Half-year Report - Part 3 of 4

RNS Number : 6016G

Standard Life plc

09 August 2016

Standard Life plc

Half year results 2016

Part 3 of 4

2. Statement of Directors' responsibilities

Each of the Directors, whose names and functions are listed on the Standard Life plc website, www.standardlife.com, confirms to the best of his or her knowledge and belief that:

1. The International Financial Reporting Standards (IFRS) condensed consolidated income statement, the IFRS condensed consolidated statement of comprehensive income, the IFRS condensed consolidated statement of financial position, the IFRS condensed consolidated statement of changes in equity and the IFRS condensed consolidated statement of cash flows and associated notes, have been prepared in accordance with IAS 34 Interim Financial Reporting as endorsed by the European Union.

2. The Management report includes a fair review of the information required by DTR 4.2.7R, namely important events that have occurred during the period and their impact on the IFRS condensed consolidated financial information, as well as a description of the principal risks and uncertainties faced by the Company and the undertakings included in the consolidation taken as a whole for the remaining six months of the financial year.

3. The Management report and the notes to the IFRS condensed consolidated financial information include a fair review of the information required by DTR 4.2.8R, namely material related party transactions that have occurred during the period and any material changes in the related party transactions described in the last Annual report.

4. As per provision C1 of the UK Corporate Governance Code, the Half year results 2016 taken as a whole, present a fair, balanced and understandable position of the Company's prospects.

Changes to Directors

Crawford Gillies retired as a non-executive Director at the conclusion of the Company's Annual General Meeting on 17 May 2016. Isabel Hudson resigned as a non-executive Director on 24 June 2016 and John Devine was appointed as a non-executive Director on 4 July 2016.

By order of the Board

Sir Gerry Grimstone

Chairman

9 August 2016

Luke Savage

Chief Financial Officer

9 August 2016

3. Independent review report to Standard Life plc

Report on the IFRS condensed

consolidated financial information

Our conclusion

We have reviewed Standard Life plc's IFRS condensed consolidated financial information (the 'interim financial statements') in the Half year results of Standard Life plc for the six month period ended 30 June 2016. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, Interim Financial Reporting, as adopted by the European Union and the Disclosure Rules and Transparency Rules of the United Kingdom's Financial Conduct Authority.

What we have reviewed

The interim financial statements comprise:

· The IFRS condensed consolidated statement of financial position as at 30 June 2016

· The IFRS condensed consolidated income statement and IFRS condensed consolidated statement of comprehensive income for the period then ended

· The IFRS condensed consolidated statement of cash flows for the period then ended

· The IFRS condensed consolidated statement of changes in equity for the period then ended

· The explanatory notes to the interim financial statements

The interim financial statements included in the Half year results have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting, as adopted by the European Union and the Disclosure Rules and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in Note 4.1 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

Responsibilities for the interim financial statements and the review

Our responsibilities and those of the Directors

The Half year results, including the interim financial statements, are the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the Half year results in accordance with the Disclosure Rules and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Our responsibility is to express a conclusion on the interim financial statements in the Half year results based on our review. This report, including the conclusion, has been prepared for and only for the Company for the purpose of complying with the Disclosure Rules and Transparency Rules of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

What a review of interim financial statements involves

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We have read the other information contained in the Half year results and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

PricewaterhouseCoopers LLP

Chartered Accountants

Edinburgh

9 August 2016

Notes

a) The maintenance and integrity of the Standard Life plc website is the responsibility of the Directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the interim financial statements since they were initially presented on the website.

b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

4. Financial information

IFRS condensed consolidated income statement

For the six months ended 30 June 2016

		6 months 2016	6 months 2015	Full year 2015
	Notes	£m	£m	£m
Revenue
Gross earned premium		1,080	1,162	2,276
Premium ceded to reinsurers		(25)	(27)	(48)
Net earned premium		1,055	1,135	2,228
Investment return		6,031	3,956	5,460
Fee income		575	540	1,120
Other income		38	37	84
Total revenue		7,699	5,668	8,892
Expenses
Claims and benefits paid		2,250	2,254	4,543
Claim recoveries from reinsurers		(249)	(260)	(514)
Net insurance benefits and claims		2,001	1,994	4,029
Change in reinsurance assets and liabilities		(61)	296	520
Change in insurance and participating contract liabilities		2,941	(814)	(1,693)
Change in unallocated divisible surplus		82	(134)	(117)
Change in non-participating investment contract liabilities		1,560	2,877	3,363
Expenses under arrangements with reinsurers		361	(13)	42
Administrative expenses
Restructuring and corporate transaction expenses	4.4	31	48	88
Other administrative expenses		723	792	1,540
Total administrative expenses	4.4	754	840	1,628
Change in liability for third party interest in consolidated funds		(385)	396	531
Finance costs		41	40	83
Total expenses		7,294	5,482	8,386
Share of profit from associates and joint ventures		32	24	43
Profit before tax		437	210	549
Tax expense attributable to policyholders' returns	4.5	148	89	134
Profit before tax expense attributable to equity holders' profits		289	121	415
Total tax expense	4.5	197	107	211
Less: Tax attributable to policyholders' returns	4.5	(148)	(89)	(134)
Tax expense attributable to equity holders' profits	4.5	49	18	77
Profit for the period from continuing operations		240	103	338
Profit for the period from discontinued operations		-	1,142	1,147
Profit for the period		240	1,245	1,485
Attributable to:
Equity holders of Standard Life plc
From continuing operations		226	69	276
From discontinued operations		-	1,142	1,147
Equity holders of Standard Life plc		226	1,211	1,423
Non-controlling interests		14	34	62
		240	1,245	1,485
Earnings per share from continuing operations
Basic (pence per share)	4.6	11.5	3.2	13.5
Diluted (pence per share)	4.6	11.4	3.2	13.4

Earnings per share
Basic (pence per share)	4.6	11.5	56.7	69.4
Diluted (pence per share)	4.6	11.4	56.6	69.1

The Notes on pages 32 to 64 are an integral part of this IFRS condensed consolidated financial information.

IFRS condensed consolidated statement of comprehensive income

For the six months ended 30 June 2016

		6 months 2016	6 months 2015	Full year 2015
	Notes	£m	£m	£m
Profit for the period		240	1,245	1,485
Less: Profit for the period from discontinued operations		-	(1,142)	(1,147)
Profit for the period from continuing operations		240	103	338
Items that will not be reclassified subsequently to profit or loss:
Remeasurement gains on defined benefit pension plans		209	70	167
Revaluation of owner occupied property		5	-	4
Equity movements transferred to unallocated divisible surplus		(5)	-	(4)
Total items that will not be reclassified subsequently to profit or loss		209	70	167

Items that may be reclassified subsequently to profit or loss:
Fair value losses on cash flow hedges		(1)	-	(1)
Net investment hedge		-	-	(1)
Fair value gains/(losses) on available-for-sale financial assets		14	(6)	(8)
Exchange differences on translating foreign operations		101	(46)	(6)
Equity movements transferred to unallocated divisible surplus		(38)	21	1
Share of other comprehensive (expense)/income of joint ventures		(4)	-	2
Equity holder tax effect relating to items that may be reclassified subsequently to profit or loss	4.5	(3)	1	2
Total items that may be reclassified subsequently to profit or loss		69	(30)	(11)
Other comprehensive income for the period from continuing operations		278	40	156
Other comprehensive income for the period from discontinued operations		-	(187)	(187)
Total other comprehensive income for the period		278	(147)	(31)
Profit for the period from discontinued operations		-	1,142	1,147
Total comprehensive income for the period		518	1,098	1,454

Attributable to:
Equity holders of Standard Life plc
From continuing operations		504	109	432
From discontinued operations		-	955	960
Non-controlling interests
From continuing operations		14	34	62
		518	1,098	1,454

The Notes on pages 32 to 64 are an integral part of this IFRS condensed consolidated financial information.

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

For the six months ended 30 June 2016

			6 months 2015			Full year 2015
		6 months 2016	Continuing operations	Discontinued operations	Total	Continuing operations	Discontinued operations	Total
	Notes	£m	£m	£m	£m	£m	£m	£m
Operating profit/(loss) before tax
Standard Life Investments		176	154	-	154	342	-	342
Pensions and Savings¹		169	147	-	147	357	-	357
India and China²		19	21	(2)	19	27	(2)	25
Other		(23)	(32)	-	(32)	(61)	-	(61)
Canada		-	-	5	5	-	5	5
Operating profit before tax	4.3	341	290	3	293	665	3	668
Adjusted for the following items
Short-term fluctuations in investment return and economic assumption changes		(17)	(42)	63	21	(63)	63	-
Restructuring and corporate transaction expenses		(36)	(62)	(8)	(70)	(115)	(10)	(125)
Impairment of intangible assets		-	-	(2)	(2)	(7)	(2)	(9)
Gain on sale of Canadian business		-	-	1,097	1,097	-	1,102	1,102
Other		(8)	(54)	(31)	(85)	(72)	(31)	(103)
Total non-operating items	4.3	(61)	(158)	1,119	961	(257)	1,122	865
Singapore included in discontinued operations segment²	4.3	-	(40)	40	-	(42)	42	-
Share of associates' and joint ventures' tax expense	4.3	(5)	(5)	-	(5)	(13)	-	(13)
Profit attributable to non-controlling interests	4.3	14	34	-	34	62	-	62
Profit before tax expense attributable to equity holders' profits		289	121	1,162	1,283	415	1,167	1,582
Tax (expense)/credit attributable to
Operating profit	4.3	(69)	(37)	-	(37)	(114)	-	(114)
Non-operating items	4.3	20	19	(20)	(1)	37	(20)	17
Singapore included in discontinued operations segment²	4.3	-	-	-	-	-	-	-
Total tax expense attributable to equity holders' profits		(49)	(18)	(20)	(38)	(77)	(20)	(97)
Profit for the period		240	103	1,142	1,245	338	1,147	1,485

¹UK and Europe has been renamed as Pensions and Savings.

² Singapore business, the closure of which was announced in June 2015, was included as a discontinued operation for segmental reporting purposes under IFRS 8 as this is reflective of the presentation of information provided to the Chief Operating Decision Maker. This was previously included in the Asia and Emerging Markets segment which has been renamed India and China. Under IFRS 5, Singapore did not constitute a discontinued operation and was included under continuing operations in the IFRS condensed consolidated income statement. Therefore the pro forma reconciliation above includes the reclassification of Singapore results between discontinued and continuing operations.

The Group's key alternative performance measure is operating profit. Refer to Note 4.7 for further details.

The Notes on pages 32 to 64 are an integral part of this IFRS condensed consolidated financial information.

IFRS condensed consolidated statement of financial position

As at 30 June 2016

		30 June 2016	30 June 2015	31 December 2015
	Notes	£m	£m	£m
Assets
Intangible assets		557	570	566
Deferred acquisition costs		666	663	646
Investments in associates and joint ventures		7,481	4,795	5,719
Investment property	4.12	10,919	9,584	9,991
Property, plant and equipment		91	175	91
Pension and other post-retirement benefit assets	4.11	1,110	820	897
Deferred tax assets		36	31	35
Reinsurance assets		5,583	5,736	5,515
Loans	4.12	468	791	811
Derivative financial assets	4.12	4,685	2,642	2,444
Equity securities and interests in pooled investment funds	4.12	70,862	73,033	71,679
Debt securities	4.12	72,128	64,610	66,657
Receivables and other financial assets	4.12	3,806	1,544	1,447
Current tax recoverable		202	239	168
Other assets		92	104	89
Assets held for sale	4.12	188	975	327
Cash and cash equivalents	4.12	9,171	10,588	9,640
Total assets		188,045	176,900	176,722
Equity
Share capital	4.9	241	241	241
Shares held by trusts	4.9	(3)	(2)	(6)
Share premium reserve	4.9	629	627	628
Retained earnings		2,852	1,955	2,162
Other reserves		557	957	977
Equity attributable to equity holders of Standard Life plc		4,276	3,778	4,002
Non-controlling interests		276	344	347
Total equity		4,552	4,122	4,349
Liabilities
Non-participating insurance contract liabilities	4.10	22,849	21,528	21,206
Non-participating investment contract liabilities		95,738	91,589	92,894
Participating contract liabilities	4.10	32,390	29,784	29,654
Deposits received from reinsurers		5,178	5,359	5,134
Third party interest in consolidated funds	4.13	16,376	16,607	17,196
Subordinated liabilities		1,326	1,325	1,318
Pension and other post-retirement benefit provisions	4.11	38	40	33
Deferred income		220	254	236
Deferred tax liabilities		202	223	205
Current tax liabilities		192	105	113
Derivative financial liabilities		3,706	858	1,254
Other financial liabilities		5,145	4,092	2,900
Other liabilities		133	117	147
Liabilities of operations held for sale		-	897	83
Total liabilities		183,493	172,778	172,373
Total equity and liabilities		188,045	176,900	176,722

The Notes on pages 32 to 64 are an integral part of this IFRS condensed consolidated financial information.

IFRS condensed consolidated statement of changes in equity

For the six months ended 30 June 2016

		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
2016	Notes	£m	£m	£m	£m	£m	£m	£m	£m
1 January		241	(6)	628	2,162	977	4,002	347	4,349
Profit for the period		-	-	-	226	-	226	14	240
Other comprehensive income for the period		-	-	-	205	73	278	-	278
Total comprehensive income for the period		-	-	-	431	73	504	14	518
Dividends paid on ordinary shares	4.8	-	-	-	(243)	-	(243)	-	(243)
Issue of share capital	4.9	-	-	1	-	-	1	-	1
Reserves credit for employee share-based payment schemes		-	-	-	-	16	16	-	16
Transfer to retained earnings for vested employee share-based payment schemes		-	-	-	18	(18)	-	-	-
Shares acquired by employee trusts		-	(2)	-	-	-	(2)	-	(2)
Shares distributed or sold by employee and other trusts		-	5	-	(5)	-	-	-	-
Cancellation of capital redemption reserve	4.9	-	-	-	488	(488)	-	-	-
Other movements in non-controlling interests in the period		-	-	-	-	-	-	(85)	(85)
Aggregate tax effect of items recognised directly in equity	4.5	-	-	-	1	(3)	(2)	-	(2)
30 June		241	(3)	629	2,852	557	4,276	276	4,552

		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
2015	Notes	£m	£m	£m	£m	£m	£m	£m	£m
1 January		239	1	1,115	1,816	1,501	4,672	278	4,950
Profit for the period from continuing operations		-	-	-	69	-	69	34	103
Profit for the period from discontinued operations		-	-	-	1,142	-	1,142	-	1,142
Other comprehensive income for the period from continuing operations		-	-	-	70	(30)	40	-	40
Other comprehensive income/(expense) for the period from discontinued operations		-	-	-	(14)	(173)	(187)	-	(187)
Total comprehensive income for the period		-	-	-	1,267	(203)	1,064	34	1,098
Dividends paid on ordinary shares	4.8	-	-	-	(224)	-	(224)	-	(224)
Issue of share capital	4.9	2	-	-	-	-	2	-	2
Issue of 'B' shares	4.9	488	-	(488)	-	-	-	-	-
Issue of 'C' shares	4.9	-	-	-	-	-	-	-	-
Redemption of 'B' shares	4.9	(488)	-	-	(488)	488	(488)	-	(488)
Dividends paid on 'C' shares	4.9	-	-	-	(1,261)	-	(1,261)	-	(1,261)
Purchase of 'C' shares	4.9	-	-	-	-	-	-	-	-
Dividends due on unclaimed shares not held in the Unclaimed Asset Trust		-	-	-	(2)	-	(2)	-	(2)
Reserves credit for employee share-based payment schemes		-	-	-	-	18	18	-	18
Transfer to retained earnings for vested employee share-based payment schemes		-	-	-	20	(20)	-	-	-
Transfer between reserves on disposal of subsidiaries		-	-	-	827	(827)	-	-	-
Shares acquired by employee trusts		-	(5)	-	-	-	(5)	-	(5)
Shares distributed or sold by employee and other trusts		-	2	-	(2)	-	-	-	-
Other movements in non-controlling interests in the period		-	-	-	-	-	-	32	32
Aggregate tax effect of items recognised directly in equity	4.5	-	-	-	2	-	2	-	2
30 June		241	(2)	627	1,955	957	3,778	344	4,122

		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
2015	Notes	£m	£m	£m	£m	£m	£m	£m	£m
1 January		239	1	1,115	1,816	1,501	4,672	278	4,950
Profit for the year from continuing operations		-	-	-	276	-	276	62	338
Profit for the year from discontinued operations		-	-	-	1,147	-	1,147	-	1,147
Other comprehensive income for the year from continuing operations		-	-	-	169	(13)	156	-	156
Other comprehensive income/(expense) for the year from discontinued operations		-	-	-	(14)	(173)	(187)	-	(187)
Total comprehensive income for the year		-	-	-	1,578	(186)	1,392	62	1,454
Dividends paid on ordinary shares	4.8	-	-	-	(343)	-	(343)	-	(343)
Issue of share capital	4.9	2	-	1	-	-	3	-	3
Issue of 'B' shares	4.9	488	-	(488)	-	-	-	-	-
Issue of 'C' shares	4.9	-	-	-	-	-	-	-	-
Redemption of 'B' shares	4.9	(488)	-	-	(488)	488	(488)	-	(488)
Dividends paid on 'C' shares	4.9	-	-	-	(1,261)	-	(1,261)	-	(1,261)
Purchase of 'C' shares	4.9	-	-	-	-	-	-	-	-
Dividends due on unclaimed shares not held in the Unclaimed Asset Trust		-	-	-	(2)	-	(2)	-	(2)
Reserves credit for employee share-based payment schemes		-	-	-	-	34	34	-	34
Transfer to retained earnings for vested employee share-based payment schemes		-	-	-	32	(32)	-	-	-
Transfer between reserves on disposal of subsidiaries		-	-	-	827	(827)	-	-	-
Shares acquired by employee trusts		-	(9)	-	-	-	(9)	-	(9)
Shares distributed or sold by employee and other trusts		-	2	-	(2)	-	-	-	-
Other movements in non-controlling interests in the year		-	-	-	-	-	-	7	7
Aggregate tax effect of items recognised directly in equity	4.5	-	-	-	5	(1)	4	-	4
31 December		241	(6)	628	2,162	977	4,002	347	4,349

The Notes on pages 32 to 64 are an integral part of this IFRS condensed consolidated financial information.

IFRS condensed consolidated statement of cash flows

For the six months ended 30 June 2016

		6 months 2016	6 months 2015	Full year 2015
	Notes	£m	£m	£m
Cash flows from operating activities
Profit before tax from continuing operations		437	210	549
Profit before tax from discontinued operations		-	1,162	1,167
		437	1,372	1,716
Change in operating assets		(7,066)	(5,811)	(6,607)
Change in operating liabilities		7,562	5,097	4,042
Adjustment for non-cash movements in investment income		104	(58)	(20)
Change in unallocated divisible surplus		82	(134)	(117)
Non-cash items relating to investing and financing activities		56	(1,005)	(1,017)
Taxation paid		(161)	(199)	(261)
Net cash flows from operating activities		1,014	(738)	(2,264)
Cash flows from investing activities
Purchase of property, plant and equipment		(6)	(3)	(8)
Proceeds from sale of property, plant and equipment		-	4	98
Acquisition of subsidiaries and unincorporated businesses net of cash acquired		-	(5)	(6)
Disposal of subsidiaries net of cash disposed of		-	1,600	1,600
Proceeds from settlement of hedging derivatives contracts		-	100	100
Acquisition of investments in associates and joint ventures		(179)	(9)	(9)
Purchase of intangible assets not acquired through business combinations		(26)	(28)	(61)
Net cash flows from investing activities		(211)	1,659	1,714
Cash flows from financing activities
Repayment of other borrowings		(1)	(1)	(3)
Repayment of subordinated liabilities		-	(282)	(282)
Capital flows from third party interest in consolidated funds and non-controlling interests		(1,138)	930	1,575
Distributions paid to third party interest in consolidated funds and non-controlling interests		(53)	(62)	(110)
Shares acquired by trusts		(2)	(4)	(9)
Interest paid		(35)	(54)	(89)
Return of cash to shareholders under 'B/C' share scheme	4.9	-	(1,749)	(1,749)
Ordinary dividends paid	4.8	(243)	(224)	(343)
Net cash flows from financing activities		(1,472)	(1,446)	(1,010)
Net decrease in cash and cash equivalents		(669)	(525)	(1,560)
Cash and cash equivalents at the beginning of the period		9,591	11,243	11,243
Effects of exchange rate changes on cash and cash equivalents		201	(148)	(92)
Cash and cash equivalents at the end of the period¹		9,123	10,570	9,591
Supplemental disclosures on cash flows from operating activities
Interest paid		1	5	7
Interest received		995	1,039	1,979
Dividends received		1,205	1,165	1,923
Rental income received on investment property		287	250	490

¹ Comprises £9,171m (30 June 2015: £10,588m; 31 December 2015: £9,640m) of cash and cash equivalents, including cash and cash equivalents held for sale, and (£48m) (30 June 2015: (£18m); 31 December 2015: (£49m)) of overdrafts which are reported in other financial liabilities and liabilities of operations held for sale in the IFRS condensed consolidated statement of financial position.

The Notes on pages 32 to 64 are an integral part of this IFRS condensed consolidated financial information.

Notes to the IFRS condensed consolidated financial information

4.1 Accounting policies

(a) Basis of preparation

The IFRS condensed consolidated half year financial information has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and IAS 34 Interim Financial Reporting issued by the International Accounting Standards Board as endorsed by the European Union (EU).

The accounting policies for recognition, measurement, consolidation and presentation as set out in the Group's Annual report and accounts for the year ended 31 December 2015 have been applied in the preparation of the IFRS condensed consolidated half year financial information except as noted below.

(a)(i) New standards, interpretations and amendments to existing standards that have been adopted by the Group

The Group has adopted the following new International Financial Reporting Standards (IFRSs), International Accounting Standards (IASs), interpretations and amendments to existing standards, which are effective by EU endorsement for annual periods beginning on or after 1 January 2016.

· Amendments to IFRS 10 Consolidated Financial Statements, IFRS 12 Disclosure of Interests in Other Entities and IAS 28 Investment in Associates and Joint Ventures: Investment Entities - Applying the Consolidation Exception

· Amendments to IFRS 10 Consolidated Financial Statements and IAS 28 Investment in Associates and Joint Ventures: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture

· Amendments to IFRS 11 Joint Arrangements: Accounting for Acquisitions of Interests in Joint Operations

· Amendments to IAS 1 Presentation of Financial Statements: Disclosure Initiative

· Amendments to IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets: Clarification of Acceptable Methods of Depreciation and Amortisation

· Annual improvements 2012 - 2014 cycle

The Group's accounting policies have been updated to reflect these. Management considers the implementation of the above interpretations and amendments to existing standards has had no significant impact on the Group's financial statements.

(b) IFRS condensed consolidated half year financial information

This IFRS condensed consolidated half year financial information does not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2015 were approved by the Board of Directors on 19 February 2016 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Section 498 of the Companies Act 2006. This IFRS condensed consolidated half year financial information has been reviewed, not audited.

The income statements and cash flows and statements of financial position of Group entities that have a different functional currency from the Group's presentation currency have been translated using the following principal exchange rates:

	6 months 2016		6 months 2015		Full year 2015
	Income statement exchange rate	Statement of financial position (closing rate)	Income statement exchange rate	Statement of financial position (closing rate)	Income statement exchange rate	Statement of financial position (closing rate)
Euro	1.286	1.203	1.365	1.411	1.375	1.357
US Dollar	1.426	1.337	1.532	1.573	1.528	1.474
Canadian Dollar	1.895	1.736	1.893	1.963	1.956	2.047
Indian Rupee	95.666	90.228	96.441	110.150	98.116	97.504
Chinese Renminbi	9.327	8.881	9.528	9.752	9.599	9.571
Hong Kong Dollar	11.069	10.371	11.881	12.192	11.844	11.423

4.2 Acquisitions and disposals

(a) Acquisitions

In August 2015, the Group entered into a share and purchase agreement to purchase an additional 9% of the issued share capital of HDFC Standard Life Insurance Company Limited (HDFC Life), an associate of the Group. The transaction completed in April 2016, after satisfactory regulatory approvals were obtained, for a consideration of Rs 1,706 crore (£179m), increasing the Group's interest to 35%.

During the six months ended 30 June 2016, the Group's UK wide financial advice business, 1825, entered into sale and purchase agreements to purchase the entire share capital of The Munro Partnership Limited (Munro), Baigrie Davies and Company Limited (Baigrie Davies) and Almary Green Investments Limited (Almary Green) with combined assets under advice of £1.4bn. The Group also entered into an agreement in May 2016 to purchase the Elevate adviser platform (Elevate) through the purchase of the entire share capital of AXA Portfolio Services Limited from AXA UK plc. The acquisitions of Munro and Baigrie Davies completed on 1 July 2016 and 1 August 2016 respectively and are not material to the Group. The acquisitions of Almary Green and Elevate are expected to complete later in the year once all conditions to closing have been satisfied.

(b) Disposals

Prior year disposal

On 3 September 2014 the Group announced its intention to sell its Canadian business to The Manufacturers Life Insurance Company (MLC), a subsidiary of Manulife Financial Corporation (Manulife). The sale of the Group's Canadian long-term savings and retirement, individual and group insurance business (Standard Life Financial Inc.) and Canadian investment management business (Standard Life Investments Inc.) completed on 30 January 2015. The assets and liabilities of the Canadian branch of Standard Life Assurance Limited (SLAL Canada branch) were transferred on 31 December 2015 following the fulfilment of certain conditions to completion, including regulatory approval. Until disposal the operations of the Canadian business were classified as discontinued and the assets and liabilities were classified as held for sale.

The consideration, which was received on 30 January 2015, was CA$4.0bn (£2.1bn) and a further £0.1bn was received from the settlement of related hedging derivative contracts. The Group recognised a gain on disposal in respect of the sale which is included in profit from discontinued operations in the IFRS condensed consolidated income statement for the six months ended 30 June 2015 and the 12 months ended 31 December 2015.

4.3 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:

Continuing operations:

Standard Life Investments

Standard Life Investments provides a range of investment products for individuals and institutional customers through a number of different investment vehicles. Investment management services are also provided by Standard Life Investments to the Group's other reportable segments. This segment includes the Group's share of the results of HDFC Asset Management Company Limited.

Pensions and Savings (formerly UK and Europe)

Pensions and Savings provides a broad range of long-term, savings and investment products to individual and corporate customers in the UK, Germany, Austria and Ireland.

India and China

The businesses included in India and China offer a range of insurance and savings products and comprise our life insurance associate in India, our life insurance joint venture in China and wholly owned operations in Hong Kong.

Other

This primarily includes the corporate centre and related activities.

Discontinued operations:

Canada

The operations in Canada provided long-term savings, investment and insurance solutions to individuals, and group benefit and retirement plan members. The Canadian business was sold on 30 January 2015.

Singapore

The business in Singapore provided a range of savings and insurance products. The closure of this business was announced in June 2015. This business was previously included in the Asia and Emerging Markets segment (now renamed India and China). The results of this business were included as discontinued operations for segmental reporting purposes as this was reflective of the presentation of information provided to the Chief Operating Decision Maker. Under IFRS 5, Singapore did not constitute a discontinued operation and was included under continuing operations in the IFRS condensed consolidated income statement. Therefore the segmental analysis disclosures for the six months ended 30 June 2015 and 12 months ended 31 December 2015 include the reclassification of Singapore results between discontinued and continuing operations.

(b) Reportable segments - Group operating profit, revenue and asset information

IFRS 8 Operating Segments requires that the information presented in the financial statements is based on information provided to the 'Chief Operating Decision Maker'. The Chief Operating Decision Maker for the Group is the strategic executive committee.

The key performance metrics of the Group include operating profit before tax and assets under administration (AUA), which are analysed in the tables that follow by reportable segment.

(b)(i) Analysis of Group operating profit by segment

Operating profit is the key alternative performance measure utilised by the Group's management in their evaluation of segmental performance and is therefore also presented by reportable segment.

		Standard Life Investments	Pensions and Savings	India and China	Other	Eliminations	Total
6 months 2016	Notes	£m	£m	£m	£m	£m	£m
Fee based revenue		431	407	10	-	(54)	794
Spread/risk margin		-	63	-	-	-	63
Total operating income		431	470	10	-	(54)	857
Total operating expenses		(271)	(313)	(12)	(24)	54	(566)
Capital management		-	12	-	1	-	13
Share of associates' and joint ventures' profit before tax¹		16	-	21	-	-	37
Operating profit/(loss) before tax		176	169	19	(23)	-	341
Tax on operating profit		(35)	(42)	-	8	-	(69)
Share of associates' and joint ventures' tax expense	4.5	(5)	-	-	-	-	(5)
Operating profit/(loss) after tax		136	127	19	(15)	-	267
Adjusted for the following items
Short-term fluctuations in investment return and economic assumption changes	4.7	1	(10)	-	(8)	-	(17)
Restructuring and corporate transaction expenses	4.4	(10)	(26)	-	-	-	(36)
Other		(7)	(1)	-	-	-	(8)
Total non-operating items		(16)	(37)	-	(8)	-	(61)
Tax on non-operating items		3	14	-	3	-	20
Profit/(loss) for the period attributable to equity holders of Standard Life plc		123	104	19	(20)	-	226
Profit attributable to non-controlling interests							14
Profit for the period							240

¹Share of associates' and joint ventures' profit before tax comprises the Group's share of results of HDFC Standard Life Insurance Company Limited, Heng An Standard Life Insurance Company Limited and HDFC Asset Management Company Limited.

Each operating segment reports total operating income as its measure of revenue in its analysis of operating profit. Fee based revenue consists of income generated primarily from asset management charges, premium based charges and transactional charges. Spread/risk margin reflects the margin earned on spread/risk business and includes net earned premiums, claims and benefits paid, net investment return using long-term assumptions and actuarial reserving changes.

The Group has a widely diversified customer base and is therefore not reliant on any individual customers.

		Standard Life Investments	Pensions and Savings	India and China	Other	Eliminations	Total continuing operations	Discontinued operations¹	Total
6 months 2015	Notes	£m	£m	£m	£m	£m	£m	£m	£m
Fee based revenue		402	396	23	-	(60)	761	21	782
Spread/risk margin		-	40	-	-	-	40	9	49
Total operating income		402	436	23	-	(60)	801	30	831
Total operating expenses		(263)	(297)	(17)	(25)	60	(542)	(29)	(571)
Capital management		-	8	-	(7)	-	1	2	3
Share of associates' and joint ventures' profit before tax²		15	-	15	-	-	30	-	30
Operating profit/(loss) before tax		154	147	21	(32)	-	290	3	293
Tax on operating profit		(28)	(18)	-	9	-	(37)	-	(37)
Share of associates' and joint ventures' tax expense	4.5	(5)	-	-	-	-	(5)	-	(5)
Operating profit/(loss) after tax		121	129	21	(23)	-	248	3	251
Adjusted for the following items
Short-term fluctuations in investment return and economic assumption changes	4.7	-	(37)	-	(5)	-	(42)	63	21
Restructuring and corporate transaction expenses	4.4	(16)	(39)	-	(7)	-	(62)	(8)	(70)
Impairment of intangible assets			-	-	-	-	-	(2)	(2)
Gain on sale of Canadian business		-	-	-	-	-	-	1,097	1,097
Other		(8)	2	(47)	(1)	-	(54)	(31)	(85)
Total non-operating items		(24)	(74)	(47)	(13)	-	(158)	1,119	961
Tax on non-operating items		4	7	5	3	-	19	(20)	(1)
Singapore included in discontinued operations segment¹		-	-	(40)	-	-	(40)	40	-
Profit/(loss) for the period attributable to equity holders of Standard Life plc		101	62	(61)	(33)	-	69	1,142	1,211
Profit attributable to non-controlling interests							34	-	34
Profit for the period							103	1,142	1,245

¹Under IFRS 5, Singapore did not constitute a discontinued operation and was included under continuing operations in the IFRS condensed consolidated income statement. Therefore the analysis of Group operating profit by segment above includes the reclassification of Singapore results between discontinued and continuing operations.

² Share of associates' and joint ventures' profit before tax comprises the Group's share of results of HDFC Standard Life Insurance Company Limited, Heng An Standard Life Insurance Company Limited and HDFC Asset Management Company Limited.

		Standard Life Investments	Pensions and Savings	India and China	Other	Eliminations	Total continuing operations	Discontinued operations¹	Total
Full year 2015	Notes	£m	£m	£m	£m	£m	£m	£m	£m
Fee based revenue		843	808	38	-	(110)	1,579	21	1,600
Spread/risk margin		-	145	-	-	-	145	9	154
Total operating income		843	953	38	-	(110)	1,724	30	1,754
Total operating expenses		(532)	(610)	(36)	(56)	110	(1,124)	(29)	(1,153)
Capital management		-	14	-	(5)	-	9	2	11
Share of associates' and joint ventures' profit before tax²		31	-	25	-	-	56	-	56
Operating profit/(loss) before tax		342	357	27	(61)	-	665	3	668
Tax on operating profit		(64)	(54)	-	4	-	(114)	-	(114)
Share of associates' and joint ventures' tax expense	4.5	(11)	-	(2)	-	-	(13)	-	(13)
Operating profit/(loss) after tax		267	303	25	(57)	-	538	3	541
Adjusted for the following items
Short-term fluctuations in investment return and economic assumption changes	4.7	-	(54)	-	(9)	-	(63)	63	-
Restructuring and corporate transaction expenses	4.4	(23)	(75)	-	(17)	-	(115)	(10)	(125)
Impairment of intangible assets		(5)	(2)	-	-	-	(7)	(2)	(9)
Gain on sale of Canadian business		-	-	-	-	-	-	1,102	1,102
Other		(25)	-	(47)	-	-	(72)	(31)	(103)
Total non-operating items		(53)	(131)	(47)	(26)	-	(257)	1,122	865
Tax on non-operating items		11	16	5	5	-	37	(20)	17
Singapore included in discontinued operations segment¹		-	-	(42)	-	-	(42)	42	-
Profit/(loss) for the year attributable to equity holders of Standard Life plc		225	188	(59)	(78)	-	276	1,147	1,423
Profit attributable to non-controlling interests							62	-	62
Profit for the year							338	1,147	1,485

¹Under IFRS 5, Singapore does not constitute a discontinued operation and is included under continuing operations in the IFRS condensed consolidated income statement. Therefore the analysis of Group operating profit by segment above includes the reclassification of Singapore results between discontinued and continuing operations.

(b)(ii) Total income and expenses

The following table provides a reconciliation of total operating income and total operating expenses from continuing operations, as presented in the analysis of Group operating profit by segment, to total revenue and total expenses respectively, as presented in the consolidated income statement:

	6 months 2016		6 months 2015		Full year 2015
	Income	Expenses	Income	Expenses	Income	Expenses
	£m	£m	£m	£m	£m	£m
Total operating income or operating expenses from continuing operations as presented in the analysis of Group operating profit by segment	857	(566)	801	(542)	1,724	(1,124)
Net insurance benefits and claims	2,001	(2,001)	1,994	(1,994)	4,029	(4,029)
Change in reinsurance assets and liabilities	(61)	61	296	(296)	520	(520)
Change in insurance and participating contract liabilities	2,941	(2,941)	(814)	814	(1,693)	1,693
Change in unallocated divisible surplus	82	(82)	(134)	134	(117)	117
Change in non-participating investment contract liabilities	1,560	(1,560)	2,877	(2,877)	3,363	(3,363)
Expenses under arrangements with reinsurers	361	(361)	(13)	13	42	(42)
Change in liability for third party interest in consolidated funds	(385)	385	396	(396)	531	(531)
Other presentation differences	173	(173)	147	(147)	305	(305)
Tax movement attributable to policyholder returns	148	-	89	-	134	-
Non-operating items	(5)	(56)	(11)	(146)	(23)	(234)
Non-controlling interests and capital management	27	-	35	-	71	-
Singapore included in discontinued operations segment¹	-	-	5	(45)	6	(48)
Total revenue or expenses from continuing operations as presented in the IFRS condensed consolidated income statement	7,699	(7,294)	5,668	(5,482)	8,892	(8,386)

¹Under IFRS 5, Singapore did not constitute a discontinued operation and is included under continuing operations in the consolidated income statement. Therefore the reconciliation includes the reclassification of Singapore results between discontinued and continuing operations.

This reconciliation includes a number of reconciling items which arise due to presentation differences between IFRS reporting requirements and the determination of operating income and expenses. Operating income and expenses exclude items which have an equal and opposite effect on IFRS revenue and IFRS expenses in the consolidated income statement, such as investment returns which are for the account of policyholders. Other presentation differences in the above reconciliation generally relates to items included in administrative expenses which are borne by policyholders, for example investment property management expenses, or are directly related to fee income.

(b)(iii) Analysis of assets under administration by segment

Group assets under administration (AUA) presents a measure of the total assets that the Group administers on behalf of individual customers and institutional clients. It includes those assets for which the Group provides investment management services, as well as those assets that the Group administers where the customer has made a choice to select an external third party investment manager. Group AUA includes third party assets administered by the Group which are not included on the consolidated statement of financial position.

As a long-term savings and investments business, AUA is a key driver of shareholder value and is consequently one of the key measures utilised by the strategic executive committee in their evaluation of segmental performance. AUA is therefore presented by reportable segment (in billions).

	Standard Life Investments	Pensions and Savings	India and China	Other	Eliminations¹	Total
30 June 2016	£bn	£bn	£bn	£bn	£bn	£bn
Assets under administration
Fee based	181	134	1	-	(20)	296
Spread/risk	-	16	-	-	-	16
Assets not backing products in long-term savings business	-	11	-	-	-	11
Associate and joint venture businesses	-	-	3	-	-	3
Other corporate assets	1	-	-	1	-	2
Total assets under administration	182	161	4	1	(20)	328

	Standard Life Investments	Pensions and Savings	India and China	Other	Eliminations¹	Total continuing operations	Discontinued operations	Total
30 June 2015	£bn	£bn	£bn	£bn	£bn	£bn	£bn	£bn
Assets under administration
Fee based	167	126	-	-	(17)	276	-	276
Spread/risk	-	15	-	-	-	15	-	15
Assets not backing products in long-term savings business	-	7	-	-	-	7	-	7
Associate and joint venture businesses	-	-	2	-	-	2	-	2
Other corporate assets	1	-	-	1	-	2	-	2
Total assets under administration	168	148	2	1	(17)	302	-	302

	Standard Life Investments	Pensions and Savings	India and China	Other	Eliminations¹	Total continuing operations	Discontinued operations	Total
31 December 2015	£bn	£bn	£bn	£bn	£bn	£bn	£bn	£bn
Assets under administration
Fee based	170	127	1	-	(18)	280	-	280
Spread/risk	-	15	-	-	-	15	-	15
Assets not backing products in long-term savings business	-	8	-	-	-	8	-	8
Associate and joint venture businesses	-	-	2	-	-	2	-	2
Other corporate assets	1	-	-	1	-	2	-	2
Total assets under administration	171	150	3	1	(18)	307	-	307

¹ In order to be consistent with the presentation of new business information, certain products are included in both Standard Life Investments AUA and other segments. Therefore, at a Group level an elimination adjustment is required to remove any duplication, in addition to other necessary consolidation adjustments.

4.4 Administrative expenses

	6 months 2016	6 months 2015	Full year 2015
	£m	£m	£m
Restructuring and corporate transaction expenses	31	48	88
Interest expense	3	6	12
Commission expenses	73	86	170
Staff costs and other employee-related costs	295	310	635
Other administrative expenses	334	306	609
	736	756	1,514
Acquisition costs deferred during the period	(32)	(51)	(83)
Impairment of deferred acquisition costs	-	71	73
Amortisation of deferred acquisition costs	50	64	124
Total administrative expenses from continuing operations	754	840	1,628

Total restructuring and corporate transaction expenses incurred from continuing operations during the period were £31m (six months ended 30 June 2015: £48m; 12 months ended 31 December 2015: £88m). The expenses mainly relate to Ignis integration and Pensions and Savings restructuring programmes and corporate transactions.

In December 2014 the Group announced that the UK staff defined benefit pension plan would be closed to future accrual. On 16 April 2016 all employees in the closing plan were transferred to the UK defined contribution plan for future service and employer contributions into the defined contribution plan were amended. Following this restructuring of the pension plans, operating profit from continuing operations for the six months ended 30 June 2016 has been increased by £5m (six months ended 30 June 2015: £20m; 12 months ended 31 December 2015: £35m) so that operating profit reflects the expected long-term pension expense for the period and is therefore more indicative of the long-term operating performance of the Group. As a result £5m (six months ended 30 June 2015: £20m; 12 months ended 31 December 2015: £35m) of pension costs that are included in staff costs in the IFRS condensed consolidated income statement for the six months ended 30 June 2016, are included in restructuring and corporate transaction expenses in determining operating profit from continuing operations. Further details of the defined benefit pension plan expense for the period are included in Note 4.11 - Pension and other post-retirement benefit provisions.

The table below reconciles restructuring and corporate transaction expenses incurred from continuing operations with restructuring and corporate transaction expenses used to determine operating profit from continuing operations.

	6 months 2016	6 months 2015	Full year 2015
	£m	£m	£m
Restructuring and corporate transaction expenses from continuing operations	31	48	88
Pension plan restructuring	5	20	35
Expenses incurred by the Heritage With Profits Fund	-	(1)	(1)
Closure of Singapore¹	-	(5)	(7)
Restructuring and corporate transaction expenses used to determine operating profit from continuing operations	36	62	115

¹ Singapore business, the closure of which was announced in June 2015, was included as a discontinued operation for segmental reporting purposes under IFRS 8 as this was reflective of the presentation of information provided to the Chief Operating Decision Maker. Under IFRS 5, Singapore did not constitute a discontinued operation and was included under continuing operations in the IFRS condensed consolidated income statement.

Restructuring and corporate transaction expenses for the six months ended 30 June 2015 of £8m and the 12 months ended 31 December 2015 of £10m were used to determine operating profit before tax from discontinued operations. These expenses related to the sale of the Canadian business and the closure of the Singapore business.

4.5 Tax expense

The tax expense is attributed as follows:

	6 months 2016	6 months 2015	Full year 2015
	£m	£m	£m
Tax expense attributable to policyholders' investment return	148	89	134
Tax expense attributable to equity holders' profits	49	18	77
Total tax expense from continuing operations	197	107	211

The standard UK corporation tax rate for the accounting period was 20% (six months ended 30 June 2015: 20.25%; 12 months ended 31 December 2015: 20.25%). Following the enactment of Finance Act 2015 the UK corporation tax rate will reduce to 19% from 1 April 2017 and to 18% from 1 April 2020. These future changes have been taken into account in the calculation of the UK deferred tax balance at 30 June 2016. The Finance Bill 2016 contains provision for the UK corporation tax rate to reduce to 17% from 1 April 2020. As this bill had not been substantively enacted as at 30 June 2016 this further rate change has not been recognised for the purposes of calculating deferred tax balances.

The Group provides additional disclosure in relation to the total tax expense. Certain products are subject to tax on policyholders' investment returns. This tax, 'policyholder tax', is accounted for as an element of income tax. To make the tax expense disclosure more meaningful, we disclose policyholder tax and tax payable on equity holders' profits separately. The policyholder tax expense is the amount payable in the period plus the movement of amounts expected to be payable in future periods by policyholders on their investment return. The remainder of the tax expense is attributed to equity holders as tax payable on equity holders' profit.

The share of tax of associates and joint ventures from continuing operations is £5m (six months ended 30 June 2015: £5m; 12 months ended 31 December 2015: £13m) and is included in profit before tax in the IFRS condensed consolidated income statement in Share of profit from associates and joint ventures.

The total tax expense is split as follows:

	6 months 2016	6 months 2015	Full year 2015
	£m	£m	£m
Current tax:
UK	194	95	197
Double tax relief	(1)	-	(2)
Overseas	14	4	15
Adjustment to tax expense in respect of prior years	(2)	(5)	12
Total current tax attributable to continuing operations	205	94	222

Deferred tax:
Deferred tax (credit)/expense arising from the current periods	(8)	13	(11)
Total deferred tax attributable to continuing operations	(8)	13	(11)

Total tax expense attributable to continuing operations	197	107	211

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

	6 months 2016	6 months 2015	Full year 2015
	£m	£m	£m
Current tax on net change in financial assets designated as available-for-sale	3	(1)	(2)
Equity holder tax effect relating to items that may be reclassified subsequently to profit or loss	3	(1)	(2)
Tax relating to each component of other comprehensive income from continuing operations	3	(1)	(2)

All of the amounts presented above are in respect of equity holders of Standard Life plc.

Tax relating to items taken directly to equity is as follows:

	6 months 2016	6 months 2015	Full year 2015
	£m	£m	£m
Tax expense/(credit) on reserves for employee share-based payments	2	(2)	(4)
Tax relating to items taken directly to equity	2	(2)	(4)

4.6 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 in issue during the year excluding shares owned by the employee trusts that have not vested unconditionally to employees.

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares in issue during the year to assume the conversion of all dilutive potential ordinary shares, such as share options granted to employees.

Alternative earnings per share is calculated on operating profit after tax.

For the period ended 30 June 2016 basic earnings per share was 11.5p (six months ended 30 June 2015: 56.7p; 12 months ended 31 December 2015: 69.4p) and diluted earnings per share was 11.4p (six months ended 30 June 2015: 56.6p; 12 months ended 31 December 2015: 69.1p). The following table shows the split between continuing and discontinued operations, and details of alternative earnings per share.

	6 months 2016	6 months 2015		Full year 2015
		Continuing operations	Discontinued operations	Continuing operations	Discontinued operations
	£m	£m	£m	£m	£m
Operating profit before tax	341	290	3	665	3
Tax on operating profit	(69)	(37)	-	(114)	-
Share of associates' and joint ventures' tax expense	(5)	(5)	-	(13)	-
Operating profit after tax	267	248	3	538	3
Total non-operating items	(61)	(158)	1,119	(257)	1,122
Tax on non-operating items	20	19	(20)	37	(20)
Singapore included in discontinued operations segment¹	-	(40)	40	(42)	42
Profit attributable to equity holders of Standard Life plc	226	69	1,142	276	1,147
	Millions	Millions	Millions	Millions	Millions
Weighted average number of ordinary shares outstanding	1,970	2,136	2,136	2,051	2,051
Dilutive effect of share options and awards	4	4	4	9	9
Weighted average number of diluted ordinary shares outstanding	1,974	2,140	2,140	2,060	2,060
	Pence	Pence	Pence	Pence	Pence
Basic earnings per share	11.5	3.2	53.5	13.5	55.9
Diluted earnings per share	11.4	3.2	53.4	13.4	55.7
Alternative earnings per share	13.6	11.6	0.1	26.2	0.1
Diluted alternative earnings per share	13.5	11.6	0.1	26.1	0.1

As discussed in Note 4.9 the Company undertook a share consolidation in 2015 followed by a return of value to shareholders. In accordance with IAS 33, earnings per share were not restated following the share consolidation as there was an overall corresponding change in resources. As a result of the share consolidation, earnings per share from continuing operations for the six months ended 30 June 2016 are not directly comparable with prior periods.

4.7 Operating profit and non-operating items

Operating profit is the Group's key alternative performance measure. 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. Restructuring includes the impact of major regulatory change.

• Impairment of intangible assets acquired in business combinations

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

• Amortisation of intangibles acquired in business combinations and fair value movements in contingent consideration

• Items which are one-off and, due to their size or nature, are not indicative of the long-term operating performance of the Group

From 1 January 2016, we have changed the operating profit accounting policy so that items which, due to their size or nature, are not indicative of the long-term operating performance of the Group are excluded from operating profit (even if they are within the control of management). The objective of the change is to make operating profit a more useful indication of the long-term performance of the Group. This change has had no impact on comparative reporting periods presented.

(a) Short-term fluctuations in investment return and economic assumptions changes

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.

The expected rates of return for debt securities, equity securities and property are determined separately for each of the Group's operations. The expected rates of return for equity securities and property are determined based on the gilt spot rates of an appropriate duration plus an equity risk premium or property risk premium, respectively.

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:

	2016	2015
	UK	UK	Canada
	%	%	%
Equity securities	5.01	4.86	8.60
Property	4.01	3.86	8.60

In respect of debt securities at fair value through profit or loss, the expected rate of return is determined based on the average prospective yields for the debt securities actually held. For debt securities classified as available-for-sale that support liabilities measured at amortised cost, the expected rate of return is the effective interest rate adjusted for an allowance, established at initial recognition, for expected defaults. If debt securities classified as available-for-sale are sold, any gain or loss is amortised within the expected return over the period to the earlier of the maturity date of the sold debt security, or the redemption date of the supported liability.

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 six months ended 30 June 2016, short-term fluctuations in investment return and economic assumption changes resulted in losses of £17m (six months ended 30 June 2015: losses of £42m; 12 months ended 31 December 2015: losses of £63m) from continuing operations. Short-term fluctuations in investment return from continuing operations relate principally to investment volatility in UK annuities, and in respect of the Group's subordinated liabilities and assets backing those liabilities.

Short-term gains in investment return from discontinued operations of £63m for the six months ended 30 June 2015 and 12 months ended 31 December 2015 related principally to investment volatility in Canada non-segregated funds.

(b) Other

In the pro forma reconciliation of consolidated operating profit to IFRS profit for the period other non-operating includes:

· The impact of restructuring on deferred acquisition costs, claims, and change in investment and insurance contract liabilities

· Amortisation of intangibles acquired in business combinations and fair value movements in contingent consideration

Other non-operating items from continuing operations for the period ended 30 June 2016 includes £9m (six months ended 30 June 2015: £10m; 12 months ended 31 December 2015: £20m) in relation to amortisation of intangible assets acquired through business combinations. For the six months ended 30 June 2015 and 12 months ended 31 December 2015 other non-operating items from continuing operations also included £46m relating to a review of expense and reserving assumptions in Hong Kong following regulatory change. This Hong Kong non-operating restructuring loss primarily related to an impairment of deferred acquisition costs.

For the six months ended 30 June 2015 and the 12 months ended 31 December 2015 other non-operating items from discontinued operations included £31m in respect of impairment of deferred acquisition costs and plan enhancements relating to the closure of the Singapore business.

4.8 Dividends on ordinary shares

	6 months 2016		6 months 2015		Full year 2015
	Pence per share	£m	Pence per share	£m	Pence per share	£m
Dividends relating to reporting period
Interim dividend (2016 and 2015)	6.47	128	6.02	119	6.02	119
Final dividend (2015)	-	-	-	-	12.34	243
Total	6.47	128	6.02	119	18.36	362

Dividends paid in reporting period
Current year interim dividend	-	-	-	-	6.02	119
Final dividend for prior year	12.34	243	11.43	224	11.43	224
Total		243		224		343

Subsequent to 30 June 2016, the Directors have proposed an interim dividend for 2016 of 6.47 pence per ordinary share (interim 2015: 6.02 pence), an estimated £128m in total (interim 2015: £119m). The dividend is expected to be paid on 19 October 2016 and will be recorded as an appropriation of retained earnings in the financial statements for the year ended 31 December 2016.

4.9 Issued share capital, share premium and shares held by trusts

(a) Issued share capital

The movement in the issued ordinary share capital of the Company is:

	6 months 2016	6 months 2016	6 months 2015	6 months 2015	6 months 2015	Full year 2015	Full year 2015	Full year 2015
Issued shares fully paid	12 2/9p each	£m	10p each	12 2/9p each	£m	10p each	12 2/9p each	£m
At start of period	1,969,937,375	241	2,394,373,744	-	239	2,394,373,744	-	239
Shares issued in respect of share incentive plans	197,255	-	169,283	80,904	-	169,283	194,329	-
Shares issued in respect of share options	5,332,837	-	642,089	9,489,898	2	642,089	10,046,128	2
New shares issued immediately prior to share consolidation	-	-	6	-	-	6	-	-
Share consolidation	-	-	(2,395,185,122)	1,959,696,918	-	(2,395,185,122)	1,959,696,918	-
At end of period	1,975,467,467	241	-	1,969,267,720	241	-	1,969,937,375	241

On 13 March 2015, the Company undertook a share consolidation of the Company's share capital. Nine new ordinary shares of 12 2/9 pence each were issued for each holding of 11 existing ordinary shares of 10 pence each. As a result, the number of shares in issue reduced from 2,395,185,122 to 1,959,696,918.

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

(a)(i) Return of value in prior year

668,370,013 'B' shares were issued for nil consideration with a nominal value of 73 pence each on 19 March 2015, resulting in a total of £488m being credited to the 'B' share capital account. At the same time £488m was deducted from the share premium account. On 20 March 2015 the 'B' shares were redeemed at 73 pence each. An amount of £488m was deducted from the 'B' share capital account and £488m was transferred from retained earnings to the capital redemption reserve.

1,726,815,109 'C' shares were issued for nil consideration with a nominal value of 0.0000001 pence each on 19 March 2015. An amount of £1.73 was credited to the 'C' share capital account. On 20 March 2015 a dividend of 73 pence per share became payable at a total cost of £1,261m and this amount has been recorded as a deduction from retained earnings. On the same date, the 'C' shares were automatically reclassified as deferred shares. The Company subsequently purchased the deferred shares for an aggregate consideration of one pence.

On 17 June 2016 the Company's capital redemption reserve was cancelled in accordance with section 649 of the Companies Act 2006 resulting in a transfer of £488m to retained earnings.

(b) Share premium

	6 months 2016	6 months 2015	Full year 2015
	£m	£m	£m
At start of period	628	1,115	1,115
Issue of 'B' shares	-	(488)	(488)
Shares issued in respect of share options	1	-	1
At end of period	629	627	628

The premium arising on shares issued during the period relates to share options exercised in respect of the Sharesave scheme.

Shares held by trusts relates to shares in Standard Life plc that are held by the Employee Share Trust (EST) and the Unclaimed Asset Trust (UAT).

The EST purchases shares in the Company for delivery to employees under employee incentive plans. Purchased shares are recognised as a deduction from equity at the price paid for them. Where new shares are issued to the EST the price paid is the nominal value of the shares. When shares are distributed from the trust their corresponding value is released to retained earnings.

In July 2006 Standard Life demutualised and former members of the mutual company were given shares in the new listed Company. Some former members were yet to claim their shares and the UAT held these on their behalf. The Company had an off-setting obligation to deliver these shares which was also recognised in the shares held by trust reserve. The shares and the off-setting obligation were both measured at £nil. The claim entitlement period for the UAT expired on 9 July 2016. Refer to Note 4.17 for further details.

The number of shares held in trust is as follows:

	30 June 2016	30 June 2015	31 December 2015
Number of shares held in trust
Employee Share Trust	2,363,153	730,582	1,637,419
Unclaimed Asset Trust	13,750,053	15,907,401	14,709,934

4.10 Insurance contracts, participating investment contracts and reinsurance contracts

	30 June 2016	30 June 2015	31 December 2015
	£m	£m	£m
Non-participating insurance contract liabilities	22,849	22,142	21,206
Less: Non-participating insurance contract liabilities classified as held for sale	-	(614)	-
	22,849	21,528	21,206

	30 June 2016	30 June 2015	31 December 2015
	£m	£m	£m
Participating insurance contract liabilities	16,201	14,309	14,283
Participating investment contract liabilities	15,581	14,809	14,716
Unallocated divisible surplus	608	666	655
Participating contract liabilities	32,390	29,784	29,654

The movement in insurance contract liabilities, participating investment contract liabilities and reinsurance contracts for continuing operations during the six months ended 30 June 2016, and the six months ended 30 June 2015 arising from changes in estimates are set out below:

	Participating insurance contract liabilities	Non-participating insurance contract liabilities	Participating investment contract liabilities	Total insurance and participating contracts	Reinsurance contracts	Net
6 months 2016	£m	£m	£m	£m	£m	£m
Changes in
Methodology/modelling	(48)	-	11	(37)	53	16
Economic assumptions	(332)	1,667	88	1,423	(330)	1,093
Non-economic assumptions	-	(9)	-	(9)	6	(3)

6 months 2015
Changes in
Methodology/modelling	2	2	9	13	(3)	10
Economic assumptions	13	(346)	(28)	(361)	95	(266)
Non-economic assumptions	-	(9)	1	(8)	-	(8)

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 experience over the period, changes in assumptions and, to a limited extent, improvements in modelling techniques. Economic assumptions reflects changes in fixed income yields, leading to lower valuation interest rates for non-participating business, and other market movements. Economic assumptions also include the effect of a change in the discount rate used to measure the liability for non-participating insurance contract liabilities resulting from a change in the way assets are hypothecated between participating and non-participating business in the Heritage With Profits Fund. This change has resulted in an increase in non-participating insurance contract liabilities, fully offset by a decrease in participating liabilities.

The movement in insurance contract liabilities, participating investment contract liabilities and reinsurance contracts during the year ended 31 December 2015 was as follows:

	Participating insurance contract liabilities	Non-participating insurance contract liabilities	Participating investment contract liabilities	Total insurance and participating contracts	Reinsurance contracts	Net
2015	£m	£m	£m	£m	£m	£m
At 1 January	15,397	21,841	15,191	52,429	(6,036)	46,393
Expected change	(1,042)	(808)	(902)	(2,752)	388	(2,364)
Methodology/modelling changes	17	19	(22)	14	(3)	11
Effect of changes in
Economic assumptions	148	(491)	(17)	(360)	101	(259)
Non-economic assumptions	(225)	(47)	182	(90)	8	(82)
Effect of
Economic experience	315	129	152	596	11	607
Non-economic experience	107	(378)	142	(129)	15	(114)
New business	37	964	27	1,028	-	1,028
Total change in contract liabilities	(643)	(612)	(438)	(1,693)	520	(1,173)
Foreign exchange adjustment	(471)	(23)	(37)	(531)	1	(530)
At 31 December	14,283	21,206	14,716	50,205	(5,515)	44,690

4.11 Pension and other post-retirement benefit provisions

The UK staff defined benefit pension plan was closed to future accrual in April 2016. From April 2016, all UK employees accrue pension through a defined contribution plan.

The trustees of the defined benefit pension plan set the investment strategy to protect the ratio of plan assets to the trustees' technical provision liabilities. The technical provision liabilities represent the trustees' prudent view of the amount of assets needed to pay future benefits. The investment strategy does not aim to protect the IAS 19 surplus or ratio of plan assets to the IAS 19 measure of liabilities. Falling bond yields over the period, in part due to the result of the EU referendum on 23 June 2016, have led to significant increases in both the IAS 19 surplus and the trustees' technical provision surplus. However, the ratio of plan assets to trustees' technical provision liabilities has remained relatively stable.

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

The amounts recognised in the IFRS condensed consolidated income statement for defined contribution and defined benefit plans are as follows:

	6 months 2016	6 months 2015	Full year 2015
	£m	£m	£m
Current service cost	(26)	(42)	(80)
Interest income	17	13	30
Administrative expenses	(1)	(1)	(2)
Expense recognised in the IFRS condensed consolidated income statement	(10)	(30)	(52)

An additional pension contribution of 6% of pensionable salary into the defined contribution plan for eligible members of the defined benefit plan on 16 March 2015 was made on 16 April 2015. A further additional contribution of 6% was made on 16 April 2016. These contributions have been accrued over the vesting period and are included in current service cost.

(b) Analysis of amounts recognised on the IFRS condensed consolidated statement of financial position

	30 June 2016			30 June 2015				31 December 2015
	UK	Other	Total	UK	Other	Total		UK	Other	Total
	£m	£m	£m	£m	£m	£m		£m	£m	£m
Present value of funded obligation	(2,972)	(96)	(3,068)	(2,750)	(89)		(2,839)	(2,525)	(85)	(2,610)
Present value of unfunded obligation	-	(9)	(9)	-	(8)		(8)	-	(8)	(8)
Fair value of plan assets	4,718	67	4,785	4,030	57		4,087	3,936	60	3,996
Effect of limit on plan surplus	(636)	-	(636)	(460)	-		(460)	(514)	-	(514)
Net asset/(liability)	1,110	(38)	1,072	820	(40)		780	897	(33)	864

The principal economic assumptions for the UK plan are as follows:

	30 June 2016	30 June 2015	31 December 2015
	%	%	%
Discount rate	2.80	3.75	3.70
Rates of inflation
Consumer Price Index (CPI)	1.85	2.60	2.15
Retail Price Index (RPI)	2.85	3.50	3.15

4.12 Risk management

(a) Overview

The Group's strategic objectives and performance against them is subject to a number of financial and non-financial risks. The principal risks and uncertainties that affect the business model are set out in detail in the Management report section 1.4 - Risk management.

The Group's IFRS condensed consolidated half year financial information does not include all financial risk management information and disclosures required in the Group's Annual report and accounts. This note should therefore be read in conjunction with the Group's Annual report and accounts for the year ended 31 December 2015. The information presented in this note has been prepared on the same basis as that presented in the Group's Annual report and accounts.

There have been no significant changes to the Group's risk management framework since 31 December 2015 and no changes have been made to the Group's qualitative risk appetites. The business continues to be managed through a range of risk, capital and profit metrics.

(b) Investment property and financial assets

The values of the Group's holdings of investment property and financial assets are impacted by the Group's exposure to adverse fluctuations in financial markets (referred to as market risk) and counterparty failure (referred to as credit risk).

The assets on the Group's IFRS condensed consolidated statement of financial position can be split into four categories (risk segments) which give the shareholder different exposures to these risks as follows:

Shareholder business

Shareholder business refers to the assets and liabilities to which the shareholder is directly exposed. For the purposes of this note, the shareholder refers to the equity holders of the Company.

Participating business

Participating business refers to the assets and liabilities of the participating funds of the life operations of the Group. It includes the liabilities for insurance features and financial guarantees contained within contracts held in the Heritage With Profits Fund that invest in unit linked funds. It does not include the liabilities for insurance features contained in contracts invested in the German With Profits Fund or German Smoothed Managed With Profits Fund. Such liabilities are included in shareholder business.

Unit linked funds

Unit linked funds refers to the assets and liabilities of the unit linked funds of the life operations of the Group. It does not include the cash flows (such as asset management charges or investment expenses) arising from the unit linked fund contracts or the liabilities for insurance features or financial guarantees contained within the unit linked fund contracts. Such cash flows and liabilities are included in shareholder business or participating business.

Third party interest in consolidated funds and non-controlling interests

Third party interest in consolidated funds and non-controlling interests refers to the assets and liabilities recorded on the Group's consolidated statement of financial position which belong to third parties. The Group controls the entities which own the assets and liabilities but the Group does not own 100% of the equity or units of the relevant entities.

The total Group holding in investment property and financial assets has been presented below based on the risk segment.

	Shareholder business		Participating business		Unit linked funds		TPICF and NCI¹		Total
	30 Jun 2016	31 Dec 2015	30 Jun 2016	31 Dec 2015	30 Jun 2016	31 Dec 2015	30 Jun 2016	31 Dec 2015	30 Jun 2016	31 Dec 2015
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Investments in associates²	24	19	679	531	5,470	4,561	782	314	6,955	5,425
Investment property	-	1	2,007	2,167	6,062	5,947	2,850	1,876	10,919	9,991
Loans	57	75	247	340	155	307	9	89	468	811
Derivative financial assets	12	9	2,923	1,478	1,333	716	417	241	4,685	2,444
Equity securities and interests in pooled investment funds	49	52	7,932	8,187	57,169	56,307	5,712	7,133	70,862	71,679
Debt securities	8,252	7,576	29,058	25,913	28,491	26,789	6,327	6,379	72,128	66,657
Receivables and other financial assets	745	495	200	99	2,194	644	667	209	3,806	1,447
Assets held for sale	62	50	-	82	72	73	54	122	188	327
Cash and cash equivalents	677	691	2,159	1,960	5,224	5,311	1,111	1,678	9,171	9,640
Total	9,878	8,968	45,205	40,757	106,170	100,655	17,929	18,041	179,182	168,421

	Shareholder business	Participating business	Unit linked funds	TPICF and NCI¹	Total
30 June 2015	£m	£m	£m	£m	£m
Investments in associates²	26	433	3,850	218	4,527
Investment property	1	2,100	5,588	1,895	9,584
Loans	27	340	326	98	791
Derivative financial assets	25	1,368	920	329	2,642
Equity securities and interests in pooled investment funds	54	8,975	57,370	6,634	73,033
Debt securities	7,635	26,232	24,683	6,060	64,610
Receivables and other financial assets	582	115	662	185	1,544
Assets held for sale	929	-	27	19	975
Cash and cash equivalents	813	1,589	6,055	2,131	10,588
Total	10,092	41,152	99,481	17,569	168,294

¹ Third party interest in consolidated funds and non-controlling interests.

²Comprises investments in associates at FVTPL.

The shareholder is exposed to the impact of market movements such as in property prices, interest rates and foreign exchange rates and the impact of defaults and movements in credit spreads on the value of assets held by the shareholder business. Appropriate risk oversight, risk management and mitigation actions are in place. The shareholder is also exposed to the market and credit risk that the assets of the participating funds of the life operations of the Group are not sufficient to meet their obligations. In this situation, the shareholder would be exposed to the full shortfall in the funds.

No further analysis is provided on the assets of the remaining risk segments - unit linked funds and TPICF and NCI. Assets of the unit linked funds are managed in accordance with the mandates of the particular funds and the financial risks of the assets are expected to be borne by the policyholder. The unit linked business includes £3,396m (30 June 2015: £3,383m; 31 December 2015: £3,228m) of assets that are held as reinsured external fund links. Under certain circumstances the shareholder may be exposed to losses relating to the default of the insured external fund links. These exposures are actively monitored and managed by the Group and the Group considers the circumstances under which losses may arise to be remote.

The shareholder is not exposed to market and credit risk from assets in respect of TPICF and NCI since the financial risks of the assets are borne by third parties.

Further information on the investment property and financial assets of the shareholder and participating business at the reporting date are provided in the sections that follow.

Investment property

The shareholder business is not exposed to significant property price risk. The participating business is subject to property price risk due to changes in the value and return on holdings in investment property. This risk arises from various direct and indirect holdings which are controlled through the use of portfolio limits.

The referendum on 23 June 2016 which resulted in the UK deciding to leave the EU has led to a period of uncertainty in relation to many factors that impact the property investment and letting markets in the UK. Further details of the impact on the valuations of investment property for the period are included in Note 4.13 - Fair value of assets and liabilities.

The table below analyses investment property held by the participating business by country and sector.

Participating business

	Office			Industrial			Retail			Other			Total
	30 Jun 2016	30 Jun 2015	31 Dec 2015	30 Jun 2016	30 Jun 2015	31 Dec 2015	30 Jun 2016	30 Jun 2015	31 Dec 2015	30 Jun 2016	30 Jun 2015	31 Dec 2015	30 Jun 2016	30 Jun 2015	31 Dec 2015
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
UK	623	680	703	213	219	230	863	993	938	5	6	6	1,704	1,898	1,877
Belgium	14	12	12	-	-	-	10	-	-	-	-	-	24	12	12
France	-	-	-	-	-	-	-	-	-	2	1	1	2	1	1
Germany	81	-	26	5	4	5	17	14	15	-	-	-	103	18	46
Ireland	-	-	-	-	-	-	-	-	-	29	23	26	29	23	26
Netherlands	60	16	48	30	13	26	-	-	-	-	-	-	90	29	74
Spain	55	119	131	-	-	-	-	-	-	-	-	-	55	119	131
Total	833	827	920	248	236	261	890	1,007	953	36	30	33	2,007	2,100	2,167

There is no direct exposure to residential property in the shareholder and participating businesses.

Equity securities

The Group is subject to equity price risk due to daily changes in the market value and returns in the holdings in its equity security portfolio. Exposure to equity securities are primarily managed through the use of investment mandates including constraints based on appropriate equity indices.

The following table analyses equity securities held by the shareholder and participating businesses by country.

	Shareholder business			Participating business			Total
	30 Jun 2016	30 Jun 2015	31 Dec 2015	30 Jun 2016	30 Jun 2015	31 Dec 2015	30 Jun 2016	30 Jun 2015	31 Dec 2015
	£m	£m	£m	£m	£m	£m	£m	£m	£m
UK	6	9	10	3,311	3,792	3,540	3,317	3,801	3,550
Australia	-	1	-	19	32	20	19	33	20
Belgium	-	1	1	70	54	27	70	55	28
Canada	-	-	-	62	53	39	62	53	39
Denmark	1	1	1	156	156	126	157	157	127
Finland	1	1	1	67	88	85	68	89	86
France	3	2	3	431	422	412	434	424	415
Germany	2	2	3	455	398	467	457	400	470
Greece	-	-	-	-	1	-	-	1	-
Ireland	1	1	1	157	179	187	158	180	188
Italy	1	2	2	74	138	142	75	140	144
Japan	1	1	1	119	119	118	120	120	119
Mexico	-	-	-	1	1	1	1	1	1
Netherlands	2	2	2	357	346	291	359	348	293
Norway	-	-	-	19	65	24	19	65	24
Portugal	-	-	-	62	40	59	62	40	59
Russia	-	-	-	-	4	3	-	4	3
Spain	1	2	1	99	148	125	100	150	126
Sweden	2	1	1	208	203	165	210	204	166
Switzerland	2	2	2	476	621	601	478	623	603
US	11	7	10	1,560	1,784	1,506	1,571	1,791	1,516
Other	14	17	13	175	253	177	189	270	190
Total	48	52	52	7,878	8,897	8,115	7,926	8,949	8,167

In addition to the equity securities analysed above, the shareholder business has interests in pooled investment funds of £1m (30 June 2015: £2m; 31 December 2015: £nil) and investments in associates at FVTPL of £24m (30 June 2015: £26m; 31 December 2015: £19m). The participating business has interests in pooled investment funds of £54m (30 June 2015: £78m; 31 December 2015: £72m) and investments in associates at FVTPL of £679m (30 June 2015: £433m; 31 December 2015: £531m).

Debt securities

The Group is exposed to interest rate risk and credit risk through its holdings in debt securities. The Group manages its exposure to debt securities through the use of investment mandates including setting exposure limits such as by issuer, sector and credit rating.

The following tables show the shareholder and participating businesses' exposure to credit risk from debt securities analysed by country.

Shareholder business

	Government, provincial and municipal¹			Banks			Other financial institutions			Other corporate			Other²			Total
	30 Jun 2016	30 Jun 2015	31 Dec 2015	30 Jun 2016	30 Jun 2015	31 Dec 2015	30 Jun 2016	30 Jun 2015	31 Dec 2015	30 Jun 2016	30 Jun 2015	31 Dec 2015	30 Jun 2016	30 Jun 2015	31 Dec 2015	30 Jun 2016	30 Jun 2015	31 Dec 2015
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
UK	543	520	527	423	428	389	1,236	1,338	1,335	1,879	1,480	1,576	-	-	-	4,081	3,766	3,827
Australia	-	-	-	128	75	100	15	6	-	12	10	9	-	-	-	155	91	109
Austria	30	21	22	-	-	-	-	-	-	-	-	-	-	-	-	30	21	22
Belgium	-	-	-	1	25	1	-	-	-	22	12	12	-	-	-	23	37	13
Canada	-	-	-	75	25	1	-	-	-	1	1	1	-	-	-	76	26	2
Denmark	-	-	-	26	80	51	-	-	-	16	15	15	-	-	-	42	95	66
Finland	-	-	-	-	25	25	-	-	-	-	-	-	-	-	-	-	25	25
France	242	200	201	215	223	343	3	-	-	352	313	306	-	-	-	812	736	850
Germany	404	243	296	105	124	131	2	1	1	268	280	243	-	-	-	779	648	671
Greece	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-
Ireland	-	-	-	1	-	1	-	-	-	4	-	-	-	-	-	5	-	1
Italy	-	-	-	27	26	27	-	-	-	82	79	75	-	-	-	109	105	102
Japan	-	-	-	1	51	26	-	62	-	24	31	22	-	-	-	25	144	48
Mexico	-	5	12	-	-	-	-	-	-	111	106	105	-	-	-	111	111	117
Netherlands	23	-	21	273	273	257	-	-	-	28	24	24	-	-	-	324	297	302
Norway	-	-	-	28	-	1	-	-	-	41	38	39	-	-	-	69	38	40
Portugal	-	1	-	-	-	-	-	-	-	-	-	-	-	-	-	-	1	-
Russia	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-
Spain	-	-	-	55	116	105	-	-	-	45	50	41	-	-	-	100	166	146
Sweden	-	-	-	89	67	40	1	1	1	51	61	58	-	-	-	141	129	99
Switzerland	-	-	-	105	163	116	-	-	-	7	7	7	-	-	-	112	170	123
US	20	-	-	252	255	217	88	130	133	413	268	310	-	-	-	773	653	660
Other	42	42	37	152	79	51	55	27	52	13	12	12	223	216	201	485	376	353
Total	1,304	1,032	1,116	1,956	2,035	1,882	1,400	1,565	1,522	3,369	2,787	2,855	223	216	201	8,252	7,635	7,576

¹Government, provincial and municipal includes debt securities which are issued by or explicitly guaranteed by the national government.

²This balance primarily consists of securities held in supranationals.

Participating business

	Government, provincial and municipal¹			Banks			Other financial institutions			Other corporate			Other²			Total
	30 Jun 2016	30 Jun 2015	31 Dec 2015	30 Jun 2016	30 Jun 2015	31 Dec 2015	30 Jun 2016	30 Jun 2015	31 Dec 2015	30 Jun 2016	30 Jun 2015	31 Dec 2015	30 Jun 2016	30 Jun 2015	31 Dec 2015	30 Jun 2016	30 Jun 2015	31 Dec 2015
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
UK	10,709	10,719	10,275	872	826	925	1,967	2,018	1,929	1,823	1,792	1,730	-	-	-	15,371	15,355	14,859
Australia	-	-	-	311	173	206	50	39	31	38	37	35	-	-	-	399	249	272
Austria	355	218	235	4	3	4	-	-	-	-	-	-	-	-	-	359	221	239
Belgium	590	362	452	11	7	10	-	-	-	50	17	15	-	-	-	651	386	477
Canada	3	33	3	139	214	195	9	8	8	3	1	3	-	-	-	154	256	209
Denmark	5	4	4	22	7	11	-	-	-	18	26	22	-	-	-	45	37	37
Finland	113	74	85	78	43	54	-	-	-	4	4	4	-	-	-	195	121	143
France	2,106	1,713	1,708	420	450	437	28	25	24	372	335	331	-	-	-	2,926	2,523	2,500
Germany	3,456	2,633	2,620	377	423	587	125	119	122	217	204	189	-	-	-	4,175	3,379	3,518
Greece	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-
Ireland	1	4	7	7	8	9	11	10	10	18	12	13	-	-	-	37	34	39
Italy	90	2	4	31	32	27	9	8	11	55	112	120	-	-	-	185	154	162
Japan	24	20	21	172	184	35	-	-	-	-	10	1	-	-	-	196	214	57
Mexico	-	-	-	-	-	-	-	-	-	62	60	58	-	-	-	62	60	58
Netherlands	543	390	403	391	362	338	51	41	42	39	33	34	-	-	-	1,024	826	817
Norway	17	17	17	88	27	6	-	-	-	66	64	63	-	-	-	171	108	86
Portugal	-	-	-	-	-	-	-	-	-	4	4	5	-	-	-	4	4	5
Russia	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-
Spain	2	3	5	8	8	11	7	-	5	46	50	52	-	-	-	63	61	73
Sweden	1	1	1	378	211	280	6	6	6	18	19	16	-	-	-	403	237	303
Switzerland	-	-	-	224	170	103	62	31	59	55	56	57	-	-	-	341	257	219
US	95	77	107	552	391	361	155	215	206	537	420	437	-	-	-	1,339	1,103	1,111
Other	45	87	85	285	145	105	83	60	62	128	121	116	417	234	361	958	647	729
Total	18,155	16,357	16,032	4,370	3,684	3,704	2,563	2,580	2,515	3,553	3,377	3,301	417	234	361	29,058	26,232	25,913

¹Government, provincial and municipal includes debt securities which are issued by or explicitly guaranteed by the national government.

²This balance primarily consists of securities held in supranationals.

Loans

The Group is exposed to interest rate risk and credit risk from loans issued. The Group manages its exposure by setting portfolio limits for business units specifying the proportion of the value of the total portfolio loans that can be represented by a single, or group of related counterparties and requires each business unit to implement appropriate portfolio limits and benchmarks for the assets.

The shareholder business holding of loans of £57m (30 June 2015: £27m; 31 December 2015: £75m) primarily comprises bank deposits of more than three months maturity.

The participating business holding of loans of £247m (30 June 2015: £340m; 31 December 2015: £340m) comprises bank deposits of more than three months maturity and UK mortgages.

4.13 Fair value of assets and liabilities

(a) Determination of fair value hierarchy

To provide further information on the approach used to determine and measure the fair value of certain assets and liabilities, the following fair value hierarchy categorisation has been used:

Level 1: Fair values measured using quoted prices (unadjusted) in active markets for identical assets or liabilities. An active market exists where transactions take place with sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2: Fair values measured using inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

Level 3: Fair values measured using inputs that are not based on observable market data (unobservable inputs).

(b) Methods and assumptions used to determine fair value of assets and liabilities

Information on the methods and assumptions used to determine fair values for each major category of financial instrument measured at fair value is given below. These methods and assumptions include those used to fair value assets and liabilities held for sale, including the individual assets and liabilities of operations held for sale.

Investments in associates at FVTPL, equity securities and interests in pooled investment funds and amounts seeded into funds classified as held for sale

Investments in associates at FVTPL are valued in the same manner as the Group's equity securities and interests in pooled investment funds.

Equity instruments listed on a recognised exchange are valued using prices sourced from the primary exchange on which they are listed. These instruments are generally considered to be quoted in an active market and are therefore treated as level 1 instruments within the fair value hierarchy.

Unlisted equities are valued using an adjusted net asset value. The Group's exposure to unlisted equity securities primarily relates to private equity investments. The majority of the Group's private equity investments are carried out through European fund of funds structures, where the Group receives valuations from the investment managers of the underlying funds.

The valuations received from investment managers of the underlying funds are reviewed and where appropriate adjustments are made to reflect the impact of changes in market conditions between the date of the valuation and the end of the reporting period. The valuation of these securities is largely based on inputs that are not based on observable market data, and accordingly these instruments are treated as level 3 instruments within the fair value hierarchy. Where appropriate, reference is made to observable market data.

Where pooled investment funds have been seeded and the investments in the fund have been classified as held for sale, the costs to sell are assumed to be negligible. The fair value of pooled investment funds held for sale is calculated as equal to the observable unit price.

Investment property and owner occupied property

The fair value of investment property and all owner occupied property is based on valuations provided by external property valuation experts. Current use is considered the best indicator of the highest and best use of the Group's property from a market participants' perspective. No adjustment is made for vacant possession for the Group's owner occupied property.

In normal market conditions the valuations provided by external property valuation experts are reported without adjustment in the Group's financial statements. However, the referendum on 23 June 2016 which resulted in the UK deciding to leave the EU has led to a period of uncertainty in relation to many factors that impact the property investment and letting markets in the UK. As a result the valuations provided by external valuers in relation to individual UK properties in respect of 30 June 2016 were qualified, in that they did not take into account the impact of the referendum result. The external valuers noted that they were not able to gauge the effect of the referendum by reference to transactions in the market place due to insufficient transactions taking place.

As the individual property valuations provided by the external valuers did not take into account the impact of the referendum result, we did not consider these to represent fair value at 30 June 2016 and therefore considered that an adjustment was required. The Group considered data from an internal model based on the UK listed real estate sector, general advice relating to the property market from external valuers, information from recent property sales and transaction discussions, comparable property market events, external valuations provided in relation to subsequent dates, and the geographical spread of the portfolio recognising that the impact varied depending on the nature and location of the property. Taking into account this data and subject matter expert judgement we considered that a negative 5% adjustment was appropriate in relation to the total value of UK investment property and owner occupied property, with the exception of long leased and ground rent investment property assets which we did not consider to be materially impacted due to their long stable cash flows. No adjustment was considered to be required in relation to non-UK properties.

In UK and Europe valuations are completed in accordance with the Royal Institution of Chartered Surveyors (RICS) valuation standards and predominantly an income capitalisation method is used. This valuation technique is an income approach as it considers the income that an asset will generate over its useful life and estimates fair value through a capitalisation process. Capitalisation involves the conversion of income into a capital sum through the application of an appropriate discount rate.

The determination of the fair value of investment property and all owner occupied property requires the use of estimates such as future cash flows from the assets, for example future rental income, and discount rates applicable to those assets.

Where it is not possible to use an income approach a market approach will be used whereby comparisons are made to recent transactions with similar characteristics and locations to those of the Group's assets. Where appropriate, adjustments will be made by the valuer to reflect any differences.

Where an income approach, or a market approach with significant unobservable adjustments, has been used, valuations are predominantly based on unobservable inputs and accordingly these assets are categorised as level 3 within the fair value hierarchy. Where a market approach valuation does not include significant unobservable adjustments, these assets are categorised as level 2.

Derivative financial assets and derivative financial liabilities

The majority of the Group's derivatives are over-the-counter (OTC) derivatives which are measured at fair value using a range of valuation models including discounting future cash flows and options valuation techniques. The inputs are observable market data and over-the-counter derivatives are therefore categorised as level 2 in the fair value hierarchy.

Exchange traded derivatives are valued using prices sourced from the relevant exchange. They are considered to be instruments quoted in an active market and are therefore categorised as level 1 instruments within the fair value hierarchy.

Non-performance risk arising from the credit risk of each counterparty has been considered on a net exposure basis in line with the Group's risk management policies. At 30 June 2016, 30 June 2015 and 31 December 2015, the residual credit risk is considered immaterial and no credit risk adjustment has been made.

Debt securities

For debt securities, the Group has determined a hierarchy of pricing sources. The hierarchy consists of reputable external pricing providers who generally use observable market data. If prices are not available from these providers or are considered to be stale, the Group has established procedures to arrive at an internal assessment of the fair value. These procedures are based largely on inputs that are not based on observable market data. A further analysis by category of debt security is as follows:

· Government, including provincial and municipal, and supranational institution bonds
These instruments are valued using prices received from external pricing providers who generally base the price on quotes received from a number of market participants. They are categorised as level 1 or level 2 instruments within the fair value hierarchy depending upon the nature of the underlying pricing information used for valuation purposes.

· Corporate bonds listed or quoted in an established over-the-counter market including asset-backed securities
These instruments are generally valued using prices received from external pricing providers who generally consolidate quotes received from a panel of banks into a composite price. As the market becomes less active the quotes provided by some banks may be based on modelled prices rather than on actual transactions. These sources are based largely on observable market data, and therefore these instruments are categorised as level 2 instruments within the fair value hierarchy. When prices received from external pricing providers are based on a single broker indicative quote, the instruments are treated as level 3 instruments.

For instruments for which prices are either not available from external pricing providers or the prices provided are considered to be stale, the Group performs its own assessment of the fair value of these instruments. This assessment is largely based on inputs that are not based on observable market data, principally single broker indicative quotes, and accordingly these instruments are categorised as level 3 instruments within the fair value hierarchy.

· Other corporate bonds including unquoted bonds, commercial paper and certificates of deposit
These instruments are valued using models. For unquoted bonds the model uses inputs from comparable bonds and includes credit spreads which are obtained from brokers or estimated internally. Commercial paper and certificates of deposit are valued using standard valuation formulas. The categorisation of these instruments within the fair value hierarchy will be either level 2 or 3 depending upon the nature of the underlying pricing information used for valuation purposes.

· Commercial mortgages
These instruments are valued using models. The models use a discount rate adjustment technique which is an income approach. The key inputs for the valuation models are contractual future cash flows, which are discounted using a discount rate that is determined by adding a spread to the current base rate. The spread is derived from a pricing matrix which incorporates data on current spreads for similar assets and which may include an internal underwriting rating. These inputs are generally observable with the exception of the spread adjustment arising from the internal underwriting rating. The classification of these instruments within the fair value hierarchy will be either level 2 or 3 depending on whether the spread is adjusted by an internal underwriting rating.

Contingent consideration asset
A contingent consideration asset was recognised during 2014 in respect of a purchase price adjustment mechanism relating to the acquisition of Ignis. The fair value of the asset is calculated using a binominal tree option pricing model. The main inputs are management fee income and expected probabilities of payouts. These are considered unobservable and as a result the asset is classified as level 3 in the fair value hierarchy.

Non-participating investment contract liabilities

The fair value of the non-participating investment contract liabilities is calculated equal to the fair value of the underlying assets and liabilities in the funds. Thus, the value of these liabilities is dependent on the methods and assumptions set out above in relation to the underlying assets and liabilities in which these funds are invested. The underlying assets and liabilities are predominately categorised as level 1 or 2 and as such, the inputs into the valuation of the liabilities are observable. Therefore, the liabilities are categorised within level 2 of the fair value hierarchy.

Liabilities in respect of third party interest in consolidated funds

The fair value of liabilities in respect of third party interest in consolidated funds is calculated equal to the fair value of the underlying assets and liabilities in the funds. Thus, the value of these liabilities is dependent on the methods and assumptions set out above in relation to the underlying assets in which these funds are invested. When the underlying assets and liabilities are valued using readily available market information the liabilities in respect of third party interest in consolidated funds are treated as level 2. Where the underlying assets and liabilities are not valued using readily available market information the liabilities in respect of third party interest in consolidated funds are treated as level 3.

(b)(i) Fair value hierarchy for assets measured at fair value in the statement of financial position

The table below presents the Group's assets measured at fair value by level of the fair value hierarchy.

	As recognised in the consolidated statement of financial position line item		Classified as held for sale		Total		Fair value hierarchy
			Classified as held for sale		Total		Level 1		Level 2		Level 3
	30 Jun 2016	31 Dec 2015	30 Jun 2016	31 Dec 2015	30 Jun 2016	31 Dec 2015	30 Jun 2016	31 Dec 2015	30 Jun 2016	31 Dec 2015	30 Jun 2016	31 Dec 2015
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Investments in associates at FVTPL	6,955	5,425	52	33	7,007	5,458	6,871	5,370	-	2	136	86
Investment property	10,919	9,991	126	87	11,045	10,078	-	-	-	-	11,045	10,078
Owner occupied property	58	55	-	-	58	55	-	-	-	-	58	55
Derivative financial assets	4,685	2,444	-	-	4,685	2,444	1,034	692	3,651	1,752	-	-
Equity securities and interests in pooled investment vehicles	70,862	71,679	10	17	70,872	71,696	70,126	70,877	-	-	746	819
Debt securities	72,128	66,657	-	-	72,128	66,657	30,170	23,210	41,087	42,660	871	787
Contingent consideration asset	15	15	-	-	15	15	-	-	-	-	15	15
Total assets at fair value	165,622	156,266	188	137	165,810	156,403	108,201	100,149	44,738	44,414	12,871	11,840

	As recognised in the consolidated statement of financial position line item	Classified as held for sale	Total	Fair value hierarchy
		Classified as held for sale	Total	Level 1	Level 2	Level 3
30 June 2015	£m	£m	£m	£m	£m	£m
Investments in associates at FVTPL	4,527	14	4,541	4,433	7	101
Investment property	9,584	38	9,622	-	-	9,622
Owner occupied property	134	-	134	-	-	134
Derivative financial assets	2,642	-	2,642	638	2,004	-
Equity securities and interests in pooled investment vehicles	73,033	20	73,053	72,130	-	923
Debt securities	64,610	-	64,610	22,120	41,841	649
Contingent consideration asset	20	-	20	-	-	20
Total assets at fair value	154,550	72	154,622	99,321	43,852	11,449

There were no significant transfers between levels 1 and 2 during the period (six months ended 30 June 2015: none; 12 months ended 31 December 2015: none). Refer to 4.13 (b)(iii) for details of movements in level 3.

The table that follows presents an analysis of the Group's financial assets measured at fair value by level of the fair value hierarchy for each risk segment as set out in Note 4.12 - Risk management.

	As recognised in the consolidated statement of financial position line item		Classified as held for sale			Total		Fair value hierarchy
			Classified as held for sale			Total		Level 1		Level 2			Level 3
	30 Jun 2016	31 Dec 2015	30 Jun 2016	31 Dec 2015	30 Jun 2016		31 Dec 2015	30 Jun 2016	31 Dec 2015	30 Jun 2016	31 Dec 2015	30 Jun 2016		31 Dec 2015
	£m	£m	£m	£m	£m		£m	£m	£m	£m	£m	£m		£m
Shareholder business
Investments in associates at FVTPL	24	19	52	33	76		52	60	36	-	2	16		14
Investment property	-	1	-	-	-		1	-	-	-	-	-		1
Owner occupied property	-	-	-	-	-		-	-	-	-	-	-		-
Derivative financial assets	12	9	-	-	12		9	2	1	10	8	-		-
Equity securities and interests in pooled investment funds	49	52	10	17	59		69	53	61	-	-	6		8
Debt securities	8,252	7,576	-	-	8,252		7,576	1,293	1,089	6,227	5,858	732		629
Contingent consideration asset	15	15	-	-	15		15	-	-	-	-	15		15
Total shareholder business	8,352	7,672	62	50	8,414		7,722	1,408	1,187	6,237	5,868	769		667
Participating business
Investments in associates at FVTPL	679	531	-	-	679		531	559	459	-	-	120		72
Investment property	2,007	2,167	-	-	2,007		2,167	-	-	-	-	2,007		2,167
Owner occupied property	58	55	-	-	58		55	-	-	-	-	58		55
Derivative financial assets	2,923	1,478	-	-	2,923		1,478	581	407	2,342	1,071	-		-
Equity securities and interests in pooled investment funds	7,932	8,187	-	-	7,932		8,187	7,623	7,840	-	-	309		347
Debt securities	29,058	25,913	-	-	29,058		25,913	17,114	15,573	11,826	10,198	118		142
Total participating business	42,657	38,331	-	-	42,657		38,331	25,877	24,279	14,168	11,269	2,612		2,783
Unit linked funds
Investments in associates at FVTPL	5,470	4,561	-	-	5,470		4,561	5,470	4,561	-	-	-		-
Investment property	6,062	5,947	72	68	6,134		6,015	-	-	-	-	6,134		6,015
Owner occupied property	-	-	-	-	-		-	-	-	-	-	-		-
Derivative financial assets	1,333	716	-	-	1,333		716	338	220	995	496	-		-
Equity securities and interests in pooled investment funds	57,169	56,307	-	-	57,169		56,307	56,990	56,117	-	-	179		190
Debt securities	28,491	26,789	-	-	28,491		26,789	10,060	6,053	18,413	20,720	18		16
Total unit linked funds	98,525	94,320	72	68	98,597		94,388	72,858	66,951	19,408	21,216	6,331		6,221
TPICF and NCI¹
Investments in associates at FVTPL	782	314	-	-	782		314	782	314	-	-	-		-
Investment property	2,850	1,876	54	19	2,904		1,895	-	-	-	-	2,904		1,895
Owner occupied property	-	-	-	-	-		-	-	-	-	-	-		-
Derivative financial assets	417	241	-	-	417		241	113	64	304	177	-		-
Equity securities and interests in pooled investment funds	5,712	7,133	-	-	5,712		7,133	5,460	6,859	-	-	252		274
Debt securities	6,327	6,379	-	-	6,327		6,379	1,703	495	4,621	5,884	3		-
Total TPICF and NCI¹	16,088	15,943	54	19	16,142		15,962	8,058	7,732	4,925	6,061	3,159		2,169
Total	165,622	156,266	188	137	165,810		156,403	108,201	100,149	44,738	44,414	12,871		11,840

¹ Third party interest in consolidated funds and non-controlling interests.

	As recognised in the consolidated statement of financial position line item	Classified as held for sale	Total	Fair value hierarchy
		Classified as held for sale	Total	Level 1	Level 2	Level 3
30 June 2015	£m	£m	£m	£m	£m	£m
Shareholder business
Investments in associates at FVTPL	26	14	40	21	7	12
Investment property	1	-	1	-	-	1
Owner occupied property	1	-	1	-	-	1
Derivative financial assets	25	-	25	-	25	-
Equity securities and interests in pooled investment funds	54	20	74	68	-	6
Debt securities	7,635	-	7,635	1,031	6,096	508
Contingent consideration asset	20	-	20	-	-	20
Total shareholder business	7,762	34	7,796	1,120	6,128	548
Participating business
Investments in associates at FVTPL	433	-	433	356	-	77
Investment property	2,100	-	2,100	-	-	2,100
Owner occupied property	133	-	133	-	-	133
Derivative financial assets	1,368	-	1,368	374	994	-
Equity securities and interests in pooled investment funds	8,975	-	8,975	8,578	-	397
Debt securities	26,232	-	26,232	15,739	10,352	141
Total participating business	39,241	-	39,241	25,047	11,346	2,848
Unit linked funds
Investments in associates at FVTPL	3,850	-	3,850	3,838	-	12
Investment property	5,588	19	5,607	-	-	5,607
Owner occupied property	-	-	-	-	-	-
Derivative financial assets	920	-	920	197	723	-
Equity securities and interests in pooled investment funds	57,370	-	57,370	57,186	-	184
Debt securities	24,683	-	24,683	5,147	19,536	-
Total unit linked funds	92,411	19	92,430	66,368	20,259	5,803
TPICF and NCI¹
Investments in associates at FVTPL	218	-	218	218	-	-
Investment property	1,895	19	1,914	-	-	1,914
Owner occupied property	-	-	-	-	-	-
Derivative financial assets	329	-	329	67	262	-
Equity securities and interests in pooled investment funds	6,634	-	6,634	6,298	-	336
Debt securities	6,060	-	6,060	203	5,857	-
Total TPICF and NCI¹	15,136	19	15,155	6,786	6,119	2,250
Total	154,550	72	154,622	99,321	43,852	11,449

¹ Third party interest in consolidated funds and non-controlling interests.

(b)(ii) Fair value hierarchy for liabilities measured at fair value in the statement of financial position

The table below presents the Group's liabilities measured at fair value by level of the fair value hierarchy.

	Total			Fair value hierarchy
	Total			Level 1			Level 2			Level 3
	30 Jun 2016	30 Jun 2015	31 Dec 2015	30 Jun 2016	30 Jun 2015	31 Dec 2015	30 Jun 2016	30 Jun 2015	31 Dec 2015	30 Jun 2016	30 Jun 2015	31 Dec 2015
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Non-participating investment contract liabilities	95,734	91,583	92,890	-	-	-	95,734	91,583	92,890	-	-	-
Liabilities in respect of third party interest in consolidated funds	16,376	16,607	17,196	-	-	-	15,133	15,214	15,889	1,243	1,393	1,307
Derivative financial liabilities	3,706	858	1,254	365	160	184	3,341	698	1,070	-	-	-
Total liabilities at fair value	115,816	109,048	111,340	365	160	184	114,208	107,495	109,849	1,243	1,393	1,307

There were no transfers between levels 1 and 2 during the six months ended 30 June 2016 (six months ended 30 June 2015: none; 12 months ended 31 December 2015: none). Refer to 4.13 (b)(iii) for details of movements in level 3.

The table that follows presents an analysis of the Group's financial liabilities measured at fair value by level of the fair value hierarchy for each risk segment as set out in Note 4.12 - Risk management.

	Total			Fair value hierarchy
	Total			Level 1			Level 2			Level 3
	30 Jun 2016	30 Jun 2015	31 Dec 2015	30 Jun 2016	30 Jun 2015	31 Dec 2015	30 Jun 2016	30 Jun 2015	31 Dec 2015	30 Jun 2016	30 Jun 2015	31 Dec 2015
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Shareholder business
Derivative financial liabilities	62	7	16	2	1	1	60	6	15	-	-	-
Total shareholder business	62	7	16	2	1	1	60	6	15	-	-	-
Participating business
Derivative financial liabilities	150	69	88	31	42	47	119	27	41	-	-	-
Total participating business	150	69	88	31	42	47	119	27	41	-	-	-
Unit linked funds
Non-participating investment contract liabilities	95,734	91,583	92,890	-	-	-	95,734	91,583	92,890	-	-	-
Derivative financial liabilities	2,610	583	836	266	92	103	2,344	491	733	-	-	-
Total unit linked funds	98,344	92,166	93,726	266	92	103	98,078	92,074	93,623	-	-	-
TPICF and NCI¹
Liabilities in respect of third party interest in consolidated funds	16,376	16,607	17,196	-	-	-	15,133	15,214	15,889	1,243	1,393	1,307
Derivative financial liabilities	884	199	314	66	25	33	818	174	281	-	-	-
Total TPICF and NCI¹	17,260	16,806	17,510	66	25	33	15,951	15,388	16,170	1,243	1,393	1,307
Total	115,816	109,048	111,340	365	160	184	114,208	107,495	109,849	1,243	1,393	1,307

¹ Third party interest in consolidated funds and non-controlling interests.

(b)(iii) Reconciliation of movements in level 3 instruments

The movements during the period of level 3 assets and liabilities held at fair value, excluding assets and liabilities held for sale, are analysed below.

	Investments in associates at FVTPL		Investment property		Owner occupied property		Equity securities and interests in pooled		Debt securities		Liabilities in respect of third party interest in consolidated funds
	30 Jun 2016	31 Dec 2015	30 Jun 2016	31 Dec 2015	30 Jun 2016	31 Dec 2015	30 Jun 2016	31 Dec 2015	30 Jun 2016	31 Dec 2015	30 Jun 2016	31 Dec 2015
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
At start of period	86	83	9,991	9,041	55	138	819	836	787	519	(1,307)	(1,338)
Reclassified (to)/from held for sale	-	-	(87)	(87)	-	-	-	-	-	-	-	-
Total gains/(losses) recognised in the consolidated income statement	7	1	(472)	452	(2)	5	(6)	135	35	-	53	(47)
Purchases¹	68	16	1,645	862	-	-	59	116	100	360	(19)	(91)
Settlement	-	-	-	-	-	-	-	-	-	-	30	169
Sales	(29)	(14)	(199)	(290)	-	(92)	(153)	(296)	(35)	(111)	-	-
Transfers in to level 3	-	-	-	-	-	-	9	26	6	33	-	-
Transfers out of level 3	-	-	-	-	-	-	(17)	-	(22)	(14)	-	-
Foreign exchange adjustment	3	-	36	(8)	-	-	35	2	-	-	-	-
Total gains recognised on revaluation of owner occupied property within other comprehensive income	-	-	-	-	5	4	-	-	-	-	-	-
Other	1	-	5	21	-	-	-	-	-	-	-	-
At end of period	136	86	10,919	9,991	58	55	746	819	871	787	(1,243)	(1,307)

¹Purchases of investment property for the period ended 30 June 2016 includes £1,289m (30 June 2015: £nil; 31 December 2015: £nil) relating to the merger of property investment vehicles.

	Investments in associates at FVTPL	Investment property	Owner occupied property	Equity securities and interests in pooled	Debt securities	Liabilities in respect of third party interest in consolidated funds
2015	£m	£m	£m	£m	£m	£m
1 January	83	9,041	138	836	519	(1,338)
Total gains/(losses) recognised in the consolidated income statement	(1)	249	1	62	(9)	2
Purchases	31	412	-	167	166	14
Settlement	-	-	-	-	-	(71)
Sales	(10)	(82)	(5)	(146)	(30)	-
Transfers in to level 3	-	-	-	21	15	-
Transfers out of level 3	-	-	-	-	(12)	-
Foreign exchange adjustment	(2)	(20)	-	(17)	-	-
Total gains recognised on revaluation of owner occupied property within other comprehensive income	-	-	-	-	-	-
Other	-	(16)	-	-	-	-
30 June	101	9,584	134	923	649	(1,393)

In addition to the above, the Group had a contingent consideration asset with a fair value of £15m at 30 June 2016 (30 June 2015: £20m; 31 December 2015: £15m). Movements in the fair value of contingent consideration assets are recognised in other income in the IFRS condensed consolidated income statement.

For the six months ended 30 June 2016, losses of £349m (six months ended 30 June 2015: gains of £253m; 12 months ended 31 December 2015: gains of £418m) were recognised in the IFRS condensed consolidated income statement in respect of assets and liabilities held at fair value classified as level 3 at the period end. Of this amount losses of £400m (30 June 2015: gains of £250m; 31 December 2015: gains of £460m) were recognised in investment return, losses of £2m (30 June 2015: gains of £1m, 31 December 2015: gains of £5m) were recognised in other administrative expenses and gains of £53m (30 June 2015: gains of £2m; 31 December 2015: losses of £47m) were recognised in change in liability for third party interest in consolidated funds.

Transfers of equity securities and interests in pooled investment funds and debt securities into level 3 generally arise when external pricing providers stop providing a price or where the price provided is considered stale. Transfers of equity securities and interests in pooled investment funds and debt securities out of level 3 arise when acceptable prices become available from external pricing providers.

(b)(iv) Sensitivity of level 3 instruments measured at fair value to changes in key assumptions

Effect of changes of significant unobservable assumptions to reasonable possible alternative assumptions

For the majority of level 3 investments other than commercial mortgages and unquoted corporate bonds, the Group does not use internal models to value the investments but rather obtains valuations from external parties. The Group reviews the appropriateness of these valuations on the following basis:

· For investment property and owner occupied property (including property that is classified as held for sale), the valuations are obtained from external valuers and are assessed on an individual property basis. The principal assumptions will differ depending on the valuation technique employed and sensitivities are determined by flexing the key inputs listed in the table below using knowledge of the investment property market. As noted in section (b) of this note UK investment property and owner occupied property valuations at 30 June 2016, other than long leased and ground rent property, include a negative adjustment of 5% over which there is significant uncertainty. Sensitivities in relation to these properties at 30 June 2016 are determined by varying this adjustment based on knowledge of the investment property market.

· Private equity fund valuations are provided by the respective managers of the underlying funds and are assessed on an individual investment basis, with an adjustment made for significant movements between the date of the valuation and the end of the reporting period. Sensitivities are determined by comparison to the private equity market.

· Unquoted corporate bonds are valued using internal models on an individual instrument basis. Sensitivities are determined by adjusting internally estimated credit spreads.

· Commercial mortgage valuations are obtained from internal models on an individual instrument basis. Sensitivities are determined by adjusting the spread added to the current base rate.

· Contingent consideration asset valuation is calculated by using a binominal tree option pricing model. Sensitivities are determined through adjusting probabilities applied to expected payout patterns.

The shareholder is directly exposed to movements in the value of level 3 investments held by the shareholder business (to the extent they are not offset by opposite movements in investment and insurance contract liabilities). As set out in section (b)(i) of this note the shareholder business does not hold investment property or owner occupied property. Movements in level 3 investments held by the other risk segments are offset by an opposite movement in investment and insurance contract liabilities and therefore the shareholder is not directly exposed to such movements unless they are sufficiently severe to cause the assets of the participating business to be insufficient to meet the obligations to policyholders. Changing unobservable inputs in the measurement of the fair value of level 3 financial assets to reasonably possible alternative assumptions would not have a significant impact on profit for the period or total assets.

The table below presents quantitative information about the significant unobservable inputs for level 3 instruments:

	Fair value
30 June 2016	£m	Valuation technique	Unobservable input	Range (weighted average)
Investment property and owner occupied property	10,380	Income capitalisation	Equivalent yield Estimated rental value per square metre per annum	3.5% to 9.2% (5.4%) £10 to £2,422 (£342)
Investment property (hotels)	569	Income capitalisation	Equivalent yield Estimated rental value per room per annum	4.6% to 7.9% (5.9%) £995 to £13,750 (£5,895)
Investment property and owner occupied property	154	Market comparison	Estimated value per square metre	£2 to £8,945 (£2,854)
Equity securities and interests in pooled investment funds and investments in associates at FVTPL (private equity investments)	882	Adjusted net asset value	Adjusted net asset value¹	N/A
Debt securities (commercial mortgages)	442	Discounted cash flow	Credit spread	1.9% to 2.6% (2.1%)
Debt securities (unquoted corporate bonds)	371	Discounted cash flow	Credit spread	0.2% to 3.9% (1.9%)
Debt securities (other)	58	Single broker	Single broker indicative price²	N/A

¹ A Group level adjustment is made for significant movements in private equity values.

^2. Debt securities which are valued using single broker indicative quotes are disclosed in level 3 in the fair value hierarchy. No adjustment is made to these prices.

	Fair value
30 June 2015	£m	Valuation technique	Unobservable input	Range (weighted average)
Investment property and owner occupied property	9,180	Income capitalisation	Equivalent yield Estimated rental value per square metre per annum	3.4% to 13.1% (5.4%) £1 to £2,422 (£349)
Investment property (hotels)	452	Income capitalisation	Equivalent Yield Estimated rental value per room per annum	4.6% to 7.3% (5.9%) £775 to £12,500 (£4,737)¹
Investment property and owner occupied property	124	Market comparison	Estimated value per square metre	£2 to £10,764 (£3,116)
Equity securities and interests in pooled investment funds and investments in associates at FVTPL (private equity investments)	1,024	Adjusted net asset value	Adjusted net asset value²	N/A
Debt securities (commercial mortgages)	346	Discounted cash flow	Credit spread	1.9% to 2.6% (2.1%)
Debt securities (unquoted corporate bonds)	182	Discounted cash flow	Credit spread	0.1% to 3.7% (1.5%)
Debt securities (other)	121	Single broker	Single broker indicative price³	N/A

¹ Restated.

²A Group level adjustment is made for significant movements in private equity values.

³Debt securities which are valued using single broker indicative quotes are disclosed in level 3 in the fair value hierarchy. No adjustment is made to these prices.

	Fair value
31 December 2015	£m	Valuation technique	Unobservable input	Range (weighted average)
Investment property and owner occupied property	9,496	Income capitalisation	Equivalent yield Estimated rental value per square metre per annum	2.1% to 15.5% (5.2%) £3 to £2,422 (£240)
Investment property (hotels)	515	Income capitalisation	Equivalent yield Estimated rental value per room per annum	4.6% to 7.2% (5.9%) £995 to £13,748 (£5,632)
Investment property and owner occupied property	122	Market comparison	Estimated value per square metre	£2 to £14,604 (£4,246)
Equity securities and interests in pooled investment funds and investments in associates at FVTPL (private equity investments)	905	Adjusted net asset value	Adjusted net asset value¹	N/A
Debt securities (commercial mortgages)	382	Discounted cash flow	Credit spread	1.9% to 2.6% (2.2%)
Debt securities (unquoted corporate bonds)	270	Discounted cash flow	Credit spread	0.2% to 4.0% (1.9%)
Debt securities (other)	135	Single broker	Single broker indicative price²	N/A

¹ A Group level adjustment is made for significant movements in private equity values.

²Debt securities which are valued using single broker indicative quotes are disclosed in level 3 in the fair value hierarchy. No adjustment is made to these prices.

The table below presents estimated fair values of financial assets and liabilities whose carrying value does not approximate fair value. Fair values of assets and liabilities are based on observable market inputs where available, or are estimated using other valuation techniques.

	As recognised in the consolidated statement of financial position line item		Classified as held for sale		Total carrying value		Fair value
	30 Jun 2016	31 Dec 2015	30 Jun 2016	31 Dec 2015	30 Jun 2016	31 Dec 2015	30 Jun 2016	31 Dec 2015
	£m	£m	£m	£m	£m	£m	£m	£m
Assets
Loans secured by mortgages	80	87	-	-	80	87	77	84
Liabilities
Non-participating investment contract liabilities	4	4	-	-	4	4	4	4
Subordinated notes	499	499	-	-	499	499	512	530
Subordinated guaranteed bonds	520	502	-	-	520	502	548	579
Mutual Assurance Capital Securities	307	317	-	-	307	317	320	345

	As recognised in the consolidated statement of financial position line item	Classified as held for sale	Total carrying value	Fair value
30 June 2015	£m	£m	£m	£m
Assets
Loans secured by mortgages	97	-	97	93
Liabilities
Non-participating investment contract liabilities	6	283	289	332
Subordinated notes	499	-	499	579
Subordinated guaranteed bonds	519	-	519	610
Mutual Assurance Capital Securities	307	-	307	337

The estimated fair values of the subordinated liabilities are based on the quoted market offer price. The estimated fair values of the other instruments detailed above are calculated by discounting the expected future cash flows at current market rates.

It is not possible to reliably calculate the fair value of participating investment contract liabilities. The assumptions and methods used in the calculation of these liabilities are set out in Note 33 of the Group's Annual report and accounts for the year ended 31 December 2015. The carrying value of participating investment contract liabilities at 30 June 2016 was £15,581m (30 June 2015: £14,809m; 31 December 2015: £14,716m).

The carrying value of all other financial assets and liabilities measured at amortised cost approximates their fair value.

4.14 Contingent liabilities and contingent assets

(a) Annuity sales

Following an earlier thematic review which concluded in 2014, the Financial Conduct Authority (FCA) commenced in mid-2015 a sample-based review of non-advised annuity sales from a selection of firms across the industry in which Standard Life has been participating. This review has focussed on processes for identifying and explaining eligibility for enhanced annuity options.

The Group has cooperated with the FCA's requests for information and has carried out analysis including an initial sampling of historical sales. We do not expect to know the outcome of the FCA's review until later in 2016.

The outcome and consequences of the FCA review are uncertain but it is possible that, for relevant components of our annuity population, it may be necessary to compensate customers who could have obtained a more favourable annuity rate. Ahead of Standard Life learning the outcome of the FCA's review, it is not practicable to determine an estimate of the financial effect of this contingent liability. In addition, it is possible that any financial impact may be mitigated by the Group's professional indemnity insurance.

(b) 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 outcomes 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.

The UAT was established in July 2006 to hold shares and cash allocated to eligible members of The Standard Life Assurance Company where those eligible members had not claimed their entitlement at the date of demutualisation. Dividends paid on the shares held by the UAT were also held in the UAT until the related shares were claimed. The Scheme of Demutualisation set a 10-year time limit, which ended on 9 July 2016, for eligible members to claim their entitlements. At 30 June 2016 the UAT held cash of £42m (30 June 2015: £45m; 31 December 2015: £47m) and 14 million shares (30 June 2015: 16 million shares; 31 December 2015: 15 million shares). The impact of the expiry of the claim entitlement period is presented in Note 4.17.

4.15 Commitments

(a) Capital commitments

As at 30 June 2016 capital expenditure that was authorised and contracted for, but not provided and incurred, was £340m (30 June 2015: £285m; 31 December 2015: £231m) in respect of investment property. Of this amount, £289m (30 June 2015: £259m; 31 December 2015: £203m) and £51m (30 June 2015: £26m; 31 December 2015: £28m) relates to the contractual obligations to purchase, construct or develop investment property and repair, maintain or enhance investment property respectively.

(b) Unrecognised financial instruments

The Group has committed £371m (30 June 2015: £341m; 31 December 2015: £343m) in respect of unrecognised financial instruments to customers and third parties. Of this amount £333m (30 June 2015: £325m; 31 December 2015: £291m) is committed by consolidated private equity funds. These commitments will be funded through contractually agreed additional investments both by the Group, through its controlling interests, and the funds' non-controlling interests. The level of funding provided by each will not necessarily be in line with the current ownership profile of the funds.

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:

	30 June 2016	30 June 2015	31 December 2015
	£m	£m	£m
Not later than one year	45	32	30
Later than one year and no later than five years	79	64	69
Later than five years	112	103	111
Total operating lease commitments	236	199	210

4.16 Related party transactions

(a) Transactions with related parties

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

	6 months 2016	6 months 2015	Full year 2015
	£m	£m	£m
Sales to:
Associates	4,710	413	1,018
Other related parties	37	36	53
	4,747	449	1,071
Purchases from:
Associates	5,066	629	1,495
Joint ventures	-	9	9
	5,066	638	1,504

Sales to and purchases from associates primarily relate to transactions with Group managed investment vehicles which are classified as associates measured at FVTPL.

Sales to other related parties include management fees received from non-consolidated investment vehicles managed by Standard Life Investments.

The Group's defined benefit pension plans have assets of £1,595m (30 June 2015: £1,114m; 31 December 2015: £579m) 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 during the period are on terms which are equivalent to those available to all employees of the Group. In 2016 key management personnel includes only Directors of Standard Life plc; in 2015 key management personnel also included certain direct reports of the Chief Executive.

During the six months ended 30 June 2016, key management personnel and their close family members contributed £2m (six months ended 30 June 2015: £3m; 12 months ended 31 December 2015: £6m) to products sold by the Group. At 30 June 2016, the total value of key management personnel's investments in Group products was £21m (31 December 2015: £19m).

4.17 Events after the reporting date

(a) Unclaimed asset trust (UAT)

Details of the UAT are presented in Note 4.14(c). On expiry of the claim period on 9 July 2016, the entitlement to the unclaimed assets remaining in the UAT transferred to the Company. The assets of the UAT at 9 July 2016 comprised cash of £42m and 14 million shares. The expiry resulted in the derecognition of a liability of £45m to eligible members, which was recognised directly in retained earnings in equity. The unclaimed assets will be used to fund the establishment and the charitable activities of the Standard Life Foundation.

(b) HDFC Life

On 8 August 2016 the Group's Indian associate, HDFC Life, announced that it had agreed terms with Max Life Insurance Company Limited (Max Life), Max Financial Services Limited (Max FS) and Max India Limited (Max India) for the combination of the life insurance businesses of HDFC Life and Max Life. The transaction will be effected through a composite scheme of arrangement, the final form of which remains subject to approval by parties to the transaction and, once finalised, is subject to approval by the shareholders of HDFC Life, Max Life, Max FS and Max India as well as regulatory and high court approvals.

Under the proposed transaction, which is expected to complete within 12 to 15 months, Max Life will merge into Max FS, and HDFC Life will then issue new shares to shareholders of Max FS in consideration for the life insurance business of Max Life. Following completion of the transaction, the shares of HDFC Life will list on The Bombay Stock Exchange and the National Stock Exchange of India, subject to the approval of these stock exchanges and the Securities and Exchange Board of India.

Completion of the proposed transaction would result in the Group's current holding of 35% in HDFC Life becoming 24.1% of the enlarged HDFC Life entity at completion. As a result, if the transaction is completed, the Group expects to recognise a dilution gain in the consolidated income statement, with a corresponding increase in the carrying value of its investment in HDFC Life. The amount of the dilution gain will be dependent on a number of factors including the share price of Max FS at completion, foreign exchange rates and the profit or loss reported by HDFC Life until completion of the transaction. The Group will remain the second largest shareholder in the enlarged HDFC Life entity.

The dilution gain is not expected to give rise to a tax charge.

This information is provided by RNS

The company news service from the London Stock Exchange

END

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