Half-year Report - Part 4 of 4

RNS Number : 6015G

Standard Life plc

09 August 2016

 

Standard Life plc

Half year results 2016

Part 4 of 4

5.    Supplementary information

5.1  Alternative performance measures

We assess our performance using a variety of measures that are not defined under IFRS and are therefore termed alternative performance measures (APMs). The APMs that we use may not be directly comparable with similarly named measures used by other companies.

We have presented below reconciliations from these APMs to the most appropriate measure prepared in accordance with IFRS.

Full definitions for APMs are included in the Glossary

Operating profit

Operating profit is a key APM used by our management to evaluate performance.

Operating profit reporting provides further analysis of the results reported under IFRS and the Directors believe it helps to give shareholders a fuller understanding of the performance of the business by identifying and analysing non-operating items. Operating profit is a key performance indicator, and is consistent with the way that financial performance is measured by management and reported to the Board and strategic executive committee.

		6 months 2016	6 months 2015	Full year 2015
		£m	£m	£m
Fee based revenue		794	761	1,579
Spread/risk margin		63	40	145
Total operating income		857	801	1,724
Total operating expenses		(566)	(542)	(1,124)
Capital management		13	1	9
Share of associates' and joint ventures' profit before tax		37	30	56
Operating profit before tax from continuing operations		341	290	665
Tax on operating profit		(69)	(37)	(114)
Share of associates' and joint ventures' tax expense		(5)	(5)	(13)
Operating profit after tax from continuing operations		267	248	538
Singapore included in discontinued operations segment		-	(40)	(42)
Total non-operating items		(61)	(158)	(257)
Tax on non-operating items		20	19	37
IFRS profit from continuing operations		226	69	276
IFRS profit from discontinued operations		-	1,142	1,147
Total IFRS profit attributable to equity holders of Standard Life plc		226	1,211	1,423

Operating profit excludes impacts arising from short-term fluctuations in investment return and economic assumption changes. Operating profit also excludes restructuring and corporate transaction costs, amortisation and impairment of intangibles acquired in business combinations, and certain one-off items. Further details on operating profit and non-operating items are included in Notes 4.3(b)(i) and 4.7 of the IFRS condensed consolidated financial information section of this report.

As set out in the table above, the key components of operating profit before tax are total operating income (which is broken down into fee based revenue and spread/risk margin), total operating expenses and share of associates' and joint ventures' profit before tax. These components provide a meaningful analysis of our operating results. A reconciliation of total operating income and total operating expenses from continuing operations (as presented in the analysis of operating profit above) to total revenue and total expenses respectively (as presented in the IFRS consolidated income statement) is included in Note 4.3(b)(ii) of the IFRS condensed consolidated financial information section of this report.

Underlying performance

Underlying performance is calculated as operating profit before tax after excluding the impact of spread/risk operating actuarial assumption changes and specific management actions in the reporting period. It therefore removes certain volatile items from operating profit and supports an understanding of the underlying operating performance of the business.

		6 months 2016	6 months 2015	Full year 2015
		£m	£m	£m
Operating profit before tax from continuing operations		341	290	665
Underlying adjustments
Operating assumption changes		-	-	(44)
Shareholder support to the German with profits business		-	9	9
Underlying performance from continuing operations		341	299	630

Underlying cash generation

This is an APM which presents a shareholder view of underlying cash earnings. Underlying cash generation adjusts underlying performance from continuing operations for certain non-cash items as set out below. It provides insight into our ability to generate cash that supports further investment in the business and the payment of dividends to shareholders. The IFRS consolidated statement of cash flows includes policyholder cash flows, and therefore does not present a shareholder view, and does not exclude underlying adjustments and non-operating items.

		6 months 2016	Restated 6 months 2015	Restated Full year 2015
		£m	£m	£m
Operating profit before tax from continuing operations		341	290	665
Underlying adjustments		-	9	(35)
Underlying performance from continuing operations		341	299	630
Associates and JVs adjustment	(a)	(29)	(23)	(44)
Current tax on underlying performance	(b)	(53)	(33)	(114)
DAC/DIR adjustment	(c)	(3)	(3)	5
Fixed and intangible assets adjustment	(d)	(2)	(10)	(18)
Underlying cash generation		254	230	459

Further details on the reconciling items between underlying performance and underlying cash generation are included below.

(a)      Associates and Joint Ventures (JVs) adjustment

The calculation of underlying cash generation has been changed during H1 2016. Underlying cash generation now includes dividends received from associates and joint ventures, previously no contribution was included from these businesses. The revised approach reflects more closely the underlying cash generated given the regular receipt of dividends in recent years from our Indian associates HDFC Life and HDFC Asset Management. Comparatives have been restated.

		6 months 2016	Restated 6 months 2015	Restated Full year 2015
		£m	£m	£m
Exclude share of associates' and joint ventures' profit before tax		(37)	(30)	(56)
Dividends received from associates and joint ventures		8	7	12
Associates and JVs adjustment		(29)	(23)	(44)

(b)      Current tax on underlying performance

Current tax on underlying performance excludes tax on non-operating and underlying adjustments, excludes current tax attributable to policyholders, and excludes deferred tax charges/credits.

		6 months 2016	6 months 2015	Full year 2015
		£m	£m	£m
Total current tax attributable to continuing operations		(205)	(94)	(222)
Current tax expense attributable to policyholders' returns		156	94	168
Current tax credit relating to non-operating profit items		(4)	(33)	(68)
Current tax expense attributable to underlying adjustments		-	-	8
Current tax on underlying performance		(53)	(33)	(114)

(c)      Deferred acquisition costs (DAC)/ Deferred income reserve (DIR) adjustment

The DAC/DIR non-cash adjustment adds back existing business DAC/DIR amortisation included in underlying performance for the period and deducts the equivalent new business DAC/DIR additions for the period. The following table reconciles DAC/DIR movements in the IFRS financial statements to the DAC/DIR adjustment.

		6 months 2016	6 months 2015	Full year 2015
		£m	£m	£m
Amortisation of deferred acquisition costs		50	64	124
Acquisition costs deferred during the period		(32)	(51)	(83)
Amortisation of deferred income		(30)	(31)	(63)
Fee income deferred during the period		8	13	25
Adjustments for HWPF and GWPF DAC/DIR not included in shareholder view		1	2	2
DAC/DIR adjustment included in underlying cash generation		(3)	(3)	5

(d)      Fixed and intangible assets adjustment

The fixed and intangible assets adjustment adds back depreciation and amortisation that is included within underlying performance for the period and deducts additions for the period where the depreciation or amortisation of those additions will be included within underlying performance. The following table reconciles equipment and intangible asset movements in the IFRS financial statements to the fixed and intangible asset adjustment.

		6 months 2016	6 months 2015	Full year 2015
		£m	£m	£m
Depreciation of equipment		7	7	16
Amortisation of intangible assets1		23	13	31
Additions of equipment1		(6)	(3)	(7)
Additions of intangible assets1		(26)	(27)	(58)
Fixed and intangible assets adjustment		(2)	(10)	(18)

¹      Excludes equipment and intangible assets acquired through business combinations.

Earnings before interest, tax, depreciation and amortisation (EBITDA)

EBITDA is an APM reported by Standard Life Investments, which is commonly used by asset management businesses to measure profitability and therefore provides useful information on operating performance. EBITDA for Standard Life Investments adjusts operating profit by removing net interest expense, depreciation and amortisation.

		6 months 2016	6 months 2015	Full year 2015
Standard Life Investments		£m	£m	£m
EBITDA		182	161	352
Interest, depreciation and amortisation		(6)	(7)	(10)
Operating profit before tax from continuing operations		176	154	342
Share of associates' and joint ventures' tax expense		(5)	(5)	(11)
Total non-operating items		(16)	(24)	(53)
Total tax expense		(32)	(24)	(53)
Total IFRS profit attributable to equity holders of Standard Life plc		123	101	225

5.2  Financial ratios

We also use a number of financial ratios to help assess our performance and these are also not defined under IFRS. Details of our main financial ratios and how they are calculated are presented below.

Operating return on equity

Operating return on equity is a measure that highlights our ability to generate operating profit relative to our shareholder capital. Operating return on equity represents the annualised post-tax operating profit expressed as a percentage of the opening IFRS equity, adjusted for time apportioned dividends paid to equity holders.

		6 months 2016	6 months 2015	Full year 2015
Operating profit after tax (£m)		267	251	541
Opening IFRS equity attributable to equity holders of Standard Life plc (£m)		4,002	4,672	4,672
External final dividend payment - time apportioned (£m)		(142)	(131)	(131)
External interim dividend payment - time apportioned (£m)		-	-	(20)
Canada: Sale proceeds less return of value - time apportioned (£m)		-	397	397
Canada: Remove net asset value at point of sale - time apportioned (£m)		-	(1,106)	(1,106)
Adjusted IFRS equity (£m)		3,860	3,832	3,812
Operating return on equity (%)		13.8	12.9	14.2

Cost/income ratio

Cost/income ratio is a measure that highlights our efficiency and is calculated as operating expenses divided by operating income on a rolling 12 month basis, and includes the share of associates' and joint ventures' profit before tax.

		12 months to 30 June 2016		Full year 2015	Full year 2014
Operating expenses from continuing operations (£m)			(1,148)	(1,124)	(1,045)
Fee based revenue (£m)			1,612	1,579	1,429
Spread/risk margin (£m)			168	145	183
Share of associates' and joint ventures' profit before tax			63	56	39
Total operating income and share of associates' and joint ventures' profit before tax from continuing operations (£m)			1,843	1,780	1,651
Cost/income ratio (%)			62	63	63

Fee revenue yield (bps)

The average revenue yield on fee based business is a measure which illustrates the average margin earned on the assets that we administer. It is calculated as a rolling 12 months fee based revenue divided by a rolling 12 months monthly average AUA.

	Standard Life Investments Growth channels		UK Pensions and Savings
	12 months to 30 June 2016	Full year 2015	12 months to 30 June 2016	Full year 2015
Fee based revenue (£m)	657	624	638	631
Average fee based assets under administration (£bn)1	123.1	119.0	107.9	106.2
Fee revenue yield (bps)	53	52	59	59

¹    Excludes AUA from conventional with profits for the UK pensions and savings business and HDFC Asset Management for Standard Life Investments.

EBITDA margin

EBITDA margin is a measure reported by Standard Life Investments and is commonly used by asset management businesses to measure profit in relation to revenue. It is calculated as EBITDA divided by fee based revenue.

Standard Life Investments		6 months 2016	6 months 2015	Full year 2015
EBITDA (£m)		182	161	352
Fee based revenue (£m)		431	402	843
EBITDA margin (%)		42	40	42

5.3  Assets under administration and net flows

Assets under administration (AUA) is a measure of the total assets administered on behalf of individual customers and institutional clients. It includes those assets for which we provide investment management services, as well as those assets we administer where the customer has made a choice to select an external third party investment manager. As an investment company, AUA and net flows are key drivers of shareholder value.

Assets under administration (summary)

6 months ended 30 June 2016

				Opening  AUA at 1 Jan 2016	Gross flows	Redemptions	Net flows	Market and other movements	Closing AUA at 30 Jun 2016
				£bn	£bn	£bn	£bn	£bn	£bn
Total Growth Channels				198.3	20.6	(16.5)	4.1	6.5	208.9
Total Mature Books fee				82.0	0.7	(3.6)	(2.9)	7.8	86.9
Total Mature Books spread/risk				14.9	0.1	(0.6)	(0.5)	1.7	16.1
Total Other				12.2	0.4	(0.2)	0.2	3.7	16.1
Total AUA				307.4	21.8	(20.9)	0.9	19.7	328.0
Growth Channels	Institutional			67.0	8.4	(6.4)	2.0	9.1	78.1
	Wholesale			45.9	6.5	(6.9)	(0.4)	1.8	47.3
	Wealth			6.5	0.5	(0.3)	0.2	-	6.7
	Ignis1			11.1	0.3	(0.4)	(0.1)	(5.4)	5.6
	Standard Life Investments			130.5	15.7	(14.0)	1.7	5.5	137.7
	Workplace			33.0	2.0	(1.2)	0.8	0.2	34.0
	Retail2			42.6	4.1	(2.1)	2.0	1.1	45.7
	UK Pensions and Savings			75.6	6.1	(3.3)	2.8	1.3	79.7
	Europe Growth2			9.6	0.7	(0.4)	0.3	0.5	10.4
	Pensions and Savings			85.2	6.8	(3.7)	3.1	1.8	90.1
	Hong Kong			0.5	-	-	-	0.1	0.6
	Eliminations3			(17.9)	(1.9)	1.2	(0.7)	(0.9)	(19.5)
	Total Growth Channels			198.3	20.6	(16.5)	4.1	6.5	208.9
Mature Books	UK Mature Retail			32.7	0.4	(1.6)	(1.2)	1.1	32.6
	Europe Mature fee			8.4	0.3	(0.2)	0.1	1.8	10.3
	Third party strategic partner life business			39.6	-	(1.4)	(1.4)	4.8	43.0
	Other fee including CWP			1.3	-	(0.4)	(0.4)	0.1	1.0
	Total Mature Books fee			82.0	0.7	(3.6)	(2.9)	7.8	86.9
	Spread/risk			14.9	0.1	(0.6)	(0.5)	1.7	16.1
	Total Mature Books			96.9	0.8	(4.2)	(3.4)	9.5	103.0
Associate and joint venture life businesses4				2.3	0.4	(0.2)	0.2	1.0	3.5
Other5				10.4	-	-	-	2.8	13.2
Other Eliminations3				(0.5)	-	-	-	(0.1)	(0.6)
Total				307.4	21.8	(20.9)	0.9	19.7	328.0

¹      In H1 2016 a number of Ignis funds were merged with other SLI funds, resulting in a decrease in reported Ignis AUM of £5.6bn. These assets are now included in Institutional (£4.0bn) and Wholesale (£1.6bn) with the transfers shown in Market and other movements.

²      Wrap AUA is reported predominantly within Retail: £25.8bn, (FY 2015: £23.4bn). International bond AUA is reported within Europe growth fee business: £2.2bn

(FY 2015: £2.1bn).

³      Certain products are included in both Pensions and Savings growth AUA and Standard Life Investments growth AUM. Therefore, at a Group level an elimination adjustment is required to remove any duplication, in addition to other necessary consolidation adjustments. Comprises £19.5bn (FY 2015: £17.9bn) related to growth channel business eliminations and £0.6bn (FY 2015: £0.5bn) related to other consolidation/eliminations.

⁴      Market and other movements includes £0.8bn relating to stake increase in HDFC Life in April 2016.

⁵      Other comprises Assets not backing products of £10.5bn (FY 2015: £7.7bn) and Other corporate assets of £2.7bn (FY 2015: £2.7bn).

Assets under administration (summary)

6 months ended 30 June 2015

				Opening  AUA at 1 Jan 2015	Gross flows	Redemptions	Net flows	Market and other movements	Closing AUA at 30 Jun 2015
				£bn	£bn	£bn	£bn	£bn	£bn
Total Growth Channels				180.7	20.5	(13.1)	7.4	2.2	190.3
Total Mature Books fee				87.9	0.8	(4.4)	(3.6)	0.8	85.1
Total Mature Books spread/risk				16.1	0.1	(0.6)	(0.5)	(0.2)	15.4
Total Other				11.9	0.3	(0.2)	0.1	(0.7)	11.3
Total AUA				296.6	21.7	(18.3)	3.4	2.1	302.1
Growth Channels	Institutional			61.4	5.4	(3.6)	1.8	1.4	64.6
	Wholesale			35.5	8.9	(3.6)	5.3	(0.2)	40.6
	Wealth			6.1	0.4	(0.4)	-	0.2	6.3
	Ignis			14.5	1.3	(3.2)	(1.9)	0.3	12.9
	Standard Life Investments			117.5	16.0	(10.8)	5.2	1.7	124.4
	Workplace			32.0	2.1	(1.0)	1.1	0.1	33.2
	Retail1			37.3	3.6	(1.8)	1.8	1.3	40.4
	UK Pensions and Savings			69.3	5.7	(2.8)	2.9	1.4	73.6
	Europe Growth1			8.7	0.7	(0.4)	0.3	-	9.0
	Pensions and Savings			78.0	6.4	(3.2)	3.2	1.4	82.6
	Hong Kong			0.4	-	-	-	-	0.4
	Eliminations2			(15.2)	(1.9)	0.9	(1.0)	(0.9)	(17.1)
	Total Growth Channels			180.7	20.5	(13.1)	7.4	2.2	190.3
Mature Books	UK Mature Retail			33.5	0.4	(1.6)	(1.2)	1.1	33.4
	Europe Mature fee			8.5	0.4	(0.2)	0.2	(0.8)	7.9
	Third party strategic partner life business			43.8	-	(2.2)	(2.2)	0.5	42.1
	Other fee including CWP			2.1	-	(0.4)	(0.4)	-	1.7
	Total Mature Books fee			87.9	0.8	(4.4)	(3.6)	0.8	85.1
	Spread/risk			16.1	0.1	(0.6)	(0.5)	(0.2)	15.4
	Total Mature Books			104.0	0.9	(5.0)	(4.1)	0.6	100.5
Associate and joint venture life businesses				2.1	0.3	(0.2)	0.1	-	2.2
Other3				10.2	-	-	-	(0.7)	9.5
Other Eliminations2				(0.4)	-	-	-	-	(0.4)
Total				296.6	21.7	(18.3)	3.4	2.1	302.1

¹      Wrap AUA is reported predominantly within Retail: £21.4bn. International bond AUA is reported within Europe fee business: £1.9bn.

²      Certain products are included in both Pensions and Savings growth AUA and Standard Life Investments growth AUM. Therefore, at a Group level an elimination adjustment is required to remove any duplication, in addition to other necessary consolidation adjustments. Comprises (£17.1bn) related to growth channel business eliminations and (£0.4bn) related to other consolidation/eliminations.

³      Other comprises Assets not backing products of £6.8bn and Other corporate assets of £2.7bn.

5.4  Standard Life Investments assets under management and net flows

6 months ended 30 June 2016		Opening AUM at 1 Jan 2016	Gross flows	Redemptions	Net flows	Market and other movements	Closing AUM at 30 Jun 2016
		£bn	£bn	£bn	£bn	£bn	£bn
Growth AUM	UK	83.2	8.6	(7.5)	1.1	7.0	91.3
	Europe	14.2	2.5	(3.1)	(0.6)	2.7	16.3
	North America	11.7	3.0	(2.5)	0.5	0.3	12.5
	Asia Pacific	3.3	0.5	(0.5)	-	0.4	3.7
	India	7.0	0.8	-	0.8	0.5	8.3
	Ignis1	11.1	0.3	(0.4)	(0.1)	(5.4)	5.6
	By geography of client	130.5	15.7	(14.0)	1.7	5.5	137.7
	Equities	16.9	1.6	(2.2)	(0.6)	(0.6)	15.7
	Fixed income	21.8	2.8	(2.5)	0.3	3.1	25.2
	Multi-asset2	50.3	6.5	(5.9)	0.6	1.1	52.0
	Real estate	8.6	0.6	(0.7)	(0.1)	2.3	10.8
	MyFolio	8.1	1.2	(0.5)	0.7	0.1	8.9
	Other3	13.7	2.7	(1.8)	0.9	4.9	19.5
	Ignis1	11.1	0.3	(0.4)	(0.1)	(5.4)	5.6
	By asset class	130.5	15.7	(14.0)	1.7	5.5	137.7
	Institutional	67.0	8.4	(6.4)	2.0	9.1	78.1
	Wholesale	45.9	6.5	(6.9)	(0.4)	1.8	47.3
	Wealth	6.5	0.5	(0.3)	0.2	-	6.7
	Ignis1	11.1	0.3	(0.4)	(0.1)	(5.4)	5.6
	By channel	130.5	15.7	(14.0)	1.7	5.5	137.7
Standard Life Group		83.1	1.9	(2.7)	(0.8)	6.0	88.3
Phoenix Group		39.6	-	(1.4)	(1.4)	4.8	43.0
Strategic partner life business AUM		122.7	1.9	(4.1)	(2.2)	10.8	131.3
Standard Life Investments AUM		253.2	17.6	(18.1)	(0.5)	16.3	269.0

6 months ended 30 June 2015		Opening AUM at 1 Jan 2015	Gross flows	Redemptions	Net flows	Market and other movements	Closing AUM at 30 Jun 2015
		£bn	£bn	£bn	£bn	£bn	£bn
Growth AUM	UK	75.5	7.7	(5.6)	2.1	2.5	80.1
	Europe	11.3	3.1	(0.9)	2.2	(1.0)	12.5
	North America	8.1	2.3	(0.8)	1.5	0.1	9.7
	Asia Pacific	2.0	1.1	(0.3)	0.8	0.1	2.9
	India	6.1	0.5	-	0.5	(0.3)	6.3
	Ignis	14.5	1.3	(3.2)	(1.9)	0.3	12.9
	By geography of client	117.5	16.0	(10.8)	5.2	1.7	124.4
	Equities	15.5	1.3	(1.4)	(0.1)	0.9	16.3
	Fixed income	22.0	1.9	(1.5)	0.4	(1.2)	21.2
	Multi-asset2	38.6	8.9	(3.3)	5.6	1.7	45.9
	Real estate	7.4	0.5	(0.3)	0.2	0.4	8.0
	MyFolio	5.9	1.3	(0.4)	0.9	0.1	6.9
	Other3	13.6	0.8	(0.7)	0.1	(0.5)	13.2
	Ignis	14.5	1.3	(3.2)	(1.9)	0.3	12.9
	By asset class	117.5	16.0	(10.8)	5.2	1.7	124.4
	Institutional	61.4	5.4	(3.6)	1.8	1.4	64.6
	Wholesale	35.5	8.9	(3.6)	5.3	(0.2)	40.6
	Wealth	6.1	0.4	(0.4)	-	0.2	6.3
	Ignis	14.5	1.3	(3.2)	(1.9)	0.3	12.9
	By channel	117.5	16.0	(10.8)	5.2	1.7	124.4
Standard Life Group		84.6	2.3	(3.5)	(1.2)	0.1	83.5
Phoenix Group		43.8	-	(2.2)	(2.2)	0.5	42.1
Strategic partner life business AUM		128.4	2.3	(5.7)	(3.4)	0.6	125.6
Standard Life Investments AUM		245.9	18.3	(16.5)	1.8	2.3	250.0

¹    Ignis fund mergers in H1 2016 transferred £5.6bn AUM, shown in Market and other movements, into the following categories - By geography: UK (£5.6bn), By asset class: Real estate (£1.6bn) and Other (£4.0bn), By channel: Institutional (£4.0bn) and Wholesale (£1.6bn).

²      Comprises absolute return strategies, enhanced diversification strategies, risk-based portfolios and traditional balanced portfolios.

³    Comprises cash, private equity, liquidity funds and Wealth. Net inflows from India cash funds £0.5bn (H1 2015: net inflow £0.2bn), net inflows from liquidity funds of £nil (H1 2015: net inflows £0.7bn).

6.      Glossary

Annuity

A periodic payment made for an agreed period of time (usually up to the death of the recipient) in return for a cash sum. The cash sum can be paid as one amount or as a series of premiums. If the annuity commences immediately after the payment of the sum, it is called an immediate annuity. If it commences at some future date, it is called a deferred annuity.

Assets under administration (AUA)

A measure of the total assets administered on behalf of individual customers and institutional clients. It includes those assets for which we provide investment management services, as well as those assets we administer where the customer has made a choice to select an external third party investment manager. AUA includes third party assets administered by us which are not included on the consolidated statement of financial position.

Assets under management (AUM)

A measure of the total assets that Standard Life Investments manages on behalf of individual customers and institutional clients, for which it receives a fee.

Auto enrolment

The UK Government introduced auto enrolment to help people save for their retirement. Employers have to automatically enrol eligible employees into a qualifying workplace pension scheme (QWPS). This pension scheme needs to meet the standards set by the Pensions Regulator.

Board

The Board of Directors of the Company.

Capital management

Capital management is a component of operating profit and relates to the return from the net assets of the shareholder business, net of costs of financing. This includes the net assets in defined benefit staff pension plans and net assets relating to the financing of subordinated liabilities. The measure excludes short-term fluctuations in investment return.

Capital surplus

This is a regulatory measure of our financial strength. From 1 January 2016 our capital surplus is measured on a Solvency II basis. Prior to 1 January 2016, our capital surplus was measured in accordance with the Insurance Groups Directive.

Chief Operating Decision Maker

The strategic executive committee.

Company

Standard Life plc.

Cost/income ratio

This is an efficiency measure that is calculated as operating expenses divided by operating income on a rolling 12 months basis, and includes the share of associates' and joint ventures' profit before tax.

Deferred acquisition costs (DAC)

The method of accounting whereby acquisition costs on long-term business are deferred on the consolidated statement of financial position as an asset and amortised over the life of those contracts. This leads to a smoothed recognition of up front expenses instead of the full cost in the year of sale.

Deferred income reserve (DIR)

The method of accounting whereby front end fees that relate to services to be provided in future periods are deferred on the consolidated statement of financial position as a liability and amortised over the life of those contracts. This leads to a smoothed recognition of up front income instead of the full income in the year of sale.

Director

A director of the Company.

Discounting

The reduction to present value at a given date of a future cash transaction at an assumed rate, using a discount factor reflecting the time value of money. The choice of a discount rate will usually greatly influence the value of insurance provisions, and may give indications on the conservatism of provisioning methods.

Drawdown (flexible income)

Drawdown, also known as flexible income, allows the policyholder to withdraw pension income as and when they request it. The remainder of the pension fund remains invested, giving it the potential for growth.

Earnings before interest, tax, depreciation and amortisation (EBITDA)

EBITDA is defined as earnings before interest, taxation, depreciation, amortisation, restructuring costs, other non-operating items and non-controlling interests.

Earnings per share (EPS)

EPS is a commonly used financial metric which can be used to measure the profitability and strength of a company over time. EPS is calculated by dividing profit by the number of ordinary shares. Basic EPS uses the weighted average number of ordinary shares outstanding during the year. Diluted EPS adjusts the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares, for example share awards and share options awarded to employees.

EBITDA margin

This is an industry measure of performance for investment management companies. It is calculated as EBITDA divided by fee based revenue.

Effective tax rate

Tax expense/(credit) attributable to equity holders' profit divided by profit before tax attributable to equity holders' profits expressed as a percentage.

Fair value through profit or loss (FVTPL)

FVTPL is an IFRS measurement basis permitted for assets and liabilities which meet certain criteria. Gains or losses on assets or liabilities measured at FVTPL are recognised directly in the income statement.

Fee based business/revenue

Fee based business is a component of operating profit and is made up of products where we generate revenue primarily from asset management charges (AMCs), premium based charges and transactional charges. AMCs are earned on products such as SIPP, corporate pensions and mutual funds, and are calculated as a percentage fee based on the assets held. Investment risk on these products rests principally with the customer, with our major indirect exposure to rising or falling markets coming from higher or lower AMCs.

Fee revenue yield (bps)

The average revenue yield on fee based business is a measure that illustrates the average margin being earned on the assets that we administer. It is calculated as a rolling 12 months fee based revenue divided by a rolling 12 months monthly average AUA.

Global absolute return strategies (GARS)
A discretionary multi-asset fund provided under several regulated pooled and segregated structures globally by Standard Life Investments. The investment objective is to target a level of return over a rolling 3 year period equivalent to cash plus 5% a year (gross of fees), and to do so with as little risk as possible.

Group, Standard Life Group or Standard Life

Prior to demutualisation on 10 July 2006, SLAC and its subsidiaries and, from demutualisation on 10 July 2006, the Company and its subsidiaries.

Growth channels

We aim to drive the increase in our assets, revenue and profit via our growth channels. This comprises Standard Life Investments Institutional and Wholesale, UK Workplace and Retail, Europe (excluding Germany with profits), Hong Kong, Standard Life Wealth and Ignis.

Heritage With Profits Fund (HWPF)

The Heritage With Profits Fund contains all business - both with profits and non-profit - written before demutualisation in the UK, Irish or German branches, with the exception of the classes of business which the Scheme of Demutualisation allocated to funds outside the HWPF. The HWPF also contains increments to this business.

International Financial Reporting Standards (IFRS)

International Financial Reporting Standards are accounting standards issued by the International Accounting Standards Board (IASB). The Group's consolidated financial statements are required to be prepared in accordance with IFRS.

Investor view

The investor view of Solvency II adjusts the regulatory position for the impact from unrecognised capital and with profit funds / defined benefit pension schemes.

Key performance indicators (KPI)

A measure by reference to which the development, performance or position of the business can be measured effectively.

Liability aware

Liability aware is a framework for proactively managing the various liability risks and requirements that are faced by defined benefit pension schemes and insurance companies.

Mature book/business

Mature books are expected to provide a stable and consistent contribution to our profit. This includes UK mature Retail, Standard Life Investments Strategic Partner Life books and spread/risk based business. It also includes the with profits business in Germany which closed to new business in April 2015.

Net flows

Net flows represent gross inflows less gross outflows or redemptions. For long-term savings business, gross inflows are premiums and deposits recognised in the period on a regulatory basis (excluding any switches between funds). Gross outflows or redemptions are claims and annuity payments (excluding any reinsurance transactions and switches between funds).

Operating expenses

Operating expenses is a component of operating profit and relates to the day-to-day expenses of managing our business.

Operating income

Operating income is a component of operating profit and consists of spread/risk margin and fee based revenue.

Operating profit

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

Operating profit also excludes the impact of the following items:

·   Restructuring costs and significant corporate transaction expenses. Restructuring includes the impact of major regulatory change.

·   Impairment of intangible assets acquired in business combinations

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

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

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

Operating return on equity (RoE)

The annualised post-tax operating profit expressed as a percentage of the opening IFRS equity, adjusted for time apportioned dividends paid to equity holders.

Own funds

Under Solvency II, the capital resources available to meet solvency capital requirements are called own funds. 

Regular premium

A regular premium contract (as opposed to a single premium contract), is one where the policyholder agrees at inception to make regular payments throughout the term of the contract.

Scheme of demutualisation

The scheme pursuant to Part VII of, and Schedule 12 to, the Financial Services and Markets Act 2000, under which substantially all of the long-term business of SLAC was transferred to Standard Life Assurance Limited on 10 July 2006.

SICAV

A SICAV (société d'investissement à capital variable) is an open-ended collective investment scheme common in Western Europe. SICAVs can be cross-border marketed in the EU under the Undertakings for Collective Investment in Transferable Securities (UCITS) directive.

Single premium

A single premium contract (as opposed to a regular premium contract), involves the payment of one premium at inception with no obligation for the policyholder to make subsequent additional payments.

SIPP

A self invested personal pension which provides the policyholder with greater choice and flexibility as to the range of investments made, how those investments are managed, the administration of those assets and how retirement benefits are taken.

SLAC

The Standard Life Assurance Company (renamed The Standard Life Assurance Company 2006 on 10 July 2006).

SLAL

Standard Life Assurance Limited.

Solvency II

Solvency II is an EU-wide initiative that brings consistency to how EU insurers manage capital and risk. Solvency II was implemented on 1 January 2016.

Solvency capital requirement

Under Solvency II, insurers are required to identify their key risks - for example that equity markets fall - and hold sufficient capital to withstand adverse outcomes from those risks. This amount of capital is referred to as the Solvency capital requirement or SCR.

Spread/risk based business

Spread/risk based business mainly comprises products where we provide a guaranteed level of income for our customers in return for an investment, for example, annuities. The 'spread' referred to in the title primarily relates to the difference between the guaranteed amount we pay to customers and the actual return on the assets over the period of the contract.

Spread/risk margin

Spread/risk margin is a component of operating profit and reflects the margin earned on spread/risk business. This includes net earned premiums, claims and benefits paid, net investment return using long-term assumptions and reserving changes.

Standard Life Investments Institutional

Standard Life Investments institutional business sell to institutions (including corporates, pension schemes, local authorities, government agencies and insurance companies) either directly or through intermediaries.

Standard Life Investments Wholesale

Standard Life Investments wholesale sell retail products through wholesale distributors including third party fund supermarkets, global financial institutions and private banks.

Strategic executive committee

Responsible for the day-to-day running of the business and comprises; Chief Executive, Chief Executive - UK and Europe, Chief Financial Officer, Chief Investment Officer, Chief Operating Officer, Chief People Officer, Chief Risk Officer and the Global Client Director.

Strategic partner life business

A measure of the assets that Standard Life Investments manages on behalf of Standard Life Group companies and under other long-term life book partnership agreements, such as Phoenix Group.

Subordinated liabilities

Subordinated liabilities are debts of a company which, in the event of liquidation, rank below its other debts but above share capital.

Technical provisions

The best estimate market consistent value of our policyholder liabilities is referred to as technical provisions. The calculation is discounted to recognise the time value of money and includes a risk margin, calculated in accordance with Solvency II regulations.

Third party (excluding strategic partner life business)

A measure of the assets that Standard Life Investments manages on behalf of individual customers and institutional clients, for which it receives a fee. This measure excludes the assets that are managed on behalf of strategic partners in life assurance books.

Transitional relief

Solvency II regulations allow insurers to smooth the introduction of new rules for calculating policyholder liabilities. This relief includes a deduction from the amount of Solvency II technical provisions, based on the difference between technical provisions under the previous regulatory framework and Solvency II. The deduction decreases over the course of 16 years from 1 January 2016.

UK Retail

This relates to business where we have a relationship with the customer either directly or through an independent financial adviser. We analyse this type of business into growth and mature categories. Retail growth includes the products, platforms, investment solutions and services of our UK Retail business that we continue to market actively to our customers. Retail mature includes business that was predominantly written before demutualisation.

UK Workplace

UK Workplace pensions, savings and benefits to UK employers and employees. These are sold through corporate benefit consultants, independent financial advisers, or directly to employers.

Underlying cash generation

This presents a shareholder view of underlying cash earnings. The IFRS Consolidated statement of cash flows includes policyholder cashflows, and does not exclude underlying adjustments and non-operating items.

Underlying cash generation adjusts underlying performance for certain non-cash items. Adjustments are made for deferred acquisition costs/deferred income reserve, fixed/intangible assets and the Asian joint ventures and associates. Depreciation/ amortisation that would normally be included in operating profit is replaced with the cash movement in the period. The measure is stated net of current (cash) tax on underlying performance. A reconciliation of underlying performance to underlying cash generation is included in the Management report. Reconciliations between underlying performance, operating profit and profitability on an IFRS basis are also included in this report.

Underlying performance

Underlying performance is operating profit before tax after excluding the impact of spread/risk operating actuarial assumption changes and specific management actions in the reporting period.

Unit linked policy

A policy where the benefits are determined by reference to the investment performance of a specified pool of assets referred to as the unit linked fund.

Wrap platform

An investment platform which is essentially a trading platform enabling investment funds, pensions, direct equity holdings and some life assurance contracts to be held in the same administrative account rather than as separate holdings.

7. Shareholder information

Registered office

Standard Life House

30 Lothian Road

Edinburgh

EH1 2DH

Scotland

Company registration number: SC286832

Phone: [phone]* or
0131 225 2552*

For shareholder services call:
0345 113 0045*

Secretary

Kenneth A Gilmour

Registrar

Capita Registrars Limited

Auditors

PricewaterhouseCoopers LLP

Solicitors

Slaughter and May

Brokers

JP Morgan Cazenove

Goldman Sachs

Shareholder services

We offer a wide range of shareholder services. For more information, please:

·   Contact our registrar, Capita, on 0345 113 0045* if calling from the UK. International numbers can be found on the back cover of this report

·   Visit our share portal at www.standardlifeshareportal.com 

* Calls may be monitored and/or recorded to protect both you and us and help with our training. Call charges will vary.

Sign up for Ecommunications

Signing up means:

·   You'll receive an email when documents like the Annual report and accounts, Half year results and AGM guide are available on our website

·   Voting instructions for the Annual General Meeting will be sent to you electronically

Set up a share portal account

Having a share portal account means you can:

·   Manage your account at a time that suits you

·   Download your documents when you need them  

To find out how to sign up, visit www.standardlifeshareportal.com 

Preventing unsolicited mail

By law, the Company has to make certain details from its share register publicly available. Because of this, it is possible that some registered shareholders could receive unsolicited mail or phone calls. You could also be targeted by fraudulent 'investment specialists'. Remember, if it sounds too good to be true, it probably is.

You can find more information about share scams at the Financial Conduct Authority website www.fca.org.uk/consumers/scams

If you are a certificated shareholder, your name and address may appear on a public register. Using a nominee company to hold your shares can help protect your privacy. You can transfer your shares into the Company-sponsored nominee - the Standard Life Share Account - by contacting Capita, or you could get in touch with your broker to find out about their nominee services.

If you want to limit the amount of unsolicited mail you receive generally, please visit www.mpsonline.org.uk

Financial calendar

Half year results 2016	9 August
Ex-dividend date for 2016 interim dividend	8 September
Record date for 2016 interim dividend	9 September
Last date for DRIP elections for 2016 interim dividend	28 September
Dividend payment date for 2016 interim dividend	19 October

Analysis of registered shareholdings at 30 June 2016
Range of shares	Number of holders	% of total holders	Number of shares	% of total shares
1-1,000	63,742	60.77	27,404,652	1.39
1,001-5,000	36,085	34.40	74,000,601	3.75
5,001-10,000	2,968	2.83	20,247,565	1.03
10,001-100,000	1,637	1.56	37,284,428	1.89
#100,001+	460	0.44	1,816,530,221	91.94
Total	104,892	100	1,975,467,467	100

# These figures include the Company-sponsored nominee - the Standard Life Share Account - which had1,068,001 participants holding 750,379,030 shares, and the Unclaimed Asset Trust, which held 13,750,053 shares on behalf of eligible claimants at 30 June 2016.

 

END

 

 

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