TIDMSTJ
RNS Number : 3102F
St. James's Place PLC
27 July 2016
-1-
ST. JAMES'S PLACE PLC
27 St. James's Place, London SW1A 1NR
Telephone 020 7493 8111 Facsimile 020 7493 2382
27 July 2016
INTERIM STATEMENT
FOR THE SIX MONTHS TO 30 JUNE 2016
FUNDS UNDER MANAGEMENT AT GBP65.6 BILLION
FOLLOWING RECORD FUND FLOWS
New Investment and Funds under Management
-- Gross inflow of funds under management of GBP5.3 billion (2015: GBP4.4 billion)
-- Continued strong retention of client funds
-- Net inflow of funds under management of GBP3.1 billion (2015: GBP2.7 billion)
-- Group funds under management of GBP65.6 billion (2015: GBP55.5 billion)
St. James's Place Partnership
-- Partnership numbers at 2,320 up 2.5% since the start of the year
-- Total number of advisers at 3,259 up 4.7% since start of the year
Profit
- EEV basis:
-- New business profits of GBP228.9 million (2015: GBP205.9 million)
-- Operating profit at GBP284.0 million (2015: GBP265.3 million)
-- Net asset value per share 791.9 pence (2015: 683.7 pence)
- IFRS basis:
-- Underlying profit before shareholder tax of GBP73.8 million (2015: GBP72.9 million)
-- Profit before shareholder tax of GBP60.5 million (2015: GBP67.0 million)
-- Net asset value per share 201.2 pence (2015: 189.3 pence)
- Cash result:
-- Underlying post tax cash result of GBP94.4 million (2015: GBP84.9 million)
Interim Dividend
-- Interim dividend 12.33 pence per share (2015: 10.72 pence per share)
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David Bellamy, Chief Executive, commented:
"Despite continued volatility in world stock markets and
political uncertainty across Europe, I am pleased to once again be
reporting a strong first half performance and continued positive
momentum in our business. Bearing testament to the reassuring
consistency and resilience of our business, I am particularly
pleased that we achieved record gross and net inflows in the second
quarter, up 23% and 25% respectively. That, together with our usual
high retention results and good performance of our client funds,
has increased our funds under management by GBP10 billion in the
last 12 months.
Whilst the UK's decision to leave the EU has created a period of
economic uncertainty in the UK, the challenges and responsibilities
that many people face when considering how to manage their wealth
and the ever changing tax considerations, remain. We believe we are
extremely well placed to meet this increasing need for advice and
remain focused on growing our number of qualified advisers and
providing them with all the tools and support to deliver high
quality outcomes for clients.
Consequently, without being complacent about the possible
consequences of Brexit, the proven strength in our business model
and ongoing momentum gives us confidence in our ability to deliver
continued growth in line with our objectives. Indeed, I can report
that new fund flows since the Referendum remain in line with those
medium term objectives.
Given the continued strong business performance, the Board has
declared a 15% increase in the interim dividend to 12.33 pence per
share. We intend to continue to grow the dividend in line with the
underlying performance of the business, as previously stated."
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The details of the announcement are attached.
Enquiries:
David Bellamy, Chief Executive Tel: 020 7514 1963
Officer
Andrew Croft, Chief Financial Tel: 020 7514 1963
Officer
Tony Dunk, Investor Relations Tel: 020 7514 1963
Director
Bell Pottinger Tel: 020 3772 2566
John Sunnucks
Ben Woodford Email: Bwoodford@BellPottinger.com
An interview with David Bellamy, discussing today's results,
will be available later today on www.sjp.co.uk
Analyst presentation 11am (GMT)
Bank of America Merrill Lynch Financial Centre
2 King Edward Street
London EC1A 1HQ
To be held in King Edward Hall
Alternatively, if you are unable to attend but would like to
watch a livestream of the presentation on the day, please click on
the link below or via our website
(Live and On-demand):
http://www.investis-live.com/st-jamess-place/577f754a2a4e360b00bb41a5/dia2
There will also be a Dial in:
Conference call dial in details:
United Kingdom (Local) 020 3059 8125
All other locations + 44 20 3059 8125
Participant Password: St James's Place
Replay Dial-in details (available for 7 days)
United Kingdom 0121 260 4861
United States 1 866 268 1947
All other locations + 44 121 260 4861
Passcode: 3815352 followed by #
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CONTENTS
PART ONE GROSS INFLOW FIGURES
PART TWO INTERIM MANAGEMENT STATEMENT
PART THREE EUROPEAN EMBEDDED VALUE (EEV) BASIS
PART FOUR INTERNATIONAL FINANCIAL REPORTING STANDARDS
(IFRS) BASIS
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ST. JAMES'S PLACE WEALTH MANAGEMENT
GROSS INFLOWS
FOR THE SIX MONTHS TO 30 JUNE 2016
Unaudited Unaudited
3 Months to 6 Months to
30 June 30 June
2016 2015 2016 2015
------------ ------------ ------------ ------------
GBP'Billion GBP'Billion GBP'Billion GBP'Billion
Gross inflows
Investment 0.58 0.64 1.04 1.23
Pension 1.22 0.85 2.40 1.58
Unit Trust, ISA & DFM 1.02 0.80 1.83 1.59
------------ ------------ ------------ ------------
2.82 2.29 +23% 5.27 4.40 +20%
------------ ------------ ------------ ------------
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INTERIM MANAGEMENT STATEMENT
CHIEF EXECUTIVE'S REPORT
I am pleased to be reporting once again a strong first half
performance and, importantly, continued positive momentum in our
business. Bearing testament to the reassuring consistency and
resilience that is a feature of our relationship based, advice led
model, gross inflows grew by 20% in the first half to GBP5.3
billion, while the retention of our existing client funds remained
consistent with previous years such that net inflows increased by
15% to GBP3.1 billion. As a result, our client funds under
management now stand at GBP65.6 billion, up 12% since the beginning
of the year and GBP10 billion higher than at the end of June last
year.
Whilst we are mindful that the UK's decision to leave the EU
will have created economic uncertainty in the UK, the challenges
and responsibilities that many people face when considering how to
manage their wealth and their ever changing tax considerations,
remain. Through our strategy of building long-term relationships
with our clients, providing them with reliable face-to-face advice
and successfully managing their investments across well-diversified
portfolios with significant exposure to non-UK assets and different
sources of return, we continue to be very well placed to meet this
increasing need for advice and support.
Financial Performance
As reported by our Chief Financial Officer, the strong business
performance in the first half of the year is reflected in the
financial performance for the period.
The underlying strength of the financial performance is once
again impacted by a heightened levy charged by the Financial
Services Compensation Scheme (FSCS levy) of GBP17 million. This
expense impacts all profit measures, but we remain hopeful that the
elevated levy imposed over the last two years will return to a more
normalised level in future years.
Dividend
Given the continued strong business performance, the Board has
declared a 15% increase in the interim dividend to 12.33 pence per
share and we intend to continue to grow the dividend in line with
the underlying performance of the business, as previously
stated.
The interim dividend for 2016 will be paid on 30 September to
shareholders on the register at the close of business on 2
September 2016. A Dividend Reinvestment Plan ("DRP") continues to
be available for shareholders.
Clients
At the heart of our sustained growth is the importance we place
on building and maintaining long lasting relationships with our
Partners and clients and serving them well.
The financial demands on our core clients, those aged 45 and
above, are changing quite quickly. They or their parents are living
longer or expect to do so and that is changing the nature of their
financial planning for, at and in retirement. At the same time,
they increasingly want to support their children or grandchildren
in education or in purchasing a property.
Our business is about supporting our Partners in helping clients
with these challenges. Earlier this year, alongside the launch of a
Lasting Power of Attorney service, we introduced an
intergenerational mortgage range in association with Metro Bank,
allowing clients to use their St. James's Place investments as the
collateral for a relative's mortgage application and helping them
to access lower rates. Later this year we have further initiatives
planned including an intergenerational gifting service, family and
general insurance protection products to complete our existing
family health insurance and the development of later life planning
services including a long term care proposition and probate support
services.
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We firmly believe that our highly personalised approach has a
strong place in UK financial services both today and in the future.
Indeed, at a historically significant point of economic and
political change for the UK, our advisers will play an important
role in helping clients to understand the impact of such changes
and the options that are available to them, so that clients can
make the right decisions and plan accordingly.
Investment Management
Despite the challenging market conditions, I'm pleased to report
that our investment funds and range of client portfolios have
performed in line with our expectations, benefitting from our
longer term strategy of building broadly diversified portfolios
with significant exposure to non-UK assets and different sources of
return. Less than 25% of our clients' money is invested in UK
equities and of that, 75% is in FTSE 100 companies who generally
have global businesses.
Central to our approach to investment management is the work of
our Investment Committee. They are tasked with identifying the most
talented investment managers from across the world and making
available to clients a range of investment solutions that meet
their current and future needs.
Equity income is a proven investment strategy and one which, in
an environment of low interest rates and low growth rates, remains
of great importance to clients. Whilst the UK has long been an
important market for income investors, today there is a much
broader universe of companies with a strong dividend culture. With
this in mind, alongside some changes we are making to our existing
investment strategies later this year, we are introducing a new
Worldwide Income Fund managed by Clyde Rossouw of Investec Asset
Management, based in Cape Town, South Africa. The new fund will
provide additional flexibility for clients seeking alternative
sources of income in the current environment.
Over the last ten years we have developed a truly global
approach to the management of our client funds, which I believe has
served them well and will continue to do so.
The St. James's Place Partnership
In the first half of this year, through the sustained efforts of
our business acquisition team, we continued to attract established
adviser businesses, often with more than one qualified adviser. We
also built on the success of our expanded Academy program and
increased our advisory presence in Asia. Our existing Partners too
are investing in their own practices by recruiting qualified
advisers to work for them, such that our Partner numbers increased
by 2.5% to 2,320 and our total qualified adviser capacity grew by
4.7% to 3,259.
I believe that the strong growth in Partner and total adviser
numbers bodes well for our continued growth and succession in our
Partner businesses.
As we look ahead, I'm confident that we will find additional
opportunities for growth in Asia, where our business is developing
nicely and in the Discretionary Fund Management market, through our
recent acquisition of Rowan Dartington. The range of additional
services Rowan Dartington can offer has already been very well
received by Partners and clients and since announcing the
completion of this acquisition earlier this year, the team of
client and Partner facing Investment Executives has increased.
Partners, Employees and the St. James's Place Foundation
I'd like to once again thank the entire St. James's Place
community for these results. There is no doubt in my mind that the
strength and continued growth of the business is due to their hard
work, dedication and commitment to clients and each other.
The St. James's Place Foundation has always been an important
part of the Group's culture and we aim to make a significant
difference to the lives of those less fortunate than us. Earlier
this year we passed a significant milestone as the total funds
raised, through the collective efforts of the whole of our
community, including employees, Partners, advisers, suppliers and
others connected to SJP, reached in excess of GBP50 million. All
funds raised are distributed to hundreds of charities, with grants
ranging from a few thousand pounds to more than GBP1 million.
I would like to thank everyone, including our shareholders, for
their continued support in helping to raise such impressive
sums.
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Outlook
As we continue to grow our advisory presence, we look to build
strong advocacy with and through our existing clients and advisers,
in the strong belief that if we maintain our focus on doing this
well, we will continue to attract advisers, acquire new clients and
grow our client funds under management.
Without being complacent about the possible consequences of
Brexit, the proven strength in our business model and good momentum
in our business gives us confidence in our ability to deliver
continued growth in line with our objectives. Indeed, I can report
that new fund flows since the Referendum remain in line with those
medium term objectives.
David Bellamy
Chief Executive
26 July 2016
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INTERIM MANAGEMENT STATEMENT
CHIEF FINANCIAL OFFICER'S REPORT
The strong business performance we have experienced in recent
years has continued in the first half of the year and this is
reflected in the financial performance for the period.
Financial results
As shareholders will be aware from previous periods, we report
our results on both IFRS and EEV bases, as well as providing
further detail on the cash emergence from the business. Detailed
explanation and analysis of the results on these measures is
provided in the Financial Review on pages 11 to 36.
The results reflect the underlying strong business performance
and the business mix in the period. There were also a number of
other drivers impacting the results (all measures impacted unless
otherwise stated):
(i) Our required contribution to the Financial Services
Compensation Scheme (FSCS) was again at an elevated level,
negatively impacting the results by GBP17.0 million pre-tax
(GBP13.6 million post-tax) compared with a pre-tax GBP20.0 million
(GBP15.9 million post-tax) for the prior year. This charge is
accounted for in full in the first half of the year. We remain
hopeful that the elevated levy we have seen over the last two years
will return to a more normal level in future.
(ii) We continue to invest in the Academy, our recent
acquisitions and other strategic initiatives, with the impact for
the current year at GBP10.0 million pre-tax (GBP8.7 million
post-tax) being higher than last year's GBP6.0 million pre-tax
(GBP5.2 million post tax).
(iii) The continuation of our back office infrastructure
investment cost GBP10.5 million pre-tax (GBP8.4 million post tax)
for the six months compared with GBP9.1 million (GBP7.3 million
post-tax) for the prior year.
(iv) As part of a review of our legacy business we are
voluntarily reviewing charges on two small cohorts of business:
waiving exit charges at the minimum retirement age where they
existed on some older pension contracts (written before July 1999);
and reassessing risk charges on a reviewable protection contract.
The combined impact of these actions is a negative one-off GBP8.2
million pre-tax (GBP6.6 million post tax) on the cash and IFRS
results, which rises to GBP13.6 million pre-tax in the EEV result
when the reduction in future charges is also fully capitalised.
(v) (EEV only) In April 2016 the CFO Forum published an amended
set of principles for calculating the EEV result following the
introduction of Solvency II at the start of 2016. The key change
impacting the result for June 2016 is a reduction in the cost of
holding a revised level of solvency capital, which has benefitted
the EEV operating profit by a one-off GBP7.5 million pre-tax.
IFRS Result
The Underlying profit before shareholder tax was GBP73.8 million
(2015: GBP72.9 million), whilst the IFRS Profit before shareholder
tax, which takes account of the amortisation of intangible assets
and liabilities, was GBP60.5 million (2015: GBP67.0 million).
The results reflect the items noted above, whilst the Profit
before shareholder tax in the current period also reflects a GBP7.4
million increase in the amortisation charge that continues a trend
we have noted previously. This amortisation charge is unrelated to
the performance of the business and we therefore present the
Underlying profit as a useful alternative measure (based upon IFRS)
for assessing operating performance.
Cash Result
The Underlying cash result for the six months was GBP94.4
million (2015: GBP84.9 million), some 11% higher, reflecting the
increased annual management fees from the higher funds under
management offset by the increase in our investment into the
strategic initiatives.
The Cash result was GBP82.5 million (30 June 2015: GBP81.8
million) reflecting the Underlying cash result adjusted for the
cost of the back office infrastructure investment and a number of
one-off items including the reviews noted in (iv) above.
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Note that the Cash and Underlying cash results should not be
confused with the IFRS cash flow statement which is prepared in
accordance with IAS 7 and disclosed on page 54.
EEV Result
The EEV New Business Contribution was up 11% during the period
at GBP228.9 million (30 June 2015: GBP205.9 million). The growth
was lower than the gross inflows (+20%) due to the change in
business mix.
The Operating Profit for the period was GBP284.0 million (2015:
GBP265.3 million). The prior year benefitted from a GBP16.4 million
positive experience variance that was not repeated in the current
year.
Despite the stock market volatility our investment funds have
performed strongly and exceeded the EEV assumption by 6-7%
resulting in a positive investment variance of GBP168.8 million.
(2015: GBP24.1 million).
Total profit before tax for the period was therefore GBP442.7
million with the positive investment variance explaining most of
the increase compared with GBP289.1 million for the prior year. The
net asset value per share on an EEV basis at the end of the period
was 791.9 pence (31 December 2015: 737.3 pence).
Dividend
Given the continued strong performance of the business during
the period and continued growth in the Underlying cash result, the
Board has declared an interim dividend of 12.33p per share, an
increase of 15%. The cost of the dividend will be GBP65.0 million
(2015: GBP56.0 million). We intend to continue to grow the dividend
in line with the underlying performance of the business, as
previously stated.
Capital & Solvency II
We continue to manage the balance sheet prudently to ensure the
Group's solvency is maintained safely through the economic cycle.
This is important not only for the safeguarding of our clients'
assets, but also to ensure we can maintain returns to
shareholders.
We assess our solvency against a Management solvency buffer (see
page 29) and with solvency free assets after the dividend
considerably in excess of the buffer, our solvency position remains
strong. We also provide an estimate of our Solvency II free assets
position, which at GBP851.3 million (after deducting the interim
dividend), gives a solvency ratio of 151% and also demonstrates the
strength of our covenant.
Concluding remarks
The business, financials and lead indicators are in good
shape.
Whilst the country faces some uncertainty following the
Referendum result on 23 June, current business flows remain in line
with our medium term objectives.
As noted in the Chief Executive's Report, the proven strength of
our business model and good momentum in our business gives us
confidence in our ability to deliver continued growth in line with
our objectives.
Andrew Croft
Chief Financial Officer
26 July 2016
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INTERIM MANAGEMENT STATEMENT
FINANCIAL REVIEW
The Financial Model
The Group's strategy is to attract and retain retail Funds under
Management (FUM) on which we receive an annual management fee for
as long as we retain the funds. This is the principal source of
income for the Group out of which we meet the overheads of the
business, invest in growing the Partnership and invest in acquiring
new funds under management.
The level of income is dependent on the level of client funds
and the level of asset values. In addition, since around half of
our business does not generate net income in the first six years,
the level of income will increase as a result of new business from
six years ago becoming cash generative. This deferral of cash
generation means the business always has six years' worth of funds
in the 'gestation' period. More information about our Fees on Funds
under Management can be found in Section 1 on page 13.
Group expenditure is carefully managed with clear targets set
for growth in establishment expenses in the year. Many other
expenses increase with business levels and are met from margins in
the products. The Group also invests in ensuring the quality of our
proposition for clients and Partners through investment in new
client services and existing IT systems. Finally we are also
looking to the future, with investment in strategic initiatives,
including the Academy, Asia, DFM and our Back-office infrastructure
programme. More information about our expenses can be found in
Section 2 on page 17.
A small proportion of Group expenditure is required to support
management of existing funds, but the majority of expenditure is
investment in growing the Partnership and acquiring new funds. The
resulting new business is expected to generate income for an
average of 14 years, and is expected to provide a good return on
the investment (see page 16).
As the business matures, the proportion of the cash emergence
from the existing business required to support the acquisition of
new business is reducing. This has resulted in strong growth in
Underlying cash emergence in recent years which has ultimately fed
through to growth in the dividend.
Profit Measurement
In line with statutory reporting requirements we report profits
assessed on an IFRS basis. However, given the long-term nature of
the business and the high level of investment in new business
generation each year, we believe the IFRS result does not provide
an easy guide to the cash likely to emerge in future years, nor
does it reflect the total economic value of the business.
Therefore, consistent with last year, we complement our statutory
IFRS reporting with additional analysis.
Firstly, we provide additional analysis in relation to the tax
reported under IFRS. The IFRS methodology requires that the tax
recognised in the financial statements should include the tax
incurred on behalf of policyholders in our UK life assurance
company. Since the policyholder tax charge is unrelated to the
performance of the business, we believe it is useful to separately
identify the Profit before shareholder tax. This measure reflects
the profit before tax adjusted for tax paid on behalf of
policyholders.
Secondly, the IFRS methodology promotes recognition of profits
in line with the provision of services and so, for long-term
business, some of the initial cash flows are spread over the life
of the contract through the use of intangible assets and
liabilities (known as DAC - Deferred Acquisition Costs and DIR -
Deferred Income). Due to regulation change in 2013, there was a
step change in the progression of these items, which resulted in
significant accounting presentation changes despite the
fundamentals of our vertically-integrated business remaining
unchanged. We therefore present an additional 'non-GAAP' Underlying
profit measure which is derived from the IFRS result by adjusting
for these intangibles. We believe this adjusted IFRS result
provides a useful measure of operating performance.
-12-
Thirdly, the IFRS methodology recognises other non-cash items
such as deferred tax and share options. Since a dividend can only
be paid to shareholders from appropriately fungible assets, when
determining the level of dividend the principal measures that the
Board considers are the Cash result and Underlying cash result as
they best reflect the cash generated by the business.
The Board starts by considering the Underlying cash result,
which reflects the impact of the primary drivers of the business
(being FUM and expenses as described in Sections 1 and 2). This can
be derived from the Underlying profit measure by adjusting tax to
reflect a normalised level of current tax, allowing for insurance
provisions on an IFRS basis, and allowing for share option costs.
The strategic investment in our back office infrastructure is also
excluded when considering the Underlying cash result, but is
included in the Cash result, which also reflects actual tax
settlements.
The Cash result and Underlying cash result are presented with a
breakdown explaining the sources of profit based on the key drivers
of the business, with the aim of assisting investors to understand
the development of profits. The Board also believes it is useful to
understand the contribution to profits from just the in-force
business as this reflects the value being generated by the existing
business, and so the breakdown identifies the new business impact
and makes clear the ongoing contribution from the established
business.
Finally, we also present an Embedded value result. We believe
this is useful for investors seeking to assess the full value of
the long-term emergence of shareholder cash returns, since it
includes an asset in the valuation reflecting the net present value
of the expected future cash flows from the business. This type of
presentation is commonly referred to as a 'discounted cash flow'
valuation.
Our embedded value has been determined in line with the EEV
principles, originally set out by the Chief Financial Officers
(CFO) Forum in 2004, and amended for changes to the principles
published in April 2016, following the implementation of Solvency
II in January 2016.
Many of the future cash flows derive from fund charges, which
change with movements in stock markets. Since the impact of these
changes is unrelated to the performance of the business, we believe
that the EEV operating profit (reflecting the EEV profit before
tax, adjusted to reflect only the expected investment performance
and no change in economic basis) provides the most useful measure
of embedded value performance in the year.
Given the importance of Funds under Management (FUM) to profit
generation by the business, we have provided an analysis of the FUM
make-up and development in Section 1. Section 2 covers Expenses,
which is the other significant driver of profits, with Sections 3-5
reporting on the performance of the business on the IFRS, Cash and
EEV result bases, and providing commentary on Solvency and
Liquidity.
A Glossary of terms was included in the most recent Annual
Report and Accounts, which is available on the website.
Related Party Transactions
The related party transactions during the first six month period
are set out in Note 17 to the condensed half year statements.
-13-
SECTION 1: FUNDS UNDER MANAGEMENT
During 2016 we have seen gross inflows of funds under management
of GBP5.27 billion (30 June 2015: GBP4.40 billion), up 20% and a
net inflow of GBP3.07 billion (30 June 2015: GBP2.67 billion)
growth of 15%. This result, combined with the addition of GBP1.26
billion Rowan Dartington funds under management at the date of
acquisition, together with a positive investment performance,
provided for total funds under management of GBP65.6 billion.
Analysis of the development of the funds under management is
provided in the following tables.
Six Months Ended 30 June 2016 Investment Pension UT/ISA Total
& DFM
Note GBP'Billion GBP'Billion GBP'Billion GBP'Billion
Opening funds under management 22.52 20.86 15.23 58.61
Rowan Dartington acquisition - - 1.26 1.26
Gross inflows 1.04 2.40 1.83 5.27
Net investment return 0.70 1.39 0.53 2.62
Regular income withdrawals and maturities 1,2 (0.26) (0.40) (0.04) (0.70)
Surrenders and part surrenders 3 (0.41) (0.46) (0.63) (1.50)
------------ ------------ ------------ ------------
Closing funds under management 23.59 23.79 18.18 65.56
============ ============ ============ ============
Net inflows 0.37 1.54 1.16 3.07
============ ============ ============ ============
Implied surrender rate as a percentage of
average funds under management 3.6% 3.9% 7.4% 4.7%
============ ============ ============ ============
Included within "UT/ISA & DFM" are gross inflows of GBP0.17
billion and outflows from regular income withdrawals and maturities
of GBP0.07 billion in relation to the Rowan Dartington Group funds
under management.
In addition, there is a further GBP434 million of funds under
management in third party funds within our Asia business.
Six Months Ended 30 June 2015 Investment Pension UT/ISA Total
Note GBP'Billion GBP'Billion GBP'Billion GBP'Billion
Opening funds under management 21.14 18.08 12.79 52.01
Gross inflows 1.23 1.58 1.59 4.40
Net investment return 0.23 0.32 0.23 0.78
Regular income withdrawals and maturities 1,2 (0.24) (0.29) - (0.53)
Surrenders and part surrenders 3 (0.43) (0.30) (0.47) (1.20)
------------ ------------ ------------ ------------
Closing funds under management 21.93 19.39 14.14 55.46
============ ============ ============ ============
Net inflows 0.56 0.99 1.12 2.67
============ ============ ============ ============
Implied surrender rate as a percentage of
average funds under management 4.0% 3.2% 6.9% 4.4%
============ ============ ============ ============
In addition, there was a further GBP473 million of funds under
management in third party funds within our Asia business.
-14-
Twelve Months Ended 31 December 2015 Investment Pension UT/ISA Total
Note GBP'Billion GBP'Billion GBP'Billion GBP'Billion
Opening funds under management 21.14 18.08 12.79 52.01
Gross inflows 2.45 3.66 3.13 9.24
Net investment return 0.19 0.38 0.25 0.82
Regular income withdrawals and maturities 1,2 (0.48) (0.62) - (1.10)
Surrenders and part surrenders 3 (0.78) (0.64) (0.94) (2.36)
------------ ------------ ------------ ------------
Closing funds under management 22.52 20.86 15.23 58.61
============ ============ ============ ============
Net inflows 1.19 2.40 2.19 5.78
============ ============ ============ ============
Implied surrender rate as a percentage of
average funds under management 3.6% 3.3% 6.7% 4.3%
============ ============ ============ ============
In addition, there was a further GBP430 million of funds under
management in third party funds within our Asia business.
Notes:
1. Regular income withdrawals represent those amounts selected
by clients which are paid out by way of periodic income. The
withdrawals are anticipated in the calculation of EEV New Business
Profit.
2. Maturities are those sums paid out where the plan has reached
the selected maturity date (e.g. retirement date). The expected
maturity date is anticipated in the calculation of EEV New Business
Profit.
3. Surrenders and part surrenders are those amounts where
clients have chosen to withdraw money from their plan. Surrenders
are assumed in the calculation of the EEV New Business Profit and
the level is based on analysis of actual experience taking into
account plan duration and the age of the client. The implied
surrender rate shown in the table above is very much a simple
average and reflects only recent experience. Whilst it could be
compared with the long-term assumptions underlying the calculation
of the embedded value, it should not be assumed that small
movements in this rate will result in a change to the long term EEV
assumptions.
-15-
Fees on Funds Under Management
As noted at the start of this Financial Review, our financial
model is to attract and retain retail funds under management on
which we receive an annual management fee.
The net annual management fee retained by the Group is c.0.77%
post tax. However, due to our product structure, investment and
pension business does not generate net cash in the first six years.
Consequently, the level of income we are receiving today is not
fully representative of the expected earnings from the funds we are
managing, and these earnings will increase as a result of the new
business from six years ago becoming cash generative. This deferral
of cash generation means there is always six years' worth of
business in the 'gestation' period.
The table below provides an estimated current value of the funds
under management in the gestation period.
30 June 2016 30 June 2015 31 December 2015
Year Total Total Total
GBP'Billion GBP'Billion GBP'Billion
2009 - 1.1 -
2010 1.2 2.2 2.0
2011 2.4 2.4 2.4
2012 2.7 2.8 2.7
2013 3.8 3.4 3.7
2014 4.0 3.5 3.9
2015 4.8 1.7 4.5
2016 Half year 2.5 - -
------------- ------------- -----------------
Total 21.4 17.1 19.2
============= ============= =================
This GBP21.4 billion of funds under management in the gestation
period represents approximately a third of the total funds under
management which, if all the business reached the end of the
gestation period, would contribute some GBP165 million to the
annual post-tax cash result.
-16-
The Business Case for new Funds Under Management
The Group incurs costs associated with attracting new funds. We
believe it is useful to provide details of the economic return we
expect will be generated from the new business; in other words, the
business case for the investment in attracting new clients and
funds under management.
As detailed later in this review on page 25, a net cost of
GBP59.0 million (2015: GBP52.7 million) has been incurred to
attract the GBP5.27 billion of gross new funds (2015: GBP4.40
billion).
We regard this as an investment in new business which we expect
to generate income in the future significantly exceeding this cost
and therefore provide positive returns for shareholders. The table
below provides details of the new business added during the
reporting periods and different measures of valuing the
investment:
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 2016 30 June 2015 31 December 2015
Gross inflows (GBP'billion) 5.27 4.40 9.24
Post-tax investment in new business (GBP'million) (59.0) (52.7) (84.2)
Post-tax present value of expected profit from investment
(GBP'million) 186.7 165.3 358.9
Cost of new business (% of new money invested)* 1.1% 1.2% 0.9%
New business margin (% of new money invested) 4.5% 4.7% 4.8%
Cash payback period (years) 5 5 5
Internal rate of return (net of tax) 21.2% 23.8% 22.1%
* The investment as a percentage of net inflow of funds under
management was 1.9% compared with 2.0% for June 2015. The full year
cost is expected to be lower at 1.5% (2015: 1.5%), because the FSCS
levy is fully expensed in the first half of the year.
Geographical and segmental analysis
30 June 2016 30 June 2015 31 December 2015
------------- ------------- -----------------
GBP'Billion GBP'Billion GBP'Billion
UK Equities 15.8 15.7 15.6
North American Equities 14.0 11.2 13.1
Fixed Interest 10.7 8.1 8.8
European Equities 7.0 6.1 6.2
Asia & Pacific Equities 5.5 5.1 4.9
Cash 5.4 4.5 4.6
Property 2.3 1.9 2.2
Alternative Investments 1.5 1.1 1.3
Other* 3.4 1.8 1.9
Total 65.6 55.5 58.6
============= ============= =================
*Included within "Other" is GBP1.35 billion (2015: GBPnil) in
relation to Rowan Dartington Group funds under management.
-17-
SECTION 2: EXPENSES
Management Expenses
The table below provides a breakdown of the management
expenditure (before tax):
6 Months 6 Months 12 Months
Ended Ended Ended
Note 30 June 2016 30 June 2015 31 December 2015
------- -------------- -------------- ------------------
GBP'Million GBP'Million GBP'Million
Establishment costs 1 75.1 68.6 139.4
Other performance related costs 2 43.5 45.3 94.3
Operational development costs 3 7.0 7.2 17.3
Strategic development costs 4 1.9 1.2 1.9
Academy costs 5 3.5 2.5 5.5
Asia costs 6 3.6 3.3 7.9
DFM costs 7 3.7 - 1.6
Back-office infrastructure development 8 10.5 9.1 18.1
Regulatory fees 9 3.9 3.4 7.5
FSCS levy 9 17.0 20.0 20.1
-------------- -------------- ------------------
169.7 160.6 313.6
============== ============== ==================
Notes
1. Establishment costs are the running costs of the Group's
infrastructure and are relatively fixed in nature in the short
term, although they are subject to inflationary increases. These
costs will increase as the infrastructure expands to manage the
higher number of existing clients, the growing number of advisers
and increasing business volumes.
As indicated at the time of our 2015 results, we anticipate the
full year growth in these expenses will be some 11% as we are
expanding our presence in London during 2016.
2. Other performance related costs, for both Partners and
employees, vary with the level of new business and operating profit
performance of the business.
3. Operational development costs represent business as usual
expenditure to support the business, such as the on-going
development of our investment proposition and our technology,
including focus on cyber security.
4. As a growth business we are constantly looking to new
opportunities and expect to incur a small level of ongoing expense
associated with pursuing other strategic developments.
5. The Academy is an important strategic investment for the
future and we are continuing to grow our investment in this
programme. Costs have increased in recent years as we have
increased the number of students within the programme and launched
more regional academies. Full year costs are expected to be some
GBP7.5 million.
6. Our expansion into Asia through operations in Singapore, Hong
Kong and Shanghai is intended to provide diversification of our
growth model through exporting our successful wealth management
proposition to new markets, starting with the UK ex-pat market.
Costs reflect both the ongoing operational costs, but also the
development costs associated with growing these businesses to
achieve sustainable scale.
7. Completion of the purchase of Rowan Dartington in March 2016
facilitated a new DFM operation within the SJP proposition. We
expect this business will grow quickly, requiring investment to
support these ambitions.
-18-
8. Our back-office infrastructure programme is a multi-year
initiative to upgrade our administration so it can support our
future business goals. Having achieved the migration of our ISA and
Unit Trust proposition to our new Bluedoor system in 2015, the
focus in 2016 is the launch of a new retirement account with the
eventual aim being to migrate pension and drawdown business onto
the new system. We anticipate a similar level of costs for the
remainder of the year.
9. The costs of operating in a regulated sector include fees
charged by the regulators and our contribution to the Financial
Services Compensation Scheme. Our position as a market-leading
provider of advice, means we make a very substantial contribution
to supporting the industry compensation scheme, the FSCS, thereby
providing protection for clients of other sector businesses that
fail. In the last couple of years, the levy has been at an elevated
level and we remain hopeful that it will return to a more
normalised level in future.
Group Expenses
The table below provides a reconciliation from the management
expenses above to the total Group expenses included in the
Consolidated Statement of Comprehensive Income on page 50.
6 Months 6 Months 12 Months
Ended Ended Ended
Note 30 June 2016 30 June 2015 31 December 2015
------- -------------- -------------- ------------------
GBP'Million GBP'Million GBP'Million
Expenses per table above 169.7 160.6 313.6
Partner remuneration 10 276.6 250.5 518.5
Investment expenses 10, 11 30.2 76.5 143.5
Third party administration 10, 12 34.8 25.9 56.6
Acquired IFA operating costs 1.5 1.5 3.0
Amortisation and revaluation of DAC, PVIF and
Renewal Income Assets 35.5 39.4 76.0
Share option costs 7.5 5.6 15.7
Share option NI - 2.0 3.4
Interest expense and bank charges 3.9 1.8 6.0
Charitable donations 1.9 1.2 3.5
Other 6.7 3.1 10.3
-------------- -------------- ------------------
398.6 407.5 836.5
Total expenses 568.3 568.1 1,150.1
============== ============== ==================
Notes
10. These costs are met from corresponding policy margins and
any variation in them from changes in the volumes of new business
or the level of the stock markets does not directly impact the
profitability of the Group.
11. In October 2015 in preparation for migration of business to
the Bluedoor platform we rationalised our funds so that Investment
expenses of all unit trusts are charged directly to the trust
rather than some being settled by the manager or life company. As a
result, the Investment expenses for most funds are no longer
consolidated in the accounts, but neither is the equal and
offsetting fee, resulting in a neutral profit impact overall (and a
neutral impact on clients).
12. In November 2015, as a result of the migration of business
to the Bluedoor platform and as noted last time, the business moved
to a new administration tariff with IFDS. The ultimate impact of
this change will be a significant reduction in the cost of
administration, but some administration costs which were previously
charged to the trusts are now being treated as expenses, with a
corresponding offsetting increase in fee income; again a neutral
impact overall. As a result, the Third Party Administration costs
reported in 2016 will increase by c.10% in addition to the growth
in business. The rate of growth in costs in future years will then
be slower than business growth, allowing the expected future saving
to emerge.
-19-
SECTION 3: INTERNATIONAL FINANCIAL REPORTING STANDARDS
(IFRS)
As noted at the start of this review, two key measures based on
IFRS are Profit before shareholder tax, which removes the impact of
policyholder tax, and Underlying profit, which removes the impact
of changes in certain intangibles (DAC/DIR/PVIF). We believe
Underlying profit provides a useful measure, based on IFRS, for
assessing operating performance.
As noted in the CFO's report, the results reflect the underlying
strong business performance and the business mix in the period, but
also a number of other drivers including: the FSCS levy; continued
investment in the Academy, recent acquisitions and other strategic
initiatives, as well as our back-office infrastructure; and costs
of reviewing charges in two small cohorts of legacy business.
6 Months Ended 6 Months Ended 12 Months Ended
30 June 2016 30 June 2015 31 December 2015
Before After tax Before After tax Before After tax
shareholder shareholder shareholder
tax tax tax
------------- ------------ ------------- ------------ ------------- ------------
GBP'Million GBP'Million GBP'Million GBP'Million GBP'Million GBP'Million
Underlying cash 105.4 94.4 89.8 84.9 197.0 182.1
Share options (7.5) (7.5) (5.6) (5.6) (15.7) (15.0)
Deferred tax impacts - (12.4) - (18.5) - 52.1
Insurance reserves (1.3) (1.0) 1.5 1.5 (1.8) (1.8)
Back-office infrastructure
development (10.5) (8.4) (9.1) (7.3) (18.1) (14.4)
Variance (12.3) (6.0) (3.7) 4.2 2.3 3.8
Underlying profit 73.8 59.1 72.9 59.2 163.7 206.8
DAC/DIR/PVIF (13.3) (10.7) (5.9) (5.1) (12.4) (4.8)
------------- ------------ ------------- ------------ ------------- ------------
IFRS profit 60.5 48.4 67.0 54.1 151.3 202.0
============= ============ ============= ============ ============= ============
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 2016 30 June 2015 31 December 2015
-------------- -------------- ------------------
Pence Pence Pence
IFRS basic earnings per share 9.3 10.4 38.9
============== ============== ==================
IFRS diluted earnings per share 9.2 10.3 38.5
============== ============== ==================
Underlying basic earnings per share 11.3 11.5 39.8
============== ============== ==================
Underlying diluted earnings per share 11.2 11.3 39.4
============== ============== ==================
Underlying cash basic earnings per share 18.1 16.5 34.6
============== ============== ==================
Underlying cash diluted earnings per share 17.9 16.3 34.2
============== ============== ==================
-20-
Underlying Profit before Shareholder Tax
The result for the six months was GBP73.8 million (30 June 2015:
GBP72.9 million). A breakdown by segment of the Underlying profit
is provided in the following table:
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 2016 30 June 2015 31 December 2015
-------------- -------------- ------------------
GBP'Million GBP'Million GBP'Million
Life business 72.9 87.3 174.2
Unit Trust business 49.2 30.9 70.7
-------------- -------------- ------------------
Funds Management business 122.1 118.2 244.9
Distribution business (19.2) (23.5) (21.2)
Back-office infrastructure development (10.5) (9.1) (18.1)
Other (18.6) (12.7) (41.9)
-------------- -------------- ------------------
Underlying profit before shareholder tax 73.8 72.9 163.7
============== ============== ==================
Funds Management
The increase in profit in the period by 3% to GBP122.1 million
(30 June 2015: GBP118.2 million) principally reflects higher income
from funds under management, albeit offset by costs of reviewing
charges in two small cohorts of legacy business. The change in
split of the profit between Life and Unit Trust business reflects
an internal reallocation of overhead expenses.
Distribution Business
St. James's Place is a vertically integrated firm, allowing it
to benefit from the synergies of combining funds management with
distribution. Therefore, as well as the income generated on the
funds under management, there is a further margin from the
distribution activity, which depends principally upon the levels of
new business and expenses.
The result reflects the increase in new business, but offset by
continued investment in our recent Asia acquisition, as well as
another elevated FSCS levy of GBP17.0 million (30 June 2015:
GBP20.0 million). Excluding these effects the core Distribution
activity would have made a small loss of GBP0.5 million (30 June
2015: GBP1.6 million loss).
Back-Office Infrastructure Development
As noted on page 17, the investment during the period in the
back office development project (known as Bluedoor) was GBP10.5
million (2015: GBP9.1 million).
Other
Other operations made a negative contribution of GBP18.6 million
(30 June 2015: loss of GBP12.7 million).
The result reflects our continued investment in the business,
including the Academy costs of GBP3.5 million (30 June 2015: GBP2.5
million) and other investments in developments of GBP5.2 million
(30 June 2015: GBP3.7 million) (see Section 2 on page 17 for more
detail on these expenses).
Also reflected is the cost of expensing share options of GBP7.5
million (30 June 2015: GBP5.6 million), which includes the cost of
the new Partner share scheme launched in 2015.
-21-
DAC/DIR/PVIF
The net movement in the DAC, DIR and PVIF intangibles has a
negative contribution to profit as summarised in the table below. A
more detailed analysis is included in Notes 10 and 14 on pages 70
and 71.
6 Months Ended 6 Months Ended 12 Months Ended
30 June 2016 30 June 2015 31 December
2015
Before After Before After Before After
shareholder tax shareholder tax shareholder tax
tax tax tax
------------- ------------
GBP'Million GBP'Million GBP'Million GBP'Million GBP'Million GBP'Million
Amortisation (3.4) (2.6) 6.2 5.0 12.4 15.8
Arising on
new business (9.9) (8.1) (12.1) (10.1) (24.8) (20.6)
Movement in
year (13.3) (10.7) (5.9) (5.1) (12.4) (4.8)
============= ============ ============= ============ ============= ============
The change, year on year, in the amortisation charge stems from
the changes in adviser charging rules in 2013, which changed the
nature of certain cash flows in the Group, moving them from long
term manufacturing margins to short term advice margins.
The net impact of amortisation of the accumulated balances of
DAC and PVIF assets, and DIR liability, reduced again during the
period, turning negative for the first time. We expect it will
become more negative over the next few years before levelling out
and eventually reversing. By contrast, the new business addition
amount is expected to move in line with new business growth.
It is important to note the intangible and deferred nature of
these items, meaning that they do not reflect the operating
performance of the business. This is why we believe the Underlying
profit measure, which is adjusted from IFRS to remove these
impacts, provides a useful measure of operating performance.
Shareholder Tax
The actual tax rate in each of the periods may be impacted by
significant one-off items and events such as a change in
corporation tax rate. The table below provides a high level
analysis of shareholder tax, and a more detailed analysis is
included in Note 5 to the condensed half year financial
statements.
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 2016 30 June 2015 31 December 2015
-------------- -------------- ------------------
GBP'Million GBP'Million GBP'Million
Expected shareholder tax (11.7) (12.7) (29.2)
Recognition of capital losses 1.5 - 74.8
Other tax adjustments (1.9) (0.2) 0.6
Corporation tax rate change - - 4.5
Actual shareholder tax (12.1) (12.9) 50.7
============== ============== ==================
Expected shareholder tax rate 19.3% 19.0% 19.3%
-------------- -------------- ------------------
Actual shareholder tax rate 20.0% 19.3% (33.5%)
-------------- -------------- ------------------
-22-
The expected shareholder tax principally reflects the current UK
corporation tax and overseas rates applicable and will vary from
year to year depending upon the emergence of profit between the
different tax regimes which apply to the St. James's Place Group
companies.
There has been a small reassessment in the value of capital
losses of GBP1.5 million in the period (30 June 2015: GBPnil) and
the combined negative impact of a number of other small tax
adjustments was GBP1.9 million (30 June 2015: GBP0.2 million).
The overall impact of these effects was to decrease the tax
charge on an IFRS basis to GBP12.1 million at 30 June 2016 (30 June
2015: GBP12.9 million).
In the Budget of 18 March 2016, the Chancellor announced a
future tax reduction to 17% from 18% effective from 1 April 2020.
We estimate that this reduction in rate will reduce our net
deferred tax asset by around GBP1 million. This will be recognised
when the change in rate is substantively enacted.
IFRS Profit
Analysis of the IFRS profit before tax, Profit before
shareholder tax and IFRS profit after tax is presented in the table
below, which also shows the impact of the tax incurred on behalf of
policyholders:
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 2016 30 June 2015 31 December 2015
-------------- -------------- ------------------
GBP'Million GBP'Million GBP'Million
IFRS profit before tax 97.0 103.7 174.1
Policyholder tax (36.5) (36.7) (22.8)
--------------
Profit before shareholder tax 60.5 67.0 151.3
Shareholder tax (12.1) (12.9) 50.7
-------------- -------------- ------------------
IFRS profit after tax 48.4 54.1 202.0
============== ============== ==================
The Profit before shareholder tax for the six months was GBP60.5
million (30 June 2015: GBP67.0 million). The impact of the negative
contribution from the net movement in DAC/DIR/PVIF intangibles was
a major contributor to the lower Profit before shareholder tax
result in the current period.
Both the IFRS profit before tax and the IFRS profit after tax
results reduced between the two periods, reflecting the same
drivers underlying the reduction in Profit before shareholder tax.
The lower level of profit also resulted in a small reduction in the
level of Shareholder tax. As noted elsewhere, the level of
Policyholder tax is unrelated to the performance of the business
and more related to investment performance, but nevertheless the
charges were also similar in each year.
-23-
Analysis of IFRS Assets and Net Assets per Share
The table below provides a summarised breakdown of the IFRS
position at the reporting dates:
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 2016 30 June 2015 31 December 2015
-------------- -------------- ------------------
GBP'Million GBP'Million GBP'Million
Purchased value of in-force* 26.1 28.2 27.4
Deferred acquisition costs* 603.3 643.4 627.2
Deferred income* (353.0) (383.6) (368.3)
Other IFRS net assets 11.8 2.7 7.7
Solvency II net assets 772.3 700.1 801.1
-------------- -------------- ------------------
Total IFRS net assets 1,060.5 990.8 1,095.1
============== ============== ==================
* net of deferred tax
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 2016 30 June 2015 31 December 2015
-------------- -------------- ------------------
Pence Pence Pence
Net asset value per share 201.2 189.3 208.7
============== ============== ==================
-24-
SECTION 4: CASH RESULT, SOLVENCY AND LIQUIDITY
The Cash and Underlying cash results should not be confused with
the IFRS cash flow statement which is prepared in accordance with
IAS 7 and disclosed on page 54.
This section now brings together our reporting on the Cash
result, Solvency II net assets, and our solvency in line with the
approach we outlined at the year end. Following the introduction of
Solvency II at the start of 2016, the Cash result has been adjusted
to remove the impact of Solvency I reserves, and now reflects the
movement in the Solvency II net assets during the period adjusted
for movements in non-cash items (see page 31). The Cash result for
the prior year reflected the Solvency I reserves as that was the
regulatory regime at the time.
The Cash result and Underlying cash result are the principal
measures the Board considers when determining the dividend payment
to shareholders. The Board starts by considering the Underlying
cash result, which reflects the impact of the primary drivers of
the business (being FUM and expenses as described in Sections 1 and
2). This can be derived from the Underlying profit measure by
adjusting tax to reflect a normalised level of current tax,
allowing for insurance provisions on an IFRS basis, and allowing
for share option costs. The strategic investment in our back office
infrastructure is also excluded when considering the Underlying
cash result, but is included in the Cash result, which also
reflects actual tax settlements.
The Cash result and Underlying cash result, which are presented
after tax, are a combination of the cash emerging from the business
in force at the start of the year, less the investment made to
acquire new business during the year. The tables and commentary
below provide an indicative analysis of the Cash result into these
two elements.
-25-
Six Months Ended 30 June 2016
Note In-Force New Business Total
------- ------------ ------------- ------------
GBP'Million GBP'Million GBP'Million
Operational
Net annual management fee 1 226.1 9.6 235.7
Reduction in fees in gestation period 1 (81.2) (5.7) (86.9)
------------ ------------- ------------
Net income from funds under management 1 144.9 3.9 148.8
Margin arising from new business 2 - 20.5 20.5
Establishment expenses 3 (6.0) (54.1) (60.1)
Operational development expenses 3 - (5.6) (5.6)
Regulatory fees 3 (0.3) (2.7) (3.0)
FSCS levy 3 (1.3) (12.3) (13.6)
Shareholder interest 4 4.7 - 4.7
Tax relief from capital losses 5 7.0 - 7.0
Miscellaneous 6 4.4 - 4.4
------------ ------------- ------------
Operating cash result 153.4 (50.3) 103.1
Investment
Academy 7 - (2.8) (2.8)
Asia 7 - (3.2) (3.2)
DFM 7 - (1.2) (1.2)
Strategic development costs 7 - (1.5) (1.5)
Underlying cash result 153.4 (59.0) 94.4
Back-office infrastructure development 8 (8.4)
Variance 9 (3.5)
Cash result 82.5
============
-26-
Six Months Ended 30 June 2015
Note In-Force New Business Total
------- ------------ ------------- ------------
GBP'Million GBP'Million GBP'Million
Operational
Net annual management fee 1 206.6 8.6 215.2
Reduction in fees in gestation period 1 (75.4) (4.8) (80.2)
------------ ------------- ------------
Net income from funds under management 1 131.2 3.8 135.0
Margin arising from new business 2 - 20.5 20.5
Establishment expenses 3 (5.4) (49.3) (54.7)
Operational development expenses 3 - (5.8) (5.8)
Regulatory fees 3 (0.2) (2.4) (2.6)
FSCS levy 3 (1.6) (14.3) (15.9)
Shareholder interest 4 3.7 - 3.7
Tax relief from capital losses 5 8.3 - 8.3
Miscellaneous 6 1.6 - 1.6
------------ ------------- ------------
Operating cash result 137.6 (47.5) 90.1
Investment
Academy 7 - (2.0) (2.0)
Asia 7 - (2.3) (2.3)
Strategic development costs 7 - (0.9) (0.9)
Underlying cash result 137.6 (52.7) 84.9
Back-office infrastructure development 8 (7.3)
Variance 9 4.2
Cash result 81.8
============
-27-
Year Ended 31 December 2015 Note In-Force New Business Total
----- ------------ ------------- ------------
GBP'Million GBP'Million GBP'Million
Operational
Net annual management fee 1 406.7 33.5 440.2
Reduction in fees in gestation period 1 (143.1) (18.5) (161.6)
------------ ------------- ------------
Net income from funds under management 1 263.6 15.0 278.6
Margin arising from new business 2 - 47.8 47.8
Establishment expenses 3 (11.1) (100.2) (111.3)
Operational development expenses 3 - (13.8) (13.8)
Regulatory fees 3 (0.6) (5.2) (5.8)
FSCS levy 3 (1.6) (14.3) (15.9)
Shareholder interest 4 8.6 - 8.6
Tax relief from capital losses 5 12.1 - 12.1
Miscellaneous 6 (4.7) - (4.7)
------------ ------------- ------------
Operating cash result 266.3 (70.7) 195.6
Investment
Academy 7 - (4.4) (4.4)
Asia 7 - (6.3) (6.3)
DFM 7 - (1.3) (1.3)
Strategic development costs 7 - (1.5) (1.5)
Underlying cash result 266.3 (84.2) 182.1
Back-office infrastructure development 8 (14.4)
Variance 9 3.8
Cash result 171.5
============
-28-
Notes
All numbers are expressed after tax at the prevailing tax rate
for each year.
1. The Net annual management fee is the manufacturing margin the
Group retains from the funds under management after payment of the
associated costs (e.g. investment advisory fees and Partner
remuneration). Broadly speaking the Group receives an average Net
annual management fee rate of 0.77% (post tax) of funds under
management (2015: 0.77% (post tax)).
However, as noted in Section 1 on page 15, due to our product
structure, investment and pension business does not generate cash
in the first six years (known as the 'gestation' period). This is
reflected in an adjustment which is the Reduction in fees in
gestation period.
The overall result is the Net income from funds under
management, which was some 10% higher than the same period in 2015,
reflecting the higher average funds under management in the
period.
2. Margin arising from new business: This is the cash impact of
new business in the year, reflecting growth in new business,
production related expenses and mix of business. The movement year
on year will reflect growth in gross inflows, but also mix of
business.
3. Expenses: These reflect the expenses of running the Group and
more detail is provided in the table on page 17. In line with the
rest of this table they are presented after allowance for tax.
4. Shareholder interest arising from regulated and non-regulated
business: This is the assumed income accruing on the investments
and cash held for regulatory purposes together with the interest
received on the surplus capital held by the Group.
5. Utilisation of capital losses: In recent years, a deferred
tax asset has been established for historic capital losses which
are now regarded as being capable of utilisation over the medium
term.
Utilisation in the period was slightly ahead of our expected
level of GBP4-5 million for a six month period.
6. Miscellaneous: This represents the cash flow of the business
not covered in any of the other categories, including ongoing
administration expenses and the associated policy charges, together
with utilisation of the deferred tax asset in respect of prior
year's unrelieved expenses (due to structural timing differences in
the life company tax computation).
7. Investment: The result for each of these initiatives reflects
the operational expenses to support growth, but offset by any
non-SJP fees not reflected elsewhere in the analysis, and is
presented after allowance for tax.
8. Back-office infrastructure development: These costs relate to
a major project seeking to combine our back offices under one
management team and to put in place one unified, client centric
administration system, enabling them to deliver improved service
and improved efficiency for the business.
9. Variance: This reflects variances in the settlement of tax
related liabilities between the policyholders (unit-linked funds),
the shareholder and HMRC; the GBP6.6 million negative one-off cost
of reviewing charges in two small cohorts of legacy business; and a
number of other small positive and negative one-off items.
-29-
Solvency
St. James's Place is a relatively simple Wealth Management group
offering mainly investment products. Our strategy is to attract and
administer retail funds under management, from which we receive an
annual management fee; we are a fee-based business. Our clients can
access their investments on demand but, because we match the
encashment value on the unit-linked business, movements in equity
markets, interest rates, mortality, morbidity, longevity and
currency rates have little impact on our ability to meet
liabilities (although they can affect emergence of profit). We also
have a prudent capital management approach and invest surplus
assets in cash, AAA rated money-market funds and UK government
securities. The overall effect is assurance that we can meet
liabilities, and a resilient solvency position that is dependable
even through adverse market conditions.
We manage solvency of our business on the basis of holding
assets in excess of the client unit-linked liabilities. This
ensures we are able to meet client liabilities at all times, but
also allows for a prudent Management solvency buffer (MSB) as
protection against other risks. We have assessed the MSB for our
Life business as GBP150 million, having taking into account a wide
range of factors and information, not least the results from stress
and scenario testing carried out as part of our annual ORSA (Own
Risk and Solvency Assessment). We will also continue to hold
capital within the Group in respect of the other regulated (but
non-insurance) companies, based on at least 150% of the regulatory
requirement.
30 June 2016 Other
Life Regulated Other Total
------------ ------------ ------------ ------------
GBP'Million GBP'Million GBP'Million GBP'Million
Solvency II net assets 466.4 106.1 199.8 772.3
Proposed interim 2016 dividend (65.0) (65.0)
Solvency II net assets after dividend 466.4 106.1 134.8 707.3
------------ ------------ ------------ ------------
Management Solvency Buffer (MSB) 150.0 64.6 214.6
Management solvency ratio 311% 164% 330%
Solvency II net assets reflects the assets of the Group in
excess of those assets matching the client's (unit--linked)
liabilities. It includes a GBP168.3 million deferred tax asset
which is not immediately fungible, although we expect it will be
utilised over the next ten years. The actual rate of utilisation
will depend on business growth and external factors, particularly
investment market conditions.
-30-
Solvency II Net Assets
In addition to presenting an IFRS balance sheet (on page 53) and
an EEV balance sheet (on page 41), we believe it is beneficial to
provide a balance sheet reflecting our approach to managing
solvency based on Solvency II net assets. This is based on the IFRS
balance sheet, but with adjustments made to accounting assets and
liabilities to reflect the Solvency II regulations. Provision for
insurance liabilities is set equal to the associated unit
liabilities. The following table presents the balance sheet netting
out the policyholder interest in unit-linked assets and liabilities
and adjusting for changes required by the Solvency II valuation
regulations.
Solvency II Net Assets
Balance Sheet
30 June 2016 Solvency II
IFRS Net Assets 30 June 31 December
Balance Sheet Adj 1 Adj 2 Balance Sheet 2015 2015
-------------------------- --------------- ------------ ------------ --------------- ------------ ------------
GBP'Million GBP'Million GBP'Million GBP'Million GBP'Million GBP'Million
Assets
Goodwill 21.2 (21.2) - - -
Deferred acquisition
costs 713.2 (713.2) - - -
Acquired value of
in-force business 32.0 (32.0) - - -
Developments 3.1 (3.1) - - -
Property and equipment 8.9 8.9 6.4 8.0
Deferred tax assets 212.7 (44.4) 168.3 112.1 179.2
Investment property 1,345.9 (1,345.9) - - -
Equities 40,747.1 (40,747.1) - - -
Fixed income securities 10,558.1 (10,501.2) 56.9 82.5 83.1
Investment in Collective
Investment Schemes 3,520.9 (2,997.6) 523.3 603.3 531.0
Derivative financial
instruments 706.1 (706.1) - - -
Reinsurance assets 93.5 (84.8) 8.7 8.5 8.6
Insurance & investment
contract receivables 74.9 74.9 92.9 76.2
Other receivables 1,453.5 (935.1) (0.8) 517.6 380.1 415.3
Cash & cash equivalents 6,412.1 (6,150.1) 262.0 315.1 233.5
--------------- ------------ ------------ --------------- ------------ ------------
Total assets 65,903.2 (63,383.1) (899.5) 1,620.6 1,600.9 1,534.9
--------------- ------------ ------------ --------------- ------------ ------------
Liabilities
Insurance contract
liabilities 488.1 (384.3) (86.5) 17.3 16.7 10.0
Other provisions 16.4 16.4 11.9 15.4
Investment contracts 46,605.2 (46,547.8) 57.4 57.3 44.3
Borrowings 181.8 181.8 82.1 181.8
Derivative financial
instruments 847.7 (847.7) - - -
Deferred tax liabilities 407.5 (66.1) (128.7) 212.7 227.1 206.2
Insurance & investment
contract payables 65.5 65.5 50.3 45.9
Deferred income 396.1 (396.1) - - -
Income tax liabilities 50.4 50.4 69.5 29.6
Other payables 1,040.4 (793.7) 246.7 385.8 200.5
NAV attributable to unit
holders 14,743.5 (14,743.5) - - -
Preference shares 0.1 0.1 0.1 0.1
--------------- ------------ ------------ --------------- ------------ ------------
Total liabilities 64,842.7 (63,383.1) (611.3) 848.3 900.8 733.8
Net assets 1,060.5 - (288.2) 772.3 700.1 801.1
=============== ============ ============ =============== ============ ============
Adjustments
1. Nets out the policyholder interest in unit-linked assets and liabilities
2. Adjustments to the IFRS balance sheet in line with Solvency
II requirements, including removal of DAC, DIR, PVIF and deferred
tax
-31-
The movement in the Solvency II net assets is equal to the Cash
result adjusted for changes in non-cash items such as deferred tax
assets and goodwill as well as changes in equity such as dividends
paid in the year (see page 52 - Consolidated Statement of Changes
in Equity).
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 2016 30 June 2015 31 December 2015*
-------------- -------------- -------------------
GBP'Million GBP'Million GBP'Million
Opening Solvency II Net Assets 801.1 708.7 708.7
Dividend paid in period (90.4) (74.8) (130.8)
Issue of share capital and exercise of options 5.4 6.4 11.8
Consideration paid for own shares (5.5) (10.0) (12.8)
Change in deferred tax (10.9) (15.3) 52.7
Change in goodwill, and other Solvency II adjustments (9.9) 3.3 -
Cash result 82.5 81.8 171.5
-------------- -------------- -------------------
Closing Solvency II Net Assets 772.3 700.1 801.1
============== ============== ===================
* The Solvency II net assets disclosed at 31 December 2015 were
adjusted for submission to the regulator.
Solvency II Balance Sheet
Whilst we focus on Solvency II net assets and the MSB to manage
solvency, we provide additional information about the Solvency II
free asset position for information. The presentation starts from
the same Solvency II net assets, but includes recognition of an
asset in respect of the expected Value of In-Force cashflows (VIF)
and a Risk Margin (RM) reflecting the cost to secure the transfer
of the business to a third party, if required. The Solvency II net
assets, VIF and RM comprise the 'Own Funds', which is assessed
against a Solvency Capital Requirement (SCR), reflecting the
capital required to protect against a range of 1 in 200 stresses.
The SCR is calculated on the Standard Formula approach. No
allowance has been made for Transitional Provisions in the
calculation of Technical provisions or SCR.
An analysis of the Solvency II position for our Group, split by
regulated and non-regulated entities at the period end is presented
in the table below:
Other
30 June 2016 Life Regulated Other Total
------------ ------------ ------------ ------------
GBP'Million GBP'Million GBP'Million GBP'Million
Solvency II net assets after dividend 466.4 106.1 134.8 707.3
Value of in-force (VIF) (estimated) 2,499.3 - - 2,499.3
Risk Margin (estimated) (679.2) - - (679.2)
Own Funds (A) (estimated) 2,286.5 106.1 134.8 2,527.4
------------ ------------ ------------ ------------
Solvency capital requirement (B) (estimated) (1,643.8) (32.3) (1,676.1)
Solvency II free assets (estimated) 642.7 73.8 134.8 851.3
------------ ------------ ------------ ------------
Solvency ratio (A/B) (estimated) 151%
------------
The solvency ratio before taking account of the final dividend
is 155% at the period end.
-32-
Liquidity
As noted above, our investment policy is always to hold assets
to match unit-linked liabilities, and to hold any excess in assets
that are liquid and high credit quality. An analysis of the liquid
asset holdings is provided below:
Holding Name GBP'Million GBP'Million
Government bonds
5.8% UK Treasury 26/07/2016 11.3
4% UK Treasury 07/09/2016 41.4
3.75% Singapore Government Bonds 01/09/2016 4.2 56.9
------------
AAA rated money market funds
BlackRock 94.4
Goldman Sachs 74.6
HSBC 74.1
Insight 80.5
JP Morgan 62.6
Legal & General 70.8
Royal Bank of Scotland 5.0
Scottish Widows 61.3 523.3
Bank balances
Bank of Scotland 29.6
Barclays 80.8
HSBC 48.8
Lloyds TSB 38.1
NatWest 3.9
RBS 2.4
Santander 25.9
Metro 23.5
Others 9.0 262.0
------------
Total 842.2
============
In the normal course of business, the Company is expected to
generate regular, positive cashflow from annual management income
exceeding expenses. As noted previously, future growth in cashflow
is driven by new business, but in the short term growth will
reflect the transition as new business from six years ago becomes
cash generative.
The key calls on liquidity will be payment of the Group dividend
and investment to support the business. As noted previously, our
policy is to increase the dividend in line with the underlying
performance of the business. We believe this will also enable us to
continue to invest in the business to support our growth
aspirations.
-33-
SECTION 5: EUROPEAN EMBEDDED VALUE (EEV)
Life business and Wealth Management business differ from most
other businesses, in that the expected shareholder income from the
sale of a product emerges over a long period in the future. We
therefore complement the IFRS and Cash results by providing
additional disclosure on an Embedded Value basis, which brings into
account the net present value of the expected future cash flows, as
we believe that a measure of total economic value of the Group's
operating performance is useful to investors.
Following the introduction of Solvency II in January 2016, the
CFO Forum published an amended set of principles in April 2016. The
key change implemented in our results for June 2016 is to reflect a
reduction in the cost of holding a revised level of solvency
capital, moving from assuming 100% of Solvency I capital
requirement to reflecting our new approach to capital management
for the Group based on holding a Management Solvency Buffer of
GBP150 million over the unit-linked liabilities for our Life
businesses.
The table below and accompanying notes summarise the profit
before tax of the combined business. The detailed result is shown
on pages 39 to 48.
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 2016 30 June 2015 31 December 2015
-------------- -------------- ------------------
GBP'Million GBP'Million GBP'Million
Life business 208.5 210.4 467.0
Unit Trust business 123.8 100.2 274.4
-------------- -------------- ------------------
Funds Management business 332.3 310.6 741.4
Distribution business (19.2) (23.5) (21.2)
Back office infrastructure development (10.5) (9.1) (18.1)
Other (18.6) (12.7) (41.9)
-------------- -------------- ------------------
EEV operating profit 284.0 265.3 660.2
Investment return variance 168.8 24.1 (24.4)
Economic assumption changes (10.1) (0.3) 0.9
-------------- -------------- ------------------
EEV profit before tax 442.7 289.1 636.7
Tax (82.5) (55.2) (116.5)
Corporation tax rate change 28.8 - 47.8
EEV profit after tax 389.0 233.9 568.0
============== ============== ==================
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 2016 30 June 2015 31 December 2015
-------------- -------------- ------------------
Pence Pence Pence
EEV operating profit basic earnings per share 44.3 41.5 103.9
============== ============== ==================
EEV operating profit diluted earnings per share 43.9 41.0 102.8
============== ============== ==================
-34-
Funds Management business
An analysis of the combined Life and Unit Trust business result
is shown below with a more detailed breakdown provided on pages 44
and 45:
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 2016 30 June 2015 31 December 2015
-------------- -------------- ------------------
GBP'Million GBP'Million GBP'Million
New business contribution 228.9 205.9 440.7
Profit from existing business
- unwind of the discount rate 98.8 85.9 172.4
- experience variance 1.7 16.4 78.1
- operating assumption change - - 44.1
Investment income 2.9 2.4 6.1
-------------- -------------- ------------------
332.3 310.6 741.4
============== ============== ==================
The new business contribution for the six months at GBP228.9
million (30 June 2015: GBP205.9 million) was some 11% higher than
the prior year reflecting the increase in new business. Whilst the
growth in gross inflows was higher, at 20%, the shift in business
mix towards lower margin pensions impacted the growth in the new
business margin.
Further detail on the new business margin is provided on page
36.
The unwind of the discount rate for the six months was GBP98.8
million (30 June 2015: GBP85.9 million), principally reflecting the
higher opening value of in-force business as the discount rate,
which is based on the risk free rate set by reference to the yield
on a UK 10 year gilt at the start of each year was largely
unchanged at 5.2% for the current year compared with 5.0% for the
prior year.
The experience variance in the six month period was GBP1.7
million (30 June 2015: GBP16.4 million), reflecting: the positive
GBP7.5 million impact from the reduction in cost of holding a
revised level of solvency capital in the business following the
implementation of Solvency II; the GBP13.6 million cost of
reviewing charges in two small cohorts of legacy business; and a
number of other small positives and negatives. The variance was
also lower compared to previous years because actual pension
experience is now more closely in line with expectations, following
the change in retention assumptions noted at the year end.
There was no change made to the operating assumptions (30 June
2015: GBPnil).
The investment income for the six months was marginally higher
at GBP2.9 million (30 June 2015: GBP2.4 million).
Distribution Business, Back-office infrastructure development
and Other
The results for Distribution, the Back-office infrastructure
development and Other operations have already been commented on in
the IFRS section.
Investment Return Variance
The investment return variance reflects the capitalised impact
on the future annual management fees resulting from the difference
between the actual and assumed investment returns. Given the size
of our funds under management, a small difference between the
actual and assumed investment return can result in a large positive
or negative variance.
The average investment return on our funds during the period was
some 6-7% higher than the assumed investment return during the
period, resulting in a positive investment return variance of
GBP168.8 million (30 June 2015: GBP24.1 million).
-35-
Economic Assumption Changes
There was a small negative variance of GBP10.1 million arising
from changes in the economic basis adopted at the period end (30
June 2015: GBP0.3 million negative).
EEV Profit before Tax
The total profit before tax for the six months at GBP442.7
million was considerably higher than the 30 June 2015 figure of
GBP289.1 million, principally due to the impact of good investment
performance in our funds.
Tax
The increase in the tax charge to GBP82.5 million (30 June 2015:
GBP55.2 million) reflected the higher profit before tax.
In the Budget of 18 March 2016, the Chancellor announced a
future tax reduction to 17% from 18% effective from 1 April 2020
and this reduction has been reflected in the EEV calculation at the
half year, resulting in a benefit of GBP28.8 million.
EEV Profit after Tax
The EEV profit after tax was GBP389.0 million (30 June 2015:
GBP233.9 million) reflecting the movement in EEV profit before
tax.
-36-
New Business Margin
The largest single element of the EEV operating profit (analysed
in the previous section) is the new business contribution. The
level of new business contribution generally moves in line with new
business levels. To demonstrate this link, and aid understanding of
the results, we provide additional analysis of the new business
margin ('Margin'). This is calculated as the new business
contribution divided by the gross inflow, and is expressed as a
percentage.
The table below presents the margin from our manufactured
business based on gross fund inflows:
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 2016 30 June 2015 31 December 2015
-------------- -------------- ------------------
Life business
Investment
New business contribution (GBP'Million) 49.3 65.7 124.9
New money invested (GBP'Million) 1,039.0 1,226.5 2,447.0
Margin (%) 4.7 5.4 5.1
Pension
New business contribution (GBP'Million) 85.4 57.9 140.6
New money invested (GBP'Million) 2,407.8 1,582.9 3,660.9
Margin (%) 3.5 3.7 3.8
-------------- -------------- ------------------
Unit Trust business
New business contribution (GBP'Million) 94.2 82.3 175.2
New money invested * (GBP'Million) 1,660.4 1,590.6 3,129.9
Margin (%) 5.7 5.2 5.6
Total business
New business contribution (GBP'Million) 228.9 205.9 440.7
New money invested * (GBP'Million) 5,107.2 4,400.0 9,237.8
Margin (%) 4.5 4.7 4.8
Post tax margin (%) 3.7 3.9 3.9
-------------- -------------- ------------------
* Excludes DFM
The overall margin for the period was lower at 4.5% (2015: 4.7%)
principally impacted by the change in business mix towards lower
margin Pensions, but also by a change in Investment business mix to
larger investment, lower margin cases and business written in our
new operations in Asia.
Analysis of the European Embedded Value and Net Assets per
Share
The table below provides a summarised breakdown of the embedded
value position at the reporting dates:
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 2016 30 June 2015 31 December 2015
-------------- -------------- ------------------
GBP'Million GBP'Million GBP'Million
Value of in-force
- Life 2,531.2 2,204.7 2,279.5
- Unit Trust 870.7 672.9 787.6
Solvency II net assets 772.3 700.1 801.1
-------------- -------------- ------------------
Total embedded value 4,174.2 3,577.7 3,868.2
============== ============== ==================
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 2016 30 June 2015 31 December 2015
-------------- -------------- ------------------
Pence Pence Pence
Net asset value per share 791.9 683.7 737.3
============== ============== ==================
-37-
INTERIM MANAGEMENT REPORT
PRINCIPAL RISKS AND UNCERTAINTIES
A comprehensive review of the principal risks and uncertainties
facing the business, and the Group's approach to managing these
risks and uncertainties, including the high level controls and
processes which we aim to mitigate them, are outlined on pages 43
to 47 of the 2015 Annual Report and Accounts under the Risk and
Risk Management section. We are comfortable that there has been no
change in the nature of the principal risks and uncertainties
facing the group since the 2015 Annual Report and Accounts, but we
note the impact of the EU referendum result in increasing
uncertainty in areas of the economy and society in the short, and
possibly medium term. At this stage, we don't believe this
heightened level of uncertainty should adversely impact our
business, which has demonstrated its resilience, not least during
the turbulent times during the last decade. A summary of those
principal key risks and uncertainties which could impact the Group
for the remainder of the current financial year has been provided
in the table below.
Non-financial risks
Risk/uncertainty Description
--------------------- ----------------------------------------------------------------
Client proposition Clients invariably rely on members of
the St. James's Place Partnership for
the provision of initial and ongoing
advice. Failures in the quality of service
provided, and in particular any advice
failings, could lead to redress costs,
reputational damage and regulatory intervention.
--------------------- ----------------------------------------------------------------
Competition Competitor activity in the adviser-based
wealth management market may result
in a reduction in new business volumes,
reduced retention of existing business,
pressure on margins for both new and
existing business and the potential
loss of Partners and key employees.
--------------------- ----------------------------------------------------------------
Regulatory, The nature of the Group is such that
legislative it falls under the influence of regulators
and tax environment and legislators in multiple jurisdictions,
a growing number given the Group's expansion
into Asia. The results are two-fold:
* New regulatory, legislative or tax requirements may
result in implementation costs and disruption to
business.
* Failure to comply with existing or new applicable
regulations could result in a fine or regulatory
censure.
--------------------- ----------------------------------------------------------------
People and People and the distinctive culture of
culture the Group play an important part in
its success. Over-stretch, the loss
of key personnel or unwanted changes
to culture may therefore impact on this
success.
--------------------- ----------------------------------------------------------------
Partner proposition, Group products are distributed, and
recruitment ongoing advice is provided, exclusively
and retention through the St. James's Place Partnership.
Inadequacies in the range of products,
technology or processes offered by the
Partnership may result in inefficiencies
and frustration, with consequent loss
of Partners and client impact, or inability
to recruit new Partners.
--------------------- ----------------------------------------------------------------
Investment Our approach to investment management
Management may fail to deliver expected returns
Approach to clients of the Group.
--------------------- ----------------------------------------------------------------
-38-
Risk/uncertainty Description
------------------- -------------------------------------------------
Operations The Group's business model involves
and IT the outsourcing of administration to
third parties. Poor service from, or
failure of, one of these third parties,
the failure of an IT system, or a significant
cyber-attack or fraud, could lead to
disruption of services to clients, reputational
damage and profit impacts. There is
also a risk that clients or Partners
may experience disruption of service
during the implementation of our new
third party administration platform.
------------------- -------------------------------------------------
Political Changes in the political landscape could
lead to substantial changes in policy,
resulting in significant development
costs and disruption to the Group's
business. Failure to deliver changes
in the required timescales may lead
to reputational damage and loss of new
business.
------------------- -------------------------------------------------
Investor relations Failure to communicate effectively with
new and existing shareholders may lead
to falls in the share price and reputational
damage.
------------------- -------------------------------------------------
Financial risks
Financial Description
risk
------------------- ------------------------------------------------
Market Risk A reduction in funds may arise from
- Loss of market shocks, poor market performance,
Annual Management currency movements or a widening of
Charge (AMC) credit spreads. This would reduce future
income AMC income, and hence future profits.
It may also result in I-E tax inefficiency
for SJPUK plc, as the value of deferred
tax assets depends on having sufficient
levels of future investment income to
provide relief for the expenses.
Shareholder assets may be used to seed
new funds, leading to direct exposure
to market movements for short periods
after the launch of new funds.
------------------- ------------------------------------------------
Insurance A reduction in funds under management
risk owing to poor persistency would reduce
future AMC income. This may arise from
factors such as changes in the economic
climate, poor investment performance,
competitor activity, or reputational
damage to the Group.
Adverse mortality or disability experience,
in particular higher death claims following
an incident or widespread illness, or
longer-term increases in mortality rates,
would reduce future profits.
------------------- ------------------------------------------------
Expense risk Increased expenses, in particular higher
than expected administration costs,
would reduce future profits.
------------------- ------------------------------------------------
Interest rate Changes in interest rates or the failure
and credit of a counterparty may reduce the value
risks of fixed interest assets held to match
future fixed liabilities and shareholder
assets. Key counterparties include reassurers,
banks, money market funds, issuers of
fixed interest securities, Partners
to whom loans have been granted, and
other debtors.
------------------- ------------------------------------------------
Liquidity Liquidity issues may arise from client
risk requests to switch or withdraw money
from unit-linked funds and through events
that may require immediate recourse
to shareholder funds.
------------------- ------------------------------------------------
-39-
EUROPEAN EMBEDDED VALUE (EEV) BASIS
The following information shows the result for the Group
adopting a European Embedded Value (EEV) basis for reporting the
results of its wholly owned life and unit trust businesses.
CONSOLIDATED STATEMENT OF INCOME
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
Note 2016 2015 2015
------------ ------------ -------------
GBP'Million GBP'Million GBP'Million
Life business 208.5 210.4 467.0
Unit Trust business 123.8 100.2 274.4
Distribution business (19.2) (23.5) (21.2)
Other (29.1) (21.8) (60.0)
EEV operating profit 284.0 265.3 660.2
Investment return variances 168.8 24.1 (24.4)
Economic assumption changes (10.1) (0.3) 0.9
------------ ------------ -------------
EEV profit before tax 442.7 289.1 636.7
Tax
Life business (63.9) (44.4) (82.2)
Unit Trust business (26.5) (21.6) (51.7)
Distribution business 3.3 4.3 3.1
Other 4.6 6.5 14.3
Corporation tax rate change 28.8 - 47.8
(53.7) (55.2) (68.7)
------------ ------------ -------------
EEV profit after tax 389.0 233.9 568.0
============ ============ =============
EEV profit attributable to non-controlling interests 0.2 (0.1) (0.3)
EEV profit attributable to equity share holders 388.8 234.0 568.3
------------ ------------ -------------
EEV profit on ordinary activities after tax 389.0 233.9 568.0
============ ============ =============
Pence Pence Pence
Basic earnings per share V 74.6 45.2 109.4
Diluted earnings per share V 73.9 44.6 108.3
Operating profit basic earnings per share V 44.3 41.5 103.9
Operating profit diluted earnings per share V 43.9 41.0 102.8
-40-
EUROPEAN EMBEDDED VALUE (EEV) BASIS
Consolidated Statement of Changes in Equity
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
2016 2015 2015
------------ ------------ -------------
GBP'Million GBP'Million GBP'Million
Opening equity on an EEV basis 3,868.2 3,417.2 3,417.2
Post-tax profit for the period 389.0 233.9 568.0
Issue of share capital 5.3 6.3 11.7
Retained earnings credit in respect of share option charges 7.5 5.0 14.8
Retained earnings credit in respect of proceeds from exercise of share
options of shares held
in trust - 0.1 0.1
Acquired miscellaneous reserves 0.1 - -
Dividends paid (90.4) (74.8) (130.8)
Consideration paid for own shares (5.5) (10.0) (12.8)
Closing equity on an EEV basis 4,174.2 3,577.7 3,868.2
============ ============ =============
-41-
EUROPEAN EMBEDDED VALUE (EEV) BASIS
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
30 June 30 June 31 December
2016 2015 2015
------------ ------------ ------------
GBP'Million GBP'Million GBP'Million
Assets
Goodwill 21.2 10.1 10.1
Intangible assets
- Deferred acquisition costs 713.2 777.7 745.0
- Value of long-term business in-force
- long-term insurance 2,269.1 1,942.2 2,012.9
- unit trusts 870.7 672.9 787.6
- Computer software 3.1 6.0 4.3
3,877.3 3,408.9 3,559.9
Property and equipment 8.9 6.4 8.0
Deferred tax assets 212.7 165.3 225.9
Investment property 1,345.9 1,190.7 1,344.9
Investments 55,532.2 47,366.4 50,528.5
Reinsurance assets 93.5 84.6 85.0
Insurance and investment contract receivables 74.9 92.9 76.2
Other receivables 1,453.5 823.9 891.0
Cash and cash equivalents 6,412.1 5,489.3 5,325.1
------------ ------------ ------------
Total assets 69,011.0 58,628.4 62,044.5
============ ============ ============
Liabilities
Insurance contract liability provisions 488.1 489.5 463.5
Other provisions 16.4 11.9 15.4
Financial liabilities 47,634.7 41,329.8 43,562.7
Deferred tax liabilities 401.6 448.7 428.4
Insurance and investment contract payables 65.5 50.3 45.9
Deferred income 396.1 436.7 413.5
Income tax liabilities 50.4 69.5 29.6
Other payables 1,040.4 708.6 660.8
Net asset value attributable to unit holders 14,743.5 11,505.6 12,556.4
Preference shares 0.1 0.1 0.1
Total liabilities 64,836.8 55,050.7 58,176.3
============ ============ ============
Net assets 4,174.2 3,577.7 3,868.2
============ ============ ============
Shareholders' equity
Share capital 79.1 78.5 78.7
Share premium 163.2 153.1 158.3
Treasury shares reserve (21.0) (15.8) (18.5)
Miscellaneous reserves 2.4 2.3 2.3
Retained earnings 3,950.5 3,359.6 3,647.4
------------ ------------ ------------
Total shareholders' equity on an EEV basis 4,174.2 3,577.7 3,868.2
============ ============ ============
Pence Pence Pence
Net assets per share 791.9 683.7 737.3
-42-
NOTES TO THE EEV BASIS RESULTS
I. BASIS OF PREPARATION
The interim supplementary information on pages 39 to 48 shows
the Group's results for the six months ended 30 June 2016 as
measured on a European Embedded Value (EEV) basis. For interim
reporting purposes, the disclosure has been reduced from that which
would be required under the EEV Principles. The results of the
life, pension and investment business, including unit trust
business, undertaken by the Group are measured in accordance with
the EEV Principles set out by the Chief Financial Officers (CFO)
Forum, a group of chief financial officers from 19 major European
insurers. The principles, originally set out by the CFO Forum in
2004 and supplemented by the Additional Guidance on EEV disclosures
issued in October 2005 (together 'the EEV Principles'), have been
further amended by the CFO Forum in April 2016 to reflect the
introduction of Solvency II at the start of the year. We have
followed these principles with the exception of:
-- New Business
Consistent with prior reporting periods, the value of
contractual incremental premiums to existing business is treated as
new business in the year of the increment, rather than at the
outset of the policy. This approach better reflects the way the
Group manages its business.
The treatment of all other transactions and balances is
unchanged from the primary financial statements on an IFRS
basis.
Under the EEV Methodology, profit is recognised as it is earned
over the life of the products within the covered business. The
embedded value of the covered business is the sum of the
shareholders' net worth in respect of the covered business and the
present value of the projected profit stream.
-43-
NOTES TO THE EEV BASIS RESULTS (continued)
II. METHODOLOGY AND ASSUMPTIONS
The methodology used to derive the European Embedded Values at
30 June 2016 is unchanged from that set out in detail on pages 189
and 190 of the 2015 Annual Report and Accounts (and also as used at
30 June 2015) with the following exceptions:
-- As a result of the introduction of Solvency II in January
2016, the CFO Forum published an amended set of principles in April
this year. In response to this, in the results for June 2016 we
have allowed for a revised level of capital in the business, moving
from assuming 100% of the Solvency I capital requirement and
replacing this with our amended capital management policy in which
a Management Solvency Buffer of GBP150 million over the unit-linked
liabilities is held.
-- The additional allowance for non-market risk has reduced to
0.71% (30 June 2015: 0.75% and 31 December 2015: 0.73%).
Apart from the assumptions set out below, there have been no
changes to assumptions from those used at the end of 2015 and set
out in detail on pages 191 and 192 of the 2015 Annual Report and
Accounts.
Economic Assumptions
The principal economic assumptions used within the cash flows at
30 June 2016 are set out below.
30 June 30 June 31 December
2016 2015 2015
-------- -------- ------------
Risk free rate 1.1% 2.2% 2.1%
Inflation rate 2.6% 3.0% 2.7%
Risk discount rate (net of tax) 4.2% 5.3% 5.2%
Future investment returns:
- Gilts 1.1% 2.2% 2.1%
- Equities 4.1% 5.2% 5.1%
- Unit-linked funds:
- Capital growth 0.5% 1.5% 1.3%
- Dividend income 2.9% 3.0% 3.1%
-------- -------- ------------
- Total 3.4% 4.5% 4.4%
Expense inflation 3.1% 3.8% 3.2%
The risk free rate is set by reference to the yield on 10 year
gilts. Other investment returns are set by reference to the risk
free rate.
The inflation rate is derived from the implicit inflation in the
valuation of 10 year index-linked gilts. This rate is increased to
reflect higher increases in earnings related expenses.
Corporation Tax
In the Budget of 18 March 2016, the Chancellor announced a
future tax reduction to 17% from 18% effective from 1 April 2020.
This reduction has been reflected in the EEV calculation at the
half year.
-44-
NOTES TO THE EEV BASIS RESULTS (continued)
III. COMPONENTS OF EEV PROFIT
Life business 6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
2016 2015 2015
GBP'Million GBP'Million GBP'Million
New business contribution 134.7 123.6 265.5
Profit from existing business
- Unwind of discount rate 75.0 67.5 136.3
- Experience variances (3.2) 17.3 83.2
- Operating assumption changes - - (22.8)
Investment income 2.0 2.0 4.8
Operating profit before tax 208.5 210.4 467.0
Investment return variances 137.5 15.9 (25.0)
Economic assumption changes 2.7 - 1.1
Profit before tax 348.7 226.3 443.1
Tax (63.9) (44.4) (82.2)
Corporation tax rate change 22.2 - 38.1
Profit after tax 307.0 181.9 399.0
============ ============ =============
New business contribution after tax is GBP110.0 million (30 June
2015: GBP99.5 million and 31 December 2015: GBP216.7 million).
Unit Trust business 6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
2016 2015 2015
------------ ------------ -------------
GBP'Million GBP'Million GBP'Million
New business contribution 94.2 82.3 175.2
Profit from existing business
- Unwind of discount rate 23.8 18.4 36.1
- Experience variances 4.9 (0.9) (5.1)
- Operating assumption changes - - 66.9
Investment income 0.9 0.4 1.3
Operating profit before tax 123.8 100.2 274.4
Investment return variances 31.3 8.2 0.6
Economic assumption changes (12.8) (0.3) (0.2)
Profit before tax 142.3 108.1 274.8
Tax (26.5) (21.6) (51.7)
Corporation tax rate change 6.6 - 9.7
Profit after tax 122.4 86.5 232.8
============ ============ =============
New business contribution after tax is GBP76.7 million (30 June
2015: GBP65.8 million and 31 December 2015: GBP142.2 million).
-45-
NOTES TO THE EEV BASIS RESULTS (continued)
III. COMPONENTS OF EEV PROFIT (continued)
Combined Life and Unit Trust business 6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
2016 2015 2015
------------ ------------ -------------
GBP'Million GBP'Million GBP'Million
New business contribution 228.9 205.9 440.7
Profit from existing business
- Unwind of discount rate 98.8 85.9 172.4
- Experience variances 1.7 16.4 78.1
- Operating assumption changes - - 44.1
Investment income 2.9 2.4 6.1
Operating profit before tax 332.3 310.6 741.4
Investment return variances 168.8 24.1 (24.4)
Economic assumption changes (10.1) (0.3) 0.9
Profit before tax 491.0 334.4 717.9
Tax (90.4) (66.0) (133.9)
Corporation tax rate change 28.8 47.8
Profit after tax 429.4 268.4 631.8
============ ============ =============
New business contribution after tax is GBP186.7 million (30 June
2015: GBP165.3 million and 31 December 2015: GBP358.9 million).
-46-
NOTES TO THE EEV BASIS RESULTS (continued)
IV. SENSITIVITIES
The table below shows the estimated impact on the combined life
and unit trust reported value of new business and EEV to changes in
various EEV calculated assumptions. The sensitivities are specified
by the EEV principles and reflect reasonably possible levels of
change. In each case, only the indicated item is varied relative to
the restated values.
Change in new business Change in
contribution European
Embedded Value
Note Pre-tax Post-tax Post-tax
------------ ------------ ----------------
GBP'Million GBP'Million GBP'Million
Value at 30 June 2016 228.9 186.7 4,174.2
100bp reduction in risk free rates, with corresponding
change in fixed interest asset values 1 (4.9) (4.0) (39.6)
10% reduction in withdrawal rates 2
Pensions 11.2 9.1 96.1
Other 9.8 8.0 135.2
------------ ------------ ----------------
Total 21.0 17.1 231.3
10% reduction in expenses 3.4 2.8 38.1
10% reduction in market value of equity assets 3 - - (406.0)
5% reduction in mortality and morbidity 4 - - -
100bp increase in equity expected returns 5 - - -
100bp increase in assumed inflation 6 (4.6) (3.7) (43.0)
Note 1: This is the key economic basis change sensitivity. The
business model is relatively insensitive to change in economic
basis. Note that the sensitivity assumes a corresponding change in
all investment returns but no change in inflation.
Note 2: The 10% reduction is applied to the lapse rate. For
instance, if the lapse rate is 8% then a 10% sensitivity reduction
would reflect a change to 7.2%.
Note 3: For the purposes of this required sensitivity all unit
linked funds are assumed to be invested in equities. The actual mix
of assets varies and in recent years the proportion invested
directly in UK and overseas equities has exceeded 70%.
Note 4: Assumes the benefit of lower experience is passed on to
clients and reassurers at the earliest opportunity.
Note 5: As a market consistent approach is used, equity expected
returns only affect the derived discount rates and not the embedded
value or contribution to profit from new business.
Note 6: Assumed inflation is set by reference to 10 year index
linked gilt yields.
Change in new business Change in European
contribution Embedded Value
Pre-tax Post-tax Post-tax
------------ ------------ -------------------
GBP'Million GBP'Million GBP'Million
100bp reduction in risk discount rate 28.2 23.0 297.4
Although not directly relevant under a market-consistent
valuation, this sensitivity shows the level of adjustment which
would be required to reflect differing investor views of risk.
-47-
NOTES TO THE EEV BASIS RESULTS (continued)
V. EARNINGS PER SHARE
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
2016 2015 2015
--------- --------- -------------
Pence Pence Pence
Basic earnings per share 74.6 45.2 109.4
Diluted earnings per share 73.9 44.6 108.3
========= ========= =============
Operating profit basic earnings per share 44.3 41.5 103.9
===== ===== ======
Operating profit diluted earnings per share 43.9 41.0 102.8
===== ===== ======
The earnings per share calculations are based on the following
figures:
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
2016 2015 2015
------------ ------------ -------------
GBP'Million GBP'Million GBP'Million
Earnings
Profit after tax (for both basic and diluted EPS) 389.0 233.9 568.0
Operating profit after tax (for both basic and diluted EPS) 230.9 214.8 539.2
============ ============ =============
Million Million Million
Weighted average number of shares
Weighted average number of ordinary shares in issue (for basic EPS) 521.6 517.8 519.1
Adjustments for outstanding share options 4.6 6.3 5.2
------------ ------------ -------------
Weighted average number of ordinary shares (for diluted EPS) 526.2 524.1 524.3
============ ============ =============
-48-
NOTES TO THE EEV BASIS RESULTS (continued)
VI. RECONCILIATION OF IFRS AND EEV PROFIT BEFORE TAX AND NET
ASSETS
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
2016 2015 2015
------------ ------------ -------------
GBP'Million GBP'Million GBP'Million
IFRS profit before tax 97.0 103.7 174.1
Tax attributable to policyholder returns (36.5) (36.7) (22.8)
------------ ------------ -------------
Profit before tax attributable to shareholders' returns 60.5 67.0 151.3
Add back: amortisation of acquired value of in-force business 1.6 1.6 3.2
Movement in life value of in-force (net of tax) 256.2 116.9 187.6
Movement in unit trust value of in-force (net of tax) 83.1 61.7 176.4
Tax gross up of movement in value of in-force 41.3 41.9 118.2
EEV profit before tax 442.7 289.1 636.7
============ ============ =============
30 June 30 June 31 December
2016 2015 2015
------------ ------------ -------------
GBP'Million GBP'Million GBP'Million
IFRS net assets 1,060.5 990.8 1,095.1
Less: acquired value of in-force (32.0) (35.2) (33.6)
Add: deferred tax on acquired value of in-force 5.9 7.0 6.2
Add: life value of in-force 2,269.1 1,942.2 2,012.9
Add: unit trust value of in-force 870.7 672.9 787.6
------------ ------------ -------------
EEV net assets 4,174.2 3,577.7 3,868.2
============ ============ =============
-49-
Independent review report to St. James's Place plc
Report on the interim supplementary information - European
Embedded Value ("EEV") Basis
Our conclusion
We have reviewed the interim supplementary information, defined
below, in the Interim Statement of St. James's Place plc for the
six months ended 30 June 2016. Based on our review, nothing has
come to our attention that causes us to believe that the interim
supplementary information is not prepared, in all material
respects, in accordance with the European Embedded Value ("EEV")
basis set out in note I.
This conclusion is to be read in the context of what we say in
the remainder of this report.
What we have reviewed
The interim supplementary information, which is prepared by St.
James's Place plc, comprises:
-- the European Embedded Value (EEV) basis consolidated
statement of financial position as at 30 June 2016;
-- the European Embedded Value (EEV) basis consolidated
statement of income for the period then ended;
-- the European Embedded Value (EEV) basis consolidated
statement of changes in equity for the period then ended; and
-- the notes to the EEV basis results.
As disclosed in note I, the interim supplementary information
has been prepared on the EEV basis.
What a review of interim supplementary information involves
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim supplementary information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK and
Ireland) and, consequently, does not enable us to obtain assurance
that we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit
opinion.
We have read the other information contained in the Interim
Statement and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim supplementary information.
Responsibilities for the interim supplementary information and
the review
Our responsibilities and those of the directors
The Interim Statement, including the interim supplementary
information, is the responsibility of, and has been approved by,
the directors. The directors are responsible for preparing the
interim supplementary information in accordance with the EEV basis
set out in note I.
Our responsibility is to express to the company a conclusion on
the interim supplementary information in the Interim Statement
based on our review. This report, including the conclusion, has
been prepared for and only for the company and for no other
purpose. We do not, in giving this conclusion, accept or assume
responsibility for any other purpose or to any other person to whom
this report is shown or into whose hands it may come save where
expressly agreed by our prior consent in writing.
PricewaterhouseCoopers LLP
Chartered Accountants
26 July 2016
London
Notes:
(a) The maintenance and integrity of the St. James's Place plc
website is the responsibility of the directors; the work carried
out by the auditors does not involve consideration of these matters
and, accordingly, the auditors accept no responsibility for any
changes that may have occurred to the Interim Statements since they
were initially presented on the website.
(b) Legislation in the United Kingdom governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
-50-
INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) BASIS
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
Note 2016 2015 2015
------------ ------------ -------------
GBP'Million GBP'Million GBP'Million
Insurance premium income 24.7 25.9 54.7
Less premiums ceded to reinsurers (15.3) (15.6) (32.6)
------------ ------------ -------------
Net insurance premium income 9.4 10.3 22.1
Fee and commission income 4 693.8 672.8 1,333.5
Investment return 2,599.5 1,355.5 1,755.8
Other operating income 0.7 0.6 1.5
------------ ------------ -------------
Net income 3 3,303.4 2,039.2 3,112.9
Policy claims and benefits
- Gross amount (23.4) (23.9) (65.0)
- Reinsurers' share 11.9 13.8 28.5
------------ ------------ -------------
Net policyholder claims and benefits incurred (11.5) (10.1) (36.5)
Change in insurance contract liabilities
- Gross amount (24.6) (15.2) 10.8
- Reinsurers' share 8.6 (0.9) (0.5)
------------ ------------ -------------
Net change in insurance contract liabilities (16.0) (16.1) 10.3
Investment contract benefits (2,610.6) (1,341.2) (1,762.5)
Fees, commission and other acquisition costs (396.4) (415.4) (835.7)
Administration expenses (170.3) (151.1) (311.2)
Other operating expenses (1.6) (1.6) (3.2)
------------ ------------ -------------
(568.3) (568.1) (1,150.1)
Profit before tax 3 97.0 103.7 174.1
Tax attributable to policyholders' returns 5 (36.5) (36.7) (22.8)
Profit before tax attributable to shareholders' returns 60.5 67.0 151.3
============ ============ =============
-51-
INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) BASIS
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(continued)
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
Note 2016 2015 2015
------------ ------------ -------------
GBP'Million GBP'Million GBP'Million
Profit before tax attributable to shareholders' returns 60.5 67.0 151.3
Total tax (expense)/credit (48.6) (49.6) 27.9
Less: tax attributable to policyholders' returns 5 36.5 36.7 22.8
------------ ------------ -------------
Tax attributable to shareholders' returns 5 (12.1) (12.9) 50.7
------------ ------------ -------------
Profit and total comprehensive income for the period 3 48.4 54.1 202.0
Profit/(loss) attributable to non-controlling interests 0.2 (0.1) (0.2)
Profit attributable to equity shareholders 48.2 54.2 202.2
------------ ------------ -------------
Profit and total comprehensive income for the period 3 48.4 54.1 202.0
============ ============ =============
Pence Pence Pence
Basic earnings per share 7 9.3 10.4 38.9
Diluted earnings per share 7 9.2 10.3 38.5
Underlying profit measure:
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
Note 2016 2015 2015
------------ ------------ -------------
GBP'Million GBP'Million GBP'Million
Profit before tax attributable to shareholders' returns 60.5 67.0 151.3
Adjustments:
DAC/DIR/PVIF 13.3 5.9 12.4
Underlying profit before tax attributable to shareholders'
returns 3 73.8 72.9 163.7
============ ============ =============
Profit and total comprehensive income for the year 48.4 54.1 202.0
Adjustments:
DAC/DIR/PVIF 10.7 5.1 4.8
Underlying profit and total comprehensive income for the year 59.1 59.2 206.8
============ ============ =============
Pence Pence Pence
Underlying basic earnings per share 7 11.3 11.5 39.8
Underlying diluted earnings per share 7 11.2 11.3 39.4
-52-
INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) BASIS
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Attributable to equity shareholders
------------------------------------------------------------------
Treasury Non-
Share Share Shares Misc. Retained controlling
Note Capital Premium Reserve Reserves Earnings Total Interests Total
------------ -------- --------- --------- --------- --------- ------------ --------
GBP' GBP' GBP' GBP' GBP' GBP' GBP'
GBP'Million Million Million Million Million Million Million Million
At 1 January
2015 77.9 147.4 (10.5) 2.3 793.1 1,010.2 (0.1) 1,010.1
Profit and
total
comprehensive
income for
the year 54.2 54.2 (0.1) 54.1
Dividends 8 (74.8) (74.8) (74.8)
Exercise
of options 0.6 5.7 6.3 6.3
Consideration
paid for
own shares (10.0) (10.0) (10.0)
Own shares
vesting
charge 4.7 (4.7) - -
Retained
earnings
credit in
respect
of proceeds
from exercise
of share
options
held in
trust 0.1 0.1 0.1
Retained
earnings
credit in
respect
of share
option
charges 5.0 5.0 5.0
At 30 June
2015 78.5 153.1 (15.8) 2.3 772.9 991.0 (0.2) 990.8
------------ -------- --------- --------- --------- --------- ------------ --------
At 1 January
2016 78.7 158.3 (18.5) 2.3 874.6 1,095.4 (0.3) 1,095.1
Profit and
total
comprehensive
income for
the year 48.2 48.2 0.2 48.4
Dividends 8 (90.4) (90.4) (90.4)
Issue of
share capital 0.9 0.9 0.9
Exercise
of options 0.4 4.0 4.4 4.4
Consideration
paid for
own shares (5.5) (5.5) (5.5)
Own shares
vesting
charge 3.0 (3.0) - -
Miscellaneous
reserves
on
acquisition 0.1 0.1 0.1
Retained
earnings
credit in
respect
of share
option
charges 7.5 7.5 7.5
At 30 June
2016 79.1 163.2 (21.0) 2.4 836.9 1,060.6 (0.1) 1,060.5
============
Miscellaneous reserves represent other non-distributable
reserves.
-53-
INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) BASIS
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
30 June 30 June 31 December
Note 2016 2015 2015
-----------
GBP'Million GBP'Million GBP'Million
Assets
Goodwill 6 21.2 10.1 10.1
Intangible assets
- Deferred acquisition costs 10 713.2 777.7 745.0
- Acquired value of in-force business 32.0 35.2 33.6
- Computer software 3.1 6.0 4.3
769.5 829.0 793.0
Property and equipment 8.9 6.4 8.0
Deferred tax assets 11 212.7 165.3 225.9
Investment property 1,345.9 1,190.7 1,344.9
Investments
- Equities 40,747.1 35,873.2 37,960.8
- Fixed income securities 10,558.1 7,923.1 8,934.0
- Investment in Collective Investment
Schemes 3,520.9 3,232.7 3,269.6
- Derivative financial instruments 706.1 337.4 364.1
Reinsurance assets 93.5 84.6 85.0
Insurance and investment contract receivables 74.9 92.9 76.2
Other receivables 1,453.5 823.9 891.0
Cash and cash equivalents 6,412.1 5,489.3 5,325.1
-----------
Total assets 3 65,903.2 56,048.5 59,277.6
Liabilities
Insurance contract liabilities 488.1 489.5 463.5
Other provisions 12 16.4 11.9 15.4
Financial liabilities
- Investment contracts 46,605.2 41,159.8 43,159.8
- Borrowings 181.8 82.1 181.8
- Derivative financial instruments 847.7 87.9 221.1
Deferred tax liabilities 13 407.5 455.7 434.6
Insurance and investment contract payables 65.5 50.3 45.9
Deferred income 14 396.1 436.7 413.5
Income tax liabilities 50.4 69.5 29.6
Other payables 1,040.4 708.6 660.8
Net asset value attributable to unit holders 14,743.5 11,505.6 12,556.4
Preference shares 0.1 0.1 0.1
Total liabilities 64,842.7 55,057.7 58,182.5
Net assets 1,060.5 990.8 1,095.1
Equity
Share capital 16 79.1 78.5 78.7
Share premium 163.2 153.1 158.3
Treasury shares reserves (21.0) (15.8) (18.5)
Miscellaneous reserves 2.4 2.3 2.3
Retained earnings 836.9 772.9 874.6
-----------
Shareholders' equity 1,060.6 991.0 1,095.4
Non-controlling interests (0.1) (0.2) (0.3)
-----------
Total equity 1,060.5 990.8 1,095.1
Pence Pence Pence
Net assets per share 201.2 189.3 208.7
-54-
INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) BASIS
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
2016 2015 2015
-------------
GBP'Million GBP'Million GBP'Million
Cash flows from operating activities
Profit before tax for the period 97.0 103.7 174.1
Adjustments for:
Depreciation 1.5 1.1 2.5
Amortisation of acquired value of in-force business 1.6 1.6 3.2
Amortisation of computer software 1.7 1.7 3.4
Share based payment charge 7.5 5.6 15.7
Interest income (12.5) (11.4) (23.9)
Interest paid 2.2 1.8 4.4
Amortisation of bank charges 0.1 - -
Exchange rate gains (1.7) - -
Changes in operating assets and liabilities
Decrease in deferred acquisition costs (net) 31.8 35.3 68.0
Increase in investment property (1.0) (159.3) (313.5)
Increase in investments (5,003.7) (2,664.6) (5,826.7)
(Increase)/decrease in reinsurance assets (8.5) 0.9 0.5
Decrease/(increase) in insurance and investment contract receivables 1.3 (29.4) (12.7)
Increase in other receivables (549.6) (234.3) (316.5)
Increase/(decrease) in insurance contract liabilities 24.6 15.1 (10.9)
Increase in provisions 1.0 0.5 4.0
Increase in financial liabilities (excluding borrowings) 4,072.0 2,317.2 4,450.4
Increase/(decrease) in insurance and investment contract payables 19.6 (0.1) (4.5)
Decrease in deferred income (17.4) (26.5) (49.7)
Increase in other payables 363.2 208.3 164.0
Increase in net assets attributable to unit holders 2,187.1 887.8 1,938.6
-------------
Cash generated from operations 1,217.8 455.0 270.4
Interest received 12.5 11.4 23.9
Interest paid (2.2) (1.8) (4.4)
Income taxes paid (29.0) (32.2) (61.7)
-------------
Net cash generated from operating activities 1,199.1 432.4 228.2
Cash flows from investing activities
Acquisition of property and equipment (1.9) (1.0) (4.0)
Acquisition of subsidiaries and other business combinations, net of cash
acquired (20.4) (0.8) (0.8)
Net cash used in investing activities (22.3) (1.8) (4.8)
Cash flows from financing activities
Proceeds from the issue of share capital 4.3 6.3 9.5
Consideration paid for own shares (5.5) (10.0) (12.8)
Proceeds from exercise of options over shares held in trust - 0.1 0.1
Acquisition of non-controlling interests 0.1 - -
Additional borrowings - - 175.0
Repayment of borrowings (0.4) (2.3) (79.1)
Dividends paid (90.4) (74.8) (130.8)
-------------
Net cash used in financing activities (91.9) (80.7) (38.1)
-------------
Net increase in cash and cash equivalents 1,084.9 349.9 185.3
Cash and cash equivalents at beginning of period 5,325.1 5,139.4 5,139.4
Exchange gains on cash and cash equivalents 2.1 - 0.4
Cash and cash equivalents at end of period 6,412.1 5,489.3 5,325.1
-55-
NOTES TO THE IFRS BASIS FINANCIAL STATEMENTS
1. BASIS OF PREPARATION
This condensed set of consolidated half year financial
statements for the six months ended 30 June 2016, which comprise
the half year financial statements of St. James's Place plc (the
"Company") and its subsidiaries (together referred to as the
"Group"), has been prepared in accordance with the Disclosure and
Transparency Rules of the Financial Conduct Authority and with IAS
34 'Interim Financial Reporting' as adopted by the European Union.
The condensed consolidated half year financial statements should be
read in conjunction with the annual financial statements for the
year ended 31 December 2015, which have been prepared in accordance
with IFRSs as adopted by the European Union.
Going Concern
The Company's business activities, together with the factors
likely to affect its future development, performance and position
are set out in the Interim Statement on pages 6 to 10. The
financial position of the Company, its cash flows, liquidity
position and borrowing facilities are described in the Financial
Review on pages 11 to 36.
As shown on page 29 of the Financial Review, the Group's capital
position is strong and well in excess of regulatory requirements.
The long-term nature of the business results in considerable
positive cash flows, arising from existing business. As a
consequence, the Directors believe that the Company is well placed
to manage its business risks successfully.
Having assessed the principal risks, the Directors consider it
appropriate to adopt the going concern basis of accounting in
preparing the financial statements.
2. SIGNIFICANT ACCOUNTING POLICIES
As required by the Disclosure and Transparency Rules of the
Financial Conduct Authority, this condensed set of financial
statements has been prepared applying the accounting policies and
standards that were applied in the preparation of the Group's
published consolidated financial statements for the year ended 31
December 2015.
These condensed half year financial statements were prepared and
approved by the Directors in accordance with International
Financial Reporting Standards as adopted by the EU and
interpretations issued by the IFRS Interpretations Committee.
In preparing these condensed half year financial statements, the
significant judgements made by management in applying the Group's
accounting policies and the key sources of estimation uncertainty
were the same as those applied to the consolidated financial
statements for the year ended 31 December 2015.
-56-
NOTES TO THE IFRS BASIS FINANCIAL STATEMENTS (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
The following amended standards, which the Group has adopted as
of 1 January 2016, have not had any material impact on the Group's
reported results:
IAS 1 Amendment - Disclosure Initiative
IAS 16 and IAS 38 Amendments - Clarification of Acceptable
Methods of Depreciation and Amortisation
IAS 27 Amendment - Equity Method in Separate Financial
Statements
IFRS 10, IFRS 12 and IAS 28 Amendments - Investment Entities:
Applying the Consolidation Exception
Annual Improvements to IFRSs 2012 - 2014 Cycle
As at 30 June 2016, the following new and amended standards,
which are relevant to the Group but have not been applied in the
financial statements, were in issue but not yet effective:
IAS 7 Amendment - Disclosure Initiative
IAS 12 Amendment - Recognition of Deferred Tax Assets for
Unrealised Losses
IFRS 2 Amendment - Classification and Measurement of Share-based
Payment Transactions
IFRS 9 Financial Instruments
IFRS 10 and IAS 28 Amendments - Sale or Contribution of Assets
between an Investor and its Associate or Joint Venture
IFRS 15 Revenue from Contracts with Customers
IFRS 15 Clarification - Revenue from Contracts with
Customers
IFRS 16 Leases
The adoption of the above standards, amendments and
clarifications is not expected to have a material impact on the
Group's results reported within the financial statements other than
requiring additional disclosure or alternative presentation,
however, the impact of these standards will continue to be
assessed.
3. SEGMENT REPORTING
IFRS 8 Operating Segments requires operating segments to be
identified on the basis of internal reports about components of the
Group that are regularly reviewed by the Board in order to allocate
resources to the segment and to assess its performance. The Group's
reportable segments under IFRS 8 are therefore as follows:
1. Life business - offering pensions, protection and investment
products through the Group's life assurance subsidiaries;
2. Unit Trust business - offering unit trust investment
products, including ISAs, through St. James's Place Unit Trust
Group Limited and St. James's Place Investment Administration
Limited;
3. Distribution business - the distribution network for the St.
James's Place life and unit trust products as well as financial
products, such as annuities, mortgages and stakeholder pensions,
from third party providers.
The figures for segment income provided to the Board in respect
of the distribution business relate to the distribution of the
products of third party providers only. The figures for segment
profit provided to the Board take account of fees and commissions
payable by the life business and unit trust business to the
distribution business.
4. Other - all other Group activities.
Separate geographical segmental information is not presented
since the Group does not segment its business geographically. Most
of its customers are based in the UK, as is management of the
assets. In particular, the operation based in south east Asia is
not yet material for separate consideration.
The income, profit and assets of these segments are set out over
the next few pages.
-57-
NOTES TO THE IFRS BASIS FINANCIAL STATEMENTS (continued)
3. SEGMENT REPORTING (continued)
Segment Income
Gross inflows to funds under management
Gross inflows to funds under management is the income measure
that is monitored on a monthly basis by the chief operating
decision maker.
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
2016 2015 2015
-----------
GBP'Million GBP'Million GBP'Million
Life business 3,440.0 2,810.0 6,110.0
Unit Trust and DFM business 1,830.0 1,590.0 3,130.0
Total gross inflows 5,270.0 4,400.0 9,240.0
-----------
Adjustments to IFRS basis
Life business
Exclude life gross inflows (3,440.0) (2,810.0) (6,110.0)
Insurance premiums receivable 24.7 25.9 54.7
Less: insurance premium income ceded to reinsurers (15.3) (15.6) (32.6)
Fee income (management fees) 292.5 304.9 571.9
Net movement on deferred income 12.7 21.5 38.4
Investment income (primarily in unit linked funds) 1,990.7 1,158.6 1,531.7
Unit Trust business
Exclude unit trust and DFM gross inflows (1,830.0) (1,590.0) (3,130.0)
Fee income (dealing profit and management fees) 100.3 95.9 193.4
Net movement on deferred income 4.7 4.9 11.3
Investment income 0.2 0.2 0.4
Distribution business
Fee and commission income receivable 278.5 242.9 513.3
Other investment income 0.1 0.6 0.2
Other business
Fee income receivable 5.1 2.7 5.2
Investment income on third party holdings in consolidated unit trusts 602.0 193.0 216.8
Other investment income 6.5 3.1 6.7
Other operating income 0.7 0.6 1.5
Total adjustments (1,966.6) (2,360.8) (6,127.1)
Net income 3,303.4 2,039.2 3,112.9
All segment income is generated by external customers and there
are no segment income transactions between operating segments as
measured by gross inflows.
-58-
NOTES TO THE IFRS BASIS FINANCIAL STATEMENTS (continued)
3. SEGMENT REPORTING (continued)
Segment Profit
Four separate measures of profit are monitored on a monthly
basis by the Board. These are European Embedded Value ("EEV") and
IFRS (both pre-tax), underlying profit before tax and post-tax cash
result.
EEV Operating Profit
EEV operating profit is monitored on a monthly basis by the
Board. The components of the EEV operating profit are included in
more detail in the Supplementary Information on EEV basis within
this announcement. A reconciliation of EEV operating profit to IFRS
profit before tax is shown below.
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
2016 2015 2015
-------------
GBP'Million GBP'Million GBP'Million
Life business 208.5 210.4 467.0
Unit Trust business 123.8 100.2 274.4
Distribution business (19.2) (23.5) (21.2)
Other business (29.1) (21.8) (60.0)
EEV operating profit before tax 284.0 265.3 660.2
Investment return variance 168.8 24.1 (24.4)
Economic assumption changes (10.1) (0.3) 0.9
EEV profit before tax 442.7 289.1 636.7
Adjustments to IFRS basis
Deduct: amortisation of acquired value of in-force (1.6) (1.6) (3.2)
Movement in life value of in-force (net of tax) (256.2) (116.9) (187.6)
Movement in unit trust value of in-force (net of tax) (83.1) (61.7) (176.4)
Tax of movement in value of in-force (41.3) (41.9) (118.2)
Profit before tax attributable to shareholders' returns 60.5 67.0 151.3
Tax attributable to policyholder returns 36.5 36.7 22.8
-------------
IFRS profit before tax 97.0 103.7 174.1
-59-
NOTES TO THE IFRS BASIS FINANCIAL STATEMENTS (continued)
3. SEGMENT REPORTING (continued)
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
Cash result 2016 2015 2015
------------
GBP'Million GBP'Million GBP'Million
Life business 71.6 84.0 163.0
Unit Trust business 39.3 24.6 56.4
Distribution business (15.8) (18.7) (18.1)
Other business (12.6) (8.1) (29.8)
Cash result after tax 82.5 81.8 171.5
------------
IFRS adjustments (after tax)
Share option expense (7.5) (5.6) (15.0)
Deferred acquisition costs (DAC) (25.6) (27.7) (52.7)
Deferred income (DIR) 16.2 23.7 43.9
Acquired value of in-force (PVIF) (1.3) (1.3) (2.6)
Sterling reserves (1.0) 1.5 (1.8)
IFRS deferred tax adjustments (12.4) (18.3) 58.7
Solvency II net assets adjustments (2.5) - -
IFRS profit after tax 48.4 54.1 202.0
Shareholder tax 12.1 12.9 (50.7)
Profit before tax attributable to
shareholders' returns 60.5 67.0 151.3
Policyholder tax 36.5 36.7 22.8
IFRS profit before tax 97.0 103.7 174.1
============
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
IFRS result 2016 2015 2015
-------------
GBP'Million GBP'Million GBP'Million
Life business
- shareholder 62.3 82.8 162.9
- policyholder tax gross up 36.5 36.8 22.8
Unit Trust business 46.5 29.4 69.6
Distribution business (19.2) (23.5) (21.2)
Other business (29.1) (21.8) (60.0)
-------------
IFRS profit before tax 97.0 103.7 174.1
-60-
NOTES TO THE IFRS BASIS FINANCIAL STATEMENTS (continued)
3. SEGMENT REPORTING (continued)
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
Underlying profit 2016 2015 2015
-------------
GBP'Million GBP'Million GBP'Million
Life business 72.9 87.3 174.2
Unit Trust business 49.2 30.9 70.7
Distribution business (19.2) (23.5) (21.2)
Other business (29.1) (21.8) (60.0)
Underlying profit before tax attributable
to shareholders' returns 73.8 72.9 163.7
Adjustments
DAC/DIR/PVIF (13.3) (5.9) (12.4)
Profit before tax attributable
to shareholders' returns 60.5 67.0 151.3
Included within both the EEV and IFRS profit before tax are the
following:
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
2016 2015 2015
------------
GBP'Million GBP'Million GBP'Million
Shareholder interest income 5.8 4.8 10.3
Depreciation 1.5 1.1 2.5
-61-
NOTES TO THE IFRS BASIS FINANCIAL STATEMENTS (continued)
3. SEGMENT REPORTING (continued)
Segment Assets
Funds under Management ("FUM")
FUM within the St. James's Place Group, rounded to the nearest
GBP0.01 billion, are monitored on a monthly basis by the Board.
30 June 30 June 31 December
2016 2015 2015
----------- ------------
GBP'Million GBP'Million GBP'Million
Life business 47,380.0 41,320.0 43,380.0
Unit Trust business 18,180.0 14,140.0 15,230.0
----------- ------------
Total FUM 65,560.0 55,460.0 58,610.0
Exclude external holdings in non-consolidated unit trusts (2,497.1) (2,255.8) (2,497.1)
Exclude DFM business (1,350.0) - -
Add balance sheet liabilities in unit linked funds 1,769.4 508.5 806.3
Adjustments for other balance sheet assets excluded from FUM
DAC 713.2 777.7 745.0
PVIF 32.0 35.2 33.6
Computer software 3.1 6.0 4.3
Goodwill 21.2 10.1 10.1
Property & equipment 8.9 6.4 8.0
Deferred tax assets 212.7 165.3 225.9
Fixed income securities 56.9 82.5 83.1
Collective investment schemes 524.9 606.7 532.7
Reinsurance assets 93.5 84.6 85.0
Insurance and investment contract receivables 74.9 92.9 76.2
Other receivables 506.5 375.5 412.5
Other receivables eliminated on consolidation (125.4) (101.9) (125.4)
Cash and cash equivalents 262.0 315.1 233.5
Other adjustments 36.5 (120.3) 33.9
----------- ------------
Total adjustments 343.2 588.5 667.6
Total assets 65,903.2 56,048.5 59,277.6
=========== ============
-62-
NOTES TO THE IFRS BASIS FINANCIAL STATEMENTS (continued)
4. FEE AND COMMISSION INCOME
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
2016 2015 2015
-----------
GBP'Million GBP'Million GBP'Million
Advice charges 236.2 199.1 420.7
Third party fee and commission income 46.1 46.5 97.8
Life company initial margin 15.0 13.9 30.5
Life company management fees 277.5 291.0 541.4
Unit Trust dealing profit 8.0 8.4 16.2
Unit Trust management fees 92.3 69.7 147.4
Discretionary fund management fees 1.3 - -
Unit Trust investment fee income - 17.8 29.8
Movement in deferred income 17.4 26.4 49.7
-----------
Total fee and commission income 693.8 672.8 1,333.5
-63-
NOTES TO THE IFRS BASIS FINANCIAL STATEMENTS (continued)
5. INCOME TAXES
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
2016 2015 2015
-----------
GBP'Million GBP'Million GBP'Million
UK corporation tax
- Current year charge 67.7 82.3 86.0
- Adjustment in respect of prior year (0.5) (0.3) 0.7
Overseas taxes
- Current year charge 1.3 4.2 3.7
68.5 86.2 90.4
Deferred tax on unrealised capital gains and losses in unit linked funds (24.8) (46.8) (50.0)
Deferred tax on unrelieved expenses 3.3 3.9 8.1
Deferred tax on recognition and usage of capital losses arising in the
Group
- Capital losses recognised in the year - - (74.8)
- Utilisation in the year 7.0 8.3 12.1
- Adjustment in respect of prior year (1.5) - (1.1)
Deferred tax charge on other items (4.2) (3.6) (10.2)
Effect of deferred tax of change in tax rate - - (4.5)
Overseas deferred taxes 0.3 1.6 2.1
-----------
Total tax charge/(credit) for the period 48.6 49.6 (27.9)
Attributable to:
- policyholders 36.5 36.7 22.8
- shareholders 12.1 12.9 (50.7)
-----------
48.6 49.6 (27.9)
In arriving at the profit before tax attributable to
shareholders' return, it is necessary to estimate the analysis of
the total tax charge between that payable in respect of
policyholders and that payable by shareholders. Shareholder tax is
estimated by making an assessment of the effective rate of tax that
is applicable to the shareholders, with the balance being treated
as tax in respect of policyholders.
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
2016 2015 2015
------------
GBP'Million GBP'Million GBP'Million
Deferred tax
Balance at 1 January 208.7 327.0 327.0
Credit through the consolidated statement of comprehensive income (19.9) (36.6) (118.3)
Arising on acquisitions during the period 6.0 - -
------------
Balance at period end 194.8 290.4 208.7
The deferred tax components to which movements above relate to
are disclosed in Note 11 Deferred Tax Assets and Note 13 Deferred
Tax Liabilities.
Included within the deferred tax current year is a charge of
GBP2.5 million (30 June 2015: GBP2.7 million charge and 31 December
2015: GBP1.8 million charge) relating to share based payments.
-64-
NOTES TO THE IFRS BASIS FINANCIAL STATEMENTS (continued)
5. INCOME TAXES (continued)
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
Reconciliation of tax charge 2016 2015 2015
GBP'Million GBP'Million GBP'Million
Profit before tax 97.0 103.7 174.1
Tax attributable to policyholders' returns* (36.5) (36.7) (22.8)
Profit before tax attributable to shareholders'
returns 60.5 67.0 151.3
Shareholder tax charge at corporate tax rate of
20.0% (2015: 20.25%) 12.1 20.0% 13.6 20.3% 30.6 20.25%
Adjustments:
Tax regime differences
Lower rate of corporation tax in overseas
subsidiaries (0.4) (0.9) (1.4)
(0.4) (0.66%) (0.9) (1.3%) (1.4) (0.9%)
Other
Recognition and usage of capital losses in the Group (1.5) - (74.8)
Adjustment in respect of prior year 0.1 - (1.5)
Differences in accounting and tax bases in relation
to employee share schemes - (4.5) (5.4)
Disallowable expenses 0.8 2.2 3.0
Other 1.0 2.5 3.3
0.4 0.66% 0.2 0.3% (75.4) (49.8%)
Change in tax rate - - (4.5)
Shareholder tax charge/(credit) 12.1 20.0% 12.9 19.3% (50.7) (33.5%)
Policyholder tax charge 36.5 36.7 22.8
Total tax charge for the period 48.6 49.6 (27.9)
* Profit before tax attributable to policyholder returns is
equal to the policyholder tax charge
Corporation tax rate changes
In the Budget of 18 March 2016, the Chancellor announced a
further tax reduction to 17% from 18% effective from 1 April 2020.
It is estimated that this reduction in rate will result in a
deferred tax charge and a consequent reduction in the net deferred
tax assets of the Group of around GBP1 million. This will be
recognised when the change in rate is substantively enacted.
-65-
NOTES TO THE IFRS BASIS FINANCIAL STATEMENTS (continued)
6. BUSINESS COMBINATIONS
During the period the Group acquired the following subsidiaries
in line with the Group's strategic objective of broadening the
business model, expanding the client proposition and growing the
Partnership:
Subsidiary undertaking Principal activity % Shareholding Date of
acquisition
Rowan Dartington Group
Rowan Dartington Holdings Limited Holding Company 100% 08/03/2016
Rowan Dartington & Co Limited Stockbroker & Investment Manager 100% 08/03/2016
Stafford House Investments Limited Independent Financial Adviser 100% 08/03/2016
Ardan International Limited Investment Platform 92.5% 08/03/2016
Dartington Portfolio Nominees Limited Non-trading 100% 08/03/2016
Rowan Dartington Trustees Limited Non-trading 100% 08/03/2016
RD Portfolio Nominees Limited Non-trading 100% 08/03/2016
Colston Portfolio Nominees Limited Non-trading 100% 08/03/2016
Cabot Portfolio Nominees Limited Non-trading 100% 08/03/2016
Ardan Nominees Limited Non-trading 100% 08/03/2016
Others
Technical Connection Limited Tax and Advisory Services 100% 18/04/2016
Now Financial Solutions Limited Independent Financial Adviser 100% 29/04/2016
Acquisition-related costs of GBP0.2 million have been charged to
administration expenses in the consolidated income statement for
the period ended 30 June 2016.
Rowan Dartington Group
The Rowan Dartington Group acquisition contributed GBP2.7
million to revenue and a GBP0.9 million loss before income tax for
the period between the acquisition date and the statement of
financial position date. Had the above acquisitions been
consolidated from 1 January 2016, they would have contributed
GBP4.4 million to revenue and a GBP1.3 million loss before income
tax to the consolidated statement of income for the period.
The net assets, fair value adjustments and consideration for
these acquisitions are summarised below (all values shown as at
their acquisition dates):
Book value Fair value Total
adjustment
GBP'Million GBP'Million GBP'Million
Financial assets 7.8 30.8 38.6
Cash and cash equivalents 1.2 - 1.2
Financial liabilities (7.6) (5.6) (13.2)
Total 1.4 25.2 26.6
Consideration
Cash consideration 19.9
Deferred consideration 7.2
Contingent consideration 6.8
Total consideration 33.9
Goodwill 7.3
Goodwill comprises the value placed on the experience and
expertise of the Rowan Dartington management team within the
discretionary fund management sector.
-66-
NOTES TO THE IFRS BASIS FINANCIAL STATEMENTS (continued)
6. BUSINESS COMBINATIONS (CONTINUED)
It is expected that the contingent consideration will be paid in
full with no changes to the amount initially recognised; however,
should the target number of Investment Executives not be met, the
contingent consideration will decrease on a pro-rata basis down to
a value of GBPnil. Of the remaining balance to be settled, the
Group expects that GBP2.4 million will be settled by 6 September
2016, GBP2.4 million by 9 March 2016, GBP5.7 million by 6 September
2017 and GBP3.5 million by 8 March 2019.
Other acquisitions
The net assets, fair value adjustments and consideration for
these acquisition is summarised below (all values shown as at their
acquisition dates):
Book value Fair value Total
adjustment
GBP'Million GBP'Million GBP'Million
Financial assets 0.3 2.2 2.5
Cash and cash equivalents 0.9 - 0.9
Financial liabilities (0.5) (0.4) (0.9)
Total 0.7 1.8 2.5
Consideration
Cash consideration 3.8
Deferred consideration 0.4
Contingent consideration 2.1
Total consideration 6.3
Goodwill 3.8
Goodwill comprises the value placed on the experience and
expertise of the Technical Connection Limited management team
within the tax and advisory sector.
Of the GBP2.1 million contingent consideration, GBP1.2 million
is in relation to the acquisition of Technical Connection Limited.
It is expected that the GBP1.2 million contingent consideration
will be paid in full with no changes to the amount initially
recognised; however, should the target number of consultancy hours
provided to SJP Partners and the level of Techlink subscriptions
not be met, the contingent consideration will decrease on a
pro-rata basis down to a value of GBPnil.
The remaining GBP0.9 million contingent consideration is in
relation to the acquisition of Now Financial Solution Limited and
is payable if certain performance targets are met, being based on
the individual Partner performance. It is expected that the GBP0.9
million contingent consideration will be paid in full with no
changes to the amount initially recognised; however, should the
performance targets not be met, the contingent consideration will
decrease on a pro-rata basis down to a value of GBPnil.
Of the total remaining balance to be settled, the Group expects
that GBP0.44 million will be settled by 29 April 2017, GBP0.8
million will be settled by 18 April 2018, GBP0.44 million will be
settled by 29 April 2018 and GBP0.8 million will be settled by 18
April 2019.
-67-
NOTES TO THE IFRS BASIS FINANCIAL STATEMENTS (continued)
7. EARNINGS PER SHARE
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
2016 2015 2015
--------- --------- -------------
Pence Pence Pence
Basic earnings per share 9.3 10.4 38.9
Diluted earnings per share 9.2 10.3 38.5
========= ========= =============
Underlying basic earnings per share 11.3 11.5 39.8
========= ========= =============
Underlying diluted earnings per share 11.2 11.3 39.4
========= ========= =============
The calculation of diluted earnings per share is based on the
following figures:
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
2016 2015 2015
------------ ------------ -------------
GBP'Million GBP'Million GBP'Million
Earnings
Profit after tax (for both basic and diluted EPS) 48.4 54.1 202.0
Underlying profit after tax (for both basic and diluted EPS) 59.1 59.2 206.8
============ ============ =============
Million Million Million
Weighted average number of shares
Weighted average number of ordinary shares in issue (for basic EPS) 521.6 517.8 519.1
Adjustments for outstanding share options 4.6 6.3 5.2
------------ ------------ -------------
Weighted average number of ordinary shares (for diluted EPS) 526.2 524.1 524.3
============ ============ =============
-68-
NOTES TO THE IFRS BASIS FINANCIAL STATEMENTS (continued)
8. DIVIDS
The following dividends have been paid by the Company:
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
2016 2015 2015
------------ ------------ -------------
GBP'Million GBP'Million GBP'Million
2014 final dividend - 14.37 pence per ordinary share - 74.8 74.8
2015 interim dividend - 10.72 pence per ordinary share - - 56.0
2015 final dividend - 17.24 pence per ordinary share 90.4 - -
-------------
Total dividends paid 90.4 74.8 130.8
============ ============ =============
The Directors have resolved to pay an interim dividend of 12.33
pence per share (30 June 2015: 10.72 pence). This amounts to
GBP65.0 million (30 June 2015: GBP56.0 million) and will be paid on
30 September 2016 to shareholders on the register at 2 September
2016.
-69-
NOTES TO THE IFRS BASIS FINANCIAL STATEMENTS (continued)
9. ASSETS HELD TO COVER LINKED LIABILITIES AND THIRD PARTY
HOLDINGS IN UNIT TRUSTS
Included within the balance sheet are the following assets and
liabilities which represent the net assets held to cover linked
liabilities and those attributable to third party holdings in unit
trusts (UTMI). The difference between these assets and liabilities
and those shown in the consolidated balance sheet represents assets
and liabilities held outside the unit-linked funds and the
UTMI.
30 June 30 June 31 December
2016 2015 2015
GBP'Million GBP'Million GBP'Million
Assets
Investment property 1,345.9 1,190.7 1,344.9
Investments
- Equities 40,747.1 35,873.2 37,960.8
- Fixed income securities 10,501.1 7,840.6 8,850.9
- Investment in Collective Investment Schemes 2,996.0 2,626.0 2,736.9
- Currency forwards 151.4 129.3 33.8
- Interest rate swaps 47.0 4.7 13.5
- Collaterised mortgage obligations 402.9 161.0 238.7
- Fixed income options - 2.2 -
- Index options 28.8 16.9 20.3
- Contract for differences 21.1 5.2 10.7
- Equity rate swaps 26.0 - 16.1
- Foreign currency options 17.7 - 22.8
- Total return swaps 6.7 1.2 6.6
- Credit default swaps 4.5 - -
- Other derivatives - 16.9 1.6
Other receivables 947.0 448.4 478.4
Other receivables eliminated on consolidation 125.4 101.9 125.5
Cash and cash equivalents 6,150.1 5,174.2 5,091.6
Total assets 63,518.7 53,592.4 56,953.1
Liabilities
Financial liabilities
- Currency forwards 631.1 25.4 168.6
- Interest rate swaps 134.8 10.4 5.9
- Fixed income options 5.5 7.4 6.1
- Index options 5.2 13.7 3.6
- Contract for differences 19.1 5.5 4.3
- Equity rate swaps 21.2 - 5.8
- Foreign currency swaps 11.2 - 19.6
- Total return swaps 3.7 7.8 0.2
- Credit default swaps 15.9 - -
- Other derivatives 0.1 17.7 7.0
Other payables 655.2 408.0 311.0
Other payables eliminated on consolidation 256.4 12.6 274.2
Total liabilities 1,759.4 508.5 806.3
Net assets held to cover linked liabilities 61,759.3 53,083.9 56,146.8
Net assets held to cover linked liabilities and third party
holdings in unit trusts are considered to have a maturity of up to
one year since the corresponding unit liabilities are repayable and
transferable on demand.
-70-
NOTES TO THE IFRS BASIS FINANCIAL STATEMENTS (continued)
10. DEFERRED ACQUISITION COSTS
30 June 30 June 31 December
2016 2015 2015
------------ ------------
GBP'Million GBP'Million GBP'Million
Life business - insurance DAC 1.1 1.1 1.1
Life business - investment DAC 552.8 603.9 577.2
Unit Trust business - investment DAC 159.3 172.7 166.7
------------ ------------
Total deferred acquisition costs 713.2 777.7 745.0
============ ============
Amortisation of deferred acquisition costs is charged within the
fees, commission and other acquisition costs line in the statement
of comprehensive income.
11. DEFERRED TAX ASSETS
30 June 30 June 31 December
2016 2015 2015
------------ ------------ ------------
GBP'Million GBP'Million GBP'Million
Life business - unrelieved expenses 53.8 61.4 57.1
Life business - deferred income 3.4 8.0 4.4
Unit Trust business - deferred income 39.7 45.1 40.8
Capital losses available for future relief 107.6 42.4 113.1
Employee share scheme costs 3.2 5.0 5.8
Future capital allowances 3.4 2.8 3.0
Other 1.6 0.6 1.7
------------ ------------ ------------
Total deferred tax assets 212.7 165.3 225.9
============ ============ ============
Appropriate investment income, gains or profits are expected to
arise against which the tax assets can be utilised. In
particular:
-- future investment income over the next 6 years from the
existing assets will be sufficient to utilise the unrelieved
expenses.
-- capital gains crystallising in the unit linked funds will
utilise the capital losses. It is anticipated that the losses will
be utilised within approximately 10 years. In the three years from
2013 to 2015 losses with a tax value of GBP29.0 million have been
utilised, indicating an average of approximately GBP10.0 million
per annum, which is consistent with the predicted usage.
-- Tax assets in relation to deferred income will be utilised
over the next 14 years as the underlying income is recognised.
At the reporting date there were unrecognised deferred tax
assets of GBP2.8 million (30 June 2015: GBP0.6 million and 31
December 2015: GBP1.4 million) in respect of losses in companies
where appropriate profits are not considered probable in the
forecast period. These losses primarily relate to our Asia based
businesses and can be carried forward indefinitely.
During the year GBP7.0 million (30 June 2015: GBP8.3 million and
31 December 2015: GBP16.7 million) of deferred tax assets relating
to capital losses have been utilised with a GBP1.5 million (30 June
2015: GBPnil and 31 December 2015: GBP1.1 million) adjustment made
to the amounts previously recognised. It is expected that these
losses will be utilised over the next ten years, albeit the actual
rate of utilisation will depend on business growth and external
factors, particularly investment market conditions. The rate of
utilisation has been tested for sensitivity to experience and it is
resilient to a range of reasonably foreseeable scenarios.
-71-
NOTES TO THE IFRS BASIS FINANCIAL STATEMENTS (continued)
12. OTHER PROVISIONS
30 June 30 June 31 December
2016 2015 2015
------------ ------------ ------------
GBP'Million GBP'Million GBP'Million
At beginning of period 15.4 11.4 11.4
Movement in the period 1.0 0.5 4.0
------------ ------------ ------------
At end of period 16.4 11.9 15.4
============ ============ ============
The provision relates to the cost of redress for complaints and
is based on estimates of the total number of complaints expected to
be upheld, the estimated cost of redress and the expected timing of
settlement.
As more fully set out in the summary of principal risks and
uncertainties on page 37, the Group could in the course of its
business be subject to legal proceedings and/or regulatory
activity. Should such an event arise, the Board would consider
their best estimate of the amount required to settle the obligation
and, where appropriate and material, establish a provision. While
there can be no assurances that circumstances won't change, based
upon information currently available to them, the Directors do not
believe there is any possible activity or event that could have a
material adverse effect on the Group's financial position.
During the normal course of business, the Group may from time to
time provide guarantees to Partners, clients or other third
parties. However, based upon the information currently available to
them, the Directors do not believe there are any guarantees which
would have a material adverse effect on the Group's financial
position, and so the fair value of any guarantees has been assessed
as GBPnil (30 June 2015: GBPnil and 31 December 2015: GBPnil).
13. DEFERRED TAX LIABILITIES
30 June 30 June 31 December
2016 2015 2015
------------ ------------ ------------
GBP'Million GBP'Million GBP'Million
On deferred acquisition costs
- Life and pensions business 80.4 99.8 86.8
- Unit Trust business 29.5 34.5 31.0
On acquired value of in-force business 5.9 7.0 6.2
On renewal income 9.3 4.0 3.5
In respect of unit linked funds 280.0 307.9 304.8
Other 2.4 2.5 2.3
------------ ------------ ------------
Total deferred tax liabilities 407.5 455.7 434.6
============ ============ ============
The deferred tax liability on deferred acquisition costs is
expected to crystallise over approximately 14 years, on acquired
value of in force business over 10 years and on renewal income over
approximately 20 years. The majority of the deferred tax on
unrealised gains is expected to crystallise over 6 years.
14. DEFERRED INCOME
30 June 30 June 31 December
2016 2015 2015
------------ ------------ ------------
GBP'Million GBP'Million GBP'Million
Life business 181.5 211.1 194.2
Unit Trust business 214.6 225.6 219.3
------------ ------------ ------------
Total deferred income 396.1 436.7 413.5
============ ============ ============
-72-
NOTES TO THE IFRS BASIS FINANCIAL STATEMENTS (continued)
15. FAIR VALUE MEASUREMENT
Fair value estimation
Financial assets and liabilities, which are held at fair value
in the financial statements, are required to have disclosed their
fair value measurements by level of the following fair value
measurement hierarchy:
-- Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1).
-- Inputs other than quoted prices included within Level 1 that
are observable for the asset or liability, either directly (that
is, as prices) or indirectly (that is, derived from prices) (Level
2).
-- Inputs for the asset or liability that are not based on
observable market data (that is, unobservable inputs) (Level
3).
The following table presents the Group's assets and liabilities
measured at fair value:
30 June 2016 Total
Level 1 Level 2 Level 3 balance
------------
GBP'Million GBP'Million GBP'Million GBP'Million
Financial assets and investment property:
Investment property 1,345.9 1,345.9
Equities 40,747.1 40,747.1
Fixed income securities 10,558.1 10,558.1
Investment in Collective Investment Schemes 3,518.5 2.4 3,520.9
Derivative financial instruments 706.1 706.1
Other receivables 57.7 57.7
Cash & cash equivalents 6,150.1 6,150.1
Total financial assets and investment property 50,415.7 11,264.2 1,406.0 63,085.9
============
Financial liabilities:
Investment contract benefits 46,591.2 46,591.2
Derivative financial instruments 847.7 847.7
Net asset value attributable to unit holders 14,743.5 14,743.5
Total financial liabilities 14,743.5 47,438.9 - 62,182.4
============
30 June 2015 Total
Level 1 Level 2 Level 3 balance
------------
GBP'Million GBP'Million GBP'Million GBP'Million
Financial assets and investment property:
Investment property 1,190.7 1,190.7
Equities 35,873.2 35,873.2
Fixed income securities 7,923.1 7,923.1
Investment in Collective Investment Schemes 3,227.4 5.3 3,232.7
Derivative financial instruments 337.4 337.4
Other receivables 27.6 27.6
Cash & cash equivalents 5,174.2 5,174.2
Total financial assets and investment property 44,274.8 8,260.5 1,223.6 53,758.9
============
Financial liabilities:
Investment contract benefits 489.5 489.5
Derivative financial instruments 87.9 87.9
Net asset value attributable to unit holders 11,505.6 11,505.6
Total financial liabilities 11,505.6 577.4 - 12,083.0
============
-73-
NOTES TO THE IFRS BASIS FINANCIAL STATEMENTS (continued)
15. FAIR VALUE MEASUREMENT (continued)
31 December 2015
Level 1 Level 2 Level 3 Total
balance
------------
GBP'Million GBP'Million GBP'Million GBP'Million
Financial assets and investment property:
Investment property 1,344.9 1,344.9
Equities 37,960.8 37,960.8
Fixed income securities 8,934.0 8,934.0
Investment in Collective Investment Schemes 3,266.9 2.7 3,269.6
Derivative financial instruments 364.1 364.1
Other receivables 26.8 26.8
Cash & cash equivalents 5,091.6 5,091.6
Total financial assets and investment property 46,319.3 9,298.1 1,374.4 56,991.8
============
Financial liabilities:
Investment contract benefits 43,159.8 43,159.8
Derivative financial instruments 221.1 221.1
Net asset value attributable to unit holders 12,556.4 12,556.4
Total financial liabilities 12,556.4 43,380.9 - 55,937.3
============
The fair value of financial instruments traded in active markets
is based on quoted bid prices at the reporting date. These
instruments are included in Level 1. Instruments included in Level
1 comprise primarily listed equity instruments.
The Group closely monitors the valuation of assets in markets
that have become less liquid. Determining whether a market is
active requires the exercise of judgement and is determined based
upon the facts and circumstances of the market for the instrument
being measured. Where it is determined that there is no active
market, fair value is established using a valuation technique. The
techniques applied incorporate relevant information available and
reflect appropriate adjustments for credit and liquidity risks.
These valuation techniques maximise the use of observable market
data where it is available and rely as little as possible on entity
specific estimates. The relative weightings given to differing
sources of information and the determination of non-observable
inputs to valuation models can require the exercise of significant
judgement.
If all significant inputs required to fair value an instrument
are observable, the instrument is included in Level 2. If one or
more of the significant inputs is not based on observable market
data, the instrument is included in Level 3.
Note that all of the resulting fair value estimates are included
in Level 2, except for certain equities and investments in
Collective Investment Schemes (CIS) and investment properties as
detailed below.
Specific valuation techniques used to value Level 2 financial
assets and liabilities include:
-- The use of observable prices for identical current arm's length transactions.
Specific valuation techniques used to value Level 3 financial
assets and liabilities include:
-- The use of unobservable inputs, such as expected rental values and equivalent yields;
-- Other techniques, such as discounted cash flow and historic
lapse rates, are used to determine fair value for the remaining
financial instruments.
There were no transfers between Level 1 and Level 2 during the
year.
-74-
NOTES TO THE IFRS BASIS FINANCIAL STATEMENTS (continued)
15. FAIR VALUE MEASUREMENT (continued)
Transfers into and out of level 3 portfolios
Transfers out of Level 3 portfolios arise when inputs that could
have a significant impact on the instrument's valuation become
market observable; conversely, transfers into the portfolios arise
when consistent sources of data cease to be available.
Transfers in of certain equities and investments in Collective
Investment Schemes (CIS) occur when asset valuations can no longer
be obtained from an observable market price i.e. become illiquid,
in liquidation, suspended etc. The converse is true if an
observable market price becomes available.
During 2016, GBP0.3 million relating to CIS was transferred out
of the Level 3 portfolio (30 June 2015: GBP2.8 million transferred
in and 31 December 2015: GBP0.3 million transferred in).
The following table presents the changes in Level 3 financial
assets at fair value through the profit and loss:
30 June 30 June 31 December
2016 2015 2015
------------ ----------- ------------
GBP'Million GBP'Million GBP'Million
Opening balance 1,374.4 1,090.4 1,090.4
Transfer into Level 3 (0.3) 2.8 0.3
Additions during the year 35.3 124.5 255.2
Disposed during the year - (34.1) (41.7)
(Losses)/gains recognised in the income statement (3.4) 40.0 70.2
------------ ----------- ------------
Closing balance 1,406.0 1,223.6 1,374.4
============ =========== ============
Total gains included in the statement of comprehensive income
for assets held at the end of the reporting year:
30 June 30 June 31 December
2016 2015 2015
------------ ----------- ------------
GBP'Million GBP'Million GBP'Million
Realised losses (0.1) (2.6) (5.8)
Unrealised (losses)/gains (3.3) 42.6 76.0
------------ ----------- ------------
(Losses)/gains recognised in the income statement (3.4) 40.0 70.2
------------ ----------- ------------
Additions include GBP2.3 million of investment properties and
GBP33.0 million of renewal income. Realised and unrealised
gains/(losses) recognised in the statement of comprehensive income
are included within investment return for certain equities and
investments in Collective Investment Schemes and investment
property, and within administration expenses for the renewal
income.
-75-
NOTES TO THE IFRS BASIS FINANCIAL STATEMENTS (continued)
15. FAIR VALUE MEASUREMENT (continued)
The principal assets classified as Level 3 are investment
properties amounting to GBP1,345.9 million (30 June 2015:
GBP1,190.7 million and 31 December 2015: GBP1,334.9 million).
Investment property is valued monthly by external chartered
surveyors in accordance with the guidance issued by The Royal
Institution of Chartered Surveyors. The investment property
valuation has been prepared using the "market approach" valuation
technique - using prices and other relevant information generated
by market transactions involving identical or comparable (i.e.
similar) assets. The following table sets out the unobservable
inputs utilised in the valuation of the investment properties:
Investment property classification
Office Industrial Retail & leisure All
30 June 2016
Gross ERV (per sq ft)*
Range GBP14.75 - GBP91.50 GBP3.00 - GBP15.75 GBP4.64 - GBP384.77 GBP3.00 - GBP384.77
Weighted average GBP30.44 GBP6.72 GBP14.80 GBP12.22
True equivalent yield
Range 3.8% - 8.1% 5.4% - 7.3% 4.2% - 13.1% 3.8% - 13.1%
Weighted average 5.4% 6.1% 5.9% 5.7%
30 June 2015
Gross ERV (per sq ft)*
Range GBP14.75 - GBP92.51 GBP3.00 - GBP15.00 GBP6.66 - GBP350.39 GBP3.00 - GBP350.39
Weighted average GBP29.31 GBP6.50 GBP15.77 GBP13.13
True equivalent yield
Range 3.8% - 7.8% 5.6% - 7.4% 4.3% - 12.9% 3.8% - 12.9%
Weighted average 5.7% 6.3% 6.0% 5.9%
31 December 2015
Gross ERV (per sq ft)*
Range GBP14.75 - GBP90.01 GBP3.00 - GBP15.00 GBP5.00 - GBP365.46 GBP3.00 - GBP365.46
Weighted average GBP30.18 GBP6.59 GBP14.73 GBP13.22
True equivalent yield
Range 3.7% - 8.0% 5.4% - 7.1% 4.7% - 13.1% 3.7% - 13.1%
Weighted average 5.4% 6.1% 6.0% 5.8%
* Equivalent rental value (per square foot)
Sensitivity of Level 3 valuations
The valuation of certain equities and investments in Collective
Investment Schemes (CIS) are based on the latest observable price
available. Whilst such valuations are sensitive to estimates, it is
believed that changing the price applied to a reasonably possible
alternative would not change the fair value significantly.
The valuation of renewal income is based on discounted cash
flows and historic lapse rates. The effect of applying reasonably
possible alternative assumptions of a movement of 100bps on the
discount rate and a 10% movement in the lapse rate would result in
an unfavourable change in valuation of GBP5.0 million and a
favourable change in valuation of GBP5.6 million, respectively.
-76-
NOTES TO THE IFRS BASIS FINANCIAL STATEMENTS (continued)
15. FAIR VALUE MEASUREMENT (continued)
The investment property valuation has been prepared using the
"market approach" valuation technique - using prices and other
relevant information generated by market transactions involving
identical or comparable (i.e. similar) assets. The following table
sets out the effect of applying reasonably possible alternative
assumptions to the valuation of the investment properties.
Notwithstanding increased uncertainty of property values following
the EU referendum, any change in the value of investment property
is matched by the associated movement in the policyholder liability
and therefore would not impact on the shareholder net assets.
Effect of reasonable possible alternative
Investment property assumptions
significant Carrying Unfavourable
unobservable inputs value Favourable changes changes
GBP'Million GBP'Million GBP'Million
30 June 2016 Expected rental value / Relative yield 1,345.9 1,470.7 1,235.8
30 June 2015 Expected rental value / Relative yield 1,190.7 1,298.5 1,095.3
31 December 2015 Expected rental value / Relative yield 1,344.9 1,469.3 1,235.2
16. SHARE CAPITAL
Number of Share Capital
Ordinary
Shares
------------ --------------
GBP'Million
At 30 June 2015 523,266,261 78.5
- Exercise of options 1,398,951 0.2
------------ --------------
At 31 December 2015 524,665,212 78.7
- Exercise of options 2,474,131 0.4
------------ --------------
At 30 June 2016 527,139,343 79.1
============ ==============
The total authorised number of ordinary shares is 605 million
(2015: 605 million), with a par value of 15 pence per share (2015:
15 pence per share). All issued shares are fully paid.
17. RELATED PARTY TRANSACTIONS
For the half year to 30 June 2016 the nature of the related
party transactions are similar to those for the year ended 31
December 2015.
Transactions with St. James's Place unit trusts
In respect of the non-consolidated St. James's Place managed
unit trusts that are held as investments in the St. James's Place
life and pension funds, there was a deficit recognised of GBP7.4
million (30 June 2015: GBP3.4 million income and 31 December 2015:
GBP10.1 million income) and the total value of transactions with
those non-consolidated unit trusts was GBP18.9 million (30 June
2015: GBP26.4 million and 31 December 2015: GBP43.0 million). Net
management fees receivable from these unit trusts amounted to
GBP11.0 million (30 June 2015: GBP11.4 million and 31 December
2015: GBP22.3 million). The value of the investment into the
non-consolidated unit trusts at 30 June 2016 was GBP179.5 million
(30 June 2015: GBP152.1 million and 31 December 2015: GBP176.5
million).
-77-
NOTES TO THE IFRS BASIS FINANCIAL STATEMENTS (continued)
18. STATUTORY ACCOUNTS
The financial information shown in this publication is unaudited
and does not constitute statutory accounts. The comparative figures
for the financial year ended 31 December 2015 are not the Company's
statutory accounts for the financial year. Those accounts have been
reported on by the Company's auditors and delivered to the
Registrar of Companies.
The report of the auditors was unqualified and did not include a
reference to any matter to which the auditors drew attention to, by
way of emphasis without qualifying their report, and did not
contain a statement under section 498 of the Companies Act
2006.
19. APPROVAL OF HALF YEAR REPORT
These condensed consolidated half year financial statements were
approved by the Board of Directors on 26 July 2016.
-78-
Independent review report to St. James's Place Plc
Report on the condensed consolidated interim financial
statements
Our conclusion
We have reviewed St. James's Place Plc's condensed consolidated
interim financial statements (the "interim financial statements")
in the Interim Statement of St. James's Place Plc for the 6 month
period ended 30 June 2016. Based on our review, nothing has come to
our attention that causes us to believe that the interim financial
statements are not prepared, in all material respects, in
accordance with International Accounting Standard 34, 'Interim
Financial Reporting', as adopted by the European Union and the
Disclosure Rules and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
-- the International financial reporting standards (IFRS) basis
condensed consolidated statement of financial position as at 30
June 2016;
-- the International financial reporting standards (IFRS) basis
condensed consolidated statement of comprehensive income for the
period then ended;
-- the International financial reporting standards (IFRS) basis
condensed consolidated statement of cash flows for the period then
ended;
-- the International financial reporting standards (IFRS) basis
condensed consolidated statement of changes in equity for the
period then ended; and
-- the explanatory notes to the interim financial statements.
The interim financial statements included in the Interim
Statement have been prepared in accordance with International
Accounting Standard 34, 'Interim Financial Reporting', as adopted
by the European Union and the Disclosure Rules and Transparency
Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in note 1 to the interim financial statements, the
financial reporting framework that has been applied in the
preparation of the full annual financial statements of the Group is
applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the directors
The Interim Statement, including the interim financial
statements, is the responsibility of, and has been approved by, the
directors. The directors are responsible for preparing the Interim
Statement in accordance with the Disclosure Rules and Transparency
Rules of the United Kingdom's Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim
financial statements in the Interim Statement based on our review.
This report, including the conclusion, has been prepared for and
only for the company for the purpose of complying with the
Disclosure Rules and Transparency Rules of the United Kingdom's
Financial Conduct Authority and for no other purpose. We do not, in
giving this conclusion, accept or assume responsibility for any
other purpose or to any other person to whom this report is shown
or into whose hands it may come save where expressly agreed by our
prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK and
Ireland) and, consequently, does not enable us to obtain assurance
that we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit
opinion.
We have read the other information contained in the Interim
Statement and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London
26 July 2016
-79-
Notes:
(a) The maintenance and integrity of the St. James's Place Plc
website is the responsibility of the directors; the work carried
out by the auditors does not involve consideration of these matters
and, accordingly, the auditors accept no responsibility for any
changes that may have occurred to the interim financial statements
since they were initially presented on the website.
(b) Legislation in the United Kingdom governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
-80-
RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF
THE HALF YEAR FINANCIAL REPORT
The Directors confirm that this consolidated interim financial
information has been prepared in accordance with IAS 34 as adopted
by the European Union and that the interim management report
includes a fair review of the information required by DTR 4.2.7R
and DTR 4.2.8R, namely:
-- an indication of important events that have occurred during
the first six months of the financial year and their impact on the
condensed set of financial statements, and a description of the
principal risks and uncertainties for the remaining six months of
the financial year; and
-- material related-party transactions in the first six months
and any material changes in the related party transactions
described in the last Annual Report.
The Directors of St. James's Place plc are listed in the St.
James's Place plc Annual Report for 31 December 2015. A list of
current Directors is maintained on the St. James's Place plc
website: www.sjp.co.uk
By order of the Board:
D Bellamy A Croft
Chief Executive Chief Financial Officer
26 July 2016 26 July 2016
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR EQLFLQDFEBBQ
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