
| 2015 |
| £m |
Disposal group equity attributable to shareholders | (3,612) |
Dividend in specie | 3,297 |
Residual equity attributable to shareholders | (315) |
Loan consideration | 1,544 |
Capital contribution | 1,229 |
The results of FPG, FLI and FLFL and their subsidiary undertakings are classified as results from discontinued operations in the Group's results for 2015.
(ii) Results of discontinued operations
|
|
|
| 2015 Period to 13 April |
|
|
|
| FPG,FLI |
|
|
|
| FLFL |
|
|
|
| £m |
Revenue |
|
|
|
|
Gross earned premiums |
|
|
| 380 |
Premiums ceded to reinsurers |
|
|
| (170) |
Net earned premiums |
|
|
| 210 |
Fee and commission income and income from service activities |
|
|
| 164 |
Investment return |
|
|
| 6,109 |
Total revenue |
|
|
| 6,483 |
Claims, benefits and expenses |
|
|
|
|
Gross claims and benefits paid |
|
|
| (998) |
Amounts receivable from reinsurers |
|
|
| 168 |
Net claims and benefits paid |
|
|
| (830) |
Change in insurance contract liabilities |
|
|
| (352) |
Change in investment contract liabilities |
|
|
| (4,526) |
Movement in net asset value attributable to unit-holders |
|
|
| (36) |
Movement in policyholder liabilities |
|
|
| (4,914) |
Acquisition expenses |
|
|
| (129) |
Administrative and other expenses |
|
|
| (299) |
Finance costs |
|
|
| (15) |
Total claims, benefits and expenses |
|
|
| (6,187) |
Profit before tax from discontinued operations |
|
|
| 296 |
Policyholder tax |
|
|
| (279) |
Profit before shareholder tax from discontinued operations |
|
|
| 17 |
Shareholder tax |
|
|
| (13) |
Profit after tax from discontinued operations |
|
|
| 4 |
Other comprehensive loss, net of tax |
|
|
| (17) |
Total comprehensive loss, net of tax |
|
|
| (13) |
(iii) Major classes of assets and liabilities at disposal date (FPG, FLI and FLFL in aggregate)
|
| 13 April |
|
| 2015 |
|
| £m |
Intangible assets |
| 3,026 |
Property, plant and equipment |
| 42 |
Investment properties |
| 2,685 |
Investment in associates |
| 4 |
Financial assets |
| 97,359 |
Deferred acquisition costs |
| 849 |
Reinsurance assets |
| 1,269 |
Insurance and other receivables |
| 1,653 |
Cash and cash equivalents |
| 6,954 |
Assets |
| 113,841 |
Insurance contracts |
| 36,081 |
Unallocated surplus |
| 693 |
Financial liabilities |
|
|
- Investment contracts |
| 68,789 |
- Loans and Borrowings |
| 868 |
Net asset value attributable to unit-holders |
| 212 |
Provisions |
| 135 |
Pension deficits |
| 26 |
Deferred tax liabilities |
| 1,125 |
Current tax liabilities |
| 51 |
Insurance payables, other payables and deferred income |
| 1,724 |
Liabilities |
| 109,704 |
Equity attributable to shareholders |
| 3,612 |
Equity attributable to STICS holders |
| 524 |
Total equity attributable to equity holders of the parent |
| 4,136 |
Equity attributable to non-controlling interest |
| 1 |
Total equity |
| 4,137 |
Total equity and liabilities |
| 113,841 |
(b) Disposal of Friends ASLH Limited
On 30 June 2015 the Group transferred 100% of its holding in Friends ASLH Limited to another Aviva Group company for consideration of £7 million, resulting in a £nil profit or loss on the disposal.
Basis of preparation
The results for the six months to 30 June 2016 have been prepared on the basis of the accounting policies set out in the Company's 2015 Annual Report and Accounts. The interim accounts do not constitute statutory accounts as defined by section 434 of the Companies Act 2006. The auditor has reported on the 2015 accounts and the report was unqualified and did not contain a statement under section 498(2) or (3) of the Companies Act 2006. The Company's 2015 Report and Accounts have been filed with the Registrar of Companies.
During the period, there have been no changes in the nature of related party transactions from those described in the Company's 2015 accounts.
The results for the six months are unaudited.
The unaudited results of Aviva plc for the six months ended 30 June 2016 are available on application to the Group Company Secretary, Aviva plc, St. Helen's, 1 Undershaft, London EC3P 3DQ. A copy can also be found on the Aviva plc website at www.aviva.com.
Responsibility statement
The directors confirm that these condensed interim financial statements have been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union and as issued by the IASB and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:
(a) An indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and
(b) Material related party transactions in the first six months and any material changes in the related party transactions described in the last annual report.
A D Briggs J R Lister Sir G M Williamson
Director Director Director
Enquiries: Chris Esson, Investor Relations Director, Aviva plc 020 7662 8115