Half Yearly Report - Part 2 of 5

RNS Number : 9316J

Standard Life plc

14 August 2012

Standard Life plc

Half Year Results 2012

Part 2 of 5

Standard Life plc

Half Year Results

2012

Section	Contents	Page
	Press release	1
1	Business review	13
1.1	Chief Executive's overview	13
1.2	Group performance	14
1.3	Chief Financial Officer's overview	15
1.4	Business segment performance	22
1.5	Risk management	34
1.6	Basis of preparation	36
2	Statement of Directors' responsibilities	37
3	International Financial Reporting Standards (IFRS)	38
	IFRS primary statements	38
	IFRS notes	45
4	European Embedded Value (EEV)	60
	EEV primary statements	60
	EEV notes	63
5	Independent auditors' review report	91
6	Supplementary information	93
6.1	EEV and EEV operating profit	93
6.2	Reconciliation of operating profit to EEV operating capital and cash generation	94
6.3	Group assets under administration and net flows	95
6.4	Analysis of new business	102
6.5	Exposure to investment property and financial assets	107
6.6	Fair value hierarchy of financial instruments	112
7	Glossary	114
8	Shareholder information	120

The Half Year Results 2012 are published on the Group's website at www.standardlife.com

The Directors are responsible for the maintenance and integrity of the financial information published on the website in accordance with UK legislation governing the dissemination of financial statements.

Access to the website is available outside the UK, where comparable information may be different.

1 Business review

1.1 Chief Executive's overview

"These results show that Standard Life is performing well. We have delivered increased profits, cash flow and dividends and we are achieving ongoing improvements in operational and financial performance. The UK results, where profits benefited from higher income and significantly lower costs, demonstrate the strength and scalability of our propositions and our brand. The industry is undergoing a period of significant change and we believe that this brings opportunity. We are well prepared for the regulatory and market changes on the horizon, and have invested to make sure we are even better placed to meet the needs of our customers and their advisers."

David Nish, Chief Executive

Delivering value for customers and shareholders

We have made significant progress in enabling us to deliver sustainable growth and to meet the changing needs of our customers and their advisers. Against the backdrop of challenging market conditions and the difficult macro-economic environment, we have continued to innovate and develop our propositions and platforms, setting us up to capitalise on the many opportunities that exist in our chosen markets.

We have aligned our business with the markets in which we wish to operate and remain very confident that we have the capabilities and skills required to deliver on our strategy.

The first half of 2012 has seen us achieve improvements in performance and deliver value for our customers and shareholders. Some highlights include:

Responding to the changing needs of our customers and their advisers

· Scale and momentum in the retail business and well positioned for the Retail Distribution Review

· GARS and Standard Life Wealth continue to meet the demands of customers for investment solutions

· Launched a range of investment solutions for employers following success of MyFolio

· Expanded corporate offering with ISAs and an extended corporate investment proposition for employees

· Group savings and retirement target date funds launched in Canada, offering a range of solutions that are unique in the Canadian marketplace

· We have launched a new regular savings product in Ireland and continue to develop our offering

Increasing assets

· The MyFolio range of funds has attracted assets of approximately £1.5bn since launch in October 2010 and GARS assets exceed £17bn

· SIPP proposition continues to perform well with assets increasing to £18bn

· Number of adviser firms on our Wrap platform up 17% to 1,087 with an average of £8.8m AUA per firm

· Our momentum in UK corporate sales has continued with 71 new schemes secured and now providing corporate pensions to almost 1.2m employees

Reducing our unit costs

· Reductions in unit and absolute costs reflect the scalability of our business and improvements in efficiency

· Achieved our target of £100m annual margin improvement with ongoing efforts to reduce costs and improve efficiency

Expanding our global reach

· New product launched in Germany and MyFolio range of funds now available in Ireland

· Standard Life Investments continues to expand its distribution and investment capability, particularly in the United States

· Increased market share for the joint venture businesses in India and China

Outlook

Our industry in the UK is undergoing a period of significant change. Over the past few years we have built a scalable business that is capitalising on the opportunities that exist in our chosen markets. Combined with its leading market positions, we expect the UK business to continue to perform well.

Standard Life Investments has opportunities to continue to expand its capabilities and reach, both in the UK and internationally. While the low interest rate environment in Canada presents some challenges, the outlook for the Canadian economy remains steady. Following the appointment of a new CEO in Canada during February, we expect this business to drive improved operating performance as we concentrate our expertise on opportunities in long-term savings and investments. Our international business is focused on executing our overseas strategy following the creation of an Asia and Emerging Markets business.

Overall, whilst the market environment is challenging and those conditions look set to continue, our business model, leading market positions and strong balance sheet, will allow us to continue to deliver ongoing improvements in value for customers and shareholders.

1.2 Group performance

Key financial performance indicators

Group operating profit before tax

Group operating profit demonstrates our ability to deliver returns for our shareholders and provides an indication of our long-term dividend paying capability.

· Group operating profit before tax increased by 15% to £302m

· Fee based revenue increased to £620m

· Acquisition expenses expressed as a proportion of sales, and maintenance expenses as a proportion of average AUA improved to 146bps and 43bps respectively, demonstrating the scalability of our business

EEV operating profit beforetax

European Embedded Value (EEV) operating profit measures our ability to effectively manage our existing book of business and to write profitable new business.

· EEV operating profit before tax rose by 61% to £604m

· Back book operating profit increased by £253m from management actions to enhance the value of the existing book of business

· Core EEV operating profit of £370m is 3% higher than H1 2011, with higher new business contribution and increased non-covered business profits, partly offset by lower expected return from existing business

· New business contribution increased by 7% to £178m due mainly to higher margins in the UK

EEV operating capital and cash generation

EEV operating capital and cash generation reflects our ability to generate capital and cash from our business. This enables further investment in the business and the payment of dividends to our shareholders.

· EEV operating capital and cash generation increased by 53% to £295m

· The increase in H1 2012 was mainly due to a £72m rise in capital and cash from activities to manage our existing book, particularly in the UK and Canada businesses

· Core operating capital and cash generation increased by 12% to £193m

Assets under administration and net flows

As a long-term savings and investments business, assets under administration (AUA) and net flows are key drivers of shareholder value. We aim to grow AUA by focusing on our customers and meeting their needs with innovative propositions.

· Total Group AUA increased by 3% to £204.2bn driven by resilient, although lower, flows into our newer fee based products and favourable market movements

· Net flows were resilient against a backdrop of subdued consumer sentiment and ongoing economic uncertainty. They were also impacted by a significant expected outflow of £1.8bn from a low revenue yield mandate.

· Our GARS product range continues to grow strongly with assets exceeding £17bn. Our MyFolio fund range, launched in October 2010, has assets of approximately £1.5bn at 30 June 2012.

Find out more about these measures in Section 1.3 - Chief Financial Officer's overview and also Section 1.6 - Basis of preparation

1.3 Chief Financial Officer's overview

"Our operating profitability significantly increased in the first half of 2012. We remain focused on our drive for efficiency, with the use of technology a key enabler in lowering unit costs. Revenues from our fee based products have increased due to net flows into our new style products in the UK and strong demand for higher margin propositions in our global investment management business. There are significant opportunities for further growth in the business and we remain committed to delivering ongoing improvements in our financial performance."

Jackie Hunt, Chief Financial Officer

IFRS - Group
	H1 2012	H1 2011	Movement
Group operating profit before tax¹	£302m	£262m	15%
IFRS profit after tax attributable to equity holders of Standard Life plc	£254m	£199m	28%
Group operating return on equity	15.9%	10.9%	5.0% points

IFRS profit

IFRS profit for the period was £262m (H1 2011: £234m). This comprised profit after tax attributable to equity holders of £254m

(H1 2011: £199m) and profit attributable to non-controlling interests of £8m (H1 2011: £35m). Operating profit before tax increased by 15% from £262m to £302m and non-operating losses before tax were £82m (H1 2011: loss £5m).

Group operating profit before tax

	H1 2012	H1 2011
	£m	£m
Fee based revenue	620	611
Spread/risk margin	180	207
Total income	800	818
Acquisition expenses²	(144)	(175)
Maintenance expenses²	(389)	(393)
Group corporate centre costs²	(20)	(25)
Capital management	47	37
India and China JV businesses	8	-
Group operating profit before tax	302	262

Group operating profit before tax increased to £302m. The key highlights are:

· Fee based revenue, which mainly relates to asset management charges, increased to £620m. This was driven by higher average asset values and the continued shift towards higher margin products in our global investment management business.

· Spread/risk margin mainly relates to the margin on our UK annuity business and the annuity and universal life business in Canada. Overall spread/risk margin reduced by £27m in H1 2012. This was due to the low interest rate environment in Canada and the higher level of gains in H1 2011 from Canadian management actions designed to enhance the investment yields on assets.

· Acquisition expenses² are the costs we incur in writing new business. Acquisition expenses decreased to £144m due to lower sales volumes and efficiency improvements. Expressed as a proportion of sales, acquisition expenses improved to 146bps (FY 2011: 169bps).

· Maintenance expenses² mainly relate to the ongoing costs that we incur to service and administer customer policies. Maintenance expenses were broadly flat despite an increase in AUA. We have continued to see the benefit of our scalable business model with maintenance expenses expressed as a proportion of average AUA improving to 43bps (FY 2011: 46bps).

¹Operating 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 (including the Solvency 2 programme), impairment 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.

²Investment for transformation and growth has been allocated between acquisition expenses, maintenance expenses and group corporate centre costs. Comparatives have been restated.

1.3 Chief Financial Officer's overview continued

· Group corporate centre costs¹ decreased to £20m (H1 2011: £25m) and included investment for transformation and growth of £nil (H1 2011: £5m)

· Capital management increased to £47m due to higher investment returns on shareholders' funds and the improved funding position of our UK staff pension scheme

· The joint ventures in Asia recorded an operating profit before tax of £8m (H1 2011: £nil), which reflects further growth and also management of the cost base of these businesses

The improvement in both acquisition and maintenance expense trends demonstrates the scalability of our business. Further reductions in unit costs have been achieved by growing assets and by improving existing propositions and processes to make better use of automation and self-service.

Levels of investment expenditure have reduced in 2012 and costs relating to investment for transformation and growth are now included in acquisition expenses, maintenance expenses or group corporate centre costs. Investment spend included in Group operating profit before tax decreased to £56m (H1 2011: £80m). The total amount invested in H1 2012 was £84m

(H1 2011: £119m). This includes additional investment in the joint venture business in China and capitalised investment spend that does not impact profitability in 2012.

We have now achieved our target of £100m annual margin improvement. We had achieved £79m of this target by the end of 2011 and there was a further £22m of cost efficiencies in H1 2012. Further efforts to reduce costs and improve efficiency continue to be implemented. Fee based revenue has also increased with net flows into our new style products in the UK and strong demand for higher margin propositions in our global investment management business.

Group operating return on equity

A key component of our business model is to optimise the use of our balance sheet. Return on equity measures our success in generating profit relative to our shareholder capital. Group operating return on equity increased to 15.9% (H1 2011: 10.9%), benefiting from the growth in operating profit and a release of prior year tax provisions. We will continue to manage our capital position to ensure that we generate sustainable returns for our shareholders.

Group non-operating loss before tax

Group non-operating loss was £82m compared with a loss of £5m in H1 2011. Short-term fluctuations in investment return and economic assumption changes produced non-operating losses of £43m in H1 2012 compared with gains of £27m in H1 2011. Losses in H1 2012 of £43m were mainly due to the impact of the low interest rate environment in the UK and Canada businesses. Lower yields have impacted investment returns in the UK business, while in Canada profitability has been affected by adverse movements in the yield curve. Non-operating restructuring and corporate transaction expenses of £42m (H1 2011: £23m) relate to a number of restructuring programmes including Solvency 2 and the Retail Distribution Review (RDR).

Group non-operating loss before tax
	H1 2012	H1 2011
	£m	£m
Short-term fluctuations in investment return and economic assumption changes	(43)	27
Restructuring and corporate transaction expenses	(42)	(23)
Other operating profit adjustments	3	(9)
Group non-operating loss before tax	(82)	(5)

Find out more about the IFRS results in Section 1.4 - Business segment performance and Section 1.6 - Basis of preparation

¹Investment for transformation and growth has been allocated between acquisition expenses, maintenance expenses and group corporate centre costs. Comparatives have been restated.

Assets under administration and new business - Group
	H1 2012	H1 2011	Movement
Assets under administration	£204.2bn	£198.4bn¹	3%
Net flows	£0.7bn	£4.0bn	(83%)
Present value of new business premiums	£10.1bn	£11.2bn	(10%)
New business contribution	£178m	£166m	7%

¹Comparative as at 31 December 2011.

Assets under administration and net flows

AUA increased by 3% to £204.2bn due to net flows in our fee based propositions and positive market movements:

· Net flows of £0.7bn were resilient, particularly into our newer fee based propositions. This was against a backdrop of subdued consumer sentiment and ongoing economic uncertainty.

· Net flows in the period were also impacted by a significant expected outflow of £1.8bn from a low revenue yield mandate in our third party global investment management business

· Fee business AUA increased to £168.1bn (31 December 2011: £163.3bn) with 82% of total AUA related to fee business

· Spread/risk business AUA was maintained at £24.9bn (31 December 2011: £24.7bn) due to positive market movements partially offset by £0.5bn of net outflows

New business PVNBP			New business contribution		PVNBP margin		IRR		Undiscounted payback
	H1 2012	H1 2011	H1 2012	H1 2011	H1 2012	H1 2011	H1 2012	H1 2011	H1 2012	H1 2011
	£m	£m	£m	£m	%	%	%	%	years	years
UK	7,034	8,146	126	113	1.8	1.4	22	20	5	5
Canada	1,780	1,579	26	30	1.5	1.9	8	14	11	7
International	1,263	1,436	26	23	2.0	1.6	16	12	6	7
Total	10,077	11,161	178	166	1.8	1.5	16	16	6	6

· Improved new business profitability was due to higher margins in our UK and International businesses, partly offset by lower margins in Canada

· Present value of new business premiums (PVNBP) for the Group totalled £10,077m and was 10% lower than H1 2011 due to challenging market conditions

· Total internal rate of return (IRR) for the Group remained at 16% despite the impact of a low interest rate environment impacting our returns on business written in Canada

Find out more about AUA and new business for each of our businesses in Section 1.4 - Business segment performance

EEV - Group
	H1 2012	H1 2011	Movement
EEV per share	331p	317p¹	4%
EEV operating profit before tax	£604m	£376m	61%
EEV profit before tax	£782m	£431m	81%
Return on embedded value	13.8%	8.0%	5.8% points

¹Comparative as at 31 December 2011.

Group embedded value

Group embedded value increased to £7,802m (31 December 2011: £7,428m) representing an EEV per share of 331p. EEV per share has increased by 23p before dividend distributions, including EEV operating profit after tax of £485m (21p per share). This resulted in a return on embedded value (RoEV) of 13.8%. EEV non-operating profit after tax was £140m (6p per share). The 4p reduction in EEV per share from other and non-trading items is mainly due to negative foreign exchange movements.

1.3 Chief Financial Officer's overview continued

The closing EEV of £7,802m consists of:

· £3,572m of net worth or shareholder net assets

· £4,230m from the present value of in-force business (PVIF) net of the cost of required capital

The increase in total EEV of £374m consists of:

· Movement in net worth of negative £16m

· Movement in the PVIF of positive £390m

EEV profit before tax

EEV profit before tax of £782m (H1 2011: £431m) includes:

· EEV operating profit of £604m (H1 2011: £376m)

· EEV non-operating profit of £178m (H1 2011: £55m)

EEV operating profit before tax

EEV operating profit increased by 61%:

· Core profits increased by 3% to £370m due to the new business we sold, partly offset by lower expected return from existing business. This drove an increase in our core RoEV from 7.6% to 7.9%. New business contribution increased by 7% to £178m

(H1 2011: £166m). Expected return on our existing business decreased by 10% to £200m (H1 2011: £222m) due mainly to lower opening risk discount rates.

· Core non-covered business produced an EEV operating profit of £19m (H1 2011: loss £1m). This increase was mainly due tohigher third party profits from global investment management and lower corporate costs.

· Profit from efficiency gains in H1 2011 benefited from £50m of management actions to reduce current and future investment expenses in the UK

· EEV operating profit from back book management of £230m (H1 2011: loss £23m) included a number of management actions to manage the existing book of business and reduce burnthrough costs. These actions included asset strategy changes and improved actuarial modelling primarily in the UK and Canada.

	EEV operating profit before tax		RoEV
	H1 2012	H1 2011		H1 2012	H1 2011
	£m	£m		%	%
Core	370	359		7.9	7.6
Efficiency	4	40		0.1	0.9
Back book management	230	(23)		5.8	(0.5)
Total	604	376		13.8	8.0

EEV non-operating profit before tax

Total EEV non-operating profit before tax of £178m (H1 2011: £55m) included positive long-term investment return and tax variances of £161m (H1 2011: loss £11m), which increased largely due to higher than expected investment returns. The gain from economic assumption changes of £136m (H1 2011: £108m) was mainly due to lower discount rates resulting from reductions in risk-free rates and changes in UK tax rates, partly offset by losses from the use of lower projected investment returns.

Restructuring costs of £43m (H1 2011: £23m) primarily represent costs incurred relating to a number of restructuring programmes, including Solvency 2 and the Retail Distribution Review. Volatility arising from adjustments for different accounting bases relating to the valuation of inter-Group subordinated debt resulted in a loss of £70m (H1 2011: loss £8m).

Capital and cash generation - Group
	H1 2012	FY 2011	Movement
EEV operating capital and cash generation	£295m	£193m¹	53%
Group capital surplus²	£3.0bn	£3.1bn	(3%)
EEV	£7,802m	£7,428m	5%
IFRS equity attributable to equity holders of Standard Life plc	£3,993m	£3,961m	1%

¹Comparative as at 30 June 2011.

² H1 2012 based on estimated regulatory returns. FY 2011 based on final regulatory returns.

Group EEV capital and cash generation

Capital and cash generation enables the Group to invest in new business and profitable growth opportunities. Gross EEV operating capital and cash generation before investment in new business was £402m (H1 2011: £312m).

	H1 2012	H1 2011¹
	£m	£m
UK	208	183
Canada	86	63
International	54	61
Non-covered	54	5
Gross EEV operating capital and cash generation	402	312
New business strain	(107)	(119)
EEV operating capital and cash generation	295	193
Coverage of gross EEV operating capital and cash to new business strain	3.76	2.62

		H1 2012			H1 2011
	Free surplus movement	Required capital movement	Net worth movement	Free surplus movement	Required capital movement	Net worth movement
	£m	£m	£m	£m	£m	£m
Capital and cash generation from existing business	322	(13)	309	340	(24)	316
New business strain	(153)	46	(107)	(149)	30	(119)
Covered business capital and cash generation from new business and expected return	169	33	202	191	6	197
Covered business development expenses	(21)	-	(21)	(22)	-	(22)
Non-covered business core capital and cash generation	12	-	12	(2)	-	(2)
Core	160	33	193	167	6	173
Efficiency	1	-	1	(9)	-	(9)
Back book management	66	35	101	42	(13)	29
EEV operating capital and cash generation	227	68	295	200	(7)	193
Capital and cash generation from non-operating items	(179)	87	(92)	(108)	121	13
Total EEV capital and cash generation	48	155	203	92	114	206

All figures are net of tax. Net income directly recognised in the EEV statement of financial position, including exchange differences and distributions to and injections from shareholders, is not included as these are not trading related cash flows.

Total EEV capital and cash generation was £203m (H1 2011: £206m). EEV operating capital and cash generation increased to £295m from £193m, an increase of 53%:

· Capital and cash generation from new business and expected return increased by £5m, reflecting reduced new business strain partly offset by lower investment returns on the opening in-force business

· Non-covered business core capital and cash generation was £14m higher compared to H1 2011 mainly due to higher profits from non-life businesses, including third party profits for global investment management

· Back book management contributed an additional £72m in H1 2012, including the benefits from higher post tax profits on the UK pension scheme and management of UK tax assets

¹Investment for transformation and growth has been allocated between acquisition expenses, maintenance expenses and group corporate centre costs. Comparatives have been restated.

1.3 Chief Financial Officer's overview continued

Reconciliation of Group operating profit to EEV operating capital and cash generation

As with EEV operating capital and cash generation, Group operating profit removes the impact of short-term economic volatility. Whilst there is clear alignment between Group operating profit and EEV operating capital and cash generation, there are differences which include:

· £7m negative impact from the difference in the treatment of assets and actuarial reserves

· £3m negative impact from the difference in the treatment of deferred acquisition costs (DAC)/deferred income reserve (DIR), intangibles, tax and other. Other includes the impact of different methodologies in respect of expected income. In EEV operating profit this income is included on an expected return basis but the actual fees are included in Group operating profit.

Holding company capital and cash flows

In addition to the movement in capital and cash on an EEV basis, the following summary provides an analysis of holding company cash flows and capital in relation to the Group's ultimate holding company, Standard Life plc, and its overseas holding company, Standard Life Oversea Holdings Limited. The capital position is based on these companies' net assets, excluding equity investments in operating subsidiaries. Included within closing capital is £250m (31 December 2011: £253m) of internal subordinated liabilities.

Holding company capital and cash flows	H1 2012	H1 2011	FY 2011
	£m	£m	£m
Opening capital 1 January	872	665	665
Dividends received from subsidiaries	221	338	498
Additional investments in subsidiaries	(124)	(72)	(91)
Group corporate centre costs	(20)	(25)	(50)
Cash dividends paid to shareholders	(216)	(105)	(162)
Other	6	(17)	12
Closing capital	739	784	872

Dividends

During the period, we paid the final dividend for 2011 of 9.20p per share, amounting to £216m. We propose an interim dividend of 4.90p per share (H1 2011: 4.60p). This represents an increase of 6.5%, reflecting the solid progress made during the period. The scrip dividend option has now been removed and replaced with a dividend reinvestment plan (DRIP). We will continue to apply our existing progressive dividend policy taking account of market conditions and our financial performance.

Capital management

Capital management is the ongoing process of determining and maintaining the quantity and quality of capital appropriate for the Group and ensuring capital is deployed so that the risk/return is optimised in a manner consistent with the expectations of our stakeholders. This requires a clear understanding of the drivers of capital requirements and therefore capital management is a critical component in the strategic planning process and the ongoing running of the business.

There are two primary objectives of capital management within the Group. The first objective is to ensure that capital is, and will continue to be, adequate to maintain the required level of safety and stability of the Group and therefore provide an appropriate degree of security to our key stakeholders. This aspect is measured by the Group's regulatory solvency position. The second objective is to create equity holder value by driving profit attributable to equity holders.

Capital is measured and managed on both regulatory capital metrics and on internal economic capital metrics. Risk appetites are set on an economic basis and the potential impact of business decisions on positions versus these appetites forms a key part of the decision making process.

Credit ratings

External credit rating agencies perform independent assessments of the financial strength of companies. The current insurer financial strength ratings for Standard Life Assurance Limited (SLAL) are A1/Stable and A+/Stable from Moody's and Standard & Poor's respectively. There were no changes to these ratings in 2012. The Standard Life Assurance Company of Canada has a separate rating from Standard & Poor's which is A+/Stable.

Group capital surplus

In H1 2012, our capital surplus remained strong at £3.0bn (31 December 2011: £3.1bn). Our capital surplus has remained robust despite the volatility in equity and debt markets. The quality of our capital resources remains strong with £6.9bn (31 December 2011: £7.0bn) of core tier 1 capital.

Group capital resources include the capital resources within the long-term business funds but the Insurance Groups Directive (IGD) limits the amount that can be recognised to the level of the capital resources requirement for that fund. This resulted in a restriction of £1.2bn (31 December 2011: £1.0bn) and a net zero contribution to the Group capital surplus from the long-term business funds.

The IGD surplus remains largely insensitive to a further 30% fall in equities from the 30 June 2012 position, with the surplus estimated to reduce by approximately £0.1bn (31 December 2011: £0.2bn reduction). Following a 100bps rise in yields, the surplus is expected to remain unchanged (31 December 2011: £0.2bn reduction), while a 100bps fall in yields is expected to reduce the surplus by approximately £0.3bn (31 December 2011: £0.2bn reduction).

Group capital surplus and solvency cover	H1 2012	H1 2011	FY 2011
	£bn	£bn	£bn
Shareholders' capital resources	3.2	3.0	3.1
Capital resources arising from subordinated debt	1.1	1.9	1.1
SLAL long-term business funds	2.9	3.0	3.1
Group capital resources	7.2	7.9	7.3
Group capital resource requirement	(4.2)	(4.0)	(4.2)
Group capital surplus	3.0	3.9	3.1
Group solvency cover	174%	196%	173%

H1 2012 and H1 2011 figures above based on estimated regulatory returns. FY 2011 based on final regulatory returns.

Liquidity management

Liquidity management is the ongoing process of determining the correct asset mix for each business through balancing the interconnected needs of matching the liability profile with appropriate assets, maintaining sufficient cash resources to meet unexpected demands and achieving an appropriate yield on assets.

The Group's liquidity and capital management policy governs the level of liquidity that each business unit holds and the objective is to ensure that sufficient liquidity exists across the business to withstand extreme stresses.

In addition to the substantial cash and readily realisable resources held within each business unit, the ultimate holding company, Standard Life plc, held £0.4bn of cash and short-term debt securities as at 30 June 2012. The stress testing undertaken during H1 2012 shows that Standard Life maintains a strong liquidity position.

We undertake specific liquidity stress testing to ensure that we can withstand a scenario of significant falls in asset values combined with unprecedented levels of surrenders and claims. The stress testing methodology has been updated for recent events in the Eurozone.

We also maintain contingency funding plans across the business to ensure that each business unit is prepared for a liquidity issue. As part of this contingency planning, Standard Life plc has a £0.5bn revolving credit facility with a maturity date of 31 December 2013, which was undrawn as at 30 June 2012.

Reconciliation of key capital measures

The following diagram illustrates the key differences between regulatory, IFRS and EEV capital measures at 30 June 2012:

Diagram removed for the purposes of this announcement. However it can be viewed in full in the pdf document.

1.4 Business segment performance

Business segment overview

Our performance across the Group demonstrates our commitment to meeting our corporate objectives and delivering on our strategy. A summary of our business segment performance is included below.

Global investment management

Strategy

We believe that the UK is an exciting market with great potential for our business. Our strong market position provides significant opportunities for us to drive profitable growth within long-term savings and investments.

We will continue to expand our capability in order to deliver a wide range of solutions for clients that help diversify our revenue and profitability. Changes in the market environment will continue to provide many new opportunities.

Operating profit

	H1 2012	H1 2011
	£m	£m
Fee based revenue	325	309
Spread/risk margin	56	52
Total income	381	361
Acquisition expenses¹	(84)	(107)
Maintenance expenses¹	(169)	(171)
Capital management	13	4
Operating profit before tax	141	87

· Operating profit up 62% due to increase in fee revenue and improved cost management

· All our core business lines now contributing strongly to growing profits. The new style retail business demonstrated continued momentum with profit contribution of £25m after breaking even for the first time last year.

· Further reductions in unit costs with acquisition expenses falling to 119bps (FY 2011: 144bps) and maintenance expenses reducing to 30bps (FY 2011: 34bps)

	H1 2012	H1 2011
	£m	£m
Fee based revenue²	203	193
Maintenance expenses¹	(135)	(126)
Operating profit before tax	68	67
Interest and exchange rate movements	-	(1)
Earnings before interest and tax (EBIT)	68	66

· Operating profit before tax, excluding the fee received in H1 2011 for the transfer of the money market funds, increased by 13% to £68m

· Average fee revenue yield from third party business increased to 39bps (FY 2011: 37bps)

· Increased costs reflect the expansion of our investment capability, distribution and geographic reach in our chosen markets but remains in line with growth in AUM at 17bps (FY 2011: 17bps)

AUA and flows

· Total AUA grew by £4.5bn to £126.5bn in H1 2012

· Maintained leading positions in the retail and corporate markets

· Grew annuity volumes 36% on H1 2011

· Third party net inflows of £2.4bn in H1 2012, after excluding the outflow of £1.8bn of assets relating to the expected loss of a single, low revenue yield mandate

· A significant number of new institutional clients were won in the UK and Europe during the period

· Assets in our GARS offering now exceed £17bn, our Fixed Income business is over £24bn and our UK Wholesale business now exceeds £12bn

¹ Investment for transformation and growth has been allocated between acquisition expenses, maintenance expenses and group corporate centre costs. Comparatives have been restated.

²The share of profit of HDFC Asset Management is included on a pre tax basis for the first time. This change has contributed £3m to the increase in revenue.

Canada

International

Strategy

We continue to differentiate our business by providing innovative retirement and investment solutions combined with a world-class customer experience. We continue to actively promote ourselves as a long-term savings and investments business in our chosen markets.

In June, we announced our intention to create an Asia and Emerging Markets business which will focus on leveraging our offshore business, our wholly owned business in Hong Kong and our joint venture businesses in Asia. The Germany and Ireland domestic businesses will be combined with the UK to create UK and Europe.

Operating profit

	H1 2012	H1 2011
	£m	£m
Fee based revenue	83	84
Spread/risk margin	124	155
Total income	207	239
Acquisition expenses¹	(41)	(48)
Maintenance expenses¹	(114)	(106)
Capital management	20	18
Operating profit before tax	72	103

· Fee based revenue was stable in constant currency, with an increase due to higher assets offset by lower management charges on AUA

· Spread/risk margin decreased to £124m mainly due to lower gains in H1 2012 from management actions to enhance the investment yields on assets

· Stable total expenses of £155m (H1 2011: £154m) with higher development spend and lower sales commissions

· Stable overall maintenance costs compared to average AUA at 92bps (FY 2011: 92bps)

	H1 2012	H1 2011
	£m	£m
Fee based revenue	103	108
Acquisition expenses¹	(19)	(20)
Maintenance expenses¹	(65)	(70)
Capital management	1	1
Total wholly owned	20	19
India and China JV businesses	8	-
Operating profit before tax	28	19

· Operating profit before tax for the wholly owned business increased by 12% in constant currency to £20m

· Fee based revenue increased by 1% in constant currency primarily due to higher revenues from a growing asset base

· Total expenses decreased, including benefits from operational cost savings and currency movements

· Joint ventures performance improved, reflecting continued sales growth and effective management of the cost base

AUA and flows

· Fee based AUA increased by £0.4bn due to net inflows in key product lines and positive market movements

· Strong recovery in mutual funds with gross inflows increasing by 21% in constant currency

· Retail segregated funds sustain sales momentum with increased market share

· AUA in the wholly owned businesses grew by £0.9bn to £13.2bn

· AUA driven by positive net inflows and favourable market movements in Germany and Hong Kong

· Our position in the market segments we operate has either improved or been maintained

1.4 Business segment performance continued

1.4.1 UK

"We are a major provider of long-term savings and investments solutions in the UK market. Our H1 2012 performance shows continued momentum in all our chosen markets and a clear demonstration of the scalability and efficiency of our business. The enhancements to our market-leading platforms, propositions and investment solutions, combined with the forthcoming Pensions Reform and Retail Distribution Review, bring unprecedented opportunities for us to grow our business further. This will strengthen our relationships with customers and advisers, whilst also driving efficiency."

Paul Matthews, UK Chief Executive

Financial highlights

	H1 2012	H1 2011	Movement
Operating profit before tax	£141m	£87m	62%
Operating return on equity	29.1%	11.5%	17.6% points
Assets under administration	£126.5bn	£122.0bn¹	4%
Net flows	£0.8bn	£1.8bn	(56%)
EEV covered business operating profit before tax	£311m	£218m	43%
EEV non-covered business operating profit before tax	£19m	£4m	375%

¹Comparative as at 31 December 2011.

Market update

The UK market continues to be impacted by regulatory and market changes, including RDR, Pensions Reform and Solvency 2, as well as ongoing economic uncertainty. This environment has resulted in a more cautious sentiment among our customers, which in turn creates both exciting opportunities and specific challenges.

Together with the Government and the media, we have been driving consumer and employer awareness of the need for pensions as well as other forms of long-term and retirement savings.

We continue to demonstrate our momentum and resilience by maintaining our strong market position as customers, advisers and employers rely on a brand that they can trust. Our suite of investment solutions, flexible retirement solutions and market-leading platform propositions means we are well placed to support our retail and corporate customers, advisers and intermediaries through this industry transition.

Profitability

Operating profit before tax

	H1 2012	H1 2011
	£m	£m
Fee based revenue	325	309
Spread/risk margin	56	52
Total income	381	361
Acquisition expenses	(84)	(107)
Maintenance expenses	(169)	(171)
Capital management	13	4
UK operating profit before tax	141	87

UK operating profit before tax was £141m. The key movements from H1 2011 are:

· Fee based revenue increased by 5% predominantly driven by higher AUA, as new style propositions continue to attract net inflows while older style propositions benefit from ongoing increments, market movements and retention activity. The average revenue yield on fee based business remained stable at 73bps (FY 2011: 73bps).

· Spread/risk margin increased to £56m due to increased annuity volumes, accompanied by strong margins, as annuities remain a part of our decumulation range of products, offering an attractive alternative to our market-leading drawdown proposition

· Acquisition expenses of £84m are 21% lowerthan H1 2011 and, as a percentage of PVNBP, acquisition expenses improved significantly to 119bps (FY 2011: 144bps)

· Maintenance expenses reduced by 1% as we continue to see the benefits of our scalable business model and focus on cost control. Maintenance expenses expressed as a proportion of average AUA improved to 30bps (FY 2011: 34bps)

· Capital management improved to a profit of £13m due to the investment of shareholders' funds in higher-yielding assets and the improved funding position of our UK staff pension scheme

Profit contribution¹

Profit contribution from fee based business increased by 31% to £155m (H1 2011: £118m) with both our retail and corporate areas demonstrating good growth.

Profit contribution from retail fee based business increased by 24% to £115m (H1 2011: £93m). Within this, newer style retail propositions benefited from continued momentum and the scalability of our business model, delivering a contribution of £25m and including Standard Life Wealth breaking even for the first time in H1 2012. The profit contribution from our older style retail propositions remained broadly stable reflecting the value of our back book.

The success of our propositions and potential for further operational leverage was also evident in our corporate business which saw a 60% increase in profit contribution to £40m (H1 2011: £25m).

Profit contribution from spread/risk products increased by 4% to £50m (H1 2011: £48m), with higher annuity sales reflecting the success of our ongoing customer engagement programme. Total profit contribution, combined with our focus on reducing indirect expenses, have helped to drive an increase in operating profit of 62% to £141m.

Profit contribution	H1 2012	H2 2011	H1 2011
	£m	£m	£m
Retail - new	25	10	-
Retail - old	90	93	93
Retail fee based business contribution	115	103	93
Corporate	40	24	25
Fee based business contribution	155	127	118
Spread/risk	50	18	48
Total profit contribution	205	145	166
Indirect expenses, capital management and other	(64)	(76)²	(79)
UK operating profit before tax	141	69	87

²Excludes £64m gain on UK staff pension scheme.

EEV operating profit

UK EEV operating profit, including HWPF time value of options and guarantees and non-covered business, increased by 49% to £330m (H1 2011: £222m) as a result of beneficial management actions taken to reduce the risk exposures of the UK business. These management actions include asset strategy changes and modelling improvements, which have resulted in lower burnthrough costs. The increase in non-covered business operating profit to £19m (H1 2011: £4m) has been driven by the improved funding position of our UK staff pension scheme.

Operating return on equity

UK operating return on equity increased to 29.1% (H1 2011: 11.5%) reflecting a 127% increase in operating profit after tax to £175m (H1 2011: £77m). In addition to the increase in operating profit before tax, the operating return on equity benefited from a release of deferred taxation on a number of items.

Assets under administration and net flows

UK fee based business AUA grew by 4% to £104.3bn, reflecting a continuation of net inflows and positive market movements.

Retail and corporate fee based business net inflows of £0.9bn (H1 2011: £1.9bn) into our core retail and corporate pension propositions were in line with the second half of 2011.

Net inflows into our new style retail propositions were £1.5bn (H1 2011: £2.1bn), reflecting robust gross flows of £2.7bn (H1 2011: £3.1bn), against a backdrop of subdued consumer sentiment, ongoing economic uncertainty and increased commission-based competition ahead of the RDR.

Retention in our older style retail business has been encouraging with net outflows of £1.4bn (H1 2011: £1.4bn), in line with the same period last year. We continue to engage with customers with maturing policies who wish to continue to save or annuitise with us.

Corporate pension net inflows, excluding trustee investment plan business of Standard Life Investments, of £0.8bn (H1 2011: £1.3bn) demonstrate the strength of our corporate business at a time when employers are delaying decision-making ahead of the phased introduction of auto enrolment starting in less than two months.

UK spread/risk business AUA increased to £14.7bn, as the positive impact of falling yields on debt securities was partially offset by overall net outflows driven by scheduled annuity payments. Gross inflows into annuities were 29% higher at £281m (H1 2011: £217m) reflecting improved conversion and retention activity which has increased the number of customers who choose to annuitise with us.

	Net flows		AUA
	H1 2012	H1 2011	30 Jun 2012	31 Dec 2011
	£m	£m	£bn	£bn
Retail - new	1,542	2,075	25.9	23.7
Retail - old	(1,430)	(1,419)	31.4	32.1
Retail fee based business	112	656	57.3	55.8
Corporate	763	1,265	23.1	22.0
Retail and corporate fee based business	875	1,921	80.4	77.8
Institutional pensions	880	812	19.2	17.5
Conventional with profits	(635)	(581)	4.7	5.3
Total fee based business	1,120	2,152	104.3	100.6
Spread/risk	(295)	(334)	14.7	14.4
Assets not backing products	-	-	7.5	7.0
UK total	825	1,818	126.5	122.0

¹Profit contribution reflects the income and expenses directly attributable to each of the UK lines of business. It differs from operating profit due to the exclusion of indirect expenses, such as overheads, and capital management.

1.4 Business segment performance continued

1.4.1 UK continued

New business performance

PVNBP sales of £7,034m (H1 2011: £8,146m) were resilient against a backdrop of subdued consumer sentiment and ongoing economic uncertainty. In the corporate pensions sector sales have also been impacted by employers delaying decision-making ahead of the phased introduction of auto enrolment and competitors securing schemes on a commission basis ahead of the implementation of RDR. Against this backdrop, PVNBP sales for annuity business were strong, increasing by 36% to £200m (H1 2011: £147m).

Delivering on our strategy

Our ability to maintain our leading position in each of our chosen markets is a testament to the significant effort and investment we have made to position ourselves more fully across the value chain to provide market-leading solutions that benefit our customers and their advisers. This places us in a unique position to support retail and corporate markets, for both advised and non-advised customers, from the start of their investment journey to the end.

Our business is well positioned to benefit from the market and regulatory changes ahead. Technology, including our market-leading platform propositions, remains a key enabler for delivering lower unit costs which will allow us to realise the full potential of our scalable business model.

Our business model

Maximising revenue

The Group is focused on increasing its share of the value chain. The UK business is therefore concerned not just with increasing volumes on our platforms, but also embedding our wider investment solutions across our customer base. This can be seen through the support we give IFAs on software and compliance through Focus Solutions and threesixty; right through to the business that flows into Standard Life Investments, via funds such as MyFolio, or to our discretionary fund manager, Standard Life Wealth:

· Our MyFolio risk-based funds range has attracted £1.5bn of assets in just 20 months since launch, attracting increasing funds that are actively managed by Standard Life Investments, securing additional margin for the Group

· Standard Life Wealth continued to build a strong presence in the IFA market with net flows into its higher margin propositions more than doubling to £390m (H1 2011: £193m) and AUA growing 91% over the last 12 months to £1.4bn

· We capitalised on the success of MyFolio funds in the retail market by launching a suite of investment solutions for employers

· Our Passive Plus corporate investment solution has been chosen by the Independent Trustees as the default fund option for our newly launched Master Trust

Increasing assets

Our retail business continues to grow, strengthening relationships with both new-model advisers and our direct customers:

· Collectively, our platforms account for over 205,000 customers with total AUA up 19% to £12.8bn (H1 2011: £10.8bn) demonstrating the industrial strength and scalability of our propositions and processes

· The number of adviser firms on our Wrap platform increased by 17% to 1,087 (H1 2011: 926). We continue to embed our Wrap platform with existing adviser firms, resulting in the average AUA per firm rising to £8.8m (H1 2011: £8.2m).

· Total SIPP customers increased by 22% to 147,000 (H1 2011: 120,800). Our SIPP proposition continues to perform well, helping to increase AUA to £18.0bn (H1 2011: £16.4bn).

Our corporate pension business continues to build momentum through its leading workplace savings solutions and by strengthening strong links and existing relationships with corporate benefit consultants and employers:

· We won 71 new schemes (H1 2011: 82 schemes) and 62,200 new employees joined our pension schemes since the start of the year (H1 2011: 98,400 employees). Total members in our schemes increased to almost 1.2m (H1 2011: 1.1m).

· Wins in the first six months of the year included our first major Master Trust scheme which will result in an additional 24,000 members

· The introduction of auto enrolment is leading many employers to review their overall pension provision giving rise to higher levels of enquiries from employers in our target market, which will support future growth in our target segments. We expect the introduction of auto enrolment to increase levels of employee participation in the 35,000 schemes we administer for our clients, resulting in 400,000 potential additional savers.

Lowering costs

The inherent scalability of our business and extensive use of technology continue to be the key enablers in delivering lower unit costs. Initiatives undertaken to manage the acquisition and maintenance expenses of our business are now showing results:

· Acquisition expenses expressed as a proportion of PVNBP fell to 119bps (FY 2011: 144bps) as improvements in efficiency and absolute reductions in costs more than offset the impact of lower sales caused by the subdued economic conditions

· Maintenance expenses expressed as a proportion of average AUA reduced to 30bps (FY 2011: 34bps), reflecting the scalability of our operations, the improving efficiency of our processes and our continued focus on cost control

· The general trend of migration of customer interaction towards online and self-service is ongoing and has helped to reduce our customer service full-time equivalent employees by approximately 20% since the start of 2010

1.4.2 Global investment management

"Standard Life Investments is a premier asset manager with an expanding global reach. Our wide range of investment solutions is backed by our distinctive 'focus on change' investment philosophy, disciplined risk management and shared commitment to a culture of investment excellence. This has proved itself to be robust and repeatable in both good and bad market conditions. We have an unbroken record of positive annual net flows since inception and have delivered a strong track record of profitable organic growth. Earnings before interest and tax have a compound annual growth rate over the last five years of 12%."

Keith Skeoch, Standard Life Investments Chief Executive Officer

Financial highlights

	H1 2012	H1 2011	Movement
Operating profit before tax	£68m	£67m	1%
Operating return on equity	46.0%	43.5%	2.5% points
Earnings before interest and tax (EBIT)¹	£68m	£66m	3%
EBIT margin^1,2	35%	33%	2% points
Third party assets under management (AUM)	£74.3bn	£71.8bn³	3%
Total assets under management	£157.6bn	£154.9bn³	2%
Third party net inflows	£0.6bn	£2.9bn	(79%)

¹EBIT and EBIT margin are key performance metrics for the investment management industry.

²Excludes the fee received following the transfer of the money market funds.

³Comparative as at 31 December 2011.

Standard Life Investments had a positive first half of the year, continuing to deliver robust long-term investment performance, despite volatile and uncertain markets. Third party AUM increased to £74.3bn (31 December 2011: £71.8bn). Total third party net inflows were £0.6bn (H1 2011: £2.9bn) despite a significant, and expected, outflow of £1.8bn from a single low revenue yield mandate following a change in the client's pension scheme strategy. Excluding this outflow, third party net inflows of institutional and wholesale business were £2.4bn (H1 2011: £2.9bn) in what have been challenging market conditions. These net flows underpinned solid revenue growth of 9%, driving a 15% increase in EBIT, to £68m and an EBIT margin of 35%, after excluding the fee received in H1 2011 for the transfer of the money market funds. HDFC Asset Management, our associate in India, contributed £10m (H1 2011: £7m) to EBIT and is included on a pre-tax basis for the first time. We continue to focus on serving existing clients and winning new clients through strong investment performance, product innovation, global distribution and high levels of customer service.

Standard Life Investments takes its responsibility as a long-term investor seriously. We believe that strong corporate governance coupled with responsible stewardship of the business' assets, employees, customers and environment have a fundamental impact on long-term investment returns and these issues are embedded into our underlying investment process. In addition, as responsible long-term investors, we engage regularly with investee companies to hold them to account and to promote high standards.

Market update

The fund management industry benefited from strong financial markets in early 2012 but the effects of the European sovereign debt crisis returned during the latter part of H1 2012 and market sentiment deteriorated again. As a result, the average daily FTSE All-Share Index fell by 4% between H1 2011 and H1 2012 and there was a substantial increase in market volatility. This, in turn, had a marked impact on investor sentiment with further pressure to reduce exposure to higher risk assets and a substantial fall in the overall turnover of institutional mandates. The beneficiaries of this were fund managers that could provide robust solutions to this changing risk appetite and this included Standard Life Investments with its suite of fixed income and GARS products.

Profitability

Operating profit before tax

	H1 2012	H1 2011
	£m	£m
Fee based revenue	203	193
Maintenance expenses	(135)	(126)
Global investment management operating profit before tax	68	67
Interest and exchange rate movements	-	(1)
Earnings before interest and tax (EBIT)	68	66

Operating profit before tax, excluding the fee received in H1 2011 for the transfer of the money market funds, increased by 13% to £68m. Revenue rose by 9% on the same basis, mainly due to third party new business flows into higher margin products including UK mutual funds and the GARS asset class. The share of profit of HDFC Asset Management is included on a pre-tax basis for the first time. This change has contributed £3m to the increase in revenue. Overall, the average revenue yield on third party AUM increased to 39bps (FY 2011: 37bps).

1.4 Business segment performance continued

1.4.2 Global investment management continued

Costs increased by 7%, as we took advantage of opportunities in the market to accelerate the expansion of our business in our chosen markets, but remained in line with the growth in AUM. Compared to total average AUM, our maintenance expenses remained well controlled at 17bps (FY 2011: 17bps). Excluding the fee received in H1 2011 for the transfer of the money market funds, EBIT increased by 15% to £68m (H1 2011: £66m) driving EBIT margin higher to 35% (H1 2011: 33%). Again, £3m of the increase in EBIT can be attributed to including HDFC Asset Management on a pre-tax basis for the first time.

Operating return on equity

Operating return on equity increased to 46.0% (H1 2011: 43.5%), reflecting the shift in sales towards higher margin products.

Investment performance

We continued to deliver robust investment performance over the longer term with the money weighted average for third party assets well above median over three, five and ten years. Our GARS funds have outperformed their cash benchmarks over all key time periods since inception and our mutual fund strength is shown by the proportion of eligible and actively managed funds

(24 out of 32) rated A or above by Standard & Poor's in the UK.

Assets under management and net flows

We achieved third party net inflows of £2.4bn during the period (H1 2011: £2.9bn), after excluding the outflow of £1.8bn of assets relating to the expected loss of a single low revenue yield mandate. This represents 7% of opening third party AUM on an annualised basis and continued Standard Life Investments' unbroken record of positive annual net flows since inception. UK mutual funds net inflows of £1.0bn (H1 2011: £1.5bn) were robust despite volatile market conditions. A significant number of new institutional clients were won in the UK and Europe during the period, increasing the institutional client base in these markets by 7% despite a substantial slow down in the number of institutional mandates across the market as a whole. Our high overall retention rates are reflected in low redemptions, excluding the large expected outflow referred to previously, being only 14% of opening AUM, which is in the top quartile in the industry. Inflows throughout the period have reflected the increasingly diverse nature of our product offering and the increasingly international character of our clients and distribution channels.

Third party AUM increased to £74.3bn (31 December 2011: £71.8bn) representing 47% of total AUM (31 December 2011: 46%). In-house AUM increased to £83.3bn (31 December 2011: £83.1bn) with favourable market movements offsetting expected outflows from the with profits business. As a result, total assets managed by Standard Life Investments were £157.6bn (31 December 2011: £154.9bn).

At an asset class level, we have a diverse offering in terms of AUM with our alternatives offering becoming more prominent. We are broadening the geographical diversity of our AUM with £1.0bn of third party net inflows generated from outside the UK, representing 42% of total third party net inflows of £2.4bn.

The pipeline for institutional business remains strong with fixed income, real estate and multi-asset products attracting a lot of interest, increasingly from outside the UK. There is also positive demand for our mutual funds in the UK and for our SICAV funds in continental Europe, despite the difficult market conditions in all these territories.

Delivering on our strategy

Standard Life Investments are now starting to see the benefits following the successful launch of the refreshed visual identity and brand positioning in 2011. This built on our commitment to increase the international reach of our business, as well as broaden the asset classes in which we excel, and helps to ensure that we present ourselves in a way that reflects our ambition, strengths and increasingly diversified business.

The refreshed brand identity ensures that communications are more consistent, with greater clarity in information provided to our clients, resulting in increased investor confidence. The refresh is supported by a major advertising campaign under the theme of 'Potential. Delivered'. This reflects our ongoing commitment to exceed our clients' expectations.

Our business remains underpinned by our strong investment performance, delivered through the rigorous application of our 'focus on change' investment philosophy, and by our continuing commitment to very high levels of client service. High quality support by our client service teams, combined with strong investment performance from our fund management teams, has been recognised with many awards in H1 2012, including:

· A 5 Star Award in the Investment category at the FTAdviser Online Service Awards, as voted for by IFAs, for the best website

· Financial Adviser's special 'Best Investment Service Provider 1993-2011' award in recognition of its long-term commitment to the IFA community over the last 19 years

· Standard Life Investments' Global Index Linked Bond Fund achieved 'highly commended' status in the global bond category of the Money Observer Fund Awards 2012

· Our UK Smaller Companies Fund and the Corporate Bond Fund have both made it on to S&P Capital IQ's winners list of the best funds with a decade-long track record

Our business model

Maximising revenue

· The majority of H1 2012 sales were into high margin products, including UK wholesale and the GARS asset class. The revenue yield on gross sales was 51bps (H1 2011: 42bps).

· We continue to diversify our sources of revenue both geographically and by asset class. We have increased the proportion of third party net inflows coming from Europe and the US in H1 2012. The diversity of our asset class offering is evidenced by net inflows in GARS, overseas equities and real estate. We have expanded our distribution capability in the US and extended our expertise in global emerging markets by creating an emerging markets bond team.

· EBIT has grown strongly with a compound annual growth rate over the last five years of 12%

Increasing assets

· Excluding the expected outflow from the low revenue yield mandate, third party net inflows of £2.4bn have been achieved, increasing third party assets under management to £74.3bn

· Our share of the wholesale market in the UK continues to grow, with UK mutual funds AUM now exceeding £12bn, 16% of third party assets

· We continue to develop our GARS product range, with assets now over £17bn, 23% of third party assets, and are strengthening our alternative capabilities in areas such as private equity and real estate

· MyFolio has proved successful since its launch, providing new higher margin business flows into Standard Life Investments' actively managed funds and now has assets of approximately £1.5bn

· Our pipeline of new investment initiatives is strong and we are confident that we will continue to meet the ever-changing demands of our clients through new and innovative solutions

Lowering costs

· Expansion of our investment capability, distribution and geographic reach has resulted in an increase in absolute costs while continued growth in our business has ensured that maintenance expenses compared to total average AUM remained flat at 17bps

1.4 Business segment performance continued

1.4.3 Canada

"Industry and macro-economic headwinds have made it a challenging half year, throughout which we continued to enhance our corporate and retail propositions to address the needs of our customers. We are poised to take advantage of opportunities in the group pension market, encouraged by the pipeline of new business. Along with the sustained growth in our retail investment fund offering, this highlights our continued shift towards being a leading provider of long-term savings and investments solutions."

Charles Guay, Canada Chief Executive

Financial highlights

	H1 2012	H1 2011	Movement
Operating profit before tax	£72m	£103m	(30%)
Operating return on equity	10.5%	15.3%	(4.8% points)
Assets under administration	£26.6bn	£26.1bn¹	2%
Net flows	£56m	£99m	(43%)
EEV operating profit before tax	£211m	£113m	87%

¹Comparative as at 31 December 2011.

Market update

Changing demographics including an ageing population, extensive personal debt and falling birth rates, emphasises the need for individuals to ensure they have adequate pension provision and guaranteed income. We are one of the largest defined contribution pension providers in Canada and are developing our plans for the new market that will be created by Pooled Registered Pension Plans (PRPP). As a result of the low interest rates and increasing capital requirements, insurers have been revisiting the product features and pricing of guaranteed income products and life insurance and we expect to see further innovation in these products as consumer demand for guaranteed solutions remains high.

Profitability

Operating profit before tax

	H1 2012	H1 2011
	£m	£m
Fee based revenue	83	84
Spread/risk margin	124	155
Total income	207	239
Acquisition expenses	(41)	(48)
Maintenance expenses	(114)	(106)
Capital management	20	18
Canada operating profit before tax	72	103

Operating profit before tax decreased to £72m (H1 2011: £103m). The key highlights are:

· Fee based revenue is stable in constant currency, with the increase from higher assets offset by lower management charges on AUA

· Spread/risk margin was impacted by the low interest rate environment, and while management actions enhancing the investment yields on assets mitigated this impact, at £9m (H1 2011: £31m), the benefits of these actions were much lower than in H1 2011. One-off reserving changes decreased policyholder liabilities by £8m (H1 2011: decrease £6m).

· Acquisition expenses decreased due to lower sales commissions

· Maintenance expenses increased by £8m mainly due to higher renewal commissions and also increases in product and technology development spend. Maintenance expenses are in line with H2 2011 levels and remained stable compared to average AUA at 92bps (FY 2011: 92bps).

· The increase in capital management of £2m was driven by higher investment returns on shareholder assets

EEV operating profit

EEV operating profit before tax increased by 88% in constant currency to £211m (H1 2011: £113m). The increase was mainly due to modelling improvements, which was reflected in higher back book results.

Operating return on equity

Operating return on equity decreased to 10.5% (H1 2011: 15.3%) in line with lower operating profit. As a result of the low interest rate environment we are holding an additional £124m of capital in the business. This also contributed to the lower return on equity. We continue to manage our capital position to generate sustainable returns for our shareholders and to maintain appropriate levels of regulatory capital.

Assets under administration and net flows

AUA increased by £0.5bn to £26.6bn. Fee business AUA increased by 4% in constant currency to £14.7bn. This was driven by net inflows and positive market movements. Spread/risk AUA decreased slightly to £10.2bn.

Net inflows decreased by 41% in constant currency to £56m (H1 2011: £99m). In fee business, individual savings and retirement net flows nearly doubled to £184m (H1 2011: £93m), as a result of gross inflows in our retail segregated funds. Mutual funds net outflows improved to £7m (H1 2011: £68m). Sales in retail segregated funds, which increased by 31% in constant currency, were accompanied by mutual fund sales rising by 21% in constant currency. Group savings and retirement net flows decreased by 63% in constant currency to £91m and reflected the uneven pattern of this business. Total redemptions increased despite an improvement in mutual funds and retail segregated funds. In our spread/risk business, retail net outflows increased to £143m, mainly due to lower sales of term funds and annuities. Retail spread/risk business gross inflows decreased by 31% in constant currency.

New business performance

PVNBP sales increased by 14% in constant currency to £1,780m (H1 2011: £1,579m). This was led by group savings and retirement sales, which increased by 63% in constant currency due to our success in securing regular premium group business and also the impact of lower discount rates.

Excluding discontinued life insurance sales, retail sales increased by 11% in constant currency. In April 2012, we temporarily suspended new sales of the Ideal Income Series, our Guaranteed Lifetime Withdrawal Benefit product, in order to re-evaluate the product, in light of capital requirements and the low interest rate environment.

Delivering on our strategy

Our strategy is to differentiate our business by providing innovative retirement and investment solutions combined with a world-class customer experience. We have increased our new business market share in our retail investment products, where we still benefit from strong adviser relationships, including our partnership with Qtrade Financial Group, and expect a positive impact in group savings and retirement. In group insurance, we have launched a new online health claim solution which will improve our customers' experience while allowing us to increase our operational efficiency.

Our business model

Maximising revenue

· The average revenue yield on our fee business decreased to 115bps (FY 2011: 117bps), reflecting pricing conditions prevailing in our markets and also business mix

· Our spread/risk margin reflects actions taken during the past year to maximise cash flows on assets and enhance investment yields, however the impact of these was less significant in H1 2012 than in H1 2011

Increasing assets

· We launched our group savings and retirement target date funds, offering a range of solutions that are unique in the Canadian marketplace. We are developing a product for the emerging PRPP market, and along with enhancements to our SL Express product aimed at small businesses, we look to increase our presence with advisers and end-customers in the small case segment. We will also develop a retirement transition programme for plan members nearing retirement, with the aim of retaining and increasing AUA by providing customers with comprehensive tools and solutions to meet their financial needs upon retirement.

· In our retail mutual funds line, we launched two new fixed income mutual funds, aimed at customers wanting to avoid low interest rates and high market volatility

· Our retail sales force and investment fund offering led to improved sales and increased market share based on assets under management in our retail segregated funds

Lowering costs

· Despite increases in product and technology development and higher renewal commissions, higher AUA led to stable overall maintenance costs compared to average AUA at 92bps (FY 2011: 92bps)

1.4 Business segment performance continued

1.4.4 International

"Our International business operates in markets and market segments with significant growth potential, offering propositions centred on flexible investment solutions, innovative life assurance wrappers and digital capabilities. The volatile market environment in the first half of 2012 led to a slow down in growth and adversely impacted our results due to currency movements. Despite this, we maintained our market position, placing us well for future growth."

Nathan Parnaby, International Chief Executive

Financial highlights - wholly owned

	H1 2012	H1 2011	Movement
Operating profit before tax	£20m	£19m	5%
Operating return on equity	10.6%	5.0%	5.6% points
Assets under administration	£13.2bn	£12.3bn¹	7%
Net flows	£0.7bn	£0.9bn	(22%)
EEV covered business operating profit before tax	£35m	£31m	13%
EEV non-covered business operating loss before tax	(£7m)	(£5m)	(40%)

Financial highlights - joint ventures (Standard Life's share)

	H1 2012	H1 2011	Movement
Operating profit before tax	£8m	£nil	-
Operating return on equity	14.5%	1.1%	13.4% points
Assets under administration	£1.3bn	£1.2bn¹	8%
Net flows	£0.1bn	£0.1bn	-
EEV covered business operating profit before tax	£8m	£4m	100%

¹ Comparative as at 31 December 2011.

Market update

Overall customer sentiment was impacted by market uncertainties caused by the Eurozone crisis and volatile global investment markets. International operates in a number of territories and these are subject to different market dynamics:

· In Germany, the economy continued to grow in H1 2012 and our successful repositioning saw us increasing our market share in the unit linked segment

· The domestic market in Ireland was dominated by customers' reactions to the difficult economic conditions and austerity measures. Our businesses in Ireland performed well in these difficult conditions, broadly maintaining our market share in our chosen market segments.

· Economies in Asia continued to grow at the start of 2012 but are now showing signs of slowing. In our Hong Kong business, we maintained market position. Changes to product regulation in India impacted sales levels. However, HDFC Life performed well despite the challenging regulatory environment and improved both positioning in the market and market share.

Profitability

Operating profit before tax

	H1 2012	H1 2011
	£m	£m
Fee based revenue	103	108
Acquisition expenses	(19)	(20)
Maintenance expenses	(65)	(70)
Capital management	1	1
Total wholly owned	20	19
India and China JV businesses	8	-
International operating profit before tax	28	19

Operating profit before tax increased to £28m driven by further progress of the joint venture businesses and higher profitability in the wholly owned businesses, offsetting adverse currency movements due to the strength of the Sterling against the Euro. The key highlights are:

· Operating profit before tax of the wholly owned businesses increased from £19m to £20m, 12% in constant currency, with higher revenues and expense improvements offset by currency movements

· Fee based revenue increased by 1% in constant currency with higher revenues from a growing asset base offsetting a reduction in revenue from German pre-demutualisation business

· Acquisition expenses decreased to £19m due to reduced sales and currency movements

· Maintenance expenses of £65m, which were 3% lower than H1 2011 in constant currency, include cost savings which financed higher investment for growth to expand our proposition mix

· The joint venture businesses recorded an operating profit before tax of £8m (H1 2011: £nil) with both businesses improving their performance compared to H1 2011. This reflects their continued progression with higher revenue generation from the growing businesses and our ongoing investment to support their development.

EEV operating profit

Total EEV operating profit increased to £36m from £30m. EEV operating profit before tax for the wholly owned businesses, including non-covered business, increased by 14% in constant currency to £28m (H1 2011: £26m) due to higher unit linked margins in Germany. EEV covered business operating profit before tax for the joint ventures was 165% higher in constant currency at £8m (H1 2011: £4m) due to improved expense management and new business profitability.

Operating return on equity

Operating return on equity for our total International operations increased to 11.5% (H1 2011: 4.1%) driven by higher results in the JV businesses. The total International operating return on equity consists of 10.6% for the wholly owned businesses and 14.5% for the joint ventures.

Assets under administration and net flows

AUA in the wholly owned businesses grew by £0.9bn to £13.2bn (31 December 2011: £12.3bn), driven by net flows and favourable market and other movements.

Net flows of the wholly owned businesses decreased by 26% in constant currency to £0.7bn (H1 2011: £0.9bn). This was primarily due to reduced gross inflows in both businesses in Ireland, reflecting economic uncertainty and consumer sentiment. There were also increased levels of redemptions in Germany and our offshore business in Ireland due to increasing maturities and surrenders.

AUA in the joint ventures increased by £0.1bn to £1.3bn (31 December 2011: £1.2bn) due to net inflows of £0.1bn (H1 2011: £0.1bn). In constant currency, net inflows increased by 11%.

New business performance

PVNBP sales in the wholly owned businesses decreased by 15% in constant currency to £979m (H1 2011: £1,175m), with a 17% constant currency increase in sales in Germany being offset by a fall in all other regions. In India, sales were up 25% in constant currency to £233m (H1 2011: £212m) due to effective management of the recent market changes. In China, sales remained stable at £51m (H1 2011: £49m) despite a slowdown of the market. Our position in the markets and segments in which we operate either improved or was maintained giving us an excellent position for future success.

Delivering on our strategy

Our strategy is to deliver profitable growth through expanding our businesses in attractive international and offshore wealth management markets, where we are well placed to leverage our offshore capability. We will also deliver profitable growth through developing the joint ventures and maximising the value of our existing domestic businesses.

Our business model

Maximising revenue

· The average revenue yield on fee based business decreased to 173bps (FY 2011: 186bps) reflecting the change in asset mix across the International territories and the charging structure of legacy business

· Our market development activity remains focused on driving growth in our chosen markets, offering high value propositions to our customers and promoting high value Standard Life Investments' offerings such as GARS and MyFolio

Increasing assets

· Our focus in 2012 is to offer propositions to help our customers to invest in volatile times. We launched a regular savings product in Ireland and in Germany a new proposition was launched to refresh our market presence and emphasise our expertise in the unit linked market. In the offshore business in Ireland we continue to develop our offering for the UK offshore market while also focusing on new developments for other market segments and offshore markets.

· We are actively working on the customer journey to offer our customers and their IFAs propositions which fully address our customers' needs

Lowering costs

· Maintenance expenses expressed as a proportion of average AUA further fell to 103bps (FY 2011: 117bps) with continued efforts to drive efficiencies across all territories, demonstrating the scalability of our business model

1.5 Risk management

"We are focused on delivering a strong framework that enables the risks of the Group to be identified, assessed, controlled and monitored consistently, objectively and holistically. This helps provide resilience and financial strength in the face of extreme conditions and a strong support for future growth and development."

Colin Ledlie, Chief Risk Officer

	Market risk	Credit risk
Definition	The risk that arises from the Group's exposure to market movements which could result in the value of income, or the value of financial assets and liabilities, or the cash flows relating to these, fluctuating by differing amounts.	The risk of exposure to loss if a counterparty fails to perform its financial obligation, including failure to perform those obligations in a timely manner. It also includes the risk of a reduction in the value of assets due to a widening of mortgage, bond and swap spreads.
Appetite	The Group has no appetite for market risk exposures except where they arise as a consequence of core strategic activity. Business units are expected to limit market risk exposures by matching the features of liabilities to features of assets. Exposures may be incurred where there is an overriding business need and specific appetites will be established as necessary.	The Group has an appetite for credit risk to the extent that acceptance of this risk optimises the Group risk-adjusted return. However, the Group has limited appetite for significant losses arising from counterparty failures and maintains robust risk limits which Group companies must adhere to.
Main sources of risk	Equity and property risk · Changes in the value of future profits earned on unit linked funds and collective investment schemes where the funds are invested in equities and property · Burnthrough from the Heritage With Profits Fund (HWPF) and German With Profits Fund · Guarantees on segregated fund business in Canada Fixed interest risk · Changes in the value of future profits earned on unit linked funds and collective investment schemes where the underlying funds are invested in fixed interest assets · Burnthrough from the HWPF and German With Profits Fund · Insufficient long-dated fixed income assets to match the longest dated liabilities in Canada Currency risk · Exchange rate movements that reduce the value of overseas operations and profits generated by them · Changes in the value of future profits on unit linked funds and collective investment schemes where the underlying funds are invested in overseas assets	The Group is exposed to credit risk through: · Changes in the value of future profits earned on unit linked funds and collective investment schemes where the underlying funds are invested in corporate bonds · Burnthrough from the HWPF Credit risk also results from holding the following assets: · Corporate bonds held to back annuities written by SLAL post-demutualisation · Assets held to back the subordinated debt in SLAL, a proportion of which are asset backed securities that are held for historical reasons · Corporate bonds and commercial mortgages held in Canada to back annuities Other holdings of cash and cash equivalents, debt securities and the reinsurance of certain insurance liabilities to reinsurance counterparties also results in credit risk.
H1 2012 summary	Market concerns regarding the Eurozone have resulted in continued volatility in the equity and bond markets with UK, German and Canadian fixed interest yields remaining low. In managing our market risks we have: · Undertaken further hedging to reduce our exposure to falling Euro yields · Kept our investment portfolios under review to consider both the direct and indirect consequences that could arise from one or more countries ceasing to use the Euro · Continued the dynamic hedging of guarantees provided for Canadian Segregated Funds · Monitored and managed the equity backing ratio of assets held within the HWPF · Maintained hedging arrangements in respect of the currency risk arising from our overseas operations	Credit concerns regarding debt issued by certain European sovereign states and banks have continued during the first half of 2012. We have responded to these concerns by: · Maintaining benchmarks for our fixed interest portfolios which exclude holdings in peripheral sovereign debt · Restricting holdings of cash and cash equivalents to banking counterparties that we assess to be of appropriate credit standing, taking into consideration both direct and indirect factors such as the potential impact of contagion risk on these banks We have introduced changes in our internal model for assessing the financial strength of banking counterparties to ensure we are aligned with the market's reduced expectations of state support.

	Demographic and expense risk	Liquidity risk	Operational and strategic risks
Definition	The risk that arises from the inherent uncertainties as to the occurrence, amount and timing of future cash flows due to demographic and expense experience differing from that expected. This includes liabilities of insurance and investment contracts.	The risk that the Group is unable to realise investments and other assets in order to settle its financial obligations when they fall due, or can do so only at excessive cost.	Operational risk is the risk of adverse consequences for the Group's business, resulting from inadequate or failed internal processes, people or systems, or external events. Strategic risk is the risk associated with the robustness of the planning process and threats to achieving our strategy.
Appetite	The Group has an appetite for such risks since we expect acceptance of the risk to be value additive. Appetites will be established to reflect planned business activities in line with the Group's overall strategic objectives.	The Group has no appetite to fail to meet its liabilities as they fall due.	The Group has an appetite for operational risks where exposures arise due to core strategic activity. However, the Group will seek to put effective controls in place to reduce operational risk exposures, except where the costs of such controls exceed the expected benefits.
Main sources of risk	Persistency · Changes in the value of future profits earned on unit linked funds and collective investment schemes in the UK and future recourse cash flow payments from the HWPF · Changes in the value of future profits earned in respect of Standard Life Investment's third party AUM and segregated fund business Longevity · Annuity contracts written by the UK and Canada where the current experience differs from that expected, more volatility of experience than expected, or the rate of improvement in mortality is greater than anticipated Expense · Changes in the value of future expected expenses · Shareholder is directly exposed to risk of expenses being above expectation	The Group is exposed to liquidity risk from the following sources: · The type of business that is written, the assets and liabilities arising from that business and how the assets are managed to meet those liabilities · Operational aspects of the business, for example the management of cash as it flows into our business as premiums and out of our business as claims and the payment of corporate cash flows including dividends, coupons and debt repayment · Potential liquidity issues in unit linked funds due to the underlying asset classes · The collateralisation of derivatives which results in cash volatility as the value of the derivative changes	The key operational and strategic themes affecting the Group are: · Ability to deliver the strategic plan · The significance of adverse global economic volatility · The impact of regulatory activity and change (e.g. RDR, Solvency 2) · Inadequate control environment internally and in relation to third parties · Eurozone break up · Poor management of existing core processes · Potential loss of clients from adverse customer experiences · Ineffective arrangements with service providers and business partners · Ineffective management of information security · Insufficient capacity and capability to deliver change programmes and projects · Failure to attract, retain and develop talent ·
H1 2012 summary	We are actively engaging with advisers in the market to minimise the potential adverse impacts resulting from advisers seeking to move schemes in advance of RDR being implemented in 2013. We remain focused on developing propositions to increase the retention of funds when insurance and savings contracts reach maturity. We have continued to monitor emerging research into longevity, for example from the Office for National Statistics and the industry-wide Continuous Mortality Investigation, in order to inform our in-house view of likely future improvements in life expectancy.	We have continued to monitor the liquidity for various asset classes particularly in the context of developments in the Eurozone. We have also continued to: · Centrally co-ordinate strategic planning and funding requirements. This helped support our decision in July to call the outstanding amount of our Euro-denominated 6.375% Fixed/Floating Rate Subordinated Guaranteed Bonds · Maintain a portfolio of (currently undrawn) committed bank facilities · Maintain our Euro Medium Term Note Programme	We have continued to work on implementing appropriate processes and controls to prepare for regulatory changes. Concerns regarding the Eurozone have continued to present various pressures and challenges for various operating processes and systems during the year. The controls embedded within the Group, however, have ensured we have been able to avoid any serious losses or adverse consequences. We have additionally developed our operational plans to ensure we are well-placed to respond, if required, to an exit from the Eurozone of one or more sovereigns.

1.6 Basis of preparation

Overview

Our Business review for the period to 30 June 2012 has been prepared in line with the Disclosure and Transparency Rules (DTR) issued by the Financial Services Authority (FSA). 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 statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year. Principal risks are detailed in Section 1.5 - Risk management and Note 42 of the Group's Annual Report and Accounts 2011. Under DTR 4.2.8R we are also required to make certain related party disclosures. These are contained in Note 3.14 of the IFRS 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).

The Group's condensed 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 (GAAP) measures, which have been used in the Business review, 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 Business review include operating profit, EEV operating profit and EEV operating capital and cash generation. All non-GAAP measures should be read together with the Group's International Financial Reporting Standards (IFRS) condensed consolidated income statement, statement of condensed consolidated financial position and statement of condensed consolidated cash flows, which are presented in the IFRS financial information in Section 3 of this report.

Going concern statement

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 statements.

IFRS and EEV reporting

The financial results, which are unaudited at the half year, are prepared on both an IFRS basis and an EEV 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. EEV measures the net assets of the business plus the present value of future profits expected to arise from in-force long-term life assurance and pensions policies. The IFRS financial results in the Business review and in Section 3 have been prepared on the basis of the IFRS accounting policies applied by the Group in the IFRS financial statements section of the Annual Report and Accounts 2011 as amended for new standards effective from 1 January 2012, as described in Note 3.1. The EEV basis has been determined in accordance with the EEV Principles and Guidance issued in May 2004 and October 2005 by the Chief Financial Officers (CFO) Forum. The CFO Forum represents the chief financial officers of major European insurers, including Standard Life. EEV methodology has been applied to covered business, which mainly comprises the Group's long-term savings business. Non-covered business is reported on an IFRS basis. The EEV financial results in the Business review, and in Section 4 have been prepared in accordance with the EEV methodology applied by the Group in Note 4.17 for H1 2012, and in the relevant EEV methodology notes included in the Annual Report and Accounts 2011 in respect of the comparative period.

Group operating profit and EEV operating profit

The H1 2012 reconciliation of consolidated Group operating profit to IFRS profit for the period, presented in Section 3, presents profit before tax attributable to equity holders adjusted for non-operating items. Further details on the calculation of Group operating profit is presented in accounting policy (jj) - Operating profit in the Annual Report and Accounts 2011. The H1 2012 EEV consolidated income statement in Section 4, presents EEV profit showing both operating and non-operating items. 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.

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