TIDMSL.
RNS Number : 9568U
Standard Life plc
04 August 2015
Standard Life plc
Half year results 2015
Part 2 of 4
1. Strategic report
1.1 Chief Executive's overview
Standard Life is a long-term investment savings business, with a
growing presence in the global institutional investment and
wholesale markets, and a strong distribution position in the
workplace and retail markets in the UK, Europe, India and China. We
use our investment expertise to create products and solutions, and
distribute them globally - both through wholly owned businesses in
the UK and elsewhere and also through our global strategic
partnerships including Manulife, John Hancock, Sumitomo Mitsui,
HDFC and Phoenix.
We aim to create sustainable value for our customers, clients,
shareholders and for the communities in which we operate. We do
this by focusing on fee based asset management and administration
in markets with strong growth potential. This strategy is
underpinned by a simple business model which enables us to generate
profit, both to support dividend payments to our shareholders and
to create the capacity to reinvest in growing our business.
Focus on fee business driving growth and performance
Standard Life has performed well during the first half of 2015
driven by a focus on providing value for our customers, clients and
shareholders. Group operating profit before tax from continuing
operations increased by 6% to GBP290m. We have increased the assets
that we administer on behalf of our customers to GBP302bn helped by
strong demand for our propositions.
Standard Life Investments actively manages GBP250bn of assets
across the globe driven by consistently strong investment
performance. We are continuing to see the benefits of our expanding
distribution capabilities and strategic relationships.
Our UK fee based propositions continue to build momentum. The
strength of these propositions, investment solutions and our market
positioning means we have been able to help our customers with the
new pensions regulations and continue to support them as saving for
their futures becomes increasingly front of mind.
Outlook
We continue to deliver our clear and consistent strategy.
Standard Life Investments remains focused on delivering
excellent investment performance and continuing to respond to the
needs of our customers and clients through new and innovative
investment solutions. We aim to continue to expand our geographic
reach by building on success in overseas markets through
strengthening our own distribution as well as relationships with
global distribution partners in the US, Canada, India, Japan and
across the Standard Life Group. The integration of Ignis Asset
Management (Ignis) is on track.
The investments we have made in our UK business in recent years
leave us well positioned to benefit from evolving customer needs
and regulatory changes. This, combined with the investment
expertise of Standard Life Investments and our focus on providing
value for our customers, continues to drive demand for our
propositions across the retail, workplace, institutional and
wholesale channels. Our fee business, including our leading income
drawdown proposition, is well placed for future growth.
In Hong Kong, our wholly owned operation continues to adapt to
regulatory change. Our joint venture (JV) in China is continuing to
focus on profitable growth and in India, HDFC Life and HDFC AMC
continue to perform strongly.
It has been an absolute privilege to lead Standard Life for the
last six years and to help build our business into the strong
global player it is today. I wish Keith and the inspirational
people across all of our Group every success for the future.
1.2 Chief Financial Officer's overview
We operate through a simple business model that is aligned with
how we manage and report performance. We aim to grow assets
resulting in higher fee based revenue and to manage our costs and
capital which drives increased shareholder value. Our results in H1
2015 demonstrate that we have made good progress against each of
the dimensions of our business model.
Key financial performance indicators
Our key financial performance indicators are used to measure our
progression and performance and unless otherwise stated exclude
discontinued operations(1) . Comparatives have been restated. The
acquisition of Ignis completed in July 2014 and the results of
Ignis are included in our H1 2015 results.
(1) Discontinued operations for segmental reporting comprises
the Canadian business which was sold on 30 January 2015 and the
Dubai and Singapore businesses, the closures of which were
announced in November 2014 and June 2015 respectively. Further
details are included in Section 1.3.4.
Increasing assets
Group assets under administration and net flows
As a long-term investment savings business, assets under
administration (AUA) and net flows are key drivers of shareholder
value.
Group AUA increased by 2% to GBP302.1bn driven by strong net
flows in our fee business and favourable market movements.
Fee business AUA increased to GBP275.4bn (FY 2014: GBP268.6bn).
Adjusted net inflows into our fee based propositions were GBP6.4bn
(H1 2014: GBP5.1bn), with the key driver being Standard Life
Investments third party net inflows which saw continued demand for
our multi-asset and MyFolio funds.
Adjusted fee net inflows excludes natural run-off from UK
conventional with profits (CWP) business of GBP0.4bn (H1 2014:
GBP0.5bn) and GBP2.2bn of expected net outflows from the closed
book of assets managed for the Phoenix Group. The mandate to manage
the Phoenix Group assets was included as part of the acquisition of
Ignis and was therefore not part of H1 2014 net flows. Total fee
business net inflows were GBP3.8bn (H1 2014: GBP4.6bn).
Spread/risk business AUA decreased to GBP15.4bn (FY 2014:
GBP16.1bn) resulting from scheduled annuity outflows and adverse
market movements.
Visit www.standardlife.com/investor for further information on
AUA and net flows
Driving profit
Group operating profit before tax
Group operating profit before tax continues to be a key measure
which provides an indication of our ability to deliver returns for
our shareholders, supports further investment in the business and
indicates our dividend paying capability.
Group operating profit before tax increased by 6% to GBP290m (H1
2014: GBP274m), driven mainly by continued organic growth in
Standard Life Investments and also by the acquisition of Ignis.
This was offset by expected challenging conditions impacting
spread/risk margin in the UK business due to the current low yield
environment and following the 2014 Budget changes.
Our share of profit from associates and JVs also contributed to
the growth in operating profit with an increase of GBP10m to
GBP30m. This includes continued strong performance in India by our
joint venture HDFC Life and our associate HDFC Asset
Management.
Group underlying performance increased by 9% to GBP299m. This
excludes GBP9m (H1 2014: GBPnil) of operating expenses relating to
shareholder support provided to the German With Profits Fund
(GWPF).
Analysis of Group operating profit is included in Section
1.3
Maximising revenue
Fee based revenue increased by 17% to GBP761m driven by a strong
demand for our fee based products and a GBP54m contribution from
Ignis with the revenue yield holding steady across our major
business units.
Spread/risk margin, which mainly relates to the margin earned on
UK annuities, decreased by 49% to GBP40m. Asset and liability
management actions which focus on ensuring an efficient use of
capital were lower than H1 2014, in line with our expectations, due
to fewer opportunities in a low yield environment. Spread/risk
margin was also impacted by reduced annuity sales following the
2014 Budget changes.
Lowering unit costs
Operating expenses increased by 15% to GBP542m reflecting
further investment in expanding the global reach of Standard Life
Investments, including additional expenses of GBP34m in relation to
Ignis, acquired in H2 2014. Whilst we invest to enhance our
propositions and capabilities, we have also demonstrated our
scalability with operating expense bps decreasing to 42bps.
Group underlying cash generation
Group underlying cash generation is a key performance indicator.
This measure aligns closely with how the business is managed and
demonstrates our ability to generate cash that supports further
investment in the business and the payment of dividends to our
shareholders.
Group underlying cash generation increased to GBP223m benefiting
from higher Group underlying performance (excluding joint ventures)
and lower current tax on underlying performance.
Reconciliation of Group underlying cash generation H1 H1
2015 2014
GBPm GBPm
--------------------------------------------------------- ------ ------
Group underlying performance from continuing operations 299 274
Exclude share of associates and JVs' profit before tax (30) (20)
Less current tax on underlying performance (33) (51)
DAC/DIR adjustment (3) (16)
Fixed and intangible asset adjustment (10) 4
Group underlying cash generation 223 191
--------------------------------------------------------- ------ ------
Visit www.standardlife.com/investor for further information on
underlying cash generation
Further financial highlights
This section covers further financial highlights which help to
explain the Group financial performance and concludes with our
proposed interim dividend.
IFRS profit(1)
Total IFRS profit(1) , including discontinued operations,
increased to GBP1,211m (H1 2014: GBP275m). This included the
GBP1,097m gain on sale of the Canadian business which concluded on
30 January 2015.
IFRS profit(1) from continuing operations decreased to GBP69m
(H1 2014: GBP196m) due to an increased non-operating loss of
GBP158m (H1 2014: GBP36m), partially offset by the increase in
operating profit before tax and decrease in total tax expense. The
non-operating loss consists of:
-- Short-term fluctuations in investment return and economic
assumption changes, which generated a loss of GBP42m (H1 2014:
GBPnil) with adverse UK economic variances driven by market
movements on assets backing subordinated liabilities
-- Restructuring and corporate transaction expenses of GBP62m
(H1 2014: GBP26m), which included GBP20m for staff pension scheme
restructuring, GBP17m for the integration of Ignis, and other
business unit restructuring programmes
-- Other non-operating loss of GBP54m (H1 2014: GBP10m), which
includes a GBP46m loss in Hong Kong mainly due to an impairment of
deferred acquisition costs following regulatory change and GBP10m
amortisation of acquired intangibles primarily relating to the
acquisition of Ignis
The total tax expense attributable to equity holder's profit
from continuing operations was GBP18m (H1 2014: GBP35m) of which
GBP37m (H1 2014: GBP46m) related to operating items and a credit of
GBP19m (H1 2014: credit GBP11m) for non-operating items. The
effective tax rate was 15%(3) (H1 2014: 15%(3) ) compared to a UK
corporation tax rate of 20.25% (H1 2014: 21.5%).
Other(2) for continuing operations comprises the share of
associates and JV tax of GBP5m (H1 2014: GBP1m) and Dubai and
Singapore IFRS loss before tax of GBP40m (H1 2014: loss GBP6m)
which mainly relates to expenses for the closure of the Singapore
business.
H1 H1
2015 2014
GBPm GBPm
--------------------------------------------- ------ ------
Continuing operations:
Group operating profit before tax 290 274
Non operating loss
before tax (158) (36)
Total tax expense (18) (35)
Other(2) (45) (7)
--------------------------------------------- ------ ------
IFRS profit(1) from continuing operations 69 196
--------------------------------------------- ------ ------
IFRS profit(1) from discontinued operations 1,142 79
--------------------------------------------- ------ ------
Total IFRS profit(1) 1,211 275
--------------------------------------------- ------ ------
IFRS profit from discontinued operations is discussed in Section
1.3.4
Group operating return on equity
Return on equity measures our success in generating profit
relative to our shareholder capital.
Group operating return on equity, which includes discontinued
operations, decreased slightly to 12.9%(4) (H1 2014: 13.0%) as a
result of the relatively low return earned on the net retained
proceeds from the disposal of the Canadian business.
We will continue to manage our capital position to ensure that
we generate sustainable returns for our shareholders.
(1) After tax attributable to equity holders of Standard Life plc.
(2) Dubai and Singapore are presented as discontinued operations
in the Strategic report and in the Group operating profit by
segment. However, under IFRS 5, Dubai and Singapore do not
constitute discontinued operations and are included in continuing
operations in the consolidated income statement. Therefore, a
reclassification of these results between discontinued and
continuing operations is required. For further information see Note
4.3 in the Financial Statements section.
(3) Includes profit from non-controlling interests.
(4) GBP1.75bn return of value and receipt of sale proceeds both
assumed to have taken place on date of disposal of the Canadian
business for calculation of the Group operating return on equity.
This assumption increased Group operating return on equity from
12.1% to 12.9%.
Optimising the balance sheet
Group capital surplus
Group capital surplus over regulatory requirements decreased to
GBP2.6bn primarily due to a net GBP0.2bn reduction resulting from
the sale of our Canadian business comprising of:
-- The removal of its contribution to Group surplus of GBP0.6bn at FY 2014
-- The return of value to shareholders in April 2015 of GBP1.75bn
-- Partially offset by the disposal proceeds of GBP2.2bn received in January 2015
The Group capital surplus also reduced following the payment of
the final dividend of GBP224m in May 2015.
Our capital position remains strong and the sensitivity of the
Group capital surplus to market volatility has reduced further
following the disposal of our Canadian business.
The estimated impact on the Group capital surplus from
significant market movements, after taking into account management
actions appropriate to these stresses, is as follows:
-- 30% fall in equities: Reduction of GBP0.1bn (FY 2014: GBP0.2bn)
-- 100bps rise in yields: Reduction of less than GBP0.1bn (FY 2014: GBP0.1bn)
-- 100bps fall in yields (minimum yields of zero): Increase of
less than GBP0.1bn (FY 2014: GBP0.1bn increase)
We expect our capital position to remain strong following
implementation of the Solvency II regime.
Liquidity management
Standard Life plc holds substantial cash and liquid resources.
At 30 June 2015, Standard Life plc held GBP600m (H1 2014: GBP419m)
of cash and short-term debt securities, GBP292m (H1 2014: GBP338m)
of bonds and GBP199m (H1 2014: GBPnil) of holdings in pooled
investment funds managed by Standard Life Investments.
The increase in total Standard Life plc cash and liquid
resources at 30 June 2015 was due to the net retained proceeds from
the disposal of the Canadian business, consisting of the proceeds
received from the disposal less the return of value to shareholders
of GBP1.75bn.
We continue to focus on efficient capital management and cash
generation. During H1 2015, subsidiaries remitted GBP247m to
Standard Life plc and we made a final dividend payment of GBP224m.
The Group continues to maintain a strong liquidity position and
this was again shown in the stress testing undertaken during H1
2015.
In May 2015, we reduced our syndicated revolving credit facility
which we hold as part of our contingency funding plans, to GBP400m
in line with our lower risk profile following the sale of the
Canadian business. The maturity date for this facility was extended
until 2020 and is currently undrawn.
Standard Life plc cash and liquid resources H1 H1
2015 2014
GBPm GBPm
------------------------------------------------------------------------ ---------- ---------
Opening 1 January 657 907
Canada net retained proceeds 459 -
Dividends received from subsidiaries 247 546
Cash dividends paid to shareholders (224) (252)
Cash investments in subsidiaries (43) (411)
Cash investments in associates and JVs (3) (14)
Other (2) (19)
------------------------------------------------------------------------ ---------- ---------
Closing 30 June(2) 1,091 757
------------------------------------------------------------------------ ---------- ---------
(2) Liquid resources include uncashed cheque payments relating to dividends and return of
value of GBP61m (H1 2014: GBP29m).
Dividends
We propose an interim dividend of 6.02p per share. This
represents an increase of 7.5% per share.
In H1 2015 we paid the 2014 final dividend of GBP224m (2013:
GBP252m) which was paid on the lower adjusted number of ordinary
shares following the share consolidation.
We intend to continue to apply our existing 'pence per share'
progressive dividend policy taking account of market conditions and
our financial performance.
1.3 Business segment performance
The Group's reportable segments have been identified in
accordance with the way the Group is structured and managed and are
as follows:
Continuing operations:
Standard Life Investments provide a range of investment products
for individuals and institutional clients through a number of
different investment vehicles. Investment management services are
also provided to the Group's other reportable segments and through
third party relationships. This segment includes Ignis, which was
acquired on 1 July 2014 and the Group's share of the results of
HDFC Asset Management Company (HDFC AMC) in India.
Standard Life Investments continues to deliver strong investment
performance with total AUM up 2% from FY 2014 to GBP250bn. The
acquisition of Ignis and increase in demand for our higher margin
products has contributed to a 51% increase in operating profit.
The UK and Europe segment provides a broad range of long-term
savings and investment products and services to workplace and
retail customers in the UK, Germany, Austria and Ireland.
UK and Europe operating profit was down 22%, impacted by
expected lower spread/risk margin given the current low yield
environment and the 2014 Budget changes to the pension regime. AUA
of GBP147.8bn benefited from strong demand for our UK propositions
and investment solutions.
The India and China segment (formerly Asia and Emerging Markets)
consists of the life insurance joint venture businesses in India
(HDFC Life) and China (Heng An Standard Life) and our wholly owned
business in Hong Kong. These businesses offer insurance and savings
products to customers, with AUA up 4% from FY 2014 to GBP2.6bn.
Other primarily relates to corporate centre costs and other head
office related activities.
Discontinued operations:
Following changes in the Group structure and operations in
2014/15, continuing operations for segmental reporting purposes
excludes our Canadian business which was sold on 30 January 2015
and our Dubai and Singapore businesses, the closures of which were
announced in November 2014 and June 2015 respectively.
Analysis of operating profit(1) from continuing operations
Standard India Total
Life UK and and continuing
Investments Europe China(2) Other Eliminations(3) operations
H1 H1 H1 H1 H1 H1 H1 H1 H1 H1 H1 H1
2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- ------ ------- ------ ------ ------- ------- ------ ------ -------- ----------- ------- --------
Fee based
revenue(4) 402 288 396 389 23 26 - - (60) (51) 761 652
Spread/risk
margin - - 40 79 - - - - - - 40 79
--------------- ------ ------- ------ ------ ------- ------- ------ ------ -------- ----------- ------- --------
Total
income(4) 402 288 436 468 23 26 - - (60) (51) 801 731
Total
operating
expenses(4,5) (263) (197) (297) (281) (17) (23) (25) (23) 60 51 (542) (473)
Capital
management - - 8 1 - - (7) (5) - - 1 (4)
Share of
associates'
and JVs'
PBT 15 11 - - 15 9 - - - - 30 20
--------------- ------ ------- ------ ------ ------- ------- ------ ------ -------- ----------- ------- --------
Group
operating
profit before
tax 154 102 147 188 21 12 (32) (28) - - 290 274
--------------- ------ ------- ------ ------ ------- ------- ------ ------ -------- ----------- ------- --------
Underlying
adjustments - - 9 - - - - - - - 9 -
--------------- ------ ------- ------ ------ ------- ------- ------ ------ -------- ----------- ------- --------
Group
underlying
performance 154 102 156 188 21 12 (32) (28) - - 299 274
--------------- ------ ------- ------ ------ ------- ------- ------ ------ -------- ----------- ------- --------
(1) Operating profit is IFRS profit before tax adjusted
to remove the impact of short-term market driven fluctuations
in investment return and economic assumptions, restructuring
costs, impairment of intangible assets, amortisation
of intangible assets acquired in business combinations,
profit or loss on the sale of a subsidiary, associate
or joint venture and other significant one-off items
outside the control of management and not indicative
of the long-term operating performance of the Group.
The impact of the restructuring of the UK staff pension
scheme has been adjusted so that H1 2015 operating
profit is based on the expected long-term pension expense,
which results in a GBP20m increase to H1 2015 operating
profit before tax and a corresponding increase to H1
2015 non-operating restructuring and corporate transaction
expenses - Refer to Note 4.4 of the IFRS condensed
consolidated financial information for further information.
(2) India and China segment was formerly known as Asia
and Emerging Markets. Dubai and Singapore are included
in discontinued operations in Section 1.3.4.
(3) Eliminations primarily relate to revenue and expenses
included in the UK and Europe segment and Standard
Life Investments. Therefore, at a Group level an elimination
adjustment is required to remove any duplication.
(4) Institutional pension business previously included
in both UK and Europe and Standard Life Investments
has now been excluded from UK and Europe and is only
included in the Standard Life Investments segment.
UK and Europe and eliminations have been adjusted and
there is a GBPnil impact on UK and Europe and Group
operating profit. Comparatives have been restated.
(5) Total operating expenses comprise acquisition expenses,
maintenance expenses and corporate centre costs.
1.3.1 Standard Life Investments
Overview
Standard Life Investments is a leading active asset manager with
total AUM of GBP250.0bn, representing 83% of Group AUA.
We have developed our capabilities across a range of asset
classes, including equities, fixed income, real estate and private
equity. We also provide innovative investment solutions, such as
high-quality multi-asset and liability aware investments, including
our absolute return strategies, and our wealth proposition
available through Standard Life Wealth. We remain focused on
meeting the needs of our institutional and wholesale clients
globally and securing new business backed by consistently strong
investment performance and exceptional levels of client
service.
We continue to expand our global reach and now have offices in
23 cities worldwide including our Head Office in Edinburgh and
regional hubs in Boston and Hong Kong. As well as our own
distribution, we also benefit from leveraging our strategic partner
relationships in the US, Canada, India, Japan and with Standard
Life in the UK.
Our distinctive 'Focus on Change' investment philosophy lies at
the heart of our wide range of investment funds and solutions. This
combined with disciplined risk management and shared commitment to
a culture of investment excellence is fundamental to helping our
clients look forward to their future with confidence.
Sustainable global growth
We continue to invest to drive performance, to further raise our
profile and to enhance our infrastructure to support our growth
ambitions. We are investing to strengthen the range of investment
solutions we offer, including new innovative propositions across
the range of asset classes.
The global economy has continued to expand at a moderate pace
over the last 12 months despite a slowdown in emerging markets,
particularly in China. Moderate economic growth and strong cost
control have allowed companies to expand profits steadily into
2015. The interplay of corporate and macro trends has resulted in
investors taking a more selective approach to investment
opportunities. In the UK, regulatory change impacting pensions
presents ongoing opportunities for us to provide solutions to meet
client needs, particularly for our multi-asset suite of products
and MyFolio risk based funds.
We continue to recognise that corporate governance along with
responsible stewardship of a business' capital, employees,
customers and environment has a fundamental impact on long-term
investment returns. Our commitment to socially responsible
investing was recently reflected in Standard Life Investments being
voted as the leading UK asset management firm in this area at the
Extel 2015 Awards.
We remain well positioned to deliver profitable growth. We have
a strong pipeline of new investment initiatives which positions us
well to continue to meet the changing demands of our clients
through new and innovative investment solutions. The integration of
Ignis is on track and we expect to achieve GBP50m of annual cost
savings and our EBITDA target of 45% by 2017.
We continue our focus on delivering consistently strong
investment performance and strengthening relationships with our
global distribution partners.
Delivering on our business model
Increasing assets
We continue to be one of the five largest asset managers in the
UK in both institutional and wholesale markets. We are also ranked
as 33rd largest asset manager globally by AUM, up from 56th in
2013.
Investment Performance
Growth in AUM was underpinned by excellent money weighted
average investment performance. 97% of third party funds were ahead
of benchmark over five years, with 95% ahead over three years and
79% over one year.
Fixed income funds continued to perform strongly with 100% of
funds ahead of benchmark at three years (one year 45%, five years
94%). Our suite of multi-asset funds has outperformed their cash
benchmark over all time periods noted above.
Total AUM increased 2% to GBP250.0bn (FY 2014: GBP245.9bn)
largely as a result of strong investment performance, positive
market movements and good net inflows. AUM comprised third party(1)
AUM of GBP124.4bn (2014: GBP117.5bn) and strategic partner life
business AUM of GBP125.6bn (2014: GBP128.4bn). Third party(1) AUM
increased to 50% of total AUM (FY 2014: 48%).
Total net inflows of GBP1.8bn (H1 2014: GBP2.9bn) decreased 38%
due to higher net outflows from strategic partner life business
which, following the acquisition of Ignis on 1 July 2014, includes
a mandate to manage assets on behalf of the Phoenix Group. The
closed nature of this mandate of insurance business means it is in
long-term run-off and these net outflows are expected. Excluding
Ignis, total net inflows increased 103% to GBP5.9bn.
Strong third party(1) net inflows of GBP5.2bn (H1 2014:
GBP4.0bn) largely in our wholesale and institutional businesses
were impacted by the disinvestment of one low revenue margin
mandate within Ignis third party(1) . Excluding Ignis, net inflows
for third party(1) increased 78% to GBP7.1bn. This result reflects
the diverse nature of our product offering, our expanding global
distribution capability and the increasingly international nature
of our client base.
(1) Excluding strategic partner life business.
Third party(1) key highlights
Net flows AUM
H1 H1 H1
2015 2014 2015 FY 2014
GBPbn GBPbn GBPbn GBPbn
Wholesale 5.3 2.5 40.6 35.5
Institutional 1.8 1.5 64.6 61.4
Wealth - - 6.3 6.1
Ignis (1.9) - 12.9 14.5
----------------------------------- ------ ------- ------ --------
Total third party(1) 5.2 4.0 124.4 117.5
----------------------------------- ------ ------- ------ --------
Standard Life Group (1.2) (1.1) 83.5 84.6
Phoenix Group (2.2) - 42.1 43.8
Total strategic partner life
business (3.4) (1.1) 125.6 128.4
----------------------------------- ------ ------- ------ --------
Total 1.8 2.9 250.0 245.9
----------------------------------- ------ ------- ------ --------
(1) Excluding strategic
partner life business.
-----------------------------------
By channel: We split our business into channels which differ by
client base needs and distribution methods:
Wholesale
In our Wholesale business, we continued to perform well with net
inflows in H1 2015 at GBP5.3bn (H1 2014: GBP2.5bn). In particular,
inflows into MyFolio, equities, fixed income, real estate and
multi-asset strategies remain strong.
Our position in the wholesale market in the UK remains
relatively stable with share of gross sales of 4.6% (H1 2014:
4.7%). UK mutual funds AUM increased by 13% to GBP24.6bn and
represents 20% of third party assets.
Institutional
Institutional business net inflows were GBP0.3bn higher than H1
2014 at GBP1.8bn. Our pipeline of institutional business continues
to see fixed income, real estate and multi-asset propositions
attract interest.
Wealth
Standard Life Wealth continues to develop and as we improve the
operating platform, we expect it will start to gain momentum in the
market. AUM increased to GBP6.3bn due to positive market
movements.
Ignis
Our Ignis business, which is mostly institutional in nature, saw
net outflows of GBP1.9bn, following the disinvestment of GBP1.7bn
from one large low revenue margin mandate. The ARGBF net outflows
have reduced to GBP0.2bn in H1 2015 following the GBP2.6bn net
outflow in 2014.
By asset class:
In H1 2015, multi-asset continued to have strong net inflows
contributing GBP5.6bn (H1 2014: GBP2.7bn) as AUM increased to
GBP45.9bn (FY 2014: GBP38.6bn). MyFolio saw net inflows of GBP0.9bn
(H1 2014: GBP0.8bn) as AUM increased to GBP6.9bn (FY 2014:
GBP5.9bn).
Net inflows were also achieved in fixed income of GBP0.4bn (H1
2014: outflow GBP0.1bn), and GBP0.2bn in real estate (H1 2014:
GBP0.2bn).
By geography:
Continued strong net inflows in North America of GBP1.5bn (H1
2014: GBP1.1bn) contributed to AUM reaching GBP9.7bn (FY 2014:
GBP8.1bn).
We began to see increasing success in Asia Pacific, with net
inflows of GBP0.8bn (H1 2014: GBP0.1bn). In India, our share of
HDFC AM net inflows were good at GBP0.5bn (H1 2014: GBP0.4bn). In
UK and Europe net inflows increased by 79% to GBP4.3bn (H1 2014:
GBP2.4bn).
Strategic partner life business key highlights
Overall strategic partner life business outflows increased to
GBP3.4bn(H1 2014: GBP1.1bn) largely due to the inclusion of
expected net outflows of GBP2.2bn from the assets managed on behalf
of Phoenix Group which were not acquired until H2 2014. Net
outflows from Standard Life Group increased slightly to GBP1.2bn
(H1 2014: GBP1.1bn).
Other key highlights
In H1 2015, we successfully converted our award winning Property
Income Trust into a Real Estate Investment Trust to ensure greater
accessibility and tax efficiency for investors.
Our dedication to meeting clients financial needs resulted in us
winning a number of industry awards. These included:
-- Four Lipper Awards for Best Equity House for Austria, Switzerland, Netherlands and Hong Kong
-- Our UK Equity Income Unconstrained Fund won the UK Core
Equity category at the Institutional Investor Awards
-- Our Global Equity Income Fund won the Best Smaller Global
Equity Income Fund category at the Money Observer awards
-- DC Investment Manager of the Year at the Professional Pension Awards 2015
Visit www.standardlife.com/investor for further information on
AUA and net flows
Profitability
Driving profit
Operating profit before tax increased 51% to GBP154m. Key
drivers included strong fee revenue growth, GBP20m contribution
from Ignis which was acquired on 1 July 2014 and increased share of
profit before tax for HDFC AMC, our associate business, due to
increased AUM in H1 2015.
Operating return on equity reduced to 32.0% (H1 2014: 43.9%)
while we fully integrate Ignis and reflects a capital injection
from Standard Life plc to fund the acquisition.
EBITDA increased to GBP161m, including GBP22m contribution from
Ignis. Our EBITDA margin of 40% (H1 2014: 36%) remains strong and
we are on track to deliver an EBITDA margin of 45% by 2017.
Ongoing management of costs, combined with expansion in revenue
margins, has resulted in a 20% compound annual growth in EBITDA
over the last 8 years.
Maximising revenue
Fee based revenue increased by 40%, benefiting GBP54m from
Ignis, performance fees of GBP8m (H1 2014: GBP4m), increased AUM
and a continued shift in mix towards our higher margin products,
including UK mutual funds. We maintained our revenue yield on third
party(1) AUM at 53bps and the revenue yield for strategic partner
life business increased 1bp to 17bps.
(1) Excluding strategic partner life business.
Lowering unit costs
Total operating expenses increased by 34% reflecting the
increased scale of our business, including GBP34m operating
expenses in Ignis. We continue to see a larger increase in revenue
relative to expenses showing our ability to be a scalable business
through investment in expanding distribution and geographic reach.
We have maintained our operating expenses bps of 22bps and remain
on track to deliver GBP50m cost synergies.
H1 2015 H1 2014
GBPm GBPm
--------------------------------------- -------- --------
Fee based revenue 402 288
Operating expenses (263) (197)
Share of associates profit before
tax 15 11
--------------------------------------- -------- --------
Operating profit before tax 154 102
--------------------------------------- -------- --------
Interest, depreciation, amortisation,
FX movements 7 3
--------------------------------------- -------- --------
EBITDA 161 105
--------------------------------------- -------- --------
1.3.2 UK and Europe
Overview
Our UK and Europe business is a leading provider of long-term
investment savings propositions to workplace and retail customers
including self-invested and workplace pensions, drawdown
propositions, individual savings accounts, investment bonds and
mutual funds. We have the clear objective of being our customers'
first choice for their life savings and aim to achieve this by
providing engaging, digital-led solutions with the flexibility to
adapt to customers' needs over their lifetimes.
AUA for our UK and Europe business has grown to GBP147.8bn.
Within this, our market leading workplace pensions have attracted
1.6m customers and AUA of GBP33.2bn. Growth in our retail business
is driven by our award winning Wrap platform, which has GBP23.3bn
of AUA and the highest net sales in the UK advised platform
market(1) . Approximately 25% of our Wrap assets are now managed by
Standard Life Investments.
Our close collaboration with Standard Life Investments allows us
to engage with customers across the value chain, providing benefit
to our customers, our UK business and Standard Life as a whole.
A period of change and opportunity
2015 has seen the implementation of significant new regulations
within the UK savings and retirement markets. The pension freedoms
effective from 6 April 2015 have provided customers with increased
flexibility when accessing income in retirement. This resulted in
operational challenges across the industry, with unprecedented
levels of customer contact as they sought to understand their
options. Many customers with smaller savings pots have withdrawn
their cash, reflecting a build-up of demand since the reforms were
first announced. We have worked hard to provide a high level of
customer service in meeting this demand and believe that our online
journey has been a success in helping our customers.
The strength of our drawdown propositions and our award-winning
Wrap platform enable us to deal with the new regulations, and to
provide customers with the quality and choice to make the most of
their retirement.
Whilst the new regulations give customers greater control and
flexibility, with increased choice comes complexity. We anticipate
a significant increase in demand for financial advice and in
response to this are building our own UK-wide financial advice
business under the brand 1825 - the year Standard Life was founded.
The growth strategy of 1825 includes acquiring progressive
financial advice firms aligned to our operating model and building
on our existing capabilities. The acquisition of Pearson Jones in
the second quarter of 2015 was the first acquisition for this new
business.
In a market influenced by regulatory change, our workplace
business continues to build scale. Since auto enrolment began in
2012, we have helped over 3,700 employers set up qualifying
workplace pension schemes with 680,000 new savers enrolled into
these schemes. As the average auto enrolment scheme size reduces,
our online Good to Go proposition meets the needs of these
employers, processing schemes on the same day as application. This
proposition demonstrates the scalability of our business at a time
when the industry is facing capacity constraints, securing
approximately 2,400 schemes to date.
In response to the Department for Work and Pensions price cap,
all of our qualifying workplace pension schemes became fully
compliant with the new regulations before the April 2015
deadline.
In the July 2015 UK Budget, the Chancellor announced a Green
Paper consultation on pension tax relief. As a leading provider of
long-term savings, we will engage constructively in the debate to
ensure positive customer outcomes.
The challenges arising from a prolonged low interest rate
environment have been felt in a number of European jurisdictions.
In Germany, we believe the level of guarantees typically provided
by insurers have become unsustainable. As a result our German
business with-profits book is no longer open to new business.
Whilst supporting our existing customers, focus now moves to the
sale of our unit linked products.
Delivering on our business model
Increasing assets
UK and Europe AUA increased by 1% to GBP147.8bn. Fee based AUA
which accounts for 85% of total AUA increased by 3% to GBP125.6bn,
benefiting from a combination of net inflows and favourable market
movements.
Net inflows of GBP1.8bn (H1 2014: GBP1.5bn) into our UK retail
new propositions which include SIPP and Wrap were driven by a 16%
increase in gross inflows to GBP3.6bn (H1 2014: GBP3.1bn).
Our Wrap platform continues to lead the UK advised platform
market(1) with AUA increasing 11% to GBP23.3bn. In 2015 we have
added 65 new firms to the platform and now have 1,405 firms using
our Wrap platform.
SIPP AUA rose to GBP28.3bn (FY 2014: GBP26.2bn) with GBP12.9bn
(FY 2014: GBP11.5bn) of assets invested in our market-leading
drawdown proposition.
Net flows AUA
H1 2015 H1 2014 H1 2015 FY 2014
GBPbn GBPbn GBPbn GBPbn
-------------------------------------- -------- -------- -------- --------
UK retail new fee business 1.8 1.5 40.4 37.3
UK retail old fee business (1.2) (1.1) 33.4 33.5
Workplace(2) 1.1 0.9 33.2 32.0
-------------------------------------- -------- -------- -------- --------
UK retail and workplace fee business 1.7 1.3 107.0 102.8
-------------------------------------- -------- -------- -------- --------
Conventional with profits (0.4) (0.5) 1.7 2.1
UK spread/risk (0.5) (0.4) 14.9 15.5
Assets not backing products - - 6.8 7.7
-------------------------------------- -------- -------- -------- --------
UK total 0.8 0.4 130.4 128.1
-------------------------------------- -------- -------- -------- --------
Europe fee 0.5 0.6 16.9 17.2
Europe spread/risk - - 0.5 0.6
-------------------------------------- -------- -------- -------- --------
Europe total 0.5 0.6 17.4 17.8
-------------------------------------- -------- -------- -------- --------
Total UK and Europe 1.3 1.0 147.8 145.9
-------------------------------------- -------- -------- -------- --------
(1) Highest net sales in Q1 2015, source Fundscape.
(2) In H1 2015, UK corporate assets have been renamed as workplace.
Visit www.standardlife.com/investor for further information on
AUA and net flows
Our UK retail old business saw a 9% increase in net outflows to
GBP1.2bn with customers postponing investment decisions in H1 2014
to take advantage of the new pension freedoms from 6 April
2015.
We engage with our customers who are approaching retirement or
have maturing policies to ensure they are equipped to make informed
decisions. This is valued by our customers with many choosing to
continue saving with us. We continue to benefit from ongoing
increments, customers transferring to our UK retail new
propositions and positive market movements.
UK workplace pension AUA increased 4% to GBP33.2bn. Although the
large employer market remains subdued, net inflows increased to
GBP1.1bn (H1 2014: GBP0.9bn). Growing contributions into our
existing schemes and our success in attracting new flows through
auto enrolment has resulted in a 15% increase in regular premiums.
Our workplace business continues to add new customers through auto
enrolment, enrolling approximately 120,000 new customers in H1 2015
(H1 2014: 180,000).
UK spread/risk AUA decreased to GBP14.9bn (FY 2014: GBP15.5bn),
with net outflows of GBP0.5bn (H1 2014: GBP0.4bn) as annuity sales
were impacted by the changes to retirement regulations in the 2014
UK Budget.
In our Europe business fee based AUA decreased by 2% to
GBP16.9bn due to adverse foreign exchange movements partly offset
by net inflows of GBP0.5bn (H1 2014: GBP0.6bn). In Germany net
inflows from unit linked business doubled, with the proportion of
net inflows from unit linked business rising to 19% (H1 2014:
9%).
Profitability
Driving Profit
UK Europe UK and Europe
H1 2015 H1 2014 H1 2015 H1 2014 H1 2015 H1 2014
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- -------- -------- -------- -------- -------- --------
Fee based revenue 314 303 82 86 396 389
Spread/risk margin 38 75 2 4 40 79
--------------------------- -------- -------- -------- -------- -------- --------
Total income 352 378 84 90 436 468
Operating expenses (219) (214) (78) (67) (297) (281)
Capital management 8 1 - - 8 1
--------------------------- -------- -------- -------- -------- -------- --------
Operating profit
before tax 141 165 6 23 147 188
--------------------------- -------- -------- -------- -------- -------- --------
Underlying adjustments(1) - - 9 - 9 -
--------------------------- -------- -------- -------- -------- -------- --------
Underlying performance 141 165 15 23 156 188
--------------------------- -------- -------- -------- -------- -------- --------
(1) Relating to shareholder support provided to the
German with-profits business and is included in operating
expenses.
UK and Europe operating profit before tax reduced by 22% to
GBP147m with underlying performance decreasing by 17% to GBP156m.
Operating return on equity decreased to 13.0% (H1 2014:19.8%)
reflecting the decrease in operating profit after tax to GBP129m
(H1 2014: GBP157m) and higher opening shareholder net assets.
UK operating profit reduced by GBP24m to GBP141m, as strong
growth in fee business was more than offset by a spread/risk margin
reduction which included lower contribution from asset and
liability management as expected.
Europe operating profit reduced by GBP17m to GBP6m and includes
a GBP9m impact of shareholder support provided to the German
with-profits business. This is a one-off contribution as we no
longer write new with- profits business in Germany. Europe
underlying performance was lower by 35% at GBP15m with a reduced
benefit from asset and liability management, changes in actuarial
reserves and adverse foreign exchange movements.
Maximising revenue
UK fee based revenue increased by 4% to GBP314m benefiting from
higher AUA as a result of positive market movements and retail new
and workplace net inflows. This includes growing inflows into
Standard Life Investments' MyFolio fund range, which now accounts
for GBP6.0bn of MyFolio AUA and continues to secure additional
revenue for the Group. We also continue to benefit from retention
activity on our retail old propositions. Average fee revenue yield
reduced to 61bps (FY 2014: 62bps) reflecting the impact of changes
in business mix including a growing proportion of newer style
propositions as well as a GBP6m reduction in revenue earned on
client cash balances.
Our Active Money Personal Pension product has been updated with
drawdown capability, delivering for customers who require a
simplified means of accessing income in retirement. This will
generate long-term revenue from the customers who continue to save
with us.
UK spread/risk margin which mainly relates to our annuity
business decreased by 49% to GBP38m. This included the expected
GBP26m reduction in the benefit from asset and liability
management, as fewer opportunities for more effective management of
our assets exist in the current low yield environment. This was
accompanied by a reduction in the new business margin by GBP9m to
GBP4m, caused by a 66% reduction in annuity sales as a result of
the 2014 Budget changes.
Lowering unit costs
UK operating expenses increased 2% to GBP219m, due to higher
fees paid to Standard Life Investments, in line with higher AUA.
Expressed as a proportion of average AUA, operating expenses
decreased to 41bps (FY 2014: 42bps) as we continue to benefit from
the scalability of our business model and cost discipline.
Our investment in technology has allowed further process
automation and customer self-service which has helped to lower unit
costs. Examples of our progress include:
-- Our ability to process the Good to Go schemes on the same day
as application demonstrating the scalability of our business at a
time when the industry is facing capacity constraints
-- Our online Retirement Pathfinder & Calculator tools
launched in 2015 enabling customers to explore how to make best use
of the new pension rules
-- Our new online journey allows customers to access their
savings on a fully self-serve basis. Since April, approximately
64,000 customers have used our online journey to explore their
options.
1.3.3 India and China
Overview
Our India and China segment consists of our life joint ventures
in India and China and our wholly owned business in Hong Kong. We
announced the closure of our businesses in Dubai in November 2014
and Singapore in June 2015. Subject to regulatory approvals,
Singapore will close by the end of 2015. Further details are
included in our discontinued operations segment in Section 1.3.4 on
the next page.
HDFC Life, our life joint venture business in India, is one of
the leading private life insurance companies in the market. It
provides 20 million customers with innovative needs-based insurance
and savings solutions.
In China, our joint venture Heng An Standard Life, continues to
build a sustainable business by offering a range of insurance and
savings products to a large customer base.
In Hong Kong, we continue to evolve our propositions to meet the
needs of the growing affluent and wealth segments both in Hong Kong
and cross-border from mainland China.
Continued focus in Asia
We continue to support the development of our operations in
India and China, including identifying opportunities across Asia
that can benefit our wider Group, including asset management
opportunities for Standard Life Investments.
Following the passing of the Insurance Laws (Amendment) Act by
the Indian Parliament in March 2015, we are in discussions with our
JV partner regarding a potential increased stake in HDFC Life.
India is a highly attractive growth market and we continue to
maintain a long-term commitment to India and HDFC Life.
Heng An Standard Life has seen continued growth in sales in 2015
building on momentum from 2014. Management continues to focus on
growing productivity levels of its in-house agency sales force.
A new regulatory environment came into effect on 1 January 2015
in Hong Kong, which banned advance payment of commission on all
investment-linked products and has impacted the market
significantly. We are supportive of these changes in creating a
more professional advisory marketplace but it will take time for
the market to adjust and we are also adapting our propositions in
light of these changes.
Delivering on our business model(1)
(1) Financial results reflect our share of the joint ventures
comprising 26% of HDFC Life and 50% of Heng An Standard Life.
Increasing assets
Total AUA increased to GBP2.6bn, due to a 5% increase for our
joint venture businesses to GBP2.2bn (FY 2014: GBP2.1bn). Wholly
owned operations AUA remained stable at GBP0.4bn.
The growth in AUA was driven by continued positive net inflows
in our joint venture businesses of GBP119m (H1 2014: GBP102m) with
our joint venture in India maintaining their market leading
position within the private market. In Hong Kong, net inflows
decreased to GBP31m (H1 2014: GBP36m). New propositions are under
development to drive asset growth in the new market landscape.
Driving profit
Operating profit before tax increased to GBP21m (H1 2014:
GBP12m) mainly driven by an increase in our joint venture
businesses profit to GBP15m (H1 2014: GBP9m) as they benefit from
continued growth in premium income. Hong Kong operating profit
increased to GBP6m (H1 2014: GBP3m) due to the timing of project
related expenses and changes in product mix.
Operating return on equity for the India and China segment
increased to 15.6% (H1 2014: 13.9%) reflecting higher operating
profit.
Maximising revenue
Through development of new online products and technology, HDFC
Life has achieved a market-leading share of online sales. Heng An
Standard Life has increased sales through its core distribution
channel by over 30%.
Lowering unit costs
Successful management of expenses has resulted in HDFC Life
reporting one of the lowest operating expense ratios among its peer
group. Hong Kong continues to manage costs whilst investing in new
propositions in response to changes in regulation.
Other financial information
Following regulatory change in Hong Kong a review of expense and
reserving assumptions was undertaken which resulted in a GBP46m
non-operating loss being recognised, primarily relating to
impairment of deferred acquisition costs.
1.3.4 Discontinued operations
Sale of the Canadian business
On 30 January 2015, we successfully concluded the sale of the
Canadian business to Manulife for a fixed consideration of C$4.0bn
(GBP2.2bn including related hedging derivative contracts). We
recognised a gain on disposal of GBP1,097m.
The sale of our Canadian business was significant for the Group,
and reaffirms our continued focus on growing fee based business,
whilst reducing our exposure to spread/risk business. In addition,
the expanded relationship with Manulife deepens Standard Life
Investments' ongoing access to Canadian, and wider global,
distribution.
IFRS profit after tax for the Canadian business, which in H1
2015 included the results for the month of January, was GBP45m (H1
2014: GBP79m) excluding the gain on sale. The result mainly
benefited from favourable short-term fluctuations on investment
return of GBP63m due to large yield movements in the month, offset
by a GBP20m tax expense.
Find out more about the gain on sale in Note 4.2 in the
Financial statements section
Dubai and Singapore
The regulatory landscapes in the markets in which we operate in
Asia have changed significantly in the past 12 months and we have
responded by reviewing our strategy. Our increasing focus in Asia
is building on our relationships with our India and China joint
venture partners, expanding our asset management presence through
Standard Life Investments and growing our wholly owned business in
Hong Kong. As a result, we announced the closure of the Dubai
business in November 2014 and Singapore in June 2015. Subject to
regulatory approvals, Singapore will close by the end of 2015.
For segmental reporting the discontinued operations segment
includes results for Dubai and Singapore. Singapore made an
operating loss before tax of GBP2m (H1 2014: loss GBP3m) and a
GBP38m non-operating loss (H1 2014: GBPnil) relating to closure
costs. The Dubai business closed at the start of 2015 and therefore
made an operating loss before tax of GBPnil (H1 2014: loss
GBP3m).
1.4 Principal risks and uncertainties
Our approach to risk
Strong risk management is at the core of how we deliver our
strategic objective to be a leading customer-centric business,
focused on long-term savings and investments.
As we expand our global reach we continue to manage a range of
different risks across the Group. This includes risks that affect
both the Group as a whole - such as regulatory risks, and risks
that are more relevant to specific parts of the Group - for example
the agency risks associated with managing third party funds within
our asset management business. Wherever a risk is managed we apply
the same consistent risk framework.
Our approach to risk ensures well informed risk-reward decisions
are taken in pursuit of the Group's strategy and business plan
objectives. This ensures capital is delivered to areas where the
most long term value can be created for the risks taken.
Management of risk
Our Group Enterprise and Risk Management (ERM) Framework governs
our risk based approach to managing our business. Our systems of
governance, of which our ERM is a key part, support oversight of
risk at the highest levels of the Group, across our Executive and
Board committees.
Our framework has developed and been embedded over several
years. The increasing strength of our risk management approach was
externally recognised in May 2015 when Standard & Poor's
upgraded their assessment of our ERM framework to 'strong'.
Visit www.standardlife.com/investor/financial_reports for
further information about our ERM framework in our Annual report
and accounts 2014
Updates to our principal risks
There have been no material changes to our principal risks
during H1 2015. Whilst not new risks, we have now chosen to
explicitly separate strategic and conduct risks as principal risks
in their own right.
In the case of conduct risk this reflects the importance that we
place on 'doing the right thing'. It is essential that we continue
to have a strong focus in this area particularly as we develop new
relationships with customers, for example through 1825, our new UK
advice business. Earlier this year we launched our new group-wide
Code of Conduct, which reinforces across the Group, a culture that
at Standard Life we seek to do the right thing in every action we
take.
During H1 2015, Standard Life's strategic delivery has
continued, for example with the completion of the sale of our
Canadian business. Including strategic risk as a separate principal
risk reflects the importance to the Group that we continue to make
strong and successful decision making in this area.
Over the remainder of 2015 we expect continued focus on
regulatory changes, including the implementation of Solvency II and
developments in the market following the pension freedoms.
Find out more about our risk management in Note 4.12 in the
Financial statements section
Principal
Risk The risk in our business How we manage the risk
------------- -------------------------------------- ------------------------------------
Strategic Strategic risk arises Through our ERM framework,
Risk from our choice of strategy a pro-active approach
and direction, and the to risk is at the forefront
actions we take to implement of strategic decisions
these. The risk arises we take as a business.
if our strategic decisions We have experienced leadership
do not maximise shareholder teams throughout the organisation
value. which ensure this risk
During H1 2015 we have is managed and mitigated.
made a number of important Additionally, business
strategic decisions, plans are challenged and
for example we launched stressed to understand
1825 (our new UK advice sensitivities, and actual
business), stopped selling experience is managed
new German with profits against plans.
business, continued the
global expansion of our
asset management business,
decided to close our
Singapore business and
also completed the sale
of our Canadian business.
------------- -------------------------------------- ------------------------------------
Customer Delivering our strategic Standard Life focuses
Demand objectives relies on on being a customer-centric
Risk increasing net new business business, meeting our
flows by attracting new customers' needs and developing
and retaining existing propositions that build
institutional, wholesale, trust and long-term relationships
workplace and retail with customers, to ensure
customers across Standard the ongoing demand for
Life Group. If we are our propositions and products.
not successful, fee based Our asset management business
revenue would reduce aims to attract and retain
or be lower than planned. customers by delivering
A fall in customer demand consistently strong investment
could be triggered by performance across a broad
a range of events including investment range, operating
a fall in demand for through a variety of distribution
long-term savings products, channels and geographic
poor persistency, propositions/funds locations. The Ignis acquisition
that don't meet customer deepens our investment
needs and poor investment capabilities in addition
performance. to organically developing
a wider offering such
as commercial real estate
lending and infrastructure
lending.
------------- -------------------------------------- ------------------------------------
Market We seek to maximise shareholder Through our Group risk
Risk value by taking specific appetite framework we
market risks which provide set risk appetites for
an appropriate level market risks and our exposures
of risk-adjusted returns. are managed in line with
Fee based revenue, a these. We use our stress
key driver of our profitability, and scenario testing program
is exposed to fluctuations to understand our sensitivities
in the market values to market parameters and
of the underlying investments. identify any mitigating
Market risks in our UK actions.
and German with profits Our credit risk management
funds, such as the funds policy plays a key role
interest rate exposure, in ensuring the quality
continue to be managed. of our asset portfolios,
We seek to maximise the which includes setting
expected risk-adjusted portfolio limits such
return of the assets as sectors and credit
backing our spread-risk ratings. We set asset
business, shareholder benchmarks appropriate
equity and subordinated to their liabilities and
debt by primarily investing cash flow match where
in credit assets. appropriate.
------------- -------------------------------------- ------------------------------------
Regulatory Our business is required Ensuring the ongoing compliance
Risk to comply with the regulatory with regulations is governed
requirements that are via our Group policy framework.
in-force in the countries We are pro-active at building
and regions in which strong and open relationships
we choose to operate. with our regulators. We
As we increase the number seek to engage early with
of countries we operate regulatory change and
in, this in turn increases capitalise on any opportunities
the regulatory regimes that arise in the best
with which we must comply. interests of our customers
In addition to the risk and stakeholders.
of failing to comply Our emerging risk process
with current requirements, looks at potential and
regulations continually future regulatory changes
undergo change. In recent and risks to our business.
years our industry has Any risks identified are
needed to adapt to a continually monitored
high volume of regulatory and appropriate mitigation
change, which we expect plans put in place.
to continue. For example,
in the July 2015 UK Budget
the Chancellor announced
a Green Paper for consultation
on the tax treatment
of pensions, which could
potentially lead to further
changes to the pension
landscape.
The main risk comes from
any non-compliance, but
regulatory change can
give rise to additional
costs, complexity and
opportunity costs within
our business.
------------- -------------------------------------- ------------------------------------
Conduct Conduct risk arises from We continue to carefully
Risk our business not acting manage and be pro-active
in the right way, including with conduct risk.
any actions that do not We have launched our new
treat our customers with Group Code of Conduct
consideration and fairness. across Standard Life to
It can lead to material ensure our business always
financial and reputational seeks to do the right
losses. thing in every action
From a regulatory perspective we take. Our conduct risk
there is a strong focus policy ensures the standards
on conduct risk. For and outcomes we set are
example, the Financial implemented across the
Conduct Authority (FCA) business.
is currently carrying Our business works closely
out a range of thematic with the FCA, providing
reviews across the industry. any information requested
As a leading savings as required.
and investments provider Our new conduct and compliance
we have been asked to risk centre strengthens
participate in a number oversight of conduct exposures
of these. and risks.
Our conduct risk exposure
continues to evolve.
The sales and advice
practices of our new
UK advice business 1825
will need to be suitable
and appropriate for each
of its customers. Conduct
is also a key risk for
our asset management
business, which includes
ensuring that assets
are managed in the best
interests of customers
at all times.
------------- -------------------------------------- ------------------------------------
Political The heightened and continued The political risks that
Risk political focus on the we are exposed to are
financial services industry closely monitored. We
exposes our business are pro-active and engage
and propositions to change with the political change
and uncertainties. Additionally, process in the best interests
such focus can have a of our customers and stakeholders.
negative impact on the Political risks often
perception of our industry. form part of our stress
As a Scottish based company and scenario testing program
with a large number of and our emerging risk
customers across the process, helping us to
UK and Europe, the devolution understand the risks that
of powers in Scotland, could evolve. We maintain
as well as the expected appropriate contingency
referendum on the UK's plans and these are reviewed
membership of the EU, with changes to our business
all contribute to the and the environment in
risk of political uncertainty which we operate.
our Group faces.
The political environment
in which we operate can
impact our business in
different ways, from
how competitive we can
be, our cost base or
direct impacts on our
customers and stakeholders.
------------- -------------------------------------- ------------------------------------
Change Successful businesses Change management forms
Programme need to innovate and part of our operational
Risk evolve. The Group runs risk management framework
a significant change which provides a robust
programme with key changes and established framework
this period including under which change is
the integration of Ignis, managed, reported and
launch of 1825 and the implemented across the
changes we have put in Group.
place to respond to pension Our business has vast
freedoms. Additionally, experience of successfully
our asset management responding and adapting
business continues to to change and developing
invest, grow and upgrade market-leading propositions
its capabilities. for customers.
The key risk relates
to our execution of the
change both in terms
of cost and timing, which
could lead to additional
costs and ultimately
impacts the delivery
of our strategy.
------------- -------------------------------------- ------------------------------------
Outsourcing The Group uses a number Our Group policy framework
Risk of outsourcing partners, includes an outsourcing
some of which are integral policy which sets out
to running our business. the standards that must
These include those partners be complied with. These
who support the back include the monitoring
office functions within and management of material
our asset management risks and maintaining
business and our fund a remedial plan in the
platforms for our savings event of failure of any
business. services.
Outsourcing enables us The risks arising from
to benefit from specialist our key outsourcing partners
services and skills and are well understood. These
enable our business to risks form part of our
run more efficiently. stress testing processes
However, this means that which help us to understand
we are exposed to the the impact of their failure
risk of the failure of and how we would continue
our outsourcing partners. to operate under such
This could have a material circumstances.
impact on our ability There is a rigorous risk
to run our business and approval process which
lead to significant costs must be completed before
and disruption whilst any new outsourcing partners
we put in place alternative are used. This includes
arrangements. putting in place risk
mitigation plans, which
are reviewed annually.
------------- -------------------------------------- ------------------------------------
IT Failure The Group uses a range We invest in our IT infrastructure
& Security of systems to serve its and continually improve
Risk customers and operate our processes to mitigate
its business. These are operational failings.
exposed to the risk of We are proactive in our
failure. defensive approach to
The implementation of any security threats,
our strategy includes including educating our
greater use of technology, staff around these issues.
for example via our online We actively ensure appropriate
propositions, which increases contingency plans are
our exposure to security in place as secure and
risks such as fraud and robust systems are key
cyber-attacks. As we to achieving our strategic
increase our global brand objectives.
awareness, our higher We monitor evolving security
profile can also lead threats and work with
to greater risk. specialist third parties
The crystallisation of and information sharing
any of these risks could partnerships to better
mean that we are unable understand the risks and
to deliver our services develop our response to
to clients and customers, them.
cause reputational damage
and lead to remedial
costs.
------------- -------------------------------------- ------------------------------------
Longevity Longevity risk is the Our longevity risk exposure
Risk risk that people live is actively monitored
longer than expected and managed within our
leading to increases risk appetites framework.
to the value of our liabilities. We have a robust internal
This is an exposure we governance process for
actively take onto our setting our longevity
balance sheet via our assumptions and use the
annuity propositions. latest internal and external
We believe we can create data sources.
value for our shareholders We have a reinsurance
by taking and managing arrangement in place with
this risk. Canada Life which transfers
We have a large number a material part of our
of existing annuity customers longevity risk exposure.
but the growth of this The business actively
business line is expected monitors opportunities
to slow following the to implement further reinsurance
introduction of pension or capital market transactions
freedoms in the UK. to reduce the exposure
on our balance sheet.
------------- -------------------------------------- ------------------------------------
Counterparty Across the Group we use Exposures are pro-actively
Risk a number of credit and monitored with mitigation
reinsurance counterparties action taken where necessary.
to implement our business Our business has a strong
strategy. This exposes record of this, for example,
our business to losses removing exposure to Eurozone
if they fail to meet peripheral economies during
their obligations to the credit crisis. Counterparties
us. are collateralised and
Credit failings in financial internal credit assessments
markets could affect are used where appropriate.
our AUA and hence our A credit risk management
fee based revenue. Other framework is in place
credit events could see across the Group and is
the decline of asset managed and implemented
values through defaults by the Group Credit Risk
or financial losses from Committee. This policy
the failure of a bi-lateral sets out the requirements
counterparty, such as for any credit risk exposure,
our longevity risk reinsurer. including the required
quality and diversification
of assets. Exposures are
further mitigated by Standard
Life Investments active
management of credit assets
under management.
------------- -------------------------------------- ------------------------------------
1.5 Basis of preparation
Overview
Our Strategic report for the period to 30 June 2015 has been
prepared in line with the Disclosure and Transparency Rules (DTR)
issued by the FCA. The DTR incorporates the requirement of the
European Union (EU) Transparency Directive for all UK listed
companies to report their half year results in accordance with IAS
34 Interim Financial Reporting. Under DTR 4.2.7R, the Group is
required to provide at least an indication of important events that
have occurred during the first six months of the financial year,
and their impact on the financial information, and a description of
the principal risks and uncertainties for the remaining six months
of the financial year. Principal risks and uncertainties are
detailed in Section 1.4 - Principal risks and uncertainties and
Note 42 of the Group's Annual report and accounts 2014. Under DTR
4.2.8R the Group is also required to make certain related party
disclosures. These are contained in Note 4.17 of the IFRS condensed
consolidated financial information. To provide clear and helpful
information, we have also considered the voluntary best practice
principles of the Reporting statement: Operating and Financial
Review (OFR) issued by the Accounting Standards Board (ASB) in 2006
and Guidance on the Strategic report issued by the Financial
Reporting Council in 2014.
The Group's IFRS condensed consolidated half year financial
information has been prepared in accordance with IAS 34 Interim
Financial Reporting, as endorsed by the EU. However, our Board
believes that non-Generally Accepted Accounting Principles
(non-GAAP) measures, which have been used in the Strategic report,
are useful for both management and investors and make it easier to
understand our Group's performance. The most important non-GAAP
measures in the Strategic report include operating profit, assets
under administration and underlying cash generation.
All non-GAAP measures should be read together with the Group's
IFRS condensed consolidated income statement, IFRS condensed
consolidated statement of financial position and IFRS condensed
consolidated statement of cash flows, which are presented in the
IFRS condensed consolidated financial information in Section 4 of
this report.
Going concern
After making appropriate enquiries, the Directors have a
reasonable expectation that the Company and the Group as a whole
have adequate resources to continue in operational existence for
the foreseeable future. For this reason, they continue to adopt the
going concern basis in preparing the financial information.
IFRS reporting
The financial results, which are unaudited at the half year, are
prepared on an IFRS basis. All EU-listed companies are required to
prepare consolidated financial statements using IFRS issued by the
International Accounting Standards Board (IASB) as endorsed by the
EU. The IFRS financial results in the Strategic report and in
Section 4 have been prepared on the basis of the IFRS accounting
policies applied by the Group in the Annual report and accounts
2014 as amended for new standards effective from 1 January 2015, as
described in Note 4.1 - Accounting policies.
Group operating profit
The H1 2015 reconciliation of consolidated operating profit to
IFRS profit for the period, presented in Section 4 of this report,
presents profit before tax expense attributable to equity holders
adjusted for non-operating items. Further details on the
calculation of Group operating profit is presented in the Group
accounting policies (jj) - Operating profit in the Annual report
and accounts 2014. By presenting our results in this way, the
Directors believe they are presenting a more meaningful indication
of the underlying business performance of the Group.
Forward-looking statements
This document may contain 'forward-looking statements' about
certain of the Standard Life Group's current plans, goals and
expectations relating to future financial conditions, performance,
results, strategy and objectives. Statements containing the words:
'believes', 'intends', 'targets', 'estimates', 'expects', 'plans',
'seeks' and 'anticipates' and any other words of similar meaning
are forward-looking. By their nature, all forward-looking
statements involve risk and uncertainty because they relate to
future events and circumstances which may be beyond the Group's
control. As a result, the Group's actual financial condition,
performance and results may differ materially from the plans, goals
and expectations set out in the forward-looking statements, and
persons receiving this document should not place undue reliance on
forward-looking statements. The Standard Life Group undertakes no
obligation to update any of the forward-looking statements in this
document or any other forward-looking statements it may make.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR EAAPDEEPSEAF
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