Half Yearly Report - Part 3 of 5

RNS Number : 2302O

Standard Life plc

05 August 2014

Standard Life plc

Half year results 2014

Part 3 of 5

2. Statement of Directors' responsibilities

Each of the Directors, whose names and functions are listed on the Standard Life plc website, www.standardlife.com, confirms to the best of his or her knowledge that:

1.	The International Financial Reporting Standards (IFRS) condensed consolidated income statement, the IFRS condensed consolidated statement of comprehensive income, the IFRS condensed consolidated statement of financial position, the IFRS condensed 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 endorsed 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 DTR 4.2.4R
2.	The European Embedded Value (EEV) consolidated income statement, the EEV earnings per share, 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 - Basis of preparation
3.	The Strategic report 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 consolidated financial information, 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
4.	The Strategic report and the notes to the condensed consolidated financial information include a fair review of the information required by DTR 4.2.8R, namely material related party transactions that have occurred during the period and any material changes in the related party transactions described in the last annual report.

As previously announced, Colin Buchan retired as a non-executive Director at the conclusion of the Company's Annual General Meeting on 13 May 2014 and Luke Savage has been appointed as Chief Financial Officer with effect from 18 August 2014.

By order of the Board

Sir Gerry Grimstone

Chairman

5 August 2014

David Nish

Chief Executive

5 August 2014

3. International Financial Reporting Standards (IFRS)

IFRS condensed consolidated income statement

For the six months ended 30 June 2014

		6 months 2014	6 months 2013 restated¹	Full year 2013 restated¹
	Notes	£m	£m	£m
Revenue
Gross earned premium		2,000	2,015	4,128
Premium ceded to reinsurers		(50)	(44)	(93)
Net earned premium		1,950	1,971	4,035
Investment return		6,314	6,190	15,593
Fee and commission income		485	466	946
Other income		44	36	84
Total revenue		8,793	8,663	20,658

Expenses
Claims and benefits paid		2,718	3,095	6,278
Claim recoveries from reinsurers		(283)	(293)	(583)
Net insurance benefits and claims		2,435	2,802	5,695
Change in reinsurance assets and liabilities		25	436	683
Change in insurance and participating contract liabilities		1,903	(1,370)	(1,320)
Change in unallocated divisible surplus		4	(1)	(40)
Change in non-participating investment contract liabilities		2,484	5,326	11,892
Expenses under arrangements with reinsurers		242	(49)	61
Administrative expenses
Restructuring and corporate transaction expenses	3.4	28	38	75
Other administrative expenses		846	847	1,761
Total administrative expenses	3.4	874	885	1,836
Change in liability for third party interest in consolidated funds		338	319	960
Finance costs		53	54	108
Total expenses		8,358	8,402	19,875

Share of profit from associates and joint ventures		17	23	25

Profit before tax		452	284	808

Tax expense attributable to policyholders' returns	3.5	91	105	222

Profit before tax expense attributable to equity holders' profits		361	179	586

Total tax expense	3.5	167	147	312
Less: Tax expense attributable to policyholders' returns	3.5	(91)	(105)	(222)
Tax expense attributable to equity holders' profits	3.5	76	42	90
Profit for the period		285	137	496

Attributable to:
Equity holders of Standard Life plc		275	129	466
Non-controlling interests		10	8	30
		285	137	496
Earnings per share
Basic (pence per share)	3.6	11.6	5.5	19.7
Diluted (pence per share)	3.6	11.5	5.5	19.6

¹ Comparative periods presented have been restated to reflect retrospective application of changes to accounting policies as a result of new IFRSs adopted in the period. Refer to Note 3.1 - Accounting policies (a) Basis of preparation.

The Notes on pages 43 to 76 are an integral part of this IFRS condensed consolidated financial information.

IFRS condensed consolidated statement of comprehensive income

For the six months ended 30 June 2014

		6 months 2014	6 months 2013	Full year 2013
	Notes	£m	£m	£m
Profit for the period		285	137	496
Items that will not be reclassified subsequently to profit or loss:
Remeasurement (losses)/gains on defined benefit pension plans		(14)	130	101
Revaluation of owner occupied property		6	74	68
Equity movements transferred to unallocated divisible surplus		16	(47)	(48)
Equity holder tax effect relating to items that will not be reclassified subsequently to profit or loss	3.5	5	(13)	(13)
Total items that will not be reclassified subsequently to profit or loss		13	144	108

Items that may be reclassified subsequently to profit or loss:
Fair value gains/(losses) on cash flow hedges		1	(1)	-
Net investment hedge		26	(8)	63
Fair value gains/(losses) on available-for-sale financial assets		22	(27)	(32)
Exchange differences on translating foreign operations		(77)	65	(120)
Equity movements transferred to unallocated divisible surplus		(1)	(20)	4
Share of other comprehensive income of joint ventures		2	1	(3)
Equity holder tax effect relating to items that may be reclassified subsequently to profit or loss	3.5	(5)	6	7
Total items that may be reclassified subsequently to profit or loss		(32)	16	(81)
Other comprehensive income for the period		(19)	160	27
Total comprehensive income for the period		266	297	523

Attributable to:
Equity holders of Standard Life plc		256	289	493
Non-controlling interests		10	8	30
		266	297	523

The Notes on pages 43 to 76 are an integral part of this IFRS condensed consolidated financial information.

Pro forma reconciliation of consolidated operating profit to IFRS profit for the period

For the six months ended 30 June 2014

		6 months 2014	6 months 2013	Full year 2013
	Notes	£m	£m	£m
Operating profit before tax
UK and Europe¹		188	180	375
Standard Life Investments¹		104	95	197
Canada		69	59	251
Asia and Emerging Markets		6	(1)	(6)
Other		(28)	(29)	(66)
Operating profit before tax	3.3	339	304	751
Adjusted for the following items:
Short-term fluctuations in investment return and economic assumption changes		50	(90)	(92)
Restructuring and corporate transaction expenses		(27)	(36)	(73)
Changes in Canada insurance contract liabilities due to resolution of prior years' tax matters		-	-	(15)
Other		(10)	(3)	(7)
Non-operating profit/(loss) before tax	3.3	13	(129)	(187)
Share of joint ventures' and associates' tax expense	3.3	(1)	(4)	(8)
Profit attributable to non-controlling interests	3.3	10	8	30
Profit before tax expense attributable to equity holders' profits		361	179	586
Tax expense attributable to:
Operating profit	3.3	(73)	(66)	(141)
Non-operating items	3.3	(3)	24	51
Total tax expense attributable to equity holders' profits		(76)	(42)	(90)
Profit for the period		285	137	496

¹ The split of operating profit before tax for comparative periods presented has been updated to reflect changes in segmental reporting. Refer to Note 3.3 - Segmental analysis (b) Reportable segments - Group operating profit, revenue and asset information.

The Group's chosen supplementary measure of performance is operating profit. The Directors believe that operating profit provides a more useful 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 period.

The Notes on pages 43 to 76 are an integral part of this IFRS condensed consolidated financial information.

IFRS condensed consolidated statement of financial position

As at 30 June 2014

		30 June 2014	30 June 2013 restated¹	31 December 2013 restated¹
	Notes	£m	£m	£m
Assets
Intangible assets		299	220	300
Deferred acquisition costs		897	922	905
Investments in associates and joint ventures		1,885	2,045	1,784
Investment property	3.12	9,302	8,685	8,606
Property, plant and equipment		206	227	219
Pension and other post-retirement benefit assets	3.11	442	447	432
Deferred tax assets		91	144	121
Reinsurance assets		6,088	6,490	6,173
Loans	3.12	2,645	3,157	2,924
Derivative financial assets	3.12	2,648	2,678	1,991
Equity securities and interests in pooled investment funds	3.12	87,732	75,587	84,654
Debt securities	3.12	72,602	70,734	69,209
Receivables and other financial assets	3.12	1,891	4,329	1,107
Other assets		329	288	272
Assets held for sale	3.12	33	-	121
Cash and cash equivalents	3.12	9,675	8,714	10,322
Total assets		196,765	184,667	189,140
Equity
Share capital	3.9(a)	239	238	238
Shares held by trusts		(3)	(6)	(6)
Share premium reserve		1,110	1,110	1,110
Retained earnings		1,431	1,189	1,391
Other reserves		1,468	1,603	1,494
Equity attributable to equity holders of Standard Life plc		4,245	4,134	4,227
Non-controlling interests		312	336	333
Total equity		4,557	4,470	4,560
Liabilities
Non-participating insurance contract liabilities	3.10	29,309	28,785	28,312
Non-participating investment contract liabilities	3.10	100,716	91,606	97,659
Participating contract liabilities	3.10	30,705	31,127	30,447
Reinsurance liabilities		257	396	316
Deposits received from reinsurers		5,538	5,770	5,589
Third party interest in consolidated funds	3.13	17,994	14,144	16,058
Borrowings		136	224	95
Subordinated liabilities		1,841	1,888	1,861
Pension and other post-retirement benefit provisions	3.11	119	106	104
Deferred income		300	334	316
Deferred tax liabilities		194	119	178
Current tax liabilities		94	58	55
Derivative financial liabilities		1,101	1,399	932
Other financial liabilities		3,778	4,122	2,510
Other liabilities		126	119	148
Total liabilities		192,208	180,197	184,580
Total equity and liabilities		196,765	184,667	189,140

The Notes on pages 43 to 76 are an integral part of this IFRS condensed consolidated financial information.

IFRS condensed consolidated statement of changes in equity

For the six months ended 30 June 2014

		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
2014	Notes	£m	£m	£m	£m	£m	£m	£m	£m
1 January		238	(6)	1,110	1,391	1,494	4,227	333	4,560
Profit for the period		-	-	-	275	-	275	10	285
Other comprehensive income for the period		-	-	-	(7)	(12)	(19)	-	(19)
Total comprehensive income for the period		-	-	-	268	(12)	256	10	266
Distributions to equity holders	3.8	-	-	-	(252)	-	(252)	-	(252)
Issue of share capital other than in cash	3.9	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		-	-	-	25	(25)	-	-	-
Transfer to retained earnings on sale of owner occupied property		-	-	-	4	(4)	-	-	-
Shares acquired by employee trusts		-	(2)	-	-	-	(2)	-	(2)
Shares distributed by employee trusts		-	5	-	(5)	-	-	-	-
Other movements in non-controlling interests in the period		-	-	-	-	-	-	(31)	(31)
Aggregate tax effect of items recognised directly in equity	3.5	-	-	-	-	3	3	-	3
30 June		239	(3)	1,110	1,431	1,468	4,245	312	4,557

		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
2013	Notes	£m	£m	£m	£m	£m	£m	£m	£m
1 January		236	(7)	1,110	1,441	1,579	4,359	341	4,700
Profit for the period		-	-	-	129	-	129	8	137
Other comprehensive income for the period		-	-	-	124	36	160	-	160
Total comprehensive income for the period		-	-	-	253	36	289	8	297
Distributions to equity holders	3.8	-	-	-	(532)	-	(532)	-	(532)
Issue of share capital other than in cash	3.9	2	-	-	-	-	2	-	2
Reserves credit for employee share-based payment schemes		-	-	-	-	17	17	-	17
Transfer to retained earnings for vested employee share-based payment schemes		-	-	-	31	(31)	-	-	-
Transfer to retained earnings on sale of owner occupied property		-	-	-	-	-	-	-	-
Shares acquired by employee trusts		-	(2)	-	-	-	(2)	-	(2)
Shares distributed by employee trusts		-	3	-	(4)	-	(1)	-	(1)
Other movements in non-controlling interests in the period		-	-	-	-	-	-	(13)	(13)
Aggregate tax effect of items recognised directly in equity	3.5	-	-	-	-	2	2	-	2
30 June		238	(6)	1,110	1,189	1,603	4,134	336	4,470

		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
2013	Notes	£m	£m	£m	£m	£m	£m	£m	£m
1 January		236	(7)	1,110	1,441	1,579	4,359	341	4,700
Profit for the year		-	-	-	466	-	466	30	496
Other comprehensive income for the year		-	-	-	90	(63)	27	-	27
Total comprehensive income for the year		-	-	-	556	(63)	493	30	523
Distributions to equity holders	3.8	-	-	-	(636)	(20)	(656)	-	(656)
Issue of share capital other than in cash	3.9	2	-	-	-	-	2	-	2
Reserves credit for employee share-based payment schemes		-	-	-	-	32	32	-	32
Transfer to retained earnings for vested employee share-based payment schemes		-	-	-	33	(33)	-	-	-
Transfer to retained earnings on sale of owner occupied property		-	-	-	-	-	-	-	-
Shares acquired by employee trusts		-	(11)	-	-	-	(11)	-	(11)
Shares distributed by employee trusts		-	12	-	(12)	-	-	-	-
Other movements in non-controlling interests in the year		-	-	-	-	-	-	(38)	(38)
Aggregate tax effect of items recognised directly in equity	3.5	-	-	-	9	(1)	8	-	8
31 December		238	(6)	1,110	1,391	1,494	4,227	333	4,560

The Notes on pages 43 to 76 are an integral part of this IFRS condensed consolidated financial information.

IFRS condensed consolidated statement of cash flows

For the six months ended 30 June 2014

		6 months 2014	6 months 2013 restated¹	Full year 2013 restated¹
	Notes	£m	£m	£m
Cash flows from operating activities
Profit before tax		452	284	808
Change in operating assets		(8,646)	(11,339)	(17,523)
Change in operating liabilities		6,765	7,289	13,867
Adjustment for non-cash movements in investment income		(209)	(69)	52
Change in unallocated divisible surplus		4	(1)	(40)
Non-cash items relating to investing and financing activities		63	58	134
Taxation paid		(139)	(143)	(197)
Net cash flows from operating activities		(1,710)	(3,921)	(2,899)

Cash flows from investing activities
Purchase of property, plant and equipment		(3)	(7)	(17)
Proceeds from sale of property, plant and equipment		12	-	-
Acquisition of subsidiaries and unincorporated businesses net of cash acquired		-	-	(57)
Acquisition of investments in associates and joint ventures		(14)	(19)	(19)
Purchase of intangible assets not acquired through business combinations		(14)	(20)	(47)
Net cash flows from investing activities		(19)	(46)	(140)

Cash flows from financing activities
Repayment of other borrowings		(2)	(36)	(37)
Capital flows from third party interest in consolidated funds and non-controlling interests		1,528	3,155	4,332
Distributions paid to third party interest in consolidated funds and non-controlling interests		(86)	(44)	(100)
Shares acquired by trusts		(2)	-	(11)
Interest paid		(56)	(56)	(112)
Ordinary dividends paid	3.8	(252)	(532)	(656)
Net cash flows from financing activities		1,130	2,487	3,416

Net (decrease)/increase in cash and cash equivalents		(599)	(1,480)	377
Cash and cash equivalents at the beginning of the period		10,253	9,889	9,889
Effects of exchange rate changes on cash and cash equivalents		(92)	109	(13)
Cash and cash equivalents at the end of the period²		9,562	8,518	10,253

Supplemental disclosures on cash flows from operating activities
Interest paid		6	5	11
Interest received		1,085	1,307	2,626
Dividends received		1,137	1,049	2,134
Rental income received on investment properties		309	298	591

² Comprises £9,675m (30 June 2013: £8,714m; 31 December 2013: £10,322m) of cash and cash equivalents and (£113m) (30 June 2013: (£196m); 31 December 2013: (£69m)) of overdrafts which are reported in borrowings in the IFRS condensed consolidated statement of financial position.

The Notes on pages 43 to 76 are an integral part of this IFRS condensed consolidated financial information.

Notes to the IFRS condensed consolidated financial information

3.1 Accounting policies

(a) Basis of preparation

The IFRS condensed consolidated half year financial information has been prepared in accordance with the Disclosure Rules and Transparency Rules of the Financial Conduct 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 for the year ended 31 December 2013 have been applied in the preparation of the IFRS condensed consolidated half year financial information except as noted below.

(a)(i) New standards, interpretations and amendments to existing standards that have been adopted by the Group

The Group has adopted the following new International Financial Reporting Standards (IFRSs), International Accounting Standards (IASs), interpretations and amendments to existing standards, which are effective by EU endorsement for annual periods beginning on or after 1 January 2014 unless otherwise stated. The Group's accounting policies have been updated to reflect these.

IFRS 10 Consolidated Financial Statements and amendments to IAS 27 Separate Financial Statements

IFRS 10 introduces a single consolidation model to be applied to all entities and replaces previous requirements on control and consolidation in IAS 27 Consolidated and Separate Financial Statements and Standing Interpretations Committee (SIC) 12 Consolidation - Special Purpose Entities. IFRS 10 defines control, determines how to identify if an investor controls an investee and requires an investor to consolidate entities it controls under the new standard. IFRS 10 identifies three elements, all of which must be present for an investor to control an investee, which are as follows:

· Power over the investee

· Exposure, or rights, to variable returns from its involvement with the investee

· The ability to use that power over the investee to affect the amount of the returns.

The standard has been adopted retrospectively subject to the transition guidance which permits retrospective application only in circumstances when the outcome of the control assessment for individual entities at the date of initial application differs from the outcome under the previous accounting policy. The date of initial application for the Group's financial statements is 1 January 2014.

The application of IFRS 10 has resulted in the consolidation of entities which were previously out of scope of consolidation. The impact of IFRS 10 on the IFRS condensed consolidated income statement and the IFRS condensed consolidated statement of financial position for comparative periods presented is shown in the tables in (a)(ii).

IFRS 11 Joint Arrangements

IFRS 11 defines and establishes accounting principles for joint arrangements and replaces previous requirements in IAS 31 Interests in Joint Ventures and SIC 13 Jointly Controlled Entities - Non-Monetary Contributions by Venturers. The standard distinguishes between two types of joint arrangements - joint ventures and joint operations - based on how rights and obligations are shared by the parties to the arrangement. Joint operators should recognise their share of the assets, liabilities, revenue and expenses of the interest in accordance with applicable IFRSs. Joint venturers should apply the equity method of accounting prescribed in IAS 28 Investments in Associates and Joint Ventures 2011 to account for their interest. The adoption of IFRS 11 has resulted in six entities which were previously classified as jointly controlled entities under IAS 31 being classified as joint operations. As a result the Group's share of these entities' assets, liabilities, revenues and expenses are now recognised in accordance with applicable IFRS. The standard has been applied retrospectively and the impact on the IFRS condensed consolidated income statement and the IFRS condensed consolidated statement of financial position for comparative periods presented is shown in the tables in (a)(ii).

IFRS 12 Disclosure of Interests in Other Entities

IFRS 12 is a single disclosure standard which applies to all entities that have an interest in a subsidiary, a joint arrangement, an associate or an unconsolidated structured entity. IFRS 12 requires entities to disclose information to enable users of the financial statements to evaluate the nature, risks and financial effects associated with interests in other entities. The required disclosures are grouped into the following main categories:

· Significant judgements and assumptions

· Interests in subsidiaries

· Interests in joint arrangements and associates

· Interests in unconsolidated structured entities.

The new disclosures are not required under IAS 34 Interim Reporting and therefore the adoption of IFRS 12 has had no impact on the IFRS condensed consolidated half year financial information. The required disclosures will be presented in the Group's annual report and accounts for the year ended 31 December 2014.

3.1 Accounting policies continued

(a) Basis of preparation continued

(a)(i) New standards, interpretations and amendments to existing standards that have been adopted by the Group continued

IAS 28 Investments in Associates and Joint Ventures (2011)

As noted above IAS 28 (2011) is revised to include joint ventures as well as associates. Additionally, the scope exception within IAS 28 for investments in associates held by venture capital organisations, or mutual funds, unit trusts and similar entities, including investment linked insurance funds, has been removed and as a result the scope of the standard has been widened to include all investments in any entity over which the Group has significant influence. The standard has been revised to allow an entity to elect to measure an investment in associate at fair value through profit or loss (FVTPL) where that investment is held by, or indirectly through, venture capital organisations, or mutual funds, unit trusts and similar entities, including investment linked insurance funds.

The impact of the adoption of IAS 28 (2011) is that a number of equity investments in entities over which the Group has significant influence which were previously out of scope of IAS 28 have now been brought into scope resulting in the reclassification of these investments as investments in associates. Where the FVTPL election is available the Group has continued to measure these investments at FVTPL. All other investments in associates are measured using the equity method. The standard has been applied retrospectively and the impact on the IFRS condensed consolidated income statement and the IFRS condensed consolidated statement of financial position for comparative periods presented is shown in the tables in (a)(ii) below.

Additionally the Group has adopted the following amendments to existing standards which are effective by EU endorsement from 1 January 2014 and management considers the implementation of these amendments has had no significant impact on the Group's financial statements:

· Amendments to IAS 39 Financial Instruments: Recognition and Measurement

· Amendments to IAS 32 Financial Instruments: Presentation

· Amendments to IAS 36 Impairment of Assets.

The Group has not adopted International Financial Reporting Interpretations Committee (IFRIC) Interpretation 21 Levies as it has been endorsed in the EU for annual periods beginning on or after 17 June 2014. The adoption of the IFRIC is not expected to have a significant impact on the consolidated financial statements of the Group.

(a)(ii) Impact of retrospective application of new standards, interpretations and amendments to published standards

The following tables show the impact of the accounting policy changes as a result of the adoption of IFRS 10, IFRS 11 and IAS 28 (2011) on the income statement for the six months ended 30 June 2013 and the 12 months ended 31 December 2013.

	As reported previously	Effect of IFRS 10	Effect of IFRS 11	Effect of IAS 28 (2011)	Restated
6 months 2013	£m	£m	£m	£m	£m
Total revenue	8,687	(27)	3	-	8,663
Effect of restatement analysed as:
Investment return	6,207	(20)	3	-	6,190
Fee and commission income	473	(7)	-	-	466

Total expenses	8,429	(30)	3	-	8,402
Effect of restatement analysed as:
Administrative expenses	879	3	3	-	885
Change in liability for third party interest in consolidated funds	352	(33)	-	-	319

Share of profit from associates and joint ventures	23	-	-	-	23
Profit before tax	281	3	-	-	284

Total tax expense	144	3	-	-	147
Effect of restatement analysed as:
Tax expense attributable to policyholders' returns	102	3	-	-	105

Profit for the period	137	-	-	-	137
Other comprehensive income for the period	160	-	-	-	160
Total comprehensive income for the period	297	-	-	-	297
Attributable to:
Equity holders of Standard Life plc	289	-	-	-	289
Non-controlling interests	8	-	-	-	8

	As reported previously	Effect of IFRS 10	Effect of IFRS 11	Effect of IAS 28 (2011)	Restated
Full year 2013	£m	£m	£m	£m	£m
Total revenue	20,545	110	3	-	20,658
Effect of restatement analysed as:
Investment return	15,449	141	3	-	15,593
Fee and commission income	977	(31)	-	-	946

Total expenses	19,769	103	3	-	19,875
Effect of restatement analysed as:
Administrative expenses	1,825	8	3	-	1,836
Change in liability for third party interest in consolidated funds	865	95	-	-	960

Share of profit from associates and joint ventures	25	-	-	-	25
Profit before tax	801	7	-	-	808

Total tax expense	305	7	-	-	312
Effect of restatement analysed as:
Tax expense attributable to policyholders' returns	215	7	-	-	222

Profit for the period	496	-	-	-	496
Other comprehensive income for the period	27	-	-	-	27
Total comprehensive income for the period	523	-	-	-	523
Attributable to:
Equity holders of Standard Life plc	493	-	-	-	493
Non-controlling interests	30	-	-	-	30

The following tables show the impact of the accounting policy changes as a result of the adoption of IFRS 10, IFRS 11 and IAS 28 (2011) on the statement of financial position for the six months ended 30 June 2013 and the 12 months ended 31 December 2013.

	As reported previously	Effect of IFRS 10	Effect of IFRS 11	Effect of IAS 28 (2011)	Restated
At 30 June 2013	£m	£m	£m	£m	£m
Total assets	180,351	4,315	1	-	184,667
Effect of restatement analysed as:
Investment in associates and joint ventures	360	-	(64)	1,749	2,045
Investment property	8,623	-	62	-	8,685
Derivative financial assets	2,358	320	-	-	2,678
Equity securities and interests in pooled investment funds	81,725	(4,389)	-	(1,749)	75,587
Debt securities	63,691	7,043	-	-	70,734
Receivables and other financial assets	3,886	443	-	-	4,329
Other assets	285	2	1	-	288
Cash and cash equivalents	7,816	896	2	-	8,714

Total equity	4,470	-	-	-	4,470

Total liabilities	175,881	4,315	1	-	180,197
Effect of restatement analysed as:
Third party interest in consolidated funds	10,364	3,780	-	-	14,144
Borrowings	218	6	-	-	224
Derivative financial liabilities	1,185	214	-	-	1,399
Other financial liabilities	3,806	315	1	-	4,122

3.1 Accounting policies continued

(a) Basis of preparation continued

(ii) Impact of retrospective application of new standards, interpretations and amendments to published standards continued

	As reported previously	Effect of IFRS 10	Effect of IFRS 11	Effect of IAS 28 (2011)	Restated
At 31 December 2013	£m	£m	£m	£m	£m
Total assets	184,605	4,528	7	-	189,140
Effect of restatement analysed as:
Investment in associates and joint ventures	328	-	(60)	1,516	1,784
Investment property	8,545	-	61	-	8,606
Derivative financial assets	1,767	224	-	-	1,991
Equity securities and interests in pooled investment funds	90,316	(4,146)	-	(1,516)	84,654
Debt securities	62,039	7,170	-	-	69,209
Receivables and other financial assets	1,042	65	-	-	1,107
Other assets	269	2	1	-	272
Cash and cash equivalents	9,104	1,213	5	-	10,322

Total equity	4,560	-	-	-	4,560

Total liabilities	180,045	4,528	7	-	184,580
Effect of restatement analysed as:
Third party interest in consolidated funds	11,803	4,255	-	-	16,058
Borrowings	95	-	-	-	95
Derivative financial liabilities	795	137	-	-	932
Other financial liabilities	2,367	136	7	-	2,510

In addition to the above, the Group has restated comparative periods presented in the cash flow statement. The overall impact is a decrease in net cash flows from operating activities for the six months ended 30 June 2013 of £636m and the 12 months ended 31 December 2013 of £612m, and an increase in net cash flows from financing activities for the six months ended 30 June 2013 of £1,500m and the 12 months ended 31 December 2013 of £1,832m. There was no impact on cash flows from investing activities.

(b) IFRS condensed consolidated half year financial information

This IFRS 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 2013 were approved by the Board of Directors on 27 February 2014 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 IFRS condensed consolidated half year financial information has been reviewed, not audited.

3.2 Business combinations

On 27 September 2013, Standard Life Wealth Limited (SLW), a wholly owned subsidiary of the Company, acquired the private client division of Newton Management Limited. The consideration transferred of £76m included £31m of contingent consideration, of which a liability with a fair value of £15m remained at 31 December 2013. The liability was settled in full in the six months to 30 June 2014 by a cash payment of £14m. The movement in fair value of £1m has been included in other income in the IFRS condensed consolidated income statement.

3.3 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 and Europe

UK and Europe provide a broad range of long-term savings and investment products to individual and corporate customers in the UK, Germany, Austria and Ireland.

Standard Life Investments

Standard Life Investments provides a range of investment products for individual, institutional and private clients through a number of different investment vehicles. Investment management services are also provided by Standard Life Investments to the Group's other reportable segments. This segment includes the Group's share of the results of HDFC Asset Management Company Limited.

Canada

The operations in Canada provide long-term savings, investments and insurance solutions to individuals, and group benefit and retirement plan members.

Asia and Emerging Markets

The businesses included in Asia and Emerging Markets offer a range of savings and investment products and comprise wholly owned operations in Hong Kong, Singapore and Dubai and investments in joint ventures in India and China.

Other

This primarily includes the group corporate centre and related activities.

(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 key performance metrics of the Group include operating profit and assets under administration (AUA), which are analysed in the tables that follow by reportable segment.

In November 2013, the Group announced that the results of Standard Life Wealth Limited (SLW) would be managed and reported as part of the Standard Life Investments segment from 1 January 2014. As a consequence, the results of SLW are now presented within the Standard Life Investments segment. Previously this business was managed as part of the UK and Europe segment. Comparative amounts for 30 June 2013 and 31 December 2013 have been prepared on the same basis to allow more meaningful comparison.

3.3 Segmental analysis continued

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

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

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

		UK and Europe¹	Standard Life Investments¹	Canada	Asia and Emerging Markets	Other	Elimination	Total
6 months 2014	Notes	£m	£m	£m	£m	£m	£m	£m
Fee based revenue		449	303	99	29	-	(122)	758
Spread/risk margin		79	-	103	-	-	-	182
Total income		528	303	202	29	-	(122)	940
Acquisition expenses		(109)	-	(33)	(7)	-	-	(149)
Maintenance expenses		(232)	(210)	(108)	(25)	-	122	(453)
Group corporate centre costs		-	-	-	-	(23)	-	(23)
Capital management		1	-	8	-	(5)	-	4
Share of joint ventures' and associates' profit before tax²		-	11	-	9	-	-	20
Operating profit/(loss) before tax		188	104	69	6	(28)	-	339
Tax on operating profit		(31)	(21)	(17)	-	(4)	-	(73)
Share of joint ventures' and associates' tax expense	3.5	-	(3)	-	2	-	-	(1)
Operating profit/(loss) after tax		157	80	52	8	(32)	-	265
Adjusted for the following items:
Short-term fluctuations in investment return and economic assumption changes	3.7	6	1	50	(1)	(6)	-	50
Restructuring and corporate transaction expenses		(21)	(4)	(1)	-	(1)	-	(27)
Changes in Canada insurance contract liabilities due to resolution of prior years' tax matters	3.7	-	-	-	-	-	-	-
Other		(9)	-	-	-	(1)	-	(10)
Total non-operating items		(24)	(3)	49	(1)	(8)	-	13
Tax on non-operating items		10	-	(14)	-	1	-	(3)
Profit for the period attributable to equity holders of Standard Life plc		143	77	87	7	(39)	-	275
Profit attributable to non-controlling interests								10
Profit for the period								285

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

² Share of joint ventures' and associates' profit before tax primarily comprises the Group's share of results of HDFC Standard Life Insurance Company Limited, Heng An Standard Life Insurance Company Limited and HDFC Asset Management Company Limited.

Each operating segment reports total income as its measure of revenue in its analysis of operating profit. Fee based revenue consists of income generated primarily from asset management charges, premium based charges and transactional charges. Spread/risk margin reflects the margin earned on spread/risk business and includes net earned premiums, claims and benefits paid, net investment return using long-term assumptions and reserving changes.

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

		UK and Europe¹	Standard Life Investments¹	Canada	Asia and Emerging Markets	Other	Elimination	Total
6 months 2013	Notes	£m	£m	£m	£m	£m	£m	£m
Fee based revenue		431	252	95	27	-	(111)	694
Spread/risk margin		83	-	114	-	-	-	197
Total income		514	252	209	27	-	(111)	891
Acquisition expenses		(108)	-	(37)	(10)	-	-	(155)
Maintenance expenses		(223)	(170)	(125)	(23)	-	111	(430)
Group corporate centre costs		-	-	-	-	(23)	-	(23)
Capital management		(3)	-	12	-	(6)	-	3
Share of joint ventures' and associates' profit before tax²		-	13	-	5	-	-	18
Operating profit/(loss) before tax		180	95	59	(1)	(29)	-	304
Tax on operating profit		(39)	(21)	(4)	-	(2)	-	(66)
Share of joint ventures' and associates' tax expense	3.5	-	(3)	(1)	-	-	-	(4)
Operating profit/(loss) after tax		141	71	54	(1)	(31)	-	234
Adjusted for the following items:
Short-term fluctuations in investment return and economic assumption changes	3.7	(51)	1	(32)	(2)	(6)	-	(90)
Restructuring and corporate transaction expenses		(25)	(3)	(1)	(3)	(4)	-	(36)
Changes in Canada insurance contract liabilities due to resolution of prior years' tax matters	3.7	-	-	-	-	-	-	-
Other		(3)	-	-	-	-	-	(3)
Total non-operating items		(79)	(2)	(33)	(5)	(10)	-	(129)
Tax on non-operating items		12	-	9	1	2	-	24
Profit for the period attributable to equity holders of Standard Life plc		74	69	30	(5)	(39)	-	129
Profit attributable to non-controlling interests								8
Profit for the period								137

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

3.3 Segmental analysis continued

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

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

		UK and Europe¹	Standard Life Investments¹	Canada	Asia and Emerging Markets	Other	Elimination	Total
Full year 2013	Notes	£m	£m	£m	£m	£m	£m	£m
Fee based revenue		906	542	194	54	-	(237)	1,459
Spread/risk margin		162	-	351	-	-	-	513
Total income		1,068	542	545	54	-	(237)	1,972
Acquisition expenses		(227)	-	(76)	(22)	-	-	(325)
Maintenance expenses		(469)	(367)	(234)	(43)	-	237	(876)
Group corporate centre costs		-	-	-	-	(53)	-	(53)
Capital management		3	-	16	-	(13)	-	6
Share of joint ventures' and associates' profit before tax²		-	22	-	5	-	-	27
Operating profit/(loss) before tax		375	197	251	(6)	(66)	-	751
Tax on operating profit		(47)	(41)	(50)	-	(3)	-	(141)
Share of joint ventures' and associates' tax expense	3.5	-	(7)	(1)	-	-	-	(8)
Operating profit/(loss) after tax		328	149	200	(6)	(69)	-	602
Adjusted for the following items:
Short-term fluctuations in investment return and economic assumption changes	3.7	(11)	1	(70)	(2)	(10)	-	(92)
Restructuring and corporate transaction expenses		(48)	(13)	(2)	(5)	(5)	-	(73)
Changes in Canada insurance contract liabilities due to resolution of prior years' tax matters	3.7	-	-	(15)	-	-	-	(15)
Other		(5)	-	-	-	(2)	-	(7)
Total non-operating items		(64)	(12)	(87)	(7)	(17)	-	(187)
Tax on non-operating items		12	2	32	1	4	-	51
Profit for the year attributable to equity holders of Standard Life plc		276	139	145	(12)	(82)	-	466
Profit attributable to non-controlling interests								30
Profit for the year								496

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

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

Group assets under administration (AUA) presents a measure of the total assets of the Group including those administered on behalf of customers and institutional clients. AUA represents the IFRS gross assets of the Group adjusted to include third party AUA, which are not included in the IFRS condensed consolidated statement of financial position. In addition, certain assets on the IFRS condensed consolidated statement of financial position are excluded from the definition, including reinsurance assets, deferred acquisition costs and intangible 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 and Europe¹	Standard Life Investments¹	Canada	Asia and Emerging Markets	Other	Elimination²	Total
30 June 2014	£bn	£bn	£bn	£bn	£bn	£bn	£bn
Fee based	146	108	18	-	-	(53)	219
Spread/risk	15	-	9	-	-	-	24
Assets not backing products in long-term savings business	6	-	1	-	-	-	7
Joint ventures	-	-	-	2	-	-	2
Other corporate assets	-	1	-	-	1	-	2
Total assets under administration	167	109	28	2	1	(53)	254

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

² In order to be consistent with the presentation of new business information, certain products are included in both Standard Life Investments 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 and Europe¹	Standard Life Investments¹	Canada	Asia and Emerging Markets	Other	Elimination²	Total
30 June 2013	£bn	£bn	£bn	£bn	£bn	£bn	£bn
Fee based	132	95	17	-	-	(48)	196
Spread/risk	15	-	10	-	-	-	25
Assets not backing products in long-term savings business	6	-	2	-	-	-	8
Joint ventures	-	-	-	2	-	-	2
Other corporate assets	-	1	-	-	1	-	2
Total assets under administration	153	96	29	2	1	(48)	233

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

	UK and Europe¹	Standard Life Investments¹	Canada	Asia and Emerging Markets	Other	Elimination²	Total
31 December 2013	£bn	£bn	£bn	£bn	£bn	£bn	£bn
Fee based	141	102	17	-	-	(50)	210
Spread/risk	15	-	8	-	-	-	23
Assets not backing products in long-term savings business	6	-	2	-	-	-	8
Joint ventures	-	-	-	2	-	-	2
Other corporate assets	-	1	-	-	1	(1)	1
Total assets under administration	162	103	27	2	1	(51)	244

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

3.3 Segmental analysis continued

Total revenue as presented in the IFRS condensed consolidated income statement split by geographical location in which it was earned is as follows:

	6 months 2014	6 months 2013 restated¹	Full year 2013 restated¹
	£m	£m	£m
UK	4,320	6,504	14,543
Canada	2,625	1,307	3,834
Rest of the world	1,848	852	2,281
Total	8,793	8,663	20,658

3.4 Administrative expenses

	6 months 2014	6 months 2013 restated¹	Full year 2013 restated¹
	£m	£m	£m
Restructuring and corporate transaction expenses	28	38	75
Interest expense	8	7	16
Commission expenses	178	184	381
Staff costs and other employee-related costs	339	328	679
Other administrative expenses	330	325	693
	883	882	1,844
Acquisition costs deferred during the period	(90)	(76)	(165)
Impairment of deferred acquisition costs	-	4	6
Amortisation of deferred acquisition costs	81	75	151
Total administrative expenses	874	885	1,836

Total restructuring costs incurred during the period of £28m (six months ended 30 June 2013: £38m; 12 months ended 31 December 2013: £75m), includes £4m (six months ended 30 June 2013: £3m; 12 months ended 31 December 2013: £11m) in respect of acquisitions as discussed in Note 3.2 - Business combinations and Note 3.17 - Events after the reporting period. The remaining costs relate to a number of business unit restructuring programmes. Of the restructuring costs, £27m (six months ended 30 June 2013: £36m; 12 months ended 31 December 2013: £73m) is adjusted when determining operating profit before tax, with the remaining £1m (six months ended 30 June 2013: £2m; 12 months ended 31 December 2013: £2m) incurred by the Heritage With Profits Fund.

In addition to interest expense of £8m (six months ended 30 June 2013: £7m; 12 months ended 31 December 2013: £16m), there was interest expense of £53m (six months ended 30 June 2013: £54m; 12 months ended 31 December 2013: £108m) incurred in respect of subordinated liabilities and £15m (six months ended 30 June 2013: £17m; 12 months ended 31 December 2013: £33m) in respect of deposits from reinsurers. For the six months ended 30 June 2014, total interest expense is £76m (six months ended 30 June 2013: £78m; 12 months ended 31 December 2013: £157m).

3.5 Tax expense

The tax expense is attributed as follows:

	6 months 2014	6 months 2013 restated¹	Full year 2013 restated¹
	£m	£m	£m
Tax expense attributable to policyholders' returns	91	105	222
Tax expense attributable to equity holders' profits	76	42	90
Total tax expense	167	147	312

The standard rate of corporation tax in the UK changed from 23% to 21% with effect from 1 April 2014. Accordingly, the Group's UK profit for this accounting period was subject to a rate of 21.5% (six months ended 30 June 2013: 23.25%; 12 months ended 31 December 2013: 23.25%). The Finance Act 2013 further reduced the UK corporation tax rate to 20% with effect from 1 April 2015. These rates have been applied in calculating the UK deferred tax position at 30 June 2014.

The share of tax of associates and joint ventures is £1m (six months ended 30 June 2013: £4m; 12 months ended 31 December 2013: £8m) and is included in profit before tax in the IFRS condensed consolidated income statement in Share of profit from associates and joint ventures.

The total tax expense is split as follows:

	6 months 2014	6 months 2013 restated¹	Full year 2013 restated¹
	£m	£m	£m
Current tax:
UK	104	63	148
Overseas	19	15	36
Adjustment to tax expense in respect of prior years	(2)	(27)	(42)
Total current tax	121	51	142

Deferred tax:
Deferred tax expense arising from the current periods	46	96	170
Total deferred tax	46	96	170

Total tax expense attributable to operations	167	147	312

Attributable to equity holders' profits	76	42	90

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

	6 months 2014	6 months 2013	Full year 2013
	£m	£m	£m
Deferred tax (credit)/charge on remeasurement of defined benefit pension plans	(5)	7	8
Deferred tax on revaluation of owner occupied property	-	6	5
Equity holder tax effect relating to items that will not be reclassified subsequently to profit or loss	(5)	13	13

Current tax on net change in financial assets designated as available-for-sale	5	(6)	(7)
Equity holder tax effect relating to items that may be reclassified subsequently to profit or loss	5	(6)	(7)

Tax relating to each component of other comprehensive income	-	7	6

All of the amounts presented above are in respect of equity holders of Standard Life plc.

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

	6 months 2014	6 months 2013	Full year 2013
	£m	£m	£m
Tax credit on reserves for employee share-based payments	(3)	(2)	(8)
Tax relating to items taken directly to equity	(3)	(2)	(8)

3.6 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 2014	6 months 2013	Full year 2013
Profit attributable to equity holders of Standard Life plc (£m)	275	129	466
Weighted average number of ordinary shares outstanding (millions)	2,379	2,355	2,362
Basic earnings per share (pence per share)	11.6	5.5	19.7

(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 be 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 could be issued, or purchased, assuming the exercise of the share options.

	6 months 2014	6 months 2013	Full year 2013
Profit attributable to equity holders of Standard Life plc (£m)	275	129	466
Weighted average number of ordinary shares outstanding for diluted earnings per share (millions)	2,384	2,359	2,378
Diluted earnings per share (pence per share)	11.5	5.5	19.6

The dilutive effect of share awards and options included in the weighted average number of ordinary shares above was five million (six months ended 30 June 2013: four million; 12 months ended 31 December 2013: 16 million).

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

(c)(i) Basic alternative earnings per share

	6 months 2014	6 months 2014	6 months 2013	6 months 2013	Full year 2013	Full year 2013
	£m	p per share	£m	p per share	£m	p per share
Operating profit before tax	339	14.2	304	12.9	751	31.8
Tax on operating profit	(73)	(3.1)	(66)	(2.8)	(141)	(6.0)
Share of joint ventures' and associates' tax expense	(1)	-	(4)	(0.2)	(8)	(0.3)
Operating profit after tax	265	11.1	234	9.9	602	25.5
Adjusted for the following items:
Short-term fluctuations in investment return and economic assumption changes	50	2.1	(90)	(3.9)	(92)	(4.0)
Restructuring and corporate transaction expenses	(27)	(1.2)	(36)	(1.5)	(73)	(3.1)
Changes in Canada insurance contract liabilities due to resolution of prior years' tax matters	-	-	-	-	(15)	(0.6)
Other	(10)	(0.4)	(3)	(0.1)	(7)	(0.3)
Total non-operating items	13	0.5	(129)	(5.5)	(187)	(8.0)
Tax on non-operating items	(3)	-	24	1.1	51	2.2
Profit attributable to equity holders of Standard Life plc	275	11.6	129	5.5	466	19.7

(c)(ii) Diluted alternative earnings per share

	6 months 2014	6 months 2014	6 months 2013	6 months 2013	Full year 2013	Full year 2013
	£m	p per share	£m	p per share	£m	p per share
Operating profit before tax	339	14.2	304	12.9	751	31.6
Tax on operating profit	(73)	(3.1)	(66)	(2.8)	(141)	(6.0)
Share of joint ventures' and associates' tax expense	(1)	-	(4)	(0.2)	(8)	(0.3)
Operating profit after tax	265	11.1	234	9.9	602	25.3
Adjusted for the following items:
Short-term fluctuations in investment return and economic assumption changes	50	2.0	(90)	(3.9)	(92)	(3.9)
Restructuring and corporate transaction expenses	(27)	(1.2)	(36)	(1.5)	(73)	(3.1)
Changes in Canada insurance contract liabilities due to resolution of prior years' tax matters	-	-	-	-	(15)	(0.6)
Other	(10)	(0.4)	(3)	(0.1)	(7)	(0.3)
Total non-operating items	13	0.4	(129)	(5.5)	(187)	(7.9)
Tax on non-operating items	(3)	-	24	1.1	51	2.2
Profit attributable to equity holders of Standard Life plc	275	11.5	129	5.5	466	19.6

3.7 Non-operating items

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 calculating operating profit is outlined below.

Operating profit is calculated based on expected returns on investments backing equity holder funds, with consistent allowance for the corresponding expected movements in equity holder liabilities. Impacts arising from the difference between the expected return and actual return on investments, and the corresponding impact on equity holder liabilities except where they are directly related to a significant management action, are excluded from operating profit and are presented within profit before tax. 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.

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 year, in respect of gross investment returns underlying the calculation of the expected investment return for equity securities and property are as follows:

	2014		2013
	UK	Canada	UK	Canada
	%	%	%	%
Equity securities	6.01	8.60	4.74	8.60
Property	5.01	8.60	3.74	8.60

In respect of debt securities at fair value through profit or loss, 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. For debt securities classified as available-for-sale that support liabilities measured at amortised cost, the expected rate of return is the effective interest rate adjusted for an allowance, established at initial recognition, for expected defaults. If debt securities classified as available-for-sale are sold, any gain or loss is amortised within the expected return over the period to the earlier of the maturity date of the sold debt security, or the redemption date of the supported liability.

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.

For the six months ended 30 June 2014, short-term fluctuations in investment return and economic assumption changes resulted in gains of £50m (six months ended 30 June 2013: losses of £90m; 12 months ended 31 December 2013: losses of £92m). Short-term fluctuations in investment return relate principally to the investment volatility in Canada non-segregated funds and UK annuities, and in respect of the Group's subordinated liabilities, and assets backing those liabilities.

Changes in Canada insurance contract liabilities due to resolution of prior years' tax matters

The Group's Canada insurance contract liabilities are measured according to the Canadian Asset Liability Method (CALM). That valuation includes an allowance for the difference between the undiscounted deferred taxes recognised under IAS 12 Income Taxes relating directly to the insurance contract liabilities and the discounted value of those deferred taxes.

Hence when management or the Canadian tax authorities successfully challenge a historic tax position which results in a change in the difference between the undiscounted and discounted deferred taxes relating directly to the tax treatment of insurance contract liabilities, a change in insurance contract liabilities is recognised in the IFRS condensed consolidated income statement thus impacting profit before tax. This change in insurance contract liabilities is removed when determining operating profit before tax. As this amount unwinds under CALM in future years, the associated change in insurance contract liabilities is also excluded from operating profit before tax.

Normal finalisation of prior years' tax charges are not excluded from operating profit where they are routine and part of normal operations.

3.8 Dividends

Subsequent to 30 June 2014, the Directors have proposed an interim dividend for 2014 of 5.60 pence per ordinary share (interim 2013: 5.22 pence), an estimated £134m in total (interim 2013: £124m). The dividend will be paid on 21 October 2014. This dividend will be recorded as an appropriation of retained earnings in the financial statements for the year ended 31 December 2014. During the six months ended 30 June 2014 a final dividend for the year ended 31 December 2013 of 10.58 pence per ordinary share (final 2012: 9.80 pence) totalling £252m (final 2012: £230m) was paid. The Company also paid a special dividend of 12.80 pence per share totalling £302m in respect of the year ended 31 December 2012 on 21 May 2013.

3.9 Issued share capital and shares held by trusts

(a) Issued share capital

The movement in the issued ordinary share capital of the Company was:

	6 months 2014	6 months 2014	6 months 2013	6 months 2013	Full year 2013	Full year 2013
Issued shares of 10p each fully paid	Number	£m	Number	£m	Number	£m
At start of period	2,376,616,730	238	2,357,978,652	236	2,357,978,652	236
Shares issued in respect of share incentive plans	153,768	-	166,617	-	283,126	-
Shares issued in respect of share options	13,896,549	1	18,217,800	2	18,354,952	2
At end of period	2,390,667,047	239	2,376,363,069	238	2,376,616,730	238

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 2014, the Company allotted 153,768 ordinary shares to Group employees under the share incentive plans (six months ended 30 June 2013: 166,617; 12 months ended 31 December 2013: 283,126).

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 2014, 13,836,439 ordinary shares were issued on exercise of share options in respect of the LTIP (six months ended 30 June 2013: 18,169,290; 12 months ended 31 December 2013: 18,169,290) and 60,110 ordinary shares were issued on exercise of share options in respect of the Sharesave scheme (six months ended 30 June 2013: 48,510; 12 months ended 31 December 2013: 185,662).

(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 IFRS condensed consolidated statement of financial position. Share-based liabilities to employees may also be settled by the issue of new shares. The number of shares held by the EST at 30 June 2014 were 2,916,212 (30 June 2013: 10,227,298; 31 December 2013: 3,112,350).

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. The number of shares held by the UAT at 30 June 2014 were 24,521,450 (30 June 2013: 25,111,596; 31 December 2013: 24,859,996). The corresponding obligation to deliver these shares to eligible members of SLAC is also included in the shares held by trusts reserve.

3.10 Insurance contracts, investment contracts and reinsurance contracts

	30 June 2014	30 June 2013	31 December 2013
	£m	£m	£m
Non-participating insurance contract liabilities	29,309	28,785	28,312
Non-participating investment contract liabilities	100,716	91,606	97,659
Non-participating contract liabilities	130,025	120,391	125,971

Participating insurance contract liabilities	15,240	15,645	15,060
Participating investment contract liabilities	14,764	14,762	14,707
Unallocated divisible surplus	701	720	680
Participating contract liabilities	30,705	31,127	30,447

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.

3.10 Insurance contracts, investment contracts and reinsurance contracts continued

The movements in insurance contracts, investment contracts and reinsurance contracts during the six months ended 30 June 2014, and the six months ended 30 June 2013 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 contracts	Reinsurance contracts	Net
6 months 2014	£m	£m	£m	£m	£m	£m
Changes in:
Methodology/modelling	(15)	(30)	5	-	-	(40)
Non-economic assumptions	-	-	(2)	-	-	(2)
Economic assumptions	57	459	(75)	-	(139)	302

6 months 2013
Changes in:
Methodology/modelling	14	(5)	(14)	-	-	(5)
Non-economic assumptions	-	10	-	-	(8)	2
Economic assumptions	15	(457)	(95)	-	152	(385)

The movement in insurance contract liabilities, participating investment contract liabilities and reinsurance contracts during the year ended 31 December 2013 was as follows:

	Participating insurance contract liabilities	Non-participating insurance contract liabilities	Participating investment contract liabilities	Total insurance and participating contracts	Reinsurance contracts	Net
2013	£m	£m	£m	£m	£m	£m
At 1 January	15,919	29,050	14,993	59,962	(6,531)	53,431
Expected change	(1,585)	(952)	(880)	(3,417)	475	(2,942)
Methodology/modelling changes	(51)	68	(21)	(4)	-	(4)
Effect of changes in:
Economic assumptions	14	(598)	(145)	(729)	216	(513)
Non-economic assumptions	24	(89)	(59)	(124)	31	(93)
Effect of:
Economic experience	491	164	666	1,321	(5)	1,316
Non-economic experience	107	(711)	111	(493)	(26)	(519)
New business	28	2,078	20	2,126	(8)	2,118
Total change in contract liabilities	(972)	(40)	(308)	(1,320)	683	(637)
Contract reclassification	-	6	-	6	-	6
Foreign exchange adjustment	113	(704)	22	(569)	(9)	(578)
At 31 December	15,060	28,312	14,707	58,079	(5,857)	52,222
Reinsurance assets					(6,173)
Reinsurance liabilities					316
					(5,857)

The change in non-participating investment contract liabilities during the year ended 31 December 2013 was as follows:

	2013
	£m
At 1 January	84,201
Contributions	13,740
Initial charges and reduced allocations	(4)
Account balances paid on surrender and other terminations in the year	(10,498)
Change in non-participating investment contracts recognised in the IFRS condensed consolidated income statement	11,892
Foreign exchange adjustment	(1,243)
Contract reclassification	(6)
Recurring management charges	(423)
At 31 December	97,659

3.11 Defined benefit and defined contribution plans

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

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

	6 months 2014	6 months 2013	Full year 2013
	£m	£m	£m
Current service cost	(36)	(35)	(70)
Interest income	8	6	14
Past service cost and losses on settlement	-	(1)	-
Charge recognised in the IFRS condensed consolidated income statement	(28)	(30)	(56)

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

	30 June 2014				30 June 2013				31 December 2013
	UK	Canada	Other	Total	UK	Canada	Other	Total	UK	Canada	Other	Total
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Present value of funded obligation	(2,456)	(232)	(73)	(2,761)	(2,197)	(217)	(69)	(2,483)	(2,327)	(209)	(76)	(2,612)
Present value of unfunded obligation	-	(69)	(7)	(76)	-	(66)	(7)	(73)	-	(64)	(7)	(71)
Fair value of plan assets	3,140	204	58	3,402	2,885	192	61	3,138	2,992	192	60	3,244
Effect of limit on plan surplus	(242)	-	-	(242)	(241)	-	-	(241)	(233)	-	-	(233)
Net asset/(liability) in the IFRS condensed consolidated statement of financial position	442	(97)	(22)	323	447	(91)	(15)	341	432	(81)	(23)	328

The principal economic assumptions for the plans are as follows:

	30 June 2014		30 June 2013		31 December 2013
	UK	Canada	UK	Canada	UK	Canada
	%	%	%	%	%	%
Discount rate	4.35	4.20	4.75	4.60	4.60	4.80
Rates of inflation:
Consumer Price Index (CPI)	2.80	2.00	2.90	2.00	2.90	2.00
Retail Price Index (RPI) (UK only)	3.60	-	3.70	-	3.70	-
Salary inflation (Canada only)	-	3.50	-	3.50	-	3.50

3.12 Risk management

(a) Overview

The Group's strategic objectives and performance against them is subject to a number of financial and non-financial risks. The principal risks and uncertainties that affect the business model are set out in detail in the Strategic report section 1.4 - Principal risks and uncertainties.

The Group's IFRS condensed consolidated half year financial information does 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 2013. The information presented in this note has been prepared on the same basis as that presented in the Group's annual report and accounts.

There have been no significant changes to the Group's risk management framework since 31 December 2013 and no changes have been made to the Group's qualitative risk appetites. During the six months ended 30 June 2014, economic capital resources have continued to be used as a key risk metric for managing risk exposures against quantitative risk limits, however the Group has transitioned away from using excess working capital as a key metric. The business continues to be managed through a range of risk, capital and profit metrics.

As noted in Note 3.1 - Accounting policies (a) Basis of preparation, the IFRS condensed consolidated financial information for comparative periods presented has been restated to reflect retrospective application of changes to accounting policies as a result of new IFRSs adopted in the period. The tables throughout this note have been restated to reflect this.

(b) Investment property and financial assets

The values of the Group's holdings of investment properties and financial assets are impacted by the Group's exposure to adverse fluctuations in financial markets (referred to as market risk) and counterparty failure (referred to as credit risk).

The assets on the Group's IFRS condensed consolidated statement of financial position can be split into four categories (risk segments) which give the shareholder different exposures to these risks as follows:

Shareholder business

Shareholder business refers to the assets to which the shareholder is directly exposed. For the purposes of this financial information the shareholder refers to the equity holders of Standard Life plc.

Participating business

Participating business refers to the assets of the participating funds of the life operations of the Group.

Unit linked and segregated funds

Unit linked and segregated funds refer to the assets of the UK and Europe unit linked funds, Canada segregated funds and Asia and Emerging Markets unit linked funds.

Third party interest in consolidated funds and non-controlling interests (TPICF and NCI)

Third party interest in consolidated funds and non-controlling interests refers to the assets recorded on the IFRS condensed consolidated statement of financial position which belong to third parties. The Group controls the entities that own the assets but the Group does not own 100% of the equity or units of the relevant entities.

The total Group holding in investment property and financial assets has been presented below based on the risk segment.

	Shareholder business	Participating business	Unit linked and segregated funds	TPICF and NCI¹	Total
30 June 2014	£m	£m	£m	£m	£m
Investments in associates²	4	375	1,105	101	1,585
Investment property	482	2,117	5,205	1,498	9,302
Loans	2,367	187	91	-	2,645
Derivative financial assets	67	899	1,127	555	2,648
Equity securities and interests in pooled investment funds	215	10,235	69,141	8,141	87,732
Debt securities	12,009	27,230	26,542	6,821	72,602
Receivables and other financial assets	629	168	859	235	1,891
Assets held for sale	33	-	-	-	33
Cash and cash equivalents	1,443	1,400	5,111	1,721	9,675
Total	17,249	42,611	109,181	19,072	188,113

¹Third party interest in consolidated funds and non-controlling interests.

²Comprises investments in associates at FVTPL and loans to associates.

	Shareholder business	Participating business	Unit linked and segregated funds	TPICF and NCI²	Total
30 June 2013 (restated)¹	£m	£m	£m	£m	£m
Investments in associates³	23	366	1,316	36	1,741
Investment property	600	2,011	4,728	1,346	8,685
Loans	2,752	216	189	-	3,157
Derivative financial assets	65	792	1,233	588	2,678
Equity securities and interests in pooled investment funds	204	10,080	59,335	5,968	75,587
Debt securities	12,306	28,039	25,120	5,269	70,734
Receivables and other financial assets	874	790	2,124	541	4,329
Assets held for sale	-	-	-	-	-
Cash and cash equivalents	1,169	1,190	4,783	1,572	8,714
Total	17,993	43,484	98,828	15,320	175,625

² Third party interest in consolidated funds and non-controlling interests.

³Comprises investments in associates at FVTPL and loans to associates.

	Shareholder business	Participating business	Unit linked and segregated funds	TPICF and NCI²	Total
31 December 2013 (restated)¹	£m	£m	£m	£m	£m
Investments in associates³	7	354	1,098	44	1,503
Investment property	491	1,995	4,830	1,290	8,606
Loans	2,549	199	176	-	2,924
Derivative financial assets	111	661	832	387	1,991
Equity securities and interests in pooled investment funds	172	10,952	66,475	7,055	84,654
Debt securities	11,816	26,939	24,775	5,679	69,209
Receivables and other financial assets	471	97	441	98	1,107
Assets held for sale	29	-	59	33	121
Cash and cash equivalents	959	1,049	6,032	2,282	10,322
Total	16,605	42,246	104,718	16,868	180,437

² Third party interest in consolidated funds and non-controlling interests.

³Comprises investments in associates at FVTPL and loans to associates.

3.12 Risk management continued

(b) Investment property and financial assets continued

The shareholder is exposed to the impact of market movements in property prices, interest rates and foreign exchange rates and the impact of defaults and movements in credit spreads on the value of assets held by the shareholder business. Appropriate risk oversight and risk mitigation actions are in place. The shareholder is also exposed to the market and credit risk that the assets of the participating funds of the life operations of the Group are not sufficient to meet their obligations. In this situation, the shareholder would be exposed to the full shortfall in the funds.

No further analysis is provided on the assets of the remaining risk segments - unit linked and segregated funds and TPICF and NCI. Assets of the unit linked and segregated funds are managed in accordance with the mandates of the particular funds and the financial risks of the assets are expected to be borne by the policyholder. The unit linked business includes £4,515m (30 June 2013: £4,289m; 31 December 2013: £4,412m) of assets that are held as reinsured external fund links. Under certain circumstances the shareholder may be exposed to losses relating to the default of the insured external fund links. These exposures are actively monitored and managed by the Group and the Group considers the circumstances under which losses may arise to be very remote.

The shareholder is not exposed to market and credit risk from assets in respect of TPICF and NCI since the financial risks of the assets are borne by third parties.

Further information on the investment property and financial assets of the shareholder and participating business at the reporting date is provided below.

Investment property

The Group is subject to property price risk due to changes in the value and return on holdings in investment properties. This risk arises from various direct and indirect holdings which are controlled through the use of portfolio limits.

The tables below analyse investment property held by the shareholder and participating businesses by country and sector.

Shareholder business

	Office			Industrial			Retail			Other			Total
	30 Jun 2014	30 Jun 2013	31 Dec 2013	30 Jun 2014	30 Jun 2013	31 Dec 2013	30 Jun 2014	30 Jun 2013	31 Dec 2013	30 Jun 2014	30 Jun 2013	31 Dec 2013	30 Jun 2014	30 Jun 2013	31 Dec 2013
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Canada	348	421	359	45	59	45	-	-	-	89	120	87	482	600	491
Total	348	421	359	45	59	45	-	-	-	89	120	87	482	600	491

Participating business

	Office			Industrial			Retail			Other			Total
	30 Jun 2014	30 Jun 2013	31 Dec 2013	30 Jun 2014	30 Jun 2013	31 Dec 2013	30 Jun 2014	30 Jun 2013	31 Dec 2013	30 Jun 2014	30 Jun 2013	31 Dec 2013	30 Jun 2014	30 Jun 2013	31 Dec 2013
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
UK	598	537	550	285	260	266	1,007	968	946	-	-	-	1,890	1,765	1,762
Canada	47	51	49	19	21	19	5	5	4	15	17	14	86	94	86
Belgium	13	14	14	-	-	-	-	-	-	-	-	-	13	14	14
France	-	-	-	4	4	4	-	-	-	2	2	2	6	6	6
Spain	122	132	127	-	-	-	-	-	-	-	-	-	122	132	127
Total	780	734	740	308	285	289	1,012	973	950	17	19	16	2,117	2,011	1,995

There is no exposure to residential property in the shareholder and participating businesses.

Equity securities

The Group is subject to equity price risk due to daily changes in the market value and returns in the holdings in its equity security portfolio. Exposure to equity securities are primarily managed through the use of investment mandates including constraints based on appropriate equity indices.

The following table analyses equity securities held by the shareholder and participating businesses by country.

	Shareholder business			Participating business			Total
	30 Jun 2014	30 Jun 2013	31 Dec 2013	30 Jun 2014	30 Jun 2013	31 Dec 2013	30 Jun 2014	30 Jun 2013	31 Dec 2013
	£m	£m	£m	£m	£m	£m	£m	£m	£m
UK	3	8	-	4,438	4,732	5,055	4,441	4,740	5,055
Canada	148	141	134	252	205	224	400	346	358
Australia	1	1	-	33	38	31	34	39	31
Austria	-	-	-	25	4	4	25	4	4
Belgium	-	-	-	101	95	131	101	95	131
Denmark	-	-	-	166	90	117	166	90	117
Finland	-	-	-	62	39	67	62	39	67
France	-	2	-	546	559	659	546	561	659
Germany	-	1	-	503	454	457	503	455	457
Greece	-	-	-	9	1	6	9	1	6
Ireland	-	1	-	132	142	135	132	143	135
Italy	-	-	-	72	103	85	72	103	85
Japan	1	1	1	124	107	124	125	108	125
Mexico	-	-	-	6	6	6	6	6	6
Netherlands	-	-	-	454	306	414	454	306	414
Norway	-	-	-	101	86	78	101	86	78
Portugal	-	-	-	30	37	22	30	37	22
Russia	-	-	-	5	5	5	5	5	5
Spain	-	-	-	222	128	205	222	128	205
Sweden	-	1	-	278	290	294	278	291	294
Switzerland	-	1	-	597	524	608	597	525	608
US	26	24	24	1,814	1,862	1,977	1,840	1,886	2,001
Other	11	23	13	263	241	243	274	264	256
Total	190	204	172	10,233	10,054	10,947	10,423	10,258	11,119

In addition to the equity securities analysed above, the shareholder business has interests in pooled investment funds of £25m (30 June 2013: £nil; 31 December 2013: £nil). The participating business has interests in pooled investment funds of £2m (30 June 2013: £26m; 31 December 2013: £5m).

Debt securities

The Group is exposed to interest rate risk and credit risk through its holdings in debt securities. The Group manages its exposure to debt securities by setting exposure limits by name of issuer, sector and credit rating.

At 30 June 2014, the total shareholder business holding of debt securities was £12,009m (30 June 2013: £12,306m; 31 December 2013: £11,816m), of which 96% (30 June 2013: 96%; 31 December 2013: 96%) was rated as investment grade. The total participating business holding of debt securities at 30 June 2014 was £27,230m (30 June 2013: £28,039m; 31 December 2013: 26,939m), of which 97% (30 June 2013: 96%; 31 December 2013: 97%) was rated as investment grade. This shows the high quality of the debt securities held.

3.12 Risk management continued

(b) Investment property and financial assets continued

The following tables show the shareholder and participating businesses' exposure to credit risk from debt securities analysed by credit rating and country.

Shareholder business

	Government, provincial and municipal¹			Banks			Other financial institutions			Other corporate			Other²			Total
	30 Jun 2014	30 Jun 2013	31 Dec 2013	30 Jun 2014	30 Jun 2013	31 Dec 2013	30 Jun 2014	30 Jun 2013	31 Dec 2013	30 Jun 2014	30 Jun 2013	31 Dec 2013	30 Jun 2014	30 Jun 2013	31 Dec 2013	30 Jun 2014	30 Jun 2013	31 Dec 2013
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
AAA	673	958	682	98	141	98	50	83	38	77	140	120	205	175	201	1,103	1,497	1,139
AA	1,403	1,713	1,414	636	457	674	179	238	186	532	412	433	31	-	-	2,781	2,820	2,707
A	1,174	1,258	1,079	1,269	1,335	1,439	1,014	890	1,004	2,738	2,736	2,696	-	-	-	6,195	6,219	6,218
BBB	-	3	-	163	110	135	94	63	90	1,201	1,096	1,058	-	-	-	1,458	1,272	1,283
Below BBB	-	4	-	4	15	4	-	38	-	15	32	16	-	-	-	19	89	20
Not rated	-	-	-	-	-	-	17	98	79	13	15	14	29	-	-	59	113	93
Internally rated	4	4	4	-	-	-	330	206	270	51	16	13	9	70	69	394	296	356
Total	3,254	3,940	3,179	2,170	2,058	2,350	1,684	1,616	1,667	4,627	4,447	4,350	274	245	270	12,009	12,306	11,816

	Government, provincial and municipal¹			Banks			Other financial institutions			Other corporate			Other²			Total
	30 Jun 2014	30 Jun 2013	31 Dec 2013	30 Jun 2014	30 Jun 2013	31 Dec 2013	30 Jun 2014	30 Jun 2013	31 Dec 2013	30 Jun 2014	30 Jun 2013	31 Dec 2013	30 Jun 2014	30 Jun 2013	31 Dec 2013	30 Jun 2014	30 Jun 2013	31 Dec 2013
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
UK	354	385	360	491	513	507	955	727	889	1,254	855	955	69	70	69	3,123	2,550	2,780
Canada	2,534	3,155	2,463	300	185	354	283	258	265	1,949	2,137	1,929	-	-	-	5,066	5,735	5,011
Australia	-	-	-	79	98	108	14	14	17	10	8	4	-	-	-	103	120	129
Austria	22	21	20	-	-	-	-	-	-	-	-	-	-	-	-	22	21	20
Belgium	-	-	-	7	27	27	-	-	-	11	5	10	-	-	-	18	32	37
Denmark	-	-	-	16	4	4	-	-	-	15	15	15	-	-	-	31	19	19
Finland	-	-	-	50	75	45	-	-	-	-	-	-	-	-	-	50	75	45
France	24	22	22	211	237	236	16	16	-	440	402	432	-	-	-	691	677	690
Germany	303	317	302	97	68	84	1	18	1	301	332	328	-	-	-	702	735	715
Greece	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-
Ireland	-	-	-	-	-	-	3	9	3	-	-	-	-	-	-	3	9	3
Italy	-	-	-	34	29	34	-	-	-	72	69	71	-	-	-	106	98	105
Japan	-	-	-	135	85	110	29	28	30	30	20	29	-	-	-	194	133	169
Mexico	1	1	-	-	-	-	-	-	-	83	78	82	-	-	-	84	79	82
Netherlands	-	-	-	366	391	398	-	18	-	6	21	14	-	-	-	372	430	412
Norway	-	-	-	-	-	-	-	-	-	37	35	37	-	-	-	37	35	37
Portugal	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-
Russia	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-
Spain	-	-	-	2	8	9	-	2	-	26	38	39	-	-	-	28	48	48
Sweden	-	-	-	12	15	26	1	12	1	59	57	59	-	-	-	72	84	86
Switzerland	-	-	-	77	80	54	-	11	-	7	11	22	-	-	-	84	102	76
US	13	12	12	273	175	229	381	501	456	318	350	314	-	-	-	985	1,038	1,011
Other	3	27	-	20	68	125	1	2	5	9	14	10	205	175	201	238	286	341
Total	3,254	3,940	3,179	2,170	2,058	2,350	1,684	1,616	1,667	4,627	4,447	4,350	274	245	270	12,009	12,306	11,816

¹Government, provincial and municipal includes debt securities which are issued by or explicitly guaranteed by the national government. For Canada, this includes debt securities which are issued by or explicitly guaranteed by the Crown Corporations of the Government of Canada.

² This balance primarily consists of securities held in supranationals.

Participating business

	Government, provincial and municipal¹			Banks			Other financial institutions			Other corporate			Other²			Total
	30 Jun 2014	30 Jun 2013	31 Dec 2013	30 Jun 2014	30 Jun 2013	31 Dec 2013	30 Jun 2014	30 Jun 2013	31 Dec 2013	30 Jun 2014	30 Jun 2013	31 Dec 2013	30 Jun 2014	30 Jun 2013	31 Dec 2013	30 Jun 2014	30 Jun 2013	31 Dec 2013
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
AAA	3,226	10,665	2,959	402	649	400	371	870	419	28	128	39	248	177	237	4,275	12,489	4,054
AA	13,658	7,143	14,114	1,255	641	935	779	1,144	791	583	280	561	5	-	6	16,280	9,208	16,407
A	126	127	123	1,189	1,119	1,109	1,392	1,671	1,403	1,442	1,021	1,344	-	-	-	4,149	3,938	3,979
BBB	16	8	11	335	232	320	487	411	481	773	622	799	-	-	-	1,611	1,273	1,611
Below BBB	-	4	-	201	201	205	84	149	48	222	229	220	-	-	-	507	583	473
Not rated	1	14	1	5	6	5	129	244	118	169	95	174	1	-	-	305	359	298
Internally rated	-	-	-	-	-	-	84	183	81	19	6	35	-	-	1	103	189	117
Total	17,027	17,961	17,208	3,387	2,848	2,974	3,326	4,672	3,341	3,236	2,381	3,172	254	177	244	27,230	28,039	26,939

	Government, provincial and municipal¹			Banks			Other financial institutions			Other corporate			Other²			Total
	30 Jun 2014	30 Jun 2013	31 Dec 2013	30 Jun 2014	30 Jun 2013	31 Dec 2013	30 Jun 2014	30 Jun 2013	31 Dec 2013	30 Jun 2014	30 Jun 2013	31 Dec 2013	30 Jun 2014	30 Jun 2013	31 Dec 2013	30 Jun 2014	30 Jun 2013	31 Dec 2013
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
UK	11,332	12,637	11,725	861	923	938	2,242	3,166	2,252	1,707	930	1,644	1	-	1	16,143	17,656	16,560
Canada	323	358	322	166	23	80	55	50	50	58	64	58	-	-	-	602	495	510
Australia	-	-	-	173	142	160	63	75	62	24	18	19	-	-	-	260	235	241
Austria	206	253	212	35	26	27	-	-	-	-	-	-	-	-	-	241	279	239
Belgium	383	272	590	18	15	15	-	-	-	20	16	21	-	-	-	421	303	626
Denmark	6	6	6	13	29	17	-	-	-	26	44	30	-	-	-	45	79	53
Finland	74	211	77	175	109	102	25	25	25	8	8	6	-	-	-	282	353	210
France	1,749	1,343	1,645	359	307	260	146	246	150	306	314	314	-	-	-	2,560	2,210	2,369
Germany	2,450	2,214	2,244	275	342	298	168	219	153	185	157	202	-	-	-	3,078	2,932	2,897
Greece	-	-	-	-	-	-	-	2	-	-	2	-	-	-	-	-	4	-
Ireland	1	-	1	14	4	10	12	21	11	13	9	15	-	-	-	40	34	37
Italy	2	6	6	29	30	17	66	130	69	118	63	128	-	-	-	215	229	220
Japan	22	25	22	277	66	210	-	11	-	10	-	11	-	-	-	309	102	243
Mexico	-	-	-	-	-	-	-	-	-	66	51	56	-	-	-	66	51	56
Netherlands	356	499	255	270	272	212	42	83	40	13	32	29	-	-	-	681	886	536
Norway	65	97	66	56	72	67	13	12	12	59	58	58	-	-	-	193	239	203
Portugal	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-
Russia	-	-	-	-	-	-	-	-	-	7	-	8	-	-	-	7	-	8
Spain	12	5	4	22	23	24	-	4	-	65	82	82	-	-	-	99	114	110
Sweden	4	4	4	101	95	125	16	5	16	18	27	18	-	-	-	139	131	163
Switzerland	-	-	-	104	9	10	52	67	47	50	12	52	-	-	-	206	88	109
US	2	4	2	334	278	327	252	388	283	381	329	355	-	-	-	969	999	967
Other	40	27	27	105	83	75	174	168	171	102	165	66	253	177	243	674	620	582
Total	17,027	17,961	17,208	3,387	2,848	2,974	3,326	4,672	3,341	3,236	2,381	3,172	254	177	244	27,230	28,039	26,939

² This balance primarily consists of securities held in supranationals.

Loans

The Group is exposed to interest rate risk and credit risk from loans issued. The Group manages its exposure by setting portfolio limits by individual business unit. These limits specify the proportion of the value of the total portfolio of mortgage loans and mortgage bonds that are represented by a single, or group of related counterparties, geographic area, employment status, or economic sector, risk rating and loan to value percentage.

The shareholder business holding of loans of £2,367m (30 June 2013: £2,752m; 31 December 2013: £2,549m) primarily comprises the Canadian non-segregated funds commercial mortgage book. This mortgage book is deemed to be of very high quality. The Canadian mortgage book has an average loan to value of 39% (30 June 2013: 39%; 31 December 2013: 39%).

The participating business holding of loans of £187m (30 June 2013: £216m; 31 December 2013: £199m) primarily comprises of UK mortgages. These mortgage books are deemed to be of very high quality.

3.13 Fair value hierarchy of assets and liabilities

(a) Determination of fair value hierarchy

To provide further information on the approach used to determine and measure the fair value of certain assets and liabilities, the following fair value hierarchy categorisation has been used:

Level 1: Fair values measured using quoted prices (unadjusted) in active markets for identical assets or liabilities. An active market exists where transactions take place with sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2: Fair values measured using 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).

Level 3: Fair values measured using inputs that are not based on observable market data (unobservable inputs).

(b) Methods and assumptions used to determine fair value of assets and liabilities

Information on the methods and assumptions used to determine fair values for each major category of financial instrument measured at fair value is given below.

Investments in associates at FVTPL - 30 June 2014: £1,585m (30 June 2013: £1,741m; 31 December 2013: £1,503m) and equity securities and interests in pooled investment funds - 30 June 2014: £87,732m (30 June 2013: £75,587m; 31 December 2013: £84,654m)

Investments in associates at FVTPL are valued in the same manner as the Group's equity securities and interests in pooled investment funds.

Equity instruments listed on a recognised exchange are valued using prices sourced from the primary exchange on which they are listed. These instruments are generally considered to be quoted in an active market and are therefore treated as level 1 instruments within the fair value hierarchy.

Unlisted equities are valued using an adjusted net asset value. The Group's exposure to unlisted equity securities primarily relates to private equity investments. The majority of the Group's private equity investments are carried out through European fund of funds structures, where the Group receives valuations from the investment managers of the underlying funds.

The valuations received from investment managers of the underlying funds are reviewed and where appropriate adjustments are made to reflect the impact of changes in market conditions between the date of the valuation and the end of the reporting period. The valuation of these securities is largely based on inputs that are not based on observable market data, and accordingly these instruments are treated as level 3 instruments within the fair value hierarchy. Where appropriate, reference is made to observable market data.

Where pooled investment funds have been seeded and the investments in the fund have been classified as held for sale, the costs to sell are assumed to be negligible. The fair value of pooled investment funds held for sale is calculated as equal to the observable unit price.

Investment property - 30 June 2014: £9,302m (30 June 2013: £8,685m; 31 December 2013: £8,606m), investment property held for sale - 30 June 2014: £nil (30 June 2013: £nil; 31 December 2013: £92m) and owner occupied property - 30 June 2014: £163m (30 June 2013: £182m; 31 December 2013: £172m)

The fair value of investment property and owner occupied property is valued by external property valuation experts. The current use is considered the best indicator of the highest and best use of the Group's property from a market participants' perspective. No adjustment is made for vacant possession for the Group's owner occupied property.

In UK and Europe valuations are completed in accordance with the Royal Institution of Chartered Surveyors (RICS) valuation standards and predominantly an income capitalisation method is used. In Canada all valuations are completed in accordance with International Valuation Standards (IVS) and predominantly a discounted cash flow method is used. Both valuation techniques are income approaches as they consider the income that an asset will generate over its useful life and estimate fair value through a capitalisation process. Capitalisation involves the conversion of income into a capital sum through the application of an appropriate discount rate.

The determination of the fair value of investment property and all owner occupied property requires the use of estimates such as future cash flows from the assets for example, future rental income and discount rates applicable to those assets.

Where it is not possible to use an income approach a market approach will be used whereby comparisons are made to recent transactions with similar characteristics and locations to those of the Group's assets. Where appropriate, adjustments will be made by the valuer to reflect any differences.

Where an income approach, or a market approach with significant unobservable adjustments, has been used, valuations are predominantly based on unobservable inputs and accordingly these assets are categorised as level 3 within the fair value hierarchy. Where a market approach valuation does not include significant unobservable adjustments, these assets are categorised as level 2.

Derivative financial assets - 30 June 2014: £2,648m (30 June 2013: £2,678m; 31 December 2013: £1,991m) and derivative financial liabilities - 30 June 2014: £1,101m (30 June 2013: £1,399m; 31 December 2013: £932m)

The majority of the Group's derivatives are over-the-counter (OTC) derivatives which are fair valued using valuation techniques based on observable market data and are therefore treated as level 2 investments within the fair value hierarchy.

Exchange traded derivatives are valued using prices sourced from the relevant exchange. They are considered to be instruments quoted in an active market and are therefore categorised as level 1 instruments within the fair value hierarchy.

Non-performance risk arising from the credit risk of each counterparty has been considered on a net exposure basis in line with the Group's risk management policies. At 30 June 2014, 30 June 2013 and 31 December 2013, the residual credit risk is considered immaterial and no credit risk adjustment has been made.

Debt securities - 30 June 2014: £72,602m (30 June 2013: £70,734m; 31 December 2013: £69,209m)
For debt securities, the Group has determined a hierarchy of pricing sources. The hierarchy consists of reputable external pricing providers who generally use observable market data. If prices are not available from these providers or are considered to be stale, the Group has established procedures to arrive at an internal assessment of the fair value. These procedures are based largely on inputs that are not based on observable market data. A further analysis by category of debt security is as follows:

· Government, including provincial and municipal, and supranational institution bonds
These instruments are valued using prices received from external pricing providers who generally base the price on quotes received from a number of market participants. They are treated as level 1 or level 2 instruments within the fair value hierarchy depending upon the nature of the underlying pricing information used for valuation purposes.

· Corporate bonds listed or quoted in an established over-the-counter market including asset backed securities
These instruments are generally valued using prices received from external pricing providers who generally consolidate quotes received from a panel of banks into a composite price. As the market becomes less active the quotes provided by some banks may be based on modelled prices rather than on actual transactions. These sources are based largely on observable market data, and therefore these instruments are treated as level 2 instruments within the fair value hierarchy. When prices received from external pricing providers are based on a single broker indicative quote, the instruments are treated as level 3 instruments.

For instruments for which prices are either not available from external pricing providers or the prices provided are considered to be stale, the Group performs its own assessment of the fair value of these instruments. This assessment is largely based on inputs that are not based on observable market data, principally single broker indicative quotes, and accordingly these instruments are treated as level 3 instruments within the fair value hierarchy.

· Other corporate bonds including unquoted bonds, commercial paper and certificates of deposit
These instruments are valued using models. For unquoted bonds the model uses inputs from comparable bonds and includes credit spreads which are obtained from brokers or estimated internally. Commercial paper and certificates of deposit are valued using standard valuation formulas. The classification of these instruments within the fair value hierarchy will be either level 2 or 3 depending upon the nature of the underlying pricing information used for valuation purposes.

· Commercial mortgages
These instruments are valued using models. The models use a discount rate adjustment technique which is an income approach. The key inputs for the valuation models are contractual future cash flows, which are discounted using a discount rate that is determined by adding a spread to the current base rate. The spread is derived from a pricing matrix which incorporates data on current spreads for similar assets and which may include an internal underwriting rating. These inputs are generally observable with the exception of the spread adjustment arising from the internal underwriting rating. The classification of these instruments within the fair value hierarchy will be either level 2 or 3 depending on whether the spread is adjusted by an internal underwriting rating.

Non-participating investment contract liabilities - 30 June 2014: £98,448m (30 June 2013: £89,005m; 31 December 2013: £95,267m)

The fair value of the non-participating investment contract liabilities is calculated equal to the fair value of the underlying assets and liabilities in the funds. Thus, the value of these liabilities is dependent on the methods and assumptions set out above in relation to the underlying assets and liabilities in which these funds are invested. The underlying assets and liabilities are predominately classified as level 1 or 2 and as such, the inputs into the valuation of the liabilities are observable. Therefore, the liabilities are classified within level 2 of the fair value hierarchy.

3.13 Fair value hierarchy of assets and liabilities continued

(b) Methods and assumptions used to determine fair value of assets and liabilities continued

Liabilities in respect of third party interest in consolidated funds - 30 June 2014: £17,994m (30 June 2013: £14,144m; 31 December 2013: £16,058m)

The fair value of liabilities in respect of third party interest in consolidated funds is calculated equal to the fair value of the underlying assets and liabilities in the funds. Thus, the value of these liabilities is dependent on the methods and assumptions set out above in relation to the underlying assets in which these funds are invested. When the underlying assets and liabilities are valued using readily available market information the liabilities in respect of third party interest in consolidated funds are treated as level 2. Where the underlying assets and liabilities are not valued using readily available market information the liabilities in respect of third party interest in consolidated funds are treated as level 3.

Contingent consideration liability - 30 June 2014: £nil (30 June 2013: £nil; 31 December 2013: £15m)

Contingent consideration was recognised as a result of business combinations in the year to 31 December 2013 as discussed in Note 3.2 - Business combinations, and was valued using a valuation model. The inputs into the model included unobservable inputs due to assumptions made regarding expected movements in assets under management and therefore the liability was classified as level 3 in the fair value hierarchy.

(b)(i) Fair value hierarchy for assets measured at fair value in the statement of financial position

The table below presents the Group's assets measured at fair value by level of the fair value hierarchy.

	Level 1			Level 2			Level 3			Total
	30 Jun 2014	30 Jun 2013	31 Dec 2013	30 Jun 2014	30 Jun 2013	31 Dec 2013	30 Jun 2014	30 Jun 2013	31 Dec 2013	30 Jun 2014	30 Jun 2013	31 Dec 2013
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Investments in associates at FVTPL	1,585	1,741	1,503	-	-	-	-	-	-	1,585	1,741	1,503
Investment property	-	-	-	65	97	64	9,237	8,588	8,542	9,302	8,685	8,606
Owner occupied property	-	-	-	1	1	1	162	181	171	163	182	172
Derivative financial assets	746	703	624	1,902	1,975	1,367	-	-	-	2,648	2,678	1,991
Equity securities and interests in pooled investment vehicles	86,683	74,438	83,588	-	-	-	1,049	1,149	1,066	87,732	75,587	84,654
Debt securities	22,353	23,311	22,199	49,029	46,041	45,711	1,220	1,382	1,299	72,602	70,734	69,209
Assets held for sale	13	-	29	20	-	-	-	-	92	33	-	121
Total assets at fair value	111,380	100,193	107,943	51,017	48,114	47,143	11,668	11,300	11,170	174,065	159,607	166,256

There were no significant transfers between levels 1 and 2 during the period (six months ended 30 June 2013: none; 12 months ended 31 December 2013: none). Refer to 3.13 (b)(iii) for details of movements in level 3.

All transfers between fair value hierarchy levels are deemed to occur on the last day of the quarter in which they arise.

The table that follows presents an analysis of the Group's financial assets measured at fair value by level of the fair value hierarchy for each risk segment as set out in Note 3.12 - Risk management.

	Level 1			Level 2			Level 3			Total
	30 Jun 2014	30 Jun 2013	31 Dec 2013	30 Jun 2014	30 Jun 2013	31 Dec 2013	30 Jun 2014	30 Jun 2013	31 Dec 2013	30 Jun 2014	30 Jun 2013	31 Dec 2013
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Shareholder business
Investments in associates at FVTPL	4	23	7	-	-	-	-	-	-	4	23	7
Investment property	-	-	-	65	97	64	417	503	427	482	600	491
Owner occupied property	-	-	-	1	1	1	35	55	45	36	56	46
Derivative financial assets	1	5	1	66	60	110	-	-	-	67	65	111
Equity securities and interests in pooled investment funds	187	198	164	-	-	-	28	6	8	215	204	172
Debt securities	907	910	904	10,176	10,408	9,980	926	988	932	12,009	12,306	11,816
Assets held for sale	13	-	29	20	-	-	-	-	-	33	-	29
Total shareholder business	1,112	1,136	1,105	10,328	10,566	10,155	1,406	1,552	1,412	12,846	13,254	12,672
Participating business
Investments in associates at FVTPL	375	366	354	-	-	-	-	-	-	375	366	354
Investment property	-	-	-	-	-	-	2,117	2,011	1,995	2,117	2,011	1,995
Owner occupied property	-	-	-	-	-	-	127	126	126	127	126	126
Derivative financial assets	249	258	213	650	534	448	-	-	-	899	792	661
Equity securities and interests in pooled investment funds	9,572	9,362	10,281	-	-	-	663	718	671	10,235	10,080	10,952
Debt securities	16,391	17,223	16,405	10,828	10,602	10,359	11	214	175	27,230	28,039	26,939
Assets held for sale	-	-	-	-	-	-	-	-	-	-	-	-
Total participating business	26,587	27,209	27,253	11,478	11,136	10,807	2,918	3,069	2,967	40,983	41,414	41,027
Unit linked and segregated funds
Investments in associates at FVTPL	1,105	1,316	1,098	-	-	-	-	-	-	1,105	1,316	1,098
Investment property	-	-	-	-	-	-	5,205	4,728	4,830	5,205	4,728	4,830
Owner occupied property	-	-	-	-	-	-	-	-	-	-	-	-
Derivative financial assets	332	300	276	795	933	556	-	-	-	1,127	1,233	832
Equity securities and interests in pooled investment funds	69,097	59,271	66,421	-	-	-	44	64	54	69,141	59,335	66,475
Debt securities	4,807	5,005	4,634	21,509	19,948	19,976	226	167	165	26,542	25,120	24,775
Assets held for sale	-	-	-	-	-	-	-	-	59	-	-	59
Total unit linked and segregated funds	75,341	65,892	72,429	22,304	20,881	20,532	5,475	4,959	5,108	103,120	91,732	98,069
Third party interest in consolidated funds and non-controlling interests
Investments in associates at FVTPL	101	36	44	-	-	-	-	-	-	101	36	44
Investment property	-	-	-	-	-	-	1,498	1,346	1,290	1,498	1,346	1,290
Owner occupied property	-	-	-	-	-	-	-	-	-	-	-	-
Derivative financial assets	164	140	134	391	448	253	-	-	-	555	588	387
Equity securities and interests in pooled investment funds	7,827	5,607	6,722	-	-	-	314	361	333	8,141	5,968	7,055
Debt securities	248	173	256	6,516	5,083	5,396	57	13	27	6,821	5,269	5,679
Assets held for sale	-	-	-	-	-	-	-	-	33	-	-	33
Total third party interest in consolidated funds and non-controlling interests	8,340	5,956	7,156	6,907	5,531	5,649	1,869	1,720	1,683	17,116	13,207	14,488
Total	111,380	100,193	107,943	51,017	48,114	47,143	11,668	11,300	11,170	174,065	159,607	166,256

3.13 Fair value hierarchy of assets and liabilities continued

(b) Methods and assumptions used to determine fair value of assets and liabilities continued

(b)(ii) Fair value hierarchy for liabilities measured at fair value in the statement of financial position

The table below presents the Group's liabilities measured at fair value by level of the fair value hierarchy.

	Level 1			Level 2			Level 3			Total
	30 Jun 2014	30 Jun 2013	31 Dec 2013	30 Jun 2014	30 Jun 2013	31 Dec 2013	30 Jun 2014	30 Jun 2013	31 Dec 2013	30 Jun 2014	30 Jun 2013	31 Dec 2013
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Non-participating investment contract liabilities	-	-	-	98,448	89,005	95,267	-	-	-	98,448	89,005	95,267
Liabilities in respect of third party interest in consolidated funds	-	-	-	16,715	12,925	14,812	1,279	1,219	1,246	17,994	14,144	16,058
Derivative financial liabilities	207	274	436	894	1,125	496	-	-	-	1,101	1,399	932
Contingent consideration liability	-	-	-	-	-	-	-	-	15	-	-	15
Total financial liabilities at fair value	207	274	436	116,057	103,055	110,575	1,279	1,219	1,261	117,543	104,548	112,272

There were no transfers between levels 1 and 2 during the six months ended 30 June 2014 (six months ended 30 June 2013: none; 12 months ended 31 December 2013: none). Refer to 3.13 (b)(iii) for details of movements in level 3.

The table that follows presents an analysis of the Group's financial liabilities measured at fair value by level of the fair value hierarchy for each risk segment as set out in Note 3.12 - Risk management.

	Level 1			Level 2			Level 3			Total
	30 Jun 2014	30 Jun 2013	31 Dec 2013	30 Jun 2014	30 Jun 2013	31 Dec 2013	30 Jun 2014	30 Jun 2013	31 Dec 2013	30 Jun 2014	30 Jun 2013	31 Dec 2013
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Shareholder business
Derivative financial liabilities	2	-	5	19	35	36	-	-	-	21	35	41
Contingent consideration liability	-	-	-	-	-	-	-	-	15	-	-	15
Total shareholder business	2	-	5	19	35	36	-	-	15	21	35	56
Participating business
Derivative financial liabilities	5	60	53	44	62	81	-	-	-	49	122	134
Total participating business	5	60	53	44	62	81	-	-	-	49	122	134
Unit linked and segregated funds
Non-participating investment contract liabilities	-	-	-	98,448	89,005	95,267	-	-	-	98,448	89,005	95,267
Derivative financial liabilities	147	144	256	543	687	263	-	-	-	690	831	519
Total unit linked and segregated funds	147	144	256	98,991	89,692	95,530	-	-	-	99,138	89,836	95,786
Third party interest in consolidated funds and non-controlling interests
Liabilities in respect of third party interest in consolidated funds	-	-	-	16,715	12,925	14,812	1,279	1,219	1,246	17,994	14,144	16,058
Derivative financial liabilities	53	70	122	288	341	116	-	-	-	341	411	238
Total third party interest in consolidated funds and non-controlling interests	53	70	122	17,003	13,266	14,928	1,279	1,219	1,246	18,335	14,555	16,296
Total	207	274	436	116,057	103,055	110,575	1,279	1,219	1,261	117,543	104,548	112,272

(b)(iii) Reconciliation of movements in level 3 instruments

The movements during the period of level 3 assets and liabilities held at fair value are analysed below.

	Investment Property¹	Owner occupied property	Equity securities and interests in pooled investment funds	Debt securities	Liabilities in respect of third party interest in consolidated funds
6 months 2014	£m	£m	£m	£m	£m
1 January	8,634	171	1,066	1,299	(1,246)
Total gains/(losses) recognised in the income statement	395	1	56	41	(68)
Purchases	531	-	60	290	5
Settlement	-	-	-	-	30
Sales	(280)	(13)	(117)	(122)	-
Transfers in to level 3	-	-	1	-	-
Transfers out of level 3	-	-	-	(258)	-
Foreign exchange adjustment	(48)	(2)	(17)	(30)	-
Total gains recognised in revaluation of owner occupied property within other comprehensive income	-	5	-	-	-
Other	5	-	-	-	-
30 June	9,237	162	1,049	1,220	(1,279)

¹Includes investment property held for sale of £nil (30 June 2013: £nil; 31 December 2013: £92m).

	Investment Property	Owner occupied property	Equity securities and interests in pooled investment funds	Debt securities	Liabilities in respect of third party interest in consolidated funds
6 months 2013	£m	£m	£m	£m	£m
1 January	8,530	111	1,118	1,402	(1,205)
Total gains/(losses) recognised in the income statement	45	(3)	38	(108)	(10)
Purchases	264	-	48	258	-
Settlement	-	-	-	-	(4)
Sales	(288)	-	(98)	(145)	-
Transfers in to level 3	-	-	10	15	-
Transfers out of level 3	-	-	-	(51)	-
Foreign exchange adjustment	25	-	33	11	-
Total gains recognised in revaluation of owner occupied property within other comprehensive income	-	73	-	-	-
Other	12	-	-	-	-
30 June	8,588	181	1,149	1,382	(1,219)

3.13 Fair value hierarchy of assets and liabilities continued

(b) Methods and assumptions used to determine fair value of financial assets and liabilities continued

(b)(iii) Reconciliation of movements in level 3 instruments continued

	Investment Property¹	Owner occupied property	Equity securities and interests in pooled investment funds	Debt securities	Liabilities in respect of third party interest in consolidated funds
Full year 2013	£m	£m	£m	£m	£m
1 January	8,530	111	1,118	1,402	(1,205)
Total gains/(losses) recognised in the income statement	315	(8)	89	(77)	(45)
Purchases	615	-	93	402	7
Settlement	-	-	-	-	(3)
Sales	(712)	-	(244)	(227)	-
Transfers in to level 3	-	-	15	194	-
Transfers out of level 3	-	-	(9)	(312)	-
Foreign exchange adjustment	(103)	(4)	5	(83)	-
Total gains recognised in revaluation of owner occupied property within other comprehensive income	-	73	-	-	-
Other	(11)	(1)	(1)	-	-
31 December	8,634	171	1,066	1,299	(1,246)

¹Includes investment property held for sale of £92m which had an opening fair value at 1 January 2013 of £76m.

In addition to the above, the Group carried a contingent consideration liability with a fair value of £15m at 31 December 2013 (30 June 2013: £nil). This liability was settled in full during the period for £14m. The movement in fair value was recognised in the IFRS condensed consolidated income statement.

As at 30 June 2014, £414m of total gains (30 June 2013: losses of £48m; 31 December 2013: gains of £149m) were recognised in the consolidated income statement in respect of assets and liabilities held at fair value classified as level 3 at the period end. Of this amount £482m of gains (30 June 2013: losses of £38m; 31 December 2013: gains of £194m) were recognised in investment return and £68m of losses (30 June 2013: losses of £10m; 31 December 2013: losses of £45m) were recognised in change in liability for liabilities in respect of third party interest in consolidated funds in the IFRS condensed consolidated income statement.

Transfers of equity securities and interests in pooled investment funds and debt securities into level 3 generally arise when external pricing providers stop providing a price or where the price provided is considered stale. Transfers of equity securities and interests in pooled investment funds and debt securities out of level 3 arise when acceptable prices become available from external pricing providers.

(b)(iv) Sensitivity of level 3 instruments measured at fair value to changes in key assumptions

Effect of changes of significant unobservable assumptions to reasonable possible alternative assumptions

For the majority of level 3 investments, the Group does not use internal models to value the investments but rather obtains valuations from external parties. The Group reviews the appropriateness of these valuations on the following basis:

· For investment property and owner occupied property (including property that is classified as held for sale), the valuations are obtained from external valuers and are assessed on an individual property basis. The principal assumptions will differ depending on the valuation technique employed and sensitivities are determined by flexing the key inputs listed in the table below using knowledge of the investment property market.

· Private equity fund valuations are provided by the respective managers of the underlying funds and are assessed on an individual investment basis, with an adjustment made for significant movements between the date of the valuation and the end of the reporting period. Sensitivities are determined by comparison to the private equity market.

· Corporate bonds are predominantly valued using single broker indicative quotes obtained from third party pricing. Sensitivities are determined by flexing the single quoted prices provided using a sensitivity to yield movements.

The shareholder is directly exposed to movements in the value of level 3 investments held by the shareholder business (to the extent they are not offset by opposite movements in investment and insurance contract liabilities). Movements in level 3 investments held by the other risk segments are offset by an opposite movement in investment and insurance contract liabilities and therefore the shareholder is not directly exposed to such movements unless they are sufficiently severe to cause the assets of the participating business to be insufficient to meet the obligations to policyholders. Changing unobservable inputs in the measurement of the fair value of level 3 financial assets to reasonably possible alternative assumptions would not have a significant impact on profit for the period or total assets.

The table below presents quantitative information about the significant unobservable inputs for level 3 instruments:

	Fair value
30 June 2014	£m	Valuation technique	Unobservable input	Range (weighted average)
Investment property and owner occupied property	8,011	Income capitalisation	Equivalent yield Estimated rental value by Square metre	4.0% to 13.6% (5.8%) £11 to £9,100 (£547)
Investment property and owner occupied property	1,284	Discounted cash flow	Internal rate of return Terminal capitalisation rate	6.0% to 10.8% (7.4%) 5.3% to 9.5% (6.6%)
Investment property and owner occupied property	104	Market comparison	Estimated value per square metre	£2 to £10,000 (£1,607)
Equity securities and interests in pooled investment funds (private equity investments)	1,049	Adjusted net asset value	Adjustment to net asset value¹	N/A
Debt securities (corporate bonds)	1,169	Single broker	Single broker indicative price²	N/A
Debt securities (commercial mortgages)	51	Discounted cash flow	Internal underwriting rating	N/A

¹ A Group level adjustment is made for significant movements in private equity values.

²Debt securities which are valued using single broker indicative quotes are disclosed in level 3 in the fair value hierarchy. No adjustment is made to these prices.

	Fair value
31 December 2013	£m	Valuation technique	Unobservable input	Range (weighted average)
Investment property and owner occupied property	7,450	Income capitalisation	Equivalent yield Estimated rental value by Square metre	4.1% to 13.5% (6.1%) £11 to £9,100 (£503)
Investment property and owner occupied property	1,275	Discounted cash flow	Internal rate of return Terminal capitalisation rate	6.0% to 10.8% (7.4%) 5.7% to 9.3% (6.3%)
Investment property and owner occupied property	80	Market comparison	Estimated value per square metre	£2 to £10,000 (£2,139)
Equity securities and interests in pooled investment funds (private equity investments)	1,066	Adjusted net asset value	Adjustment to net asset value¹	N/A
Debt securities (corporate bonds)	1,299	Single broker	Single broker indicative price²	N/A
Debt securities (commercial mortgages)	-	Discounted cash flow	Internal underwriting rating	N/A

¹ A Group level adjustment is made for significant movements in private equity values.

²Debt securities which are valued using single broker indicative quotes are disclosed in level 3 in the fair value hierarchy. No adjustment is made to these prices.

3.13 Fair value hierarchy of assets and liabilities continued

The table below presents estimated fair values of financial assets and liabilities whose carrying value does not approximate fair value. Fair values of assets and liabilities are based on observable market inputs where available, or are estimated using other valuation techniques.

	Carrying value			Fair value
	30 June 2014	30 June 2013	31 Dec 2013	30 June 2014	30 June 2013	31 Dec 2013
	£m	£m	£m	£m	£m	£m
Assets
Loans secured by mortgages	2,449	2,901	2,705	2,535	3,006	2,779
Liabilities
Subordinated notes	721	747	728	777	762	795
Subordinated guaranteed bonds	519	519	502	599	568	571
Mutual Assurance Capital Securities	601	622	631	646	645	674
Non-participating investment contract liabilities	2,268	2,601	2,392	2,354	2,658	2,545

Loans measured at amortised cost primarily include commercial mortgages within the Group's commercial mortgage portfolio. The fair value of these loans is estimated using a discount rate adjustment technique which is an income approach. The key inputs for the valuation model are contractual future cash flows, which are then discounted using a discount rate that is determined by adding a spread to the current risk free rate from government bonds with terms that match the mortgage loans' terms. The spread is derived from market information available on current mortgage rates which is considered to be observable.

The estimated fair values for subordinated liabilities are based on the quoted market offer price.

It is not possible to reliably calculate the fair value of participating investment contract liabilities. The assumptions and methods used in the calculation of these liabilities are set out in Note 33 of the Group's annual report and accounts for the year ended 31 December 2013. The carrying value of participating investment contract liabilities at 30 June 2014 was £14,764m (30 June 2013: £14,762m; 31 December 2013: £14,707m).

The carrying value of all other financial assets and liabilities measured at amortised cost approximates their fair value.

3.14 Provisions and contingent liabilities

(a) Legal proceedings and regulations

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 all 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 contingencies in respect of these regulations.

(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.

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, the company, 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. SLTC 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.

3.15 Commitments

(a) Capital commitments

As at 30 June 2014 capital expenditure that was authorised and contracted for, but not provided and incurred, was £425m (30 June 2013: £225m; 31 December 2013: £383m) in respect of investment properties. Of this amount, £378m (30 June 2013: £183m; 31 December 2013: £332m) and £47m (30 June 2013: £42m; 31 December 2013: £51m) 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 2014	30 June 2013	31 December 2013
	£m	£m	£m
Commitments to extend credit with an original term to maturity of one year or less	89	20	66
Other commitments	299	326	326

Included in other commitments is £278m (30 June 2013: £299m; 31 December 2013: £284m) 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.

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 2014	30 June 2013	31 December 2013
	£m	£m	£m
Not later than one year	29	30	31
Later than one year and no later than five years	55	71	58
Later than five years	64	76	69
Total operating lease commitments	148	177	158

3.16 Related party transactions

(a) Transactions with related parties

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

	6 months 2014	6 months 2013 restated¹	Full year 2013 restated¹
	£m	£m	£m
Sales to:
Associates	100	407	610
Joint ventures	1	12	13
Other related parties	4	4	8
	105	423	631
Purchases from:
Associates	204	407	620
Joint ventures	14	24	24
	218	431	644

Sales to other related parties include management fees received from non-consolidated investment vehicles managed by Standard Life Investments.

The Group's defined benefit pension plans have assets of £797m (30 June 2013: £789m; 31 December 2013: £782m) 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 during the period are on terms which are equivalent to those available to all employees of the Group.

During the six months ended 30 June 2014, key management personnel and their close family members contributed £0.6m (six months ended 30 June 2013: £2.5m; 12 months ended 31 December 2013: £3.0m) to products sold by the Group.

3.17 Events after the reporting period

On 1 July 2014, Standard Life Investments Holdings Limited (SLIH), a wholly owned subsidiary of the Company acquired the entire share capital of Ignis Asset Management Limited (IAML). IAML is the holding company of the Ignis Asset Management group (Ignis) which provides asset management services to The Phoenix Group, a closed life assurance fund consolidator, as well as to third party clients, including retail, wholesale and institutional investors in the UK and overseas.

The acquisition of Ignis will complement Standard Life Investments' strong organic growth and strengthen its strategic positioning. It will deepen its investment capabilities, broaden Standard Life Investments' third party client base and reinforce its foundation for building a business in the rapidly developing liability aware market.

The new business will be reported in the Group's Standard Life Investments reportable segment.

The purchase consideration will be between £370m and £390m. The final purchase consideration will be determined through a completion process which is not expected to finalise until September 2014. The consideration will include a contingent element determined by levels of assets under management retained over the next 10 years.

As the final purchase consideration has not been determined, the initial accounting for the acquisition is incomplete. The required disclosures will be made in the annual report and accounts for the year ended 31 December 2014.

This information is provided by RNS

The company news service from the London Stock Exchange

END

IR EANPLELLLEFF

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