REG - St. James's Place - Half-Year/Interim Report
28/07/2022 07:00
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RNS Number : 9857T St. James's Place PLC 28 July 2022
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PRESS RELEASE
28 July 2022
ANNOUNCEMENT OF HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2022
STRONG NEW BUSINESS AND FINANCIAL PERFORMANCE
St. James's Place plc ("SJP") today issues its interim results for the six
months ended 30 June 2022:
New investment and funds under management
· Gross inflows of £9.1 billion (2021: £9.2 billion)
· Continued strong retention of client funds at 96.5%
· Net inflows of £5.5 billion (2021: £5.5 billion), representing
7.1% of opening FUM (annualised)
· Group funds under management of £142.3 billion (31 December
2021: £154.0 billion)
Financial highlights and dividend
· Underlying cash result £198.8 million (2021: £189.3 million)
· EEV operating profit £914.2 million (2021: £844.8 million)
· IFRS profit after tax £205.6 million (2021: £120.9 million)
· Interim dividend of 15.59 pence per share (2021: 11.55 pence per
share), representing 30% of prior full year dividend
Other highlights
· We are now represented by 4,626 qualified advisers across the
Partnership, an increase of 70 year to-date
· EEV net asset value per share £15.74 (31 December 2021: £16.57)
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Andrew Croft, Chief Executive Officer, commented:
"After a year that saw global economies and investment markets rebound across
the world, the first half of 2022 has presented fresh challenges for
individuals looking to save and invest for the future. Sharply rising
inflation, geo-political tensions, domestic political uncertainty and a more
uncertain economic outlook, all present risks for those seeking confidence in
their future. This is an environment in which our advisers can add real value
for their clients, helping them to stay on track.
I am therefore very encouraged, but not at all surprised, by the strength of
our business performance during the period, which is a testament to the
qualities of our business model and the hard work of our entire SJP community.
During the first half we attracted £9.1 billion of new client investments as
advisers continued to support clients in achieving their long-term ambitions
despite a more challenging external environment. The importance of retaining a
long-term mindset is also a key factor behind the continued strength of
retention rates, which has underpinned net inflows of £5.5 billion, in line
with the first half of 2021 and equivalent to 7.1% of opening funds under
management on an annualised basis.
While our new business performance has been strong, significant reversals in
global investment markets have impacted our funds under management (FUM),
which closed the half at £142.3 billion.
Although FUM has fallen since the start of the year, our income has been
supported by the maturing of funds in gestation during the first half. This,
together with continued discipline around how we manage our resources, has
supported a strong financial result for the period with an Underlying cash
result of £198.8 million, up 5% period-on-period.
We enter the second half of the year with a growing Partnership ideally placed
to continue helping clients in these uncertain times. Financial advice is
needed now more than ever given the challenges facing individuals, both in the
short- and long-term. Given current market conditions, we now expect full
year gross and net flows of around £18 billion and £11 billion respectively,
which would make 2022 our second highest ever year for flows and put the
business even further ahead against our 2025 business plan objectives."
The details of the announcement are attached.
Enquiries:
Hugh Taylor, Investor Relations Director, 07818 075143
Jamie Dunkley, External Communications Director, 07779 999651
Brunswick Group: Tel: 020 7404 5959
• Charles Pretzlik - Email: cpretzlik@brunswickgroup.com
(mailto:cpretzlik@brunswickgroup.com)
• Eilis Murphy - Email: emurphy@brunswickgroup.com
(mailto:emurphy@brunswickgroup.com)
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2022 Half Year Results Presentation
Date: 28 July 2022
Time: 08:30 BST
Duration: 2 hours
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CONTENTS
PART ONE Gross Inflow Figures
PART TWO Interim Management Statement
PART THREE Condensed Consolidated Half Year Financial Statements prepared under
International Financial Reporting Standards (IFRS) as adopted by the United
Kingdom (UK)
PART FOUR Supplementary Information: Consolidated Financial Statement on a Cash Result
Basis (unaudited)
PART FIVE Other Information
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Gross Inflow Figures
Gross inflows for the six months to 30 June 2022
Unaudited three Unaudited six
months to 30 June months to 30 June
2022 2021 2022 2021
£'Billion £'Billion £'Billion £'Billion
Gross inflows
Investment 0.57 0.66 1.20 1.24
Pension 2.57 2.29 5.10 4.98
Unit Trust, ISA and DFM 1.24 1.45 2.81 2.97
4.38 4.40 -0% 9.11 9.19 -1%
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INTERIM MANAGEMENT STATEMENT
Chief Executive's Report
Introduction
After a year that saw global economies and investment markets rebound across
the world, the first half of 2022 has presented fresh challenges for
individuals looking to save and invest for the future. Sharply rising
inflation, geo-political tensions, domestic political uncertainty and a more
uncertain economic outlook, all present risks for those seeking confidence in
their future. This is an environment in which our advisers can add real value
for their clients, helping them to stay on track.
I am therefore very encouraged, but not at all surprised, by the strength of
our business performance during the period, which is a testament to the
qualities of our business model and the hard work of our entire SJP community.
Operating and financial performance
During the first half we attracted £9.1 billion of new client investments as
advisers continued to support clients in achieving their long-term ambitions
despite a more challenging external environment.
A particular topic of discussion for clients is undoubtedly inflation, which
reached 40-year highs during the period and is forecast to rise even higher.
Many people across the UK will not have experienced inflation running at such
levels during their adult lives so our advisers have been working hard to
ensure that clients understand how inflation might impact their finances and
consider this in the context of their long-term financial plans.
The importance of retaining a long-term mindset is also a key factor behind
the continued strength of retention rates, which has underpinned net inflows
of £5.5 billion, in line with the first half of 2021 and equivalent to 7.1%
of opening funds under management on an annualised basis.
While our new business performance has been strong, significant reversals in
global investment markets have impacted our funds under management (FUM),
which closed the half at £142.3 billion.
Although FUM has fallen since the start of the year, our income has been
supported by the maturing of funds in gestation during the first half. This,
together with continued discipline around how we manage our resources, has
supported a strong financial result for the period with an Underlying cash
result of £198.8 million, up 5% period-on-period.
Dividend
In line with our guidance that interim dividends will be set at 30% of the
prior full year pay-out, the Board has declared an interim dividend for 2022
of 15.59 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. Some highlights
during the first half include:
- Building community: we attracted a net 70 new advisers to the
Partnership. We now have 4,626 advisers around the UK and Asia supporting and
advising more than 900,000 clients so they can have confidence in their
futures. Furthermore, the pipeline is strong with 358 individuals at various
stages of their journey through the Academy.
- Being easier to do business with: as a key part of our programme
to deliver a next-generation client experience, we soft-launched a new mobile
SJP app for testing within digital app stores. We're pleased that feedback has
been positive, and we remain on track to complete a full roll-out later this
year.
- Delivering value to advisers and clients through our investment
proposition: we made changes to our Global Growth and Emerging Markets Equity
funds, appointing additional managers to those funds as well as amending other
elements of the fund mandates, consistent with the seven beliefs that underpin
our investment proposition. These investment beliefs are explained in the
third edition of our annual Value Assessment Statements (Annual Value
Assessment Statement | St. James's Place (sjp.co.uk)
(https://www.sjp.co.uk/fund-prices/unit-trust-group-funds/annual-value-assessment-statement)
), which we published recently.
- Building and protecting our brand and reputation: we launched
our refreshed brand identity early in the year and have made good progress in
rolling out our new brand assets across the business and the Partnership, with
our refreshed brand scoring well with all stakeholders.
- Our culture and being a leading responsible business: after two
years where charitable fundraising activities were curtailed due to COVID-19
related restrictions, we are delighted that the St. James's Place Charitable
Foundation (the Charitable Foundation) has been able to resume a fuller
programme of activity in 2022. Inclusive of company matching the St. James's
Place community raised £5.6 million for the Charitable Foundation in the
period, of which £1.4 million is to support the people of Ukraine. Our
financial education programmes continue at pace, with nearly 3,500 young
people across the UK involved so far this year.
- Continued financial strength: this is covered in detail in the
Chief Financial Officer's Report on page 7.
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Summary and outlook
The first half of 2022 has presented extraordinary challenges for businesses
and individuals alike, creating an uncertain and unpredictable environment.
However, ours is a business characterised by resilience, underpinned by the
strength of relationships our advisers nurture with their clients, and our
collective focus on helping clients have confidence in their long-term future.
This has meant we have been able to deliver new business performance broadly
in line with the very strong outturn we achieved in the first half of 2021,
together with improved financial performance.
We enter the second half of the year with a growing Partnership ideally placed
to continue helping clients in these uncertain times. Financial advice is
needed now more than ever given the challenges facing individuals, both in the
short- and long-term. Given current market conditions, we now expect full
year gross and net flows of around £18 billion and £11 billion respectively,
which would make 2022 our second highest ever year for flows and put the
business even further ahead against our 2025 business plan objectives.
ANDREW CROFT
Chief Executive
27 July 2022
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Chief Financial Officer's Report
We are pleased to be reporting a strong set of financial results against
the backdrop of macroeconomic and geo-political uncertainty that prevailed in
the six months to 30 June 2022. This once again demonstrates the resilience of
our business model.
As set out in the Chief Executive's Report, the Partnership attracted gross
inflows of £9.1 billion (six months to 30 June 2021: £9.2 billion, year to
31 December 2021: £18.2 billion) and net inflows of £5.5 billion
(six months to 30 June 2021: £5.5 billion, year to 31 December 2021: £11.0
billion) during the first half. Following the exceptional 27% growth in gross
inflows we achieved in 2021, we are delighted that new business performance
has been strong during 2022 despite the more challenging market conditions.
The strength of our new business flows has been offset by negative investment
market returns during the period, resulting in funds under management (FUM)
closing at £142.3 billion (30 June 2021: £143.8 million, 31 December 2021:
£154.0 billion).
These results mean we are making good progress towards the goals we set out in
our 2025 strategy at the start of 2021, aiming to achieve long-term compound
new business growth of 10% per annum and consistent retention above 95% to
reach £200bn of FUM by 2025, all whilst containing growth in controllable
expenses to 5% per annum.
Our financial results are presented in more detail on pages 15 to 30 of the
Financial Review, but we provide below 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 an overview of our capital, solvency and liquidity.
Financial results
IFRS
As a result of significant movements in investment markets, our IFRS results
have exhibited volatility period-on-period as the following table
demonstrates:
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2021
2022 2021
£'Million £'Million £'Million
IFRS (loss)/profit before tax (298.4) 482.6 842.4
Policyholder tax credit/(charge) 555.0 (336.1) (488.6)
IFRS profit before shareholder tax 256.6 146.5 353.8
Shareholder tax charge (51.0) (25.6) (66.2)
IFRS profit after tax 205.6 120.9 287.6
The key driver of the volatility is distortion caused by policyholder tax
impacts associated with market movements on policyholder investments held on
the life company balance sheet. When markets fall as they did in during the
first half of 2022, we are required to reflect refunds of fund tax deductions
to clients as if they were an expense. This expense then effectively reverses
through the policyholder tax line as a credit. When markets rise as they did
in 2021, the opposite happens and fund tax deductions are recognised as our
income, which then reverses as a policyholder tax charge. This dynamic has
resulted in our IFRS result before tax moving from a profit of £482.6 million
for the six months to 30 June 2021 to a loss of £298.4 million for the six
months to 30 June 2022.
Our IFRS results have also been distorted by 'policyholder tax asymmetry', a
feature we have highlighted in recent reporting periods. The market falls in
the first half of 2022 have resulted in the asymmetry contributing a positive
£39.4 million to the IFRS result for the period (six months to 30 June 2021:
negative £29.2 million), but we expect this benefit to unwind over time as
markets recover. Further detail on this asymmetry is included in the Financial
Review on page 16 and in Note 4 Fee and commission income on page 44. The
impact of the asymmetry together with growth in net income from FUM, are the
key drivers behind the 70% increase in IFRS profit after tax from £120.9
million in the six months to 30 June 2021 to £205.6 million in the six months
to 30 June 2022.
We continue to supplement our statutory reporting with the presentation of our
financial performance using two APMs: the Cash result and the European
Embedded Value (EEV) result. Taking each in turn:
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.
During the period, the net income from funds under management was
£300.2 million (six months to 30 June 2021: £278.2 million), representing
a margin within our range of 0.63% to 0.65% (six months to 30 June 2021: 0.63%
to 0.65%) on average mature FUM, excluding Discretionary Fund Management (DFM)
and Asia FUM, in line with prior guidance. It is only mature FUM that
contributes to this net income figure and, at any given time, this comprises
all unit trust and ISA business, as well as life and pensions business written
more than six years ago.
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The development of mature FUM year-on-year is dependent on 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;
3. The retention of FUM; and
4. Investment returns.
At 30 June 2022, the balance of gestation FUM stood at £44.5 billion
(30 June 2021: £47.3 billion, 31 December 2021: £49.3 billion) with the
reduction in the balance since the start of the year attributable to the
impact of weaker investment markets during the period. Once this current
stock of gestation FUM has all matured, assuming no market movements or
withdrawals and allowing for the tax rate change in 2023, it will contribute
over £390 million to annual net income from funds under management and hence
to the Underlying cash result. Gestation FUM therefore provides a high degree
of visibility of future income and earnings growth.
We also generate a margin arising from new business where initial product
charges levied on gross inflows exceed new business-related expenses. The
margin arising from new business tends to move directionally with gross
inflows generated during the year but, as we've indicated in the past, the
relationship between the two is not linear. This is because it contains some
fixed expenses, such as a fixed fee in our third-party administration tariff,
and some payments to Partners which are linked to prior year business levels
to provide stability to Partner businesses. As a result, in periods of modest
change in gross inflows following periods of high growth, such as the first
half of 2022 compared to 2021, some degree of short-term operating deleverage
can be experienced: the margin for the six months to 30 June 2022 was £67.4
million (six months to 30 June 2021: £73.8 million).
As part of our 2025 business plan, we set out our ambition to contain growth
in controllable expenses to around 5% per annum. Controllable expenses, which
are the categories shown in the table below (stated after tax), are a key
metric for the business. We are committed to strong cost control and have good
visibility over our controllable expense base in 2022, so while we currently
face pressures from the inflationary environment, we remain committed to
containing growth in controllable expenses to 5% for 2022.
Controllable expenses in the first half of the year were in line with our
plan. Although this total is 10% higher than in the first half of 2021, this
is simply a result of the unusual phasing of expenses we experienced in 2021,
where we highlighted an 'underspend' in the first half of the year due to
COVID-19 linked lockdown restrictions being in place during the period. We are
expecting phasing for 2022 to be more consistent with our historic
pre-COVID-19 average, where 47-48% of controllable expenses are recognised in
the first half of the year.
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2021
2022 2021
£'Million £'Million £'Million
Establishment expenses 95.9 93.0 200.3
Development expenses (Operational and Strategic) 29.7 21.3 54.0
Academy 5.8 4.9 10.3
Controllable expenses 131.4 119.2 264.6
Tax relief from capital losses has contributed £13.9 million to the Cash
result in the six months to 30 June 2022 (six months to 30 June 2021: £4.3
million). This level of relief is greater than our guidance of £5-7 million
per annum, which has been driven by market conditions. For further information
see page 21.
As a result of the items noted above, the Underlying cash result for the six
months to 30 June 2022 was £198.8 million (six months to 30 June 2021:
£189.3 million).
Recognised below the Underlying cash result is the variance. In the Half-Year
results this always includes a timing effect from fewer days of AMC in first
half of the year, which unwinds by the year-end.
The Cash result for the period was therefore £194.1 million (six months to
30 June 2021: £175.8 million).
EEV
The EEV operating profit has increased by 8% from £844.8 million for the six
months to 30 June 2021 to £914.2 million for the six months to 30 June 2022.
The key driver behind this increase is the higher unwind of the discount rate
in the current period, reflecting the larger in-force book at the start of
2022 compared to 2021, and an increase in the risk discount rate. As we did in
the first half of 2021, we have made a small improvement to persistency
assumptions, which enhances new business margin, as well as contributing
a one-off improvement in the period of £230.6 million through an operating
assumption change (six months to 30 June 2021: £249.4 million).
The EEV result before tax for the period has been significantly impacted by
the negative investment return variance of £1,346.2 million. This negative
return reflects reduced market values across our FUM as markets weakened
significantly during the period. This is in contrast with the £593.6 million
positive impact for the comparative period, which reflected market gains in
the first six months of 2021.
As a result, the EEV loss after tax was £208.2 million for the six months to
30 June 2022 (£714.7 million EEV profit after tax for the six months to 30
June 2021).
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EEV net asset value per share was £15.74 at 30 June 2022 (30 June 2021:
£15.31, 31 December 2021: £16.57).
Financial position
Our IFRS Condensed Consolidated Statement of Financial Position, presented on
page 39, 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 £1,652.8 million (30 June 2021: £1,601.2 million, 31
December 2021: £1,858.8 million), of which £1,370.5 million (30 June 2021:
£1,295.3 million, 31 December 2021: £1,605.3 million) is invested in
AAA-rated money market funds. This deep liquidity represents 53% of total
assets on the Solvency II Net Assets balance sheet (30 June 2021: 46%, 31
December 2021: 52%). Further information about liquidity is set out on page
25.
Analysis of the key movements in the Solvency II Net Assets balance sheet
during the period is set out on pages 24 to 26.
Solvency, capital and liquidity
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 2022 we held surplus assets over
the MSB of £714.4 million (30 June 2021: £607.2 million, 31 December 2021:
£727.3 million). We also ensure that our approach meets the requirements of
the Solvency II regime where we have an approach, agreed with the Prudential
Regulatory Authority (PRA) since 2017, for our largest insurance company, the
UK Life company, that targets capital equal to 110% of the standard formula
requirement. This is a prudent and sustainable policy given the risk profile
of our business, which is largely operational.
At 30 June 2022, the solvency ratio for our Life businesses was 139%. Whilst
this solvency ratio has strengthened significantly from 119% at 30 June 2021
and 115% at 31 December 2021, the ratio at 30 June 2022 benefits from two
temporary effects arising from the significant investment market falls during
the period:
· a 10% positive impact from policyholder tax asymmetry, which
benefits our own funds and hence solvency ratio in the same way as it benefits
our IFRS result. For further details, refer to page 16; and
· a 3% positive effect of the equity dampener depressing the market
risk capital component.
Excluding these temporary effects which will unwind as markets improve, the
solvency ratio for our Life businesses was 126%, which is more closely aligned
with prior periods. These effects are not normally significant, as the
following table demonstrates.
30 June 30 June 31 December
2022 2021 2021
£'Million £'Million £'Million
Underlying solvency ratio for our Life businesses 126% 116% 115%
Impact of policyholder tax asymmetry 10% 8% 7%
Effect of the equity dampener 3% -5% -7%
Solvency ratio for our Life businesses 139% 119% 115%
Taking into account entities in the rest of the Group, the Group solvency
ratio at 30 June 2022 was 155% (30 June 2021: 130% and 31 December 2021:
134%), with the current Group result also reflecting the positive equity
dampener and impact of policyholder tax asymmetry effects noted above.
Dividend
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 15.59 pence per share, equal to 30%
of the prior year dividend per share of 51.96 pence.
CRAIG GENTLE
Chief Financial Officer
27 July 2022
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Key financial information
Page Six months Six months Year ended
reference ended ended 31 December
30 June 30 June 2021
2022 2021
FUM-based metrics
Gross inflows (£'Billion) 13 9.1 9.2 18.2
Net inflows (£'Billion) 13 5.5 5.5 11.0
Total FUM (£'Billion) 13 142.3 143.8 154.0
Total FUM in gestation (£'Billion) 14 44.5 47.3 49.3
IFRS-based metrics
IFRS profit after tax (£'Million) 16 205.6 120.9 287.6
IFRS profit before shareholder tax (£'Million) 16 256.6 146.5 353.8
Underlying profit before shareholder tax (£'Million) 17 262.6 166.0 384.4
IFRS basic earnings per share (EPS) (Pence) 65 38.0 22.5 53.3
IFRS diluted EPS (Pence) 65 37.6 22.2 52.5
IFRS net asset value per share (Pence) 39 208.6 184.6 207.1
Dividend per share (Pence) 15.59 11.55 51.96
Cash result-based metrics
Controllable expenses (£'Million) 20 131.4 119.2 264.6
Underlying cash result (£'Million) 19 198.8 189.3 401.2
Cash result (£'Million) 19 194.1 175.8 387.4
Underlying cash result basic EPS (Pence) 36.7 35.3 74.6
Underlying cash result diluted EPS (Pence) 36.4 34.8 73.5
EEV-based metrics
EEV operating profit before tax (£'Million) 27 914.2 844.8 1,545.4
EEV operating profit after tax basic EPS (Pence) 126.3 121.6 219.9
EEV operating profit after tax diluted EPS (Pence) 125.3 119.9 216.5
EEV net asset value per share (£) 30 15.74 15.31 16.57
Solvency-based metrics
Solvency II net assets (£'Million) 31 1,247.3 1,113.3 1,245.3
Management solvency buffer (£'Million) 31 532.9 506.1 518.0
Solvency II free assets (£'Million) 31 1,790.2 1,128.5 1,323.4
Solvency ratio (Percentage) 31 155% 130% 134%
The Cash result should not be confused with the IFRS Condensed Consolidated
Statement of Cash Flows which is prepared in accordance with IAS 7.
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Financial Review
This Financial Review provides analysis of the Group's financial position and
performance. It is split into the following sections:
Section 1: Funds under Management (FUM)
· 1.1 FUM analysis
· 1.2 Gestation
FUM is a key driver of ongoing profitability on all measures, and
so information on FUM is provided in Section 1.
Find out more on pages 13 to 15
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 15 to 30
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 page 31
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 our fee and commission income, our
primary source of revenue under IFRS, is set out in Note 4 on page 44.
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 'mature' FUM. More information about our
FUM and the fees we earn on it can be found in Sections 1 and 2 of this
Financial Review.
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, and 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 pages 17 and 18 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.
Our income is used to meet overheads, pay the ongoing product expenses and to
invest in the business. Controllable expenses, being the costs of running the
Group's infrastructure, the Academy and development expenses, are carefully
managed in line with our 2025 business plan ambition to contain their growth
to 5% per annum. Other ongoing expenses, including payments to Partners,
increase with business levels and are generally aligned with product charges.
-12-
Related party transactions
The related party transactions during the six-month period to 30 June 2022 are
set out in Note 17 to the Financial Statements.
-13-
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
2022 and 30 June 2021, and the year to 31 December 2021. Investment return is
presented net of charges.
Six months ended 30 June 2022 30 June 31 December
2021 2021
Investment Pension UT/ISA Total
and DFM
£'Billion £'Billion £'Billion £'Billion £'Billion £'Billion
Opening FUM 35.95 74.83 43.21 153.99 129.34 129.34
Gross inflows 1.20 5.10 2.81 9.11 9.19 18.20
Net investment return (3.49) (8.76) (5.02) (17.27) 8.89 13.61
Regular income withdrawals and maturities (0.15) (0.86) - (1.01) (0.97) (2.00)
Surrenders and part surrenders (0.76) (0.73) (1.07) (2.56) (2.68) (5.16)
Closing FUM 32.75 69.58 39.93 142.26 143.77 153.99
Net inflows 0.29 3.51 1.74 5.54 5.54 11.04
Implied surrender rate as a percentage of average FUM 4.4% 2.0% 5.1% 3.5% 3.9% 3.6%
Included in the table above is:
· Rowan Dartington Group FUM of £3.23 billion at 30 June 2022 (30
June 2021: £3.24 billion, 31 December 2021: £3.52 billion), gross inflows
of £0.25 billion for the period (six months to 30 June 2021: £0.28 billion,
year to 31 December 2021: £0.55 billion) and outflows of £0.06 billion (six
months to 30 June 2021: £0.08 billion, year to 31 December 2021: £0.14
billion); and
· SJP Asia Group FUM of £1.51 billion at 30 June 2022 (30 June 2021:
£1.41 billion, 31 December 2021: £1.57 billion), gross inflows of £0.17
billion for the period (six months to 30 June 2021: £0.19 billion, year to 31
December 2021: £0.36 billion) and outflows of £0.04 billion (six months to
30 June 2021: £0.04 billion, year to 31 December 2021: £0.10 billion).
The following table shows the progression of FUM over recent periods.
Opening FUM Net inflows Investment Other Closing
return movements( 1) FUM
£'Billion £'Billion £'Billion £'Billion £'Billion
30 June 2022 154.0 5.5 (17.2) - 142.3
31 December 2021 129.3 11.0 13.7 - 154.0
30 December 2020 117.0 8.2 4.1 - 129.3
31 December 2019 95.6 9.0 12.4 - 117.0
31 December 2018 90.7 10.3 (5.4) - 95.6
31 December 2017 75.3 9.5 6.2 (0.3) 90.7
1. Other movements in 2017 related to the matching strategy disinvestment.
-14-
The table below provides a geographical and investment type analysis of FUM at
the end of each period:
30 June 2022 30 June 2021 31 December 2021
£'Billion % £'Billion % £'Billion %
North American Equities 46.0 33% 39.0 27% 47.3 31%
Fixed Income Securities 21.0 15% 23.6 16% 25.4 16%
Asia and Pacific Equities 18.8 13% 21.2 15% 18.6 12%
UK Equities 16.0 11% 20.2 14% 21.5 14%
European Equities 17.4 12% 17.0 12% 17.8 11%
Alternative Investments 11.9 8% 11.0 8% 11.9 8%
Cash 5.6 4% 5.9 4% 5.9 4%
Property 2.7 2% 2.5 2% 2.6 2%
Other 2.9 2% 3.4 2% 3.0 2%
Total 142.3 100% 143.8 100% 154.0 100%
1.2 Gestation
As explained in our financial business model on page 11, 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 ongoing 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 enter a six-year gestation period
during which no net income from FUM is included in the Cash result. Once this
business has reached its six-year maturity point, it starts contributing
positively to the Cash result, and will continue to do so in each year that
it remains with the Group. Approximately 54% of gross inflows for 2022 to
date, after initial charges, move into gestation FUM (six months to 30 June
2021: 51%, year to 31 December 2021: 51%).
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 2022, 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:
Position as at: Mature FUM Gestation FUM that Total FUM
contributing to the will contribute to the
Cash result Cash result in the future
£'Billion £'Billion £'Billion
30 June 2022 97.8 44.5 142.3
31 December 2021 104.7 49.3 154.0
30 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
31 December 2017 60.1 30.6 90.7
-15-
The following table gives an indication, for illustrative purposes, of the way
in which the reduction in fees in the gestation period element of the Cash
result could unwind, and so how the gestation balance of £44.5 billion at 30
June 2022 may start to contribute to the Cash result over the next six years
and beyond.
Gestation FUM future
contribution to the
Cash result
£'
Mi
ll
io
n
2022 22.1
2023 80.1
2024 146.8
2025 213.2
2026 280.5
2027 352.8
2028 onwards 391.2
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 Condensed Consolidated 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 policy is to fully match our liabilities to clients, and so
policyholder liabilities increase or decrease to match increases or decreases
experienced on the assets held to cover them. This means that shareholders are
not exposed to any gains or losses on the £144.5 billion of policyholder
assets and liabilities recognised in our IFRS Condensed Consolidated Statement
of Financial Position, which represented over 97% of our IFRS total assets and
liabilities at 30 June 2022.
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 under 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 into 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 80 to 82, 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.
-16-
2.1 International Financial Reporting Standards (IFRS)
IFRS profit after tax was £205.6 million for the period (six months to 30
June 2021: £120.9 million, year to 31 December 2021: £287.6 million), with
the result significantly higher period-on-period due to the volatile
experience of policyholder tax asymmetry between the periods coupled with the
strong underlying business performance. Policyholder tax asymmetry is
described further in the following paragraphs.
Life insurance tax incorporates a policyholder tax element, and the financial
statements of a life insurance group need to reflect the liability to HMRC
and the corresponding deductions incorporated into policy charges. In
particular, the tax liability to HMRC is assessed using IAS 12 Income Taxes,
which does not allow discounting, whereas the policy charges are designed to
ensure fair outcomes between clients and so reflect a wide range of possible
outcomes. This gives rise to different assessments of the current value of
future cash flows and hence an asymmetry in the IFRS Condensed Consolidated
Statement of Financial Position between the deferred tax position and the
offsetting client balance. This 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 IFRS Condensed Consolidated Statement of
Comprehensive Income and analysed in Note 4 Fee and commission income. We
refer to it in this Report as the impact of policyholder tax asymmetry.
In benign markets this asymmetry is small, however recent market volatility
has resulted in significant swings. The market falls in 2022 to-date have
resulted in the asymmetry contributing a positive £39.4 million to the IFRS
result for the six months to 30 June 2022, whereas the market gains in 2021
resulted in the asymmetry contributing a negative £29.2 million in the six
months to 30 June 2021 as some of the benefit built up due to market falls in
2020 unwound. This £68.6 million movement increases both IFRS profit after
tax and IFRS profit before shareholder tax. The asymmetry on the IFRS
Condensed Consolidated Statement of Financial Position currently stands
positive £69.4 million (30 June 2021: £55.1 million, 31 December 2021:
£30.1million). Over time this balance will reduce as markets increase.
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:
· profit before shareholder tax; and
· underlying profit.
Further information on these IFRS-based measures is set out below and on the
following page.
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 generally matched
by an equivalent fund tax deduction or credit from the relevant funds, which
is recorded within fee and commission income in the IFRS Condensed
Consolidated Statement of Comprehensive Income. Policyholder tax does not
therefore normally impact the Group's overall profit after tax. As a result,
profit before shareholder tax, but after policyholder tax, is typically a
useful metric, although it has been distorted by policyholder tax asymmetry as
referenced above in both the current and prior periods.
The following table demonstrates the way in which profit before shareholder
tax is presented in the IFRS Condensed Consolidated Statement of Comprehensive
Income on page 37.
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2021
2022 2021
£'Million £'Million £'Million
IFRS (loss)/profit before tax (298.4) 482.6 842.4
Policyholder tax credit/(charge) 555.0 (336.1) (488.6)
IFRS profit before shareholder tax 256.6 146.5 353.8
Shareholder tax charge (51.0) (25.6) (66.2)
IFRS profit after tax 205.6 120.9 287.6
IFRS profit after tax and IFRS profit before shareholder tax have both
increased period-on-period, reflecting both the impact of policyholder tax
asymmetry and growth in average FUM period-on-period leading to growth in
income from FUM.
Shareholder tax reflects the tax charge attributable to shareholders and is
closely related to the performance of the business. However, it can vary
period-on-period due to several factors: further detail is set out in Note 6
Income and deferred taxes.
-17-
Underlying profit
This is 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 IFRS Condensed
Consolidated Statement of Financial Position as a DAC asset and DIR liability,
which are subsequently amortised to the IFRS Condensed Consolidated Statement
of Comprehensive Income over a future period. Substantially all of the Group's
deferred expenses are amortised over a 14-year period, and substantially all
deferred income is amortised over a six-year period.
The impact of accounting for DAC, DIR and PVIF in the IFRS result is that
there is a significant accounting timing difference between the emergence of
accounting profits and actual cash-flows. For this reason, Underlying profit,
which removes the impact of these accounting adjustments, 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 30 June 2021
2022 2021
£'Million £'Million £'Million
IFRS profit before shareholder tax 256.6 146.5 353.8
Remove the impact of DAC/DIR/PVIF 6.0 19.5 30.6
Underlying profit before shareholder tax 262.6 166.0 384.4
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 provided in Note 7, which is presented before both
policyholder and shareholder tax:
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2021
2022 2021
£'Million £'Million £'Million
Amortisation of DAC (39.8) (43.0) (86.1)
DAC on new business for the period 22.7 19.3 41.2
Net impact of DAC (17.1) (23.7) (44.9)
Amortisation of DIR 83.1 82.4 164.8
DIR on new business for the period (70.4) (76.6) (147.3)
Net impact of DIR 12.7 5.8 17.5
Amortisation of PVIF (1.6) (1.6) (3.2)
Movement in the period (6.0) (19.5) (30.6)
-18-
Net impact of DAC
The scale of the £17.1 million negative overall impact of DAC on the IFRS
result (six months to 30 June 2021: £23.7 million negative, year to 31
December 2021: £44.9 million negative) is largely due to changes arising
from the 2013 Retail Distribution Review (RDR). After this change, 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 five to six years. During this time 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
Income released from the deferred income liability has remained largely
static, and is offset in the overall balance by a similar level of addition
reflecting new business volumes. Together, these effects mean that DIR has had
a positive £12.7 million impact on the IFRS result in the six months to 30
June 2022 (six months to 30 June 2021: £5.8 million positive, year to 31
December 2021: £17.5 million positive).
2.2 Cash result
The Cash result is used by the Board to assess and monitor the level of cash
profit (net of tax) generated by the business. It is based on IFRS with
adjustments made to exclude certain non-cash items, such as DAC, DIR, deferred
tax and equity-settled share option costs. Further details, including the full
definition of the Cash result, can be found in the Glossary of Alternative
Performance Measures on pages 80 to 82. Although the Cash result should not be
confused with the IAS 7 IFRS Condensed 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 2022
30 June 2021
31 December 2021
Before After tax Before After tax Before After tax
shareholder tax shareholder shareholder
tax
tax
£'Million £'Million £'Million £'Million £'Million £'Million
Underlying profit 262.6 209.3 166.0 139.5 384.4 315.6
Equity-settled share-based payments 11.2 11.2 9.0 9.0 20.4 20.4
Impact of deferred tax - 18.1 - (2.4) - (0.5)
Impact of policyholder tax asymmetry (39.4) (39.4) 29.2 29.2 52.9 52.9
Other (2.3) (5.1) 1.5 0.5 2.9 (1.0)
Cash result 232.1 194.1 205.7 175.8 460.6 387.4
The increase in equity-settled share-based payments reflects the increase in
expense from the impact on employee schemes of the Group's performance during
the period.
The most significant impact of deferred tax in all periods presented is
recognition in the Cash result of the benefit from realising tax relief on
capital losses. 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 on pages 46 to 49.
The impact of policyholder tax asymmetry is a temporary effect caused by
asymmetries between fund tax deductions and the policyholder tax due to HMRC.
Movement in the asymmetry can be significant in volatile markets. For further
explanation, refer to page 16.
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 day-to-day business
operations and the cost of a number of strategic investments which are being
incurred and expensed in the year, but which are expected to create long-term
value.
· Cash result
This measure includes items of a one-off nature, for example costs associated
with restructuring.
-19-
Consolidated Cash result (presented post-tax)
Note Six months ended Six months Year ended
30 June 2022
ended 31 December
30 June 2021
2021
In-force New business Total Total Total
£'Million £'Million £'Million £'Million £'Million
Net annual management fee 1 494.8 16.8 511.6 479.8 1,001.6
Reduction in fees in gestation period 1 (211.4) - (211.4) (201.6) (424.1)
Net income from FUM 1 283.4 16.8 300.2 278.2 577.5
Margin arising from new business 2 - 67.4 67.4 73.8 146.4
Controllable expenses 3 (9.6) (121.8) (131.4) (119.2) (264.6)
Asia - net investment 4 - (4.2) (4.2) (5.2) (13.6)
DFM - net investment 4 - (5.4) (5.4) (4.7) (9.6)
Regulatory fees and FSCS levy 5 (3.3) (29.6) (32.9) (33.2) (37.8)
Shareholder interest 6 4.1 - 4.1 3.0 6.2
Tax relief from capital losses 7 13.9 - 13.9 4.3 9.2
Miscellaneous 8 (12.9) - (12.9) (7.7) (12.5)
Underlying cash result 275.6 (76.8) 198.8 189.3 401.2
Restructuring 9 - - - (9.0) (9.7)
Change in capitalisation policy 10 - - - - (4.1)
Variance 11 (4.7) - (4.7) (4.5) -
Cash result 270.9 (76.8) 194.1 175.8 387.4
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 tax on
onshore investment business.
As noted on page 12 however, our investment and pension business product
structure means that these products do not generate net Cash result after the
margin arising from new business, during the first six years (the gestation
period). This 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 and this line is the focus of our explanatory analysis. As with net
annual management fees, the average rate can vary between time periods with
business mix and tax. For the six months to 30 June 2022, it represented a
margin on average mature FUM that was within our range of guidance for the
full year of 0.63% - 0.65% on an annualised basis.
Net income from Asia and DFM FUM is not included in this line. Instead, this
is included in the net Cash result presented separately for Asia and DFM.
2. Margin arising from new business
This is the net positive Cash result impact of new business in the period,
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 the clients' investment. As a result, gross inflows are a
key driver behind this line.
However, the margin arising from new business also contains some fixed
expenses, and elements which do not vary exactly in line with gross inflows.
For example, our third-party administration tariff structure includes a fixed
fee, and to provide some stability for Partner businesses, elements of our
support for them are linked to prior-year new business levels.
Therefore, whilst the margin rising 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.
-20-
3. Controllable expenses
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2021
2022 2021
£'Million £'Million £'Million
Establishment expenses 95.9 93.0 200.3
Development expenses (Operational and Strategic) 29.7 21.3 54.0
Academy 5.8 4.9 10.3
Controllable expenses 131.4 119.2 264.6
As stated in the Chief Financial Officer's Report, as part of the 2025
business planning assumptions we set our ambition to contain growth in
controllable expenses to around 5% per annum. Controllable expenses, which are
the categories shown in the table above (stated after tax), are a key metric
for the business. We are committed to strong cost control, and so despite the
current inflationary environment we expect to contain growth in controllable
expenses to 5% across 2022 as a whole. Controllable expenses in the first half
of 2022 have been 10% higher than they were in the first half of 2021, however
this is a result of the unusual phasing of expenses we experienced in 2021
only, where approximately 45% of our full-year controllable expenses were
recognised in the first half of the year. We are expecting phasing for 2022 to
be more consistent with our historic pre-COVID-19 average, where 47-48% of
controllable expenses are recognised in the first half of the year.
Establishment expenses in the six months to 30 June 2022 were £95.9 million
(six months to 30 June 2021: £93.0 million, year to 31 December 2021:
£200.3 million). This outcome reflects the return of a more normal pattern
of connectivity across our community in a post-COVID-19 world.
Development expenses were £29.7 million (six months to 30 June 2021: £21.3
million, year to 31 December 2021: £54.0 million) reflecting recent periods
of considerable investment in the business, laying the foundations for
long-term growth and a drive to secure future operating efficiencies. This
included further development in our collaboration with Salesforce, our
next-generation client experience including our new client app, and projects
focused on intelligent automation. These projects will all contribute to
improved efficiency, enhancing the experience for advisers and clients and
making SJP easier to do business with.
Reflecting its critical role in providing a source of future organic growth in
our adviser population, we continue to invest in building our Academy
programmes to accommodate additional capacity with greater geographic reach.
The transition to a hybrid format, where we combine in-class learning with
greater digital content, has meant we have been able to scale up our Academy
programmes efficiently.
4. Asia and DFM
These lines represent the net income from Asia and DFM FUM, including the Asia
and DFM expenses set out in the reconciliation between the expenses presented
separately on the face of the Cash result before tax and to IFRS expenses on
page 22.
We have continued to invest in developing our presence in Asia, as well as
discretionary fund management via Rowan Dartington both in the UK and
overseas. Both have achieved outcomes in line with prior guidance, positioning
them 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 30 June 2021
2022 2021
£'Million £'Million £'Million
FSCS levy 27.1 28.7 28.1
Regulatory fees 5.8 4.5 9.7
FSCS levy and regulatory fees 32.9 33.2 37.8
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. Whilst the FSCS levy
across the industry has fallen significantly for the current year, our charge
has only reduced modestly due to substantial gains in our market share.
6. Shareholder interest
This is the income accruing on the 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.
-21-
7. Tax relief from capital losses
In recent years, a deferred tax asset has been established in IFRS for
historic capital losses which are 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 £13.9 million (six months to 30 June 2020:
£4.3 million, year to 31 December 2020: £9.2 million) is significantly ahead
of our £5-7 million per annum guidance, which has been driven by market
conditions. Utilisation is determined on an annual basis based on the market
conditions prevailing at 31 December each year.
8. Miscellaneous
This category represents the cash flow of the business not covered in any of
the other categories. It includes, among other things, movements in the fair
value of renewal income assets and contributions from the Group to the St.
James's Place Charitable Foundation.
9. Restructuring
In 2021 we recognised the one-off cost of a restructuring exercise associated
with an employee redundancy programme in the year.
10. Change in capitalisation policy
In 2021 we recognised a further one-off cost following the guidance released
by the International Financial Reporting Standards Interpretations Committee
in relation to the recognition of software configuration costs.
11. 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.
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 IFRS Condensed
Consolidated Statement of Comprehensive Income on page 37, 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 2022
30 June 2021
31 December 2021
Before tax After tax Before tax After tax Before tax After tax
£'Million £'Million £'Million £'Million £'Million £'Million
Controllable expenses
Establishment expenses 118.4 95.9 114.8 93.0 247.3 200.3
Development expenses (Operational and Strategic) 36.7 29.7 26.3 21.3 66.7 54.0
Academy 7.1 5.8 6.1 4.9 12.7 10.3
Total controllable expenses 162.2 131.4 147.2 119.2 326.7 264.6
Other costs presented separately
on the face of the Cash result
Regulatory fees and FSCS levy 40.7 32.9 41.0 33.2 46.6 37.8
Restructuring - - 11.1 9.0 12.0 9.7
Change in capitalisation policy - - - - 5.1 4.1
Total expenses presented separately on the face of the Cash result 202.9 164.3 199.3 161.4 390.4 316.2
-22-
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 30 June 2021
2022 2021
£'Million £'Million £'Million
Total expenses presented separately on the face of the Cash result before tax 202.9 199.3 390.4
Expenses which vary with business volumes
Other performance related costs 77.6 71.5 145.0
Payments to Partners 516.0 491.0 988.0
Investment expenses 37.5 44.8 88.0
Third-party administration 62.8 66.1 128.0
Other 26.1 19.2 64.3
Expenses relating to investment in specific areas of the business
Asia expenses 7.9 8.8 23.3
DFM expenses 17.0 15.0 31.0
Total expenses included in the Cash result 947.8 915.7 1,858.0
Expenses which are not included in the Cash result
Amortisation of DAC and PVIF, net of additions 18.7 25.3 48.1
Equity-settled share-based payments expenses 11.2 9.0 20.4
Other (2.3) 2.3 4.8
Total IFRS Group expenses before tax 975.4 952.3 1,931.3
Expenses which vary with business volumes
Other performance related costs, for both Partners and employees, vary with
the level of new business and the operating profit performance of the
business. Payments to Partners, investment expenses and third-party
administration costs are met through charges to clients, and so any variation
in them from changes in the volumes of new business or the level of the stock
markets does not impact Group profitability significantly.
Each of these items are recognised within the net annual management fee or
margin arising from new business lines of the Cash result, depending on the
nature of the expense.
Other expenses include interest expense and bank charges, operating costs of
acquired independent financial advisers (IFAs) 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 period, whilst continuing to invest to support growth. Such investment
will continue going forward.
The Cash result on page 19 presents the net investment in Asia and DFM. This
comprises the income that these business generate, net of the Asia and DFM
expenses as set out in the table above.
Expenses which are not included in the Cash result
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.
-23-
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 Condensed 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 2022.
30 June 2022 Note IFRS Balance Adjustment Adjustment Solvency II Solvency II Net Assets Balance Sheet
Sheet 1 2 Net Assets
Balance Sheet
30 June 31 December
2021 2021
£'Million £'Million £'Million £'Million £'Million £'Million
Assets
Goodwill 33.2 - (33.2) - - -
Deferred acquisition costs 362.6 - (362.6) - - -
Purchased value of in-force business 12.8 - (12.8) - - -
Computer software 31.7 - (31.7) - - -
Property and equipment 1 148.0 - - 148.0 162.6 154.5
Deferred tax assets 2 13.8 - (10.8) 3.0 - 5.0
Investment in associates 1.4 - - 1.4 - 1.4
Reinsurance assets 74.7 - (74.7) - - -
Other receivables 3 6,513.9 (5,232.8) (15.9) 1,265.2 1,692.6 1,587.6
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 4 27,222.1 (27,214.3) - 7.8 7.8 7.8
Investment in Collective
Investment Schemes 4 5,175.2 (3,804.7) - 1,370.5 1,295.3 1,605.3
Derivative financial instruments 1,861.9 (1,861.9) - - - -
Cash and cash equivalents 4 7,483.5 (7,209.0) - 274.5 298.1 245.7
Total assets 148,231.4 (144,553.5) (541.7) 3,136.2 3,456.4 3,607.3
Liabilities
Borrowings 5 371.8 - - 371.8 478.2 433.0
Deferred tax liabilities 2 105.8 - (27.4) 78.4 506.7 624.4
Insurance contract liabilities 516.1 (439.1) (77.0) - - -
Deferred income 550.0 - (550.0) - - -
Other provisions 6 44.4 - - 44.4 37.6 44.1
Other payables 1,3 5,842.8 (4,448.5) - 1,394.3 1,236.9 1,254.4
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) - - - -
Income tax liabilities 7 - - - - 83.6 6.1
Preference shares - - - - 0.1 -
Total liabilities 147,096.8 (144,553.5) (654.4) 1,888.9 2,343.1 2,362.0
Net assets 1,134.6 - 112.7 1,247.3 1,113.3 1,245.3
Adjustment 1 nets out the policyholder interest in unit-linked assets and
liabilities. For further information, refer to Note 8 of the IFRS Financial
Statements.
Adjustment 2 removes items such as DAC, DIR, PVIF and their associated
deferred tax balances from the IFRS Condensed Consolidated Statement of
Financial Position to bring it in line with Solvency II recognition
requirements.
-24-
Notes to the Solvency II Net Assets Balance Sheet
1. Property and equipment
£115.2 million (30 June 2021: £125.2 million, 31 December 2021: £120.3
million) of the property and equipment balance represents the right to use
leased properties. It has decreased period-on-period mainly as a result of the
depreciation charge. Lease liabilities of £120.0 million are recognised
within the other payables line (30 June 2021: £126.5 million, 31 December
2021: £124.1 million).
2. Deferred tax assets and liabilities
Analysis of deferred tax assets and liabilities, including how they have moved
period-on-period, 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 of the IFRS Financial
Statements.
Other receivables on the Solvency II Net Assets Balance Sheet have decreased
from £1,587.6 million at 31 December 2021 to £1,265.2 million at 30 June
2022, principally reflecting a decrease in outstanding market trade
settlements in the life unit-linked funds and the consolidated unit trusts due
to decreased volumes of business close to the period end date.
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 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 been capitalising
Bluedoor development costs as a prepayment asset on the Statement of Financial
Position. The asset, which stood at £283.9 million at 30 June 2022 (30 June
2021: £305.8 million, 31 December 2021: £296.3 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 2022 is 11.5 years.
The movement schedule below demonstrates how the operational readiness
prepayment has built up since 1 January 2021.
£'Million
Cost
At 1 January 2021 406.6
Additions during the period 4.1
At 30 June 2021 410.7
Additions during the period 2.8
At 31 December 2021 413.5
Additions during the period -
At 30 June 2022 413.5
Accumulated amortisation
At 1 January 2021 (92.7)
Amortisation during the period (12.2)
At 30 June 2021 (104.9)
Amortisation during the period (12.3)
At 31 December 2021 (117.2)
Amortisation during the period (12.4)
At 30 June 2022 (129.6)
Net book value
At 30 June 2021 305.8
At 31 December 2021 296.3
At 30 June 2022 283.9
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.
-25-
Business loans to Partners
Facilitating business loans to Partners is a key way in which we are able to
support growing Partner businesses. Such loans are principally used to enable
Partners to take over the businesses of retiring or downsizing Partners, and
this process creates broad stakeholder benefits. First, clients benefit from
enhanced continuity of St. James's Place advice and service over time;
second, Partners are able to build and ultimately realise value in the
high-quality and sustainable businesses they have created; and finally, the
Group and, in turn, shareholders, benefit from high levels of adviser and
client retention.
In addition to recognising a strong business case for facilitating such
lending, we recognise too the fundamental strength and credit quality of
business loans to Partners. Over more than ten years, cumulative write-offs
have totalled less than 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, key loan-to-value (LTV) information is set out
in the table below.
30 June 30 June 31 December
2022 2021 2021
Aggregate LTV across the total Partner lending book 32% 29% 29%
Proportion of the book where LTV is over 75% 10% 8% 7%
Net exposure to loans where LTV is over 100% (£'Million) 5.5 5.5 4.6
If FUM were to decrease by 10%, the net exposure to loans where LTV is over
100% at 30 June 2022 would increase to £9.1 million (30 June 2021: increase
to £7.7 million; 31 December 2021: increase to £6.6 million).
Our credit experience also benefits from the structure of business loan to
Partner repayments. 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.
Our focus is primarily on securitised loans and so this balance has increased,
with a reduction in business loans to Partners directly funded by the Group as
repayments received have exceeded new loans advanced.
30 June 30 June 31 December
2022 2021 2021
£'Million £'Million £'Million
Total business loans to Partners 514.5 502.6 521.6
Split by funding type:
Business loans to Partners directly funded by the Group 291.2 322.2 307.6
Securitised business loans to Partners 223.3 180.4 214.0
4. Liquidity
Cash generated by the business is held in highly rated government securities,
AAA-rated money market funds, and investment grade bank accounts. Although
these are all highly liquid, only the latter are 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
2022 2021 2021
£'Million £'Million £'Million
Fixed interest securities 7.8 7.8 7.8
Investment in Collective Investment Schemes (AAA-rated money market funds) 1,370.5 1,295.3 1,605.3
Cash and cash equivalents 274.5 298.1 245.7
Total liquid assets 1,652.8 1,601.2 1,858.8
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 policy is set such that appropriate cash is retained in the business
to support the investment needed to meet our future growth aspirations.
-26-
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 the creation and execution of a securitisation vehicle.
For accounting purposes, we are obliged to disclose on our IFRS Condensed
Consolidated Statement of Financial Position the value of loan notes relating
to the securitisation. However, these are secured only on the securitised
portfolio of business loans to Partners, and hence are non-recourse
to the Group's other assets.
This means that the senior tranche of non-recourse securitisation loan notes,
whilst included within borrowing, are very different from the Group's senior
unsecured corporate borrowings, which are used to manage working capital and
to fund investment in the business.
30 June 30 June 31 December
2022 2021 2021
£'Million £'Million £'Million
Corporate borrowings: bank loans 38.6 229.5 106.8
Corporate borrowings: loan notes 163.8 113.8 163.8
Senior unsecured corporate borrowings 202.4 343.3 270.6
Senior tranche of non-recourse securitisation loan notes 169.4 134.9 162.4
Total borrowings 371.8 478.2 433.0
Further information is provided in Note 12 Borrowings and financial
commitments of the IFRS Financial Statements.
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 asset of £65.8 million at 30 June 2022 compared
to an income tax liability of £6.1 million at 31 December 2021. This is due
to a current tax charge of £37.4 million and tax paid of £109.3 million
during the period. Further detail on the current tax charge and tax paid is
provided in Note 6 Income and deferred taxes.
Stage 2: Movement in Solvency II Net Assets Balance Sheet
After the Solvency II Net Asset Balance Sheet has been determined, the second
stage in the derivation of the Cash result identified 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 into the total movement.
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2021
2022 2021
£'Million £'Million £'Million
Opening Solvency II Net Assets 1,245.3 1,218.6 1,218.6
Dividend paid in period (218.9) (267.5) (329.9)
Issue of share capital and exercise of options 12.8 21.6 29.0
Consideration paid for own shares (0.3) - -
Change in deferred tax (18.1) 2.4 0.5
Impact of policyholder tax asymmetry 39.4 (29.2) (52.9)
Change in goodwill, intangibles, non-controlling interests and other non-cash (7.0) (8.4) (7.4)
movements
Cash result 194.1 175.8 387.4
Closing Solvency II Net Assets 1,247.3 1,113.3 1,245.3
-27-
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
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 in both
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. Our EEV methods and assumptions are aligned as
closely as possible to Solvency II.
The table below and accompanying notes summarise the profit before tax of the
combined business.
Note Six months Six months Year ended
ended ended 31 December
30 June 30 June 2021
2022 2021
£'Million £'Million £'Million
Funds management business 1 985.9 915.6 1,662.9
Distribution business 2 (33.5) (34.2) (24.4)
Other (38.2) (36.6) (93.1)
EEV operating profit 914.2 844.8 1,545.4
Investment return variance 3 (1,346.2) 593.6 894.5
Economic assumption changes 4 166.9 22.8 4.2
EEV (loss)/profit before tax (265.1) 1,461.2 2,444.1
Tax 56.9 (338.0) (578.7)
Corporation tax rate change 5 - (408.5) (412.7)
EEV (loss)/profit after tax (208.2) 714.7 1,452.7
Notes to the EEV result
1. Funds management business EEV operating profit
The funds management business operating profit has increased to £985.9
million (six months to 30 June 2021: £915.6 million, year to 31 December
2021: £1,662.9 million) and a full analysis of the result is shown below.
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2021
2022 2021
£'Million £'Million £'Million
New business contribution 525.6 525.6 1,002.2
Profit from existing business
- unwind of the discount rate 216.2 138.5 275.8
- experience variance 9.9 1.1 89.5
- operating assumption change 230.6 249.4 293.0
Investment income 3.6 1.0 2.4
Fund management business EEV operating profit 985.9 915.6 1,662.9
The new business contribution for the period at £525.6 million (six months to
30 June 2021: £525.6 million, year to 31 December 2021: £1,002.2 million)
was consistent with the prior period. Whilst this primarily reflects the
consistent new business levels, there has been a favourable impact from the
change in persistency assumptions for unit trust and ISA business (see
operating assumption change below) which has been offset by higher expenses.
The unwind of the discount rate for the period increased by 56% to £216.2
million (six months to 30 June 2021: £138.5 million, year to 31 December
2021: £275.8 million). This reflects both a higher opening value of in-force
business and a higher discount rate for the period (4.2% in 2022 versus 3.4%
in 2021).
The operating assumption change during the period was £230.6 million (six
months to 30 June 2021: £249.4 million, year to 31 December 2021:
£293.0 million). The change in the current period arises from a small
improvement to the persistency
-28-
assumptions for unit trust and ISA business, similar to the change in the
prior period which arose due to a small improvement to the persistency
assumptions for onshore bond and pension business. Both of these changes
reflect positive experience over recent years. No further changes to
persistency assumptions are planned in the short- to medium-term.
2. Distribution business
The distribution loss includes the positive gross margin arising from advice
income less payments to advisers, offset by the cost of building the
distribution capabilities in Asia and the FSCS Levy, which is a significant
charge within the distribution business result. The latter has reduced
modestly to £23.8 million in the period (six months to 30 June 2021: £25.9
million, year to 31 December 2021: £23.6 million), leading to modest decrease
in the overall reported loss.
3. 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.
Due to the significant market falls experienced during the period, the typical
investment return on our funds was negative 10.9% after charges, compared to
the assumed investment return of positive 1.7%. This resulted in a negative
investment return variance of £1,346.2 million (six months to 30 June 2021:
positive £593.6 million, year to 31 December 2021: positive £894.5
million).
4. Economic assumption changes
The positive variance of £166.9 million arising in the period (six months to
30 June 2021: positive £22.8 million, year to 31 December 2021: positive
£4.2 million) reflects the positive effect from the increase in gilt yields,
and the decrease in the long-term inflation rate from the position at 31
December 2021.
5.Corporation tax rate change
The corporate tax rate change recognised in the prior period reflects the
impact on the relevant deferred tax balances from the increase in the main
rate of corporation tax from 19% to 25% with effect from 1 April 2023, as
substantively enacted on 24 May 2021 within the Finance Bill 2021.
New business margin
The largest single element of the EEV operating profit (analysed in the
previous section) is the new business contribution. The level of new business
contribution generally moves in line with new business levels. To demonstrate
this link, and aid understanding of the results, we provide additional
analysis of the new business margin (the margin). This is calculated as the
new business contribution divided by the gross inflows and is expressed as a
percentage.
The table below presents the margin before tax from our manufactured business.
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2021
2022 2021
£'Million £'Million £'Million
Life business
Investment
New business contribution (£'Million) 72.5 73.1 153.0
Gross inflows (£'Billion) 1.20 1.24 2.62
Margin (%) 6.0 5.9 5.8
Pension
New business contribution (£'Million) 256.7 277.9 512.0
Gross inflows (£'Billion) 5.10 4.98 9.86
Margin (%) 5.0 5.6 5.2
Unit Trust and DFM business
New business contribution (£'Million) 196.4 174.6 337.2
Gross inflows (£'Billion) 2.81 2.97 5.72
Margin (%) 7.0 5.9 5.9
Total business
New business contribution (£'Million) 525.6 525.6 1,002.2
Gross inflows (£'Billion) 9.11 9.19 18.20
Margin (%) 5.8 5.7 5.5
Post-tax margin (%) 4.4 4.4 4.2
The overall margin for the period was higher at 5.8% (six months to 30 June
2021: 5.7%, year to 31 December 2021: 5.5%) reflecting the change made to
persistency assumptions for our unit trust and ISA business.
-29-
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 30 June 2021
2022 2021
£'Million £'Million £'Million
Risk free rate 2.4% 0.9% 1.1%
Inflation rate 3.7% 3.6% 4.0%
Risk discount rate (net of tax) 5.5% 4.0% 4.2%
Future investment returns:
- Gilts 2.4% 0.9% 1.1%
- Equities 5.4% 3.9% 4.1%
- Unit-linked funds 4.7% 3.2% 3.4%
Expense inflation 4.1% 4.0% 4.4%
The risk-free rate is set by reference to the yield on ten-year gilts, and so
has increased significantly period-on-period as 10-year gilt rates have
increased. 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 the potential
for higher increases in earnings-related expenses.
EEV sensitivities
The table below shows the estimated impact on the reported value of new
business and EEV to changes in various EEV calculated assumptions. The
sensitivities are specified by the EEV principles and reflect reasonably
possible levels of change. In each case, only the indicated item is varied
relative to the restated values.
Note Change in new business contribution Change in European
Embedded Value
Post-tax
Pre-tax Post-tax
£'Million £'Million £'Million
Value at 30 June 2022 525.55 398.23 8,558.85
100bp reduction in risk-free rates, with 1 (15.28) (11.70) (120.19)
corresponding change in fixed interest asset values
10% increase in withdrawal rates 2 (37.75) (28.54) (446.79)
10% reduction in market value of equity assets 3 - - (834.40)
10% increase in expenses 4 (9.70) (7.44) (106.95)
100bp increase in assumed inflation 5 (16.26) (12.43) (138.32)
-30-
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 100bp 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
100bp reduction in risk discount rate 67.02 50.63 676.68
Although not directly relevant under a market-consistent valuation, this
sensitivity shows the level of adjustment which would be required to reflect
differing investor views of risk.
Analysis of the EEV result
The table below provides a summarised breakdown of the embedded value position
at the reporting dates:
30 June 30 June 31 December
2022 2021 2021
£'Million £'Million £'Million
Value of in-force business 7,311.6 7,149.7 7,712.1
Solvency II net assets 1,247.3 1,113.3 1,245.3
Total embedded value 8,558.9 8,263.0 8,957.4
30 June 30 June 31 December
2022 2021 2021
£ £ £
Net asset value per share 15.74 15.31 16.57
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 this investment in the same
product. Earlier business, written in our separate Retirement Plan and
Drawdown Plan products, targeted each of the two phases separately and
therefore has slightly shorter terms.
Our experience is that much of our Retirement Plan business converts into
Drawdown 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 is crystallised. 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 £340 million to our embedded value (30 June
2021: approximately £400 million, 31 December 2021: approximately £395
million).
-31-
Section 3: Solvency
St. James's Place has a business model and risk appetite that results in
underlying assets being held that fully match with 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 through 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 on a standardised basis 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 2021 we reviewed the level of our MSB and
increased the MSB for the Life businesses to £355.0 million, reflecting
business growth and market conditions. It remains at this level for 30 June
2021.
The Group's overall Solvency II net assets position, MSB and management
solvency ratios are as follows:
30 June 2022 Life Other Other Total 30 June 31 December
regulated 2021 2021
Total Total
£'Million £'Million £'Million £'Million £'Million £'Million
Solvency II net assets 567.3 342.3 337.7 1,247.3 1,113.3 1,245.3
Management solvency buffer (MSB) 355.0 177.9 - 532.9 506.1 518.0
Management solvency ratio 160% 192%
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
cash flows (VIF) 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 is assessed against a
solvency capital requirement (SCR), reflecting the capital required to protect
against a range of '1 in 200' stresses. The SCR is calculated on the standard
formula approach. No allowance has been made for transitional provisions in
the calculation of technical provisions or the SCR.
An analysis of the Solvency II position for our Group, split by regulated and
non-regulated entities at the period-end is presented in the table below:
30 June 2022 Life Other Other Total 30 June 31 December
regulated 2021 2021
Total Total
£'Million £'Million £'Million £'Million £'Million £'Million
Solvency II net assets 567.3 342.3 337.7 1,247.3 1,113.3 1,245.3
Value of in-force (VIF) 5,240.4 - - 5,240.4 5,315.5 5,640.1
Risk Margin (RM) (1,450.9) - - (1,450.9) (1,578.1) (1,622.9)
Own Funds (A) 4,356.8 342.3 337.7 5,036.8 4,850.7 5,262.5
Solvency capital requirement (B) (3,128.2) (118.4) - (3,246.6) (3,722.2) (3,939.1)
Solvency II free assets 1,228.6 223.9 337.7 1,790.2 1,128.5 1,323.4
Solvency ratio (A/B) 139% 289% 155% 130% 134%
The solvency ratio after payment of the proposed Group interim dividend is
152% at 30 June 2022 (30 June 2021: 129%, 31 December 2021: 128%).
We continue to target a solvency ratio of 110% for SJPUK, our largest
insurance subsidiary, as agreed with our regulator, the PRA. As SJPUK grows,
the weighting of the balance sheet towards SJPUK will result in a gradual
dilution of the Group solvency ratio, but this will not reflect any change in
risk appetite, nor risk inherent in the business.
-32-
Principal Risks and Uncertainties
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 86 to 95 of the 2021 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
Inflation has risen rapidly since the year-end, well beyond the Bank of
England's 2% target and it is forecast to continue increasing. This pressure
on consumer goods prices is reflected globally, with central banks across the
world continuing to tighten monetary policy with various degrees of strength.
Many central banks are aiming for a 'soft landing' by not increasing interest
rates too aggressively so as to avoid a recession or stagflation. The key
risks for SJP arise through:
· increases in expenses;
· reductions in asset prices;
· changes in new business levels due to market sentiment and/or
reduced investible income; 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
assessment 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.
The invasion of Ukraine has had tragic consequences for those in the region
and raised tensions between Russia and the West. Globally it is exacerbating a
cost-of-living crisis and contributing towards supply chain issues. The Group
has carefully considered any relevant exposures arising from our invested
assets, government sanctions, our supply chain and from any change in the
cyber threat landscape. When the invasion began we were quickly able to take
comfort that we were well positioned to manage these risks to an acceptable
level through limited exposure and/or our existing control environment. This
remains the case.
The Board has been and continues to be actively involved in defining responses
to macroeconomic trends, 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.
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.
-33-
Principal risks table
Our principal risks in the table below have been linked to the primary
business priorities which they could impact. We recognise however that they
could also have a secondary impact on other business priorities.
Risk description Business priority Key risks Example controls
Administration We fail to deliver good quality administration services to advisers and Being easier to do business with · Clients and advisers receive poor policy administration · Oversight of service levels by our third-party administration provider
service clients.
· Failure of key administration system change projects · Management of administration centres to ensure key service standards are
met
· Administrative complexity
· Continuous development of technology
· Effective planning of large-scale change projects
· Ongoing activity to reduce administrative complexity and ensure
operational resilience
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 and/or do · Monitoring of asset allocations across portfolios to ensure they are
of our clients. This includes poor relative investment performance and poor
not deliver expected client outcomes performing as expected in working towards long-term objectives
product design. Our culture and being a leading responsible business
· Range of solutions does not align with the product and service · Monitoring funds against their objectives and to ensure an appropriate
requirements of our current and potential future clients level of investment risk
· Failure to meet client expectations of a sustainable business, not least · Ongoing assessment of value delivered by funds and portfolios versus
in respect of climate change and responsible investing their objectives
· Where necessary, 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 ensuring appropriate standard of advice and service
from advisers
· Failure to evidence the provision of quality service and advice
· Technical support helplines for advisers
· Timely and clear responses to client complaints
· 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 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
· Lending to the Partnership is secured
· Liquidity risk
· Reinsurance of insurance risks
· Insurance risk
· Ongoing monitoring of all risk exposures and experiences
· Expense risk
· Acceptance of market and persistency risk impact on profit
· Setting and monitoring budgets
· Implementing new systems to allow for future cost reductions
· Monitoring and management of individual entities' solvency to minimise
Group interdependency
Outsourcing The third-party suppliers and outsourcers activities impact our performance Building and protecting our brand · Operational failures by material third-party suppliers and outsourcers · Oversight regime in place to identify prudent steps to reduce risk of
and risk management.
operational failures by material third-party providers
· Ongoing monitoring of performance, risks and assessments of operational
resilience.
-34-
Risk description Business priority Key risks Example controls
and reputation · Failure of critical service, significant areas include: · A risk-based due diligence process, which is in line with the recent
update in our Regulator's requirements, is carried out on suppliers and
Our culture and being a leading responsible business · Investment administration outsourcers.
· Fund management
· Custody
· Policy administration
· Cloud services
Partner proposition Our proposition solution fails to meet the needs, objectives and expectations Building community · Failure to attract new members to the Partnership · Focus on providing a market-leading adviser proposition
of our current and potential future Partners.
Being easier to do business with · Failure to retain advisers/Partners · Adequately skilled and resourced population of supporting field managers
· Failure to increase adviser productivity · Reliable systems and administration support
· Available technology falls short of client and adviser expectations and · Expanding the Academy capacity and supporting recruits through the
fails to support growth objectives Academy and beyond
· The Academy does not adequately support adviser growth · Market-leading support to Partner 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
Our culture and being a leading responsible business · Poor employee engagement
· Monitoring of employee engagement and satisfaction
· Failure to create an inclusive and diverse business
· Employee wellbeing is supported through various initiatives, benefits and
· Poor employee wellbeing services
· Our culture of supporting social value is eroded · Corporate incentives to encourage social value engagement, including
matching of employee charitable giving to the St. James's Place 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 changing regulation or respond to changes in · Compliance functions provide expert guidance and carry out extensive
expectations.
regulatory expectations assurance work
Our culture and being a leading responsible business
· Inadequate internal controls · Strict controls are maintained in highly regulated areas
· Failure to respond to regulatory-driven changes to the industry in which · Maintenance of appropriate solvency capital buffers, and continuous
we operate monitoring of solvency experience
· Solvency risk · 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 cyber · Clear cyber strategy and data protection roadmap for continuous
risks development
· Data leakage detection technology and incident reporting systems
-35-
Risk description Business priority Key risks Example controls
· Disruption in key business services to our clients · Identification, communication, and response planning for the event of
cyber crime
· Executive Board level cyber scenario session to test strategic
response
· Internal awareness programmes
· Identification and assessment of critical business services
Strategy, competition Challenge from competitors and the 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, service
and brand
(non-traditional) competitors and products
Our culture and being a leading responsible business
· Cost and charges pressure · Investment in improving positive brand recognition
· Negative media coverage · Ongoing development of client and Partner propositions
· Failure to meet our commitments to net zero · Proactive engagement with external agencies including media, industry
groups and regulators
· Clear interim targets to be tracked towards meeting our final net zero
targets
-36-
Condensed Consolidated Half Year Financial Statements prepared under
International Financial Reporting Standards (IFRS) as adopted by the United
Kingdom (UK)
-37-
Condensed Consolidated Statement of Comprehensive Income
Note Six months Six months Year ended
ended ended 31 December
30 June 30 June 2021
2022 2021
£'Million £'Million £'Million
Insurance premium income 15.7 17.1 36.5
Less premiums ceded to reinsurers (10.8) (11.0) (23.2)
Net insurance premium income 4.9 6.1 13.3
Fee and commission income 4 715.2 1,424.2 2,737.2
Investment return 5 (17,023.1) 9,560.5 15,275.4
Net (expense)/income (16,303.0) 10,990.8 18,025.9
Policy claims and benefits
- Gross amount (25.0) (24.8) (62.8)
- Reinsurers' share 9.3 12.6 16.9
Net policyholder claims and benefits incurred (15.7) (12.2) (45.9)
Change in insurance contract liabilities
- Gross amount 56.2 (9.2) (9.7)
- Reinsurers' share (7.7) (7.1) (9.9)
Net change in insurance contract liabilities 48.5 (16.3) (19.6)
Movement in investment contract benefits 16,947.2 (9,527.4) (15,186.7)
Expenses (975.4) (952.3) (1,931.3)
(Loss)/profit before tax 3 (298.4) 482.6 842.4
Tax attributable to policyholders' returns 6 555.0 (336.1) (488.6)
Profit before tax attributable to shareholders' returns 256.6 146.5 353.8
Total tax credit /(expense) 504.0 (361.7) (554.8)
Less: tax attributable to policyholders' returns 6 (555.0) 336.1 488.6
Tax attributable to shareholders' returns 6 (51.0) (25.6) (66.2)
Profit and total comprehensive income for the period 205.6 120.9 287.6
Profit attributable to non-controlling interests - - 0.9
Profit attributable to equity shareholders 205.6 120.9 286.7
Profit and total comprehensive income for the period 205.6 120.9 287.6
Pence Pence Pence
Basic earnings per share 15 38.0 22.5 53.3
Diluted earnings per share 15 37.6 22.2 52.5
The results relate to continuing operations.
The Notes and information on pages 41 to 67 form part of these Condensed
Consolidated Financial Statements.
-38-
Condensed Consolidated Statement of Changes in Equity
Note Attributable to equity shareholders Non- Total
controlling equity
interests
Share Share Shares in Misc. Retained Total
capital premium trust reserve reserves earnings
£'Million £'Million £'Million £'Million £'Million £'Million £'Million £'Million
At 1 January 2021 80.6 185.3 (14.8) 2.5 859.4 1,113.0 (0.9) 1,112.1
Profit and total comprehensive income for the period 120.9 120.9 120.9
Dividends 15 (267.5) (267.5) (267.5)
Issue of share capital 15 0.1 10.2 10.3 10.3
Exercise of options 0.2 11.1 11.3 11.3
Shares sold during the period 6.4 (6.4) - -
Retained earnings credit in respect of share option charges 9.0 9.0 9.0
At 30 June 2021 80.9 206.6 (8.4) 2.5 715.4 997.0 (0.9) 996.1
At 1 January 2022 81.1 213.8 (8.5) 2.5 830.3 1,119.2 - 1,119.2
Non-controlling interests arising on the part disposal of subsidiaries 4.9 4.9 0.1 5.0
Profit and total comprehensive income for the period 205.6 205.6 205.6
Dividends 15 (218.9) (218.9) (218.9)
Issue of share capital 15 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 period 4.7 (4.7) - -
Retained earnings credit in respect of share option charges 11.2 11.2 11.2
At 30 June 2022 81.6 226.1 (4.1) 2.5 828.4 1,134.5 0.1 1,134.6
Miscellaneous reserves represent other non-distributable reserves.
-39-
Condensed Consolidated Statement of Financial Position
Note 30 June 30 June 31 December
2022 2021 2021
£'Million £'Million £'Million
Assets
Goodwill 7 33.2 32.5 29.6
Deferred acquisition costs 7 362.6 400.8 379.6
Intangible assets
- Purchased value of in-force business 7 12.8 16.0 14.4
- Computer software 7 31.7 28.1 27.0
Property and equipment 148.0 162.6 154.5
Deferred tax assets 6 13.8 13.7 20.6
Investment in associates 1.4 - 1.4
Reinsurance assets 74.7 85.1 82.4
Other receivables 9 6,513.9 2,271.6 2,923.0
Income tax asset 65.8 - -
Investments
- Investment property 8 1,647.6 1,495.5 1,568.5
- Equities 8 97,583.2 97,862.3 106,782.3
- Fixed income securities 8 27,222.1 29,668.3 29,305.9
- Investment in Collective Investment Schemes 8 5,175.2 5,157.1 5,513.2
- Derivative financial instruments 8 1,861.9 838.0 1,094.6
Cash and cash equivalents 7,483.5 7,089.9 7,832.9
Total assets 3 148,231.4 145,121.5 155,729.9
Liabilities
Borrowings 12 371.8 478.2 433.0
Deferred tax liabilities 6 105.8 529.7 649.8
Insurance contract liabilities 516.1 571.8 572.3
Deferred income 7 550.0 574.4 562.6
Other provisions 11 44.4 37.6 44.1
Other payables 10 5,842.8 2,233.5 2,604.5
Investment contract benefits 102,396.5 102,930.3 110,349.8
Derivative financial instruments 8 2,397.6 1,014.6 1,019.5
Net asset value attributable to unit holders 8 34,871.8 35,671.6 38,369.0
Income tax liabilities - 83.6 6.1
Preference shares - 0.1 -
Total liabilities 147,096.8 144,125.4 154,610.7
Net assets 1,134.6 996.1 1,119.2
Shareholders' equity
Share capital 15 81.6 80.9 81.1
Share premium 226.1 206.6 213.8
Shares in trust reserve (4.1) (8.4) (8.5)
Miscellaneous reserves 2.5 2.5 2.5
Retained earnings 828.4 715.4 830.3
Equity attributable to owners of the Parent 1,134.5 997.0 1,119.2
Non-controlling interests 0.1 (0.9) -
Total equity 1,134.6 996.1 1,119.2
Pence Pence Pence
Net assets per share 208.6 184.6 207.1
-40-
Condensed Consolidated Statement of Cash Flows
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2021
2022 2021
£'Million £'Million £'Million
Cash flows from operating activities
Cash generated from operations 42.7 727.7 1,741.0
Interest received 18.3 8.3 19.2
Interest paid (6.0) (4.6) (10.2)
Income taxes paid (109.3) (162.0) (319.1)
Contingent consideration (0.8) - (1.3)
Net cash (outflow)/inflow from operations (55.1) 569.4 1,429.6
Cash flows from investing activities
Payments for property and equipment (1.9) (0.4) (3.4)
Payment for software development costs (9.1) (8.3) (19.2)
Payment for acquisition of subsidiaries and other business combinations, net (8.0) (7.5) (6.6)
of cash acquired
Proceeds from sale of subsidiaries and other business combinations, net of 4.0 4.1 4.1
cash disposed
Net cash (outflow) from investing activities (15.0) (12.1) (25.1)
Cash flows from financing activities
Proceeds from the issue of share capital and exercise of options 7.0 11.3 18.7
Consideration paid for own shares (0.3) - -
Transactions with non-controlling interests 0.2 - -
Proceeds from borrowings 72.4 341.6 576.4
Repayment of borrowings (132.8) (205.8) (486.1)
Principal elements of lease payments (7.2) (6.8) (10.7)
Dividends paid to Company's shareholders (218.9) (267.5) (329.9)
Dividends paid to non-controlling interest in subsidiaries (0.2) - -
Net cash (outflow) from financing activities (279.8) (127.2) (231.6)
Net (decrease)/increase in cash and cash equivalents (349.9) 430.1 1,172.9
Cash and cash equivalents at beginning of period 7,832.9 6,660.1 6,660.1
Exchange gains/(losses) on cash and cash equivalents 0.5 (0.3) (0.1)
Cash and cash equivalents at end of period 7,483.5 7,089.9 7,832.9
-41-
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 2022, 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 2021, 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, including the ongoing impact
of sharply rising inflation, geo-political tensions and domestic political
uncertainty are set out in the Chief Executive's Report and the Chief
Financial Officer's Report on pages 7 to 9. The financial performance and
financial position of the Group are described in the Financial Review on pages
15 to 30.
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 macroeconomic shocks (including
inflation and interest rate shifts) as well as more extreme events.
The Board remains confident in the Group's ability to withstand emerging
challenges presented by rapidly rising inflation, contributing to pressure on
consumer goods prices and the invasion of Ukraine, which is exacerbating a
cost-of-living crisis and contributing towards supply chain issues. The key
risks this presents to the Group are set out in the Principal Risk and
Uncertainties section on pages 32 to 35.
The Group has undertaken a going concern assessment reviewing its current and
projected financial performance and position including, profitability,
liquidity, and solvency. 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.
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 amended IFRS standards effective for periods beginning 1 January
2022 have been applied:
· Amendments to IFRS 3 Business Combinations - Reference to
conceptual framework; and
· Annual Improvement 2018-2020.
In preparing these Condensed Consolidated Half-Year Financial Statements, the
significant judgements made by management in applying the Group's accounting
policies and the key sources of estimation uncertainty were the same as those
applied to the Consolidated Financial Statements for the year ended 31
December 2021.
(b) New and amended accounting standards not yet effective
As at 30 June 2022, the following new and amended standards, which are
relevant to the Group but have not been applied in the Financial Statements,
were in issue but are not yet effective. During the year IFRS 17 Insurance
Contracts was endorsed by the UK endorsement board, all others are yet to be
endorsed.
· 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.
The Group is currently assessing the impact that the adoption of the above
standards, amendments and clarifications will have on the Group's results
reported within the Financial Statements. The only one expected to have a
significant impact on the Group's Financial Statements is IFRS 17 Insurance
Contracts. Further information on this standard is given below.
-42-
IFRS 17 Insurance Contracts including Amendments to IFRS 17
IFRS 17 incorporates revised principles for the recognition, measurement,
presentation and disclosure of insurance contracts.
The Group closed to new insurance business, as defined under accounting
standards, in 2011. At 30 June 2022, the Group has £77.0 million of
non-unit-linked insurance contract liabilities, which are substantially
reinsured, and £439.1 million of unit-linked insurance contract liabilities.
As a result, the Group's net exposure on this business is not material.
The vast majority of the business written by the Life companies within the
Group is defined as investment, rather than insurance, business under
accounting standards. Investment business is outside the scope of IFRS 17.
Management is currently assessing the impacts of adopting the new standard.
The effective date of the standard is 1 January 2023.
3. Segment reporting
IFRS 8 Operating Segments requires operating segments to be identified, on the
basis of internal reports about components of the Group that are regularly
reviewed by the Board, in order to allocate resources to each segment and
assess its performance.
The Group's only reportable segment under IFRS 8 is a wealth management
business - which is a vertically-integrated business providing support to our
clients through the provision of financial advice and assistance through The
Partnership 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 south-east 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
sets out the different types of revenue received from our wealth management
business.
Segment profit
Two separate additional measures of profit are monitored by the Board. These
are the post-tax Underlying cash result and pre-tax European Embedded Value
(EEV), which are both alternative performance measures.
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 cash flows
within the IFRS results, but with no allowance for intangibles, principally
DAC, DIR, PVIF, goodwill and deferred tax, or short-term costs, for example
restructuring. 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 on pages 19 to 21 of the Financial Review.
The Cash result should not be confused with the IFRS Condensed 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 30 June 2021
2022 2021
£'Million £'Million £'Million
Underlying cash result after tax 198.8 189.3 401.2
Equity-settled share-based payments (11.2) (9.0) (20.4)
Deferred tax impacts (18.1) 2.4 0.5
Restructuring - (9.0) (9.7)
Impact in the period of DAC/DIR/PVIF (3.8) (18.5) (28.0)
Impact of policyholder tax asymmetry 39.4 (29.2) (52.9)
Other 0.5 (5.1) (3.1)
IFRS profit after tax 205.6 120.9 287.6
Shareholder tax 51.0 25.6 66.2
Profit before tax attributable to shareholders' returns 256.6 146.5 353.8
Tax attributable to policyholder returns (555.0) 336.1 488.6
IFRS (loss)/profit before tax (298.4) 482.6 842.4
-43-
EEV operating profit
EEV operating profit is monitored by the Board. The components of the EEV
operating profit are included in more detail in the Financial Review section
of the Half-Year Report and Accounts.
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2021
2022 2021
£'Million £'Million £'Million
EEV operating profit before tax 914.2 844.8 1,545.4
Investment return variance (1,346.2) 593.6 894.5
Economic assumption changes 166.9 22.8 4.2
EEV (loss)/profit before tax (265.1) 1,461.2 2,444.1
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) 419.2 (396.3) (824.5)
Movement of balance sheet unit trust and DFM value of in-force business (net (4.0) (176.9) (337.3)
of tax)
Corporation tax rate change - (408.5) (412.7)
Tax on movement in value of in-force business 108.1 (331.4) (512.6)
Profit before tax attributable to shareholders' returns 256.6 146.5 353.8
Tax attributable to policyholder returns (555.0) 336.1 488.6
IFRS (loss)/profit before tax (298.4) 482.6 842.4
The movement in life, unit trust and DFM value of in-force is the difference
between the opening and closing discounted value of the profits that will
emerge from the in-force book over time, adjusting for DAC and DIR impacts
which are already included under IFRS.
Segment assets
Funds under management (FUM)
FUM, as reported in Section 1 of the Financial Review on page 13 is the
measure of segment assets which is monitored by the Board.
30 June 30 June 31 December
2022 2021 2021
£'Million £'Million £'Million
Investment 32,750.0 34,460.0 35,950.0
Pension 69,580.0 69,150.0 74,830.0
UT/ISA and DFM 39,930.0 40,160.0 43,210.0
Total FUM 142,260.0 143,770.0 153,990.0
Exclude client and third-party holdings in non-consolidated unit trusts and (4,594.2) (4,444.2) (4,811.5)
DFM
Other 6,887.7 1,760.3 2,392.5
Gross assets held to cover unit liabilities 144,553.5 141,086.1 151,571.0
IFRS intangible assets (see page 23 adjustment 2) 541.7 579.0 551.6
Shareholder gross assets (see page 23) 3,136.2 3,456.4 3,607.3
Total assets 148,231.4 145,121.5 155,729.9
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4. Fee and commission income
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2021
2022 2021
£'Million £'Million £'Million
Advice charges (post-RDR) 517.3 460.6 946.7
Third party fee and commission income 64.4 66.9 135.8
Wealth management fees 530.9 465.8 974.5
Investment management fees 25.5 33.1 63.4
Fund tax (refunds)/deductions (555.0) 336.1 486.9
Policyholder tax asymmetry 39.4 (29.2) (52.9)
Discretionary fund management fees 11.7 10.7 22.4
Fee and commission income before DIR amortisation 634.2 1,344.0 2,576.8
Amortisation of DIR 81.0 80.2 160.4
Total fee and commission income 715.2 1,424.2 2,737.2
For all post-Retail Distribution Review (RDR) business, advice charges are
received from clients for the provision of initial and ongoing advice in
relation to an investment into a St. James's Place product.
Where an investment has been made into a third-party product, third-party fee
and commission income is received from the product provider.
Where an investment has been made into 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. Ongoing product charges for
St. James's Place products are recognised within wealth management fees.
This line also includes advice charges on pre-RDR business, for which an
explicit advice charge was not made.
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 (refunds)/deductions represent amounts credited to, or deducted from,
the life insurance business to match policyholder tax credits or charges.
Wealth management fees recognises charges levied on manufactured business.
These include some temporary effects relating to life insurance tax. Life
insurance tax incorporates a policyholder tax element, and the Financial
Statements of a life insurance group need to reflect the liability to HMRC,
and the corresponding deductions incorporated into policy charges ('Fund tax
deductions' above). 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 IFRS
Condensed 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 will impact the level of asymmetry experienced in a year and
may be significant where there is market volatility. Market falls experienced
in the first half of 2022 have resulted in a significant positive movement,
impacting both profit before shareholder tax and profit after tax. In
contrast, at this point in 2021 we saw an unwind of prior year positive
effects as a result of market growth, which resulted in a negative movement in
that year.
Discretionary fund management fees are received from clients for the provision
of DFM services.
-45-
5. Investment return
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2021
2022 2021
£'Million £'Million £'Million
Investment return on net assets held to cover unit liabilities:
Rental income 35.1 38.8 74.7
Gain on revaluation of investment properties 119.5 36.3 181.4
Net investment return on financial instruments classified as fair value (11,666.3) 7,104.3 11,400.2
through profit and loss
(11,511.7) 7,179.4 11,656.3
Attributable to unit-linked insurance contract liabilities (61.2) 21.6 52.8
Attributable to unit-linked investment contract benefits (11,450.5) 7,157.8 11,603.5
(11,511.7) 7,179.4 11,656.3
Income attributable to third party holdings in unit trusts (5,496.8) 2,369.6 3,583.2
(17,008.5) 9,549.0 15,239.5
Investment return on shareholder assets:
Net investment return on financial instruments classified as fair value (25.3) 2.7 17.7
through profit and loss
Interest income on financial instruments classified as amortised cost 10.7 8.8 18.2
(14.6) 11.5 35.9
Total investment return (17,023.1) 9,560.5 15,275.4
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 £547.9 million (six
months ended 30 June 2021: £437.9 million, year ended 31 December 2021:
£985.1 million).
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6. Income and deferred taxes
Tax for the period
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2021
2022 2021
£'Million £'Million £'Million
Current tax
UK corporation tax
- Current year charge 31.9 207.0 294.1
- Adjustment in respect of prior year - 0.2 (6.7)
Overseas taxes
- Current year charge 5.5 6.4 6.1
- Adjustment in respect of prior year - - 0.1
37.4 213.6 293.6
Deferred tax
Unrealised capital (losses)/gains in unit-linked funds (552.7) 151.3 266.7
Unrelieved expenses
- Additional expenses recognised in the period (6.4) (5.3) (10.8)
- Utilisation in the period 5.7 5.8 11.6
Capital losses
- Revaluation in the period - (1.4) (1.4)
- Utilisation in the period 13.9 4.3 9.2
- Adjustment in respect of prior year - - 4.0
DAC, DIR and PVIF (5.0) (4.3) (8.9)
Share-based payments 5.1 (2.1) (8.7)
Other items (2.2) 0.1 (0.5)
Overseas gains/(losses) 0.2 (0.1) (1.1)
Adjustment for change in tax rate - (0.2) 0.4
Adjustments in respect of prior periods - - 0.7
(541.4) 148.1 261.2
Total tax (credit)/charge for the period (504.0) 361.7 554.8
Attributable to:
- policyholders (555.0) 336.1 488.6
- shareholders 51.0 25.6 66.2
(504.0) 361.7 554.8
The prior year adjustment of £nil in current tax above represents £nil in
respect of policyholder tax (six months to 30 June 2021: £0.2 million
charge, year to 31 December 2021: £6.0 million credit) and £nil in respect
of shareholder tax (six months to 30 June 2021: £nil, year to 31 December
2021: £0.7 million credit). The prior year adjustment of £nil in deferred
tax above represents £nil in respect of policyholder tax (six months to 30
June 2021: £nil charge, year to 31 December 2021: £nil charge) and £nil in
respect of shareholder tax (six months to 30 June 2021: £nil, year to 31
December 2021: £4.7 million charge).
In arriving at the (loss)/profit before tax attributable to shareholders'
return, it is necessary to estimate the analysis of the total tax
(credit)/charge between that payable in respect of policyholders and that
payable by shareholders. Shareholder tax is estimated by making an assessment
of the effective rate of tax that is applicable to the shareholders 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 (credit)/charge represents tax on policyholders'
investment returns. This calculation method is consistent with the legislation
relating to the calculation of tax on shareholder profits.
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Reconciliation of tax charge to expected tax
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2021
2022 2021
£'Million £'Million £'Million
(Loss)/profit before tax (298.4) 482.6 842.4
Tax attributable to policyholders' returns 555.0 (336.1) (488.6)
Profit before tax attributable to shareholders' returns 256.6 146.5 353.8
Shareholder tax charge at corporate tax rate of 19.0% (2021: 19.0%) 48.7 19.0% 27.9 19.0% 67.2 19.0%
Adjustments:
Lower rate of corporation tax in overseas subsidiaries (0.6) (0.2%) (0.6) (0.4%) (1.2) (0.3%)
Expected shareholder tax 48.1 18.8% 27.3 18.6% 66.0 18.6%
Effects of:
Non-taxable income (0.2) (0.2) (0.9)
Revaluation of historic capital losses in the Group - - (1.4)
Adjustment for change in tax rates - (0.2) 0.4
Adjustment in respect of prior year
- Current tax - - (0.7)
- Deferred tax - - 4.7
Differences in accounting and tax bases in relation to employee share schemes 2.2 (2.5) (4.6)
Impact of difference in tax rates between current and deferred tax (2.3) - (2.4)
Disallowable expenses 2.1 0.3 4.0
Provision for future liabilities 0.2 (0.1) 0.3
Tax losses not recognised 1.0 0.9 1.2
Other (0.1) 0.1 (0.4)
2.9 1.1% (1.7) (1.2%) 0.2 0.1%
Shareholder tax charge 51.0 19.9% 25.6 17.4% 66.2 18.7%
Policyholder tax (credit)/charge (555.0) 336.1 488.6
Total tax (credit)/charge for the period (504.0) 361.7 554.8
The tax credit calculated on the loss before tax at 19% (2021: 19%) would
amount to £56.7 million (six months to 30 June 2021: £91.7 million charge,
year to 31 December 2021: £160.1 million charge). The difference of £447.3
million (six months to 30 June 2021: £270.0 million, year to 31 December
2021: £394.7 million) between this number and the total tax of £504.0
million (six months to 30 June 2021: £361.7 million charge, year to
31 December 2021: £554.8 million charge) is made up of the reconciling items
above which total £2.3 million (six months to 30 June 2021: (£2.3) million,
year to 31 December 2021: (£1.0) million) and the effect of the apportionment
methodology on tax applicable to policyholder returns of (£449.6) million
(six months to 30 June 2021: £272.3 million, year to 31 December 2021:
£395.7 million).
-48-
Tax paid in the year
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2021
2022 2021
£'Million £'Million £'Million
Current tax charge for the period 37.4 213.6 293.6
Refunds due to be received/(payments to be made) in future years in respect of 75.3 (80.1) (3.6)
current year
Payments made in current year in respect of prior years - 27.0 27.3
Other (3.4) 1.5 1.8
Tax paid 109.3 162.0 319.1
Tax paid can be analysed as:
- Taxes paid in UK 98.7 155.0 306.0
- Taxes paid in overseas jurisdictions 0.5 1.0 4.7
- Withholding taxes suffered on investment income received 10.1 6.0 8.4
Total 109.3 162.0 319.1
Deferred tax balances
Deferred tax assets
Deferred Deferred Renewal Share-based Fixed asset Other Total
acquisition income (DIR) income assets payments temporary temporary
costs (DAC) differences differences
£'Million £'Million £'Million £'Million £'Million £'Million £'Million
At 1 January 2022 (21.6) 37.8 (19.4) 16.2 7.8 (0.2) 20.6
Reanalysis to deferred tax liabilities - - - - - (0.1) (0.1)
Credit/(charge) to the Statement of Comprehensive Income
- Utilised and created in period 0.1 0.7 1.3 (5.1) (1.0) 1.5 (2.5)
- Impact of tax rate change - - - - - - -
Total credit/(charge) 0.1 0.7 1.3 (5.1) (1.0) 1.5 (2.5)
Impact of acquisition - - (4.2) - - - (4.2)
At 30 June 2022 (21.5) 38.5 (22.3) 11.1 6.8 1.2 13.8
Expected utilisation period
As at 30 June 2021 14 years 14 years 20 years 3 years 6 years
As at 31 December 2021 14 years 14 years 20 years 3 years 6 years
As at 30 June 2022 14 years 14 years 20 years 3 years 6 years
-49-
Deferred tax liabilities
Unrelieved Deferred Capital losses Unrealised Purchased Other Total
expenses on acquisition (available for capital gains on value of temporary
life insurance costs (DAC) future relief) life insurance assets backing unit liabilities (BLAGAB) in-force differences
business business
(PVIF)
£'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
Reanalysis from deferred tax assets (0.1) (0.1)
Charge/(credit) to the Statement of Comprehensive Income
- Utilised and created in period (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)
Impact of acquisition - - - - - - -
At 30 June 2022 (39.7) 24.0 (12.9) 131.4 3.1 (0.1) 105.8
Expected utilisation period
As at 30 June 2021 6 years 14 years 5.5 years 6 years 4.5 years
As at 31 December 2021 6 years 14 years 5 years 5 years 4 years
As at 30 June 2022 6 years 14 years 4.5 years 6 years 3.5 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 £13.0
million (30 June 2021: £12.3 million, 31 December 2021: £14.0 million) in
respect of £76.2 million (30 June 2021: £71.9 million, 31 December 2021:
£82.2 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.
In the UK budget of 3 March 2021, it was announced that the main rate of
corporation tax will increase from 19% to 25% with effect from 1 April 2023.
This change was substantively enacted on 24 May 2021 within the Finance Bill
2021 and as a result the relevant deferred tax balances were remeasured in
2021.
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7. Goodwill, intangible assets, deferred acquisition costs and deferred income
Goodwill Purchased Computer DAC DIR
value of in-force software and
business other specific
software
developments
£'Million £'Million £'Million £'Million £'Million
Cost
At 1 January 2021 31.0 73.4 43.8 1,233.9 (1,569.2)
Additions 1.7 - 8.3 19.3 (74.7)
Disposals (0.2) - - (65.7) 57.9
At 30 June 2021 32.5 73.4 52.1 1,187.5 (1,586.0)
Additions (1.2) - 10.9 21.9 (68.4)
Disposals (0.2) - - (65.2) 55.3
Change in capitalisation policy(1) - - (7.7) - -
At 31 December 2021 31.1 73.4 55.3 1,144.2 (1,599.1)
Additions 3.6 - 9.1 22.7 (68.4)
Disposals - - (0.5) (63.6) 51.6
At 30 June 2022 34.7 73.4 63.9 1,103.3 (1,615.9)
Accumulated amortisation
At 1 January 2021 - 55.8 20.3 809.4 (989.3)
Charge for the period - 1.6 3.7 43.0 (80.2)
Eliminated on disposal - - - (65.7) 57.9
At 30 June 2021 - 57.4 24.0 786.7 (1,011.6)
Charge for the period 1.5 1.6 6.9 43.1 (80.2)
Eliminated on disposal - - - (65.2) 55.3
Change in capitalisation policy(1) - - (2.6) - -
At 31 December 2021 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)
Carrying value
At 30 June 2021 32.5 16.0 28.1 400.8 (574.4)
At 31 December 2021 29.6 14.4 27.0 379.6 (562.6)
At 30 June 2022 33.2 12.8 31.7 362.6 (550.0)
Outstanding amortisation period
At 30 June 2021 n/a 4.5 years 1.5-4.5 years 14 years 6-14 years
At 31 December 2021 n/a 4 years 5 years 14 years 6-14 years
At 30 June 2022 n/a 3.5 years 5 years 14 years 6-14 years
1. The March 2021 IFRS Interpretations Committee update included an agenda
decision on 'Configuration and Customisation costs in a Cloud Computing
arrangement' which was ratified by the IASB in April 2021. As a result of the
decision the carrying value of computer software assets has been reassessed,
and the impact of the revised capitalisation policy has been charged to the
Statement of Comprehensive Income.
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.
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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 23.
30 June 30 June 31 December
2022 2021 2021
£'Million £'Million £'Million
Assets
Investment property 1,647.6 1,495.5 1,568.5
Equities 97,583.2 97,862.3 106,782.3
Fixed income securities 27,214.3 29,660.5 29,298.1
Investment in Collective Investment Schemes 3,804.7 3,861.8 3,907.9
Cash and cash equivalents 7,209.0 6,791.8 7,587.2
Other receivables 5,232.8 576.2 1,332.4
Derivative financial instruments
- Currency forwards 1,145.5 527.7 806.8
- Interest rate swaps 178.7 61.3 39.5
- Index options 86.0 10.2 2.7
- Contracts for difference 19.6 8.8 15.5
- Equity swaps 14.6 9.5 4.7
- Foreign currency options 85.5 0.3 2.1
- Total return swaps 116.6 163.2 149.8
- Fixed income options 158.0 - 0.2
- Credit default swaps 57.4 57.0 73.3
Total derivative financial assets 1,861.9 838.0 1,094.6
Total assets 144,553.5 141,086.1 151,571.0
Liabilities
Other payables 4,448.5 986.3 1,344.9
Derivative financial instruments
- Currency forwards 1,816.7 770.9 750.0
- Interest rate swaps 232.9 100.9 106.7
- Index options 84.8 6.8 2.7
- Contracts for difference 32.3 16.5 3.5
- Equity swaps 6.6 15.1 13.4
- Foreign currency options 11.6 0.2 1.2
- Total return swaps 88.2 79.3 109.7
- Fixed income options 102.5 0.2 0.6
- Credit default swaps 22.0 24.7 31.7
Total derivative financial liabilities 2,397.6 1,014.6 1,019.5
Total liabilities 6,846.1 2,000.9 2,364.4
Net assets held to cover linked liabilities 137,707.4 139,085.2 149,206.6
Investment contract benefits 102,396.5 102,930.3 110,349.8
Net asset value attributable to unit holders 34,871.8 35,671.6 38,369.0
Unit linked insurance contract liabilities 439.1 483.3 487.8
Net unit-linked liabilities 137,707.4 139,085.2 149,206.6
Policyholder interests in other receivables and other payables are short-term
in nature and can vary significantly from period to period due to prevailing
market conditions and underlying trading activity. Market volatility in the
period immediately prior to the reporting date has resulted in significant
trading activity driving the increase in these balances.
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9. Other receivables
30 June 30 June 31 December
2022 2021 2021
£'Million £'Million £'Million
Receivables in relation to unit liabilities excluding policyholder interests 94.9 540.9 433.6
Other receivables in relation to insurance and unit trust business 91.5 93.5 71.7
Operational readiness prepayment 283.9 305.8 296.3
Advanced payments to Partners 78.8 63.1 71.0
Other prepayments and accrued income 82.7 77.3 84.3
Business loans to Partners 514.5 502.6 521.6
Renewal income assets 113.9 105.9 102.5
Miscellaneous 5.0 3.5 6.6
Total other receivables on the Solvency II Net Assets Balance Sheet 1,265.2 1,692.6 1,587.6
Policyholder interests in other receivables (see Note 8) 5,232.8 576.2 1,332.4
Other (see adjustment 2 on page 23) 15.9 2.8 3.0
Total other receivables 6,513.9 2,271.6 2,923.0
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 financial assets held at amortised cost within other receivables is
not materially different from amortised cost.
Receivables in relation to unit liabilities primarily 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 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 any 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 no
impact on the carrying value of the asset.
Renewal income assets represent the present value of future cash flows
associated with books of business acquired by the Group. Typically, they arise
through business combinations, where the asset represents the value of
non-Group related business at the date of acquisition. See Note 13 for further
information.
Policyholder interests in other receivables are short-term in nature and can
vary significantly from period to period due to prevailing market conditions
and underlying trading activity. Market volatility in the period immediately
prior to the reporting date has resulted in significant trading activity
driving the increase in this balance.
Business loans to Partners
30 June 30 June 31 December
2022 2021 2021
£'Million £'Million £'Million
Business loans to Partners directly funded by the Group 291.2 322.2 307.6
Securitised business loans to Partners 223.3 180.4 214.0
Total business loans to Partners 514.5 502.6 521.6
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 Partner.
The Group has securitised £223.3 million (30 June 2021: £180.4 million, 31
December 2021: £214.0 million) of the business loans to Partners portfolio.
Legal ownership of the securitised business loans to Partners has been
transferred to a structured entity, SJP Partner Loans No.1 Limited, which has
issued loan notes secured upon them. Note 12 Borrowings and financial
commitments provides information on these loan notes. The securitised business
loans to Partners are ring-fenced from the other assets of the Group, which
means that the cash flows associated with these business loans to Partners can
only be used to purchase new loans into the structure or repay the note
holders, plus associated issuance fees and costs. Holders of the loan notes
have no recourse to the Group's other assets.
-53-
The securitised business loans to Partners remain recognised on the Group IFRS
Condensed Consolidated Statement of Financial Position as the Group controls
SJP Partner Loans No. 1 Limited.
The business loans to Partners balance is shown net of £3.8 million of
expected credit losses (30 June 2021: £3.9 million, 31 December 2021: £4.0
million). Expected credit losses have been calculated using an expected loss
impairment model, which is based on the levels of loss experienced in the
portfolio with due consideration given to forward-looking information.
10. Other payables
30 June 30 June 31 December
2022 2021 2021
£'Million £'Million £'Million
Payables in relation to unit liabilities excluding policyholder interests 234.9 151.2 178.9
Other payables in relation to insurance and unit trust business 576.5 513.2 448.9
Accruals for ongoing advice fees 127.6 129.0 141.2
Other accruals 85.2 97.2 103.6
Contract payment 101.5 112.6 107.1
Lease liabilities 120.0 126.5 124.1
Other payables in relation to Partner payment 69.6 74.2 86.7
Miscellaneous 79.0 33.0 63.9
Total other payables on the Solvency II Net Assets Balance Sheet 1,394.3 1,236.9 1,254.4
Policyholder interests in other payables (see Note 8) 4,448.5 986.3 1,344.9
Other (see adjustment 2 on page 23) - 10.3 5.2
Total other payables 5,842.8 2,233.5 2,604.5
Payables in relation to unit liabilities primarily 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 £101.5 million (30 June 2021 £112.6 million, 31
December 2021: £107.1 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 premium received in 2020 is repayable on a straight-line basis
over 13 years and four months, with repayments commencing on 1 September 2020.
Lease liabilities represent 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. Market volatility in the period immediately prior
to the reporting date has resulted in significant trading activity driving the
increase in this balance.
-54-
11. Other provisions and contingent liabilities
Complaints Lease Clawback Total
provision provision provision provisions
£'Million £'Million £'Million £'Million
At 1 January 2021 20.4 10.4 3.5 34.3
Additional provisions 14.7 - 0.1 14.8
Utilised during the period (6.3) - - (6.3)
Release of provision (5.2) - - (5.2)
At 30 June 2021 23.6 10.4 3.6 37.6
Additional provisions 19.4 - - 19.4
Utilised during the period (9.3) (0.1) (0.3) (9.7)
Release of provision (2.8) (0.3) (0.1) (3.2)
At 31 December 2021 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
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.
As more fully set out in the summary of principal risks and uncertainties on
pages 33 to 35, 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 2021: £nil, 31 December 2021: £nil).
-55-
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 to 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 Other receivables.
Senior unsecured corporate borrowings
30 June 30 June 31 December
2022 2021 2021
£'Million £'Million £'Million
Corporate borrowings: bank loans 38.6 229.5 106.8
Corporate borrowings: loan notes 163.8 113.8 163.8
Senior unsecured corporate borrowings 202.4 343.3 270.6
The primary senior unsecured corporate borrowings are:
· a revolving credit facility (RCF), which was renewed during the period.
The facility increased from £340 million to £345 million which is repayable
at maturity in 2027 with a variable interest rate. At 30 June 2022 the undrawn
credit available under this facility was £305 million (30 June 2021: £110
million, 31 December 2021: £233 million);
· a Note Purchase Agreement for £64 million. The notes are repayable over
10 years, ending in 2027 respectively, 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 bi-annual basis. During the course of the
period all covenants were complied with.
As at the 30 June 2022, 31 December 2021 and 30 June 2021 the Group had
sufficient headroom available under its covenants to fully draw the remaining
commitment under its senior unsecured corporate borrowing facilities. As a
result of the Group's business model and cash-flow profile, no additional
borrowing facilities were required due to the economic conditions arising from
the pandemic.
Total borrowings
30 June 30 June 31 December
2022 2021 2021
£'Million £'Million £'Million
Senior unsecured corporate borrowings 202.4 343.3 270.6
Senior tranche of non-recourse securitisation loan notes 169.4 134.9 162.4
Total borrowings 371.8 478.2 433.0
The senior tranche of securitisation loan notes are AAA-rated and repayable
over the expected life of the securitisation (estimated to be five years) with
a variable interest rate. They are held by third-party investors and are
secured on a legally segregated portfolio of £223.3 million business loans to
Partners, and the other net assets of the securitisation entity SJP Partner
Loans No.1 Limited. For further information on business loans to Partners,
including those that have been securitised, refer to Note 9 Other receivables.
Holders of the securitisation loan notes have no recourse to the assets held
by any other entity within the Group.
-56-
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
are 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
2022 2021 2021
£'Million £'Million £'Million
Junior tranche of non-recourse securitisation loan notes 63.6 54.0 61.2
Senior tranche of non-recourse securitisation loan notes 169.4 134.9 162.4
Total non-recourse securitisation loan notes 233.0 188.9 223.6
Backed by:
Securitised business loans to Partners (see Note 9) 223.3 180.4 214.0
Other net assets of SJP Partner Loans No.1 Limited 9.7 8.5 9.6
Total net assets held by SJP Partner Loans No.1 Limited 233.0 188.9 223.6
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 of 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
2022 2021 2021 2022 2021 2021
£'Million £'Million £'Million £'Million £'Million £'Million
Bank of Scotland 46.2 60.5 51.9 70.0 70.0 70.0
Investec 30.8 35.2 33.1 50.0 50.0 50.0
Metro Bank 35.3 41.0 37.0 61.0 61.0 61.0
NatWest 40.3 29.7 28.8 75.0 50.0 50.0
Santander 156.2 49.1 119.9 169.9 50.0 169.9
Total loans 308.8 215.5 270.7 425.9 281.0 400.9
The fair value of these guarantees has been assessed as £nil (30 June 2021:
£nil, 31 December 2021: £nil).
-57-
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 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
30 June 2021 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) 1,295.3 - - 1,295.3
Renewal income assets - - 105.9 105.9
Total financial assets 1,303.1 - 105.9 1,409.0
Financial liabilities
Contingent consideration - - 4.1 4.1
Total financial liabilities - - 4.1 4.1
31 December 2021 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) 1,605.3 - - 1,605.3
Renewal income assets - - 102.5 102.5
Total financial assets 1,613.1 - 102.5 1,715.6
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.
-58-
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 £9.5 million (30 June 2021: £9.2 million, 31 December 2021:
£8.9 million) and a favourable change in valuation of £10.5 million (30 June
2021: £10.9 million, 31 December 2021: £9.9 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 2021: £nil, 31 December 2021: £nil) and a favourable change of £13.9
million (30 June 2021: £4.1 million, 31 December 2021: £8.3 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
2022 2021 2021
£'Million £'Million £'Million
Renewal income assets
Opening balance 102.5 87.4 87.4
Additions during the period 21.9 31.2 34.6
Disposals during the period (4.6) (9.4) (10.5)
Unrealised losses recognised in the Statement of Comprehensive Income (5.9) (3.3) (9.0)
Closing balance 113.9 105.9 102.5
Unrealised losses on renewal income assets are recognised within investment
return in the IFRS Condensed Consolidated Statement of Comprehensive Income.
Financial liabilities
30 June 30 June 31 December
2022 2021 2021
£'Million £'Million £'Million
Contingent consideration
Opening balance 8.3 - -
Additions during the period 6.4 4.1 8.3
Payments made during the period (0.8) - -
Closing balance 13.9 4.1 8.3
-59-
Unit liabilities and associated assets
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
30 June 2021 Level 1 Level 2 Level 3 Total
balance
£'Million £'Million £'Million £'Million
Financial assets and investment properties
Investment property - - 1,495.5 1,495.5
Equities 97,285.5 - 576.8 97,862.3
Fixed income securities 7,780.6 21,529.5 350.4 29,660.5
Investment in Collective Investment Schemes 3,860.2 - 1.6 3,861.8
Derivative financial instruments - 838.0 - 838.0
Cash and cash equivalents 6,791.8 - - 6,791.8
Total financial assets and investment properties 115,718.1 22,367.5 2,424.3 140,509.9
Financial liabilities
Investment contract benefits - 102,930.3 - 102,930.3
Derivative financial instruments - 1,014.6 - 1,014.6
Net asset value attributable to unit holders 35,671.6 - - 35,671.6
Total financial liabilities 35,671.6 103,944.9 - 139,616.5
31 December 2021 Level 1 Level 2 Level 3 Total
balance
£'Million £'Million £'Million £'Million
Financial assets and investment properties
Investment property - - 1,568.5 1,568.5
Equities 105,735.2 - 1,047.1 106,782.3
Fixed income securities 7,712.1 21,277.9 308.1 29,298.1
Investment in Collective Investment Schemes 3,904.0 - 3.9 3,907.9
Derivative financial instruments - 1,094.6 - 1,094.6
Cash and cash equivalents 7,587.2 - - 7,587.2
Total financial assets and investment properties 124,938.5 22,372.5 2,927.6 150,238.6
Financial liabilities
Investment contract benefits - 110,349.8 - 110,349.8
Derivative financial instruments - 1,019.5 - 1,019.5
Net asset value attributable to unit holders 38,369.0 - - 38,369.0
Total financial liabilities 38,369.0 111,369.3 - 149,738.3
-60-
In respect of the derivative financial liabilities, £307.4 million of
collateral has been posted at 30 June 2022, comprising cash and treasury bills
(30 June 2021: £296.0 million, 31 December 2021: £192.7 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.
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 £4.6 million of
Russian equities (30 June 2021: £nil, 31 December 2021: £nil) transferred
from Level 1 to Level 3 portfolios as the valuation has been calculated using
a mark down to the quoted price. The mark down is a significant unobservable
input.
-61-
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 2022 Investment Fixed income Equities Investment
property securities in CIS
£'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
Six months ended 30 June 2021 Investment Fixed income Equities Investment
property securities in CIS
£'Million £'Million £'Million £'Million
Opening balance 1,526.7 309.4 465.8 1.8
Transfer into Level 3 - - - 0.1
Transfer out of Level 3 - - (46.7) -
Additions during the period 11.1 79.9 123.6 -
Disposals during the period (78.6) (34.9) (8.2) (0.2)
Gains/(losses) recognised in the Statement of Comprehensive Income 36.3 (4.0) 42.3 (0.1)
Closing balance 1,495.5 350.4 576.8 1.6
Realised gains 11.1 0.8 0.2 -
Unrealised gains/(losses) 25.2 (4.8) 42.1 (0.1)
Gains/(losses) recognised in the Statement of Comprehensive Income 36.3 (4.0) 42.3 (0.1)
Year ended 31 December 2021 Investment Fixed income Equities Investment
property securities in CIS
£'Million £'Million £'Million £'Million
Opening balance 1,526.7 309.4 465.8 1.8
Transfer into Level 3 - - - 2.3
Additions during the year 19.2 135.0 568.2 -
Disposals during the year (158.8) (132.5) (142.8) (0.2)
Gains/(losses) recognised in the Statement of Comprehensive Income 181.4 (3.8) 155.9 -
Closing balance 1,568.5 308.1 1,047.1 3.9
Realised gains(1) 139.9 6.9 124.8 -
Unrealised gains/(losses)(1) 41.5 (10.7) 31.1 -
Gains/(losses) recognised in the Statement of Comprehensive Income 181.4 (3.8) 155.9 -
(1)Realised gains and unrealised gains/(losses) have been re-presented to
correct the classification of the categories.
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.
-62-
Level 3 valuations
Investment property
At 30 June 2022 the Group held £1,647.6 million (30 June 2021: £1,495.5
million, 31 December 2021: £1,568.5 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.
Investment property classification
Office Industrial Retail and leisure All
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%
30 June 2021
Gross ERV (per sq ft)(1)
Range £15.00 - £96.04 £4.50 - £17.50 £2.50 - £99.98 £2.50 - £99.98
Weighted average £42.73 £9.67 £13.03 £15.59
True equivalent yield
Range 4.2% - 10.3% 3.7% - 5.5% 5.0% - 15.9% 3.7% - 15.9%
Weighted average 5.4% 4.3% 7.5% 5.6%
31 December 2021
Gross ERV (per sq ft)(1)
Range £15.00 - £95.06 £4.75 - £19.00 £2.50 - £99.98 £2.50 - £99.98
Weighted average £42.19 £11.10 £13.18 £16.58
True equivalent yield
Range 4.2% - 11.5% 3.1% - 5.2% 5.1% - 20.3% 3.1% - 20.3%
Weighted average 5.4% 3.7% 6.7% 5.1%
1. Equivalent rental value (per square foot).
-63-
Fixed income securities and equities
At 30 June 2022 the Group held £371.3 million (30 June 2021: £350.4 million,
31 December 2021: £308.1 million) in private credit investments, and
£1,432.7 million (30 June 2021: £576.8 million, 31 December 2021: £1,047.1
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.
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 25 bps 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 2022 Expected rental value / Relative yield 1,647.6 1,823.8 1,492.0
30 June 2021 Expected rental value / Relative yield 1,495.5 1,644.8 1,363.3
31 December 2021 Expected rental value / Relative yield 1,568.5 1,921.0 1,292.3
-64-
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 2022 Fixed income securities 371.3 378.4 364.3
Equities 1,432.7 1,546.6 1,303.5
30 June 2021 Fixed income securities 350.4 358.9 342.4
Equities 576.8 691.3 488.2
31 December 2021 Fixed income securities 308.1 311.5 304.5
Equities 1,047.1 1,193.4 943.4
14. Cash generated from operations
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2021
2022 2021
£'Million £'Million £'Million
Cash flows from operating activities
(Loss)/profit before tax for the period (298.4) 482.6 842.4
Adjustments for:
Amortisation of purchased value of in-force business 1.6 1.6 3.2
Amortisation of computer software 4.4 3.7 10.6
Change in capitalisation policy - - 5.1
Depreciation 10.5 11.0 22.1
Impairment of goodwill - - 1.5
Loss on disposal of property and equipment, including leased assets 0.2 0.4 2.7
Share-based payment charge 10.4 9.0 22.9
Interest income (18.3) (8.3) (19.2)
Interest expense 6.0 4.6 10.2
Increase in provisions 0.3 3.3 9.8
Exchange rate losses - 0.2 0.1
Changes in operating assets and liabilities
Decrease in deferred acquisition costs 17.0 23.7 44.9
(Increase)/Decrease in investment property (79.1) 31.2 (41.8)
Decrease/(increase) in other investments 10,853.6 (15,188.1) (24,358.4)
(Increase) in investment in associates - - (1.4)
Decrease in reinsurance assets 7.7 7.2 9.9
(Increase)/decrease in other receivables (3,571.9) 324.0 (326.9)
(Decrease)/increase in insurance contract liabilities (56.2) 9.2 9.7
(Decrease)/increase in financial liabilities (excluding borrowings) (6,575.2) 10,062.3 17,486.7
(Decrease) in deferred income (12.6) (5.5) (17.3)
Increase in other payables 3,239.9 203.1 574.3
(Decrease)/increase in net assets attributable to unit holders (3,497.2) 4,752.5 7,449.9
Cash generated from operations 42.7 727.7 1,741.0
-65-
15. Share capital, earnings per share and dividends
Share capital
Number of ordinary shares Called up
share capital
£'Million
At 1 January 2021 537,343,466 80.6
- Issue of share capital 850,985 0.1
- Exercise of options 1,385,243 0.2
At 30 June 2021 539,579,694 80.9
- Exercise of options 950,835 0.2
At 31 December 2021 540,530,529 81.1
- Issue of share capital 459,028 0.1
- Exercise of options 2,811,390 0.4
At 30 June 2022 543,800,947 81.6
Ordinary shares have a par value of 15 pence per share (30 June 2021: 15 pence
per share, 31 December 2021: 15 pence per share) and are fully paid.
Included in the issued share capital are 2,312,387 (30 June 2021: 1,819,047,
31 December 2021: 1,685,250) shares held in the shares in trust reserve with a
nominal value of £0.3 million (30 June 2021: £0.3 million, 31 December 2021:
£0.3 million). The shares are held by the SJP Employee Share Trust and the
St. James's Place 2010 SIP Trust to satisfy certain share-based payment
schemes. The trustees of the SJP Employee Share Trust retain the right to
dividends on the shares held by the Trust but have chosen to waive their
entitlement to the dividends on 923,201 shares at 30 June 2022 (30 June 2021:
373,691 shares, 31 December 2021: 285,033 shares). No dividends have been
waived on shares held in the St. James's Place 2010 SIP Trust in 2022 or
2021.
Earnings per share
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2021
2022 2021
£'Million £'Million £'Million
Earnings
Profit after tax attributable to equity shareholders (for both basic and 205.6 120.9 286.7
diluted EPS)
Million Million Million
Weighted average number of shares
Weighted average number of ordinary shares in issue (for basic EPS) 541.8 536.7 537.7
Adjustments for outstanding share options 4.4 7.6 8.5
Weighted average number of ordinary shares (for diluted EPS) 546.2 544.3 546.2
Pence Pence Pence
Earnings per share (EPS)
Basic earnings per share 38.0 22.5 53.3
Diluted earnings per share 37.6 22.2 52.5
-66-
Dividends
The following dividends have been paid by the Group:
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2021
2022 2021
£'Million £'Million £'Million
Withheld 2019 dividend - 11.22 pence per ordinary share - 60.3 60.3
Final dividend in respect of 2020 - 31.22 pence per ordinary share - 207.2 207.2
Interim dividend in respect of 2021 - 11.55 pence per ordinary share - - 62.4
Final dividend in respect of 2021 - 40.41 pence per ordinary share 218.9 - -
Total dividends paid 218.9 267.5 329.9
The Directors have resolved to pay an interim dividend of 15.59 pence per
share (30 June 2021: 11.55 pence per share). This amounts to £84.8 million
(30 June 2021: £62.3 million) and will be paid on 23 September 2022 to
shareholders on the register at 26 August 2022.
16. Business combinations
During the year the Group acquired the following subsidiaries in line with the
Group's strategic objective of growing and supporting the Partnership:
Business acquired Principal activity % Shareholding Date of acquisition
JEWM Limited Provision of financial services 60% 18 May 2022
Thomson Private Clients Limited Provision of financial services 100% 17 June 2022
Thomson Private Clients Limited owns 40% of the share capital of JEWM Limited.
From 17 June 2022, following its acquisition, the Group now hold 100% of the
share capital of JEWM Limited.
Acquisition-related costs of £0.1 million have been charged to administration
expenses in the IFRS Condensed Consolidated Statement of Comprehensive Income
for the period ended 30 June 2022.
JEWM Limited
The acquisition contributed £nil to fee and commission income and a £nil
profit before income tax for the period between the acquisition date and 30
June 2022. Had the acquisition been consolidated from 1 January 2022, the
acquisition would have contributed £nil to fee and commission income and
£0.6 million profit before income tax.
The net assets, fair value adjustments and consideration for this acquisition
is summarised below (all values shown as at their acquisition date):
Book Fair value Total
value adjustment
£'Million £'Million £'Million
Financial assets 2.4 15.2 17.6
Cash and cash equivalents 2.0 - 2.0
Financial liabilities (0.4) (3.8) (4.2)
Total 4.0 11.4 15.4
Consideration
Cash consideration on completion 9.5
Shares issued on completion(1) 5.7
Deferred contingent consideration 3.2
Total consideration 18.4
Goodwill 3.0
1. Shares issued refer to St. James's Place plc ordinary shares.
Goodwill comprises the future value generated from new business opportunities.
-67-
It is expected that the deferred contingent consideration will be paid in full
on 1 December 2023 with no changes to the amount initially recognised.
Thomson Private Clients Limited
The acquisition contributed £nil to fee and commission income and a £nil
profit before income tax for the period between the acquisition date and 30
June 2022. Had the acquisition been consolidated from 1 January 2022, the
acquisition would have contributed £nil to fee and commission income and
£0.3 million profit before income tax.
The net assets, fair value adjustments and consideration for this acquisition
is summarised below (all values shown as at their acquisition date):
Book Fair value Total
value adjustment
£'Million £'Million £'Million
Financial assets - 4.0 4.0
Cash and cash equivalents - - -
Financial liabilities (2.4) (1.0) (3.4)
Total (2.4) 3.0 0.6
Consideration
Cash consideration on completion 0.5
Deferred contingent consideration 0.7
Total consideration 1.2
Goodwill 0.6
It is expected that the deferred contingent consideration will be paid in full
on 16 December 2023 with no changes to the amount initially recognised.
17. Related party transactions
For the Half-Year to 30 June 2022 the following related party transactions
were considered significant:
Transactions with St. James's Place unit trusts
In respect of the non-consolidated St. James's Place managed unit trusts
that are held as investments in the St. James's Place life and pension
funds, there were losses recognised of £nil (30 June 2021: losses of £11.0
million, 31 December 2021: losses of £11.0 million) and the total value of
transactions with those non-consolidated unit trusts was £nil (30 June 2021:
£14.1 million, 31 December 2021: £14.1 million). Net management fees
receivable from these unit trusts amounted to £nil (30 June 2021:
£1.8 million, 31 December 2021: £1.8 million). The value of the investment
into the non-consolidated unit trusts at 30 June 2022 was £nil (30 June
2021: £nil, 31 December 2021: £nil).
Transactions with key management personnel
Key management personnel have been defined as the Board of Directors and
members of the Executive Board. Total consideration of £18.4 million (30 June
2021: £nil, 31 December 2021: £nil) was agreed under normal commercial terms
to key management personnel and their connected parties for the acquisition of
JEWM Limited. As at 30 June 2022 there was deferred contingent consideration
outstanding of £3.2 million (30 June 2021: £nil, 31 December 2021: £nil).
18. Statutory accounts
The financial information shown in this publication is unaudited and does not
constitute statutory accounts. The comparative figures for the financial year
ended 31 December 2021 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.
19. Approval of Half-Year Report
These Condensed Consolidated Half-Year Financial Statements were approved by
the Board of Directors on 27 July 2022.
20. 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.
-68-
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 Half-Year
Report and Accounts of St. James's Place plc for the 6 month period ended
30 June 2022 (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 2022;
· 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 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. 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 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 this ISRE. However, future events or
conditions may cause the group to cease to continue as a going concern.
-69-
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the directors
The 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 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 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 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
Leeds
27 July 2022
-70-
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 2021. A list of current Directors is
maintained on the St. James's Place plc website: 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 Craig Gentle
Chief Executive Chief Financial Officer
27 July 2022 27 July 2022
-71-
Supplementary Information: Consolidated Financial Statements on a Cash Result
Basis (unaudited)
-72-
Consolidated Statement of Comprehensive Income on a Cash Result Basis
(unaudited)
Note Six months Six months Year ended
ended ended 31 December
30 June 30 June 2021
2022 2021
£'Million £'Million £'Million
Fee and commission income 639.5 1,446.1 2,771.4
Investment return 5 (14.6) 11.5 35.9
Net income 624.9 1,457.6 2,807.3
Expenses (947.8) (915.8) (1,858.1)
Profit/(loss) before tax (322.9) 541.8 949.2
Tax attributable to policyholders' returns 555.0 (336.1) (488.6)
Tax attributable to shareholders' returns (38.0) (29.9) (73.2)
Total Cash result profit for the period 194.1 175.8 387.4
Pence Pence Pence
Cash result basic earnings per share III 35.8 32.8 72.0
Cash result diluted earnings per share III 35.5 32.3 70.9
The Note references above cross refer to the Notes to the Condensed
Consolidated Financial Statements under IFRS as adopted by the UK on pages 41
to 67, except where denoted in Roman numerals.
-73-
Consolidated Statement of Changes in Equity on a Cash Result Basis (unaudited)
Note Equity attributable owners of the Parent Non- Total
controlling equity
interests
Share Share Shares in Misc Retained Total
Capital premium trust reserve reserves earnings
£'Million £'Million £'Million £'Million £'Million £'Million £'Million £'Million
At 1 January 2021 80.6 185.3 (14.8) 2.5 965.9 1,219.5 (0.9) 1,218.6
Cash result for the period 175.8 175.8 175.8
Dividends 15 (267.5) (267.5) (267.5)
Issue of share capital 0.1 10.2 10.3 10.3
Exercise of options 0.2 11.1 11.3 11.3
Shares sold during the period 6.4 (6.4) - -
Change in deferred tax 2.4 2.4 2.4
Impact of policyholder tax asymmetry (29.2) (29.2) (29.2)
Change in goodwill, intangibles and other non-cash movements (8.4) (8.4) (8.4)
At 30 June 2021 80.9 206.6 (8.4) 2.5 832.6 1,114.2 (0.9) 1,113.3
At 1 January 2022 81.1 213.8 (8.5) 2.5 956.4 1,245.3 - 1,245.3
Non-controlling interest arising on the part disposal of subsidiaries 4.9 4.9 0.1 5.0
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 period 4.7 (4.7) - -
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
-74-
Consolidated Statement of Financial Position on a Cash Result Basis
(unaudited)
Note 30 June 30 June 31 December
2022 2021 2021
£'Million £'Million £'Million
Assets
Property and equipment 148.0 162.6 154.5
Deferred tax assets 3.0 - 5.0
Investment in associates 1.4 - 1.4
Other receivables 1,265.2 1,692.6 1,587.6
Income tax assets 65.8 - -
Fixed income securities 13 7.8 7.8 7.8
Investment in Collective Investment Schemes 13 1,370.5 1,295.3 1,605.3
Cash and cash equivalents 274.5 298.1 245.7
Total assets 3,136.2 3,456.4 3,607.3
Liabilities
Borrowings 12 371.8 478.2 433.0
Deferred tax liabilities 78.4 506.7 624.4
Other provisions 11 44.4 37.6 44.1
Other payables 1,394.3 1,236.9 1,254.4
Income tax liabilities - 83.6 6.1
Preference shares - 0.1 -
Total liabilities 1,888.9 2,343.1 2,362.0
Net assets 1,247.3 1,113.3 1,245.3
Shareholders' equity
Share capital 15 81.6 80.9 81.1
Share premium 226.1 206.6 213.8
Shares in trust reserve (4.1) (8.4) (8.5)
Miscellaneous reserves 2.5 2.5 2.5
Retained earnings 941.1 832.6 956.4
Shareholders' equity 1,247.2 1,114.2 1,245.3
Non-controlling interests 0.1 (0.9) -
Total shareholders' equity on a Cash result basis 1,247.3 1,113.3 1,245.3
Pence Pence Pence
Net assets per share 229.4 206.3 230.4
The Note references above cross refer to the Notes to the Condensed
Consolidated Financial Statements under IFRS as adopted by the UK on pages 41
to 67, except where denoted in Roman numerals.
-75-
Notes to the Consolidated Financial Statements on a Cash Result Basis
(unaudited)
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. The movement in these balances is 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.
-76-
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 39), 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 2022 is set out on page 23. The reconciliations as at 30 June
2021 and 31 December 2021 are provided on the following pages.
30 June 2021 IFRS Adjustment 1 Adjustment 2 Solvency II
Balance Sheet Net Assets
Balance Sheet
£'Million £'Million £'Million £'Million
Assets
Goodwill 32.5 - (32.5) -
Deferred acquisition costs 400.8 - (400.8) -
Purchased value of in-force business 16.0 - (16.0) -
Computer software 28.1 - (28.1) -
Property and equipment 162.6 - - 162.6
Deferred tax assets 13.7 - (13.7) -
Reinsurance assets 85.1 - (85.1) -
Other receivables 2,271.6 (576.2) (2.8) 1,692.6
Investment property 1,495.5 (1,495.5) - -
Equities 97,862.3 (97,862.3) - -
Fixed income securities 29,668.3 (29,660.5) - 7.8
Investment in Collective Investment Schemes 5,157.1 (3,861.8) - 1,295.3
Derivative financial instruments 838.0 (838.0) - -
Cash and cash equivalents 7,089.9 (6,791.8) - 298.1
Total assets 145,121.5 (141,086.1) (579.0) 3,456.4
Liabilities
Borrowings 478.2 - - 478.2
Deferred tax liabilities 529.7 - (23.0) 506.7
Insurance contract liabilities 571.8 (483.3) (88.5) -
Deferred income 574.4 - (574.4) -
Other provisions 37.6 - - 37.6
Other payables 2,233.5 (986.3) (10.3) 1,236.9
Investment contract benefits 102,930.3 (102,930.3) - -
Derivative financial instruments 1,014.6 (1,014.6) - -
Net asset value attributable to unit holders 35,671.6 (35,671.6) - -
Income tax liabilities 83.6 - - 83.6
Preference shares 0.1 - - 0.1
Total liabilities 144,125.4 (141,086.1) (696.2) 2,343.1
Net assets 996.1 - 117.2 1,113.3
-77-
31 December 2021 IFRS Adjustment 1 Adjustment 2 Solvency II
Balance Sheet Net Assets
Balance Sheet
£'Million £'Million £'Million £'Million
Assets
Goodwill 29.6 - (29.6) -
Deferred acquisition costs 379.6 - (379.6) -
Purchased value of in-force business 14.4 - (14.4) -
Computer software 27.0 - (27.0) -
Property and equipment 154.5 - - 154.5
Deferred tax assets 20.6 - (15.6) 5.0
Investment in associates 1.4 - - 1.4
Reinsurance assets 82.4 - (82.4) -
Other receivables 2,923.0 (1,332.4) (3.0) 1,587.6
Investment property 1,568.5 (1,568.5) - -
Equities 106,782.3 (106,782.3) - -
Fixed income securities 29,305.9 (29,298.1) - 7.8
Investment in Collective Investment Schemes 5,513.2 (3,907.9) - 1,605.3
Derivative financial instruments 1,094.6 (1,094.6) - -
Cash and cash equivalents 7,832.9 (7,587.2) - 245.7
Total assets 155,729.9 (151,571.0) (551.6) 3,607.3
Liabilities
Borrowings 433.0 - - 433.0
Deferred tax liabilities 649.8 - (25.4) 624.4
Insurance contract liabilities 572.3 (487.8) (84.5) -
Deferred income 562.6 - (562.6) -
Other provisions 44.1 - - 44.1
Other payables 2,604.5 (1,344.9) (5.2) 1,254.4
Investment contract benefits 110,349.8 (110,349.8) - -
Derivative financial instruments 1,019.5 (1,019.5) - -
Net asset value attributable to unit holders 38,369.0 (38,369.0) - -
Income tax liabilities 6.1 - - 6.1
Total liabilities 154,610.7 (151,571.0) (677.7) 2,362.0
Net assets 1,119.2 - 126.1 1,245.3
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.
-78-
III. Earnings per share
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2021
2022 2021
£'Million £'Million £'Million
Earnings
Cash result after tax attributable to equity shareholders (for both basic 194.1 175.8 387.4
and diluted EPS)
Million Million Million
Weighted average number of shares
Weighted average number of ordinary shares in issue (for basic EPS) 541.8 536.7 537.7
Adjustments for outstanding share options 4.4 7.6 8.5
Weighted average number of ordinary shares (for diluted EPS) 546.2 544.3 546.2
Pence Pence Pence
Earnings per share (EPS)
Basic earnings per share 35.8 32.8 72.0
Diluted earnings per share 35.5 32.3 70.9
The Directors have resolved to pay an interim dividend of 15.59 pence per
share (30 June 2021: 11.55 pence per share). This amounts to £84.8 million
(30 June 2021: £62.3 million) and will be paid on 23 September 2022 to
shareholders on the register at 26 August 2022.
-79-
Other Information
-80-
Glossary of Alternative Performance Measures
Within the Half-Year Report and Accounts 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,
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 23.
solvency, is central to our business. By removing the liabilities which are
1. Reflection of the recognition requirements of the Solvency II fully matched by assets, this presentation allows the reader to focus on the
regulations for assets and liabilities. In particular this removes deferred business operation. It also provides a simpler comparison with other wealth
acquisition costs (DAC), deferred income (DIR), purchased value of in-force management companies.
(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 cashflow 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
Our embedded value is determined in line with the EEV principles, originally Cash results by providing additional disclosure on an embedded value basis,
set out by the Chief Financial Officers (CFO) Forum in 2004, and amended for which brings into account the net present value of expected future cash flows,
subsequent changes to the principles, including those published in April 2016, as we believe that a measure of total economic value of the Group is useful to
following the implementation of Solvency II. investors.
EEV net asset value (NAV) per share EEV net asset value per share is calculated as the EEV net assets divided by Total embedded value provides a measure of total economic value of the Group, Not applicable.
the year end number of ordinary shares. and assessing the NAV per share allows analysis of the overall value of the
Group by share.
IFRS NAV per share IFRS net asset value per share is calculated as the IFRS net assets divided by Total IFRS net assets provides a measure of value of the Group, and assessing Not applicable.
the year-end number of ordinary shares. the NAV per share allows analysis of the overall value of the Group by share.
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Financial performance related APMs
APM Definition Why is this measure used? Reconciliation
to the Financial Statements
Cash result, and Underlying cash result(1) 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 pages 18, 19 and also see Note 3 - Segment Profit to the Condensed
Solvency II net assets adjusted for the following items: tax and equity-settled share options. By contrast, dividends can only be paid Consolidated Financial Statements
to shareholders from appropriately fungible assets. The Board therefore uses
1. The movement in deferred tax is removed to reflect just the cash the Cash results to monitor the level of cash generated by the business.
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 year, the Underlying cash result is particularly useful for monitoring the
expected long-term rate of cash emergence, which supports dividends and
3. Other changes in equity, such as dividends paid in the year and sustainable dividend growth.
equity-settled share option costs, are excluded.
The Underlying cash results reflects the regular emergence of cash from the
business along with the impact of the strategic investments we are making.
The Cash result reflects all other cash items, including those whose emergence
is volatile, varying over time and often influenced by markets, together with
other short-term costs.
Neither the Cash result nor the Underlying cash result should be confused with
the IFRS Condensed Consolidated Statement of Cash Flows which is prepared in
accordance with IAS 7.
Underlying cash basic and diluted earnings per share (EPS) These EPS measures are calculated as Underlying cash divided by the number of As Underlying cash is the best reflection of the cash generated by the Not applicable.
shares used in the calculation of IFRS basic and diluted EPS. business, Underlying cash EPS measures allow analysis of the shareholder cash
generated by the business by share.
EEV profit Derived as the movement in the total EEV during the year. Both the IFRS and Cash results reflect only the cashflows in the year. See Note 3 - Segment Profit to the Condensed Consolidated Financial Statements
However, our business is long-term, and activity in the year can generate
business with a long-term value. We therefore believe it is helpful to
understand the full economic impact of activity in the year, which is the aim
of the EEV methodology.
EEV operating profit A discounted cashflow valuation methodology, assessing the long-term economic Both the IFRS and Cash results reflect only the cash flows in the year. See Note 3 - Segment Profit to the Condensed Consolidated Financial Statements
value of the business. However, our business is long-term, and activity in the year can generate
business with a long-term value. We therefore believe it is helpful to
Our embedded value is determined in line with the EEV principles, originally understand the full economic impact of activity in the year, which is the aim
set out by the Chief Financial Officers (CFO) Forum in 2004, and amended for of the EEV methodology.
subsequent changes to the principles, including those published in April 2016,
following the implementation of Solvency II. Within the EEV, many of the future cash flows derive from fund charges, which
change with movements in stock markets. Since the impact of these changes is
The EEV operating profit reflects the total EEV result with an adjustment to typically unrelated to the performance of the business, we believe that the
strip out the impact of stock market and other economic effects during the EEV operating profit (reflecting the EEV profit, adjusted to reflect only the
year. expected investment performance and no change in economic basis) provides the
most useful measure of embedded value performance in the year.
Within EEV operating profit is new business contribution, which is the change
in embedded value arising from writing new business during the year.
EEV operating profit basic and diluted earnings per share (EPS) These EPS measures are calculated as EEV operating profit after tax divided by As EEV operating profit is the best reflection of the EEV generated by the Not applicable.
the number of shares used in the calculation of IFRS basic and diluted EPS. business, EEV operating profit EPS measures allow analysis of the long-term
value generated by the business by share.
Policyholder and shareholder tax Shareholder tax is estimated by making an assessment of the effective rate of The UK tax regime facilitates the collection of tax from life insurance Disclosed as separate line items in the
tax that is applicable to the shareholders on the profits policyholders by making an equivalent charge within the
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attributable to the shareholders. This is corporate tax of the Company. The total tax charge for the insurance companies Condensed
therefore comprises both this element and an element more closely related to
calculated by applying the appropriate effective corporate tax rates to the normal corporation tax. Consolidated Condensed Consolidated Statement of Comprehensive Income on page
shareholder profits.
37.
Life insurance business impacted by this tax typically includes policy charges
The remainder of the tax charge represents tax on policyholders' investment which align with the tax liability, to mitigate the impact on the corporate.
returns. As a result, when policyholder tax increases, the charges also increase. Given
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 Condensed Consolidated Statement of
but before deduction of shareholder tax. Within the Condensed Consolidated statements should include the tax incurred on behalf of policyholders in our Comprehensive Income on page 37.
Statement of Comprehensive Income, the full title of this measure is 'Profit UK life assurance company. Since the policyholder tax charge is unrelated to
before tax 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 pages 17 and 18.
DIR and PVIF adjustments. provision of services and so, for long-term business, some of the initial cash
flows are spread over the life of the contract through the use of intangible
assets and liabilities (DAC and DIR). Due to the Retail Distribution Review
(RDR) regulation change in 2013, there was a step change in the progression of
these items in our accounts, which resulted in significant accounting
presentation changes despite the fundamentals of our vertically integrated
business remaining unchanged. We therefore believe it is useful to consider
the IFRS result having removed the impact of movements in these intangibles as
it better reflects the underlying performance of the business.
Controllable expenses The total of expenses which reflects Establishment, Development (both We are focused on managing long-term growth in controllable expenses to 5% Full detail of the breakdown of expenses is provided on page 20.
Operational and Strategic), and Academy. p.a.
1. As we explained in the Half-Year Report & Accounts 2021, for
the year ended 31 December 2021 and all subsequent periods we have re-shaped
our presentation of the Cash result to aid shareholders. This adapts our
reporting to our guidance on expense growth, which has a new focus on
controllable expenses. As a result, controllable expenses are a new
alternative performance measure (APM), and the Operating cash result, an APM
in previous years, has been removed. The Operating cash result no longer
provides relevant information as it includes some, but not all, controllable
expenses.
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