Chesnara Regulatory News (CSN)

Chesnara plc

31 March 2016

"Another year of solid delivery on our core strategic objectives and a smooth transition to Solvency II."

Chesnara today reported results for the year ended 31 December 2015. The Group remains committed to delivering competitive returns to both its shareholders and policyholders, and continues to focus on:

· Maximising value from the existing books of business.

· Making further life and pensions acquisitions where they meet stringent assessment criteria.

· Value enhancement through writing profitable new business in Sweden.

· Gross cash generation of £44.2m (2014: £42.6m). This represents the cash generated from the day to day operations of our businesses. Strong cash generation from the UK business has continued and Movestic has made its first positive contribution (£5.1m).

· Acquisition of the Waard Group has added a further £39.9m of cash.

· 2.9% increase in total dividend. Recommended final dividend of 12.33p per share results in total dividend for the year of 18.94p per share (2014: 18.40p per share). 2.9% increase represents the eleventh successive rise in annual dividends.

· IFRS profit before tax of £42.8m (2014: £28.8m). Strong underlying IFRS profit supplemented by a profit of £16.6m in relation to the acquisition of the Waard Group.

· EEV earnings net of tax of £57.5m (2014: £44.2m). Strong EEV earnings supported by £21.3m gain on acquisition of Waard Group and continuation of new business profit from Movestic.

· EEV of £455.2m (31 December 2014: £417.2m). Growth of 9% includes earnings of £57.5m, offset by dividend payments of £23.5m.

· Movestic EEV new business contribution of £5.7m (2014: £8.9m). Decrease driven by a combination of lower volumes of new policies and margin pressure from competitive market.

· Group Solvency I ratio increased to 305% (31 December 2014: 284%). Capital resources of the Group have grown over the year as surplus has emerged from the life insurance companies within each division.

· Group Solvency II ratio of 146%. The Group remains well capitalised under Solvency II (see note 1). We have applied the "standard formula" and have not used transitional arrangements or any elements of the long-term guarantee package.

· Completed acquisition of the Waard group during the year. The Waard Group acquisition received regulatory approval in the period and was completed on 19 May 2015.

· Value enhancing opportunities in the UK and Netherlands continue to be sought and examined. The purchase of the Waard Group has opened up a new territory for the Group to focus on in delivering its acquisition strategy.

· Enhancements to governance model. This included completion of the Governance maps across the Group and its divisions, development of divisional and Group-wide ORSA processes and improvements to our risk management framework.

· Completion of Solvency II readiness programme. Significant effort has been put in across the Group to ensure that we were ready for Solvency II going live on 1 January 2016. The development programme was completed in the year.

Note 1: As is this case for most of the Life Assurance sector this is the first time that Chesnara has reported its Solvency II position. The impact of Solvency II at a Group level is to increase both the capital resources and the capital requirement of the Group as a whole. Consistent with the sector as a whole, this has resulted in a reduced solvency ratio when expressed in percentage terms. The quoted Solvency II numbers have not been audited and are due to be delivered to our Group Supervisor, the Prudential Regulation Authority, by 1 July 2016.

John Deane, Chief Executive said:

'Chesnara has a very clear strategic focus: delivering value from the existing books of business, making strategic acquisitions in the life and pensions sector and writing profitable new business in Sweden. 2015 has seen delivery in all three areas: The acquisition of the Waard Group has generated significant cash and, of equal importance, our entry to the Dutch market has enhanced the outlook for our ongoing acquisition strategy. Movestic has continued to grow and has made a material contribution to the Group's cash generation. We have completed our implementation work on Solvency II and remain well-capitalised under the new regime.

Regarding the UK operations, I note our announcement made on 3 March 2016 regarding the FCA's investigation into whether disclosure of paid up and early transfer charges to the customers of Countrywide Assured and other providers was adequate to enable those customers to make informed decisions. We will of course co-operate fully with the FCA in its investigation. We also note that no conclusion has yet been reached as to whether there have been any breaches of regulatory requirements within CA.

In light of the good financial results in the year the Board is pleased to recommend a final dividend of 12.33p per share, resulting in a full year dividend increase of 2.9% over 2014.'

The Board approved this statement on 30 March 2016.

Enquiries

John Deane, Chief Executive, Chesnara plc: 01772 972079

Roddy Watt, FWD: 0207 280 0651 / 07714 770 493

Notes to Editors

Chesnara plc ('Chesnara'), which listed on the London Stock Exchange in May 2004, is the owner of Countrywide Assured plc ('CA plc'), Protection Life Company Limited ('PL'), Movestic Livförsäkringar AB ('Movestic') and Chesnara Holdings BV ('The Waard Group').

CA plc is a UK life assurance subsidiary that is closed to new business. In June 2005 Chesnara acquired a further closed life insurance company - City of Westminster Assurance - for £47.8m. With effect from 30 June 2006, CWA's policies and assets were transferred into CA plc. Save & Prosper Insurance Limited and its subsidiary, Save & Prosper Pensions Limited, were acquired on 20 December 2010 for £63.5 million. With effect from 31 December 2011, the business of Save & Prosper was transferred into CA plc. On 28 November 2013 Chesnara acquired Direct Line Life Insurance Company Limited (subsequently renamed Protection Life Company Limited) from Direct Line Group plc for £39.3m. On 31 December 2014 the PL business transferred into CA plc. CA plc operates an outsourced business model.

Movestic, a Swedish life assurance company which originally focused on pensions and savings, was acquired on 23 July 2009 for £20 million. The company is open to new business and seeks to grow its position in the Swedish unit-linked market. Its proposition was strengthened in February 2010 with the acquisition of the operations of Aspis Försäkringar Liv AB which has a risk and health product bias.

The Waard Group, a Dutch life assurance company, was acquired on 19 May 2015 for £50.1 million. The Waard Group, comprising Waard Leven N.V., Hollands Welvaren Leven N.V., Waard Schade N.V. and Tadas Verzekeringen B.V. was previously owned by DSB Beheer B.V., a Dutch financial services Group. The policy base of the Waard Group is predominantly term life policies, with some unit linked policies and some non-life policies.

Further details are available on the Company's website (www.chesnara.co.uk).

2015 HIGHLIGHTS

FINANCIAL

£42.8M IFRS PRE-TAX PROFIT

IFRS pre-tax profit for the year ended 31 December 2015 of £42.8m (year ended 31 December 2014: £28.8m).

£44.2M GROSS CASH GENERATION (NOTE 2)

Gross cash generated in the year of £44.2m (year ended 31 December 2014: £42.6m).

£82.4M NET CASH GENERATION (NOTE 2)

Net cash generation of £82.4m (2014: £71.1m) includes £44.2m of gross cash generation and £39.9m of cash generation arising on the acquisition of the Waard Group.

£455.2M EEV 

Increase in EEV of £38.0m from £417.2m at 31 December 2014 to £455.2m at 31 December 2015, stated after dividend distributions of £23.5m in the year.

£57.5M EEV EARNINGS AFTER TAX

EEV earnings net of tax of £57.5m (year ended 31 December 2014: £44.2m), before modelling adjustments.

£5.7M MOVESTIC EEV NEW BUSINESS CONTRIBUTION

Movestic has generated a new business contribution of £5.7m in the year (year ended 31 December 2014: £8.9m).

305% SOLVENCY I

Strong Insurance Group Directive solvency cover of 305% (31 December 2014: 284%).

146% SOLVENCY II 

Group Solvency II ratio of 146% does not use any elements of the Long Term Guarantee Package, including transitional arrangements.

2.9% FULL YEAR DIVIDEND INCREASE

Total dividends for the year increased by 2.9% to 18.94p per share (6.61p interim and 12.33p proposed final). This compares with 18.40p per share in 2014 (6.42p interim and 11.98p final).

OPERATIONAL AND STRATEGIC

COMPLETED ACQUISITION OF THE WAARD GROUP DURING THE YEAR

The Waard Group acquisition, announced in December 2014, received regulatory approval in the period and was completed on 19 May 2015.

ENHANCEMENTS TO GOVERNANCE MODEL

Enhancements to our governance model have been made during the year. This has included the completion of Governance Maps across the Group and its divisions, the development of divisional and Group-wide ORSA processes and improvements to our risk management framework following the recruitment of a Group CRO.

COMPLETION OF SOLVENCY II READINESS PROGRAMME

During the year significant effort has been put in across the Group to ensure that we were ready for Solvency II going live on 1 January 2016. The development programme was completed in the year.

Notes

1. Throughout the Chairman's Statement, Business Review and Financial Review sections, all results quoted at a business segment level exclude the impact of consolidation adjustments.

2. Gross and net cash generation are defined as follows:

i. Gross cash generation:

This represents the operational cash that has been generated in the period. The cash generating capacity of the Group is largely a function of the movement in the solvency position of the insurance subsidiaries within the Group, and takes account of the buffers that management has set to hold over and above the solvency requirements imposed by our regulators.

ii. Net cash generation:

This represents the cash that has become available for distribution to shareholders during the period. It builds on "gross cash generation" and makes adjustments for items (either positive or negative) that affect the availability of cash for distribution. For example, capital releases arising from capital restructuring and one-off cash generation from acquisitions.

iii. Both the gross and net cash generation measures above have been determined with reference to the Solvency I regulatory framework.

3. The Solvency II numbers referred to in the highlights above and throughout the rest of this document have not been subject to external audit. Our first solo Solvency II reporting to our local regulators is due on 19 May 2016.

CHAIRMAN'S STATEMENT

"2015 has been a busy and successful year for Chesnara. The UK business has generated cash in line with expectations and at a level sufficient to support Chesnara's dividend by itself. The acquisition of the Waard Group has created significant cash resource and, of equal importance, our entry to the Dutch market has enhanced the outlook for our ongoing acquisition strategy. Movestic has continued to grow and has begun to make a material contribution to the Group's cash generation. Lastly, we have delivered our Solvency II readiness programme and remain well-capitalised under the new regime, with a ratio of 146%. We have not used transitional arrangements and the ratio is stated after the proposed final dividend."

I start my Chairman's statement by reviewing how Chesnara has delivered against its three core strategic objectives and how it has done so remaining true to its well established culture and values of treating customers fairly and adopting a robust approach to regulatory compliance.

Maximise value from existing business

Our existing books have performed well in the year. The UK business has reported marginally positive economic profits despite there being a continued level of short term volatility. Although the UK business remains the primary source of dividend funding, the continued growth in Movestic fund values and income flows has resulted in Movestic beginning to make a material positive contribution to the Group's cash generation model.

We expect the transition to SII to create a further short-term increase in surplus capital within our divisions and hence additional cash distribution potential. Our 2015 cash generation results do not recognise this potential additional divisional cash. We intend to defer recognition until we have a fully audited Solvency II balance sheet and a full understanding of any potential barriers to the additional surplus becoming available for distribution.

The embedded values of the in-force books have also increased during the year. In particular the value of Movestic has benefitted from increases in income derived from an 11% growth in funds under management.

Acquire life and pensions businesses

The completion of the acquisition of the Waard Group has had a material positive impact on the Group's financial position and acquisition outlook.

The Waard Group is well capitalised and the surplus of £44.2m over and above our target capital requirements represents a future source of cash. This will either support the Chesnara dividend or fund further acquisitions. The acquisition also increased the Group's embedded value by £21.3m.

Net cash generation of £82.4m which includes gross cash of £44.2m from the existing business and £39.9m from the Waard Group acquisition.

Enhance value through new business

The downturn in new business profits from Movestic is slightly disappointing; however the level of profit in the year remains very much in line with Chesnara's strategic positioning. Profit from new business is only one aspect of the Movestic overall profit growth and other aspects such as continued funds under management growth and an increase in average fees more than compensate for the small downturn in the value of new business. Our future expectations from new business remain to deliver modest profits from a realistic market share of 10-15% of our target market (average 2015 market share of 11.7%) and the new business will support the overall growth of the Movestic funds.

Solvency II

Over recent years Solvency II has created a great deal of work and also a degree of uncertainty across the industry. I am pleased to report that there is now clear light at the end of the Solvency II tunnel. Despite the significant effort associated with Solvency II we have not lost focus on our core business objectives. The fact that Solvency II has been delivered during a period which included two successful acquisitions, continued Movestic growth and UK cash emergence at levels higher than expected, is testament to the strength of the Chesnara business model and also the dedication and abilities of the entire Chesnara team and our outsource partners. Importantly, we also assess the outcome from the transition to Solvency II to be positive, in that:

- The Group Solvency II ratio is significantly in excess of both statutory and internal Board requirements, which are set at a higher hurdle rate for the purposes of managing the day to day business.

- The absolute level of surplus over and above the internal Board requirement is broadly consistent between Solvency I and Solvency II at a divisional level, with the total Group surplus under Solvency II remaining healthy.

- The Risk and Governance requirements under Solvency II have always aligned well with the established Chesnara approach. Solvency II does require an increased level of formality, transparency and rigour which, if operated efficiently, will enhance the Chesnara governance framework.

- The capital requirements model under Solvency II creates a clear and transparent link between the business model and the resultant capital required. This will help the Board better understand how the risks within the business and any decisions we make impact capital and solvency. This will in turn improve risk-based decision making and enhance capital management.

- We have delivered Solvency II in a very cost effective manner.

Regulation

Compliance with regulation remains a priority for the Group, not least Solvency II. We have continued to maintain a positive and constructive relationship with regulatory bodies across the Group.

Within the UK the FCA has recently issued its report regarding the "Fair treatment of long-standing customers in the life insurance sector". At the time of this report the findings are subject to a three month consultation period. As a result of this review the FCA announced the launch of an investigation into whether disclosure of paid up and early transfer charges to the customers of Countrywide Assured and other providers was adequate to enable those customers to make informed decisions.

We will of course co-operate fully with the FCA in its investigation. We also note that no conclusion has yet been reached as to whether there have been any breaches of regulatory requirements within CA.

With regards to the broader review, we would envisage it will result in the need for changes to processes and customer communications to meet these new best practice standards. We will fully commit to any such industry enhancement programme when the scope and expectations are better known post consultation and whilst we expect there will be a cost for this work we do not expect it will have a material impact on our financial model.

During July 2015 the Government launched a consultation linked to the new pension freedoms introduced in the UK, entitled "Pension transfers and early exit charges". In the consultation response the Government has indicated that it has passed legislation to enable the FCA to consider whether caps on certain exit charges should be introduced, and at what level. To date we have supported the ABI acting on behalf of the industry as a whole in relation to this subject, and will support the FCA in delivering the work it has been charged with performing following the Government's consultation. Analysis indicates that should exit fees on pension policies be capped at 5% then the impact on the embedded value of Chesnara is not material.

Investment proposition

The performance in the year has resulted in strong returns to shareholders in the form of the continuation of our attractive dividend strategy whilst also ensuring we retain sufficient resources to support future growth.

5.7% dividend yield

based on share price at 31 December 2015

People

Chesnara's success has always been built upon a culture whereby the Board, management and staff all recognise their responsibility of safe-guarding the interests of our stakeholders. We have always placed a high importance on transparency and integrity and managing the business in a compliant and responsible manner. Continuity of culture is a challenge particularly when we make acquisitions or when there is a change in Senior Management. In light of this I am particularly pleased to report that John Deane, appointed as our new CEO at the beginning of the year, has done an excellent job in his first year, building upon all the positive qualities that have served Chesnara well over the years. As we have integrated the Waard Group it has become clear that local management fit very well into the Chesnara culture. They operate in a professional and transparent manner giving full regard to regulatory compliance.

Governance and Risk Management

During the year we have developed and embedded Governance Maps across the Group. We have also invested significant time in the production of revised principles and policies. These developments will ensure robust and consistent governance and capital management across the enlarged Chesnara Group.

Chesnara has always given appropriate consideration to the risks to which the business is exposed. To further enhance our management of risk we have recruited a Group Chief Risk Officer during the year. The new Group Chief Risk Officer has taken a lead role in the development of risk appetite statements, our Own Risk and Solvency Assessments (ORSAs) and is well on the way to enhancing our risk management framework across the group.

The improved risk management processes together with the continued Board focus on risk assessment means high quality risk management will continue to be a key strength at the heart of Chesnara's ongoing success.

Outlook

Much has been said regarding the potential impact on British industry should the referendum in July regarding British membership of the EU result in a "leave" vote. The longer term economic impacts of staying in the EU or leaving remain uncertain and as a result we continue to monitor the situation closely. We do, however, believe that the impact of a "leave" vote will not materially affect Chesnara's business.

Our financial and governance foundations are strong and our existing books continue to generate reassuring levels of cash. In addition, with more certainty about the impact of Solvency II across the industry and with our entry to the Dutch market, the acquisition outlook is increasingly positive. I am therefore confident that Chesnara can continue to deliver against its strategic objectives and provide value to policyholders and shareholders.

Peter Mason

Chairman

30 March 2016

MANAGEMENT REPORT

BUSINESS REVIEW

OVERVIEW OF STRATEGY

Our strategy focuses on delivering value to shareholders and policyholders. The strategy is delivered through a proven business model underpinned by a robust risk management and governance framework (now based on SII requirements) and by adapting our established culture and values.

MAXIMISE VALUE FROM EXISTING BUSINESS | UK

"Value has continued to emerge from the UK business across all key financial metrics."

Highlights

- Completion of Governance Map during the year.

- No significant impact following pension freedoms introduction to date.

- Good gross (operational) cash generation of £42.5m underpinning net cash generation of £40.8m.

- Solvency II ready.

Review of the year

The UK business has seen some significant internal changes during 2015, mainly arising through preparing for a number of regulatory changes impacting the business. This has included Solvency II, which applied from 1 January 2016, the application of the Senior Insurance Managers Regime (SIMR), coupled with ensuring that our operations and processes were appropriately adapted to support the enactment of increased freedoms given to policyholders with pension products. During the year Management has continued to support any open regulatory matters, including a review into exit and transfer charges on pension products and the FCA's review on the fair treatment of long-standing customers.

The operational changes that have been made in relation to Solvency II and the SIMR are very positive to the business and continue to support our objective of value maximisation. For example Solvency II introduces, through the ORSA process, improved linkage between assessing / managing risk and decision making. The development of a UK Governance Map to support a Group-wide Governance Map implementation programme helped prepare the division for the implementation of the SIMR on 7 March 2016. Good Governance is central to ensuring that our business is well controlled and in particular will bring enhancements to our risk management framework and reporting of risk, something that will continue to be developed and implemented during 2016, led by our new Chief Risk Officer.

Solvency II has also introduced a new lens through which Management looks at the regulatory capital of the UK business, where the "standard formula" is applied. Further insight on the quantitative impact of moving from Solvency I to Solvency II can be found below.

As a predominantly outsourced operation a key part of managing value is through having well controlled oversight over our outsource providers, who cover policyholder administration, accounting, actuarial and investment management services. Our contracts are managed through regular relationship meetings and are underpinned by robust contractual Service Level Agreements (SLAs) which encompass a variety of quality, risk management, regulatory compliance and policyholder treatment measures. The investment management outsourcing is overseen by CA plc's Investment Committee. Our outsourcers have continued to deliver strongly across all service targets.

Following the Part VII transfer of the Protection Life business into CA plc on 31 December 2014 the de-regulation process of Protection Life Company Limited has now been completed, thereby making £2.9m of additional capital available to the Group.

Financial performance

The UK business has continued to deliver strongly across its key financial metrics of Solvency, IFRS profit, EEV profit, and Cash Generation. Further analysis behind these metrics can be found below.

Value driver metrics

Unit-linked funds under management

The levels of unit-linked funds under management continue to support the on-going level of profitability of the UK business, as fund-related charges are an important component of profit. The movement in the value of unit-linked funds under management is a function of:

i) performance of the funds across UK equities, international equities, property and fixed interest securities;

ii) received and invested premiums; and

iii) policies closed, due to surrender, transfer or claim.

The reduction in funds under management during the year is primarily driven by the reduction in policy numbers. Investment markets during 2015 have displayed volatility, but closed broadly in line with the start of the year.

Fund performance

Despite volatile global equity markets the performance of our investment management partners has contributed to positive returns in our main managed funds during the year ended 31 December 2015 though below the benchmark for the CA Pension Managed fund and CWA Balanced Managed fund. The last times these funds were below benchmark were 2011 and 2013 respectively.

Policy attrition

As a closed book policy numbers are expected to reduce over time. The reduction in policy numbers in 2015 is marginally up compared with the prior year. The impact of the new pension freedoms on policyholder attrition levels has been closely monitored by Management and, whilst a small "spike" was witnessed, the overall policy count reduction year on year is only slightly up, increasing from 6.9% to 7.5%.

Risks associated with the strategic objective

S&P has a proportion of its product base that provides guaranteed returns. The probability of guarantees being of value to policyholders increases when the value of assets held to match the policy liabilities falls or when, particularly for those guarantees expressed as an amount of pension, bond yields fall. To mitigate this risk assets held by shareholders to provide security for these guarantees are invested in cash and long bonds. Consequently our results will be negatively affected by falls in equity values, which impact assets backing policyholder liabilities, and/or falls in bond yields, which impact the cost of providing the guarantees were they to occur. Conversely, increasing markets and yields will positively affect the results. Close management of the portfolio backing these liabilities continues.

Increased lapses on cash generative products are also a risk to the delivery of this strategic objective. This risk is managed through:

- Close monitoring of persistency levels.

- Active investment management with the aim of delivering competitive policyholder investment returns.

- Outsourcer service levels that ensure strong customer service standards.

- Customer retention processes.

Unit-linked funds under management (£m)

Fund performance (annual return)

Annual policy attrition rate, based on policy count

MAXIMISE VALUE FROM EXISTING BUSINESS | SWEDEN

"Strong value emergence has driven growth in assets under management and improvements in performance fee rebates."

Highlights

- Division has generated positive cash results in the year.

- Improved performance fee rebate levels.

- Continued good growth in assets under management.

- Solvency II ready.

Review of the year

The Swedish Division has delivered strong growth during the year supporting the Group's strategic objective of maximising value from its existing businesses. Two key factors have driven this value generation:

(i) improved fund performance fee rebates as a result of various investment management changes that were made during late 2014 and have continued into 2015; and

(ii) good growth in funds under management.

Being able to provide a wide range of funds to its policyholders is a key differentiator of Movestic compared with its more traditional competitors. Movestic's funds are continually reviewed and where appropriate new funds are added to satisfy its policyholder requirements. During 2015 additional 'white label' funds have been launched, building on three new funds that were made available during 2014. These have been delivered through revised funding structures which have resulted in higher fee generation than previously. Successful renegotiations with certain fund managers have delivered additional performance fee rebate income during the year.

To support its continued growth strategy and to deliver enhancements to the way existing business is managed, the Division has started to invest further in its business processes and systems. This will facilitate more effective policyholder/distributor communications and policy management. The business management layer of the new system will also support more streamlined business reporting, in particular the regular reporting that is required to Regulators under Solvency II.

With Solvency II becoming effective from 1 January 2016, during 2015 the business has delivered its Solvency II development programme such that it is now ready across all aspects of the new regime. In particular, governance and risk management enhancements have been made, all of which will deliver value generation through enhanced risk-based decision making and business control. The prudential management aspects of Solvency II have also resulted in a new way in which management assess the capital within the business and how it meets the capital requirements. Further information on this has been included below.

Financial performance

The Swedish business has performed well during the year across all key financial metrics, specifically regarding its cash generation. Further analysis behind these metrics can be found below.

Value driver metrics

New business

A review of the new business operation of Movestic is covered below.

Assets under management

Assets under management are a key value driver of the business through providing a source of revenue in the forms of performance fee rebates from asset managers and charges to policyholders. Assets under management have grown by 11% during the year, closing at SEK 24.3bn. Underpinning the growth in assets under management are three key drivers:

- performance of the new business operation (see below);

- overall performance of investments within the funds (see below); and

- behaviour of policyholders (see below).

Investment performance:

Overall funds under management have returned growth of 4.9% for policyholders during 2015. Good investment return not only supports income generation for the business but is also important in retaining existing policyholders and attracting new ones. The fund performance analysis below shows that 38 out of 59 funds out-performed their benchmark index during the year.

Policyholder behaviour:

The number of policies that have either become paid up, or have surrendered, has decreased when compared with 2014. There has been a slight increase in policyholders transferring out their policies to another provider during the year, which has also resulted in the transfers-in to transfers-out ratio becoming less favourable compared with 2014. Transfers within the Swedish Division can depend on a number of factors, including competitor offerings agitating the transfer market and changes in relationships with brokers. The net impact of these factors has resulted in transfers being slightly up on the prior year.

Risks associated with the strategic objective

- High levels of lapses and transfers remains a risk. Given that the Movestic product proposition already offers significantly more portability for transferring pensions than the general market, our view is that an increased right to transfer would be beneficial to customers and to Movestic in terms of its market position with other more traditional competitors.

- Profit emerging from the in-force book is dependent upon the size of the funds under management. Adverse investment market conditions would therefore adversely impact this strategic objective.

- Loss of key brokers can result in increases in the level of transfers-out.

- Regulatory change can potentially impact the cash flows arising from the in-force book. For example, there remains ongoing debate in Sweden regarding possible changes to up-front fees and rebate commissions.

- From a Group perspective we are exposed to foreign currency fluctuations which impacts the Sterling value emerging from the Swedish operations.

Policy attrition

Transfers

Assets under management

Fund performance (for those with benchmarks)

MAXIMISE VALUE FROM EXISTING BUSINESS | NETHERLANDS

"Positive emergence of value in line with expectations from the newly acquired Waard Group."

Highlights

- Full year IFRS pre-tax profit of £2.6m is broadly in line with expectations and provides a useful estimate of future in force book profit expectations Note 1.

- EEV of £74.1m at 31 December 2015, which includes £9.3m in relation to future profit cash flows.

- Positive gross (operational) cash generation, and one-off cash generation on acquisition of £39.9m.

- Business now fully integrated into Chesnara governance processes.

- Solvency II ready.

Note 1 - Only the proportion of this total profit relating to the post acquisition period (19 May 2015 to 31 December 2015) is consolidated into the Chesnara Group IFRS income statement, amounting to £0.9m.

Review of the year

The Dutch Division has delivered a full year IFRS result that is broadly in line with expectations, and the solvency position of the business is strong. The one-off positive impact on cash generation of the Group of £39.9m arising upon acquisition has been further enhanced by additional positive cash generation in the period of £4.0m.

Summary of the in-force book

The Waard Group book consists of c80,000 policies, the majority of which are term assurance contracts, with the balance relating to unemployment and disability cover and unit-linked savings contracts.

In addition to the insured contracts, the Waard Group is, through its service-company subsidiary, responsible for the administration of c79,000 policies for third party insurers.

There are three key areas of focus for the in-force book, namely: management of the assets, regulatory compliance and ensuring that a high quality service to policyholders is continued in terms of administration service levels.

Policy attrition levels for 2014 and 2015 remain at a steady level of circa 8% across the total in-force book and are in line with the anticipated book run-off.

Key value drivers

The business is administered and governed by an established and high quality team, combining operational excellence with strong customer contact. The internet is increasingly used to combine these two items. The business operates to high governance standards and there is a positive relationship with the Dutch regulator.

Since the acquisition completed on 19 May 2015, the Waard Group business has been integrated into Chesnara's governance processes including the financial reporting routines.

Profits emerge primarily as a result of positive mortality experience on the term assurance contracts. The third party administration contributes only modest additional profit, while covering an adequate element of the fixed cost base. Further acquisitions should provide additional economies of scale.

Risks associated with the strategic objective

- The primary risk to the profit and cash emergence is that mortality experience increases significantly and exceeds the assumed rates.

- Increased lapses on cash generative products are also a risk to the delivery of this strategic objective. This risk is managed through close monitoring of persistency levels, service levels that ensure strong customer service standards and our pro-active approach to the renewal process to keep retention rates high.

- There is also a risk that expenditure levels exceed those assumed in reserves and provisions. Expense assumptions are deemed to be realistic and the cost base is well controlled, predictable and within direct management influence.

- Although regulatory developments are not in themselves a risk to the value emergence, management recognises the long term benefits of robust governance. Regulatory change can impact the cash potential of the business if it directly impacts the cash flows from the products (such as through emerging regulatory best practice) or increases the likelihood of increased book attrition. There is full indemnification from the previous owner of the Waard Group regarding the compensation arrangements currently in place for certain unit-linked products historically sold.

- As with our Swedish Division, the Group is exposed to foreign currency fluctuations which impacts the Sterling value emerging from the Dutch operations.

In-force policies

Policy attrition

acquire life and pensions businesses

"We completed the acquisition of the Waard Group during May 2015. The group embedded value increased by £21.3m and the net cash generation has increased by £39.9m as a direct consequence of the acquisition. Over and above the direct and immediate financial benefits the acquisition creates opportunity to progress further value-adding deals in the Dutch market."

Highlights

- Completion of the acquisition of the Waard Group in the Netherlands for £50.1m resulting in £21.3m increase in Group Embedded Value.

- £39.9m of additional cash distribution potential created.

- Entry to a third territory of the Group assessed as having significant further market consolidation potential.

Review of the year

Acquisition of the Waard Group

On 19 May 2015 we completed the acquisition of the Waard Group in the Netherlands for £50.1m (€69.9m). The deal was financed through raising £34.5m of equity during late 2014, with the remainder being funded through existing cash resources. The acquisition has created an excellent opportunity to operate in a new market within which life insurance consolidation is in its early stages. The deal was originally assessed positively on all four elements of our assessment scorecard. The table below illustrates how these actual benefits arose on acquisition:

UK market

There has recently been a general lull in closed book market activity in the UK, driven in part by uncertainty resulting from Solvency II and regulatory developments. That said, there has been some activity recently, and we believe the factors which will drive further consolidation persist, namely larger financial organisations wishing to re-focus on core activities and the desire to release capital or generate funds from potentially capital intensive Life and Pension businesses. In the short term we have increased our focus on Western Europe, in particular investigating opportunities in the Dutch market following the acquisition of the Waard Group.

Acquisition process and approach

Chesnara is an established Life and Pensions consolidator with a proven track record. This, together with a good network of contacts in the adviser community, who understand the Chesnara acquisition model and are mindful of our track record and good reputation with our regulators, ensures we are aware of most viable opportunities in the UK and Western Europe. To support our proven market presence, we have recently implemented a revised acquisition process framework in order to ensure we continue to identify and assess all potential value adding deals across our widening geographical markets. Importantly we have rolled the acquisition process out into the Dutch management team, who have begun to implement the process in the Dutch market. This ensures we get the benefits of local market knowledge complemented by closed book consolidation experience and expertise provided by the Chesnara management team.

We assess the financial impact of potential acquisition opportunities by estimating the impact on three financial measures namely; the cash flow of the Group, the incremental embedded value and the internal rate of return. The financial measures are assessed under best estimate and stress scenarios.

The measures are considered by the Board, in the context of other non-financial measures including the level of risk and the degree of strategic fit and opportunity.

Acquisition outlook

We remain confident that all the commercial and economic drivers for consolidation remain positive in the UK. The acquisition of the Waard Group provides significant potential in the Dutch market and we are well positioned to take advantage of any value adding opportunities that may arise. Our financial foundations are strong and we continue to have strong support from shareholders and lending institutions to progress our acquisition strategy. In addition our operating model which consists of well established outsource arrangements plus efficient, modern in house solutions, means we have the flexibility to accommodate a wide range of potential target books. With all the above in mind, we are confident that we are well positioned to continue the successful acquisition track record in the future.

Risks associated with this strategic objective

- There is the risk that if we do not deliver against this objective then the investment case for Chesnara diminishes over time.

- There is the risk that we make an inappropriate acquisition that adversely impacts the financial strength of the Group.

- The acquisition of the Waard Group opens a new territory and hence increases our options thereby reducing the risk that no further value adding deals are done.

- The broader target market also reduces the risk of inappropriate opportunities being progressed on the grounds that better optionality will enable us to identify better fit deals at a more competitive price.

- As our acquisition strategy currently places greater focus more on non-UK markets we become increasingly exposed to currency risk. Flexibility over the timing of subsequent capital extractions and dividend flows provide an element of management control over the Sterling value of cash inflows. We accept the short-term fluctuations in the reporting of embedded value that can arise.

- During recent years we have enhanced our financial deal assessment modelling capabilities which improves the quality of financial information available to the Board. This strongly mitigates the risk of inappropriate opportunities being pursued. In addition, the increased financial strength of the Group means that any perceived risk that pressure to do a deal could result in a departure from the stringent assessment criteria will have reduced.

enhance value through PROFITABLE new business | Sweden

"New business profits continue to enhance Movestic's embedded value and support the overall fund growth, although a difficult market for transfers and staff vacancies in the sales team have resulted in a slight downturn compared to 2014."

Highlights

- New business profit of £5.7m (2014: £8.9m).

- 4.9% reduction in new business volumes.

- Average market share of 11.7% is within target 10-15% range.

Review of the year

After two years of new business growth we have seen a downturn in new business volumes in 2015. The transfer market was particularly competitive during the first half of the year and unit linked products came under pressure from the traditional market products which offered attractive guaranteed returns. As expected the level of guarantees being offered has not been sustainable and the unit-linked market has become more competitive during the second half of the year. The transfer market is profitable and hence is a natural target for Movestic given its focus on sustainable profit margins. Revised pricing for transfers has reinvigorated transfer volumes in the second half of the year. This, together with the aforementioned reduction in traditional guarantees has contributed to a strong second half of 2015, during which new business volumes exceeded those in the second half of 2014.

During the year Movestic has seen changes in key sales positions. This resulted in some short term vacancies in the sales team. This will have contributed somewhat to the reduction in sales during the year. Importantly, the team is now fully staffed and ready to build on the positive improvements seen towards the end of 2015.

Market share

The market share of our specific target market, namely the company paid unit linked market was within our target range of between 10% to 15%. We did lose a little market share compared to 2014 due in part to the impact of a reorganisation of the sales team. Management plans which completed during the second half of the year have had a positive impact on market shares in the final quarter and we aim to consolidate towards the middle of our target market share range during 2016.

Development of innovative product concepts and margin enhancement

A differentiating feature of Movestic is the carefully selected fund range which over time has proven to perform very well compared to similar offerings. The work to further develop and improve the fund range is continually given highest priority. During the year the work with "white-labelled" Movestic funds has continued and intensified. The benefits of the new "white-labelled" funds, enabled through the set-up of a new Movestic SICAV (fund structure) in 2014, mean that in addition to being well matched to policyholder requirements, Movestic receives a higher proportion of the product value chain thereby improving new business margins. Three new Movestic funds have been launched during the year, building on the first three being launched during 2014. A further five new Movestic funds are planned to be launched during 2016.

Risks associated with this strategic objective

- The attractiveness of unit linked products can be influenced by economic conditions especially as some traditional products offer guaranteed returns in uncertain times. In light of this the recent good general equity performance is encouraging. Also, Swedish investors tend not to adopt an "all or nothing approach" to equity exposure and hence there will always be a certain level of unit linked demand. The recent reductions in traditional product guarantees have reduced this product bias risk.

- New business volumes are sensitive to the quality of service to the IFA and the end customer. Movestic continues to score highly in internal and external service level assessments.

- New business remains relatively concentrated towards several large IFAs. This is inevitable to some extent but the fact that Movestic has extended the breadth of IFA support in the year has reduced this concentration risk. Whilst Movestic has further broadened its coverage of the broker market, the fact remains that a large proportion of new business comes from two large brokers thereby creating a level of concentration risk. In light of this risk, Movestic takes comfort from the fact they are assessed very favourably on an internal product provider assessment scorecard maintained by one of the major brokers. The second large broker has a proven strong level of support for the Movestic proposition as demonstrated by its continued support of Movestic during and subsequent to the servicing difficulties experienced historically.

- The competitive market puts pressure on new sales margins. Movestic's margins have generally held up well although the improved terms offered for the higher margin transfer business is evidence of the pressure on margins. Movestic has redressed the margin balance by successfully focussing on achieving better terms in the fund operation.

Trend analysis of new business premium income (£m)

Movestic's share of new unit-linked company paid pension business

CAPITAL MANAGEMENT - Solvency I and Solvency II

"Managing the Group and subsidiaries' capital positions appropriately is a critical part of ensuring we remain true to the Group's Culture and Values, which includes a clear focus on maintaining adequate financial resources. We are well-capitalised at a Group and subsidiary level under both Solvency I and Solvency II. In applying Solvency II we have not used any elements of the Long Term Guarantee Package, including transitional arrangements."

The Group and its subsidiaries manage capital in accordance with their respective capital management policies, which are based on the requirements of our Regulators. These policies introduce the concept of a "management buffer", which is incremental to the Regulatory capital requirements.

The tables below show a summary of the solvency position of the Group and its principal subsidiaries under Solvency I, along with a comparison to the year end unaudited Solvency II position.

Chesnara Group

Movement in Solvency I (2014 to 2015)

- Capital resources of the Group have grown over the year as surplus has emerged from the life insurance companies within each division.

Impact of applying Solvency II

- Capital resources have increased, with this being driven by the policyholder reserves reducing as a result of them including an estimate of future surpluses expected to emerge from the in-force book, something that was not included in Solvency I.

- For the Group capital requirement calculation, under Solvency I no capital requirements were included for non-regulated non-insurance companies. Under Solvency II all companies in the Group are required to be treated as if they were insurance companies. This, as well as the generally higher levels of capital requirements under Solvency II, have led to the increase.

- The Group remains well capitalised under Solvency II.

CA plc (UK)

Movement in Solvency I (2014 to 2015)

- Capital resources increased from £116m (post dividend) to £148m (pre-dividend), representing an increase of £32m, broadly in line with IFRS result. This includes £3.5m of assets transferred from Protection Life following its deauthorisation.

- The proposed dividend is subject to a "no objection" process with the PRA.

Impact of applying Solvency II

- The increase in capital resources is largely due to reduction in technical provisions, which now includes an estimate of expected future profits. This has the biggest impact on unit-linked products.

- Capital requirements are more risk-based and reflect the increased capital resources position of the company.

- CA plc remains well-capitalised under SII. Although the solvency ratio reduces under Solvency II, the absolute surplus levels above the "management buffer" remain broadly in line with Solvency I.

Movestic Liv (Sweden)

Movement in Solvency I (2014 to 2015)

- Capital resources have increased over the year as a result of surplus generation, off-set by the slight weakening of SEK over the year.

Impact of applying Solvency II

- The large increase in capital resources (own funds) is largely due to a reduction in technical provisions, which now includes an estimate of expected future profits.

- Capital requirements are now more risk-based and reflect the increased capital resources position of the company.

- Movestic is better-capitalised in absolute terms under SII compared with SI, although the solvency ratio reduces due to the increase of both "own funds" and SCR.

Waard Leven (Netherlands)

Movement in Solvency I (2014 to 2015)

- Modest surplus has emerged from Waard Leven in the year, as expected.

- For GBP reporting purposes, this is not seen in the above tables due to the Euro weakening against GBP during 2015.

Impact of applying Solvency II

- The transition to Solvency II is less marked for Waard Leven than for the other life companies within the Group. This is primarily because the policy base is largely made up of term assurance products, which are less impacted by SII.

- Waard Leven remains well-capitalised under SII.

FINANCIAL REVIEW

The key performance indicators below are a reflection of how we have performed in delivering our three strategic objectives and our core culture and values. 2015 has seen strong net cash generation of £82.4m, together with the robust Embedded Value earnings in the year, resulting in a closing EEV of £455.2m.

Summary of each KPI

IFRS PRE-TAX PROFIT £42.8M (2014: £28.8M)

What is it?

The presentation of the results in accordance with International Financial Reporting Standards (IFRS) aims to recognise the profit arising from the longer term insurance and investment contracts over the life of the policy.

Why is it important?

IFRS pre-tax profit is an indicator of the value that has been generated within the long-term insurance funds of the divisions within the Group, and is a key measure used both internally and by our external stakeholders in assessing the performance of the business. IFRS pre-tax profit is an indicator of how we are performing against our stated strategic objective of "maximising value from the in-force book" and can also be impacted by one-off gains arising from delivering against our stated objective of "acquiring life and pensions businesses".

Highlights

- A day one gain of £16.6m has been recognised on the acquisition of the Waard Group in the Netherlands, representing the excess of the IFRS net assets acquired over the purchase price.

- Linked to the Waard Group acquisition, the Group segment includes a £3.5m foreign exchange translation loss arising from holding Euros to fund the acquisition.

- Waard Group post acquisition profit is small, but in line with expectations at the time of the acquisition. The Waard Group is not expected to generate significant IFRS profits.

- The CA result is less than the same period in 2014 largely due to 2014 including some one off items not repeated in 2015.

- The S&P segment has reported a profit in 2015 compared with a loss in 2014. The 2014 loss was largely driven by reducing government gilt yields in that year, something that has not been witnessed in 2015.

- Movestic has continued to deliver growth in its IFRS results.

Risks

The IFRS pre-tax profit can be affected by a number of our principal risks and uncertainties as set out below. In particular, volatility in equity markets and bond yields can result in volatility in the IFRS pre-tax profit.

NET CASH GENERATION £82.4M (2014: £71.1M)

What is it?

Net cash generation is a measure of how much distributable cash has been generated in the period. The dominating aspect of cash generation is the change in amounts freely transferable from the operating businesses, taking into account Board-approved solvency buffers that are based on those imposed by our Regulators. It follows that cash generation is not only influenced by the level of surplus arising but also by the level of required solvency capital.

Why is it important?

Cash generation is a key measure, because it is the net cash flows to Chesnara from its Life and Pensions businesses which support Chesnara's dividend-paying capacity and acquisition strategy. Cash generation can be a strong indicator of how we are performing against our stated objective of "maximising value from the in-force book". However, our cash generation is always managed in the context of our stated value of maintaining strong solvency positions within the regulated entities of the Group.

Highlights

- Gross cash generation across the Group continues to support our current attractive dividend strategy.

- Net cash generation in 2015 is dominated by the cash surpluses arising from the acquisition of the Waard Group, which can be used to both support our future dividends and potential acquisitions.

Risks 

The ability of the underlying regulated subsidiaries within the Group to generate cash is affected by a number of our principal risks and uncertainties as set out below. Whilst cash generation is a function of the regulatory surplus under Solvency I, as opposed to the IFRS surplus, they are generally closely aligned, and therefore factors such as yields on fixed interest securities and equity and property performance contribute significantly to the level of cash generation within the Group. In future periods our cash generation metric will be calculated with reference to Solvency II. This cash metric is expected to display sensitivities to the same economic factors referred to above.

EEV EARNINGS, NET OF TAX £57.5M* (2014: £44.2M)

*EXCLUDING THE POSITIVE IMPACT OF MODELLING ADJUSTMENTS OF £5.9M

What is it?

In recognition of the longer-term nature of the Group's insurance and investment contracts, supplementary information is presented in accordance with European Embedded Value 'EEV' principles.

The principal underlying components of the EEV result are:

- The expected return from existing business (being the effect of the unwind of the rates used to discount the value in-force).

- Value added by the writing of new business.

- Variations in actual experience from that assumed in the opening valuation.

- The impact of restating assumptions underlying the determination of expected cash flows.

- The impact of acquisitions.

Why is it important?

By recognising the net present value of expected future cash flows arising from the contracts (in-force value), a different perspective is provided in the performance of the Group and on the valuation of the business. EEV earnings are an important KPI as they provide a longer-term measure of the value generated during a period. The EEV earnings of the Group can be a strong indicator of how we have delivered against all three of our core strategic objectives. This includes new business profits generated from writing profitable new business, EEV profit emergence from our existing businesses, and the EEV impact of acquisitions.

Highlights

- Strong EEV earnings in the year supported by:

o £21.3m gain on acquisition of the Waard Group, offset by the Euro holding foreign exchange loss of £3.5m.

o Continued emergence of economic profits, although these are lower than in 2014.

o Operating profits that are in line with 2014.

- New business profits from Movestic continue to be delivered, albeit at lower levels than 2014 due to a challenging market which has witnessed aggressive pricing strategies from competitors.

Risks

The EEV earnings of the Group can be affected by a number of factors, including those highlighted within our principal risks and uncertainties as set out below. In addition to the factors that affect the IFRS pre-tax profit and cash generation of the Group, the EEV earnings can be more sensitive to other factors such as the expense base and persistency assumptions. This is primarily due to the fact that assumption changes in EEV affect our long-term view of the future cash flows arising from our books of business.

EEV £455.2M (31 DECEMBER 2014: £417.2M)

What is it?

The European Embedded Value (EEV) of a life insurance company represents the present value of future profits of the existing insurance business, plus adjusted net asset value of the non-insurance business within the Group. It is often used to compare values of different life insurance companies.

Why is it important?

As the EEV takes into account expected future earnings streams on a discounted basis, EEV is an important reference point by which to assess Chesnara's intrinsic value. A life and pensions group may typically be characterised as trading at a discount or premium to its embedded value. Analysis of EEV, distinguishing value in-force by segment and by product type, provides additional insight into the development of the business over time. The EEV development of the Chesnara Group over time can be a strong indicator of how we have delivered to our strategic objectives, in particular the value created from acquiring life and pensions businesses and enhancing our value through writing profitable new business. It ignores the potential of new business to be written in the future (the franchise value of our Swedish business) and the value of the Company's ability to acquire further businesses.

Highlights

- Closing EEV is £38m higher than at the start of the year.

- Post-tax EEV earnings have contributed £36.2m, excluding the acquisition profit of the Waard Group.

- Profit of £21.3m arising on acquisition of the Waard Group, representing the excess of the EEV acquired over the purchase price, enhances EEV in the year.

- Small foreign exchange losses arising on retranslation of the Swedish and Dutch businesses.

- Dividends paid of £23.5m in the year, being the payment of the year end 2014 final dividend and the 2015 interim dividend.

Risks 

The Embedded Value of the Group is affected by economic factors such as equity and property markets and yields on fixed interest securities. In addition to this, whilst the other KPIs (which are all "performance measures") remain relatively insensitive to exchange rate movements, the EEV position of the Group can be materially affected by exchange rate fluctuations. For example a 10.0% weakening of the Swedish Krona and Euro against Sterling would reduce the EEV of the Group by 3.2% and 1.5% respectively, based on the composition of the Group's EEV at 31 December 2015.

Further detail for each KPI

IFRS PRE-TAX PROFIT £42.8M (2014: £28.8M)

Executive summary

The Group IFRS results reflect the natural dynamics of the segments of the Group, which can be characterised in three major components:

Stable core

At the heart of surplus, and hence cash generation, are the CA and Waard Group segments. The requirements of these books are to provide a predictable and stable platform for the financial model and dividend strategy. As a closed book, the key is to sustain this income source as effectively as possible. The IFRS results below show that the stable core continues to deliver against these requirements.

Variable element

The S&P component can bring an element of short-term earnings volatility to the Group, with the results being particularly sensitive to investment market movements.

Growth operation

The long-term financial model of Movestic is based on growth, with levels of new business and premiums from existing business being targeted to more than offset the impact of policy attrition, leading to a general increase in assets under management and, hence, management fee income.

IFRS results

The financial dynamics of Chesnara, as described above, are reflected in the following IFRS results:

Note 1 - The CA segment has reported good results for the year, albeit reduced compared with 2014. The reduction is primarily due to 2014 including some one off items, coupled with more suppressed market conditions in 2015. Further insight is provided in the CA segmental analysis below.

Note 2 - The S&P segment has reported a profit for the year compared with a loss in 2014. The principal driver of this swing is that the 2014 results included a large loss arising from an increase in the reserves held for products with guarantees driven by a significant reduction in government gilt yields during that year. Further detail can be found below.

Note 3 - The Movestic result has improved when compared with 2014, principally arising from the Pensions & Savings division which continues to grow, resulting in growing fee income. Further analysis can be found below.

Note 4 - The Waard Group acquisition completed on 19 May 2015 and therefore the IFRS results only include just over seven months of profit. The acquisition resulted in the recognition of a one-off gain of £16.6m, representing the excess of the net assets acquired over the purchase price.

Note 5 - The Chesnara result represents holding company expenses. 2015 costs are higher than 2014 primarily due to a one off foreign currency re-translation loss of £3.5m arising from holding Euros prior to the completion of the Waard Group purchase.

Note 6 - Consolidation adjustments relate to items such as the amortisation of intangible assets and remain broadly in line year on year.

The IFRS results by business segment are analysed in more detail as follows:

CA

The key components of the IFRS result for CA for the year are as follows.

Note 7 - Product-based deductions and administrative expenses have remained broadly in line year on year, as would be expected. Charges have remained resilient to policy attrition and continue to significantly exceed administration expenses.

Note 8 - Retained surpluses are held in low-risk Government gilts. During 2015 the gilt index has remained broadly flat, resulting in small returns, whereas higher returns were seen in 2014 due to gilt value appreciation during that year.

Note 9 - Policyholder reserves have reduced by £4.8m during the year. The movement in these reserves is the result of an actuarial basis assessment, where all key judgments affecting the reserves are set. There is no dominating feature of the 2015 basis assessment, with the net impact in reserves being positive during 2015. 2014 witnessed a higher reserve reduction in the year, primarily due to economic impacts.

Note 10 - During 2014 a key outsourcing contract was re-negotiated, resulting in a positive benefit to the CA segment. No such dynamics existed this year.

S&P

The key components of the IFRS result for S&P for the year are as follows:

Note 1 - Product-based deductions and administrative expenses have remained broadly in line year on year, as would be expected. Product deductions have remained resilient to policy attrition.

Note 2 - Shareholder funds are invested in low-risk Government gilts. During 2015 the gilt index has remained broadly flat, resulting in small returns, whereas higher returns were seen in 2014 due to gilt value appreciation during that year.

Note 3 - One of the main drivers of the S&P surplus in any one year is the movement in the reserves held for products with guarantees, which are sensitive to both equity and gilt markets. During 2014 reductions in gilt yields gave rise to a large increase in such reserves, resulting in a large loss. For 2015 the gilt yields and equity markets closed broadly in line with the start of the year.

Note 4 - During 2015 modelling refinements have been made to align the way in which expenses are modelled across the UK business. This has contributed to the positive reserve movements during the year.

Note 5 - During 2014 a key outsourcing contract was re-negotiated, resulting in a strain arising in the S&P segment. No such dynamics existed this year.

Movestic

The key components of the IFRS result for Movestic for the year are as follows:

Note 6 - The Pensions & Savings business continues to be the core source of IFRS profit in Movestic. The segment has reported strong results growth, with 2015 IFRS profits amounting to £5.9m. Good performance in the year is driven by two key factors. Firstly, policyholder fee income has increased year on year, arising from growth in funds under management. Secondly, improvements in the fund operation have resulted in increased performance fee rebates in the year, largely due to "white-labelling" initiatives and renegotiations with certain fund managers.

Note 7 - The Risk and Health business has generated a profit in the year amounting to £1.0m. The loss ratios in the year have remained stable, and premium income has remained broadly the same year on year. Policy numbers for this book have remained at just over 380,000 for both 2015 and 2014.

Note 8 - The "Other" component includes: the results of Movestic's associated company, Modernac; investment income; the results of Movestic's investment management business and fair value adjustments on the financial reinsurance that Movestic uses to fund the writing of new Pensions & Savings business. The key reason for the small loss of £0.2m in 2015 compared with a profit of £2.1m in 2014 is as a result of a number of small factors. In particular, the fund business, Movestic Kapital delivered profits of £0.1m during 2015 compared with £0.8m in 2014, largely because 2014 included some one off income. In addition there has been a swing of some £0.4m due to lower investment returns on shareholder assets, largely due to the negative interest rate environment in Sweden.

Waard Group

The Waard Group has reported a small profit of £0.9m since acquisition reflecting the natural emergence of surplus in the business. Surpluses principally arise from mortality surpluses arising from the Waard Group's term assurance policies.

CASH GENERATION £82.4M (2014: £71.1M)

"The Group's cash flows are generated principally from the interest earned on capital, the release of excess capital as the life funds run down, policyholder charges and management fees earned on assets under management.

Cash generation is a function of the Group's and each Division's capital management policies, in that we only report cash as being available for distribution if it exceeds the Board-approved capital requirement included within these policies. Capital management policies are set with reference to the regulatory capital requirements with the inclusion of a "management buffer". For 2015 the cash generation that we have reported is calculated with reference to our Solvency I capital management policies. For future periods cash generation will be reported with reference to our capital management policies based on Solvency II."

Highlights

- A significant amount of net cash, amounting to £39.9m, has emerged from the acquisition of the Waard Group, driven by the strong levels of regulatory surplus in this group.

- Gross cash generation in the UK run-off business of £42.5m is broadly in line with the same period in 2014.

- We are reporting modest levels of cash generation of £5.1m for Movestic for the first time since its acquisition in 2009.

Items affecting the cash available for distribution:

Note 1 - Cash generation for the UK business has continued to be strong following a good year in 2014. Statutory surplus has continued to emerge well from both UK segments (£32.0m) and this, coupled with the decrease in our capital management requirements as the books run off (£10.5m) have driven our cash generation in the year.

Note 2 - We are reporting cash generation for Movestic for the first time since it was acquired during 2009. Cash generation of £5.6m represents surplus generation of £5.7m, off-set by an increase in our capital requirements of £0.1m. A small foreign exchange loss in the year has reduced the value of the surplus cash available for distribution.

Note 3 - The acquisition of the Waard Group has delivered a significant one off cash generation item, amounting to £39.9m, driven by the strong levels of regulatory surplus in this group. Post acquisition the Waard Group has reported a small amount of cash generation, as expected. A small foreign exchange gain has also been reported, due to a slight strengthening of the Euro against Sterling post acquisition.

Note 4 - During 2015 Protection Life Company Limited has been deauthorised as a regulated entity as it no longer carries on insurance activities, following the Part VII transfer of the business into CA plc on 31 December 2014. As a result this has released a further £2.9m of available capital across the Group.

Note 5 - The net cash generation KPI is a useful indicator of the dividend paying capacity of the Group's regulated subsidiaries. This is monitored closely by Management as cash generated by the Group's regulated subsidiaries is used by the Chesnara Parent Company for corporate transactions such as the servicing of debt, payments of dividends and the funding of future acquisitions. It should be noted that this KPI is quite distinct from the Group's Cash Flow Statement as included in the Group's IFRS Financial Statements, which is intended to reflect the movement in cash held by Chesnara and its subsidiaries but does not reflect that most of the subsidiary cash balances are held in regulated insurance funds and are therefore not available for use by the Parent Company.

EEV EARNINGS £57.5M* (2014: £44.2M)

*EXCLUDING THE POSITIVE IMPACT OF MODELLING ADJUSTMENTS OF £5.9M

"EEV profits have emerged across all three insurance divisions of the Group, with Movestic having delivered a significant proportion of this. The EEV results include a one-off profit of £21.3m arising from the acquisition of the Waard Group."

The following tables analyse the Group EEV earnings after-tax by source and by business segment:

Analysis of the EEV result in the year by earnings source

Analysis of the EEV result in the year by business segment

Economic conditions

The EEV result is sensitive to investment market conditions. The 2015 EEV results include a positive contribution as a result of investment markets, especially with regards to Movestic, although this is much less marked across the Group than the positive experience in 2014. Key investment market conditions are as follows:

- The FTSE All share index has decreased by 2.5% during 2015, compared with falling by 2.1% in 2014.

- The Swedish OMX all share index has increased by 6.6% during the year compared with a 11.9% increase in the prior year.

- 10 year UK gilt yields have increased by 21 points in 2015 compared with a reduction of 120 points in 2014.

Note 1 - CA: The CA segment result of £10.8m is driven by positive experience variances of £6.9m offset by adverse operating assumption changes of £2.5m. Economic-related results have contributed an additional £2.4m to the result. The £6.9m of positive experience variances is primarily made up of £4.8m of positive lapse experience coupled with £2.1m of reserve releases. Adverse operating assumption changes includes the impact of adverse expense assumption changes off-set by positive mortality assumption changes.

Note 2 - S&P: The S&P segment result of £7.7m is driven by £2.5m of positive experience variances and £5.1m of positive operating assumption changes. The positive experience variances are largely as a result of positive lapse experiences in the year. Operating assumption changes are the net of a number of items, but primarily relate to the net impact of updating our expense modelling for new assumptions and aligning the expense modelling with the rest of the UK business.

Note 3 - Movestic: Movestic has contributed significantly to the Group EEV earnings in the year with a £22.7m segmental result (2014: £27.5m). The following factors are the key drivers of the result:

- New business profits of £5.7m: New business profits have reduced compared with last year's result of £8.9m. The key reason for the reduction compared with 2014 is due to very strong competition in the first half of the year from more traditional life insurance companies who were offering very attractive policyholder returns. Such market offerings have now become much less commonplace. This resulted in volume and margin pressure to the business, although market share has improved during the latter half of 2015.

- Economic profits of £9.4m: Equity markets have continued to perform well in Sweden during 2015, building on strong returns in 2014, and this has resulted in the strong economic profits in the year.

- Positive operating assumption changes of £5.7m: Two key factors have contributed to net positive operating assumption changes:

o Expenses - assumptions have been strengthened during 2015 to recognise the cost of the current business process improvements project, coupled with a strengthening of maintenance cost assumptions. The net impact of this a cost strain of £8.4m.

o Performance fee rebate income - as a result of improvements in fee rebates during the year the assumptions have been aligned to recent performance, resulting in a positive impact of £18.4m.

Note 4 - Waard Group: The Waard Group has reported a small profit in the post acquisition period. Overall the Waard Group is not expected to be a significant generator of future EEV surplus. As a result of the acquisition of the Waard Group a gain of £21.3m has been recognised, representing the excess of the Embedded Value acquired over the consideration paid.

Note 5 - Chesnara: The Chesnara result represents holding company expenses. 2015 costs are higher than 2014 primarily due to a one off foreign currency re-translation loss of £3.5m arising from holding Euros prior to the completion of the Waard Group purchase.

Note 6 - Tax: The combined EEV tax credit of £3.6m can be broken down into a current tax charge of £4.7m off-set by a deferred tax credit of £8.3m. The deferred tax component represents the movement in deferred tax on the value of in-force policies during the year, with a credit arising as a result of the VIF reduction in the year coupled with the impact of some modelling refinements.

EUROPEAN EMBEDDED VALUE £455.2M (2014: £417.2M)

Summary

The EEV of the Chesnara Group represents the present value of the estimated future profits of the Group plus an adjusted net asset value. Movements between different periods are a function of the following components:

- Net of tax profit arising in the period, pre exceptional items;

- One-off items, such as:

o the impact of raising new equity;

o the surpluses arising on acquisitions; and

o modelling adjustments;

- Foreign exchange movements arising from retranslating the EEV of Movestic and the Waard Group into Sterling; and

- Dividends that are paid during the year.

More detail behind each of these components has been provided below:

EEV movement 31 December 2014 to 31 December 2015

* stated before exceptional items

EEV movement 31 December 2013 to 31 December 2014

Net of tax profit

The EEV profit arising during the year is analysed in more detail within the preceding section.

Profit on acquisition

The purchase of the Waard Group has resulted in the recognition of a "day 1" profit of £21.3m. The profit arose because the EEV of the Waard Group at the acquisition date amounted to £71.4m, which is £21.3m higher than the purchase price of £50.1m.

Effect of modelling adjustments

During the year an adjustment of £5.9m has been reported relating to a tax error in the EEV model which resulted in the tax charge in the EEV model being overstated at 31 December 2014. This has been corrected in the year.

Foreign exchange reserve movements

The £1.9m loss reported as a foreign exchange reserve movement during 2015 has arisen as a result of a small depreciation of the Swedish Krona against Sterling during 2015. This compares with a 14% depreciation during 2014. Included within the exchange reserve movement loss is a small profit arising from the slight appreciation of the Euro against GBP since the acquisition of the Waard Group.

Dividends paid

Dividends of £23.5m were paid during 2015, being the final dividend from 2014 of £15.1m and the interim dividend from 2015 of £8.4m.

Equity raised for acquisition

During 2014 we announced the acquisition of the Waard Group in the Netherlands. To finance the deal we raised £34.5m of equity through a well supported share placing exercise.

Analysis of EEV

The information below provides some further analysis of the EEV of the Group, both in terms of the split between different operating segments and also the split between the adjusted shareholder net worth and the value of the in-force (VIF) business. The adjusted shareholder net worth represents the IFRS net worth of the Group, but adjusted for items that are measured differently under EEV measurement rules and the VIF represents Management's best estimate of the present value of the future profits that will arise out of each book of business.

Analysis of EEV between VIF and shareholder net worth (SNW) (£m)

The VIF component of £264.8m consists of 61% in relation to the Swedish business, 35% UK and 4% the Netherlands.

Analysis of EEV by segment

There is a good balance in EEV across the Group with the UK business representing the majority (51%) of the total EEV (2014: 65%). In the above segmental analysis any outstanding debt in relation to the S&P and PL acquisitions is included in "Other Group Activities".

Analysis of VIF by policy type

89% of the Group VIF is attributable to pensions products. These are typically products that are in their savings phase, with the VIF representing the best estimate of the future cash flows expected to be earned by the Group from these products.

'Valuation adjustments' in the above table comprise items that are not attributed at product level, such as certain expenses and the cost of guarantees to with-profits policyholders in the S&P business.

Analysis of policy numbers by policy type

The increase in protection products is as a result of the Waard Group acquisition during the year.

Policy numbers above only reflect those that are included in our EEV calculations ("covered business"). As a result, these tables do not include 379,000 (2014: 382,000) Life & Health policies in the Swedish division and 24,000 unemployment and disability policies in the Dutch division.

FINANCIAL MANAGEMENT

"The Group's financial management framework is designed to provide security for all stakeholders, while meeting the expectations of policyholders, shareholders, and regulators."

Objectives:

1. Maintain solvency targets - Group Solvency Ratio: Solvency I: 305% & Solvency II: 146%

2. Meet the dividend expectations of shareholders - 2015 TSR 4.1% 2015 dividend yield 5.7%. Based on share price as at 31 December 2015 of 335.00p and full year 2015 dividend of 18.94p.

3. Optimise the gearing ratio to ensure an efficient capital base - The Group is funded by a combination of share capital, retained earnings and debt finance, with the debt gearing (excluding financial reinsurance in Sweden) being 17.8% at 31 December 2015 (23.1% at 31 December 2014). The level of debt that the Board is prepared to take on is driven by the Group's "Debt and leverage policy" which incorporates the Board's risk appetite in this area. Over time, the level of gearing within the Group will change, and is a function of:

- funding requirements for future acquisitions (i.e. debt, equity and internal financial resources); and

- repayment of existing debt that was used to fund previous acquisitions.

As referred to above, acquisitions are funded through a combination of debt, equity and internal cash resources. The ratios of these three funding methods vary on a deal-by-deal basis and are driven by a number of factors including, but not limited to:

- size of the acquisition;

- current cash resources of the Group;

- current gearing ratio and the Board's risk tolerance limits for additional debt;

- expected cash generation profile and funding requirements of the existing subsidiaries and potential acquisition;

- future financial commitments; and

- regulatory rules.

In addition to the above, Movestic uses a financial reinsurance arrangement to fund its new business operation.

4. Ensure there is sufficient liquidity to meet obligations to policyholders, debt financiers and creditors - Policyholders' reasonable expectations maintained. Asset liability matching framework operated effectively in the year. Sufficient liquidity in the Chesnara holding company.

5. Maintain the Group as a going concern - The Directors have considered the ability of the Group to continue on a going concern basis. As such the Board has performed an assessment as to whether the Group can meet its liabilities as they fall due for a period of at least 12 months.

In performing this work, the Board has considered the current cash position of the Group and Company, coupled with the Group's and Company's expected cash generation as highlighted in its recent business plan, which covers a three year period. The business plan considers the financial projections of the Group and its subsidiaries on both a base case and a range of stressed scenarios, covering projected IFRS, EEV and solvency positions. These projections also focus on the cash generation of the life insurance divisions and how these flow up into the Chesnara parent company balance sheet, with these cash flows being used to fund debt repayments, shareholder dividends and the head office function of the parent company.

The information set out above indicates a strong Solvency II position as at 31 December 2015 as measured at both the individual regulated life company levels and at the Group level. As well as being well-capitalised the Group also has a healthy level of cash reserves to be able to meet its debt obligations as they fall due, and does not rely on the renewal or extension of bank facilities to continue trading. The Group's subsidiaries do, however, rely on cash flows from the maturity or sale of fixed interest securities which match certain obligations to policyholders, which brings with it the risk of bond default. In order to manage this risk we ensure that our bond portfolio is actively monitored and well diversified. Other significant counterparty default risk relates to our principal reinsurers. We monitor their financial position and are satisfied that any associated credit default risk is low.

In light of this information, the Board has concluded that the Group and Company has a reasonable expectation that the Group and Company have adequate resources to continue in operational existence for the foreseeable future, and the 2015 Group Financial Statements have continued to be prepared on a going concern basis.

Longer term viability statement

In accordance with provision C.2.2 of the 2014 revision of the UK Corporate Governance Code, the Directors have assessed the prospect of the Company over a longer period than the twelve months required by the going concern provision. The Board conducted this review for a period of three years because the Group's business plan covers a three year period and includes an assessment of Group cash generation and Group solvency margins over that time period.

The Group business plan considers the Group's cash flows, the Group's ability to remain above target solvency levels and other key financial measures over the period, assuming continuation of the Group's established dividend payment strategy. These metrics are subject to scenario analysis representing the principal risks to which the Group is most sensitive, both individually and in unison. Where appropriate this analysis is carried out to evaluate the potential impact of adverse economic and other experience effects, including, but not limited to:

i) Equity market declines

ii) Reduction in yield curves

iii) Adverse mortality and lapse experience

iv) Adverse expense experiences

v) Reduced new business volumes

vi) Adverse exchange rate experience

Based on the results of this analysis, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the three year period of their assessment.

RISK MANAGEMENT

PRINCIPAL RISKS AND UNCERTAINTIES

Risks and uncertainties are assessed by reference to the extent to which they threaten, or potentially threaten, the ability of the Group to meet its core strategic objectives. These currently centre on the intention of the Group to maintain an attractive dividend profile.

The specific principal risks and uncertainties subsisting within the Group are determined by the fact that:

i) the Group's core operations centre on the run-off of closed life and pensions businesses in the UK and the Netherlands;

ii) notwithstanding this, the Group has a material segment, which comprises an open life and pensions business; and

iii) these businesses are subject to local regulation, which significantly influences the amount of capital which they are required to retain and which may otherwise constrain the conduct of business.

The below table identifies the principal risks and uncertainties of the Group and what controls are in place to mitigate or manage their impact. It has been drawn together following a robust assessment performed by the Directors of the principal risks facing the company, including those that would threaten its business model, future performance, solvency or liquidity. These have been updated to reflect the risks of the Waard Group, and it is worth noting that they have remained materially unchanged as a result of this update since those reported in the 2014 Annual Report & Accounts.

DIRECTORS' RESPONSIBILITIES STATEMENT

With regards to this preliminary announcement, the Directors confirm to the best of their knowledge that:

- The financial statements have been prepared in accordance with International Reporting Financial Standards as adopted by the EU and give a true and fair view of the assets, liabilities, financial position and profit for the Company and the undertakings included in the consolidation as a whole;

- The EEV supplementary information has been prepared in accordance with the EEV Principles; and

- Pursuant to Disclosure and Transparency Rules Chapter 4, the Chairman's Statement and Management Report include a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties faced by the business.

On behalf of the Board

Peter Mason John Deane

Chairman Chief Executive Officer

30 March 2016 30 March 2016

INDEPENDENT AUDITOR'S REPORT TO THE SHAREHOLDERS OF CHESNARA PLC ON THE PRELIMINARY ANNOUNCEMENT OF CHESNARA PLC

We confirm that we have issued an unqualified opinion on the full financial statements of Chesnara plc.

We also confirm that we have issued an unqualified opinion on the EEV Basis Supplementary Information of Chesnara plc. Our audit report on the EEV Basis Supplementary Information should be read in conjunction with the full financial statements prepared on an IFRS basis.

Our audit report on the full financial statements sets out the following risks of material misstatement which had the greatest effect on our audit strategy; the allocation of resources in our audit; and directing the efforts of the engagement team, together with how our audit responded to those risks:

1. Save and Prosper cost of Guarantees;

2. Valuation of the Protection Life acquired in-force business intangible;

3. Credit adjustment to the valuation rate of interest; and

4. Waard acquisition.

1) Save and Prosper cost of Guarantees

The risk

The assessment of the cost of guarantee reserves for policies written by Save and Prosper is complex and material, including the use of a stochastic model based on a variety of possible economic scenarios. The carrying value of the liability within the IFRS financial statements has fluctuated significantly over the last 3 years, and has a value of £37.2m at 31 December 2015 (31 December 2014: £34.6m). The value is determined by a third party actuarial consultant and he directors compare this valuation against an in-house derived estimate using an approximation model to validate its reasonableness.

See the 'S&P Pre-tax IFRS profit' section of the Financial Review for disclosure of the charge to income for the current and prior year and narrative of the driver underpinning this movement.

How the scope of our audit responded to the risk

We have assessed the competence of the actuarial consultant. Such an assessment includes a direct challenge of the actuarial consultant's working papers and a challenge of the historical accuracy of modelling when compared with actual experience. We used actuarial specialists within our audit team to challenge the appropriateness of assumptions input into the model and benchmark against external actuarial data. Sensitivity analysis was also performed to assess potential management bias. We developed an independent expectation of how the assumptions impact the model and challenged management's explanation and analysis to support any variations.

We have assessed the design and implementation of the internal controls in place to monitor and manage the risks associated with the cost of guarantee reserve.

2) Valuation of the Protection Life acquired in-force business intangible

The risk

At 31 December 2015 the group carries an intangible asset for the Protection Life acquired in-force business of £15.0m (31 December 2014: £17.6m). Following a review of available headroom, the key risk has been focussed on the Protection Life acquired in-force business intangible from the Movestic acquired in-force business intangible in the previous year.

Assessing the recoverable value of the acquired in-force business intangible asset requires significant judgment in the estimation of the net present value of cash flows arising from the pre-acquisition policies acquired in past business combinations. The key assumptions are persistency rates, discount rates and economic assumptions. In performing the impairment review management has used a variety of discount rates (4%, 5%, 6% and 7%).

How the scope of our audit responded to the risk

We evaluated the recoverability of the Protection Life acquired in-force business intangible asset by reviewing and challenging:

- the mechanical accuracy of the net present value calculation;

- the cash flows within the model to ensure these were the latest available and were those used consistently throughout the business;

- the level of headroom this calculation generated by reference to the post amortisation carrying value of the asset; and

- the appropriateness of the key assumptions used within the model by reference to actual experience and performance of sensitivity analysis where appropriate.

We tested the design and implementation of the controls over the impairment test performed by management to assess the suitability of the carrying value of the intangible asset.

3) Credit adjustment to the valuation rate of interest

The risk

Actuarial liabilities are calculated using an appropriate discount rate to take account of the time value of future expected payments. The discount rate used to determine the actuarial liabilities includes an adjustment to reflect the credit risk of those future cash flows. The determination of the credit risk adjustment which is applied to non-Government bond yields is a source of significant judgment and is material to the Balance Sheet.

How the scope of our audit responded to the risk

We evaluated the appropriateness of the principal assumptions relating to the credit risk element of the valuation rate of interest assumption for discounting the technical provisions. This involved benchmarking the credit risk assumptions used against those obtained from external data, including a comparison with those adopted by industry peers, where available.

We substantively agreed a sample of non-government bonds used within the calculation of the valuation rate of interest to the value of those bonds on the balance sheet to check consistency.

We have evaluated the design and implementation of the internal controls around the determination and application of the credit element of the valuation rate of interest applied in discounting actuarial liabilities.

4) Waard acquisition

The risk

The acquisition of the Waard Group required the exercise of judgment on the identification and valuation of the assets and liabilities acquired. The key judgments included the calculation of future cash flows arising from the Waard Group and the discount rate applied in adjusting these cash flows to a present value measurement. These judgements have a material impact on the financial position and result for the year.

A profit of £16.6m was recognised along with an intangible asset of £5.5m representing the acquired in-force business, which will be amortised over the life of the business. A profit on acquisition was recognised due to the deal being a "bargain purchase" given the owner of the Waard Group was subject to bankruptcy proceedings in the Netherlands during the deal negotiation and completion.

See Note 3 for the accounting policy adopted by management, the consideration of significant accounting judgment and the disclosure of the acquired in-force business intangible.

How the scope of our audit responded to the risk

We supervised audit procedures on the acquired Balance Sheet, including an independent valuation of a sample of derivative contracts held within the Balance Sheet and other investment balances.

We challenged the methodology applied to the underlying cash flows used to calculate the acquired in-force business intangible asset, and the judgments made by management. Specifically we recalculated an independent discount rate based on observable inputs to assess whether the rate used by management was reasonable. We used actuarial specialists within our audit team to challenge the appropriateness of assumptions used with reference to the actual experience observed within the book.

We assessed and challenged the completeness and accuracy of adjustments made in the consolidation process by independent recalculation. This included adjustments made to bring the Waard reporting in line with the group accounting policies, and any consolidation adjustments made.

We obtained and challenged the acquisition hindsight review performed by Management in the post-acquisition period against the performance of the acquired business.

We have evaluated the design and implementation of the internal controls in place around the Waard acquisition. Such controls included Board approval of the assumptions used and approval of the acquisition accounting workings.

These matters were addressed in the context of our audit of the full financial statements as a whole, and in forming our opinion thereon, and we did not provide a separate opinion on these matters.

Our liability for this report, and for our audit report on the full financial statements is to the company's members as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our liability for our audit report on the EEV Basis Supplementary Information is to the company directors in accordance with our engagement letter. Our audit work on the full financial statements and on the EEV Basis Supplementary Information has been undertaken so that we might state to the company's members and directors those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for our audit report or this report, or for the opinions we have formed.

Deloitte LLP

Chartered Accountants and Statutory Auditor

CONSOLIDATED FINANCIAL STATEMENTS - IFRS BASIS

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET

CONSOLIDATED STATEMENT OF CASH FLOWS

Note: Net cash and cash equivalents includes overdrafts.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - IFRS BASIS

1. Basis of presentation

The preliminary announcement is based on the Group's financial statements for the year ended 31 December 2015, which are prepared in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the European Union ('Adopted IFRSs') as adopted by the EU.