Final Results - Part 1 of 3

RNS Number : 3369I

Standard Life plc

10 March 2010

Standard Life plc

Preliminary Results 2009

10 March 2010

Strong platform for profitable growth

Positive net flows across the Group

· Net flows across the Group up 51% to £6.5bn (2008: £4.3bn)^1,2

· Group assets under administration up 15% to £170bn (31 December 2008: £148bn)^2,3

Cash flow robust

· EEV core capital and cash generation after tax up 16% to £350m (2008: £303m)^4,5

· Full year dividend up 4.0% to 12.24p (2008: 11.77p)

Profits resilient in difficult markets

· EEV operating profit before tax of £919m (2008: £933m)⁴

· IFRS profit after tax attributable to equity holders of £213m (2008: £100m)

Strong platform for profitable growth

· Significant step up in investment to develop our leading corporate and retail propositions to accelerate profitable growth

· A further £100m of efficiency savings targeted by 2012

Chief Executive David Nish said:

"2009 was a successful year for Standard Life in which we delivered against our strategic objectives and built a strong platform for future profitable growth.

"Today's announcement highlights good profits and healthy cash flow for the year, and the ongoing delivery of efficiency savings in our business despite the difficult and uncertain year for financial markets. We continued to grow customer assets, generated further value from back book management, and maintained a robust capital position through our disciplined approach to risk management.

"Standard Life starts 2010 in a good position. We will continue to drive shareholder value through being a customer-centric business, focused on long-term savings and investments propositions. We are stepping up our investment in our leading corporate and retail propositions during 2010 and are excited by the many opportunities across our markets. We have also announced an increase to our efficiency targets which will improve margins. These actions will enable Standard Life to grow profits more strongly."

Unless otherwise stated, all comparisons are in Sterling and are for the 12 months ended 31 December 2008.

EEV operating profit		2009 £m	2008 £m
Covered business by region
UK		506	658
Canada		192	215
Europe		23	68
Asia⁴		6	(35)
HWPF TVOG		143	11
Covered business operating profit		870	917
Covered business by source
New business contribution		213	264
Contribution from in-force business:
Expected return on existing business		375	431
Experience variances		277	64
Operating assumption changes		68	195
Other covered		(63)	(37)
Covered business operating profit		870	917

Non-covered business
Global investment management		42	48
UK		57	5
Group corporate centre costs		(50)	(50)
Other		-	13
Non-covered business operating profit		49	16

Operating profit before tax		919	933

Tax on operating profit		(279)	(284)

Operating profit after tax		640	649

Profit/(loss) after tax		305	(134)

Diluted EEV operating EPS		29.1p	29.8p
IFRS underlying profit	2009 £m		2008 £m
UK	259		238
Canada	(7)		(102)
Europe	45		48
Asia	(27)		(35)
Global investment management	66		42
Other	(45)		(37)
Underlying profit before tax	291		154

Tax on underlying profit	(26)		100

Underlying profit after tax	265		254

Profit attributable to equity holders after tax	213		100

Diluted IFRS underlying EPS	12.0p		11.7p

For more information please refer to Section 1.9 - Basis of preparation and Section 3 - IFRS pro forma reconciliation of Group underlying profit to IFRS profit for the year of the Preliminary Results 2009.

Our focus in 2009

Market conditions remained challenging as we entered 2009. Consequently our strategic priority was to strengthen and stabilise our business model by focusing on key objectives within our control, namely balance sheet strength, the sustainability of our cash flow, our continued drive for operational efficiency, the mitigation of unrewarded risk and our desire to do the right thing for our customers. Our success in achieving these aims has created a strong platform for our future investment programme as we look to accelerate our strategy for profitable growth.

Strong growth in assets under administration

At the end of December 2009 total assets under administration (AUA) had increased 13% to £177.6bn (31 December 2008: £156.8bn, 30 June 2009: £156.5bn). Excluding our discontinued banking operations total AUA increased 15% to £170.1bn (31 December 2008: £147.9bn).

Positive net flows of £4.5bn (2008: £2.7bn) across the Group included life and pensions net inflows of £2.7bn (2008: £2.7bn)¹ and third party investment management net inflows of £5.7bn (2008: £3.4bn). Consolidation adjustments⁶ reduced net flows by £1.9bn (2008: £1.8bn). Prior to the sale of our banking operations to Barclays Bank PLC on 1 January 2010 we continued to manage our mortgage exposure in light of the difficult credit market conditions. This has been reflected in a net outflow of £2.0bn (2008: £1.6bn). Excluding the outflows in respect of these discontinued operations, consolidated net inflows across the Group amounted to £6.5bn (2008: £4.3bn), equating to 4% (2008: 3%) of opening assets under administration.

Market and other movements increased AUA by £16.3bn (2008: decrease £14.9bn).

EEV operating cash flow robust with strong coverage of new business strain

Core capital and cash generation after tax was 16% higher at £350m (2008: £303m)⁴, driven by reduced new business strain following our decision to pay only customer funded commission on UK onshore bonds. Capital and cash generated from existing business of £546m (2008: £546m)⁴ comfortably covered new business strain of £188m (2008: £224m)⁴by 2.9 times (2008: 2.4 times).

Efficiency items reduced capital and cash by £7m (2008: increase £7m)⁴. Capital and cash generated from back book management amounted to £71m (2008: £113m)⁴ largely arising from a release of reserves in respect of deferred annuities. The 2008 comparative reflected the reinsurance of UK immediate annuity liabilities and an earlier UK deferred annuity reserve release.

Overall, operating capital and cash generation amounted to £414m (2008: £423m)⁴.

EEV operating profits resilient in difficult markets

EEV operating profit before tax was £919m (2008: £933m)⁴, delivering a return on embedded value (RoEV) of 10.6% (2008: 10.9%)⁴.

We report our RoEV under three components: core, efficiency and back book management.

	Breakdown of RoEV⁴		Breakdown of EEV operating profit⁴
	2009 %	2008 %	2009 £m	2008 £m
Core	6.7	8.0	584	685
Efficiency	(0.1)	0.8	(14)	64
Back book management	4.0	2.1	349	184
Total	10.6	10.9	919	933

Core return influenced by market levels

Core return comprises new business contribution, expected return, development costs for covered business⁵ and IFRS normalised underlying profit for non-covered businesses⁷.

As a long-term savings and investments business our core return will inevitably be influenced by the overall level of financial markets, with average equity markets in 2009 15%⁸ lower than 2008. Core return was 15% lower at £584m (2008: £685m)⁴ delivering a core RoEV of 6.7% (2008: 8.0%)⁴. New business contribution was 19% lower at £213m (2008: £264m)⁴, due to reduced sales volumes as a result of challenging markets. Core return was also impacted by a market driven reduction in the value of the in-force book at the end of 2008, which resulted in a lower expected return on existing business.

We continue to invest in our market leading propositions across our life and pensions businesses. This has been reflected in a slight increase in core development expenses to £41m (2008: £36m)⁴.

Our new business metrics of internal rate of return (IRR) and discounted payback period were 14% (2008: 16%)⁴ and 9 years (2008: 8 years)⁴ respectively, the decrease in IRR and lengthening of payback period having been driven by lower asset values and lower sales volumes, which have reduced the value of reported sales across our UK and international operations.

Efficiency

Efficiency comprises covered business maintenance expense variances and assumption changes. In 2009 expense variances reduced RoEV by 0.1% (2008: increase 0.8%)⁴. The negative expense assumption reflects mainly the reclassification of expenses as maintenance.

We announced in March 2009 a target of achieving a further £75m of annual efficiency savings by the end of 2010.

In 2009 we have achieved £47m of annual efficiency savings towards this target. We have achieved this through a number of initiatives including:

· Alignment of our UK distribution and marketing operating models with our strategic objectives. This has led to a headcount reduction of around 200 and a reduction in associated overheads.

· Restructure of our Europe and Canada customer service operations.

· Continued improvement and automation of customer service processes, which has allowed us to maintain our award-winning levels of customer service with lower headcount.

· Outsourcing elements of IT development.

Substantial value generated through back book management

We remain committed to driving increased value from the management of our back book. This category includes all non-expense related operating variances and assumption changes for covered business plus those development costs directly related to back book management initiatives and, for non-covered business, specific costs attributed to back book management. During the year, back book management generated an operating profit before tax of £349m (2008: £184m)⁴, delivering a back book management RoEV of 4.0% (2008: 2.1%)⁴.

Positive factors within the back book management result include a £143m benefit from changes to asset allocations and hedging arrangements, which have reduced the time value of options and guarantees (TVOG) associated with the Heritage With Profits Fund (HWPF). In addition, the result includes a £111m benefit arising from actions taken to reduce the market risk to the tax treatment of future shareholder transfers from the HWPF, as well as a £63m (2008: £98m) release of reserves following a review of our deferred annuity data. In February 2008 we reinsured £6.7bn of our UK immediate annuity liabilities to Canada Life International Re. This generated a benefit to EEV operating profit before tax of £119m which was reflected in the 2008 result. 2008 also included a charge of £108m in relation to the Pension Sterling Fund.

IFRS results impacted by average market levels

IFRS normalised underlying profit excluding the impact of market movements on surplus assets and reserves in Canada was £298m (2008: £349m). Excluding our discontinued banking operations, this figure was £238m (2008: £323m). The decrease was due to lower management charge income (£66m) resulting from lower average market levels, partially offset by a reduction in operating costs of £18m from our ongoing efficiency programme. The profit is after expensing £86m of proposition and system development spend.

Marked to market value adjustments in respect of surplus assets, coupled with reserve movements, have reduced profit in Canada by £70m (2008: £143m). Under EEV the impact of these adjustments is treated as a non-operating item. Including the impact of these adjustments, normalised underlying profit was 11% higher at £228m (2008: £206m).

IFRS underlying profit before tax was 89% higher at £291m (2008: £154m) and includes a number of items which are not included in the normalised underlying profit figure. In 2009 this figure included a benefit of £63m (2008: £98m) relating to the release of reserves following a review of our deferred annuity data. In 2008 this figure was similarly affected by significant items including a £105m benefit arising from the reinsurance of UK immediate annuity liabilities, and respective charges of £102m and £124m in relation to the Pension Sterling Fund and a sub-fund of Standard Life Investments (Global Liquidity Funds) plc.

Increased 2009 dividend

The Board have proposed a final dividend of 8.09p per share (2008: 7.70p) making a total of 12.24p for 2009 (2008: 11.77p), an increase of 4.0% (2008: 2.3%). The Group will continue to apply its existing progressive dividend policy taking account of market conditions and the Group's financial performance.

Stable balance sheet

Group embedded value of £6,435m (31 December 2008: £6,245m)⁴, represents an embedded value per share of 288p (31 December 2008: 286p)⁴. IFRS equity excluding intangible assets and non-controlling interests was £3,351m (31 December 2008: £3,295m), representing 150p per share (31 December 2008: 151p). The increase in Group embedded value and IFRS equity during the year primarily reflects the profit for the year offset by an increase in the liabilities of the Group's defined benefit pension schemes and dividend payments made in 2009.

The Financial Groups Directive (FGD) surplus as at 31 December 2009 of £3.6bn has been relatively insensitive to market movements and remains largely unchanged from the previous year end position (31 December 2008: £3.5bn), with a year end solvency cover of 230% (31 December 2008: 219%)⁹.

At 31 December 2009 the Group was classified as a 'financial conglomerate' as defined by the Financial Groups Directive (FGD). Following the sale of Standard Life Bank plc on 1 January 2010 the Group is now classified as an 'insurance group' and from this date the Group capital surplus will be calculated in accordance with the Insurance Groups Directive (IGD). The Group's capital surplus on an IGD basis is not expected to be materially different from the surplus on an FGD basis.

Strong platform for profitable growth

We will continue to drive shareholder value through being a leading, customer-centric business, focused on long-term savings and investment propositions. This means finding, acquiring and retaining valuable customers for mutual and sustained financial benefit.

We see excellent prospects to drive greater value from all our businesses. In each of our markets, we believe we can leverage our positions to develop new growth opportunities and influence market development. Our ongoing investment to more fully understand the needs of our customers will drive the propositions we will develop for our customers. In doing this, we also help fulfil a growing need for providing long-term retirement and savings solutions.

Our strategic focus is to:

· Build on our strength in our pension savings and corporate benefits markets across all our businesses, delivering corporate benefits solutions to employers, and providing broader savings propositions to employees. We are excited about the opportunities in our core corporate markets, with total pensionable assets of £1.4 trillion and £0.6 trillion in the UK and Canada respectively.

· Focus on the savings and investment needs of customers in our chosen segments, which include £2.3 trillion of assets in the UK and £1.3 trillion of assets in Canada. We will achieve this by delivering propositions through a digitally enabled distribution strategy, with increased brand preference.

· Expand the global reach of our investment management business to become a high value-add investment manager, delivering superior performance over a wide range of products, asset classes and markets.

· Maximise the value from our Joint Venture relationships in Asia to further grow shareholder value, through building a strong strategic partnership in China and the opportunity to increase our stake in our Indian Joint Venture.

We will continue to invest in our trusted brand to generate valuable customer loyalty and a predisposition to buy from us. Advanced use of new technology will help us drive rapid innovation in our propositions and enable a market-leading, cost-efficient operation, fully supporting the regulatory changes that will be introduced under the UK Retail Distribution Review. Our recognised capabilities in accessing and communicating with customers, on both sales and service, and our outstanding relationships with intermediaries, will be core to our ongoing success.

Achieving all of this requires a nimble business that is quick to spot and seize growth opportunities, creates and refines attractive propositions that it gets to market quickly, and does all of this in a highly efficient and effective manner. To create that 'fit-for-future' business, we have initiated an internal transformation programme, which will drive performance improvement through putting our customers at the heart of our strategy, investing in our talent, and using technology to support the relationships with customers and distributors and deliver efficiency. We will also continue to manage risk actively to ensure that risk is fully rewarded and appropriate to our strategy.

In 2010 we are doubling the level of growth investment in our business and will spend more than £200m to further develop and market our leading corporate and retail propositions. This development programme, based on rigorously applied returns criteria, will include the launch of our Employee Wealth and Benefit Platform later in the year, and significant enhancements to our adviser propositions. We believe these will lead to a considerable increase in assets under administration and profits over the next 3 years.

In addition, we are announcing today that we will target a further £100m of efficiency savings by 2012. These savings, which will improve new business margins, will be achieved through transforming our operations to become lower cost and scalable, while maintaining the quality of customer service.

Standard Life is strongly positioned for profitable growth in the segments of the markets on which we focus.

For a PDF version of the full Preliminary Results announcement, including this Press Release, please click here:

http://www.rns-pdf.londonstockexchange.com/rns/3369I_-2010-3-9.pdf

For further information please contact:

Institutional Equity Investors		Retail Equity Investors
Gordon Aitken	0131 245 6799	Capita Registrars	0845 113 0045
Duncan Heath	0131 245 4742
Paul De'Ath	0131 245 9893
Media		Debt Investors
Barry Cameron	0131 245 6165/07712 486 463	Andy Townsend	0131 245 7260
Nicola McGowan	0131 245 4016/07872 191 341	Scott Forrest	0131 245 6045
Paul Keeble	020 7872 4481/07712 486 387
Neil Bennett (Maitland)	020 7379 5151/07900 000 777

Newswires and online publications

A conference call will take place for newswires and online publications from 8.00-9.00am. Participants should dial +44 (0)1452 555566 and quote Standard Life Preliminary Results 2009. The conference ID number is 59435427. A replay facility will be available for 7 days. Investors and analysts should dial +44 (0)1452 550000. The pass code is 59435427#.

Investors and Analysts

A presentation to investors and analysts will take place at 9:30am at UBS Ground Floor Conference Centre, 1 Finsbury Avenue, London. A live webcast of the presentation and the presentation slides will be available on the Group's website. In addition a replay will be available on this website later today.

There will also be a live listen only teleconference to the investor and analyst presentation at 9:30am. Investors and analysts should dial +44 (0)20 3059 5754. Callers should quote Standard Life Preliminary Results. A replay facility will be available for 14 days. Investors and analysts should dial +44 (0)121 2604861. The pass code is 1943675#.

Notes to Editors:

1	Worldwide life and pensions net flows include net flows in respect of our Asia joint ventures and our Hong Kong subsidiary for the first time. Prior year figures have been restated accordingly.
2	Assets under administration (AUA) and net flows have been adjusted to exclude discontinued banking operations for both 2009 and 2008.
3	AUA are gross assets that the Group administers for customers, including both those managed by the Group and those placed with third party managers.
4	The Asia life and pensions operations have been included on an EEV basis for the first time. Comparative figures for 2008 have not been restated.
5	Core elements comprise new business contribution (NBC), expected return on in-force business, non-covered business profits and development costs for covered business other than those directly related to back book. Core EEV capital and cash generation reflects the after tax net worth impact of the core EEV result attributable to shareholders.
6	Certain items are included in both life and pensions and investment flows. Therefore, at Group level, an elimination adjustment is required to remove any duplication.
7	The only difference between IFRS normalised underlying profit and IFRS underlying profit for non-covered business arises within global investment management. Net negative fair value movements in respect of the liability remaining following the restructuring of a sub-fund of Standard Life Investments (Global Liquidity Funds) plc and the 'Contract for Differences' written in September 2008 which limited this liability for Standard Life Investments and fair value movements of the corresponding assets which were brought directly on to the statement of financial position, are included within IFRS underlying profit, but are excluded from IFRS normalised underlying profit.
8	The daily average level of the FTSE All share index was 15% lower over the twelve months to 31 December 2009 when compared to the same period in 2008. On the same basis the UK IPD All Property Index was 22% lower and the Sterling 5-10 Yr Corporate Securities Index was down 6%.
9	FGD surplus based on draft regulatory returns
10	The Preliminary Results 2009 are available on the Financial Results page of the Standard Life website at www.standardlife.com

Standard Life plc

Preliminary Results

2009

Section	Contents	Page
1	Business review	11
1.1	Group overview	12
1.2	EEV - Group	14
1.3	IFRS - Group	17
1.4	Business segment performance	19
	1.4.1 UK	19
	1.4.2 Canada	24
	1.4.3 Europe	26
	1.4.4 Asia	28
	1.4.5 Global investment management	29
1.5	Capital and cash generation	31
1.6	Risk management	38
1.7	Our customers	41
1.8	Our people	43
1.9	Basis of preparation	44
2	European Embedded Value (EEV)	45
	EEV primary statements	46
	EEV notes	49
3	International Financial Reporting Standards (IFRS)	83
	IFRS primary statements	84
	IFRS notes	90
4	Supplementary information	115
4.1	Group assets under administration and net flows	116
4.2	Exposure to investment property and financial assets	118
4.3	Fair value hierarchy of financial instruments	121
4.4	Total expenses and operating cost base	123

The Preliminary Results 2009 are published on the Group's website at www.standardlife.com

The Directors are responsible for the maintenance and integrity of the financial information published on the website in accordance with UK legislation governing the dissemination of financial statements.

Access to the website is available outside the UK, where comparable information may be different.

1 Business review

1.1 Group overview

Our results are affected by external market forces, which can influence the Group's current performance and, to an extent, shape our future strategic direction.

Industry overview

Economic and market conditions

Performance across the industry has been affected by volatile financial markets and the global recession. Whilst financial market levels have shown some recovery recently, the economic environment continues to be challenging.

Rising unemployment and reduced salary inflation

Rising unemployment and negative economic growth have been reflected in lower average levels of salary increases across all industries and markets, as well as companies placing tighter controls on headcount. This reduced both the number of new corporate pension customers in the market and the level of their pension contributions.

The UK Retail Price Index, a key tool in determining annual salary rises, fell significantly towards the end of 2008 and spent most of 2009 in negative territory. This had an industry-wide adverse impact on increments into existing schemes such as group pensions.

Lower market levels

Despite rallies in equity markets in the second half of 2009, the average market values of assets were substantially lower than the previous year. For example, the average daily FTSE All-Share Index fell 15% between 2008 and 2009 and the UK IPD All Property Index was 22% lower over the same period. Combined with similar falls in other major world markets, this inevitably put downward pressure on our asset management revenues.

Availability of credit

The unprecedented volatility of global capital markets during the latter part of 2008 and throughout 2009, and the financial difficulty experienced by some major financial institutions, has attracted extensive media attention and heightened investors' concerns about the safety of their investments. Standard Life has robust and actively managed controls in place to ensure that we have access to sufficient liquidity to meet operating requirements during such periods of market uncertainty.

Changing demographics

Demographics continue to have important ramifications in our key markets. They are defined by: an ageing population, with people living longer whilst managing more extensive debt; diminishing state and employer pension provision; an increasingly polarised distribution of wealth; and lower long-term birth rates. In the UK, the structure of the population is changing radically as life expectancy rapidly increases. By 2050 it is predicted that men could expect to live for a further 27 years and women for 28 years after reaching 65.

Ageing populations have dramatic implications for labour forces. For an economy to be sustainable, approximately 50% of the population has to be economically active. On current projections for the UK, this will only just be the case by 2050 when there will have been a 20% increase in the ratio of non-workers (dependents) to workers. This further emphasises the need for individuals to ensure that they have adequate pension provision.

Our ability to develop innovative long-term savings and investments products, such as self invested personal pension (SIPP) and Wrap, puts us in a strong position to support our customers in these challenges and encourage them to take a more active, flexible approach to their long-term financial planning.

Government legislation and regulatory environment

There are currently a number of legislative and regulatory initiatives under discussion. The key initiatives and their potential impact on Standard Life are set out below:

Description

Potential impact on Standard Life

Market Consistent Embedded Value (MCEV)

The Chief Financial Officers (CFO) Forum Market Consistent Embedded Value Principles©* (MCEV Principles) were issued by the CFO Forum on 4 June 2008 to replace the current EEV Principles and Additional Guidance and were designed to improve the transparency and comparability of embedded value reporting. The MCEV Principles were further amended on 20 October 2009 to reflect the inclusion of a liquidity premium.

The CFO Forum announced on 22 May 2009 that it believed that it was sensible to defer mandatory MCEV reporting for all member firms until 2011. On the publication of the revised MCEV Principles on 20 October 2009 it noted that it was continuing to perform further work to develop more detailed application guidance to increase consistency going forward. As a member of the CFO Forum, the Group will continue to participate in this work.

Personal accounts

From 2012, individuals who are not members of a company pension scheme will be automatically enrolled into low-cost personal accounts, but they will have the choice of opting out. Personal accounts are intended to solve the problems of low portability and high charges. They are intended to operate as a large, multi-employer occupational pension scheme and extend the benefits of employer schemes to those who currently don't have access to them. The government estimates that personal accounts could have between 6 and 10 million members with private pension savings of around £8bn a year, of which approximately 60% will be new savings.

The introduction of personal accounts will create opportunities for Standard Life, as well as some challenges. It is likely to lead to a much greater general awareness of the need for individuals to take responsibility for their future. We also anticipate that there will be opportunities to target employers who are looking to offer schemes that are significantly differentiated from personal accounts as part of their overall employee proposition. We are well placed to capitalise on these opportunities.

While personal accounts are likely to place downward pressure on management charge income, we will continue to develop value-adding propositions which meet our customers' needs and create value for shareholders.

Retail Distribution Review

The Retail Distribution Review (RDR) is designed to increase transparency in retail financial services and to raise professional standards. The review has significant implications for those providing retail financial advice and involves new examination standards applicable to all advisers. The objectives of the RDR are to:

· Improve the clarity with which firms describe their services and fees to consumers

· Address the potential for adviser remuneration to distort consumer outcomes

· Increase the professional standards of investment advisers

The retail market is undergoing substantial change with the RDR proposals being just one factor for consideration. We have been reviewing our strategy and plans incorporating our views on the RDR and assessing the likely impact for our business and the industry as a whole.

Our customer-centric, capital-lite approach means that we have made good progress in a number of areas and are well placed to meet the proposed changes to the market in terms of removal of commission, increased transparency and professionalism. We believe that platforms will play a major role in supporting firms of all shapes and sizes to meet the requirements of the RDR and again we are well placed in this respect.

Solvency II

Solvency II is a major European regulatory change initiative which is currently due to be implemented on 31 October 2012, although firms will be required to be ready well in advance of this date. Solvency II will affect risk and capital management, external reporting, supervision and business strategies of the European insurance industry.

We have been following the development of the new regime for many years and continue to be actively involved at industry and regulator level within the UK and Europe. Internally a formal development programme is in place to ensure Standard Life is ready in good time for the implementation of the new framework.

* Stichting CFO Forum Foundation 2008.

1.2 EEV - Group

EEV measures shareholders' value of net assets and the expected future profits on the existing book of business. The EEV results reflect the Group's continuing focus on building a leading long-term savings and investments business by managing our existing book of business effectively and writing profitable new business.

EEV highlights

	2009	2008¹	Movement
EEV operating profit before tax	£919m	£933m	(2%)
Return on embedded value²	10.6%	10.9%	(0.3% points)
Diluted EEV operating EPS^2,3	29.1p	29.8p	(2%)
EEV profit/(loss) before tax	£474m	(£158m)	400%
New business PVNBP	£14,546m	£15,679m	(7%)
Internal rate of return	14%	16%	(2% points)
Discounted payback period	9 years	8 years	(1 year)
EEV	£6,435m	£6,245m	3%
EEV per share⁴	288p	286p	1%

¹2009 Asia results have been prepared on an EEV basis for the first time. Prior to 2009 these were included on an IFRS basis. Comparatives have not been restated.

²Net of tax.

³Diluted EEV operating earnings per share (EPS) is based on the diluted weighted average number of shares of 2,203m (2008: 2,180m) and the EEV operating profit after tax of £640m (2008: £649m).

⁴EEV per share is based on the diluted closing number of shares of 2,237m (2008: 2,180m).

Please refer to Section 1.9 - Basis of preparation.

EEV profit/(loss) before tax

EEV profit before tax of £474m (2008: loss £158m) includes an operating profit of £919m (2008: £933m) and a non-operating loss of £445m (2008: loss £1,091m). The equivalent after-tax results were £640m operating profit and £335m non-operating loss. Operating profit removes most of the investment variance within a reporting period but does reflect changes in investment conditions from period to period. Non-operating profits and losses are mainly market-driven and occur as a result of short-term investment performance being different from the long-term return anticipated in the opening EEV. Further details of the operating profit and non-operating loss are given below.

EEV operating profit before tax - core, efficiency and back book management

We analyse our EEV profits in three components that reflect the focus of our business effort - core, efficiency and back book management.

Core elements comprise new business contribution (NBC), expected return on in-force business, non-covered business profits and development costs for covered business other than those directly related to back book management.

The core element of our operating profit decreased by 15% to £584m (2008: £685m). Expected return from the Group's in-force business decreased by 13% to £375m (2008: £431m). This primarily reflected lower opening market returns. The EEV operating profit from non-covered business includes increased profits from Standard Life Bank and our healthcare business, offset by a fall in operating profits from our global investment management business and lower investment returns in the parent company. For further detail see Section 1.4 - Business segment performance.

New business profitability PVNBP £m			NBC £m		PVNBP margin %¹		IRR %		Discounted payback (years)
	2009	2008	2009	2008	2009	2008	2009	2008	2009	2008
UK²	10,180	11,267	139	199	1.4	1.8	16	18	8	7
Canada	2,460	2,240	46	34	1.9	1.5	14	17	10	8
Europe²	1,289	1,677	13	31	1.0	1.9	8	12	18	12
Asia³	617	495	15		2.5		12		10
Total	14,546	15,679	213	264	1.5	1.7	14	16	9	8

¹ PVNBP margins are calculated as the ratio of new business to PVNBP and are based on the underlying unrounded numbers.

² 2008 PVNBP, NBC, PVNBP margin, IRR and discounted payback for UK and Europe have been restated to reflect the inclusion of offshore bonds within the Europe results. Prior to 2009 this was included within UK.

³ 2009 Asia results have been prepared on an EEV basis for the first time. Prior to 2009 these were included on an IFRS basis. Comparatives have not been restated.

New business profitability decreased by 19% to £213m and reflects the lower sales volumes during the year. The total internal rate of return (IRR) for the Group was 14% (2008: 16%) and the discounted payback period extended to 9 years (2008: 8 years).

We remain committed to our strategy of focusing on capital-efficient products which deliver high capital returns and fast recovery of investment. Please refer to Section 1.4 - Business segment performance for further discussion of new business profitability by business segment.

Back book management	UK	Canada	Europe	Asia*	HWPF TVOG	2009 Total	2008 Total
	£m	£m	£m	£m	£m	£m	£m
Lapses	70	34	(25)	(6)	-	73	(39)
Mortality and morbidity	9	22	-	-	-	31	55
Tax	27	(5)	8	-	-	30	76
Management actions to reduce market risk in UK and HWPF TVOG	111	-	-	-	143	254	-
Other	9	(28)	(24)	4	-	(39)	(27)
UK annuity reinsurance	-	-	-	-	-	-	119
Back book management	226	23	(41)	(2)	143	349	184

* 2009 Asia results have been prepared on an EEV basis for the first time. Prior to 2009 these were included on an IFRS basis. Comparatives have not been restated.

Management of our back book focuses on reducing risks and enhancing the value of expected shareholder profits, as well as capturing the impact of changes in insurance experience and assumptions. The two major insurance risks to which shareholders are exposed are lapses and annuitant mortality.

Reflecting our focus on the effective management of the existing business, back book management activities generated EEV operating profits of £349m (2008: £184m). During the year a number of management actions were taken to reduce market risk associated with the Heritage With Profits Fund (HWPF) which have generated back book profits. A profit of £143m arose from the impact of asset allocations and hedging arrangements which reduced the HWPF time value of options and guarantees (TVOG). A further benefit of £111m arose from actions taken to reduce the market risk to the tax treatment of future shareholder transfers from the HWPF.

Total operating assumption changes in relation to lapses was positive £77m, compared to negative £61m in 2008. This was predominantly due to improved lapse experience in our UK individual pensions business. Improved lapse experience in our Canada group savings and retirement business was offset by adverse experience in our business in Europe.

The 2008 profit from back book management included a £119m gain from the reinsurance of £6.7bn of pre-demutualisation UK immediate annuity liabilities and a £108m cost in relation to the Pension Sterling Fund.

1.2 EEV - Group continued

Return on embedded value (RoEV)

RoEV was 10.6% in 2009 compared to 10.9% in 2008. Core contributed 6.7% to total RoEV compared to 8.0% in 2008. This movement was primarily due to decreased NBC and expected return from existing business, which contributed 0.6% and 0.8% respectively to the decrease in total RoEV. 2009 back book management RoEV includes 3.0% from management actions to reduce market risk in the UK and the HWPF TVOG.

EEV non-operating loss before tax

Total EEV non-operating loss before tax was £445m in 2009 (2008: loss £1,091m) and was mainly due to a £539m loss from economic assumption changes in covered business, which includes a £214m loss from the change in risk discount rates. Investment variance of £70m improved as a result of good performance in equities and corporate bonds, but this was offset by the increase in the fair value of subordinated debt liabilities and falls in Canada property values.

Included within restructuring and corporate transaction costs is £50m (2008: £45m) of costs incurred as part of our Continuous Improvement Programme. Volatility arising from adjustments for different accounting bases resulted in a gain of £107m (2008: loss £152m).

Group embedded value

Group embedded value increased to £6,435m (2008: £6,245m), with a total operating profit movement of £640m after tax, only partially offset by total non-operating losses after tax of £335m and non-trading movements of negative £148m. The operating profit and non-operating profit are explained in this section of the Business review. Non-trading movements included the £158m cash dividend paid to equity holders. Other non-trading movements include positive exchange movements of £26m and actuarial losses of £50m in relation to the UK, Canada and Ireland pension schemes.

The closing EEV of £6,435m consists of £3,051m of net worth (free surplus and required capital) and £3,384m from the present value of in-force business (PVIF). The movement in total EEV of £190m consists of a movement in net worth of negative £141m and a movement in the PVIF of positive £331m.

The movements in EEV shareholder net assets are analysed in more detail in Section 1.5 - Capital and cash generation.

1.3 IFRS - Group

The IFRS results demonstrate our ability to deliver high quality returns for shareholders and the ongoing dividend paying capability of the Group. We will continue to streamline operational processes and enhance efficiency to reduce costs.

IFRS highlights

	2009	2008	Movement
IFRS underlying profit before tax	£291m	£154m	89%
IFRS profit after tax attributable to equity holders	£213m	£100m	113%
Diluted IFRS underlying EPS¹	12.0p	11.7p	3%
Dividend cover²	1.0 times	1.0 times	-
IFRS tangible equity per share³	150p	151p	(1%)

¹Diluted IFRS underlying EPS is based on 2,203m shares (2008: 2,180m) and the IFRS underlying profit after tax of £265m (2008: £254m).

² Dividend cover is calculated as IFRS underlying profit after tax and non-controlling interests for the year, divided by the dividend proposed in respect of this year.

³ IFRS tangible equity per share is based on the diluted closing number of issued shares of 2,237m (2008: 2,180m) and tangible IFRS equity of £3,351m (2008: £3,295m). IFRS tangible equity excludes non-controlling interests and intangible assets.

Please refer to Section 1.9 - Basis of preparation.

IFRS profit

IFRS profit for the year was £180m (2008: £17m). This comprises profit after tax attributable to equity holders of £213m (2008: £100m) and losses attributable to non-controlling interests of £33m (2008: loss £83m). The IFRS result included an 89% increase in underlying profit before tax from £154m to £291m as well as the impact of volatility excluded from the underlying profit. The increase in underlying profit before tax was primarily due to the reduced impact of market movements in Canada.

IFRS underlying profit before tax

Our IFRS consolidated income statement which shows IFRS profit after tax attributable to equity holders, and the reconciliation to underlying profit are shown in the Group IFRS financial statements section of this report. We believe that the IFRS underlying profit before tax provides a more meaningful analysis of the underlying business performance.

Movement in IFRS underlying profit

In 2008, underlying profit benefited from the inclusion of a £105m release of reserves following the reinsurance of £6.7bn of UK immediate annuities and a £98m release of reserves in relation to UK deferred annuity business. Offsetting these benefits was a £102m cash injection into the Pension Sterling Fund, a cost of £124m relating to the restructuring of a sub-fund of Standard Life Investments (Global Liquidity Funds) plc and a £29m charge relating to the reinsurance of certain contracts held by our business in Canada.

In 2009, underlying profit benefited from a £63m release of reserves in relation to UK deferred annuity business.

Excluding these items, the normalised underlying profit increased by 11% to £228m (2008: £206m) with profitability benefiting by £73m from the reduced impact of market movements in Canada. The impact of market uncertainty continues to be evident within our operations in Canada because of the way that life companies in Canada typically structure non-segregated funds, with assets backing both policyholderliabilities and the shareholder surplus. A fall in investment property values has contributed to a reduction in surplus assets and an increase in policyholder liabilities, more than offsetting the positive impact of rising equity markets. The net effect has reduced normalised underlying profit in Canada by £70m in 2009 (2008: £143m). Excluding the impact of market movements in Canada, normalised underlying profit was £298m (2008: £349m). Operational efficiencies and strict control of expenditure have had a positive impact on profitability of £18m. Across the Group, management charge income decreased due to the impact of lower average asset values compared with 2008. This reduced profits by £66m.

1.3 IFRS - Group continued

Segmental analysis of IFRS underlying profit

Total IFRS underlying profit before tax within our UK business, comprising our UK life and pensions, healthcare, and savings and mortgages businesses, increased to £259m (2008: £238m).

UK life and pensions underlying profit before tax fell by 8% to £184m (2008: £201m). Normalised underlying profit decreased to £111m (2008: £173m) with income impacted by lower average asset values and interest rates.

Our savings and mortgages business delivered a robust performance, focusing on managing profitability whilst ensuring liquidity requirements were met. Underlying profit increased by 131% to £60m (2008: £26m).

Underlying profitability in our healthcare business increased to £15m (2008: £11m) primarily due to increased investment income and decreased operating costs.

Canada

Canada recorded an underlying loss of £7m (2008: loss £102m). This improvement compared to the prior year was driven by the recovery of equity and bond asset values. However, results in 2009 were adversely impacted by falling investment property valuations.

Europe

Europe's underlying profit fell to £45m (2008: £48m) with a reduction in German profitability due to the reducing transfer of profit to shareholders from the HWPF. This was partially offset by lower operating costs across the territories.

Asia

Asia's IFRS underlying loss of £27m (2008: loss £35m) reflects the continuing investment in developing the operations in the region.

Global investment management

Despite the adverse effect of lower average asset values on revenue and profitability, IFRS underlying profit before tax in our global investment management business increased by 57% to £66m (2008: £42m). This was primarily due to the restructuring of a sub-fund of Standard Life Investments (Global Liquidity Funds) plc in 2008.

Other

Group corporate centre costs remained steady at £50m (2008: £50m), reflecting continued cost control and 'other' decreased to £5m (2008: £13m), primarily due to reduced interest income in the parent company.

Please refer to Section 1.4 - Business segment performance for further detail on the IFRS underlying result for our businesses.

1.4 Business segment performance

1.4.1 UK

The UK business combines the UK life and pensions, savings and mortgages and healthcare businesses. Focusing on delivering customer-centric and capital-lite propositions, it has a strong and diversified distribution network, which puts it in a good position to grow assets under administration and generate sustainable profitable returns. On 1 January 2010 the sale of the savings and mortgages business to Barclays Bank PLC was completed.

Life and pensions

The life and pensions business is one of the largest pensions, long-term savings and investments providers in the UK with £106bn of assets under administration. The business offers a broad range of insurance and investment wrappers, with particular strength in the accumulation market. The focus is on building this strength, drawing on customer insight to develop and invest in propositions that will secure profitable growth opportunities.

Financial highlights

	2009	2008¹	Movement
Net flows	£1,214m	£848m	43%
Assets under administration	£105.6bn	£94.8bn	11%
New business PVNBP	£10,180m	£11,267m	(10%)
New business contribution	£139m	£199m	(30%)
Internal rate of return	16%	18%	(2% points)
Discounted payback period	8 years	7 years	(1 year)
EEV covered business operating profit before tax²	£649m	£669m	(3%)
EEV non-covered business operating loss before tax³	(£18m)	(£32m)	44%
IFRS underlying profit before tax	£184m	£201m	(8%)

¹ 2008 figures have been restated to exclude offshore bond business which is now reported within the Europe results. The impact of this is to adjust net flows by (£632m), assets under administration by (£1.0bn), new business PVNBP by (£661m), new business contribution by (£13m), discounted payback period by 1 year, EEV covered business operating profit by £1m and IFRS underlying profit before tax by £17m.

² Includes Heritage With Profits Fund time value of options and guarantees (HWPF TVOG).

³ Includes UK defined benefit pension scheme charge and non-covered Wrap platform result.

Please refer to Section 1.9 - Basis of preparation.

Net flows

Net inflows for the year were 43% higher at £1,214m (2008: £848m). Individual pensions net inflows were £382m (2008: £550m). Within this, lower self invested personal pension (SIPP) net inflows of £1,761m (2008: £2,464m) were mainly due to a reduction in incoming transfer values, driven by lower average market values during 2009. There was also an increase in outflows, with customers making more use of the flexible drawdown and tax-free cash functionality of our SIPP product. The reduction in SIPP net inflows was partially offset by lower individual pensions net outflows of £1,379m (2008: £1,914m) due to a lower level of claims. Group pensions net inflows were £1,496m (2008: £1,479m), boosted by the £220m transfer from the British Telecom plc scheme (BT Scheme). Institutional pensions net inflows were £1,547m (2008: £616m), reflecting several large scheme contributions.

Savings and investments net outflows were £438m (2008: net inflow £228m). Within this, mutual funds net inflows were £795m (2008: £339m) driven by growth in customer numbers on our Wrap and Fundzone platforms. This was offset by higher onshore bond net outflows of £1,233m (2008: £111m) following our decision not to renew bulk investment bond deals written in 2008 at lower margins to secure distribution relationships. These deals generated net inflows of £597m in 2008 and led to net outflows of £581m in 2009. Net outflows for legacy life were £1,289m (2008: £1,564m), the majority of which is conventional with profit business and generates minimal shareholder margin.

1.4 Business segment performance continued

1.4.1 UK continued

New business sales and profitability

PVNBP sales decreased by 10% to £10,180m (2008: £11,267m) with lower average market values during 2009 having an inevitable adverse impact on sales. New business contribution (NBC) decreased to £139m (2008: £199m), with a PVNBP margin of 1.4% (2008: 1.8%). The IRR decreased to 16% (2008: 18%), while the discounted payback period extended slightly to 8 years (2008: 7 years). Individual pensions PVNBP margin was adversely impacted by lower volumes and relatively flat acquisition expenses, while the higher annuity margin reflects a change in our pricing in response to market conditions. The mix of sales towards lower margin institutional pensions contributed to the reduction in overall PVNBP margin.

	PVNBP £m¹		NBC £m²		PVNBP margin %³		IRR %		Discounted payback (years)
	2009	2008	2009	2008	2009	2008	2009	2008	2009	2008
Individual pensions	3,366	4,334	7	56	0.2	1.3	7	16	18	8
Group pensions	2,662	2,600	34	55	1.3	2.1	10	13	14	12
Institutional pensions	2,296	1,826	25	20	1.1	1.1	>40	>40	<3	<3
Savings and investments^4,5	1,406	2,029	(3)	(7)	(0.2)	(0.3)	5	6	n/a	n/a
Annuities⁶	448	471	76	74	17.1	15.8	Infinite	Infinite	-	-
UK Total	10,180	11,267	139	199	1.4	1.8	16	18	8	7

¹ Total PVNBP includes protection of £2m (2008: £7m).

² Total NBC includes protection of £nil (2008: £1m).

³ PVNBP margins are calculated as the ratio of new business to PVNBP and are based on the underlying unrounded numbers.

⁴ 2008 figures have been restated to exclude offshore bond business, which is now reported within the Europe results.

⁵ Discounted payback period is not applicable due to new business loss.

⁶ 2009 and 2008 discounted payback period is immediate.

Business development

Our continued focus on capital-lite products was demonstrated by the launch of our tailored investment bond in June 2009, which offers a flexible transparent funded remuneration structure. We also continue to see good growth in our individual SIPP customer base with the total number of customer accounts increasing by 27% to 83,900 compared to 65,900 as at 31 December 2008.

The Wrap platform continued to grow as the number of customers and advisers using the platform increased further. At 31 December 2009, the number of Wrap customers increased to 31,600 from 16,900 at 31 December 2008, while the number of independent financial adviser (IFA) firms using the platform had grown to 583 compared to 409 at 31 December 2008. Total funds on the platform more than doubled to £3.6bn compared to £1.7bn as at 31 December 2008 and momentum is expected to continue.

Group pensions benefited from the successfully completed migration of the BT Scheme, which involved the transfer of around three quarters of the existing 18,000 scheme members to the new Standard Life scheme. Development work also continued on our enhanced trustee-based corporate proposition, which is due to launch in April 2010, and our corporate employee wealth plan, which will provide a compelling proposition for both employers and employees through an integrated savings and benefits platform. We believe the sustainability and flexibility of our corporate proposition, combined with the Standard Life Group's financial strength allows us to win profitable new business.

In February 2010, we launched our Active Money Personal Pension, which has been developed to adapt to each customer's changing financial needs during their lives. We are also working on opportunities in the long-term savings and investments market as part of the strategic relationship with Barclays UK Retail Banking (Barclays).

Performance

EEV operating profit before tax

UK EEV operating profit including HWPF TVOG and non-covered business decreased slightly during the year to £631m (2008: £637m). Core profit of £288m (2008: £475m) decreased by £187m, mainly driven by a £60m fall in NBC, a lower unwind of in-force business due to lower markets and a lower risk discount rate. Changes in the allocation of investment related expenses resulted in a negative efficiency variance of £26m (2008: positive £37m).

During the year a number of management actions were taken to reduce market risk associated with the HWPF which have generated back book profits. A profit of £143m arose from the impact of asset allocations and hedging arrangements which reduced the HWPF TVOG. A further benefit of £111m arose from actions taken to reduce the market risk to the tax treatment of future shareholder transfers from the HWPF. In addition, the back book result benefited from a £63m (2008: £98m) release of reserves from the ongoing review of our deferred annuity data.

The overall impact of persistency experience variance and assumption changes was positive £70m (2008: negative £17m). The positive variance was primarily due to revised long-term assumptions on individual pensions, reflecting improved experience on our back book. Development costs of £18m (2008: £30m) mainly related to development of our group pension proposition, as well as implementing legislative changes.

The 2008 result also included a £107m benefit following the reinsurance of UK immediate annuities and a £108m charge relating to the cash injection into the Pension Sterling Fund.

IFRS underlying profit before tax

UK life and pensions IFRS underlying profit before tax was £184m (2008: £201m). The result includes a positive £17m (2008: negative £73m) impact of a recovery in the value of the underlying assets within the previously reported 'Contract for Differences' written in September 2008. A release of statutory reserves following the ongoing review of the deferred annuity data also contributed £63m (2008: £98m). The 2008 result included a positive £105m reserve movement following the reinsurance of UK immediate annuities, which was offset by a £102m charge relating to the cash injection into the Pension Sterling Fund.

The normalised underlying IFRS result of £111m (2008: £173m) was £62m lower than 2008. Although annual management charge income improved in the second half of the year as equity markets recovered, the result was adversely impacted by lower average market values and interest rates during 2009.

The underlying results exclude the impact of volatility arising from the accounting mismatch of subordinated liabilities being measured at amortised cost, while the associated assets are measured at fair value. They also exclude restructuring costs relating to the Continuous Improvement Programme.

1.4 Business segment performance continued

1.4.1 UK continued

Savings and mortgages

The savings and mortgages business offered retail savings and mortgage products in the UK, via intermediaries and direct to customers, all through telephone and internet-based platforms. The ownership of Standard Life Bank plc was formally transferred to Barclays Bank PLC on 1 January 2010.

Financial highlights

	2009	2008	Movement
Mortgages under management	£7.7bn	£9.7bn	(21%)
Gross lending	£281m	£1,101m	(74%)
Savings and deposits	£5.8bn	£5.0bn	16%
IFRS underlying profit before tax	£60m	£26m	131%
Return on equity after tax	14.6%	6.1%	8.5% points
Interest margin	88bps	54bps	34bps
Cost income ratio¹	32%	58%	26% points

¹ Cost income ratio is calculated as total operating expenses (excluding impairment charges) divided by total underlying income.

Please refer to Section 1.9 - Basis of preparation.

New business

The savings book experienced strong growth of 16% to £5.8bn (2008: £5.0bn), with Individual Savings Accounts and business accounts performing well during 2009. SIPP and Wrap balances represent £1.9bn (2008: £1.5bn) of total savings balances.

Challenging credit and funding market conditions persisted during 2009, so the strategic focus remained on managing our mortgage exposure, with gross mortgage lending decreasing by 74% to £281m (2008: £1,101m). The whole UK mortgage market experienced significant reductions in gross lending during 2009 compared to previous years, with the Council of Mortgage Lenders (CML) reporting total gross lending of £144bn compared to £253bn in 2008.

Funding

We remained well capitalised throughout 2009 due to our high quality mortgage book and continued access to a wide range of funding sources, with no draw down made on the committed facilities provided by our relationship banks. All regulatory liquidity and capital ratios remained within target ranges during the year.

Performance

The savings and mortgages business delivered a robust performance, focusing on managing profitability whilst ensuring liquidity requirements were met. IFRS underlying profit before tax (excluding volatility in respect of non-qualifying economic hedges) increased to £60m (2008: £26m). This increase was primarily due to improved interest margins and lower administration expenses, partially offset by increased impairment charges during the year.

The growth in retail savings, combined with the reduction in wholesale funding and careful balance sheet management, drove an increase in interest margin to 88bps (2008: 54bps). The rise in interest margin, coupled with continued focus on cost efficiency, improved the cost income ratio to 32% (2008: 58%). As a result, return on equity improved to 14.6% (2008: 6.1%).

The mortgage portfolio continued to perform well despite the adverse economic conditions, with arrears figures remaining low in comparison to the CML average. Only 0.84% of total mortgages were three or more months in arrears or in repossession at the end of 2009, almost a third of the CML industry average of 2.51%, while the average indexed loan to value ratio remained stable at 46% (2008: 46%). Impairment charges increased to £8m in 2009 (2008: £5m), but net write-offs for 2009 were only £3m (2008: £1m).

Healthcare

The healthcare business offers a comprehensive range of private medical insurance (PMI) and other health and well-being solutions to individuals, families, small businesses and companies, and is the fourth largest PMI provider in the UK.

Financial highlights

	2009	2008	Movement
New business	£21m	£25m	(16%)
In-force premium income	£290m	£295m	(2%)
IFRS underlying profit before tax	£15m	£11m	36%
Underwriting profit	£13m	£12m	8%
Return on equity after tax	10.3%	8.6%	1.7% points
Claims ratio	68.9%	68.8%	(0.1% points)

Please refer to Section 1.9 - Basis of preparation.

New business

Overall new business sales decreased by 16% to £21m (2008: £25m) due to continuing adverse economic conditions. However, our sales performance in the final quarter demonstrated the positive impact of distribution improvements. In-force premium income dropped slightly from 2008 levels because of lower new business levels. Our strategic focus remained the acquisition of profitable business. This was supported by the launch of Personal Healthcare in June 2009 - a new retail product, which completes a powerful range of flexible solutions for individuals and businesses of all sizes. This new suite of products won the 2009 Health Insurance Award for Most Innovative Product.

Performance

IFRS underlying profit before tax was £15m (2008: £11m), before taking into account restructuring costs to deliver operational excellence. The £4m increase in IFRS underlying profit for 2009 was primarily due to increased investment income and decreased operating costs.

Strong underwriting discipline and rigorous expense control saw the underwriting profit increase by 8% to £13m despite the reduction of in-force premium income. The claims ratio was kept broadly in line with 2008 performance.

This strong business performance has helped to grow the annualised return on equity after tax by 1.7% points to 10.3% (2008: 8.6%).

1.4 Business segment performance continued

1.4.2 Canada

Standard Life Canada is a long-term savings and investments business offering a range of savings, retirement and insurance products. With a strong focus on the needs of its 1.3 million retail and corporate customers, the business continued to build client and distributor relationships and introduce innovative solutions to protect clients' assets.

Financial highlights

	2009	2008	Movement
Net flows	£361m	£340m	6%
Assets under administration	£21.3bn	£18.0bn	18%
New business PVNBP	£2,460m	£2,240m	10%
New business contribution	£46m	£34m	35%
Internal rate of return	14%	17%	(3% points)
Discounted payback period	10 years	8 years	(2 years)
EEV operating profit before tax	£192m	£215m	(11%)
IFRS underlying loss before tax	(£7m)	(£102m)	93%

Please refer to Section 1.9 - Basis of preparation.

Net flows and new business sales

Net flows have decreased by 4% in constant currency to £361m (2008: £340m), primarily due to the inclusion of a large single premium of £297m in 2008. However, in 2009 net flows benefited from improving trends in the retail market.

Overall sales remained stable in constant currency at £2,460m (2008: £2,240m), whilst sales in our retail line, which includes individual insurance, savings and retirement and mutual funds, increased by 31% in constant currency to £848m (2008: £589m). This reflects a recent restructure in our sales function. In the second half of the year, sales benefited from an improvement in customer sentiment, following the recovery in equity markets. In group savings and retirement, sales in our core defined contribution offering increased by 18% in constant currency to £793m (2008: £612m), with a large win accounting for £240m. Overall group savings and retirement sales decreased by 22% in constant currency to £981m (2008: £1,138m), due to the distorting impact of a large defined benefit administration mandate secured in 2008. Group insurance sales increased by 12% in constant currency to £631m (2008: £513m), on the strength of an innovative disability offering, highlighted by a 20% increase in sales in that segment.

New business profitability

New business contribution increased to £46m (2008: £34m) and PVNBP margins improved to 1.9% (2008: 1.5%), as a result of a more profitable sales mix in all lines. Internal rate of return decreased to 14% (2008: 17%) and the discounted payback period lengthened to 10 years (2008: 8 years), largely due to a market-led change in business mix towards higher strain products.

Business development

In line with our strategy to position ourselves as a long-term savings and investments business, we launched a new phase of our corporate advertising campaign. This used a new creative approach to demonstrate our expertise in risk management and superior capabilities as a manufacturer of investment products. We enhanced the investment programme and award-winning member communication plan of our group pensions platform, providing plan members with improved tools to manage their retirement needs. Our member and sponsor interactive websites were both recognised in 2009 through the winning of awards for marketing and communication excellence and for technological achievements. We launched our Monitored Avenue Portfolio Programme, an innovative investment solution designed to offer full governance support and investment monitoring aspects to plan sponsors and their advisers, addressing customer needs for investment risk management. In our group insurance line, we responded to sponsor needs with the launch at the end of 2009 of a cost-efficient flexible benefits solution and we intend to enhance this by introducing new products such as critical illness cover. In our retail line, we continue to expand our fund offering and have offered clients innovative fund portfolios which enable them to manage investment risk in a more proactive manner. In a recent industry survey, we received the highest recognition from advisers for our sales team, recognising the strength of our business consultancy model. This is a reflection of the progress we have made in improving our retail sales function and building solid distributor relationships.

Performance

EEV operating profit before tax

EEV operating profit before tax decreased by 19% in constant currency to £192m (2008: £215m). The core element accounted for £177m (2008: £146m), an increase of 10% in constant currency driven by an improvement in total expected return to £136m (2008: £113m). NBC increased to £46m (2008: £34m). The efficiency result amounted to a loss of £8m (2008: profit £31m), mainly due to higher unit costs in our investment funds resulting from lower average asset values than in 2008. Back book management delivered a profit of £23m (2008: £38m), largely because of improved lapse experience in group savings and retirement and improvements in annuitant mortality.

IFRS underlying loss before tax

Recovering capital markets significantly improved IFRS results, with an underlying loss before tax of £7m in 2009 (2008: loss £102m). The recovery in equity and bond prices reduced losses on assets supporting shareholder capital to £11m (2008: loss £43m) and enabled a release of reserves previously required in respect of policy guarantees of £32m (2008: charge £42m). This was partly offset by declines in investment property values, which led to a strengthening of policyholder liabilities due to lower anticipated cash flows from property assets. This amounted to £91m in 2009 (2008: £58m). A further charge of £34m was made to the reserves in respect of ceded reinsurance contracts (2008: £nil). The business maintained its good credit profile, experiencing no defaults in its corporate bond and mortgage loan portfolios, despite worsening credit experience in the market. The mortgage portfolio had an average loan to value ratio of 46% (2008: 44%). The value of mortgages where the loan to value ratio exceeded 70% amounted to just 5% of the mortgage portfolio.

1.4 Business segment performance continued

1.4.3 Europe

The operations in Europe consist of Standard Life Ireland, Standard Life Germany, which operates in both Germany and Austria, and Standard Life International, the offshore business based in Dublin. The European businesses offer high quality and customer-focused investment and pension solutions for individual and corporate clients. Standard Life Ireland celebrated its 175th anniversary in 2009 with a series of awareness-raising events.

Financial highlights

	2009¹	2008²	Movement
Net flows	£869m	£1,252m	(31%)
Assets under administration	£9.1bn	£8.3bn	10%
New business PVNBP	£1,289m	£1,677m	(23%)
New business contribution	£13m	£31m	(58%)
Internal rate of return	8%	12%	(4% points)
Discounted payback period	18 years	12 years	(6 years)
EEV covered business operating profit before tax	£23m	£68m	(66%)
EEV non-covered business operating loss before tax	(£4m)	-	-
IFRS underlying profit before tax	£45m	£48m	(6%)

¹ The 2009 figures include offshore bonds that were previously reported within UK.

² The 2008 figures have been restated to reflect the inclusion of offshore bonds. The 2008 impact is: net inflows by £632m, AUA by £1.0bn, PVNBP by £661m, NBC by £13m, IRR by 1%, discounted payback period by (1 year), EEV operating profit before tax by (£1m) and IFRS underlying profit before tax by (£17m).

Please refer to Section 1.9 - Basis of preparation.

Net flows and new business sales

Total net flows in Europe fell by 35% in constant currency to £869m with the strength of German gross inflows from regular premium business partly offsetting lower flows of offshore bonds. Total new business sales decreased by 29% in constant currency to £1,289m (2008: £1,677m).

In Germany, sales of £407m (2008: £603m) were 40% lower than 2008 in constant currency. This reflects weak consumer confidence and a continuing preference for German domestic life insurers, combined with a less pronounced fourth quarter sales uplift than in previous years.

In Ireland, domestic sales increased by 10% in constant currency to £512m (2008: £413m) due to the comprehensive choice and strength of the Synergy investment offering, with the option to invest in the Global Absolute Return Strategies (GARS) products managed by Standard Life Investments proving particularly popular with customers. Offshore bond sales were 44% lower at £370m (2008: £661m) due to weak economic conditions during the year.

New business profitability

New business contribution in Europe decreased to £13m (2008: £31m) due to lower sales volumes in Germany and the offshore business. This was partially offset by an increase in Ireland due to higher sales and improved acquisition costs. The overall internal rate of return and discounted payback period deteriorated because of lower sales volumes which were not balanced by a proportionate reduction in the cost base in Germany and the offshore business.

Business development

In Europe we remain focused on strengthening our existing operations and improving efficiency whilst responding to the difficult market conditions with innovative solutions for customers and distributors.

The investment range was enhanced by the addition of the GARS products from Standard Life Investments, which generated sales across various product lines in Germany and Ireland. The launch of the Pension Support Fund further strengthened the corporate pensions offering in Germany.

Performance

EEV operating profit before tax

EEV operating profit before tax decreased by 75% in constant currency to £19m (2008: £68m). EEV operating profits in Germany and the offshore business were affected by lower sales and adverse persistency experience, but this was partially offset by increased profits in Ireland due to improved back book management which included an £8m profit from the successful agreement of prior year tax affairs. In addition, the 2008 result included a benefit of £12m arising from improved risk margins following the reinsurance of UK immediate annuities.

IFRS underlying profit before tax

IFRS underlying profit before tax decreased by 19% in constant currency to £45m (2008: £48m) with Germany contributing £55m (2008: £62m) and Ireland recording a profit of £4m (2008: £3m). The result also includes losses of £14m (2008: loss £17m) primarily related to the offshore bond business. In Germany, the fall in profitability of 22% in constant currency was primarily due to the decreasing transfer of profit to shareholders from the HWPF in accordance with the Scheme of Demutualisation. This was partly offset by increasing profits from the post-demutualisation business. The offshore bond results improved due to increased charge income and a reduction in operating costs.

1.4 Business segment performance continued

1.4.4 Asia

Standard Life has a growing position in the Asia life and pensions market with joint venture companies in India and China and a wholly owned subsidiary in Hong Kong, each having good potential in their respective markets.

Financial highlights

	2009	2008	Movement
Net flows	£223m	£226m	(1%)
New business PVNBP	£617m	£495m	25%
New business contribution¹	£15m
Internal rate of return¹	12%
Discounted payback period¹	10 years
EEV covered business operating profit before tax¹	£6m
EEV non-covered business operating loss before tax	(£2m)
IFRS underlying loss before tax	(£27m)	(£35m)	23%

¹2009 Asia results have been prepared on an EEV basis for the first time. Prior to 2009 these were included on an IFRS basis. Comparatives have not been restated.

Please refer to Section 1.9 - Basis of preparation.

Net flows and new business sales

Net flows for the operations in Asia are being reported for the first time. These were broadly flat at £223m (2008: £226m). Growth in the Asian markets was adversely impacted by the effects of the global economic recession. As Asian equity markets have steadily recovered during 2009, consumer sentiment has improved. Despite challenging trading conditions, Asia continued to achieve growth, with sales up 13% in constant currency to £617m (2008: £495m).

The life and pensions market in India showed signs of recovery as the resilience of the equity markets increased consumer confidence and appetite for life insurance products. Sales in India were stable in constant currency at £360m (2008: £345m) as the business continued to focus on greater profitability.

In China, sales were 12% below 2008 in constant currency at £116m (2008: £109m). However, this reduction reflects a deliberate shift away from business with low profitability to a focus on increasing the proportion of regular premium business, which increased by 58%² compared to 2008 in constant currency. In addition, regulatory restrictions across the whole market constrained expansion into new cities during 2009.

Our Hong Kong operation continues to deliver strong growth with sales up 189% in constant currency to £141m (2008: £41m).

Performance

EEV operating profit before tax

EEV operating profit before tax for covered business of £6m is reported for the first time in 2009. Within this, a new business contribution of £15m represents a margin of 2.5% of PVNBP. This is equivalent to a post-tax margin of 11.1% of annual premium equivalent. The new business contribution allows for the full costs of acquiring new business in 2009 whilst development costs of £14m reflect the further costs incurred for growing the business in future years.

IFRS underlying loss before tax

Asia IFRS underlying loss of £27m (2008: loss £35m) reflects the continuing investment in developing the operations in the region.

² Regular premiums in China of £3m for Group protection business have been reclassified to single premiums for the 12 months to 31 December 2008.

1.4.5 Global investment management

The focus at Standard Life Investments is to deliver superior investment performance, supported by exceptional client service. Standard Life Investments operates as a global team, with its investment process underpinned by its 'focus on change' philosophy, which has proved itself to be robust and repeatable in both good and bad market conditions. Over the 11 years since its inception, Standard Life Investments has delivered a strong track record of profitable organic growth, a trend which continued during 2009, despite the challenging market conditions.

Financial highlights

	2009	2008	Movement
Third party assets under management (AUM)	£56.9bn	£45.5bn	25%
Total assets under management	£138.7bn	£123.8bn	12%
Third party gross inflows	£9,747m	£7,551m¹	29%
Third party net inflows	£5,674m	£3,395m	67%
Earnings before interest and tax (EBIT)	£80m	£82m	(2%)
IFRS normalised underlying profit before tax²	£75m	£93m	(19%)
IFRS profit before tax	£64m	-	-
EBIT margin	32%	30%	2% points

¹Third party gross inflows for 2008 have been restated to the same basis as 2009 with UK Money Market outflows reported within gross inflows, leading to a reduction in 2008 third party gross inflows of £1,346m.

²IFRS normalised underlying profit before tax excludes costs of £9m (2008: £51m) associated with the restructuring of a sub-fund of Standard Life Investments (Global Liquidity Funds) plc.

Please refer to Section 1.9 - Basis of preparation.

Standard Life Investments delivered a strong performance in 2009, against the background of volatile and dislocated markets. The strong sales momentum of past years continued, with a high proportion of new business from outside the UK. Strong inflows across our international markets resulted in a 67% increase in third party net inflows, driving the increase in third party AUM to the record level of £56.9bn (2008: £45.5bn). Revenue fell as a result of the weaker market conditions but this was offset by the increase in new business flows, increased profits from our joint venture in India and a tightly controlled cost base which together delivered EBIT of £80m (2008: £82m) and a record EBIT margin of 32%. Our continued focus on serving existing clients and driving sales to new clients through strong investment performance, product innovation, global distribution and high levels of customer service has paid off. Although the economic downturn may not be completely over, this robust performance means that Standard Life Investments is entering potentially more stable market conditions in very good shape.

Financial market overview

The financial crisis continued to weigh heavily on the global economy in 2009. Despite the rally in equity markets during the second half of the year, average market values in 2009 were substantially lower than in 2008. The average daily FTSE All-Share Index, for example, fell 15% between the two years and this, combined with similar falls in other major world markets, inevitably put downward pressure on asset management revenues. We were able to mitigate the worst effects of the market falls and also maintained strong third party sales momentum across both institutional and retail customer segments.

Investment performance

Investment performance was robust during 2009, including a significant improvement for UK equities and multi-asset portfolios, and we continued to deliver strong investment performance over the longer term. The money-weighted average active investment performance over all time periods - one, three, five and ten years - continues to be comfortably above median for our third party business. The strength of our investment process across a range of open-ended investment companies (OEICs) and unit trusts is demonstrated by the proportion of eligible and actively managed funds (19 out of 29) rated 'A' or above by Standard & Poor's.

The pipeline for institutional and retail business remains encouraging with fixed income and global absolute return strategies (GARS) products attracting a lot of interest, increasingly from outside the UK. There is also very positive demand for our mutual funds in the UK and for our SICAVs in continental Europe, and the retail product range was expanded in 2009 to include the Strategic Bond Fund, the UK Equity Recovery Fund and the European Equity Income Fund.

1.4 Business segment performance continued

1.4.5 Global investment management continued

Net flows

Standard Life Investments achieved third party net inflows of £5,674m (2008: £3,395m), a 67% increase and representing 13% of opening third party AUM. Over 80% of the third party net inflows came from outside the UK, further emphasising our growing global capability. Retail net inflows (UK mutual funds and SICAVs) rose significantly to £1,109m (2008: £123m). A notable number of new institutional clients were won in the UK and Europe during the year, increasing the institutional client base in these markets by 26%.

Strong inflows across our UK and international markets, and the recovery in market levels during the second half of 2009, drove a 25% increase in third party AUM to a record level of £56.9bn (31 December 2008: £45.5bn, 30 June 2009: £47.3bn). Third party AUM now represents 41% of total AUM compared with 37% at 31 December 2008. In-house AUM increased to £81.8bn (31 December 2008: £78.3bn, 30 June 2009: £74.3bn) with favourable market movements partly offset by outflows from the with profits business. As a result, total assets managed by Standard Life Investments stood at £138.7bn (31 December 2008: £123.8bn, 30 June 2009: £121.6bn).

Performance

EBIT held up extremely well in the face of difficult trading conditions at £80m (2008: £82m). Revenue fell 8% as a result of the fall in average market values but there was a strong performance from our joint venture in India. Costs were tightly controlled whilst allowing for continued investment in the business to sustain our longer-term growth. These measures resulted in a record EBIT margin of 32% (2008: 30%) for the year.

IFRS normalised underlying profit before tax, which excludes all restructuring costs, was £75m (2008: £93m). The reduction was mainly due to lower interest rates on our cash balances and the cost of servicing a £30m subordinated loan, which was repaid in full before the end of 2009. IFRS profit before tax was £64m (2008: £nil). This reflected restructuring costs of £2m and a £9m net negative fair value movement in respect of the liability remaining following the restructuring of a sub-fund of Standard Life Investments (Global Liquidity Funds) plc and the 'Contact for Differences' written in September 2008 which limited the liability for Standard Life Investments. In 2008, the impact of restructuring this fund was negative £90m.

1.5 Capital and cash generation

The Group's strategy remains focused on careful capital management and generating cash. The emphasis on capital-efficient products is important as it demonstrates our ability to write profitable new business without committing high levels of capital.

Capital and cash generation highlights

	2009	2008	Movement
EEV operating profit capital and cash generation^1,2	£414m	£423m	(2%)
Group capital surplus³	£3.6bn	£3.5bn	3%
Group solvency cover³	230%	219%	11% points
Realistic working capital: Heritage With Profits Fund	£0.6bn	£0.5bn	20%
EEV²	£6,435m	£6,245m	3%
IFRS equity attributable to equity holders of Standard Life plc	£3,457m	£3,407m	1%

¹ Net of tax.

² 2009 Asia results have been prepared on an EEV basis for the first time. Prior to 2009 these were included on an IFRS basis. Comparatives have not been restated.

³ 2009 based on draft regulatory returns. 2008 based on final regulatory returns.

Please refer to Section 1.9 - Basis of preparation.

Group capital and cash generation

		2009			2008
	Free surplus movement	Required capital movement	Net worth movement	Free surplus movement	Required capital movement	Net worth movement
	£m	£m	£m	£m	£m	£m
Capital and cash generation from existing business	567	(21)	546	546	-	546
New business strain	(252)	64	(188)	(266)	42	(224)
Covered business capital and cash generation from new business and expected return	315	43	358	280	42	322
Covered business development expenses	(32)	-	(32)	(27)	-	(27)
Non-covered business core, capital and cash generation	24	-	24	8	-	8
Core	307	43	350	261	42	303
Efficiency	(8)	1	(7)	9	(2)	7
Back book management	65	6	71	107	6	113
Operating profit capital and cash generation	364	50	414	377	46	423
Capital and cash generation from non-operating items	(388)	12	(376)	(131)	44	(87)
Total capital and cash generation	(24)	62	38	246	90	336

All figures are net of tax. Net income directly recognised in the EEV statement of financial position, including exchange differences and distributions to and injections from shareholders, is not included as these are not trading related cash flows. The Group's IFRS statement of cash flows is included in the IFRS Group financial statements section of this report. This statement combines cash flows relating to both policyholders and equity holders, but the practical management of cash within the Group maintains a distinction between the two, as well as taking into account regulatory and other restrictions on availability and transferability of capital. An analysis of the movement in the EEV shareholders' net worth is representative of underlying shareholder capital and cash flow. Under existing EEV principles, we are also required to identify required capital for all covered business. Increases/(decreases) in required capital will not reduce the shareholders' net worth because no external cash flows are made, but will decrease/(increase) the free surplus.

1.5 Capital and cash generation continued

The analysis on the previous page highlights the impact of profit on free surplus and shareholders' net worth. This includes investment of shareholder capital in new business - or new business strain (NBS) - and the amount of capital and cash emerging from existing business. Including Asia on an EEV basis for the first time in the results for the 12 months to 31 December 2009, the NBS margin fell to 1.3% (2008: 1.5%), primarily due to planned reductions in sales of UK onshore bonds and management actions to reduce NBS. Excluding Asia, the NBS margin has fallen to 1.0%. Our covered business capital and cash flows from new business and expected return have increased to £358m (2008: £322m). This was due to the decrease in NBS described above. This has led to NBS being covered almost three times by capital and cash flows from existing business. In overall terms, our operating profit capital and cash generation was broadly unchanged at £414m (2008: £423m). This is discussed in further detail below.

We also analyse capital and cash generation into the three components that reflect the focus of our business effort - core, efficiency and back book management. Core and back book management were the main contributors to our capital and cash generation during the year. The core capital and cash flows of £350m (2008: £303m) primarily reflect robust capital and cash generation from new business and expected return, and after-tax profits from non-life operations, partially offset by development expenses.

The back book management capital and cash flows of £71m includes the benefit of the release of deferred annuity reserves in the UK. The decrease from 2008 reflects the impact of the reinsurance of the UK immediate annuities in 2008.

Non-operating capital and cash generation of negative £376m (2008: negative £87m) is driven by £414m of negative capital and cash generation (2008: positive £93m) in the life businesses. This included the impact of increases in the fair value of UK subordinated debt liabilities and falls in Canada property values.

Holding company capital and cash flows

In addition to the movement in capital and cash on an EEV basis, the following summary is provided to show an analysis of holding company cash flows and capital in relation to the Group's ultimate holding company, Standard Life plc and its overseas holding company, Standard Life Oversea Holdings Limited. The capital position is based on these companies' net assets, excluding investments in operating subsidiaries.

	2009	2008
	£m	£m
Opening capital 1 January	623	502
Dividends received from subsidiaries	190	436
Additional investments in subsidiaries	(20)	(54)
Group corporate centre costs	(50)	(50)
Cash dividends paid to shareholders	(158)	(257)
Other	17	46
Closing capital 31 December	602	623

The capital and cash held in the holding company is managed at a level to fund the Group's dividend obligations and strategic investments. During 2009, capital decreased by £21m, primarily as a result of reduced dividends received from subsidiaries. This was partially offset by the capital impact of a reduction in cash dividends paid to shareholders following the introduction of the Scrip dividend scheme. Standard Life plc's ability to pay dividends to shareholders is determined by the distributable reserves of the Company, which broadly comprise its retained earnings and special reserve. When determining the level of dividends, the Board must also consider the Group's future business plans, market conditions and regulatory solvency.

Dividends

During the year, the Group paid the final dividend for 2008 of 7.7p per share, amounting to £168m and the 2009 interim dividend of 4.15p per share, amounting to £92m. In 2009 the previous dividend reinvestment plan (DRIP) was discontinued and a new Scrip dividend scheme introduced. The high take-up of this option reduced the capital required to pay the 2008 final dividend from £168m to £110m and the 2009 interim dividend from £92m to £48m. The Board proposes a final dividend of 8.09p per share, making a total of 12.24p (2008: 11.77p). This represents an increase of 4%, reflecting the solid progress made during the year. Looking forward, the Group will continue to apply its existing progressive dividend policy, taking account of market conditions and the Group's financial performance.

Capital management

Objectives and measures of Group capital

The process of capital and risk management is aligned within the Group to support the strategic objective of driving sustainable, high quality returns for shareholders. The different measures of capital reflect the regulatory environment in which we operate and the bases that we consider effective for the management of the business.

Sustainable high quality returns for shareholders

Diagram removed for the purposes of this announcement

Financial Groups Directive
	2009	2008
	£bn	£bn
Shareholders' capital resources	2.7	2.6
Capital resources arising from subordinated debt	2.1	2.2
SLAL long-term business funds	1.6	1.7
FGD Group capital resources	6.4	6.5
FGD Group capital resource requirement	(2.8)	(3.0)
FGD Group capital surplus	3.6	3.5
FGD Group solvency cover	230%	219%

2009 figures above based on draft regulatory returns and 2008 based on final regulatory returns.

At 31 December 2009, the Group was classified as a 'financial conglomerate' as defined by the Financial Groups Directive (FGD), with the strength of our FGD surplus increasing by £0.1bn to £3.6bn. The Group capital resources remained broadly in line with the 2008 closing position, despite ongoing investment in the business. The quality of capital within the Group remains strong with only £0.8bn (31 December 2008: £0.8bn) and £0.7bn (31 December 2008: £0.7bn) of total Group capital resources classified as upper tier 2 and lower tier 2 respectively. Lower tier 2 capital contributes only 19% (31 December 2008: 20%) to the Group capital surplus and further illustrates the strength of our capital position.

1.5 Capital and cash generation continued

The FGD surplus remains largely insensitive to a further 30% fall in equities from the 31 December 2009 position, with the surplus estimated to reduce by approximately £0.6bn. A 100bps rise in yields is estimated to reduce the surplus by approximately £0.3bn.

Following the sale of Standard Life Bank plc on 1 January 2010 the Group is now classified as an 'insurance group' and from this date the Group capital surplus will be calculated in accordance with the Insurance Groups Directive (IGD). The Group's capital surplus on an IGD basis is not expected to be materially different from the surplus on an FGD basis.

Analysis of movement in Group capital surplus

The following table illustrates the key movements in the regulatory capital surplus for the year ended 31 December 2009:

	2009	2008
	£bn	£bn
Opening capital surplus	3.5	3.6
Movement in capital resources of long-term business funds	-	(2.7)
Movement in capital resource requirements of long-term business funds	-	2.7
Net movement in capital position of long-term business funds	-	-
Movement in capital resources of shareholder funds:
Annuity reinsurance change	-	0.1
New business	(0.1)	(0.2)
Transfers from HWPF to shareholder funds	0.3	0.4
Dividend payments	(0.2)	(0.3)
Other factors	(0.1)	-
Movement in capital resource requirements of shareholder funds	0.2	(0.1)
Closing capital surplus	3.6	3.5

The significant factors affecting the capital surplus during the year ended 31 December 2009 were:

Shareholder funds:

· Ongoing investment of shareholder capital in the Group through writing new business offset by the recourse cash flows emerging from pre-demutualisation business

· Payment of dividends to shareholders during the year

Long-term business funds:

· Impact of changing financial conditions on the capital resources and capital resource requirement of the HWPF and other long-term business funds

Group capital resources include the capital resources within the long-term business funds, but the FGD limits the amount that can be recognised to the level of the capital resources requirement for that fund. This resulted in a restriction of £0.1bn (31 December 2008: £1.3bn) and a net zero contribution to the Group capital surplus. In addition, capital resources amounting to £0.6bn within the shareholder fund are excluded from the Group capital surplus in order to remove capital which arises from intra-group arrangements.

The largest regulated entity within the Group is Standard Life Assurance Limited (SLAL), and its regulatory position reflects capital resources that include long-term business funds. SLAL's capital resources have decreased due to a number of factors including the costs of writing new business, the costs of paying regular and final bonuses and the payment of dividends. This has led to a decrease in solvency cover to 259% (31 December 2008: 274%). The capital resources of SLAL include the residual estate of approximately £0.6bn, an increase of £0.1bn from the level at 31 December 2008. The hedges we have in place continue to mitigate the impact of falls in equity markets on the residual estate. The impact of most other adverse asset movements would, in the first instance, be met by policyholders. There would be indirect impacts on shareholders via higher guarantee costs, and hence higher burnthrough cost. Shareholder exposure is also limited by the structure of the capital support mechanism set up at demutualisation, with shareholder support being obtained by encumbering the furthest out cash transfers from the HWPF to shareholders.

Analysis of accrued transfers out of the HWPF

	2009	2008
	£m	£m
Recourse cash flows arising on UK and Irish unitised contracts	191	243
Recourse cash flows arising on UK and Irish non-unitised contracts	65	124
Additional expenses charged on German unitised with-profit contracts	25	39
Amount arising under a contingent loan agreement	588	-
Transfer out of HWPF	869	406

In accordance with the Scheme of Demutualisation of the Standard Life Assurance Company (the Scheme), certain transfers are made out of the HWPF to the shareholder fund after the year end position is finalised. The recourse cash flows accruing in respect of UK and Irish unitised contracts fell to £191m (2008: £243m) primarily due to reduced management charge income on a lower average asset base. The German additional expense charge has reduced as the percentage allocation has fallen in accordance with the Scheme.

On 31 December 2009 Standard Life plc lent £588m to SLAL's HWPF under a contingent loan agreement (a contingent recourse cash flows loan, as defined under the Scheme). Simultaneously, the HWPF lent £588m to Standard Life plc under a limited recourse loan agreement. Under the Scheme this resulted in an obligation arising in the HWPF to transfer the loan proceeds received under the contingent loan agreement to the Shareholder Fund. However, the transfer of this amount has not been reflected in the FGD surplus or IFRS equity as the instrument held by the Shareholder Fund as a result of this transfer has cash flows which are contingent on the emergence of recourse cash flows within the HWPF. For further information on this arrangement, please refer to Notes 3.10 and 3.16 of the IFRS Group financial statements section of this report.

Reconciliation of key capital measures

The following diagram illustrates the key differences between the regulatory, IFRS and EEV capital measures at 31 December 2009:

Diagram removed for the purposes of this announcement

1.5 Capital and cash generation continued

The Group's capital, as measured by the FGD, can be split into three elements:

· Shareholder capital, used to invest in the strategy of the Group, covers the capital requirements borne directly by shareholders and manages risk borne by shareholders

· Capital arising from the subordinated debt issued by the Group of £2.1bn at 31 December 2009, which is used to provide capital support to SLAL and Standard Life Bank

· A restricted amount of policyholder capital of £1.6bn at 31 December 2009, which matches the capital resource requirements of that business, and includes the HWPF

While the latter two elements provide capital support for the Group, they do not form part of the shareholders' regulatory capital. Shareholder capital can be measured under each of the Group's reporting bases - regulatory, IFRS equity and EEV net worth. Each of these is a comparable measure of the net assets attributable to equity holders of the Group. In some cases, the regulatory rules for valuing assets and liabilities differ from IFRS accounting rules, resulting in a valuation adjustment of £0.8bn.

Similarly, EEV recognises certain valuation adjustments to give the EEV net worth, resulting in an equivalent adjustment of £0.4bn to IFRS equity holder funds. The total EEV of the Group relates to the net worth adjusted for the cost of capital of £0.4bn and increased by the value of the present value of in-force business (PVIF) of £3.7bn to give the total EEV of £6.4bn at 31 December 2009.

Capital management policy

Matters related to management of the Group's capital are reserved for the Board of Standard Life plc. The scope of the liquidity and capital management policy is wide-ranging and forms one pillar of the Group's overall management framework. It operates alongside and complements the Group's other policies and processes, in particular its risk policies and strategic planning process, and provides a framework for effective and consistent management of capital. The Group continues to develop its Enterprise Risk Management (ERM) framework to robustly link the processes of capital allocation, value creation and risk management.

Debt, facilities and liquidity

The Group's capital structure has been developed to provide an efficient capital base by using a combination of equity holders' funds, subordinated debt and capital within the HWPF.

· The Group uses subordinated debt to provide capital to the life assurance and banking businesses

· Further analysis of Group borrowings is provided in Note 3.11 - Borrowings of the IFRS Group financial statements section of this report

· Note 3.16 - Capital statement shows the external subordinated debt and the internal loans made across life and other operations.

Bond default allowances

Shareholders are exposed to debt securities which back annuity liabilities in the UK and Europe and the liability in respect of longevity risk reinsured from SLAL's HWPF. These debt securities amount to £2.0bn and comprise £0.7bn of government and government backed bonds and £1.3bn of other corporate bonds. There were no defaults in respect of assets backing UK and European annuity liabilities in 2009. The average yield deduction to allow for future defaults within the valuation of liabilities has been broadly maintained at 31 December 2008 levels. Debt securities in Canadian non-segregated funds amount to £6.0bn, including £2.3bn of corporate bonds. There were no defaults within this portfolio of debt securities during 2009 and the allowance for future defaults within the valuation of liabilities has been maintained at 31 December 2008 levels.

Financial assets valuation and exposures

Asset-backed securities

The Group's total investment (including third party funds) in the asset-backed securities markets across both short-term treasury instruments and long-term fixed interest instruments is approximately £5.1bn or 2.9% (31 December 2008: £5.3bn or 3.3%) of Group assets under administration (AUA). These are predominantly UK securities. Of the total of £5.1bn, £1.2bn relates to shareholder funds, of which £0.9bn is AAA rated. The Group has continued to actively manage its exposure to asset-backed securities.

Shareholder asset exposures

At 31 December 2009, shareholders had direct exposure to equity, debt securities and investment property of £10.6bn (2008: £9.6bn). This included exposure to equity securities of £0.5bn (2008: £0.4bn). The exposure to debt securities was £9.3bn (2008: £8.3bn) and consisted of government debt securities of £4.2bn (2008: £3.7bn), corporate bonds of £4.9bn (2008: £4.3bn) and other debt securities including supranationals of £0.2bn (2008: £0.3bn). The exposure to investment property amounted to £0.8bn (2008: £0.9bn). The total shareholder exposure to equity securities, debt securities and investment property of £10.6bn (2008: £9.6bn) includes £7.1bn (2008: £6.6bn) of assets held by non-segregated funds in Canada. The effective exposure of shareholders to assets of the non-segregated funds in Canada was significantly lower than £7.1bn (2008: £6.6bn). This is because changes in the value of assets are typically offset by changes in the value of the related liabilities. The shareholder exposure is limited to the net impact on the shareholder surplus and the value of any guarantees that may be triggered. In addition, shareholders had direct exposure to loans and receivables of £9.9bn (2008: £11.7bn), which included £7.5bn (2008: £9.5bn) in respect of the retail mortgage book of Standard Life Bank and £2.4bn (2008: £2.2bn) in respect of the commercial mortgage book of the business in Canada. Both mortgage books are deemed to be of very high quality. Please refer to Sections 1.4.1 - Business segment performance - UK and 1.4.2 - Business segment performance - Canada for further information in respect of the mortgage books.

Credit ratings

External credit ratings agencies perform independent assessments of the financial strength of companies. The current insurer financial strength ratings for SLAL are A1/Stable and A+/Stable from Moody's and Standard & Poor's respectively. These ratings are unchanged from those reported in the Interim results 2009.

1.6 Risk management

Risk management is an integral part of the Group's corporate agenda. The Group's risk strategy statement links value and risk in a concise expression of our objectives, aligned with our corporate purpose.

Risk management framework

We have developed and embedded an Enterprise Risk Management framework that enables the risks of the Group to be identified, assessed, controlled and monitored consistently, objectively and holistically.

The Group has recently established a 'Risk Hub' as a centralised area with specific responsibility for developing risk transfer solutions. This will further develop the Group's ability to proactively manage risk and lead to innovation in risk solutions.

Key risks facing the Group

Market risk

Definition	The risk that arises from the Group's exposure to market movements which could result in the value of income, or the value of financial assets and liabilities, or the cash flows relating to these, fluctuating by differing amounts.
Appetite	The Group has no appetite for market risk exposures except where exposures arise as a consequence of core strategic activity, principally as a consequence of exposure of revenue streams to market risks.

Market risk: Equity and property risk

Equity and property risk for the Group primarily relates to the risk that the value of future fund charges on unit linked, segregated funds and future recourse cash flow payments from the HWPF will fall (or that burnthrough costs to the shareholder arise) if the value of assets under management falls due to adverse market conditions.

There is currently no restriction on cash flows due from the HWPF. The key existing mitigants to reduce the risk of burnthrough from the HWPF include the actively managed investment policy for asset shares, the dynamic guarantee deduction framework, and hedging of the cost of guarantees for certain contracts. The fund remains well capitalised and market risk mitigants continue to perform in line with expectations.

Canada has exposure to equity and property risks as a consequence of direct holdings in such assets. These holdings have been acquired for a number of reasons, including duration matching and an expectation that such assets would increase returns to shareholders. As indicated in Section 1.4.2 - Business segment performance - Canada, variability in the values of these assets will be reflected in the financial results of the Canadian business unit.

Market risk: Fixed interest

Shareholder exposure to fixed interest risk arises from a number of sources, but is primarily attributable to asset liability mismatches in certain portfolios of liabilities. The extent of such mismatches has been reduced over the course of the year, most notably through improvements in cash flow matching of annuities written in the UK business post-demutualisation.

More generally, the Group's earnings have been adversely impacted by lower returns earned on working capital during 2009.

The IFRS underlying profit after tax for the UK business has been adversely impacted by the lower interest rates experienced in 2009.

Risk also arises as a consequence of burnthrough from the HWPF, though as noted above, this fund remains well capitalised, burnthrough cost is low and there is currently no restriction on transfers.

Fixed interest risk also arises within Canada, primarily as a consequence of the difficulty in obtaining long-dated fixed income assets to match the long-term liability cash flow which gives rise to consequential reinvestment risk.

Market risk: Currency

Foreign exchange risk is the risk that the value of overseas operations and profits generated by them falls in Sterling terms when Sterling appreciates against the local currency.

In Sterling terms, the principal risk arises from the Group's holdings in overseas subsidiaries, primarily Canada and Asia (including HDFC Standard Life and Heng An Standard Life). The UK business also has Euro exposure as a consequence of branch business undertaken in Ireland and Germany and its holding in Standard Life International Limited.

Other exposures arise largely as a consequence of holdings in overseas assets within business units and variances in charges taken from linked and similar funds.

Credit risk

Definition	The risk of exposure to loss if a counterparty fails to perform its financial obligations, including failure to perform those obligations in a timely manner. It also includes the risk of a reduction in the value of corporate bonds due to a widening of corporate bond spreads.
Appetite	The Group has an appetite for credit risk to the extent that acceptance of this risk optimises the Group risk adjusted return. However, the Group has limited appetite for significant losses arising from counterparty failures and will therefore establish robust risk limits which must be adhered to by Group companies.

Shareholder exposure to credit risk arises from a number of sources, but is primarily attributable to asset liability mismatches in certain portfolios of liabilities. The extent of such mismatches has been reduced over the course of the year, most notably through improvements in cash flow matching of annuities written in the UK business post-demutualisation. Credit risk also arises from exposure to the value of asset backed securities, and to variances on swap spreads used to manage certain investment risks of the Group.

The UK business also bears credit risks associated with the previously disclosed 'Contract for Differences' between Standard Life Assurance Limited and Standard Life Investments. This has resulted in a recovery in the IFRS underlying profit before tax in 2009 due to improvements in the value of underlying assets.

In Canada, the main component of credit risk is the risk of a fall in value of corporate bonds and provincial government bonds due to a widening of credit spreads that is not reflected in a change in liability value.

In addition, all businesses have exposure to the risk of counterparty default, including exposures arising from cash and bond holdings and commercial mortgages (principally within Canada). All such portfolios continue to perform well despite adverse economic conditions.

Demographic and expense risk

Definition	The risk that arises from the inherent uncertainties as to the occurrence, amount and timing of future cash flows due to demographic and expense experience differing from that expected, which for the purpose of risk management includes liabilities of insurance and investment contracts.
Appetite	The Group has an appetite for such risks since we expect acceptance of the risk to be value additive. Appetites will be established to reflect planned business activities in line with the Group's overall strategic objectives.

The Group's principal exposures are to persistency and longevity risk, arising as a consequence of normal business activity.

Persistency

Persistency within the UK business primarily arises as a consequence of variances in the value of future fund charges on unit linked funds and future recourse cash flow payments from the HWPF. Generally the value of such charges will fall if withdrawals are higher than expected.

This risk is controlled through business retention activities and regular monitoring of persistency experience, as well as through product design. Recent performance has been ahead of expectations, particularly in the UK business, resulting in a revision to long-term assumptions. For further information please refer to section 1.4.1 - Business segment performance - UK.

Similar risks exist in respect of Standard Life Investment's third party assets under management and segregated funds business written by Canada.

Longevity

Longevity risk reflects the risk that annuitants live longer than expected. The principal risk to the Group arises in respect of annuity contracts written by the UK business and Canada.

The Group continues to write annuity contracts and to acquire additional risk as a consequence as we believe the business to be sufficiently profitable to justify the risks of doing so.

We have an active approach to the management of longevity risk and demographic and expense risks in general.

1.6 Risk management continued

Liquidity risk

Definition	The risk that businesses are unable to realise investments and other assets in order to settle their financial obligations when they fall due, or can do so only at excessive cost.
Appetite	The Group has no appetite to fail to meet its liabilities as they fall due.

The Group manages and mitigates liquidity risk by employing a variety of techniques as appropriate, including:

· Maintenance of a portfolio of assets of appropriate duration to match liabilities

· Close monitoring and active anticipation of the level of withdrawals based on expected customer behaviour

· Central co-ordination and management of Group-wide contingency funding plans

· Central co-ordination of strategic planning and funding requirements

· Central monitoring, assessment and oversight of the investment of assets within the Group

· Maintenance of a portfolio (currently undrawn) of committed bank facilities

The Group also has the ability to invoke deferral terms on the majority of unit linked contracts. As at 31 December 2009, three of the funds under management were subject to deferral. The aggregate net asset value of these funds was £15m at 31 December 2009.

As a result of the policies and processes established with the objective of managing exposure to liquidity risk, the Group considers the extent of liquidity risk arising from its activities - with the exception of business written by Standard Life Bank plc - to be de-minimis. Standard Life Bank plc was sold to Barclays Bank PLC on 1 January 2010. For further information please refer to Note 3.18 - Events after the reporting period of the IFRS Group financial statements.

Operational and strategic risks

Definition

Operational risk is the risk of loss, or adverse consequences for the Group's business, resulting from inadequate or failed internal processes, people or systems, or from external events.

Strategic risk is the risk associated with the robustness of the strategic planning process and the threats to the achievement of the strategy.

Appetite

The Group has an appetite for operational risks where exposures arise as a consequence of core strategic activity. However, the Group has limited appetite for large operational losses due to the likely related reputational damage and opportunity costs. The Group will seek to put effective controls in place to reduce operational risk exposures, except where the costs of such controls exceed the expected benefits.

Operational and strategic risk exposures are managed actively with action planning and progress monitoring in place. The operational risk processes and systems continue to be revised and enhanced, together with a substantial programme of education and skill improvements within the business.

Key operational and strategic risk themes include:

· Management of existing processes including the identification and implementation of control improvements

· Management of information security: control enhancement and control performance monitoring

· Management of third party providers: identification of exposures, collaborative control enhancement and robust performance indicators

· Projects and programmes: managing change and execution of projects through effective control, and embedding business as usual controls as part of the design of future processes

· People: identification and management of the people risks (succession planning, skilling and resource levels)

· Delivering the strategic plan: ensuring that the risks associated with the delivery of our strategic plan are identified, assessed, understood and mitigated

Reputational risk

Appetite

The Group has an extremely low appetite for significant reputational damage or regulatory censure. This appetite statement is embedded in our Group's risk culture and is reflected in our Group's values, mission and vision.

1.7 Our customers

We are committed to driving shareholder value by becoming a leading, customer-centric business focused on long-term savings and investments. We believe we can derive strength and a competitive advantage from putting customers at the heart of our strategy, having an absolute focus on the end customer, understanding their needs and meeting these in a way that is mutually beneficial.

During 2010, we will continue to focus on finding, acquiring and retaining valuable customers for our mutual and sustained financial benefit in a way that works for them, our business partners and our shareholders. To support this, we will further develop our ever increasing understanding of current and potential customers' needs. This understanding enables us to ensure that our brand, service and product propositions are aligned with creating exceptional customer experiences.

Building valuable customer relationships

We recognise that to drive value for our shareholders, we need to build valuable, long-term and mutually beneficial relationships with our customers.

This is why last year we took significant action on behalf of around 100,000 customers who had invested in our Pension Sterling Fund. When the fund did not perform in the way that some of our literature said it would, we fully compensated all those affected.

In 2009, we launched the Active Money SIPP aimed at the 'Baby Boomer' generation. Our research showed that these people are approaching retirement in a very different way to previous generations. They are far more interested in an active retirement, perhaps taking the opportunity to travel, or forging a second career by setting up a business of their own. This insight helps us to understand the types of product that customers want from us - in this case a flexible pension product, and helps us build those long-term relationships that are valuable to consumers, our company and to shareholders.

We are going to accelerate our efforts to build these valuable customer relationships in 2010. We intend to do this through refining what our brand stands for, and ensuring that our brand values are lived by our people and appeal to our customers.

We will continue to develop our ability to obtain distinctive and actionable insight about our customers. In early 2010, we launched the Active Money Personal Pension, a new product which responds directly to the needs of 28-40 year olds in the UK, which we have identified through rigorous research into this group of customers.

All of this will be delivered to customers via a multi-channel approach. In an increasingly complex world, customers require different ways of interacting with us and our business partners.

Customer satisfaction

We continually monitor our relationship with our customers across our businesses:

We remain committed to building strong customer and adviser relationships and consider this to be the keystone of our drive to grow our assets under administration and generate sustainable profitable returns.

Our efforts to continuously improve the quality of services that we provide to our customers enable us to deliver market-leading customer service at low cost. Regular feedback from customers helps us to focus improvement activities on the elements of service our customers value most, and confirms that the relationship we share is improved as a consequence.

Despite the impact of unstable global market conditions upon investment performance, which has a considerable influence on overall service satisfaction, the feedback opposite illustrates that the long-term trend in service satisfaction is very positive.

Our focus on customers was recognised during the year with a range of awards including:

Life and pensions

· Corporate Adviser Awards:

- Best Group Pension Provider

· Money Marketing Awards:

- Company of the Year (tenth consecutive year)

- Best Pension Provider (sixth consecutive year)

1.7 Our customers continued

· Financial Adviser Life & Pensions Awards:

- Best Group Pensions Provider

- SIPP and/or SSAS Provider of the Year (fourth consecutive year)

- Best Income Drawdown Provider (third consecutive year)

- Best Alternatively Secured Pension Provider (third consecutive year)

· Logica UK Platform Awards:

- Platform of the Year

- Best Platform Enabled SIPP Proposition

Healthcare

· Health Insurance Awards

- Most Innovative Product

Canada

High quality customer service is the basis of our growth strategy, which focuses on building retention and strong customer relationships. Our client retention level, based on internal methodology, was 94.8% in 2009 (2008: 94.6%). We continually invest in technology, training and processes to help us meet the service expectations of our customers. As part of this, we have enhanced web-based functionality across our group lines to ease administration of our products for both sponsors and participants. Our focus on customers was recognised during the year with a range of awards including:

· OCTAS finalist: Group Savings and Retirement Plan Sponsor VIP Room, recognising achievement in Quebec's information technology industry

· Lipper 2009 Best Fund in the one-year Canadian Neutral Balanced category: Standard Life's Moderate Portrait Portfolio Fund

· Insurance and Financial Communicators Association Awards:

- Best of Show: Group Savings and Retirement VIP Room and Plan for Life Communications Programme

- Award of Excellence: Group Savings and Retirement Pension Legislation Communication

- Award of Excellence: Standard Life Mutual Funds Quarterly Review

Europe

We are strongly committed to delivering exceptional customer service and always put our customers at the heart of our thinking. In 2009, we established a European customer insight team to help us respond to customer needs and continue growing our already high level of customer satisfaction. All customer insight activities are designed to build our understanding of our existing and future customers. This will help to establish better relationships with customers and develop customer-centric market-leading propositions, as well as keeping retention rates high.

Asia

All Asia operations are committed to maintaining the highest level of customer service. This commitment to customer service was acknowledged during 2009 by various awards received by our operations throughout Asia including:

· Diamond EDGE 2009 - Enterprises Driving Growth and Excellence - Initiative - empowering financial consultants to access information for sales and customer servicing over the web

· Chief Information Officer (CIO) 100 - 'The Ingenious 100' - A customised workflow-based solution for recruitment and licensing of life insurance agents catering to the regulator guidelines

Global investment management

Our business remains underpinned by our strong investment performance, delivered through the rigorous application of our 'focus on change' investment philosophy, and by our continuing commitment to very high levels of client service. High quality support by our client service teams, combined with strong investment performance from our fund management teams, has been recognised with 11 awards in 2009, including:

· Best Sterling Corporate Bond Fund - Morningstar Fund Awards

· 5-Star Award in Investment Category - FTAdviser Online Service Awards

· Fastest Growing Money Manager over CA$10 billion - Benefits Canada Award

· Winner, Global Fixed Income Fund (Unhedged Category) - Asian Investor Awards

· Winner, Sterling High Yield Bond Fund - Lipper Awards

· Winner, UK Smaller Companies Category - Moneywise Investment Trust Awards

· Top One Hundred Fund Manager of the Year (Harry Nimmo) - Citywire Awards

· Best UK Small Cap - Money Observer Investment Trust Awards

1.8 Our people

To become a more customer-focused business it is vital that we develop and harness the talents of our people and ensure that our people practices are both aligned and powerful in delivering change. In 2009, we began transforming our performance, talent and leadership practices to help strengthen the relationship that each individual employee has with our business. This is important because we believe that highly engaged people increase productivity and have a positive effect on profit and shareholder value.

During 2010 we will continue to focus on driving leadership capability, thereby ensuring our leaders are equipped to help our people grow and fulfil their potential.

Employee engagement

Employee engagement
	2009	2008
UK	3.94	3.87
Canada	4.12	4.04
Germany	3.74	3.70
Ireland	3.89	3.83
Investments	4.07	4.00
Group*	3.99	3.91
* Including central Group functions

Our annual survey showed that employee engagement continued to improve across all of our businesses. Our latest results increased to 3.99 out of 5 (2008: 3.91), putting us in the 55^th percentile when measured against Gallup's global database. This improvement is encouraging and provides a good platform for implementing the key elements of our people strategy in 2010.

To further improve employee engagement, we need to use the fresh insight we gain each year to develop clear action plans that address the barriers our people identify. Doing this at both a team and corporate level supports our objective of being in the top performing quartile of the Gallup global employee engagement database by 2012.

All of our businesses recognise the importance of developing the skills and capabilities of our people in support of our business goals, whilst promoting a strong culture of integrity, honesty and treating individuals with respect.

We are committed to ensuring that all our people understand, and have the opportunity to apply, their own unique skills and experience within their roles. Additionally, we support the engagement of our people through the way in which we select and develop our leaders, by promoting a working environment where feedback is given and received and by rewarding performance fairly and appropriately.

Leadership and talent

A key priority for Standard Life is to ensure that we have the depth and flexibility of talent we need for the future, as well as powerful and consistent leadership at all levels of the organisation.

To this end, during 2009 we developed a bespoke leadership development framework that sets out our expectations of leaders. This is now being introduced progressively throughout our business, beginning with our most senior leaders. We are putting in place development processes and solutions tailored for leaders at each level, to support new and existing leaders in enhancing their leadership capabilities and behaviour.

We are also creating strong interventions to identify, assess and develop those with the potential to progress further in the organisation. These processes begin with our graduate intake and extend to our most senior leaders:

· Our graduate recruitment and development activities are critical in creating a sustainable supply of future professionals and leaders. In 2009, we recruited 43 graduates onto the different streams within the Standard Life graduate programme.

· For our senior leaders, we have an established process targeted at accelerating the development of those with executive potential. We currently have two groups (with a total of over 50 leaders) participating in this process.

As a consequence of these and other activities, the strength of our internal talent pipelines and depth of succession coverage is steadily improving. We will also continue to strengthen our senior leadership and executive populations as required.

1.9 Basis of preparation

Overview

Our Business review for the period to 31 December 2009 has been prepared in line with the Companies Act 2006 and the Disclosure and Transparency Rules (DTR) issued by the Financial Services Authority (FSA). Under section 417 of the Companies Act 2006, DTR 4.1.8 and DTR 4.1.9, the Group is required to provide a fair review of the business and a description of the principal risks and uncertainties facing the Group. Principal uncertainties are detailed in Section 1.1 - Group overview. Principal risks are detailed in Section 1.6 - Risk management. To provide clear and helpful information, we have also considered the voluntary best practice principles of the Reporting statement: Operating and Financial Review (OFR) issued by the Accounting Standards Board (ASB).

The Group's financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), as endorsed by the European Union (EU). However, our Board believes that non-Generally Accepted Accounting Principles (GAAP) measures, which have been used in the Business review, together with other measures that are calculated in accordance with IFRS, are useful for both management and investors and make it easier to understand our Group's performance.

The most important non-GAAP measures in the Business review include European Embedded Value (EEV) information and IFRS underlying profit.

All non-GAAP measures should be read together with the Group's IFRS income statement, statement of financial position and statement of cash flows, which are presented in the IFRS Group financial statements section of this report.

EEV and IFRS reporting

The financial results are prepared on both an EEV basis and an IFRS basis. All EU listed companies are required to prepare consolidated financial statements using IFRS issued by the International Accounting Standards Board (IASB) as endorsed by the EU. EEV measures the net assets of the business plus the present value of future profits expected to arise from in-force long-term life assurance and pensions policies. The EEV basis has been determined in accordance with the EEV Principles and Guidance issued in May 2004 and October 2005 by the Chief Financial Officers (CFO) Forum. The CFO Forum represents the chief financial officers of major European insurers, including Standard Life. EEV methodology has been applied to 'covered' business, which mainly comprises the Group's life and pensions business. Non-covered business is reported on an IFRS basis. The EEV financial results in Section 1.2 of the Business review, and in the EEV financial statements section of this report, have been prepared in accordance with the EEV methodology applied by the Group in Note 2.16 of the EEV financial statements section of this report for 2009, and in the relevant EEV methodology note included in the Annual Report and Accounts 2008 in respect of the comparative period. The IFRS financial results in Section 1.3 of the Business review and in the IFRS Group financial statements section of this report have been prepared on the basis of the IFRS accounting policies applied by the Group in Note 3.1 of the IFRS Group financial statements section of this report.

EEV operating and IFRS underlying profit

The 2009 IFRS reconciliation of Group underlying profit to profit for the year, presented on page 86 of this report, presents profit before tax attributable to equity holders adjusted for non-operating items. The 2009 EEV consolidated income statement, on page 46 of this report, presents EEV profit showing both operating and non-operating items. In doing so, the Directors believe they are presenting a more meaningful indication of the underlying business performance of the Group.

Key differences between the EEV and IFRS bases

EEV

IFRS

For new business, all profits expected to arise on the contract are recognised at the point of sale. Future profits are discounted to a present value using an appropriate discount rate over the lifetime of the contract.

Profit on in-force business is recognised with the unwind of the risk discount rate as future cash flows move one year nearer to realisation. Adjustments are also made to profit in order to reflect changes to current best estimate assumptions.

For new business, profits expected to arise on the contract in future years are not recognised. Not all acquisition costs are deferred and therefore the IFRS results recognise the initial cost or strain associated with writing long-term business.

Profit on in-force business is the statutory surplus for the year adjusted for the amortisation of deferred acquisition costs.

2 European Embedded Value (EEV)

EEV consolidated income statement

For the year ended 31 December 2009

		Continuing operations 2009	Discontinued operations¹ 2009	Total 2009	Continuing operations 2008	Discontinued operations¹ 2008	Total 2008
	Notes	£m	£m	£m	£m	£m	£m
Covered business
UK		506	-	506	658	-	658
Canada		192	-	192	215	-	215
Europe		23	-	23	68	-	68
Asia		6	-	6	(35)	-	(35)
HWPF TVOG		143	-	143	11	-	11
Covered business operating profit	2.2(a)	870	-	870	917	-	917

Global investment management²	2.6(b)	42	-	42	48	-	48
UK		(3)	60	57	(21)	26	5
Group corporate centre costs		(50)	-	(50)	(50)	-	(50)
Other	2.6(c)	-	-	-	13	-	13
Non-covered business operating profit		(11)	60	49	(10)	26	16

Operating profit before tax		859	60	919	907	26	933

Non-operating items
Long-term investment return and tax variances		70	-	70	(849)	-	(849)
Effect of economic assumption changes		(539)	-	(539)	48	-	48
Impairment loss on discontinued banking operations		-	(10)	(10)	-	-	-
Restructuring and corporate transaction expenses³		(58)	(1)	(59)	(70)	(2)	(72)
Volatility arising on different asset and liability valuation bases		-	40	40	(15)	(94)	(109)
Impairment of intangible assets		-	(5)	(5)	-	-	-
Other non-operating items		(9)	-	(9)	(51)	-	(51)
Consolidation adjustment for different accounting bases⁴		67	-	67	(58)	-	(58)
Profit/(loss) before tax		390	84	474	(88)	(70)	(158)
Tax attributable to:
Operating profit		(251)	(28)	(279)	(278)	(6)	(284)
Non-operating items		124	(14)	110	281	27	308
Profit/(loss) after tax		263	42	305	(85)	(49)	(134)

¹The Group's banking business, Standard Life Bank plc, was sold on 1 January 2010 and has therefore been classified as a discontinued operation. Refer to Note 2.1 - Basis of preparation.

² Global investment management operating profit before tax is stated after excluding profits of £33m (2008: £45m) which have been generated by life and pensions business.

³Refer to IFRS financial information Note 3.3 - Administrative expenses.

⁴This adjustment reflects the removal of accounting differences for the Canada subordinated liability as explained in Note 2.16 - EEV methodology.

The presentation of the 2008 comparatives reflects the reclassification of Standard Life Bank as a discontinued operation.

EEV earnings per share (EPS)

For the year ended 31 December 2009

	2009	2008
EEV operating profit after tax from continuing operations (£m)¹	608	629
EEV operating profit after tax from discontinued operations (£m)²	32	20
EEV operating profit after tax attributable to equity holders of Standard Life plc (£m)	640	649

Weighted average number of ordinary shares in issue (millions)	2,201	2,176
Basic EPS (pence) from continuing operations	27.6	28.9
Basic EPS (pence) from discontinued operations	1.5	0.9
Basic EPS (pence)	29.1	29.8

Weighted average number of ordinary shares on a diluted basis (millions)	2,203	2,180
Diluted EPS (pence) from continuing operations	27.6	28.9
Diluted EPS (pence) from discontinued operations	1.5	0.9
Diluted EPS (pence)	29.1	29.8

¹EEV operating profit before tax from continuing operations of £859m (2008: £907m) less attributed tax on operating profit from continuing operations of £251m (2008: £278m).

² EEV operating profit before tax from discontinued operations of £60m (2008: £26m) less attributed tax on operating profit from discontinued operations of £28m (2008: £6m).

EEV consolidated statement of comprehensive income

For the year ended 31 December 2009

		2009	2008
	Notes	£m	£m
Profit/(loss) after tax		305	(134)
Less: Profit/(loss) after tax from discontinued operations		42	(49)
Profit/(loss) from continuing operations		263	(85)
Fair value gains on cash flow hedges¹		1	-
Actuarial (losses)/gains on defined benefit pension schemes¹		(77)	161
Exchange differences on translating foreign operations²		26	323
Net investment hedge¹		(12)	(17)
Aggregate tax effect of items not recognised in income statement		27	(53)
Other		13	(3)
Other comprehensive (expense)/income for the period		(22)	411
Total comprehensive income for the period attributable to equity holders from continuing operations		241	326

Profit/(loss) after tax from discontinued operations		42	(49)
Other comprehensive income/(expense) from discontinued operations³		8	(27)
Total comprehensive income/(expense) for the period attributable to equity holders from discontinued operations		50	(76)

Total comprehensive income for the period attributable to equity holders	2.7	291	250

¹ Consistent with the IFRS consolidated statement of comprehensive income for the year ended 31 December 2009.

² Exchange differences primarily relate to: Canada £71m; Europe (£37m); and Asia (£14m).

³ Other comprehensive income from discontinued operations includes fair value gains on cash flow hedges of £11m (2008: losses of £38m) and aggregate equity holder tax effect of items not recognised in the income statement of negative £3m (2008: positive £11m).

The presentation of the 2008 comparatives reflects the reclassification of Standard Life Bank as a discontinued operation.

EEV consolidated statement of financial position

As at 31 December 2009

		31 December 2009	31 December 2008
	Notes	£m	£m
Covered business
Free surplus		925	1,235
Required capital		956	844
Net worth		1,881	2,079

Present value of in-force		3,775	3,345
Cost of required capital		(391)	(292)
Total embedded value of covered business	2.2(c)	5,265	5,132

Non-covered business
Global investment management		195	143
UK		78	129
Group corporate centre		389	417
Other		255	255
Discontinued operations		246	211
Total net assets of non-covered business	2.6(a)	1,163	1,155

Consolidation adjustment for different accounting bases¹		7	(42)

Total Group embedded value	2.7	6,435	6,245

Equity
Share capital		224	218
Share premium reserve		888	792
Other reserves		1,660	1,623
Retained earnings on an IFRS basis		685	774
Additional retained earnings on an EEV basis		2,978	2,838
Total equity²		6,435	6,245

¹ This adjustment reflects the removal of accounting differences for the Canada subordinated liability as explained in Note 2.16 - EEV methodology.

² Embedded value equity per share is 288p as at 31 December 2009 compared to 286p as at 31 December 2008, based on diluted share totals of 2,237m as at 31 December 2009 and 2,180m as at 31 December 2008.

The presentation of the 2008 comparatives reflects the reclassification of Standard Life Bank as a discontinued operation.

This information is provided by RNS

The company news service from the London Stock Exchange

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