Half Yearly Report - Part 2 of 5

RNS Number : 2304O

Standard Life plc

05 August 2014

Standard Life plc
Part 2 of 5

Half year results

2014

Section	Contents	Page
	Press release	2
1	Strategic report	11
1.1	Group key financial performance indicators	11
1.2	Group financial overview	12
1.3	Business segment performance	18
	1.3.1 UK and Europe	18
	1.3.2 Standard Life Investments	22
	1.3.3 Canada	25
	1.3.4 Asia and Emerging Markets	28
1.4	Principal risks and uncertainties	30
1.5	Basis of preparation	34
2	Statement of Directors' responsibilities	35
3	International Financial Reporting Standards (IFRS)	36
	IFRS condensed consolidated primary statements	36
	Notes to the IFRS condensed consolidated financial information	43
4	European Embedded Value (EEV)	77
	EEV consolidated primary statements	77
	Notes to the EEV consolidated financial information	79
5	Independent review report from our external auditors	87
6	Supplementary information	89
6.1	Group assets under administration and net flows	89
6.2	Investment operations	94
6.3	Long-term savings operations new business	96
7	Glossary	97
8	Shareholder information	103

The half year results 2014 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. Strategic report

1.1 Group key financial performance indicators

Group operating profit before tax

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

· Group operating profit before tax increased by 12% (16% in constant currency) to £339m, mainly due to higher fee based revenue

· Group underlying performance increased by 8% (13% in constant currency) to £339m (H1 2013: £313m) mainly due to higher fee based revenue. Operating assumption changes had a £nil impact in H1 2014 (H1 2013: loss £9m) on underlying performance.

· Fee based revenue increased by 9% (12% in constant currency) to £758m, with higher asset values and strong demand for our propositions in the UK, Standard Life Investments and Canada.

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.

· Group AUA increased by 4% (5% in constant currency) to £254.1bn, driven by strong net inflows for our new fee based propositions and favourable market movements

· Total net inflows were strong at £4.6bn with Standard Life Investments third party net inflows lower than the particularly high level recorded in H1 2013

· Record level of third party assets in Standard Life Investments at £108.0bn (FY 2013: £102.4bn²).

EEV operating profit aftertax³

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

· EEV operating profit after tax decreased by 3% (increased by 2% in constant currency) to £341m

· New business contribution after tax was 25% lower than H1 2013 mainly due to reduced sales of annuities and institutional pensions in the UK

· Operating experience variances and assumption changes of positive £45m in H1 2014 were similar to H1 2013

· H1 2012 included a benefit of £162m of operating experience variances and assumption changes.

EEV operating capital and cash generation

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

EEV operating capital and cash generation increased by 8% (13% in constant currency) to £250m largely due to higher benefits from expense variances and reserving changes. This was partly offset by higher new business strain and lower tax variances.

· EEV operating capital and cash generation remains aligned with Group operating profit after tax.

Find out more about these measures in Section 1.2 - Group financial overview and Section 1.5 - Basis of preparation.

¹AUA as at 31 December (reference contained in chart which has been removed for the purposes of the RNS announcement).

²From 1 January 2014, Standard Life Wealth is reported as part of Standard Life Investments, previously it was reported in UK and Europe. Comparatives have been restated.

³ EEV operating profit is now disclosed on an after tax basis, comparatives have been restated.

1.2 Group financial overview

Our financial results demonstrate our ability to deliver sustainable returns for our shareholders. We continue to develop high-quality and innovative solutions that meet the changing needs of our customers. Our financial performance is detailed below.

IFRS and Group operating profit
	H1 2014	H1 2013	Movement
Group operating profit before tax¹	£339m	£304m	12%
IFRS profit after tax attributable to equity holders of Standard Life plc	£275m	£129m	113%
Group operating return on equity	13.0%	11.4%	1.6% points

¹ Operating profit is IFRS profit before tax adjusted to remove the impact of short-term market driven fluctuations in investment return and economic assumptions, restructuring costs, impairment of intangible assets, amortisation of intangible assets acquired in business combinations, profit or loss on the disposal of a subsidiary, joint venture or associate, changes in Canada insurance contract liabilities due to resolution of prior year tax matters and other significant one-off items outside the control of management

IFRS profit

IFRS profit after tax attributable to equity holders increased to £275m (H1 2013: £129m) due to increased Group operating profit before tax and the impact of a fall in yields on the value of debt securities in Canada. This was partially offset by an increased tax charge and adverse exchange rate movements in the period. The tax expense attributable to equity holders' profits in H1 2014 was £76m (H1 2013: £42m). IFRS profit for the period of £285m (H1 2013: £137m) also includes profit attributable to non-controlling interests of £10m (H1 2013: £8m).

Group operating profit before tax

Group operating profit before tax
	H1 2014	H1 2013
	£m	£m
Fee based revenue	758	694
Spread/risk margin	182	197
Total income	940	891
Acquisition expenses	(149)	(155)
Maintenance expenses	(453)	(430)
Group corporate centre costs	(23)	(23)
Capital management	4	3
Share of JV and associates' PBT	20	18
Other	-	-
Group operating profit before tax	339	304

Group operating profit before tax increased by 12% (16% in constant currency) to £339m. Group underlying performance is the same as Group operating profit before tax in H1 2014 and increased by 8% to £339m

(H1 2013: £313m).

Movements in Group operating profit before tax include:

· Fee based revenue increased by 9% (12% in constant currency) to £758m driven by a strong demand for our fee based products

· Spread/risk margin decreased by £15m to £182m largely driven by an adverse exchange movement in Canada. On a constant currency basis, spread/risk was broadly in line with H1 2013.

· Acquisition expenses decreased to £149m benefiting from exchange rate movements. On a constant currency basis, acquisition expenses were in line with H1 2013. Acquisition expenses expressed as a proportion of sales improved to 139bps (FY 2013: 145bps).

· Maintenance expensesincreased to £453m reflecting continued product development and also investment in expanding the global reach of Standard Life Investments. Maintenance expenses expressed as a proportion of average AUA improved further to 39bps (FY 2013: 41bps).

· Group corporate centre costs remained stable at £23m (H1 2013: £23m)

· Capital management remained broadly stable at £4m (H1 2013: £3m)

· Our share of profit from our JV and associates increased to £20m (H1 2013: £18m) and included benefit of one-off items of £3m following modelling changes.

Group non-operating gain/(loss) before tax

Group non-operating gain/(loss) before tax
	H1 2014	H1 2013
	£m	£m
Short-term fluctuations in investment return and economic assumption changes	50	(90)
Restructuring and corporate transaction expenses	(27)	(36)
Other operating profit adjustments	(10)	(3)
Group non-operating gain/(loss) before tax	13	(129)

The Group non-operating gain in H1 2014 was £13m (H1 2013: loss £129m). The gains in H1 2014 were due to short-term fluctuations in investment return and economic assumption changes, with gains of £50m (H1 2013: loss £90m) mainly due to a fall in yields on the value of debt securities in Canada. Non-operating restructuring and corporate transaction expenses reduced to £27m (H1 2013: £36m) and mainly relate to business unit restructuring programmes and costs arising from the acquisition of Ignis Asset Management Limited.

Group tax expense

The tax expense attributable to equity holders' profit in H1 2014 was £76m (H1 2013: £42m) of which £73m (H1 2013: £66m) related to operating items and £3m (H1 2013: credit £24m) to non-operating items. The increase in the total tax expense reflects the higher level of IFRS profit attributable to equity holders in H1 2014. The tax attributable to non-operating items in H1 2014 reflects non-operating profit arising in H1 2014 compared to non-operating losses in H1 2013. The effective tax rate in H1 2014 is 21.1% (H1 2013: 23.5%) compared to a UK corporation tax rate for H1 2014 of 21.5% (H1 2013: 23.25%).

Group operating return on equity

Return on equity measures our success in generating profit relative to our shareholder capital. Group operating return on equity increased to 13.0% (H1 2013: 11.4%) mainly due to the increased operating profit before tax. We will continue to manage our capital position to ensure that we generate sustainable returns for our shareholders.

Assets under administration and new business
	H1 2014	H1 2013	Movement
Assets under administration	£254.1bn	£244.2bn¹	4%
Net flows	£4.6bn	£6.5bn	(29%)
PVNBP	£10.9bn	£12.2bn	(11%)

¹Comparative as at 31 December 2013.

Assets under administration and net flows

AUA increased by 4% to £254.1bn benefiting from net inflows across all our businesses and favourable market movements:

· Fee business AUA increased to £218.7bn (FY 2013: £210.1bn) representing 86% of total AUA

· Spread/risk business AUA increased to £23.7bn (FY 2013: £23.5bn) reflecting favourable market movements which were boosted by the fall in yields on debt securities. Net inflows were impacted by lower annuity sales in the UK following the recent Budget announcements.

· Overall net inflows were strong at £4.6bn, particularly into our newer fee based propositions. Standard Life Investments third party net inflows of £4.2bn (H1 2013: £7.4bn) were lower than the particularly high level recorded in H1 2013.

New business PVNBP			New business contribution after tax²		PVNBP margin		IRR		Undiscounted payback
	H1 2014	H1 2013	H1 2014	H1 2013	H1 2014	H1 2013	H1 2014	H1 2013	H1 2014	H1 2013
	£m	£m	£m	£m	%	%	%	%	years	years
UK and Europe	8,950	10,202	91	131	1.0	1.3	17	19	6	5
Canada	1,513	1,528	14	13	0.9	0.9	8	7	9	10
Asia and Emerging Markets	438	491	16	18	3.8	3.7	15	16	7	6
Total	10,901	12,221	121	162	1.1	1.3	14	14	7	7

²New business contribution is now disclosed on an after tax basis, comparatives have been restated.

· Present value of new business premiums (PVNBP) for the Group reduced by 11% (9% in constant currency) to £10,901m. UK and Europe sales fell by 12%, mainly due to lower sales of institutional pensions.

· Reduced new business contribution in the UK and Europe reflects reduced sales volumes and changes in product mix, with lower sales of annuities following the 2014 Budget and lower sales of institutional pensions. The overall margin was 1.1% compared to 1.3% in H1 2013.

· Total internal rate of return (IRR) for the Group was stable at 14%.

1.2 Group financial overview continued

Group operating profit after tax and EEV cash generation
	H1 2014	H1 2013	Movement
Group operating profit after tax	£265m	£234m	13%
EEV operating capital and cash generation	£250m	£231m	8%

Group operating profit after tax

Group operating profit after tax increased by 13% to £265m with Group operating profit before tax up 12% to £339m (H1 2013: £304m). The operating tax expense increased to £73m (H1 2013: £66m) and the share of the joint ventures' and associates' tax expense was £1m (H1 2013: £4m).

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

As with Group operating profit, EEV operating capital and cash generation 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:

· £29m negative impact from the difference in the treatment of assets and actuarial reserves

· £14m positive impact from the difference in the treatment of deferred acquisition costs (DAC)/deferred income reserve (DIR), intangible assets, tax and other. Other includes the impact of different methodologies in respect of asset management charges. In EEV operating profit this income is included on an expected return basis whereas the actual charges are included in Group operating profit.

Group EEV operating capital and cash generation


Group cash generation	H1 2014	H1 2013
	£m	£m
UK and Europe	288	269
Canada	75	74
Asia and Emerging Markets	30	18
Non-covered	11	1
Gross EEV operating capital and cash generation	404	362
New business strain	(154)	(131)
EEV operating capital and cash generation	250	231
Analysed by:
Underlying cash generation	250	238
Other operating cash generation	-	(7)
Total	250	231

Total EEV operating capital and cash generation increased by 8% (13% in constant currency) to £250m (H1 2013: £231m):

· Gross EEV operating capital and cash generation increased by £42m mainly as a result of higher benefits from expense variances and reserving changes, partly offset by lower tax variances

· Outflows from new business strain increased by 18%, partly reflecting lower sales of UK annuities which have cash inflows at the point of sale. As a percentage of PVNBP, new business strain was 1.4%

(H1 2013: 1.1%).

· Underlying cash generation, excluding non-recurring items, increased by 5% to £250m (H1 2013: £238m)

· There were no non-recurring items in H1 2014, compared to a loss of £7m in H1 2013 from assumption changes.

Coverage of gross EEV operating capital and cash compared to new business strain decreased to 2.62 (H1 2013: 2.76).

Liquidity management and dividends
	H1 2014	FY 2013	Movement
Standard Life plc cash and liquid resources	£757m	£907m	(17%)
Interim dividend	£134m	£124m¹	8%

¹Comparative as at H1 2013.

Liquidity management

Standard Life plc cash and liquid resources	H1 2014	H1 2013	FY 2013
	£m	£m	£m
Opening 1 January	907	1,064	1,064
Dividends received from subsidiaries	546	455	629
Cash dividends paid to shareholders²	(252)	(532)	(656)
Additional cash investments in subsidiaries	(411)	-	(97)
Additional cash investments in associates and joint ventures	(14)	(19)	(19)
Other	(19)	(42)	(14)
Closing	757	926	907

²H1 2014 reflects the payment of the 2013 final dividend of £252m. FY 2013 reflects the payment of the 2012 final dividend of £230m, the 2012 special dividend of £302m and the 2013 interim dividend of £124m.

Standard Life plc holds substantial cash and liquid resources. At 30 June 2014, Standard Life plc held £419m (FY 2013: £574m) of cash and short-term debt securities and £338m (FY 2013: £333m) of bonds. The reduction in total Standard Life plc cash and liquid resources at 30 June 2014 was due to the transfer of funds to Standard Life Investments (Holdings) Limited for the acquisition of Ignis Asset Management Limited, which completed on 1 July 2014.

We continue to focus on efficient capital management and cash generation. During H1 2014, subsidiaries remitted £546m to Standard Life plc. This more than covers the payment of both the 2013 final dividend of £252m that was paid in May 2014 and the proposed 2014 interim dividend of £134m that will be paid in November 2014.

The Group maintains a strong liquidity position and this was shown in stress testing undertaken during H1 2014. This liquidity stress testing ensures that we can withstand a scenario of significant falls in asset values combined with unprecedented levels of surrenders and claims.

We also maintain contingency funding plans across the Group to ensure that each business unit is prepared for a liquidity issue. As part of this contingency planning, Standard Life plc, the Group's ultimate holding company, maintains a £500m revolving credit facility with a syndicate of banks which will mature in March 2018. The Group's revolving credit facility remained unutilised during 2014.

Dividends

We propose an interim dividend of 5.60p per share. This represents an increase of 7.3% per share. We will continue to apply our existing progressive dividend policy taking account of market conditions and our financial performance.

Capital management
	H1 2014	FY 2013	Movement
IFRS equity attributable to equity holders of Standard Life plc	£4,245m	£4,227m	-
EEV	£8,358m	£8,423m	(1%)
Group capital surplus¹	£3.7bn	£3.8bn	(3%)

¹ H1 2014 based on estimated regulatory returns. FY 2013 based on final regulatory returns.

Group capital surplus

Group capital surplus and solvency cover²	H1 2014	H1 2013	FY 2013
	£bn	£bn	£bn
Shareholders' capital resources	2.9	2.9	2.9
Capital resources arising from subordinated debt	1.8	1.9	1.9
SLAL long-term business funds	3.5	3.3	3.6
Group capital resources³	8.2	8.1	8.4
Group capital resources requirement	(4.5)	(4.4)	(4.6)
Group capital surplus	3.7	3.7	3.8
Group solvency cover	184%	185%	183%

²H1 2014 and H1 2013 based on estimated regulatory returns. FY 2013 based on final regulatory returns.

³ Net of restricted assets of £1.2bn (H1 2013: £1.2bn, FY 2013: £1.2bn).

The Group capital surplus decreased slightly to £3.7bn (FY 2013: £3.8bn) reflecting the payment of the final dividend of £252m in May 2014.

The Group capital surplus remains largely insensitive to a 30% fall in equities from the 30 June 2014 position, with the surplus estimated to reduce by approximately £0.2bn (FY 2013: £0.2bn reduction). Following a 100bps rise in yields, the surplus would be expected to remain unchanged (FY 2013: £0.1bn reduction). Following a 100bps fall in yields the surplus is estimated to reduce by approximately £0.4bn (FY 2013: £0.1bn reduction).

Standard Life Investments (Holdings) Limited completed the acquisition of Ignis Asset Management Limited on 1 July 2014. This is expected to reduce the Group capital surplus by an estimated £0.3bn.

We welcome the positive steps in the development of the Solvency 2 regime and expect our capital position to remain strong following implementation.

Reconciliation of key capital measures

The following diagram illustrates the key differences between regulatory, IFRS and EEV capital measures at 30 June 2014:

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

Further financial information - EEV
	H1 2014	H1 2013	Movement
EEV per share	349p	353p¹	(1%)
EEV operating profit after tax²	£341m	£353m	(3%)
EEV profit after tax	£248m	£542m	(54%)

¹Comparative as at 31 December 2013.

² EEV operating profit is now disclosed on an after tax basis, comparatives have been restated.

Group embedded value

Group embedded value decreased to £8,358m (FY 2013: £8,423m) representing an EEV per share of 349p. EEV per share increased by 7p before dividend distributions, including EEV operating profit after tax of £341m (14p per share). EEV non-operating loss after tax was £93m (4p per share), including a decrease of £160m (7p per share) from the impact of UK regulations that restrict future charges on qualifying workplace pension schemes.

EEV operating profit after tax

EEV operating profit after tax
	H1 2014	H1 2013
	£m	£m
Contribution from new business	121	162
Contribution from in-force business	182	165
Non-covered business and development costs	(7)	(22)
Operating experience variances and assumption changes	45	48
Total	341	353

EEV operating profit after tax of £341m decreased by 3% (increased by 2% in constant currency).

A reduction in new business contribution was partly offset by increased in-force contribution and higher profits from non-covered business.

EEV operating profit after tax from experience variances and assumption changes of £45m (H1 2013: £48m) included positive £8m expense variances and assumption changes, positive £18m from improved modelling and positive £19m from management actions to increase asset returns and reduce actuarial liabilities.

EEV non-operating profit after tax

Total EEV non-operating loss after tax of £93m (H1 2013: profit £189m) included a £160m loss from the impact of UK regulations that restrict future charges on qualifying workplace pension schemes. The remaining non-operating profit of £67m included favourable investment return and tax variances of £39m (H1 2013: loss £11m), profit from economic assumption changes of £56m (H1 2013: profit £234m), restructuring and corporate transaction expenses of £22m (H1 2013: £29m) and other losses of £6m (H1 2013: loss £5m).

Further financial information - analysis of Group operating profit

The following table provides a more detailed analysis of Group operating profit by business segment.

	UK and Europe¹		Standard Life Investments¹		Canada		Asia and Emerging Markets		Other/ Elimination		Total
	H1	H1	H1	H1	H1	H1	H1	H1	H1	H1	H1	H1
	2014	2013	2014	2013	2014	2013	2014	2013	2014	2013	2014	2013
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Fee based revenue	449	431	303	252	99	95	29	27	(122)	(111)	758	694
Spread/risk margin	79	83	-	-	103	114	-	-	-	-	182	197
Total income	528	514	303	252	202	209	29	27	(122)	(111)	940	891
Acquisition expenses	(109)	(108)	-	-	(33)	(37)	(7)	(10)	-	-	(149)	(155)
Maintenance expenses	(232)	(223)	(210)	(170)	(108)	(125)	(25)	(23)	122	111	(453)	(430)
Group corporate centre costs	-	-	-	-	-	-	-	-	(23)	(23)	(23)	(23)
Capital management	1	(3)	-	-	8	12	-	-	(5)	(6)	4	3
Share of JV and associates' PBT	-	-	11	13	-	-	9	5	-	-	20	18
Other	-	-	-	-	-	-	-	-	-	-	-	-
Group operating profit before tax	188	180	104	95	69	59	6	(1)	(28)	(29)	339	304
Exclude: Operating assumption and actuarial reserving changes	-	-	-	-	-	9	-	-	-	-	-	9
Group underlying performance	188	180	104	95	69	68	6	(1)	(28)	(29)	339	313
Exclude: Group centre costs/capital management	-	-	-	-	-	-	-	-	28	29	28	29
Business unit underlying performance	188	180	104	95	69	68	6	(1)	-	-	367	342

¹From 1 January 2014, Standard Life Wealth is reported as part of Standard Life Investments, previously it was reported in UK and Europe. Comparatives have been restated.

Further details on our businesses are included in Section 1.3 - Business segment performance.

1.3 Business segment performance

1.3.1 UK and Europe

Financial highlights¹

	H1 2014	H1 2013	Movement
Operating profit before tax	£188m	£180m	4%
Operating return on equity	19.8%	17.3%	2.5% points
Assets under administration	£167.0bn	£161.6bn²	3%
Net flows	£1.8bn	£2.2bn	(18%)
EEV operating profit after tax³	£204m	£231m	(12%)

¹From 1 January 2014, Standard Life Wealth is reported as part of Standard Life Investments, previously it was reported in UK and Europe. Comparatives have been restated.

² Comparative as at 31 December 2013.

³ EEV operating profit is now disclosed on an after tax basis, comparatives have been restated.

Strategic overview

Our UK and Europe long-term savings and investments business continues to strengthen by building on its innovative propositions and investment solutions. We remain focused on meeting the needs of our customers in an evolving regulatory and economic environment. Our market leading solutions make effective use of technology to offer individual customers, advisers, employee benefits consultants and employers the choice and support necessary to meet their long-term savings objectives. This multi-channel approach and ability to leverage the close relationship with Standard Life Investments continues to benefit customers, our business and Standard Life Group as a whole.

Market update

The first half of 2014 has seen a continuation of the successful rollout of auto enrolment across the UK market, focusing on small and medium-sized enterprises (SMEs). With the Pensions Regulator forecasting that auto enrolment will impact 30,000 SMEs in 2014 alone, the ability of the industry to deal with this unprecedented level of demand continues to be an issue for some providers and an opportunity for Standard Life. Our award winning online Good to Go auto enrolment proposition was launched in December 2013 to capitalise on this unique opportunity. In the first half of the year we have secured over 180,000 new workplace customers through a combination of new scheme wins and auto enrolment. Good to Go Express, a variant of Good to Go was launched in April 2014 to address adviser and employer demand for light touch advice. We are now able to offer all employers, no matter how small, the ability to set up an auto enrolment scheme without external assistance. These innovative yet simple solutions allow us to provide employers with a high quality pension arrangement while enabling advisers to deal with high levels of demand by supporting auto enrolment implementations quickly and easily.

We are pleased to have clarity on the charge cap for workplace pension schemes and we are well placed to meet the cap confirmed by the Department for Work and Pensions (DWP). These changes and those announced in the Budget are consistent with developments we have made in recent years on our propositions, and offer a clear message on value and flexibility for customers. As with auto enrolment and other recent regulatory amendments, we will be ready to support employers and advisers to successfully implement these changes.

The regulatory environment in the UK continues to evolve. In March 2014, significant changes to the UK pension regime were announced in the UK Budget creating additional long-term opportunities in the UK long-term savings market. The changes removed the requirement to purchase an annuity and provide customers with increased flexibility and access to their pension savings upon retirement. We expect that this will result in increased demand for financial guidance and flexible investment propositions that support customers' varying attitudes to risk and lifestyle choices.

We are already leading the way on the education and engagement of customers leading up to retirement, starting initial communication some ten years ahead of retirement. This combined with the strengths of our investment solutions including access to MyFolio and absolute return funds have helped us to create our market leading drawdown proposition with AUA of over £10.0bn. By continuing to work closely with Standard Life Investments, we see significant opportunities to help address the UK savings gap through providing simple, innovative and flexible savings choices to our customers.

We continue to lead the way in the adviser platform market which is estimated to grow to £600bn by 2018. Our scale and close working relationships with advisers ensure our Wrap platform remains a leading proposition with recent developments including offering customers access to a new flexible discretionary fund management service. In April 2014, we announced the completion of our year long programme of work which saw Standard Life Wrap become the first major advised platform to be ready for the total removal of fund rebates ahead of the 2016 deadline. We can now offer both existing and new customers access to discounted clean funds from leading fund management groups at preferential rates. Being ready for the 2016 regulatory deadline now is important, as the transparency and operational efficiencies that these changes have achieved continue to support the 1,286 progressive adviser firms that use our Wrap platform. This allows them to focus on advising their clients rather than dealing with ongoing change and uncertainty.

Profitability

Operating profit before tax

	UK		Europe		UK and Europe
	H1 2014	H1 2013	H1 2014	H1 2013	H1 2014	H1 2013
	£m	£m	£m	£m	£m	£m
Fee based revenue	358	341	91	90	449	431
Spread/risk margin	75	78	4	5	79	83
Total income	433	419	95	95	528	514
Acquisition expenses	(88)	(86)	(21)	(22)	(109)	(108)
Maintenance expenses	(181)	(171)	(51)	(52)	(232)	(223)
Capital management	1	(3)	-	-	1	(3)
Operating profit before tax	165	159	23	21	188	180

UK and Europe operating profit before tax and underlying performance increased by £8m to £188m.

Analysis of UK and Europe operating profit before tax
	H1 2014	H1 2013
	£m	£m
UK and Europe underlying performance	188	180
Operating assumption and actuarial reserving changes (Spread/risk margin)	-	-
UK and Europe operating profit before tax	188	180

Movements in the UK operating profit from H1 2013 include:

· Fee based revenue increased by 5% to £358m mainly driven by higher AUA as our new style propositions continue to attract net inflows while our older style propositions benefit from ongoing increments, market movements and our retention activity. The average revenue yield on fee based business reduced to 64bps (FY 2013: 66bps) reflecting expected changes in business mix including the growing proportion of newer style propositions.

· Spread/risk margin decreased by 4% to £75m with the impact of the significant changes announced in the Budget which contributed to a 59% reduction in spread/risk margin from new annuity sales offset by increased profit from ongoing asset and liability management

· Acquisition expenses increased by 2% to £88m. Expressed as a percentage of sales, acquisition costs increased to 110bps

(FY 2013: 106bps), largely arising from a fall in new business sales, reflecting the impact of the Budget on annuities and the volatility in institutional pension new business.

· Maintenance expenses increased by 6% to £181m (H1 2013: £171m) mainly due to a 10% increase in investment management fees paid to Standard Life Investments of £96m (H1 2013: £87m) reflecting higher average market levels. As a proportion of average AUA, maintenance expenses improved to 24bps (FY 2013: 25bps) as we continue to benefit from our scalable business model and cost discipline.

Europe operating profit increased by 10% to £23m with our businesses in Germany and Ireland both benefiting from ongoing operational efficiencies and asset and liability management in the period.

UK profit contribution¹

UK profit contribution¹	H1 2014	H1 2013
	£m	£m
Retail - new	46	35
Retail - old	95	91
Retail fee based business contribution	141	126
Corporate	37	42
Fee based business contribution	178	168
Spread/risk	70	71
UK profit contribution	248	239
Indirect expenses and capital management	(83)	(80)
UK operating profit before tax	165	159

¹ Profit 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.

Overall UK profit contribution increased by 4% to £248m (H1 2013: £239m).

Our newer style UK retail propositions continue to show momentum which, combined with the benefits of scalability and growth in direct customers coming from our corporate business, led to a 31% growth in profit contribution to £46m. This, together with the 4% increase in contribution from our older style propositions, helped to drive an overall increase in retail fee based business contribution of 12% to £141m (H1 2013: £126m).

Profit contribution in our corporate business was £5m lower at £37m (H1 2013: £42m). This reflected the transfer of revenue of approximately £8m from former workplace customers to our retail new and old propositions. Profit contribution from spread/risk products remained stable at £70m (H1 2013: £71m) benefiting from effective asset and liability management during the period which together with cost efficiencies offset the impact of decreased new business sales as a direct result of recent Budget announcements.

1.3 Business segment performance continued

1.3.1 UK and Europe continued

EEV operating profit

UK and Europe EEV operating profit after tax was lower at £204m (H1 2013: £231m), reflecting the impact of lower new business sales of institutional pensions in the period combined with ongoing impact of lower sales of annuities and an increasing proportion of sales being attributable to lower margin corporate pensions business. There was an EEV non-operating profit impact in the period arising from the £160m provision to reflect future restrictions in the charges on the qualified workplace pension schemes as a result of the recent regulatory changes announced by the DWP. Whilst the £160m EEV provision reflects the impact on future profit from an expected reduction in income, we anticipate the related ban on commission and other changes in market practice to have an offsetting benefit, resulting in no significant net impact on our cash generation in the next few years.

Operating return on equity

UK and Europe operating return on equity of 19.8% (H1 2013: 17.3%) reflects a £16m increase in operating profit after tax to £157m (H1 2013: £141m).

Assets under administration and net flows

	Net flows		AUA
	H1	H1	30 Jun	31 Dec
	2014	2013	2014	2013
	£bn	£bn	£bn	£bn
UK retail new fee business	1.5	1.6	36.2	33.8
UK retail old fee business	(1.1)	(1.3)	33.0	33.5
UK retail fee business	0.4	0.3	69.2	67.3
Corporate pensions	0.9	0.5	29.9	29.2
UK retail and corporate fee business	1.3	0.8	99.1	96.5
Institutional pensions	0.7	1.9	26.8	25.3
Conventional with profits	(0.5)	(0.7)	2.5	2.9
Europe fee	0.7	0.5	17.1	16.1
Total fee business	2.2	2.5	145.5	140.8
UK spread/risk	(0.4)	(0.3)	14.7	14.6
Europe spread/risk	-	-	0.6	0.5
Assets not backing products	-	-	6.2	5.7
Total UK and Europe	1.8	2.2	167.0	161.6

UK and Europe AUA increased by 3% to £167.0bn. Fee based business AUA, which accounts for 87% of total AUA, increased by 3% to £145.5bn due to a combination of net inflows and favourable market movements.

In the UK, net flows into our new style retail propositions remained stable at £1.5bn, with an increase of 7% in gross inflows to £3.1bn (H1 2013: £2.9bn) being offset by higher redemptions of £1.6bn (H1 2013: £1.3bn).

Continued activities to improve retention in our older style UK retail business led to a 15% reduction in net outflows and whilst AUA decreased by 1% in the period the business continues to benefit from ongoing increments, transfers of former workplace customers and favourable market movements. We continue to engage with customers with maturing policies or who are approaching retirement to ensure they are aware of their options, with many choosing to continue to save with us.

UK corporate pension AUA increased by £0.7bn or 2% to £29.9bn. Net inflows increased by 61% to £860m (H1 2013: £534m) with our success in securing new schemes and the positive impact of auto enrolment largely reflecting the success of our Good to Go propositions. We continue to work closely with employers, including SMEs with upcoming auto enrolment staging dates, to ensure that their schemes are compliant with all of the changing requirements associated with pension reform and the newly introduced pensions cap requirements.

UK institutional pensions AUA managed by Standard Life Investments increased by 6% to £26.8bn, benefiting from favourable market movements and net inflows of £0.7bn (H1 2013: £1.9bn).

UK spread/risk business AUA increased to £14.7bn (FY 2013: £14.6bn), as the effects of the changes to annuities regulations following the Budget announcement impacted our new annuity sales. It will take some time before long-term trends become clear and whilst a smaller proportion of our customers with small pots are still choosing to annuitise with us, many are instead choosing to defer their decisions.

In our Europe business, fee based AUA grew by 6% to £17.1bn (FY 2013: £16.1bn), driven by net inflows and favourable market movements. Sales and inflows continue to build, driven largely by the quality of our investment propositions and strong relationships with brokers.

Our business model

We have strategically positioned ourselves across the value chain, providing retail, workplace and direct customers with innovative propositions and investments solutions managed by Standard Life Investments including MyFolio funds and Standard Life Wealth's discretionary fund management. Our business model also benefits the wider Group in generating additional revenue margins.

Increasing assets with continued growth in fee business assets

· Total platform AUA increased by 28% to £21.5bn (H1 2013: £16.8bn) with Wrap AUA up 31% to £18.6bn (H1 2013: £14.2bn)

· In Q1 our Wrap platform became the first fully unbundled major advised platform to both new and existing business. The number of adviser firms on our Wrap platform has increased by 8% to 1,286 (H1 2013: 1,192), while the number of adviser firms with assets on Wrap of at least £20m has increased by 28% to 245.

· Auto enrolment continues to progress well with 1,237 implementations completed in the first half of the year (H1 2013: 51), securing access to flexible savings and investment options for 173,000 new employees (H1 2013: 98,000). Contribution levels and opt-out experience at below 10% continues to be in line with our expectations.

· Our market leading SIPP proposition continues to grow with an increase in customers of 26% and AUA up 14% to £24.5bn

(H1 2013: £21.5bn)

· Our distribution arrangement with RBS Group for private banking customers continues to grow and RBS is now our largest Wrap customer by assets

· In June 2014 we joined forces with Barclays to launch the fully integrated online auto enrolment solution Barclays Auto Enrolment Advantage to fulfil the need of small companies who have little time or resources to comply with their auto enrolment obligations

· Strong relationships with our brokers, and our market commitment continues to strengthen our reputation and profile in Germany. Our Maxxellence Invest product in particular continues to grow, attracting over £42m of assets (H1 2013: £21m) since launch.

Maximising revenue - meeting demand for auto enrolment and well positioned across the value chain

· We have successfully negotiated with 14 leading fund management groups to offer advisers on our Wrap platform access to more than 290 discounted clean funds, providing fair and transparent pricing to customers. This represents £10.3bn of assets on our platform.

· Our MyFolio risk based funds range, managed by Standard Life Investments continues to secure investment margin for the Group. This popular investment solution makes investment choices simple and flexible for customers and has attracted £4.8bn of AUA (H1 2013: £3.1bn).

· We have secured 1,018 new schemes (H1 2013: 60), helped by the launch of Good to Go Express, a simplified version of our successful six minute auto enrolment solution for SMEs expanding our range of workplace propositions to appeal to an even greater number of employers

· We welcome the freedom afforded to customers by the recent changes to the pensions regime and believe we are well placed to assist customers in making good, well informed decisions about their financial futures. We have been leading the way in engaging with customers up to and at the point of retirement for some time, with our communications and roadshows starting some 10 years before retirement.

· We have seen many customers with pension pots exceeding £30,000 defer their retirement decision. Longer term we expect a growing proportion of our customers to choose to go into drawdown. We have a range of investment solutions to allow our customers to manage market volatility in retirement including Standard Life Investments' market leading range of absolute return funds and MyFolio funds. Our market leading drawdown proposition already exceeds £10.0bn of AUA.

· In Ireland we continue to lead the market in investment bonds with new business sales up 26% to £111m (H1 2013: £88m) with the launch of our five new MyFolio market funds proving to be very popular with retail investors. In Q1 the strength of our investment offering was recognised by the Irish advisor market through the Irish Brokers Association Investment Performance Award.

Lowering unit costs through automation and greater operational efficiency

· We are successfully delivering operational efficiencies and scale through our automated auto enrolment solutions with acquisition costs per member falling as interaction with customers continues to shift towards online solutions and self-servicing. 79% of auto enrolment opt-outs have been processed without any manual or customer service representative interaction.

· Our new direct ISA on Wrap was launched on 24 February offering a simpler new online journey to customers. To date 94% of secured new ISA cases are invested in Standard Life Investments funds. This new customer friendly journey has seen 70% of cases written online using straight through processing contributing to a saving of significant hours of customer service representative processing time.

· We expect to continue to deliver further unit cost reductions through automation and greater operational efficiencies and anticipate that our innovative online Good to Go auto enrolment propositions will continue to help us realise these as we approach further key staging dates across the rest of 2014 and 2015 at a time when the industry is facing possible capacity constraints

· Providing our customers with high quality service remains one of our key priorities and we have continued to invest in both the quality and efficiency of our customer service operations and online operations, launching our webchat functionality in May this year. We continue to maintain a downward trend in unit costs whilst ensuring that our UK business remains equipped to meet future growth demands.

1.3 Business segment performance continued

1.3.2 Standard Life Investments

Financial highlights¹

	H1 2014	H1 2013	Movement
Operating profit before tax	£104m	£95m	9%
Operating return on equity	43.8%	60.5%	(16.7% points)
Earnings before interest, tax, depreciation and amortisation (EBITDA)²	£107m	£97m	10%
EBITDA margin²	35.3%	38.5%	(3.2% points)
Third party assets under management (AUM)	£108.0bn	£102.4bn³	5%
Total assets under management	£195.1bn	£189.1bn³	3%
Third party net inflows	£4.2bn	£7.4bn	(43%)

¹ From 1 January 2014, Standard Life Wealth is reported as part of Standard Life Investments, previously it was reported in UK and Europe. Comparatives have been restated.

² EBITDA and EBITDA margin are key performance metrics for the investment management industry. These have replaced EBIT and EBIT margin metrics as management believes they are more reflective of the day to day performance of the business.

³ Comparative as at 31 December 2013.

Strategic overview

Standard Life Investments is a leading global active asset manager with an expanding global reach. Our 'Focus on Change' investment philosophy lies at the heart of our wide range of investment solutions and is backed by disciplined risk management and a shared commitment to a culture of investment excellence. This has proved itself to be robust and repeatable in both good and challenging market conditions. We have an unbroken record of positive annual net inflows since inception and a strong track record of profitable organic growth. Earnings before interest, tax, depreciation and amortisation have a compound annual growth rate over the last seven years of 16%.

We continue to expand our range of investment solutions, including developments in multi-asset portfolios and fixed income markets. We also continue to broaden the diversity of our AUM with £2.4bn (57%) of third party net inflows coming from outside the UK, including £0.9bn from the US. At a channel level, £2.6bn (62%) of the third party net inflows came from the higher margin wholesale distribution channel.

We will continue to leverage our investment expertise and work closely with the wider Standard Life Group, where the inclusion of Standard Life Investments product capability within Group products has been successful, and with our strategic partners including Sumitomo Mitsui Trust Bank in Japan, HDFC in India and John Hancock in the US, while exploring and capitalising on further global distribution opportunities.

Our 'Focus on Change' investment philosophy continues to drive our investment processes, delivering strong performance with 87% of third party AUM funds ahead of benchmark over one year, 89% ahead over three years and 91% ahead over five years. We play a leading role in governance and stewardship. Strong corporate governance along with responsible stewardship of a business' assets, employees, customers and environment has a fundamental impact on long-term investment returns. During H1 2014, we voted at 1,217 shareholder meetings and undertook 374 Environmental, Social and Governance engagements, promoting high standards of governance and stewardship.

Standard Life Investments is the first designated Worldwide Partner in the history of the Ryder Cup, extending our brand reach and building our global growth strategy. The Ryder Cup's heritage, values and strong team ethos are an excellent match to Standard Life Investments' core beliefs and ambition.

On 1 July 2014 Standard Life Investments successfully completed the acquisition of Ignis Asset Management Limited from a subsidiary of Phoenix Group Holdings for a purchase consideration of £390m, subject to finalisation of the completion process. The consideration was settled in cash from Standard Life Group's existing internal resources. The acquisition of Ignis Asset Management Limited complements Standard Life Investments' strong organic growth and strengthens our strategic positioning. It deepens our investment capabilities, broadens our third party client base and reinforces foundations for building a business in the rapidly developing liability aware market. As part of the transaction, Standard Life Investments entered into a strategic alliance with Phoenix through which Standard Life Investments will provide asset management services to Phoenix's life company subsidiaries, including the potential to manage future books of assets that Phoenix may acquire.

Market update

A moderation in global growth during the first quarter of 2014 has failed to dampen expectations that the major economies will continue to improve. In the US, the Federal Reserve has begun to reduce its bond buying programme but the overall position of policymakers remains supportive. Developed equity markets have recently hit new highs, driven by improved earnings and a revival in merger and acquisition activity. More surprisingly, global bond yields have not reacted to the better economic data, with yields falling significantly in H1 2014. However, with Federal Reserve asset purchases set to finish in the autumn, spare capacity being eroded and inflation gradually beginning to rise; this trend could prove short lived. Although many investors still sought income opportunities in a world of low interest rates, they also increasingly began to look for sustainable earnings and growth opportunities in equities and commercial real estate.

Confidence among institutional clients continues to grow and strong inflows have also been recorded across the global wholesale market. The advantages of our strategic positioning have been reflected in Standard Life Investments' ability to attract flows across a range of higher margin products through a broad suite of investment solutions, continuing product innovation and expanding geographic reach.

The recent regulatory change regarding pension decumulation, where pensioners will no longer be compelled to convert their defined contribution pension into an annuity, presents opportunities in the multi-asset and absolute return space.

Profitability

Operating profit before tax	H1 2014	H1 2013
	£m	£m
Fee based revenue	303	252
Maintenance expenses	(210)	(170)
Share of joint ventures' and associates' profit before tax	11	13
Standard Life Investments operating profit before tax	104	95
Interest, depreciation, amortisation and exchange rate movements¹	3	2
EBITDA	107	97

¹Excludes amortisation of intangibles acquired in business combinations which is excluded from operating profit before tax.

Operating profit before tax increased by 9% to £104m. EBITDA increased by 10% to £107m, with a 3.2% point fall in EBITDA margin to 35.3%. Excluding the impact of Standard Life Wealth and after adjusting to reflect constant currency in India, Standard Life Investments EBITDA grew by 13%, with an EBITDA margin of 38.2% (H1 2013: 38.5%). Following the acquisition of Ignis Asset Management Limited, Standard Life Investments is targeting an enhanced EBITDA margin of 45% by 2017.

Results for Standard Life Wealth are now reported as part of Standard Life Investments. This follows the acquisition of the private client division of Newton Management Limited in September 2013, which created a deeper operational and investment link between Standard Life Wealth and Standard Life Investments. We believe that there are substantial opportunities to accelerate the growth of Standard Life Wealth by utilising Standard Life Investments' infrastructure, expertise, distribution and global footprint. Revenue generated by Standard Life Wealth increased from £8m in H1 2013 to £20m in H1 2014 at a revenue yield of 69bps (FY 2013: 68bps).This increase includes the impact on revenue following the acquisition of the private client division of Newton Management Limited. Costs in Standard Life Wealth increased from £6m in H1 2013 to £18m in H1 2014, driven by an increase in the number of permanent employees to 120 at 30 June 2014 (30 June 2013: 45), as a consequence of the acquisition of the private client division of Newton Management Limited.

The key highlights were:

· Fee based revenue increased by 20% to £303m. This reflected the shift in mix towards higher margin products such as UK mutual funds and multi-asset investment solutions. The changing mix helped to increase the revenue yield on third party AUM to 47bps (FY 2013: 45bps). This increase includes the benefit to revenue following the acquisition of the private client division of Newton Management Limited in September 2013.

· Maintenance expenses increased to £210m reflecting the investment in growing the business and diversifying our sources of revenue both geographically and by product category. We have expanded our geographical footprint and invested in our operational and technology infrastructure while maintaining control of our cost base. This is reflected in the number of employees based in our overseas offices, which increased by 12% compared to H1 2013. The costs also take into account the increased scale of our Wealth business following the acquisition of the private client division of Newton Management Limited.

· HDFC Asset Management, our associate business, remains the largest mutual fund provider in India and contributed £11m (H1 2013: £13m) to operating profit before tax. This reduction is mainly due to the weakening Rupee against Sterling.

Operating return on equity

Operating return on equity fell to 43.8% (H1 2013: 60.5%), reflecting the inclusion of the acquired private client division of Newton Management Limitedin the results for the first time. The strong result continues to reflect the profitability of our business and an efficient capital base.

Investment performance

Strong growth in the first half of 2014 was underpinned by excellent money weighted average investment performance. 87% of third party AUM funds were ahead of benchmark in the year with 89% ahead over 3 years and 91% over 5 years. Fixed income funds continued to perform strongly, with 100% of funds ahead of benchmark at 1 year. Our suite of multi-asset funds have outperformed their cash benchmark over all longer term time periods since inception.

Assets under management and net flows

We remain focused on meeting the needs of existing clients and securing new business backed by consistently strong investment performance, product innovation, high levels of client service and an expanding global distribution capability.

Third party net inflows continued to be strong at £4.2bn (H1 2013: £7.4bn) amounting to an annualised 8% of opening third party AUM. This continued our unbroken record of positive annual net inflows since inception. Standard Life Wealth continues to develop and aims to gain momentum in the market place, with net inflows of £nil in H1 2014 (H1 2013: £0.3bn), an initial consequence of the acquisition of the private client division of Newton Management Limited.

1.3 Business segment performance continued

1.3.2 Standard Life Investments continued

Third party AUM increased to a record £108.0bn (FY 2013: £102.4bn) representing 55% of total AUM (FY 2013: 54%). In-house AUM increased to £87.1bn (FY 2013: £86.7bn). As a result, total AUM reached a record £195.1bn (FY 2013: £189.1bn).

Inflows during H1 2014 reflected the diverse nature of our product offering, our expanding global distribution capability and the increasingly international nature of our client base. Assets under management generated from sales in our Boston office broke through $8bn (£4.7bn), with strong net inflows in H1 2014 at £0.9bn (H1 2013: £1.4bn). At an asset class level, we saw a broad mix of net inflows into equities, multi-asset, real estate and cash. In the UK and Europe we increased the institutional client base by 8%.

Our UK wholesale retail business continued to perform well with net inflows into our range of UK mutual funds in H1 2014 at £1.3bn (H1 2013: £1.8bn) and represented a rolling 12 month market share of gross sales at 4.7% (FY 2013: 4.9%). Flows have been strong in MyFolio, equities, real estate and multi-asset strategies.

Our pipeline of institutional business continues to see fixed income, real estate and multi-asset propositions attract considerable interest, increasingly from outside the UK. Two large mandates, totalling approximately £2.3bn, will disinvest in Q3 2014. Due to the very low revenue margin on these mandates (c.4bps) we expect a negligible impact on our profitability. Demand for our mutual funds in the UK and for our SICAV funds in continental Europe and Asia Pacific remains strong.

Our business model

Increasing assets with record third party AUM

· Achieved record third party AUM of £108.0bn driven by third party net inflows of £4.2bn

· Standard Life Wealth contributed AUM of £5.9bn (FY 2013: £5.8bn)

· Assets managed in our Boston office now exceed $22bn in equities, fixed income and real estate

· Our share of the wholesale market in the UK remains strong, with gross sales of 4.7% (2013: 4.9%). UK mutual funds AUM increased by 6% to £20.0bn and represent 19% of third party assets.

· Developing our multi-asset portfolio of products which comprises our suite of global absolute return strategies and balanced funds including the recent launch of the Global Focused Strategies fund

· Global Equity Unconstrained fund broke through the £100m mark. The fund has produced top decile performance in its sector over six months, one and five years, and sits in the twelfth percentile over three years.

· Strong pipeline of new investment initiatives which positions us well to continue to meet the changing demands of our clients through new and innovative investment solutions.

Maximising revenue with continued shift in product mix towards higher margin propositions

· Sales of higher margin products enabled us to broadly maintain the revenue yield on our third party gross sales at 51bps (FY 2013: 53bps) resulting in the average revenue yield on third party assets increasing to 47bps (FY 2013: 45bps)

· Continued to collaborate across the Group to maximise the Group's share of the value chain, for example our market-leading range of MyFolio risk based funds, used extensively within the long-term savings and investments businesses, remains very popular with AUM of £4.8bn

· Short Duration Credit fund was launched in 2014 to take advantage of investment demand for funds with less vulnerability to a rise in interest rates.

Investing to extend geographical footprint and support future growth

· Maintenance expenses expressed as a proportion of average total AUM were 21bps (FY 2013: 20bps). This reflects the ongoing development of our investment capability and expanding distribution and geographic reach.

· Continued investment to extend our geographical footprint with expansion in Boston and Hong Kong

· Investment in core operational and technology infrastructure to support future growth

· Ongoing management of costs, combined with expansion in revenue margins, has resulted in a 16% compound annual growth in EBITDA over the last seven years.

1.3.3 Canada

Financial highlights

	H1 2014	H1 2013	Movement
Operating profit before tax	£69m	£59m	17%
Operating return on equity	9.5%	7.5%	2.0% points
Assets under administration	£28.3bn	£27.4bn¹	3%
Net flows	£257m	£54m	376%
EEV operating profit after tax²	£112m	£107m	5%

¹ Comparative as at 31 December 2013.

² EEV operating profit is now disclosed on an after tax basis, comparatives have been restated.

Strategic overview

We continue to help our customers fight financial inertia, look forward to their financial future with confidence and take action. We are growing our fee business by capitalising on opportunities created by current market changes and demographic trends. We continue to position ourselves with innovative retirement and investment solutions as well as exceptional levels of customer service.

We are leveraging our pension expertise to bring employer and individual member solutions through innovation in technology and a comprehensive investment platform. We continue to engage directly with corporate pension members making it easier for them to consolidate their assets on our investment platform. We are meeting the growing needs of customers in Canada to diversify their investment strategies globally by leveraging the expertise and worldwide investment management capabilities of Standard Life Investments. Our highly ranked retail sales team is providing advisers with solutions addressing customer needs for income and security, including through our market-leading retail segregated funds offering. We continue to focus on maximising the value of spread business by improving its profitability, capital allocation efficiency and reducing our risk exposures. Technology is helping us to further improve our customer proposition and achieve greater cost efficiencies in our business.

Market update

Strong upward trends in domestic and international equity markets are encouraging higher equity allocations among investors in Canada and our retail business is well positioned with a complete suite of global and Canadian investment funds and solutions aiming to meet the evolving needs of customers.

The Canadian Government began consultations on potential Target Benefit Pension Plans for federally registered businesses and Crown corporations. The new options would encourage employers to offer employees a workplace pension plan with a predictable pension for retirement. We continue to engage with policy makers and employers to develop propositions that meet our customers needs. We expect that demand for innovative retirement solutions will increase with the continued shift away from defined benefit pension plans, particularly by private sector employers.

Defined benefit plan funding is improving and employers are now in a position to take action aimed at reducing the volatility and risk posed by unfunded liabilities of their plans. In January 2014, the Mercer Pension Health Index confirmed that the solvency ratio was at its highest level since June 2001 due to strong equity returns and rising long-term interest rates. Our business is well placed to meet customer demand for pension de-risking and we have developed solutions and communication tools to facilitate hybrid or full defined benefit to defined contribution transition.

The Canadian federal government has named its first Financial Literacy Leader, a position aimed at helping Canadians to be fully equipped with the knowledge and skills necessary to make responsible financial decisions. We strongly believe that financial literacy is a critical issue that must be tackled on many fronts and we support a variety of financial literacy programs across the country such as Junior Achievement of Canada.

The Canadian Dollar to Sterling average exchange rate at H1 2014 has weakened by 14% since H1 2013, reducing reported sterling operating profit significantly. In addition, the closing rate has weakened by 3% since 2013 impacting AUA.

1.3 Business segment performance continued

1.3.3 Canada continued

Profitability

Operating profit before tax

	H1 2014	H1 2013
	£m	£m
Fee based revenue	99	95
Spread/risk margin	103	114
Total income	202	209
Acquisition expenses	(33)	(37)
Maintenance expenses	(108)	(125)
Capital management	8	12
Canada operating profit before tax	69	59

Analysis of Canada operating profit before tax
	H1 2014	H1 2013
	£m	£m
Underlying Canada performance	69	68
Operating assumption and actuarial one off reserving changes (Spread/risk margin)	-	(9)
Canada operating profit before tax	69	59

Operating profit before tax increased by 17% (37% in constant currency) to £69m (H1 2013: £59m) mainly due to strong fee business contribution. Underlying performance increased by 1% (18% in constant currency) to £69m (H1 2013: £68m).

The key movements in operating profit were:

· Fee based revenue increased by 4% (21% in constant currency) to £99m mainly from higher average AUA and new business inflows which offset negative impact of exchange rate movements

· Spread/risk margin revenue decreased to £103m due to adverse exchange rate movements. In constant currency, spread/risk margin increased by 4%. Ongoing regular management actions to enhance the investment yields on assets contributed £15m (H1 2013: £20m). H1 2014 had a neutral impact from actuarial reserving changes (H1 2013: loss £9m).

· Acquisition expenses decreased by £4m to £33m due to exchange rate movements. On a constant currency basis, acquisition expenses increased by 4% as a result of staff costs inflation and higher sales volumes.

· Maintenance expenses decreased by £17m to £108m. On a constant currency basis, maintenance expenses were stable as cost savings initiatives were offset by increased investment to support growth. Maintenance expenses as a proportion of average AUA improved to 84bps (FY 2013: 88bps).

· Capital management decreased by £4m due to lower returns following de-risking and lower average corporate surplus assets following the payment of dividends to the holding Company.

EEV operating profit after tax

EEV operating profit after tax increased to £112m (H1 2013: £107m) mainly due to favourable expense experience and a decrease in regulatory capital.

Operating return on equity

Operating return on equity increased to 9.5% (H1 2013: 7.5%) reflecting growth in operating profit and a lower capital base.

Assets under administration and net flows

Total AUA increased by 7% in constant currency to £28.3bn reflecting net inflows into our fee propositions and favourable market movements. Fee business AUA increased by 10% in constant currency to £18.3bn benefiting from continued growth in net inflows into retail segregated funds as well as favourable market movements. Net inflows into fee based propositions of £364m were 77% higher in constant currency (H1 2013: £238m), driven by retail segregated funds. Spread/risk AUA increased by 4% in constant currency to £8.5bn as a result of the combination of favourable market movements, partly offset by scheduled annuity payments.

Net flows		H1 2014		H1 2013
			£bn	£bn
Corporate pensions fee	F		0.1	0.1
Corporate pensions spread/risk	S/R		(0.1)	(0.1)
Corporate pensions			-	-
Corporate benefits	S/R		-	0.1
Retail fee	F		0.3	0.1
Retail spread/risk	S/R		-	(0.1)
Total Canada			0.3	0.1
Fee business			0.4	0.2
Spread/risk business			(0.1)	(0.1)
Total Canada			0.3	0.1

Our business model

We look to further enhance our market position and strengthen our relationships with customers and partners through innovative solutions helping Canadians achieve their long-term savings and investment goals.

Increasing assets with market-leading segregated funds

Corporate

· We have enhanced our Advantage Program to allow members who are no longer with their employer or are retiring to continue to enjoy many benefits of a group retirement plan

· We continue to help our customers transition to retirement with our Member Financial Services Centre showing good traction, with over £110m of net inflows. This dedicated team focuses on delivering retirement income planning services to corporate pension members by proactively contacting members a few years before their planned retirement date.

· We are meeting our customers' needs with the delivery of a new self-serve reporting tool available through our electronic platform. The added capabilities have been well received with 30% average increase in daily report generations.

· We are positioning ourselves to meet the specific needs of small and medium enterprises. Our Pension in a Box proposition, launched at the end of 2013, continues to see good traction, contributing approximately 7% of our corporate pension sales. We are well placed for the first phase of the Voluntary Retirement Savings Plans (VRSPs) that will include mandatory auto enrolment for Quebec-based businesses with more than five employees.

· Our Health Management Solutions roadshow continued to be a good opportunity to further consolidate our leadership position in comprehensive and integrated health provisioning. We also had the chance to showcase our mobile features to our customers.

· We have concluded a strategic alliance with a leading payroll and human resource management services provider to integrate payroll solutions helping small and medium-sized businesses gain easy and efficient access to Pooled Registered Pension Plan and VRSP

· We have added 17 new funds to our Quality and Choice platform to provide customers with a wider choice of fixed income funds to navigate through the expected rising interest rate environment.

Retail

· Our market-leading Canadian retail segregated funds offering have had strong net inflows, increasing 70% in constant currency

· We continue to expand our mutual funds offering with new product launches. In H1 2014, we launched the Emerging Markets Dividend fund and Emerging Markets Debt fund managed by Standard Life Investments.

· The Global Absolute Return Strategies fund was made available for registered retail accounts further helping our customer to diversify their retirement investments

· Global funds managed by Standard Life Investments are helping us re-engage with advisors in the banks advisor channel. As at 30 June 2014, we added 503 new advisors offering their customers Standard Life products.

Maximising revenue by growing fee business and leveraging Standard Life Investments global expertise

· The average revenue yield on our fee business increased to 115bps (FY 2013: 113bps) due to strong new business inflows

· We are securing a greater proportion of the value chain and driving future revenue growth by working closely with Standard Life Investments on distributing global investment products through our retail investment funds offering.

Lowering unit costs by investing in technology to support growth

· Acquisition expenses as a proportion of PVNBP sales improved by 45bps to 218bps (FY 2013: 263bps) due to the impact of higher sales in the period

· We remain committed to providing our customers with high quality services and will continue to invest in technology to position our business to meet future demand.

1.3 Business segment performance continued

1.3.4 Asia and Emerging Markets

Financial highlights

	H1 2014	H1 2013	Movement
Operating profit/(loss) before tax	£6m	(£1m)	n/a
Operating return on equity	7.1%	(1.6%)	8.7% points
Assets under administration	£2.1bn	£1.9bn¹	11%
Net flows	£151m	£164m	(8%)
EEV operating profit after tax²	£20m	£11m	82%

¹ Comparative as at 31 December 2013.

² EEV operating profit is now disclosed on an after tax basis, comparatives have been restated.

Strategic overview

Our Asia and Emerging Markets business consists of wholly owned operations in Hong Kong, Singapore and Dubai, and life joint ventures in India and China.

A key area of focus for the wholly owned business in 2014 is to develop new propositions to meet the needs of our wide range of customers. This requires a refinement of our operational model beyond the current regulatory and market practice and is expected to promote transparency and create a more sustainable business.

The life joint venture business in India, HDFC Life, continues with a strategic focus of meeting the needs of the customer and improving customer experience. In distribution, we continue to strengthen existing relationships while building on the recent growth of alternative channels such as direct and online, in which our joint venture business is a market leader. In China, Heng An Standard Life continues to focus on achieving sustainable growth by offering customers a range of long term assurance solutions and through expanding its targeted distribution channels.

The Asia Advisory Board (AAB) established in 2013, continues to provide guidance and support for all our business across Asia and further opportunities for greater collaboration continue to be explored.

Market update

The economic outlook is positive in Hong Kong, Singapore and Dubai. In Hong Kong, the regulatory landscape continues to evolve and in June 2014, we launched our Harvest Elite product which not only complies with new regulations, but also supports our strategic focus of increasing transparency for our customers.

The Monetary Authority of Singapore (MAS) continues to strengthen the regulatory framework in Singapore and whilst the final requirements following the Financial Advisory Industry Review (FAIR) are still to be announced, we believe our business is well placed to respond. In Dubai, we continue to work with the local regulator to better understand the requirements of new and revised regulations.

The life insurance markets in India and China continue to provide us with attractive opportunities in terms of scale and potential. In India, following the results of the recent elections there is optimism that a stable central government will be able to pursue a shared economic agenda to address India's macroeconomic challenges. This coupled with a growing working population and increasing wealth should continue to drive demand for financial services in India. Also, the life insurance penetration and density rates in India are relatively low and this provides the market with promising growth potential. With HDFC Life's strong market position and brand the management team feel that they are well positioned to benefit from future growth in the insurance market. We continue to monitor developments in respect of foreign direct investment rules in India.

The Chinese economy is showing signs of stabilising after a relatively weak start to the year, a sign that the government's recent policy changes have started to have an impact. The life assurance sector has seen stable growth in premium sales in H1 2014. The local regulator has recently issued guidelines covering investment and bancassurance which are aimed at allowing insurance companies to better manage their risks and enhancing customer protection. Details on new solvency regulations for Chinese insurance companies are expected to be released during the second half of 2014 with the implementation date currently anticipated to be 1 January 2016.

Profitability

Operating profit/(loss) before tax

Operating profit/(loss) before tax	H1 2014	H1 2013
	£m	£m
Fee based revenue	29	27
Acquisition expenses	(7)	(10)
Maintenance expenses	(25)	(23)
Total wholly owned	(3)	(6)
India and China JV businesses	9	5
Asia and Emerging Markets operating profit/(loss) before tax	6	(1)

Operating profit before tax is £6m (H1 2013: loss £1m):

· Fee based revenue increased by 7% (16% in constant currency) resulting from growth in new business sales

· Total expenses decreased by 3%, however increased by 6% in constant currency reflecting the increased investment in expanding our business into Singapore and Dubai

· The joint venture businesses'operating profit increased to £9m (H1 2013: £5m) benefiting from improved underlying performance and including one off items of £3m following modelling changes.

EEV operating profit after tax

Total EEV operating profit after tax increased to £20m from £11m in H1 2013. The wholly owned businesses recorded a total EEV operating loss after tax of £3m (H1 2013: loss £3m). EEV operating profit after tax in our joint venture businesses increased to £23m (H1 2013: £14m), including a 27% increase in new business contribution.

Operating return on equity

Operating return on equity for our total Asia and Emerging Markets operations was a positive return of 7.1% (H1 2013: negative return of 1.6%) due to improved operating profit before tax.

Assets under administration and net flows

AUA in the wholly owned businesses increased by 17% in constant currency to £340m, with net inflows increasing to £48m (H1 2013: £39m) driven by increased new business sales.

AUA in the joint venture businesses increased by 13% to £1.8bn (2013: £1.6bn) mainly due to net inflows of £103m (H1 2013: £125m). On a constant currency basis, net inflows in India were broadly in line with H1 2013. In China, net inflows were lower compared to the prior period mainly due to the reduction in sales of low margin single premium business.

Our business model

Increasing assets with enhanced propositions

· In Hong Kong, the Harvest Elite product was launched on 1 June. This further enhances our brand as we continue to deliver more customer focused features supported by our new online goal-based planning tools.

· Following the first anniversary of the opening of our branches in Singapore and Dubai, the asset base continues to grow

· HDFC Life continues to lead the private market in terms of net flows. During the financial year ended 31 March 2014 its net inflows exceeded the six nearest competitors combined. It has also made a strong start to this year ranking number one by gross sales in the private market.

Maximising revenue with growth in new business and continued diversification of revenue

· Revenue for our wholly owned business increased by 7% (16% in constant currency), reflecting strong growth in new business sales, including an increased contribution from Singapore and Dubai

· HDFC Life continues to deliver strong net inflows as it focuses on improving customer experience.

Lowering unit costs with focus on cost efficiencies

· The wholly owned business is now starting to benefit from cost efficiencies following the establishment of the shared function hub in Hong Kong

· HDFC Life's operating expenses as a proportion of premiums received continue to decline and compare favourably among its peer group.

1.4 Principal risks and uncertainties

Our strategic objectives and our performance against them are subject to a number of financial and non-financial risks. The table below sets out the principal risks and uncertainties that affect our business model. Further detail on our risks and our management of these risks is included in Note 3.12 - Risk management.

Find out more about some of the terms used in this report in the glossary.

Changes in our principal risks and uncertainties

Our principal risks and uncertainties have remained broadly stable during 2014.

Looking ahead we anticipate this trend will continue although increasing regulatory and legislative change may be expected and risks relating to change management are likely to increase reflecting the integration activity that will be undertaken following our acquisition of Ignis Asset Management Limited.

Principal risks and uncertainties

Adverse fluctuations in financial markets impacts our fee and spread based business and our optimisation of the balance sheet

Counterparty failure impacts our fee and spread based business and our optimisation of the balance sheet

Impact

Fee based business - adverse fluctuations in financial markets could cause AUA to decrease in value resulting in reduced fee based revenue.

Spread business - adverse fluctuations in financial markets could cause the value of financial assets and financial liabilities in the spread business, or the value of cash flows relating to these, to fluctuate by different amounts. This could result in net losses and an increased capital requirement. The business in Canada is particularly impacted by this risk as there are insufficient long-dated fixed income assets to match the longest dated liabilities.

Optimisation of the balance sheet - adverse fluctuations in financial markets could cause a fall in the value of assets held to back shareholders' equity and subordinated debt that has been issued.

Fee based business - losses arising from counterparty failure could cause AUA to decrease in value resulting in reduced fee based revenue.

Spread business - the business holds cash and cash equivalents, debt securities and commercial mortgages to back liabilities. The business also engages in derivative and reinsurance transactions. This exposes the business to the risk of loss from the failure of one or more of these counterparties.

Optimisation of the balance sheet - in optimising the balance sheet, cash is held for liquidity purposes, debt securities are held to back subordinated debt and derivatives are used for hedging purposes. These activities result in exposure to possible losses from counterparty failure.

Risk mitigation and management

· We continue to employ a combination of cash flow and duration matching techniques when determining the investment portfolio to back liabilities in the spread business. In Canada the focus is on cash flow matching over the short term and duration matching for the longer term.

· We also use cash flow matching to manage the mismatch in cash flows between our subordinated debt liabilities and the assets backing them

· Hedging is used to reduce our sensitivity to fluctuations in financial markets. This includes managing the level of risk taken within the HWPF in line with Principles and Practices of Financial Management and the need to treat with-profits policyholders fairly, hedging guarantees in our Canadian Segregated Funds and, within certain parameters, reducing currency volatility within the regulatory surplus and the value of dividend receipts from overseas operations.

· We manage the risk of loss from money market and derivative counterparties by using internal credit assessments to determine the credit-worthiness of these counterparties

· The business uses limits by issuer, sector and credit rating in order to manage the risk of loss from the failure of debt security issuers and commercial mortgage borrowers

· Internal credit assessments are also performed for reinsurance counterparties that give rise to material credit exposures to assist in managing the risk of loss from counterparty failure. Counterparty exposures are collateralised where appropriate.

· Where appropriate, the Group will additionally seek to overlay restrictions on exposures arising from specific countries that give rise to credit concerns. Such restrictions were implemented in advance of and during the recent global financial crisis.

Principal risks and uncertainties

Customer demand for our fee based propositions declines or fails to materialise

Adverse experience regarding our longevity assumptions impacts our spread based business

Impact

As a fee based business, increasing AUA is a key component of our business model in order to maximise revenue and drive IFRS profits. This includes assets from retail and workplace customers and institutional clients choosing to place, and keep, their assets with Standard Life.

The main impact of customer demand for our propositions declining or failing to materialise would be that AUA in our fee based business decreases, or fails to increase by as much as planned, resulting in reduced fee based revenue.

Annuities are a major component of our spread business and result in risk due to the inherent uncertainties regarding the occurrence, amount and timing of cash flows that are due to our customers.

The risk particularly arises where current mortality experience differs from that previously expected, there is more volatility in mortality experience than previously expected or the rate of mortality improvements is greater than expected.

Adverse experience in these areas could result in our spread business having larger cash outflows or cash outflows that were not anticipated.

Risk mitigation and management

· We seek to manage the risk that customer demand for our propositions declines or fails to materialise by striving to be a customer focused business providing platforms, business services and investment outsourcing options that are simple, effective and efficient. Standard Life Investments seeks to focus on delivering excellent investment performance across a broad investment spectrum operating through a variety of distribution channels and geographic locations. This helps ensure strong customer demand for our propositions.

· The acquisition of Ignis Asset Management Limited announced in March enhances this by deepening the investment capabilities of Standard Life Investments

· We carefully monitor customer exits and complaints to understand and address potential drivers for poor persistency.

· We currently have a number of reinsurance arrangements in place which reduce the risk and uncertainty in this area by transferring longevity risk to third party reinsurers

· The business also continues to monitor opportunities to implement further reinsurance or capital market transactions to reduce the risk arising in the back-book that has not been reinsured

· We monitor emerging research and guidance on longevity, for example from the UK-based Office for National Statistics, the industry-wide Continuous Mortality Investigation and mortality tables produced by the Canadian Institute of Actuaries. This activity allows the business to anticipate developing trends and allows consideration to be given to further back-book management or pricing changes where new business is being written.

Principal risks and uncertainties

Regulatory and legislative changes adversely impact our risk profile and delivery of our strategy

Uncertainty for our customers and other stakeholders arising from the forthcoming referendum on Scottish independence impacts our business

Impact

The Group's businesses are subject to conduct and prudential regulation and the activities of these businesses are subject to legislation.

Changes in regulations and legislation may result in the introduction of additional requirements that add to the complexity of our business, increase the cost of meeting additional regulatory demands and require additional capital to be held.

Regulatory and legislative changes also have the capacity to impact on our business model through impacting customer demand and preferences for specific propositions, imposing requirements related to our ability to offer certain propositions, the attractiveness of our propositions and the fees we charge our customers for our propositions.

In our 2013 annual report and accounts published on 27 February 2014, Standard Life highlighted a number of material issues which we believed remained uncertain as a result of the Scottish independence referendum which will take place on 18 September 2014.

These are material issues which may have implications for our four million UK customers, our shareholders, our people and other stakeholders in our business, and they include:

· The currency that an independent Scotland
would use

·    Whether agreement and ratification of an
     independent Scotland's membership to the
      European Union would be achieved by the
      target date (currently 24 March 2016)

· The shape and role of the monetary system

·   The arrangements for financial services
      regulation and consumer protection in an
      independent Scotland

·    The approach to individual taxation, especially
      around savings and pensions, as a
     consequence of any constitutional change.

We do not believe that further clarity has been provided on any of these issues since our 2013 annual report and accounts was published on 27 February 2014.

Risk mitigation and management

· As part of our emerging risk process, we actively scan the external environment to identify potential sources of regulatory and legislative change amongst other things. Where we identify potential sources of change we assess the situation and seek to manage any risks and maximise opportunities that arise.

· This meant that when the charge cap for workplace schemes in the UK was introduced in March, we were well placed to help employers respond as we have been developing our pricing for workplace schemes over a number of years

· We aim to mitigate the impact of legislative and regulatory changes by engaging early and constructively in consultations and field testing

· Our exposure to the risks and uncertainties arising from the legislative changes announced in the UK Budget affecting annuities is mitigated by our strategic focus on long term savings and investments and our existing propositions which are designed to meet the needs of customers in decumulation.

We are continuing the development of our contingency plans to ensure continuity of our businesses' competitive position and to protect the interests of our customers and other stakeholders.

Principal risks and uncertainties

Failure of a material outsourcing partner increases our cost base and adversely impacts delivery of our strategy

IT security issues, including the results of cyber-attacks, adversely impacts our operational capability and customer confidence

Failure to execute change adversely impacts our risk profile and delivery of our strategy

Impact

The Group's business model involves reliance on a number of outsourcing partners for the provision of key services including the outsourcing of certain back office functions related to investment management in the UK.

The Group is therefore exposed to the risk that the failure of one or more outsourcing partners results in possible customer or processing disruptions, increased costs from having to perform the activity in-house or in seeking an alternative outsourcing partner to perform the activity. The Group may also suffer delays in establishing the necessary processes to perform the activity in-house or in finding a replacement partner which leads to an inability to conduct business for a period of time.

The systems and processes on which the Group's business model is dependent to serve customers are designed to ensure that the operational risks associated with the Group's activities are appropriately identified and addressed.

IT security issues, including the results of cyber-attacks, could still arise and result in the failure of systems and processes. This may lead to the Group incurring increased costs in implementing responses to the IT security issues. In extreme circumstances it is possible that our ability to conduct business may be impacted for a period of time and customer confidence may be damaged.

The Group runs a significant change programme that seeks to ensure we create shareholder value through being a leading, customer centric business focused on long-term savings and investments. It includes change initiatives that are driven by external factors such as customer demand, market conditions, competitor activity and regulatory and legislative changes. Failure to successfully execute change may adversely impact our risk profile, for example through increased costs where changes have been ineffective or inefficient, and may mean we are unable to deliver our strategy.

Risk mitigation and management

· The Group outsourcing policy defines the standards that the business must comply with to mitigate the risk of entering into inappropriate outsourced contracts and to implement sufficient controls to ensure risk is managed throughout the lifecycle of the arrangement. As part of the Group policy framework, the business is required to confirm and evidence compliance with the standards contained in this policy on a regular basis.

· Policy standards include the requirement to obtain appropriate risk committee approval prior to entering into outsourcing arrangements

· The policy also requires that control procedures are in place to identify and monitor any material risk that the Group is exposed to through the outsource service provider, to take into account failure in the provision of the outsourced services and to establish and maintain an exit plan to facilitate transition of the outsourced services back into the business unit or to another provider.

· We have recently implemented a revised Security Operating Model, recognising that our response to security threats continually needs to adapt. The revised Security Operating Model enhances our detection and response capability across the Group.

· As new threats are developed by organised crime, hacktivists and others, we act to make sure our security model provides effective defence. For example, we responded to the detection of the Heartbleed virus by immediately mobilising our security teams and assessing our resilience to this threat.

· Likewise, as security vendors develop new detective and defensive capability we assess them to see if they meet a need we have

· We have increased the level of assurance we have regarding our IT security and our ability to respond to genuine security events through entering into an arrangement with a third party for the provision of a global managed security service.

· We carry out change risk management as part of our operational risk management framework. This provides a robust and established framework under which businesses are required to identify, assess, control and monitor risks associated with change.

· Solvency 2 represents one area of change that has required careful management for a number of years. Our change risk management approach in this area means we are now well placed to implement the changes expected to come into force on 1 January 2016. Oversight and management of change risks is provided by the Risk and Capital Committee who receive regular updates on external developments and progress towards Solvency 2 implementation.

· The acquisition of Ignis Asset Management Limited is another source of change risk. In order to mitigate this risk, robust governance arrangements have been put in place including a board level committee which provided oversight to the acquisition and continues to provide oversight around the integration.

1.5 Basis of preparation

Overview

Our Strategic report for the period to 30 June 2014 has been prepared in line with the Companies Act 2006 and the Disclosure and Transparency Rules (DTR) issued by the FCA. The DTR incorporates the requirement of the European Union (EU) Transparency Directive for all UK listed companies to report their half year results in accordance with IAS 34 Interim Financial Reporting. Under DTR 4.2.7R, the Group is required to provide at least an indication of important events that have occurred during the first six months of the financial year, and their impact on the financial information, and a description of the principal risks and uncertainties for the remaining six months of the financial year. Principal risks and uncertainties are detailed in Section 1.4 - Principal risks and uncertainties and Note 41 of the Group's annual report and accounts 2013. Under DTR 4.2.8R the Group is also required to make certain related party disclosures. These are contained in Note 3.16 of the IFRS condensed consolidated financial information. To provide clear and helpful information, we have also considered the voluntary best practice principles of the Reporting statement: Operating and Financial Review (OFR) issued by the Accounting Standards Board (ASB).

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

The most important non-GAAP measures in the Strategic report include operating profit, European Embedded Value (EEV) operating profit and EEV operating capital and cash generation. All non-GAAP measures should be read together with the Group's IFRS condensed consolidated income statement, condensed consolidated statement of financial position and condensed consolidated statement of cash flows, which are presented in the IFRS condensed consolidated financial information in Section 3 of this report.

Going concern

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

IFRS 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 Strategic report and in Section 3 have been prepared on the basis of the IFRS accounting policies applied by the Group in the IFRS condensed consolidated financial information section of the annual report and accounts 2013 as amended for new standards effective from 1 January 2014, as described in Note 3.1 - Accounting policies. The EEV basis has been determined in accordance with the EEV Principles and Guidance issued by the Chief Financial Officers (CFO) Forum. The EEV financial results in the Strategic report and in Section 4 have been prepared in accordance with the EEV methodology included in Note 17 to the EEV financial information in the annual report and accounts 2013 and Note 4.1 - Basis of preparation in the half year results 2014.

Group operating profit and EEV operating profit

The H1 2014 reconciliation of consolidated operating profit to IFRS profit for the period, presented in Section 3 of this report, presents profit before tax expense attributable to equity holders adjusted for non-operating items. Further details on the calculation of Group operating profit is presented in the Group accounting policies (jj) - Operating profit in the annual report and accounts 2013. The H1 2014 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.

This information is provided by RNS

The company news service from the London Stock Exchange

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