Half Yearly Report - Part 3 o

RNS Number : 8975W

Standard Life plc

05 August 2009

 



Standard Life plc

Interim Results 2009

Part 3 of 4

Notes to the EEV financial information continued

3.12 Principal economic assumptions - deterministic calculations - 

  covered business continued 

(b) Risk discount rates - in-force business 

At 30 June 2009	UK   HWPF  %	UK  equity holder  owned funds  %	Canada %	Europe  HWPF  %	Europe  equity holder  owned funds  %
Risk margin - in-force business
Risk margin before cost of capital adjustment:
Market risk	1.80	1.50	2.70	1.80	1.50
Non-market risk	1.60	1.50	2.40	1.60	1.50
Total	3.40	3.00	5.10	3.40	3.00
Cost of capital adjustment	-	(0.40)	(1.40)	-	(0.40)
Risk margin after cost of capital adjustment	3.40	2.60	3.70	3.40	2.60
Risk discount rates - in-force business
Risk free	3.72	3.72	3.63	3.39	3.39
Risk margin	3.40	2.60	3.70	3.40	2.60
Risk discount rate1	7.12	6.32	7.33	6.79	5.99

1 Using the value of in-force business as weights, the average risk discount rates for UK and Europe were 6.83% and 6.36% respectively. The weighted average for Europe includes an allowance for SLIL which uses the same risk discount rate assumptions as UK business. 

At 30 June 2008	UK HWPF %	UK  equity holder  owned funds  %	Canada %	Europe  HWPF  %	Europe  equity holder  owned funds %
Risk margin - in-force business
Risk margin before cost of capital adjustment:
Market risk	2.00	2.00	2.30	2.00	2.00
Non-market risk	0.90	1.20	2.20	0.90	1.20
Total	2.90	3.20	4.50	2.90	3.20
Cost of capital adjustment	-	(0.30)	(1.40)	-	(0.30)
Risk margin after cost of capital adjustment	2.90	2.90	3.10	2.90	2.90
Risk discount rates - in-force business
Risk free	5.28	5.28	3.92	4.62	4.62
Risk margin	2.90	2.90	3.10	2.90	2.90
Risk discount rate1	8.18	8.18	7.02	7.52	7.52

1 Using the value of in-force business as weights, the average risk discount rates for UK and Europe were 8.18% and 7.55% respectively. The weighted average for Europe includes an allowance for SLIL which uses the same risk discount rate assumptions as UK business. 

At 31 December 2008	UK HWPF %	UK  equity holder  owned funds  %	Canada %	Europe HWPF  %	Europe  equity holder  owned funds  %
Risk margin - in-force business
Risk margin before cost of capital adjustment:
Market risk	2.00	1.70	2.80	2.00	1.70
Non-market risk	1.60	1.50	2.40	1.60	1.50
Total	3.60	3.20	5.20	3.60	3.20
Cost of capital adjustment	-	(0.30)	(1.70)	-	(0.30)
Risk margin after cost of capital adjustment	3.60	2.90	3.50	3.60	2.90
Risk discount rates - in-force business
Risk free	3.42	3.42	3.07	2.95	2.95
Risk margin	3.60	2.90	3.50	3.60	2.90
Risk discount rate1	7.02	6.32	6.57	6.55	5.85

1    Using the value of in-force business as weights, the average risk discount rates for UK and Europe were 6.78% and 6.20% respectively. The weighted average for Europe includes an allowance for SLIL which uses the same risk discount rate assumptions as UK business. 

At June 2009 market risk margins and cost of capital adjustments have been updated to reflect changes in the mix of business and asset allocation. Non market risk margins are updated once a year, and any changes will be reflected in the full year results. 

The impact of the changes in risk discount rates has been included in the effect of economic assumption changes shown in Note 3.2(a). The amounts within these totals that relate to the changes in risk discount rates are for UK: profit £19m, for 

Europe: loss £7m and for Canada: loss £146m

.                     

(c) Risk discount rates - new business                     

6 months to 30 June 2009	UK  HWPF  %	UK  equity holder  owned funds  %	Canada %	Europe  HWPF  %	Europe  equity holder  owned funds  %
Risk margin - new business
Risk margin before cost of capital adjustment:
Market risk	2.10	1.80	1.70	2.10	1.80
Non-market risk	0.40	1.50	1.90	0.40	1.50
Total	2.50	3.30	3.60	2.50	3.30
Cost of capital adjustment	-	(0.40)	(0.40)	-	(0.40)
Risk margin after cost of capital adjustment	2.50	2.90	3.20	2.50	2.90
Risk discount rates - new business
Risk free1	3.42	3.42	3.07	2.95	2.95
Risk margin	2.50	2.90	3.20	2.50	2.90
Risk discount rate2	5.92	6.32	6.27	5.45	5.85

1 As the new business contribution is calculated using start of period economic assumptions, the risk free rates shown here represent market yields at 31 December 2008. 2 Using the value of in-force business as weights, the average risk discount rates for UK and Europe were 6.25% and 5.93% respectively. The weighted average for Europe includes an allowance for SLIL which uses the same risk discount rate assumptions as UK business. 

Notes to the EEV financial information continued

3.12 Principal economic assumptions - deterministic calculations - 
  covered business continued 

(c) Risk discount rates - new business continued 

		UK			Europe
	UK	equity holder		Europe	equity holder
	HWPF	owned funds	Canada	HWPF	owned funds
6 months to 30 June 2008	%	%	%	%	%
Risk margin - new business
Risk margin before cost of capital adjustment:
Market risk	2.10	2.00	1.80	2.10	2.00
Non-market risk	0.40	1.20	2.20	0.40	1.20
Total	2.50	3.20	4.00	2.50	3.20
Cost of capital adjustment	-	(0.30)	(1.10)	-	(0.30)
Risk margin after cost of capital adjustment	2.50	2.90	2.90	2.50	2.90
Risk discount rates - new business
Risk1 free	4.58	4.58	4.04	4.33	4.33
Risk margin	2.50	2.90	2.90	2.50	2.90
Risk discount rate2	7.08	7.48	6.94	6.83	7.23

1    As the new business contribution is calculated using start of period economic assumptions, the risk free rates shown here represent market yields at 31 December  

  2007. 

2   Using the value of in-force business as weights, the average risk discount rates for UK and Europe were 7.40% and 7.27% respectively. The weighted average for

  Europe includes an allowance for SLIL which uses the same risk discount rate assumptions as UK business. 

		UK			Europe
	UK	equity holder		Europe	equity holder
	HWPF	owned funds	Canada	HWPF	owned funds
12 months to 31 December 2008	%	%	%	%	%
Risk margin - new business
Risk margin before cost of capital adjustment:
Market risk	2.10	1.80	1.50	2.10	1.80
Non-market risk	0.40	1.50	1.90	0.40	1.50
Total	2.50	3.30	3.40	2.50	3.30
Cost of capital adjustment	-	(0.40)	(0.50)	-	(0.40)
Risk margin after cost of capital adjustment	2.50	2.90	2.90	2.50	2.90
Risk discount rates - new business
Risk1 free	4.58	4.58	4.04	4.33	4.33
Risk margin	2.50	2.90	2.90	2.50	2.90
Risk discount rate2	7.08	7.48	6.94	6.83	7.23

1    As the new business contribution is calculated using start of period economic assumptions, the risk free rates shown here represent market yields at 31 December 

  2007. 

2   Using the value of in-force business as weights, the average risk discount rates for UK and Europe were 7.41% and 7.29% respectively. The weighted average for 

  Europe includes an allowance for SLIL which uses the same risk discount rate assumptions as UK business. 

3.13 Principal economic assumptions - stochastic calculations 

The level of the TVOG is generally calculated by an economic scenario generator (ESG) which projects the relevant fund under a large number of different future economic scenarios. A detailed description of the methodology applied in the relevant funds is provided in Note 3.16. 

Characteristics of ESG used for HWPF TVOG calculations - UK and Europe 

The ESG simulates future economic environments in a market consistent manner. The outputs of the ESG include: 

• Cash returns
  

• Bond returns
  

• Inflation
  

• Equity returns
  

• Property returns
  

• £/ exchange rate
  

• Dividend yields
  

• Rental yields

The ESG allows option-pricing techniques to be used to value the TVOG.

Parameters used in ESG 

Cash and bond returns 

These variables are calibrated using the following instruments: 

• Conventional government bond yields adjusted to allow for any 'convenience premium' associated with government bond prices 

• A range of swaption prices 

Inflation 

This variable is calibrated using the yields obtained on inflation swaps. 

Equity returns 

The volatility of equity returns is calibrated to the market prices of a range of FTSE 100 and Dow Jones Euro Stoxx options. 

Property returns 

As there is no liquid property option market, a best estimate of property return volatility is used. The property volatility is estimated from adjusted Investment Property Databank UK data. 

Dividend and rental yields 

As market consistent estimates for dividend and rental yields cannot be derived from liquid market instruments, best estimates 

are used. 

Correlations 

The principal correlations in the ESG are between equity, bond and property returns. These correlations are targeted to be of the following order: 

• Equity/property = 0.2 

• Equity/bonds = 0.2 

• Property/bonds = 0.1 

Notes to the EEV financial information continued

3.14 Foreign exchange 

A description of the approach to the currency translation for foreign entities is provided in Note 3.16. The principal exchange rates applied are: 

	Closing	Average to	Closing	Average to Closing		Average to
	30 June	30 June	30 June 30 June 31 December 31 December
Local currency: £	2009	2009	2008	2008	2008	2008
Canada	1.913	1.802	2.019	1.991	1.775	1.957
Ireland	1.174	1.113	1.263	1.297	1.034	1.259
Germany	1.174	1.113	1.263	1.297	1.034	1.259
India	78.891	73.592	85.627	80.835	70.049	80.063
China	11.249	10.226	13.641	14.014	9.810	12.896
Hong Kong	12.763	11.604	15.518	15.478	11.143	14.418

3.15 Sensitivity analysis - economic and non-economic assumptions 

The sensitivities specified by the EEV Principles and Guidance are reported in the year end results. These are not updated for half year reporting. 

3.16 EEV methodology 

Covered business 

For the purposes of EEV reporting, a distinction is drawn between covered business to which EEV methodology is applied and non-covered business where results and balances are based on those determined under IFRS and included in the IFRS financial statements, unless otherwise stated. 

The Group's covered business is its life assurance and pensions businesses in the UK, Canada, Europe (Germany including Austria, and Ireland) and Asia, as well as the current and future profits and losses from Standard Life Investments arising on its management of funds relating to the life and pensions businesses. As Asia is not material in the context of both the Group embedded value and the Group EEV operating profit, EEV Principles and Guidance do not require them to be reported on an embedded value basis. They have therefore been included at their IFRS value which is consistent with the IFRS primary statements. This IFRS value should not be interpreted as a proxy for their embedded value. 

UK covered business also includes: 

• Non-insured self invested personal pension (SIPP) business 

• Those elements of Wrap business that are contained within a long-term product wrapper i.e. Bonds, SIPPs and mutual funds 

• Mutual funds sold by UK financial services business Canada covered business also includes mutual funds. 

Europe covered business consists of: 

• The Group's German branch of Standard Life Assurance Limited (SLAL) 

• The Group's Ireland branch of SLAL 

• The Group's offshore business, which is sold by Standard Life International Limited (SLIL) 
  

Asia covered business consists of: 

• The Group's share of results in the joint venture, HDFC Standard Life Insurance Company Limited at 26% for the six months to 30 June 2009 (during the six months to 30 June 2008: 26%; during the 12 months to 31 December 2008: 26%) 

• The Group's share of results in the joint venture, Heng An Standard Life Insurance Company Limited at 50% for the six months to 30 June 2009 (during the six months to 30 June 2008: 50%; during the 12 months to 31 December 2008: 50%) 

• The results of the Group's business in Hong Kong (Standard Life Asia Limited), along with an allocation of costs attributable to the Asia Development head office

Cash flows emerging in the period on covered business that do not reside within a life and pensions company on a statutory basis are transferred back to the relevant non-covered entity for disclosure within their closing net assets. This treatment is applied to both the return from global investment management and the return on certain mutual funds included in covered business. 

The Group's non-covered business mainly includes the business of Standard Life Bank, Standard Life Healthcare, Standard Life plc, the third party global investment management business of Standard Life Investments, the non-covered business of Standard Life Savings and other non-life and pensions entities. 

Non-covered business EEV operating profit is represented by IFRS normalised underlying profit as adjusted for Standard Life Investments (global investment management) look through profits and the return on mutual funds which are recognised in covered business. The only difference between IFRS normalised underlying profit and IFRS underlying profit arises within global investment management as described in Note 3.6(b). 

Value of in-force covered business 

The value of future equity holders' cash flows is calculated for each material business unit on an after-tax basis, projected using best estimate future assumptions as described below. 

Allowance is made for external reinsurance and reinsurance within the Group. The cash flows include the profits and losses arising in Group companies providing global investment management and other services where these relate to covered business. This is referred to as the 'look through' into service company expenses. 

The projected cash flows are discounted to the valuation date using a risk discount rate which is intended to make sufficient allowance for the risks associated with the emergence of these cash flows, other than those risks allowed for elsewhere in the EEV calculations. In particular, a deduction is made from the present value of the best estimate cash flows to reflect the risks associated with the existence of financial options and guarantees, this deduction being assessed using stochastic techniques as described below. 

Free surplus 

The free surplus is the market value of any assets allocated to, but not required to support, the in-force covered business at the valuation date. In the UK, this comprises the market value of the assets in the equity holders' fund, plus the value of the equity holders' interests in the surplus of the long-term fund, after appropriate allowance for tax, less the required capital supporting the covered business. 

For some assets and liabilities where market value is not the normal basis for accounting, as in Canada, the free surplus is restated to market value, adjusted as required to allow for the present value of any tax which would become payable if the assets were realised. 

Allowance for risk 

Under the EEV Principles and Guidance, risks within the covered business are allowed for in the following ways: 

• Application of risk discount rates to projected cash flows, which are derived by adding a risk margin to a risk free rate 

• Holding of required capital for the covered business, determined by reference to both regulatory requirements and internal economic capital assessments 

• Allowing for TVOG 

Risk discount rates 

Under the EEV methodology, a risk discount rate is required to calculate the present value of expected future distributable profits as a single value at a particular date. The risk discount rate comprises a risk free rate which reflects the time value of money and a risk margin allowing for the risk that experience in future years may differ from that assumed. In particular, a risk margin is added to allow for the risk that expected additional returns on certain asset classes are not achieved. 

Risk discount rates have been determined as the risk free government bond yield plus a risk margin. The risk margins have been determined for market risk and non-market risk separately. For market risk, we have opted for an approach whereby the risk margin is determined such that the PVIF, excluding the allowance for the TVOG, calculated using expected 'real world' asset returns equates with the PVIF calculated using 'risk neutral' investment returns and discount rates. In this way, the benefits of assuming higher than risk free returns on future cash flows are offset by using a higher discount rate. However, when returns above the risk free rate arise from the additional returns available from investing in illiquid assets, namely corporate bonds and mortgages, where they are matched to appropriate liabilities, these are not offset in determining the discount rate. Allowance has then been made for non-market risk by applying stress tests to the PVIF using our internal capital model, and quantifying an additional risk margin based on the results of the stress tests. 

The main elements of non-market risk which are stress tested are lapse, mortality, expense and credit risk assumptions. Benefits of diversification between risk types are allowed for in deriving the risk margins in line with our internal capital model. 

Notes to the EEV financial information continued

3.16 EEV methodology continued 

Separate risk discount rates have been calculated for in-force and new business and for the principal geographic segments (UK, Europe and Canada). Within the UK and Europe, separate risk margins are calculated for profits emerging on policies inside the HWPF (regardless of whether these profits emerge directly from the HWPF or by reassurance into other Group entities) and on policies that are in equity holder owned funds. For HWPF policies, there is a significant inter-Group reassurance agreement in respect of mortality surpluses on annuities, which are reassured out of the HWPF. The HWPF risk margin anticipates diversification benefits including the annuity mortality risk, since the overall capital structure also benefits from this diversification. 

The risk margins are also reduced to allow for any cost of required capital (excluding double taxation cost) which is already reflected within the EEV. 

Market risk margins are reviewed at each valuation date, allowing for changes in risk profile arising from movements in asset mix. Non-market risk margins are reviewed in detail once a year. 

The values of the risk discount rates used for this reporting period are provided in Note 3.12. 

Required capital 

Required capital represents the amount of assets over and above those required to back the liabilities in respect of the covered business whose distribution to equity holders is restricted. As a minimum, this will represent the capital requirement of the local regulator. 

The levels of required capital are reviewed in detail once a year. 

We have set required capital to be the higher of regulatory capital and our own internally-assessed risk-based capital requirement. In determining the required capital for purposes of assessing EEV, the Group excludes any capital which is provided by the existing surplus in the HWPF, as this capital is provided by policyholders. Any required capital in excess of that provided by the existing surplus in the HWPF would need to be provided by assets in the equity holders' fund. As part of the annual assessment, projections of the expected surplus in the HWPF, on best estimate assumptions, are carried out to assess whether this is sufficient to cover the level of required capital in respect of the HWPF. 

The levels of required capital in the current EEV calculations are therefore as follows: 

• UK and Europe (business in HWPF) - no capital requirement in excess of statutory reserves or asset shares is valued in the EEV 

• UK and Europe (business in equity holder owned funds) - 100% of EU minimum regulatory capital, which is higher in aggregate than Standard Life's internal risk-based capital requirement 

• Canada - the level of required capital is taken as 150% of minimum continuing capital and surplus requirements (MCCSR) 

The cost of required capital has been calculated using assumptions consistent with those used in the value of in-force (VIF) calculations. 

Time value of financial options and guarantees (TVOG) 

The TVOG represents the potential additional cost to equity holders where a financial option exists which affects policyholder benefits and is exercisable at the option of the policyholder. 

UK and Europe - HWPF 

The main source of TVOG in the Group EEV arises from the HWPF. Under the terms of the Scheme, equity holder cash flows from the HWPF are held back if required to cover HWPF liabilities on the Financial Services Authority realistic or regulatory basis. This option for the UK, Germany and Ireland results in the loss of cash flows when the HWPF has insufficient assets to pay guaranteed policy benefits. The main options and guarantees within the HWPF in respect of UK and European business relate to with profits business and include minimum guaranteed rates of return. 

The value of the TVOG arising from the HWPF at any point in time will be sensitive to: 

• The level of the residual estate (working capital in the HWPF) 

• Investment conditions in terms of bond yields, equity and property values, and implied market volatility 

• The investment profile of the assets backing the applicable policies, the residual estate and non profit business in the fund at the time the TVOG is calculated

The level of the TVOG has been calculated by a model which projects the HWPF under a large number of different future economic scenarios. Particular features of this calculation are: 

• The projected economic scenarios and the methodology used to discount equity holder cash flows are based on market consistent assumptions 

• The total cost includes an allowance for non-market risk 

• Changes in policyholder behaviour are allowed for according to the particular economic scenario 

• Changes in management actions, including the dynamic guarantee deductions, are allowed for according to the particular economic scenario, such actions being expected to be consistent with the way that the HWPF will be managed in future as described in the Scheme and in the Principles and Practices of Financial Management (PPFM) 

• Each projection allows for the gradual release of the residual estate over time to policyholders where there are sufficient funds to do so 

UK and Europe 

Most with profits business written post demutualisation is managed in a number of new with profits funds. For the present reporting period, the only significant volumes of this type of new business have arisen in Germany. These policies have guarantees relating to benefits available on the policy maturity date. These guarantees increase each year with the addition of bonuses. 

Equity holder assets are at risk if the resources of these with profits funds are insufficient to pay the guaranteed benefits. The level of the TVOG has been calculated using stochastic techniques. The TVOG has reduced both the NBC as well as the closing PVIF for Europe. 

Canada 

The main options and guarantees within the Canadian business are in respect of minimum investment returns, guaranteed maturity and death benefits, and vested bonuses, which apply to certain investment and insurance contracts. 

Other economic assumptions 

The assumed investment returns reflect our estimates of expected returns on principal asset classes, and are, in general, based on market conditions at the date of calculation of the EEV. 

The inflation rates assumed are, in general, based on the market implied long-term price inflation plus a margin to allow for salary inflation. 

The Group's offshore business, which is sold by Standard Life International Limited (SLIL) is included within Europe results but has the same economic assumptions as UK covered business. 

Details of the assumptions used for this reporting period are provided in Note 3.12. 

Non-economic assumption changes 

Non-economic assumptions for the main classes of business, including most expense assumptions, are reviewed on an annual basis. 

Expense assumptions 

Expense assumptions on a per policy basis have been derived based on an analysis of management expenses performed by each business, and are split between acquisition and maintenance assumptions. 

In determining future expenses in relation to covered business, no allowance has been made in the EEV or the NBC for any allocation of Group corporate centre costs. 

Development expenses represent specific expenses incurred which are considered temporary in nature and are not expected to occur again. 

Costs related to restructuring have been excluded from the EEV results where it has been agreed that these costs are to be met by the HWPF and therefore would not form part of the surplus cash flows. 

Global investment management expenses are also allowed for, and the assumptions for these reflect the actual investment expenses of Standard Life Investments in providing global investment management services to the life and pensions business rather than the investment fees actually charged. 

Restructuring expenses for covered and non-covered business include the current year cost of the Continuous Improvement Programme (CIP) and any additional restructuring expenses consistent with those identified in the IFRS underlying profit adjustments. The total restructuring expenses are included together with the cost of any corporate activity in restructuring and corporate transaction expenses. 

Expenses - pension scheme deficits 

Pension scheme deficits have been included in accordance with International Accounting Standard (IAS) 19 Employee Benefits. IFRIC 14, IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction was adopted by the Group from 1 January 2008. The interpretation provides guidance on assessing the limit in IAS 19 Employee Benefits on the amount of any surplus that can be recognised as an asset and explains how the pension asset or liability may be affected by a statutory or contractual minimum funding requirement. The interpretation has been taken into consideration in determining the treatment of the surplus arising in respect of the UK defined benefit plan. 

Notes to the EEV financial information continued

3.16 EEV methodology continued 

Other non-economic experience assumptions 

Assumptions are made in respect of future levels of mortality, morbidity, premium terminations, option take-up, surrenders and withdrawals. The assumptions reflect our best estimates of the likely future experience, and are based on recent experience and relevant industry data, where available. 

Annuitant mortality assumptions use a combination of base mortality rates, which are generally set by reference to recent experience, and expected future changes in mortality. The latter uses data provided by the Continuous Mortality Investigation Bureau in the UK and the Canadian Institute of Actuaries in Canada along with other company specific considerations. 

Assumptions regarding option take-up, surrenders and withdrawals are assumed to vary, where appropriate, according to the investment scenario under consideration when deriving the TVOG, to reflect our best estimate of how policyholder behaviour may vary in such circumstances. 

New business 

Definition of new business 

New business includes new policies written during the period and some increments to existing policies. 

For the UK, classification as new or existing business is determined as follows (using the approach used for the published new business figures): 

• New recurrent single premium business is classified as new regular premium business to the extent that it is deemed likely to renew 

• Department of Work and Pensions (DWP) rebates are deemed to be new single premiums 

• Pensions vesting into annuity contracts under existing group defined benefits contracts are not included as new business 

• Pensions vesting under other group contracts and individual pensions are included as new business 

• Products substituted due to the exercise of standard contract terms are not deemed to be new business 

• All increments and indexations to existing policies, including new members, and increments and indexations paid by existing members of group schemes, are deemed to be new business

For Germany, new business comprises new contracts written into the equity holder owned funds during the period. 

The new business contribution for Germany is calculated assuming a specific level of future premium indexation. Similarly, it is assumed that premiums on 'Low Start' policies increase at the end of the low start period. 

For Ireland, new business comprises: 

• New contracts written during the period 

• New premiums on recurrent single premium contracts 

• Pensions vesting into annuity contracts under existing group defined benefits contracts are not included as new business 

• Pensions vesting under other group contracts and individual pensions are included as new business 

• All increments and indexations to existing policies, including new members, and increments and indexations paid by existing members of group schemes, are deemed to be new business

For Canada, business is deemed to be 'new business' if a contract has been issued during the reporting period. The new business contribution also includes the value of renewal premiums for a new contract, where the renewal premiums are 

(i) contractual, (ii) non-contractual but reasonably predictable, or (iii) recurrent single premiums that are pre-defined and reasonably predictable. The present value of future net income attributable to renewal premiums on existing group pension and savings contracts, including those from new members, is not included as new business. Since all deposits (new and renewal) in individual segregated funds business attract a new business/first year commission, this business is treated as new business for EEV purposes. 

New business contribution (NBC) 

The contribution generated by new business written during the period is the present value of the projected stream of after-tax distributable profit from that business. NBC before tax is calculated by grossing up the contribution after tax at the full corporation tax rate for UK business and at other equivalent rates of tax for other countries. NBC is calculated as at the end of the reporting period. 

The economic assumptions used are those at the start of the reporting period, and the non-economic assumptions are those at the end of the reporting period. An exception to this policy is annuity business in the UK and Ireland where, to ensure consistency between the economic assumptions used in the NBC and those used in pricing the business and in the calculation of mathematical reserves, the economic assumptions used are the average rates for each quarter during the reporting period, and the asset allocations are those used in the pricing basis. 

Present value of new business premiums (PVNBP) 

New business sales are expressed as the PVNBP. The PVNBP calculation is equal to total single premium sales received in the period plus the discounted value of regular premiums expected to be received over the term of the new contracts, and is expressed at the point of sale. The premium volumes and projection assumptions used to calculate the present value of regular premiums for each product are the same as those used to calculate NBC, except that the PVNBP is discounted using the relevant opening risk free rate rather than the risk discount rate. 

Tax 

The opening and closing EEV numbers for the covered business are determined on an after-tax basis. The tax assumptions used are based upon the best estimate of the actual tax expected to arise. Attributable tax and profit before tax are derived by grossing up profit after tax at the long-term rate of corporation tax appropriate to each territory. While for some territories this rate does not equate to the actual effective rate of tax used in the calculation of after tax profits, it provides a consistent grossing up basis upon which to compare results from one year to another and is in line with the Group's expectation of the rate of tax applicable to new business. 

Transfers to equity holders from the HWPF will, in the first instance, be funded from unallocated surplus. The profit after tax result is stated after allowing for this and takes into account the risk of markets moving adversely in the future which would reduce the amount that can be transferred to equity holders from the unallocated surplus. These transfers can be made without equity holder tax arising for a number of years. Over time the actual effective tax rate on these transfers will move toward the standard rate of corporation tax. 

For non-covered business, attributed tax is consistent with the IFRS financial statements, unless otherwise stated. 

Subordinated liabilities 

The liabilities in respect of the UK subordinated guaranteed bonds and Mutual Assurance Capital Securities plus the subordinated debt issued by the Canadian companies form part of covered business and have been deducted at market value within the EEV. The Canadian subordinated liability is owned by a non-covered subsidiary of the Group, where the asset is valued on an amortised cost basis. Total Group EEV has been adjusted to exclude the difference between the market value and the amortised cost value of the Canada subordinated liability. 

For non-covered business, no adjustment is made to the IFRS valuation of debt. 

Foreign exchange 

Embedded value and other balance sheet items denominated in foreign currencies have been translated to sterling using the appropriate closing exchange rates. NBC and other profit and loss account items have been translated using average exchange rates. Gains and losses arising from foreign exchange differences on consolidation are presented separately within the EEV consolidated statement of recognised income and expense. 

Details of the exchange rates applied are provided in Note 3.14. 

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4 International Financial Reporting 
Standards (IFRS) 

IFRS condensed consolidated income statement

For the six months ended 30 June 2009

	Notes	6 months 2009 £m	6 months 2008 £m	Full year 2008 £m
Revenue
Gross earned premium		1,806	1,802	3,564
Premiums ceded to reinsurers		(45)	(6,344)	(6,338)
Net earned premium		1,761	(4,542)	(2,774)
Net investment return		222	(6,096)	(13,531)
Fee and commission income		316	325	622
Other income		41	36	93
Total net revenue		2,340	(10,277)	(15,590)
Expenses
Claims and benefits paid		3,143	3,635	7,142
Claim recoveries from reinsurers		(317)	(255)	(571)
Net insurance benefits and claims		2,826	3,380	6,571
Change in reinsurance assets		(44)	(5,947)	(5,559)
Change in policyholder liabilities		(1,558)	(8,608)	(18,112)
Expenses/(income) under arrangements with reinsurers		60	(79)	92
Administrative expenses	4.3	989	1,203	2,464
Change in liability for third party interests in consolidated		(9)	(116)	(598)
Finance costs		62	63	129
Total expenses		2,326	(10,104)	(15,013)
Share of (losses)/profits from associates and joint ventures		(35)	61	101
Loss before tax		(21)	(112)	(476)
Tax expense/(credit) attributable to policyholders' returns	4.6	10	(313)	(334)
(Loss)/profit before tax attributable to equity holders' profits		(31)	201	(142)
Total tax expense/(credit)	4.6	28	(270)	(493)
Less: Tax (expense)/credit attributable to policyholders' returns	4.6	(10)	313	334
Tax expense/(credit) attributable to equity holders' profits	4.6	18	43	(159)
(Loss)/profit for the period		(49)	158	17
Attributable to:
Equity holders of Standard Life plc		(20)	161	100
Non-controlling interests		(29)	(3)	(83)
		(49)	158	17
Earnings per share
Basic (pence per share)	4.4	(0.9)	7.4	4.6
Diluted (pence per share)	4.4	(0.9)	7.4	4.6

IFRS consolidated statement of comprehensive income

For the six months ended 30 June 2009

	6 months 2009 £m	6 months 2008 £m	Full year 2008 £m
(Loss)/profit for the period	(49)	158	17
Fair value gains/(losses) on cash flow hedges	5	15
Actuarial (losses)/gains on defined benefit pension schemes	(80)	(8)	161
Revaluation of land and buildings	(17)	(20)	(58)
Net investment hedge	15	(5)	(17)
Exchange differences on translating foreign operations	(239)	23	479
Equity movements transferred to unallocated divisible surplus	125	(19)	(236)
Equity movements attributable to third party interests in consolidated funds	-	-	22
Share of other recognised income from associates and joint ventures	-	-	2
Aggregate policyholder tax effect of items not recognised in income statement	-	(1)	-
Aggregate equity holder tax effect of items not recognised in income statement	24	(4)	(42)
Other comprehensive (expense)/income for the period	(167)	(19)	273
Total comprehensive (expense)/income for the period	(216)	139	290
Attributable to:	(187)	142	373
Equity holders of Standard Life plc	(29)	(3)	(83)
Non-controlling interests	(216)	139	290

IFRS pro forma reconciliation of Group underlying profit to 
profit for the period

For the six months ended 30 June 2009

	Notes	6 months 2009 £m	6 months 2008 £m	Full year 2008 £m
Underlying profit before tax attributable to equity holders of
United Kingdom	4.2	56	249	238
Canada	4.2	(10)	66	(102)
Europe	4.2	21	16	48
Asia	4.2	(25)	(16)	(35)
Global investment management	4.2	21	25	42
Other	4.2	(16)	5	(37)
Underlying profit before tax attributable to equity holders of		47	345	154
Loss attributable to non-controlling interests		(29)	(3)	(83)
Underlying profit before tax attributable to equity holders and adjusted items		18	342	71
Adjusted for the following items:
Volatility arising on different asset and liability valuation	4.7	(20)	(97)	(141)
Restructuring expenses	4.3	(29)	(44)	(72)
(Loss)/profit before tax attributable to equity holders' profits		(31)	201	(142)
Tax (expense)/credit attributable to:
Underlying profit		(22)	(45)	100
Adjusted items		4	2	59
Total tax (expense)/credit attributable to equity holders' profits		(18)	(43)	159
(Loss)/profit for the period		(49)	158	17

Underlying profit is calculated by adjusting the (loss)/profit for the period for volatility that arises from different International

Financial Reporting Standards (IFRS) measurement bases for liabilities and backing assets, volatility arising from derivatives that

are part of economic hedges but do not qualify as hedge relationships under IFRS, restructuring costs, significant corporate

transaction expenses, impairment of intangible assets and profit or loss arising on the disposal of a subsidiary, joint venture or

associate. The Directors believe that, by eliminating this volatility from equity holder (loss)/profit, they are presenting a more

meaningful indication of the underlying business performance of the Group.

The Notes on pages 94 to 111 are an integral part of this consolidated financial information.

IFRS condensed consolidated statement of financial position

As at 30 June 2009

	Notes	30 June 2009 £m	30 June 2008 £m	31 December 2008 £m
Assets
Intangible assets		111	71	112
Deferred acquisition costs		855	793	892
Investments in associates and joint ventures		1,699	3,392	3,098
Investment property		6,937	9,109	7,738
Property, plant and equipment		150	808	740
Reinsurance assets		6,085	6,419	6,076
Loans and receivables		11,027	12,426	12,069
Investment securities		91,078	98,985	90,716
Derivative financial assets		1,474	828	2,800
Other assets		2,577	2,440	2,687
Cash and cash equivalents		10,644	8,818	10,052
Total assets		132,637	144,089	136,980
Equity
Share capital	4.8	221	218	218
Share premium reserve		847	792	792
Retained earnings		537	766	774
Other reserves		1,501	1,480	1,623
Equity attributable to equity holders of Standard Life plc		3,106	3,256	3,407
Non-controlling interests		290	406	334
Total equity	4.9	3,396	3,662	3,741
Liabilities
Non-participating contract liabilities	4.10	71,814	76,896	71,908
Participating contract liabilities	4.10	31,152	34,400	34,163
Deposits received from reinsurers		5,827	6,043	5,968
Third party interests in consolidated funds		1,666	2,206	1,603
Borrowings	4.11	3,393	5,935	3,227
Subordinated liabilities		2,083	1,981	2,204
Deferred income		380	373	382
Income tax liabilities		83	222	267
Customer accounts related to banking activities and deposits by banks		6,771	6,056	6,991
Derivative financial liabilities		987	921	1,348
Other liabilities		5,085	5,394	5,178
Total liabilities		129,241	140,427	133,239
Total equity and liabilities		132,637	144,089	136,980

The Notes on pages 94 to 111 are an integral part of this consolidated financial information.

IFRS condensed consolidated statement of changes in equity

For the six months ended 30 June 2009

	Notes	Total equity holders of Standard Life plc £m	Non-controlling interests  £m	Total equity £m
Equity at 1 January 2009	4.9	3,407	334	3,741
Loss for the period		(20)	(29)	(49)
Other comprehensive expense for the period		(167)	-	(167)
Total comprehensive expense for the period		(187)	(29)	(216)
Distributions to equity holders	4.5	(168)	-	(168)
Issue of share capital other than in cash	4.5, 4.8	58	-	58
Reserves credit for employee share-based payment schemes		(4)	-	(4)
Other movements in non-controlling interests in the period		-	(15)	(15)
Equity at 30 June 2009	4.9	3,106	290	3,396
	Notes	Total equity holders of Life Standard Plc £m	Non-controlling interests  £m	Total equity £m
Equity at 1 January 2008	4.9	3,282	391	3,673
for the period		161	(3)	158
Other comprehensive expense for the period		(19)	-	(19)
Total comprehensive income/(expense) for the period		142	(3)	139
Distributions to equity holders	4.5	(168)	-	(168)
Issue of share capital other than in cash	4.8	1	-	1
Reserves credit for employee share-based payment schemes		4	-	4
Vested employee share-based payment schemes		(5)	-	(5)
Other movements in non-controlling interests in the period		-	18	18
Equity at 30 June 2008	4.9	3,256	406	3,662
	Notes	Total equity holders of Life Standard Plc £m	Non-controlling interests  £m	Total equity £m
Equity at 1 January 2008	4.9	3,282	391	3,673
Profit/(loss) for the year		100	(83)	17
Other comprehensive income for the year		273	-	273
Total comprehensive income/(expense) for the year		373	(83)	290
Distributions to equity holders	4.5	(257)	-	(257)
Issue of share capital other than in cash	4.8	1	-	1
Reserves credit for employee share-based payment schemes		10	-	10
Vested employee share-based payment schemes		(2)	-	(2)
Other movements in non-controlling interests in -the year			26	26
Equity at 31 December 2008	4.9	3,407	334	3,741

The Notes on pages 94 to 111 are an integral part of this consolidated financial information.

IFRS condensed consolidated statement of cash flows

For the six months ended 30 June 2009

	6 months 2009 £m	6 months 2008 £m	Full year 2008 £m
Cash flows from operating activities
Loss before tax	(21)	(112)	(476)
Non-cash movements from operating activities	120	20	377
Net decrease in operational assets	2,108	1,463	14,386
Net decrease in operational liabilities	(1,393)	(762)	(11,604)
Taxation paid	(147)	(301)	(379)
Net cash flows from operating activities	667	308	2,304
Cash flows from investing activities
Net disposal/(acquisition) of property, plant and equipment	48	11	(138)
Acquisition of subsidiaries, net of cash acquired -		-	(24)
Net investments in associates and joint ventures	(6)	(9)	(16)
Other	(4)	(6)	(23)
Net cash flows from investing activities	38	(4)	(201)
Cash flows from financing activities
Proceeds from other borrowings	13	12	64
Repayment of other borrowings	(13)	(5)	(6)
Capital flows from non-controlling interests and third party	159	(750)	(1,047)
Distributions paid to non-controlling interests	(12)	(18)	(33)
Interest paid	(49)	(57)	(138)
Ordinary dividends paid	(110)	(168)	(257)
Net cash flows from financing activities	(12)	(986)	(1,417)
Net increase/(decrease) in cash and cash equivalents	693	(682)	686
Cash and cash equivalents at the beginning of the period	9,951	9,120	9,120
Effects of exchange rate changes on cash and cash equivalents	(86)	16	145
Cash and cash equivalents at the end of the period	10,558	8,454	9,951
Supplemental disclosures on cash flow from operating activities
Interest paid	182	333	628
Interest received	1,503	1,869	3,666
Dividends received	749	889	1,649
Rental income received on investment properties	325	302	625

The Notes on pages 94 to 111 are an integral part of this consolidated financial information.

4.1 Accounting policies

(a) Basis of preparation

The condensed interim financial information has been prepared in accordance with the listing rules of the Financial Services Authority (FSA) and IAS 34 Interim Financial Reporting issued by the International Accounting Standards Board (IASB) as endorsed by the European Union (EU).

Except as described below, the accounting policies for recognition, measurement, consolidation and presentation as set out

in the Group's Annual Report and Accounts for the year ended 31 December 2008 have been applied in the preparation of the

condensed interim financial information.

(i) From 1 January 2009, the Group has adopted the requirements of IFRS 8 Operating Segments, which supersedes the disclosure requirements of IAS 14 Segment Reporting. In accordance with the provisions of the standard, comparatives have been restated. The standard has no financial impact but adoption has resulted in changes to the Group's segmental disclosures, including the reportable segments themselves. In compliance with the requirements of IFRS 8, the Group's reportable segments have been identified in accordance with the way in which the Group is structured and managed.

(ii) From 1 January 2009, the Group has adopted the amendments to IAS 40 Investment Property and IAS 16 Property, Plant and Equipment with respect to property being constructed or developed for future use as investment property. Under the previous versions of these standards such property was accounted for as property, plant and equipment with fair value gains (and losses not exceeding gains on the same assets previously recognised in the revaluation reserve) recognized directly in the revaluation of land and buildings reserve in equity. Under the amended requirements such properties are accounted for as investment properties with fair value gains and losses recognised in the income statement. The changes to the Group's accounting policy, as a result of adoption of these amendments, have been applied prospectively. The balance reclassified from property, plant and equipment on 1 January 2009 to investment property amounted to £515m. The amount recognised in the income statement relating to fair value gains or losses on investment property under construction during the six months to 30 June 2009, which under the previous standards would have been recognized directly in the revaluation of land and buildings reserve, amounted to a loss of £50m.

IAS 1 (revised) Presentation of Financial Statements has been adopted by the Group from 1 January 2009. The revised standard includes an option to present one performance statement (the statement of comprehensive income) or two statements (the income statement and statement of comprehensive income). The Group has elected to present both statements. The condensed interim financial information has been prepared under the revised disclosure requirements and adoption has not had any financial impact thereon.

The Group has adopted a number of amendments and interpretations which are effective from 1 January 2009. Management considers that the implementation of the amendments and interpretations which are not listed above, has no significant impact on the Group's financial information.

(b) Condensed interim financial information

The condensed interim financial information for the six months ended 30 June 2009 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The results for the six months ended 30 June 2009 and 2008 are unaudited, but have been reviewed by PricewaterhouseCoopers LLP whose review report is set out on page 114. PricewaterhouseCooper LLP have audited the Annual Report and Accounts of the Group for the year ended 31 December 2008 and their report was unqualified and did not contain a statement under sections 237(2) or (3) of the UK Companies Act 1985. The Group's consolidated statutory accounts for the year ended 31 December 2008 have been filed with the Registrar of Companies.

4.2 Segmental analysis

(a) Basis of segmentation

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

United Kingdom

UK operations comprise primarily life and pensions business and banking business. The life and pensions business provides a broad range of pensions, protection, savings and investment products to individual and corporate customers. The banking business provides a range of retail mortgage and deposit products via online and telephone operations. UK operations also include healthcare business.

Canada

Canadian operations offer a broad range of pensions and savings products to individual and corporate customers in addition to commercial mortgage products.

Europe

The operations in Ireland, Germany and Austria provide life and pension products.

Asia

The Group has investments in joint ventures in India and China and a wholly owned subsidiary in Hong Kong. These businesses offer a range of life and pension products.

Global investment management

Investment management services are provided by global investment management operations to the Group's other reportable segments. Global investment management also provides a range of investment products for individuals and institutional customers through a number of different investment vehicles.

Other

This reportable segment includes primarily the Group corporate centre and the shared service centre.

Inter-segment transactions are entered into under normal commercial terms and conditions that would be available to unrelated third parties.

The allocation of total net revenue presented below is based on customer location and this basis is not materially different to geographical origin. The Group has a widely diversified policyholder base and is therefore not reliant on any individual major customers.

The Group utilises additional measures to assess the performance of each of the reportable segments, presented in the European Embedded Value information.

Notes to the IFRS financial information continued

4.2 Segmental analysis continued

(b) Reportable segments - income statement, underlying profit and asset information

30 June 2009	United Kingdom £m	Canada  £m		Europe £m		Asia  £m		Global investment management £m		Other £m		Elimination £m		Total £m
Revenue
Net earned premium	1,004	322		423		10		2		-		-		1,761
Net investment return	(753)	895		86		5		(1)		(4)		(6)		222
Other segment income	217	52		14		-		70		7		(3)		357
Inter-segment revenue	15	1		-		-		53		275		(344)		-
Total net revenue	483	1,270		523		15		124		278		(353)		2,340
Expenses
Segment expenses	413	1,258		510		23		107		294		(341)		2,264
Finance costs	66	6		-		-		2		-		(12)		62
Total expenses	479	1,264		510		23		109		294		(353)		2,326
Share of (losses)/profits from associates and
joint ventures	(6)	(16)		-		(17)		4		-		-		(35)
(Loss)/profit before tax	(2)	(10)		13		(25)		19		(16)		-		(21)
Tax attributable to policyholders' returns	14	-		(4)		-		-		-		-		10
Tax attributable to equity holders' profits	-	11		12		(6)		5		(4)		-		18
(Loss)/profit for the period	(27)	(22)		23		(25)		14		(12)		-		(49)
Loss attributable to non-controlling interests	29	-			-	-		-		-		-		29
Profit/(loss) attributable to equity holders
of Standard Life plc	2	(22)		23		(25)		14		(12)		-		(20)
Reconciliation to Group underlying profit:
Tax attributable to equity holders' profits	11	12		(6)		-		5		(4)		-		18
Adjustments to reconcile the Group
underlying profit to profit for the- period	43	-		4			-	2		-		-		49
Underlying profit/(loss) before tax
attributable to equity holders of
Standard Life plc and adjusted items	56	(10)		21		(25)		21		(16)		-		47
Other income included in the income
statement is as follows:
Interest income	277	71		19		-		1		3		-		371
Other expenses included in the income
statement include:
Impairment losses recognised	7	2		-		-		-		-		-		9
Amortisation of intangible assets	3	-		1		-		-		2		-		6
Amortisation of deferred acquisition costs	59	6		23		-		-		-		-		88
Depreciation of property, plant and equipment1	-	1		1		-		-		3		-		5
Interest1 expense	212	10		1		-		2		57		(70)		212
Assets
Segment assets	105,180	17,144		7,986		40		570		846		(828)		130,938
Investments in associates and joint	1,446	106			-	83		16		48		-		1,699
Total assets	106,626		17,250	7,986			123		586	894		(828)		132,637
Additions during the period
Intangible assets	106,626	17,250		7,986		123		586		894		(828)		132,637
Deferred acquisition costs	40	7			37	-		-			-		-	84
Property, plant and equipment	-	1			-	-		1			3		-	5
Investment properties	83	3		11		-		-		-		-		97
	126	11		51		-		1		3		-		192

30 June 2009	United Kingdom £m	Canada  £m	Europe £m		Asia  £m		Global investment management £m		Other £m	Elimination £m	Total £m
Revenue
Net earned premium	(5,229)	302	374		9		2		-	-	(4,542)
Net investment return	(5,703)	241	(609)		15		(4)		6	(42)	(6,096)
Other segment income	227	58	10		-		84		3	(21)	361
Inter-segment revenue	5	1	21		4		58		279	(368)	-
Total net revenue	(10,700)	602	(204)		9		150		297	(431)	(10,277)
Expenses
Segment expenses	(10,543)	532	(210)		14		168		296	(424)	(10,167)
Finance costs	64	6	-		-		-		-	(7)	63
Total expenses	(10,479)	538	(210)		14		168		296	(431)	(10,104)
Share of profits/(losses) from associates and
joint ventures	59	2	4		(11)		3		4	-	61
(Loss)/profit before tax	(162)	66	10		(16)		(15)		5	-	(112)
Tax attributable to policyholders' returns	(307)	-	(6)		-		-		-	-	(313)
Tax attributable to equity holders' profits	34	10	3		-		(4)		-	-	43
Profit/(loss) for the period	111	56	13		(16)		(11)		5	-	158
Loss attributable to non-controlling interests	3	-		-	-		-		-	-	3
Profit/(loss) attributable to equity holders
of Standard Life plc	114	56	13		(16)		(11)		5	-	161
Reconciliation to Group underlying profit:
Tax attributable to equity holders' profits	34	10	3		-		(4)		-	-	43
Adjustments to reconcile the Group
underlying profit to profit for the period	101	-	-			-	40		-	-	141
Underlying profit/(loss) before tax
attributable to equity holders of
Standard Life plc and adjusted items	249	66	16		(16)		25		5	-	345
Other income included in the income
statement is as follows:
Interest income	641	70	10		-		5		6	-	732
Other expenses included in the income
statement are as follows:
Impairment losses recognised	21	-	-		-		-		-	-	21
Impairment losses reversed	1	-	-		-		-		-	-	1
Amortisation of intangible assets	3	-	1		-		-		-	-	4
Amortisation of deferred acquisition costs	53	6	21		-		1		-	-	81
Depreciation of property, plant and equipment	-	1	1		-		-		4	-	6
Interest expense1	410	9	1		-		-		53	(60)	413
Assets
Segment assets	116,698	16,850		6,814	35		363		656	(719)	140,697
Investments in associates and joint ventures	2,585	111	274			80		22	320	-	3,392
Total assets	119,283	16,961	7,088		115		385		976	(719)	144,089
Additions during the period
Intangible assets	4	-	2		-		-		-	-	6
Deferred acquisition costs	115	11	47		-		-		-	-	173
Property, plant and equipment	83	1	1		-		-		8	-	93
Investment properties	51	12	2		-		-		-	-	65
	253	24	52		-		-		8	-	337

Notes to the IFRS financial information continued

4.2 Segmental analysis continued

(b) Reportable segments - income statement, underlying profit and asset continued

31 December 2008	United Kingdom £m									Global investment
			Canada				Europe			Asia management				Other	Elimination	Total
			£m					£m		£m			£m	£m	£m	£m
Revenue
Net earned premium	(4,289)		649					846		16			4	-	-	(2,774)
Net investment return	(11,106)		(1,260)				(1,070)			(15)			12	1	(93)	(13,531)
Other segment income	448		109					24		-			162	6	(34)	715
Inter-segment revenue	21		1					-		3			105	560	(690)	-
Total net revenue	(14,926)		(501)				(200)			4			283	567	(817)	(15,590)
Expenses
Segment expenses	(14,617)		(406)				(221)			14			277	617	(806)	(15,142)
Finance costs	130		12					-		-			2	(4)	(11)	129
Total expenses	(14,487)		(394)				(221)			14			279	613	(817)	(15,013)
Share of profits/(losses) from associates and
joint ventures	112		4					7		(25)			(4)	7	-	101
(Loss)/profit before tax	(327)		(103)					28		(35)			-	(39)	-	(476)
Tax attributable to policyholders' returns	(317)		-					(17)		-			-	-	-	(334)
Tax attributable to equity holders' profits	(90)	(64)						5			-		3	(13)	-	(159)
Profit/(loss) for the year	80		(39)					40		(35)			(3)	(26)	-	17
Loss attributable to non-controlling  interests	83	-						-			-		-	-	-	83
Profit/(loss) attributable to equity holders
of Standard Life plc	163		(39)					40		(35)			(3)	(26)	-	100
Reconciliation to Group underlying profit:
Tax attributable to equity holders' profits	(90)	(64)						5		-			3	(13)	-	(159)
Adjustments to reconcile the Group
Underlying profit to profit for the year	165		1					3		-			42	2	-	213
Underlying profit/(loss) before tax
attributable to equity holders of
Standard Life plc and adjusted items	238		(102)						48	(35)			42	(37)	-	154
Other income included in the income
statement is as follows:
Interest income	1,191		142					25		-			9	11	-	1,378
Other expenses included in the income
statement include:
Impairment losses recognised	141		1					-		-			-	-	-	142
Amortisation of intangibleassets	7		-					2		-			-	1	-	10
Amortisation of deferred acquisition costs	110		11					42			-		2	-	-	165
Depreciation of property, plant  and equipment	-		2					-				1	-	7	-	10
Interest1 expense	759		18					3		-			2	112	(126)	768
Assets
Segment assets	107,611		17,458				8,383			41			509	804	(924)	133,882
Investments in associatesand joint ventures	2,569			127				202			107		15	78	-	3,098
Total assets	110,180		17,585				8,585			148			524	882	(924)	136,980
Additions during the year
Intangible assets	13		-					4		-			-	9	-	26
Deferred acquisition costs	190		16					100		-			-	-	-	306
Property, plant and equipment	267		2					1		-			2	1	-	273
Investment properties	78		30					6		-			-	-	-	114
	548		48					111		-			2	10	-	719

1 Refer to Note 4.3.

(c) Non-current non-financial assets by geographical location

	30 June	30 June	31 December
	2009	2008	2008
	£m	£m	£m
United Kingdom	6,193	8,948	7,400
Continental Europe	56	42	48
Canada	949	997	1,141
Asia	-	1	1
Total	7,198	9,988	8,590

Non-current non-financial assets for this purpose consist of investment property, property, plant and equipment and

intangible assets (excluding intangible assets arising from insurance or participating investment contracts).

	6 months		6 months	monthsFull
	2009		2008	2008
	£m		£m	£m
Commission expenses	166		248	452
Interest expense	150		350	639
Staff costs and other employee related costs	302		313	606
Restructuring expenses	30		44	73
Acquisition costs deferred during the period	(103)		(188)	(307)
Amortisation of deferred acquisition costs	88		81	165
Impairment losses on deferred acquisition costs	19		15	1
Other administrative expenses	337		340	835
Total administrative expenses	989		1,203	2,464

Interest expense includes interest payable on customer accounts and other funding instruments within the banking operations of the Group. Interest expense of £62m (six months ended 30 June 2008: £63m; 12 months ended 31 December 2008: £129m) in respect of subordinated liabilities is included within finance costs. For the six months ended 30 June 2009 total interest expense is therefore £212m (six months ended 30 June 2008: £413m; 12 months ended 31 December 2008: £768m). 

Restructuring costs during the period include £25m of expenses in relation to the Group's Continuous Improvement Programme (CIP), mainly in relation to consultancy costs and process improvement projects (six months ended 30 June 2008: £19m; 12 months ended 31 December 2008: £46m) and other restructuring costs of £5m (six months ended 30 June 2008: £25m; 12 months ended 31 December 2008: £27m). 

Of the total restructuring costs £29m (six months ended 30 June 2008: £44m; 12 months ended 31 December 2008: £72m) is adjusted when determining underlying profit for the period, with the remaining £1m (six months ended 30 June 2008: £nil; 12 months ended 31 December 2008: £1m) relating to CIP expenses incurred by the Heritage With Profits Fund. 

Other administrative expenses in the 12 months ended 31 December 2008 include £102m related to an expense incurred in respect of a unit linked fund, the Pension Sterling Fund. In January 2009 the value of units in that fund was reduced to reflect reductions in the market value of certain instruments held by the fund. In February 2009, in order to put customers invested in that fund back into the position they would have been before the valuation adjustment, the Group injected cash into the fund. The cost of the cash injection was accrued within other administrative expenses for the year ended 31 December 2008. 

Notes to the IFRS financial information continued 

4.4 Earnings per share 

(a) Basic earnings per share 

Basic earnings per share is calculated by dividing (loss)/profit attributable to ordinary equity holders by the weighted average number of ordinary shares outstanding during the period. The weighted average number of ordinary shares outstanding during the period is the weighted average number of shares in issue less the weighted average number of shares owned by employee share trusts that have not vested unconditionally to employees. 

	6 months	6 months	Full year
	2009	2008	2008
(Loss)/profit attributable to equity holders of Standard Life plc (£m)	(20)	161	100
Weighted average number of ordinary shares in issue (millions)	2,184	2,175	2,176
Basic earnings per share (pence per share)	(0.9)	7.4	4.6

(b) Diluted earnings per share 

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. The Group has one category of dilutive potential ordinary shares - share awards and share options awarded to employees. 

For share options, a calculation is made to determine the number of shares that could have been acquired at fair value (determined as the average market share price of the Company's shares for the period) based on the monetary value of the subscription rights attached to outstanding share options. The number of shares calculated is compared with the number of shares that would have been issued assuming the exercise of the share options. 

	6 months	6 months	Full year
	2009	2008	2008
(Loss)/profit attributable to equity holders of Standard Life plc (£m)	(20)	161	100
Weighted average number of ordinary shares for diluted earnings per share (millions)	2,185	2,175	2,180
Diluted earnings per share (pence per share)	(0.9)	7.4	4.6

The dilutive effect of share awards and options included in the weighted average number of ordinary shares above was 1m (six months ended 30 June 2008: 0.2m; 12 months ended 31 December 2008: 4m). The effect of these dilutive potential ordinary shares did not impact the profit attributable to equity holders of the Company. 

(c) Alternative earnings per share 

Earnings per share is also calculated based on the underlying profit before tax and certain non-operating items as well as on the profit attributable to equity holders of Standard Life plc. The Directors believe that earnings per share based on underlying profit provides a better indication of operating performance.

	6 months	6 months		6 months		6 months			Full year	Full year
	2009	2009			2008		2008		2008		2008
	£m	Per share p			£m		Per share p	£m			Per share p
Underlying profit before tax attributable to equity holders	18	0.8			342		15.7		71		3.3
Volatility arising on different asset and liability valuation	(20)	(0. 9)			(97)		(4.5)		(141)		(6.5)
Restructuring expenses	(29)	(1.3)			(44)		(2.0)		(72)		(3.3)
(Loss)/profit before tax attributable to equity holders	(31)	(1.4)			201		9.2		(142)		(6.5)
Tax (expense)/credit attributable to:
Underlying profit	(22)	(1.0)			(45)		(2.1)		100		4.6
Adjusted items	4	0.2			2		0.1		59		2.7
Loss attributable to non-controlling interests	29		1.3		3		0.2		83		3.8
(Loss)/profit attributable to equity  holders of Standard Life plc	(20)	(0.9)			7.4		161	100			4.6

4.5 Dividends 

Subsequent to 30 June 2009, the Directors have proposed an interim dividend for 2009 of 4.15 pence per ordinary share (interim 2008: 4.07 pence), an estimated £92m in total (interim 2008: £89m). The dividend will be paid on 16 November 2009. This dividend will be recorded as an appropriation of retained earnings in the financial statements for the year ended 31 December 2009. During the six months to 30 June 2009 the Directors declared a final dividend for the year ended 31 December 2008 of 7.70 pence per ordinary share (final 2007: 7.70 pence) totalling £168m (final 2007: £168m). 

On 15 May 2009, the Group's equity holders approved the introduction of the Scrip dividend scheme, effective for the final 2008 dividend payment onwards. Investors taking part in the Scrip scheme receive their dividend entitlement in the form of shares rather than cash. The distribution under Scrip is recorded as an appropriation of retained earnings. Dividends paid in the six months ended 30 June 2009 comprise £58m settled by the issue of shares under the Scrip scheme and £110m paid in cash. 

4.6 Tax expense/(credit) 

	6 months	6 months		Full
	2009	2008		2008
	£m	£m		£m
Income tax expense/(credit) attributable to policyholders' returns	10		(313)	(334)
Income tax expense/(credit) attributable equity holders' profits	18		43	(159)
Total tax expense/(credit)	28	(270)		(493)

The share of tax of associates and joint ventures is £5m (six months ended 30 June 2008: £4m; 12 months ended

31 December 2008: £3m) and is included above the line 'Loss before tax' in the condensed consolidated income statement in

'Share of (loss)/profits from associates and joint ventures'.

The total income tax expense/(credit) is spilt as follows:

	6 months				6 months	Full
	2009				2008		2008
	£m				£m		£m
Current tax:
United Kingdom	57				75		253
Double tax relief	(1)				(16)		(1)
Overseas	9				10		19
Adjustment to tax expense in respect of prior years		(15)			6		(21)
Total current tax	50				75		250
Deferred tax:
Deferred tax credit arising from the current period			(22)		(345)		(743)
Total deferred tax	(22)				(345)		(743)
Total income tax expense/(credit)	28				(270)		(493)
Attributable to equity holders' profits	18				43		(159)

Tax relating to components of other comprehensive income is as follows:

	6 months	6 months	Full
	2009	2008	2008
	£m	£m	£m
Tax on fair value gains/(losses) on cash flow hedges	1	4	(11)
Tax on actuarial losses/(gains) on defined benefit pension schemes	(24)	-	50
Revaluation of land and buildings	(1)	-	-
Other	-	2	3
Aggregate tax effect of items debited directly to equity	(24)	6	42

Notes to the EEV financial information continued

4.7 Volatility arising on different asset and liability valuation bases 

Group underlying profit has been adjusted in respect of volatility that arises from different IFRS measurement bases for liabilities and backing assets. The adjustment is analysed as follows:

	6 months  2009  £m	6 months 2008  £m	Full year 2008  £m
Measurement of subordinated liabilities and backing assets	46	140	47
Derivative volatility	(26)	(43)	94
	20	97	141

Derivative volatility comprises amounts in respect of volatility arising from derivatives that are part of economic hedges but do not qualify as hedge relationships under IAS 39 Financial Instruments: Recognition and Measurement. These derivatives are used to manage interest rate risk within Standard Life Bank plc. 

4.8 Issued share capital 

The movement in the issued share capital of the Company during the period was: 

	6 months  2009  Number	6 months 2009  £m	6 months   2008  Number	6 months 2008  £m	Full year   2008  Number	Full year 2008  £m
At start of period	2,177,799,354	218	2,174,077,106	217	2,174,077,106	217
Shares issued in respect of employee  share plans	305,327	-	255,820	-	559,061	-
Shares issued in respect of share options	2,842,293	-	3,142,947	1	3,142,947	1
Shares issued in lieu of cash dividends	32,080,285	3	-	-	-	-
Shares issued in respect of bonus issue	1,802	-	16,004	-	20,240	-
At end of period	2,213,029,061	221	2,177,491,877	218	2,177,799,354	218

As part of the offer on the demutualisation of The Standard Life Assurance Company (SLAC) and flotation of Standard Life plc, holders of demutualisation shares, employee shares or shares acquired in the preferential offer who retained their shares for a continuous period of one year from 10 July 2006 were entitled to one bonus share for every 20 shares. Shareholders who are entitled to bonus shares but were not allocated shares on 10 July 2007 have three years from 10 July 2007 to claim their entitlements. During the six months to 30 June 2009, a further 1,802 bonus shares were issued to shareholders entitled to receive bonus shares (six months ended 30 June 2008: 16,004; 12 months ended 31 December 2008: 20,240). 

During the six months ended 30 June 2009 the Group introduced a Scrip dividend scheme and 32,080,285 shares were issued in respect of dividends declared in that period (see Note 4.5). 

The Group operates a long-term incentive plan for its executives and senior management. Under the terms of the plan, share options are awarded to the executives and senior management based on performance results of the Group over a three year period. During the six months to 30 June 2009, the 2006 plan vested and as a result, the Company allotted 2,842,293 ordinary shares (six months ended 30 June 2008: 3,142,947; 12 months ended 31 December 2008: 3,142,947). 

The Group operates share incentive plans, allowing employees the opportunity to buy shares from their salary each month. The maximum purchase that an employee can make in any one year is £1,500. The Group offers to match the first £25 of shares bought each month. During the six months to 30 June 2009, the Company allotted 305,327 (six months ended 30 June 2008: 255,820; 12 months ended 31 December 2008: 559,061) ordinary shares to its employees under the share incentive plans. 

4.9 Equity     

	Notes	Share  capital  £m	Share premium reserve   £m	Retained earnings  £m	Other reserves  £m	Total equity holders of Standard Life  plc  £m	Non- controlling interests  £m	Total equity £m
Equity at 1 January 2009		218	792	774	1,623	3,407	334	3,741
Loss for the period		-	-	(20)	-	(20)	(29)	(49)
Other comprehensive expense for the- period		-	-	(56)	(111)	(167)	-	(167)
Distributions to equity holders	4.5	-	-	(168)	-	(168)	-	(168)
Issue of share capital other than in cash	4.8	3	55	-	-	58	-	58
Reserves credit for employee share-based payment schemes		-	-	-	(4)	(4)	-	(4)
Transfer to retained earnings for vested employee
share-based payment schemes		-	-	7	(7)	-	-	-
Other movements in non-controlling interests in the period		-	-	-	-	-	(15)	(15)
Equity at 30 June 2009		221	847	537	1,501	3,106	290	3,396

	Notes	Share  capital  £m	Share premium reserve   £m	Retained earnings   £m	Other reserves  £m	Total equity holders of Standard Life  plc £m	Non-controlling interests   £m	Total equity £m
Equity at 1 January 2008		217	792	776	1,497	3,282	391	3,673
Profit/(loss) for the period		-	-	161	-	161	(3)	158
Other comprehensive expense for the period		-	-	(10)	(9)	(19)	-	(19)
Distributions to equity holders	4.5	-	-	(168)	-	(168)	-	(168)
Issue of share capital other than in cash	4. 8	1	-	-	-	1	-	1
Reserves credit for employee share-based payment schemes		-	-	-	4	4	-	4
Vested employee share-based payment schemes		-	-	-	(5)	(5)	-	(5)
Transfer to retained earnings for vested employee
share-based payment schemes		-	-	7	(7)	-	-	-
Other movements in non-controlling interests in the period		-	-	-	-	-	18	18
Equity at 30 June 2008		218	792	766	1,480	3,256	406	3,662

	Notes	Share  capital  £m	Share premium reserve   £m	Retained earnings   £m	Other reserves  £m	Total equity holders of Standard Life  plc £m	Non-controlling interests   £m	Total equity £m
Equity at 1 January 2008		217	792	776	1,497	3,282	391	3,673
Profit/(loss) for the year		-	-	100	-	100	(83)	17
Other comprehensive income for the year		-	-	110	163	273	-	273
Distributions to equity holders	4.5	-	-	(220)	(37)	(257)	-	(257)
Issue of share capital other than in cash	4. 8	1	-	-	-	1	-	1
Reserves credit for employee share-based payment schemes		-	-	-	10	10	-	10
Vested employee share-based payment schemes		-	-	-	(2)	(2)	-	(2)
Transfer to retained earnings for vested employee
share-based payment schemes		-	-	8	(8)	-	-	-
Other movements in non-controlling interests in the year		-	-	-	-	-	26	26
Equity at 31 December 2008		218	792	774	1,623	3,407	334	3,741

 

END

 

 

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