Half Yearly Report - Part 1 o

RNS Number : 8972W

Standard Life plc

05 August 2009

Standard Life plc

Interim Results 2009

5 August 2009

Ongoing resilience in volatile market conditions

Cash flow and capital position robust

-	Core capital and cash generation after tax of £167m (2008: £143m)
-	Financial Groups Directive surplus of £3.1bn (31 December 2008: £3.3bn)[1]
-	Interim dividend of 4.15p, representing 2.0% growth

Positive net flows

-	Positive net flows of £2.1bn across the Group (2008: £3.3bn)
-	Life and pension PVNBP sales of £7.5bn (2008: £9.1bn)[2]

Profits impacted by lower financial market levels

-	EEV operating profit before tax of £348m (2008: £534m)
-	IFRS loss after tax attributable to equity holders of £20m (2008: profit £161m)

Strong progress made towards second phase efficiency target

-	On track to meet £75m annual efficiency savings target by the end of 2010 - £26m achieved to date

Group Chief Executive Sir Sandy Crombie said:

'The recession has had an inevitable impact on our performance in the first half of 2009. However, today's results highlight Standard Life's robust business model and the ongoing resilience of our balance sheet.

'I am particularly pleased with the continued strength of our UK group pensions offering and by Standard Life Investments, where we have achieved good worldwide third party investments net inflows, despite a backdrop of industry slowdown and continuing market volatility. In addition, I am encouraged by the progress that has been made in our Canadian retail product lines following the repositioning of the business.

'We have announced healthy capital and cash generation and have made good progress towards our efficiency target. We have maintained a strong capital position and this enables us to develop the business by investing in our key growth areas.

'With our strong solvency position, proven capital-lite strategy and diversified business offering, I am confident that Standard Life is well positioned.'

Unless otherwise stated, all comparisons are in Sterling and are with the six months ended 30 June 2008.

EEV operating profit		H1 2009 £m	H1 2008 £m
Covered business by region
UK		178	402
Canada		89	79
Europe		15	27
Asia		(25)	(16)
HWPF TVOG		89	8
Covered business operating profit		346	500
Covered business by source
New business contribution		114	157
Contribution from in-force business
expected return on existing business		189	218
experience variances		93	22
operating assumption changes		-	120
Other covered		(50)	(17)
Covered business operating profit		346	500

Non-covered business
Global investment management		10	31
UK		9	3
Group corporate centre costs		(25)	(25)
Other		8	25
Non-covered business operating profit		2	34

Operating profit before tax		348	534

Tax on operating profit		(105)	(157)

Operating profit after tax		243	377

(Loss)/profit after tax		(48)	7

Diluted EEV operating EPS		11.1p	17.3p
IFRS underlying profit	H1 2009 £m		H1 2008 £m
UK	56		249
Canada	(10)		66
Europe	21		16
Asia	(25)		(16)
Global investment management	21		25
Other	(16)		5
Underlying profit before tax	47		345

Tax on underlying profit	(22)		(45)

Underlying profit after tax	25		300

(Loss)/profit attributable to equity holders after tax	(20)		161

Diluted IFRS underlying EPS	1.1p		13.8p

For more information please refer to the Basis of preparation in Sections 1.9 and 4.1 and the IFRS pro forma reconciliation of Group underlying profit to IFRS profit for the period in Section 4 of the Interim Results 2009.

Ongoing resilience in volatile market conditions

Standard Life has delivered a resilient performance against a backdrop of continued challenging market conditions.

Our conservative balance sheet structure and capital-lite approach to writing new business have enabled us to maintain a robust capital surplus and generate strong cash flows during the first half of the year. Against this, market levels have had an inevitable impact on reported sales levels and profitability measured on EEV and IFRS bases.

Standard Life benefits from a diverse product offering across the Group, which is well-suited to meet customers' changing needs in both recessionary and recovery market conditions. This has been reflected in our continued ability to attract net inflows into the Group despite the challenging market backdrop.

Assets under administration

Standard Life is an asset managing business and net flows and assets under administration (AUA) are key drivers of shareholder value. AUA are gross assets that the Group administers for customers, including both those managed by the Group and those placed with third party managers. At the end of June 2009 the Group had total AUA of £156.5bn
(31 December 2008: £156.8bn).

Positive net flows of £2.1bn across the Group included life and pensions net inflows of £0.7bn[3] and third party investment management net inflows of £3.1bn. Consolidation adjustments[4] reduced net flows by £0.8bn. We have continued to manage our mortgage exposure within our banking operation during the ongoing period of difficult credit market conditions, with a reduction in gross mortgages under management to £8.8bn (31 December 2008: £9.7bn) reflected in a net outflow of £0.9bn.

Market and other movements reduced AUA by £2.4bn. This equates to 2% of opening assets under administration and is in line with the reduction in equity markets over the same period.

Worldwide life and pensions operations

Net inflows across our worldwide life and pensions operations[3] were lower at £662m (2008: £1,842m). This is due to our previously announced decision not to renew UK bulk investment bond deals written in 2008 at relatively lower margins, which generated net inflows of £598m in the first half of 2008 and led to net outflows of £553m during the first half of 2009. Excluding these bond deals, worldwide net inflows amounted to £1,215m (2008: £1,244m).

Worldwide life and pension sales were 18% lower at £7.5bn (2008: £9.1bn)[2]. Sales in the second quarter of £3.9bn, while 15% lower than the strong prior year comparator, were at the highest level for four quarters, driven by strong sales in UK group pensions and Canada.

UK financial services

Within our UK life and pensions business we experienced net inflows of £135m (2008: £1,041m) and a 24% reduction in new business sales to £5.2bn (2008: £6.9bn). These reductions reflect lower incoming transfer values into our pension product lines and our decision not to renew bulk investment bond deals as noted above. In addition, and as previously highlighted in our Q1 2009 Interim Management Statement, activity levels at the start of the year were temporarily impacted by the revaluation of the Pension Sterling Fund.

We continue to see strong growth in our Individual SIPP customer base, the total number of accounts increasing by 13% to 74,700 during the period (31 December 2008: 65,900). Lower net inflows of £959m (2008: £1,435m), and a 26% reduction in new business sales to £1,537m (2008: £2,074m) reflect the impact of market movements on average incoming transfer values, which continue to represent the majority of new business. SIPP assets under administration have increased by 12% to £9.7bn[5] (31 December 2008: £8.7bn). Across our SIPP portfolio the average case size was £130,000 (31 December 2008: £131,000).

UK group pensions assets under administration have increased by 2% to £14.7bn (31 December 2008: £14.4bn)[6]. Lower net inflows of £671m (2008: £885m) and a 15% reduction in new business sales to £1,527m (2008: £1,803m) reflect lower asset values as well as reduced increment levels. During the second quarter, regular premium new business benefited from contributions received in respect of the BT scheme (£347m PVNBP), the largest trust based defined contribution scheme to tender in Europe, which was highlighted in our Q4 2008 Interim Management Statement. We expect to receive single premium transfer amounts relating to this scheme later in the year. Group SIPP volumes increased by 61% and accounted for 54% of total group pensions sales (2008: 28%). While market conditions remain challenging, the quality and flexibility of our evolving and award winning proposition to the corporate market, combined with the financial strength of the Group, continue to act as key differentiators and enable us to win new business in our chosen markets. The number of new schemes won during the first half of 2009 was 216 (2008: 248), our pipeline is good and current levels of tender activity remain strong.

As disclosed in our Q1 2009 Interim Management Statement, our decision not to renew bulk deals with large institutional distributors at lower margins has had a material impact on investment bond sales of £154m (2008: £1,025m) and net outflows of £825m (2008: net inflow £273m). Excluding these bulk deals, investment bond sales were £417m in the first half of 2008, with adjusted net outflows reducing from £325m in 2008 to £272m in 2009. Mutual funds sold on our Wrap, Sigma and Fundzone platforms continue to perform well, increasing by 49% to £542m (2008: £364m) with net inflows increasing to £336m (2008: £160m).

Assets under administration on our Wrap platform increased by 35% to £2.3bn (31 December 2008: £1.7bn)[7]. At
30 June 2009 there were 484 IFA firms using the platform (31 December 2008: 409 firms) and 23,000 customers
(31 December 2008: 16,900 customers) with an average fund size of £101,000 (31 December 2008: £101,000). We continue to see strong momentum in our Wrap offering, with a strong pipeline of IFA firms in the process of adopting the platform.

A number of endowment policies that were written during the early 1980s reached maturity during the first half of the year. This has led to a net outflow of £761m (2008: net outflow £785m) in respect of pre-demutualisation life products. While we expect this trend to continue in the short term, the vast majority of these products are conventional with profits contracts, which generate minimal shareholder margin.

Claims levels across our UK life and pensions operations remain broadly in line with assumptions, with reduced claims in respect of individual pensions leading to a reduced net outflow from this product line.

Savings balances in our banking operations have increased to £5.5bn (31 December 2008: £5.0bn). This total includes combined SIPP and Wrap balances of £1.8bn (31 December 2008: £1.5bn). Savings inflows were experienced across the product range, with ISAs and business accounts performing well during the first half of 2009.

Consistent with our strategy to manage our mortgage exposure during the ongoing period of difficult credit market conditions, gross mortgage lending decreased by 80% to £143m (2008: £728m). Mortgages under management stood at £8.8bn (31 December 2008: £9.7bn), with an arrears rate of 0.68%, which is approximately a quarter of the Council of Mortgage Lenders industry average of 2.61% reported at 31 March 2009. The average indexed loan to value ratio increased slightly to 48% (31 December 2008: 46%).

Healthcare sales were 29% lower at £10m (2008: £14m) on an APE basis.

Europe

In Europe, net inflows were 28% lower in constant currency at £388m (2008: £497m)[8] and sales were 27% lower in constant currency at £557m (2008: £689m)[8].

In Ireland, total sales of £372m (2008: £427m)[8] were 18% lower in constant currency. Domestic sales in Ireland have increased by 8% in constant currency, driven by increased sales of post-retirement products during the second quarter ahead of planned changes to tax legislation. Offshore bond sales were 36% lower at £173m (2008: £270m) due to the impact of the weak economy.

Sales in Germany of £185m (2008: £262m) were 39% lower than the prior year in constant currency. This largely reflects weak consumer confidence, coupled with a preference for the more familiar domestic players during the current period of economic uncertainty.

Canada

Canadian net inflows of £139m (2008: £304m) reflect lower inflows across group savings and retirement products.

Canadian sales were 2% higher in constant currency at £1,352m (2008: £1,201m). Group savings and retirement sales of £750m benefited from a number of mid-sized mandates secured in the first few months of the period but were 11% lower in constant currency than the prior year figure which was distorted by a large defined benefit administration mandate secured in the second quarter. Within the Group savings and retirement total, defined contribution sales increased by 41% in constant currency to £635m (2008: £408m).

Individual insurance, savings and retirement new business has increased by 21% in constant currency to £240m (2008: £180m) with strong growth achieved in the second quarter in spite of a challenging Canadian retail market, which has been reflected in lower sales of mutual funds. Group insurance new business has also increased by 92% in constant currency to £260m (2008: £123m). This increase is due to changes to renewal assumptions, which were made as part of the year end process and were reflected in our 2008 Preliminary Results.

Asia

Combined sales across our Indian and Chinese joint ventures and our Hong Kong operation were 6% higher in constant currency at £296m (2008: £240m)[9].

There are continuing challenges in both India and China life insurance sectors with the economic slowdown and volatility in the equity markets impacting customer activity.

Against this backdrop, sales in constant currency increased by 2% in India. Standard Life's share of these sales was £203m (2008: £180m)[9]. In China, sales volumes decreased by 1% in constant currency. Standard Life's share of these sales was £56m (2008: £42m).

Hong Kong has continued to enjoy strong growth, primarily due to the success of its new unit-linked savings product, with new business sales in constant currency increasing by 56% to £37m (2008: £18m).

Global investment management

Despite volatile markets Standard Life Investments achieved worldwide third party net inflows of £3.1bn (2008: £2.7bn), £2.4bn of which relates to investment products only, representing a 17% increase over the equivalent period last year and an annualised 14% of opening third party assets under management. Nearly 80% of the new net inflows came from outside the UK as Standard Life Investments expands its global presence. 58 new institutional clients have been won in the UK and Europe during the first six months of the year, 10 segregated and 48 pooled, increasing the institutional client base in these markets by 16%.

Within the UK, we have seen a strong recovery in activity levels within both money market and retail mutual funds, with respective net inflows of £434m (2008: net outflow £316m) and £313m (2008: net inflow £4m).

While conditions remain challenging within the UK market for segregated institutional mandates, we have seen strong growth in institutional flows across our international markets, total European net flows rose to £743m (2008: net outflow £4m), with net flows in India of £855m (2008: £235m) reflecting increased traction into higher margin money market funds, and inflows into Canadian institutional business of £251m (2008: £2m) benefiting from a large mandate that transitioned during the second quarter.

Third party assets under management have performed well, increasing by 4% to £47.3bn (31 December 2008: £45.5bn) during a six month period in which the FTSE All-Share Index fell by 2%. Third party assets under management now represent 39% of total assets under management compared with 37% as at 31 December 2008. Total assets under management were 2% lower at £121.6bn (31 December 2008: £123.8bn).

The money-weighted active investment performance over all time periods (1, 3, 5, and 10 years) continues to be comfortably above median for our third party business. The strength of our investment process across a range of OEICS and unit trusts is demonstrated by the proportion of eligible and actively managed funds (21 out of 27) rated 'A' or above by Standard & Poor's.

The pipeline for institutional business remains strong with continued demand for GARS and fixed interest products. Over three quarters of the current pipeline is from clients outside the UK as Standard Life Investments continues to expand its global footprint. The mutual fund product range continues to grow in response to consumer demand with the Strategic Bond Fund, UK Equity Recovery Fund and European Equity Income Fund introduced during the period.

Operating profits impacted by opening market levels

EEV operating profit before tax was 35% lower at £348m (2008: £534m), delivering a return on embedded value (RoEV) of 8.0% (2008: 11.0%). In the first half of 2008 we reinsured £6.7bn of our UK immediate annuity liabilities to Canada Life International Re, which generated an EEV operating profit before tax of £119m. Excluding this transaction, EEV operating profit before tax decreased by 16%.

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

	Breakdown of RoEV		Breakdown of EEV operating profit (£m)
	H1 2009	H1 2008	H1 2009	H1 2008
Core	6.0%	9.2%	259	393
Efficiency	(0.2%)	(0.1%)	(5)	(3)
Back book management	2.2%	1.9%	94	144
Total	8.0%	11.0%	348	534

Core return

Core return comprises new business contribution, expected return, development costs for covered business[10] and IFRS normalised underlying profit for non-covered businesses[11,12]. Our Asian life and pensions operations are included on an IFRS basis.

As an asset managing business our core return will inevitably be influenced by the overall level of financial markets. Core EEV operating profit before tax was 34% lower at £259m (2008: £393m) delivering a core RoEV of 6.0% (2008: 9.2%). New business contribution was 27% lower at £114m (2008: £157m), due to reduced sales volumes against challenging markets. Core return was also impacted by lower non-life profits and a market driven reduction in the value of the in-force book at the end of 2008, which resulted in a lower expected return on existing business.

Our key new business metrics of internal rate of return (IRR) and discounted payback period were 16% (2008: 18%) and eight years (2008: seven years) respectively, the slight decrease in IRR having been driven by reduced asset values in Canada. The continued strength of these metrics reflects the benefit of our capital-lite approach.

We have continued to invest in our market leading propositions and our growing Asian operations. This has led to an increase in development expenses and IFRS losses in our Asia life and pensions operations, the impact of which has been partly offset by stronger profitability within our Canadian operations.

Continued drive for efficiency

Efficiency comprises covered business maintenance expense variances and assumption changes. In 2009 expense variances reduced RoEV by 0.2% (2008: (0.1%)).

Following the completion of the first phase of the Continuous Improvement Programme, during which we achieved £100m of annual efficiency savings one year early, we announced in March a target of achieving a further £75m of annual efficiency savings by the end of 2010.

In the first half of 2009 we have achieved £26m of annual efficiency savings towards this target, the majority of which relate to reduced acquisition costs which will be reflected in new business contribution going forward. Other savings relate to covered business maintenance expenses and non-covered business lines.

We have achieved this through a number of initiatives including:

-	Alignment of our UK distribution and marketing operating models with our strategic objectives. This has led to a headcount reduction of around 200 and a reduction in accommodation costs and other associated overheads.
-	Continued improvement and automation of customer service processes, which has allowed us to maintain our award-winning levels of customer service without needing to replace natural headcount attrition.
-	Outsourcing elements of IT development.
-	Consolidation of our investment management operations in the Asia Pacific region and transferring administrative responsibilities to the UK.

Active back book management

We remain committed to driving increased value from the management of our back book. This category includes all non-expense related operating variances and assumption changes for covered business plus those development costs directly related to back book management initiatives and, for non-covered business, specific costs attributed to back book management. During the year, back book management generated an operating profit before tax of £94m
(2008: £144m), delivering a back book management RoEV of 2.2% (2008: 1.9%).

Positive factors within the back book management result include a £89m benefit from modelling improvements and changes to asset allocations and hedging arrangements, which have reduced the time value of options and guarantees (TVOG) associated with the Heritage With Profits Fund (HWPF). In addition, the result benefited from a £29m
(2008: £20m) release of reserves following a review of our deferred annuity data. In February 2008 we reinsured £6.7bn of our UK immediate annuity liabilities to Canada Life International Re. This generated a benefit to EEV operating profit before tax of £119m which was reflected in the prior period result.

Non-economic assumptions are reviewed at the end of each year.

Capital and cash generation

Overall, operating capital and cash generation amounted to £188m (2008: £250m).

Core capital and cash generation was 17% higher at £167m (2008: £143m). Capital and cash generation from new business and the expected return from existing covered business have strengthened by 32% to £174m (2008: £132m), despite the tough economic environment. This demonstrates the resilience of our capital-lite approach to writing new business, with capital and cash generated from existing business comfortably covering new business strain by more than three times (2008: two times).

Efficiency items reduced capital and cash by £8m (2008: £3m reduction). Capital and cash generated from back book management amounted to £29m. In 2008 back book management activities generated £110m of capital and cash, principally reflecting the reinsurance of UK immediate annuity liabilities in February 2008 and a reserve release in respect of UK deferred annuities.

After allowing for adverse investment variances and other non-operating items in the period, total EEV capital and cash generation was £49m (2008: £181m).

We have proposed an interim dividend of 4.15p per share. This represents growth of 2.0%. The Group will continue to apply its existing progressive dividend policy taking account of market conditions and the Group's financial performance.

IFRS

IFRS normalised underlying profit excluding the impact of market volatility on surplus assets and reserves in Canada was £98m (2008: £216m). As highlighted in our 2008 preliminary results, our IFRS profitability is affected by the strength and volatility of investment markets and asset values. The impact of this volatility can be significant within our operations in Canada due to the way Canadian life companies typically structure non-segregated funds, with assets backing both policyholder liabilities and the shareholder surplus. Mark-to-market value adjustments in respect of surplus assets, coupled with reserve movements have reduced profit in Canada by £52m compared with the prior year. Under EEV this volatility is treated as a non-operating item.

Including the impact of this volatility, normalised underlying profit was £77m (2008: £247m). Items impacting the year on year trend in normalised underlying profit include lower management charges due to reduced asset values of £71m, asset impairments of £12m, and increased new business development costs incurred in respect of our growing Asian franchises of £9m.

IFRS underlying profit before tax of £47m (2008: £345m) has also been affected by a number of items which are not included in the normalised underlying profit figure. In 2008 these included a £105m benefit arising from the reinsurance of UK immediate annuity liabilities. In 2009 these included charges of £59m arising from mark-to-market movements in asset backed securities related to the restructure of a sub-fund of Standard Life Investments (Global Liquidity Funds) plc.

Balance sheet

Group embedded value of £5,859m (31 December 2008: £6,245m), represents an embedded value per share of 265p (31 December 2008: 286p). IFRS equity excluding intangible assets and non-controlling interests was £2,995m (31 December 2008: £3,295m), representing 135p per share (31 December 2008: 151p). The reduction in Group embedded value and IFRS equity during the period reflects the impact of foreign exchange movements on the carrying value of our overseas operations, the actuarial valuation of the Group's defined benefit pension schemes and the payment of the final dividend declared in respect of 2008.

The estimated Financial Groups Directive (FGD) surplus as at 30 June 2009 of £3.1bn has been largely insensitive to market movements and remains largely unchanged from the year-end position (31 December 2008: £3.3bn)[1], with a period end solvency cover of 217% (31 December 2008: 219%)[1]. The strength of our FGD surplus has been maintained throughout the recent challenging market conditions without any need to undertake any significant management actions.

Our FGD solvency remains strong under a number of downside market stresses, with the surplus maintained at £2.5bn in the event of a 20% fall in equity markets (to a FTSE 100 Index level 3,400) from the position at the end of June 2009 (FTSE 100 Index level 4,249). In the event of a 30% fall in markets from the position at the end of June (to a FTSE 100 Index level of below 3,000) our FGD surplus would remain strong at £2.2bn. Under the extreme market stress of a 40% fall (to a FTSE 100 Index level of around 2,500) our FGD surplus would be £1.4bn. If yields increased a further 100bps from the position at the end of June 2009 our FGD surplus would be £1.4bn.

The Heritage With Profits Fund (HWPF) residual estate amounted to £0.4bn as at 30 June 2009 (31 March 2009: £0.3bn 31 December 2008: £0.5bn). The impact on the residual estate of falls in equity markets continues to be mitigated by the hedges we have in place. The impact of most other adverse asset movements would, in the first instance, be met by policyholders, with indirect impacts on shareholders through higher guarantee costs. 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.

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 the HWPF. These debt securities amount to £1.8bn (31 December 2008: £1.5bn) and comprise £0.8bn (31 December 2008: £0.8bn) of government and government backed bonds and £1.0bn
(31 December 2008: £0.7bn) of other corporate bonds. There have been no defaults on the debt securities in this portfolio during 2008 and the first half of 2009. Debt securities in non-segregated funds in Canada amount to £5.2bn
(31 December 2008: £5.4bn), including £2.1bn (31 December 2008: £2.2bn) of corporate bonds. There have been no defaults within this portfolio of debt securities during 2008 and the first half of 2009.

Standard Life's total investment (including third party funds) in the asset backed securities markets across both short-term treasury instruments and long-term fixed interest is approximately £4.4bn or 2.8% (31 December 2008: £5.3bn or 3.3%) of Group assets under administration, predominantly in UK securities. Of the total of £4.4bn, £1.2bn
(31 December 2008: £1.3bn) relates to shareholder funds, of which £1.0bn (31 December 2008: £1.2bn) is AAA rated. The overall level of asset backed securities has reduced compared to 31 December 2008 as a result of disposals from non-shareholder funds, a number of securities reaching maturity and due to market movements. The Group has continued to manage actively its exposure to asset backed securities and the portfolio remains a high quality credit portfolio with no direct exposures to the US mortgage market, no exposure to leveraged structures, no current direct exposure to Monolines and very modest exposure to credit within a Monoline wrapper. Following the restructure of a sub-fund of Standard Life Investments (Global Liquidity Funds) plc, shareholder funds have a total exposure of £44m
(31 December 2008: £83m, including £36m in respect of leveraged structures which have matured in 2009) to assets within a Monoline wrapper, representing 0.2% (31 December 2008: 0.3%) of shareholder financial assets.

Outlook

While financial market levels have shown some recovery from the lows seen earlier in the year, the economic environment continues to be challenging. Accordingly, the outlook for retail savings is likely to remain subdued, although we have seen some early signs of recovery within our mutual fund range and our Canadian retail propositions.

We remain confident in the prospects for our pensions businesses and Wrap proposition, reflecting both their
market-leading positions and the significant proportion of sales that relates to consolidation of existing assets. Meanwhile, at Standard Life Investments we continue to broaden our global footprint, with a strong international pipeline for fixed income and absolute return investment mandates.

Overall, as an asset managing business our revenues will inevitably be impacted by lower financial market levels. Nevertheless, our ongoing focus on efficiency will help mitigate the impact on profitability. The Group will benefit from the expense efficiencies achieved to date and will continue to build on the strong initial progress made against our target of achieving £75m of annual efficiency savings by the end of 2010.

Standard Life is committed to a prudent, capital-lite strategy with balance sheet strength and cash generation remaining priorities. We will nevertheless continue to invest to secure future growth where profitable opportunities arise. This approach underpins the resilience of our business model.

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

http://www.rns-pdf.londonstockexchange.com/rns/8972W_-2009-8-5.pdf

For further information please contact:

Institutional Equity Investors		Retail Equity Investors
Gordon Aitken	0131 245 6799	Capita Registrars	0845 113 0045
Duncan Heath	0131 245 4742
Paul De'Ath	0131 245 9893
Media		Debt Investors
Barry Cameron	0131 245 6165/07712 486 463	Andy Townsend	0131 245 7260
Nicola McGowan	0131 245 4016/07872 191 341	Alan Coutts	0131 245 0201
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)207 162 0077 and quote Standard Life Interim Results 2009. The conference ID number is 839173.

Investors and Analysts

A presentation to investors and analysts will take place at 11:00am 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 11:00am. Investors and analysts should dial +44 (0)1452 556620. Callers should quote Standard Life Interim Results. The conference ID number is 19773170. A replay facility will be available until 18 August 2009. UK Investors should call 0800 953 1533, and overseas investors should dial +44 1452 55 00 00. The pass code is 19773170#.

Notes to Editors:

[1]	Financial Groups Directive surplus at 31 December 2008 has been adjusted for the payment of the final dividend.
[2]	Present value of new business premiums (PVNBP) is calculated as 100% of single premiums plus the expected present value of new regular premiums.
[3]	Life and pensions net flows represent gross inflows less redemptions. Gross inflows are premiums and deposits recognised in the period on a regulatory basis (excluding any switches between funds). Redemptions are claims and annuity payments (excluding any reinsurance transactions and switches between funds). Worldwide life and pensions net flows do not include net flows in respect of our Asia life and pensions joint ventures and our Hong Kong subsidiary.
[4]	Certain items are included in both life and pensions and investment flows. Therefore, at Group level, an elimination adjustment is required to remove any duplication.
[5]	Analysis of Individual SIPP assets under administration.
	30 Jun 2009	31 Dec 2008	Change
	£m	£m	£m	%
Insured Standard Life Funds	2,495	2,559	(64)	(3)
Insured external funds	1,370	1,268	102	8
Collectives - Standard Life Investments	1,201	864	337	39
Collectives - Funds Network	764	656	108	16
Cash	1,092	869	223	26
Non collectives	2,796	2,443	353	14
Total	9,718	8,659	1,059	12

Insured	3,865	3,827	38	1
Non-insured	5,853	4,832	1,021	21
Total	9,718	8,659	1,059	12
Of the £9.7bn assets under administration at 30 June 2009, £1.1bn relate to assets on the Wrap platform.

[6]	The Group pensions AUA figure as at 31 December 2008 has been restated to align with the methodology used for other product lines.
[7]	Wrap assets under administration have been restated to exclude amounts that have been secured but are pending investment onto the Wrap platform. The impact of this restatement has been immaterial, reducing the assets under administration figures as at 31 December 2008 and 30 June 2009 by £0.1bn.
[8]	Offshore bond inflows of £77m (2008: £265m) and sales of £173m (2008: £270m) are now included within the European results rather than the UK.
[9]	H1 2008 PVNBP includes a restatement to opening assumptions in India. The impact is to reduce H1 2008 PVNBP by £53m.
[10]	Excludes development costs directly related to back book management initiatives.
[11]	The only difference between IFRS normalised underlying profit and IFRS underlying profit for non-covered business arises within global investment management. Net negative fair value movements in respect of the liability remaining following the restructuring of a sub-fund of Standard Life Investments (Global Liquidity Funds) plc and the 'Contract for Differences' written in September 2008 which limited this liability for Standard Life Investments and fair value movements of the corresponding assets which were brought directly on to the balance sheet, are included within IFRS underlying profit, but are excluded from IFRS normalised underlying profit.
[12]	Excludes specific costs attributable to back book management.
[13]	The Interim Results 2009 are available on the Financial Results page of the Standard Life website at www.standardlife.com

Section		Contents	Page
1		Business review	13
	1.1	Group overview	15
	1.2	New business sales and profitability 17
	1.3	EEV - Group	19
	1.4	IFRS - Group	23
	1.5	Business segment performance	25
		1.5.1 UK financial services	25
		1.5.2 Canada	30
		1.5.3 Europe	32
		1.5.4 Asia	34
		1.5.5 Global investment management	35
	1.6	Group assets under administration	37
	1.7	Capital and cash generation	38
	1.8	Risk management	44
	1.9	Basis of preparation	45
2		Statement of Directors' responsibilities	47
3		European Embedded Value (EEV)	49
		EEV primary statements	50
		EEV notes	53
4		International Financial Reporting Standards (IFRS)	87
		IFRS primary statements	88
		IFRS notes	94
5		Independent auditors' review report	113
6		Supplementary information	115
	6.1	Group assets under administration and net flows 116
	6.2	Analysis of new business	119
	6.3	Exposure to investment property and financial assets 124
	6.4	Fair value hierarchy of financial instruments	126
7		Glossary	129
8		Shareholder information	135

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1 Business review

Business review continued

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.

Key differences between the EEV and IFRS bases

EEV

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.

IFRS

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

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

1.1 Group overview

Financial highlights

	H1 2009	H1 2008	Movement
Life and pensions net flows1	£662m	£1,842m	(64%)
New business PVNBP1,2	£7,451m	£9,051m	(18%)
New business contribution	£114m	£157m	(27%)
EEV operating profit before tax	£348m	£534m	(35%)
Return on embedded value3	8.0%	11.0%	(3.0% points)
Diluted EEV operating EPS3	11.1p	17.3p	(36%)
IFRS underlying profit before tax	£47m	£345m	(86%)
IFRS (loss)/profit after tax attributable to equity holders	(£20m)	£161m	(112%)
EEV	£5,859m	£6,245m4	(6%)
EEV per share	265p	286p4	(7%)
Group assets under administration	£156.5bn	£156.8bn4	-
Group capital surplus5	£3.1bn	£3.5bn4	(11%)
EEV operating profit capital and cash generation3	£188m	£250m	(25%)
Interim dividend per share	4.15p	4.07p	2%

1 The H1 2008 figures have been restated to include Sigma UKFS mutual funds. The impact is: net outflows of £122m and PVNBP of £40m.
2 H1 2008 PVNBP includes a restatement to opening assumptions in India. The impact is to reduce H1 2008 PVNBP by £53m.
3 Net of tax.
4 Comparative as at 31 December 2008.
5 H1 2009 based on estimated regulatory returns. FY 2008 based on final regulatory returns.

Standard Life has delivered a resilient performance against a backdrop of continued challenging market conditions.

Financial performance

Total Group assets under administration (AUA) reduced slightly to £156.5bn (31 December 2008: £156.8bn) with positive net flows being offset by adverse market movements. Worldwide life and pensions net inflows for H1 2009 were £662m (H1 2008: £1,842m). The reduction in net inflows reflects lower incoming transfer values into our pension product lines and our decision not to renew bulk investment bond deals written in the first half of 2008. Third party investment management net inflows increased by 17% to £3.1bn despite the challenging conditions. Present value of new business premiums (PVNBP) decreased by 18% to £7,451m (H1 2008: £9,051m).

European Embedded Value (EEV) operating profits decreased to £348m (H1 2008: £534m) and return on embedded value (RoEV) fell to 8.0% (H1 2008: 11.0%). This was due to lower sales and associated new business contribution (NBC) and also the inclusion of a benefit relating to the successful reinsurance of pre-demutualisation UK immediate annuity liabilities reported in the H1 2008 results.

International Financial Reporting Standards (IFRS) underlying profit before tax fell by 86% to £47m (H1 2008: £345m). This reduction was largely due to inclusion of the reinsurance benefit in the prior year, and the impact of negative asset value movements on management charge revenues and on the results of our Canadian operations. Current year results include a charge of £59m arising from mark-to-market movements in asset backed securities related to the restructure of a sub-fund of Standard Life Investments (Global Liquidity Funds) plc. IFRS profit after tax attributable to equity holders fell by 112% to a loss of £20m (H1 2008: profit £161m).

Operating profit capital and cash generation decreased from £250m to £188m. Within this, our core capital and cash generation increased by 17% to £167m (H1 2008: £143m) despite the tough economic environment, demonstrating the resilience of our capital-lite approach to writing new business. New business strain (NBS) continued to be comfortably covered by capital and cash generation from existing business, by more than three times at 30 June 2009.

Business review continued

1.1 Group overview continued

The Group capital surplus remained largely insensitive to market movements at £3.1bn, compared to £3.5bn at 31 December 2008. The strength of our Financial Groups Directive (FGD) surplus has been maintained throughout the challenging market conditions without the need to undertake any significant management actions.

Following the completion of the first phase of the Continuous Improvement Programme - during which we achieved £100m of annual efficiency savings one year early - we announced, in March, a target of achieving a further £75m of annualised efficiency savings by the end of 2010. In the first half of 2009 we have achieved £26m of annualised efficiency savings towards this target. The savings have been generated through a number of initiatives including alignment of our UK distribution and marketing operating models with our strategic objectives (which led to a headcount reduction of around 200 and a reduction in accommodation costs and other associated overheads), continued improvement and automation of customer service processes, outsourcing elements of IT development capability and consolidation of our global investment management operations in the Asia Pacific region.

During the period, the Group replaced the dividend reinvestment plan with a Scrip dividend scheme. The high take-up of the Scrip dividend resulted in a £58m cash flow benefit on payment of the 2008 final dividend in May 2009.

The Board proposes payment of an interim dividend of 4.15p per share for the period to 30 June 2009. This represents growth of 2%. The Group will continue to apply its existing progressive dividend policy taking account of market conditions and the Group's financial performance.

General industry matters

Economic and market conditions

The unprecedented volatility of global capital markets during the later part of 2008 and the first half of 2009, and the financial difficulty experienced by some major financial institutions, have attracted extensive media attention and heightened investors' concerns about the safety of their investments. Although all industry sectors have been affected, the spotlight has primarily been on financial services. In response to the continuing financial crisis a number of recent industry reports have been issued proposing significant changes to financial services regulation both in the UK and internationally. Standard Life will continue to closely monitor all new developments in the regulatory landscape and fully participate in discussions through our membership of industry bodies.

Market Consistent Embedded Value (MCEV)

The European Insurance Chief Financial Officers (CFO) Forum Market Consistent Embedded Value Principles ©* (MCEV Principles) were issued by the CFO Forum on 4 June 2008 to replace the current EEV Principles and Additional Guidance and were designed to improve the transparency and comparability of embedded value reporting. On 19 December 2008, the CFO Forum announced that it would undertake further work to seek to improve the consistency of certain MCEV Principles, particularly in light of volatile economic markets. As a member of the CFO Forum, the Group will continue to participate in this work.

In light of these developments, which may result in significant amendments to certain MCEV Principles, the CFO Forum announced on 22 May 2009 that it believed that it was sensible to defer the mandatory MCEV reporting for all member firms until 2011. A further update on the work of the CFO Forum will be provided later this year.

Solvency II

Solvency II has recently passed into European law, and is planned to be implemented by year end 2012. We have participated in all Quantitative Impact Studies to date and are also active in supporting the FSA's Insurance Standing Groups and in providing detailed input to the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) consultations through the Association of British Insurers.

Outlook

We remain confident in the prospects for our pensions businesses and Wrap proposition, reflecting both their market-leading positions and the significant proportion of sales that relates to consolidation of existing assets. Meanwhile, at Standard Life Investments we continue to broaden our global footprint, with a strong international pipeline for fixed income and absolute return investment mandates.

* Stichting CFO Forum Foundation 2008.

1.2 New business sales and profitability

New business highlights

H1 2009		H1 2008	Movement
Net flows1	£662m	£1,842m	(64%)
New business PVNBP1,2	£7,451m	£9,051m	(18%)
Investment - third party net inflows	£3,113m	£2,658m	17%
New business contribution	£114m	£157m	(27%)
Internal rate of return	16%	18%	(2% points)
Discounted payback period	8 years	7 years	(1 year)

Please refer to Section 1.9 - Basis of preparation and Section 7 - Glossary. Please also refer to Section 6 - Supplementary information for a detailed analysis of new

business results and net flows.

AUA and net flows

Total Group assets under administration (AUA) reduced slightly to £156.5bn (31 December 2008: £156.8bn) with positive net flows being offset by adverse market movements. The Group continued to generate positive net inflows despite the difficult market conditions. Life and pensions net flows were £662m compared with £1,842m at H1 2008. Excluding UK bulk investment bond deals which generated £598m net inflows in H1 2008 and net outflows of £553m in H1 2009, worldwide net flows amounted to £1,215m (H1 2008: £1,244m). Third party global investment management net inflows amounted to £3,113m, an increase of 17% compared with H1 2008, a very strong result in the current market.

New business sales

The Group's new business sales for the six months to 30 June 2009 of £7,451m, represent an 18% decrease compared to H1 2008 of £9,051m.

UK life and pensions sales at £5,246m were 24% lower than the prior period (H1 2008: £6,921m) with sales impacted primarily by negative market movements on average incoming transfer values, our decision not to renew UK bulk investment bond deals written in H1 2008 and lower consumer confidence. Gross lending in our banking business reduced to £143m (H1 2008: £728m). This was driven by a number of strategic measures to manage liquidity and is in line with many of our competitors. Our healthcare sales fell by 29% to £10m (H1 2008: £14m).

PVNBP sales in Canada increased by 2% in constant currency to £1,352m (H1 2008: £1,201m). Excluding large cases in both years and assumption changes, total sales were in line with last year.

In Europe, PVNBP sales decreased by 27% in constant currency to £557m (H1 2008: £689m). In Ireland, a sales decrease of 18% in constant currency was driven by falls in sales of offshore bonds, due to weaker customer confidence. Excluding offshore bonds, Ireland sales increased in constant currency by 8%, driven by sales in advance of expected changes to pensions tax legislation. In Germany, customer uncertainty in the face of market volatilty negatively impacted sales resulting in a 39% decrease in constant currency.

Operations in Asia continued to offer attractive growth potential and in H1 2009 PVNBP sales increased by 6%2 in constant currency to £296m.

Business review continued

1.2 New business sales and profitability continued

Against a backdrop of continued difficult markets, global investment management third party gross inflows increased by 5% from £4,966m to £5,210m. Net inflows increased by 17% to £3,113m. Third party assets under management (AUM) increased by 4% to £47.3bn (31 December 2008: £45.5bn). This increase compares favourably with the fall in financial markets during the period.

			PVNBP				Discounted
	NBC £m		margin%		IRR %		payback (years)
	H1 2009	H1 2008	H1 2009	H1 2008	H1 2009	H1 2008	H1 2009	H1 2008
UK1,2	92	132	1.8	1.9	20	20	6	7
Canada	18	18	1.3	1.5	14	21	9	7
Europe2	4	7	0.8	1.0	7	10	21	17
Total	114	157	1.6	1.7	16	18	8	7

1 H1 2008 NBC, PVNBP margin, IRR and discounted payback do not include any contribution for Sigma UKFS mutual funds.

2 H1 2008 NBC, PVNBP margin, IRR and discounted payback for UK and Europe have been restated to reflect the inclusion of offshore bonds within the Europe results. Prior to 2009 this was included within UK.

New business profitability

New business profitability has been impacted by the adverse market conditions. New business contribution (NBC) decreased by 27% to £114m. The total internal rate of return (IRR) for the Group was 16% (H1 2008: 18%) and the discounted payback period extended to eight years (H1 2008: seven years). We remain committed to our strategy of focusing on capital-lite products which deliver high capital returns and fast recovery of investment.

In the UK, NBC fell by 30% to £92m (H1 2008: £132m) due to lower sales volumes and a reduction in margins. The UK IRR has remained stable at 20%, whilst the payback period reduced slightly to six years (H1 2008: seven years). For further analysis of new business profitability by product refer to Section 1.5.1 - UK financial services.

In Canada, NBC was maintained at £18m. Margins were 1.3% compared to 1.5% at H1 2008 and reflect lower fund values in our investment funds caused by the decline in equity markets in the second half of 2008. The IRR reduced to 14% (H1 2008: 21%) and the payback period extended to nine years (H1 2008: seven years), due largely to lower profitability in investment funds products caused by market-related declines in asset values.

NBC in Europe decreased by £3m. The overall IRR and discounted payback period deteriorated compared to the prior year. In the German and offshore businesses, this was caused by the lower sales volumes which were not fully compensated for by a proportionate reduction in the cost base. However, in Ireland the IRR has increased due to higher sales and lower acquisition costs.

Further analysis of the individual segment results can be found in Section 1.5 - Business segment performance.

1.3 EEV - Group

EEV highlights

	H1 2009	H1 2008 Movement
EEV operating profit before tax	£348m	£534m	(35%)
Return on embedded value1	8.0%	11.0%	(3.0%
Diluted EEV operating EPS1	11.1p	17.3p	(36%)
EEV (loss)/profit before tax	(£44m)	£15m	(393%)
EEV	£5,859m	£6,245m2	(6%)
EEV per share	265p	286p2	(7%)

1 Net of tax.

2 Comparative as at

EEV (loss)/profit before tax

The EEV consolidated income statement, in the supplementary EEV financial statements section of this report, presents the total EEV result showing both operating and non-operating items. Total EEV loss before tax of £44m (H1 2008: profit £15m) includes an operating profit of £348m (H1 2008: profit £534m) and a non-operating loss of £392m (H1 2008: loss £519m). 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 on the operating profit and non-operating loss are given below.

EEV operating profit before tax - core, efficiency and

back book management

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

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

The core element of our operating profit decreased by 34% to £259m (H1 2008: £393m). The fall primarily reflected the adverse impact of market conditions on NBC which decreased by £43m. Expected return from the Group's in-force business decreased by 13% to £189m (H1 2008: £218m), which primarily reflected market conditions. This included a £3m favourable exchange rate movement.

There were losses in our Asia business of £25m (H1 2008: £16m) on an IFRS basis reflecting the continuing increase inoperational activity. The decline in our non-covered business was driven by the fall in operating profit from our global investmentmanagement business and lower investment returns in the Group corporate centre (see 'EEV operating profit - by segment').

NBC is covered in detail in Section 1.2 - New business sales and profitability, while non-covered business is analysed in the segmental analysis of EEV operating profit and is discussed in greater detail in the relevant business segment sections of this report.

EEV operating profit before tax from back book management has decreased from £144m in H1 2008 to £94m for H1 2009. Management of the 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.

Business review continued

1.3 EEV - Group continued

In line with general industry practice we will review our non-economic assumptions at the year end. As a result there have been no movements due to non-economic assumption changes in the six months to 30 June 2009.

A total £94m back book management profit was predominantly due to £89m of positive experience variance for the Heritage With Profits Fund time value of options and guarantees (HWPF TVOG), largely due to modelling improvements and the impact of changes in asset allocations and hedging arrangements. Included within 'Other' EEV operating profits from back book management is the benefit of a £29m release of provisions held for UK deferred annuity business. This release was made possible following a further review of our annuity data in H1 2009.

Total variance from lapse experience was negative £8m, compared to positive £2m in H1 2008. This was due to increased lapse activity in our German and offshore businesses, which reflected market conditions over the period. Lapse experience variance in our UK and Canada businesses was in line with long-term assumptions.

HWPF					H1 2009	H1 2008
UK		Canada	Europe	TVOG	Total	Total
£m		£m	£m	£m	£m	£m
Lapses	-	-	(8)	-	(8)	2
Mortality and morbidity	3	9	1	-	13	(1)
Tax	11	2	8	-	21	24
UK annuity reassurance	-	-	-	-	-	119
Other	(10)	(2)	(9)	89	68	-
Back book management	4	9	(8)	89	94	144

£21m of positive tax experience variance was generated across the Group, which included an £8m profit in Europe from the successful agreement of prior year tax affairs in Ireland.

Positive mortality and morbidity experience variances of £13m were largely driven by Canada, where profits were recognised following an exercise to verify the existence of current pay-out annuitants.

In H1 2008 we reinsured £6.7bn of pre-demutualisation UK immediate annuity liabilities. This represented a significant step in reducing shareholders' exposure to annuitant mortality risk and contributed £119m towards the EEV operating profit before tax for that period.

EEV operating profit before tax - by segment

EEV operating profit before tax decreased by 35% to £348m (H1 2008: £534m) and primarily reflected the difficult market conditions.

EEV operating profit for our UK life and pensions business, including HWPF TVOG, decreased by 35%. £107m of this movement is attributable to the reinsurance of immediate annuities in H1 2008. A decrease in NBC of £40m, and a £67m decrease in expected return on existing business and free surplus reflected the difficult economic climate. These factors were partially offset by £89m from HWPF TVOG and £3m lower development costs.

Operating profit for Canada increased by 2% on a constant currency
basis, primarily due to higher expected return on existing business. NBC remained stable at £18m (H1 2008: £18m).

Europe EEV operating profit decreased by 52% in constant currency to £15m (H1 2008: £27m). The comparative period included an operating profit of £12m as a result of improved risk margins following the reinsurance of UK immediate annuities in H1 2008. In the current period, Europe experienced lower sales volumes and adverse persistency variations due to the difficult market conditions.

Losses in the Asia business on an IFRS basis reflect continued investment in
developing operations in the region.

The operating profit from our non-life and pensions operations was £2m (H1 2008: £34m). This decrease was driven by a fall in

operating profit from our global investment management business from £31m to £10m, and reflects lower investment revenues

as a result of the fall in world markets. Operating results from our UK banking and healthcare businesses have remained resilient

despite the adverse market conditions. Reductions in profit in other non-covered business reflect lower investment returns in

Standard Life plc.

Further comments on the operating profits of each of the businesses noted above are provided in Section 1.5 - Business

segment performance.

EEV operating profit after tax

EEV operating profit after tax decreased by 36% to £243m (H1 2008: £377m). The attributable tax rate was 30% in H1 2009

(H1 2008: 29%).

Return on embedded value (RoEV)

RoEV was 8.0% in H1 2009 compared to 11.0% in H1 2008. Core contributed 6.0% to total RoEV compared to 9.2% in H1 2008. This movement was primarily due to decreases in NBC and expected return from existing business, which contributed 1.0% and 1.6% respectively to the decrease in total RoEV. H1 2008 back book management RoEV included the reinsurance of UK immediate annuities, which contributed

1.4% to back book management RoEV.

Diluted EEV operating earnings per share (EPS)

The diluted EEV operating EPS decreased from 17.3p in H1 2008 to 11.1p in H1 2009. The basic EEV operating EPS also decreased from 17.3p in H1 2008 to 11.1p in H1 2009. These negative movements were largely driven by the 36% decrease in operating profit after tax compared to H1 2008. EPS is based on operating profit after tax and on 2,184m shares for basic EPS (H1 2008: 2,175m) and 2,185m shares for diluted EPS

(H1 2008: 2,175m).

EEV non-operating loss before tax

Total non-operating loss before tax was £392m in H1 2009 (H1 2008: loss £519m), primarily reflecting lower than expected investment returns arising from the volatile markets during the period. Our life and pensions

businesses produced a non‑operating loss of £469m (H1 2008: loss

£492m). This included long-term investment variances of negative £477m

(H1 2008: negative £516m) and economic assumption changes of positive

£33m (H1 2008: positive £40m).

Non-operating losses include losses in relation to the restructuring of the sub-fund of Standard Life Investments (Global Liquidity Funds) plc. £53m has been included within investment return and tax variances within UK covered business in H1 2009, and £6m within other non‑operating items, which represented a net negative fair value movement in respect of the liability remaining following the restructuring of a sub‑fund of Standard Life Investments (Global Liquidity Funds) plc and the 'Contract for Differences' written in September 2008 which limited this liability for Standard Life Investments. £25m has been incurred as part of our Continuous Improvement Programme. Volatility arising from adjustments for different accounting bases resulted in a gain of £87m (H1 2008: £43m) within Bank and between Canada and Standard Life plc.

EEV non-operating loss after tax

The non-operating loss after tax was £291m (H1 2008: loss £370m). The attributed tax rate in H1 2009 was 26% compared to

29% in H1 2008.

EEV (loss)/profit after tax

EEV loss after tax was £48m in H1 2009 compared to a profit after tax of £7m in H1 2008.

Business review continued

1.3 EEV - Group continued

Reconciliation of EEV

6 months to 30 June 2009		Free surplus £m	Required capital £m	Net worth £m	PVIF net of cost of capital £m	Group EEV £m


Opening		2,348	844	3,192	3,053	6,245
Operating capital and cash generation	172		16	188	-	188
Non-operating capital and cash generation (140)			1	(139)	-	(139)
PVIF income statement		-	-	-	(97)	(97)
(Loss)/Profit after tax		32	17	49	(97)	(48)
Dividends		(168)	-	(168)	-	(168)
Other non-trading movements	(22)		(55)	(77)	(93)	(170)
Closing		2,190	806	2,996	2,863	5,859

Group embedded value

Overall our Group embedded value has fallen from £6.2bn to £5.9bn. Before taking into account dividends paid to shareholders and other non-trading movements, Group embedded value decreased by £48m, of which positive £188m was from operating capital and cash generation and negative £139m was from non-operating capital and cash generation. Core capital and cash generation of £167m represents a £24m increase from H1 2008 under tough market conditions. Efficiency capital and cash generation contributed negative £8m. Capital and cash generation from back book management of £29m was largely as a result of a release of provisions in relation to the UK deferred annuities, improvements in mortality and morbidity, and positive tax variances during the period.

This is discussed in more detail in Section 1.7 - Capital and cash generation.

Before taking into account other non-trading movements, the present value of the in-force (PVIF) business net of cost of capital has decreased by £97m predominantly due to an expected return of negative £143m and adverse investment return and tax variances of £155m, partially offset by an increase in PVIF from NBC written in the year of £155m, £43m of positive experience variances and £3m of positive economic assumption changes.

Included within the PVIF net of cost of capital is the TVOG for the Group. This includes the UK and Europe HWPF TVOG which reflects the value of the shareholder exposure to the policyholder guarantees within the HWPF. This has decreased from £220m for the FY 2008 to £101m due to £89m operating profits from back book management of HWPF TVOG and £76m of investment related profits, offset by £46m tax.

The HWPF is discussed in more detail in Section 1.7 - Capital and cash generation.

The decrease in the Group embedded value is predominantly due to dividend payments and other non-trading movements. Of the total £168m dividend, £110m was paid in cash and £58m of new shares were issued in the form of shares in lieu of cash dividends as part of the Scrip dividend scheme. Other non-trading movements include adverse exchange movements of £174m and actuarial losses of £80m in relation to the UK and Canada pension schemes.

The net worth of our Group has decreased from £3,192m to £2,996m primarily due to dividends and other non-trading movements. PVIF net of cost of capital has decreased from £3,053m to £2,863m, largely due to the impact of adverse market movements and negative expected return.

1.4 IFRS - Group

IFRS highlights

	H1 2009	H1 2008	Movement
IFRS underlying profit before tax	£47m	£345m	(86%)
IFRS (loss)/profit after tax attributable to equity holders	(£20m)	£161m	(112%)
Diluted IFRS underlying EPS1	1.1p	13.8p	(92%)
Dividend cover2	0.3 times	3.4 times	(91%)
IFRS tangible equity per share3	135p	151p4	(11%)

1 Diluted IFRS underlying EPS is based on 2,185m shares (30 June 2008: 2,175m) and the IFRS underlying profit after tax of £25m (H1 2008: £300m).

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

3 IFRS tangible equity per share is based on the diluted closing number of issued shares of 2,212m (31 December 2008: 2,180m) and tangible IFRS equity of £2,995m (31 December 2008: £3,295m). IFRS tangible equity excludes non-controlling interests and intangible assets.

4 Comparative as at 31 December 2008.

Please refer to Section 1.9 - Basis of preparation and Section 7 - Glossary.

IFRS (loss)/profit

IFRS loss for the period was £49m (H1 2008: profit £158m). This comprises loss after tax attributable to equity holders of £20m (H1 2008: profit £161m) and losses attributable to non-controlling interests of £29m (H1 2008: loss £3m). The IFRS result included an 86% decrease in underlying profit before tax from £345m to £47m as well as the impact of volatility excluded from the underlying profit. The decrease in underlying profit before tax was primarily due to the inclusion of a benefit relating to the reinsurance of pre-demutualisation UK immediate annuity liabilities in the H1 2008 results and the impact of the continuing market volatility in the period, and is explained in more detail below.

IFRS underlying profit before tax

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

Movement in IFRS underlying profit

Underlying profit has been adversely impacted by the continued challenging market conditions. In H1 2008, underlying profit benefited from the inclusion of a £105m release of reserves following the reinsurance of £6.7bn of UK immediate annuities and a £20m release of reserves in relation to deferred annuity business. Offsetting these benefits was a cost of £27m relating to the restructuring of a sub-fund of Standard Life Investments (Global Liquidity Funds) plc.

In H1 2009, the underlying profit included a £59m charge in relation to continuing market volatility following the restructuring of a sub-fund of Standard Life Investments (Global Liquidity Funds) plc in 2008, of which £53m was recognised in UK life and pensions and £6m by the global investment management business. This was partially offset by a £29m release of reserves in relation to UK deferred annuity business.

Excluding the transactions noted above, the normalised underlying profit decreased by 69% to £77m (H1 2008: £247m) with profitability being significantly impacted by the continued weakness and volatility of investment markets. Across the Group, decreased management charges reduced profits by £71m due to lower asset values compared with H1 2008, and profitability was further impacted by a £21m reduction to profit in the holding company, Standard Life plc, due to lower interest income and adverse foreign exchange movements. In addition, new business development costs increased by £9m and asset impairment charges increased by £12m. Operational efficiencies and strict control of expenditure have had a positive impact on profitability of £8m.

Business review continued

1.4 IFRS - Group continued

The impact of market volatility continues to be evident within our Canadian operations due to the way that Canadian life

companies typically structure non-segregated funds, with assets backing both policyholder liabilities and the shareholder

surplus. A fall in investment property values has contributed to a reduction in surplus assets and an increase in policyholder

liabilities. This has reduced Canadian normalised underlying profit by £21m in H1 2009 (H1 2008: increase £31m).

Excluding the impact of Canadian volatility, normalised underlying profit was £98m (H1 2008: £216m).

Segmental analysis of IFRS underlying profit

Total IFRS underlying profit before tax within our UK business, which comprises our UK life and pensions, healthcare, and savings and mortgages businesses, decreased by 78% to £56m (H1 2008: £249m).

UK life and pensions underlying profit before tax fell by 84% to £36m (H1 2008: £229m). Normalised underlying profit decreased by £44m to £60m (H1 2008: £104m).

Our savings and mortgage business delivered a robust performance,

focusing on managing profitability whilst ensuring liquidity requirements

were met. Underlying profit increased by 25% to £15m (H1 2008: £12m).

The underlying result excludes unrealised fair value gains on derivatives of £26m (H1 2008: £43m) in respect of non-qualifying economic hedges.

Underlying profitability in our healthcare business decreased to £5m

(H1 2008: £8m) due to reduced investment income.

Canada

Canada recorded an underlying loss of £10m (H1 2008: profit £66m)

driven by the impact of a fall in property values on policyholder liabilities

and shareholder surplus.

Europe

Europe underlying profit increased by 31% to £21m (H1 2008: £16m)

with Germany contributing £26m (H1 2008: £26m) and Ireland recording

a profit of £3m (H1 2008: loss £2m). Losses of £6m (H1 2008: loss

£8m) from offshore bonds and expenses of £2m relating to European

development are included in the Europe results for the first time.

Asia

Our Asia business recorded an IFRS underlying loss before tax of £25m

(H1 2008: loss £16m) reflecting the continuing investment in developing

the operations in the region and the negative impact of exchange

rate movements.

Global investment management

In our global investment management business, revenues have been adversely affected by the substantial fall in global

financial markets and volatile conditions. Revenue fell by 12%, reflecting lower asset values, and despite costs being tightly

controlled, IFRS normalised underlying profit before tax decreased by 48% to £27m (H1 2008: £52m).

Other

Group corporate centre (GCC) costs remained at £25m (H1 2008: £25m) reflecting continued cost control and 'other'

decreased by £21m to £9m (H1 2008: £30m), primarily due to a reduction in holding company profit.

Refer to Section 1.5 - Business segment performance for further detail on the IFRS underlying result for our businesses.

IFRS tangible equity per share

IFRS tangible equity per share3 decreased to 135p (31 December 2008: 151p) primarily due to the dividend payment and

adverse foreign exchange movements in the period.

1.5 Business segment performance

1.5.1 UK financial services

UK financial services (UKFS) is the combination of our UK life and pensions, savings and mortgages and healthcare businesses. The UK business has a strong capital base, innovative and capital-lite propositions, and strong distribution relationships which makes it well placed to face the current difficult market conditions.

Life and pensions

The life and pensions business is one of the largest pensions, long-term savings and investment providers in the UK with £93bn of assets under administration. The business offers a broad range of insurance and investment wrappers, with particular strength in the accumulation market. Further developments will continue to be made to the award winning products and innovative propositions to ensure that they remain relevant to customers' lives and their changing financial needs.

Key performance indicators
	H1 2009	H1 2008 Movement
Net flows^1,2	£135m	£1,041m			(87%)
New business PVNBP^1,2	£5,246m	£6,921m			(24%)
New business2 contribution	£92m	£132m			(30%)
Internal rate of return	20%	20%			-
Discounted payback period	6 years	7 years		1 years
EEV covered business operating profit before tax^2,3	£267m		£410m	(35%)
EEV non-covered business operating loss before tax⁴	(£11m)		(£17m)	35%
IFRS underlying2 profit before tax	£36m	£229m		(84%)

1 The H1 2008 figures have been restated to include Sigma mutual funds. The impact is: net outflows of £122m and PVNBP of £40m.

2 H1 2008 figures have been restated to exclude offshore bond business which is now reported within the Europe results. The impact of this is to adjust net flows by

(£265m), PVNBP by (£270m), new business contribution by (£6m), EEV covered business operating profit by (£1m) and IFRS underlying profit before tax by £8m.

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

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

Please refer to Section 1.9 - Basis of preparation and Section 7 - Glossary.

Net flows

Net inflows for the period were £135m (H1 2008: £1,041m). Total pension

net inflows of £1,592m were £23m lower than H1 2008. Individual

pensions net inflows, which includes individual self invested personal

pension (SIPP), were lower at £361m (H1 2008: £505m). Within this,

lower net outflows of individual pensions of £598m (H1 2008: £930m)

were offset by lower individual SIPP net inflows of £959m (H1 2008:

£1,435m) driven by lower financial markets which have reduced incoming

transfer values. Group pensions net inflows were £671m (H1 2008:

£885m). Institutional pensions net inflows were £560m (H1 2008: £225m)

reflecting successful scheme wins, strong regular contributions and lower

outflows.

Savings and investments net outflows were £489m (H1 2008: net inflow £433m). Mutual funds net inflows were £336m (H1 2008: £160m)

reflecting growth in customer numbers on our Wrap platform. This was

more than offset by onshore bond net outflows of £825m (H1 2008: net

inflow £273m). The decrease in net flows was mainly due to our decision

not to renew bulk investment bond deals written in H1 2008 the majority

of which have now surrendered in H1 2009 resulting in a net impact of

£1.2bn compared to the prior year. Net outflows for legacy life were £761m

(H1 2008: £785m). The vast majority is conventional with profit business,

which generates minimal shareholder margin.

Business review continued

1.5 Business segment performance continued

1.5.1 UK financial services continued

New business sales

Total PVNBP sales were £5,246m (H1 2008: £6,921m), a fall of 24%. Individual pensions, which includes individual SIPP and increments, decreased by 28% to £1,819m (H1 2008: £2,509m). Within this, individual SIPP sales were £1,537m (H1 2008: £2,074m). Individual SIPP customer numbers increased by 13% to 74,700 (31 December 2008: 65,900) during the period, however, the financial benefit of this was offset by lower average incoming transfer values. Group pensions sales fell by 15% to £1,527m (H1 2008: £1,803m) with sales boosted by £347m from the recently won British Telecom plc scheme (BT Scheme). We expect to receive single premium transfer amounts relating to this scheme later in the year. Activity has remained strong, and the number of insured lives has continued to grow since the end of 2008. Savings and investments sales decreased by 50% to £696m (H1 2008: £1,389m). Mutual funds sales increased by 49% to £542m (H1 2008: £364m) reflecting growth in customer numbers on the Wrap platform. This was offset by lower onshore bond sales of £154m (H1 2008: £1,025m), which was mainly due to our decision not to renew UK bulk investment bond deals written in 2008, which contributed £608m to sales in H1 2008.

New business profitability

New business contribution (NBC) decreased to £92m (H1 2008: £132m), with a new business margin of 1.8% (H1 2008: 1.9%). Overall the internal rate of return (IRR) remained stable at 20% (H1 2008: 20%), while the discounted payback period improved slightly to six years (H1 2008: seven years). Relatively flat acquisition expenses with lower volumes had an adverse impact on margin. The higher annuity margin reflects a change in our pricing of annuities in response to market conditions.

			PVNBP				Discounted
	NBC £m		margin %		IRR %		payback (years)
	H1 2009 H1 2008 H1 2009			H1 2008 H1 2009		H1 2008 H1 2009		H1 2008
Individual pensions	14	36	0.7	1.4	11	17	10	8
Group pensions	29	44	1.9	2.4	14	15	11	10
Institutional pensions 7		10	0.8	1.1	>40	>40	<3	<3
Savings and investments 1,2,3 (4)		2	(0.6)	0.2	4	9	n/a	19
Annuities	46	40	17.8	15.9	Infinite Infinite Immediate Immediate
UK Total	92	132	1.8	1.9	20	20	6		7

1 H1 2008 new business contribution, IRR and payback figures have not been restated to include Sigma mutual funds.

2 H1 2008 figures have been restated to exclude offshore bond business, which is now reported within the Europe results.

3 H1 2009 payback period is not applicable due to new business loss.

Business development

In the current market conditions many of our customers are seeking solutions that will provide lower volatility for their investments. In response to this we continue to promote alternatives to equity investment such as fixed-rate deposit accounts in conjunction with our savings and mortgages business, and the Global Absolute Return Strategies fund through Standard Life Investments.

During the period we began migration of the previously announced BT Scheme. We believe this scheme win demonstrates our strength in the corporate pensions marketplace, and our ability to tailor our offering to meet trustee and employee specific needs. We believe this, and our reputation for service excellence combined with efficiency gives us a market-leading position in the corporate pensions marketplace. We also launched a new capital-lite onshore bond in June 2009 which offers a flexible transparent funded commission structure.

At 30 June 2009, we had 23,000 Wrap customers compared to 16,900 at 31 December 2008 and the number of independent financial adviser (IFA) firms using the platform had grown to 484 compared to 409 at 31 December 2008. With total funds on the platform increasing to £2.3bn compared to £1.7bn as at 31 December 2008, we expect momentum in Wrap to continue building.

Performance

EEV operating profit before tax

UK EEV operating profit, including HWPF TVOG and non-covered business, decreased by 35% during the period to £256m (H1 2008: £393m). Core profit of £165m (H1 2008: £272m) includes NBC, expected return on in-force business, non-covered business and development costs. The £107m reduction in core was driven by a £40m fall in NBC, lower unwind of in-force business due to lower markets and a lower risk discount rate. Higher maintenance expenses resulted in a negative efficiency variance of £2m (H1 2008: £nil). Back book management profit of £93m (H1 2008: £121m) includes an £89m benefit from TVOG reflecting the actions management have taken to manage market risk. In addition, the result benefited from a £29m (H1 2008: £20m) release of reserves following a review of our deferred annuity data. The H1 2008 result also included a £107m benefit following the reinsurance of £6.7bn of UK immediate annuities. Overall lapse experience is broadly in line with long-term assumptions.

In H1 2009, development costs were £10m compared to £13m in H1 2008. Development costs were mainly in relation to development of group pensions, our Wrap platform as well as implementing legislation changes.

IFRS underlying profit before tax

UK life and pensions IFRS underlying profit before tax was £36m (H1 2008: £229m). The 2009 result includes a £53m adverse impact in relation to the continuing volatility in respect of a sub-fund of Standard Life Investments (Global Liquidity Funds) plc in accordance with the 'Contract for Differences' written in September 2008. This was partially offset by a positive £29m (H1 2008: £20m) release of statutory reserves in relation to the deferred annuity business. The H1 2008 result also included a positive £105m reserve movement following the reinsurance of UK immediate annuities.

Excluding the above adjustments the normalised underlying IFRS result was £44m lower than H1 2008. Lower financial markets have had an inevitable impact on assets under management. This has reduced annual management charges, while lower interest rates have also reduced the return earned on working capital.

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

Awards won during 2009

During H1 2009, customer service remained one of our key strengths and was recognised through the following awards:

- • Corporate Adviser:
- -Best Corporate Pension Provider
- • Money Marketing Awards:
- -Company of the Year
- -Best Pension Provider
• Financial Adviser Life and Pension Awards:

-SIPP and/or SSAS Provider of the Year

-Best Income Drawdown Provider

Business review continued

1.5 Business segment performance continued

1.5.1 UK financial services continued Savings and mortgages

The savings and mortgages business offers retail savings and mortgage products in the UK, via intermediaries and also direct to customers, all through telephone and internet-based platforms. The focus during 2009 has been on managing liquidity and the size of the mortgage book appropriately in response to ongoing volatile market conditions.

Key performance indicators
H1 2009		H1 2008	Movement
Mortgages under management	£8.8bn	£9.7bn1	(9%)
Gross lending	£143m	£728m	(80%)
Savings and deposits	£5.5bn	£5.0bn1	10%
IFRS underlying profit before tax	£15m	£12m	25%
Return on equity after tax	7.4%	5.2%	2.2% points
Interest margin	67bps	49bps	18bps
Cost income ratio2	43%	61%	18% points

1 Comparative as at 31 December 2008.
2 Cost income ratio calculated as total operating expenses (excluding impairment charges) divided by total underlying income - H1 2008 has been restated on this basis.
Please refer to Section 1.9 - Basis of preparation and Section 7 - Glossary.

New business

Our savings book experienced strong growth of 15% to £5.5bn (H1 2008: £4.8bn), of which SIPP and Wrap balances represent £1.8bn (H1 2008: £1.1bn). Savings balances increased across the product range, with Individual Savings Accounts (ISA) and business accounts performing well during the first half of 2009.

Consistent with the strategy of managing our mortgage exposure, gross mortgage lending decreased by 80% to £143m (H1 2008: £728m). The UK mortgage market as a whole also experienced significant reductions in gross lending during 2009 compared to previous years, due to the scarcity and higher costs of wholesale funding and the tightening of lending criteria brought on by the credit crunch and its impact on the wider economy.

Funding

Following our approval as an eligible institution under the UK Government 2008 Credit Guarantee Scheme we launched our Euro Medium Term Note programme and issued £500m of 2 year AAA rated debt in February 2009, further strengthening and diversifying our term funding base. In addition, our focus on retail product management has generated positive savings and mortgage inflows allowing us to reduce our reliance on wholesale funding during H1 2009.

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

Performance

Our savings and mortgage business delivered a robust performance, focussing on managing profitability whilst ensuring liquidity requirements were met. IFRS underlying profit before tax (excluding volatility in respect

of non-qualifying economic hedges) increased to £15m (H1 2008: £12m), despite increased impairment charges in the period.

Return on equity in H1 2009 increased to 7.4% (H1 2008: 5.2%), with our ability to achieve our 15% target continuing to be impacted by the effects of the credit crisis.

The growth in retail savings, combined with the reduction in wholesale funding and careful balance sheet management, has driven an increase in interest margin to 67 bps (H1 2008: 49 bps). Improved interest margin, coupled with continued focus on cost efficiency, has improved the cost income ratio in H1 2009 to 43% (H1 2008: 61%).

Our high quality mortgage portfolio continues to perform well despite the adverse economic conditions, with arrears figures remaining low in comparison to the Council of Mortgage Lenders (CML) average. Only 0.68% of total mortgages were three or more months in arrears or in repossession at the end of H1 2009, nearly a quarter of the CML industry average of 2.61% (as at Q1 2009). The average indexed loan to value ratio increased slightly to 48% (31 December 2008: 46%). Impairment charges, which reflect market factors including rising unemployment and falling house prices, increased to £8m in H1 2009 (H1 2008: £1m), however our net write-offs for H1 2009 were only £2m (H1 2008: £1m), further demonstrating the high quality of our mortgage portfolio.

Healthcare

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

Key performance indicators

	H1 2009	H1 2008	Movement
New business	£10m	£14m	(29%)
In-force premium income	£295m	£295m	-
IFRS underlying profit before tax	£5m	£8m	(38%)
Underwriting profit	£4m	£4m	-
Return on equity after tax	7.6%	12.2%	(4.6% points)
Claims ratio	70.9%	70.2%	(0.7% points)

Please refer to Section 1.9 - Basis of preparation and Section 7 - Glossary.

New business

Our overall new business sales decreased by 29% to £10m (H1 2008: £14m), due to the adverse economic conditions. Our strategy continues to be that of writing only profitable business. In-force premium income was maintained at H1 2008 levels of £295m despite these challenges. New customer propositions, offering market-leading flexibility were launched in November 2008 for the larger corporate customers and June 2009 for individuals.

Performance

IFRS underlying profit before tax was £5m (H1 2008: £8m), before taking into account one-off costs relating to new system development and restructuring costs. The £3m fall in IFRS underlying profit for H1 2009 was primarily due to reduced investment income as a result of depressed investment returns.

Underwriting discipline has seen the underwriting profit maintained at H1 2008 levels despite pressures on the claims ratio and earned premium. Annualised return on equity for H1 2009 was 7.6% (H1 2008: 12.2%).

UK financial services looking ahead

We expect markets to remain volatile and economic conditions to remain difficult. However, we remain confident about the prospects for our pensions business. As a significant proportion of our business relates to consolidation of existing assets we expect this to underpin future activity levels.

Following the success of our recent BT Scheme win, we expect our market-leading corporate pensions business to continue to benefit from opportunities from the movement towards defined contribution schemes by employers, and the movement towards bundled products. In addition, we will continue to invest and build momentum in our award winning Wrap platform. Continuing volatility in financial markets has created difficult conditions for our customers however we remain confident of generating profitable returns in the markets in which we operate.

Within our savings and mortgages business we will continue to develop our savings proposition whilst managing the balance sheet appropriately. Within our healthcare business we expect our recently launched innovative flexible individual and corporate propositions to gain momentum as the economy begins to recover.

Business review continued

1.5 Business segment performance continued

1.5.2 Canada

Standard Life Canada continues to deliver positive operating results through challenging times. Volatile financial markets and a weakened Canadian economy have impacted our results in the first half of 2009, but we remain committed to profitable growth and operational and capital efficiency. Standard Life Canada serves 1.3 million customers in its range of savings, retirement and insurance products. Standard Life Canada currently has £18bn of assets under administration.

Key performance indicators

	H1 2009	H1 2008	Movement
Net flows	£139m	£304m	(54%)
New business PVNBP	£1,352m	£1,201m	13%
New business contribution	£18m	£18m	-
Internal rate of return	14%	21%	(7% points)
Discounted payback period	9 years	7 years	(2 years)
EEV operating profit before tax	£89m	£79m	13%
IFRS underlying (loss)/profit before tax	(£10m)	£66m	(115%)

Please refer to Section 1.9 - Basis of preparation and Section 7 - Glossary.

Net flows and new business sales

Net flows have decreased by 59% in constant currency to £139m (H1 2008: £304m), primarily due to the inclusion of a large single premium of £297m in the prior period. Results in 2009 were underpinned by increased sales and continued strong client retention.

PVNBP sales increased by 2% in constant currency to £1,352m (H1 2008: £1,201m). Group savings and retirement sales decreased by 11% in constant currency to £750m, with continued price competition in the market. A large win in our core defined contribution segment accounted for £208m in H1 2009. We increased our relationship building efforts in the first half of 2009 with key distributors and introduced several features for plan sponsors and members alike, focused on our administrative and investment platforms. Sales in our core defined contribution offering increased by 41% in constant currency to £635m (H1 2008: £408m). Excluding large wins in both years, group savings and retirement total sales increased by 4%. Group insurance sales increased by 92% in constant currency to £260m, of which £149m is due to changes to renewal assumptions which were made as part of the 2008 year end process. Excluding large cases in both years and assumption changes, total sales were in line with last year. Sales in our retail line, which include individual insurance, savings and retirement and mutual funds were impacted by the financial crisis, and declined slightly in constant currency.

New business profitability

New business contribution (NBC) remained constant at £18m (H1 2008: £18m) and PVNBP margins declined to 1.3% (H1 2008: 1.5%). Margins were impacted by lower fund values in our investment funds caused by the decline in equity markets in the second half of 2008. IRR reduced to 14% (H1 2008: 21%) and the payback period extended to nine years (H1 2008: seven years), due largely to lower profitability in investment funds products caused by market-related declines in asset values.

Business development

In light of the continuing difficult market conditions, we have focused our efforts on building client and distributor relationships and highlighting our innovative solutions to protect our clients' assets. We are continually evolving our group pensions platform, with enhancements to our investment program and award winning member communication plan, providing plan members with improved tools to manage their retirement needs and safeguard their assets. Our member and sponsor interactive websites were both recognised in 2009 by winning awards for marketing and communication excellence and technological achievements. In our group insurance line, we are addressing sponsor need for a cost-efficient, flexible benefits solution, and will introduce new products such as a critical illness offering. In our retail line we continue to expand our fund offering, and have offered clients innovative fund portfolios which enable them to manage investment risk in a more proactive manner. Our expertise in this domain was evidenced by our Moderate Portrait Portfolio Fund being awarded the Lipper Fund Award as 2009's Best Fund in the one-year Canadian Neutral Balanced category. We are actively promoting our risk management approach and our strong overall investment track record, where close to 75% and 60% of our funds ranked in the top two quartiles for three year and one year returns, respectively.

Performance

EEV operating profit before tax

EEV operating profit before tax increased by 3% in constant currency to £89m (H1 2008: £79m). The core element accounted for £85m compared to £75m in H1 2008, an increase of 3% in constant currency. This was driven by an improvement in total expected return of £10m to £68m (H1 2008: £58m). NBC remained stable, at £18m (H1 2008: £18m). The efficiency result amounted to a loss of £5m (H1 2008: loss £3m), whilst the back book management operating result was a gain of £9m (H1 2008: profit £7m), mostly as a result of mortality improvements.

IFRS underlying (loss)/profit before tax

Market conditions have continued to impact IFRS results, with the underlying results decreasing to a loss of £10m in the period (H1 2008: profit £66m). This was largely driven by investment losses resulting from declines in property values, and equity market volatility. Whereas most losses from assets supporting policyholder liabilities are offset by corresponding changes to those liabilities, volatility on assets supporting shareholder capital directly impacts earnings, and such losses totalled £16m (H1 2008: gain £9m). We have and will continue to take action to reduce volatility from our balance sheet. A strengthening of policyholder liabilities because of lower anticipated cash flows from property assets, amounting to £68m was also recognised as a result of the economic conditions. This was partly offset by a release of policyholder liabilities of £50m (H1 2008: £22m), due to higher anticipated cash flows from fixed income assets. Other movements included a fall in fee income relating to lower asset values and revenue of £13m related to a release of policy guarantees following an improvement in equity markets. The business maintained its good credit profile, experiencing no defaults in its corporate bond and mortgage loan portfolios. The mortgage portfolio had an average loan to value ratio of 44%. The value of mortgages where the loan to value ratio exceeded 70% amounted to just £84m and there were no mortgages three or more months in arrears or in repossession at the end of June 2009.

Looking ahead

We remain cautious about growth prospects in the short term due to the weak economy while our operating performance remains positive. We expect results to improve if the capital markets recovery continues. Our continued focus on operational and capital management will enable us to take advantage of opportunities in our core chosen markets of defined contribution pension and disability insurance. Our retail line is gaining momentum from both the repositioning of distribution last year and more positive news in the financial markets.

Business review continued

1.5 Business segment performance continued

1.5.3 Europe

The operations in Europe consist of Standard Life Ireland, Standard Life Germany, which operates in both Germany and Austria, and Standard Life International, the offshore business based in Dublin. The European businesses offer a range of investment and pension solutions and currently have £8bn of assets under administration. Standard Life Ireland is celebrating its 175th anniversary this year and a series of events are planned to further strengthen the brand.

Key performance indicators

H1 20091		H1 20082	Movement
Net flows	£388m	£497m	(22%)
New business PVNBP	£557m	£689m	(19%)
New business contribution	£4m	£7m	(43%)
Internal rate of return	7%	10%	(3% points)
Discounted payback period	21 years	17 years	(4 years)
EEV covered business operating profit before tax	£15m	£27m	(44%)
EEV non-covered business operating loss before tax	(£2m)	-	-
IFRS underlying profit before tax	£21m	£16m	31%

1 The H1 2009 figures include offshore bonds that were previously reported under UK life and pensions.

2 The H1 2008 figures have been restated to reflect the inclusion of offshore bonds. The H1 2008 impact is: net inflows of £265m, PVNBP of £270m, NBC of £6m, IRR increase of 2%, payback period shortened by 13 years, EEV operating profit before tax of £1m and IFRS underlying loss before tax of £8m.

Please refer to Section 1.9 - Basis of preparation and Section 7 - Glossary.

Net flows and new business sales

Total net flows for H1 2009 in Europe have fallen by 28% in constant currency to £388m with the strength of German gross inflows offsetting the lower offshore flows during the period. Total new business sales in Europe decreased by 27% in constant currency to £557m (H1 2008: £689m).

In Germany, PVNBP sales of £185m (H1 2008: £262m) were 39% lower than H1 2008 in constant currency. This largely reflects weak consumer confidence, coupled with a preference for the more familiar domestic players during the current period of economic uncertainty.

PVNBP sales in Ireland (excluding offshore bonds) increased 8% in constant currency to £199m (H1 2008: £157m) driven by increased sales in the post retirement area resulting from expected changes to pensions tax relief legislation. Offshore bond sales, now reported within the Europe results, having previously been included in the UK results, were 36% lower at £173m (H1 2008: £270m) due to weaker consumer confidence in the stock market.

New business profitability

New business contribution in Europe decreased to £4m (H1 2008: £7m). The overall internal rate of return (IRR) and discounted payback period also deteriorated compared to the prior year. This was caused by the lower sales volumes which were not fully compensated by a proportionate reduction in the cost base in Germany and the offshore business. However, in Ireland the IRR has increased due to higher sales and lower acquisition costs.

Business development

Across Europe we are focused on strengthening our existing operations and improving efficiency while also responding to the difficult market conditions with innovative solutions for customers and distributors.

In Germany, we have a pipeline of planned product enhancements that will increase the capital efficiency of the business while also strengthening our position in the corporate and wealth management markets.

In Ireland, the continued development of our self investment Synergy product range, particularly our extensive deposit options, has now positioned our platform as the most comprehensive in this space.

Performance

EEV operating profit before tax

EEV operating profit before tax decreased by 60% in constant currency to £13m (H1 2008: £27m). This is due to the inclusion in H1 2008 of £12m as a result of improved risk margins following the reinsurance of UK immediate annuities. EEV operating profits in Germany and the offshore business were also affected by lower sales and adverse persistency variations, which have been partially offset by increased profits in Ireland

due to improved back book management.

IFRS underlying profit before tax

IFRS underlying profit before tax increased by 5% in constant currency to £21m (H1 2008: £16m) with Germany contributing £26m (H1 2008: £26m) and Ireland recording a profit of £3m (H1 2008: loss £2m). Losses of £6m (H1 2008: loss £8m) from offshore bonds and expenses of £2m relating to European development are included in the Europe results for the first time. The decrease in Germany of 13% 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, which was partly offset by increasing profits from the post-demutualisation business. In Ireland, there has been a significant increase in IFRS profits of £5m due to improved back book management and increased fee income as the post-demutualisation book grows.

Looking ahead

Market and economic conditions in Europe continue to be challenging and until confidence is restored in investment markets we expect sales growth to be delayed.

In the short term, we are transforming our European operations into an asset managing business. This means launching new products, re-engineering our current product range to improve capital efficiency, aggressively managing our cost base and continuing to offer innovative solutions to the individual wealth management and corporate markets.

In the medium and longer term, prospects for Europe are good. We are well positioned to build on our strength in distribution, market-leading platform propositions and range of investment solutions to grow in both existing and new markets. This will allow us to exploit the opportunities presented by changing regulations and the growing demand for wealth management solutions across Europe.

Business review continued

1.5 Business segment performance continued

1.5.4 Asia

Standard Life has a growing position in the Asia Pacific life and pensions market with joint venture companies in India and China and a wholly owned subsidiary in Hong Kong performing well under difficult conditions.

Key performance indicators

H1 2009		H1 2008	Movement
New business PVNBP1	£296m	£240m	23%
New business APE2	£56m	£56m	-
IFRS underlying loss before tax	(£25m)	(£16m)	(56%)

1 H1 2008 PVNBP includes a restatement to opening assumptions in India. The impact is to reduce H1 2008 PVNBP by £53m.

2 H1 2008 APE include reclassification of regular premium to single premium for China. The impact is to reduce H1 2008 APE by £1m.

Please refer to Section 1.9 - Basis of preparation and Section 7 - Glossary.

New business

Despite ongoing difficult trading conditions, Asia continued to achieve growth, with total PVNBP sales up 6%1 in constant currency to £296m (H1 2008: £240m).

In India, HDFC Standard Life Insurance Company (HDFC SL) delivered good results in challenging conditions. The effects of the economic slowdown and volatility in equity markets have continued to impact customer activity. However, PVNBP sales delivered a 2%1 increase in constant currency to £203m (H1 2008: £180m). APE sales were down 23% in constant currency to £41m (H1 2008: £48m). Lower levels of growth are being experienced by the India life insurance sector with many operators focusing on cost control during the period of the economic downturn. Management initiatives to rationalise the number of financial consultants and enhance productivity have resulted in a reduction of financial consultants to approximately 200,000 (31 December 2008: 202,000). As part of cost control measures, the number of managers employed to manage the financial consultants has been reduced and the number of branches is also decreasing.

In China, Heng An Standard Life Insurance Company Limited (HASL) PVNBP was 1% below H1 2008 in constant currency at £56m. However, regular premiums have increased by 185% compared to H1 2008 in constant currency.

In Hong Kong, sales increased by 56% in constant currency to £37m (H1 2008: £18m) on a PVNBP basis and by 49% on an APE basis.

Performance

Asia IFRS underlying loss of £25m was higher than the prior year, reflecting the continuing investment in developing the operations in the region and the negative impact of exchange rate movements.

Looking ahead

We anticipate that sales in Asia will continue to grow, driven primarily by deeper penetration of markets and product development. The pace of overall growth is likely to be dampened by negative consumer sentiment caused by the economic downturn. However, we believe that both our joint ventures and subsidiary are well placed to achieve good levels of performance despite the challenging trading conditions.

Future sales growth in India will be underpinned by productivity, development of the sales force and optimising the bancassurance distribution channel via the HDFC Bank branch network. We also envisage growth in other channels including direct marketing, telemarketing and independent broker.

In China a branch in Guangdong province opened in July which takes our presence into 26 cities across eight provinces. Guangdong was the top province for life insurance sales in China in 2008 and accounts for one tenth of national gross domestic product.

We expect sustainable growth in Hong Kong as it continues to broaden and deepen its broker distribution arrangements and develop its offshore business activity.

1.5.5 Global investment management

The focus at Standard Life Investments is to deliver superior investment performance, supported by an exceptional client experience. 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 past 10 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 2009 despite the volatile market conditions.

Key performance indicators

	H1 2009	H1 2008	Movement
Third party assets under management (AUM)	£47.3bn	£45.5bn1	4%
Total assets under management	£121.6bn	£123.8bn1	(2%)
Third party gross inflows	£5,210m	£4,966m	5%
Third party net inflows	£3,113m	£2,658m	17%
Earnings before interest and tax (EBIT)	£30m	£46m	(35%)
IFRS normalised underlying profit before tax2	£27m	£52m	(48%)
IFRS profit/(loss) before tax	£19m	(£15m)	227%
EBIT margin	24%	32%	(8% points)

1 Comparative as at 31 December 2008.
2 IFRS normalised underlying profit before tax excludes all costs associated with the restructuring of a sub-fund of Standard Life Investments (Global Liquidity

Funds) plc, including £6m (H1 2008: £27m) within the Group's IFRS underlying profit statement in Section 4 of this report.

Please refer to Section 1.9 - Basis of preparation and Section 7 - Glossary.

Standard Life Investments delivered a strong underlying performance in H1 2009, against the continued background of extremely volatile and dislocated markets. The strong sales momentum of past years has continued in 2009 with an increasing proportion coming from outside the UK. Higher third party net inflows almost fully offset the very substantial fall in market values. Revenue fell as a result of the current market conditions but costs were also reduced substantially to deliver an EBIT of £30m (H1 2008: £46m) for the half year. Standard Life Investments has continued to focus on maintaining high levels of customer service and protecting existing relationships while managing our current revenue streams and cost base very tightly. In addition, there has been continued investment in building our capabilities, particularly in global equities, global fixed income, global property and global absolute return strategies (GARS), in order to build future revenue streams and emerge stronger from the current downturn.

Financial market overview

The financial crisis continued to weigh heavily on the global economy in 2009. Despite the rally in equity markets in March and April, average market values in the first half of 2009 were substantially lower than for the equivalent period last year. The average daily FTSE All-Share Index, for example, fell 31% between the two periods and this, combined with similar falls in other major world markets, inevitably put downward pressure on asset management revenues. Since H1 2008, the UK industry has also experienced substantial net outflows of funds, particularly at the retail end of the market. In contrast, Standard Life Investments has been able to mitigate the worst effects of the market falls and has also maintained relatively strong third party sales momentum throughout the period, across both institutional and retail customer segments.

Investment performance

UK equity investment performance improved significantly in the first half of 2009 and we continued to deliver good investment performance over the longer term. The money-weighted average active investment performance over all time periods - 1, 3, 5 and 10 years - continues to be comfortably above median for our third party business. The strength of our investment process across a range of open-ended investment companies (OEICs) and unit trusts is demonstrated by the high proportion of eligible and actively managed funds (21 out of 27) rated 'A' or above by Standard & Poor's, including the complete range of eligible UK fixed income OEIC funds.

The institutional pipeline of new business is strong with continued demand for GARS and fixed interest products, increasingly from outside the UK. In addition, the product range continued to expand in response to consumer demand with the introduction of three new retail funds: the Strategic Bond Fund; the UK Equity Recovery Fund; and the European Equity Income Fund.

Business review continued

1.5 Business segment performance continued

1.5.5 Global investment management continued

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

'Best Sterling Corporate Bond Fund' - Morningstar Fund Awards
'Winner, Global Fixed Income Fund (Unhedged Category)' - Asian Investor Awards
'Winner, Sterling High Yield Bond Fund' - Lipper Awards
'Winner, UK Smaller Companies Category' - Moneywise Investment Trust Awards
'Top One Hundred Fund Manager of the Year' (Harry Nimmo) - Citywire Awards
'Best UK Small Cap' - Money Observer Investment Trust Awards
'Smallcap Fund of the Year' - The Growth Company Awards

Net flows

Standard Life Investments achieved third party net inflows of £3,113m (H1 2008: £2,658m), a 17% increase over the equivalent period last year and representing an annualised 14% of opening third party AUM. Despite sales being affected by the ongoing industry slowdown and continuing market volatility, positive momentum was maintained across the board, particularly in UK retail, Europe, Canada and India plus our money market funds. Retail net inflows (UK mutual funds and SICAVs) achieved a significant increase over the same period last year rising to £499m (H1 2008: £4m). 58 new institutional clients were won in the UK and Europe during the first half of the year, 10 segregated and 48 pooled, increasing the institutional client base in these markets by 16%.

Third party AUM remained resilient in the face of weak markets reaching £47.3bn (30 June 2008: £47.5bn, 31 December 2008: £45.5bn), with strong net inflows being offset by the impact of adverse market movements. In-house AUM fell to £74.3bn (30 June 2008: £83.1bn, 31 December 2008: £78.3bn) due to a combination of adverse market movements and continuing outflows from with profits business. As a result, total assets managed by Standard Life Investments stand at £121.6bn (30 June 2008: £130.6bn), slightly below the 2008 year end level of £123.8bn.

Performance

EBIT held up well in the face of difficult trading conditions at £30m for the half year (H1 2008: £46m; H2 2008: £36m). Revenue fell 12% as a result of the substantial fall in world markets and volatile trading conditions but costs were tightly controlled and also fell 5% in constant currency despite allowing for continued investment in the business to sustain our longer term growth. These measures enabled us to hold the EBIT margin at 24% (H1 2008: 32%) for the period.

IFRS normalised underlying profit before tax was £27m (H1 2008: £52m). IFRS profit before tax was £19m (H1 2008: loss £15m) reflecting restructuring costs of £2m and a £6m net negative fair value movement in respect

of the liability remaining following the restructuring of a sub-fund of Standard Life Investments (Global Liquidity Funds) plc and the 'Contract for Differences' written in September 2008 which limited this liability for Standard Life Investments. At H1 2008 the impact of restructuring was negative £66m.

Looking ahead

We expect conditions in the second half of 2009 to remain challenging for all players in the industry, including Standard Life Investments. The reduction in equity markets year on year will continue to impact revenue streams during the remainder of 2009. On the other hand, we continue to see a good volume of requests for proposals and our pipeline of confirmed third party new business is strong, driven substantially by institutional funds with opportunities skewed towards fixed interest and liability driven investment mandates, due to the existing market conditions. Over three quarters of the current pipeline is from clients outside the UK as Standard Life Investments continues to expand its global footprint.

Against this background we will continue to pursue our strategy of increasing the diversity of our earnings by growing our capability in selected product areas and increasing our global reach. We will also maintain tight control over our costs to drive further efficiencies and allow for necessary investment to support future growth.

1.6 Group assets under administration

Group assets under administration (AUA) represent the IFRS gross assets of the Group adjusted to include third party AUA, which are not included in the statement of financial position. In addition, certain assets are excluded from the definition, for example deferred acquisition costs, intangibles and reinsurance assets.

Analysis of Group AUA

For the period ended 30 June 2009

					Market
	Opening at	Gross			and other	Closing at
	1 January 2009 inflows Redemptions			Net flows	movements	30 June
	£bn	£bn	£bn	£bn	£bn	£bn
UK1	94.8	5.4	(5.3)	0.1	(2.0)	92.9
Europe1	8.3	0.8	(0.4)	0.4	(1.0)	7.7
Canada	18.0	1.2	(1.0)	0.2	(0.5)	17.7
Asia	0.5	-	-	-	-	0.5
Total worldwide life and pensions	121.6	7.4	(6.7)	0.7	(3.5)	118.8
Non-life businesses	13.0	0.1	(1.0)	(0.9)	0.2	12.3
Standard Life Investments third party
assets under management (AUM)45.5		5.2	(2.1)	3.1	(1.3)	47.3
Group adjustments2	(23.3)	(1.7)	0.9	(0.8)	2.2	(21.9)
Group assets under administration	156.8	11.0	(8.9)	2.1	(2.4)	156.5
Group assets under administration
managed by:
Standard Life Group entities 138.5						135.9
Other third party managers 18.3						20.6
Total	156.8					156.5

1 The opening balances for UK and Europe have been restated to reflect the inclusion of offshore bonds in Europe which had previously been included in the

UK figures.

2 In order to be consistent with the presentation of new business information certain products are included in both life and pensions AUA and

investment operations. Therefore, at a Group level an elimination adjustment is required to remove any duplication, in addition to other necessary

consolidation adjustments.

During the period, positive net flows of £2.1bn were offset by negative market/other movements of £2.4bn due to falling property and fixed interest security values. As a result Group AUA fell slightly to £156.5bn. Positive net flows were achieved in each of the life and pensions territories. However, worldwide life and pensions AUA fell by £2.8bn due to the adverse market movements experienced in H1 2009. Third party AUM increased to £47.3bn with net inflows being partially offset by adverse market movements. AUA in the non-life businesses fell by £0.7bn reflecting measures taken by our banking business to manage our mortgage exposure during difficult market conditions.

Business review continued

1.7 Capital and cash generation

Capital and cash generation highlights

	H1 2009	FY 2008	Movement
EEV operating profit capital and cash generation1	£188m	£250m2	(25%)
Group capital surplus3	£3.1bn	£3.5bn	(11%)
Group solvency cover3	217%	219%	(2% points)
Realistic working capital: Heritage With Profits Fund	£0.4bn	£0.5bn	(20%)
EEV	£5,859m	£6,245m	(6%)
IFRS equity attributable to equity holders of Standard Life plc	£3,106m	£3,407m	(9%)

1 Net of tax.
2 Comparative shown as at 30 June 2008.
3 H1 2009 based on estimated regulatory returns. FY 2008 based on final regulatory returns.

Please refer to Section 1.9 - Basis of preparation and Section 7 - Glossary.

Group capital and cash generation

The Group's IFRS statement of cash flows, included in the IFRS financial statements section of this report, shows that our net cash inflows from operating activities were £667m (H1 2008: £308m). 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.

If you have trouble viewing the table below, please follow the PDF link below;

http://www.rns-pdf.londonstockexchange.com/rns/8972W_-2009-8-5.pdf

H1 2009						H1 2008
Required						Required
Free surplus	capital		Net worth	Free surplus		capital	Net worth
movement	movement		movement	movement		movement	movement
£m	£m		£m	£m		£m	£m

New business strain	(96)	24	(72)		(152)	21		(131)
Capital and cash generation from existing business 257		(11) 246 263				-		263
Covered business capital and cash generation
from new business and expected return	161	13	174		111	21		132
Covered business development expenses (9)		-	(9)		(10)	-		(10)
Non-covered business core, capital and cash generation 2		-	2 21			-		21
Core	154	13	167		122	21		143
Efficiency	(8)	-	(8)		(3)	-		(3)
Back book management	26	3	29		89	21		110
Operating profit capital and cash generation 172		16 188			208	42		250
Capital and cash -operating generation from non -operating items (140) 1			(139)		(72)	3		(69)
Total capital and cash generation	32	17	49		136	45		181

All figures are net of tax. Net income directly recognised in the EEV balance sheet, including exchange differences and distributions to and injections from shareholders, are not included as these are not trading related cash flows.

The analysis on the previous page highlights the impact of profit on free

surplus and shareholders' net worth, including investment of shareholder

capital in new business, or new business strain (NBS) and the amount of

capital and cash emerging from existing business. NBS margin has fallen

to 1.0% (H1 2008: 1.5%) primarily due to planned reductions in sales of

UK onshore bonds and management actions to reduce NBS. Our covered

business capital and cash flows from new business and expected return

have increased to £174m (H1 2008: £132m). This was predominantly due

to a decrease in NBS following lower new business volumes. This has led

to NBS being covered three times by capital and cash flow from existing

business. In overall terms, our operating profit capital and cash generation

decreased from £250m to £188m. This is discussed in further detail below.

We also analyse capital and cash generation in the three components

that reflect the focus of our business effort - core, efficiency and back

book management. Core and back book management were the main

contributors to our capital and cash generation during the period. The core

capital and cash flows of £167m, primarily reflect robust capital and cash

generation from new business and expected return, and after tax profits

from non-life operations, partially offset by development expenses. The

back book management capital and cash flows of £29m largely arise from

management action over the in-force business and decreased primarily

due to the impact of the reinsurance of the UK immediate annuities in

H1 2008.

Non-operating capital and cash generation of negative £139m

(H1 2008: negative £69m) is driven by £188m of negative capital and

cash generation (H1 2008: negative £53m) in the life businesses and

predominantly consists of negative investment returns which reflect the

difficult economic conditions over the period. The non-life businesses

contributed positive £5m (H1 2008: negative £16m) of capital and cash

generation and includes unrealised fair value gains on derivatives, non‑life

restructuring costs and non-life net negative fair value movements in

relation to the 'Contract for Differences'. Non-operating capital and cash

generation also includes an after tax Group consolidation adjustment for

the Canadian subordinated liability of positive £44m (H1 2008: £nil) which

represents the removal of volatility arising from different accounting bases.

Holding company capital and cash flows

In addition to the movement in capital and cash on an EEV basis, the

following summary has been 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 Holding

Limited. The capital position is based on these companies' balance sheets, excluding investments in operating subsidiaries.

	H1 2009	H1 2008 FY 2008
	£m	£m	£m
Opening capital 1 January	623	502	502
Dividends received from subsidiaries	165	436	436
Additional investments in subsidiaries	(7)	(16)	(54)
Group corporate centre costs	(25)	(25)	(50)
Cash dividends paid to shareholders	(110)	(168)	(257)
Other	4	-	46
Closing capital	650	729	623

The capital and cash held in the holding company is managed at a level to fund the dividend obligations and strategic

investments of the Group. During H1 2009, capital increased by £27m, primarily as a result of receiving £165m of dividends

from subsidiaries offset by the capital impact of dividends paid to shareholders of £110m. 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. The Board must also consider the Group's future business plans, market conditions and

regulatory solvency when determining the level of dividends.

Business review continued

1.7 Capital and cash generation continued

Dividends

During the period, the Group paid the final dividend for 2008 of 7.70p per share, amounting to £168m. We have replaced the previous dividend reinvestment plan (DRIP) with a Scrip dividend scheme. The high take-up of the Scrip dividend option reduced the impact on capital of paying the 2008 final dividend from £168m to £110m. The Board proposes an interim dividend of 4.15p per share (H1 2008: 4.07p), an increase of 2%. This reflects the solid progress made during the period. Looking forward the Group will continue to apply its existing progressive dividend policy taking account of market conditions and the Group's financial performance.

Capital management

Objectives and measures of Group capital

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

Financial Groups Directive

	H1 2009	H1 2008 FY 2008
	£bn	£bn	£bn
Shareholders' capital resources	2.3	2.6	2.6
Capital resources arising from subordinated debt 2.1		2.0	2.2
SLAL long-term business funds	1.4	2.1	1.7
FGD Group capital resources	5.8	6.7	6.5
FGD Group capital resource requirement	(2.7)	(3.2)	(3.0)
FGD Group capital surplus	3.1	3.5	3.5
FGD Group solvency cover	217%	206%	219%

H1 2009 and H1 2008 based on estimated regulatory position.

The Group is classified as a 'financial conglomerate' as defined by the Financial Groups Directive (FGD). The FGD surplus has decreased to £3.1bn during the period, reflecting the payment of dividends to shareholders, continued investment in the business and the impact of adverse market movements, primarily in the long-term business funds. The strength of our FGD surplus has been maintained throughout the recent challenging market conditions. Group capital resources decreased mainly because of ongoing investment in the business and negative market movements during the period which reduced the capital resources of the HWPF. However, this was partially offset by a reduction to the capital resource requirements of the HWPF.

The quality of capital within the Group remains strong with only £0.8bn (31 December 2008: £0.8bn) and £0.7bn (31 December 2008: £0.7bn) of total Group capital resources classified as upper tier 2 and lower tier 2 respectively. Lower tier 2 capital contributes only 23% (31 December 2008: 20%) to the Group capital surplus and further illustrates the strength of our capital position.

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 2009:

	H1 2009	H1 2008 FY2008
	£bn	£bn	£bn
Opening capital surplus	3.5	3.6	3.6
Movement in capital resources of long-term business funds (0.3)		(2.4)	(2.7)
Movement in capital resource requirements of long-term business funds 0.1 2.4 2.7
Net movement in capital position of long-term business funds (0. 2) -			-
Movement in capital resources of shareholder funds:
Annuity reinsurance change	-	0.1	0.1
New business	(0.1)	(0.1)	(0.2)
Transfers from HWPF to shareholder funds	0.1	0.2	0.4
Dividend payments	(0.1)	(0.2)	(0.3)
Other factors	(0.3)	(0.1)	-
Movement in capital resource requirements of shareholder funds 0.2 - (0.1)
Closing capital surplus	3.1	3.5	3.5

The significant factors affecting the capital surplus during the six months to 30 June 2009 were:

Shareholder funds:

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

The Group capital resources include the capital resources within the long-term business funds, but the FGD limits the amount that can be recognised to the level of the capital resources requirement for that fund. The HWPF currently has a negative contribution of £0.2bn to the Group capital surplus, reflecting that its capital resources are now less than its capital resources requirement, the latter being covered in part by capital resources held outwith the HWPF. Previously the HWPF capital resources exceeded its capital resources requirement, resulting in a restriction (£1.3bn at 31 December 2008) and a net zero contribution to the Group capital surplus.

The largest regulated entity within the Group is Standard Life Assurance Limited (SLAL), and its regulatory position reflects capital resources including long-term business funds. SLAL's capital resources have decreased primarily as a result of falling property, equity and bond returns and the payment of dividends. This has led to a decrease in solvency cover to 207% from 274% at 31 December 2008.

The capital resources of SLAL include the residual estate of approximately £0.4bn. This represents a reduction of £0.1bn from the level at 31 December 2008, however it has improved by £0.1bn from the March level reported at the preliminary announcement on 12 March. The reduction of £0.1bn from 31 December 2008 largely reflects the net effect of changes in market conditions. The impact on the residual estate of further falls in equity markets continues to be mitigated by the hedges we have in place. The impact of most other adverse asset movements would, in the first instance, be met by policyholders with 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.

Business review continued

1.7 Capital and cash generation continued

Analysis of accrued transfers out of the HWPF
	H1 2009		H1 2008 FY 2008
	£m		£m	£m
Recourse cash flows arising on UK and Irish unitized contracts 81		118		243
Recourse cash flows arising on UK and Irish non-unitised contracts 24 27 124
Additional expenses charged on German contracts unitised with-profit contracts 13			20	39
Transfer out of HWPF	118		165	406

In accordance with the Scheme of Demutualisation of the Standard Life Assurance Company (the Scheme), certain transfers

are made out of the HWPF to the shareholder fund with this transfer being made after the year end position is finalised. The

recourse cash flows accruing in respect of UK and Irish unitised contracts fell to £81m (H1 2008: £118m) primarily due to

reduced management charges on a lower asset base. The German additional expense charge has reduced as the percentage

allocation has fallen in accordance with the Scheme.

Reconciliation of key capital measures

The following diagram illustrates the key differences between the regulatory, IFRS and EEV capital measures at 30 June 2009:

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

• Shareholder capital, used to invest in the strategy of the Group, covers the capital requirements borne directly by

shareholders and manages risk borne by shareholders

• Capital arising from the subordinated debt issued by the Group, amounting to £2.1bn at 30 June 2009, which is used to

provide capital support to SLAL and Standard Life Bank

• A restricted amount of policyholder capital (£1.4bn at 30 June 2009), which matches the capital resource requirements of

that business, and includes the HWPF

While these latter two elements provide capital support for the Group, they do not form part of the shareholders' regulatory capital. Shareholder capital can be measured under each of the Group's reporting bases - regulatory, IFRS equity and EEV net worth. Each of these is a comparable measure of the net assets attributable to equity holders of the Group. In some cases, the regulatory rules for valuing assets and liabilities differ from IFRS accounting rules, resulting in a valuation adjustment of £0.8bn. Similarly, the EEV balance sheet recognises certain valuation adjustments to give the EEV net worth, resulting in an equivalent adjustment of £0.1bn to IFRS equity holder funds. The total EEV of the Group relates to the net worth adjusted for the cost of capital of £0.3bn and increased by the value of the present value of in-force business (PVIF) of £3.2bn to give the total EEV of £5.9bn at 30 June 2009.

Capital management policy

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

Debt, facilities and liquidity

The Group's capital structure has been developed to provide an efficient capital base by using a combination of equity holders' funds, subordinated debt and capital within the HWPF. The Group has robust plans in place to ensure that it has access to sufficient liquidity to meet operating requirements during the current market uncertainty. Our banking operation remains well capitalised with a very high quality mortgage book, has access to a range of funding sources and has continued to actively reduce its funding requirements during the period.

Bond default allowances

Shareholders are exposed to debt securities which back annuity liabilities in the UK and Europe and the liability in respect of longevity risk reinsured from SLAL's HWPF. These debt securities amount to £1.8bn and comprise £0.8bn of government and government backed bonds and £1.0bn of other corporate bonds. There were no defaults in respect of assets backing UK and European annuity liabilities in H1 2009. The average yield deduction to allow for future defaults within the valuation of liabilities has been broadly maintained at 31 December 2008 levels. Debt securities in Canadian non-segregated funds amount to £5.2bn, including £2.1bn of corporate bonds. There were no defaults within this portfolio of debt securities during H1 2009 and the allowance for future defaults within the valuation of liabilities has been maintained at 31 December 2008 levels.

Financial assets valuation and exposures

Asset-backed securities

Standard Life's total investment (including third party funds) in the asset-backed securities markets across both short-term treasury instruments and long-term fixed interest is approximately £4.4bn or 2.8% (31 December 2008: £5.3bn or 3.3%) of Group assets under administration (AUA), predominantly in UK securities. Of the total of £4.4bn, £1.2bn relates to shareholder funds, of which £1.0bn is AAA rated. The overall level of asset-backed securities has reduced compared to 31 December 2008 as a result of disposals from non-shareholder funds, a number of securities reaching maturity and market movements. The Group has continued to actively manage its exposure to asset-backed securities and the portfolio remains of high quality with no direct exposures to the US mortgage market, no exposure to leveraged structures, no current direct exposure to Monolines and very modest exposure to credit within a Monoline wrapper.

Shareholder asset exposures

At 30 June 2009, shareholders had direct exposure to equity, debt securities and investment property of £9.9bn. This included exposure to equity securities of £0.4bn. The exposure to debt securities was £8.8bn and consisted of government debt securities of £3.7bn, corporate bonds of £4.8bn and other debt securities including supranationals of £0.3bn. The exposure to investment property amounted to £0.7bn. The total shareholder exposure to equity securities, debt securities and investment property of £9.9bn includes £6.2bn of assets held by non-segregated funds in Canada. The effective exposure of shareholders to assets of the non-segregated funds in Canada was significantly lower than £6.2bn because changes in the value of assets are typically offset by a change in the value of the related liabilities. The shareholder exposure is limited to the net impact on the shareholder surplus and the value of any guarantees which may be triggered. In addition, shareholders had direct exposure to loans and receivables of £10.6bn which included £8.6bn in respect of the retail mortgage book of Standard Life Bank and £2.0bn in respect of the commercial mortgage book of the business in Canada. Both mortgage books are deemed to be of very high quality. The average indexed loan to value of the Standard Life Bank mortgage book stood at 48%. For further information on the Standard Life Bank mortgage book see Section 1.5.1. The mortgage book in Canada had an average loan to value ratio of 44%. The value of mortgages where the loan to value ratio exceeded 70% amounted to just £84m and there were no mortgages three or more months in arrears or in repossession at the end of June 2009.

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 2008 Annual report and accounts.

Business review continued

1.8 Risk management

Risk management is an integral part of the Group's corporate agenda. We have developed and embedded an Enterprise Risk Management framework that enables the risks of the Group to be identified, assessed, controlled and monitored consistently, objectively and holistically.

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

Further detail of our approach to risk management is provided in the Business review and Note 39 of the Group's 2008 Annual Report and Accounts. The Group's principal risks as reported in the 2008 Annual Report and Accounts are still relevant and

are summarised below:

1.9 Basis of preparation Overview

Our Business review for the period to 30 June 2009 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 yearly results in accordance with IAS 34. 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 uncertainties are detailed in Section 1.1 Group overview and principal risks are detailed in Section 1.8 Risk management and Note 39 of the Group's 2008 Annual Report and Accounts. Under DTR 4.2.8 we are also required to make certain related party disclosures. These are contained in Note 4.13 to the IFRS financial information. To give our shareholders 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 we have used in the Business review, together with other measures that are calculated in accordance with IFRS, are useful for both management and investors and make it easier to understand our Group's performance.

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

All non-GAAP measures should be read together with the Group's IFRS income statement, statement of financial position and statement of cash flows which are presented in Section 4.

EEV and IFRS reporting

The financial results are prepared on both an EEV basis and an IFRS basis. All EU listed companies are required to prepare consolidated financial statements using IFRS issued by the International Accounting Standards Board 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 pension policies and is designed to give a more accurate reflection of the performance of long-term savings business. 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 plc. EEV methodology has been applied to 'covered' business, which mainly comprises the Group's life and pension business. Non-covered business is reported on an IFRS basis. The EEV financial results in Section 1.3, of the Business review, and in Section 3 have been prepared in accordance with the EEV methodology applied by the Group in Note 3.16 for H1 2009, and in the relevant EEV methodology notes included in the 2008 Interim results and 2008 Annual Report and Accounts in respect of the comparative periods. The IFRS financial results in Section 1.4, of the Business review, and in Section 4 have been prepared on the basis of the IFRS accounting policies applied by the Group in the IFRS financial statements section of the 2008 Annual Report and Accounts as amended for new standards effective from 1 January 2009, as described in Note 4.1.

EEV operating and IFRS underlying profit

The segmental analysis of IFRS underlying profit before tax presents profit before tax attributable to equity holders adjusted for non-operating items. The H1 2009 EEV consolidated income statement 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. The H1 2009 EEV consolidated income statement is presented in Section 3 and the H1 2009 IFRS reconciliation of Group underlying profit to profit before tax is presented in Section 4.

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