Interim Results

St. James's Place Capital PLC 27 July 2004 PRESS RELEASE INTERIM RESULTS FOR THE SIX MONTHS TO 30 JUNE 2004 St. James's Place Capital plc ('SJPC'), the wealth management group, today announces its new business and financial results for the half year ended 30 June 2004. The text of the announcement is attached: Enquiries: Sir Mark Weinberg, Chairman Tel: 020 7514 1909 Andrew Croft, Group Finance Director Tel: 020 7514 1909 Nitya Bolam, Brunswick Tel: 020 7404 5959 PART 1 ------ ST. JAMES'S PLACE GROUP INTERIM RESULTS FOR THE SIX MONTHS TO 30 JUNE 2004 NEW BUSINESS UP 31% AND OPERATING PROFITS UP 73% St. James's Place Capital plc ('SJPC'), the wealth management group, today announces its new business and financial results for the half year ended 30 June 2004. Key points include: •Pre-tax operating profits up 73% to £43.4 million (on an achieved profit basis), before £3.0 million systems development costs •New business profits of £20.2 million (2003: £6.9 million) •New business premiums of £90 million (on an APE basis), up 31% •Funds under management at £8.6 billion, up 9% since the start of the year (28% over the twelve months) •Size of the Partnership increased from 1,124 to 1,155 •Fees from wealth management services at £9.4 million, up 17.5% •Net asset value per share 127.4p •Dividend maintained at 1.25p per share Sir Mark Weinberg, Chairman commented: 'We are delighted with our achievements in the first half of the year. All areas of the business have seen strong growth, with new business up 31% and operating profits up 73%. The Board firmly believes that, subject to external shocks, we are back on track with our long-stated target of achieving growth in new business over the longer term of 15 to 20 per cent per annum.' CONTENTS PART 1 NEW BUSINESS FIGURES PART 2 CHAIRMAN'S STATEMENT AND FINANCIAL COMMENTARY PART 3 ACHIEVED PROFIT RESULTS PART 4 MODIFIED STATUTORY SOLVENCY BASIS RESULTS ST. JAMES'S PLACE GROUP NEW BUSINESS FIGURES FOR THE SIX MONTHS TO 30 JUNE 2004 LONG-TERM SAVINGS Unaudited Unaudited 3 Months to 6 Months to 30 June 2004 30 June 2004 New premiums 2004 2003 Change 2004 2003 Change £'m £'m % £'m £'m % New Regular Premiums Pensions* 6.9 7.0 (1%) 14.2 13.2 8% Protection 6.8 6.2 10% 12.6 10.9 16% 13.7 13.2 4% 26.8 24.1 11% New Single Premiums Investment 155.0 134.3 15% 339.6 253.7 34% Pensions 84.8 46.6 82% 132.9 87.4 52% 239.8 180.9 33% 472.5 341.1 39% Unit Trust Sales 86.6 60.7 43% 159.7 106.5 50% (including PEPs and ISAs) Unaudited Unaudited 3 Months to 6 Months to 30 June 2004 30 June 2004 New 2004 2003 Change 2004 2003 Change Business (RP + 1/10th £'m £'m % £'m £'m % SP) Investment 24.2 19.6 23% 50.1 36.1 39% Pensions 15.3 11.6 32% 27.3 21.8 25% Protection 6.8 6.2 10% 12.6 10.9 16% ------ ------ ------- ------- ------ ------- Total 46.3 37.4 24% 90.0 68.8 31% ------ ------ ------- ------- ------ ------- * see Note 2 to the New Business figures ST. JAMES'S PLACE GROUP WEALTH MANAGEMENT SERVICES KEY BUSINESS HIGHLIGHTS FOR THE SIX MONTHS TO 30 JUNE 2004 Unaudited Gross fees generated from additional £9.4 m up 17% (2003: £8.0 m) wealth management services 6 months to 30 June 2004 New Mortgage Advances (£1.8 billion) St. James's Place Bank £242.1 m Other lenders £1,560.1 m Portfolio Management Services New portfolios £20.2 m Trust and Estate Planning Services Number of cases 633 St. James's Place Bank - in-force business *Number of facilities 56,654 Number of accounts 20,186 Credit balances £543.0 m Mortgages £1,189.2 m Average mortgage value £165.8k Loans and credit cards £26.9 m *Number of facilities denotes the number of individual mortgages, personal loans, credit cards, current accounts and savings accounts, where one client may hold a number of facilities. The average number of facilities per client is 2.86. ST. JAMES'S PLACE GROUP NEW BUSINESS FIGURES FOR THE SIX MONTHS TO 30 JUNE 2004 Notes 1. New Business from Long-Term Savings is calculated in accordance with the life assurance industry convention, by adding together new regular premiums and one-tenth of single premiums. 2. Pensions regular premiums include £0.2 million of investment regular premiums in 2004 (2003: £0.1 million). 3. Sales of Stakeholder pensions by St. James's Place Partnership have been included in the reported figures. These have been included under 'Pensions' and amount to £7.3 million regular premiums (2003: £5.9 million) and £9.3 million single premiums (2003: £11.2 million). This equates to £8.2 million New Business premiums (2003: £7.0 million). 4. Sales of Protection business through a panel of providers have been included in the reported figures under 'Regular Premiums Protection'. These amount to £7.4 million of new regular premiums (2003: £3.1 million). This equates to £7.4 million New Business premiums (2003: £3.1 million). PART 2 ------ CHAIRMAN'S STATEMENT Financial Performance --------------------- As usual we have presented our results on the Modified Statutory Solvency Basis ('MSSB') and have also given our results on an Achieved Profit basis. The Board remains of the view that the Achieved Profit basis provides a more meaningful measure of the Company's progress. The pre-tax profits for the half-year on the Modified Statutory Solvency Basis were £1.4 million (2003: loss of £2.5 million). The 2004 figure includes £3.0 million of costs for the strategic systems development. This modified statutory profit is indicative of the cash flows of the business but, as it does not bring into account the future cash flows for business already in force, it does not reflect the long-term nature of business. The Achieved Profit basis, which does bring into account these future cash flows from business in force, showed pre-tax operating profits of £43.4 million, which on a like for like basis were up by 73% over the comparative period of 2003. The significant increase in operating profits is due to the higher new business volumes, which I comment on later in this statement: the contribution from new business increased from £6.9 million in the first half of 2003 to £20.2 million in the current period, a 193% increase. After taking account of the lower current year investment variance, the total pre-tax profits were £41.1 million (2003: £39.8 million). Full details of the results on both measures are provided in the Financial Commentary. On 1 July 2004 we announced, subject to regulatory approval, the disposal of our holding in LAHC for £78.2 million and we indicated that we expect to be reporting a profit on the sale in the second half of the year of £28 million. The Financial Commentary provides further detail on the calculation of this profit. The proceeds from the sale will significantly increase SJPC's capital base and make funds available for expansion of our core business. Dividend -------- The Board has resolved to pay an interim dividend of 1.25p a share in respect of the six months to 30 June 2004 (2003: 1.25p per share). The dividend will be paid on 14 September 2004 to those shareholders on the Register at the close of business on 6 August 2004. At the Annual General Meeting on 6 May 2004 shareholders approved a resolution for an alternative of a scrip dividend. In accordance with the resolution a scrip alternative will be offered for this interim dividend and all future dividends. New Business ------------ The first half of 2004 has seen a continuation of the recovery in new business first seen in September 2003. I am pleased to report that new business for the first half of 2004 is up by 31% over the same period last year. Shareholders will recall that new business was up 24% in the final quarter of 2003 compared with the same quarter of the previous year and this has been followed by a year on year increase of 39% in the first quarter of 2004 and 24% in the second quarter of 2004. All areas of the business have grown and a particular highlight was the 39% increase in investment business. Sales of products we manufacture ourselves account for 83% of the total new business in the half year. Wealth management services continue to expand and are up 17.5% with gross fees receivable of £9.4 million. In the first six months of the year the St. James's Place Partnership have placed £1.8 billion of mortgages, up 40% on the comparative period. The St. James's Place Partnership --------------------------------- Membership of the St. James's Place Partnership rose in the half-year from 1,124 to 1,155, an increase of 2.8%, in line with our stated objective of increasing the number of Partners by 5 - 10% a year. We believe St. James's Place will be one of the chief beneficiaries of depolarisation and, in the run up to it being phased in at the start of 2005, we are continuing to see much interest in St. James's Place from experienced Independent Financial Advisers who are considering their options. We remain committed to recruiting the highest quality recruits and to maintaining the highest standards by retaining only those Partners who are profitable to the Group. Investment Management --------------------- Against the background of difficult stock market conditions, it is pleasing to report that our distinctive approach to investment management has once again resulted in superior performance in both the short and the longer term. Money spread equally across our five Pension Managed Funds ranked in the top quarter of all funds covered by the CAPS survey over three months, six months, one year, three years and five years (CAPS Pooled Pension Funds update at 30 June 2004). In addition to the strong performance regularly achieved by our GAM and THSP funds (3rd and 7th out of 71 funds in the latest survey), the results achieved by our Invesco Perpetual and Schroder funds (4th and 5th respectively over the same period) were noteworthy. In February 2004 we added a commercial property fund to our UK range of life and pension funds and we are particularly pleased with the level of cash inflows into the funds. At 30 June 2004 £89 million was invested in the property funds. Funds under management at 30 June 2004 were £8.6 billion, up 9% since the start of the year and 28% higher than at 30 June 2003. Investment in IT systems ------------------------ In the full year Chairman's Statement issued in February, I announced a step-change in our investment in the IT infrastructure of the business through our new Service Delivery Infrastructure programme ('SDI'). I am pleased to say that the project is progressing satisfactorily and the expected costs remain in line with our £12 million estimates. During the six-month period we incurred expenditure of £3.0 million, bringing the total cost to date to £6.4 million. We expect second half expenditure to be similar to the first, with the balance falling into 2005. Regulation and Compliance ------------------------- We anticipate one off costs of £2 to £3 million in the second half of the year associated with our commitment to having industry leading compliance standards and the significant and unprecedented change taking place in the industry. This change is driven by the extension of the regulatory environment, depolarisation and the Government's proposals for the simplification of pensions. The Board remains convinced that our business model, marketing a wide range of products and services through our own team of high quality advisers, is well positioned to take advantage of the opportunities we see flowing from these changes. I comment on the more significant of these changes below: Mortgage and General Insurance Regulation ----------------------------------------- From 1 October 2004 the sale of mortgage products will become regulated by the FSA. The St. James's Place Partnership will be able to offer independent, whole of market mortgage advice through our mortgage panel, which has recently been increased by twenty-five additional lenders. At the start of 2005 the sale of general insurance products will also become regulated by the FSA. St. James's Place will be expanding its panel of providers to ensure that our Partnership has a competitive offer for the regulated market place. Depolarisation -------------- The final date for the implementation of the depolarisation regime has yet to be announced, but it is expected to be in the first quarter of 2005. The introduction of depolarisation will have two major advantages to St. James's Place. Firstly, SJP will be able to broaden the range of products we can offer through the Partnership by 'contracting in' products from other manufacturers. We have already been doing this successfully through the protection panel and the St. James's Place wheel of services. Secondly, as noted earlier in this statement, experienced IFAs will be considering their career alternatives in the light of the ending of the simple 'independent or tied' regime and we believe that we offer them the opportunity to advise clients on an exceptionally wide range of products and services as part of a highly respected wealth management group. Menu ---- As part of the depolarisation regime distributors of financial products will be required to disclose the so-called menu, showing the cost of advice, to prospective clients. We have formally responded to the FSA's consultation document and will be ready to implement the changes as and when the FSA determines the live date. Pensions Simplification ----------------------- The previously announced simplification of the pension tax rules, the Pensions Green Paper, received Royal Assent on 22 July 2004. There have been a few amendments since my February statement, including a postponement of the implementation of the new rules until April 2006. We believe these changes will require individuals to seek advice on how to arrange their pensions, both in the period leading up to the introduction of the new rules (when important transitional provisions apply), and after their introduction. There will therefore be an increase in demand in our target market from individuals wanting access to a trusted adviser and a high quality process for monitoring and managing their pension portfolios. We believe we will be well positioned to meet this demand. Outlook ------- The second quarter of 2004 was the third consecutive quarter of growth in excess of 20%. Although the comparatives now start to get tougher, the Board firmly believes that, subject to external shocks, we are now back on track with our long-stated target of achieving growth in new business over the longer term of 15 to 20 per cent per annum. Partners and Staff ------------------ The first half of the year has been an especially busy period for the Partnership and staff. In addition to the higher business volumes, significant time and effort has been spent working on the changes and opportunities as a result of depolarisation, preparing for the forthcoming mortgage and general insurance regulation, our commitment to having industry leading compliance standards and the delivery of our IT Service Delivery Infrastructure referred to earlier in this Statement. Once again both Partners and staff have shown enthusiasm and dedication in these challenging times and I would, on behalf of the Directors and shareholders, like to warmly thank all members of the St. James's Place community. I am also delighted to inform shareholders that St. James's Place was once again selected as one of the Sunday Times Top 100 Companies To Work For, being placed 36th. Succession and Board changes ---------------------------- It was previously announced that I would be stepping down as Chairman during the course of this year and that Mike Wilson would then become full time Chairman and Mark Lund Chief Executive. The Board has now agreed that these changes will take place on 1 September 2004. In accordance with the provisions of the Combined Code, outside shareholders, as well as HBOS, have been consulted on the appointment of Mike Wilson as Chairman. In view of Mike's close involvement in building up the Partnership, the shareholders consulted concurred with the Board's view that it is in the interests of the Company for Mike to become Chairman on handing over the role of Chief Executive. I will also be stepping down from the Board on that date, but will continue to be closely involved with the Group as an active President. At the request of the Board I will remain Chairman of the Investment Committee and will continue to play a role in strategic planning. I would also like to announce two additional Board appointments with effect from 1 September 2004. Andrew Croft, whose appointment as Group Finance Director was announced in June 2003, will join the Board and Sarah Bates will become an independent non-executive director. Sarah joins us with a wealth of experience in Financial Services, having held a variety of roles during 18 years at Invesco and before that National Provident Institution. Sarah is 45 and has an MBA which specialised in Banking and Finance. Sarah is also a director of Invesco English and International Trust, Private Investors Capital Trust, F & C Pacific Trust and Royal London Growth and Income Trust. There are no circumstances to be disclosed in accordance with the Listing Rule 6.F.2(b) - (g) for Andrew Croft or Sarah Bates. I would like to wish Mike, Mark, Andrew and Sarah every success when they take up their new roles on 1 September 2004. As I will be assuming the position of President at the start of September, Lord Stevenson will be stepping down and I would like to thank Dennis on behalf of the Board and shareholders for the support he has offered the Group. This is my final Chairman's Statement and I would like to take the opportunity to thank all my colleagues, the Partnership, staff and everyone involved with the Company for making St. James's Place, in just twelve years, one of the United Kingdom's leading wealth management groups. The adventure has been very enjoyable, as well as challenging at times, and I have every confidence the Company will go from strength to strength in the future. Sir Mark Weinberg 26 July 2004 FINANCIAL COMMENTARY The Financial Commentary is presented in two sections: a section providing a commentary on the results for the six month period and a second section covering other matters of interest to shareholders and investors. Section 1: ---------- Commentary on the Results ------------------------- In common with previous reports, we have presented our results on a Modified Statutory Solvency Basis (MSSB), which reflects the current year cash flow and an Achieved Profit basis, bringing into account the value of future cash flows on the in-force business. The Commentary covers the results on both bases. Total Group Profits ------------------- MSSB ---- The total pre-tax profit for the Group was £1.4 million compared with a loss for the first half of 2003 of £2.5 million. The 2004 figure allows for the £3.0 million cost of the SDI project (see Chairman's Statement). The 2003 comparative included a contribution of £3.4 million from LAHC. Removing these items the underlying MSSB position has therefore improved from a pre-tax loss of £5.9 million in 2003 to a profit of £4.4 million in 2004. Achieved Profit --------------- The total pre-tax profit for both the life and unit trust business on an Achieved Profit basis was £41.1 million (2003: £39.8 million). The pre-tax operating profit, excluding the costs of investment in SDI, was £43.4 million (2003: £25.1 million), an increase of 73% over the prior year. Life and Pension Business ------------------------- MSSB: ----- The pre-tax profit of the life business for the six months was £0.8 million compared with a loss for the same period last year of £10.3 million. The post-tax profits for the current year are £0.7 million against a £6.6 million loss last year. When comparing these numbers, shareholders should be aware that as highlighted at the time of the February results presentation, there has been a small change in the expense recharging mechanism operated by the Group. This has resulted in like for like costs for the life business being £1.3 million lower in the current year than they would otherwise have been. The expenses of the unit trust business are correspondingly higher. The improvement in the result compared with 2003 reflects the higher new business and funds under management, plus the relatively fixed nature of the operational infrastructure costs. Achieved Profit: ---------------- An analysis of the life and pension business is shown in Part 3 of this release. The total pre-tax achieved profit for the six months was £31.3 million (2003: £21.3 million). The operating profit for the period was £32.2 million (2003: £16.2 million). This significant improvement is predominantly the result of the higher new business profit in the current year, which at £12.9 million is £11.1 million higher than the corresponding period last year. Similar to the improvement in the MSSB result, the increase in the new business profit predominantly reflects the higher level of new business and the relatively fixed nature of the operational infrastructure costs. There is a negative pre-tax experience variance during the period of £1.8 million (2003: negative £3.0 million). The adverse variance in the current year is due to the effect of not obtaining full tax relief for the expenses of the life business. The corresponding tax effect in the first half of 2003 was an adverse variance of £5.5 million. Further detail on the tax position of the Company is included in Section 2 to this Financial Commentary. The small pre-tax loss from operating assumption changes reflects minor changes to the reserving bases. There is a positive pre-tax investment variance for the six months of £1.9 million (2003: £12.7 million), which arises due to the actual investment return being higher than the return assumed in the achieved profit calculation. Although the investment markets at the end of June were at similar levels, if not marginally lower than the start of the year, performance of our funds has again been superior to the market. The average increase in our fund prices during the current period was 3.4%, some 1.2% above the achieved profit assumption. There is a pre-tax loss of £2.8 million (2003: £nil) arising from the changes to the economic assumptions. This amount reflects an increase in long-dated gilt yields, which has therefore been reflected in the economic assumption used. Unit Trust Business ------------------- MSSB: ----- Profits from the unit trust business were £4.9 million pre-tax (2003: £4.7 million). As noted earlier in this Commentary, there has been a minor change in the expense recharging and the unit trust profit in the current year is after the additional expenditure of £1.3 million. Achieved Profit: ---------------- Operating profits (before investment variance) for the period were £12.5 million, compared with £9.2 million pre-tax for the corresponding period of 2003. Within this figure new business profit increased from £5.1 million to £7.3 million, reflecting both the higher new business volumes and the small change to the expense recharging mechanism noted earlier. Investment variance - similar to the life and pension business, there has been a positive investment return variance, which amounted to £1.6 million pre-tax (2003: £6.2 million). After taking account of the investment variance in the period, total pre-tax profits for the six-month period were £14.1 million, compared with £15.4 million for the comparative period of 2003. Other ----- Other shows earnings from the core business other than the Group's life and unit trust business. For the six-month period there was a loss of £1.3 million, compared with a loss of £0.3 million in the prior year. SDI --- As mentioned in the Chairman's Statement, the costs incurred in the period on the strategic systems development were £3.0 million pre-tax (2003: £nil). LAHC ---- As LAHC has been recognised as an investment since July 2003, the pre-tax contribution of £3.4 million in the first half of 2003 is not repeated. As announced on 1 July 2004, we have reached an agreement, subject to regulatory approval, for the disposal of our investment in LAHC. We expect to report a profit on the disposal of £28 million in the second half of 2004, as detailed below: £' million £' million Proceeds 78.2 Less: Carrying value of investment 31.6 Provision for warranties 16.5 Costs 2.1 (50.2) -------- -------- 28.0 --------- A provision of £16.5 million has been established for possible claims under the transaction warranties and indemnities for which St. James's Place Capital has a maximum potential liability of £22.4 million. To the extent provisions are not required, these would be released and St. James's Place Capital would report further profit on the disposal. We have received preliminary Inland Revenue clearance that the disposal qualifies for Capital Gains Tax exemption under Schedule 7AC TCGA 1992 and hence the proceeds are expected to be non-taxable. On completion, which is expected in the third quarter of 2004, St. James's Place Capital will receive £66.5 million, with the balance of £11.7 million being held in an interest bearing escrow account. If not required, the escrow monies will be released to St. James's Place Capital over a period of three years following completion. Section 2: ---------- Other matters ------------- Noted below are a number of issues about the Group that are of interest to shareholders. (i) Group Expenses ------------------ This section provides a reminder of the categories and nature of the expenditure incurred by the Group's life business. The analysis of expenditure is noted in the table below: Table of Expenditure incurred by the Group's life business 6 months 6 months 12 months Ended Ended Ended 30 Jun 2004 30 Jun 2003 31 Dec 2003 ---------- ---------- ---------- £' million £' million £' million Paid from policy margins Commission 36.5 30.0 70.0 Investment expenses 9.8 7.2 16.1 Third party administration 7.7 8.9 16.5 ---------- ---------- ---------- 54.0 46.1 102.6 Direct expenses Other new business related costs 7.1 5.9 13.8 Establishment costs 28.4 31.9 64.7 Contribution from third party product sales (7.2) (4.2) (13.5) ---------- ---------- ---------- 28.3 33.6 65.0 Total 82.3 79.7 167.6 ---------- ---------- ---------- Shareholders will recall that 'commission, investment expenses and the third party administration costs' are met from corresponding policy margins. Any variation in these costs flowing from changes in the volumes of new business or the level of the stock markets do not directly impact the profitability of the Company. The 'other new business related costs', such as sales force incentivisation, are met by the company and vary with the levels of production - determined on our internal measure. As production rises or falls these costs will move in the corresponding direction. 'Establishment costs' are the running costs of the Group's infrastructure and are relatively fixed in nature in the short term. Consequently these costs remain broadly the same irrespective of new business volumes. As highlighted in the 2003 Report and Accounts Financial Commentary, the Board set a target of 0% growth in these establishment costs for 2004. After adjusting the establishment costs for the benefit of the £1.3 million change in the expense recharging mechanism noted above, these costs have reduced from £31.9 million to a comparable figure of £29.7 million as a consequence of effective cost control. As highlighted in the Chairman's Statement, we are anticipating one-off costs of £2 to £3 million in the second half of the year associated with our commitment to having leading compliance standards and the significant unprecedented change taking place in the industry. The 'contribution from third party product sales' reflects the net income received from wealth management sales £ 1.7 million (2003: £1.8 million), sales of stakeholder products, £1.2 million (2003: £0.7 million) and sales through the Protection Panel of £4.3 million (2003: £1.7 million). (ii) Tax position ----------------- As previously commented the UK life company receives tax relief for its expenses principally by offset against tax deductions on the income and capital gains arising in the unit-linked funds. The Financial Commentary in the 2003 Report and Accounts highlighted the fact that, as the unit-linked funds have cumulative capital loss positions, the UK life company is not obtaining tax deductions to relieve all of its expenses in a year. The life company would ordinarily expect to obtain tax deductions amounting to £14 - 18 million in a full year and £7 - 9 million in a half year. In 2003 the Company only received deductions of £7.6 million, a shortfall of £6 - 10 million. For the first half of 2004 the tax deductions booked are only £1.3 million (2003: £3.6 million), mainly as a result of the fall in values of fixed interest stocks, which is treated as negative income. This shortfall has had a direct impact on the MSSB profit, which is some £6 - 8 million lower than would ordinarily be expected. The impact of this shortfall on the Achieved Profit result is £1.8 million (2003: £5.5 million), which represents the difference between the expected tax deductions and the net present value of when deductions are expected to be obtained in future years. At 30 June 2004 there is approximately £98 million of excess unrelieved expenses, representing potential tax deductions of some £20.0 million, which are being carried forward. Once the unit-linked funds have reversed the current capital losses - management have estimated this will occur at a FTSE 100 level of 4,700 - then future realised capital gains as they arise will provide immediate tax deductions. In addition to the unrelieved surplus expenses, there is also a further £200 million of expenses, which under the life company tax regulations are deferred over a period of seven years and will fall into account in future periods. The tax deductions ultimately available for these deferred expenses would be some £40 million. At 30 June 2004 no value has been placed on the deferred tax position within the MSSB result and a value of £26.2 million is included in the Achieved Profit result. (iii) Life business cash profits (MSSB) --------------------------------------- To assist shareholder understanding of how cash profits are generated by the life businesses, the table below and accompanying notes provide a high level analysis of the cash in-flows and out-flows within these businesses. As can be seen from the table the life business has generated a positive cash profit in the current financial period. This means that the costs incurred in acquiring new business are covered by margins arising and the business is therefore self financing. The Achieved Profit result for the life business in Part 3 of this release discloses a £12.9 million value added from the new business during the period. This value is after taking account of the cost of acquiring the business. Post-tax cash flows 6 months 6 months 12 months Ended Ended Ended 30 Jun 2004 30 Jun 2003 31 Dec 2003 --------- ----------- ------------ £' million £' million £' million Margins from in-force and new business 30.1 23.0 60.5 Shareholders' share of Investment income 0.7 0.8 1.6 Tax deductions 1.3 3.6 7.6 Expenses (28.3) (33.6) (65.0) --------- ----------- ------------ Cash profits 3.8 (6.2) 4.7 Post tax movement in deferred acquisition costs (3.1) (0.4) (3.0) --------- ----------- ------------ Post tax movement on long-term business technical 0.7 (6.6) 1.7 account ========= =========== ============ The margins from in-force and new business - this amount represents the gross margins earned from the business less those expenses matched to the associated policy margin (commission, investment advisory fees and third party administration costs as detailed in part (i) of this section). Shareholders' share of investment income- this amount is the investment earnings on the solvency and surplus assets of the two life companies. Tax deductions - as noted in part (ii) of this section, this figure represents the amount of tax deductions from the unit linked life fund retained by the Company during the period, and would ordinarily be some £7 - 9 million for the six months and £14 -18 million for a full year. Expenses - the expenses included in this table are those direct expenses detailed in part (i) of this section (the other new business related costs, the establishment costs and the contribution from Third Party sales). In addition to the cash flow of the life businesses, it should be noted that the unit trust and other operations of the Group are cash flow positive. (iv) Operational Risks and Solvency Requirements ------------------------------------------------ Operational Risks ----------------- The Financial Commentary in the 2003 Report and Accounts provided some detail on the operational risks of the Group. Shareholders will recall from this Commentary that the St. James's Place Group: • is a unit linked business and has no with-profit business • has never written business with onerous guarantees or options • has a conservative investment strategy for shareholder assets • has no defined benefit pension scheme • matches, wherever possible, its liabilities to appropriate assets to minimise exposure to fluctuating stock markets and interest rates. • has never sold 'flavour of the year' products such as split level investment trusts. Solvency Requirements --------------------- The current required minimum solvency margin for the two life businesses is approximately £30 million. In calculating the Achieved Profit result, the cost of maintaining this solvency capital is deducted from the value placed on the in-force business - the total amount deducted at 30 June 2004 was approximately £8.1 million post tax. The FSA have recently issued Policy Statements 04/16 - Integrated Prudential Sourcebook for Insurers, which will take effect from January 2005. This policy statement includes the framework for life companies to calculate their own Individual Capital Assessment (ICA). Typically this involves placing a realistic value on the assets and liabilities of the Company and making explicit allowances in the valuation for the actual business risks. St. James's Place Capital is well advanced in calculating the ICA for the UK life company and we do not anticipate a need to increase the capital required to support the business. (v) International Financial Reporting Standards ----------------------------------------------- As shareholders will be aware, listed companies are required to prepare their 2005 Financial Statements using International Financial Reporting Standards (IFRS). The introduction of IFRS will impact the MSSB results, which will be replaced with figures prepared on the new basis. Noted below are those IFRSs which we anticipate having an impact on our MSSB result and presentation. a). IFRS 2 - Share based payments - This will require the fair value of share options at the date of grant to be expensed to the profit and loss account over the vesting period of the option. The calculation of the fair value of the option will require the use of an option pricing model such as Black-Scholes. The new rules only apply to options granted after 7 November 2002. Since this date St. James's Place Capital has granted 13.9 million options, which are still in force. b). IFRS 4 - Insurance Contracts - This will require all St. James's Place Capital products, with the exception of protection plans, to be classified as investment contracts and accounted for under IAS 39 Financial Instruments. We are making good progress with our plan for the introduction of the new regime and do not currently envisage the IAS profit to be significantly different from that arising under the MSSB approach. There will, however, need to be some changes to the presentation of the figures and potentially a number of changes to the balance sheet and accounting disclosures. St. James's Place Capital intends to continue to publish Achieved Profit results as Supplementary Information and believe this will be the approach adopted by other listed life companies. PART 3 ------ COMBINED LIFE AND UNIT TRUST ACHIEVED PROFIT RESULT The following information shows the result for the Group, adopting an achieved profit basis for reporting life and unit trust business. SUMMARISED CONSOLIDATED PROFIT & LOSS ACCOUNT ACHIEVED PROFIT BASIS FOR CORE BUSINESS (unaudited) 6 Months 6 Months 12 Months Ended Ended Ended 30 June 30 June 31 December 2004 2003 2003 --------- --------- --------- £' Million £' Million £' Million Life business 32.2 16.2 44.0 Unit trust business 12.5 9.2 19.4 Other (1.3) (0.3) (2.5) --------- --------- --------- 43.4 25.1 60.9 IT systems development (3.0) - (3.4) --------- --------- --------- Operating profit 40.4 25.1 57.5 Investment return variances 3.5 18.9 55.3 Economic assumption changes (2.8) - (1.1) One off Budget changes - (7.6) (7.6) Cost of solvency capital - - (3.6) --------- --------- --------- Profit from core business 41.1 36.4 100.5 LAHC - 3.4 3.4 --------- --------- -------- Achieved profit on ordinary activities before tax 41.1 39.8 103.9 Tax Life business (8.4) (5.6) (19.0) Unit trust business (4.2) (4.6) (11.4) Other (0.4) 0.5 0.7 LAHC - (1.0) (1.0) --------- --------- --------- (13.0) (10.7) (30.7) Profit on ordinary activities after tax 28.1 29.1 73.2 Dividends (5.4) (5.3) (11.8) --------- --------- --------- Retained profit for the period 22.7 23.8 61.4 ========= ========= ========= CONSOLIDATED BALANCE SHEET COMBINED LIFE AND UNIT TRUST ACHIEVED PROFIT BASIS 30 June Restated* 31 December 2004 30 June 2003 2003 --------- --------- --------- £' Million £' Million £' Million Investments Investments in associated - 31.6 - undertakings Land and buildings 1.3 1.3 1.3 Other financial 146.6 72.8 154.1 investments --------- --------- --------- 147.9 105.7 155.4 --------- --------- --------- Value of long-term business in-force - long-term insurance 334.3 288.7 313.1 - unit trusts 92.6 74.8 86.2 Assets held to cover linked liabilities 6,708.5 5,243.8 6,195.8 Reinsurers'share of technical provisions 88.8 75.0 79.1 Debtors 55.4 85.2 57.0 Other assets Tangible assets 5.6 6.4 5.8 Cash and cash equivalents 40.3 63.6 48.4 Prepayments and accrued income 4.1 6.3 5.1 Deferred acquisition costs 49.0 57.3 53.5 --------- --------- --------- Total assets 7,526.5 6,006.8 6,999.4 --------- --------- --------- Technical provisions (132.4) (131.6) (133.3) Technical provisions for linked liabilities (6,708.5) (5,243.8) (6,195.8) Provisions for other risks and charges (14.2) (15.9) (16.1) Creditors Amounts owed to credit institutions (45.0) (51.0) (53.6) Amount due to reassurers (10.9) (18.3) (11.6) Other creditors (31.1) (27.4) (24.6) Proposed dividend (5.4) (5.4) (6.4) Accruals and deferred income (24.0) (24.2) (30.7) --------- --------- --------- Total liabilities (6,971.5) (5,517.6) (6,472.1) --------- --------- --------- Total net assets 555.0 489.2 527.3 ========= ========= ========= Capital and reserves Share capital 65.3 64.7 64.8 Share premium 10.6 4.7 5.1 Shares to be issued 0.2 0.3 0.2 Other reserves 489.6 429.6 467.3 --------- --------- --------- 565.7 499.3 537.4 Own shares reserve (10.7) (10.1) (10.1) --------- --------- --------- Equity shareholders' funds 555.0 489.2 527.3 ========= ========= ========= Net asset per share 127.4p 113.4p 122.1p *Restated for adoption of UITF 38 NOTES TO THE ACHIEVED PROFIT RESULTS I. BASIS OF PREPARATION ----------------------- The enclosed information shows the Group's results as measured on an achieved profit basis, which includes the results of the both the Group's long-term assurance and unit trust business on a basis determined in accordance with the ABI Guidance 'Supplementary Reporting for long term assurance business (the achieved profits method)' issued in December 2001. The objective of the achieved profit basis is to provide shareholders with more realistic information on the financial position and performance of the Group than that provided by the modified statutory solvency basis. Except as noted below, the accounting policies used by the Group in the preparation of this interim report are consistent with those applied in preparing the achieved profit results in the financial statements for the year ended 31 December 2003. II. METHODOLOGY AND ASSUMPTIONS ------------------------------- The achieved profits methodology recognises as profit the discounted value of the expected future statutory surpluses arising from the contracts in-force at the period end ('the value of long-term business in-force'). These future surpluses are calculated by projecting future cash flows using realistic assumptions for each component of the cash flow. Actuarial assumptions for the mortality, morbidity and persistency experience of the contracts and the expenses and taxation expected to be incurred are based on recent experience and are reviewed annually. The future economic and investment conditions are based on the period end conditions and are likely to change from year to year. Economic Assumptions -------------------- The principal economic assumptions used within the cash flows at 30 June 2004 are set out below. 30 June 30 June 31 December 2004 2003 2003 Risk discount rate (net of tax) 8.5% 8.0% 8.25% Future investment returns: - Fixed Interest 5.0% 4.5% 4.75% - Equities 7.5% 7.0% 7.25% - Unit-linked funds: - Capital growth 4.5% 3.5% 3.75% - Dividend income 2.5% 3.0% 3.00% - Total 7.0% 6.5% 6.75% Expense inflation 4.5% 4.25% 4.25% Indexation of capital gains 2.0% 1.75% 1.75% The risk discount rate is used to discount the projected future cash flows from the business in-force to a present value. The rate is set by reference to the assumed future investment returns. The assumed future pre-tax returns on fixed interest securities are set by reference to the 15 year gilt yield index. The other investment returns are set by reference to this assumption. The expense inflation and indexation of capital gains assumptions are based on the rate of inflation implicit in the current valuation of 15 year index-linked gilts (currently 3%). The expense inflation assumption is increased by a 1.5% loading to reflect increases in earnings and the indexation of capital gains is reduced by 1%. Experience Assumptions ---------------------- The principal experience assumptions were derived as follows. All experience assumptions are reviewed annually. The persistency experience is derived where possible from the Company's own experience, or otherwise from external industry experience. Maintenance expenses have been set in line with the costs charged by the Company's third party administrators, together with an allowance for the Company's own maintenance costs. Mortality and morbidity assumptions have been set by reference to the Company's own experience, published industry data and the rates charged by the Company's reassurers. A provision of £11.4 million (31 December 2003: £12.5 million) has been set up within the cash flows to provide for adverse morbidity experience on critical illness plans. Other items ----------- The value of new business has been established at the end of the reporting period. It has been calculated using actual acquisition costs. In projecting future surpluses allowance has been made for the cost of maintaining a statutory solvency margin on the business in-force. Future taxation has been determined assuming a continuation of the current tax legislation. The achieved profits results are calculated on an after-tax basis and are grossed up to the pre-tax level for presentation in the profit and loss account. The rate of tax used was 30% except for the Irish life business, which was grossed up at 12.5%. These are unchanged from 31 December 2003. III. COMPONENTS OF LIFE AND UNIT TRUST ACHIEVED PROFIT ------------------------------------------------------ The pre-tax components of the achieved profit result for life and unit trust business are shown below. Life business 6 Months 6 Months 12 Months Ended Ended Ended 30 June 30 June 31 December 2004 2003 2003 ---------- --------- --------- £'Million £'Million £'Million New business contribution 12.9 1.8 13.5 Profit from existing business Unwind of discount rate 20.2 15.9 32.1 Experience variances (1.8) (3.0) (6.9) Operating assumption changes (0.7) - 2.8 Investment income 1.6 1.5 2.5 ---------- --------- --------- Life operating profit before tax 32.2 16.2 44.0 Investment return variances 1.9 12.7 36.8 Economic assumption changes (2.8) - (1.2) One off Budget changes - (7.6) (7.6) Cost of solvency capital - - (3.6) ---------- --------- --------- Life profit before tax 31.3 21.3 68.4 Attributed tax (8.4) (5.6) (19.0) ---------- --------- --------- Life profit after tax 22.9 15.7 49.4 ========== ========= ========= New business contribution after tax is £9.4 million (30 June 2003: £1.6 million). Unit trust business 6 Months 6 Months 12 Months Ended Ended Ended 30 June 30 June 31 December 2004 2003 2003 ---------- --------- --------- £' Million £' Million £' Million New business contribution 7.3 5.1 11.5 Profit from existing business Unwind of discount rate 5.0 3.7 7.4 Experience variances 0.2 0.4 2.2 Operating assumption changes - - (1.7) ---------- --------- --------- Unit trust operating profit before tax 12.5 9.2 19.4 Investment return variances 1.6 6.2 18.5 Economic assumption changes - - 0.1 ---------- --------- --------- Unit trust profit before tax 14.1 15.4 38.0 Attributed tax (4.2) (4.6) (11.4) ---------- --------- --------- Unit trust profit after tax 9.9 10.8 26.6 ========== ========= ========= New business contribution after tax is £5.1 million (30 June 2003: £3.6 million). 6 Months 6 Months 12 Months Unit trust and life business Ended Ended Ended combined 30 June 30 June 31 December 2004 2003 2003 ---------- --------- --------- £' Million £' Million £' Million New business contribution 20.2 6.9 25.0 Profit from existing business Unwind of discount rate 25.2 19.6 39.5 Experience variances (1.6) (2.6) (4.7) Operating assumption changes (0.7) - 1.1 Investment income 1.6 1.5 2.5 ---------- --------- --------- Operating profit before tax 44.7 25.4 63.4 Investment return variances 3.5 18.9 55.3 Economic assumption changes (2.8) - (1.1) One off Budget changes - (7.6) (7.6) Cost of solvency capital - - (3.6) ---------- --------- --------- Profit before tax 45.4 36.7 106.4 Attributed tax (12.6) (10.2) (30.4) ---------- --------- --------- Profit after tax 32.8 26.5 76.0 ========== ========= ========= New business contribution after tax is £14.5 million (30 June 2003: £5.2 million). IV. SENSITIVITIES ----------------- The table below shows the impact of changes in economic assumptions on the combined life and unit trust reported value of new business and value of long-term business in-force of changes to the risk discount rate, the assumed rate of long-term investment return and market movements. Change in new business contribution Change in the post-tax value of long-term business in-force Pre-tax Post-tax -------- -------- -------- £' Million £' Million £' Million Reported value at 30 June 2004 20.2 14.5 426.9 Risk discount rate +1% (3.3) (2.3) (26.9) -1% 3.5 2.5 28.5 Investment return +1% 3.1 2.2 24.4 -1% (2.9) (2.1) (25.1) Current x110% (2.1) (1.5) (18.2) withdrawal rate x90% 2.3 1.6 19.9 Unit values +10% - - 38.5 -10% - - (36.4) V. RECONCILIATION OF MSSB FIGURES TO ACHIEVED PROFIT FIGURES 30 June 30 June 31 December 2004 2003 2003 -------- -------- -------- £' Million £' Million £' Million MSSB profit/(loss) before tax 1.4 (2.5) 10.1 Movement in life value of in-force 30.5 31.6 66.8 Movement in unit trust value of in-force 9.2 10.7 27.0 -------- -------- --------- Achieved profit before tax for life and unit trust business 41.1 39.8 103.9 ======== ======== ========= MSSB net assets 178.6 178.3 179.6 Less: acquired value of in-force (50.5) (52.6) (51.6) Add: value of in-force 334.3 288.7 313.1 Add: unit trust value of in-force 92.6 74.8 86.2 -------- -------- --------- Achieved profit net assets for life and unit trust business 555.0 489.2 527.3 ======== ======== ========= PART 4 ------ MODIFIED STATUTORY SOLVENCY BASIS CONSOLIDATED PROFIT & LOSS ACCOUNT LONG-TERM BUSINESS TECHNICAL ACCOUNT (unaudited) 6 Months 6 Months 12 Months Ended Ended Ended 30 June 30 June 31 December 2004 2003 2003 --------- --------- --------- Note £' Million £' Million £' Million Earned premiums, net of reinsurance Gross premiums written 3 554.6 446.9 990.2 Outwards reinsurance (12.9) (12.8) (27.9) premiums --------- --------- --------- 541.7 434.1 962.3 Investment income 241.2 83.1 74.3 Unrealised gains on investments 12.9 497.5 1,014.0 Other technical income 0.3 0.3 0.1 --------- --------- --------- 796.1 1,015.0 2,050.7 --------- --------- --------- Claims incurred, net of reinsurance Claims paid - gross amount (217.0) (156.5) (360.5) - reinsurers' share 11.0 8.7 21.0 --------- --------- --------- (206.0) (147.8) (339.5) --------- --------- --------- Change in the provision for claims - gross amount 4.0 0.6 (4.6) - reinsurers' share 2.2 0.3 (1.4) --------- --------- --------- 6.2 0.9 (6.0) --------- --------- --------- (199.8) (146.9) (345.5) --------- --------- --------- Change in other technical provisions, net of reinsurance Long-term business provision - gross amount (3.1) (6.5) (8.0) - reinsurers' share 8.2 7.7 20.2 --------- --------- --------- 5.1 1.2 12.2 Technical provisions for linked liabilities (512.7) (587.1) (1,538.2) Net operating expenses (77.0) (73.1) (155.5) Investment expenses and charges Investment expenses (9.8) (7.2) (16.1) Realised losses on - (200.3) - investments Other technical charges (1.1) (1.4) (2.5) Tax attributable to the long-term business (0.1) (6.8) (3.4) --------- --------- --------- (795.4) (1,021.6) (2,049.0) --------- --------- --------- Balance on the long-term business technical account 0.7 (6.6) 1.7 ========= ========= ========= CONSOLIDATED PROFIT & LOSS ACCOUNT NON-TECHNICAL ACCOUNT 6 Months 6 Months 12 Months Ended Ended Ended 30 June 30 June 31 December 2004 2003 2003 --------- --------- --------- Note £' Million £' Million £' Million Balance on the long-term business technical account 0.7 (6.6) 1.7 Tax charge/(credit) 0.1 (3.7) (0.1) attributable to balance on the long-term business technical account --------- --------- --------- Shareholders'profit/(loss) from long-term business 0.8 (10.3) 1.6 Investment income Income from associated undertakings - 3.4 3.4 Income from other 1.3 2.2 3.9 investments Other income Income from unit trust 4.9 4.7 11.0 operations Other 1.7 2.4 3.5 Investment expenses and charges (0.7) (0.1) (2.1) Other expenses and charges (6.6) (4.8) (11.2) --------- --------- --------- Profit/(loss) on ordinary activities before tax 2 1.4 (2.5) 10.1 Tax on ordinary activities 2 (2.0) 1.8 (3.5) --------- --------- --------- (Loss)/profit on ordinary activities after tax 2 (0.6) (0.7) 6.6 Dividends (5.4) (5.3) (11.8) --------- --------- --------- Retained loss for the period (6.0) (6.0) (5.2) ========= ========= ========= Pence Pence Pence Dividend per share 4 1.25 1.25 2.75 Basic and diluted earnings per share 5 (0.1) (0.2) 1.5 In accordance with the amendment to FRS 3 published in June 1999, no note of historical cost profits has been prepared as the Group's only material gains and losses on assets relate to the holding and disposal of investments. The Group has no other recognised gains and losses during the current and previous periods and therefore a separate statement of total recognised gains and losses has not been presented. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS 6 Months 6 Months 12 Months Ended Ended Ended 30 June 30 June 31 December 2004 2003 2003 --------- --------- ---------- £' Million £' Million £' Million Opening shareholders' funds 179.6 192.0 192.0 Adoption of UITF 38* - (6.0) (6.0) --------- --------- --------- Opening shareholders' funds restated 179.6 186.0 186.0 (Loss)/profit for the financial period (0.6) (0.7) 6.6 Dividends (5.4) (5.3) (11.8) --------- --------- ---------- Retained loss for the period (6.0) (6.0) (5.2) P & L reserve credit in respect of share option charges 0.4 0.7 0.8 Consideration paid for own shares (1.4) (2.5) (2.5) Issue of share capital 6.0 0.1 0.5 --------- --------- ---------- Net decrease to shareholders' funds (1.0) (7.7) (6.4) --------- --------- ---------- Closing shareholders' funds 178.6 178.3 179.6 ========= ========= ========== *See note 1 to the accounts. CONSOLIDATED BALANCE SHEET 30 June Restated* 31 December 2004 30 June 2003 2003 --------- --------- --------- Note £' Million £' Million £' Million Investments Investments in associated - 31.6 - undertakings Land and buildings 1.3 1.3 1.3 Other financial investments 6 146.6 72.8 154.1 --------- --------- --------- 147.9 105.7 155.4 --------- --------- --------- Acquired value of long-term business in-force 7 50.5 52.6 51.6 Assets held to cover linked liabilities 6,708.5 5,243.8 6,195.8 Reinsurers' share of technical provisions Long-term business provison 80.8 67.5 73.3 Claims outstanding 8.0 7.5 5.8 Debtors 55.4 85.2 57.0 Other assets Tangible assets 5.6 6.4 5.8 Cash and cash equivalents 40.3 63.6 48.4 Prepayments and accrued income 4.1 6.3 5.1 Deferred acquisition costs 49.0 57.3 53.5 --------- --------- --------- Total assets 7,150.1 5,695.9 6,651.7 --------- --------- --------- Technical provisions (132.4) (131.6) (133.3) Technical provisions for linked liabilities (6,708.5) (5,243.8) (6,195.8) Provisions for other risks and charges 8 (14.2) (15.9) (16.1) Creditors Amounts owed to credit (45.0) (51.0) (53.6) institutions Amount due to reassurers (10.9) (18.3) (11.6) Other creditors (31.1) (27.4) (24.6) Proposed dividend 4 (5.4) (5.4) (6.4) Accruals and deferred income (24.0) (24.2) (30.7) --------- --------- --------- Total liabilities (6,971.5) (5,517.6) (6,472.1) --------- --------- --------- Total net assets 178.6 178.3 179.6 ========= ========= ========= Capital and reserves Share capital 9 65.3 64.7 64.8 Share premium 10.6 4.7 5.1 Shares to be issued 0.2 0.3 0.2 Other reserves 2.2 2.2 2.2 Profit and loss account 11 111.0 116.5 117.4 ------- ------ ------- 189.3 188.4 189.7 Own shares reserve (10.7) (10.1) (10.1) --------- --------- --------- Equity shareholders' funds 178.6 178.3 179.6 ========= ========= ========= *Restated for adoption of UITF 38 CONSOLIDATED CASH FLOW STATEMENT (EXCLUDING POLICYHOLDER FUNDS) 6 Months 6 Months 12 Months Ended Ended Ended 30 June 30 June 31 December 2004 2003 2003 --------- --------- --------- Note £' Million £' Million £' Million Shareholders' net cash outflow - - - from long-term business Other operating cash flows attributable to shareholders 6.1 3.3 13.9 --------- --------- -------- Net cash inflow from operating activities 12 6.1 3.3 13.9 Returns on investments and servicing of finance Interest received 1.3 2.2 3.7 Interest paid (0.7) (1.3) (2.1) --------- --------- --------- 0.6 0.9 1.6 Taxation Corporation tax paid (3.1) - (3.5) Capital expenditure and financial investment Purchase of tangible fixed assets (1.5) (0.7) (1.7) Sale of fixed assets 0.2 0.2 0.4 Consideration paid for own shares (1.4) (2.5) (2.5) --------- --------- --------- (2.7) (3.0) (3.8) Acquisitions and disposals Investment in shares and - (0.5) - other variable yield securities Cash acquired with subsidiary - 0.1 - --------- --------- --------- - (0.4) - Equity dividends paid (1.8) (6.4) (11.8) --------- --------- --------- Net cash outflow before financing (0.9) (5.6) (3.6) Financing Issue of ordinary share 0.6 0.1 0.5 capital (Repayment)/draw down of loan (8.6) 6.0 8.6 loan --------- --------- --------- (8.0) 6.1 9.1 --------- --------- --------- Net cash (outflow)/inflow for the period (8.9) 0.5 5.5 ========= ========= ========= The net cash (outflow)/inflow was applied as follows: (Decrease)/inc rease in cash holdings (5.8) (1.3) 7.2 Net portfolio investments (Withdrawals)/deposits from credit institutions (3.1) 1.8 (1.7) --------- --------- --------- Net(application)/investment of cash flows (8.9) 0.5 5.5 ========= ========= ========= NOTES TO THE ACCOUNTS 1. PRINCIPAL ACCOUNTING POLICIES -------------------------------- The financial statements are prepared in accordance with applicable accounting standards and with the Association of British Insurers' Statement of Recommended Practice on Accounting for Insurance Business ('ABI SORP') dated November 2003. There has been no material impact on the 30 June 2003 figures as a result of adopting the revised ABI SORP. The accounting policies used by the Group in the preparation of this interim report are consistent with those applied in preparing the financial statements for the year ended 31 December 2003. As disclosed in those financial statements, the Company adopted UITF 38 'Accounting for ESOP trusts' for the year ended 31 December 2003 and restated the prior year. In preparing this interim report, the figures for the 6 months ended 30 June 2003 have correspondingly been restated. 2. SEGMENTAL ANALYSIS OF PROFITS --------------------------------- 6 Months 6 Months 12 Months Ended Ended Ended 30 June 30 June 31 December 2004 2003 2003 --------- ---------- --------- £' Million £' Million £' Million St. James's Place Group Life business 0.8 (10.3) 1.6 Unit trust business 4.9 4.7 11.0 Other (1.3) (0.3) (2.5) --------- ---------- --------- Core business profit/(loss) 4.4 (5.9) 10.1 --------- ---------- --------- IT systems development (3.0) - (3.4) LAHC - 3.4 3.4 --------- ---------- --------- Profit/(loss) on ordinary activities before tax 1.4 (2.5) 10.1 --------- ---------- --------- Tax Life business (0.1) 3.7 0.1 Unit trust business (1.5) (1.4) (3.3) Other (0.4) 0.5 0.7 LAHC - (1.0) (1.0) --------- ---------- --------- (2.0) 1.8 (3.5) --------- ---------- --------- (Loss)/profit on ordinary activities after tax (0.6) (0.7) 6.6 ========= ========== ========= 3. PREMIUMS WRITTEN ------------------- 6 Months 6 Months 12 Months Ended Ended Ended 30 June 30 June 31 December 2004 2003 2003 --------- --------- --------- £' Million £' Million £' Million Life business Single premiums 339.6 253.7 587.5 Regular premiums 26.9 47.3 97.8 Reinsurances (6.2) (6.2) (13.6) --------- --------- --------- 360.3 294.8 671.7 --------- --------- --------- Pension business Single premiums 123.6 76.2 168.4 Regular premiums 55.7 61.2 118.6 Reinsurances (0.7) (0.7) (1.3) --------- --------- --------- 178.6 136.7 285.7 --------- --------- --------- Permanent health insurance Regular premiums 8.8 8.5 17.9 Reinsurances (6.0) (5.9) (13.0) --------- --------- --------- 2.8 2.6 4.9 --------- --------- --------- Total net premiums 541.7 434.1 962.3 ========= ========= ========= Gross premiums comprise: Individual business 466.6 402.5 890.4 Group contracts 88.0 44.4 99.8 --------- --------- --------- Total gross premiums 554.6 446.9 990.2 ========= ========= ========= Premiums written do not include stakeholder and protection business written by other providers. 4. INTERIM DIVIDEND ------------------- The Directors have resolved to pay an interim dividend of 1.25p per share (2003: 1.25p). This amounts to £5.4 million (2003: £5.4 million) and will be paid on 14 September 2004 to shareholders on the register on 6 August 2004. As approved at the Annual General Meeting on 6 May 2004, shareholders have the option to take the alternative of a scrip dividend. 5. EARNINGS PER SHARE --------------------- 6 Months 6 Months 12 Months Ended Ended Ended 30 June 30 June 31 December 2004 2003 2003 --------- --------- --------- Pence Pence Pence Basic and diluted earnings per share (0.1) (0.2) 1.5 ========= ========= ========= In accordance with FRS 14 'Earnings per Share', where a diluted loss per share is reduced, the incremental effect is ignored. The following table sets out the various profit figures and number of shares taken into account in the above calculations: 6 Months 6 Months 12 Months Ended Ended Ended 30 June 30 June 31 December 2004 2003 2003 --------- --------- --------- (Loss)/profit on ordinary activities after tax £(0.6 m) £(0.7 m) £6.6 m ========= ========= ========= Weighted average number of shares 432.9 m 430.1 m 430.3 m (including shares to be issued) ========= ========= ========= Diluted weighted average number of shares 446.2 m 433.7 m 433.6 m ========= ========= ========= Number of share options for which diluted effect taken account of 56.8 m 55.4 m 55.4 m ========= ========= ========= 6. OTHER FINANCIAL INVESTMENTS ------------------------------ Included in 'Other Financial Investments' is an investment of 23% in the shares of Life Assurance Holdings Corporation Limited ('LAHC'), which carry voting rights of 19.9%. As discussed in the Chairman's Statement, on 1st July 2004 SJPC announced the disposal, subject to regulatory approval, of its entire shareholding in LAHC. 7. ACQUIRED VALUE OF LONG-TERM BUSINESS IN-FORCE ------------------------------------------------ 6 Months 6 Months 12 Months Ended Ended Ended 30 June 30 June 31 December 2004 2003 2003 --------- ---------- --------- £' Million £' Million £' Million Value at start of period 51.6 54.0 54.0 Amortisation (1.1) (1.4) (2.4) --------- ---------- --------- Value at end of period 50.5 52.6 51.6 ========= ========== ========= 8. PROVISIONS FOR OTHER RISKS AND CHARGES ----------------------------------------- Deferred Tax Other Total Provisions ------------ ----------- ----------- £' Million £' Million £' Million At 31 December 2003 14.8 1.3 16.1 Movement in the period (1.4) (0.5) (1.9) --------- --------- --------- At 30 June 2004 13.4 0.8 14.2 ========= ========= ========= Other provisions consist of £0.6 million to meet obligations arising as a result of the closure of an office and £0.2 million in respect of the outstanding obligations remaining from the Halifax acquisition of 60% of the share capital of SJPC in June 2000. The value of the Halifax related provision is dependent, amongst other things, on the current SJPC share price. 9. SHARE CAPITAL ---------------- Number £'Million ---------- --------- At 31 December 2003 431,927,882 64.8 Issue of shares 3,670,399 0.5 ---------- --------- At 30 June 2004 435,598,281 65.3 ========== ========= 10. SHARE OPTIONS ----------------- Options outstanding under the various share option schemes at 30 June 2004 now amount to 56.8 million shares (31 December 2003: 55.4 million). Of these, 38.6 million are under option to Partners of St. James's Place Partnership, 14.6 million are under option to executives and senior management and 3.6 million are under option through the SAYE scheme. These are exercisable on a range of future dates. The following table sets out the anticipated proceeds if all option holders exercise their shares at the first available opportunity. Earliest date of Average price Number of share Potential exercise exercise price options outstanding proceeds ---------------- -------------- ------------------- --------- £ Million £' Million Immediate 1.63 24.3 39.7 Jul - Dec 2004 1.90 1.0 1.9 Jan - Jun 2005 2.08 1.3 2.7 Jul - Dec 2005 1.45 5.5 8.0 Jan - Jun 2006 0.96 4.9 4.7 Jul - Dec 2006 1.39 3.3 4.6 Jan - Jun 2007 1.63 5.4 8.8 Jul - Dec 2007 1.42 6.2 8.8 Jan - Jun 2008 0.96 2.8 2.7 Jul - Dec 2008 1.33 0.6 0.8 Jan - Jun 2009 1.50 0.8 1.2 Jul - Dec 2009 1.25 0.4 0.5 Jan - Jun 2010 1.33 0.3 0.4 ---------- --------- 56.8 84.8 ========== ========= The SJPC Employee Share Trust is used to acquire shares in the open market to match options granted to employees and Directors. The market value of shares held in the trust at 30 June 2004 that had not vested unconditionally to option holders is £10.7 million (31 December: £10.1 million). The consideration paid for shares over which options have not yet been granted was £0.8 million. 11. PROFIT AND LOSS RESERVE --------------------------- £' Million ---------- At 31 December 2003 117.4 Loss for the period (0.6) Dividends (5.4) P & L reserve credit in respect of share option charges 0.4 P & L reserve effect of vested share options (0.8) ---------- At 30 June 2004 111.0 ========== A transfer of £0.8 million has been made from the own share reserve to the P & L reserve in respect of vested share options and deferred bonus shares where the vesting price exceeded the initial consideration paid. In determining the distributable profits of the Company, a reduction of £10.7 million in respect of the own shares reserve should be made. 12. RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW FROM OPERATING ACTIVITIES ----------------------------------------------------------------------------------- 6 Months 6 Months 12 Months Ended Ended Ended 30 June 30 June 31 December 2004 2003 2003 --------- ---------- --------- £' Million £' Million £' Million Operating profit/(loss) before tax 1.4 (2.5) 10.1 Interest paid 0.7 1.3 2.1 Interest received (1.3) (2.2) (3.7) (Profit)/loss relating to long-term business (0.8) 10.3 (1.6) Depreciation 1.5 1.4 2.8 Profit on sale of fixed assets - - (0.1) Share of profit of associated undertakings - (3.4) (3.4) P & L reserve credit in respect of share option charges 0.4 - - Decrease/(increase) in debtors and prepayments 2.9 (7.0) 3.2 Decrease/(increase)in debtor to long-term business fund 7.1 - (5.6) Increase in creditor to long-term business fund - 2.1 - (Decrease)/increase in creditors (5.8) 3.3 10.1 --------- ---------- --------- Net cash inflow from operating activities 6.1 3.3 13.9 ========= ========== ========= 13. MOVEMENT IN OPENING AND CLOSING PORTFOLIO INVESTMENTS, NET OF FINANCING -------------------------------------------------------------------------------- 6 Months 6 Months 12 Months Ended Ended Ended 30 June 30 June 31 December 2004 2003 2003 --------- --------- --------- £' Million £' Million £' Million (Decrease)/increase in cash holdings (5.8) (1.3) 7.2 Repayment/(drawdown) of loan 8.6 (6.0) (8.6) Portfolio investments: deposits with credit institutions (3.1) 1.8 (1.7) --------- --------- --------- Total movement in portfolio investments, net of financing (0.3) (5.5) (3.1) Opening portfolio investments, net of financing (14.6) (11.5) (11.5) --------- --------- --------- Closing portfolio investments, net of financing (14.9) (17.0) (14.6) ========= ========= ========= 14. STATUTORY ACCOUNTS ---------------------- The financial information shown in this publication is unaudited and does not constitute statutory accounts. The comparative figures for the financial year ended 31 December 2003 are not the Company's statutory accounts for that financial year. Those accounts have been reported on by the Company's auditors and delivered to the Registrar of Companies. The report of the auditors was unqualified and did not contain a statement under section 237 (2) or (3) of the Companies Act 1985. 15. APPROVAL OF INTERIM REPORT ------------------------------ The interim report was approved by the Board of Directors on 26 July 2004. This information is provided by RNS The company news service from the London Stock Exchange QKAKBOBKDNOB

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