Preliminary results - 12 months ended 31 December 2005
5. Profit on the disposal of subsidiaries and associates
The net profit on the disposal of subsidiary and associated undertakings comprises:
| 2005 £m |
2004 £m |
|
|---|---|---|
| General insurance businesses | ||
| United Kingdom | 10 | 28 |
| France | - | 6 |
| Asia (a) | 122 | - |
| Other small operations | (22) | - |
| 110 | 34 | |
(a) Sale of Asian general insurance businesses
During 2005, the Group completed the disposal of its Asian general insurance businesses to Mitsui Sumitomo Insurance (MSI) for a total of US$450 million in cash. Under the terms of the agreement, MSI acquired all of Aviva’s general insurance businesses in Asia. These comprised the general insurance business of Aviva Limited and the general insurance assets of Aviva Asia Pte Limited in Singapore; Aviva Insurance Berhad in Malaysia (including its branch in Brunei); Aviva Insurance (Thai) Company Limited in Thailand; PT Aviva Insurance in Indonesia; Dah Sing General Insurance Co Limited in Hong Kong; and Aviva’s branch operations in Hong Kong, the Philippines, Marianas, Macau and Taiwan. The transaction was achieved through share purchase of Aviva's interests in joint venture operations, business purchase and asset purchase in Singapore, and transfer of Aviva’s general insurance branch operations in Hong Kong, the Philippines, Marianas, Macau and Taiwan.
The transaction completed in two phases. Phase I completed on 28 February 2005 and included all businesses above except for Malaysia, Indonesia, Macau, Marianas, Taiwan, Dah Sing and the Philippines. Phase II completed in December 2005 when the last of these businesses was sold, with the exception of Taiwan which completed in February 2006. Due to its immateriality, this last disposal has been treated as a 2005 transaction.
The total sale proceeds were fixed by reference to the net assets of the businesses as at 31 December 2003 and were not adjusted to reflect the results in the period from 1 January 2004 to completion. The Group therefore hedged its exposure to the sale proceeds of US$450 million through the purchase of foreign currency forward contracts. The Group did not bear any continuing operating risk from 31 December 2003.
The results of the Asian general insurance business have been consolidated with those of the Group's ongoing operations until the completion of each transaction. Although the Group retained no economic interest in the operations of this business beyond 31 December 2003, the post-tax operating profits have been incorporated in the Group's consolidated income statement from 1 January 2004 to the date of completion. There is a corresponding offset in the final accounting profit on sale. Total profit on sale was £165 million (£122 million after tax) and is summarised below:
| 2005 £m |
|
|---|---|
| Net assets as at 31 December 2003 | 60 |
| Post-tax operating profit to disposal | 14 |
| Dividends paid | (5) |
| FX movements on net assets | 4 |
| Net assets at disposal | 73 |
| Proceeds | 256 |
| Less: Net assets | (73) |
| Transaction costs | (18) |
| Pre-tax profit on sale | 165 |
| Tax attributable to profit on sale | (43) |
| Post-tax profit on sale | 122 |
The net assets at disposal of £73 million, comprised financial investments (£220 million) and other assets (£95 million), less insurance liabilities (£207 million) and other liabilities (£35 million).
(b) Other
In July 2005, the Group completed the sale of the business and certain operational assets and liabilities of Hyundai Cars (UK), which was acquired as part of the RAC group, to Hyundai Motor UK Limited for a total of £70 million. This sale did not give rise to any gain or loss.
In December 2005, the Group sold its commercial fleet business in Lex Transfleet Limited to Fraikin Limited for a total of £69 million, of which £10 million is deferred consideration. The Group acquired 50% of Lex Transfleet Limited with the RAC group, and this company became a wholly-owned subsidiary after the Group acquired the remaining 50% of its share capital in November 2005. The sale resulted in a gain of £5 million.
No other disposal is considered material for further disclosure.
