REG - St. James's Place - Final Results - Re-Release
28/02/2024 08:00
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RNS Number : 7602E St. James's Place PLC 28 February 2024
THIS ANNOUNCEMENT RELATES TO THE DISCLOSURE OF INFORMATION THAT QUALIFIED OR
MAY HAVE QUALIFIED AS INSIDE INFORMATION WITHIN THE MEANING OF ARTICLE 7(1) OF
THE MARKET ABUSE REGULATION (EU) 596/2014
PRESS RELEASE
28 February 2024
ROBUST UNDERLYING FINANCIAL PERFORMANCE IMPACTED BY ONE-OFF PROVISION
St. James's Place plc (SJP) today issues its results for the year ended 31
December 2023:
Financial Highlights
· Robust underlying financial performance
o Pre-tax Underlying cash result of £483.0 million (2022: £485.5 million)
in line with prior year, reflecting growth in average FUM and management of
controllable costs
o Post-tax Underlying cash result of £392.4 million (2022: £410.1 million)
reflects higher corporation tax rate in effect in 2023
· Post-tax Cash result of £68.7 million (2022: £410.1 million)
significantly impacted by one-off Ongoing Service Evidence provision
o Provision of £426.0 million pre-tax (£323.7 million post-tax)
established for potential client refunds linked to the historic evidencing and
delivery of ongoing servicing
· IFRS loss after tax £(9.9) million (2022: £407.2 million
profit)
· EEV net asset value per share £14.11 (2022: £16.66)
Shareholder Distributions
· Final dividend of 8.00 pence per share (2022: 37.19 pence per
share), resulting in full year dividend of 23.83 pence per share (2022: 52.78
pence per share)
· Change in future dividend guidance:
o Going forward, total annual shareholder distributions will be set at 50%
of the full year Underlying cash result
o Annual distributions are expected to comprise a fixed full year dividend
of 18.00 pence per share declared for each of FY2024, FY2025 and FY2026, with
the balance of distributions delivered through share repurchases
o As earnings trajectory improves during FY2027 and beyond, anticipate
capacity to grow dividend proportion of total shareholder distributions
o Revised approach balances the need to retain investment for growth while
recognising the importance of returns to shareholders
Other
· Announced, in October 2023, the conclusion of a comprehensive
review of our client charging model, and plans for the future of simple and
comparable charging at SJP
· Achieved 3% net growth in qualified adviser numbers to 4,834
Mark FitzPatrick, Chief Executive Officer, commented:
"It has been a challenging backdrop for UK savers and investors, but it is at
times like these that advice really makes a difference, helping people stay on
course to meet their long-term financial goals. Against this background, the
hard work of everyone in our SJP community to keep delivering for clients has
driven a resilient business performance where we've achieved continued strong
net inflows underpinned by high client retention, strong investment
performance, and record funds under management. With expenses managed tightly
in the context of a high inflation environment, our underlying financial
performance has been robust and the pre-tax Underlying cash result is broadly
unchanged year on year, albeit 4% lower on a post-tax basis due to the higher
corporation tax rate in effect for 2023.
The Cash result for the year of £68.7 million (2022: £410.1 million) has
been significantly impacted by an assessment into the evidencing and delivery
of historic ongoing servicing and the provision we have established for
potential client refunds. This work was undertaken following a significant
increase in complaints, particularly in the latter part of 2023, mostly linked
to the delivery of ongoing servicing. The assessment revealed that our
evidence of ongoing client servicing was less complete in the years preceding
investment into our Salesforce CRM system in 2021, and we have therefore made
a provision for potential client refunds to address this. Looking forward, the
investment we've made into Salesforce means we are confident this is a
historic issue.
While our financial results have been significantly impacted by this legacy
matter, the Board recognises the importance of returns to shareholders and is
confident that sufficient capital and liquidity is available to deal with the
financial impact of the provision. In light of this, the Board therefore
proposes a final dividend of 8.00 pence per share (2022: 37.19 pence per
share) to make a total of 23.83 pence per share for the full year (2022: 52.78
pence per share).
A combination of the provision we have established and an expected decrease in
the level of profit growth in the next few years as we transition to our new
charging structure, reduces our ability to invest for long term growth in our
business over the next few years. Accordingly, the Board has decided to revise
our approach to shareholder distributions. Going forward, the Board expects
that total annual distributions will be set at 50% of the full year Underlying
cash result. For the next three years this will comprise 18.00 pence per share
in annual dividends declared, with the balance distributed through share
repurchases.
Once our new charging structure is fully embedded, we anticipate that the
business will be on an improving earnings trajectory during 2027 and beyond.
The Board expects that distributing 50% of the Underlying cash result will
continue to strike the right balance between investment for growth and returns
to shareholders, while seeing shareholder distributions increase over time.
The upward trajectory in profits should then provide the Board with options to
grow the dividend element within the total return.
Overall, 2023 was a difficult year for SJP but we've faced into our
challenges. We've raised our standards around both the delivery and evidencing
of ongoing client servicing and we've announced changes across our business,
including our charges structure, so that we're in good shape for the future.
In the near-term, we expect the industry outlook to remain challenging given
the pressures that clients continue to face. The near-term environment
notwithstanding, the longer-term structural opportunity for the financial
advice industry is hugely attractive. With scale advantage, a strong
Partnership of advisers, and an investment approach that delivers for clients,
we are very well placed to capture this opportunity and deliver value for all
our stakeholders."
The details of the announcement are attached.
Enquiries:
Hugh Taylor, Director - Investor Relations Tel: 07818 075143
Jamie Dunkley, External Communications Director Tel: 07779 999651
Brunswick Group: Tel: 020 7404 5959
Eilis Murphy Email: sjp@brunswickgroup.com (mailto:sjp@brunswickgroup.com)
Charles Pretzlik
2023 Full Year Results Presentation
Date: 28 February 2024
Time: 08:30 GMT
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Chair's report
Leading through change
Overview
2023 was a challenging year. High rates of inflation and interest rates have
characterised both 2022 and 2023, as have global conflict and political
instability. Against this background, clients have understandably used their
savings and investments to support themselves and their families. However,
the resilience evident in the underlying performance of the business, with
funds under management reaching record levels in 2023, continues to give us
confidence in the strength of our business model. More disappointing has
been our share price performance, which reacted to the actions we have taken
to modernise our fee structure. We believe these actions on our fees leave
us well positioned for growth and aligned with the FCA's Consumer Duty. The
system changes we need to make to accommodate a different fee structure will
inevitably come at a cost.
We have also experienced a marked increase in clients registering complaints
relating to whether they have received ongoing servicing historically. Given
this, an initial assessment of client servicing records has been undertaken
and the findings from this indicate the need for us to take action to refund
clients where ongoing service has not been evidenced. The action we have
taken has led to us increasing our provisions for refunds which has impacted
our 2023 results. While this is disappointing, we know for the future that our
investment in 2021 in our Salesforce customer relationship management system
will enable us to monitor service levels to ensure our clients receive the
advice and support they expect. The actions we have taken have involved close
engagement with our key regulators and, as strong advocates for regulated
advice, we remain determined to work with all policymakers and other
stakeholders to help drive better financial resilience across society.
We cannot be complacent of our market leading position and we will evolve to
continue to meet the needs of our clients. Expectations of clients are
rightfully high and where we risk falling short of those expectations we must
act.
The Board and governance
Our continued growth and success over time have owed much to the strength of
our Partnership structure and our management's ability to ensure continuity
during periods of transition. Culture plays an important part in an
organisation's success and was a key consideration in the appointment of Mark
FitzPatrick as Chief Executive Officer. Succession planning is an ongoing
process and the Board and Group Nomination and Governance Committee have spent
considerable time in the last couple of years ensuring that success criteria
balanced the importance of continuity with the value that diversity and a
fresh perspective could provide.
The robust process identified Mark FitzPatrick as the outstanding candidate
and Mark joined the Board on 1 October 2023, succeeding Andrew Croft as Chief
Executive Officer on 1 December 2023. Andrew has been with St. James's Place
since 1993, serving as its Chief Financial Officer and then Chief Executive
Officer since 2018, and on behalf of the Board I would like to thank Andrew
for his unwavering commitment to the business. He will be greatly missed by
everyone at SJP, and we wish him our very best in his retirement.
As we announced on 9 November 2023, Dominic Burke also stepped down as a
Director on 31 January 2024. Dominic contributed much in his short time with
us and I wish him all the best in his future ventures. As part of our ongoing
succession planning, plans to recruit further Non-executive Directors were
already underway and we hope to appoint a new Senior Independent Director in
the near future.
Further detail on the work of the Group Nomination and Governance Committee
can be found in its report in the Annual Report and Accounts.
The Board's priorities and our strategy
In recent years I have outlined the Board's key areas of focus alongside our
strategy to 2025: the Partnership, investment performance, administration and
digital. These are all key contributors to good client outcomes and the Board
continues to monitor our progress in these areas. Our work on strategy beyond
2025 is also well underway.
While our financial results have been significantly impacted by the increase
in the provisions relating to ongoing
servicing evidence, the underlying performance of the business remains strong.
The Board recognises the importance of returns to shareholders and is
confident that sufficient capital and liquidity has been set aside to deal
with this legacy matter. In light of this, the Board believes it prudent to
recommend a final dividend for 2023 of 8.00 pence per share. Combined with the
interim dividend of 15.83 pence per share we declared at the half year, this
brings our full-year dividend to 23.83 pence per share.
The Board has also made the decision to revise guidance for future shareholder
distributions, believing that this approach strikes an appropriate balance of
ensuring the business retains sufficient capacity for investment alongside the
importance of returns to shareholders.
Our culture and responsibilities
Culture is a critical enabler for any organisation and what we understand by
the term culture continues to change over time. We have committed to being a
responsible business, and what it means to be a responsible business is not
solely about the actions we take but also about how we respond to threats to
our culture and how we foster inclusive behaviour.
Responsibility is also not measured just through our own expectations, but
through the eyes of our stakeholders. Our corporate governance report sets out
how the Board has listened to our stakeholders and taken account of their
views in our decision-making. The Board also recognises that there is a
compelling commercial case for being a responsible business and the progress
we have made in 2023 is detailed in the Our Responsible Business section of
the Annual Report and Accounts. Further information on how our commitment to
being a responsible business feeds through to the remuneration of Executives,
can be found in the report of the Group Remuneration Committee.
Concluding remarks
I would like to express my thanks to my Board colleagues and management for
their support and hard work during a challenging year, and commend employees
and in particular our Partner businesses for the strong underlying performance
achieved in a challenging year. I have provided a high-level overview of some
of the key areas of the Board's activity in 2023, and would encourage you to
read the corporate governance report which covers this in more detail. Whilst
2022 and 2023 have presented tough environments for clients, savers and
investors in general, the value of advice has never seemed more important.
This is reflected in the FCA's recent statement of its aims for forthcoming
consumer policy initiatives which highlighted that it wants consumers of all
wealth levels to be able to make good investment decisions and invest with
confidence, understanding the risks and the protection involved. The Board is
confident that SJP can contribute to helping the FCA meet its aims. I look
forward to welcoming shareholders to this year's Annual General Meeting, which
will be held on 15 May 2024.
Paul Manduca, Chair
27 February 2024
Chief Executive Officer's report
Setting up for success
I am delighted to be leading St. James's Place, the largest advice-led
wealth manager in the UK, and a business that has a critical role to play in
helping secure the futures of our clients and their families.
During my initial weeks and months at the Company, I've met a lot of people
from across the St. James's Place community and I've listened carefully,
with every conversation bringing new insight. I've been really struck by the
importance of what we do for clients and how passionately the whole community
cares: supporting clients with trusted financial advice that provides peace
of mind and the confidence to benefit from investing over the long term.
This focus has helped us to build a fantastic position within our marketplace
over the past three decades, where we now look after £168.2 billion of funds
under management for our clients. We've achieved a lot already, but I believe
we can still do better for all our stakeholders.
Operating and financial performance
The economic environment in 2023 was undoubtedly challenging. It is at
precisely these times that financial advice can really help clients, acting as
a steady hand to keep them on track to meet their long-term financial goals.
High inflation and high interest rates have put pressure on UK consumers with
rising mortgage rates contributing to rising living costs more generally. This
impacted some individuals' capacity and confidence to invest. Meanwhile, those
with capacity to invest may have been attracted to elevated short-term savings
rates over long-term investing.
Against this backdrop, we have attracted £15.4 billion of new client
investments and client retention rates have remained high at 95.3%,
contributing to net inflows of £5.1 billion; these figures highlight the
sheer scale of SJP today and the fundamental resilience of our business model
in challenging market conditions. This new business performance, together with
strong investment returns, has seen funds under management close the year at a
record £168.2 billion, up 13% compared to the beginning of the year.
We have delivered an Underlying cash result of £392.4 million (2022: £410.1
million), which is 4% lower year on year. This result reflects growth in
average funds under management during the year and tight cost control in
line with guidance, but this robust underlying financial performance was
largely offset by an increased UK corporation tax rate.
Our Cash result for the year of £68.7 million (2022: £410.1 million) has
been significantly impacted by an assessment we undertook into the evidencing
and delivery of historic ongoing servicing and the provision we have now
established for any client refunds required. The underlying performance of our
business means I'm confident we will emerge from these short-term historic
challenges as an even stronger business.
Delivering change
While our business continues to perform well against a difficult backdrop,
it's important that we address our challenges and develop our client offering
so that we remain in good shape for the future.
Managing ongoing servicing complaints
We saw a marked increase in the number of clients registering complaints
linked to the evidencing and delivery of ongoing servicing in the past. We've
taken this very seriously and where gaps in record-keeping mean that there is
a lack of evidence of the delivery of ongoing servicing, we've refunded these
charges to clients. With the number of complaints accelerating in late 2023,
we engaged extensively with the FCA on this matter and the resulting
assessment of historic client servicing records. This assessment indicates
that we have an improved body of evidence for the delivery of ongoing
servicing since we invested in Salesforce in 2021, but that evidence is less
complete before then. Based on assumptions derived from this assessment, we
have established a provision of £426 million for refunds, impacting our
financial results in 2023. We recognise that this is a disappointing outcome
for everyone.
We know that our clients really value what we offer them, and we take comfort
from outstanding client retention and advocacy, but we must be able to
evidence the delivery of ongoing servicing that clients trust and value.
Through leveraging the investment we've made in our Salesforce CRM system and
our Consumer Duty work, in 2023 we switched off ongoing servicing charges for
2% of clients where there was a lack of evidence that ongoing servicing was
provided in this period. Our central CRM capability gives us confidence in our
ability to minimise the risks that clients will be charged for services they
do not receive.
Introducing simple and comparable charging
Our charging structures have often been interpreted by commentators as being
complex and this has brought some challenge for our business. In 2023 we made
some significant decisions around our charges, including the announcement in
October that we are implementing our programme to simplify our charging
structures, which will be completed in the second half of 2025. The changes
enhance the value that clients receive and introduce improved comparability
that will help market perceptions of our services.
Our current charging structures have also limited the comparability of our
investment performance over time, impacting our brand and reputation. Our
simplified charging structure will make it much easier to compare investment
performance across the industry on a like-for-like basis, enabling us to tell
a more accurate story of how we are delivering for clients.
This move to unbundle our charges, which we announced in October, has been
designed to ensure sustainability for the long-term. This gives confidence
that we can grow the business without the need for further changes to our
charges that would impact the guidance we communicated to shareholders last
October. The changes we are making will be good for clients, appropriate for
our marketplace and built for a Consumer Duty world. By extension, they will
be good for our long-term business health by giving us the opportunity to
consider new propositions and real agility in how we grow the business.
Evolving our investment proposition
We've got an investment proposition that works well for clients, and it's
important that we continue to develop our offer so that we meet client needs
as they change over time. In late 2022 we launched our Polaris range of
portfolios, supporting clients looking to grow their long-term finances, and I
am pleased to report that this range has got off to a very strong start with
all four portfolios outperforming their IA and ARC benchmarks since launch.
Polaris has also proved incredibly popular with clients, attracting more
than £25bn in investments already. We are exploring further developments in
our investment approach, including the role of passives in providing greater
choice for clients.
Developing our investment proposition is just one example of how we're making
changes that ensure we continue to support our clients and the communities in
which we operate. Beyond these actions, as the market leader in financial
advice we have the opportunity, and indeed responsibility, to promote our
business, our brand, and our broader industry. We will build a stronger voice,
supported by a new national marketing and media campaign that will launch
this spring.
Building for the future
The structural market opportunity for financial advice is clear. The savings
gap in the UK is already considerable and it continues to grow because
planning for retirement is complicated, as is thinking about investing,
managing risk, and considering protection. This is where personal and trusted
financial advice can make a real difference.
We're well positioned to seize this market opportunity: we have the largest
group of financial advisers in the UK, and we continue to grow it through our
market-leading Academy programmes and by recruiting talented financial
advisers who are attracted to us because they know we can help them thrive. We
accomplish this through scale that gives us real advantage, from helping us
curate a distinct investment proposition that works for clients, partner with
leading global businesses to underpin our technology and administrative
capabilities, and better support the 2,666 businesses that comprise the SJP
Partnership. We have a strong and enviable track record of driving growth
through an unbroken history of net inflows in every year over three decades.
Our marketplace will evolve as client expectations and preferences change over
time, so it's important that we keep looking forward to consider how we are
best placed to capture both existing and emerging opportunities over time, and
drive sustained growth in the business.
I've therefore commenced a business review, supported by a leading external
consultancy, so that we build on everything we've achieved and the changes
we're already making. Putting aside the matter of our charges, which has
already been dealt with, the review is comprehensive in its scope, with the
aim of ensuring we plot a sustained path for growth as market trends evolve,
focus on cost and efficiency to drive operating leverage, and manage our
resources effectively and efficiently so that we drive improving returns.
This work is underway and we plan to update the market on the outcome of the
review at the time of our half-year results.
Summary and outlook
The underlying performance of our business has been robust in what has been a
very difficult external environment, highlighting the strength of our
advice-led model in attracting and retaining client investments, as well as
the resilience of our financial model. 2023 was also a year in which we faced
into some important historic challenges. We are working hard to put these
challenges behind us so that we can move forward with confidence as we plot
our path to 2030.
In the near-term, we expect the industry outlook to remain challenging in 2024
given the pressures consumers continue to face. The near-term environment
notwithstanding, the longer-term structural opportunity for the financial
advice industry is hugely attractive. With scale advantage, a strong
Partnership of fantastic advisers, and an investment approach that delivers
for clients, we are very well placed to capture this opportunity and perform
for all our stakeholders.
Mark FitzPatrick, Chief Executive Officer
27 February 2024
Chief Financial Officer's report
Robust underlying financial results
We are pleased to report a year of robust underlying financial results,
despite a continued challenging operating environment.
Our underlying business has performed well, delivering growth in average funds
under management (FUM) and therefore fee income. Paired with continued
discipline in managing controllable costs in line with guidance, this has
enabled us to deliver a pre-tax Underlying cash result that is broadly in line
with the prior year, albeit 4% lower on a post-tax basis due to the impact of
a higher corporation tax rate in 2023.
In the context of an external environment that has been challenging for our
industry, this outcome for 2023 highlights that our underlying business
performance is robust, putting us in a good position for a bright future
despite the near-term challenges we face.
Our reported financial results for 2023 have been significantly impacted by
the Ongoing Service Evidence provision that we have established following the
appointment of a skilled person and an assessment undertaken into the
evidencing and delivery of historic ongoing servicing. The anticipated cost of
refunding ongoing servicing charges, together with the interest, and the
administrative costs associated with completing the work, is reflected in our
Financial Statements through an Ongoing Service Evidence provision of £426.0
million, which is £323.7 million net of tax within the Cash result.
Our financial results are presented in the Financial Review, but this report
provides a summary of financial performance on a statutory International
Financial Reporting Standard (IFRS) basis, as well as our chosen alternative
performance measures (APMs). We also summarise the progression of our FUM and
provide shareholders with an overview of our balance sheet.
Funds under management
Client capacity and confidence to commit to long-term investment continues to
be impacted by the economic environment and the short-term alternative arising
from elevated cash deposit rates.
While this has presented a challenging backdrop, our new business performance
has remained robust, with our advisers attracting £15.4 billion (2022: £17.0
billion) of new client investments, and client retention rates remaining
strong at 95.3% (2022: 96.5%). As a consequence, we continue to generate
significant levels of net inflows, once again demonstrating the resilience and
strength of our advice-led business model.
The combined impact of ongoing net inflows and strong investment performance
during the year has resulted in FUM increasing by 13% to a record £168.2
billion (2022: £148.4 billion). Growth in FUM, and indeed an accelerating
balance of gestation FUM maturing in the coming years, provides our business
with good visibility over future growth in income and the creation of
sustainable value for shareholders over time.
Financial results
IFRS
As is often the case, IFRS profit before tax of £439.6 million (2022: £2.8
million) and IFRS loss before shareholder tax of £4.5 million (2022: £503.9
million profit) are each heavily distorted by the inclusion of policyholder
tax and the associated charges, with further detail included in the Financial
Review.
Excluding the short-term impact of items related to policyholder tax, IFRS
profit before shareholder tax is subject to similar drivers as those described
for the Cash result below.
Cash result
The Cash result, and the Underlying cash result contained within it, are based
on IFRS but adjusted to exclude certain non-cash items. They therefore
represent useful guides to the level of cash profit generated by the business.
All items in the Cash result, and in the commentary below, are presented net
of tax.
The Underlying Cash result of £392.4 million for 2023 (2022: £410.1
million) is 4% lower than the prior year. Excluding the impact of an increased
rate of corporation tax, the Underlying cash result is broadly unchanged,
representing a robust result in a challenging market environment. The Cash
result of £68.7 million for 2023 (2022: £410.1 million) has been
significantly impacted by the Ongoing Service Evidence provision that we have
established. More detail is set out below and in the financial review.
During the year, the Net income from funds under management was £599.2
million (2022: £607.7 million), comprising an increase of 4% on a pre-tax
basis, together with the impact of a higher rate of corporation tax. This
outcome reflects an increase in average mature FUM, including a contribution
of over £40 million from gestation balances that matured during the period.
For the first half of 2023, our margin range for net income was 0.59% to
0.61%, reducing by 0.04% from August 2023 to a range from 0.55% to 0.57%,
reflecting the introduction of a charge cap applicable to bond and pension
investments with a duration longer than ten years. Looking forward, 2024 will
see the corporation tax rate of 25% being applicable for the whole year, with
the effect being to further reduce our margin range by 0.01%, resulting in a
range from 0.54% to 0.56%.
This margin range is applicable to average mature FUM, excluding discretionary
fund management (DFM) and Asia FUM, in line with prior guidance. It is this
mature FUM that contributes to the net income figure and, at any given time,
it comprises all unit trust and ISA business, as well as life and pensions
business written more than six years ago.
Under our current charging structure, new life and pensions business does not
contribute annual product management charges for the first six years after the
business is written. This means that the Group has six years' worth of FUM in
the gestation period that does not materially contribute to the Cash result.
At 31 December 2023, the balance of gestation FUM stood at £47.6 billion
(2022: £45.5 billion). Once this current stock of gestation FUM has all
matured, it will (assuming no market movements or withdrawals, and allowing
for the corporation tax rate in 2024 and new charging structure in 2025)
contribute in excess of a further £270 million to annual net income from FUM
and hence to the Underlying cash result, at no additional cost.
St. James's Place also generates a Margin arising from new business where
initial product charges levied on gross inflows exceed new-business-related
expenses. The decrease in margin arising from new business in 2023 largely
reflects the decrease in gross flows over the year, although the relationship
between the two is generally directionally consistent rather than linear, as
the margin includes some expenses which do not vary with gross inflows.
Controllable expenses are a key metric for the business and despite the
persistence of high inflation we contained the annual growth of controllable
expenses in 2023 to 2% on a post-tax basis (2022: 5%), in line with the
guidance we set out early in the year. We are currently budgeting to contain
growth in controllable expenses for 2024 to 3% post-tax, or 5% pre-tax.
Growth in income, coupled with this management of controllable expenses, has
enabled us to deliver a resilient underlying financial performance despite
significant short-term challenges.
In addition to these key components of the Cash result, we have seen an
increase in Shareholder interest, which represents the interest earned on
shareholder working capital and business loans to Partners. We have also seen
a short-term reduction in the FSCS levy as a result of a prior year surplus
that had built up within the FSCS scheme. Partially offsetting these effects
is a reduced benefit from Tax relief from capital losses as we utilised our
remaining historic balances, with the result being that this line will no
longer feature in the Cash result going forward.
Reported as a Miscellaneous cost, we have seen a significant increase in
client complaints over the last 12 months as a result of the activity of
claims management firms.
European Embedded Value
We supplement our IFRS and Cash results with additional disclosure on a
European Embedded Value (EEV) basis, providing a measure of the total value
that might be expected to arise over the lifetime of the existing business,
though without making any allowance for new business that may be written in
the future.
The EEV result has been significantly impacted by the changes to our charging
structure that we announced during the year. As a result of these changes, the
contribution to EEV operating profit from new business written in the year has
reduced. It has also been necessary to remeasure the future cash flows
expected to arise from our existing business, with the impact reflected in an
exceptional item of £2,506.6 million.
The EEV operating profit before exceptional items for the year is £1,041.0
million (2022: £1,589.7 million), reflecting a lower contribution from new
business, which is impacted by reduced inflows and the effects of changes to
our charging structure, as well as the significant benefit of persistency
assumption changes in 2022.
The EEV operating loss after exceptional items for the year is £1,891.6
million (2022: £1,589.7 million profit), reflecting the exceptional items of
£2,932.6 million arising from changes to our charging structure during the
year, as well as the impact of the Ongoing Service Evidence provision that we
have established.
The EEV loss before tax for the year of £1,387.4 million (2022: £510.8
million profit) has benefitted from a positive investment return variance of
£501.7 million (2022: negative £1,314.0 million). The positive return
reflects increased market values across our FUM that exceeded our long-term
assumptions, and this compares to a significant negative impact from market
returns in 2022.
The EEV net asset value per share was £14.11 at 31 December 2023 (2022:
£16.66).
Charge Structure
During the year we made some important changes related to our charges,
ensuring both compliance with an evolving regulatory environment, and the
creation of a sustainable charging platform that will see the business thrive
over the long-term.
In July, we announced the introduction of a fee cap on long term bond and
pension investments which came into effect in August 2023. Later in the year,
we announced the conclusion of a comprehensive review of our client charging
structure, resulting in simplifying charging from the middle of 2025 that will
improve comparability across the marketplace and enable a clearer articulation
of the value that we provide to clients across all elements of our
proposition.
The effect of these changes will be to reduce the net income margin range by
0.11% to a range between 0.43% and 0.45%, though this will be applicable to
all FUM once the existing gestation FUM has matured, with no further concept
of gestation. There will also no longer be a material contribution from margin
arising on new business.
These changes will impact the shape of our financial results over time and
will require investment in systems and processes in order to deliver. However,
they will result in long-term simplicity and comparability, which can only
strengthen our proposition, our brand and our reputation. They also give us
confidence that we can grow the business without the need for further changes
to our charges that would impact the guidance set out above.
Financial position
Our prudent approach to managing our balance sheet has ensured that we have
more than sufficient funding capacity to cover the financial implications of
setting up the Ongoing Service Evidence provision. We are confident that the
provision we have set up is sufficient. We have, however, arranged access to
an additional £250 million of credit which we do not anticipate utilising,
but which provides for additional funding certainty.
Solvency and capital
We have always taken a simple and prudent approach to managing the balance
sheet and our capital requirements. This continues to be the case, with both
the Group and our life companies in a strong financial position. Given the
simplicity of our business model, our preferred approach to considering
solvency remains to hold assets to match client unit-linked liabilities and
allow for a management solvency buffer (MSB).
At 31 December 2023 we held surplus assets over the MSB of £603.5 million
(2022: £847.2 million), reducing as a result of the Ongoing Service Evidence
provision that we have established.
We also ensure that our approach meets the requirements of the Solvency II
regime. Our UK life company, the largest Solvency II entity in the Group, has
increased its target capital from 110% to 130% of the standard formula,
reflecting the change in its financial model as a result of the charging
structure changes we have announced. This has been discussed with its
regulator, the PRA.
At 31 December 2023, the solvency ratio for our life companies after payment
of a year-end intra-Group dividend was 162% (2022: 130%), reflecting the
impact of the change in charging structures, and the Solvency II reform
changes to the risk margin.
Dividends
While our financial results have been significantly impacted by the Ongoing
Service Evidence provision, the Board recognises the importance of returns to
shareholders and is confident that sufficient capital and liquidity is
available to deal with this legacy matter. In light of this, the Board
therefore proposes a final dividend of 8.00 pence per share (2022: 37.19 pence
per share) to make a total dividend of 23.83 pence per share for the full year
(2022: 52.78 pence per share).
A combination of the provision we have established and an expected decrease in
the level of profit growth in the next few years as we transition to our new
charging structure, reduces our ability to invest for long term growth in our
business over the next few years. Accordingly, the Board has decided to revise
our approach to shareholder distributions. Going forward, the Board expects
that total annual distributions will be set at 50% of the full year Underlying
cash result. For the next three years this will comprise 18.00 pence per share
in annual dividends declared with the balance distributed through share
repurchases.
Once our new charging structure is fully embedded, we anticipate that the
business will be on an improving earnings trajectory during 2027 and beyond.
The Board expects that distributing 50% of the Underlying cash result will
continue to strike the right balance between investment for growth and returns
to shareholders, while seeing shareholder distributions increase over time.
The upward trajectory in profits should then provide the Board with options to
grow the dividend element within the total return.
Craig Gentle, Chief Financial Officer
27 February 2024
Summary financial information
Year ended Year ended
31 December 31 December
2023 20221
FUM-based metrics
Gross inflows (£'Billion) 15.4 17.0
Net inflows (£'Billion) 5.1 9.8
Total FUM (£'Billion) 168.2 148.4
Total FUM in gestation (£'Billion) 47.6 45.5
IFRS-based metrics
IFRS (loss)/profit after tax (£'Million) (9.9) 407.2
IFRS (loss)/profit before shareholder tax (£'Million) (4.5) 503.9
Underlying (loss)/profit before shareholder tax (£'Million) (8.0) 516.9
IFRS basic earnings per share (EPS) (Pence) (1.8) 75.0
IFRS diluted EPS (Pence) (1.8) 74.3
IFRS net asset value per share (Pence) 179.3 233.7
Dividend per share (Pence) 23.83 52.78
Cash result-based metrics
Controllable expenses (£'Million) 283.3 277.9
Underlying cash result (£'Million) 392.4 410.1
Cash result (£'Million) 68.7 410.1
Underlying cash result basic EPS (Pence) 71.7 75.6
Underlying cash result diluted EPS (Pence) 70.5 74.9
EEV-based metrics
EEV operating (loss)/profit before tax (£'Million) (1,891.6) 1,589.7
EEV operating (loss)/profit after tax basic EPS (Pence) (260.6) 218.8
EEV operating (loss)/profit after tax diluted EPS (Pence) (256.5) 216.8
EEV net asset value per share (£) 14.11 16.66
Solvency-based metrics
Solvency II net assets (£'Million) 1,133.0 1,379.9
Management solvency buffer (£'Million) 529.5 532.7
Solvency II free assets (£'Million) 1,572.1 1,921.4
Solvency ratio (Percentage) 191% 155%
1 Restated to reflect the adoption of IFRS 17. See Note 1a .
A complete glossary of APMs is below.
The Cash result should not be confused with the IFRS Consolidated Statement of
Cash Flows, which is prepared in accordance with IAS 7.
Financial Review
This financial review provides analysis of the Group's financial position and
performance.
It is split into the following sections:
Section 1
Funds under management (FUM)
1.1 FUM analysis
1.2 Gestation
As set out below, FUM is a key driver of ongoing profitability
on all measures, and so information on growth in FUM is provided in Section
1.
Section 2
Performance measurement
2.1 International Financial Reporting Standards (IFRS)
2.2 Cash result
2.3 European Embedded Value (EEV)
Section 2 analyses the performance of the business using three different
bases: IFRS, the Cash result, and EEV.
Section 3
Solvency
Section 3 addresses solvency, which is an important area given the multiple
regulated activities carried out within the Group.
Our financial business model
Our financial business model is straightforward. We generate revenue
by attracting clients through the value of our proposition, who trust us
with their investments and then stay with us. This grows our funds under
management (FUM), on which we receive:
· advice charges for the provision of valuable, face-to-face
advice; and
· product charges for our manufactured investment, pension and
ISA/unit trust products.
Further information on our charges can be found on our website:
www.sjp.co.uk/charges (http://www.sjp.co.uk/charges) . A breakdown of fee and
commission income, our primary source of revenue under IFRS, is set out in
Note 4.
The primary source of the Group's profit is the income we receive
from annual product management charges on FUM. However, under our current
charging structure, most of our investment and pension products are
structured so that annual product management charges are not taken for the
first six years after the business is written. This means that the Group has
six years' worth of FUM in the 'gestation' period that is not generating
annual product management charges, but will 'mature' over a six-year period
and begin to contribute annual product management charges.
We will be simplifying our charging structure from the middle of 2025 and new
business will no longer enter a gestation period, but in the meantime,
gestation FUM represents a significant store of shareholder value.
Initial and ongoing advice charges, and initial product charges levied
when a client first invests into one of our products, are not major drivers
of the Group's profitability, because:
· most advice charges received are offset by corresponding
remuneration for Partners, so an increase in these revenue streams will
correspond with an increase in the associated expense and vice versa; and
· under IFRS, initial product charges are spread over the expected
life of the investment through deferred income (DIR). The contribution
to the IFRS result from spreading these historic charges can be seen in Note
4 as amortisation of DIR. Initial product charges contribute immediately to
our Cash result through margin arising on new business.
Our income is used to meet overheads, pay ongoing product expenses and invest
in the business. Controllable expenses, being the costs of running the Group's
infrastructure, the Academy and development expenses, are carefully managed
in line with our 2025 business plan ambition to limit their growth to
5% per annum. Other ongoing expenses, including payments to Partners,
increase with business levels and are generally aligned with product charges.
Gross inflows into FUM
Section 1
Funds under management
1.1 FUM analysis
Our financial business model is to attract and retain FUM, on which we receive
an annual management fee. As a result, the level of income we receive is
ultimately dependent on the value of our FUM, and so its growth is a clear
driver of future growth in profits. The key drivers for FUM are:
· our ability to attract new funds in the form of gross inflows;
· our ability to retain FUM by keeping unplanned withdrawals at a
low level; and
· net investment returns.
The following table shows how FUM evolved during 2023 and 2022. Investment
return is presented net of all charges.
2023 2022
Investment Pension UT/ISA and DFM Total Total
£'Billion £'Billion £'Billion £'Billion £'Billion
Opening FUM 33.29 73.86 41.22 148.37 153.99
Gross inflows 2.09 9.77 3.53 15.39 17.03
Net investment return 2.89 8.23 3.59 14.71 (15.40)
Regular income withdrawals and maturities (0.36) (2.41) - (2.77) (2.01)
Surrenders and part-surrenders (1.92) (2.13) (3.45) (7.50) (5.24)
Closing FUM 35.99 87.32 44.89 168.20 148.37
Net inflows (0.19) 5.23 0.08 5.12 9.78
Implied surrender rate as a percentage of average FUM 5.5% 2.6% 8.0% 4.7% 3.5%
Included in the table above is:
· Rowan Dartington Group FUM of £3.43 billion at 31 December 2023
(31 December 2022: £3.29 billion), gross inflows of £0.36 billion for the
year (2022: £0.44 billion) and outflows of £0.18 billion (2022: £0.14
billion); and
· SJP Asia FUM of £1.72 billion at 31 December 2023 (31 December
2022: £1.52 billion), gross inflows of £0.21 billion for the year (2022:
£0.28 billion) and outflows of £0.15 billion (2022: £0.10 billion).
The following table shows the significant net inflows and the progression of
FUM over the past six years.
Year FUM as at 1 January Net inflows Investment return FUM as at 31 December
£'Billion £'Billion £'Billion £'Billion
2023 148.4 5.1 14.7 168.2
2022 154.0 9.8 (15.4) 148.4
2021 129.3 11.0 13.7 154.0
2020 117.0 8.2 4.1 129.3
2019 95.6 9.0 12.4 117.0
2018 90.7 10.3 (5.4) 95.6
The table below provides a geographical and investment-type analysis of FUM at
31 December.
31 December 2023 31 December 2022
£'Billion Percentage £'Billion Percentage
of total of total
North American equities 57.4 34% 49.1 33%
Fixed income securities 27.1 16% 23.1 16%
European equities 23.6 14% 19.3 13%
Asia and Pacific equities 20.5 12% 17.8 12%
UK equities 16.0 10% 16.0 11%
Alternative investments 10.5 6% 12.4 8%
Cash 7.2 4% 5.7 4%
Other 4.1 3% 2.8 2%
Property 1.8 1% 2.2 1%
Total 168.2 100% 148.4 100%
1.2 Gestation
As explained in our financial business model, due to our current product
structure, there is a significant amount of FUM that has not yet started to
contribute to the Cash result.
When we attract new FUM there is a margin arising on new business that emerges
at the point of investment, which is a surplus of income over and above the
initial costs incurred at the outset. Within our Cash result presentation this
is recognised as it arises, but it is deferred under IFRS.
Once the margin arising on new business has been recognised the pattern of
future emergence of cash from annual product management charges differs by
product. Broadly, annual product management charges from unit trust and ISA
business begin contributing positively to the Cash result from day one, whilst
investment and pensions business enters a six-year gestation period during
which no net income from FUM is included in the Cash result. Once this
business has reached its six-year maturity point, it starts contributing
positively to the Cash result, and will continue to do so in each year that it
remains with the Group. Approximately 54% of gross inflows for 2023, after
initial charges, moved into gestation FUM (2022: 54%).
The following table shows an analysis of FUM, after initial charges, split
between mature FUM that is contributing net income to the Cash result and FUM
in gestation which is not yet contributing, as at the year-end for the past
five years. The value of both mature and gestation FUM is impacted by
investment return as well as net inflows.
Position as at Mature FUM contributing to the Cash result Gestation FUM that will contribute to the Cash result in the future Total FUM
£'Billion £'Billion £'Billion
31 December 2023 120.6 47.6 168.2
31 December 2022 102.9 45.5 148.4
31 December 2021 104.7 49.3 154.0
31 December 2020 85.9 43.4 129.3
31 December 2019 76.8 40.2 117.0
During the year, we announced the outcome of an internal review which will see
us simplify our charging structure from the second half of 2025, following a
period of investment in the required systems and processes. Under the revised
charging structure, new business will no longer enter a period of gestation
and the existing gestation business at the point of implementation will
gradually mature, after which there will be no further concept of gestation
FUM. In the meantime, gestation FUM continues to be a material store of
shareholder value that will make a significant contribution to the Cash result
in the future.
The following table gives an indication, for illustrative purposes, of the way
in which the reduction in fees in the gestation period element of the Cash
result could unwind, and so how the gestation balance of £47.6 billion at 31
December 2023 may start to contribute to the Cash result over the next six
years and beyond, allowing for the changes to our charging structure in 2025
and the applicable rate of corporation tax in each year. For simplicity it
assumes that FUM values remain unchanged, that there are no surrenders, and
that business is written at the start of the year. Actual emergence in the
Cash result will reflect the varying business mix of the relevant cohort and
business experience.
Year Gestation FUM maturity profile Gestation FUM future contribution to the Cash result
£'Billion £'Million
2024 7.0 58.0
2025 14.3 100.0
2026 21.9 124.9
2027 30.4 173.5
2028 39.4 224.8
2029 onwards 47.6 271.7
Section 2
Performance measurement
In line with statutory reporting requirements we report profits assessed on an
IFRS basis. The presence of a significant life insurance company within the
Group means that, although we are a wealth management group in substance with
a simple business model, we apply IFRS accounting requirements for insurance
companies. These requirements lead to financial statements which are more
complex than those of a typical wealth manager and so our IFRS results may not
provide the clearest presentation for users who are trying to understand our
wealth management business. Key examples of this include the following:
· our IFRS Statement of Comprehensive Income includes policyholder
tax balances which we are required to recognise as part of our corporation
tax arrangements. This means that our Group IFRS profit before tax includes
amounts charged to clients to meet policyholder tax expenses, which are
unrelated to the underlying performance of our business; and
· our IFRS Statement of Financial Position includes policyholder
liabilities and the corresponding assets held to match them, and so
policyholder liabilities increase or decrease to match increases or decreases
experienced on these assets. This means that shareholders are not exposed to
any gains or losses on the £167.8 billion of policyholder assets and
liabilities recognised in our IFRS Statement of Financial Position, which
represented over 97% of our IFRS total assets and liabilities at 31 December
2023.
To address this, we developed alternative performance measures (APMs) with the
objective of stripping out the policyholder element to present solely
shareholder-impacting balances, as well as removing items such as deferred
acquisition costs and deferred income to reflect Solvency II recognition
requirements and to better match the way in which cash emerges from the
business. We therefore present our financial performance and position on
three different bases, using a range of APMs to supplement our IFRS reporting.
The three different bases, which are consistent with those presented last
year, are:
· International Financial Reporting Standards (IFRS);
· Cash result; and
· European Embedded Value (EEV).
APMs are not defined by the relevant financial reporting framework (which for
the Group is IFRS), but we use them to provide greater insight to the
financial performance, financial position and cash flows of the Group and the
way it is managed. A complete glossary of APMs is set out below, in which we
define each APM used in our financial review, explain why it is used and, if
applicable, explain how the measure can be reconciled to the IFRS Financial
Statements.
2.1 International Financial Reporting Standards (IFRS)
On 1 January 2023, the Group adopted IFRS 17 Insurance Contracts, with
comparatives restated from 1 January 2022. The adoption of IFRS 17 resulted
in an increased IFRS profit after tax of £1.8 million for the year ended 31
December 2022. For further explanation, refer to Note 1a.
As referenced above, our IFRS results are impacted by policyholder tax
balances which we are required to recognise as part of our corporation tax
arrangements. This means that our Group IFRS profit before tax includes
amounts charged to clients to meet policyholder tax expenses, which are
unrelated to the underlying performance of our business. The scale and
direction of these amounts can vary significantly: for example in 2023 we
deducted £444.1 million from clients due to investment market gains which
flowed through our IFRS profit before tax as income, whereas in 2022 we were
required to refund £501.1 million to clients due to investment market falls
which flowed through our IFRS profit before tax as an expense. See Note 4 Fee
and commission income for further information. This leads to substantial
distortion within our IFRS profit before tax: for the year ended 31 December
2023 it was £439.6 million, compared to £2.8 million for the year ended
31 December 2022.
To address the challenge of policyholder tax being included in the IFRS
results we focus on the following two APMs, based on IFRS, as our pre-tax
metrics:
· IFRS profit before shareholder tax; and
· underlying profit.
Further information on these IFRS-based measures is set out below.
Profit before shareholder tax
This is a profit measure based on IFRS which aims to remove the impact of
policyholder tax. The policyholder tax expense or credit is typically matched
by an equivalent deduction or credit from the relevant funds, which is
recorded within fee and commission income in the Consolidated Statement of
Comprehensive Income. Policyholder tax does not therefore normally impact the
Group's overall profit after tax. The following table demonstrates the way in
which IFRS profit before shareholder tax is presented in the Consolidated
Statement of Comprehensive Income.
Year ended 31 December 2023 Year ended 31 December 20221
£'Million £'Million
IFRS profit before tax 439.6 2.8
Policyholder tax (444.1) 501.1
IFRS (loss)/profit before shareholder tax (4.5) 503.9
Shareholder tax (5.4) (96.7)
IFRS (loss)/profit after tax (9.9) 407.2
1 Restated to reflect the adoption of IFRS 17. See Note 1a.
However, in both the current and prior year IFRS profit before shareholder tax
and IFRS profit after tax have been impacted by another nuance of life
insurance tax, which has led to decreases in each of these balances year on
year.
As set out above, life insurance tax incorporates a policyholder tax element,
and the financial statements of a life insurance group need to reflect the
liability to HMRC and the corresponding deductions incorporated into policy
charges. In particular, the tax liability to HMRC is assessed using IAS 12
Income Taxes, which does not allow discounting, whereas the policy charges
are designed to ensure fair outcomes between clients and so reflect a wide
range of possible outcomes. This gives rise to different assessments of the
current value of future cash flows and hence an asymmetry in the Consolidated
Statement of Financial Position between the deferred tax position and the
offsetting client balance. The net balance reflects a temporary position,
and in the absence of market volatility we expect it will unwind as
future cash flows become less uncertain and are ultimately realised. Movement
in the asymmetry is recognised in the Consolidated Statement of
Comprehensive Income and analysed in Note 4 Fee and commission income.
We refer to it throughout this Annual Report and Accounts as the impact
of policyholder tax asymmetry.
Under normal conditions this asymmetry is small, but market volatility can
result in significant balances. Market gains combined with higher interest
rates in the year to 31 December 2023 have resulted in a negative policyholder
tax asymmetry impact of £44.4 million, whereas market falls in the year to 31
December 2022 resulted in a positive movement of £50.6 million. This leads to
a £95.0 million year-on-year difference in both IFRS profit after tax and
IFRS profit before shareholder tax.
Ultimately the effect will be eliminated from the Consolidated Statement of
Financial Position, and so it is temporary and we expect it to reverse as
markets increase further.
Shareholder tax reflects the tax charge attributable to shareholders and is
closely related to the performance of the business. However, it can vary year
on year due to several factors: further detail is set out in Note 6 Income and
deferred taxes.
Underlying profit
This is IFRS profit before shareholder tax (as calculated above) adjusted to
remove the impact of accounting for deferred acquisition costs (DAC), deferred
income (DIR) and the purchased value of in-force business (PVIF).
IFRS requires certain upfront expenses incurred and income received to be
deferred. The deferred amounts are initially recognised on the Statement of
Financial Position as a DAC asset and DIR liability, which are subsequently
amortised to the Statement of Comprehensive Income over a future period.
Substantially all of the Group's deferred expenses are amortised over a
14-year period, and substantially all deferred income is amortised over a
six-year period.
The impact of accounting for DAC, DIR and PVIF in the IFRS result is that
there is a significant accounting timing difference between the emergence of
accounting profits and actual cash flows. For this reason, Underlying profit
is considered to be a helpful metric. The following table demonstrates the
way in which IFRS profit reconciles to Underlying profit.
Year ended 31 December 2023 Year ended 31 December 20221
£'Million £'Million
IFRS (loss)/profit before shareholder tax (4.5) 503.9
Remove the impact of movements in DAC/DIR/PVIF (3.5) 13.0
Underlying (loss)/profit before shareholder tax (8.0) 516.9
1 Restated to reflect the adoption of IFRS 17. See Note 1a.
The impact of movements in DAC, DIR and PVIF on IFRS profit before shareholder
tax is further analysed as follows. Due to policyholder tax on DIR, the
amortisation of DIR during the year and DIR on new business for the year set
out below cannot be agreed to the figures provided in Note 11 in the Annual
Report and Accounts, which are presented before both policyholder and
shareholder tax.
Year ended 31 December 2023 Year ended 31 December 20221
£'Million £'Million
Amortisation of DAC (72.2) (79.6)
DAC on new business for the year 39.9 37.3
Net impact of DAC (32.3) (42.3)
Amortisation of DIR 149.3 166.2
DIR on new business for the year (110.3) (133.7)
Net impact of DIR 39.0 32.5
Amortisation of PVIF (3.2) (3.2)
Movement in year 3.5 (13.0)
1 Restated to reflect the adoption of IFRS 17. See Note 1a.
Net impact of DAC
The scale of the £32.3 million negative overall impact of DAC on the IFRS
result (2022: negative £42.3 million) is largely due to changes arising from
the 2013 Retail Distribution Review (RDR). After these changes, the level of
expenses that qualified for deferral reduced significantly, but the large
balance accrued previously is still being amortised. As deferred expenses are
amortised over a 14-year period there is a significant transition period,
which could last for another few years, over which the amortisation of pre-RDR
expenses previously deferred will significantly outweigh new post-RDR expenses
deferred despite significant business growth, resulting in a net negative
impact on IFRS profits.
Net impact of DIR
The reduction in new business in the year means income deferred in 2023 is
lower than it was in 2022. Income released from the deferred income liability
has reduced as balances arising from the reassessment of investment contract
liabilities in 2016 were fully amortised by the end of 2022. Together, these
effects mean that DIR has had a positive £39.0 million impact on the IFRS
result in 2023 (2022: £32.5 million positive).
2.2 Cash result
The Cash result is used by the Board to assess and monitor the level of cash
profit (net of tax) generated by the business. It is based on IFRS with
adjustments made to exclude policyholder balances and certain non-cash items,
such as DAC, DIR, deferred tax and equity-settled share-based payment costs.
Further details, including the full definition of the Cash result, can be
found in the glossary of APMs. Although the Cash result should not be confused
with the IAS 7 Consolidated Statement of Cash Flows, it provides a helpful
supplementary view of the way in which cash is generated and emerges within
the Group.
The Cash result reconciles to Underlying profit, as presented in Section 2.1,
as follows.
Year ended 31 December 2023 Year ended 31 December 20221
Before shareholder tax After tax Before shareholder tax After tax
£'Million £'Million £'Million £'Million
Underlying (loss)/profit (8.0) (13.0) 516.9 416.5
Equity-settled share-based payments 5.4 5.4 20.5 20.5
Impact of deferred tax - 24.9 - 30.5
Impact of policyholder tax asymmetry 44.4 44.4 (50.6) (50.6)
Other 15.2 7.0 (1.3) (6.8)
Cash result 57.0 68.7 485.5 410.1
1 Restated to reflect the adoption of IFRS 17. See Note 1a.
Equity-settled share-based payments have reduced compared to 2022, reflecting
a lower average share price, partially offset by an increase in the number of
shares and share options granted during the year.
The impact of deferred tax is the recognition in the Cash result of the
benefit from realising tax relief on various items including capital losses,
share options, capital allowances and deferred expenses. These have already
been recognised under IFRS, and hence Underlying profit, through the
establishment of deferred tax assets. Two notable points in the year, are the
need for life companies to spread acquisition expenses equally across 7 years
is removed with immediate allowance for tax relief instead, and that
recognition has been allowed for the deferred tax relief arising from the
establishment of the exceptional Ongoing Service Evidence provision. More
information can be found in Note 6.
The impact of policyholder tax asymmetry is a temporary effect caused by
asymmetries between fund tax deductions and the policyholder tax due to HMRC.
Movement in the asymmetry can be significant in volatile markets.
Other represents a number of other small items, including the removal of other
intangibles and the difference between the lease expense recognised under
IFRS 16 Leases and lease payments made.
The following table shows an analysis of the Cash result using two different
measures:
· Underlying cash result
This measure represents the regular emergence of cash from the business,
excluding any items of a one-off nature and temporary timing differences; and
· Cash result
This measure includes items of a one-off nature and temporary timing
differences.
Consolidated cash result (presented post-tax)
Note Year ended 31 December 2023 Year ended 31 December 2022
In-force New business Total Total
£'Million £'Million £'Million £'Million
Net annual management fee 1 942.6 58.2 1,000.8 1,020.6
Reduction in fees in gestation period 1 (401.6) - (401.6) (412.9)
Net income from FUM 1 541.0 58.2 599.2 607.7
Margin arising from new business 2 - 104.5 104.5 122.4
Controllable expenses 3 (20.6) (262.7) (283.3) (277.9)
Asia - net investment 4 - (19.4) (19.4) (11.3)
DFM - net investment 4 - (6.4) (6.4) (10.9)
Regulatory fees and FSCS levy 5 (2.3) (20.8) (23.1) (40.0)
Shareholder interest 6 61.8 - 61.8 15.9
Tax relief from capital losses 7 2.1 - 2.1 20.7
Charge structure implementation costs 8 - (7.2) (7.2) -
Miscellaneous 9 (35.8) - (35.8) (16.5)
Underlying cash result 546.2 (153.8) 392.4 410.1
Ongoing Service Evidence provision 10 (323.7) - (323.7) -
Cash result 222.5 (153.8) 68.7 410.1
The Cash result comprises the emergence of cash from in-force business of
£222.5 million (2022: £544.3 million) and an investment in new business of
£153.8 million (2022: £134.2 million)
Notes to the Cash result
1. Net income from FUM
The net annual management fee is the net manufacturing margin that the Group
retains from FUM after payment of the associated costs: for example, advice
fees paid to Partners, investment management fees paid to external fund
managers and the policy servicing tariff paid to our third-party
administration provider. Each product has standard fees, but they vary between
products. Overall post-tax margin on FUM reflects business mix but also the
different tax treatments, particularly life insurance tax on onshore
investment business.
Our investment and pension business product structure means that these
products do not generate net Cash result, after the margin arising from new
business, during the first six years. This is known as the 'gestation
period' and is reflected in the reduction in fees in gestation period line.
Net income from FUM reflects Cash result income from FUM that has reached
maturity, including FUM which has emerged from the gestation period during
the year, and this line is the focus of our explanatory analysis. As with net
annual management fees, the average rate can vary over time with business mix
and tax.
For 2023, our net income from FUM is consistent with the weighted average of
our margin range throughout the year. The margin range for the first half of
the year was year 0.59% to 0.61%, reducing by 0.04% from August 2023 to a
range from 0.55% to 0.57%, reflecting the introduction of a charge cap
applicable to client bonds and pension investments with a duration longer
than ten years.
There will be another, more modest impact in 2024 when the tax rate will be
25% for the full year, with the effect of this being to further reduce our
margin range by 0.01%, resulting in a range from 0.54% to 0.56%. Following the
simplification of our charging structure from the middle of 2025, the range
will reduce by a further 0.11%, resulting in a range from 0.43% to 0.45%,
though this will be applicable to all FUM once the existing gestation FUM has
matured.
Net income from Asia and DFM FUM is not included in this line. Instead, this
is included in the Asia - net investment and DFM - net investment lines.
2. Margin arising from new business
This is the net positive Cash result impact of new business in the year,
reflecting initial charges levied on gross inflows and new-business-related
expenses. The majority of these expenses vary with new business levels, such
as the incremental third-party administration costs of setting up a new policy
on our back-office systems, and payments to Partners for the initial advice
provided to secure clients' investment. As a result, gross inflows are a key
driver behind this line.
However, the margin arising from new business also contains some fixed
expenses, and elements which do not vary exactly in line with gross inflows.
For example, our third-party administration tariff structure includes a fixed
fee, and to provide some stability for Partner businesses, elements of our
support for them are linked to prior-year new business levels.
Therefore, whilst the margin arising from new business tends to move
directionally with the scale of gross inflows generated during the year, the
relationship between the two is not linear.
3. Controllable expenses
Year ended 31 December 2023 Year ended 31 December 2022
£'Million £'Million
Establishment expenses 206.2 198.9
Development expenses 65.3 67.4
Academy 11.8 11.6
Controllable expenses 283.3 277.9
Controllable expenses are those expenses which do not vary with business
volumes, including establishment expenses, development expenses and the costs
associated with running our Academy. Growth in controlled expenses has been
contained to 8% on a pre-tax basis, with the increase driven by the high
inflation environment. This is equivalent to a 2% increase on a post-tax basis
as presented in the Cash result, reflecting an increase in the rate of
corporation tax.
We anticipate returning to our target of 5% annual growth in pre-tax
controllable expenses in 2024, balancing disciplined expense management
with the need to invest in the business for the future.
Establishment expenses in 2023 increased by 4% on a net-of-tax basis to
£206.2 million (2022: £198.9 million), as inflation driven increases were
partially offset by an increased level of tax relief. These costs
predominantly relate to people, property and technology and hence are
relatively fixed in nature.
Development expenses were £65.3 million (2022: £67.4 million). Our
investment in technology, alongside our commitment to making it easier to do
business, is the driver behind our development expenditure. We continue to
improve our technology infrastructure and data quality, and to invest in
Salesforce.
Reflecting its critical role in providing a source of future organic growth in
our adviser population, we continue to invest in building our Academy
programme.
4. Asia and DFM
These lines represent the net income from Asia and DFM FUM, they include the
Asia and DFM expenses set out in the reconciliation between expenses presented
separately on the face of the Cash result before tax and IFRS expenses.
We have continued to invest in developing our presence in Asia, as well as in
discretionary fund management via Rowan Dartington. The increased investment
in Asia includes the cost of restructuring during the year, as well as the
cost of setting up a new office in Dubai. While both Asia and Rowan
Dartington have been impacted by the challenging market conditions in 2023,
they remain well positioned for the years ahead.
5. Regulatory fees and FSCS levy
The costs of operating in a regulated sector include regulatory fees and the
Financial Services Compensation Scheme (FSCS) levy. On a post-tax basis, these
are as follows:
Year ended 31 December 2023 Year ended 31 December 2022
£'Million £'Million
FSCS levy 10.0 27.3
Regulatory fees 13.1 12.7
Regulatory fees and FSCS levy 23.1 40.0
Our position as a market-leading provider of advice means we make a
substantial contribution to supporting the FSCS, thereby providing protection
for clients of other businesses in the sector that fail. The FSCS levy has
fallen substantially in 2023, reflecting the short-term utilisation of scheme
surpluses that had built up in prior years. The levy is anticipated
to increase again in 2024.
6. Shareholder interest
This is the income accruing on investments and cash held for regulatory
purposes together with the interest received on the surplus capital held by
the Group. It is presented net of funding-related expenses, including interest
paid on borrowings and securitisation costs. It has increased significantly
during the year following rises in the Bank of England base rate.
7. Tax relief from capital losses
A deferred tax asset was previously recognised under IFRS for historic capital
losses which were regarded as being capable of utilisation over the medium
term. The tax asset is ignored for Cash result purposes as it is not fungible,
but instead the cash benefit realised when losses are utilised is shown in the
tax relief from capital losses line.
Utilisation during the year of £2.1 million tax value (2022: £20.7 million)
reflects the utilisation in full of the remaining stock of capital losses.
Due to the exhaustion of the balance, this will not feature in the Cash result
in the future.
8. Charge structure implementation costs
We announced in October 2023 that we would be simplifying our charging
structure and disaggregating our charges into their component parts,
supporting clients by making it easier to compare charges for advice,
investment management and other services, on a component-by-component basis.
We have commenced a broad and complex programme to accommodate these changes,
investing £140-160 million over a two-year period to develop our systems and
processes to support the new charging structure to be implemented in the
second half of 2025.
9. Miscellaneous
This category represents the net cash flow of the business not covered in any
of the other categories. Miscellaneous has increased in 2023, reflecting an
increase in remediation costs as a result of elevated complaints experience.
10. Ongoing Service Evidence provision
The Ongoing Service Evidence provision has been established following the
appointment of a skilled person and an assessment undertaken into the
evidencing and delivery of historic ongoing servicing. The anticipated cost of
refunding ongoing servicing charges, together with the interest, and the
administrative costs associated with completing the work, is reflected in our
Financial Statements through an Ongoing Service Evidence provision of £426.0
million, which is £323.7 million net of tax (and a deferred tax balance)
within the Cash result.
Reconciliation of Cash result expenses to IFRS expenses
Whilst certain expenses are recognised in separate line items on the face of
the Cash result, expenses which vary with business volumes, such as payments
to Partners and third-party administration expenses, and expenses which relate
to investment in specific areas of the business such as DFM, are netted from
the relevant income lines rather than presented separately. In order to
reconcile to the IFRS expenses presented on the face of the Consolidated
Statement of Comprehensive Income, the expenses netted from income lines in
the Cash result need to be added in, as do certain IFRS expenses which by
definition are not included in the Cash result. In addition, all expenses need
to be converted from post-tax, as they are presented in the Cash result, to
pre-tax, as they are presented under IFRS.
Expenses presented on the face of the Cash result before and after tax are set
out below.
Year ended 31 December 2023 Year ended 31 December 2022
Before tax Tax rate After tax Before tax Tax rate After tax
£'Million Percentage £'Million £'Million Percentage £'Million
Controllable expenses
Establishment expenses 269.6 23.5% 206.2 245.5 19.0% 198.9
Development expenses 85.4 23.5% 65.3 83.2 19.0% 67.4
Academy 15.4 23.5% 11.8 14.3 19.0% 11.6
Total controllable expenses 370.4 283.3 343.0 277.9
Other costs presented separately
on the face of the Cash result
Regulatory fees and FSCS levy 30.2 23.5% 23.1 49.4 19.0% 40.0
Charge structure implementation costs 9.4 23.5% 7.2 - - -
Total expenses presented separately 410.0 313.6 392.4 317.9
on the face of the Cash result
The total expenses presented separately on the face of the Cash result before
tax then reconcile to IFRS expenses as set out below.
Year ended 31 December 2023 Year ended 31 December 20221,2
£'Million £'Million
Total expenses presented separately on the face of the Cash result before tax 410.0 392.4
Expenses which vary with business volumes
Other performance costs 147.4 160.4
Payments to Partners 1,013.2 1,011.8
Investment expenses 96.9 85.7
Third-party administration 151.8 135.0
Other 513.3 44.5
Expenses relating to investment in specific areas of the business
Asia expenses 26.5 20.9
DFM expenses 33.3 35.7
Total expenses included in the Cash result 2,392.4 1,886.4
Reconciling items to IFRS expenses
Amortisation of DAC and PVIF, net of additions 35.5 45.5
Equity-settled share-based payment expenses 5.4 20.5
Insurance contract expenses presented elsewhere 2.4 (4.5)
Other (2.4) 1.3
Total IFRS Group expenses before tax 2,433.3 1,949.2
1 Restated to reflect the adoption of IFRS 17. See Note 1a.
2 Restated to reclassify other finance income. See Note 1a.
Expenses which vary with business volumes
Other performance costs vary with the level of new business and the operating
profit performance of the business.
Payments to Partners, investment expenses and third-party administration costs
are met through charges to clients, and so any variation in them from changes
in the volumes of new business or the level of the stock markets does not
impact Group profitability significantly.
Each of these items is recognised within the most relevant line of the Cash
result, which is determined based on the nature of the expense. In most cases,
this is either the net annual management fee or margin arising from new
business lines.
Other expenses includes the provision that we have established following a
review into the evidencing of historic ongoing servicing, as well as the
operating costs of acquired financial adviser businesses, donations to the
St. James's Place Charitable Foundation and complaint costs. They are
recognised across various lines in the Cash result.
Expenses relating to investment in specific areas of the business
Asia expenses and DFM expenses both reflect disciplined expense control during
the year, whilst continuing to invest to support growth. The increased
investment in Asia includes the cost of restructuring during the year.
In the Cash result, Asia and DFM expenses are presented net of the income they
generate in the Asia - net investment and DFM - net investment lines.
Reconciling items to IFRS expenses
DAC amortisation, net of additions, PVIF amortisation and equity-settled
share-based payment expenses are the primary expenses which are recognised
under IFRS but are excluded from the Cash result.
Expenses associated with insurance contract expenses are included in the Cash
result but are shown within the Insurance service expense rather than the
expenses line under IFRS 17.
Derivation of the Cash result
The Cash result is derived from the IFRS Consolidated Statement of Financial
Position in a two-stage process:
Stage 1: Solvency II Net Assets Balance Sheet
Firstly, the IFRS Consolidated Statement of Financial Position is adjusted for
a number of material balances that reflect policyholder interests in
unit-linked liabilities together with the underlying assets that are held to
match them. Secondly, it is adjusted for a number of non-cash 'accounting'
balances such as DIR, DAC and associated deferred tax. The result of these
adjustments is the Solvency II Net Assets Balance Sheet and the following
table shows the way in which it has been calculated at 31 December 2023.
31 December 2023 Note IFRS Balance Sheet Adjustment 1 Adjustment 2 Solvency II Net Assets Balance Sheet Solvency II Net Assets Balance Sheet: 20221
£'Million £'Million £'Million £'Million £'Million
Assets
Goodwill 33.6 - (33.6) - -
Deferred acquisition costs 304.4 - (304.4) - -
Purchased value of in-force business 8.0 - (8.0) - -
Computer software 28.0 - (28.0) - -
Property and equipment 1 153.1 - - 153.1 145.7
Deferred tax assets 1 2 36.5 - (16.1) 20.4 2.5
Investment in associates 10.2 - - 10.2 1.4
Reinsurance assets 1 13.0 - (6.3) 6.7 5.6
Other receivables 1 3 2,997.4 (846.9) (3.2) 2,147.3 1,369.2
Income tax assets 7 - - - - 35.0
Investment property 1,110.3 (1,110.3) - - -
Equities 116,761.5 (116,761.5) - - -
Fixed income securities 4 27,244.7 (27,236.5) - 8.2 7.9
Investment in Collective Investment Schemes 4 13,967.5 (12,513.1) - 1,454.4 1,271.7
Derivative financial instruments 3,420.6 (3,420.6) - - -
Cash and cash equivalents 4 6,204.3 (5,918.9) - 285.4 253.3
Total assets 172,293.1 (167,807.8) (399.6) 4,085.7 3,092.3
Liabilities
Borrowings 5 251.4 - - 251.4 163.8
Deferred tax liabilities 2 411.7 - 2.8 414.5 165.1
Insurance contract liabilities 1 496.0 (435.2) (42.6) 18.2 17.9
Deferred income 491.5 - (491.5) - -
Other provisions 6 500.1 - - 500.1 46.0
Other payables 1 1, 3 2,388.1 (613.3) (17.8) 1,757.0 1,319.6
Investment contract benefits 123,149.8 (123,149.8) - - -
Derivative financial instruments 3,073.0 (3,073.0) - - -
Net asset value attributable to unit holders 40,536.5 (40,536.5) - - -
Income tax liabilities 7 11.5 - - 11.5 -
Total liabilities 171,309.6 (167,807.8) (549.1) 2,952.7 1,712.4
Net assets 983.5 - 149.5 1,133.0 1,379.9
1 Restated to reflect the adoption of IFRS 17. See Note 1a.
Adjustment 1 strips out the policyholder interest in unit-linked assets and
liabilities, to present solely shareholder-impacting balances.
Adjustment 2 removes items such as DAC, DIR, PVIF and their associated
deferred tax balances from the IFRS Statement of Financial Position to bring
it in line with Solvency II recognition requirements.
Notes to the Solvency II Net Assets Balance Sheet
1. Property and equipment, and other payables
The property and equipment balance includes the right to use leased assets of
£118.5 million (2022: £114.4 million), together with fixtures, fittings and
office equipment of £32.1 million (2022: £28.6 million) and computer
equipment of £2.5 million (2022: £2.7 million).
The right to use leased assets has increased year on year as a result of
taking on a lease for the new London Paddington office, partially offset as
the leased assets are depreciated. Lease liabilities of £120.5 million are
recognised within the other payables line (2022: £116.6 million).
2. Deferred tax assets and liabilities
Analysis of deferred tax assets and liabilities, including how they have moved
year on year, is set out in Note 6 Income and deferred taxes within the IFRS
Financial Statements.
3. Other receivables and other payables
Detailed breakdowns of other receivables and other payables can be found in
Note 7 Other receivables and Note 8 Other payables within the IFRS Financial
Statements.
Other receivables on the Solvency II Net Assets Balance Sheet have increased
from £1,369.2 million at 31 December 2022 to £2,147.3 million at 31
December 2023, principally reflecting an increase in short-term outstanding
market trade settlements in the unit-linked funds and consolidated unit
trusts.
Within other receivables there are two items which merit further analysis:
Operational readiness prepayment asset
One of the items within other receivables is the operational readiness
prepayment asset. This arose from the investment we have made into our
back-office infrastructure project, which was a complex, multi-year programme.
In addition to expensing our internal project costs through the IFRS Statement
of Comprehensive Income and Cash result as incurred, we capitalised Bluedoor
development costs as a prepayment asset on the IFRS Statement of Financial
Position.
The asset, which stood at £283.5 million at 31 December 2023 (31 December
2022: £278.3 million) has been amortising through the IFRS Statement of
Comprehensive Income and the Cash result since 2017 and will continue to do
so over the remaining life of the contract, which at 31 December 2023 is 10
years.
A project to migrate our offshore business onto Bluedoor is in progress, with
£29.9 million added to the total operational readiness prepayment asset
during 2023 that will begin to amortise from 2024.
The movement schedule below demonstrates how the operational readiness
prepayment has developed over the past two years.
2023 2022
£'Million £'Million
Cost
At 1 January 420.2 413.5
Additions during the year 29.9 6.7
At 31 December 450.1 420.2
Accumulated amortisation
At 1 January (141.9) (117.2)
Amortisation during the year (24.7) (24.7)
At 31 December (166.6) (141.9)
Net book value 283.5 278.3
The amortisation expense is recognised within third-party administration
expenses in the IFRS result, and within the net annual management fee line of
the Cash result. It is more than offset by the lower tariff charges on
Bluedoor compared to the previous system, which grew as the business grew,
benefiting both the IFRS and Cash results.
Business loans to Partners
Facilitating business loans to Partners is a key way in which we are able to
support growing Partner businesses. Such loans are principally used to enable
Partners to take over the businesses of retiring or downsizing Partners, and
this process creates broad stakeholder benefits. First, clients benefit from
enhanced continuity of St. James's Place advice and service over time;
second, Partners are able to build and ultimately realise value in the
high-quality and sustainable businesses they have created; and finally, the
Group and, in turn, shareholders, benefit from high levels of adviser and
client retention.
In addition to recognising a strong business case for facilitating such
lending, we recognise too the fundamental strength and credit quality of
business loans to Partners. Over more than ten years, cumulative write-offs
have totalled less than 5 bps of gross loans advanced, with such low
impairment experience attributable to a number of factors that help to
mitigate the inherent credit risk in lending. These include taking a cautious
approach to Group credit decisions, with lending secured against prudent
business valuations. Demonstrating this, loan-to-value (LTV) information is
set out in the table below.
31 December 2023 31 December 2022
Aggregate LTV across the total Partner lending book 29% 32%
Proportion of the book where LTV is over 75% 5% 10%
Net exposure to loans where LTV is over 100% (£'Million) 6.7 7.1
If FUM were to decrease by 10%, the net exposure to loans where LTV is over
100% at 31 December 2023 would increase to £7.7 million (31 December 2022:
increase to £8.3 million).
Our credit experience also benefits from the repayment structure of business
loans to Partners. The Group collects advice charges from clients. Prior to
making the associated payment to Partners, we deduct loan capital and interest
payments from the amount due. This means the Group is able to control
repayments.
During the year we have continued to facilitate business loans to Partners.
Following the sale, in the second half of 2022, of a portfolio of securitised
business loans to Partners, the balance was negligible at 31 December 2022.
Since then, we have continued to make use of the securitisation vehicle to
support the advance of further loans to Partners.
31 December 2023 31 December 2022
£'Million £'Million
Total business loans to Partners 408.0 315.6
Split by funding type:
Business loans to Partners directly funded by the Group 340.8 315.6
Securitised business loans to Partners 67.2 -
4. Liquidity
Cash generated by the business is held in highly rated government securities,
AAA-rated money market funds and bank accounts. Although these are all highly
liquid, only the latter is classified as cash and cash equivalents on the
Solvency II Net Assets Balance Sheet. The total liquid assets held are as
follows.
31 December 2023 31 December 2022
£'Million £'Million
Fixed interest securities 8.2 7.9
Investment in Collective Investment Schemes (AAA-rated money market funds) 1,454.4 1,271.7
Cash and cash equivalents 285.4 253.3
Total liquid assets 1,748.0 1,532.9
The Group's primary source of net cash generation is product charges. In line
with profit generation, as most of our investment and pension business enters
a gestation period, there is no cash generated (apart from initial charges)
for the first six years of an investment. This means that the amount of FUM
that is contributing to the Cash result will increase year on year
as FUM in the gestation period becomes mature and is subject to annual
product management charges. Unit trust and ISA business does not enter the
gestation period, and so generates cash immediately from the point of
investment.
Cash is used to invest in the business and to pay the Group dividend. Our
dividend guidance is set such that appropriate cash is retained in the
business to support the investment needed to meet our future growth
aspirations.
5. Borrowings
The Group continues to pursue a strategy of diversifying and broadening its
access to debt finance. We have done this successfully over time, including
via the creation and execution of the securitisation vehicle referred to
above. For accounting purposes we are obliged to disclose on our Consolidated
Statement of Financial Position the value of loan notes relating to the
securitisation. However, as the securitisation loan notes were secured only on
the securitised portfolio of business loans to Partners, they were
non-recourse to the Group's other assets. This means that the senior tranche
of non-recourse securitisation loan notes, whilst included within borrowing,
is very different from the Group's senior unsecured corporate borrowings,
which are used to manage working capital and fund investment in the business.
Further information is provided in Note 10 Borrowings and financial
commitments within the IFRS Financial Statements.
31 December 2023 31 December 2022
£'Million £'Million
Corporate borrowings: bank loans 50.0 -
Corporate borrowings: loan notes 151.1 163.8
Senior unsecured corporate borrowings 201.1 163.8
Senior tranche of non-recourse securitisation loan notes 50.3 -
Total borrowings 251.4 163.8
During the year our revolving credit facility, one of our primary senior
unsecured corporate borrowings facilities, was renewed. The credit available
under this facility is £345 million, which is repayable at maturity in 2028.
6. Other provisions
Further information on other provisions, including how the balance has moved
year on year, is set out in Note 9 Other provisions and contingent liabilities
within the IFRS Financial Statements.
Provisions have increased from £46.0 million at 31 December 2022 to £500.1
million at 31 December 2023, driven by a £426.0 million Ongoing Service
Evidence provision that we have established following a review into the
evidencing and delivery of historic ongoing servicing.
7. Income tax liabilities
The Group has an income tax liability of £11.5 million at 31 December 2023
compared to an asset of £35.0 million at 31 December 2022. This is due to a
current tax charge of £225.3 million, tax paid in the year of £179.4 million
and other impacts of £0.6 million including those related to the acquisition
of Group entities. Further detail is provided in Note 6 Income and deferred
taxes.
Stage 2: Movement in Solvency II Net Assets Balance Sheet
After the Solvency II Net Assets Balance Sheet has been determined, the second
stage in the derivation of the Cash result identifies a number of movements in
that balance sheet which do not represent cash flows for inclusion within the
Cash result. The following table explains how the overall Cash result
reconciles to the total movement.
Year ended 31 December 2023 Year ended 31 December 2022
£'Million £'Million
Opening Solvency II net assets 1,379.9 1,245.3
Dividend paid (289.9) (303.9)
Issue of share capital and exercise of options 6.8 14.5
Consideration paid for own shares (0.5) (0.3)
Change in deferred tax (24.9) (30.5)
Impact of policyholder tax asymmetry (44.4) 50.6
Reassurance recapture add-back 39.8 -
Change in goodwill, intangibles and other non-cash movements (2.5) (10.9)
Non-controlling interests arising on the part-disposal of subsidiaries - 5.0
Cash result 68.7 410.1
Closing Solvency II net assets 1,133.0 1,379.9
2.3 European Embedded Value (EEV)
Wealth management differs from most other businesses, in that the expected
shareholder income from client investment activity emerges over a long period
in the future. We therefore supplement the IFRS and Cash results by providing
additional disclosure on an EEV basis, which brings into account the net
present value of the expected future cash flows. We believe that a measure of
the total economic value of the Group's operating performance is useful to
investors.
As in previous reporting, our EEV continues to be calculated on a basis
determined in accordance with the EEV principles originally issued in May 2004
by the Chief Financial Officers Forum (CFO Forum) and supplemented both in
October 2005 and, following the introduction of Solvency II, in April 2016.
Many of the principles and practices underlying EEV are similar to the
requirements of Solvency II, and we have sought to align them as closely as
possible. The table below and accompanying notes summarise the (loss)/profit
before tax of the combined business.
Note Year ended 31 December 2023 Year ended 31 December 2022
£'Million £'Million
Funds management business 1 1,234.3 1,725.8
Distribution business 2 (68.3) (58.8)
Other 3 (125.0) (77.3)
EEV operating profit before exceptional items 1,041.0 1,589.7
Exceptional item: Charge structure 4 (2,506.6) -
Exceptional item: Ongoing Service Evidence provision 4 (426.0) -
EEV operating (loss)/profit after exceptional items (1,891.6) 1,589.7
Investment return variance 5 501.7 (1,314.0)
Economic assumption changes 6 2.5 235.1
EEV (loss)/profit before tax (1,387.4) 510.8
Tax 340.3 (139.4)
EEV (loss)/profit after tax (1,047.1) 371.4
A reconciliation between EEV operating (loss)/profit before tax and IFRS
profit before tax is provided in Note 3 Segment reporting within the IFRS
Financial Statements.
Notes to the EEV result
1. Funds management business EEV operating profit
The funds management business operating profit has reduced to £1,234.3
million (2022: £1,725.8 million) and a full analysis of the result is shown
below.
Year ended 31 December 2023 Year ended 31 December 2022
£'Million £'Million
New business contribution 695.4 977.2
Profit from existing business
- unwind of the discount rate 506.0 440.7
- experience variance (11.3) 89.0
- operating assumption change 13.9 210.1
Investment income 30.3 8.8
Funds management EEV operating profit 1,234.3 1,725.8
The new business contribution for the year at £695.4 million (2022: £977.2
million) was 29% lower than the prior year, reflecting the reduction in new
business volumes, together with the impact of changes to our charging
structure described opposite.
The unwind of the discount rate for the year was higher at £506.0 million
(2022: £440.7 million), reflecting the increase in the opening risk discount
rate to 7.0% (2022: 4.2%), offset by a lower value of in-force business after
allowing for the changes to our charging structure described opposite.
The experience variance during the year was £(11.3) million (2022: £89.0
million). The change relative to 2022 principally reflects the lower
persistency experience in the year.
The impact of operating assumption changes in the year was £13.9 million
(2022: positive £210.1 million), reflecting a small change to the
persistency assumptions for our offshore bond business. The impact in the
prior year reflects a small improvement to the persistency assumptions for
unit trust and ISA business.
2. Distribution business
The distribution loss includes the positive gross margin arising from advice
income less payments to advisers, offset by the costs of supporting the
Partnership and building distribution capabilities in Asia. The reported loss
has benefited from a reduction in the FSCS levy expense for our distribution
business to £10.6 million (2022: £23.8 million), offsetting a reduction in
the gross margin reflecting lower new business volumes.
3. Other
Other represents a number of miscellaneous items including development
expenditure, the costs of running our Academy and implementing our new
charging structure, as well as the cost of redress associated with client
complaints. The increase reflects elevated complaints experience seen during
the year.
4. Exceptional items:
The exceptional charge reflects the impact on the opening position of changes
to our charge structure announced during the year as well as the impact of a
provision that we have established following a review into the evidencing of
historic ongoing servicing. The changes announced to our charge structure
include:
· the change, announced in July 2023, to improve value for
long-term clients by capping annual product management charges at 0.85% for
bond and pension investments with a duration longer than ten years;
· the change, announced in October 2023, to simplify our charging
structure from the middle of 2025.
5. Investment return variance
The investment return variance reflects the capitalised impact on the future
annual management fees resulting from the difference between the actual and
assumed investment returns. Given the size of our FUM, a small difference can
result in a large positive or negative variance.
The typical investment return on our funds during the year was 11.2% after
charges, compared to the assumed investment return of 4.8%. This resulted in
an investment return variance of £501.7 million (2022: negative £1,314.0
million).
6. Economic assumption changes
The positive variance of £2.5 million arising in the year (2022: positive
£235.1 million) reflects broadly neutral economic assumption changes overall,
compared to the significant increase in real yields seen in the prior year.
New business margin
The largest single element of the EEV operating profit (analysed in the
previous section) is the new business contribution. The level of new business
contribution generally moves in line with new business levels. To demonstrate
this link, and aid understanding of the results, we provide additional
analysis of the new business margin (the margin). This is calculated as the
new business contribution divided by the gross inflows, and is expressed as a
percentage.
The table below presents the margin before tax from our manufactured business.
Year ended 31 December 2023 Year ended 31 December 2022
Investment
New business contribution (£'Million) 96.6 148.2
Gross inflows (£'Billion) 2.09 2.31
Margin (%) 4.6 6.4
Pension
New business contribution (£'Million) 469.2 495.3
Gross inflows (£'Billion) 9.77 9.90
Margin (%) 4.8 5.0
Unit trust and DFM
New business contribution (£'Million) 129.6 333.7
Gross inflows (£'Billion) 3.53 4.82
Margin (%) 3.7 6.9
Total business
New business contribution (£'Million) 695.4 977.2
Gross inflows (£'Billion) 15.39 17.03
Margin (%) 4.5 5.7
Post-tax margin (%) 3.4 4.3
The overall margin for the year was 4.5% (2022: 5.7%), reflecting the impact
of the impact of exceptional changes to our charge structure.
Economic assumptions
The principal economic assumptions used within the cash flows at 31 December
are set out below.
Year ended 31 December 2023 Year ended 31 December 2022
Risk-free rate 3.7% 3.9%
Inflation rate 3.5% 3.6%
Risk discount rate 6.8% 7.0%
Future investment returns:
- Gilts 3.7% 3.9%
- Equities 6.7% 6.9%
- Unit-linked funds 6.0% 6.2%
The risk-free rate is set by reference to the yield on ten-year gilts. Other
investment returns are set by reference to the risk-free rate.
The inflation rate is derived from the implicit inflation in the valuation of
ten-year index-linked gilts. This rate is increased to reflect higher
increases in earnings-related expenses.
EEV sensitivities
The table below shows the estimated impact on the reported value of new
business and EEV to changes in various EEV-calculated assumptions. The
sensitivities are specified by the EEV principles and reflect reasonably
possible levels of change. In each case, only the indicated item is varied
relative to the restated values.
Note Change in new business contribution Change in European Embedded Value
Pre tax Post tax Post tax
£'Million £'Million £'Million
Value at 31 December 2023 695.4 524.7 7,739.1
100bp reduction in risk-free rates, with corresponding change in fixed 1 (10.8) (8.2) (63.6)
interest asset values
10% increase in withdrawal rates 2 (44.9) (33.8) (364.1)
10% reduction in market value of equity assets 3 - - (745.3)
10% increase in expenses 4 (10.0) (7.6) (72.1)
100bps increase in assumed inflation 5 (12.2) (9.2) (68.4)
Notes to the EEV sensitivities
1. This is the key economic basis change sensitivity. The business model is
relatively insensitive to change in economic basis. Note that the sensitivity
assumes a corresponding change in all investment returns but no change in
inflation.
2. The 10% increase is applied to the withdrawal rate. For instance, if the
withdrawal rate is 8% then a 10% increase would reflect a change to 8.8%.
3. For the purposes of this sensitivity all unit-linked funds are assumed to
be invested in equities. The actual mix of assets varies and in recent years
the proportion invested directly in UK and overseas equities has exceeded 70%.
4. For the purposes of this sensitivity only non-fixed elements of the
expenses are increased by 10%.
5. This reflects a 100bps increase in the assumed RPI underlying the expense
inflation calculation.
Change in new business contribution Change in European Embedded Value
Pre tax Post tax Post tax
£'Million £'Million £'Million
100bps reduction in risk discount rate 94.0 70.6 619.6
Although not directly relevant under a market-consistent valuation, this
sensitivity shows the level of adjustment which would be required to reflect
differing investor views of risk.
Analysis of the EEV result
The table below provides a summarised breakdown of the embedded value position
at the reporting dates.
31 December 2023 31 December 2022
£'Million £'Million
Value of in-force business 6,606.1 7,684.8
Solvency II net assets 1,133.0 1,379.9
Total embedded value 7,739.1 9,064.7
31 December 2023 31 December 2022
£ £
Net asset value per share 14.11 16.66
The EEV result above reflects the specific terms and conditions of our
products. Our pension business is split between two portfolios. Our current
product, the Retirement Account, was launched in 2016 and incorporates both
pre-retirement and post-retirement phases of investment in the same product.
Earlier business was written in our separate Retirement Plan and Drawdown Plan
products, targeted at each of the two phases separately, and therefore has a
slightly shorter term and lower new business margin.
Our experience is that much of our Retirement Plan business converts into
Drawdown Plan business at retirement, but, in line with the EEV guidelines,
we are required to defer recognition of the additional value from the Drawdown
Plan until it crystallises. If instead we were to assess the future value of
Retirement Plan business (beyond the immediate contract boundary) in a more
holistic fashion, in line with Retirement Account business, this would result
in an increase of approximately £250 million to our embedded value at 31
December 2023 (31 December 2022: £340 million).
Section 3
Solvency
St. James's Place has a business model and risk appetite that result in
underlying assets being held that fully match our obligations to clients. Our
clients can access their investments 'on demand' and because the encashment
value is matched, movements in equity markets, currency markets, interest
rates, mortality, morbidity and longevity have very little impact on our
ability to meet liabilities. We also have a prudent approach to investing
shareholder funds and surplus assets in cash, AAA-rated money market funds and
highly rated government securities. The overall effect of the business model
and risk appetite is a resilient solvency position capable of enabling
liabilities to be met even during adverse market conditions.
Our Life businesses are subject to the Solvency II capital regime which
applied for the first time in 2016. Given the relative simplicity of our
business compared to many, if not most, other organisations that fall within
the scope of Solvency II, we have continued to manage the solvency of the
business on the basis of holding assets to match client unit-linked
liabilities plus a management solvency buffer (MSB). This has ensured that not
only can we meet client liabilities at all times (beyond the Solvency II
requirement of a '1-in-200-years' event), but we also have a prudent level of
protection against other risks to the business. At the same time, we have
ensured that the resulting capital held meets with the requirements of the
Solvency II regime, to which we are ultimately accountable.
For the year ended 31 December 2023 we reviewed the level of our MSB for the
Life businesses, and chose to maintain it at £355.0 million (31 December
2022: £355.0 million).
The Group's overall Solvency II net assets position, MSB, and management
solvency ratios are as follows.
31 December 2023 Life( )1 Other regulated Other 1,2 Total 31 December 2022 total
£'Million £'Million £'Million £'Million £'Million
Solvency II net assets before exceptional item 446.9 354.7 655.1 1,456.7 1,379.9
MSB 355.0 174.5 - 529.5 532.7
Management solvency ratio before exceptional item 126% 203%
Exceptional item: Ongoing Service Evidence provision - (323.7) - (323.7) -
Capitalisation after the end of the reporting period - 323.7 (323.7) - -
Solvency II net assets 446.9 354.7 331.4 1,133.0 1,379.9
1 After payment of year-end intra-Group dividend.
2 Before payment of the Group final dividend.
Our regulated wealth management business has been impacted by an exceptional
item, being the recognition of an Ongoing Service Evidence provision. On 27
February 2024, the Group completed a capital injection into the regulated
wealth management business, of which £323.7 million was used to meet the cost
of the Ongoing Service Evidence provision. The liquidity necessary to support
this capital injection was provided by a £260.0 million intra-Group
dividend, together with a £190.0 million intra-Group loan, both from St
James's Place UK plc, our main life company.
Solvency II Balance Sheet
Whilst we focus on Solvency II net assets and the MSB to manage solvency, we
provide additional information about
the Solvency II free asset position for information. The presentation starts
from the same Solvency II net assets, but
includes recognition of an asset in respect of the expected value of in-force
(VIF) cash flows and a risk margin (RM)
reflecting the potential cost to secure the transfer of the business to a
third party. The Solvency II net assets, VIF and RM
comprise the 'own funds', which are assessed against our regulatory solvency
capital requirement (SCR), reflecting the
capital required to protect against a range of '1-in-200' stresses. The SCR is
calculated on the standard formula
approach. No allowance has been made for transitional provisions in the
calculation of technical provisions or the SCR.
During the year, we announced the outcome of an internal review which will see
us simplify our charging structure from the second half of 2025, addressing
the evolution over time of an external environment that is increasingly
seeking simple comparability of all advice, investment management and other
services on a component-by-component basis. As a result of this disaggregation
of charges, the proportion of Group profit that will arise within our life
companies will reduce, in favour of increased profit emergence in our other
regulated companies. Reflecting the different regulatory treatment of these
businesses, the effect of this change is to reduce the value of in-force, risk
margin and the solvency capital requirements associated with our life
companies at 31 December 2023, with a corresponding increase in the solvency
ratio.
The solvency ratio has been further improved by the confirmation in December
2023 of a number of regulatory changes to the calculation of the risk margin
as part of a wider package of Solvency II reform, with the effect being a
material reduction in the risk margin.
An analysis of the Solvency II position for our Group, split by regulated and
non-regulated entities at the year-end,
is presented in the table below.
31 December 2023 Life 1 Other regulated Other 1,2 Total 31 December 2022 total
£'Million £'Million £'Million £'Million £'Million
Solvency II net assets before exceptional item 446.9 354.7 655.1 1,456.7 1,379.9
Value of in-force (VIF) 2,485.2 - - 2,485.2 5,580.4
Risk margin (318.4) - - (318.4) (1,516.4)
Own funds (A) before exceptional item 2,613.7 354.7 655.1 3,623.5 5,443.9
Solvency capital requirement (B) (1,611.5) (116.2) - (1,727.7) (3,522.5)
Solvency II free assets before exceptional item 1,002.2 238.5 655.1 1,895.8 1,921.4
Exceptional item: Ongoing Service Evidence provision - (323.7) - (323.7) -
Capitalisation after the end of the reporting period - 323.7 (323.7) - -
Solvency II free assets 1,002.2 238.5 331.4 1,572.1 1,921.4
Solvency ratio 162% 305% 191% 155%
1 After payment of year-end intra-Group dividend.
2 Before payment of the Group final dividend.
As a result of these key changes, the solvency ratio after payment of the
proposed Group final dividend is 188% at 31 December 2023, increased from
149% at 31 December 2022.
We target a solvency ratio of 130% for St. James's Place UK plc, our largest
insurance subsidiary. The combined solvency ratio for our life companies,
after payment of the year-end intra-Group dividend, is 162% at 31 December
2023 (31 December 2022: 130%).
Solvency II sensitivities
The table below shows the estimated impact on the Solvency II free assets, the
SCR and the solvency ratio of changes in various assumptions underlying the
Solvency II calculations. In each case, only the indicated item is varied
relative to the restated values.
The solvency ratio is not very sensitive to changes in experience or
assumptions and, due to our approach of matching unit-linked liabilities with
appropriate assets, can move counter-intuitively depending on circumstances,
as demonstrated by the sensitivity analysis presented below.
Note Solvency II free assets Solvency II capital requirement Solvency
ratio
£'Million £'Million %
Value at 31 December 2023 1,572.1 1,727.7 191%
100bps reduction in risk-free rates, with corresponding change in fixed 1 1,490.5 1,723.6 186%
interest asset values
10% increase in withdrawal rates 2 1,339.5 1,626.6 182%
10% reduction in market value of equity assets 3 1,543.2 1,417.1 209%
10% increase in expenses 4 1,526.3 1,720.6 189%
100bps increase in assumed inflation 5 1,507.8 1,723.9 187%
Notes to the Solvency II sensitivities
1. This is the key economic basis change sensitivity. The business model is
relatively insensitive to change in economic basis. Note that the sensitivity
assumes a corresponding change in all investment returns but no change in
inflation.
2. The 10% increase is applied to the lapse rate. For instance, if the lapse
rate is 8% then a 10% increase would reflect a change to 8.8%.
3. For the purposes of this sensitivity all unit-linked funds are assumed to
be invested in equities. The actual mix of assets varies and in recent years
the proportion invested directly in UK and overseas equities has exceeded 70%.
The sensitivity reflects the impact of changes in the equity dampener on
market risk capital.
4. For the purposes of this sensitivity all expenses are increased by 10%.
5. This reflects a 100bps increase in the assumed RPI underlying the expense
inflation calculation.
Risk and Risk Management
Effective risk management
Overview and culture
The business activities and the industry within which the Group operates
expose us to a wide variety of inherent risks. Therefore, effective risk
management, underpinned by a strong risk and control culture, is critical to
our success. We rigorously identify and assess risks, agree our appetite for
those risks, and then manage them accordingly. When assessing risks and
deciding on the appropriate response we consider the potential impacts and
harms these risks could have on our key stakeholders: clients, advisers,
shareholders, regulators, employees and society.
The inherent risk environment faced by the Group changes over time as
emerging factors and trends (including macroeconomic factors, regulation,
cyber crime, climate change, and political risks such as changes in taxation)
may impact on our short- and/or longer-term profitability. Under the
leadership, direction and oversight of our Board, these risks are carefully
assessed and managed in accordance with our strategic objectives and to meet
our obligations towards our clients, shareholders, regulators and other key
stakeholders.
We do not, and cannot, seek to eliminate risk entirely; rather we aim to
understand our risks and deal with them appropriately. The emphasis is on
applying effective risk management strategies, so that all material risks are
identified and managed within the agreed risk appetite. Risk management is
linked to culture and therefore is a core aspect of our governance and
decision-making.
Risk management forms a key part of our strategic and business processes,
including decisions on strategic developments affecting our client and Partner
propositions, investments, change delivery, recruitment and retention, and
dividend payments.
Our risk appetite
The Board sets its appetite for taking risk in the context of the Group's
strategic objectives. These choices are set out in detail in our Group risk
appetite statement, which is reviewed at least annually by the Group
Executive Committee, senior risk owners and the Group Risk Committee before
being approved by the Board. The Group risk appetite statement also provides a
mechanism to record the key individuals within the Group who have
responsibility for managing particular risks. It also informs the risk
appetite statements prepared for and approved by the regulated subsidiary
boards within the Group.
The Group risk appetite statement includes a risk appetite scale. This scale
has several risk acceptance levels, ranging from no appetite for taking risks
at all, through to acceptance of risk. The level of risk we are willing to
accommodate will vary depending on individual risk scenarios. Risk appetite
can and will change over time, sometimes rapidly as economic and business
environment conditions change, and therefore the statement is an evolving
document.
A comprehensive suite of key risk indicators (KRIs) is incorporated into
regular risk reporting, alongside qualitative information, to enable the
Group Risk Committee, on behalf of the Board, to monitor the Group's risk
profile.
Our risk management and control framework
The internal control environment is built upon a strong risk and control
culture and organisational assignment of responsibility. The 'first line'
business is responsible and accountable for risk management. This is then
overlaid with oversight and challenge from the 'second line' risk and
compliance functions, with independent assurance from the 'third line'
internal audit function to form a 'three lines of defence' model.
The risk management and control framework is a combination of processes by
which the Group identifies, assesses, measures, manages and monitors the risks
that may impact the successful delivery of its strategic objectives and its
ability to meet obligations towards clients, regulators and other key
stakeholders. Based upon our risk appetite, the risks identified are either
accepted or appropriate actions are taken to mitigate them.
The Board, through the Group Risk Committee, takes an active role in
overseeing the risk management and control framework, for which it is
responsible. To this end the Board robustly assesses its principal and
emerging risks, which are considered in regular reporting and summarised
annually in the Group's own risk and solvency assessment (ORSA). Further
information on this is provided overleaf.
On behalf of the Board, the Group Audit Committee takes responsibility for
assessing the effectiveness of the Group's risk management and internal
control systems, covering all material controls, including financial,
operational and compliance controls. It does this by monitoring the
effectiveness of the internal control model throughout the year, which is
supplemented by an annual review of risk and control self-assessments
accompanied by executive-level attestations. The risk management and internal
control systems have been in place for the year under review and up to the
date of approval of the Annual Report and Accounts.
The Board receives regular reports from the Group Risk Committee and Group
Audit Committee and approves key aspects of the Group's risk management and
control framework including the risk appetite statement and Group ORSA.
Own risk and solvency assessment (ORSA)
We are classified as an insurance group and are subject to Solvency II
insurance regulation. A key part of this regulation requires a consistent
approach to risk management across the Group, supported by the production of
an annual ORSA.
The ORSA process follows an annual cycle, which applies comprehensive risk
assessments to the business's activity, and ensures the Group is resilient to
stresses in both the short term and over a five-year period.
The Solvency Capital Requirement for insurers allows for at least a
'1-in-200-year' risk event over a one-year time horizon. In addition, severe
stresses and scenarios are used to help provide insight into the ability to
maintain regulatory capital in such conditions. Our results show that it would
be possible to maintain regulatory capital across the Group under all stresses
for the business planning horizon. This assists us when considering the
calculations and allocation of risk capital to all major risks in the Group,
and the adequacy of capital positions.
The ORSA uses a five-year projection period for the medium term. Due to the
gestation period on some of our current pension and investment product ranges
we do not earn annual management fees on these in the first six years.
The revised charging structure, which will be launched in mid-2025, will have
no gestational period and will instead earn annual management fees from year
1.
The ORSA is particularly useful in assessing viability, as it involves
a comprehensive assessment of risks and capital requirements for the
business.
For example, consideration is given to factors or events that impact on the
income from funds under management such as market movements, retention of
clients or ability to attract new clients. We also consider factors which
impact costs, such as inflation, non-inflationary expense increases and
operational event-related losses. Combinations of these factors are used to
form scenarios which are tested, providing for more extreme combinations of
events. This scenario testing process was used to inform strategic decisions
relating to 2023.
The scenarios are used to assess both the immediate impact of an event and the
impact over the longer term (in the wake of an event). In addition to a
standard set of extreme 'combination' scenarios which we test every year,
assessments are also completed based on more current/topical or emerging risk
exposures affecting the Group or financial services more generally.
The ORSA assists decision-making by bringing together the following:
· strategic planning;
· risk appetite consideration;
· risk identification and management; and
· capital planning and management.
The ORSA continues to evolve and further strengthen risk management processes
throughout the Group.
Current risk environment
There was a complex and rapidly evolving macroeconomic risk picture through
2022 and 2023, which was exacerbated in the UK by political turmoil. We expect
to see challenges at a national level in 2024 and beyond as people and
businesses continue to adjust to a higher interest rate environment and the
higher cost of living. This is despite the fact that towards the end of 2023,
inflation appeared to be on a trajectory to return towards the Bank of
England's target and interest rates are expected to reduce over 2024. We are
also mindful of potential longer term risks relating to changes in tax policy
which could affect the amount our clients have available to save and how much
tax they pay on income (particularly with tax thresholds frozen)
and investments. However, with 2024 being an election year, we do not expect
taxes to rise further in the very short term. We also recognise an opportunity
for our advisers, through ongoing financial advice, to support clients in
managing their financial affairs in a volatile market; to combat the effects
of inflation on the standard of living they are aiming for in retirement; and
to remain tax-efficient in their savings as the tax landscape changes. We are
also mindful of the potential for global geopolitical tensions to escalate,
which could have relevance to the Group through impacts on financial markets
and through heightened cyber risk.
In October SJP announced important changes to its costs and charges for
clients, which are expected to come into force through 2024 and into mid-2025.
To date there has been minimal reaction from clients to these changes;
however, we are at the start of an important period of communication and
engagement with them to ensure that they understand how their charges will
change. We believe the change improves our proposition for clients and as such
will have long-term benefits for the business. It also reflects the Group's
long-term commitment to improving client outcomes.
Although the new charging structure will not be launched until mid-2025, a
significant amount of the systems development that is required will be
conducted in 2024. We are conscious of the risk introduced through this
significant project and the need for strong change practices and careful
management. We believe the timeline is realistic for safely implementing the
changes and we have a positive track record, including recent large-scale
system migrations.
Whilst we consistently aim to achieve good outcomes for our clients, we have
reconsidered all our client-focused activities and challenged where there may
be features that could inadvertently lead to, or insufficiently mitigate,
risk of harm to clients. This includes gathering further evidence from our
clients on their understanding of our key literature and making changes to
enhance the evidence we record to monitor and assess the value delivered to
clients. For example, this has led to changes which will give more consistent,
centralised evidence of the activities of the Partnership with clients and
reduce the risk of clients not receiving an ongoing advice service of value to
them. During the year the Group has experienced elevated levels of complaints
principally in connection with the delivery of historic ongoing advice
services. Given the claims experience and further analysis the Group has
committed to review the sub-population of clients that has been charged for
ongoing advice services since the start of 2018 but where the evidence of
delivery falls below an acceptable standard. A provision has been recognised
at 31 December 2023 which includes an estimated refund of charges.
The emergence of Claims Management Companies (CMC) interest in the Group and
its clients may also have an impact in relation to the ongoing cost of
complaints. This could be through other CMCs targeting the Group, or general
growth in clients seeking redress due to CMC marketing. Alongside our existing
advice standards and checking processes, the actions we have been taking to
develop our proposition; enhanced evidential standards for ongoing advice; and
switching off ongoing advice charges for clients who haven't received an
ongoing advice service are expected to help to further manage the risk, and
mitigate the potential level of complaints over the medium to long term.
Overall, we remain confident in our ability to withstand further challenges
that may or may not emerge from the risk environment, which is described in
more detail below.
Macroeconomic
The macroeconomic risks associated with high inflation, the unwinding of 15
years of low interest rates and the threat of increasing geopolitical tension
are not to be underestimated and the Group is not immune. For instance, whilst
noting that variations in new business flows are not absolutely attributable
to any one factor, the reduction in net and gross new business levels over
2023 is believed to be principally driven by changing economic conditions for
clients. Nevertheless, the Group's business model has demonstrated
resilience, with inflows remaining significantly positive through 2023, and we
continue to be well positioned to survive adverse conditions whilst investing
for long-term growth. We remain mindful of key macroeconomic risks:
· Asset prices could fall if the economic outlook deteriorates.
Asset price falls reduce future profitability but, counter-intuitively,
improve the Group's solvency position in the short to medium term because our
capital requirement reduces at a quicker rate than our own funds. The Group's
financial resilience is demonstrated through stress and scenario testing,
and we remain highly confident in our ability to weather further extreme
market falls, should they occur, although such scenarios would negatively
impact cash generation.
· Whilst inflation has fallen over the last year, there can
be lagging effects (e.g. contractual inflation-related increases) which
render our strategic targets of both limiting growth in controllable expenses
to 5% per annum and investing in the business to support future growth more
difficult jointly to achieve. A key strategic consideration for the business
is value creation through development expenditure which will improve our
proposition for clients and Partners. The inflationary environment also
reduces clients' investable income, resulting in reduced new business and
higher outflows, particularly in the ISA and unit trust products.
· Business loans to advisers continue to have higher interest
payments. However, we have operated careful lending criteria, which we are
confident will limit the number of advisers who could require support, and we
maintain the capacity to do so. Our Field Management team work with advisers
to help them develop their businesses and, if required, SJP is able to provide
targeted financial assistance.
Despite the potential macroeconomic risks we believe there are good reasons to
be optimistic about investment opportunities across financial markets, and our
advisers are well placed to advise clients on the benefits of taking
a long-term view and investing or continuing to invest when markets are
relatively low, the advantages of which would have been experienced through
2023.
Regulatory change
Regulatory change is a constant and, amongst the significant regulatory
changes we face, the FCA continues to reinforce the need for firms to embed
the Consumer Duty regulation. We are a client-focused business and
have engaged proactively with this important regulatory initiative. Whilst we
believe that we have consistently aimed to achieve good outcomes for our
clients, we have reconsidered all our client-focused activities and
challenged on how we develop these activities to meet current and
ever-increasing expectations. The business is embedding activity to monitor
and assess clients' outcomes and implementing Consumer Duty requirements for
closed books by July 2024. A very small relative proportion of the Group's
liabilities are in closed book policies; however, we recognise the importance
of these policies to the clients who have them.
Changes to the determination of the risk margin requirement under Solvency II
regulation were applied prior to 31 December 2023. These changes saw a
significant reduction in capital requirements for SJPUK, the Group's UK
insurance company. This has resulted in an improvement in the Solvency II
capital coverage for SJPUK. Whilst recognising the rationale for the change
and the potential benefits of a release of capital, the SJPUK Board is giving
careful consideration to its financial risk appetite and ensuring a prudent
approach to capital management, recognising the interests of SJPUK's clients.
Climate change
Tackling climate change is of high importance. We aim to grow in a sustainable
way, taking a long-term view which ensures we are a force for good for our
clients and the wider world. As an example of how we are putting this into
practice we have pledged that our operations will become climate positive by
2025 and that our investments will be net zero by 2050. More information on
the actions we are taking can be found in the Our Responsible Business section
under climate change.
Climate-change-related risks affect companies in different ways, and
periodically we carefully consider how climate change could impact the Group.
This allows us to identify, understand and manage the risks and opportunities.
Climate change is a driver of market-related risk, be that through physical
climate events or impacts from transitioning away from fossil fuels. Whilst
recognising the unique ways in which climate change can affect individual
investments, our approach to managing this risk is very similar to how we
manage other drivers of market-related risk: namely through our investment
management approach (IMA) and within that our approach to responsible
investing. Through this we aim to take account of climate risks whilst seeking
to deliver returns for clients in line with their risk appetite. Further, to
ensure our resilience as a Group to market movements, our liabilities to
clients are fully matched by our invested assets.
We also consider physical climate-related risks on our business as we look to
enhance our operational resilience. Generally, through the nature of our
operations and the geography in which we operate, the physical risks to our
business are low. We further work to understand the risk to our material third
parties' and engage with them to share and remediate material concerns.
Principal risks and uncertainties
Whilst the risk landscape evolved over the course of the year, the inherent
principal risk areas that the business faces remain consistent with the
previous year. An example of this is that security and resilience remains a
principal risk area and we recognise that the cyber environment continues
to develop, particularly with state-sponsored threats.
The business priority areas which our principal risks impact are set out in
the tables in the following pages, together with the high-level controls and
processes through which we aim to mitigate them. Reputational damage and
impacts to shareholders and other stakeholders are a likely consequence of any
of our principal risks materialising.
The following descriptions are used to indicate which primary business
priorities our principal risks could impact, while recognising that they could
also have a secondary impact on other business priorities:
· Building community
· Being easier to do business with
· Delivering value to advisers and clients through our investment
proposition
· Building and protecting our brand and reputation
· Our culture and being a leading responsible business
· Continued financial strength
Risk description Risk considerations Mitigations/controls
Client proposition Our product proposition fails to meet the needs, objectives and expectations • Investments provide poor returns relative to their benchmarks and/or do • Monitoring of asset allocations across portfolios to consider whether
of our clients. This includes poor relative investment performance and poor not deliver expected client outcomes. they are performing as expected in working towards long-term objectives.
product design.
• Range of solutions does not align with the product and service • Monitoring funds against their objectives, mindful of an appropriate
requirements of our current and potential future clients. level of investment risk.
• Failure to meet client expectations of a sustainable business, not least • Ongoing assessment of value delivered by funds and portfolios versus
in respect of climate change and responsible investing. their objectives.
• Where necessary, fund managers are changed in the most effective way
possible.
• Continuous review and development of the range of services offered to
clients.
• Engagement with fund managers around principles of responsible
investment.
Conduct We fail to provide quality, suitable advice or service to clients. • Advisers deliver poor-quality or unsuitable advice. • Licensing programme which supports the quality of advice and service
from advisers.
• Failure to evidence the provision of good-quality service and advice.
• Technical support helplines for advisers.
• Increasing complaint volumes.
• Client complaint handling process and reporting.
• Evidence of ongoing servicing of clients and charge switch-off process
where ongoing advice has not been provided.
• Review of the provision of ongoing advice services in line with
expectations and acceptable evidential standards, and refund of charges as
appropriate.
• Robust oversight process of the advice provided to clients delivered by
Business Assurance, Field Risk, Advice Guidance and Compliance Monitoring
teams.
• Partner financial monitoring.
Financial We fail to effectively manage the business's finances. • Failure to meet client liabilities. • Policyholder liabilities are fully matched.
• Investment/market risk. • Excess assets appropriately invested in high-quality, high-liquidity
cash and cash equivalents.
• Credit risk.
• Direct lending to the Partnership is secured.
• Liquidity risk.
• Part-reinsurance of insurance risks.
• Insurance risk.
• Ongoing monitoring of all risk exposures and experience analysis.
• Expense risk.
• Setting and monitoring budgets.
• Monitoring and management of subsidiaries' solvency to minimise
Group interdependency.
Partner proposition Our proposition solution fails to meet the needs, objectives and expectations • Failure to attract new members to the Partnership. • Focus on providing a market-leading Partner proposition.
of our current and potential future advisers.
• Failure to retain advisers. • Adequately skilled and resourced population of supporting field
managers.
• Failure to increase adviser productivity.
• Reliable systems and administration support.
• Available technology falls short of client and adviser expectations and
fails to support growth objective. • Expanding the Academy capacity and supporting recruits through the
Academy and beyond.
• The Academy does not adequately support growth of the partnership.
• Market-leading support to Partners' businesses.
People We are unable to attract, retain and organise the right people to run the • Failure to attract and retain personnel with key skills. • Measures to maintain a stable population of employees, including
business.
competitive total reward packages.
• Poor employee engagement.
• Monitoring of employee engagement and satisfaction.
• Failure to create an inclusive and diverse business.
• Employee wellbeing is supported through various initiatives, benefits
• Poor employee wellbeing. and services.
• Our culture of supporting social value is eroded. • Corporate incentives to encourage social value engagement, including
matching of employee charitable giving to the SJP Charitable Foundation.
• Whistleblowing hotline.
Regulatory We fail to meet current, changing or new regulatory and legislative • Failure to comply with existing regulations. • Compliance functions provide guidance and carry out extensive assurance
expectations.
work over the control environment, particularly over highly regulated areas
• Failure to comply with changing regulation or respond to changes in
regulatory expectations. • Maintenance of appropriate solvency capital buffers, and continuous
monitoring of solvency experience.
• Inadequate internal controls.
• Clear accountabilities and understanding of responsibilities across the
business.
• Fostering of positive regulatory relationships.
Security and resilience We fail to adequately secure our physical assets, systems and/or sensitive • Internal or external fraud. • Business continuity planning for SJP and its key suppliers.
information, or to deliver critical business services to our clients.
• Core system failure. • Focus on building and strengthening operational resilience capabilities
and undertaking robust identification, assessment and testing of important
• Corporate, Partnership or third-party information security and cyber business services.
risks.
• Mandatory 'Cyber Essentials Plus' accreditation for Partner practices or
• Disruption in key business services to our clients. use of an SJP 'Device as a Service' solution.
• Clear cyber strategy and data protection roadmap for continuous
development.
• Data leakage detection technology and incident reporting systems.
• Identification, communication, and response planning for a cyber event.
• Group-Executive-Committee-level cyber scenario work to test strategic
response.
• Internal awareness programmes.
Strategy, competition and brand Challenge from competitors and impact of reputational damage. • Unnecessary delays/errors caused by failures in change delivery. • Robust change governance and change management practices, including
testing.
• Increased competitive pressure from traditional and disruptive
(non-traditional) competitors. • Clear demonstration of value delivered to clients through advice,
service and products.
• Cost and charges pressure.
• Investment in improving positive brand recognition.
• Negative media coverage.
• Ongoing development of client and Partner propositions.
• Failure to meet our commitments to net zero.
• Proactive engagement with external agencies including media, industry
groups, shareholders and regulators.
• Clear interim targets to be tracked towards meeting our long-term net
zero targets.
Third parties Third-party outsourcers' activities impact our performance and risk • Operational failures by material outsourcers. • Oversight regime in place to identify prudent steps to reduce risk of
management.
operational failures by material third-party providers.
• Failure of critical services. Significant outsourced areas include:
• Ongoing monitoring, including assessment of operational resilience.
- investment administration
• Due diligence on key suppliers.
- fund management
• Oversight of service levels of our third‑party administration
- custody provider.
- policy administration
- cloud services
Emerging risks
Emerging risks are identified through many activities: conversations and
workshops with stakeholders and governance forums throughout the business,
reviewing academic papers, attending industry events and other horizon
scanning by the Group Risk team.
The purpose of monitoring and reporting emerging risks is to give assurance
that we are well positioned to manage the risks to our future strategy. The
Group Risk Committee reviewed emerging risks during 2023.
Examples of emerging risks that have been considered include:
· economic risks including cost of living and inflation;
· geopolitical factors including consequences of the invasion of
Ukraine and the conflict in Gaza and Israel;
· regulatory framework and increasing regulatory landscape;
· increasing regulation and legislation relating to climate change;
· employee-related risks including future specialist skillset
requirements for areas such as artificial intelligence technologies;
· competitor threat analysis including potential impacts on
Partnership;
· technology enhancements including digitisation and automation,
artificial intelligence and ChatGPT;
· cyber crime threats; and
· energy supply risks including energy blackouts.
Viability statement
How we assess our viability
The business considers five-year financial forecasts when developing its
strategy. These incorporate our budget for the next financial year and four
further years of forecasts based on reasonable central assumptions around the
development of business drivers.
At the core of assessing our viability we seek to understand how different
principal risks could materialise. We consider risks which might present
either in isolation or in combination and which could result in acute shocks
to the business or long-term underperformance against forecasted business
drivers. We consider that a five-year time horizon is sufficiently long to
assess potential impacts and aim to ensure that the business remains viable,
noting that identified management actions could also be taken to restore the
business's prospects.
When considering how the principal risks previously described might impact the
business, we consider our ability to deal with particular events which may
impact one or more of the following key financial drivers:
· reduction in client and Partner retention;
· reduction in new business relative to forecasts;
· market stresses;
· increases in expenses; and
· direct losses through operational risk events.
We carry out stress and scenario testing on these key financial drivers,
alongside operational risk assessments. To provide comfort over viability over
the next five years, the scenarios and assessments look at events which would
be extreme, whilst still remaining plausible. This work as at year-end 2023
demonstrated that the Group is resilient and is expected to be able to
continue to meet regulatory capital requirements over five years should even
the more extreme risks materialise. For adverse stresses and scenarios there
would be impacts on profitability, and depending on the severity of the
scenario the Group would review and implement recovery actions which aim to
protect and/or restore the Group's finances. We have demonstrated the use of
these recovery actions through the establishment of the provision relating to
the review of clients that have been charged for ongoing advice services since
the start of 2018 but where the evidence of delivery falls below an acceptable
standard.
Example stress and scenario test
As part of the strategic decision-making process, the new charging structure
was re-tested using our standard suite of stresses and scenarios to understand
the resilience of the Group under different charging models. While the new
charging structure was focused on improving our client proposition it was
imperative also to focus on the outcomes for our advisers and shareholders.
We therefore stress tested a scenario whereby the changes might be adversely
received by the Partnership and/or clients. In this scenario we applied the
following stresses to the cash flow and solvency forecasts for the new
charging structure: reductions in new business; increases in lapses;
reductions in the proportion of clients paying ongoing advice charges; and
increases in expenses (beyond those planned to implement the changes). The
results showed that whilst this scenario would have an impact on profit prior
to any mitigating management actions, it would not cause solvency concerns.
Furthermore, we have been encouraged by the response so far to the announced
changes, which gives us further confidence that the scenario tested is highly
unlikely.
Resilience over different time horizons
The table below provides an indication of which risks are relevant over which
timeframes, and why the Group is considered to be resilient over these
timeframes.
Over the next year
Risks: Resilience:
Over the short term, key risks are most likely to be operational, such as Operational resilience and business continuity are important control
cyber crime, business disruption, or failure of operational processes frameworks that are carefully managed through regular assessments and a
resulting in operational losses and/or material client redress. There is also schedule of testing, working closely and collaboratively with our third
a risk that, despite establishing a provision, we incur greater costs than parties.
provisioned for our review of ongoing advice services.
During 2023 the Group has experienced elevated levels of complaints
Additionally, there are change delivery risks during 2024 due to necessary principally in connection with the delivery of historic ongoing advice
upgrades to systems and business processes and alterations to the business services. During 2024, the Group has committed to review the sub-population of
model, most notably to implement the important changes to our charging clients that has been charged for ongoing advice services since the start of
structure which will take effect in 2025. We adopt robust change control 2018 but where the evidence of delivery falls below an acceptable standard.
practices involving periods of significant testing and take actions to manage
and mitigate the risks associated with the delivery of change. Changing regulatory expectations following the introduction of the new
Consumer Duty regulation continue to be considered in depth. We are a
Reputational risks from media attention can impact ability to generate new and client-focused business and so any changes we make are designed to be positive
retain existing business. for our business over the longer term, reducing regulatory and reputational
risk and supporting good client outcomes.
The cost-of-living crisis and higher interest rates are also key risks to
business performance if they restrict clients' capacity to invest and stay The Group generates relatively steady cash profits on new business and
invested. existing funds under management which increase each year as funds in gestation
'mature'. The change to the charging structure announced in October 2023 will
Strategic risks which could have a shorter-term impact relate to: managing alter the pattern of cash generation due to the removal of the early
expenses in a high inflationary environment whilst investing for growth; withdrawal charge and business written will be cash-generative from year 1,
maintaining high engagement with once this change takes effect in mid-2025.
the Partnership and supporting them through a tough macroeconomic environment;
the pace of regulatory In stress and scenario testing the Group demonstrates a high degree of
change; and talent management. resilience in its solvency level to falls in markets and new business. If
severe risks materialised over the year, the Group's profitability would
It is not expected that solvency will be an issue in the short term, due to reduce and, whilst various options exist, curtailing investment or reducing
our matching approach on liabilities and the stress and scenario testing work. dividends would be potential ways to protect the financial strength of the
Liquidity risks would be relevant for this time window since they tend to be business. The business currently benefits from higher interest rates on cash
short term in nature. However, we do not anticipate there being liquidity reserves and has significant financial resources to support Partner businesses
risks given the approach to Group and subsidiary entity dividends and if required and where appropriate, though the need is likely to be limited
liquidity management in general. These risks are also relevant for the longer due to the application of careful lending criteria for business loans to
time periods. Partners.
Over the next five years
Risks: Resilience:
Over the medium term key risks are: investor sentiment; market impacts; In counteracting the medium-term risks, there is more time to respond and take
changes to regulation or regulatory expectations particularly relating to actions to manage the Group's prospects. As already referenced, stress and
advice; and further tax changes to tackle the UK's increased national debt. scenario testing takes place, which provides comfort over the Group's ability
to weather storms over a five-year time horizon and adapt. The Group's
Our charging structure changes are expected to be implemented in this strategy is designed to navigate the threats and keep our proposition
timeframe. With this change will come operational risk and expectations that attractive for both existing and potential clients. As the largest wealth
cash profits will, all else being equal, reduce in 2025 and 2026. However, manager in the UK, the Group is well resourced to respond effectively to
they are then expected to increase. regulatory change and deal with increased regulatory complexity.
The importance of technology in the client proposition is only likely to Whilst the importance of technology in the advice space will grow, we believe
grow, and risks may materialise from rapidly developing artificial that overall our target market will continue to value human interaction in
intelligence technology and/or non-traditional competitors seeking to disrupt discussing sensitive financial matters. Delivery of our technology strategy
the UK financial advice market. will however support clients and advisers in making the most of their
interactions and drive efficiency in the back office.
An example of a strategic risk relates to ensuring we continue to provide the
best proposition for advisers at each stage of their journey with SJP, to Ensuring that we have an excellent proposition for Partners is a core focus
support productivity and retention. for the Group, and careful consideration is given to how we should evolve our
proposition over time to ensure we develop and retain excellent advisers in
the Partnership
Beyond 2028
Most of the shorter term risks will remain relevant; however, We are exploring opportunities in relation to artificial intelligence
over the longer term, the impact of artificial intelligence and machine and other technology solutions as part of our technology strategy. This is
learning in both investment management and advice will become greater. being done cautiously to manage potential risks, but failure to build
capabilities in this space may present a greater competitive risk.
Risks from climate change relating to investor sentiment and political change
are already relevant now, but the consequences of failure to act will be felt We have been developing our responsible investing proposition for some years
more and more over time. We are committed to become climate positive in our and welcome the focus in this area, as it is the right thing to do and
operations by 2025, net zero in our supply chain by 2035 and net zero in our provides an opportunity to maximise client benefit through our active
investments by 2050. If we fail to deliver on these commitments, this could investment management approach.
have a reputational impact within this time horizon.
We are increasing our focus on governance and measurement of delivery against
our responsible business commitments to ensure confidence of delivery.
Finally, when we look five or six years ahead all current funds
in 'gestation' will be expected to be contributing to profits, alongside any
new business written under the new charging structure from mid-2025 onwards.
This will therefore increase our expected financial resilience. The changes we
announced in October 2023 should also at this point be well embedded and
contributing to further strengthening our competitive position.
Conclusion
In accordance with the UK Corporate Governance Code (Provision 31), the
Directors have assessed the Group's current financial position and prospects
over the next five-year period and have a reasonable expectation that the
Group will be able to continue in operation and meet its liabilities as they
fall due. The Directors believe that the Group's risk planning, management
processes and culture allow for a robust and effective risk management
environment.
Consolidated Statement of Comprehensive Income
Note Year ended Year ended
31 December 31 December
2023 20221,2,3
£'Million £'Million
Fee and commission income2 4 2,788.9 1,929.6
Expenses1,3 (2,433.3) (1,949.2)
Investment return1,3 5 16,197.6 (13,757.9)
Movement in investment contract benefits2 5 (16,130.9) 13,759.4
Insurance revenue1 25.3 26.5
Insurance service expenses1 (24.5) (13.5)
Net reinsurance expense1 (5.0) (9.6)
Insurance service result1 (4.2) 3.4
Net insurance finance (expense)/income1 (10.0) 2.4
Other finance income3 31.5 15.1
Profit before tax 439.6 2.8
Tax attributable to policyholders' returns 6 (444.1) 501.1
(Loss)/profit before tax attributable to shareholders' returns (4.5) 503.9
Total tax (charge)/credit 6 (449.5) 404.4
Less: tax attributable to policyholders' returns 6 444.1 (501.1)
Tax attributable to shareholders' returns 6 (5.4) (96.7)
(Loss)/profit and total comprehensive income for the year (9.9) 407.2
Profit attributable to non-controlling interests 0.2 0.4
(Loss)/profit attributable to equity shareholders (10.1) 406.8
(Loss)/profit and total comprehensive income for the year (9.9) 407.2
Note Pence Pence
Basic earnings per share 12 (1.8) 75.0
Diluted earnings per share 12 (1.8) 74.3
1 Restated to reflect the adoption of IFRS 17. See Note 1a.
2 Restated to reclassify revenue from investment and insurance business.
See Note 1a.
3 Restated to reclassify Other finance income. See Note 1a.
The results relate to continuing operations.
Consolidated Statement of Changes in Equity
Note Equity attributable to owners of the Parent Company Non-controlling interests Total
equity
Share capital Share premium Shares in trust reserve Total
Misc. reserves Retained earnings
£'Million £'Million £'Million £'Million £'Million £'Million £'Million £'Million
At 1 January 2022 81.1 213.8 (8.5) 2.5 830.3 1,119.2 - 1,119.2
Impact of the adoption - - - - 9.6 9.6 - 9.6
of IFRS 171
At 1 January 2022 (restated) 81.1 213.8 (8.5) 2.5 839.9 1,128.8 - 1,128.8
Profit and total comprehensive income for the year1 - - - - 406.8 406.8 0.4 407.2
Dividends 12 - - - - (303.6) (303.6) (0.3) (303.9)
Issue of share capital 12 0.1 5.6 - - - 5.7 - 5.7
Exercise of options 12 0.4 8.4 - - - 8.8 - 8.8
Consideration paid for own shares - - (0.3) - - (0.3) - (0.3)
Shares sold during the year - - 4.7 - (4.7) - - -
Retained earnings credit in respect of share option charges - - - - 20.5 20.5 - 20.5
Non-controlling interests arising on the part-disposal of subsidiaries - - - - 4.9 4.9 0.1 5.0
At 31 December 20221 81.6 227.8 (4.1) 2.5 963.8 1,271.6 0.2 1,271.8
(Loss)/profit and total comprehensive income for the year - - - - (10.1) (10.1) 0.2 (9.9)
Dividends 12 - - - - (289.6) (289.6) (0.3) (289.9)
Exercise of options 12 0.7 6.1 - - - 6.8 - 6.8
Consideration paid for own shares - - (0.5) - - (0.5) - (0.5)
Shares sold during the year - - 3.9 - (3.9) - - -
Retained earnings credit in respect of share option charges - - - - 5.4 5.4 - 5.4
Retained earnings debit arising on disposal of subsidiary - - - - (0.2) (0.2) - (0.2)
At 31 December 2023 82.3 233.9 (0.7) 2.5 665.4 983.4 0.1 983.5
1 Restated to reflect the adoption of IFRS 17. See Note 1a.
The number of shares held in the Shares in trust reserve is given in Note 12
Share capital, earnings per share and dividends.
Miscellaneous reserves represent other non-distributable reserves.
Consolidated Statement of Financial Position
Note As at As at
31 December 31 December
2023 2022 1
£'Million £'Million
Assets
Goodwill 33.6 33.6
Deferred acquisition costs1 304.4 336.6
Intangible assets
- Purchased value of in-force business 8.0 11.2
- Computer software 28.0 33.3
Property and equipment, including leased assets 153.1 145.7
Deferred tax assets1 6 36.5 12.5
Investment in associates 10.2 1.4
Reinsurance assets1 13.0 54.6
Other receivables1 7 2,997.4 2,977.2
Income tax assets 6 - 35.0
Investments
- Investment property 1,110.3 1,294.5
- Equities 116,761.5 103,536.0
- Fixed income securities 27,244.7 27,552.7
- Investment in Collective Investment Schemes 13,967.5 5,735.4
- Derivative financial instruments 3,420.6 3,493.0
Cash and cash equivalents 6,204.3 6,432.8
Total assets 172,293.1 151,685.5
Liabilities
Borrowings 10 251.4 163.8
Deferred tax liabilities 6 411.7 162.9
Insurance contract liabilities1 496.0 470.5
Deferred income 491.5 530.4
Other provisions 9 500.1 46.0
Other payables1 8 2,388.1 2,180.7
Investment contract benefits 123,149.8 106,964.7
Derivative financial instruments 3,073.0 3,266.3
Net asset value attributable to unit holders 40,536.5 36,628.4
Income tax liabilities 11.5 -
Total liabilities 171,309.6 150,413.7
Net assets 983.5 1,271.8
Shareholders' equity
Share capital 12 82.3 81.6
Share premium 233.9 227.8
Shares in trust reserve (0.7) (4.1)
Miscellaneous reserves 2.5 2.5
Retained earnings 665.4 963.8
Equity attributable to owners of the Parent Company 983.4 1,271.6
Non-controlling interests 0.1 0.2
Total equity 983.5 1,271.8
Pence Pence
Net assets per share 179.3 233.7
1 Restated to reflect the adoption of IFRS 17. See Note 1a.
Consolidated Statement of Cash Flows
Note Year ended Year ended
31 December 31 December
2023 20221
£'Million £'Million
Cash flows from operating activities
Cash generated/(used in) from operations1 11 114.0 (712.6)
Interest received 108.0 61.8
Interest paid (17.3) (12.4)
Income taxes paid 6 (179.4) (121.1)
Contingent consideration paid (6.7) (6.3)
Net cash inflow/(outflow) from operating activities1 18.6 (790.6)
Cash flows from investing activities
Payments for property and equipment (11.2) (4.0)
Payment of software development costs (10.9) (16.1)
Payments for acquisition of subsidiaries and other business combinations, (5.4) (13.9)
net of cash acquired
Payments for associates (8.8) -
Proceeds from sale of shares in subsidiaries and other business combinations, 1.1 4.0
net of cash disposed
Net cash outflow from investing activities1 (35.2) (30.0)
Cash flows from financing activities
Proceeds from the issue of share capital and exercise of options 6.8 8.8
Consideration paid for own shares (0.5) (0.3)
Proceeds from borrowings 10 233.1 204.0
Repayment of borrowings 10 (144.8) (475.3)
Principal elements of lease payments (14.2) (13.8)
Dividends paid to Company's shareholders 12 (289.6) (303.6)
Dividends paid to non-controlling interests in subsidiaries (0.3) (0.3)
Net cash (outflow) from financing activities (209.5) (580.5)
Net decrease in cash and cash equivalents (226.1) (1,401.1)
Cash and cash equivalents at 1 January 6,432.8 7,832.9
Effects of exchange rate changes on cash and cash equivalents (2.4) 1.0
Cash and cash equivalents at 31 December 6,204.3 6,432.8
1 Restated to reclassify Proceeds from sale of financial assets held at
amortised cost from net cash flows from investing activities to net cash flows
from operating activities. See Note 1a.
Notes to the Consolidated Financial Statements under International Financial
Reporting Standards
1. Accounting policies
The Group Financial Statements consolidate those of the Company and its
subsidiaries (together referred to as the Group).
The Group Financial Statements have been prepared in accordance with
UK-adopted International Accounting Standards and with the requirements of the
Companies Act 2006 as applicable to companies reporting under those standards.
As at 31 December 2023, the following relevant new and amended standards,
which the Group adopted as of 1 January 2023, have been applied:
· IFRS 17 Insurance Contracts;
· Amendments to IAS 1 Presentation of Financial Statements -
Classification of Liabilities as Current or Non-Current;
· Amendments to IAS 1 Presentation of Financial Statements -
Disclosure of Accounting Policies;
· Amendments to IAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors - Definition of Accounting Estimates;
· Amendments to IAS 12 Income Taxes - Deferred Tax related to
Assets and Liabilities arising from a Single Transaction;
· Amendments to IAS 12 Income Taxes - International Tax Reform -
Pillar Two Model Rules.
As at 31 December 2023 there were no new or amended accounting standards not
yet effective which are relevant to the Group.
Basis of preparation
The going concern basis has been adopted in preparing these Financial
Statements.
The Group's business activities, together with the factors likely to affect
its future development, performance and position, are set out in the Chief
Executive's report and the Chief Financial Officer's report. The financial
performance and financial position of the Group are described in the financial
review.
As shown in Section 3 of the financial review, the Group's capital position
remains strong and well in excess of regulatory requirements. In addition, it
has continued to operate within its external banking covenants. The S&P
rating of St. James's Place UK plc remains at A- (BBB at SJP PLC).
Similarly, the Fitch rating remains at A+ for St. James's Place UK plc (A
at SJP PLC level). Further, the long-term nature of the business results in
considerable positive cash flows arising from existing business.
The Board has considered the challenging macroeconomic and geopolitical
conditions which prevailed during 2023, noting that the business continued to
be successful in this environment. Notwithstanding market challenges, the
Group attracted gross inflows of £15.4 billion. Net flows came under pressure
as a result of competition from cash-based investments subduing the total for
2023 to £5.1 billion. This, along with the performance of our key outsource
providers, monitored through our ongoing oversight, supports its view that the
business will continue to remain operationally resilient.
The Board has also considered a profitability forecast including base case
scenario and severe but plausible downside scenarios. In modelling these
scenarios, the Group has considered its liquidity, cash and IFRS results. The
downside scenarios are severe but plausible and would still leave the Group
with positive cash result and IFRS profit.
The Board has also considered elevated client complaints and potential options
and mitigations available to the Group should there be a need to take
additional action in relation to increased levels of client complaints.
As a result of its review, the Board believes that the Group will continue to
operate, with neither the intention nor the necessity of liquidation, ceasing
trading or seeking protection from creditors pursuant to laws or regulations,
for a period of at least 12 months from the date of approval of the Group
Financial Statements.
The Financial Statements are presented in pounds Sterling rounded to the
nearest one hundred thousand pounds. They are prepared on a historical cost
basis, except for assets classified as investment property and financial
assets and liabilities at fair value through profit and loss.
The preparation of the Financial Statements in conformity with IFRSs requires
management to make judgements, estimates and assumptions that affect the
application of policies and reported amounts of assets and liabilities, income
and expenses. The estimates and associated assumptions are based on historical
experience and various other factors that are believed to be reasonable under
the circumstances, the results of which form the basis of making judgements
about the carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the year in which the
estimate is revised if the revision affects only that year, or in the year of
the revision and future years, if the revision affects both current and future
years.
Judgements made by management in the application of IFRSs that have material
effect on the Financial Statements and estimates with a significant risk of
material adjustment in the next year are discussed in Note 2.
The Financial Statements are prepared in accordance with the Companies Act
2006 as applicable to companies reporting under IFRS, and the accounting
policies set out below have been applied consistently to all years presented
in these Consolidated Financial Statements.
Other accounting policies
The other accounting policies used by the Group in preparing the results are
consistent with those applied in preparing the statutory accounts for the year
ended 31 December 2022.
Alternative Performance Measures
Within the Financial Statements, a number of alternative performance measures
(APMs) are disclosed. An APM is a measure of financial performance, financial
position or cash flows which is not defined by the relevant financial
reporting framework, which for the Group is International Financial Reporting
Standards as adopted by the UK Endorsement Board. APMs are used to provide
greater insight into the performance of the Group and the way it is managed by
the Directors. A definition of each APM is included in The Glossary of
Alternative Performance Measures, which explains why it is used and, where
applicable, explains how the measure can be reconciled to the IFRS Financial
Statements.
1a. Restatement of prior periods
Adjustment 1 - Adoption of IFRS 17 Insurance Contracts
On 1 January 2023 the Group adopted IFRS 17 Insurance Contracts and, as
required by the standard, applied the requirements retrospectively with
comparatives restated from 1 January 2022.
The adoption of IFRS 17 resulted in an increase of £1.8 million for the year
ended 31 December 2022 to the IFRS profit after tax. The movement occurred due
to the revised pattern of profit recognition under IFRS 17, which replaces
margins in the measurement of insurance contract liabilities under IFRS 4 with
an explicit allowance for risk and a Contractual Service Margin (CSM) which
defers the recognition of profit over the coverage period.
There is no impact on the Group's 2022 APMs except for 'Underlying profit',
which is affected to the same extent that IFRS 17 impacts IFRS profit after
tax.
IFRS 17 incorporates revised principles for the recognition, measurement,
presentation and disclosure of insurance contracts. The presentation of
insurance revenue and insurance service expenses in the Statement of
Comprehensive Income is based upon the concept of insurance services provided
during the period.
IFRS 17 transition approach
The fair value approach (FVA) has been applied to all insurance and
reinsurance contracts on transition to IFRS 17, as the Group considers that
application of a fully retrospective approach is impractical (since our
accounting and actuarial systems hold information on historic business at a
higher level of aggregation than that required for the fully retrospective
approach).
Under the FVA, the CSM recognised at transition is determined as the
difference between the fair value of contracts at the transition date and the
Fulfilment Cash Flows at the transition date. The fair value on transition
has been derived in accordance with IFRS 13 Fair Value Measurement and
represents the price a market participant would require to assume the
liabilities in an orderly transaction. Under the fair value approach, the
simplification permitting contracts in different annual cohorts to be placed
into a single group of contracts has been adopted. The Group closed to new
insurance business, as defined under IFRS 17, in 2011.
On transition to IFRS 17 a deferred tax liability has been established
representing the tax in relation to the movement in equity on transition to
IFRS 17. The deferred tax liability will fully unwind over ten years from the
transition date.
Adjustment 2 - Consolidated Statement of Comprehensive Income, Revenue
IFRS 17 provides greater clarity on the split of profit between insurance and
investment contracts; during the implementation, a review of revenue
identified that some items within the Consolidated Statement of Comprehensive
Income were misclassified and required restatement. The restatement totalled
£24.6 million for the year ended 31 December 2022, decreasing fee and
commission income and increasing movement in investment contract benefits, by
the same amount, resulting in a net nil impact on the profit for the year.
Adjustment 3 - Consolidated Statement of Comprehensive Income, Other finance
income
During the year it was identified that other finance costs had been
misclassified and required restatement. For the year ended 31 December 2022
the restatement comprised an increase of £27.6 million in investment return,
decrease of £12.5 million in expenses, and a corresponding net £15.1 million
other finance income recognised. The restatement resulted in a net nil impact
on the profit for the year.
Adjustment 4 - Consolidated Statement of Cashflows, Proceeds from sale of
financial assets held at amortised cost
During the year, following a review by the Financial Reporting Council, it was
determined that it was more appropriate to classify the sale in 2022 of a
portfolio of Partner loans as an operating cash flow rather than an investing
cash flow. Accordingly the Consolidated Statement of Cashflows for the year
ended 31 December 2022 has been restated to reflect this. The restatement,
totalling £262.5 million, decreases proceeds from sale of financial assets
held at amortised cost, included within investing activities, and increases
the movement in other receivables, included within operating activities, by
the same amount.
Restatement for the year ended 31 December 2022
Impact on Consolidated Statement of Comprehensive Income
Year ended (Decrease)/increase Restated
31 December 2022 year ended
31 December 2022
Adj 1 Adj 2 Adj 3
£'Million £'Million £'Million £'Million £'Million
Insurance premium income 33.7 (33.7) - - -
Less premiums ceded to reinsurers (23.3) 23.3 - - -
Net insurance premium income 10.4 (10.4) - - -
Fee and commission income 1,954.2 - (24.6) - 1,929.6
Investment return (13,771.9) 41.6 - (27.6) (13,757.9)
Net expense (11,807.3) 31.2 (24.6) (27.6) (11,828.3)
Policy claims and benefits
- Gross amount (48.0) 48.0 - - -
- Reinsurers' share 14.6 (14.6) - - -
Net policyholder claims and benefits incurred (33.4) 33.4 - - -
Change in insurance contract liabilities
- Gross amount 88.8 (88.8) - - -
- Reinsurers' share (16.0) 16.0 - - -
Net change in insurance contract liabilities 72.8 (72.8) - - -
Movement in investment contract benefits 13,734.8 - 24.6 - 13,759.4
Expenses (1,966.2) 4.5 - 12.5 (1,949.2)
Insurance revenue - 26.5 - - 26.5
Insurance service expenses - (13.5) - - (13.5)
Net reinsurance expense - (9.6) - - (9.6)
Net insurance finance income - 2.4 - - 2.4
Other finance income - - - 15.1 15.1
Profit before tax 0.7 2.1 - - 2.8
Tax attributable to policyholders' returns 501.1 - - - 501.1
Profit before tax attributable to shareholders' returns 501.8 2.1 - - 503.9
Total tax credit 404.7 (0.3) - - 404.4
Less: tax attributable to policyholders' returns (501.1) - - - (501.1)
Tax attributable to shareholders' returns (96.4) (0.3) - - (96.7)
Profit and total comprehensive income for the year 405.4 1.8 - - 407.2
Profit attributable to non-controlling interests 0.4 - - - 0.4
Profit attributable to equity shareholders 405.0 1.8 - - 406.8
Profit and total comprehensive income for the year 405.4 1.8 - - 407.2
Pence Pence
Basic earnings per share 74.6 75.0
Diluted earnings per share 73.9 74.3
Impact on Consolidated Statement of Changes in Equity
Increase Equity attributable to owners Total equity
of the Parent Company
Retained Total
earnings
£'Million £'Million £'Million
At 1 January 2022 9.6 9.6 9.6
Profit and total comprehensive income for the year 1.8 1.8 1.8
At 31 December 2022 11.4 11.4 11.4
Impact on Consolidated Statement of Financial Position
31 December (Decrease)/increase Restated Restated
2022 31 December 2022 1 January
2022
Adj 1
£'Million £'Million £'Million £'Million
Assets
Deferred acquisition costs 337.3 (0.7) 336.6 378.9
Deferred tax assets 13.9 (1.4) 12.5 19.5
Reinsurance assets 66.4 (11.8) 54.6 74.8
Other receivables 2,982.8 (5.6) 2,977.2 2,913.1
Total assets 151,705.0 (19.5) 151,685.5 155,710.6
Liabilities
Insurance contract liabilities 483.5 (13.0) 470.5 568.6
Other payables 2,198.6 (17.9) 2,180.7 2,579.3
Total liabilities 150,444.6 (30.9) 150,413.7 154,581.8
Net assets 1,260.4 11.4 1,271.8 1,128.8
Impact on Consolidated Statement of Cash Flows
31 December Increase/ (decrease) Restated
2022 31 December 2022
Adj 4
£'Million £'Million £'Million
Cash flows from operating activities
Cash (used in)/generated from operations (975.1) 262.5 (712.6)
Net cash outflow from operating activities (1,053.1) 262.5 (790.6)
Cash flows from investing activities
Proceeds from sale of financial assets held at amortised cost 262.5 (262.5) -
Net cash inflow/(outflow) from investing activities 232.5 (262.5) (30.0)
Restatement of 1 January 2022
Impact on Consolidated Statement of Financial Position
Restated
1 January
2022
£'Million
Assets
Goodwill 29.6
Deferred acquisition costs 378.9
Intangible assets
- Acquired value of in-force business 14.4
- Computer software 27.0
Property and equipment 154.5
Deferred tax assets 19.5
Investment in associates 1.4
Reinsurance assets 74.8
Other receivables 2,913.1
Investments
- Investment property 1,568.5
- Equities 106,782.3
- Fixed income securities 29,305.9
- Investments in Collective Investment Schemes 5,513.2
- Derivative financial instruments 1,094.6
Cash and cash equivalents 7,832.9
Total assets 155,710.6
Liabilities
Borrowings 433.0
Deferred tax liabilities 649.8
Insurance contract liabilities 568.6
Deferred income 562.6
Other provisions 44.1
Other payables 2,579.3
Investment contract benefits 110,349.8
Derivative financial instruments 1,019.5
Net asset value attributable to unit holders 38,369.0
Income tax liabilities 6.1
Total liabilities 154,581.8
Net assets 1,128.8
Shareholders' equity
Share capital 81.1
Share premium 213.8
Treasury shares reserve (8.5)
Miscellaneous reserves 2.5
Retained earnings 839.9
Shareholders' equity 1,128.8
Non-controlling interests -
Total equity 1,128.8
2. Critical accounting estimates and judgements in applying accounting
policies
Estimates
Critical accounting estimates are those which give rise to a significant risk
of material adjustment to the balances recognised in the Financial Statements
within the next 12 months. The Group's critical accounting estimates
relate to:
· determining the value of insurance contract liabilities and
reinsurance assets;
· determining the fair value of investment property;
· determining the fair value of Level 3 fixed income securities and
equities; and
· determining the value of an Ongoing Service Evidence provision.
Estimates are also applied in calculating other assets of the Financial
Statements, including determining the value of deferred tax assets, investment
contract benefits, the operational readiness prepayment and other provisions.
Determining the value of insurance contract liabilities and reinsurance assets
In accordance with IFRS 17, the Group has used the following assumptions in
the calculation of insurance contract liabilities and reinsurance assets:
· the assumed rate of investment return, which is based on current
risk-free swap rates;
· the mortality and morbidity rates, which are based on the results
of an investigation of experience during the year;
· the level of expenses, which for the year under review is based
on actual expenses in 2023 and expected rates in 2024 and over the long term;
· the lapse assumption, which is set based on an investigation of
experience during the year; and
· the risk adjustment, which is determined using a cost of capital
approach with a 3% charge (2022: 3%). There has been no change during the
period.
Determining the fair value of investment property
In accordance with IAS 40, the Group initially recognises investment
properties at cost, and subsequently remeasures its portfolio to fair value in
the Statement of Financial Position. Fair value is determined at least monthly
by professional external valuers. It is based on anticipated market values for
the properties in accordance with the guidance issued by the Royal Institution
of Chartered Surveyors (RICS), being the estimated amount that would be
received from a sale of the assets in an orderly transaction between market
participants.
The valuation of investment property is inherently subjective as it requires,
among other factors, assumptions to be made regarding the ability of existing
tenants to meet their rental obligations over the entire life of their leases,
the estimation of the expected rental income into the future, the assessment
of a property's potential to remain as an attractive technical configuration
to existing and prospective tenants in a changing market and a judgement on
the attractiveness of a building, its location and the surrounding
environment. Wherever appropriate, sustainability and environmental matters
are an integral part of the valuation approach. In a valuation context,
sustainability encompasses a wide range of physical, social, environmental and
economic factors that can affect value. The range of issues includes key
environmental risks, such as flooding, energy efficiency and climate, as well
as design, configuration, accessibility, legislation, management and fiscal
considerations - and, additionally, current and historical land use. As such,
investment properties are classified as Level 3 in the IFRS 13 fair value
hierarchy because they are valued using techniques which are not based on
observable inputs.
Determining the fair value of Level 3 fixed income securities and equities
In accordance with IFRS 9, the Group elects to classify its portfolio of
policyholder fixed income securities at fair value through profit and loss to
match the accounting for policyholder liabilities. Its portfolio of equities
is required to be held at fair value through profit and loss. As a result, all
fixed income securities and equities are held at fair value, with the best
evidence of the fair value at initial recognition typically being the
transaction price, i.e. the fair value of the consideration given or received.
A number of investments are held in private credit and private equity assets,
which are recognised within fixed income securities and within equities,
respectively, on the Consolidated Statement of Financial Position. The fair
value of these assets is determined following a monthly valuation process
which uses two different valuation models and includes verification by
professional external valuers. The models use suitable market comparatives and
an estimate of future cash flows expected to flow from the issuing entity.
The valuations are inherently subjective as they require a number of
assumptions to be made, such as determining which entities provide suitable
market comparatives and their relevant performance metrics (for example
earnings before interest, tax, depreciation and amortisation), determining
appropriate discount rates and cash flow forecasts to use in models, the
weighting to apply to each valuation methodology, and the point in the range
of valuations to select as the fair value. As the inputs to the valuation
models are unobservable, the investments in private credit and private equity
assets are classified as Level 3 in the IFRS 13 fair value hierarchy.
Following the invasion of Ukraine by Russia, sanctions and trading
restrictions were placed on foreign investors. As a result, fair value pricing
was applied to Russian assets that represents a significant markdown in the
value of these assets.
Determining the value of an Ongoing Service Evidence provision
The Group has committed to review the sub-population of clients that has been
charged for ongoing advice services since the start of 2018 but where the
evidence of delivery falls below the acceptable standard. Where the standard
of evidence is deemed by the Group to be marginal the Group will invite
clients to join the review (the "Opt-In population"), but where the standard
of evidence is deemed to be poor the Group will include clients in the review
unless instructed otherwise (the "Opt-Out population").
In accordance with IAS 37, and reflecting an initial assessment of a
statistically credible representative cohort of clients undertaken by a
skilled person, the Group has quantified the Ongoing Service Evidence
provision as the best estimate of the amount necessary to settle the present
obligation, taking into account the associated risks and uncertainties.
The period for the review has been determined by the Group to commence from
2018 following an assessment of the regulatory regime in force during this
period and the requirement to retain evidence of delivery for this period of
time.
Key estimates and assumptions in assessing the estimated value are:
· extrapolation from a representative cohort - that the initial
assessment, of a statistically credible representative cohort of client
records, can be extrapolated to the wider review population;
· Opt-In response rate - the response rate by clients to an
invitation, taking into account industry experience; and
· administration costs - that in-house historic experience and
wider market experience of similar exercises can be used to estimate the cost
to fulfil the exercise.
Further details of the provision, including sensitivity analysis, are set out
in Note 9.
Judgements
The primary areas in which the Group has applied judgement are as follows:
Consolidation
Entities are consolidated within the Group Financial Statements if they are
controlled by the Group. Control exists if the Group is exposed to, or has
rights to, variable returns from its involvement with the entity and the Group
has the ability to affect those returns through its power over the entity.
Significant judgement can be involved in determining whether the Group
controls an entity, such as in the case of the structured entity set up for
the Group's securitisation transaction, SJP Partner Loans No.1 Limited, and
for the Group's unit trusts.
A structured entity is one that has been designed so that voting or similar
rights are not the dominant factor in deciding who controls the entity. As a
result, factors such as whether a Group entity is able to direct the relevant
activities of the entity and the extent to which the Group is exposed to
variability of returns are considered. In the case of SJP Partner Loans No.1
Limited, it was determined that the Group does control the entity and hence it
is consolidated. This is due to an entity in the Group holding the junior
tranche of loan notes, hence being subject to variability of returns, and the
same entity being able to direct the relevant activities of the structured
entity through its role of servicer to the securitised portfolio.
Unit trusts are consolidated when the Group holds more than 30% of the units
in that unit trust. This is the threshold at which the Group is considered to
achieve control, having regard to factors such as:
· the scope of decision-making authority held by
St. James's Place Unit Trust Group Limited, the unit trust manager;
· rights held by external parties to remove the unit trust manager;
and
· the Group's exposure to variable returns through its holdings in
the unit trusts and its ability to influence the unit trust manager's
remuneration.
Determining non-performing business loans to Partners
Business loans to Partners are considered to be non-performing (Stage 3), in
the context of the definition prescribed by IFRS 9, if they are in default.
This is defined as a loan to either:
· a Partner who has left the St. James's Place Partnership; or
· a Partner whom management considers to be at significant risk of
leaving the Partnership and where an orderly settlement of debt is considered
to be in question.
Determining the derecognition of business loans to Partners
Business loans to Partners are derecognised, in the context of the definition
prescribed by IFRS 9, when:
· the assets have been sold to a third party;
· there is an obligation to pay received cash flows in full without
material delay to a third party under a 'pass-through' arrangement; and
· the originator has transferred substantially all the risks and
rewards of owning the assets.
See Note 7 for further information on the derecognition of business loans to
Partners.
Determining the value of insurance contract liabilities and reinsurance assets
on transition to IFRS 17
The fair value on transition has been derived in accordance with IFRS 13 Fair
Value Measurement and represents the price a market participant would require
to assume the liabilities in an orderly transaction. Fair value has been
determined based on the Solvency II best estimate liability, together with an
additional margin for risk calculated using a cost of capital approach. The
Solvency II best estimate liability utilises economic assumptions based on
relevant market information, together with non-economic assumptions including
lapse rates, expenses and mortality rates.
3. Segment reporting
IFRS 8 Operating Segments requires operating segments to be identified on the
basis of internal reports about components of the Group that are regularly
reviewed by the Board, in order to allocate resources to each segment and
assess its performance.
The Group's only reportable segment under IFRS 8 is a 'wealth management'
business - which is a business providing support to our clients through the
provision of financial advice and assistance through our Partner network, and
financial solutions including (but not limited to) wealth management products
manufactured in the Group, such as insurance bonds, pensions, unit trust and
ISA investments, and a discretionary fund management (DFM) service.
Separate geographical segmental information is not presented since the Group
does not segment its business geographically. Most of its customers are based
in the United Kingdom, as is management of the assets. In particular,
the operation based in Asia is not yet sufficiently material for separate
consideration.
Segment revenue
Revenue received from fee and commission income is set out in Note 4, which
details the different types of revenue received from our wealth management
business.
Segment profit
Two separate measures of profit are monitored on a monthly basis by the Board.
These are the post-tax Underlying cash result and the pre-tax European
Embedded Value (EEV) profit, both of which are alternative performance
measures. Further details can be found within the Glossary of Alternative
Performance Measures section.
Underlying cash result
The measure of cash profit monitored on a monthly basis by the Board is the
post-tax Underlying cash result. This reflects emergence of cash available for
paying a dividend during the year. Underlying cash is based on the IFRS result
excluding the impact of intangibles, principally DAC, DIR, PVIF, goodwill,
deferred tax, and strategic expenses. As the cost associated with
equity-settled share-based payments is reflected in changes in shareholder
equity, they are also not included in the Underlying cash result.
More detail is provided in Section 2.2 of the financial review.
The Cash result should not be confused with the IFRS Consolidated Statement of
Cash Flows, which is prepared in accordance with IAS 7.
Year ended Year ended
31 December 2023 31 December 20221
£'Million £'Million
Underlying cash result after tax 392.4 410.1
Equity-settled share-based payments (5.4) (20.5)
Deferred tax impacts (24.9) (30.5)
Ongoing Service Evidence provision (323.7) -
Impact in the year of DAC/DIR/PVIF 3.1 (9.3)
Impact of policyholder tax asymmetry (see Note 4) 1 (44.4) 50.6
Other2 (7.0) 6.8
IFRS (loss)/profit after tax (9.9) 407.2
Shareholder tax2 5.4 96.7
(Loss)/profit before tax attributable to shareholders' returns (4.5) 503.9
Tax attributable to policyholder returns 444.1 (501.1)
IFRS profit before tax 439.6 2.8
1 Further information on policyholder tax asymmetry can also be found in
Section 2.1 of the financial review.
2 Restated to reflect the adoption of IFRS 17. See Note 1a.
EEV operating profit
EEV operating profit is monitored on a monthly basis by the Board. The
components of the EEV operating profit are included in more detail in the
financial review within the Annual Report and Accounts.
Year ended Year ended
31 December 2023 31 December 2022 1
£'Million £'Million
EEV operating (loss)/profit before tax after exceptional items (1,891.6) 1,589.7
Investment return variance 501.7 (1,314.0)
Economic assumption changes 2.5 235.1
EEV (loss)/profit before tax (1,387.4) 510.8
Adjustments to IFRS basis:
Deduct: amortisation of purchased value of in-force business (3.2) (3.2)
Movement of balance sheet life value of in-force business (net of tax) 1 2,769.6 105.6
Movement of balance sheet unit trust and DFM value of in-force business (net 226.0 (94.9)
of tax)
Movement of balance sheet other value of in-force business (net of tax) (1,918.9) -
Tax on movement in value of in-force business 309.4 (14.4)
(Loss)/profit before tax attributable to shareholders' returns (4.5) 503.9
Tax attributable to policyholder returns 444.1 (501.1)
IFRS profit before tax 439.6 2.8
1 Restated to reflect the adoption of IFRS 17. See Note 1a.
The movement in life, unit trust and DFM, and other value of in-force business
is the difference between the opening and closing discounted value of the
profits that will emerge from the in-force book over time, after adjusting for
DAC and DIR impacts which are already included under IFRS.
Segment assets
Funds under management (FUM)
FUM, as reported in Section 1 of the financial review, is the measure of
segment assets which is monitored on a monthly basis by the Board.
31 December 2023 31 December 2022 1
£'Million £'Million
Investment 35,990.0 33,290.0
Pension 87,320.0 73,860.0
Unit trust/ISA and DFM 44,890.0 41,220.0
Total FUM 168,200.0 148,370.0
Exclude client and third-party holdings in non-consolidated unit trusts and (4,360.4) (4,407.3)
DFM
Other 3,968.2 4,153.6
Gross assets held to cover unit liabilities 167,807.8 148,116.3
IFRS intangible assets1 399.6 476.9
Shareholder gross assets 4,085.7 3,092.3
Total assets 172,293.1 151,685.5
1 Restated to reflect the adoption of IFRS 17. See Note 1a.
Other represents liabilities included within the underlying unit trusts. The
unit trust liabilities form a reconciling item between total FUM, which is
reported net of these liabilities, and total assets, which exclude these
liabilities.
More detail on IFRS intangible assets and shareholder gross assets is provided
in Section 2.2 of the financial review.
4. Fee and commission income
Year ended Year ended
31 December 31 December
2023 2022
£'Million £'Million
Advice charges (post RDR) 954.3 987.6
Third-party fee and commission income 132.4 131.9
Wealth management fees1 1,065.0 1,014.4
Investment management fees 68.4 60.8
Fund tax deductions/(refunds) 444.1 (501.1)
Policyholder tax asymmetry (44.4) 50.6
Discretionary fund management fees 23.6 23.4
Fee and commission income before DIR amortisation 2,643.4 1,767.6
Amortisation of DIR 145.5 162.0
Total fee and commission income 2,788.9 1,929.6
1 Restated to reclassify balances between wealth management fees and movement
in investment contract benefits. See Note 1a.
Advice charges are received from clients for the provision of initial and
ongoing advice in relation to a post-Retail Distribution Review (RDR)
investment into a St. James's Place or third-party product.
Third-party fee and commission income is received from the product provider
where an investment has been made into a third-party product.
Wealth management fees represent charges levied on manufactured business.
Investment management fees are received from clients for the provision of all
aspects of investment management. Broadly, investment management fees match
investment management expenses.
Fund tax deductions/(refunds) represent amounts credited to, or deducted from,
the life insurance business to match policyholder tax credits or charges.
Market conditions will impact the level of fund tax deductions/(refunds). This
may lead to significant year on year movements when markets are volatile.
Life insurance tax incorporates a policyholder tax element, and the financial
statements of a life insurance group need to reflect the liability to HMRC,
with the corresponding deductions incorporated into policy charges ('Fund tax
deductions/(refunds)' in the table above). The tax liability to HMRC is
assessed using IAS 12 Income Taxes, which does not allow discounting, whereas
the policy charges are designed to ensure fair outcomes between clients and so
reflect a wide range of possible outcomes. This gives rise to different
assessments of the current value of future cash flows and hence an asymmetry
in the IFRS Consolidated Statement of Financial Position between the deferred
tax position and the offsetting client balance. The net tax asymmetry balance
reflects a temporary position, and in the absence of market volatility we
expect it will unwind as future cash flows become less uncertain and are
ultimately realised.
Market conditions and other macroeconomic factors will impact the level of
asymmetry experienced in a year and may be significant where there is
volatility. These drivers in 2023 resulted in a significant negative movement
reversing the positive impact seen in 2022.
Discretionary fund management fees are received from clients for the provision
of DFM services.
Where an investment has been made in a St. James's Place product, the
initial product charge and any dealing margin is deferred and recognised as a
deferred income liability. This liability is extinguished, and income
recognised, over the expected life of the investment. The income is the
amortisation of DIR in the table above.
5. Investment return and movement in investment contract benefits
The majority of the business written by the Group is unit-linked investment
business, and so investment contract benefits are measured by reference to the
underlying net asset value of the Group's unitised investment funds. As a
result, investment return on the unitised investment funds and the movement in
investment contract benefits are linked.
Investment return
Year ended Year ended
31 December 31 December
2023 2022
£'Million £'Million
Attributable to unit-linked investment contract benefits:
Rental income 69.9 70.1
Loss on revaluation of investment properties (44.9) (244.5)
Net investment return on financial instruments classified as fair value 13,013.4 (9,416.3)
through profit and loss1
13,038.4 (9,590.7)
Income/(expense) attributable to third-party holdings in unit trusts 3,092.5 (4,168.7)
Investment return on net assets held to cover unit liabilities 16,130.9 (13,759.4)
Net investment return on financial instruments classified as fair value 60.2 (8.2)
through profit and loss 2
Net investment return on financial instruments held at amortised cost 2 6.5 9.7
Investment return on shareholder assets 66.7 1.5
Total investment return 16,197.6 (13,757.9)
1 Restated to reflect the adoption of IFRS 17. See Note 1a.
2 Restated to reclassify interest received on business loans to Partners
and shareholder cash and cash equivalents to other finance income.
Included in the net investment return on financial instruments classified as
fair value through profit and loss, within investment return on net assets
held to cover unit liabilities, is dividend income of £1,499.1 million (2022:
£1,216.0 million).
Movement in investment contract benefits
2023 2022
£'Million £'Million
Balance at 1 January 106,964.7 110,349.8
Deposits 11,842.3 12,194.6
Withdrawals (7,459.6) (5,645.1)
Movement in unit-linked investment contract benefits 13,038.4 (9,590.7)
Fees and other adjustments (1,236.0) (343.9)
Balance at 31 December 123,149.8 106,964.7
Current 6,584.5 5,546.3
Non-current 116,565.3 101,418.4
123,149.8 106,964.7
Movement in unit liabilities
Unit-linked investment contract benefits 13,038.4 (9,590.7)
Third-party unit trust holdings 3,092.5 (4,168.7)
Movement in investment contract benefits in the 16,130.9 (13,759.4)
Consolidated Statement of Comprehensive Income
6. Income and deferred taxes
Tax for the year
Year ended Year ended
31 December 31 December
2023 2022
£'Million £'Million
Current tax
UK corporation tax
- Current year charge 222.8 66.0
- Adjustment in respect of prior year (0.5) 3.5
Overseas taxes
- Current year charge 2.9 10.2
- Adjustment in respect of prior year 0.1 -
225.3 79.7
Deferred tax
Unrealised capital gains/(losses) in unit-linked funds 243.4 (504.0)
Unrelieved expenses
- Additional expenses recognised in the year - (9.9)
- Utilisation in the year 11.3 11.4
Capital losses
- Revaluation in the year - 4.0
- Utilisation in the year 2.2 25.2
- Adjustment in respect of prior year (0.1) (4.5)
DAC, DIR and PVIF (7.8) (8.5)
Share-based payments 8.1 3.3
Renewal income assets (1.4) (3.0)
Fixed asset timing differences 2.6 1.0
UK trading losses (36.1) -
Other items1 1.8 (1.2)
Overseas losses 0.3 0.1
Adjustment in respect of prior year (0.1) 2.0
224.2 (484.1)
Total tax charge/(credit) for the year 449.5 (404.4)
Attributable to:
- policyholders 444.1 (501.1)
- shareholders 5.4 96.7
449.5 (404.4)
1 Restated to reflect the adoption of IFRS 17. See Note 1a.
The prior year adjustment of £0.4 million credit in current tax above
represents a £1.4 million credit in respect of policyholder tax (2022: £7.3
million charge) and a charge of £1.0 million in respect of shareholder tax
(2022: £3.8 million credit). The prior year adjustment of £0.2 million
credit in deferred tax above represents £nil in respect of policyholder tax
(2022: £nil) and a credit of £0.2 million in respect of shareholder tax
(2022: £2.5 million credit).
In arriving at the profit before tax attributable to shareholders' returns, it
is necessary to estimate the distribution of the total tax charge/(credit)
between that payable in respect of policyholders and that payable by
shareholders. Shareholder tax is estimated by making an assessment of the
effective rate of tax that is applicable to the shareholders on the profits
attributable to shareholders. This is calculated by applying the appropriate
effective corporate tax rates to the shareholder profits. The remainder of the
tax charge/(credit) represents tax on policyholders' investment returns. This
calculation method is consistent with the legislation relating to the
calculation of tax on shareholder profits.
Reconciliation of tax charge to expected tax
Year ended Year ended
31 December 31 December
2023 2022
£'Million £'Million
Profit before tax 1 439.6 2.8
Tax attributable to policyholders' returns (444.1) 501.1
(Loss)/profit before tax attributable to shareholders' returns (4.5) 503.9
Shareholder tax (credit)/charge at corporate tax rate of 23.5% (2022: 19%) (1.1) 23.5% 95.7 19.0%
Adjustments:
Lower rates of corporation tax in overseas subsidiaries (1.8) 39.4% (1.3) (0.3%)
Expected shareholder tax (2.9) 62.9% 94.4 18.7%
Effects of:
Non-taxable income (2.5) (1.5)
Revaluation of historic capital losses in the Group - 4.0
Adjustment in respect of prior year
- Current tax 1.0 (3.8)
- Deferred tax (0.2) (2.5)
Differences in accounting and tax bases in relation to employee share schemes 0.3 2.5
Impact of difference in tax rates between current and deferred tax (2.3) (3.0)
Disallowable expenses 4.3 5.6
Provision for future liabilities 5.1 0.5
Tax losses not recognised 1.9 2.2
Other 1 0.7 (1.7)
8.3 (182.9%) 2.3 0.5%
Shareholder tax charge 5.4 (120.0%) 96.7 19.2%
Policyholder tax charge/(credit) 444.1 (501.1)
Total tax charge/(credit) for the year 449.5 (404.4)
1 Restated to reflect the adoption of IFRS 17. See Note 1a.
Tax calculated on profit before tax at 23.5% (2022: 19%) would amount to a
charge of £103.3 million (2022: charge of £0.5 million). The difference of
£346.2 million (2022: £404.9 million) between this number and the total tax
charge of £449.5 million (2022: £404.4 million credit) is made up of the
reconciling items above which total a charge of £6.5 million (2022:
£1.0 million charge) and the effect of the apportionment methodology on tax
applicable to policyholder returns of £339.7 million (2022: £405.9
million).
Tax paid in the year
Year ended Year ended
31 December 31 December
2023 2022
£'Million £'Million
Current tax charge for the year 225.3 79.7
Refunds due to be received in future years in respect of current year 1.7 39.5
(Refunds received)/payments made in current year in respect of prior years (39.7) 1.6
Other (7.9) 0.3
Tax paid 179.4 121.1
Tax paid can be analysed as:
- Taxes paid in UK 156.4 110.1
- Taxes paid in overseas jurisdictions 6.2 3.9
- Withholding taxes suffered on investment income received 16.8 7.1
Total 179.4 121.1
Deferred tax balances
Deferred tax assets
As at Credit/(charge) to the Statement of Comprehensive Income Impact of acquisitions Reanalysis to deferred tax liabilities As at 31 December 2023 Expected utilisation period
1 January
2023 1
Utilised and created in year Total credit/(charge) As at 31 December 2023
£ Million £ Million £ Million £ Million £ Million £ Million
Deferred acquisition costs (DAC) (20.4) 1.8 1.8 - - (18.6) 14 years
Deferred income (DIR) 37.7 (2.6) (2.6) - - 35.1 14 years
Fixed asset temporary differences 3.9 (2.6) (2.6) - - 1.3 6 years
Renewal income assets (20.7) 1.5 1.5 (0.7) - (19.9) 20 years
Share-based payments 12.9 (8.1) (8.1) - - 4.8 3 years
UK trading losses - 36.1 36.1 - - 36.1 1 years
Other temporary differences 1 (0.9) (2.3) (2.3) 0.9 - (2.3) -
Total 12.5 23.8 23.8 0.2 - 36.5
As at 1 January 2022 (Charge)/credit to the Statement of Comprehensive Income Impact of acquisitions Reanalysis to deferred tax liabilities As at 31 December 2022 1 Expected utilisation period
Utilised and created in year Total (charge)/credit As at 31 December 2022
£ Million £ Million £ Million £ Million £ Million £ Million
Deferred acquisition costs (DAC) (21.6) 1.2 1.2 - - (20.4) 14 years
Deferred Income (DIR) 37.8 (0.1) (0.1) - - 37.7 14 years
Fixed asset temporary differences 7.8 (3.9) (3.9) - - 3.9 6 years
Renewal income assets (19.4) 3.1 3.1 (4.4) - (20.7) 20 years
Share-based payments 16.2 (3.3) (3.3) - - 12.9 3 years
Other temporary differences 1 (1.3) 0.9 0.9 - (0.5) (0.9) -
Total 19.5 (2.1) (2.1) (4.4) (0.5) 12.5
1 Restated to reflect the adoption of IFRS 17. See Note 1a.
Deferred tax liabilities
As at 1 January 2023 Charge/(credit) to the statement of Comprehensive Income Impact of acquisitions Reanalysis from deferred tax assets As at 31 Expected utilisation period
December 2023
Utilised and created in year Impact of tax rate change Total charge/ (credit) As at 31 December 2023
£ Million £ Million £ Million £ Million £ Million £ Million £ Million
Capital losses (2.1) 2.1 - 2.1 - - - -
(available for future relief)
Deferred acquisition costs (DAC) 20.2 (7.9) - (7.9) - - 12.3 14 years
Purchased value of in-force business (PVIF) 2.8 (0.8) - (0.8) - - 2.0 2 years
Unrealised capital gains on life insurance (BLAGAB) assets 180.1 243.3 - 243.3 - - 423.4 6 years
backing unit liabilities
Unrelieved expenses on life insurance business (37.5) 11.3 - 11.3 - - (26.2) 5 years
Other temporary differences (0.6) 0.1 - 0.1 0.7 - 0.2 -
Total 162.9 248.1 - 248.1 0.7 - 411.7 -
As at 1 January 2022 Impact of acquisitions Reanalysis from deferred tax assets
As at 31 December 2022 Expected utilisation period
Charge/(credit) to the statement of Comprehensive Income
Utilised and created in year Impact of tax rate change Total charge/(credit) As at 31 December 2022
£ Million £ Million £ Million £ Million £ Million £ Million £
Mi
ll
io
n
Capital losses (26.8) 20.7 4.0 24.7 - - (2.1) 1 year
(available for future relief)
Deferred acquisition costs (DAC) 28.0 (7.8) - (7.8) - - 20.2 14 years
Purchased value of in-force business (PVIF) 3.4 (0.6) - (0.6) - - 2.8 3 years
Unrealised capital gains on life insurance (BLAGAB) assets backing unit 684.1 (504.0) - (504.0) - - 180.1 6 years
liabilities
Unrelieved expenses on life insurance business (39.1) 1.6 - 1.6 - - (37.5) 6 years
Other temporary differences 0.2 (0.3) - (0.3) - (0.5) (0.6) -
Total 649.8 (490.4) 4.0 (486.4) - (0.5) 162.9
Appropriate investment income, gains or profits are expected to arise against
which the tax assets can be utilised. Whilst the actual rates of utilisation
will depend on business growth and external factors, particularly investment
market conditions, they have been tested for sensitivity to experience and are
resilient to a range of reasonably foreseeable scenarios.
During the year the Group have fully utilised the shareholder capital losses.
The Group do not expect further material capital losses to arise in the
future.
At the reporting date there were unrecognised deferred tax assets of £17.3
million (2022: £15.0 million) in respect of £101.9 million (2022: £92.1
million) of losses in companies where appropriate profits are not considered
probable in the forecast period. These losses primarily relate to the Group's
Asia-based businesses and can be carried forward indefinitely.
Future tax changes
The main rate of corporation tax has increased from 19% to 25% with effect
from 1 April 2023. The Group has applied a blended rate of 23.5% for the year
ended 31 December 2023.
IFRS 17
The transitional adjustment arising from the restatement of the 31 December
2022 balance sheet on adoption of IFRS 17 is to be spread evenly for tax
purposes over 10 years in the UK, and 5 years in Ireland. As a result, a total
opening deferred tax liability of £1.8 million has been recognised in respect
of St. James's Place UK plc (£0.4 million) and St. James's Place
International plc (£1.4 million) at the relevant expected future tax rate
applicable to the jurisdiction of 25% (UK) and 12.5% (Ireland). Whilst this is
a deferred tax liability, it was adjusted for within other temporary
differences in deferred tax assets due to the offsetting principle. Following
the unwind during the year of £0.3m, the remaining balance as at 31 December
2023 is £1.5 million (being £1.1 million in respect of St. James's Place
International plc and £0.4 million in respect of St. James's Place UK plc).
Pillar Two - Global minimum tax
Effective from 1 January 2024, the Group will be subject to the Global minimum
tax rules introduced by the Organisation for Economic Co-operation and
Development (OECD) and adopted into local legislation of various territories
in which the Group operates; including the UK and Ireland. The Group expects
to be subject to top-up tax in relation to its operations in Ireland, where
the statutory corporate tax rate is 12.5%. As a result of the Introduction of
this minimum tax rule, Ireland have introduced a Qualifying Domestic Minimum
Top-up Tax which will Increase the effect tax rate of in scope businesses to
15% - the Group expects the Irish profits to be in scope for this.
If the top-up tax had been applied during the year ended 31 December 2023,
then the amount to be assessed on profits relating to the Group's operations
in Ireland would have been immaterial.
The Group has applied the exemption afforded by the International Tax Reform -
Pillar Two Model Rules (Amendments to IAS 12), and as such does not recognise
deferred tax impacts of any future top-up tax.
7. Other receivables
31 December 31 December
2023 2022
£'Million £'Million
Receivables in relation to unit liabilities excluding policyholder 956.0 440.5
interests 1
Other receivables in relation to insurance and unit trust business 2 151.9 75.8
Operational readiness prepayment 283.5 278.3
Advanced payments to Partners 127.4 83.8
Other prepayments and accrued income1 37.9 40.8
Business loans to Partners 408.0 315.6
Renewal income assets 138.3 115.5
Miscellaneous 44.3 18.9
Total other receivables on the Solvency II Net Assets Balance Sheet 2,147.3 1,369.2
Policyholder interests in other receivables 846.9 1,604.8
Other 3.2 3.2
Total other receivables 2,997.4 2,977.2
Current 2,243.8 2,357.4
Non-current 753.6 619.8
2,997.4 2,977.2
1 Receivables in relation to unit liabilities excluding policyholder
interests and other prepayments and accrued income have been re-presented
to better reflect the nature of the balances included. Receivables in
relation to unit liabilities excluding policyholder interests has increased
£43.5 million and other prepayments and accrued income decreased £43.5
million.
2 Restated to reflect the adoption of IFRS 17. See Note 1a.
All items within other receivables meet the definition of financial assets
with the exception of prepayments and advanced payments to Partners. The fair
value of those financial assets held at amortised cost is not materially
different from amortised cost.
Receivables in relation to unit liabilities relate to outstanding market trade
settlements (sales) in the life unit-linked funds and the consolidated unit
trusts. Other receivables in relation to insurance and unit trust business
primarily relate to outstanding policy-related settlement timings. Both of
these categories of receivables are short-term.
The operational readiness prepayment consists of directly invoiced operational
readiness costs advanced and relates to the Bluedoor administration platform
which has been developed by our key outsourced back-office administration
provider. Management has assessed the recoverability of this prepayment
against the expected cost saving benefit of lower future tariff costs arising
from the platform. It is believed that no reasonably possible change in the
assumptions applied within this assessment, notably levels of future business,
the anticipated future service tariffs and the discount rate, would have an
impact on the carrying value of the asset.
Renewal income assets represent the present value of future cash flows
associated with business combinations or books of business acquired by the
Group.
Business loans to Partners
31 December 31 December
2023 2022
£'Million £'Million
Business loans to Partners directly funded by the Group 340.8 315.6
Securitised business loans to Partners 67.2 -
Total business loans to Partners 408.0 315.6
Business loans to Partners are interest-bearing (linked to Bank of England
base rate plus a margin), repayable in line with the terms of the loan
contract and secured against the future income streams of the respective
Partners.
During 2022, £262.5 million of business loans to Partners previously
recognised in the Consolidated Statement of Financial Position were sold to a
third-party. The sale occurred at book value and met the derecognition
criteria of IFRS 9 as substantially all risks and rewards of ownership were
transferred. The risks and rewards of ownership were assessed as transferred
primarily due to the following:
· the loans were sold to a third-party Special Purpose Vehicle
(SPV) which the Group does not manage or control;
· the third-party SPV has the ability to remove the Group as the
servicing party;
· there is no exposure from the loans sold to the third-party SPV
through clawback, or any residual credit risk; and
· the transaction was structured by identifying a portfolio of
loans (totalling £276.3 million), selling 95% of the full individual loans
within that portfolio (realising proceeds of £262.5 million) without recourse
and retaining 5% of the full individual loans within the portfolio as required
under the securitisation regulation. The loans were assessed for derecognition
on an individual basis and the retained 5% do not meet the derecognition
criteria of IFRS 9.
As a result, these business loans to Partners are no longer recognised on the
Consolidated Statement of Financial Position.
The Group has a continued involvement with the derecognised assets through the
servicing of the transferred loan portfolio. A servicing fee is received in
respect of this servicing, which is immaterial to the Group. The servicing fee
is included within expenses on the face of the Consolidated Statement of
Comprehensive Income. The sale included £222.8 million of securitised
business loans to Partners, reducing the securitised loan balance to £nil.
The senior tranche of securitisation loan notes that were secured upon those
securitised business loans to Partners were repaid as part of the transaction.
See Note 10 for further information.
Reconciliation of the business loans to Partners opening and closing gross
loan balances
Stage 1 Stage 2 Stage 3 Total
performing under- non-
performing performing
£'Million £'Million £'Million £'Million
Gross balance at 1 January 2023 297.1 17.7 4.6 319.4
Business loans to Partners classification changes:
- Transfer to underperforming (11.9) 11.9 - -
- Transfer to non-performing (3.2) (0.2) 3.4 -
- Transfer to performing 4.2 (3.5) (0.7) -
New lending activity during the year 195.0 16.9 0.7 212.6
Interest charged during the year 26.2 3.1 0.8 30.1
Repayment activity during the year (147.7) (1.3) (0.3) (149.3)
Gross balance at 31 December 2023 359.7 44.6 8.5 412.8
Stage 1 Stage 2 Stage 3 Total
performing under- non-
performing performing
£'Million £'Million £'Million £'Million
Gross balance at 1 January 2022 500.5 21.0 4.1 525.6
Business loans to Partners classification changes:
- Transfer to underperforming (4.8) 4.8 - -
- Transfer to non-performing (0.5) (0.9) 1.4 -
- Transfer to performing 5.2 (5.2) - -
Sale to a third party during the year (262.5) - - (262.5)
New lending activity during the year 216.6 2.1 0.4 219.1
Interest charged during the year 20.6 0.9 0.2 21.7
Repayment activity during the year (178.0) (5.0) (1.5) (184.5)
Gross balance at 31 December 2022 297.1 17.7 4.6 319.4
During the year the Group experienced an increase in stage 2 - underperforming
as a result of higher interest rates and the challenging operating environment
having an impact on Partners' ability to meet loan repayments in full.
Business loans to Partners: provision
The expected loss impairment model for business loans to Partners is based on
the levels of loss experienced in the portfolio, with due consideration given
to forward-looking information. For those business loans to Partners sold to a
third party in the prior year, full credit risk was transferred.
The provision held against business loans to Partners as at 31 December 2023
was £4.8 million (2022: £3.8 million). During the year, £0.2 million of the
provision was released (2022: £0.3 million), £3.4 million was utilised
(2022: £0.2 million) and new provisions and adjustments to existing
provisions increased the total by £4.6 million (2022: £0.3 million).
There is no provision held against any other receivables held at amortised
cost.
Business loans to Partners as recognised on the Statement of Financial
Position
31 December 31 December
2023 2022
£'Million £'Million
Gross business loans to Partners 412.8 319.4
Provision (4.8) (3.8)
Net business loans to Partners 408.0 315.6
Renewal income assets
Movement in renewal income assets
2023 2022
£'Million £'Million
Balance at 1 January 115.5 102.5
Additions 32.0 36.1
Disposals (2.1) (7.8)
Revaluation (7.1) (15.3)
Balance at 31 December 138.3 115.5
The key assumptions used for the assessment of the fair value of the renewal
income are as follows:
31 December 31 December
2023 2022
Lapse rate - SJP Partner renewal income 1 5.0% to 15.0% 5.0% to 15.0%
Lapse rate - non-SJP renewal income 1 6.5% to 25.0% 15.0% to 25.0%
Discount rate 11.8% 12.0% to 13.7%
1 Future income streams are projected making use of retention assumptions
derived from the Group's experience of the business or, where insufficient
data exists, from external industry experience. These assumptions are reviewed
on an annual basis.
These assumptions have been used for the analysis of each business combination
classified within renewal income.
8. Other payables
31 December 31 December
2023 2022
£'Million £'Million
Payables in relation to unit liabilities excluding policyholder interests 437.1 326.2
Other payables in relation to insurance and unit trust business 1 738.6 399.9
Accrual for ongoing advice fees 150.0 133.2
Other accruals 101.1 105.8
Contract payment 84.2 95.8
Lease liabilities: properties 120.5 116.6
Other payables in relation to Partner payments 75.1 74.8
Miscellaneous 50.4 67.3
Total other payables on the Solvency II Net Assets Balance Sheet 1,757.0 1,319.6
Policyholder interests in other payables 613.3 842.0
Other (see adjustment 2) 17.8 19.1
Total other payables 2,388.1 2,180.7
Current 1 2,212.9 2,000.6
Non-current 175.2 180.1
2,388.1 2,180.7
1 Restated to reflect the adoption of IFRS 17. See Note 1a.
Payables in relation to unit liabilities relate to outstanding market trade
settlements (purchases) in the life unit-linked funds and the consolidated
unit trusts. Other payables in relation to insurance and unit trust business
primarily relate to outstanding policy-related settlement timings. Both of
these categories of payables are short-term.
The contract payment of £84.2 million (2022: £95.8 million) represents
payments made by a third-party service provider to the Group as part of a
service agreement, which are non-interest-bearing and repayable over the life
of the service agreement. The contract payment received prior to 2020 is
repayable on a straight-line basis over the original 12-year term, with
repayments commencing on 1 January 2017. The contract payment received in 2020
is repayable on a straight-line basis over 13 years and 4 months, with
repayments commencing on 1 September 2020.
The lease liabilities: properties line item represents the present value of
future cash flows associated with the Group's portfolio of property leases.
The fair value of financial instruments held at amortised cost within other
payables is not materially different from amortised cost.
Policyholder interests in other payables are short-term in nature and can vary
significantly from period to period due to prevailing market conditions and
underlying trading activity.
9. Other provisions and contingent liabilities
Complaints Ongoing Service Evidence provision Lease Clawback Total provisions
provision provision provision
£'Million £'Million £'Million £'Million £'Million
At 1 January 2022 30.9 - 10.0 3.2 44.1
Additional provisions 28.5 - 3.5 - 32.0
Utilised during the year (14.0) - (0.1) (0.2) (14.3)
Release of provision (15.7) - (0.1) - (15.8)
At 31 December 2022 29.7 - 13.3 3.0 46.0
Additional provisions 61.8 426.0 2.6 0.1 490.5
Utilised during the year (21.0) - (0.8) - (21.8)
Release of provision (14.4) - (0.2) - (14.6)
At 31 December 2023 56.1 426.0 14.9 3.1 500.1
Other provisions
Complaints provision
The complaints provision is based on complaints identified, an assessment of
the proportion upheld, estimated cost of redress and the expected timing of
settlement. The Group expects significantly all of the provision to be
utilised within one year. See contingent liabilities below for further
information on the movement in the year.
Ongoing Service Evidence provision
During the year the Group has experienced elevated levels of complaints in
connection with the delivery of historic ongoing advice services.
Given the claims experience, a skilled person was engaged to undertake an
initial assessment of a statistically credible representative cohort of
clients to explore whether issues raised by the complaints were replicated
across the wider client base. Following the assessment, the Group has
committed to review the sub-population of clients that has been charged for
ongoing servicing since the start of 2018 but where the evidence of delivery
falls below the acceptable standard. Where the standard of evidence is deemed
by the Group to be marginal the Group will invite clients to join the review
(the "Opt-In population"), but where the standard of evidence is deemed to be
poor the Group will include clients in the review unless instructed otherwise
(the "Opt-Out population").
The provision that has been recognised includes an estimated refund of
charges, together with interest at FOS rates, plus the administration costs
associated with completing this work. Allowance is also made for discounting
over the expected duration of the exercise.
A provision of £426.0 million has been recognised at 31 December 2023 with
the best estimate assessment based on extrapolation of the experience of the
statistically credible representative cohort of clients.
IAS 37 and IAS 1 requires the Group to set out sensitivities. In compliance
with these requirements, the following table sets out the potential change to
the provision balance at 31 December 2023 if the key assumptions were to vary
as described:
Sensitivity analysis Change in profit/(loss) before tax
Change in assumption
Favourable changes Unfavourable changes
Percentage £'Million £'Million
Extrapolation from a representative cohort 2% 22.0 (22.0)
- Variation in proportion of client population subject to the review
Extrapolation from a representative cohort 10% 31.0 (31.0)
- Variation in the level of charges, based on average client FUM, subject to
refund
Opt-In response rate 10% 17.0 (17.0)
- Variation in response rate
Administration costs 10% 12.0 (12.0)
- Change in estimation of the cost to fulfil the exercise (cost per claim)
It is estimated that significantly all the provision will be utilised over a
two-to-three-year period from the reporting date.
Lease provision
The lease provision represents the value of expected future costs of
reinstating leased property to its original condition at the end of the lease
term. The estimate is based on the square footage of leased properties and
typical costs per square foot of restoring similar buildings to their original
state. The Group expects £1.5 million (2022: £1.6 million) of the provision
to be utilised within one year. The majority of the provision relates to
leased property with a maturity date of greater than five years.
Clawback provision
The clawback provision represents amounts due to third-parties less amounts
recovered from Partners. The provision is based on estimates of the indemnity
commission that may be repaid. The Group expects to utilise the provision on
a straight-line basis over four years.
With the exception of the Ongoing Service Evidence provision, it is considered
that no reasonably possible level of changes in estimates would have a
material impact on the value of the best estimate of the provisions.
Contingent liabilities
Complaints and disputes
The Group is committed to achieving good client outcomes but does, in the
normal course of business receive complaints and claims. Also, and as
described in the Strategic Report, the FCA continues to reinforce the need for
Firms to embed the Consumer Duty regulation and there remains a risk that we
fail to provide quality suitable advice to clients, or that we fail to
evidence the provision of good quality service and advice, which could result
in regulatory sanction and/or a need to refund or compensate clients.
The costs, including legal costs, of these issues as they arise can be
significant and where appropriate, provisions have been established in
accordance with IAS 37.
Guarantees
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 £nil (2022: £nil).
For further information, see the list of principal risks and uncertainties in
the Risk and risk management section of the Strategic report.
10. Borrowings and financial commitments
Borrowings
Borrowings are a liability arising from financing activities. The Group has
two different types of borrowings:
· senior unsecured corporate borrowings which are used to manage
working capital, bridge intra-Group cash flows and fund investment in the
business; and
· securitisation loan notes which are secured only on a legally
segregated pool of the Group's business loans to Partners, and hence are
non-recourse to the Group's other assets. Further information about business
loans to Partners is provided in Note 7.
Senior unsecured corporate borrowings
31 December 31 December
2023 2022
£'Million £'Million
Corporate borrowings: bank loans 50.0 -
Corporate borrowings: loan notes 151.1 163.8
Senior unsecured corporate borrowings 201.1 163.8
The primary senior unsecured corporate borrowings are:
· a revolving credit facility of £345 million which is repayable
at maturity in 2028 with a variable interest rate. At 31 December 2023 the
undrawn credit available under this facility was £295 million (2022: £345
million);
· a Note Purchase Agreement for £51.1 million, which had the first
annual instalment of £12.8 million repaid in 2023. The notes are repayable in
four further annual instalments ending in 2027, with variable interest rates;
and
· a Note Purchase Agreement for £100 million. The notes are
repayable in one amount in 2031, with variable interest rates.
The Group has a number of covenants within the terms of its senior unsecured
corporate borrowing facilities. These covenants are monitored on a regular
basis and reported to lenders on a six-monthly basis. During the course of the
year all financial covenants were complied with. The Group is currently in
discussion with a number of lenders regarding some routine disclosure matters
and expects these matters to be satisfactorily concluded shortly.
As at 31 December 2023 and 31 December 2022 the Group had sufficient headroom
available under its covenants to fully draw the remaining commitment under its
senior unsecured corporate borrowing facilities.
Total borrowings
31 December 31 December
2023 2022
£'Million £'Million
Senior unsecured corporate borrowings 201.1 163.8
Senior tranche of non-recourse securitisation loan notes 50.3 -
Total borrowings 251.4 163.8
Current 62.0 12.8
Non-current 189.4 151.0
251.4 163.8
Following the full loan sale to a third party conducted in late 2022, the
facility was renegotiated and extended effective February 2023. The facility
has been utilised to purchase more eligible loans throughout 2023, and the
associated senior notes are repayable over the expected life of the
securitisation (estimated to be five years) with a variable interest rate.
They are held by a third-party investor and secured on a legally segregated
portfolio of business loans to Partners, and on the other net assets of the
securitisation entity SJP Partner Loans No.1 Limited. Holders of the
securitisation loan notes had no recourse to the assets held by any other
entity within the Group. For further information on business loans to
Partners, including the sale of securitised business loans to Partners during
the year, refer to Note 7.
In addition to the senior tranche of securitisation loan notes, a junior
tranche has been issued to another entity within the Group. The junior notes
were eliminated on consolidation in the preparation of the Group Financial
Statements and so do not form part of Group borrowings.
31 December 31 December
2023 2022
£'Million £'Million
Junior tranche of non-recourse securitisation loan notes 20.9 2.1
Senior tranche of non-recourse securitisation loan notes 50.3 -
Total non-recourse securitisation loan notes 71.2 2.1
Backed by
Securitised business loans to Partners (see Note 7) 67.2 -
Other net assets of SJP Partner Loans No.1 Limited 4.0 2.1
Total net assets held by SJP Partner Loans No.1 Limited 71.2 2.1
Movement in borrowings
Borrowings are liabilities arising from financing activities. The cash and
non-cash movements in borrowings over the year are set out below, with the
cash movements also set out in the Consolidated Statement of Cash Flows.
Senior Senior Total Senior Senior Total
unsecured tranche of securitisation borrowings unsecured tranche of borrowings
corporate loan notes corporate securitisation
borrowings borrowings loan notes
2023 2023 2023 2022 2022 2022
£'Million £'Million £'Million £'Million £'Million £'Million
Balance at 1 January 163.8 - 163.8 270.6 162.4 433.0
Additional borrowing during the year 175.0 58.1 233.1 145.0 59.0 204.0
Repayment of borrowings during the year (137.7) (7.1) (144.8) (252.0) (223.3) (475.3)
Costs on additional borrowings during the year - - - (1.6) - (1.6)
Unwind of borrowing costs (non-cash movement) - - - 0.6 0.5 1.1
Reclassification of prepaid loan facility expense to prepayments - (0.7) (0.7) 1.2 1.4 2.6
Balance at 31 December 201.1 50.3 251.4 163.8 - 163.8
The fair value of the outstanding borrowings is not materially different from
amortised cost. Interest expense on borrowings is recognised within Other
finance income in the Consolidated Statement of Comprehensive Income.
Financial commitments
Guarantees
The Group guarantees loans provided by third parties to Partners. In the event
of default on any individual Partner loan, the Group guarantees to repay the
full amount of the loan, with the exception of Metro Bank. For this third
party the Group guarantees to cover losses up to 50% of the value to the total
loans drawn. These loans are secured against the future income streams of the
Partner. The value of the loans guaranteed is as follows:
Loans drawn Facility
31 December 31 December 31 December 31 December
2023 2022 2023 2022
£'Million £'Million £'Million £'Million
Bank of Scotland 19.6 28.7 35.0 70.0
Investec 33.3 28.8 50.0 50.0
Metro Bank 17.6 27.3 50.0 40.0
NatWest 32.2 37.9 75.0 75.0
Santander 186.5 167.7 189.1 179.0
Total loans 289.2 290.4 399.1 414.0
The fair value of these guarantees has been assessed as £nil (2022: £nil).
11. Cash generated from operations
Year ended Year ended
31 December 31 December
2023 2022
£'Million £'Million
Cash flows from operating activities
Profit before tax for the year1 439.6 2.8
Adjustments for:
Amortisation of purchased value of in-force business 3.2 3.2
Amortisation of computer software 15.4 9.3
Depreciation 24.0 21.7
Impairment of goodwill - 1.5
Loss on disposal of computer software 0.8 0.5
Loss on disposal of property and equipment, including leased assets 2.3 0.9
Gain on disposal of subsidiary (1.2) -
Share-based payment charge 4.9 20.5
Interest income (108.0) (61.8)
Interest expense 17.3 12.4
Increase in provisions 454.1 1.9
Exchange rate losses/(gains) 2.3 (0.7)
415.1 9.4
Changes in operating assets and liabilities
Decrease in deferred acquisition costs 32.2 42.3
Decrease in investment property 184.2 274.0
(Increase)/decrease in other investments (21,077.2) 2,378.9
Decrease in reinsurance assets1 41.6 20.2
Increase in other receivables1,2 (14.2) (40.6)
Increase/(decrease) in insurance contract liabilities1 25.5 (98.1)
Increase/(decrease) in financial liabilities (excluding borrowings) 15,991.8 (1,138.3)
Decrease in deferred income (38.9) (32.2)
Increase/(decrease) in other payables1 206.2 (390.4)
Increase/(decrease) in net assets attributable to unit holders 3,908.1 (1,740.6)
(740.7) (724.8)
Cash generated from/(used in) operations2 114.0 (712.6)
1 Restated to reflect the adoption of IFRS 17. See Note 1a.
2 Restated to reclassify Proceeds from sale of financial assets held at
amortised cost from net cash flows from investing activities to net cash flows
from operating activities. See Note 1a.
12. Share capital, earnings per share and dividends
Share capital
Number of Called-up
ordinary shares share capital
£'Million
At 1 January 2022 540,530,529 81.1
- Issue of shares 459,028 0.1
- Exercise of options 3,246,200 0.4
At 31 December 2022 544,235,757 81.6
- Issue of shares - -
- Exercise of options 4,369,037 0.7
At 31 December 2023 548,604,794 82.3
Ordinary shares have a par value of 15 pence per share (2022: 15 pence per
share) and are fully paid.
Included in the issued share capital are 3,411,743 (2022: 2,207,186) shares
held in the Shares in trust reserve with a nominal value of £0.5 million
(2022: £0.3 million). The shares are held by the SJP Employee Share Trust and
the St. James's Place 2010 SIP Trust to satisfy certain share-based payment
schemes. The Trustees of the SJP Employee Share Trust retain the right to
dividends on the shares held by the Trust but have chosen to waive their
entitlement to the dividends on 1,896,985 shares at 31 December 2023 and
815,737 shares at 31 December 2022. The trustees of St. James's Place 2010
SIP Trust have chosen to waive their entitlement to the dividend on 556 shares
at 31 December 2023 (2022: nil).
Share capital increases are included within the exercise of options line in
the table above where they relate to the Group's share-based payment schemes.
Other share capital increases are included within the issue of shares line.
Earnings per share
Year ended Year ended
31 December 31 December
2023 2022
£'Million £'Million
Earnings
Profit after tax attributable to equity shareholders (for both basic and (10.1) 406.8
diluted EPS) 1
Million Million
Weighted average number of shares
Weighted average number of ordinary shares in issue (for basic EPS) 547.6 542.7
Adjustments for outstanding share options 8.8 5.1
Weighted average number of ordinary shares (for diluted EPS) 556.4 547.8
Pence Pence
Earnings per share (EPS)
Basic earnings per share 1 (1.8) 75.0
Diluted earnings per share 1 (1.8) 74.3
1 Restated to reflect the adoption of IFRS 17. See Note 1a.
Dividends
The following dividends have been paid by the Group:
Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December
2023 2022 2023 2022
Pence per share Pence per share £'Million £'Million
Final dividend in respect of 2021 - 40.41 - 218.9
Interim dividend in respect of 2022 - 15.59 - 84.7
Final dividend in respect of 2022 37.19 - 203.1 -
Interim dividend in respect of 2023 15.83 - 86.5 -
Total dividends 53.02 56.00 289.6 303.6
In respect of 2023 the Directors have recommended a 2023 final dividend of
8.00 pence per share. This amounts to £43.9 million and will, subject to
shareholder approval at the Annual General Meeting, be paid on 24 May 2024 to
those shareholders on the register as at 26 April 2024.
13. Related party transactions
Transactions with associates and non-wholly owned subsidiaries
Associates
Outstanding at the year-end were business loans of £2.9 million (2022: £1.2
million) to associates of the Group. During the year £1.6 million (2022:
£0.3 million) was advanced and £1.8 million (2022: £nil) was repaid.
Business loans to associates are interest-bearing (linked to the Bank of
England base rate plus a margin) and repayable in line with the terms of the
loan contract. Interest of £nil was received during 2023 (2022: £nil).
In addition, commission, advice fees and other payments of £2.3 million were
paid (2022: £0.4 million paid), under normal commercial terms, to associates
of the Group. The outstanding amount at 31 December 2023 was £0.5 million
payable (2022: £nil).
Non-wholly owned subsidiaries
Commission, advice fees and other payments of £3.8 million were paid (2022:
£4.3 million paid), under normal commercial terms, to non-wholly-owned Group
companies. The outstanding amount at 31 December 2023 was £0.6 million
payable (2022: £0.1 million receivable).
Transactions with key management personnel
Key management personnel have been defined as the Board of Directors and
members of the Group Executive Committee. The remuneration paid to the Board
of Directors of St. James's Place plc is set out in the Directors'
Remuneration Report, in addition to the disclosure below.
The Directors' Remuneration Report also sets out transactions with the
Directors under the Group's share-based payment schemes, together with details
of the Directors' interests in the share capital of the Company.
Compensation of key management personnel is as follows:
Year ended Year ended
31 December 31 December
2023 2022
£'Million £'Million
Short-term employee benefits 5.0 6.3
Post-employment benefits 0.5 0.5
Share-based payments 0.2 6.5
Total 5.7 13.3
The total value of Group FUM held by related parties of the Group as at 31
December 2023 was £17.9 million (2022: £41.1 million). The total value of
St. James's Place plc dividends paid to related parties of the Group during
the year was £1.0 million (2022: £0.8 million).
During 2022 total consideration of £20.3 million was agreed under normal
commercial terms to key management personnel and their connected parties for
the acquisition of Edwards Wealth Ltd (formerly JEWM Ltd). As at 31 December
2023 there was deferred contingent consideration outstanding of £nil (2022:
£3.2 million), with £3.2 million deferred contingent consideration paid
during the year (2022: £nil).
Commission, advice fees and other payments of £1.3 million (2022: £3.2
million) were paid, under normal commercial terms, to St. James's Place
advisers who were related parties by virtue of being connected persons with
key management personnel. The outstanding amount payable at 31 December 2023
was £nil (2022: £0.1 million).
Outstanding at the year-end were Partner loans of £nil (2022: £nil) due from
St. James's Place advisers who were related parties by virtue of being
connected persons with key management personnel. The Group either advanced, or
guaranteed, these loans. During the year £nil (2022: £0.5 million) was
advanced and £0.1 million (2022: £3.0 million) was repaid by advisers who
were related parties.
Business loans to Partners are interest-bearing (linked to the Bank of England
base rate plus a margin), repayable in line with the terms of the loan
contract and secured against the future renewal income streams of the
respective Partners. Interest of £nil was received during 2023 (2022: £0.1
million).
14. Events after the end of the reporting period
On the 27 February 2024, the Company signed an external debt facility for
£250.0 million. Debt drawn is repayable over 2 years at a margin over a
variable interest rate.
15. Non-statutory accounts
The financial information set out above does not constitute the Company's
statutory accounts for the years ended 31 December 2023 or 2022 but is derived
from those accounts. Statutory accounts for 2022 have been delivered to the
registrar of companies, and those for 2023 will be delivered in due course.
The auditors have reported on those accounts; their report was (i)
unqualified, (ii) did not include a reference to any matters to which the
auditors drew attention by way of emphasis without qualifying their report and
(iii) did not contain a statement under section 498 of the Companies Act 2006.
16. Annual Report
The Company's Annual Report and Accounts for the year ended 31 December 2023
is expected to be posted to shareholders by 9 April 2024. Copies of both this
announcement and the Annual Report and Accounts will be available to the
public through the Company's website at www.sjp.co.uk (http://www.sjp.co.uk) .
Glossary of alternative performance measures
Within this document various alternative performance measures (APMs) are
disclosed.
An APM is a measure of financial performance, financial position or cash flows
which is not defined by the relevant financial reporting framework, which for
the Group is International Financial Reporting Standards as adopted by the UK
(adopted IFRSs). APMs are used to provide greater insight into the performance
of the Group and the way it is managed by the Directors. The table below
defines each APM, explains why it is used and, if applicable, details where
the APM has been reconciled to IFRS:
Financial-position-related APMs
APM Definition Why is this measure used? Reconciliation
to the Financial Statements
Solvency II net assets Based on IFRS Net Assets, but with the following adjustments: Our ability to satisfy our liabilities to clients, and consequently our Refer to the Reconciliation of Cash result experiences to IFRS expenses.
solvency, is central to our business. By removing the liabilities which are
1. Reflection of the recognition requirements of the Solvency II regulations fully matched by assets, this presentation allows the reader to focus on the
for assets and liabilities. In particular this removes deferred acquisition business operation. It also provides a simpler comparison with other wealth
costs (DAC), deferred income (DIR), purchased value of in-force (PVIF) management companies.
and their associated deferred tax balances, other intangibles and some other
small items which are treated as inadmissible from a regulatory perspective;
and
2. Adjustment to remove the matching client assets and the liabilities as
these do not represent shareholder assets.
No adjustment is made to deferred tax, except for that arising on DAC, DIR and
PVIF, as this is treated as an allowable asset in the Solvency II regulation.
Total embedded value A discounted cash flow valuation methodology, assessing the long-term economic Life business and wealth management business differ from most other Not applicable.
value of the business. businesses, in that the expected shareholder income from the sale of a
product emerges over a long period in the future. We therefore supplement the
Our embedded value is determined in line with the European Embedded Value IFRS and Cash results by providing additional disclosure on an embedded value
(EEV) principles originally set out by the Chief Financial Officers (CFO) basis, which brings into account the net present value of expected future cash
Forum in 2004, and amended for subsequent changes to the principles, including flows, as we believe that a measure of the total economic value of the Group
those published in April 2016, following the implementation of Solvency II. is useful to investors.
EEV net asset value (NAV) per share EEV net asset value per share is calculated as the EEV net assets divided by Total embedded value provides a measure of total economic value of the Group, Not applicable.
the year-end number of ordinary shares. and assessing the EEV NAV per share allows analysis of the overall value of
the Group by share.
IFRS NAV per share IFRS net asset value per share is calculated as the IFRS net assets divided by Total IFRS net assets provides a measure of value of the Group, and assessing Not applicable.
the year-end number of ordinary shares. the IFRS NAV per share allows analysis of the overall value of the Group by
share.
Financial-performance-related APMs
APM Definition Why is this measure used? Reconciliation
to the Financial Statements
Cash result, and Underlying cash result The Cash result is defined as the movement between the opening and closing IFRS income statement methodology recognises non-cash items such as deferred Refer to Sections 2.1 and 2.2 of the financial review and also see Note 3 to
Solvency II net assets adjusted as follows: tax and equity-settled share options. By contrast, dividends can only be paid the Consolidated Financial Statements.
to shareholders from appropriately fungible assets. The Board therefore uses
1. The movement in deferred tax is excluded, except that arising from the the Cash results to monitor the level of cash generated by the business.
establishment of the exceptional Ongoing Service Evidence provision;
While the Cash result gives an absolute measure of the cash generated in the
2. The movements in goodwill and other intangibles are excluded; and year, the Underlying cash result is particularly useful for monitoring the
expected long-term rate of cash emergence, which supports dividends and
3. Other changes in equity, such as dividends paid in the year and sustainable dividend growth.
equity-settled share option costs, are excluded.
The Underlying cash result reflects the regular emergence of cash from the
business, excluding any items of a one-off nature and temporary timing
differences.
The Cash result reflects all other cash items, including items of a one-off
nature and temporary timing differences.
Neither the Cash result nor the Underlying cash result should be confused with
the IFRS Consolidated Statement of Cash Flows which is prepared in accordance
with IAS 7.
Underlying cash basic and diluted earnings per share (EPS) These EPS measures are calculated as Underlying cash divided by the number of As Underlying cash is the best reflection of the cash generated by the Not applicable.
shares used in the calculation of IFRS basic and diluted EPS. business, Underlying cash EPS measures allow analysis of the shareholder cash
generated by the business by share.
EEV profit Derived as the movement in the total EEV during the year. Both the IFRS and Cash results reflect only the cash flows in the year. See Note 3 to the Consolidated Financial Statements.
However our business is long-term, and activity in the year can generate
business with a long-term value. We therefore believe it is helpful to
understand the full economic impact of activity in the year, which is the aim
of the EEV methodology.
EEV operating profit A discounted cash flow valuation methodology, assessing the long-term economic Both the IFRS and Cash results reflect only the cash flows in the year. See Note 3 to the Consolidated Financial Statements.
value of the business. However, our business is long-term, and activity in the year can generate
business with a long-term value. We therefore believe it is helpful to
Our embedded value is determined in line with the EEV principles originally understand the full economic impact of activity in the year, which is the aim
set out by the Chief Financial Officers (CFO) Forum in 2004, and amended for of the EEV methodology.
subsequent changes to the principles, including those published in April 2016,
following the implementation of Solvency II. Within the EEV, many of the future cash flows derive from fund charges, which
change with movements in stock markets. Since the impact of these changes is
The EEV operating profit reflects the total EEV result with an adjustment to typically unrelated to the performance of the business, we believe that the
strip out the impact of stock market and other economic effects during the EEV operating profit (reflecting the EEV profit, adjusted to reflect only the
year. expected investment performance and no change in economic basis) provides the
most useful measure of embedded value performance in the year.
Within EEV operating profit is new business contribution, which is the change
in embedded value arising from writing new business during the year.
EEV operating profit basic and diluted earnings per share (EPS) These EPS measures are calculated as EEV operating profit after tax divided by As EEV operating profit is the best reflection of the EEV generated by the Not applicable.
the number of shares used in the calculation of IFRS basic and diluted EPS. business, EEV operating profit EPS measures allow analysis of the long-term
value generated by the business by share.
Policyholder and shareholder tax Shareholder tax is estimated by making an assessment of the effective rate of The UK tax regime facilitates the collection of tax from life insurance Disclosed as separate line items in the Statement of Comprehensive Income.
tax that is applicable to the shareholders on the profits attributable to the policyholders by making an equivalent charge within the corporate tax of the
shareholders. This is calculated by applying the appropriate effective Company. The total tax charge for the insurance companies therefore comprises
corporate tax rates to the shareholder profits. both this element and an element more closely related to normal corporation
tax.
The remainder of the tax charge represents tax on policyholders' investment
returns. Life insurance business impacted by this tax typically includes policy charges
which align with the tax liability, to mitigate the impact on the corporate
This calculation method is consistent with UK legislation relating to the entity. As a result, when policyholder tax increases, the charges
calculation of the tax on shareholders' profits. also increase. Since these offsetting items can be large, and typically do
not perform in line with the business, it is beneficial to be able to
identify the two elements separately. We therefore refer to that part of the
overall tax charge which is deemed attributable to policyholders as
policyholder tax, and the rest as shareholder tax.
Profit before shareholder tax A profit measure which reflects the IFRS result adjusted for policyholder tax, The IFRS methodology requires that the tax recognised in the Financial Disclosed as a separate line item in the Statement of Comprehensive Income.
but before deduction of shareholder tax. Within the Consolidated Statement Statements should include the tax incurred on behalf of policyholders in our
of Comprehensive Income the full title of this measure is 'Profit before tax UK life assurance company. Since the policyholder tax charge is unrelated to
attributable to shareholders' returns'. the performance of the business, we believe it is also useful to separately
identify the profit before shareholder tax, which reflects the IFRS profit
before tax, adjusted only for tax paid on behalf of policyholders.
Underlying profit A profit measure which reflects the IFRS result adjusted to remove the DAC, The IFRS methodology promotes recognition of profits in line with the Refer to Section 2.1 of the financial review
DIR and PVIF adjustments. provision of services and so, for long-term business, some of the initial cash
flows are spread over the life of the contract through the use of intangible
assets and liabilities (DAC and DIR). Due to the Retail Distribution Review
(RDR) regulation change in 2013, there was a step-change in the progression
of these items in our accounts, which resulted in significant accounting
presentation changes despite the fundamentals of our vertically-integrated
business remaining unchanged. We therefore believe it is useful to consider
the IFRS result having removed the impact of movements in these intangibles,
as it better reflects the underlying performance of the business.
Controllable expenses The total of expenses which reflects establishment, development, and our We are focused on managing long-term growth in controllable expenses. Full detail of the breakdown of
Academy.
expenses is provided in Section 2.2 of the financial review
Responsibility Statement of the Directors in respect of the Annual Financial
Report
The Directors confirm to the best of their knowledge that:
· The Financial Statements have been prepared in accordance with
UK-adopted International Accounting Standards and with the requirements of the
Companies Act 2006 as applicable to companies reporting under those standards
and give a true and fair view of the assets, liabilities, financial position
and profit for the Company and the undertakings included in the consolidation
as a whole; and
· Pursuant to Disclosure and Transparency Rules Chapter 4, the
Directors' Report and Strategic Report of the Company's Annual Report and
Accounts includes a fair review of the development and performance of the
business and the position of the Company and the undertakings included in the
consolidation taken as a whole, together with a description of the principal
risks and uncertainties faced by the business.
On behalf of the Board
Mark FitzPatrick Craig Gentle
Chief Executive Officer Chief Financial Officer
27 February 2024
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