The SMP is a share-based payment scheme which was offered to certain senior managers in 2006. Two awards were made during 2006, the first in November and the second in December.
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Participants in the scheme pledge shares in Resolution plc (‘investment shares’), which they hold for the duration of the vesting period. For each investment share that is held for the entirety of the vesting period, the participant receives a matching award of shares in Resolution plc. If the employee sells any of his investment shares during the vesting period then the corresponding matching shares will lapse.
Each employee invited to participate in the scheme is able to pledge shares whose value does not exceed 6% of their gross annual income. It is the employee’s responsibility to obtain their investment shares. Shares already held by the employee can be pledged as investment shares. The matching award vests after three years from the date of grant. The expense recognised for share-based payments in respect of employee services received during the year to 31 December 2006 was less than £0.1 million under the share matching plan.
19. Perpetual reset capital securities
2006 2005
£m £m
At 1 January 496.5 –
Issued in the year – 500.0
Issue costs, net of tax relief – (3.5)
At 31 December 496.5 496.5
The Company has in issue £500 million of perpetual reset capital securities (‘the Notes’) which are admitted to the Official List of the UK Listing Authority and to trading on the London Stock Exchange’s Gilt Edged and Fixed Interest Market. The proceeds of the issue amounted to £496.5 million.
The Notes are unsecured obligations of the Company and are subordinate to the claims of senior creditors. Payments in respect of the Notes are conditional upon the Company being solvent at the time of payment and immediately following such payment and also, in respect of coupon payments, having sufficient distributable reserves.
The Notes have no fixed maturity date and interest payments may be deferred at the option of the Company;
accordingly the Notes meet the definition of Equity for financial reporting purposes. The Notes also meet the conditions for Innovative Tier 1 capital treatment in the calculation of the Group Capital Resources under the rules of the Financial Services Authority.
The Notes may be redeemed at par at the option of the Company on the first reset date of 25 April 2016 or on any coupon payment date thereafter. Redemption is subject to the agreement of the Financial Services Authority. In certain circumstances the Company has the right to substitute the Notes or to redeem the Notes before the first reset date. Coupons are payable annually in arrears on 25 April, commencing in 2006, at the rate of 6.5864% per annum, until the first reset date. Thereafter coupons are payable semi-annually at 2.73% per annum over the then prevailing offered rate for six-month sterling deposits.
If the Company opts to defer a coupon payment the deferred coupon payment may only be satisfied by the issue of ordinary shares in the Company. For so long as a deferred coupon payment has not been satisfied the Company may not declare, pay or distribute a dividend on its securities in issue ranking junior to the Notes, including the ordinary shares or, except in particular circumstances, redeem, purchase or otherwise acquire any of its securities in issue ranking junior to the Notes, including its ordinary shares.
Notes to the consolidated
financial statements
(continued)
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20. Reserves
Share options Revaluation Merger
reserve reserve reserve Total
£m £m £m £m
At 1 January 2006 2.2 0.1 1,043.0 1,045.3
Allocation from total recognised income and expense for the year
attributable to equity holders 0.6 (0.1) – 0.5
Issue of ordinary share capital (0.6) – – (0.6)
Equity share options issued 2.5 – – 2.5
At 31 December 2006 4.7 – 1,043.0 1,047.7
Share options Revaluation Merger
reserve reserve reserve Total
£m £m £m £m
At 1 January 2005 0.9 – – 0.9
Allocation from total recognised income and expense for the year
attributable to equity holders – 0.1 – 0.1
Merger reserve arising on the issue of shares for the acquisition
of Resolution Life Group Limited – – 1,043.0 1,043.0
Equity share options issued 1.3 – – 1.3
At 31 December 2005 2.2 0.1 1,043.0 1,045.3
The share options reserve comprises the cumulative fair value charges made to the income statement in respect of share options granted and still outstanding.
The revaluation reserve comprises the post-acquisition revaluation gain on owner-occupied properties held by the equity holders’ funds.
The merger reserve is the difference between the fair value and the nominal value of the shares issued on 6 September 2005 in consideration for the acquisition of Resolution Life Group Limited.
21. Retained earnings
Held within Other
the long term retained
business earnings Total
£m £m £m
At 1 January 2006 471.3 363.0 834.3
Allocation from total recognised income and expense for the year
attributable to equity holders 455.9 72.5 528.4
Transfers (402.0) 402.0 –
525.2 837.5 1,362.7
Dividends on ordinary shares – (93.2) (93.2)
Coupon paid on perpetual reset capital securities, net of tax relief – (10.0) (10.0)
Dividends on preference shares – (4.9) (4.9)
Issue of ordinary share capital – 0.6 0.6
Gain on purchase of preference shares – 12.7 12.7
At 31 December 2006 525.2 742.7 1,267.9
Dividends on ordinary shares comprise the second interim dividend for 2005 of £47.7 million and the interim dividend for 2006 of £45.5million.
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Held within the Other retained
long term earnings Total business (restated) (restated)
£m £m £m
At 1 January 2005, as previously reported 513.1 200.9 714.0
Transfer from unallocated surplus (note 24) – 10.0 10.0
At 1 January 2005, as restated 513.1 210.9 724.0
Allocation from total recognised income and expense for the year
attributable to equity holders 81.8 76.7 158.5
Transfers (123.6) 123.6 –
471.3 411.2 882.5
Dividends on ordinary shares – (48.2) (48.2)
At 31 December 2005 471.3 363.0 834.3
Dividends on ordinary shares comprise the final dividend for 2004 of £24.4 million and the first interim dividend for 2005 of £23.8 million.
Retained earnings held within the long term business comprise the equity holders’ post-acquisition interests in the long term business. Other retained earnings comprises the aggregate of the post-acquisition retained earnings of subsidiary undertakings and the retained earnings of the Company. Distribution of the retained earnings held within the long term business funds and surplus assets held within the shareholders’ funds of the life companies is subject to retaining sufficient funds to protect policyholder interests.
22. Minority interests
(a) Preference shares
2006 2005
£m £m
At 1 January 108.2 –
Acquired through business combinations – 108.2
Dividend paid out of pre-acquisition reserves (8.2) –
Purchase by the Group (100.0) –
At 31 December – 108.2
On 31 March 2006 the £50 million cash preference shares and the £50 million PIK preference shares issued by Resolution Life Group Limited were purchased by Resolution plc from Royal and Sun Alliance Insurance Group plc for a total consideration of £87.3 million, giving rise to a gain of £12.7 million for equity holders (note 16).