The following tables show the movement in the impairment provisions during the year ended 31 December 2014 and 31 December 2013:
Non
property Total Residential SME and Property and impairment mortgages corporate construction Consumer provisions 2014 £m £m £m £m £m
Provision at 1 January 2014 41 131 513 34 719 Transfer between provisions 11 (11) -Exchange adjustments - (2) (5) - (7) Provisions utilised (7) (31) (127) (20) (185) Recoveries 1 1 2 4 8 Other movements - 3 12 2 17 Charge to the income statement (2) 17 34 12 61 Provision at 31 December 2014 33 130 418 32 613
Non
property Total Residential SME and Property and impairment mortgages corporate construction Consumer provisions 2013 £m £m £m £m £m
Provision at 1 January 2013 44 104 511 36 695 Transfer between provisions 17 (17) -Exchange adjustments - - 2 - 2 Provisions utilised (7) (28) (69) (23) (127) Recoveries - - 1 5 6 Other movements (4) 4 16 2 18 Charge to the income statement 8 34 69 14 125 Provision at 31 December 2013 41 131 513 34 719
C o n s o lid a te d F in a n c ia l S ta te m e n ts R is k M a n a g e m e n t ie w G o v e rn a n c e B a n k F in a n c ia l S ta te m e n ts O th e In fo rm a
Country of
Joint arrangement Holding Classification operation Nature of activities
First Rate Exchange Services Holdings Limited (FRESH) 50% Joint venture UK Sale of foreign exchange products through the UK Post Office network UK Post Office N/A Joint operation UK Sale of insurance products through the UK Post Office relationship
A joint arrangement is an arrangement of which two or more parties have joint control (i.e. contractually agreed sharing of control of an arrangement where decisions about the relevant activities require the unanimous consent of the parties sharing control). These arrangements are identified by reference to the power sharing agreements, ensuring that unanimous consent of all parties is a requirement. Where the arrangement has been structured through a separate vehicle, the Group has accounted for it as a joint venture.
On the basis that the Group’s relationship with the UK Post Office for the sale of insurance products is a joint arrangement, but is not a separate legal entity, it is accounted for as a joint operation.
Joint venture
The Group owns 50% of the shares in First Rate Exchange Services Holdings Limited (FRESH), a company incorporated in United Kingdom which provides foreign exchange services.
The table below shows the movement in the Group’s interest in FRESH during the year ended 31 December 2014 and 31 December 2013.
31 December 2014 31 December 2013
£m £m
At 1 January 55 54
Share of profit after taxation (note 10) 35 34
Dividends received (30) (33)
At 31 December 60 55
The investment in FRESH is unquoted and is measured using the equity method of accounting. There are no significant restrictions on the ability of this entity to transfer funds to the Group in the form of cash dividends, or to repay loans or advances made by the Group, nor is there any unrecognised share of losses either for the year ended 31 December 2014 or cumulatively in respect of this entity. The Group does not have any further commitments or contingent liabilities in respect of this entity other than its investment to date.
There are no significant risks associated with the joint venture that have been identified which require disclosure.
C o n s o lid a te d F in a n c ia l S ta te m e n ts R is k M a n a g e m e n t G o v e rn a n c e B a n k F in a n c ia l S ta te m e n ts n
31 December 2014 31 December 2013
£m £m
Revenue1 68 65
Expenses (24) (22)
Profit before taxation 44 43
Taxation charge (9) (9)
Profit after taxation 35 34
Non-current assets 6 4
Current assets2 152 176
Total assets 158 180
Current liabilities (98) (125)
Total liabilities (98) (125)
Net assets 60 55
Joint operation
On 31 August 2012, the Group entered into a joint arrangement with Post Office Limited for the sale of insurance products under the Post Office brand. This is a joint operation but not a separate legal entity. The Group combines its share of the joint operation in individual income and expenses, assets and liabilities and cash flows on a line-by-line basis. As part of the arrangement, Post Office Limited has an option to purchase the Group’s share of the joint operation under certain circumstances. The option price is determined by a contractually defined process.
1Includes interest expense of £1 million (31 December 2013: £1 million) 2Includes cash and cash equivalents of £16 million (31 December 2013: £7 million)
C o n s o lid a te d F in a n c ia l S ta te m e n ts R is k M a n a g e m e n t ie w G o v e rn a n c e B a n k F in a n c ia l S ta te m e n ts O th e In fo rm a
Other
Computer externally software purchased internally intangible generated1 assets2 Total 2014 £m £m £m
Cost
At 1 January 2014 34 75 109 Additions - 1 1 At 31 December 2014 34 76 110
Accumulated amortisation
At 1 January 2014 (26) (37) (63) Charge to the income statement (note 7) (4) (4) (8) At 31 December 2014 (30) (41) (71)
Net book value at 31 December 2014 4 35 39
Other
Computer Computer externally software software purchased externally internally intangible purchased generated assets Total 2013 £m £m £m £m
Cost
At 1 January 2013 7 34 73 114 Additions 1 - 2 3 Disposals / write-offs (8) - - (8) At 31 December 2013 - 34 75 109
Accumulated amortisation
At 1 January 2013 (5) (23) (34) (62) Disposals / write-offs 6 - - 6 Charge to the income statement (note 7) (1) (3) (3) (7) At 31 December 2013 - (26) (37) (63)
Net book value at 31 December 2013 - 8 38 46
Intangible assets have been reviewed for any indication that impairment may have occurred. Where any such indication exists, impairment has been measured by comparing the carrying value of the intangible asset to its recoverable amount. There was no impairment identified in the year ended 31 December 2014 or 31 December 2013.
Some of the assumptions in the calculation of the recoverable amount are subject to uncertainty and are sensitive to changes; for example in the discount rate assumptions or new business volumes and income. In testing for impairment, management notes that a possible break even scenario would be if the following assumptions were used:
• If the currently forecast income was reduced by 27%; and
• If the currently forecast costs increased by 20%.
C o n s o lid a te d F in a n c ia l S ta te m e n ts R is k M a n a g e m e n t G o v e rn a n c e B a n k F in a n c ia l S ta te m e n ts n
and buildings and long leaseholds Computer and (held at
other equipment fair value) Total £m £m £m Cost or valuation
At 1 January 2014 - - -Additions - 4 4 Reclassifications1 1 - 1 At 31 December 2014 1 4 5
Accumulated depreciation
At 1 January 2014 - - -Charge for the year - - -At 31 December 2014 - -
-Net book value at 31 December 2014 1 4 5
In 2014 the Group purchased a portfolio of 18 freehold and long leased properties from the Parent for £4 million. The historical cost of property, plant and equipment held at fair value at 31 December 2014 was £4 million (31 December 2013: £nil). No depreciation is charged on freehold land and buildings and long leaseholds, as these are revalued annually.