Final Results - Part 3 of 5

RNS Number : 2067Z

Standard Life plc

13 March 2012

 



Standard Life plc

Preliminary Results 2011

Part 3 of 5

2  International Financial Reporting

Standards (IFRS)

IFRS summary consolidated income statement

For the year ended 31 December 2011

		2011	20101
	Notes	£m	£m
Revenue
Gross earned premium		3,343	3,244
Premium ceded to reinsurers		(98)	(94)
Net earned premium		3,245	3,150
Net investment return		4,911	14,570
Fee and commission income		855	752
Other income		75	97
Total net revenue		9,086	18,569
Expenses
Claims and benefits paid		6,245	5,513
Claim recoveries from reinsurers		(620)	(619)
Net insurance benefits and claims		5,625	4,894
Change in policyholder liabilities		136	9,899
Change in reinsurance assets and liabilities		383	97
Expenses under arrangements with reinsurers		516	569
Administrative expenses	2.3	1,663	1,607
Change in liability for third party interest in consolidated funds		103	443
Finance costs		116	113
Total expenses		8,542	17,622
Share of profit from associates and joint ventures		51	24
Profit before tax		595	971
Tax expense attributable to policyholders' returns	2.4	217	400
Profit before tax attributable to equity holders' profits		378	571
Total tax expense	2.4	249	498
Less: Tax attributable to policyholders' returns	2.4	(217)	(400)
Tax expense attributable to equity holders' profits	2.4	32	98
Profit for the year from continuing operations		346	473
Profit for the year from discontinued operations		-	20
Profit for the year		346	493
Attributable to:
Equity holders of Standard Life plc		298	432
Non-controlling interests		48	61
		346	493
Earnings per share from continuing operations
Basic (pence per share)	2.5	13.0	18.4
Diluted (pence per share)	2.5	12.9	18.3

¹    The Group's healthcare business, Standard Life Healthcare Limited, was sold on 31 July 2010 and has therefore been classified as a discontinued operation.

IFRS consolidated statement of comprehensive income

For the year ended 31 December 2011

		2011	2010
		£m	£m
Profit for the year		346	493
Less: Profit from discontinued operations		-	(20)
Profit from continuing operations		346	473
Fair value losses on cash flow hedges		-	(2)
Actuarial (losses)/gains on defined benefit pension schemes		(88)	184
Revaluation of land and buildings		(5)	(14)
Net investment hedge		13	(39)
Exchange differences on translating foreign operations		(53)	122
Equity movements transferred to unallocated divisible surplus		11	(2)
Aggregate equity holder tax effect of items recognised in comprehensive income		27	(60)
Other comprehensive (expense)/income for the year from continuing operations		(95)	189
Total comprehensive income for the year from continuing operations		251	662
Profit from discontinued operations		-	20
Other comprehensive income from discontinued operations		-	24
Total comprehensive income for the year from discontinued operations		-	44
Total comprehensive income for the year		251	706
Attributable to:
Equity holders of Standard Life plc
From continuing operations		203	601
From discontinued operations		-	44
Non-controlling interests
From continuing operations		48	61
		251	706

Pro forma reconciliation of consolidated operating profit to IFRS profit for the year

For the year ended 31 December 2011

		2011	20101
	Notes	£m	£m
Operating profit before tax from continuing operations
UK		220	234
Global investment management		125	103
Canada		187	110
International		40	15
Other		(28)	(37)
Operating profit before tax from continuing operations		544	425
Adjusted for the following items:
Short-term fluctuations in investment return and economic assumption changes2	2.6	(139)	157
Restructuring and corporate transaction expenses	2.3	(70)	(71)
Impairment of intangible assets		(5)	-
Impairment of investments in associates		-	(1)
Other operating profit adjustments2		-	-
Non-operating (loss)/profit before tax from continuing operations		(214)	85
Profit attributable to non-controlling interests		48	61
Profit before tax attributable to equity holders' profits		378	571
Tax (expense)/credit attributable to:
Operating profit		(87)	(89)
Adjusted items		55	(9)
Total tax expense attributable to equity holders' profits		(32)	(98)
Profit for the year from continuing operations		346	473
Profit for the year from discontinued operations		-	20
Profit for the year		346	493

¹    The Group's healthcare business, Standard Life Healthcare Limited, was sold on 31 July 2010 and has been classified as a discontinued operation. The analysis of operating profit presented for the years ended 31 December 2011 and 31 December 2010 include continuing operations only.

²    As described in Note 2.1 - Accounting policies - (b) Operating profit, the Group has amended its operating profit accounting policy. As a result, £30m has been reallocated from other operating profit adjustments to short-term fluctuations in investment return and economic assumption changes for the year ended 31 December 2010.

The Group's chosen supplementary measure of performance is operating profit. The Directors believe that operating profit provides a more meaningful indication of the long-term operating performance of the Group. To align the measure of the Group's performance with the long-term nature of its business, operating profit excludes items which create short-term volatility. Operating profit includes the impact of significant actions taken by management during the year.

IFRS summary consolidated statement of financial position

As at 31 December 2011

		2011	2010
	Notes	£m	£m
Assets
Intangible assets		200	135
Deferred acquisition costs		920	881
Investments in associates and joint ventures	2.16	326	3,087
Investment property		8,743	8,410
Property, plant and equipment		160	164
Reinsurance assets	2.9	6,818	6,962
Loans		3,219	3,136
Derivative financial assets		2,212	1,343
Investment securities1		125,707	121,671
Other assets		2,631	2,522
Cash and cash equivalents1		9,187	5,805
Total assets		160,123	154,116
Equity
Share capital	2.8(a)	235	228
Shares held by trusts	2.8(b)	(19)	(21)
Share premium reserve		1,110	976
Retained earnings		1,030	1,094
Other reserves		1,605	1,626
Equity attributable to equity holders of Standard Life plc		3,961	3,903
Non-controlling interests		358	335
Total equity		4,319	4,238
Liabilities
Non-participating contract liabilities	2.9	102,558	99,164
Participating contract liabilities	2.9	32,553	33,474
Reinsurance liabilities	2.9	245	-
Deposits received from reinsurers		6,036	6,021
Third party interest in consolidated funds		8,428	5,454
Borrowings		170	245
Subordinated liabilities	2.17	1,186	1,799
Deferred income		388	382
Income and deferred tax liabilities		294	401
Derivative financial liabilities		1,102	924
Other liabilities		2,844	2,014
Total liabilities		155,804	149,878
Total equity and liabilities		160,123	154,116

¹    There has been a reallocation between cash and cash equivalents and investment securities of £1,629m at 31 December 2010. Refer to Note 2.1 - Accounting policies - (a) Basis of preparation.

IFRS consolidated statement of changes in equity

For the year ended 31 December 2011

	Share capital	Shares held by trusts	Share premium reserve	Retained earnings	Other reserves	Total equity attributable to equity holders of Standard Life plc	Non-controlling interests	Total equity
2011	£m	£m	£m	£m	£m	£m	£m	£m
1 January	228	(21)	976	1,094	1,626	3,903	335	4,238
Profit for the year	-	-	-	298	-	298	48	346
Other comprehensive income for the year	-	-	-	(61)	(34)	(95)	-	(95)
Total comprehensive income for the year	-	-	-	237	(34)	203	48	251
Distributions to equity holders	-	-	-	(303)	-	(303)	-	(303)
Issue of share capital other than in cash	7	-	134	-	-	141	-	141
Reserves credit for employee share-based payment schemes	-	-	-	-	24	24	-	24
Transfer to retained earnings for vested employee share-based payment schemes	-	-	-	11	(11)	-	-	-
Shares acquired by employee trusts	-	(7)	-	-	-	(7)	-	(7)
Shares distributed by employee trusts	-	9	-	(9)	-	-	-	-
Other movements in non-controlling interests in the year	-	-	-	-	-	-	(25)	(25)
31 December	235	(19)	1,110	1,030	1,605	3,961	358	4,319

	Share capital	Shares held by trusts	Share premium reserve	Retained earnings	Other reserves	Total equity attributable to equity holders of Standard Life plc	Non-controlling interests	Total equity
2010	£m	£m	£m	£m	£m	£m	£m	£m
1 January	224	-	888	685	1,660	3,457	296	3,753
Profit for the year	-	-	-	432	-	432	61	493
Other comprehensive income for the year	-	-	-	124	89	213	-	213
Total comprehensive income for the year	-	-	-	556	89	645	61	706
Distributions to equity holders	-	-	-	(273)	(5)	(278)	-	(278)
Issue of share capital other than in cash	4	-	88	-	-	92	-	92
Reserves credit for employee share-based payment schemes	-	-	-	-	18	18	-	18
Transfer to retained earnings for vested employee share-based payment schemes	-	-	-	15	(15)	-	-	-
Shares acquired by employee trusts	-	(35)	-	-	-	(35)	-	(35)
Shares distributed by employee trusts	-	10	-	(10)	-	-	-	-
Transfer between reserves on disposal of subsidiaries	-	-	-	121	(121)	-	-	-
Shares gifted to charity	-	4	-	-	-	4	-	4
Other movements in non-controlling interests in the year	-	-	-	-	-	-	(22)	(22)
31 December	228	(21)	976	1,094	1,626	3,903	335	4,238

IFRS summary consolidated statement of cash flows

For the year ended 31 December 2011

	2011	2010
	£m	£m
Cash flows from operating activities
Profit before tax from continuing operations	595	971
Profit before tax from discontinued operations	-	17
	595	988
Change in operating assets1,2	(2,056)	(17,505)
Change in operating liabilities	4,026	12,457
Non-cash and other items	122	240
Taxation paid	(297)	(262)
Net cash flows from operating activities1	2,390	(4,082)
Cash flows from investing activities
Net acquisition of property, plant and equipment	(15)	(16)
Acquisition of subsidiaries net of cash acquired	(41)	(19)
Disposal of subsidiaries net of cash disposed2	-	(1,122)
Acquisition of investments in associates and joint ventures	(23)	(16)
Net acquisition of intangible assets	(39)	(45)
Net cash flows from investing activities	(118)	(1,218)
Cash flows from financing activities
Proceeds from other borrowings	5	33
Repayment of other borrowings	(35)	(33)
Repayment of subordinated liabilities	(591)	-
Capital flows from non-controlling interests and third party interest in consolidated funds	2,177	2,553
Distributions paid to non-controlling interests	(65)	(56)
Shares acquired by trusts	(7)	(35)
Interest paid	(125)	(117)
Ordinary dividends paid	(162)	(186)
Net cash flows from financing activities	1,197	2,159
Net increase/(decrease) in cash and cash equivalents1	3,469	(3,141)
Cash and cash equivalents at the beginning of the year1	5,701	8,840
Effects of exchange rate changes on cash and cash equivalents	(45)	2
Cash and cash equivalents at the end of the year 1,3	9,125	5,701
Supplemental disclosures on cash flows from operating activities
Interest paid	11	11
Interest received	2,832	2,663
Dividends received	1,575	1,329
Rental income received on investment properties	634	605

¹    There has been a reallocation between cash and cash equivalents and debt securities of £1,629m at 31 December 2010, which has impacted the statement of cash flows. Refer to Note 2.1 - Accounting policies - (a) Basis of preparation.

²    There has been a reallocation between disposal of subsidiaries net of cash disposed and change in operating assets of £150m at 31 December 2010.

³    Comprises £9,187m (2010: £5,805m) of cash and cash equivalents and (£62m) (2010: (£104m)) of overdrafts which are reported in Borrowings in the statement of financial position.

Notes to the IFRS financial information

2.1 Accounting policies

(a) Basis of preparation

The preliminary results have been prepared using International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) as endorsed by the European Union (EU), with interpretations issued by the IFRS Interpretations Committee and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

The accounting policies as set out in the Group's Annual Report and Accounts for the year ended 31 December 2011 have been applied in the preparation of this preliminary announcement. The Group's accounting policies have not changed since the issue of the Annual Report and Accounts 2010.

It should be noted that the Group's accounting policy for cash and cash equivalents states that cash and cash equivalents include any highly liquid investments with less than three months to maturity from the date of acquisition. Any debt instruments with a maturity date greater than three months from the date of acquisition are classified as debt securities. Following a review of short-dated debt instruments during the year, there has been a reallocation from cash and cash equivalents to debt securities (included in investment securities) at 31 December 2010 of £1,629m. There has been no change to total assets or net assets.

The Group has adopted the following amendments to IFRSs, International Accounting Standards (IASs) and interpretations which are effective from 1 January 2011 and management considers that the implementation of these amendments and interpretations has had no significant impact on the Group's financial statements:

·   Amendment to IAS 32 Financial Instruments: Presentation - classification of rights issues

·   IAS 24 (revised) Related Party Disclosures

·   Annual Improvements 2010

·   IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments

·   Amendment to IFRIC 14 Prepayment of a Minimum Funding Requirement

(b) Operating profit

The Group's chosen supplementary measure of performance is operating profit. Operating profit excludes impacts arising from short-term fluctuations in investment return and economic assumption changes. It is calculated based on expected returns on investments backing equity holder funds, with consistent allowance for the corresponding expected movements in equity holder liabilities. Impacts arising from the difference between the expected return and actual return on investments, and the corresponding impact on equity holder liabilities except where they are directly related to a significant management action, are excluded from operating profit and are presented within profit before tax. The impact of certain changes in economic assumptions is also excluded from operating profit and is presented within profit before tax.

Operating profit also excludes the impact of the following items:

·   Restructuring costs and significant corporate transaction expenses

·   Impairment of intangible assets

·   Profit or loss arising on the disposal of a subsidiary, joint venture or associate

·   Amortisation of intangibles acquired in business combinations

·   Items which are one-off in nature and outside the control of management and which, due to their size or nature, are not indicative of the long-term operating performance of the Group

The Group has amended its operating profit accounting policy in respect of the treatment of the volatility arising from changes in insurance and investment contract liabilities driven by corresponding changes in tax provisions. Previously, such volatility was excluded from operating profit. Under the revised policy, volatility in relation to insurance contract liabilities is excluded from operating profit, only to the extent that it relates to short-term fluctuations in investment return and economic assumption changes or arises from items which are one-off in nature and outside the control of management. The purpose of this amendment is to improve consistency with the underlying principles of the Group's operating profit methodology. The change to the operating profit policy did not have a significant impact on the operating profit reported for the year ended 31 December 2010.

(c) Preliminary announcement

The preliminary announcement for the year ended 31 December 2011 does not constitute statutory accounts as defined in Section 434 of the UK Companies Act 2006. PricewaterhouseCoopers LLP have audited the consolidated statutory accounts for the Group for the years ended 31 December 2010 and 31 December 2011 and their reports were unqualified and did not contain a statement under Section 498(2) or (3) of the UK Companies Act 2006. The Group's consolidated statutory accounts for the year ended 31 December 2010 have been filed with the Registrar of Companies. The Group's Annual Report and Accounts for the year ended 31 December 2011 will be available from 3 April 2012.

2.2 Segmental analysis

(a) Basis of segmentation

The Group's reportable segments have been identified in accordance with the way in which the Group is structured and managed. The Group's reportable segments are as follows:

UK

UK operations comprise life and pensions business. The life and pensions business provides a broad range of pensions, protection, savings and investment products to individual and corporate customers. The Group's healthcare business, Standard Life Healthcare Limited, was sold on 31 July 2010. It was classified as a discontinued operation in this reportable segment in the year ended 31 December 2010.

Global investment management

Investment management services are provided by global investment management operations to the Group's other reportable segments. Global investment management also provides a range of investment products for individuals and institutional customers through a number of different investment vehicles.

Canada

Canadian operations provide long-term savings, investment and insurance solutions to individuals, and group benefit and retirement plan members.

International

The businesses included in this reportable segment offer a range of life and pension products and comprise wholly owned operations in Ireland, Germany, Austria and Hong Kong and investments in joint ventures in India and China.

Other

This reportable segment primarily includes the group corporate centre and related activities.

(b) Reportable segments - income statement, operating profit and asset information

Income statement and asset information is presented by reportable segment in the tables that follow. As described beneath the   pro forma reconciliation of consolidated operating profit to IFRS profit for the year, operating profit is considered to present an indication of the long-term operating business performance of the Group. Operating profit is one of the key measures utilised by the Group's management in their evaluation of segmental performance and is therefore also presented by reportable segment.

2.2 Segmental analysis continued

(b) Reportable segments - income statement, operating profit and asset information continued

	UK	Global investment management	Canada	International1	Other	Elimination2	Total
2011	£m	£m	£m	£m	£m	£m	£m
Revenue
Net earned premium	1,178	2	1,129	936	-	-	3,245
Net investment return	3,266	-	1,364	298	-	(17)	4,911
Other segment income	494	252	141	51	28	(36)	930
Inter-segment revenue	22	114	2	-	559	(697)	-
Total net revenue	4,960	368	2,636	1,285	587	(750)	9,086
Expenses
Segment expenses	4,480	262	2,522	1,257	640	(735)	8,426
Finance costs	116	-	15	-	-	(15)	116
Total expenses	4,596	262	2,537	1,257	640	(750)	8,542
Share of profit from associates and joint ventures	20	15	14	2	-	-	51
Profit/(loss) before tax	384	121	113	30	(53)	-	595
Tax attributable to policyholders' returns	211	-	-	6	-	-	217
Tax attributable to equity holders' profits	(10)	29	12	5	(4)	-	32
Profit/(loss) for the year	183	92	101	19	(49)	-	346
Profit attributable to non-controlling interests	(48)	-	-	-	-	-	(48)
Profit/(loss) attributable to equity holders of Standard Life plc	135	92	101	19	(49)	-	298
Reconciliation to consolidated operating profit
Tax attributable to equity holders' profits	(10)	29	12	5	(4)	-	32
Non-operating loss before tax	95	4	74	16	25	-	214
Operating profit/(loss) before tax	220	125	187	40	(28)	-	544
Other income included in the income statement is as follows:
Interest income	98	1	174	22	1	-	296
Other expenses included in the income statement include:
Impairment losses (reversed)/recognised	(3)	-	(2)	-	5	-	-
Amortisation of intangible assets	11	-	1	2	4	-	18
Amortisation of deferred acquisition costs	79	1	9	43	-	-	132
Depreciation of property, plant and equipment	-	1	2	1	11	-	15
Interest expense3	169	-	21	1	117	(131)	177
Assets
Segment assets	120,996	417	25,393	12,697	1,129	(835)	159,797
Investments in associates and joint ventures	47	48	127	91	13	-	326
Total assets	121,043	465	25,520	12,788	1,142	(835)	160,123
Additions during the year
Intangible assets	51	3	1	3	30	-	88
Deferred acquisition costs	66	-	17	95	-	-	178
Property, plant and equipment	1	2	1	-	11	-	15
Investment properties	259	-	199	2	-	-	460
	377	5	218	100	41	-	741

¹    Included in the international reporting segment, total net revenue, excluding inter-segment revenue, for Germany, Austria, Ireland and Asia is £925m (2010: £1,055m), £173m (2010: £198m), £119m (2010: £548m) and £68m (2010: £91m) respectively.

²      Eliminations relate to inter-segment revenue and expenses.

³      Refer to Note 2.3 - Administrative expenses.

	UK1	Global investment management	Canada	International	Other	Elimination2	Total
2010	£m	£m	£m	£m	£m	£m	£m
Revenue
Net earned premium	1,319	3	919	909	-	-	3,150
Net investment return	11,553	-	2,077	937	9	(6)	14,570
Other segment income	464	209	136	46	23	(29)	849
Inter-segment revenue	11	111	3	-	544	(669)	-
Total net revenue	13,347	323	3,135	1,892	576	(704)	18,569
Expenses
Segment expenses	12,541	228	2,948	1,841	640	(689)	17,509
Finance costs	114	-	14	-	-	(15)	113
Total expenses	12,655	228	2,962	1,841	640	(704)	17,622
Share of profit/(loss) from associates and joint ventures	21	11	15	(23)	-	-	24
Profit/(loss) before tax	713	106	188	28	(64)	-	971
Tax attributable to policyholders' returns	385	-	-	16	(1)	-	400
Tax attributable to equity holders' profits	27	27	43	8	(7)	-	98
Profit/(loss) for the year from continuing operations	301	79	145	4	(56)	-	473
Profit for the year from discontinued operations1	20	-	-	-	-	-	20
Profit/(loss) for the year	321	79	145	4	(56)	-	493
Profit attributable to non-controlling interests from continuing operations	(61)	-	-	-	-	-	(61)
Profit/(loss) attributable to equity holders of Standard Life plc	260	79	145	4	(56)	-	432
Reconciliation to consolidated operating profit1
Tax attributable to equity holders' profits from continuing operations	27	27	43	8	(7)	-	98
Non-operating (profit)/loss before tax from continuing operations	(33)	(3)	(78)	3	26	-	(85)
Less: Profit for the year from discontinued operations	(20)	-	-	-	-	-	(20)
Operating profit/(loss) before tax from continuing operations	234	103	110	15	(37)	-	425
Other income included in the income statement is as follows:
Interest income3	73	1	164	21	1	-	260
Other expenses included in the income statement include:
Impairment losses (reversed)/recognised3	(9)	-	-	-	4	-	(5)
Amortisation of intangible assets:
From continuing operations	14	-	1	2	3	-	20
From discontinued operations	2	-	-	-	-	-	2
Amortisation of deferred acquisition costs:
From continuing operations	82	-	25	52	-	-	159
From discontinued operations	37	-	-	-	-	-	37
Depreciation of property, plant and equipment3	-	1	2	1	8	-	12
Interest expense3,4	163	-	21	1	113	(128)	170
Assets
Segment assets	114,931	419	24,246	11,290	913	(770)	151,029
Investments in associates and joint ventures	2,697	42	123	211	14	-	3,087
Total assets	117,628	461	24,369	11,501	927	(770)	154,116
Additions during the year
Intangible assets	39	-	2	4	32	-	77
Deferred acquisition costs	110	1	17	90	-	-	218
Property, plant and equipment	-	-	1	1	16	-	18
Investment properties	758	-	73	-	-	-	831
	907	1	93	95	48	-	1,144

¹      The Group's healthcare business, Standard Life Healthcare Limited, was sold on 31 July 2010 and has therefore been classified as a discontinued operation for the year ended 31 December 2010. The reconciliation to consolidated operating profit for the year ended 31 December 2010 includes continuing operations only.

²      Eliminations relate to inter-segment revenue and expenses.

³      All from continuing operations.

⁴      Refer to Note 2.3 - Administrative expenses.

2.2 Segmental analysis continued

(b) Reportable segments - income statement, operating profit and asset information continued

Inter-segment transactions are entered into under normal commercial terms and conditions that would be available to unrelated third parties. The allocation of total net revenue presented above is based on customer location and this basis is not materially different to geographical origin. The Group has a widely diversified policyholder base and is therefore not reliant on any individual customers. The Group utilises additional measures to assess the performance of each of the reportable segments, which are presented in the European Embedded Value financial information.

(c) Non-current non-financial assets by geographical location

	2011	2010
	£m	£m
UK	7,647	7,437
Continental Europe	43	48
Canada	1,413	1,223
Total	9,103	8,708

Non-current non-financial assets for this purpose consist of investment property, property, plant and equipment and intangible assets (excluding intangible assets arising from insurance or participating investment contracts).

2.3 Administrative expenses

		2011	2010
		£m	£m
Restructuring and corporate transaction expenses		72	72
Commission expenses		393	370
Interest expense		19	17
Staff costs and other employee-related costs		569	586
Acquisition costs deferred during the year		(178)	(218)
Amortisation of deferred acquisition costs		132	196
Other administrative expenses		656	623
Total administrative expenses		1,663	1,646
Less: administrative expenses from discontinued operations		-	(39)
Administrative expenses		1,663	1,607

In addition to interest expense of £19m (2010: £17m), interest expense of £116m (2010: £113m) was incurred in respect of subordinated liabilities and £42m (2010: £40m) in respect of deposits from reinsurers. For the year ended 31 December 2011, total interest expense is £177m (2010: £170m).

Total restructuring costs from continuing operations incurred during the year were £72m (2010: £72m). These include £59m (2010: £64m) of expenses in relation to the Solvency 2 programme and a number of local business unit transformation programmes. Of the restructuring costs from continuing operations, £70m (2010: £71m) is adjusted when determining operating profit before tax, with the remaining £2m (2010: £1m) incurred by the Heritage With Profits Fund in relation to Solvency 2.

2.4 Tax expense

The tax expense is attributed as follows:

		2011	2010
		£m	£m
Tax expense attributable to policyholders' returns		217	400
Tax expense attributable to equity holders' profits		32	98
		249	498
Tax credit from discontinued operations		-	(3)
		249	495

The Finance Act 2011 reduced the UK corporation tax rate to 25% with effect from 1 April 2012 and this rate has been applied in calculating the UK deferred tax position at 31 December 2011. The 2011 Budget statement also announced the Government's intention to make further reductions in the rate of UK corporation tax in 2013 and 2014. These reductions have not been included in the calculation of deferred tax as they are subject to legislation being enacted in future years.

The share of tax of associates and joint ventures is £23m (2010: £4m) and is included in profit before tax in the summary consolidated income statement in 'Share of profit from associates and joint ventures'.

The total tax expense is split as follows:

		2011	2010
		£m	£m
Income tax:
UK		269	253
Double tax relief		(2)	(1)
Canada and International		31	42
Adjustment to tax expense in respect of prior years		12	4
Total income tax		310	298
Deferred tax:
Deferred tax (credit)/expense arising from the current year		(61)	197
Total deferred tax		(61)	197
Total tax expense		249	495
Add: Income tax credit attributable to discontinued operations		-	3
Total income tax expense attributable to continuing operations		249	498
Attributable to equity holders' profits		32	98

Tax relating to components of other comprehensive income is as follows:

		2011	2010
		£m	£m
Tax on actuarial (losses)/gains on defined benefit pension schemes		(27)	59
Tax on revaluation of land and buildings		-	1
Tax on fair value gains on cash flow hedges attributable to discontinued operations		-	6
Tax relating to each component of other comprehensive income		(27)	66

2.5 Earnings per share

(a) Basic earnings per share

Basic earnings per share is calculated by dividing profit attributable to ordinary equity holders by the weighted average number of ordinary shares outstanding during the year. The weighted average number of ordinary shares outstanding during the year is the weighted average number of shares in issue less the weighted average number of shares owned by employee share trusts that have not vested unconditionally to employees.

	2011	2010
Profit from continuing operations (£m)	298	412
Profit from discontinued operations (£m)	-	20
Profit attributable to equity holders of Standard Life plc (£m)	298	432
Weighted average number of ordinary shares in issue (millions)	2,301	2,242
Basic earnings per share from continuing operations (pence per share)	13.0	18.4
Basic earnings per share from discontinued operations (pence per share)	-	0.9
Basic earnings per share (pence per share)	13.0	19.3

(b) Diluted earnings per share

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. The Group has one category of dilutive potential ordinary shares - share awards and share options awarded to employees. 

For share options, a calculation is made to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the Company's shares) based on the monetary value of the subscription rights attached to outstanding share options. The number of shares calculated is compared with the number of shares that would have been issued, or purchased, assuming the exercise of the share options. 

	2011	2010
Profit from continuing operations (£m)	298	412
Profit from discontinued operations (£m)	-	20
Profit attributable to equity holders of Standard Life plc (£m)	298	432
Weighted average number of ordinary shares for diluted earnings per share (millions)	2,304	2,248
Diluted earnings per share from continuing operations (pence per share)	12.9	18.3
Diluted earnings per share from discontinued operations (pence per share)	-	0.9
Diluted earnings per share (pence per share)	12.9	19.2

The dilutive effect of share awards and options included in the weighted average number of ordinary shares above was three million (2010: six million).

(c) Alternative earnings per share

Earnings per share is also calculated based on operating profit as well as on the profit attributable to equity holders. The Directors believe that earnings per share based on operating profit provides a better indication of the operating business performance of the Group.

(c)(i)      Basic alternative earnings per share

	2011	2011	2010	2010
	£m	p per share	£m	p per share
Operating profit before tax from continuing operations	544	23.6	425	19.0
Short-term fluctuations in investment return and economic assumption changes1	(139)	(6.0)	157	7.0
Restructuring and corporate transaction expenses	(70)	(3.1)	(71)	(3.2)
Impairment of intangible assets	(5)	(0.2)	-	-
Impairment of investments in associates	-	-	(1)	-
Other operating profit adjustments1	-	-	-	-
Profit attributable to non-controlling interests	48	2.1	61	2.7
Profit before tax from continuing operations	378	16.4	571	25.5
Tax (expense)/credit attributable to:
Operating profit	(87)	(3.7)	(89)	(4.0)
Adjusted items	55	2.4	(9)	(0.4)
Profit attributable to non-controlling interests	(48)	(2.1)	(61)	(2.7)
Profit from discontinued operations	-	-	20	0.9
Profit attributable to equity holders of Standard Life plc	298	13.0	432	19.3

¹    As described in Note 2.1 - Accounting policies - (b) Operating profit, the Group has amended its operating profit accounting policy. As a result, £30m was reallocated from other operating profit adjustments to short-term fluctuations in investment return and economic assumption changes for the year ended 31 December 2010. 

(c)(ii) Diluted alternative earnings per share

	2011	2011	2010	2010
	£m	p per share	£m	p per share
Operating profit before tax from continuing operations	544	23.6	425	19.0
Short-term fluctuations in investment return and economic assumption changes1	(139)	(6.0)	157	6.9
Restructuring and corporate transaction expenses	(70)	(3.1)	(71)	(3.2)
Impairment of intangible assets	(5)	(0.2)	-	-
Impairment of investments in associates	-	-	(1)	-
Other operating profit adjustments1	-	-	-	-
Profit attributable to non-controlling interests	48	2.1	61	2.7
Profit before tax from continuing operations	378	16.4	571	25.4
Tax (expense)/credit attributable to:
Operating profit	(87)	(3.8)	(89)	(4.0)
Adjusted items	55	2.4	(9)	(0.4)
Profit attributable to non-controlling interests	(48)	(2.1)	(61)	(2.7)
Profit from discontinued operations	-	-	20	0.9
Profit attributable to equity holders of Standard Life plc	298	12.9	432	19.2

¹    As described in Note 2.1 - Accounting policies - (b) Operating profit, the Group has amended its operating profit accounting policy. As a result, £30m was reallocated from other operating profit adjustments to short-term fluctuations in investment return and economic assumption changes for the year ended 31 December 2010.

2.6 Short-term fluctuations in investment return and economic assumption changes

The Group focuses on operating profit as a measure of its performance which incorporates expected returns on investments backing equity holder funds with a consistent allowance for corresponding expected movements in equity holder liabilities. The methodology used in operating profit is outlined below.

Operating profit is based on expected returns on investments backing equity holder funds and the difference between the expected return and actual return on investments is excluded from operating profit and presented within profit before tax. Adjustments are also made consistently to allow for expected movements in equity holder liabilities except where they are directly related to a significant management action. As a result, the components of IFRS profit attributable to market movements and interest rate changes which give rise to variances between actual and expected investment returns, as well as the impact of changes in economic assumptions on equity holder liabilities, are excluded from operating profit and disclosed separately within the heading of short-term fluctuations in investment return and economic assumption changes.

The expected rates of return for debt securities, equity securities and property are determined separately for each of the Group's operations and are consistent with the expected rates of return as determined under the Group's published European Embedded Value (EEV) methodology. The expected rates of return for equity securities and property, with the exception of the Canadian operations, are determined based on the gilt spot rates of an appropriate duration plus an equity risk premium or property risk premium, respectively. The expected rates of return on equity securities and property for Canadian operations are determined by the Appointed Actuary in Canada. 

The principal assumptions, as set at the start of the year, in respect of gross investment returns underlying the calculation of the expected investment return for equity securities and property are as follows:

	2011			2010
	UK	Canada	UK	Canada
	%	%	%	%
Equity securities	6.49	8.60	7.11	8.60
Property	5.49	8.60	6.11	8.60

In respect of debt securities, the expected rate of return is determined based on the average prospective yields for the debt securities actually held or, in respect of the Canadian operations, is determined by the Appointed Actuary in Canada.

Gains and losses on foreign exchange are deemed to represent short-term fluctuations in investment return and economic assumption changes and thus are excluded from operating profit.

For the year ended 31 December 2011, short-term fluctuations in investment return and economic assumption changes were losses of £139m (2010: gains of £157m). Short-term fluctuations in investment return relate principally to the investment volatility in Canada non-segregated funds, UK annuities and in respect of the Group's subordinated liabilities and assets backing those liabilities.

2.7 Dividends

The Company paid a final dividend of 8.65 pence per share (final 2009: 8.09 pence) totalling £197m in respect of the year ended 31 December 2010 on 27 May 2011 (final 2009: £180m) and an interim dividend of 4.60 pence per share (interim 2010: 4.35 pence) totalling £106m (interim 2010: £98m) in respect of the year ended 31 December 2011 on 18 November 2011.

Subsequent to 31 December 2011, the Directors have proposed a final dividend for the year ended 31 December 2011 of 9.20 pence per ordinary share, £217m in total. The dividend will be paid on 31 May 2012 to shareholders on the Company's register as at 23 March 2012, subject to approval at the Annual General Meeting on 25 May 2012. This dividend will be recorded as an appropriation of retained earnings in the financial statements for the year ended 31 December 2012.

The option to receive dividend entitlement under the Scrip scheme was removed and has been replaced with a dividend reinvestment plan commencing with the final dividend for 2011. Investors who took part in the Scrip scheme received their dividend entitlement in the form of shares rather than cash and the distribution under the Scrip scheme was recorded as an appropriation of retained earnings. Dividends paid during the year ended 31 December 2011 comprise £141m (2010: £92m) settled by the issue of shares under the Scrip scheme and £162m paid in cash (2010: £186m).

2.8 Issued share capital and shares held by trusts

(a) Issued share capital

The movement in the issued ordinary share capital of the Company during the year was:

	2011	2011	2010	2010
	Number	£m	Number	£m
At 1 January	2,283,019,841	228	2,236,292,157	224
Shares issued in lieu of cash dividends	70,138,459	7	44,854,401	4
Shares issued in respect of share incentive plans	507,364	-	566,626	-
Shares issued in respect of share options	158	-	1,305,584	-
Demutualisation shares	-	-	490	-
Shares issued in respect of bonus issue	-	-	583	-
At 31 December	2,353,665,822	235	2,283,019,841	228

During the year ended 31 December 2011, 70,138,459 (2010: 44,854,401) shares have been issued in respect of dividends paid in the period under the Scrip dividend scheme.

The Group operates share incentive plans, allowing employees the opportunity to buy shares from their salary each month. The maximum purchase that an employee can make in any one year is £1,500. The Group offers to match the first £25 of shares bought each month. During the year ended 31 December 2011, the Company allotted 507,364 (2010: 566,626) ordinary shares to Group employees under the share incentive plans.

The Group also operates a Long-term incentive plan (LTIP) for executives and senior management and a Sharesave (Save-as-you-earn) scheme for all eligible employees. During the year ended 31 December 2011, no (2010: 1,305,584) and 158 (2010: nil) ordinary shares were issued on exercise of share options in relation to the LTIP and Sharesave schemes respectively.

The Scheme of Demutualisation sets a 10-year limit, ending in 2016, for those eligible members of The Standard Life Assurance Company (SLAC) who were not allocated shares at the date of demutualisation to claim their entitlements. During the year ended 31 December 2011, no ordinary shares were issued to eligible members in respect of their demutualisation entitlements (2010: 490).

As part of the offer on the demutualisation of SLAC and flotation of Standard Life plc, holders of demutualisation shares, employee shares or shares acquired in the preferential offer who retained their shares for a continuous period of one year from 10 July 2006 were entitled to one bonus share for every 20 shares. Equity holders who were entitled to bonus shares but were not allocated shares on 10 July 2007 had until 10 July 2010 to claim their entitlements. During the year ended 31 December 2010, 583 ordinary shares were issued to equity holders entitled to receive bonus shares.

All ordinary shares in issue in the Company rank pari passu and carry the same voting rights and the same rights to receive dividends and other distributions declared or paid by the Company.

(b) Shares held by trusts

The Employee Share Trust (EST) purchases and holds shares in the Company for delivery to employees under various employee share schemes. Shares purchased by the EST are presented as a deduction from equity in the summary consolidated statement of financial position. Share-based liabilities to employees may also be settled by the issue of new shares.

Shares held by trusts also include shares held by the Unclaimed Asset Trust (UAT). The shares held by the UAT are those not yet claimed by the eligible members of The Standard Life Assurance Company (SLAC) following its demutualisation on 10 July 2006.

Any corresponding obligation to deliver a fixed number of the Company's equity instruments to employees, or eligible members of SLAC, is offset within the shares held by trusts reserve.

The number of shares held by trusts at 31 December 2011 which were not offset by a corresponding obligation to deliver a fixed number of equity instruments was 10,879,286 (2010: 12,209,946).

2.9 Insurance contracts, investment contracts and reinsurance contracts

		2011	2010
		£m	£m
Non-participating insurance contract liabilities		25,048	23,564
Non-participating investment contract liabilities		77,510	75,600
Non-participating contract liabilities		102,558	99,164
Participating insurance contract liabilities		16,509	17,357
Participating investment contract liabilities		15,319	15,329
Unallocated divisible surplus		725	788
Participating contract liabilities		32,553	33,474

2.9 Insurance contracts, investment contracts and reinsurance contracts continued

The movement in insurance contract liabilities, participating investment contract liabilities and reinsurance contracts during the year was as follows:

	Participating insurance contract liabilities	Non-participating insurance contract liabilities	Participating investment contract liabilities	Total insurance and participating contracts	Reinsurance contracts	Net
2011	£m	£m	£m	£m	£m	£m
At 1 January	17,357	23,564	15,329	56,250	(6,962)	49,288
Expected change	(1,014)	(523)	(658)	(2,195)	301	(1,894)
Methodology/modelling changes	(11)	(7)	14	(4)	-	(4)
Effect of changes in:
Economic assumptions	(37)	1,309	176	1,448	(292)	1,156
Non-economic assumptions	4	(245)	15	(226)	385	159
Effect of:
Economic experience	325	595	438	1,358	(23)	1,335
Non-economic experience	38	(507)	(51)	(520)	18	(502)
New business	30	1,013	76	1,119	(6)	1,113
Total change in contract liabilities	(665)	1,635	10	980	383	1,363
Foreign exchange adjustment	(183)	(151)	(20)	(354)	6	(348)
At 31 December	16,509	25,048	15,319	56,876	(6,573)	50,303
Reinsurance assets					(6,818)
Reinsurance liabilities					245
					(6,573)

Due to changes in economic and non-economic factors, certain assumptions used in estimating insurance and investment contract liabilities have been revised. Therefore, the change in liabilities reflects actual performance over the year, changes in assumptions and, to a limited extent, improvements in modelling techniques.

Non-economic assumptions changes of £159m (net of reinsurance) include an increase of £105m (net of reinsurance) in respect of changes in Canadian mortality assumptions. This increase is primarily in respect of a change in mortality improvement rates.

Economic assumptions reflect changes in fixed income yields, leading to lower valuation rates on non-participating business, and other market movements. Economic assumptions also include a decrease in liabilities of £77m as a result of changes, introduced by management, in respect of the long term asset allocation assumptions in Canada.

The movement in insurance contract liabilities, participating investment contract liabilities and reinsurance contracts during 2010 was as follows:

	Participating insurance contract liabilities	Non-participating insurance contract  liabilities	Participating investment contract liabilities	Total insurance and participating contracts	Reinsurance contracts	Net
2010	£m	£m	£m	£m	£m	£m
At 1 January	16,568	22,164	14,993	53,725	(7,032)	46,693
Expected change	(362)	(525)	(546)	(1,433)	307	(1,126)
Methodology/modelling changes	2	(11)	8	(1)	(7)	(8)
Effect of changes in:
Economic assumptions	38	583	2	623	(251)	372
Non-economic assumptions	(34)	(43)	(12)	(89)	54	(35)
Effect of:
Economic experience	1,062	536	769	2,367	(19)	2,348
Non-economic experience	146	(434)	57	(231)	15	(216)
New business	39	816	90	945	(2)	943
Total change in contract liabilities	891	922	368	2,181	97	2,278
Foreign exchange adjustment	(102)	625	(32)	491	(31)	460
Movements attributable to discontinued healthcare operations	-	(147)	-	(147)	4	(143)
At 31 December	17,357	23,564	15,329	56,250	(6,962)	49,288
Reinsurance assets					(6,962)
Reinsurance liabilities					-
					(6,962)

The change in non-participating investment contract liabilities was as follows:

	2011	2010
	£m	£m
At 1 January	75,600	63,728
Contributions	11,904	11,145
Initial charges and reduced allocations	(7)	(9)
Account balances paid on surrender and other terminations in the year	(8,525)	(7,589)
Investment return credited and related benefits	(757)	7,740
Foreign exchange adjustment	(305)	955
Recurring management charges	(400)	(370)
At 31 December	77,510	75,600

The change in the unallocated divisible surplus (UDS) was as follows:

		2011	2010
		£m	£m
At 1 January		788	791
Change in UDS recognised in the income statement		(87)	(22)
Change in UDS not recognised in the income statement		(11)	2
Foreign exchange adjustment		35	17
At 31 December		725	788

2.10 Defined benefit and defined contribution plans

(a) Analysis of amounts recognised in the summary consolidated income statement

The amounts recognised in the summary consolidated income statement for defined contribution and defined benefit schemes are as follows:

		2011	2010
		£m	£m
Current service cost		(60)	(67)
Interest cost on benefit obligation		(107)	(110)
Expected return on plan assets		136	119
Past service cost		64	59
Credit recognised in the summary consolidated income statement		33	1

In 2011, a credit from past service costs of £64m (2010: £59m) was recognised as a result of a change in the basis of future pension discretionary increases in the UK staff pension scheme.

(b) Analysis of amounts recognised in the summary consolidated statement of financial position

The present value of the defined benefit obligation less the fair value of gross scheme assets is as follows:

		2011				2010
	UK	Canada	Ireland	Total	UK	Canada	Ireland	Total
	£m	£m	£m	£m	£m	£m	£m	£m
Present value of funded obligation	(1,972)	(215)	(54)	(2,241)	(1,724)	(175)	(51)	(1,950)
Present value of unfunded obligation	-	(68)	-	(68)	-	(56)	-	(56)
Fair value of plan assets	2,519	179	58	2,756	2,005	175	48	2,228
Adjustment for unrecognised past service costs	-	(5)	-	(5)	-	(6)	-	(6)
Surplus not recognised	(209)	-	-	(209)	-	-	-	-
Net asset/(liability) in the summary consolidated statement of financial position	338	(109)	4	233	281	(62)	(3)	216

Under the guidance contained in IFRIC 14 IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction, when measuring the defined benefit asset, £209m (2010: £nil) of the surplus is not considered recoverable.

2.10 Defined benefit and defined contribution plans continued

(b) Analysis of amounts recognised in the summary consolidated statement of financial position continued

The Group also recognises a net liability of £6m (2010: £6m) arising from a scheme with a total defined benefit obligation of £6m (2010: £6m) administered for the benefit of employees in Germany, resulting in a net asset of £227m (2010: £210m). The summary consolidated statement of financial position presents any net scheme assets within other assets and any net scheme liabilities within other liabilities.

(c) Principal assumptions

The principal economic assumptions used in determining pension benefit obligation for the Group's plans are as follows:

		2011			2010
	UK	Canada	Ireland	UK	Canada	Ireland
	%	%	%	%	%	%
Rate of increase in salaries	4.45-5.45	3.50	3.50	4.65-5.65	3.50	3.50
Rate of increase in pensions	2.85	1.33	1.00	3.05-3.65	1.33	1.00
Discount rate	4.60	4.50	5.10	5.30	5.50	5.25
Inflation assumption	2.85-3.45	2.00	2.00	3.05-3.65	2.00	2.00
Expected return on plan assets	5.45	5.75	4.00	6.15	7.00	5.00

2.11 Contingent liabilities, indemnities and guarantees

(a) Legal proceedings and regulations

The Group, like other financial organisations, is subject to legal proceedings and complaints in the normal course of its business. While it is not practicable to forecast or determine the final results of all pending or threatened legal proceedings, the Directors do not believe that such proceedings (including litigation) will have a material effect on the results and financial position of the Group.

The Group is subject to insurance solvency regulations in all the territories in which it issues insurance and investment contracts, and it has complied in material respects with local solvency and other regulations. Therefore, there are no contingencies in respect of these regulations.

(b) Issued share capital

The Scheme of Demutualisation sets a 10-year time limit, ending in 2016, for those eligible members of The Standard Life Assurance Company who were not allocated shares at the date of demutualisation to claim their entitlements. As future issues of these shares are dependent upon the actions of eligible members, it is not practical to estimate the financial effect of this potential obligation.

(c) Other

In the ordinary course of business, Standard Life Trust Company (SLTC) enters into agreements which contain guarantee provisions for clearing system arrangements related to investment activities. Under such arrangements, the company, together with other participants in the clearing systems, may be required to guarantee certain obligations of a defaulting member. The guarantee provisions and amounts vary based upon the agreement. The company cannot estimate the amount, if any, that may be payable upon default. To facilitate its participation in the clearing system, SLTC has provided as security a bank credit facility up to a maximum of CA$84m.

2.12 Commitments

(a) Capital commitments

As at 31 December 2011, £275m (2010: £251m) was contractually committed to the acquisition of investment properties. Of this amount, £248m (2010: £239m) and £27m (2010: £12m) relates to the contractual obligations to purchase, construct or develop investment property and repair, maintain or enhance investment property respectively.

(b) Unrecognised financial instruments

As at 31 December 2011, the Group had committed the following unrecognised financial instruments to customers and third parties:

		2011	2010
		£m	£m
Commitments to extend credit:
Original term to maturity of one year or less		109	51
Original term to maturity of more than one year		3	7
Other commitments		273	335

Included in other commitments is £257m (2010: £315m) committed by certain subsidiaries which are not fully owned by the Group. These commitments are funded through (contractually agreed) additional investments in the subsidiary by the Group and the non-controlling interests. The levels of funding are not necessarily in line with the relevant percentage holdings.

(c) Operating lease commitments

The Group has entered into commercial non-cancellable leases on certain property, plant and equipment where it is not in the best interest of the Group to purchase these assets. Such leases have varying terms, escalation clauses and renewal rights.

The future aggregate minimum lease payments under non-cancellable operating leases are as follows:

		2011	2010
		£m	£m
Not later than one year		29	26
Later than one year and no later than five years		93	55
Later than five years		120	129
Total operating lease commitments		242	210

2.13 Related party transactions

(a) Transactions with/from related parties

Transactions with related parties carried out by the Group were as follows:

	2011	2010
	£m	£m
Sale to:
Associates	8,397	17,340
Joint ventures	51	32
	8,448	17,372
Purchase from:
Associates	8,993	18,052
Joint ventures	24	19
	9,017	18,071

Transactions with associates presented above relate primarily to the sales and purchases of holdings in investment funds managed by the Group.

In addition to the amounts shown above, the Group's defined benefit pension schemes have assets of £739m (2010: £655m) invested in investment vehicles managed by the Group.

(b) Transactions with key management personnel and their close family members

All transactions between key management personnel and their close family members and the Group are on commercial terms which are equivalent to those available to all employees of the Group.

During the year ended 31 December 2011, key management personnel and their close family members contributed £4.4m (2010: £1.9m) to products sold by the Group.

2.14 Capital statement

The Group's capital position is analysed between UK regulated life business, overseas life operations and other activities. The UK regulated life business is analysed by the nature of the underlying funds and includes German and Irish business written by branches of UK regulated companies. Other activities comprise investment management and group corporate centre. The Group's capital position, based on draft regulatory returns, is set out below:

	UK regulated life business
	Heritage With Profits Fund1	Proprietary business funds	Life business equity holders' funds	Total UK regulated life business	Overseas life operations	Total life business	Other activities	Group total
2011	£m	£m	£m	£m	£m	£m	£m	£m
Available capital resources
Equity holders' funds
Held outside life assurance funds	-	-	849	849	1,176	2,025	1,029	3,054
Held within life assurance funds	-	907	-	907	-	907	-	907
Equity attributable to ordinary equity holders of Standard Life plc	-	907	849	1,756	1,176	2,932	1,029	3,961
Unallocated divisible surplus	725	-	-	725	-	725	-	725
Other sources of capital
Subordinated liabilities	-	-	-	-	-	-	1,186	1,186
Internal subordinated liabilities	-	-	1,186	1,186	253	1,439	(1,439)	-
	-	-	1,186	1,186	253	1,439	(253)	1,186
Adjustments onto regulatory basis
Changes to the valuation of contract liabilities	3,409	2	-	3,411	-	3,411	-	3,411
Exclusion of deferred acquisition costs and other inadmissible assets	(89)	(657)	(62)	(808)	(92)	(900)	(96)	(996)
Exclusion of deferred income	98	248	-	346	(1)	345	-	345
Exclusion of non-qualifying subordinated liabilities	-	-	(54)	(54)	-	(54)	-	(54)
Changes to the valuation of other assets and liabilities	(22)	(311)	(232)	(565)	58	(507)	253	(254)
	3,396	(718)	(348)	2,330	(35)	2,295	157	2,452
Total available capital resources to meet regulatory requirement	4,121	189	1,687	5,997	1,394	7,391	933	8,324
Analysed as follows:
Capital not subject to constraints	-	-	1,637	1,637	375	2,012	850	2,862
Capital subject to constraints	4,121	189	50	4,360	1,019	5,379	83	5,462
Total available capital resources	4,121	189	1,687	5,997	1,394	7,391	933	8,324
Restricted assets within the long-term business fund								(999)
Regulatory capital resources								7,325
Regulatory capital resources requirement				3,426	776	4,202	37	4,239
Regulatory capital surplus								3,086

¹    Capital resources amounting to £38m in respect of other with profits funds are disclosed within the Heritage With Profits Fund (HWPF) column.

	UK regulated life business
	Heritage With Profits Fund1	Proprietary business funds	Life business equity holders' funds	Total UK regulated life business	Overseas life operations	Total life business	Other activities2	Group total
2010	£m	£m	£m	£m	£m	£m	£m	£m
Available capital resources
Equity holders' funds
Held outside life assurance funds	-	-	1,008	1,008	1,220	2,228	796	3,024
Held within life assurance funds	-	879	-	879	-	879	-	879
Equity attributable to ordinary equity holders of Standard Life plc	-	879	1,008	1,887	1,220	3,107	796	3,903
Unallocated divisible surplus	788	-	-	788	-	788	-	788
Other sources of capital
Subordinated liabilities	-	-	-	-	-	-	1,799	1,799
Internal subordinated liabilities	-	-	1,799	1,799	257	2,056	(2,056)	-
	-	-	1,799	1,799	257	2,056	(257)	1,799
Adjustments onto regulatory basis
Changes to the valuation of contract liabilities	3,262	(2)	-	3,260	(80)	3,180	-	3,180
Exclusion of deferred acquisition costs and other inadmissible assets	(122)	(528)	(326)	(976)	(111)	(1,087)	(43)	(1,130)
Exclusion of deferred income	114	231	-	345	(1)	344	-	344
Changes to the valuation of other assets and liabilities	(11)	(259)	(120)	(390)	128	(262)	208	(54)
	3,243	(558)	(446)	2,239	(64)	2,175	165	2,340
Total available capital resources to meet regulatory requirement	4,031	321	2,361	6,713	1,413	8,126	704	8,830
Analysed as follows:
Capital not subject to constraints	-	-	2,336	2,336	577	2,913	623	3,536
Capital subject to constraints	4,031	321	25	4,377	836	5,213	81	5,294
Total available capital resources	4,031	321	2,361	6,713	1,413	8,126	704	8,830
Restricted assets within the long-term business fund								(1,357)
Regulatory capital resources								7,473
Regulatory capital resources requirement				2,910	709	3,619	33	3,652
Regulatory capital surplus								3,821

¹      Capital resources amounting to £34m in respect of other with profits funds are disclosed within the Heritage With Profits Fund column.

²      The Group's healthcare business, Standard Life Healthcare Limited, was sold on 31 July 2010 and its capital resources are not, therefore, included in the analysis.

2.14 Capital statement continued 

Movements in capital

The movements in the total capital resources shown in the capital statement are set out below. 

	UK regulated life business
	Heritage With Profits Fund	Proprietary business funds	Life business equity holders funds	Total UK regulated life business	Overseas life operations	Total life business	Other activities	Group total
2011	£m	£m	£m	£m	£m	£m	£m	£m
At 1 January	4,031	321	2,361	6,713	1,413	8,126	704	8,830
Methodology/modelling changes	(79)	(1)	-	(80)	-	(80)	-	(80)
Change in assumptions used to measure life assurance contract liabilities and experience differences	(24)	3	-	(21)	(218)	(239)	-	(239)
New business	(11)	(121)	-	(132)	(20)	(152)	-	(152)
Investment surplus	913	(87)	71	897	162	1,059	-	1,059
Equity holder/inter-fund transfers	(68)	68	9	9	29	38	(38)	-
Dividend transfers	-	-	(300)	(300)	(110)	(410)	248	(162)
Redemption of subordinated liabilities	-	-	(604)	(604)	-	(604)	-	(604)
Other factors	(641)	6	150	(485)	138	(347)	19	(328)
At 31 December	4,121	189	1,687	5,997	1,394	7,391	933	8,324

Change in assumptions used to measure life assurance contract liabilities and experience differences includes a decrease to capital resources as a result of changes in Canadian mortality assumptions. This is primarily due to a change in mortality improvement rates.

Redemption of subordinated liabilities relates to the repurchase of a portion of the Euro denominated subordinated guaranteed bonds and details are provided in Note 2.17 - Subordinated liabilities. Under Financial Services Authority (FSA) requirements, the €63m of the bonds that remain outstanding, do not qualify as capital resources and are shown as a movement in other factors.

Equity holder/inter-fund transfers include the transfer of £68m (2010: £71m) from the HWPF to the Proprietary Business Funds (PBF) in relation to additional expenses charged on German unitised with profits business.

	UK regulated life business
	Heritage With Profits Fund	Proprietary business funds	Life business equity holders funds	Total UK regulated life business	Overseas life operations	Total life business	Other activities	Group total
2010	£m	£m	£m	£m	£m	£m	£m	£m
At 1 January	1,655	258	3,379	5,292	1,204	6,496	550	7,046
Methodology/modelling changes	675	4	-	679	(47)	632	-	632
Change in assumptions used to measure life assurance contract liabilities and experience differences	(56)	8	-	(48)	(6)	(54)	-	(54)
New business	(16)	(138)	-	(154)	(26)	(180)	-	(180)
Investment surplus	2,415	87	5	2,507	98	2,605	-	2,605
Equity holder/inter-fund transfers	(71)	71	-	-	32	32	(32)	-
Dividend transfers	-	-	(205)	(205)	-	(205)	19	(186)
Other factors	(571)	31	(818)	(1,358)	158	(1,200)	167	(1,033)
At 31 December	4,031	321	2,361	6,713	1,413	8,126	704	8,830

UK regulated life business

Standard Life Assurance Limited's (SLAL) regulatory solvency position is determined using the FSA's 'twin peaks' approach, which requires liabilities to be valued on both a realistic and a regulatory basis. The realistic basis removes some of the margins for prudence included in calculations under the regulatory basis. However, it requires discretionary benefits that are not considered under the regulatory basis, such as final bonuses, to be valued. The extent to which the realistic peak is more onerous than the regulatory peak increases the amount of the Capital Resources Requirements (CRR).

Based on draft regulatory returns at 31 December 2011, SLAL had available capital resources of £6.0bn (2010: £6.7bn) and a CRR of £3.4bn (2010: £2.9bn). The capital resources shown in the capital statement are based on the value of assets and liabilities valued on a regulatory basis. However, the CRR reflects the higher value required as a result of the application of the realistic peak.

Capital subject to constraints for the UK regulated life business of £4.4bn at 31 December 2011 (2010: £4.4bn) represents capital resources held within long-term business funds, or in relation to other regulated entities, the amount of the CRR.

Overseas life operations

Capital resources of £1,394m (2010: £1,413m), which relate mainly to operations in Canada, also include operations in Asia. The Canadian regulator sets the minimum required capital. It also requires certain assets to be held in trust to increase policyholder protection (vested assets). As a result of the combination of the capital requirement and vested assets, the overseas life capital subject to constraints amounted to £1,019m at 31 December 2011 (2010: £836m).

Other activities

At 31 December 2011, capital resources of £933m (2010: £704m) and capital subject to constraints of £83m (2010: £81m) relate to the Group's investment management businesses and group corporate centre activities. 

Intra-group transactions

The Group, through subsidiaries and joint ventures, provides insurance and other financial services in the UK, Canada, Hong Kong, India and China. Through branches, the Group also provides such services in Ireland and Germany. With the exception of the requirements of the Scheme and the intra-group subordinated debt referred to below and the capital support mechanisms, there are no formal arrangements to provide capital to particular funds or business units. Any allocations of capital would need to be approved on a case-by-case basis by the Board.

SLAL has issued subordinated loans to the Company, which SLAL treats as capital for regulatory purposes. The Standard Life Assurance Company of Canada has issued subordinated liabilities of £253m (2010: £257m) to the Company. During the year ended 31 December 2010, Standard Life Investments Limited repaid the subordinated liabilities of £15m that it had issued. At Group level only subordinated liabilities issued to external parties are included in the Group's capital resources.

In preparation for the implementation of Solvency 2, the business of Standard Life Investment Funds Limited was transferred to SLAL on 31 December 2011. The current Group capital position has not been significantly impacted.

Group capital requirement

The Group must also calculate a group regulatory capital position under the Insurance Groups Directive (IGD). The IGD calculation is a prudent aggregate value for the Group's capital resources. The capital held within the long-term business funds of approximately £4.4bn (2010: £4.4bn) is restricted to the level of the CRR of those funds of approximately £3.4bn (2010: £2.9bn). Therefore, the Group recognises no net surplus in respect of capital within the long-term business funds.

On an IGD basis, the estimated regulatory capital position at 31 December 2011 is a surplus of £3.1bn (2010: £3.8bn). The reduction in the estimated regulatory capital surplus is predominantly due to the repurchase of a portion of the Euro denominated subordinated guaranteed bonds.

In respect of the Group's IGD regulatory reporting there were no breaches of regulatory capital requirements at any time during the year.

2.15 Business combinations

On 11 January 2011, the Group purchased the entire issued and to be issued share capital of Focus Solutions Group plc (Focus). On 17 May 2011, Focus delisted its ordinary shares from trading and was re-registered as a private limited company, Focus Solutions Group Limited. Focus is a provider of software and consultancy solutions to the financial services industry, enabling its clients to automate the delivery of financial products and services to their customers across multiple distribution channels in a rapid and efficient manner. Continued investment in innovative technology is central to the delivery of the Group's accelerated growth strategy. The acquisition will enable the development of new and existing propositions, enhancing the customer experience and driving greater efficiencies. The consideration, acquisition date final fair value of net assets acquired and resulting goodwill are as follows:

		£m
Purchase consideration
Cash paid		42
Loan notes issued		7
Total purchase consideration		49
Fair value of net assets acquired:
Intangible assets		22
Other assets		8
Cash and cash equivalents		1
Deferred tax assets		3
Other creditors		(6)
Deferred tax liabilities		(5)
		23
Goodwill		26

2.15 Business combinations continued

The goodwill is attributable to the workforce of the acquired business and its growth prospects as well as the significant synergies expected to arise as a result of the acquisition. None of the goodwill recognised is expected to be deductible for income tax purposes.

The amount of revenue and profit included in the consolidated income statement for the year ended 31 December 2011 contributed by Focus was £16m and £1m respectively.

2.16 Investments in associates and joint ventures

During the year ended 31 December 2011, two sub-funds of Standard Life Investments (Global Liquidity Funds) plc (GLF), the Sterling Liquidity Fund and Euro Liquidity Fund, were restructured. The majority of the external holding in these funds transferred to a third party. The remaining assets were transferred into two new GLF sub-funds being the GBP VNAV Liquidity Fund and the Euro VNAV Liquidity Fund, which are subsidiaries of the Group. As a result of the restructure, the GLF sub-funds are no longer associates of the Group.

The newly created sub-funds have been consolidated on a line by line basis in the Group's results for 31 December 2011. The significant impact of this change has been to decrease the Group's investments in associates and joint ventures by £2,775m and increase cash and cash equivalents, investment securities and third party interest in consolidated funds.

2.17 Subordinated liabilities

Included in subordinated liabilities at 31 December 2010 was €750,000,000 (£660,000,000) Euro denominated 6.375% fixed/floating rate subordinated guaranteed bonds due 2022 (the Bonds). On 12 September 2011, the Company announced that it had agreed to purchase €687,220,000 of the Bonds at a purchase price of €10,200 per €10,000. After settlement on 14 September 2011, and at 31 December 2011, €62,780,000 in aggregate principal amount of the Bonds remain outstanding. The maturity date for the remaining Euro denominated bonds is 12 July 2022 and all outstanding obligations under the instruments become immediately due and payable on this date.

2.18 Events after the reporting period

A judgment handed down on 1 February 2012 in the Commercial Court in London found in favour of Standard Life Assurance Limited in its claim of approximately £100m against the insurers of its 2008/2009 professional indemnity policy in relation to the Standard Life Pension Sterling Fund. The insurers are appealing the judgment and the appeal is unlikely to be heard before autumn 2012. No recoveries in respect of the claim are recognised in the consolidated income statement for the year ended 31 December 2011. The recognition of the benefit of any recoveries in respect of the claim in the consolidated income statement will depend on the timing and outcome of the appeal.

 

END

 

 

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