Half Year Results - 1 of 4

RNS Number : 8733Q

Standard Life plc

11 August 2010

Standard Life plc

Half Year Results 2010

11 August 2010

Strong operating performance supporting investment for growth

Significant increase in net inflows

· Net inflows across the Group up 71% to record level of £5.3bn (2009: £3.1bn)^1,2

· Group assets under administration up 5% to £179bn (31 December 2009: £170bn)^2,3

· 52% increase in net inflows at Standard Life Investments leading to record third party assets under management of £63bn

Strong financial performance

· IFRS operating profit before tax from continuing operations up 10% to £182m (2009: £166m)²

· IFRS profit after tax attributable to equity holders of £182m (2009: loss £20m)

· EEV operating profit before tax from continuing operations up 11% to £364m (2009: £328m)^2,4

· 64% increase in growth investment expensed to £72m (2009: £44m)

Improved cash flow and increased dividend

· EEV core capital and cash generation after tax from continuing operations up 6% to £160m (2009: £151m)^2,4,5

· Interim dividend up 4.8% to 4.35p (2009: 4.15p)

Commenting on the key aspects of the results, Chief Executive David Nish said:

"This strong set of results demonstrates the progress we have made as a business and the potential for increased profits and dividends as we invest for growth.

"We operate in markets which have exciting growth opportunities for Standard Life. In particular, we are well positioned to help our customers meet the challenges of the savings gap in the UK. We continue to lead in providing innovative propositions for individuals, employers and intermediaries in the UK.

"Standard Life Investments has consistently delivered impressive net inflows over the last five years. Its contribution to the Group is considerable and it is a business which provides us with global reach. We have extended our reach into alternative investments, through the purchase of Aida Capital and the continuing innovation of our absolute return offerings, which will accelerate growth.

"Our Canadian operations and Asian businesses, including the joint ventures, have also performed well. In particular there is strong momentum building in India and we see great potential in this very exciting market.

"The Group is more focused following the sale of our banking and healthcare operations. Our transformation programme is driving efficiency and we are investing to grow our business to be more profitable and cash generative, which will deliver our progressive dividend policy to shareholders."

Unless otherwise stated, all comparisons are in Sterling and are with the 6 months ended 30 June 2009. We are reporting IFRS operating profit as our main IFRS performance measure for the first time in place of IFRS underlying profit, having restated prior period comparators in our 21 July 2010 press release.

IFRS operating profit	H1 2010 £m		Restated H1 2009 £m
UK	76		80
Canada	62		74
International	8		(8)
Global investment management	49		27
Other	(13)		(7)
Operating profit before tax from continuing operations	182		166

Tax on operating profit	(48)		(39)

Operating profit after tax from continuing operations	134		127

Profit/(loss) attributable to equity holders after tax	182		(20)

Diluted IFRS operating EPS from continuing operations	6.0p		5.8p
EEV operating profit		H1 2010 £m	Restated H1 2009 £m
Covered business by source
New business contribution		161	114
Contribution from in-force business		251	282
Other covered		(36)	(50)
Covered business operating profit		376	346

Non-covered business
Global investment management		21	10
Other non-covered and corporate costs		(33)	(28)
Non-covered business operating loss		(12)	(18)

Operating profit before tax from continuing operations		364	328

Tax on operating profit		(112)	(101)

Operating profit after tax from continuing operations		252	227

Profit/(loss) after tax		326	(48)

Diluted EEV operating EPS from continuing operations		11.3p	10.4p

For more information please refer to Section 1.6 - Basis of preparation and Section 3 - IFRS pro forma reconciliation of consolidated operating profit to IFRS profit for the period of the Half Year Results 2010.

Our focus in 2010

Standard Life has delivered another strong performance in the first half of 2010 with increased net flows across our businesses and higher markets⁶ continuing to drive asset growth, profitability and cash flow generation.

At our 2009 Preliminary Results in March we announced our intention to double our growth investment in our areas of key strategic focus where we see significant potential, namely corporate and retail markets, our global investment management business and the Asian joint venture operations. This programme of investment is already driving momentum across the Group, including the launch of new Corporate and Retail propositions in the UK market, the acquisition of the intermediary services business threesixty and alternative investment company Aida Capital, and our entry into a strategic alliance with Chuo Mitsui Asset Trust and Banking.

Continued strong growth in net flows

Net inflows of £5.3bn (2009: £3.1bn) across the Group, combined with positive investment markets, led to an increase in assets under administration of 5% to £179.1bn (31 December 2009: £170.1bn). The increase in net inflows has been driven by a strong performance in both long-term savings and third party investment management, with third party assets under management reaching a new record level of £63bn.

Long-term savings operations

Net inflows across our long-term savings operations¹ have more than tripled to £2,452m (2009: £767m), with inflows across key product lines in the UK, Ireland and Asia strengthening. This reflects our continued success in attracting new retail customers and winning profitable corporate mandates. Total new business sales across our long-term savings operations increased by 29% to £9.6bn (2009: £7.5bn)⁷.

UK retail - strong growth in customers and assets

Our UK retail business has had a strong first six months of the year, with significant growth in net inflows and sales within our individual SIPP, mutual fund and Wrap platform propositions. Across our UK retail business net flows improved to a net outflow of £404m (2009: net outflow £1,107m).

We continue to see good growth in our individual SIPP customer base and assets under administration. The number of customer accounts increased by 11,900 or 14% during the six month period to 95,800 (31 December 2009: 83,900), with assets under administration increasing by 10% to £13.0bn (31 December 2009: £11.8bn)⁸.

Asset and customer growth on our Wrap platform⁹ continues at pace with assets under administration increasing by 36% to £4.9bn (31 December 2009: £3.6bn) at the end of June and recently passing the £5bn milestone. During the first six months of the year we have on average signed up one new adviser each day to the Wrap platform, with adviser numbers increasing by 25% to 727 (31 December 2009: 583).

We continue to see high demand for mutual funds sold through our UK long-term savings business with net inflows on our Wrap, Sigma and Fundzone platforms increasing by 67% to £561m (2009: £336m).

As expected traditional product lines such as endowment policies within legacy life, and individual pensions, continue to see net outflows. In individual pensions this has been in part due to the recent increase in the minimum retirement age. The vast majority of endowment policies where we have seen outflows are conventional with profits contracts, which generate minimal shareholder margin.

UK corporate - continued success in winning mandates

UK corporate net inflows increased by 64% to £2,039m (2009: £1,242m).

In corporate pensions, assets under administration increased by 1% to £18.1bn (31 December 2009: £17.9bn), the strength of net inflows being largely offset by adverse market movements. During the period we won 90 new schemes (2009: 83), including the 5,000 member Logica scheme which transitioned and generated £148m of sales in the second quarter. This scheme win is a good example of the success we have had in leveraging the expertise of Vebnet in the employee benefits market to develop tailored savings and benefits offerings. In addition to these successes with our co-developed solutions, Vebnet has had a strong half in its own right, implementing 16 new schemes with 24,000 employees (2009: 12 schemes with 12,000 employees) including Bovis Lend Lease and Telegraph Media Group.

Momentum continues within institutional pensions with net inflows more than doubling to £1,266m (2009: £560m). The increased volume of business in this product line, combined with its relatively low capital and servicing costs, have led to a strengthening of profitability in the period.

Canada - increased flows into higher margin investment products

Net inflows in Canada were lower at £92m (2009: £139m). Net inflows in higher margin investment products, which include group and individual segregated funds and mutual funds, have increased by 43% to £344m (2009: £241m), reflecting the strength of our savings and investment propositions.

Gross inflows and sales across our retail and group propositions have seen strong growth over the six month period, reflecting our continuing success in winning large and profitable group savings and retirement mandates, the continued strength of our disability management proposition, and the positive impact of recovering equity markets and improved customer sentiment.

These strong trends have been more than offset by higher claims and withdrawals. This has been particularly marked within mutual funds due to the expiry of early redemption penalties, with an increase in outflows from individual insurance, savings and retirement principally reflecting maturing term deposits sold when product demand was very high. Against this, we have seen encouraging signs during the second quarter, with gross inflows stabilising and outflows decreasing compared to the first quarter. Across our whole retail portfolio retention levels remain in line with the industry.

International - significant increase in net flows and sales

The International operations comprise our wholly owned long-term savings operations in Europe and Hong Kong along with the long-term savings joint ventures in India and China. Net inflows across these regions were 47% higher at £725m (2009: £493m)¹.

Wholly owned

Net inflows into our wholly owned operations were 51% higher at £592m (2009: £392m)¹. This principally reflects reduced claims levels from our domestic business in Ireland, coupled with strong growth in offshore new business.

In Ireland, net inflows were significantly higher at £264m (2009: £62m). Domestic flows improved significantly, driven by reduced claims and strong new business inflows resulting from the comprehensive choice and strength of our investment offering available through the Synergy platform. Higher inflows into offshore bonds reflected an increase in new business across all versions of our offshore bond, particularly via our Wrap platform. The inflows also benefited from an increase in case sizes and more stable economic conditions.

Net inflows in Germany were slightly lower at £317m (2009: £326m) with strong inflows of regular premiums from the in-force book and reduced lapse activity offsetting the impact of the market environment, which was challenging for the whole industry, especially the IFA segment.

In Hong Kong the success of our new unit-linked savings product has continued to drive strong growth in net flows and sales, as well as an increase in market share.

Joint ventures

Net inflows for the Asian joint ventures were 32% higher at £133m (2009: £101m)¹.

Sales in India increased by 9%^7,10, as we continue to refocus the business for greater profitability. The Indian joint venture, HDFC Standard Life, appointed Amitabh Chaudhry as CEO in January and has made a good start to 2010. It has captured market share over the last year with strong growth in its bancassurance channel, leveraging its distribution relationship with HDFC Bank. This trend has been particularly marked during the second quarter, with total sales in India increasing by 35%^7,10 compared to the prior year.

In China, sales volumes decreased by 1%¹⁰. This reflects a greater focus on profitability through increasing the proportion of regular premium business. In line with this approach, regular premiums increased by 28%¹⁰ compared to the prior year whereas single premium business declined by 31%¹⁰.

Global investment management - continued growth in higher margin assets

Third party assets under management have reached a record level of £63.0bn (31 December 2009: £56.9bn) and now represent 44% of total assets under management (31 December 2009: 41%). Total assets under management increased by £4.3bn to £143.0bn (31 December 2009: £138.7bn).

Third party net inflows at Standard Life Investments continue to be very strong and have increased by 52% to £4.7bn (2009: £3.1bn), representing 17% of opening third party assets under management on an annualised basis.

Sales of our core products such as fixed income, which increased by 37% to £2.4bn of net inflows, remain buoyant. Global Absolute Return Strategies (GARS) has attracted over £4bn since launch in 2006 and continues to be popular with both retail and institutional investors. The wholesaling of retail products has seen continued momentum with investors showing appetite for GARS, Global Index Linked Bonds, UK Smaller Companies, European Corporate Bonds, European Government Bonds and European Inflation Linked Bonds.

Overseas markets continued to add significant sales. This is especially so within our SICAV¹¹ range, predominantly sold in mainland Europe, which increased by 61% to £0.3bn (2009: £0.2bn). Momentum is also strong within HDFC Asset Management, in which we have a 40% stake, with over 4 million customer accounts, 1 million customers on regular savings plans, and total assets under management of £11.6bn¹². This equates to a 12.8% market share, the second highest ranking in the industry.

The strength of our investment process across a range of OEICS and unit trusts is demonstrated by the high proportion of eligible funds (21 out of 29 actively managed) rated 'A' or above by Standard & Poor's. The money weighted average performance for third party assets is above median over one, three, five and ten years.

IFRS profits benefiting from net inflow momentum and increased revenues

We are reporting IFRS operating profit as our main IFRS performance measure for the first time in place of IFRS underlying profit, having restated prior period comparators in our 21 July 2010 press release.

IFRS operating profit before tax from continuing operations increased by 10% to £182m (2009: £166m), principally reflecting a combination of higher revenues, offset by increased costs as we accelerate our investment in the business, and lower reserve movements.

Increased net inflows and higher average market levels have led to strong growth in assets under administration. This, combined with an increased weighting of higher margin products in our investment management business, have led to a £78m increase in income received through annual management charges. We have also seen improved profitability in our International long-term savings businesses mainly due to improved sales and fees combined with robust cost control in our Irish and Hong Kong businesses.

As announced at our 2009 Preliminary Results in March we are broadly doubling the growth investment in the business over the course of 2010. While this will lead to increased assets and profitability in the medium term there will inevitably be a short-term impact on the level of IFRS operating profit. This has been reflected in a £35m increase in operating costs in the period compared to the prior year, of which £28m relates to increased growth investment. Excluding this investment for growth, IFRS operating profit increased by 21% to £254m (2009: £210m). Profits in the second half of the year will also be affected as more of our investment projects come on stream.

The movement in IFRS operating profit has also been impacted by lower reserve movements arising from management actions. During the first half the IFRS operating result benefited from a £26m release of reserves in respect of our UK annuity and legacy life businesses, as well as a £20m release of reserves following a review of annuitant policy data and reinsurance arrangements in Canada. In 2009 our IFRS operating result similarly benefited from £79m of reserve releases relating to our UK deferred annuity business and Canada management actions.

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

Core capital and cash generation after tax from continuing operations was 6% higher at £160m (2009: £151m)^2,4,5. This was driven by increased capital and cash generation from existing business, partially offset by higher development expenses, and an increase in new business strain arising from the inclusion of the Asian businesses in the current period. Capital and cash generated from existing business of £300m (2009: £246m)⁴ comfortably covered new business strain of £109m (2009: £72m)⁴ by 2.8 times (2009: 3.4 times).

Overall, operating capital and cash generation amounted to £149m (2009: £172m)^2,4. This includes a negative contribution of £4m from back book management that reflects adverse tax and pension scheme variances, partly offset by management actions to reduce reserves in UK and Canada. The 2009 comparative included a contribution from back book management which included the benefit of a £29m release of deferred annuity reserves in the UK.

EEV operating result driven by higher new business profits

EEV operating profit before tax from continuing operations increased by 11% to £364m (2009: £328m)^2,4, delivering an RoEV of 8.0% (2009: 7.5%)^2,4. As a long-term savings and investments business our core return will inevitably be influenced by the overall level of financial markets through their impact on long-term savings flows and asset levels within our Global investment management business. Core return has increased by 41% to £336m (2009: £239m)^2,4,5. Within this, new business contribution was also 41% higher at £161m (2009: £114m)⁴, due to improved sales volumes and the inclusion of the Asian businesses in the current period. The expected return on existing business and profits generated by our Global investment management business have also strengthened.

We remain committed to driving increased value from the management of our back book. Back book management profits of £31m in 2010 were driven by management actions to reduce reserves in the UK and Canada. In 2009 the back book management result of £94m included an £89m benefit from changes to asset allocations and hedging arrangements, which reduced the time value of options and guarantees (TVOG) associated with the Heritage With Profits Fund (HWPF).

Increased 2010 interim dividend

The Board have proposed an interim dividend of 4.35p per share (2009: 4.15p), an increase of 4.8% (2009: 2.0%). 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 £6,799m (31 December 2009: £6,435m), represents an embedded value per share of 302p (31 December 2009: 288p). IFRS equity excluding intangible assets and non-controlling interests was £3,531m (31 December 2009: £3,351m), representing 157p per share (31 December 2009: 150p). The increase in Group embedded value and IFRS equity during the year primarily reflects the profit for the period offset by the payment of the final dividend declared in respect of 2009.

Delivering our strategy

Today's results underline our confidence in the exciting prospects we see for all our businesses. During the first half of 2010 we have driven business performance and made good progress against our strategic priorities.

The increased level of investment we are making in our business to help us capture market opportunities is already driving momentum:

· In Corporate we launched new Corporate ISA and Trust Based Pensions in the UK, with closer integration of our Vebnet business helping us win new business with a consolidated pensions and flexible benefits offering. Our Plan for Life pension, and flexible benefits solutions, are driving new business momentum in Canada.

· In Retail we launched our UK Active Money Personal Pension to provide an entry-level retirement savings proposition. In Canada we have made good progress with our Distributor Relationship Management programme to support inflows into higher margin propositions. Our acquisition of threesixty, the intermediary services business, will further strengthen our support for UK intermediaries.

· In Global Investment Managementwe acquired Aida Capital to strengthen our alternative investment capabilities, and our recently announced strategic alliance with Chuo Mitsui Asset Trust and Banking will give us direct access to the attractive Japanese market.

· The Joint Venturebusinesses in Asia continue to develop, with the Indian business growing strongly and our discussions with Bank of China progressing.

We have focused our business portfolio. In January 2010 we concluded the sale of our banking operations to Barclays Bank PLC, with sales proceeds of £246m. In May we announced our intention to sell Standard Life Healthcare as we believe that manufacturing of private medical insurance is not core to our long-term savings and investment strategy in the UK. This transaction successfully concluded on 31 July with proceeds of £138m.

To increase cash profitability, we are driving transformation across the Group to create a fitter, more flexible business that can identify and capture new opportunities. In June we made changes to our leadership structure and to the way the Group operates, including bringing together marketing and distribution to create a Take to Market focus. We continue to invest in, and build on, the strong relationships we have with advisers and intermediaries, a trend that will be enhanced by our acquisition of threesixty.

We continue to upgrade our operational capabilities through innovative use of technology and improvements to our processes. These will further enhance the customer experience and drive greater efficiencies. As announced in March we are targeting further efficiency savings of £100m by 2012 to improve our new business margins, achieved through making our operations lower cost and more scalable. We remain on track to achieve this.

We have a strong pipeline of new developments:

· Our Corporate propositions will be augmented by the introduction of Employee Wealth and Benefits Plan (EWBP), more effectively packaging our pension and flexible benefits capabilities.

· We continue to develop Corporate propositions for the Irish and German markets, building on existing pension propositions and capabilities.

· In Retail we are building on existing capabilities to create a Flexible Investment Proposition for the Hong Kong market, offering customers a wider investment choice with online capability.

· We are developing a new Investment Proposition, to be launched initially with our intermediary partners, to enhance our online experience and help customers obtain simpler, more appropriate, investment solutions.

Outlook

Whilst the economic background remains uncertain we believe that the underlying demographic and regulatory trends in our key markets continue to support our future growth potential.

There are very large individual and employer markets available to us in the UK and Canada and we believe we have the products and propositions to capitalise on this. In the UK we are particularly well placed for regulatory change, whether it be the impact of the Retail Distribution Review, or auto-enrolment in the corporate market.

Standard Life Investments is well placed to continue its growth, including in alternative asset classes such as absolute returns.

The joint venture businesses in Asia also offer us valuable opportunities. In India we continue to monitor the potential to increase our holding in the long-term savings joint venture with HDFC, whilst negotiations are ongoing with the Bank of China to change the nature of the joint venture relationship in China.

We see exciting opportunities in our core markets and are confident that the investments we are making will lead to continued strong growth in assets and cash profitability, supporting our progressive dividend policy.

For a PDF of the full Half Year Results Announcement, including this Press Release, please click here:

http://www.rns-pdf.londonstockexchange.com/rns/8733Q_-2010-8-10.pdf

For further information please contact:

Institutional Equity Investors		Retail Equity Investors
Duncan Heath	0131 245 4742	Capita Registrars	0845 113 0045
Paul De'Ath	0131 245 9893

Media		Debt Investors
Barry Cameron	0131 245 6165/07712 486 463	Scott Forrest	0131 245 6045
Nicola McGowan	0131 245 4016/07872 191 341
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 Half Year Results 2010. The conference ID number is 92155227. A replay facility will be available for 7 days. Investors and analysts should dial +44 (0)1452 550000. The pass code is 92155227#.

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 5845. Callers should quote Standard Life Half Year Results. A replay facility will be available for 14 days. Investors and analysts should dial +44 (0)121 2604861. The pass code is 1182010#.

Notes to Editors:

1	Net flows and assets under administration across the Group include net flows in respect of the Asian joint ventures and our wholly owned Hong Kong subsidiary. Prior year figures have been restated accordingly.
2	Assets under administration (AUA), net flows, IFRS and EEV operating profit, EEV capital and cash generation and return on embedded value (RoEV) exclude our discontinued banking and healthcare operations. Prior period figures have been restated accordingly.
3	AUA are the adjusted gross assets of the Group and include assets administered on behalf of customers, including both those managed by the Group and those placed with third party managers.
4	The results for the Hong Kong and joint venture businesses were prepared on an EEV basis for the first time at full year 2009. H1 2009 results include these on an IFRS basis.
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	The daily average level of the FTSE All share index was 32% higher over the six months to 30 June 2010 when compared to the same period in 2009. On the same basis the UK IPD All Property Index was 13% higher and the Sterling 5-10 Yr Corporate Securities Index was up 29%.
7	Unless otherwise stated, all sales figures are on a present value of new business premiums (PVNBP) basis. PVNBP is calculated as 100% of single premiums plus the expected present value of new regular premiums. Prior period PVNBP for India has been restated by £1m to reflect the reclassification from regular premiums to single premiums
8	Analysis of Individual SIPP assets under administration.

	30 Jun 2010	31 Dec 2009
	£m	£m
Insured Standard Life funds	2,860	2,832
Insured external funds	1,836	1,723
Collectives - Standard Life Investments	2,481	1,894
Collectives - Funds Network	1,023	973
Cash	1,281	1,199
Non collectives	3,471	3,159
Total	12,952	11,780

Insured	4,696	4,555
Non-insured	8,256	7,225
Total	12,952	11,780

	Of the £13.0bn assets under administration at 30 June 2010, £2.2bn relate to assets on the Wrap platform.
9	At the end of June 2010 we had 45,500 customers on our Wrap platform (31 December 2009: 31,600).
10	Percentage movements for PVNBP sales, regular premiums and single premiums in our overseas businesses are calculated on a constant currency basis.
11	A SICAV (société d'investissement à capital variable) is an open-ended collective investment scheme common in Western Europe. SICAVs can be cross-border marketed in the EU under the UCITS directive.
12	Based on 100% of HDFC Asset Management. Standard Life share of AUM £4.6bn.
13	The Half Year Results 2010 are available on the Financial Results page of the Standard Life website at www.standardlife.com

Standard Life plc

Half Year Results

2010

Section	Contents	Page
1	Business review	11
1.1	IFRS - Group	12
1.2	EEV - Group	14
1.3	Business segment performance	17
	1.3.1 UK	17
	1.3.2 Canada	21
	1.3.3 International	23
	1.3.4 Global investment management	26
1.4	Capital and cash generation	28
1.5	Risk management	35
1.6	Basis of preparation	37
2	Statement of Directors' responsibilities	39
3	International Financial Reporting Standards (IFRS)	41
	IFRS primary statements	42
	IFRS notes	49
4	European Embedded Value (EEV)	67
	EEV primary statements	68
	EEV notes	72
5	Independent auditors' review report	107
6	Supplementary information	111
6.1	Group assets under administration and net flows	112
6.2	Analysis of new business	118
6.3	Exposure to investment property and financial assets	123
6.4	Fair value hierarchy of financial instruments	126
7	Glossary	129
8	Shareholder information	137

The Half Year Results 2010 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 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

	H1 2010	H1 2009	Movement
IFRS operating profit before tax from continuing operations¹	£182m	£166m	10%
IFRS profit/(loss) after tax attributable to equity holders	£182m	(£20m)	1,010%
Diluted IFRS operating EPS from continuing operations^1,2	6.0p	5.8p	3%
Dividend cover^1,3	1.4 times	1.4 times	-
IFRS tangible equity per share^4,5	157p	150p	5%

¹ The Group's banking business, Standard Life Bank plc, was sold on 1 January 2010. On 11 May 2010, the Group entered into an agreement to sell its healthcare business, Standard Life Healthcare Limited. Both businesses have been classified as discontinued operations. Comparatives have been restated to reflect continuing operations only.

² Diluted IFRS operating EPS is based on 2,235m shares (30 June 2009: 2,185m) and the IFRS operating profit after tax from continuing operations of £134m

(H1 2009: £127m).

³ Dividend cover is calculated as IFRS operating profit after tax from continuing operations divided by the dividend proposed in respect of this period.

⁴ IFRS tangible equity per share is based on the diluted closing number of issued shares of 2,253m (31 December 2009: 2,237m) and tangible IFRS equity of £3,531m

(31 December 2009: £3,351m). IFRS tangible equity excludes non-controlling interests and intangible assets.

⁵ Comparative as at 31 December 2009.

Please refer to Section 1.6 - Basis of preparation and Section 7 - Glossary.

IFRS profit/(loss)

IFRS profit for the period was £217m (H1 2009: loss £49m). This comprises profit after tax attributable to equity holders of £182m (H1 2009: loss £20m) and profit attributable to non-controlling interests of £35m (H1 2009: loss £29m). The IFRS result included a 10% increase in operating profit before tax from continuing operations from £166m to £182m.

IFRS operating profit before tax from continuing operations

As announced on 21 July 2010, we are adopting operating profit as our main IFRS performance measure in place of IFRS underlying profit. We consider that this change will provide shareholders and other stakeholders with a better understanding of our long-term operating performance by removing the impact of short-term economic volatility. In addition, the change will better reflect our internal management approach while also allowing for greater comparability with others in the industry.

Our IFRS consolidated income statement which shows IFRS profit after tax attributable to equity holders, and the reconciliation to operating profit from continuing operations are shown in the IFRS consolidated financial statements section of this report.

Movement in IFRS operating profit from continuing operations

IFRS operating profit from continuing operations increased by 10% to £182m (H1 2009: £166m), with profitability benefiting across the Group from increased management charge income due to the impact of higher average market values compared with H1 2009. This increased profit by £78m. Operating costs rose by £35m, including £28m of additional investment spend. In H1 2009, there was a £29m release of reserves in relation to deferred annuity business in the UK, and in Canada management actions reduced reserves by £50m. In H1 2010, reserving changes in Canada positively impacted profit by £20m, while reserving changes in the UK boosted profit by £26m.

Segmental analysis of IFRS operating profit from continuing operations

IFRS operating profit before tax from continuing operations within our UK business reduced to £76m (H1 2009: £80m). Profitability was impacted by reduced profits from annuity business and increased costs relating to transforming the business and developing new propositions. This was partially offset by increased management charge income. Reserve changes benefited both H1 2010 and H1 2009, by £26m and £29m respectively.

Our banking business, Standard Life Bank plc, was sold on 1 January 2010. In May 2010, we entered into an agreement to sell our healthcare business, Standard Life Healthcare Limited. IFRS operating profit before tax in our healthcare business increased to £11m in H1 2010 (H1 2009: £5m) primarily due to continuing action to reduce operating costs and also higher investment income.

Canada

Canada recorded an operating profit before tax of £62m (H1 2009: £74m). H1 2010 results benefited from an increase in management charge income and surplus income from higher assets under administration, as well as a release of reserves due to a review of annuity policy data and changes to reinsurance arrangements. H1 2009 results benefited from management actions to improve asset and liability matching, which decreased policyholder liabilities.

International

The international operations comprise our wholly owned long-term savings operations in Europe and Hong Kong along with the long-term savings joint ventures in India and China. These operations are now managed as a single international business.

The IFRS operating profit before tax of the wholly owned businesses increased to £28m (H1 2009: £9m), primarily due to an increase in profitability in Ireland and offshore bonds. The offshore bond and Ireland results improved due to increased management charge income and a reduction in operating costs. Germany recorded an operating profit of £23m (H1 2009: £26m).

The joint ventures in India and China contributed an IFRS operating loss of £20m (H1 2009: loss £17m) to the Group reflecting the continuing investment in developing the operations in these markets.

Global investment management

IFRS operating profit before tax increased to £49m (H1 2009: £27m), primarily due to a rise in revenue of 24% as a result of higher average market values and increased third party new business. In addition, lower interest expense following the repayment of an internal subordinated loan at the end of 2009 further contributed to the operating profit result.

Other

Group corporate centre costs increased to £30m (H1 2009: £25m) due to increased investment in the business, while other income remained broadly unchanged at £17m (H1 2009: £18m).

Please refer to Section 1.3 - Business segment performance for further detail on the IFRS operating results of our businesses.

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

	H1 2010	H1 2009¹	Movement
EEV operating profit before tax from continuing operations²	£364m	£328m	11%
Return on embedded value from continuing operations^2,3	8.0%	7.5%	0.5% points
Diluted EEV operating EPS from continuing operations^2,3,4	11.3p	10.4p	9%
EEV profit/(loss) before tax	£472m	(£44m)	1,173%
New business PVNBP⁵	£9,631m	£7,452m	29%
Internal rate of return	19%	16%	3% points
Undiscounted payback period⁶	5 years	6 years	1 year
EEV⁷	£6,799m	£6,435m	6%
EEV per share^7,8	302p	288p	5%

¹The results for the Hong Kong and joint venture businesses were prepared on an EEV basis for the first time at FY 2009. H1 2009 results include these on an IFRS basis.

² The Group's banking business, Standard Life Bank plc, was sold on 1 January 2010. On 11 May 2010, the Group entered into an agreement to sell its healthcare business, Standard Life Healthcare Limited. Both businesses have been classified as discontinued operations. Comparatives have been restated to reflect continuing operations only.

³Net of tax.

⁴Diluted EEV operating earnings per share (EPS) is based on the diluted weighted average number of shares of 2,235m (H1 2009: 2,185m) and the EEV operating profit after tax from continuing operations of £252m (H1 2009: £227m).

⁵Single premiums in India have been restated to reflect the reclassification of regular premiums to single premiums. The impact on PVNBP for the six months to

30 June 2009 is £1m.

⁶ From H1 2010 payback period is calculated on an undiscounted basis. Prior to this, the calculation was on a discounted basis. The H1 2009 comparative has been restated.

⁷Comparative shown as at 31 December 2009.

⁸EEV per share is based on the diluted closing number of shares of 2,253m (31 December 2009: 2,237m).

Please refer to Section 1.6 - Basis of preparation and Section 7 - Glossary.

EEV profit/(loss)

EEV profit before tax of £472m (H1 2009: loss £44m) includes an operating profit from continuing operations of £364m (H1 2009: £328m) and a non-operating profit from continuing operations of £128m (H1 2009: loss £417m). EEV loss from discontinued operations was £20m before tax (H1 2009: profit £45m). The equivalent after-tax results from continuing operations were £252m operating profit and £91m non-operating profit. EEV loss from discontinued operations was £17m after tax (H1 2009: profit £32m).

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 profit are given below.

EEV operating profit/(loss) before tax from continuing operations - 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 from continuing operations increased by 41% to £336m (H1 2009: £239m) and was driven by a 41% increase in NBC. Expected return from the Group's in-force business increased by 14% to £216m (H1 2009: £189m) and primarily reflects higher opening values of in-force business. The core result also consists of non-covered business which includes a 110% increase in EEV operating profits from our investment management business, where revenues during the period increased with higher average market values and strong net flows, and operating costs remain tightly controlled. Partially offsetting these movements was an increase in development costs attributed to the core business to £29m (H1 2009: £13m), as we continue to invest in the development of new propositions. For further detail see Section 1.3 - Business segment performance.

New business profitability				NBC £m		PVNBP margin %¹		IRR %		Undiscounted payback (years)²
	PVNBP £m			NBC £m		PVNBP margin %¹		IRR %		Undiscounted payback (years)²
		H1 2010	H1 2009	H1 2010	H1 2009	H1 2010	H1 2009	H1 2010	H1 2009	H1 2010	H1 2009
UK		6,930	5,246	103	92	1.5	1.8	20	20	5	5
Canada		1,581	1,352	31	18	2.0	1.3	19	14	7	7
International^3,4		1,120	854	27	4	2.5	0.8	17	7	5	10
Total		9,631	7,452	161	114	1.7	1.6	19	16	5	6

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

² From H1 2010 payback period is calculated on an undiscounted basis. Prior to this, the calculation was on a discounted basis. The H1 2009 comparative has been restated.

³ The results for the Hong Kong and joint venture businesses were prepared on an EEV basis for the first time at FY 2009. H1 2009 results include these on an IFRS basis. H1 2009 NBC, PVNBP margin, IRR and undiscounted payback reflect Europe only.

⁴ Single premiums for the India joint venture have been restated to reflect the reclassification of regular premiums to single premiums. The impact on PVNBP for the six months to 30 June 2009 is £1m.

New business profitability increased with a 41% improvement in NBC. This largely reflects higher sales volumes across the Group during the period compared to H1 2009. The total internal rate of return (IRR) for the Group was 19% (H1 2009: 16%) and the undiscounted payback period decreased to 5 years (H1 2009: 6 years).

Please refer to Section 1.3 - Business segment performance for further discussion of new business profitability by business segment.

Back book management	UK	Canada	International	HWPF TVOG	H1 2010 Total	H1 2009^* Total
	£m	£m	£m	£m	£m	£m
Lapses	(9)	-	3	-	(6)	(8)
Mortality and morbidity	2	11	2	-	15	13
Tax	(7)	2	(1)	-	(6)	21
Management actions to reduce market risk in UK and HWPF TVOG	-	-	-	-	-	89
Other	29	3	(1)	(3)	28	(21)
Back book management	15	16	3	(3)	31	94

^* The results for the Hong Kong and joint venture businesses were prepared on an EEV basis for the first time at FY 2009. H1 2009 results include these on an IFRS basis.

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 £31m (H1 2009: £94m). This was driven by management actions to reduce reserves on the UK legacy and annuity business and a review of annuity policy data in Canada. Persistency experience in the UK was adversely impacted by the change in the minimum retirement age during the period.

During the prior period, a number of management actions were taken to reduce market risk associated with the Heritage With Profits Fund (HWPF), which generated back book profits. A profit of £89m arose from the impact of asset allocations and hedging arrangements, which reduced the HWPF time value of options and guarantees (TVOG). In addition, the result for H1 2009 also included a £29m release of reserves following a review of the UK business deferred annuity data.

1.2 EEV - Group continued

Return on embedded value from continuing operations

Return on embedded value (RoEV) from continuing operations was 8.0% in H1 2010 compared to 7.5% in H1 2009. Core contributed 7.7% to total RoEV compared to 5.5% in H1 2009. This movement was primarily due to increased NBC which contributed 3.9% to RoEV (H1 2009: 2.7%) and expected return from existing business which contributed 5.0% (H1 2009: 3.5%).

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

Total EEV non-operating profit before tax from continuing operations was £128m in H1 2010 (H1 2009: loss £417m) and was mainly due to a positive investment variance of £314m (H1 2009: loss £477m), reflecting higher than expected market returns over the period, a decrease in the fair value of the subordinated debt liabilities and an increase in the market value of the assets backing the subordinated debt liabilities. This was partially offset by a £197m loss (H1 2009: profit £33m) from economic assumption changes in covered business, which primarily arose from the effect of lower projected investment returns.

Included within restructuring and corporate transaction costs is £11m (H1 2009: £24m) of costs incurred as part of our Continuous Improvement Programme. Volatility arising from adjustments for different accounting bases resulted in a gain of £29m (H1 2009: £61m).

Impact of UK Budget Changes announced on 22 June 2010

In the June Budget the UK Government announced its intention to reduce Corporation Tax from 28% to 24% in annual 1% steps by April 2014. In addition, it announced that the rate of Value Added Tax (VAT) would rise from 17.5% to 20% from 4 January 2011.

The stepped reductions in the Corporation Tax rate are likely to be enacted one year at a time. Our EEV results at June reflect best estimate assumptions of 27% Corporation Tax and 20% VAT, since these changes are included in the Finance (No. 2) Act 2010, given Royal Assent on 27 July 2010. The impact of the further stepped reductions in Corporation Tax rates to 24% from 1 April 2014 would be to increase the closing EEV by around £60m, equivalent to an increase in EEV per share of around 2.7p.

Group embedded value

Group embedded value increased to £6,799m (31 December 2009: £6,435m), with a total operating profit movement from continuing operations of £252m after tax, non-operating profits from continuing operations after tax of £91m and non-trading movements of positive £38m. Total loss after tax from discontinued operations was £17m. The operating profit and non-operating profit are explained in this section of the Business review. Non-trading movements included the £134m cash dividend paid to equity holders. Non-trading foreign exchange movements were positive £97m and actuarial gains of £82m after tax predominantly reflects the £100m after tax surplus of the UK pension scheme.

The closing EEV of £6,799m consists of £3,363m of net worth (free surplus and required capital) and £3,436m from the present value of in-force business (PVIF). The movement in total EEV of £364m consists of a movement in net worth of positive £312m and a movement in the PVIF of positive £52m.

The movements in EEV shareholder net assets are analysed in more detail in Section 1.4 - Capital and cash generation.

1.3 Business segment performance

1.3.1 UK

The UK business comprises long-term savings and investments. Focusing on delivering customer-centric propositions, it has a strong and diversified distribution network, which makes it well placed to grow assets under administration and generate sustainable profitable returns. In May 2010, we entered into an agreement to sell our healthcare business, Standard Life Healthcare Limited. The sale completed on 31 July 2010.

Long-term savings and investments

The UK long-term savings and investments business is one of the largest providers in the UK, offering solutions to both the retail and corporate long-term savings and benefits markets. The business offers a wide range of insurance and investment wrappers. In 2010, the business embarked on transforming its operations, investing in new customer-centric propositions, and increasing its speed to market.

Financial highlights

	H1 2010	H1 2009	Movement
Net flows	£1,635m	£135m	1,111%
Assets under administration¹	£108.8bn	£105.6bn	3%
New business PVNBP	£6,930m	£5,246m	32%
New business contribution	£103m	£92m	12%
Internal rate of return	20%	20%	-
Undiscounted payback period²	5 years	5 years	-
IFRS operating profit before tax	£76m	£80m	(5%)
EEV covered business operating profit before tax³	£205m	£267m	(23%)
EEV non-covered business operating loss before tax⁴	(£15m)	(£11m)	(36%)

¹ Comparative as at 31 December 2009.

²From H1 2010 payback period is calculated on an undiscounted basis. Prior to this, the calculation was on a discounted basis. The H1 2009 comparative has been restated.

³ Includes Heritage With Profits Fund time value of options and guarantees (HWPF TVOG).

⁴ Primarily includes UK defined benefit pension scheme charge and non-covered Wrap platform result.

Please refer to Section 1.6 - Basis of preparation and Section 7 - Glossary.

Net flows

Net inflows for the period increased by £1,500m to £1,635m (H1 2009: £135m).

Retail net outflows of £404m (H1 2009: net outflow £1,107m) were £703m lower than H1 2009, driven by strong self invested personal pension (SIPP) and mutual funds inflows. This was partly offset by increased outflows across all pension products mainly due to the change in the minimum age at which customers can take retirement benefits from 50 to 55, which came into force in April 2010. We experienced a decrease in outflows across pension products after the age change came into effect. Other retail net outflows of £865m (H1 2009: net outflow £1,568m) were 45% lower mainly due to lower investment bonds net outflows of £412m (H1 2009: net outflow £825m), with H1 2009 impacted by our decision not to renew bulk investment bond deals, which contributed £553m to net outflows. In addition, we also experienced lower legacy life net outflows of £466m (H1 2009: net outflow £761m).

Corporate net inflows of £2,039m (H1 2009: £1,242m) increased by 64%. Within this, corporate pension net inflows of £773m (H1 2009: £682m) were 13% higher than last year, with strong inflows from new scheme wins partially offset by an increase in outflows. Institutional pension sales continue to show strong growth in new and existing customer contributions, which resulted in net inflows more than doubling to £1,266m (H1 2009: £560m).

1.3 Business segment performance continued

1.3.1 UK continued

New business sales and profitability

	PVNBP £m¹		NBC £m		PVNBP margin %²		IRR %		Undiscounted payback (years)³
	H1 2010	H1 2009	H1 2010	H1 2009	H1 2010	H1 2009	H1 2010	H1 2009	H1 2010	H1 2009
Individual pensions⁴	2,173	1,829	14	14	0.7	0.7	11	11	7	7
Savings and Investments⁵	954	696	4	(4)	0.4	(0.6)	10	4	8	14
Annuities⁶	209	258	36	46	17.1	17.8	Infinite	Infinite	-	-
UK retail	3,337	2,785	54	56	1.6	2.0	21	24	5	5
Corporate pensions⁴	1,751	1,517	24	29	1.4	1.9	12	14	9	8
Institutional pensions	1,842	944	25	7	1.4	0.8	>40	>40	<3	<3
UK corporate	3,593	2,461	49	36	1.4	1.5	20	16	6	7
UK total	6,930	5,246	103	92	1.5	1.8	20	20	5	5

¹UK retail and UK total PVNBP includes protection of £1m (H1 2009: £2m).

² PVNBP margins are calculated as the ratio of new business to PVNBP and are based on the underlying unrounded numbers.

³From H1 2010 payback period is calculated on an undiscounted basis. Prior to this, the calculation was on a discounted basis. The H1 2009 comparative has been restated.

⁴ Retail TIP has been reclassified from corporate pensions to individual pensions. The impact of this was PVNBP £15m (H1 2009: £10m). There was no impact on NBC, IRR and undiscounted payback.

⁵ Includes mutual funds and investment bonds.

⁶ H1 2010 and H1 2009 undiscounted payback is immediate.

PVNBP sales within our retail business increased by 20% to £3,337m (H1 2009: £2,785m). Individual pensions, which includes individual SIPP and increments, increased by 19% to £2,173m (H1 2009: £1,829m). Within this, individual SIPP sales increased by 24% to £1,907m (H1 2009: £1,537m) driven by strong growth in customer accounts, increased activity around the tax year end, and higher average market values which increased incoming transfer values. Savings and investment sales grew by 37% to £954m (H1 2009: £696m) with mutual fund sales increasing by 59% to £863m (H1 2009: £542m), driven by a significant increase in sales through our Wrap platform. This was partly offset by investment bonds sales which decreased by 41% to £91m

(H1 2009: £154m).

Corporate sales grew by 46% to £3,593m (H1 2009: £2,461m). Within this, corporate pensions increased by 15% to £1,751m (H1 2009: £1,517m), driven by our success in winning new schemes, including the previously announced Logica scheme which contributed £148m to sales. The attractiveness of our institutional pension offering resulted in a 95% increase in sales to £1,842m (H1 2009: £944m), with significant contributions from both new and existing clients to Standard Life Investments global absolute return strategies products and fixed income funds.

New business contribution (NBC) increased to £103m (H1 2009: £92m), while the PVNBP margin fell to 1.5% (H1 2009: 1.8%). The IRR was maintained at 20% (H1 2009: 20%), while the payback period remained stable at 5 years (H1 2009: 5 years).

Margins on our individual pensions business remained in line with H1 2009, but were significantly higher compared with FY 2009. Savings and investment margins improved significantly, mainly as a result of relatively flat acquisition expenses and the strong growth in mutual fund sales, particularly on our Wrap platform. The lower annuity margin reflects a change in our pricing in response to market conditions. Institutional pensions margins have improved due to higher income on new business combined with relatively flat expenses, while the corporate pensions margin was adversely impacted by an increased allocation of acquisition expenses, partly reflecting investment in our propositions. Overall acquisition costs reduced as a percentage of PVNBP due to increased volumes.

Business development

Earlier in the year, we announced our intention to transform how we operate by investing significantly in our propositions and increasing our speed to market, making us more nimble and allowing us to respond quickly to customer growth opportunities. During the first half of 2010 we have made significant progress in moving towards these aims. We recently restructured the UK business, which includes the creation of a new Take to Market function. This brings our sales, distribution and marketing areas closer together, increasing our ability to respond quickly to customer needs by bringing propositions to market quicker. In addition, the creation of an operations function will ensure that all of our propositions and customers are supported by innovative technology, as well as excellent service.

In March 2010, we announced the purchase of the remaining 75% stake in the intermediary support services business, threesixty, having held a 25% stake since May 2007. This acquisition adds further depth to our propositions in the intermediary market and supports our long-term distribution capability. Since announcing this acquisition we have commenced work with threesixty to develop the business for the benefit of their independent financial adviser client firms.

Within our retail business, we successfully launched our Active Money Personal Pension in February 2010. This extends our reach in the individual pensions market, with a product which adapts to meet the changing needs of each customer. We also continued to see strong growth in our individual SIPP customer base during the first six months of the year, with the total number of customer accounts increasing by 14% to 95,800 compared to 83,900 as at 31 December 2009.

Assets under administration on our Wrap platform increased by 36% to £4.9bn (31 December 2009: £3.6bn), more than double the level of £2.3bn at 30 June 2009. During the period, we continued implementing enhancements to improve the user experience, and the number of advisers using the platform continued to grow strongly, with 727 advisers now using the platform compared to 583 at 31 December 2009. The number of customers also increased significantly with 45,500 customers now placing their assets on the platform compared to 31,600 at 31 December 2009. Further enhancements are planned for the remainder of 2010, and we expect sales and customer growth to continue.

Within our corporate business, we have made significant progress towards developing our propositions during the first half of the year. In April, we launched our enhanced trustee-based proposition which provides a flexible solution to meet trustee needs. In addition, we made good progress in the development of our employee wealth plan, which will offer a compelling proposition for employees and employers, combining corporate benefits and personal wealth in one place.

We also continued to offer innovative solutions for our customers, demonstrated by the Logica scheme win which offers a tailored savings and benefits package, and leverages the expertise of our subsidiary Vebnet in the employee benefits market. We believe the flexibility and sustainability of our corporate offering, combined with the development of our new innovative and customer-centric propositions, will allow us to build on our strong position in the UK corporate solutions market.

Performance

IFRS operating profit before tax

UK long-term savings and investments IFRS operating profit before tax was £76m (H1 2009: £80m). The result benefited from higher annual management charge income driven by growth in our assets under administration. Following management action the result also included a £26m reduction in reserves in relation to annuity and legacy business. This was partially offset by an £11m decrease in the annuity result, which included the impact of lower volumes following a change in our pricing in response to market conditions. In addition, operating costs were also higher in H1 2010 as a result of developing the business. Included within the H1 2009 result was a positive £29m release of reserves following the review of our deferred annuity data.

EEV operating profit before tax

UK EEV operating profit including HWPF TVOG and non-covered business decreased to £190m (H1 2009: £256m). Core profit of £181m (H1 2009: £165m) increased by £16m, mainly due to an £11m increase in NBC. Additionally, there has been an increase in the return on present value of in-force business due to both an increase in the opening embedded value and the risk discount rate. This was partially offset by an increase in core development spend to £17m (H1 2009: £9m) driven by investment in the development of our corporate and retail propositions.

The back book management profit of £12m (H1 2009: £93m) was largely as a result of management action taken to reduce reserves on our legacy and annuity book, partially offset by an increase in pension lapses. This was mainly driven by the 50 to 55 age change in April 2010, which resulted in an increase in surrender activity. The level of surrenders has subsequently reduced. The back book result last year benefited from a number of management actions taken to reduce market risk associated with the HWPF. This included an £89m profit from the impact of asset allocations and hedging arrangements, which reduced the HWPF TVOG. In addition, the H1 2009 result also included a £29m release of reserves following a review of our deferred annuity data.

Awards won during 2010

During H1 2010, our focus on providing customer-centric propositions remained one of our key strengths and was recognised through many awards which included:

· Professional Pensions Awards - Bundled Defined Contribution Provider of the Year

· Professional Adviser Awards - Best website for IFAs awarded to Adviserzone

· Financial Adviser Life & Pension Awards - SIPP and Income Drawdown Company of the Year

1.3 Business segment performance continued

1.3.1 UK continued

Healthcare

The healthcare business offers a comprehensive range of private medical insurance (PMI) and other health and well-being solutions. An agreement to sell Standard Life Healthcare Limited was announced in May 2010. The sale completed on 31 July 2010. For further information please refer to Note 3.16 - Events after the reporting period.

Financial highlights

	H1 2010	H1 2009	Movement
New business	£12m	£10m	20%
In-force premium income	£287m	£295m	(3%)
IFRS operating profit before tax	£11m	£5m	120%
Underwriting profit	£8m	£4m	100%
Return on equity after tax	16.8%	7.6%	9.2% points
Claims ratio	69.9%	70.9%	1.0% points

Please refer to Section 1.6 - Basis of preparation and Section 7 - Glossary.

New business

Overall new business sales increased by 20% to £12m (H1 2009: £10m) demonstrating the positive impact of distribution improvements. In-force premium income decreased slightly from 2009 levels due to the effect of increased lapse rates in certain segments of the business during late 2009 and early 2010.

Performance

IFRS operating profit before tax was £11m (H1 2009: £5m), before taking into account restructuring costs to deliver operational excellence. The increase in operating profitability was driven by continuing actions to reduce operating costs and also higher investment income.

Strong underwriting discipline and rigorous expense control saw the underwriting profit increase by 100% to £8m. The claims ratio was slightly lower than H1 2009.

1.3.2 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 continues to build client and distributor relationships, in addition to introducing innovative solutions to protect clients' assets.

Financial highlights

	H1 2010	H1 2009	Movement
Net flows	£92m	£139m	(34%)
Assets under administration¹	£22.9bn	£21.3bn	8%
New business PVNBP	£1,581m	£1,352m	17%
New business contribution	£31m	£18m	72%
Internal rate of return	19%	14%	5% points
Undiscounted payback period²	7 years	7 years	-
IFRS operating profit before tax	£62m	£74m	(16%)
EEV operating profit before tax	£123m	£89m	38%

¹ Comparative as at 31 December 2009.

²From H1 2010 payback period is calculated on an undiscounted basis. Prior to this, the calculation was on a discounted basis. The H1 2009 comparative has been restated.

Please refer to Section 1.6 - Basis of preparation and Section 7 - Glossary.

Net flows and new business sales

Net flows in our higher margin investment products, which include group and individual segregated funds and mutual funds, have increased by 27% in constant currency to £344m (2009: £241m), reflecting the strength of our savings and investments propositions. However, overall net flows have decreased by 42% in constant currency to £92m (H1 2009: £139m), reflecting higher claims and withdrawals, which have more than offset the strong growth in gross inflows and sales achieved across our retail and group insurance product lines. Overall outflows have increased due to higher asset values and a slight decline in mutual fund retention levels, driven by an increase in maturing contracts no longer subject to early redemption penalties. Total net flows excluding scheduled payments made in respect of non-core legacy annuity products, which are less actively marketed, decreased by 8% in constant currency to £359m (2009: £345m).

Overall sales increased by 4% in constant currency to £1,581m (H1 2009: £1,352m). Sales in our retail line, which includes individual insurance, savings and retirement and mutual funds, increased by 30% in constant currency to £500m (H1 2009: £342m). Investment funds sales increased 82% in constant currency, largely outpacing the market. Sales benefited from our well-positioned offering and strong adviser relationships in the segregated funds line and also benefited from the recovery in equity markets and a resultant improvement in customer sentiment in the first quarter of 2010. In group savings and retirement, sales in our core defined contribution offering, led to a strong growth in market share³ with close to two-thirds of sales comprising of recurring annual premiums. However, due to difficult market conditions, sales decreased by 24% in constant currency to £545m (H1 2009: £635m), with a large case win accounting for £225m. Overall group savings and retirement sales decreased by 8% in constant currency to £773m (H1 2009: £750m). Excluding large wins in both years, sales have decreased by 10% in constant currency, reflecting the typically uneven pattern of this product line and slower market activity in the mid-market segment. Group insurance sales increased by 6% in constant currency to £308m (H1 2009: £260m), making significant gains in a contracting market, due to the strength of an innovative disability offering, highlighted by a 34% increase in sales in that segment.

³ As at 31 March 2010, latest available data.

1.3 Business segment performance continued

1.3.2 Canada continued

New business profitability

New business contribution increased to £31m (H1 2009: £18m) and PVNBP margin improved to 2.0% (H1 2009: 1.3%), as a result of a more profitable sales mix, with higher sales of individual segregated funds and mutual funds. Internal rate of return increased to 19% (H1 2009: 14%), again primarily due to the change in sales mix, and the undiscounted payback period remained stable at 7 years.

Business development

In line with our strategy to position ourselves as a long-term savings and investments business, we have continued to focus on increasing our visibility in the market. In 2010, we launched the second phase of our advertising campaign and have seen a resultant strong progress in recall and awareness. In our group savings and retirement line, we have focused on expanding in the large case segments and continuing to build our core propositions. In the small market segment, we continue our evolution of the express product, launching web tools which support our advisers in their sales process. In our retail line we launched our new Corporate Class Mutual Fund series featuring tax-efficient funds, allowing non-registered investors to enjoy all the benefits of our traditional range of funds with an added layer of tax-efficiency. In our group insurance line, we are continuing to provide additional support to customers and improve our product offering.

Performance

IFRS operating profit before tax

Operating profit before tax amounted to £62m (H1 2009: £74m). H1 2010 results benefited from an increase in management charge income and surplus income from higher assets under administration, as well as a release of reserves of £20m due to a review of annuity policy data and changes to reinsurance arrangements. H1 2009 results benefited by £50m from management actions to improve asset and liability matching which decreased policyholder liabilities.

The business maintained its strong credit profile, with a mortgage portfolio average loan to value ratio of 46% (H1 2009: 44%), and experienced no credit losses during the period.

EEV operating profit before tax

EEV operating profit before tax increased by 23% in constant currency to £123m (H1 2009: £89m). The core element accounted for £109m (H1 2009: £85m), an increase of 14% in constant currency driven by an improvement in total expected return to £81m (H1 2009: £68m). NBC increased to £31m (H1 2009: £18m). The efficiency result amounted to a loss of £2m (H1 2009: loss £5m). Back book management delivered a profit of £16m (H1 2009: £9m), primarily due to a review of annuity policy data.

Awards won during 2010

Highlighting our success with connecting with customers, our group savings and retirement 'One key, countless possibilities' multimedia campaign has won the award for Best Financial Services Integrated Advertising.

1.3.3 International

International consists of four wholly owned businesses and two joint ventures. The wholly owned businesses comprise of Standard Life International Limited (offshore business based in Dublin), Standard Life Ireland, Standard Life Germany (operating in Germany and Austria) and Standard Life Asia (based in Hong Kong). The joint ventures are based in China and India. The international businesses offer high quality and customer-focused long-term savings and investments propositions.

Financial highlights - wholly owned

	H1 2010	H1 2009	Movement
Net flows	£592m	£392m	51%
Assets under administration¹	£9.6bn	£9.1bn	5%
New business PVNBP	£832m	£594m	40%
New business contribution²	£13m	£4m	225%
Internal rate of return²	12%	7%	5% points
Undiscounted payback period^2,3	7 years	10 years	3 years
IFRS operating profit before tax	£28m	£9m	211%
EEV covered business operating profit before tax²	£38m	£9m	322%
EEV non-covered business operating loss before tax	(£3m)	(£4m)	25%

Financial highlights - joint ventures (Standard Life's share)

	H1 2010	H1 2009	Movement
Net flows	£133m	£101m	32%
Assets under administration¹	£1.0bn	£0.8bn	25%
New business PVNBP⁴	£288m	£260m	11%
New business contribution²	£14m
Internal rate of return²	26%
Undiscounted payback period²	3 years
IFRS operating loss before tax	(£20m)	(£17m)	(18%)
EEV covered business operating profit before tax²	£10m

¹ Comparative as at 31 December 2009.

²The results for the Hong Kong and joint venture businesses were prepared on an EEV basis for the first time at FY 2009. H1 2009 results include these on an IFRS basis. H1 2009 NBC, IRR and undiscounted payback reflect Europe only.

³ From H1 2010 payback period is calculated on an undiscounted basis. Prior to this, the calculation was on a discounted basis. The H1 2009 comparative has been restated.

⁴ Single premiums in India have been restated by £5m to reflect the reclassification of regular premiums to single premiums. The impact on PVNBP for the six months to 30 June 2009 is £1m.

Please refer to Section 1.6 - Basis of preparation and Section 7 - Glossary.

Net flows and new business sales

Net flows of the wholly owned businesses increased by 56% in constant currency to £592m (H1 2009: £392m), primarily due to the strong growth of offshore new business and increased inflows from domestic business in Ireland.

In Ireland, domestic net inflows increased by 606% in constant currency to £70m (H1 2009: net outflow £15m) driven by reduced claims. Net flows of offshore bonds increased by 152% to £194m (H1 2009: £77m) due to significantly higher inflows from new business. Net flows in Germany were £317m (2009: £326m), a 1% increase in constant currency. Hong Kong's net flows started to gain momentum and increased by 254% in constant currency to £11m (H1 2009: £4m).

PVNBP sales within the wholly owned businesses increased by 43% in constant currency to £832m (H1 2009: £594m). In Ireland, domestic sales increased by 17% in constant currency to £224m (H1 2009: £199m), supported by the comprehensive choice and strength of our investment offering. In particular, the global absolute return strategies (GARS) products managed by Standard Life Investments continues to prove popular with both retail and institutional investors.

1.3 Business segment performance continued

1.3.3 International continued

Offshore bond sales were 86% higher at £321m (H1 2009: £173m), with a particularly strong increase in business via our Wrap platform.

In Germany, sales of £154m (H1 2009: £185m) were 14% lower than 2009 in constant currency. The market environment remains challenging for the whole industry, especially the IFA segment, which has led to a reduction in new business levels.

Hong Kong delivered exceptional performance and increased its market share during the period with PVNBP sales of £133m

(H1 2009: £37m) in the first half of 2010, up 266% in constant currency. Much of this success is due to the distribution of the unit linked savings product Harvest 101, supplemented by a comprehensive fund platform.

New business profitability

NBC in the wholly owned businesses increased to £13m (H1 2009: £4m) primarily due to cost efficiencies and higher sales volumes in the offshore bond business and Hong Kong. The Hong Kong business contributed £6m to NBC in H1 2010.

Business development

The international business remains focused on transforming the operations into a long-term savings and investments business. To achieve this, the Europe and Asia divisions will be combined and managed as a single international business. This integration will enable us to realise synergies in our businesses, improve efficiency and position the business to deliver future profitable growth whilst providing innovative solutions for customers and distributors.

The investment range of our products has been enhanced with the offering of the GARS products, which generated sales across various product lines in Germany, Austria, Ireland and the offshore business. In Germany and Ireland, we are taking steps to develop our corporate propositions. In Germany, we are strengthening our presence in the market through a change in our structure to allow our sales force to actively promote fund products from Standard Life Investments. In Ireland, we have undertaken a customer insight and market segmentation exercise. For the offshore business, we have strengthened our propositions with the addition of a number of discretionary fund managers, widening our distribution channel through strategic deals and increased engagement with the UK sales force.

By developing the Harvest 101 proposition, and focusing sales and marketing activity, Standard Life Asia is now recognised as a leading provider of long-term savings and investments products via financial intermediaries in the Hong Kong market and has grown its market share significantly.

All of these initiatives have strengthened the market presence in the territories that the international business is operating in, and have contributed to higher new business volumes and strong net flows.

Performance

IFRS operating profit before tax

IFRS operating profit before tax of the wholly owned businesses increased by 211% to £28m (H1 2009: £9m). Germany recorded a profit of £23m (H1 2009: £26m) and Ireland contributed a profit of £7m (H1 2009: loss £1m). The offshore bonds business recorded losses of £1m (H1 2009: loss £6m). In Germany, the fall in profitability of 10% in constant currency was primarily due to the decreasing transfer of profit to shareholders from the Heritage With Profits Fund in accordance with the Scheme of Demutualisation. This was partly offset by increasing profits from the post-demutualisation business. Profitability in Ireland and the offshore business benefited from increased management charge income and reduced operating costs. Hong Kong recorded a profit of £2m (H1 2009: loss £6m) due to strong sales growth and control of operating costs. The result also includes central costs relating to international development.

EEV operating profit before tax

EEV operating profit before tax of the wholly owned businesses, including non-covered business, increased to £35m (H1 2009: £5m). This increase is mainly driven by positive performance of persistency in Ireland and Germany and new business contribution for the offshore business increasing due to higher sales volumes. Lower development spend in Germany and the offshore business also contributed positively. The Hong Kong business results were prepared on an EEV basis for the first time in FY 2009 and contributed £7m to operating profit in H1 2010. H1 2009 results have not been restated and include the Asia businesses on an IFRS basis.

Joint Ventures - India and China

In China and India the focus is on delivering profitable growth whilst meeting customer requirements.

In India, PVNBP in H1 2010 was £233m (H1 2009: £204m) up 9% in constant currency on the comparative period. In China sales of £55m (H1 2009: £56m) decreased by 1% in constant currency, reflecting management's greater focus on profitability through increasing the proportion of regular premium business.

The joint ventures have contributed an IFRS operating loss of £20m (H1 2009: loss £17m) to the Group, reflecting our continuing commitment to invest in the development of the joint venture operations in the region.

EEV covered business operating profit before tax in H1 2010 for the joint ventures was £10m. The results of the joint venture businesses were prepared on an EEV basis for the first time in FY 2009 and H1 2009 results have not been restated. Strong NBC of £14m was driven by an increase in PVNBP of 7% in constant currency which resulted in a PVNBP margin of 5.0%.

Indian regulatory changes impacting unit linked business will be implemented from 1 September 2010 and are expected to have an adverse impact on margins across the whole industry during the second half of 2010.

Awards won during 2010

International client service during the period has been recognised by a number of awards, including:

· Germany - Standard Life Germany regained 1st place in the MLP annual service awards

· Austria - awarded with 4 stars in the Assekuranz Awards 2010. This award is offered by the ÖVM, an association of Austrian IFAs, every two years

· India - Children's plan YoungStar Super was voted 'Product of the year 2010' in the Insurance category by more than 30,000 consumers nationwide across 36 markets

· Offshore business - awarded Best International Life Product (UK) and Best Service Initiative for our online trading proposition at the International Fund and Product Awards

1.3 Business segment performance continued

1.3.4 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 12 years since its inception, Standard Life Investments has delivered a strong track record of profitable organic growth, a trend which continued during the first half of 2010, despite the challenging market conditions.

Financial highlights

	H1 2010	H1 2009	Movement
Third party assets under management (AUM)¹	£63.0bn	£56.9bn	11%
Total assets under management¹	£143.0bn	£138.7bn	3%
Third party gross inflows	£7,341m	£5,210m	41%
Third party net inflows	£4,745m	£3,113m	52%
Earnings before interest and tax (EBIT)	£49m	£30m	63%
IFRS operating profit before tax	£49m	£27m	81%
EBIT margin	32%	24%	8% points

¹ Comparative as at 31 December 2009.

Please refer to Section 1.6 - Basis of preparation and Section 7 - Glossary.

Standard Life Investments delivered a strong performance in H1 2010, against the continuing background of volatile and dislocated markets. The sales momentum of past periods was maintained with strong inflows of both institutional and retail business resulting in a 52% increase in third party net inflows, driving third party AUM to a record level of £63.0bn (31 December 2009: £56.9bn). The increase in new business flows, together with a rise in average market values, delivered EBIT of £49m (H1 2009: £30m) and an 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 demonstrates that Standard Life Investments can prosper in difficult conditions and is in good shape to benefit from a return to stability as and when it comes.

Financial market overview

Despite the financial crisis continuing to weigh heavily on the global economy in H1 2010, average market values in H1 2010 are substantially higher than in H1 2009. The average daily FTSE All-Share Index, for example, rose 32% between the two periods and this, combined with rises in other major world markets, has led to an increase in asset management revenues. We continue to maintain strong third party sales momentum across both institutional and retail customer segments.

Investment performance

Investment performance was robust during H1 2010 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 above median for our third party business, and is upper quartile over 10 years. 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 (21 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 SICAV funds in continental Europe.

During the first half of 2010 Standard Life Investments also extended its range of alternative assets through the acquisition of a 75.1% stake in Aida Capital, a London-based FSA registered fund of hedge funds manager with a solid track record of superior performance.

Net flows

Standard Life Investments achieved third party net inflows of £4,745m (H1 2009: £3,113m), a 52% increase over the equivalent period last year and representing 17% of opening third party AUM on an annualised basis.UK mutual funds rose significantly to £713m (H1 2009: £313m) and a notable number of new institutional clients were won in the UK and Europe during the period, increasing the institutional client base in these markets by 9%.

Strong inflows across our UK and international markets, and the recovery in market levels during H1 2010, drove an 11% increase in third party AUM to a record level of £63.0bn (31 December 2009: £56.9bn). Third party AUM now represents 44% of total AUM compared with 41% at 31 December 2009. In-house AUM decreased slightly to £80.0bn (31 December 2009: £81.8bn) with favourable market movements offset by outflows from the with profits business and from the sale of Standard Life Bank. As a result, total assets managed by Standard Life Investments stood at £143.0bn (31 December 2009: £138.7bn).

Performance

EBIT was strong in the period at £49m (H1 2009: £30m). Revenue increased by 24% as a result of a rise in average market values and increased third party new business flows, many of which were into higher margin products such as GARS. Operating costs remain tightly controlled whilst allowing for continued investment in the business to sustain our longer-term growth. These measures resulted in an EBIT margin of 32% (H1 2009: 24%) for the period.

IFRS operating profit before tax, which excludes all restructuring costs, was £49m (H1 2009: £27m). In addition to the movement in EBIT explained above, the increase was due to lower interest expense following the repayment in full of a subordinated loan of £30m at the end of 2009. IFRS profit before tax was £48m (H1 2009: £19m).

Awards won during 2010

Strong investment performance and client service during the period have been recognised by awards, including:

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

· Best Fund, Equity Global High UK Category - Lipper Awards

1.4 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

	H1 2010	FY 2009	Movement
EEV operating profit capital and cash generation from continuing operations^1,2,3	£149m	£172m	(13%)
Group capital surplus⁴	£3.5bn	£3.6bn	(3%)
Group solvency cover⁴	217%	230%	(13% points)
Realistic working capital: Heritage With Profits Fund	£0.5bn	£0.6bn	(17%)
EEV	£6,799m	£6,435m	6%
IFRS equity attributable to equity holders of Standard Life plc	£3,642m	£3,457m	5%

¹ The results for the Hong Kong and joint venture businesses were prepared on an EEV basis for the first time at FY 2009. H1 2009 results include these on an IFRS basis.

² Net of tax.

³ Comparative shown as at 30 June 2009.

⁴ H1 2010 based on estimated regulatory returns. FY 2009 based on final regulatory returns.

Please refer to Section 1.6 - Basis of preparation and Section 7 - Glossary.

Group EEV capital and cash generation

		H1 2010			H1 2009
	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	313	(13)	300	257	(11)	246
New business strain	(132)	23	(109)	(96)	24	(72)
Covered business capital and cash generation from new business and expected return	181	10	191	161	13	174
Covered business development expenses	(21)	-	(21)	(9)	-	(9)
Non-covered business core, capital and cash generation	(10)	-	(10)	(14)	-	(14)
Core	150	10	160	138	13	151
Efficiency	(7)	-	(7)	(8)	-	(8)
Back book management	15	(19)	(4)	26	3	29
EEV operating profit capital and cash generation from continuing operations	158	(9)	149	156	16	172
Capital and cash generation from non-operating items	150	15	165	(156)	1	(155)
Total EEV capital and cash generation from continuing operations	308	6	314	-	17	17
Capital and cash generation from discontinued operations	(17)	-	(17)	32	-	32
Total EEV capital and cash generation	291	6	297	32	17	49
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 consolidated 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.

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. The NBS margin was 1.1% (H1 2009: 1.0%). Excluding the Hong Kong and joint venture businesses, the NBS margin has fallen to 0.8%. Our covered business capital and cash flows from new business and expected return have increased to £191m (H1 2009: £174m). This was due to an increase in the expected return from existing business, partially offset by an increase in total NBS primarily as a result of higher sales volumes. NBS is covered almost three times by capital and cash flows from existing business.

We remain committed to our strategy of investing in capital-efficient products which deliver high capital returns and fast recovery of investment. The total internal rate of return for new business was 19% (H1 2009: 16%). Please refer to Section 1.2 - EEV - Group for further analysis of new business profitability.

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. In overall terms, our EEV operating profit capital and cash generation from continuing operations has decreased to £149m (H1 2009: £172m). Capital and cash generation from back book of negative £4m was largely driven by negative net worth tax and pension scheme variances which were partially offset by management actions to reduce reserves in the UK and Canada.

Core was the main contributor to our operating capital and cash generation during the period at £160m (H1 2009: £151m). This primarily reflects increased capital and cash generation from new business and expected return, partially offset by higher development expenses.

Non-operating capital and cash generation from continuing operations of positive £165m (H1 2009: negative £155m) is driven by higher than expected market returns over the period, a decrease in the fair value of the UK subordinated debt liabilities and an increase in the market value of assets backing the subordinated debt liabilities.

1.4 Capital and cash generation continued

Reconciliation of IFRS operating profit to EEV operating capital and cash generation (EEV operating net worth profit after tax)

As highlighted in Section 1.1 - IFRS - Group, we are adopting IFRS operating profit as our main IFRS performance measure in place of IFRS underlying profit. We believe IFRS operating profit will provide users with a better understanding of our long-term performance and, as with EEV operating capital and cash generation, IFRS operating profit removes the impact of short-term economic volatility. However, there are differences between the IFRS and EEV operating profit capital and cash generation results, which include:

· The effect of differences in the treatment of assets and liabilities. EEV capital and cash is more consistent with local statutory valuation bases, which for some territories and certain classes of investment liabilities are restated for IFRS reporting

· Different methodologies in respect of expected income, particularly for covered business where fees are levied as a percentage of funds which in EEV operating profit are on an expected return basis whereas the actual fees are included in IFRS operating profit, and

· Different treatment of deferred acquisition costs/ deferred income recognition, intangibles and tax.

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.

	H1 2010	H1 2009	FY 2009
	£m	£m	£m
Opening capital 1 January	602	623	623
Dividends received from subsidiaries	223	165	190
Additional investments in subsidiaries	(47)	(7)	(20)
Group corporate centre costs	(30)	(25)	(50)
Cash dividends paid to shareholders	(134)	(110)	(158)
Other	(20)	4	17
Closing capital	594	650	602

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 H1 2010, capital decreased by £8m, primarily as a result of the cash dividends paid to shareholders and additional investment in subsidiaries. This was partially offset by increased dividends received from subsidiaries. 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 period, the Group paid the final dividend for 2009 of 8.09p per share, amounting to £180m in total. In 2009, the previous dividend reinvestment plan (DRIP) was discontinued and a new Scrip dividend scheme introduced, which has reduced the capital required to pay the 2009 final dividend from £180m to £134m. The Board proposes an interim dividend of 4.35p per share, (H1 2009: 4.15p). This represents an increase of 4.8%, reflecting the solid progress made during the period. 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.

Group capital surplus
	H1 2010	H1 2009	FY 2009
	£bn	£bn	£bn
Shareholders' capital resources	2.7	2.3	2.7
Capital resources arising from subordinated debt	1.8	2.1	2.1
SLAL long-term business funds	2.0	1.4	1.6
Group capital resources	6.5	5.8	6.4
Group capital resource requirement	(3.0)	(2.7)	(2.8)
Group capital surplus	3.5	3.1	3.6
Group solvency cover	217%	217%	230%

H1 2010 and H1 2009 figures above based on estimated regulatory returns. FY 2009 based on final regulatory returns. The H1 2010 figures have been prepared on an IGD basis, previous periods on a Financial Groups Directive (FGD) basis.

Following the sale of Standard Life Bank plc on 1 January 2010 the Group is now classified as an 'insurance group' as defined by the Insurance Groups Directive (IGD). In 2010, the Group capital surplus remained robust, decreasing by only £0.1bn to £3.5bn. The Group capital resources remained broadly in line with the 2009 closing position, despite ongoing investment in the business. The quality of capital within the Group remains strong, with only £0.5bn (31 December 2009: £0.8bn) and £0.6bn (31 December 2009: £0.7bn) of total Group capital resources classified as upper tier 2 and lower tier 2 respectively. Lower tier 2 capital contributes only 17% (31 December 2009: 19%) to the Group capital surplus and further illustrates the strength of our capital position.

The IGD surplus remains largely insensitive to a further 30% fall in equities from the 30 June 2010 position, with the surplus estimated to reduce by approximately £0.2bn. A 100bps rise in yields is estimated to reduce the surplus by approximately £0.2bn.

Analysis of movement in Group capital surplus

The following table illustrates the key movements in the regulatory capital surplus for the period ended 30 June 2010:

	H1 2010	H1 2009	FY 2009
	£bn	£bn	£bn
Opening capital surplus	3.6	3.5	3.5
Movement in capital resources of long-term business funds	0.4	(0.3)	-
Movement in capital resource requirements of long-term business funds	(0.4)	0.1	-
Net movement in capital position of long-term business funds	-	(0.2)	-
Movement in capital resources of shareholder funds:
New business	(0.1)	(0.1)	(0.1)
Transfers from HWPF to shareholder funds	0.1	0.1	0.3
Dividend payments	(0.1)	(0.1)	(0.2)
Other factors	(0.2)	(0.3)	(0.1)
Movement in capital resource requirements of shareholder funds	0.2	0.2	0.2
Closing capital surplus	3.5	3.1	3.6

H1 2010 and H1 2009 figures above based on estimated regulatory returns. FY 2009 based on final regulatory returns.

1.4 Capital and cash generation continued

The significant factors affecting the capital surplus during the period ended 30 June 2010 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 period

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 IGD limits the amount that can be recognised to the level of the capital resources requirement for that fund. This resulted in a restriction of £1.3bn (31 December 2009: £0.1bn) and a net zero contribution to the Group capital surplus. In addition, at 31 December 2009, capital resources amounting to £0.6bn within the shareholder fund were excluded from the Group capital surplus in order to remove capital which arose 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 increased due to the net effect of a number of factors including investment surplus, less the costs of writing new business, the costs of paying regular and final bonuses and the payment of dividends. This has led to an increase in solvency cover to 269% (31 December 2009: 259%). The capital resources of SLAL include the residual estate of approximately £0.5bn, a decrease of £0.1bn from the level at 31 December 2009. This decrease is largely due to current market conditions including lower gilt yields and higher equity volatility, which have resulted in an increase to the cost of guarantees. 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

	H1 2010	H1 2009	FY 2009
	£m	£m	£m
Recourse cash flows arising on UK and Irish unitised contracts	109	81	191
Recourse cash flows arising on UK and Irish non-unitised contracts	(5)	24	65
Additional expenses charged on German unitised with-profit contracts	9	13	25
Amount arising under a contingent loan agreement	-	-	588
Transfer out of HWPF	113	118	869

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 increased to £109m (H1 2009: £81m), primarily due to increased management charge income on a higher average asset base. The reduction in the recourse cash flows arising on UK and Irish non-unitised contracts reflects the release of reserves in H1 2009 following the review of deferred annuity data.

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 was not reflected in the capital surplus or IFRS equity at 31 December 2009, 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. Subsequently as recourse cash flows emerge, the contingent loan and the limited recourse loan are repaid and this is reflected in the capital surplus and IFRS equity.

Reconciliation of key capital measures

The following diagram illustrates the key differences between regulatory, IFRS and EEV capital measures at 30 June 2010:

The Group's capital, as measured by the IGD, 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 £1.8bn at 30 June 2010, which is used to provide capital support to SLAL

· A restricted amount of policyholder capital of £2.0bn at 30 June 2010, 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 £0.9bn.

Similarly, EEV recognises certain valuation adjustments to give the EEV net worth, resulting in an equivalent adjustment of negative £0.2bn 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 £3.8bn to give the total EEV of £6.8bn at 30 June 2010.

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 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 has robust plans in place to ensure that it has access to sufficient liquidity to meet all operating requirements.

1.4 Capital and cash generation continued

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. Shareholders are also exposed to debt securities in Canadian non-segregated funds.

There were no defaults within these portfolios during H1 2010 and the average yield deduction to allow for future defaults within the valuation of liabilities has been broadly maintained at 31 December 2009 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 £5.4bn or 3.0% (31 December 2009: £5.1bn or 3.0%) of Group assets under administration. These are predominantly UK securities. Of the total of £5.4bn, £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

Shareholder exposure to equity and investment property remains low and following the disposal of Standard Life Bank plc, exposure to loans and receivables has fallen significantly. Please refer to Note 6.3 - Exposure to investment property and financial assets for further information in respect of shareholder asset exposures.

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 Annual Report and Accounts 2009.

1.5 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 (ERM) framework that enables the risks of the Group to be identified, assessed, controlled and monitored consistently, objectively and holistically.

During the first half of 2010 we have established a Group Board level Risk and Capital Committee in line with the Walker Review recommendations. The Committee serves to provide the Board with advice, oversight and challenge of:

· The impact of risk strategy and material risk exposures on capital

· The structure and suitability of the Group's ERM framework

· Material actuarial, risk and capital matters affecting the Group

The Group's principal risks as reported in the Annual Report and Accounts 2009 are still relevant and are summarised below:

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.

Equity and property

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.

Fixed interest

Shareholder exposure to fixed interest risk arises as a result of the values of assets and liabilities changing by different amounts following changes in interest rates. The impact of changes in interest rates can vary according to the financial metric being used.

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. 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.

1.5 Risk management continued

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.

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.

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.

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 to be low.

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.

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.

1.6 Basis of preparation

Overview

Our Business review for the period to 30 June 2010 has been prepared in line with the Disclosure and Transparency Rules (DTR) issued by the Financial Services Authority (FSA). The DTR incorporates the requirement of the EU Transparency Directive for all UK listed companies to report their half year results in accordance with IAS 34 Interim Financial Reporting. Under DTR 4.2.7, the Group is required to provide at least an indication of important events that have occurred during the first six months of the financial year, and their impact on the financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year. Principal risks are detailed in Section 1.5 - Risk management and Note 39 of the Group's Annual Report and Accounts 2009. Under DTR 4.2.8 we are also required to make certain related party disclosures. These are contained in Note 3.13 to the IFRS financial information. 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 IFRS operating profit and European Embedded Value (EEV) information. 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 consolidated financial statements in Section 3 of this report.

IFRS and EEV reporting

The financial results are prepared on both an IFRS basis and an EEV 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 IFRS financial results in Section 1.1 of the Business review, and in Section 3 have been prepared on the basis of the IFRS accounting policies applied by the Group in the IFRS consolidated financial statements section of the Annual Report and Accounts 2009 as amended for new standards effective from 1 January 2010, as described in Note 3.1. 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 Section 4 have been prepared in accordance with the EEV methodology applied by the Group in Note 4.16 for H1 2010, and in the relevant EEV methodology notes included in the Interim Results 2009 and Annual Report and Accounts 2009 in respect of the comparative periods.

IFRS operating and EEV operating profit

The H1 2010 IFRS reconciliation of consolidated operating profit to profit for the period, presented in Section 3, presents profit before tax attributable to equity holders adjusted for non-operating items. The H1 2010 EEV consolidated income statement in Section 4, 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 IFRS and EEV bases

IFRS

EEV

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 period adjusted for the amortisation of deferred acquisition costs.

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.

Forward-looking statements

This document may contain 'forward-looking statements' about certain of the Standard Life Group's current plans, goals and expectations relating to future financial conditions, performance, results, strategy and objectives. Statements containing the words: 'believes', 'intends', 'targets', 'estimates', 'expects', 'plans', 'seeks' and 'anticipates' and any other words of similar meaning are forward-looking. By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances which may be beyond the Group's control. As a result, the Group's actual financial condition, performance and results may differ materially from the plans, goals and expectations set out in the forward-looking statements, and persons receiving this document should not place undue reliance on forward-looking statements. The Standard Life Group undertakes no obligation to update any of the forward-looking statements in this document or any other forward-looking statements it may make.

This information is provided by RNS

The company news service from the London Stock Exchange

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