Interim Results
St. James's Place PLC
31 July 2007
ST. JAMES'S PLACE PLC
PRESS RELEASE
31 July 2007
INTERIM RESULTS
FOR THE SIX MONTHS
TO 30 JUNE 2007
St. James's Place plc ('SJP'), the wealth management group, today announces its
new business and financial results for the half year ended 30 June 2007.
The text of the announcement is attached:
Enquiries:
Mike Wilson, Chairman Tel: 020 7514 1985
Andrew Croft, Group Finance Director Tel: 020 7514 1985
Brunswick Tel: 020 7404 5959
ST. JAMES'S PLACE WEALTH MANAGEMENT
ANNOUNCES 2007 INTERIM RESULTS
SUBSTANTIAL GROWTH IN BOTH NEW BUSINESS AND OPERATING PROFIT
NEW BUSINESS UP 33%
OPERATING PROFIT UP 50%
Highlights of the interim results for the half year to 30 June 2007:
New business:
• Total new business of £213.5 million (on an APE basis) up 33%
Profit - EEV basis:
• Group operating profit at £120.7 million (2006: £80.3 million) up 50%
• New business profits of £71.5 million (2006: £51.5 million) up 39%
• Net asset value per share 239.6 pence (2006: 196.5 pence) up 22% over
the twelve months
- IFRS basis:
• Profit before shareholder tax of £19.9 million (2006: £43.3 million)
• Net asset value per share 83.0 pence (2006: 68.1 pence) up 22% over the
twelve months
Interim Dividend:
• Interim dividend increased to 1.75 pence per share up 17%
Funds Under Management:
• Funds under management increased to £17.3 billion since the start of
the year up 12%
St. James's Place Partnership at 1,187 up 2.6% since the start of the year
Mike Wilson, Chairman, commented:
'We are delighted to report that the substantial growth in new business and
profits over the last three years has continued in the first half of 2007.
'We are particularly pleased that total new single premiums were some £500
million higher for the first six months this year than in 2006, and increased by
41% from £1.18 billion to £1.67 billion.
'Although we face much stronger new business comparatives for the remainder of
the year, as a result of the strong first half new business performance, the
Board now expects (subject to no major change in circumstances), new business
growth for the year to be at the top end of our longer term objective of 15 -
20% growth per annum.'
CONTENTS
PART ONE NEW BUSINESS FIGURES
PART TWO CHAIRMAN'S STATEMENT AND FINANCIAL COMMENTARY
PART THREE EUROPEAN EMBEDDED VALUE BASIS
PART FOUR INTERNATIONAL FINANCIAL REPORTING STANDARDS BASIS
PART ONE
ST. JAMES'S PLACE WEALTH MANAGEMENT
NEW BUSINESS FIGURES
FOR THE SIX MONTHS TO 30 JUNE 2007
LONG TERM SAVINGS
Unaudited Unaudited
3 Months to 6 Months to
30 June 2007 30 June 2007
NEW PREMIUMS 2007 2006 Change 2007 2006 Change
£'m £'m % £'m £'m %
New Regular Premiums
Pensions 19.7 21.9 (10%) 36.7 31.2 18%
Protection 5.0 5.9 (15%) 9.8 11.5 (15%)
24.7 27.8 (11%) 46.5 42.7 9%
New Single Premiums
Investment 430.4 299.9 44% 781.2 588.8 33%
Pensions 247.5 161.0 54% 479.8 274.0 75%
677.9 460.9 47% 1,261.0 862.8 46%
Unit Trust Sales 231.3 176.1 31% 408.5 319.5 28%
(including PEPs and ISAs)
Unaudited Unaudited
3 Months to 6 Months to
30 June 2007 30 June 2007
New Business (RP + 1/10th 2007 2006 Change 2007 2006 Change
SP) £'m £'m % £'m £'m %
Investment 66.2 47.6 39% 119.0 90.8 31%
Pensions 44.5 38.0 17% 84.7 58.6 45%
Protection 5.0 5.9 (15%) 9.8 11.5 (15%)
Total 115.7 91.5 26% 213.5 160.9 33%
ST. JAMES'S PLACE WEALTH MANAGEMENT
OTHER WEALTH MANAGEMENT SERVICES
KEY BUSINESS HIGHLIGHTS
FOR THE SIX MONTHS TO 30 JUNE 2007
Unaudited
Gross fees generated from additional
wealth management services £16.8m up 8% (2006: £15.5m)
New Mortgage Advances £2,730.4m
St. James's Place Bank £279.9m
Other lenders £2,450.5m
Portfolio Management Services
New portfolios £24.6m
Trust and Estate Planning Services
Number of cases 282
St. James's Place Bank - in-force business
*Number of facilities 70,705
Number of accounts 29,263
Credit balances £860.1m
Mortgages £1,828.3m
Average mortgage value £196.5k
Loans £4.2m
*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
2.4.
ST. JAMES'S PLACE WEALTH MANAGEMENT
NEW BUSINESS FIGURES
FOR THE SIX MONTHS TO 30 JUNE 2007
Notes
1. New business from long term savings is calculated in accordance with
the standard industry measure of adding together new regular premiums and
one-tenth of single premiums and unit trust sales ('APE').
2. Sales of manufactured business on an APE basis for the six months were
88% of the total reported (2006: 86%).
Sales of non-manufactured pensions including stakeholder by St. James's Place
Partnership have been included in the reported figures under Pensions. These
amount to £9.8 million regular premiums (2006: £9.5 million) and £22.0 million
single premiums (2006: £29.5 million) for the six months to 30 June 2007. This
equates to £12.0 million new business premiums (2006: £12.4 million).
Sales of annuities by St. James's Place Partnership have been included in the
reported figures under Pensions. These amount to £36.9 million single premiums
for the six months to 30 June 2007 (2006: £17.4 million) and equate to £3.7
million new business premiums (2006: £1.7 million).
Sales of protection business by St. James's Place Partnership through a panel of
providers have been included in the reported figures under New Regular Premiums
Protection. These amount to £5.7 million of new regular premiums (2006: £7.2
million) for the six months to 30 June 2007. This equates to £5.7 million new
business premiums (2006: £7.2 million).
Sales of non-manufactured single premium investment business amounting to £39.0
million have been included in the reported figures under Investments for the six
months to 30 June 2007 (2006: £5.3 million). This equates to £3.9 million new
business premiums (2006: £0.5 million).
PART TWO
CHAIRMAN'S STATEMENT
I am delighted to report that the substantial growth in new business and profits
over the last three years has continued in the first half of 2007.
New business from long-term savings and investments (measured on an APE basis,
the standard industry measure of annual premiums plus one tenth of single
premiums) was £213.5 million up 33% and EEV operating profit of £120.7 million
was up 50%.
Financial Performance
The financial results have been presented on both an IFRS (International
Financial Reporting Standards) basis and an EEV (European Embedded Value) basis.
As shareholders will be aware, the Board believe that the EEV basis provides a
more meaningful measure of the Group's performance.
On the IFRS basis the operating profit, before shareholder tax, was £19.9
million compared with £43.3 million for the prior year, which included a one-off
amount of £22.6 million. The total pre-tax profit for the period increased from
£48.0 million to £65.8 million.
On the EEV basis the pre-tax operating profit increased by 50% from £80.3
million to £120.7 million. Within this figure new business profit increased by
39% from £51.5 million to £71.5 million. The total pre-tax profit for the six
months, including the investment variance, increased by 58% from £84.6 million
to £133.6 million.
The Financial Commentary on pages 10 to 18 provides further details on the
results for the period.
Dividend
The strong performance and cash generation has continued during the first half
of the year. Consequently the Board has resolved to increase the interim
dividend by 17% to 1.75 pence per share. The dividend will be paid on 19
September 2007 to those shareholders on the register at the close of business on
10 August 2007.
Once again shareholders will be offered the alternative of a scrip dividend.
Barring unforeseen circumstances, shareholders can expect a similar increase in
the full year dividend.
New Business
New business for the six month period was up 33% at £213.5 million. This
follows three consecutive years of growth (2004 - 2006) of 19%, 25% and 58%
respectively.
Pensions new business was up 45% for the first six months and 17% for the second
quarter, as we continue to benefit from the Pensions A Day changes introduced in
April 2006.
Investment new business was up 31% for the first six months and 39% for the
second quarter.
Total new single premiums were some £500 million higher for the first six months
of this year than in 2006 and increased by 41% from £1.18 billion to £1.67
billion.
Our own manufactured products represented 88% of total APE, exceeding our stated
objective of 80% and the 86% achieved for the corresponding period of 2006.
Gross fees from our other wealth management services for the six months
increased by 8% to £16.8 million.
The St. James's Place Partnership
The productivity per Partner for the first six months was £182,000 up from
£140,000 for the comparative period. This represents a further increase in
productivity of some 30% which follows on from the 61% productivity gain for the
full year in 2006. Although productivity is at a record level the Board
continues to believe that the quality of the Partnership provides for further
growth in productivity.
The size of the Partnership grew by 30 to 1,187 at 30 June 2007, an increase of
2.6% for the six months. This keeps us on track to achieve our stated target of
5% growth in the number of Partners for the full year. We remain committed to
only recruiting the highest quality financial advisers into the Partnership.
Investment management
As at the half year, our total funds under management were £17.3 billion, up
nearly £2 billion since the start of the year, and 28% higher than the same time
in 2006.
The first half of 2007 has been challenging from an investment perspective. A
succession of increases in interest rates around the world, renewed fears over
inflation, concerns surrounding the sub-prime mortgage market in the US, the
continued fall of the Dollar and weakness in the Japanese Yen all contributed to
a more volatile and difficult environment for investment managers. Despite
this, our investment approach continues to deliver strong returns to our clients
over the longer term.
The launch of the new funds in January, which I mentioned in my last report, has
been well received. The range of new managers and funds proved popular with ISA
investors in the run up to the end of the 2006/07 tax year and we enjoyed our
most successful ISA season and are now ranked as one of the top ten ISA
providers in terms of funds under management in the UK.
Further developments, including more new funds providing further diversification
for our clients, are planned for the second half of the year. We remain
committed to evolving and improving the St. James's Place investment approach as
our business grows.
Partners and Staff
On behalf of the Board and shareholders I would like to thank the Partnership,
our employees and the staff in our administration centres for their continued
outstanding contribution to our results. The enthusiasm, commitment and
dedication at every level is exceptional.
Board changes
On 29 May 2007 we announced the appointment of David Bellamy as Chief Executive.
David had been the Group's Managing Director over the last five years and had
taken over the day-to-day running of the Group following the departure of the
previous Chief Executive earlier this year.
His appointment followed a thorough search process conducted by the Nomination
Committee, chaired by Michael Sorkin, the Senior Independent Director.
David's appointment is a reflection of the Board's confidence in his experience
and proven management ability. David has been with St. James's Place since the
Group's inception 15 years ago. His appointment has been widely welcomed both
internally (by the Partnership and employees) and externally.
Outlook
We said at the time of our first quarter new business announcement that, despite
the 41% increase in that quarter's new business, we faced much stronger new
business comparatives during the remainder of the year and that relative growth
would be lower. This continues to be the case, although the growth of 26%
achieved in the second quarter exceeded our expectations.
As a result of the strong first half new business the Board now expects (subject
to no major change in circumstances) new business growth for the year to be at
the top end of our longer term objective of 15-20% growth per annum.
The social, economic and demographic environment remains positive for our
business. We are confident that the St. James's Place Partnership will enable
us to capitalise on the rapidly expanding market for advice on wealth
management.
Mike Wilson
30 July 2007
FINANCIAL COMMENTARY
The Financial Commentary is as usual presented in two sections: a section
providing a commentary on the results presented on both an IFRS and EEV basis,
and a second section covering other matters of interest to shareholders and
investors.
Section 1: Commentary on the Results
INTERNATIONAL FINANCIAL REPORTING STANDARDS ('IFRS')
The IFRS result is shown on pages 26 to 35. The table below shows the pre-tax
profit of the Group on this basis.
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
2007 2006 2006
£' Million £' Million £' Million
Life business 15.3 36.5 85.5
Unit trust business 8.6 8.9 18.0
Other (4.0) (2.1) (2.9)
Operating profit 19.9 43.3 100.6
Profit on sale of LAHC - - 7.0
Profit before shareholder tax 19.9 43.3 107.6
Policyholder tax 45.9 4.7 72.3
Total pre-tax profit 65.8 48.0 179.9
Taxation:
Tax on policyholders' return (45.9) (4.7) (72.3)
Tax on shareholders' return 8.4 (14.9) (19.6)
(37.5) (19.6) (91.9)
Profit after tax 28.3 28.4 88.0
The IFRS result requires the pre-tax profit of the life business to be 'grossed
up' for certain tax in the unit linked funds, with the corresponding amount then
being deducted within the tax charge. This 'grossing up' does not reflect the
shareholder return from the life business and consequently the results table
above and the accompanying narrative have been presented after eliminating the '
gross up'.
The IFRS result is further complicated by the interaction between policyholder
and shareholder tax and therefore the profit before shareholder tax can be
distorted by this interaction. In the second half of the year we will be
exploring, in conjunction with our auditors, an alternative presentation of the
policyholder / shareholder tax position to reduce any future distortion.
Life business
The pre-tax profit from the life business for the six months was £15.3 million
compared with £36.5 million for the prior year. Shareholders will recall that
the prior year figure was boosted by a one-off impact of £22.6 million in
respect of tax relief on b/fwd expenses.
During the current year there has been a small change to the Group's expense
recharging mechanism that has resulted in a £2.0 million benefit in the current
year.
Taking these points into account the current year profit is in line with the
2006 result.
Unit Trust business
The pre-tax profit from the unit trust business for the six months was £8.6
million in line with the prior year.
As noted above, there has been a small change in the Group's expense recharging
mechanism which has resulted in some £2.0 million additional expenses being
attributable to the unit trust business.
Other
Other operations contributed a loss for the period of £4.0 million, compared
with a loss of £2.1 million for 2006. Included within the current year loss is
a £5.9 million cost of expensing share options (2006: £2.2 million). The
expected cost for the full year is in the region of £12.0 million (2006: £7.6
million).
As can be seen from the table above, the total pre-tax profit before shareholder
tax for the six months is £19.9 million and after taking into account a tax
credit of £8.4 million, the post tax profit attributable to shareholders is
£28.3 million. This figure includes a £5.8 million benefit from the corporation
tax rate reducing from 30% to 28% from April 2008. The prior year comparative
of £28.4 million includes the one-off impact of £22.6 million noted earlier.
The total net assets were £394.0 million (31 December 2006: £382.2 million)
resulting in a net asset value per share of 83.0 pence (31 December 2006: 82.4
pence).
EUROPEAN EMBEDDED VALUE BASIS
The EEV result is shown on pages 19 to 25. The table below summarises the
pre-tax profit of the combined business:
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
2007 2006 2006
£' Million £' Million £' Million
Life business 96.7 64.3 139.0
Unit trust business 28.0 18.1 39.9
Other (4.0) (2.1) (2.9)
Operating profit 120.7 80.3 176.0
Investment return 24.3 11.9 70.8
Economic assumption changes (11.4) (7.6) (9.8)
Profit from core business 133.6 84.6 237.0
LAHC - - 7.0
Total pre-tax profit 133.6 84.6 244.0
Taxation:
Normalised (32.7) (22.7) (59.8)
Tax rate change 20.1 - -
(12.6) (22.7) (59.8)
Profit after tax 121.0 61.9 184.2
The operating profit for the period of £120.7 million was up 50% over the
corresponding period of 2006. Within this figure new business profit increased
by 39% from £51.5 million to £71.5 million. Total pre-tax profit at £133.6
million was up 58%.
Life Business
Operating profit has increased by 50% from £64.3 million to £96.7 million and a
full analysis of the result is shown on page 23.
The new business profit has increased by 54% to £53.3 million (2006: £34.6
million).
The growth in this figure is the result of the increased volumes, the favourable
business mix, limiting establishment expense growth, together with a £2.0
million benefit from the change in the expense recharging mechanism noted
earlier in this statement.
The experience variance during the period has increased operating profit by £6.5
million (2006: £0.4 million). As usual this figure reflects a combination of
positives and negatives. The one variance worthy of note is that, following
correspondence with HM Revenue & Customs, we have been able to obtain relief for
prior years excess unrelieved foreign withholding tax which has resulted in a
one-off benefit of £8.9 million.
The balance of the experience variance represents a number of small negative
items.
Unit Trust Business
The operating profit has increased from £18.1 million to £28.0 million, an
increase of 55%, and a full analysis of the unit trust result is shown on page
23.
Within operating profit the new business profit has increased by 8% to £18.2
million from £16.9 million for the prior year, reflecting the stronger new
business during the period. The current year operating and new business profit
figures include some £2.0 million of additional expenses resulting from the
change in the expense recharging mechanism.
Following the implementation of the FSA Prudential Sourcebook for UCITS Firms
(UPRU) with effect from 2007, the minimum solvency capital for the Company has
increased by some £4.0 million. As the EEV includes a reduction for the cost of
holding the required capital, the result has been reduced in the first half of
the year by £0.9 million to reflect this additional capital requirement. This
cost has been included within the experience variance.
Other
The loss from other operations has previously been commented on in the IFRS
section.
Investment Return
The investment return reflects the average after tax increase in our fund prices
over and above that assumed in the calculation of the embedded value. During
2007 this average after tax increase was some 2 - 3% higher than the return
assumed resulting in a positive investment return of £24.3 million (2006: £11.9
million reflecting 1 - 3% higher return than assumed).
Economic Assumption Change
Gilt yields have increased by 0.8% since the start of the year impacting the
economic assumptions underlying the embedded value. This has resulted in a
reduction in the embedded value of £11.4 million (2006: a reduction of £7.6
million following an increase in the gilt yields of 0.6%).
The total pre-tax profit for the six months was £133.6 million compared with
£84.6 million for the prior year, an increase of some 58%.
Corporation Tax Change
The 2007 Finance Bill has now been substantially enacted and within the
provisions of the Bill the Corporation tax rate will be reduced to 28% from 1
April 2008. Consequently, as the future margins from the in-force business
emerge as statutory profit, they will in future be taxed at the lower
corporation tax rate. The capitalised effect of the reduced future taxation is
£20.1 million and has been shown separately in the analysis of the tax charge.
The total net assets on an EEV basis were £1,137.2 million (31 December 2006:
£1,032.7 million) resulting in a net asset value per share of 239.6 pence (31
December 2006: 222.6 pence).
Section 2: Other Matters
Noted below are a number of issues about the Group that are of interest to
shareholders.
(i) New business margin
The insurance sector has historically disclosed new business in terms of Annual
Premium Equivalent (APE). Most commentators would agree that APE no longer has
much correlation with the underlying profitability of the new business and
consequently the industry is moving to provide additional disclosure on the
present value of new business premiums (PVNBP).
APE is calculated as the sum of regular premiums plus 1/10th single premiums.
PVNBPs are calculated as single premiums plus the present value of expected
premiums from regular premium business, allowing for lapses and other EEV
assumptions.
The PVNBP calculation only includes our manufactured business as it is not
sensible to apply the principles to the non-manufactured business. Noted in the
table below is the new business margin calculated both as a % of APE and PVNBP.
The development of the new business margin, measured as new business profit
divided by APE, is detailed in the following tables:
Life business 6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
2007 2006 2006
New business profit (£' m) 53.3 34.6 87.6
APE (£'m) 172.7 129.0 294.6
New business margin (%) 30.9 26.8 29.7
PVNBP (£'m) 1,272.9 892.9 2,124.1
Margin (%) 4.2 3.9 4.1
Unit trust business 6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
2007 2006 2006
New business profit (£' m) 18.2 16.9 27.6
APE (£'m) 40.8 31.9 54.5
New business margin (%) 44.6 52.9 50.6
PVNBP (£'m) 408.5 319.5 534.2
Margin (%) 4.4 5.2 5.2
Total business 6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
2007 2006 2006
New business profit (£' m) 71.5 51.5 115.2
APE (£'m) 213.5 160.9 349.1
New business margin (%) 33.5 32.0 33.0
PVNBP (£'m) 1,681.4 1,212.4 2,658.3
Margin (%) 4.3 4.2 4.3
The total new business margin expanded to 33.5% from 33% achieved for the 2006
full year and from the 32% in the first half of 2006.
Total new business margin has been beneficially affected by the rate of growth
in new business, the proportion of manufactured business, the underlying
business mix and by maintaining the growth in the level of expenses to well
below the growth in new business. The new business margin by product line has
in addition been affected by the change to the expense recharges commented on
earlier.
(ii) Expenses
This section provides a reminder to shareholders of categories and nature of
expenditure incurred.
Shareholders will recall that 'commission, investment expenses and 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 does not directly impact the profitability of the Company.
The 'other new business related costs', such as sales force incentivisation,
vary with the level of sales - 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.
The 'contribution from third party product sales' reflects the net income
received from other wealth management services of £3.2 million (2006: £2.9
million), sales of stakeholder products of £0.4 million (2006: £0.5 million) and
sales through the Protection Panel of £3.8 million (2006: £4.9 million).
The table below provides a breakdown of the expenditure for the combined
financial services activities.
Table of Expenditure
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
2007 2006 2006
£' Million £' Million £' Million
Paid from policy margins
Commission 92.6 76.7 167.2
Investment expenses 32.8 25.0 55.7
Third party administration 12.2 9.8 20.9
137.6 111.5 243.8
Management expenses
Other related new business costs 20.3 15.3 35.4
Establishment costs 44.4 41.2 86.2
Contribution from third party product sales (7.4) (8.3) (17.7)
57.3 48.2 103.9
194.9 159.7 347.7
As indicated in the 2006 full year Financial Commentary, we have set a target of
maintaining the growth in the establishment expenses to less than 10%, resulting
in a gap of 5 - 10% between the new business growth and expense growth.
The establishment expense growth for the six months was 7.8% and the gap between
the new business growth and the expense growth was some 25%. Consequently, as
shown above, the new business margin expanded.
Shareholders should be aware that if new business growth for the remainder of
the year continues to be well above our 15 - 20% stated objective, then
establishment expense growth is likely to exceed our 5 - 10% target. However
the gap between expense and new business growth will exceed our stated
objective.
(iii) Cashflow
In my Financial Commentary in the 2006 Annual Report, I provided new disclosure
on the underlying cashflow of the Group and this has been repeated for the half
year below. The information is provided post tax.
It is first necessary to adjust the post tax IFRS profits for the 'non- cash'
items to obtain an adjusted post tax figure which is more representative of the
underlying cashflow of the business.
The table below sets out these adjustments:
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
2007 2006 2006
£' Million £' Million £' Million
Post tax IFRS result 28.3 28.4 88.0
Adjustments
Movement in deferred acquisitions cost (43.8) (29.6) (68.6)
Movement in deferred income 27.0 18.8 42.2
Amortisation of purchased VIF 1.6 1.6 3.1
Movement in financial reassurance balance - - (8.9)
Release of LAHC provision - - (7.0)
Share option expense 5.9 2.2 7.6
Movement in deferred tax asset (10.4) 0.3 (13.3)
Movement in deferred tax liability* 3.0 10.9 23.2
Other 1.5 (3.3) (0.9)
Adjusted post tax cashflow 13.1 29.3 65.4
* excluding amounts in respect of the unit linked funds
Taking account of these non-cash adjustments the Group generated positive
cashflow of £13.1 million during the first six months (2006: £29.3 million).
The table and commentary below provide an indicative unaudited analysis of the
sources of this cashflow.
Note 6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
2007 2006 2006
£' Million £' Million £' Million
Net annual management fee 1 60.3 43.8 93.2
Unwind of surrender penalties 2 (21.8) (15.9) (32.6)
Loss / profit arising on new business 3 (4.7) 2.8 1.9
Establishment expenses 4 (32.5) (29.7) (62.1)
Investment income 5 4.5 2.8 9.4
Miscellaneous 6 7.3 2.9 12.1
Underlying cash flow 13.1 6.7 21.9
Tax relief on b/fwd expenses 7 - 22.6 22.6
FSA reserving change 8 - - 20.9
Post tax cashflow 13.1 29.3 65.4
The underlying cash flow of the Group increased from £6.7 million in 2006 to
£13.1 million in the current year.
The increased level of pension business during the current year has resulted in
an initial cash loss for the six months of £4.7 million.
Notes
1. The net annual management fee: this is the income on the funds under
management that the Group retains after payment of the associated costs.
Broadly speaking the Group retains around 1% pre-tax of funds under management.
2. Unwind of surrender penalties: this relates to the reserving
methodology applied to the surrender penalties within the charging structure of
the single premium life bonds. At the outset of the life bond we establish a
liability net of the outstanding surrender penalty which would apply if the
policy were to be encashed. As the surrender penalty reduces to zero so the
liability to the policyholder is enhanced by increasing their funds by 1% per
annum over the first six years of the product life, to correspond to this '
unwind' of the surrender penalty. In other words there is a cash transfer from
the shareholder to the policyholder.
3. Loss / profit arising from new business: this is the cash flow arising
in the year after taking into account the directly attributable expenses.
4. Establishment expenses: these are the post tax expenses commented on in
point (ii) above and represent the running costs of the Group's infrastructure.
5. Investment income: this is the income accruing on the investments and
cash held for regulatory purposes together with the interest received on the
surplus capital held by the Group.
6. Miscellaneous: this represents the cashflow of the business not covered
in any of the other categories. It will include miscellaneous product charges,
reserving changes, experience variances and the income and expenses included
within the Other operations of the business.
7. Tax relief on expenses b/fwd: during the first half of 2006 we obtained
tax relief for some expenses brought forward, which gave rise to positive
cashflow of £22.6 million.
8. The adoption of the FSA reserving changes in the second half of 2006
resulted in the one-off increase of £20.9 million.
(iv) Analysis of Embedded Value
The table below provides a summarised breakdown of the Embedded Value position
at the reporting dates.
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
2007 2006 2006
£' Million £' Million £' Million
Value of in-force
- Life 682.9 549.4 590.8
- Unit trust 192.8 150.7 171.5
Net assets 261.5 199.7 270.4
1,137.2 899.8 1,032.7
(v) Share options maturity
Options outstanding under the various share option schemes at 30 June 2007
amount to 38.5 million (31 December 2006: 46.2 million).
The total number of options including those in the SJP Employee Trust, together
with their anticipated proceeds are set out in the table below:
Number of
Average share options Anticipated
Earliest date of exercise exercise price outstanding proceeds
£ Million £' Million
Immediate 1.71 13.4 22.8
Jul - Dec 2007 1.55 4.2 6.6
Jan - Jun 2008 1.05 2.3 2.4
Jul - Dec 2008 1.83 0.4 0.8
Jan - Jun 2009 2.24 1.1 2.4
Jul - Dec 2009 2.75 16.2 44.5
Jan - Jun 2010 2.84 0.7 2.1
Jul - Dec 2010 2.57 0.2 0.5
38.5 82.1
Andrew Croft
30 July 2007
PART THREE
EUROPEAN EMBEDDED VALUE BASIS
The following information shows the result for the Group adopting a European
Embedded Value (EEV) basis for reporting the results of its wholly owned life
and unit trust businesses.
CONSOLIDATED INCOME STATEMENT
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
2007 2006 2006
£' Million £' Million £' Million
Life business 96.7 64.3 139.0
Unit trust business 28.0 18.1 39.9
Other (4.0) (2.1) (2.9)
Operating profit 120.7 80.3 176.0
Investment return variances 24.3 11.9 70.8
Economic assumption changes (11.4) (7.6) (9.8)
Profit from core business 133.6 84.6 237.0
Profit on sale of LAHC - - 7.0
EEV profit on ordinary activities before tax 133.6 84.6 244.0
Tax
Life business (25.9) (16.4) (46.5)
Unit trust business (9.9) (7.3) (19.4)
Other 3.1 1.0 6.1
LAHC - - -
Tax rate change 20.1 - -
(12.6) (22.7) (59.8)
EEV profit on ordinary activities after tax 121.0 61.9 184.2
Dividends 39.4 8.3 15.1
Proposed dividend per share 1.75 1.5 3.65
Basic earnings per share 26.1 13.8 40.7
Diluted earnings per share 24.7 13.1 38.5
EUROPEAN EMBEDDED VALUE BASIS
Consolidated Statement of Changes in Equity
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
2007 2006 2006
£' Million £' Million £' Million
Opening equity shareholders' funds on an EEV basis 1,032.7 828.8 828.8
Post-tax profit for the year 121.0 61.9 184.2
Dividends (39.4) (8.3) (15.1)
Issue of share capital 23.7 18.3 30.3
Consideration paid for own shares (7.7) (5.4) (5.4)
P & L reserve credit in respect of share option charges 5.9 2.2 7.6
P & L reserve credit in respect of proceeds from exercise of 1.0 2.3 2.3
share options for shares held in trust
Closing equity shareholders' funds on an EEV basis 1,137.2 899.8 1,032.7
EUROPEAN EMBEDDED VALUE BASIS
CONSOLIDATED BALANCE SHEET
30 June 30 June 31 December
2007 2006 2006
£' Million £' Million £' Million
Assets
Intangible assets
Deferred acquisition costs 437.4 354.6 393.6
Value of long-term business in-force
- long-term insurance 595.6 483.3 524.1
- unit trusts 192.8 150.7 171.5
1,225.8 988.6 1,089.2
Property & equipment 6.2 6.5 6.3
Deferred tax assets 94.2 70.2 83.8
Investment property 708.4 397.9 568.2
Investments 11,999.8 9,210.6 10,573.8
Reinsurance assets 31.7 81.1 28.3
Insurance contract receivables 11.9 12.5 11.5
Income tax assets 30.5 20.0 9.7
Other receivables 166.4 116.5 87.1
Cash & cash equivalents 1,593.9 1,480.2 1,606.9
Total assets 15,868.8 12,384.1 14,064.8
Liabilities
Insurance contract liability provisions 401.8 438.8 374.3
Other provisions 3.3 9.3 3.1
Financial liabilities 13,300.5 10,269.8 11,833.0
Deferred tax liabilities 279.9 202.9 258.4
Reinsurance payables - 8.9 -
Payables related to direct insurance contracts 33.0 24.3 18.5
Deferred income 318.9 268.5 291.9
Income tax liabilities 35.7 13.7 19.9
Other payables 144.1 140.5 100.5
Net asset value attributable to unit holders 214.4 107.6 132.5
Total liabilities 14,731.6 11,484.3 13,032.1
Net assets 1,137.2 899.8 1,032.7
Shareholders' equity
Share capital 71.2 68.7 69.6
Share premium 79.5 46.3 57.4
Other reserves 986.5 784.8 905.7
Total shareholders' equity 1,137.2 899.8 1,032.7
Pence Pence Pence
Net assets per share 239.6 196.5 222.6
NOTES TO THE EUROPEAN EMBEDDED VALUE BASIS
I. BASIS OF PREPARATION
The interim supplementary information on pages 19 to 25 shows the Group's
results for the six months ended 30 June 2007 as measured on a European Embedded
Value (EEV) basis with reduced disclosure, for interim reporting purposes, from
that which would be required under the EEV Principles. The results of the life,
pension and investment business, including unit trust business, undertaken by
the Group are measured on a basis determined in accordance with the EEV
Principles issued in May 2004 by the Chief Financial Officers Forum, a group of
chief financial officers from 19 major European insurers, as supplemented by the
Additional Guidance on EEV disclosures in October 2005 (together 'the EEV
Principles'). The treatment of all other transactions and balances is unchanged
from the statutory financial statements which are prepared on an IFRS basis.
The objective of the interim supplementary information is to provide
shareholders with more realistic information on the financial position and
performance of the Group than that provided by the IFRS basis.
Under the EEV Principles, profit is recognised as it is earned over the life of
the products within the covered business. The embedded value of the covered
business is the sum of the shareholders' net worth on an IFRS basis in respect
of the covered business and the present value of this projected profit stream.
II. METHODOLOGY AND ASSUMPTIONS
The methodology used to derive the European Embedded Values at both June 2006
and June 2007 is unchanged from that used at the end of 2006 and set out in
detail on pages 118 to 120 of the 2006 Report and Accounts.
Apart from the assumptions set out below, there have been no changes to
assumptions from those used at the end of 2006 and set out in detail on page 120
and 121 of the 2006 Report and Accounts.
a). Economic Assumptions
The principal economic assumptions used within the cash flows at 30 June 2007
are set out below.
30 June 30 June 31 December
2007 2006 2006
Risk free rate 5.7% 4.9% 4.9%
Inflation rate 3.3% 3.1% 3.0%
Risk discount rate (net of tax) 8.8% 8.0% 8.0%
Future investment returns:
- Gilts 5.7% 4.9% 4.9%
- Equities 8.7% 7.9% 7.9%
- Unit-linked funds:
- Capital growth 4.8% 4.5% 4.5%
- Dividend income 3.2% 2.8% 2.8%
- Total 8.0% 7.3% 7.3%
Expense inflation 3.9% 4.6% 3.6%
Indexation of capital gains 2.4% 2.2% 2.2%
The risk free rate is set by reference to the yield on 10 year gilts. The other
investment returns are set by reference to these. The inflation rate is derived
from the implicit inflation in the valuation of 10 year index-linked gilts.
This rate is increased by 1.5%, to reflect higher increases in earnings and the
expense inflation assumption is calculated as 80% of earnings inflation. The
rate is reduced by 10% to derive the indexation of capital gains for the
proportion of the fund invested in equities.
b). Taxation
Following the change in future taxation enacted in the 2007 Budget, the
corporation tax rate used for grossing up UK life and pensions business has
changed from 28% to 26% and unit trust business from 30% to 28%.
III. COMPONENTS OF LIFE AND UNIT TRUST EEV PROFIT
Life business 6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
2007 2006 2006
£'Million £'Million £'Million
New business contribution 53.3 34.6 87.6
Profit from existing business
Unwind of discount rate 33.7 26.9 50.3
Experience variance 6.5 0.4 (2.6)
Operating assumption changes (0.3) - (2.4)
Investment income 3.5 2.4 6.1
Life operating profit before tax 96.7 64.3 139.0
Investment return variances 16.2 6.3 46.8
Economic assumption changes (10.6) (8.3) (10.6)
Life profit before tax 102.3 62.3 175.2
Attributed tax (25.9) (16.4) (46.5)
Tax rate change 15.8 - -
Life profit after tax 92.2 45.9 128.7
New business contribution after tax is £39.5 million (30 June 2006: £25.3
million).
Unit trust business 6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
2007 2006 2006
£' Million £' Million £' Million
New business contribution 18.2 16.9 27.6
Profit from existing business
Unwind of discount rate 9.9 7.6 15.2
Experience variances (0.2) (2.2) 0.2
Operating assumption changes 0.1 (4.2) (3.1)
Unit trust operating profit before tax 28.0 18.1 39.9
Investment return variances 8.1 5.6 24.0
Economic assumption changes (0.8) 0.7 0.8
Unit trust profit before tax 35.3 24.4 64.7
Attributed tax (9.9) (7.3) (19.4)
Tax rate change 4.3 - -
Unit trust profit after tax 29.7 17.1 45.3
New business contribution after tax is £13.1 million (30 June 2006: £11.8
million).
6 Months 6 Months 12 Months
Combined life and unit trust business Ended Ended Ended
30 June 30 June 31 December
2007 2006 2006
£' Million £' Million £' Million
New business contribution 71.5 51.5 115.2
Profit from existing business
Unwind of discount rate 43.6 34.5 65.5
Experience variances 6.3 (1.8) (2.4)
Operating assumption changes (0.2) (4.2) (5.5)
Investment income 3.5 2.4 6.1
Operating profit before tax 124.7 82.4 178.9
Investment return variances 24.3 11.9 70.8
Economic assumption changes (11.4) (7.6) (9.8)
Profit before tax 137.6 86.7 239.9
Attributed tax (35.8) (23.7) (65.9)
Tax rate change 20.1 - -
Profit after tax 121.9 63.0 174.0
New business contribution after tax is £52.6 million (30 June 2006: £37.1
million).
IV. SENSITIVITIES
The table below shows the estimated impact on the combined life and unit trust
reported value of new business and EEV to changes in various EEV calculated
assumptions. In each case, only the indicated item is varied relative to the
restated values.
Change in new business contribution Change in European
Embedded Value
Note Pre-tax Post-tax Post-tax
£' Million £' Million £' Million
Value at 30 June 2007 71.5 52.6 1,137.2
100bp reduction in risk rate discount 1 8.6 6.2 69.4
100bp reduction in risk free rates, with (0.3) (0.2) (0.6)
corresponding change in fixed interest asset
values
10% reduction in withdrawal rates 5.5 4.0 52.2
10% reduction in expenses 0.9 0.7 12.1
10% reduction in market value of equity - - (92.6)
assets
5% reduction in mortality and morbidity 2 0.4 0.3 5.2
100bp increase in equity expected returns 3 - - -
Note 1: Although not directly relevant under a market-consistent valuation
where the risk discount rate is a derived disclosure only, this sensitivity
shows the level of adjustment which would be required to reflect differing
investor views of risk.
Note 2: Assumes the benefit of lower experience is passed on to clients and
reassurers at the earliest opportunity.
Note 3: As a market consistent approach is used, equity expected returns only
affect the derived discount rates and not the embedded value or contribution to
profit from new business.
V. RECONCILIATION OF IFRS AND EEV PROFIT BEFORE TAX AND NET ASSETS
30 June 30 June 31 December
2007 2006 2006
£' Million £' Million £' Million
IFRS profit before tax 65.8 48.0 179.9
Movement in life value of in-force 41.1 21.5 17.4
Movement in unit trust value of in-force 26.7 15.1 46.7
Total EEV profit before tax 133.6 84.6 244.0
IFRS net assets 394.0 312.0 382.2
Less: acquired value of in-force (62.7) (65.8) (64.3)
Add: deferred tax on acquired value of in-force 17.5 19.6 19.2
Add: life value of in-force 595.6 483.3 524.1
Add: unit trust value of in-force 192.8 150.7 171.5
EEV net assets 1,137.2 899.8 1,032.7
PART FOUR
INTERNATIONAL FINANCIAL REPORTING STANDARDS BASIS
CONSOLIDATED INCOME STATEMENT
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
Note 2007 2006 2006
£' Million £' Million £' Million
Insurance premium revenue 45.7 47.9 101.2
Less premiums ceded to reinsurers (13.8) (14.7) (33.8)
Net insurance premium revenue 31.9 33.2 67.4
Fee and commission income 44.3 44.3 87.6
Profit on sale of investment in Life Assurance Holding - - 7.0
Corporation
Other investment income 931.7 480.5 1,519.3
Total investment income 931.7 480.5 1,526.3
Other operating income 2.1 2.5 1.8
Net income 2 1,010.0 560.5 1,683.1
Policy claims and benefits incurred (27.5) (32.4) (58.2)
Less reinsurance recoveries 10.1 14.4 23.1
Net policyholder claims and benefits incurred (17.4) (18.0) (35.1)
Change in insurance contract liabilities
Gross amount (25.1) (1.8) 62.0
Reinsurers' share 3.0 0.8 (41.0)
Net change in insurance contract liabilities (22.1) (1.0) 21.0
Investment contract benefits (720.4) (331.4) (1,139.3)
Fees, commission and other acquisition costs (135.8) (122.2) (260.6)
Administration expenses (46.9) (38.3) (86.1)
Other operating expenses (1.6) (1.6) (3.1)
(184.3) (162.1) (349.8)
Operating profit 2 65.8 48.0 179.9
Financing costs - - -
Profit before tax 2 65.8 48.0 179.9
Tax on policyholders' return 3 (45.9) (4.7) (72.3)
Tax on shareholders' return 3 8.4 (14.9) (19.6)
Total tax expense (37.5) (19.6) (91.9)
Profit for period attributable to shareholders 28.3 28.4 88.0
2
Dividends 4 39.4 8.3 15.1
Pence Pence Pence
Proposed dividend per share 4 1.75 1.5 3.65
Basic earnings per share 5 6.1 6.3 19.4
Diluted earnings per share 5 5.8 6.0 18.4
INTERNATIONAL FINANCIAL REPORTING STANDARDS BASIS
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Note 6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
2007 2006 2006
£' Million £' Million £' Million
Opening equity shareholders' funds 382.2 274.5 274.5
Profit for the financial period, being total 28.3 28.4 88.0
recognised income for the financial period
Dividends 4 (39.4) (8.3) (15.1)
Issue of share capital
Scrip dividend 10.5 6.3 11.1
Exercise of share options 13.2 12.0 19.2
Consideration paid for own shares (7.7) (5.4) (5.4)
P & L reserve credit in respect of share option 5.9 2.2 7.6
charges
P & L reserve credit in respect of proceeds from 1.0 2.3 2.3
exercise of share options for shares held in trust
Net increase to shareholders' funds 11.8 37.5 107.7
Closing equity shareholders' funds 394.0 312.0 382.2
INTERNATIONAL FINANCIAL REPORTING STANDARDS BASIS
CONSOLIDATED BALANCE SHEET
30 June 30 June 31 December
Note 2007 2006 2006
£' Million £' Million £' Million
Assets
Intangible assets
Deferred acquisition costs 7 437.4 354.6 393.6
Acquired value of in force business 62.7 65.8 64.3
500.1 420.4 457.9
Property & equipment 6.2 6.5 6.3
Deferred tax assets 8 94.2 70.2 83.8
Investment property 708.4 397.9 568.2
Investments
Equities 10,416.4 7,802.1 9,014.5
Fixed income securities 655.5 629.6 595.2
Investment in Collective Investment Schemes 927.1 778.5 963.9
Currency forwards 0.8 0.4 0.2
Reinsurance assets 31.7 81.1 28.3
Insurance contract receivables 11.9 12.5 11.5
Income tax assets 30.5 20.0 9.7
Other receivables 166.4 116.5 87.1
Cash & cash equivalents 1,593.9 1,480.2 1,606.9
Total assets 15,143.1 11,815.9 13,433.5
Liabilities
Insurance contract liability provisions 401.8 438.8 374.3
Other provisions 9 3.3 9.3 3.1
Financial liabilities
Investment contracts 13,288.2 10,254.0 11,819.8
Borrowings 12.3 15.4 13.1
Currency forwards - 0.4 0.1
Deferred tax liabilities 10 297.4 222.5 277.6
Reinsurance payables - 8.9 -
Payables related to direct insurance contracts 33.0 24.3 18.5
Deferred income 11 318.9 268.5 291.9
Income tax liabilities 35.7 13.7 19.9
Other payables 144.1 140.5 100.5
Net asset value attributable to unit holders 214.4 107.6 132.5
Total liabilities 14,749.1 11,503.9 13,051.3
Net assets 394.0 312.0 382.2
Shareholders' equity
Share capital 12 71.2 68.7 69.6
Share premium 79.5 46.3 57.4
Other reserves (12.2) (8.2) (8.4)
Retained earnings 255.5 205.2 263.6
Total shareholders' equity 394.0 312.0 382.2
Pence Pence Pence
Net assets per share 83.0 68.1 82.4
INTERNATIONAL FINANCIAL REPORTING STANDARDS BASIS
CONSOLIDATED STATEMENT OF CASH FLOWS
6 Months 6 Months Year Ended
Ended Ended 31 December
30 June 2007 30 June 2006 2006
£' Million £' Million £' Million
Cash flows from operating activities
Profit before tax for the period 65.8 48.0 179.9
Adjustments for:
Depreciation 1.1 1.4 2.5
Amortisation of acquired value of in-force business 1.6 1.6 3.1
Fair value gains on non-operating investments - - (0.1)
P & L reserve credit in respect of share option charges 5.9 2.2 7.6
Profit on sale of investment - - (7.0)
Changes in operating assets and liabilities
Increase in deferred acquisition costs (43.8) (29.6) (68.6)
Increase in investment property (140.2) (78.5) (248.8)
Increase in investments (1,426.0) (737.0) (2,100.2)
(Increase) / decrease in reassurance assets (3.4) (3.2) 49.6
(Increase) /decrease in insurance contract receivables (0.4) 2.6 3.6
Increase in other receivables (91.9) (23.6) (3.5)
Increase / (decrease) in insurance contract liability provisions 27.5 8.2 (56.3)
Increase / (decrease) in provisions 0.2 (0.3) 0.5
Increase in financial liabilities (excluding borrowings) 1,468.3 840.0 2,405.5
Decrease in reinsurance liabilities - - (8.9)
Increase/ (decrease) in payables related to direct insurance 14.5 4.8 (1.0)
contracts
Increase in deferred income 27.0 18.8 42.2
Increase in other payables 43.6 69.0 29.1
Increase in net assets attributable to unit holders 81.9 15.3 40.2
Cash generated from operations 31.7 139.7 269.4
Income taxes paid (20.5) (0.4) (9.3)
Net cash from operating activities 11.2 139.3 260.1
Cash flows from investing activities
Acquisition of property & equipment (1.1) (2.0) (3.0)
Proceeds from sale of plant & equipment 0.1 0.1 0.2
Investments:
Proceeds from sale - - 3.9
Net cash from investing activities (1.0) (1.9) 1.1
Cash flows from financing activities
Proceeds from the issue of share capital 23.7 12.0 30.3
Consideration paid for own shares (7.7) (5.4) (5.4)
Proceeds from exercise of options over shares held in trust 1.0 2.3 2.3
Repayment of borrowings (0.8) (1.8) (4.1)
Dividends paid (39.4) (2.0) (15.1)
Net cash from financing activities (23.2) 5.1 8.0
Net (decrease) / increase in cash & cash equivalents (13.0) 142.5 269.2
Cash & cash equivalents at 1 January 1,606.9 1,337.7 1,337.7
Cash & cash equivalents 1,593.9 1,480.2 1,606.9
INTERNATIONAL FINANCIAL REPORTING STANDARDS BASIS
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1. BASIS OF PREPARATION
The consolidated interim financial statements for the six months ended 30 June
2007 comprise the interim financial statements of St. James's Place plc (the '
Company') and its subsidiaries (together referred to as the 'Group').
This interim financial information has been prepared applying the accounting
policies and presentation that were applied in the preparation of the Group's
published consolidated financial statements for the year ended 31 December 2006.
2. SEGMENT REPORTING
6 Months 6 Months 12 Months
Net Income Ended Ended Ended
30 June 30 June 31 December
2007 2006 2006
£' Million £' Million £' Million
Life business
Net insurance premium income 31.9 33.2 67.4
Net movement on deferred income (11.4) (8.0) (23.3)
Investment income - unit linked 916.7 479.2 1,503.9
policyholders (i)
Total life business 937.2 504.4 1,548.0
Unit trust business
Fee income (excluding deferred income) 43.3 34.2 67.7
Movement on deferred income (15.6) (10.8) (18.9)
Total unit trust business 27.7 23.4 48.8
Other business
Commission income 28.0 28.9 62.1
Investment income - sale of investment in - - 7.0
LAHC
Investment income - other shareholders 4.0 3.1 6.7
Investment income - other(ii) 11.0 (1.8) 8.7
Other operating income 2.1 2.5 1.8
Total other business 45.1 32.7 86.3
Total net income 1,010.0 560.5 1,683.1
(i) The investment return disclosed for the 6 months ended 30 June 2006 has been
grossed up to reflect the cost of investment transactions. The corresponding
expense has been included under administrative expenses within the income
statement. There is no effect on profit or net assets.
(ii) Investment income - other relates to investment income on third party
interest holdings in the St. James's Place unit trusts which are subject to
consolidation (the third party interest holdings are disclosed as 'net asset
value attributable to unit holders' within the balance sheet). This income is
offset by a change in investment contract benefits within the income statement.
Segment Result 6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
2007 2006 2006
£' Million £' Million £' Million
Life business
Shareholder 15.3 36.5 85.5
Policyholder tax gross up 45.9 4.7 72.3
Unit trust business 8.6 8.9 18.0
Profit on sale of investment - LAHC - - 7.0
Other loss (4.0) (2.1) (2.9)
Total other business (4.0) (2.1) 4.1
Total operating profit 65.8 48.0 179.9
Financing costs - - -
Profit before tax 65.8 48.0 179.9
Income taxes
Policyholder tax (45.9) (4.7) (72.3)
Shareholder tax 8.4 (14.9) (19.6)
Profit after tax 28.3 28.4 88.0
3. INCOME TAXES
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
2007 2006 2006
£' Million £' Million £' Million
Policyholder tax
Overseas withholding tax 9.1 4.6 9.2
Deferred tax 16.5 0.1 41.8
UK corporation tax
Current year 22.6 - 21.3
Prior year (2.3) - -
Total policyholder tax charge for the period 45.9 4.7 72.3
Shareholder tax
UK corporation tax 4.0 3.7 8.7
Group relief (5.9) (0.5) 0.1
Overseas tax 0.6 0.3 0.9
Deferred tax (credit)/charge
On unrelieved expenses (9.8) 5.2 (1.1)
Other 2.7 6.2 11.0
Total shareholder tax (credit)/charge for the (8.4) 14.9 19.6
period
4. DIVIDENDS
The following dividends have been paid by the Company:
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
2007 2006 2006
£' Million £' Million £' Million
2005 final dividend - 1.85 pence per ordinary - 8.3 8.3
share
2006 interim dividend - 1.50 pence per ordinary - - 6.8
share
2006 final dividend - 2.15 pence per ordinary 10.0 - -
share
2006 special dividend - 6.35 pence per ordinary 29.4 - -
share
Total dividends paid 39.4 8.3 15.1
The directors have resolved to pay an interim dividend of 1.75 pence per share
(2006: 1.5 pence). This amounts to £8.3 million (2006: £6.8 million) and will
be paid on 19 September 2007 to shareholders on the register at 10 August 2007.
5. EARNINGS PER SHARE
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
2007 2006 2006
Pence Pence Pence
Basic earnings per share 6.1 6.3 19.4
Adjustments - disposal of LAHC - - (1.5)
Basic adjusted earnings per share 6.1 6.3 17.9
Diluted earnings per share 5.8 6.0 18.4
Adjustments - disposal of LAHC - - (1.5)
Diluted adjusted earnings per share 5.8 6.0 16.9
The calculation of diluted earnings per share is based on the following figures:
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
2007 2006 2006
£' Million £' Million £' Million
Earnings
Profit after tax (for both basic and diluted EPS) 28.3 28.4 88.0
Adjustment - disposal of LAHC - - (7.0)
Adjusted profit (for both basic and diluted EPS) 28.3 28.4 81.0
Weighted average number of shares
Weighted average number of ordinary shares in 463.7 m 448.7 m 452.8 m
issue (for basic EPS)
Adjustments for outstanding share options 25.9 m 25.3 m 25.8 m
Weighted average number of ordinary shares (for 489.6 m 474.0 m 478.6 m
diluted EPS)
6. ASSETS HELD TO COVER LINKED LIABILITIES
Included within the balance sheet are the following assets and liabilities which
represent the net assets held to cover linked liabilities. The difference
between these assets and liabilities and those shown in the consolidated balance
sheet represents assets and liabilities held outside the unit-linked funds.
30 June 30 June 31 December
2007 2006 2006
£' Million £' Million £' Million
Assets
Investment property 708.4 397.9 568.2
Investments
Equities 10,212.2 7,696.4 8,883.0
Fixed income securities 609.1 561.7 544.4
Investment in Collective Investment 733.3 635.0 728.6
Schemes
Currency forwards 0.8 0.4 0.2
Other receivables 90.0 60.7 39.4
Cash and cash equivalents 1,476.2 1,365.4 1,501.4
Total assets 13,830.0 10,717.5 12,265.2
Liabilities
Financial liabilities
Currency forwards - 0.4 0.1
Deferred tax liabilities 156.2 99.8 139.8
Other payables 75.4 80.3 33.5
Total liabilities 231.6 180.5 173.4
Net assets held to cover linked liabilities 13,598.4 10,537.0 12,091.8
7. DEFERRED ACQUISITION COSTS
30 June 30 June 31 December
2007 2006 2006
£' Million £' Million £' Million
Life business - insurance DAC 26.6 27.8 26.7
Life business - investment DAC 328.4 263.5 296.5
Unit trust business - investment DAC 82.4 63.3 70.4
Total deferred acquisition costs 437.4 354.6 393.6
The movement on deferred acquisition costs is reflected in the fees, commission
and other acquisition costs line in the income statement.
8. DEFERRED TAX ASSETS
30 June 30 June 31 December
2007 2006 2006
£' Million £' Million £' Million
Life business - unrelieved expenses 26.9 10.8 17.1
Life business - deferred income 32.5 33.0 34.6
Unit trust business - deferred income 25.4 20.1 22.5
Other 9.4 6.3 9.6
Total deferred tax assets 94.2 70.2 83.8
9. OTHER PROVISIONS
30 June 30 June 31 December
2007 2006 2006
£' Million £' Million £' Million
At beginning of period 3.1 9.6 9.6
Movement in the period 0.2 (0.3) (6.5)
At end of period 3.3 9.3 3.1
Other provisions at 30 June 2007 consist of £2.0 million to meet obligations
arising as a result of the closure of offices, £0.8 million in respect of the
policyholder costs of redress for endowment business and £0.6 million in respect
of miscellaneous items.
10. DEFERRED TAX LIABILITIES
30 June 30 June 31 December
2007 2006 2006
£' Million £' Million £' Million
On deferred acquisition costs 113.4 97.0 108.2
On purchased value of in-force business 17.5 19.6 19.2
Within unit-linked funds 156.6 99.8 139.8
Other 9.9 6.1 10.4
Total deferred tax liabilities 297.4 222.5 277.6
11. DEFERRED INCOME
30 June 30 June 31 December
2007 2006 2006
£' Million £' Million £' Million
Life business 228.3 201.6 216.9
Unit trust business 90.6 66.9 75.0
Total deferred income 318.9 268.5 291.9
12. SHARE CAPITAL
Number Nominal
value
£' Million
At 31 December 2006 463,858,948 69.6
Issue of shares 10,680,943 1.6
At 30 June 2007 474,539,891 71.2
13. 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 2006 are not the Company's statutory accounts for the
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 include a reference to
any matter to which the auditors drew attention to, by way of emphasis without
qualifying their report, and did not contain a statement under section 237 (2)
or (3) of the Companies Act 1985.
15. APPROVAL OF INTERIM REPORT
This interim report was approved by the Board of Directors on 30 July 2007.
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