Half Yearly Report - Part 2 of 4

RNS Number : 9568U

Standard Life plc

04 August 2015

 

Standard Life plc

Half year results 2015

Part 2 of 4

1. Strategic report

1.1 Chief Executive's overview

Standard Life is a long-term investment savings business, with a growing presence in the global institutional investment and wholesale markets, and a strong distribution position in the workplace and retail markets in the UK, Europe, India and China. We use our investment expertise to create products and solutions, and distribute them globally - both through wholly owned businesses in the UK and elsewhere and also through our global strategic partnerships including Manulife, John Hancock, Sumitomo Mitsui, HDFC and Phoenix.

We aim to create sustainable value for our customers, clients, shareholders and for the communities in which we operate. We do this by focusing on fee based asset management and administration in markets with strong growth potential. This strategy is underpinned by a simple business model which enables us to generate profit, both to support dividend payments to our shareholders and to create the capacity to reinvest in growing our business.

Focus on fee business driving growth and performance

Standard Life has performed well during the first half of 2015 driven by a focus on providing value for our customers, clients and shareholders. Group operating profit before tax from continuing operations increased by 6% to £290m. We have increased the assets that we administer on behalf of our customers to £302bn helped by strong demand for our propositions.

Standard Life Investments actively manages £250bn of assets across the globe driven by consistently strong investment performance. We are continuing to see the benefits of our expanding distribution capabilities and strategic relationships.

Our UK fee based propositions continue to build momentum. The strength of these propositions, investment solutions and our market positioning means we have been able to help our customers with the new pensions regulations and continue to support them as saving for their futures becomes increasingly front of mind.

Outlook

We continue to deliver our clear and consistent strategy.

Standard Life Investments remains focused on delivering excellent investment performance and continuing to respond to the needs of our customers and clients through new and innovative investment solutions. We aim to continue to expand our geographic reach by building on success in overseas markets through strengthening our own distribution as well as relationships with global distribution partners in the US, Canada, India, Japan and across the Standard Life Group. The integration of Ignis Asset Management (Ignis) is on track.

The investments we have made in our UK business in recent years leave us well positioned to benefit from evolving customer needs and regulatory changes. This, combined with the investment expertise of Standard Life Investments and our focus on providing value for our customers, continues to drive demand for our propositions across the retail, workplace, institutional and wholesale channels. Our fee business, including our leading income drawdown proposition, is well placed for future growth.

In Hong Kong, our wholly owned operation continues to adapt to regulatory change. Our joint venture (JV) in China is continuing to focus on profitable growth and in India, HDFC Life and HDFC AMC continue to perform strongly.

It has been an absolute privilege to lead Standard Life for the last six years and to help build our business into the strong global player it is today. I wish Keith and the inspirational people across all of our Group every success for the future.

1.2 Chief Financial Officer's overview

We operate through a simple business model that is aligned with how we manage and report performance. We aim to grow assets resulting in higher fee based revenue and to manage our costs and capital which drives increased shareholder value. Our results in H1 2015 demonstrate that we have made good progress against each of the dimensions of our business model.

Key financial performance indicators

Our key financial performance indicators are used to measure our progression and performance and unless otherwise stated exclude discontinued operations¹. Comparatives have been restated. The acquisition of Ignis completed in July 2014 and the results of Ignis are included in our H1 2015 results.

¹      Discontinued operations for segmental reporting comprises the Canadian business which was sold on 30 January 2015 and the Dubai and Singapore businesses, the closures of which were announced in November 2014 and June 2015 respectively. Further details are included in Section 1.3.4.

Increasing assets

Group assets under administration and net flows

As a long-term investment savings business, assets under administration (AUA) and net flows are key drivers of shareholder value.

Group AUA increased by 2% to £302.1bn driven by strong net flows in our fee business and favourable market movements.

Fee business AUA increased to £275.4bn (FY 2014: £268.6bn). Adjusted net inflows into our fee based propositions were £6.4bn (H1 2014: £5.1bn), with the key driver being Standard Life Investments third party net inflows which saw continued demand for our multi-asset and MyFolio funds.

Adjusted fee net inflows excludes natural run-off from UK conventional with profits (CWP) business of £0.4bn (H1 2014: £0.5bn) and £2.2bn of expected net outflows from the closed book of assets managed for the Phoenix Group. The mandate to manage the Phoenix Group assets was included as part of the acquisition of Ignis and was therefore not part of H1 2014 net flows. Total fee business net inflows were £3.8bn (H1 2014: £4.6bn).

Spread/risk business AUA decreased to £15.4bn (FY 2014: £16.1bn) resulting from scheduled annuity outflows and adverse market movements.

Visit www.standardlife.com/investor for further information on AUA and net flows

Driving profit

Group operating profit before tax

Group operating profit before tax continues to be a key measure which provides an indication of our ability to deliver returns for our shareholders, supports further investment in the business and indicates our dividend paying capability.

Group operating profit before tax increased by 6% to £290m (H1 2014: £274m), driven mainly by continued organic growth in Standard Life Investments and also by the acquisition of Ignis. This was offset by expected challenging conditions impacting spread/risk margin in the UK business due to the current low yield environment and following the 2014 Budget changes.

Our share of profit from associates and JVs also contributed to the growth in operating profit with an increase of £10m to £30m. This includes continued strong performance in India by our joint venture HDFC Life and our associate HDFC Asset Management.

Group underlying performance increased by 9% to £299m. This excludes £9m (H1 2014: £nil) of operating expenses relating to shareholder support provided to the German With Profits Fund (GWPF).

Analysis of Group operating profit is included in Section 1.3

Maximising revenue

Fee based revenue increased by 17% to £761m driven by a strong demand for our fee based products and a £54m contribution from Ignis with the revenue yield holding steady across our major business units.

Spread/risk margin, which mainly relates to the margin earned on UK annuities, decreased by 49% to £40m. Asset and liability management actions which focus on ensuring an efficient use of capital were lower than H1 2014, in line with our expectations, due to fewer opportunities in a low yield environment. Spread/risk margin was also impacted by reduced annuity sales following the 2014 Budget changes.

Lowering unit costs

Operating expenses increased by 15% to £542m reflecting further investment in expanding the global reach of Standard Life Investments, including additional expenses of £34m in relation to Ignis, acquired in H2 2014. Whilst we invest to enhance our propositions and capabilities, we have also demonstrated our scalability with operating expense bps decreasing to 42bps.

Group underlying cash generation 

Group underlying cash generation is a key performance indicator. This measure aligns closely with how the business is managed and demonstrates our ability to generate cash that supports further investment in the business and the payment of dividends to our shareholders.

Group underlying cash generation increased to £223m benefiting from higher Group underlying performance (excluding joint ventures) and lower current tax on underlying performance.

Reconciliation of Group underlying cash generation	H1 2015 £m	H1 2014 £m
Group underlying performance from continuing operations	299	274
Exclude share of associates and JVs' profit before tax	(30)	(20)
Less current tax on underlying performance	(33)	(51)
DAC/DIR adjustment	(3)	(16)
Fixed and intangible asset adjustment	(10)	4
Group underlying cash generation	223	191

Visit www.standardlife.com/investor for further information on underlying cash generation

Further financial highlights

This section covers further financial highlights which help to explain the Group financial performance and concludes with our proposed interim dividend.

IFRS profit¹

Total IFRS profit¹, including discontinued operations, increased to £1,211m (H1 2014: £275m). This included the £1,097m gain on sale of the Canadian business which concluded on 30 January 2015.

IFRS profit¹ from continuing operations decreased to £69m (H1 2014: £196m) due to an increased non-operating loss of £158m (H1 2014: £36m), partially offset by the increase in operating profit before tax and decrease in total tax expense. The non-operating loss consists of:

·   Short-term fluctuations in investment return and economic assumption changes, which generated a loss of £42m (H1 2014: £nil) with adverse UK economic variances driven by market movements on assets backing subordinated liabilities

·   Restructuring and corporate transaction expenses of £62m (H1 2014: £26m), which included £20m for staff pension scheme restructuring, £17m for the integration of Ignis, and other business unit restructuring programmes

·   Other non-operating loss of £54m (H1 2014: £10m), which includes a £46m loss in Hong Kong mainly due to an impairment of deferred acquisition costs following regulatory change and £10m amortisation of acquired intangibles primarily relating to the acquisition of Ignis

The total tax expense attributable to equity holder's profit from continuing operations was £18m (H1 2014: £35m) of which £37m (H1 2014: £46m) related to operating items and a credit of £19m (H1 2014: credit £11m) for non-operating items. The effective tax rate was 15%³ (H1 2014: 15%³) compared to a UK corporation tax rate of 20.25% (H1 2014: 21.5%).

Other² for continuing operations comprises the share of associates and JV tax of £5m (H1 2014: £1m) and Dubai and Singapore IFRS loss before tax of £40m (H1 2014: loss £6m) which mainly relates to expenses for the closure of the Singapore business.

	H1 2015	H1 2014
	£m	£m
Continuing operations:
Group operating profit before tax	290	274
Non operating loss before tax	(158)	(36)
Total tax expense	(18)	(35)
Other2	(45)	(7)
IFRS profit1 from continuing operations	69	196
IFRS profit1 from discontinued operations	1,142	79
Total IFRS profit1	1,211	275

IFRS profit from discontinued operations is discussed in Section 1.3.4

Group operating return on equity 

Return on equity measures our success in generating profit relative to our shareholder capital.

Group operating return on equity, which includes discontinued operations, decreased slightly to 12.9%⁴ (H1 2014: 13.0%) as a result of the relatively low return earned on the net retained proceeds from the disposal of the Canadian business.

We will continue to manage our capital position to ensure that we generate sustainable returns for our shareholders.

¹    After tax attributable to equity holders of Standard Life plc.

²    Dubai and Singapore are presented as discontinued operations in the Strategic report and in the Group operating profit by segment. However, under IFRS 5, Dubai and Singapore do not constitute discontinued operations and are included in continuing operations in the consolidated income statement. Therefore, a reclassification of these results between discontinued and continuing operations is required. For further information see Note 4.3 in the Financial Statements section.

³    Includes profit from non-controlling interests.

⁴    £1.75bn return of value and receipt of sale proceeds both assumed to have taken place on date of disposal of the Canadian business for calculation of the Group operating return on equity. This assumption increased Group operating return on equity from 12.1% to 12.9%.

Optimising the balance sheet

Group capital surplus

Group capital surplus over regulatory requirements decreased to £2.6bn primarily due to a net £0.2bn reduction resulting from the sale of our Canadian business comprising of:

·   The removal of its contribution to Group surplus of £0.6bn at FY 2014

·   The return of value to shareholders in April 2015 of £1.75bn

·   Partially offset by the disposal proceeds of £2.2bn received in January 2015 

The Group capital surplus also reduced following the payment of the final dividend of £224m in May 2015.

Our capital position remains strong and the sensitivity of the Group capital surplus to market volatility has reduced further following the disposal of our Canadian business.

The estimated impact on the Group capital surplus from significant market movements, after taking into account management actions appropriate to these stresses, is as follows:

·   30% fall in equities: Reduction of £0.1bn (FY 2014: £0.2bn)

·   100bps rise in yields: Reduction of less than £0.1bn (FY 2014: £0.1bn)

·   100bps fall in yields (minimum yields of zero): Increase of less than £0.1bn (FY 2014: £0.1bn increase)

We expect our capital position to remain strong following implementation of the Solvency II regime.

Liquidity management

Standard Life plc holds substantial cash and liquid resources. At 30 June 2015, Standard Life plc held £600m (H1 2014: £419m) of cash and short-term debt securities, £292m (H1 2014: £338m) of bonds and £199m (H1 2014: £nil) of holdings in pooled investment funds managed by Standard Life Investments.

The increase in total Standard Life plc cash and liquid resources at 30 June 2015 was due to the net retained proceeds from the disposal of the Canadian business, consisting of the proceeds received from the disposal less the return of value to shareholders of £1.75bn.

We continue to focus on efficient capital management and cash generation. During H1 2015, subsidiaries remitted £247m to Standard Life plc and we made a final dividend payment of £224m. The Group continues to maintain a strong liquidity position and this was again shown in the stress testing undertaken during H1 2015.

In May 2015, we reduced our syndicated revolving credit facility which we hold as part of our contingency funding plans, to £400m in line with our lower risk profile following the sale of the Canadian business. The maturity date for this facility was extended until 2020 and is currently undrawn.

Standard Life plc cash and liquid resources	H1 2015 £m	H1 2014 £m
Opening 1 January	657	907
Canada net retained proceeds	459	-
Dividends received from subsidiaries	247	546
Cash dividends paid to shareholders	(224)	(252)
Cash investments in subsidiaries	(43)	(411)
Cash investments in associates and JVs	(3)	(14)
Other	(2)	(19)
Closing 30 June2	1,091	757
2     Liquid resources include uncashed cheque payments relating to dividends and return of value of £61m (H1 2014: £29m).

Dividends

We propose an interim dividend of 6.02p per share. This represents an increase of 7.5% per share.

In H1 2015 we paid the 2014 final dividend of £224m (2013: £252m) which was paid on the lower adjusted number of ordinary shares following the share consolidation.

We intend to continue to apply our existing 'pence per share' progressive dividend policy taking account of market conditions and our financial performance.

1.3 Business segment performance

The Group's reportable segments have been identified in accordance with the way the Group is structured and managed and are as follows:

Continuing operations:

Standard Life Investments provide a range of investment products for individuals and institutional clients through a number of different investment vehicles. Investment management services are also provided to the Group's other reportable segments and through third party relationships. This segment includes Ignis, which was acquired on 1 July 2014 and the Group's share of the results of HDFC Asset Management Company (HDFC AMC) in India.

Standard Life Investments continues to deliver strong investment performance with total AUM up 2% from FY 2014 to £250bn. The acquisition of Ignis and increase in demand for our higher margin products has contributed to a 51% increase in operating profit.

The UK and Europe segment provides a broad range of long-term savings and investment products and services to workplace and retail customers in the UK, Germany, Austria and Ireland.

UK and Europe operating profit was down 22%, impacted by expected lower spread/risk margin given the current low yield environment and the 2014 Budget changes to the pension regime. AUA of £147.8bn benefited from strong demand for our UK propositions and investment solutions.

The India and China segment (formerly Asia and Emerging Markets) consists of the life insurance joint venture businesses in India (HDFC Life) and China (Heng An Standard Life) and our wholly owned business in Hong Kong. These businesses offer insurance and savings products to customers, with AUA up 4% from FY 2014 to £2.6bn.

Other primarily relates to corporate centre costs and other head office related activities.

Discontinued operations:

Following changes in the Group structure and operations in 2014/15, continuing operations for segmental reporting purposes excludes our Canadian business which was sold on 30 January 2015 and our Dubai and Singapore businesses, the closures of which were announced in November 2014 and June 2015 respectively.

Analysis of operating profit1 from continuing operations
	Standard Life   Investments		UK and           Europe		India and        China2		Other		Eliminations3		Total      continuing      operations
	H1 2015	H1 2014	H1 2015	H1 2014	H1 2015	H1 2014	H1 2015	H1 2014	H1 2015	H1 2014	H1 2015	H1 2014
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Fee based revenue4	402	288	396	389	23	26	-	-	(60)	(51)	761	652
Spread/risk margin	-	-	40	79	-	-	-	-	-	-	40	79
Total income4	402	288	436	468	23	26	-	-	(60)	(51)	801	731
Total operating expenses4,5	(263)	(197)	(297)	(281)	(17)	(23)	(25)	(23)	60	51	(542)	(473)
Capital management	-	-	8	1	-	-	(7)	(5)	-	-	1	(4)
Share of associates' and JVs' PBT	15	11	-	-	15	9	-	-	-	-	30	20
Group operating profit before tax	154	102	147	188	21	12	(32)	(28)	-	-	290	274
Underlying adjustments	-	-	9	-	-	-	-	-	-	-	9	-
Group underlying performance	154	102	156	188	21	12	(32)	(28)	-	-	299	274
1      Operating profit is IFRS profit before tax adjusted to remove the impact of short-term market driven fluctuations in investment return and economic assumptions, restructuring costs, impairment of intangible assets, amortisation of intangible assets acquired in business combinations, profit or loss on the sale of a subsidiary, associate or joint venture and other significant one-off items outside the control of management and not indicative of the long-term operating performance of the Group. The impact of the restructuring of the UK staff pension scheme has been adjusted so that H1 2015 operating profit is based on the expected long-term pension expense, which results in a £20m increase to H1 2015 operating profit before tax and a corresponding increase to H1 2015 non-operating restructuring and corporate transaction expenses - Refer to Note 4.4 of the IFRS condensed consolidated financial information for further information. 2      India and China segment was formerly known as Asia and Emerging Markets. Dubai and Singapore are included in discontinued operations in Section 1.3.4. 3      Eliminations primarily relate to revenue and expenses included in the UK and Europe segment and Standard Life Investments. Therefore, at a Group level an elimination adjustment is required to remove any duplication. 4      Institutional pension business previously included in both UK and Europe and Standard Life Investments has now been excluded from UK and Europe and is only included in the Standard Life Investments segment. UK and Europe and eliminations have been adjusted and there is a £nil impact on UK and Europe and Group operating profit. Comparatives have been restated. 5      Total operating expenses comprise acquisition expenses, maintenance expenses and corporate centre costs.

1.3.1 Standard Life Investments

Overview 

Standard Life Investments is a leading active asset manager with total AUM of £250.0bn, representing 83% of Group AUA.

We have developed our capabilities across a range of asset classes, including equities, fixed income, real estate and private equity. We also provide innovative investment solutions, such as high-quality multi-asset and liability aware investments, including our absolute return strategies, and our wealth proposition available through Standard Life Wealth. We remain focused on meeting the needs of our institutional and wholesale clients globally and securing new business backed by consistently strong investment performance and exceptional levels of client service.

We continue to expand our global reach and now have offices in 23 cities worldwide including our Head Office in Edinburgh and regional hubs in Boston and Hong Kong. As well as our own distribution, we also benefit from leveraging our strategic partner relationships in the US, Canada, India, Japan and with Standard Life in the UK.

Our distinctive 'Focus on Change' investment philosophy lies at the heart of our wide range of investment funds and solutions. This combined with disciplined risk management and shared commitment to a culture of investment excellence is fundamental to helping our clients look forward to their future with confidence.

Sustainable global growth

We continue to invest to drive performance, to further raise our profile and to enhance our infrastructure to support our growth ambitions. We are investing to strengthen the range of investment solutions we offer, including new innovative propositions across the range of asset classes. 

The global economy has continued to expand at a moderate pace over the last 12 months despite a slowdown in emerging markets, particularly in China. Moderate economic growth and strong cost control have allowed companies to expand profits steadily into 2015. The interplay of corporate and macro trends has resulted in investors taking a more selective approach to investment opportunities. In the UK, regulatory change impacting pensions presents ongoing opportunities for us to provide solutions to meet client needs, particularly for our multi-asset suite of products and MyFolio risk based funds.

We continue to recognise that corporate governance along with responsible stewardship of a business' capital, employees, customers and environment has a fundamental impact on long-term investment returns. Our commitment to socially responsible investing was recently reflected in Standard Life Investments being voted as the leading UK asset management firm in this area at the Extel 2015 Awards.

We remain well positioned to deliver profitable growth. We have a strong pipeline of new investment initiatives which positions us well to continue to meet the changing demands of our clients through new and innovative investment solutions. The integration of Ignis is on track and we expect to achieve £50m of annual cost savings and our EBITDA target of 45% by 2017.

We continue our focus on delivering consistently strong investment performance and strengthening relationships with our global distribution partners.

Delivering on our business model

Increasing assets

We continue to be one of the five largest asset managers in the UK in both institutional and wholesale markets. We are also ranked as 33rd largest asset manager globally by AUM, up from 56th in 2013.

Investment Performance

Growth in AUM was underpinned by excellent money weighted average investment performance. 97% of third party funds were ahead of benchmark over five years, with 95% ahead over three years and 79% over one year.

Fixed income funds continued to perform strongly with 100% of funds ahead of benchmark at three years (one year 45%, five years 94%). Our suite of multi-asset funds has outperformed their cash benchmark over all time periods noted above.

Total AUM increased 2% to £250.0bn (FY 2014: £245.9bn) largely as a result of strong investment performance, positive market movements and good net inflows. AUM comprised third party¹ AUM of £124.4bn (2014: £117.5bn) and strategic partner life business AUM of £125.6bn (2014: £128.4bn). Third party¹ AUM increased to 50% of total AUM (FY 2014: 48%).

Total net inflows of £1.8bn (H1 2014: £2.9bn) decreased 38% due to higher net outflows from strategic partner life business which, following the acquisition of Ignis on 1 July 2014, includes a mandate to manage assets on behalf of the Phoenix Group. The closed nature of this mandate of insurance business means it is in long-term run-off and these net outflows are expected. Excluding Ignis, total net inflows increased 103% to £5.9bn.

Strong third party¹ net inflows of £5.2bn (H1 2014: £4.0bn) largely in our wholesale and institutional businesses were impacted by the disinvestment of one low revenue margin mandate within Ignis third party¹. Excluding Ignis, net inflows for third party¹ increased 78% to £7.1bn. This result reflects the diverse nature of our product offering, our expanding global distribution capability and the increasingly international nature of our client base.

¹    Excluding strategic partner life business.

Third party¹ key highlights

						Net flows				AUM
						H1 2015	H1 2014			H1 2015	FY 2014
						£bn	£bn			£bn	£bn
Wholesale						5.3	2.5			40.6	35.5
Institutional						1.8	1.5			64.6	61.4
Wealth						-	-			6.3	6.1
Ignis						(1.9)	-			12.9	14.5
Total third party1						5.2	4.0			124.4	117.5
Standard Life Group						(1.2)	(1.1)			83.5	84.6
Phoenix Group						(2.2)	-			42.1	43.8
Total strategic partner life business						(3.4)	(1.1)			125.6	128.4
Total						1.8	2.9			250.0	245.9
1    Excluding strategic partner life business.

By channel: We split our business into channels which differ by client base needs and distribution methods:

Wholesale

In our Wholesale business, we continued to perform well with net inflows in H1 2015 at £5.3bn (H1 2014: £2.5bn). In particular, inflows into MyFolio, equities, fixed income, real estate and multi-asset strategies remain strong.

Our position in the wholesale market in the UK remains relatively stable with share of gross sales of 4.6% (H1 2014: 4.7%). UK mutual funds AUM increased by 13% to £24.6bn and represents 20% of third party assets.

Institutional

Institutional business net inflows were £0.3bn higher than H1 2014 at £1.8bn. Our pipeline of institutional business continues to see fixed income, real estate and multi-asset propositions attract interest.

Wealth

Standard Life Wealth continues to develop and as we improve the operating platform, we expect it will start to gain momentum in the market. AUM increased to £6.3bn due to positive market movements.

Ignis

Our Ignis business, which is mostly institutional in nature, saw net outflows of £1.9bn, following the disinvestment of £1.7bn from one large low revenue margin mandate. The ARGBF net outflows have reduced to £0.2bn in H1 2015 following the £2.6bn net outflow in 2014.

By asset class:

In H1 2015, multi-asset continued to have strong net inflows contributing £5.6bn (H1 2014: £2.7bn) as AUM increased to £45.9bn (FY 2014: £38.6bn). MyFolio saw net inflows of £0.9bn (H1 2014: £0.8bn) as AUM increased to £6.9bn (FY 2014: £5.9bn).

Net inflows were also achieved in fixed income of £0.4bn (H1 2014: outflow £0.1bn), and £0.2bn in real estate (H1 2014: £0.2bn).

By geography: 

Continued strong net inflows in North America of £1.5bn (H1 2014: £1.1bn) contributed to AUM reaching £9.7bn (FY 2014: £8.1bn).

We began to see increasing success in Asia Pacific, with net inflows of £0.8bn (H1 2014: £0.1bn). In India, our share of HDFC AM net inflows were good at £0.5bn (H1 2014: £0.4bn). In UK and Europe net inflows increased by 79% to £4.3bn (H1 2014: £2.4bn).

Strategic partner life business key highlights

Overall strategic partner life business outflows increased to £3.4bn(H1 2014: £1.1bn) largely due to the inclusion of expected net outflows of £2.2bn from the assets managed on behalf of Phoenix Group which were not acquired until H2 2014. Net outflows from Standard Life Group increased slightly to £1.2bn (H1 2014: £1.1bn).

Other key highlights

In H1 2015, we successfully converted our award winning Property Income Trust into a Real Estate Investment Trust to ensure greater accessibility and tax efficiency for investors.

Our dedication to meeting clients financial needs resulted in us winning a number of industry awards. These included:

·   Four Lipper Awards for Best Equity House for Austria, Switzerland, Netherlands and Hong Kong

·   Our UK Equity Income Unconstrained Fund won the UK Core Equity category at the Institutional Investor Awards

·   Our Global Equity Income Fund won the Best Smaller Global Equity Income Fund category at the Money Observer awards

·   DC Investment Manager of the Year at the Professional Pension Awards 2015

Visit www.standardlife.com/investor for further information on AUA and net flows

Profitability 

Driving profit

Operating profit before tax increased 51% to £154m. Key drivers included strong fee revenue growth, £20m contribution from Ignis which was acquired on 1 July 2014 and increased share of profit before tax for HDFC AMC, our associate business, due to increased AUM in H1 2015.

Operating return on equity reduced to 32.0% (H1 2014: 43.9%) while we fully integrate Ignis and reflects a capital injection from Standard Life plc to fund the acquisition.

EBITDA increased to £161m, including £22m contribution from Ignis. Our EBITDA margin of 40% (H1 2014: 36%) remains strong and we are on track to deliver an EBITDA margin of 45% by 2017.

Ongoing management of costs, combined with expansion in revenue margins, has resulted in a 20% compound annual growth in EBITDA over the last 8 years. 

Maximising revenue

Fee based revenue increased by 40%, benefiting £54m from Ignis, performance fees of £8m (H1 2014: £4m), increased AUM and a continued shift in mix towards our higher margin products, including UK mutual funds. We maintained our revenue yield on third party¹ AUM at 53bps and the revenue yield for strategic partner life business increased 1bp to 17bps.

¹    Excluding strategic partner life business.

Lowering unit costs

Total operating expenses increased by 34% reflecting the increased scale of our business, including £34m operating expenses in Ignis. We continue to see a larger increase in revenue relative to expenses showing our ability to be a scalable business through investment in expanding distribution and geographic reach. We have maintained our operating expenses bps of 22bps and remain on track to deliver £50m cost synergies.

	H1 2015		H1 2014
	£m		£m
Fee based revenue	402		288
Operating expenses	(263)		(197)
Share of associates profit before tax	15		11
Operating profit before tax	154		102
Interest, depreciation, amortisation, FX movements		7	3
EBITDA	161		105

1.3.2 UK and Europe

Overview

Our UK and Europe business is a leading provider of long-term investment savings propositions to workplace and retail customers including self-invested and workplace pensions, drawdown propositions, individual savings accounts, investment bonds and mutual funds. We have the clear objective of being our customers' first choice for their life savings and aim to achieve this by providing engaging, digital-led solutions with the flexibility to adapt to customers' needs over their lifetimes.

AUA for our UK and Europe business has grown to £147.8bn. Within this, our market leading workplace pensions have attracted 1.6m customers and AUA of £33.2bn. Growth in our retail business is driven by our award winning Wrap platform, which has £23.3bn of AUA and the highest net sales in the UK advised platform market¹. Approximately 25% of our Wrap assets are now managed by Standard Life Investments.

Our close collaboration with Standard Life Investments allows us to engage with customers across the value chain, providing benefit to our customers, our UK business and Standard Life as a whole.

A period of change and opportunity

2015 has seen the implementation of significant new regulations within the UK savings and retirement markets. The pension freedoms effective from 6 April 2015 have provided customers with increased flexibility when accessing income in retirement. This resulted in operational challenges across the industry, with unprecedented levels of customer contact as they sought to understand their options. Many customers with smaller savings pots have withdrawn their cash, reflecting a build-up of demand since the reforms were first announced. We have worked hard to provide a high level of customer service in meeting this demand and believe that our online journey has been a success in helping our customers.

The strength of our drawdown propositions and our award-winning Wrap platform enable us to deal with the new regulations, and to provide customers with the quality and choice to make the most of their retirement.

Whilst the new regulations give customers greater control and flexibility, with increased choice comes complexity. We anticipate a significant increase in demand for financial advice and in response to this are building our own UK-wide financial advice business under the brand 1825 - the year Standard Life was founded. The growth strategy of 1825 includes acquiring progressive financial advice firms aligned to our operating model and building on our existing capabilities. The acquisition of Pearson Jones in the second quarter of 2015 was the first acquisition for this new business.

In a market influenced by regulatory change, our workplace business continues to build scale. Since auto enrolment began in 2012, we have helped over 3,700 employers set up qualifying workplace pension schemes with 680,000 new savers enrolled into these schemes. As the average auto enrolment scheme size reduces, our online Good to Go proposition meets the needs of these employers, processing schemes on the same day as application. This proposition demonstrates the scalability of our business at a time when the industry is facing capacity constraints, securing approximately 2,400 schemes to date.

In response to the Department for Work and Pensions price cap, all of our qualifying workplace pension schemes became fully compliant with the new regulations before the April 2015 deadline.

In the July 2015 UK Budget, the Chancellor announced a Green Paper consultation on pension tax relief. As a leading provider of long-term savings, we will engage constructively in the debate to ensure positive customer outcomes.

The challenges arising from a prolonged low interest rate environment have been felt in a number of European jurisdictions. In Germany, we believe the level of guarantees typically provided by insurers have become unsustainable. As a result our German business with-profits book is no longer open to new business. Whilst supporting our existing customers, focus now moves to the sale of our unit linked products.

Delivering on our business model

Increasing assets

UK and Europe AUA increased by 1% to £147.8bn. Fee based AUA which accounts for 85% of total AUA increased by 3% to £125.6bn, benefiting from a combination of net inflows and favourable market movements.

Net inflows of £1.8bn (H1 2014: £1.5bn) into our UK retail new propositions which include SIPP and Wrap were driven by a 16% increase in gross inflows to £3.6bn (H1 2014: £3.1bn).

Our Wrap platform continues to lead the UK advised platform market¹ with AUA increasing 11% to £23.3bn. In 2015 we have added 65 new firms to the platform and now have 1,405 firms using our Wrap platform.

SIPP AUA rose to £28.3bn (FY 2014: £26.2bn) with £12.9bn (FY 2014: £11.5bn) of assets invested in our market-leading drawdown proposition.

	Net flows			AUA
	H1 2015	H1 2014		H1 2015	FY 2014
	£bn	£bn		£bn	£bn
UK retail new fee business	1.8	1.5		40.4	37.3
UK retail old fee business	(1.2)	(1.1)		33.4	33.5
Workplace2	1.1	0.9		33.2	32.0
UK retail and workplace fee business	1.7	1.3		107.0	102.8
Conventional with profits	(0.4)	(0.5)		1.7	2.1
UK spread/risk	(0.5)	(0.4)		14.9	15.5
Assets not backing products	-	-		6.8	7.7
UK total	0.8	0.4		130.4	128.1
Europe fee	0.5	0.6		16.9	17.2
Europe spread/risk	-	-		0.5	0.6
Europe total	0.5	0.6		17.4	17.8
Total UK and Europe	1.3	1.0		147.8	145.9
1  Highest net sales in Q1 2015, source Fundscape.
2  In H1 2015, UK corporate assets have been renamed as workplace.

Visit www.standardlife.com/investor for further information on AUA and net flows

Our UK retail old business saw a 9% increase in net outflows to £1.2bn with customers postponing investment decisions in H1 2014 to take advantage of the new pension freedoms from 6 April 2015.

We engage with our customers who are approaching retirement or have maturing policies to ensure they are equipped to make informed decisions. This is valued by our customers with many choosing to continue saving with us. We continue to benefit from ongoing increments, customers transferring to our UK retail new propositions and positive market movements.

UK workplace pension AUA increased 4% to £33.2bn. Although the large employer market remains subdued, net inflows increased to £1.1bn (H1 2014: £0.9bn). Growing contributions into our existing schemes and our success in attracting new flows through auto enrolment has resulted in a 15% increase in regular premiums. Our workplace business continues to add new customers through auto enrolment, enrolling approximately 120,000 new customers in H1 2015 (H1 2014: 180,000).

UK spread/risk AUA decreased to £14.9bn (FY 2014: £15.5bn), with net outflows of £0.5bn (H1 2014: £0.4bn) as annuity sales were impacted by the changes to retirement regulations in the 2014 UK Budget.

In our Europe business fee based AUA decreased by 2% to £16.9bn due to adverse foreign exchange movements partly offset by net inflows of £0.5bn (H1 2014: £0.6bn). In Germany net inflows from unit linked business doubled, with the proportion of net inflows from unit linked business rising to 19% (H1 2014: 9%).

Profitability

Driving Profit

		UK		Europe		UK and Europe
		H1 2015	H1 2014	H1 2015	H1 2014	H1 2015	H1 2014
		£m	£m	£m	£m	£m	£m
Fee based revenue		314	303	82	86	396	389
Spread/risk margin		38	75	2	4	40	79
Total income		352	378	84	90	436	468
Operating expenses		(219)	(214)	(78)	(67)	(297)	(281)
Capital management		8	1	-	-	8	1
Operating profit before tax		141	165	6	23	147	188
Underlying adjustments1		-	-	9	-	9	-
Underlying performance		141	165	15	23	156	188
1   Relating to shareholder support provided to the German with-profits business and is included in operating expenses.

UK and Europe operating profit before tax reduced by 22% to £147m with underlying performance decreasing by 17% to £156m. Operating return on equity decreased to 13.0% (H1 2014:19.8%) reflecting the decrease in operating profit after tax to £129m (H1 2014: £157m) and higher opening shareholder net assets.

UK operating profit reduced by £24m to £141m, as strong growth in fee business was more than offset by a spread/risk margin reduction which included lower contribution from asset and liability management as expected.

Europe operating profit reduced by £17m to £6m and includes a £9m impact of shareholder support provided to the German with-profits business. This is a one-off contribution as we no longer write new with- profits business in Germany. Europe underlying performance was lower by 35% at £15m with a reduced benefit from asset and liability management, changes in actuarial reserves and adverse foreign exchange movements.

Maximising revenue

UK fee based revenue increased by 4% to £314m benefiting from higher AUA as a result of positive market movements and retail new and workplace net inflows. This includes growing inflows into Standard Life Investments' MyFolio fund range, which now accounts for £6.0bn of MyFolio AUA and continues to secure additional revenue for the Group. We also continue to benefit from retention activity on our retail old propositions. Average fee revenue yield reduced to 61bps (FY 2014: 62bps) reflecting the impact of changes in business mix including a growing proportion of newer style propositions as well as a £6m reduction in revenue earned on client cash balances.

Our Active Money Personal Pension product has been updated with drawdown capability, delivering for customers who require a simplified means of accessing income in retirement. This will generate long-term revenue from the customers who continue to save with us.

UK spread/risk margin which mainly relates to our annuity business decreased by 49% to £38m. This included the expected £26m reduction in the benefit from asset and liability management, as fewer opportunities for more effective management of our assets exist in the current low yield environment. This was accompanied by a reduction in the new business margin by £9m to £4m, caused by a 66% reduction in annuity sales as a result of the 2014 Budget changes.

Lowering unit costs

UK operating expenses increased 2% to £219m, due to higher fees paid to Standard Life Investments, in line with higher AUA. Expressed as a proportion of average AUA, operating expenses decreased to 41bps (FY 2014: 42bps) as we continue to benefit from the scalability of our business model and cost discipline.

Our investment in technology has allowed further process automation and customer self-service which has helped to lower unit costs. Examples of our progress include:

·   Our ability to process the Good to Go schemes on the same day as application demonstrating the scalability of our business at a time when the industry is facing capacity constraints

·   Our online Retirement Pathfinder & Calculator tools launched in 2015 enabling customers to explore how to make best use of the new pension rules

·   Our new online journey allows customers to access their savings on a fully self-serve basis. Since April, approximately 64,000 customers have used our online journey to explore their options.

1.3.3 India and China

Overview

Our India and China segment consists of our life joint ventures in India and China and our wholly owned business in Hong Kong. We announced the closure of our businesses in Dubai in November 2014 and Singapore in June 2015. Subject to regulatory approvals, Singapore will close by the end of 2015. Further details are included in our discontinued operations segment in Section 1.3.4 on the next page.

HDFC Life, our life joint venture business in India, is one of the leading private life insurance companies in the market. It provides 20 million customers with innovative needs-based insurance and savings solutions.

In China, our joint venture Heng An Standard Life, continues to build a sustainable business by offering a range of insurance and savings products to a large customer base.

In Hong Kong, we continue to evolve our propositions to meet the needs of the growing affluent and wealth segments both in Hong Kong and cross-border from mainland China.

Continued focus in Asia

We continue to support the development of our operations in India and China, including identifying opportunities across Asia that can benefit our wider Group, including asset management opportunities for Standard Life Investments.

Following the passing of the Insurance Laws (Amendment) Act by the Indian Parliament in March 2015, we are in discussions with our JV partner regarding a potential increased stake in HDFC Life. India is a highly attractive growth market and we continue to maintain a long-term commitment to India and HDFC Life.

Heng An Standard Life has seen continued growth in sales in 2015 building on momentum from 2014. Management continues to focus on growing productivity levels of its in-house agency sales force.

A new regulatory environment came into effect on 1 January 2015 in Hong Kong, which banned advance payment of commission on all investment-linked products and has impacted the market significantly. We are supportive of these changes in creating a more professional advisory marketplace but it will take time for the market to adjust and we are also adapting our propositions in light of these changes. 

Delivering on our business model¹

¹    Financial results reflect our share of the joint ventures comprising 26% of HDFC Life and 50% of Heng An Standard Life.

Increasing assets

Total AUA increased to £2.6bn, due to a 5% increase for our joint venture businesses to £2.2bn (FY 2014: £2.1bn). Wholly owned operations AUA remained stable at £0.4bn.

The growth in AUA was driven by continued positive net inflows in our joint venture businesses of £119m (H1 2014: £102m) with our joint venture in India maintaining their market leading position within the private market. In Hong Kong, net inflows decreased to £31m (H1 2014: £36m). New propositions are under development to drive asset growth in the new market landscape.

Driving profit

Operating profit before tax increased to £21m (H1 2014: £12m) mainly driven by an increase in our joint venture businesses profit to £15m (H1 2014: £9m) as they benefit from continued growth in premium income. Hong Kong operating profit increased to £6m (H1 2014: £3m) due to the timing of project related expenses and changes in product mix.

Operating return on equity for the India and China segment increased to 15.6% (H1 2014: 13.9%) reflecting higher operating profit.

Maximising revenue

Through development of new online products and technology, HDFC Life has achieved a market-leading share of online sales. Heng An Standard Life has increased sales through its core distribution channel by over 30%.

Lowering unit costs

Successful management of expenses has resulted in HDFC Life reporting one of the lowest operating expense ratios among its peer group. Hong Kong continues to manage costs whilst investing in new propositions in response to changes in regulation.

Other financial information

Following regulatory change in Hong Kong a review of expense and reserving assumptions was undertaken which resulted in a £46m non-operating loss being recognised, primarily relating to impairment of deferred acquisition costs.

1.3.4 Discontinued operations

Sale of the Canadian business

On 30 January 2015, we successfully concluded the sale of the Canadian business to Manulife for a fixed consideration of C$4.0bn (£2.2bn including related hedging derivative contracts). We recognised a gain on disposal of £1,097m.

The sale of our Canadian business was significant for the Group, and reaffirms our continued focus on growing fee based business, whilst reducing our exposure to spread/risk business. In addition, the expanded relationship with Manulife deepens Standard Life Investments' ongoing access to Canadian, and wider global, distribution.

IFRS profit after tax for the Canadian business, which in H1 2015 included the results for the month of January, was £45m (H1 2014: £79m) excluding the gain on sale. The result mainly benefited from favourable short-term fluctuations on investment return of £63m due to large yield movements in the month, offset by a £20m tax expense.

Find out more about the gain on sale in Note 4.2 in the Financial statements section

Dubai and Singapore

The regulatory landscapes in the markets in which we operate in Asia have changed significantly in the past 12 months and we have responded by reviewing our strategy. Our increasing focus in Asia is building on our relationships with our India and China joint venture partners, expanding our asset management presence through Standard Life Investments and growing our wholly owned business in Hong Kong. As a result, we announced the closure of the Dubai business in November 2014 and Singapore in June 2015. Subject to regulatory approvals, Singapore will close by the end of 2015. 

For segmental reporting the discontinued operations segment includes results for Dubai and Singapore. Singapore made an operating loss before tax of £2m (H1 2014: loss £3m) and a £38m non-operating loss (H1 2014: £nil) relating to closure costs. The Dubai business closed at the start of 2015 and therefore made an operating loss before tax of £nil (H1 2014: loss £3m).

1.4 Principal risks and uncertainties

Our approach to risk

Strong risk management is at the core of how we deliver our strategic objective to be a leading customer-centric business, focused on long-term savings and investments.

As we expand our global reach we continue to manage a range of different risks across the Group. This includes risks that affect both the Group as a whole - such as regulatory risks, and risks that are more relevant to specific parts of the Group - for example the agency risks associated with managing third party funds within our asset management business. Wherever a risk is managed we apply the same consistent risk framework.

Our approach to risk ensures well informed risk-reward decisions are taken in pursuit of the Group's strategy and business plan objectives. This ensures capital is delivered to areas where the most long term value can be created for the risks taken.

Management of risk

Our Group Enterprise and Risk Management (ERM) Framework governs our risk based approach to managing our business. Our systems of governance, of which our ERM is a key part, support oversight of risk at the highest levels of the Group, across our Executive and Board committees.

Our framework has developed and been embedded over several years. The increasing strength of our risk management approach was externally recognised in May 2015 when Standard & Poor's upgraded their assessment of our ERM framework to 'strong'.

Visit www.standardlife.com/investor/financial_reports for further information about our ERM framework in our Annual report and accounts 2014

Updates to our principal risks

There have been no material changes to our principal risks during H1 2015. Whilst not new risks, we have now chosen to explicitly separate strategic and conduct risks as principal risks in their own right.

In the case of conduct risk this reflects the importance that we place on 'doing the right thing'. It is essential that we continue to have a strong focus in this area particularly as we develop new relationships with customers, for example through 1825, our new UK advice business. Earlier this year we launched our new group-wide Code of Conduct, which reinforces across the Group, a culture that at Standard Life we seek to do the right thing in every action we take.

During H1 2015, Standard Life's strategic delivery has continued, for example with the completion of the sale of our Canadian business. Including strategic risk as a separate principal risk reflects the importance to the Group that we continue to make strong and successful decision making in this area.

Over the remainder of 2015 we expect continued focus on regulatory changes, including the implementation of Solvency II and developments in the market following the pension freedoms.

Find out more about our risk management in Note 4.12 in the Financial statements section

Principal Risk	The risk in our business	How we manage the risk
Strategic Risk	Strategic risk arises from our choice of strategy and direction, and the actions we take to implement these. The risk arises if our strategic decisions do not maximise shareholder value. During H1 2015 we have made a number of important strategic decisions, for example we launched 1825 (our new UK advice business), stopped selling new German with profits business, continued the global expansion of our asset management business, decided to close our Singapore business and also completed the sale of our Canadian business.	Through our ERM framework, a pro-active approach to risk is at the forefront of strategic decisions we take as a business. We have experienced leadership teams throughout the organisation which ensure this risk is managed and mitigated. Additionally, business plans are challenged and stressed to understand sensitivities, and actual experience is managed against plans.
Customer Demand Risk	Delivering our strategic objectives relies on increasing net new business flows by attracting new and retaining existing institutional, wholesale, workplace and retail customers across Standard Life Group. If we are not successful, fee based revenue would reduce or be lower than planned. A fall in customer demand could be triggered by a range of events including a fall in demand for long-term savings products, poor persistency, propositions/funds that don't meet customer needs and poor investment performance.	Standard Life focuses on being a customer-centric business, meeting our customers' needs and developing propositions that build trust and long-term relationships with customers, to ensure the ongoing demand for our propositions and products. Our asset management business aims to attract and retain customers by delivering consistently strong investment performance across a broad investment range, operating through a variety of distribution channels and geographic locations. The Ignis acquisition deepens our investment capabilities in addition to organically developing a wider offering such as commercial real estate lending and infrastructure lending.
Market Risk	We seek to maximise shareholder value by taking specific market risks which provide an appropriate level of risk-adjusted returns. Fee based revenue, a key driver of our profitability, is exposed to fluctuations in the market values of the underlying investments. Market risks in our UK and German with profits funds, such as the funds interest rate exposure, continue to be managed. We seek to maximise the expected risk-adjusted return of the assets backing our spread-risk business, shareholder equity and subordinated debt by primarily investing in credit assets.	Through our Group risk appetite framework we set risk appetites for market risks and our exposures are managed in line with these. We use our stress and scenario testing program to understand our sensitivities to market parameters and identify any mitigating actions. Our credit risk management policy plays a key role in ensuring the quality of our asset portfolios, which includes setting portfolio limits such as sectors and credit ratings. We set asset benchmarks appropriate to their liabilities and cash flow match where appropriate.
Regulatory Risk	Our business is required to comply with the regulatory requirements that are in-force in the countries and regions in which we choose to operate. As we increase the number of countries we operate in, this in turn increases the regulatory regimes with which we must comply. In addition to the risk of failing to comply with current requirements, regulations continually undergo change. In recent years our industry has needed to adapt to a high volume of regulatory change, which we expect to continue. For example, in the July 2015 UK Budget the Chancellor announced a Green Paper for consultation on the tax treatment of pensions, which could potentially lead to further changes to the pension landscape. The main risk comes from any non-compliance, but regulatory change can give rise to additional costs, complexity and opportunity costs within our business.	Ensuring the ongoing compliance with regulations is governed via our Group policy framework. We are pro-active at building strong and open relationships with our regulators. We seek to engage early with regulatory change and capitalise on any opportunities that arise in the best interests of our customers and stakeholders. Our emerging risk process looks at potential and future regulatory changes and risks to our business. Any risks identified are continually monitored and appropriate mitigation plans put in place.
Conduct Risk	Conduct risk arises from our business not acting in the right way, including any actions that do not treat our customers with consideration and fairness. It can lead to material financial and reputational losses. From a regulatory perspective there is a strong focus on conduct risk. For example, the Financial Conduct Authority (FCA) is currently carrying out a range of thematic reviews across the industry.  As a leading savings and investments provider we have been asked to participate in a number of these. Our conduct risk exposure continues to evolve. The sales and advice practices of our new UK advice business 1825 will need to be suitable and appropriate for each of its customers. Conduct is also a key risk for our asset management business, which includes ensuring that assets are managed in the best interests of customers at all times.	We continue to carefully manage and be pro-active with conduct risk. We have launched our new Group Code of Conduct across Standard Life to ensure our business always seeks to do the right thing in every action we take. Our conduct risk policy ensures the standards and outcomes we set are implemented across the business. Our business works closely with the FCA, providing any information requested as required. Our new conduct and compliance risk centre strengthens oversight of conduct exposures and risks.
Political Risk	The heightened and continued political focus on the financial services industry exposes our business and propositions to change and uncertainties. Additionally, such focus can have a negative impact on the perception of our industry. As a Scottish based company with a large number of customers across the UK and Europe, the devolution of powers in Scotland, as well as the expected referendum on the UK's membership of the EU, all contribute to the risk of political uncertainty our Group faces. The political environment in which we operate can impact our business in different ways, from how competitive we can be, our cost base or direct impacts on our customers and stakeholders.	The political risks that we are exposed to are closely monitored. We are pro-active and engage with the political change process in the best interests of our customers and stakeholders. Political risks often form part of our stress and scenario testing program and our emerging risk process, helping us to understand the risks that could evolve. We maintain appropriate contingency plans and these are reviewed with changes to our business and the environment in which we operate.
Change Programme Risk	Successful businesses need to innovate and evolve. The Group runs a significant change programme with key changes this period including the integration of Ignis, launch of 1825 and the changes we have put in place to respond to pension freedoms. Additionally, our asset management business continues to invest, grow and upgrade its capabilities. The key risk relates to our execution of the change both in terms of cost and timing, which could lead to additional costs and ultimately impacts the delivery of our strategy.	Change management forms part of our operational risk management framework which provides a robust and established framework under which change is managed, reported and implemented across the Group. Our business has vast experience of successfully responding and adapting to change and developing market-leading propositions for customers.
Outsourcing Risk	The Group uses a number of outsourcing partners, some of which are integral to running our business. These include those partners who support the back office functions within our asset management business and our fund platforms for our savings business. Outsourcing enables us to benefit from specialist services and skills and enable our business to run more efficiently. However, this means that we are exposed to the risk of the failure of our outsourcing partners. This could have a material impact on our ability to run our business and lead to significant costs and disruption whilst we put in place alternative arrangements.	Our Group policy framework includes an outsourcing policy which sets out the standards that must be complied with. These include the monitoring and management of material risks and maintaining a remedial plan in the event of failure of any services. The risks arising from our key outsourcing partners are well understood. These risks form part of our stress testing processes which help us to understand the impact of their failure and how we would continue to operate under such circumstances. There is a rigorous risk approval process which must be completed before any new outsourcing partners are used. This includes putting in place risk mitigation plans, which are reviewed annually.
IT Failure & Security Risk	The Group uses a range of systems to serve its customers and operate its business. These are exposed to the risk of failure. The implementation of our strategy includes greater use of technology, for example via our online propositions, which increases our exposure to security risks such as fraud and cyber-attacks. As we increase our global brand awareness, our higher profile can also lead to greater risk. The crystallisation of any of these risks could mean that we are unable to deliver our services to clients and customers, cause reputational damage and lead to remedial costs.	We invest in our IT infrastructure and continually improve our processes to mitigate operational failings. We are proactive in our defensive approach to any security threats, including educating our staff around these issues. We actively ensure appropriate contingency plans are in place as secure and robust systems are key to achieving our strategic objectives. We monitor evolving security threats and work with specialist third parties and information sharing partnerships to better understand the risks and develop our response to them.
Longevity Risk	Longevity risk is the risk that people live longer than expected leading to increases to the value of our liabilities. This is an exposure we actively take onto our balance sheet via our annuity propositions. We believe we can create value for our shareholders by taking and managing this risk. We have a large number of existing annuity customers but the growth of this business line is expected to slow following the introduction of pension freedoms in the UK.	Our longevity risk exposure is actively monitored and managed within our risk appetites framework. We have a robust internal governance process for setting our longevity assumptions and use the latest internal and external data sources. We have a reinsurance arrangement in place with Canada Life which transfers a material part of our longevity risk exposure. The business actively monitors opportunities to implement further reinsurance or capital market transactions to reduce the exposure on our balance sheet.
Counterparty Risk	Across the Group we use a number of credit and reinsurance counterparties to implement our business strategy. This exposes our business to losses if they fail to meet their obligations to us. Credit failings in financial markets could affect our AUA and hence our fee based revenue. Other credit events could see the decline of asset values through defaults or financial losses from the failure of a bi-lateral counterparty, such as our longevity risk reinsurer.	Exposures are pro-actively monitored with mitigation action taken where necessary. Our business has a strong record of this, for example, removing exposure to Eurozone peripheral economies during the credit crisis. Counterparties are collateralised and internal credit assessments are used where appropriate. A credit risk management framework is in place across the Group and is managed and implemented by the Group Credit Risk Committee. This policy sets out the requirements for any credit risk exposure, including the required quality and diversification of assets. Exposures are further mitigated by Standard Life Investments active management of credit assets under management.

1.5 Basis of preparation

Overview

Our Strategic report for the period to 30 June 2015 has been prepared in line with the Disclosure and Transparency Rules (DTR) issued by the FCA. The DTR incorporates the requirement of the European Union (EU) Transparency Directive for all UK listed companies to report their half year results in accordance with IAS 34 Interim Financial Reporting. Under DTR 4.2.7R, the Group is required to provide at least an indication of important events that have occurred during the first six months of the financial year, and their impact on the financial information, and a description of the principal risks and uncertainties for the remaining six months of the financial year. Principal risks and uncertainties are detailed in Section 1.4 - Principal risks and uncertainties and Note 42 of the Group's Annual report and accounts 2014. Under DTR 4.2.8R the Group is also required to make certain related party disclosures. These are contained in Note 4.17 of the IFRS condensed consolidated financial information. To provide clear and helpful information, we have also considered the voluntary best practice principles of the Reporting statement: Operating and Financial Review (OFR) issued by the Accounting Standards Board (ASB) in 2006 and Guidance on the Strategic report issued by the Financial Reporting Council in 2014.

The Group's IFRS condensed consolidated half year financial information has been prepared in accordance with IAS 34 Interim Financial Reporting, as endorsed by the EU. However, our Board believes that non-Generally Accepted Accounting Principles (non-GAAP) measures, which have been used in the Strategic report, are useful for both management and investors and make it easier to understand our Group's performance. The most important non-GAAP measures in the Strategic report include operating profit, assets under administration and underlying cash generation. 

All non-GAAP measures should be read together with the Group's IFRS condensed consolidated income statement, IFRS condensed consolidated statement of financial position and IFRS condensed consolidated statement of cash flows, which are presented in the IFRS condensed consolidated financial information in Section 4 of this report.

Going concern

After making appropriate enquiries, the Directors have a reasonable expectation that the Company and the Group as a whole have adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial information.

IFRS reporting

The financial results, which are unaudited at the half year, are prepared on an IFRS basis. All EU-listed companies are required to prepare consolidated financial statements using IFRS issued by the International Accounting Standards Board (IASB) as endorsed by the EU. The IFRS financial results in the Strategic report and in Section 4 have been prepared on the basis of the IFRS accounting policies applied by the Group in the Annual report and accounts 2014 as amended for new standards effective from 1 January 2015, as described in Note 4.1 - Accounting policies.

Group operating profit

The H1 2015 reconciliation of consolidated operating profit to IFRS profit for the period, presented in Section 4 of this report, presents profit before tax expense attributable to equity holders adjusted for non-operating items. Further details on the calculation of Group operating profit is presented in the Group accounting policies (jj) - Operating profit in the Annual report and accounts 2014. By presenting our results in this way, the Directors believe they are presenting a more meaningful indication of the underlying business performance of the Group.

Forward-looking statements

This document may contain 'forward-looking statements' about certain of the Standard Life Group's current plans, goals and expectations relating to future financial conditions, performance, results, strategy and objectives. Statements containing the words: 'believes', 'intends', 'targets', 'estimates', 'expects', 'plans', 'seeks' and 'anticipates' and any other words of similar meaning are forward-looking. By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances which may be beyond the Group's control. As a result, the Group's actual financial condition, performance and results may differ materially from the plans, goals and expectations set out in the forward-looking statements, and persons receiving this document should not place undue reliance on forward-looking statements. The Standard Life Group undertakes no obligation to update any of the forward-looking statements in this document or any other forward-looking statements it may make.

 

END

 

 

IR EAAPDEEPSEAF