TIDMSTJ
RNS Number : 5469N
St. James's Place PLC
29 July 2014
-1-
ST. JAMES'S PLACE PLC
27 St. James's Place, London SW1A 1NR
Telephone 020 7493 8111 Facsimile 020 7493 2382
29 July 2014
INTERIM STATEMENT
FOR THE SIX MONTHS TO 30 JUNE 2014
STRONG GROWTH IN NEW INVESTMENTS, NET INFLOWS, FUNDS
UNDER MANAGEMENT, TOTAL ADVISER NUMBERS
AND UNDERLYING CASH PROFITS
INTERIM DIVIDEND INCREASED BY 40%
New Business and Funds under Management
-- Total single investments of GBP3.92 billion (2013: GBP3.23 billion) - up 21%
-- Continued strong retention of existing client funds - 95%
-- Net inflow of funds under management of GBP2.44 billion (2013: GBP1.99 billion) - up 23%
-- Funds under management of GBP47.6 billion (2013: GBP39.9
billion) - up 19% over the twelve months and 7% since the start of
the year
-- SJP new business, on an APE basis, of GBP447.9 million (2013: GBP373.9 million) - up 20%
St. James's Place Partnership
-- Partnership numbers at 2,007 - up 5.4% over the twelve months
and 2.5% since the start of the year
-- Total number of advisers at 2,688 - up 9% over the twelve
months and 4.6% since start of the year
Profit
- EEV basis:
-- New business profits of GBP181.3 million (2013: GBP152.4 million) - up 19%
-- Operating profit at GBP260.7 million (2013: GBP233.6 million) - up 12%
-- Net asset value per share 604.9 pence (2013: 524.1 pence) -
up 15% over the twelve months and 5% since the start of the
year
- IFRS basis:
-- Profit before shareholder tax of GBP82.4 million (2013:
GBP81.2 million, excluding one-off items) - up 1%
-- Net asset value per share 178.8 pence (2013: 165.8 pence) -
up 8% over the twelve months and 2% since the start of the year
- Cash result:
-- Underlying post tax cash result of GBP78.5 million (2013: GBP66.9 million) - up 17%
Interim Dividend
-- Interim dividend 8.93 pence per share - up 40%
-2-
David Bellamy, Chief Executive, commented:
"I am very pleased to report another strong performance from St.
James's Place.
As I have commented previously, we believe that there is a
growing market for trustworthy, personal advice in the UK
marketplace and these results once again demonstrate that fact.
They also demonstrate that the scale and quality of the company's
relationship based approach to wealth management, twinned with our
distinct investment management proposition, which has been
positioned to serve this market, is doing so.
In the first half of this year, our Partners introduced over
27,000 new clients to St. James's Place who, together with our
existing clients, entrusted us with over GBP3.9 billion of new
investments, some 21% higher than for the same period last year.
Furthermore, the long term retention of client funds under
management remains consistently strong at 95%, increasing our net
inflow by 23% to just over GBP2.4 billion, taking our funds under
management to a new record high of GBP47.6 billion.
As anticipated, following two years of disruption in the adviser
marketplace, growth in the size of the Partnership has returned to
what we regard as a more normalised level. However, we are
increasingly attracting larger businesses that consist of more than
one qualified adviser and consequently, the growth in total
qualified adviser numbers is up a little higher than Partner
numbers at 4.6% year on year.
In order to complement our normal recruitment, since 2012 we
have also been investing in the development of new advisers though
the St. James's Place Academy and I'm pleased to welcome our first
'graduate' advisers to the Partnership this year. Alongside that,
the recently completed acquisition of the Henley Group means we
will soon be welcoming a new team of advisers enabling us to extend
our advisory approach to UK expatriates living in the Far East.
Closer to home, we are encouraged by the pension and savings
initiatives announced in the budget earlier this year and indeed we
fully support steps that seek to simplify the current regime and
encourage savings for the future. We expect our advisers to play an
increasingly important role in helping their clients to understand
the options available to them leading up to, at and post
retirement, in order that they can make the right decisions and
plan accordingly.
Finally, the scale, growth and maturity of our funds under
management has resulted in a growing underlying post tax result in
recent years, which has supported the significant increase in
dividends. This growth has continued in 2014 and given this
performance and our confidence about the future, the Board has
agreed an increase in the interim dividend at the top end of the
range signalled earlier in the year of 40% and anticipate a similar
increase in the full year dividend."
-3-
Enquiries:
David Bellamy, Chief Tel: 020
Executive 7514 1963
Andrew Croft, Chief Tel: 020
Financial Officer 7514 1963
Tony Dunk, Investor Tel: 020
Relations Director 7514 1963
Bell Pottinger Tel: 020
7861 3923
John Sunnucks & Ben
Woodford
An interview with David Bellamy, discussing today's results,
will be available later today on www.sjp.co.uk
Analyst presentation 10.45am (GMT)
J. P. Morgan
60 Victoria Embankment
London EC4Y 0JP
Alternatively, if you are unable to attend but would like to
watch a livestream of the presentation on the day, please click on
the link below or via our website
http://cache.merchantcantos.com/webcast/webcaster/4000/7464/16532/37552/Lobby/default.htm
There will also be a Dial in:
Conference call dial in details are:
UK & International Number: +44 (0) 20 3139 4830
Participant Pin Code: 89301816#
Replay details (available for 7 days)
UK & International Number: +44 (0) 20 3426 2807
Audio Playback Reference: 649143#
CONTENTS
PART ONE NEW BUSINESS FIGURES
PART TWO INTERIM MANAGEMENT STATEMENT
PART THREE EUROPEAN EMBEDDED VALUE (EEV) BASIS
PART FOUR INTERNATIONAL FINANCIAL REPORTING STANDARDS
(IFRS) BASIS
-4-
ST. JAMES'S PLACE WEALTH MANAGEMENT
NEW BUSINESS FIGURES
FOR THE SIX MONTHS TO 30 JUNE 2014
Unaudited Unaudited
3 Months to 6 Months to
30 June 30 June
2014 2013 2014 2013
GBP'M GBP'M GBP'M GBP'M
New single investments
Investment 595.7 537.5 1,219.6 1,035.8
Pension 549.3 506.7 1,064.4 997.5
Unit Trust and ISA 961.0 710.7 1,632.4 1,200.1
-------- -------- -------- --------
2,106.0 1,754.9 +20% 3,916.4 3,233.4 +21%
-------- -------- -------- --------
New annualised regular
investments
Investment 5.4 3.0 8.6 6.3
Pension 25.8 24.3 46.5 43.1
Protection 0.7 0.6 1.2 1.2
-------- -------- -------- --------
31.9 27.9 +14% 56.3 50.6 +11%
-------- -------- -------- --------
Total new business
(APE)*
Investment 161.1 127.8 293.8 229.9
Pension 80.7 74.9 152.9 142.8
Protection 0.7 0.6 1.2 1.2
-------- -------- -------- --------
242.5 203.3 +19% 447.9 373.9 +20%
-------- -------- -------- --------
*Calculated as 1/10(th) single investments plus the annualised
regular investments
-5-
ST. JAMES'S PLACE WEALTH MANAGEMENT
THIRD PARTY NEW BUSINESS FIGURES
FOR THE SIX MONTHS TO 30 JUNE 2014
In addition to SJP new business, the Partnership also advises on
the products and services of a number of selected third party
providers.
-- Investment into various schemes (e.g. VCT and EIS etc.)
-- Pensions: Group Personal Pension Schemes, Annuities and
SIPPs
-- Protection and general insurance
For the three month period to 30 June 2014, the total third
party single new business was GBP167.6 million (2013: GBP172.0
million) and total annualised new regular business was GBP14.6
million (2013: GBP6.8 million).
For the six month period to 30 June 2014, the total third party
single new business was GBP334.1 million (2013: GBP294.9 million)
and total annualised new regular business was GBP24.1 million
(2013: GBP23.1 million).
-6-
INTERIM MANAGEMENT STATEMENT
CHIEF EXECUTIVE'S STATEMENT
I am very pleased to report another strong performance from St.
James's Place.
As I have commented previously, we believe that there is a
growing market for trustworthy, personal advice in the UK
marketplace and the results shown below once again demonstrate that
fact. They also demonstrate that the scale and quality of the
company's relationship based approach to wealth management, twinned
with our distinct investment management proposition, which has been
positioned to serve this market, is doing so.
New Business and Funds Under Management
The new single investments of GBP3.92 billion in the first six
months, represent a 21% increase, over the same period last year,
with client's continuing to invest pretty evenly across our life,
pension and unit trust/ISA investment tax wrappers.
Alongside those new investments, our Partners once again did an
excellent job of looking after clients and this is demonstrated by
the continued strong retention of existing funds which enabled us
to report net inflows of GBP2.44 billion, up 23% on the previous
year.
Whilst equity markets have been relatively flat in the first six
months, our strong net inflow of GBP2.44 billion enable us report a
7% growth in funds under management to GBP47.6 billion since the
start of the year. This represents an increase in our funds under
management of 19% pa compound growth over the last 5 years and 23%
pa compound growth over 10 years.
Clients
What sits at the heart of this sustained growth is the
importance we place on building and maintaining long lasting
relationships with our Partners and clients and serving them
well.
We are very clear that if we do this well, we will maintain our
strong retention record and attract new clients and investments
through referrals and introductions. That was evidenced last year
by the introduction of 48,000 new clients to St. James's Place and
reinforced in the first six months with a further 27,000 clients
investing with St. James's Place for the first time.
Investment Management
An essential element of maintaining long term relationships with
clients is our ability to manage their investments well. We believe
our distinctive approach, giving us access often exclusively in the
UK, to some of the best investment managers in the world, gives us
an excellent platform to do that.
Over the last 6 months, the Investment Committee, supported by
Stamford Associates, has overseen a number of significant changes
involving some GBP7 billion of funds under management. We have
retained the services of Neil Woodford through the seamless
transfer of the investment mandate to Woodford Investment
Management; renewed our relationship with Paul Boyne & Doug
McGraw, now at Manulife Asset Management in Boston and appointed
Wasatch Advisors in Utah and Threadneedle Investments in the
UK.
Alongside these changes to fund managers, the Investment
Committee has itself undergone a couple of changes. Vivian
Bazalgette stood down from the Board and the Committee due to
family reasons and we have appointed Davina Curling and Steven
Daniels as the new independent members. Davina and Steven bring
considerable investment management experience to the Committee and
I'm confident they will add value to the Committee's ongoing
work.
-7-
Against a backdrop of more muted returns generally, St. James's
Place funds and portfolios have made steady progress in the first
half of the year, following the strong returns seen in 2013.
In a complex and changing investment world, I believe our
Partners remain well-positioned to provide the highly personalised
advice and service needed to help investors achieve their financial
goals.
The St. James's Place Partnership
As anticipated, following two years of disruption in the adviser
marketplace, growth in the size of the Partnership has returned to
what we regard as a more normalised level. However, we are
increasingly attracting larger businesses that consist of more than
one qualified adviser and consequently, the growth in total
qualified adviser numbers is up a little higher than Partner
numbers at 4.6% year on year.
In order to complement our normal recruitment, since 2012 we
have also been investing in the development of new advisers though
the St. James's Place Academy and I'm pleased to welcome our first
'graduate' advisers to the Partnership this year. Alongside that,
the recently completed acquisition of the Henley Group means we
will soon be welcoming a new team of advisers enabling us to extend
our advisory approach to UK expatriates living in the Far East.
Financial Performance
The Chief Financial Officer's Report and Financial Review, which
can be found on pages 9 to 39, provides a comprehensive
presentation of the financial results and detail of the Group's
performance for the year.
On a European Embedded Value (EEV) basis, new business profits
were 19% higher at GBP181.3 million (2013: GBP152.4 million), in
line with the strong growth in new business and operating profits
were up 12% at GBP260.7 million (2013: GBP233.6 million).
Whilst the IFRS (International Financial Reporting Standards)
profit, before shareholder tax, was only marginally higher than
last year at GBP82.4 million (2013: GBP81.2 million, excluding
one-off items) the underlying post tax cash result, which the Board
considers when setting the dividend, was some 17% higher at GBP78.5
million (2013: GBP66.9 million).
Dividend
The scale, growth and maturity of our funds under management has
resulted in a growing underlying post tax result in recent years,
which has supported the significant increase in dividends. This
growth has continued in 2014 and given this performance and our
confidence about the future, the Board has agreed an increase in
the interim dividend at the top end of the range signalled earlier
in the year of 40% and anticipate a similar increase in the full
year dividend.
We fully intend to continue with a progressive dividend policy,
growing the future dividend in line with the underlying performance
of the business.
The interim dividend for 2014 will be paid on 24 September to
shareholders on the register at the close of business on 29August.
A Dividend Reinvestment Plan ("DRP") continues to be available for
shareholders.
-8-
Partners, Employees and the St. James's Place Foundation
I'd like to once again thank the entire St. James's Place
community for these results. There is no doubt in my mind that the
strength and continued growth of the business is due to their hard
work, dedication and commitment to clients and each other.
The St. James's Place Foundation has always been an important
part of the Group's culture and we aim to make a significant
difference to the lives of those less fortunate than us.
We were delighted to celebrate the 21st anniversary of the
Foundation in 2013 by raising a further GBP4.5 million, enabling us
to support over 600 charitable projects. For 2014, we set ourselves
an objective to raise in the region of GBP4.75 million and I'm
delighted to say that we are very much on track to exceed this sum,
having already raised GBP3.7 million in the first six months of the
year.
This is very much a collective effort by the whole SJP
community, including employees, Partners, suppliers and others
connected to SJP.
I would like to thank everyone, including our shareholders, for
their continued support in helping to raise such impressive
sums.
Outlook
We are encouraged by the pension and savings initiatives
announced in the budget earlier this year and indeed we fully
support steps that simplify the current regime and encourage
savings for the future. We expect our advisers to play an
increasingly important role in helping their clients to understand
the options available to them leading up to, at and post
retirement, to make the right decisions and to plan
accordingly.
We are also encouraged by the early indications following our
acquisition in the Far East and the early success from the Academy.
These initiatives, together with the continued growth in the
Partnership, bode really well for the future.
David Bellamy
Chief Executive
28 July 2014
-9-
INTERIM MANAGEMENT STATEMENT
CHIEF FINANCIAL OFFICER'S REPORT
I am pleased to report a strong financial performance in the
first half of the year.
In particular I would highlight the continued growth in the
underlying cash result enabling the board to announce a fifth
successive year of significant dividend growth, at the top end of
our previous guidance.
We have previously commented on the 20% growth in new
investments business, an even stronger 23% growth in net inflow,
the record funds under management and the continued growth in the
Partnership. In this statement I will comment on the other
financial measures.
Financial results
Shareholders are aware that we report our results on both an
IFRS and EEV basis as well as providing further detail on the cash
emergence from the business. Further explanation and analysis of
these measures is provided on pages 11 and 12.
It is worth noting that, whilst the EEV result is primarily
driven by the current year events (particularly new business and
investment performance), the IFRS and cash results are the
cumulative effect of all previous years.
IFRS Profit before shareholder tax
The Board regards the profit before shareholder tax as the most
appropriate measure of the performance of the business on an IFRS
basis.
Profit for the six months was GBP82.4 million, compared with
GBP90.1 million for the six months to 30 June 2013.
The 2013 result benefitted from a one off amount of GBP8.9
million arising from a reinsurance treaty associated with a closed
book of protection business. By contrast the 2014 half year result
has been negatively impacted by a change in an accounting
requirement (IFRS IC Interpretation 21 - Levies) which requires the
FSCS levy to be recognised in full immediately, rather than being
phased evenly throughout the year. Consequently, the 2014 first
half year result reflects an expected full year FSCS levy of GBP6.9
million, whereas the 2013 half year result reflected a six month
charge of just GBP2.4 million.
EEV result
The EEV result is primarily driven by the current year new
business, retention, expenses and investment returns.
The EEV new business profit at GBP181.3 million (30 June 2013:
GBP152.4 million) was up 19% during the period, in line with the
growth in new business.
The operating profit for the period at GBP260.7 million was some
12% higher than the GBP233.6 million for the same period last year.
It pleasing to note that we continue to experience a positive
variance from the better than assumed retention of client
funds.
It should also be noted that the 2013 result included a GBP32.0
million positive from the recognition of identified capital losses
and, if this item was to be excluded from the comparative, then the
growth in the operating profit would have been 29%.
It is also worth noting that the 2014 result was also negatively
impacted by the earlier recognition of the FSCS levy noted
above.
The net asset value per share on an EEV basis at the end of the
period is 604.9 pence, up 5% since the start of the year.
-10-
Cash result
The underlying cash result for the six months at GBP78.5 million
(30 June 2013: GBP66.9 million) was up 17% which reflects the
growing income from the funds under management added in earlier
years. Like the IFRS and EEV result, the current year cash result
was negatively impacted by the earlier recognition of the FSCS
levy.
Whilst the overall cash result at GBP60.1 million (30 June 2013:
GBP82.6 million) was lower than last year, it reflects an
anticipated reversal of a positive tax variance built up in earlier
years, whilst the prior year also included the positive
contribution of GBP18.3 million from the reinsurance treaty.
Dividend
At the time of the 2013 final results we increased the final
dividend by 50% and also indicated that we anticipated increasing
the 2014 dividend by a further significant amount, within a range
of 30-40%.
Given the continued strong growth in the underlying cash result
in the six months, the Board have resolved to increase the interim
dividend at the top end of this range with a 40% increase to 8.93p.
Furthermore, the Board anticipate an increase to the full year
dividend of a similar amount.
Thereafter, we intend to continue with our progressive dividend
policy by growing the dividend in line with the underlying
performance of the business.
Capital
We continue to manage the balance sheet prudently to ensure the
Group's solvency is maintained safely through the economic cycle.
This is important not only for the safeguarding of our clients'
assets, but also to ensure we can maintain returns to
shareholders.
Concluding remarks
2014 has started as another strong year of financial performance
for the Group across all measures.
The post-tax cash result was particularly strong in the six
months and benefitted from the growth and retention of funds under
management, not only in the current year, but more importantly from
that experienced in earlier years.
The business and financials are in good shape. In particular, we
anticipate continued growth in the underlying cash result which
should lead to continued growth in the dividend.
Andrew Croft
Chief Financial Officer
28 July 2014
-11-
INTERIM MANAGEMENT STATEMENT
FINANCIAL REVIEW
The Financial Model
The Group's strategy is to attract and retain retail funds under
management on which we receive an annual management fee for as long
as we retain the funds. This is the principal source of income for
the Group out of which we meet the overheads of the business,
invest in growing the Partnership and invest in acquiring new funds
under management.
The level of income is dependent on the level of client funds
and the level of asset values. In addition, since much of our
business does not generate net cash in the first six years, the
level of income will increase as a result of new business from six
years ago becoming cash generative. This deferral of cash
generation means the business always has six years' worth of funds
in the 'gestation' period.
Group expenditure is carefully managed with clear targets set
for growth in establishment expenses in the year. Other expenses
increase with business levels and are met from margins in the
products (see page 36). In addition, the Group incurs development
expenditure through investment in new client services, computer
systems and other corporate initiatives. Currently the Group, in
conjunction with one of its major outsourced providers, is
investing significantly in a new back office system.
A small proportion of Group expenditure is required to support
management of existing funds, but the majority of expenditure is
investment in growing the Partnership and acquiring new funds. The
resulting new business is expected to generate income for an
average of 14 years, and is expected to provide a good return on
the investment (see page 32).
As the business matures, the proportion of the cash emerging
from the existing business required to support the acquisition of
new business is reducing. This has resulted in strong growth in
cash emergence which has allowed the Board to significantly
increase the dividend to shareholders.
Given the high level of investment in new business generation
each year, neither the cash emergence nor the IFRS profit provide a
good guide to the profits likely to emerge in the future or the
total economic value of the business. However, consideration of the
contribution to profits from just the in-force business does
provide a good indication of the underlying value being generated
by the business and, therefore, the results using the EEV
methodology (described below) are also useful in assessing the
economic value of our business.
Presentation of financial results
Management believes it is important for investors to appreciate
not only the short term net income position of our business, but
also the full, long-term potential. We therefore complement our
statutory IFRS reporting with additional disclosure on an embedded
value basis (using EEV principles). This measure assesses the
discounted value of all future cash flows and we believe it better
reflects the full economic value of the performance of the
business. We also provide analysis of the sources of post tax cash
emergence in the year, which we refer to as the cash result.
These three measures, which are described in more detail below,
provide investors with different perspectives on the performance of
the business in a particular year. We believe the additional
disclosure will assist them in making their own assessment of the
value of the business.
The IFRS result is the approach required for statutory reporting
purposes. The standards require that profits are recognised in line
with the provision of services and therefore broadly in line with
the cash emergence from a contract. However, for long term business
it seeks to spread some of the initial cash flows over the whole
duration of the contract through the use of intangible assets and
liabilities (known as DAC - Deferred Acquisition Costs, and DIR -
Deferred Income). The method also recognises the value of certain
future cash flows, particularly deferred tax.
-12-
One point of note in the IFRS methodology is the requirement
that the tax recognised in the accounts should include the tax
incurred on behalf of policyholders in our UK life assurance
company. Since the policyholder tax charge is unrelated to the
performance of the business, management believes it is useful to
provide additional disclosure of the profit before shareholder tax.
This measure reflects the profit before tax adjusted for tax in
respect of policyholders. We believe this method provides the most
useful measure of IFRS operating performance in the period.
In arriving at the profit before shareholder tax, it is
necessary to estimate the analysis of the total tax charge between
that payable in respect of policyholders and that payable by
shareholders. Shareholder tax is estimated by making an assessment
of the effective rate of tax that is applicable to the
shareholders, with the balance being treated as tax in respect of
policyholders.
The embedded value result is particularly useful for investors
seeking to assess the full value of the long-term emergence of
shareholder cash returns, since it includes an asset in the
valuation, reflecting the net present value of the expected future
cash flows from the business currently in force. This type of
presentation is also commonly referred to as a 'discounted cash
flow' valuation. Our embedded value is based on the EEV principles,
which were set out as an industry standard by the Chief Financial
Officers (CFO) Forum in 2004.
Many of the future cash flows derive from fund charges, which
change with movements in stock markets. Since the impact of these
changes is unrelated to the performance of the business, management
believes that the EEV operating profit (reflecting the EEV profit
before tax adjusted to reflect only the expected investment
performance and no change in economic basis) provides the most
useful measure of performance in the period.
Finally, the cash result measure has been developed with the aim
of assisting investors seeking to understand the post tax sources
of cash emergence. It is based on IFRS, but removes non-cash items
such as DAC, DIR and deferred tax. It is also adjusted to reflect a
level of regulatory solvency constraint on profits emerging from
regulated companies such as our insurance businesses in line with
that required by UK regulators. The effect is to create a measure
which more reflects the cash generated by the business.
Since the cash result can be impacted by timing variances and
capitalised impacts of changes in solvency requirements, management
believes it is also useful to present an underlying cash result
excluding these effects, which the Board reviews in determining the
proposed dividend payments to shareholders.
Neither of these cash result measures should be confused with
the IFRS cash flow statement which is prepared in accordance with
IAS 7 and disclosed on page 55.
Sections 1-3 below provide a commentary on the performance of
the business on these bases, whilst Section 4 covers other matters
of interest to shareholders.
-13-
SECTION 1: INTERNATIONAL FINANCIAL REPORTING STANDARDS
(IFRS)
As noted above, the Board regard the IFRS profit before
shareholder tax as the best measure of the IFRS operating
performance for the year. It provides a measure of performance
which recognises the emergence of profits in line with the
provision of services, and is comparable with other businesses. The
detailed IFRS result is shown on pages 52 to 73 and is summarised
in the table below.
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 2014 30 June 2013 31 December 2013
-------------- -------------- ------------------
GBP' Million GBP' Million GBP' Million
Profit before shareholder tax 82.4 90.1 190.7
Shareholder tax (16.3) 18.1 (0.4)
-------------- -------------- ------------------
IFRS profit after tax 66.1 108.2 190.3
============== ============== ==================
An analysis of the movement in the profit before shareholder tax
and shareholder tax is provided below.
Profit before Shareholder Tax
The profit before shareholder tax for the six months was GBP82.4
million compared with GBP90.1 million.
The 2013 result benefitted from a one-off amount of GBP8.9
million, arising from a reinsurance treaty associated with the UK
life company's closed book of Protection business. By contrast, the
2014 result has been negatively impacted by the phasing effect of a
change in accounting requirements, leading to recognition of the
full FSCS levy for the whole year in the period (see also
Distribution business below).
A breakdown of the profit before shareholder tax by segment is
provided in the following table:
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 2014 30 June 2013 31 December 2013
-------------- -------------- ------------------
GBP' Million GBP' Million GBP' Million
Life business 77.6 81.1 170.6
Unit Trust business 29.4 25.3 53.9
Distribution business (8.8) (2.1) (6.1)
Other (15.8) (14.2) (27.7)
-------------- -------------- ------------------
Profit before shareholder tax 82.4 90.1 190.7
============== ============== ==================
-14-
Life business
The Life business profit for the six months to 30 June 2014 was
GBP77.6 million (30 June 2013: GBP81.1 million) which was 7.5%
higher than the prior period after taking into account the one-off
positive of GBP8.9 million resulting from the UK life company
entering into a reinsurance agreement in the previous period. The
increase mainly reflects higher income from funds under
management.
Unit Trust business
The Unit Trust business profit for the six months was GBP29.4
million (30 June 2013: GBP25.3 million), up 16.2% over the same
period last year. As above, the principal contributor to this rise
in profit was the higher income from funds under management.
Distribution business
The impact of distribution activity is separately identified
from 'Other' operations. St. James's Place is a vertically
integrated firm, allowing it to benefit from the synergies of
combined management of funds with distribution. Therefore, as well
as the income generated on the funds under management, there is a
further margin from the distribution activity. In any one period
this result will depend upon the level of new business and
expenses.
The 2014 half year result has been negatively impacted by a
change in an accounting requirement (IFRS IC Interpretation 21 -
Levies) which requires the FSCS levy to be recognised in full
immediately rather than being phased evenly throughout the year.
Consequently the 2014 first half year result reflects an expected
full year FSCS levy of GBP6.9 million, whereas the 2013 half year
result reflected a six month charge of just GBP2.4 million.
Other
Other operations made a negative contribution of GBP15.8 million
(30 June 2013: loss of GBP14.2 million). Included within this
figure is the GBP11.2 million (30 June 2013: GBP5.3 million)
development costs related to our investment proposition, corporate
initiatives, systems improvements and back-office infrastructure.
It also includes GBP5.3 million (30 June 2013: GBP3.2 million) for
the cost of expensing share options. The comparative figure
included one-off costs in relation to the reduction in the Lloyds
Banking Group ("LBG") shareholding on 11 March 2013 of GBP6.0
million.
-15-
Shareholder Tax
The actual tax rate in each of the periods may be impacted by
significant one-off items and events such as a change in
corporation tax rate. Therefore, to assist shareholders, the table
below provides a high level analysis of shareholder tax, and a more
detailed analysis is included in Note 4 to the condensed half year
financial statements.
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 2014 30 June 2013 31 December 2013
-------------- -------------- ------------------
GBP' Million GBP' Million GBP' Million
Expected shareholder tax (17.1) (19.5) (41.9)
Recognition of capital losses 0.8 38.4 27.9
Other tax adjustments - (0.8) 1.6
Corporation tax rate change - - 12.0
-------------- -------------- ------------------
Actual shareholder tax (16.3) 18.1 (0.4)
============== ============== ==================
Expected shareholder tax rate 20.8% 21.6% 22.0%
-------------- -------------- ------------------
Actual shareholder tax rate 19.8% (20.1)% 0.2%
-------------- -------------- ------------------
The expected shareholder tax principally reflects the current UK
corporation tax and overseas rates applicable and will vary from
year to year depending upon the emergence of profit between the
different tax regimes which apply to the St. James's Place Group
companies. More detail is included in Note 4 to the condensed half
year financial statements.
During the current and prior half year periods, there was no
impact of corporation tax rate changes. However, in the prior
period to 31 December 2013, corporation tax rate changes did impact
on deferred tax which reduced the tax charge. This isn't reflected
in the period to 30 June 2013 as the announced rate changes had not
been enacted at that point.
Capital losses of GBP0.8 million have been recognised at 30 June
2014. In the prior half year period, recognition of the future
effect of Group capital losses reduced the shareholder tax
recognised in the period by GBP38.4 million (GBP27.4 million at 31
December 2013).
The overall impact of these effects is to increase the tax
charge on an IFRS basis to GBP16.3 million at 30 June 2014 (30 June
2013 of GBP18.1 million credit; 31 December 2013 GBP0.4 million
charge).
-16-
IFRS Profit after Tax
The following additional analysis of the IFRS profit after tax
result identifies the different contributions from the business
in-force at the start of the year, and the new business added
during the period. It starts from the cash result, which can be
found on pages 27 to 30.
Six Months Ended 30 June 2014
Notes In-Force New Total
Business
------------ ------------ ------------
GBP'Million GBP'Million GBP'Million
Cash result 1 100.2 (40.1) 60.1
Variance 1 14.7 - 14.7
114.9 (40.1) 74.8
DIR amortisation 2 53.9 0.9 54.8
DAC amortisation 3 (41.6) (0.9) (42.5)
PVIF amortisation 4 (1.3) - (1.3)
Deferred tax asset amortisation: 5
- unrelieved expenses (10.2) - (10.2)
- capital losses (4.2) - (4.2)
DIR on new business 2 - (19.4) (19.4)
DAC on new business 3 - 11.4 11.4
New deferred tax asset:
- unrelieved expenses 6.1 - 6.1
- capital losses 0.8 - 0.8
Share options 6 (5.3) - (5.3)
Other IFRS impacts offsetting variance 7 1.1 - 1.1
IFRS profit after tax 114.2 (48.1) 66.1
============ ============ ============
-17-
Six Months Ended 30 June 2013
Notes In-Force New Total
Business
------------ ------------ ------------
GBP'Million GBP'Million GBP'Million
Cash result 1 107.6 (25.0) 82.6
Variance 1 2.6 - 2.6
110.2 (25.0) 85.2
DIR amortisation 2 56.9 2.9 59.8
DAC amortisation 3 (50.3) (2.9) (53.2)
PVIF amortisation 4 (1.2) - (1.2)
Deferred tax asset amortisation: 5
- unrelieved expenses (10.2) - (10.2)
- capital losses - - -
DIR on new business 2 - (26.1) (26.1)
DAC on new business 3 - 20.2 20.2
New deferred tax asset:
- unrelieved expenses 6.1 - 6.1
- capital losses 38.4 - 38.4
Share options 6 (3.2) - (3.2)
Other IFRS impacts offsetting variance 7 (7.6) - (7.6)
IFRS profit after tax 139.1 (30.9) 108.2
============ ============ ============
-18-
Twelve Months Ended 31 December 2013
Notes In-Force New Total
Business
------------ ------------ ------------
GBP'Million GBP'Million GBP'Million
Cash result 1 221.1 (52.3) 168.8
Variance 1 (14.6) - (14.6)
206.5 (52.3) 154.2
DIR amortisation 2 113.7 1.8 115.5
DAC amortisation 3 (91.5) (1.8) (93.3)
PVIF amortisation 4 (2.5) - (2.5)
Deferred tax asset amortisation: 5
- unrelieved expenses (20.3) - (20.3)
- capital losses - - -
DIR on new business 2 - (48.9) (48.9)
DAC on new business 3 - 31.5 31.5
New deferred tax asset:
- unrelieved expenses 18.1 - 18.1
- capital losses 27.9 - 27.9
Share options 6 (7.8) - (7.8)
Other IFRS impacts offsetting variance 7 3.9 - 3.9
Corporation tax rate change 8 12.0 - 12.0
IFRS profit after tax 260.0 (69.7) 190.3
============ ============ ============
The IFRS profit after tax from the business in-force at the
start of the year decreased to GBP114.2 million (30 June 2013:
GBP139.1 million).
This reduction is primarily because of the establishment of a
GBP38.4 million deferred tax asset in the prior period reflecting
the value placed on capital losses within the Group. The prior
period also benefitted from a new reinsurance treaty entered into
by the UK life company. Ignoring these one-off impacts, there has
been continued growth in the IFRS profit after tax from the
in-force business.
The loss associated with the new business activities during the
six months was GBP48.1 million (30 June 2013: GBP30.9 million) and
should be viewed as an investment for future profits. The increase
in the size of the investment compared to the previous period
reflected increased expenses, particularly the FSCS levy and
development expenses (see also Section 4).
Notes
1. These figures are explained in the analysis of the post-tax cash result in Section 3.
2. DIR: IFRS requires any initial profit from a long-term
product which arises on new business (either through an initial
charge or early withdrawal charge) to be deferred at the outset and
then amortised over the life of the associated product or the early
withdrawal period. This required treatment gives rise to two
adjustments to arrive at the IFRS result.
(a) The amortisation of the opening deferred income reserve,
which increases profit for the period, was GBP53.9 million (30 June
2013: GBP56.9 million) in the first six months. The release in a
particular year will depend upon the value of DIR at the start of
the year and the remaining life of the policies to which the DIR
relates or the remaining surrender penalty period. The expected
release for the full year is GBP107.9 million.
-19-
(b) The deferral of the initial profit associated with new
business sales in the period, which in the first six months reduced
the IFRS result by GBP19.4 million (30 June 2013: GBP26.1
million).
The introduction at the start of 2013 of the new regulatory
rules on adviser charges changed the nature of a number of cash
flows. In particular, that part of the initial profit which was
used to meet the adviser charges (including Partner remuneration),
is no longer a cash flow associated with the long term business,
but is instead a direct client payment for advice. However, a
proportion of the business issued at the start of 2013 was advised
on before that date and was therefore accounted for under the old
method. If all the new business in the first half of 2013 had been
advised on after the start of the new rules, we estimate that the
DIR on new business in the first half of 2013 would have been
cGBP21 million.
3. DAC: Specific new business acquisition expenses associated
with a long-term product are required to be deferred in the year
they arise and then amortised in future years over the life of the
policies to which the costs relate. This treatment of these
acquisition expenses gives rise to two adjustments to arrive at the
IFRS result.
(a) The amortisation of the opening DAC, which reduces profit
for the period, was GBP41.6 million in the first six months of the
year (30 June 2013: GBP50.3 million, which included an additional
charge of GBP7.7 million associated with the impairment of the
protection business following the reassurance treaty entered into).
The charge in a particular period will depend upon the value of the
DAC at the start of the year and the remaining life of the policies
to which the DAC relates. The expected charge for the full year is
now GBP82.3 million.
(b) The deferral of the specific acquisition costs, which were
incurred in the first six months of the year, increased IFRS
profits by GBP11.4 million (30 June 2013: GBP20.2 million). The
deferral of expenses in any particular year will be dependent upon
the level of the acquisition costs which themselves will be
determined by the level of new business.
As described in note 2 above, the adoption of the new regulatory
rules on adviser charging at the start of 2013 changed the nature
of a number of cash flows. In particular, the adviser charge
(including Partner remuneration) is no longer regarded as an
expense associated with the long term business but is rather a
direct client payment for advice. Consequently, in respect of the
adviser charge there is no expense to defer. However, the 2013
charge included some business that was issued in 2013 but advised
on before that date and therefore was accounted for under the old
method. If all the new business in the first half of 2013 had been
advised on after the start of the new rules we estimate the DAC on
new business in the first half would have been cGBP13 million.
4. PVIF: The IFRS balance sheet includes an asset representing
purchased value of in-force ("PVIF") business. This asset is
amortised over the remaining life of the policies associated with
this asset. The amortisation charge for the first six months was
GBP1.3 million (30 June 2013: GBP1.2 million). The charge for the
full year is expected to be GBP2.6 million.
5. Deferred tax asset amortisation: IFRS requires that an asset
is established for any future tax benefits that are expected to
emerge. The asset is then amortised as the benefits emerge in the
cash result. Analysis of all the deferred tax assets (DTAs) is set
out in Note 10 to the condensed half year financial statements.
Since the DIR is presented net of tax in this analysis, the two
most significant tax assets are:
- Unrelieved expenses - arising from treatment of adviser
remuneration on pre-RDR life business in the Life tax computation.
The amortisation in the year is expected to be GBP20.3 million;
and
- Capital losses - arising from capital losses in other Group
companies. The amortisation in any year depends on the tax outcome
of the UK life company, which is market dependent, however we
currently anticipate that the losses could be fully amortised
within 6-7 years.
6. Share options: this figure is the notional cost that is
associated with the various share option schemes.
-20-
7. Other IFRS impacts offsetting variances: In our cash result
we identify a number of variances which are either timing impacts
or result from external factors. Most of these effects are reversed
through adjustments in the IFRS methodology, which leads to a less
volatile IFRS result. We expect that this item will therefore
normally be small in future years.
8. Corporation tax rate change: the above adjustments are all
shown net of deferred tax rates prevailing at the end of each
reporting period. In the 2013 Budget, reductions in the Corporation
tax rate were announced, which were substantively enacted by the
time of the year end reporting for 2013. There was no impact on the
comparative half year figures or the current half year period.
Whilst the Board considers the profit before shareholder tax is
the best measure of the performance of the business, the total IFRS
result is presented, grossed up for the inclusion of tax incurred
on behalf of policyholders, in the table below:
IFRS profit before tax
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 2014 30 June 2013 31 December 2013
-------------- -------------- ------------------
GBP' Million GBP' Million GBP' Million
IFRS profit before tax 110.4 249.5 461.2
Policyholder tax (28.0) (159.4) (270.5)
-------------- -------------- ------------------
Profit before shareholder tax 82.4 90.1 190.7
Shareholder tax (16.3) 18.1 (0.4)
-------------- -------------- ------------------
IFRS profit after tax 66.1 108.2 190.3
============== ============== ==================
In 2014, the IFRS profit before tax for the six months was
GBP110.4 million (30 June 2013: GBP249.5 million) with the
principal contribution to the change being the decrease in the
amount of policyholder tax from GBP159.4 million in 2013 to GBP28.0
million in 2014.
Analysis of IFRS Assets and Net Assets per Share
The table below provides a summarised breakdown of the IFRS
position at the reporting dates:
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 2014 30 June 2013 31 December 2013
-------------- -------------- ------------------
GBP' Million GBP' Million GBP' Million
Purchased value of in-force* 30.7 32.0 32.0
Deferred acquisition costs* 690.8 727.1 720.8
Deferred income* (432.2) (488.3) (466.7)
Other IFRS net assets 122.5 118.1 112.4
Solvency net assets 515.4 462.7 507.6
-------------- -------------- ------------------
Total IFRS net assets 927.2 851.6 906.1
============== ============== ==================
* net of deferred tax
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 2014 30 June 2013 31 December 2013
-------------- -------------- ------------------
Pence Pence Pence
Net asset value per share 178.8 165.8 175.9
============== ============== ==================
-21-
SECTION 2: EUROPEAN EMBEDDED VALUE (EEV)
Life business and wealth management business differ from most
other businesses, in that the expected shareholder income from the
sale of a product emerges over a long period in the future. We
therefore complement the IFRS result by providing additional
disclosure on an EEV basis. The EEV result brings into account the
net present value of the expected future cash flows and we believe
this measure is useful to investors when assessing the total
economic value of the Group's operating performance.
The table below and accompanying notes summarise the profit
before tax of the combined business. The detailed result is shown
on pages 41 to 49.
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 2014 30 June 2013 31 December 2013
-------------- -------------- ------------------
GBP' Million GBP' Million GBP' Million
Life business 191.7 184.2 365.7
Unit Trust business 93.6 65.7 130.8
Distribution business (8.8) (2.1) (6.1)
Other (15.8) (14.2) (27.7)
-------------- -------------- ------------------
EEV operating profit 260.7 233.6 462.7
Investment return variance 13.0 209.5 344.2
Economic assumption changes (3.1) 1.5 10.6
-------------- -------------- ------------------
EEV profit before tax 270.6 444.6 817.5
Tax (53.1) (88.0) (161.9)
Corporation tax rate change - 18.9 18.9
-------------- -------------- ------------------
EEV profit after tax 217.5 375.5 674.5
============== ============== ==================
Total EEV operating profit for the first six months of the year,
at GBP260.7 million, was 11.6% higher than the comparable 2013
result of GBP233.6 million.
The prior period result included a positive contribution of
GBP32.0 million as a result of value placed on capital losses
within the Group. Ignoring this item, the operating profit would
have increased by 29.3%. Furthermore, as noted earlier in the IFRS
section, the change in the recognition of the FSCS levy has also
impacted the 2014 result.
-22-
EEV Operating Profit
Life Business
The life business operating profit has increased to GBP191.7
million (30 June 2013: GBP184.2 million) and a full analysis of the
result is shown below:
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 2014 30 June 2013 31 December 2013
-------------- -------------- ------------------
GBP' Million GBP' Million GBP' Million
New business contribution 108.6 97.6 213.6
Profit from existing business
- unwind of the discount rate 72.6 45.0 89.4
- experience variance 7.4 40.1 53.9
- operating assumption change - - 4.6
Investment income 3.1 1.5 4.2
-------------- -------------- ------------------
Life business EEV operating profit 191.7 184.2 365.7
============== ============== ==================
The new business contribution for the six months at GBP108.6
million (30 June 2013: GBP97.6 million) was some 11% higher than
the prior year reflecting the growth in new business.
The unwind of the discount rate for the six months was GBP72.6
million (30 June 2013: GBP45.0 million). The unwind is, as usual,
calculated based on the opening discount rate.
The experience variance in the six month period was a positive
GBP7.4 million (30 June 2013: GBP40.1 million positive variance)
largely as a result of the continued strong retention of client
funds which contributed a further positive variance of GBP19.5
million, partially offset by development expenses, with the balance
made up by a number of smaller positive and negative variances. In
the prior period, a significant contributor to the positive
variance was a GBP32.0 million pre-tax value placed on capital
losses within the Group.
There was no change made to the operating assumptions (30 June
2013: GBPnil).
Theinvestment income for the six months was higher at GBP3.1
million (30 June 2013: GBP1.5 million), reflecting the increasing
level of underlying assets.
-23-
Unit Trust business
The unit trust operating profit was GBP93.6 million (30 June
2013: GBP65.7 million) and a full analysis of the result is shown
in the following table:
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 2014 30 June 2013 31 December 2013
-------------- -------------- ------------------
GBP' Million GBP' Million GBP' Million
New business contribution 72.7 54.8 113.6
Profit from existing business
- unwind of the discount rate 19.0 11.5 22.7
- experience variance 1.6 (0.8) (6.5)
- operating assumption change - - -
Investment income 0.3 0.2 1.0
-------------- -------------- ------------------
Unit Trust business EEV operating profit 93.6 65.7 130.8
============== ============== ==================
New business contribution at GBP72.7 million (30 June 2013:
GBP54.8 million) was 32.7% higher than the prior period as a result
of the new business growth.
The unwind of the discount rate was GBP19.0 million (30 June
2013: GBP11.5 million). The unwind is, as usual, calculated based
on the opening discount rate.
There was a small positive experience variance of GBP1.6 million
(30 June 2013: GBP0.8 million negative) which is accounted for by a
number of small positive and negative items in each year.
There was no change made to the operating assumptions (30 June
2013: GBPnil).
Distribution business and Other
The results from Distribution and Other operations have already
been commented on in the IFRS section.
Investment Return Variance
The investment return variance reflects the capitalised impact
on the future annual management fees resulting from the difference
between the actual and assumed investment returns. Given the size
of our funds under management, a small difference between the
actual and assumed investment return can result in a large positive
or negative variance.
The investment return on our funds has marginally exceeded the
assumed investment return, resulting in a small positive investment
return variance of GBP13.0 million for the period.
In the comparative period there was a large positive investment
variance of GBP209.5 million, reflecting the strong stock market
growth in that period.
-24-
Economic Assumption Changes
There was a small negative variance of GBP3.1 million arising
from changes in the economic basis adopted at the period end (30
June 2013: GBP1.5 million positive).
EEV Profit before Tax
The total profit before tax for the six months at GBP270.6
million was less than the prior period (30 June 2013) figure of
GBP444.6 million, with the growth in new business contribution
offset by the lower investment return variance.
Tax
The tax charge at GBP53.1 million (30 June 2013: GBP88.0
million) was lower than 2013 reflecting the lower profit before
tax.
EEV Profit after Tax
The EEV profit after tax was GBP217.5 million (30 June 2013:
GBP375.5 million). The principal reason for the variation is the
change in investment return variance.
-25-
New Business Margin
The largest single element of the EEV operating profit (analysed
in the previous section) is the new business contribution. The
level of new business contribution generally moves in line with new
business levels. To demonstrate this link and aid understanding of
the results we provide additional analysis of the new business
margin ('Margin'). This is calculated as the new business
contribution divided by a relevant new business measure, and is
expressed as a percentage.
The table below presents margin of our own manufactured business
based on each of the two main measures of new business performance
used by the insurance sector:
-- Annual Premium Equivalent (APE) - calculated as the sum of
regular premiums plus 1/10(th) single premiums and also including
APE from non-manufactured business
-- Present Value of New Business Premium (PVNBP) - calculated as
single premiums plus the present value of expected premiums from
regular premium business, allowing for lapses and other EEV
assumptions, but excluding non-manufactured business
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 2014 30 June 2013 31 December 2013
-------------- -------------- ------------------
Life business
New business contribution (GBP'M) 108.6 97.6 213.6
APE (GBP'M) 284.7 253.9 532.9
Margin (%) 38.1 38.4 40.1
PVNBP (GBP'M) 2,543.5 2,270.0 4,758.0
Margin (%) 4.3 4.3 4.5
-------------- -------------- ------------------
Unit Trust business
New business contribution (GBP'M) 72.7 54.8 113.6
APE (GBP'M) 163.2 120.0 230.0
Margin (%) 44.5 45.7 49.4
PVNBP (GBP'M) 1,632.5 1,200.1 2,300.2
Margin (%) 4.5 4.6 4.9
-------------- -------------- ------------------
Total business
New business contribution (GBP'M) 181.3 152.4 327.2
APE (GBP'M) 447.9 373.9 762.9
Margin (%) 40.5 40.8 42.9
PVNBP (GBP'M) 4,176.0 3,470.1 7,058.2
Margin (%) 4.3 4.4 4.6
-------------- -------------- ------------------
The Life business margin is basically unchanged at 4.3% on a
PVNBP basis and 38.1% (compared to 38.4% for the prior period) on
the APE basis. The Unit Trust margin has reduced slightly from 4.6%
to 4.5% on a PVNBP basis and from 45.7% to 44.5% on an APE basis.
This reflects a minor variance in the underlying business mix.
As a result, the combined margin was marginally lower both on an
APE basis and on a PVNBP basis, reflecting the underlying stability
of the product pricing.
-26-
Analysis of the European Embedded Value and Net Assets per
Share
The table below provides a summarised breakdown of the embedded
value position at the reporting dates:
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 2014 30 June 2013 31 December 2013
-------------- -------------- ------------------
GBP' Million GBP' Million GBP' Million
Value of in-force
- Life 2,063.8 1,776.2 1,950.2
- Unit Trust 557.4 453.8 506.3
Solvency net assets 515.4 462.7 507.6
-------------- -------------- ------------------
Total embedded value 3,136.6 2,692.7 2,964.1
============== ============== ==================
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 2014 30 June 2013 31 December 2013
-------------- -------------- ------------------
Pence Pence Pence
Net asset value per share 604.9 524.1 575.3
============== ============== ==================
-27-
SECTION 3: CASH RESULT AND CAPITAL
In addition to presenting the financial performance on the IFRS
and EEV basis, we also provide an analysis of the post tax sources
of cash emergence in the year which we refer to as the cash result.
The cash result is based on the IFRS result, but removes non-cash
items such as DAC, DIR and deferred tax. It is also adjusted to
reflect a level of regulatory solvency constraint on profits
emerging from regulated companies such as our insurance businesses
in line with that required by UK regulators. The effect is to
create a measure which more reflects the cash generated by the
business.
Since the cash result can be impacted by timing variances and
capitalised impacts of changes in solvency requirements, management
believes it is also useful to present an underlying cash result
excluding these effects, which the Board reviews in determining the
proposed dividend payments to shareholders.
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 2014 30 June 2013 31 December 2013
-------------- -------------- ------------------
GBP' Million GBP' Million GBP' Million
Underlying cash result 78.5 66.9 139.9
Reinsurance transaction - 18.3 18.3
Back-office infrastructure (3.7) - (4.0)
Variance (14.7) (2.6) 14.6
-------------- -------------- ------------------
Cash result 60.1 82.6 168.8
============== ============== ==================
During the first six months of the year, the underlying cash
result was GBP78.5 million (30 June 2013: GBP66.9 million) up
17.3%. This strong growth was driven by increased net income from
funds under management. However, the current year has been
negatively impacted by the recognition of the full year expected
FSCS levy of GBP5.3 million post tax whilst the 2013 half year
result reflects a six month charge of just GBP1.9 million post
tax.
The overall reduction in the total cash results reflects the
positive GBP18.3 million impact in 2013 of the reinsurance treaty
entered into by the UK life company and the 2014 impacts of
investment in the business through the back-office infrastructure
programme, together with a number of tax variances, which are
reversing positive variances reported in prior periods.
The impact of these one-off impacts is to reduce the overall
cash result in the period to GBP60.1 million (30 June 2013: GBP82.6
million).
-28-
The cash result is a combination of the cash emerging from the
business in force at the start of the year less the cash flows
associated with the new business activity during the period. The
tables and commentary below provide an analysis of the cash result,
identifying the different contributions from the business in-force
at the start of the year, and the new business activity during the
period.
Six Months Ended 30 June 2014
Note In-Force New Business Total
------- ------------ ------------- ------------
GBP'Million GBP'Million GBP'Million
Net annual management fee 1 172.7 7.6 180.3
Unwind of early withdrawal charge 2 (62.5) (4.3) (66.8)
------------ ------------- ------------
Net income from funds under management 110.2 3.3 113.5
Margin arising from new business 3 - 18.1 18.1
Establishment expenses 4 (5.0) (44.5) (49.5)
Development expenses 5 - (6.4) (6.4)
Regulatory fees 6 (0.8) (1.6) (2.4)
FSCS levy 7 - (5.3) (5.3)
Shareholder interest 8 3.9 - 3.9
Miscellaneous 9 6.6 - 6.6
------------ ------------- ------------
Underlying cash result 114.9 (36.4) 78.5
Back office infrastructure - (3.7) (3.7)
Variance 11 (14.7) - (14.7)
------------ ------------- ------------
Post-tax cash result 100.2 (40.1) 60.1
============ ============= ============
Six Months Ended 30 June 2013
Note In-Force New Business Total
------- ------------ ------------- ------------
GBP'Million GBP'Million GBP'Million
Net annual management fee 1 146.2 7.0 153.2
Unwind of early withdrawal charge 2 (53.5) (4.1) (57.6)
------------ ------------- ------------
Net income from funds under management 92.7 2.9 95.6
Margin arising from new business 3 - 18.5 18.5
Establishment expenses 4 (4.3) (38.6) (42.9)
Development expenses 5 - (4.1) (4.1)
Regulatory fees 6 (0.4) (1.8) (2.2)
FSCS levy 7 - (1.9) (1.9)
Shareholder interest 8 3.6 - 3.6
Miscellaneous 9 0.3 - 0.3
------------ ------------- ------------
Underlying cash result 91.9 (25.0) 66.9
Reinsurance transaction 10 18.3 - 18.3
Variance 11 (2.6) - (2.6)
------------ ------------- ------------
Post-tax cash result 107.6 (25.0) 82.6
============ ============= ============
-29-
Twelve Months Ended 31 December 2013
Note In-Force New Business Total
----- ------------ ------------- ------------
GBP'Million GBP'Million GBP'Million
Net annual management fee 1 290.5 27.0 317.5
Unwind of early withdrawal charge 2 (103.4) (15.9) (119.3)
------------ ------------- ------------
Net income from funds under management 187.1 11.1 198.2
Margin arising from new business 3 - 37.8 37.8
Establishment expenses 4 (8.6) (78.4) (87.0)
Development expenses 5 - (10.8) (10.8)
Regulatory fees 6 (0.9) (3.8) (4.7)
FSCS levy 7 - (4.2) (4.2)
Shareholder interest 8 7.4 - 7.4
Miscellaneous 9 3.2 - 3.2
------------ ------------- ------------
Underlying cash result 188.2 (48.3) 139.9
Reinsurance transaction 10 18.3 - 18.3
Back office infrastructure - (4.0) (4.0)
Variance 11 14.6 - 14.6
------------ ------------- ------------
Post-tax cash result 221.1 (52.3) 168.8
============ ============= ============
Notes
Since all numbers are expressed after tax, they are impacted by
the prevailing tax rate for each year.
1. The net annual management fee: This is the manufacturing
margin the Group retains from the funds under management after
payment of the associated costs (e.g. investment advisory fees and
Partner remuneration).
The level of net annual management fee was some 17% higher than
the same period in 2013, reflecting the higher daily funds under
management in the first six months of 2014.
The average rate of net annual management fee depends on the mix
of business and as can be seen from comparing the net annual
management fee with the average funds under management during the
period, the Group is currently earning a blended rate of around
0.77% p.a. post-tax.
2. Unwind of early withdrawal charge: This relates to the
reserving methodology applied to the withdrawal charge within the
structure of the single premium life and pensions business. At the
outset of the product we establish a liability net of the
outstanding withdrawal charge which would apply if the policy were
to be encashed.
As the withdrawal charge reduces to zero, so the liability to
the policyholder is enhanced by increasing their funds by 1% per
annum over the first six years of the product life. In other words
there is a cost which offsets the annual management fee above. This
is known as the 'unwind' of the withdrawal charge.
Like the net annual management fee, the unwind of the withdrawal
charge has increased due to growth in funds under management.
However, the increase is adjusted by the fact that the funds under
management added six years ago have completed the withdrawal charge
period.
3. Margin arising from new business: This is the cash impact of
new business in the year reflecting growth in new business and also
production related expenses.
-30-
4. Establishment expenses: These are the expenses of running the
Group's infrastructure as shown in the table on page 36. In line
with the rest of this table they are presented after allowance for
tax.
The post-tax figure in this analysis has increased at a slightly
higher rate than shown on the aforementioned table due to the
impact of differing tax rates between the two reporting
periods.
5. Development expenses: These represent the sum of the other
expenditure noted in the table on page 36 (e.g. developments, the
cost of regulatory change and academy). The impact on the cash
result in the period was GBP6.4 million (30 June 2013: GBP4.1
million).
6. Regulatory fees: This relates to the fees payable to the Regulatory bodies.
7. FSCS levy: This relates to the charge levied by the FSCS for
the current year. Due to a change in the recognition requirement of
the FSCS levy, the full annual charge has been recognised at 30
June 2014, compared with the prior year when the levy was phased
evenly over the year.
8. Shareholder interest arising from regulated and non-regulated
business: This is the assumed income accruing on the investments
and cash held for regulatory purposes together with the interest
received on the surplus capital held by the Group.
The small increase in interest received reflects the increased
level of assets invested.
9. Miscellaneous: This represents the cash flow of the business
not covered in any of the other categories.
An important element is the impact of structural timing
differences in the life company tax computation. As a consequence
of the loss of tax relief on advice costs (commented on in the
previous accounts) this item reflects the benefit of the unwind of
the outstanding tax relief on historic advice costs. There was a
positive impact of GBP4.1 million in the period, although it is
expected this will reduce over the next 6 years.
The item also reflects the positive impact of utilisation of the
Group capital losses, which contributed a positive impact of GBP4.2
million during the period. The level of benefit in any period
depends on the UK insurance company tax position, but it is
expected that the outstanding capital losses could be utilised in
the next 6-7 years.
10. Reinsurance transaction: During the prior period a
reinsurance treaty was entered into by the UK life company which
reinsured the company's remaining insurance and persistency risk of
its closed book of Protection business. As a result of the
transaction there was a one-off impact on the cash result of
GBP18.3 million, reflecting the release of the associated prudent
solvency reserves together with the realisation of the capitalised
value of expected future margins.
11. Variance: This reflects variances in the cash result in a
year due to the impact of actual experience (including economic
assumptions changes and investment performance) on insurance
reserves, as well as variances in the settlement of tax related
liabilities between the policyholders (unit-linked funds), the
shareholder and HMRC.
The overall variance was small in the prior period, but in 2014
there has been a significant unwind of prior year positive
tax-related variances, which accounts for most of the GBP14.7
million impact.
-31-
Return on In-force Business
As shown in the tables above, the return on the in-force
business is mainly driven by the level of the annual management
fees, the unwind of the early withdrawal charge, and the level of
expenses.
The vast majority of the return relates to the net income from
funds under management (annual management fees less the unwind of
the early withdrawal charge). Funds under management have been
increasing and as they continue to develop, the future net income
should also increase correspondingly.
In addition, a proportion of the new business has an early
withdrawal charge which unwinds during the first six years and,
consequently, this business does not make a meaningful contribution
to the cash result until year seven. The table below provides an
estimated breakdown of the single investment business over the last
six years where these early withdrawal charges apply. These
investments are not yet generating income within the cash
result.
Year With early withdrawal
charge
----------------------
GBP' Billion
2008 0.7
2009 1.6
2010 2.1
2011 2.2
2012 2.4
2013 3.5
2014 Half
Year 1.7
----------------------
Total 14.2*
======================
This GBP14.2 billion* not yet contributing to the cash result
represents some 30% of the total funds under management at 30 June
2014. The potential for cash generation from this business will
depend upon the retention of clients and the value of the client
funds; however for illustration purposes, if all the business
reached the end of the early withdrawal charge period then the
annual post-tax cash result (based on 0.77% post-tax earnings from
funds under management) would be some GBP109 million higher*.
*ignores stock market movements and outflows since the date of
original client investment
The Board therefore expects the cash earnings from the in-force
business to increase as funds under management grow and the
business matures.
-32-
Return on Investment in New Business
As noted in the table on page 28, GBP36.4 million (30 June 2013:
GBP25.0 million) of the cash arising from the in-force business has
been re-invested in acquiring the new business during the year
This investment in new business will generate income in the
future that should significantly exceed the cost of investment and
therefore provide positive returns for shareholders. The table
below provides details of the new business added during the
reporting periods and different measures of assessing the value
from the new business activity.
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 2014 30 June 2013 31 December 2013
-------------- -------------- ------------------
Post-tax investment in new business (GBP'Million) (36.4) (25.0) (48.3)
Post-tax present value of expected future cash returns
(GBP'Million) 181.7 146.7 314.1
Post-tax present value of expected profit from investment
(GBP'Million) 145.0 121.7 261.8
Gross inflow of funds under management (GBP'Billion) 3.8 3.3 6.8
Investment as % of gross inflow* 1.0% 0.8% 0.8%
New business margin (% of APE) 40.5% 40.8% 42.9%
Cash payback period (years) 4 4 4
Internal rate of return (net of tax) 28.3% 28.3% 28.4%
* The investment as a percentage of net inflow of funds under
management was 1.5% compared with 1.3% for the comparative period
and 1.2% for the complete year.
The level of investment to acquire new business is not expected
to increase significantly in future years, and therefore the
proportion of the cash generated from the in-force business that
will be available to pay dividends to shareholders is expected to
continue expanding.
Capital Position
In addition to presenting an IFRS balance sheet (on page 54) and
an EEV balance sheet (on page 43) we believe it is beneficial to
provide a balance sheet using the approach underlying our cash
result. This is because the cash result is adjusted for non-cash
items such as DAC, DIR and deferred tax. The Board therefore
considers this cash result balance sheet provides the best
indication of the free capital of the Group which could be
available to pay dividends.
The following table analyses the differences between the IFRS
balance sheet and the cash result balance sheet. These adjustments
include netting out assets and liabilities of the policyholder
interest in unit-linked funds, and removal of a number of
significant 'non-cash' adjustments (in particular DAC, DIR and
deferred tax).
-33-
30 June 2014
IFRS Cash 30 June 2013 31 December
Balance Sheet Adjustment(1) Adjustment(2) Balance Sheet 2013
---------------- --------------- ---------------- ---------------- --------------- ------------- ---------------
GBP'Million GBP'Million GBP'Million GBP'Million GBP'Million GBP'Million
Assets
Deferred
acquisition
costs 849.9 - (849.9) - - -
Acquired value
of in-force
business 38.4 - (38.4) - - -
Developments 7.3 - - 7.3 11.2 8.7
Goodwill 10.1 - - 10.1 - -
Property and
equipment 6.6 - - 6.6 4.0 5.8
Deferred tax
assets 170.5 - (170.5) - - -
Investment
property 848.5 (848.5) - - - -
Equities 31,671.9 (31,671.9) - - - -
Fixed income
securities 6,066.7 (5,997.4) - 69.3 83.2 67.7
Investment in
CIS 3,295.0 (2,794.4) - 500.6 404.1 522.3
Derivative
financial
instruments 125.6 (125.6) - - - -
Reinsurance
assets 75.6 - - 75.6 70.9 64.2
Insurance &
investment
contract
receivables 53.3 - - 53.3 53.9 49.9
Income tax - - - - - -
assets
Other
receivables 706.8 (420.3) (6.3) 280.2 231.7 226.0
Cash & cash
equivalents 4,799.4 (4,527.9) - 271.5 216.8 197.1
--------------- ---------------- ---------------- --------------- ------------- ---------------
Total assets 48,725.6 (46,386.0) (1,065.1) 1,274.5 1,075.8 1,141.7
--------------- ---------------- ---------------- --------------- ------------- ---------------
Liabilities
Insurance
contract
liabilities 485.0 (402.9) 9.5 91.6 85.8 79.3
Other
provisions 9.7 - - 9.7 9.6 9.7
Investment
contracts 35,812.9 (35,777.9) - 35.0 42.6 6.6
Borrowings 96.6 - - 96.6 80.3 98.7
Derivative
financial
instruments 69.2 (69.2) - - - -
Deferred tax
liabilities 462.3 (69.2) (188.4) 204.7 174.2 246.6
Insurance &
investment
contract
payables 34.7 - - 34.7 48.4 38.1
Deferred income 500.4 - (500.4) - - -
Income tax
liabilities 53.8 - - 53.8 16.8 4.9
Other payables 675.7 (468.8) - 206.9 139.2 125.0
NAV
attributable
to unit
holders 9,598.0 (9,598.0) - - - -
Preference
shares 0.1 - - 0.1 0.1 0.1
--------------- ---------------- ---------------- --------------- ------------- ---------------
Total
liabilities 47,798.4 (46,386.0) (679.3) 733.1 597.0 609.0
--------------- ---------------- ---------------- --------------- ------------- ---------------
Net assets 927.2 - (385.8) 541.4 478.8 532.7
=============== ================ ================ =============== ============= ===============
(1) Nets out the policyholder interest in unit-linked assets and
liabilities.
(2) Removal of IFRS non-cash adjustments.
-34-
The movement in the cash result net assets is equal to the cash
result adjusted for dividends paid in the year and other changes in
equity excluding the cost of share options (see page 53 - Condensed
Consolidated Statement of Changes in Equity).
The table above provides an analysis of the differences between
the IFRS balance sheet and the cash result balance sheet. As in
previous years, we also provide an analysis of the Solvency
position. The key difference between the cash result net assets
(above) and the Solvency net assets is an amount of additional
reserves arising from the Irish solvency regulations. These
reserves include additional prudential reserves over that required
by the UK regulator. As a result, the Solvency position is GBP515.4
million, which is GBP26.0 million lower than the cash result net
assets of GBP541.4 million (30 June 2013: GBP462.7 million and
GBP478.8 million, respectively).
The Solvency position can be further analysed between regulated
and non-regulated entities, and can be assessed against the
solvency capital requirement as noted in the table below:
Life Other Non-
Regulated Regulated Regulated Total
------------ ------------ ------------ ------------
GBP'Million GBP'Million GBP'Million GBP'Million
Solvency position
Solvency net assets 233.6 48.1 233.7 515.4
------------ ------------ ------------ ------------
Solvency requirement 48.8 16.5
------------ ------------
Solvency ratio 479% 292%
------------ ------------
Comparison with previous valuations would show that the Group
solvency position remains resilient, reflecting the Group's low
appetite for market, credit and liquidity risk in relation to
solvency.
A further measure of solvency for an insurance group is the IGD
surplus. This is calculated by considering the level of net assets
in the Group (outside the Life insurance companies) that could be
available to support the solvency of the insurance company (and
other regulated entities). It therefore represents additional
solvency cover over the GBP233.6 million Life company solvency
assets identified in the table above. At 31 December 2013 the IGD
surplus was calculated as GBP260 million.
Finally, included within the 'other' capital resources is an
implied reserve that is being built up to cover one year's dividend
cost. At 30 June 2014 the amount set aside to date was GBP80
million.
-35-
Analysis of Liquid Assets
The Group continues to be capitalised well in excess of
regulatory solvency requirements with over 70% of cash result and
solvency assets invested prudently in cash, AAA rated money market
funds and UK government securities. Other assets (principally other
receivables) are less liquid. An analysis of the liquid asset
holdings is provided below.
Holding Name GBP'Million GBP'Million
UK government gilts
5% UK Treasury 07/09/2014 7.4
2.75% UK Treasury 22/01/2015 9.6
5.8% UK Treasury 26/07/2016 11.9
2.5% UK Treasury Index
Linked 17/07/2024 17.8
2% UK Treasury Index Linked
26/01/2035 22.6 69.3
------------
AAA rated money market
funds
BlackRock 125.2
HSBC 80.8
Insight 83.8
Legal & General 74.3
Scottish Widows 57.5
JP Morgan 74.0
Santander 5.0 500.6
------------
Bank balances
UK banks* 269.6
Others 1.9 271.5
------------
841.4
============
* HSBC, Barclays, Lloyds, Bank of Scotland, RBS, Santander,
NatWest and Metro Bank
Solvency II
National Regulators are required to implement the Solvency II
regulations on 1 January 2016 and the European Parliament is
working hard to finalise the rules and guidance.
Whilst we do not yet have all the final rules and guidance,
given the unit linked nature of our business, with no exposure to
options, guarantees or longevity risk, the Group will not be
adversely impacted by the new requirements and indeed we expect to
see a reduction in the capital currently required for solvency
purposes.
Our project to develop reporting to meet the internal,
regulatory and external requirements is progressing well and we are
confident of being able to meet the new requirements in line with
the regulators' timetable.
-36-
Share Options Maturity
At 30 June 2014, there were 6.1 million share options
outstanding under the various share option schemes which, if
exercised, will provide up to GBP17.2 million (30 June 2013:
GBP22.6 million), of future capital for the Company.
The table below provides a breakdown by date and exercise
price.
Average Number of
exercise Share options Potential
Earliest date of exercise price outstanding Proceeds
---------- --------------- -------------
GBP Million GBP' Million
Prior to Jun 2014 2.54 4.6 11.6
2015 2.81 1.0 2.8
2015 3.88 0.2 0.9
2016 6.77 0.3 1.9
6.1 17.2
=============== =============
SECTION 4: OTHER MATTERS
The final section covers a number of additional areas that will
be of interest to shareholders.
Expenses
The table below provides the usual breakdown of the expenditure
(before tax) for the combined financial services activities.
6 Months 6 Months 12 Months
Ended Ended Ended
Note 30 June 2014 30 June 2013 31 December 2013
------- -------------- -------------- ------------------
GBP'Million GBP'Million GBP'Million
Paid from policy margins
Partner remuneration 1 215.9 177.7 407.1
Investment expenses 1 58.7 49.5 101.8
Third party administration 1 18.0 17.7 37.7
-------------- -------------- ------------------
292.6 244.9 546.6
Direct expenses
Other new business related costs 2 40.9 32.4 69.0
Establishment costs 3 63.5 54.7 113.4
Academy costs 4 1.8 1.3 2.7
Other development costs 5 6.5 3.9 8.5
Back office infrastructure costs 6 4.7 - 5.0
Regulatory fees 7 3.1 3.0 6.1
FSCS levy 8 6.9 2.4 5.5
Regulatory change costs 9 - 1.4 3.1
Contribution from third party new business 10 (11.0) (8.8) (20.4)
-------------- -------------- ------------------
116.4 90.3 192.9
409.0 335.2 739.5
============== ============== ==================
-37-
Notes
1. These costs are met from corresponding policy margins and any
variation in them from changes in the volumes of new business or
the level of the stock markets does not directly impact the
profitability of the Company.
2. The other new business related costs, such as Partner
incentivisation, vary with the level of new business. As new
business rises or falls these costs will move in the corresponding
direction.
3. Establishment costs are the running costs of the Group's
infrastructure and are relatively fixed in nature. These costs are
subject to inflationary increases and also will increase as the
infrastructure expands to manage the higher number of existing
clients, the growth in the number of advisers and business
volumes.
The growth in establishment expenses during the period was
higher than has ordinarily been the case due to the increased
infrastructure added in 2013, as a consequence of the high level of
adviser recruitment in that year, together with the costs
associated with the higher business volumes.
We expect the current absolute run rate to continue in the
second half of 2014, albeit the comparative growth rate will be
somewhat lower.
4. The additional cost of the Academy during the period, at
GBP1.8 million (2013: GBP1.3 million), reflects the increasing
scale of the programme. As we will continue to increase the scale
of the Academy with, for instance, a regional intake during the
second half of the year, we anticipate full year costs of some
GBP4.0 million.
5. Other development costs represent the expenditure associated
with the on-going development in our investment proposition,
corporate initiatives, technology improvements and other system
developments. In the first six months the development costs were
GBP6.5 million and we anticipate full year costs of some GBP15
million.
6. As previously announced, we have commenced an investment
programme working with our key outsourced provider to enhance our
'back office' systems, to prepare us for continued growth and to
achieve future efficiency savings.
In the first six months these costs were GBP4.7 million and we
expect full year costs of some GBP10 million.
7. The regulatory costs represent the fees payable to the
regulatory bodies, which at GBP3.1 million (30 June 2013: GBP3.0
million) were at a similar level to the prior year.
8. The FSCS levy represents our contribution to the Financial
Services Compensation Scheme. Following a change in the recognition
requirement, we are now obliged to expense the levy immediately it
is notified rather than spreading the cost over the year.
Consequently, the GBP6.9 million cost for the six months reflects
the current full year levy, and is better compared to the prior
year GBP5.5 million twelve month cost.
9. These were one-off costs in 2013 of changing our systems and
process for the implementation of the adviser charging rules.
10. Contribution from third party product new business reflects
the net income received from advice on non-manufactured
business.
-38-
Movement in Funds Under Management
The table below shows the movement in the funds under management
of the Group during the reporting period.
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 2014 30 June 2013 31 December 2013
-------------- -------------- ------------------
GBP' Billion GBP' Billion GBP' Billion
Opening funds under management 44.3 34.8 34.8
New money invested 3.8 3.3 6.8
Investment return 0.9 3.2 5.2
-------------- -------------- ------------------
49.0 41.3 46.8
Regular withdrawals / maturities (0.4) (0.4) (0.7)
Surrenders / part surrenders (1.0) (1.0) (1.8)
-------------- -------------- ------------------
Closing funds under management 47.6 39.9 44.3
============== ============== ==================
Implied surrender rate as % of average funds under management* 4.3% 5.0% 4.7%
-------------- -------------- ------------------
Net inflow of funds 2.44 1.99 4.30
-------------- -------------- ------------------
Net inflow as % of opening funds under management 5.5% 5.7% 12.4%
-------------- -------------- ------------------
* Annualised figures
Shareholders will be pleased to note that the continued strong
retention of funds under management, together with the level of new
money invested, provides for net inflow of funds of GBP2.44 billion
(30 June 2013: GBP1.99 billion).
This net inflow represents 5.5% (30 June 2013: 5.7%) of opening
funds under management and can be viewed as the organic growth in
funds.
Noted below is an explanation of regular withdrawals, maturities
and surrenders.
The regular withdrawals represent those amounts selected by
clients which are paid out by way of periodic income. The
withdrawals have been assumed in the calculation of the embedded
value new business profit.
Maturities are those sums paid out where the plan has reached
the selected maturity date (e.g. retirement date). The expected
maturities have been assumed in the calculation of the embedded
value new business profit.
Surrenders and part surrenders are those amounts where clients
have chosen to withdraw money from their plan. Surrenders are
assumed to occur in the calculation of the embedded value new
business profit based on actual experience, updated on an annual
basis, by plan duration and the age of the client. The implied
surrender rate shown in the table above is very much a simple
average and reflects only recent experience. Whilst it could be
compared with the long-term assumptions underlying the calculation
of the embedded value, it should not be assumed that small
movements in this rate will result in a change to the long term
embedded value assumptions.
-39-
Analysis of Funds Under Management
The following table provides an analysis of the funds under
management at each reporting date split by geographic and asset
type.
30 June 30 June 31 December
2014 2013 2013
------------ ------------ ------------
GBP'Billion GBP'Billion GBP'Billion
UK Equities 14.2 11.6 13.3
North American
Equities 9.2 7.6 8.4
European Equities 5.3 4.3 5.0
Asia & Pacific
Equities 4.2 3.9 3.9
Property 1.4 1.0 1.1
Fixed Interest 6.1 5.6 6.1
Alternative Investments 1.4 1.3 1.3
Cash 4.3 3.0 3.6
Other 1.5 1.6 1.6
Total 47.6 39.9 44.3
============ ============ ============
Related Party Transactions
The related party transactions during the first six month period
are set out in Note 16 to the condensed half year statements.
-40-
INTERIM MANAGEMENT REPORT
PRINCIPAL RISKS AND UNCERTAINTIES
A comprehensive review of the principal risks and uncertainties
facing the business, and the Group's approach to managing these
risks and uncertainties, are outlined on pages 34 to 38 of the 2013
Annual Report under the Risk and Risk Management section. These
principal risks and uncertainties have not changed materially since
the 2013 Annual Report. A summary of those principal key risks and
uncertainties which could impact the Group for the remainder of the
current financial year are outlined below.
Risk/uncertainty Description
--------------------- -------------------------------------------------------------
Advice Advice given by an individual Partner
or authorised by the Group is deemed
unsuitable leading to redress, costs,
potential reputational damage and prospective/retrospective
regulatory intervention.
--------------------- -------------------------------------------------------------
Distribution The Group's distribution strength may
capability be eroded due to an inability to recruit
and retain Partners of the appropriate
quality.
--------------------- -------------------------------------------------------------
Ethos Changes to the SJP ethos and culture
adversely impact the continuing success
of the business.
--------------------- -------------------------------------------------------------
Investment Our approach to investment management
Management may fail to deliver expected returns
Approach to clients of the Group.
--------------------- -------------------------------------------------------------
Market Changes A new entrant or competitor in the adviser-based
wealth management market has an impact
on the success of SJP's business.
--------------------- -------------------------------------------------------------
Outsourcing The Group's dependence on outsourcing
may come under threat should any of
its key investment management or administration
business partners decide to exit the
market, significantly revise their strategy
or fail.
--------------------- -------------------------------------------------------------
Regulatory, That changes in the wider regulatory,
legislative legislative or tax environment could
and tax environment have an adverse impact on the Group's
business and/or the Group could face
a fine or regulatory censure from failure
to comply with applicable regulations.
--------------------- -------------------------------------------------------------
Retail Distribution Further changes to the market, following
Review the completion of the regulators' review
of outcomes and other thematic work,
adversely impact the Group.
--------------------- -------------------------------------------------------------
-41-
EUROPEAN EMBEDDED VALUE (EEV) BASIS
The following information shows the result for the Group
adopting a European Embedded Value (EEV) basis for reporting the
results of its wholly owned life and unit trust businesses.
CONSOLIDATED STATEMENT OF INCOME
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
Note 2014 2013 2013
------------ ------------- -------------
GBP'Million GBP' Million GBP' Million
Life business 191.7 184.2 365.7
Unit Trust business 93.6 65.7 130.8
Distribution business (8.8) (2.1) (6.1)
Other (15.8) (14.2) (27.7)
Operating profit 260.7 233.6 462.7
Investment return variances 13.0 209.5 344.2
Economic assumption changes (3.1) 1.5 10.6
------------ ------------- -------------
EEV profit on ordinary activities before tax 270.6 444.6 817.5
Tax
Life business (39.6) (69.4) (127.5)
Unit Trust business (19.5) (22.8) (42.3)
Distribution business 1.8 0.5 1.4
Other 4.2 3.7 6.5
Corporation tax rate change - 18.9 18.9
------------ ------------- -------------
(53.1) (69.1) (143.0)
------------ ------------- -------------
EEV profit on ordinary activities after tax 217.5 375.5 674.5
============ ============= =============
EEV profit attributable to non-controlling interests - (0.1) -
EEV profit attributable to equity share holders 217.5 375.6 674.5
------------ ------------- -------------
EEV profit on ordinary activities after tax 217.5 375.5 674.5
============ ============= =============
Dividends 49.4 32.6 65.3
Pence Pence Pence
Basic earnings per share V 42.4 74.0 132.4
Diluted earnings per share V 41.7 73.0 130.1
Operating profit basic earnings per share V 40.9 37.0 72.9
Operating profit diluted earnings per share V 40.2 36.5 71.6
-42-
EUROPEAN EMBEDDED VALUE (EEV) BASIS
Consolidated Statement of Changes in Equity
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
2014 2013 2013
------------- ------------- -------------
GBP' Million GBP' Million GBP' Million
Opening equity on an EEV basis 2,964.1 2,336.3 2,336.3
Post-tax profit for the period 217.5 375.5 674.5
Issue of share capital 4.2 12.4 15.8
Retained earnings credit in respect of share option charges 5.3 3.2 7.8
Retained earnings credit in respect of proceeds from exercise of share
options of shares held
in trust - - 0.1
Dividends paid (49.4) (32.6) (65.3)
Consideration paid for own shares (5.1) (2.3) (5.3)
Non-controlling interests arising on purchase of subsidiaries during the
year - 0.2 0.2
Closing equity on an EEV basis 3,136.6 2,692.7 2,964.1
============= ============= =============
-43-
EUROPEAN EMBEDDED VALUE (EEV) BASIS
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
30 June 30 June 31 December
2014 2013 2013
------------- ------------- -------------
GBP' Million GBP' Million GBP' Million
Assets
Intangible assets
- Deferred acquisition costs 849.9 928.7 888.8
- Value of long-term business in-force
- long-term insurance 1,682.7 1,419.3 1,583.7
- unit trusts 557.4 453.8 506.3
- Computer software 7.3 11.2 8.7
- Goodwill 10.1 - -
3,107.4 2,813.0 2,987.5
Property and equipment 6.6 4.0 5.8
Deferred tax assets 170.5 221.1 181.8
Investment property 848.5 604.2 732.7
Investments 41,159.2 34,624.2 38,967.7
Reinsurance assets 75.6 70.9 64.2
Insurance and investment contract receivables 53.3 53.9 49.9
Income tax assets - 225.1 -
Other receivables 706.8 602.0 554.0
Cash and cash equivalents 4,799.4 3,337.5 3,845.7
------------- ------------- -------------
Total assets 50,927.3 42,555.9 47,389.3
============= ============= =============
Liabilities
Insurance contract liability provisions 485.0 456.1 466.4
Other provisions 9.7 9.6 9.7
Financial liabilities 35,978.7 30,933.8 33,904.0
Deferred tax liabilities 454.6 419.2 488.6
Insurance and investment contract payables 34.7 48.4 38.1
Deferred income 500.4 579.0 538.6
Income tax liabilities 53.8 241.9 4.9
Other payables 675.7 365.8 439.4
Net asset value attributable to unit holders 9,598.0 6,809.3 8,535.4
Preference shares 0.1 0.1 0.1
Total liabilities 47,790.7 39,863.2 44,425.2
============= ============= =============
Net assets 3,136.6 2,692.7 2,964.1
============= ============= =============
Equity
Share capital 77.8 77.1 77.3
Share premium 145.9 139.0 142.2
Treasury shares reserve (10.5) (7.5) (10.2)
Miscellaneous reserves 2.3 2.3 2.3
Retained earnings 2,921.1 2,481.7 2,752.5
------------- ------------- -------------
Shareholders' equity 3,136.6 2,692.6 2,964.1
Non-controlling interests - 0.1 -
------------- ------------- -------------
Total equity 3,136.6 2,692.7 2,964.1
============= ============= =============
Pence Pence Pence
Net assets per share 604.9 524.1 575.3
-44-
NOTES TO THE EEV BASIS RESULTS
I. BASIS OF PREPARATION
The interim supplementary information on pages 41 to 49 shows
the Group's results for the six months ended 30 June 2014 as
measured on a European Embedded Value (EEV) basis. For interim
reporting purposes, the disclosure has been reduced from that which
would be required under the EEV Principles. The results of the
life, pension and investment business, including unit trust
business, undertaken by the Group are measured on a basis
determined in accordance with the EEV Principles issued in May 2004
by the Chief Financial Officers Forum, a group of chief financial
officers from 19 major European insurers, as supplemented by the
Additional Guidance on EEV disclosures issued in October 2005
(together 'the EEV Principles'), with the exception of:
-- New Business
Consistent with prior reporting periods, the value of
contractual incremental premiums to existing business is treated as
new business in the year of the increment, rather than at the
outset of the policy. This approach better reflects the way the
Group manages its business.
The treatment of all other transactions and balances is
unchanged from the primary financial statements on an IFRS
basis.
Under the EEV Methodology, profit is recognised as it is earned
over the life of the products within the covered business. The
embedded value of the covered business is the sum of the
shareholders' net worth in respect of the covered business and the
present value of the projected profit stream.
II. METHODOLOGY AND ASSUMPTIONS
The methodology used to derive the European Embedded Values at
30 June 2014 is unchanged from that used at the end of 2013 (and
also from that used at 30 June 2013) and is set out in detail on
pages 169 and 170 of the 2013 Report and Accounts.
Apart from the assumptions set out below, there have been no
changes to assumptions from those used at the end of 2013 and set
out in detail on pages 170 and 171 of the 2013 Report and
Accounts.
Economic Assumptions
The principal economic assumptions used within the cash flows at
30 June 2014 are set out below.
30 June 30 June 31 December
2014 2013 2013
-------- -------- ------------
Risk free rate 2.9% 2.5% 3.1%
Inflation rate 3.1% 2.8% 3.2%
Risk discount rate (net of tax) 6.0% 5.6% 6.2%
Future investment returns:
- Gilts 2.9% 2.5% 3.1%
- Equities 5.9% 5.5% 6.1%
- Unit-linked funds:
- Capital growth 2.3% 1.8% 2.5%
- Dividend income 2.9% 3.0% 2.9%
-------- -------- ------------
- Total 5.2% 4.8% 5.4%
Expense inflation 3.9% 3.6% 4.0%
The risk free rate is set by reference to the yield on 10 year
gilts. Other investment returns are set by reference to the risk
free rate.
The inflation rate is derived from the implicit inflation in the
valuation of 10 year index-linked gilts. This rate is increased to
reflect higher increases in earnings related expenses.
-45-
NOTES TO THE EEV BASIS RESULTS (continued)
III. COMPONENTS OF EEV PROFIT
Life business 6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
2014 2013 2013
GBP'Million GBP'Million GBP'Million
New business contribution 108.6 97.6 213.6
Profit from existing business
- Unwind of discount rate 72.6 45.0 89.4
- Experience variances 7.4 40.1 53.9
- Operating assumption changes - - 4.6
Investment income 3.1 1.5 4.2
Operating profit before tax 191.7 184.2 365.7
Investment return variances 11.1 165.8 271.8
Economic assumption changes (3.0) - 7.7
Profit before tax 199.8 350.0 645.2
Attributed tax (39.6) (69.4) (127.5)
Corporation tax rate change - 15.2 15.2
------------ ------------ -------------
Profit after tax 160.2 295.8 532.9
============ ============ =============
New business contribution after tax is GBP87.2 million (30 June
2013: GBP78.2 million and 31 December 2013: GBP171.4 million).
Unit Trust business 6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
2014 2013 2013
------------- ------------- -------------
GBP' Million GBP' Million GBP' Million
New business contribution 72.7 54.8 113.6
Profit from existing business
- Unwind of discount rate 19.0 11.5 22.7
- Experience variances 1.6 (0.8) (6.5)
- Operating assumption changes - - -
Investment income 0.3 0.2 1.0
Operating profit before tax 93.6 65.7 130.8
Investment return variances 1.9 43.7 72.4
Economic assumption changes (0.1) 1.5 2.9
Profit before tax 95.4 110.9 206.1
Attributed tax (19.5) (22.8) (42.3)
Corporation tax rate change - 3.7 3.7
------------- ------------- -------------
Profit after tax 75.9 91.8 167.5
============= ============= =============
New business contribution after tax is GBP57.8 million (30 June
2013: GBP43.6 million and 31 December 2013: GBP90.3 million).
-46-
NOTES TO THE EEV BASIS RESULTS (continued)
III. COMPONENTS OF EEV PROFIT (continued)
Combined Life and Unit Trust business 6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
2014 2013 2013
------------- ------------- -------------
GBP' Million GBP' Million GBP' Million
New business contribution 181.3 152.4 327.2
Profit from existing business
- Unwind of discount rate 91.6 56.5 112.1
- Experience variances 9.0 39.3 47.4
- Operating assumption changes - - 4.6
Investment income 3.4 1.7 5.2
Operating profit before tax 285.3 249.9 496.5
Investment return variances 13.0 209.5 344.2
Economic assumption changes (3.1) 1.5 10.6
Profit before tax 295.2 460.9 851.3
Attributed tax (59.2) (92.2) (169.8)
Corporation tax rate change - 18.9 18.9
------------- ------------- -------------
Profit after tax 236.0 387.6 700.4
============= ============= =============
New business contribution after tax is GBP145.0 million (30 June
2013: GBP121.8 million and 31 December 2013: GBP261.7 million).
-47-
NOTES TO THE EEV BASIS RESULTS (continued)
IV. SENSITIVITIES
The table below shows the estimated impact on the combined life
and unit trust reported value of new business and EEV to changes in
various EEV calculated assumptions. The sensitivities are specified
by the EEV principles and reflect reasonably possible levels of
change. In each case, only the indicated item is varied relative to
the restated values.
Change in new business contribution Change in
European
Embedded Value
Note Pre-tax Post-tax Post-tax
------------------ ------------------ --------------------
GBP' Million GBP' Million GBP' Million
Value at 30 June 2014 181.3 145.0 3,136.6
100bp reduction in risk free rates, with
corresponding change in fixed interest asset
values 1 (2.8) (2.3) (6.1)
10% reduction in withdrawal rates 2 16.9 13.6 165.5
10% reduction in expenses 3.8 3.1 30.6
10% reduction in market value of equity assets 3 - - (295.3)
5% reduction in mortality and morbidity 4 - - -
100bp increase in equity expected returns 5 - - -
100bp increase in assumed inflation 6 (3.5) (2.9) (22.1)
Note 1: This is the key economic basis change sensitivity. The
business model is relatively insensitive to change in economic
basis. Note that the sensitivity assumes a corresponding change in
all investment returns but no change in inflation.
Note 2: The 10% reduction is applied to the lapse rate. For
instance, if the lapse rate is 8% then a 10% sensitivity reduction
would reflect a change to 7.2%.
Note 3: For the purposes of this required sensitivity all unit
linked funds are assumed to be invested in equities. The actual mix
of assets varies and in recent years the proportion invested
directly in UK and overseas equities has exceeded 70%.
Note 4: Assumes the benefit of lower experience is passed on to
clients and reassurers at the earliest opportunity.
Note 5: As a market consistent approach is used, equity expected
returns only affect the derived discount rates and not the embedded
value or contribution to profit from new business.
Note 6: Assumed inflation is set by reference to 10 year index
linked gilt yields.
Change in new business Change in European
contribution Embedded Value
Pre-tax Post-tax Post-tax
------------ ------------ -------------------
GBP'Million GBP'Million GBP'Million
100bp reduction in risk discount rate 23.4 18.8 218.5
Although not directly relevant under a market-consistent
valuation, this sensitivity shows the level of adjustment which
would be required to reflect differing investor views of risk.
-48-
NOTES TO THE EEV BASIS RESULTS (continued)
V. EARNINGS PER SHARE
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
2014 2013 2013
--------- --------- -------------
Pence Pence Pence
Basic earnings per share 42.4 74.0 132.4
Diluted earnings per share 41.7 73.0 130.1
========= ========= =============
Operating profit basic earnings per share 40.9 37.0 72.9
===== ===== =====
Operating profit diluted earnings per share 40.2 36.5 71.6
===== ===== =====
The earnings per share calculations are based on the following
figures:
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
2014 2013 2013
------------ ------------ -------------
GBP'Million GBP'Million GBP'Million
Earnings
Profit after tax (for both basic and diluted EPS) 217.5 375.5 674.5
Operating profit after tax (for both basic and diluted EPS) 209.6 187.7 371.5
============ ============ =============
Million Million Million
Weighted average number of shares
Weighted average number of ordinary shares in issue (for basic EPS) 513.0 507.3 509.4
Adjustments for outstanding share options 8.9 7.1 9.2
------------ ------------ -------------
Weighted average number of ordinary shares (for diluted EPS) 521.9 514.4 518.6
============ ============ =============
-49-
NOTES TO THE EEV BASIS RESULTS (continued)
VI. RECONCILIATION OF IFRS AND EEV PROFIT BEFORE TAX AND NET
ASSETS
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
2014 2013 2013
------------ ------------ -------------
GBP'Million GBP'Million GBP'Million
IFRS profit before tax 110.4 249.5 461.2
Tax attributable to policyholder returns (28.0) (159.4) (270.5)
------------ ------------ -------------
Profit before tax attributable to shareholders' returns 82.4 90.1 190.7
Add back: amortisation of acquired value of in-force business 1.6 1.6 3.2
Movement in life value of in-force (net of tax) 99.0 195.7 360.1
Movement in unit trust value of in-force (net of tax) 51.1 70.3 122.8
Tax gross up of movement in value of in-force 36.5 86.9 140.7
EEV profit before tax 270.6 444.6 817.5
============ ============ =============
30 June 30 June 31 December
2014 2013 2013
------------ ------------ -------------
GBP'Million GBP'Million GBP'Million
IFRS net assets 927.2 851.6 906.1
Less: acquired value of in-force (38.4) (41.6) (40.0)
Add: deferred tax on acquired value of in-force 7.7 9.6 8.0
Add: life value of in-force 1,682.7 1,419.3 1,583.7
Add: unit trust value of in-force 557.4 453.8 506.3
------------ ------------ -------------
EEV net assets 3,136.6 2,692.7 2,964.1
============ ============ =============
-50-
INDEPENDENT REVIEW REPORT TO ST. JAMES'S PLACE plc
- EUROPEAN EMBEDDED VALUE
Report on the interim supplementary information
Our conclusion
We have reviewed the interim supplementary information, defined
below, in the half year report of St. James's Place plc for the six
months ended 30 June 2014. Based on our review, nothing has come to
our attention that causes us to believe that the interim
supplementary information is not prepared, in all material
respects, in accordance with the EEV basis set out in note I.
This conclusion is to be read in the context of what we say in
the remainder of this report.
What we have reviewed
The interim supplementary information, which is prepared by St.
James's Place plc, comprises:
-- the EEV basis consolidated statement of financial position as at 30 June 2014;
-- the EEV basis consolidated statement of income for the period then ended;
-- the EEV basis consolidated statement of changes in equity for the period then ended; and
-- the explanatory notes to the interim supplementary information.
As disclosed in note I the interim supplementary information has
been prepared on the European Embedded Value ("EEV") basis.
What a review of interim supplementary information involves
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim supplementary information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK and
Ireland) and, consequently, does not enable us to obtain assurance
that we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit
opinion.
We have read the other information contained in the half year
report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim supplementary information.
Responsibilities for the interim supplementary information and
the review
Our responsibilities and those of the directors
The half year report, including the interim supplementary
information, is the responsibility of, and has been approved by,
the directors. The directors are responsible for preparing the
interim supplementary information in accordance with the EEV basis
set out in note I.
Our responsibility is to express to the company a conclusion on
the interim supplementary information in the half year report based
on our review. This report, including the conclusion, has been
prepared for and only for the company and for no other purpose. We
do not, in giving this conclusion, accept or assume responsibility
for any other purpose or to any other person to whom this report is
shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
PricewaterhouseCoopers LLP
Chartered Accountants
28 July 2014
London
-51-
Notes:
(a) The maintenance and integrity of the St. James's Place plc
website is the responsibility of the directors; the work carried
out by the auditors does not involve consideration of these matters
and, accordingly, the auditors accept no responsibility for any
changes that may have occurred to the financial information since
it was initially presented on the website.
(b) Legislation in the United Kingdom governing the preparation
and dissemination of financial information may differ from
legislation in other jurisdictions.
-52-
INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) BASIS
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
Note 2014 2013 2013
------------ ------------ -------------
GBP'Million GBP'Million GBP'Million
Insurance premium income 27.4 29.2 61.2
Less premiums ceded to reinsurers (16.3) (35.9) (54.3)
------------ ------------ -------------
Net insurance premium income 11.1 (6.7) 6.9
Fee and commission income 593.5 477.2 1,013.3
Investment return 1,150.5 3,394.0 5,831.1
Other operating income 0.6 0.6 2.5
------------ ------------ -------------
Net income 3 1,755.7 3,865.1 6,853.8
Policy claims and benefits
- Gross amount (27.6) (25.7) (50.2)
- Reinsurers' share 9.8 10.0 20.5
------------ ------------ -------------
Net policyholder claims and benefits incurred (17.8) (15.7) (29.7)
Change in insurance contract liabilities
- Gross amount (18.7) (32.1) (42.3)
- Reinsurers' share 11.3 32.2 25.6
------------ ------------ -------------
Net change in insurance contract liabilities (7.4) 0.1 (16.7)
Investment contract benefits (1,134.2) (3,192.9) (5,449.4)
Fees, commission and other acquisition costs (393.3) (328.8) (734.7)
Administration expenses (91.0) (76.7) (158.9)
Other operating expenses (1.6) (1.6) (3.2)
------------ ------------ -------------
(485.9) (407.1) (896.8)
Profit before tax 3 110.4 249.5 461.2
Tax attributable to policyholders' returns 4 (28.0) (159.4) (270.5)
Profit before tax attributable to shareholders' returns 82.4 90.1 190.7
Total tax (expense) (44.3) (141.3) (270.9)
Less: tax attributable to policyholders' returns 4 28.0 159.4 270.5
------------ ------------ -------------
Tax attributable to shareholders' returns 4 (16.3) 18.1 (0.4)
------------ ------------ -------------
Profit and total comprehensive income for the period 3 66.1 108.2 190.3
Profit attributable to non-controlling interests - (0.1) (0.2)
Profit attributable to equity shareholders 66.1 108.3 190.5
------------ ------------ -------------
Profit and total comprehensive income for the period 3 66.1 108.2 190.3
============ ============ =============
Pence Pence Pence
Basic earnings per share 6 12.9 21.3 37.4
Diluted earnings per share 6 12.7 21.0 36.7
The Group has no other gains or losses during the current or
previous financial periods and therefore a separate consolidated
statement of comprehensive income has not been presented.
-53-
INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) BASIS
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Attributable to equity shareholders
----------------------------------------------------------------
Treasury Non-
Share Share Shares Retained Misc controlling
Note Capital Premium Reserve Earnings Reserves Total Interests Total
--------- --------- --------- ---------- ---------- ------- ------------- -------
GBP' GBP' GBP' GBP' GBP' GBP'
GBP'M M M M GBP'M M M M
At 1 January
2013 76.0 127.7 (8.9) 565.4 2.3 762.5 - 762.5
Non-controlling
interests
arising
on the purchase
of subsidiaries
during the
year 0.2 0.2
Profit and
total
comprehensive
income for
the year 108.3 108.3 (0.1) 108.2
- Dividends 7 (32.6) (32.6) (32.6)
- Exercise
of options 1.1 11.3 12.4 12.4
Consideration
paid for
own shares (2.3) (2.3) (2.3)
Own shares
vesting
charge 3.7 (3.7) - -
Retained
earnings
credit in
respect
of share
option charges 3.2 3.2 3.2
At 30 June
2013 77.1 139.0 (7.5) 640.6 2.3 851.5 0.1 851.6
--------- --------- --------- ---------- ---------- ------- ------------- -------
At 1 January
2014 77.3 142.2 (10.2) 694.5 2.3 906.1 - 906.1
Profit and
total
comprehensive
income for
the year 66.1 66.1 - 66.1
- Dividends 7 (49.4) (49.4) (49.4)
- Issue
of share
capital 0.2 0.2 0.2
- Exercise
of options 0.3 3.7 4.0 4.0
Consideration
paid for
own shares (5.1) (5.1) (5.1)
Own shares
vesting
charge 4.8 (4.8) - -
Retained
earnings
credit in
respect
of share
option charges 5.3 5.3 5.3
At 30 June
2014 77.8 145.9 (10.5) 711.7 2.3 927.2 - 927.2
========= ========= ========= ========== ========== ======= ============= =======
Miscellaneous reserves represent other non-distributable
reserves.
-54-
INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) BASIS
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
30 June 30 June 31 December
Note 2014 2013 2013
------------ ------------ ------------
GBP'Million GBP'Million GBP'Million
Assets
Intangible assets
- Deferred acquisition costs 9 849.9 928.7 888.8
- Acquired value of in-force business 38.4 41.6 40.0
- Computer software 7.3 11.2 8.7
- Goodwill 5 10.1 - -
905.7 981.5 937.5
Property and equipment 6.6 4.0 5.8
Deferred tax assets 10 170.5 221.1 181.8
Investment property 848.5 604.2 732.7
Investments
- Equities 31,671.9 25,745.4 29,614.8
- Fixed income securities 6,066.7 5,654.0 5,965.7
- Investment in Collective Investment
Schemes 3,295.0 3,126.3 3,244.3
- Derivative financial instruments 125.6 98.5 142.9
Reinsurance assets 75.6 70.9 64.2
Insurance and investment contract receivables 53.3 53.9 49.9
Income tax assets - 225.1 -
Other receivables 706.8 602.0 554.0
Cash and cash equivalents 4,799.4 3,337.5 3,845.7
------------ ------------ ------------
Total assets 3 48,725.6 40,724.4 45,339.3
============ ============ ============
Liabilities
Insurance contract liabilities 485.0 456.1 466.4
Other provisions 11 9.7 9.6 9.7
Financial liabilities
- Investment contracts 35,812.9 30,733.1 33,717.5
- Borrowings 96.6 80.3 98.7
- Derivative financial instruments 69.2 120.4 87.8
Deferred tax liabilities 12 462.3 428.8 496.6
Insurance and investment contract payables 34.7 48.4 38.1
Deferred income 13 500.4 579.0 538.6
Income tax liabilities 53.8 241.9 4.9
Other payables 675.7 365.8 439.4
Net asset value attributable to unit holders 9,598.0 6,809.3 8,535.4
Preference shares 0.1 0.1 0.1
Total liabilities 47,798.4 39,872.8 44,433.2
============ ============ ============
Net assets 927.2 851.6 906.1
============ ============ ============
Equity
Share capital 15 77.8 77.1 77.3
Share premium 145.9 139.0 142.2
Treasury shares reserves (10.5) (7.5) (10.2)
Miscellaneous reserves 2.3 2.3 2.3
Retained earnings 711.7 640.6 694.5
------------ ------------ ------------
Shareholders' equity 927.2 851.5 906.1
Non-controlling interests - 0.1 -
------------ ------------ ------------
Total equity 927.2 851.6 906.1
============ ============ ============
Pence Pence Pence
Net assets per share 178.8 165.8 175.9
-55-
INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) BASIS
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
2014 2013* 2013
------------ ------------ -------------
GBP'Million GBP'Million GBP'Million
Cash flows from operating activities
Profit before tax for the period 110.4 249.5 461.2
Adjustments for:
Depreciation 0.7 0.6 1.6
Revaluation (0.1) - 0.1
Amortisation of acquired value of in-force business 1.6 1.6 3.2
Amortisation of computer software 1.4 1.3 2.5
Share based payment charge 5.3 3.2 7.8
Interest income (9.5) (10.8) (22.5)
Interest paid 1.9 1.2 2.8
Changes in operating assets and liabilities
Decrease in deferred acquisition costs 38.9 42.9 82.8
Increase in investment property (115.8) (6.6) (135.1)
Increase in investments (2,191.5) (5,038.7) (9,382.2)
Increase in reinsurance assets (11.4) (32.3) (25.6)
Increase in insurance and investment contract receivables (3.4) (7.4) (3.4)
Increase in other receivables (167.3) (50.7) (22.4)
Increase in insurance contract liabilities 18.6 32.1 42.4
Increase in provisions - 0.4 0.5
Increase in financial liabilities (excluding borrowings) 2,076.8 3,653.1 6,605.0
(Decrease)/increase in insurance and investment contract payables (3.4) 23.5 13.2
Decrease in deferred income (38.2) (37.5) (77.9)
Increase/(decrease) in other payables 236.3 (70.0) 3.6
Increase in net assets attributable to unit holders 1,062.6 1,515.8 3,241.9
------------ ------------ -------------
Cash generated from operations 1,013.9 271.2 799.5
Interest received 9.5 10.8 22.5
Interest paid (1.9) (1.2) (2.8)
Income taxes paid (4.0) (12.0) (14.8)
------------ ------------ -------------
Net cash generated from operating activities 1,017.5 268.8 804.4
Cash flows from investing activities
Acquisition of property and equipment (2.1) (1.0) (3.8)
(Acquisition)/disposal of intangible assets and goodwill (10.1) 2.2 0.5
Acquisition of subsidiaries and other business combinations, net of cash
acquired 0.8 - (9.1)
Net cash used in investing activities (11.4) 1.2 (12.4)
Cash flows from financing activities
Proceeds from the issue of share capital 4.3 12.4 15.8
Consideration paid for own shares (5.1) (2.3) (5.3)
Proceeds from exercise of options over shares held in trust - - 0.1
Proceeds from issue of non-redeemable preference shares - 0.1 0.1
Acquisition of non-controlling interests - 0.1 0.2
Additional borrowings - 10.0 30.0
Repayment of borrowings (2.2) (0.4) (2.0)
Dividends paid (49.4) (32.6) (65.3)
------------ ------------ -------------
Net cash used in financing activities (52.4) (12.7) (26.4)
------------ ------------ -------------
Net increase in cash and cash equivalents 953.7 257.3 765.6
Cash and cash equivalents at beginning of period 3,845.7 3,080.1 3,080.1
Effect of exchange rate fluctuations - 0.1 -
------------ ------------ -------------
Cash and cash equivalents at end of period 4,799.4 3,337.5 3,845.7
============ ============ =============
*Represented to provide comparative information for additional
disclosure included as of 31 December 2013.
Exchange rate fluctuations result from cash held in the
unit-linked funds.
-56-
NOTES TO THE IFRS BASIS FINANCIAL STATEMENTS
1. BASIS OF PREPARATION
This condensed set of consolidated half year financial
statements for the six months ended 30 June 2014, which comprise
the half year financial statements of St. James's Place plc (the
"Company") and its subsidiaries (together referred to as the
"Group"), has been prepared in accordance with the Disclosure and
Transparency Rules of the Financial Conduct Authority (previously
the Financial Services Authority) and with IAS 34 'Interim
Financial Reporting' as adopted by the European Union. The
condensed consolidated half year financial statements should be
read in conjunction with the annual financial statements for the
year ended 31 December 2013, which have been prepared in accordance
with IFRSs as adopted by the European Union.
Going Concern
The Company's business activities, together with the factors
likely to affect its future development, performance and position
are set out in the Interim Statement on pages 6 to 8. The financial
position of the Company, its cash flows, liquidity position and
borrowing facilities are described in the Financial Review on pages
11 to 39.
As shown on page 34 of the Financial Review, the Group's capital
position is strong and well in excess of regulatory requirements.
The long-term nature of the business results in considerable
positive cash flows, arising from existing business. As a
consequence, the Directors believe that the Company is well placed
to manage its business risks successfully.
The Directors confirm that they are satisfied that the Company
and the Group have adequate resources to continue in business for
the foreseeable future. For this reason, they continue to adopt the
going concern basis in preparing the financial statements.
2. SIGNIFICANT ACCOUNTING POLICIES
As required by the Disclosure and Transparency Rules of the
Financial Conduct Authority, this condensed set of financial
statements has been prepared applying the accounting policies and
standards that were applied in the preparation of the Group's
published consolidated financial statements for the year ended 31
December 2013, with the exception of the introduction of the
following policy for goodwill:
-- Accounting policy for goodwill
Goodwill represents the excess of the cost of an acquisition
over the fair value of the Group's share of the identifiable net
assets of the acquired entity at the date of acquisition. Where the
fair value of the Group's share of the identifiable net assets of
the acquired entity is greater than the cost of acquisition, the
excess is recognised immediately in the statement of comprehensive
income.
Goodwill is recognised as an asset at cost and is reviewed at
least annually for impairment or when circumstances or events
indicate there may be uncertainty over this value. If an impairment
is identified, the carrying value of the goodwill is written down
immediately through the statement of comprehensive income and is
not subsequently reversed. At the date of disposal of a subsidiary,
the carrying value of attributable goodwill is included in the
calculation of the profit or loss on disposal except where it has
been written off directly to reserves in the past.
These condensed half year financial statements were prepared and
approved by the Directors in accordance with International
Financial Reporting Standards as adopted by the EU and
interpretations issued by the International Financial Reporting
Interpretations Committee.
In preparing these condensed half year financial statements, the
significant judgements made by management in applying the Group's
accounting policies and the key sources of estimation uncertainty
were the same as those applied to the consolidated financial
statements for the year ended 31 December 2013.
-57-
NOTES TO THE IFRS BASIS FINANCIAL STATEMENTS (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
The following amended standards and interpretation, which the
Group have adopted as of 1 January 2014, have not had any material
impact on the Group's reported results:
IAS 32 Amendment - Financial Instruments: Presentation
IAS 36 Amendment - Impairment of Assets
IFRS 39 Amendment - Financial Instruments Recognition and
Measurement
IFRS IC Interpretation 21 - Levies
As at 30 June 2014, the following new and amended standards,
which are relevant to the Group but have not been applied in the
financial statements, were in issue but not yet effective:
IAS 16 and IAS 38 Amendments
IFRS 9 Financial Instruments - Classification and
Measurement
IFRS 9 Amendment - Hedge Accounting
IFRS 15 Revenue from Contracts with Customers
Annual Improvements to IFRSs 2010-2012 Cycle
Annual Improvements to IFRSs 2011-2013 Cycle
The adoption of the above new and amended standards is not
expected to have any material impact on the Group's results
reported within the financial statements other than requiring
additional disclosure or alternative presentation.
3. SEGMENT REPORTING
IFRS 8 Operating Segments requires operating segments to be
identified on the basis of internal reports about components of the
Group that are regularly reviewed by the Board in order to allocate
resources to the segment and to assess its performance. The Group's
reportable segments under IFRS 8 are therefore as follows:
1. Life business - offering pensions, protection and investment
products through the Group's life assurance subsidiaries;
2. Unit Trust business - offering unit trust investment
products, including ISAs, through the St. James's Place Unit Trust
Group;
3. Distribution business - the distribution network for the St.
James's Place life and unit trust products as well as financial
products, such as annuities, mortgages and stakeholder pensions,
from third party providers.
The figures for segment income provided to the Board in respect
of the distribution business relate to the distribution of the
products of third party providers only. The figures for segment
profit provided to the Board take account of fees and commissions
payable by the life business and unit trust business to the
distribution business.
4. Other - all other Group activities.
Separate geographical segmental information is not presented
since the Group does not segment its business geographically, its
customers being based and its assets managed predominantly in the
United Kingdom.
The income, profit and assets of these segments are set out over
the next few pages.
-58-
NOTES TO THE IFRS BASIS FINANCIAL STATEMENTS (continued)
3. SEGMENT REPORTING (continued)
Segment Income
Annual Premium Equivalents ("APE")
APE, being regular premiums plus one tenth of single premiums,
is the income measure that is monitored on a monthly basis by the
chief operating decision maker.
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
2014 2013 2013
------------ ------------ -------------
GBP'Million GBP'Million GBP'Million
Life business 284.7 253.9 532.9
Unit Trust business 163.2 120.0 230.0
Distribution business 57.5 52.6 102.3
Total APE 505.4 426.5 865.2
------------ ------------
Adjustments to IFRS basis
Life business
Exclude investment business APE (283.5) (252.7) (530.5)
Difference between insurance business APE
and premium receivable 26.3 28.0 58.8
Less: insurance premium income ceded to reinsurers (16.3) (35.9) (54.3)
Fee income (management fees) 270.1 220.9 460.7
Net movement on deferred income 33.5 34.0 70.8
Investment income (primarily in unit linked funds) 966.2 2,873.0 4,886.3
Unit Trust business
Exclude unit trust APE (163.2) (120.0) (230.0)
Fee income (dealing profit and management fees) 82.1 72.7 150.9
Net movement on deferred income 4.8 3.5 7.1
Investment income 0.1 0.1 0.3
Distribution business
Exclude distribution APE (57.5) (52.6) (102.3)
Fee and commission income receivable 200.3 144.0 319.2
Other investment income 0.1 0.1 0.2
Other business
Fee income receivable 2.8 2.1 4.6
Investment income on third party holdings in consolidated unit trusts 181.0 518.4 939.2
Other investment income 2.9 2.4 5.1
Other operating income 0.6 0.6 2.5
Total adjustments 1,250.3 3,438.6 5,988.6
Net income 1,755.7 3,865.1 6,853.8
============
All segment income is generated by external customers and there
are no segment income transactions between operating segments as
measured by APE.
-59-
NOTES TO THE IFRS BASIS FINANCIAL STATEMENTS (continued)
3. SEGMENT REPORTING (continued)
Segment Profit
Three separate measures of profit are monitored on a monthly
basis by the Board. These are European Embedded Value ("EEV") and
IFRS (both pre-tax), and the post-tax cash result.
EEV Operating Profit
EEV operating profit is monitored on a monthly basis by the
Board. The components of the EEV operating profit are included in
more detail in the Supplementary Information on EEV basis within
this announcement. A reconciliation of EEV operating profit to IFRS
profit before tax is shown below.
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
2014 2013 2013
-------------
GBP'Million GBP'Million GBP'Million
Life business 191.7 184.2 365.7
Unit Trust business 93.6 65.7 130.8
Distribution business (8.8) (2.1) (6.1)
Other business (15.8) (14.2) (27.7)
EEV operating profit before tax 260.7 233.6 462.7
Investment return variance 13.0 209.5 344.2
Economic assumption changes (3.1) 1.5 10.6
EEV profit before tax 270.6 444.6 817.5
Adjustments to IFRS basis
Deduct: amortisation of acquired value of in-force (1.6) (1.6) (3.2)
Movement in life value of in-force (net of tax) (99.0) (195.7) (360.1)
Movement in unit trust value of in-force (net of tax) (51.1) (70.3) (122.8)
Tax of movement in value of in-force (36.5) (86.9) (140.7)
Profit before tax attributable to shareholders' returns 82.4 90.1 190.7
Tax attributable to policyholder returns 28.0 159.4 270.5
-------------
IFRS profit before tax 110.4 249.5 461.2
=============
-60-
NOTES TO THE IFRS BASIS FINANCIAL STATEMENTS (continued)
3. SEGMENT REPORTING (continued)
6 Months 6 Months 12 Months
Ended Ended Ended
Cash result 30 June 30 June 31 December
2014 2013 2013
------------ ------------ -------------
GBP'Million GBP'Million GBP'Million
Life business 49.2 70.7 143.8
Unit Trust business 24.5 21.4 44.8
Distribution business (7.0) (1.6) (4.7)
Other business (6.6) (7.9) (15.1)
Cash result after tax 60.1 82.6 168.8
------------ ------------ -------------
IFRS adjustments (after tax)
Share option expense (5.3) (3.2) (7.8)
Deferred acquisition costs (DAC) (30.2) (30.1) (62.9)
Deferred income (DIR) 34.5 30.8 67.9
Acquired value of in-force (PVIF) (1.3) (1.2) (2.6)
Sterling reserves 1.5 0.1 0.4
IFRS tax adjustments 6.8 29.2 26.5
IFRS profit after tax 66.1 108.2 190.3
Shareholder tax charge/(credit) 16.3 (18.1) 0.4
IFRS operating profit before tax 82.4 90.1 190.7
Policyholder tax charge 28.0 159.4 270.5
IFRS profit before tax 110.4 249.5 461.2
============ ============ =============
6 Months 6 Months 12 Months
Ended Ended Ended
IFRS segment result 30 June 30 June 31 December
2014 2013 2013
-------------
GBP'Million GBP'Million GBP'Million
Life business
- shareholder 77.6 81.1 170.6
- policyholder tax gross up 28.0 159.4 270.5
Unit Trust business 29.4 25.3 53.9
Distribution business (8.8) (2.1) (6.1)
Other business (15.8) (14.2) (27.7)
-------------
Profit before tax 110.4 249.5 461.2
Included within both the EEV and IFRS profit before tax are the
following:
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
2014 2013 2013
------------ -------------
GBP'Million GBP'Million GBP'Million
Shareholder interest income 4.3 3.4 7.3
Depreciation 0.7 0.6 1.6
-61-
NOTES TO THE IFRS BASIS FINANCIAL STATEMENTS (continued)
3. SEGMENT REPORTING (continued)
Segment Assets
Funds under Management ("FUM")
FUM within the St. James's Place Group, rounded to the nearest
GBP0.1 billion, are monitored on a monthly basis by the Board.
30 June 30 June 31 December
2014 2013 2013
-----------
GBP'Million GBP'Million GBP'Million
Life business 36,500.0 31,000.0 34,100.0
Unit Trust business 11,100.0 8,900.0 10,200.0
-----------
Total FUM 47,600.0 39,900.0 44,300.0
Exclude external holdings in non-consolidated unit trusts (1,854.6) (1,982.4) (1,665.6)
Add balance sheet liabilities in unit linked funds 653.6 435.5 545.6
Adjustments for other balance sheet assets excluded from FUM
DAC 849.9 928.7 888.8
PVIF 38.4 41.6 40.0
Computer software 7.3 11.2 8.7
Goodwill 10.1 - -
Property & equipment 6.6 4.0 5.8
Deferred tax assets 170.5 221.1 181.8
Fixed income securities 69.3 83.2 67.7
Collective investment schemes 504.5 404.8 523.0
Reinsurance assets 75.6 70.9 64.2
Insurance and investment contract receivables 53.3 53.9 49.9
Income tax assets - 225.1 -
Other receivables 280.3 221.4 229.9
Other receivables eliminated on consolidation (118.2) (88.6) (151.9)
Cash and cash equivalents 271.5 216.8 197.1
Other adjustments 107.5 (22.8) 54.3
-----------
Total adjustments 1,125.6 824.4 1,039.3
Total assets 48,725.6 40,724.4 45,339.3
-62-
NOTES TO THE IFRS BASIS FINANCIAL STATEMENTS (continued)
4. INCOME TAXES
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
2014 2013 2013
------------
GBP'Million GBP'Million GBP'Million
UK corporation tax
- Current year charge 67.2 7.5 29.0
- Adjustment in respect of prior year (1.5) 1.1 2.5
Overseas taxes
- Current year charge 2.8 3.0 6.8
68.5 11.6 38.3
Deferred tax on unrealised capital gains and losses in unit linked funds (26.2) 181.0 278.1
Deferred tax on unrelieved expenses 4.1 (2.1) 2.2
Deferred tax on pensions business losses - 0.7 6.4
Deferred tax on group company capital losses 3.5 (38.4) (27.9)
Deferred tax charge on other items
- Current year charge (5.6) (11.5) (14.2)
Effect on deferred tax of change in tax rate - - (12.0)
------------
Total tax charge for the period 44.3 141.3 270.9
============
Attributable to:
- policyholders 28.0 159.4 270.5
- shareholders 16.3 (18.1) 0.4
------------
44.3 141.3 270.9
============
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
2014 2013 2013
------------
GBP'Million GBP'Million GBP'Million
Deferred tax
Balance at 1 January 314.8 78.1 78.1
Charge through the consolidated statement of comprehensive income (24.2) 129.7 232.6
Arising on acquisitions during the year 1.2 - 4.1
------------
Balance at 31 December 291.8 207.8 314.8
============
Included within the deferred tax current year charge is a credit
of GBPnil (30 June 2013: GBP0.6 million credit and 31 December
2013: GBP1.7 million credit) relating to share based payments.
-63-
NOTES TO THE IFRS BASIS FINANCIAL STATEMENTS (continued)
4. INCOME TAXES (continued)
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
Reconciliation of tax charge 2014 2013 2013
GBP'Million GBP'Million GBP'Million
Profit before tax 110.4 249.5 461.2
Tax attributable to policyholders' returns* (28.0) (159.4) (270.5)
Profit before tax attributable to shareholders'
returns 82.4 90.1 190.7
Shareholder tax charge at corporate tax rate of
21.5% (2013: 23.25%) 17.7 21.5% 21.0 23.3% 44.3 23.3%
Adjustments:
Tax regime differences
Difference due to overseas subsidiaries (0.6) (1.5) (2.4)
(0.6) (0.7%) (1.5) (1.7%) (2.4) 1.3%
Other
Creation of deferred tax asset in group company
capital losses (0.8) (38.4) (27.9)
Disallowed expenses 0.6 2.2 1.4
Share options (1.5) - (2.7)
Adjustment in respect of prior year 0.8 1.1 0.8
Other 0.1 (2.5) (1.1)
(0.8) (1.0%) (37.6) (41.7%) (29.5) (15.5%)
Change in tax rate - -% - -% (12.0) (6.3%)
Shareholder tax charge/(credit) 16.3 19.8% (18.1) (20.1)% 0.4 0.2%
Policyholder tax charge 28.0 159.4 270.5
Total tax charge for the period 44.3 141.3 270.9
* Profit before tax attributable to policyholder returns is
equal to the policyholder tax charge
-64-
NOTES TO THE IFRS BASIS FINANCIAL STATEMENTS (continued)
5. BUSINESS COMBINATIONS
During the period the Group acquired 100% of the share capital
in the following principal subsidiaries in line with the Group's
strategic objective of growing the Partnership:
Subsidiary undertaking Principal Activity Country of Incorporation Date of Acquisition
PFPTime Ltd IFA* United Kingdom 24 January 2014
G.M.B Financial Services Limited Non-trading United Kingdom 24 January 2014
Henley Wealth Management International Pte Limited Holding Company Singapore 10 June 2014
International Protection Group Pte Limited General Insurance Singapore 10 June 2014
The Henley Group Limited IFA* Hong Kong 10 June 2014
The Henley Group Pte Limited IFA* Singapore 10 June 2014
THG Wealth Management Limited UK Distribution United Kingdom 10 June 2014
Henley Wealth Management Limited Holding Company Hong Kong 10 June 2014
The Henley Group (Shanghai) Limited Consultancy China 10 June 2014
* Independent Financial Adviser
Acquisition-related costs of GBP0.1 million have been charged to
administrative expenses in the consolidated income statement for
the period ended 30 June 2014.
PFP Group
The PFP Group acquisition contributed GBP0.3 million to revenue
and a GBP0.1 million loss before income tax for the period between
the acquisition date and the statement of financial position
date.
The net assets, fair value adjustments and consideration for
these acquisitions are summarised below (all values shown as at
their acquisition dates):
Book value Fair value adjustment Total
GBP'Million GBP'Million GBP'Million
Financial assets 0.1 1.8 1.9
Cash and cash equivalents 0.4 - 0.4
Financial liabilities (1.5) - (1.5)
Total (1.0) 1.8 0.8
Consideration
Cash consideration 0.5
Contingent consideration 0.3
Total consideration 0.8
The contingent consideration is payable if certain performance
targets are met, being based on the individual Partner
performances. It is expected this will be paid in full with no
changes to the amount initially recognised. The carrying amount of
the contingent consideration at the statement of financial position
date is GBP0.3 million. Of the remaining balance to be settled, the
Group expects that GBP0.15 million will be settled by 24 April 2015
and another GBP0.15 million settled by 24 April 2016.
-65-
NOTES TO THE IFRS BASIS FINANCIAL STATEMENTS (continued)
5. BUSINESS COMBINATIONS (continued)
The Henley Group
The Henley Group acquisition contributed GBP0.1 million to
revenue and a GBP0.3 million loss before income tax for the period
between the acquisition date and the statement of financial
position date. Had the above acquisitions been consolidated from 1
January 2014, they would have contributed GBP1.8 million to revenue
and a GBP0.4 million loss before income tax to the consolidated
statement of income for the period.
The net assets, fair value adjustments and consideration for
these acquisitions are summarised below (all values shown as at
their acquisition dates):
Book value Fair value adjustment Total
GBP'Million GBP'Million GBP'Million
Financial assets 0.6 4.6 5.2
Cash and cash equivalents - - -
Financial liabilities - - -
Total 0.6 4.6 5.2
Consideration
Cash consideration 7.1
Contingent consideration 8.2
Total consideration 15.3
Goodwill 10.1
Goodwill comprises of the value placed on the Asian distribution
network being acquired and the local experience and knowledge that
The Henley Group holds across these regulatory jurisdictions.
Of the GBP8.2 million total contingent consideration, GBP6.9
million is payable if certain performance targets are met, being
based on the number of advisors engaged and GBP1.3 million is
payable to employees and consultants of The Henley Group for
continued services being rendered to the Group. It is expected
these will be paid in full with no changes to the amount initially
recognised, however, should the target number of advisors not be
met the contingent consideration will decrease on a pro-rata basis.
The carrying amount of the contingent consideration at the
statement of financial position date is GBP8.2 million. Of the
remaining balance to be settled, the Group expects that GBP3.4
million will be settled by 31 August 2015, GBP1.3 million settled
by 30 June 2017 and GBP3.5 million settled by 28 February 2017.
-66-
NOTES TO THE IFRS BASIS FINANCIAL STATEMENTS (continued)
6. EARNINGS PER SHARE
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
2014 2013 2013
--------- --------- -------------
Pence Pence Pence
Basic earnings per share 12.9 21.3 37.4
Diluted earnings per share 12.7 21.0 36.7
========= ========= =============
The calculation of diluted earnings per share is based on the
following figures:
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
2014 2013 2013
------------ ------------ -------------
GBP'Million GBP'Million GBP'Million
Earnings
Profit after tax (for both basic and diluted EPS) 66.1 108.2 190.3
Million Million Million
Weighted average number of shares
Weighted average number of ordinary shares in issue (for basic EPS) 513.0 507.3 509.4
Adjustments for outstanding share options 8.9 7.1 9.2
------------ ------------ -------------
Weighted average number of ordinary shares (for diluted EPS) 521.9 514.4 518.6
============ ============ =============
7. DIVIDENDS
The following dividends have been paid by the Company:
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
2014 2013 2013
------------ ------------ -------------
GBP'Million GBP'Million GBP'Million
2012 final dividend - 6.39 pence per ordinary share - 32.6 32.6
2013 interim dividend - 6.38 pence per ordinary share - - 32.7
2013 final dividend - 9.58 pence per ordinary share 49.4 - -
-------------
Total dividends paid 49.4 32.6 65.3
============ ============ =============
The Directors have resolved to pay an interim dividend of 8.93
pence per share (30 June 2013: 6.38 pence). This amounts to GBP46.3
million (30 June 2013: GBP32.7 million) and will be paid on 24
September 2014 to shareholders on the register at 29 August
2014.
-67-
NOTES TO THE IFRS BASIS FINANCIAL STATEMENTS (continued)
8. ASSETS HELD TO COVER LINKED LIABILITIES AND THIRD PARTY
HOLDINGS IN UNIT TRUSTS
Included within the balance sheet are the following assets and
liabilities which represent the net assets held to cover linked
liabilities and those attributable to third party holdings in unit
trusts (UTMI). The difference between these assets and liabilities
and those shown in the consolidated balance sheet represents assets
and liabilities held outside the unit-linked funds and the
UTMI.
30 June 30 June 31 December
2014 2013 2013
GBP'Million GBP'Million GBP'Million
Assets
Investment property 848.5 604.2 732.7
Investments
- Equities 31,671.9 25,745.4 29,614.8
- Fixed income securities 5,997.4 5,570.8 5,897.9
- Investment in Collective Investment Schemes 2,790.6 2,718.5 2,718.3
- Currency forwards 65.4 67.7 97.7
- Interest rate swaps 7.6 8.1 8.6
- Total return swaps 16.5 - -
- Contract for differences 28.2 18.9 29.4
- Other derivatives 7.9 3.8 7.2
Other receivables 426.4 380.6 324.1
Other receivables eliminated on consolidation 118.2 88.6 151.9
Cash and cash equivalents 4,527.9 3,120.7 3,648.6
Total assets 46,506.5 38,327.3 43,231.2
Liabilities
Financial liabilities
- Currency forwards 20.8 49.6 49.4
- Interest rate swaps 9.9 40.9 11.8
- Total return swaps 16.5 - -
- Contract for differences 19.9 22.2 24.8
- Other derivatives 2.1 7.7 1.8
Other payables 439.8 193.9 241.6
Other payables eliminated on consolidation 144.5 121.2 216.2
Total liabilities 653.5 435.5 545.6
Net assets held to cover linked liabilities 45,853.0 37,891.8 42,685.6
Net assets held to cover linked liabilities and third party
holdings in unit trusts are considered to have a maturity of up to
one year since the corresponding unit liabilities are repayable and
transferable on demand.
9. DEFERRED ACQUISITION COSTS
30 June 30 June 31 December
2014 2013 2013
------------
GBP'Million GBP'Million GBP'Million
Life business - insurance DAC 1.3 2.5 1.5
Life business - investment DAC 663.8 729.4 695.9
Unit Trust business - investment DAC 184.8 196.8 191.4
------------
Total deferred acquisition costs 849.9 928.7 888.8
============
Amortisation of deferred acquisition costs is charged within the
fees, commission and other acquisition costs line in the statement
of comprehensive income.
-68-
NOTES TO THE IFRS BASIS FINANCIAL STATEMENTS (continued)
10. DEFERRED TAX ASSETS
30 June 30 June 31 December
2014 2013 2013
------------ ------------ ------------
GBP'Million GBP'Million GBP'Million
Life business - unrelieved expenses 69.5 78.0 73.7
Life business - pension business - 5.7 -
Life business - deferred income 20.9 34.4 23.7
Unit Trust business - deferred income 47.3 56.3 48.2
Capital losses on liquidations 24.4 38.4 27.9
Other 8.4 8.3 8.3
------------ ------------ ------------
Total deferred tax assets 170.5 221.1 181.8
============ ============ ============
The Group, from time to time, reviews the possibility of
removing companies from its Group structure that are no longer
necessary for its business operations. Depending on the history of
the companies involved, it is possible that a capital loss may
arise. Should such a loss crystallise, the Group will create a tax
asset, the impact of which could potentially be material in future
periods.
11. OTHER PROVISIONS
30 June 30 June 31 December
2014 2013 2013
------------ ------------ ------------
GBP'Million GBP'Million GBP'Million
At beginning of period 9.7 9.2 9.2
Movement in the period - 0.4 0.5
------------ ------------ ------------
At end of period 9.7 9.6 9.7
============ ============ ============
Other Provisions at 30 June 2014 consist of GBP9.3 million in
respect of self-insured liabilities (30 June 2013: GBP8.6 million
and 31 December 2013: GBP9.3 million), GBPnil (30 June 2013: GBP0.6
million and 31 December 2013: GBPnil) to meet obligations arising
as a result of unutilised property and GBP0.4 million (30 June
2013: GBP0.4 million and 31 December 2013: GBP0.4 million) in
respect of the costs of redress for endowment business.
As set out more fully in the summary of principal risks and
uncertainties on page 40, the Group could in the course of its
business be subject to legal proceedings and/or regulatory
activity. Should such an event arise, the Board would consider
their best estimate of the amount required to settle the obligation
and, where appropriate and material, establish a provision. While
there can be no assurances that circumstances won't change, based
upon information currently available to them, the Directors do not
believe there is any possible activity or event that could have a
material adverse effect on the Group's financial position.
12. DEFERRED TAX LIABILITIES
30 June 30 June 31 December
2014 2013 2013
------------ ------------ ------------
GBP'Million GBP'Million GBP'Million
On deferred acquisition costs 159.1 201.6 168.0
On acquired value of in-force business 7.7 9.6 8.0
In respect of unit linked funds 287.9 213.3 314.1
On renewal income 4.5 - 3.3
Other 3.1 4.3 3.2
------------ ------------ ------------
Total deferred tax liabilities 462.3 428.8 496.6
============ ============ ============
The Group, from time to time, reviews the possibility of
removing companies from its Group structure that are no longer
necessary for its business operations. Depending on the history of
the companies involved it is possible that a capital gain may
arise. Should such a gain crystallise, the Group will provide for
the tax liability, the impact of which could potentially be
material in future periods.
-69-
NOTES TO THE IFRS BASIS FINANCIAL STATEMENTS (continued)
13. DEFERRED INCOME
30 June 30 June 31 December
2014 2013 2013
------------ ------------ ------------
GBP'Million GBP'Million GBP'Million
Life business 263.9 334.2 297.3
Unit Trust business 236.5 244.8 241.3
------------ ------------ ------------
Total deferred income 500.4 579.0 538.6
============ ============ ============
14. FAIR VALUE MEASUREMENT
Fair value estimation
Financial instruments, which are held at fair value in the
balance sheet, are required to have disclosed their fair value
measurements by level of the following fair value measurement
hierarchy:
-- Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1).
-- Inputs other than quoted prices included within Level 1 that
are observable for the asset or liability, either directly (that
is, as prices) or indirectly (that is, derived from prices) (Level
2).
-- Inputs for the asset or liability that are not based on
observable market data (that is, unobservable inputs) (Level
3).
The following table presents the Group's assets and liabilities
measured at fair value:
30 June 2014
Level 1 Level 2 Level 3 Total
balance
GBP' Million GBP' Million GBP' Million GBP' Million
Financial assets and investment property:
Investment property 848.5 848.5
Equities 31,671.9 31,671.9
Fixed income securities 6,066.7 6,066.7
Investment in Collective Investment Schemes 3,293.8 1.2 3,295.0
Derivative financial instruments 125.6 125.6
Other receivables 23.1 23.1
Cash & cash equivalents 4,527.8 4,527.8
Total financial assets and investment property 39,493.5 6,192.3 872.8 46,558.6
Financial liabilities:
Investment contract benefits 35,812.9 35,812.9
Derivative financial instruments 69.2 69.2
Net asset value attributable to unit holders 9,598.0 9,598.0
Total financial liabilities 9,598.0 35,882.1 - 45,480.1
-70-
NOTES TO THE IFRS BASIS FINANCIAL STATEMENTS (continued)
14. FAIR VALUE MEASUREMENT (continued)
30 June 2013
Level 1 Level 2 Level 3 Total
balance
GBP' Million GBP' Million GBP' Million GBP' Million
Financial assets:
Equities 25,745.4 25,745.4
Fixed income securities 5,654.0 5,654.0
Investment in Collective Investment Schemes 3,124.6 1.7 3,126.3
Derivative financial instruments 98.5 98.5
Cash & cash equivalents 3,120.7 3,120.7
Total financial assets 31,990.7 5,752.5 1.7 37,744.9
Financial liabilities:
Investment contract benefits 30,733.1 30,733.1
Derivative financial instruments 120.4 120.4
Net asset value attributable to unit holders 6,809.3 6,809.3
Total financial liabilities 6,809.3 30,853.5 - 37,662.8
31 December 2013
Level 1 Level 2 Level 3 Total
balance
GBP' Million GBP' Million GBP' Million GBP' Million
Financial assets and investment property:
Investment property 732.7 732.7
Equities 29,614.8 29,614.8
Fixed income securities 5,965.7 5,965.7
Investment in Collective Investment Schemes 3,243.0 1.3 3,244.3
Derivative financial instruments 142.9 142.9
Other receivables 16.6 16.6
Cash & cash equivalents 3,648.6 3,648.6
Total financial assets and investment property 36,506.4 6,108.6 750.6 43,365.6
Financial liabilities:
Investment contract benefits 33,717.5 33,717.5
Derivative financial instruments 87.8 87.8
Net asset value attributable to unit holders 8,535.4 8,535.4
Total financial liabilities 8,535.4 33,805.3 - 42,340.7
The fair value of financial instruments traded in active markets
is based on quoted bid prices at the balance sheet date. These
instruments are included in Level 1. Instruments included in Level
1 comprise primarily listed equity instruments.
-71-
NOTES TO THE IFRS BASIS FINANCIAL STATEMENTS (continued)
14. FAIR VALUE MEASUREMENT (continued)
The Group closely monitors the valuation of assets in markets
that have become less liquid. Determining whether a market is
active, requires the exercise of judgement and is determined based
upon the facts and circumstances of the market for the instrument
being measured. Where it is determined that there is no active
market, fair value is established using a valuation technique. The
techniques applied incorporate relevant information available and
reflect appropriate adjustments for credit and liquidity risks.
These valuation techniques maximise the use of observable market
data where it is available and rely as little as possible on entity
specific estimates. The relative weightings given to differing
sources of information and the determination of non-observable
inputs to valuation models can require the exercise of significant
judgement.
If all significant inputs required to fair value an instrument
are observable, the instrument is included in Level 2. If one or
more of the significant inputs is not based on observable market
data, the instrument is included in Level 3.
Note that all of the resulting fair value estimates are included
in Level 2, except for certain equities and investments in
Collective Investment Schemes (CIS) and investment properties as
detailed below.
Specific valuation techniques used to value Level 2 financial
assets and liabilities include:
-- The use of observable prices for identical current arm's length transactions.
Specific valuation techniques used to value Level 3 financial
assets and liabilities include:
-- The use of observable prices for recent arm's length transactions.
-- Other techniques, such as discounted cash flow and historic
lapse rates, are used to determine fair value for the remaining
financial instruments.
There were no transfers between Level 1 and Level 2 during the
year. Should it be assessed that an active market no longer exists,
a transfer between Level 1 and Level 2 fair value measurement
hierarchies will be considered.
Transfers into and out of level 3 portfolios
Transfers out of level 3 portfolios arise when inputs that could
have a significant impact on the instrument's valuation become
market observable; conversely, transfers into the portfolios arise
when consistent sources of data cease to be available.
Transfers in of certain equities and investments in Collective
Investment Schemes (CIS) occur when asset valuations can no longer
be obtained from an observable market price, i.e. become illiquid,
in liquidation, suspended etc. The converse is true if an
observable market price becomes available.
The following table presents the changes in Level 3 financial
assets at fair value through the profit and loss:
30 June 30 June 31 December
2014 2013 2013
-----------
GBP'Million GBP'Million GBP'Million
Opening balance 750.6 1.6 1.6
Transfer into Level 3 - 0.2 597.8
Additions during the year 93.2 - 213.8
Disposed during the year (17.6) (0.1) (67.7)
Gains recognised in the income statement 46.6 - 5.1
-----------
Closing balance 872.8 1.7 750.6
===========
Total gains for the year included in profit or loss for assets held at the end
of the reporting
period 47.1 0.1 4.8
-72-
NOTES TO THE IFRS BASIS FINANCIAL STATEMENTS (continued)
14. FAIR VALUE MEASUREMENT (continued)
Additions include GBP85.4 million of investment properties and
GBP7.8 million of renewal income. Realised and unrealised
gains/(losses) recognised in the statement of comprehensive income
are included within investment return for certain equities and
investments in Collective Investment Schemes and investment
property, and within administration expenses for the renewal
income.
Sensitivity of Level 3 valuations
The valuation of certain equities and investments in Collective
Investment Schemes (CIS) are based on the latest observable price
available. Whilst such valuations are sensitive to estimates, it is
believed that changing the price applied to a reasonably possible
alternative would not change the fair value significantly.
The renewal income valuation of GBP23.1 million (included within
other receivables on the balance sheet) is based on discounted cash
flows and historic lapse rates. The effect of applying reasonably
possible alternative assumptions of a movement of 100bps on the
discount rate and a 10% movement in the lapse rate would result in
an unfavourable change in valuation of GBP2.3 million and a
favourable change in valuation of GBP2.6 million, respectively.
The investment property valuation has been prepared using the
'market approach' valuation technique - using prices and other
relevant information generated by market transactions involving
identical or comparable (i.e. similar) assets, as such it is again
believed that changing the price applied to a reasonably possible
alternative would not change the fair value significantly.
Moreover, any change in the value of investment property is matched
by the associated movement in the policyholder liability and
therefore would not impact on the shareholder net assets.
15. SHARE CAPITAL
Number of Share Capital
Ordinary Shares
----------------- --------------
GBP'Million
At 30 June 2013 513,780,733 77.1
- Exercise of options 1,435,250 0.2
----------------- --------------
At 31 December 2013 515,215,983 77.3
- Exercise of options 3,310,790 0.5
----------------- --------------
At 30 June 2014 518,526,773 77.8
================= ==============
The total authorised number of ordinary shares is 605 million
(2013: 605 million), with a par value of 15 pence per share (2013:
15 pence per share). All issued shares are fully paid.
16. RELATED PARTY TRANSACTIONS
Transactions with St. James's Place unit trusts
In respect of the non-consolidated St. James's Place managed
unit trusts that are held as investments in the St. James's Place
life and pension funds, there was income recognised of GBP4.9
million (30 June 2013: GBP30.7 million and 31 December 2013:
GBP16.1 million) and the total value of transactions with those
non-consolidated unit trusts was GBP21.0 million (30 June 2013:
GBP53.1 million and 31 December 2013: GBP32.1 million). Net
management fees receivable from these unit trusts amounted to
GBP10.0 million (30 June 2013: GBP13.8 million and 31 December
2013: GBP19.4 million). The value of the investment into the
non-consolidated unit trusts at 30 June 2014 was GBP107.9 million
(30 June 2013: GBP270.7 million and 31 December 2013: GBP92.2
million).
-73-
NOTES TO THE IFRS BASIS FINANCIAL STATEMENTS (continued)
17. STATUTORY ACCOUNTS
The financial information shown in this publication is unaudited
and does not constitute statutory accounts. The comparative figures
for the financial year ended 31 December 2013 are not the Company's
statutory accounts for the financial year. Those accounts have been
reported on by the Company's auditors and delivered to the
Registrar of Companies.
The report of the auditors was unqualified and did not include a
reference to any matter to which the auditors drew attention to, by
way of emphasis without qualifying their report, and did not
contain a statement under section 498 of the Companies Act
2006.
18. APPROVAL OF HALF YEAR REPORT
These condensed consolidated half year financial statements were
approved by the Board of Directors on 28 July 2014.
-74-
INDEPENDENT REVIEW REPORT TO ST. JAMES'S PLACE PLC
Report on the condensed consolidated half year financial
statements
Our conclusion
We have reviewed the condensed consolidated half year financial
statements, defined below, in the half year report of St. James's
Place plc for the six months ended 30 June 2014. Based on our
review, nothing has come to our attention that causes us to believe
that the condensed consolidated half year financial statements are
not prepared, in all material respects, in accordance with
International Accounting Standard 34 as adopted by the European
Union and the Disclosure and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
This conclusion is to be read in the context of what we say in
the remainder of this report.
What we have reviewed
The condensed consolidated half year financial statements, which
are prepared by St. James's Place plc, comprise:
-- the condensed consolidated statement of financial position as at 30 June 2014;
-- the condensed consolidated statement of comprehensive income for the period then ended;
-- the condensed consolidated statement of cash flows for the period then ended;
-- the condensed consolidated statement of changes in equity for the period then ended; and
-- the explanatory notes to the condensed consolidated half year financial statements.
As disclosed in note 2, the financial reporting framework that
has been applied in the preparation of the full annual financial
statements of the group is applicable law and International
Financial Reporting Standards (IFRSs) as adopted by the European
Union.
The condensed consolidated half year financial statements
included in the half year report have been prepared in accordance
with International Accounting Standard 34, 'Interim Financial
Reporting', as adopted by the European Union and the Disclosure and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
What a review of condensed consolidated half year financial
statements involves
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK and
Ireland) and, consequently, does not enable us to obtain assurance
that we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit
opinion.
We have read the other information contained in the half year
report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed consolidated half year financial statements.
-75-
Responsibilities for the condensed consolidated half year
financial statements and the review
Our responsibilities and those of the directors
The half year report, including the condensed consolidated half
year financial statements, is the responsibility of, and has been
approved by, the directors. The directors are responsible for
preparing the half year report in accordance with the Disclosure
and Transparency Rules of the United Kingdom's Financial Conduct
Authority.
Our responsibility is to express to the company a conclusion on
the condensed consolidated half year financial statements in the
half year report based on our review. This report, including the
conclusion, has been prepared for and only for the company for the
purpose of complying with the Disclosure and Transparency Rules of
the Financial Conduct Authority and for no other purpose. We do
not, in giving this conclusion, accept or assume responsibility for
any other purpose or to any other person to whom this report is
shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
PricewaterhouseCoopers LLP
Chartered Accountants
28 July 2014
London
Notes:
(a) The maintenance and integrity of the St. James's Place plc
website is the responsibility of the directors; the work carried
out by the auditors does not involve consideration of these matters
and, accordingly, the auditors accept no responsibility for any
changes that may have occurred to the financial statements since
they were initially presented on the website.
(b) Legislation in the United Kingdom governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
-76-
RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF
THE HALF YEAR FINANCIAL REPORT
The Directors confirm that this consolidated interim financial
information has been prepared in accordance with IAS 34 as adopted
by the European Union and that the interim management report
includes a fair review of the information required by DTR 4.2.7R
and DTR 4.2.8R, namely:
-- an indication of important events that have occurred during
the first six months of the financial year and their impact on the
condensed set of financial statements, and a description of the
principal risks and uncertainties for the remaining six months of
the financial year; and
-- material related-party transactions in the first six months
and any material changes in the related party transactions
described in the last Annual Report.
The Directors of St. James's Place plc are listed in the St.
James's Place plc Annual Report for 31 December 2013. A list of
current Directors is maintained on the St. James's Place plc
website: www.sjp.co.uk
By order of the Board:
D Bellamy A Croft
Chief Executive Chief Financial Officer
28 July 2014 28 July 2014
This information is provided by RNS
The company news service from the London Stock Exchange
END
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