Half Yearly Report - Part 3 of 5

RNS Number : 9313J

Standard Life plc

14 August 2012

 



Standard Life plc

Half Year Results 2012

Part 3 of 5

2 Statement of Directors' responsibilities

We confirm to the best of our knowledge that:

1.	The International Financial Reporting Standards (IFRS) condensed consolidated income statement, the IFRS consolidated statement of comprehensive income, the IFRS condensed consolidated statement of financial position, the IFRS consolidated statement of changes in equity and the IFRS condensed consolidated statement of cash flows and associated notes, which have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Company and the undertakings included in the consolidation taken as a whole as required by the DTR 4.2.4R,
2.	The European Embedded Value (EEV) consolidated income statement, the EEV earnings per share statement, the EEV consolidated statement of comprehensive income, the EEV consolidated statement of financial position and associated notes have been prepared on the EEV basis as set out in Note 4.1,
3.	The Business review includes a fair review of the information required by DTR 4.2.7R, namely important events that have occurred during the period and their impact on the condensed set of financial statements, as well as a description of the principal risks and uncertainties faced by the company and the undertakings included in the consolidation taken as a whole for the remaining six months of the financial year, and
4.	The Business review and the notes to the condensed set of financial statements include a fair review of the information required by DTR 4.2.8R, namely material related party transactions and any material changes in the related party transactions described in the last annual report.

As announced in the Annual Report and Accounts 2011, Lynne Peacock was appointed to the Board on 1 April 2012 as a non-executive Director, and at our Annual General Meeting in May 2012, Lord Blackwell and Baroness McDonagh retired from the Board as non-executive Directors. In May 2012, John Paynter was appointed Senior Independent Director. Noel Harwerth was appointed as a non-executive Director on 20 July 2012. At the same time, she was appointed Chairman of the Risk and Capital Committee.

The current Directors of Standard Life plc are listed on the Standard Life plc website, www.standardlife.com

By order of the Board

Gerry Grimstone       Chairman 14 August 2012	Jackie Hunt     Chief Financial Officer     14 August 2012

3 International Financial Reporting Standards (IFRS)

IFRS condensed consolidated income statement

For the six months ended 30 June 2012

		6 months 2012	6 months 2011	Full year 2011
	Notes	£m	£m	£m
Revenue
Gross earned premium		2,144	1,684	3,343
Premium ceded to reinsurers		(46)	(45)	(98)
Net earned premium		2,098	1,639	3,245
Net investment return		5,297	3,124	4,911
Fee and commission income		447	434	855
Other income		38	46	75
Total net revenue		7,880	5,243	9,086
Expenses
Claims and benefits paid		3,117	3,000	6,245
Claim recoveries from reinsurers		(299)	(312)	(620)
Net insurance benefits and claims		2,818	2,688	5,625
Change in policyholder liabilities		3,185	888	136
Change in reinsurance assets and liabilities		122	166	383
Expenses under arrangements with reinsurers		249	185	516
Administrative expenses	3.3	855	869	1,663
Change in liability for third party interest in consolidated funds		324	58	103
Finance costs	3.3	37	57	116
Total expenses		7,590	4,911	8,542
Share of profit from associates and joint ventures		27	31	51
Profit before tax		317	363	595
Tax expense attributable to policyholders' returns	3.4	94	71	217
Profit before tax attributable to equity holders' profits		223	292	378
Total tax expense	3.4	55	129	249
Less: Tax attributable to policyholders' returns	3.4	(94)	(71)	(217)
Tax (credit)/expense attributable to equity holders' profits	3.4	(39)	58	32
Profit for the period		262	234	346
Attributable to:
Equity holders of Standard Life plc	3.2	254	199	298
Non-controlling interests		8	35	48
		262	234	346
Earnings per share
Basic (pence per share)	3.5(a)	10.8	8.7	13.0
Diluted (pence per share)	3.5(b)	10.8	8.7	12.9

The Notes on pages 45 to 59 are an integral part of this consolidated financial information.

IFRS consolidated statement of comprehensive income

For the six months ended 30 June 2012

		6 months 2012	6 months 2011	Full year 2011
	Notes	£m	£m	£m
Profit for the period		262	234	346
Actuarial (losses)/gains on defined benefit pension schemes		(168)	(37)	121
Effect of limit on defined benefit pension schemes' surpluses		65	(29)	(209)
Revaluation of land and buildings		2	(4)	(5)
Net investment hedge		6	(6)	13
Exchange differences on translating foreign operations		(34)	18	(53)
Equity movements transferred to unallocated divisible surplus		7	2	11
Aggregate equity holder tax effect of items recognised in comprehensive income	3.4	102	20	27
Other comprehensive expense for the period		(20)	(36)	(95)
Total comprehensive income for the period		242	198	251
Attributable to:
Equity holders of Standard Life plc		234	163	203
Non-controlling interests		8	35	48
		242	198	251

The Notes on pages 45 to 59 are an integral part of this consolidated financial information.

Pro forma reconciliation of consolidated Group operating profit to IFRS profit

for the period

For the six months ended 30 June 2012

		6 months 2012	6 months 2011	Full year 2011
	Notes	£m	£m	£m
Operating profit before tax
UK		141	87	220
Global investment management		68	67	125
Canada		72	103	187
International		28	19	40
Other		(7)	(14)	(28)
Operating profit before tax	3.2	302	262	544
Adjusted for the following items:
Short-term fluctuations in investment return and economic assumption changes	3.6	(43)	27	(139)
Restructuring and corporate transaction expenses	3.3	(42)	(23)	(70)
Impairment of intangible assets		-	(7)	(5)
Other operating profit adjustments		3	(2)	-
Non-operating loss before tax	3.2	(82)	(5)	(214)
Share of joint ventures' and associates' tax expense1	3.4	(5)	-	-
Profit attributable to non-controlling interests		8	35	48
Profit before tax attributable to equity holders' profits		223	292	378
Tax credit/(expense) attributable to:
Operating profit	3.2	8	(52)	(87)
Adjusted items	3.2	31	(6)	55
Total tax credit/(expense) attributable to equity holders' profits	3.4	39	(58)	(32)
Profit for the period		262	234	346

¹    In prior periods the tax included in the share of profits or losses from joint ventures and associates was charged to operating profit before tax (six months ended 30 June 2011: £5m; 12 months ended 31 December 2011: £11m).

The Group's chosen supplementary measure of performance is operating profit. The Directors believe that operating profit provides a more meaningful indication of the long-term operating performance of the Group. To align the measure of the Group's performance with the long-term nature of its business, operating profit excludes items which create short-term volatility. Operating profit includes the impact of significant actions taken by management during the year.

IFRS condensed consolidated statement of financial position

As at 30 June 2012

		30 June 2012	30 June 2011	31 December 2011
	Notes	£m	£m	£m
Assets
Intangible assets		204	186	200
Deferred acquisition costs		900	916	920
Investments in associates and joint ventures		351	350	326
Investment property		8,646	8,669	8,743
Property, plant and equipment		155	161	160
Reinsurance assets		6,811	6,803	6,818
Loans		3,237	3,182	3,219
Derivative financial assets		2,625	1,273	2,212
Investment securities		129,710	127,895	125,707
Other assets		3,387	3,840	2,631
Cash and cash equivalents		9,775	8,752	9,187
Total assets		165,801	162,027	160,123
Equity
Share capital	3.8(a)	236	233	235
Shares held by trusts		(5)	(16)	(19)
Share premium reserve		1,110	1,063	1,110
Retained earnings		1,074	1,051	1,030
Other reserves		1,578	1,636	1,605
Equity attributable to equity holders of Standard Life plc		3,993	3,967	3,961
Non-controlling interests		348	370	358
Total equity		4,341	4,337	4,319
Liabilities
Non-participating contract liabilities	3.9	106,473	103,083	102,558
Participating contract liabilities	3.9	31,973	33,095	32,553
Reinsurance liabilities		360	-	245
Deposits received from reinsurers		6,022	5,892	6,036
Third party interest in consolidated funds		9,472	7,626	8,428
Borrowings		142	258	170
Subordinated liabilities		1,176	1,873	1,186
Deferred income		359	391	388
Income and deferred tax liabilities		141	343	294
Derivative financial liabilities		1,637	1,019	1,102
Other liabilities		3,705	4,110	2,844
Total liabilities		161,460	157,690	155,804
Total equity and liabilities		165,801	162,027	160,123

The Notes on pages 45 to 59 are an integral part of this consolidated financial information.

IFRS consolidated statement of changes in equity

For the six months ended 30 June 2012

		Share capital	Shares held by trusts	Share premium reserve	Retained earnings	Other reserves	Total equity attributable to equity holders of Standard Life plc	Non-controlling interests	Total equity
2012	Notes	£m	£m	£m	£m	£m	£m	£m	£m
1 January		235	(19)	1,110	1,030	1,605	3,961	358	4,319
Profit for the period		-	-	-	254	-	254	8	262
Other comprehensive income for the period		-	-	-	(1)	(19)	(20)	-	(20)
Total comprehensive income for the period		-	-	-	253	(19)	234	8	242
Distributions to equity holders	3.7	-	-	-	(216)	-	(216)	-	(216)
Issue of share capital other than in cash		1	-	-	-	-	1	-	1
Reserves credit for employee share-based payment schemes		-	-	-	-	12	12	-	12
Transfer to retained earnings for vested employee share-based payment schemes		-	-	-	22	(22)	-	-	-
Shares acquired by employee trusts		-	(2)	-	-	-	(2)	-	(2)
Shares distributed by employee trusts		-	16	-	(15)	-	1	-	1
Other movements in non-controlling interests in the period		-	-	-	-	-	-	(18)	(18)
Aggregate tax effect of items recognised directly in equity	3.4	-	-	-	-	2	2	-	2
30 June		236	(5)	1,110	1,074	1,578	3,993	348	4,341

		Share capital	Shares held by trusts	Share premium reserve	Retained earnings	Other reserves	Total equity attributable to equity holders of Standard Life plc	Non-controlling interests	Total equity
2011	Notes	£m	£m	£m	£m	£m	£m	£m	£m
1 January		228	(21)	976	1,094	1,626	3,903	335	4,238
Profit for the period		-	-	-	199	-	199	35	234
Other comprehensive income for the period		-	-	-	(46)	10	(36)	-	(36)
Total comprehensive income for the period		-	-	-	153	10	163	35	198
Distributions to equity holders	3.7	-	-	-	(197)	-	(197)	-	(197)
Issue of share capital other than in cash		5	-	87	-	-	92	-	92
Reserves credit for employee share-based payment schemes		-	-	-	-	11	11	-	11
Transfer to retained earnings for vested employee share-based payment schemes		-	-	-	11	(11)	-	-	-
Shares acquired by employee trusts		-	(4)	-	-	-	(4)	-	(4)
Shares distributed by employee trusts		-	9	-	(10)	-	(1)	-	(1)
30 June		233	(16)	1,063	1,051	1,636	3,967	370	4,337

		Share capital	Shares held by trusts	Share premium reserve	Retained earnings	Other reserves	Total equity attributable to equity holders of Standard Life plc	Non-controlling interests	Total equity
2011	Notes	£m	£m	£m	£m	£m	£m	£m	£m
1 January		228	(21)	976	1,094	1,626	3,903	335	4,238
Profit for the year		-	-	-	298	-	298	48	346
Other comprehensive income for the year		-	-	-	(61)	(34)	(95)	-	(95)
Total comprehensive income for the year		-	-	-	237	(34)	203	48	251
Distributions to equity holders	3.7	-	-	-	(303)	-	(303)	-	(303)
Issue of share capital other than in cash		7	-	134	-	-	141	-	141
Reserves credit for employee share-based payment schemes		-	-	-	-	24	24	-	24
Transfer to retained earnings for vested employee share-based payment schemes		-	-	-	11	(11)	-	-	-
Shares acquired by employee trusts		-	(7)	-	-	-	(7)	-	(7)
Shares distributed by employee trusts		-	9	-	(9)	-	-	-	-
Other movements in non-controlling interests in the year		-	-	-	-	-	-	(25)	(25)
31 December		235	(19)	1,110	1,030	1,605	3,961	358	4,319

The Notes on pages 45 to 59 are an integral part of this consolidated financial information.

IFRS condensed consolidated statement of cash flows

For the six months ended 30 June 2012

	6 months 2012	6 months 2011	Full year 2011
	£m	£m	£m
Cash flows from operating activities
Profit before tax	317	363	595
Change in operating assets	(5,337)	(3,654)	(2,056)
Change in operating liabilities	5,309	4,929	4,026
Non-cash and other items	42	23	122
Taxation paid	(192)	(156)	(297)
Net cash flows from operating activities	139	1,505	2,390
Cash flows from investing activities
Net acquisition of property, plant and equipment	(5)	(5)	(15)
Acquisition of subsidiaries net of cash acquired	-	(40)	(41)
Disposal of subsidiaries net of cash disposed1	5	-	-
Acquisition of investments in associates and joint ventures	(16)	(23)	(23)
Net acquisition of intangible assets	(13)	(17)	(39)
Net cash flows from investing activities	(29)	(85)	(118)
Cash flows from financing activities
Proceeds from other borrowings	-	4	5
Repayment of other borrowings	(17)	(11)	(35)
Repayment of subordinated liabilities	-	-	(591)
Capital flows from non-controlling interests and third party interest in consolidated funds	845	1,642	2,177
Distributions paid to non-controlling interests	(34)	(27)	(65)
Shares acquired by trusts	(2)	(4)	(7)
Interest paid on financing activities	(39)	(39)	(125)
Ordinary dividends paid	(216)	(105)	(162)
Net cash flows from financing activities	537	1,460	1,197
Net increase in cash and cash equivalents	647	2,880	3,469
Cash and cash equivalents at the beginning of the period	9,125	5,701	5,701
Effects of exchange rate changes on cash and cash equivalents	(49)	46	(45)
Cash and cash equivalents at the end of the period2	9,723	8,627	9,125
Supplemental disclosures on cash flows from operating activities
Interest paid	5	5	11
Interest received	1,354	1,345	2,832
Dividends received	947	816	1,575
Rental income received on investment properties	306	309	634

¹    This represents additional consideration received with respect to the disposal in 2010 of Standard Life Bank plc to Barclays Bank plc as provided for in the disposal agreement.

²    Comprises £9,775m (six months ended 30 June 2011: £8,752m; 12 months ended 31 December 2011: £9,187m) of cash and cash equivalents and (£52m) (six months ended 30 June 2011: (£125m); 12 months ended 31 December 2011: (£62m)) of overdrafts which are reported in borrowings in the statement of financial position.

The Notes on pages 45 to 59 are an integral part of this consolidated financial information.

Notes to the IFRS financial information

3.1 Accounting policies

(a) Basis of preparation

The condensed consolidated half year financial information has been prepared in accordance with the Disclosure Rules and Transparency Rules of the Financial Services Authority and IAS 34 Interim Financial Reporting issued by the International Accounting Standards Board as endorsed by the European Union (EU).

The accounting policies for recognition, measurement, consolidation and presentation as set out in the Group's Annual Report and Accounts 2011 have been applied in the preparation of the condensed half year financial information.

The Group has adopted the following amendments to International Financial Reporting Standards (IFRSs), International Accounting Standards (IASs) and interpretations which are effective from 1 January 2012 and management considers that the implementation of these amendments and interpretations has had no significant impact on the Group's financial statements:

·   Amendment to IFRS 7 Financial Instruments: Disclosures - Transfer of financial assets

The following amendments to IFRSs, IASs, and interpretations are effective from 1 January 2012, or earlier, but have not been adopted by the Group as they have not yet been endorsed by the EU:

·   Amendment to IAS 12 Income Taxes - Deferred Tax: Recovery of underlying assets

·   Amendment to IFRS 1 First time adoption of IFRS - Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters

(b) Condensed half year financial information

This condensed consolidated half year financial information does not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2011 were approved by the Board of Directors on 13 March 2012 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Section 498 of the Companies Act 2006. This condensed consolidated half year financial information has been reviewed, not audited.

3.2 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. The Group's reportable segments are as follows:

UK

UK operations provide a broad range of pensions, protection, savings and investment products to individual and corporate customers.

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.

Canada

Canadian operations provide long-term savings, investment and insurance solutions to individuals, and group benefit and retirement plan members.

International

The businesses included in this reportable segment offer a range of life and pension products and comprise wholly owned operations in Ireland, Germany, Austria and Hong Kong and investments in joint ventures (JVs) in India and China.

Other

This reportable segment primarily includes the group corporate centre and related activities. 

3.2 Segmental analysis continued

(b) Reportable segments - Group operating profit, revenue and asset information

IFRS 8 Operating Segments requires that the information presented in the financial statements is based on information provided to the 'Chief Operating Decision Maker'. The Chief Operating Decision Maker for the Group is the Executive Team.

The information used by the Executive Team to manage the business of the Group has evolved in recent years and the segmental analysis has been updated to reflect the financial information now reviewed by the Executive Team. The key performance metrics of the Group include operating profit and assets under administration (AUA), which are analysed below by reportable segment.

In June 2012, changes were announced in the way the Group will manage its businesses. German and Irish domestic businesses, currently reported in the International segment, will be combined with the UK to create UK and Europe. The other components of International will form Asia and Emerging Markets. These changes will provide stronger focus and will help drive further value in each of the markets in which the Group operates. The results for the six months to 30 June 2012 have been presented in the existing reportable segments since the businesses of the Group have been managed on this basis. The reportable segments will be changed for the year ended 31 December 2012.

All comparative amounts have also been prepared on the same basis to allow more meaningful comparison with the prior year.

(b)(i)    Analysis of Group operating profit by segment

As described beneath the pro forma reconciliation of consolidated Group operating profit to IFRS profit for the period, operating profit is considered to present an indication of the long-term operating business performance of the Group. Operating profit is one of the key measures utilised by the Executive Team in their evaluation of segmental performance and is therefore presented by reportable segment.

	UK	Global investment management1	Canada	International	Other	Elimination	Total
30 June 2012	£m	£m	£m	£m	£m	£m	£m
Fee based revenue	325	203	83	103	-	(94)	620
Spread/risk margin	56	-	124	-	-	-	180
Total income	381	203	207	103	-	(94)	800
Acquisition expenses	(84)	-	(41)	(19)	-	-	(144)
Maintenance expenses	(169)	(135)	(114)	(65)	-	94	(389)
Group corporate centre costs	-	-	-	-	(20)	-	(20)
Capital management	13	-	20	1	13	-	47
India and China JV businesses	-	-	-	8	-	-	8
Operating profit/(loss) before tax	141	68	72	28	(7)	-	302
Tax on operating profit	34	(15)	(11)	(2)	2	-	8
Share of joint ventures' and associates' tax expense	-	(3)	(2)	-	-	-	(5)
Operating profit/(loss) after tax	175	50	59	26	(5)	-	305
Adjusted for the following items:
Short-term fluctuations in investment return and economic assumption changes	(32)	-	(18)	8	(1)	-	(43)
Restructuring and corporate transaction expenses	(33)	(2)	(1)	(2)	(4)	-	(42)
Impairment of intangible assets	-	-	-	-	-	-	-
Other operating profit adjustments	3	-	-	-	-	-	3
Total non-operating items	(62)	(2)	(19)	6	(5)	-	(82)
Tax on non-operating items	21	1	10	(1)	-	-	31
Profit for the period attributable to equity holders of Standard Life plc	134	49	50	31	(10)	-	254
Profit attributable to non-controlling interests							8
Profit for the period							262

¹    Global investment management fee based revenue includes share of profits before tax from HDFC Asset Management Company Limited.

Each operating segment reports in its analysis of operating profit total income as its measure of revenue. Fee based revenue consists of income generated primarily from asset management charges, premium based charges and transactional charges. Spread/risk margin is derived from the difference between guaranteed returns paid to customers and the actual return on assets received. This differs from net revenue reported in the consolidated income statement primarily due to amounts attributable to policyholders.

Eliminations relate to inter-segment transactions, which are entered into under normal commercial terms and conditions that would be available to unrelated third parties.

The allocation of total operating profit presented above 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 customers.

	UK	Global investment management1	Canada	International	Other	Elimination	Total
30 June 2011	£m	£m	£m	£m	£m	£m	£m
Fee based revenue	309	193	84	108	-	(83)	611
Spread/risk margin	52	-	155	-	-	-	207
Total income	361	193	239	108	-	(83)	818
Acquisition expenses	(107)	-	(48)	(20)	-	-	(175)
Maintenance expenses	(171)	(126)	(106)	(70)	(3)	83	(393)
Group corporate centre costs	-	-	-	-	(25)	-	(25)
Capital management	4	-	18	1	14	-	37
India and China JV businesses	-	-	-	-	-	-	-
Other	-	-	-	-	-	-	-
Operating profit/(loss) before tax	87	67	103	19	(14)	-	262
Tax on operating profit	(10)	(17)	(19)	(12)	6	-	(52)
Operating profit/(loss) after tax	77	50	84	7	(8)	-	210
Adjusted for the following items:
Short-term fluctuations in investment return and economic assumption changes	(47)	-	74	2	(2)	-	27
Restructuring and corporate transaction expenses	(15)	-	(1)	(2)	(5)	-	(23)
Impairment of intangible assets	-	-	-	-	(7)	-	(7)
Other operating profit adjustments	(2)	-	-	-	-	-	(2)
Total non-operating items	(64)	-	73	-	(14)	-	(5)
Tax on non-operating items	6	1	(15)	-	2	-	(6)
Profit for the period attributable to equity holders of Standard Life plc	19	51	142	7	(20)	-	199
Profit attributable to non-controlling interests							35
Profit for the period							234

¹    Global investment management fee based revenue includes share of profits after tax from HDFC Asset Management Company Limited.

	UK	Global investment management1	Canada	International	Other	Elimination	Total
31 December 2011	£m	£m	£m	£m	£m	£m	£m
Fee based revenue	625	383	166	221	-	(172)	1,223
Spread/risk margin	75	-	281	-	-	-	356
Total income	700	383	447	221	-	(172)	1,579
Acquisition expenses	(202)	-	(78)	(45)	-	-	(325)
Maintenance expenses	(352)	(258)	(220)	(139)	(3)	172	(800)
Group corporate centre costs	-	-	-	-	(50)	-	(50)
Capital management	10	-	38	1	25	-	74
India and China JV businesses	-	-	-	2	-	-	2
Other	64	-	-	-	-	-	64
Operating profit/(loss) before tax	220	125	187	40	(28)	-	544
Tax on operating profit	(16)	(30)	(31)	(8)	(2)	-	(87)
Operating profit/(loss) after tax	204	95	156	32	(30)	-	457
Adjusted for the following items:
Short-term fluctuations in investment return and economic assumption changes	(47)	1	(72)	(12)	(9)	-	(139)
Restructuring and corporate transaction expenses	(48)	(5)	(2)	(4)	(11)	-	(70)
Impairment of intangible assets	-	-	-	-	(5)	-	(5)
Other operating profit adjustments	-	-	-	-	-	-	-
Total non-operating items	(95)	(4)	(74)	(16)	(25)	-	(214)
Tax on non-operating items	26	1	19	3	6	-	55
Profit for the period attributable to equity holders of Standard Life plc	135	92	101	19	(49)	-	298
Profit attributable to non-controlling interests							48
Profit for the period							346

¹      Global investment management fee based revenue includes share of profits after tax from HDFC Asset Management Company Limited.

3.2 Segmental analysis continued

(b)(ii)   Analysis of assets under administration by segment

Group assets under administration (AUA) presents a measure of the total assets that the Group administers on behalf of customers and institutional clients. AUA represents the IFRS gross assets of the Group adjusted to include third party AUA, which is not included in the condensed consolidated statement of financial position. In addition, certain assets are excluded from the definition, including deferred acquisition costs, intangible assets and reinsurance assets. 

As a long-term savings and investments business, AUA is a key driver of shareholder value and is consequently one of the key measures utilised by the Executive Team in their evaluation of segmental performance. AUA is therefore presented by reportable segment (in billions).

	UK	Global investment management	Canada	International	Other	Elimination1	Total
30 June 2012	£bn	£bn	£bn	£bn	£bn	£bn	£bn
Assets under administration
Fee based	104	74	15	13	-	(38)	168
Spread/risk	15	-	10	-	-	-	25
Assets not backing products in long-term savings business	7	-	2	-	-	-	9
Joint ventures	-	-	-	1	-	-	1
Other corporate assets	-	-	-	-	2	(1)	1
Total assets under administration	126	74	27	14	2	(39)	204

¹    In order to be consistent with the presentation of new business information, certain products are included in both global investment management AUA and other segments. Therefore, at a Group level an elimination adjustment is required to remove any duplication, in addition to other necessary consolidation adjustments.

	UK	Global investment management	Canada	International	Other	Elimination1	Total
30 June 2011	£bn	£bn	£bn	£bn	£bn	£bn	£bn
Assets under administration
Fee based	102	72	15	12	-	(35)	166
Spread/risk	13	-	10	-	-	-	23
Assets not backing products in long-term savings business	7	-	2	-	-	-	9
Joint ventures	-	-	-	1	-	-	1
Other corporate assets	-	-	-	-	2	(1)	1
Total assets under administration	122	72	27	13	2	(36)	200

¹    In order to be consistent with the presentation of new business information, certain products are included in both global investment management AUA and other segments. Therefore, at a Group level an elimination adjustment is required to remove any duplication, in addition to other necessary consolidation adjustments.

	UK	Global investment management	Canada	International	Other	Elimination1	Total
31 December 2011	£bn	£bn	£bn	£bn	£bn	£bn	£bn
Assets under administration
Fee based	101	72	14	12	-	(36)	163
Spread/risk	15	-	10	-	-	-	25
Assets not backing products in long-term savings business	6	-	2	-	-	-	8
Joint ventures	-	-	-	1	-	-	1
Other corporate assets	-	-	-	-	2	(1)	1
Total assets under administration	122	72	26	13	2	(37)	198

¹    In order to be consistent with the presentation of new business information, certain products are included in both global investment management AUA and other segments. Therefore, at a Group level an elimination adjustment is required to remove any duplication, in addition to other necessary consolidation adjustments.

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

	6 months 2012	6 months 2011	Full year 2011
	£m	£m	£m
UK	7,480	7,575	7,647
Continental Europe	42	44	43
Canada	1,483	1,397	1,413
Total	9,005	9,016	9,103

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

3.3 Administrative expenses

		6 months 2012	6 months 2011	Full year 2011
		£m	£m	£m
Restructuring and corporate transaction expenses		43	23	72
Commission expense		194	197	393
Interest expense		8	8	19
Staff costs and other employee-related costs		301	308	569
Impairment of intangible assets		-	7	5
Other administrative expenses		298	350	651
		844	893	1,709
Acquisition costs deferred during the period		(117)	(98)	(178)
Amortisation of deferred acquisition costs		106	74	132
Release of deferred acquisition costs		22	-	-
Total administrative expenses		855	869	1,663

During the period to 30 June 2012, a portfolio of non-participating investment contracts were reclassified as non-participating insurance contracts due to a change in the benefits available under the contracts. As a result of the reclassification deferred income of £26m has been released and recognised in the condensed consolidated income statement in fee and commission income. Deferred acquisition costs of £22m that were considered recovered by the fees that had previously been deferred have also been released, resulting in a net increase of £4m in profit before tax.

In addition to interest expense above of £8m (six months ended 30 June 2011: £8m; 12 months ended 31 December 2011: £19m), interest expense of £37m (six months ended 30 June 2011: £57m; 12 months ended 31 December 2011: £116m) was incurred in respect of subordinated liabilities and £18m (six months ended 30 June 2011: £22m; 12 months ended 31 December 2011: £42m) in respect of deposits from reinsurers.  For the six months ended 30 June 2012, total interest expense is £63m (six months ended 30 June 2011: £87m; 12 months ended 31 December 2011: £177m).

Restructuring expenses relate primarily to the Solvency 2 and Retail Distribution Review programmes and a number of local business unit transformation programmes. Of the total restructuring costs, £42m (six months ended 30 June 2011: £23m; 12 months ended 31 December 2011: £70m) is adjusted when determining operating profit before tax for the period and the remaining £1m (six months ended 30 June 2011: £nil; 12 months ended 31 December 2011: £2m) incurred by the Heritage With Profits Fund in relation to Solvency 2.

3.4    Tax expense

The tax expense is attributed as follows:

	6 months 2012	6 months 2011	Full year 2011
	£m	£m	£m
Tax expense attributable to policyholders' returns	94	71	217
Tax (credit)/expense attributable to equity holders' profits	(39)	58	32
Total tax expense	55	129	249

3.4    Tax expense continued

From 1 April 2012, the UK corporation tax rate reduced from 26% to 24%. This rate change has been included in the calculation of UK current and deferred tax. In addition, the Finance Act 2012 (the Act) reduced the tax rate to 23% from 1 April 2013. As the Act was not substantively enacted by 30 June 2012, this rate change has not been applied in calculating the UK deferred tax position as at 30 June 2012. The rate change will be included in the calculation of UK tax for subsequent reporting periods. The 2012 Budget statement also announced the Government's intention to make a further reduction in the rate of UK corporation tax in 2014. This reduction has not been included in the calculation of deferred tax as it is subject to legislation being enacted in a future year.

The Act introduces a new UK life tax insurance regime, effective from 1 January 2013. The new regime moves the tax basis from the FSA regulatory return to the statutory accounts. Insurers are required to calculate a transitional amount as at 31 December 2012 to make the step change to the accounts basis. As the legislation was not substantively enacted by 30 June 2012, the deferred tax position of Standard Life Assurance Limited (SLAL) does not reflect the new tax regime or the application of the transitional rules. The new tax regime will be applied in the calculation of SLAL's tax position for subsequent reporting periods. Based on SLAL's tax position at 30 June 2012, we do not anticipate that applying the new regime would have a material impact on existing deferred tax assets and liabilities.

The share of tax of associates and joint ventures is £5m (six months ended 30 June 2011: £5m; 12 months ended 31 December 2011: £11m) and is included in Share of profit from associates and joint ventures in the condensed consolidated income statement.

The total tax expense is split as follows:

	6 months 2012	6 months 2011	Full year 2011
	£m	£m	£m
Income tax:
UK	93	76	269
Double tax relief	(1)	(1)	(2)
Canada and international	16	17	31
Adjustment to tax expense in respect of prior periods	(30)	(2)	12
Total income tax	78	90	310
Deferred tax:
Deferred tax (credit)/expense arising from the current periods	(23)	39	(61)
Total deferred tax	(23)	39	(61)
Total tax expense	55	129	249
Attributable to equity holders' profits	(39)	58	32

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

	6 months 2012	6 months 2011	Full year 2011
	£m	£m	£m
Tax credit relating to defined benefit pension schemes	(102)	(20)	(27)
Tax relating to each component of other comprehensive income	(102)	(20)	(27)

Tax relating to items taken directly to equity is as follows:

	6 months 2012	6 months 2011	Full year 2011
	£m	£m	£m
Deferred tax on reserves for employee share based payment shares	(2)	-	-
Tax relating to items taken directly to equity	(2)	-	-

3.5 Earnings per share

(a) Basic earnings per share

Basic earnings per share is calculated by dividing 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 2012	6 months 2011	Full year 2011
Profit attributable to equity holders of Standard Life plc (£m)	254	199	298
Weighted average number of ordinary shares in issue (millions)	2,344	2,279	2,301
Basic earnings per share (pence per share)	10.8	8.7	13.0

(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 annual market share price of the Company's shares) 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, or purchased, assuming the exercise of the share options. 

	6 months 2012	6 months 2011	Full year 2011
Profit attributable to equity holders of Standard Life plc (£m)	254	199	298
Weighted average number of ordinary shares for diluted earnings per share (millions)	2,346	2,282	2,304
Diluted earnings per share (pence per share)	10.8	8.7	12.9

The dilutive effect of share awards and options included in the weighted average number of ordinary shares above was 2,361,976 (six months ended 30 June 2011: 2,096,448; 12 months ended 31 December 2011: 2,345,334).

(c)     Alternative earnings per share

Earnings per share is also calculated based on the operating profit before tax as well as on the profit attributable to equity holders. The Directors believe that earnings per share based on operating profit provides a better indication of the long-term operating business performance of the Group.

(c)(i) Basic alternative earnings per share

	6 months 2012	6 months 2012	6 months 2011	6 months 2011	Full year 2011	Full year 2011
	£m	p per share	£m	p per share	£m	p per share
Operating profit before tax	302	12.9	262	11.5	544	23.6
Adjusted for the following items:
Short-term fluctuations in investment return and economic assumption changes	(43)	(1.8)	27	1.2	(139)	(6.0)
Restructuring and corporate transaction expenses	(42)	(1.8)	(23)	(1.0)	(70)	(3.1)
Impairment of intangible assets	-	-	(7)	(0.3)	(5)	(0.2)
Other operating profit adjustments	3	0.1	(2)	(0.1)	-	-
Non-operating loss before tax	(82)	(3.5)	(5)	(0.2)	(214)	(9.3)
Share of joint ventures' and associates' tax expense	(5)	(0.2)	-	-	-	-
Profit attributable to non-controlling interests	8	0.3	35	1.5	48	2.1
Profit before tax	223	9.5	292	12.8	378	16.4
Tax credit/(expense) attributable to:
Operating profit	8	0.3	(52)	(2.3)	(87)	(3.7)
Adjusted items	31	1.3	(6)	(0.3)	55	2.4
Profit attributable to non-controlling interests	(8)	(0.3)	(35)	(1.5)	(48)	(2.1)
Profit attributable to equity holders of Standard Life plc	254	10.8	199	8.7	298	13.0

3.5 Earnings per share continued

(c)(ii) Diluted alternative earnings per share

	6 months 2012	6 months 2012	6 months 2011	6 months 2011	Full year 2011	Full year 2011
	£m	p per share	£m	p per share	£m	p per share
Operating profit before tax	302	12.9	262	11.5	544	23.6
Adjusted for the following items:
Short-term fluctuations in investment return and economic assumption changes	(43)	(1.8)	27	1.2	(139)	(6.0)
Restructuring and corporate transaction expenses	(42)	(1.8)	(23)	(1.0)	(70)	(3.1)
Impairment of intangible assets	-	-	(7)	(0.3)	(5)	(0.2)
Other operating profit adjustments	3	0.1	(2)	(0.1)	-	-
Non-operating loss before tax	(82)	(3.5)	(5)	(0.2)	(214)	(9.2)
Share of joint ventures' and associates' tax expense	(5)	(0.2)	-	-	-	-
Profit attributable to non-controlling interests	8	0.3	35	1.5	48	2.1
Profit before tax	223	9.5	292	12.8	378	16.4
Tax credit/(expense) attributable to:
Operating profit	8	0.3	(52)	(2.3)	(87)	(3.8)
Adjusted items	31	1.3	(6)	(0.3)	55	2.4
Profit attributable to non-controlling interests	(8)	(0.3)	(35)	(1.5)	(48)	(2.1)
Profit attributable to equity holders of Standard Life plc	254	10.8	199	8.7	298	12.9

3.6    Short-term fluctuations in investment return and economic assumption changes

The Group focuses on operating profit as a measure of its performance which incorporates expected returns on investments backing equity holder funds with a consistent allowance for corresponding expected movements in equity holder liabilities. The methodology used in operating profit is outlined below.

Operating profit is based on expected returns on investments backing equity holder funds. The difference between the expected return and actual return on investments is excluded from operating profit and presented within profit before tax. Adjustments are also made consistently to allow for expected movements in equity holder liabilities except where they are directly related to a significant management action. As a result, the components of IFRS profit attributable to market movements and interest rate changes which give rise to variances between actual and expected investment returns, as well as the impact of changes in economic assumptions on equity holder liabilities, are excluded from operating profit and disclosed separately within the heading of short-term fluctuations in investment return and economic assumption changes.

The expected rates of return for debt securities, equity securities and property are determined separately for each of the Group's operations and are consistent with the expected rates of return as determined under the Group's published European Embedded Value (EEV) methodology. The expected rates of return for equity securities and property, with the exception of the Canadian operations, are determined based on the gilt spot rates of an appropriate duration plus an equity risk premium or property risk premium, respectively. The expected rates of return on equity securities and property for Canadian operations are determined by the Appointed Actuary in Canada. 

The principal assumptions as set at the start of the period in respect of gross investment returns underlying the calculation of the expected investment return for equity securities and property are as follows:

	6 months 2012		6 months 2011		Full year 2011
	UK	Canada	UK	Canada	UK	Canada
	%	%	%	%	%	%
Equity securities	4.93	8.60	6.49	8.60	6.49	8.60
Property	3.93	8.60	5.49	8.60	5.49	8.60

In respect of debt securities, the expected rate of return is determined based on the average prospective yields for the debt securities actually held or, in respect of the Canadian operations, is determined by the Appointed Actuary in Canada.

Gains and losses on foreign exchange are deemed to represent short-term fluctuations in investment return and economic assumption changes and thus are excluded from operating profit.

Short-term fluctuations in investment return and economic assumption changes for the six months ended 30 June 2012 were losses of £43m (six months ended 30 June 2011: gains of £27m; 12 months ended 31 December 2011: losses of £139m). Short-term fluctuations in investment return relate principally to the investment volatility in Canada non-segregated funds, UK annuities and in respect of the Group's subordinated liabilities and assets backing those liabilities.

3.7    Dividends

Subsequent to 30 June 2012, the Directors have proposed an interim dividend for 2012 of 4.90 pence per ordinary share (interim 2011: 4.60 pence), an estimated £115m in total (interim 2011: £106m). The dividend will be paid on 14 November 2012. This dividend will be recorded as an appropriation of retained earnings in the financial statements for the year ended 31 December 2012. During the six months ended 30 June 2012 a final dividend for the year ended 31 December 2011 of 9.20 pence per ordinary share (final 2010: 8.65 pence) totalling £216m (final 2010: £197m) was paid.

Commencing with the final dividend for 2011 the option to receive dividend entitlement under the Scrip scheme was removed and has been replaced with a dividend reinvestment plan. Investors who took part in the Scrip scheme received their dividend entitlement in the form of shares rather than cash and the distribution under the Scrip scheme was recorded as an appropriation of retained earnings. Dividends paid in the six months ended 30 June 2012 comprise £216m (six months ended 30 June 2011: £105m; 12 months ended 31 December 2011: £162m) paid in cash and £nil (six months ended 30 June 2011: £92m; 12 months ended 31 December 2011: £141m) settled by the issue of shares under the Scrip scheme.

3.8    Issued share capital and shares held by trusts

(a) Issued share capital

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

	6 months 2012	6 months 2012	6 months 2011	6 months 2011	Full year 2011	Full year 2011
	Number	£m	Number	£m	Number	£m
At start of period	2,353,665,822	235	2,283,019,841	228	2,283,019,841	228
Shares issued in lieu of cash dividends	-	-	44,791,814	5	70,138,459	7
Shares issued in respect of share incentive plans	271,215	-	267,605	-	507,364	-
Shares issued in respect of share options	3,840,453	1	-	-	158	-
At end of period	2,357,777,490	236	2,328,079,260	233	2,353,665,822	235

As discussed in Note 3.7 - Dividends, no shares have been issued in respect of dividends during the six months ended 30 June 2012 since the Scrip dividend scheme has been removed.  For the six months ended 30 June 2011 and the 12 months ended 31 December 2011, 44,791,814 and 70,138,459 shares respectively were issued under the scheme.

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 ended 30 June 2012, the Company allotted 271,215 ordinary shares to Group employees under the share incentive plans (six months ended 30 June 2011: 267,605; 12 months ended 31 December 2011: 507,364).

The Group also operates a Long-Term Incentive Plan (LTIP) for executives and senior management and a Sharesave (Save-as-you-earn) scheme for all eligible employees. During the six months ended 30 June 2012, 3,832,753 ordinary shares were issued on exercise of share options in respect of the LTIP (six months ended 30 June 2011: none; 12 months ended 31 December 2011: none) and 7,700 ordinary shares (six months ended 30 June 2011: none; 12 months ended 31 December 2011: 158) were issued on exercise of share options in respect of the Sharesave scheme.

All ordinary shares in issue in the Company rank pari passu and carry the same voting rights and the same rights to receive dividends and other distributions declared or paid by the Company.

(b) Shares held by trusts

The Employee Share Trust (EST) purchases and holds shares in the Company for delivery to employees under various employee share schemes. Shares purchased by the EST are presented as a deduction from equity in the condensed consolidated statement of financial position. Share-based liabilities to employees may also be settled by the issue of new shares.

Shares held by trusts also include shares held by the Unclaimed Asset Trust (UAT). The shares held by the UAT are those not yet claimed by the eligible members of The Standard Life Assurance Company (SLAC) following its demutualisation on 10 July 2006.

Any corresponding obligation to deliver a fixed number of the Company's equity instruments to employees, or eligible members of SLAC, is offset within the shares held by trusts reserve.

At 30 June 2012, the number of shares held by trusts which were not offset by a corresponding obligation to deliver a fixed number of equity instruments was 4,416,801 (30 June 2011: 9,665,802; 31 December 2011: 10,879,286).

3.9 Insurance contracts, investment contracts and reinsurance contracts

		30 June 2012	30 June 2011	31 December 2011
		£m	£m	£m
Non-participating insurance contract liabilities		27,946	23,797	25,048
Non-participating investment contract liabilities		78,527	79,286	77,510
Non-participating contract liabilities		106,473	103,083	102,558
Participating insurance contract liabilities		15,988	17,098	16,509
Participating investment contract liabilities		15,313	15,230	15,319
Unallocated divisible surplus		672	767	725
Participating contract liabilities		31,973	33,095	32,553

Due to a change in the benefits available under certain contracts, £2,182m of non-participating investment contracts have been reclassified as non-participating insurance contracts during the six months ended 30 June 2012.

Due to changes in economic and non-economic factors, certain assumptions used in estimating insurance and investment contract liabilities have been revised. Therefore, the change in liabilities reflects actual experience over the period, changes in assumptions and, to a limited extent, improvements in modelling techniques.

The movements in insurance contracts, investment contracts and reinsurance contracts during the six months ended 30 June 2012, and the six months ended 30 June 2011 arising from changes in estimates are set out below:

	Participating insurance contract liabilities	Non-participating insurance contract liabilities	Participating investment contract liabilities	Non-participating investment contract liabilities	Reinsurance contracts		Net
30 June 2012	£m	£m	£m	£m	£m		£m
Changes in:
Methodology/modelling changes	(62)	(118)	76	-	110		6
Non-economic assumptions	-	(6)	-	-	-		(6)
Economic assumptions	(28)	358	22	-	(133)		219
30 June 2011
Changes in:
Methodology/modelling changes	(34)	(6)	33	-	-	(7)
Non-economic assumptions	-	-	-	-	-	-
Economic assumptions	(134)	91	54	-	(9)	2

The movement in insurance contract liabilities, participating investment contracts and reinsurance contracts during the year ended 31 December 2011 was as follows:

	Participating insurance contract  liabilities	Non-participating insurance contract liabilities	Participating investment contract liabilities	Total  insurance and participating contracts	Reinsurance contracts	Net
2011	£m	£m	£m	£m	£m	£m
At 1 January	17,357	23,564	15,329	56,250	(6,962)	49,288
Expected change	(1,014)	(523)	(658)	(2,195)	301	(1,894)
Methodology/modelling changes	(11)	(7)	14	(4)	-	(4)
Effect of changes in:
Economic assumptions	(37)	1,309	176	1,448	(292)	1,156
Non-economic assumptions	4	(245)	15	(226)	385	159
Effect of:
Economic experience	325	595	438	1,358	(23)	1,335
Non-economic experience	38	(507)	(51)	(520)	18	(502)
New business	30	1,013	76	1,119	(6)	1,113
Total change in contract liabilities	(665)	1,635	10	980	383	1,363
Foreign exchange adjustment	(183)	(151)	(20)	(354)	6	(348)
At 31 December	16,509	25,048	15,319	56,876	(6,573)	50,303
Reinsurance assets					(6,818)
Reinsurance liabilities					245
					(6,573)

The change in non-participating investment contract liabilities during the year ended 31 December 2011 was as follows:

	2011
	£m
At 1 January	75,600
Contributions	11,904
Initial charges and reduced allocations	(7)
Account balances paid on surrender and other terminations in the year	(8,525)
Investment return credited and related benefits	(757)
Foreign exchange adjustment	(305)
Recurring management charges	(400)
At 31 December	77,510

3.10   Defined benefit and defined contribution pension plans

(a)     Analysis of amounts recognised in the condensed consolidated income statement

The amounts recognised in the condensed consolidated income statement for defined contribution and defined benefit schemes are as follows:

	6 months 2012	6 months 2011	Full year 2011
	£m	£m	£m
Current service cost	(35)	(30)	(60)
Interest cost on benefit obligation	(53)	(53)	(107)
Expected return on plan assets	76	69	136
Past service cost	(1)	1	64
(Expense)/credit recognised in the summary consolidated income statement	(13)	(13)	33

For the 12 months to 31 December 2011, a credit from past service costs of £64m was recognised as a result of a change in the basis of future pension increases in the UK staff pension scheme.

(b) Analysis of amounts recognised in the condensed consolidated statement of financial position

The present value of the defined benefit obligation less the fair value of gross scheme assets is as follows:

	30 June 2012				30 June 2011				31 December 2011
	UK	Canada	Ireland	Total	UK	Canada	Ireland	Total	UK	Canada	Ireland	Total
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Present value of funded obligation	(2,122)	(224)	(52)	(2,398)	(1,734)	(182)	(54)	(1,970)	(1,972)	(215)	(54)	(2,241)
Present value of unfunded obligation	-	(71)	-	(71)	-	(59)	-	(59)	-	(68)	-	(68)
Fair value of plan assets	2,533	179	57	2,769	2,006	177	51	2,234	2,519	179	58	2,756
Adjustment for unrecognised past service costs	-	(5)	-	(5)	-	(6)	-	(6)	-	(5)	-	(5)
Effect of limit on plan surpluses	(144)	-	-	(144)	(29)	-	-	(29)	(209)	-	-	(209)
Net asset/(liability)	267	(121)	5	151	243	(70)	(3)	170	338	(109)	4	233

Under the guidance contained in IFRIC 14 IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction, the UK scheme surplus is considered to be recoverable as a right to a refund exists.  In measuring the economic benefit available as a refund at 30 June 2012, the surplus has been reduced by £144m to reflect the authorised surplus payments charge of 35% that would arise on a refund.  When measuring the defined benefit asset in prior periods, a component of the surplus was not considered recoverable and therefore the unrecoverable amount was not recognised (six months ended 30 June 2011: £29m; 12 months ended 31 December 2011: £209m).

3.10   Defined benefit and defined contribution plans continued

(b) Analysis of amounts recognised in the condensed consolidated statement of financial position continued

The Group also recognises a net liability of £6m (30 June 2011: £6m; 31 December 2011: £6m) arising from a scheme with a total defined benefit obligation of £6m (30 June 2011: £6m; 31 December 2011: £6m) administered for the benefit of employees in Germany, resulting in a net asset of £145m (30 June 2011: £164m; 31 December 2011: £227m). The condensed consolidated statement of financial position presents any net scheme assets within other assets and any net scheme liabilities within other liabilities.

(c)     Principal assumptions

The principal economic assumptions used in determining pension benefit obligation for the Group's plans are as follows:

	30 June 2012			30 June 2011			31 December 2011
	UK	Canada	Ireland	UK	Canada	Ireland	UK	Canada	Ireland
	%	%	%	%	%	%	%	%	%
Rate of increase in salaries	5.30	3.50	3.50	4.75-5.75	3.50	3.50	4.45-5.45	3.50	3.50
Rate of increase in pensions	2.70	1.33	1.00	3.15-3.75	1.33	1.00	2.85	1.33	1.00
Discount rate	4.40	4.30	5.10	5.45	5.50	5.25	4.60	4.50	5.10
Inflation assumption	2.70-3.30	2.00	2.00	3.15-3.75	2.00	2.00	2.85-3.45	2.00	2.00
Expected return on plan assets	5.45	5.75	4.00	6.15	7.00	5.00	5.45	5.75	4.00

3.11   Risk management 

The Group recognises the need to manage long-term value creation, cash flow and risk in a holistic manner in order to make informed decisions to create and protect value in the Group's activities. The Group is proactive in understanding and managing the risks to its objectives at every level and ensuring that capital is delivered to areas where most value can be created for the risks taken.  

The Group classifies the risks to which it is exposed as follows:

·   Market risk

·   Credit risk

·   Demographic and expense risk

·   Liquidity risk

·   Operational risk

The Group's Half Year Results do not include all financial risk management information and disclosures required in the Group's Annual Report and Accounts. This note should therefore be read in conjunction with the Group's Annual Report and Accounts for the year ended 31 December 2011.

There have been no significant changes to the Group's enterprise risk management framework since year end however it continues to evolve as the Group prepares for the Solvency 2 Directive. No changes have been made to qualitative risk appetites or key metrics used to set quantitative risk appetites.

During the six months ended 30 June 2012 credit concerns have continued regarding debt issued by certain European sovereign states and banks. In response, the Group has continued to exclude holdings in peripheral European sovereign debt from its benchmarks for fixed interest portfolios other than those held in unit linked funds.  The Group has also continued to restrict holdings of cash and cash equivalents to banking counterparties that are assessed to be of appropriate credit standing, taking into consideration both direct and indirect factors such as the potential impact of contagion risk.

Fair value of financial assets and liabilities 

The Group's financial assets and liabilities held at fair value have been analysed using a fair value hierarchy that reflects the significance of the inputs used in valuing those instruments. The fair value hierarchy is based on the following levels:

Level 1	Quoted prices (unadjusted) in active markets for identical assets or liabilities. This category includes listed equity securities, certain government bonds and supranational institution bonds and exchange traded futures and options.
Level 2	Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). This category includes certain government bonds, listed or quoted corporate bonds, non-participating investment contract liabilities, third party interest in consolidated funds and derivative instruments that are not exchange traded. Corporate bonds have generally been classified as level 2 instruments as the composite price provided by external pricing providers may include, as an input, quotes provided by some banks that are not based on actual transaction prices.
Level 3	Inputs for the asset or liability that are not based on observable market data. Level 3 financial instruments principally include unlisted equity securities, corporate bonds for which prices are not available from external pricing providers or where such prices are based on a single broker indicative quote and third party interest in consolidated funds which are not priced daily and where a significant proportion of the fund's assets are valued using inputs that are not based on observable market data.

Fair value hierarchy for financial assets measured at fair value in the condensed consolidated statement of financial position        

The following table presents an analysis of financial assets measured at fair value by level of the fair value hierarchy.

				Fair value hierarchy
	Level 1			Level 2			Level 3			Total
	30 Jun 2012	30 Jun 2011	31 Dec 2011	30 Jun 2012	30 Jun 2011	31 Dec 2011	30 Jun 2012	30 Jun 2011	31 Dec 2011	30 Jun 2012	30 Jun 2011	31 Dec 2011
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Equity securities	58,555	61,976	57,286	-	-	-	1,213	1,276	1,245	59,768	63,252	58,531
Debt securities	26,629	24,012	27,699	41,948	39,038	38,095	1,365	1,593	1,382	69,942	64,643	67,176
Derivative financial assets	838	407	577	1,787	866	1,635	-	-	-	2,625	1,273	2,212
Financial assets at fair value	86,022	86,395	85,562	43,735	39,904	39,730	2,578	2,869	2,627	132,335	129,168	127,919

There were no significant transfers of financial assets between the levels of the fair value hierarchy during the six months ended 30 June 2012 (six months ended 30 June 2011: none; 12 months ended 31 December 2011: none).

Fair value hierarchy for financial liabilities measured at fair value in the condensed consolidated statement of financial position

The following table presents an analysis of financial liabilities measured at fair value by level of the fair value hierarchy.

				Fair value hierarchy
	Level 1			Level 2			Level 3			Total
	30 Jun 2012	30 Jun 2011	31 Dec 2011	30 Jun 2012	30 Jun 2011	31 Dec 2011	30 Jun 2012	30 Jun 2011	31 Dec 2011	30 Jun 2012	30 Jun 2011	31 Dec 2011
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Non-participating investment contract liabilities	-	-	-	75,723	76,338	74,673	-	-	-	75,723	76,338	74,673
Third party interest in consolidated funds	-	-	-	9,468	7,612	8,421	4	14	7	9,472	7,626	8,428
Derivative financial liabilities	497	235	434	1,140	784	668	-	-	-	1,637	1,019	1,102
Financial liabilities at fair value	497	235	434	86,331	84,734	83,762	4	14	7	86,832	84,983	84,203

There were no significant transfers of financial liabilities between the levels of the fair value hierarchy during the six months ended 30 June 2012 (six months ended 30 June 2011: none; 12 months ended 31 December 2011: none).

3.12   Provisions and contingent liabilities

(a) Legal proceedings and regulations

In January 2009 the value of units in the Standard Life Pension Fund was reduced to reflect reductions in the market value of certain instruments held by the fund.  In February 2009 to reinstate customers invested in that fund to the position they would have been before the valuation adjustment, Standard Life Assurance Limited (SLAL) injected cash into the fund. An expense of £102m was recognised in administrative expenses in the consolidated income statement for the year ended 31 December 2008 in respect of the injection into the fund.

SLAL subsequently claimed reimbursement for the cash injection under its 2008/2009 Professional Indemnity policy. This claim was contested by the insurers of the policy. A judgment handed down on 1 February 2012 in the Commercial Court in London found in favour of SLAL and SLAL have received a cash receipt of £95m including interest and reimbursement of legal fees.

The insurers are currently appealing the judgment and the appeal is due to be heard in October 2012. Given the judgment is under appeal the risk exists that SLAL will be required to return the cash received or a portion of the cash received to the insurer and therefore, a provision has been recognised in respect of the cash received.

Additionally, the Group, like other financial organisations, is subject to legal proceedings and complaints in the normal course of its business. While it is not practicable to forecast or determine the final results of other pending or threatened legal proceedings, the Directors do not believe that such proceedings (including litigation) will have a material effect on the results and financial position of the Group.

The Group is subject to insurance solvency regulations in all the territories in which it issues insurance and investment contracts, and it has complied in material respects with local solvency and other regulations. Therefore, there are no contingent liabilities in respect of these regulations.

3.12   Contingent liabilities, indemnities and guarantees continued

(b) Issued share capital

The Scheme of Demutualisation sets a 10 year time limit, ending in 2016, for those eligible members of The Standard Life Assurance Company who were not allocated shares at the date of demutualisation to claim their entitlements. As future issues of these shares are dependent upon the actions of eligible members, it is not practical to estimate the financial effect of this potential obligation.

(c)     Other

In the ordinary course of business, Standard Life Trust Company (SLTC) enters into agreements which contain guarantee provisions for clearing system arrangements related to investment activities. Under such arrangements, SLTC, together with other participants in the clearing systems, may be required to guarantee certain obligations of a defaulting member. The guarantee provisions and amounts vary based upon the agreement. The Group cannot estimate the amount, if any, that may be payable upon default. To facilitate its participation in the clearing system, SLTC has provided as security a bank credit facility up to a maximum of CA$84m.

3.13   Commitments

(a) Capital commitments

As at 30 June 2012, £241m (30 June 2011: £245m; 31 December 2011: £275m) was contractually committed to the acquisition of investment properties. Of this amount, £202m (30 June 2011: £203m; 31 December 2011: £248m) and £39m (30 June 2011: £42m; 31 December 2011: £27m) relates to the contractual obligations to purchase, construct or develop investment property and repair, maintain or enhance investment property respectively.

(b) Unrecognised financial instruments

The Group has committed the following unrecognised financial instruments to customers and third parties:

	30 June 2012	30 June 2011	31 December 2011
	£m	£m	£m
Commitments to extend credit:
Original term to maturity of one year or less	67	41	109
Original term to maturity of more than one year	2	4	3
Other commitments	285	277	273

Included in other commitments is £245m (30 June 2011: £260m; 31 December 2011: £257m) committed by certain subsidiaries which are not fully owned by the Group. These commitments are funded through contractually agreed additional investments in the subsidiary by the Group and the non-controlling interests. The levels of funding are not necessarily in line with the relevant percentage holdings.

(c) Operating lease commitments

The Group has entered into commercial non-cancellable leases on certain property, plant and equipment where it is not in the best interest of the Group to purchase these assets. Such leases have varying terms, escalation clauses and renewal rights.

The future aggregate minimum lease payments under non-cancellable operating leases are as follows:

	30 June 2012	30 June 2011	31 December 2011
	£m	£m	£m
Not later than one year	33	22	29
Later than one year and no later than five years	92	53	93
Later than five years	115	125	120
Total operating lease commitments	240	200	242

3.14   Related party transactions

(a) Transactions with/from related parties

Transactions with related parties carried out by the Group were as follows:

	6 months 2012	6 months 2011	Full year 2011
	£m	£m	£m
Sale to:
Associates	7	8,270	8,397
Joint ventures	21	25	51
	28	8,295	8,448
Purchase from:
Associates	-	8,877	8,993
Joint ventures	21	34	24
	21	8,911	9,017

Transactions with associates presented for the six months to 30 June 2011 and 12 months to 31 December 2011 relate primarily to purchases and sales of holdings in two sub-funds of the Standard Life (Global Liquidity Funds) plc (GLF). During the year ended 31 December 2011, these funds were restructured with the majority of the external holding in these funds transferred to a third party.  The remaining assets were transferred into two new GLF sub-funds, which are subsidiaries of the Group.  As a result of the restructure, the GLF sub-funds are no longer associates of the Group.

In addition to the amounts presented above, the Group's defined benefit pension schemes have assets of £819m (30 June 2011: £682m; 31 December 2011: £739m) invested in investment vehicles managed by the Group.

(b) Transactions with key management personnel and their close family members

All transactions between key management personnel and their close family members and the Group are on commercial terms which are equivalent to those available to all employees of the Group. During the six months ended 30 June 2012, key management personnel and their close family members contributed £0.5m (30 June 2011: £0.2m; 31 December 2011: £4.4m) to products sold by the Group.

3.15 Events after the reporting period

On 12 July 2012, the Company redeemed in full the outstanding principal of €62,780,000 on its 6.375% Euro fixed/floating rate subordinated guaranteed bonds.

 

END

 

 

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