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


7


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)


(5)


23


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.


 


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