Half Yearly Report - Part 3 of 5

RNS Number : 0657M
Standard Life plc
10 August 2011
 



 

 

Standard Life plc

Half Year Results 2011

Part 3 of 5

 

 

 

 

 

 

 

 

2 Statement of Directors' responsibilities


We confirm to the best of our knowledge that:

1.

the condensed consolidated IFRS financial information which has been prepared in accordance with IAS 34 as adopted by the European Union gives a true and fair view of the assets, liabilities, financial position and profit of the company and the undertakings included in the consolidation taken as a whole as required by the DTR 4.2.4R;

2.

the consolidated income statement, the earnings per share statement, the consolidated statement of comprehensive income and the consolidated statement of financial position and associated notes have been prepared on the European Embedded Value basis as set out in Note 4.1;

3.

the Business review includes a fair review of the information required by DTR 4.2.7R, namely important events that have occurred during the period and their impact on the condensed set of financial statements, as well as a description of the principal risks and uncertainties faced by the company and the undertakings included in the consolidation taken as a whole for the remaining six months of the financial year; and

4.

the Business review and the notes to the condensed set of financial statements include a fair review of the information required by DTR 4.2.8R, namely material related party transactions and any material changes in the related party transactions described in the last annual report.

The Directors of Standard Life plc are listed in the Standard Life Annual Report and Accounts 2010 and on the Standard Life plc website, www.standardlife.com

By order of the Board

 

 

 

 


Gerry Grimstone      

Chairman

10 August 2011

    Jackie Hunt

    Chief Financial Officer

    10 August 2011

   

   


 

 

  

    

 

3 International Financial Reporting

Standards (IFRS)


IFRS condensed consolidated income statement

For the six months ended 30 June 2011


6 months

2011

6 months1

2010

Full year1

2010


Notes

£m

£m

£m

Revenue





Gross earned premium


1,684

1,661

3,244

Premium ceded to reinsurers


(45)

(47)

(94)

Net earned premium


1,639

1,614

3,150

Net investment return


3,124

2,860

14,570

Fee and commission income


434

359

752

Other income


46

47

97

Total net revenue


5,243

4,880

18,569






Expenses





Claims and benefits paid


3,000

2,785

5,513

Claim recoveries from reinsurers


(312)

(314)

(619)

Net insurance benefits and claims


2,688

2,471

4,894

Change in policyholder liabilities


888

748

9,899

Change in reinsurance assets


166

(132)

97

Expenses under arrangements with reinsurers


185

405

569

Administrative expenses

3.3

869

770

1,607

Change in liability for third party interest in consolidated funds


58

124

443

Finance costs


57

57

113

Total expenses


4,911

4,443

17,622






Share of profit/(loss) from associates and joint ventures


31

(4)

24






Profit before tax


363

433

971






Tax expense attributable to policyholders' returns

3.4

71

158

400






Profit before tax attributable to equity holders' profits


292

275

571






Total tax expense

3.4

129

199

498

Less: Tax attributable to policyholders' returns

3.4

(71)

(158)

(400)

Tax expense attributable to equity holders' profits

3.4

58

41

98






Profit for the period from continuing operations


234

234

473






(Loss)/profit for the period from discontinued operations


-

(17)

20

Profit for the period


234

217

493



-



Attributable to:





Equity holders of Standard Life plc


199

182

432

Non-controlling interests


35

35

61



234

217

493

Earnings per share from continuing operations





Basic (pence per share)

3.5(a)

8.7

8.9

18.4

Diluted (pence per share)

3.5(b)

8.7

8.9

18.3

1    The Group's healthcare business, Standard Life Healthcare Limited, was sold on 31 July 2010 and was classified as a discontinued operation for the six months ended 30 June 2010 and 12 months ended 31 December 2010.

The Notes on pages 47 to 63 are an integral part of this consolidated financial information.

IFRS consolidated statement of comprehensive income

For the six months ended 30 June 2011


6 months

2011

6 months

2010

Full year

2010


Notes

£m

£m

£m

Profit for the period


234

217

493

Less: Loss/(profit) from discontinued operations


-

17

(20)

Profit from continuing operations


234

234

473

Fair value losses on cash flow hedges


-

-

(2)

Actuarial (losses)/gains on defined benefit pension schemes


(66)

122

184

Revaluation of land and buildings


(4)

(10)

(14)

Net investment hedge


(6)

(16)

(39)

Exchange differences on translating foreign operations


18

104

122

Equity movements transferred to unallocated divisible surplus


2

(26)

(2)

Aggregate equity holder tax effect of items recognised in comprehensive income

3.4

20

(40)

(60)

Other


-

(1)

-

Other comprehensive (expense)/income for the period from continuing operations


(36)

133

189

Total comprehensive income for the period from continuing operations


198

367

662






(Loss)/profit from discontinued operations


-

(17)

20

Other comprehensive income from discontinued operations


-

24

24

Total comprehensive income for the period from discontinued operations


-

7

44






Total comprehensive income for the period


198

374

706






Attributable to:





Equity holders of Standard Life plc





From continuing operations


163

332

601

From discontinued operations


-

7

44

Non-controlling interests





From continuing operations


35

35

61



198

374

706

The Notes on pages 47 to 63 are an integral part of this consolidated financial information.

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

For the six months ended 30 June 2011


6 months 2011

6 months1

2010

Full year1

2010


Notes

£m

£m

£m

Operating profit before tax from continuing operations





UK


87

76

234

Canada


103

62

110

International


19

8

15

Global investment management


67

49

103

Other


(14)

(13)

(37)

Operating profit before tax from continuing operations


262

182

425

Adjusted for the following items:





Short-term fluctuations in investment return and economic assumption changes2

3.6

27

75

157

Restructuring and corporate transaction expenses

3.3

(23)

(17)

(71)

Impairment of intangible assets


(7)

-

-

Impairment of investments in associates


-

-

(1)

Other operating profit adjustments2


(2)

-

-

Non-operating (loss)/profit before tax from continuing operations


(5)

58

85

Profit attributable to non-controlling interests


35

35

61

Profit before tax attributable to equity holders' profits


292

275

571

Tax (expense)/credit attributable to:





Operating profit


(52)

(48)

(89)

Adjusted items


(6)

7

(9)

Total tax expense attributable to equity holders' profits


(58)

(41)

(98)

Profit for the period from continuing operations


234

234

473

(Loss)/profit for the period from discontinued operations


-

(17)

20

Profit for the period


234

217

493

1    The analysis of operating profit presented for the year ended 31 December 2010 and the six months ended 30 June 2010 include continuing operations only.

2    As described in Note 3.1(a) - Accounting policies - Basis of preparation, the Group has amended its operating profit accounting policy. As a result, £6m and £30m have been reallocated from other operating profit adjustments to short-term fluctuations in investment return and economic assumption changes for the six months ended 30 June 2010 and 12 months ended 31 December 2010 respectively.

Operating profit excludes impacts arising from short-term fluctuations in investment return and economic assumption changes. It is calculated based on expected returns on investments backing equity holder funds, with consistent allowance for the corresponding expected movements in equity holder liabilities. Impacts arising from the difference between the expected return and actual return on investments, and the corresponding impact on equity holder liabilities, are excluded from operating profit and are presented within profit before tax. The impact of certain changes in economic assumptions is also excluded from operating profit and is presented within profit before tax.

Adjustment is made for restructuring costs and significant corporate transaction expenses. Operating profit is also adjusted for impairment of intangible assets and profit or loss arising on the disposal of a subsidiary, joint venture or associate. Other operating profit adjustments include amortisation of intangibles acquired in business combinations and items which are one-off in nature and outside the control of management and which, due to their size or nature, are not indicative of the long-term operating performance of the Group.

The Directors believe that, by eliminating this volatility from equity holder profit, they are presenting a more meaningful indication of the long-term operating performance of the Group.

IFRS condensed consolidated statement of financial position

As at 30 June 2011


30 June

2011

30 June

2010

31 December 2010


Notes

£m

£m

£m

Assets





Intangible assets


186

111

135

Deferred acquisition costs


916

864

881

Investments in associates and joint ventures


350

3,003

3,087

Investment property


8,669

7,907

8,410

Property, plant and equipment


161

157

164

Reinsurance assets


6,803

7,181

6,962

Loans


3,182

2,946

3,136

Derivative financial assets


1,273

1,698

1,343

Investment securities1


127,895

108,734

121,671

Other assets


3,840

2,792

2,522

Cash and cash equivalents1


8,752

6,361

5,805

Assets of operations classified as held for sale


-

279

-

Total assets


162,027

142,033

154,116






Equity





Share capital

3.8(a)

233

226

228

Shares held by trusts


(16)

(18)

(21)

Share premium reserve


1,063

932

976

Retained earnings


1,051

807

1,094

Other reserves


1,636

1,695

1,626

Equity attributable to equity holders of Standard Life plc


3,967

3,642

3,903

Non-controlling interests


370

315

335

Total equity


4,337

3,957

4,238






Liabilities





Non-participating contract liabilities

3.9

103,083

88,741

99,164

Participating contract liabilities

3.9

33,095

32,419

33,474

Deposits received from reinsurers


5,892

6,177

6,021

Third party interest in consolidated funds


7,626

3,930

5,454

Borrowings


258

299

245

Subordinated liabilities


1,873

1,772

1,799

Deferred income


391

377

382

Income and deferred tax liabilities


343

285

401

Derivative financial liabilities


1,019

508

924

Other liabilities


4,110

3,394

2,014

Liabilities of operations classified as held for sale


-

174

-

Total liabilities


157,690

138,076

149,878






Total equity and liabilities


162,027

142,033

154,116

1    There has been a reallocation between cash and cash equivalents and investment securities at 30 June 2010 and 31 December 2010. Refer to Note 3.1(a) - Basis of preparation.

The Notes on pages 47 to 63 are an integral part of this consolidated financial information.

IFRS consolidated statement of changes in equity

For the six months ended 30 June 2011

Share capital

Shares held by trusts

Share premium reserve

Retained earnings

Other reserves

Total equity attributable to equity holders of Standard

Life plc

Non-controlling interests

Total equity

2011

£m

£m

£m

£m

£m

£m

£m

£m

1 January

228

(21)

976

1,094

1,626

3,903

335

4,238

Profit for the period

-

-

-

199

-

199

35

234

Other comprehensive income for the period

-

-

-

(46)

10

(36)

-

(36)

Total comprehensive income for the period

-

-

-

153

10

163

35

198

Distributions to equity holders

-

-

-

(197)

-

(197)

-

(197)

Issue of share capital other than in cash

5

-

87

-

-

92

-

92

Reserves credit for employee share-based payment schemes

-

-

-

-

11

11

-

11

Transfer to retained earnings for vested employee
share-based payment schemes

-

-

-

1

(1)

-

-

-

Shares acquired by employee trusts

-

(4)

-

-

-

(4)

-

(4)

Shares distributed by employee trusts

-

9

-

-

(10)

(1)

-

(1)

30 June

233

(16)

1,063

1,051

1,636

3,967

370

4,337

 

Share capital

Shares held by trusts

Share premium reserve

Retained earnings

Other reserves

Total equity attributable to equity holders of Standard

Life plc

Non-controlling interests

Total equity

2010

£m

£m

£m

£m

£m

£m

£m

£m

1 January

224

-

888

685

1,660

3,457

296

3,753

Profit for the period

-

-

-

182

-

182

35

217

Other comprehensive income for the period

-

-

-

81

76

157

-

157

Total comprehensive income for the period

-

-

-

263

76

339

35

374

Distributions to equity holders

-

-

-

(180)

-

(180)

-

(180)

Issue of share capital other than in cash

2

-

44

-

-

46

-

46

Reserves credit for employee share-based payment schemes

-

-

-

-

8

8

-

8

Transfer to retained earnings for vested employee
share-based payment schemes

-

-

-

5

(5)

-

-

-

Shares acquired by employee trusts

-

(32)

-

-

-

(32)

-

(32)

Shares distributed by employee trusts

-

10

-

-

(10)

-

-

-

Transfer between reserves on disposal of subsidiaries

-

-

-

34

(34)

-

-

-

Shares gifted to charity

-

4

-

-

-

4

-

4

Other movements in non-controlling interests in

the period

-

-

-

-

-

-

(16)

(16)

30 June

226

(18)

932

807

1,695

3,642

315

3,957

 

 

Share capital

Shares held by trusts

Share premium reserve

Retained earnings

Other reserves

Total equity attributable to equity holders of Standard

Life plc

Non-controlling interests

Total equity

2010

£m

£m

£m

£m

£m

£m

£m

£m

1 January

224

-

888

685

1,660

3,457

296

3,753

Profit for the year

-

-

-

432

-

432

61

493

Other comprehensive income for the year

-

-

-

124

89

213

-

213

Total comprehensive income for the year

-

-

-

556

89

645

61

706

Distributions to equity holders

-

-

-

(273)

(5)

(278)

-

(278)

Issue of share capital other than in cash

4

-

88

-

-

92

-

92

Reserves credit for employee share-based payment schemes

-

-

-

-

18

18

-

18

Transfer to retained earnings for vested employee
share-based payment schemes

-

-

-

5

(5)

-

-

-

Shares acquired by employee trusts

-

(35)

-

-

-

(35)

-

(35)

Shares distributed by employee trusts

-

10

-

-

(10)

-

-

-

Transfer between reserves on disposal of subsidiaries

-

-

-

121

(121)

-

-

-

Shares gifted to charity

-

4

-

-

-

4

-

4

Other movements in non-controlling interests in the year

-

-

-

-

-

-

(22)

(22)

31 December

228

(21)

976

1,094

1,626

3,903

335

4,238

The Notes on pages 47 to 63 are an integral part of this consolidated financial information.

 

IFRS condensed consolidated statement of cash flows

For the six months ended 30 June 2011

6 months

2011

6 months

2010

Full year

2010


£m

£m

£m

Cash flows from operating activities




Profit before tax from continuing operations

363

433

971

(Loss)/profit before tax from discontinued operations

-

(20)

17


363

413

988

Change in operating assets2

(3,654)

(104)

(17,355)

Change in operating liabilities

4,929

(6,825)

12,457

Non-cash and other items

23

3,115

240

Taxation paid

(156)

(136)

(262)

Net cash flows from operating activities2

1,505

(3,537)

(3,932)

                       




Cash flows from investing activities




Net acquisition of property, plant and equipment

(5)

(6)

(16)

Acquisition of subsidiaries net of cash acquired

(40)

(24)

(19)

Disposal of subsidiaries net of cash disposed

-

226

(1,272)

Investments in associates and joint ventures

(23)

(12)

(16)

Other

(17)

(11)

(45)

Net cash flows from investing activities

(85)

173

(1,368)





Cash flows from financing activities




Proceeds from other borrowings

4

10

33

Repayment of other borrowings

(11)

(1)

(33)

Capital flows from non-controlling interests and third party interest in consolidated funds

1,642

989

2,553

Distributions paid to non-controlling interests

(27)

(22)

(56)

Shares acquired by trusts

(4)

(32)

(35)

Interest paid

(39)

(40)

(117)

Ordinary dividends paid

(105)

(134)

(186)

Net cash flows from financing activities

1,460

770

2,159





Net increase/(decrease) in cash and cash equivalents2

2,880

(2,594)

(3,141)

Cash and cash equivalents at the beginning of the period2

5,701

8,840

8,840

Effects of exchange rate changes on cash and cash equivalents

46

(22)

2

Cash and cash equivalents at the end of the period1,2    

8,627

6,224

5,701





Supplemental disclosures on cash flows from operating activities




Interest received

1,345

1,369

2,663

Dividends received

816

665

1,329

Rental income received on investment properties

309

286

605

1    Comprises £8,752m (six months ended 30 June 2010: £6,373m; 12 months ended 31 December 2010: £5,805m) of cash and cash equivalents and (£125m) (six months ended 30 June 2010: (£149m); 12 months ended 31 December 2010: (£104m)) of overdrafts which are reported in Borrowings in the Statement of financial position. At 30 June 2010, £6,361m of cash and cash equivalents related to continuing operations and £12m related to discontinued operations.

2    There has been a reallocation between cash and cash equivalents and investment securities at 30 June 2010 and 31 December 2010, which has impacted the statement of cash flows. Refer to Note 3.1(a) - Accounting policies - Basis of preparation.

The Notes on pages 47 to 63 are an integral part of this consolidated financial information.


Notes to the IFRS financial information

3.1 Accounting policies

(a) Basis of preparation

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

With the exception of the change to the Group's operating profit accounting policy outlined below, the accounting policies for recognition, measurement, consolidation and presentation as set out in the Group's Annual Report and Accounts 2010 have been applied in the preparation of the condensed half year financial information.

The Group has adopted the following amendments to IFRSs, International Accounting Standards (IASs) and interpretations which are effective from 1 January 2011 and management considers that the implementation of these amendments and interpretations has had no significant impact on the Group's financial statements:

·   Amendment to IAS 32 Financial Instruments: Presentation

·   Amendment to IAS 24 Related Party Disclosures

·   Improvements to IFRSs 2010

·   IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments

·   Amendment to IFRIC 14 Prepayment of a Minimum Funding Requirement

The Group has amended its operating profit accounting policy in respect of the treatment of the volatility arising from changes in insurance and investment contract liabilities driven by corresponding changes in tax provisions. Previously, such volatility was excluded from operating profit. Under the revised policy, volatility in relation to insurance contract liabilities is excluded from operating profit, only to the extent that it relates to short-term fluctuations in investment return and economic assumption changes, and items which are one-off in nature and outside the control of management. The purpose of this amendment is to improve consistency with the underlying principles of the Group's operating profit methodology. The change to the operating profit policy did not have a significant impact on the operating profit reported for the six months ended 30 June 2010 and year ended 31 December 2010.

The Group accounting policy for cash and cash equivalents states that cash and cash equivalents include any highly rated liquid investments with less than 3 months to maturity from the date of acquisition. Any debt instruments with a maturity date greater than 3 months from the date of acquisition are classified as debt securities. Following a review of our short-dated debt instruments, there has been a reallocation from cash and cash equivalents to debt securities (included in investment securities) at 30 June 2010 of £275m and 31 December 2010 of £1,629m. There has been no change to total assets or net assets.

(b) Condensed half year financial information

This condensed consolidated half year information does not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2010 were approved by the Board of Directors on 10 March 2011 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Section 498 of Company Act 2006. This condensed consolidated half year financial information has been reviewed, not audited.


3.2 Segmental analysis

(a) Basis of segmentation

The Group's reportable segments have been identified in accordance with the way in which the Group is structured and managed and are as follows:

UK

UK operations comprise life and pensions business which provides a broad range of pensions, protection, savings and investment products to individual and corporate customers. The Group's healthcare business, Standard Life Healthcare Limited, was sold on 31 July 2010 and was classified as a discontinued operation in this reportable segment for the six months ended 30 June 2010 and year ended 31 December 2010.

Canada

Canada operations offer a broad range of pensions and savings products to individual and corporate customers in addition to commercial mortgage products.

International

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

Global investment management

Investment management services are provided by global investment management operations to the Group's other reportable segments. Global investment management also provides a range of investment products for individuals and institutional customers through a number of different investment vehicles.

Other

This reportable segment primarily includes the group corporate centre and the shared service centre. 

(b)     Reportable segments - income statement, operating profit and asset information

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

UK

Canada

International1

Global investment management

Other

Elimination

Total

30 June 2011

£m

£m

£m

£m

£m

£m

£m

Revenue








Net earned premium

623

541

473

2

-

-

1,639

Net investment return

2,511

602

6

2

3

-

3,124

Other segment income

254

74

27

127

14

(16)

480

Inter-segment revenue

24

1

-

57

270

(352)

-

Total net revenue

3,412

1,218

506

188

287

(368)

5,243









Expenses








Segment expenses

3,233

1,050

489

128

315

(361)

4,854

Finance costs

57

7

-

-

-

(7)

57

Total expenses

3,290

1,057

489

128

315

(368)

4,911









Share of profit from associates and joint ventures

8

15

1

7

-

-

31









Profit/(loss) before tax

130

176

18

67

(28)

-

363









Tax attributable to policyholders' returns

72

-

(1)

-

-

-

71

Tax attributable to equity holders' profits

4

34

12

16

(8)

-

58









Profit/(loss) for the period

54

142

7

51

(20)

-

234









Profit attributable to non-controlling interests

(35)

-

-

-

-

-

(35)

Profit/(loss) attributable to equity holders of Standard

Life plc

19

142

7

51

(20)

-

199









Reconciliation to consolidated operating profit








Tax expense/(credit) attributable to equity holders' profits

4

34

12

16

(8)

-

58

Non-operating loss/(profit) before tax from continuing operations

64

(73)

-

-

14

-

5

Operating profit/(loss) before tax

87

103

19

67

(14)

-

262









Other income included in the income statement is as follows:








Interest income

36

86

12

-

1

-

135









Other expenses included in the income statement include:








Impairment losses (reversed)/recognised

(3)

(1)

-

-

7

-

3

Amortisation of intangible assets

6

-

1

-

2

-

9

Amortisation of deferred acquisition costs

40

6

28

-

-

-

74

Depreciation of property, plant and equipment

-

1

-

-

6

-

7

Interest expense2

62

11

-

-

57

(65)

65









Assets








Segment assets

123,162

24,962

12,708

631

1,013

(799)

161,677

Investments in associates and joint ventures

53

136

103

45

13

-

350

Total assets

123,215

25,098

12,811

676

1,026

(799)

162,027









Additions during the period








Intangible assets

53

-

-

-

14

-

67

Deferred acquisition costs

37

9

52

-

-

-

98

Property, plant and equipment

-

1

-

-

5

-

6

Investment properties

147

99

-

-

-

-

246


237

109

52

-

19

-

417

1    Total net revenue, excluding inter-segment revenue, for Germany, Ireland and Asia is £367m (six months to 30 June 2010: £698m and 12 months to 31 December 2010: £1,253m), £65m (six months to 30 June 2010: £223m and 12 months to 31 December 2010: £548m) and £74m (six months to 30 June 2010: £29m and 12 months to 31 December 2010: £91m) respectively.

2    Refer to Note 3.3 - Administrative expenses

All activities are from continuing operations.

3.2 Segmental analysis continued

(b)     Reportable segments - income statement, operating profit and asset information continued

UK1

Canada

International

Global investment management

Other

Elimination

Total

30 June 2010

£m

£m

£m

£m

£m

£m

£m

Revenue








Net earned premium

738

451

423

2

-

-

1,614

Net investment return

2,060

287

508

-

5

-

2,860

Other segment income

224

69

19

96

10

(12)

406

Inter-segment revenue

18

1

(4)

56

266

(337)

-

Total net revenue

3,040

808

946

154

281

(349)

4,880









Expenses








Segment expenses

2,655

755

911

109

298

(342)

4,386

Finance costs

57

7

-

-

-

(7)

57

Total expenses

2,712

762

911

109

298

(349)

4,443









Share of profit/(loss) from associates and joint ventures

1

12

(20)

3

-

-

(4)









Profit/(loss) before tax

329

58

15

48

(17)

-

433









Tax attributable to policyholders' returns

149

-

9

-

-

-

158

Tax attributable to equity holders' profits

14

13

4

13

(3)

-

41









Profit/(loss) for the period from continuing operations

166

45

2

35

(14)

-

234









Loss for the period from discontinued operations1

(17)

-

-

-

-

-

(17)

Profit/(loss) for the period

149

45

2

35

(14)

-

217









Profit attributable to non-controlling interests from continuing operations

(35)

-

-

-

-

-

(35)

Profit/(loss) attributable to equity holders of Standard Life plc

114

45

2

35

(14)

-

182









Reconciliation to consolidated operating profit1








Tax expense/(credit) attributable to equity holders' profits from continuing operations

14

13

4

13

(3)

-

41

Non-operating (profit)/loss before tax from continuing operations

(69)

4

2

1

4

-

(58)

Less: Loss for the period from discontinued operations

17

-

-

-

-

-

17

Operating profit/(loss) before tax from continuing operations

76

62

8

49

(13)

-

182









Other income included in the income statement is as follows:








Interest income2

47

81

15

-

1

-

144









Other expenses included in the income statement include:








Impairment losses recognised/(reversed)2

(3)

(1)

-

-

-

-

(4)

Amortisation of intangible assets:








From continuing operations

5

-

1

-

2

-

8

From discontinued operations

2

-

-

-

-

-

2

Amortisation of deferred acquisition costs:








From continuing operations

40

6

21

-

-

-

67

From discontinued operations

32

-

-

-

-

-

32

Depreciation of property, plant and equipment2

-

1

1

-

4

-

6

Interest expense2,3

61

11

1

-

60

(68)

65









Assets








Segment assets

106,727

22,129

9,688

468

746

(728)

139,030

Investments in associates and joint ventures

2,625

124

201

34

19

-

3,003

Total assets

109,352

22,253

9,889

502

765

(728)

142,033

Additions during the period








Intangible assets

36

-

4

-

2

-

42

Deferred acquisition costs

71

10

34

-

-

-

115

Property, plant and equipment

-

1

-

-

6

-

7

Investment properties

358

34

-

-

-

-

392


465

45

38

-

8

-

556

1      The Group's healthcare business, Standard Life Healthcare Limited, was sold on 31 July 2010 and was classified as a discontinued operation for the six months ended 30 June 2010. The reconciliation to consolidated operating profit for the six months ended 30 June 2010 includes continuing operations only. 

2      All from continuing operations.

3      Refer to Note 3.3 - Administrative expenses

UK1

Canada

International

Global investment management

Other

Elimination

Total

31 December 2010

£m

£m

£m

£m

£m

£m

£m

Revenue








Net earned premium

1,319

919

909

3

-

-

3,150

Net investment return

11,553

2,077

937

-

9

(6)

14,570

Other segment income

464

136

46

209

23

(29)

849

Inter-segment revenue

11

3

-

111

544

(669)

-

Total net revenue

13,347

3,135

1,892

323

576

(704)

18,569









Expenses








Segment expenses

12,541

2,948

1,841

228

640

(689)

17,509

Finance costs

114

14

-

-

-

(15)

113

Total expenses

12,655

2,962

1,841

228

640

(704)

17,622









Share of profit/(loss) from associates and joint ventures

21

15

(23)

11

-

-

24









Profit/(loss) before tax

713

188

28

106

(64)

-

971









Tax attributable to policyholders' returns

385

-

16

-

(1)

-

400

Tax attributable to equity holders' profits

27

43

8

27

(7)

-

98









Profit/(loss) for the year from continuing operations

301

145

4

79

(56)

-

473









Profit for the year from discontinued operations1

20

-

-

-

-

-

20

Profit/(loss) for the year

321

145

4

79

(56)

-

493









Profit attributable to non-controlling interests from continuing operations

(61)

-

-

-

-

-

(61)

Profit/(loss) attributable to equity holders of Standard Life plc

260

145

4

79

(56)

-

432









Reconciliation to consolidated operating profit1








Tax expense/(credit) attributable to equity holders' profits from continuing operations

27

43

8

27

(7)

-

98

Non-operating (profit)/loss before tax from continuing operations

(33)

(78)

3

(3)

26

-

(85)

Less: Profit for the year from discontinued operations

(20)

-

-

-

-

-

(20)

Operating profit/(loss) before tax from continuing operations

234

110

15

103

(37)

-

425









Other income included in the income statement is as follows:








Interest income2

73

164

21

1

1

-

260









Other expenses included in the income statement include:








Impairment losses (reversed)/recognised 2

(9)

-

-

-

4

-

(5)

Amortisation of intangible assets:








From continuing operations

14

1

2

-

3

-

20

From discontinued operations

2

-

-

-

-

-

2

Amortisation of deferred acquisition costs:








From continuing operations

82

25

52

-

-

-

159

From discontinued operations

37

-

-

-

-

-

37

Depreciation of property, plant and equipment2

-

2

1

1

8

-

12

Interest expense2,3

123

21

1

-

113

(128)

130









Assets








Segment assets

114,931

24,246

11,290

419

913

(770)

151,029

Investments in associates and joint ventures

2,697

123

211

42

14

-

3,087

Total assets

117,628

24,369

11,501

461

927

(770)

154,116









Additions during the year








Intangible assets

39

2

4

-

32

-

77

Deferred acquisition costs

110

17

90

1

-

-

218

Property, plant and equipment

-

1

1

-

16

-

18

Investment properties

758

73

-

-

-

-

831


907

93

95

1

48

-

1,144

1      Standard Life Healthcare Limited was classified as a discontinued operation for the 12 months ended 31 December 2010. The reconciliation to consolidated operating profit for the year ended 31 December 2010 includes continuing operations only.         

2      All from continuing operations.

3      Refer to Note 3.3 - Administrative expenses.

3.2 Segmental analysis continued

(b)     Reportable segments - income statement, operating profit and asset information continued

Inter-segment transactions are entered into under normal commercial terms and conditions that would be available to unrelated third parties. The allocation of total net revenue presented above is based on customer location and this basis is not materially different to geographical origin. The Group has a widely diversified policyholder base and is therefore not reliant on any individual customers. The Group utilises additional measures to assess the performance of each of the reportable segments, which are presented in the European Embedded Value financial information.

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

6 months

2011

6 months

2010

Full year

2010


£m

£m

£m

UK

7,575

7,003

7,437

Continental Europe

44

52

48

Canada

1,397

1,147

1,223

Total

9,016

8,202

8,708

Non-current non-financial assets for this purpose consist of investment property, property, plant and equipment and intangible assets (excluding intangible assets arising from insurance or participating investment contracts).

3.3 Administrative expenses


6 months

2011

6 months

2010

Full year

2010



£m

£m

£m

Restructuring and corporate transaction expenses


23

18

73

Commission expenses


197

179

370

Interest expenses


8

8

17

Staff costs and other employee-related costs


308

328

586

Acquisition costs deferred during the period


(98)

(115)

(218)

Amortisation of deferred acquisition costs


74

99

196

Impairment of intangible assets


7

-

-

Other administrative expenses


350

286

622

Total administrative expenses


869

803

1,646

Less: administrative expenses from discontinued operations


-

(33)

(39)

Administrative expenses


869

770

1,607

Interest expense of £57m (six months ended 30 June 2010: £57m; 12 months ended 31 December 2010: £113m) in respect of subordinated liabilities is included within finance costs.  For the six months ended 30 June 2011, total interest expense is £65m  (six months ended 30 June 2010: £65m; 12 months ended 31 December 2010: £130m).

All restructuring costs for the period to 30 June 2011 are from continuing operations. Included in restructuring costs for the six months ended 30 June 2010 and 12 months ended 31 December 2010 are £1m of costs in relation to discontinued operations. 

Of the restructuring costs from continuing operations, £23m (six months ended 30 June 2010: £17m; 12 months ended 31 December 2010: £71m) is adjusted when determining operating profit for the period. For the period ended 31 December 2010, the remaining £1m was incurred by the Heritage With Profits Fund.

Restructuring costs from continuing operations incurred during the period are all in relation to the Group's transformation and Solvency 2 programmes (six months ended 30 June 2010: £11m; 12 months ended 31 December 2010: £64m). Transaction costs incurred from the sale of Standard Life Bank plc and Standard Life Healthcare Limited for the six months ended 30 June 2010 and 12 months ended 31 December 2010 were £5m and £8m respectively.

 

3.4    Tax expense

The tax expense is attributed as follows:

6 months

2011

6 months

2010

Full year

2010


£m

£m

£m

Tax expense attributable to policyholders' returns

71

158

400

Tax expense attributable to equity holders' profits

58

41

98


129

199

498





Tax credit from discontinued operations

-

(3)

(3)


129

196

495

From 1 April 2011, the UK corporation tax rate reduced from 28% to 26%. This rate change has been included in the calculation of UK deferred tax. In addition, the Finance Act 2011 (the Act) reduces the tax rate to 25% from 1 April 2012. As the Act was substantively enacted on 5 July 2011, this rate change has not been applied in calculating the UK deferred tax position as at 30 June 2011. The rate change will be included in the calculation of UK tax for subsequent reporting periods.

The share of tax of associates and joint ventures is £12m (six months ended 30 June 2010: £4m; 12 months ended 31 December 2010: £4m) and is included in Share of profit/(loss) from associates and joint ventures in the condensed consolidated income statement.

The total tax expense is split as follows:

6 months

2011

6 months

2010

Full year

2010


£m

£m

£m

Income tax:




UK

76

147

253

Double tax relief

(1)

(1)

(1)

Canada and international

17

20

42

Adjustment to tax expense in respect of prior periods

(2)

(6)

4

Total income tax

90

160

298





Deferred tax:




Deferred tax expense arising from the current periods

39

36

197

Total deferred tax

39

36

197





Total tax expense

129

196

495

Less: Income tax expense attributable to discontinued operations

-

3

3

Total income tax expense attributable to continuing operations

129

199

498





Attributable to equity holders' profits

58

41

98

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

6 months

2011

6 months

2010

Full year

2010


£m

£m

£m

Tax on actuarial (losses)/gains on defined benefit pension schemes

(20)

40

59

Revaluation of land and buildings

-

-

1

Tax on fair value gains on cash flow hedges attributable to discontinued operations

-

6

6

Tax relating to each component of other comprehensive income

(20)

46

66


3.5 Earnings per share

(a) Basic earnings per share

Basic earnings per share is calculated by dividing profit attributable to ordinary equity holders by the weighted average number of ordinary shares outstanding during the period. The weighted average number of ordinary shares outstanding during the period is the weighted average number of shares in issue less the weighted average number of shares owned by employee share trusts that have not vested unconditionally to employees.

6 months

2011

6 months

2010

Full year

2010

Profit from continuing operations (£m)

199

199

412

(Loss)/profit from discontinued operations (£m)

-

(17)

20

Profit attributable to equity holders of Standard Life plc (£m)

199

182

432





Weighted average number of ordinary shares in issue (millions)

2,279

2,230

2,242





Basic earnings per share from continuing operations (pence per share)

8.7

8.9

18.4

Basic earnings per share from discontinued operations (pence per share)

-

(0.7)

0.9

Basic earnings per share (pence per share)

8.7

8.2

19.3

(b) Diluted earnings per share

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. The Group has one category of dilutive potential ordinary shares - share awards and share options awarded to employees. 

For share options, a calculation is made to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the Company's shares) based on the monetary value of the subscription rights attached to outstanding share options. The number of shares calculated is compared with the number of shares that would have been issued, or purchased, assuming the exercise of the share options. 


6 months

2011

6 months

2010

Full year

2010

Profit from continuing operations (£m)

199

199

412

(Loss)/profit from discontinued operations (£m)

-

(17)

20

Profit attributable to equity holders of Standard Life plc (£m)

199

182

432





Weighted average number of ordinary shares for diluted earnings per share (millions)

2,282

2,235

2,248





Diluted earnings per share from continuing operations (pence per share)

8.7

8.9

18.3

Diluted earnings per share from discontinued operations (pence per share)

-

(0.7)

0.9

Diluted earnings per share (pence per share)

8.7

8.2

19.2

The dilutive effect of share awards and options included in the weighted average number of ordinary shares above was three million (six months ended 30 June 2010: five million; 12 months ended 31 December 2010: six million).


(c)     Alternative earnings per share

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

(c)(i) Basic alternative earnings per share

6 months 2011

6 months

2011

6 months

2010

6 months

2010

Full year

2010

Full year

2010


£m

p per share

£m

p per share

£m

p per share

Operating profit before tax from continuing operations

262

11.5

182

8.2

425

19.0

Short-term fluctuations in investment return and economic assumption changes1

27

1.2

75

3.4

157

7.0

Restructuring and corporate transaction expenses

(23)

(1.0)

(17)

(0.8)

(71)

(3.2)

Impairment of intangible assets

(7)

(0.3)

-

-

-

-

Impairment of investments in associates

-

-

-

-

(1)

-

Other operating profit adjustments1

(2)

(0.1)

-

-

-

-

Profit attributable to non-controlling interests

35

1.5

35

1.6

61

2.7

Profit before tax from continuing operations

292

12.8

275

12.4

571

25.5








Tax (expense)/credit attributable to:







Operating profit

(52)

(2.3)

(48)

(2.2)

(89)

(4.0)

Adjusted items

(6)

(0.3)

7

0.3

(9)

(0.4)

Profit attributable to non-controlling interests

(35)

(1.5)

(35)

(1.6)

(61)

(2.7)

(Loss)/profit from discontinued operations

-

-

(17)

(0.7)

20

0.9

Profit attributable to equity holders of Standard Life plc

199

8.7

182

8.2

432

19.3

1    As described in Note 3.1(a) - Accounting policies - Basis of preparation, the Group has amended its operating profit accounting policy. As a result, £6m and £30m have been reallocated from other operating profit adjustments to short-term fluctuations in investment return and economic assumption changes for the six months ended 30 June 2010 and 12 months ended 31 December 2010 respectively.

 (c)(ii) Diluted alternative earnings per share

6 months 2011

6 months

2011

6 months

2010

6 months

2010

Full year

2010

Full year

2010


£m

p per share

£m

p per share

£m

p per share

Operating profit before tax from continuing operations

262

11.5

182

8.2

425

19.0

Short-term fluctuations in investment return and economic assumption changes1

27

1.2

75

3.4

157

6.9

Restructuring and corporate transaction expenses

(23)

(1.0)

(17)

(0.8)

(71)

(3.2)

Impairment of intangible assets

(7)

(0.3)

-

-

-

-

Impairment of investments in associates

-

-

-

-

(1)

-

Other operating profit adjustments1

(2)

(0.1)

-

-

-

-

Profit attributable to non-controlling interests

35

1.5

35

1.6

61

2.7

Profit before tax from continuing operations

292

12.8

275

12.4

571

25.4








Tax (expense)/credit attributable to:







Operating profit

(52)

(2.3)

(48)

(2.2)

(89)

(4.0)

Adjusted items

(6)

(0.3)

7

0.3

(9)

(0.4)

Profit attributable to non-controlling interests

(35)

(1.5)

(35)

(1.6)

(61)

(2.7)

(Loss)/profit from discontinued operations

-

-

(17)

(0.7)

20

0.9

Profit attributable to equity holders of Standard Life plc

199

8.7

182

8.2

432

19.2

1    As described in Note 3.1(a) - Accounting Policies - Basis of preparation, the Group has amended its operating profit accounting policy. As a result, £6m and £30m have been reallocated from other operating profit adjustments to short-term fluctuations in investment return and economic assumption changes for the six months ended 30 June 2010 and 12 months ended 31 December 2010 respectively.

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

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

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

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

6 months 2011

6 months 2010

Full year 2010


UK

Canada

UK

Canada

UK

Canada


%

%

%

%

%

%

Equity securities

6.49

8.60

7.11

8.60

7.11

8.60

Property

5.49

8.60

6.11

8.60

6.11

8.60

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

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

Short-term fluctuations in investment return and economic assumption changes for the six months ended 30 June 2011 were £27m (six months ended 30 June 2010: £75m; 12 months ended 31 December 2010: £157m). Short-term fluctuations in investment return relate principally to the investment volatility in Canada non-segregated funds, UK annuities and in respect of the Group's subordinated liabilities and assets backing those liabilities.

3.7    Dividends

Subsequent to 30 June 2011, the Directors have proposed an interim dividend for 2011 of 4.60 pence per ordinary share (interim 2010: 4.35 pence), an estimated £107m in total (interim 2010: £98m). The dividend will be paid on 18 November 2011. This dividend will be recorded as an appropriation of retained earnings in the financial statements for the year ended 31 December 2011. During the six months to 30 June 2011 the Directors declared a final dividend for the year ended 31 December 2010 of 8.65 pence per ordinary share (final 2009: 8.09 pence) totalling £197m (final 2009: £180m).

Investors taking part in the Scrip scheme receive their dividend entitlement in the form of shares rather than cash. The distribution under Scrip is recorded as an appropriation of retained earnings. Dividends paid in the six months ended 30 June 2011 comprise £92m (six months ended 30 June 2010: £46m; 12 months ended 31 December 2010: £92m) settled by the issue of shares under the Scrip scheme and £105m (six months ended 30 June 2010: £134m; 12 months ended 31 December 2010: £186m) paid in cash.

3.8    Issued share capital and shares held by trusts

(a) Issued share capital

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

6 months

2011

6 months

2011

6 months

2010

6 months

2010

Full year

2010

Full year

2010


Number

£m

Number

£m

Number

£m

At start of period

2,283,019,841

228

2,236,292,157

224

2,236,292,157

224

Shares issued in lieu of cash dividends

44,791,814

5

21,942,218

2

44,854,401

4

Shares issued in respect of employee share plans

267,605

-

348,795

-

566,626

-

Shares issued in respect of share options

-

-

1,305,584

-

1,305,584

-

Demutualisation shares

-

-

490

-

490

-

Shares issued in respect of bonus issue

-

-

184

-

583

-

At end of period

2,328,079,260

233

2,259,889,428

226

2,283,019,841

228

During the six months ended 30 June 2011, 44,791,814 shares have been issued in respect of dividends under the Scrip dividend scheme (six months ended 30 June 2010: 21,942,218; 12 months ended 31 December 2010: 44,854,401).

The Group operates share incentive plans, allowing employees the opportunity to buy shares from their salary each month. The maximum purchase that an employee can make in any one year is £1,500. The Group offers to match the first £25 of shares bought each month. During the six months ended 30 June 2011, the Company allotted 267,605 ordinary shares to Group employees under the share incentive plans (six months ended 30 June 2010: 348,795; 12 months ended 31 December 2010: 566,626).

The Group also operates a Long-Term Incentive Plan (LTIP) for executives and senior management. During the six months ended 30 June 2011, no ordinary shares were issued on exercise of share options in respect of the LTIP (six months ended 30 June 2010: 1,305,584; 12 months ended 31 December 2010: 1,305,584).

The Scheme of Demutualisation sets a 10 year limit, ending in 2016, for those eligible members of The Standard Life Assurance Company (SLAC) who were not allocated shares at the date of demutualisation to claim their entitlements. During the six months ended 30 June 2011, no ordinary shares were issued to eligible members in respect of their demutualisation entitlements (six months ended 30 June 2010: 490; 12 months ended 31 December 2010: 490).

(b) Shares held by trusts

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

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

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

At 30 June 2011, the number of shares held by trusts which were not offset by a corresponding obligation to deliver a fixed number of equity instruments was 9,665,802 (30 June 2010: 8,817,384; 31 December 2010: 12,209,946).

3.9 Insurance contract liabilities, non-participating investment contract liabilities, participating investment contract liabilities and reinsurance assets


30 June

2011

30 June

2010

31 December 2010



£m

£m

£m

Non-participating insurance contract liabilities


23,797

23,344

23,564

Non-participating investment contract liabilities


79,286

65,554

75,600

Total non-participating contract liabilities


103,083

88,898

99,164

Less: Non-participating insurance contracts classified as held for sale


-

(157)

-

Non-participating contract liabilities


103,083

88,741

99,164






Participating insurance contract liabilities


17,098

16,654

17,357

Participating investment contract liabilities


15,230

15,008

15,329

Unallocated divisible surplus


767

757

788

Participating contract liabilities


33,095

32,419

33,474

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

The movements in participating and non-participating insurance and investment contracts and reinsurers' share of liabilities during the six months ended 30 June 2011, and the six months ended 30 June 2010 arising from changes in estimates are set out below:

Participating insurance contract liabilities

Non-participating insurance

contract liabilities

Participating investment contract liabilities

Non-participating investment contract liabilities

Reinsurers' share of liabilities (reinsurance asset)

Net

30 June 2011

£m

£m

£m

£m

£m

£m

Changes in:







   Methodology/modelling changes

(34)

(6)

33

-

-

(7)

Non-economic assumptions

-

-

-

-

-

-

   Economic assumptions

(134)

91

54

-

(9)

2








30 June 2010







Changes in:







   Methodology/modelling changes

2

20

(1)

-

(1)

20

Non-economic assumptions

-

2

-

-

-

2

   Economic assumptions

(34)

672

27

-

(283)

382

The movement in insurance contract liabilities, participating investment contracts and reinsurance assets during the year ended 31 December 2010 was as follows:

Participating insurance contract liabilities

Non-participating insurance

contract liabilities

Participating investment contract liabilities

Total insurance and participating contracts

Reinsurers' share of liabilities (reinsurance asset)

Net

2010

£m

£m

£m

£m

£m

£m

At 1 January

16,568

22,164

14,993

53,725

(7,032)

46,693

Expected change

(362)

(525)

(546)

(1,433)

307

(1,126)

Methodology/modelling changes

2

(11)

8

(1)

(7)

(8)

Effect of changes in:







   Economic assumptions

38

583

2

(251)

372

   Non-economic assumptions

(34)

(43)

(12)

(89)

54

(35)

Effect of:







   Economic experience

1,062

536

769

(19)

2,348

   Non-economic experience

146

(434)

57

(231)

15

(216)

New business

39

816

90

945

(2)

943

Total change in contract liabilities

891

922

368

2,181

97

2,278

Foreign exchange adjustment

(102)

625

(32)

(31)

460

Movements attributable to discontinued healthcare operations

-

(147)

-

(147)

4

(143)

At 31 December

17,357

23,564

15,329

56,250

(6,962)

49,288


The change in non-participating investment contract liabilities during the year ended 31 December 2010 was as follows:

2010


£m

At 1 January

63,728

Contributions

11,145

Initial charges and reduced allocations

(9)

Account balances paid on surrender and other terminations in the year

(7,589)

Investment return credited and related benefits

7,740

Foreign exchange adjustment

955

Recurring management charges

(370)

At 31 December

75,600

3.10   Defined benefit and defined contribution plans

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

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

6 months

2011

6 months

2010

Full year

2010


£m

£m

£m

Current service cost

(30)

(34)

(67)

Interest cost on benefit obligation

(53)

(55)

(110)

Expected return on plan assets

69

59

119

Past service cost

1

-

59

(Expense)/credit recognised in the summary consolidated income statement

(13)

(30)

1

For the 12 months to 31 December 2010, a credit from past service costs of £59m was recognised as a result of a change in the basis of future pension increases in the UK staff pension scheme.

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

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

30 June 2011

30 June 2010

31 December 2010


UK

Canada

Ireland

Total

UK

Canada

Ireland

Total

UK

Canada

Ireland

Total


£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

Present value of funded obligation

(1,734)

(182)

(54)

(1,970)

(1,712)

(162)

(40)

(1,914)

(1,724)

(175)

(51)

(1,950)

Present value of unfunded obligation

-

(59)

-

(59)

-

(48)

-

(48)

-

(56)

-

(56)

Fair value of plan assets

2,006

177

51

2,234

1,833

152

45

2,030

2,005

175

48

2,228

Adjustment for unrecognised past service costs

-

(6)

-

(6)

-

(6)

-

(6)

-

(6)

-

(6)

Surplus not recognised

(29)

-

-

(29)

-

-

-

-

-

-

-

-

Net asset/(liability)

243

(70)

(3)

170

121

(64)

5

62

281

(62)

(3)

216

The Group also recognises a net liability of £6m (30 June 2010: £5m; 31 December 2010: £6m) arising from a scheme with a total defined benefit obligation of £6m (30 June 2010: £5m; 31 December 2010: £6m) administered for the benefit of employees in Germany, resulting in a net asset of £164m (30 June 2010: asset of £57m; 31 December 2010: asset of £210m). The condensed consolidated statement of financial position presents any net scheme assets within other assets and any net scheme liabilities within other liabilities.


3.10   Defined benefit and defined contribution plans continued

(c)     Principal assumptions

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

30 June 2011

30 June 2010

31 December 2010


UK

Canada

Ireland

UK

Canada

Ireland

UK

Canada

Ireland


%

%

%

%

%

%

%

%

%

Rate of increase in salaries

4.75-5.75

3.50

3.50

4.55-5.55

3.50

3.50

4.65-5.65

3.50

3.50

Rate of increase in pensions

3.15-3.75

1.33

1.00

3.55

1.33

1.00

3.05-3.65

1.33

1.00

Discount rate

5.45

5.50

5.25

5.45

5.70

6.00

5.30

5.50

5.25

Inflation assumption

3.15-3.75

2.00

2.00

3.55

2.00

2.00

3.05-3.65

2.00

2.00

Expected return on plan assets

6.15

7.00

5.00

6.30

7.00

5.93

6.15

7.00

5.00

3.11   Risk management 

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

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

·   Market risk

·   Credit risk

·   Demographic and expense risk

·   Liquidity risk

·   Operational risk

The Group's Half Year Results do not include all financial risk management information and disclosures required in the Group's Annual Report and Accounts. This note should therefore be read in conjunction with the Group's Annual Report and Accounts for the year ended 31 December 2010.

There have been no changes in the Group's enterprise risk management framework, risk governance structure, qualitative risk appetites or key metrics used to set quantitative risk appetites since year end.

            

Fair value of financial assets and liabilities 

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

Level 1

Quoted prices (unadjusted) in active markets for identical assets or liabilities.

This category includes listed equity securities, certain government bonds and supranational institution bonds and exchange traded futures and options.

Level 2

Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

This category includes certain government bonds, listed or quoted corporate bonds, non-participating investment contract liabilities, third party interest in consolidated funds and derivative instruments that are not exchange traded. Corporate bonds have generally been classified as level 2 instruments as the composite price provided by external pricing providers may include, as an input, quotes provided by some banks that are not based on actual transaction prices.

Level 3

Inputs for the asset or liability that are not based on observable market data.

Level 3 financial instruments principally include unlisted equity securities, corporate bonds for which prices are not available from external pricing providers or where such prices are based on a single broker indicative quote and third party interest in consolidated funds which are not priced daily and where a significant proportion of the fund's assets are valued using inputs that are not based on observable market data.



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