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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
  +7.50p +0.72% 1,050.00p 1,050.50p 1,051.50p 1,056.50p 1,045.00p 1,046.00p 1,230,142 16:35:26
Industry Sector Turnover (m) Profit (m) EPS - Basic PE Ratio Market Cap (m)
Life Insurance 0.0 -84.6 33.0 31.8 5,571.08

St. James's Place PLC Final Results

27/02/2019 7:00am

UK Regulatory (RNS & others)


St. James's Place (LSE:STJ)
Historical Stock Chart

6 Months : From Dec 2018 to Jun 2019

Click Here for more St. James

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:

 
 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.

-6-

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.

-9-

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

-46-

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.

-58-

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.

-62-

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.

-73-

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.

-75-

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 
 

-76-

 
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.

-78-

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. 
 

-82-

 
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. 
 

-83-

 
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.

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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.

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                                                                                 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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February 27, 2019 02:00 ET (07:00 GMT)

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