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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| St. James's Place Plc | LSE:STJ | London | Ordinary Share | GB0007669376 | ORD 15P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 8.60 | 1.99% | 440.00 | 439.80 | 440.20 | 443.00 | 435.00 | 440.00 | 1,477,797 | 15:15:47 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Trust,ex Ed,religious,charty | 18.98B | -10.1M | -0.0184 | -238.26 | 2.41B |
From Apr 2019 to Apr 2024
TIDMSTJ
RNS Number : 9902X
St. James's Place PLC
28 February 2017
-1-
ST. JAMES'S PLACE PLC
27 St. James's Place, London SW1A 1NR
Telephone 020 7493 8111 Facsimile 020 7493 2382
PRESS RELEASE
28 February 2017
ANNOUNCEMENT OF ANNUAL RESULTS
FOR THE YEARED 31 DECEMBER 2016
STRONG GROWTH UNDERPINS 20% INCREASE IN FINAL DIVID
St. James's Place plc ("SJP"), the wealth management group, today issues its annual results for the year ended 31 December 2016:
Financial highlights
-- EEV new business profit GBP520.2 million (2015: GBP440.7 million) -- EEV operating profit GBP673.6 million (2015: GBP660.2 million) -- EEV net asset value per share 900.7p (2015: 737.3p) -- Profit before shareholder tax GBP140.6 million (2015: GBP151.3 million) -- Operating cash result (post tax) GBP226.0 million (2015: GBP195.6 million) -- Underlying cash result (post tax) GBP199.5 million (2015: GBP182.1 million)
Dividend
-- Final dividend of 20.67 pence per share (2015: 17.24 pence per share) up 20% providing a full year dividend of 33.00 pence per share (2015: 27.96 pence per share) growth of 18%
Other highlights
-- Record gross inflows of GBP11.4 billion (2015: GBP9.2 billion) -- Net inflow of funds under management of GBP6.8 billion (2015: GBP5.8 billion) -- Funds under management of GBP75.3 billion (2015: GBP58.6 billion) -- We now have 3,415 qualified advisers, up 10% for the year
-2-
David Bellamy, Chief Executive Officer, commented:
"Despite the economic and political uncertainty, challenging markets and the surprising political events, St. James's Place once again achieved strong growth across all key aspects of the business, resulting in another record year of new investments, funds under management and operating profits.
At the heart of our sustained growth is our commitment to achieving good outcomes for our clients and the importance we place on building long term relationships. That very nearly 90% of new investments come from existing clients, referrals and introductions and 99% of our clients, who responded to our recent survey, feel our proposition offers value for money, is testament to the fact that we are doing this.
At the time of our half year results, we increased the interim dividend by 15% and reaffirmed our commitment to continue to grow the dividend in line with the underlying performance of the business. Consequently, and supported by the continued strong performance of the business, the Board has proposed a final dividend of 20.67p per share, up 20%, which brings the full year dividend to 33.0p per share, growth of 18%.
Looking forward, we entered 2017 with a stronger adviser team, a more diversified investment proposition and a greater need for advice clients can rely on. We remain committed to relationship based advice and believe we are better placed than ever to serve our clients well and for the opportunities that lie ahead."
Enquiries:
Hot Features
Premium
David Bellamy, Chief Tel: 020 7514 1963
Executive Officer
Andrew Croft, Chief Tel: 020 7514 1963
Financial Officer
Tony Dunk, Investor Tel: 020 7514 1963
Relations Director
Bell Pottinger Tel: 020 7861 3917
John Sunnucks
Ben Woodford
email: Bwoodwood@BellPottinger.com
Analyst presentation at 9.15am for 9.30am at:
Bank of America Merrill Lynch Financial Centre,
2 King Edward Street,
London EC1A 1HQ
to be held in the King Edward Hall
Alternatively, if you are unable to attend but would like to watch a livestream of the presentation on the day, please click on the link below or via our website:
(Live and On-demand):
http://www.investis-live.com/st-jamess-place/5882271b8c50771000744476/znps
There will also be a Dial in:
Conference call dial in details:
United Kingdom (Local) 020 3059 8125
All other locations + 44 20 3059 8125
Participant Password: St James Place
Replay Dial-in details
United Kingdom 0121 260 4861 All other locations + 44 121 260 4861
Passcode: 5151971 followed by #
-3-
CHIEF EXECUTIVE'S REPORT
2016 was an extraordinary year when market participants, most commentators and the public were surprised by how events unfolded.
First it was the vote to leave the EU in June and then it was the outcome of the US Presidential election. Both seemed to defy the pollsters' predictions and both have impacted stock markets in a somewhat unexpected way.
If they teach us one thing (again) it's to avoid trying to predict the future!
Despite this political uncertainty St. James's Place once again achieved strong growth across all key aspects of the business. Gross inflows were 23% higher at a record GBP11.4 billion which, together with characteristically high retention of client funds, resulted in record net inflows in the twelve months of GBP6.8 billion. These net inflows, together with the strong investment returns our clients enjoyed, gave rise to 28% growth in funds under management to GBP75.3 billion.
At the heart of our sustained growth is our commitment to achieving good outcomes for our clients and the importance we place on building long term relationships and serving them well. That very nearly 90% of new investments come from existing clients, referrals and introductions and 99% of our clients, who responded to our recent survey, feel our proposition offers value for money, is testament to the fact that we are doing this.
For most people, their finances and wealth are personal and they want to be treated in a highly personalised way and by someone they trust. Indeed, we see a growing demand for sound, personal, financial planning advice as individuals begin to fully comprehend, amongst other things, the financial implication of increased life expectancy whilst being faced with increasingly complex options in respect of their pension arrangements, supporting their offspring and other family matters. The scale and quality of the Company's relationship based approach to wealth management, twinned with our distinctive investment management proposition, which has been positioned to serve this market, is doing so.
We work to offer a consistent service to our Partners, and through them to their clients who do not have the time, expertise, inclination or confidence to look after their own affairs and we recognise that, for most of them, their main priority is to keep their money safe, ensure it is invested efficiently and at the very least realise a decent return. Our portfolio approach, which gives access to a globally diversified range of assets, the holistic advice available from our Partners on everything from tax to intergenerational planning, is designed with this objective in mind.
FINANCIAL PERFORMANCE
As reported within the Chief Financial Officer's report on pages 6 to 8 the strong operating performance of the business during the year is reflected in the financial performance for the year.
As well as paying a growing dividend to shareholders we are continuing to invest in the business for the future be it the Academy, our growing operations in Asia, our new investment into Discretionary Fund Management or our back office infrastructure. Whilst these investments are consuming capital today we are very pleased with how each initiative is developing and we expect a good return for shareholders in the future.
DIVID
At the half year, we increased the interim dividend by 15% and reaffirmed our commitment to continue to grow the dividend in line with the underlying performance of the business.
Consequently, and supported by the continued strong performance of the business, the Board has proposed a final dividend of 20.67 pence per share, up 20%, which brings the full year dividend to 33.0 pence per share, up 18%.
The final dividend for 2016, subject to approval of shareholders at our AGM, will be paid on 12 May to shareholders on the register at the close of business on 7 April. As usual, a Dividend Reinvestment Plan continues to be available for shareholders.
-4-
CLIENTS
Key to our sustained success has been our core commitment to achieving the best possible outcome for our clients and ensuring that they remain well served by our long-term, face-to-face approach to wealth management. While the evolution of the UK wealth management landscape means that UK savers and investors have an array of options available to them today, we know that a highly personalised, relationship-driven model is in high demand and we are confident that this will remain so in the future.
However, we are not complacent and we regularly take the opportunity to seek feedback directly from all our clients. The most recent research, carried out in early 2017 following receipt of annual Wealth Account statements, indicates that overall client satisfaction remains very strong with 94% of clients who responded telling us that that they are either satisfied or very satisfied with the overall relationship. This sentiment is echoed by the fact that more than 97% of clients confirmed that they would recommend St. James's Place to others, indeed 56% say they have already done so. And, as I commented earlier, when asked to indicate whether they feel our proposition offers value for money, 99% of the clients who responded, said reasonable, good or excellent, with 82% in the higher categories.
We will build upon these excellent results and seek further improvements, to our standards of service and proposition, to ensure clients continue to receive high quality, face-to-face advice they can trust and demonstrable value creation for their wealth.
INVESTMENT MANAGEMENT
2016 was a year of strong growth for many major stock markets across the globe. There were two great political events that dominated much of the political and economic debate during the year - the UK's Brexit vote and election of Donald Trump as US President - but these surprise outcomes ultimately did little to dent market momentum as both the S&P 500 and FTSE 100, for example, struck new highs in late 2016.
Meanwhile, our funds performed strongly over the period, and all eight of our portfolios delivered positive returns, ranging from 5.2% for the Defensive portfolio to 20.7% for the Adventurous portfolio, net of all charges.
For much of the year, low and negative interest rates created headwinds for those seeking income, and a summer interest rate cut by the Bank of England only added to the challenge. By the end of the year, however, the tide appeared to be turning, as US yields rose following the presidential election, and the Federal Reserve used its December meeting to raise interest rates.
It was against this backdrop that we launched our new Worldwide Income fund in October. The fund aims to obtain an attractive level of income through investing largely in global equities. Equities are a proven source of long-term income, and the new fund add to the diversity of income sources we can provide our investors. The fund is managed by Clyde Rossouw of Investec Asset Management based in Cape Town, demonstrating once again the global nature of our investment manager selection process.
The political surprises of 2016 offer a reminder of the importance of diversification, whether by geography or asset class. We will continue to adapt our investment approach to ensure we are responding to the evolving investment environment. In doing so, we believe we can continue to help our clients fulfil their long-term financial goals.
THE ST. JAMES'S PLACE PARTNERSHIP
Increasing the number of Partners and advisers, whilst at the same time providing them with the tools and support to deliver high quality outcomes for clients remains one of the key drivers to achieving our long-term growth objectives.
I am therefore pleased to report that through the continued acquisition of highly established advisers, the integration of new Partners in Asia and the success of our extended Academy programme, our qualified Adviser population increased by 10% to 3,415, across the 2,378 Partner businesses. In many ways, the added momentum in growth in our qualified adviser population reflects the evolution of Partner businesses, as they seek to acquire more clients and continue to provide a high level of service to their existing clients.
As our Partner practices grow and the administration of their clients' affairs becomes increasingly complex, we will continue to look to find ways to make it easier for our Partners, advisers and their support staff to serve their clients well and build even more successful businesses. This is the driver behind our investment in our back-office development and the extension of our Academy concept to the training of specialist support staff for our existing Partners.
-5-
Alongside the Partnership we completed the acquisition of Rowan Dartington in the first half of 2016 and we have seen the number of investment executives increase by 21% from 34 to 41.
THE ST. JAMES'S PLACE FOUNDATION AND COMMUNITY ENGAGEMENT
Raising funds for those less fortunate has always been at the heart of the Group's culture, and the collective efforts of the whole of our community, including employees, Partners, suppliers and others connected to St. James's Place, resulted in total funds raised of GBP7.6 million (including company matching). This means the total amount raised to date is now over GBP54 million, benefitting the hundreds of causes it has and will continue to support and quite literally changing people's lives.
To mark our 25(th) Anniversary year and in keeping with our strong desire to further support fund-raising efforts, the Board, on behalf of shareholders, has agreed to double the matched funding. It is a special incentive for 2017 only and subject to an overall cap of GBP10 million.
In addition to these fund-raising efforts, the cultural driver of 'doing the right thing' runs through the whole organisation, underpinning all our interactions with our local and extended communities. Our continued membership of FTSE4GOOD recognises the positive nature of our work in these areas.
We take a great deal of pride in the significant contribution we make through the Foundation and other initiatives including our structured programmes for summer interns and Apprenticeships. We are also committed to maintaining our Living Wage accreditation, being one of only 20 FTSE100 companies to achieve this status.
OUR COMMUNITY
The strength and continued growth of the business is due to the hard work and dedication of our Partners, their staff, our management teams and all our employees and administration support teams.
On behalf of the Board and shareholders I thank everyone connected with St. James's Place for their contribution to these results and for their continued enthusiasm, dedication and commitment.
OUTLOOK
Looking forward, we entered 2017 with a stronger adviser team, a more diversified investment proposition and a greater need for advice clients can rely on. We remain committed to relationship based advice and believe we are better placed than ever to serve our clients well and for the opportunities that lie ahead.
David Bellamy
Chief Executive
27 February 2017
-6-
CHIEF FINANCIAL OFFICER'S REPORT
Despite the uncertainties caused by political events during the year, our business has performed strongly, with growth in all the business fundamentals.
As already covered in the Chief Executive's Report the growth in gross and net inflows, together with the investment return in our funds, gave rise to a 28% growth in our funds under management to GBP75.3 billion.
Shareholders will be aware that our financial model is to attract and retain funds under management on which we will receive an annual management fee, and consequently this strong growth in funds under management is reflected in our financial results.
At the same time we are investing in the business for the future. The increase in costs of these initiatives is also reflected in the results, but with an expectation of future returns for the business.
FINANCIAL RESULTS
As shareholders will be aware from previous periods, we report our results on both IFRS and EEV bases, as well as providing further detail on the cash emergence from the business. Detailed explanation and analysis of the results on these measures is provided in the Financial Review on pages 9 to 34.
Overall, the results reflect the underlying strong business performance over the year, but there are a number of particular factors which have also impacted the results:
(i) Our required contribution to the Financial Services Compensation Scheme (FSCS) was again at an elevated level, negatively impacting the results by GBP17.2 million pre-tax (GBP13.7 million post-tax) compared with a GBP20.1 million pre-tax (GBP15.9 million post-tax) for the prior year.
(ii) During the year we have continued to invest strongly in our future with a current year impact of GBP34.0 million pre-tax (2015: GBP17.2 million pre-tax). We are very pleased with the success of our Academy, and both the Asia operations and our new DFM offering, Rowan Dartington, are developing well.
(iii) The continuation of our back office infrastructure investment cost GBP20.9 million for the year compared with GBP18.1 million for the prior year.
(iv) As noted at the half year we have been voluntarily reviewing charges on two small cohorts of business: waiving exit charges at the minimum retirement age where they existed on some older pension contracts (written before July 1999); and reassessing risk charges on a reviewable protection contract. The combined impact of these actions is a negative one-off GBP8.2 million pre-tax in the cash and IFRS results, which rises to GBP13.6 million pre-tax in the EEV result when the reduction in future charges is also fully capitalised.
Also, at the end of the year, we have reassessed the value of the investment contract unit liability to better reflect recent experience and to match the encashment value of client investments. This reassessment reduces the liability by GBP267 million, with an offsetting increase in the Deferred Income liability in the IFRS statement of financial position. There is no impact on IFRS net assets or profit, nor will there be any impact on the emergence of profit in future years. This change better reflects our business and we believe it will simplify reporting in future. Where this change has any presentation impact on each of the reporting metrics, it is commented on in the relevant sections of the Financial Review.
IFRS Result
The IFRS profit after tax was GBP111.7 million (2015: GBP202.0 million). The principle reason for the reduction in the current year was that the prior year result was enhanced by recognition of GBP74.8 million of deferred tax asset on historic capital losses. The 2016 result is also impacted by the continuing unwind of intangible DAC/DIR/PVIF balances.
The Underlying profit before shareholder tax was GBP163.5 million (2015: GBP163.7 million) reflecting an increase in the income from funds under management, offset by the higher expenses, the cost of investment and the other items noted at the start of this statement.
-7-
The Profit before shareholder tax, which takes account of the amortisation of intangible assets and liabilities, was GBP140.6 million (2015: GBP151.3 million). As previously indicated, the amortisation of the intangible assets and liabilities will for a number of years exceed the establishment of new intangibles and be a negative to both the Profit before shareholder tax and the IFRS profit after tax results.
Cash Result (presented post tax)
The Operating cash result for the year was GBP226.0 million (2015: GBP195.6 million), growth of 16%, reflecting the increased annual management fees from the higher funds under management offset by higher expenses.
Some of this operating cash is then expensed through investment in the Academy, the Asian operations, our new DFM offering and other strategic investments. The total post tax investment during the year was GBP26.5 million (2015: GBP13.5 million) resulting in the Underlying cash result of GBP199.5 million (2015: GBP182.1 million), growth of 10%.
The Cash result was GBP175.4 million (2015: GBP171.5 million) reflecting the underlying cash result adjusted for the cost of the back office infrastructure investment and a number of one-off items detailed in the Financial Review on page 28.
The reassessment of the investment contract unit liability will change the emergence of cash in future years (detailed in the Financial Review on page 28). Had the change been implemented at the start of 2016 then the cash results noted above would have been some GBP25 million higher.
Note that the cash, operating cash and underlying cash results should not be confused with the IFRS consolidated statement of cash flows which is prepared in accordance with IAS 7 and disclosed on page 50.
EEV Result
In line with our previous guidance, we have reduced the level of EEV reporting and now only provide summarised disclosure in the Financial Review rather than full supplementary information.
The EEV new business contribution for the year was GBP520.2 million (2015: GBP440.7 million), growth of 18%. The growth was slightly lower than the new business growth (+23%) due to higher expenses associated with the strong adviser growth and a change in business mix.
The EEV operating profit for the year was GBP673.6 million (2015: GBP660.2 million) growth of 2%, however, the prior year benefitted from a significantly higher experience variance and operating assumption changes. Excluding these items in both years, together with the 2016 benefit from the inclusion of Rowan Dartington, the growth in the operating profit would have been 18%, in line with the growth in the new business contribution.
The rise in global stock markets during the second half of the year, partly arising out of the currency impact from the depreciation of sterling, has contributed to a very strong investment return for our funds. This gave rise to a positive investment variance of GBP537.2 million compared to a small negative variance of GBP24.4 million for the prior year.
Total EEV profit before tax for the period was therefore GBP1,198.4 million with the positive investment variance explaining most of the significant increase compared with GBP636.7 million for the prior year. The net asset value per share on an EEV basis at the end of the year was 900.7 pence (31 December 2015: 737.3 pence).
The EEV result is unaffected by the reassessment of the investment contract unit liability.
-8-
DIVID
At the half year we increased the interim dividend by 15% to 12.33p and re-iterated our intention to continue to grow the dividend in line with the underlying performance of the business. Given the continued strong performance of the business during the second half of 2016, the Board has recommended a final dividend of 20.67p per share, an increase of 20% which will consume GBP109 million. This will provide for a full year dividend of 33p growth of 18%.
Over the last ten years we have progressively grown the dividend, even during 2008/09, with compound growth of some 25% per annum.
CAPITAL AND SOLVENCY II
We continue to manage the balance sheet prudently to ensure the Group's solvency is maintained safely through the economic cycle. This is important not only for the safeguarding of our clients' assets, but also to ensure we can maintain returns to shareholders.
We assess our solvency against a Management solvency buffer (see page 29) and with Management free assets considerably in excess of the buffer, our solvency position remains strong. We also provide an estimate of our Solvency II free assets position, which at GBP952.2 million before the dividend (2015: GBP899.7 million), provides a solvency ratio of 147% (2015: 156%) also demonstrating the financial strength of the business.
CONCLUDING REMARKS
The business, financials and lead indicators are in very good shape. The cash emergence is expected to continue to grow as business matures from the gestation period and starts to contribute to the cash earnings.
In addition to increasing the dividend to shareholders we are continuing to invest in the business for the future.
Finally, as noted in the Chief Executive's Report, the proven strength of our business model and good momentum in our business gives us confidence in our ability to deliver continued growth in line with our objectives.
Andrew Croft
Chief Financial Officer
27 February 2017
-9-
FINANCIAL REVIEW
The Financial Model
The Group's strategy is to attract and retain retail Funds under Management (FUM) on which we receive an annual management fee for as long as the clients remain invested. This is the principal source of income for the Group out of which we meet the overheads of the business, invest in growing the Partnership and invest in acquiring new FUM.
The level of income is dependent on the level of client funds and the level of asset values. In addition, since around half of our business does not generate net income in the first six years, the level of income will increase as a result of new business from six years ago becoming cash generative. This deferral of cash generation means the business always has six years' worth of funds in the 'gestation' period. More information about our Fees on Funds under Management can be found in Section 1 on page 14.
Group expenditure is carefully managed with clear targets set for growth in establishment expenses in the year. Many other expenses increase with business levels and are met from margins in the products. The Group also invests in ensuring the quality of our proposition for clients and Partners through investment in new client services and existing IT systems. Finally, we are also looking to the future, with investment in strategic initiatives, including the Academy, Asia, DFM and our Back-office infrastructure programme. More information about our expenses can be found in Section 2 on page 16.
A small proportion of Group expenditure is required to support management of existing funds, but the majority of expenditure is investment in growing the Partnership and acquiring new funds. The resulting new business is expected to generate income for an average of 14 years, and is expected to provide a good return on the investment (see page 15).
Given the importance of FUM to profit generation by the business, we provide an analysis of the FUM make-up and development in section 1. Section 2 covers expenses, which is the other significant driver of profits, with sections 3-5 reporting on the performance of the business on the IFRS, cash and EEV result bases, and providing commentary on solvency and liquidity.
-10-
Performance Measurement
In line with statutory reporting requirements we report profits assessed on an International Financial Reporting Standards (IFRS) basis. However, given the long-term nature of the business and the high level of investment in new business generation each year, we believe the IFRS result does not provide an easy guide to the cash likely to emerge in future years, nor does it reflect the total economic value of the business. Therefore, consistent with last year, we complement IFRS reporting with additional disclosure on various alternative performance measures (APMs).
APMs are not defined by the relevant financial reporting framework (which for the Group is IFRS), but we use them to provide greater insight to the financial performance, financial position and cash flows of the Group and the way it is managed. Summary information about the key APMs used in our Financial Review is provided in the following table.
APM Definition Why is this measure Reconciliation
used? to the financial
statements
------------ ------------------------------ -------------------------- ------------------
Solvency Based on IFRS Net Our ability to Refer to page
II net Assets, but with satisfy our liabilities 23.
assets the following adjustments: to clients, and
consequently our
solvency, is central
1. Reflection of to our business.
the recognition requirements By removing the
of the Solvency II liabilities which
regulations for assets are fully matched
and liabilities. by assets, this
In particular this presentation allows
removes, DAC, DIR, the reader to focus
PVIF, other intangibles on the business
and some other small operation. It also
items which are treated provides a simpler
as inadmissible from comparison with
a regulatory perspective; other wealth management
and companies.
2. Adjustment to
remove the matching
client assets and
the liabilities as
these do not represent
shareholder assets.
No adjustment is
made to deferred
tax as this is treated
as an allowable asset
in the Solvency II
regulation.
------------ ------------------------------ -------------------------- ------------------
Cash The Cash result is IFRS methodology Refer to page
result, defined as the movement recognises non-cash 18 and also
Underlying between the opening items such as deferred see Note 4
cash and closing Solvency tax and share options. - Segment
result II net assets adjusted By contrast, dividends Profit
and for the following can only be paid
Operating items: to shareholders
cash from appropriately
result fungible assets.
1. The movement in The Board therefore
deferred tax is removed uses the cash results
to reflect just the to monitor the
cash realisation level of cash generated
from the deferred by the business.
tax position;
While the Cash
2. The movements result gives an
in goodwill and other absolute measure
intangibles are included; of the cash generated
and in the year, the
Underlying and
3. Other changes Operating cash
in equity, such as results are particularly
dividends paid in useful for monitoring
the year and share the expected long
option costs, are term rate of cash
excluded. emergence, which
is particularly
The Operating cash useful in considering
result reflects the the supportability
regular emergence of dividends and
of cash from the sustainable dividend
business operations. growth.
The Underlying cash
result additionally
reflects the cash
impact of the strategic
investments we are
making.
Finally the Cash
result reflects all
other cash items,
including those whose
emergence is volatile,
varying over time,
and often influenced
by market movements,
together with the
short term costs
associated with the
back-office infrastructure
project.
Neither the cash
result nor the underlying
cash result should
be confused with
the IFRS consolidated
statement of cash
flows which is prepared
in accordance with
IAS 7.
------------ ------------------------------ -------------------------- ------------------
-11-
APM Definition Why is this measure Reconciliation
used? to the financial
statements
------------- ------------------------------- ------------------------------ ------------------
Policyholder Shareholder tax is The UK tax regime Disclosed
and estimated by making facilitates the as separate
Shareholder an assessment of collection of tax line items
tax the effective rate from life insurance in the statement
of tax that is applicable policyholders by of comprehensive
to the shareholders making an equivalent income on
on the profits attributable charge within the page 47.
to shareholders. corporate tax of
This is calculated the Company. The
by applying the appropriate total tax charge
effective corporate for the insurance
tax rates to the companies therefore
shareholder profits. comprises both
this element and
In effect, the shareholder an element more
tax is assessed by closely related
calculating the expected to normal corporation
level of shareholder tax.
tax implied by the
post-tax result, Life insurance
but with explicit business impacted
adjustment in the by this tax typically
calculation for any includes policy
significant one-off charges which align
tax adjustments. with the tax liability,
to mitigate the
The remainder of impact on the corporate.
the tax charge represents As a result when
tax on policyholder's policyholder tax
investment returns. increases, the
charges also increase.
This calculation Given these offsetting
method is consistent items can be large,
with the legislation and typically don't
relating to the calculation perform in line
of tax on shareholder with the business,
profits. it is beneficial
to be able to identify
the two elements
separately. We
therefore refer
to that part of
the overall tax
charge, which is
deemed attributable
to policyholders,
as policyholder
tax, and the rest
as shareholder
tax.
------------- ------------------------------- ------------------------------ ------------------
Profit A profit measure The IFRS methodology Disclosed
before which reflects the requires that the as a separate
shareholder IFRS result adjusted tax recognised line item
tax for policyholder in the financial in the statement
tax, but before deduction statements should of comprehensive
of shareholder tax. include the tax income on
Within the consolidated incurred on behalf page 47.
statement of comprehensive of policyholders
income the full title in our UK life
of this measure is assurance company.
"Profit before tax Since the policyholder
attributable to shareholders' tax charge is unrelated
returns". to the performance
of the business,
we believe it is
useful to separately
identify the profit
before shareholder
tax, which reflects
the IFRS profit
before tax, adjusted
for tax paid on
behalf of policyholders.
------------- ------------------------------- ------------------------------ ------------------
Underlying A profit measure The IFRS methodology Refer to page
profit which reflects the promotes recognition 18.
IFRS result adjusted of profits in line
to remove the DAC, with the provision
DIR and PVIF adjustments. of services and
so, for long-term
business, some
of the initial
cash flows are
spread over the
life of the contract
through the use
of intangible assets
and liabilities
(known as DAC -
Deferred Acquisition
Costs and DIR -
Deferred Income).
Due to the retail
distribution review
(RDR) regulation
change in 2013,
there was a step
change in the progression
of these items
in our financial
statements, which
resulted in significant
accounting presentation
changes despite
the fundamentals
of our vertically-integrated
business remaining
unchanged. We therefore
believe it is useful
to consider the
IFRS result having
removed the impact
of movements in
these intangibles
as it better reflects
the underlying
performance of
the business.
------------- ------------------------------- ------------------------------ ------------------
-12-
APM Definition Why is this measure Reconciliation
used? to the financial
statements
----------- ---------------------------- ------------------------- ------------------
EEV A discounted cashflow Both the IFRS and See Note 4
operating valuation methodology, cash results reflect - Segment
profit assessing the long-term only the cashflows Profit
economic value of in the year. However,
the business. our business is
long-term, and
Our embedded value activity in the
is determined in year can generate
line with the EEV business with a
principles, originally long-term value.
set out by the Chief We therefore believe
Financial Officers it is helpful to
(CFO) Forum in 2004, understand the
and amended for subsequent full economic impact
changes to the principles, of activity in
including those published the year, which
in April 2016, following is the aim of the
the implementation EEV methodology.
of Solvency II.
Within the EEV,
The EEV operating many of the future
profit reflects the cash flows derive
total EEV result from fund charges,
with an adjustment which change with
to strip out the movements in stock
impact of stockmarket markets. Since
and other economic the impact of these
effects during the changes is typically
year. unrelated to the
performance of
the business, we
believe that the
EEV operating profit
(reflecting the
EEV profit, adjusted
to reflect only
the expected investment
performance and
no change in economic
basis) provides
the most useful
measure of embedded
value performance
in the year.
----------- ---------------------------- ------------------------- ------------------
-13-
SECTION 1: FUNDS UNDER MANAGEMENT
This section starts with analysis of the movement in the funds under management of the Group. This is followed by information about the income the Group earns from managing these funds, together with the profile of these earnings, and finally a geographical and segmental analysis of the funds under management.
Movement in funds under management
During 2016 we have seen gross new funds of GBP11.35 billion (2015: GBP9.24 billion), growth of 23% and a net inflow of funds under management of GBP6.78 billion (2015: GBP5.78 billion), growth of 17%. The investment return contributed GBP8.7 billion (2015: GBP0.8 billion contribution) to funds under management during the year with this contribution reflecting both the higher stock markets but also the positive impact of the deprecation of Sterling on the overseas assets. Given the strong net inflow, and the positive investment performance, funds under management increased to GBP75.31 billion (2015: GBP58.61 billion).
Analysis of the development of the funds under management is provided in the following tables:
Year Ended 31 December UT/ISA
2016 Investment Pension & DFM Total
------------ ------------ ------------ ------------
GBP'Billion GBP'Billion GBP'Billion GBP'Billion
Opening funds under
management 22.52 20.86 15.23 58.61
Rowan Dartington acquisition - - 1.26 1.26
Gross inflows 2.28 5.12 3.95 11.35
Net investment return 2.12 4.40 2.19 8.71
Regular income withdrawals
and maturities 1 (0.52) (0.84) (0.11) (1.47)
Surrenders and part
surrenders 2 (0.90) (0.91) (1.29) (3.10)
Rowan Dartington -
Ardan International
disposal - - (0.05) (0.05)
------------ ------------ ------------ ------------
Closing funds under
management 25.50 28.63 21.18 75.31
------------ ------------ ------------ ------------
Net inflows 0.86 3.37 2.55 6.78
------------ ------------ ------------ ------------
Implied surrender
rate as a percentage
of average funds under
management 3.7% 3.7% 6.8% 4.6%
------------ ------------ ------------ ------------
Included within "UT/ISA & DFM" are gross inflows of GBP0.42 billion and outflows of GBP0.16 billion relating to Rowan Dartington. Also included is the GBP0.05 billion reduction in funds under management relating to the disposal of Rowan Dartington's non-core international platform business, Ardan International, in December 2016.
A further GBP466 million of investments is managed in third party funds within our Asia business.
Year Ended 31 December
2015 Investment Pension UT/ISA Total
------------ ------------ ------------ ------------
GBP'Billion GBP'Billion GBP'Billion GBP'Billion
Opening funds under
management 21.14 18.08 12.79 52.01
Gross inflows 2.45 3.66 3.13 9.24
Net investment return 0.19 0.38 0.25 0.82
Regular income withdrawals
and maturities 1 (0.48) (0.62) - (1.10)
Surrenders and part
surrenders 2 (0.78) (0.64) (0.94) (2.36)
------------ ------------ ------------ ------------
Closing funds under
management 22.52 20.86 15.23 58.61
------------ ------------ ------------ ------------
Net inflows 1.19 2.40 2.19 5.78
------------ ------------ ------------ ------------
Implied surrender
rate as a percentage
of average funds under
management 3.6% 3.3% 6.7% 4.3%
------------ ------------ ------------ ------------
A further GBP430 million of investments is managed in third party funds within our Asia business.
-14-
Notes
1. Regular income withdrawals are those amounts, pre-selected by clients, which are paid out by way of periodic income. Maturities are those sums paid out where the plan has reached the intended, pre-selected, maturity event (e.g. retirement).
2. Surrenders and part surrenders are those amounts where clients have chosen to withdraw money from their plan which were not pre-selected regular income withdrawals or maturities.
Fees on funds under management
As noted at the start of this Financial Review, our financial model is to attract and retain retail funds under management (FUM) on which we receive an annual management fee.
The net annual management fee retained by the Group is c.0.77% post tax. However, due to our product structure, investment and pension business does not generate net cash in the first six years. Consequently, the level of income we are receiving today is not fully representative of the expected earnings from the funds we are managing, and these earnings will increase as a result of the new business from six years ago becoming cash generative. This deferral of cash generation means there is always six years' worth of business in the 'gestation' period.
The table below provides an estimated current value of the funds under management in the gestation period.
31 December 31 December
2016 2015
Year Total Total
GBP'Billion GBP'Billion
2010 - 2.0
2011 2.4 2.4
2012 2.9 2.7
2013 4.0 3.7
2014 4.4 3.9
2015 5.3 4.5
2016 6.1 -
------------ ------------
Total 25.1 19.2
------------ ------------
This GBP25.1 billion of funds under management in the gestation period represents approximately a third of the total funds under management which, if all the business reached the end of the gestation period, would contribute some GBP195 million to the annual post-tax cash result.
-15-
The Business Case for new Funds Under Management
The Group incurs costs associated with attracting new funds. We believe it is useful to provide details of the economic return we expect will be generated from the new business; in other words, the business case for the investment in attracting new clients and funds under management.
As detailed later in this review on page 26, a net cost of GBP106.7 million (2015: GBP84.2 million) has been incurred to attract the GBP11.35 billion of gross new funds (2015: GBP9.24 billion).
We regard this as an investment in new business which we expect to generate income in the future significantly exceeding this cost and therefore provide positive returns for shareholders. The table below provides details of the new business added during the reporting periods and different measures of valuing the investment:
Year Ended Year Ended
31 December 31 December
2016 2015
Gross inflows (GBP'Billion) 11.35 9.24
Post-tax investment in
new business (GBP'Million)
- Operating costs (80.2) (70.7)
- Investment costs (26.5) (13.5)
- Total costs (106.7) (84.2)
Post-tax present value
of expected profit from
investment (GBP'Million) 427.8 358.9
Cost of new business (%
of new money invested)* 1.0% 0.9%
New business margin (%
of new money invested) 4.6% 4.8%
Cash payback period (years) 5 5
Internal rate of return
(net of tax) 21.7% 22.1%
* The investment as a percentage of net inflow of funds under management was 1.6% compared with 1.5% for 2015.
Geographical and segmental analysis
The table below provides a geographical and segmental analysis of funds under management at the end of each year.
31 December 31 December
2016 2015
--------------------- ---------------------
GBP'Billion % of GBP'Billion % of
total total
North American Equities 17.5 23% 13.1 22%
UK Equities 17.3 23% 15.6 27%
Fixed Interest 12.8 17% 8.8 15%
European Equities 8.2 11% 6.2 11%
Asia and Pacific Equities 6.2 8% 4.9 8%
Cash 6.0 8% 4.6 8%
Property 2.4 3% 2.2 4%
Alternative Investments 1.9 3% 1.3 2%
Other 3.0 4% 1.9 3%
------------ ------- ------------ -------
Total 75.3 100% 58.6 100%
------------ ------- ------------ -------
-16-
SECTION 2: EXPENSES
Management Expenses
The table below provides a breakdown of the management expenditure (before tax):
Year Ended Year Ended
31 December 31 December
Note 2016 2015
------- ------------- -------------
GBP'Million GBP'Million
Establishment costs 1 160.7 139.4
Other performance
related costs 2 104.0 94.3
Operational development
costs 3 17.0 17.3
Strategic development
costs 4 6.6 1.9
Academy costs 5 7.2 5.5
Asia costs 6 13.8 7.9
DFM costs 7 12.9 1.6
Back-office infrastructure
development 8 20.9 18.1
Regulatory fees 9 8.3 7.5
FSCS levy 9 17.2 20.1
------------- -------------
368.6 313.6
------------- -------------
Notes
1. Establishment costs are the running costs of the Group's infrastructure and are relatively fixed in nature in the short term, although they are subject to inflationary increases. These costs will increase as the infrastructure expands to manage the higher number of existing clients, the growing number of advisers and increasing business volumes.
The growth in the establishment expenses during the year was higher than our targeted growth due to the very strong new business result together with above target growth in new advisers, a primary driver to the infrastructure costs.
We expect the growth in the establishment costs for 2017 to be more in line with our medium term business targets.
2. Other performance related costs, for both Partners and employees, vary with the level of new business and operating profit performance of the business.
3. Operational development costs represent business as usual expenditure to support the business, such as the on-going development of our investment proposition and our technology, including focus on cyber security.
We expect costs in 2017 to be at a similar level.
4. As a growth business we are constantly looking to new opportunities and expect to incur a small level of ongoing expense associated with pursuing other strategic developments.
We will continue to explore opportunities and undertake appropriate initiatives.
5. The Academy is an important strategic investment for the future and we are continuing to grow our investment in this programme. Costs have increased in recent years as we have increased the number of students within the programme and launched more regional academies.
Our investment in the academy will continue in 2017 with expected costs of some GBP8.0 million.
-17-
6. Our expansion into Asia through operations in Singapore, Hong Kong and Shanghai is intended to provide diversification of our growth model through exporting our successful wealth management proposition to new markets, starting with the UK ex-pat market. Costs reflect both the ongoing operational costs, but also the development costs associated with growing these businesses to achieve sustainable scale. We have also seen these costs increase due to the depreciation of Sterling.
Our investment will continue in 2017 and we expect this investment cost to increase by GBP3-4 million.
7. Completion of the purchase of Rowan Dartington in March 2016 facilitated a new DFM operation within the SJP proposition. We expect this business will grow quickly, requiring investment to support these ambitions.
8. Our back-office infrastructure programme is a multi-year initiative to upgrade our administration so it can support our future business goals. Having achieved the migration of our ISA and Unit Trust proposition to our new Bluedoor system in 2015, the focus in 2016 has been the launch of a new retirement account with the eventual aim being to migrate pension and drawdown business onto the new system. The costs in 2017 will be at a similar level to 2016.
9. The costs of operating in a regulated sector include fees charged by the regulators and our contribution to the Financial Services Compensation Scheme. Our position as a market-leading provider of advice, means we make a very substantial contribution to supporting the industry compensation scheme, the FSCS, thereby providing protection for clients of other sector businesses that fail. In the last couple of years, the levy has been at an elevated level and we remain hopeful that it will return to a more normalised level in future, albeit we now expect a third year of an elevated contribution in the 2017/18 funding year. The FSCS levy is met by our various regulated companies and is split GBP16.5 million (2015: GBP19.8 million) via the Distribution business and GBP0.7 million (2015: GBP0.3 million) via the Life and Unit Trust regulated business.
Group Expenses
The table below provides a reconciliation from the management expenses above to the total Group expenses included in the Consolidated Statement of Comprehensive Income on page 47.
Year Ended Year Ended
Note 31 December 31 December
2016 2015
------- ------------- -------------
GBP'Million GBP'Million
Expenses per table above 368.6 313.6
Payments to Partners 10 599.7 518.5
10,
Investment expenses 11 67.9 143.5
10,
Third party administration 12 74.2 56.6
Acquired IFA operating
costs 3.1 3.0
Amortisation and revaluation
of DAC and PVIF 63.4 76.0
Share option costs 23.9 15.7
Share option NI 1.9 3.4
Interest expense and
bank charges 6.2 6.0
Charitable donations 3.4 3.5
Other 12.8 10.3
------------- -------------
856.5 836.5
Total expenses 1,225.1 1,150.1
------------- -------------
Notes
10. These costs are met from corresponding margins and any variation in them from changes in the volumes of new business or the level of the stock markets does not directly impact the profitability of the Group.
-18-
11. As noted in the 2015 Annual Report & Accounts, in preparation for migration of business to the Bluedoor platform, we restructured our funds so that Investment expenses of all unit trusts are charged directly to the trust rather than some being settled by the manager or life company. As a result, the Investment expenses for most funds are no longer consolidated in the financial statements, but neither is the equal and offsetting fee, resulting in a neutral profit impact overall (and a neutral impact on clients).
12. Also as noted in the 2015 Annual Report & Accounts, as a result of the migration of business to a new back office platform, a new administration tariff with our outsourced provider now applies to business transacted. Consequently, some administration costs which were previously charged to the trusts are now being treated as expenses, with a corresponding offsetting increase in fee income; again resulting in a neutral impact overall. As a result, the Third Party Administration costs reported in 2016 increased by c.10% in addition to the growth in business.
SECTION 3: INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)
As noted at the start of this review, two key measures based on IFRS are Profit before shareholder tax, which removes the impact of policyholder tax, and Underlying profit result, which removes the impact of changes in certain intangibles (DAC/DIR/PVIF). Of these two we believe Underlying profit provides the more useful measure, based on IFRS, for assessing operating performance.
As noted in the Chief Financial Officer's report, the results reflect the underlying strong business performance, but also a number of other drivers most notably including the FSCS levy and the continued investment in our business (not least our back-office infrastructure, the Academy and recent acquisitions).
2016 2015
Before After Before After
shareholder tax shareholder tax
tax tax
------------- ------------- ------------- ---------
GBP' Million GBP' Million GBP' Million GBP'
Million
Underlying cash 221.3 199.5 197.0 182.1
Share options (23.9) (23.9) (15.7) (15.0)
Deferred tax impacts - (21.1) - 52.1
Insurance reserves (1.6) (1.6) (1.8) (1.8)
Back office infrastructure (20.9) (16.7) (18.1) (14.4)
Variance (11.4) (7.7) 2.3 3.8
------------- ------------- ------------- ---------
Underlying profit 163.5 128.5 163.7 206.8
DAC/DIR/PVIF (22.9) (16.8) (12.4) (4.8)
IFRS profit 140.6 111.7 151.3 202.0
------------- ------------- ------------- ---------
Year Ended Year Ended
31 December 31 December
2016 2015
------------- -------------
Pence Pence
IFRS basic earnings
per share 21.5 38.9
IFRS diluted earnings
per share 21.3 38.5
Underlying cash basic
earnings per share 38.2 34.6
------------- -------------
Underlying cash diluted
earnings per share 37.9 34.2
------------- -------------
-19-
Underlying Profit before Shareholder tax
The result for the year was GBP163.5 million, in line with the result of GBP163.7 million in 2015. A breakdown by segment is provided in the following table:
Year Ended Year Ended
31 December 31 December
2016 2015
------------- -------------
GBP' Million GBP' Million
Life business 165.8 174.2
Unit Trust and DFM
business 92.3 70.7
------------- -------------
Funds management business 258.1 244.9
Distribution business (25.9) (21.2)
Back office infrastructure
development (20.9) (18.1)
Other (47.8) (41.9)
------------- -------------
Underlying profit before
shareholder tax 163.5 163.7
------------- -------------
Funds management
The profit for the year to 31 December 2016 was GBP258.1 million (2015: GBP244.9 million), which was 5% higher than the prior year. Higher income from funds under management was partially offset by higher expenses and some one-off costs from reviewing charges in two small cohorts of legacy business. The investment in the infrastructure of Rowan Dartington for future growth reduced profit by GBP5.1 million. Finally, a reallocation of expenses between Life and Unit Trust business has impacted the respective results of each business.
Distribution business
St. James's Place is a vertically integrated firm, allowing it to benefit from the synergies of combining funds management with distribution. Therefore, as well as the income generated on the funds under management, there is a further margin from the distribution activity, which depends principally on the levels of new business, expenses and investment.
The 2016 result has been negatively impacted by a continued, albeit slightly reduced year on year, high contribution to the FSCS, which for the year was GBP16.5 million (2015: GBP19.8 million). The Asian business also made a loss in the year of GBP13.2 million (2015: GBP7.0 million) reflecting the corporate investment in securing this business. After adjusting for these costs in both years, there was a trading profit of GBP3.8 million in the current year which was similar to the trading profit of GBP5.6 million in 2015.
Back office development
As noted on page 16 our investment in our back office development project (known as Bluedoor) during the year was GBP20.9 million (2015: GBP18.1 million).
Other
Other operations made a negative contribution of GBP47.8 million (2015: negative contribution of GBP41.9 million). The largest contributors to the result were the costs of share options and the impact of strategic investment (other than the back office development identified separately above).
The higher share option cost of GBP23.9 million in the current year (2015: GBP15.7 million) principally reflected a full year expense of the new Partner share scheme which was launched in the second half of 2015. Additionally, National Insurance associated with share options cost GBP1.9 million in the year (2015: GBP3.4 million).
In 2016 investment in RD and Asia which have been allocated above, but other strategic development costs, including the Academy, were GBP15.7 million compared to GBP10.2 million in 2015 (see Section 2 on page 16 for more detail on the associated expenses).
-20-
Finally, our matching grant and other contributions to the work of the Foundation totalled GBP3.7 million in 2016 (2015: GBP3.8 million).
DAC, DIR and PVIF
The net movement in the DAC, DIR and PVIF intangibles has a negative contribution to profit as summarised in the table below. Additional analysis is included in Note 8 on page 62.
Year Ended Year Ended
31 December 2016 31 December 2015
Before After Before After
shareholder tax shareholder tax
tax tax
GBP'Million GBP'Million GBP'Million GBP'Million
Amortisation (4.5) (3.4) 12.4 9.9
Tax rate change - 2.1 - 5.9
Arising on new
business (18.4) (15.5) (24.8) (20.6)
Movement in
year (22.9) (16.8) (12.4) (4.8)
------------- ------------ ------------- ------------
The net impact of amortisation of the accumulated balances of DAC and PVIF assets, and DIR liability, has, as expected, reduced again during the period, turning negative compared with the prior year.
The amortisation pattern of DAC and DIR is different, with the DAC balance amortising steadily over 14 years while a substantial proportion of the DIR balance will amortise over 6 years. Historically this has resulted in faster deferred income recognition than acquisition expense accrual, and a positive impact overall from amortisation.
However, since the implementation of RDR in 2013 the level of new DAC and DIR has reduced significantly and the large historic balances have been unwinding down towards the new normal. The faster amortisation of DIR means that its trend towards a new lower rate has been quicker, causing the net amortisation level to reduce and ultimately turn negative, which developing effect can also be seen in Note 8.
Previous guidance stated this reducing trend would continue until the pre-RDR DIR balance had unwound (over 6 years, say 2020), at which point the net amortisation level would stabilise before starting to increase back towards a new long-term level as the pre-RDR DAC balance unwinds (by 14 years, say 2028). However, the reassessment of GBP267 million of investment contract liability at the end of 2016 has re-established a significant DIR balance, which will amortise over the next 6 years. We therefore expect a change in the overall amortisation in 2017 to a positive GBP30-35 million before shareholder tax. The equivalent in 2016 would have been c.GBP50 million before shareholder tax and c.GBP40 million after tax, which reflect an increase of c.GBP55 million before shareholder tax and c.GBP45 million after tax. (For clarity, there is no change in expected pattern of DAC amortisation.)
At the same time, the revised assessment of investment contact liability results in a change in the income deferred from future new business. If the revised approach was applied to business in 2016 the impact would have been an increase in new DIR of c.GBP90 million (c.GBP70 million after tax), taking the total negative impact from new business to around GBP110 million before shareholder tax and c.GBP90 million after tax. In future years we would expect this negative contribution to move in line with new business growth albeit reflecting business mix impacts.
Overall, and since our business has been growing, we expect that the negative impact of deferring more income from new business will exceed the positive impact of amortising the historic balances, meaning the DAC/DIR/PVIF adjustment will be more negative in future. But of course this will simply offset the equal and opposite positive impact we are expecting in the Cash result (see page 25).
Tax rate changes in both years impacted the post-tax movements.
-21-
Finally, it is important to note the intangible and deferred nature of these items, meaning that they do not reflect the operating performance of the business. This is why we believe the Underlying profit measure, which is adjusted from IFRS to remove these impacts, provides a useful measure of operating performance.
Shareholder Tax
The actual tax rate in each of the periods may be impacted by significant one-off items and events such as a change in corporation tax rate. The table below provides a high level analysis of shareholder tax, and a more detailed analysis is included in Note 7.
Year Ended Year Ended
31 December 31 December
2016 2015
------------- -------------
GBP' Million GBP' Million
Expected shareholder
tax (27.2) (29.2)
Recognition of capital
losses 2.2 74.8
Other tax adjustments (2.6) 0.6
Corporation tax rate
change (1.3) 4.5
Actual shareholder
tax (28.9) 50.7
------------- -------------
Expected shareholder
tax rate 19.3% 19.3%
Actual shareholder
tax rate 20.6% (33.5%)
------------- -------------
The expected shareholder tax principally reflects the current UK corporation tax and overseas rates applicable and will vary from year to year depending upon the emergence of profit between the different tax regimes which apply to the St. James's Place Group companies.
There has been a small reassessment in the recognition of capital losses adding GBP2.2 million to profit (negative tax impact) in the year (2015: GBP74.8 million negative tax impact, positive profit) and the combined impact of a number of other small tax adjustments was a GBP2.6 million negative impact on profit, or increase to tax (2015: GBP0.6 million negative impact on tax, positive on profit).
The reduction in the rate of corporation tax to 17% from 1 April 2020 was enacted in the Finance Act 2016. The impact of this reduction on the net deferred tax assets and liabilities results in a negative impact of GBP1.3 million due to the level of deferred tax assets being greater than the level of deferred tax liabilities (2015: GBP4.5 million positive impact).
The overall impact of these effects was to increase the tax charge on an IFRS basis to GBP28.9 million (2015: negative impact on tax of GBP50.7 million).
-22-
IFRS profit
Analysis of the IFRS profit before tax, Profit before shareholder tax and IFRS profit after tax is presented in the table below, which also shows the impact of the tax incurred on behalf of policyholders:
Year Ended Year Ended
31 December 31 December
2016 2015
------------- -------------
GBP' Million GBP' Million
IFRS profit before
tax 486.3 174.1
Policyholder tax (345.7) (22.8)
Profit before shareholder
tax 140.6 151.3
Shareholder tax (28.9) 50.7
------------- -------------
IFRS profit after tax 111.7 202.0
------------- -------------
The Profit before shareholder tax for the year was GBP140.6 million (31 December 2015: GBP151.3 million). The impact of the increasingly negative contribution from the net movement in DAC/DIR/PVIF intangibles was a major contributor to the lower Profit before shareholder tax result in the current period.
The IFRS profit after tax result similarly reflected the impact of the negative net movement in DAC/DIR/PVIF in the current period, but the prior period result also benefitted significantly from recognition of GBP74.8 million of capital losses. These two factors more than reversed the underlying growth in the business and resulted in a significant reduction in profit between the years.
By contrast the IFRS profit before tax increased significantly to GBP486.3 million (31 December 2015: GBP174.1 million). This significant increase reflects the underlying positive investment performance in client policies, which generates higher policy charges intended to meet the Policyholder tax element of the corporate tax charge (as described in the definition of Policyholder tax provided on page 11). In practice, the very substantial increase in IFRS profit before tax is offset by the equivalent increase in Policyholder tax, and it is the Profit before shareholder tax which provides a better indication of the underlying performance of the business.
Analysis of IFRS Assets and Net Assets per Share
The table below provides a summarised breakdown of the IFRS position at the reporting dates:
Year Ended Year Ended
31 December 31 December
2016 2015
------------- -------------
GBP' Million GBP' Million
Purchased value of
in-force* 25.0 27.4
Deferred acquisition
costs* 587.0 627.2
Deferred income* (607.9) (368.3)
Other IFRS net assets 1.5 7.7
Solvency II net assets 1,070.0 801.1
------------- -------------
Total IFRS net assets 1,075.6 1,095.1
------------- -------------
* net of deferred tax
Year Ended Year Ended
31 December 31 December
2016 2015
------------- -------------
Pence Pence
Net asset value per
share 203.9 208.7
------------- -------------
-23-
SECTION 4: SOLVENCY, LIQUIDITY AND CASH RESULTS
This section brings together our reporting on the Solvency II net assets and liquidity, together with our reporting of the Cash results and solvency.
Solvency II Net Assets
In addition to presenting an IFRS statement of financial position (on page 49), we believe it is beneficial to provide a balance sheet reflecting our approach to managing solvency. Solvency II net assets are based on the IFRS statement of financial position, but with adjustments made to accounting assets and liabilities to reflect the Solvency II regulations. In addition provision for insurance liabilities is set equal to the associated unit liabilities. The following table sets out the adjustments to move from IFRS to Solvency II net assets.
Solvency
II Net
IFRS Assets
Balance Adjustment Adjustment Balance
31 December 2016 Sheet 1 2 Sheet 2015
------------ ------------ ------------ ------------ ------------
GBP'Million GBP'Million GBP'Million GBP'Million GBP'Million
Assets
Goodwill 13.8 - (13.8) - -
Deferred acquisition
costs 684.8 - (684.8) - -
Acquired value of
in force business 30.4 - (30.4) - -
Developments 3.0 - (3.0) - -
Property and equipment 23.1 - - 23.1 8.0
Investment property 1,462.4 (1,462.4) - - -
Equities 46,598.7 (46,598.7) - - -
Fixed income securities 12,445.5 (12,397.8) - 47.7 83.1
Investment in Collective
Investment Schemes 3,864.8 (2,997.4) - 867.4 531.0
Derivative financial
instruments 729.1 (729.1) - - -
Reinsurance assets 80.5 (80.5) - -
Cash and cash equivalents 7,413.1 (7,067.2) 345.9 233.5
Other receivables 1,473.0 (187.2) (63.0) 1,222.8 500.1
Deferred tax assets 199.9 - (42.2) 157.7 179.2
Total assets 75,022.1 (71,439.8) (917.7) 2,664.6 1,534.9
Liabilities
Insurance contracts
liabilities 518.2 (435.3) (82.9) - -
Borrowings 281.4 - - 281.4 181.8
Investment contract
benefits 53,307.1 (53,307.1) - - -
Derivative financial
instruments 281.9 (281.9) - - -
Net asset value attributable
to unit holders 17,032.0 (17,032.0) - - -
Other provisions 17.1 - - 17.1 15.4
Other payables 1,173.6 (383.5) (1.1) 789.0 300.7
Income tax liabilities 72.7 - - 72.7 29.6
Deferred tax liabilities 614.8 - (180.5) 434.3 206.2
Deferred income 647.6 - (647.6) - -
Preference shares 0.1 - - 0.1 0.1
------------ ------------ ------------ ------------ ------------
Total liabilities 73,946.5 (71,439.8) (912.1) 1,594.6 733.8
Net Assets 1,075.6 - (5.6) 1,070.0 801.1
------------ ------------ ------------ ------------ ------------
Adjustments:
1. Nets out the policyholder interest in unit-linked assets and liabilities.
2. Adjustments to the IFRS statement of financial position in line with Solvency II requirements, including removal of DAC, DIR, PVIF, deferred tax, goodwill and other intangibles.
-24-
Liquidity
Included in the previous table are holdings in Fixed Interest Securities, Collective Investment Schemes and other cash and cash equivalents. It is our policy is always to hold such assets in high credit quality liquid assets. An analysis of these holdings is provided below:
Holding Name GBP'Million GBP'Million
Fixed Interest Securities
1% UK Treasury 07/09/2017 42.3
1.75% UK Treasury 22/01/2017 0.6
1.375% Singapore Government Bonds
01/10/2017 4.8 47.7
------------
Collective Investment Schemes
(AAA rated money market funds)
Aberdeen 54.3
BlackRock 178.0
Goldman Sachs 154.4
HSBC 28.6
Insight 153.3
JP Morgan 151.0
Legal & General 147.8 867.4
Cash and cash equivalents (bank
balances)
Bank of Scotland 31.8
Barclays 93.5
HSBC 55.8
Lloyds TSB 47.0
Metro 23.0
NatWest 37.9
Santander 35.1
Others 21.8 345.9
------------
Total 1,261.0
------------
In the normal course of business, the Company is expected to generate regular, positive cashflow from annual management income exceeding expenses. As noted previously, future growth in cashflow is driven by new business, but in the short term growth will reflect the transition as new business from six years ago becomes cash generative.
The key calls on liquidity will be investment to support the business and payment of the Group dividend. As noted previously, our policy is to increase the dividend in line with the underlying performance of the business. We believe this will also enable us to continue to invest in the business to support our growth aspirations.
-25-
Movement in Solvency II Net Assets
The table below details the movement in the Solvency II net assets over the year which after adjusting for changes in non-cash items such as deferred tax assets, goodwill and intangibles, as well as changes in equity such as dividends paid in the year (see also page 48 - consolidated statement of changes in equity) provides the net cash result for the period.
Year Ended Year Ended
31 December 31 December
2016 2015*
------------- -------------
GBP'Million GBP'Million
Opening Solvency II Net
Assets 801.1 708.7
Dividend paid in period (155.2) (130.8)
Issue of share capital
and exercise of options 6.6 11.8
Consideration paid for
own shares (5.5) (12.8)
Movement in other reserves 0.2 -
Change in deferred tax (17.2) 52.7
Change in goodwill and (2.4) -
intangibles
Unit liability reassessment 267.0 -
Cash result 175.4 171.5
------------- -------------
Closing Solvency II Net
Assets 1,070.0 801.1
------------- -------------
* The Solvency II net assets disclosed at 31 December 2015 were adjusted for submission to the regulator.
The closing Solvency II Net Assets reflects an increase of GBP267 million as a result of unit liability reassessment (impacting Adjustment 2 in the table on page 23). This increase in net assets does not reflect a change in the underlying business and so, when considering solvency, management offsets the positive increase in Solvency II Net Assets by increasing the capital requirement (the Management Solvency Buffer) by a similar amount (see also page 29).
Cash results
As noted above, the change in the Solvency II Net Assets, after adjusting for changes in non-cash items such as deferred tax assets, goodwill and intangibles, as well as changes in equity such as dividends paid in the year (see also page 48 - consolidated statement of changes in equity) provides the Cash result for the period. The Cash result provides an alternative view of the cash generation of the Group during a reporting period. The Cash result should not be confused with the IFRS consolidated statement of cash flows which is prepared in accordance with IAS 7 and disclosed on page 50.
The following tables show: an Operating cash result, reflecting the regular emergence of cash from the business operations; and an Underlying cash result which additionally reflects the cash impact of our strategic investments. The reconciliation of the Underlying cash result to the Underlying profit measure is presented on page 18.
There are also some cash items whose emergence is volatile, varying over time, and which are influenced by market movements. These impacts, together with the short term costs associated with the back office infrastructure project are shown after the Underlying cash result.
The Cash results are presented after tax and can be analysed as a combination of the cash emerging from the business in force at the start of the year, less the investment made to acquire new business during the year. The following tables and commentary provide an indicative analysis of the Cash result into these two elements.
The Cash results are the principal measures the Board considers when determining the dividend payment to shareholders.
-26-
Year Ended 31 December
2016 Note In-Force New Business Total
----- ------------ ------------- ------------
GBP'Million GBP'Million GBP'Million
Operational
Net annual management
fee 1 468.5 40.4 508.9
Reduction in fees
in gestation period 1 (165.6) (24.3) (189.9)
------------ ------------- ------------
Net income from
funds under management 1 302.9 16.1 319.0
Margin arising from
new business 2 - 49.0 49.0
Establishment expenses 3 (12.9) (115.7) (128.6)
Operational development
expenses 3 - (13.9) (13.9)
Regulatory fees 3 (0.4) (3.4) (3.8)
FSCS levy 3 (1.4) (12.3) (13.7)
Shareholder interest 4 9.8 - 9.8
Tax relief from
capital losses 5 12.6 - 12.6
Miscellaneous 6 (4.4) - (4.4)
------------ ------------- ------------
Operating cash result 306.2 (80.2) 226.0
Investment
Academy 7 - (5.8) (5.8)
Asia 7 - (12.2) (12.2)
DFM 7 - (3.2) (3.2)
Strategic development
costs 7 - (5.3) (5.3)
Underlying cash
result 306.2 (106.7) 199.5
Back-office infrastructure
development 7 (16.7)
Variance 8 (7.4)
Cash result 175.4
------------
-27-
Year Ended 31 December
2015* Note In-Force New Business Total
----- ------------ ------------- ------------
GBP'Million GBP'Million GBP'Million
Operational
Net annual management
fee 1 406.7 33.5 440.2
Reduction in fees
in gestation period 1 (143.1) (18.5) (161.6)
------------ ------------- ------------
Net income from
funds under management 1 263.6 15.0 278.6
Margin arising from
new business 2 - 47.8 47.8
Establishment expenses 3 (11.1) (100.2) (111.3)
Operational development
expenses 3 - (13.8) (13.8)
Regulatory fees 3 (0.6) (5.2) (5.8)
FSCS levy 3 (1.6) (14.3) (15.9)
Shareholder interest 4 8.6 - 8.6
Tax relief from
capital losses 5 12.1 - 12.1
Miscellaneous 6 (4.7) - (4.7)
------------ ------------- ------------
Operating cash result 266.3 (70.7) 195.6
Investment
Academy 7 - (4.4) (4.4)
Asia 7 - (6.3) (6.3)
DFM 7 - (1.3) (1.3)
Strategic development
costs 7 - (1.5) (1.5)
Underlying cash
result 266.3 (84.2) 182.1
Back-office infrastructure
development 7 (14.4)
Variance 8 3.8
Cash result 171.5
------------
*The Cash result for 2015 reflected the movement in certain Solvency I reserves as that was the regulatory regime at the time.
-28-
Notes
All numbers are expressed after tax at the prevailing tax rate for each year.
1. The net annual management fee is the manufacturing margin the Group retains from funds under management after payment of the associated costs (e.g. investment advisory fees and payments to Partners). Broadly speaking the Group receives an average net annual management fee of 0.77% (post tax) of funds under management (2015: 0.77% post tax).
However, as noted in Section 1 on page 14, due to our product structure, investment and pension business does not generate cash in the first six years (known as the 'gestation period'). This is reflected in an adjustment which is the reduction in fees in gestation period.
The overall result is the net income from funds under management which was some 15% higher than 2015, reflecting higher average funds under management during the year.
The reassessment of the level of the investment contract liability has resulted in an increase in Solvency II Net Assets of GBP267 million at the year end, but this amount will gradually unwind during the next 6 years through a higher reduction in fees in the gestation period. If the approach had been implemented at the start of the year, the impact would have been an increase in the negative amount by some GBP45 million.
2. Margin arising from new business: This is the cash impact of new business in the year, reflecting growth in new business, production related expenses and mix of new business.
The revised assessment of investment contact liabilities results in an increase in the level of initial margin recognised in the Cash result through the margin arising from new business. If this approach had been adopted at the start of 2016 the margin would have been some GBP70 million higher. In future years, this additional margin will move in line with new businesses volumes, albeit adjusted for any business mix effects.
3. Expenses: These reflect the expenses of running the Group and more detail is provided in the table on page 16 in Section 2. In line with the rest of the table they are presented after allowance for tax.
4. Shareholder interest: This is the assumed income accruing on the investments and cash held for regulatory purposes together with the interest received on the surplus capital held by the Group.
5. Tax relief from capital losses: In recent years, a deferred tax asset has been established for historic capital losses which are now regarded as being capable of utilisation over the medium term. Utilisation during the year of GBP12.6 million tax value (2015: GBP12.1 million) was slightly ahead of our expected rate of c. GBP8-10 million benefit in a year.
6. Miscellaneous: This represents the cash flow of the business not covered in any of the other categories, including ongoing administration expenses and associated policy charges, together with utilisation of the deferred tax asset in respect of prior years' unrelieved expenses (due to structural timing differences in the life company tax computation).
7. Strategic investments, including back office infrastructure: These reflect significant investments in developing our business for the future. Further analysis of the expenses associated with these initiatives is presented in Section 2 on page 16, but all are expected to result in either additional funds (Academy, Asia and DFM) or expense savings (Back office infrastructure) in the future. Advice margin generated in Asia and all fees generated by DFM are reflected in the relevant line.
8. Variance: This reflects variances in the settlement of tax related liabilities between the policyholders (unit-linked funds), the shareholder and HMRC. It also reflects a GBP6.6 million negative one-off cost of reviewing charges in two small cohorts of legacy business and a number of other small positive and negative one-off items.
-29-
Solvency
St. James's Place is a simple wealth management group offering mainly investment products. Our strategy is to attract and administer retail funds under management, from which we receive an annual management fee; we are a fee-based business. Our clients can access their investments on demand but, because we match the encashment value on the unit-linked business, movements in equity markets, interest rates, mortality, morbidity, longevity and currency rates have little impact on our ability to meet liabilities (although they can impact emergence of profit). We also have a prudent capital management approach and invest surplus assets in cash, AAA rated money-market funds and UK government securities. The overall effect is assurance that we can meet liabilities, and a resilient solvency position that is dependable even through adverse market conditions.
We manage solvency of our business on the basis of holding assets in excess of the client unit-linked liabilities plus a Management Solvency Buffer (MSB). This ensures we are able not only to meet client liabilities at all times, but the prudence of the MSB acts as protection against other risks.
At 2015 year end we assessed the MSB for our life businesses as GBP150 million, having taken into account a wide range of factors and information, not least the results from stress and scenario testing carried out as part of our annual ORSA (Own Risk and Solvency Assessment). At the 2016 year end, on the same basis, we assessed the MSB for our life businesses as GBP170 million, increasing slightly as a result of economic conditions.
However, as a result of our reassessing the unit liability in line with the encashment value the Solvency II net assets have increased by GBP267 million, with no change in our risk profile. We therefore believe it is appropriate to increase our MSB to GBP437 million at the year-end (equal to GBP170 million plus GBP267 million).
During H1 2017, we are undertaking an asset-liability matching exercise which will reduce our corporate exposure to market risk and result in a reduction in risk capital requirement. Following this exercise, we will review the MSB and we expect it will reduce. We will report on the outcome of that review at half year.
We continue to hold capital within the Group in respect of the other regulated (but non-insurance) companies, based on holding excess capital significantly above the regulatory requirement.
31 December 2016 Other 2015
Life Regulated Other Total Total
------------ ------------ ------------ ------------ ------------
GBP'Million GBP'Million GBP'Million GBP'Million GBP'Million
Solvency II net
assets* 530.0 145.3 394.7 1,070.0 812.9
------------ ------------ ------------ ------------ ------------
Management Solvency
Buffer (MSB) 437.0 90.0 527.0 202.3
Management solvency
ratio 121% 161%
*After payment of year end intragroup dividend but before Group Final dividend.
Solvency II net assets reflects the assets of the Group in excess of those matching the clients' (unit--linked) liabilities. It includes a GBP149.9 million deferred tax asset which is not immediately fungible, although we expect it will be utilised over the next ten years. The actual rate of utilisation will depend on business growth and external factors, particularly investment market conditions.
-30-
Solvency II Balance Sheet
Whilst we focus on Solvency II net assets and the MSB to manage solvency, we provide additional information about the Solvency II free asset position for information. The presentation starts from the same Solvency II net assets, but includes recognition of an asset in respect of the expected Value of In-Force cashflows (VIF) and a Risk Margin (RM) reflecting the potential cost to secure the transfer of the business to a third party. The Solvency II net assets, VIF and RM comprise the 'Own Funds', which is assessed against a Solvency Capital Requirement (SCR), reflecting the capital required to protect against a range of "1 in 200" stresses. The SCR is calculated on the Standard Formula approach. No allowance has been made for Transitional Provisions in the calculation of Technical provisions or SCR.
An analysis of the Solvency II position for our Group, split by regulated and non-regulated entities at the year end is presented in the table below.
Other 2015
31 December 2016 Life Regulated Other Total Total
------------ ------------ ------------ ------------ ------------
GBP'Million GBP'Million GBP'Million GBP'Million GBP'Million
Solvency II net
assets * 530.0 145.3 394.7 1,070.0 812.9
Value of in-force
(VIF) 2,707.9 2,707.9 2,306.6
Risk Margin (779.2) (779.2) (624.0)
Own Funds (A) 2,458.7 145.3 394.7 2,998.7 2,495.5
------------ ------------ ------------ ------------ ------------
Solvency capital
requirement (B) (1,991.0) (55.5) (2,046.5) (1,595.8)
Solvency II free
assets 467.7 89.8 394.7 952.2 899.7
------------ ------------ ------------ ------------ ------------
Solvency ratio
(A/B) 123% 262% 147% 156%
------------ ------------
*After payment of year end intragroup dividend but before Group Final dividend.
The solvency ratio after taking account of the final dividend is 141% at the year end (2015: 151%).
As noted in our commentary on the Solvency II result last year, the nature of our business is that much of the Own Funds value reflects future profits, but the SCR similarly reflects loss of future profits. As a result, the solvency ratio is not very sensitive to changes in experience or assumptions, and can move counter-intuitively depending on circumstances. For example, the relative reduction in Solvency ratio from 2015 to 2016, is partly due to changes in economic assumptions, particularly lower interest rates and higher future inflation expectations. However, it has also been impacted by the positive impact of investment performance on FUM, which has resulted in an increase in SCR by over 25%. Since Solvency II Net Assets (typically cash or fixed interest) have not increased in line with markets, the ratio has fallen. So despite the positive impact on our business of strong investment performance, our solvency ratio has reduced.
More generally, since our business profile has not changed significantly from last year end, the sensitivity analysis presented at that stage remains relevant.
-31-
SECTION 5: EMBEDDED VALUE (EV)
Life business and wealth management business differ from most other businesses, in that the expected shareholder income from the sale of a product emerges over a long period in the future. We therefore complement the IFRS and cash results by providing additional disclosure on an EV basis, which brings into account the net present value of the expected future cash flows. We believe that a measure of total economic value of the Group's operating performance is useful to investors.
As in previous reporting, our EV continues to be calculated on a basis determined in accordance with the EEV principles originally issued in May 2004 by the Chief Financial Officers Forum (CFO Forum) and supplemented in October 2005. Following the introduction of Solvency II, the CFO Forum published an amended set of principles in April 2016. The key change implemented in our results for December 2016 is to reflect a reduction in the cost of holding a revised level of solvency capital, moving from assuming 100% of Solvency I capital requirement to reflecting our new approach to capital management for the Group based on holding a Management Solvency Buffer over the unit-linked liabilities for our Life businesses.
The table below and accompanying notes summarise the profit before tax of the combined business.
Year Ended Year Ended
31 December 31 December
2016 2015
------------- -------------
GBP' Million GBP' Million
Life business 501.4 467.0
Unit Trust and DFM
business 266.8 274.4
Funds management business 768.2 741.4
Distribution business (25.9) (21.2)
Back office infrastructure
development (20.9) (18.1)
Other (47.8) (41.9)
------------- -------------
EEV operating profit 673.6 660.2
Investment return variance 537.2 (24.4)
Economic assumption
changes (12.4) 0.9
EEV profit before tax 1,198.4 636.7
Tax (212.9) (116.5)
Corporation tax rate
change 28.6 47.8
------------- -------------
EEV profit after tax 1,014.1 568.0
------------- -------------
Year Ended Year Ended
31 December 31 December
2016 2015
------------- -------------
Pence Pence
EEV operating profit
basic earnings per
share 105.9 103.9
------------- -------------
EEV operating profit
diluted earnings per
share 105.2 102.8
------------- -------------
-32-
EEV Operating Profit
Funds Management Business
The funds management business operating profit has increased to GBP768.2 million (2015: GBP741.4 million) and a full analysis of the result is shown below:
Year Ended Year Ended
31 December 31 December
2016 2015
------------- -------------
GBP' Million GBP' Million
New business contribution 520.2 440.7
Profit from existing
business
- unwind of the discount
rate 199.6 172.4
- experience variance 1.4 78.1
- operating assumption
change 18.6 44.1
Addition of Rowan Dartington 21.0 -
Investment income 7.4 6.1
Fund management business
EEV operating profit 768.2 741.4
------------- -------------
The new business contribution for the year at GBP520.2 million (2015: GBP440.7 million) was some 18% higher than the prior year, reflecting the strong gross inflows (up 23%) and the mix of business.
The unwind of the discount rate for the year was GBP199.6 million (2015: GBP172.4 million). The unwind is calculated by multiplying the opening VIF by the discount rate but adjusting to reflect emergence of profits into cash during the year. The result in the current year reflects both a slightly higher discount rate than 2015 and the higher start year opening VIF balance.
The discount rate is based on the risk free rate, which is set by reference to the yield on a UK 10 year gilt at the start of the year. The unwind for the current year is based on a discount rate of 5.2% compared with 5.0% for the prior year. Had the discount rate been consistent with 2015 the unwind and operating profit would have been GBP8.0 million lower.
There was a small positive experience variance during the year of GBP1.4 million. The strong positive variance of GBP78.1 million in the prior year principally reflected the value ascribed to significant capital losses within the historic Group companies identified in the year.
As in the prior year, the positive operating assumption change in the year of GBP18.6 million (2015: GBP44.1 million) reflected improvements in the retention assumptions on pension business (Drawdown business in 2016) and adjustment to the maintenance expense assumption.
The addition of Rowan Dartington within the embedded value calculation has contributed GBP21.0 million.
The investment income for the year was little changed at GBP7.4 million (2015: GBP6.1 million).
Distribution business, back office development and other
These items have already been commented on in the IFRS section on page 19.
-33-
Investment Return Variance
The investment return variance reflects the capitalised impact on the future annual management fees resulting from the difference between the actual and assumed investment returns. Given the size of our funds under management, a small difference can result in a large positive or negative variance.
The rise in global stock markets during the second half of the year, together with the currency impact from the depreciation of Sterling, has significantly contributed to a strong investment return for our funds. Average growth in our funds of 14% to 18% (net of charges) compares with an assumed investment return of 2.5% (net of charges), which gives rise to a significant positive investment variance of GBP537.2 million for the year. For the prior year there was a negative investment return of GBP24.4 million reflecting the slightly lower actual investment return compared with the assumed return.
Economic Assumption Changes
The negative variance of GBP12.4 million arising in the year principally reflects the increase in the implied inflation rate (2015: GBP0.9 million positive).
EEV Profit before Tax
The total profit before tax for the year was GBP1,198.4 million, compared with GBP636.7 million, although the significant improvement is principally reflecting the difference in the investment return variance between the two years.
Tax
The tax charge at GBP212.9 million (2015: GBP116.5 million) reflects the underlying result.
A further reduction in the corporation tax rate from 18% to 17% effective 1 April 2020 was enacted in the Finance Act 2016. The capitalised effect of this change has been included as a reduction in tax of GBP28.6 million. Those tax cuts previously announced have already been reflected in the valuation.
EEV Profit after Tax
The EEV profit after tax was GBP1,014.1 million (2015: GBP568.0 million) reflecting the movement in EEV profit before tax, but also the positive impact of the tax rate change.
-34-
New Business Margin
The largest single element of the EEV operating profit (analysed in the previous section) is the new business contribution. The level of new business contribution generally moves in line with new business levels. To demonstrate this link, and aid understanding of the results, we provide additional analysis of the new business margin ('Margin'). This is calculated as the new business contribution divided by the new money invested, and is expressed as a percentage.
The table below presents the margin before tax from our manufactured business based on gross fund flows:
Year Ended Year Ended
31 December 31 December
2016 2015
------------- -------------
Investment
New business contribution
(GBP'Million) 108.3 124.9
New money invested
(GBP'Billion) 2.28 2.45
Margin (%) 4.8 5.1
Pension
New business contribution
(GBP'Million) 207.9 140.6
New money invested
(GBP'Billion) 5.12 3.66
Margin (%) 4.1 3.8
------------- -------------
Unit Trust and DFM
business
New business contribution
(GBP'Million) 204.0 175.2
New money invested
(GBP'Billion) 3.95 3.13
Margin (%) 5.2 5.6
Total business
New business contribution
(GBP'Million) 520.2 440.7
New money invested
(GBP'Billion) 11.35 9.24
Margin (%) 4.6 4.8
Post tax margin (%) 3.8 3.9
------------- -------------
The slight fall in the total margin from 4.8% to 4.6% reflects both a positive impact from an increased level of new business together with a negative impact from a change in business mix, with a greater proportion of pension business in the current year.
Analysis of the EEV result and Net Assets per Share
The table below provides a summarised breakdown of the embedded value position at the reporting dates:
Year Ended Year Ended
31 December 31 December
2016 2015
------------- -------------
GBP' Million GBP' Million
Value of in-force
- Life 2,636.2 2,279.5
- Unit Trust and DFM 1,044.9 787.6
Solvency II net assets 1,070.0 801.1
------------- -------------
Total embedded value 4,751.1 3,868.2
------------- -------------
Year Ended Year Ended
31 December 31 December
2016 2015
------------- -------------
Pence Pence
Net asset value per
share 900.7 737.3
------------- -------------
-35-
RISK AND RISK MANAGEMENT
Overview and Culture
The St. James's Place Group is exposed to a wide variety of risks as a result of its business activities and the industry in which it operates, as well as a number of external factors and threats. Under the leadership, direction and oversight of our Board, these risks are carefully managed, contributing to our competitive advantage and helping us to achieve our business and client objectives.
We do not seek to eliminate risk entirely, rather we seek to understand our risks fully, and to apply appropriate risk management strategies such that all material risks are identified, and appropriately managed or mitigated. Risk management is a core aspect of decision-making and is embedded in our culture. Our framework is specifically designed to manage the risks that are important to our shareholders, clients, Partners, regulators and employees, and to provide reasonable assurance against material financial misstatement or loss.
Risk management, solvency projections and stress and scenario testing form a key part of the business planning process, including in relation to decisions on strategic developments, pricing and dividend payments.
Risk Appetite
The Board chooses carefully the risks it accepts and those it seeks to limit or avoid. These choices are set out in detail in our Group Risk Appetite Statement, which is owned by the Board and reviewed at least annually. The Risk Appetite Statement is aligned with the outcomes-based approach of the Group's business and client objectives and the overarching Risk Management Framework. In particular, it articulates:
-- Risks that are actively sought in pursuit of return;
-- Risks that are consciously avoided;
-- Risks that are reduced through transfer to other parties; and
-- Risks that are minimised through controls.
Risk appetite can and will change over time, sometimes rapidly as economic and business environment conditions change, and therefore the statement is an evolving document. A comprehensive suite of indicators is reported regularly to enable the Risk Committee, on behalf of the Board, to monitor that the Group remains within its agreed appetite.
Risk Management Framework
The Board, through its Risk Committee, takes an active role in overseeing the Risk Management Framework, for which it is responsible. This framework is the combined processes by which the Group identifies, assesses, measures, manages and monitors the risks that may impact on the successful delivery of business objectives.
The Board Risk Committee (BRC) comprises Independent Non-executive Board members, and is responsible for ensuring that a culture of effective risk identification and management is fostered across the Group.
The BRC is supported by the Executive Board (ExBo), but also by the Group Risk Executive Committee and by Risk Management teams at Group and local levels, which take the lead in ensuring an appropriate framework is in place and that there is on-going development and co-ordination of risk management within the Group. The other executive sub-committees of ExBo (the Executive Committees) also provide support for the management of risks in their areas of responsibility.
-36-
The Risk Management Framework is grounded in the outcomes which are key to our organisation. These are:
CLIENTS - That we deliver positive outcomes for our increasing population of clients
PARTNERS - That we continue to grow and develop the Partnership, both numbers and skills
PEOPLE - That we treat all of our stakeholders well
REGULATORS - That we are compliant, have an open and honest relationship with our regulators and protect our reputation
FINANCIALS AND SHAREHOLDERS - That we deliver sustainable growth in reported profits on all measures
Whilst clearly a simplification of the business model, this focuses attention on those things that are of greatest importance, and hence indicates where risk management activity should be focused. It also allows the identification of the individuals within the Group responsible for managing these risks.
Within these outcomes, indicators are used to monitor performance against risk appetite. Each indicator has an owner on the Executive Board who is accountable for managing the associated risks within agreed thresholds and providing regular reports to the Executive Board. This enables the Executive Board to maintain effective oversight of all outcomes, and to manage any conflicts of interest that arise between them.
To ensure a comprehensive risk universe, there is also a bottom-up element to our framework. Each division of the Group is responsible for the identification, management and quarterly reporting of its own risks, and is supported in this by the Risk Management function. Each risk is assessed by considering its potential impact and the likelihood of its occurrence, with impact assessments being made against financial and non-financial metrics. Establishment of appropriate controls is a core part of the risk management process.
Recognising the importance of ongoing effective risk management, the Group maintains a comprehensive suite of governance policies to support the Risk Management Framework.
Own Risk and Solvency Assessment (ORSA)
Many of the activities of the Group, and the legal entities in the Group, are regulated. We have relationships with the UK regulators (PRA and FCA) and the Irish Regulator (Central Bank of Ireland), and with the local regulators in Singapore and Hong Kong. The nature of our activities and the regulatory focus results in additional risk management activity, including, but not limited to, stress and scenario testing, loss event recording, resolution planning and risk capital management activity.
The different regulated entities in the Group are governed by a number of specific regulations, however, as an Insurance Group we are primarily governed by the Solvency II Directive, which came into force on 1 January 2016. As part of these regulations, we are required to undertake an ORSA for the Group, containing the ORSAs for each insurance company within the Group. We also produce a separate ORSA for the Singapore Branch of St. James's Place International, to meet the requirements of the local regulator. In 2016 the Group submitted its third annual ORSA report to the regulator, relating to the period ended 31 December 2015.
The ORSA is directed by the Board, with active engagement from the boards of St. James's Place UK plc ("SJPUK") and St. James's Place International plc ("SJPI"), and is intended to be a comprehensive risk assessment, bringing together an understanding of the risks that the Group faces, in the context of the strategic plan, and how these risks may change over our planning period. It also requires quantitative analysis of the capital required, and how it might develop over our planning period (5 years). The ORSA is a continually evolving process which has been useful to inform management decisions during the year and is increasingly embedded in ongoing risk management processes throughout the Group.
Capital for our insurance companies is based on the Solvency II regulations: separate risk based capital assessments are performed for the other regulated entities. As a result of these activities we have considered the calculation and allocation of risk capital to all the major risks in the Group, and the insurance companies in particular, and the adequacy of the capital position. This process ensures our continued confidence that the regulated entities remain strongly capitalised.
-37-
Viability Statement
In accordance with provision C.2.2. of the UK Corporate Governance Code, the Directors have assessed the Group's current financial position and future prospects over a five-year period, and have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of this assessment.
In reaching this conclusion the Directors have taken into account a number of different strands of work, including:
-- The Business Plan and associated strategy documents;
-- An assessment of the economic, regulatory, competitive and risk environment which was carried out as part of the Board's strategy review process; and
-- The latest Group ORSA, which is a new requirement under the Solvency II Directive, and which scope is summarised in the section above.
As a result of this work the Board has concluded that the business model remains appropriate, with no concerns that would fundamentally threaten the business model or market. This is also supported by the resilience that the Group has demonstrated over recent years and in a variety of different external conditions.
A planning period of five years is used both in medium term business planning and also for the ORSA, and has therefore been used for the Code requirement as well, reflecting the horizon over which the Board sets medium term strategy.
The ORSA was particularly useful in assessing viability as it has a similar purpose and includes a range of stress tests, which have been performed at the level of the two insurance companies (St. James's Place UK plc and St. James's Place International plc) as well as at the level of the Group. The stress tests considered include a broad range of scenarios, including market shocks, mass lapse events, new business growth scenarios and particularly operational risk events. These were evaluated for the impact on the free assets of the Group of the change in key assumptions or circumstances. In all severe but plausible adverse tests, free assets were available, demonstrating the Group's resilience to adverse conditions. Reverse stress tests have also been performed on liquidity, the results of which indicate that the Group can reasonably expect to have sufficient liquid funds to be able to meet its liabilities over the planning period.
The Group monitors performance against a range of predefined indicators, which will identify if experience over the planning period differs from risk appetite or expectations, allowing management action to be taken.
Internal Control
The internal control environment in St. James's Place is built upon a strong control culture which is underpinned by our Code of Ethics and organisational delegation of responsibility. The Board has adopted the 'three lines of defence' model for the internal control system, under which the 1st Line is Business Operations, the 2nd Line is Oversight Functions including Risk Management and Compliance, and the 3rd Line is Independent Assurance. The purpose of this internal control system is to provide reasonable assurance regarding the achievement of objectives relating to operations, reporting, and compliance.
Management has delegated responsibility to implement and maintain effective controls, such that the Group operates within the risk appetite agreed by the Board. The Audit Committee, on behalf of the Board, monitors the effectiveness of internal controls across all business areas primarily through the outcomes of independent assurance assignments undertaken by Internal Audit.
Control Self-Assessment
Control Self-Assessment (CSA) is a continuous activity, which has a formal summary on an annual basis, and forms a key part of our internal control system. This self-assessment process requires business areas to review their controls regularly, and sign-off on their efficacy, against a standard set of control statements. Collectively these control statements embody the elements required for an organisation to maintain a control framework across the five components of Control Environment, Risk Assessment, Control Activities, Information and Communication, and Monitoring Activities, as laid down in the internationally accepted COSO control standards.
-38-
This process is beneficial as it provides confidence that business areas can meet their objectives, clarity to support decision making, and agility in adapting to change and complexity. The annual summary of the control self-assessment process contributes to the year-end Internal Control Evaluation exercise undertaken by Internal Audit as part of the assurance provision to the Audit Committee.
Financial Reporting Processes
Specifically, in relation to the financial reporting processes, the main features of the internal control systems include:
-- Extensive documentation, operation and assessment of controls in key risk areas;
-- Monthly review and sign-off of all financial accounting data submitted by outsource providers and the results of all subsidiaries within the Group; and
-- Formal review of financial statements by senior management, for both individual companies and the consolidated Group.
-39-
PRINCIPAL RISKS AND UNCERTAINTIES
The following tables summarise the principal risks and uncertainties that are inherent within both the Group's business model and the market in which we operate. These are the risks which could have a material impact on the key strategic outcomes in the five areas set out on page 36. The Group Board and the Boards of the insurance entities have responsibility for assessing their main risks and these are monitored on a regular basis by the Board Risk Committee, the Executive Board, the SJPUK and SJPI Boards, the SJPI Risk and Compliance Committee and the SJPI Singapore Branch Executive Management Committee.
Against each of the principal risks, consideration is given to the level of exposure and the extent to which the risk can be mitigated. For example, the Group believes that the Accumulation of Reputational Issues risk set out below presents a significant exposure yet is difficult to mitigate beyond the processes currently in place across the business. Conversely, the Investor Relations risk described below presents a more moderate exposure and can be mitigated through the ongoing development of the Investor Relations team.
In reflection of the stability and consistency of the Group's business model, there have been no significant changes in the principal risks to the Group over the last year. However, notable political events and economic changes during the year have had the effect of bringing certain risks, in particular those in respect of market performance and relative exchange rates, into sharper focus. The changes in government and uncertainties created by the vote to leave the European Union have led to an increase in the risks associated with regulatory, legislative and tax changes, although the Group remains well-positioned to accommodate and build on any such changes.
-40-
The principal risks and uncertainties, the business outcomes on which they impact, and the high level controls and processes through which we aim to mitigate them, are as follows:
NON-FINANCIAL RISKS
Risk Description Outcome Management and Controls
------------- ------------------------------- ------------------ -----------------------------
Systemic Clients rely on Clients There are many processes
advice their SJP Partners in place to mitigate
failure for the provision this risk, including
of initial and ongoing detailed advice
advice. Failures guidance with appropriate
in the quality of governance around
advice or documentation changes and updates,
of advice could appropriate incentive
lead to redress structures, Partner
costs, reputational training and accreditation,
damage and regulatory compliance procedures,
intervention. monitoring processes
and quality checking.
The Group guarantees
the advice given
by Partners and
also has appropriate
professional indemnity
insurance in place.
------------- ------------------------------- ------------------ -----------------------------
Cyber The Group's business Clients, We maintain close
risk or model involves the Financials working relationships
outsourcing outsourcing of administration and Shareholders with our outsourcing
failure to third parties. partners, who are
Poor service from, central to our business
or failure of, one model. This enables
of these third parties, us in seeking to
the failure of an work effectively
IT system, or a and efficiently
significant cyber-attack together to deliver
or fraud, could the best result.
lead to disruption Service level agreements
of services to clients, are in place and
reputational damage performance is monitored
and profit impacts. against these. In
In particular, a the extreme event,
significant cyber-attack all our relationships
could cause very are governed by
substantial reputational formal agreements
damage. with notice periods.
The business continuity
arrangements of
each outsourcer
are also continually
tested and improved
and scenario analysis
is carried out.
An effective information
security control
framework is in
place and we continue
to enhance our existing
cyber security risk
management capabilities
in light of the
increasing threat
in this area.
------------- ------------------------------- ------------------ -----------------------------
-41-
Risk Description Outcome Management and Controls
--------------- ------------------------------ ------------------ ------------------------------
Low yield Our approach to Clients We actively manage
environment investment management and monitor the
may fail to deliver performance of our
expected returns investment managers
to clients of the through the Investment
Group or the range Committee, which
of products and also makes use of
services offered firms of professional
may become inappropriate investment advisers,
for client needs. including respected
independent investment
research consultancies,
Stamford Associates,
Redington and AON
Consulting, to help
them with this key
task. We offer a
broad range of funds,
which allows client
diversification
and mitigates our
new business, persistency
and market risks.
Effective governance
frameworks are in
place in respect
of manufactured
and third-party
products.
--------------- ------------------------------ ------------------ ------------------------------
Partner Group products are Partners The Partner proposition
proposition, distributed, and is an area of continual
recruitment ongoing advice is focus, with outputs
and retention provided, exclusively from regular Partner
through the SJP surveys and other
Partnership. Inadequacies Partner feedback
in the Partner proposition, being reflected
range of products, on an ongoing basis.
technology or services We employ a number
offered to the Partnership of specialist managers
may result in inefficiencies specifically to
and frustration, manage the recruitment
with consequent and retention of
loss of Partners high quality Partners,
and client impact, and a dedicated
or inability to senior management
recruit sufficient, team oversees the
high quality new SJP Academy, which
Partners or field broadens our recruitment
management. streams. Formal
retention strategies
are in place to
ensure that, wherever
possible, we retain
good quality and
experienced Partners.
All recruitment
and retention activity
is closely monitored.
--------------- ------------------------------ ------------------ ------------------------------
Regulatory, The nature of the Regulators Regulatory and legislative
legislative Group is such that change is largely
and tax it falls under the a risk which cannot
environment influence of regulators be mitigated, although
and legislators the Group seeks
in multiple jurisdictions, to engage with regulators
a growing number and policy makers
given the Group's in an open and constructive
expansion into Asia. manner, with the
Wholesale changes aim that key issues
to regulations or impacting the Group
to the political are taken into consideration
environment may in the drafting
result in implementation of changes. Our
costs and disruption governance structures,
to business. The management committees
Group could face and compliance monitoring
a fine or regulatory activities seek
censure from failure to ensure we remain
to comply with applicable compliant with regulation.
regulations, with
increased supervisory
intrusion and disruption
to business.
--------------- ------------------------------ ------------------ ------------------------------
Competition Competitor activity Financials This risk is mitigated
and charge in the adviser-based and shareholders through ensuring
pressure wealth management our business is
market may result run efficiently,
in a reduction in being responsive
new business volumes, to the needs of
reduced retention our clients and
of existing business, Partners and seeking
pressure on margins continual improvements
for both new and to processes. Charges
existing business, are benchmarked
and the potential against competitors
loss of Partners and competitor activity
and key employees. is monitored allowing
The low yield environment action to be taken
places additional in a timely manner
pressure on client if required. The
charges and advice Group offers a diversified
fees. product range, including
manufactured and
third party products.
We have a proven
track record in
Partner and employee
acquisition and
retention. Our more
established Partners
often have significant
equity stakes in
their practices
and their ability
to access these
is structured to
aid retention. Similarly,
variable remuneration
of key employees
is structured to
aid retention.
--------------- ------------------------------ ------------------ ------------------------------
-42-
Risk Description Outcome Management and Controls
----------------- --------------------------- ------------------ ------------------------------
Availability Lack of availability Financials A debt funding policy
of credit of credit may limit and shareholders is in place, with
the Group's ability committed funds
to provide Partner available through
loans and make strategic the revolving credit
investments. facility. Credit-approved
bank lending facilities
are available to
support Partner
loans. Further corporate
borrowing requires
approval at Board
level.
----------------- --------------------------- ------------------ ------------------------------
Investor Failure to communicate Financials This risk is mitigated
relations effectively with and shareholders through the work
new and existing of the investor
shareholders may relations team,
lead to falls in whose remit is to
the share price ensure the maintenance
and reputational of positive relationships
damage. with shareholders.
----------------- --------------------------- ------------------ ------------------------------
Accumulation The success of the Financials Mitigants for individual
of reputational Group is closely and shareholders reputational events
issues linked with the are described earlier
strength of the in the table. The
St. James's Place Group seeks to achieve
brand. An accumulation the best possible
of reputational outcomes for its
issues, for example clients and the
advice failures, cultural driver
fraud, service issues, of 'doing the right
low client investment thing' runs through
returns, has the the whole organisation.
potential to damage However, it is recognised
the brand, leading that isolated incidents
to reduced retention will occur and,
and lower levels when this is the
of new business. case, the Group
seeks to rectify
the issue and achieve
positive outcomes
for clients.
----------------- --------------------------- ------------------ ------------------------------
People People and the distinctive People This risk is mitigated
and culture culture of the Group through effective
play an important leadership, succession
part in its success. planning, the implementation
Poorly managed expansion, of executive and
succession, culture management development
and resourcing may initiatives and
lead to loss of regular surveys
valued individuals, and consultation
increased risk of groups. The latter
errors, and failure enable us to monitor
to deliver on the the sentiment of
business plan. our staff and Partners
and identify any
potential adverse
impacts upon, or
trends within, our
culture, and respond
appropriately.
----------------- --------------------------- ------------------ ------------------------------
FINANCIAL RISKS
Risk Description Outcome Management and Controls
------------ ------------------------- ------------------ ---------------------------
Market A reduction in funds Financials The Group accepts
Risk - under management and shareholders the risk of reduced
Loss of owing to market future profits as
Annual shocks, poor market a result of market
Management performance or currency shocks, poor market
Charge and exchange rate performance, adverse
(AMC) movements would movement in credit
income reduce future AMC spreads or currency
income, and hence movements. This risk
future profits. is mitigated to an
extent by the diversified
fund range.
------------ ------------------------- ------------------ ---------------------------
-43-
Risk Description Outcome Management and Controls
---------- ------------------------------ ------------------ -----------------------------
Insurance A reduction in funds Financials Retention risk is
risk under management and shareholders managed through the
owing to poor retention long-term relationships
would reduce future between Partners
AMC income. This and clients. In particular,
may arise from factors Partners keep clients
such as changes informed during periods
in the economic of market volatility,
climate, poor investment and lower-risk funds
performance, competitor and portfolios are
activity, or reputational available, with no
damage to the Group. charges for switching.
The Investment Management
Adverse mortality Approach involves
or disability experience, monitoring of fund
in particular higher manager performance,
death claims following and changes are made
an incident or widespread where appropriate.
illness, or longer-term Some of the key sources
increases in mortality of reputational risk
rates, would reduce and related controls
future profits. are described in
the table above.
Mortality and disability
risk is substantially
reduced through the
use of reassurance
with low retention.
Mortality risk benefit
on investment products
are generally limited
to 1% of invested
assets. Most risk
deductions are reviewable
and an increase in
reassurance rates
would be passed on
to clients through
increases to charges
and/or premiums within
five years. Experience
analysis is performed.
---------- ------------------------------ ------------------ -----------------------------
Expense Increased expenses, Financials Expenses are controlled
risk in particular higher and shareholders through contracts
than expected administration with third party
costs, would reduce administrators and
future profits. expense controls
at Group level, so
that growth in average
per policy expenses
is no greater than
the rate of increase
in the average weekly
earnings index.
Administration charges
are reviewable.
Clients meet investment
management fees directly
through the product,
with changes, both
positive and negative,
also passed on.
---------- ------------------------------ ------------------ -----------------------------
-44-
Risk Description Outcome Management and Controls
---------- ---------------------------- ------------------ --------------------------
Interest Changes in interest Financials Generally, shareholder
rate and rates or the failure and shareholders funds are invested
credit of a counterparty in high credit rating
risks may reduce the value and highly liquid
of fixed interest cash and cash-equivalent
assets held by the investments, and
shareholder. only highly rated
reinsurers are used.
Key counterparties
include reassurers, However, in support
banks, money market of the business,
funds, issuers of some shareholder
fixed interest securities, funds (outside the
Partners to whom insurance companies)
loans have been are used to provide
granted, and other loans to Partners.
debtors. These are secured
against income streams
on a conservative
multiple and with
appropriate financial
monitoring.
A pre-payment has
been made to IFDS
in anticipation of
future benefits arising
from the development
of the new Bluedoor
administration system.
However, the contract
with Bluedoor would
enable the Group
to continue to use
the Bluedoor system
in the event of failure
of IFDS.
---------- ---------------------------- ------------------ --------------------------
Liquidity Liquidity issues Financials Client funds are
risk may arise from client and shareholders invested in deep
requests to switch and liquid markets
or withdraw money and, where investments
from unit-linked are less liquid,
funds, and through contractual terms
events that may are included, allowing
require immediate the flexibility to
recourse to shareholder defer withdrawals.
funds. Sizeable balances
of liquid shareholder
assets are maintained
and the emergence
of cash profits is
monitored. Banks'
propensity to lend
in support of Partner
loans is also monitored.
---------- ---------------------------- ------------------ --------------------------
-45-
CHAIR'S REPORT
As you will already have read in the Chief Executive's and the Chief Financial Officer's statements, 2016 was another strong year for St. James's Place plc.
In my Statement of last year, I commented that 2015 had seen much political, economic and social upheaval but 2016 was perhaps even more startling. Much has been written about the potential impacts of the Brexit referendum and the election of President Trump, but predicting the future is difficult and relying on such predictions can be risky. We will therefore continue to focus on the fundamentals of the business: delivering good outcomes for our clients through the St. James's Place Partnership. Naturally, we keep a watchful eye on developments within the world around us, which will no doubt continue to change. However, we benefit from our Partner-client centric model which provides a rapid and direct source of information about how the landscape is developing on the ground and therefore how to respond. In times of uncertainty, the benefits of St. James's Place's long term approach to advice and investment should stand our clients in good stead.
David Bellamy has decided to step down from the Board at the end of 2017 after 26 years as an executive, the last 11 of which he has served as Chief Executive Officer. Under his leadership, St. James's Place has gone from strength to strength and is now the leading wealth manager in the UK. It has demonstrably delivered for all of our stakeholders: clients, shareholders, Partners, employees and the charities supported by the St. James's Place Foundation. David has been an outstanding Chief Executive and, although he will continue to lead the business for the remainder of the year, on behalf of the Board and the entire St. James's Place community, I would like to thank him. We are especially pleased that he will remain with the Group in an advisory capacity and will take on the role of Non-executive Chairman of our new International operations.
I am delighted that Andrew Croft will become Chief Executive from the 1(st) of January 2018. Andrew has already played a key role in the success of the Group serving as Chief Financial Officer for the last 12 years and is the ideal person to lead St. James's Place. At the same time, Craig Gentle, who joined the group in 2016 as Chief Risk Officer, will be appointed as Chief Financial Officer.
In recent years we have expanded our senior management team such that we have an outstanding leadership group with real strength and depth which Andrew will lead. The management changes we have announced reflect the continued development of the executive team as well as our commitment to the strategy which has been so successful over the years.
Having come far in our first 25 years, we are excited about the opportunities that lie ahead. We recognise that it is incumbent on us to build on our strong foundations by continuing to make incremental improvements in all aspects of the business and by learning fast where we do not do as well as we would like. That includes the further development of our proposition for both clients and Partners alike, maintaining our ability to deliver superior client outcomes, expanding our use of technology to support Partners, and completing the transfer of our back-office administrative systems. It also means sustaining our focus on our core areas of expertise and retaining our low strategic risk appetite.
It is crucial that we preserve the distinct culture that characterises St. James's Place. Much is written about culture these days but it is important to be focussed on good evidence of what makes organisations behave in a responsible, fair and sustainable way in respect of all in their communities. We aim to keep those principles firmly in mind in all that we do. It would be rash to claim that we never make mistakes, but if we do, we seek to rectify and to learn as quickly as we can.
One cornerstone of our distinct culture which brings together the entire St. James's Place community is the commitment to the St James's Place Foundation, together with the charities that it supports. Therefore, the Board is pleased to announce the doubling of matched funding for our 25(th) anniversary year. Alongside our support for the Foundation, we remain committed to being involved in our local communities by way of volunteering and support, as well as through providing employability skills training for young people and through delivering financial education courses for school children.
-46-
We have taken seriously our responsibilities to develop our people. For example, we are progressing our Academy concept further with a new programme for para-planners and accreditation schemes for our Partner support teams. We are also enjoying the successes of our apprenticeship and graduate schemes, are working on our management development programmes, and have made advances on gender and diversity. The St. James's Place community is a broad church in many ways but we keep working to make sure we do not unwittingly deter good people from joining us, nor fail to support their continued development once part of the business.
We do operate in a complex world and our stakeholders understandably make many demands of us. We participate frequently in regulatory and government consultations. We survey our clients, Partners and employees, and we engage very actively with our shareholders not only regarding our financial results and strategy, but also around many governance matters. All of these matters are discussed by your Board and we think it is to all stakeholders' benefit that lines of communication are very short. We have always favoured identifying how developments in the governance environment lead to more effective returns for stakeholders, rather than simply adhering to box ticking exercises. It is in all our interests to make sure we continue to deliver good outcomes for our clients and take care of our communities. By doing so we are much more likely to deliver safe, sustainable growth for our shareholders.
2016's results are a result of that approach and the work done over many years as the business has evolved and developed. Our strategic and operational progress in 2016 should bear fruit in future years. The strength of our performance in 2016 and our confidence in our future growth prospects, means that the Board is pleased to propose a 20% increase in the final dividend to 20.67p per share, giving an increase of 18% for the full year. I look forward to supporting the business in continuing to deliver to client, Partners, employees and shareholders in 2017.
Sarah Bates
Chair
27 February 2017
-47-
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Year Ended Year Ended
31 December 31 December
Note 2016 2015
------------- -------------
GBP' Million GBP' Million
Insurance premium income 52.2 54.7
Less premiums ceded to reinsurers (31.5) (32.6)
------------- -------------
Net insurance premium income 20.7 22.1
Fee and commission income 5 1,703.9 1,333.5
Investment return 6 9,630.1 1,755.8
Other operating income - 1.5
------------- -------------
Net income 11,354.7 3,112.9
Policy claims and benefits
- Gross amount (62.7) (65.0)
- Reinsurers' share 21.7 28.5
Net policyholder claims and
benefits incurred (41.0) (36.5)
Change in insurance contract
liabilities
- Gross amount (64.6) 10.8
- Reinsurers' share 4.1 (0.5)
Net change in insurance contract
liabilities (60.5) 10.3
Investment contract benefits (9,541.8) (1,762.5)
Expenses (1,225.1) (1,150.1)
Profit before tax 4 486.3 174.1
Tax attributable to policyholders'
returns 7 (345.7) (22.8)
------------- -------------
Profit before tax attributable
to shareholders' returns 140.6 151.3
Total tax (expense)/credit 7 (374.6) 27.9
Less: tax attributable to
policyholders' returns 7 345.7 22.8
------------- -------------
Tax attributable to shareholders'
returns 7 (28.9) 50.7
------------- -------------
Profit and total comprehensive
income for the year 111.7 202.0
Loss attributable to non-controlling
interests (0.5) (0.2)
Profit attributable to equity
shareholders 112.2 202.2
------------- -------------
Profit and total comprehensive
income for the year 111.7 202.0
------------- -------------
Pence Pence
Basic earnings per share 12 21.5 38.9
Diluted earnings per share 12 21.3 38.5
The results relate to continuing operations.
-48-
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Equity attributable owners of
the parent
------------------------------------------------------------
Shares
in Non-
Share Share Trust Retained Misc controlling Total
Note Capital Premium Reserve Earnings Reserves Total Interests Equity
-------- -------- -------- --------- --------- -------- ------------ --------
GBP' GBP' GBP' GBP' GBP' GBP'
GBP'M M M M GBP'M M M M
At 1 January
2015 77.9 147.4 (10.5) 793.1 2.3 1,010.2 (0.1) 1,010.1
Profit/(loss)
and total
comprehensive
income/(expense)
for the
year 202.2 202.2 (0.2) 202.0
Dividends 12 (130.8) (130.8) (130.8)
Issue of
share capital 0.3 1.9 2.2 2.2
Exercise
of options 0.5 9.0 9.5 9.5
Consideration
paid for
own shares (12.8) (12.8) (12.8)
Shares sold
during the
year 4.7 (4.7) - -
Retained
earnings
credit in
respect
of proceeds
from exercise
of share
options
of shares
held in
trust 0.1 0.1 0.1
Retained
earnings
credit in
respect
of share
option charges 14.8 14.8 14.8
At 31 December
2015 78.7 158.3 (18.5) 874.6 2.3 1,095.4 (0.3) 1,095.1
-------- -------- -------- --------- --------- -------- ------------ --------
Profit/(loss)
and total
comprehensive
income/(expense)
for the
year 112.2 112.2 (0.5) 111.7
Dividends 12 (155.2) (155.2) (155.2)
Issue of
share capital 12 0.9 0.9 0.9
Exercise
of options 12 0.4 5.3 5.7 5.7
Consideration
paid for
own shares (5.5) (5.5) (5.5)
Shares sold
during the
year 3.1 (3.1) - -
Misc reserves
on acquisition 0.2 0.2 0.2
Retained
earnings
credit in
respect
of share
option charges 22.7 22.7 22.7
At 31 December
2016 79.1 164.5 (20.9) 851.2 2.5 1,076.4 (0.8) 1,075.6
-------- -------- -------- --------- --------- -------- ------------ --------
-49-
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 As at 31
December December
Note 2016 2015
------------- -------------
GBP' Million GBP' Million
Assets
Goodwill 8 13.8 10.1
Intangible assets
- Deferred acquisition costs 8 684.8 745.0
- Acquired value of in-force
business 8 30.4 33.6
- Computer software 8 3.0 4.3
732.0 793.0
Property and equipment 23.1 8.0
Deferred tax assets 7 199.9 225.9
Reinsurance assets 80.5 85.0
Other receivables 1,473.0 967.2*
Investments
- Investment property 9 1,462.4 1,344.9
- Equities 46,598.7 37,960.8
- Fixed income securities 12,445.5 8,934.0
- Investment in Collective
Investment Schemes 3,864.8 3,269.6
- Derivative financial instruments 729.1 364.1
Cash and cash equivalents 9 7,413.1 5,325.1
------------- -------------
Total assets 75,022.1 59,277.6
------------- -------------
Liabilities
Borrowings 10 281.4 181.8
Deferred tax liabilities 7 614.8 434.6
Insurance contract liabilities 518.2 463.5
Deferred income 8 647.6 413.5
Other provisions 17.1 15.4
Other payables 1,173.6 706.7*
Investment contracts benefits 53,307.1 43,159.8
Derivative financial instruments 281.9 221.1
Net asset value attributable
to unit holders 9 17,032.0 12,556.4
Income tax liabilities 72.7 29.6
Preference shares 0.1 0.1
------------- -------------
Total liabilities 73,946.5 58,182.5
------------- -------------
Net assets 1,075.6 1,095.1
------------- -------------
Shareholders' equity
Share capital 12 79.1 78.7
Share premium 164.5 158.3
Shares in trust reserve (20.9) (18.5)
Miscellaneous reserves 2.5 2.3
Retained earnings 851.2 874.6
------------- -------------
Equity attributable to owners
of the parent 1,076.4 1,095.4
Non-controlling interests (0.8) (0.3)
------------- -------------
Total equity 1,075.6 1,095.1
------------- -------------
Pence Pence
------------- -------------
Net assets per share 203.9 208.7
------------- -------------
* Some lines have been aggregated in the comparative to simplify the presentation.
-50-
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Year
Ended Ended
31 December 31 December
Note 2016 2015
------------- -------------
GBP' GBP'
Million Million
Cash flows from operating activities
Profit before tax for the year 486.3 174.1
Adjustments for:
Depreciation 4.4 2.5
Amortisation of acquired value
of in-force business 8 3.2 3.2
Amortisation of computer software 8 3.4 3.4
Share-based payment charge 23.9 15.7
Interest income (26.6) (23.9)
Interest expense 4.9 4.4
Increase in provisions 1.7 4.0
Exchange rate gains (3.3) -
Changes in operating assets
and liabilities
Decrease in deferred acquisition
costs 8 60.2 68.0
Increase in investment property (117.5) (313.5)
Increase in other investments (13,109.6) (5,826.7)
Decrease in reinsurance assets 4.5 0.5
Increase in other receivables (464.4) (451.8)*
Increase/(decrease) in insurance
contract liabilities 54.6 (10.9)
Increase in financial liabilities
(excluding borrowings) 10,207.8 4,450.4
Increase/(decrease) in deferred
income 8 234.1 (49.7)
Increase in other payables 407.8 282.1*
Increase in net assets attributable
to unit holders 4,475.6 1,938.6
Cash generated from operating
activities 2,251.0 270.4
Interest received 26.6 23.9
Interest paid (4.9) (4.4)
Income taxes paid (87.7) (61.7)
------------- -------------
Net cash generated from operating
activities 2,185.0 228.2
Cash flows from investing activities
Acquisition of property and
equipment (19.6) (4.0)
Acquisition of intangible assets 8 (2.1) -
Acquisition of subsidiaries
and other business combinations,
net of cash acquired (23.1) (0.8)
Net cash used in investing
activities (44.8) (4.8)
Cash flows from financing activities
Proceeds from the issue of
share capital 5.7 9.5
Consideration paid for own
shares (5.5) (12.8)
Proceeds from exercise of options
over shares held in trust - 0.1
Additional borrowings 10 100.0 175.0
Repayment of borrowings (0.9) (79.1)
Dividends paid 12 (155.2) (130.8)
------------- -------------
Net cash used in financing
activities (55.9) (38.1)
------------- -------------
Net increase in cash and cash
equivalents 2,084.3 185.3
Cash and cash equivalents at
1 January 9 5,325.1 5,139.4
Exchange gains on cash and
cash equivalents 3.7 0.4
Cash and cash equivalents at
31 December 9 7,413.1 5,325.1
------------- -------------
* Some lines have been aggregated in the comparative to simplify the presentation.
-51-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNDER
INTERNATIONAL FINANCIAL REPORTING STANDARDS
1. ACCOUNTING POLICIES
The Group financial statements consolidate those of the Company and its subsidiaries (together referred to as the "Group").
The Group financial statements have been prepared and approved by the Directors in accordance with International Financial Reporting Standards as adopted by the EU ("adopted IFRSs") and interpretations issued by the IFRS Interpretations Committee ("IFRS IC") and those parts of the Companies Act 2006 that are applicable when reporting under IFRS.
Within the financial statements, a number alternative performance measures (APMs) are disclosed. An APM is a measure of financial performance, financial position or cash flows which is not defined by the relevant financial reporting framework, which for the Group is International Financial Reporting Standards (IFRS) as adopted by the European Union. APMs are used to provide greater insight to the performance of the Group and the way it is managed by the Directors. Information on Alternative Performance Measures is provided in the Financial Review on page 10 which defines each APM, explains why it is used and, where applicable, how the measure can be reconciled to the IFRS financial statements.
2. OTHER ACCOUNTING POLICIES
The other accounting policies used by the Group in preparing the results are consistent with those applied in preparing the statutory accounts for the year ended 31 December 2015.
3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS IN APPLYING ACCOUNTING POLICIES
Judgements
The primary areas in which the Group has applied judgement in applying accounting policies are in the classification of contracts between insurance and investment business and when applying the concept of control to determine which entities are subsidiaries.
Classification of contracts between insurance and investment business
Contracts with a significant degree of insurance risk are treated as insurance. All other contracts are treated as investment contracts. It is this classification that management considers to be a critical judgement; however, due to the carrying value of the insurance contract liabilities within the statement of financial position, management does not consider insurance business to be significant to the Group.
Subsidiaries
Subsidiaries are those entities which the Group controls. Control exists if the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity (including unit trusts in which the Group holds more than 30% of the units).
Deciding the amount of management expenses that are treated as acquisition expenses
Certain management expenses vary with the level of new business and have been treated as acquisition costs. Each line of costs has been reviewed and its variability to new business volumes estimated on the basis of the level of costs that would be incurred if new business ceased.
-52-
Estimates
The principal areas in which the Group applies accounting estimates are:
-- Determining the value of insurance contract liabilities; -- Determining the fair value of investment contract benefits; -- Determining the fair value of investment property;
-- Determining the fair value liability to policyholders for capital losses in unit funds;
-- Amortisation and recoverability of deferred acquisition costs and deferred income;
-- Determining the fair value, amortisation and recoverability of acquired in-force business;
-- Fair value estimation of assets acquired; -- Determining the value of deferred tax assets; -- Recoverability of St. James's Place Partnership loans; -- Measurement of prepaid operational readiness costs; and -- Determining the fair value of share-based payments.
Estimates are also applied in determining the amount of deferred tax asset recognised on unrelieved expenses and the value of other provisions.
Measurement of insurance contract liabilities
The assumptions used in the calculation of insurance contract liabilities that have an effect on the statement of comprehensive income of the Group are:
-- The lapse assumption, which is set prudently based on an investigation of experience during the year;
-- The level of expenses, which is based on actual expenses in 2016 and expected rates in 2017 and the long-term;
-- The mortality and morbidity rates, which are based on the results of an investigation of experience during the year; and
-- The assumed rate of investment return, which is based on current gilt yields.
Determining the fair value of investment contract benefits
In accordance with IFRS 13, the Group categorises unit-linked insurance contracts as financial liabilities, carried on the statement of financial position at fair value. The fair value of unit linked liabilities is assessed by reference to the value of the underlying net asset value of the Group's unitised investment funds, determined on a bid value, at the reporting date. As the underlying net asset value is determined using inputs other than quoted prices but which are observable, either directly (that is, as prices) or indirectly (that is, derived from prices), the liability is categorised as a level 2 financial instrument.
Determining the fair value of financial instruments and investment property
In accordance with IFRS 13, the Group categorises financial instruments carried on the statement of financial position at fair value using a three level hierarchy. Financial instruments categorised as level 1 are valued using quoted market prices and therefore there is minimal judgement applied in determining fair value. However, the fair value of financial instruments categorised as level 2 and, in particular, level 3 is determined using valuation techniques. These valuation techniques involve management judgement and estimates, the extent of which depends on the complexity of the instrument and the availability of market observable information.
Valuing capital losses in the unit funds
In line with IAS 12, the Group has recognised a deferred tax asset in relation to capital losses in the unit funds at the reporting date. This asset has been tested for impairment against the level of capital gains realistically expected to arise in future.
Much of the benefit of the deferred tax asset on capital losses in the unit funds will be shared with policyholders. The policyholder investment contract liability has therefore been increased to reflect the fair value of this additional benefit. The assumptions that have a significant effect on the fair value of the liability are as follows:
-- The assumed rate of investment return, which is based on current gilt yields; -- The lapse assumption, which is set prudently based on experience during the year; and
-- The assumed period for development of capital gains, which is estimated from recent experience.
-53-
Amortisation and recoverability of Deferred Acquisition Costs (DAC) and Deferred Income (DIR)
Deferred acquisition costs on investment contracts are amortised on a straight-line basis over the expected lifetime of the underlying contracts. The expected lifetime of the contracts has been estimated from the experienced termination rates and the age of clients at inception and maturity.
Deferred income on investment contracts is amortised on a straight line basis over the expected lifetime of the underlying contracts, although on certain contracts, the impact of early withdrawal charges means the income is effectively recognised over a shorter period.
Deferred acquisition costs on insurance contracts are amortised over the period during which the costs are expected to be recoverable in accordance with the projected emergence of future margins.
Deferred acquisition costs relating to insurance and investment contracts are tested annually for recoverability by reference to expected future income levels. Future income levels are projected using assumptions consistent with those underlying our embedded value calculation.
Acquired in-force business
There have been no new business combinations generating acquired in-force business during the year. The acquired value of the in-force business is amortised on a basis that reflects the expected profit stream arising from the business acquired at the date of acquisition. This profit stream is estimated from the experienced termination rates, expenses of management and age of the clients under the individual contracts as well as global estimates of investment growth, based on recent experience at the date of acquisition.
The acquired value of in-force business relating to insurance and investment contracts is tested annually for recoverability by reference to expected future income levels.
Fair value estimation of assets acquired
In accordance with IFRS 3 Business Combinations, as of the acquisition date, the Group recognises, separately from goodwill, the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree and classifies the identifiable assets acquired and liabilities assumed on the basis of the contractual terms, economic conditions, its operating or accounting policies and other pertinent conditions as they exist at the acquisition date. The Group measures the identifiable assets acquired and the liabilities assumed at their acquisition-date fair values.
Determining the value of deferred tax assets
In line with IAS 12, the Group has recognised deferred tax assets for future tax benefits that will accrue. The asset value has taken into consideration the likelihood of appropriate future income or gains against which the tax asset can be utilised. In particular, future investment income from the existing assets and new business will be sufficient to utilise the unrelieved expenses, and capital gains crystallising in the unit linked funds will utilise the capital losses. Tax assets in relation to deferred income will be utilised as the underlying income is recognised.
Recoverability of St. James's Place Partnership loans
During the normal course of business the Group provides loans to St. James's Place Partners in order to support the development and growth of the St. James's Place Partnership. The St. James's Place Partnership loans are initially recognised at fair value and subsequently held at amortised cost less impairment losses. The recoverability of loans is measured and the asset is deemed impaired if the projected future margins are less than the carrying value of the asset. The allowance for impairment losses on St. James's Place Partnership loans is management's best estimate of losses incurred in the portfolio at the statement of financial position date.
Measurement of prepaid operational readiness costs
Included within prepayments are operational readiness costs relating to the new administration service agreement which are initially recognised at the amounts advanced. The prepayment is expensed in line with the provision of services under the service agreement. At each statement of financial position date, the value of the prepayment is assessed for impairment recognised against the present value of the estimated future contract benefits. In determining the present value of the estimated future contract benefits, the critical judgements are the levels of future business that will be serviced, the anticipated future service tariffs, terminations fees payable and receivable under the contract and the rate used to discount amounts to present value.
-54-
Determining the fair value of share-based payments
In determining the fair value of share-based payments and the related charge to the statement of comprehensive income, the Group makes assumptions about the future events and market conditions. In particular, judgement must be formed as to the likely number of share awards that will vest, and the fair value of each award granted.
4. SEGMENT REPORTING
IFRS 8 Operating Segments requires operating segments to be identified, on the basis of internal reports about components of the Group that are regularly reviewed by the Board, in order to allocate resources to each segment and assess its performance.
The composition of the segments has changed and comparatives have been restated on the new basis. The Group's only reportable segment under IFRS 8 is a "wealth management" business - which is a vertically-integrated business providing support to our clients through the provision of financial advice and assistance through our Partner network, and financial solutions including (but not limited to) wealth management products manufactured in the Group, such as insurance bonds, pensions, unit trust and ISA investments, and a DFM service.
Separate geographical segmental information is not presented since the Group does not segment its business geographically. Most of its customers are based in the United Kingdom, as is management of the assets. In particular, the operation based in south-east Asia is not yet sufficiently material for separate consideration.
Segment Revenue
Revenue received from fee and commission income is set out in Note 5 which sets out the different types of revenue received from our wealth management business.
-55-
Segment Profit
Two separate measures of profit are monitored on a monthly basis by the Board. These are the post-tax underlying cash result and pre-tax European Embedded Value ("EEV").
Underlying cash Result
The measure of cash profit monitored on a monthly basis by the Board is the post-tax underlying cash result. This reflects emergence of cash available for paying a dividend during the year. Underlying cash is based on the cashflows within the IFRS results, but with no allowance for intangibles, principally DAC, DIR, PVIF, goodwill and deferred tax. As the cost associated with share options is reflected in changes in shareholder equity, they are also not included in the underlying cash result.
More detail is provided in the Financial Review section of the Annual Report and Accounts.
The cash result should not be confused with the IFRS consolidated statement of cash flows which is prepared in accordance with IAS 7.
Year Ended Year Ended
31 December 31 December
2016 2015
------------- -------------
GBP' Million GBP' Million
Underlying cash result after
tax 199.5 182.1
Share option expense (23.9) (15.0)
IFRS deferred tax adjustments (21.1) 52.1
Insurance reserves (1.6) (1.8)
Back office infrastructure (16.7) (14.4)
Variance (7.7) 3.8
DAC/DIR/PVIF (16.8) (4.8)
IFRS profit after tax 111.7 202.0
Shareholder tax 28.9 (50.7)
Profit before tax attributable
to shareholders' returns 140.6 151.3
Tax attributable to policyholder
returns 345.7 22.8
IFRS profit before tax 486.3 174.1
------------- -------------
-56-
EEV Operating Profit
EEV operating profit is monitored on a monthly basis by the Board. The components of the EEV operating profit are included in more detail in the Financial Review section of the Annual Report and Accounts.
Year Ended Year Ended
31 December 31 December
2016 2015
------------- -------------
GBP'Million GBP'Million
EEV operating profit before
tax 673.6 660.2
Investment return variance 537.2 (24.4)
Economic assumption changes (12.4) 0.9
EEV profit before tax 1,198.4 636.7
------------- -------------
Adjustments to IFRS basis
Deduct: amortisation of acquired
value of in-force (3.2) (3.2)
Movement in life value of in-force
(net of tax) (642.7) (187.6)
Movement in unit trust value
of in-force (net of tax) (257.6) (176.4)
Tax of movement in value of
in-force (154.3) (118.2)
Profit before tax attributable
to shareholders' returns 140.6 151.3
Tax attributable to policyholder
returns 345.7 22.8
------------- -------------
IFRS profit before tax 486.3 174.1
------------- -------------
Segment Assets
Funds under Management ("FUM")
FUM, as reported in Section 1 of the Financial Review on page 13 is the measure of Segment Assets which is monitored on a monthly basis by the Board.
31 December 31 December
2016 2015
------------- -------------
GBP' Million GBP' Million
Investment 25,500.0 22,520.0
Pension 28,630.0 20,860.0
UT/ISA and DFM 21,180.0 15,230.0
------------- -------------
Total FUM 75,310.0 58,610.0
Exclude client and third party
holdings in non-consolidated unit
trusts and DFM (4,153.9) (2,497.1)
Other 283.7 562.8
Gross assets held to cover unit
liabilities 71,439.8 56,675.7
IFRS intangible assets (see page
23 Adjustment 2)
including Goodwill, DAC, PVIF,
Reassurance and Deferred Tax 917.7 1,067.0
Shareholder gross assets (see
page 23) 2,664.6 1,534.9
Total assets 75,022.1 59,277.6
------------- -------------
-57-
5. FEE AND COMMISSION INCOME
Year Ended Year Ended
31 December 31 December
2016 2015
------------- -------------
GBP' Million GBP' Million
Advice charges 510.7 420.7
Third party fee and commission
income 103.5 97.8
Wealth management fees 590.7 544.2
Investment management fees 52.6 137.5
Fund tax deductions 352.2 27.8
Discretionary fund management 5.3 -
(DFM) fees
Fee and commission income before
DIR amortisation 1,615.0 1,228.0
------------- -------------
Amortisation of DIR 88.9 105.5
Total fee and commission income 1,703.9 1,333.5
------------- -------------
6. INVESTMENT RETURN
Year Ended Year Ended
31 December 31 December
2016 2015
------------- -------------
GBP' Million GBP' Million
Investment return on net assets
held to cover unit liabilities:
Rental income 72.4 60.4
(Loss)/gain on revaluation of
investment properties (23.4) 74.0
Net investment return on financial
instruments classified as fair
value through profit and loss 7,456.8 1,396.0
7,505.8 1,530.4
------------- -------------
Income attributable to third
party holdings in unit trusts 2,094.5 216.8
9,600.3 1,747.2
------------- -------------
Investment return on shareholder
assets:
Net investment return on financial
instruments classified as fair
value through profit and loss 22.9 2.7
Interest income on financial
instruments held at amortised
cost 6.9 5.9
Total investment return 9,630.1 1,755.8
------------- -------------
Included in the net investment return on financial instruments classified as fair value through profit and loss within investment return on net assets held to cover unit liabilities is dividend income of GBP756.2 million (2015: GBP586.4 million).
-58-
7. INCOME AND DEFERRED TAXES
Tax for the year
Year Ended Year Ended
31 December 31 December
2016 2015
------------- -------------
Current tax GBP' Million GBP' Million
UK corporation tax
- Current year charge 171.8 86.0
- Adjustment in respect of prior
year (0.6) 0.7
Overseas taxes
- Current year charge 4.2 3.7
- Adjustment in respect of prior (0.1)
year -
175.3 90.4
Deferred tax
Unrealised capital gains and
losses in unit linked funds 196.3 (50.0)
Unrelieved expenses
- Additional expenses recognised
in the year (12.5) (11.6)
- Utilisation in the year 18.7 19.7
Capital losses
- Additional losses recognised
in the year (2.2) (74.8)
- Utilisation in the year 12.6 12.1
- Adjustment in respect of prior
year 0.1 (1.1)
DAC, DIR and PVIF (11.6) (4.4)
Other items (4.4) (5.8)
Change in tax rate 1.3 (4.5)
Overseas taxes on losses 0.3 2.1
Adjustments in respect of prior
periods 0.7 -
------------- -------------
199.3 (118.3)
Total tax charge/(credit) for
the year 374.6 (27.9)
------------- -------------
Attributable to:
- policyholders 345.7 22.8
- shareholders 28.9 (50.7)
-------------
374.6 (27.9)
------------- -------------
The prior year adjustment in current tax above includes a credit of GBP1.4 million in respect of policyholder tax (2015: GBP1.0 million charge).
Included within the deferred tax on "other items" is a charge of GBP0.2 million (2015: GBP1.8 million credit) relating to share-based payments.
In arriving at the profit before tax attributable to shareholders' return, it is necessary to estimate the analysis of the total tax charge between that payable in respect of policyholders and that payable by shareholders. Shareholder tax is estimated by making an assessment of the effective rate of tax that is applicable to the shareholders on the profits attributable to shareholders. This is calculated by applying the appropriate effective corporate tax rates to the shareholder profits. The remainder of the tax charge represents tax on policyholders' investment returns. This calculation method is consistent with the legislation relating to the calculation of tax on shareholder profits.
-59-
Tax paid in the year
Year Ended Year Ended
31 December 31 December
2016 2015
------------- -------------
GBP' Million GBP' Million
Current tax charge for the year 175.3 90.4
Payments to be made in future
years in respect of current
year (72.6) (28.7)
Payments made in current year
in respect of prior years 30.6 32.3
Other 0.1 (0.5)
------------- -------------
Tax paid 133.4 93.5
------------- -------------
Tax paid can be analysed as:
- Taxes paid in UK 129.0 89.3
- Taxes paid in overseas jurisdictions 1.9 1.8
- Withholding taxes suffered
on investment income received 2.5 2.4
------------- -------------
Tax paid 133.4 93.5
------------- -------------
Movement in net deferred tax balance
Year Ended Year Ended
31 December 31 December
2016 2015
------------- -------------
GBP' Million GBP' Million
Deferred tax asset 225.9 192.8
Deferred tax liability (434.6) (519.8)
Net deferred tax balance at
1 January (208.7) (327.0)
(Charge)/credit through the
consolidated statement of comprehensive
income (199.3) 118.3
Arising on acquisitions during
the year (6.9) -
Deferred tax asset 199.9 225.9
Deferred tax liability (614.8) (434.6)
------------- -------------
Balance at 31 December (414.9) (208.7)
------------- -------------
-60-
Reconciliation of tax charge to expected tax
Year Ended Year Ended
31 December 31 December
2016 2015
------------- -------------
GBP' Million GBP' Million
Profit before tax 486.3 174.1
Tax attributable to policyholders'
returns* (345.7) (22.8)
------------- -------------
Profit before tax attributable
to shareholders' return 140.6 151.3
Shareholder tax charge at
corporate tax rate of 20%
(2015: 20.25%) 28.1 20% 30.6 20.25%
Adjustments:
Tax regime differences
Lower rates of corporation
tax in overseas subsidiaries (0.9) (0.6%) (1.4) (0.9%)
Expected shareholder tax 27.2 19.3% 29.2 19.3%
Other
Non-taxable income (1.0) -
Recognition and usage of
capital losses arising in
the Group (2.2) (74.8)
Adjustment in respect of
prior year (0.1) (1.5)
Differences in accounting
and tax bases in relation
to employee share schemes 0.7 (5.4)
Disallowable expenses 1.2 3.0
Tax losses not recognised
or past losses now recognised 2.0 1.8
Other (0.2) 1.5
------------- -------------
0.4 (0.3%) (75.4) (49.8%)
------------- -------------
Change in tax rate 1.3 (4.5)
Shareholder tax charge/(credit) 28.9 (20.6%) (50.7) (33.5%)
Policyholder tax charge 345.7 22.8
Total tax charge/(credit)
for the year 374.6 (27.9)
------------- -------------
*Tax attributable to policyholder returns is equal to the policyholder tax charge and reflects fund tax deductions offset by policyholder tax effects on intangibles.
Tax calculated on profit before tax at 20% (2015: 20.25%) would amount to GBP97.3 million (2015: GBP35.3 million). The difference of GBP277.3 million (2015: GBP(63.2) million) between this number and the total tax of GBP374.6 million (2015: GBP(27.9) million) is made up of the reconciling items above which total GBP0.8 million (2015: GBP(81.3) million) and the effect of the apportionment methodology on tax applicable to policyholder returns of GBP276.5 million (2015: GBP18.1 million).
-61-
Deferred Tax Assets
Expected 31 December 31 December
utilisation 2016 2015
------------- ------------
Years GBP' Million GBP'
Million
Unrelieved expenses (life
insurance business) 6 50.9 57.1
Deferred income (DIR) 14 39.7 45.2
Capital losses (available
for future relief) 10 99.0 113.1
Employee share scheme costs 3 5.5 5.8
Future capital allowances 6 4.1 3.0
Other 0.7 1.7
------------- ------------
Total deferred tax assets 199.9 225.9
------------- ------------
Appropriate investment income, gains or profits are expected to arise against which the tax assets can be utilised. Whilst the actual rates of utilisation will depend on business growth and external factors, particularly investment market conditions, they have been tested for sensitivity to experience and are resilient to a range of reasonably foreseeable scenarios.
At the reporting date there were unrecognised deferred tax assets of GBP4.1 million (2015: GBP1.4 million) in respect of losses in companies where appropriate profits are not considered probable in the forecast period. These losses primarily relate to our Asia based businesses and can be carried forward indefinitely.
Deferred Tax Liabilities
Expected 31 December 31 December
utilisation 2016 2015
------------- -------------
Years GBP' Million GBP' Million
Unrealised capital gains
(and losses) on life insurance
(BLAGAB) assets backing
unit liabilities 6 501.1 304.8
Deferred acquisition costs
(DAC) 14 97.8 117.8
Acquired value of in-force
business (PVIF) 10 5.4 6.2
Renewal income assets 20 8.6 3.5
Other 1.9 2.3
------------- -------------
Total deferred tax liabilities 614.8 434.6
------------- -------------
Future Tax Rate Changes
Future tax rate changes, including the further reduction in the corporation tax rate from 18% to 17% effective from 1 April 2020 which was enacted in the Finance Act 2016, have been incorporated into the deferred tax balances.
Other Tax Matters
We have considered the OECD Base Erosion and Profit Shifting ("BEPS") actions relevant to the St. James's Place Group and believe that they will not have a material impact on the financial results of the Group. We have developed our processes and procedures to enable completion of any required reporting by the relevant deadlines.
-62-
8. GOODWILL, INTANGIBLE ASSETS, DEFERRED ACQUISITION COSTS AND DEFERRED INCOME
Computer
Acquired software
value & other
of specific
in-force software
Goodwill business developments DAC DIR
--------- ---------- -------------- --------- -----------
GBP' GBP' GBP' GBP' GBP'
Million Million Million Million Million
Cost
At 1 January
2015 10.1 73.4 13.6 1,579.1 (1,149.2)
Additions - - - 32.1 (55.8)
--------- ---------- -------------- --------- -----------
At 31 December
2015 10.1 73.4 13.6 1,611.2 (1,205.0)
At 1 January
2016 10.1 73.4 13.6 1,611.2 (1,205.0)
Additions 3.7 - 2.1 38.6 (56.0)
Addition due
to reassessment
of unit liability - - - - (267.0)
At 31 December
2016 13.8 73.4 15.7 1,649.8 (1,528.0)
Accumulated amortisation
At 1 January
2015 - 36.6 5.9 766.1 (686.0)
Charge for
the year - 3.2 3.4 100.1 (105.5)
--------- ---------- -------------- --------- -----------
At 31 December
2015 - 39.8 9.3 866.2 (791.5)
At 1 January
2016 - 39.8 9.3 866.2 (791.5)
Charge for
the year - 3.2 3.4 98.8 (88.9)
--------- ---------- -------------- --------- -----------
At 31 December
2016 - 43.0 12.7 965.0 (880.4)
Carrying value
At 31 December
2015 10.1 33.6 4.3 745.0 (413.5)
--------- ---------- -------------- --------- -----------
At 31 December
2016 13.8 30.4 3.0 684.8 (647.6)
--------- ---------- -------------- --------- -----------
Current - 3.2 0.9 98.7 (134.5)
Non-current 13.8 27.2 2.1 586.1 (513.1)
--------- ---------- -------------- --------- -----------
13.8 30.4 3.0 684.8 (647.6)
--------- ---------- -------------- --------- -----------
Outstanding amortisation
period
At 31 December 6-14
2015 n/a 10 years 4 years 14 years years
--------- ---------- -------------- --------- -----------
At 31 December 6-14
2016 n/a 9 years 4 years 14 years years
--------- ---------- -------------- --------- -----------
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Goodwill
The carrying value of goodwill split by acquisition is as follows:
31 December 31 December
2016 2015
------------- -------------
GBP' Million GBP' Million
SJP Asia companies 10.1 10.1
Technical Connection Limited 3.7 -
Balance at 31 December 13.8 10.1
------------- -------------
Goodwill is reviewed at least annually for impairment or when circumstances or events indicate there may be uncertainty over this value. The recoverable amount has been based on value in use calculations using pre-tax cash flows. Details of the assumptions made in these calculations are provided below:
Key assumptions based Value of new business
on experience:
Projection period: 5 years of detailed forecasts
extrapolated into perpetuity
using a long term growth rate
Long term growth
rate: 1.4%
Pre-tax discount
rate: 3.0%
It is considered that any reasonably possible levels of change in the key assumptions would not result in impairment of the goodwill.
Acquired value of in-force business/DAC/Computer software
Amortisation is charged to expenses in the statement of comprehensive income. Amortisation profiles are reassessed annually.
DIR
Amortisation is credited within fee and commission income in the statement of comprehensive income. Amortisation profiles are reassessed annually.
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9. INVESTMENTS, INVESTMENT PROPERTY AND CASH
Net assets held to cover unit liabilities
Included within the statement of financial position are the following assets and liabilities comprising the net assets held to cover unit liabilities.
31 December 31 December
2016 2015
------------- -------------
GBP' Million GBP' Million
Assets
Investment property 1,462.4 1,344.9
Equities 46,598.7 37,960.8
Fixed income securities 12,397.8 8,850.9
Investment in Collective Investment
Schemes 2,997.4 2,736.9
Derivative financial instruments
- Currency forwards 86.5 33.8
- Interest rate swaps 40.0 13.5
- Collaterised mortgage obligations 510.2 238.7
- Index options 17.7 20.3
- Contracts for differences 8.2 10.7
- Equity rate swaps 26.2 16.1
- Foreign currency options 18.7 22.8
- Total return swaps 18.7 6.6
- Other derivatives 2.9 1.6
Cash and cash equivalents 7,067.2 5,091.6
Other receivables 187.2 603.9
Total assets 71,439.8 56,953.1
------------- -------------
Liabilities
Derivative financial instruments
- Currency forwards 176.4 168.6
- Interest rate swaps 38.3 5.9
- Fixed Income options - 6.1
- Index options 5.9 3.6
- Contracts for differences 2.9 4.3
- Equity rate swaps 30.2 5.8
- Foreign currency options 10.1 19.6
- Total return swaps 8.1 0.2
- Other derivatives 10.0 7.0
Other payables 383.5 585.2
Total liabilities 665.4 806.3
------------- -------------
Net assets held to cover linked
liabilities 70,774.4 56,146.8
------------- -------------
Investment contract benefits 53,307.1 43,159.8
Net asset value attributable
to unit holders 17,032.0 12,556.4
Unit linked insurance contract
liabilities 435.3 376.5
Consolidation adjustments - 54.1
Net unit linked liabilities 70,774.4 56,146.8
------------- -------------
Net assets held to cover linked liabilities, and third party holdings in unit trusts, are considered to have a maturity of up to one year since they are actively traded and managed to facilitate immediate settlement.
-65-
Investment Property
31 December 31 December
2016 2015
------------- -------------
GBP' Million GBP' Million
Balance at 1 January 1,344.9 1,031.4
Additions 131.6 247.9
Capitalised expenditure
on existing properties 9.3 5.9
Disposals - (14.3)
Changes in fair value (23.4) 74.0
------------- -------------
Balance at 31 December 1,462.4 1,344.9
------------- -------------
Investment property is held within unit linked funds and is considered current.
Investment property is valued monthly by external chartered surveyors in accordance with the guidance issued by The Royal Institution of Chartered Surveyors. The investment property valuation has been prepared using the "market approach" valuation technique - using prices and other relevant information generated by market transactions involving identical or comparable (i.e. similar) assets.
The rental income and direct operating expenses recognised in the statement of comprehensive income in respect of investment properties are set out below. All expenses relate to property generating rental income.
Year Ended Year Ended
31 December 31 December
2016 2015
------------- -------------
GBP' Million GBP' Million
Rental income 72.4 60.4
Direct operating expenses 6.3 5.8
At the year-end contractual obligations to purchase, construct or develop investment property amounted to GBP4.5 million (2015: GBP9.0 million) and to dispose of investment property amounted to GBPnil (2015: GBPnil).
Cash and cash equivalents
31 December 31 December
2016 2015
------------- ----------------------
GBP' Million GBP' Million
Cash at bank 341.1 233.5
Cash held by third parties 4.8 -
------------- ----------------------
Cash and cash equivalents not
held to cover unit liabilities 345.9 233.5
Balances held to cover unit
liabilities 7,067.2 5,091.6
Total cash and cash equivalents 7,413.1 5,325.1
------------- ----------------------
All cash and cash equivalents are considered current.
-66-
10. BORROWINGS AND FINANCIAL COMMITMENTS
Borrowings
31 December 31 December
2016 2015
------------- -------------
GBP' Million GBP' Million
Bank borrowings 231.3 132.0
Loan notes 50.1 49.8
------------- -------------
Total borrowings 281.4 181.8
------------- -------------
Current 1.3 1.0
Non-current 280.1 180.8
------------- -------------
281.4 181.8
------------- -------------
In the prior year a GBP250 million revolving credit facility (repayable over five years with a variable interest rate) was entered into with a group of UK banks. The Group initially drew down GBP125 million under the fully-committed facility, with an additional GBP100 million being drawn in the current year.
In addition, during the prior year, the Group entered into a US Dollar $160 million private shelf facility. The Group authorised the issue of GBP50 million of loan notes during the prior year in relation to the aforementioned facility. The notes were issued in Sterling, eliminating any Group currency risk. The notes are repayable over ten years with a variable interest rate.
The Group also guarantees loans provided by third parties to Partners. In the event of default of any individual Partner loan, the Group guarantees to repay the full amount of the loan, with the exception of Metro Bank plc, where 50% of the loan is guaranteed. These loans are secured against the future renewal income streams of the Partner. The value of the loans guaranteed is as follows:
Loans Drawn Facility
---------------------------- ----------------------------
31 December 31 December 31 December 31 December
2016 2015 2016 2015
------------- ------------- ------------- -------------
GBP' Million GBP' Million GBP' Million GBP' Million
Bank of Scotland 54.0 77.2 80.0 90.0
Metro Bank plc 35.6 44.8 95.0 50.0
Santander plc 47.2 19.4 50.0 25.0
------------- ------------- ------------- -------------
Total loans 136.8 141.4 225.0 165.0
------------- ------------- ------------- -------------
The fair value of the outstanding borrowings and guarantees is not materially different from amortised cost.
Interest expense on borrowings is recognised within expenses in the statement of comprehensive income.
-67-
Financial Commitments
The Group has commitments under non-cancellable operating leases in connection with the rental of office buildings and office equipment with varying lease end dates ranging from 2017 to 2041. The following table represents the future minimum lease payments under non-cancellable operating leases:
31 December 31 December
2016 2015
------------- -------------
GBP' Million GBP' Million
Not later than one year 15.6 14.9
Later than one year and not
later than five years 53.8 50.1
Later than five years 65.0 67.4
------------- -------------
Total financial commitments 134.4 132.4
------------- -------------
As at 31 December 2016, there was GBP0.2 million (2015: GBP0.1 million) of future minimum sublease payments expected to be received under non-cancellable sub-leases.
11. CAPITAL MANAGEMENT AND ALLOCATION
It is the Group's policy to maintain a strong capital base in order to:
-- Protect clients' interests; -- Meet regulatory requirements; -- Protect creditors' interests; and -- Create shareholder value through support for business development.
Within the Group, each subsidiary manages its own capital in the context of a Group capital plan. Any capital in excess of planned requirements is returned to the Group's parent, St. James's Place plc, normally by way of dividends. The Group capital position is monitored by the Finance Executive Committee on behalf of the St. James's Place plc Board.
The Group's policy is for each subsidiary to hold the higher of:
-- The capital required by any relevant supervisory body uplifted by a specified margin to absorb changes; or
-- The capital required based on the Company's internal assessment.
For our insurance companies, we hold capital based on our own internal assessment, albeit recognising the regulatory requirement. For other regulated companies we generally hold capital based on the regulatory requirement uplifted by a specified margin.
-68-
The following entities are subject to regulatory supervision and have to maintain a minimum level of regulatory capital:
Entity Regulatory Body and Jurisdiction
St. James's Place UK PRA and FCA: Long-term insurance
plc business
St. James's Place International Central Bank of Ireland:
plc Life insurance business
St. James's Place Unit FCA: UCITS Management Company
Trust Group Limited
St. James's Place Investment FCA: Investment Firm
Administration
Limited
St. James's Place Wealth FCA: Securities and Futures
Management (PCIS) Firm
Limited
St. James's Place Wealth FCA: Personal Investment
Management plc Firm
BFS Financial Services FCA: Personal Investment
Limited Firm
LP Financial Management FCA: Personal Investment
Limited Firm
St. James's Place (Hong Securities and Futures Commission
Kong) Limited (Hong Kong):
A Member of The Hong Kong
Confederation of
Insurance Brokers
St. James's Place (Singapore) Monetary Authority Singapore:
Private Limited A Member of the
Association of Financial
Advisers
Rowan Dartington & Co FCA: Investment Firm
Limited
In addition, the St. James's Place Group is regulated as an Insurance Group under Solvency II, with the PRA as the lead regulator.
As an insurance group, St. James's Place is subject to the Solvency II regulations, which were implemented on
1 January 2016. More information about the impact of the implementation of Solvency II is included in the Financial Review on page 30 and in the separate Solvency and Financial Condition Report document. The overall capital position for the Group at 31 December 2016, assessed on the Standard Formula basis, is presented in the following table:
31 December 2016 Group
GBP'Million
IFRS total assets 75,022.1
Less Solvency II valuation adjustments
and unit linked liabilities (73,952.1)
------------
Solvency II net assets 1,070.0
Management Solvency Buffer (MSB) 527.0
Excess of free assets over MSB 543.0
Solvency II VIF 2,707.9
Risk margin (779.2)
Standard formula SCR (A) (2,046.5)
------------
Sub-total (117.8)
Solvency II Free Assets (B) 952.2
------------
Solvency II ratio ((A +B)/A) 147%
An overall internal capital assessment is required for insurance groups. This is known as an ORSA (Own Risk and Solvency Assessment) and is described in more detail in the section on Risk and Risk Management on page 36.
-69-
The capital requirement and the associated solvency of the Group are assessed and monitored by the Finance Executive Committee, a Committee of the St. James's Place plc Board. The regulatory requirements for the remaining companies within the Group are assessed and monitored by the relevant subsidiary boards.
Although there has been a significant change in the approach to assessing "required capital" during the year (as a result of Solvency II), there has been no material change in the level of capital required, or in the Group's management of capital. All regulated entities exceeded the minimum solvency requirements at the reporting date and during the year.
Capital composition
The principal forms of capital are included in the following balances on the consolidated statement of financial position:
31 December 31 December
2016 2015
------------- -------------
GBP' Million GBP' Million
Share capital 79.1 78.7
Share premium 164.5 158.3
Shares in trust reserve (20.9) (18.5)
Miscellaneous reserves 2.5 2.3
Retained earnings 851.2 874.6
------------- -------------
Shareholders' equity 1,076.4 1,095.4
Non-controlling interests (0.8) (0.3)
Total equity 1,075.6 1,095.1
------------- -------------
The above assets do not all qualify as regulatory capital. The required minimum regulatory capital and analysis of the assets that qualify as regulatory capital are outlined in Section 4 of the Financial Review on page 23, which demonstrates that the Group has met its internal capital objectives. The Group and its individually regulated operations have complied with all externally and internally imposed capital requirements throughout the year.
12. SHARE CAPITAL, EARNINGS PER SHARE AND DIVIDS
Share Capital
Number of
Ordinary Share Capital
Shares
------------ ----------------
GBP' Million
At 1 January 2015 519,447,391 77.9
- Issue of share capital 206,366 -
- Exercise of options 5,011,455 0.8
------------ ----------------
At 31 December 2015 524,665,212 78.7
- Issue of share capital 108,819 -
- Exercise of options 2,708,317 0.4
------------ ----------------
At 31 December 2016 527,482,348 79.1
------------ ----------------
The total authorised number of ordinary shares is 605 million (2015: 605 million), with a par value of 15 pence per share (2015: 15 pence per share). All issued shares are fully paid.
Included in the issued share capital are 3,954,525 (2015: 3,605,740) shares held in the Shares in Trust Reserve with a nominal value of GBP0.6 million (2015: GBP0.5 million). The shares are held by the SJPC Employee Share Trust and the St. James's Place 2010 SIP Trust to satisfy certain share based payment schemes. The trustees of the SJPC Employee Share Trust retain the right to dividends on the shares held by the Trust but have chosen to waive their entitlement to the dividends on 1,330,156 shares during 2016 and 1,727,510 shares during 2015. No dividends have been waived on shares held in the St. James's Place 2010 SIP Trust in 2016 or 2015.
-70-
Earnings per share
Year Ended Year Ended
31 December 31 December
2016 2015
------------- -------------
GBP' Million GBP' Million
Earnings
Profit after tax attributable
to equity shareholders (for
both basic and diluted EPS) 112.2 202.0
------------- -------------
Weighted average number of shares Million Million
Weighted average number of ordinary
shares in issue (for basic EPS) 522.6 519.1
Adjustments for outstanding
share options 3.3 5.2
------------- -------------
Weighted average number of ordinary
shares (for diluted EPS) 525.9 524.3
------------- -------------
Pence Pence
Earnings per share (EPS)
Basic earnings per share 21.5 38.9
Diluted earnings per share 21.3 38.5
Dividends
The following dividends have been paid by the Group:
Year Ended Year Ended Year Ended Year Ended
31 December 31 December 31 December 31 December
2016 2015 2016 2015
------------- ------------- ------------- -------------
Pence Pence GBP' Million GBP' Million
per per
Share Share
Final dividend
in respect of
previous financial
year 17.24 14.37 90.4 74.8
Interim dividend
in respect of
current financial
year 12.33 10.72 64.8 56.0
------------- ------------- ------------- -------------
Total dividends 29.57 25.09 155.2 130.8
------------- ------------- ------------- -------------
The Directors have recommended a final dividend of 20.67 pence per share (2015: 17.24 pence). This amounts to GBP109 million (2015: GBP90.4 million) and will, subject to shareholder approval at the Annual General Meeting, be paid on 12 May 2017 to those shareholders on the register as at 7 April 2017.
-71-
13. BUSINESS COMBINATIONS AND DISPOSALS
Business combinations
During the year the Group acquired the following subsidiaries in line with the Group's strategic objective of broadening the business model, expanding the client proposition and growing the Partnership:
Subsidiary undertaking Principal activity % Shareholding Date of
acquisition
Rowan Dartington
Group
Rowan Dartington Holding Company 100% 08/03/2016
Holdings Limited
Rowan Dartington Stockbroker and 100% 08/03/2016
& Co Limited Investment Manager
Stafford House Independent Financial 100% 08/03/2016
Investments Limited Adviser
Ardan International Investment Platform 92.5% 08/03/2016
Limited
Dartington Portfolio Non-trading 100% 08/03/2016
Nominees Limited
Rowan Dartington Non-trading 100% 08/03/2016
Trustees Limited
RD Portfolio Nominees Non-trading 100% 08/03/2016
Limited
Colston Portfolio Non-trading 100% 08/03/2016
Nominees Limited
Cabot Portfolio Non-trading 100% 08/03/2016
Nominees Limited
Ardan Nominees Non-trading 100% 08/03/2016
Limited
Others
Technical Connection Tax and Advisory 100% 18/04/2016
Limited Services
Now Financial Solutions Independent Financial 100% 29/04/2016 Limited* Adviser
*Post acquisition, Now Financial Solutions Limited changed its name to Hale Financial Solutions Limited.
Acquisition-related costs of GBP0.2 million have been charged to administration expenses in the consolidated income statement for the year ended 31 December 2016.
Rowan Dartington Group
The Rowan Dartington Group acquisition contributed GBP9.8 million to revenue and a GBP3.9 million loss before income tax for the period between the acquisition date and the statement of financial position date. Had the above acquisitions been consolidated from 1 January 2016, they would have contributed GBP11.4 million to revenue and a GBP4.3 million loss before income tax to the consolidated statement of comprehensive income for the period.
The net assets, fair value adjustments and consideration for these acquisitions are summarised below (all values shown as at their acquisition dates):
Book Fair Total
value value
adjustment
------------ ------------ ------------
GBP'Million GBP'Million GBP'Million
Financial assets 7.8 39.1 46.9
Cash and cash equivalents 1.2 - 1.2
Financial liabilities (7.6) (6.6) (14.2)
Total 1.4 32.5 33.9
Consideration
Cash consideration 19.9
Deferred consideration 7.2
Contingent consideration 6.8
Total consideration 33.9
It is expected that the contingent consideration will be paid in full with no changes to the amount initially recognised; however, should the target number of Investment Executives not be met, the contingent consideration will decrease on a pro-rata basis down to a value of GBPnil. Of the remaining balance to be settled at acquisition, a further GBP2.4 million was settled on 6 September 2016 and the Group expects that GBP2.4 million will be settled by 9 March 2017, GBP5.7 million by 6 September 2017 and GBP3.5 million by 8 March 2019.
-72-
Other acquisitions
The net assets, fair value adjustments and consideration for these acquisition is summarised below (all values shown as at their acquisition dates):
Book Fair Total
value value
adjustment
------------ ------------ ------------
GBP'Million GBP'Million GBP'Million
Financial assets 0.3 2.2 2.5
Cash and cash equivalents 0.9 - 0.9
Financial liabilities (0.5) (0.4) (0.9)
Total 0.7 1.8 2.5
Consideration
Cash consideration 3.8
Deferred consideration 0.3
Contingent consideration 2.1
Total consideration 6.2
Goodwill 3.7
Goodwill comprises the value placed on the experience and expertise of the Technical Connection Limited management team within the tax and advisory sector.
Of the GBP2.1 million contingent consideration, GBP1.2 million is in relation to the acquisition of Technical Connection Limited. It is expected that the GBP1.2 million contingent consideration will be paid in full with no changes to the amount initially recognised; however, should the target number of consultancy hours provided to SJP Partners and the level of Techlink subscriptions not be met, the contingent consideration will decrease on a pro-rata basis down to a value of GBPnil.
The remaining GBP0.9 million contingent consideration is in relation to the acquisition of Now Financial Solutions Limited (now Hale Financial Solutions Limited) and is payable if certain performance targets are met, being based on the individual Partner performance. It is expected that the GBP0.9 million contingent consideration will be paid in full with no changes to the amount initially recognised; however, should the performance targets not be met, the contingent consideration will decrease on a pro-rata basis down to a value of GBPnil.
Of the total remaining balance to be settled, the Group expects that GBP0.4 million will be settled by 29 April 2017, GBP0.8 million will be settled by 18 April 2018, GBP0.4 million will be settled by 29 April 2018 and GBP0.8 million will be settled by 18 April 2019.
Disposals
During the year the Group sold 100% of its investments in the following subsidiaries in line with the Group's objective to simplify the Group structure and remove non-core operations:
Subsidiary undertaking Principal activity Date of disposal Net assets on date of Profit/(loss) on
disposal disposal
GBP'Million GBP'Million
Ardan International Investment Platform 30/12/2016 4.0 nil
Limited
Ardan Nominees Limited Non-trading 30/12/2016 - nil
St. James's Place Trust
Company Jersey Limited Trustee Services 21/06/2016 0.1 (0.1)
-73-
In line with IFRS 3 no gain or loss arose on the sale of Ardan International Limited and its subsidiary as it was sold within the 12 month adjustment period following acquisition resulting in a fair value adjustment being processed in the business combination note resulting in the reduction of goodwill.
14. RELATED PARTY TRANSACTIONS
Transactions with St. James's Place unit trusts
In respect of the non-consolidated St. James's Place managed unit trusts that are held as investments in the St. James's Place life and pension funds, there was a charge recognised of GBP0.3 million (2015: GBP10.1 million income) and the total value of transactions with those non-consolidated unit trusts was GBP53.0 million (2015: GBP43.0 million). Net management fees receivable from these unit trusts amounted to GBP17 million (2015: GBP22.3 million). The value of the investment into the non-consolidated unit trusts at 31 December 2016 was GBP198.6 million (2015: GBP176.5 million).
Transactions with key management personnel
Key management personnel have been defined as the Board of Directors and members of the Executive Board Committee.
The remuneration paid to key management personnel is as follows:
Year Ended Year Ended
31 December 31 December
2016 2015
------------- -------------
GBP' Million GBP' Million
Short-term employee benefits 3.5 3.2
Post-employment benefits 0.4 0.4
Other long term benefits 1.9 1.6
Share-based payment 1.9 1.6
7.7 6.8
------------- -------------
The charge to the statement of comprehensive income in respect of the share-based payment awards made to the key management personnel of St. James's Place was GBP3.4 million (2015: GBP3.7 million).
The total value of St. James's Place funds under management held by related parties of the Group as at 31 December 2016 was GBP26.5 million (2015: GBP20.4 million). The total value of St. James's Place plc dividends paid to related parties of the Group during the year was GBP1.4 million (2015: GBP1.3 million).
15. NON STATUTORY ACCOUNTS
The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 December 2016 or 2015, but is derived from those accounts. Statutory accounts for 2015 have been delivered to the registrar of companies, and those for 2016 will be delivered in due course. The auditors have reported on those accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 of the Companies Act 2006.
16. ANNUAL REPORT
The Company's annual report and accounts for the year ended 31 December 2016 is expected to be posted to shareholders by 31 March 2017. Copies of both this announcement and the annual report and accounts will be available to the public at the Company's registered office at St. James's Place House, 1 Tetbury Road, Cirencester GL7 1FP and through the Company's website at www.sjp.co.uk.
-74-
RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT
OF THE ANNUAL FINANCIAL REPORT
The Directors confirm to the best of their knowledge that:
-- The financial statements have been prepared in accordance with International Reporting Financial Standards as adopted by the EU and give a true and fair view of the assets, liabilities, financial position and profit for the Company and the undertakings included in the consolidation as a whole; and
-- Pursuant to Disclosure and Transparency Rules Chapter 4, the Directors' report of the Company's annual report and accounts includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties faced by the business.
On behalf of the Board
David Bellamy Andrew Croft Chief Executive Chief Financial Officer
27 February 2017
Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on this announcement (or any other website) is incorporated into, or forms part of, this announcement.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR UBVWRBWAUUAR
(END) Dow Jones Newswires
February 28, 2017 02:01 ET (07:01 GMT)
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