Half Yearly Report - Part 1 of 5

RNS Number : 9317J

Standard Life plc

14 August 2012

 



Standard Life plc

Half Year Results 2012

14 August 2012

Part 1 of 5

Delivering value for customers and shareholders

Continuing growth in assets under administration

·   Group assets under administration of £204.2bn (FY 2011: £198.4bn)

·   Long-term savings new business sales of £10.1bn (H1 2011: £11.2bn)

·   Long-term savings net inflows of £1.6bn¹ (H1 2011: £2.9bn¹)

·   Standard Life Investments third party net inflows of £0.6bn¹ (H1 2011: £2.9bn¹)

·   Standard Life Investments third party assets under management (AUM) of £74.3bn (FY 2011: £71.8bn) with increasing asset class and geographic reach

Operating profit² increased by 15%

·   Fee based revenue increased to £620m (H1 2011: £611m)

·   Lower unit and absolute costs with acquisition expenses of 146bps (FY 2011: 169bps) and maintenance expenses of 43bps  (FY 2011: 46bps)

·   Operating profit before tax up 15% to £302m (H1 2011: £262m) helped by a significant improvement in UK performance

·   IFRS profit after tax attributable to equity holders up 28% to £254m (H1 2011: £199m)

Capital and cash generation up 53%, dividend up 6.5% and strong balance sheet

·   EEV operating capital and cash generation 53% higher at £295m (H1 2011: £193m)

·   Interim dividend up 6.5% to 4.90p

·   IGD surplus of £3.0bn (FY 2011: £3.1bn) remained relatively insensitive to market movements

Delivering for our customers

·   Now have 205,000 customers on platforms with £12.8bn in assets under administration

·   Continued growth in SIPP, helping to increase assets to £18bn

·   MyFolio has attracted assets of £1.5bn since launch in October 2010 and GARS AUM exceeds £17bn

David Nish, Chief Executive, commented:

"These results show that Standard Life is performing well. We have delivered increased profits, cash flow and dividends and we are achieving ongoing improvements in operational and financial performance. The UK results, where profits benefited from higher income and significantly lower costs, demonstrate the strength and scalability of our propositions and our brand.

"The industry is undergoing a period of significant change and we believe that this brings opportunity. We are well prepared for the regulatory and market changes on the horizon, and have invested to make sure we are even better placed to meet the needs of our customers and their advisers.

"The market environment is challenging and those conditions look set to continue, however, our business model, leading market positions and strong balance sheet, will allow us to continue to deliver ongoing improvements in value for customers and shareholders."

Unless otherwise stated, all comparisons are in Sterling and are for the six months ended 30 June 2011.

IFRS results	H1 2012 £m	H1 2011 £m
By source
Fee based revenue	620	611
Spread/risk margin	180	207
Total income	800	818
Acquisition expenses	(144)	(175)
Maintenance expenses	(389)	(393)
Group corporate centre costs	(20)	(25)
Capital management	47	37
India and China JV businesses	8	-
Operating profit before tax	302	262
By segment
UK	141	87
Global investment management	68	67
Canada	72	103
International	28	19
Other	(7)	(14)
Operating profit before tax	302	262
Tax on operating profit	8	(52)
Share of joint ventures' and associates' tax expense	(5)	-
Operating profit after tax	305	210
Diluted operating EPS	13.0p	9.2p
IFRS profit attributable to equity holders after tax	254	199
Diluted EPS	10.8p	8.7p
EEV results	H1 2012 £m	H1 2011 £m
Covered business by source
New business contribution	178	166
Contribution from in-force business	419	233
Other covered	(32)	(33)
Covered business EEV operating profit	565	366
Non-covered business
Global investment management	34	27
Other non-covered and corporate costs	5	(17)
Non-covered business EEV operating profit	39	10
EEV operating profit before tax	604	376
Tax on EEV operating profit	(119)	(96)
EEV operating profit after tax	485	280
Diluted EEV operating EPS	20.7p	12.3p
EEV profit after tax	625	321

For more information please read Section 1.6 - Basis of preparation and the reconciliation of consolidated operating profit for the period in Section 2 of the Half Year Results 2012

Review of key financial performance indicators

Operating profit increased by 15%

Operating profit before tax was 15% higher at £302m (H1 2011: £262m) reflecting a significant increase in the UK partly offset by lower profit in Canada due to timing of management actions and the low interest rate environment. Revenues from fee business increased to £620m and now make up 78% of total income (H1 2011: 75%). The remaining 22% (H1 2011: 25%) of total income is a margin on spread/risk business, which increased in our UK business as a result of higher sales of annuities, but was lower in Canada mainly due to lower interest rates and the reduced impact of specific management actions to enhance investment yields on assets. In total these resulted in the spread/risk margin being 13% lower at £180m (H1 2011: £207m).

Acquisition expenses, the costs we incur in writing new business, have fallen by 18% to £144m largely as a result of efficiency savings in UK and the scalability of our business. As a proportion of sales, acquisition expenses fell to 146bps (FY 2011: 169bps) for Group, and to 119bps (FY 2011: 144bps) in the UK. Maintenance expenses, the ongoing costs we incur in servicing and administering customer policies of £389m were in line with last year (H1 2011: £393m) while we continued to grow our business. Maintenance expenses expressed as a proportion of average AUA were down to 43bps (FY 2011: 46bps) at Group level and 30bps (FY 2011: 34bps) in the UK. This continues the positive trend and demonstrates the scalability of our business.

IFRS profit after tax attributable to equity holders of £254m (H1 2011: £199m) included restructuring expenses of £42m (H1 2011: £23m), a loss on short-term fluctuations in investment return and economic assumption changes of £43m (H1 2011: profit £27m) which was largely driven by financial market levels as at 30 June 2012, and the release of prior year tax provisions.

EEV operating profit increased by 61%

Total EEV operating profit (EVOP) increased by 61% to £604m (H1 2011: £376m). Within this, core EVOP was 3% higher at £370m (H1 2011: £359m), due to higher new business contribution (NBC) of £178m (H1 2011: £166m), higher profits from global investment management and lower corporate costs. These were partly offset by lower expected return on existing business of £200m (H1 2011: £222m) as a result of lower opening risk discount rates.

The new business contribution of £178m generated an NBC margin of 1.8% (H1 2011: 1.5%) and an IRR of 16% (H1 2011: 16%), primarily reflecting higher margins in our UK and International businesses, partly offset by lower margins in our Canadian business which was impacted by the lower interest rate environment.

Efficiency operating profit of £4m (H1 2011: £40m) reflects the impact of management actions in 2011 within the UK business to reduce current and future investment expenses.

Back book management EEV operating profit of £230m (H1 2011: loss £23m) includes the benefit of a number of management actions in the UK and Canada to manage the existing book of business and reduce burnthrough costs. These actions included asset strategy changes and improved actuarial modelling primarily in the UK and Canada.  

EEV operating capital and cash generation up 53%

Gross EEV operating capital and cash generation increased by 29% to £402m (H1 2011: £312m) driven by higher contributions from our covered businesses in UK and Canada as well as increased profits from global investment management. The increase was driven by an additional £72m from back book management, which included a benefit from the improved funding position of UK pension scheme and increased tax variances in the UK.

EEV operating capital and cash generation increased by 53% to £295m (H1 2011: £193m), reflecting the increase in gross capital and cash generation which has been used to fund lower new business strain of £107m (H1 2011: £119m).

Continuing growth in assets under administration

Assets under administration	1 Jan 2012	Gross flows	Redemptions	Net flows	Market and other movements	30 Jun 2012
Fee business (£bn)	163.3	13.3	(12.2)	1.1	3.7	168.1
Spread/risk business (£bn)	24.7	0.7	(1.2)	(0.5)	0.7	24.9
Other3 (£bn)	10.4	0.2	(0.1)	0.1	0.7	11.2
Group AUA (£bn)	198.4	14.2	(13.5)	0.7	5.1	204.2

Group assets under administration increased from £198.4bn to £204.2bn. This increase was driven by resilient, though lower, flows into our newer fee based propositions and positive market movements. Notably, Standard Life Investments had a strong start to the year with net inflows of £0.6bn, or £2.4bn excluding £1.8bn of previously announced expected outflows from a low revenue yield mandate, representing an annualised 7% of opening third party AUM.

Strong balance sheet

The strong capital position of the Group is evidenced by our balance sheet which continues to be robust on both an embedded value and IFRS basis despite the recent volatility in financial markets. Our IGD surplus was £3.0bn (FY 2011: £3.1bn) reflecting the payment of the final dividend of £216m in May 2012. Direct shareholder exposure to debt issued by governments and banks in Greece, Ireland, Italy, Portugal and Spain equates to less than £50m. Our capital and cash generation continues to be strong.

Our embedded value increased to £7,802m (FY 2011: £7,428m) representing embedded value per share of 331p (FY 2011: 317p). IFRS equity excluding intangible assets and non-controlling interests was £3,789m (FY 2011: £3,761m), representing 161p per share (FY 2011: 160p). The change in IFRS equity, excluding intangible assets and non-controlling interests, relates primarily to profit for the period attributable to equity holders of £254m offset by the impact of the dividend.

Increase in dividend and commitment to progressive policy

The Board have declared an interim dividend of 4.90p per share (H1 2011: 4.60p), an increase of 6.5% (H1 2011: 5.7%). The Group will continue to apply its existing progressive dividend policy taking account of market conditions and the Group's financial performance.

Outlook

Our industry in the UK is undergoing a period of significant change. Over the past few years we have built a scalable business that is capitalising on the opportunities that exist in our chosen markets. Combined with its leading market positions, we expect the UK business to continue to perform well.

Standard Life Investments has opportunities to continue to expand its capabilities and reach, both in the UK and internationally. While the low interest rate environment in Canada presents some challenges, the outlook for the Canadian economy remains steady. Following the appointment of a new CEO in Canada during February, we expect this business to drive improved operating performance as we concentrate our expertise on opportunities in long-term savings and investments. Our international business is focused on executing our overseas strategy following the creation of an Asia and Emerging Markets business.

Overall, whilst the market environment is challenging and those conditions look set to continue, our business model, leading market positions and strong balance sheet, will allow us to continue to deliver ongoing improvements in value for customers and shareholders.

UK

Operational highlights

·  Operating profit before tax up 62% to £141m, reflecting increased profit contribution⁴ across our UK business

·  Demand for investment solutions driving flows into higher margin MyFolio and Standard Life Wealth propositions

·  Our platforms have over 205,000 customers with AUA up 19% to £12.8bn

·  Total SIPP customers up 22% to 147,000 and AUA up to £18.0bn

·  Secured 71 new corporate schemes and now providing corporate pensions to almost 1.2m employees

Continuing to build on our advantage in our chosen markets

	1 Jan 2012	Gross flows	Redemptions	Net flows	Market     and other movements	30 Jun 2012
Retail fee business (£bn)	55.8	3.2	(3.1)	0.1	1.4	57.3
Corporate fee business (£bn)	22.0	1.6	(0.8)	0.8	0.3	23.1
UK fee business (£bn)	77.8	4.8	(3.9)	0.9	1.7	80.4
Institutional pensions (£bn)	17.5	2.1	(1.2)	0.9	0.8	19.2
Conventional with profits (excl. annuities) (£bn)	5.3	-	(0.7)	(0.7)	0.1	4.7
UK fee business total AUA (£bn)	100.6	6.9	(5.8)	1.1	2.6	104.3
Spread/risk business AUA (£bn)	14.4	0.3	(0.6)	(0.3)	0.6	14.7
Total AUA backing products (£bn)	115.0	7.2	(6.4)	0.8	3.2	119.0
Fee business revenue (bps)	73					73

UK fee business AUA grew by 4% to £104.3bn, reflecting a continuation of net inflows and positive market movements. Fee business net inflows of £0.9bn into our core retail (£0.1bn) and corporate pension propositions (£0.8bn) were in line with the second half of prior year but were lower than the strong flows in the first half of last year (H1 2011: £1.9bn). The average revenue yield across our UK fee business remained stable at 73bps.

Retail business with scale, momentum and market leading propositions

	1 Jan 2012	Gross flows	Redemptions	Net flows	Market     and other movements	30 Jun 2012
Retail fee business - new (£bn)	23.7	2.7	(1.2)	1.5	0.7	25.9
Retail fee business - old (£bn)	32.1	0.5	(1.9)	(1.4)	0.7	31.4
Retail fee business (£bn)	55.8	3.2	(3.1)	0.1	1.4	57.3

Net inflows into our core retail propositions of £0.1bn (H1 2011: £0.6bn) reflect robust gross inflows of £3.2bn (H1 2011: £3.6bn).

Retail fee business - new

Gross flows into our new style propositions were £2.7bn (H1 2011: £3.1bn), against a backdrop of subdued consumer sentiment, ongoing economic uncertainty and increased commission-based competition ahead of the Retail Distribution Review (RDR). Standard Life Wealth continued to build a strong presence in the IFA market with net flows into its higher margin propositions more than doubling to £390m (2011: £193m).

We have maintained good momentum in our platform propositions which continue to attract customers, advisers and assets as we continue to enhance the features and usability of our proposition. Our platform propositions are also a beneficial distribution channel for our investment solutions and Standard Life Investments funds, giving the Group access to the wider value chain.

·  Collectively, our platforms account for over 205,000 customers with total assets under administration up 19% to £12.8bn (H1 2011: £10.8bn)

·  The number of adviser firms on our Wrap platform increased by 17% to 1,087 (H1 2011: 926). We continue to embed our Wrap platform with existing adviser firms resulting in the average AUA per firm rising to £8.8m (H1 2011: £8.2m)

·  Total SIPP customers increased to 147,000, an increase of 22% year-on-year. Our SIPP proposition continues to perform well helping to increase AUA to £18.0bn (H1 2011: £16.4bn)

With RDR just 139 days away, our retail business is very well positioned for growth by providing both IFAs and direct customers with valued long-term savings and investment solutions. In particular, we are focused on meeting the needs of 'new model' advisers (both independent and restricted) who are best placed to prosper in the new market environment. Developing solutions for both advisers and their clients has allowed us to grow our market share without incurring the cost of commission on new business. Focus Solutions and threesixty Services provide Standard Life with an ability to support advisers in developing business models compliant with RDR, and beyond, deepening our relationships with these firms.

Retail fee business - old

Retention in our older style business has been encouraging with net outflows of £1.4bn in line with the same period last year (H1 2011: £1.4bn). We continue to look at ways of engaging with customers with maturing policies who may wish to continue to save or annuitise with Standard Life.

Retail - spread/risk

UK spread/risk business AUA increased to £14.7bn, as the positive impact on the value of debt securities from falling yields was partially offset by net annuity outflows driven by scheduled payments. Gross annuity inflows were 29% higher at £281m (H1 2011: £217m) reflecting improved conversion and retention activity which has increased the number of customers who choose to annuitise with us.

Corporate business positioned for growth from market and regulatory trends

We continued to build on our momentum, winning 71 new schemes (H1 2011: 82 schemes) and 62,200 new employees joined our pension schemes since the start of the year (H1 2011: 98,400 employees). The total number of members in our schemes increased to 1.2m (H1 2011: 1.1m). Wins in the first six months of the year included our first major Master Trust scheme which will result in an additional 24,000 members.

Corporate pension net inflows, excluding Trustee Investment Plan (TIP) business of Standard Life Investments, of £0.8bn (H1 2011: £1.3bn) demonstrate the strength of our corporate business at a time when employers are delaying decision-making ahead of the phased introduction of auto enrolment starting in less than two months.

We continue to build on our strong relationships with employers and corporate benefit consultants and have recently announced our comprehensive auto enrolment benefit solution. We have further enhanced our offering by building on the success of MyFolio risk-based funds in the retail space, launching a suite of investment solutions, including MyFolio, tailored for the corporate market.  

The overall quality of our propositions and the high levels of customer service we offer means we are well positioned to benefit from pension reform and RDR. We expect the introduction of auto enrolment to increase levels of employee participation in the 35,000 schemes we administer for our clients, resulting in 400,000 potential additional savers. More importantly, the introduction of auto enrolment is leading many corporates to review their overall pension provision giving rise to higher levels of enquiries from employers in our target market, which will drive further growth in our business towards the end of this year and in 2013.

Operating profit up 62% driven by fee business revenue and operational leverage

	H1 2012 £m	H1 2011  £m
Fee based revenue	325	309
Spread/risk margin	56	52
Total income	381	361
Acquisition expenses	(84)	(107)
Maintenance expenses	(169)	(171)
Capital management	13	4
UK operating profit before tax	141	87

Operating profit before tax in the UK business increased by 62% to £141m (H1 2011: £87m). This was driven by improved performance across our business combined with the benefits of operational efficiency and scalability.

Fee based revenue grew 5% to £325m driven by higher AUA as new style propositions continue to attract inflows while older style propositions benefit from ongoing increments, market movements and retention activity.

Spread/risk margin increased by 8% to £56m due to increased annuity volumes reflecting our successful ongoing customer engagement programme combined with strong margins.

Acquisition expenses fell by £23m to £84m. Maintenance expenses were also lower at £169m (H1 2011: £171m).

Capital management improved due to the investment of shareholder funds in higher yielding assets and the improved funding position of the UK staff pension scheme.

Lowering unit costs of our operations

Our technology is a key enabler in delivering lower unit costs. Over the past few years we have driven initiatives to manage the acquisition and maintenance expenses of our business and these are now showing results.

Acquisition expenses expressed as a proportion of PVNBP fell by 17% to 119bps (FY 2011: 144bps) as improvements in efficiency and absolute reductions in costs more than offset the impact of lower sales caused by the subdued economic conditions. Maintenance expenses expressed as a proportion of average AUA fell to 30bps (FY 2011: 34bps) reflecting the scalability of our operations and the improving efficiency of our processes.

Increasing profit contribution across the UK business

	H1 2012 £m	H2 2011  £m	H1 2011  £m
Retail fee business - new	25	10	-
Retail fee business - old	90	93	93
Retail fee business contribution	115	103	93
Corporate	40	24	25
Fee business contribution	155	127	118
Spread/risk	50	18	48
Total profit contribution	205	145	166
Indirect expenses, capital management and other	(64)	(76)5	(79)
UK operating profit before tax	141	69	87

Positive contributions from across our business, combined with our success in reducing indirect expenses, have driven a 62% increase in operating profit to £141m.

The UK business reported a 31% increase in profit contribution from fee business to £155m with both our retail and corporate fee businesses demonstrating good profit growth.

Retail fee based business profit contribution increased by 24% to £115m. Newer style propositions saw continued momentum and the benefits of the scalability of our business model, delivering a contribution of £25m, with Standard Life Wealth breaking even for the first time. The profit contribution from our older style retail propositions remained broadly steady reflecting the value of our back book contributions.

Our corporate business saw a 60% increase in profit contribution to £40m, reflecting the success of our proposition and potential for further operational leverage.

In addition, contribution from spread/risk products increased by 4% to £50m, with higher annuity sales reflecting the success of our ongoing customer engagement programme.

Global investment management

Operational highlights

·  Standard Life Investments operating profit before tax up to £68m and EBIT margin⁶ of 35%

·  Third party net inflows of £0.6bn, or £2.4bn, excluding £1.8bn previously announced outflow from a low revenue yield mandate

·  Demand for higher margin products driving increase in average revenue yield to 39bps

·  Continue to build a well diversified book of third party business by both asset class and geography

·  Expanding international distribution capability with over £1bn of net flows from outside of UK

·  Continuing to deliver robust investment performance

Continuing to attract net inflows into higher margin products

Third party assets	1 Jan 2012	Gross flows	Redemptions	Net flows	Market     and other movements	30 Jun 2012
Fee business (£bn)	71.8	7.9	(7.3)	0.6	1.9	74.3
Fee business revenue (bps)	37					39

AUM in our third party business increased to £74.3bn (31 December 2011: £71.8bn) and accounts for 47% of total AUM. Total third party net inflows were £0.6bn (H1 2011: £2.9bn) despite a significant, and an expected outflow of £1.8bn from a single low revenue yield mandate following a change in a client's pension scheme strategy. Excluding this outflow, third party net inflows were £2.4bn (H1 2011: £2.9bn). We have increased the number of institutional clients in UK and Europe by 7% despite a substantial slowdown in the number of institutional mandates across the market as a whole. We continued to attract inflows into higher margin propositions which has helped to increase overall average revenue yield on third party business to 39bps (FY 2011: 37bps).

We continue to build a strong and diversified book of third party business by both asset class and geography. Our wholesale business in the UK continues to grow. Demand for our MyFolio risk-based funds has driven MyFolio assets to approximately £1.5bn and we have recently expanded the range to include two new suites of Multi Manager Income and Managed Income funds. UK mutual funds net inflows of £966m (H1 2011: £1,457m) were robust despite volatile market conditions while our share of the wholesale market in the UK continues to grow, with UK mutual funds third party AUM now exceeding £12bn.

We also continued to make progress in increasing our global presence. European segregated business grew over fivefold with net sales of £590m while our US business, which has benefited from a distribution agreement with John Hancock Mutual Funds, continues to gain traction with sales up to £600m from £12m for the same period last year. We have also entered into an agreement with Swedish banking group Länsförsäkringar to distribute our GARS fund to investors in Sweden and our SICAV range of funds is now available to investors in Switzerland.

The pipeline for institutional business remains strong with fixed income, real estate and multi-asset products attracting a lot of interest, increasingly from outside the UK. There is also positive demand for our mutual funds in the UK and for our SICAV funds in continental Europe.

Continuing to deliver robust investment performance

The fund management industry benefited from strong financial markets in early 2012 but the effects of the European sovereign debt crisis returned during the latter part of H1 2012 and market sentiment deteriorated again with a substantial increase in market volatility, however, investor preferences to reduce exposure to higher risk assets benefitted our fixed income and GARS products. Investment performance continues to be robust, with the money weighted average for third party assets well above median over one, three, five and ten years. Our GARS funds have outperformed their cash benchmarks over all key time periods since inception and our mutual fund strength is shown by the proportion of eligible and actively managed funds (24 out of 32) rated A or above by Standard & Poor's in the UK.

Sustained growth in EBIT margin and third party AUA

	H1 2012 £m	H1 2011 £m
Fee based revenue	203	193
Maintenance expenses	(135)	(126)
Global investment management operating profit before tax	68	67
EBIT margin6	35%	33%

Operating profit before tax, excluding the fee received in H1 2011 for the transfer of the money market funds, increased by 13% to £68m. Revenue, excluding this fee, rose by 9% as we continued to attract inflows into our higher margin products. The share of profit of HDFC Asset Management is included on a pre-tax basis for the first time. This change has contributed £3m to the increase in revenue. Overall, the average revenue yield on third party AUM increased to 39bps (2011: 37bps).

The increase in expenses to £135m reflects the accelerated expansion of our business as we took advantage of opportunities in our chosen markets to grow our capability and extend our geographic reach. Maintenance expenses expressed as a proportion of total average AUM remained flat at 17bps (FY 2011: 17bps). Growth in revenue and continued control of our costs have helped to drive EBIT margin 2% points higher to 35% (H1 2011: 33%).

Canada

Operational highlights

·  Operating profit before tax of £72m 30% lower reflecting timing of management actions and low interest rate environment

·  New CEO to drive improved performance as we focus on our expertise and opportunities in long-term savings and investments

·  Fee business AUA up 4%⁷ to £14.7bn with individual savings and retirement fee business net flows nearly doubling to £184m

·  Launch of group savings and retirement target date funds, a unique solution in the Canadian marketplace

·  Expanded our mutual funds range launching two new fixed income funds

Continued growth in fee business

	1 Jan 2012	Gross flows	Redemptions	Net flows	Market and other movements	30 Jun 2012
Fee business AUA (£bn)	14.3	1.4	(1.1)	0.3	0.1	14.7
Spread/risk business AUA (£bn)	10.3	0.4	(0.6)	(0.2)	0.1	10.2
Total AUA backing products (£bn)	24.6	1.8	(1.7)	0.1	0.2	24.9
Fee business revenue (bps)	117					115

Fee business AUA in Canada increased by 4%⁷ to £14.7bn driven by net inflows of £268m, which were in line with last year, as well as positive market movements. Individual savings and retirement fee business net flows nearly doubled to £184m (H1 2011: £93m) while mutual funds net outflows improved to £7m (H1 2011: £68m). Net inflows into group savings and retirement fee business were lower at £91m (H1 2011: £247m) reflecting the uneven pattern of this business. However, sales on a PVNBP basis increased by 56%⁷ to £772m (H1 2011: £501m) reflecting our success in securing regular premium group business and also lower discount rates. The average revenue yield on fee business decreased to 115bps (FY 2011: 117bps) reflecting market pricing conditions and also business mix.

Spread/risk business AUA decreased slightly to £10.2bn as scheduled outflows from our annuity back book were partly offset by lower annuity and term fund inflows and positive market movements. The Group insurance and disability management business continues to perform well but with lower PVNBP sales of £301m (H1 2011: £486m) reflecting particularly large mandate wins in the first half of last year.

We continue to enhance our propositions for both corporate and retail customers. During the first half of the year we launched our group savings and retirement target date funds which offer a unique range of solutions in the Canadian marketplace. We have also launched a new online health claim solution to improve our customers' experience and improve operational efficiency.

Operating profit impacted by timing of management actions and low interest rate environment

	H1 2012 £m	H1 2011 £m
Fee based revenue	83	84
Spread/risk margin	124	155
Total income	207	239
Acquisition expenses	(41)	(48)
Maintenance expenses	(114)	(106)
Capital management	20	18
Canada operating profit before tax	72	103

Operating profit before tax in our Canadian business was £72m.

Spread/risk margin was impacted by the low interest rate environment, partly offset by management actions enhancing the investment yields on assets of £9m (H1 2011: gain £31m). One-off reserving changes decreased policyholder liabilities by £8m (H1 2011: decrease £6m). As a result of the low interest rate environment and as part of continued management of capital around the Group we are holding an additional £124m of capital in our Canadian business.

Higher maintenance expenses mainly reflect higher renewal commission and an increase in product and technology development spend. Maintenance expenses are in line with H2 2011 levels and remained stable compared to the average AUA at 92bps. The decrease in acquisition costs was primarily due to lower sales commissions. The capital management result benefited from higher investment returns on shareholder assets.

International

Operational highlights

·  Operating profit before tax up 47% to £28m, including India and China JV business operating profit of £8m (H1 2011: £nil)

·  Launched a new unit linked proposition in Germany which has helped to increase our market share

·  Launched a new regular savings product as well as MyFolio funds in Ireland

·  Increased distribution capability in China and achieved 16% private individual market share in India joint venture

Continued growth in sales with improved performance from joint venture businesses

	1 Jan 2012	Gross flows	Redemptions	Net flows	Market     and other movements	30 Jun 2012
Wholly owned fee business AUA (£bn)	12.3	1.1	(0.4)	0.7	0.2	13.2
India and China JV businesses AUA (£bn)	1.2	0.2	(0.1)	0.1	-	1.3
Fee business revenue (bps)	186					173

Fee business AUA across our wholly owned operations increased by 7% to £13.2bn driven by net inflows and favourable market movements. Net inflows of £0.7bn (H1 2011: £0.9bn) reflected the effect of economic uncertainty and lower consumer confidence on volumes, redemptions and maturities and surrenders, as well as our notable success in the first half of 2011 in securing a number of large cases in our market leading offshore bond business.

The average revenue yield across International wholly owned businesses was lower at 173bps (FY 2011: 186bps), reflecting the change in asset mix across the International territories and the charging structure of legacy business.

We have continued to develop our offering across our International territories. Our MyFolio risk based fund range, which has proved very popular in the UK, is now available in Ireland where we have also launched a regular premium savings product. We continue to expand our unit linked proposition in Germany, including the successful launch of Maxxcellence Invest, which has helped to drive a 17%⁷ increase in sales and increase our share of the unit linked market from 3% to 5%. We also continue to explore opportunities to leverage our offshore capability in our chosen markets.

Net flows into the India and China joint venture businesses were maintained at £140m (H1 2011: £140m), with HDFC Life performing strongly, increasing our share of the private individual market by 2% to 16%⁸, and Heng An Standard Life continuing to expand its distribution capability.

Increase in operating profit before tax

	H1 2012 £m	H1 2011 £m
Fee based revenue	103	108
Acquisition expenses	(19)	(20)
Maintenance expenses	(65)	(70)
Capital management	1	1
Total wholly owned	20	19
India and China JV businesses	8	-
International operating profit before tax	28	19

International operating profit before tax increased by 47% to £28m reflecting strong growth in our joint venture businesses and a good performance from the wholly owned businesses.

Operating profit of the wholly owned businesses increased by 12%⁷ driven by underlying growth in revenue and efficiency savings with maintenance expenses expressed as a proportion of average AUA falling to 103bps (FY 2011: 117bps). These were offset by the negative impact of strength of sterling against the Euro.

Our joint venture businesses generated profit of £8m after breaking even in the first half of last year. Increasing profitability was driven by ongoing growth and our investment to support their continuing development.

Supplementary information - analysis of operating profit by segment

	UK	Global investment management9	Canada	International	Other	Elimination	Total
Six months ended 30 June 2012	£m	£m	£m	£m	£m	£m	£m
Fee based revenue	325	203	83	103	-	(94)	620
Spread/risk margin	56	-	124	-	-	-	180
Total income	381	203	207	103	-	(94)	800
Acquisition expenses	(84)	-	(41)	(19)	-	-	(144)
Maintenance expenses	(169)	(135)	(114)	(65)	-	94	(389)
Group corporate centre costs	-	-	-	-	(20)	-	(20)
Capital management	13	-	20	1	13	-	47
India and China JV businesses	-	-	-	8	-	-	8
Operating profit/(loss) before tax	141	68	72	28	(7)	-	302

	UK	Global investment management9	Canada	International	Other	Elimination	Total
Six months ended 30 June 2011	£m	£m	£m	£m	£m	£m	£m
Fee based revenue	309	193	84	108	-	(83)	611
Spread/risk margin	52	-	155	-	-	-	207
Total income	361	193	239	108	-	(83)	818
Acquisition expenses	(107)	-	(48)	(20)	-	-	(175)
Maintenance expenses	(171)	(126)	(106)	(70)	(3)	83	(393)
Group corporate centre costs	-	-	-	-	(25)	-	(25)
Capital management	4	-	18	1	14	-	37
India and China JV businesses	-	-	-	-	-	-	-
Operating profit/(loss) before tax	87	67	103	19	(14)	-	262

	UK	Global investment management9	Canada	International	Other	Elimination	Total
12 months ended 31 December 2011	£m	£m	£m	£m	£m	£m	£m
Fee based revenue	625	383	166	221	-	(172)	1,223
Spread/risk margin	75	-	281	-	-	-	356
Total income	700	383	447	221	-	(172)	1,579
Acquisition expenses	(202)	-	(78)	(45)	-	-	(325)
Maintenance expenses	(352)	(258)	(220)	(139)	(3)	172	(800)
Group corporate centre costs	-	-	-	-	(50)	-	(50)
Capital management	10	-	38	1	25	-	74
India and China JV businesses	-	-	-	2	-	-	2
Other	64	-	-	-	-	-	64
Operating profit/(loss) before tax	220	125	187	40	(28)	-	544

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

 http://www.rns-pdf.londonstockexchange.com/rns/9317J_-2012-8-13.pdf

For further information please contact:

Institutional Equity Investors		Retail Equity Investors
Lorraine Rees Jakub Rosochowski	0207 872 4124 / 07738 300 878 0131 245 8028 / 07515 298 608	Capita Registrars	0845 113 0045
Craig Cameron	0131 245 3848 / 07515 298 330
Media		Debt Investors
Nicola McGowan	0131 245 4016 / 07872 191 341	Scott Forrest	0131 245 6045
Barry Cameron	0131 245 6165 / 07712 486 463	Nick Mardon	0131 245 6371
Susanna Voyle (Tulchan Communications)	020 7353 4200 / 07980 894 557

Newswires and online publications

We will hold a conference call for newswires and online publications at 07:30 (UK time) and a second media call at 11:30 (UK time). Participants should dial [phone] and quote Standard Life 2012 Half Year Results. A replay facility will be available for seven days. To access the replay please dial [phone]. The pass code is 4657438#.

Investors and Analysts

A presentation for investors and analysts will take place at 09:30 (UK time) at Deutsche Bank, Winchester House, 1 Great Winchester Street, London EC2N 2DB. There will also be a live webcast and teleconference at 09:30 (UK Time). Participants should dial [phone] and quote Standard Life 2012 Half Year Results. At the end of the formal presentation, there will be an opportunity for you to ask questions via the webcast and conference call. 

Notes to Editors:

1	In order to be consistent with the presentation of new business information, certain products are included in both long-term savings and investments AUA and net flows. Refer to Supplementary information 6.3 - Group assets under administration and net flows for further information.
2	Operating profit is IFRS profit before tax adjusted to remove the impact of market driven short-term fluctuations in investment return and economic assumptions, restructuring costs (including RDR and Solvency 2 restructuring programme), impairments of intangible assets, amortisation of intangible assets acquired in business combinations, profit or loss on the disposal of a subsidiary, joint venture or associate and other significant one-off items outside the control of management.
3	Other assets included within AUA of £11.2bn (31 December 2011: £10.4bn) comprise assets not backing products, joint ventures, non-life assets and consolidation/elimination adjustments.
4	Profit contribution is defined as revenue less directly attributable expenses.
5	Excludes £64m gain on UK staff pension scheme.
6	Adjusted to exclude the impact of the transfer of Standard Life Investments Global Liquidity Funds plc.
7	On a constant currency basis.
8	Share of individual private market for three months to June.
9	Global investment management fee based revenue includes share of profits from HDFC Asset Management Company Limited.

 

END

 

 

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