Interim Results
St. James's Place PLC
25 July 2006
ST. JAMES'S PLACE PLC
PRESS RELEASE
25 July 2006
INTERIM RESULTS
FOR THE SIX MONTHS
TO 30 JUNE 2006
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 2006.
The text of the announcement is attached:
Enquiries:
Mike Wilson, Chairman Tel: 020 7514 1985
Andrew Croft, Group Finance Director Tel: 020 7514 1985
Nitya Bolam, Brunswick Tel: 020 7404 5959
ST. JAMES'S PLACE GROUP
ANNOUNCEMENT OF THE INTERIM RESULTS FOR THE SIX MONTHS
TO 30 JUNE 2006
NEW BUSINESS UP 55% AND OPERATING PROFIT UP 52%
St. James's Place, the wealth management group, today announces its interim
results for the half year to 30 June 2006.
European Embedded Value highlights include:
• Group operating profit at £80.3 million (2005: £53.0 million) up 52%
• New business profits of £51.5 million (2005: £28.1 million) up 83%
• Net asset value per share 196.5 pence (2005: 162.5 pence) up 21% over the
twelve months
International Financial Reporting Standards highlights include:
• Profit before shareholder tax of £43.3 million (2005: £19.2 million) up
126%
• Net asset value per share 68.1 pence (2005: 54.0 pence) up 26% over
the twelve months
Other highlights include:
• New business at £160.9 million up 55%
• Funds under management increased to £13.5 billion since the
start of the year up 10%
• Size of Partnership at 1,170 up 2% since the start of the year
• Interim dividend increased to 1.5 pence per share up 15%
Mike Wilson, Chairman, commented:
'We are delighted with the strength of the financial results in all areas driven
by our 55% growth in new business. Particularly pleasing is the growth in
investment business, up 57% and pensions up 70%, benefiting from the Pensions A
Day changes.
'In the first six months, we have considerably outperformed our new business
objective in favourable market conditions. Although our longer term objective of
15 - 20% growth in new business remains, the Board now expects (subject to no
unforeseen circumstances) the new business growth for the year to exceed this
stated range, despite the 34% growth in the second half of 2005.'
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 GROUP
NEW BUSINESS FIGURES
FOR THE SIX MONTHS TO 30 JUNE 2006
LONG-TERM SAVINGS
Unaudited Unaudited
3 Months to 6 Months to
30 June 2006 30 June 2006
NEW PREMIUMS 2006 2005 Change 2006 2005 Change
£'m £'m % £'m £'m %
New Regular
Premiums
Pensions 21.9 12.1 81% 31.2 19.3 62%
Protection 5.9 6.0 (2%) 11.5 11.6 (1%)
27.8 18.1 54% 42.7 30.9 38%
New Single
Premiums
Investment 299.9 210.1 43% 588.8 377.0 56%
Pensions 161.0 90.7 78% 274.0 152.4 80%
460.9 300.8 53% 862.8 529.4 63%
Unit Trust
Sales 176.1 114.1 54% 319.5 200.4 59%
(including
PEPs and ISAs)
------- ------ ------- ------- ------ -------
Unaudited Unaudited
3 Months to 6 Months to
30 June 2006 30 June 2006
NEW 2006 2005 Change 2006 2005 Change
BUSINESS
(RP + 1/ £'m £'m % £'m £'m %
10th SP)
Investment 47.6 32.4 47% 90.8 57.7 57%
Pensions 38.0 21.2 79% 58.6 34.5 70%
Protection 5.9 6.0 (2%) 11.5 11.6 (1%)
------ ------ ------- ------- ------ -------
Total 91.5 59.6 54% 160.9 103.8 55%
------ ------ ------- ------- ------ -------
ST. JAMES'S PLACE GROUP
WEALTH MANAGEMENT SERVICES
KEY BUSINESS HIGHLIGHTS
FOR THE SIX MONTHS TO 30 JUNE 2006
Unaudited
Gross fees generated from £15.5m up 30% (2005: £11.9m)
additional
wealth management services
New Mortgage Advances £2,679.3m
St. James's Place Bank £237.7m
Other lenders £2,441.6m
Portfolio Management Services
New portfolios £16.7m
Trust and Estate Planning Services
Number of cases 365
St. James's Place Bank - in-force business
*Number of facilities 63,793
Number of accounts 26,962
Credit balances £741.7m
Mortgages £1,489.3m
Average mortgage value £176.1k
Loans £7.2m
*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 GROUP
NEW BUSINESS FIGURES
FOR THE SIX MONTHS TO 30 JUNE 2006
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 and unit trust sales.
2. Sales of manufactured business on an APE basis for the six months were 86%
of the total reported (2005: 83%).
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 £9.5 million regular premiums (2005: £9.1
million) and £29.5 million single premiums (2005: £11.7 million) for the
six months to 30 June 2006. This equates to £12.4 million new business
premiums (2005: £10.3 million).
Sales of annuities by St. James's Place Partnership have been included in
the reported figures under Pensions. These amount to £17.4 million single
premiums for the six months to 30 June 2006 and equate to £1.7 million new
business premiums. The comparative figure has not been restated to include
equivalent sales in the first half of 2005. Sales in this period were
£15.8 million single premiums (£1.6 million new business premiums).
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 £7.2 million of new regular
premiums (2005: £7.1 million) for the six months to 30 June 2006. This
equates to £7.2 million new business premiums (2005: £7.1 million).
Sales of non-manufactured single premium investment business amounting to
£5.3 million have been included in the reported figures under investments
for the six months to 30 June 2006 (2005: £nil). This equates to £0.5
million new business premiums.
PART TWO
CHAIRMAN'S STATEMENT
I am delighted to report that the strong performance achieved over the last two
years has continued in the first half of 2006. The major contributor to this has
been the substantial growth in new business.
New business from long-term savings and investments (measured on the industry
basis of annual premium plus one tenth of single premium) was up 55% over the
period.
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 believes the EEV basis provides a more
meaningful measure of the Group's performance.
The operating profit, before shareholder tax, on the IFRS basis was £43.3
million (2005: £19.2 million) and total pre-tax profit for the period was £48.0
million (2005: £38.5 million).
On the EEV basis the pre-tax operating profit, which is the best indication of
the underlying performance of the business, increased by 52% from £53.0 million
to £80.3 million. Total pre-tax profit for the six months, including the
investment variance, was £84.6 million compared with £75.2 million for the same
period last year.
The Financial Commentary on pages 10 to 15 provides further details on the
results for the year.
DIVIDEND
The strong performance and significant cash generated has continued in the first
six months of 2006 and the Board has therefore resolved to increase the interim
dividend to 1.5 pence per share (2005: 1.3 pence per share) representing an
increase of 15%. The dividend will be paid on 18 September to those shareholders
on the Register at the close of business on 4 August.
As with recent dividend payments, shareholders will be offered an alternative of
a scrip dividend.
Barring unforeseen circumstances, shareholders can expect a similar increase in
the full year dividend.
NEW BUSINESS
As shareholders are aware we have two key new business objectives, firstly to
grow new business (measured on the basis of annual premiums plus one-tenth of
single premiums) by 15-20% per annum over the longer term and secondly for our
own manufactured products to represent at least 80% of new business.
After reporting a first quarter new business increase of 57%, I am delighted
that we have maintained a similar level of growth in the second quarter with new
business up by 54% for the three months to £91.5 million. This is our highest
ever quarter of new business and gives us an increase of 55% for the first six
months of the year.
Our own manufactured products represented 86% (2005: 83%) of the total APE of
£160.9 million. We have therefore surpassed both our new business objectives
over the period.
Pension business was up 79% for the quarter as we start to see the effects of
the Pensions A Day changes and particularly pleasing is the strong growth we are
experiencing in investment business which is up 57% for the six months.
Gross fees from our wealth management services rose by 30% to £15.5 million.
THE ST JAMES'S PLACE PARTNERSHIP
The substantial growth in productivity per Partner has driven our new business
growth in 2004 and 2005. This has continued in the first six months of 2006 with
productivity per Partner increasing by 51% compared with the same period last
year. The Board believes that the quality of the existing Partnership provides
scope for further growth in productivity in years to come.
I am pleased to say that we are beginning to see the results of the measures
taken to improve performance in the growth of the Partnership numbers, which
were highlighted in the Chief Executive's Statement in the 2005 Annual Report.
The Partnership grew by some 2% in the first half of the year to 1,170.
With the recent turmoil in the advice market place, we remain convinced that St
James's Place is one of the best homes for high quality, trusted financial
advisers and we offer a financially secure and stable home for their business.
We are more committed than ever to recruiting the highest quality Partners and
to retaining only those who are profitable to the Group in the longer term.
INVESTMENT MANAGEMENT
It is pleasing to report against the background of the more recent volatile
market conditions, that our distinctive approach to investment management
continues to deliver superior performance in both the short and the longer term.
Money spread equally across our five Managed funds has significantly
outperformed the peer group over both the short and long term. This adds
strength to our core message of the benefits of spreading investments across a
range of different managers, asset classes and sectors.
As part of the ongoing evolution of our investment proposition, we have
undertaken intensive research into finding a replacement for Ted Williams,
manager of the SJP / Schroder Managed portfolios, who recently announced his
intention to retire. I am pleased to say Ted will be replaced by Nick Purves. In
addition we are launching two new managed funds to replace the SJP / Select Fund
with effect from 31 July 2006. The SJP / AXA Framlington Managed will be managed
by Richard Peirson and the SJP / Newton Global Managed will be managed by Paul
Butler.
As at the 30 June 2006, our funds under management were £13.5 billion, up 10%
since the start of the year, and 29% higher than the same time in 2005.
BOARD CHANGES
As I commented in my last statement Sir James Crosby and John Edwards stepped
down from the Board on 31 May 2006 and were replaced by Andy Hornby, James's
successor as Chief Executive of HBOS, and Jo Dawson, the HBOS director
responsible for Insurance and Investment.
I would like to welcome Andy and Jo to the Board and thank John for his
contribution during his directorship. I particularly want to thank James for his
immense contribution to the development of SJP over the years from his initial
involvement as a director between the years of 1992 to 1994 and since his
reappointment as a director in 2000, when HBOS acquired 60% of St. James's
Place.
PARTNERS AND STAFF
Following on from a very strong performance in 2005 the continued growth in new
business and profits could only have been achieved with the on-going enthusiasm,
commitment and dedication of the Partnership and our staff. On behalf of the
Board and shareholders I would like to thank all members of our community for
continuing to excel in their individual roles.
OUTLOOK
In the first six months, we have considerably outperformed our new business
objective in favourable market conditions. Although our longer term objective of
15 - 20% growth in new business remains, the Board now expects (subject to no
unforeseen circumstances) the new business growth for the year to exceed this
stated range, despite the 34% growth in the second half of 2005.
The social, economic and demographic conditions remain positive for our proven
adviser based approach to wealth management.
The new pension rules introduced in April of this year together with the recent
changes in the inheritance tax rules announced in the Budget, make the need for
advice more important than ever. The Board is confident that SJP is in a growth
market.
We remain convinced that our own dedicated distribution, the St. James's Place
Partnership, gives us a real competitive edge to capitalise on these
opportunities going forward.
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 23 to 34. 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
2006 2005 2005
--------- -------- ----------
£' Million £' Million £' Million
Life business 36.5 18.3 29.3
Unit trust business 8.9 5.9 12.8
Other (2.1) (3.2) (4.1)
IT systems development - (1.8) (4.3)
--------- -------- ----------
Operating profit 43.3 19.2 33.7
Profit on sale of LAHC - - 9.5
--------- -------- ----------
Profit before shareholder
tax 43.3 19.2 43.2
Policyholder tax 4.7 19.3 83.9
--------- -------- ----------
Total pre-tax profit 48.0 38.5 127.1
========= ======== ==========
Profit after tax 28.4 15.5 47.6
========= ======== ==========
The IFRS result requires the pre-tax profit of the life business to be 'grossed
up' for policyholder tax 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 below and the
accompanying narrative have been presented after eliminating the 'gross up'.
Life business
The profit from the life business at £36.5 million (2005: £18.3 million) has
doubled over the prior period. Shareholders will be aware the Company obtains
tax relief for its expenses principally by offset against deductions on the
income and capital gains arising in the unit linked funds. Included in the life
result is an amount of £20 million (2005: £10.6 million) reflecting this relief
on the life company's expenses for the period. Shareholders should be aware that
some or all of this £20 million could reverse in the second half of the year in
the event of capital losses being realised by the unit linked funds during this
period.
In addition to this tax relief obtained on the company's expenses, the life
result has increased during the year which reflects the higher funds under
management and the continued emergence of cash flows from prior years' business.
The profits arising from new business are more or less neutral in the year of
sale.
Unit trust business
The growth in new business and higher funds under management have seen unit
trust profits increase by 51% from £5.9 million in 2005 to £8.9 million for the
six months to 30 June 2006.
Other
'Other' shows the earnings from the core business other than the Group's life
and unit trust business. During the six months there was a loss of £2.1 million
(2005: loss of £3.2 million). Including within 'other' is the cost of expensing
share options in accordance with IFRS 2 of £2.2 million (2005: £1.8 million).
The total net assets of the Group on an IFRS basis at 30 June 2006 were £312.0
million (31 December 2005: £274.5 million) resulting in a net asset per share of
68.1 pence (31 December 2005: 61.4 pence).
EUROPEAN EMBEDDED VALUE BASIS
The EEV result is shown on pages 16 to 22. 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
2006 2005 2005
--------- -------- ----------
£' Million £' Million £' Million
Life business 64.3 43.8 92.3
Unit trust business 18.1 14.2 30.6
Other (2.1) (3.2) (4.1)
IT systems development - (1.8) (4.3)
--------- -------- ----------
Operating profit 80.3 53.0 114.5
Investment return 11.9 20.5 86.1
Economic assumption changes (7.6) 1.7 3.3
--------- -------- ----------
Profit from core business 84.6 75.2 203.9
LAHC - - 9.5
--------- -------- ----------
Total pre-tax profit 84.6 75.2 213.4
========= ======== ==========
Profit after tax 61.9 55.0 160.7
========= ======== ==========
The operating profit for the period was up 52% from £53.0 million to £80.3
million and within this figure the new business profit was up 83% from £28.1
million to £51.5 million. Section 2 of this commentary provides further detail
on the development of the new business profit and the corresponding margin.
Life operating profit for the period at £64.3 million (2005: £43.8 million) was
up 47%, a full analysis of this result can be found on page 20. New business
profits increased by 95% from £17.7 million for the prior year to £34.6 million.
Unit trust operating profit for the period was up 27% to £18.1 million compared
with £14.2 million for the corresponding period, a full analysis of this result
can be found on page 20. Within this operating profit the new business profit
increased by 62% from £10.4 million to £16.9 million.
During the six months there has been a small deterioration in persistency rates
and this is reflected in a £2.2 million negative experience variance. As a
result of this negative variance the persistency assumption in the unit trust
embedded value has been strengthened. This strengthening has had a £4.2 million
impact on the unit trust operating profit and has been included in the analysis
as an operating assumption change.
Other costs are previously commented on in the IFRS section.
Gilt yields have increased by 0.6% since the start of the year impacting the
economic assumptions underlying the embedded value. This has resulted in a
reduction in the embedded value by £7.6 million (2005: increase of £1.7
million). This movement has been shown under economic assumption changes.
The investment return variance during the first six months of 2006 was £11.9
million (2005: £20.5 million). This reflects that the average after tax increase
in our fund prices of between 1% and 3% above the growth assumed in the EEV
calculation.
The total net assets of the Group on a EEV basis at 30 June 2006 were £899.8
million (31 December 2005: £828.8 million) resulting in a net asset per share of
196.5 pence (31 December 2005: 185.2 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 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
2006 2005 2005
--------- -------- ----------
Life business profit (£' m) 34.6 17.7 48.4
APE (£'m) 129.0 83.8 183.5
New business margin (%) 26.8 21.1 26.4
========= ======== ==========
The life new business margin expanded to 26.8% from 26.4% achieved for the
2005 full year.
Unit trust business 6 Months 6 Months 12 Months
--------------------- Ended Ended Ended
30 June 30 June 31 December
2006 2005 2005
--------- -------- ----------
New business profit (£' m) 16.9 10.4 18.8
APE (£'m) 31.9 20.0 37.5
New business margin (%) 52.9 52.0 50.1
========= ======== ==========
The unit trust business margin expanded to 52.9% from the 50.1% achieved for the
2005 full year.
Total business 6 Months 6 Months 12 Months
---------------- Ended Ended Ended
30 June 30 June 31 December
2006 2005 2005
--------- -------- ----------
New business profit (£' m) 51.5 28.1 67.2
APE (£'m) 160.9 103.8 221.0
New business margin (%) 32.0 27.1 30.4
========= ======== ==========
The total new business margin expanded from 30.4% for the 2005 full year to
32.0% in the first half of 2006.
The new margin has been beneficially affected on the one hand by the rate
of growth in APE, the proportion of manufactured business and the
underlying business mix and on the other hand by maintaining the growth in
the level of expenses to well below the growth in new business.
(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 wealth management sales of £2.9 million (2005: £2.2 million),
sales of stakeholder products of £0.5 million (2005: £0.8 million) and
sales through the protection panel of £4.9 million (2005: £4.2 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
2006 2005 2005
--------- -------- ----------
£' Million £' Million £' Million
Paid from policy margins
Commission 76.7 55.5 131.6
Investment expenses 25.0 17.6 35.1
Third party administration 9.8 8.9 19.2
--------- -------- ----------
111.5 82.0 185.9
Management expenses
Other related new business
costs 15.3 9.5 20.5
Establishment costs 41.2 38.2 75.4
Contribution from third
party product sales (8.3) (7.2) (16.4)
--------- -------- ----------
48.2 40.5 79.5
========= ======== ==========
159.7 122.5 265.4
========= ======== ==========
As indicated in the 2005 full year Financial Commentary, we have a 2006
target of maintaining the growth in the establishment expenses in a range
of 5 - 8%. The objective of setting this target was to create a 5 - 10% gap
between new business and expense growth.
If new business growth continues well above our 15 - 20% stated objective,
then shareholders can expect establishment expenses to exceed the 5 - 8%
growth target. However the gap between expenses and new business growth
will widen.
(iii) 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
2006 2005 2005
--------- -------- ----------
£' Million £' Million £' Million
Value of in-force
- Life 549.4 445.5 503.0
- Unit trust 150.7 123.6 140.7
Net assets 199.7 150.7 185.1
--------- -------- ----------
899.8 719.8 828.8
========= ======== ==========
(iv) Share options maturity
Options outstanding under the various share option schemes at 30 June 2006
amount to 45.6 million (31 December 2005: 56.5 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:
Earliest date of Average Number of Anticipated
exercise exercise share options proceeds
price outstanding
---------- --------- ---------
£ Million £' Million
Immediate 1.71 18.0 30.7
Jul - Dec 2006 1.37 3.5 4.8
Jan - Jun 2007 1.70 4.3 7.3
Jul - Dec 2007 1.55 4.2 6.5
Jan - Jun 2008 1.09 2.3 2.5
Jul - Dec 2008 1.33 0.3 0.4
Jan - Jun 20090 2.20 1.0 2.2
Jul - Dec 2009 2.33 11.2 26.1
Jan - Jun 2010 2.00 0.6 1.2
Jul - Dec 2010 2.00 0.2 0.4
--------- ---------
45.6 82.1
========= =========
Included within those options that are immediately exercisable are 5.8
million options with an expiry date before the end of July 2007 with
anticipated proceeds of £7.7 million.
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
2006 2005 2005
--------- --------- ---------
£' Million £' Million £' Million
Life business 64.3 43.8 92.3
Unit trust business 18.1 14.2 30.6
Other (2.1) (3.2) (4.1)
IT systems development - (1.8) (4.3)
--------- --------- ---------
Operating profit 80.3 53.0 114.5
Investment return variances 11.9 20.5 86.1
Economic assumption changes (7.6) 1.7 3.3
--------- --------- ---------
Profit from core business 84.6 75.2 203.9
Profit on sale of LAHC - - 9.5
--------- --------- ---------
EEV profit on ordinary
activities before tax 84.6 75.2 213.4
Tax
Life business (16.4) (16.4) (42.7)
Unit trust business (7.3) (6.0) (15.8)
Other 1.0 2.2 5.8
LAHC - - -
--------- --------- ---------
(22.7) (20.2) (52.7)
EEV profit on ordinary
activities after tax 61.9 55.0 160.7
========= ========= =========
Dividends 8.3 6.9 12.7
Proposed dividend per share 1.5 1.3 3.15
Basic earnings per share 13.8 12.5 36.4
Diluted earnings per share 13.1 12.0 34.8
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
2006 2005 2005
---------- ---------- -----------
£' Million £' Million £' Million
Opening equity shareholders' equity funds
on an EEV basis 828.8 663.4 663.4
Post-tax profit for the year 61.9 55.0 160.7
Dividends (8.3) (6.9) (12.7)
Issue of share capital 18.3 7.0 14.9
Consideration paid for own shares (5.4) (0.5) (0.5)
P & L reserve credit in respect of share
option charges 2.2 1.8 3.0
P & L reserve credit in respect of
proceeds from exercise of share options
for shares held in trust 2.3 - -
---------- ---------- -----------
Closing equity shareholders' equity funds
on an EEV basis 899.8 719.8 828.8
========== ========== ===========
EUROPEAN EMBEDDED VALUE BASIS
CONSOLIDATED BALANCE SHEET
30 June 30 June 31 December
2006 2005 2005
---------- ---------- -----------
£' Million £' Million £' Million
Assets
Intangible assets
Deferred acquisition costs 354.6 305.6 325.0
Value of long-term business in-force
- long-term insurance 483.3 405.6 460.9
- unit trusts 150.7 123.6 140.7
---------- ---------- -----------
988.6 834.8 926.6
Deferred tax assets 70.2 56.2 70.5
Property & equipment 6.5 6.2 5.9
Investment property 397.9 195.5 319.4
Investments 9,210.6 7,186.2 8,473.6
Reinsurance assets 81.1 81.5 77.9
Insurance contract receivables 12.5 9.2 15.1
Income tax assets 20.0 12.3 21.0
Other receivables 116.5 96.6 97.1
Cash & cash equivalents 1,480.2 1,168.8 1,337.7
---------- ---------- -----------
Total assets 12,384.1 9,647.3 11,344.8
========== ========== ===========
Liabilities
Insurance contract liability
provisions 438.8 377.1 430.6
Other provisions 9.3 19.5 9.6
Financial liabilities 10,269.8 8,005.1 9,431.6
Deferred tax liabilities 202.9 123.0 192.5
Reinsurance payables 8.9 11.3 8.9
Payables related to direct insurance
contracts 24.3 12.5 19.5
Deferred income 268.5 237.4 249.7
Income tax liabilities 13.7 6.0 9.9
Other payables 140.5 67.1 71.4
Net asset value attributable to unit
holders 107.6 68.5 92.3
---------- ---------- -----------
Total liabilities 11,484.3 8,927.5 10,516.0
========== ========== ===========
Net assets 899.8 719.8 828.8
========== ========== ===========
Shareholders' equity
Share capital 68.7 66.5 67.1
Share premium 46.3 22.3 29.6
Other reserves 784.8 631.0 732.1
---------- ---------- -----------
Total shareholders' equity 899.8 719.8 828.8
========== ========== ===========
Net assets per share 196.5p 162.5p 185.2p
NOTES TO THE EUROPEAN EMBEDDED VALUE BASIS
I. BASIS OF PREPARATION
The interim supplementary information on pages 16 to 22 shows the Group's
results for the six months ended 30 June 2006 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. The measurement 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
2005 and June 2006 is unchanged from that used at the end of 2005 and set
out in detail on pages 115 and 116 of the 2005 Report and Accounts. The
June 2005 numbers have been restated onto the EEV basis in order to be
comparable with June 006 values.
Apart from the assumptions set out below, there have been no changes to
assumptions from those used at the end of 2005 and set out in detail on
page 117 of the 2005 Report and Accounts.
Economic Assumptions
The principal economic assumptions used within the cash flows at 30 June
2006 are set out below.
30 June 30 June 31 December
2006 2005 2005
Risk discount rate (net of tax) 8.0% 7.3% 7.3%
Future investment returns:
- Gilts 4.9% 4.3% 4.3%
- Equities 7.9% 7.3% 7.3%
- Unit-linked funds:
- Capital growth 4.5% 3.8% 3.6%
- Dividend income 2.8% 2.8% 3.0%
- Total 7.3% 6.6% 6.6%
Expense inflation 4.6% 4.3% 4.3%
Indexation of capital gains 2.2% 2.0% 2.0%
The assumed future pre-tax returns on fixed interest securities are set by
reference to the yield on 10 year gilts. The other investment returns are
set by reference to this assumption.
A provision of £7.0 million before tax (31 December 2005: £7.0 million) has
been included within the cash flows to provide for adverse morbidity
experience on critical illness plans.
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
2006 2005 2005
---------- ---------- ----------
£'Million £'Million £'Million
New business contribution 34.6 17.7 48.4
Profit from existing business
Unwind of discount rate 26.9 20.8 41.1
Experience variance 0.4 3.7 1.7
Operating assumption
changes - - (2.5)
Investment income 2.4 1.6 3.6
---------- ---------- ----------
Life operating profit before
tax 64.3 43.8 92.3
Investment return variances 6.3 14.5 63.6
Economic assumption changes (8.3) 2.0 3.8
---------- ---------- ----------
Life profit before tax 62.3 60.3 159.7
Attributed tax (16.4) (16.4) (42.7)
---------- ---------- ----------
Life profit after tax 45.9 43.9 117.0
========== ========= =========
New business contribution after tax is £25.3 million (30 June 2005: £12.9 million).
Unit trust business 6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
2006 2005 2005
---------- ---------- ----------
£' Million £' Million £' Million
New business contribution 16.9 10.4 18.8
Profit from existing business
Unwind of discount rate 7.6 5.7 11.2
Experience variances (2.2) (1.9) 0.6
Operating assumption
changes (4.2) - -
---------- ---------- ----------
Unit trust operating profit
before tax 18.1 14.2 30.6
Investment return variances 5.6 6.0 22.5
Economic assumption changes 0.7 (0.3) (0.5)
---------- ---------- ----------
Unit trust profit before tax 24.4 19.9 52.6
Attributed tax (7.3) (6.0) (15.8)
---------- ---------- ----------
Unit trust profit after tax 17.1 13.9 36.8
========== ========== ==========
New business contribution after tax is £11.8 million (30 June 2005: £7.3 million).
6 Months 6 Months 12 Months
Ended Ended Ended
Combined life and unit trust 30 June 30 June 31 December
business 2006 2005 2005
----------- ----------- -----------
£' Million £' Million £' Million
New business contribution 51.5 28.1 67.2
Profit from existing business
Unwind of discount rate 34.5 26.5 52.3
Experience variances (1.8) 1.8 2.3
Operating assumption changes (4.2) - (2.5)
Investment income 2.4 1.6 3.6
----------- ----------- -----------
Operating profit before tax 82.4 58.0 122.9
Investment return variances 11.9 20.5 86.1
Economic assumption changes (7.6) 1.7 3.3
----------- ----------- -----------
Profit before tax 86.7 80.2 212.3
Attributed tax (23.7) (22.4) (58.5)
----------- ----------- -----------
Profit after tax 63.0 57.8 153.8
=========== =========== ===========
New business contribution after tax is £37.1 million (30 June 2005: £20.2 million).
The operating assumption changes in 2006 relate to a strengthening of the
repurchase assumptions for the unit trust business.
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 Change in
contribution European Embedded
Value
Note Pre-tax Post-tax Post-tax
---------- ---------- ----------
£' Million £' Million £' Million
Value at 30 June 2006 51.5 37.1 899.8
100bp reduction in risk rate 1 7.3 5.3 54.6
discount
100bp reduction in risk free
rates, with corresponding
change in fixed interest
asset values 0.5 0.4 5.7
10% reduction in withdrawal
rates 4.4 3.2 38.3
10% reduction in expenses 6.4 4.7 12.3
10% reduction in market value
of equity assets n/a n/a (56.3)
5% reduction in mortality and
morbidity 2 0.5 0.3 6.1
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
2006 2005 2005
---------- ---------- ----------
£' Million £' Million £' Million
IFRS profit before tax 48.0 38.5 127.1
Movement in life value of
in-force 21.5 22.8 46.5
Movement in unit trust value
of in-force 15.1 13.9 39.8
---------- ---------- ----------
Total EEV profit before tax 84.6 75.2 213.4
========== ========== ==========
IFRS net assets 312.0 239.1 274.5
Less: acquired value of
in-force (65.8) (69.0) (67.4)
Add: deferred tax on acquired
value of in-force 19.6 20.5 20.1
Add: life value of in-force 483.3 405.6 460.9
Add: unit trust value of
in-force 150.7 123.6 140.7
---------- ---------- ----------
EEV net assets 899.8 719.8 828.8
========== ========== ==========
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 2006 2005 2005
---------- ---------- ----------
£' Million £' Million £' Million
Insurance premium revenue 47.9 49.7 104.6
Less premiums ceded to reinsurers (14.7) (12.7) (31.2)
---------- ---------- ----------
Net insurance premium revenue 33.2 37.0 73.4
Fee and commission income 44.3 39.2 82.4
---------- ---------- ----------
Profit on sale of investment in Life
Assurance Holding Corporation - - 9.5
Other investment income 465.0 593.1 1,812.0
---------- ---------- ----------
Total investment income 465.0 593.1 1,821.5
Other operating income 2.5 0.3 1.9
---------- ---------- ----------
Net income 2 545.0 669.6 1,979.2
Policy claims and benefits incurred (32.4) (30.6) (60.9)
Less reinsurance recoveries 14.4 15.2 26.2
---------- ---------- ----------
Net policyholder claims and benefits
incurred (18.0) (15.4) (34.7)
Change in insurance contract
liabilities
Gross amount (1.8) (20.6) (75.4)
Reinsurers' share 0.8 4.2 9.2
---------- ---------- ----------
Net change in insurance contract
liabilities (1.0) (16.4) (66.2)
Investment contract benefits (331.4) (472.9) (1,480.9)
Fees, commission and other
acquisition costs (122.2) (98.9) (218.8)
Administration expenses (22.8) (26.0) (48.4)
Other operating expenses (1.6) (1.5) (3.1)
---------- ---------- ----------
(146.6) (126.4) (270.3)
---------- ---------- ----------
Operating profit 2 48.0 38.5 127.1
Financing costs - - -
---------- ---------- ----------
Profit before tax 2 48.0 38.5 127.1
---------- ---------- ----------
Tax on policyholders' return 3 (4.7) (19.3) (83.9)
Tax on shareholders' return 3 (14.9) (3.7) 4.4
---------- ---------- ----------
Total tax expense (19.6) (23.0) (79.5)
---------- ---------- ----------
Profit for period attributable to
shareholders 2 28.4 15.5 47.6
========== ========== ==========
Dividends 4 8.3 6.9 12.7
Pence Pence Pence
Proposed dividend per share 1.5 1.3 3.15
Basic earnings per share 5 6.3 3.5 10.8
Diluted earnings per share 5 6.0 3.4 10.3
INTERNATIONAL FINANCIAL REPORTING STANDARDS BASIS
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
Note 2006 2005 2005
---------- ---------- ----------
£' Million £' Million £' Million
Opening equity shareholders' equity 274.5 222.2 222.2
funds
Profit for the financial period,
being total recognised income for
the financial period 28.4 15.5 47.6
Dividends 4 (8.3) (6.9) (12.7)
Issue of share capital
Scrip dividend 6.3 4.3 8.4
Exercise of share options 12.0 2.7 6.5
Consideration paid for own shares (5.4) (0.5) (0.5)
P & L reserve credit in respect of
share option charges 2.2 1.8 3.0
P & L reserve credit in respect of
proceeds from exercise of share
options for shares held in trust 2.3 - -
---------- ---------- ----------
Net increase to shareholders' equity
funds 37.5 16.9 52.3
---------- ---------- ----------
Closing equity shareholders' equity
funds 312.0 239.1 274.5
========== ========== ==========
INTERNATIONAL FINANCIAL REPORTING STANDARDS BASIS
CONSOLIDATED BALANCE SHEET
30 June 30 June 31 December
Note 2006 2005 2005
---------- ---------- -----------
£' Million £' Million £' Million
Assets
Intangible assets
Deferred acquisition costs 7 354.6 305.6 325.0
Acquired value of in force 65.8 69.0 67.4
business
---------- ---------- -----------
420.4 374.6 392.4
Deferred tax assets 8 70.2 56.2 70.5
Property & equipment 6.5 6.2 5.9
Investment property 397.9 195.5 319.4
Investments
Equities 7,802.1 6,090.3 7,317.3
Fixed income securities 629.6 623.7 573.1
Investment in Collective
Investment Schemes 778.5 468.2 583.0
Currency forwards 0.4 4.0 0.2
Reinsurance assets 81.1 81.5 77.9
Insurance contract receivables 12.5 9.2 15.1
Income tax assets 20.0 12.3 21.0
Other receivables 116.5 96.6 97.1
Cash & cash equivalents 1,480.2 1,168.8 1,337.7
---------- ---------- -----------
Total assets 11,815.9 9,187.1 10,810.6
========== ========== ===========
Liabilities
Insurance contract liability 438.8 377.1 430.6
provisions
Other provisions 9 9.3 19.5 9.6
Financial liabilities
Investment contracts 10,254.0 7,980.6 9,411.9
Borrowings 15.4 20.7 17.2
Currency forwards 0.4 3.8 2.5
Deferred tax liabilities 10 222.5 143.5 212.6
Reinsurance payables 8.9 11.3 8.9
Payables related to direct insurance
contracts 24.3 12.5 19.5
Deferred income 11 268.5 237.4 249.7
Income tax liabilities 13.7 6.0 9.9
Other payables 140.5 67.1 71.4
Net asset value attributable to unit
holders 107.6 68.5 92.3
---------- ---------- -----------
Total liabilities 11,503.9 8,948.0 10,536.1
========== ========== ===========
Net assets 312.0 239.1 274.5
========== ========== ===========
Shareholders' equity
Share capital 12 68.7 66.5 67.1
Share premium 46.3 22.3 29.6
Other reserves (8.2) (8.5) (8.7)
Retained earnings 205.2 158.8 186.5
---------- ---------- -----------
Total shareholders' equity 312.0 239.1 274.5
========== ========== ===========
Net asset per share 68.1 pence 54.0 pence 61.4 pence
INTERNATIONAL FINANCIAL REPORTING STANDARDS BASIS
CONSOLIDATED STATEMENT OF CASH FLOWS
6 Months 6 Months 12 Months
Note Ended Ended Ended
30 June 30 June 31 December
2006 2005 2005
---------- ---------- ----------
£' Million £' Million £' Million
Cash generated from operations 13 139.7 272.8 445.1
Interest paid - - -
Income taxes (paid)/received (0.4) 1.7 (2.4)
---------- ---------- ----------
Net cash from operating activities 139.3 274.5 442.7
Cash flows from investing activities
Acquisition of property & equipment (2.0) (0.7) (1.9)
Proceeds from sale of plant &
equipment 0.1 0.1 0.2
Investments:
Proceeds from sale - - 3.8
---------- ---------- ----------
Net cash from investing activities (1.9) (0.6) 2.1
Cash flows from financing activities
Proceeds from the issue of share
capital 12.0 2.6 5.7
Consideration paid for own shares (5.4) (0.5) (0.5)
Proceeds from exercise of options
over shares held in trust 2.3 - -
Repayment of borrowings (1.8) (1.7) (5.2)
Dividends paid (2.0) (2.7) (4.3)
---------- ---------- ----------
Net cash from financing activities 5.1 (2.3) (4.3)
---------- ---------- ----------
Net increase in cash and cash
equivalents 142.5 271.6 440.5
Cash and cash equivalents at 1
January 1,337.7 897.2 897.2
---------- ---------- ----------
Cash and cash equivalents 1,480.2 1,168.8 1,337.7
========== ========== ==========
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 2006 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 2005.
The comparative figures to 30 June 2005 differ from those initially
published on 26 July 2005, principally as a result of the further
refinement of the Group's approach to the analysis of contracts between
investment and insurance and the treatment of tax within the Group's UK
unit linked funds. The restated profit after tax and net assets have
increased by £9.5 million.
2. SEGMENT REPORTING
6 Months 6 Months 12 Months
Net Income Ended Ended Ended
30 June 30 June 31 December
2006 2005 2005
---------- ---------- -----------
£' Million £' Million £' Million
Life business
Net insurance premium 33.2 37.0 73.4
income
Movement on deferred (8.0) (1.7) (7.8)
income
Investment income - unit
linked policyholders 463.7 585.0 1,787.2
---------- ---------- -----------
Total life business 488.9 620.3 1,852.8
Unit trust business
Fee income 34.2 22.8 49.0
Movement on deferred (10.8) (3.9) (10.1)
income
---------- ---------- -----------
Total unit trust business 23.4 18.9 38.9
Other business
Commission income 28.9 22.0 51.3
Investment income - sale
of investment in LAHC - - 9.5
Investment income - other
shareholders 3.1 2.7 5.4
Investment income - other (i) (1.8) 5.4 19.4
Other operating income 2.5 0.3 1.9
---------- ---------- -----------
Total other business 32.7 30.4 87.5
---------- ---------- -----------
Total net income 545.0 669.6 1,979.2
========== ========== ===========
(i) Investment income - other relates to investment income on minority interest
holdings in the St. James's Place unit trusts which are subject to consolidation
(the minority 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
2006 2005 2005
-------- --------- ---------
£' Million £' Million £' Million
Life business
Shareholder profit 36.5 18.3 29.3
Policyholder tax 4.7 19.3 83.9
gross up
Unit trust business 8.9 5.9 12.8
-------- --------- ---------
Profit on sale of
investment - LAHC - - 9.5
Other loss (2.1) (5.0) (8.4)
-------- --------- ---------
Total other business (2.1) (5.0) 1.1
-------- --------- ---------
Total operating 48.0 38.5 127.1
profit
Financing costs - - -
-------- --------- ---------
Profit before tax 48.0 38.5 127.1
Income taxes
Policyholder tax (4.7) (19.3) (83.9)
Shareholder tax (14.9) (3.7) 4.4
-------- --------- ---------
Profit after tax 28.4 15.5 47.6
======== ========= =========
3. INCOME TAXES
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
2006 2005 2005
-------- --------- ---------
£' Million £' Million £' Million
Policyholder tax
Overseas withholding 4.6 4.6 7.1
tax
Deferred tax 0.1 14.7 76.8
-------- --------- ---------
Total policyholder 4.7 19.3 83.9
tax charge for the
period
======== ========= =========
Shareholder tax
UK corporation tax 3.7 0.2 (17.3)
Group relief (0.5) 0.8 17.2
Overseas tax 0.3 - 0.4
Deferred tax charge/
(credit)
On unrelieved 5.2 - (8.7)
expenses
Other 6.2 2.7 4.0
-------- --------- ---------
Total shareholder tax
charge/(credit) for
the period 14.9 3.7 (4.4)
======== ========= =========
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
2006 2005 2005
---------- ---------- ----------
£' Million £' Million £' Million
2004 final dividend - 1.60
pence per ordinary share - 6.9 6.9
2005 interim dividend - 1.30
pence per ordinary share - - 5.8
2005 final dividend - 1.85
pence per ordinary share 8.3 - -
---------- ---------- ----------
Total dividends paid 8.3 6.9 12.7
========== ========== ==========
The directors have resolved to pay an interim dividend of 1.5 pence per
share (2005: 1.30 pence). This amounts to £6.9 million (2005: £5.8 million)
and will be paid on 18 September 2006 to shareholders on the register at 4
August 2006.
5. EARNINGS PER SHARE
6 Months 6 Months 12 Months
Ended Ended Ended
30 June 30 June 31 December
2006 2005 2005
-------- -------- --------
Pence Pence Pence
Basic earnings per share 6.3 3.5 10.8
Adjustments - disposal of - - (2.2)
LAHC
-------- -------- --------
Basic adjusted earnings per 6.3 3.5 8.6
share
======== ======== ========
Diluted earnings per share 6.0 3.4 10.3
Adjustments - disposal of - - (2.1)
LAHC
-------- -------- --------
Diluted adjusted earnings per 6.0 3.4 8.2
share
======== ======== ========
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
2006 2005 2005
-------- -------- --------
Pence Pence Pence
Earnings
Profit after tax (for both
basic and diluted EPS) 28.4 15.5 47.6
Adjustment - disposal of LAHC - - (9.5)
-------- -------- --------
Adjusted profit (for both
basic and diluted EPS) 28.4 15.5 38.1
======== ======== ========
Weighted average number of
shares
Weighted average number of
ordinary shares in issue (for
basic EPS) 448.7 m 438.6 m 442.0 m
Adjustments for outstanding
share options 25.3 m 19.6 m 20.4 m
-------- -------- --------
Weighted average number of
ordinary shares (for diluted
EPS) 474.0 m 458.2 m 462.4 m
======== ======== ========
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
2006 2005 2005
---------- ---------- ----------
£' Million £' Million £' Million
Assets
Investment property 397.9 195.5 319.4
Investments
Equities 7,696.4 6,024.7 7,230.8
Fixed income securities 561.7 571.2 507.5
Investment in Collective
Investment Schemes 635.0 378.8 460.4
Currency forwards 0.4 4.0 0.2
Other receivables 60.7 44.7 57.6
Cash and cash equivalents 1,365.4 1,074.3 1,240.8
---------- ---------- ----------
Total assets 10,717.5 8,293.2 9,816.7
Liabilities
Financial liabilities
Currency forwards 0.4 3.8 2.5
Deferred tax liabilities 99.8 36.9 100.8
Other payables 80.3 22.7 24.6
---------- ---------- ----------
Total liabilities 180.5 63.4 127.9
Net assets held to cover
linked liabilities 10,537.0 8,229.8 9,688.8
========== ========== ==========
7. DEFERRED ACQUISITION COSTS
30 June 30 June 31 December
2006 2005 2005
-------- --------- ---------
£' Million £' Million £' Million
Life business - insurance 27.8 32.0 28.7
DAC
Life business - investment 263.5 225.1 242.4
DAC
Unit trust business - 63.3 48.5 53.9
investment DAC
-------- --------- ---------
Total deferred acquisition 354.6 305.6 325.0
costs
======== ========= =========
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
2006 2005 2005
-------- --------- ---------
£' Million £' Million £' Million
Life business - unrelieved 10.8 7.3 16.0
expenses
Life business - deferred 33.0 31.2 32.7
income
Unit trust business - 20.1 15.0 16.8
deferred income
Other 6.3 2.7 5.0
-------- --------- ---------
Total deferred tax assets 70.2 56.2 70.5
======== ========= =========
9. OTHER PROVISIONS
30 June 30 June 31 December
2006 2005 2005
-------- --------- ---------
£' Million £' Million £' Million
At beginning of period 9.6 17.7 17.7
Movement in the period (0.3) 1.8 (8.1)
-------- --------- ---------
At end of period 9.3 19.5 9.6
======== ========= =========
Other provisions at 30 June 2006 consist of £7.0 million to meet possible
claims under the transaction warranties and indemnities for the Group's
investment in LAHC, £0.7 million to meet obligations arising as a result of
the closure of offices, £1.5 million in respect of the policyholder costs
of redress for endowment business and £0.1 million in respect of the
outstanding SJP obligation in connection with the Halifax
acquisition of SJP plc in June 2000.
10. DEFERRED TAX LIABILITIES
30 June 30 June 31 December
2006 2005 2005
---------- ---------- -----------
£' Million £' Million £' Million
On deferred acquisition costs 97.0 82.0 88.7
On purchased value of
in-force business 19.6 20.5 20.1
Within unit-linked funds 99.8 36.9 100.8
Other 6.1 4.1 3.0
---------- ---------- -----------
Total deferred tax 222.5 143.5 212.6
liabilities
========== ========== ===========
11. DEFERRED INCOME
30 June 30 June 31 December
2006 2005 2005
---------- ---------- -----------
£' Million £' Million £' Million
Life business 201.6 187.5 193.6
Unit trust business 66.9 49.9 56.1
---------- ---------- -----------
Total deferred income 268.5 237.4 249.7
========== ========== ===========
12. SHARE CAPITAL
Nominal
Number value
----------- ----------
£' Million
At 31 December 2005 447,431,123 67.1
Issue of shares 10,421,215 1.6
----------- ----------
At 30 June 2006 457,852,338 68.7
=========== ==========
13. CASH GENERATED FROM OPERATIONS
6 Months 6 Months Year Ended
Ended Ended 31 December
30 June 30 June
2006 2005 2005
---------- ---------- ----------
£' Million £' Million £' Million
Cash flows from operating
activities
Profit before tax for the period 48.0 38.5 127.1
Adjustments for:
Depreciation 1.4 1.4 2.8
Amortisation of acquired value of
in-force business 1.6 1.5 3.1
Fair value gains on non-operating
investments - - (0.1)
P & L reserve credit in respect of
share option charges 2.2 1.8 3.0
Profit on sale of investment - - (9.5)
Changes in operating assets and
liabilities
Increase in deferred acquisition (29.6) (11.2) (30.6)
costs
Increase in investment property (78.5) (65.6) (189.6)
Increase in investments (737.0) (510.4) (1,797.8)
Increase in reassurance assets (3.2) (11.2) (7.6)
Decrease/(increase) in insurance
contract receivables 2.6 (0.7) (6.6)
Increase in other receivables (23.6) (6.4) (23.5)
Increase in insurance contract
liability provisions 8.2 25.7 79.3
(Decrease)/increase in provisions (0.3) 1.8 1.4
Increase in financial liabilities 840.0 785.7 2,215.6
Decrease in reinsurance - - (2.4)
liabilities
Increase in payables related to
direct insurance contracts 4.8 1.3 8.3
Increase in deferred income 18.8 5.6 17.9
Increase in other payables 69.0 4.7 20.2
Increase in net assets
attributable to unit holders 15.3 10.3 34.1
---------- ---------- ----------
Cash generated from operations 139.7 272.8 445.1
========== ========== ==========
The cash generated from operations includes both policyholder and
shareholder cash flows. Policyholder cash and cash equivalents held within
the unit linked funds is set out in Note 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 2005 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 24 July 2006.
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