Setting new standards - Friends Life

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FINANCIAL STATEMENTS IFRS FINANCIAL STATEMENTS EEV SUPPLEMENTARY INFORMATION Consolidated cash flow statement For the year ended 31 December 2006 Operating activities 2006 2005 £m £m Profit for the year 421 197 Unrealised gains on investments (311) (3,612) Realised gains on investments (1,618) (1,072) Finance costs 88 89 Amortisation and impairment of intangible assets 150 221 Depreciation of property and equipment 10 11 Movement in deferred acquisition costs (119) (148) Total tax expense 70 178 Purchase of shares and other variable yield securities (13,185) (5,019) Sale of shares and other variable yield securities 12,014 3,765 Purchase of loans, debt securities and other fixed income securities (13,486) (18,840) Sale of loans, debt securities and other fixed income securities 13,311 17,291 Purchase of investment properties (285) (201) Sale of investment properties 47 34 (Decrease)/increase in insurance contract liabilities (875) 590 Increase in investment contract liabilities 5,074 5,669 Increase in fund for future appropriations 19 164 (Decrease)/increase in provisions (78) 67 Net increase/(decrease) in receivables and payables 165 (22) Pre-tax cash inflow/(outflow) from operating activities 1,412 (638) Tax paid (86) (61) Net cash inflow/(outflow) from operating activities 1,326 (699) Investing activities Acquisition of subsidiaries, net of cash acquired (21) 603 Reduction in participation in subsidiaries, net of cash disposed 49 44 Compensation from investment mandate loss 27 - Additions to internally generated intangible assets (18) (13) Purchase of property and equipment (net) (11) (10) Net cash inflow from investing activities 26 624 Financing activities Finance costs (81) (82) STICS interest (52) (21) Proceeds from issue of long-term debt, net of expenses 258 229 Repayment of long-term debt (312) - Issue of STICS, net of expenses - 495 Net movement in other borrowings, net of expenses 12 5 Dividends paid to equity holders of the parent (164) (157) Dividends paid to minority interest (46) (29) Net cash (outflow)/inflow from financing activities (385) 440 Increase in cash and cash equivalents 967 365 Balance at beginning of year 2,614 2,249 Balance at end of year 3,581 2,614 74 Friends Provident Annual Report & Accounts 2006
PARENT COMPANY ACCOUNTS ABBREVIATIONS AND DEFINITIONS Notes to the consolidated accounts 1. Accounting policies 1.1 Basis of preparation The consolidated financial statements of the Group are prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union and those parts of the Companies Act 1985 applicable to companies reporting under IFRS. The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of property and equipment, investment properties and financial instruments at fair value through the income statement. The financial statements also comply with the revised Statement of Recommended Practice issued by the Association of British Insurers in December 2005 (as amended in December 2006) in so far as these requirements do not contradict IFRS requirements. The detailed disclosure of new business does not form part of these accounts. The Group has applied the principles contained in FRS 27 Life Assurance, as applied for the first time in the Group’s 2005 financial statements, as an improvement to its accounting policies as permitted by IFRS 4 Insurance Contracts. This requires liabilities to with-profits policyholders to be measured on a realistic basis in accordance with the FSA’s Realistic Balance Sheet (RBS) regulations. The Group presents its balance sheet in order of liquidity. Where applicable, for each asset and liability line item that combines amounts expected to be recovered or settled both within and beyond 12 months after the balance sheet date, disclosure of the amount due beyond 12 months is either made in the maturity tables in note 30 or in the respective line item note. Financial assets and financial liabilities are not offset, unless there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liability simultaneously. Income and expenses are not offset in the income statement unless required or permitted by an accounting standard or interpretation, as specifically disclosed in the accounting policies of the Group. The parent company has continued to present individual financial statements prepared on a UK GAAP basis as permitted by section 226A of, and Schedule 4 to, the Companies Act 1985, adopting the exemption of omitting the profit and loss account and related notes conferred by section 230 of that Act. The parent company financial statements, with its respective accounting policies, are presented on pages 185 to 189. The Group has decided not to early adopt IFRS 7 Financial Instruments: Disclosures, or the Amendment to IAS 1 Presentation of Financial Statements, issued by the International Accounting Standards Board (IASB) in October 2005, and effective from 1 January 2007. These standards will result in changes to disclosures relating to financial instruments and capital when they are adopted in 2007. 1.2 Use of estimates, assumptions and judgements The preparation of the financial statements requires the use of estimates, assumptions and judgements that affect the reported amounts of assets, liabilities and contingent liabilities at the balance sheet date, as well as affecting the reported income and expenses for the year. Although the estimates are based on management’s best knowledge and judgement of information and financial data as at the date the financial statements are approved, the actual outcome may differ from these estimates. Further information on the use of estimates, assumptions and judgements is set out in note 2. 1.3 Summary of significant accounting policies The principal accounting policies set out below have been consistently applied to all years presented in these consolidated financial statements. 1.3.1 Business combinations The cost of a business combination is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the business combination. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the business combination date, irrespective of the extent of any minority interest. The excess of the cost of the business combination over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of the business combination is less than the fair value of the net assets acquired, the difference is recognised directly in the income statement. (a) Subsidiaries Subsidiaries are all entities over which the Group has the power, directly or indirectly, to govern the financial and operating policies so as to obtain economic benefits, generally accompanying a shareholding of more than one half of the voting rights. Potential voting rights that presently are exercisable or convertible are also taken into account. Open-ended investment companies and unit trusts in which the Group has a percentage holding in excess of 50% are consolidated. The units not owned by the Group are treated as a liability called ‘net asset value attributable to unit holders’. The consolidated financial statements incorporate the assets, liabilities, results and cash flows of the company and its subsidiaries. The results of subsidiaries acquired or sold during the period are included in the consolidated results from the date of acquisition or up to the date of disposal. Intra-group balances and income and expenses arising from intra-group transactions are eliminated in preparing the consolidated financial statements. Profits or losses arising from changes in holdings in subsidiaries that do not impact the Group’s control over that subsidiary are recognised directly in equity. (b) Associates and joint ventures Associates are all entities over which the Group has significant influence but not control over the financial and operating policies, generally arising from holding between 20% and 50% of the voting rights. Investments in associates are accounted for by the equity method of accounting and are initially recognised at cost. The Group’s investment in associates includes goodwill (net of any impairment loss) identified on acquisition. Friends Provident Annual Report & Accounts 2006 75
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Setting new standards Friends Provi
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Group financial highlights Group
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INTERNATIONAL LIFE & PENSIONS ASSET
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Friends Provident plc Pixham End Do
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