TIDMSTJ
RNS Number : 2088R
St. James's Place PLC
28 February 2023
-1-
PRESS RELEASE
28 February 2023
ST. JAMES'S PLACE ANNOUNCES RECORD FINANCIAL RESULTS FOR
2022
St. James ' s Place plc (SJP) today issues its results for the
year ended 31 December 2022:
Financial Highlights
-- Underlying cash result GBP410.1 million (2021: GBP401.2 million)
-- Underlying cash basic earnings per share of 75.6 pence ( 2021: 74.6 pence)
-- EEV operating profit GBP1,589.7 million (2021: GBP1,545.4 million)
-- EEV net asset value per share GBP16.66 (2021: GBP16.57)
-- IFRS profit before shareholder tax GBP501.8 million ( 2021: GBP353.8 million)
-- IFRS profit after tax GBP405.4 million ( 2021: GBP287.6 million)
Dividend
-- Proposed full year dividend of 52.78 pence per share (2021:
51.96), in line with our 70% target pay-out ratio
Other Highlights
-- Gross inflows of GBP17.0 billion (2021: GBP18.2 billion)
-- Exceptional retention of client investments
-- Net inflow of funds under management of GBP9.8 billion (2021: GBP11.0 billion)
-- Funds under management of GBP148.4 billion (2021: GBP154.0 billion)
-- Represented by 4,693 qualified advisers across the Partnership
-2-
Andrew Croft, Chief Executive Officer, commented:
"After a year when the external environment proved favourable to
many businesses in our industry, 2022 presented a more challenging
backdrop as UK consumers faced the reality of sharply rising
inflation, macroeconomic and geopolitical uncertainty, and
investment market volatility. Despite this, we achieved the
second-best year for new business flows in our history as our
advisers performed admirably in helping clients feel confident in
their finances and remain on track for the future. While investment
markets recorded negative returns over the year, the strength of
our net inflows means that funds under management closed the period
at GBP148.4 billion.
We continued to manage our controllable cost base well,
containing growth to 5% as planned, and this supported the delivery
of a record Underlying cash result of GBP410.1 million . Reflecting
our policy of paying out around 70% of the Underlying cash result,
the Board therefore proposes a final dividend of 37.19 pence per
share, making for a full year dividend of 52.78 pence per share, up
c.2%.
It remains clear to us that the demand for trusted, face-to-face
advice is only getting stronger, so with a growing Partnership and
a business in great shape, we continue to be well positioned to
capitalise on our market opportunity and deliver against our 2025
ambitions.
2023 has continued in much the same way that 2022 ended, but we
remain encouraged to see indicators that UK inflation may have
peaked and that there are some signs of optimism for the direction
of economies and investment markets worldwide. As we stated in our
new business update in January, a sustained recovery in such
indicators would naturally be conducive towards improving consumer
sentiment, activity levels and of course funds under management, as
2023 unfolds."
The details of the announcement are attached.
Enquiries:
Hugh Taylor, Director - Investor Relations Tel: 07818 075143
Jamie Dunkley, External Communications Director Tel: 07779 999651
Brunswick Group: Tel: 020 7404 5959
Eilis Murphy Email: sjp@brunswickgroup.com
Charles Pretzlik
-3-
2022 Full Year Results Presentation
Date: 28 February 2023
Time: 08:30 GMT
Duration: 2 hours
If you have not registered to access SJP webcasts before, please
complete the registration form in the link below and verify your
email address in advance of the presentation. Registered viewers
can access the webcast by entering your email address and clicking
sign in, also using the link below.
Click here to register for and to access the webcast
Q&A session
The event will conclude with a live Q&A session starting at
9:30am GMT. The event platform will remain open to listen to the
Q&A, but if you wish to ask questions during this session
please dial-in to the conference call line from 9:00am GMT using
the details below:
United Kingdom: 0800 640 6441
United Kingdom (Local): 020 3936 2999
All other locations: +44 20 3936 2999
Participant Access code: 484247
Press *1 to ask a question, *2 to withdraw your question, or *0
for operator assistance.
Accessing the telephone replay
A recording will be available until Tuesday 7 March 2023
UK: 020 3936 3001
USA: 1 845 709 8569
All other locations: +44 20 3936 3001
Access Code: 734971
-4-
Chair's Report
Supporting our clients
Overview
2022 was another extraordinary year, not least in the UK where
global events contributed to rising rates of inflation that have
exacerbated a cost-of-living crisis. Domestic political change has
further unsettled the macroeconomic environment and it is against
this backdrop that the Board has had to operate, ensuring we make
careful decisions that take account of the long-term implications
for our stakeholders. St. James's Place (SJP) exists to give people
the confidence to create the futures they want, and during
challenging times, the case for robust financial advice appears
even clearer. As a Board, we believe the SJP Partnership provides
the very best support for people looking to make the right
decisions to safeguard the futures for them and their families.
During 2022 I was delighted to spend considerable time with our
advisers in the Partnership and it is clear to me that they are
motivated and focused on delivering great outcomes for clients.
Reflecting on 2022, the Board has been pleased to see further
demonstration of the resilience of our business model, which
emphasises the opportunity we have ahead of us as we continue to
execute our strategy.
The Board
The shadow of COVID-19 was cast over much of 2021, but 2022
provided the opportunity for the Board to return to regular
face-to-face interaction and allowed us to welcome back
shareholders to meet with us at our Annual General Meeting in May.
The pandemic demonstrated how adaptable boards and companies could
be and, as a Board, we are now even more confident in our agility
and resilience when unforeseen events arise.
The Board and Group Nomination and Governance Committee have
both reported on the implementation of the Board's succession plans
in recent years. In 2023 we will see Simon Jeffreys and Roger Yates
retiring following the Annual General Meeting, having each served
nine years on the Board. On behalf of the Board, I would like to
take this opportunity to thank both Simon and Roger for their
contribution to the Board and in particular their stewardship of
the Group Audit and Remuneration Committees.
Succession planning is a key focus of the Group Nomination and
Governance Committee, and its work over the last few years has
enabled us to manage the departure of Executive and Non-executive
Directors with orderly handovers being provided to their
successors. In November we welcomed Dominic Burke to the Board as a
Non-executive Director, and he will be taking on the role of Senior
Independent Director following the Annual General Meeting. Dominic
brings with him a deep knowledge of financial services and the
experience of having founded and led large businesses in the
sector. Dominic's appointment has resulted in the percentage of
women on the Board falling to 30% temporarily, but the Board made
the appointment fully aware that the proportion of women would be
37.5% when both Simon Jeffreys and Roger Yates step down after the
AGM in May 2023.
The market
Despite the challenges I have referenced above, the Group
continued to deliver resilient results in 2022. We also continued
to demonstrate the discipline to manage our cost growth within
plan, despite the macroeconomic headwinds. However, no business is
immune to the impact of the rates of inflation seen in the UK in
2022 and the Board is mindful that while maintaining discipline on
costs is critical, we must also remain focused on making decisions
that drive further long-term success for our business.
Financial services regulation has never been more demanding of
firms, something which should give consumers confidence that robust
advice can help deliver the right outcomes for them. The
introduction of the FCA's Consumer Duty is a case in point and is a
step change in the way supervision will work in future, emphasising
the importance of putting customer outcomes at the heart of
decision-making. This is a key area of focus for the business and
the Board in 2023. In such a demanding world SJP's advisers benefit
from the backing of a FTSE 100 organisation that has invested in a
wide range of support functions that enable them to focus on the
most important thing: delivering excellent service to their
clients, and so we welcome the reform.
The infrastructure to support the provision of advice in the
current environment does not come without investment and we
recognise that, across the market as a whole, the supply of advice
falls short of the potential demand. We firmly believe in the value
of advice and are strong advocates for regulated advice, which
means we are keen to work with policymakers and other stakeholders
to help ensure a broader segment of society has long-term financial
security, even if they are never SJP clients.
-5-
The high inflation and intense cost-of-living pressures
witnessed throughout 2022 have highlighted, more than ever, the
need for greater financial resilience. The defined benefit pension
scheme is a thing of the past for many and the shift increases the
pressure on individuals and households to generate the savings they
will need to see them through their retirement. Setting aside the
money to save in the current environment is difficult for many; but
the challenge of turning these savings into something that can
sustain an ever-ageing population is perhaps even greater. There
are now many more options available to investors, but research
continues to tell us that people lack confidence when it comes to
managing their own financial affairs. Whilst advice may not be the
right answer for some, for many it will be and our continued
growth, even in the most challenging economic circumstances,
demonstrates that demand exists.
The Board's priorities and our strategy
Our key planning assumptions and strategy to 2025 were set out
in 2021 and these remain broadly unchanged. Our ambition is still
to grow new business by 10% per annum and contain growth in
controllable expenses to 5% per annum, and we still intend to pay
out around 70% of the Underlying cash result in dividends to
shareholders. At our Board Strategy Day in June the Board took the
opportunity to reaffirm its support for the existing strategy as
well as turn an eye to the future beyond 2025, seeking insight from
both inside and outside the business.
At the half-year we declared an interim dividend of 15.59 pence
per share and the Board is pleased to be able to recommend to
shareholders a final dividend for 2022 of 37.19 pence per share.
This brings our full year dividend to 52.78 pence per share,
equivalent to 70% of the Underlying cash result.
The Board's key focus areas for 2022 were as follows:
The Partnership - The health of the Partnership remains critical
for this business as it is the engine that drives SJP forward. The
importance of personal interaction with clients and with each other
has been a theme throughout our history and in 2022 our advisers
have continued to evolve their own propositions for clients by
augmenting their in-person engagements with online meetings. We
have also been able to hold a full programme of development
conferences for our adviser community, allowing them to share
experiences with each other, further their development and provide
valuable feedback to senior management.
Administration - As previously reported, the Bluedoor migration
has provided us with a platform for improving our administration
and client services. Realising all of the benefits will take time
as we optimise our newfound capabilities, but the Board has been
delighted to see further progress in 2022 in the quality and
robustness of administration. Where possible we are seeking to
introduce straight-through processing which ensures our advisers
can process client transactions in a timely and accurate
manner.
Digital - 2022 saw the release of our first client app, enabling
our clients to see personalised performance figures for their
investments and reducing the need for paper documents. SJP clients
who prefer paper correspondence and statements will still be able
to have these, but the app represents a step towards greater
digital capability for clients and advisers to support their
face-to-face engagement. In 2022 we were also able to continue the
development of and integration of Salesforce, with the benefits of
the platform beginning to emerge for a number of stakeholders
across the SJP community. The transition to a strong customer
relationship management (CRM) system is a key component in enabling
us to evidence how the new Consumer Duty is being met by SJP.
Investment performance - The turmoil in global markets during
2022, combined with fiscal measures in response to macroeconomic
pressures, have inevitably impacted fund performance. While
investment markets weighed on client investment returns in 2022,
the Board has been pleased to see relative performance improving as
the year progressed. Our third Value Assessment Statement (VAS),
published in July 2022, built upon the previous two reports and was
well received. It highlighted areas where we still need to focus,
and the Board wants to continue to prioritise these in line with
regulatory expectations and our desire to deliver good outcomes to
clients.
Rowan Dartington and Asia - Despite the challenging external
environment, Rowan Dartington has been able to deliver in line with
its headline financial objectives. Asia also faced challenges in
2022 including the COVID-19 restrictions which remained in place in
Hong Kong for much of the year. Whilst the restrictions and
volatile markets have suppressed new business growth, the business
has performed well.
Our culture and responsibilities
Our special culture is one of the main reasons SJP has been
successful over the years, but over time we have had to work harder
to make sure it transmits as effectively across much larger adviser
and employee bases. It is the Board's role to monitor culture, but
doing so is not straightforward. However, it is easy to recognise
when culture is not as we would like so we are keen to make sure we
put down some markers now to remind us what makes our culture
good
-6-
and where we still aspire to be better. These markers provide
reference points by which we can measure and monitor aspects of our
culture, and give early warnings if any element of it may be
straying outside our high standards. Throughout this report we
reference our stakeholders, and the Board is delighted that we have
such high levels of engagement. But what is most important is that
we listen to our stakeholders and take account of their views in
our decision-making. As is the case with many organisations, our
stakeholders demand that we act responsibly, and we know that being
a responsible business is no longer an option but a necessity. To
continue to deliver unrivalled stakeholder value, and to enhance
the transformational impact we can have, we have made a commitment
to become a leading UK responsible business.
Being responsible is not only the right thing to do; there is a
compelling case for it. This is why we put responsible and
sustainable decision-making at the heart of everything we do. Last
year we provided a fuller picture of what being a responsible
business meant to us and I am pleased to report that we made
further progress in 2022. Our Responsible Business Framework
recognises that, to have the greatest impact, we should focus on
areas that align most closely with our purpose, and where we are
best positioned to move the dial. This is why we have identified
four strategic priorities (financial wellbeing, investing
responsibly, climate change and community impact) which are
underpinned by nine strategic enablers. During 2022 the business
developed, and the Board agreed, our responsible business
narrative, goals and KPIs which will permeate throughout our
business and provide the basis for the environmental, social and
governance (ESG) targets we set management, including those forming
part of their annual bonus objectives.
Concluding remarks
I would like to express my thanks to my Board colleagues for
their support and hard work during the year and congratulate
management, the employees and in particular our Partner businesses
for what they have achieved in a challenging year. Whilst I have
tried to give a flavour of the Board's activity in 2022, I would
encourage you to read the Corporate Governance Report which covers
this in more detail. 2021 was an exceptional year for SJP so to
back it up with another good set of new business and financial
results in 2022 further demonstrates that not only do we have the
right strategy, but also a community capable of delivering future
growth. I look forward to welcoming shareholders to this year's
Annual General Meeting, which will be held on 18 May 2023.
Paul Manduca , Chair
27 February 2023
-7-
Chief Executive's Report
Another successful year
Introduction
2022 was yet another extraordinary year. The favourable external
environment which emerged towards the end of 2021, with vaccination
programmes in full swing and economies rebounding strongly,
continued into the start of 2022. However macroeconomic and
geopolitical conditions across the globe quickly deteriorated with
high inflation, rising interest rates and the conflict in Ukraine
creating a more difficult backdrop for many investment markets,
companies and individuals worldwide. In the UK this was compounded
by shifting political sands.
Despite this, we achieved the second-best year for new business
flows in our history. This strong outcome once again demonstrates
the strength and resilience of our advice-led business model, and
the enduring commitment of all in the Partnership to supporting
their clients.
Operating and financial performance
After a record outturn in 2021, during 2022 we made further good
progress on our journey to achieving the objectives we have set out
for 2025. We attracted GBP17.0 billion of gross inflows in 2022,
and our advisers have worked hard to help clients understand the
current environment and the importance of remaining focussed on
their long-term financial goals despite short-term pressures. This
has ensured retention rates for client investments have remained
very high at 96.5%(1) contributing to net inflows of GBP9.8
billion. This is equivalent to 6.4% of opening funds under
management.
The significant falls in investment markets resulted in funds
under management ending the year at GBP148.4 billion, down 4%
compared to the start of the year.
Despite the high inflation environment, we contained growth in
controllable expenses to 5%, in line with our guidance. This is one
of the drivers behind our strong financial outcome for the year,
with the Underlying cash result of GBP410.1 million (2021: GBP401.2
million) and IFRS profit after tax of GBP405.4 million (2021:
GBP287.6 million). For more information refer to the Chief
Financial Officer's Report.
(1) Excluding regular income withdrawals and maturities
Dividend
We are committed to paying out around 70% of the Underlying cash
result in dividends to shareholders. The 2% increase in the
Underlying cash result therefore drives a proposed final dividend
of 37.19 pence per share, making for a total dividend of 52.78
pence per share for the year, an increase of c.2% over the 2021
dividend.
Supporting clients
We aim to give clients the confidence to create the futures they
want. In the short term some clients will have understandably been
unsettled by the macroeconomic conditions that arose during the
year, with inflation for example being higher than many will have
seen in their adult lives. It is in these uncertain times that the
trusted relationship clients have with their adviser really comes
into its own. Advisers have been providing confidence to clients
throughout the year by reassuring them, and ensuring they
understand the environment and wherever possible do not disrupt
their long-term financial plans.
I am thankful to our clients for entrusting their savings to us,
and for endorsing our business through voting for us in various
industry awards.
As we look ahead, a key area of focus for the business is on
progressing our implementation plan for the FCA's Consumer Duty,
which comes into effect at the end of July 2023. This is a
significant step forward for our industry, raising the bar to
ensure businesses deliver good outcomes for clients, so we welcome
the reform.
-8-
Strategic progress
Our 2025 business plan is underpinned by four key financial
objectives, and I am pleased with the progress we have made on our
journey so far. During 2022 we:
-- delivered GBP17.0 billion of gross inflows. Two years into
our five-year plan our cumulative gross inflows are ahead of where
we would have expected them to be at the outset. We aim to grow
gross inflows by 10% per annum on a compound basis, but we were
clear from the start that growth would not be linear;
-- retained 96.5% of client investments(1) , better than our 95% objective;
-- contained controllable expense growth to 5% in line with our
target, in spite of the high inflationary environment; and
-- achieved funds under management of GBP148.4 billion. This is
4% down year on year due to market falls, but we remain well placed
to deliver our GBP200 billion target by the end of 2025.
(1) Excluding regular income withdrawals and maturities
We remain committed to our 2025 ambitions and confident in our
ability to deliver against these; however, inflationary pressures
mean that controllable expense growth in 2023 will be around 8% on
a pre-tax basis as we continue to focus on cost discipline while
ensuring our business remains well invested for the future.
During the year we also made real progress in delivering against
the six business priorities that will underwrite a successful
future for St. James's Place:
Building community
A thriving SJP community is critical to supporting great
outcomes for our clients and other stakeholders. We're therefore
pleased to have grown the Partnership with the addition of a net
137 new advisers during the year, through a combination of
recruitment of experienced financial advisers and 257 advisers
completing our Academy programme.
With our focus on making SJP the best place to build a financial
advice business, our proposition for advisers is stronger than
ever. This, together with the growing scale of our Academy which
now has more than 350 new advisers in training, means we've built a
good pipeline for continued growth in the Partnership in the years
ahead.
Our learning and development programmes for both the Partnership
and employees continue to develop at pace. Technology has enabled
us to create more user-friendly, on-demand content and to innovate
using tools such as virtual reality to supplement more traditional
learning practices. We are delighted that our progress in learning
and development has been recognised by being short-listed for six
industry awards; most notably the AIXR Global Virtual Reality
Awards for Virtual Reality Education and Training of the Year.
We see real value in building relationships based on
face-to-face and personal engagement, which was a challenge during
the COVID-19 pandemic. In 2022 we focussed on reconnecting our
communities through social engagement.
Being easier to do business with
As a growing business, we know that technology can streamline
and optimise what we do and how we do it, transforming the
experience we give our people and their clients. We made further
progress on our technology journey in 2022.
We launched a new app for clients, which enables them to see the
value of their investments in real time and offers easier access to
information, documents and insights that are relevant to them. In
due course we will launch additional functionality, for example
enabling clients to engage with their adviser via the app.
Having rolled out Salesforce to the Partnership in 2021, during
2022 we launched complementary digital and social marketing tools
for our advisers to use to better support their clients.
We have also been focussing on our service improvement
programme, as we look to drive higher administration standards,
accuracy and efficiency across our business.
Delivering value to advisers and clients through our investment
proposition
We put our clients at the heart of our business, with the aim of
giving them confidence to create the futures they want. We deliver
this by ensuring clients are supported by great financial advisers
who establish long-term relationships built on trust, and by
creating well-rounded propositions that meet their needs. The
current high inflationary environment only accentuates the need to
get this right.
We continually evolve our investment proposition to ensure we
can support great client outcomes. Changes we have made in recent
years have contributed to further improvement in this regard.
-9-
During 2022 we also launched our new range of unitised
funds-of-funds (Polaris range) for clients in the accumulation
stage of saving, complementing the unitised InRetirement
decumulation funds launched in 2020. The Polaris range is simple
for clients to understand and automatically rebalances funds,
removing the need for periodic manual intervention.
In 2021 we committed to reducing the carbon footprint of client
investments, with an interim target of a 25% reduction by 2025. We
are delighted to have already exceeded this target. We will
continue to work hard with our external fund managers to make
further progress in the years ahead, underscoring our desire to
create financial wellbeing in a world worth living in.
Building and protecting our brand and reputation
We continue to work hard to strengthen the perception of our
business, so that when people think financial advice, they think
SJP. In 2022 we began the roll-out of our refreshed brand identity
for the Group, which we believe will help drive better awareness
and trust, supporting our ambition to serve more clients in the
future. It is important for us to complete the roll-out
sustainably, without creating waste, and so we've taken steps such
as running down stocks of existing stationery before moving to the
new stock.
While we have further phases of the roll-out to implement, we're
delighted with progress we've made so far and the positive feedback
we've received from clients, advisers, and other interested
stakeholders.
Our culture and being a leading responsible business
Our culture is a huge asset and in recent years we have focused
on codifying this in order to preserve its positive features and to
learn where there is scope for further evolution. It is also
important that we recognise and reward those within our community
who exhibit the very best aspects of our culture. We have developed
structures to achieve this, such as our Impact Awards ceremony for
employees, which launched during the year.
Having developed our Responsible Business Framework in 2021, in
2022 we focussed on enhancing this through adding clear goals and
metrics. Clearly articulating the outcomes we are striving to
achieve will help us grow the positive impact we can have as a
business, and our metrics will help us to measure our progress.
For us, being a responsible business means focusing primarily on
responsible investment, financial wellbeing, our community impact,
and climate change. But our responsibilities extend beyond these
key focus areas to others where we must also make sure we're doing
the right thing - such as being an inclusive and diverse employer,
respecting and valuing human rights, and promoting responsible
procurement.
The most visible aspect of our local activities is our continued
support for the St. James's Place Charitable Foundation. This
continues to be a source of enormous pride for all our people, who
recognise its hugely positive impact on the charities it supports.
I am therefore delighted that our community raised a further
GBP10.5 million for the Charitable Foundation in 2022, inclusive of
Company matching.
Continued financial strength
With new business and FUM remaining resilient against the
backdrop of significant macroeconomic and geopolitical uncertainty
during the year, and our disciplined approach to expenses, we have
achieved a record Underlying cash result of GBP410.1 million for
the year. I am also pleased that our businesses for the future, SJP
Asia and Rowan Dartington, have been resilient and remain on track
to break even in 2025 and 2024 respectively.
All of this enables our financial model to remain robust. We are
well positioned to continue to invest in our business to drive
future growth and deliver cash returns to shareholders over time,
while ensuring our balance sheet remains strong.
Summary and outlook
Despite the extraordinary circumstances we found ourselves in
during 2022, I believe SJP had another successful year and I hope
shareholders agree. This outcome could not have been achieved
without the excellent work and contribution of the whole SJP
community, both here in the UK and in our offices in Asia. I would
therefore like to personally thank our advisers, their staff, all
of our employees and the administration support teams for their
continued hard work, dedication and commitment.
It remains clear to us that the demand for trusted, face-to-face
advice is only getting stronger, so with a growing Partnership and
a business in great shape, we continue to be well positioned to
capitalise on our market opportunity and deliver against our 2025
ambitions.
-10-
2023 has continued in much the same way that 2022 ended, but we
remain encouraged to see indicators that UK inflation may have
peaked and that there are some signs of optimism for the direction
of economies and investment markets worldwide. As we stated in our
new business update in January, a sustained recovery in such
indicators would naturally be conducive towards improving consumer
sentiment, activity levels and of course funds under management, as
2023 unfolds.
Andrew Croft , Chief Executive
27 February 2023
-11-
Chief Financial Officer's Report
Record financial results
2022 presented a challenging operating environment, as a variety
of macroeconomic and geopolitical factors led to significant
investment market falls and eroded consumer confidence.
Our business performed strongly against this backdrop, with our
advisers attracting GBP17.0 billion (2021: GBP18.2 billion) of new
client investments, our second-best year for new business flows in
our history. With client retention rates remaining very high net
inflows totalled GBP9.8 billion (2021: GBP11.0 billion), equivalent
to 6.4% (2021: 8.5%) of opening funds under management (FUM).
Despite this new business performance, investment market falls
resulted in FUM closing at GBP148.4 billion (31 December 2021:
GBP154.0 billion).
In February 2021 we set out the planning assumptions that
underpin our business plan through to 2025:
1. Long-term new business growth of 10% per annum;
2. Consistent retention of client investments above 95%;
3. Containing controllable expense growth to 5% per annum;
and
4. GBP200 billion of FUM by 2025.
Our results for 2022 demonstrate further progress towards these
goals; however, we recognised at the outset that our performance
over this planning period would not be linear. 2021 was a very
strong year across all metrics as investment markets and consumer
confidence were buoyed by COVID-19 vaccination programmes, with the
environment in 2022 being much more challenging.
Despite this, our financial performance across IFRS, the Cash
result and European Embedded Value (EEV) has reflected growth in
average FUM during the year and the resulting growth in income and
strong cost control in line with guidance despite the high
inflationary environment. This has led to record results across
each of our key IFRS, Cash and EEV metrics.
We have always taken a simple and prudent approach to managing
the balance sheet and our capital requirements. This continues to
be the case, with both the Group and our life companies in a strong
financial position.
Our financial results are presented in more detail on pages 16
to 42 of the Financial Review, but there follows here a summary of
financial performance on a statutory IFRS basis, as well as our
chosen alternative performance measures (APMs). We also summarise
key developments from a balance sheet perspective and provide
shareholders with an overview of capital, solvency and
liquidity.
Financial Results
IFRS
IFRS profit after tax was GBP405.4 million in 2022 (2021:
GBP287.6 million), up 41%. This reflects growth in average FUM and
the impact of policyholder tax asymmetry, which benefits the IFRS
result in periods of weaker markets. Further detail on this
asymmetry is included in the Financial Review on page 22.
To address the challenge of policyholder tax being included in
the IFRS results which distorts IFRS profit before tax, we focus on
IFRS profit before shareholder tax as our pre-tax measure. On this
basis the result was GBP501.8 million for the year (2021: GBP353.8
million), up 42% year on year.
The IFRS result also includes the impact of non-cash accounting
adjustments such as equity-settled share-based payment expenses,
deferred income and deferred acquisition costs, so we continue to
supplement our statutory reporting with the presentation of our
financial performance using two APMs: the Cash result and the EEV
result.
Cash Result
The Cash result, and the Underlying cash result contained within
it, are based on IFRS but adjusted to exclude certain non-cash
items. They therefore represent useful guides to the level of cash
profit generated by the business. All items in the Cash result, and
in the commentary below, are presented net of tax.
-12-
The Cash result of GBP410.1 million for 2022 (2021: GBP387.4
million) and the Underlying cash result, also of GBP410.1 million
for 2022 (2021: GBP401.2 million) are up 6% and 2% respectively.
These record results have been driven by average mature FUM being
higher during 2022 than it was in 2021, despite investment market
falls during the year, delivery of controllable expenses in line
with our guidance, and increased shareholder interest on our
working capital due to Bank of England base rate rises. More detail
is set out below and in the Financial Review on pages 16 to 42.
During the year, the net income from funds under management was
GBP607.7 million (2021: GBP577.5 million), representing a margin
within our range of 0.63% to 0.65% (2021: 0.63% to 0.65%) on
average mature FUM, excluding Discretionary Fund Management (DFM)
and Asia FUM, in line with prior guidance. It is this mature FUM
that contributes to the net income figure and at any given time it
comprises all unit trust and ISA business, as well as life and
pensions business written more than six years ago.
The development of mature FUM year on year is therefore driven
by four principal factors:
1. New unit trust and ISA flows;
2. The amount of life and pensions FUM that moves from gestation
into mature FUM after a six-year period;
3. The retention of FUM; and
4. Investment returns.
As a result, growth in FUM is a strong positive indicator of
future growth in profits, despite not all new business contributing
to net income from funds under management for the first six years
of its existence.
At 31 December 2022, the balance of gestation FUM stood at
GBP45.5 billion (31 December 2021: GBP49.3 billion). Once this
current stock of gestation FUM has all matured, it will (assuming
no market movements or withdrawals, and allowing for the
corporation tax rate change in 2023) contribute in excess of a
further GBP383 million to annual net income from funds under
management and hence to the Underlying cash result, at no
additional cost.
St. James's Place also generates a margin arising from new
business where initial product charges levied on gross inflows
exceed new business-related expenses. The decrease in margin
arising from new business in 2022 largely reflects the decrease in
gross flows over the period, although the relationship between the
two is generally directionally consistent rather than linear as the
margin includes some expenses which do not vary with gross
inflows.
As part of the 2025 business plan, we set out our ambition to
contain growth in controllable expenses to around 5% per annum.
Controllable expenses are a key metric for the business and we have
delivered against the plan with these costs increasing by 5% in
2022 to GBP277.9 million after tax, despite rapidly rising
inflation.
Year ended Year ended
31 December 31 December
2022 2021
------------ ------------
GBP'Million GBP'Million
----------------------- ------------ ------------
Establishment expenses 198.9 200.3
Development expenses 67.4 54.0
Academy 11.6 10.3
----------------------- ------------ --------------
Controllable expenses 277.9 264.6
----------------------- ------------ --------------
Growth in income, coupled with this delivery of controllable
expenses in line with our guidance, has been the primary driver of
a record Underlying cash result for the year of GBP410.1 million
(2021: GBP401.2 million).
There were no one-off items recognised during the year,
resulting in the Cash result in 2022 also being GBP410.1 million
(2021: GBP387.4 million).
EEV
The EEV operating profit is sensitive to interest rates changes,
and so the increase in the opening risk discount rate year on year,
combined with a larger in-force book at the start of 2022 compared
to the start of 2021, is the main factor behind the increase in EEV
operating profit to GBP1,589.7 million (2021: GBP1,545.4
million).
The EEV profit before tax for the period has been significantly
impacted by the negative investment return variance of GBP1,314.0
million compared to the prior year (2021: positive GBP894.5
million). The negative return reflects decreased market values
across our FUM compared to our expectation, as a result of
investment market falls over the course of 2022.
-13-
The EEV profit after tax of GBP371.4 million (2021: GBP1,452.7
million) reflects profit emergence as above.
The EEV net asset value per share was GBP16.66 at 31 December
2022 (31 December 2021: GBP16.57).
Financial position
Our IFRS Statement of Financial Position, presented on page 54,
contains policyholder interests in unit-linked liabilities and the
underlying assets that are held to match them. To understand the
true assets and liabilities that the shareholder can benefit from,
these policyholder balances, along with non-cash 'accounting'
balances such as deferred income (DIR) and deferred acquisition
costs (DAC), are removed in the Solvency II Net Assets balance
sheet.
This balance sheet is straightforward and demonstrates that the
Group has liquid assets of GBP1,532.9 million (2021: GBP1,858.8
million), of which GBP1,271.7 million (2021: GBP1,605.3 million) is
invested in AAA-rated money market funds. This deep liquidity
represents 50% of total assets on the Solvency II Net Assets
balance sheet (2021: 52%). Further information about liquidity is
set out on page 33.
Analysis of the key movements in the Solvency II Net Assets
balance sheet during the year is set out on pages 30 to 33.
Solvency and capital
We continue to manage the balance sheet prudently to ensure the
Group's solvency is safely maintained.
Given the simplicity of our business model, our approach to
managing solvency remains to hold assets to match client
unit-linked liabilities plus a management solvency buffer (MSB). At
31 December 2022 we held surplus assets over the MSB of GBP847.2
million (2021: GBP727.3 million).
We also ensure that our approach meets the requirements of the
Solvency II regime. Our UK life company, the largest insurance
entity in the Group, targets capital equal to 110% of the standard
formula requirement, as agreed with the Prudential Regulation
Authority (PRA) since 2017. This is a prudent and sustainable
policy given the risk profile of our business, which is largely
operational.
At 31 December 2022, the solvency ratio for our Life businesses
was 130%. Whilst this solvency ratio has strengthened significantly
from 115% at 31 December 2021, the ratio at 31 December 2022
benefits from two temporary effects arising from the significant
investment market falls during the period:
-- a 8% positive impact from policyholder tax asymmetry, which
benefits our own funds and hence solvency ratio in the same way as
it benefits our IFRS result. For further details, refer to page 40;
and
-- a 2% positive effect of the equity dampener depressing the market risk capital component.
Excluding these temporary effects which will unwind as markets
improve, the solvency ratio for our Life businesses was 120%, which
is more closely aligned with prior periods.
Year ended Year ended
31 December 31 December
2022 2021
------------ ------------
GBP'Million GBP'Million
-------------------------------------------------- ------------ ------------
Underlying solvency ratio for our Life businesses 120% 115%
Impact of policyholder tax asymmetry 8% 7%
Effect of the equity dampener 2% -7%
-------------------------------------------------- ------------ --------------
Solvency ratio for our Life businesses 130% 115%
-------------------------------------------------- ------------ --------------
Taking into account entities in the rest of the Group, the Group
solvency ratio at 31 December 2022 was 155% (2021: 134%), with this
result also reflecting the positive impact of policyholder tax
asymmetry and equity dampener effects noted above.
-14-
Dividends
Our dividend guidance is to pay out around 70% of the Underlying
cash result in dividends. The strong growth in our Underlying cash
result for 2022 therefore drives a total dividend for 2022 of 52.78
pence per share, up c.2% on the total dividend for 2021, inclusive
of a proposed final dividend for 2022 of 37.19 pence per share.
The proposed final dividend will be paid, subject to approval by
shareholders at our AGM, on 31 May 2023 to shareholders on the
register as at the close of business on 5 May 2023. A Dividend
Reinvestment Plan continues to be available.
Craig Gentle , Chief Financial Officer
27 February 2023
-15-
Summary financial information
Year ended Year ended
Page 31 December 31 December
reference 2022 2021
------------------------------------------------------- ----------- ------------ ------------
FUM-based metrics
Gross inflows (GBP'Billion) 18 17.0 18.2
Net inflows (GBP'Billion) 18 9.8 11.0
Total FUM (GBP'Billion) 18 148.4 154.0
Total FUM in gestation (GBP'Billion) 19 45.5 49.3
-------------------------------------------------------- ---------- ------------ ------------
IFRS-based metrics
IFRS profit after tax (GBP'Million) 21 405.4 287.6
IFRS profit before shareholder tax (GBP'Million) 21 501.8 353.8
Underlying profit before shareholder tax (GBP'Million) 21 514.8 384.4
IFRS basic earnings per share (EPS) (Pence) 74.6 53.3
IFRS diluted EPS (Pence) 73.9 52.5
IFRS net asset value per share (Pence) 231.6 207.1
Dividend per share (Pence) 52.78 51.96
-------------------------------------------------------- ---------- ------------ ------------
Cash result-based metrics
Controllable expenses (GBP'Million) 26 277.9 264.6
Underlying cash result (GBP'Million) 25 410.1 401.2
Cash result (GBP'Million) 25 410.1 387.4
Underlying cash result basic EPS (Pence) 75.6 74.6
Underlying cash result diluted EPS (Pence) 74.9 73.5
-------------------------------------------------------- ---------- ------------ --------------
EEV-based metrics
EEV operating profit before tax (GBP'Million) 35 1,589.7 1,545.4
EEV operating profit after tax basic EPS (Pence) 218.8 219.9
EEV operating profit after tax diluted EPS
(Pence) 216.8 216.5
EEV net asset value per share (GBP) 16.66 16.57
-------------------------------------------------------- ---------- ------------ ------------
Solvency-based metrics
Solvency II net assets (GBP'Million) 40 1,379.9 1,245.3
Management solvency buffer (GBP'Million) 40 532.7 518.0
Solvency II free assets (GBP'Million) 40 1,921.4 1,323.4
Solvency ratio (Percentage) 40 155% 134%
-------------------------------------------------------- ---------- ------------ ------------
The Cash result should not be confused with the IFRS
Consolidated Statement of Cash Flows, which is prepared in
accordance with IAS 7.
-16-
Financial Review
This financial review provides analysis of the Group's financial
position and performance.
The Review is split into the following sections:
SECTION 1: FUNDS UNDER MANAGEMENT (FUM)
1.1 FUM analysis
1.2 Gestation
As set out below, FUM is a key driver of ongoing profitability
on all measures, and so information on growth in FUM is provided in
Section 1.
Find out more on pages 18 to 20.
SECTION 2: PERFORMANCE MEASUREMENT
2.1 International Financial Reporting Standards (IFRS)
2.2 Cash result
2.3 European Embedded Value (EEV)
Section 2 analyses the performance of the business using three
different bases: IFRS, the Cash result, and EEV.
Find out more on pages 21 to 39.
SECTION 3: SOLVENCY
Section 3 addresses solvency, which is an important area given
the multiple regulated activities carried out within the Group.
Find out more on pages 39 to 42.
Our financial business model
Our financial business model is straightforward. We generate
revenue by attracting clients through the value of our proposition,
who trust us with their investments and then stay with us. This
grows our funds under management (FUM), on which we receive:
-- advice charges for the provision of valuable, face-to-face advice; and
-- product charges for our manufactured investment, pension and ISA/unit trust products.
Further information on our charges can be found on our website:
www.sjp.co.uk/charges. A breakdown of fee and commission income,
our primary source of revenue under IFRS, is set out in Note 4 on
page 62.
The primary source of the Group's profit is the income we
receive from annual product management charges on FUM. As a result,
growth in FUM is a strong positive indicator of future growth in
profits. However, most of our investment and pension products are
structured so that annual product management charges are not taken
for the first six years after the business is written, so the
ongoing benefit of these gross inflows into FUM for a given year
will not be seen until six years later. This means that the Group
always has six years' worth of FUM in the 'gestation' period. FUM
subject to annual product management charges is known as 'mature'
FUM. More information about our FUM and the fees we earn on it can
be found in Sections 1 and 2 of the Financial Review on pages 18
and 21.
Initial and ongoing advice charges, and initial product charges
levied when a client first invests into one of our products, are
not major drivers of the Group's profitability, because:
-- most advice charges received are offset by corresponding
remuneration for Partners, so an increase in these revenue streams
will correspond with an increase in the associated expense and vice
versa; and
-- under IFRS, initial product charges are spread over the
expected life of the investment through deferred income (DIR - see
page 23 for further detail). The contribution to the IFRS result
from spreading these historic charges can be seen in Note 4 as
amortisation of DIR. Initial product charges contribute immediately
to our Cash result through margin arising on new business.
-17-
Our income is used to meet overheads, pay ongoing product
expenses and invest in the business. Controllable expenses, being
the costs of running the Group's infrastructure, the Academy and
development expenses, are carefully managed in line with our 2025
business plan ambition to limit their growth to 5% per annum. Other
ongoing expenses, including payments to Partners, increase with
business levels and are generally aligned with product charges.
-18-
Section 1 : Funds Under Management
1.1 FUM Analysis
Our financial business model is to attract and retain FUM, on
which we receive an annual management fee. As a result, the level
of income we receive is ultimately dependent on the value of our
FUM, and so its growth is a clear driver of future growth in
profits. The key drivers for FUM are:
-- our ability to attract new funds in the form of gross inflows;
-- our ability to retain FUM by keeping unplanned withdrawals at a low level; and
-- net investment returns.
The following table shows how FUM evolved during 2022 and 2021.
Investment return is presented net of all charges.
2022 2021
------------------------------------------ -------------------------------------------------- -----------
UT/ISA
Investment Pension and DFM Total Total
----------- ----------- ----------- ----------- -----------
GBP'Billion GBP'Billion GBP'Billion GBP'Billion GBP'Billion
------------------------------------------ ----------- ----------- ----------- ----------- -----------
Opening FUM 35.95 74.83 43.21 153.99 129.34
Gross inflows 2.31 9.90 4.82 17.03 18.20
Net investment return (3.15) (7.68) (4.57) (15.40) 13.61
Regular income withdrawals and maturities (0.29) (1.72) - (2.01) (2.00)
Surrenders and part-surrenders (1.53) (1.47) (2.24) (5.24) (5.16)
------------------------------------------ ----------- ----------- ----------- ----------- -----------
Closing FUM 33.29 73.86 41.22 148.37 153.99
------------------------------------------ ----------- ----------- ----------- ----------- -----------
Net inflows 0.49 6.71 2.58 9.78 11.04
Implied surrender rate as a percentage
of average FUM 4.4% 2.0% 5.3% 3.5% 3.6%
------------------------------------------ ----------- ----------- ----------- ----------- -----------
Included in the table above is:
-- Rowan Dartington Group FUM of GBP3.29 billion at 31 December
2022 (31 December 2021: GBP3.52 billion), gross inflows of GBP0.44
billion for the year (2021: GBP0.55 billion) and outflows of
GBP0.14 billion (2021: GBP0.14 billion); and
-- SJP Asia FUM of GBP1.52 billion at 31 December 2022 (31
December 2021: GBP1.57 billion), gross inflows of GBP0.28 billion
for the year (2021: GBP0.36 billion) and outflows of GBP0.10
billion (2021: GBP0.10 billion).
The following table shows the significant net inflows and the
progression of FUM over the past six years.
FUM as FUM as
at Net Investment Other at
1 January inflows return movements(1) 31 December
----- ----------- ----------- ----------- ------------- ------------
Year GBP'Billion GBP'Billion GBP'Billion GBP'Billion GBP'Billion
----- ----------- ----------- ----------- ------------- ------------
2022 154.0 9.8 (15.4) - 148.4
2021 129.3 11.0 13.7 - 154.0
2020 117.0 8.2 4.1 - 129.3
2019 95.6 9.0 12.4 - 117.0
2018 90.7 10.3 (5.4) - 95.6
2017 75.3 9.5 6.2 (0.3) 90.7
----- ----------- ----------- ----------- ------------- ------------
(1) Other movements in 2017 related to the matching strategy
disinvestment.
-19-
The table below provides a geographical and investment-type
analysis of FUM at 31 December.
31 December 2022 31 December 2021
-------------------------- ----------------------- -----------------------
Percentage Percentage
GBP'Billion of total GBP'Billion of total
-------------------------- ----------- ---------- ----------- ----------
North American equities 49.1 33% 47.3 31%
Fixed income securities 23.1 16% 25.4 16%
European equities 19.3 13% 17.8 11%
Asia and Pacific equities 17.8 12% 18.6 12%
UK equities 16.0 11% 21.5 14%
Alternative investments 12.4 8% 11.9 8%
Cash 5.7 4% 5.9 4%
Other 2.8 2% 3.0 2%
Property 2.2 1% 2.6 2%
-------------------------- ----------- ---------- ----------- ----------
Total 148.4 100% 154.0 100%
-------------------------- ----------- ---------- ----------- ----------
1.2 Gestation
As explained in our financial business model on page 17, due to
our product structure, at any given time there is a significant
amount of FUM that has not yet started to contribute to the Cash
result.
When we attract new FUM there is a margin arising on new
business that emerges at the point of investment, which is a
surplus of income over and above the initial costs incurred at the
outset. Within our Cash result presentation this is recognised as
it arises, but it is deferred under IFRS.
Once the margin arising on new business has been recognised the
pattern of future emergence of cash from annual product management
charges differs by product. Broadly, annual product management
charges from unit trust and ISA business begin contributing
positively to the Cash result from day one, whilst investment and
pensions business enters a six-year gestation period during which
no net income from FUM is included in the Cash result. Once this
business has reached its six-year maturity point, it starts
contributing positively to the Cash result, and will continue to do
so in each year that it remains with the Group. Approximately 54%
of gross inflows for 2022, after initial charges, moved into
gestation FUM (2021: 51%).
The following table shows an analysis of FUM, after initial
charges, split between mature FUM that is contributing net income
to the Cash result and FUM in gestation which is not yet
contributing, as at the year-end for the past five years. The value
of both mature and gestation FUM is impacted by investment return
as well as net inflows.
Gestation
FUM that
Mature FUM will contribute
contributing to the Cash
to result Total
the Cash result in the future FUM
---------------- ---------------- -----------
Position as at GBP'Billion GBP'Billion GBP'Billion
----------------- ---------------- ---------------- -----------
31 December 2022 102.9 45.5 148.4
31 December 2021 104.7 49.3 154.0
31 December 2020 85.9 43.4 129.3
31 December 2019 76.8 40.2 117.0
31 December 2018 62.1 33.5 95.6
----------------- ---------------- ---------------- -----------
The following table gives an indication, for illustrative
purposes, of the way in which the reduction in fees in the
gestation period element of the Cash result could unwind, and so
how the gestation balance of GBP45.5 billion at 31 December 2022
may start to contribute to the Cash result over the next six years
and beyond, factoring in the change
-20-
in the main rate of corporation tax to 25% from 1 April 2023.
For simplicity it assumes that FUM values remain unchanged, that
there are no surrenders, and that business is written at the start
of the year. Actual emergence in the Cash result will reflect the
varying business mix of the relevant cohort and business
experience.
Gestation
FUM future
contribution
to
the Cash
result
-------------
Year GBP'Million
------------- -------------
2023 47.9
2024 111.3
2025 176.2
2026 240.9
2027 310.5
2028 onwards 383.5
------------- -------------
-21-
Section 2 : Performance Measurement
In line with statutory reporting requirements we report profits
assessed on an IFRS basis. The presence of a significant life
insurance company within the Group means that, although we are a
wealth management group in substance with a simple business model,
we apply IFRS accounting requirements for insurance companies.
These requirements lead to Financial Statements which are more
complex than those of a typical wealth manager and so our IFRS
results may not provide the clearest presentation for users who are
trying to understand our wealth management business. Key examples
of this include the following:
-- our IFRS Statement of Comprehensive Income includes
policyholder tax balances which we are required to recognise as
part of our corporation tax arrangements. This means that our Group
IFRS profit before tax includes amounts charged to clients to meet
policyholder tax expenses, which are unrelated to the underlying
performance of our business; and
-- our IFRS Statement of Financial Position includes
policyholder liabilities and the corresponding assets held to match
them, and so policyholder liabilities increase or decrease to match
increases or decreases experienced on these assets. This means that
shareholders are not exposed to any gains or losses on the GBP148.1
billion of policyholder assets and liabilities recognised in our
IFRS Statement of Financial Position, which represented over 97% of
our IFRS total assets and liabilities at 31 December 2022.
To address this, we developed APMs with the objective of
stripping out the policyholder element to present solely
shareholder-impacting balances, as well as removing items such as
deferred acquisition costs and deferred income to reflect Solvency
II recognition requirements and to better match the way in which
cash emerges from the business. We therefore present our financial
performance and position on three different bases, using a range of
APMs to supplement our IFRS reporting. The three different bases,
which are consistent with those presented last year, are:
-- International Financial Reporting Standards (IFRS);
-- Cash result; and
-- European Embedded Value (EEV).
APMs are not defined by the relevant financial reporting
framework (which for the Group is IFRS), but we use them to provide
greater insight to the financial performance, financial position
and cash flows of the Group and the way it is managed. A complete
Glossary of Alternative Performance Measures is set out on pages 80
to 83, in which we define each APM used in our Financial Review,
explain why it is used and, if applicable, explain how the measure
can be reconciled to the IFRS Financial Statements.
2.1 International Financial Reporting Standards (IFRS)
As referenced above, our IFRS results are impacted by
policyholder tax balances which we are required to recognise as
part of our corporation tax arrangements. This means that our Group
IFRS profit before tax includes amounts charged to clients to meet
policyholder tax expenses, which are unrelated to the underlying
performance of our business. The scale and direction of these
amounts can vary significantly: for example in 2022 we were
required to refund GBP501.1 million to clients due to investment
market falls which flowed through our IFRS profit before tax as an
expense, whereas in 2021 we deducted GBP488.6 million from clients
due to investment market gains, which flowed through as income. See
Note 4 Fee and commission income for further information. This
leads to substantial distortion within our IFRS profit before tax:
for the year ended 31 December 2022 it was GBP0.7 million, compared
to GBP842.4 million for the year ended 31 December 2021.
To address the challenge of policyholder tax being included in
the IFRS results we focus on the following two APMs, based on IFRS,
as our pre-tax metrics:
-- IFRS profit before shareholder tax; and
-- underlying profit.
Further information on these IFRS-based measures is set out
below.
Profit before shareholder tax
This is a profit measure based on IFRS which aims to remove the
impact of policyholder tax. The policyholder tax expense or credit
is typically matched by an equivalent deduction or credit from the
relevant funds, which is recorded within fee and commission income
in the Consolidated Statement of Comprehensive Income. Policyholder
tax does
-22-
not therefore normally impact the Group's overall profit after
tax. The following table demonstrates the way in which IFRS profit
before shareholder tax is presented in the Consolidated Statement
of Comprehensive Income on page 52.
Year ended Year ended
31 December 31 December
2022 2021
------------ ------------
GBP'Million GBP'Million
----------------------------------- ------------ ------------
IFRS profit before tax 0.7 842.4
Policyholder tax 501.1 (488.6)
----------------------------------- ------------ ------------
IFRS profit before shareholder tax 501.8 353.8
Shareholder tax (96.4) (66.2)
----------------------------------- ------------ ------------
IFRS profit after tax 405.4 287.6
----------------------------------- ------------ ------------
However, in both the current and prior year IFRS profit before
shareholder tax and IFRS profit after tax have been impacted by
another nuance of life insurance tax, which has led to increases of
over 40% in each of these balances year-on-year.
As set out above, life insurance tax incorporates a policyholder
tax element, and the financial statements of a life insurance group
need to reflect the liability to HMRC and the corresponding
deductions incorporated into policy charges. In particular, the tax
liability to HMRC is assessed using IAS 12 Income Taxes, which does
not allow discounting, whereas the policy charges are designed to
ensure fair outcomes between clients and so reflect a wide range of
possible outcomes. This gives rise to different assessments of the
current value of future cash flows and hence an asymmetry in the
Consolidated Statement of Financial Position between the deferred
tax position and the offsetting client balance. The net balance
reflects a temporary position, and in the absence of market
volatility we expect it will unwind as future cash flows become
less uncertain and are ultimately realised. Movement in the
asymmetry is recognised in the Consolidated Statement of
Comprehensive Income and analysed in Note 4 Fee and commission
income. We refer to it as the impact of policyholder tax
asymmetry.
Under normal conditions this asymmetry is small, but market
volatility can result in significant balances. Market falls in
early 2020 led to positive movements in policyholder tax asymmetry.
Strong market growth in 2021 then resulted in a substantial unwind
of this asymmetry, which gave rise to a negative impact of GBP52.9
million on IFRS profit after tax and IFRS profit before shareholder
tax in the prior year. 2022 has again seen significant market
falls, resulting in a positive movement of GBP50.6 million. This
leads to a GBP103.5 million year-on-year difference in both IFRS
profit after tax and IFRS profit before shareholder tax.
Ultimately the effect will be eliminated from the Consolidated
Statement of Financial Position, and so it is temporary and we
expect it to reverse as markets increase again.
Shareholder tax reflects the tax charge attributable to
shareholders and is closely related to the performance of the
business. However, it can vary year-on-year due to several factors:
further detail is set out in Note 6 Income and deferred taxes.
Underlying profit
This is IFRS profit before shareholder tax (as calculated above)
adjusted to remove the impact of accounting for deferred
acquisition costs (DAC), deferred income (DIR) and the purchased
value of in-force business (PVIF).
IFRS requires certain up-front expenses incurred and income
received to be deferred. The deferred amounts are initially
recognised on the Statement of Financial Position as a DAC asset
and DIR liability, which are subsequently amortised to the
Statement of Comprehensive Income over a future period.
Substantially all of the Group's deferred expenses are amortised
over a 14-year period, and substantially all deferred income is
amortised over a six-year period.
The impact of accounting for DAC, DIR and PVIF in the IFRS
result is that there is a significant accounting timing difference
between the emergence of accounting profits and actual cash flows.
For this reason, Underlying profit is considered to be a helpful
metric.
-23-
The following table demonstrates the way in which IFRS profit
reconciles to Underlying profit:
Year ended Year ended
31 December 31 December
2022 2021
------------ ------------
GBP'Million GBP'Million
----------------------------------------------- ------------ ------------
IFRS profit before shareholder tax 501.8 353.8
Remove the impact of movements in DAC/DIR/PVIF 13.0 30.6
----------------------------------------------- ------------ ------------
Underlying profit before shareholder tax 514.8 384.4
----------------------------------------------- ------------ ------------
The impact of movements in DAC, DIR and PVIF on IFRS profit
before shareholder tax is further analysed as follows.
Year ended Year ended
31 December 31 December
2022 2021
------------ ------------
GBP'Million GBP'Million
--------------------------------- ------------ ------------
Amortisation of DAC (79.6) (86.1)
DAC on new business for the year 37.3 41.2
--------------------------------- ------------ ------------
Net impact of DAC (42.3) (44.9)
--------------------------------- ------------ ------------
Amortisation of DIR 166.2 164.8
DIR on new business for the year (133.7) (147.3)
--------------------------------- ------------ ------------
Net impact of DIR 32.5 17.5
--------------------------------- ------------ ------------
Amortisation of PVIF (3.2) (3.2)
--------------------------------- ------------ ------------
Movement in year (13.0) (30.6)
--------------------------------- ------------ ------------
Net impact of DAC
The scale of the GBP42.3 million negative overall impact of DAC
on the IFRS result (2021: negative GBP44.9 million) is largely due
to changes arising from the 2013 Retail Distribution Review (RDR).
After these changes, the level of expenses that qualified for
deferral reduced significantly, but the large balance accrued
previously is still being amortised. As deferred expenses are
amortised over a 14-year period there is a significant transition
period, which could last for another two or three years, over which
the amortisation of pre-RDR expenses previously deferred will
significantly outweigh new post-RDR expenses deferred despite
significant business growth, resulting in a net negative impact on
IFRS profits.
Net impact of DIR
The reduction in new business in the year means income deferred
in 2022 is lower than it was in 2021. Income released from the
deferred income liability has remained broadly static. Together,
these effects mean that DIR has had a positive GBP32.5 million
impact on the IFRS result in 2022 (2021: GBP17.5 million
positive).
-24-
2.2 Cash Result
The Cash result is used by the Board to assess and monitor the
level of cash profit (net of tax) generated by the business. It is
based on IFRS with adjustments made to exclude policyholder
balances and certain non-cash items, such as DAC, DIR, deferred tax
and equity-settled share-based payment costs. Further details,
including the full definition of the Cash result, can be found in
the Glossary of Alternative Performance Measures on pages 80 to 83.
Although the Cash result should not be confused with the IAS 7
Consolidated Statement of Cash Flows, it provides a helpful
supplementary view of the way in which cash is generated and
emerges within the Group.
The Cash result reconciles to Underlying profit, as presented in
Section 2.1, as follows:
Year ended
31 December Year ended
2022 31 December 2021
------------------------- -------------------------
Before Before
shareholder After shareholder After
tax tax tax tax
------------ ----------- ------------ -----------
GBP'Million GBP'Million GBP'Million GBP'Million
------------------------------------- ------------ ----------- ------------ -----------
Underlying profit 514.8 414.7 384.4 315.6
Equity-settled share-based payments 20.5 20.5 20.4 20.4
Impact of deferred tax - 30.5 - (0.5)
Impact of policyholder tax asymmetry (50.6) (50.6) 52.9 52.9
Other 0.8 (5.0) 2.9 (1.0)
------------------------------------- ------------ ----------- ------------ -----------
Cash result 485.5 410.1 460.6 387.4
------------------------------------- ------------ ----------- ------------ -----------
Equity-settled share-based payments have been static year on
year, reflecting an increase in the number of shares and share
options granted during the year, offset by lapse rate adjustments
for expected performance against scheme conditions.
The most significant impact of deferred tax is the recognition
in the Cash result of the benefit from realising tax relief on
capital losses and deferred expenses. This has already been
recognised under IFRS, and hence Underlying profit, through the
establishment of deferred tax assets. More information can be found
in Note 6.
The impact of policyholder tax asymmetry is a temporary effect
caused by asymmetries between fund tax deductions and the
policyholder tax due to HMRC. Movement in the asymmetry can be
significant in volatile markets such as were experienced in 2022.
For further explanation, refer to page 21.
Other represents a number of other small items, including the
difference between the lease expense recognised under IFRS 16
Leases and lease payments made.
The following table shows an analysis of the Cash result using
two different measures:
-- Underlying cash result
This measure represents the regular emergence of cash from the
business, excluding any items of a one-off nature and temporary
timing differences; and
-- Cash result
This measure includes items of a one-off nature and temporary
timing differences.
-25-
Consolidated cash result (presented post-tax)
Year ended
Year ended 31 December 31 December
2022 2021
-------------------------------------- ---- -------------------------------------- ------------
In-force New business Total Total
----------- ------------ ----------- ------------
Note GBP'Million GBP'Million GBP'Million GBP'Million
-------------------------------------- ---- ----------- ------------ ----------- ------------
Net annual management fee 1 961.0 59.6 1,020.6 1,001.6
Reduction in fees in gestation period 1 (412.9) - (412.9) (424.1)
-------------------------------------- ---- ----------- ------------ ----------- ------------
Net income from FUM 1 548.1 59.6 607.7 577.5
Margin arising from new business 2 - 122.4 122.4 146.4
Controllable expenses 3 (19.9) (258.0) (277.9) (264.6)
Asia - net investment 4 - (11.3) (11.3) (13.6)
DFM - net investment 4 - (10.9) (10.9) (9.6)
Regulatory fees and FSCS levy 5 (4.0) (36.0) (40.0) (37.8)
Shareholder interest 6 15.9 - 15.9 6.2
Tax relief from capital losses 7 20.7 - 20.7 9.2
Miscellaneous 8 (16.5) - (16.5) (12.5)
-------------------------------------- ---- ----------- ------------ ----------- ------------
Underlying cash result 544.3 (134.2) 410.1 401.2
Restructuring 9 - - - (9.7)
Change in capitalisation policy 10 - - - (4.1)
Cash result 544.3 (134.2) 410.1 387.4
-------------------------------------- ---- ----------- ------------ ----------- ------------
Notes to the Cash result
1. Net income from FUM
The net annual management fee is the net manufacturing margin
that the Group retains from FUM after payment of the associated
costs: for example, investment advisory fees and Partner
remuneration. Each product has standard fees, but they vary between
products. Overall post-tax margin on FUM reflects business mix but
also the different tax treatment, particularly life insurance tax
on onshore investment business.
As noted on page 16 however, our investment and pension business
product structure means that these products do not generate net
Cash result, after the margin arising from new business, during the
first six years. This is known as the 'gestation period' and is
reflected in the reduction in fees in gestation period line.
Net income from FUM reflects Cash result income from FUM that
has reached maturity, including FUM which has emerged from the
gestation period during the year, and this line is the focus of our
explanatory analysis. As with net annual management fees, the
average rate can vary over time with business mix and tax. For
2022, our net income from FUM is within our range of 0.63% - 0.65%.
As this is a post-tax margin, the increase in the main rate of
corporation tax from 19% to 25% from 1 April 2023 will result in
the net income from FUM margin moving to a range of 0.59% - 0.61%
for 2023. There will be another, more modest impact in 2024 when
the tax rate will be 25% for the full year.
Net income from Asia and DFM FUM is not included in this line.
Instead, this is included in the Asia - net investment and DFM -
net investment lines.
2. Margin arising from new business
This is the net positive Cash result impact of new business in
the year, reflecting initial charges levied on gross inflows and
new-business-related expenses. The majority of these expenses vary
with new business levels, such as the incremental third-party
administration costs of setting up a new policy on our back-office
systems, and payments to Partners for the initial advice provided
to secure clients' investment. As a result, gross inflows are a key
driver behind this line.
-26-
However, the margin arising from new business also contains some
fixed expenses, and elements which do not vary exactly in line with
gross inflows. For example, our third-party administration tariff
structure includes a fixed fee, and to provide some stability for
Partner businesses, elements of our support for them are linked to
prior-year new business levels.
Therefore, whilst the margin arising from new business tends to
move directionally with the scale of gross inflows generated during
the year, the relationship between the two is not linear.
3. Controllable expenses
Year ended Year ended
31 December 31 December
2022 2021
------------ ------------
GBP'Million GBP'Million
----------------------- ------------ ------------
Establishment expenses 198.9 200.3
Development expenses 67.4 54.0
Academy 11.6 10.3
----------------------- ------------ ------------
Controllable expenses 277.9 264.6
----------------------- ------------ ------------
As stated in the Chief Financial Officer's Report, as part of
the 2025 business planning assumptions we set our ambition to
contain growth in controllable expenses to around 5% per annum.
Controllable expenses, which are the categories shown in the table
above (stated after tax), are a key metric for the business and we
are pleased to have delivered against our guidance despite the high
inflationary environment, with these costs increasing by 5% to
GBP277.9 million.
Establishment expenses in 2022 were broadly flat year on year at
GBP198.9 million (2021: GBP200.3 million). These costs
predominantly relate to people, property and technology and hence
are relatively fixed in nature.
Development expenses were GBP67.4 million (2021: GBP54.0
million). Our investment in technology, alongside our commitment to
making it easier to do business, is the driver behind the increase
in our development expenses. We continue to improve our technology
infrastructure and data quality, and to invest in Salesforce. We
have also seen the successful phased launch of our new client app
during the year.
Reflecting its critical role in providing a source of future
organic growth in our adviser population, we continue to invest in
building our Academy programme. The transition to a hybrid format,
where we combine in-class learning with greater digital content,
has meant we have been able to scale up our Academy programmes
efficiently.
4. Asia and DFM
T hese lines represent the net income from Asia and DFM FUM.
They include the Asia and DFM expenses set out in the
reconciliation on page 28 between expenses presented separately on
the face of the Cash result before tax and IFRS expenses.
We have continued to invest in developing our presence in Asia,
as well as in discretionary fund management via Rowan Dartington
both in the UK and overseas. Whilst both have been impacted by the
challenging market conditions in 2022, they have each achieved
outcomes broadly in line with prior guidance and are positioned
well for the years ahead.
-27-
5. Regulatory fees and FSCS levy
The costs of operating in a regulated sector include regulatory
fees and the Financial Services Compensation Scheme (FSCS) levy. On
a post-tax basis, these are as follows:
Year ended Year ended
31 December 31 December
2022 2021
------------ ------------
GBP'Million GBP'Million
------------------------------ ------------ ------------
FSCS levy 27.3 28.1
Regulatory fees 12.7 9.7
------------------------------ ------------ ------------
Regulatory fees and FSCS levy 40.0 37.8
------------------------------ ------------ ------------
Our position as a market-leading provider of advice means we
make a very substantial contribution to supporting the FSCS,
thereby providing protection for clients of other businesses in the
sector that fail. Whilst the FSCS levy across the industry has
fallen significantly for the current year, our charge has only
reduced modestly due to substantial gains in our market share.
6. Shareholder interest
This is the income accruing on the investments and cash held for
regulatory purposes together with the interest received on the
surplus capital held by the Group. It is presented net of
funding-related expenses, including interest paid on borrowings and
securitisation costs. It has increased significantly during the
year following rises in the Bank of England base rate.
7. Tax relief from capital losses
A deferred tax asset has been recognised under IFRS for historic
capital losses which were regarded as being capable of utilisation
over the medium term. The tax asset is ignored for Cash result
purposes as it is not fungible, but instead the cash benefit
realised when losses are utilised is shown in the tax relief from
capital losses line.
Utilisation during the year of GBP20.7 million tax value (2021:
GBP9.2 million) arose due to the market conditions prevailing at 31
December 2022. The remaining tax value of capital losses stands at
GBP2.1 million (31 December 2021: GBP26.8 million), which we expect
to utilise in 2023.
8. Miscellaneous
This category represents the net cash flow of the business not
covered in any of the other categories. It includes Group
contributions to the St. James's Place Charitable Foundation and
movements in the fair value of renewal income assets.
9. Restructuring
In 2021 we recognised the one-off cost of a restructuring
exercise associated with an employee redundancy programme in the
year. As expected, there were no such costs for 2022.
10. Change in capitalisation policy
In 2021 we recognised a further one-off cost of GBP4.1 million
as a result of the International Financial Reporting Standards
Interpretations Committee providing additional guidance on the
recognition of software configuration costs. In line with the wider
industry we reflected this guidance in a change in capitalisation
policy . Again as expected, there were no such costs for 2022.
-28-
Reconciliation of Cash result expenses to IFRS expenses
Whilst certain expenses are recognised in separate line items on
the face of the Cash result, expenses which vary with business
volumes, such as payments to Partners and third-party
administration expenses, and expenses which relate to investment in
specific areas of the business such as DFM, are netted from the
relevant income lines rather than presented separately. In order to
reconcile to the IFRS expenses presented on the face of the
Consolidated Statement of Comprehensive Income on page 52, the
expenses netted from income lines in the Cash result need to be
added in, as do certain IFRS expenses which by definition are not
included in the Cash result. In addition, all expenses need to be
converted from post-tax, as they are presented in the Cash result,
to pre-tax, as they are presented under IFRS.
Expenses presented on the face of the Cash result before and
after tax are set out below:
Year ended 31 December Year ended 31 December
2022 2021
------------------------------------ ------------------------------------ ------------------------------------
Before After Before After
tax Tax rate tax tax Tax rate tax
----------- ---------- ----------- ----------- ---------- -----------
GBP'Million Percentage GBP'Million GBP'Million Percentage GBP'Million
------------------------------------ ----------- ---------- ----------- ----------- ---------- -----------
Controllable expenses
Establishment expenses 245.5 19.0% 198.9 247.3 19.0% 200.3
Development expenses 83.2 19.0% 67.4 66.7 19.0% 54.0
Academy 14.3 19.0% 11.6 12.7 19.0% 10.3
------------------------------------ ----------- ---------- ----------- ----------- ---------- -----------
Total controllable expenses 343.0 277.9 326.7 264.6
------------------------------------ ----------- ---------- ----------- ----------- ---------- -----------
Other costs presented separately on
the face of the Cash result
Regulatory fees and FSCS levy 49.4 19.0% 40.0 46.6 19.0% 37.8
Restructuring - - - 12.0 19.0% 9.7
Change in capitalisation policy - - - 5.1 19.0% 4.1
Total expenses presented separately
on the face of the Cash result 392.4 317.9 390.4 316.2
------------------------------------ ----------- ---------- ----------- ----------- ---------- -----------
The total expenses presented separately on the face of the Cash
result before tax then reconciles to IFRS expenses as set out
below:
Year ended Year ended
31 December 31 December
2022 2021
------------ ------------
GBP'Million GBP'Million
--------------------------------------------------- ------------ ------------
Total expenses presented separately on the face
of the Cash result before tax 392.4 390.4
Expenses which vary with business volumes
Other performance-related costs 160.4 145.0
Payments to Partners 1,011.8 988.0
Investment expenses 85.7 88.0
Third-party administration 135.0 128.0
Other 57.0 64.3
Expenses relating to investment in specific areas
of the business
Asia expenses 20.9 23.3
DFM expenses 35.7 31.0
--------------------------------------------------- ------------ ------------
Total expenses included in the Cash result 1,898.9 1,858.0
--------------------------------------------------- ------------ ------------
Expenses which are not included in the Cash result
Amortisation of DAC and PVIF, net of additions 45.5 48.1
Equity-settled share-based payments expenses 20.5 20.4
Other 1.3 4.8
--------------------------------------------------- ------------ ------------
Total IFRS Group expenses before tax 1,966.2 1,931.3
--------------------------------------------------- ------------ ------------
-29-
Expenses which vary with business volumes
Other performance-related costs , for both Partners and
employees, vary with the level of new business and the operating
profit performance of the business. Payments to Partners,
investment expenses and third-party administration costs are met
through charges to clients, and so any variation in them from
changes in the volumes of new business or the level of the stock
markets does not impact Group profitability significantly.
Each of these items is recognised within the most relevant line
of the Cash result, which is determined based on the nature of the
expense. In most cases, this is either the net annual management
fee or margin arising from new business lines.
Other expenses include interest expense and bank charges,
operating costs of acquired financial adviser businesses and
donations to the St. James's Place Charitable Foundation. They are
recognised across various lines in the Cash result, including
shareholder interest and miscellaneous.
Expenses relating to investment in specific areas of the
business
Asia expenses and DFM expenses both reflect disciplined expense
control during the year, whilst continuing to invest to support
growth. Such investment will continue going forward.
In the Cash result, Asia and DFM expenses are presented net of
the income they generate in the Asia - net investment and DFM - net
investment lines.
Expenses which are not included in the Cash result
DAC amortisation, net of additions, PVIF amortisation and
equity-settled share-based payment expenses are the primary
expenses which are recognised under IFRS but are excluded from the
Cash result.
-30-
Derivation of the Cash result
The Cash result is derived from the IFRS Consolidated Statement
of Financial Position in a two-stage process:
Stage 1: Solvency II Net Assets Balance Sheet
Firstly, the IFRS Consolidated Statement of Financial Position
is adjusted for a number of material balances that reflect
policyholder interests in unit-linked liabilities together with the
underlying assets that are held to match them. Secondly, it is
adjusted for a number of non-cash 'accounting' balances such as
DIR, DAC and associated deferred tax. The result of these
adjustments is the Solvency II Net Assets Balance Sheet and the
following table shows the way in which it has been calculated at 31
December 2022.
Solvency Solvency
II II
IFRS Net Assets Net Assets
Balance Adjustment Adjustment Balance Balance Sheet:
Sheet 1 2 Sheet 2021
----------- ----------- ----------- ----------- ---------------
31 December 2022 Note GBP'Million GBP'Million GBP'Million GBP'Million GBP'Million
------------------------------------ ---- ----------- ----------- ----------- ----------- ---------------
Assets
Goodwill 33.6 - (33.6) - -
Deferred acquisition costs 337.3 - (337.3) - -
Purchased value of in-force
business 11.2 - (11.2) - -
Computer software 33.3 - (33.3) - -
Property and equipment 1 145.7 - - 145.7 154.5
Deferred tax assets 2 13.9 - (11.4) 2.5 5.0
Investment in associates 1.4 - - 1.4 1.4
Reinsurance assets 66.4 - (66.4) - -
Other receivables 3 2,982.8 (1,604.8) (3.2) 1,374.8 1,587.6
Income tax assets 6 35.0 - - 35.0 -
Investment property 1,294.5 (1,294.5) - - -
Equities 103,536.0 (103,536.0) - - -
Fixed income securities 4 27,552.7 (27,544.8) - 7.9 7.8
Investment in Collective Investment
Schemes 4 5,735.4 (4,463.7) - 1,271.7 1,605.3
Derivative financial instruments 3,493.0 (3,493.0) - - -
Cash and cash equivalents 4 6,432.8 (6,179.5) - 253.3 245.7
------------------------------------ ---- ----------- ----------- ----------- ----------- ---------------
Total assets 151,705.0 (148,116.3) (496.4) 3,092.3 3,607.3
------------------------------------ ---- ----------- ----------- ----------- ----------- ---------------
Liabilities
Borrowings 5 163.8 - - 163.8 433.0
Deferred tax liabilities 2 162.9 - 2.2 165.1 624.4
Insurance contract liabilities 483.5 (414.9) (68.6) - -
Deferred income 530.4 - (530.4) - -
Other provisions 46.0 - - 46.0 44.1
1,
Other payables 3 2,198.6 (842.0) (19.1) 1,337.5 1,254.4
Investment contract benefits 106,964.7 (106,964.7) - - -
Derivative financial instruments 3,266.3 (3,266.3) - - -
Net asset value attributable
to unit holders 36,628.4 (36,628.4) - - -
Income tax liabilities 6 - - - - 6.1
Total liabilities 150,444.6 (148,116.3) (615.9) 1,712.4 2,362.0
------------------------------------ ---- ----------- ----------- ----------- ----------- ---------------
Net assets 1,260.4 - 119.5 1,379.9 1,245.3
------------------------------------ ---- ----------- ----------- ----------- ----------- ---------------
-31-
Adjustment 1 strips out the policyholder interest in unit-linked
assets and liabilities, to present solely shareholder-impacting
balances.
Adjustment 2 removes items such as DAC, DIR, PVIF and their
associated deferred tax balances from the IFRS Statement of
Financial Position to bring it in line with Solvency II recognition
requirements.
Notes to the Solvency II Net Assets Balance Sheet
1. Property and equipment, and other payables
GBP114.4 million (2021: GBP120.3 million) of the property and
equipment balance represents the right to use leased assets. It has
decreased year-on-year as the leased assets are depreciated. Lease
liabilities of GBP116.6 million are recognised within the other
payables line (2021: GBP124.1 million). These have decreased as
lease payments are made.
Note 8 Other payables to the IFRS Financial Statements provide
further detail on lease liabilities.
2. Deferred tax assets and liabilities
Analysis of deferred tax assets and liabilities, including how
they have moved year on year, is set out in Note 6 Income and
deferred taxes within the IFRS Financial Statements.
3. Other receivables and other payables
Detailed breakdowns of other receivables and other payables can
be found in Note 7 Other receivables and Note 8 Other payables
within the IFRS Financial Statements.
Other receivables on the Solvency II Net Assets Balance Sheet
have decreased from GBP1,587.6 million at 31 December 2021 to
GBP1,374.8 million at 31 December 2022, principally reflecting the
sale to a third-party of a portfolio of business loans to Partners.
Further information on business loans to Partners and the sale
during the year is set out overleaf and in Note 7 Other
receivables.
Within other receivables there are two items which merit further
analysis:
Operational readiness prepayment asset
One of the items within other receivables is the operational
readiness prepayment asset. This arose from the investment we have
made into our back-office infrastructure project, which was a
complex, multi-year programme. In addition to expensing our
internal project costs through the IFRS Statement of Comprehensive
Income and Cash result as incurred, we have capitalised Bluedoor
development costs as a prepayment asset on the IFRS Statement of
Financial Position. The asset, which stood at GBP278.3 million at
31 December 2022 (31 December 2021: GBP296.3 million) has been
amortising through the IFRS Statement of Comprehensive Income and
the Cash result since 2017 and will continue to do so over the
remaining life of the contract, which at 31 December 2022 is 11
years.
During 2022 a project to migrate our offshore business onto
Bluedoor commenced, which added GBP6.7 million to the total
operational readiness prepayment asset. We expect to add
approximately GBP40 million to the total operational readiness
prepayment over the course of the project.
-32-
The movement schedule below demonstrates how the operational
readiness prepayment has developed over the past two years.
2022 2021
----------- -----------
GBP'Million GBP'Million
----------------------------- ----------- -----------
Cost
At 1 January 413.5 406.6
Additions during the year 6.7 6.9
----------------------------- ----------- -----------
At 31 December 420.2 413.5
----------------------------- ----------- -----------
Accumulated amortisation
At 1 January (117.2) (92.7)
Amortisation during the year (24.7) (24.5)
----------------------------- ----------- -----------
At 31 December (141.9) (117.2)
----------------------------- ----------- -----------
Net book value 278.3 296.3
----------------------------- ----------- -----------
The amortisation expense is recognised within third-party
administration expenses in the IFRS result, and within the net
annual management fee and margin arising from new business lines of
the Cash result. It is more than offset by the lower tariff charges
on Bluedoor compared to the previous system, which grow as the
business grows, benefiting both the IFRS and Cash results.
Business loans to Partners
Facilitating business loans to Partners is a key way in which we
are able to support growing Partner businesses. Such loans are
principally used to enable Partners to take over the businesses of
retiring or downsizing Partners, and this process creates broad
stakeholder benefits. First, clients benefit from enhanced
continuity of St. James's Place advice and service over time;
second, Partners are able to build and ultimately realise value in
the high-quality and sustainable businesses they have created; and
finally, the Group and, in turn, shareholders, benefit from high
levels of adviser and client retention.
In addition to recognising a strong business case for
facilitating such lending, we recognise too the fundamental
strength and credit quality of business loans to Partners. Over
more than ten years, cumulative write-offs have totalled less than
5bps of gross loans advanced, with such low impairment experience
attributable to a number of factors that help to mitigate the
inherent credit risk in lending. These include taking a cautious
approach to Group credit decisions, with lending secured against
prudent business valuations. Demonstrating this, loan-to-value
(LTV) information is set out in the table below.
31 December 31 December
2022 2021
------------------------------------------------------------ ------------ ------------
Aggregate LTV across the total Partner lending
book 32% 29%
Proportion of the book where LTV is over 75% 10% 7%
Net exposure to loans where LTV is over 100% (GBP'Million) 6.3 4.6
------------------------------------------------------------ ------------ ------------
If FUM were to decrease by 10%, the net exposure to loans where
LTV is over 100% at 31 December 2022 would increase to GBP9.3
million (31 December 2021: increase to GBP6.6 million).
Our credit experience also benefits from the repayment structure
of business loans to Partners. The Group collects advice charges
from clients. Prior to making the associated payment to Partners,
we deduct loan capital and interest payments from the amount due.
This means the Group is able to control repayments.
-33-
During the year we have continued to facilitate business loans
to Partners. However, the balance has decreased significantly due
to the sale to a third-party of a portfolio of GBP262.5 million
business loans to Partners previously recognised on the
Consolidated Statement of Financial Position. Further information
is provided in Note 7 Other receivables.
31 December 31 December
2022 2021
------------ ------------
GBP'Million GBP'Million
----------------------------------------------- ------------ ------------
Total business loans to Partners 315.6 521.6
Split by funding type:
Business loans to Partners directly funded by
the Group 315.6 307.6
Securitised business loans to Partners - 214.0
----------------------------------------------- ------------ ------------
4. Liquidity
Cash generated by the business is held in highly rated
government securities, AAA-rated money market funds, and bank
accounts. Although these are all highly liquid, only the latter is
classified as cash and cash equivalents on the Solvency II Net
Assets Balance Sheet. The total liquid assets held are as
follows:
31 December 31 December
2022 2021
----------- -----------
GBP'Million GBP'Million
------------------------------------------------------- ----------- -----------
Fixed interest securities 7.9 7.8
Investment in Collective Investment Schemes (AAA-rated
money market funds) 1,271.7 1,605.3
Cash and cash equivalents 253.3 245.7
------------------------------------------------------- ----------- -----------
Total liquid assets 1,532.9 1,858.8
------------------------------------------------------- ----------- -----------
The Group's primary source of net cash generation is product
charges. In line with profit generation, as most of our investment
and pension business enters a gestation period, there is no cash
generated (apart from initial charges) for the first six years of
an investment. This means that the amount of cash generated will
increase year on year as FUM in the gestation period becomes mature
and is subject to annual product management charges. Unit trust and
ISA business does not enter the gestation period, and so generates
cash immediately from the point of investment.
Cash is used to invest in the business and to pay the Group
dividend. Our dividend guidance is set such that appropriate cash
is retained in the business to support the investment needed to
meet our future growth aspirations.
Our most significant investment in the business in recent years
has been the development of Bluedoor, which has had a substantial
impact on our liquid assets and borrowings positions. This project
and all associated decommissioning was completed in relation to our
UK business in 2020. As noted on page 31, a project to migrate our
offshore business onto Bluedoor commenced during the year. This is
much smaller in scale than the migration of our UK business and so
will have limited impact on liquidity and borrowings.
5. Borrowings
The Group continues to pursue a strategy of diversifying and
broadening its access to debt finance. We have done this
successfully over time, including via the creation and execution of
the securitisation vehicle referred to in previous years. For
accounting purposes we are obliged to disclose on our Consolidated
Statement of Financial Position the value of loan notes relating to
the securitisation. Due to the sale during the year of a portfolio
of business loans to Partners backing these loan notes, this
balance was repaid in full during the year and so is negligible at
31 December 2022; but in the prior year the balance of GBP162.4
million inflated the reported level of borrowings. However, as the
securitisation loan notes were secured only on the securitised
portfolio of business loans to Partners, they were non-recourse to
the Group's other assets.
This means that the senior tranche of non-recourse
securitisation loan notes, whilst included within borrowing, were
very different from the Group's senior unsecured corporate
borrowings, which are used to manage working capital and fund
investment in the business. Senior unsecured corporate borrowings
reduced from GBP270.6 million at 31 December 2021 to GBP163.8
million at 31 December 2022, driven by the cash realised from the
sale of the portfolio of business loans to Partners. Further
information is provided in Note 9 Borrowings and financial
commitments within the IFRS Financial Statements.
-34-
31 December 31 December
2022 2021
----------- -----------
GBP'Million GBP'Million
--------------------------------------------------------- ----------- -----------
Corporate borrowings: bank loans - 106.8
Corporate borrowings: loan notes 163.8 163.8
--------------------------------------------------------- ----------- -----------
Senior unsecured corporate borrowings 163.8 270.6
Senior tranche of non-recourse securitisation loan notes - 162.4
--------------------------------------------------------- ----------- -----------
Total borrowings 163.8 433.0
--------------------------------------------------------- ----------- -----------
During the year our revolving credit facility, one of our
primary senior unsecured corporate borrowings facilities, was
renewed. The facility increased from GBP340 million to GBP345
million, which is repayable at maturity in 2027.
6. Income tax liabilities
The Group has an income tax asset of GBP35.0 million at 31
December 2022 compared to a liability of GBP6.1 million at 31
December 2021. This is due to a current tax charge of GBP79.7
million, tax paid of GBP121.1 million and the impact of
acquisitions and disposals of Group entities of a GBP0.3 million
charge during the year. Further detail is provided in Note 6 Income
and deferred taxes.
Stage 2: Movement in Solvency II Net Assets Balance Sheet
After the Solvency II Net Assets Balance Sheet has been
determined, the second stage in the derivation of the Cash result
identifies a number of movements in that balance sheet which do not
represent cash flows for inclusion within the Cash result. The
following table explains how the overall Cash result reconciles to
the total movement.
Year ended Year ended
31 December 31 December
2022 2021
------------ ------------
GBP'Million GBP'Million
------------------------------------------------------------- ------------ ------------
Opening Solvency II net assets 1,245.3 1,218.6
Dividend paid (303.9) (329.9)
Issue of share capital and exercise of options 14.5 29.0
Consideration paid for own shares (0.3) -
Change in deferred tax (30.5) 0.5
Impact of policyholder tax asymmetry 50.6 (52.9)
Change in goodwill, intangibles and other non-cash movements (10.9) (7.4)
Non-controlling interests arising on the part-disposal
of subsidiaries 5.0 -
Cash result 410.1 387.4
------------------------------------------------------------- ------------ ------------
Closing Solvency II net assets 1,379.9 1,245.3
------------------------------------------------------------- ------------ ------------
-35-
2.3 European Embedded Value (EEV)
Wealth management differs from most other businesses, in that
the expected shareholder income from client investment activity
emerges over a long period in the future. We therefore supplement
the IFRS and Cash results by providing additional disclosure on an
EEV basis, which brings into account the net present value of the
expected future cash flows. We believe that a measure of the total
economic value of the Group's operating performance is useful to
investors.
As in previous reporting, our EEV continues to be calculated on
a basis determined in accordance with the EEV principles originally
issued in May 2004 by the Chief Financial Officers Forum (CFO
Forum) and supplemented both in October 2005 and, following the
introduction of Solvency II, in April 2016.
Many of the principles and practices underlying EEV are similar
to the requirements of Solvency II, and we have sought to align
them as closely as possible. The table below and accompanying notes
summarise the profit before tax of the combined business.
Year ended Year ended
31 December 31 December
2022 2021
------------ ------------
Note GBP'Million GBP'Million
---------------------------- ---- ------------ ------------
Funds management business 1 1,725.8 1,662.9
Distribution business 2 (58.8) (24.4)
Other (77.3) (93.1)
---------------------------- ---- ------------ ------------
EEV operating profit 1,589.7 1,545.4
Investment return variance 3 (1,314.0) 894.5
Economic assumption changes 4 235.1 4.2
---------------------------- ---- ------------ ------------
EEV profit before tax 510.8 2,444.1
Tax (139.4) (578.7)
Corporation tax rate change 5 - (412.7)
---------------------------- ---- ------------ ------------
EEV profit after tax 371.4 1,452.7
---------------------------- ---- ------------ ------------
A reconciliation between EEV operating profit before tax and
IFRS profit before tax is provided in Note 3 Segment Reporting
within the IFRS Financial Statements.
Notes to the EEV result
1. Funds management business EEV operating profit
The funds management business operating profit has increased to
GBP1,725.8 million (2021: GBP1,662.9 million) and a full analysis
of the result is shown below:
Year ended Year ended
31 December 31 December
2022 2021
-------------------------------------- ------------ ------------
GBP'Million GBP'Million
-------------------------------------- ------------ ------------
New business contribution 977.2 1,002.2
Profit from existing business
- unwind of the discount rate 440.7 275.8
- experience variance 89.0 89.5
- operating assumption change 210.1 293.0
Investment income 8.8 2.4
-------------------------------------- ------------ ------------
Funds management EEV operating profit 1,725.8 1,662.9
-------------------------------------- ------------ ------------
-36-
The new business contribution for the year at GBP977.2 million
(2021: GBP1,002.2 million) was 2.5% lower than the prior year,
primarily reflecting the reduction in new business volumes.
The unwind of the discount rate for the year was higher at
GBP440.7 million (2021: GBP275.8 million), reflecting the larger
in-force book at the start of 2022 compared to 2021, and an
increase in the opening risk discount rate to 4.2% (2021:
3.4%).
The experience variance during the year was GBP89.0 million
(2021: GBP89.5 million). This reflects positive retention
experience over the year partially offset by increased development
expenses.
The impact of operating assumption changes in the year was a
positive GBP210.1 million (2021: positive GBP293.0 million). The
change in the current year arises from a small improvement to the
persistency assumptions for unit trust and ISA business, similar to
the change in 2021 which arose due to a small improvement to the
persistency assumptions for onshore bond and pension business. Both
of the changes reflect positive retention experience over recent
years. No further changes to persistency assumptions are expected
in the short to medium term.
2. Distribution business
The distribution loss includes the positive gross margin arising
from advice income less payments to advisers, offset by the costs
of supporting the Partnership and building the distribution
capabilities in Asia. The gross margin has decreased year on year
reflecting lower new business volumes and the fact that some
elements of our support for the Partnership are linked to
prior-year new business levels. The FSCS levy expense for our
distribution business remained high at GBP23.8 million (2021:
GBP23.6 million), impacting the reported loss.
3. 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 FUM, a small difference can result in a large positive or
negative variance.
The typical investment return on our funds during the year was
negative 9% after charges, compared to the assumed investment
return of positive 2%. This resulted in a negative investment
return variance of GBP1,314.0 million (2021: positive GBP894.5
million).
4. Economic assumption changes
The positive variance of GBP235.1 million arising in the year
(2021: positive GBP4.2 million) reflects the positive effect from
the increase in the risk-free rate, combined with a decrease in the
expected long-term rate of inflation.
5. Corporation tax rate change
In the UK Budget of 3 March 2021 it was announced that the main
rate of corporation tax will increase from 19% to 25% with effect
from 1 April 2023. This change was substantively enacted on 24 May
2021 within the Finance Bill 2021 and as a result the relevant
deferred tax balances were remeasured in the prior year.
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 (the 'margin'). This is calculated as the new business
contribution divided by the gross inflows, and is expressed as a
percentage.
The table below presents the margin before tax from our
manufactured business:
-37-
Year ended Year ended
31 December 31 December
2022 2021
---------------------------------------- ------------ ------------
Investment
New business contribution (GBP'Million) 148.2 153.0
Gross inflows (GBP'Billion) 2.31 2.62
Margin (%) 6.4 5.8
---------------------------------------- ------------ ------------
Pension
New business contribution (GBP'Million) 495.3 512.0
Gross inflows (GBP'Billion) 9.90 9.86
Margin (%) 5.0 5.2
---------------------------------------- ------------ ------------
Unit trust and DFM
New business contribution (GBP'Million) 333.7 337.2
Gross inflows (GBP'Billion) 4.82 5.72
Margin (%) 6.9 5.9
---------------------------------------- ------------ ------------
Total business
New business contribution (GBP'Million) 977.2 1,002.2
Gross inflows (GBP'Billion) 17.03 18.20
Margin (%) 5.7 5.5
Post-tax margin (%) 4.3 4.2
---------------------------------------- ------------ ------------
The overall margin for the year was 5.7% (2021: 5.5%). The
improvement year on year is due to a combination of the positive
impact of the change in persistency for unit trust and ISA
business, and controlled expenses.
Economic assumptions
The principal economic assumptions used within the cash flows at
31 December are set out below:
Year ended Year ended
31 December 31 December
2022 2021
--------------------------- ------------ ------------
Risk-free rate 3.9% 1.1%
Inflation rate 3.6% 4.0%
Risk discount rate 7.0% 4.2%
Future investment returns:
- Gilts 3.9% 1.1%
- Equities 6.9% 4.1%
- Unit-linked funds 6.2% 3.4%
Expense inflation 3.9% 4.4%
--------------------------- ------------ ------------
The risk-free rate is set by reference to the yield on ten-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 ten-year index-linked gilts. This rate is increased to
reflect higher increases in earnings-related expenses.
-38-
EEV sensitivities
The table below shows the estimated impact on the 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
Change in new business European Embedded
contribution Value
---------------------------------------- ---- ------------------------ ------------------
Pre-tax Post-tax Post-tax
----------- ----------- ------------------
Note GBP'Million GBP'Million GBP'Million
---------------------------------------- ---- ----------- ----------- ------------------
Value at 31 December 2022 977.2 739.2 9,064.7
100bp reduction in risk-free rates,
with corresponding change
in fixed interest asset values 1 (16.9) (12.9) (77.5)
10% increase in withdrawal rates 2 (75.7) (57.1) (479.5)
10% reduction in market value of equity
assets 3 - - (865.3)
10% increase in expenses 4 (15.7) (11.9) (90.6)
100bps increase in assumed inflation 5 (20.8) (15.8) (104.0)
---------------------------------------- ---- ----------- ----------- ------------------
Notes to the EEV sensitivities
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.
2. The 10% increase is applied to the withdrawal rate. For
instance, if the withdrawal rate is 8% then a 10% increase would
reflect a change to 8.8%.
3. For the purposes of this 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%.
4. For the purposes of this sensitivity only non-fixed elements
of the expenses are increased by 10%.
5. This reflects a 100bps increase in the assumed RPI underlying
the expense inflation calculation.
Change in
Change in new business European Embedded
contribution Value
--------------------------------------- ------------------------ ------------------
Pre-tax Post-tax Post-tax
----------- ----------- ------------------
GBP'Million GBP'Million GBP'Million
--------------------------------------- ----------- ----------- ------------------
100bps reduction in risk discount rate 124.8 94.1 720.6
--------------------------------------- ----------- ----------- ------------------
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.
-39-
Analysis of the EEV result
The table below provides a summarised breakdown of the embedded
value position at the reporting dates.
31 December 31 December
2022 2021
--------------------------- ----------- -----------
GBP'Million GBP'Million
--------------------------- ----------- -----------
Value of in-force business 7,684.8 7,712.1
Solvency II net assets 1,379.9 1,245.3
--------------------------- ----------- -----------
Total embedded value 9,064.7 8,957.4
--------------------------- ----------- -----------
GBP GBP
--------------------------- ----------- -----------
Net asset value per share 16.66 16.57
--------------------------- ----------- -----------
The EEV result above reflects the specific terms and conditions
of our products. Our pension business is split between two
portfolios. Our current product, the Retirement Account, was
launched in 2016 and incorporates both pre-retirement and
post-retirement phases of investment in the same product. Earlier
business was written in our separate Retirement Plan and Drawdown
Plan products, targeted at each of the two phases separately, and
therefore has a slightly shorter term and lower new business
margin.
Our experience is that much of our Retirement Plan business
converts into Drawdown Plan business at retirement, but, in line
with the EEV guidelines, we are required to defer recognition of
the additional value from the Drawdown Plan until it crystallises.
If instead we were to assess the future value of Retirement Plan
business (beyond the immediate contract boundary) in a more
holistic fashion, in line with Retirement Account business, this
would result in an increase of approximately GBP340 million to our
embedded value at 31 December 2022 (31 December 2021: GBP395
million).
-40-
Section 3 : Solvency
St. James's Place has a business model and risk appetite that
result in underlying assets being held that fully match our
obligations to clients. Our clients can access their investments
'on demand' and because the encashment value is matched, movements
in equity markets, currency markets, interest rates, mortality,
morbidity and longevity have very little impact on our ability to
meet liabilities. We also have a prudent approach to investing
shareholder funds and surplus assets in cash, AAA-rated money
market funds and highly rated government securities. The overall
effect of the business model and risk appetite is a resilient
solvency position capable of enabling liabilities to be met even
during adverse market conditions.
Our Life businesses are subject to the Solvency II capital
regime which applied for the first time in 2016. Given the relative
simplicity of our business compared to many, if not most, other
organisations that fall within the scope of Solvency II, we have
continued to manage the solvency of the business on the basis of
holding assets to match client unit-linked liabilities plus a
management solvency buffer (MSB). This has ensured that not only
can we meet client liabilities at all times (beyond the Solvency II
requirement of a '1-in-200 years' event), but we also have a
prudent level of protection against other risks to the business. At
the same time, we have ensured that the resulting capital held
meets with the requirements of the Solvency II regime, to which we
are ultimately accountable.
For the year ended 31 December 2022 we reviewed the level of our
MSB for the life businesses, and chose to maintain it at GBP355.0
million (31 December 2021: GBP355.0 million).
The Group's overall Solvency II net assets position, MSB, and
management solvency ratios are as follows:
Other 31 December
Life(1) regulated Other(1,2) Total 2021 Total
-------------------------- ----------- ----------- ----------- ----------- ------------
31 December 2022 GBP'Million GBP'Million GBP'Million GBP'Million GBP'Million
-------------------------- ----------- ----------- ----------- ----------- ------------
Solvency II net assets 377.7 323.2 679.0 1,379.9 1,245.3
MSB 355.0 177.7 - 532.7 518.0
-------------------------- ----------- ----------- ----------- ----------- ------------
Management solvency ratio 106% 182%
-------------------------- ----------- ----------- ----------- ----------- ------------
(1) After payment of year-end intra-Group dividend.
(2) Before payment of the Group final dividend.
-41-
Solvency II Balance Sheet
Whilst we focus on Solvency II net assets and the MSB to manage
solvency, we provide additional information about the Solvency II
free asset position for information. The presentation starts from
the same Solvency II net assets, but includes recognition of an
asset in respect of the expected value of in-force (VIF) cash flows
and a risk margin (RM) reflecting the potential cost to secure the
transfer of the business to a third party. The Solvency II net
assets, VIF and RM comprise the 'own funds', which are assessed
against our regulatory solvency capital requirement (SCR),
reflecting the capital required to protect against a range of
'1-in-200' stresses. The SCR is calculated on the standard formula
approach. No allowance has been made for transitional provisions in
the calculation of technical provisions or the SCR.
An analysis of the Solvency II position for our Group, split by
regulated and non-regulated entities at the year-end, is presented
in the table below:
Other 31 December
Life(1) regulated Other(1,2) Total 2021 Total
--------------------------------- ----------- ----------- ----------- ----------- -----------
31 December 2022 GBP'Million GBP'Million GBP'Million GBP'Million GBP'Million
--------------------------------- ----------- ----------- ----------- ----------- -----------
Solvency II net assets 377.7 323.2 679.0 1,379.9 1,245.3
Value of in-force (VIF) 5,580.4 - - 5,580.4 5,640.1
Risk margin (1,516.4) - - (1,516.4) (1,622.9)
--------------------------------- ----------- ----------- ----------- ----------- -----------
Own funds (A) 4,441.7 323.2 679.0 5,443.9 5,262.5
Solvency capital requirement (B) (3,404.5) (118.0) - (3,522.5) (3,939.1)
--------------------------------- ----------- ----------- ----------- ----------- -----------
Solvency II free assets 1,037.2 205.2 679.0 1,921.4 1,323.4
--------------------------------- ----------- ----------- ----------- ----------- -----------
Solvency ratio (A/B) 130% 274% 155% 134%
--------------------------------- ----------- ----------- ----------- ----------- -----------
(1) After payment of year-end intra-Group dividend.
(2) Before payment of the Group final dividend.
The solvency ratio after payment of the proposed Group final
dividend is 149% at the year-end (31 December 2021: 128%).
We continue to target a solvency ratio of 110% for St. James's
Place UK plc, our largest insurance subsidiary, as agreed with our
regulator the PRA. The combined solvency ratio for our life
companies, after payment of the year-end intra-Group dividend, is
130% at 31 December 2022 (31 December 2021: 115%).
Solvency II sensitivities
The table below shows the estimated impact on the Solvency II
free assets, the SCR and the solvency ratio from changes in various
assumptions underlying the Solvency II calculations. In each case,
only the indicated item is varied relative to the restated
values.
The solvency ratio is not very sensitive to changes in
experience or assumptions, and, due to the approach to matching
unit-linked liabilities with appropriate assets, can move
counter-intuitively depending on circumstances, as demonstrated by
the sensitivity analysis presented below.
Solvency Solvency
II II
free capital Solvency
assets requirement ratio
----------- ------------ --------
Note GBP'Million GBP'Million %
-------------------------------------------------------- ---- ----------- ------------ --------
Value at 31 December 2022 1,921.4 3,522.5 155%
100bps reduction in risk-free rates, with corresponding
change in fixed interest asset values 1 1,839.6 3,527.9 152%
10% increase in withdrawal rates 2 1,959.0 3,287.5 160%
10% reduction in market value of equity assets 3 2,088.6 2,929.3 171%
10% increase in expenses 4 1,866.6 3,518.8 153%
100bps increase in assumed inflation 5 1,867.1 3,523.3 153%
-------------------------------------------------------- ---- ----------- ------------ --------
-42-
Notes to the Solvency II sensitivities
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.
2. The 10% increase is applied to the lapse rate. For instance,
if the lapse rate is 8% then a 10% increase would reflect a change
to 8.8%.
3. For the purposes of this 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%. The sensitivity reflects
the impact of changes in the equity dampener on market risk
capital.
4. For the purposes of this sensitivity all expenses are
increased by 10%.
5. This reflects a 100bps increase in the assumed RPI underlying
the expense inflation calculation.
-43-
Risk and Risk Management
Overview and culture
The business activities and the industry within which the Group
operates expose us to a wide variety of inherent risks. Therefore,
effective risk management, underpinned by a good risk culture, is
critical to our success. We comprehensively identify and assess
risks, agree our appetite for those risks, and then manage them
accordingly. When assessing risks and deciding on the appropriate
response we consider the potential impacts on our key stakeholders:
clients, advisers, shareholders, regulators, employees and
society.
The inherent risk environment faced by the Group changes over
time as emerging factors and trends (including political risks such
as changes in taxation, macroeconomic factors, cyber-crime and
climate change) may impact on our short- and/or longer-term
profitability. Under the leadership, direction and oversight of our
Board, these risks are carefully assessed and managed in order to
achieve our strategic objectives.
We do not, and cannot, seek to eliminate risk entirely; rather
we aim to understand our risks and deal with them appropriately.
The emphasis is on applying effective risk management strategies,
so that all material risks are identified and managed within the
agreed risk appetite. Risk management is embedded within our
culture and therefore is a core aspect of decision-making.
Risk management forms a key part of the business planning
process, including decisions on strategic developments affecting
our client and Partner propositions, investments, and dividend
payments.
Our Risk Management and Control Framework
The internal control environment is built upon a strong control
culture and organisational assignment of responsibility. The 'first
line' business is responsible and accountable for risk management.
This is then combined with oversight from the 'second line' risk,
controls and compliance functions, and assurance from the 'third
line' internal audit to form a 'three lines of defence' model.
The Risk Management and Control Framework is a combination of
processes by which the Group identifies, assesses, measures,
manages and monitors the risks that may impact on the successful
delivery of its strategic objectives. Based upon our risk appetite,
the risks identified are either accepted or appropriate actions are
taken to mitigate them.
The Board, through the Group Risk Committee, takes an active
role in overseeing the Risk Management and Control Framework, for
which it is responsible. As part of this the Board robustly
assesses its principal and emerging risks, which are considered in
regular reporting and summarised annually in the Own Risk and
Solvency Assessment (ORSA); further information on this is provided
on page 44.
On behalf of the Board, the Group Audit Committee takes
responsibility for assessing the effectiveness of the Group's risk
management and internal control systems, covering all material
controls, including financial, operational and compliance controls.
It does this via an annual review of risk and control
self-assessments and monitoring of the effectiveness of the
internal control model throughout the year. The systems have been
in place for the year under review and up to the date of approval
of the Annual Report and Accounts.
The Board receives regular reports from the Group Risk Committee
and Group Audit Committee and approves key aspects of the Group's
Risk Management and Control Framework including the Risk Appetite
Statement and Group ORSA.
Our risk appetite
The Board carefully sets its appetite for taking risk against
the Group's strategic objectives. These choices are set out in
detail in our Group Risk Appetite Statement, which is reviewed at
least annually by the Group Risk Committee, senior risk owners and
the Executive Board before being approved by the Board. The Group
Risk Appetite Statement also provides clarity over ownership,
enabling us to identify the key individuals within the Group who
have responsibility for managing particular risks. The Group Risk
Appetite Statement informs the risk appetite statements prepared
for and approved by the regulated subsidiary boards within the
Group.
The Group Risk Appetite Statement includes a risk appetite
scale. This scale has several risk acceptance levels, ranging from
no appetite for taking risks at all, through to acceptance of risk.
The level of risk we are willing to accommodate will vary depending
on individual risk scenarios. Risk appetite can and will change
over time, sometimes rapidly as economic and business environment
conditions change, and therefore the statement is an evolving
document.
-44-
A comprehensive suite of Key Risk Indicators (KRIs) is reported
regularly, alongside qualitative information, to enable the Group
Risk Committee, on behalf of the Board, to monitor that the Group
remains within its accepted appetite.
Own Risk and Solvency Assessment (ORSA)
We are classified as an insurance group and are subject to
Solvency II insurance regulation. A key part of this regulation
requires a consistent approach to risk management across the Group,
supported by the production of an annual ORSA.
The ORSA process follows an annual cycle, which applies
comprehensive risk assessments to the business's activity, and
ensures the Group is resilient to stresses in both the short term
and over a five-year period.
The Solvency Capital Requirement for insurers allows for at
least a '1 in 200-year' risk event over a one-year time horizon. In
addition, severe stresses and scenarios are used to help provide
insight into the ability to maintain the required regulatory
capital in these conditions. Our results show that it would be
possible to maintain regulatory capital across the Group under all
stresses for the business planning horizon. The outcomes of these
activities assist us when considering the calculations and
allocation of risk capital to all major risks in the Group, and the
adequacy of capital positions. This process ensures our continued
confidence that the regulated entities remain strongly
capitalised.
The ORSA uses a five-year projection period for the medium term.
Due to the gestation period across some of our pension and
investment product ranges, we do not earn annual management fees in
the first six years.
As a result, considering a five-year projection period, which is
less than the gestation period, is a prudent view of the Group's
viability as we consider ongoing revenues generated on existing
business only. The ORSA is particularly useful in assessing
viability as it involves a comprehensive assessment of risks and
capital requirements for the business. Consideration is given to
factors or events that impact on our income from funds under
management such as market movements, retention of clients and
ability to attract new clients. We also consider factors which
impact our costs such as inflation, non-inflationary expense
increases and operational event-related losses. Combinations of
these factors are used to form scenarios which are tested,
providing for more extreme combinations of events.
The scenarios are used to assess both the immediate impact of an
event along with the impact over the longer term (in the wake of
the event). In addition to these more extreme 'combination'
scenarios which we test every year, assessments are also completed
based on more current/topical or emerging risk exposures affecting
the Group or financial services more generally.
The ORSA aids decision-making by bringing together the following
processes:
-- strategic planning;
-- risk appetite consideration;
-- risk identification and management; and
-- capital planning and management.
The ORSA continues to evolve and further strengthen risk
management processes throughout the Group.
Current risk environment
There was a complex and rapidly evolving macroeconomic risk
picture through 2022, which was exacerbated in the UK by political
turmoil. We expect to see significant challenges at a national
level in 2023 and beyond as people and businesses adjust to a
higher interest rate environment and the higher cost of living. We
are mindful of potential risks relating to changes in tax policy
which could affect the amount our clients have available to save
and how much tax they pay on income and investments. However, we
also recognise an opportunity for our advisers, through ongoing
financial advice, to support clients in managing their financial
affairs in a volatile market; to combat the effects of inflation on
the standard of living they are aiming for in retirement; and to
remain tax-efficient in their savings as the tax landscape changes.
We are also mindful of the potential for geopolitical tensions to
escalate, which could have relevance to the Group through impacts
on financial markets and through heightened cyber risk.
Overall we remain confident in our ability to withstand further
challenges that may or may not emerge from the risk environment
described in more detail below. Timely and targeted risk-based
information has been provided to the Board to continue to support
decision-making and help the understanding of key issues.
-45-
Macro-economic
The macroeconomic risks associated with high inflation, the
unwinding of 14 years of low interest rates and the threat of
increasing geopolitical tension are not to be under-estimated.
However, the Group's business model has demonstrated resilience and
continues to be well positioned to survive extreme conditions and
continue to invest for long-term growth.
Some examples of the key challenges for the business presented
by the current macroeconomic conditions include:
-- Asset prices could fall further as interest rates rise and
the economic outlook deteriorates. Asset price falls reduce future
profitability but, counterintuitively, improve the Group's solvency
position in the short to medium term because our capital
requirement reduces at a quicker rate than our own funds. The
Group's financial resilience is demonstrated through stress and
scenario testing and we remain highly confident in our ability to
weather further extreme market falls, although such scenarios would
negatively impact cash generation.
-- In a higher inflationary environment our strategic targets of
both limiting growth in controllable expenses to 5% per annum and
investing in the business to support future growth become more
difficult to jointly achieve. A key strategic consideration for the
business is maintaining capacity for development expenditure and
focusing investment on developments which will best support
long-term growth in net client inflows.
-- As interest rates rise, annuities could become more
attractive for clients relative to remaining in drawdown. This
could lead to an increase in withdrawals and hence a reduction in
funds under management for the Group. However, whilst annuities are
now relatively cheaper than they have been for some time, clients
may be reluctant to crystallise funds to purchase an annuity in a
market downturn. Furthermore, keeping funds in a drawdown pension
continues to offer valuable flexibility.
-- Business loans to advisers will have higher interest
payments. This may come at a time where adviser income is under
pressure due to negative market impacts on funds under management.
However, we have operated careful lending criteria, which we are
confident will limit the number of advisers who could require
support, and we maintain the capacity to do so. Our field
management team work with advisers to help them develop their
businesses and, if required, SJP is able to provide targeted
financial assistance.
Despite the potential macroeconomic risks we believe there are
good reasons to be optimistic about continued investment and growth
of net flows to the Group. In particular, our advisers are well
placed to advise clients on the benefits of taking a long-term view
and investing or continuing to invest when markets are relatively
low.
Regulatory change
Regulatory change is a constant, and amongst the significant
regulatory change agenda for 2023 the FCA has launched the new
Consumer Duty regulation. This is intended to set higher and
clearer standards of consumer protection across financial services
and require firms to act to deliver good outcomes for customers. In
line with the whole of the industry we are engaging proactively
with this important regulatory initiative. While we believe that we
already achieve good outcomes for our clients, we are nonetheless
reviewing all our client focused activities and reflecting on how
we can develop them to meet ever increasing expectations. Ahead of
Consumer Duty coming into force, there will be aspects of the way
we operate which will need to change in order to meet regulatory
expectations. The FCA is expecting action and where we identify
this is required, we will respond to improve client experience and
reduce any risk of poor client outcomes.
Climate change
Tackling climate change is an issue of high importance. We aim
to grow in a sustainable way, taking a long-term view which ensures
we are a force for good for our clients and the wider world. As an
example of how we are putting this into practice we have pledged
that our operations will become climate positive by 2025 and our
investments will be net zero by 2050.
Climate change-related risks affect companies in different ways
and we have carefully considered how climate change could impact
the Group to identify risks and opportunities. Climate change is a
driver of market-related risk, be that through physical climate
events or impacts from transitioning away from fossil fuels. The
invasion of Ukraine and rapid reduction in Russian oil and gas
supplied to Europe has driven inflation and put focus on domestic
energy security. We recognise that this presents a risk to the
climate as western countries seek replacement fossil fuel resources
in the short term, but also an opportunity in relation to
accelerating the speed of transition to renewable energy
sources.
-46-
Whilst recognising the unique ways in which climate change can
affect individual investments, our approach to managing this risk
is very similar to how we manage other drivers of market-related
risk, namely through our investment management approach (IMA) and
within that our approach to responsible investing. Through this we
aim to take account of climate risks whilst seeking to deliver
returns for clients in line with their risk appetite and increasing
the value of FUM. Further, to ensure our resilience as a Group to
market movements, our liabilities to clients are fully matched by
our invested assets.
We also consider physical risks on our operations as we look to
enhance our operational resilience. Generally, through the nature
of our operations and the geography in which we operate, the
physical risks to our direct operations are low. We further work to
understand the risk to our material third parties' operations and
engage with them to share and remediate material concerns.
A key residual risk to the Group is meeting the views and
expectations of current and potential clients around our approach
to the challenges presented by climate change. We aim to be as
transparent as possible on what we are doing and have to accept
that our approach will be too little for some and too much for
others.
Principal risks and uncertainties
Whilst the risk landscape evolved over the course of the year,
the inherent principal risk areas that the business faces remain
consistent with the previous year. An example of this is that
security and resilience remains a principal risk area and within
this cyber risk continues to be a key risk. Nevertheless, we
recognise that the cyber environment continues to develop,
particularly with State-sponsored threats, which increases the
inherent cyber risk to the business.
The business priority areas which our principal risks impact are
set out in the tables in the following pages, together with the
high-level controls and processes through which we aim to mitigate
them. Reputational damage and impacts to shareholders and other
stakeholders are a likely consequence of any of our principal risks
materialising.
The following descriptions are used to indicate which primary
business priorities our principal risks could impact, recognising
that they could also have a secondary impact on other business
priorities:
-- Building community
-- Being easier to do business with
-- Delivering value to advisers and clients through our investment proposition
-- Building and protecting our brand and reputation
-- Our culture and being a leading responsible business
-- Continued financial strength
Risk Business Key risks Example controls
description priority
----------- -------------- ----------- -------------------------------------------------------------- -------------------------------------------------------------
Client Our product Delivering
proposition proposition value * Investments provide poor returns relative to their * Monitoring of asset allocations across portfolios to
fails to to advisers benchmarks and/or do not deliver expected client consider whether they are performing as expected in
meet the and clients outcomes working towards long-term objectives
needs, through
objectives our
and investment * Range of solutions does not align with the product * Monitoring funds against their objectives mindful of
expectations proposition and service requirements of our current and potential an appropriate level of investment risk
of our future clients
clients. Our culture
This and being * Ongoing assessment of value delivered by funds and
includes a leading * Failure to meet client expectations of a sustainable portfolios versus their objectives
poor responsible business, not least in respect of climate change and
relative business responsible investing
investment * Where necessary, managers are changed in the most
performance effective way possible
and poor
product
design. * Continuous development of the range of services
offered to clients
* Engagement with fund managers around principles of
responsible investment
----------- -------------- ----------- -------------------------------------------------------------- -------------------------------------------------------------
-47-
Risk Business Key risks Example controls
description priority
----------- --------------- ----------- ------------------------------------------------------------------ ---------------------------------------------------------------
Conduct We fail Building
to provide and * Advisers deliver poor-quality or unsuitable advice * Licensing programme which supports the quality of
quality, protecting advice and service from advisers
suitable our brand
advice or and * Failure to evidence the provision of quality service
service reputation and advice * Technical support helplines for advisers
to clients.
* Timely and clear responses to client complaints
* Robust oversight process of the advice provided to
clients delivered by Business Assurance, Compliance
Assurance, Field Risk and Advice Guidance teams
----------- --------------- ----------- ------------------------------------------------------------------ ---------------------------------------------------------------
Financial We fail Continued
to financial * Failure to meet client liabilities * Policyholder liabilities are fully matched
effectively strength
manage the
business's * Investment/market risk * Excess assets generally invested in high-quality,
finances. high-liquidity cash and cash equivalents
* Credit risk
* Direct lending to the Partnership is secured
* Liquidity risk
* Reinsurance of insurance risks
* Insurance risk
* Ongoing monitoring of all risk exposures and
experiences
* Expense risk
* Acceptance of market and persistency risk impact on
profit
* Setting and monitoring budgets
* Implementing new systems to enable future cost
reductions
* Monitoring and management of subsidiaries' solvency
to minimise Group interdependency
----------- --------------- ----------- ------------------------------------------------------------------ ---------------------------------------------------------------
Partner Our Building
proposition proposition community * Failure to attract new members of the Partnership * Focus on providing a market-leading Partner
solution proposition
fails to Being
meet the easier * Failure to retain advisers
needs, to do * Adequately skilled and resourced population of
objectives business supporting field managers
and with * Failure to increase adviser productivity
expectations
of our * Reliable systems and administration support
current * Available technology falls short of client and
and potential adviser expectations and fails to support growth
future objectives * Expanding the Academy capacity and supporting
Partners. recruits through the Academy and beyond
* The Academy does not adequately support growth of the
Partnership * Market leading support to Partners businesses
----------- --------------- ----------- ------------------------------------------------------------------ ---------------------------------------------------------------
People We are unable Building
to attract, community * Failure to attract and retain personnel with key * Measures to maintain a stable population of employees,
retain and skills including competitive total reward packages
organise Our culture
the right and being
people to a leading * Poor employee engagement * Monitoring of employee engagement and satisfaction
run the responsible
business. business
* Failure to create an inclusive and diverse business * Employee wellbeing is supported through various
initiatives, benefits and services
* Poor employee wellbeing
* Corporate incentives to encourage social value
engagement, including matching of employee charitable
* Our culture of supporting social value is eroded giving to the Charitable Foundation
* Whistleblowing hotline
----------- --------------- ----------- ------------------------------------------------------------------ ---------------------------------------------------------------
Regulatory We fail Building
to meet and * Failure to comply with existing regulations * Compliance function provides expert guidance and
current, protecting carries out extensive assurance work
changing our brand
or new and * Failure to comply with changing regulation or respond
regulatory reputation to changes in regulatory expectations * Strict controls are maintained in highly regulated
and areas
legislative Our culture
expectations. and being * Inadequate internal controls
a leading * Maintainance of appropriate solvency capital buffers,
responsible and continous monitoring of solvency experience
business
* Clear accountabilities and understanding of
responsibilities across the business
* Fostering of positive regulatory relationships
----------- --------------- ----------- ------------------------------------------------------------------ ---------------------------------------------------------------
-48-
Risk Business Key risks Example controls
description priority
----------- --------------- ----------- ------------------------------------------------------------ --------------------------------------------------------------
Security We fail Building
and to adequately and * Internal or external fraud * Business continuity planning for SJP and its key
resilience secure our protecting suppliers
physical our brand
assets, and * Core system failure
systems reputation * Focus on building operational resilience
and/or
sensitive * Corporate, Partnership or third-party information
information, security and cyber risks * Mandatory 'Cyber Essentials Plus' accreditation for
or to deliver Partner practices or use of an SJP 'Device as a
critical Service' solution
business * Disruption in key business services to our clients
services
to our * Clear cyber strategy and data protection roadmap for
clients. continuous development
* Data leakage detection technology and incident
reporting systems
* Identification, communication, and response planning
for the event of cyber crime
* Executive-Board level cyber scenario session to test
strategic response
* Internal awareness programmes
* Identification and assessment of critical business
services
----------- --------------- ----------- ------------------------------------------------------------ --------------------------------------------------------------
Strategy, Challenge Building
competition from and * Increased competitive pressure from traditional and * Clear demonstration of value delivered to clients
and brand competitors protecting disruptive (non-traditional) competitors through advice, service and products
and impact our brand
of and
reputational reputation * Cost and charges pressure * Investment in improving positive brand recognition
damage.
Our culture
and being * Negative media coverage * Ongoing development of client and Partner
a leading propositions
responsible
business * Failure to meet our commitments to net zero
* Proactive engagement with external agencies including
media, industry groups and regulators
* Clear interim targets to be tracked towards meeting
our long-term net zero targets
----------- --------------- ----------- ------------------------------------------------------------ --------------------------------------------------------------
Third Third-party Building
parties outsourcers's and * Operational failures by material outsourcers * Oversight regime in place to identify prudent steps
activities protecting to reduce risk of operational failures by material
impacts our brand third-party providers
our and * Failure of critical service; significant areas
performance reputation include:
and risk * Ongoing monitoring, including assessment of
management. Our culture operational resilience
and being o investment
a leading administration
responsible o fund management * Due diligence on key suppliers
business o custody
o policy administration
o cloud services * Oversight of service levels of our third-party
administration provider
----------- --------------- ----------- ------------------------------------------------------------ --------------------------------------------------------------
Emerging risks
Emerging risks are identified through conversations and
workshops with stakeholders throughout the business, reviewing
academic papers, attending industry events and other horizon
scanning by the Group risk team.
The purpose of monitoring and reporting emerging risks is to
give assurance that we are prioritising our response to emerging
risks appropriately in our strategy, which is the primary risk
management tool for longer term strategic risks. The Group Risk
Committee has reviewed emerging risks on a quarterly basis during
2022.
-49-
Examples of emerging risks which have been considered during the
year include:
-- inflation;
-- consequences of the invasion of Ukraine;
-- climate change and ESG-related risks;
-- employee-related risks;
-- shareholder activism; and
-- risk of energy blackouts.
Viability Statement
How we assess our viability
The business considers five-year financial forecasts when
developing its strategy. These incorporate our budget for the next
financial year and four further years of forecasts based on
reasonable central assumptions around the development of business
drivers.
At the core of assessing our viability we seek to understand how
different principal risks could materialise. We consider risks
which might present either in isolation or in combination and which
could result in acute shocks to the business or long-term
underperformance against forecasted business drivers. We consider
that a five-year time horizon is sufficiently long to assess
potential impacts and aim to ensure that the business remains
viable, noting that identified management actions could also be
enacted to restore the business's prospects.
When considering how the principal risks previously described
might impact the business, we consider our ability to deal with
particular events which may impact one or more of the following key
financial drivers:
-- reduction in client retention;
-- reduction in new business relative to forecasts;
-- market stresses;
-- increases in expenses; and
-- direct losses through operational risk events.
We carry out stress and scenario testing on these key financial
drivers, alongside operational risk assessments. To provide comfort
over viability over the next five years, the scenarios and
assessments look at events which would be extreme, whilst still
remaining plausible. This work demonstrates that, although there
would be impacts on profitability, the Group is resilient and could
continue to meet regulatory capital requirements over five years
should even the more extreme risks materialise.
As well as robust scenario testing, the Directors have given
consideration to assessments of the current risk environment,
including how risks are managed through controls relative to the
risk appetite and emerging risks.
Example scenario
A diverse selection of stresses and scenarios is applied to test
all material drivers in a variety of ways to provide understanding
of dynamic impacts. Recently we have considered a number of onerous
scenarios for our key financial drivers based on the 2022 year-end
financial position. This included a scenario which explored how the
2022 Bank of England Annual Cyclical Scenario test for banks might
impact the key financial variables for the Group. In order to do
this, we carefully considered how the prescribed economic variables
might translate for the Group. Our conclusion is that whilst this
scenario would significantly reduce profitability it would be not
cause any solvency concerns.
As a further example, as part of the dividend considerations in
February 2022 we assessed the direct financial implications of a
significant increase in the implied inflation curve, particularly
over the next 1-3 years though also remaining significantly above
expectations over the 4-10 year projection. We then used this
inflation stress in two further scenarios of varying severity which
also stressed the value of funds under management and new business
relative to our base projections. In all scenarios, the Group was
expected to remain adequately capitalised and have sufficient
liquid resources, albeit the Group's profits, and therefore future
dividends, would diminish. In the context of the 2022 dividend
decision, however, these scenarios gave confidence that, after
payment of the proposed dividend, the Group would remain within the
Board's financial risk appetite.
It is also worth noting that when extreme events materialise, or
the level of uncertainty in the external environment increases,
management reacts accordingly by taking appropriate and measured
actions. For example, following the initial uncertainty around
COVID-19, the Board decided to withhold around one-third of the
proposed 2019 final dividend until March 2021, when the impacts of
COVID-19 had become clearer and the dividend was released. This
-50-
prudent judgement ensured we were comfortable in our resilience
and ability to protect clients while continuing strategic
investment in the business to increase shareholder value.
We remain confident that the Group is able to respond to
unforeseen events to ensure the Group remains viable.
Resilience over different time horizons
The table below provides an indication of which risks are
relevant over different timeframes and why the Group is considered
to be resilient over these timeframes:
Over the next year
Risks: Resilience:
Over the short term, key risks are The Group generates relatively steady
most likely to be operational, such cash profits on new business and
as cybercrime or failure of operational existing funds under management which
processes. The cost-of-living crisis increase each year as funds in gestation
and higher interest rates are also 'mature'.
key risks to business performance In stress and scenario testing the
if they lead to downturns in markets Group demonstrates a high degree
and/or new investments, or to continued of resilience in its solvency level
people-related risks which impact to falls in markets and new business.
on our operations. If severe risks materialised over
Strategic risks which could have the year, the Group's profitability
a shorter term impact relate to: would reduce and, whilst other options
managing expenses in a high inflationary would be explored first, curtailing
environment whilst investing for investment or reducing dividends
growth; maintaining high engagement would be obvious ways to protect
with the Partnership and supporting the financial strength of the business.
them through a tough macroeconomic The business benefits from higher
environment; the pace of regulatory interest rates on cash reserves and
change; and talent management. has significant financial resources
Of the significant regulatory change to support Partner businesses if
due in 2023, including the new FCA required and where appropriate, though
Consumer Duty coming into force, the need is likely to be limited
there will be aspects of the way due to the application of careful
we operate which need to be evolved lending criteria for business loans
in order to continue to meet changing to Partners.
regulatory expectations and ultimately Changing regulatory expectations
benefit our clients. including Consumer Duty are being
It is not expected that solvency considered in depth. We are a client
will be an issue in the short term focused business and so any changes
due to our matching approach on liabilities. we make should be positive for our
Liquidity risks would be relevant business, reducing regulatory and
for this time window since they tend reputational risk and supporting
to be short term in nature. However, good client outcomes.
we do not anticipate there being Operational resilience and business
liquidity risks given the approach continuity are also important risks
to Group and subsidiary entity dividends which might cause severe business
and liquidity management in general. disruption and are carefully managed.
These risks are also relevant for There are not considered to be any
the longer time periods. material uncertainties over the ability
of the Group to survive over the
one-year time horizon.
-------------------------------------------
Over the next five years
Risks: Resilience:
Over the medium term key risks are: In counteracting the medium-term
investor sentiment; market impacts; risks, there is more time to respond
changes to regulation or regulatory and take actions to manage the Group's
expectations particularly relating prospects. As already referenced,
to advice; and further tax changes stress and scenario testing takes
to tackle the UK's increased national place, which provides comfort over
debt. the Group's ability to weather storms
The importance of technology in the over a five-year time horizon and
client proposition is only likely adapt. The Group's strategy is designed
to grow, and risks may materialise to navigate the threats and keep
from non-traditional competitors our proposition attractive for both
seeking to disrupt the UK financial existing and potential clients. As
advice market. the largest wealth manager in the
An example of a strategic risk relates UK, the Group is well resourced to
to ensuring we continue to provide respond effectively to regulatory
the best proposition for advisers change and deal with increased regulatory
at each stage of their journey with complexity.
SJP, to support productivity and Whilst the importance of technology
retention. in the advice space will grow, we
believe that overall our target market
will continue to value human interaction
in discussing sensitive financial
matters. Delivery of our technology
strategy will however support clients
and advisers in making the most of
their interactions and drive efficiency
in the back office.
Ensuring that we have an excellent
proposition for Partners is a core
focus for the Group, and careful
consideration is given to how we
should evolve our proposition over
time to ensure we develop and retain
excellent advisers in the Partnership.
-------------------------------------------
Beyond 2027
Risks: Resilience:
Most of the shorter term risks will We are exploring opportunities in
remain relevant; however, over the relation to machine learning and
longer term, the impact of artificial other technology solutions as part
intelligence and machine learning of our technology strategy. This
in both investment management and is being done cautiously to manage
advice will become greater. potential risks, but failure to build
Risks from climate change relating capabilities in this space may present
to investor sentiment and political a greater competitive risk.
change are already relevant now, We have been developing our responsible
but the consequences of failure to investing proposition for some years
act will be felt more and more over and welcome the focus in this area,
time. We are committed to be climate as it is the right thing to do and
positive in our operations by 2025, provides an opportunity to maximise
net zero in our supply chain by 2035 client benefit through our active
and net zero in our investments by investment management approach.
2050. If we fail to deliver on these We are increasing the governance
commitments, then this could have and measurement of delivery against
a significant reputational impact our responsible business commitments
within this time horizon. to ensure confidence of delivery.
Finally, when we look five or six
years ahead all current funds in
'gestation' will be expected to be
contributing to profits and therefore
increasing our expected financial
resilience.
-------------------------------------------
-51-
Conclusion
In accordance with the UK Corporate Governance Code (Provision
31), the Directors have assessed the Group's current financial
position and prospects over the next five-year period and have a
reasonable expectation that the Group will be able to continue in
operation and meet its liabilities as they fall due. The Directors
believe that the Group's risk planning, management processes and
culture allow for a robust and effective risk management
environment.
-52-
Consolidated Statement of Comprehensive Income
Year ended Year ended
31 December 31 December
2022 2021
-------------------------------------------------------- ---- ------------ ------------
Note GBP'Million GBP'Million
-------------------------------------------------------- ---- ------------ ------------
Insurance premium income 33.7 36.5
Less premiums ceded to reinsurers (23.3) (23.2)
-------------------------------------------------------- ---- ------------ ------------
Net insurance premium income 10.4 13.3
Fee and commission income 4 1,954.2 2,737.2
Investment return 5 (13,771.9) 15,275.4
-------------------------------------------------------- ---- ------------ ------------
Net income (11,807.3) 18,025.9
Policy claims and benefits
- Gross amount (48.0) (62.8)
- Reinsurers' share 14.6 16.9
-------------------------------------------------------- ---- ------------ ------------
Net policyholder claims and benefits incurred (33.4) (45.9)
Change in insurance contract liabilities
- Gross amount 88.8 (9.7)
- Reinsurers' share (16.0) (9.9)
-------------------------------------------------------- ---- ------------ ------------
Net change in insurance contract liabilities 72.8 (19.6)
Movement in investment contract benefits 5 13,734.8 (15,186.7)
Expenses (1,966.2) (1,931.3)
-------------------------------------------------------- ---- ------------ --------------
Profit before tax 3 0.7 842.4
Tax attributable to policyholders' returns 6 501.1 (488.6)
-------------------------------------------------------- ---- ------------ ------------
Profit before tax attributable to shareholders' returns 501.8 353.8
-------------------------------------------------------- ---- ------------ ------------
Total tax expense 6 404.7 (554.8)
Less: tax attributable to policyholders' returns 6 (501.1) 488.6
-------------------------------------------------------- ---- ------------ ------------
Tax attributable to shareholders' returns 6 (96.4) (66.2)
-------------------------------------------------------- ---- ------------ ------------
Profit and total comprehensive income for the year 405.4 287.6
-------------------------------------------------------- ---- ------------ ------------
Profit attributable to non-controlling interests 0.4 0.9
Profit attributable to equity shareholders 405.0 286.7
-------------------------------------------------------- ---- ------------ ------------
Profit and total comprehensive income for the year 405.4 287.6
-------------------------------------------------------- ---- ------------ ------------
Pence Pence
-------------------------------------------------------- ---- ------------ ------------
Basic earnings per share 11 74.6 53.3
Diluted earnings per share 11 73.9 52.5
-------------------------------------------------------- ---- ------------ ------------
The results relate to continuing operations.
-53-
Consolidated Statement of Changes in Equity
Equity attributable to owners of the
Parent Company
----------------------------------------------------------------------------
Shares
Share Share in trust Misc. Retained Non-controlling Total
capital premium reserve reserves earnings Total interests equity
----------- ----------- ----------- ----------- ----------- ----------- --------------- -----------
Note GBP'Million GBP'Million GBP'Million GBP'Million GBP'Million GBP'Million GBP'Million GBP'Million
----------- ----------- ----------- ----------- ----------- ----------- --------------- -----------
At 1 January
2021 80.6 185.3 (14.8) 2.5 859.4 1,113.0 (0.9) 1,112.1
Profit and total
comprehensive
income
for the year - - - - 286.7 286.7 0.9 287.6
Dividends 11 - - - - (329.9) (329.9) - (329.9)
Issue of share
capital 11 0.1 10.2 - - - 10.3 - 10.3
Exercise of
options 11 0.4 18.3 - - - 18.7 - 18.7
Shares sold
during
the year - - 6.3 - (6.3) - - -
Retained
earnings
credit in
respect
of share option
charges - - - - 20.4 20.4 - 20.4
---------------- ---- ----------- ----------- ----------- ----------- ----------- ----------- --------------- -----------
At 31 December
2021 81.1 213.8 (8.5) 2.5 830.3 1,119.2 - 1,119.2
Profit and total
comprehensive
income
for the year - - - - 405.0 405.0 0.4 405.4
Dividends 11 - - - - (303.6) (303.6) (0.3) (303.9)
Issue of share
capital 11 0.1 5.6 - - - 5.7 - 5.7
Exercise of
options 11 0.4 8.4 - - - 8.8 - 8.8
Consideration
paid
for own shares - - (0.3) - - (0.3) - (0.3)
Shares sold
during
the year - - 4.7 - (4.7) - - -
Retained
earnings
credit in
respect
of share option
charges - - - - 20.5 20.5 - 20.5
Non-controlling
interests
arising on the
part-disposal
of subsidiaries - - - - 4.9 4.9 0.1 5.0
---------------- ---- ----------- ----------- ----------- ----------- ----------- ----------- --------------- -----------
At 31 December
2022 81.6 227.8 (4.1) 2.5 952.4 1,260.2 0.2 1,260.4
---------------- ---- ----------- ----------- ----------- ----------- ----------- ----------- --------------- -----------
The number of shares held in the Shares in trust reserve is
given in Note 11 Share capital, earnings per share and
dividends.
Miscellaneous reserves represent other non-distributable
reserves.
-54-
Consolidated Statement of Financial Position
Year ended Year ended
31 December 31 December
Note 2022 2021
------------ ------------
GBP'Million GBP'Million
------------ ------------
Assets
Goodwill 33.6 29.6
Deferred acquisition costs 337.3 379.6
Intangible assets
- Purchased value of in-force business 11.2 14.4
- Computer software 33.3 27.0
Property and equipment 145.7 154.5
Deferred tax assets 6 13.9 20.6
Investment in associates 1.4 1.4
Reinsurance assets 66.4 82.4
Other receivables 7 2,982.8 2,923.0
Income tax assets 35.0 -
Investments
- Investment property 1,294.5 1,568.5
- Equities 103,536.0 106,782.3
- Fixed income securities 27,552.7 29,305.9
- Investment in Collective Investment Schemes 5,735.4 5,513.2
- Derivative financial instruments 3,493.0 1,094.6
Cash and cash equivalents 6,432.8 7,832.9
------------ ------------
Total assets 151,705.0 155,729.9
------------ ------------
Liabilities
Borrowings 9 163.8 433.0
Deferred tax liabilities 6 162.9 649.8
Insurance contract liabilities 483.5 572.3
Deferred income 530.4 562.6
Other provisions 46.0 44.1
Other payables 8 2,198.6 2,604.5
Investment contract benefits 5 106,964.7 110,349.8
Derivative financial instruments 3,266.3 1,019.5
Net asset value attributable to unit holders 36,628.4 38,369.0
Income tax liabilities - 6.1
------------ ------------
Total liabilities 150,444.6 154,610.7
------------ ------------
Net assets 1,260.4 1,119.2
------------ ------------
Shareholders' equity
Share capital 11 81.6 81.1
Share premium 227.8 213.8
Shares in trust reserve (4.1) (8.5)
Miscellaneous reserves 2.5 2.5
Retained earnings 952.4 830.3
------------ ------------
Equity attributable to owners of the Parent Company 1,260.2 1,119.2
Non-controlling interests 0.2 -
------------ ------------
Total equity 1,260.4 1,119.2
------------ ------------
Pence Pence
------------ ------------
Net assets per share 231.6 207.1
------------ ------------
-55-
Consolidated Statement of Cash Flows
Year ended Year ended
31 December 31 December
2022 2021
------------------------------------------------------------ ---- ------------ ------------
Note GBP'Million GBP'Million
------------------------------------------------------------ ---- ------------ ------------
Cash flows from operating activities
Cash (used in)/generated from operations 10 (975.1) 1,741.0
Interest received 61.8 19.2
Interest paid (12.4) (10.2)
Income taxes paid 6 (121.1) (319.1)
Contingent consideration (6.3) (1.3)
------------------------------------------------------------ ---- ------------ --------------
Net cash (outflow)/inflow from operating activities (1,053.1) 1,429.6
------------------------------------------------------------ ---- ------------ --------------
Cash flows from investing activities
Payments for property and equipment (4.0) (3.4)
Payment of software development costs (16.1) (19.2)
Payments for acquisition of subsidiaries and other
business combinations, net of cash acquired (13.9) (6.6)
Proceeds from sale of shares in subsidiaries and other
business combinations, net of cash disposed 4.0 4.1
Proceeds from sale of financial assets held at amortised
cost 262.5 -
------------------------------------------------------------ ---- ------------ --------------
Net cash inflow/(outflow) from investing activities 232.5 (25.1)
------------------------------------------------------------ ---- ------------ --------------
Cash flows from financing activities
Proceeds from the issue of share capital and exercise
of options 8.8 18.7
Consideration paid for own shares (0.3) -
Proceeds from borrowings 9 204.0 576.4
Repayment of borrowings 9 (475.3) (486.1)
Principal elements of lease payments (13.8) (10.7)
Dividends paid to Company's shareholders 11 (303.6) (329.9)
Dividends paid to non-controlling interests in subsidiaries (0.3) -
------------------------------------------------------------ ---- ------------ --------------
Net cash (outflow) from financing activities (580.5) (231.6)
------------------------------------------------------------ ---- ------------ --------------
Net (decrease)/increase in cash and cash equivalents (1,401.1) 1,172.9
Cash and cash equivalents at 1 January 7,832.9 6,660.1
Effects of exchange rate changes on cash and cash
equivalents 1.0 (0.1)
------------------------------------------------------------ ---- ------------ --------------
Cash and cash equivalents at 31 December 6,432.8 7,832.9
------------------------------------------------------------ ---- ------------ --------------
-56-
Notes to the Consolidated Financial Statements under
International Financial Reporting Standards
1. Accounting policies
The Group Financial Statements consolidate those of the Company
and its subsidiaries (together referred to as the 'Group').
The Group Financial Statements have been prepared in accordance
with UK-adopted International Accounting Standards and with the
requirements of the Companies Act 2006 as applicable to companies
reporting under those standards.
As at 31 December 2022, the following relevant amended
standards, which the Group adopted as of 1 January 2022, have not
had any material impact on the Group's Consolidated Financial
Statements:
-- Amendments to IFRS 3 Business Combinations - Reference to the Conceptual Framework; and
-- Annual Improvements to IFRS Standards 2018-2020.
There were no new accounting standards adopted as of 1 January
2022.
As at 31 December 2022, 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 are not yet effective. All
of the below had been adopted by the UK Endorsement Board as at 31
December 2022, except for Amendments to IAS 1 Presentation of
Financial Statements - Classification of Liabilities as Current or
Non-Current:
-- Amendments to IAS 1 Presentation of Financial Statements -
Classification of Liabilities as Current or Non-Current;
-- Amendments to IAS 1 Presentation of Financial Statements -
Disclosure of Accounting Policies;
-- Amendments to IAS 8 Accounting Policies, Changes in
Accounting Estimates and Errors - Definition of Accounting
Estimates;
-- Amendments to IAS 12 Income Taxes - Deferred Tax related to
Asset and Liabilities arising from a Single Transaction; and
-- IFRS 17 Insurance Contracts.
The adoption of the above standards and amendments is not
expected to have a material impact on the Group's Consolidated
Financial Statements other than requiring additional disclosure or
alternative presentation. Further detail regarding IFRS 17
Insurance Contracts is given below.
IFRS 17 Insurance Contracts
IFRS 17 was issued in May 2017 and is mandatory for annual
reporting periods commencing on 1 January 2023. It incorporates
revised principles for the recognition, measurement, presentation
and disclosure of insurance contracts.
Under IFRS 17, groups of insurance contracts are recognised and
measured as:
-- the Fulfilment Cashflows, which comprise an estimate of
future cash flows, adjusted to reflect the time value of money, the
financial risks associated with the future cash flows and a risk
adjustment for non-financial risk; and
-- the Contractual Service Margin, comprising the unearned
profit within a group of contracts that will be recognised as the
Group provides insurance services in the future.
If a group of contracts is expected to be onerous (i.e.
loss-making) over the remaining coverage period, a loss is
recognised immediately.
The Group closed to new insurance business, as defined under
IFRS 17, in 2011. At 31 December 2022, on an IFRS 4 Insurance
Contracts basis, the Group had GBP68.6 million of non-unit-linked
insurance contract liabilities, which are substantially reinsured,
and GBP414.9 million of unit-linked insurance contract liabilities.
As a result, the Group's exposure on this business is not material
(GBP2.2 million, being the net of GBP68.6 million non-unit-linked
insurance liabilities and GBP66.4 million reinsurance assets).
-57-
The Group has an established project group managing the
implementation of IFRS 17, overseen by the Group Audit Committee.
During 2022 the Group continued to refine its valuation approach
and to develop the required models and reporting systems, with the
associated governance processes due to be completed in 2023. Whilst
these processes have yet to be completed, there is not expected to
be a material impact on either equity or financial results on
adopting IFRS 17.
The Group intends to adopt the following key accounting
policies:
-- the General Measurement Model will be applied to
non-unit-linked insurance business and reassurance ceded, and the
Variable Fee Approach to unit-linked insurance business measured
under IFRS 17;
-- the fair value approach will be applied to all insurance
contracts on transition to IFRS 17, as the Group considers that
application of a fully retrospective approach is impracticable
(since our accounting and actuarial systems hold information on
historic business at a higher level of aggregation than that
required for the fully retrospective approach); and
-- IFRS 17 requires an accounting policy decision as to whether
to recognise all finance income or expense in profit or loss, or
whether to disaggregate the income or expense that relates to
changes in financial assumptions into other comprehensive income.
All finance income and expense will be included in profit or
loss.
Adoption of IFRS 17 is not expected to have a material impact on
alternative performance measures used by the Group.
Other accounting polices
The other accounting policies used by the Group in preparing the
results are consistent with those applied in preparing the
statutory accounts for the year ended 31 December 2021.
Alternative Performance Measures
Within the Financial Statements, a number of alternative
performance measures (APMs) are disclosed. An APM is a measure of
financial performance, financial position or cash flows which is
not defined by the relevant financial reporting framework, which
for the Group is International Financial Reporting Standards as
adopted by the UK Endorsement Board. APMs are used to provide
greater insight into the performance of the Group and the way it is
managed by the Directors. A definition of each APM is included in
The Glossary of Alternative Performance Measures, which explains
why it is used and, where applicable, explains how the measure can
be reconciled to the IFRS Financial Statements.
2. Critical accounting estimates and judgements in applying
accounting policies
Estimates
Critical accounting estimates are those which give rise to a
significant risk of material adjustment to the balances recognised
in the Financial Statements within the next 12 months. The Group's
critical accounting estimates are:
-- determining the value of insurance contract liabilities;
-- determining the fair value of investment property; and
-- determining the fair value of Level 3 fixed income securities and equities.
Estimates are also applied in other assets of the Financial
Statements, including determining the value of deferred tax assets,
investment contract benefits, the operational readiness prepayment
and other provisions.
Determining the value of insurance contract liabilities
The assumptions used in the calculation of insurance contract
liabilities that have an effect on the Statement of Comprehensive
Income of the Group are:
-- the lapse assumption, which is set based on an investigation of experience during the year;
-- the level of expenses, which is based on actual expenses in
2022 and expected rates in 2023 and over the long term;
-- the mortality and morbidity rates, which are based on the
results of an investigation of experience during the year; and
-- the assumed rate of investment return, which is based on current gilt yields.
-58-
Whilst the measurement of insurance contract liabilities is
considered to be a critical accounting estimate for the Group, the
vast majority of non-unit-linked insurance business written is
reinsured. As a result, the impact of a change in estimate in
determining the value of insurance contract liabilities would be
mitigated to a significant degree by the impact of the change in
estimate in determining the value of reinsurance assets.
Determining the fair value of investment property
In accordance with IAS 40, the Group initially recognises
investment properties at cost, and subsequently remeasures its
portfolio to fair value in the Statement of Financial Position.
Fair value is determined at least monthly by professional external
valuers. It is based on anticipated market values for the
properties in accordance with the guidance issued by the Royal
Institution of Chartered Surveyors (RICS), being the estimated
amount that would be received from a sale of the assets in an
orderly transaction between market participants.
The valuation of investment property is inherently subjective as
it requires, among other factors, assumptions to be made regarding
the ability of existing tenants to meet their rental obligations
over the entire life of their leases, the estimation of the
expected rental income into the future, the assessment of a
property's potential to remain as an attractive technical
configuration to existing and prospective tenants in a changing
market and a judgement on the attractiveness of a building, its
location and the surrounding environment. Wherever appropriate,
sustainability and environmental matters are an integral part of
the valuation approach. In a valuation context, sustainability
encompasses a wide range of physical, social, environmental and
economic factors that can affect value. The range of issues
includes key environmental risks, such as flooding, energy
efficiency and climate, as well as matters of design,
configuration, accessibility, legislation, management and fiscal
considerations - and, additionally, current and historic land use.
As such, investment properties are classified as Level 3 in the
IFRS 13 fair value hierarchy because they are valued using
techniques which are not based on observable inputs.
Determining the fair value of Level 3 fixed income securities
and equities
In accordance with IFRS 9, the Group elects to classify its
portfolio of policyholder fixed income securities at fair value
through profit and loss to match the accounting for policyholder
liabilities. Its portfolio of equities is required to be held at
fair value through profit and loss. As a result, all fixed income
securities and equities are held at fair value, with the best
evidence of the fair value at initial recognition typically being
the transaction price i.e. the fair value of the consideration
given or received.
During 2021 and 2022, a number of investments were made in
private credit and private equity assets, which are recognised
within fixed income securities and within equities, respectively,
on the Consolidated Statement of Financial Position. The fair value
of these assets is determined following a monthly valuation process
which uses two different valuation models and includes verification
by professional external valuers. The models use suitable market
comparatives and an estimate of future cash flows expected to flow
from the issuing entity.
The valuations are inherently subjective as they require a
number of assumptions to be made, such as determining which
entities provide suitable market comparatives and their relevant
performance metrics (for example earnings before interest, tax,
depreciation and amortisation), determining appropriate discount
rates and cash flow forecasts to use in models, the weighting to
apply to each valuation methodology, and the point in the range of
valuations to select as the fair value. As the inputs to the
valuation models are unobservable, the investments in private
credit and private equity assets are classified as Level 3 in the
IFRS 13 fair value hierarchy.
Following the invasion of Ukraine by Russia, sanctions and
trading restrictions were placed on foreign investors. As a result,
fair value pricing was applied to Russian assets that represents a
significant markdown in the value of these assets.
Judgements
The primary areas in which the Group has applied judgement are
as follows:
Consolidation
Entities are consolidated within the Group Financial Statements
if they are controlled by the Group. Control exists if the Group is
exposed to, or has rights to, variable returns from its involvement
with the entity and the Group has the ability to affect those
returns through its power over the entity. Significant judgement
can be involved in determining whether the Group controls an
entity, such as in the case of the structured entity set up for the
Group's securitisation transaction, SJP Partner Loans No.1 Limited,
and for the Group's unit trusts.
-59-
A structured entity is one that has been designed so that voting
or similar rights are not the dominant factor in deciding who
controls the entity. As a result, factors such as whether a Group
entity is able to direct the relevant activities of the entity and
the extent to which the Group is exposed to variability of returns
are considered. In the case of SJP Partner Loans No.1 Limited, it
was determined that the Group does control the entity and hence it
is consolidated. This is due to an entity in the Group holding the
junior tranche of loan notes, hence being subject to variability of
returns, and the same entity being able to direct the relevant
activities of the structured entity through its role of servicer to
the securitised portfolio.
Unit trusts are consolidated when the Group holds more than 30%
of the units in that unit trust. This is the threshold at which the
Group is considered to achieve control, having regard for factors
such as:
-- the scope of decision-making authority held by St. James's
Place Unit Trust Group Limited, the unit trust manager;
-- rights held by external parties to remove the unit trust manager; and
-- the Group's exposure to variable returns through its holdings
in the unit trusts and its ability to influence the unit trust
manager's remuneration.
Determining non-performing business loans to Partners
Business loans to Partners are considered to be non-performing
(Stage 3), in the context of the definition prescribed within IFRS
9, if they are in default. This is defined as a loan to either:
-- a Partner who has left the St. James's Place Partnership; or
-- a Partner whom management considers to be at significant risk
of leaving the Partnership and where an orderly settlement of debt
is considered to be in question.
Determining the derecognition of business loans to Partners
Business loans to Partners are derecognised, in the context of
the definition prescribed by IFRS 9, when:
-- the assets have been sold to a third party;
-- there is an obligation to pay received cash flows in full
without material delay to a third party under a 'pass-through'
arrangement; and
-- the originator has transferred substantially all the risks
and rewards of owning the assets.
See Note 7 for further information on the derecognition of
business loans to Partners.
-60-
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 each segment and assess its performance.
The Group's only reportable segment under IFRS 8 is a 'wealth
management' business - which is a vertically-integrated business
providing support to our clients through the provision of financial
advice and assistance through our Partner network, and financial
solutions including (but not limited to) wealth management products
manufactured in the Group, such as insurance bonds, pensions, unit
trust and ISA investments, and a DFM service.
Separate geographical segmental information is not presented
since the Group does not segment its business geographically. Most
of its customers are based in the United Kingdom, as is management
of the assets. In particular, the operation based in Asia is not
yet sufficiently material for separate consideration.
Segment revenue
Revenue received from fee and commission income is set out in
Note 4, which details the different types of revenue received from
our wealth management business.
Segment profit
Two separate measures of profit are monitored on a monthly basis
by the Board. These are the post-tax Underlying cash result and the
pre-tax European Embedded Value (EEV) profit.
Underlying cash result
The measure of cash profit monitored on a monthly basis by the
Board is the post-tax Underlying cash result. This reflects
emergence of cash available for paying a dividend during the year.
Underlying cash is based on the IFRS result excluding the impact of
intangibles, principally DAC, DIR, PVIF, goodwill, deferred tax,
and strategic expenses. As the cost associated with equity-settled
share-based payments is reflected in changes in shareholder equity,
they are also not included in the Underlying cash result.
More detail is provided in Section 2.2 of the Financial
Review.
The Cash result should not be confused with the IFRS
Consolidated Statement of Cash Flows, which is prepared in
accordance with IAS 7.
Year ended Year ended
31 December 31 December
2022 2021
-------------------------------------------------------- ------------ ------------
GBP'Million GBP'Million
-------------------------------------------------------- ------------ ------------
Underlying cash result after tax 410.1 401.2
Equity-settled share-based payments (20.5) (20.4)
Deferred tax impacts (30.5) 0.5
Restructuring - (9.7)
Impact in the year of DAC/DIR/PVIF (9.3) (28.0)
Impact of policyholder tax asymmetry (see Note 4) 1 50.6 (52.9)
Other 5.0 (3.1)
-------------------------------------------------------- ------------ ------------
IFRS profit after tax 405.4 287.6
Shareholder tax 96.4 66.2
-------------------------------------------------------- ------------ ------------
Profit before tax attributable to shareholders' returns 501.8 353.8
Tax attributable to policyholder returns (501.1) 488.6
-------------------------------------------------------- ------------ ------------
IFRS profit before tax 0.7 842.4
-------------------------------------------------------- ------------ ------------
(1) Further information on policyholder tax asymmetry can also
be found in Section 2.1 of the Financial Review.
-61-
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 Financial Review.
Year ended Year ended
31 December 31 December
2022 2021
------------------------------------------------------------- ------------ ------------
GBP'Million GBP'Million
------------------------------------------------------------- ------------ ------------
EEV operating profit before tax 1,589.7 1,545.4
Investment return variance (1,314.0) 894.5
Economic assumption changes 235.1 4.2
------------------------------------------------------------- ------------ ------------
EEV profit before tax 510.8 2,444.1
Adjustments to IFRS basis:
Deduct: amortisation of purchased value of in-force business (3.2) (3.2)
Movement of balance sheet life value of in-force business
(net of tax) 103.5 (824.5)
Movement of balance sheet unit trust and DFM value of
in-force business (net of tax) (94.9) (337.3)
Corporation tax rate change - (412.7)
Tax on movement in value of in-force business (14.4) (512.6)
------------------------------------------------------------- ------------ ------------
Profit before tax attributable to shareholders' returns 501.8 353.8
Tax attributable to policyholder returns (501.1) 488.6
------------------------------------------------------------- ------------ ------------
IFRS profit before tax 0.7 842.4
------------------------------------------------------------- ------------ ------------
The movement in life, unit trust and DFM value of in-force
business is the difference between the opening and closing
discounted value of the profits that will emerge from the in-force
book over time, after adjusting for DAC and DIR impacts which are
already included under IFRS.
Segment assets
Funds under management (FUM)
FUM, as reported in Section 1 of the Financial Review, is the
measure of segment assets which is monitored on a monthly basis by
the Board.
31 December 31 December
2022 2021
------------------------------------------------------------ ----------- -----------
GBP'Million GBP'Million
------------------------------------------------------------ ----------- -----------
Investment 33,290.0 35,950.0
Pension 73,860.0 74,830.0
UT/ISA and DFM 41,220.0 43,210.0
------------------------------------------------------------ ----------- -----------
Total FUM 148,370.0 153,990.0
Exclude client and third-party holdings in non-consolidated
unit trusts and DFM (4,407.3) (4,811.5)
Other 4,153.6 2,392.5
------------------------------------------------------------ ----------- -----------
Gross assets held to cover unit liabilities 148,116.3 151,571.0
IFRS intangible assets 496.4 551.6
Shareholder gross assets 3,092.3 3,607.3
------------------------------------------------------------ ----------- -----------
Total assets 151,705.0 155,729.9
------------------------------------------------------------ ----------- -----------
Other represents liabilities included within the underlying unit
trusts. The unit trust liabilities form a reconciling item between
total FUM, which is reported net of these liabilities, and total
assets, which exclude these liabilities.
More detail on IFRS intangible assets and shareholder gross
assets is provided in Section 2.2 of the Financial Review.
-62-
4. Fee and commission income
Year ended Year ended
31 December 31 December
2022 2021
-------------------------------------------------- ------------ ------------
GBP'Million GBP'Million
-------------------------------------------------- ------------ ------------
Advice charges (post-RDR) 987.6 946.7
Third-party fee and commission income 131.9 135.8
Wealth management fees 1,039.0 974.5
Investment management fees 60.8 63.4
Fund tax deductions (501.1) 486.9
Policyholder tax asymmetry 50.6 (52.9)
Discretionary fund management fees 23.4 22.4
-------------------------------------------------- ------------ ------------
Fee and commission income before DIR amortisation 1,792.2 2,576.8
Amortisation of DIR 162.0 160.4
-------------------------------------------------- ------------ ------------
Total fee and commission income 1,954.2 2,737.2
-------------------------------------------------- ------------ ------------
Advice charges are received from clients for the provision of
initial and ongoing advice in relation to a post-Retail
Distribution Review (RDR) investment into a St. James's Place or
third-party product.
Third-party fee and commission income is received from the
product provider where an investment has been made into a
third-party product.
Wealth management fees represent charges levied on manufactured
business.
Investment management fees are received from clients for the
provision of all aspects of investment management. Broadly,
investment management fees match investment management
expenses.
Fund tax (refunds)/deductions represent amounts credited to, or
deducted from, the life insurance business to match policyholder
tax credits or charges.
Life insurance tax incorporates a policyholder tax element, and
the Financial Statements of a life insurance group need to reflect
the liability to HMRC, with the corresponding deductions
incorporated into policy charges ('Fund tax deductions' in the
table above). The tax liability to HMRC is assessed using IAS 12
Income Taxes, which does not allow discounting, whereas the policy
charges are designed to ensure fair outcomes between clients and so
reflect a wide range of possible outcomes. This gives rise to
different assessments of the current value of future cash flows and
hence an asymmetry in the IFRS Consolidated Statement of Financial
Position between the deferred tax position and the offsetting
client balance. The net tax asymmetry balance reflects a temporary
position, and in the absence of market volatility we expect it will
unwind as future cash flows become less uncertain and are
ultimately realised.
Market conditions will impact the level of asymmetry experienced
in a year and may be significant where there is market volatility.
Market falls experienced in 2022 have resulted in a significant
positive movement, unwinding the negative impact seen in 2021.
Discretionary fund management fees are received from clients for
the provision of DFM services.
Where an investment has been made in a St. James's Place
product, the initial product charge and any dealing margin is
deferred and recognised as a deferred income liability. This
liability is extinguished, and income recognised, over the expected
life of the investment. The income is the amortisation of DIR in
the table above.
-63-
5. Investment return and movement in investment contract
benefits
The majority of the business written by the Group is unit-linked
investment business, and so investment contract benefits are
measured by reference to the underlying net asset value of the
Group's unitised investment funds. As a result, investment return
on the unitised investment funds and the movement in investment
contract benefits are linked.
Investment return
Year ended Year ended
31 December 31 December
2022 2021
--------------------------------------------------------------- ------------ ------------
GBP'Million GBP'Million
--------------------------------------------------------------- ------------ ------------
Investment return on net assets held to cover unit liabilities
Rental income 70.1 74.7
(Loss)/gain on revaluation of investment properties (244.5) 181.4
Net investment return on financial instruments classified
as fair value through profit and loss (9,457.9) 11,400.2
--------------------------------------------------------------- ------------ ------------
(9,632.3) 11,656.3
Attributable to unit-linked insurance contract liabilities (66.2) 52.8
Attributable to unit-linked investment contract benefits (9,566.1) 11,603.5
--------------------------------------------------------------- ------------ ------------
(9,632.3) 11,656.3
Income attributable to third-party holdings in unit trusts (4,168.7) 3,583.2
--------------------------------------------------------------- ------------ ------------
(13,801.0) 15,239.5
--------------------------------------------------------------- ------------ ------------
Investment return on shareholder assets
Net investment return on financial instruments classified
as fair value through profit and loss (2.9) 17.7
Interest income on financial instruments held at amortised
cost 32.0 18.2
--------------------------------------------------------------- ------------ ------------
29.1 35.9
--------------------------------------------------------------- ------------ ------------
Total investment return (13,771.9) 15,275.4
Included in the net investment return on financial instruments
classified as fair value through profit and loss, within investment
return on net assets held to cover unit liabilities, is dividend
income of GBP1,216.0 million (2021: GBP985.1 million).
Movement in investment contract benefits
2022 2021
------------------------------------------------------------- ----------- -----------
GBP'Million GBP'Million
------------------------------------------------------------- ----------- -----------
Balance at 1 January 110,349.8 93,132.7
Deposits 12,194.6 12,438.1
Withdrawals (5,645.1) (5,607.5)
Movement in unit-linked investment contract benefits (9,566.1) 11,603.5
Fees and other adjustments (368.5) (1,217.0)
------------------------------------------------------------- ----------- -----------
Balance at 31 December 106,964.7 110,349.8
------------------------------------------------------------- ----------- -----------
Current 5,546.3 5,585.4
Non-current 101,418.4 104,764.4
------------------------------------------------------------- ----------- -----------
106,964.7 110,349.8
------------------------------------------------------------- ----------- -----------
Movement in unit liabilities
Unit-linked investment contract benefits (9,566.1) 11,603.5
Third-party unit trust holdings (4,168.7) 3,583.2
------------------------------------------------------------- ----------- -----------
Movement in investment contract benefits in the Consolidated
Statement of Comprehensive Income (13,734.8) 15,186.7
------------------------------------------------------------- ----------- -----------
-64-
6. Income and deferred taxes
Tax for the year
Year ended Year ended
31 December 31 December
2022 2021
------------------------------------------------------- ------------ ------------
GBP'Million GBP'Million
------------------------------------------------------- ------------ ------------
Current tax
UK corporation tax
- Current year charge 66.0 294.1
- Adjustment in respect of prior year 3.5 (6.7)
Overseas taxes
- Current year charge 10.2 6.1
- Adjustment in respect of prior year - 0.1
------------------------------------------------------- ------------ ------------
79.7 293.6
Deferred tax
Unrealised capital (losses)/gains in unit-linked funds (504.0) 266.7
Unrelieved expenses
- Additional expenses recognised in the year (9.9) (10.8)
- Utilisation in the year 11.4 11.6
Capital losses
- Revaluation in the year 4.0 (1.4)
- Utilisation in the year 25.2 9.2
- Adjustment in respect of prior year (4.5) 4.0
DAC, DIR and PVIF (8.5) (8.9)
Share-based payments 3.3 (8.7)
Renewal income assets (3.0) 0.7
Fixed asset timing differences 1.0 (2.2)
Other items (1.5) 1.0
Overseas losses 0.1 (1.1)
Adjustment for change in tax rate - 0.4
Adjustments in respect of prior periods 2.0 0.7
------------------------------------------------------- ------------ ------------
(484.4) 261.2
------------------------------------------------------- ------------ ------------
Total tax (credit)/charge for the year (404.7) 554.8
------------------------------------------------------- ------------ ------------
Attributable to:
- policyholders (501.1) 488.6
- shareholders 96.4 66.2
------------------------------------------------------- ------------ ------------
(404.7) 554.8
The prior year adjustment of GBP3.5 million in current tax above
represents a charge of GBP7.3 million in respect of policyholder
tax (2021: GBP6.0 million credit) and a credit of GBP3.8 million in
respect of shareholder tax (2021: GBP0.7 million credit). The prior
year adjustment of GBP2.5 million in deferred tax above represents
a credit of GBPnil in respect of policyholder tax and a credit of
GBP2.5 million in respect of shareholder tax (2021: deferred tax
relates entirely to shareholder tax).
-65-
In arriving at the profit before tax attributable to
shareholders' return, it is necessary to estimate the distribution
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 on the profits attributable to
shareholders. This is calculated by applying the appropriate
effective corporate tax rates to the shareholder profits. The
remainder of the tax charge represents tax on policyholders'
investment returns. This calculation method is consistent with the
legislation relating to the calculation of tax on shareholder
profits.
Reconciliation of tax charge to expected tax
Year ended Year ended
31 December 31 December
2022 2021
------------------------------------------------ ------------ ------ ------------ ------
GBP'Million GBP'Million
------------------------------------------------ ------------ ------ ------------ ------
Profit before tax 0.7 842.4
Tax attributable to policyholders' returns 501.1 (488.6)
------------------------------------------------ ------------ ------ ------------ ------
Profit before tax attributable to shareholders'
returns 501.8 353.8
Shareholder tax charge at corporate tax rate
of 19% (2021: 19%) 95.3 19.0% 67.2 19.0%
Adjustments:
Lower rates of corporation tax in overseas
subsidiaries (1.3) (0.3%) (1.2) (0.3%)
------------------------------------------------ ------------ ------ ------------ ------
Expected shareholder tax 94.0 18.7% 66.0 18.6%
------------------------------------------------ ------------ ------ ------------ ------
Effects of:
Non-taxable income (1.5) (0.9)
Revaluation of historic capital losses in
the Group 4.0 (1.4)
Adjustment for change in tax rates - 0.4
Adjustment in respect of prior year
- Current tax (3.8) (0.7)
- Deferred tax (2.5) 4.7
Differences in accounting and tax bases in
relation to employee share schemes 2.5 (4.6)
Impact of difference in tax rates between
current and deferred tax (3.0) (2.4)
Disallowable expenses 5.6 4.0
Provision for future liabilities 0.5 0.3
Tax losses not recognised 2.2 1.2
Other (1.6) (0.4)
------------------------------------------------ ------------ ------ ------------ ------
2.4 0.5% 0.2 0.1%
------------------------------------------------ ------------ ------ ------------ ------
Shareholder tax charge 96.4 19.2% 66.2 18.7%
Policyholder tax (credit)/charge (501.1) 488.6
------------------------------------------------ ------------ ------ ------------ ------
Total tax (credit)/charge for the year (404.7) 554.8
------------------------------------------------ ------------ ------ ------------ ------
Tax calculated on profit before tax at 19% (2021: 19%) would
amount to GBP0.1 million (2021: GBP160.1 million). The difference
of GBP404.8 million (2021: GBP394.7 million) between this number
and the total tax credit of GBP404.7 million (2021: GBP554.8
million charge) is made up of the reconciling items above which
total a charge of GBP1.1 million (2021: GBP1.0 million credit) and
the effect of the apportionment methodology on tax applicable to
policyholder returns of GBP405.9 million (2021: GBP395.7
million).
-66-
Tax paid in the year
Year ended Year ended
31 December 31 December
2022 2021
----------------------------------------------------------- ------------ ------------
GBP'Million GBP'Million
----------------------------------------------------------- ------------ ------------
Current tax charge for the year 79.7 293.6
Refunds due to be received/(Payments to be made) in future
years in respect of current year 39.5 (3.6)
Payments made in current year in respect of prior years 1.6 27.3
Other 0.3 1.8
----------------------------------------------------------- ------------ ------------
Tax paid 121.1 319.1
----------------------------------------------------------- ------------ ------------
Tax paid can be analysed as:
- Taxes paid in UK 110.1 306.0
- Taxes paid in overseas jurisdictions 3.9 4.7
- Withholding taxes suffered on investment income received 7.1 8.4
----------------------------------------------------------- ------------ ------------
Total 121.1 319.1
----------------------------------------------------------- ------------ ------------
Deferred tax balances
Deferred tax assets
Deferred Renewal Fixed asset Other
acquisition Deferred income Share-based temporary temporary
costs (DAC) income (DIR) assets payments differences differences Total
---------------------- ------------ ------------- ----------- ----------- ------------ ------------ -----------
GBP'Million GBP'Million GBP'Million GBP'Million GBP'Million GBP'Million GBP'Million
---------------------- ------------ ------------- ----------- ----------- ------------ ------------ -----------
At 1 January 2021 (19.4) 33.1 (12.3) 6.8 5.6 0.6 14.4
Credit/(charge) to the
Statement of
Comprehensive Income
- Utilised and created
in year 1.4 (1.5) (0.8) 8.8 1.5 (0.5) 8.9
- Impact of tax rate
change (3.6) 6.2 (2.0) 0.6 0.7 (0.3) 1.6
---------------------- ------------ ------------- ----------- ----------- ------------ ------------ -----------
Total (charge)/credit (2.2) 4.7 (2.8) 9.4 2.2 (0.8) 10.5
Impact of acquisition - - (4.3) - - - (4.3)
---------------------- ------------ ------------- ----------- ----------- ------------ ------------ -----------
At 31 December 2021 (21.6) 37.8 (19.4) 16.2 7.8 (0.2) 20.6
Credit/(charge) to the
Statement of
Comprehensive Income
- Utilised and created
in year 1.2 (0.1) 3.1 (3.3) (3.9) 1.2 (1.8)
Total credit/(charge) 1.2 (0.1) 3.1 (3.3) (3.9) 1.2 (1.8)
Impact of acquisition - - (4.4) - - - (4.4)
Reclassified to
deferred tax
liabilities - - - - - (0.5) (0.5)
---------------------- ------------ ------------- ----------- ----------- ------------ ------------ -----------
At 31 December 2022 (20.4) 37.7 (20.7) 12.9 3.9 0.5 13.9
---------------------- ------------ ------------- ----------- ----------- ------------ ------------ -----------
Expected utilisation
period
As at 31 December 2021 14 years 14 years 20 years 3 years 6 years
---------------------- ------------ ------------- ----------- ----------- ------------ ------------ -----------
As at 31 December 2022 14 years 14 years 20 years 3 years 6 years
---------------------- ------------ ------------- ----------- ----------- ------------ ------------ -----------
-67-
Deferred tax liabilities
Unrealised
capital gains
on life
Unrelieved insurance Purchased
expenses Capital assets value of
on life Deferred losses backing unit in-force Other
insurance acquisition (available for liabilities business temporary
business costs (DAC) future relief) (BLAGAB) (PVIF) differences Total
---------------- ----------- ------------ --------------- ---------------- ----------- ------------ -----------
GBP'Million GBP'Million GBP'Million GBP'Million GBP'Million GBP'Million GBP'Million
---------------- ----------- ------------ --------------- ---------------- ----------- ------------ -----------
At 1 January
2021 (39.8) 32.1 (35.5) 417.3 3.3 0.7 378.1
Charge/(credit)
to the Statement
of Comprehensive
Income
- Utilised and
created in year 0.7 (8.4) 11.7 266.8 (0.6) (0.5) 269.7
- Impact of tax
rate change - 4.3 (3.0) - 0.7 - 2.0
Total
charge/(credit) 0.7 (4.1) 8.7 266.8 0.1 (0.5) 271.7
At 31 December
2021 (39.1) 28.0 (26.8) 684.1 3.4 0.2 649.8
Charge/(credit)
to the Statement
of Comprehensive
Income
- Utilised and
created in year 1.6 (7.8) 20.7 (504.0) (0.6) (0.3) (490.4)
- Impact of tax
rate change - - 4.0 - - - 4.0
---------------- ----------- ------------ --------------- ---------------- ----------- ------------ -----------
Total
charge/(credit) 1.6 (7.8) 24.7 (504.0) (0.6) (0.3) (486.4)
---------------- ----------- ------------ --------------- ---------------- ----------- ------------ -----------
Reclassified
from deferred
tax assets - - - - - (0.5) (0.5)
---------------- ----------- ------------ --------------- ---------------- ----------- ------------ -----------
At 31 December
2022 (37.5) 20.2 (2.1) 180.1 2.8 (0.6) 162.9
---------------- ----------- ------------ --------------- ---------------- ----------- ------------ -----------
Expected
utilisation
period
---------------- ----------- ------------ --------------- ---------------- ----------- ------------ -----------
As at 31
December 2021 6 years 14 years 5 years 5 years 4 years
---------------- ----------- ------------ --------------- ---------------- ----------- ------------ -----------
As at 31
December 2022 6 years 14 years 1 years 6 years 3 years
---------------- ----------- ------------ --------------- ---------------- ----------- ------------ -----------
Appropriate investment income, gains or profits are expected to
arise against which the tax assets can be utilised. Whilst the
actual rates of utilisation will depend on business growth and
external factors, particularly investment market conditions, they
have been tested for sensitivity to experience and are resilient to
a range of reasonably foreseeable scenarios.
At the reporting date there were unrecognised deferred tax
assets of GBP15.0 million (2021: GBP14.0 million) in respect of
GBP92.1 million (2021: GBP82.2 million) of losses in companies
where appropriate profits are not considered probable in the
forecast period. These losses primarily relate to our Asia-based
businesses and can be carried forward indefinitely.
In the UK Budget of 3 March 2021, it was announced that the main
rate of corporation tax will increase from 19% to 25% with effect
from 1 April 2023. This change was substantively enacted on 24 May
2021 within the Finance Act 2021 and as a result the relevant
deferred tax balances were remeasured in 2021.
In December 2022, the OECD published key documents on the
implementation of the new Pillar Two model rules. This legislation
will apply to St. James's Place as a large multinational with
effect from 1 January 2024. We are reviewing the latest documents
in detail to assess the likely impact.
-68-
7. Other receivables
31 December 31 December
2022 2021
---------------------------------------------------------- ----------- -----------
GBP'Million GBP'Million
---------------------------------------------------------- ----------- -----------
Receivables in relation to unit liabilities excluding
policyholder interests 397.0 433.6
Other receivables in relation to insurance and unit trust
business 81.4 71.7
Operational readiness prepayment 278.3 296.3
Advanced payments to Partners 83.8 71.0
Other prepayments and accrued income 84.3 84.3
Business loans to Partners 315.6 521.6
Renewal income assets 115.5 102.5
Miscellaneous 18.9 6.6
---------------------------------------------------------- ----------- -----------
Total other receivables on the Solvency II Net Assets
Balance Sheet 1,374.8 1,587.6
Policyholder interests in other receivables (see Note
11) 1,604.8 1,332.4
Other 3.2 3.0
---------------------------------------------------------- ----------- -----------
Total other receivables 2,982.8 2,923.0
---------------------------------------------------------- ----------- -----------
Current 2,363.0 2,106.1
Non-current 619.8 816.9
---------------------------------------------------------- ----------- -----------
2,982.8 2,923.0
---------------------------------------------------------- ----------- -----------
All items within other receivables meet the definition of
financial assets with the exception of prepayments and advanced
payments to Partners. The fair value of those financial assets held
at amortised cost is not materially different from amortised
cost.
Receivables in relation to unit liabilities relate to
outstanding market trade settlements (sales) in the life
unit-linked funds and the consolidated unit trusts. Other
receivables in relation to insurance and unit trust business
primarily relate to outstanding policy-related settlement timings.
Both of these categories of receivables are short-term.
The operational readiness prepayment relates to the Bluedoor
administration platform which has been developed by our key
outsourced back-office administration provider. Management has
assessed the recoverability of this prepayment against the expected
cost saving benefit of lower future tariff costs arising from the
platform. It is believed that no reasonably possible change in the
assumptions applied within this assessment, notably levels of
future business, the anticipated future service tariffs and the
discount rate, would have an impact on the carrying value of the
asset.
Renewal income assets represent the present value of future cash
flows associated with business combinations or books of business
acquired by the Group.
Business loans to Partners
31 December 31 December
2022 2021
-------------------------------------------------------- ----------- -----------
GBP'Million GBP'Million
-------------------------------------------------------- ----------- -----------
Business loans to Partners directly funded by the Group 315.6 307.6
Securitised business loans to Partners - 214.0
-------------------------------------------------------- ----------- -----------
Total business loans to Partners 315.6 521.6
-------------------------------------------------------- ----------- -----------
Business loans to Partners are interest-bearing (linked to Bank
of England base rate plus a margin), repayable in line with the
terms of the loan contract and secured against the future income
streams of the respective Partner.
During the year, GBP262.5 million of business loans to Partners
previously recognised in the Consolidated Statement of Financial
Position were sold to a third-party. The sale occurred at book
value and met the derecognition criteria of
-69-
IFRS 9 as substantially all risks and rewards of ownership were
transferred. The risks and rewards of ownership were assessed as
transferred primarily due to the following:
-- the loans were sold to a third-party Special Purpose Vehicle
(SPV) which the Group does not manage or control;
-- the third-party SPV has the ability to remove the Group as the servicing party;
-- there is no exposure from the loans sold to the third-party
SPV through clawback, or any residual credit risk; and
-- the transaction was structured by identifying a portfolio of
loans (totaling GBP276.3 million), selling 95% of the full
individual loans within that portfolio (realising proceeds of
GBP262.5 million) and retaining 5% of the full individual loans
within the portfolio as required under the Securitisation
regulation. The loans were assessed for derecognition on an
individual basis and the retained 5% do not meet the derecognition
criteria for IFRS 9
As a result, these business loans to Partners are no longer
recognised on the Consolidated Statement of Financial Position.
The Group has a continued involvement with the derecognised
assets through the servicing of the transferred loan portfolio. A
servicing fee is received in respect of this servicing which is
immaterial to the Group. The servicing fee is included within fee
and commission income on the face of the Consolidated Statement of
Comprehensive Income.
The sale included GBP222.8 million of securitised business loans
to Partners, reducing the securitised loan balance to GBPnil (2021:
GBP214.0 million). The senior tranche of securitisation loan notes
that were secured upon those securitised business loans to Partners
were repaid as part of the transaction. See Note 9 for further
information.
Prior to the sale, legal ownership of the securitised business
loans to Partners had been transferred to a structured entity, SJP
Partner Loans No.1 Limited, which issued loan notes secured upon
them. Note 9 provides information on these loan notes. The
securitised business loans to Partners were ring-fenced from the
other assets of the Group, which means that the cash flows
associated with these business loans to Partners could only have
been used to purchase new loans which go into the structure, or to
repay the note holders, plus associated issuance fees and costs.
Holders of the loan notes had no recourse to the Group's other
assets. The securitised business loans to Partners were recognised
on the Group Statement of Financial Position as the Group controls
SJP Partner Loans No.1 Limited; refer to the Consolidation section
within Note 2 for further information.
Reconciliation of the business loans to Partners opening and
closing gross loan balances
Stage Stage
Stage 2 3
1 under- non-
performing performing performing Total
------------------------------------------ ----------- ----------- ----------- -----------
GBP'Million GBP'Million GBP'Million GBP'Million
------------------------------------------ ----------- ----------- ----------- -----------
Gross balance at 1 January 2022 500.5 21.0 4.1 525.6
Business loans to Partners classification
changes:
- Transfer to underperforming (4.8) 4.8 - -
- Transfer to non-performing (0.5) (0.9) 1.4 -
- Transfer to performing 5.2 (5.2) - -
Sale to a third party during the year (262.5) - - (262.5)
New lending activity during the year 216.6 2.1 0.4 219.1
Interest charged during the year 20.6 0.9 0.2 21.7
Repayment activity during the year (178.0) (5.0) (1.5) (184.5)
Gross balance at 31 December 2022 297.1 17.7 4.6 319.4
------------------------------------------ ----------- ----------- ----------- -----------
-70-
Stage Stage
Stage 2 3
1 under- non-
performing performing performing Total
------------------------------------------ ----------- ----------- ----------- -----------
GBP'Million GBP'Million GBP'Million GBP'Million
------------------------------------------ ----------- ----------- ----------- -----------
Gross balance at 1 January 2021 450.8 22.3 7.6 480.7
Business loans to Partners classification
changes:
- Transfer to underperforming (10.7) 10.8 (0.1) -
- Transfer to non-performing (0.4) (0.2) 0.6 -
- Transfer to performing 6.7 (6.7) - -
New lending activity during the year 265.8 6.6 0.4 272.8
Interest charged during the year 16.3 1.5 0.2 18.0
Repayment activity during the year (228.0) (13.3) (4.6) (245.9)
Gross balance at 31 December 2021 500.5 21.0 4.1 525.6
------------------------------------------ ----------- ----------- ----------- -----------
Business loans to Partners: provision
The expected loss impairment model for business loans to
Partners is based on the levels of loss experienced in the
portfolio, with due consideration given to forward-looking
information. For those business loans to Partners sold to a third
party, full credit risk has been transferred.
The provision held against business loans to Partners as at 31
December 2022 was GBP3.8 million (2021: GBP4.0 million). During the
year, GBP0.3 million of the provision was released (2021: GBPnil),
GBP0.2 million was utilised (2021: GBP0.5 million) and new
provisions and adjustments to existing provisions increased the
total by GBP0.3 million (2021: GBP0.5 million).
There is no provision held against any other receivables held at
amortised cost.
Business loans to Partners as recognised on the Statement of
Financial Position
31 December 31 December
2022 2021
--------------------------------- ----------- -----------
GBP'Million GBP'Million
--------------------------------- ----------- -----------
Gross business loans to Partners 319.4 525.6
Provision (3.8) (4.0)
--------------------------------- ----------- -----------
Net business loans to Partners 315.6 521.6
--------------------------------- ----------- -----------
Renewal income assets
Movement in renewal income assets
2022 2021
----------------------- ----------- -----------
GBP'Million GBP'Million
----------------------- ----------- -----------
Balance at 1 January 102.5 87.4
Additions 36.1 34.6
Disposals (7.8) (10.5)
Revaluation (15.3) (9.0)
----------------------- ----------- -----------
Balance at 31 December 115.5 102.5
----------------------- ----------- -----------
-71-
The key assumptions used for the assessment of the fair value of
the renewal income are as follows:
31 December 31 December
2022 2021
----------------------------------------- ----------- -----------
5.0% to 5.0% to
Lapse rate - SJP Partner renewal income 1 15.0% 15.0%
15.0% to 15.0% to
Lapse rate - non-SJP renewal income 1 25.0% 25.0%
12.0% to 3.4% to
Discount rate 13.7% 10.1%
----------------------------------------- ----------- -----------
(1) Future income streams are projected making use of retention
assumptions derived from the Group's experience of the business or,
where insufficient data exists, from external industry experience.
These assumptions are reviewed on an annual basis.
These assumptions have been used for the analysis of each
business combination classified within renewal income.
-72-
8. Other payables
31 December 31 December
2022 2021
----------- -----------
GBP'Million GBP'Million
---------------------------------------------------------------- ----------- -----------
Payables in relation to unit liabilities excluding policyholder
interests 326.2 178.9
Other payables in relation to insurance and unit trust
business 417.8 448.9
Accrual for ongoing advice fees 133.2 141.2
Other accruals 105.8 103.6
Contract payment 95.8 107.1
Lease liabilities: properties 116.6 124.1
Other payables in relation to Partner payments 74.8 86.7
Miscellaneous 67.3 63.9
---------------------------------------------------------------- ----------- -----------
Total other payables on the Solvency II Net Assets Balance
Sheet 1,337.5 1,254.4
Policyholder interests in other payables 842.0 1,344.9
Other (see adjustment 2 on page 30) 19.1 5.2
---------------------------------------------------------------- ----------- -----------
Total other payables 2,198.6 2,604.5
---------------------------------------------------------------- ----------- -----------
Current 2,018.5 2,405.2
Non-current 180.1 199.3
---------------------------------------------------------------- ----------- -----------
2,198.6 2,604.5
---------------------------------------------------------------- ----------- -----------
Payables in relation to unit liabilities relate to outstanding
market trade settlements (purchases) in the life unit-linked funds
and the consolidated unit trusts. Other payables in relation to
insurance and unit trust business primarily relate to outstanding
policy-related settlement timings. Both of these categories of
payables are short-term.
The contract payment of GBP95.8 million (2021: GBP107.1 million)
represents payments made by a third-party service provider to the
Group as part of a service agreement, which are
non-interest-bearing and repayable over the life of the service
agreement. The contract payment received prior to 2020 is repayable
on a straight-line basis over the original 12-year term, with
repayments commencing on 1 January 2017. The contract payment
received in 2020 is repayable on a straight-line basis over 13
years and 4 months, with repayments commencing on 1 September
2020.
The Lease liabilities: properties line item represents the
present value of future cash flows associated with the Group's
portfolio of property leases.
The fair value of financial instruments held at amortised cost
within other payables is not materially different from amortised
cost.
Policyholder interests in other payables are short-term in
nature and can vary significantly from period to period due to
prevailing market conditions and underlying trading activity.
-73-
9. Borrowings and financial commitments
Borrowings
Borrowings are a liability arising from financing activities.
The Group has two different types of borrowings:
-- senior unsecured corporate borrowings which are used to
manage working capital, bridge intra-group cash flows and fund
investment in the business; and
-- securitisation loan notes which are secured only on a legally
segregated pool of the Group's business loans to Partners, and
hence are non-recourse to the Group's other assets. Further
information about business loans to Partners is provided in Note
7.
Senior unsecured corporate borrowings
31 December 31 December
2022 2021
-------------------------------------- ----------- -----------
GBP'Million GBP'Million
-------------------------------------- ----------- -----------
Corporate borrowings: bank loans - 106.8
Corporate borrowings: loan notes 163.8 163.8
-------------------------------------- ----------- -----------
Senior unsecured corporate borrowings 163.8 270.6
-------------------------------------- ----------- -----------
The primary senior unsecured corporate borrowings are:
-- a revolving credit facility, which was renewed during the
year. The facility increased from GBP340 million to GBP345 million
which is repayable at maturity in 2027 with a variable interest
rate. At 31 December 2022 the undrawn credit available under this
facility was GBP345 million (2021: GBP233 million);
-- a Note Purchase Agreement for GBP64 million. The notes are
repayable in instalments over ten years, ending in 2027, with
variable interest rates; and
-- a Note Purchase Agreement for GBP100 million. The notes are
repayable in one amount in 2031, with variable interest rates.
The Group has a number of covenants within the terms of its
senior unsecured corporate borrowing facilities. These covenants
are monitored on a regular basis and reported to lenders on a
six-monthly basis. During the course of the year all covenants were
complied with.
As at 31 December 2022 and 31 December 2021 the Group had
sufficient headroom available under its covenants to fully draw the
remaining commitment under its senior unsecured corporate borrowing
facilities.
Total borrowings
31 December 31 December
2022 2021
--------------------------------------------------------- ----------- -----------
GBP'Million GBP'Million
--------------------------------------------------------- ----------- -----------
Senior unsecured corporate borrowings 163.8 270.6
Senior tranche of non-recourse securitisation loan notes - 162.4
--------------------------------------------------------- ----------- -----------
Total borrowings 163.8 433.0
--------------------------------------------------------- ----------- -----------
Current 12.8 -
Non-current 151.0 433.0
--------------------------------------------------------- ----------- -----------
163.8 433.0
--------------------------------------------------------- ----------- -----------
During the year the senior tranche of securitisation loan notes
were repaid as a result of the sale of a portfolio of Partner
business loans, including all of the securitised business loans, to
a third party. Prior to the sale, the senior tranche of
securitisation loan notes were AAA-rated and repayable over the
expected life of the securitisation (estimated to be five years)
with a variable interest rate. They were held by third-party
investors and secured on a legally segregated portfolio of business
loans to Partners, and on the other net assets of the
securitisation entity SJP Partner Loans No.1 Limited. Holders of
the securitisation loan notes had no recourse to the assets held by
any other entity within the Group. For further information on
business loans to Partners, including the sale of securitised
business loans to Partners during the year, refer to Note 7.
-74-
In addition to the senior tranche of securitisation loan notes,
a junior tranche has been issued to another entity within the
Group. The junior notes were eliminated on consolidation in the
preparation of the Group Financial Statements and so do not form
part of Group borrowings.
31 December 31 December
2022 2021
--------------------------------------------------------- ----------- -----------
GBP'Million GBP'Million
--------------------------------------------------------- ----------- -----------
Junior tranche of non-recourse securitisation loan notes 2.1 61.2
Senior tranche of non-recourse securitisation loan notes - 162.4
--------------------------------------------------------- ----------- -----------
Total non-recourse securitisation loan notes 2.1 223.6
--------------------------------------------------------- ----------- -----------
Backed by
Securitised business loans to Partners (see Note 7) - 214.0
Other net assets of SJP Partner Loans No.1 Limited 2.1 9.6
--------------------------------------------------------- ----------- -----------
Total net assets held by SJP Partner Loans No.1 Limited 2.1 223.6
--------------------------------------------------------- ----------- -----------
Movement in borrowings
Borrowings are liabilities arising from financing activities.
The cash and non-cash movements in borrowings over the year are set
out below, with the cash movements also set out in the Consolidated
Statement of Cash Flows.
Senior
Senior Senior Senior tranche
unsecured tranche unsecured of
corporate of securitisation Total corporate securitisation Total
borrowings loan notes borrowings borrowings loan notes borrowings
--------------------------- ----------- ------------------ ----------- ----------- --------------- -------------
2022 2022 2022 2021 2021 2021
----------- ------------------ ----------- ----------- --------------- -------------
GBP'Million GBP'Million GBP'Million GBP'Million GBP'Million GBP'Million
--------------------------- ----------- ------------------ ----------- ----------- --------------- -------------
Balance at 1 January 270.6 162.4 433.0 226.5 115.3 341.8
Additional borrowing during
the year 145.0 59.0 204.0 487.0 89.4 576.4
Repayment of borrowings
during
the year (252.0) (223.3) (475.3) (443.4) (42.7) (486.1)
Costs on additional
borrowings
during the year (1.6) - (1.6) (0.1) (0.1) (0.2)
Unwind of borrowing costs
(non-cash movement) 0.6 0.5 1.1 0.6 0.5 1.1
Reclassification of prepaid
loan facility expense to
prepayments 1.2 1.4 2.6 - - -
--------------------------- ----------- ------------------ ----------- ----------- --------------- -----------
Balance at 31 December 163.8 - 163.8 270.6 162.4 433.0
--------------------------- ----------- ------------------ ----------- ----------- --------------- -----------
The fair value of the outstanding borrowings is not materially
different from amortised cost. Interest expense on borrowings is
recognised within expenses in the Consolidated Statement of
Comprehensive Income.
Financial commitments
Guarantees
The Group guarantees loans provided by third parties to
Partners. In the event of default on any individual Partner loan,
the Group guarantees to repay the full amount of the loan, with the
exception of Metro Bank. For this third party the Group guarantees
to cover losses up to 50% of the value to the total loans drawn.
These loans are secured against the future income streams of the
Partner. The value of the loans guaranteed is as follows:
-75-
Loans drawn Facility
----------------- ------------------------ ------------------------
31 December 31 December 31 December 31 December
2022 2021 2022 2021
----------- ----------- ----------- -----------
GBP'Million GBP'Million GBP'Million GBP'Million
----------------- ----------- ----------- ----------- -----------
Bank of Scotland 28.7 51.9 70.0 70.0
Investec 28.8 33.1 50.0 50.0
Metro Bank 27.3 37.0 40.0 61.0
NatWest 37.9 28.8 75.0 50.0
Santander 167.7 119.9 179.0 169.9
----------------- ----------- ----------- ----------- -----------
Total loans 290.4 270.7 414.0 400.9
----------------- ----------- ----------- ----------- -----------
The fair value of these guarantees has been assessed as GBPnil
(2021: GBPnil).
-76-
10. Cash generated from operations
Year ended Year ended
31 December 31 December
2022 2021
-------------------------------------------------------- ------------ ------------
GBP'Million GBP'Million
-------------------------------------------------------- ------------ ------------
Cash flows from operating activities
Profit before tax for the year 0.7 842.4
Adjustments for:
Amortisation of purchased value of in-force business 3.2 3.2
Amortisation of computer software 9.3 10.6
Change in capitalisation policy - 5.1
Depreciation 21.7 22.1
Impairment of goodwill 1.5 1.5
Loss on disposal of computer software 0.5 -
Loss on disposal of property and equipment, including
leased assets 0.9 2.7
Share-based payment charge 20.5 22.9
Interest income (61.8) (19.2)
Interest expense 12.4 10.2
Increase in provisions 1.9 9.8
Exchange rate (gains)/losses (0.7) 0.1
-------------------------------------------------------- ------------ --------------
9.4 69.0
Changes in operating assets and liabilities
Decrease in deferred acquisition costs 42.3 44.9
Decrease/(increase) in investment property 274.0 (41.8)
Decrease/(increase) in other investments 2,378.9 (24,358.4)
Increase in investment in associates - (1.4)
Decrease in reinsurance assets 16.0 9.9
Increase in other receivables (298.8) (326.9)
(Decrease)/increase in insurance contract liabilities (88.8) 9.7
(Decrease)/increase in financial liabilities (excluding
borrowings) (1,138.3) 17,486.7
Decrease in deferred income (32.2) (17.3)
(Decrease)/increase in other payables (397.7) 574.3
(Decrease)/increase in net assets attributable to
unit holders (1,740.6) 7,449.9
-------------------------------------------------------- ------------ --------------
(985.2) 829.6
-------------------------------------------------------- ------------ --------------
Cash (used in)/generated from operations (975.1) 1,741.0
-------------------------------------------------------- ------------ --------------
-77-
11. Share capital, earnings per share and dividends
Share capital
Number
of Called-up
ordinary share
shares capital
---------------------- ----------- -----------
GBP'Million
---------------------- ----------- -----------
At 1 January 2021 537,343,466 80.6
- Issue of shares 850,985 0.1
- Exercise of options 2,336,078 0.4
At 31 December 2021 540,530,529 81.1
- Issue of shares 459,028 0.1
- Exercise of options 3,246,200 0.4
---------------------- ----------- -----------
At 31 December 2022 544,235,757 81.6
---------------------- ----------- -----------
Ordinary shares have a par value of 15 pence per share (2021: 15
pence per share) and are fully paid.
Included in the issued share capital are 2,207,186 (2021:
1,685,250) shares held in the Shares in trust reserve with a
nominal value of GBP0.3 million (2021: GBP0.3 million). The shares
are held by the SJP Employee Share Trust and the St. James's Place
2010 SIP Trust to satisfy certain share-based payment schemes. The
Trustees of the SJP Employee Share Trust retain the right to
dividends on the shares held by the Trust but have chosen to waive
their entitlement to the dividends on 815,737 shares at 31 December
2022 and 285,033 shares at 31 December 2021. No dividends were
waived on shares held in the St. James's Place 2010 SIP Trust in
2022 or 2021.
Share capital increases are included within the 'exercise of
options' line of the table above where they relate to the Group's
share-based payment schemes. Other share capital increases are
included within the 'issue of shares' line.
Earnings per share
Year ended Year ended
31 December 31 December
2022 2021
---------------------------------------------------------- ------------ ------------
GBP'Million GBP'Million
---------------------------------------------------------- ------------ ------------
Earnings
Profit after tax attributable to equity shareholders (for
both basic and diluted EPS) 405.0 286.7
---------------------------------------------------------- ------------ ------------
Million Million
---------------------------------------------------------- ------------ ------------
Weighted average number of shares
Weighted average number of ordinary shares in issue (for
basic EPS) 542.7 537.7
Adjustments for outstanding share options 5.1 8.5
---------------------------------------------------------- ------------ ------------
Weighted average number of ordinary shares (for diluted
EPS) 547.8 546.2
---------------------------------------------------------- ------------ ------------
Pence Pence
---------------------------------------------------------- ------------ ------------
Earnings per share (EPS)
Basic earnings per share 74.6 53.3
Diluted earnings per share 73.9 52.5
---------------------------------------------------------- ------------ ------------
-78-
Dividends
The following dividends have been paid by the Group:
Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December
2022 2021 2022 2021
------------------------------------ ------------ ------------ ------------ ------------
Pence Pence per
per share share GBP'Million GBP'Million
------------------------------------ ------------ ------------ ------------ ------------
Withheld 2019 dividend - 11.22 - 60.3
Final dividend in respect of 2020 - 38.49 - 207.2
Interim dividend in respect of 2021 - 11.55 - 62.4
Final dividend in respect of 2021 40.41 - 218.9 -
Interim dividend in respect of 2022 15.59 - 84.7 -
------------------------------------ ------------ ------------ ------------ ------------
Total dividends 56.00 61.26 303.6 329.9
------------------------------------ ------------ ------------ ------------ ------------
In respect of 2022 the Directors have recommended a 2022 final
dividend of 37.19 pence per share. This amounts to GBP202.4 million
and will, subject to shareholder approval at the Annual General
Meeting, be paid on 31 May 2023 to those shareholders on the
register as at 5 May 2022.
12. 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 were losses recognised of GBP0.7
million (2021: GBP11.0 million) and the total value of transactions
with those non-consolidated unit trusts was GBP6.5 million (2021:
GBP14.1 million). Net management fees receivable from these unit
trusts amounted to GBPnil (2021: GBP1.8 million). The value of the
investment into the non-consolidated unit trusts at 31 December
2022 was GBP10.0 million (2021: GBP4.2 million).
Transactions with associates and non-wholly owned
subsidiaries
Outstanding at the year-end was a business loan of GBP1.2
million (2021: GBP0.9 million) to an associate of the Group. During
the year GBP0.3 million (2021: GBPnil) was advanced and GBPnil
(2021: GBPnil) was repaid. Business loans to associates are
interest-bearing (linked to the Bank of England base rate plus a
margin) and repayable in line with the terms of the loan contract.
Interest of GBPnil was received during 2022 (2021: GBPnil).
In addition, commission, advice fees and other payments of
GBP4.3 million were paid, under normal commercial terms, to
non-wholly owned Group companies. The outstanding amount receivable
at 31 December 2022 was GBP0.1 million. As at 31 December 2021
there were no entities for which disclosure was required.
Transactions with key management personnel
Key management personnel have been defined as the Board of
Directors and members of the Executive Board. The remuneration paid
to the Board of Directors of St. James's Place plc is set out in
the Directors' Remuneration Report, in addition to the disclosure
below.
The Directors' Remuneration Report also sets out transactions
with the Directors under the Group's share-based payment schemes,
together with details of the Directors' interests in the share
capital of the Company.
Compensation of key management personnel is as follows:
-79-
Year ended Year ended
31 December 31 December
2022 2021
----------------------------- ------------ ------------
GBP'Million GBP'Million
----------------------------- ------------ ------------
Short-term employee benefits 6.3 6.1
Post-employment benefits 0.5 0.5
Share-based payment 6.5 5.7
----------------------------- ------------ ------------
Total 13.3 12.3
----------------------------- ------------ ------------
The total value of Group FUM held by related parties of the
Group as at 31 December 2022 was GBP41.1 million (2021: GBP35.3
million). The total value of St. James's Place plc dividends paid
to related parties of the Group during the year was GBP0.8 million
(2021: GBP0.9 million).
Total consideration of GBP20.3 million (2021: GBPnil) was agreed
under normal commercial terms to key management personnel and their
connected parties for the acquisition of JEWM Ltd (formerly Janine
Edwards Wealth Management Limited). As at 31 December 2022 there
was deferred contingent consideration outstanding of GBP3.2 million
(2021: GBPnil).
Commission, advice fees and other payments of GBP3.2 million
(2021: GBP6.2 million) were paid, under normal commercial terms, to
St. James's Place advisers who were related parties by virtue of
being connected persons with key management personnel. The
outstanding amount payable at 31 December 2022 was GBP0.1 million
(2021: GBP0.8 million).
Outstanding at the year-end were Partner loans of GBPnil (2021:
GBP3.3 million) due from St. James's Place advisers who were
related parties by virtue of being connected persons with key
management personnel. The Group either advanced, or guaranteed,
these loans. During the year GBP0.5 million (2021: GBPnil) was
advanced and GBP3.0 million (2021: GBP0.8 million) was repaid by
advisers who were related parties. The remaining balance was
derecognised as a related party due to changes in key management
personnel during the year.
Business loans to Partners are interest-bearing (linked to the
Bank of England base rate plus a margin), repayable in line with
the terms of the loan contract and secured against the future
renewal income streams of the respective Partner. Interest of
GBP0.1 million was received during 2022 (2021: GBP0.1 million).
At the start of the year, related parties of key management
personnel held nil (2021: 28,517) shares and options under various
St. James's Place plc share option schemes. During the year nil
(2021: nil) shares and options were granted, nil (2021: nil)
options lapsed and nil (2021: 28,517) options were exercised.
13. Non-statutory accounts
The financial information set out above does not constitute the
Company's statutory accounts for the years ended 31 December 2022
or 2021 but is derived from those accounts. Statutory accounts for
2021 have been delivered to the registrar of companies, and those
for 2022 will be delivered in due course. The auditors have
reported on those accounts; their report was (i) unqualified, (ii)
did not include a reference to any matters to which the auditors
drew attention by way of emphasis without qualifying their report
and (iii) did not contain a statement under section 498 of the
Companies Act 2006.
14. Annual Report
The Company's Annual Report and Accounts for the year ended 31
December 2022 is expected to be posted to shareholders by 11 April
2022. Copies of both this announcement and the Annual Report and
Accounts will be available to the public through the Company's
website at www.sjp.co.uk.
-80-
Glossary of Alternative Performance Measures
Within this document various alternative performance measures
(APMs) are disclosed.
An APM is a measure of financial performance, financial position
or cash flows which is not defined by the relevant financial
reporting framework, which for the Group is International Financial
Reporting Standards as adopted by the UK (adopted IFRSs). APMs are
used to provide greater insight into the performance of the Group
and the way it is managed by the Directors. The table below defines
each APM, explains why it is used and, if applicable, details where
the APM has been reconciled to IFRS:
Financial-position-related APMs
Reconciliation
Why is this measure to the Financial
APM Definition used? Statements
-------------- ------------------------------------- -------------------------------- -------------------
Solvency Based on IFRS Net Assets, Our ability to satisfy Refer to page
II net assets but with the following our liabilities to clients, 30.
adjustments: and consequently our
solvency, is central
1. Reflection of the to our business. By removing
recognition requirements the liabilities which
of the Solvency II regulations are fully matched by
for assets and liabilities. assets, this presentation
In particular this removes allows the reader to
deferred acquisition focus on the business
costs (DAC), deferred operation. It also provides
income (DIR), purchased a simpler comparison
value of in-force (PVIF) with other wealth management
and their associated companies.
deferred tax balances,
other intangibles and
some other small items
which are treated as
inadmissible from a regulatory
perspective; and
2. Adjustment to remove
the matching client assets
and the liabilities as
these do not represent
shareholder assets.
No adjustment is made
to deferred tax, except
for that arising on DAC,
DIR and PVIF, as this
is treated as an allowable
asset in the Solvency
II regulation.
-------------- ------------------------------------- -------------------------------- -------------------
Total embedded A discounted cash flow Life business and wealth Not applicable.
value valuation methodology, management business differ
assessing the long-term from most other businesses,
economic value of the in that the expected
business. shareholder income from
the sale of a product
Our embedded value is emerges over a long period
determined in line with in the future. We therefore
the EEV principles, originally supplement the IFRS and
set out by the Chief Cash results by providing
Financial Officers (CFO) additional disclosure
Forum in 2004, and amended on an embedded value
for subsequent changes basis, which brings into
to the principles, including account the net present
those published in April value of expected future
2016, following the implementation cash flows, as we believe
of Solvency II. that a measure of total
economic value of the
Group is useful to investors.
-------------- ------------------------------------- -------------------------------- -------------------
EEV net EEV net asset value per Total embedded value Not applicable.
asset value share is calculated as provides a measure of
(NAV) per the EEV net assets divided total economic value
share by the year-end number of the Group, and assessing
of ordinary shares. the NAV per share allows
analysis of the overall
value of the Group by
share.
-------------- ------------------------------------- -------------------------------- -------------------
IFRS NAV IFRS net asset value Total IFRS net assets Not applicable.
per share per share is calculated provides a measure of
as the IFRS net assets value of the Group, and
divided by the year-end assessing the NAV per
number of ordinary shares. share allows analysis
of the overall value
of the Group by share.
-------------- ------------------------------------- -------------------------------- -------------------
-81-
Financial-performance-related APMs
Reconciliation
Why is this measure to the Financial
APM Definition used? Statements
--------------- ------------------------------------- ------------------------------------ ------------------------
Cash result, The Cash result is defined IFRS income statement Refer to pages
and Underlying as the movement between methodology recognises 24, 25 and also
cash result the opening and closing non-cash items such as see Note 3 to
Solvency II net assets deferred tax and non-cash-settled the Consolidated
adjusted as follows: share options. By contrast, Financial Statements.
dividends can only be
1. The movement in deferred paid to shareholders
tax is removed to reflect from appropriately fungible
just the cash realisation assets. The Board therefore
from the deferred tax uses the Cash results
position; to monitor the level
2. The movements in goodwill of cash generated by
and other intangibles the business.
are included; and
3. Other changes in equity, While the Cash result
such as dividends paid gives an absolute measure
in the year and equity-settled of the cash generated
share option costs, are in the year, the Underlying
excluded. cash result is particularly
useful for monitoring
The Underlying cash result the expected long-term
reflects the regular rate of cash emergence,
emergence of cash from which supports dividends
the business, excluding and sustainable dividend
any items of a one-off growth.
nature and temporary
timing differences.
The Cash result reflects
all other cash items,
including any items of
a one-off nature and
temporary timing differences.
Neither the Cash result
nor the Underlying cash
result should be confused
with the IFRS Consolidated
Statement of Cash Flows
which is prepared in
accordance with IAS 7.
--------------- ------------------------------------- ------------------------------------ ------------------------
Underlying These EPS measures are As Underlying cash is Not applicable.
cash basic calculated as Underlying the best reflection of
and diluted cash divided by the number the cash generated by
earnings of shares used in the the business, Underlying
per share calculation of IFRS basic cash EPS measures allow
(EPS) and diluted EPS. analysis of the shareholder
cash generated by the
business by share.
--------------- ------------------------------------- ------------------------------------ ------------------------
EEV profit Derived as the movement Both the IFRS and Cash See Note 3 to
in the total EEV during results reflect only the Consolidated
the year. the cash flows in the Financial Statements.
year. However our business
is long-term, and activity
in the year can generate
business with a long-term
value. We therefore believe
it is helpful to understand
the full economic impact
of activity in the year,
which is the aim of the
EEV methodology.
--------------- ------------------------------------- ------------------------------------ ------------------------
EEV operating A discounted cash flow Both the IFRS and Cash See Note 3 to
profit valuation methodology, results reflect only the Consolidated
assessing the long-term the cash flows in the Financial Statements.
economic value of the year. However, our business
business. is long-term, and activity
in the year can generate
Our embedded value is business with a long-term
determined in line with value. We therefore believe
the EEV principles, originally it is helpful to understand
set out by the Chief the full economic impact
Financial Officers (CFO) of activity in the year,
Forum in 2004, and amended which is the aim of the
for subsequent changes EEV methodology.
to the principles, including Within the EEV, many
those published in April of the future cash flows
2016, following the implementation derive from fund charges,
of Solvency II. which change with movements
in stock markets. Since
The EEV operating profit the impact of these changes
reflects the total EEV is typically unrelated
result with an adjustment to the performance of
to strip out the impact the business, we believe
of stock market and other that the EEV operating
economic effects during profit (reflecting the
the year. EEV profit, adjusted
to reflect only the expected
Within EEV operating investment performance
profit is new business and no change in economic
contribution, which is basis) provides the most
the change in embedded useful measure of embedded
value arising from writing value performance in
new business during the the year.
year.
--------------- ------------------------------------- ------------------------------------ ------------------------
-82-
Reconciliation
Why is this measure to the Financial
APM Definition used? Statements
---------------- ------------------------------------ ------------------------------------ -------------------
EEV operating These EPS measures are As EEV operating profit Not applicable.
profit basic calculated as EEV operating is the best reflection
and diluted profit after tax divided of the EEV generated
earnings by the number of shares by the business, EEV
per share used in the calculation operating profit EPS
(EPS) of IFRS basic and diluted measures allow analysis
EPS. of the long-term value
generated by the business
by share.
---------------- ------------------------------------ ------------------------------------ -------------------
Policyholder Shareholder tax is estimated The UK tax regime facilitates Disclosed as
and shareholder by making an assessment the collection of tax separate line
tax of the effective rate from life insurance policyholders items in the
of tax that is applicable by making an equivalent Statement of
to the shareholders on charge within the corporate Comprehensive
the profits attributable tax of the Company. The Income..
to the shareholders. total tax charge for
This is calculated by the insurance companies
applying the appropriate therefore comprises both
effective corporate tax this element and an element
rates to the shareholder more closely related
profits. to normal corporation
tax.
The remainder of the
tax charge represents Life insurance business
tax on policyholders' impacted by this tax
investment returns. typically includes policy
charges which align with
This calculation method the tax liability, to
is consistent with the mitigate the impact on
legislation relating the corporate. As a result,
to the calculation of when policyholder tax
the tax on shareholders' increases, the charges
profits. also increase. Since
these offsetting items
can be large, and typically
do not perform in line
with the business, it
is beneficial to be able
to identify the two elements
separately. We therefore
refer to that part of
the overall tax charge,
which is deemed attributable
to policyholders, as
policyholder tax, and
the rest as shareholder
tax.
---------------- ------------------------------------ ------------------------------------ -------------------
Profit before A profit measure which The IFRS methodology Disclosed as
shareholder reflects the IFRS result requires that the tax a separate line
tax adjusted for policyholder recognised in the Financial item in the
tax, but before deduction Statements should include Statement of
of shareholder tax. Within the tax incurred on behalf Comprehensive
the Consolidated Statement of policyholders in our Income.
of Comprehensive Income UK life assurance company.
the full title of this Since the policyholder
measure is 'Profit before tax charge is unrelated
tax attributable to shareholders' to the performance of
returns'. the business, we believe
it is also useful to
separately identify the
profit before shareholder
tax, which reflects the
IFRS profit before tax,
adjusted only for tax
paid on behalf of policyholders.
---------------- ------------------------------------ ------------------------------------ -------------------
-83-
Reconciliation
Why is this measure to the Financial
APM Definition used? Statements
------------ --------------------------------- ----------------------------------- -----------------------
Underlying A profit measure which The IFRS methodology Refer to Section
profit reflects the IFRS result promotes recognition 2.1 of the Financial
adjusted to remove the of profits in line with Review.
DAC, DIR and PVIF adjustments. the provision of services
and so, for long-term
business, some of the
initial cash flows are
spread over the life
of the contract through
the use of intangible
assets and liabilities
(DAC and DIR). Due to
the Retail Distribution
Review (RDR) regulation
change in 2013, there
was a step-change in
the progression of these
items in our accounts,
which resulted in significant
accounting presentation
changes despite the fundamentals
of our vertically-integrated
business remaining unchanged.
We therefore believe
it is useful to consider
the IFRS result having
removed the impact of
movements in these intangibles
as it better reflects
the underlying performance
of the business.
------------ --------------------------------- ----------------------------------- -----------------------
Controllable The total of expenses We are focused on containing Full detail
expenses which reflects Establishment, long-term growth in controllable of the breakdown
Development and our Academy. expenses. of expenses
is provided
in Section 2.2
of the Financial
Review.
------------ --------------------------------- ----------------------------------- -----------------------
-84-
Responsibility Statement of the Directors in respect of the
Annual Financial Report
The Directors confirm to the best of their knowledge that:
-- The financial statements have been prepared in accordance
with UK-adopted International Accounting Standards and with the
requirements of the Companies Act 2006 as applicable to companies
reporting under those standards and give a true and fair view of
the assets, liabilities, financial position and profit for the
Company and the undertakings included in the consolidation as a
whole; and
-- Pursuant to Disclosure and Transparency Rules Chapter 4, the
Directors' Report and Strategic Report of the Company's Annual
Report and Accounts includes a fair review of the development and
performance of the business and the position of the Company and the
undertakings included in the consolidation taken as a whole,
together with a description of the principal risks and
uncertainties faced by the business.
On behalf of the Board
Andrew Croft Craig Gentle
Chief Executive Chief Financial Officer
27 February 2023
Neither the contents of the Company's website nor the contents
of any website accessible from hyperlinks on this announcement (or
any other website) is incorporated into, or forms part of, this
announcement.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
RNS may use your IP address to confirm compliance with the terms
and conditions, to analyse how you engage with the information
contained in this communication, and to share such analysis on an
anonymised basis with others as part of our commercial services.
For further information about how RNS and the London Stock Exchange
use the personal data you provide us, please see our Privacy
Policy.
END
FR TRMPTMTMTBTJ
(END) Dow Jones Newswires
February 28, 2023 02:00 ET (07:00 GMT)
St. James's Place (LSE:STJ)
過去 株価チャート
から 9 2024 まで 10 2024
St. James's Place (LSE:STJ)
過去 株価チャート
から 10 2023 まで 10 2024
