4.1 DISCONTINUED OPERATIONS
On 25 March 2014, the Group and Standard Life Investments (Holdings) Limited (‘Standard Life Investments’) signed a disposal agreement under which Standard Life Investments agreed to acquire the entire issued share capital of Ignis in return for gross cash consideration of £390 million. The divestment was completed on 1 July 2014 and the results for the business have been included in the Ignis operating segment up to this date. A post completion payment of £6 million, calculated in accordance with the sale and purchase agreement, was paid to Standard Life Investments on 24 September 2014.
As part of the divestment, the Group agreed to a purchase price adjustment for a period of 10 years from the date of the divestment in the event that assets held by the Life companies are withdrawn from management by Ignis, other than for specific reasons such as poor investment performance or for material breaches of investment management contracts. Management has determined that no obligation should be recognised under this mechanism as at 31 December 2014.
4.1.1 Results of discontinued operations The results of Ignis are as follows:
2014
£m 2013 £m
Fees 26 48
Net investment income (6) 7
Total revenue 20 55
Amortisation of customer relationships – (3)
Administrative expenses (47) (103)
Total operating expenses (47) (106)
Loss before tax (27) (51)
Attributable tax credit 9 16
(18) (35)
Gain on disposal of discontinued operations 107 –
Attributable tax credit 3 –
110 –
Profit/(loss) for the year from discontinued operations 92 (35)
Loss per share
Basic loss per share from discontinued operations (8.2)p (17.1)p
Diluted loss per share from discontinued operations (8.2)p (17.1)p
The loss before tax for the period from discontinued operations excludes intra-group fee income of £38 million (year ended
31 December 2013: £102 million). This intra-group fee income represents the difference between the result before tax for the period
from discontinued operations (excluding the gain on disposal and attributable tax credit) and the Ignis segmental result before tax attributable
to owners results shown in note 5.1 and reflects the income earned by Ignis on managed assets of the Group’s life companies. The profit for the period from discontinued operations was entirely attributable to the owners of the parent.
The gain on disposal of discontinued operations is as follows:
2014 £m
Net consideration received, satisfied in cash 384
Less: net assets and liabilities disposed of (254)
Less: transaction costs (5)
Less: capitalised VAT costs (18)
Add: tax credit on irrecoverable VAT 3
4.1.2 Cash flows generated by discontinued operations
The net cash flows generated by Ignis (including cash flows relating to the divestment) are as follows:
2014
£m 2013 £m
Cash flows from operating activities 31 17
Cash flows from investing activities 311 –
Cash flows from financing activities (29) (14)
Net cash inflow 313 3
Cash flows from investing activities of £311 million comprises net consideration received of £384 million less attributable transaction costs
of £5 million, less cash and cash equivalents disposed of £68 million.
4.1.3 Effect of disposal on the financial position of the Group
2014 £m
Goodwill 57
Customer relationships and other intangibles 136
Financial assets 37
Property, plant and equipment 10
Cash and cash equivalents 68
Deferred tax assets 3
Other assets 53
Deferred tax liabilities (27)
Provisions (23)
Other liabilities (60)
Net assets and liabilities disposed of 254
4.2 ASSETS AND LIABILITIES OF OPERATIONS CLASSIFIED AS HELD FOR SALE
The balances transferred to assets and liabilities classified as held for sale in the statement of consolidated financial position as at 31 December
2014 relate to the anticipated Part VII transfer of a portfolio of annuity liabilities to Guardian Assurance Limited (‘Guardian’) (see note 4.3). The balances as at 31 December 2013 related to BA(GI) Limited (‘BAGI’) (see note 4.4).
2014
£m 2013 £m
Assets classified as held for sale:
Financial assets – 55
Reinsurer’s share of insurance contract liabilities 1,713 –
Other assets – 11
1,713 66
Liabilities classified as held for sale:
Liabilities under insurance contracts 1,776 –
Payables related to direct insurance contracts – 48
Other liabilities – 1
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
4. DISCONTINUED OPERATIONS AND ASSETS AND LIABILITIES HELD FOR SALE CONTINUED
4.3 ANNUITY LIABILITIES TRANSFER
On 31 July 2014, the Group entered into a reinsurance agreement, effective from 1 January 2014 to reinsure certain portfolios of the Group’s annuity liabilities to Guardian in exchange for the transfer of
financial assets of £1.7 billion. The annuity in-payment liabilities are currently held in the Group’s with-profit funds. It is highly probable that the reinsurance agreement will be replaced by a formal scheme under Part VII of the Financial Services and Market Act 2000 to transfer the annuity liabilities to Guardian in the second half of 2015 and accordingly the assets and liabilities to be transferred have been
classified as held for sale.
Liabilities classified as held for sale include the annuity
liabilities reinsured to Guardian and directly attributable expense reserves where they will be extinguished at the time of transfer. Assets classified as held for sale include the associated reinsurers’ share of insurance contract liabilities.
Under the terms of this reinsurance agreement Guardian holds assets in a collateral account over which the Group has a fixed charge as disclosed in note 7.2.
In 2012 the Group entered into a reinsurance agreement, effective 1 July 2012, to reinsure certain portfolios of the Group’s annuity
liabilities held within the non-profit funds to Guardian in exchange for the transfer of financial assets of £5.1 billion. The business was transferred to Guardian on 30 September 2013 using a Part VII transfer which was approved by the High Court on 12 September 2013. As part of the Part VII transfer, the Group paid £78 million consideration to Guardian in connection with the ongoing servicing of the transferred policies. Net liabilities disposed of were £143 million and the Group recognised a gain on transfer of £65 million, comprising £42 million within gain on transfer of business and £23 million within tax charge attributable to owners in the consolidated income statement for the year ending 31 December 2013.
4.4 DISPOSAL OF BAGI
The Group completed the sale of its entire interest in BAGI to National Indemnity Company on 18 March 2014 for cash consideration of £21 million. The carrying value of the net assets transferred was £17 million, resulting in a pre-tax gain of £4 million. Asset and liabilities
classified as held for sale as at 31 December 2013 are no longer included in the consolidated statement of financial position.