REG - St. James's Place - Half-year Report
27/07/2023 07:15
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RNS Number : 3222H St. James's Place PLC 27 July 2023
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PRESS RELEASE AND HALF-YEAR REPORT AND ACCOUNTS
27 July 2023
ANNOUNCEMENT OF HALF-YEAR RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2023
RECORD FUNDS UNDER MANAGEMENT AND STRONG FINANCIAL RESULTS
St. James's Place plc (SJP) today issues its interim results for the six
months ended 30 June 2023:
New investment and funds under management
· Gross inflows of £8.0 billion (2022: £9.1 billion)
· Continued strong retention of client funds at 95.6%(1)
· Net inflows of £3.4 billion (2022: £5.5 billion), representing
4.6% of opening FUM (annualised)
· Group funds under management of £157.5 billion (31 December
2022: £148.4 billion)
Financial highlights and dividend
· Underlying cash result £207.1 million (2022: £198.8 million)(2)
· IFRS profit after tax £161.7 million (2022: £208.2 million)(3)
· Interim dividend of 15.83 pence per share (2022: 15.59 pence),
representing 30% of prior full year dividend
Other highlights
· We are now represented by 4,766 qualified advisers across the
Partnership, an increase of 73 year-to-date
· 169 advisers graduated from our Academy programmes; 346 now
enrolled
· EEV net asset value per share £16.28 (31 December 2022:
£16.66)(2)
Consumer Duty
· Significant programme of work undertaken ahead of new regulatory
regime
· Implemented a number of changes to further good outcomes for
clients, including a decision to reward clients with long-term investments
through the introduction of an annual product management cap on bond and
pension investments after they have been invested for ten years
(1) Throughout this press release our retention rate is calculated as
annualised surrenders and part-surrenders, divided by average funds under
management. It excludes regular income withdrawals and maturities.
(2) The Underlying cash result and EEV net asset value per share are
alternative performance measures (APMs). The glossary of alternative
performance measures on page 114 defines these APMs and explains why they are
useful. The Underlying cash result is reconciled to International Financial
Reporting Standards (IFRS) on pages 19 and 20.
(3) Restated to reflect the adoption of IFRS 17. See details of restatement on
pages 51 to 69.
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Andrew Croft, Chief Executive Officer, commented:
"I am pleased to report a robust business performance in the first half of
2023, highlighting once more the fundamental resilience of our business model
and the strength of relationships our advisers enjoy with their clients.
This has been a challenging period for many UK savers and investors who have
had to contend with high and persistent inflation, rising borrowing costs, a
mini banking crisis in the US and attendant stock market volatility, and
continued macro-economic and geo-political uncertainty. Despite this, we
attracted £8.0 billion of new client investments during the first half of
2023.
We are also pleased at the continued strong retention of client funds under
management, with annualised retention of 95.6% in the first half of the year.
Given the scale of inflationary pressures facing consumers in the UK it is,
however, little surprise that we have seen a return to more normal investment
withdrawal rates across our pensions and bonds business, together with an
increase in surrender rates across smaller unit trusts and ISA portfolios.
As a result, we achieved net inflows of £3.4 billion. A strong outcome given
the market environment and one that supported funds under management
increasing 6% over the six months to a record £157.5 billion.
This operating performance has been mirrored by a strong financial outturn for
the period. Despite the headwinds of a challenging new business environment,
the impact of inflationary pressures on our cost base, and a marked increase
in the rate of UK corporation tax, we have delivered an underlying post-tax
cash result of £207.1 million, up 4% versus the prior year.
Beyond our operating and financial performance, it has been a period of
intense activity regarding progress against our six business priorities, as
well as in our preparation for the FCA's new Consumer Duty regime. As a
business focused on driving good client outcomes, we have welcomed the
opportunity to further strengthen our commitment to clients and enhance the
value we deliver to them.
As we look ahead, there continue to be challenges for UK consumers, but as a
long-term business our focus remains on ensuring we are well positioned to
support our advisers build great relationships and deliver trusted and valued
face-to-face advice over time. This commitment underpins our 2025 plan and
will enable SJP to capitalise on the scale of long-term market opportunity
ahead."
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
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2023 Half-Year Results Presentation
Date: 27 July 2023
Time: 08:30 BST
Duration: 2 hours
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CONTENTS
Page(s)
New Business Inflows and Funds Under Management 4
Interim Management Statement 5 - 44
Condensed Consolidated Half-Year Financial Statements prepared under 45 - 105
International Financial Reporting Standards (IFRS) as adopted by the United
Kingdom (UK)
Supplementary Information: Consolidated Half-Year Financial Statement on a 106 - 112
Cash Result Basis
Other Information 113 - 117
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New Business Inflows and Funds Under Management
The following table shows how FUM evolved during the six months to 30 June
2023 and 30 June 2022, and the year to 31 December 2022. Investment return is
presented net of all charges.
Six months ended 30 June 2023 31 December
30 June 2022
2022
Investment Pension UT/ISA Total
and
DFM
£'Billion £'Billion £'Billion £'Billion £'Billion £'Billion
Opening FUM 33.29 73.86 41.22 148.37 153.99 153.99
Gross inflows 1.10 4.89 2.05 8.04 9.11 17.03
Net investment return 1.08 3.10 1.53 5.71 (17.27) (15.40)
Regular income withdrawals and maturities (0.21) (1.06) - (1.27) (1.01) (2.01)
Surrenders and part-surrenders (0.90) (0.92) (1.51) (3.33) (2.56) (5.24)
Closing FUM 34.36 79.87 43.29 157.52 142.26 148.37
Net inflows / (outflows) (0.01) 2.91 0.54 3.44 5.54 9.78
Implied surrender rate as a percentage of average FUM 5.3% 2.4% 7.1% 4.4% 3.5% 3.5%
Included in the table above is:
· Rowan Dartington Group FUM of £3.33 billion at 30 June 2023 (30
June 2022: £3.23 billion, 31 December 2022: £3.29 billion), gross inflows of
£0.20 billion for the period (six months to 30 June 2022: £0.25 billion,
year to 31 December 2022: £0.44 billion) and outflows of £0.09 billion for
the period (six months to 30 June 2022: £0.06 billion, year to 31 December
2022: £0.14 billion); and
· SJP Asia FUM of £1.62 billion at 30 June 2023 (30 June 2022:
£1.51 billion, 31 December 2022: £1.52 billion), gross inflows of £0.12
billion for the period (six months to 30 June 2022: £0.17 billion, year to 31
December 2022: £0.28 billion) and outflows of £0.06 billion for the period
(six months to 30 June 2022: £0.04 billion, year to 31 December 2022: £0.10
billion).
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Interim Management Statement
Chief Executive's Report
Introduction
I am pleased to report a period of robust business performance, highlighting
once more the fundamental resilience of our business model and the strength of
relationships our advisers enjoy with their clients.
This has been delivered amidst a challenging period for many UK savers and
investors who have had to contend with high and persistent inflation, rising
borrowing costs, a mini banking crisis in the US and attendant stock market
volatility, as well as continued macro-economic and geo-political uncertainty.
Despite this, many stock markets have proven reasonably resilient and consumer
and business confidence have been on an improving trend after reaching a low
ebb in late 2022.
Operating and financial performance
During the first half of 2023 we attracted £8.0 billion of new client
investments. The environment for new business has clearly been challenging in
recent months but activity has remained high as our advisers continued to
focus their attention on supporting clients with timely, personal advice to
help them manage near-term challenges whilst maintaining a long-term mindset.
This has resulted in stable gross inflows across much of our core business,
but it is evident that there has been some softening in the pace of more
discretionary one-off investments, particularly into our unit trust and ISA
wrappers. Given rising deposit rates on cash savings, we have also seen a
considerable increase in client investment into our third-party cash
management platform.
We are also pleased at the continued strong retention of client funds under
management, with annualised retention of 95.6% in the first half of the year.
It is, however, little surprise that we have seen a return to more normal
investment withdrawal rates across our pensions and bonds business, together
with an increase in surrender rates across smaller unit trust and ISA
portfolios as some clients access their investments to smooth the impact of
the inflationary pressures they might be facing.
As a result, we achieved net inflows of £3.4 billion or 4.6% of opening funds
under management on an annualised basis. A resilient outcome given the market
environment.
With investment performance having been positive overall during the half,
funds under management closed at a record £157.5 billion.
This operating performance has been mirrored by a strong financial outturn for
the period. Despite the headwinds of a challenging new business environment,
the impact of inflationary pressures on our cost base, and a marked increase
in the rate of UK corporation tax, we have delivered an underlying post-tax
cash result of £207.1 million, up 4% versus the prior year.
The IFRS profit after tax of £161.7 million was down 22% versus the prior
year, due to tax asymmetry.
Dividend
In line with our guidance that interim dividends will be set at 30% of the
prior full year payout, the Board has declared an interim dividend for 2023 of
15.83 pence per share.
Strategic progress
In the first six months of the year, we have continued to make good progress
against the business priorities that underpin the strategic ambitions and
objectives that we have set as part of our 2025 business plan and ambitions,
which we remain committed to. Some highlights during the first half include:
- Building community: we attracted a net 73 new advisers to the Partnership.
We now have 4,766 advisers around the UK and Asia supporting and advising more
than 941,000 clients so they can have confidence in their futures. Our Academy
continues to go from strength to strength, delivering more than 169 new
advisers to the Partnership during the period and underpinning our confidence
in continued net adviser growth in the years ahead. During the first half we
also built on our established presence in attractive markets in Asia with the
opening of a new office in Dubai. While it is early days, we are confident
that our business model and proposition, together with learnings from our
experience in other regional wealth hubs, will drive long-term success for our
business in the region.
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- Being easier to do business with: we continue to develop tools around our
Salesforce systems, providing additional capabilities for the benefit of our
advisers and the broader SJP community. One example of this is the launch of
Advice Assistant, a tool that utilises Salesforce and other data to simplify
and automate elements of the advice process for new ISA business, freeing time
for advisers and their support staff.
- Delivering value to advisers and clients through our investment proposition:
we've announced we're making changes to several of our funds, including
broadening the geographic remit of our government bond proposition beyond UK
gilts, appointing Dalton Investments to co-manage the Japan Fund, and
appointing Fulcrum Asset Management to the roster of fund managers on our
Global Absolute Return Fund.
- Building and protecting our brand and reputation: we've reflected on our
Client Wealth Account survey results from early in 2023, which highlight that
while scores remain very strong, with advocacy and value for money scores
improving, overall client satisfaction levels have seen a small decline since
2022, a feature that we note is consistent with broader industry trends and
reflecting the more difficult economic environment. As always, we are taking
the opportunity to explore what more we can do to drive great experiences and
outcomes for clients.
- Our culture and being a leading responsible business: we continue to embed
our responsible business strategy across SJP, ensuring shared understanding
within our community of our goals and ambitions to drive positive change. This
complements our traditional strength in community and charitable giving where
our support for the St. James's Place Charitable Foundation continues with
£5.1 million raised in the first half alone.
- Continued financial strength: we continue to demonstrate financial strength
despite the challenging operating environment, and this is covered in detail
in the Chief Financial Officer's Report on page 8.
Consumer Duty
We have been working hard to prepare ahead of the FCA's new Consumer Duty
regulation that comes into effect at the end of July 2023. This regulation
sets higher and clearer standards of consumer protection across financial
services and requires firms to act to deliver good outcomes for customers. We
have engaged proactively with this important regulatory initiative.
While we consistently aim to achieve good outcomes for our clients, Consumer
Duty has given us the opportunity to strengthen this commitment to clients
even further. We've looked at every part of our business through the lens of
clients - the people who trust us to help create the future they want for them
and for their families - and we've examined how we provide evidence that the
processes and frameworks we have in place deliver good client outcomes.
There are three core commitments we have that underpin 'good client outcomes'
at SJP:
1. We deliver fair value
2. We support each client to make effective, timely and informed
decisions throughout their journey with us
3. We help clients to achieve their financial objectives
Having considered the principles and the processes we have in place, we have
made a number of changes in how we and our advisers operate in order to ensure
we continue to deliver and evidence good client outcomes. In addition,
reflecting on the scale and maturity of the business today, and to further
increase the competitiveness of our bonds and pensions business through the
life-cycle, we are capping annual product management charges on client bond
and pensions contributions at the point each contribution has been invested
for ten years. This cap, which is set at 85 basis points, represents support
for clients who have invested over the long-term and we estimate there are
around 65,000 clients who will immediately benefit from this positive action,
a figure that will grow over time.
This change takes effect from August onwards and the impact will be to lower
the margin range on net income from funds under management by some four basis
points going forward.
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Now that Consumer Duty is coming into effect, we are treating the completion
of the specific work that was required, as an opportunity to continue to
evaluate our business and enhance long-term and sustainable value for clients,
the Partnership, shareholders and all other stakeholders.
Summary and outlook
While the trading environment has been challenging, we can be pleased with the
resilience of our new business performance and the strength of our financial
results in the first half of 2023. Our business model is inherently robust,
but this good outcome is testament to the contribution of all in the SJP
community who work hard to support clients and each other.
As we look ahead, there continues to be near-term challenges for UK consumers,
but as a long-term business our focus remains on ensuring we are well
positioned to support our advisers build great relationships and deliver
trusted and valued face-to-face advice over time. It is this commitment that
underpins our 2025 ambitions and will enable SJP to capitalise on the scale of
longer-term market opportunity ahead.
Andrew Croft, Chief Executive
26 July 2023
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Chief Financial Officer's Report
We are pleased to report a robust set of financial results, despite the
challenging operating environment in the first half of 2023.
The resilience of the business model is demonstrated with the continued scale
of net inflows which will drive long-term profit growth into the future.
During the period, our advisers attracted £8.0 billion (six months to 30 June
2022: £9.1 billion, year to 31 December 2022: £17.0 billion) of new client
investments and while withdrawal rates have returned to more normal levels as
expected, overall client retention rates of 95.6% (six months to 30 June 2022:
96.5%, year to 31 December 2022: 96.5%) remain high and above the targets set
out in our 2025 business plan. Together, these have contributed to net inflows
of £3.4 billion (six months to 30 June 2022: £5.5 billion, year to 31
December 2022: £9.8 billion), equivalent to an annualised 4.6% of opening
funds under management (FUM); a strong result given the operating environment.
Ongoing net inflows combined with positive investment market returns during
the period has resulted in FUM closing at £157.5 billion (30 June 2022:
£142.3 billion, 31 December 2022: £148.4 billion).
Our financial results are presented in more detail on pages 13 to 40 of the
Financial Review, but there follows here a summary of financial performance
on a statutory IFRS basis, as well as our chosen alternative performance
measures (APMs). We also summarise key developments from a balance sheet
perspective and provide shareholders with an overview of capital, solvency and
liquidity.
Financial Results
IFRS
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 increase to IFRS profit after tax of £2.6 million for the six months ended
30 June 2022 and a £1.8 million increase for the year ended 31 December 2022.
The movement occurred due to the revised pattern of profit recognition under
IFRS 17, which replaces implicit prudent margins in the measurement of
insurance contract liabilities under IFRS 4 with an explicit allowance for
risk and a Contractual Service Margin (CSM) which recognises profit more
evenly over the coverage period.
IFRS profit before tax is heavily distorted by the inclusion of policyholder
tax and the associated charges, which have resulted in a profit of £385.0
million (six months to 30 June 2022: negative £295.5 million, year to 31
December 2022: positive £2.8 million).
To address the challenge of policyholder tax being included in the IFRS
results, we focus on IFRS profit before shareholder tax as our pre-tax
measure. On this basis the result was £215.7 million for the year (six months
to 30 June 2022: £259.5 million, year to 31 December 2022: £503.9 million),
down 17% year on year. This decrease is driven by the impact of policyholder
tax asymmetry which adversely impacts the IFRS result in periods of stronger
markets or higher interest rates, contributing a negative £17.5 million in
the six months to June 2023, compared to a positive £39.4m in the six months
to June 2022, a delta of £56.9m. Further detail on this asymmetry is
included in the Financial Review on page 19. Excluding the short-term impact
of the policyholder tax asymmetry, IFRS profit before shareholder tax has
increased by 6%, with similar drivers to those described for the Cash result
below.
IFRS profit after tax was £161.7 million in 2023 (six months to 30 June
2022: £208.2 million, year to 31 December 2022: £407.2 million), down 22%,
additionally impacted by an increase in the rate of corporation tax.
The IFRS result also includes the impact of non-cash accounting adjustments
such as equity-settled share-based payment expenses, deferred income and
deferred acquisition costs, so we continue to supplement our statutory
reporting with the presentation of our financial performance using two APMs:
the Cash result and the EEV result.
Cash result
The Cash result, and the Underlying cash result contained within it, are based
on IFRS but adjusted to exclude certain non-cash items. They therefore
represent useful guides to the level of cash profit generated by the business.
All items in the Cash result, and in the commentary below, are presented net
of tax, with prior period comparisons impacted by a change in the rate of
corporation tax on 1 April 2023.
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The Cash result of £202.4 million for the first half of 2023 (six months to
30 June 2022: £194.1 million, year to 31 December 2022: £410.1 million) and
the Underlying cash result of £207.1 million (six months to 30 June 2022:
£198.8 million, year to 31 December 2022: £410.1 million) are each up 4%.
Excluding the impact of an increased rate of corporation tax, the Underlying
cash result has increased by 10%. These strong half-year results have been
driven by average mature FUM being higher during 2023 than it was in 2022,
delivery of controllable expenses consistent with our guidance, and increased
shareholder interest on our working capital due to Bank of England base rate
rises. More detail is set out below and in the Financial Review on pages 21 to
33.
During the period, the net income from funds under management was £299.6
million (six months to 30 June 2022: £300.2 million, year to 31 December
2022: £607.7 million), representing a margin within our range of 0.59% to
0.61% (2022: 0.63% to 0.65%) on average mature FUM, excluding Discretionary
Fund Management (DFM) and Asia FUM, in line with prior guidance and
reflecting the increased rate of corporation tax in 2023.
As noted in the Chief Executive's Report, a decision has been taken to cap
annual management charges on client bond and pension investments with a
duration longer than 10 years. This change takes effect from August 2023 and
the impact will be to lower our margin range to 0.55% to 0.57%. This will
amount to a post-tax reduction in net income from funds under management of
c.£12m for the second half of 2023.
This 0.04% reduction in the range will replicate into future periods but will
be compounded in 2024 with a further 0.01% reduction as a result of a higher
effective rate of tax with 25% applying for the whole year.
It is mature FUM that contributes to the net income figure and at any given
time it comprises all unit trust and ISA business, as well as life and
pensions business written more than six years ago.
The development of mature FUM year on year is therefore driven by four
principal factors:
1. New unit trust and ISA flows;
2. The amount of life and pensions FUM that moves from gestation into mature
FUM after a six-year period;
3. The retention of FUM; and
4. Investment returns.
As a result, growth in FUM is a strong positive indicator of future growth in
profits, despite not all new business contributing to net income from funds
under management for the first six years of its existence.
At 30 June 2023, the balance of gestation FUM stood at £47.2 billion (31
December 2022: £45.5 billion). Once this current stock of gestation FUM has
all matured, it will (assuming no market movements or withdrawals) contribute
in excess of a further £368 million to annual net income from funds under
management and hence to the Underlying cash result, at no additional cost.
St. James's Place also generates a margin arising from new business where
initial product charges levied on gross inflows exceed new business-related
expenses. The decrease in margin arising from new business in 2023 largely
reflects the decrease in gross flows over the period, although the
relationship between the two is generally directionally consistent rather than
linear as the margin includes some expenses which do not vary with gross
inflows.
Controllable expenses are a key metric for the business and despite the
persistence of high inflation we have contained the annual growth to 8% in the
first half of 2023, equivalent to a 2% increase on a post-tax basis,
reflecting the impact of the increased rate of corporation tax. We therefore
remain on track with our guidance of limiting growth in full year controllable
expenses to 8% pre-tax and remain committed to returning towards our
medium-term target of 5%, as and when inflation moderates towards more normal
levels.
Growth in income, coupled with this delivery of controllable expenses in line
with our guidance, has been the primary driver of a record half-year
Underlying cash result for the six months to 30 June 2023 of £207.1 million
(six months to 30 June 2022: £198.8 million, year to 31 December 2022:
£410.1 million).
Recognised below the Underlying cash result is the variance, which is a timing
effect included in the Half-Year results that arises due to there being fewer
days of annual management charge (AMC) in the first half of the year, which
unwinds by the end of the year.
The Cash result for the period was therefore £202.4 million (six months to 30
June 2022: £194.1 million, year to 31 December 2022: £410.1 million).
-10-
EEV
The EEV operating profit before exceptional item for the period is £740.1
million (six months to 30 June 2022: £914.2 million profit, year to 31
December 2022: £1,589.7 million profit). Adjusting for the persistency
assumption change in 2022, the result for the period is higher by 8% due to
the increase in the opening risk discount rate to which it is sensitive,
partially offset by a reduced new business contribution in line with gross
fund flows.
The EEV operating loss after exceptional item for the period is £119.1
million (six months to 30 June 2022: £914.2 million profit, year to 31
December 2022: £1,589.7 million profit), reflecting the exceptional item of
£859.2m from introducing a charge cap on longer duration client bond and
pension investments, as described in the Chief Executive's Report.
The EEV profit before tax for the period has benefited from a positive
investment return variance of £157.6 million (six months to 30 June 2022:
negative £1,346.2 million, year to 31 December 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 the comparative period.
The EEV profit after tax of £55.7 million (six months to 30 June 2022:
negative £208.2 million, year to 31 December 2022: positive £371.4 million)
reflects profit emergence as above.
The EEV net asset value per share was £16.28 at 30 June 2023 (30 June 2022:
£15.74, 31 December 2022: £16.66).
Financial position
Our IFRS Statement of Financial Position, presented on page 48, contains
policyholder interests in unit-linked liabilities and the underlying assets
that are held to match them. To understand the true assets and liabilities
that the shareholder can benefit from, these policyholder balances, along with
non-cash 'accounting' balances such as deferred income (DIR) and deferred
acquisition costs (DAC), are removed in the Solvency II Net Assets balance
sheet.
This balance sheet is straightforward and demonstrates that the Group has
liquid assets of £1,527.2 million (30 June 2022: £1,652.8 million, 31
December 2022: £1,532.9 million), of which £1,250.5 million (30 June 2022:
£1,370.5 million, 31 December 2022: £1,271.7 million), is invested in
AAA-rated money market funds. This deep liquidity represents 41% of total
assets on the Solvency II Net Assets balance sheet (30 June 2022: 53%, 31
December 2022: 50%). Further information about liquidity is set out on page
31.
Analysis of the key movements in the Solvency II Net Assets balance sheet
during the year is set out on pages 28 to 33.
Solvency and capital
We continue to manage the balance sheet prudently to ensure the Group's
solvency is safely maintained.
Given the simplicity of our business model, our approach to managing solvency
remains to hold assets to match client unit-linked liabilities plus a
management solvency buffer (MSB). At 30 June 2023 we held surplus assets over
the MSB of £824.2 million (30 June 2022: £714.4 million, 31 December 2022:
£847.2 million).
We also ensure that our approach meets the requirements of the Solvency II
regime. Our UK life company, the largest insurance entity in the Group,
targets capital equal to 110% of the standard formula requirement, as agreed
with the Prudential Regulation Authority (PRA) since 2017. This is a prudent
and sustainable policy given the risk profile of our business, which is
largely operational.
At 30 June 2023, the solvency ratio for our Life businesses was 131%, which
continues to be impacted by the positive effect of the policyholder tax
asymmetry which benefits our own funds and hence solvency ratio in the same
way as it benefits our IFRS result. This also takes into consideration the
small impact of the charge cap explained within the Chief Executive's Report.
Excluding this temporary effect which will unwind as markets improve, the
solvency ratio for our Life businesses was 121%. The temporary effect of the
equity dampener seen in previous periods has unwound due to the increase in
equity markets during the six months to 30 June 2023.
-11-
30 June 30 June 31 December
2023 2022 2022
£'Million £'Million £'Million
Underlying solvency ratio for our Life businesses 121% 126% 120%
Impact of policyholder tax asymmetry 10% 10% 8%
Effect of the equity dampener 0% 3% 2%
Solvency ratio for our Life businesses 131% 139% 130%
Taking into account entities in the rest of the Group, the Group solvency
ratio at 30 June 2023 was 151% (30 June 2022: 155%, 31 December 2022: 155%),
with this result also reflecting the positive impact of policyholder tax
asymmetry and equity dampener effects noted above.
Dividends
As set out in our 2025 business plan, our dividend guidance includes making an
interim payment set at 30% of the prior year total dividend. The Board is
therefore declaring an interim dividend of 15.83 pence per share, equal to 30%
of the prior year dividend per share of 52.78 pence.
Craig Gentle, Chief Financial Officer
26 July 2023
-12-
Summary financial information
Page Six months Six months Year ended
reference ended ended 31 December
30 June 2023 30 June 2022(1) 2022(1)
FUM-based metrics
Gross inflows (£'Billion) 15 8.0 9.1 17.0
Net inflows (£'Billion) 15 3.4 5.5 9.8
Total FUM (£'Billion) 15 157.5 142.3 148.4
Total FUM in gestation (£'Billion) 16 47.2 44.5 45.5
IFRS-based metrics
IFRS profit after tax (£'Million)(1) 19 161.7 208.2 407.2
IFRS profit before shareholder tax (£'Million)(1) 19 215.7 259.5 503.9
Underlying profit before shareholder tax (£'Million) 20 215.8 265.5 516.9
IFRS basic earnings per share (EPS) (Pence)(1) 29.6 38.4 75.0
IFRS diluted EPS (Pence)(1) 29.5 38.1 74.3
IFRS net asset value per share (Pence)(1) 227.1 210.9 233.7
Dividend per share (Pence) 15.83 15.59 52.78
Cash result-based metrics
Controllable expenses (£'Million) 23 134.0 131.4 277.9
Underlying cash result (£'Million) 22 207.1 198.8 410.1
Cash result (£'Million) 22 202.4 194.1 410.1
Underlying cash result basic EPS (Pence) 37.9 36.7 75.6
Underlying cash result diluted EPS (Pence) 37.7 36.4 74.9
EEV-based metrics
EEV operating (loss)/profit after exceptional item before tax (£'Million) 34 (119.1) 914.2 1,589.7
EEV operating (loss)/profit after exceptional item after tax basic EPS (Pence) (16.9) 126.3 218.8
EEV operating (loss)/profit after exceptional item after tax diluted EPS (16.9) 125.3 216.8
(Pence)
EEV net asset value per share (£) 16.28 15.74 16.66
Solvency-based metrics
Solvency II net assets (£'Million) 39 1,351.3 1,247.3 1,379.9
Management solvency buffer (£'Million) 39 527.1 532.9 532.7
Solvency II free assets (£'Million) 40 1,760.0 1,790.2 1,921.4
Solvency ratio (Percentage) 40 151% 155% 155%
(1) Restated to reflect the adoption of IFRS 17. See Note 2c.
The Cash result should not be confused with the IFRS Consolidated Statement of
Cash Flows, which is prepared in accordance with IAS 7.
-13-
Financial Review
This financial review provides analysis of the Group's financial position and
performance.
The Review is split into the following sections:
SECTION 1: FUNDS UNDER MANAGEMENT (FUM)
1.1 FUM analysis
1.2 Gestation
As set out below, FUM is a key driver of ongoing profitability
on all measures, and so information on growth in FUM is provided in Section
1.
Find out more on pages 15 to 17.
SECTION 2: PERFORMANCE MEASUREMENT
2.1 International Financial Reporting Standards (IFRS)
2.2 Cash result
2.3 European Embedded Value (EEV)
Section 2 analyses the performance of the business using three different
bases: IFRS, the Cash result, and EEV.
Find out more on pages 18 to 38.
SECTION 3: SOLVENCY
Section 3 addresses solvency, which is an important area given the multiple
regulated activities carried out within the Group.
Find out more on pages 39 to 40.
Our financial business model
Our financial business model is straightforward. We generate revenue by
attracting clients through the value of our proposition, who trust us with
their investments and then stay with us. This grows our funds under management
(FUM), on which we receive:
· advice charges for the provision of valuable, face-to-face
advice; and
· product charges for our manufactured investment, pension and
ISA/unit trust products.
Further information on our charges can be found on our website:
www.sjp.co.uk/charges. A breakdown of fee and commission income, our primary
source of revenue under IFRS, is set out in Note 4 on page 73.
The primary source of the Group's profit is the income we receive from annual
product management charges on FUM. As a result, growth in FUM is a strong
positive indicator of future growth in profits. However, most of our
investment and pension products are structured so that annual product
management charges are not taken for the first six years after the business is
written, so the ongoing benefit of these gross inflows into FUM for a given
year will not be seen until six years later. This means that the Group always
has six years' worth of FUM in the 'gestation' period. FUM subject to annual
product management charges is known as 'mature' FUM. More information about
our FUM and the fees we earn on it can be found in Sections 1 and 2 of the
Financial Review on pages 15 and 18.
Initial and ongoing advice charges, and initial product charges levied when a
client first invests into one of our products, are not major drivers of the
Group's profitability, because:
· most advice charges received are offset by corresponding
remuneration for Partners, so an increase in these revenue streams will
correspond with an increase in the associated expense and vice versa; and
· under IFRS, initial product charges are spread over the expected
life of the investment through deferred income (DIR - see page 19 for further
detail). The contribution to the IFRS result from spreading these historic
charges can be seen in Note 4 as amortisation of DIR. Initial product charges
contribute immediately to our Cash result through margin arising on new
business.
-14-
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.
Other ongoing expenses, including payments to Partners, increase with business
levels and are generally aligned with product charges.
-15-
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 the six months to 30 June
2023 and 30 June 2022, and the year to 31 December 2022. Investment return is
presented net of all charges.
Six months ended 30 June 2023 31 December
30 June 2022
2022
Investment Pension UT/ISA Total
and
DFM
£'Billion £'Billion £'Billion £'Billion £'Billion £'Billion
Opening FUM 33.29 73.86 41.22 148.37 153.99 153.99
Gross inflows 1.10 4.89 2.05 8.04 9.11 17.03
Net investment return 1.08 3.10 1.53 5.71 (17.27) (15.40)
Regular income withdrawals and maturities (0.21) (1.06) - (1.27) (1.01) (2.01)
Surrenders and part-surrenders (0.90) (0.92) (1.51) (3.33) (2.56) (5.24)
Closing FUM 34.36 79.87 43.29 157.52 142.26 148.37
Net inflows / (outflows) (0.01) 2.91 0.54 3.44 5.54 9.78
Implied surrender rate as a percentage of average FUM 5.3% 2.4% 7.1% 4.4% 3.5% 3.5%
Included in the table above is:
· Rowan Dartington Group FUM of £3.33 billion at 30 June 2023 (30
June 2022: £3.23 billion, 31 December 2022: £3.29 billion), gross inflows of
£0.20 billion for the period (six months to 30 June 2022: £0.25 billion,
year to 31 December 2022: £0.44 billion) and outflows of £0.09 billion for
the period (six months to 30 June 2022: £0.06 billion, year to 31 December
2022: £0.14 billion); and
· SJP Asia FUM of £1.62 billion at 30 June 2023 (30 June 2022:
£1.51 billion, 31 December 2022: £1.52 billion), gross inflows of £0.12
billion for the period (six months to 30 June 2022: £0.17 billion, year to 31
December 2022: £0.28 billion) and outflows of £0.06 billion for the period
(six months to 30 June 2022: £0.04 billion, year to 31 December 2022: £0.10
billion).
The following table shows the significant net inflows and the progression of
FUM over recent periods.
Period Opening FUM Net Investment Closing FUM
Inflows Return
£'Billion £'Billion £'Billion £'Billion
Six months to 30 June 2023 148.4 3.4 5.7 157.5
Year to 31 December 2022 154.0 9.8 (15.4) 148.4
Year to 31 December 2021 129.3 11.0 13.7 154.0
Year to 31 December 2020 117.0 8.2 4.1 129.3
Year to 31 December 2019 95.6 9.0 12.4 117.0
Year to 31 December 2018 90.7 10.3 (5.4) 95.6
-16-
The table below provides a geographical and investment-type analysis of FUM at
the end of each period.
30 June 2023 30 June 2022 31 December 2022
£'Billion Percentage £'Billion Percentage £'Billion Percentage
of total of total of total
North American equities 52.2 33% 46.0 33% 49.1 33%
Fixed income securities 24.4 16% 21.0 15% 23.1 16%
European equities 22.0 14% 17.4 12% 19.3 13%
Asia and Pacific equities 19.6 12% 18.8 13% 17.8 12%
UK equities 16.0 10% 16.0 11% 16.0 11%
Alternative investments 11.9 8% 11.9 8% 12.4 8%
Cash 6.1 4% 5.6 4% 5.7 4%
Other 3.3 2% 2.9 2% 2.8 2%
Property 2.0 1% 2.7 2% 2.2 1%
Total 157.5 100% 142.3 100% 148.4 100%
1.2 Gestation
As explained in our financial business model on page 13, due to our product
structure, at any given time there is a significant amount of FUM that has
not yet started to contribute to the Cash result.
When we attract new FUM there is a margin arising on new business that emerges
at the point of investment, which is a surplus of income over and above the
initial costs incurred at the outset. Within our Cash result presentation this
is recognised as it arises, but it is deferred under IFRS.
Once the margin arising on new business has been recognised the pattern of
future emergence of cash from annual product management charges differs by
product. Broadly, annual product management charges from unit trust and ISA
business begin contributing positively to the Cash result from day one, whilst
investment and pensions business enters a six-year gestation period during
which no net income from FUM is included in the Cash result. Once this
business has reached its six-year maturity point, it starts contributing
positively to the Cash result, and will continue to do so in each year that it
remains with the Group. Approximately 54% of gross inflows in the first half
of 2023, after initial charges, moved into gestation FUM (six months to 30
June 2022: 54%, year to 31 December 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 30 June 2023, as well 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.
Mature FUM Gestation FUM that Total FUM
contributing to will contribute
the Cash result to the Cash result
in the future
Position as at £'Billion £'Billion £'Billion
30 June 2023 110.3 47.2 157.5
31 December 2022 102.9 45.5 148.4
31 December 2021 104.7 49.3 154.0
31 December 2020 85.9 43.4 129.3
31 December 2019 76.8 40.2 117.0
31 December 2018 62.1 33.5 95.6
-17-
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 including the charge cap, and so how the gestation balance
of £47.2 billion at 30 June 2023 may start to contribute to the Cash result,
factoring in the change in the main rate of corporation tax to 25% from 1
April 2023. For simplicity it assumes that FUM values remain unchanged, that
there are no surrenders, and that business is written at the start of the
year. Actual emergence in the Cash result will reflect the varying business
mix of the relevant cohort and business experience.
Gestation FUM future accumulated contribution to the Cash result
Year £'Million
2023 26.3
2024 85.7
2025 147.8
2026 211.0
2027 277.0
2028 341.6
2029 368.8
-18-
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 £157.4 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 30 June 2023.
To address this, we developed APMs with the objective of stripping out the
policyholder element to present solely shareholder-impacting balances, as well
as removing items such as deferred acquisition costs and deferred income
to reflect Solvency II recognition requirements and to better match the way
in which cash emerges from the business. We therefore present our financial
performance and position on three different bases, using a range of APMs to
supplement our IFRS reporting. The three different bases, which are consistent
with those presented last year, are:
· International Financial Reporting Standards (IFRS);
· Cash result; and
· European Embedded Value (EEV).
APMs are not defined by the relevant financial reporting framework (which for
the Group is IFRS), but we use them to provide greater insight to the
financial performance, financial position and cash flows of the Group and the
way it is managed. A complete Glossary of Alternative Performance Measures is
set out on pages 114 to 117, 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 £2.6 million for the six months ended
30 June 2022 and £1.8 million increase for the year ended 31 December 2022.
For further explanation, refer to Note 2c page 51.
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 the six
months to 30 June 2023, we deducted £169.3 million from clients due to
investment market gains, which flowed through our IFRS profit before tax as
income, whereas in the six months to 30 June 2022 we were required to refund
£555.0 million from clients due to investment market falls, which flowed
through 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 six months to 30 June 2023, it was £385.0 million profit,
compared to a loss of £295.5 million for the six months ended 30 June 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.
-19-
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 on page 46.
Six months Six months Year ended
ended ended 31 December
30 June 2023 30 June 2022(1) 2022(1)
£'Million £'Million £'Million
IFRS profit before tax 385.0 (295.5) 2.8
Policyholder tax (169.3) 555.0 501.1
IFRS profit before shareholder tax 215.7 259.5 503.9
Shareholder tax (54.0) (51.3) (96.7)
IFRS profit after tax 161.7 208.2 407.2
(1) Restated to reflect the adoption of IFRS 17. See Note 2c.
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 of over 15% 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, with the corresponding deductions incorporated into policy
charges. In particular, the tax liability to HMRC is assessed using IAS 12
Income Taxes, which does not allow discounting, whereas the policy charges
are designed to ensure fair outcomes between clients and so reflect a wide
range of possible outcomes. This gives rise to different assessments of the
current value of future cash flows and hence an asymmetry in the Consolidated
Statement of Financial Position between the deferred tax position and the
offsetting client balance. The net balance reflects a temporary position, and
in the absence of market volatility we expect it will unwind as future cash
flows become less uncertain and are ultimately realised. Movement in the
asymmetry is recognised in the Consolidated Statement of Comprehensive Income
and analysed in Note 4 Fee and commission income. We refer to it as the impact
of policyholder tax asymmetry.
Under normal conditions this asymmetry is small, but market volatility and
interest rate movements can result in significant impacts. Market gains
combined with higher interest rates in the six months to 30 June 2023 have
resulted in a negative impact of £17.5 million, whereas market falls in the
six months to 30 June 2022 led to a positive £39.4 million movement in
policyholder tax asymmetry. This leads to a £56.9 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.
Shareholder tax reflects the tax charge attributable to shareholders and is
closely related to the performance of the business. However, it can vary
year-on-year due to several factors: further detail is set out in Note 6
Income and deferred taxes.
Underlying profit
This is IFRS profit before shareholder tax (as calculated above) adjusted to
remove the impact of accounting for deferred acquisition costs (DAC), deferred
income (DIR) and the purchased value of in-force business (PVIF).
IFRS requires certain up-front expenses incurred and income received to be
deferred. The deferred amounts are initially recognised on the Statement of
Financial Position as a DAC asset and DIR liability, which are subsequently
amortised to the Statement of Comprehensive Income over a future period.
Substantially all of the Group's deferred expenses are amortised over a
14-year period, and substantially all deferred income is amortised over a
six-year period.
-20-
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:
Six months Six months Year ended
ended ended 31 December
30 June 2023 30 June 2022(1) 2022(1)
£'Million £'Million £'Million
IFRS profit before shareholder tax 215.7 259.5 503.9
Remove the impact of movements in DAC/DIR/PVIF 0.1 6.0 13.0
Underlying profit before shareholder tax 215.8 265.5 516.9
(1) Restated to reflect the adoption of IFRS 17. See Note 2c.
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 and DIR on new business for the period set out below
cannot be agreed to those set out in Note 7, which is presented before both
policyholder tax and shareholder tax.
Six months Six months Year ended
ended ended 31 December
30 June 2023 30 June 2022(1) 2022(1)
£'Million £'Million £'Million
Amortisation of DAC (36.1) (39.8) (79.6)
DAC on new business for the period 20.9 22.7 37.3
Net impact of DAC (15.2) (17.1) (42.3)
Amortisation of DIR 74.6 83.1 166.2
DIR on new business for the period (57.9) (70.4) (133.7)
Net impact of DIR 16.7 12.7 32.5
Amortisation of PVIF (1.6) (1.6) (3.2)
Movement in the period (0.1) (6.0) (13.0)
(1) Restated to reflect the adoption of IFRS 17. See Note 2c.
Net impact of DAC
The scale of the £15.2 million negative overall impact of DAC on the IFRS
result (six months to 30 June 2022: negative £17.1 million, year to 31
December 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 two or three years, over which the amortisation
of pre-RDR expenses previously deferred will significantly outweigh new
post-RDR expenses deferred despite significant business growth, resulting in a
net negative impact on IFRS profits.
Net impact of DIR
The reduction in new business in the year means income deferred in the first
half of 2023 is lower than it was in 2022. Income released from the deferred
income liability has remained broadly static. Together, these effects mean
that DIR has had a positive £16.7 million impact on the IFRS result in the
six months to 30 June 2023 (six months to 30 June 2022: £12.7 million
positive, year to 31 December 2022: £32.5 million positive).
-21-
2.2 Cash Result
The Cash result is used by the Board to assess and monitor the level of cash
profit (net of tax) generated by the business. It is based on IFRS with
adjustments made to exclude policyholder balances and certain non-cash items,
such as DAC, DIR, deferred tax and equity-settled share-based payment costs.
Further details, including the full definition of the Cash result, can be
found in the Glossary of Alternative Performance Measures on pages 114 to 117.
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:
Six months ended Six months ended Year ended
30 June 2023
30 June 2022(1)
31 December 2022(1)
Before After tax Before After tax Before After tax
Shareholder Shareholder Shareholder
tax tax tax
£'Million £'Million £'Million £'Million £'Million £'Million
Underlying profit 215.8 161.4 265.5 211.9 516.9 416.5
Equity-settled share-based payments 9.9 9.9 11.2 11.2 20.5 20.5
Impact of deferred tax - 12.1 - 18.1 - 30.5
Impact of policyholder tax asymmetry 17.5 17.5 (39.4) (39.4) (50.6) (50.6)
Other 5.0 1.5 (5.2) (7.7) (1.3) (6.8)
Cash result 248.2 202.4 232.1 194.1 485.5 410.1
(1) Restated to reflect the adoption of IFRS 17. See Note 2c.
Equity-settled share-based payments have reduced in the six months to 30 June
2023 compared to the same period in 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. This has already been
recognised under IFRS, and hence Underlying profit, through the establishment
of deferred tax assets. More information can be found in Note 6.
The impact of policyholder tax asymmetry is a temporary effect caused by
asymmetries between fund tax deductions and the policyholder tax due to HMRC.
Movement in the asymmetry can be significant dependent on market conditions
such as were experienced in 2022. For further explanation, refer to page 19.
Other represents a number of other small items, including the difference
between the lease expense recognised under IFRS 16 Leases and lease payments
made.
The following table shows an analysis of the Cash result using two different
measures:
· Underlying cash result
This measure represents the regular emergence of cash from the business,
excluding any items of a one-off nature and temporary timing differences; and
· Cash result
This measure includes items of a one-off nature and temporary timing
differences.
-22-
Consolidated cash result (presented post-tax)
Note Six months ended 30 June 2023 Six months Year ended
ended 30 December 2022
30 June
2022
In-force New Total Total Total
business
£'Million £'Million £'Million £'Million £'Million
Net annual management fee 1 482.4 15.3 497.7 511.6 1,020.6
Reduction in fees in gestation period 1 (198.1) - (198.1) (211.4) (412.9)
Net income from FUM 1 284.3 15.3 299.6 300.2 607.7
Margin arising from new business 2 - 53.0 53.0 67.4 122.4
Controllable expenses 3 (9.5) (124.5) (134.0) (131.4) (277.9)
Asia - net investment 4 - (10.8) (10.8) (4.2) (11.3)
DFM - net investment 4 - (2.6) (2.6) (5.4) (10.9)
Regulatory fees and FSCS levy 5 (1.7) (14.8) (16.5) (32.9) (40.0)
Shareholder interest 6 27.5 - 27.5 4.1 15.9
Tax relief from capital losses 7 2.1 - 2.1 13.9 20.7
Miscellaneous 8 (11.2) - (11.2) (12.9) (16.5)
Underlying cash result 291.5 (84.4) 207.1 198.8 410.1
Variance 9 (4.7) - (4.7) (4.7) -
Cash result 286.8 (84.4) 202.4 194.1 410.1
Notes to the Cash result
1. Net income from FUM
The net annual management fee is the net manufacturing margin that the Group
retains from FUM after payment of the associated costs: for example,
investment advisory fees and Partner remuneration. Each product has standard
fees, but they vary between products. Overall post-tax margin on FUM reflects
business mix but also the different tax treatment, particularly life insurance
tax on onshore investment business.
As noted on page 13 however, our investment and pension business product
structure means that these products do not contribute to the 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 the six months to 30 June 2023, our net income from FUM is within
our range of 0.59% - 0.61%, which has reduced to reflect the increase in the
main rate of corporation tax from 19% to 25% from 1 April 2023.
As noted in the Chief Executive's Report, a decision has been taken to cap
annual management charges on client bond and pension investments with a
duration longer than 10 years. This change takes effect from August 2023 and
the impact will be to lower our margin range to 0.55% - 0.57%. This will
amount to a post-tax reduction in net income from funds under management of
c.£12m for the second half of 2023.
This 0.04% reduction in the range will replicate into future periods but will
be compounded in 2024 with a further 0.01% reduction as a result of a higher
effective rate of tax with 25% applying for the whole year.
Net income from Asia and DFM FUM is not included in this line. Instead, this
is included in the Asia - net investment and DFM - net investment lines.
-23-
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.
The margin arising from new business is a net of tax metric has also been
impacted in the first half of 2023 by an increase in the rate of corporation
tax.
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
Six months Six months Year ended
ended ended 31 December
30 June 2023 30 June 2022 2022
£'Million £'Million £'Million
Establishment expenses 95.1 95.9 198.9
Development expenses 33.0 29.7 67.4
Academy 5.9 5.8 11.6
Controllable expenses 134.0 131.4 277.9
Alongside our 2022 results, we set out an expectation that the full year
growth in controllable expenses would be contained to 8% on a pre-tax basis,
balancing disciplined expense management with the need to invest in the
business for the future, despite 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 are pleased
to have delivered a half-year outturn in line with this guidance for the full
year, with these costs increasing by 2% to £134.0 million and we remain
committed to returning towards our medium-term target of 5%, as and when
inflation moderates towards more normal levels.
Establishment expenses in the six months to 30 June 2023 were broadly flat
year on year on net of tax basis at £95.1 million (six months to 30 June
2022: £95.9 million, year to 31 December 2022: £198.9 million) as inflation
driven increases were 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 £33.0 million (six months to 30 June 2022: £29.7
million, year to 31 December 2022: £67.4 million). Our investment in
technology, alongside our commitment to making it easier to do business, is
the driver behind the increase in our development expenses. We continue to
improve our technology infrastructure and data quality, and to invest in
Salesforce.
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.
-24-
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 on page 26 between
expenses presented separately on the face of the Cash result before tax and
IFRS expenses.
We have continued to invest in developing our presence in Asia, as well as in
discretionary fund management via Rowan Dartington, both in the UK and
overseas. The increased investment in Asia includes the cost of restructuring
during the year. While both Asia and Rowan Dartington have been impacted by
the challenging market conditions in 2023, they both remain well positioned
well 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:
Six months Six months Year ended
ended ended 31 December
30 June 2023 30 June 2022 2022
£'Million £'Million £'Million
FSCS levy 10.2 27.1 27.3
Regulatory fees 6.3 5.8 12.7
Regulatory fees and FSCS levy 16.5 32.9 40.0
Our position as a market-leading provider of advice means we make a very
substantial contribution to supporting the FSCS, thereby providing protection
for clients of other businesses in the sector that fail. 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 from 2024.
6. Shareholder interest
This is the income accruing on shareholder investments and cash held for
regulatory purposes together with the interest received on the surplus capital
held by the Group. It is presented net of funding-related expenses, including
interest paid on borrowings and securitisation costs. It has increased
significantly during the year following rises in the Bank of England base
rate.
7. Tax relief from capital losses
A deferred tax asset has been recognised under IFRS for historic capital
losses which were regarded as being capable of utilisation over the medium
term. The tax asset is ignored for Cash result purposes as it is not fungible,
but instead the cash benefit realised when losses are utilised is shown in the
tax relief from capital losses line.
Utilisation during the period of £2.1 million tax value (six months to 30
June 2022: £13.9 million, year to 31 December 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 future years.
8. Miscellaneous
This category represents the net cash flow of the business not covered in any
of the other categories. It includes Group contributions to the St. James's
Place Charitable Foundation and movements in the fair value of renewal income
assets.
9. Variance
The variance recognised at the half-year reflects an allowance for fewer days
of AMC income in the first half compared to the second half. It will reverse
in the second half of the year and will not feature in the full year Cash
result.
-25-
Reconciliation of Cash result expenses to IFRS expenses
Whilst certain expenses are recognised in separate line items on the face of
the Cash result, expenses which vary with business volumes, such as payments
to Partners and third-party administration expenses, and expenses which relate
to investment in specific areas of the business such as DFM, are netted from
the relevant income lines rather than presented separately. In order to
reconcile to the IFRS expenses presented on the face of the Consolidated
Statement of Comprehensive Income on page 46, 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:
Six months ended Six months ended Year ended
30 June 2023 30 June 2022 31 December 2022
Before Tax rate After Before Tax rate After Before Tax rate After
tax tax tax tax tax tax
£'Million Percentage £'Million £'Million Percentage £'Million £'Million Percentage £'Million
Controllable expenses
Establishment expenses 124.3 23.5% 95.1 118.4 19.0% 95.9 245.5 19.0% 198.9
Development expenses 43.2 23.5% 33.0 36.7 19.0% 29.7 83.2 19.0% 67.4
Academy 7.7 23.5% 5.9 7.1 19.0% 5.8 14.3 19.0% 11.6
Total controllable expenses 175.2 134.0 162.2 131.4 343.0 277.9
Other costs presented separately on the face of the Cash result
Regulatory fees and FSCS levy 21.6 23.5% 16.5 40.7 19.0% 32.9 49.4 19.0% 40.0
Total expenses presented separately 196.8 150.5 202.9 164.3 392.4 317.9
on the face of the Cash result
-26-
The total expenses presented separately on the face of the Cash result before
tax then reconciles to IFRS expenses as set out below:
Six months Six months Year ended
ended ended 31 December
30 June 2023 30 June 2022(1) 2022(1)
£'Million £'Million £'Million
Total expenses presented separately on the face of the Cash result before tax 196.8 202.9 392.4
Expenses which vary with business volumes
Other performance-related costs 76.3 77.6 160.4
Payments to Partners 511.9 516.0 1,011.8
Investment expenses 48.2 37.5 85.7
Third-party administration 79.1 62.8 135.0
Other 44.7 26.1 57.0
Expenses relating to investment in specific areas of the business
Asia expenses 13.9 7.9 20.9
DFM expenses 18.0 17.0 35.7
Total expenses included in the Cash result 988.9 947.8 1,898.9
Reconciling items to IFRS expenses
Amortisation of DAC and PVIF, net of additions 16.9 18.7 45.5
Equity-settled share-based payments expenses 9.9 11.2 20.5
Insurance contract expenses presented elsewhere (2.1) (3.6) (4.5)
Other 1.3 (2.3) 1.3
Total IFRS Group expenses before tax 1,014.9 971.8 1,961.7
(1) Restated to reflect the adoption of IFRS 17. See Note 2c.
Expenses which vary with business volumes
Other performance-related costs, for both Partners and employees, vary with
the level of new business and the financial performance of the business.
Payments to Partners, investment expenses and third-party administration costs
are met through charges to clients, and so any variation in them from changes
in the volumes of new business or the level of the stock markets does not
impact Group profitability significantly.
Each of these items is recognised within the most relevant line of the Cash
result, which is determined based on the nature of the expense. In most cases,
this is either the net annual management fee or margin arising from new
business lines.
Other expenses include interest expense and bank charges, operating costs of
acquired financial adviser businesses and donations to the St. James's Place
Charitable Foundation. They are recognised across various lines in the Cash
result, including shareholder interest and miscellaneous.
Expenses relating to investment in specific areas of the business
Asia expenses and DFM expenses both reflect disciplined expense control during
the year, whilst continuing to invest to support growth. 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.
-27-
Derivation of the Cash result
The Cash result is derived from the IFRS Condensed 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 30 June 2023.
-28-
IFRS Adjustment Adjustment Solvency II Solvency II Net Assets
Balance 1 2 Net Assets Balance Sheet
Sheet Balance
Sheet
30 June 2022(1) 31 December
2022(1)
30 June 2023 Note £'Million £'Million £'Million £'Million £'Million £'Million
Assets
Goodwill 33.6 - (33.6) - - -
Deferred acquisition costs 321.4 - (321.4) - - -
Purchased value of in-force business 9.6 - (9.6) - - -
Computer software 32.7 - (32.7) - - -
Property and equipment 1 156.8 - - 156.8 148.0 145.7
Deferred tax assets 2 6.4 - (4.2) 2.2 3.0 2.5
Investment in associates 4.7 - - 4.7 1.4 1.4
Reinsurance assets(1) 55.3 - (48.3) 7.0 11.6 5.6
Other receivables(1,2) 3 3,177.0 (1,109.8) (3.1) 2,064.1 1,253.6 1,369.2
Income tax assets 7 - - - - 65.8 35.0
Investment property 1,191.9 (1,191.9) - - - -
Equities 110,771.4 (110,771.4) - - - -
Fixed income securities 4 27,886.4 (27,878.4) - 8.0 7.8 7.9
Investment in Collective Investment Schemes 4 7,174.1 (5,923.6) - 1,250.5 1,370.5 1,271.7
Derivative financial instruments 4,149.6 (4,149.6) - - - -
Cash and cash equivalents 4 6,684.0 (6,415.3) - 268.7 274.5 253.3
Total assets 161,654.9 (157,440.0) (452.9) 3,762.0 3,136.2 3,092.3
Liabilities
Borrowings 5 189.2 - - 189.2 371.8 163.8
Deferred tax liabilities 2 219.5 - 9.4 228.9 78.4 165.1
Insurance contract liabilities(1) 475.3 (417.8) (37.4) 20.1 20.4 17.9
Deferred income 513.6 - (513.6) - - -
Other provisions 6 55.5 - - 55.5 44.4 46.0
Other payables(1,2) 1, 3 2,670.2 (763.2) (16.6) 1,890.4 1,373.9 1,319.6
Investment contract benefits 113,924.8 (113,924.8) - - - -
Derivative financial instruments 3,490.4 (3,490.4) - - - -
Net asset value attributable to unit holders 38,843.8 (38,843.8) - - - -
Income tax liabilities 7 26.6 - - 26.6 - -
Total liabilities 160,408.9 (157,440.0) (558.2) 2,410.7 1,888.9 1,712.4
Net assets 1,246.0 - 105.3 1,351.3 1,247.3 1,379.9
(1) Restated to reflect the adoption of IFRS 17. See Note 2c.
(2) Restated to reclassify balances between Other receivables and Other
payables. See Note 2c.
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.
-29-
Notes to the Solvency II Net Assets Balance Sheet
1. Property and equipment, and other payables
£124.5 million (30 June 2022: £115.2 million, 31 December 2022: £114.4
million) of the property and equipment balance represents the right to use
leased assets. It 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 £127.0 million are recognised within
the other payables line (30 June 2022: £120.0 million, 31 December 2022:
£116.6 million).
Note 10 Other payables to the IFRS Financial Statements provide further detail
on lease liabilities.
2. Deferred tax assets and liabilities
Analysis of deferred tax assets and liabilities, including how they have moved
year on year, is set out in Note 6 Income and deferred taxes within the IFRS
Financial Statements.
3. Other receivables and other payables
Detailed breakdowns of other receivables and other payables can be found in
Note 9 Other receivables and Note 10 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 £2,064.1 million at 30 June
2023, principally reflecting an increase in short-term outstanding market
trade settlements in the life unit-linked funds and consolidated unit trusts.
Further information is set out below and in Note 9 Other receivables.
In order to maintain consistency with the balance sheet presentation under
IFRS 17, outstanding reinsurance receipts and insurance claims within the
Solvency II Net Assets Balance sheet have been reclassified from Other
receivables and Other payables to Reinsurance assets and Insurance claims
respectively.
Within other receivables there are two items which merit further analysis:
Operational readiness prepayment asset
One of the items within other receivables is the operational readiness
prepayment asset. This arose from the investment we have made into our
back-office infrastructure project, which was a complex, multi-year programme.
In addition to expensing our internal project costs through the IFRS Statement
of Comprehensive Income and Cash result as incurred, we have capitalised
Bluedoor development costs as a prepayment asset on the IFRS Statement of
Financial Position. The asset, which stood at £277.1 million at 30 June 2023
(30 June 2022: £283.9 million, 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 30 June 2023 is 10.5 years.
During 2022 a project to migrate our offshore business onto Bluedoor
commenced, which to date has added £17.9 million to the total operational
readiness prepayment asset. We expect to add approximately £40 million to the
total operational readiness prepayment over the course of the project.
-30-
The movement schedule below demonstrates how the operational readiness
prepayment has developed since
1 January 2022.
£'Million
Cost
At 1 January 2022 413.5
Additions during the period -
At 30 June 2022 413.5
Additions during the period 6.7
At 31 December 2022 420.2
Additions during the period 11.2
At 30 June 2023 431.4
Accumulated amortisation
At 1 January 2022 (117.2)
Amortisation during the period (12.4)
At 30 June 2022 (129.6)
Amortisation during the period (12.3)
At 31 December 2022 (141.9)
Amortisation during the period (12.4)
At 30 June 2023 (154.3)
Net book value
At 30 June 2022 283.9
At 31 December 2022 278.3
At 30 June 2023 277.1
The amortisation expense is recognised within third-party administration
expenses in the IFRS result, and within the net annual management fee and
margin arising from new business lines of the Cash result. It is more than
offset by the lower tariff charges on Bluedoor compared to the previous
system, which grow as the business grows, benefiting both the IFRS and Cash
results.
Business loans to Partners
Facilitating business loans to Partners is a keyway in which we are able to
support growing Partner businesses. Such loans are principally used to enable
Partners to take over the businesses of retiring or downsizing Partners, and
this process creates broad stakeholder benefits. First, clients benefit from
enhanced continuity of St. James's Place advice and service over time;
second, Partners are able to build and ultimately realise value in the
high-quality and sustainable businesses they have created; and finally the
Group and, in turn, shareholders, benefit from high levels of adviser and
client retention.
In addition to recognising a strong business case for facilitating such
lending, we recognise too the fundamental strength and credit quality of
business loans to Partners. Over more than ten years, cumulative write-offs
have totalled less than 5bps of gross loans advanced, with such low impairment
experience attributable to a number of factors that help to mitigate the
inherent credit risk in lending. These include taking a cautious approach to
Group credit decisions, with lending secured against prudent business
valuations. Demonstrating this, loan-to-value (LTV) information is set
out in the table below.
-31-
30 June 30 June 31 December
2023 2022 2022
Aggregate LTV across the total Partner lending book 30% 32% 32%
Proportion of the book where LTV is over 75% 7% 10% 10%
Net exposure to loans where LTV is over 100% (£'Million) 6.8 5.5 6.3
If FUM were to decrease by 10%, the net exposure to loans where LTV is over
100% at 30 June 2023 would increase to £8.8 million (30 June 2022: increase
to £9.1 million, 31 December 2022: increase to £9.3 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 period 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, this balance was negligible at 31 December 2022.
Since then, we have continued to make use of the securitisation vehicle to
support further business loans to Partners.
Further information is provided in Note 9 Other receivables.
30 June 30 June 31 December
2023 2022 2022
£'Million £'Million £'Million
Total business loans to Partners 400.2 514.5 315.6
Split by funding type:
Business loans to Partners directly funded by the Group 362.2 291.2 315.6
Securitised business loans to Partners 38.0 223.3 -
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:
30 June 30 June 31 December
2023 2022 2022
£'Million £'Million £'Million
Fixed interest securities 8.0 7.8 7.9
Investment in Collective Investment Schemes (AAA-rated money market funds) 1,250.5 1,370.5 1,271.7
Cash and cash equivalents 268.7 274.5 253.3
Total liquid assets 1,527.2 1,652.8 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 cash
generated will increase year on year as FUM in the gestation period becomes
mature and is subject to annual product management charges. Unit trust and ISA
business does not enter the gestation period, and so generates cash
immediately from the point of investment.
Cash is used to invest in the business and to pay the Group dividend. Our
dividend guidance is set such that appropriate cash is retained in the
business to support the investment needed to meet our future growth
aspirations.
-32-
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. 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 are secured only on the securitised
portfolio of business loans to Partners, they are non-recourse to the Group's
other assets. This means that the senior tranche of non-recourse
securitisation loan notes, whilst included within borrowings, are very
different from the Group's senior unsecured corporate borrowings, which are
used to manage working capital and fund investment in the business.
Following the sale in the second half of 2022 of a portfolio of business loans
to Partners backing these loan notes, this balance was repaid in full and so
was negligible at 31 December 2022. Since then, we have continued to make use
of the securitisation vehicle to support further business loans to Partners
and this has increased the reported level of borrowings by £25.3 million at
30 June 2023.
Senior unsecured corporate borrowings of £163.9 million at 30 June 2023 is
materially unchanged from 31 December 2022. Further information is provided in
Note 12 Borrowings and financial commitments within the IFRS Financial
Statements.
30 June 30 June 31 December
2023 2022 2022
£'Million £'Million £'Million
Corporate borrowings: bank loans - 38.6 -
Corporate borrowings: loan notes 163.9 163.8 163.8
Senior unsecured corporate borrowings 163.9 202.4 163.8
Senior tranche of non-recourse securitisation loan notes 25.3 169.4 -
Total borrowings 189.2 371.8 163.8
During the year our revolving credit facility, one of our primary senior
unsecured corporate borrowings facilities, was renewed. The undrawn credit
available under this facility is £345 million at 30 June 2023, which is
repayable at maturity in 2028.
6. Other Provisions
Further information on other provisions, including how the balance has moved
period-on-period, is set out in Note 11 Other provisions and contingent
liabilities.
7. Income tax liabilities
The Group has an income tax liability of £26.6 million at 30 June 2023
compared to an asset of £35.0 million at 31 December 2022. This is due to a
current tax charge of £160.7 million, offset by tax paid of £99.1 million in
the period. Further detail is provided in Note 6 Income and deferred taxes.
-33-
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.
Six months Six months Year ended
ended ended 31 December
30 June 2023 30 June 2022 2022
£'Million £'Million £'Million
Opening Solvency II net assets 1,379.9 1,245.3 1,245.3
Dividend paid (203.3) (218.9) (303.9)
Issue of share capital and exercise of options 6.4 12.8 14.5
Consideration paid for own shares (0.5) (0.3) (0.3)
Change in deferred tax (12.1) (18.1) (30.5)
Impact of policyholder tax asymmetry (17.5) 39.4 50.6
Change in goodwill, intangibles and other non-cash movements (4.0) (12.0) (10.9)
Non-controlling interests arising on the part-disposal of subsidiaries - 5.0 5.0
Cash result 202.4 194.1 410.1
Closing Solvency II net assets 1,351.3 1,247.3 1,379.9
-34-
2.3 European Embedded Value (EEV)
Wealth management differs from most other businesses, in that the expected
shareholder income from client investment activity emerges over a long period
in the future. We therefore supplement the IFRS and Cash results by providing
additional disclosure on an EEV basis, which brings into account the net
present value of the expected future cash flows. We believe that a measure of
the total economic value of the Group's operating performance is useful to
investors.
As in previous reporting, our EEV continues to be calculated on a basis
determined in accordance with the EEV principles originally issued in May 2004
by the Chief Financial Officers Forum (CFO Forum) and supplemented both in
October 2005 and, following the introduction of Solvency II, in April 2016.
Many of the principles and practices underlying EEV are similar to the
requirements of Solvency II, and we have sought to align them as closely as
possible. The table below and accompanying notes summarise the profit before
tax of the combined business.
Six months Six months Year ended
ended ended 31 December
30 June 2023 30 June 2022 2022
Note £'Million £'Million £'Million
Funds management business 1 818.7 985.9 1,725.8
Distribution business 2 (34.1) (33.5) (58.8)
Other (44.5) (38.2) (77.3)
EEV operating profit before exceptional item 740.1 914.2 1,589.7
Exceptional item: Charge cap 3 (859.2) - -
EEV operating (loss)/profit after exceptional item (119.1) 914.2 1,589.7
Investment return variance 4 157.6 (1,346.2) (1,314.0)
Economic assumption changes 5 37.8 166.9 235.1
EEV profit before tax 76.3 (265.1) 510.8
Tax (20.6) 56.9 (139.4)
EEV profit after tax 55.7 (208.2) 371.4
A reconciliation between EEV operating profit before tax and IFRS profit
before tax is provided in Note 3 Segment Reporting within the IFRS Financial
Statements.
Notes to the EEV result
1. Funds management business EEV operating profit before exceptional item
The funds management business operating profit has reduced to £818.7 million
(six months to 30 June 2022: £985.9 million, year to 31 December 2022:
£1,725.8 million) and a full analysis of the result is shown below:
Six months Six months Year ended
ended ended 31 December
30 June 2023 30 June 2022 2022
£'Million £'Million £'Million
New business contribution 463.7 525.6 977.2
Profit from existing business
- unwind of the discount rate 346.8 216.2 440.7
- experience variance (3.8) 9.9 89.0
- operating assumption change - 230.6 210.1
Investment income 12.0 3.6 8.8
Funds management EEV operating profit before exceptional item 818.7 985.9 1,725.8
-35-
The new business contribution for the period at £463.7 million (six months to
30 June 2022: £525.6 million, year to 31 December 2022: £977.2 million) was
12% lower than the prior year, primarily reflecting the reduction in new
business volumes.
The unwind of the discount rate for the period was higher at £346.8 million
(six months to 30 June 2022: £216.2 million, year to 31 December 2022:
£440.7 million), reflecting the increase in the opening risk discount rate to
7.0% (2022: 4.2%).
The experience variance during the period was negative £3.8 million (six
months to 30 June 2022: £9.9 million positive, year to 31 December 2022:
£89.0 million positive). This reflects positive retention experience offset
by increased development expenses.
The impact of operating assumption changes in the year was £nil (six months
to 30 June 2022: positive £230.6 million, year to 31 December 2022: positive
£210.1 million). 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 the distribution capabilities in Asia. The reported
loss has benefited from a reduction in the FSCS levy expense for our
distribution business to £10.8 million (six months to 30 June 2022: £23.8
million, year to 31 December 2022: £23.8 million), offsetting a reduction in
the gross margin reflecting lower new business volumes.
3. Exceptional item: Charge cap
The exceptional charge reflects the introduction of the charge cap on client
bond and pension investments with a duration longer than 10 years as described
in the Chief Executive's Report.
4. 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 6% after charges, compared to the assumed
investment return of 5.0%. This resulted in an investment return variance of
£157.6 million (six months to 30 June 2022: negative £1,346.2 million, year
to 31 December 2022: negative £1,314.0 million).
5. Economic assumption changes
The positive variance of £37.8 million arising in the year (six months to 30
June 2022: positive £166.9 million, year to 31 December 2022: positive
£235.1 million) reflects the positive effect from an increase in the
risk-free rate.
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.
-36-
The table below presents the margin before tax from our manufactured business:
Six months Six months Year ended
ended ended 31 December
30 June 2023 30 June 2022 2022
Investment
New business contribution (£'Million) 67.4 72.5 148.2
Gross inflows (£'Billion) 1.10 1.20 2.31
Margin (%) 6.1 6.0 6.4
Pension
New business contribution (£'Million) 256.6 256.7 495.3
Gross inflows (£'Billion) 4.89 5.10 9.90
Margin (%) 5.2 5.0 5.0
Unit trust and DFM
New business contribution (£'Million) 139.7 196.4 333.7
Gross inflows (£'Billion) 2.05 2.81 4.82
Margin (%) 6.8 7.0 6.9
Total business
New business contribution (£'Million) 463.7 525.6 977.2
Gross inflows (£'Billion) 8.04 9.11 17.03
Margin (%) 5.8 5.8 5.7
Post-tax margin (%) 4.3 4.4 4.3
The overall margin for the period was 5.8% (six months to 30 June 2022: 5.8%,
year to 31 December 2022: 5.7%), calculated prior to the exceptional charge
change. The overall margin is expected to reduce to 5.4% taking into account
the impact of the exceptional charge change.
Economic assumptions
The principal economic assumptions used within the cash flows are set out
below:
Six months Six months Year ended
ended ended 31 December
30 June 2023 30 June 2022 2022
Risk-free rate 4.5% 2.4% 3.9%
Inflation rate 3.6% 3.7% 3.6%
Risk discount rate 7.6% 5.5% 7.0%
Future investment returns:
- Gilts 4.5% 2.4% 3.9%
- Equities 7.5% 5.4% 6.9%
- Unit-linked funds 6.8% 4.7% 6.2%
Expense inflation 3.9% 4.1% 3.9%
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.
-37-
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 30 June 2023 463.7 350.2 8,932.8
100bp reduction in risk-free rates, with corresponding change
in fixed interest asset values 1 (3.9) (3.0) (58.9)
10% increase in withdrawal rates 2 (34.3) (25.7) (417.4)
10% reduction in market value of equity assets 3 - - (844.6)
10% increase in expenses 4 (5.7) (4.3) (68.1)
100bps increase in assumed inflation 5 (5.5) (4.2) (60.5)
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 62.8 47.2 697.2
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.
-38-
Analysis of the EEV result
The table below provides a summarised breakdown of the embedded value position
at the reporting dates.
30 June 30 June 31 December
2023 2022 2022
£'Million £'Million £'Million
Value of in-force business 7,581.5 7,311.6 7,684.8
Solvency II net assets 1,351.3 1,247.3 1,379.9
Total embedded value 8,932.8 8,558.9 9,064.7
30 June 30 June 31 December
2023 2022 2022
£ £ £
Net asset value per share 16.28 15.74 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 £290 million to our embedded value at 30 June
2023 (six months to 30 June 2022: approximately £340 million, year to 31
December 2022: approximately £340 million).
-39-
Section 3: Solvency
St. James's Place has a business model and risk appetite that results in
underlying assets being held that fully match our obligations to clients. Our
clients can access their investments 'on demand' and because the encashment
value is matched, movements in equity markets, currency markets, interest
rates, mortality, morbidity and longevity have very little impact on our
ability to meet liabilities. We also have a prudent approach to investing
shareholder funds and surplus assets in cash, AAA-rated money market funds and
highly rated government securities. The overall effect of the business model
and risk appetite is a resilient solvency position capable of enabling
liabilities to be met even during adverse market conditions.
Our Life businesses are subject to the Solvency II capital regime which
applied for the first time in 2016. Given the relative simplicity of our
business compared to many, if not most, other organisations that fall within
the scope of Solvency II, we have continued to manage the solvency of the
business on the basis of holding assets to match client unit-linked
liabilities plus a management solvency buffer (MSB). This has ensured that not
only can we meet client liabilities at all times (beyond the Solvency II
requirement of a '1-in-200 years' event), but we also have a prudent level of
protection against other risks to the business. At the same time, we have
ensured that the resulting capital held meets with the requirements of the
Solvency II regime, to which we are ultimately accountable.
For the year ended 31 December 2022 we reviewed the level of our MSB for the
life businesses and it remains at £355.0 million for 30 June 2023 (30 June
2022: £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:
30 June 2023 Life Other Other Total 30 June 31 December
regulated 2022 Total 2022 Total
£'Million £'Million £'Million £'Million £'Million £'Million
Solvency II net assets 515.7 324.7 510.9 1,351.3 1,247.3 1,379.9
MSB 355.0 172.1 - 527.1 532.9 532.7
Management solvency ratio 145% 189%
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.
-40-
An analysis of the Solvency II position for our Group, split by regulated and
non-regulated entities at the period-end, is presented in the table below:
30 June 2023 Life Other Other Total 30 June 31 December
regulated 2022 2022
Total Total
£'Million £'Million £'Million £'Million £'Million £'Million
Solvency II net assets 515.7 324.7 510.9 1,351.3 1,247.3 1,379.9
Value of in-force (VIF) 5,289.9 - - 5,289.9 5,240.4 5,580.4
Risk margin (1,419.5) - - (1,419.5) (1,450.9) (1,516.4)
Own funds (A) 4,386.1 324.7 510.9 5,221.7 5,036.8 5,443.9
Solvency capital requirement (B) (3,346.5) (115.2) (3,461.7) (3,246.6) (3,522.5)
Solvency II free assets 1,039.6 209.5 510.9 1,760.0 1,790.2 1,921.4
Solvency ratio (A/B) 131% 282% 151% 155% 155%
The solvency ratio after payment of the proposed Group interim dividend is
148% at 30 June 2023 (30 June 2022: 152%, 31 December 2022: 149%).
We continue to target a solvency ratio of 110% for St. James's Place UK plc,
our largest insurance subsidiary, as agreed with our regulator the PRA. The
combined solvency ratio for our life companies is 131% at 30 June 2023 (30
June 2022: 139%, 31 December 2022: 130%). This also takes into consideration
the small impact of the charge cap explained within the Chief Executive's
Report.
-41-
Risk and Risk Management
The Group's approach to risk management continues to provide assurance of
SJP's financial and operational resilience.
The Risk and Risk Management section on pages 90 to 99 of the 2022 Annual
Report and Accounts provides a comprehensive review of the principal risks
facing the business, and the Group's approach to managing these risks. The
section below highlights the key developments in the risk environment since
the year-end Annual Report and Accounts.
Risk environment
Persistent high inflation continues to be the defining feature of the
macro-economic environment, well beyond the Bank of England's 2% target and
whilst this has reduced during the half-year, this has not been as significant
as forecast. In the UK, the Bank of England has been increasing the Bank Rate
more sharply in recent months in a bid to dampen this more persistent
inflation. Inflationary pressure is not unique to the UK though, with central
banks across the world continuing to tighten monetary policy with various
degrees of strength. The key potential risks for SJP arise through:
· increases in expenses;
· reductions in asset prices;
· changes in new business levels due to factors such as shifting
consumer confidence, market sentiment, reduced investable income and/or
attraction of lower risk savings accounts;
· increased financial pressure on Partner businesses, which are
exposed to their own expense increases, including interest rate risk on
borrowing, and pressure on revenue; and
· changes in withdrawals rates to maintain living standards.
We expect and have shown in the stress and scenario testing carried out as
part of our Own Risk and Solvency Assessment (ORSA) and Group dividend
assessments, that the Group continues to remain resilient (from a solvency
perspective) to macroeconomic shocks (including inflation, interest rate
shifts and increased withdrawals) as well as more extreme and prolonged
events.
Regulatory change is a constant, and amongst the significant regulatory change
agenda for 2023, the FCA has set out the new Consumer Duty regulation. This
will set higher and clearer standards of consumer protection across financial
services and require firms to act to deliver good outcomes for customers. We
have engaged proactively with this important regulatory initiative. Whilst we
believe that 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. We have seen increased complaints from a small minority of clients via a
claims management company in relation to historic ongoing servicing. This
further emphasises the importance of maintaining consistently high standards
of evidence of servicing in line with the expectations of Consumer Duty, as
well as the importance of our continued investment in the Salesforce CRM
platform. Clear evidence of the Group's commitment to improving outcomes can
particularly be seen through the decision to cap annual management charges on
client bond and pension investments with a duration longer than 10 years. This
is a financially material change which benefits longstanding clients. Beyond
this there are numerous other changes which whilst less-material to the
financial results, improve the Group's ability to consistently deliver good
client outcomes.
Consumer Duty is an ongoing regulatory requirement and as such we should
expect there to be further changes identified over time resulting from this
enhanced standard of care, which will further reduce the risk of harm to
clients. The subjective nature of the Consumer Duty regulation also presents a
challenge to all firms as the expectation of leading practice will only become
clearer over time. As such, there is an increased likelihood of the inherent
risk to all financial services firms of redress and/or financial penalty where
these standards are not met. Whilst Consumer Duty is intended to apply post
the end of July 2023, this material change in emphasis could also lead to
clients challenging historic practices.
-42-
The Board has been and continues to be actively involved in defining responses
to macroeconomic trends, regulatory change, emerging risks and threats as they
arise. Timely and targeted risk-based information has been provided to the
Board to continue to support decision making and help in the understanding of
key issues to ensure risks are mitigated and opportunities are identified. The
risk activity undertaken in the past 12 months demonstrates that SJP continues
to remain resilient to the potential threats it faces.
Principal risks and uncertainties
A summary of the principal risks and uncertainties which could impact the
Group for the remainder of the current financial year have been provided in
the table below.
Risk Business priority Key risks Example controls/mitigations
description
Client proposition Our product proposition fails to meet the needs, objectives and expectations Delivering value to advisers and clients through our investment proposition • Investments provide poor returns relative to their benchmarks • Monitoring of asset allocations across portfolios to consider
of our clients. This includes poor relative investment performance and poor
and/or do not deliver expected client outcomes whether they are performing as expected in working towards long-term
product design.
objectives
• Range of solutions does not align with the product and service
Our culture and being a leading responsible business requirements of our current and potential future clients • Monitoring funds against their objectives mindful of an
appropriate level of investment risk
• Failure to meet client expectations of a sustainable business, not
least in respect of climate change and responsible investing • Ongoing assessment of value delivered by funds and portfolios
versus their objectives
• Where necessary, managers are changed in the most effective way
possible
• Continuous 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. Building and protecting our brand and reputation • 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
• Timely and clear responses to client complaints
• Centralised advice standards and required documentation
• Robust oversight process of the advice provided to clients
delivered by business assurance, compliance assurance, field risk and advice
guidance teams
Financial We fail to effectively manage the business's finances. Continued financial strength • Failure to meet client liabilities • Policyholder liabilities are fully matched
• Investment/market risk • Excess assets generally invested in high-quality, high-liquidity
cash and cash equivalents
• Credit risk
• Direct lending to the Partnership is secured
• Liquidity risk
• Reinsurance of insurance risks
• Insurance risk
• Ongoing monitoring of all risk exposures and experience analysis
• Expense risk
• Setting and monitoring budgets
• Implementing new systems to enable future cost reductions
• Monitoring and management of subsidiaries' solvency to minimise
Group interdependency
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Risk Business priority Key risks Example controls/mitigations
description
Partner proposition Our proposition solution fails to meet the needs, objectives and expectations Building community • Failure to attract new members of 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
Being easier to do business with • Failure to increase adviser productivity
• Reliable systems and administration support
• Available technology falls short of client and adviser
expectations and fails to support growth objectives • 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 Building community • 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
Our culture and being a leading responsible business • Failure to create an inclusive and diverse business
• Employee wellbeing is supported through various initiatives,
• Poor employee wellbeing benefits 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 Charitable Foundation
• Whistleblowing hotline
Regulatory We fail to meet current, changing or new regulatory and legislative Building and protecting our brand and reputation • Failure to comply with existing regulations • Compliance function provides expert guidance and carries out
expectations.
extensive assurance work
• Failure to comply with changing regulation or respond to changes
in regulatory expectations • Strict controls are maintained in highly regulated areas
Our culture and being a leading responsible business
• Inadequate internal controls • Maintenance of appropriate solvency capital buffers, and
continuous monitoring of solvency experience
• 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 Building and protecting our brand and reputation • 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 operational resilience
• Corporate, Partnership or third-party information security and • Mandatory 'Cyber Essentials Plus' accreditation for Partner
cyber risks practices or use of an SJP 'Device as a Service' solution
• Disruption in key business services to our clients • Clear cyber strategy and data protection roadmap for continuous
development
• Data leakage detection technology and incident reporting systems
• Identification, communication, and response planning for the event
of cyber crime
• Executive-Board level cyber scenario work to test strategic
response
• Internal awareness programmes
• Identification and assessment of important and critical business
services
Strategy, competition and brand Challenge from competitors and impact of reputational damage. Building and protecting our brand and reputation • Increased competitive pressure from traditional and disruptive • Clear demonstration of value delivered to clients through advice,
(non-traditional) competitors service and products
• Cost and charges pressure • Investment in improving positive brand recognition
Our culture and being a leading responsible business
• 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
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Risk Business priority Key risks Example controls/mitigations
description
Third parties Third-party outsourcers' activities impacts our performance and risk Being easier to do business with • Operational failures by material outsourcers • Oversight regime in place to identify prudent steps to reduce risk
management.
of operational failures by material third-party providers
• Failure of critical service; significant areas include:
• Ongoing monitoring, including assessment of operational resilience
Building and protecting our brand and reputation o investment administration
• Due diligence on key suppliers
o fund management
• Oversight of service levels of our third-party administration
Our culture and being a leading responsible business o custody provider
o policy administration
o cloud services
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Condensed Consolidated Half-Year Financial Statements prepared under
International Financial Reporting Standards (IFRS) as adopted by the United
Kingdom (UK)
-46-
Condensed Consolidated Statement of Comprehensive Income
Note Six months Six months Year ended
ended ended 31 December
30 June 2023 30 June 2022(1,2) 2022(1,2)
£'Million £'Million £'Million
Fee and commission income 4 1,351.7 687.6 1,929.6
Expenses (1,014.9) (971.8) (1,961.7)
Investment return 5 6,647.3 (16,989.4) (13,730.3)
Movement in investment contract benefits (6,595.8) 16,974.8 13,759.4
Insurance revenue 2 12.6 13.8 26.5
Insurance service expenses 2 (12.3) (9.4) (13.5)
Net reinsurance expense 2 (3.3) (2.4) (9.6)
Net insurance finance (expense)/income 2 (0.3) 1.3 2.4
(3.3) 3.3 5.8
Profit/(loss) before tax 3 385.0 (295.5) 2.8
Tax attributable to policyholders' returns 6 (169.3) 555.0 501.1
Profit before tax attributable to shareholders' returns 215.7 259.5 503.9
Total tax (charge)/credit 6 (223.3) 503.7 404.4
Less: tax attributable to policyholders' returns 6 169.3 (555.0) (501.1)
Tax attributable to shareholders' returns 6 (54.0) (51.3) (96.7)
Profit and total comprehensive income for the year 161.7 208.2 407.2
Profit attributable to non-controlling interests 0.1 - 0.4
Profit attributable to equity shareholders 161.6 208.2 406.8
Profit and total comprehensive income for the year 161.7 208.2 407.2
Pence Pence Pence
Basic earnings per share 15 29.6 38.4 75.0
Diluted earnings per share 15 29.5 38.1 74.3
(1) Restated to reflect the adoption of IFRS 17. See Note 2c.
(2) Restated to reclassify balances between Fee and commission income and
Movement in investment contract benefits. See Note 2c.
The results relate to continuing operations.
The Notes and information on pages 50 to 102 form part of these Condensed
Consolidated Financial Statements.
-47-
Condensed Consolidated Statement of Changes in Equity
Equity attributable to owners of the Parent Company
Share capital Share premium Shares in trust reserve Misc. reserves Retained earnings Total Non-controlling interests Total
equity
Note £'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 of - - - - 9.6 9.6 - 9.6
IFRS 17(1)
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 period(1) - - - - 208.2 208.2 - 208.2
Dividends 15 - - - - (218.9) (218.9) - (218.9)
Issue of share capital 15 0.1 5.6 - - - 5.7 - 5.7
Exercise of options 15 0.4 6.7 - - - 7.1 - 7.1
Consideration paid for own shares - - (0.3) - - (0.3) - (0.3)
Shares sold during the period - - 4.7 - (4.7) - - -
Retained earnings credit in respect of share option charges - - - - 11.2 11.2 - 11.2
Non-controlling interests - - - - 4.9 4.9 0.1 5.0
arising on the part-disposal
of subsidiaries
At 30 June 2022(1) 81.6 226.1 (4.1) 2.5 840.6 1,146.7 0.1 1,146.8
At 1 January 2023(1) 81.6 227.8 (4.1) 2.5 963.8 1,271.6 0.2 1,271.8
Profit and total comprehensive income for the period - - - - 161.6 161.6 0.1 161.7
Dividends 15 - - - - (203.1) (203.1) (0.2) (203.3)
Exercise of options 15 0.7 5.7 - - - 6.4 - 6.4
Consideration paid for own shares - - (0.5) - - (0.5) - (0.5)
Shares sold during the period - - 3.8 - (3.8) - - -
Retained earnings credit in respect of share option charges - - - - 9.9 9.9 - 9.9
At 30 June 2023 82.3 233.5 (0.8) 2.5 928.4 1,245.9 0.1 1,246.0
(1) Restated to reflect the adoption of IFRS 17. See Note 2c.
Miscellaneous reserves represent other non-distributable reserves.
-48-
Condensed Consolidated Statement of Financial Position
Note 30 June 30 June Year ended
2023 2022(1,2) 31 December
2022(1)
£'Million £'Million £'Million
Assets
Goodwill 7 33.6 33.2 33.6
Deferred acquisition costs 7 321.4 362.0 336.6
Intangible assets
- Purchased value of in-force business 7 9.6 12.8 11.2
- Computer software 7 32.7 31.7 33.3
Property and equipment 156.8 148.0 145.7
Deferred tax assets 6 6.4 12.4 12.5
Investment in associates 4.7 1.4 1.4
Reinsurance assets 55.3 70.0 54.6
Other receivables 9 3,177.0 3,458.2 2,977.2
Income tax assets - 65.8 35.0
Investments
- Investment property 8 1,191.9 1,647.6 1,294.5
- Equities 8 110,771.4 97,583.2 103,536.0
- Fixed income securities 8 27,886.4 27,222.1 27,552.7
- Investment in Collective Investment Schemes 8 7,174.1 5,175.2 5,735.4
- Derivative financial instruments 8 4,149.6 1,861.9 3,493.0
Cash and cash equivalents 6,684.0 7,483.5 6,432.8
Total assets 161,654.9 145,169.0 151,685.5
Liabilities
Borrowings 12 189.2 371.8 163.8
Deferred tax liabilities 6 219.5 105.8 162.9
Insurance contract liabilities 475.3 506.0 470.5
Deferred income 7 513.6 550.0 530.4
Other provisions 11 55.5 44.4 46.0
Other payables 10 2,670.2 2,778.3 2,180.7
Investment contract benefits 113,924.8 102,396.5 106,964.7
Derivative financial instruments 8 3,490.4 2,397.6 3,266.3
Net asset value attributable to unit holders 8 38,843.8 34,871.8 36,628.4
Income tax liabilities 26.6 - -
Total liabilities 160,408.9 144,022.2 150,413.7
Net assets 1,246.0 1,146.8 1,271.8
Shareholders' equity
Share capital 15 82.3 81.6 81.6
Share premium 233.5 226.1 227.8
Shares in trust reserve (0.8) (4.1) (4.1)
Miscellaneous reserves 2.5 2.5 2.5
Retained earnings 928.4 840.6 963.8
Equity attributable to owners of the Parent Company 1,245.9 1,146.7 1,271.6
Non-controlling interests 0.1 0.1 0.2
Total equity 1,246.0 1,146.8 1,271.8
Pence Pence Pence
Net assets per share 227.1 210.9 233.7
(1) Restated to reflect the adoption of IFRS 17. See Note 2c.
(2) Restated to reclassify balances between Other receivables and Other
payables. See Note 2c.
-49-
Condensed Consolidated Statement of Cash Flows
Note Six months Six months Year ended
ended ended 31 December
30 June 2023 30 June 2022 2022
£'Million £'Million £'Million
Cash flows from operating activities
Cash generated/(used in) from operations 14 504.2 42.7 (975.1)
Interest received 48.1 18.3 61.8
Interest paid (7.0) (6.0) (12.4)
Income taxes paid 6 (99.1) (109.3) (121.1)
Contingent consideration paid - (0.8) (6.3)
Net cash inflow/(outflow) from operating activities 446.2 (55.1) (1,053.1)
Cash flows from investing activities
Payments for property and equipment (4.5) (1.9) (4.0)
Payment of software development costs 7 (6.7) (9.1) (16.1)
Payments for acquisition of subsidiaries and other business combinations, net - (8.0) (13.9)
of cash acquired
Payments for associates (3.3) - -
Proceeds from sale of shares in subsidiaries and other business combinations, - 4.0 4.0
net of cash disposed
Proceeds from sale of financial assets held at amortised cost - - 262.5
Net cash (outflow)/inflow from investing activities (14.5) (15.0) 232.5
Cash flows from financing activities
Proceeds from the issue of share capital and exercise of options 6.4 7.1 8.8
Consideration paid for own shares (0.5) (0.3) (0.3)
Proceeds from borrowings 58.1 72.4 204.0
Repayment of borrowings (33.0) (132.8) (475.3)
Principal elements of lease payments (7.9) (7.3) (13.8)
Dividends paid to Company's shareholders 15 (203.1) (218.9) (303.6)
Dividends paid to non-controlling interests in subsidiaries (0.2) - (0.3)
Net cash (outflow) from financing activities (180.2) (279.8) (580.5)
Net increase/(decrease) in cash and cash equivalents 251.5 (349.9) (1,401.1)
Cash and cash equivalents at beginning of period 6,432.8 7,832.9 7,832.9
Effects of exchange rate changes on cash and cash equivalents (0.3) 0.5 1.0
Cash and cash equivalents at end of period 6,684.0 7,483.5 6,432.8
-50-
Notes to the Financial Statements
1. Basis of preparation
This condensed set of Consolidated Half-Year Financial Statements for the six
months ended 30 June 2023, which comprise the Half-Year Financial Statements
of St. James's Place plc (the Company) and its subsidiaries (together referred
to as the 'Group'), has been prepared in accordance with the Disclosure
Guidance and Transparency Rules sourcebook of the Financial Conduct Authority
and with IAS 34 'Interim Financial Reporting', an International Financial
Reporting Standard (IFRS) as adopted by the United Kingdom (UK). The Condensed
Consolidated Half-Year Financial Statements should be read in conjunction with
the Annual Financial Statements for the year ended 31 December 2022, which
have been prepared in accordance with UK-adopted International Accounting
Standards and with the requirements of the Companies Act 2006.
Going concern
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 on pages 5 to 11.
The financial performance and financial position of the Group are described in
the Financial Review.
The stress and scenario testing carried out as part of our Own Risk and
Solvency Assessment (ORSA) and Group dividend assessment demonstrates that the
Group continues to remain resilient to macro-economic shocks (including
inflation and interest rate shifts) as well as more extreme events.
The Board remains confident in the Group's ability to withstand the impact of
high and persistent inflation, the key risks this presents to the Group are
set out in the Risk and Risk Management section on pages 41 to 44.
The Group has undertaken a going concern assessment reviewing its current and
projected financial performance and position including, profitability,
liquidity and solvency. In addition, the Board has also considered the impact
of the constantly changing regulatory environment. Having assessed performance
together with the principal risks, the Directors believe it remains
appropriate to adopt the going concern basis of accounting in preparing the
Financial Statements.
The Group Financial Statements consolidate those of the Company and its
subsidiaries (together referred to as the 'Group').
2. Significant accounting policies
(a) Statement of compliance
These Condensed Consolidated Half-Year Financial Statements were prepared and
approved by the Directors in accordance with International Financial Reporting
Standards as adopted by the UK.
The following new and amended IFRS standards, effective for periods beginning
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 - Definition of
Accounting Estimates; and
· 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.
In preparing these Condensed Consolidated Half-Year Financial Statements,
except for the adoption of IFRS 17, the significant judgements made by
management in applying the Group's accounting policies and the key sources of
estimation uncertainty were the same as those applied to the Consolidated
Financial Statements for the year ended 31 December 2022. See Note 2(c) for
further information.
-51-
2. Significant accounting policies (continued)
(b) New and amended accounting standards not yet effective
As at 30 June 2023 there were no new and amended accounting standards not yet
effective which are relevant to the Group.
(c) 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 £2.6 million for the six
months ended 30 June 2022 and £1.8 million increase 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 impracticable (since our
accounting and actuarial systems hold information on historic business at a
higher level of aggregation than that required for the fully retrospective
approach).
Under the FVA, the Contractual Service Margin (CSM) recognised at transition
is determined as the difference between the fair value of contracts at the
transition date and the fulfilment cashflows 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 10 years from the
transition date.
-52-
2. Significant accounting policies (continued)
Accounting policies
Following the adoption of IFRS 17 on 1 January 2023, the accounting policies
for 'Insurance and reinsurance premiums' and 'Insurance claims and reinsurance
recoveries', as outlined in the Annual Report and Accounts 2022, became
redundant. In addition, a new policy 'Net insurance service result' was added
and the policies for 'Reinsurance assets' and 'Insurance contract liabilities'
were amended. The new and amended policies have been set out below.
Insurance revenue
Insurance revenue represents the expected income from the provision of
insurance services. The income is recognised during the relevant coverage
period in which the services will be provided.
Insurance service expenses
Insurance service expenses comprise insurance claims and other insurance
service expenses. The expense is recognised during the relevant coverage
period in which the services will be provided, excluding any investment
components.
Net reinsurance income/(expense)
Net reinsurance income/(expense) reflects the insurance revenue and expenses
arising from reinsurance contracts. Reinsurance income and expense is
recognised during the relevant coverage period in which the services will be
provided.
Net insurance finance income/(expense)
Net insurance finance income/(expense) represents the change in the value of
insurance contracts and the associated backing assets due to financial risk
and the effect of the time value of money. All insurance finance income and
expense is included in the Statement of Comprehensive Income on an accruals
basis.
Reinsurance assets
Reinsurance assets represent amounts recoverable from reinsurers in respect of
non-unit-linked insurance contract liabilities, net of any future reinsurance
premiums. See Insurance contract liabilities for further information.
Insurance contract liabilities
Insurance contract liabilities are determined by applying the default General
Measurement Model (GMM) to non-unit-linked insurance business and reassurance
ceded, and the Variable Fee Approach (VFA) to unit-linked insurance business
measured under IFRS 17.
Under the General Measurement Model (applicable to non-unit-linked insurance
business and reassurance ceded), groups of contracts are recognised and
measured as:
· the Fulfilment Cashflows, comprising an estimate of future cash
flows, adjusted to reflect the time value of money, the financial risks
associated with the future cash flows, and a risk adjustment for non-financial
risk (RA); and
· the Contractual Service Margin (CSM), comprising the unearned
profit within a group of contracts that will be recognised as the Group
provides insurance services in the future.
The estimate of future cashflows represents the best estimate of the cost to
fulfil cashflows within the contract boundary, incorporating current
non-financial assumptions.
The RA represents the compensation that an entity requires for bearing the
uncertainty about the amount and timing of cashflows that arise from
non-financial risk as the entity fulfils insurance contracts. It is calculated
using a cost of capital approach, leveraging the Solvency II view of
non-financial risk.
The CSM is determined at contract outset or IFRS 17 transition and
subsequently remeasured for non-financial changes in the Fulfilment Cashflows
and the accretion of interest using a discount rate locked-in at transition.
It is amortised over the period of the contract in line with coverage units
based upon the sum assured, which reflect the quantity of insurance services
provided. If a group of contracts is expected to be onerous (i.e. loss-making)
over the remaining coverage period, a loss is recognised immediately.
-53-
2. Significant accounting policies (continued)
Under the Variable Fee Approach (applicable to unit-linked insurance
business), the GMM is supplemented by an adaptation for contracts with direct
participation features. The Fulfilment Cashflows for unit-linked insurance
business reflect an obligation to pay policyholders an amount equal to the
fair value of underlying assets, less the variable fee for future service. The
RA reflects the compensation for non-financial risk in relation to this
variable fee only. The CSM is subsequently remeasured for changes in the
variable fee only, arising from both financial and non-financial risks.
Critical accounting estimates and judgements in applying 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. Following the adoption of IFRS 17, on 1 January
2023, the Group has applied the following critical accounting estimate in
'determining the value of insurance contract liabilities' as disclosed in the
Annual Report and Accounts 2022.
Determining the value of insurance contract liabilities and reinsurance assets
Whilst the measurement of insurance contract liabilities is considered to be a
critical accounting estimate for the Group, the vast majority of
non-unit-linked insurance business written is reinsured. As a result, the
impact of a change in estimate in determining the value of insurance contract
liabilities would be mitigated to a significant degree by the impact of the
change in estimate in determining the value of reinsurance assets. For this
reason we consider that this is a critical estimate only in relation to the
gross asset and liability positions in the Statement of Financial Position.
The assumptions used in the calculation of insurance contract liabilities and
reinsurance assets that have an effect on the financial statements of the
Group are:
· 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 2022 and expected rates in 2023 and over the long-term;
· the lapse assumption, which is set based on an investigation of
experience during the year; and
· the risk adjustment is determined using a cost of capital
approach with a 3% charge.
Judgements
Following the adoption of IFRS 17, on 1 January 2023, the Group has applied
the following judgement:
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.
-54-
2. Significant accounting policies (continued)
Other disclosures relevant to the Initial application of IFRS 17 considered
material to the Group:
The IFRS 17 insurance and reinsurance disclosure notes have been prepared on a
total basis given that the movement during all periods for the relevant
categories of insurance business, being participating and non-participating,
are individually immaterial.
Insurance Revenue
Six months Six months Year ended
ended ended 31 December
30 June 2023 30 June 2022 2022
£'Million £'Million £'Million
Amounts relating to changes in liabilities for remaining coverage
- Expected incurred claims and other insurance service expenses 11.9 12.8 24.5
- Change in risk adjustment for non-financial risk for risk expired 0.2 0.3 0.7
- CSM recognised for services provided 0.5 0.7 1.3
Total insurance revenue 12.6 13.8 26.5
-55-
2. Significant accounting policies (continued)
Reinsurance assets
Remaining coverage component Recoverable for claims reinsured Total
£'Million £'Million £'Million
Balance at 1 January 2023 49.0 5.6 54.6
Net reinsurance expense (3.3) - (3.3)
Finance income from reinsurance contracts recognised in profit or loss 1.3 - 1.3
Total changes in the statement of comprehensive income (2.0) - (2.0)
Premiums paid 10.7 - 10.7
Amounts received from reinsurers relating to incurred claims (9.4) 1.4 (8.0)
Total cash flows 1.3 1.4 2.7
Balance at 30 June 2023 48.3 7.0 55.3
Estimates of present value of future cash flows Risk adjustment for non-financial risk CSM Recoverable for claims reinsured Total
£'Million £'Million £'Million £'Million £'Million
Balance at 1 January 2023 35.7 5.1 8.2 5.6 54.6
Net reinsurance expense (2.8) (0.2) (0.3) - (3.3)
Finance income from insurance contracts recognised in profit or loss 1.1 0.2 - - 1.3
Total changes in the statement of comprehensive income (1.7) - (0.3) - (2.0)
Premiums paid 10.7 - - - 10.7
Amounts received from reinsurers relating to incurred claims (9.4) - - 1.4 (8.0)
Total cash flows 1.3 - - 1.4 2.7
Balance at 30 June 2023 35.3 5.1 7.9 7.0 55.3
-56-
2. Significant accounting policies (continued)
Reinsurance assets (continued)
Remaining coverage component Recoverable for claims reinsured Total
£'Million £'Million £'Million
Balance at 1 January 2022 64.9 9.9 74.8
Net reinsurance expense (2.4) - (2.4)
Finance expenses from reinsurance contracts recognised in profit or loss (9.1) - (9.1)
Total changes in the statement of comprehensive income (11.5) - (11.5)
Premiums paid 12.3 - 12.3
Amounts received from reinsurers relating to incurred claims (7.3) 1.7 (5.6)
Total cash flows 5.0 1.7 6.7
Balance at 30 June 2022 58.4 11.6 70.0
Estimates of present value of future cash flows Risk adjustment for non-financial risk CSM Recoverable for claims reinsured Total
£'Million £'Million £'Million £'Million £'Million
Balance at 1 January 2022 47.9 8.5 8.5 9.9 74.8
Net reinsurance expense (2.6) (0.4) 0.6 - (2.4)
Finance expenses from insurance contracts recognised in profit or loss (7.3) (1.8) - - (9.1)
Total changes in the statement of comprehensive income (9.9) (2.2) 0.6 - (11.5)
Premiums paid 12.3 - - - 12.3
Amounts received from reinsurers relating to incurred claims (7.3) - - 1.7 (5.6)
Total cash flows 5.0 - - 1.7 6.7
Balance at 30 June 2022 43.0 6.3 9.1 11.6 70.0
-57-
2. Significant accounting policies (continued)
Reinsurance assets (continued)
Remaining coverage component Recoverable for claims reinsured Total
£'Million £'Million £'Million
Balance at 1 January 2022 64.9 9.9 74.8
Net reinsurance expense (9.6) - (9.6)
Finance expenses from reinsurance contracts recognised in profit or loss (14.9) - (14.9)
Total changes in the statement of comprehensive income (24.5) - (24.5)
Premiums paid 24.0 - 24.0
Amounts received from reinsurers relating to incurred claims (15.4) (4.3) (19.7)
Total cash flows 8.6 (4.3) 4.3
Balance at 31 December 2022 49.0 5.6 54.6
Estimates of present value of future cash flows Risk adjustment for non-financial risk CSM Recoverable for claims reinsured Total
£'Million £'Million £'Million £'Million £'Million
Balance at 1 January 2022 47.9 8.5 8.5 9.9 74.8
Net reinsurance expense (8.6) (0.7) (0.3) - (9.6)
Finance expenses from insurance contracts recognised in profit or loss (12.2) (2.7) - - (14.9)
Total changes in the statement of comprehensive income (20.8) (3.4) (0.3) - (24.5)
Premiums paid 24.0 - - - 24.0
Amounts received from reinsurers relating to incurred claims (15.4) - - (4.3) (19.7)
Total cash flows 8.6 - - (4.3) 4.3
Balance at 31 December 2022 35.7 5.1 8.2 5.6 54.6
-58-
2. Significant accounting policies (continued)
All reinsurance contracts are measured under the fair value approach.
Reinsurance assets - Contractual service margin
30 June 30 June 31 December 2022
2023 2022
£'Million £'Million £'Million
Less than 1 year 0.7 0.9 0.7
In 2 to 5 years 1.4 1.9 1.6
>5 years 5.8 6.3 5.9
Total CSM for reinsurance contracts 7.9 9.1 8.2
The analysis above shows the expected recognition of the CSM remaining at the
end of the reporting period.
-59-
2. Significant accounting policies (continued)
Insurance contract liabilities
Liability for remaining coverage
Excluding loss component Loss component Liability for claims incurred Total
£'Million £'Million £'Million £'Million
Balance at 1 January 2023 452.6 - 17.9 470.5
Insurance revenue (12.6) - - (12.6)
Insurance service expenses 12.3 - - 12.3
Finance expense from insurance contracts recognised in profit or loss 1.6 - - 1.6
Total changes in the statement of comprehensive income 1.3 - - 1.3
Investment components excluded from insurance revenue and insurance service (14.4) - - (14.4)
expenses
Premiums received (14.8) - - (14.8)
Claims and other insurance service expenses paid 30.5 - 2.2 32.7
Total cash flows 15.7 - 2.2 17.9
Balance at 30 June 2023 455.2 - 20.1 475.3
Estimates of present value of future cash flows Risk adjustment for non-financial risk CSM Liability for claims incurred Total
£'Million £'Million £'Million £'Million £'Million
Balance at 1 January 2023 439.0 5.8 7.8 17.9 470.5
Insurance service result (0.4) (0.1) 0.2 - (0.3)
Finance expense from insurance contracts recognised in profit or loss 1.5 0.1 - - 1.6
Total changes in the statement of comprehensive income 1.1 - 0.2 - 1.3
Investment components excluded from insurance revenue and insurance service (14.4) - - - (14.4)
expenses
Premiums received (14.8) - - - (14.8)
Claims and other insurance service expenses paid 30.5 - - 2.2 32.7
Total cash flows 15.7 - - 2.2 17.9
Balance at 30 June 2023 441.4 5.8 8.0 20.1 475.3
-60-
2. Significant accounting policies (continued)
Insurance contract liabilities (continued)
Liability for remaining coverage
Excluding loss component Loss component Liability for claims incurred Total
£'Million £'Million £'Million £'Million
Balance at 1 January 2022 543.4 - 25.2 568.6
Insurance revenue (13.8) - - (13.8)
Insurance service expenses 9.4 - - 9.4
Finance income from insurance contracts recognised in profit or loss (10.4) - - (10.4)
Total changes in the statement of comprehensive income (14.8) - - (14.8)
Investment components excluded from insurance revenue and insurance service (56.6) - - (56.6)
expenses
Premiums received (17.1) - - (17.1)
Claims and other insurance service expenses paid 30.7 - (4.8) 25.9
Total cash flows 13.6 - (4.8) 8.8
Balance at 30 June 2022 485.6 - 20.4 506.0
Estimates of present value of future cash flows Risk adjustment for non-financial risk CSM Liability for claims incurred Total
£'Million £'Million £'Million £'Million £'Million
Balance at 1 January 2022 520.8 9.3 13.3 25.2 568.6
Insurance service result (0.3) (0.4) (3.7) - (4.4)
Finance income from insurance contracts recognised in profit or loss (8.7) (1.7) - - (10.4)
Total changes in the statement of comprehensive income (9.0) (2.1) (3.7) - (14.8)
Investment components excluded from insurance revenue and insurance service (56.6) - - - (56.6)
expenses
Premiums received (17.1) - - - (17.1)
Claims and other insurance service expenses paid 30.7 - - (4.8) 25.9
Total cash flows 13.6 - - (4.8) 8.8
Balance at 30 June 2022 468.8 7.2 9.6 20.4 506.0
-61-
2. Significant accounting policies (continued)
Insurance contract liabilities (continued)
Liability for remaining coverage
Excluding loss component Loss component Liability for claims incurred Total
£'Million £'Million £'Million £'Million
Balance at 1 January 2022 543.4 - 25.2 568.6
Insurance revenue (26.5) - - (26.5)
Insurance service expenses 13.5 - - 13.5
Finance income from insurance contracts recognised in profit or loss (17.3) - - (17.3)
Total changes in the statement of comprehensive income (30.3) - - (30.3)
Investment components excluded from insurance revenue and insurance service (76.2) - - (76.2)
expenses
Premiums received (34.0) - - (34.0)
Claims and other insurance service expenses paid 49.7 - (7.3) 42.4
Total cash flows 15.7 - (7.3) 8.4
Balance at 31 December 2022 452.6 - 17.9 470.5
Estimates of present value of future cash flows Risk adjustment for non-financial risk CSM Liability for claims incurred Total
£'Million £'Million £'Million £'Million £'Million
Balance at 1 January 2022 520.8 9.3 13.3 25.2 568.6
Insurance service result (6.6) (0.9) (5.5) - (13.0)
Finance income from insurance contracts recognised in profit or loss (14.7) (2.6) - - (17.3)
Total changes in the statement of comprehensive income (21.3) (3.5) (5.5) - (30.3)
Investment components excluded from insurance revenue and insurance service (76.2) - - - (76.2)
expenses
Premiums received (34.0) - - - (34.0)
Claims and other insurance service expenses paid 49.7 - - (7.3) 42.4
Total cash flows 15.7 - - (7.3) 8.4
Balance at 31 December 2022 439.0 5.8 7.8 17.9 470.5
-62-
2. Significant accounting policies (continued)
Insurance contract liabilities - Contractual service margin
30 June 30 June 31 December 2022
2023 2022
£'Million £'Million £'Million
Less than 1 year 0.8 1.0 0.8
In 2 to 5 years 1.7 2.1 1.7
>5 years 5.5 6.5 5.3
Total CSM for insurance contracts 8.0 9.6 7.8
The analysis above shows the expected recognition of the CSM remaining at the
end of the reporting period.
-63-
2. Significant accounting policies (continued)
Assumptions used in the calculation of Insurance contract liabilities and
reinsurance assets
The principal assumptions used in the calculation of insurance liabilities and
reinsurance assets are:
Assumption Description
Interest rate The valuation interest rate is calculated by reference to the long-term
risk-free swap rate at the balance sheet date. The implied 5-year rate is 5.0%
at 30 June 2023 (30 June 2022: 2.5%, 31 December 2022: 4.1%).
Mortality Mortality is based on Group experience and is set at 65% of the TM/F92 tables
with an additional loading for smokers.
Morbidity - Morbidity is based on Group experience. There has been no change during the
Critical Illness period. Sample annual rates per £ for a male non-smoker are:
Age Rate
25 0.063%
35 0.111%
45 0.266%
Morbidity - Permanent Health Insurance Morbidity is based on Group experience. There has been no change during the
period. Sample annual rates per £ income benefit for a male non-smoker are:
Age Rate
25 0.228%
35 0.603%
45 1.308%
Expenses Contract liabilities are calculated allowing for the actual costs of
administration of the business.
Product Annual cost
30 June 30 June 31 December
2023 2022 2022( )
Onshore protection business £33.73 £31.27 £33.73
Offshore protection business £66.36 £62.40 £66.36
Morbidity - Permanent Health Insurance
Morbidity is based on Group experience. There has been no change during the
period. Sample annual rates per £ income benefit for a male non-smoker are:
Age Rate
25 0.228%
35 0.603%
45 1.308%
Expenses
Contract liabilities are calculated allowing for the actual costs of
administration of the business.
Product Annual cost
30 June 30 June 31 December
2023 2022 2022( )
Onshore protection business £33.73 £31.27 £33.73
Offshore protection business £66.36 £62.40 £66.36
Persistency Allowance is made for a best estimate level of lapses within the calculation
of the liabilities. There has been no change in rates during the period.
Sample annual lapse rates are:
Lapse
All durations
Onshore protection business 9%
Offshore whole of life 8%
Offshore critical illness 13%
Risk adjustment The risk adjustment is determined using a cost of capital approach with a 3%
charge. There has been no change during the period.
Risk adjustment
The risk adjustment is determined using a cost of capital approach with a 3%
charge. There has been no change during the period.
-64-
2. Significant accounting policies (continued)
Adjustment 2 - Consolidated Statement of Comprehensive Income
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
£27.6 million for the six months ended 30 June 2022 and £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 period.
Adjustment 3 - Consolidated Statement of Financial Position
During 2022 it was identified that the over-the-counter (OTC) derivative
contracts held allow for the relevant other receivables and other payables
balances to be offset and presented net, consistent with the contractual
settlement basis. As at 31 December 2022 the relevant balances were
appropriately presented net however a restatement of the six months ended 30
June 2022 is required where the relevant balances had been presented gross.
The restatement totalled £3,044.1 million, decreasing Other receivables and
Other payables, by the same amount, resulting in a net nil impact on net
assets for the period.
-65-
2. Significant accounting policies (continued)
Restatement for the six months ended 30 June 2022
Impact on Consolidated Statement of Comprehensive Income
Increase/(decrease)
Six months Adj 1 Adj 2 Restated
ended Six months
30 June ended
2022 30 June
2022
£'Million £'Million £'Million £'Million
Insurance premium income 15.7 (15.7) - -
Less premiums ceded to reinsurers (10.8) 10.8 - -
Net insurance premium income 4.9 (4.9) - -
Fee and commission income 715.2 - (27.6) 687.6
Investment return (17,023.1) 33.7 - (16,989.4)
Net (expense)/income (16,303.0) 28.8 (27.6) (16,301.8)
Policy claims and benefits
- Gross amount (25.0) 25.0 - -
- Reinsurers' share 9.3 (9.3) - -
Net policyholder claims and benefits incurred (15.7) 15.7 - -
Change in insurance contract liabilities
- Gross amount 56.2 (56.2) - -
- Reinsurers' share (7.7) 7.7 - -
Net change in insurance contract liabilities 48.5 (48.5) - -
Movement in investment contract benefits 16,947.2 - 27.6 16,974.8
Expenses (975.4) 3.6 - (971.8)
Insurance revenue - 13.8 - 13.8
Insurance service expenses - (9.4) - (9.4)
Net reinsurance expense - (2.4) - (2.4)
Net insurance finance income - 1.3 - 1.3
Loss before tax (298.4) 2.9 - (295.5)
Tax attributable to policyholders' returns 555.0 - - 555.0
Profit before tax attributable to shareholders' returns 256.6 2.9 - 259.5
Total tax expense 504.0 (0.3) - 503.7
Less: tax attributable to policyholders' returns (555.0) - - (555.0)
Tax attributable to shareholders' returns (51.0) (0.3) - (51.3)
Profit and total comprehensive income for the year 205.6 2.6 - 208.2
Profit attributable to non-controlling interests - - - -
Profit attributable to equity shareholders 205.6 2.6 - 208.2
Profit and total comprehensive income for the year 205.6 2.6 - 208.2
Pence Pence
Basic earnings per share 38.0 38.4
Diluted earnings per share 37.6 38.1
-66-
2. Significant accounting policies (continued)
Impact on Consolidated Statement of Changes in Equity
Increase/(decrease) Equity attributable to owners of the Parent Company ( )
Retained Total Total equity
earnings
£'Million £'Million £'Million
At 1 January 2022 9.6 9.6 9.6
Profit and total comprehensive income for the period 2.6 2.6 2.6
At 30 June 2022 12.2 12.2 12.2
( )
Impact on Consolidated Statement of Financial Position
Increase/(decrease)
30 June Adj 1 Adj 3 Restated
2022 30 June
2022
£'Million £'Million £'Million £'Million
Assets
Deferred acquisition costs 362.6 (0.6) - 362.0
Deferred tax assets 13.8 (1.4) - 12.4
Reinsurance assets 74.7 (4.7) - 70.0
Other receivables 6,513.9 (11.6) (3,044.1) 3,458.2
Total assets 148,231.4 (18.3) (3,044.1) 145,169.0
Liabilities
Insurance contract liabilities 516.1 (10.1) - 506.0
Other payables 5,842.8 (20.4) (3,044.1) 2,778.3
Total liabilities 147,096.8 (30.5) (3,044.1) 144,022.2
Net assets 1,134.6 12.2 - 1,146.8
-67-
2. Significant accounting policies (continued)
Restatement for the year ended 31 December 2022
Impact on Consolidated Statement of Comprehensive Income
Increase/(decrease)
Adj 1 Adj 2 Restated
Year ended Year ended
31 December 2022 31 December 2022
£'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 - (13,730.3)
Net (expense)/income (11,807.3) 31.2 (24.6) (11,800.7)
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 - (1,961.7)
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
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
-68-
2. Significant accounting policies (continued)
Impact on Consolidated Statement of Changes in Equity
Increase/(decrease) Equity attributable to owners of the Parent Company ( )
Retained Total Total equity
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
Increase/
(decrease)
31 December Adj 1 Restated
2022 31 December 2022
£'Million £'Million £'Million
Assets
Deferred acquisition costs 337.3 (0.7) 336.6
Deferred tax assets 13.9 (1.4) 12.5
Reinsurance assets 66.4 (11.8) 54.6
Other receivables 2,982.8 (5.6) 2,977.2
Total assets 151,705.0 (19.5) 151,685.5
Liabilities
Insurance contract liabilities 483.5 (13.0) 470.5
Other payables 2,198.6 (17.9) 2,180.7
Total liabilities 150,444.6 (30.9) 150,413.7
Net assets 1,260.4 11.4 1,271.8
-69-
2. Significant accounting policies (continued)
Restatement of 1 January 2022
Impact on Consolidated Statement of Financial Position
Increase/(decrease) Restated
1 January
2022
£'Million
Assets
Deferred acquisition costs (0.7)
Deferred tax assets (1.1)
Reinsurance assets (7.6)
Other receivables (9.9)
Total assets (19.3)
Liabilities
Insurance contract liabilities (3.7)
Other payables (25.2)
Total liabilities (28.9)
Net assets 9.6
-70-
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 - providing support to our clients through the provision of financial
advice and assistance through our Partner network, and financial solutions
including (but not limited to) wealth management products manufactured in the
Group, such as insurance bonds, pensions, unit trust and ISA investments, and
a DFM service.
Separate geographical segmental information is not presented since the Group
does not segment its business geographically. Most of its customers are based
in the United Kingdom, as is management of the assets. In particular, the
operation based in Asia is not yet sufficiently material for separate
consideration.
Segment revenue
Revenue received from fee and commission income is set out in Note 4, which
details the different types of revenue received from our wealth management
business.
Segment profit
Two separate measures of profit are monitored on a monthly basis by the Board.
These are the post-tax Underlying cash result and the pre-tax European
Embedded Value (EEV) profit.
Underlying cash result
The measure of cash profit monitored on a monthly basis by the Board is the
post-tax Underlying cash result. This reflects emergence of cash available for
paying a dividend during the year. Underlying cash is based on the IFRS result
excluding the impact of intangibles, principally DAC, DIR, PVIF, goodwill,
deferred tax, and strategic expenses. As the cost associated with
equity-settled share-based payments is reflected in changes in shareholder
equity, they are also not included in the Underlying cash result.
More detail is provided in Section 2.2 of the Financial Review.
The Cash result should not be confused with the IFRS Consolidated Statement of
Cash Flows, which is prepared in accordance with IAS 7.
Six months Six months Year ended
ended ended 31 December
30 June 2023 30 June 2022(1) 2022(1)
£'Million £'Million £'Million
Underlying cash result after tax 207.1 198.8 410.1
Equity-settled share-based payments (9.9) (11.2) (20.5)
Deferred tax impacts (12.1) (18.1) (30.5)
Impact in the period of DAC/DIR/PVIF 0.3 (3.8) (9.3)
Impact of policyholder tax asymmetry (see Note 4) 2 (17.5) 39.4 50.6
Other(1) (6.2) 3.1 6.8
IFRS profit after tax 161.7 208.2 407.2
Shareholder tax(1) 54.0 51.3 96.7
Profit before tax attributable to shareholders' returns 215.7 259.5 503.9
Tax attributable to policyholder returns 169.3 (555.0) (501.1)
IFRS profit/(loss) before tax 385.0 (295.5) 2.8
(1) Restated to reflect the adoption of IFRS 17. See Note 2c.
(2) Further information on policyholder tax asymmetry can also be found in
Section 2.1 of the Financial Review.
-71-
3. Segment reporting (continued)
EEV operating loss after exceptional item before tax
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.
Six months Six months Year ended
ended ended 31 December
30 June 2023 30 June 2022(1) 2022(1)
£'Million £'Million £'Million
EEV operating (loss)/profit after exceptional item before tax (119.1) 914.2 1,589.7
Investment return variance 157.6 (1,346.2) (1,314.0)
Economic assumption changes 37.8 166.9 235.1
EEV profit/(loss) before tax 76.3 (265.1) 510.8
Adjustments to IFRS basis:
Deduct: amortisation of purchased value of in-force business (1.6) (1.6) (3.2)
Movement of balance sheet life value of in-force business (net of tax)(1) 251.6 422.1 105.6
Movement of balance sheet unit trust and DFM value of in-force business (net (23.4) (4.0) (94.9)
of tax)
Tax on movement in value of in-force business (87.2) 108.1 (14.4)
Profit before tax attributable to shareholders' returns 215.7 259.5 503.9
Tax attributable to policyholder returns 169.3 (555.0) (501.1)
IFRS profit/(loss) before tax 385.0 (295.5) 2.8
(1) Restated to reflect the adoption of IFRS 17. See Note 2c.
The movement in life, unit trust and DFM value of in-force business is the
difference between the opening and closing discounted value of the profits
that will emerge from the in-force book over time, after adjusting for DAC and
DIR impacts which are already included under IFRS.
-72-
3. Segment reporting (continued)
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.
30 June 30 June 31 December
2023 2022(1) 2022(1)
£'Million £'Million £'Million
Investment 34,360.0 32,750.0 33,290.0
Pension 79,870.0 69,580.0 73,860.0
UT/ISA and DFM 43,290.0 39,930.0 41,220.0
Total FUM 157,520.0 142,260.0 148,370.0
Exclude client and third-party holdings in non-consolidated unit trusts and (4,367.4) (4,594.2) (4,407.3)
DFM
Other(2) 4,287.4 3,843.6 4,153.6
Gross assets held to cover unit liabilities 157,440.0 141,509.4 148,116.3
IFRS intangible assets (see page 28 adjustment 2)(1) 452.9 523.4 476.9
Shareholder gross assets 3,762.0 3,136.2 3,092.3
Total assets 161,654.9 145,169.0 151,685.5
(1) Restated to reflect the adoption of IFRS 17. See Note 2c.
(2) Restated to reclassify balances between Other receivables and Other
payables. See Note 2c.
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.
-73-
4. Fee and commission income
Six months Six months Year ended
ended ended 31 December
30 June 2023 30 June 2022(1) 2022(1)
£'Million £'Million £'Million
Advice charges (post-RDR) 493.7 517.3 987.6
Third-party fee and commission income 65.9 64.4 131.9
Wealth management fees(1) 518.7 503.3 1,014.4
Investment management fees 36.9 25.5 60.8
Fund tax deductions/(refunds) 169.3 (555.0) (501.1)
Policyholder tax asymmetry (17.5) 39.4 50.6
Discretionary fund management fees 12.0 11.7 23.4
Fee and commission income before DIR amortisation 1,279.0 606.6 1,767.6
Amortisation of DIR 72.7 81.0 162.0
Total fee and commission income 1,351.7 687.6 1,929.6
(1) Restated to reclassify balances between Wealth management fees and
Movement in investment contract benefits. See note 2c.
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.
Life insurance tax incorporates a policyholder tax element, and the Financial
Statements of a life insurance group need to reflect the liability to HMRC,
with the corresponding deductions incorporated into policy charges ('Fund tax
deductions' in the table above). The tax liability to HMRC is assessed using
IAS 12 Income Taxes, which does not allow discounting, whereas the policy
charges are designed to ensure fair outcomes between clients and so reflect a
wide range of possible outcomes. This gives rise to different assessments of
the current value of future cash flows and hence an asymmetry in the IFRS
Consolidated Statement of Financial Position between the deferred tax position
and the offsetting client balance. The net tax asymmetry balance reflects a
temporary position, and in the absence of market volatility we expect it will
unwind as future cash flows become less uncertain and are ultimately realised.
Market conditions impact the level of asymmetry experienced in a year and may
be significant where there is market volatility. Market growth experienced,
coupled to a lesser extent increases to interest rates in the first half of
2023 has resulted in a negative movement impacting both profit before
shareholder tax and profit after tax. In contrast, at this point in 2022 we
saw an unwind of prior year negative effects as a result of market falls,
which resulted in a significant positive movement in that year.
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.
-74-
5. Investment return
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
Six months Six months Year ended
ended ended 31 December
30 June 2023 30 June 2022(1) 2022(1)
£'Million £'Million £'Million
Attributable to unit-linked investment contract benefits:
Rental income 35.4 35.1 70.1
Gain/(loss) on revaluation of investment properties 5.2 119.5 (244.5)
Net investment return on financial instruments classified as fair value 4,950.7 (11,632.6) (9,416.3)
through profit and loss(1)
4,991.3 (11,478.0) (9,590.7)
Income attributable to third-party holdings in unit trusts 1,604.5 (5,496.8) (4,168.7)
Investment return on net assets held to cover unit liabilities 6,595.8 (16,974.8) (13,759.4)
Net investment return on financial instruments classified as fair value 27.5 (25.3) (2.9)
through profit and loss
Interest income on financial instruments held at amortised cost 24.0 10.7 32.0
Investment return on shareholder assets 51.5 (14.6) 29.1
Total investment return 6,647.3 (16,989.4) (13,730.3)
(1) Restated to reflect the adoption of IFRS 17. See Note 2c.
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 £781.8 million (six
months ended 30 June 2022: £547.9 million, year ended 31 December 2022:
£1,216.0 million).
-75-
6. Income and deferred taxes
Tax for the year
Six months Six months Year ended
ended ended 31 December
30 June 2023 30 June 2022(1) 2022(1)
£'Million £'Million £'Million
Current tax
UK corporation tax
- Current year charge 157.5 31.9 66.0
- Adjustment in respect of prior year - - 3.5
Overseas taxes
- Current year charge 3.2 5.5 10.2
- Adjustment in respect of prior year - - -
160.7 37.4 79.7
Deferred tax
Unrealised capital gains/(losses) in unit-linked funds 53.7 (552.7) (504.0)
Unrelieved expenses
- Additional expenses ecognized in the year - (6.4) (9.9)
- Utilisation in the year 5.6 5.7 11.4
Capital losses
- Revaluation in the year - - 4.0
- Utilisation in the year 2.1 13.9 25.2
- Adjustment in respect of prior year - - (4.5)
DAC, DIR and PVIF (3.9) (5.0) (8.5)
Share-based payments 3.6 5.1 3.3
Renewal income assets (0.6) (1.3) (3.0)
Fixed asset timing differences 1.2 1.0 1.0
Other items(1) 0.6 (1.6) (1.2)
Overseas losses (0.1) 0.2 0.1
Adjustment for change in tax rate - - -
Adjustments in respect of prior periods 0.4 - 2.0
62.6 (541.1) (484.1)
Total tax charge/(credit) for the year(1) 223.3 (503.7) (404.4)
Attributable to:
- policyholders 169.3 (555.0) (501.1)
- shareholders(1) 54.0 51.3 96.7
223.3 (503.7) (404.4)
(1) Restated to reflect the adoption of IFRS 17. See Note 2c.
-76-
6. Income and deferred taxes (continued)
The prior year adjustment of £nil in current tax above represents £nil in
respect of policyholder tax (six months ended 30 June 2022: £nil, year ended
31 December 2022: £7.3 million charge) and £nil in respect of shareholder
tax (six months ended 30 June 2022: £nil, year ended 31 December 2022: £3.8
million credit). The prior year adjustment of £0.4 million in deferred tax
above represents £nil in respect of policyholder tax (six months ended 30
June 2022: £nil, year ended 31 December 2022: £nil) and a charge of £0.4
million in respect of shareholder tax (six months ended 30 June 2022: £nil,
year ended 31 December 2022: £2.5 million credit).
In arriving at the profit before tax attributable to shareholders' return, 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
Six months Six months Year ended
ended ended 31 December
30 June 2023 30 June 2022(1) 2022(1)
£'Million £'Million £'Million
Profit/(loss) before tax(1) 385.0 (295.5) 2.8
Tax attributable to policyholders' returns (169.3) 555.0 501.1
Profit before tax attributable to shareholders' returns 215.7 259.5 503.9
Shareholder tax charge at corporate tax rate of 23.5% (2022: 19%) 50.7 23.5% 49.3 19.0% 95.7 19.0%
Adjustments:
Lower rates of corporation tax in overseas subsidiaries (0.7) (0.3%) (0.6) (0.2%) (1.3) (0.3%)
Expected shareholder tax 50.0 23.2% 48.7 18.8% 94.4 18.7%
Effects of:
Non-taxable income (0.8) (0.2) (1.5)
Revaluation of historic capital losses in the Group - - 4.0
Adjustment for change in tax rates _ - -
Adjustment in respect of prior year
- Current tax - - (3.8)
- Deferred tax 0.4 - (2.5)
Differences in accounting and tax bases in relation to employee share schemes (1.7) 2.2 2.5
Impact of difference in tax rates between current and deferred tax - (2.3) (3.0)
Disallowable expenses 1.2 2.1 5.6
Provision for future liabilities 3.7 0.2 0.5
Tax losses not recognised 1.1 1.0 2.2
Other(1) 0.1 (0.4) (1.7)
4.0 1.8% 2.6 1.0% 2.3 0.5%
Shareholder tax charge(1) 54.0 25.0% 51.3 19.8% 96.7 19.2%
Policyholder tax charge/(credit) 169.3 (555.0) (501.1)
Total tax charge/(credit) for the year(1) 223.3 (503.7) (404.4)
(1) Restated to reflect the adoption of IFRS 17. See Note 2c.
-77-
6. Income and deferred taxes (continued)
Tax calculated on profit before tax at 23.5% (2022: 19%) would amount to a
charge of £90.5 million (six months to 30 June 2022: credit of £56.1
million, year to 31 December 2022: charge of £0.5 million). The difference of
£132.8 million (six months to 30 June 2022: £447.6 million, year to 31
December 2022: £404.9 million) between this number and the total tax charge
of £223.3 million (six months to 30 June 2022: £503.7 million credit, year
to 31 December 2022: £404.4 million credit) is made up of the reconciling
items above which total a charge of £3.3 million (six months to 30 June 2022:
£2.0 million charge, year to 31 December 2022: £1.0 million charge) and the
effect of the apportionment methodology on tax applicable to policyholder
returns of £129.5 million (six months to 30 June 2022: £449.6 million
credit, year to 31 December 2022: £405.9 million credit).
Tax paid in the year
Six months Six months Year ended
ended ended 31 December
30 June 2023 30 June 2022 2022
£'Million £'Million £'Million
Current tax charge for the year 160.7 37.4 79.7
(Payments to be made) / Refunds due to be received in future years in respect (3.8) 75.3 39.5
of current year
(Refunds received) / Payments made in current year in respect of prior years (57.8) - 1.6
Other - (3.4) 0.3
Tax paid 99.1 109.3 121.1
Tax paid can be analysed as:
- Taxes paid in UK 92.0 98.7 110.1
- Taxes paid in overseas jurisdictions 0.4 0.5 3.9
- Withholding taxes suffered on investment income received 6.7 10.1 7.1
Total 99.1 109.3 121.1
-78-
6. Income and deferred taxes (continued)
Deferred tax balances
Deferred tax assets
Deferred Deferred Renewal Share-based Fixed asset Other Total
acquisition income income payments temporary temporary
costs (DAC) (DIR) assets differences differences
£'Million £'Million £'Million £'Million £'Million £'Million £'Million
At 1 January 2022(1) (21.6) 37.8 (19.4) 16.2 7.8 (1.3) 19.5
Credit/(charge) to the Statement of Comprehensive Income
- Utilised and created in year(1) 0.1 0.7 1.3 (5.1) (1.0) 1.2 (2.8)
- Impact of tax rate change - - - - - - -
Total credit/(charge) 0.1 0.7 1.3 (5.1) (1.0) 1.2 (2.8)
Impact of acquisition - - (4.2) - - - (4.2)
Reclassified to deferred tax liabilities - - - - - (0.1) (0.1)
At 30 June 2022 (21.5) 38.5 (22.3) 11.1 6.8 (0.2) 12.4
Credit/(charge) to the Statement of Comprehensive Income
- Utilised and created in year(1) 1.1 (0.8) 1.8 1.8 (2.9) (0.3) 0.7
- Impact of tax rate change - - - - - - -
Total credit/(charge) 1.1 (0.8) 1.8 1.8 (2.9) (0.3) 0.7
Impact of acquisition - - (0.2) - - - (0.2)
Reclassified to deferred tax liabilities - - - - - (0.4) (0.4)
At 31 December 2022 (20.4) 37.7 (20.7) 12.9 3.9 (0.9) 12.5
Credit/(charge) to the Statement of Comprehensive Income
- Utilised and created in year 0.7 (1.2) 0.6 (3.6) (1.6) (0.9) (6.0)
- Impact of tax rate change - - - - - _ -
Total credit/(charge) 0.7 (1.2) 0.6 (3.6) (1.6) (0.9) (6.0)
Impact of acquisition - - (0.1) - - - (0.1)
Reclassified to deferred tax liabilities (0.5) - - - - 0.5 -
At 30 June 2023 (20.2) 36.5 (20.2) 9.3 2.3 (1.3) 6.4
Expected utilisation period
As at 30 June 2022 14 years 14 years 20 years 3 years 6 years
As at 31 December 2022 14 years 14 years 20 years 3 years 6 years
As at 30 June 2023 14 years 14 years 20 years 3 years 6 years
(1) Restated to reflect the adoption of IFRS 17. See Note 2c.
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6. Income and deferred taxes (continued)
Deferred tax liabilities
Unrelieved Deferred Capital Unrealised Purchased Other Total
expenses acquisition losses capital value of temporary
on life costs (DAC) (available gains in-force differences
insurance for on life business
business future insurance (PVIF)
relief) assets
backing
unit
liabilities
(BLAGAB)
£'Million £'Million £'Million £'Million £'Million £'Million £'Million
At 1 January 2022 (39.1) 28.0 (26.8) 684.1 3.4 0.2 649.8
Charge / (credit) to the Statement of Comprehensive Income
- Utilised and created in year (0.6) (4.0) 13.9 (552.7) (0.3) (0.2) (543.9)
- Impact of tax rate change - - - - - - -
Total charge / (credit) (0.6) (4.0) 13.9 (552.7) (0.3) (0.2) (543.9)
Reclassified from deferred tax assets - - - - - (0.1) (0.1)
At 30 June 2022 (39.7) 24.0 (12.9) 131.4 3.1 (0.1) 105.8
Charge / (credit) to the Statement of Comprehensive Income
- Utilised and created in year 2.2 (3.8) 6.8 48.7 (0.3) (0.1) 53.5
- Impact of tax rate change - - 4.0 - - - 4.0
Total charge/(credit) 2.2 (3.8) 10.8 48.7 (0.3) (0.1) 57.5
Reclassified from deferred tax assets - - - - - (0.4) (0.4)
At 31 December 2022 (37.5) 20.2 (2.1) 180.1 2.8 (0.6) 162.9
Charge/(credit) to the Statement of Comprehensive Income
- Utilised and created in year 5.6 (4.1) 2.1 53.7 (0.4) (0.3) 56.6
- Impact of tax rate change _ _ - - - - -
Total charge/(credit) 5.6 (4.1) 2.1 53.7 (0.4) (0.3) 56.6
Reclassified from deferred tax assets - (0.5) - - - 0.5 -
At 30 June 2023 (31.9) 15.6 - 233.8 2.4 (0.4) 219.5
Expected utilisation period
As at 30 June 2022 6 years 14 years 4.5 years 6 years 3.5 years
As at 31 December 2022 6 years 14 years 1 years 6 years 3 years
As at 30 June 2023 6 years 14 years 0 years 6 years 2.5 years
Appropriate investment income, gains or profits are expected to arise against
which the tax assets can be utilised. Whilst the actual rates of utilisation
will depend on business growth and external factors, particularly investment
market conditions, they have been tested for sensitivity to experience and are
resilient to a range of reasonably foreseeable scenarios.
At the reporting date there were unrecognised deferred tax assets of £16.2
million (30 June 2022: £13.0 million, 31 December 2022: £15.0 million) in
respect of £95.5 million (30 June 2022: £76.2 million, 31 December 2022:
£92.1 million) of losses in companies where appropriate profits are not
considered probable in the forecast period. These losses primarily relate to
our Asia-based businesses and can be carried forward indefinitely.
-80-
6. Income and deferred taxes (continued)
The main rate of corporation tax in the United Kingdom has increased from 19%
to 25% with effect from 1 April 2023. A blended rate of 23.5% applies for the
year ending 31 December 2023.
On 20 June 2023, Finance (No. 2) Act 2023 was substantively enacted in the UK,
introducing a global minimum effective tax rate of 15%. This legislation will
apply to St. James's Place as a large multinational. The legislation
implements a domestic top-up tax and a multinational top-up tax, effective for
accounting periods starting on or after 31 December 2023. The Group has
applied the exception under the IAS 12 amendment to recognising and disclosing
information about deferred tax assets and liabilities related to top-up income
taxes.
-81-
7. Goodwill, intangible assets, deferred acquisition costs and deferred income
Goodwill Purchased Computer DAC(1) DIR
value of in-force software and
business other specific
software
developments
£'Million £'Million £'Million £'Million £'Million
Cost
At 1 January 2022 31.1 73.4 55.3 1,143.5 (1,599.1)
Additions 3.6 - 9.1 22.8 (68.4)
Disposals - - (0.5) (63.6) 51.6
At 30 June 2022 34.7 73.4 63.9 1,102.7 (1,615.9)
Additions 1.9 - 7.0 14.4 (61.4)
Disposals _ - - (66.5) 42.3
At 31 December 2022 36.6 73.4 70.9 1,050.6 (1,635.0)
Additions - - 6.7 20.9 (55.9)
Disposals - - (15.4) (69.4) 45.0
At 30 June 2023 36.6 73.4 62.2 1,002.1 (1,645.9)
Accumulated amortisation
At 1 January 2022 1.5 59.0 28.3 764.6 (1,036.5)
Charge for the period - 1.6 4.4 39.7 (81.0)
Eliminated on disposal - - (0.5) (63.6) 51.6
At 30 June 2022 1.5 60.6 32.2 740.7 (1,065.9)
Charge for the period 1.5 1.6 5.4 39.8 (81.0)
Eliminated on disposal - - - (66.5) 42.3
At 31 December 2022 3.0 62.2 37.6 714.0 (1,104.6)
Charge for the period - 1.6 7.3 36.1 (72.7)
Eliminated on disposal - - (15.4) (69.4) 45.0
At 30 June 2023 3.0 63.8 29.5 680.7 (1,132.3)
Carrying value
At 30 June 2022 33.2 12.8 31.7 362.0 (550.0)
At 31 December 2022 33.6 11.2 33.3 336.6 (530.4)
At 30 June 2023 33.6 9.6 32.7 321.4 (513.6)
Outstanding amortisation period
At 30 June 2022 n/a 3.5 years 5 years 14 years 6-14 years
At 31 December 2022 n/a 3 years 5 years 14 years 6-14 years
At 30 June 2023 n/a 2.5 years 5 years 14 years 6-14 years
(1) Restated to reflect the adoption of IFRS 17. See Note 2c.
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7. Goodwill, intangible assets, deferred acquisition costs and deferred income
(continued)
Purchased value of in-force business/DAC/Computer software
Amortisation is charged to expenses in the IFRS Condensed Consolidated
Statement of Comprehensive Income. Amortisation profiles are reassessed
annually.
DIR
Amortisation is credited within fee and commission income in the IFRS
Condensed Consolidated Statement of Comprehensive Income. Amortisation
profiles are reassessed annually.
8. Investments
Net assets held to cover unit liabilities
Included within the IFRS Condensed Consolidated Statement of Financial
Position are the following assets and liabilities comprising the net
assets held to cover unit liabilities. The net assets held to cover unit
liabilities are set out in adjustment 1 of the IFRS to Solvency II Net Assets
Balance Sheet reconciliation on page 28.
30 June 30 June 31 December
2023 2022 2022
£'Million £'Million £'Million
Assets
Investment property 1,191.9 1,647.6 1,294.5
Equities 110,771.4 97,583.2 103,536.0
Fixed income securities 27,878.4 27,214.3 27,544.8
Investment in Collective Investment Schemes 5,923.6 3,804.7 4,463.7
Cash and cash equivalents 6,415.3 7,209.0 6,179.5
Other receivables(1) 1,109.8 2,188.7 1,604.8
Derivative financial instruments 4,149.6 1,861.9 3,493.0
Total assets 157,440.0 141,509.4 148,116.3
Liabilities
Other payables(1) 763.2 1,404.4 842.0
Derivative financial instruments 3,490.4 2,397.6 3,266.3
Total liabilities 4,253.6 3,802.0 4,108.3
Net assets held to cover linked liabilities 153,186.4 137,707.4 144,008.0
Investment contract benefits 113,924.8 102,396.5 106,964.7
Net asset value attributable to unit holders 38,843.8 34,871.8 36,628.4
Unit-linked insurance contract liabilities 417.8 439.1 414.9
Net unit-linked liabilities 153,186.4 137,707.4 144,008.0
(1) Restated to reclassify balances between Other receivables and Other
payables. See Note 2c.
-83-
9. Other receivables
30 June 30 June 31 December
2023 2022(1,2) 2022(1)
£'Million £'Million £'Million
Receivables in relation to unit liabilities excluding policyholder interests 842.9 94.9 397.0
Other receivables in relation to life and unit trust business(1) 203.7 79.9 75.8
Operational readiness prepayment 277.1 283.9 278.3
Advanced payments to Partners 99.0 78.8 83.8
Other prepayments and accrued income 97.5 82.7 84.3
Business loans to Partners 400.2 514.5 315.6
Renewal income assets 122.3 113.9 115.5
Miscellaneous 21.4 5.0 18.9
Total other receivables on the Solvency II Net Assets Balance Sheet 2,064.1 1,253.6 1,369.2
Policyholder interests in other receivables (see Note 8)(2) 1,109.8 2,188.7 1,604.8
Other 3.1 15.9 3.2
Total other receivables 3,177.0 3,458.2 2,977.2
(1) Restated to reflect the adoption of IFRS 17. See Note 2c.
(2) Restated to reclassify balances between Other receivables and Other
payables. See Note 2c.
All items within other receivables meet the definition of financial assets
with the exception of prepayments and advanced payments to Partners. The fair
value of those financial assets held at amortised cost is not materially
different from amortised cost.
Receivables in relation to unit liabilities relate to outstanding
market trade settlements (sales) in the life unit-linked funds and the
consolidated unit trusts. Other receivables in relation to insurance and unit
trust business primarily relate to outstanding policy-related settlement
timings. Both of these categories of receivables are short-term.
The operational readiness prepayment relates to the Bluedoor administration
platform which has been developed by our key outsourced back-office
administration provider. Management has assessed the recoverability of this
prepayment against the expected cost-saving benefit of lower future tariff
costs arising from the platform. It is believed that no reasonably possible
change in the assumptions applied within this assessment, notably levels of
future business, the anticipated future service tariffs and the discount rate,
would have an impact on the carrying value of the asset.
Renewal income assets represent the present value of future cash flows
associated with business combinations or books of business acquired by the
Group.
Business loans to Partners
30 June 30 June 31 December
2023 2022 2022
£'Million £'Million £'Million
Business loans to Partners directly funded by the Group 362.2 291.2 315.6
Securitised business loans to Partners 38.0 223.3 -
Total business loans to Partners 400.2 514.5 315.6
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
Partner.
-84-
9. Other receivables (continued)
During the second of half of 2022, £262.5 million of business loans to
Partners previously recognised in the Condensed 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 (totaling £276.3 million), selling 95% of the full individual loans
within that portfolio (realising proceeds of £262.5 million) and retaining 5%
of the full individual loans within the portfolio as required under the
Securitisation regulation. The loans were assessed for derecognition on an
individual basis and the retained 5% do not meet the derecognition criteria
for IFRS 9.
As a result, these business loans to Partners are no longer recognised on the
Condensed Consolidated Statement of Financial Position.
The Group has a continued involvement with the derecognised assets through the
servicing of the transferred loan portfolio. A servicing fee is received in
respect of this servicing which is immaterial to the Group. The servicing fee
is included within fee and commission income on the face of the Condensed
Consolidated Statement of Comprehensive Income.
The sale in the second half of 2022 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 12 for further information.
Prior to the sale, legal ownership of the securitised business loans to
Partners had been transferred to a structured entity, SJP Partner Loans No.1
Limited, which issued loan notes secured upon them. Note 12 provides
information on these loan notes. The securitised business loans to Partners
were ring-fenced from the other assets of the Group, which means that the cash
flows associated with these business loans to Partners could only have been
used to purchase new loans which go into the structure, or to repay the note
holders, plus associated issuance fees and costs. Holders of the loan notes
had no recourse to the Group's other assets.
During 2023, the Group has securitised £38.0 million (30 June 2022: £223.3
million, 31 December 2022: £nil) of the business loans to Partners portfolio.
As outlined above, the securitised loans remain ring-fenced from the other
assets of the Group.
The securitised business loans to Partners remain recognised on the Condensed
Consolidated Statement of Financial Position as the Group controls SJP Partner
Loans No.1 Limited.
Business loans to Partners: provision
The expected loss impairment model for business loans to Partners is based on
the levels of loss experienced in the portfolio, with due consideration given
to forward-looking information. For those business loans to Partners sold to a
third party, full credit risk has been transferred.
The provision held against business loans to Partners as at 30 June 2023 was
£3.7 million (30 June 2022: £3.8 million, 31 December 2022: £3.8 million).
-85-
10. Other payables
30 June 30 June 31 December
2023 2022(1,2) 2022(1)
£'Million £'Million £'Million
Payables in relation to unit liabilities excluding policyholder interests 536.0 234.9 326.2
Other payables in relation to life and unit trust business(1) 802.9 556.1 399.9
Accrual for ongoing advice fees 128.8 127.6 133.2
Other accruals 82.4 85.2 105.8
Contract payment 90.0 101.5 95.8
Lease liabilities: properties 127.0 120.0 116.6
Other payables in relation to Partner payments 72.4 69.6 74.8
Miscellaneous 50.9 79.0 67.3
Total other payables on the Solvency II Net Assets Balance Sheet 1,890.4 1,373.9 1,319.6
Policyholder interests in other payables (see Note 8)(2) 763.2 1,404.4 842.0
Other (see adjustment 2 on page 28) 16.6 - 19.1
Total other payables 2,670.2 2,778.3 2,180.7
(1) Restated to reflect the adoption of IFRS 17. See Note 2c.
(2) Restated to reclassify balances between Other receivables and Other
payables. See Note 2c.
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 £90.0 million (30 June 2022: £101.5 million, 31
December 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.
-86-
11. Other provisions and contingent liabilities
Complaints Lease Clawback Total
provision provision provision provisions
£'Million £'Million £'Million £'Million
At 1 January 2022 30.9 10.0 3.2 44.1
Additional provisions 18.3 0.5 - 18.8
Utilised during the period (7.8) - (0.2) (8.0)
Release of provision (10.5) - - (10.5)
At 30 June 2022 30.9 10.5 3.0 44.4
Additional provisions 10.2 3.0 - 13.2
Utilised during the period (6.2) (0.1) - (6.3)
Release of provision (5.2) (0.1) - (5.3)
At 31 December 2022 29.7 13.3 3.0 46.0
Additional provisions 28.4 0.6 - 29.0
Utilised during the period (7.3) (0.6) - (7.9)
Release of provision (11.4) (0.2) - (11.6)
At 30 June 2023 39.4 13.1 3.0 55.5
Total provision for the cost of redress for complaints is based on estimates
of the total number of complaints upheld, the estimated cost of redress and
the expected timing of settlement. The lease provision is based on the square
footage of leased properties and typical costs per square foot of restoring
similar buildings to their original state. The clawback provision is based on
estimates of the indemnity commission that may be repaid. It is considered
that any reasonably possible level of changes in estimates would not have a
material impact on the value of the best estimate of the provision. For
further information on complaints provision see page 41.
As more fully set out in the summary of principal risks and uncertainties on
pages 42 to 44, the Group could in the course of its business be subject to
legal proceedings and/or regulatory activity. Should such an event arise, the
Board would consider their best estimate of the amount required to settle the
obligation and, where appropriate and material, establish a provision. While
there can be no assurances that circumstances will not change, based upon
information currently available to them, the Directors do not believe there is
any possible activity or event that could have a material adverse effect on
the Group's financial position.
During the normal course of business, the Group may from time to time provide
guarantees to Partners, clients or other third parties. However, based upon
the information currently available to them, the Directors do not believe
there are any guarantees which would have a material adverse effect on the
Group's financial position, and so the fair value of any guarantees has been
assessed as £nil (30 June 2022: £nil, 31 December 2022: £nil).
-87-
12. 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 9.
Senior unsecured corporate borrowings
30 June 30 June 31 December
2023 2022 2022
£'Million £'Million £'Million
Corporate borrowings: bank loans - 38.6 -
Corporate borrowings: loan notes 163.9 163.8 163.8
Senior unsecured corporate borrowings 163.9 202.4 163.8
The primary senior unsecured corporate borrowings are:
· a £345 million revolving credit facility, which is repayable at
maturity in 2028 with a variable interest rate. At 30 June 2023 the undrawn
credit available under this facility was £345 million (30 June 2022: £305
million, 31 December 2022: £345 million);
· a Note Purchase Agreement for £64 million. The notes are
repayable in instalments over ten years, 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 covenants were complied with.
As at 30 June 2023, 30 June 2022 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
30 June 30 June 31 December
2023 2022 2022
£'Million £'Million £'Million
Senior unsecured corporate borrowings 163.9 202.4 163.8
Senior tranche of non-recourse securitisation loan note 25.3 169.4 -
Total borrowings 189.2 371.8 163.8
The senior tranche of non-recourse securitisation loan note balance is
repayable over an estimated seven years, with a variable interest rate. It is
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. The holder of the senior
securitisation loan note has no recourse to the assets held by any other
entity within the Group. During 2022 the senior tranche of securitisation loan
note was repaid as a result of the sale of a portfolio of Partner business
loans, including all of the securitised business loans, to a third party. For
further information on business loans to Partners, including the sale of
securitised business loans to Partners refer to Note 9.
-88-
12. Borrowings and financial commitments (continued)
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.
30 June 30 June 31 December
2023 2022 2022
£'Million £'Million £'Million
Junior tranche of non-recourse securitisation loan notes 14.8 63.6 2.1
Senior tranche of non-recourse securitisation loan notes 25.3 169.4 -
Total non-recourse securitisation loan notes 40.1 233.0 2.1
Backed by
Securitised business loans to Partners (see Note 9) 38.0 223.3 -
Other net assets of SJP Partner Loans No.1 Limited 2.1 9.7 2.1
Total net assets held by SJP Partner Loans No.1 Limited 40.1 233.0 2.1
The fair value of the outstanding borrowings is not materially different from
amortised cost. Interest expense on borrowings is recognised within expenses
in the IFRS Condensed 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
30 June 30 June 31 December 30 June 30 June 31 December
2023 2022 2022 2023 2022 2022
£'Million £'Million £'Million £'Million £'Million £'Million
Bank of Scotland 22.6 46.2 28.7 35.0 70.0 70.0
Investec 26.9 30.8 28.8 50.0 50.0 50.0
Metro Bank 21.1 35.3 27.3 25.0 61.0 40.0
NatWest 35.7 40.3 37.9 75.0 75.0 75.0
Santander 166.9 156.2 167.7 169.9 169.9 179.0
Total loans 273.2 308.8 290.4 354.9 425.9 414.0
The fair value of these guarantees has been assessed as £nil (30 June 2022:
£nil, 31 December 2022: £nil).
-89-
13. Fair value measurement
Fair value estimation
Financial assets and liabilities, which are held at fair value in the
Financial Statements, are required to have disclosed their fair value
measurements by level from the following fair value measurement hierarchy:
· Quoted prices (unadjusted) in active markets for identical assets
or liabilities (Level 1);
· Inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly (that is, as prices) or
indirectly (that is, derived from prices) (Level 2); and
· Inputs for the asset or liability that are not based on
observable market data (that is, unobservable inputs) (Level 3).
The following tables present the Group's shareholder assets and liabilities
measured at fair value:
Shareholder assets and liabilities
30 June 2023 Level 1 Level 2 Level 3 Total
balance
£'Million £'Million £'Million £'Million
Financial assets
Fixed income securities 8.0 - - 8.0
Investment in Collective Investment Schemes(1) 1,250.5 - - 1,250.5
Renewal income assets - - 122.3 122.3
Total financial assets 1,258.5 - 122.3 1,380.8
Financial liabilities
Contingent consideration - - 8.4 8.4
Total financial liabilities - - 8.4 8.4
30 June 2022 Level 1 Level 2 Level 3 Total
balance
£'Million £'Million £'Million £'Million
Financial assets
Fixed income securities 7.8 - - 7.8
Investment in Collective Investment Schemes(1) 1,370.5 - - 1,370.5
Renewal income assets - - 113.9 113.9
Total financial assets 1,378.3 - 113.9 1,492.2
Financial liabilities
Contingent consideration - - 13.9 13.9
Total financial liabilities - - 13.9 13.9
-90-
13. Fair value measurement (continued)
31 December 2022 Level 1 Level 2 Level 3 Total
balance
£'Million £'Million £'Million £'Million
Financial assets
Fixed income securities 7.9 - - 7.9
Investment in Collective Investment Schemes(1) 1,271.7 - - 1,271.7
Renewal income assets - - 115.5 115.5
Total financial assets 1,279.6 - 115.5 1,395.1
Financial liabilities
Contingent consideration - - 8.3 8.3
Total financial liabilities - - 8.3 8.3
(1) All assets included as shareholder investment in collective investment
schemes are holdings of high-quality, highly liquid unitised money market
funds, containing assets which are cash and cash equivalents.
The fair value of financial instruments traded in active markets is based on
quoted bid prices at the reporting date. These instruments are included in
Level 1.
Level 2 financial assets are valued using observable prices for identical
current arm's length transactions.
The renewal income assets are classified as Level 3 and are valued using a
discounted cash flow technique. The effect of applying reasonably possible
alternative assumptions of a movement of +100bps on the discount rate and a
10% movement in the lapse rate would result in an unfavourable change in
valuation of £10.5 million (30 June 2022: £9.5 million, 31 December 2022:
£8.2 million) and a favourable change in valuation of £11.3 million (30 June
2022: £10.5 million, 31 December 2022: £10.4 million), respectively.
The contingent consideration liability is classified as Level 3 and is valued
based on the terms set out in the sale and purchase agreement. Given the
nature of the valuation basis the effect of applying reasonably possible
alternative assumptions would result in an unfavourable change of £nil (30
June 2022: £nil, 31 December 2022: £nil) and a favourable change of £8.4
million (30 June 2022: £13.9 million, 31 December 2022: £10.4 million).
There were no transfers between Level 1 and Level 2 during the period, nor
into or out of Level 3.
The following tables present the changes in Level 3 financial assets and
liabilities at fair value through the profit and loss:
Financial assets
30 June 30 June 31 December
2023 2022 2022
£'Million £'Million £'Million
Renewal income assets
Opening balance 115.5 102.5 102.5
Additions during the period 8.2 21.9 36.1
Disposals during the period (0.8) (4.6) (7.8)
Unrealised losses recognised in the Statement of Comprehensive Income (0.6) (5.9) (15.3)
Closing balance 122.3 113.9 115.5
Unrealised losses on renewal income assets are recognised within investment
return in the IFRS Condensed Consolidated Statement of Comprehensive Income.
-91-
13. Fair value measurement (continued)
Financial liabilities
30 June 30 June 31 December
2023 2022 2022
£'Million £'Million £'Million
Contingent consideration
Opening balance 8.3 8.3 8.3
Additions during the period 0.1 6.4 6.3
Payments made during the period - (0.8) (6.3)
Closing balance 8.4 13.9 8.3
Unit liabilities and associated assets
30 June 2023 Level 1 Level 2 Level 3 Total
balance
£'Million £'Million £'Million £'Million
Financial assets and investment properties
Investment property - - 1,191.9 1,191.9
Equities 109,188.9 - 1,582.5 110,771.4
Fixed income securities 7,204.1 20,355.9 318.4 27,878.4
Investment in Collective Investment Schemes 5,915.9 - 7.7 5,923.6
Derivative financial instruments - 4,149.6 - 4,149.6
Cash and cash equivalents 6,415.3 - - 6,415.3
Total financial assets and investment properties 128,724.2 24,505.5 3,100.5 156,330.2
Financial liabilities
Investment contract benefits - 113,924.8 - 113,924.8
Derivative financial instruments - 3,490.4 - 3,490.4
Net asset value attributable to unit holders 38,843.8 - - 38,843.8
Total financial liabilities 38,843.8 117,415.2 - 156,259.0
-92-
13. Fair value measurement (continued)
30 June 2022 Level 1 Level 2 Level 3 Total
balance
£'Million £'Million £'Million £'Million
Financial assets and investment properties
Investment property - - 1,647.6 1,647.6
Equities 96,145.9 - 1,437.3 97,583.2
Fixed income securities 6,879.1 19,963.9 371.3 27,214.3
Investment in Collective Investment Schemes 3,801.2 - 3.5 3,804.7
Derivative financial instruments - 1,861.9 - 1,861.9
Cash and cash equivalents 7,209.0 - - 7,209.0
Total financial assets and investment properties 114,035.2 21,825.8 3,459.7 139,320.7
Financial liabilities
Investment contract benefits - 102,396.5 - 102,396.5
Derivative financial instruments - 2,397.6 - 2,397.6
Net asset value attributable to unit holders 34,871.8 - - 34,871.8
Total financial liabilities 34,871.8 104,794.1 - 139,665.9
31 December 2022 Level 1 Level 2 Level 3 Total
balance
£'Million £'Million £'Million £'Million
Financial assets and investment properties
Investment property - - 1,294.5 1,294.5
Equities 101,944.0 - 1,592.0 103,536.0
Fixed income securities 7,322.0 19,856.4 366.4 27,544.80
Investment in Collective Investment Schemes 4,459.8 - 3.9 4,463.7
Derivative financial instruments - 3,493.0 - 3,493.0
Cash and cash equivalents 6,179.5 - - 6,179.5
Total financial assets and investment properties 119,905.3 23,349.4 3,256.8 146,511.5
Financial liabilities
Investment contract benefits - 106,964.7 - 106,964.7
Derivative financial instruments - 3,266.3 - 3,266.3
Net asset value attributable to unit holders 36,628.4 - - 36,628.4
Total financial liabilities 36,628.4 110,231.0 - 146,859.4
In respect of the derivative financial liabilities, £163.6 million of
collateral has been posted at 30 June 2023, comprising cash and treasury bills
(30 June 2022: £307.4 million, 31 December 2022: £103.1 million), in
accordance with the terms and conditions of the derivative contracts.
The fair value of financial instruments traded in active markets is based on
quoted bid prices at the reporting date. These instruments are included in
Level 1.
-93-
13. Fair value measurement (continued)
The Group closely monitors the valuation of assets in markets that have become
less liquid. Determining whether a market is active requires the exercise of
judgement and is determined based upon the facts and circumstances of the
market for the instrument being measured. Where it is determined that there is
no active market, fair value is established using a valuation technique. The
techniques applied incorporate relevant information available and reflect
appropriate adjustments for credit and liquidity risks. These valuation
techniques maximise the use of observable market data where it is available
and rely as little as possible on entity specific estimates. The relative
weightings given to differing sources of information and the determination of
non-observable inputs to valuation models can require the exercise of
significant judgement.
If all significant inputs required to fair value an instrument are observable,
the instrument is included in Level 2. If one or more of the significant
inputs is not based on observable market data, the instrument is included in
Level 3.
Note that all of the resulting fair value estimates are included in Level 2,
except for certain equities and investments in Collective Investment Schemes
(CIS) and investment properties as detailed below.
Specific valuation techniques used to value Level 2 financial assets and
liabilities include the use of observable prices for identical current arm's
length transactions, specifically:
· The fair value of unit-linked liabilities is assessed by
reference to the value of the underlying net asset value of the Group's
unitised investment funds, determined on a bid value, at the reporting date;
and
· The Group's derivative financial instruments are valued using
valuation techniques commonly used by market participants. These consist of
discounted cash flow and options pricing models, which typically incorporate
observable market data, principally interest rates, basis spreads, foreign
exchange rates, equity prices and counterparty credit.
Specific valuation techniques used to value Level 3 financial assets and
liabilities include:
· The use of unobservable inputs, such as expected rental values
and equivalent yields; and
· Other techniques, such as discounted cash flow and historic lapse
rates, are used to determine fair value for the remaining financial
instruments.
There were no transfers between Level 1 and Level 2 during the period.
Transfers into and out of Level 3 portfolios
Transfers out of Level 3 portfolios arise when inputs that could have a
significant impact on the instrument's valuation become market observable;
conversely, transfers into the portfolios arise when consistent sources of
data cease to be available.
Transfers in of certain equities and investments in CIS occur when asset
valuations can no longer be obtained from an observable market price i.e.
become illiquid, in liquidation, suspended etc. The converse is true if an
observable market price becomes available.
During the period £nil of Russian equities (30 June 2022: £4.6 million, 31
December 2022: £4.8 million) were transferred from Level 1 to Level 3
portfolios as the valuation has been calculated using a mark down to the
quoted price, with the mark down being a significant unobservable input.
-94-
13. Fair value measurement (continued)
The following table presents the changes in Level 3 financial assets and
liabilities at fair value through the profit and loss:
Six months ended 30 June 2023 Investment Fixed Equities Investment
property income in CIS
securities
£'Million £'Million £'Million £'Million
Opening balance 1,294.5 366.4 1,592.0 3.9
Transfer into Level 3 - - - 3.9
Transfer out of Level 3 - - - -
Additions during the period 4.8 11.5 146.6 -
Disposals during the period (112.6) (37.0) (127.9) (0.1)
Gains/(losses) recognised in the Statement of Comprehensive Income 5.2 (22.5) (28.2) -
Closing balance 1,191.9 318.4 1,582.5 7.7
Realised (losses)/gains (22.0) 1.3 5.1 -
Unrealised gains/(losses) 27.2 (23.8) (33.3) -
Gains/(losses) recognised in the Statement of Comprehensive Income 5.2 (22.5) (28.2) -
Six months ended 30 June 2022 Investment Fixed Equities Investment
property income in CIS
securities
£'Million £'Million £'Million £'Million
Opening balance 1,568.5 308.1 1,047.1 3.9
Transfer into Level 3 - - 4.6 -
Transfer out of Level 3 - - - (0.5)
Additions during the period 10.2 48.2 367.3 -
Disposals during the period (50.6) (11.0) (70.4) -
Gains recognised in the Statement of Comprehensive Income 119.5 26.0 88.7 0.1
Closing balance 1,647.6 371.3 1,437.3 3.5
Realised (losses)/gains (34.3) 1.9 10.5 -
Unrealised gains 153.8 24.1 78.2 0.1
Gains recognised in the Statement of Comprehensive Income 119.5 26.0 88.7 0.1
-95-
13. Fair value measurement (continued)
Year ended 31 December 2022 Investment Fixed Equities Investment
property income in CIS
securities
£'Million £'Million £'Million £'Million
Opening balance 1,568.5 308.1 1,047.1 3.9
Transfer into Level 3 - 6.0 4.8 0.7
Additions during the year 23.6 57.8 425.8 -
Disposals during the year (53.1) (29.7) (77.1) (0.8)
(Losses)/gains recognised in the Statement of Comprehensive Income (244.5) 24.2 191.4 0.1
Closing balance 1,294.5 366.4 1,592.0 3.9
Realised (losses)/gains (192.7) 9.1 11.9 -
Unrealised (losses)/gains (51.8) 15.1 179.5 0.1
(Losses)/gains recognised in the Statement of Comprehensive Income (244.5) 24.2 191.4 0.1
Realised (losses)/gains and unrealised gains/(losses) for all Level 3 assets
are recognised within investment return in the IFRS Condensed Consolidated
Statement of Comprehensive Income.
Level 3 valuations
Investment property
At 30 June 2023 the Group held £1,191.9 million (30 June 2022: £1,647.6
million, 31 December 2022: £1,294.5 million) of investment property, all of
which is classified as Level 3 in the fair value hierarchy. It is initially
measured at cost including related acquisition costs and subsequently valued
monthly by professional external valuers at the properties' respective fair
values. The fair values derived are based on anticipated market values for the
properties in accordance with the guidance issued by the Royal Institution of
Chartered Surveyors, 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, an 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.
-96-
13. Fair value measurement (continued)
Investment property classification
Office Industrial Retail and All
leisure
30 June 2023
Gross ERV (per sq ft)(1)
Range £14.00 - £107.50 £5.00 - £24.00 £2.50 - £91.80 £2.50 - £107.50
Weighted average £43.86 £13.21 £13.38 £16.78
True equivalent yield
Range 4.3% - 9.7% 5.1% - 6.7% 5.7% - 10.5% 4.3% - 10.5%
Weighted average 6.4% 5.4% 7.3% 6.3%
30 June 2022
Gross ERV (per sq ft)(1)
Range £13.91 - £100.50 £5.00 - £20.00 £2.50 - £88.94 £2.50 - £100.50
Weighted average £42.30 £11.95 £13.29 £16.72
True equivalent yield
Range 4.1% - 12.0% 3.0% - 4.9% 4.7% - 20.1% 3.0% - 20.1%
Weighted average 5.2% 3.6% 6.3% 4.9%
31 December 2022
Gross ERV (per sq ft)(1)
Range £14.00 - £107.50 £5.00 - £22.50 £2.50 - £88.94 £2.50 - £107.50
Weighted average £46.18 £12.71 £13.54 £17.20
True equivalent yield
Range 4.3% - 9.7% 5.2% - 6.3% 6.0% - 10.5% 4.3% - 10.5%
Weighted average 5.9% 5.5% 7.2% 6.2%
1. Equivalent rental value (per square foot).
Fixed income securities and equities
At 30 June 2023 the Group held £318.4 million (30 June 2022: £371.3 million,
31 December 2022: £366.4 million) in private credit investments, and
£1,581.0 million (30 June 2022: £1,432.7 million, 31 December 2022:
£1,587.3 million) in private market investments through the St. James's Place
Diversified Assets (FAIF) Unit Trust. These are recognised within fixed income
securities and equities, respectively, in the IFRS Condensed Consolidated
Statement of Financial Position. They are initially measured at cost and are
subsequently remeasured to fair value following a monthly valuation process
which includes verification by suitably qualified professional external
valuers, who are members of various industry bodies including the British
Private Equity and Venture Capital Association.
The fair values of the private credit investments are principally determined
using two valuation methods:
1. The shadow rating method, which assigns a shadow credit rating to the debt
issuing entity and determines an expected yield with reference to observable
yields for comparable companies with public credit rating in the loan market;
and
2. The weighted average cost of capital (WACC) method, which determines the
debt issuing entity's WACC with reference to observable market comparatives.
-97-
13. Fair value measurement (continued)
The expected yield and WACC are used as the discount rates to calculate the
present value of the expected future cash flows under the shadow rating and
WACC methods respectively, which is taken to be the fair value.
The fair values of the private equity investments are principally determined
using two valuation methods:
1. A market approach with reference to suitable market comparatives; and
2. An income approach using discounted cash flow analysis which assesses the
fair value of each asset based on its expected future cash flows.
The output of each method for both the private credit and private equity
investments is a range of values, from which the mid-point is selected to be
the fair value in the majority of cases. The mid-point would not be selected
if further information is known about an investment which cannot be factored
into the valuation method used. A weighting is assigned to the values
determined following each method to determine the final valuation.
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 methodologies and the point in the range
of valuations to select as the fair value.
Sensitivity of Level 3 valuations
Investment in Collective Investment Schemes
The valuation of certain investments in CIS are based on the latest observable
price available. Whilst such valuations are sensitive to estimates, it is
believed that changing the price applied to a reasonably possible alternative
would not change the fair value significantly.
Investment property
As set out above, investment property is initially measured at cost including
related acquisition costs and subsequently valued monthly by professional
external valuers at their respective fair values. The following table sets out
the effect of applying reasonably possible alternative assumptions, being a 5%
movement in estimated rental value and a 25bps movement in the relative yield,
to the valuation of the investment properties. Any change in the value of
investment property is matched by the associated movement in the policyholder
liability, and therefore would not impact on the shareholder net assets.
Investment property significant unobservable inputs Effect of reasonable possible alternative assumptions
Carrying value Favourable Unfavourable
changes changes
£'Million £'Million £'Million
30 June 2023 Expected rental value / Relative yield 1,191.9 1,311.0 1,103.8
30 June 2022 Expected rental value / Relative yield 1,647.6 1,823.8 1,492.0
31 December 2022 Expected rental value / Relative yield 1,294.5 1,410.8 1,186.6
-98-
13. Fair value measurement (continued)
Fixed income securities and equities
As set out above, the fair values of the Level 3 fixed income securities and
equities are selected from the valuation range determined through the monthly
valuation process. The following table sets out the effect of valuing each of
the assets at the high and low point of the range. As for investment property,
any change in the value of these fixed income securities or equities is
matched by an associated movement in the policyholder liability, and therefore
would not impact on the shareholder net assets.
Effect of reasonable possible alternative assumptions
Carrying value Favourable Unfavourable
changes changes
£'Million £'Million £'Million
30 June 2023 Fixed income securities 318.4 297.2 286.5
Equities 1,582.5 1,779.2 1,402.6
30 June 2022 Fixed income securities 371.3 378.4 364.3
Equities 1,432.7 1,546.6 1,303.5
31 December 2022 Fixed income securities 366.4 374.2 358.3
Equities 1,587.3 1,783.5 1,380.3
-99-
14. Cash generated from operations
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2022(1)
2023 2022(1)
£'Million £'Million £'Million
Cash flows from operating activities
Profit/(loss) before tax for the period 385.0 (295.5) 2.8
Adjustments for:
Amortisation of purchased value of in-force business 1.6 1.6 3.2
Amortisation of computer software 7.3 4.4 9.3
Depreciation 11.3 10.5 21.7
Impairment of goodwill - - 1.5
Loss on disposal of computer software - - 0.5
Loss on disposal of property and equipment, including leased assets 0.5 0.2 0.9
Equity-settled share-based payment charge 9.9 10.4 20.5
Interest income (48.1) (18.3) (61.8)
Interest expense 7.0 6.0 12.4
Increase in provisions 9.5 0.3 1.9
Exchange rate losses/(gains) 0.4 - (0.7)
384.4 (280.4) 12.2
Changes in operating assets and liabilities
Decrease in deferred acquisition costs(2) 15.2 16.9 42.3
Decrease/(increase) in investment property 102.6 (79.1) 274.0
(Increase)/decrease in other investments (9,664.4) 10,853.6 2,378.9
(Increase)/decrease in reinsurance assets(2) (0.7) 4.8 20.2
Increase in other receivables(2,3) (199.8) (526.1) (303.1)
Increase/(decrease) in insurance contract liabilities(2) 4.8 (62.6) (98.1)
Increase/(decrease) in financial liabilities (excluding borrowings) 7,184.2 (6,575.2) (1,138.3)
Decrease in deferred income (16.8) (12.6) (32.2)
Increase/(decrease) in other payables(2,3) 479.3 200.6 (390.4)
Increase/(decrease) in net assets attributable to unit holders 2,215.4 (3,497.2) (1,740.6)
119.8 323.1 (987.3)
Cash generated from/(used in) operations 504.2 42.7 (975.1)
(1) Restated to reflect the adoption of IFRS 17. See Note 2c.
(2) Restated to reclassify balances between Other receivables and Other
payables. See Note 2c.
-100-
15. Share capital, earnings per share and dividends
Share capital
Number of Called-up
ordinary share
shares capital
£'Million
At 1 January 2022 540,530,529 81.1
- Issue of shares 459,028 0.1
- Exercise of options 2,811,390 0.4
At 30 June 2022 543,800,947 81.6
- Exercise of options 434,810 -
At 31 December 2022 544,235,757 81.6
- Exercise of options 4,320,187 0.7
At 30 June 2023 548,555,944 82.3
Ordinary shares have a par value of 15 pence per share (30 June 2022: 15 pence
per share, 31 December 2022: 15 pence per share) and are fully paid.
Included in the issued share capital are 3,684,721 (30 June 2022: 2,312,387,
31 December 2022: 2,207,186) shares held in the Shares in trust reserve with a
nominal value of £0.6 million (30 June 2022: £0.3 million, 31 December 2022:
£0.3 million). The shares are held by the SJP Employee Benefit Trust and the
St. James's Place Share Incentive Plan Trust to satisfy certain share-based
payment schemes. The Trustees of the SJP Employee Benefit Trust retain the
right to dividends on the shares held by the Trust but have chosen to waive
their entitlement to the dividends on 2,062,545 shares at 30 June 2023 (30
June 2022: 923,201 shares, 31 December 2022: 815,737 shares). The trustees of
the St. James's Place Share Incentive Plan Trust retain the right to dividends
on forfeited shares held by the Trust but have chosen to waive their
entitlement to the dividends on 146 shares at 30 June 2023 (30 June 2022: 372
shares, 31 December 2022: 671 shares).
Share capital increases are included within the 'exercise of options' line of
the table above where they relate to the Group's share-based payment schemes.
Other share capital increases are included within the 'issue of shares' line.
-101-
15. Share capital, earnings per share and dividends (continued)
Earnings per share
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2022(1)
2023 2022(1)
£'Million £'Million £'Million
Earnings
Profit after tax attributable to equity shareholders (for both basic and 161.6 208.2 406.8
diluted EPS)
Million Million Million
Weighted average number of shares
Weighted average number of ordinary shares in issue (for basic EPS) 546.0 541.8 542.7
Adjustments for outstanding share options 2.1 4.4 5.1
Weighted average number of ordinary shares (for diluted EPS) 548.1 546.2 547.8
Pence Pence Pence
Earnings per share (EPS)
Basic earnings per share 29.6 38.4 75.0
Diluted earnings per share 29.5 38.1 74.3
(1) Restated to reflect the adoption of IFRS 17. See Note 2c.
Dividends
The following dividends have been paid by the Group:
Six months Six months Year ended
ended ended 31 December
30 June 2023 30 June 2022 2022
£'Million £'Million £'Million
Final dividend in respect of 2021 - 40.41 pence per ordinary share - 218.9 218.9
Interim dividend in respect of 2022 - 15.59 pence per ordinary share - - 84.7
Final dividend in respect of 2022 - 37.19 pence per ordinary share 203.1 - -
Total dividends 203.1 218.9 303.6
The Directors have resolved to pay an interim dividend of 15.83 pence per
share (30 June 2022: 15.59 pence per share). This amounts to £86.8 million
(30 June 2022: £84.7 million) and will be paid on 22 September 2023 to
shareholders on the register at 25 August 2023.
-102-
16. Events after the reporting date
On 26 July 2023, the Board announced the introduction of a cap to ongoing
product charges on client bond and pension investments with a duration longer
than 10 years. The announcement does not impact IFRS profit before tax or IFRS
net assets at the reporting date. Further details can be found in the Chief
Executive's Report.
17. Statutory accounts
The financial information shown in this publication is unaudited and does not
constitute statutory accounts. The comparative figures for the financial year
ended 31 December 2022 are not the Company's statutory accounts for the
financial year. Those accounts have been reported on by the Company's auditors
and delivered to the Registrar of Companies.
The report of the auditors was unmodified and did not include a reference to
any matter to which the auditors drew attention to, by way of emphasis without
modifying their report, and did not contain a statement under section 498 of
the Companies Act 2006.
18. Approval of the Half-Year Report
These Condensed Consolidated Half-Year Financial Statements were approved by
the Board of Directors on 26 July 2023.
19. National storage mechanism
A copy of the Half-Year Report will be submitted shortly to the National
Storage Mechanism (NSM) and will be available for inspection at the NSM, which
is situated at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) .
-103-
Independent review report to St. James's Place plc
Report on the condensed consolidated interim financial statements
Our conclusion
We have reviewed St. James's Place plc's condensed consolidated interim
financial statements (the "interim financial statements") in the Press Release
and Half-Year Report and Accounts of St. James's Place plc for the 6 month
period ended 30 June 2023 (the "period").
Based on our review, nothing has come to our attention that causes us to
believe that the interim financial statements are not prepared, in all
material respects, in accordance with UK adopted International Accounting
Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial Conduct
Authority.
The interim financial statements comprise:
· the Condensed Consolidated Statement of Financial Position as
at 30 June 2023;
· the Condensed Consolidated Statement of Comprehensive Income
for the period then ended;
· the Condensed Consolidated Statement of Cash Flows for the
period then ended;
· the Condensed Consolidated Statement of Changes in Equity for
the period then ended; and
· the explanatory notes to the interim financial statements.
The interim financial statements included in the Press Release and Half-Year
Report and Accounts of St. James's Place plc have been prepared in accordance
with UK adopted International Accounting Standard 34, 'Interim Financial
Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410, 'Review of Interim Financial Information Performed by
the Independent Auditor of the Entity' issued by the Financial Reporting
Council for use in the United Kingdom ("ISRE (UK) 2410"). A review of interim
financial information consists of making enquiries, primarily of persons
responsible for financial and accounting matters, and applying analytical and
other review procedures.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and, consequently, does not
enable us to obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do not express
an audit opinion.
We have read the other information contained in the Press Release and
Half-Year Report and Accounts and considered whether it contains any apparent
misstatements or material inconsistencies with the information in the interim
financial statements.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed. This conclusion is based on the review
procedures performed in accordance with ISRE (UK) 2410. However, future events
or conditions may cause the group to cease to continue as a going concern.
-104-
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the directors
The Press Release and Half-Year Report and Accounts, including the interim
financial statements, is the responsibility of, and has been approved by the
directors. The directors are responsible for preparing the Press Release and
Half-Year Report and Accounts in accordance with the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial Conduct
Authority. In preparing the Press Release and Half-Year Report and Accounts,
including the interim financial statements, the directors are responsible for
assessing the group's ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the group or to
cease operations, or have no realistic alternative but to do so.
Our responsibility is to express a conclusion on the interim financial
statements in the Press Release and Half-Year Report and Accounts based on our
review. Our conclusion, including our Conclusions relating to going concern,
is based on procedures that are less extensive than audit procedures, as
described in the Basis for conclusion paragraph of this report. This report,
including the conclusion, has been prepared for and only for the company for
the purpose of complying with the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority and for no
other purpose. We do not, in giving this conclusion, accept or assume
responsibility for any other purpose or to any other person to whom this
report is shown or into whose hands it may come save where expressly agreed by
our prior consent in writing.
PricewaterhouseCoopers LLP
Chartered Accountants
Bristol
26 July 2023
-105-
Responsibility Statement of the Directors in respect of the Half-Year
Financial Report
The Directors confirm that this consolidated interim financial information has
been prepared in accordance with IAS 34 as adopted by the UK and that the
interim management report includes a fair review of the information required
by DTR 4.2.7R and DTR 4.2.8R, namely:
· an indication of important events that have occurred during the
first six months of the financial year and their impact on the condensed set
of consolidated Financial Statements, and a description of the principal risks
and uncertainties for the remaining six months of the financial year; and
· material related-party transactions in the first six months and
any material changes in the related party transactions described in the last
Annual Report.
The Directors of St. James's Place plc are listed in the St. James's Place plc
Annual Report for 31 December 2022. A list of current Directors is maintained
on the St. James's Place plc website: www.sjp.co.uk (http://www.sjp.co.uk) .
The Directors are responsible for the maintenance and integrity of the Group's
website. Legislation in the United Kingdom governing the preparation and
dissemination of Financial Statements may differ from legislation in other
jurisdictions.
By order of the Board:
Andrew Croft, Chief Executive Craig Gentle, Chief Financial Officer
26 July 2023 26 July 2023
-106-
Supplementary Information: Consolidated Half-Year Financial Statements on a
Cash Result Basis
-107-
Consolidated Statement of Comprehensive Income
on a Cash Result Basis
Note Six months Six months Year ended
ended ended 31 December
30 June 2023 30 June 2022 2022
£'Million £'Million £'Million
Fee and commission income 1,354.9 639.5 1,854.2
Expenses (988.9) (947.8) (1,898.9)
Investment return 5 51.5 (14.6) 29.1
Profit/(loss) before tax 417.5 (322.9) (15.6)
Tax attributable to policyholders' returns (169.3) 555.0 501.1
Tax attributable to shareholders' returns (45.8) (38.0) (75.4)
Total Cash result profit for the period 202.4 194.1 410.1
The Note references above cross refer to the Notes to the Condensed
Consolidated Financial Statements under IFRS as adopted by the UK on pages 50
to 102, except where denoted in Roman numerals.
-108-
Consolidated Statement of Changes in Equity
on a Cash Result Basis
Equity attributable to owners of the Parent Company
Share capital Share premium Shares in trust reserve Misc. reserves Retained earnings Total Non-controlling interests Total
equity
Note £'Million £'Million £'Million £'Million £'Million £'Million £'Million £'Million
At 1 January 2022 81.1 213.8 (8.5) 2.5 956.4 1,245.3 - 1,245.3
Cash result for the period - - - - 194.1 194.1 - 194.1
Dividends 15 - - - - (218.9) (218.9) - (218.9)
Issue of share capital 0.1 5.6 - - - 5.7 - 5.7
Exercise of options 0.4 6.7 - - - 7.1 - 7.1
Consideration paid for own shares - - (0.3) - - (0.3) - (0.3)
Shares sold during the year - - 4.7 - (4.7) - - -
Non-controlling interests - - - - 4.9 4.9 0.1 5.0
arising on the part-disposal
of subsidiaries
Change in deferred tax - - - - (18.1) (18.1) - (18.1)
Impact of policyholder tax asymmetry - - - - 39.4 39.4 - 39.4
Change in goodwill, intangibles and other non-cash movements - - - - (12.0) (12.0) - (12.0)
At 30 June 2022 81.6 226.1 (4.1) 2.5 941.1 1,247.2 0.1 1,247.3
At 1 January 2023 81.6 227.8 (4.1) 2.5 1,071.9 1,379.7 0.2 1,379.9
Cash result for the period - - - - 202.3 202.3 0.1 202.4
Dividends 15 - - - - (203.1) (203.1) (0.2) (203.3)
Exercise of options 0.7 5.7 - - - 6.4 - 6.4
Consideration paid for own shares - - (0.5) - - (0.5) - (0.5)
Shares sold during the year - - 3.8 - (3.8) - - -
Change in deferred tax - - - - (12.1) (12.1) - (12.1)
Impact of policyholder tax asymmetry - - - - (17.5) (17.5) - (17.5)
Change in goodwill, intangibles and other non-cash movements - - - - (4.0) (4.0) - (4.0)
At 30 June 2023 82.3 233.5 (0.8) 2.5 1,033.7 1,351.2 0.1 1,351.3
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Consolidated Statement of Financial Position
on a Cash Result Basis
Note 30 June 30 June 31 December
2023 2022 2022
£'Million £'Million £'Million
Assets
Property and equipment 156.8 148.0 145.7
Deferred tax assets 2.2 3.0 2.5
Investment in associates 4.7 1.4 1.4
Reinsurance assets(1) 7.0 11.6 5.6
Other receivables(1) 2,064.1 1,253.6 1,369.2
Income tax assets - 65.8 35.0
Fixed income securities 13 8.0 7.8 7.9
Investment in Collective Investment Schemes 13 1,250.5 1,370.5 1,271.7
Cash and cash equivalents 268.7 274.5 253.3
Total assets 3,762.0 3,136.2 3,092.3
Liabilities
Borrowings 12 189.2 371.8 163.8
Deferred tax liabilities 228.9 78.4 165.1
Insurance contract liabilities(1) 20.1 20.4 17.9
Other provisions 11 55.5 44.4 46.0
Other payables(1) 1,890.4 1,373.9 1,319.6
Income tax liabilities 26.6 - -
Total liabilities 2,410.7 1,888.9 1,712.4
Net assets 1,351.3 1,247.3 1,379.9
Shareholders' equity
Share capital 15 82.3 81.6 81.6
Share premium 233.5 226.1 227.8
Shares in trust reserve (0.8) (4.1) (4.1)
Miscellaneous reserves 2.5 2.5 2.5
Retained earnings 1,033.7 941.1 1,071.9
Shareholders' equity on a cash result basis 1,351.2 1,247.2 1,379.7
Non-controlling interests 0.1 0.1 0.2
Total equity on a Cash result basis 1,351.3 1,247.3 1,379.9
Pence Pence Pence
Net assets per share 246.3 229.4 253.6
(1) Restated to reflect the adoption of IFRS 17. See Note 2c.
The Note references above cross refer to the Notes to the Condensed
Consolidated Financial Statements under IFRS as adopted by the UK on pages 50
to 102, except where denoted in Roman numerals.
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Notes to the Consolidated Financial Statements
on a Cash Result Basis
I. Basis of preparation
The Consolidated Financial Statements on a Cash Result Basis have been
prepared by adjusting the Financial Statements prepared in accordance with
International Financial Reporting Standards adopted by the UK for items which
do not reflect the cash emerging from the business. The adjustments are as
follows:
1. Unit liabilities and net assets held to cover unit liabilities, as set out
in Note 8, are policyholder balances which are removed in the Statement of
Financial Position on a Cash Result Basis. No adjustment for payments in or
out is required in the Statement of Comprehensive Income as this business is
subject to deposit accounting, which means that policyholder deposits and
withdrawals are recognised in the Statement of Financial Position under IFRS,
with only marginal cash flows attributable to shareholders recognised in
the Statement of Comprehensive Income. However, adjustment is required for
the investment return and the movement in investment contract liabilities,
which are offsetting and are both zero-ised.
2. Deferred acquisition costs, the purchased value of in-force business and
deferred income assets and liabilities are removed from the Statement of
Financial Position on a Cash Result Basis, and the amortisation of these
balances is removed in the Statement of Comprehensive Income on a Cash Result
Basis. The assets, liabilities and amortisation are set out in Note 7.
3. Share-based payment expense is removed from the Statement of Comprehensive
Income on a Cash Result Basis, and the equity and liability balances for
equity-settled and cash-settled share-based payment schemes respectively are
removed from the Statement of Financial Position on a Cash Result Basis.
4. Non-unit-linked insurance contract liabilities and reinsurance assets are
removed in the Statement of Financial Position on a Cash Result Basis, with
the exception of cash items relating to outstanding reinsurance receipts and
insurance claims. The movement in the period relating to the balances removed
from the Statement of Financial Position is also removed from the Statement of
Comprehensive Income on a Cash Result Basis.
5. Goodwill, computer software intangible assets and some other assets and
liabilities which are inadmissible under the Solvency II regime are removed
from the Statement of Financial Position on a Cash Result Basis, however the
movement in these figures are included in the Statement of Comprehensive
Income on a Cash Result Basis.
6. Deferred tax assets and liabilities are adjusted in the Statement of
Financial Position on a Cash Result Basis to reflect the adjustments noted
above and other discounting differences between tax charges and IFRS
accounting. However, the impact of movements in deferred tax assets and
liabilities are not included in the Statement of Comprehensive Income on a
Cash Result Basis.
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II. Reconciliation of the IFRS balance sheet to the cash balance sheet
The Solvency II Net Assets (or Cash) balance sheet is based on the IFRS
Condensed Consolidated Statement of Financial Position (on page 48), with
adjustments made to accounting assets and liabilities to reflect the Solvency
II regulations and the provision for insurance liabilities set equal to the
associated unit liabilities.
The reconciliation between the IFRS and Solvency II Net Assets Balance Sheet
as at 30 June 2023 is set out on page 28. The reconciliations as at 30 June
2022 and 31 December 2022 are provided on the following pages.
30 June 2022 IFRS Adjustment Adjustment Solvency II
Balance Sheet 1 2 Net Assets
Balance Sheet
£'Million £'Million £'Million £'Million
Assets
Goodwill 33.2 - (33.2) -
Deferred acquisition costs(1) 362.0 - (362.0) -
Purchased value of in-force business 12.8 - (12.8) -
Computer software 31.7 - (31.7) -
Property and equipment 148.0 - - 148.0
Deferred tax assets(1) 12.4 - (9.4) 3.0
Investment in associates 1.4 - - 1.4
Reinsurance assets(1) 70.0 - (58.4) 11.6
Other receivables(1,2) 3,458.2 (2,188.7) (15.9) 1,253.6
Income tax assets 65.8 - - 65.8
Investment property 1,647.6 (1,647.6) - -
Equities 97,583.2 (97,583.2) - -
Fixed income securities 27,222.1 (27,214.3) - 7.8
Investment in Collective Investment Schemes 5,175.2 (3,804.7) - 1,370.5
Derivative financial instruments 1,861.9 (1,861.9) - -
Cash and cash equivalents 7,483.5 (7,209.0) - 274.5
Total assets 145,169.0 (141,509.4) (523.4) 3,136.2
Liabilities
Borrowings 371.8 - - 371.8
Deferred tax liabilities 105.8 - (27.4) 78.4
Insurance contract liabilities(1) 506.0 (439.1) (46.5) 20.4
Deferred income 550.0 - (550.0) -
Other provisions 44.4 - - 44.4
Other payables(1,2) 2,778.3 (1,404.4) - 1,373.9
Investment contract benefits 102,396.5 (102,396.5) - -
Derivative financial instruments 2,397.6 (2,397.6) - -
Net asset value attributable to unit holders 34,871.8 (34,871.8) - -
Total liabilities 144,022.2 (141,509.4) (623.9) 1,888.9
Net assets 1,146.8 - 100.5 1,247.3
(1) Restated to reflect the adoption of IFRS 17. See Note 2c.
(2) Restated to reclassify balances between Other receivables and Other
payables. See Note 2c.
-112-
IFRS Adjustment Adjustment Solvency II
Balance Sheet 1 2 Net Assets
Balance Sheet
31 December 2022 £'Million £'Million £'Million £'Million
Assets
Goodwill 33.6 - (33.6) -
Deferred acquisition costs(1) 336.6 - (336.6) -
Purchased value of in-force business 11.2 - (11.2) -
Computer software 33.3 - (33.3) -
Property and equipment 145.7 - - 145.7
Deferred tax assets(1) 12.5 - (10.0) 2.5
Investment in associates 1.4 - - 1.4
Reinsurance assets(1) 54.6 - (49.0) 5.6
Other receivables(1) 2,977.2 (1,604.8) (3.2) 1,369.2
Income tax assets 35.0 - - 35.0
Investment property 1,294.5 (1,294.5) - -
Equities 103,536.0 (103,536.0) - -
Fixed income securities 27,552.7 (27,544.8) - 7.9
Investment in Collective Investment Schemes 5,735.4 (4,463.7) - 1,271.7
Derivative financial instruments 3,493.0 (3,493.0) - -
Cash and cash equivalents 6,432.8 (6,179.5) - 253.3
Total assets 151,685.5 (148,116.3) (476.9) 3,092.3
Liabilities
Borrowings 163.8 - - 163.8
Deferred tax liabilities 162.9 - 2.2 165.1
Insurance contract liabilities(1) 470.5 (414.9) (37.7) 17.9
Deferred income 530.4 - (530.4) -
Other provisions 46.0 - - 46.0
Other payables(1) 2,180.7 (842.0) (19.1) 1,319.6
Investment contract benefits 106,964.7 (106,964.7) - -
Derivative financial instruments 3,266.3 (3,266.3) - -
Net asset value attributable to unit holders 36,628.4 (36,628.4) - -
Total liabilities 150,413.7 (148,116.3) (585.0) 1,712.4
Net assets 1,271.8 - 108.1 1,379.9
(1) Restated to reflect the adoption of IFRS 17. See Note 2c.
Adjustment 1 nets out the policyholder interest in unit-linked assets and
liabilities.
Adjustment 2 comprises adjustment to the IFRS Condensed Consolidated Statement
of Financial Position in line with Solvency II requirements, including removal
of DAC, DIR, PVIF and their associated deferred tax balances, goodwill and
other intangibles.
-113-
Other Information
-114-
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 page 28.
solvency, is central to our business. By removing the liabilities which are
fully matched by assets, this presentation allows the reader to focus on the
business operation. It also provides a simpler comparison with other wealth
1. Reflection of the recognition requirements of the Solvency II regulations management companies.
for assets and liabilities. In particular this removes deferred acquisition
costs (DAC), deferred income (DIR), purchased value of in-force business
(PVIF) 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 IFRS and
Cash results by providing additional disclosure on an embedded value basis,
which brings into account the net present value of expected future cash flows,
Our embedded value is determined in line with the EEV principles, originally as we believe that a measure of total economic value of the Group is useful to
set out by the Chief Financial Officers (CFO) Forum in 2004, and amended for investors.
subsequent changes to the principles, including those published in April 2016,
following the implementation of Solvency II.
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 period-end number of ordinary shares. and assessing the 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 Total IFRS net assets provides a measure of value of the Group, and assessing Not applicable.
by the period-end number of ordinary shares. the NAV per share allows analysis of the overall value of the Group by share.
-115-
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 Section 2.1 and 2.2 of the financial review and also see Note 3 to
Solvency II net assets adjusted as follows: tax and non-cash-settled share options. By contrast, dividends can only be the Consolidated Financial Statements.
paid to shareholders from appropriately fungible assets. The Board therefore
uses the Cash result to monitor the level of cash generated by the business.
1. The movement in deferred tax is removed to reflect just the cash
realisation from the deferred tax position;
While the Cash result gives an absolute measure of the cash generated in the
2. The movements in goodwill and other intangibles are included; and period, 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 period 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 any items of a
one-off nature and temporary timing differences.
Neither the Cash result nor the Underlying cash result should be confused with
the IFRS Consolidated Statement of Cash Flows which is prepared in accordance
with IAS 7.
Underlying 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 period. Both the IFRS and Cash results reflect only the cash flows in the period. See Note 3 to the Consolidated Financial Statements.
However, our business is long-term, and activity in the period can generate
business with a long-term value. We therefore believe it is helpful to
understand the full economic impact of activity in the period, 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 period. See Note 3 to the Consolidated Financial Statements.
value of the business. However, our business is long-term, and activity in the period can generate
business with a long-term value. We therefore believe it is helpful to
understand the full economic impact of activity in the period, which is the
aim of the EEV methodology.
Our embedded value is determined in line with the EEV principles, originally
set out by the Chief Financial Officers (CFO) Forum in 2004, and amended for
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
typically unrelated to the performance of the business, we believe that the
EEV operating profit (reflecting the EEV profit,
The EEV operating profit reflects the total EEV result with an adjustment to
strip out the impact of stock market and other economic effects during the
period.
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APM Definition Why is this measure used? Reconciliation
to the Financial Statements
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.
As a result, when policyholder tax increases, the charges also increase. Since
these offsetting items can be large, and typically do not perform in line with
This calculation method is consistent with the legislation relating to the the business, it is beneficial to be able to identify the two elements
calculation of the tax on shareholders' profits. 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 of Statements should include the tax incurred on behalf of policyholders in our
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). 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.
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APM Definition Why is this measure used? Reconciliation
to the Financial Statements
Controllable expenses The total of expenses which reflects Establishment, Development and our We are focused on containing long-term growth in controllable expenses. Full detail of the breakdown of expenses is provided in Section 2.2 of the
Academy. Financial Review.
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