Preliminary results - 12 months ended 31 December 2006 01 March 2007
4. Profit on the disposal of subsidiaries and associates
The profit on the disposal of subsidiary and associated undertakings comprises:
| 2006 £m | 2005 £m | |
|---|---|---|
| United Kingdom | 69 | 10 |
| Ireland | 86 | - |
| France | 79 | - |
| Asia | - | 165 |
| Other small operations | (12) | (22) |
| Profit on disposal before tax | 222 | 153 |
| Tax credit/(charge) on profit on disposal | 13 | (43) |
| Profit on disposal after tax | 235 | 110 |
The tax credit on the profit on disposal in 2006 reflects the benefit of prior year tax credits against charges on disposals in earlier years.
On an EEV basis, the profit on disposal before tax for 2006 falls to £161 million because, on that basis, the gain on disposal in Ireland was £25 million (see note 3(a)). The EEV profit on disposal after tax for the same period was £174 million. There is no difference between IFRS and EEV figures for the comparative period.
(a) Sale of RAC non-core businesses
During 2006, the Group completed the disposal of the Manufacturer Support Services (MSS), Lex Vehicle Leasing (LVL) divisions and the Lex Brand, which had been acquired with the RAC Group in 2005. The decision to sell was part of the Group’s wider strategy to integrate RAC and exit non-core operations.
| 2006 £m | |
|---|---|
| Proceeds from sale | 358 |
| Net assets disposed of | (310) |
| Transaction costs | (15) |
| Profit before tax and pension curtailment gain | 33 |
| Pension curtailment gain | 36 |
| Profit on disposal before tax | 69 |
| Tax attributable to profit on disposal | (11) |
| Profit on disposal after tax | 58 |
The net assets disposed of, which total £310 million, comprised investment in joint ventures of £239 million, tangible assets of £102 million, other assets of £95 million and other liabilities of £126 million. The pension curtailment gain arose from the remeasurement of pension liabilities in the RAC plc defined benefit pension scheme, following the MSS and LVL disposals.
(i) Sale of MSS
The MSS disposal was completed in three stages during the first six months of 2006, following the disposals of certain operational assets and liabilities of Hyundai Cars (UK) and the commercial fleet business of Lex Transfleet in 2005. On 10 January 2006, the Group sold Hyundai Car Finance Limited, which provides vehicle instalment finance and leasing, to Lloyds TSB. On 14 February 2006, the Group sold Lex Autologistics Limited, Lex Commercials Limited and associated properties to Imperial Holdings. On 27 April 2006, the Group completed the sale of the remaining vehicle solutions businesses, comprising Lex Transfleet Limited, Lex Defence Limited, Lex Defence Management Limited and RAC Software Solutions Limited, to VT Group plc. Receipts from the completion of the disposal of the MSS division totalled £111 million, resulting in a profit of £12 million before tax.
In 2005, the Group sold certain operational assets and liabilities of Hyundai Cars (UK) and the commercial fleet business of Lex Transfleet for total consideration of £139 million. The sale resulted in a profit of £5 million which is included in the 2005 figures above.
Of the total consideration of £250 million received for MSS disposals in 2005 and 2006, £73 million was in respect of liabilities to be settled by the Group.
(ii) Sale of LVL
On 31 May 2006, the sale of Aviva’s 50% stake in Lex Vehicle Leasing (Holdings) Limited to HBOS plc was completed. Under the terms of the joint venture agreement, the change of control of RAC provided HBOS with the right to acquire Aviva’s interest in LVL which HBOS chose to exercise. The proceeds consisted of a net cash receipt of £227 million, from which Aviva’s estimated contribution of £16 million to the statutory debt funding of the RAC plc defined benefit pension scheme had been deducted. The gross consideration was therefore £243 million. In addition to the disposal of the investment in the joint venture of £239 million, HBOS will make an equivalent contribution to the statutory debt funding of the defined benefit pension scheme estimated at £16 million. The sale resulted in a profit of £18 million before tax. A further £3 million profit arose on the sale of the Lex brand.
(b) In July 2006, our French operation, Aviva France, sold its associate holding in ProCapital SA, an online brokerage company, to Credit Mutuel for £98 million. The sale resulted in a profit on disposal of £79 million.
No other disposal is considered material for further disclosure.
