Standard Life plc
Half year results 2017
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:
· 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 EU
· The interim management report includes a fair review of the information required by:
- DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the IFRS condensed consolidated financial information and a description of the principal risks and uncertainties for the remaining six months of the year
- DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so
· As per provision C1 of the UK Corporate Governance Code, the Half year results 2017 taken as a whole, present a fair, balanced and understandable position of the Company's prospects
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
As previously announced, Paul Matthews resigned as an executive Director on 1 March 2017 and Barry O'Dwyer was appointed as an executive Director on the same date.
By order of the Board
Sir Gerry Grimstone
Chairman
8 August 2017
Luke Savage
Chief Financial Officer
8 August 2017
3. Independent review report to Standard Life plc
Conclusion
We have been engaged by the Company to review the IFRS condensed consolidated financial information in the Half year results for the six months ended 30 June 2017 which comprises the:
· IFRS condensed consolidated income statement
· IFRS condensed consolidated statement of comprehensive income
· IFRS condensed consolidated statement of financial position
· IFRS condensed consolidated statement of changes in equity
· IFRS condensed consolidated statement of cash flows
· Related explanatory notes, which include the pro forma reconciliation of consolidated operating profit to IFRS profit
Based on our review, nothing has come to our attention that causes us to believe that the IFRS condensed consolidated financial information in the Half year results for the six months ended 30 June 2017 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted by the EU and the Disclosure Guidance and Transparency Rules (the DTR) of the UK's Financial Conduct Authority (the UK FCA).
Scope of review
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 UK. 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. We read the other information contained in the Half year results and consider whether it contains any apparent misstatements or material inconsistencies with the information in the IFRS condensed consolidated financial information.
A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Directors' responsibilities
The Half year results is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the Half year results in accordance with the DTR of the UK FCA.
As disclosed in Note 4.1, the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards as adopted by the EU. The Directors are responsible for preparing the IFRS condensed consolidated financial information included in the Half year results in accordance with IAS 34 as adopted by the EU.
Our responsibility
Our responsibility is to express to the Company a conclusion on the IFRS condensed consolidated financial information in the Half year results based on our review.
The purpose of our review work and to whom we owe our responsibilities
This report is made solely to the Company in accordance with the terms of our engagement to assist the Company in meeting the requirements of the DTR of the UK FCA. Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusions we have reached.
Jonathan Mills
for and on behalf of KPMG LLP
Chartered Accountants
Saltire Court
20 Castle Terrace
Edinburgh
EH1 2EG
8 August 2017
4. Financial information
IFRS condensed consolidated income statement
For the six months ended 30 June 2017
|
|
6 months |
6 months |
Full year |
|
Notes |
£m |
£m |
£m |
Revenue |
|
|
|
|
Gross earned premium |
|
1,080 |
1,080 |
2,139 |
Premium ceded to reinsurers |
|
(24) |
(25) |
(47) |
Net earned premium |
|
1,056 |
1,055 |
2,092 |
Investment return |
|
5,703 |
6,031 |
15,376 |
Fee income |
|
610 |
575 |
1,186 |
Other income |
|
30 |
38 |
75 |
Total revenue |
|
7,399 |
7,699 |
18,729 |
|
|
|
|
|
Expenses |
|
|
|
|
Claims and benefits paid |
|
2,259 |
2,250 |
4,801 |
Claim recoveries from reinsurers |
|
(243) |
(249) |
(492) |
Net insurance benefits and claims |
|
2,016 |
2,001 |
4,309 |
Change in reinsurance assets and liabilities |
|
223 |
(61) |
140 |
Change in insurance and participating contract liabilities |
|
(922) |
2,941 |
2,115 |
Change in unallocated divisible surplus |
|
(2) |
82 |
53 |
Change in non-participating investment contract liabilities |
|
4,329 |
1,560 |
8,768 |
Expenses under arrangements with reinsurers |
|
112 |
361 |
509 |
Administrative expenses |
|
|
|
|
Restructuring and corporate transaction expenses |
4.4 |
61 |
31 |
62 |
Other administrative expenses |
|
743 |
723 |
1,494 |
Total administrative expenses |
4.4 |
804 |
754 |
1,556 |
Provision for annuity sales practices |
|
- |
- |
175 |
Change in liability for third party interest in consolidated funds |
|
470 |
(385) |
296 |
Finance costs |
|
41 |
41 |
82 |
Total expenses |
|
7,071 |
7,294 |
18,003 |
|
|
|
|
|
Share of profit from associates and joint ventures |
|
46 |
32 |
63 |
|
|
|
|
|
Profit before tax |
|
374 |
437 |
789 |
|
|
|
|
|
Tax expense attributable to policyholders' returns |
4.5 |
53 |
148 |
302 |
|
|
|
|
|
Profit before tax expense attributable to equity holders' profits |
|
321 |
289 |
487 |
|
|
|
|
|
Total tax expense |
4.5 |
76 |
197 |
370 |
Less: Tax attributable to policyholders' returns |
4.5 |
(53) |
(148) |
(302) |
Tax expense attributable to equity holders' profits |
4.5 |
23 |
49 |
68 |
Profit for the period |
|
298 |
240 |
419 |
|
|
|
|
|
Attributable to: |
|
|
|
|
Equity holders of Standard Life plc |
|
292 |
226 |
368 |
Non-controlling interests |
|
6 |
14 |
51 |
|
|
298 |
240 |
419 |
|
|
|
|
|
Earnings per share |
|
|
|
|
Basic (pence per share) |
4.6 |
14.8 |
11.5 |
18.7 |
Diluted (pence per share) |
4.6 |
14.8 |
11.4 |
18.6 |
IFRS condensed consolidated statement of comprehensive income
For the six months ended 30 June 2017
|
|
6 months |
6 months |
Full year |
|
Notes |
£m |
£m |
£m |
Profit for the period |
|
298 |
240 |
419 |
Items that will not be reclassified subsequently to profit or loss: |
|
|
|
|
Remeasurement gains on defined benefit pension plans |
|
- |
209 |
162 |
Revaluation of owner occupied property |
|
1 |
5 |
5 |
Change in unallocated divisible surplus recognised in other comprehensive income |
|
- |
(5) |
(5) |
Equity holder tax effect relating to items that will not be reclassified subsequently to profit or loss |
4.5 |
- |
- |
2 |
Total items that will not be reclassified subsequently to profit or loss |
|
1 |
209 |
164 |
|
|
|
|
|
Items that may be reclassified subsequently to profit or loss: |
|
|
|
|
Fair value losses on cash flow hedges |
|
- |
(1) |
- |
Fair value gains on available-for-sale financial assets |
|
- |
14 |
17 |
Exchange differences on translating foreign operations |
|
(3) |
101 |
173 |
Change in unallocated divisible surplus recognised in other comprehensive income |
|
6 |
(38) |
(62) |
Share of other comprehensive income/(expense) of associates and joint ventures |
|
2 |
(4) |
(10) |
Equity holder tax effect relating to items that may be reclassified subsequently to profit or loss |
4.5 |
- |
(3) |
(3) |
Total items that may be reclassified subsequently to profit or loss |
|
5 |
69 |
115 |
Other comprehensive income for the period |
|
6 |
278 |
279 |
Total comprehensive income for the period |
|
304 |
518 |
698 |
|
|
|
|
|
Attributable to: |
|
|
|
|
Equity holders of Standard Life plc |
|
298 |
504 |
647 |
Non-controlling interests |
|
6 |
14 |
51 |
|
|
304 |
518 |
698 |
Pro forma reconciliation of consolidated operating profit to IFRS profit for the period
For the six months ended 30 June 2017
|
|
6 months |
6 months |
Full year |
|
Notes |
£m |
£m |
£m |
Operating profit/(loss) before tax |
|
|
|
|
Standard Life Investments |
|
190 |
176 |
383 |
Pensions and Savings |
|
167 |
169 |
362 |
India and China |
|
33 |
19 |
36 |
Other |
|
(28) |
(23) |
(58) |
Operating profit before tax |
4.3 |
362 |
341 |
723 |
Adjusted for the following items |
|
|
|
|
Short-term fluctuations in investment return and economic assumption changes |
|
55 |
(17) |
8 |
Restructuring and corporate transaction expenses |
|
(61) |
(36) |
(67) |
Impairment of intangible assets acquired in business combinations |
|
- |
- |
(19) |
Provision for annuity sales practices |
|
- |
- |
(175) |
Other1 |
|
(34) |
(8) |
(21) |
Total non-operating items |
4.3 |
(40) |
(61) |
(274) |
Share of associates' and joint ventures' tax expense |
4.3 |
(7) |
(5) |
(13) |
Profit attributable to non-controlling interests |
4.3 |
6 |
14 |
51 |
Profit before tax expense attributable to equity holders' profits2 |
|
321 |
289 |
487 |
Tax (expense)/credit attributable to |
|
|
|
|
Operating profit |
4.3 |
(31) |
(69) |
(127) |
Non-operating items |
4.3 |
8 |
20 |
59 |
Total tax expense attributable to equity holders' profits |
|
(23) |
(49) |
(68) |
Profit for the period |
|
298 |
240 |
419 |
1 Other non-operating items for the six months ended 30 June 2017 includes £24m (six months ended 30 June 2016: £nil; 12 months ended 31 December 2016: £nil) in relation to the impairment of a disposal group classified as held for sale. Refer Note 4.2 (b) for further details.
2 Profit before tax expense attributable to equity holders' profits consists of profit before tax of £374m (six months ended 30 June 2016: £437m; 12 months ended 31 December 2016: £789m) less tax expense attributable to policyholders' returns of £53m (six months ended 30 June 2016: £148m; 12 months ended 31 December 2016: £302m).
The Group's key alternative performance measure is operating profit. Refer to Note 4.7 for further details.
IFRS condensed consolidated statement of financial position
As at 30 June 2017
|
|
30 June |
30 June |
31 December |
|
Notes |
£m |
£m |
£m |
Assets |
|
|
|
|
Intangible assets |
|
566 |
557 |
572 |
Deferred acquisition costs |
|
622 |
666 |
651 |
Investments in associates and joint ventures |
|
9,880 |
7,481 |
7,948 |
Investment property |
4.13 |
10,038 |
10,919 |
9,929 |
Property, plant and equipment |
|
117 |
91 |
89 |
Pension and other post-retirement benefit assets |
4.11 |
1,107 |
1,110 |
1,093 |
Deferred tax assets |
|
57 |
36 |
42 |
Reinsurance assets |
|
5,155 |
5,583 |
5,386 |
Loans |
4.13 |
197 |
468 |
295 |
Derivative financial assets |
4.13 |
2,844 |
4,685 |
3,534 |
Equity securities and interests in pooled investment funds |
4.13 |
85,261 |
70,862 |
83,307 |
Debt securities |
4.13 |
63,887 |
72,128 |
67,933 |
Receivables and other financial assets |
4.13 |
1,597 |
3,806 |
1,255 |
Current tax recoverable |
|
226 |
202 |
166 |
Other assets |
|
115 |
92 |
94 |
Assets held for sale |
4.13 |
757 |
188 |
263 |
Cash and cash equivalents |
4.13 |
8,025 |
9,171 |
7,938 |
Total assets |
|
190,451 |
188,045 |
190,495 |
Equity |
|
|
|
|
Share capital |
4.9 |
242 |
241 |
242 |
Shares held by trusts |
4.9 |
(14) |
(3) |
(2) |
Share premium reserve |
4.9 |
635 |
629 |
634 |
Retained earnings |
|
2,909 |
2,852 |
2,855 |
Other reserves |
|
611 |
557 |
618 |
Equity attributable to equity holders of Standard Life plc |
|
4,383 |
4,276 |
4,347 |
Non-controlling interests |
|
287 |
276 |
297 |
Total equity |
|
4,670 |
4,552 |
4,644 |
Liabilities |
|
|
|
|
Non-participating insurance contract liabilities |
4.10 |
22,894 |
22,849 |
23,422 |
Non-participating investment contract liabilities |
|
103,456 |
95,738 |
102,063 |
Participating contract liabilities |
4.10 |
30,615 |
32,390 |
31,273 |
Deposits received from reinsurers |
|
4,810 |
5,178 |
5,093 |
Third party interest in consolidated funds |
4.14 |
16,080 |
16,376 |
16,835 |
Subordinated liabilities |
|
1,327 |
1,326 |
1,319 |
Pension and other post-retirement benefit provisions |
4.11 |
57 |
38 |
55 |
Deferred income |
|
175 |
220 |
198 |
Deferred tax liabilities |
|
254 |
202 |
259 |
Current tax liabilities |
|
132 |
192 |
113 |
Derivative financial liabilities |
4.14 |
894 |
3,706 |
965 |
Other financial liabilities |
|
4,135 |
5,145 |
3,916 |
Provisions |
4.12 |
217 |
41 |
227 |
Other liabilities |
|
95 |
92 |
113 |
Liabilities of operations held for sale |
|
640 |
- |
- |
Total liabilities |
|
185,781 |
183,493 |
185,851 |
Total equity and liabilities |
|
190,451 |
188,045 |
190,495 |
IFRS condensed consolidated statement of changes in equity
For the six months ended 30 June 2017
|
|
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 |
2017 |
Notes |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
1 January |
|
242 |
(2) |
634 |
2,855 |
618 |
4,347 |
297 |
4,644 |
Profit for the period |
|
- |
- |
- |
292 |
- |
292 |
6 |
298 |
Other comprehensive income for the period |
|
- |
- |
- |
2 |
4 |
6 |
- |
6 |
Total comprehensive income for the period |
|
- |
- |
- |
294 |
4 |
298 |
6 |
304 |
Dividends paid on ordinary shares |
4.8 |
- |
- |
- |
(263) |
- |
(263) |
- |
(263) |
Issue of share capital |
4.9 |
- |
- |
1 |
- |
- |
1 |
- |
1 |
Reserves credit for employee share-based payments |
|
- |
- |
- |
- |
10 |
10 |
- |
10 |
Transfer to retained earnings for vested employee share-based payments |
|
- |
- |
- |
21 |
(21) |
- |
- |
- |
Shares acquired by employee trusts |
|
- |
(14) |
- |
- |
- |
(14) |
- |
(14) |
Shares distributed by employee and other trusts |
|
- |
2 |
- |
(2) |
- |
- |
- |
- |
Sale of shares held by trusts |
|
- |
- |
- |
4 |
- |
4 |
- |
4 |
Other movements in non-controlling interests in the period |
|
- |
- |
- |
- |
- |
- |
(16) |
(16) |
Aggregate tax effect of items recognised directly in equity |
4.5 |
- |
- |
- |
- |
- |
- |
- |
- |
30 June |
|
242 |
(14) |
635 |
2,909 |
611 |
4,383 |
287 |
4,670 |
|
|
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 payments |
|
- |
- |
- |
- |
16 |
16 |
- |
16 |
Transfer to retained earnings for vested employee share-based payments |
|
- |
- |
- |
18 |
(18) |
- |
- |
- |
Shares acquired by employee trusts |
|
- |
(2) |
- |
- |
- |
(2) |
- |
(2) |
Shares distributed by employee and other trusts |
|
- |
5 |
- |
(5) |
- |
- |
- |
- |
Cancellation of capital redemption reserve |
|
- |
- |
- |
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 |
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 year |
|
- |
- |
- |
368 |
- |
368 |
51 |
419 |
Other comprehensive income for the year |
|
- |
- |
- |
154 |
125 |
279 |
- |
279 |
Total comprehensive income for the year |
|
- |
- |
- |
522 |
125 |
647 |
51 |
698 |
Dividends paid on ordinary shares |
4.8 |
- |
- |
- |
(370) |
- |
(370) |
- |
(370) |
Issue of share capital |
4.9 |
1 |
- |
6 |
- |
- |
7 |
- |
7 |
Reserves credit for employee share-based payments |
|
- |
- |
- |
- |
30 |
30 |
- |
30 |
Transfer to retained earnings for vested employee share-based payments |
|
- |
- |
- |
23 |
(23) |
- |
- |
- |
Shares acquired by employee trusts |
|
- |
(3) |
- |
- |
- |
(3) |
- |
(3) |
Shares distributed by employee and other trusts |
|
- |
7 |
- |
(7) |
- |
- |
- |
- |
Expiry of unclaimed asset trust claim period |
|
- |
- |
- |
41 |
- |
41 |
- |
41 |
Cancellation of capital redemption reserve |
|
- |
- |
- |
488 |
(488) |
- |
- |
- |
Other movements in non-controlling interests in the year |
|
- |
- |
- |
- |
- |
- |
(101) |
(101) |
Aggregate tax effect of items recognised directly in equity |
4.5 |
- |
- |
- |
(4) |
(3) |
(7) |
- |
(7) |
31 December |
|
242 |
(2) |
634 |
2,855 |
618 |
4,347 |
297 |
4,644 |
IFRS condensed consolidated statement of cash flows
For the six months ended 30 June 2017
|
|
6 months |
6 months |
Full year |
|
Notes |
£m |
£m |
£m |
Cash flows from operating activities |
|
|
|
|
Profit before tax |
|
374 |
437 |
789 |
Change in operating assets |
|
665 |
(7,066) |
(12,995) |
Change in operating liabilities |
|
415 |
7,562 |
12,926 |
Adjustment for non-cash movements in investment income |
|
(17) |
104 |
174 |
Change in unallocated divisible surplus |
|
(2) |
82 |
53 |
Other non-cash and non-operating items |
|
39 |
56 |
122 |
Taxation paid |
|
(135) |
(161) |
(333) |
Net cash flows from operating activities |
|
1,339 |
1,014 |
736 |
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
Purchase of property, plant and equipment |
|
(15) |
(6) |
(10) |
Proceeds from sale of property, plant and equipment |
|
- |
- |
22 |
Acquisition of subsidiaries and unincorporated businesses net of cash acquired |
|
- |
- |
(5) |
Acquisition of investments in associates and joint ventures |
|
- |
(179) |
(179) |
Purchase of intangible assets not acquired through business combinations |
|
(32) |
(26) |
(61) |
Net cash flows from investing activities |
|
(47) |
(211) |
(233) |
Cash flows from financing activities |
|
|
|
|
Repayment of other borrowings |
|
(1) |
(1) |
(2) |
Capital flows to third party interest in consolidated funds and non-controlling interests |
|
(848) |
(1,138) |
(1,845) |
Distributions paid to third party interest in consolidated funds and non-controlling interests |
|
(56) |
(53) |
(109) |
Shares acquired by trusts |
|
(14) |
(2) |
(3) |
Sale of shares held by trusts |
|
4 |
- |
- |
Proceeds from issue of shares |
|
1 |
- |
6 |
Interest paid |
|
(34) |
(35) |
(83) |
Ordinary dividends paid |
4.8 |
(263) |
(243) |
(370) |
Net cash flows from financing activities |
|
(1,211) |
(1,472) |
(2,406) |
Net increase/(decrease) in cash and cash equivalents |
|
81 |
(669) |
(1,903) |
Cash and cash equivalents at the beginning of the period |
|
7,900 |
9,591 |
9,591 |
Effects of exchange rate changes on cash and cash equivalents |
|
33 |
201 |
212 |
Cash and cash equivalents at the end of the period1 |
|
8,014 |
9,123 |
7,900 |
Supplemental disclosures on cash flows from operating activities |
|
|
|
|
Interest paid |
|
2 |
1 |
3 |
Interest received |
|
841 |
995 |
1,929 |
Dividends received |
|
1,141 |
1,205 |
2,023 |
Rental income received on investment property |
|
257 |
287 |
564 |
1 Comprises £8,052m (30 June 2016: £9,171m; 31 December 2016: £7,938m) of cash and cash equivalents, including cash and cash equivalents held for sale and (£38m) (30 June 2016: (£48m); 31 December 2016: (£38m)) of overdrafts which are reported in other financial liabilities in the IFRS condensed consolidated statement of financial position.
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 2016 have been applied in the preparation of the IFRS condensed consolidated half year financial information.
There were no new International Financial Reporting Standards (IFRSs), International Accounting Standards (IASs), interpretations or amendments to existing standards, which were effective by EU endorsement for annual periods beginning on or after 1 January 2017.
This IFRS condensed consolidated half year financial information does not comprise statutory accounts within the meaning of Section 434 of the Companies Act. Additionally, the comparative figures for the financial year ended 31 December 2016 are not the Company's statutory accounts for that financial year. The statutory accounts have been reported on by the Company's auditor and delivered to the Registrar of Companies. The report of the auditor was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The 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 2017 |
6 months 2016 |
Full year 2016 |
|||
|
Income statement and cash flows (average rate) |
Statement of financial position (closing rate) |
Income statement and cash flows (average rate) |
Statement of financial position (closing rate) |
Income statement and cash flows (average rate) |
Statement of financial position (closing rate) |
Euro |
1.164 |
1.139 |
1.286 |
1.203 |
1.229 |
1.171 |
US Dollar |
1.267 |
1.299 |
1.426 |
1.337 |
1.356 |
1.236 |
Indian Rupee |
83.417 |
83.963 |
95.666 |
90.228 |
91.058 |
83.864 |
Chinese Renminbi |
8.705 |
8.806 |
9.327 |
8.881 |
8.999 |
8.587 |
Hong Kong Dollar |
9.854 |
10.140 |
11.069 |
10.371 |
10.521 |
9.580 |
(a) Aberdeen Asset Management plc
On 6 March 2017, the boards of Standard Life plc and Aberdeen Asset Management plc (Aberdeen) announced that they had reached agreement on the terms of a recommended merger of Standard Life and Aberdeen, through the acquisition by Standard Life of the entire issued ordinary share capital of Aberdeen, to be effected by means of a court-sanctioned scheme of arrangement between Aberdeen and Aberdeen shareholders under Part 26 of the Companies Act 2006. Following completion of the merger, Aberdeen shareholders would own approximately 33.3% and Standard Life shareholders would own approximately 66.7% of the combined group on a diluted basis. On 9 May 2017, Standard Life published a prospectus and circular relating to the proposed merger and gave notice of a general meeting to take place on 19 June 2017. The proposed merger was approved by shareholders of both Standard Life and Aberdeen on 19 June 2017. Completion of the merger is subject to court and other necessary approvals and if approved is expected to complete on 14 August 2017.
On 29 March 2017, the Group announced the proposed sale of its wholly owned Hong Kong insurance business, Standard Life (Asia) Limited to Standard Life's Chinese joint venture business, Heng An Standard Life Insurance Company Limited, both of which are reported within the India and China segment. The transaction is subject to obtaining local regulatory and other approvals in mainland China and Hong Kong.
Following the remeasurement of the disposal group to the lower of its carrying amount and its fair value less costs to sell, an impairment loss of £24m has been included in Other administrative expenses in the IFRS condensed consolidated income statement. Fair value has been determined by reference to the expected sale price.
At 30 June 2017, the disposal group was measured at fair value less cost to sell and comprised the following assets and liabilities:
|
30 Jun |
|
£m |
Assets of operations held for sale |
|
Equity securities and interests in pooled investment funds |
590 |
Cash and cash equivalents |
27 |
Other assets |
34 |
Total assets of operations held for sale |
651 |
Liabilities of operations held for sale |
|
Non-participating insurance contract liabilities |
553 |
Non-participating investment contract liabilities |
65 |
Other liabilities |
12 |
Total liabilities of operations held for sale |
630 |
Net assets of operations held for sale |
21 |
The Group's reportable segments have been identified in accordance with the way in which the Group is structured and managed. 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 Group's reportable segments are as follows:
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
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, the assets and liabilities of which are classified as held for sale.
Other
This primarily includes the corporate centre and related activities.
(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 2017 |
Notes |
£m |
£m |
£m |
£m |
£m |
£m |
Fee based revenue |
|
429 |
461 |
7 |
- |
(61) |
836 |
Spread/risk margin |
|
- |
49 |
- |
- |
- |
49 |
Total operating income |
|
429 |
510 |
7 |
- |
(61) |
885 |
Total operating expenses |
|
(259) |
(350) |
(7) |
(26) |
61 |
(581) |
Capital management |
|
- |
7 |
- |
(2) |
- |
5 |
Share of associates' and joint ventures' profit before tax1 |
|
20 |
- |
33 |
- |
- |
53 |
Operating profit/(loss) before tax |
|
190 |
167 |
33 |
(28) |
- |
362 |
Tax on operating profit |
|
(33) |
1 |
- |
1 |
- |
(31) |
Share of associates' and joint ventures' tax expense |
4.5 |
(5) |
- |
(2) |
- |
- |
(7) |
Operating profit/(loss) after tax |
|
152 |
168 |
31 |
(27) |
- |
324 |
Adjusted for the following items |
|
|
|
|
|
|
|
Short-term fluctuations in investment return and economic assumption changes |
4.7 |
(1) |
59 |
- |
(3) |
- |
55 |
Restructuring and corporate transaction expenses |
4.4 |
(10) |
(9) |
- |
(42) |
- |
(61) |
Other |
|
(8) |
(3) |
(24) |
1 |
- |
(34) |
Total non-operating items |
|
(19) |
47 |
(24) |
(44) |
- |
(40) |
Tax on non-operating items |
|
3 |
(12) |
- |
17 |
- |
8 |
Profit/(loss) for the period attributable to equity holders of Standard Life plc |
|
136 |
203 |
7 |
(54) |
- |
292 |
Profit attributable to non-controlling interests |
|
|
|
|
|
|
6 |
Profit for the period |
|
|
|
|
|
|
298 |
1 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.
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 |
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 |
1 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 |
Full year 2016 |
Notes |
£m |
£m |
£m |
£m |
£m |
£m |
Fee based revenue |
|
885 |
861 |
17 |
- |
(112) |
1,651 |
Spread/risk margin |
|
- |
134 |
- |
- |
- |
134 |
Total operating income |
|
885 |
995 |
17 |
- |
(112) |
1,785 |
Total operating expenses |
|
(537) |
(655) |
(22) |
(57) |
112 |
(1,159) |
Capital management |
|
- |
22 |
- |
(1) |
- |
21 |
Share of associates' and joint ventures' profit before tax1 |
|
35 |
- |
41 |
- |
- |
76 |
Operating profit/(loss) before tax |
|
383 |
362 |
36 |
(58) |
- |
723 |
Tax on operating profit |
|
(72) |
(71) |
- |
16 |
- |
(127) |
Share of associates' and joint ventures' tax expense |
4.5 |
(11) |
- |
(2) |
- |
- |
(13) |
Operating profit/(loss) after tax |
|
300 |
291 |
34 |
(42) |
- |
583 |
Adjusted for the following items |
|
|
|
|
|
|
|
Short-term fluctuations in investment return and economic assumption changes |
4.7 |
3 |
13 |
- |
(8) |
- |
8 |
Restructuring and corporate transaction expenses |
4.4 |
(23) |
(38) |
(3) |
(3) |
- |
(67) |
Impairment of intangible assets acquired in business combinations |
|
(9) |
(10) |
- |
- |
- |
(19) |
Provision for annuity sales practices |
4.12 |
- |
(175) |
- |
- |
- |
(175) |
Other |
|
(21) |
3 |
- |
(3) |
- |
(21) |
Total non-operating items |
|
(50) |
(207) |
(3) |
(14) |
- |
(274) |
Tax on non-operating items |
|
9 |
46 |
- |
4 |
- |
59 |
Profit/(loss) for the year attributable to equity holders of Standard Life plc |
|
259 |
130 |
31 |
(52) |
- |
368 |
Profit attributable to non-controlling interests |
|
|
|
|
|
|
51 |
Profit for the year |
|
|
|
|
|
|
419 |
1 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.
The following table provides a reconciliation of total operating income and total operating expenses, as presented in the analysis of Group operating profit by segment, to total revenue and total expenses respectively, as presented in the IFRS condensed consolidated income statement:
|
6 months 2017 |
6 months 2016 |
Full year 2016 |
|||
|
Income |
Expenses |
Income |
Expenses |
Income |
Expenses |
|
£m |
£m |
£m |
£m |
£m |
£m |
Total operating income or operating expenses as presented in the analysis of Group operating profit by segment |
885 |
(581) |
857 |
(566) |
1,785 |
(1,159) |
Net insurance benefits and claims |
2,016 |
(2,016) |
2,001 |
(2,001) |
4,309 |
(4,309) |
Change in reinsurance assets and liabilities |
223 |
(223) |
(61) |
61 |
140 |
(140) |
Change in insurance and participating contract liabilities |
(922) |
922 |
2,941 |
(2,941) |
2,115 |
(2,115) |
Change in unallocated divisible surplus |
(2) |
2 |
82 |
(82) |
53 |
(53) |
Change in non-participating investment contract liabilities |
4,329 |
(4,329) |
1,560 |
(1,560) |
8,768 |
(8,768) |
Expenses under arrangements with reinsurers |
112 |
(112) |
361 |
(361) |
509 |
(509) |
Change in liability for third party interest in consolidated funds |
470 |
(470) |
(385) |
385 |
296 |
(296) |
Other presentation differences |
224 |
(224) |
173 |
(173) |
380 |
(380) |
Tax expense attributable to policyholders' returns |
53 |
- |
148 |
- |
302 |
- |
Non-operating items |
- |
(40) |
(5) |
(56) |
- |
(274) |
Non-controlling interests and capital management |
11 |
- |
27 |
- |
72 |
- |
Total revenue or expenses as presented in the IFRS condensed consolidated income statement |
7,399 |
(7,071) |
7,699 |
(7,294) |
18,729 |
(18,003) |
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 relate to items included in administrative expenses which are borne by policyholders, for example investment property management expenses, or are directly related to fee income.
|
6 months |
6 months |
Full year |
|
£m |
£m |
£m |
Restructuring and corporate transaction expenses |
61 |
31 |
62 |
Interest expense |
3 |
3 |
5 |
Commission expenses |
72 |
73 |
153 |
Staff costs and other employee-related costs |
284 |
295 |
596 |
Impairment of disposal group classified as held for sale |
24 |
- |
- |
Other administrative expenses |
344 |
334 |
695 |
|
788 |
736 |
1,511 |
Acquisition costs deferred during the period |
(27) |
(32) |
(51) |
Amortisation of deferred acquisition costs |
43 |
50 |
96 |
Total administrative expenses |
804 |
754 |
1,556 |
Total restructuring and corporate transaction expenses incurred during the period were £61m (six months ended 30 June 2016: £31m; 12 months ended 31 December 2016: £62m). The expenses mainly relate to the proposed merger with Aberdeen, Ignis integration, Elevate integration and a number of other business unit restructuring programmes.
If the merger with Aberdeen completes, stamp duty of approximately £20m (dependent on the Aberdeen share price at completion) will be recognised in the consolidated income statement on completion.
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 for the six months ended 30 June 2016 was increased by £5m (12 months ended 31 December 2016: £5m) so that operating profit reflected the expected long-term pension expense for the period and was therefore more indicative of the long-term operating performance of the Group. As a result for the six months ended 30 June 2016, £5m (12 months ended 31 December 2016: £5m) of pension costs that were included in staff costs in the IFRS condensed consolidated income statement, were included in restructuring and corporate transaction expenses in determining operating profit.
|
6 months |
6 months |
Full year |
|
£m |
£m |
£m |
Current tax: |
|
|
|
UK |
82 |
194 |
316 |
Double tax relief |
(1) |
(1) |
(3) |
Overseas |
14 |
14 |
23 |
Adjustment to tax expense in respect of prior years |
3 |
(2) |
(3) |
Total current tax |
98 |
205 |
333 |
|
|
|
|
Deferred tax: |
|
|
|
Deferred tax (credit)/expense arising from the current periods |
(22) |
(8) |
37 |
Total deferred tax |
(22) |
(8) |
37 |
|
|
|
|
Total tax expense |
76 |
197 |
370 |
|
|
|
|
Attributable to policyholders' investment return |
53 |
148 |
302 |
Attributable to equity holders' profits |
23 |
49 |
68 |
Total tax expense |
76 |
197 |
370 |
The standard UK corporation tax rate for the accounting period is 19.25% (six months ended 30 June 2016: 20%; 12 months ended 31 December 2016: 20%). The UK corporation tax rate was reduced to 19% from 1 April 2017 and will reduce to 17% from 1 April 2020. These changes have been taken into account in the calculation of the UK deferred tax balance at 30 June 2017.
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 associates' and joint ventures' tax expense is £7m (six months ended 30 June 2016: £5m; 12 months ended 31 December 2016: £13m) and is included in profit before tax in the IFRS condensed consolidated income statement in Share of profit from associates and joint ventures.
Certain Group entities are party to claims and proceedings to recover tax suffered in respect of overseas income. These claims and proceedings predominantly relate to assets in policyholder funds, primarily SLAL's Heritage With Profits Fund. There is significant uncertainty on the outcome of these claims and they are not expected to materially impact profit for the period attributable to equity holders or total equity.
Tax relating to components of other comprehensive income is as follows:
|
6 months |
6 months |
Full year |
|
£m |
£m |
£m |
Tax relating to defined benefit pension plan deficit |
- |
- |
(2) |
Equity holder tax effect relating to items that will not be reclassified subsequently to profit or loss |
- |
- |
(2) |
Current tax on net change in financial assets designated as available-for-sale |
- |
3 |
3 |
Equity holder tax effect relating to items that may be reclassified subsequently to profit or loss |
- |
3 |
3 |
Tax relating to other comprehensive income |
- |
3 |
1 |
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 |
6 months |
Full year |
|
£m |
£m |
£m |
Tax relating to expiry of unclaimed asset trust claim period |
- |
- |
7 |
Tax expense on reserves for employee share-based payments |
- |
2 |
- |
Tax relating to items taken directly to equity |
- |
2 |
7 |
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 period 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 period 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.
The following table shows details of basic, diluted and alternative earnings per share for the period:
|
6 months |
6 months |
Full year |
|
£m |
£m |
£m |
Operating profit before tax |
362 |
341 |
723 |
Tax on operating profit |
(31) |
(69) |
(127) |
Share of associates' and joint ventures' tax expense |
(7) |
(5) |
(13) |
Operating profit after tax |
324 |
267 |
583 |
Total non-operating items |
(40) |
(61) |
(274) |
Tax on non-operating items |
8 |
20 |
59 |
Profit attributable to equity holders of Standard Life plc |
292 |
226 |
368 |
|
Millions |
Millions |
Millions |
Weighted average number of ordinary shares outstanding |
1,972 |
1,970 |
1,972 |
Dilutive effect of share options and awards |
3 |
4 |
6 |
Weighted average number of diluted ordinary shares outstanding |
1,975 |
1,974 |
1,978 |
|
Pence |
Pence |
Pence |
Basic earnings per share |
14.8 |
11.5 |
18.7 |
Diluted earnings per share |
14.8 |
11.4 |
18.6 |
Alternative earnings per share |
16.4 |
13.6 |
29.6 |
Diluted alternative earnings per share |
16.4 |
13.5 |
29.5 |
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 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
The components of IFRS profit attributable to market movements and interest rate changes which give rise to variances between actual and expected returns on investments backing equity holder funds, with consistent allowance for the corresponding expected movement in equity holder liabilities, as well as the impact of changes in economic assumptions on equity holder liabilities, are excluded from operating profit. Investments backing equity holder funds include investments backing annuities and subordinated debt, investments from surplus capital in insurance companies, and investments held by holding companies and other non-insurance entities.
For annuities this means that all fluctuations in liabilities and the assets backing those liabilities due to market interest rate (including credit risk) movements over the period are excluded from operating profit.
The expected rates of return for debt securities and equity securities are determined separately. The expected rates of return for equity securities are determined based on the gilt spot rates of an appropriate duration plus an equity risk premium of 3% (2016: 3%). Investments in pooled investment funds which target equity returns over the longer term, including absolute return funds, also use an expected rate of return determined based on the gilt spot rates of an appropriate duration plus a risk premium of 3% (2016: 3%).
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.
The expected rates of return used for both the assets backing subordinated liabilities and the subordinated liabilities themselves include a discount for expected credit defaults. This means that the interest expense included in operating profit for subordinated liabilities is after deducting a margin for own credit risk. Additionally, the effect of the accounting mismatch, where subordinated liabilities are measured at amortised cost and certain assets backing the liabilities are measured at fair value, is also excluded from operating profit.
There have been no actual defaults or impairments of assets backing subordinated liabilities during the six months ended 30 June 2017 or 30 June 2016, or the 12 months ended 31 December 2016. If these were to arise they would be excluded from operating profit.
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 2017, short-term fluctuations in investment return and economic assumption changes resulted in gains of £55m (six months ended 30 June 2016: losses of £17m; 12 months ended 31 December 2016: gains of £8m). Short-term fluctuations in investment return relate principally to the impact of interest rate changes on UK annuity liabilities and the assets backing those liabilities.
In the pro forma reconciliation of consolidated operating profit to IFRS profit for the period ended 30 June 2017 the Other non-operating sub-total includes £24m (six months ended 30 June 2016: £nil; 12 months ended 31 December 2016: £nil) in relation to the impairment of a disposal group classified as held for sale and £10m (six months ended 30 June 2016: £9m; 12 months ended 31 December 2016: £19m) in relation to amortisation of intangible assets acquired through business combinations.
|
6 months 2017 |
6 months 2016 |
Full year 2016 |
||
|
Pence per |
Pence per |
£m |
Pence per |
£m |
Dividends relating to reporting period |
|
|
|
|
|
Interim dividend (2017 and 2016) |
7.00 |
6.47 |
127 |
6.47 |
127 |
Final dividend (2016) |
- |
- |
- |
13.35 |
263 |
Total |
7.00 |
6.47 |
127 |
19.82 |
390 |
|
|
|
|
|
|
Dividends paid in reporting period |
|
|
|
|
|
Current year interim dividend |
- |
- |
- |
6.47 |
127 |
Final dividend for prior year |
13.35 |
12.34 |
243 |
12.34 |
243 |
Total |
|
|
243 |
|
370 |
Subsequent to 30 June 2017, the Directors have proposed an interim dividend for 2017 of 7.00 pence per ordinary share (interim 2016: 6.47 pence). If the merger with Aberdeen completes as expected prior to the record date, the dividend will be paid on the revised number of shares. This would equate to a cash payment of an estimated £207m. If the merger does not complete prior to the record date, the estimated payment will be £138m. The dividend is expected to be paid on 18 October 2017 and will be recorded as an appropriation of retained earnings in the financial statements for the year ended 31 December 2017.
(a) Issued share capital
The movement in the issued ordinary share capital of the Company is:
|
6 months 2017 |
6 months 2016 |
Full year 2016 |
|||
Issued shares fully paid |
12 2/9p each |
£m |
12 2/9p each |
£m |
12 2/9p each |
£m |
At start of period |
1,978,884,437 |
242 |
1,969,937,375 |
241 |
1,969,937,375 |
241 |
Shares issued in respect of share incentive plans |
285,582 |
- |
197,255 |
- |
460,194 |
- |
Shares issued in respect of share options |
338,450 |
- |
5,332,837 |
- |
8,486,868 |
1 |
At end of period |
1,979,508,469 |
242 |
1,975,467,467 |
241 |
1,978,884,437 |
242 |
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.
The Company can issue shares to satisfy awards granted under employee incentive plans which have been approved by shareholders.
|
6 months |
6 months |
Full year |
|
£m |
£m |
£m |
At start of period |
634 |
628 |
628 |
Shares issued in respect of share options |
1 |
1 |
6 |
At end of period |
635 |
629 |
634 |
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 allocated shares in the new listed Company. Some former members were yet to claim their shares and the UAT held these on their behalf. There was an off-setting obligation to deliver these shares which was also recognised in the shares held by trusts 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. Shares remaining in the UAT after 9 July 2016 continue to be measured at £nil.
The number of shares held in trust at 30 June 2017 was as follows:
|
6 months |
6 months |
Full year |
Number of shares held in trust |
|
|
|
Employee Share Trust |
11,123,356 |
2,363,153 |
1,287,431 |
Unclaimed Asset Trust |
188,646 |
13,750,053 |
12,999,801 |
On expiry of the claim period on 9 July 2016, the entitlement to the unclaimed shares remaining in the UAT transferred to the Company. During the period to 30 June 2017, 11,719,073 shares were transferred from the UAT to the EST for £nil consideration. An amount equivalent to the fair value of the shares as at the date of transfer was donated by the Company to the Standard Life Foundation.
|
30 Jun |
30 Jun |
31 Dec |
|
£m |
£m |
£m |
Non-participating insurance contract liabilities |
23,447 |
22,849 |
23,422 |
Less: Non-participating contract liabilities classified as held for sale |
(553) |
- |
- |
|
22,894 |
22,849 |
23,422 |
|
30 Jun |
30 Jun |
31 Dec |
|
£m |
£m |
£m |
Participating insurance contract liabilities |
14,769 |
16,201 |
15,151 |
Participating investment contract liabilities |
15,300 |
15,581 |
15,537 |
Unallocated divisible surplus |
546 |
608 |
585 |
Participating contract liabilities |
30,615 |
32,390 |
31,273 |
The movement in insurance contract liabilities, participating investment contract liabilities and reinsurance contracts during the six months ended 30 June 2017 and the six months ended 30 June 2016 arising from changes in estimates are set out below:
|
Participating insurance liabilities |
Non- |
Participating investment contract liabilities |
Total |
Reinsurance contracts |
Net |
6 months 2017 |
£m |
£m |
£m |
£m |
£m |
£m |
Changes in |
|
|
|
|
|
|
Methodology/modelling |
(11) |
- |
11 |
- |
- |
- |
Economic assumptions |
(2) |
(86) |
47 |
(41) |
7 |
(34) |
Non-economic assumptions |
1 |
- |
(4) |
(3) |
- |
(3) |
6 months 2016 |
|
|
|
|
|
|
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) |
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 reflect changes in fixed income yields, leading to small changes in valuation interest rates for non-participating business, and other market movements.
Economic assumptions also include the effect of changes in the inflation scenarios that are used to value inflation linked annuities. This change has resulted in a decrease in non-participating insurance contract liabilities, largely offset by an increase in participating liabilities.
The movement in insurance contract liabilities, participating investment contract liabilities and reinsurance contracts during the year ended 31 December 2016 was as follows:
|
Participating insurance liabilities |
Non- |
Participating investment contract liabilities |
Total |
Reinsurance contracts |
Net |
2016 |
£m |
£m |
£m |
£m |
£m |
£m |
1 January |
14,283 |
21,206 |
14,716 |
50,205 |
(5,515) |
44,690 |
Expected change |
(1,335) |
(662) |
(881) |
(2,878) |
374 |
(2,504) |
Methodology/modelling changes |
(45) |
1 |
3 |
(41) |
53 |
12 |
Effect of changes in |
|
|
|
|
|
|
Economic assumptions |
(465) |
1,901 |
194 |
1,630 |
(384) |
1,246 |
Non-economic assumptions |
(23) |
(104) |
47 |
(80) |
50 |
(30) |
Effect of |
|
|
|
|
|
|
Economic experience |
1,193 |
413 |
1,426 |
3,032 |
41 |
3,073 |
Non-economic experience |
88 |
(358) |
(106) |
(376) |
6 |
(370) |
New business |
- |
794 |
34 |
828 |
- |
828 |
Total change in contract liabilities |
(587) |
1,985 |
717 |
2,115 |
140 |
2,255 |
Foreign exchange adjustment |
1,455 |
231 |
104 |
1,790 |
(11) |
1,779 |
31 December |
15,151 |
23,422 |
15,537 |
54,110 |
(5,386) |
48,724 |
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' measure of technical provisions. Technical provisions 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.
The amounts recognised in the IFRS condensed consolidated income statement for defined contribution and defined benefit plans are as follows:
|
6 months |
6 months |
Full year |
|
£m |
£m |
£m |
Current service cost |
25 |
26 |
49 |
Interest income |
(15) |
(17) |
(33) |
Administrative expenses |
1 |
1 |
3 |
Expense recognised in the IFRS condensed consolidated income statement |
11 |
10 |
19 |
An additional pension contribution of 6% of pensionable salary into the defined contribution plan for eligible members of the defined benefit plan was made on 16 April 2016. This contribution was accrued over the vesting period and was included in current service cost for the six months ended 30 June 2016 and the 12 months ended 31 December 2016.
(b) Analysis of amounts recognised on the IFRS condensed consolidated statement of financial position
|
30 June 2017 |
30 June 2016 |
31 December 2016 |
||||||
|
UK |
Other |
Total |
UK |
Other |
Total |
UK |
Other |
Total |
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
Present value of funded obligation |
(2,762) |
(121) |
(2,883) |
(2,972) |
(96) |
(3,068) |
(3,207) |
(117) |
(3,324) |
Present value of unfunded obligation |
- |
(10) |
(10) |
- |
(9) |
(9) |
- |
(10) |
(10) |
Fair value of plan assets |
4,465 |
74 |
4,539 |
4,718 |
67 |
4,785 |
4,927 |
72 |
4,999 |
Effect of limit on plan surplus |
(596) |
- |
(596) |
(636) |
- |
(636) |
(627) |
- |
(627) |
Net asset/(liability) |
1,107 |
(57) |
1,050 |
1,110 |
(38) |
1,072 |
1,093 |
(55) |
1,038 |
The principal economic assumptions for the UK plan which are based in part on current market conditions are as follows:
|
30 Jun |
30 Jun |
31 Dec |
|
% |
% |
% |
Discount rate |
2.70 |
2.80 |
2.70 |
Rates of inflation |
|
|
|
Consumer Price Index (CPI) |
2.15 |
1.85 |
2.25 |
Retail Price Index (RPI) |
3.15 |
2.85 |
3.25 |
(a) Provisions
|
30 Jun |
30 Jun |
31 Dec |
|
£m |
£m |
£m |
Provision for annuity sales practices |
164 |
- |
175 |
Legal provisions |
16 |
16 |
16 |
Other provisions |
37 |
25 |
36 |
Total provisions |
217 |
41 |
227 |
Other provisions comprise obligations in respect of compensation, staff entitlements, vacant property and reorganisations.
Provision for annuity sales practices relating to enhanced annuities
On 14 October 2016, the Financial Conduct Authority (FCA) published the findings of its thematic review of non-advised annuity sales practices. Standard Life has been a participant in that review. The FCA looked at whether firms provided sufficient information to their customers about their potential eligibility for enhanced annuities.
At the request of the FCA, Standard Life will conduct a review of non-advised annuity sales (with a purchase price above a minimum threshold) to customers eligible to receive an enhanced annuity from 1 July 2008 until such date as Standard Life can demonstrate its compliance with the applicable regulatory standards. The purpose of this review is to identify whether these customers received sufficient information about enhanced annuities to make the right decisions about their purchase, and, where appropriate, provide redress to customers who have suffered loss as a result of not having received sufficient information. Standard Life has been working with the FCA regarding the process for conducting this past business review.
The Group has provided for an estimate of the redress payable to customers, which may comprise both lump sum payments and enhancements to future annuity payments, the costs of conducting the review and other related expenses.
During the year to 31 December 2016, the Group established a provision of £175m for annuity sales practices relating to enhanced annuities. At 30 June 2017 £11m of the provision had been utilised. There were no additional amounts charged to the income statement in respect of provisions for annuity sales practices relating to enhanced annuities during the six months ended 30 June 2017.
The Group has in place liability insurance and is seeking for up to £100m of the financial impact of the provision to be mitigated by this insurance. Discussions are ongoing with our insurers and, as a result, no insurance recovery has been recognised as an asset in these financial statements.
The Group expects the majority of the outflows associated with this provision, including outflows relating to establishing any reserves for future annuity payments, to have occurred by the end of 2018.
The Group has not provided for any possible FCA-levied financial penalty relating to the review. Disclosure of related contingent liabilities is included in Note 4.15.
(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 Group's Annual report and accounts for the year ended 31 December 2016. Key developments in the Group's principal risks in the six months to 30 June 2017 are discussed in the Risk management section of the Management report.
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 2016. 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 2016 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.
On 29 March 2017, the Group announced the proposed sale of Standard Life (Asia) Limited. Refer to Note 4.2. The assets and liabilities of this business were classified as held for sale from this date. Comparatives at 30 June 2016 and 31 December 2016 have not been updated to reflect the sale. The transaction does not impact the classification of the Group's assets and liabilities within the risk segments.
The assets and liabilities 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 values of the Group's holdings of investment property and financial assets are impacted by the Group's exposure to adverse fluctuations in property and financial markets (referred to as market risk) and counterparty failure (referred to as credit risk).
The total Group holding in investment property and financial assets has been presented below based on risk segment.
|
Shareholder |
Participating |
Unit linked |
TPICF and NCI1 |
Total |
|||||
|
30 Jun 2017 |
31 Dec 2016 |
30 Jun 2017 |
31 Dec 2016 |
30 Jun 2017 |
31 Dec 2016 |
30 Jun 2017 |
31 Dec 2016 |
30 Jun 2017 |
31 Dec 2016 |
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
Investments in associates2 |
38 |
30 |
823 |
847 |
7,500 |
5,605 |
916 |
894 |
9,277 |
7,376 |
Investment property |
- |
- |
1,723 |
1,716 |
5,871 |
5,727 |
2,444 |
2,486 |
10,038 |
9,929 |
Loans |
26 |
52 |
125 |
134 |
46 |
102 |
- |
7 |
197 |
295 |
Derivative financial assets |
16 |
19 |
1,606 |
2,211 |
972 |
1,025 |
250 |
279 |
2,844 |
3,534 |
Equity securities and interests in pooled investment funds |
68 |
58 |
9,403 |
8,478 |
68,850 |
67,452 |
6,940 |
7,319 |
85,261 |
83,307 |
Debt securities |
8,355 |
8,384 |
26,481 |
28,193 |
23,917 |
25,885 |
5,134 |
5,471 |
63,887 |
67,933 |
Receivables and other financial assets |
663 |
515 |
133 |
97 |
653 |
533 |
148 |
110 |
1,597 |
1,255 |
Assets held for sale |
118 |
27 |
8 |
224 |
627 |
12 |
4 |
- |
757 |
263 |
Cash and cash equivalents |
1,004 |
963 |
1,493 |
1,336 |
4,571 |
4,636 |
957 |
1,003 |
8,025 |
7,938 |
Total |
10,288 |
10,048 |
41,795 |
43,236 |
113,007 |
110,977 |
16,793 |
17,569 |
181,883 |
181,830 |
|
Shareholder |
Participating |
Unit linked |
TPICF and NCI1 |
Total |
30 June 2016 |
£m |
£m |
£m |
£m |
£m |
Investments in associates2 |
24 |
679 |
5,470 |
782 |
6,955 |
Investment property |
- |
2,007 |
6,062 |
2,850 |
10,919 |
Loans |
57 |
247 |
155 |
9 |
468 |
Derivative financial assets |
12 |
2,923 |
1,333 |
417 |
4,685 |
Equity securities and interests in pooled investment funds |
49 |
7,932 |
57,169 |
5,712 |
70,862 |
Debt securities |
8,252 |
29,058 |
28,491 |
6,327 |
72,128 |
Receivables and other financial assets |
745 |
200 |
2,194 |
667 |
3,806 |
Assets held for sale |
62 |
- |
72 |
54 |
188 |
Cash and cash equivalents |
677 |
2,159 |
5,224 |
1,111 |
9,171 |
Total |
9,878 |
45,205 |
106,170 |
17,929 |
179,182 |
1 Third party interest in consolidated funds and non-controlling interests.
2 Comprises 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 £3,990m (30 June 2016: £3,396m; 31 December 2016: £3,779m) 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 reinsured 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 very 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.
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 table below analyses investment property held by the participating business by country and sector.
Participating business
|
Office |
Industrial |
Retail |
Other |
Total |
||||||||||
|
30 Jun 2017 |
30 Jun 2016 |
31 Dec 2016 |
30 Jun 2017 |
30 Jun 2016 |
31 Dec 2016 |
30 Jun 2017 |
30 Jun 2016 |
31 Dec 2016 |
30 Jun 2017 |
30 Jun 2016 |
31 Dec 2016 |
30 Jun 2017 |
30 Jun 2016 |
31 Dec 2016 |
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
UK |
419 |
623 |
404 |
224 |
213 |
206 |
808 |
863 |
841 |
6 |
5 |
6 |
1,457 |
1,704 |
1,457 |
Belgium |
- |
14 |
12 |
- |
- |
- |
7 |
10 |
9 |
- |
- |
- |
7 |
24 |
21 |
France |
- |
- |
- |
- |
- |
- |
- |
- |
- |
2 |
2 |
2 |
2 |
2 |
2 |
Germany |
93 |
81 |
85 |
6 |
5 |
6 |
19 |
17 |
18 |
- |
- |
- |
118 |
103 |
109 |
Ireland |
- |
- |
- |
- |
- |
- |
- |
- |
- |
32 |
29 |
32 |
32 |
29 |
32 |
Netherlands |
68 |
60 |
64 |
39 |
30 |
31 |
- |
- |
- |
- |
- |
- |
107 |
90 |
95 |
Spain |
- |
55 |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
55 |
- |
Total |
580 |
833 |
565 |
269 |
248 |
243 |
834 |
890 |
868 |
40 |
36 |
40 |
1,723 |
2,007 |
1,716 |
There is no direct exposure to residential property in the shareholder and participating businesses.
The Group is subject to equity price risk due to daily changes in the market value and returns on the holdings in its equity security portfolio. Exposures to equity securities are primarily controlled 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 based on the ultimate parent country of risk.
|
Shareholder business |
Participating business |
Total |
||||||
|
30 Jun |
30 Jun |
31 Dec |
30 Jun |
30 Jun |
31 Dec |
30 Jun |
30 Jun |
31 Dec |
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
UK |
6 |
6 |
6 |
3,734 |
3,311 |
3,545 |
3,740 |
3,317 |
3,551 |
Australia |
1 |
- |
1 |
23 |
19 |
21 |
24 |
19 |
22 |
Belgium |
1 |
- |
- |
57 |
70 |
63 |
58 |
70 |
63 |
Canada |
1 |
- |
- |
40 |
62 |
49 |
41 |
62 |
49 |
Denmark |
2 |
1 |
2 |
198 |
156 |
172 |
200 |
157 |
174 |
Finland |
2 |
1 |
2 |
38 |
67 |
44 |
40 |
68 |
46 |
France |
4 |
3 |
4 |
578 |
431 |
461 |
582 |
434 |
465 |
Germany |
3 |
2 |
3 |
548 |
455 |
495 |
551 |
457 |
498 |
Greece |
- |
- |
- |
1 |
- |
1 |
1 |
- |
1 |
Ireland |
1 |
1 |
1 |
212 |
157 |
183 |
213 |
158 |
184 |
Italy |
2 |
1 |
1 |
63 |
74 |
73 |
65 |
75 |
74 |
Japan |
2 |
1 |
1 |
177 |
119 |
124 |
179 |
120 |
125 |
Mexico |
- |
- |
- |
- |
1 |
- |
- |
1 |
- |
Netherlands |
3 |
2 |
2 |
390 |
357 |
335 |
393 |
359 |
337 |
Norway |
- |
- |
- |
17 |
19 |
19 |
17 |
19 |
19 |
Portugal |
- |
- |
- |
69 |
62 |
65 |
69 |
62 |
65 |
Russia |
1 |
- |
- |
- |
- |
- |
1 |
- |
- |
Spain |
2 |
1 |
1 |
160 |
99 |
127 |
162 |
100 |
128 |
Sweden |
3 |
2 |
2 |
273 |
208 |
204 |
276 |
210 |
206 |
Switzerland |
3 |
2 |
2 |
466 |
476 |
453 |
469 |
478 |
455 |
US |
30 |
11 |
22 |
2,045 |
1,560 |
1,680 |
2,075 |
1,571 |
1,702 |
Other |
1 |
14 |
8 |
246 |
175 |
241 |
247 |
189 |
249 |
Total |
68 |
48 |
58 |
9,335 |
7,878 |
8,355 |
9,403 |
7,926 |
8,413 |
In addition to the equity securities analysed above, the shareholder business has interests in pooled investment funds of £nil (30 June 2016: £1m; 31 December 2016: £nil) and investments in associates at FVTPL of £38m (30 June 2016: £24m; 31 December 2016: £30m). The participating business has interests in pooled investment funds of £68m (30 June 2016: £54m; 31 December 2016: £123m) and investments in associates at FVTPL of £823m (30 June 2016: £679m; 31 December 2016: £847m).
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 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 |
30 Jun |
31 Dec |
30 Jun |
30 Jun |
31 Dec |
30 Jun |
30 Jun |
31 Dec |
30 Jun |
30 Jun |
31 Dec |
30 Jun |
30 Jun |
31 Dec |
30 Jun |
30 Jun |
31 Dec |
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
UK |
486 |
543 |
594 |
453 |
423 |
426 |
1,303 |
1,236 |
1,205 |
1,973 |
1,879 |
2,006 |
- |
- |
- |
4,215 |
4,081 |
4,231 |
Australia |
- |
- |
- |
124 |
128 |
107 |
7 |
15 |
17 |
15 |
12 |
17 |
- |
- |
- |
146 |
155 |
141 |
Austria |
27 |
30 |
29 |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
27 |
30 |
29 |
Belgium |
- |
- |
- |
1 |
1 |
1 |
- |
- |
- |
42 |
22 |
23 |
- |
- |
- |
43 |
23 |
24 |
Canada |
- |
- |
- |
80 |
75 |
105 |
- |
- |
- |
1 |
1 |
1 |
- |
- |
- |
81 |
76 |
106 |
Denmark |
- |
- |
- |
30 |
26 |
26 |
- |
- |
- |
16 |
16 |
16 |
- |
- |
- |
46 |
42 |
42 |
Finland |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
France |
216 |
242 |
240 |
397 |
215 |
344 |
4 |
3 |
3 |
312 |
352 |
347 |
- |
- |
- |
929 |
812 |
934 |
Germany |
11 |
404 |
31 |
79 |
105 |
167 |
1 |
2 |
1 |
312 |
268 |
285 |
- |
- |
- |
403 |
779 |
484 |
Greece |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
Ireland |
- |
- |
- |
- |
1 |
- |
- |
- |
- |
6 |
4 |
6 |
- |
- |
- |
6 |
5 |
6 |
Italy |
- |
- |
- |
28 |
27 |
28 |
- |
- |
- |
84 |
82 |
82 |
- |
- |
- |
112 |
109 |
110 |
Japan |
- |
- |
- |
2 |
1 |
36 |
- |
- |
- |
24 |
24 |
25 |
- |
- |
- |
26 |
25 |
61 |
Mexico |
3 |
- |
- |
- |
- |
- |
- |
- |
- |
105 |
111 |
115 |
- |
- |
- |
108 |
111 |
115 |
Netherlands |
23 |
23 |
22 |
293 |
273 |
331 |
- |
- |
- |
37 |
28 |
35 |
- |
- |
- |
353 |
324 |
388 |
Norway |
- |
- |
- |
- |
28 |
25 |
- |
- |
- |
41 |
41 |
42 |
- |
- |
- |
41 |
69 |
67 |
Portugal |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
Russia |
2 |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
2 |
- |
- |
Spain |
- |
- |
- |
105 |
55 |
55 |
- |
- |
- |
46 |
45 |
45 |
- |
- |
- |
151 |
100 |
100 |
Sweden |
- |
- |
- |
64 |
89 |
115 |
1 |
1 |
1 |
48 |
51 |
48 |
- |
- |
- |
113 |
141 |
164 |
Switzerland |
- |
- |
- |
106 |
105 |
55 |
- |
- |
- |
7 |
7 |
7 |
- |
- |
- |
113 |
112 |
62 |
US |
39 |
20 |
14 |
200 |
252 |
226 |
103 |
88 |
89 |
435 |
413 |
450 |
- |
- |
- |
777 |
773 |
779 |
Other |
60 |
42 |
46 |
359 |
152 |
204 |
61 |
55 |
58 |
14 |
13 |
14 |
169 |
223 |
219 |
663 |
485 |
541 |
Total |
867 |
1,304 |
976 |
2,321 |
1,956 |
2,251 |
1,480 |
1,400 |
1,374 |
3,518 |
3,369 |
3,564 |
169 |
223 |
219 |
8,355 |
8,252 |
8,384 |
1 Government, provincial and municipal includes debt securities which are issued by or explicitly guaranteed by the national government.
2 This balance primarily consists of securities held in supranationals.
Participating business
|
Government, provincial and municipal1 |
Banks |
Other financial institutions |
Other corporate |
Other2 |
Total |
||||||||||||
|
30 Jun |
30 Jun |
31 Dec |
30 Jun |
30 Jun |
31 Dec |
30 Jun |
30 Jun |
31 Dec |
30 Jun |
30 Jun |
31 Dec |
30 Jun |
30 Jun |
31 Dec |
30 Jun |
30 Jun |
31 Dec |
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
UK |
10,447 |
10,709 |
10,952 |
704 |
872 |
885 |
1,749 |
1,967 |
1,934 |
1,784 |
1,823 |
1,875 |
- |
- |
- |
14,684 |
15,371 |
15,646 |
Australia |
- |
- |
6 |
157 |
311 |
206 |
44 |
50 |
50 |
37 |
38 |
38 |
- |
- |
- |
238 |
399 |
300 |
Austria |
362 |
355 |
392 |
- |
4 |
4 |
12 |
- |
10 |
- |
- |
- |
- |
- |
- |
374 |
359 |
406 |
Belgium |
725 |
590 |
691 |
5 |
11 |
10 |
- |
- |
- |
63 |
50 |
57 |
- |
- |
- |
793 |
651 |
758 |
Canada |
27 |
3 |
3 |
42 |
139 |
67 |
19 |
9 |
10 |
3 |
3 |
4 |
- |
- |
- |
91 |
154 |
84 |
Denmark |
4 |
5 |
3 |
13 |
22 |
23 |
- |
- |
- |
13 |
18 |
14 |
- |
- |
- |
30 |
45 |
40 |
Finland |
200 |
113 |
194 |
7 |
78 |
69 |
- |
- |
- |
- |
4 |
4 |
- |
- |
- |
207 |
195 |
267 |
France |
2,037 |
2,106 |
2,009 |
342 |
420 |
450 |
33 |
28 |
29 |
358 |
372 |
364 |
- |
- |
- |
2,770 |
2,926 |
2,852 |
Germany |
3,088 |
3,456 |
3,118 |
75 |
377 |
196 |
107 |
125 |
120 |
223 |
217 |
199 |
- |
- |
- |
3,493 |
4,175 |
3,633 |
Greece |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
Ireland |
1 |
1 |
25 |
- |
7 |
4 |
11 |
11 |
11 |
14 |
18 |
18 |
- |
- |
- |
26 |
37 |
58 |
Italy |
18 |
90 |
49 |
23 |
31 |
31 |
15 |
9 |
11 |
29 |
55 |
46 |
- |
- |
- |
85 |
185 |
137 |
Japan |
17 |
24 |
21 |
163 |
172 |
172 |
- |
- |
- |
- |
- |
- |
- |
- |
- |
180 |
196 |
193 |
Mexico |
- |
- |
- |
- |
- |
- |
- |
- |
- |
52 |
62 |
56 |
- |
- |
- |
52 |
62 |
56 |
Netherlands |
474 |
543 |
467 |
157 |
391 |
328 |
36 |
51 |
36 |
45 |
39 |
48 |
- |
- |
- |
712 |
1,024 |
879 |
Norway |
5 |
17 |
- |
6 |
88 |
24 |
- |
- |
- |
61 |
66 |
65 |
- |
- |
- |
72 |
171 |
89 |
Portugal |
- |
- |
- |
- |
- |
- |
- |
- |
- |
5 |
4 |
4 |
- |
- |
- |
5 |
4 |
4 |
Russia |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
Spain |
2 |
2 |
13 |
12 |
8 |
4 |
4 |
7 |
5 |
26 |
46 |
38 |
- |
- |
- |
44 |
63 |
60 |
Sweden |
- |
1 |
- |
269 |
378 |
367 |
8 |
6 |
10 |
22 |
18 |
12 |
- |
- |
- |
299 |
403 |
389 |
Switzerland |
- |
- |
- |
147 |
224 |
150 |
63 |
62 |
63 |
53 |
55 |
62 |
- |
- |
- |
263 |
341 |
275 |
US |
22 |
95 |
106 |
452 |
552 |
432 |
148 |
155 |
151 |
478 |
537 |
499 |
- |
- |
- |
1,100 |
1,339 |
1,188 |
Other |
83 |
45 |
98 |
292 |
285 |
247 |
32 |
83 |
48 |
138 |
128 |
139 |
418 |
417 |
347 |
963 |
958 |
879 |
Total |
17,512 |
18,155 |
18,147 |
2,866 |
4,370 |
3,669 |
2,281 |
2,563 |
2,488 |
3,404 |
3,553 |
3,542 |
418 |
417 |
347 |
26,481 |
29,058 |
28,193 |
1 Government, provincial and municipal includes debt securities which are issued by or explicitly guaranteed by the national government.
2 This balance primarily consists of securities held in supranationals.
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 counterparty or a 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 £26m (30 June 2016: £57m; 31 December 2016: £52m) primarily comprises bank deposits of more than three months maturity.
The participating business holding of loans of £125m (30 June 2016: £247m; 31 December 2016: £134m) comprises bank deposits of more than three months maturity and UK mortgages.
(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)
Information on the methods and assumptions used to determine fair values for each major category of 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 categorised 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 categorised 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. The fair value of investment property is measured based on each property's highest and best use from a market participant's perspective and considers the potential uses of the property that are physically possible, legally permissible and financially feasible. No adjustment has been made for vacant possession for the Group's owner occupied property.
In the UK and Europe, valuations are completed in accordance with the Royal Institution of Chartered Surveyors (RICS) valuation standards. These are predominantly produced using an income capitalisation approach. The income capitalisation approach is based on capitalising an annual net income stream using an appropriate yield. The annual net income is based on both current and estimated future net income. The yield and future net income used is determined by considering recent transactions involving property with similar characteristics to the property being valued. Where it is not possible to use an income capitalisation approach, for example on property with no rental income, a market comparison approach is used by considering recent transactions involving property with similar characteristics to the property being valued. In both approaches where appropriate, adjustments will be made by the valuer to reflect differences between the characteristics of the property being valued and the recent market transactions considered.
As income capitalisation and market comparison valuations generally include significant unobservable inputs including unobservable adjustments to recent market transactions, these assets are categorised as level 3 within the fair value hierarchy.
Derivative financial assets and derivative financial liabilities
The majority of the Group's derivatives are over-the-counter derivatives which are measured at fair value using a range of valuation models including discounting future cash flows and option 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 2017, 30 June 2016 and 31 December 2016, 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 categorised 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 and contingent consideration liabilities
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 binomial 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.
Contingent consideration liabilities have also been recognised in respect of acquisitions made during 2016. The valuations are based on the unobservable assumptions regarding expected movements in assets under advice and therefore the liabilities are 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 categorised 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 categorised as level 3.
The table below presents the Group's assets measured at fair value by level of the fair value hierarchy.
|
Fair value hierarchy |
|||||||||||
|
As recognised in the consolidated statement of financial position |
Classified as |
Total |
Level 1 |
Level 2 |
Level 3 |
||||||
|
30 Jun 2017 |
31 Dec 2016 |
30 Jun 2017 |
31 Dec 2016 |
30 Jun 2017 |
31 Dec 2016 |
30 Jun 2017 |
31 Dec 2016 |
30 Jun 2017 |
31 Dec 2016 |
30 Jun 2017 |
31 Dec 2016 |
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
Investments in associates at FVTPL |
9,277 |
7,376 |
8 |
- |
9,285 |
7,376 |
9,108 |
7,211 |
2 |
2 |
175 |
163 |
Investment property |
10,038 |
9,929 |
26 |
228 |
10,064 |
10,157 |
- |
- |
- |
- |
10,064 |
10,157 |
Owner occupied property |
77 |
58 |
8 |
8 |
85 |
66 |
- |
- |
- |
- |
85 |
66 |
Derivative financial assets |
2,844 |
3,534 |
- |
- |
2,844 |
3,534 |
851 |
844 |
1,993 |
2,690 |
- |
- |
Equity securities and interests in pooled investment vehicles |
85,261 |
83,307 |
656 |
27 |
85,917 |
83,334 |
85,170 |
82,539 |
- |
- |
747 |
795 |
Debt securities |
63,887 |
67,933 |
11 |
- |
63,898 |
67,933 |
26,874 |
28,721 |
36,084 |
38,344 |
940 |
868 |
Contingent consideration asset |
10 |
10 |
- |
- |
10 |
10 |
- |
- |
- |
- |
10 |
10 |
Total assets at fair value |
171,394 |
172,147 |
709 |
263 |
172,103 |
172,410 |
122,003 |
119,315 |
38,079 |
41,036 |
12,021 |
12,059 |
|
Fair value hierarchy |
|||||
|
As recognised in the consolidated statement of financial position |
Classified as |
Total |
Level 1 |
Level 2 |
Level 3 |
30 June 2016 |
£m |
£m |
£m |
£m |
£m |
£m |
Investments in associates at FVTPL |
6,955 |
52 |
7,007 |
6,871 |
- |
136 |
Investment property |
10,919 |
126 |
11,045 |
- |
- |
11,045 |
Owner occupied property |
58 |
- |
58 |
- |
- |
58 |
Derivative financial assets |
4,685 |
- |
4,685 |
1,034 |
3,651 |
- |
Equity securities and interests in pooled investment vehicles |
70,862 |
10 |
70,872 |
70,126 |
- |
746 |
Debt securities |
72,128 |
- |
72,128 |
30,170 |
41,087 |
871 |
Contingent consideration asset |
15 |
- |
15 |
- |
- |
15 |
Total assets at fair value |
165,622 |
188 |
165,810 |
108,201 |
44,738 |
12,871 |
There were no significant transfers between levels 1 and 2 during the period (six months ended 30 June 2016: none; 12 months ended 31 December 2016: £98m transferred from level 1 to level 2). Refer to 4.14 (b)(iii) for details of movements in level 3.
The table that follows presents an analysis of the Group's assets measured at fair value by level of the fair value hierarchy for each risk segment as set out in Note 4.13.
|
Fair value hierarchy |
|
|||||||||||
|
As recognised in the consolidated statement of financial position |
Classified as |
Total |
Level 1 |
Level 2 |
Level 3 |
|
||||||
|
30 Jun 2017 |
31 Dec 2016 |
30 Jun 2017 |
31 Dec 2016 |
30 Jun 2017 |
31 Dec 2016 |
30 Jun 2017 |
31 Dec 2016 |
30 Jun 2017 |
31 Dec 2016 |
30 Jun 2017 |
31 Dec 2016 |
|
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
Shareholder business |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in associates at FVTPL |
38 |
30 |
6 |
- |
44 |
30 |
19 |
10 |
2 |
2 |
23 |
18 |
|
Investment property |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
|
Owner occupied property |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
|
Derivative financial assets |
16 |
19 |
- |
- |
16 |
19 |
3 |
2 |
13 |
17 |
- |
- |
|
Equity securities and interests in pooled investment funds |
68 |
58 |
61 |
27 |
129 |
85 |
122 |
78 |
- |
- |
7 |
7 |
|
Debt securities |
8,355 |
8,384 |
11 |
- |
8,366 |
8,384 |
783 |
928 |
6,728 |
6,704 |
855 |
752 |
|
Contingent consideration asset |
10 |
10 |
- |
- |
10 |
10 |
- |
- |
- |
- |
10 |
10 |
|
Total shareholder business |
8,487 |
8,501 |
78 |
27 |
8,565 |
8,528 |
927 |
1,018 |
6,743 |
6,723 |
895 |
787 |
|
Participating business |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in associates at FVTPL |
823 |
847 |
- |
- |
823 |
847 |
671 |
702 |
- |
- |
152 |
145 |
|
Investment property |
1,723 |
1,716 |
- |
216 |
1,723 |
1,932 |
- |
- |
- |
- |
1,723 |
1,932 |
|
Owner occupied property |
30 |
30 |
8 |
8 |
38 |
38 |
- |
- |
- |
- |
38 |
38 |
|
Derivative financial assets |
1,606 |
2,211 |
- |
- |
1,606 |
2,211 |
334 |
480 |
1,272 |
1,731 |
- |
- |
|
Equity securities and interests in pooled investment funds |
9,403 |
8,478 |
- |
- |
9,403 |
8,478 |
9,131 |
8,159 |
- |
- |
272 |
319 |
|
Debt securities |
26,481 |
28,193 |
- |
- |
26,481 |
28,193 |
16,451 |
16,994 |
9,945 |
11,083 |
85 |
116 |
|
Total participating business |
40,066 |
41,475 |
8 |
224 |
40,074 |
41,699 |
26,587 |
26,335 |
11,217 |
12,814 |
2,270 |
2,550 |
|
Unit linked funds |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in associates at FVTPL |
7,500 |
5,605 |
2 |
- |
7,502 |
5,605 |
7,502 |
5,605 |
- |
- |
- |
- |
|
Investment property |
5,871 |
5,727 |
26 |
12 |
5,897 |
5,739 |
- |
- |
- |
- |
5,897 |
5,739 |
|
Owner occupied property |
47 |
28 |
- |
- |
47 |
28 |
- |
- |
- |
- |
47 |
28 |
|
Derivative financial assets |
972 |
1,025 |
- |
- |
972 |
1,025 |
412 |
281 |
560 |
744 |
- |
- |
|
Equity securities and interests in pooled investment funds |
68,850 |
67,452 |
591 |
- |
69,441 |
67,452 |
69,231 |
67,252 |
- |
- |
210 |
200 |
|
Debt securities |
23,917 |
25,885 |
- |
- |
23,917 |
25,885 |
8,435 |
9,434 |
15,482 |
16,451 |
- |
- |
|
Total unit linked funds |
107,157 |
105,722 |
619 |
12 |
107,776 |
105,734 |
85,580 |
82,572 |
16,042 |
17,195 |
6,154 |
5,967 |
|
TPICF and NCI1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in associates at FVTPL |
916 |
894 |
- |
- |
916 |
894 |
916 |
894 |
- |
- |
- |
- |
|
Investment property |
2,444 |
2,486 |
- |
- |
2,444 |
2,486 |
- |
- |
- |
- |
2,444 |
2,486 |
|
Owner occupied property |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
|
Derivative financial assets |
250 |
279 |
- |
- |
250 |
279 |
102 |
81 |
148 |
198 |
- |
- |
|
Equity securities and interests in pooled investment funds |
6,940 |
7,319 |
4 |
- |
6,944 |
7,319 |
6,686 |
7,050 |
- |
- |
258 |
269 |
|
Debt securities |
5,134 |
5,471 |
- |
- |
5,134 |
5,471 |
1,205 |
1,365 |
3,929 |
4,106 |
- |
- |
|
Total TPICF and NCI1 |
15,684 |
16,449 |
4 |
- |
15,688 |
16,449 |
8,909 |
9,390 |
4,077 |
4,304 |
2,702 |
2,755 |
|
Total |
171,394 |
172,147 |
709 |
263 |
172,103 |
172,410 |
122,003 |
119,315 |
38,079 |
41,036 |
12,021 |
12,059 |
|
1 Third party interest in consolidated funds and non-controlling interests.
|
Fair value hierarchy |
|||||
|
As recognised in the consolidated statement of financial position |
Classified as |
Total |
Level 1 |
Level 2 |
Level 3 |
30 June 2016 |
£m |
£m |
£m |
£m |
£m |
£m |
Shareholder business |
|
|
|
|
|
|
Investments in associates at FVTPL |
24 |
52 |
76 |
60 |
- |
16 |
Investment property |
- |
- |
- |
- |
- |
- |
Owner occupied property |
- |
- |
- |
- |
- |
- |
Derivative financial assets |
12 |
- |
12 |
2 |
10 |
- |
Equity securities and interests in pooled investment funds |
49 |
10 |
59 |
53 |
- |
6 |
Debt securities |
8,252 |
- |
8,252 |
1,293 |
6,227 |
732 |
Contingent consideration asset |
15 |
- |
15 |
- |
- |
15 |
Total shareholder business |
8,352 |
62 |
8,414 |
1,408 |
6,237 |
769 |
Participating business |
|
|
|
|
|
|
Investments in associates at FVTPL |
679 |
- |
679 |
559 |
- |
120 |
Investment property |
2,007 |
- |
2,007 |
- |
- |
2,007 |
Owner occupied property |
58 |
- |
58 |
- |
- |
58 |
Derivative financial assets |
2,923 |
- |
2,923 |
581 |
2,342 |
- |
Equity securities and interests in pooled investment funds |
7,932 |
- |
7,932 |
7,623 |
- |
309 |
Debt securities |
29,058 |
- |
29,058 |
17,114 |
11,826 |
118 |
Total participating business |
42,657 |
- |
42,657 |
25,877 |
14,168 |
2,612 |
Unit linked funds |
|
|
|
|
|
|
Investments in associates at FVTPL |
5,470 |
- |
5,470 |
5,470 |
- |
- |
Investment property |
6,062 |
72 |
6,134 |
- |
- |
6,134 |
Owner occupied property |
- |
- |
- |
- |
- |
- |
Derivative financial assets |
1,333 |
- |
1,333 |
338 |
995 |
- |
Equity securities and interests in pooled investment funds |
57,169 |
- |
57,169 |
56,990 |
- |
179 |
Debt securities |
28,491 |
- |
28,491 |
10,060 |
18,413 |
18 |
Total unit linked funds |
98,525 |
72 |
98,597 |
72,858 |
19,408 |
6,331 |
TPICF and NCI1 |
|
|
|
|
|
|
Investments in associates at FVTPL |
782 |
- |
782 |
782 |
- |
- |
Investment property |
2,850 |
54 |
2,904 |
- |
- |
2,904 |
Owner occupied property |
- |
- |
- |
- |
- |
- |
Derivative financial assets |
417 |
- |
417 |
113 |
304 |
- |
Equity securities and interests in pooled investment funds |
5,712 |
- |
5,712 |
5,460 |
- |
252 |
Debt securities |
6,327 |
- |
6,327 |
1,703 |
4,621 |
3 |
Total TPICF and NCI1 |
16,088 |
54 |
16,142 |
8,058 |
4,925 |
3,159 |
Total |
165,622 |
188 |
165,810 |
108,201 |
44,738 |
12,871 |
1 Third party interest in consolidated funds and non-controlling interests.
The table below presents the Group's liabilities measured at fair value by level of the fair value hierarchy.
|
Fair value hierarchy |
||||||||||||
|
As recognised in the consolidated statement of financial position line item |
Level 1 |
Level 2 |
Level 3 |
|||||||||
|
30 Jun 2017 |
30 Jun 2016 |
31 Dec 2016 |
30 Jun 2017 |
30 Jun 2016 |
31 Dec 2016 |
30 Jun 2017 |
30 Jun 2016 |
31 Dec 2016 |
30 Jun 2017 |
30 Jun 2016 |
31 Dec 2016 |
|
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
Non-participating investment contract liabilities |
103,452 |
95,734 |
102,059 |
- |
- |
- |
103,452 |
95,734 |
102,059 |
- |
- |
- |
|
Liabilities in respect of third party interest in consolidated funds |
16,080 |
16,376 |
16,835 |
- |
- |
- |
14,857 |
15,133 |
15,607 |
1,223 |
1,243 |
1,228 |
|
Derivative financial liabilities |
894 |
3,706 |
965 |
193 |
365 |
185 |
701 |
3,341 |
780 |
- |
- |
- |
|
Contingent consideration liabilities |
14 |
- |
15 |
- |
- |
- |
- |
- |
- |
14 |
- |
15 |
|
Total liabilities at fair value |
120,440 |
115,816 |
119,874 |
193 |
365 |
185 |
119,010 |
114,208 |
118,446 |
1,237 |
1,243 |
1,243 |
|
There were no transfers between levels 1 and 2 during the six months ended 30 June 2017 (six months ended 30 June 2016: none; 12 months ended 31 December 2016: none). Refer to 4.14 (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 4.13.
|
Fair value hierarchy |
||||||||||||
|
As recognised in the consolidated statement of financial position line item |
Level 1 |
Level 2 |
Level 3 |
|||||||||
|
30 Jun 2017 |
30 Jun 2016 |
31 Dec 2016 |
30 Jun 2017 |
30 Jun 2016 |
31 Dec 2016 |
30 Jun 2017 |
30 Jun 2016 |
31 Dec 2016 |
30 Jun 2017 |
30 Jun 2016 |
31 Dec 2016 |
|
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
Shareholder business |
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial liabilities |
13 |
62 |
12 |
1 |
2 |
1 |
12 |
60 |
11 |
- |
- |
- |
|
Contingent consideration liabilities |
14 |
- |
15 |
- |
- |
- |
- |
- |
- |
14 |
- |
15 |
|
Total shareholder business |
27 |
62 |
27 |
1 |
2 |
1 |
12 |
60 |
11 |
14 |
- |
15 |
|
Participating business |
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial liabilities |
87 |
150 |
39 |
31 |
31 |
20 |
56 |
119 |
19 |
- |
- |
- |
|
Total participating business |
87 |
150 |
39 |
31 |
31 |
20 |
56 |
119 |
19 |
- |
- |
- |
|
Unit linked funds |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-participating investment contract liabilities |
103,452 |
95,734 |
102,059 |
- |
- |
- |
103,452 |
95,734 |
102,059 |
- |
- |
- |
|
Derivative financial liabilities |
624 |
2,610 |
714 |
132 |
266 |
130 |
492 |
2,344 |
584 |
- |
- |
- |
|
Total unit linked funds |
104,076 |
98,344 |
102,773 |
132 |
266 |
130 |
103,944 |
98,078 |
102,643 |
- |
- |
- |
|
TPICF and NCI1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities in respect of third party interest in consolidated funds |
16,080 |
16,376 |
16,835 |
- |
- |
- |
14,857 |
15,133 |
15,607 |
1,223 |
1,243 |
1,228 |
|
Derivative financial liabilities |
170 |
884 |
200 |
29 |
66 |
34 |
141 |
818 |
166 |
- |
- |
- |
|
Total TPICF and NCI1 |
16,250 |
17,260 |
17,035 |
29 |
66 |
34 |
14,998 |
15,951 |
15,773 |
1,223 |
1,243 |
1,228 |
|
Total |
120,440 |
115,816 |
119,874 |
193 |
365 |
185 |
119,010 |
114,208 |
118,446 |
1,237 |
1,243 |
1,243 |
|
1 Third party interest in consolidated funds and non-controlling interests.
In addition to the tables above there are £65m (30 June 2016: £nil; 31 December 2016: £nil) of non-participating investment contract liabilities in the unit linked funds segment and £11m (30 June 2016: £nil; 31 December 2016: £nil) of liabilities in respect of third party interest in consolidated funds in the TPICF and NCI segment classified as held for sale at 30 June 2017. These are categorised as level 2 in the fair value hierarchy.
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 |
Investment |
Owner occupied property |
Equity securities and interests in pooled investment funds |
Debt securities |
Liabilities in |
||||||
|
30 Jun 2017 |
31 Dec 2016 |
30 Jun 2017 |
31 Dec 2016 |
30 Jun 2017 |
31 Dec 2016 |
30 Jun 2017 |
31 Dec 2016 |
30 Jun 2017 |
31 Dec 2016 |
30 Jun 2017 |
31 Dec 2016 |
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
At start of period |
163 |
86 |
9,929 |
9,991 |
58 |
55 |
795 |
819 |
868 |
787 |
(1,228) |
(1,307) |
Reclassified (to)/from held for sale |
- |
- |
(26) |
(191) |
- |
(8) |
- |
- |
- |
- |
- |
- |
Total gains/(losses) recognised in the consolidated income statement |
13 |
10 |
229 |
(302) |
- |
(1) |
(1) |
80 |
18 |
34 |
(18) |
19 |
Purchases1 |
26 |
103 |
234 |
1,755 |
1 |
1 |
77 |
109 |
103 |
183 |
- |
(19) |
Settlement |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
23 |
81 |
Sales |
(30) |
(39) |
(327) |
(1,337) |
- |
(22) |
(122) |
(242) |
(60) |
(97) |
- |
- |
Transfers in to level 32 |
- |
- |
- |
- |
- |
- |
8 |
5 |
27 |
- |
- |
- |
Transfers out of level 32 |
- |
- |
- |
- |
- |
- |
- |
(33) |
(16) |
(39) |
- |
- |
Transfers between investment property and owner occupied property |
- |
- |
(17) |
(28) |
17 |
28 |
- |
- |
- |
- |
- |
- |
Foreign exchange adjustment |
3 |
3 |
8 |
44 |
- |
- |
(10) |
57 |
- |
- |
- |
(2) |
Total gains recognised on revaluation of owner occupied property within other comprehensive income |
- |
- |
- |
- |
1 |
5 |
- |
- |
- |
- |
- |
- |
Other |
- |
- |
8 |
(3) |
- |
- |
- |
- |
- |
- |
- |
- |
At end of period |
175 |
163 |
10,038 |
9,929 |
77 |
58 |
747 |
795 |
940 |
868 |
(1,223) |
(1,228) |
|
Investments in associates |
Investment |
Owner occupied property |
Equity securities and interests in pooled investment funds |
Debt securities |
Liabilities in |
2016 |
£m |
£m |
£m |
£m |
£m |
£m |
1 January |
86 |
9,991 |
55 |
819 |
787 |
(1,307) |
Reclassified (to)/from held for sale |
- |
(87) |
- |
- |
- |
- |
Total gains/(losses) recognised in the consolidated income statement |
7 |
(472) |
(2) |
(6) |
35 |
53 |
Purchases1 |
68 |
1,645 |
- |
59 |
100 |
(19) |
Settlement |
- |
- |
- |
- |
- |
30 |
Sales |
(29) |
(199) |
- |
(153) |
(35) |
- |
Transfers in to level 32 |
- |
- |
- |
9 |
6 |
- |
Transfers out of level 32 |
- |
- |
- |
(17) |
(22) |
- |
Foreign exchange adjustment |
3 |
36 |
- |
35 |
- |
- |
Total gains recognised on revaluation of owner occupied property within other comprehensive income |
- |
- |
5 |
- |
- |
- |
Other |
1 |
5 |
- |
- |
- |
- |
30 June |
136 |
10,919 |
58 |
746 |
871 |
(1,243) |
1 Purchases of investment property for the periods ended 31 December 2016 and 30 June 2016 included £1,289m relating to the merger of property investment vehicles.
2 Transfers are deemed to have occurred at the end of the calendar quarter in which they arose.
In addition to the above, the Group had a contingent consideration asset with a fair value of £10m at 30 June 2017 (30 June 2016: £15m; 31 December 2016: £10m) and contingent consideration liabilities with a fair value of £14m (30 June 2016: £nil; 31 December 2016: £15m). There were no settlements during the period. Movements in the fair value of contingent consideration assets and liabilities are recognised in the consolidated income statement.
For the six months ended 30 June 2017, gains of £198m (six months ended 30 June 2016: losses of £349m; 12 months ended 31 December 2016: losses of £119m) 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 gains of £216m (30 June 2016: losses of £400m; 31 December 2016: losses of £137m) were recognised in investment return, losses of £nil (30 June 2016: losses of £2m, 31 December 2016: losses of £1m) were recognised in other administrative expenses and losses of £18m (30 June 2016: gains of £53m; 31 December 2016: gains of £19m) 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.
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 following table using 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.
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). 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 2017 |
£m |
Valuation technique |
Unobservable input |
Range (weighted average) |
Investment property and owner occupied property |
9,478 |
Income capitalisation |
Equivalent yield Estimated rental value per square metre per annum
|
3.4% to 8.9% (5.3%) £16 to £1,711 (£319) |
Investment property (hotels) |
608 |
Income capitalisation |
Equivalent yield Estimated rental value per room per annum |
4.0% to 6.5% (5.2%) £995 to £13,750 (£5,569) |
Investment property and owner occupied property |
63 |
Market comparison |
Estimated value per square metre |
£2 to £10,932 (£3,246) |
Equity securities and interests in pooled investment funds and investments in associates at FVTPL (private equity investments) |
922 |
Adjusted net asset value |
Adjustment to net asset value1 |
N/A |
Debt securities (commercial mortgages) |
447 |
Discounted cash flow |
Credit spread |
1.9% to 2.6% (2.1%) |
Debt securities (unquoted corporate bonds) |
449 |
Discounted cash flow |
Credit spread |
0.2% to 1.8% (1.6%) |
Debt securities (infrastructure loans) |
16 |
Discounted cash flow |
Credit spread |
1.4% (1.4%) |
Debt securities (other) |
28 |
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 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 |
Adjustment to 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 |
|
Fair value |
|
|
|
31 December 2016 |
£m |
Valuation technique |
Unobservable input |
Range (weighted average) |
Investment property and owner occupied property |
9,567 |
Income capitalisation |
Equivalent yield
Estimated rental value per square metre per annum |
3.6% to 9.1% (5.4%)
£29 to £2,422 (£336) |
Investment property (hotels) |
596 |
Income capitalisation |
Equivalent yield |
4.6% to 7.1% (5.7%)
£990 to £13,750 (£5,462) |
Investment property and owner occupied property |
60 |
Market comparison |
Estimated value per square metre |
£2 to £12,807 (£4,081) |
Equity securities and interests in pooled investment funds and investments in associates at FVTPL (private equity investments) |
958 |
Adjusted net asset value |
Adjustment to net asset value1 |
N/A |
Debt securities (commercial mortgages) |
451 |
Discounted cash flow |
Credit spread |
1.9% to 2.6% (2.1%) |
Debt securities (unquoted corporate bonds) |
373 |
Discounted cash flow |
Credit spread |
0.2% to 4.3% (1.9%) |
Debt securities (infrastructure loans) |
11 |
Discounted cash flow |
Credit spread |
1.3% (1.3%) |
Debt securities (other) |
33 |
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.
The table below presents estimated fair values by level of the fair value hierarchy of 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 |
Fair value |
||||
|
30 Jun |
30 Jun 2016 |
31 Dec |
30 Jun |
30 Jun 2016 |
31 Dec |
|
£m |
£m |
£m |
£m |
£m |
£m |
Assets |
|
|
|
|
|
|
Loans secured by mortgages |
63 |
80 |
73 |
71 |
77 |
86 |
Liabilities |
|
|
|
|
|
|
Non-participating investment contract liabilities |
4 |
4 |
4 |
4 |
4 |
4 |
Subordinated notes |
500 |
499 |
499 |
558 |
512 |
530 |
Subordinated guaranteed bonds |
519 |
520 |
502 |
626 |
548 |
577 |
Mutual Assurance Capital Securities |
308 |
307 |
318 |
340 |
320 |
334 |
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 2016. The carrying value of participating investment contract liabilities at 30 June 2017 was £15,300m (30 June 2016: £15,581m; 31 December 2016: £15,537m). The carrying value of all other financial assets and liabilities measured at amortised cost approximates their fair value.
(a) Annuity sales practices relating to enhanced annuities
As discussed in Note 4.12, at the request of the Financial Conduct Authority (FCA), Standard Life is conducting a past business review of non-advised annuity sales. The purpose of the review is to identify whether relevant customers received sufficient information about enhanced annuities to make the right decisions about their purchase, and where appropriate provide redress to customers who have suffered loss as a result of not having received sufficient information. In relation to this review, the FCA is carrying out an investigation and it is possible that the FCA may impose a financial penalty on Standard Life. At this stage it is not possible to determine an estimate of the financial effect, if any, of this contingent liability. The Group is also considering whether the FCA's enhanced annuities review could have implications for other past annuity sales practices.
Note 4.12 also provides disclosure of potential insurance recoveries relating to redress payable to customers, the costs of conducting the review and other related expenses. Any FCA levied financial penalties cannot be covered by such liability insurance.
The Group is subject to regulation in all of the territories in which it operates insurance and investment businesses. In the UK, where the Group primarily operates, the FCA has broad powers, including powers to investigate marketing and sales practices.
The Group, like other financial organisations, is subject to legal proceedings, complaints and regulatory discussions, reviews and challenges in the normal course of its business. All such material matters are periodically reassessed, with the assistance of external professional advisers where appropriate, to determine the likelihood of the Group incurring a liability. Where it is concluded that it is more likely than not that a material outflow will be made a provision is established based on management's best estimate of the amount that will be payable. In some cases it will not be possible to form a view, for example because the facts are unclear or because further time is needed to properly investigate, and no provisions are held for such matters. It is not possible to predict with certainty the extent and timing of the financial impact of legal proceedings, complaints and related regulatory matters.
(a) Capital commitments
As at 30 June 2017, capital expenditure that was authorised and contracted for, but not provided and incurred, was £260m (30 June 2016: £340m; 31 December 2016: £286m) in respect of investment property. Of this amount, £199m (30 June 2016: £289m; 31 December 2016: £220m) and £61m (30 June 2016: £51m; 31 December 2016: £66m) relates to the contractual obligations to purchase, construct or develop investment property and repair, maintain or enhance investment property respectively.
The Group has committed £449m (30 June 2016: £371m; 31 December 2016: £453m) in respect of unrecognised financial instruments to customers and third parties. Of this amount £357m (30 June 2016: £333m; 31 December 2016: £363m) 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 Jun 2017 |
30 Jun |
31 Dec |
|
£m |
£m |
£m |
Not later than one year |
34 |
45 |
32 |
Later than one year and no later than five years |
92 |
79 |
70 |
Later than five years |
93 |
112 |
102 |
Total operating lease commitments |
219 |
236 |
204 |
(a) Transactions with related parties
In the normal course of business, the Group enters into transactions with related parties that relate to insurance and investment management business. Transactions with related parties carried out by the Group during the period were as follows:
|
6 months |
6 months |
Full year |
|
£m |
£m |
£m |
Sales to |
|
|
|
Associates |
10,307 |
4,710 |
9,328 |
Other related parties |
21 |
37 |
66 |
|
10,328 |
4,747 |
9,394 |
Purchases from |
|
|
|
Associates |
11,640 |
5,066 |
9,782 |
Joint ventures |
- |
- |
1 |
|
11,640 |
5,066 |
9,783 |
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 and from the Group's defined benefit pension plans.
The Group's defined benefit pension plans have assets of £1,041m (30 June 2016: £1,595m; 31 December 2016: £1,028m) invested in investment vehicles managed by the Group.
Refer to Note 4.2 (b) for details of the proposed sale of a subsidiary to our joint venture business.
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. Key management personnel includes only Directors of Standard Life plc.
During the six months ended 30 June 2017, key management personnel and their close family members contributed £1m (six months ended 30 June 2016: £2m; 12 months ended 31 December 2016: £2m) to products sold by the Group. At 30 June 2017, the total value of key management personnel's investments in Group products was £22m (30 June 2016: £21m; 31 December 2016: £21m).
HDFC Standard Life Insurance Company Limited (HDFC Life), the Group's associate Indian life business, announced in July 2017 that its Board of Directors approved proceeding with an initial public offering (IPO), with Standard Life (Mauritius Holdings) 2006 Limited offering up to 5.43% and HDFC Limited offering up to 9.57% of HDFC Life's equity shares representing, in aggregate, up to 15% of the paid-up equity share capital of HDFC Life. The IPO is subject to relevant regulatory and other necessary approvals. It is not possible to estimate the financial effect of the transaction if it completes as it is dependent on a number of unknown factors including the number of shares that might be sold and the consideration per share.