Half Yearly Report - Part 1 of 5

RNS Number : 2181L

Standard Life plc

08 August 2013

Standard Life plc

Half Year Results 2013

8 August 2013

Part 1 of 5

Record flows driving strong growth in revenue

Record long-term savings new business sales and Group net inflows

· Group assets under administration of £232.8bn (FY 2012: £218.1bn) and Group net flows of £6.5bn (H1 2012: £0.7bn)

· Long-term savings new business sales of £12.2bn (H1 2012: £10.1bn)

· Long-term savings net inflows of £2.5bn¹ (H1 2012: £1.6bn¹) including gross inflows of £11.8bn¹ (H1 2012: £10.2bn¹)

· Standard Life Investments third party net inflows of £7.1bn¹ (H1 2012: £0.6bn¹) of which 51% from outside UK

· Standard Life Investments third party assets under management (AUM) of £93.4bn (FY 2012: £83.0bn)

Strong growth in fee based revenue driving Group operating profit performance

· Fee based revenue increased by 14% to £694m (H1 2012: £610m)

· Lower unit costs with acquisition costs of 130bps (FY 2012: 156bps) and maintenance costs of 41bps (FY 2012: 45bps)

· Operating profit² before tax up 6% to £304m (H1 2012: £286m³) including

· 28% increase in UK operating profit with strong momentum in both our retail and corporate businesses

· 37% increase in Standard Life Investments operating profit with excellent investment performance and exceptionally strong net inflows

· £14m increase in financing costs from debt issued in H2 2012 at attractive interest rates

· IFRS profit after tax attributable to equity holders of £129m (H1 2012: £238m³) reflecting the expected increase in the tax charge and impact of rising yields on debt securities

Continued strong balance sheet

· EEV operating capital and cash generation of £231m (H1 2012: £279m³) reflects a lower back book management contribution in the period

· IGD surplus of £3.7bn (FY 2012: £4.1bn), following the payment of the 2012 final and special dividends of £532m, remains relatively insensitive to market movements

Progressive interim dividend up 6.5%

· Interim dividend up 6.5% to 5.22p (H1 2012: 4.90p)

David Nish, Chief Executive, commented:

"Standard Life has made really good progress in the first half of the year, delivering substantial growth in sales, flows and assets, all driving higher revenues and operating profits.

In the UK, through listening to our customers and developing propositions that meet their needs, we have significantly increased operating profit by 28% and have strong momentum in both our retail and corporate businesses.

Standard Life Investments has had an outstanding start to the year with its operating profit up 37%. Excellent investment performance has driven exceptionally strong net inflows of £7.1bn. The team continued to innovate, develop and launch new products and expanded the global reach of the business.

Canada is making progress in transforming its business, and our joint ventures in India continue to deliver strong performance in a market where we see further opportunities for our businesses.

We look forward to the future as our business model, propositions, distribution capability and strong balance sheet mean we are confident we can deliver ongoing improvements in value for our customers and shareholders."

Financial Highlights

Key performance indicators	H1 2013	H1 2012³
Group operating profit before tax (£m)	304	286
EEV operating profit before tax (£m)	465	588
EEV operating capital and cash generation (£m)	231	279
Assets under administration (£bn)	232.8	218.1⁴
Net flows (£bn)	6.5	0.7
Group operating profit²	H1 2013 £m	H1 2012³ £m
By source
Fee based revenue	694	610
Spread/risk margin	197	180
Total income	891	790
Acquisition expenses	(155)	(144)
Maintenance expenses	(430)	(388)
Group corporate centre costs	(23)	(21)
Capital management	3	31
Share of joint ventures' and associates' profit before tax	18	18
Operating profit before tax	304	286
Diluted operating EPS	9.9p	12.3p
Diluted EPS	5.5p	10.2p
Business segment performance - operating profit before tax	H1 2013 £m	H1 2012³ £m
UK and Europe
Retail - new fee business profit contribution⁵	37	25
Retail - old fee business profit contribution⁵	91	90
Corporate profit contribution⁵	42	40
Spread/risk profit contribution⁵	71	50
Indirect expenses and capital management	(80)	(79)
UK	161	126
Europe	21	26
Standard Life Investments	93	68
Canada	59	71
Asia and Emerging Markets	(1)	3
Other	(29)	(8)
Group operating profit before tax	304	286
Other financial highlights	H1 2013	H1 2012³
IGD surplus	£3.7bn	£4.1bn⁴
Embedded value	£8.3bn	£8.1bn⁴
Interim dividend per share	5.22p	4.90p
IFRS profit before tax attributable to equity holders of Standard Life plc	£179m	£207m
IFRS profit after tax attributable to equity holders of Standard Life plc	£129m	£238m

For more information please read Section 1.5 - Basis of preparation and the reconciliation of consolidated operating profit for the period in Section 3 of the Half Year Results 2013.

Group performance

We continue to achieve improvements in performance and deliver further value for our customers and shareholders.

Group operating profit increased by 6% to £304m (H1 2012: £286m³). The result benefited from strong growth in fee based revenue, reflecting both higher market levels and the increased demand for our fee based long-term savings and investment propositions. In the UK, we significantly reduced unit costs helped by tight control over absolute costs while spread/risk margin benefited from steady new business volumes, positive experience and investment strategy changes. Operating profit in Canada included a 13%⁶ increase in fee based revenue to £95m but was negatively impacted by one-off reserving changes relating to modelling changes, while H1 2012 benefited from positive experience variances. We continue to pursue additional management actions in Canada in the second half of the year of approximately half the amount of £153m achieved in Canada in 2012. IFRS profit before tax attributable to equity holders amounted to £179m (H1 2012: £207m³) and was impacted by rising yields on debt securities. IFRS profit after tax attributable to equity holders of £129m (H1 2012: £238m³) reflected the expected increase in the tax charge. The prior period result benefited from a non-recurring release of deferred tax.

Group assets under administration increased by 7% to £232.8bn while Standard Life Investments third party assets under management increased by 13% to £93.4bn. AUA benefited from robust net flows into our newer style fee based propositions and positive market movements. Notably, Standard Life Investments had another strong start to the year with third party net inflows of £7.1bn (H1 2012: £0.6bn).

EEV operating profit before tax of £465m (H1 2012: £588m³) reflected an increase in core profits of 9% to £402m, driven by higher new business contribution, and lower benefit of back book management of £67m (H1 2012: £215m³). Back book management result included £37m of favourable operating tax variances and £24m of favourable assumption changes, while H1 2012 included £219m of gains from asset strategy changes and improved modelling.

EEV operating capital and cash generation was £231m (H1 2012: £279m³). Gross operating capital and cash generation of £362m (H1 2012: £386m) decreased by £24m primarily as a result of lower contribution from back book management and efficiency as well as higher financing costs. New business strain increased to £131m (H1 2012: £107m) and included broadly flat acquisition expenses, up by just 4% despite a 21% increase in sales, and an increase in actuarial reserves as a result of prudent reserving assumptions lagging behind the beneficial effect that new business is expected to provide from improved efficiencies and future increments. The core operations of the business generated higher capital and cash of £311m (H1 2012: £293m).

The Board have proposed an interim dividend of 5.22p per share (H1 2012: 4.90p), an increase of 6.5%. The Group will continue to apply its existing progressive dividend policy taking account of market conditions and the Group's financial performance.

Business highlights

Our goal is to drive shareholder value through being a leading customer-driven business focused on long-term savings and investments propositions in our chosen markets. This is underpinned by a simple business model: maximising revenue, increasing assets and lowering unit costs whilst optimising the balance sheet to maximise returns for our shareholders.

During H1 2013 we have made good progress in each of our businesses. Growth in revenue reflects ongoing customer demand for our propositions in what remains a challenging economic environment, while continued work on reducing costs across the Group has enabled us to increase the operating leverage within the business, in turn driving an ongoing improvement in profitability.

Strong UK performance

· UK operating profit before tax up 28% to £161m (H1 2012: £126m³) driven by growing contribution from fee based propositions and an increase in spread/risk margin

· UK acquisition expenses improved to 93bps (FY 2012: 133bps) and maintenance expenses improved to 26bps (FY 2012: 31bps)

· The number of adviser firms on Wrap increased by 10%⁷ to 1,192 (H1 2012: 1,087) and our SIPP proposition continues to perform well with a 15%⁷ increase in customer numbers and AUA up 19%⁷ to £21.5bn (H1 2012: £18.0bn)

· Our packaged 'off the shelf' auto enrolment solution is being sought by small and medium enterprise (SME) advisers such as Punter Southall and LEBC

· Standard Life Wealth AUA increased by 50%⁷ to £2.1bn

Record Standard Life Investments third party funds under management and net flows

· Operating profit before tax up 37% to £93m (H1 2012: £68m) benefiting from third party net inflows of £7.1bn

· Average fee revenue yield from third party business increased to 43bps (FY 2012: 40bps)

· Expanding global distribution capabilities with £3.6bn or 51% of third party net flows from outside the UK

· MyFolio net flows up 44% to £750m and AUM has more than doubled⁷ to £3.1bn

· Continuation of strong investment performance over all key time periods

Growing our fee business in Canada

· Canada fee based AUA up 5%⁶ to £17.0bn (FY 2012: £15.9bn) and fee based revenue up 13%⁶ to £95m (H1 2012: £83m)

· Expanded our range of mutual funds to leverage the expertise of Standard Life Investments in global and multi-asset funds

· Ongoing success in individual segregated funds with No.1 ranked proposition by net flows

Continued progress in Asia and Emerging Markets

· Began to write new business in Singapore and Dubai with terms of business agreed with 37 adviser firms and sales of £29m

· Hong Kong ranked No.3 in the investment linked market including No.1 in the broker and IFA segment⁸

· HDFC Life continues to reinforce its strong market position in the private market in India

Outlook

Our UK business is capitalising on regulatory, market and demographic changes. Our newer style propositions are gathering momentum with ongoing demand for investment solutions from customers, their advisers and employers. The pipeline of corporate business secured but not yet transitioned is strong and further benefits are expected from auto enrolment implementations for new and existing corporate pension clients. Standard Life Investments remains focused on expanding its investment capabilities and geographic reach and its pipeline of institutional business remains good. Canada continues to build on momentum in its fee based propositions and to pursue additional management actions of approximately £75m in the second half of the year. Our Asia and Emerging Markets business is well positioned for growth in the attractive international markets in which it operates.

Business segment performance

UK and Europe⁹

Standard Life Investments

Strategy

We continue to strengthen our leading long-term savings and investment business by providing high quality innovative propositions and investment solutions combined with strong customer service and a highly scalable business model. Our strong market positions, along with demographic and regulatory changes in the UK such as auto enrolment and RDR, provide us with significant opportunities to drive profitable growth across our UK and Europe businesses.

We remain very well positioned to deliver profitable growth. We are increasing our domestic and global presence and expertise across a range of asset classes while delivering consistently strong investment performance and strengthening relationships with our distribution partners. We also continue to leverage our investment expertise to maximise opportunities and revenues for the wider Group.

Operating profit

	H1 2013	H1 2012³
	£m	£m
Fee based revenue	439	406
Spread/risk margin	83	56
Total income	522	462
Acquisition expenses	(108)	(97)
Maintenance expenses	(229)	(212)
Capital management	(3)	(1)
Operating profit before tax	182	152

	H1 2013	H1 2012
	£m	£m
Fee based revenue	244	193
Maintenance expenses	(164)	(135)
Share of joint ventures' and associates' profit before tax	13	10
Operating profit before tax	93	68
Interest and exchange rate movements	(1)	-
Earnings before interest and tax (EBIT)	92	68

· Operating profit up 20% driven by a strong UK performance with all parts of the UK business contributing to growing profitability

· UK operating profit up 28% to £161m (H1 2012: £126m³)

· Total income up 13% reflecting strong growth in AUA and improved annuities performance

· Ongoing reduction in unit costs: UK acquisition expenses 93bps (FY 2012: 133bps); UK maintenance expenses 26bps (FY 2012: 31bps)

· Operating profit and EBIT up 37% and 35% respectively

· Fee based revenue up 26% driven by strong net flows, particularly into higher margin propositions

· Average fee revenue yield from third party business increased to 43bps (FY 2012: 40bps)

· Maintenance expenses expressed as a proportion of average AUM increased marginally to 18bps (FY 2012: 17bps) reflecting the ongoing development of our investment management capability and expanding distribution and geographic reach

· HDFC AMC, which remains the largest mutual fund company in India with AUM of £11.5bn, contributed £13m to operating profit

AUA and flows

· Total AUA grew by £8.3bn or 6% to £154.5bn

· Robust fee retail new net inflows of £1.7bn up 12% on H1 2012 with Q2 net flows of £0.9bn up 31% on Q2 2012

· Dealing with 342 IFAs with whom we have either not dealt with previously or for several years

· Corporate net flows of £534m (H1 2012: £763m) impacted by expected outflows from schemes secured by competitors on a commission basis prior to the implementation of RDR

· Positive net flows in Germany and Ireland

· Continued growth in higher margin propositions:

· MyFolio AUM more than doubled⁷ to £3.1bn

· Standard Life Wealth grew AUA by 50%⁷ to £2.1bn and acquisition of Newton Private Client business expected to be completed in September 2013

· Total AUM increased by 7% to £178.8bn

· Third party AUM increased by £10.4bn or 13% to £93.4bn

· Third party net inflows of £7.1bn representing 17% of opening third party AUM on an annualised basis

· Industry-leading retention rates with redemptions of just 14% of opening third party AUM (H1 2012: 14%)

· Overseas clients accounted for £3.6bn or 51% of third party net inflows, with net flows from the US of £1.4bn

· Assets managed for John Hancock exceed US$3.5bn

· Increased institutional client base in UK and Europe by 9% and our UK wholesale retail business recorded the highest net sales in the industry in the first two quarters of the year

Operational highlights

· Smooth transition to operate under RDR with 77% of Wrap clients now using adviser charging

· Number of adviser firms using our platform increased by 10% to 1,192 firms and number of adviser firms with assets on Wrap of greater than £20m up 38% to 191 firms

· Secured 108 (H1 2012: 105) new schemes with potential estimated assets up 66% on prior year

· 135,000 (H1 2012: 62,000) employees joined our corporate pension schemes with total members now over 1.3 million

· Strong corporate pension secured pipeline and increased take-up of Standard Life investment solutions

· Streamlined and significantly increased our corporate pension enrolment and processing capacity

· Continuing to deliver strong investment performance and our money weighted average for third party assets is well above median over all key time periods

· AUM across the MyFolio fund range of £3.1bn

· Growing reputation in the US including Multi-Asset Class (MAC) Partners Programme with the California Public Employees' Retirement System (CalPERS)

· Strength of mutual funds proposition is demonstrated by the proportion of eligible and actively managed funds (45 out of 60) rated 'Silver' or above by Standard & Poor's

· Became the first designated Worldwide Partner in the history of the Ryder Cup

Canada

Asia and Emerging Markets⁹

Strategy

We continue to grow our fee based business, capitalising on the opportunities created by demographic and market changes. We are achieving this through providing innovative retirement and investment solutions as well as exceptional levels of customer service. We continue to focus on maximising the value of our back book of spread business, improving its profitability, capital efficiency and risk exposure.

We are focused on delivering profitable growth through our two joint ventures and through the expansion of our retail savings and investments in Asia and the Middle East. The expansion into two new attractive international and offshore wealth management markets leaves us well placed to leverage our existing offshore capability. We continue to work with our joint venture partners on developing our businesses in India and China.

Operating profit

	H1 2013	H1 2012³
	£m	£m
Fee based revenue	95	83
Spread/risk margin	114	124
Total income	209	207
Acquisition expenses	(37)	(41)
Maintenance expenses	(125)	(114)
Capital management	12	19
Operating profit before tax	59	71

	H1 2013		H1 2012
	£m		£m
Fee based revenue		27	22
Acquisition expenses		(10)	(6)
Maintenance expenses		(23)	(21)
Total wholly owned		(6)	(5)
India and China JV businesses		5	8
Operating (loss)/profit before tax		(1)	3

· Operating profit of £59m benefited from growth in our fee business

· Fee based revenue increased by 13%⁶ to £95m as a result of higher AUA

· Spread/risk margin of £114m was negatively impacted by one-off reserving changes of £9m while H1 2012 benefited from positive experience variances of £8m

· Continued focus on management actions to increase back book profitability and de-risk our balance sheet

· Increase in expenses reflects continuing investment in our propositions and the growth of our business

· Operating loss of £6m across wholly owned operations reflects:

· 20%⁶ increase in fee based revenue driven by higher assets under administration and growth in net flows

· Higher expenses reflect the costs associated with the newly opened branches in Singapore and Dubai as well as ongoing investment in our business

· Continued profitability from JV businesses reflects the progress made by HDFC Life in creating a leading and profitable insurance business in India, reinforcing its strong position in the individual private market

AUA and flows

· Total AUA increased by 1%⁶ to £28.3bn driven by net inflows into fee based propositions of £0.2bn and positive market movements which offset expected outflows from the spread/risk business

· Strong position in corporate pensions with fee based gross inflows up 10% to £0.9bn and net inflows up 18% to £0.1bn

· Retail mutual funds net outflows increased to £62m (H1 2012: £7m) and now starting to leverage Standard Life Investments expertise in global and multi asset funds to launch new products and expand distribution in dealer channel

· Momentum in sales of retail segregated funds with market share up to 12% (FY 2012: 9%) and net flows up 5% to £193m, or up 46% when excluding discontinued GLWB product

· AUA in the wholly owned businesses increased by 18%⁶ to £262m benefiting from demand for our Harvest Wealth product launched in late 2012

· Net inflows in wholly owned businesses up 30% to £39m representing an annualised 36% of opening AUA

· AUA in the joint ventures increased by 7% to £1.6bn, due to net inflows of £0.1bn

Operational highlights

· No.1 by net flows of retail segregated funds and No.3 by gross sales

· Innovative 'Pension in a Box' proposition for SMEs and broker channel launched and first implementations secured

· Optimising the customer experience with new features and ability to self-service online through our corporate VIP room

· Group Retirement Centre providing planning services to members in or approaching retirement

· Added 8,700 members to our corporate pensions

(H1 2012: 11,100) members

· Ideal Monthly Income Fund won Fundata award for superior risk-adjusted performance relative to peers

· Announced transition of further shared functions to Hong Kong bringing more of our people closer to customers

· Our business in Hong Kong is now ranked No.3 in the investment linked market including No.1 in the IFA channel

· Began to write new business in Singapore and Dubai with terms of business agreed with 37 adviser firms and sales of £29m

· Increased distribution capability in China

· HDFC Life continues to grow and is a leading force in the private market in India where we are well positioned to take advantage of our brand strength and strong customer-focused business practices

For a PDF version of the full Half Year Results Announcement, including this Press Release, please click here:

http://www.rns-pdf.londonstockexchange.com/rns/2181L_1-2013-8-7.pdf

For further information please contact:

Institutional Equity Investors		Retail Equity Investors
Lorraine Rees Jakub Rosochowski Neil Longair	0207 872 4124 / 07738 300 878 0131 245 8028 / 07515 298 608 0131 245 6466 / 07711 357 595	Capita Registrars	0845 113 0045
Media		Institutional Debt Investors
Nicola McGowan	0131 245 4016 / 07872 191 341	Stephen Percival	0131 245 1571 / 07734 974 173
Barry Cameron	0131 245 6165 / 07712 486 463	Nick Mardon	0131 245 6371 / 07515 298 212
Tulchan Communications	020 7353 4200

Newswires and online publications

We will hold a conference call for newswires and online publications at 08:00 (UK time). Participants should dial +44 (0)20 3059 8125 and quote Standard Life 2013 Half Year Results. A replay facility will be available for seven days. To access the replay please dial +44 (0)121 2604 861. The pass code is 1490155#.

Investors and Analysts

A presentation for investors and analysts will take place at 11:30 (UK time) at Deutsche Bank, Winchester House, 1 Great Winchester Street, London EC2N 2DB. There will also be a live webcast and teleconference at 11:30 (UK Time), both of which will have the facility to ask questions at the end of the formal presentation. Participants should dial + 44 (0)20 3059 8125 and quote Standard Life 2013 Half Year Results.

Notes to Editors

1	In order to be consistent with the presentation of new business information, certain products are included in both long-term savings and investments AUA and net flows. Refer to Supplementary information 6.1 - Group assets under administration and net flows for further information.
2	Operating profit is IFRS profit before tax adjusted to remove the impact of market driven short-term fluctuations in investment return and economic assumptions, restructuring costs (including Solvency 2 restructuring programme), impairments of intangible assets, amortisation of intangible assets acquired in business combinations, profit or loss on the disposal of a subsidiary, joint venture or associate and other significant one-off items outside the control of management.
3	Comparatives have been restated to reflect an amendment to IAS19 Employee Benefits.
4	Comparative as at 31 December 2012.
5	Profit contribution is defined as revenue less directly attributable expenses.
6	In constant currency.
7	Year-on-year movement.
8	Share of broker and IFA segment as at 31 March 2013.
9	Following changes within Asia and Emerging Markets and the Group Executive management structure at the beginning of 2013, the Irish offshore business is now reported within Europe in the UK and Europe business. Prior period comparatives have been restated to reflect this change.