TIDMSL.
RNS Number : 6017G
Standard Life plc
09 August 2016
Standard Life plc
Half year results 2016
Part 2 of 4
At a glance
Key performance indicators
Key performance indicators (KPIs) are defined as the measures by
which the development, performance or position of the business can
be measured effectively.
Financial
Assets under Net flows
administration
(AUA)
GBP328.0bn GBP0.9bn
(FY 2015: (H1 2015:
GBP307.4bn) GBP3.4bn)
Operating Underlying Operating
profit cash generation return on
equity
GBP341m GBP254m 13.8%
(H1 2015: (H1 2015: (H1 2015:
GBP290m) GBP230m) 12.9%)
Comparative Includes discontinued
has been restated operations
- See Section
1.2
------------------- -------------------- ------------------------
2015 comparatives are in relation to continuing operations
unless otherwise stated.
--------------------------------------------------------------------
We include measures here which have not been determined
to be KPIs but we believe are integral to our performance.
IFRS profit Basic earnings Interim dividend
after tax per share per share
attributable
to equity
holders
GBP226m 11.5p 6.47p
(H1 2015: (H1 2015:
GBP69m) GBP3.2p)
From continuing From continuing
operations operations (2015: 6.02p)
-------------------- -------------------- ------------------------
Find out more about our financial performance in Section 1.2.
Definitions of our financial terms are included in the Glossary in
Section 6.
Contents
1. Management report 2
1.1 Chief Executive's overview
1.2 Chief Financial Officer's
overview
1.3 Business performance
1.4 Risk management
1.5 Basis of preparation
2. Statement of Directors' responsibilities 22
Independent review report from
3. our external auditors 23
4. Financial information 24
IFRS condensed consolidated primary
statements
Notes to the IFRS condensed consolidated
financial information
5. Supplementary information 65
5.1 Alternative performance measures
5.2 Financial ratios
5.3 Assets under administration
and net flows
6. Glossary 72
7. Shareholder information 75
The Half year results 2016 are published on the Group's website
at www.standardlife.com/hyresults
The Half year 2016 press release is also published on
www.standardlife.com
The Directors are responsible for the maintenance and integrity
of the financial information published on the website in accordance
with UK legislation governing the dissemination of financial
statements. Access to the website is available outside the UK,
where comparable information may be different.
1. Management report
1.1 Chief Executive's overview
Standard Life has continued to deliver profitable growth. We
have grown assets, revenue and profits, and increased our dividend,
as we continue to make good progress in building a world-class
investment company.
Diversification delivers growth in challenging markets
In the first half of this year we saw a very different mix of
net flows compared to the first half of 2015. We are benefiting
from our strong long-term relationships with a broad range of
clients and customers who reacted in different ways to the changing
market environment.
The agreement to acquire Elevate will strengthen our leading
position in the advised platform market, while the increase in the
stake in HDFC Life and the proposed merger with Max Life will
increase our exposure to the attractive and fast growing Indian
market.
Outlook
The first half of 2016 can only be characterised as a
challenging external environment. While it would be rash to
extrapolate the economic and political noise of the last six
months, it is clear that the uncertainty that always accompanies
economies, politics and markets will remain elevated. This will
reinforce the global trends that are shaping the savings and
investment landscape. Standard Life's long-term strategy is
designed to take advantage of these trends.
Targeted investments to further our diversification agenda,
together with a sharpened focus on operational efficiency as we
drive our cost income ratio to significantly below its current
level, will increase our pace of strategic delivery. This will
ensure we continue to meet changing client and customer needs and
generate sustainable returns for our shareholders.
1.2 Chief Financial Officer's overview
Further information on AUA, net flows and the components of our
growth channels and mature books of business are included in
Supplementary information in Section 5
Alternative performance measures:
We assess our financial performance using a variety of measures.
Some of these measures are defined under IFRS such as IFRS profit.
Others, such as operating profit, are not defined under IFRS and
are therefore termed alternative performance measures. Further
details are included in Supplementary information in Section 5.
Key financial performance indicators, including comparatives,
exclude the Canadian and Singapore discontinued operations unless
otherwise stated
We continue to deliver across our simple business model of
increasing assets, maximising revenue and lowering unit costs which
has driven the increase in profit. This supports our progressive
dividend policy.
Increasing assets
Assets under administration and net flows
The increase in AUA from GBP307.4bn to GBP328.0bn was driven by
market movements, including benefit from a lower Sterling exchange
rate at the end of June, and growth channel net inflows. Market
conditions are expected to remain volatile in the short term
following the outcome of the EU referendum.
We continue to deliver positive net inflows despite the impact
of volatile markets, with resilient flows across our growth
channels. Net inflows in our growth channels were lower than H1
2015 as a result of the impact of this market volatility on retail
investor sentiment in the Wholesale channel. Pensions and Savings
growth channels net inflows of GBP3.1bn (H1 2015: GBP3.2bn) were
driven by the continued success of our Wrap platform. Net outflows
in our mature books reduced by GBP0.7bn to GBP3.4bn. H1 2015
included a GBP0.6bn one-off redemption by Phoenix Group. Total net
inflows across our business reduced by GBP2.5bn to GBP0.9bn in H1
2016.
H1 2016 H1 2015
Net flows GBPbn GBPbn
----------------------------------------------------------------------- -------- --------
Standard Life Investments Growth channels 1.7 5.2
Pensions and Savings Growth channels 3.1 3.2
Eliminations and other Growth channels (0.7) (1.0)
----------------------------------------------------------------------- -------- --------
Total Growth channels 4.1 7.4
----------------------------------------------------------------------- -------- --------
Standard Life Investments third party strategic partner life business (1.4) (2.2)
Pensions and Savings Mature fee business (1.5) (1.4)
Pensions and Savings spread/risk (0.5) (0.5)
Total Mature books (3.4) (4.1)
----------------------------------------------------------------------- -------- --------
Associate and joint venture life businesses 0.2 0.1
----------------------------------------------------------------------- -------- --------
Total net flows 0.9 3.4
----------------------------------------------------------------------- -------- --------
Maximising revenue
Higher growth channel assets have driven the 4% increase in fee
based revenue to GBP794m, with the Standard Life Investments growth
channels and Pensions and Savings growth channels increasing by 11%
and 10% respectively.
Fee based revenue from our mature books of business reduced in
line with expected outflows.
Whilst AUA was boosted from market and exchange rate movements
at the end of June, revenue growth was depressed by lower average
market levels in the period. For example, the average daily FTSE
All-Share Index was 10% lower in H1 2016 compared to H1 2015.
Spread/risk margin, which mainly relates to income earned on UK
annuities, increased by GBP23m to GBP63m. H1 2016 includes a GBP22m
benefit from an acceleration of payments from our main with profits
fund relating to changes to the scheme of demutualisation in
response to the transition to Solvency II.
Lowering unit costs
We invest to enhance our propositions and capabilities in a
disciplined manner that aims to improve both the scalability and
efficiency of our business. The cost/income ratio which is
calculated on a rolling 12 months basis and includes the share of
associates' and joint ventures' (JVs) profit before tax, has fallen
to 62%. This reflects not just the rise in revenue but also our
drive for greater cost efficiencies.
Operating expenses increased by 4% to GBP566m (H1 2015: GBP542m)
reflecting further investment in expanding the distribution and
global reach of Standard Life Investments, building scale in the
1825 business and ongoing investment in technology in our Pensions
and Savings business.
Driving Profit
Operating profit before tax increased by 18% and IFRS profit
from continuing operations increased by 228%.
Operating profit before tax
Operating profit before tax continues to be a key measure which
helps to give shareholders a fuller understanding of the
performance of the business.
Operating profit before tax increased by GBP51m to GBP341m,
driven by a combination of robust fee revenue in our growth
channels and an increase in the spread/risk margin.
Capital management increased by GBP12m to GBP13m largely due to
investment strategy changes and the benefit of a higher pension
scheme surplus.
Our share of profit from associates and JVs continued to grow
with strong performance from HDFC Life and HDFC Asset Management in
India and further progress from Heng An Standard Life in China.
Exchange rate movements at the end of June did not have a
material impact on profits in the period.
Underlying performance
Underlying performance increased by 14% to GBP341m (H1 2015:
GBP299m). Underlying performance includes the GBP22m spread/risk
margin benefit from an acceleration of payments from our main with
profits fund.
Analysis of operating profit is included in Section 1.3
IFRS profit(1)
IFRS profit from continuing operations increased to GBP226m (H1
2015: GBP69m) due to an 18% increase in operating profit and
reduced restructuring costs which resulted in a lower non-operating
loss of GBP61m.
The main non-operating items are discussed below.
Restructuring and corporate transaction expenses reduced to
GBP36m (H1 2015: GBP62m), and included GBP10m relating to the
integration of Ignis, GBP5m for staff pension scheme restructuring
and a number of other business unit restructuring programmes and
corporate transactions.
H1 2015 also included a GBP46m non-operating restructuring loss
in Hong Kong following regulatory change.
Short-term fluctuations in investment return and economic
assumption changes generated a loss of GBP17m (H1 2015: loss
GBP42m) mainly due to a widening of credit spreads.
The total tax expense attributable to equity holders' profits
from continuing operations was GBP49m, GBP69m (H1 2015: GBP37m)
related to operating items and a credit of GBP20m (H1 2015: credit
GBP19m) for non-operating items. The effective tax rate was 17%(2)
(H1 2015: 15%(2) ) compared to a UK corporation tax rate of 20% (H1
2015: 20.25%).
Other(3) profit from continuing operations comprises the share
of associates and JV tax of GBP5m (H1 2015: GBP5m). H1 2015 also
includes a Singapore IFRS loss before tax of GBP40m which largely
relates to expenses in respect of the closure of that business. The
H1 2015 IFRS profit from discontinued operations of GBP1,142m
includes the gain on sale of the Canadian business.
H1 H1
2016 2015
GBPm GBPm
------------------------------------------- -------- ------
Continuing operations:
Operating profit before tax 341 290
Non-operating loss
before tax (61) (158)
Total tax expense (49) (18)
Other(3) (5) (45)
-------------------------------------------- ------- ------
IFRS profit from continuing operations(1) 226 69
-------------------------------------------- ------- ------
IFRS profit from discontinued operations - 1,142
-------------------------------------------- ------- ------
Total IFRS profit(1) 226 1,211
-------------------------------------------- ------- ------
(1) After tax attributable to equity holders of Standard Life plc.
(2) Tax expense attributable to equity holders' profits divided
by profit before tax expense attributable to equity holders'
profits. Includes profit attributable to non-controlling
interests.
(3) Singapore is presented as a discontinued operation in the
Management report and in operating profit by segment in line with
internal management presentation. However, under IFRS 5, Singapore
did not constitute a discontinued operation and is included in
continuing operations in the consolidated income statement.
Therefore, a reclassification of these results between discontinued
and continuing operations is required. For further details see Note
4.3 of the IFRS condensed consolidated financial information.
A more detailed reconciliation of operating profit to IFRS
profit for the period is included in the IFRS condensed
consolidated financial information section of this report
Underlying cash generation
Underlying cash provides insight into our ability to generate
cash that supports further investment in the business and the
payment of dividends to our shareholders.
Underlying cash generation increased to GBP254m driven by the
growth in fee based revenue and the spread/risk margin benefit from
an acceleration of payments from our main with profits fund. This
was partly offset by higher current tax on underlying performance
mainly due to increased profits and a lower benefit from prior year
tax adjustments compared to H1 2015.
H1 2016 H1 2015
Reconciliation of underlying cash generation GBPm GBPm
---------------------------------------------- -------- --------
Underlying performance 341 299
Associates and JVs adjustment(4) (29) (23)
Current tax on underlying performance (53) (33)
DAC/DIR adjustment (3) (3)
Fixed and intangible assets adjustment (2) (10)
---------------------------------------------- -------- --------
Underlying cash generation 254 230
---------------------------------------------- -------- --------
(4) Underlying cash generation now includes dividends received
from our Indian associates. Prior period figures have been
restated. Further details are included in section 5.1 of
Supplementary information.
Visit www.standardlife.com/investor for more information on
underlying cash generation
Optimising the balance sheet
Operating return on equity
Operating return on equity measures our success in generating
operating profit relative to our shareholder capital. We will
continue to manage our capital position to ensure that we generate
sustainable returns for our shareholders. For example, in April
2016 we invested GBP179m to increase our stake in HDFC Life.
Operating return on equity increased to 13.8% reflecting strong
operating profit partly offset by a higher tax charge.
Our key growth channels including Standard Life Investments
Institutional and Wholesale, and UK Workplace and Retail are
capital-lite which means that they do not require significant
amounts of additional capital as they continue to grow.
Operating return on equity continues to be diluted by the impact
of the cGBP1bn pension scheme surplus.
Solvency II capital surplus(2)
30 June 2016 1 January 2016
Remove Remove
with with
profits profits
Add funds and Add funds and
Regulatory unrecognised pension Investor Regulatory unrecognised pension Investor
view capital scheme view view capital scheme view
Own funds GBP6.3bn GBP0.8bn (GBP1.1bn) GBP6.0bn GBP5.5bn GBP1.2bn (GBP0.7bn) GBP6.0bn
Solvency
capital
requirement
(SCR) (GBP4.1bn) - GBP1.1bn (GBP3.0bn) (GBP3.4bn) - GBP0.7bn (GBP2.7bn)
------------- ----------- ------------- ----------- ----------- ----------- ------------- ----------- -----------
Solvency II
capital
surplus GBP2.2bn GBP0.8bn - GBP3.0bn GBP2.1bn GBP1.2bn - GBP3.3bn
------------- ----------- ------------- ----------- ----------- ----------- ------------- ----------- -----------
Solvency
cover 154% 200% 162% 222%
------------- ----------- ------------- ----------- ----------- ----------- ------------- ----------- -----------
(2) 30 June 2016 based on draft regulatory returns. 1 January
2016 based on final regulatory returns.
Our capital position is governed by the Solvency II regulatory
regime. Under Solvency II, every insurer is required to identify
its key risks - e.g. that equity markets fall - and hold sufficient
capital to withstand adverse outcomes from those risks. The capital
required to withstand these outcomes is the Solvency capital
requirement (SCR). The SCR is calibrated so that the likelihood of
a loss being greater than the SCR in one year is less than 1 in
200.
The capital resources available to meet the requirements are
called own funds. Own funds differ materially from IFRS equity for
a number of reasons, including the different treatment of certain
items, such as pension scheme surpluses and most intangibles, and a
different approach for calculating liabilities.
We are well capitalised with a Solvency II capital surplus of
GBP2.2bn representing a solvency cover of 154%. These regulatory
figures do not take account of GBP0.8bn of capital in subsidiaries
that is not deemed to be freely transferrable around the Group.
Most of this unrecognised capital resides in Standard Life
Assurance Limited (SLAL), our principal insurance company, which
contributes over 90% of the Group SCR. This additional capital
helps absorb market and other volatility, resulting in a resilient
Solvency II capital surplus.
For example the Solvency II capital surplus of GBP2.2bn would
change by GBP0.1bn or less following a:
-- 20% rise or fall in equities, or
-- 100bps rise or fall in fixed interest yields, or
-- 50bps rise or fall in credit spreads
The solvency cover prescribed by Solvency II regulations of 154%
is diluted by the inclusion of GBP1.1bn of capital requirements for
with profits funds and our defined benefit pension scheme. These
capital requirements are covered in full by surplus assets in those
funds.
We have also included a Standard Life Investor view of solvency
which adjusts the regulatory position for the impacts from
unrecognised capital and with profit funds / defined benefit
pension schemes.
The Investor view provides insight into the actual solvency
capital provided by equity and debt investors.
The Investor view of capital surplus has fallen by GBP0.3bn from
1 January 2016 of which GBP0.2bn was due to the increase in our
investment in HDFC Life. The Regulatory view of capital surplus
increased by GBP0.1bn, benefiting from a methodology change which
enabled an additional GBP0.2bn of capital in SLAL to be recognised
at Group.
Liquidity management
Standard Life plc, the Group holding company, holds substantial
cash and liquid resources. At 30 June 2016, Standard Life plc held
GBP346m (H1 2015: GBP539m) of cash and short-term debt securities,
GBP301m (H1 2015: GBP292m) of bonds and GBP198m (H1 2015: GBP199m)
of holdings in pooled investment funds managed by Standard Life
Investments.
We continue to maintain a strong liquidity position and this was
again shown in internal stress testing undertaken during H1
2016.
In April 2016 we increased our stake in HDFC Life by 9% to 35%.
The consideration was funded from existing Standard Life plc
resources.
In H1 2016 we extended the maturity date of our syndicated
revolving credit facility by a further year to 2021. This GBP400m
facility is held as part of our contingency funding plans and is
currently undrawn.
H1 2016 H1 2015
Standard Life plc cash and liquid resources GBPm GBPm
--------------------------------------------- -------- --------
Opening 1 January 1,012 630
Canada net retained proceeds - 459
Dividends received from subsidiaries 277 247
Cash dividends paid to shareholders (243) (224)
Cash investments in associates and JVs (177) (3)
Cash investments in subsidiaries (18) (43)
Other (6) (36)
--------------------------------------------- -------- --------
Closing 30 June(3) 845 1,030
--------------------------------------------- -------- --------
(3) IFRS presentation at 30 June 2016 consists of investments in
subsidiaries at FVTPL of GBP277m, debt securities of GBP552m and
cash and cash equivalents of GBP16m.
Dividends
Dividend policy
Our progressive dividend policy is to grow the annual dividend
from the prior year pence per share payment at a rate that is
sustainable over the long term.
Proposed dividend
We propose an interim dividend for 2016 of 6.47p per ordinary
share which is an increase of 7.5%. This will be paid on 19 October
2016 to shareholders on the register at close of business on 9
September 2016.
The dividend payment is strongly supported by the GBP0.8bn of
cash and liquid resources which are backed by GBP1.6bn of Standard
Life plc distributable reserves at 30 June 2016.
How the dividend is funded
External dividends are funded from the cumulative dividend
income that Standard Life plc receives from its subsidiaries. To
provide some protection against fluctuations in subsidiary
dividends, Standard Life plc holds a buffer of distributable cash
and liquid resources. This buffer is dynamic and takes into account
expected future subsidiary dividend flows and the risks to those
dividends. Further information on the principal risks and
uncertainties that may affect the business and therefore dividends
is provided in Section 1.4.
1.3 Business performance
Our reportable segments have been identified in accordance with
the way that we are structured and managed. Our businesses'
performances from continuing operations are set out in Sections
1.3.1 to 1.3.3. In H1 2015 discontinued operations for segmental
reporting purposes relates to our Canadian business which was sold
on 30 January 2015 and our Singapore business, the closure of which
was announced in June 2015.
Analysis of operating profit(1) from continuing operations
Standard Life Pensions and India and Other(3) Eliminations(4) Total
Investments Savings(2) China continuing
operations
H1 H1 H1 H1 H1 H1 H1
2016 H1 2015 2016 H1 2015 2016 2015 2016 H1 2015 2016 H1 2015 2016 H1 2015
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ------ -------- ------ ----------- ----- ------ ----- -------- ------ ---------- ------ --------
Fee based
revenue 431 402 407 396 10 23 - - (54) (60) 794 761
Spread/risk
margin - - 63 40 - - - - - - 63 40
---------------- ------ -------- ------ ----------- ----- ------ ----- -------- ------ ---------- ------ --------
Total operating
income 431 402 470 436 10 23 - - (54) (60) 857 801
Total operating
expenses (271) (263) (313) (297) (12) (17) (24) (25) 54 60 (566) (542)
Capital
management - - 12 8 - - 1 (7) - - 13 1
Share of
associates'
and joint
ventures'
profit before
tax 16 15 - - 21 15 - - - - 37 30
Operating
profit before
tax 176 154 169 147 19 21 (23) (32) - - 341 290
---------------- ------ -------- ------ ----------- ----- ------ ----- -------- ------ ---------- ------ --------
Underlying
adjustments(5) - - - 9 - - - - - - - 9
---------------- ------ -------- ------ ----------- ----- ------ ----- -------- ------ ---------- ------ --------
Underlying
performance 176 154 169 156 19 21 (23) (32) - - 341 299
---------------- ------ -------- ------ ----------- ----- ------ ----- -------- ------ ---------- ------ --------
Reversal of
underlying
adjustments - - - (9) - - - - - - - (9)
Share of
associates'
and joint
ventures' tax
expense (5) (5) - - - - - - - - (5) (5)
Non-operating
items (16) (24) (37) (74) - (47) (8) (13) - - (61) (158)
Total tax
expense (32) (24) (28) (11) - 5 11 12 - - (49) (18)
Singapore
included in
discontinued
segment - - - - - (40) - - - - - (40)
---------------- ------ -------- ------ ----------- ----- ------ ----- -------- ------ ---------- ------ --------
Profit for the
period
attributable
to equity
holders of
Standard Life
plc 123 101 104 62 19 (61) (20) (33) - - 226 69
---------------- ------ -------- ------ ----------- ----- ------ ----- -------- ------ ---------- ------ --------
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, amortisation
and impairment of intangible assets acquired in business
combinations, gain or loss on the sale of a subsidiary, associate
or joint venture and other significant one-off items which are 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 2016 operating profit is based on the expected
long-term pension expense, which results in a GBP5m increase to
operating profit before tax (H1 2015: GBP20m) and a corresponding
increase to non-operating restructuring and corporate transaction
expenses - Refer to Note 4.4 of the IFRS condensed consolidated
financial information section for further details.
2 UK and Europe has been renamed as Pensions and Savings.
3 Other primarily relates to corporate centre costs and head office related activities.
4 Eliminations primarily relate to revenue and expenses included
in both the Pensions and Savings business and Standard Life
Investments. Therefore, at a Group level an elimination adjustment
is required to remove intra Group impacts.
5 Relates to shareholder support provided to the German with
profits business of GBPnil (H1 2015: GBP9m) included in operating
expenses.
1.3.1 Standard Life Investments
Overview
Standard Life Investments is a leading active asset manager with
total AUM of GBP269.0bn (FY 2015: GBP253.2bn).
We offer market-leading investment funds and solutions to our
clients through two main distribution channels:
-- Institutional: distributing to institutions either directly or through intermediaries
-- Wholesale: providing funds and solutions to retail investors
through wholesale distributors and platforms
As active managers, we place significant emphasis on rigorous
research and a strong team ethos. This, combined with disciplined
risk management and shared commitment to a culture of investment
excellence, is key to helping our clients look to their future with
confidence.
Our distinctive Focus on Change investment philosophy lies at
the heart of our wide range of investment funds and solutions.
Focus on Change is about looking beyond the things that would
typically influence the price of stocks in the market, and
understanding that there are other factors that can influence
them.
We recognise that corporate governance along with responsible
stewardship of a business' capital, employees, customers,
environment and society has a fundamental impact on long-term
investment returns. Our commitment to socially responsible
investing was reflected in our creation in H1 2016 of a new role of
Head of Stewardship and Environmental, Social & Governance
Investment.
Increasing diversification
We have an expanding global reach with a presence in 27 cities
worldwide including our Head Office in Edinburgh and regional hubs
in Boston and Hong Kong. As well as our own distribution, we
benefit from leveraging our strategic partner relationships in the
US, Canada, India, Asia, Japan and in the UK with Phoenix Group and
the wider Standard Life Group. The most recent of these is with
Bosera Asset Management, in mainland China, with whom we are
collaborating on a manufacturing basis, including joint product
innovation and investment management cooperation.
We are increasingly diversified with investment 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 liability aware and
multi-asset investments, and our Standard Life Wealth
proposition.
Investing for the longer term
A number of external factors are impacting global economic
growth and are driving increased volatility in markets. The EU
referendum result has dampened global outlook and caused
uncertainty in Europe and especially the UK. There is uncertainty
in the US ahead of the Presidential election at the same time as
companies' profits are being hit due to labour cost rises. China is
experiencing an economic slowdown but remains on its path to
rebalance away from investment and to consumption.
In a world of slow growth, low inflation and compressed returns,
we believe that active investment management offers opportunities
to deliver superior returns.
The EU referendum result also leads to uncertainty about our
future operating environment. We remain ready to adapt our business
to future changes in regulations and markets.
Following the EU referendum result we experienced an increase in
redemption requests which led us to suspend trading in our UK Real
Estate Fund, in line with our governance procedures. This action
was taken to protect all investors in the fund. We monitor activity
across all our funds and will continue to take any steps necessary
to do the right thing to achieve the best possible outcome for our
clients and customers.
We remain well positioned to deliver profitable growth. We are
broadening our offering to clients through a strong pipeline of new
investment funds and solutions. Our track record of client
co-development and commercialising innovation positions us well to
continue to meet the changing demands of our clients. At the same
time we continue to invest to drive performance, to raise our
profile and to enhance our infrastructure to support our growth
ambitions.
Increasing assets
Further information on AUA and net flows is included in
Supplementary information in Section 5
Gross Inflows Net flows AUM
H1 2016 H1 2015 H1 2016 H1 2015 H1 2016 FY 2015
GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
------------------------------------------ -------- -------- ---------- -------- --------- --------
Institutional 8.4 5.4 2.0 1.8 78.1 67.0
Wholesale 6.5 8.9 (0.4) 5.3 47.3 45.9
Wealth 0.5 0.4 0.2 - 6.7 6.5
Ignis(1) 0.3 1.3 (0.1) (1.9) 5.6 11.1
------------------------------------------ -------- -------- ---------- -------- --------- --------
Total Growth channels 15.7 16.0 1.7 5.2 137.7 130.5
------------------------------------------ -------- -------- ---------- -------- --------- --------
Standard Life Group 1.9 2.3 (0.8) (1.2) 88.3 83.1
Phoenix Group - - (1.4) (2.2) 43.0 39.6
------------------------------------------ -------- -------- ---------- -------- --------- --------
Total strategic partner life business -
Mature books 1.9 2.3 (2.2) (3.4) 131.3 122.7
------------------------------------------ -------- -------- ---------- -------- --------- --------
Total 17.6 18.3 (0.5) 1.8 269.0 253.2
------------------------------------------ -------- -------- ---------- -------- --------- --------
AUM increased by 6% to GBP269.0bn driven by positive investment
performance and favourable foreign exchange movements, against a
background of volatile markets.
Strong long-term investment performance
We continue to deliver strong long-term money weighted average
investment performance. 84% of growth channel AUM were ahead of
benchmark over five years, with 85% ahead over three years and 29%
over one year (H1 2015: five years 97%, three years 95%, one year
79%).
Investment performance was weak in the first two months of the
year and was subsequently on an improving trend until the EU
referendum vote, which caused sharp market movements undermining
this recovery. During 2016 uncertainty in the economic outlook did
not favour our portfolios generally, which were positioned for a
modest pick-up in economic growth.
Resilient growth channel flows
Gross flows across our growth channels remained strong at
GBP15.7bn, largely into Institutional and Wholesale business. This
result reflects the breadth of our product offering, our expanding
global distribution capability and the increasingly diverse range
of client segments served. Net inflows reduced to GBP1.7bn driven
by increased redemptions in Wholesale due to the continued impact
of volatile markets on investor sentiment market-wide.
By channel:
Institutional - increasingly global
Our increasingly global Institutional business saw net inflows
of GBP2.0bn with Q1 2016 seeing the highest quarterly net flows
since Q2 2013. Net inflows into private equity, fixed income, real
estate and multi-asset demonstrate the quality and breadth of our
offering.
Wholesale - challenging markets
Lower gross flows and increased redemptions of GBP6.9bn (H1
2015: GBP3.6bn) led to a net outflow of GBP0.4bn. Investor
sentiment has weakened in this channel globally given market
volatility, the EU referendum result and some short-term investment
performance concerns. Net inflows into MyFolio and fixed income
remain particularly strong although multi-asset saw net outflows in
the Wholesale channel during the period.
We remain well positioned in the UK wholesale market with a
share of 5.3% (FY 2015: 5.4%).
Wealth
Standard Life Wealth continues to develop and as we improve the
operational scalability of the business, we have started to gain
momentum in the market. AUM increased to GBP6.7bn.
Ignis(1)
Ignis, which is mostly institutional in nature, saw net outflows
of GBP0.1bn (H1 2015: net outflow GBP1.9bn). H1 2015 was
significantly impacted by a GBP1.7bn disinvestment from one large
low revenue mandate.
By asset class(2) :
Multi-asset continued to attract net inflows, contributing
GBP0.6bn (H1 2015: GBP5.6bn), GBP1.1bn of net outflows from
Wholesale offset by GBP1.7bn of Institutional inflows. Almost half
(48%) of this is into our non-GARS multi-asset solutions helped by
the launch of the Liability Aware Absolute Return III fund and the
Global Focused Strategies fund in the US. MyFolio saw net inflows
of GBP0.7bn (H1 2015: GBP0.9bn) as AUM increased to GBP8.9bn (FY
2015: GBP8.1bn). Flows echoed market sentiment with investors
continuing to retreat from equities towards fixed income with net
outflows of GBP0.6bn and net inflows of GBP0.3bn respectively.
By geography(2) :
North America continues to see strong net inflows with GBP0.5bn
in the period (H1 2015: GBP1.5bn) contributing to AUM reaching
GBP12.5bn (FY 2015: GBP11.7bn). European and Asian net outflows of
GBP0.6bn and nil respectively, reflected the impact of investment
volatility on wholesale markets. This also impacted our domestic UK
business with net inflows reducing to GBP1.1bn (H1 2015: GBP2.1bn).
In India, our share of HDFC AMC net inflows increased to GBP0.8bn
(H1 2015: GBP0.5bn).
(1) In H1 2016 a number of Ignis funds were merged with other
SLI funds, resulting in a transfer of GBP5.6bn AUM out of Ignis
into Institutional (GBP4.0bn) and Wholesale (GBP1.6bn) through
Market and other movements.
(2) 'By asset class' and 'By geography' commentary excludes Ignis which is reported separately.
Mature books
In our mature business, overall net outflows were GBP2.2bn. This
was largely due to net outflows of GBP1.4bn from the assets managed
on behalf of Phoenix Group as well as net outflows from Standard
Life Group of GBP0.8bn. H1 2015 included a GBP0.6bn one-off
redemption by Phoenix Group.
Maximising revenue
Our track record of strong long-term investment performance and
our range of proven investment solutions attract customers towards
our higher margin products.
Increased fee based revenue
Growth channel fee based revenue increased by 11% to GBP331m due
to increased AUM and a continued shift in mix towards our higher
margin growth products. Total fee based revenue increased by 7% to
GBP431m with a resilient performance from our mature business. The
average revenue yield on growth AUM increased slightly to 53bps (FY
2015: 52bps) and for mature business reduced slightly to 16bps (FY
2015: 17bps).
Lowering unit costs
We are controlling our cost base as our business grows,
capitalising on economies of scale across Standard Life Investments
and the wider business.
Controlled operating expense growth
We have reduced our cost/income ratio to 60%. The integration of
Ignis continues and is on track to deliver GBP50m of annual cost
synergies by 2017.
Total operating expenses increased by 3% to GBP271m reflecting
the increased scale of our business as we continue to invest in new
products and expanding distribution and geographic reach.
Driving Profit
H1 2016 H1 2015
GBPm GBPm
----------------------------------------------------- -------- --------
Fee based revenue 431 402
Operating expenses (271) (263)
Share of associates' profit before tax 16 15
----------------------------------------------------- -------- --------
Operating profit before tax 176 154
----------------------------------------------------- -------- --------
Interest, depreciation and amortisation 6 7
----------------------------------------------------- -------- --------
EBITDA 182 161
----------------------------------------------------- -------- --------
Reversal of interest, depreciation and amortisation (6) (7)
Non-operating items (16) (24)
Tax expense(1) (37) (29)
----------------------------------------------------- -------- --------
Total IFRS profit(2) 123 101
----------------------------------------------------- -------- --------
(1) Tax expense includes share of associates' tax expense.
(2) After tax, from continuing operations, attributable to equity holders of Standard Life plc.
Operating profit before tax increased by 14% to GBP176m driven
by a strong increase in fee revenue and controlled growth in
expenses.
Operating return on equity increased to 34.6% (H1 2015:
32.0%).
EBITDA, which is closely aligned with operating profit,
increased to GBP182m. Our EBITDA margin of 42% (H1 2015: 40%)
continues to be strong, and we remain on track to achieve our
target margin of 45% by 2017.
Total IFRS profit(2) increased to GBP123m due to strong
operating performance and the benefit of lower Ignis integration
costs.
1.3.2 Pensions and Savings
Overview
Pensions and Savings is a leading provider of long-term savings
and investment propositions to Workplace and Retail customers with
total AUA of GBP160.6bn (FY 2015: GBP150.2bn). Our main aim is to
help people manage their money today and save for their future.
In the UK we offer our products and services through two broad
growth channels:
-- Workplace: pensions, savings and flexible benefits to employees through their employers
-- Retail: pensions and savings where the relationship is either
directly with the client, or with their financial adviser
We also own businesses that specialise in financial advice and
risk and compliance services.
Our Europe growth business consists of our Ireland domestic and
international bond businesses as well as our unit linked business
in Germany.
Our valuable mature book includes mature Retail and spread/risk
products, such as annuities, which provide a sustained contribution
to our profit.
Our close collaboration with Standard Life Investments allows us
to support customers across the value chain, providing benefit to
our customers, our business and Standard Life as a whole. Our
Pensions and Savings business accounts for 85% of total MyFolio
AUA. 73% of our Workplace AUA and 21% of our Wrap assets are
managed by Standard Life Investments.
Broadening and deepening relationships
In May 2016 we announced an agreement to acquire the Elevate
platform from AXA and expect this transaction to complete during
2016. The acquisition broadens our reach in the platform market and
will bring a further GBP10bn of AUA to our business. Elevate, with
its simpler platform offering, will complement our Wrap platform,
which is designed for the more sophisticated wealth management
segment.
The new pension freedoms highlighted the importance of
professional financial advice in the UK and in response we are
building our own financial advice business called 1825. So far in
2016 we have announced the signing of the deals of four further
acquisitions of quality adviser firms, broadening our reach across
the country which, when complete, will bring total assets under
advice in 1825 up to GBP3.3bn. 1825 offers a full financial
planning and personal tax advice service which is focused on our
clients' goals. Combined with a wide range of investment options,
powered by our investment experts and technology, clients are able
to access support how and when they need it.
Market update
The first half of 2016 has seen volatile conditions in global
financial markets, which have negatively impacted investor and
consumer sentiment, and lower daily average asset values than
2015.
Following the EU referendum result in favour of leaving the EU
we have seen increased volatility in financial markets and
political uncertainty. We will monitor economic, political and
regulatory developments and seek to engage in the process in a
manner that represents the best interests of our clients, customers
and people in our Pensions and Savings business. We will continue
to leverage our existing local operating bases in Germany and
Ireland.
The Solvency II regime came into force in January 2016 bringing
consistency to the way EU insurers report capital and risk. We have
now successfully completed our first quarter of Solvency II
reporting.
New pension and savings regulations have provided customers with
increased flexibility when accessing income in retirement. In the
first year of the pension freedoms, 14% of our eligible customers
made use of the new regulations. Our online retirement journey
allows customers to access their savings in an efficient and fully
self service basis.
In May 2016, the Financial Conduct Authority announced that exit
charges will be capped at 1%. Our business is well positioned to
meet this requirement with less than 7% of our customers having a
potential exit charge, with the average exit charge less than 1% of
their fund value.
Increasing assets
Total AUA increased by 7% to GBP160.6bn, with UK AUA up 6% to
GBP139.2bn (FY 2015: GBP131.6bn) and Europe AUA up 15% to GBP21.4bn
(FY 2015: GBP18.6bn).
Growth channels
UK Workplace
AUA in our UK Workplace channel increased by 3% to GBP34.0bn,
benefiting from net inflows of GBP0.8bn. Whilst we have seen fewer
large scheme transfers as employers adapt to new pension
regulations, we are benefiting from growing contributions into our
existing schemes which provide a steady long-term source of
growth.
Our success in attracting new flows through auto enrolment has
resulted in a 4% increase in regular premiums to GBP1.5bn. Regular
premiums now account for over 74% of Workplace inflows. Our
Workplace business continues to be a source of growth for our
Retail businesses with GBP1.0bn of assets transferring in H1
2016.
UK Retail
Net inflows of GBP2.0bn into our UK Retail channel were driven
by a 14% increase in gross inflows to GBP4.1bn - the highest half
year ever.
Our Wrap(1) platform continues to lead the UK advised platform
market(2) with AUA increasing by 10% to GBP28.0bn. Since launch in
June 2014, our Discretionary Investment Manager Hub on the Wrap
platform has attracted over 60 discretionary fund managers and
GBP2.1bn of assets, of which around 40% is managed by Standard Life
Wealth.
AUA in our Active Money Personal Pension (AMPP) product, which
provides customers with a simple means of accessing their income at
retirement, grew 25% to GBP1.6bn.
Total assets invested in our market-leading drawdown
propositions increased by 8% to GBP14.7bn (FY 2015: GBP13.6bn).
Europe growth
In our Europe business, AUA in our growth channels of GBP10.4bn
is up 8% on 2015 with net inflows of GBP0.3bn and favourable
foreign exchange movements. In Ireland, net inflows from our
international bond business are up 8% on H1 2015.
Mature books
UK mature Retail
Our UK mature Retail book of business saw stable net outflows of
GBP1.2bn, GBP0.2bn of which went to our AMPP product, with
customers continuing to take advantage of pension freedoms. We look
to engage with our customers who are approaching retirement or have
maturing policies to help ensure they are equipped to make informed
decisions. This is valued by our customers with many choosing to
continue to save with us.
Spread/risk
Spread/risk AUA increased to GBP16.1bn due to reductions in
yields which offset net outflows from scheduled annuity payments of
GBP0.5bn.
Europe mature fee
Europe mature fee includes our German with profits book which
closed to new business in April 2015, resulting in lower net
inflows in H1 2016.
Further information on AUA and net inflows is included in
Section 5
Gross inflows Net flows AUA
H1 2016 H1 2015 H1 2016 H1 2015 H1 2016 FY 2015
GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
----------------- --------- -------------- --------- --------------- --------- ---------------
UK Workplace 2.0 2.1 0.8 1.1 34.0 33.0
UK Retail(1) 4.1 3.6 2.0 1.8 45.7 42.6
Europe Growth(1) 0.7 0.7 0.3 0.3 10.4 9.6
----------------- --------- -------------- --------- --------------- --------- ---------------
Total Growth
channels 6.8 6.4 3.1 3.2 90.1 85.2
----------------- --------- -------------- --------- --------------- --------- ---------------
UK Mature Retail 0.4 0.4 (1.2) (1.2) 32.6 32.7
Spread/risk 0.1 0.1 (0.5) (0.5) 16.1 14.9
Europe Mature
fee 0.3 0.4 0.1 0.2 10.3 8.4
Conventional
with profits - - (0.4) (0.4) 1.0 1.3
----------------- --------- -------------- --------- --------------- --------- ---------------
Total Mature
books 0.8 0.9 (2.0) (1.9) 60.0 57.3
----------------- --------- -------------- --------- --------------- --------- ---------------
Assets not
backing
products - - - - 10.5 7.7
----------------- --------- -------------- --------- --------------- --------- ---------------
Total Pensions
and Savings 7.6 7.3 1.1 1.3 160.6 150.2
----------------- --------- -------------- --------- --------------- --------- ---------------
(1) Wrap AUA is reported predominantly within UK Retail (H1 2016: GBP25.8bn, FY 2015: GBP23.4bn).
International bond AUA is reported within Europe Growth (H1 2016: GBP2.2bn, FY 2015: GBP2.1bn).
(2) Highest net sales in Q1 YTD 2016, source Fundscape.
Maximising revenue
Fee based revenue
UK fee based revenue increased by GBP7m to GBP321m. This
included an 8% increase in our growth channels to GBP197m and a 6%
reduction in our mature books to GBP124m. Whilst both channels were
impacted by lower average equity levels during the period, fee
based revenue in our UK growth channels has benefited from
Workplace and Retail net inflows.
Average fee revenue yield remains stable at 59bps (FY 2015:
59bps).
Spread/risk margin
UK spread/risk margin increased by GBP17m to GBP55m. The result
includes an GBP18m payment from our main with profits fund relating
to changes to the scheme of demutualisation in response to the
transition to Solvency II. This effectively brings forward some of
the payments expected in future years under the previous scheme
rules.
Although we had expected fewer asset and liability management
opportunities to exist in the low yield environment, we took
advantage of volatility in Q1 2016 to deliver a benefit of GBP16m
(H1 2015: GBP6m).
Lowering unit costs
Operating expenses
UK operating expenses increased by GBP19m to GBP238m reflecting
the scaling of our 1825 business and the timing of our investment
in technology to reduce future customer operations and IT
maintenance costs. We continue to drive the scalability of our
business model and cost discipline and the cost/income ratio has
remained at 59%.
Our ongoing investment in technology has allowed further process
automation and customer self service. Examples of our progress
include:
-- To date 20,000 customers have fully self served using our online retirement journey
-- In H1 2016, 35% of our customers who took action following
pension freedoms, transacted entirely online
-- Our online Good to Go proposition meets the needs of smaller
employers efficiently by processing schemes on the same day and has
secured 2,000 schemes in H1 2016 (6,000 to date)
Driving Profit
Operating profit
Pensions and Savings operating profit before tax increased by
15% to GBP169m, with underlying performance increasing by 8% to
GBP169m.
UK
UK operating profit increased by GBP10m to GBP151m, mainly due
to higher spread/risk margin.
Europe
Europe operating profit increased by GBP12m to GBP18m. The H1
2015 result was lower due to the impact of the GBP9m one-off
shareholder support provided to the German with profits business.
The Europe H1 2016 spread/risk result also includes the benefit of
a GBP4m payment from our main with profits fund relating to changes
to the scheme of demutualisation in response to the transition to
Solvency II.
Operating return on equity
Operating return on equity decreased to 11.7% (H1 2015: 13.0%)
reflecting higher opening shareholder net assets.
Profitability UK Europe Pensions and Savings
H1 2016 H1 2015 H1 2016 H1 2015 H1 2016 H1 2015
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------ -------- -------- -------- -------- ------------- ------------
Fee based revenue 321 314 86 82 407 396
Spread/risk margin 55 38 8 2 63 40
------------------------------------ -------- -------- -------- -------- ------------- ------------
Total operating income 376 352 94 84 470 436
Operating expenses (238) (219) (75) (78) (313) (297)
Capital management 13 8 (1) - 12 8
------------------------------------ -------- -------- -------- -------- ------------- ------------
Operating profit before tax 151 141 18 6 169 147
------------------------------------ -------- -------- -------- -------- ------------- ------------
Underlying adjustments(1) - - - 9 - 9
------------------------------------ -------- -------- -------- -------- ------------- ------------
Underlying performance 151 141 18 15 169 156
------------------------------------ -------- -------- -------- -------- ------------- ------------
Reversal of underlying adjustments - - - (9) - (9)
Non-operating items(2) (32) (57) (5) (17) (37) (74)
Total tax expense (16) (10) (12) (1) (28) (11)
------------------------------------ -------- -------- -------- -------- ------------- ------------
Total IFRS profit(3) 103 74 1 (12) 104 62
------------------------------------ -------- -------- -------- -------- ------------- ------------
(1) H1 2015 underlying adjustment related to shareholder support
provided to the German with profits business, included in operating
expenses.
(2) The main items included in non-operating items are
short-term fluctuations in investment return and economic
assumption changes of GBP10m (H1 2015: GBP37m) and restructuring
and corporate transaction expenses of GBP26m (H1 2015: GBP39m).
(3) After tax attributable to equity holders of Standard Life plc.
1.3.3 India and China
Overview
Our India and China life business consists of our life associate
in India, HDFC Life; our life joint venture in China, Heng An
Standard Life; and our wholly owned business in Hong Kong. The
results of our Indian asset management associate business, HDFC
Asset Management Company, are included within Section 1.3.1 -
Standard Life Investments.
We continue to strengthen our operations in India and China and
are well positioned for future growth in the region.
Strengthened presence in India
HDFC Life is currently one of India's leading life insurance
companies with a 16% market share in the private sector. It has a
comprehensive product portfolio which provides over 20 million
customers with innovative insurance and savings solutions.
We continue to be encouraged by the future outlook of the life
insurance industry in India. The insurable population is
anticipated to reach 750 million in 2020 and life insurance is
projected to comprise 35% of total savings by the end of this
decade. Demographic factors such as a growing middle class, young
insurable population and increasing awareness of the need for
protection and retirement planning are anticipated to support the
growth of the life insurance and pensions industry in India.
In April 2016, we completed the transaction to increase our
stake in HDFC Life from 26% to 35% for GBP179m.
On 8 August 2016, we announced that HDFC Life had agreed terms
with Max Life Insurance Company (Max Life), Max Financial Services
(Max FS) and Max India for the combination of the life insurance
businesses of HDFC Life and Max Life. The transaction will be
effected through a composite scheme of arrangement, the final form
of which remains subject to approval by parties to the transaction
and, once finalised, is subject to approval by the shareholders of
HDFC Life, Max Life, Max FS and Max India as well as regulatory and
high court approvals. Following completion of the transaction, the
shares of HDFC Life will list on The Bombay Stock Exchange and the
National Stock Exchange of India, subject to approval of these
stock exchanges and the Securities and Exchange Board of India.
The transaction, if approved, is expected to cement HDFC Life's
position as the leading private sector Indian life insurance
business. Max Life's bancassurance relationships will complement
HDFC Life's already strong distribution. Based on current
shareholdings, following completion of the transaction, Standard
Life would remain the second largest shareholder in the enlarged
HDFC Life entity with a shareholding of 24.1%.
Positioned for future growth in China & Hong Kong
Heng An Standard Life continues to build a sustainable and
profitable business by offering a range of insurance and savings
products to a growing customer base in mainland China. Both
profitability and sales are ahead of H1 2015.
The Chinese insurance market has grown in recent years to become
the 3(rd) largest in the world and we believe that the prospects
for future growth remain very positive, driven by an increasing
middle class and wealthy population who are living longer and are
more aware of the need for protection, medical and retirement
insurance. Heng An Standard Life, through their extensive sales
network and product range, are well positioned to meet this need
and continue to investigate opportunities to increase their
presence in the growing pensions market.
In Hong Kong, continuing regulatory changes and market
volatility have made growing AUA and flows challenging. We remain
focused on retaining and efficiently managing our existing business
at the same time as we evolve our propositions to meet the needs of
the growing affluent and wealth segments both in Hong Kong and from
mainland Chinese visitors. We continue to develop our future
business strategy in mainland China and Hong Kong.
Increasing assets
Further information on AUA and net flows is included in
Supplementary information in Section 5
Total AUA increased by 46% to GBP4.1bn. HDFC Life's AUA
increased to GBP3.0bn (FY 2015: GBP1.8bn). GBP0.8bn of the increase
reflects our higher share of HDFC Life AUA following our stake
increase in April.
AUA in Heng An Standard Life remained stable at GBP0.5bn (FY
2015: GBP0.5bn), while Hong Kong increased to GBP0.6bn (FY 2015:
GBP0.5bn).
Net inflows continued to increase in our associate and joint
venture businesses to GBP164m at H1 2016 (H1 2015: GBP119m), of
which GBP7m relates to the increase in our share of HDFC Life net
flows. Net flows in Heng An Standard Life increased by 128%
compared to the prior period.
In Hong Kong, net inflows decreased to GBP26m (H1 2015: GBP31m)
as a result of continuing regulatory changes and market
volatility.
Maximising revenue
HDFC Life's commitment to digital leadership and product
innovation for its customers has driven the development of the
successful 'Click2' online product series and award-winning cancer
care plan. Through the comprehensive product range, premium income
increased by 15% compared to H1 2015.
Heng An Standard Life's new business sales in H1 2016 have
increased by 31% compared to the comparative period.
In Hong Kong however, fee based revenue decreased by GBP13m due
to lower fee revenue from regular premium business which we stopped
selling in H1 2015. This reduction is expected, as regular premium
business generates most of its revenue during the first two years
from policy issue date.
Lowering unit costs
In Hong Kong, we continue to manage costs whilst investing in
new propositions in response to changes in regulation. Our focus on
cost management resulted in a reduction in staff costs compared to
H1 2015.
Driving Profit
Operating profit before tax decreased to GBP19m driven by an
operating loss in Hong Kong of GBP2m. This was due to fee based
revenue falling faster than operating expenses as a result of the
fall in revenue from regular premium business.
This was partly offset by an increase in operating profit of
GBP5m in HDFC Life to GBP17m and an increase of GBP1m in Heng An
Standard Life to GBP4m. Both our associate and JV businesses
continue to benefit from continued growth in premium income.
Operating return on equity for the India and China segment
decreased to 10.9% (H1 2015: 15.6%) mainly due to the capital
injection required to fund the increased stake in HDFC Life.
H1 2016 H1 2015
GBPm GBPm
------------------------------------------------------------------------------------------- -------- --------
Share of associates' and joint ventures' profit before tax 21 15
Hong Kong fee based revenue 10 23
Hong Kong operating expenses (12) (17)
Operating profit before tax 19 21
------------------------------------------------------------------------------------------- -------- --------
Non-operating loss including impairment of DAC and related reserving changes in Hong Kong - (47)
IFRS profit / (loss) before tax 19 (26)
------------------------------------------------------------------------------------------- -------- --------
Note: Results are presented on the basis of Standard Life
ownership percentages during 2016 and do not include the 40% share
in HDFC AMC which is included in the results for Standard Life
Investments. HDFC Life ownership was 26% until end April 2016 and
then 35% from May 2016, Heng An Standard Life ownership is 50% and
Hong Kong 100%.
1.4 Risk Management
Visit www.standardlife.com/annualreport for further information
about our ERM framework and about how we manage risk in our Annual
report and accounts 2015
Find out more about our risk management in Note 4.12 in the
Financial information section
Our approach to risk management
Effective and pre-emptive risk management, over both the short
and long term, is essential for our continued success.
We have a strong governance culture and our approach to risk
management is consistently applied across our growth channels and
mature book. This supports the development of long-term value by
ensuring that:
-- Well informed risk-reward decisions are taken in pursuit of our business plan objectives
-- Capital is delivered to areas where most value can be created from the risks taken
Our approach to risk management has received external
recognition. In May 2016, Standard & Poors increased their
rating on the Risk and Capital Models component of our framework to
'positive' and maintained their 'strong' rating of our overall ERM
Framework. In February our risk function received an external award
for insurance risk manager of the year from Risk.net's Risk
Magazine.
Our principal risks and uncertainties
The categories of risk that are faced by the Company, which
include Strategic, Operational, Conduct and Financial have not
changed since year end 2015 and we expect these to stay broadly
consistent over time.
From within these categories we have identified a number of
specific principal risks and uncertainties. These should not be
considered to be exhaustive but rather those which we currently
believe have the greatest potential to affect our business model,
future performance, solvency or liquidity. As our strategic
development continues and we respond to changes in our external
environment, it is to be expected that both the risks themselves
and the relative importance of these may change. We have provided
our current assessment of the forward trend for these risks and how
these are evolving over 2016.
Risk environment
Political, regulatory and financial risks have been predominant
themes in the first half of 2016. These feature strongly in our
principal risks in the tables below.
We are entering a period of uncertainty following the EU
referendum result and clarity over the specific details may not be
known for some time. It is expected that the assessment of our
principal risks may change as details emerge. We have a strong
track record of successfully adapting to changing markets and
regulations. Our pro-active risk management approach means we are
well positioned to respond to any risks and opportunities as they
emerge.
As a major financial services provider we have been asked to
participate in a range of industry wide reviews and studies
assessing competition, transparency and customer outcomes. The
FCA's Asset Management Market Study, MiFID II and the evolving UK
pension landscape will continue to be key areas of focus for
us.
Volatile financial markets in H1 2016 have impacted investor
sentiment and market confidence. The strong management of our
balance sheet over many years has enabled us to maintain a robust
capital position. In the first half of the year we carried out
additional stress and scenario testing to understand the potential
impact from the materialisation of further downside market
risks.
Oversight of current and future market risks has been high on
the agenda of our risk and management committees, as we manage the
delivery of our business plans and continue to focus on ensuring we
deliver consistently strong long-term investment performance for
clients and customers.
In H1 2016 the business entered into an agreement to acquire AXA
Elevate to support the continued growth of our platform business.
In addition to the due diligence, our risk function carried out an
independent risk assessment of the acquisition. Following the
purchase we will ensure the business has full risk support and
oversight as we transition the business under our risk framework
and control environment.
Our principal risks and uncertainties
STRATEGIC RISK
Risks which threaten the achievement of our strategy through poor strategic decision-making,
implementation or response to changing circumstances. We recognise that core strategic activity
brings with it exposure to strategic risk. However, we seek to proactively manage and control
these exposures.
----------------------------------------------------------------------------------------------------------------------
Principal Risk Trend How the risk is evolving in 2016
------------------------------------ ------------- -----------------------------------------------------------------
Political Increasing Following the EU referendum result there is material uncertainty
Change about what our future operating
environment will be. We are proactively engaging with key
stakeholders and are ready to adapt
our business as appropriate to any changes in regulations and
markets.
Decisions taken by the UK and Scottish governments in
particular, but also those in other
global locations where we operate, may possibly impact our
propositions or significantly change
our business environment. The change of leadership within the UK
government could result in
a new or different policy agenda and we will continue to fully
engage with industry bodies
and key stakeholders, responding as appropriate. One key event
in H2 2016 which may give an
indication of any change in policy will be the UK Chancellor's
Autumn Statement.
------------------------------------ ------------- -----------------------------------------------------------------
Regulatory Change Increasing The forthcoming requirements of MiFID II will have a significant
impact on market transparency
and investor protection aspects of the asset management
industry. We continue to ensure we
are well positioned to meet these new requirements when they
come into force in January 2018.
The FCA continues to progress their Asset Management Market
Study to assess competition within
the asset management sector. We welcome the FCA's work in this
area and look to support the
FCA in their industry wide review.
In the second half of 2016 we expect the FCA to announce any
next steps from their sample-based
review of non-advised annuity sales. The outcome and
consequences are currently uncertain.
However, it may be necessary to compensate customers and this
could have an adverse effect
on our profitability and/or financial position.
------------------------------------ ------------- -----------------------------------------------------------------
Customer and Client Preferences and Increasing We continue to diversify our revenue sources across our growth
Demand channels by responding to changing
customer and client needs. In a changing economic, regulatory
and political environment, our
business needs to adapt its offering to ensure its products and
propositions continue to be
attractive to our customers and clients. We aim to help our
customers and clients save and
invest for their future, and make it convenient to do so. We
have robust governance oversight
to ensure products and propositions delivered to the market meet
the client/customer needs
and our profitability criteria.
As an example, to support our clients in the management of their
pension scheme liabilities
Standard Life Investments has launched the first fund within our
new Integrated Liability
Plus Solution (ILPS) fund range aimed at our Institutional
growth channel.
The UK Pensions and Savings market continues to evolve as we
seek to meet our customers' savings
and retirement needs. As customer needs and behaviours develop
we continue to place a focus
on ensuring their long-term investment is fit for purpose.
As a business we continue to support our customers and have
recently raised awareness of the
savings gap in the UK and the risk this poses in retirement. We
have compiled a guide aimed
at helping people make the most of their money and get their
finances in order.
------------------------------------ ------------- -----------------------------------------------------------------
CONDUCT RISK
The risk that through our behaviours, strategies, decisions and actions the firm, or individuals
within the firm, do not do the right thing and/or do not behave in a manner which:
* Pays due regard to treating our customers and clients
fairly
* Is consistent with our disclosures and setting of
customer and client expectations
* Supports the integrity of financial markets
We recognise that our core strategic activity brings with it exposure to conduct risk which
must be understood and managed. However, there is no appetite for purposeful or deliberate
actions (behaviours/decisions) which result in conduct risk.
----------------------------------------------------------------------------------------------------------------------
Principal Risk Trend How the risk is evolving in 2016
---------------------------------- -------------------------------------- ------------------------------------------
Customer and Client Outcomes Increasing In May we entered into an agreement
to acquire the Elevate platform from
AXA. So far in 2016,
in our advice business 1825, we have
completed two acquisitions and have
announced our intention
to make a further two. As we
transition these businesses into
Standard Life, we will implement
a robust process to ensure that they
are embedded within our own risk and
conduct framework
and that the expectations of these
new customers continue to be met
following the change of
ownership.
Following the EU referendum in June,
like many other property investment
managers we saw an
increase in redemption requests from
UK property funds. We have taken
appropriate action to
protect investors, in line with our
governance procedures. We monitor
activity across all
our funds and will continue to take
any steps necessary to do the right
thing to achieve the
best possible outcome for our clients
and customers.
We have completed the delivery of our
revised conduct risk management
programme aiming to
support fair outcomes for our
customers and clients. This provides
additional visibility of
our conduct exposures and ensures a
more robust and consistent
application of their management.
In the first half of the year
Standard Life hosted a vulnerable
consumer event bringing together
other financial services companies
and the FCA to discuss and share best
practice in becoming
more accessible and inclusive for all
consumers.
---------------------------------- ------------------------------------------ --------------------------------------
OPERATIONAL RISK
Risk of loss or adverse consequences resulting from inadequate or failed internal processes,
people or systems, or from external events. We have limited appetite for large operational
losses due to the related reputational damage and opportunity costs. We will seek to manage
existing operational risk exposures and proactively control new exposures.
----------------------------------------------------------------------------------------------------------------------
Principal Trend How the risk is evolving in 2016
Risk
-------------------------------------- ---------------------------------------- ----------------------------------
IT Failure & Security, including Increasing Over time we expect our increasing
cyber risk global profile to raise the threat from
cyber-attacks.
Layered defensive controls are in place
to protect against such attacks and we
work with our
external partners to ensure that our
response is appropriate to the scale
and nature of the
threat.
In 2016, we have established a Security
Board to oversee and set the security
priorities across
the business. This Board has specified
our risk appetite for cyber risk in
order to better
measure the risk and drive the
appropriate responses to it.
We continue to invest in and deliver on
programmes to modernise, simplify and
increase the
security of our IT infrastructure to
support the growth of our business.
-------------------------------------- ------------------------------------ ----------------------------------------
Outsourcing Relationship Management Stable Through the planned acquisition of AXA
Elevate we have broadened our
relationship with one
of our key outsourcing partners who
operate and service our platform
business. In addition,
during the initial phases of the
transition there will be a new reliance
on AXA for servicing
the platform through agreed
transitional service agreements. These
changes in risk exposure
are well understood and have been
assessed as part of our due diligence.
-------------------------------------- ------------------------------------ ----------------------------------------
Change Management Increasing We continue to have a large change
portfolio with an increased level of
activity arising from
regulatory changes and transition
activity for acquisitions. Our risk
committees across the
business maintain a strong focus on
ensuring effective management of change
risk as our portfolio
evolves to meet business needs.
We welcome the new objectives of the EU
General Data Protection Regulation
which strengthens
data protection for individuals. We
have already initiated a company-wide
working group to
assess any changes and investment
required across our business.
-------------------------------------- ------------------------------------ ----------------------------------------
OPERATIONAL RISK continued
----------------------------------------------------------------------------------------------------------------------
Talent Management Stable As significant new powers have been devolved to the Scottish
Parliament a key area of focus
will be the extended powers over personal income taxation. We are
engaged with key stakeholders
to ensure any changes do not become a barrier to attracting and
retaining talent in Scotland.
We continue to develop the diversity of our workforce and are
involved in a wide range of
initiatives aimed at promoting social mobility and increased
diversity across the organisation.
These include how we consider diverse Board representation,
talent pipeline development, talent
acquisition, as well as actions to ensure a more inclusive
workplace. For example, we have
recently signed up to the HM Treasury Women in Finance Charter.
---------------------- -------------------------- ------------------------------------------------------------------
FINANCIAL MARKET AND CREDIT RISKS
Risk of losses due to risks inherent in financial markets. We have appetite for market risk
exposures where exposures arise as a consequence of core strategic activity. We have an appetite
for credit risk to the extent that acceptance of this risk optimises our risk adjusted return.
----------------------------------------------------------------------------------------------------------------------
Principal Risk Trend How the risk is evolving in 2016
-------------------- ------------- ---------------------------------------------------------------------------------
Market Increasing Global political and economic events caused financial markets to be volatile
Risk over the first
half of 2016 and this has been compounded by further uncertainty following the
EU referendum
vote. We continue to have a robust capital position as a result of the strong
risk management
of our balance sheet.
We closely monitor and continue to focus on delivering strong long-term
investment performance
across our fund range by applying our proven investment process, against a
backdrop of uncertain
and volatile markets.
Impacts on asset values as well as investor sentiment have provided headwinds in
growing AUA/AUM
and increasing fee based revenue. Impacts have been closely managed across the
different sources
of revenue to deliver a robust set of half year results.
Our increasing trend continues to apply given the risks and uncertainties
impacting financial
markets and our growing fee based business model.
-------------------- ------------- ---------------------------------------------------------------------------------
Counterparty Stable In response to economic, political and regulatory developments we have seen a
Risk number of ratings
downgrades from external credit rating agencies in the first half of 2016.
During this time
our governance processes in relation to investment mandates have operated
effectively and
there has been no significant adverse impact of downgrades on the business.
Our forward-looking assessment, given the current uncertainty affecting
financial markets,
is for credit risk to remain at an elevated level.
-------------------- ------------- ---------------------------------------------------------------------------------
DEMOGRAPHIC AND EXPENSE RISK
Risk that arises from the inherent uncertainties as to the occurrence, amount and timing of
future cash flows due to demographic and expense experience differing from that expected,
which for the purpose of risk management includes liabilities of insurance and investment
contracts. We have an appetite for such risks since we expect acceptance of the risk to be
value additive.
----------------------------------------------------------------------------------------------------------------------
Principal Risk Trend How the risk is evolving in 2016
------------------ ---------------------------- --------------------------------------------------------------------
Longevity Decreasing There has been no material change in the longevity exposure across
our annuity book of business.
Annuity sales continue to be materially lower post the introduction
of pension freedoms, and
as such we expect our longevity risk to decrease over time as our
annuity book steadily runs
off.
------------------ ---------------------------- --------------------------------------------------------------------
1.5 Basis of preparation
Overview
Our Management report for the period to 30 June 2016 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 -
Risk management and Note 41 of the Group's Annual report and
accounts 2015. Under DTR 4.2.8R the Group is also required to make
certain related party disclosures. These are contained in Note 4.16
of the IFRS condensed consolidated financial information. To
provide clear and helpful information, we have also considered the
voluntary best practice principles of the Guidance on the Strategic
report issued by the Financial Reporting Council in 2014. We have
also considered the European Securities and Markets Authority
(ESMA) guidelines on alternative performance measures issued in
October 2015.
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 alternative performance measures (APMs), which have
been used in the Management report, are useful for both management
and investors and make it easier to understand our Group's
performance.
The most important APMs in the Management report include
operating profit and underlying cash generation.
All APMs 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 Financial
information section of this report.
Going Concern
Having reassessed the principal risks, the Directors considered
it appropriate to adopt the going concern basis of accounting in
preparing the interim financial information.
Further details on alternative performance measures, financial
ratios and assets under administration are included in the
Supplementary information section of this report
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 Management 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
2015 as amended for new standards effective from 1 January 2016, as
described in Note 4.1 - Accounting policies.
Operating profit
The H1 2016 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 operating profit is presented in Note 4.7 -
Operating profit and non-operating items. Operating profit
reporting provides further analysis of the results reported under
IFRS and the Directors believe helps to give shareholders a fuller
understanding of the performance of the business by identifying and
analysing non-operating items.
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 DMGGRGRDGVZZ
(END) Dow Jones Newswires
August 09, 2016 02:01 ET (06:01 GMT)
Abrdn (LSE:ABDN)
Historical Stock Chart
From Aug 2024 to Sep 2024
Abrdn (LSE:ABDN)
Historical Stock Chart
From Sep 2023 to Sep 2024
