Notes AB-AC

AB: Post balance sheet events

Interim dividend

The 2013 interim dividend approved by the Board of directors after 30 June 2013 is as described in note J.

Japan Life business: held for sale classification at 30 June and post balance sheet agreement to sell

As at 30 June 2013, a sale of the Group’s closed book life insurance business in Japan, PCA Life Insurance Company Limited, was highly probable. Accordingly this business has been classified as held for sale in the half year 2013 condensed consolidated financial statements in accordance with IFRS 5, ‘Non-current assets held for sale and discontinued operations’. Consistent with its classification as held for sale, the IFRS carrying value of the Japan Life business has been set to £53 million at 30 June 2013, representing the estimated proceeds, net of related expenses. This has resulted in a charge as for ‘Remeasurement of Japan Life business classified as held for sale’ of £(135) million in the income statement.

In order to facilitate comparisons of the Group’s retained businesses, the supplementary analysis of profit of the Group as shown in note C has been adjusted to show separately the results for the Japan Life business. Accordingly, the comparative results for half year and full year 2012 have been retrospectively adjusted. For half year 2013 the result for the period, including short-term fluctuations in investment returns, together with the adjustment to the carrying value have given rise to an aggregate loss of £(124) million (half year 2012: £14 million; full year 2012: £17 million). This comprises:

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  2013 £m 2012 £m
  Half year Half year Full year
Remeasurement of carrying value on classification as held for sale (135)
Amounts previously classified within:      
– Operating profit based on longer-term investment returns 5 (2)
– Short-term fluctuations in investment returns 6 14 19
(Loss) profit attaching to held for sale Japan Life business (124) 14 17
Related tax charge

The assets and liabilities of the Japan Life business classified as held for sale on the statement of financial position as at 30 June 2013 are as follows:

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  2013 £m
30 Jun
Assets  
Investments 1,095
Other assets 119
  1,214
Adjustment for remeasurement of the carrying value to fair value less costs to sell (135)
Assets held for sale 1,079
Liabilities  
Policyholder liabilities 970
Other liabilities 56
Liabilities held for sale 1,026
Net assets 53

On 16 July 2013 the Group reached an agreement to sell this business to SBI Holdings Inc. for US$85 million (£56 million at 30 June 2013 closing exchange rate). Completion of the transaction is dependent on regulatory approval.

AC: Additional information on the effect of adoption of new and amended accounting standards

The new and amended accounting standards adopted by the Group in 2013 are explained in note B. The tables below show the quantitative effect of the adoption of these new and amended standards on the Group primary financial statements and supplementary analysis of profit.

(a) The aggregate effect of the adoption of the standards on the income statement, earnings per share, statement of comprehensive income, statement of changes in equity, statement of financial position and cash flow statement is shown in the tables below:

Condensed consolidated income statement

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  Half year 2013 £m
  Under previous accounting requirements Effect of IFRS changes As reported after IFRS changes
  IFRS 10 IFRS 11 IAS 19R

* The effect of change from IFRS 11 in the table above includes the reclassification of the Group’s share of profit from its investments in associates into the Share of profit from joint ventures and associates, net of related tax line. These investments were already on the equity method accounting prior to 2013 but their results were previously included within the Investment return line.

Total revenue, net of reinsurance 23,070 65 (744) 22,391
Benefits and claims and movement in unallocated surplus of with-profits funds, net of reinsurance (18,629) 522 (36) (18,143)
Acquisition costs and other expenditure (3,605) (65) 136 67 (3,467)
Remeasurement of Japan Life business classified as held for sale (135) (135)
Share of profit from joint ventures and associates, net of related tax* 74 74
Profit before tax (being tax attributable to shareholders’ and policyholders’ returns) 701 (12) 31 720
Less tax charge attributable to policyholders’ returns (213) 2 (3) (214)
Profit before tax attributable to shareholders 488 (10) 28 506
Total tax charge attributable to policyholders and shareholders (357) 12 (10) (355)
Adjustment to remove tax charge (credit) attributable to policyholders’ returns 213 (2) 3 214
Tax charge attributable to shareholders’ returns (144) 10 (7) (141)
Profit for the period attributable to equity holders of the Company 344 21 365
Earnings per share (in pence)          
Based on profit attributable to the equity holders of the Company:          
Basic 13.5p 0.8p 14.3p
Diluted 13.5p 0.8p 14.3p

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  Half year 2012 £m
  As reported under previous accounting requirements Effect of IFRS changes After IFRS changes
  IFRS 10 IFRS 11 IAS 19R

* The effect of change from IFRS 11 in the table above includes the reclassification of the Group’s share of profit from its investments in associates into the Share of profit from joint ventures and associates, net of related tax line. These investments were already on the equity method accounting prior to 2013 but their results were previously included within the Investment return line.

Total revenue, net of reinsurance 23,881 38 (557) 23,362
Benefits and claims and movement in unallocated surplus of with-profits funds, net of reinsurance (19,850) 389 118 (19,343)
Acquisition costs and other expenditure (2,732) (38) 97 (212) (2,885)
Share of profit from joint ventures and associates, net of related tax* 62 62
Profit before tax (being tax attributable to shareholders’ and policyholders’ returns) 1,299 (9) (94) 1,196
Less tax charge attributable to policyholders’ returns (40) 2 8 (30)
Profit before tax attributable to shareholders 1,259 (7) (86) 1,166
Total tax charge attributable to policyholders and shareholders (347) 9 29 (309)
Adjustment to remove tax charge attributable to policyholders’ returns 40 (2) (8) 30
Tax charge attributable to shareholders’ returns (307) 7 21 (279)
Profit for the period attributable to equity holders of the Company 952 (65) 887
Earnings per share (in pence)          
Based on profit attributable to the equity holders of the Company:          
Basic 37.5p (2.5)p 35.0p
Diluted 37.5p (2.6)p 34.9p

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  Full year 2012 £m
  As reported under previous accounting requirements Effect of IFRS changes After IFRS changes
  IFRS 10 IFRS 11 IAS 19R

* The effect of change from IFRS 11 in the table above includes the reclassification of the Group’s share of profit from its investments in associates into the Share of profit from joint ventures and associates, net of related tax line. These investments were already on the equity method accounting prior to 2013 but their results were previously included within the Investment return line.

Total revenue, net of reinsurance 55,476 52 (1,090) 54,438
Benefits and claims and movement in unallocated surplus of with-profits funds, net of reinsurance (45,953) 715 94 (45,144)
Acquisition costs and other expenditure (6,335) (52) 220 (145) (6,312)
Share of profit from joint ventures and associates, net of related tax* 135 135
Profit before tax (being tax attributable to shareholders’ and policyholders’ returns) 3,188 (20) (51) 3,117
Less tax charge attributable to policyholders’ returns (378) 2 6 (370)
Profit before tax attributable to shareholders 2,810 (18) (45) 2,747
Total tax charge attributable to policyholders and shareholders (991) 20 17 (954)
Adjustment to remove tax charge (credit) attributable to policyholders’ returns 378 (2) (6) 370
Tax charge attributable to shareholders’ returns (613) 18 11 (584)
Profit for the year attributable to equity holders of the Company 2,197 (34) 2,163
Earnings per share (in pence)          
Based on profit attributable to the equity holders of the Company:          
Basic 86.5p (1.4)p 85.1p
Diluted 86.4p (1.4)p 85.0p

Condensed consolidated statement of comprehensive income and statement of changes in equity

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  Half year 2013 £m
  Under previous accounting requirements Effect of IFRS changes As reported after IFRS changes
  IFRS 10 IFRS 11 IAS 19R
Profit for the period 344 21 365
Exchange movements on foreign operations and net investment hedges, net of related tax 232 232
Unrealised valuation on securities of US insurance operations classified as available-for-sale net of amortisation of deferred acquisition costs and related tax (837) (837)
Shareholders’ share of actuarial gains and losses on defined benefit pension schemes, net of related tax (21) (21)
Total comprehensive loss for the period (261) (261)
Net decrease in shareholders’ equity (734) (734)
At beginning of period 10,359 10,359
At end of period 9,625 9,625

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  Half year 2012 £m
  As reported under previous accounting requirements Effect of IFRS changes After IFRS changes
  IFRS 10 IFRS 11 IAS 19R
Profit for the period 952 (65) 887
Exchange movements on foreign operations and net investment hedges, net of related tax (54) (54)
Unrealised valuation on securities of US insurance operations classified as available-for-sale net of amortisation of deferred acquisition costs and related tax 196 196
Shareholders’ share of actuarial and other gains and losses on defined benefit pension schemes, net of related tax 65 65
Total comprehensive income for the period 1,094 1,094
Net increase in shareholders’ equity 728 728
At beginning of period 8,564 8,564
At end of period 9,292 9,292

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  Full year 2012 £m
  As reported under previous accounting requirements Effect of IFRS changes After IFRS changes
  IFRS 10 IFRS 11 IAS 19R
Profit for the year 2,197 (34) 2,163
Exchange movements on foreign operations and net investment hedges, net of related tax (216) (216)
Unrealised valuation on securities of US insurance operations classified as available-for-sale net of amortisation of deferred acquisition costs and related tax 387 387
Shareholders’ share of actuarial and other gains and losses on defined benefit pension schemes, net of related tax 34 34
Total comprehensive income for the year 2,368 2,368
Net increase in shareholders’ equity 1,795 1,795
At beginning of year 8,564 8,564
At end of year 10,359 10,359

Condensed consolidated statement of financial position

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  30 June 2013 £m
  Under previous accounting requirements Effect of IFRS changes As reported after IFRS changes
  IFRS 10 IFRS 11 IAS 19R
Assets          
Intangible assets attributable to shareholders 7,101 (89) 7,012
Intangible assets attributable to with-profits funds 257 257
Reinsurers’ share of insurance contract liabilities 7,211 (7) 7,204
Other non-investment and non-cash assets 8,843 10 (113) 8,740
Investments of long-term business and other operations:          
Investment properties 10,936 (353) 10,583
Investments accounted for using the equity method 103 593 696
Financial investments:          
Loans 12,411 830 (11) 13,230
Equity securities and portfolio holdings in unit trusts 113,124 571 (1,437) 112,258
Debt securities 139,629 152 (1,525) 138,256
Other investments 6,178 (3) (35) 6,140
Deposits 13,998 (3) (453) 13,542
Total other assets 8,269 (141) (209) 7,919
Total assets 328,060 1,416 (3,639) 325,837
Liabilities          
Policyholder liabilities and unallocated surplus of with-profits funds 287,499 (3,337) 284,162
Net asset value attributable to unit holders of consolidated unit trusts and similar funds 4,270 1,124 5,394
Total other liabilities 26,660 292 (302) 26,650
Total liabilities 318,429 1,416 (3,639) 316,206
Equity          
Shareholders’ equity 9,625 9,625
Non-controlling interests 6 6
Total equity 9,631 9,631
Total equity and liabilities 328,060 1,416 (3,639) 325,837

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  30 June 2012 £m
  As reported under previous accounting requirements Effect of IFRS changes After IFRS changes
  IFRS 10 IFRS 11 IAS 19R
Assets          
Intangible assets attributable to shareholders 5,800 (96) 5,704
Intangible assets attributable to with-profits funds 262 262
Reinsurers’ share of insurance contract liabilities 1,703 (5) 1,698
Other non-investment and non-cash assets 7,825 28 (125) 7,728
Investments of long-term business and other operations:          
Investment properties 10,822 (290) 10,532
Investments accounted for using the equity method 112 475 587
Financial investments:          
Loans 9,981 830 (11) 10,800
Equity securities and portfolio holdings in unit trusts 90,542 (45) (1,399) 89,098
Debt securities 128,269 149 (1,069) 127,349
Other investments 8,143 (280) (35) 7,828
Deposits 12,429 (5) (473) 11,951
Total other assets 6,737 (251) (151)   6,335
Total assets 282,625 426 (3,179) 279,872
Liabilities          
Policyholder liabilities and unallocated surplus of with-profits funds 246,221 (2,912) 243,309
Net asset value attributable to unit holders of consolidated unit trusts and similar funds 3,778 408 4,186
Total other liabilities 23,300 18 (267) 23,051
Total liabilities 273,299 426 (3,179) 270,546
Equity          
Shareholders’ equity 9,292 9,292
Non-controlling interests 34 34
Total equity 9,326 9,326
Total equity and liabilities 282,625 426 (3,179) 279,872

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  31 Dec 2012 £m
  As reported under previous accounting requirements Effect of IFRS changes After IFRS changes
  IFRS 10 IFRS 11 IAS 19R
Assets          
Intangible assets attributable to shareholders 5,736 (90) 5,646
Intangible assets attributable to with-profits funds 256 256
Reinsurers’ share of insurance contract liabilities 6,859 (5) 6,854
Other non-investment and non-cash assets 7,492 25 (113) 7,404
Investments of long-term business and other operations:          
Investment properties 10,880 (326) 10,554
Investments accounted for using the equity method 113 522 635
Financial investments:          
Loans 11,821 930 (8) 12,743
Equity securities and portfolio holdings in unit trusts 99,958 172 (1,504) 98,626
Debt securities 140,103 146 (1,342) 138,907
Other investments 7,900 (323) (30) 7,547
Deposits 12,653 (3) (402) 12,248
Total other assets 6,482 (121) (137) 6,224
Total assets 310,253 826 (3,435) 307,644
           
Liabilities          
Policyholder liabilities and unallocated surplus of with-profits funds 271,363 (3,100) 268,263
Net asset value attributable to unit holders of consolidated unit trusts and similar funds 4,345 800 5,145
Total other liabilities 24,181 26 (335) 23,872
Total liabilities 299,889 826 (3,435) 297,280
           
Equity          
Shareholders’ equity 10,359 10,359
Non-controlling interests 5 5
Total equity 10,364 10,364
Total equity and liabilities 310,253 826 (3,435) 307,644

Condensed consolidated statement of cash flows

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  30 Jun 2013 £m
  Under previous accounting requirements Effect of IFRS changes As reported after IFRS changes
  IFRS 10 IFRS 11 IAS 19R
Cash flows from operating activities          
Profit before tax (being tax attributable to shareholders’ and policyholders’ returns) 701 (12) 31 720
Non-cash movements in operating assets and liabilities reflected in profit before tax and other items 972 (141) (197) (31) 603
Net cash flows from operating activities 1,673 (141) (209) 1,323
Cash flows from investing activities (516) (516)
Cash flows from financing activities (254) (254)
Net increase (decrease) in cash and cash equivalents 903 (141) (209) 553
Cash and cash equivalents at beginning of period 6,126 6,126
Effect of exchange rate changes on cash and cash equivalents 161 161
Cash and cash equivalents at end of period 7,190 (141) (209) 6,840

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  30 Jun 2012 £m
  As reported under previous accounting requirements Effect of IFRS changes After IFRS changes
  IFRS 10 IFRS 11 IAS 19R
Cash flows from operating activities          
Profit before tax (being tax attributable to shareholders’ and policyholders’ returns) 1,299 (9) (94) 1,196
Non-cash movements in operating assets and liabilities reflected in profit before tax and other items (1,111) 60 61 94 (896)
Net cash flows from operating activities 188 60 52 300
Cash flows from investing activities (85) (85)
Cash flows from financing activities (569) (569)
Net (decrease) increase in cash and cash equivalents (466) 60 52 (354)
Cash and cash equivalents at beginning of period 7,257 (310) (206) 6,741
Effect of exchange rate changes on cash and cash equivalents (54) 2 (52)
Cash and cash equivalents at end of period 6,737 (250) (152) 6,335

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  31 Dec 2012 £m
  As reported under previous accounting requirements Effect of IFRS changes After IFRS changes
  IFRS 10 IFRS 11 IAS 19R
Cash flows from operating activities          
Profit before tax (being tax attributable to shareholders’ and policyholders’ returns) 3,188 (20) (51) 3,117
Non-cash movements in operating assets and liabilities reflected in profit before tax and other items (2,742) 190 89 51 (2,412)
Net cash flows from operating activities 446 190 69 705
Cash flows from investing activities (326) (326)
Cash flows from financing activities (892) (892)
Net (decrease) increase in cash and cash equivalents (772) 190 69 (513)
Cash and cash equivalents at beginning of year 7,257 (310) (206) 6,741
Effect of exchange rate changes on cash and cash equivalents (101) (1) (102)
Cash and cash equivalents at end of year 6,384 (120) (138) 6,126

(b) The effect of the adoption of the new and amended accounting standards in 2013 on the Group’s supplementary analysis of profit is shown in the table below.

Segment disclosure – profit before tax

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      Half year 2013 £m
      Under previous accounting requirements Effect of IFRS changes As reported after IFRS changes
      IFRS 11 IAS 19R
Operating profit based on longer-term investment returns        
Asia operations:        
Asia insurance operations:        
    Before reclassification of held for sale Japan Life business 482 (3) 479
    Reclassification of Japan Life business (5) (5)
  477 (3) 474
Eastspring Investments 42 (4) 38
Other operations 903 903
Total 1,422 (7) 1,415
Short-term fluctuations in investment returns:        
  Before reclassification of held for sale Japan Life business (742) (3) (4) (749)
  Reclassification of Japan Life business (6) (6)
  (748) (3) (4) (755)
Shareholders’ share of actuarial and other gains and losses on defined benefit pension schemes (32) 32
Amortisation of acquisition accounting adjustments (30) (30)
Loss attaching to held for sale Japan Life business:        
  Reclassification from operating profit based on longer-term investment returns 5 5
  Reclassification from short-term fluctuations in investment returns 6 6
  Remeasurement of carrying value of Japan Life business classified as held for sale (135) (135)
  (124) (124)
Profit before tax attributable to shareholders 488 (10) 28 506
Basic EPS based on operating profit based on longer-term investment returns after tax and non-controlling interests (in pence) 42.2p 42.2p
Basic EPS based on total profit after tax and non-controlling interests (in pence) 13.5p 0.8p 14.3p

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      Half year 2012 £m
      Under previous accounting requirements Effect of IFRS changes After IFRS changes
      IFRS 11 IAS 19R

* For the half year 2012, Japan Life business operating profit was £nil.

Operating profit based on longer-term investment returns        
Asia operations:        
Asia insurance operations* 406 (3) 403
Eastspring Investments 34 (2) 32
Other operations 722 722
Total 1,162 (5) 1,157
Short-term fluctuations in investment returns:        
  Before reclassification of held for sale Japan Life business (32) (2) 1 (33)
  Reclassification of Japan Life business (14) (14)
  (46) (2) 1 (47)
Shareholders’ share of actuarial and other gains and losses on defined benefit pension schemes 87 (87)
Gain on dilution of Group holdings 42 42
Profit attaching to held for sale Japan Life business:        
  Reclassification from operating profit based on longer-term investment returns
  Reclassification from short-term fluctuations in investment returns 14 14
  14 14
Profit before tax attributable to shareholders 1,259 (7) (86) 1,166
Basic EPS based on operating profit based on longer-term investment returns after tax and non-controlling interests (in pence) 34.6p 34.6p
Basic EPS based on total profit after tax and non-controlling interests (in pence) 37.5p (2.5)p 35.0p

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      Full year 2012 £m
      Under previous accounting requirements Effect of IFRS changes After IFRS changes
      IFRS 11 IAS 19R
Operating profit based on longer-term investment returns        
Asia operations:        
  Asia insurance operations:        
  Before reclassification of held for sale Japan Life business 913 (9) 904
  Reclassification of Japan Life business 2 2
  915 (9) 906
Eastspring Investments 75 (6) 69
Other operations 1,545 1,545
Total 2,535 (15) 2,520
Short-term fluctuations in investment returns:        
  Before reclassification of held for sale Japan Life business 204 (3) 5 206
  Reclassification of Japan Life business (19) (19)
  185 (3) 5 187
Shareholders’ share of actuarial and other gains and losses on defined benefit pension schemes 50 (50)
Amortisation of acquisition accounting adjustments (19) (19)
Gain on dilution of Group holdings 42 42
Profit attaching to held for sale Japan Life business:        
  Reclassification from operating profit based on longer-term investment returns (2) (2)
  Reclassification from short-term fluctuations in investment returns 19 19
  17 17
Profit before tax attributable to shareholders 2,810 (18) (45) 2,747
Basic EPS based on operating profit based on longer-term investment returns after tax and non-controlling interests (in pence) 76.9p 76.9p
Basic EPS based on total profit after tax and non-controlling interests (in pence) 86.5p (1.4)p 85.1p
 
 

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