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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 | |
|---|---|---|---|---|---|---|---|---|---|---|
| 5.40 | 1.29% | 423.00 | 419.60 | 419.80 | 420.40 | 406.40 | 412.80 | 2,610,562 | 16:35:07 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Trust,ex Ed,religious,charty | 18.98B | -10.1M | -0.0184 | -228.15 | 2.3B |
From Apr 2019 to Apr 2024
TIDMSTJ
RNS Number : 2006R
St. James's Place PLC
27 February 2019
-1-
ST. JAMES'S PLACE PLC
27 St. James's Place, London SW1A 1NR
Telephone 020 7493 8111
PRESS RELEASE
27 February 2019
ANNOUNCEMENT OF
ANNUAL RESULTS FOR THE YEARED 31 DECEMBER 2018
CONTINUED BUSINESS GROWTH
UNDERPINS 12.5% INCREASE IN FULL YEAR DIVID
St. James's Place plc ("SJP"), the wealth management group, today issues its annual results for the year ended 31 December 2018:
Financial highlights
-- EEV new business profit GBP852.7 million (2017: GBP779.8 million) - up 9% -- EEV operating profit GBP1,002.0 million (2017: GBP918.5 million) - up 9% -- IFRS profit before shareholder tax GBP211.9 million (2017: GBP186.1 million) - up 14% -- Underlying cash result GBP309.0 million (2017: GBP281.2 million) - up 10% -- Underlying cash earnings per share of 58.7 pence (2017: 53.6 pence per share) - up 10%
Dividend
-- Final dividend of 29.73 pence per share (2017: 27.45 pence per share); full year dividend of 48.22 pence per share (2017: 42.86 pence per share), growth of 12.5%
Other highlights
-- Gross inflows of GBP15.7 billion (2017: GBP14.6 billion) -- Net inflow of funds under management of GBP10.3 billion (2017: GBP9.5 billion) -- Funds under management of GBP95.6 billion (2017: GBP90.7 billion) -- We are now represented by 3,954 qualified advisers across the Partnership
-2-
Andrew Croft, Chief Executive Officer, commented:
"I am pleased to report a good set of results for 2018, building on an exceptional outcome in 2017 and despite a difficult external environment in the last quarter of the year. This demonstrates once again the resilience of our business.
The financial performance of the business reflects the progression of funds under management together with the contribution of new inflows in the year, resulting in good growth across all our key financial metrics. The Board proposes a final dividend of 29.73 pence per share, making for a full year dividend of 48.22 pence per share, growth of 12.5%, marginally above the growth of the underlying cash result in recognition of the very strong strategic progress during the year.
It is pleasing to see a recovery in the global stock markets at the start of 2019 which, together with on-going net inflows during January and February have, at the time of writing, taken our funds under management to some GBP102 billion. The business continues to perform well relative to the industry. However, challenging external factors, like those currently being experienced, are not in our control and the pace of fund flows has moderated compared with last year. I would note though that the inflows for the same period last year represent a very strong comparative and March typically accounts for around 50% of the first quarter's flows.
Irrespective of these external factors, the fundamentals of our clients' financial planning requirements remain unchanged. With a continued focus on achieving the best possible outcomes for our clients through the provision of trusted face-to-face financial advice and our distinctive investment management approach, together with the continued growth in the size of the St. James's Place Partnership, we remain extremely well placed to continue to grow our business."
The details of the announcement are attached.
Enquiries:
Hot Features
Premium
Andrew Croft, Chief Executive Tel: 020 7514 1963
Officer
Craig Gentle, Chief Financial Tel: 020 7514 1963
Officer
Tony Dunk, Investor Relations Tel: 020 7514 1963
Director
Brunswick Group Tel: 020 7404 5959
Charles Pretzlik Email: cpretzlik@brunswickgroup.com
Tom Burns Email: tburns@brunswickgroup.com
-3-
Analyst presentation at 10:15am for 10:30am 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 refer to the link below or via our website:
(Live and On-demand):
https://www.investis-live.com/st-jamess-place/5c41e48cf56276120071d8ae/ebsd [investis-live.com]
There will also be a Dial-in:
United Kingdom (Local) : 020 3936 2999
All other locations : +44 20 3936 2999
Participant Access Code : 188093 - this must be entered in order for participants to gain access to the conference. Participants' requested details will be taken before being placed into the conference.
Replay information:
A recording will be available until Wednesday 6th March 2019
UK: 020 3936 3001
USA: 1 845 709 8569
All other locations: +44 20 3936 3001
Access Code: 470117
-4-
CHIEF EXECUTIVE'S REPORT
Introduction
This is my second report to shareholders as Chief Executive and I am pleased to say the business has performed well during the year, building on an exceptional outcome in 2017 and despite a difficult external environment in the last quarter of the year.
All of our key financial metrics have grown, the Partnership is stronger and larger, and we have made good progress with our multi-year back office infrastructure project.
Business performance and dividend
I am pleased to report another good set of results that once again demonstrate the resilience of our business. In 2018 we achieved full-year gross inflows of GBP15.7 billion, which represents growth of 8% over 2017, while net inflows were also 8% higher at GBP10.3 billion. We have now achieved compound growth in gross inflows of 18% p.a. over 2, 5 and 10 years whilst over the same periods compound growth in net inflows has been some 20% p.a.
Those net inflows, partially offset by weaker investment markets, provided for funds under management at the end of 2018 of GBP95.6 billion, growth of 5.4%.
The financial performance of the business reflects the progression of funds under management together with the contribution of new inflows, resulting in good growth across all the key metrics measured by the Board. The Chief Financial Officer's report and Financial Review on pages 8 to 33 provide a comprehensive analysis of the financial performance for the year.
Shareholders will recall that the Board considers the underlying cash result to be a key measure the Board considers when determining the dividend. Indeed, we announced a year ago that we would expect dividends to be set using a c.80% pay-out ratio to the underlying cash result.
With this in mind, the Board proposes a final dividend of 29.73 pence per share, making for a full year dividend of 48.22 pence per share, growth of 12.5%, marginally above the growth of the Underlying cash result in recognition of the very strong strategic progress during the year.
The final dividend, subject to approval of shareholders at our AGM, will be paid on 24 May 2019 to shareholders on the register at the close of business on 5 April 2019. A Dividend Reinvestment Plan continues to be available for shareholders.
Clients
The success of St. James's Place continues to be built on establishing and maintaining long lasting, highly personal relationships with, and between, our Partners and clients and serving them well.
At its core, this means we seek to achieve the best possible outcome for our clients through sound financial planning advice provided by our highly skilled advisers, together with our distinctive investment management approach. Thus helping our clients to fulfil their ambitions and aspirations.
-5-
It is pleasing then that clients of St. James's Place see real value in their relationship with the business, as highlighted in the results of our biennial Wealth Account Survey. Our survey, which was carried out following receipt of Annual Wealth Account Statements in early 2019, has so far received some 34,000 responses and it indicates that overall client satisfaction remains high. 89% of clients tell us that they are either satisfied or very satisfied with the overall relationship and encouragingly, more than 94% of clients said that they would recommend St. James's Place to others with 55% suggesting that they had already done so. When asked to describe our proposition in terms of value for money, 96% of the clients who responded, said reasonable, good or excellent. We will build upon these excellent results by seeking further improvements to our standards of service and proposition, ensuring clients continue to receive high quality, face-to-face advice they can trust and demonstrable value creation for their wealth.
The St. James's Place Partnership
The St. James's Place Partnership now numbers 3,954 advisers, an 8% increase over the year as we welcomed a net 293 new advisers through a combination of our experienced adviser recruitment channels and our Academy initiatives. In 2018 we invested some GBP10 million in our Academy and Next Generation Academy - an investment that will play an important and growing role in developing our next generation of financial advisers. Last year 142 people graduated from these academies and at the end of the year there were 379 individuals in the programme. We are also pleased that 50 Partner Support Staff became fully diploma qualified having passed through our Paraplanning Academy in 2018.
Looking ahead, we will continue to seek to attract high-quality, experienced advisers to the Partnership as we cement our position as a 'go to' place for successful financial advisers through the commitment we make to supporting their clients and their businesses. In addition, we will further expand the capacity of our Academy programmes with the ambition of enrolling 14 new cohorts and graduating around 170 advisers into the Partnership in 2019.
The Partnership is a key differentiator for St. James's Place and we will continue to ensure we provide the support for our advisers so that they can, in turn, support clients.
Investment Markets and our Investment Management Approach
2018 proved to be a challenging one for investors. The market started weakly, recovered in the second quarter, held steady in the third, before seeing a sharp correction in the final quarter, resulting in investment returns for the year as a whole being negative across almost all asset classes.
A number of factors lay behind the selloff: Brexit concerns, US-China trade tensions; slowing growth in China and potentially, in the US; the end of the Trump tax-cuts stimulus to corporate earnings; and, perhaps above all, worries over the tightening monetary policy with the US Federal Reserve raising interest rates four times during the course of the year.
Against this backdrop our Portfolios pared back in line with equity markets in the last three months of the year, taking them negative for the year albeit they protected clients from the worst of the market fall.
Towards the end of the year, we launched the Diversified Assets fund, managed by Kohlberg Kravis Roberts & Co. L.P. (KKR) in New York. This strategy offers our clients the opportunity to access private market assets that are typically only available to institutional investors. We also further improved our approach to responsible investing with a change of strategy and subsequent refocusing and renaming of the Ethical fund as the Sustainable & Responsible Equity fund, now managed by Kirsteen Morrison and David Winborne of Impax Asset Management. The other changes made last year saw us add Wellington, who bring a more diverse approach to the Alternative Assets fund, and two very different but complementary managers in GMO and Jennison have been appointed as co-managers of the Balanced Managed fund. These two bring increased diversity and flexibility, as well as scalability in the case of GMO, to our range of managers.
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After the downturn of late 2018, markets posted a strong first month in 2019, a recovery that has been reflected across all our Portfolios, reflecting a growing belief that initial global growth fears had been overdone. Irrespective of any future short-term volatility, we remain confident that our investment approach will continue to support clients in realising their long-term goals.
Investment for growth
We continue to look to the future through our continued investment into St. James's Place Asia and Rowan Dartington, both of which are performing well and complementing our business. In 2018, we grew adviser headcount in Asia to 133 and increased St. James's Place funds under management to some GBP625 million and total funds under administration to over GBP1 billion.
Rowan Dartington is also growing in scale, with funds under management now totalling GBP2.3 billion, and its proposition is expanding both geographically - it is now present in Hong Kong with entry into Singapore planned for 2019 - and in terms of capability as the business explores new opportunities, including international multi-currency portfolios and portfolio lending services. We will also continue to explore 'bolt on' acquisitions where we see both complementary fit and value.
Back office infrastructure
2018 was a year of significant progress in our programme to transform our back-office administration onto Bluedoor. During the year we successfully migrated a GBP24 billion tranche of our accumulation-stage pensions business as well as all of our GBP5 billion pensions drawdown book. This means that we now administer around 77% of all new business on Bluedoor, and 63% of total funds under management. Such migration programmes are complex and the progress in 2018 was the result of considerable work from our third-party suppliers, our own administration centres, and our Field and Cirencester teams. Last week we launched a new investment bond on the platform. I would like to thank everyone involved in these migrations for their hard work and for giving up many weekends.
2019 will be another year of intense activity as we focus first on migrating the remaining tranches of our pensions business before migrating our existing investment bond business.
From the outset, our priority has been to manage this transformation safely, ensuring that clients, the Partnership, and our business suffer minimal disruption as we execute this multi-phase process. That will remain our overriding priority as we continue through the latter phases of this project.
Once we have completed the project our business processing will be on a modern 21(st) century platform which will provide us with the scalability to accommodate our growing business needs as well as enable us to improve service to clients.
-7-
The St. James's Place Charitable Foundation and community engagement
Helping people in need is a very important part of the St. James's Place culture, with our whole community committed to supporting charitable causes and making a positive and lasting difference to the lives of those in need. In 2018, some GBP10 million was raised for the Foundation, a sum which includes the Company matching every GBP1 raised. Since 1992, we have now raised and distributed over GBP80 million in support of thousands of charities. We are proud of the fact that some 90% of advisers and employees of St. James's Place now give to the Charitable Foundation through their pay or earnings, complementing the additional fundraising activities undertaken by staff and advisers.
Our desire to achieve a positive social impact extends beyond our commitment to the Charitable Foundation and includes engaging with the communities in which our business operates and those communities that need a helping hand. As a wealth management business we are particularly well placed to contribute positively to financial education across the UK and we support the efforts of the Partnership and our employees to allow them to commit their time and expertise to such activities.
Board changes
As previously announced David Lamb has recently retired after 27 years with the Company and the last 12 as a Board Director. I would personally like to thank David for his 27 years of invaluable service to the Company.
I am also delighted that David has agreed to continue to chair our Investment Committee in a non-executive capacity.
I also thank Sarah Bates who stepped down from the Board after 14 years as a director and the last four as Chair, and I look forward to working with Iain Cornish who has succeeded Sarah as Chair.
Our community
The strength and continued growth of the business is due to the hard work and dedication of The Partnership, their teams, our management teams and all our employees and administration support teams.
On behalf of the Board and shareholders I once again thank everyone connected with St. James's Place for their contribution to these results and for their continued enthusiasm, dedication and commitment.
Outlook
It is pleasing to see a recovery in the global stock markets at the start of 2019 which, together with on-going net inflows during January and February have, at the time of writing, taken our funds under management to some GBP102 billion. The business continues to perform well relative to the industry. However, challenging external factors, like those currently being experienced, are not in our control and the pace of fund flows has moderated compared with last year. I would note though that the inflows for the same period last year represent a very strong comparative and March typically accounts for around 50% of the first quarter's flows.
Irrespective of these external factors, the fundamentals of our clients' financial planning requirements remain unchanged. With a continued focus on achieving the best possible outcomes for our clients through the provision of trusted face-to-face financial advice and our distinctive investment management approach, together with the continued growth in the size of the St. James's Place Partnership, we remain extremely well placed to continue to grow our business.
Andrew Croft
Chief Executive
26 February 2019
-8-
CHIEF FINANCIAL OFFICER'S REPORT
During a year of increasing market and political uncertainty the business has delivered resilient growth in financials and built the Partnership strongly.
As already stated in the Chief Executive's Report, Gross and Net Inflows in 2018 both grew by 8% and we completed the year with GBP95.6 billion of funds under management. This represents growth of 5.4% compared to 31 December 2017, despite the impact of reductions in values on global markets in the final quarter of 2018.
Our financial business model remains straightforward and unchanged. We attract and then retain funds under management on which we receive an annual management fee. The continued strong growth in funds under management is therefore a significant positive indicator, particularly in combination with surrender rates under 5%.
During the year, as in previous years, we have also continued to invest in the future of the business. This investment is reflected in our results and is expected to result in additional medium and long-term growth together with more efficient administration systems and processes.
Financial Results
Whilst our financial business model remains straightforward, the impact of having a significant life insurance company at the heart of the Group results in accounting complexity under IFRS. For this reason, in our Financial Review on pages 11 to 33, we continue to supplement IFRS information with EEV information as well as further detail on the way in which cash emerges within the business. The detailed results are presented in the Financial Review which shows strong results on every measure, but there are a number of factors that merit emphasis:
1. Our contribution to the Financial Services Compensation Scheme for 2018 pre-tax was GBP15.7 million (2017: GBP21.2 million). This negatively impacted post tax results for the group by GBP12.8 million in 2018 (2017: GBP17.1 million).
2. We continue to invest in growing the Partnership and the number of advisers within it. In particular we invested GBP8.4 million post tax in our Academy and Next Generation Academy (2017: GBP6.6 million) and saw 142 qualified advisers graduate during the year.
3. Our Asia and DFM operations are medium to long-term investments and progressing in line with our expectations. During the year, investment in these areas of future growth amounted to GBP26.8 million post tax (2017: GBP22.0 million). We now have 133 advisers in Asia, and DFM investment managers in all of our key Group Locations. Our DFM business is already contributing positively to EEV profit and Asia is expected to do so shortly.
4. Our back-office infrastructure initiative has been a multi-year project and in 2018 we had progressed to the point where approximately 77% new business was written using the new Bluedoor system. By 31 December 2018, 63% of all funds under management were recorded on the new platform (2017: 31%). Costs in 2018 were GBP35.8 million post tax (2017: GBP21.7 million). This reflects the significant activity levels during the year which resulted in the successful migration of the majority of our pensions business onto the Bluedoor system.
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Dividend
The Board has recommended a final dividend of 29.73 pence per share, an increase of 8% which will consume GBP157.4 million. This will provide for a full year dividend of 48.22 pence per share, growth of 12.5%.
Capital and Solvency
We continue to manage the balance sheet prudently to ensure the Group's solvency is maintained safely. 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 (MSB). For the year ended 31 December 2018 we reviewed the level of our MSB and concluded that it was appropriate to maintain the MSB for the Life businesses at GBP355.0 million. This gives a total Group MSB of GBP491.0 million when combined with the MSB held for our other regulated entities. Solvency II net assets are GBP1,108.0 million at 31 December 2018 (31 December 2017: GBP1,095.1 million), well in excess of the Group MSB.
We provide information on our Solvency II position on page 31. Our solvency ratio at 31 December 2018, prior to the payment of the proposed final dividend, is 143% (31 December 2017: 139%) which demonstrates the financial strength of the business.
Concluding Remarks
The business fundamentals and financials are in very good shape. 2018 was a challenging year but the business showed itself to be very resilient and continued to grow. The growth in our Partnership, combined with increasing demand for advice and only a modest increase in the number of advisers in the marketplace, are all factors that result in a positive long-term environment for the Group even if other challenging external factors slow the pace of growth in the short term.
Craig Gentle
Chief Financial Officer
26 February 2019
-10-
Key financial information Year Ended Year Ended
31 December 2018 31 December 2017
------------------
FUM-based metrics
Gross inflows (GBP'Billion) 15.7 14.6
Net inflows (GBP'Billion) 10.3 9.5
Total FUM (GBP'Billion) 95.6 90.7
Total FUM in gestation (GBP'Billion) 33.5 30.6
IFRS-based metrics
IFRS profit before shareholder tax (GBP'Million) 211.9 186.1
IFRS profit after tax (GBP'Million) 173.5 145.8
Underlying profit before shareholder tax (GBP'Million) 278.6 245.1
IFRS basic earnings per share (EPS) (Pence) 33.0 27.8
IFRS diluted EPS (Pence) 32.4 27.4
IFRS net asset value per share (Pence) 192.5 200.0
Dividend per share (Pence) 48.22 42.86
Cash result-based metrics
Operating cash result (GBP'Million) 342.8 315.2
Underlying cash result (GBP'Million) 309.0 281.2
Cash result (GBP'Million) 268.7 252.6
Underlying cash result basic EPS (Pence) 58.7 53.6
Underlying cash result diluted EPS (Pence) 57.8 52.7
EEV-based metrics
EEV operating profit (GBP'Million) 1,002.0 918.5
EEV operating profit after tax basic EPS (Pence) 158.0 143.9
EEV operating profit after tax diluted EPS (Pence) 155.4 141.5
EEV net asset value per share (Pence) 1,109.0 1,067.5
Solvency-based metrics
Solvency II net assets (GBP'Million) 1,108.0 1,095.1
Management solvency buffer (GBP'Million) 491.0 461.9
Solvency II free assets (GBP'Million) 1,060.1 944.1
Solvency ratio (Percentage) 143% 139%
-11-
FINANCIAL REVIEW
This Financial Review provides analysis of the Group's financial position and performance. Funds under Management (FUM) is a key driver of ongoing profitability on all measures, and so information on growth in FUM is provided in Section 1. Section 2 analyses the performance of the business using three different bases: International Financial Reporting Standards (IFRS), the Cash result, and European Embedded Value (EEV). Section 3 addresses Solvency, which is an important area given the multiple regulated activities carried out within the Group.
The Review is therefore split into the following sections:
Section 1: Funds under Management (FUM)
1.1 FUM analysis
1.2 Gestation
Section 2: Performance Measurement
2.1 International Financial Reporting Standards (IFRS)
2.2 Cash result
2.3 European Embedded Value (EEV)
Section 3: Solvency
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 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 Group also generates income through an initial margin on new business.
The level of net annual management fee income depends on the level of client funds and the level of asset values. In addition, around half of our business does not generate net Cash result in the first six years, which we describe as funds in 'gestation'. This deferral of cash generation means that the level of Group income will increase as a result of new business six years ago maturing from gestation to become cash generative.
Group expenditure is carefully managed with clear targets set for growth in Establishment and Operational Development expenses during the year. Many other expenses increase with business levels and are met from margins in the products, thereby having no net impact on the cash result. The Group is also investing to support long-term growth through St. James's Place Asia, Rowan Dartington, our back-office infrastructure programme, and other Strategic Initiatives.
-12-
SECTION 1: FUNDS UNDER MANAGEMENT
1.1 FUM analysis
Our financial business model is to attract and retain FUM on which we receive an annual management fee. As a result, the level of income we receive is ultimately dependent on the value of our FUM, and so its growth is a clear driver of future growth in profits. The key drivers for FUM are:
-- Our ability to attract new funds in the form of Gross Inflows; -- Our ability to retain FUM by keeping unplanned withdrawals at a low level; and -- Net investment returns.
The following table shows how FUM evolved during 2018 and 2017:
2018 2017
------------------------------------------------------ ------------
UT/ISA
& DFM
Investment Pension (1) Total Total
------------ ------------ ------------ ------------ ------------
GBP'Billion GBP'Billion GBP'Billion GBP'Billion GBP'Billion
Opening FUM 28.31 36.15 26.29 90.75 75.31
Gross inflows 2.41 8.76 4.53 15.70 14.60
Net investment return (1.60) (1.98) (1.90) (5.48) 6.20
Regular income withdrawals
and maturities (0.51) (1.12) - (1.63) (1.52)
Surrenders and part surrenders (0.99) (1.09) (1.71) (3.79) (3.57)
Matching strategy disinvestment - - - - (0.27)
Closing FUM 27.62 40.72 27.21 95.55 90.75
------------ ------------ ------------ ------------ ------------
Net inflows 0.91 6.55 2.82 10.28 9.51
------------ ------------ ------------ ------------ ------------
Implied surrender rate
as a percentage of average
FUM 3.5% 2.8% 6.4% 4.1% 4.3%
------------ ------------ ------------ ------------ ------------
(1) Rowan Dartington Group FUM is included within 'UT/ISA & DFM'. It had closing FUM of GBP2.31 billion at 31 December 2018 (31 December 2017: GBP2.11 billion), gross inflows of GBP0.54 billion for the year (2017: GBP0.49 billion) and outflows of GBP0.10 billion (2017: GBP0.10 billion).
The following table shows the robust growth in Net Inflows over the past six years, which combined with strong retention has resulted in consistent growth in FUM. FUM has more than doubled over a five-year period:
Other FUM as at
FUM as at Investment movements 31 December
Year 1 January Net inflows return (1)
------------ ------------
GBP'Billion GBP'Billion GBP'Billion GBP'Billion GBP'Billion
2018 90.7 10.3 (5.4) - 95.6
2017 75.3 9.5 6.2 (0.3) 90.7
2016 58.6 6.8 8.7 1.2 75.3
2015 52.0 5.8 0.8 - 58.6
2014 44.3 5.1 2.6 - 52.0
2013 34.8 4.3 5.2 - 44.3
(1) Other movements in 2017 related to the matching strategy disinvestment, and in 2016 related to the acquisition of the Rowan Dartington Group.
-13-
The table below provides a geographical and segmental analysis of funds under management at 31 December:
31 December 2018 31 December 2017
------------------------- -------------------------
GBP'Billion % of total GBP'Billion % of total
North American Equities 20.7 22% 20.0 22%
Fixed Income Securities 18.6 19% 16.7 19%
UK Equities 17.7 18% 19.3 21%
Asia and Pacific Equities 10.2 11% 8.5 9%
European Equities 10.1 11% 10.5 12%
Cash 6.7 7% 6.6 7%
Alternative Investments 4.6 5% 2.6 3%
Property 3.0 3% 2.9 3%
Other 4.0 4% 3.6 4%
------------ ----------- ------------ -----------
Total 95.6 100% 90.7 100%
------------ ----------- ------------ -----------
1.2 Gestation
Due to our product structure, at any given time there is a significant amount of FUM that has not yet started to contribute to the Cash result.
When we attract new FUM there is a new business margin that emerges at the point of investment, which is a surplus of income over and above the initial costs incurred at the outset. Within our Cash result presentation, this margin arising from new business is recognised as it arises, but it is deferred under IFRS.
Once the new business margin has been recognised the pattern of future emergence of cash from ongoing annual management fees differs by product. Broadly, annual management fees from unit trust and ISA business begin contributing positively to the Cash result from day 1, whilst investment and pensions business enter a six-year gestation period during which no net income from FUM is included in the Cash result. Once this business has reached its six-year maturity point, it starts contributing positively to the Cash result, and will continue to do so in each year that it remains with the Group.
The following table shows an analysis of FUM, split between mature FUM that is contributing net income to the Cash result and FUM in gestation which is not yet contributing, as at the year-end for the past five years:
Gestation FUM that
will contribute to
Mature FUM contributing the Cash result in Total FUM
to the Cash result the future
Position as at: GBP'Billion GBP'Billion GBP'Billion
31 December 2018 62.1 33.5 95.6
31 December 2017 60.1 30.6 90.7
31 December 2016 50.2 25.1 75.3
31 December 2015 39.4 19.2 58.6
31 December 2014 35.9 16.1 52.0
-14-
The proportion of new business that moves into gestation has increased over the past five years as follows:
Proportion of Gross inflows into gestation
%
2018 59.4
2017 56.5
2016 53.8
2015 53.5
2014 51.5
The increasing proportion of Gross Inflows moving into gestation FUM is attributable to the strength of pensions inflows in recent years, in part reflecting the positive impact to our business from pensions freedom. The long-term nature of this type of investment results in a long post-gestation period of Cash result emergence.
The following table gives an indication, for illustrative purposes, of the way in which the gestation balance of GBP33.5 billion at 31 December 2018 may start to contribute to the Cash result over the next six years and beyond. It assumes a composite margin of 0.77% and that gestation FUM values at 31 December 2018 remain unchanged. It does not factor in surrenders.
Gestation FUM future contribution to the
Cash result
GBP'Million
2019 27.9
2020 58.7
2021 96.3
2022 140.5
2023 194.6
2024 onwards 258.1
-15-
SECTION 2: PERFORMANCE MEASUREMENT
In line with statutory reporting requirements we report profits assessed on an IFRS basis. However, given the long-term nature of the business, the significant difference between IFRS profit and the way cash emerges from the business, and the complications of including policyholder tax, we believe the IFRS result does not provide an easy guide to performance. We therefore present our financial performance and position under three different bases, using a range of alternative performance measures (APMs) to complement our IFRS reporting. The three different bases, which are consistent with those presented last year, are:
-- International Financial Reporting Standards (IFRS); -- Cash result; and -- European Embedded Value (EEV).
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. A complete Glossary of Alternative Performance Measures is set out on pages 80 to 84, in which we define each APM used in our Financial Review, explain why it is used and, if applicable, explain how the measure can be reconciled to the IFRS financial statements.
2.1 INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)
IFRS reporting is a statutory requirement, and so although the level of non-cash accounting adjustments is such that IFRS does not reflect the pattern of cash emergence in the Group, there are two measures used that are based upon it. These are:
-- Profit before shareholder tax; and -- Underlying profit.
Further information on these IFRS-based measures is set out below, on pages 15 to 17.
Profit before shareholder tax
This is a profit measure based on IFRS which removes the impact of policyholder tax.
As a Group with a UK life insurance company at its heart, the Group is required to account for policyholder tax as part of its own corporation tax arrangements, despite it being unrelated to the performance of the business. The policyholder tax expense or credit is matched by an equivalent deduction or credit from the relevant funds, which is recorded within fee and commission income in the IFRS statement of comprehensive income. Policyholder tax does not therefore impact the Group's overall profit after tax. As a result, profit before shareholder tax, but after policyholder tax, is a useful metric.
-16-
The following table demonstrates the way in which profit before shareholder tax is presented in the IFRS consolidated statement of comprehensive income on page 46:
Year Ended Year Ended
31 December 2018 31 December 2017
------------------ ------------------
GBP'Million GBP'Million
IFRS (loss)/profit before
tax (84.6) 342.1
Policyholder tax 296.5 (156.0)
------------------ ------------------
IFRS profit before shareholder
tax 211.9 186.1
------------------ ------------------
Shareholder tax (38.4) (40.3)
------------------ ------------------
IFRS profit after tax 173.5 145.8
------------------ ------------------
Shareholder tax reflects the tax charge attributable to shareholders and is closely related to the performance of the business.
Underlying profit
This is profit before shareholder tax (as calculated above) adjusted to remove the impact of accounting for deferred acquisition costs (DAC), deferred income (DIR) and the purchased value of in-force business (PVIF).
IFRS requires certain up-front expenses incurred and income received to be deferred. The deferred amounts are initially recognised on the statement of financial position as a DAC asset and DIR liability, which are subsequently amortised to the statement of comprehensive income over a future period. Substantially all of the Group's deferred expenses are amortised over a 14-year period, and substantially all deferred income is amortised over a six-year period.
The impact of accounting for DAC, DIR and PVIF in the IFRS result is that there is a significant accounting timing difference between the emergence of accounting profits and actual cash-flows. For this reason, underlying profit is considered to be a helpful metric. The following table demonstrates the way in which IFRS profit reconciles to Underlying profit:
Year ended Year ended
31 December 2018 31 December
2017
------------------ -------------
GBP'Million GBP'Million
IFRS profit before shareholder
tax 211.9 186.1
Remove the impact of movements
in DAC/DIR/PVIF 66.7 59.0
------------------ -------------
Underlying profit before shareholder
tax 278.6 245.1
------------------ -------------
-17-
The impact of movements in DAC, DIR and PVIF on IFRS profit before shareholder tax is further analysed as follows:
Year ended Year ended
31 December 2018 31 December 2017
GBP'Million GBP'Million
Amortisation of DAC (98.2) (98.7)
DAC on new business for the
year 33.7 36.9
------------------ ------------------
Net impact of DAC (64.5) (61.8)
------------------ ------------------
Amortisation of DIR 149.9 150.4
DIR on new business for the
year (148.9) (144.4)
------------------ ------------------
Net impact of DIR 1.0 6.0
------------------ ------------------
Amortisation of PVIF (3.2) (3.2)
Movement in year (66.7) (59.0)
------------------ ------------------
Net impact of DAC
The scale of the GBP64.5 million negative overall impact of DAC on the IFRS result is largely due to changes arising from the 2013 Retail Distribution Review (RDR). After this change, the level of expenses that qualified for deferral reduced significantly, but the large balance accrued previously is still being amortised. As deferred expenses are amortised over a 14-year period there is a significant transition period, which could last for another six to seven years, over which the amortisation of pre-RDR expenses previously deferred will significantly outweigh new post-RDR expenses deferred despite significant business growth, resulting in a net negative impact on IFRS profits.
Net impact of DIR
Similarly to DAC, in 2013 the RDR reduced the amount of income that qualified for deferral. This meant that amortisation of pre-RDR income has exceeded the post-RDR income deferred in each year since 2013 despite significant business growth. However, as most of the deferred income is amortised over a six-year period, this effect is now reversing with income deferred expected to exceed income amortised in 2019. This is reflected in the small net impacts from DIR in recent years: the impact was a positive GBP1.0 million in 2018 (2017: positive GBP6.0 million).
-18-
2.2 CASH RESULT
The Cash result is used by the Board to assess and monitor the level of cash profit (net of tax) generated by the business. It is based on IFRS with adjustments made to exclude certain non-cash items, such as DAC, DIR, deferred tax and non-cash-settled share option costs. Further details, including the full definition of the Cash result, can be found in the Glossary of Alternative Performance Measures on page 81. Although the Cash result should not be confused with the IAS 7 consolidated statement of cash-flows, it provides a helpful alternative view of the way in which cash is generated and emerges within the Group.
The Cash result reconciles to Underlying profit, as presented in Section 2.1, as follows:
2018 2017
Before After tax Before After tax
shareholder shareholder
tax tax
------------- ------------ ------------- ------------
GBP'Million GBP'Million GBP'Million GBP'Million
Underlying profit 278.6 227.9 245.1 193.9
Non-cash-settled share-based
payments 33.4 33.4 30.5 30.5
Deferred tax impacts - 31.8 - 15.0
Other (24.8) (24.4) 14.7 13.2
------------- ------------ ------------- ------------
Cash result 287.2 268.7 290.3 252.6
------------- ------------ ------------- ------------
The increase in non-cash-settled share-based payments reflects the recent strong performance of the Group.
.
The most significant deferred tax impact in 2018 and 2017 is recognition in the Cash result of the benefit from realising tax relief. This has already been recognised under IFRS, and hence Underlying profit, through the establishment of deferred tax assets. More information can be found in Note 7 on pages 61 to 64.
Other predominantly represents the change in tax charge discounting. This represents a timing difference between the tax liability due to HMRC and tax deductions charged to clients. The size of the difference will increase as markets grow, and decrease as markets fall. This timing difference is adjusted out of the Cash result, which therefore does not reflect the positive effect arising in the IFRS result as a consequence of falls in markets during the year.
The following table shows an analysis of the Cash result using three different measures:
-- Operating cash result
This measure represents the regular emergence of cash from day to day business operations.
-- Underlying cash result
This measure includes the cost of a number of strategic investments which are being incurred and expensed in the year, but which are expected to create long-term value.
-- Cash result
This measure includes the short-term costs associated with the back-office infrastructure project together with other items of a one-off nature.
-19-
Consolidated Cash result (presented post tax)
2018 2017
----------------------------------------- ------------
Note In-Force New Business Total Total
------------ ------------- ------------ ------------
GBP'Million GBP'Million GBP'Million GBP'Million
Operational
Net annual management
fee 1 633.4 61.2 694.6 623.2
Reduction in fees in
gestation period 2 (306.5) - (306.5) (266.1)
------------ ------------- ------------ ------------
Net income from FUM 3 326.9 61.2 388.1 357.1
Margin arising from new
business 4 - 140.8 140.8 129.4
Establishment expenses 5 (17.3) (153.3) (170.6) (150.4)
Operational development
expenses 5 - (20.1) (20.1) (15.6)
Regulatory fees and FSCS
levy 5 (2.1) (18.8) (20.9) (23.9)
Academy (1) 5 - (8.4) (8.4) (6.6)
Shareholder interest 6 14.1 - 14.1 9.9
Tax relief from capital
losses 7 29.7 - 29.7 12.1
Miscellaneous 8 (9.9) - (9.9) (3.4)
------------ ------------- ------------ ------------
Operating cash result 341.4 1.4 342.8 308.6
Asia 9 - (16.7) (16.7) (15.1)
DFM 9 - (10.1) (10.1) (6.9)
Strategic development
costs 9 - (7.0) (7.0) (5.4)
Underlying cash result 341.4 (32.4) 309.0 281.2
Back-office infrastructure
development costs 9 (35.8) (21.7)
Variance 10 (4.5) (6.9)
Cash result 268.7 252.6
------------ ------------
(1) Academy costs have been reclassified in 2018 into the Operating cash result. Previously they were included as part of Investments, which are outside of the Operating cash result. This reflects the fact that the Academy is now a core part of the Group's adviser recruitment model and its graduates are contributing strongly to FUM growth. To enable like-for-like comparison, the 2017 comparative has been restated accordingly.
-20-
Notes to the Cash result
1. The net annual management fee is the net manufacturing margin that the Group retains from FUM after payment of the associated costs (for example, investment advisory fees and Partner remuneration). Broadly speaking the Group receives an average net annual management fee of 0.77% (post tax) of FUM (2017: 0.77% (post tax)).
2. As noted on page 13 however, our investment and pension business product structure means that these products do not generate net Cash result (after the initial margin) during the first six years, (the gestation period). This is reflected in the reduction in fees in gestation period line. Further information is provided in Section 1.2 on pages 13 and 14.
3. Net income from FUM reflects Cash result income from FUM that has reached maturity.
4. Margin arising from new business is the net positive Cash result impact of new business in the year, reflecting gross inflows and production related expenses. The driver for this income line is gross inflows and the result is expected to move broadly in line with the pattern of gross inflows attracted.
5. Establishment expenses, operational development expenses, regulatory fees and FSCS levy represent the expenses of running the Group. Academy expenses represent the cost of running our Academy and Next Generation Academy. More detail is provided in Section 2.2.2.
6. Shareholder interest is the income accruing on the investments and cash held for regulatory purposes together with the interest received on the surplus capital held by the Group.
7. In recent years, a deferred tax asset has been established in IFRS for historic capital losses which are regarded as being capable of utilisation over the medium-term. The tax asset is ignored for Cash result purposes as it is not fungible, but instead the cash benefit realised when losses are utilised is shown in the tax relief from capital losses line. Utilisation during the year of GBP29.7 million tax value (2017: GBP12.1 million) was ahead of our expected rate of c. GBP10-12 million benefit in a year, largely because investment market conditions have meant that accelerated relief has been available.
8. Miscellaneous represents the cash flow of the business not covered in any of the other categories. It includes ongoing administration expenses and associated policy charges, utilisation of the deferred tax asset in respect of prior years' unrelieved expenses (due to structural timing differences in the life company tax computation) and movements in the fair value of renewal income assets.
9. Asia, DFM, strategic development costs and back-office infrastructure costs reflect significant investments in developing our business for the future. Each of these investments are expected to result in either additional funds (Asia and DFM) or operational improvements (back-office infrastructure) in the future. Advice margin and fund management fees generated in Asia, and all fees generated by DFM, are also reflected in these lines.
10. Variance reflects a number of small non-recurring items incurred during the year. In 2017 this specifically included 25th anniversary costs, such as the impact of double matching for the Charitable Foundation.
-21-
2.2.1 Derivation of the Cash result
The Cash result is derived from the IFRS consolidated statement of financial position in a two-stage process:
Stage 1: Solvency II Net Assets Balance Sheet
Firstly, the IFRS consolidated statement of financial position is adjusted for a number of material balances that reflect policyholder interests in unit-linked liabilities together with the underlying assets that are held to match them. Secondly, it is adjusted for a number of non-cash 'accounting' balances such as DIR, DAC and associated deferred tax. The result of these adjustments is the Solvency II Net Assets Balance Sheet and the following table shows the way in which it has been calculated for 2018.
Solvency
Solvency II Net
II Net Assets
IFRS Assets Balance
Balance Adjustment Adjustment Balance Sheet:
31 December 2018 Sheet 1 2 Sheet 2017
------------ ------------ ------------ ------------ ------------
GBP'Million GBP'Million GBP'Million GBP'Million GBP'Million
Assets
Goodwill 15.6 - (15.6) - -
Deferred acquisition costs 558.5 - (558.5) - -
Purchased value of in-force
business 24.0 - (24.0) - -
Computer software 1.4 - (1.4) - -
Property and equipment 28.5 - - 28.5 26.4
Deferred tax assets 147.1 - (35.5) 111.6 144.1
Reinsurance assets 82.8 - (82.8) - -
Other receivables 1,952.3 (1,059.1) (3.1) 890.1 1,122.4
Income tax assets 9.7 - - 9.7
Investment property 1,820.7 (1,820.7) - - -
Equities 56,077.9 (56,077.9) - - -
Fixed income securities 21,966.0 (21,960.6) - 5.4 46.1
Investment in Collective
Investment Schemes 4,756.1 (3,459.1) - 1,297.0 1,416.8
Derivative financial instruments 508.8 (508.8) - - -
Cash and cash equivalents 6,877.6 (6,629.1) - 248.5 274.7
Total assets 94,827.0 (91,515.3) (720.9) 2,590.8 3,030.5
Liabilities
Borrowings 348.6 - - 348.6 279.9
Deferred tax liabilities 172.9 - (18.4) 154.5 430.4
Insurance contract liabilities 508.1 (421.2) (86.9) - -
Deferred income 648.3 - (648.3) - -
Other provisions 22.7 - - 22.7 20.0
Other payables 1,290.8 (277.7) (56.2) 956.9 1,079.7
Investment contract benefits 67,796.1 (67,796.1) - - -
Derivative financial instruments 517.4 (517.4) - - -
Net asset value attributable
to unit holders 22,502.9 (22,502.9) - - -
Income tax liabilities - - - - 125.3
Preference shares 0.1 - - 0.1 0.1
------------ ------------ ------------ ------------ ------------
Total liabilities 93,807.9 (91,515.3) (809.8) 1,482.8 1,935.4
Net assets 1,019.1 - 88.9 1,108.0 1,095.1
------------ ------------ ------------ ------------ ------------
-22-
Adjustment 1 nets out the policyholder interest in unit-linked assets and liabilities. Adjustment 2 comprises adjustment to the IFRS statement of financial position in line with Solvency II requirements, including removal of DAC, DIR, PVIF and their associated deferred tax balances, goodwill and other intangibles.
Stage 2: Movement in Solvency II Net Assets Balance Sheet
Secondly, there are a number of movements in Solvency II net assets that do not represent cash flows for inclusion within the Cash result. The following table explains how the overall Cash result reconciles into the total movement:
Year Ended Year Ended
31 December 2018 31 December 2017
------------------ ------------------
GBP'Million GBP'Million
Opening Solvency II net assets 1,095.1 1,070.0
Dividend paid (242.7) (190.0)
Issue of share capital and exercise
of options 2.8 7.5
Consideration paid for own shares (6.0) (11.3)
Change in deferred tax (31.8) (15.0)
Change in tax discounting 23.4 (16.2)
Change in goodwill and intangibles (1.5) (2.5)
Cash result 268.7 252.6
------------------ ------------------
Closing Solvency II net assets 1,108.0 1,095.1
------------------ ------------------
-23-
2.2.2 Expenses
The table below provides a breakdown of the Group's expenses as presented directly in the Cash result:
Year Ended 31 December Year Ended 31 December
2018 2017
------------------------------------- ----------------------------------
Before Tax rate After Before Tax After
tax tax tax rate tax
------------ --------- ------------ ------------ ------ ------------
GBP'Million % GBP'Million GBP'Million % GBP'Million
Establishment expenses 210.6 19.0 170.6 186.3(1) 19.3 150.4
Operational development
costs 24.8 19.0 20.1 19.3 19.3 15.6
Regulatory fees and
FSCS levy 25.7 19.0 20.9 29.5 19.3 23.9
Academy 10.4 19.0 8.4 8.2 19.3 6.6
Strategic development
costs 8.8 19.0 7.0 6.7 19.3 5.4
Back-office infrastructure
costs 44.1 19.0 35.8 26.8 19.3 21.7
------------ ------------ ------------ ------------
Total Cash result
expenses 324.4 262.8 276.8 223.6
------------ ------------ ------------ ------------
(1) Certain 2017 expenses have been reclassified to better reflect the nature of the expense. This has resulted in a decrease of GBP5.5 million in Establishment expenses and increases of GBP2.8 million in Asia expenses and GBP2.6 million in Other.
Establishment costs have increased year on year as additional expenses are incurred to support the growth in the Partnership.
Operational development costs have increased in 2018 due to further investment in our infrastructure, resulting in enhanced security and improved remote access for advisers. There has also been investment in our online communication tools to improve collaboration.
The costs of operating in a regulated sector include regulatory fees and the Financial Services Compensation Scheme (FSCS) levy. On a post-tax basis, these are as follows:
Year Ended Year Ended
31 December 2018 31 December 2017
------------------ ------------------
GBP'Million GBP'Million
FSCS levy 12.8 17.1
Regulatory fees 8.1 6.8
------------------ ------------------
FSCS levy and regulatory fees 20.9 23.9
------------------ ------------------
Our position as a market-leading provider of advice means we make a very substantial contribution to supporting the FSCS, thereby providing protection for clients of other businesses in the sector that fail. Over the last few years, the levy has been at an elevated level but we remain hopeful that it will return to a more normalised level in future.
For the 2018/19 funding year the FSCS shortened the compensation levy period from 12 months to nine months, which aligns the compensation levy period with the FSCS's financial year. As a result, the post-tax levy expense of GBP12.8 million recognised in the year to 31 December 2018 reflects the levy for a nine-month period, whereas the GBP17.1 million post-tax levy expense recognised in the year to 31 December 2017 was in respect of a 12 month period. From the 2019/20 funding year onwards, the compensation levy period will again be 12 months.
Academy costs have increased in 2018 as a result of expansion of the programme both geographically and in terms of the number of individuals recruited into the programme.
Costs associated with our Bluedoor back-office infrastructure programme have increased in 2018 due to increased levels of migrations taking place during the year, alongside planning for the final key migration of bond business in 2019.
-24-
Reconciliation to IFRS Expenses
There are a number of other expenses which are included within the Cash result but not directly referenced. This is because expense items that vary with business volumes are matched against the relevant income source. For example, payments to Partners and other performance related costs are matched against net annual management fees and new business margin.
In addition there are other IFRS expenses that are not included in the Cash result by definition, such as non-cash-settled share-based payment expenses and DAC amortisation.
The following table reconciles the expenses presented explicitly in the Cash result to the IFRS expenses as set out in the statement of comprehensive income on page 46:
Year Ended
Year Ended 31 December
31 December 2018 2017
-------------
GBP'Million GBP'Million
Total Cash result expenses before
tax 324.4 276.8
Asia expenses 21.3 18.4(1)
DFM expenses 24.5 18.7
Other performance related costs 137.2 133.5
Payments to Partners 781.9 709.0
Investment expenses 106.1 83.4
Third-party administration 100.4 89.9
Amortisation of DAC and PVIF, net
of additions 67.7 65.0
Share-based payments expenses 34.1 32.7
Other 43.9 40.2(1)
------------------ -------------
Total IFRS Group expenses before
tax 1,641.5 1,467.6
------------------ -------------
(1) Certain 2017 expenses have been reclassified to better reflect the nature of the expense. This has resulted in a decrease of GBP5.5 million in Establishment expenses and increases of GBP2.8 million in Asia expenses and GBP2.6 million in Other.
Asia expenses and DFM expenses have both increased during the year as investment is required to support their growth. Such investment will continue going forwards.
Other performance related costs, for both Partners and employees, vary with the level of new business and the operating profit performance of the business.
Payments to Partners, investment expenses and third-party administration costs are met by corresponding charges to clients, and so any variation in them from changes in the volumes of new business or the level of the stock markets does not impact the profitability of the Group.
Other expenses include interest expense and bank charges, the operating costs of acquired independent financial advisers (IFAs) and donations to the St. James's Place Charitable Foundation.
-25-
2.3 EUROPEAN EMBEDDED VALUE (EEV)
Wealth management differs from most other businesses, in that the expected shareholder income from client investment activity emerges over a long period in the future. We therefore complement the IFRS and Cash results by providing additional disclosure on an EEV 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 EEV 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 both October 2005 and, following the introduction of Solvency II, in April 2016.
Many of the principles and practices underlying EEV are similar to the requirements of Solvency II. In the prior year, we had made a number of small changes to our EEV methods and assumptions to align them as closely as possible to Solvency II. These changes were reflected in the Economic assumption changes line.
The table below and accompanying notes summarise the profit before tax of the combined business:
Year Ended Year Ended
Note 31 December 31 December 2017
2018
------------- ------------------
GBP'Million GBP'Million
Funds management business 1 1,151.6 1,044.4
Distribution business 2 (38.9) (31.9)
Back-office infrastructure
development (44.1) (26.8)
Other (66.6) (67.2)
------------- ------------------
EEV operating profit 1,002.0 918.5
Investment return variance 3 (460.9) 340.8
Economic assumption changes 4 (15.1) 29.8
EEV profit before tax 526.0 1,289.1
Tax (89.7) (229.2)
EEV profit after tax 436.3 1,059.9
------------- ------------------
-26-
Notes to the EEV result
1. Funds management business EEV operating profit
The funds management business operating profit has increased to GBP1,151.6 million (2017: GBP1,044.4 million) and a full analysis of the result is shown below:
Year Ended Year Ended
31 December 2018 31 December 2017
------------------ ------------------
GBP'Million GBP'Million
New business contribution 852.7 779.8
Profit from existing business
- unwind of the discount rate 242.3 209.5
- experience variance 24.5 3.8
- operating assumption change 25.9 44.0
Investment income 6.2 7.3
Funds management EEV operating profit 1,151.6 1,044.4
------------------ ------------------
The new business contribution for the year at GBP852.7 million (2017: GBP779.8 million) was 9.3% higher than the prior year, reflecting both the increase in new business and operational economies of scale achieved as fixed expenses are spread across more new business.
The unwind of the discount rate for the year increased to GBP242.3 million (2017: GBP209.5 million), reflecting the higher opening value of in-force business. The experience variance during the year was GBP24.5 million (2017: GBP3.8 million), reflecting positive retention experience. The impact of operating assumption changes in the year was a positive GBP25.9 million, reflecting economies of scale emerging from our administration tariff. The more significant benefit of GBP44.0 million in 2017 also included a positive impact from higher retention assumptions.
2. Distribution business
The distribution loss includes the positive gross margin arising from advice income less payments to advisers offset by the costs of investment in growing the Partnership, building the distribution capabilities in Asia and a charge of GBP11.3 million for the FSCS levy (2017: GBP18.9 million).
3. 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 FUM, a small difference can result in a large positive or negative variance.
The typical investment return on our funds during the period was negative 4.3% after charges, compared to the assumed investment return of positive 1.8%. This resulted in a negative investment return variance of GBP460.9 million (2017: positive GBP340.8 million).
4. Economic assumption changes
The negative variance of GBP15.1 million arising in the year (2017: positive GBP29.8 million) reflects the negative effect from the increase in the long-term inflation rate.
-27-
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 (the 'margin'). This is calculated as the new business contribution divided by the gross inflows, and is expressed as a percentage.
The table below presents the margin before tax from our manufactured business:
Year Ended Year Ended
31 December 2018 31 December 2017
------------------ ------------------
Life business
Investment
New business contribution
(GBP'Million) 129.0 130.2
Gross inflows (GBP'Billion) 2.41 2.49
Margin (%) 5.4 5.2
Pension
New business contribution
(GBP'Million) 454.2 363.5
Gross inflows (GBP'Billion) 8.76 7.26
Margin (%) 5.2 5.0
------------------ ------------------
Unit Trust and DFM business
New business contribution
(GBP'Million) 269.5 286.1
Gross inflows (GBP'Billion) 4.53 4.85
Margin (%) 6.0 5.9
Total business
New business contribution
(GBP'Million) 852.7 779.8
Gross inflows (GBP'Billion) 15.70 14.60
Margin (%) 5.4 5.3
Post-tax margin (%) 4.5 4.4
------------------ ------------------
The overall margin for the year was higher at 5.4% (2017: 5.3%) reflecting operational economies of scale achieved during the year.
-28-
Economic assumptions
The principal economic assumptions used within the cash flows at 31 December are set out below:
Year Ended Year Ended
31 December 2018 31 December 2017
------------------ ------------------
% %
Risk-free rate 1.4 1.4
Inflation rate 3.4 3.2
Risk discount rate (net of
tax) 4.5 4.5
Future investment returns:
- Gilts 1.4 1.4
- Equities 4.4 4.4
- Unit-linked funds 3.7 3.7
Expense inflation 3.8 3.6
The risk-free rate is set by reference to the yield on ten-year gilts. Other investment returns are set by reference to the risk-free rate.
The inflation rate is derived from the implicit inflation in the valuation of ten-year index-linked gilts. This rate is increased to reflect higher increases in earnings-related expenses.
-29-
EEV Sensitivities
The table below shows the estimated impact on the reported value of new business and EEV to changes in various EEV calculated assumptions. The sensitivities are specified by the EEV principles and reflect reasonably possible levels of change. In each case, only the indicated item is varied relative to the restated values.
Change in new business Change in
contribution European
Embedded Value
Note Pre-tax Post-tax Post-tax
------------ ------------ ----------------
GBP'Million GBP'Million GBP'Million
Value at 31 December 2018 852.7 707.1 5,871.5
100bp reduction in risk-free
rates, with corresponding change
in fixed interest asset values 1 (23.4) (19.5) (95.4)
10% increase in withdrawal rates 2 (60.3) (50.0) (302.3)
10% reduction in market value
of equity assets 3 - - (586.5)
10% increase in expenses 4 (20.6) (17.2) (70.7)
100bp increase in assumed inflation 5 (25.3) (21.1) (108.3)
Notes to the EEV sensitivities
(1) This is the key economic basis change sensitivity. The business model is relatively insensitive to change in economic basis. Note that the sensitivity assumes a corresponding change in all investment returns but no change in inflation.
(2) The 10% increase is applied to the withdrawal rate. For instance, if the withdrawal rate is 8% then a 10% increase would reflect a change to 8.8%.
(3) For the purposes of this sensitivity all unit-linked funds are assumed to be invested in equities. The actual mix of assets varies and in recent years the proportion invested directly in UK and overseas equities has exceeded 70%.
(4) For the purposes of this sensitivity only non-fixed elements of the expenses are increased by 10%.
(5) This reflects a 100bp increase in the assumed RPI underlying the expense inflation calculation.
Change in new business Change in European
contribution Embedded Value
Pre-tax Post-tax Post-tax
------------ ------------ -------------------
GBP'Million GBP'Million GBP'Million
100bp reduction in risk discount
rate 98.6 81.7 441.1
Although not directly relevant under a market-consistent valuation, this sensitivity shows the level of adjustment which would be required to reflect differing investor views of risk.
-30-
Analysis of the EEV result
The table below provides a summarised breakdown of the embedded value position at the reporting dates:
31 December 2018 31 December 2017
----------------- -----------------
GBP'Million GBP'Million
Value of in-force business 4,763.5 4,552.6
Solvency II net assets 1,108.0 1,095.1
----------------- -----------------
Total embedded value 5,871.5 5,647.7
================= =================
31 December 2018 31 December 2017
----------------- -----------------
Pence Pence
Net asset value per share 1,109.0 1,067.5
================= =================
The EEV result above reflects the specific terms and conditions of our products. Our pension business is split between two portfolios. Our current product, the Retirement Account, was launched in 2016 and incorporates both pre-retirement and post-retirement phases of this investment in the same product. Earlier business was written in our separate Retirement Plan and Drawdown Plan products, targeted at the each of the two phases separately, and therefore has a slightly shorter term and lower new business margin.
Our experience is that much of our Retirement Plan business converts into Drawdown business at retirement, but, in line with the EEV guidelines, we are required to defer recognition of the additional value from the Drawdown Plan until it is crystallised. If instead we were to assess the future value of Retirement Plan business (beyond the immediate contract boundary) in a more holistic fashion, in line with Retirement Account business, this would result in an increase of approximately GBP350 million to our embedded value.
-31-
SECTION 3: SOLVENCY
St. James's Place has a business model and risk appetite that results in underlying assets being held that fully match with our obligations to clients. Our clients can access their investments 'on - demand' and because the encashment value is matched, movements in equity markets, currency markets, interest rates, mortality, morbidity and longevity have very little impact on our ability to meet liabilities. We also have a prudent approach to investing shareholder funds and surplus assets in cash, AAA-rated money market funds and highly rated government securities. The overall effect of the business model and risk appetite is a resilient solvency position capable of enabling liabilities to be met even through adverse market conditions.
Our Life businesses are subject to the Solvency II capital regime which applied for the first time in 2016. Given the relative simplicity of our business compared to many, if not most, other organisations that fall within the scope of Solvency II, we have continued to manage the solvency of the business on the basis of holding assets to match client unit-linked liabilities plus a Management Solvency Buffer (MSB). This has ensured that, not only can we meet client liabilities at all times (beyond the Solvency II requirement of a '1 in 200 years' event), but we also have a prudent level of protection against other risks to the business. At the same time, we have ensured that the resulting capital held meets with the requirements of the Solvency II regime, to which we are ultimately accountable.
For the year ended 31 December 2018 we reviewed the level of our MSB, and concluded that it was appropriate to maintain the MSB for the Life businesses at GBP355.0 million.
The Group's overall Solvency II net assets position, MSB and management solvency ratios are as follows:
31 December 2018 Other 2017
Life(1) Regulated Other(2) Total Total
------------ ------------ ------------ ------------ ------------
GBP'Million GBP'Million GBP'Million GBP'Million GBP'Million
Solvency II net assets 366.4 200.6 541.0 1,108.0 1,095.1
------------ ------------ ------------ ------------ ------------
MSB 355.0 136.0 - 491.0 461.9
Management solvency
ratio 103% 147%
(1)..After payment of year-end intragroup dividend.
(2) Before payment of the Group final dividend.
Solvency II net assets reflect the assets of the Group in excess of those matching clients' unit--linked liabilities. It includes a GBP111.6 million (2017: GBP144.1 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.
-32-
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 cash flows (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 the 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 2017
31 December 2018 Life(1) Regulated Other(2) Total Total
------------ ------------ ------------ ------------ ------------
GBP'Million GBP'Million GBP'Million GBP'Million GBP'Million
Solvency II net assets 366.4 200.6 541.0 1,108.0 1,095.1
Value of in-force
(VIF) 3,388.8 - - 3,388.8 3,244.3
Risk margin (989.4) - - (989.4) (946.1)
Own funds (A) 2,765.8 200.6 541.0 3,507.4 3,393.3
------------ ------------ ------------ ------------ ------------
Solvency capital
requirement (B) (2,364.7) (82.6) - (2,447.3) (2,449.2)
Solvency II free
assets 401.1 118.0 541.0 1,060.1 944.1
------------ ------------ ------------ ------------ ------------
Solvency ratio (A/B) 117% 243% 143% 139%
(1) After payment of year-end intragroup dividend.
(2) Before payment of the Group final dividend.
The solvency ratio after payment of the proposed Group final dividend is 137% at the year end (2017:133%).
-33-
Solvency II Sensitivities
The table below shows the estimated impact on the Solvency II free assets, the SCR and the solvency ratio from changes in various assumptions underlying the Solvency II calculations. In each case, only the indicated item is varied relative to the restated values.
The solvency ratio is not very sensitive to changes in experience or assumptions, and can move counter-intuitively depending on circumstances, as demonstrated by the sensitivity analysis presented below:
Solvency Solvency Solvency
II free II capital ratio
assets requirement
------------ ------------- ---------
Note GBP'Million GBP'Million %
Value at 31 December 2018 1,060.1 2,447.3 143%
100bp reduction in risk free
rates, with corresponding change
in fixed interest asset values 1 959.1 2,452.2 139%
10% increase in withdrawal rates 2 1,091.4 2,298.3 147%
10% reduction in market value
of equity assets 3 983.6 2,202.1 145%
10% increase in expenses 4 1,004.1 2,449.0 141%
100bp increase in assumed inflation 5 977.5 2,454.5 140%
Notes to the Solvency II sensitivities
(1) This is the key economic basis change sensitivity. The business model is relatively insensitive to change in economic basis. Note that the sensitivity assumes a corresponding change in all investment returns but no change in inflation.
(2) The 10% increase is applied to the lapse rate. For instance, if the lapse rate is 8% then a 10% increase would reflect a change to 8.8%.
(3) For the purposes of this sensitivity all unit-linked funds are assumed to be invested in equities. The actual mix of assets varies and in recent years the proportion invested directly in UK and overseas equities has exceeded 70%.
(4) For the purposes of this all expenses are increased by 10%.
(5) This reflects a 100bp increase in the assumed RPI underlying the expense inflation calculation.
-34-
RISK AND RISK MANAGEMENT
Overview and Culture
The St. James's Place Group is exposed to a wide variety of risks due to its business activities and the industry in which it operates. In addition, the Group is also exposed to 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 client and business objectives.
We do not, and cannot, seek to eliminate risk entirely, rather we seek to understand our risks fully and manage them appropriately. The emphasis is on applying effective risk management strategies, so all material risks are identified, and managed or mitigated within agreed risk appetite. Risk management is embedded within our culture and therefore is a core aspect of decision-making. Our Risk Management Framework is specifically designed to manage risks important to our clients, shareholders, advisers, regulators and employees, whilst providing 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 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 reviewed at least annually by the risk committees of the Board (the 'Risk Committee') and Executive Board ('Group Risk Executive Committee') and ultimately agreed by the Board. The Risk Appetite Statement aligns the Group's strategic objectives with the outcomes-based approach and the overarching Risk Management Framework.
In particular, it articulates risks that are:
-- sought (where we are receptive to that risk);
-- minimised (where we are highly averse to that risk and aim to reduce the exposure as far as possible); or
-- managed (where we accept that some risk is unavoidable or uneconomic to mitigate entirely and where we therefore aim to manage exposure through prudent and pragmatic 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 accepted appetite.
The Risk Appetite Statement includes a risk appetite scale. This scale has several risk acceptance levels, ranging from no appetite for taking risk at all, through to acceptance of a risk. The level of risk we are willing to accommodate will vary dependent on individual risk scenarios. The decisions the Board takes when setting appetite will be based on understanding the likelihood and impact of a risk materialising.
-35-
Risk Management Framework
The Board, through the 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 its objectives.
The Group's Own Risk and Solvency Assessment (ORSA) is a central part of this framework.
The Risk Committee comprises Independent Non-executive Board members and is responsible for ensuring a risk culture (of effective risk identification and management) is fostered across the Group.
The Risk Committee is supported by the Executive Board, Group Risk Executive Committee and Risk and Compliance functions at Group and local levels. It is these supporting functions which take the lead in ensuring an appropriate framework is in place, ensuring on-going development and co-ordination of risk management within the Group. The Committees provide an escalation route to the Board for any risks which have or which are likely to materialise, and which may pose a threat to us being able to remain within our risk appetite. Executive sub-committees of the Executive Board also provide support for the management of risks in their areas of responsibility.
The Risk Management Framework is built around the outcomes which are key to our organisation. These are:
CLIENTS - That we deliver positive outcomes for our increasing population of clients.
PARTNERSHIP - That we continue to grow and develop the Partnership.
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.
FINANCIAL AND SHAREHOLDERS - That we deliver sustainable growth in reported profits on all measures.
These outcomes focus attention on those things that are of greatest importance, and hence indicate where risk management activity should be focused. When doing this, current risk priorities as well as emerging risks are considered across all objectives. The Risk Management Framework also provides clarity of ownership, enabling us to identify the key individuals within the Group who have responsibility for managing these risks.
Within these outcomes, indicators are used to monitor performance against risk appetite. An Executive Board member is assigned to own each of the risk appetite statements and related indicators. They are accountable for managing the associated risks within agreed thresholds and regularly reporting to the Executive Board. This enables the Board to maintain effective oversight of all outcomes, and to manage any conflicts of interest that arise between them. With regards to emerging risks, these are monitored regularly by the Group Risk and Compliance function and assessed as to whether they are increasing, decreasing or static in terms of their impact on the Group and/or our stakeholders. It will be a combination of these indicators and the perceived future risks to the Group that will determine the principal risks at any point in time.
-36-
'Three lines of defence' model
Complementary to the above, there is also a 'bottom-up' element to our framework. This means each division of the Group is responsible for the identification, management and quarterly reporting of its own risks (first line of defence).
The divisions are responsible for ensuring each risk is assessed by considering its potential impact and the likelihood of its occurrence (impact assessments are completed against financial and non-financial metrics). The divisions are also responsible for establishing appropriate controls as a core part of the risk management process.
The Group Risk and Compliance function provides independent oversight, through support, challenge and monitoring activity of the divisional risk management processes (second line of defence).
Our Group Internal Audit function provides more holistic assurance, via reviews and assessments (third line of defence).
Underpinning the three lines of defence and to ensure effective risk management, the Group maintains a comprehensive suite of governance policies to support the Risk Management Framework. These policies are reviewed at least annually to ensure they remain appropriate and effective.
Own Risk and Solvency Assessment (ORSA)
We provide financial advice and also manufacture and distribute products in different jurisdictions, and therefore we are governed by a range of financial services regulations. As such, we have relationships with regulators in the UK, Ireland, Singapore and Hong Kong. At Group level we are classified as an insurance group and are subject to the Solvency II insurance regulation. A key part of this regulation requires a consistent approach to risk management across the Group supported by an annual ORSA (considering both the Group and the individual insurance entities).
The ORSA process is grounded within the business strategy and activities contributing to this operate as an annual cycle. As directed by the boards of the EU insurance entities (SJPUK and SJPI) and the Board of the Company, the cycle comprises:
-- comprehensive risk assessments, providing understanding of the risks each business unit faces, how they are managed and how they might change (in the context of the strategic plan); and
-- quantitative analysis of the capital required to protect the sustainability of the Company (projecting how this may develop over our planning period of five years).
Similar risk-based capital adequacy assessments are performed for the other regulated non-insurance entities. The assessment activities range from stress and scenario testing, through loss event recording and analysis, to recovery and resolution planning. Stress testing is undertaken across a broad range of scenarios, including market shocks, mass lapse events, new business growth scenarios and, particularly, operational risk events.
The regulatory solvency capital requirements allow for at least a '1 in 200-year' risk event, so we focus on reasonably foreseeable scenarios for the insights they can provide about how the business might react to stress conditions, as well as considering other, more extreme scenarios.
-37-
Our results show that the Group maintains strong levels of free assets, even under extreme but plausible scenarios, which demonstrates its resilience to adverse conditions. For example, previous analysis of more severe 'stress tests' investigating liquidity, which could be a key risk in stressed conditions, indicated the Group can reasonably expect to have sufficient liquid funds to be able to meet its liabilities over the planning period. This is supported by our liquidity risk policy which outlines the approach and controls in place to manage liquidity risk, the primary control being to hold corporate and surplus assets in deep and liquid markets.
The outcome of these activities, assists us when considering the calculation and allocation of risk capital to all the major risks in the Group (in 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.
The ORSA has proved to be a useful process for making consideration of risk appetite more prominent in decisions by management, including those reviewed by the Risk Committee. The ORSA continues to evolve and further strengthen risk management processes throughout the Group.
Internal Control
The internal control environment is built upon a strong control culture, underpinned by our Code of Ethics and organisational delegation of responsibility using the 'three lines of defence' model, as described above. The purpose of this method of internal control is to provide reasonable assurance regarding the achievement of objectives relating to operations, reporting, and compliance.
There is 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 the independent assurance assignments undertaken by Internal Audit.
Control Self-Assessment (CSA)
In addition to the risk impact assessments, the CSA is a core element of our governance process. Assessments are a continuous activity, through which business areas review their controls regularly, signing off on their efficiency (against a standard set of control statements).
These are formally summarised annually and collectively these control statements embody the elements for us to maintain a control framework across five components (as laid down in the internationally accepted COSO control standards):
-- control environment; -- risk assessment; -- control activities; -- information and communication; and -- monitoring activities.
This annual summary contributes to the year-end Internal Control Evaluation exercise (undertaken by Internal Audit as part of the assurance provision to the Audit Committee).
The controls activity is valued in the organisation, as it provides confidence that business areas can meet their objectives, clarity to support decision making, and agility in adapting to change and complexity.
-38-
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 approval of all financial accounting data including data generated by our outsource providers; and
-- formal review of financial statements by senior management, for both individual companies and the consolidated Group.
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 35. The 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 Risk Committee, the Executive Board, the SJPUK and SJPI boards, the SJPI Risk and Compliance Committee, the SJPI Singapore Branch Executive Management Committee and the Board of SJPI (Hong Kong) Limited.
Against each of the principal risks, consideration is given to the level of exposure and the extent to which the risk can be mitigated, with the risk being assigned a weighting (and a justification for this). For example, the Group believes that the accumulation of reputational issues through the risks set out below presents a significant exposure yet is difficult to further mitigate beyond the processes currently in place across the business. Conversely, the risk of regulatory breaches may pose higher exposure (i.e. fines may directly correlate to the Funds under Management), but can be directly mitigated through processes, controls and systems.
In addition to the above, the political environment, including Brexit, is an area of increasing uncertainty and therefore a principal risk to our business through investor sentiment and the wider economy. We believe that the direct impact on our operations will be limited due to our business model. In particular we have minimal exposure to market risk through our matching strategy, in addition, investments are also globally diverse. We have considered and made appropriate arrangements where potential operational issues following a no-deal Brexit could occur, although the business has a very minimal operational exposure.
The indirect impact on the economy, and therefore investor sentiment, cannot be determined with any precision because of the current uncertainties both around Brexit and the wider political environment. It is these indirect outcomes which could impact upon our business. Stress and scenario testing has been performed which demonstrates that the businesses is highly resilient to changes in the domestic economy.
We are focused on understanding the degree to which the various outcomes might impact the business. For instance, understanding how market uncertainty and volatility could impact client decisions and behaviours. This allows us to consider how they might be mitigated. We continually monitor the changing environment, to ensure our analysis and scenario testing remains current. However, we also consider worst case scenarios to facilitate planning for all eventualities. Although scenarios of political change, including Brexit, can drive changes in risk, the potential impacts on our business would manifest in ways which we are familiar with, notably market risk, persistency risk, changes in new business levels and operational risks. We cover these risks more specifically in the tables in the following pages.
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 set out in the following tables. Although all of the risks identified in the previous year's report are still applicable to our business, we have sought to rationalise and focus our reporting on our principal risks this year. Within all of the risks below, reputational and investor relations impact is considered (so these have not been individually drawn out below);
-39-
Non-Financial Risks
Risk Description Outcome Management and Controls
Systemic Clients rely on their Clients There are many processes
advice SJP advisers for the in place to mitigate this
failure provision of initial risk, including detailed
and ongoing advice. Failures advice guidance with appropriate
in the quality of advice governance around changes
or documentation of advice and updates, appropriate
could lead to redress incentive structures, adviser
costs, reputational damage training and accreditation,
and regulatory intervention. compliance procedures,
monitoring processes and
quality checking. The Group
guarantees the suitability
of advice given by advisers
and also has appropriate
professional indemnity
insurance in place.
-------------------------------- ------------------ ----------------------------------
Outsourcing The Group's business Clients, We maintain close working
failure model involves the outsourcing Financials relationships with our
of administration and and Shareholders outsourcing partners, who
custodial services to are central to our business
third parties. Poor service model. This enables us
from, or failure of, to work effectively and
one of these third parties efficiently together. Service
could lead to disruption level agreements are in
of services to clients, place and performance is
reputational damage and monitored against these.
profit impacts.
With any significant migration
programme such as the Bluedoor
administration system,
implementation is backed
up with a project focus
on outcomes and an understanding
of associated operational
risks. Group Risk and Internal
Audit work closely with
the programme teams, with
the Executive Board overseeing
project readiness risk
assessments and audits
along with contingency
plans.
We also work closely with
our outsourcing business
partners to understand
any material changes to
their businesses which
may impact us, with regular
reviews including monitoring
of the outsourced company's
financial strength. In
the case of an extreme
event, all our relationships
are governed by formal
agreements with notice
periods. The business continuity
arrangements of each outsourcer
are also regularly tested
and improved, and scenario
analysis is carried out.
-------------------------------- ------------------ ----------------------------------
-40-
Risk Description Outcome Management and Controls
Cyber Risk Cyber risk, which could Clients, The leading cause of information
and Information include loss of data, Advisers, security incidents are
Security system control or system Financials individuals unknowingly
availability, continues and Shareholders or inadvertently enabling
to be one of the top the attack, so awareness
risks facing individuals is the most effective defence.
and organisations. A We maintain an active and
successful cyber-attack on-going awareness programme
could result in disruption on information security
or distress for clients, threats and how to prevent
advisers, and employees, or respond to them for
as well as resulting employees and advisers.
in reputational damage This is supported by system
and regulatory censure. maintenance, data leakage
(prevention and detection)
technologies and vulnerability
testing. In addition an
incident reporting system
ensures a rapid response
if an incident does occur.
We also ensure our outsourcing
partners have robust information
security programmes in
place and use secure means
for transmitting data to
and from these organisations.
-------------------------------- ------------------ -------------------------------------
Investment Our approach to investment Clients We offer a broad range
performance management may fail to of funds and portfolios,
fails to deliver expected returns which allows client diversification
meet client to clients of the Group and mitigates our new business,
expectations or the range of products persistency and market
and services offered risks. We actively manage
may become inappropriate and monitor the performance
for client needs. of our investment managers
through the Investment
Committee (which is supported
by respected independent
investment research consultancies)
and review the ongoing
suitability of portfolio
asset allocation through
the Portfolio Committee.
We perform ongoing due
diligence and appropriateness
reviews on third-party
products at least annually.
-------------------------------- ------------------ -------------------------------------
Adviser Group products are distributed, Advisers The adviser proposition
proposition, and ongoing advice is is an area of continual
recruitment provided, exclusively focus, with outputs from
and retention through the SJP Partnership. regular adviser surveys
Inadequacies in the adviser and other adviser feedback
proposition, range of being reflected on an ongoing
products, technology basis. We employ a number
or services offered to of specialist managers
the Partnership may result specifically to manage
in inefficiencies and the recruitment and retention
frustration, with consequent of high-quality advisers,
loss of advisers and and a dedicated senior
client impact, or inability management team oversees
to recruit sufficient, the SJP Academy, which
high-quality new advisers broadens our recruitment
or field management. streams. Formal retention
strategies are in place
to ensure that, wherever
possible, we retain good
quality and experienced
advisers. All recruitment
and retention activity
is closely monitored. Business
Sale and Purchase Agreements
incentivise Partners to
build up high-quality sustainable
practices and enable the
Company to manage succession
of the Partnership, thereby
ensuring continuity of
service to clients and
funds under management.
-------------------------------- ------------------ -------------------------------------
-41-
Risk Description Outcome Management and Controls
Regulatory, The nature of the Group Regulators Regulatory and legislative
legislative is such that it falls change is largely a risk
and tax under the influence of which cannot be mitigated,
environment regulators and legislators although the Group seeks
in multiple jurisdictions. to engage with regulators
Transformative regulatory, and policy makers in an
or indeed political changes, open and constructive manner,
could impact adversely with the aim that key issues
on our current business impacting the Group are
model. taken into consideration
in the drafting of changes.
The Group could face Our governance structures,
a fine or regulatory management committees and
censure from failure compliance monitoring activities
to comply with current seek to ensure we remain
and/or future regulations, compliant with regulation.
with increased supervisory
intrusion, disruption
to business and potential
for changes to the business
model.
--------------------------------- ------------------ ------------------------------------
Competition The competitive environment Financials This risk is mitigated
and charge in which we operate continues and Shareholders through ensuring our business
pressure to evolve with the need is run efficiently, being
for dependable wealth responsive to the needs
management advice increasing of our clients and advisers
whilst regulation and and seeking continual improvements
technology are changing to processes. Charges are
the nature and accessibility benchmarked against competitors
of available information. and competitor activity
Competitor activity in is monitored allowing action
the adviser-based wealth to be taken in a timely
management market may manner if required. The
result in a reduction Group offers a diversified
in new business volumes, product range, including
reduced retention of manufactured and third-party
existing business with products. We have a proven
the resulting impact track record in adviser
on ongoing advice fees, and employee acquisition
pressure on margins for and retention. Our more
both new and existing established advisers often
business, and the potential have significant equity
loss of advisers and stakes in their practices
key employees. and their ability to access
these is structured to
aid retention. Similarly,
variable remuneration of
key employees is structured
to aid retention.
--------------------------------- ------------------ ------------------------------------
Funding Pressure on funding availability Financials A debt funding policy is
availability may limit the Group's and Shareholders in place, with committed
ability to provide business funds available through
loans to Partners to the revolving credit facility
make strategic investments. and securitisation. Credit
approved bank lending facilities
are available to support
business loans to Partners.
Further corporate borrowing
requires approval at Board
level.
--------------------------------- ------------------ ------------------------------------
People People and the distinctive People This risk is mitigated
and culture culture of the Group through effective recruitment
play an important part processes, leadership,
in its success. Poorly succession planning, the
managed recruitment, implementation of executive
expansion, succession, and management development
culture and resourcing initiatives and regular
may lead to loss of valued surveys and consultation
individuals, lack of groups. The latter enable
diversity, increased us to monitor the sentiment
risk of errors, and failure of our staff and advisers
to deliver on the business and identify any potential
plan. adverse impacts upon, or
trends within, our culture,
and respond appropriately.
--------------------------------- ------------------ ------------------------------------
-42-
Financial Risks
Risk Description Outcome Management and Controls
Insurance A reduction in funds under Financials Retention risk is managed
risk management owing to poor and Shareholders through the long-term relationships
retention would reduce between advisers and clients.
future Annual Management In particular, advisers
Charge income. This may keep clients informed during
arise from factors such periods of market volatility,
as changes in the economic and lower risk funds and
climate, poor investment portfolios are available,
performance, competitor with no charges for switching.
activity, or reputational The Investment Management
damage to the Group. Approach involves monitoring
Adverse mortality or disability of fund manager performance,
experience, in particular and changes are made where
higher death claims following appropriate.
an incident or widespread Mortality and disability
illness, or longer-term risk is substantially reduced
increases in mortality through the use of reassurance
rates, would reduce future with low retention. Mortality
profits. 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 on a regular
basis. Experience analysis
is performed.
--------------------------------- ------------------ -------------------------------------
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 considered several different strands of work, including:
-- the Business Plan and associated strategy documents and the Group's capacity and capability to deliver the plan;
-- an assessment of the economic, regulatory, competitive and risk environment which was carried out as part of the Board's strategy review process;
-- the Group's ORSA process, which is summarised in the section above; and -- operational risks, mitigating actions and the control environment.
A planning period of five years is used both in medium-term business planning and for the ORSA, as it reflects the horizon over which the Board sets medium-term strategy. Due to our product structure, investment and pension business does not generate net cash in the first six years. By using a planning horizon of five years, we assess our viability based on revenues generated on business we have today rather than relying on assumed growth.
The ORSA was particularly useful in assessing viability as it has a similar purpose and requires a comprehensive assessment of risk management and risk capital requirements of the business in excess of a 1 in 200-year risk calibration.
-43-
From the principal risks on pages 39 to 42 for the purposes of assessing the resilience of the Group's business model, the key risks have been identified. The assessment indicated that none of the identified individual key risks in isolation would compromise the Group's viability financially but could indirectly impact areas such as client satisfaction or reputation.
However, severe but plausible scenarios are also used to assess the impact of the risks. This informs business planning in the longer term, whether that is in the development of new controls, processes or systems or influencing corporate strategy for proposition or financial safeguarding.
This programme of stress testing allows the Group to model the potential impact of a variety of external and internal events. For instance, some of the stress scenarios explore the impact of a 'combination' of plausible events, adding further weight to the assessments.
Consideration is given to factors or events that impact on our funds under management, investment growth, retention of clients and ability to attract new clients in addition to the effects of a market downturn. A combination of these factors will be used to form scenarios which will then be tested, providing for more extreme combinations of events. Therefore, assumptions are robustly analysed to predict both the immediate impact of an event along with the impact over the longer term (in the wake of the event).
In addition to these more extreme 'combination' scenarios, assessments are also completed based on more current/topical or emerging risk exposures affecting the Group or financial services more generally, including: a significant data loss through a cyber-attack; a prolonged outsourcer failure; a substantial increase in expenses, without an equivalent increase in income; significant and prolonged stock market falls; and extreme and unprecedented mass lapses.
Activities in the risk management framework (stress testing, controls management and Key Risk Indicator monitoring), ORSA, capital adequacy assessments along with strategic planning by the Board, contribute to a robust assessment of the principal risks facing the Group.
The Board considers that the Group's risk culture is well embedded (as demonstrated in the risk management processes) and having considered both the current and future market environment and assessed the results of ongoing comprehensive operational risk scenario testing and financial stress testing, the Board believes that the business model remains appropriate and that the Group will be able to remain in operation and meet its liabilities as they fall due over the five year assessment period. The Board will ensure that the Group maintains a robust risk management process, including business continuity planning and considers that it will continue to meet its liabilities over the planning period. This is further supported by the resilience that the Group has demonstrated over recent years in a variety of different external conditions. We plan for 'severe but plausible' events, exploring (but not limited to) the following areas: the market (understanding the effects on asset value and investment growth); persistency (understanding the effects of varying lapse volumes and withdrawals); new business (exploring the effects of slowed or increased volumes); and expenses (focusing on the impact of increased costs). The Directors believe that the risk planning and management processes and culture, allow for a robust and effective risk management environment, providing the assurance needed for the Directors to remain confident in the Group's outlook.
-44
CHAIR'S REPORT
2018 was a year of robust performance during which St. James's Place built further on its strong momentum of recent years. The fact that this was achieved during a year of mounting political and economic uncertainty for the UK, coupled with volatile global investment markets, is further testament to the resilience of the St. James's Place business model.
An ageing population, an increasing need for individuals to take responsibility for their own pension, care and protection planning, and the complexity of the choices which face them in doing so, continue to underpin the growth in demand for trusted face-to-face financial advice.
St. James's Place has continued to focus on supporting the Partnership in building trusted and durable relationships with clients to help them achieve their financial goals. It is during uncertain and changing times that guidance, assurance and advice become even more important. Client value is about far more than price. Our clients recognise this and we must continue to demonstrate the value that we are delivering to them.
The business model has remained adaptable and robust for over 26 years but that is only because we have consistently invested in it and continue to do so. During 2018, good progress was made in the longer term development of the business, with further growth in the Academy, Rowan Dartington and our ventures in Hong Kong, Singapore and Shanghai, and we achieved some important milestones in the migration to a new back-office administration platform. We also invested significantly in adviser and staff training and development and in wider technology supporting the Partnership in the delivery of client service.
Based on this strong business performance, continued high levels of client retention and our confidence in the Group's future prospects, the Board is pleased to propose a final dividend of 29.73 pence per share, an increase of 8%. This makes a full year dividend of 48.22 pence per share, an increase of 12.5%, representing 82.6% of the Underlying cash result.
Succession
There were a number of significant changes to the composition of the Board last year.
In January 2018, Andrew Croft took over as CEO from David Bellamy who retired from the Board, and Craig Gentle succeeded Andrew as CFO. The business has adapted seamlessly to this long-planned management transition.
In October, my predecessor Sarah Bates also stood down after 14 years on the Board, the last four of which were as Chair.
We also announced last year that David Lamb would be retiring from the Board and from his executive responsibilities in February 2019, although I am pleased to report his continuing involvement as Non-executive Chair of the Investment Committee. I am also delighted to report that Robert Gardner has joined the business as Director of Investment Management and a member of the Executive Board. Robert is well known to the business joining us from Redington where he was a co-founder and remains a non-executive director.
I welcome Robert to the business and on behalf of the shareholders, the Board and other colleagues, thank Sarah and David for their immense contributions to the success of St. James's Place over many years.
Continuity and the maintenance of a strong and distinctive culture are key elements of our strategy, and long-term succession planning for both the Executive and Non-executive members of the Board and senior management team will remain a key priority.
-45-
Corporate Governance and Our Wider Corporate Responsibilities
The Board has long recognised the Group's responsibilities to all its stakeholders, including shareholders, clients, the Partnership, colleagues, third-party suppliers, the environment and of course wider society. We have always viewed the St. James's Place Charitable Foundation as a core component of our strategy and a key vehicle through which we make a contribution to wider communities. Members of the St. James's Place community raised GBP10.0 million in 2018, including Group matching. We have also continued to broaden our corporate responsibility activities, and these will be set out in some detail in our annual report and accounts.
I am also pleased that we have further advanced our environmental, social and governance credentials, with a particular highlight being the work we have undertaken around Responsible Investment where we became signatories to the United Nations Principles for Responsible Investment and the Financial Reporting Council's UK Stewardship Code. We also joined the Investment Association's Sustainability and Responsible Investing Committee.
We made some positive progress on increasing the diversity of our workforce last year as a number of the programmes we have put in place begin to bear fruit. Focusing initially on gender diversity, in 2018 we became signatories to the Women in Finance Charter and we joined the 30% Club, while almost half of external appointments to senior roles last year were female. This is not a box-ticking exercise, and we appreciate fully the importance of attracting and developing a diverse range of talent if we are to continue to thrive in the long term. There is still a lot more to do, particularly at senior level, and this remains a priority for the Board.
Towards the end of the year we undertook an externally facilitated Board effectiveness review. This highlighted some helpful recommendations that we intend to implement in full, while confirming the strong overall performance of the Board.
Concluding remarks
I believe we have continued to perform well and deliver for stakeholders in what has been a more volatile and uncertain external environment. Whilst we are not complacent and recognise that we will face periods of uncertainty from time to time, we have confidence that ours is a business that will continue to thrive and make the most of the long-term structural opportunities that are available to us, and continue to adapt and evolve to meet the challenges of the future, much as we have done in the past.
I would like to finish by offering on behalf of the Board, my sincere thanks and appreciation to the whole St. James's Place community.
Iain Cornish
Chair
26 February 2019
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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Year Ended Year Ended
31 December 31 December
Note 2018 2017
------------- -------------
GBP'Million GBP'Million
Insurance premium income 46.5 49.9
Less premiums ceded to reinsurers (29.6) (29.6)
------------- -------------
Net insurance premium income 16.9 20.3
Fee and commission income 5 1,523.7 1,779.8
Investment return 6 (4,235.0) 7,282.5
Net (expense)/income (2,694.4) 9,082.6
Policy claims and benefits
- Gross amount (54.0) (61.1)
- Reinsurers' share 19.6 23.3
Net policyholder claims and benefits
incurred (34.4) (37.8)
Change in insurance contract liabilities
- Gross amount 36.5 (26.5)
- Reinsurers' share - 2.3
Net change in insurance contract liabilities 36.5 (24.2)
Movement in investment contract benefits 6 4,249.2 (7,210.9)
Expenses (1,641.5) (1,467.6)
(Loss)/profit before tax 4 (84.6) 342.1
Tax attributable to policyholders'
returns 7 296.5 (156.0)
------------- -------------
Profit before tax attributable to
shareholders' returns 211.9 186.1
Total tax credit/(expense) 7 258.1 (196.3)
Less: tax attributable to policyholders'
returns 7 (296.5) 156.0
------------- -------------
Tax attributable to shareholders'
returns 7 (38.4) (40.3)
------------- -------------
Profit and total comprehensive income
for the year 173.5 145.8
Loss attributable to non-controlling
interests - (0.1)
Profit attributable to equity shareholders 173.5 145.9
------------- -------------
Profit and total comprehensive income
for the year 173.5 145.8
------------- -------------
Pence Pence
Basic earnings per share 14 33.0 27.8
Diluted earnings per share 14 32.4 27.4
The results relate to continuing operations.
-47-
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'M GBP'M GBP'M GBP'M GBP'M GBP'M GBP'M GBP'M
At 1 January
2017 79.1 164.5 (20.9) 851.2 2.5 1,076.4 (0.8) 1,075.6
Profit/(loss)
and total
comprehensive
income/(expense)
for the year 145.9 145.9 (0.1) 145.8
Dividends 14 (190.0) (190.0) (190.0)
Issue of share
capital 14 0.1 4.1 4.2 4.2
Exercise of
options 14 0.2 3.1 3.3 3.3
Consideration
paid for own
shares (11.3) (11.3) (11.3)
Shares sold
during the
year 5.5 (5.5) - -
Retained earnings
credit in
respect
of share option
charges 30.5 30.5 30.5
At 31 December
2017 79.4 171.7 (26.7) 832.1 2.5 1,059.0 (0.9) 1,058.1
-------- -------- --------- --------- --------- ---------------- ------------ --------
Profit and
total
comprehensive
income for
the year 173.5 173.5 - 173.5
Dividends 14 (242.7) (242.7) (242.7)
Exercise of
options 14 - 2.8 2.8 2.8
Consideration
paid for own
shares (6.0) (6.0) (6.0)
Shares sold
during the
year 9.0 (9.0) - -
Retained earnings
credit in
respect
of share option
charges 33.4 33.4 33.4
At 31 December
2018 79.4 174.5 (23.7) 787.3 2.5 1,020.0 (0.9) 1,019.1
-------- -------- --------- --------- --------- ---------------- ------------ --------
-48-
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31
December As at 31 December
Note 2018 2017
------------ ------------------
GBP'Million GBP'Million
Assets
Goodwill 8 15.6 15.6
Deferred acquisition costs 8 558.5 623.0
Intangible assets
- Purchased value of in-force business 8 24.0 27.2
- Computer software 8 1.4 2.4
Property and equipment 28.5 26.4
Deferred tax assets 7 147.1 182.7
Reinsurance assets 82.8 82.8
Other receivables 10 1,952.3 1,620.0
Income tax assets 9.7 -
Investments
- Investment property 9 1,820.7 1,630.9
- Equities 9 56,077.9 55,086.9
- Fixed income securities 9 21,966.0 17,180.7
- Investment in Collective Investment
Schemes 9 4,756.1 5,903.4
- Derivative financial instruments 508.8 343.4
Cash and cash equivalents 9 6,877.6 7,280.6
------------ ------------------
Total assets 94,827.0 90,006.0
------------ ------------------
Liabilities
Borrowings 12 348.6 279.9
Deferred tax liabilities 7 172.9 546.8
Insurance contract liabilities 508.1 544.6
Deferred income 8 648.3 646.3
Other provisions 22.7 20.0
Other payables 11 1,290.8 1,231.2
Investment contracts benefits 9 67,796.1 64,014.3
Derivative financial instruments 9 517.4 190.3
Net asset value attributable to unit
holders 9 22,502.9 21,349.1
Income tax liabilities 7 - 125.3
Preference shares 0.1 0.1
------------ ------------------
Total liabilities 93,807.9 88,947.9
------------ ------------------
Net assets 1,019.1 1,058.1
------------ ------------------
Shareholders' equity
Share capital 14 79.4 79.4
Share premium 174.5 171.7
Shares in trust reserve (23.7) (26.7)
Miscellaneous reserves 2.5 2.5
Retained earnings 787.3 832.1
------------ ------------------
Equity attributable to owners of
the Parent Company 1,020.0 1,059.0
Non-controlling interests (0.9) (0.9)
------------ ------------------
Total equity 1,019.1 1,058.1
------------ ------------------
Pence Pence
------------ ------------------
Net assets per share 192.5 200.0
------------ ------------------
-49-
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended Year Ended
31 December 31 December
Note 2018 2017
------------- -------------
GBP'Million GBP'Million
Cash flows from operating activities
(Loss)/profit before tax for the year (84.6) 342.1
Adjustments for:
Amortisation of purchased value of in-force
business 8 3.2 3.2
Amortisation of computer software 8 1.1 0.9
Depreciation 6.5 5.2
Share-based payment charge 34.1 32.7
Interest income (35.1) (23.7)
Interest expense 6.1 4.9
Increase in provisions 2.7 2.9
Exchange rate (gains)/losses (0.3) 1.1
Changes in operating assets and liabilities
Decrease in deferred acquisition costs 8 64.5 61.8
Increase in investment property (189.8) (168.5)
Increase in other investments (4,794.4) (14,876.2)
Increase in reinsurance assets - (2.3)
Increase in other receivables (330.3) (146.0)
(Decrease)/increase in insurance contract
liabilities (36.5) 26.4
Increase in financial liabilities (excluding
borrowings) 4,108.9 10,615.8
Increase/(decrease) in deferred income 8 2.0 (1.3)
Increase in other payables 57.2 48.8
Increase in net assets attributable
to unit holders 1,153.8 4,317.1
Cash generated from operating activities (30.9) 244.9
Interest received 35.1 23.7
Interest paid (6.1) (4.9)
Income taxes paid (213.2) (181.3)
------------- -------------
Net cash generated from operating activities (215.1) 82.4
Cash flows from investing activities
Acquisition of property and equipment (8.6) (8.6)
Acquisition of intangible assets 8 (0.1) (0.3)
Acquisition of subsidiaries and other
business combinations,
net of cash acquired (4.1) (5.0)
Net cash used in investing activities (12.8) (13.9)
Cash flows from financing activities
Proceeds from the issue of share capital 2.8 3.3
Consideration paid for own shares (6.0) (11.3)
Additional borrowings 12 232.5 100.0
Repayment of borrowings 12 (162.2) (101.0)
Dividends paid 14 (242.7) (190.0)
------------- -------------
Net cash used in financing activities (175.6) (199.0)
------------- -------------
Net decrease in cash and cash equivalents (403.5) (130.5)
Cash and cash equivalents at 1 January 9 7,280.6 7,413.1
Exchange gains/(losses) on cash and
cash equivalents 0.5 (2.0)
Cash and cash equivalents at 31 December 9 6,877.6 7,280.6
------------- -------------
-50-
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 of 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 (IFRSs) as adopted by the European Union. APMs are used to provide greater insight into 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 and Glossary on pages 80 to 84, 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 2017 with the exception of the following matters which have impacted the disclosure in this announcement.
ADOPTION OF IFRS 9 - FINANCIAL INSTRUMENTS (AND ASSOCIATED AMMENTS TO VARIOUS OTHER STANDARDS)
On 1 January 2018, the Group adopted IFRS 9 Financial Instruments as issued in July 2014. IFRS 9 incorporates new classification and measurement requirements for financial assets and liabilities, the introduction of an expected credit loss impairment model, new hedge accounting requirements and enhanced disclosures in the financial statements. For the Group, adopting IFRS 9 has resulted in changes to accounting policies, reclassification of certain financial assets, and changes to the impairment model applied. In accordance with the transition provisions set out in IFRS 9, comparative figures have not been restated.
-51-
Classification and measurement of financial instruments
On the date of initial application of IFRS 9, being 1 January 2018, the following financial assets were reclassified. There was no material change to the underlying accounting treatment for the reclassified financial assets, and no change in the carrying amount upon reclassification. No reclassifications were required for financial liabilities.
Measurement category
IAS 39 IFRS 9
---------------------- -------------------
Renewal income assets Available for sale Fair value through
profit or loss
Shareholder other receivables Loans and receivables Amortised cost
Shareholder cash and cash Loans and receivables Amortised cost
equivalents
The total financial assets recognised under each IFRS 9 and IAS 39 measurement category at 1 January 2018, and reclassifications between categories as required on adoption of IFRS 9, are set out below:
Fair value Fair value Total financial
through profit through other Amortised assets
1 January 2018 or loss (FVTPL) comprehensive cost (2)
income (FVOCI)
(1)
----------------- ---------------- ------------ ----------------
GBP'Million GBP'Million GBP'Million GBP'Million
Shareholder financial assets
under IAS 39 1,462.9 71.6 1,078.9 2,613.4
Reclassify renewal income
assets 71.6 (71.6) - -
Shareholder financial assets
under IFRS 9 1,534.5 - 1,078.9 2,613.4
(1) Fair value through other comprehensive income under IFRS 9 was known as available for sale under IAS 39.
(2) All financial assets that are classified as amortised cost under IFRS 9 were classified as loans and receivables held at amortised cost under IAS 39.
Reclassification of renewal income assets from 'available-for-sale' to FVTPL
Renewal income assets, which represent the present value of future cash flows associated with books of business acquired by the Group, are classified as FVTPL under IFRS 9. This is because the contractual cash flows associated with the assets are fees rather than payments of principal and interest. When contractual cash flows are not solely payments of principal and interest, IFRS 9 requires the assets to be classified as FVTPL. There was no difference between the previous carrying amount under IAS 39 and the revised carrying amount under IFRS 9, and the reclassification had no impact on the Group's equity.
Reclassification from loans and receivables to amortised cost
Shareholder cash and cash equivalents, and shareholder other receivables except for renewal income assets, were reclassified from loans and receivables to amortised cost as at 1 January 2018. The business model for these assets is hold to collect or sell, and the contractual cash flows consist solely of payments of principal and interest. There was no difference between the previous carrying amount under IAS 39 and the revised carrying amount under IFRS 9, and the reclassification had no impact on the Group's equity.
-52-
Expected loss impairment model
The implementation of IFRS 9 requires a three-stage model to be applied in calculating the expected credit loss provision. Unless purchased or originated credit-impaired, newly originated assets are recognised within Stage 1: Performing. Assets remain in Stage 1 until there is a significant increase in credit risk, in which case they move to Stage 2: Underperforming. Assets move to Stage 3: Non-performing when there is objective evidence of impairment. Assets are accounted for differently depending on the stage they are classified in.
The Group has applied the three-stage impairment model to the business loans to Partners portfolio. Business loans to Partners are interest-bearing (linked to the Bank of England base rate plus a margin), either repayable on demand or in line with the repayment plan, and secured against the future renewal income streams of the Partner.
No provision is held against the other financial assets of the Group as these are either classified as FVTPL or are short-term trade receivables with insignificant risk of credit loss.
Definition of underperforming
In line with the presumption set out in IFRS 9, the Group considers that business loans to Partners experience a significant increase in credit risk, and so move to Stage 2: Underperforming in the expected credit loss model, when they are more than 30 days past due.
Definition of non-performing
Business loans to Partners are considered to be non-performing, in the context of the definition prescribed within IFRS 9, if they are in default. This is defined as a loan to either:
-- a Partner who has left the St. James's Place Partnership; or
-- a Partner who management considers to be at significant risk of leaving the Partnership where an orderly settlement of debt is considered to be in question.
The IFRS 9 presumption that default occurs when a loan is more than 90 days past due has been rebutted. Because of the quality cash flows on which loans are secured together with the direct control exercised over them from source, management have a practice of granting flexible ongoing terms to Partners who are investing in their own businesses. Past evidence supports the assertion that the vast majority of loans to Partners who remain in the Partnership are repaid in full, irrespective of the number of days past due the loan may be.
Write-off
Business loans to Partners are written off where there is no reasonable expectation of further recovery. Credit-related write-off experience is considered when determining the Group's definition of underperforming and non-performing.
The provision held against business loans to Partners under the incurred loss model as required by the previous accounting standard, IAS 39, was immaterial. The provision required by applying the expected loss model from 1 January 2018, as required by IFRS 9, is also immaterial. For further information on the provision balance and gross business loans to Partners, refer to Note 10 Other Receivables.
ADOPTION OF IFRS 15 - REVENUE FROM CONTRACTS WITH CUSTOMERS (INCLUDING SUBSEQUENT IFRS 15 CLARIFICATION AND ASSOCIATED AMMENTS TO VARIOUS OTHER STANDARDS).
The adoption of IFRS 15 had no impact on the Group, as the way that the Group's revenue from contracts with customers was recognised under the previous accounting standard, IAS 18, satisfies the requirements of IFRS 15 with no changes required to existing accounting policies. This conclusion was reached following a detailed assessment of revenue recognised by the Group in the context of the IFRS 15 five-step revenue recognition model, covering advice charges (post-RDR), third-party fee and commission income, wealth management fees, investment management fees, fund tax deductions and discretionary management fees.
-53-
3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS IN APPLYING ACCOUNTING POLICIES
Judgements
The primary areas in which the Group has applied judgement are as follows:
Classification of contracts between insurance and investment business
Contracts with a significant degree of insurance risk are treated as insurance contracts. 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.
Consolidation
Entities are consolidated within the Group financial statements if they are controlled by the Group. Control exists if the Group is exposed to, or has rights to, variable returns from its involvement with the entity and the Group has the ability to affect those returns through its power over the entity. Significant judgement can be involved in determining whether the Group controls an entity, such as in the case of the structured entity set up for the Group's securitisation transaction, SJP Partner Loans No.1 Limited, and for the Group's unit trusts.
A structured entity is one that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity. As a result, factors such as whether a Group entity is able to direct the relevant activities of the entity and the extent to which the Group is exposed to variability of returns are considered. In the case of SJP Partner Loans No.1 Limited, it was determined that the Group does control the entity and hence it is consolidated. This is due to an entity in the Group holding the junior tranche of loan notes, hence being subject to variability of returns, and the same entity being able to direct the relevant activities of the structured entity through its role of servicer to the securitised portfolio.
Unit trusts are consolidated when the Group holds more than 30% of the units in that unit trust. This is the threshold at which the Group is considered to achieve control, having regard for factors such as:
-- the scope of decision making authority held by St. James's Place Unit Trust Limited, the unit trust manager;
-- rights held by external parties to remove the unit trust manager; and
-- the Group's exposure to variable returns through its holdings in the unit trusts and the unit trust manager's remuneration.
Determining non-performing business loans to Partners
As set out on page 52, business loans to Partners are considered to be non-performing, in the context of the definition prescribed within IFRS 9, if they are in default. This is defined as a loan to either:
-- a Partner who has left the St. James's Place Partnership; or
-- a Partner who management considers to be at significant risk of leaving the Partnership where an orderly settlement of debt is considered to be in question.
The IFRS 9 presumption that default occurs when a loan is more than 90 days past due has been rebutted. Because of the quality of cash flows on which loans are secured together with the direct control exercised over them from source, management have a practice of granting flexible ongoing terms to Partners that are investing in their own businesses. Past evidence supports the assertion that the vast majority of loans to Partners who remain in the Partnership are repaid in full, irrespective of the number of days past due the loan may be.
-54-
Estimates
Critical accounting estimates are those which give rise to a significant risk of material adjustment to the balances recognised in the financial statements within the next 12 months. The Group's critical accounting estimates are:
-- determining the value of insurance contract liabilities; and -- determining the fair value of investment property.
Estimates are also applied in other assets of the financial statements, including determining the value of deferred tax assets, investment contract benefits, the operational readiness prepayment and 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 2018 and expected rates in 2019 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.
Whilst the measurement of insurance contract liabilities is considered to be a critical accounting estimate for the Group, the vast majority of non-unit-linked insurance business written is reinsured. As a result, the impact of a change in estimate in determining the value of insurance contract liabilities would be mitigated to a significant degree by the impact of the change in estimate in determining the value of reinsurance assets.
Determining the fair value of investment property
In accordance with IAS 40, the Group initially recognises investment properties at cost, and subsequently re-measures its portfolio to fair value in the statement of financial position. Fair value is determined monthly by professional external valuers. It is based on anticipated market values for the properties in accordance with the guidance issued by The Royal Institution of Chartered Surveyors, being the estimated amount that would be received from a sale of the assets in an orderly transaction between market participants.
The valuation of investment property is inherently subjective as it requires, among other factors, assumptions to be made regarding the ability of existing tenants to meet their rental obligations over the entire life of their leases, the estimation of the expected rental income into the future, an assessment of a property's potential to remain as an attractive technical configuration to existing and prospective tenants in a changing market and a judgement to be reached on the attractiveness of a building, its location and the surrounding environment. As such, investment properties are classified as Level 3 in the IFRS 13 fair value hierarchy because they are valued using techniques which are not based on observable inputs.
-55-
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 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 details the different types of revenue received from our wealth management business.
-56-
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, or short-term costs associated with the back-office infrastructure project. As the cost associated with non-cash-settled share options is reflected in changes in shareholder equity, they are also not included in the Underlying cash result.
More detail is provided on pages 18 to 24 of the Financial Review.
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
2018 2017
------------- -------------
GBP'Million GBP'Million
Underlying cash result after tax 309.0 281.2
Non-cash-settled share-based payments (33.4) (30.5)
Deferred tax impacts (31.8) (15.0)
Back-office infrastructure (35.8) (21.7)
Impact in the year of DAC/DIR/PVIF (54.4) (48.1)
Other 19.9 (20.1)
IFRS profit after tax 173.5 145.8
Shareholder tax 38.4 40.3
Profit before tax attributable to shareholders'
returns 211.9 186.1
Tax attributable to policyholder returns (296.5) 156.0
IFRS (loss)/profit before tax (84.6) 342.1
------------- -------------
-57-
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
2018 2017
------------- -------------
GBP'Million GBP'Million
EEV operating profit before tax 1,002.0 918.5
Investment return variance (460.9) 340.8
Economic assumption changes (15.1) 29.8
EEV profit before tax 526.0 1,289.1
------------- -------------
Adjustments to IFRS basis
Deduct: amortisation of purchased value
of in-force (3.2) (3.2)
Movement of balance sheet life value
of in-force (net of tax) (243.7) (586.2)
Movement of balance sheet unit trust
and DFM value of in-force (net of tax) (16.5) (325.4)
Tax of movement in value of in-force (50.7) (188.2)
Profit before tax attributable to shareholders'
returns 211.9 186.1
Tax attributable to policyholder returns (296.5) 156.0
------------- -------------
IFRS (loss)/profit before tax (84.6) 342.1
------------- -------------
The movement in life, unit trust and DFM value of in-force is the difference between the opening and closing discounted value of the profits that will emerge from the in-force book over time, after adjusting for DAC and DIR impacts which are already included under IFRS.
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Segment Assets
Funds under management (FUM)
FUM, as reported in Section 1 of the Financial Review on page 12, is the measure of segment assets which is monitored on a monthly basis by the Board.
31 December 31 December
2018 2017
------------ ------------
GBP'Million GBP'Million
Investment 27,620.0 28,310.0
Pension 40,720.0 36,150.0
UT/ISA and DFM 27,210.0 26,290.0
------------ ------------
Total FUM 95,550.0 90,750.0
Exclude client and third-party holdings
in non-consolidated unit trusts and DFM (4,701.6) (4,882.5)
Other 666.9 296.7
Gross assets held to cover unit liabilities 91,515.3 86,164.2
IFRS intangible assets (see page 21 adjustment
2)
including goodwill, DAC, PVIF, reinsurance
and deferred tax 720.9 811.3
Shareholder gross assets (see page 21) 2,590.8 3,030.5
Total assets 94,827.0 90,006.0
------------ ------------
5. FEE AND COMMISSION INCOME
Year Ended Year Ended
31 December 31 December
2018 2017
------------- -------------
GBP'Million GBP'Million
Advice charges (post-RDR) 743.2 656.5
Third-party fee and commission income 113.0 114.3
Wealth management fees 721.9 638.3
Investment management fees 85.7 62.4
Fund tax deductions (296.5) 156.2
Discretionary fund management fees 13.8 9.4
Fee and commission income before DIR
amortisation 1,381.1 1,637.1
------------- -------------
Amortisation of DIR 142.6 142.7
Total fee and commission income 1,523.7 1,779.8
------------- -------------
Fund tax deductions represent amounts deducted from, or credited to, the underlying funds to match policyholder tax charges or credit. This arises because the UK tax regime includes a policyholder tax element within the Group's tax arrangements. The amount of tax attributable to policyholders reflects investment return in the underlying funds. During 2018, market falls led to a significant policyholder tax credit, hence a credit of GBP296.5 million to the funds. In contrast, during 2017 market gains led to a significant policyholder tax charge, hence GBP156.2 million of deductions were made from the funds.
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6. INVESTMENT RETURN AND MOVEMENT IN INVESTMENT CONTRACT BENEFITS
The majority of the business written by the Group is unit-linked investment business, and so investment contract benefits are measured by reference to the underlying net asset value of the Group's unitised investment funds. As a result, investment return on the unitised investment funds and the movement in investment contract benefits are linked.
Investment return
Year Ended Year Ended
31 December 31 December
2018 2017
------------- -------------
GBP'Million GBP'Million
Investment return on net assets held to
cover unit liabilities:
Rental income 90.9 82.3
(Loss)/gain on revaluation of investment
properties (22.8) 79.2
Net investment return on financial instruments
classified as fair value through profit
and loss (3,046.0) 5,545.1
(2,977.9) 5,706.6
------------- -------------
Attributable to unit-linked insurance
contract liabilities 6.6 43.5
Attributable to unit-linked investment
contract benefits (2,984.5) 5,663.1
------------- -------------
(2,977.9) 5,706.6
------------- -------------
Income attributable to third-party holdings
in unit trusts (1,264.7) 1,547.8
(4,242.6) 7,254.4
------------- -------------
Investment return on shareholder assets:
Net investment return on financial instruments
classified as fair value through profit
and loss (1) (4.5) 19.5
Interest income on financial instruments
held at amortised cost 12.1 8.6
7.6 28.1
------------- -------------
Total investment return (4,235.0) 7,282.5
------------- -------------
(1) The net investment return on financial instruments classified as fair value through profit and loss in 2017 includes a GBP1.8 million loss which was disclosed as net investment return on financial instruments classified as available for sale in prior year. The reclassification has occurred due to the adoption of IFRS 9 on 1 January 2018.
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 GBP987.7 million (2017: GBP825.6 million).
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Movement in investment contract benefits
2018 2017
------------ ------------
GBP'Million GBP'Million
Balance at 1 January 64,014.3 53,307.1
Deposits 11,307.4 9,711.4
Withdrawals (4,168.5) (3,924.5)
Movement in unit-linked investment contract
benefits (2,984.5) 5,663.1
Less: fees and other adjustments for reassessment
of unit liability (372.6) (742.8)
Balance at 31 December 67,796.1 64,014.3
------------ ------------
Current 4,188.2 3,840.9
Non-current 63,607.9 60,173.4
------------ ------------
67,796.1 64,014.3
------------ ------------
Movement in unit liabilities
Unit-linked investment contract benefits (2,984.5) 5,663.1
Third-party unit trust holdings (1,264.7) 1,547.8
------------ ------------
Movement in investment contract benefits
in consolidated statement of comprehensive
income (4,249.2) 7,210.9
------------ ------------
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7. INCOME AND DEFERRED TAXES
Tax for the year
Year Ended Year Ended
31 December 31 December
2018 2017
------------- -------------
Current tax GBP'Million GBP'Million
UK corporation tax
- Current year charge 79.1 245.7
- Adjustment in respect of prior year (2.7) (3.1)
Overseas taxes
- Current year charge 4.9 6.8
- Adjustment in respect of prior year 0.1 0.1
81.4 249.5
Deferred tax
Unrealised capital losses in unit-linked
funds (359.2) (55.6)
Unrelieved expenses
- Additional expenses recognised in the
year (11.1) (12.7)
- Utilisation in the year 15.0 17.2
Capital losses
- Revaluation in the year (1.8) -
- Utilisation in the year 29.7 12.1
- Adjustment in respect of prior year 2.4 0.9
DAC, DIR and PVIF (11.5) (12.7)
Other items (3.4) (3.5)
Overseas taxes on losses (0.5) (0.1)
Adjustments in respect of prior periods 0.9 1.2
------------- -------------
(339.5) (53.2)
Total tax (credit) / charge for the year (258.1) 196.3
------------- -------------
Attributable to:
- policyholders (296.5) 156.0
- shareholders 38.4 40.3
-------------
(258.1) 196.3
------------- -------------
The prior year adjustment in current tax above represents a charge of GBP0.9 million in respect of policyholder tax (2017: GBP3.8 million credit) and a credit of GBP3.5 million in respect of shareholder tax (2017: GBP0.8 million charge).
Included within the deferred tax on 'other items' is a credit of GBP0.8 million (2017: GBP2.0 million charge) 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.
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Tax paid in the year
Year Ended Year Ended
31 December 31 December
2018 2017
------------- -------------
GBP'Million GBP'Million
Current tax charge for the year 81.4 249.5
Refunds to be received/(payments to be
made) in future years in respect of current
year 9.7 (125.3)
Payments made in current year in respect
of prior years 124.7 71.3
Other 0.7 1.1
------------- -------------
Tax paid 216.5 196.6
------------- -------------
Tax paid can be analysed as:
- Taxes paid in UK 211.5 188.9
- Taxes paid in overseas jurisdictions 1.5 2.7
- Withholding taxes suffered on investment
income received 3.5 5.0
------------- -------------
Tax paid 216.5 196.6
------------- -------------
Movement in net deferred tax balance
2018 2017
------------ ------------
GBP'Million GBP'Million
Deferred tax asset 182.7 199.9
Deferred tax liability (546.8) (614.8)
------------ ------------
Net deferred tax balance at 1 January (364.1) (414.9)
Credit through the consolidated statement
of comprehensive income 339.5 53.2
Arising on acquisitions during the year (1.2) (2.4)
------------ ------------
Deferred tax asset 147.1 182.7
Deferred tax liability (172.9) (546.8)
------------ ------------
Balance at 31 December (25.8) (364.1)
------------ ------------
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Reconciliation of tax charge to expected tax
Year Ended Year Ended
31 December 31 December
2018 2017
------------- -------------
GBP'Million GBP'Million
(Loss)/profit before tax (84.6) 342.1
Tax attributable to policyholders'
returns(1) 296.5 (156.0)
------------- -------------
Profit before tax attributable to
shareholders' return 211.9 186.1
Shareholder tax charge at corporate
tax rate of 19% (2017: 19.25%) 40.3 19% 35.8 19.3%
Adjustments:
Tax regime differences
Lower rates of corporation tax in
overseas subsidiaries (0.3) (0.1%) (0.3) (0.2%)
Expected shareholder tax 40.0 18.9% 35.5 19.1%
Other
Non-taxable income (0.2) (1.2)
Revaluation of historic capital losses
in the Group (1.8) -
Adjustment in respect of prior year
- Current tax (3.5) 0.8
- Deferred tax 0.9 0.8
Differences in accounting and tax
bases in relation to employee share
schemes (1.1) (0.7)
Disallowable expenses 2.0 2.0
Tax losses not recognised or past
losses now recognised 2.1 3.1
(1.6) (0.8%) 4.8 2.6%
Shareholder tax charge 38.4 18.1% 40.3 21.7%
Policyholder tax (credit)/charge (296.5) 156.0
Total tax (credit)/charge for the
year (258.1) 196.3
------------- -------------
(1) 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 (loss)/profit before tax at 19% (2017: 19.25%) would amount to GBP(16.1) million (2017: GBP65.9 million). The difference of GBP(242.0) million (2017: GBP130.4 million) between this number and the total tax of GBP(258.1) million (2017: GBP196.3 million) is made up of the reconciling items above which total GBP(1.9) million (2017: GBP4.5 million) and the effect of the apportionment methodology on tax applicable to policyholder returns of GBP(240.1) million (2017: GBP126.0 million).
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Deferred Tax Assets
Expected 31 December 31 December
utilisation 2018 2017
------------ ------------
Years GBP'Million GBP'Million
Unrelieved expenses (life insurance
business) 6 42.5 46.4
Deferred income (DIR) 14 35.6 37.9
Capital losses (available for future
relief) 6 55.7 86.0
Employee share scheme costs 3 8.0 7.5
Future capital allowances 6 4.0 3.7
Other 1.3 1.2
------------ ------------
Total deferred tax assets 147.1 182.7
------------ ------------
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 GBP7.5 million (2017: GBP5.9 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 2018 2017
------------ ------------
Years GBP'Million GBP'Million
Unrealised capital gains on life
insurance (BLAGAB) assets backing
unit liabilities 6 86.3 445.5
Deferred acquisition costs (DAC) 14 70.9 84.0
Purchased value of in-force business
(PVIF) 9 4.1 4.8
Renewal income assets 20 10.4 10.6
Other 1.2 1.9
------------ ------------
Total deferred tax liabilities 172.9 546.8
------------ ------------
Future Tax Changes
Future tax rate changes, including the reduction in the corporation tax rate to 17% effective from 1 April 2020 which was enacted in the Finance Act 2016, were incorporated into the deferred tax balances in 2016.
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8. GOODWILL, INTANGIBLE ASSETS, DEFERRED ACQUISITION COSTS AND DEFERRED INCOME
Computer
Purchased software
value and other
of specific
in-force software
Goodwill business developments DAC DIR
------------ ------------ -------------- ---------------- --------------
GBP'Million GBP'Million GBP'Million GBP'Million GBP'Million
Cost
At 1 January 2017 13.8 73.4 15.7 1,649.8 (1,528.0)
Additions 1.8 - 0.3 36.9 (141.4)
At 31 December
2017 15.6 73.4 16.0 1,686.7 (1,669.4)
At 1 January 2018 15.6 73.4 16.0 1,686.7 (1,669.4)
Additions - - 0.1 33.7 (144.6)
At 31 December
2018 15.6 73.4 16.1 1,720.4 (1,814.0)
Accumulated amortisation
At 1 January 2017 - 43.0 12.7 965.0 (880.4)
Charge for the
year - 3.2 0.9 98.7 (142.7)
------------ ------------ -------------- ---------------- --------------
At 31 December
2017 - 46.2 13.6 1,063.7 (1,023.1)
At 1 January 2018 - 46.2 13.6 1,063.7 (1,023.1)
Charge for the
year - 3.2 1.1 98.2 (142.6)
------------ ------------ -------------- ---------------- --------------
At 31 December
2018 - 49.4 14.7 1,161.9 (1,165.7)
Carrying value
At 1 January 2017 13.8 30.4 3.0 684.8 (647.6)
------------ ------------ -------------- ---------------- --------------
At 31 December
2017 15.6 27.2 2.4 623.0 (646.3)
------------ ------------ -------------- ---------------- --------------
At 31 December
2018 15.6 24.0 1.4 558.5 (648.3)
------------ ------------ -------------- ---------------- --------------
Current - 3.2 0.6 96.2 (154.5)
Non-current 15.6 20.8 0.8 462.3 (493.8)
------------ ------------ -------------- ---------------- --------------
15.6 24.0 1.4 558.5 (648.3)
------------ ------------ -------------- ---------------- --------------
Outstanding amortisation
period
At 31 December
2017 n/a 8 years 4 years 14 years 6-14 years
------------ ------------ -------------- ---------------- --------------
At 31 December
2018 n/a 7 years 3 years 14 years 6-14 years
------------ ------------ -------------- ---------------- --------------
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Goodwill
The carrying value of goodwill split by acquisition is as follows:
31 December 31 December
2018 2017
------------ ------------
GBP'Million GBP'Million
SJP Asia companies 10.1 10.1
Technical Connection Limited 3.7 3.7
Rowan Dartington companies 1.8 1.8
Balance at 31 December 15.6 15.6
------------ ------------
Goodwill in relation to the Rowan Dartington companies, which were acquired on 8 March 2016, arose during 2017 due to a reassessment of the value of the business acquired within the measurement period, which is defined as a period of up to one-year post acquisition.
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 on experience: Value of new business
Projection period: Five years of detailed forecasts
extrapolated into perpetuity using
a long-term growth rate
Long-term growth rate based on
economic forecasts: 1.3%
Pre-tax discount rate based on
a risk-free rate plus a risk
margin: 4.5%
It is considered that any reasonably possible levels of change in the key assumptions would not result in impairment of the goodwill.
Purchased 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 AND CASH EQUIVALENTS
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. The assets held to cover unit liabilities are set out in adjustment 1 of the IFRS to Solvency II Net Assets Balance Sheet reconciliation on page 21.
31 December 31 December
2018 2017
------------ ------------
GBP'Million GBP'Million
Assets
Investment property 1,820.7 1,630.9
Equities 56,077.9 55,086.9
Fixed income securities 21,960.6 17,134.6
Investment in Collective Investment
Schemes 3,459.1 4,486.6
Cash and cash equivalents 6,629.1 7,005.9
Other receivables 1,059.1 475.9
Derivative financial instruments
- Currency forwards 153.7 143.8
- Interest rate swaps 70.0 49.0
- Index options 45.6 70.9
- Contracts for differences 8.4 9.2
- Equity rate swaps 3.5 5.4
- Foreign currency options 21.4 19.1
- Total return swaps 139.0 41.0
- Fixed income options 55.9 -
- Credit default swaps 11.3 4.2
- Other derivatives - 0.8
------------ ------------
Total derivative financial assets 508.8 343.4
Total assets 91,515.3 86,164.2
------------ ------------
Liabilities
Other payables 277.7 151.5
Derivative financial instruments
- Currency forwards 199.4 75.1
- Interest rate swaps 52.2 38.8
- Index options 26.5 24.0
- Contracts for differences 10.1 6.8
- Equity rate swaps 5.8 4.4
- Foreign currency options 0.7 22.9
- Total return swaps 194.5 3.1
- Credit default swaps 20.6 14.2
- Fixed income options 7.6 -
- Other derivatives - 1.0
------------ ------------
Total derivative financial liabilities 517.4 190.3
Total liabilities 795.1 341.8
------------ ------------
Net assets held to cover linked liabilities 90,720.2 85,822.4
------------ ------------
Investment contract benefits 67,796.1 64,014.3
Net asset value attributable to unit
holders 22,502.9 21,349.1
Unit-linked insurance contract liabilities 421.2 459.0
Net unit-linked liabilities 90,720.2 85,822.4
------------ ------------
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 the corresponding unit liabilities are repayable and transferable on demand.
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Investment Property
31 December 31 December
2018 2017
------------ ------------
GBP'Million GBP'Million
Balance at 1 January 1,630.9 1,462.4
Additions 274.0 88.5
Capitalised expenditure on existing
properties 3.3 7.0
Disposals (64.7) (6.2)
Changes in fair value (22.8) 79.2
------------ ------------
Balance at 31 December 1,820.7 1,630.9
------------ ------------
Investment property is held within unit-linked funds and is considered current. However, since investment properties are not traded in an organised public market they are relatively illiquid compared with many other asset classes. There are no restrictions on the realisability of the Group's individual properties, or on the remittance of income or proceeds of disposal.
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: that is, using prices and other relevant information generated by market transactions involving identical or comparable (i.e. similar) assets.
The historical cost of investment properties held at 31 December 2018 is GBP1,706.6 million (2017: GBP1,480.6 million). This represents the price paid for investment properties, prior to any subsequent revaluation.
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
2018 2017
------------- -------------
GBP'Million GBP'Million
Rental income 90.9 82.3
Direct operating expenses 7.6 6.8
At the year end contractual obligations to purchase, construct or develop investment property amounted to GBP23.0 million (2017: GBP12.5 million). The most significant contractual obligation is the funding of a hotel development on a freehold site owned by the Group. The funding commitment for this development is GBP20.3 million, with building works scheduled to take place over the next two years. The development has been pre-let to a hotel operator, with the lease completing upon delivery of the finished building. Contractual obligations to dispose of investment property amounted to GBPnil (2017: GBPnil).
Cash and cash equivalents
31 December 31 December
2018 2017
GBP'Million GBP'Million
Cash and cash equivalents not held to
cover unit liabilities 248.5 274.7
Balances held to cover unit liabilities 6,629.1 7,005.9
Total cash and cash equivalents 6,877.6 7,280.6
All cash and cash equivalents are considered current.
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10. OTHER RECEIVABLES
31 December 31 December
2018 2017
------------
GBP'Million GBP'Million
Receivables in relation to unit liabilities 1,060.1 885.1
Other receivables in relation to insurance
and unit trust business 68.6 124.0
Operational readiness prepayment 236.4 170.6
Advanced payments to Partners 44.9 39.5
Other prepayments 70.1 58.2
Business loans to Partners 394.5 263.9
Renewal income assets 72.1 71.6
Miscellaneous 5.6 7.1
------------
Total other receivables 1,952.3 1,620.0
------------
Current 1,297.7 1,168.1
Non-current 654.6 451.9
1,952.3 1,620.0
All items within other receivables meet the definition of financial assets with the exception of prepayments and advanced payments to Partners. The fair value of those financial assets held at amortised cost is not materially different from amortised cost.
Receivables in relation to unit liabilities primarily relate to outstanding market trade settlements (sales) in the life unit-linked funds and the consolidated unit trusts. Other receivables in relation to insurance and unit trust business primarily relate to outstanding policy-related settlement timings. Both of these categories of receivables are short-term, typically settled within three days.
The operational readiness prepayment relates to the new administration platform being developed by our key outsourced back-office administration provider. Management has assessed the recoverability of this prepayment against the expected cost saving benefit of lower future tariff costs arising from the new platform. It is believed that any reasonably possible change in the assumptions applied within this assessment, such as levels of future business, the anticipated future service tariffs and the discount rate, would have no impact on the carrying value of the asset.
Renewal income assets represent the present value of future cash flows associated with books of business acquired by the Group.
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Business loans to Partners
Business loans to Partners are interest-bearing (linked to Bank of England base rate plus a margin), repayable on demand and secured against the future renewal income streams of the Partner.
Business loans to Partners include GBP99.0 million of loans that have been securitised. Legal ownership of the securitised assets has been transferred to a structured entity, SJP Partner Loans No.1 Limited, which has issued GBP70.0 million of loan notes backed by these assets to a third-party investor and GBP32.8 million to another entity within the Group. The securitised assets are ring fenced from the other assets of the Group, which means that the cash flows associated with the assets can only be used to purchase new loans into the structure in the revolving period, or repay the note holders in the amortisation period, plus associated issuance fees and costs. Holders of the loan notes have no recourse to the Group's other assets.
Despite being securitised, the business loans to Partners remain recognised in the Group statement of financial position. For further information on the loan notes issued by the structured entity to third-party investors, see Note 12 Borrowings and Financial Commitments.
Reconciliation of the business loans to Partners opening and closing gross loan balances
Stage 1 Stage 2 Stage 3
Performing Under-performing Non-performing Total
------------
GBP'Million GBP'Million GBP'Million GBP'Million
Gross balance at 1 January
2018 252.0 8.3 8.1 268.4
Business loans to Partners
classification changes:
- Transfer to underperforming (5.0) 5.0 - -
- Transfer to non-performing (0.2) (0.1) 0.3 -
- Transfer to performing 5.0 (5.0) - -
New Lending activity during
the year 296.5 - - 296.5
Repayments activity during
the year (165.3) (0.6) (1.4) (167.3)
Gross balance at 31 December
2018 383.0 7.6 7.0 397.6
Business loans to Partners: Provision
The expected loss impairment model for business loans to Partners has been built based on the levels of loss experienced in the portfolio, with due consideration given to forward-looking information.
The provision held against business loans to Partners under the incurred loss model as required by the previous accounting standard, IAS 39, was immaterial. The provision required by applying the expected loss model from 1 January 2018, as required by IFRS 9, is also immaterial. At 31 December 2018, the provision held against the total book was GBP3.1 million (31 December 2017: GBP4.5 million). During the period, GBP0.6 million of the provision was released (2017: GBP0.1 million) whilst new provisions and adjustments to existing provisions increased the total by GBP1.4 million (2017: GBP1.3 million).
Business loans to Partners as recognised on the statement of financial position
31 December 31 December
2018 2017
GBP'Million GBP'Million
Gross Business loans to Partners 397.6 268.4
Provision (3.1) (4.5)
Net Business loans to Partners 394.5 263.9
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Movement in renewal income assets
2018 2017
GBP'Million GBP'Million
At 1 January 71.6 58.9
Additions 9.7 14.5
Disposals (0.2) -
Revaluation (9.0) (1.8)
Total renewal income at 31 December 72.1 71.6
The key assumptions used for the assessment of the fair value of the renewal income are as follows:
31 December 31 December
2018 2017
----------------------
Lapse rate - SJP Partner renewal income(1) 5.0% - 15.0% 5.0% - 15.0%
Lapse rate - non-SJP renewal income(1) 15.0% - 25.0% 15.0% - 25.0%
Discount rate 5.0% - 7.5% 5.0% - 7.5%
(1) Future income streams are projected making use of persistency assumptions derived from the Group's experience of the business or, where insufficient data exists, from external industry experience. These assumptions are reviewed on an annual basis.
These assumptions have been used for the analysis of each business combination classified within renewal income.
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11. OTHER PAYABLES
31 December 31 December
2018 2017
------------
GBP'Million GBP'Million
Payables in relation to unit liabilities 560.3 420.4
Other payables in relation to insurance
and unit trust business 336.9 412.2
Accruals 151.2 139.4(1)
Accruals to Partners 107.3 87.6
Miscellaneous 135.1 171.6(1)
------------
Total other payables 1,290.8 1,231.2
------------
Current 1,213.7 1,140.4
Non-current 77.1 90.8
------------
1,290.8 1,231.2
------------
(1) Payables of GBP12.9 million at 31 December 2017 have been reallocated from accruals to miscellaneous to better reflect the nature of the balance, given invoices had been received for these amounts.
Payables in relation to unit liabilities primarily relate to outstanding market trade settlements (purchases) in the life unit-linked funds and the consolidated unit trusts. Other payables in relation to insurance and unit trust business primarily relate to outstanding policy-related settlement timings. Both of these categories of payables are short-term, typically settled within three days.
Included within miscellaneous is a contract payment of GBP85.3 million (2017: GBP92.5 million) which is non-interest bearing and repayable on a straight-line basis over the life of a 12-year service agreement. The repayment period commenced on 1 January 2017.
The fair value of financial instruments held at amortised cost within other payables is not materially different from amortised cost.
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12. BORROWINGS AND FINANCIAL COMMITMENTS
Borrowings
31 December 31 December
2018 2017
------------
GBP'Million GBP'Million
Bank borrowings 164.8 165.8
Loan notes 183.8 114.1
------------
Total borrowings 348.6 279.9
------------
Current 0.3 0.8
Non-current 348.3 279.1
------------
348.6 279.9
------------
Borrowings are a liability arising from financing activities. The primary borrowings in the Group are:
-- a GBP340 million revolving credit facility, which includes a GBP90 million extension agreed in 2017 to the original GBP250 million facility entered into with a group of UK banks in 2015. The facility is repayable over five years to 2022 with a variable interest rate. At 31 December 2018 the undrawn credit available under this facility was GBP179 million (31 December 2017: GBP179 million);
-- a US Dollar $160 million private shelf facility, also entered into in 2015. The Group authorised the issue of GBP50 million of loan notes during 2015, and a further issue of GBP64 million of loans notes during 2017 in relation to this facility. Both note issues were denominated in Sterling, eliminating any Group currency risk. The notes are repayable over ten years, ending in 2025 and 2027 respectively, with variable interest rates; and
-- GBP70.0 million of AAA-rated securitised loan notes issued during 2018, which are backed by a portfolio of business loans to Partners (for further information refer to Note 10 'Other receivables'). Holders of these notes have no recourse to the Group's other assets. The notes are repayable over the expected life of the securitisation, which is estimated to be five years. This includes a two-year revolving period where cash flows arising from the securitised portfolio are used to purchase new loans into the portfolio, rather than repay the notes. The notes have variable interest rates.
The movement in borrowings over the year are as follows:
2018 2017
------------
GBP'Million GBP'Million
Borrowings at 1 January 279.9 281.4
Additional borrowing during the year 232.5 100.0
Repayment of borrowings during the
year (162.2) (101.0)
Costs on additional borrowings during
the year (2.0) (0.9)
Unwind of borrowing costs (non-cash
movement) 0.4 0.4
------------
Borrowings at 31 December 348.6 279.9
------------
The fair value of the outstanding borrowings is not materially different from amortised cost. Interest expense on borrowings is recognised within expenses in the consolidated statement of comprehensive income.
-74-
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
2018 2017 2018 2017
GBP'Million GBP'Million GBP'Million GBP'Million
Bank of Scotland 61.7 65.4 80.0 80.0
Metro Bank plc 52.5 46.7 61.0 61.0
Santander plc 49.5 55.0 50.0 75.0
Total loans 163.7 167.1 191.0 216.0
The fair value of these guarantees has been assessed as GBPnil (2017: GBPnil).
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 2019 to 2042. The following table represents the future minimum lease payments under non-cancellable operating leases, including VAT, service charges and buildings insurance:
31 December 31 December
2018 2017
GBP'Million GBP'Million
Not later than one year 18.0 18.1
Later than one year and not later than
five years 53.7 56.2
Later than five years 69.6 74.4
Total financial commitments 141.3 148.7
As at 31 December 2018, there was GBP0.1 million (2017: GBP0.2 million) of future minimum sub-lease payments expected to be received under non-cancellable sub-leases.
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13. CAPITAL MANAGEMENT AND ALLOCATION
The Group's Capital Management policy, set by the Board, is 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.
The policy requires that each subsidiary manages its own capital, in particular to maintain regulatory solvency, in the context of a Group capital plan. Any capital in excess of planned requirements is returned to the Group's Parent Company, St. James's Place plc, normally by way of dividends. The Group capital position is monitored by the Audit Committee on behalf of the St. James's Place plc Board.
Regulatory capital
The Group's capital management 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, recognising the regulatory requirement. For other regulated companies we generally hold capital based on the regulatory requirement uplifted by a specified margin.
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 plc PRA and FCA: Long-term insurance
business
St. James's Place International plc Central Bank of Ireland: Life
insurance business
St. James's Place Unit Trust Group FCA: UCITS Management Company
Limited
St. James's Place Investment Administration FCA: Investment Firm
Limited
St. James's Place Wealth Management FCA: Securities and Futures Firm
(PCIS)
Limited
St. James's Place Wealth Management FCA: Personal Investment Firm
plc
St. James's Place Partnership Services FCA: Consumer Credit Firm
Limited
BFS Financial Services Limited FCA: Personal Investment Firm
Hale Financial Solutions Limited FCA: Personal Investment Firm
Linden House Financial Services Limited FCA: Personal Investment Firm
LP Financial Management Limited FCA: Personal Investment Firm
St. James's Place (Hong Kong) Limited Securities and Futures Commission
(Hong Kong):
A Member of The Hong Kong Confederation
of
Insurance Brokers
St. James's Place International (Hong Insurance Authority (Hong Kong)
Kong) Limited
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Entity Regulatory Body and Jurisdiction
St. James's Place (Singapore) Private Monetary Authority Singapore:
Limited A Member of the
Association of Financial Advisers
Rowan Dartington & Co Limited FCA: Investment Firm
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 capital position of the Group under Solvency II regulations is set out in the separate Solvency and Financial Condition Report document. The overall capital position for the Group at 31 December 2018, assessed on the standard formula basis, is presented in the following table:
31 December 31 December
2018 2017
GBP'Million GBP'Million
IFRS total assets 94,827.0 90,006.0
Less Solvency II valuation adjustments
and unit-linked liabilities (93,719.0) (88,910.9)
Solvency II net assets 1,108.0 1,095.1
Management Solvency Buffer (MSB) 491.0 461.9
Excess of free assets over MSB 617.0 633.2
Solvency II VIF 3,388.8 3,244.3
Risk margin (989.4) (946.1)
Standard formula SCR (A) (2,447.3) (2,449.2)
Sub-total (47.9) (151.0)
Solvency II Free Assets (B) 1,060.1 944.1
Solvency II ratio ((A + B) / A) 143% 139%
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.
The regulatory capital requirements of companies within the Group, and the associated solvency of the Group, are assessed and monitored by the Finance Executive Committee, a Committee of the Executive Board, with oversight by the Audit Committee on behalf of the Group Board. Ultimate responsibility for individual companies' regulatory capital lies with the relevant subsidiary boards.
There has been no material change in the level of capital requirements of individual companies during the year, nor in the Group's management of capital. All regulated entities exceeded the minimum solvency requirements at the reporting date and during the year.
-77-
IFRS capital composition
The principal forms of capital are included in the following balances on the consolidated statement of financial position:
31 December 31 December
2018 2017
GBP'Million GBP'Million
Share capital 79.4 79.4
Share premium 174.5 171.7
Shares in trust reserve (23.7) (26.7)
Miscellaneous reserves 2.5 2.5
Retained earnings 787.3 832.1
Shareholders' equity 1,020.0 1,059.0
Non-controlling interests (0.9) (0.9)
Total equity 1,019.1 1,058.1
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 3 of the Financial Review on page 31, 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.
14. SHARE CAPITAL, EARNINGS PER SHARE AND DIVIDS
Share Capital
Number of Called-up
Ordinary Shares Share Capital
---------------
GBP'Million
At 1 January 2017 527,482,348 79.1
- Issue of share capital 372,325 0.1
- Exercise of options 1,223,223 0.2
---------------
At 31 December 2017 529,077,896 79.4
- Exercise of options 375,501 0.0
---------------
At 31 December 2018 529,453,397 79.4
---------------
The total authorised number of ordinary shares is 605 million (2017: 605 million), with a par value of 15 pence per share (2017: 15 pence per share). All issued shares are fully paid.
Included in the issued share capital are 3,505,217 (2017: 4,210,906) shares held in the shares in trust reserve with a nominal value of GBP0.5 million (2017: GBP0.6 million). The shares are held by the SJP Employee Share Trust and the St. James's Place 2010 SIP Trust to satisfy certain share-based payment schemes. The trustees of the SJP 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 845,897 shares at 31 December 2018 and 1,755,831 shares at 31 December 2017. No dividends have been waived on shares held in the St. James's Place 2010 SIP Trust in 2018 or 2017.
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Earnings per share
Year Ended Year Ended
31 December 31 December
2018 2017
GBP'Million GBP'Million
Earnings
Profit after tax attributable to equity
shareholders (for both basic and diluted
EPS) 173.5 145.9
------------
Weighted average number of shares Million Million
------------
Weighted average number of ordinary shares
in issue (for basic EPS) 526.0 524.3
Adjustments for outstanding share options 8.7 8.8
------------
Weighted average number of ordinary shares
(for diluted EPS) 534.7 533.1
------------
Pence Pence
Earnings per share (EPS)
Basic earnings per share 33.0 27.8
Diluted earnings per share 32.4 27.4
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
2018 2017 2018 2017
-------------
Pence per Pence per GBP'Million GBP'Million
Share Share
Final dividend in
respect of previous
financial year 27.45 20.67 145.0 108.8
Interim dividend
in respect of current
financial year 18.49 15.41 97.7 81.2
------------
Total dividends 45.94 36.08 242.7 190.0
-------------
The Directors have recommended a final dividend of 29.73 pence per share (2017: 27.45 pence). This amounts to GBP157.4 million (2017: GBP145.2 million) and will, subject to shareholder approval at the Annual General Meeting, be paid on 24 May 2019 to those shareholders on the register as at 5 April 2019.
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15. 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 were losses recognised of GBP36.2 million (2017: income GBP10.9 million) and the total value of transactions with those non-consolidated unit trusts was GBP26.1 million (2017: GBP38.0 million). Net management fees receivable from these unit trusts amounted to GBP12.2 million (2017: GBP15.4 million). The value of the investment into the non-consolidated unit trusts at 31 December 2018 was GBP143.2 million (2017: GBP195.5 million).
Transactions with key management personnel
Key management personnel have been defined as the Board of Directors and members of the Executive Board.
Compensation of key management personnel is as follows:
Year Ended Year Ended
31 December 31 December
2018 2017
GBP'Million GBP'Million
Short-term employee benefits 5.9 7.4
Post-employment benefits 0.5 0.5
Share-based payment 4.5 6.6
Total 10.9 14.5
The total value of Group FUM held by related parties of the Group as at 31 December 2018 was GBP24.7 million (2017: GBP36.1 million). The total value of St. James's Place plc dividends paid to related parties of the Group during the year was GBP1.2 million (2017: GBP1.4 million).
16. POST BALANCE SHEET EVENTS
On 1 January 2019, the Group entered into a lease for new office accommodation in London. The lease term is 15 years and the annual rent is GBP3.8 million, subject to review every five years.
17. NON-STATUTORY ACCOUNTS
The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 December 2018 or 2017, but is derived from those accounts. Statutory accounts for 2017 have been delivered to the registrar of companies, and those for 2018 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.
18. ANNUAL REPORT
The Company's annual report and accounts for the year ended 31 December 2018 is expected to be posted to shareholders by 9 April 2019. 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.
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GLOSSARY OF ALTERNATIVE PERFORMANCE MEASURES
Within this announcement various 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 into the performance of the Group and the way it is managed by the Directors. The table below defines each APM, explains why it is used and, if applicable, where the APM has been reconciled to IFRS:
Financial position related APMs
APM Definition Why is this measure Reconciliation
used? to the financial
statements
Solvency Based on IFRS Net Assets, Our ability to satisfy Refer to page
II net but with the following our liabilities to 21.
assets adjustments: clients, and consequently
our solvency, is central
to our business. By
1. Reflection of the recognition removing the liabilities
requirements of the Solvency which are fully matched
II regulations for assets by assets, this presentation
and liabilities. In particular allows the reader to
this removes deferred acquisition focus on the business
costs (DAC), deferred income operation. It also
(DIR), purchased value provides a simpler
of in-force (PVIF) and comparison with other
their associated deferred wealth management companies.
tax balances, other intangibles
and some other small items
which are treated as inadmissible
from a regulatory perspective;
and
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, except for
that arising on DAC, DIR
and PVIF, as this is treated
as an allowable asset in
the Solvency II regulation.
Total A discounted cashflow valuation Life business and wealth Not applicable.
embedded methodology, assessing management business
value the long-term economic differ from most other
value of the business. businesses, in that
the expected shareholder
Our embedded value is determined income from the sale
in line with the EEV principles, of a product emerges
originally set out by the over a long period
Chief Financial Officers in the future. We therefore
(CFO) Forum in 2004, and complement the IFRS
amended for subsequent and Cash results by
changes to the principles, providing additional
including those published disclosure on an embedded
in April 2016, following value basis, which
the implementation of Solvency brings into account
II. the net present value
of expected future
cash flows, as we believe
that a measure of total
economic value of the
Group is useful to
investors.
Net asset EEV net asset value per Total embedded value Not applicable.
value share is calculated as provides a measure
(NAV) the EEV net assets divided of total economic value
per share by the year end number of the Group, and assessing
(EEV) of ordinary shares. the NAV per share allows
analysis of the overall
value of the group
by share.
-81-
NAV per IFRS net asset value per Total IFRS net assets Not applicable.
share share is calculated as provides a measure
(IFRS) the IFRS net assets divided of value of the Group,
by the year-end number and assessing the NAV
of ordinary shares. per share allows analysis
of the overall value
of the Group by share.
Financial performance related APMs
APM Definition Why is this measure Reconciliation
used? to the financial
statements
Operating The Cash result is defined IFRS income statement Refer to page
cash result, as the movement between methodology recognises 18 and also
Underling the opening and closing non-cash items such see Note 4
cash result Solvency II net assets as deferred tax and - Segment
and Cash adjusted for the following non-cash-settled share Profit to
result items: options. By contrast, the consolidated
dividends can only financial
1. The movement in deferred be paid to shareholders statements
tax is removed to reflect from appropriately
just the cash realisation fungible assets. The
from the deferred tax Board therefore uses
position; the Cash results to
monitor the level of
2. The movements in goodwill cash generated by the
and other intangibles business.
are included; and
While the Cash result
3. Other changes in equity, gives an absolute measure
such as dividends paid of the cash generated
in the year and non-cash-settled in the year, the Underlying
share option costs, are and Operating cash
excluded. results are particularly
useful for monitoring
The Operating cash result the expected long-term
reflects the regular emergence rate of cash emergence,
of cash from the business which supports dividends
operations. and sustainable dividend
growth.
The Underlying cash results
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 markets,
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.
Underlying These EPS measures are As Underlying cash Not applicable.
cash basic calculated as Underlying is the best reflection
and diluted cash divided by the number of the cash generated
earnings of shares used in the by the business, Underlying
per share calculation of IFRS basic cash EPS measures allow
(EPS) and diluted EPS. analysis of the shareholder
cash generated by the
business by share.
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EEV profit Derived as the movement Both the IFRS and Cash See Note 4
in the total EEV during results reflect only - Segment
the year. the cashflows in the Profit to
year. However our business the consolidated
is long-term, and activity financial
in the year can generate statements
business with a long-term
value. We therefore
believe it is helpful
to understand the full
economic impact of
activity in the year,
which is the aim of
the EEV methodology.
EEV operating A discounted cashflow Both the IFRS and Cash See Note 4
profit valuation methodology, results reflect only - Segment
assessing the long-term the cash flows in the Profit to
economic value of the year. However, our the consolidated
business. business is long-term, financial
and activity in the statements
Our embedded value is year can generate business
determined in line with with a long-term value.
the EEV principles, originally We therefore believe
set out by the Chief Financial it is helpful to understand
Officers (CFO) Forum in the full economic impact
2004, and amended for of activity in the
subsequent changes to year, which is the
the principles, including aim of the EEV methodology.
those published in April
2016, following the implementation Within the EEV, many
of Solvency II. of the future cash
flows derive from fund
The EEV operating profit charges, which change
reflects the total EEV with movements in stock
result with an adjustment markets. Since the
to strip out the impact impact of these changes
of stock market and other is typically unrelated
economic effects during to the performance
the year. 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.
EEV operating These EPS measures are As EEV operating profit Not applicable.
profit calculated as EEV operating is the best reflection
basic and profit after tax divided of the EEV generated
diluted by the number of shares by the business, EEV
earnings used in the calculation operating profit EPS
per share of IFRS basic and diluted measures allow analysis
(EPS) EPS. of the long-term value
generated by the business
by share.
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Policyholder Shareholder tax is estimated The UK tax regime facilitates Disclosed
and Shareholder by making an assessment the collection of tax as separate
tax of the effective rate from life insurance line items
of tax that is applicable policyholders by making in the statement
to the shareholders on an equivalent charge of comprehensive
the profits attributable within the corporate income on
to the shareholders. This tax of the Company. page 46.
is calculated by applying The total tax charge
the appropriate effective for the insurance companies
corporate tax rates to therefore comprises
the shareholder profits. both this element and
an element more closely
The remainder of the tax related to normal corporation
charge represents tax tax.
on policyholders' investment
returns. Life insurance business
impacted by this tax
This calculation method typically includes
is consistent with the policy charges which
legislation relating to align with the tax
the calculation of the liability, to mitigate
tax on shareholders' profits. the impact on the corporate.
As a result, when policyholder
tax increases, the
charges also increase.
Given these offsetting
items can be large,
and typically do not
perform in line with
the business, 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 which The IFRS methodology Disclosed
before reflects the IFRS result requires that the tax as a separate
shareholder adjusted for policyholder recognised in the financial line item
tax tax, but before deduction statements should include in the statement
of shareholder tax. Within the tax incurred on of comprehensive
the consolidated statement behalf of policyholders income on
of comprehensive income in our UK life assurance page 46.
the full title of this company. Since the
measure is 'Profit before policyholder tax charge
tax attributable to shareholders' is unrelated to the
returns'. performance of the
business, we believe
it is also useful to
separately identify
the profit before shareholder
tax, which reflects
the IFRS profit before
tax, adjusted only
for tax paid on behalf
of policyholders.
-84-
Underlying A profit measure which The IFRS methodology Refer to page
profit reflects the IFRS result promotes recognition 16.
adjusted to remove the of profits in line
DAC, DIR and PVIF adjustments. with the provision
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 (DAC
and DIR). Due to the
Retail Distribution
Review (RDR) regulation
change in 2013, there
was a step change in
the progression of
these items in our
accounts, 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.
-85
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
Andrew Croft Craig Gentle Chief Executive Chief Financial Officer
26 February 2019
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.
-86-
SUPPLEMENTARY INFORMATION:
CONSOLIDATED FINANCIAL STATEMENTS
ON A CASH RESULT BASIS (UNAUDITED)
-87-
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
ON A CASH RESULT BASIS (UNAUDITED)
Year Ended Year Ended
31 December 31 December
Note 2018 2017
GBP'Million GBP'Million
Fee and commission income 1,523.6 1,788.5
Investment return 6 7.6 28.1
Net income 1,531.2 1,816.6
Expenses (1,540.5) (1,370.1)
(Loss)/profit before tax (9.3) 446.5
Tax attributable to policyholders'
returns 296.5 (156.2)
Tax attributable to shareholders'
returns (18.5) (37.7)
Total Cash result for the year 268.7 252.6
Pence Pence
Cash result basic earnings per share III 51.1 48.2
Cash result diluted earnings per share III 50.2 47.4
The Note references above cross refer to the Notes to the consolidated financial statements under IFRS on pages 50 to 79, except where denoted in roman numerals.
-88-
CONSOLIDATED STATEMENT OF CHANGED IN EQUITY
ON A CASH RESULT BASIS (UNAUDITED)
Equity attributable owners of the Parent
Company
Shares
in Non-
Share Share Trust Retained Misc controlling Total
Note Capital Premium Reserve Earnings Reserves Total Interests Equity
-------- -------- --------- ---------- --------- ------------ --------
GBP'M GBP'M GBP'M GBP'M GBP'M GBP'M GBP'M GBP'M
At 1 January
2017 79.1 164.5 (20.9) 845.6 2.5 1,070.8 (0.8) 1,070.0
Cash result
for the year 252.7 252.7 (0.1) 252.6
Dividends 14 (190.0) (190.0) (190.0)
Issue of share
capital 14 0.1 4.1 4.2 4.2
Exercise of
options 14 0.2 3.1 3.3 3.3
Consideration
paid for own
shares (11.3) (11.3) (11.3)
Shares sold
during the
year 5.5 (5.5) - -
Misc reserves
on acquisition
Change in
deferred
tax (15.0) (15.0) (15.0)
Change in tax
discounting (16.2) (16.2) (16.2)
Change in
goodwill
and
intangibles (2.5) (2.5) (2.5)
At 31 December
2017 79.4 171.7 (26.7) 869.1 2.5 1,096.0 (0.9) 1,095.1
-------- -------- --------- ---------- --------- ------------ --------
Cash result
for the year 268.7 268.7 - 268.7
Dividends 14 (242.7) (242.7) (242.7)
Issue of share
capital 14 - -
Exercise of
options 14 2.8 2.8 2.8
Consideration
paid for own
shares (6.0) (6.0) (6.0)
Shares sold
during the
year 9.0 (9.0) - -
Change in
deferred
tax (31.8) (31.8) (31.8)
Change in tax
discounting 23.4 23.4 23.4
Change in
goodwill
and
intangibles (1.5) (1.5) (1.5)
At 31 December
2018 79.4 174.5 (23.7) 876.2 2.5 1,108.9 (0.9) 1,108.0
-------- -------- --------- ---------- --------- ------------ --------
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CONSOLIDATED STATEMENT OF FINANCIAL POSITION
ON A CASH RESULT BASIS (UNAUDITED)
31 December 31 December
Note 2018 2017
------------ ------------
GBP'Million GBP'Million
Assets
Property and equipment 28.5 26.4
Fixed income securities 5.4 46.1
Investment in Collective Investment
Schemes 1,297.0 1,416.8
Cash and cash equivalents 248.5 274.7
Other receivables 890.1 1,122.4
Income tax assets 9.7 -
Deferred tax assets 111.6 144.1
------------ ------------
Total assets 2,590.8 3,030.5
------------ ------------
Liabilities
Borrowings 12 348.6 279.9
Other provisions 22.7 20.0
Other payables 956.9 1,079.7
Income tax liabilities - 125.3
Deferred tax liabilities 154.5 430.4
Preference shares 0.1 0.1
------------ ------------
Total liabilities 1,482.8 1,935.4
------------ ------------
Net assets 1,108.0 1,095.1
------------ ------------
Shareholders' equity
Share capital 14 79.4 79.4
Share premium 174.5 171.7
Shares in trust reserve (23.7) (26.7)
Miscellaneous reserves 2.5 2.5
Retained earnings 876.2 869.1
------------ ------------
Shareholders' equity 1,108.9 1,096.0
Non-controlling interests (0.9) (0.9)
------------ ------------
Total shareholders' equity on a Cash
result basis 1,108.0 1,095.1
------------ ------------
Pence Pence
------------ ------------
Net assets per share 209.3 207.0
------------ ------------
The Note references above cross refer to the Notes to the consolidated financial statements under IFRS on pages 50 to 79, except where denoted in roman numerals.
-90-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
ON A CASH RESULT BASIS (UNAUDITED)
I. BASIS OF PREPARATION
The consolidated financial statements on a Cash result basis have been prepared by adjusting the financial statements prepared in accordance with International Financial Reporting Standards as adopted by the EU ('adopted IFRSs') and interpretations issued by the IFRS Interpretations Committee ('IFRS IC') for items which do not reflect the cash emerging from the business. The adjustments are as follows:
1. Unit liabilities and net assets held to cover unit liabilities, as set out in Note 9 to the consolidated financial statements, are policyholder balances which are removed in the statement of financial position on a Cash result basis. No adjustment for payments in or out is required in the statement of comprehensive income as this business is subject to deposit accounting, which means that policyholder deposits and withdrawals are recognised in the statement of financial position under IFRS, with only marginal cash flows attributable to shareholders recognised in the statement of comprehensive income. However, adjustment is required for the investment return and the movement in investment contract liabilities, which are offsetting and are both zero-ised.
2. Deferred acquisition costs, the purchased value of in-force business and deferred income assets and liabilities are removed from the statement of financial position on a Cash result basis, and the amortisation of these balances is removed in the statement of comprehensive income on a Cash result basis. The assets, liabilities and amortisation are set out in Note 8 to the consolidated financial statements.
3. Share-based payment expense is removed from the statement of comprehensive income on a Cash result basis, and the equity and liability balances for equity-settled and cash-settled share-based payment schemes respectively are removed from the statement of financial position on a Cash result basis.
4. Non-unit-linked insurance contract liabilities and reinsurance assets are removed in the statement of financial position on a Cash result basis. The movement in these balances is removed from the statement of comprehensive income on a Cash result basis.
5. Goodwill, computer software intangible assets and some other assets and liabilities which are inadmissible under the Solvency II regime are removed from the statement of financial position on a Cash result basis, however the movement in these figures are included in the statement of comprehensive income on a Cash result basis.
6. Deferred tax assets and liabilities are adjusted in the statement of financial position on a Cash result basis to reflect the adjustments noted above and other discounting differences between tax charges and IFRS accounting. However, the impact of movements in deferred tax assets and liabilities are not included in the statement of comprehensive income on a Cash result basis.
-91-
II. RECONCILIATION OF THE IFRS BALANCE SHEET TO THE CASH BALANCE SHEET
The Solvency II (or Cash) balance sheet is based on the IFRS consolidated statement of financial position (on page 48), with adjustments made to accounting assets and liabilities to reflect the Solvency II regulations and the provision for insurance liabilities set equal to the associated unit liabilities. The following table sets out the full reconciliation.
Solvency
II Net
Assets
IFRS Balance Adjustment Adjustment Balance
31 December 2018 Sheet 1 2 Sheet
GBP'Million GBP'Million GBP'Million GBP'Million
Assets
Goodwill 15.6 - (15.6) -
Deferred acquisition costs 558.5 - (558.5) -
Purchased value of in-force
business 24.0 - (24.0) -
Developments 1.4 - (1.4) -
Property and equipment 28.5 - - 28.5
Investment property 1,820.7 (1,820.7) - -
Equities 56,077.9 (56,077.9) - -
Fixed income securities 21,966.0 (21,960.6) - 5.4
Investment in Collective Investment
Schemes 4,756.1 (3,459.1) - 1,297.0
Derivative financial instruments 508.8 (508.8) - -
Reinsurance assets 82.8 - (82.8) -
Cash and cash equivalents 6,877.6 (6,629.1) - 248.5
Other receivables 1,952.3 (1,059.1) (3.1) 890.1
Income tax assets 9.7 - - 9.7
Deferred tax assets 147.1 - (35.5) 111.6
Total assets 94,827.0 (91,515.3) (720.9) 2,590.8
Liabilities
Insurance contract liabilities 508.1 (421.2) (86.9) -
Borrowings 348.6 - - 348.6
Investment contract benefits 67,796.1 (67,796.1) - -
Derivative financial instruments 517.4 (517.4) - -
Net asset value attributable
to unit holders 22,502.9 (22,502.9) - -
Other provisions 22.7 - - 22.7
Other payables 1,290.8 (277.7) (56.2) 956.9
Income tax liabilities - - - -
Deferred tax liabilities 172.9 - (18.4) 154.5
Deferred income 648.3 - (648.3) -
Preference shares 0.1 - - 0.1
Total liabilities 93,807.9 (91,515.3) (809.8) 1,482.8
Net Assets 1,019.1 - 88.9 1,108.0
Adjustment 1 nets out the policyholder interest in unit-linked assets and liabilities. Adjustment 2 comprises adjustment to the IFRS statement of financial position in line with Solvency II requirements, including removal of DAC, DIR, PVIF and their associated deferred tax balances, goodwill and other intangibles.
-92-
Solvency
II Net
Assets
IFRS Balance Adjustment Adjustment Balance
31 December 2017 Sheet 1 2 Sheet
GBP'Million GBP'Million GBP'Million GBP'Million
Assets
Goodwill 15.6 - (15.6) -
Deferred acquisition costs 623.0 - (623.0) -
Purchased value of in-force
business 27.2 - (27.2) -
Developments 2.4 - (2.4) -
Property and equipment 26.4 - - 26.4
Investment property 1,630.9 (1,630.9) - -
Equities 55,086.9 (55,086.9) - -
Fixed income securities 17,180.7 (17,134.6) - 46.1
Investment in Collective Investment
Schemes 5,903.4 (4,486.6) - 1,416.8
Derivative financial instruments 343.4 (343.4) - -
Reinsurance assets 82.8 - (82.8) -
Cash and cash equivalents 7,280.6 (7,005.9) - 274.7
Other receivables 1,620.0 (475.9) (21.7) 1,122.4
Deferred tax assets 182.7 - (38.6) 144.1
Total assets 90,006.0 (86,164.2) (811.3) 3,030.5
Liabilities
Insurance contract liabilities 544.6 (459.0) (85.6) -
Borrowings 279.9 - - 279.9
Investment contract benefits 64,014.3 (64,014.3) - -
Derivative financial instruments 190.3 (190.3) - -
Net asset value attributable
to unit holders 21,349.1 (21,349.1) - -
Other provisions 20.0 - - 20.0
Other payables 1,231.2 (151.5) - 1,079.7
Income tax liabilities 125.3 - - 125.3
Deferred tax liabilities 546.8 - (116.4) 430.4
Deferred income 646.3 - (646.3) -
Preference shares 0.1 - - 0.1
Total liabilities 88,947.9 (86,164.2) (848.3) 1,935.4
Net Assets 1,058.1 - 37.0 1,095.1
Adjustment 1 nets out the policyholder interest in unit-linked assets and liabilities. Adjustment 2 comprises adjustment to the IFRS statement of financial position in line with Solvency II requirements, including removal of DAC, DIR, PVIF and their associated deferred tax balances, goodwill and other intangibles.
-93-
III. EARNINGS PER SHARE
Year Ended Year Ended
31 December 31 December
2018 2017
GBP'Million GBP'Million
Earnings
Cash result after tax attributable to equity
shareholders (for both basic and diluted
EPS) 268.7 252.7
Weighted average number of shares Million Million
------------
Weighted average number of ordinary shares
in issue (for basic EPS) 526.0 524.3
Adjustments for outstanding share options 8.7 8.8
------------
Weighted average number of ordinary shares
(for diluted EPS) 534.7 533.1
------------
Pence Pence
Basic earnings per share 51.1 48.2
Diluted earnings per share 50.2 47.4
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
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