Notes to the accounts
for the year ended 31 December 2007
24. Provisions
| Legal £mn |
Surplus space and other £mn |
Total £mn |
|
|---|---|---|---|
| At 1 January 2007 | 5.9 | 18.8 | 24.7 |
| Exchange translation adjustments | (0.1) | - | (0.1) |
| Unwinding of discounts | - | 0.2 | 0.2 |
| Provisions utilised | (2.1) | (4.2) | (6.3) |
| Additional provisions charged in the year | 0.1 | - | 0.1 |
| Unused amounts reversed in the year | (1.2) | (4.5) | (5.7) |
| At 31 December 2007 | 2.6 | 10.3 | 12.9 |
| Current - 2007 | 2.6 | 1.8 | 4.4 |
| Non-current - 2007 | - | 8.5 | 8.5 |
| 2.6 | 10.3 | 12.9 | |
| Current - 2006 | 5.9 | 8.0 | 13.9 |
| Non-current - 2006 | - | 10.8 | 10.8 |
| 5.9 | 18.8 | 24.7 |
The Group's provisions are expected to mature in the following time periods:
| 2007 £mn |
2006 £mn |
||
|---|---|---|---|
| Less than 1 year | 4.4 | 14.6 | |
| Effect of discounting | - | (0.7) | |
| 4.4 | 13.9 | ||
| 1 - 2 years | 1.6 | 2.5 | |
| 2 - 3 years | 1.4 | 2.6 | |
| 3 - 4 years | 1.4 | 1.3 | |
| 4 - 5 years | 1.5 | 1.3 | |
| More than 5 years | 4.3 | 5.7 | |
| Effect of discounting | (1.7) | (2.6) | |
| 8.5 | 10.8 | ||
| 12.9 | 24.7 |
Legal
The amount predominantly represents the balance of a provision in respect of matters covered by indemnification obligations under the terms of the sale of the investment banking business in 2000. Details are not given as the Directors feel that to do so may prejudice the Group. The timing of resolution of legal claims is subject to uncertainty, but it is possible that those matters will have been resolved by 31 December 2008.
Surplus space
Provisions of £9.7 million (2006: £16.9 million) have been made against certain leaseholds in connection with surplus space. The provisions have been made taking into account residual lease commitments, other outgoings and sub-letting arrangements. In arriving at the provisions, the cash flows have been discounted at rates representing an estimation of the interest rates relevant to the period of provision. The weighted average of these rates is 5.2 per cent. (2006: 4.7 per cent.). It is envisaged that the provisions will be utilised on an even basis until 2015.
The calculation of the surplus space provisions involves two principal assumptions: an estimation of the time value of money to the Group, and the mitigating effects of sub-letting income receivable. Cash outflows are predominantly contractually agreed fixed amounts. The effect on the provisions of an increase/decrease of 1 per cent. in the discount rate used in the calculation would be +/- £0.4 million, whilst an increase/decrease of 10 per cent. in expected future sub-letting income receivable would produce a decrease/increase in the provisions of £1.2 million. The sensitivity of the carrying amounts of surplus space provisions to the methods and assumptions used in their estimation is therefore not considered to be significant.