Half Yearly Report - Part 2 of 5

RNS Number : 2180L

Standard Life plc

08 August 2013

Standard Life plc

Half Year Results 2013

Part 2 of 5

Standard Life plc

Half Year Results

2013

Section	Contents	Page
	Press release	2
1	Business review	9
1.1	Group key financial performance indicators	9
1.2	Group overview	10
1.3	Business segment performance	16
	1.3.1 UK and Europe	16
	1.3.2 Standard Life Investments	20
	1.3.3 Canada	23
	1.3.4 Asia and Emerging Markets	26
1.4	Risk management	28
1.5	Basis of preparation	30
2	Statement of Directors' responsibilities	31
3	International Financial Reporting Standards (IFRS)	32
	IFRS primary statements	32
	IFRS notes	39
4	European Embedded Value (EEV)	66
	EEV primary statements	66
	EEV notes	69
5	Independent auditors' review report	102
6	Supplementary information	104
6.1	Group assets under administration and net flows	104
6.2	Long-term savings operations net flows	108
6.3	Investments operations	111
6.4	Long-term savings operations new business	113
7	Glossary	116
8	Shareholder information	122

The Half Year Results 2013 are published on the Group's website at www.standardlife.com

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

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

1 Business review

1.1 Group key financial performance indicators

Group operating profit before tax¹

Group operating profit is a measure of our ability to deliver long-term returns for our shareholders and provides an indication of our dividend paying capability.

· Group operating profit before tax increased by 6% to £304m. Higher fee based revenue has been partly offset by increased expenses relating to further development and expansion of our businesses.

· Fee based revenue increased by 14% or £84m to £694m driven by higher AUA and continued demand for higher margin products in Standard Life Investments

· Capital management reduced by £28m to £3m due to lower investment returns on shareholders' funds and higher financing costs following the issue of subordinated debt in the second half of 2012

Assets under administration and net flows

As a long-term savings and investments business, assets under administration (AUA) and net flows are key drivers of shareholder value. We aim to grow AUA by focusing on our customers and meeting their needs with innovative propositions.

· Group AUA increased by 7% to £232.8bn driven by strong net inflows in the UK and Standard Life Investments, and favourable market movements

· Total net inflows increased to £6.5bn reflecting demand for our attractive propositions

· Third party assets in Standard Life Investments increased to a record level of £93.4bn

EEV operating profit beforetax¹

European Embedded Value (EEV) operating profit measures our ability to manage our existing book of business and to write profitable new business.

· EEV operating profit before tax decreased by 21% to £465m, with increased core profits offset by lower back book profits

· Core EEV operating profit of £402m was 9% or £33m higher than H1 2012, mainly due to a £23m increase in new business contribution and an £11m increase in expected return

· Back book operating profit decreased by £148m to £67m. H1 2013 included £37m of favourable operating tax variances and £24m of assumption changes. H1 2012 back book profits of £215m included £219m of gains from asset strategy changes and improved modelling.

EEV operating capital and cash generation¹

EEV operating capital and cash generation reflects our ability to generate capital and cash. This enables further investment in the business and the payment of dividends to our shareholders.

· EEV operating capital and cash generation decreased by 17% to £231m largely due to £24m of higher new business strain reflecting higher sales volumes and £17m lower operating capital and cash generation from back book management

· EEV operating capital and cash generation remains aligned with Group operating profit after tax

¹Comparatives have been restated to reflect an amendment to IAS 19 Employee Benefits. Refer to Note 3.1 - Accounting policies (a) Basis of preparation.

Find out more about these measures in Section 1.2 - Group overview and Section 1.5 - Basis of preparation.

1.2 Group overview

Our financial results demonstrate our ability to deliver sustainable returns for our shareholders. We continue to develop high quality and innovative solutions that meet the changing needs of our customers. Details of our financial performance are highlighted below.

IFRS
	H1 2013	H1 2012	Movement
Group operating profit before tax^1,2	£304m	£286m	6%
IFRS profit after tax attributable to equity holders of Standard Life plc²	£129m	£238m	(46%)
Group operating return on equity²	11.4%	15.1%	(3.7% points)

IFRS profit

IFRS profit after tax attributable to equity holders reduced to £129m (H1 2012: £238m) mainly due to the expected increase in the tax charge and the impact of a rise in yields on debt securities. The tax expense attributable to equity holders' profits in H1 2013 was £42m (H1 2012: credit £39m). IFRS profit for the period of £137m (H1 2012: £246m) also includes profit attributable to

non-controlling interests of £8m (H1 2012: £8m). H1 2012 results have been restated to reflect the revised requirements following the amendment to IAS 19 Employee Benefits.

Group operating profit before tax increased by 6% from £286m to £304m and the non-operating loss before tax was £129m

(H1 2012: loss £82m).

Group operating profit before tax

	H1 2013	H1 2012
	£m	£m
Fee based revenue³	694	610
Spread/risk margin	197	180
Total income	891	790
Acquisition expenses	(155)	(144)
Maintenance expenses⁴	(430)	(388)
Group corporate centre costs⁴	(23)	(21)
Capital management²	3	31
Share of joint ventures' and associates' profit before tax³	18	18
Group operating profit before tax	304	286

Group operating profit before tax increased by 6% to £304m. The key highlights are:

· Fee based revenueincreased to £694m driven by higher average asset values and the demand for our fee based long-term savings and investment propositions

· Spread/risk margin increased to £197m benefiting from favourable experience variances in the UK and release of UK annuity reserves arising from investment strategy changes

· Acquisition expenses increased to £155m and expressed as a proportion of sales improved to 130bps (FY 2012: 156bps) reflecting the growth in sales and the scalability of our business model

· Maintenance expenses⁴ increased to £430m reflecting further expansion of our businesses, particularly by Standard Life Investments and our operations in Asia.Maintenance expenses expressed as a proportion of average AUA improved further to 41bps (FY 2012: 45bps)

· Group corporate centre costs⁴ increased slightly to £23m (H1 2012: £21m)

· Capital management reduced to £3m due to lower investment returns on shareholders' funds and higher financing costs following the issue of subordinated debt in the second half of 2012

¹Operating profit is IFRS profit before tax adjusted to remove the impact of short-term market driven fluctuations in investment return and economic assumptions, restructuring costs (including the Solvency 2 programme), impairment 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.

²Comparatives have been restated to reflect an amendment to IAS 19 Employee Benefits. Refer to Note 3.1 - Accounting policies (a) Basis of preparation.

³ The share of profit from HDFC Asset Management Company Limited is now reflected in the share of joint ventures' and associates' profit before tax, previously it was included in fee based revenue. H1 2012 comparative has been restated.

⁴JV relationship management costs are now reflected in Group corporate centre costs, previously these were included within maintenance expenses as part of our Asia and Emerging Markets business. H1 2012 comparative has been restated.

· HDFC Asset Management, our associate business which is included in the results of Standard Life Investments, contributed £13m to profit (H1 2012: £10m). Our share of profit from the life joint venture businesses in Asia reduced to £5m

(H1 2012: £8m), mainly due to higher new business strain driven by the expansion of our Indian joint venture's unit linked product sales in H1 2013.

Group non-operating loss before tax

Group non-operating loss before tax
	H1 2013	H1 2012
	£m	£m
Short-term fluctuations in investment return and economic assumption changes	(90)	(43)
Restructuring and corporate transaction expenses	(36)	(42)
Other operating profit adjustments	(3)	3
Group non-operating loss before tax	(129)	(82)

Group non-operating loss in H1 2013 was £129m (H1 2012: loss £82m). The losses in H1 2013 were primarily due to short-term fluctuations in investment return and economic assumption changes, with losses of £90m (H1 2012: loss £43m) mainly due to a rise in yields on debt securities.

Non-operating restructuring and corporate transaction expenses of £36m (H1 2012: £42m) relate to a number of business unit restructuring programmes and Solvency 2.

Group tax expense

The tax expense attributable to equity holders' profits in H1 2013 was £42m (H1 2012: credit £39m) of which £66m (H1 2012: credit £8m) related to operating items and a credit of £24m (H1 2012: credit £31m) to non-operating items. The increase in the total tax expense reflects a higher tax charge in our UK and Europe business in H1 2013 and a non-recurring release of deferred tax on a number of items in H1 2012.

Group operating return on equity

Return on equity measures our success in generating profit relative to our shareholder capital. Group operating return on equity decreased to 11.4% (H1 2012: 15.1%) mainly due to an increased tax charge. The prior period result benefited from a

non-recurring release of deferred tax on a number of items. We will continue to manage our capital position to ensure that we generate sustainable returns for our shareholders.

Find out more about the IFRS results in Section 1.3 - Business segment performance and Section 1.5 - Basis of preparation.

Assets under administration and new business
	H1 2013	H1 2012	Movement
Assets under administration	£232.8bn	£218.1bn¹	7%
Net flows	£6.5bn	£0.7bn	829%
Present value of new business premiums	£12.2bn	£10.1bn	21%
New business contribution	£201m	£178m	13%

¹ Comparative as at 31 December 2012.

Assets under administration and net flows

AUA increased by 7% to £232.8bn driven by a combination of net inflows across our businesses and positive market movements:

· Overall net inflows increased to £6.5bn (H1 2012: £0.7bn) reflecting robust net inflows into our newer style fee based propositions

· Fee business AUA increased to £196.5bn (FY 2012: £180.7bn) with 84% (FY 2012: 83%) of total AUA now related to fee business

· Spread/risk business AUA reduced to £24.8bn (FY 2012: £25.7bn) due to negative market movements which were impacted by the increase in yields on debt securities and net outflows in the UK due to scheduled annuity payments

1.2 Group overview continued

New business PVNBP			New business contribution		PVNBP margin		IRR		Undiscounted payback
	H1 2013	H1 2012	H1 2013	H1 2012	H1 2013	H1 2012	H1 2013	H1 2012	H1 2013	H1 2012
	£m	£m	£m	£m	%	%	%	%	years	years
UK and Europe	10,202	7,888	161	137	1.6	1.7	19	20	5	5
Canada	1,528	1,780	18	26	1.2	1.5	7	8	10	11
Asia and Emerging Markets	491	409	22	15	4.3	3.6	16	14	6	6
Total	12,221	10,077	201	178	1.6	1.8	14	15¹	7	7¹

¹Restated for revision to exchange rates.

· Present value of new business premiums (PVNBP) for the Group totalled £12,221m and was 21% higher than H1 2012. UK and Europe sales rose by 29%, partly offset by a 14% fall in Canada sales.

· Increased new business contribution reflects higher sales volumes. The overall margin was 1.6%, with reductions in UK and Europe and Canada partly offset by an increase in Asia and Emerging Markets.

· Total internal rate of return (IRR) for the Group reduced to 14%. The low interest rate environment continues to impact the returns on business written in Canada, which generated an IRR of 7%.

EEV
	H1 2013	H1 2012	Movement
EEV per share	352p	343p²	3%
EEV operating profit before tax³	£465m	£588m	(21%)
EEV profit before tax³	£695m	£766m	(9%)
Return on embedded value³	8.9%	13.3%	(4.4% points)

²Comparative as at 31 December 2012.

³Comparatives have been restated to reflect an amendment to IAS 19 Employee Benefits.

Group embedded value

Group embedded value increased to £8,344m (FY 2012: £8,142m) representing an EEV per share of 352p. EEV per share increased by 32p before dividend distributions, including EEV operating profit after tax of £353m (15p per share). This resulted in a return on embedded value (RoEV) of 8.9%. EEV non-operating profit after tax was £189m (8p per share). The 9p increase in EEV per share from other and non-trading items was mainly due to actuarial gains on the staff pension schemes and foreign exchange movements.

EEV profit before tax

EEV profit before tax of £695m (H1 2012: £766m) included operating profit of £465m (H1 2012: £588m) and non-operating profit of £230m (H1 2012: £178m).

EEV operating profit before tax

	EEV operating profit before tax		RoEV
	H1 2013	H1 2012	H1 2013	H1 2012
	£m	£m	%	%
Core	402	369	7.9	8.0
Efficiency	(4)	4	(0.1)	0.1
Back book management	67	215	1.1	5.2
Total	465	588	8.9	13.3

EEV operating profit before tax decreased by 21%, with increased core profits offset by lower back book profits:

· Core profits increased by 9% to £402m due to a £23m rise in new business contribution and an £11m rise in the expected return. This led to a core RoEV of 7.9% (H1 2012: 8.0%).

· EEV operating profit before tax from back book management of £67m (H1 2012: £215m) included £37m of favourable operating tax variances and £24m of assumption changes. H1 2012 profit of £215m included £219m of gains from asset strategy changes and improved modelling.

EEV non-operating profit before tax

Total EEV non-operating profit before tax of £230m (H1 2012: £178m) included profit from economic assumption changes of £289m (H1 2012: £136m). This was due to profits from the use of higher projected investment returns and the reduction in the UK corporation tax rate, partly offset by losses from higher discount rates.

Restructuring costs of £36m (H1 2012: £43m) primarily represent costs relating to a number of business unit restructuring programmes and Solvency 2. Following the redemption of inter-Group subordinated debt in the second half of 2012, there is no longer a valuation adjustment for different accounting bases (H1 2012: non-operating loss of £70m).

Cash generation
	H1 2013	H1 2012	Movement
EEV operating capital and cash generation¹	£231m	£279m	(17%)

¹Comparatives have been restated to reflect an amendment to IAS 19 Employee Benefits.

Group operating EEV capital and cash generation

Group EEV operating capital and cash generation	H1 2013	H1 2012
	£m	£m
UK and Europe	269	240
Canada	74	85
Asia and Emerging Markets	18	22
Non-covered	1	39
Gross EEV operating capital and cash generation	362	386
New business strain	(131)	(107)
EEV operating capital and cash generation	231	279
Analysed by:
Core	171	193
Efficiency	(8)	1
Back book management	68	85
Total	231	279

Total EEV operating capital and cash generation decreased by 17% to £231m (H1 2012: £279m):

· Gross EEV operating capital and cash generation decreased by £24m mainly as a result of reduced capital and cash generation from back book management and lower core non-covered business capital and cash generation. New business strain increased by 22% but as a percentage of PVNBP was unchanged at 1.1%.

· Core capital and cash generation was £22m lower than in H1 2012. This was primarily due to a £24m increase in new business strain reflecting higher sales volumes. A £22m increase in the expected return was partly offset by an £18m reduction in core non-covered business, reflecting the impact of higher financing costs following the issue of subordinated debt in the second half of 2012.

· Back book management capital and cash generation of £68m included £50m of favourable tax variances and actuarial reserve changes in UK and Europe. H1 2012 benefited from higher post tax profits on the UK pension scheme and management of UK tax assets.

Coverage of gross EEV operating capital and cash compared to new business strain decreased to 2.76 (H1 2012: 3.61) mainly due to increased new business strain reflecting higher sales.

Reconciliation of Group operating profit to EEV operating capital and cash generation

As with EEV operating capital and cash generation, Group operating profit removes the impact of short-term economic volatility. Whilst there is clear alignment between Group operating profit and EEV operating capital and cash generation, there are differences which include:

· £30m negative impact from the difference in the treatment of assets and actuarial reserves

· £27m positive impact from the difference in the treatment of deferred acquisition costs (DAC)/deferred income reserve (DIR), intangibles, tax and other. Other includes the impact of different methodologies in respect of asset management charges. In EEV operating profit this income is included on an expected return basis but the actual charges are included in Group operating profit.

1.2 Group overview continued

Capital management
	H1 2013	FY 2012	Movement
IFRS equity attributable to equity holders of Standard Life plc¹	£4,134m	£4,359m	(5%)
EEV¹	£8,344m	£8,142m	2%
Group capital surplus²	£3.7bn	£4.1bn	(10%)

¹Comparatives have been restated to reflect an amendment to IAS 19 Employee Benefits.

² H1 2013 based on estimated regulatory returns. FY 2012 based on final regulatory returns. Calculated under the Insurance Groups Directive (IGD).

Group capital surplus

Group capital surplus and solvency cover³	H1 2013	H1 2012	FY 2012
	£bn	£bn	£bn
Shareholders' capital resources	2.9	3.2	3.3
Capital resources arising from subordinated debt	1.9	1.1	1.9
SLAL long-term business funds	3.3	2.9	2.8
Group capital resources⁴	8.1	7.2	8.0
Group capital resource requirement	(4.4)	(4.2)	(3.9)
Group capital surplus	3.7	3.0	4.1
Group solvency cover	185%	174%	205%

³H1 2013 and H1 2012 based on estimated regulatory returns. FY 2012 based on final regulatory returns.

⁴ Net of restricted assets of £1.2bn (H1 2012: £1.2bn, FY 2012: £1.2bn).

The Group capital surplus decreased to £3.7bn (FY 2012: £4.1bn) following the payment in May 2013 of both the 2012 final dividend and special dividend. The quality of our capital resources remains strong with £8.1bn (FY 2012: £8.0bn) of core tier 1 capital.

The Group capital surplus remains largely insensitive to a 30% fall in equities from the 30 June 2013 position, with the surplus estimated to reduce by approximately £0.2bn (FY 2012: £0.3bn reduction). Following a 100bps rise in yields, the surplus would be expected to remain unchanged (FY 2012: £0.1bn reduction). Following a 100bps fall in yields the surplus would be expected to remain unchanged (FY 2012: £0.4bn reduction).

Reconciliation of key capital measures

The following diagram illustrates the key differences between regulatory, IFRS and EEV capital measures at 30 June 2013:

Diagram removed for the purposes of this announcement. However it can be viewed in full in the pdf document.

Liquidity management and dividends
	H1 2013	FY 2012	Movement
Standard Life plc cash and liquid resources	£926m	£1,064m	(13%)
Interim dividend	£124m	£115m¹	7.8%

¹Comparative as at H1 2012.

Liquidity management

Standard Life plc cash and liquid resources	H1 2013	H1 2012	FY 2012
	£m	£m	£m
Opening 1 January	1,064	565	565
Dividends received from subsidiaries	455	224	499
Cash dividends paid to shareholders²	(532)	(216)	(331)
Additional investments in subsidiaries	-	(125)	(131)
Additional investments in associates and joint ventures	(19)	(16)	(16)
Issue of external subordinated liabilities	-	-	497
Other	(42)	(5)	(19)
Closing	926	427	1,064

²H1 2013 reflects the payment of the 2012 final dividend of £230m and the 2012 special dividend of £302m. FY 2012 reflects the payment of the 2011 final dividend of £216m and the 2012 interim dividend of £115m.

The Group maintains a strong liquidity position and this was shown in stress testing undertaken during H1 2013.

We undertake specific liquidity stress testing to ensure that we can withstand a scenario of significant falls in asset values combined with unprecedented levels of surrenders and claims.

We also maintain contingency funding plans across the Group to ensure that each business unit is prepared for a liquidity issue. As part of this contingency planning, Standard Life plc, the Group's ultimate holding company, maintains a £500m revolving credit facility with a syndicate of banks. This facility was renewed on 5 March 2013 and is due to mature in March 2018. The Group's revolving credit facility was undrawn at

30 June 2013.

Standard Life plc also holds substantial cash and liquid resources. At 30 June 2013, Standard Life plc held £647m

(FY 2012: £1,064m) of cash and short-term debt securities and £279m (FY 2012: £nil) of corporate bonds.

Dividends

During H1 2013, Standard Life plc paid the final dividend for 2012 of 9.80p per share, amounting to £230m and the 2012 special dividend of 12.80p per share amounting to £302m. We propose an interim dividend of 5.22p per share (H1 2012: 4.90p). This represents an increase of 6.5% per share. We will continue to apply our existing progressive dividend policy taking account of market conditions and our financial performance.

1.3 Business segment performance

1.3.1 UK and Europe

Financial highlights

	H1 2013	H1 2012	Movement
Operating profit before tax¹	£182m	£152m	20%
Operating return on equity¹	17.3%	24.5%	(7.2% points)
Assets under administration	£154.5bn	£146.2bn²	6%
Net flows	£2,326m	£1,348m	73%
EEV covered business operating profit before tax	£287m	£346m	(17%)
EEV non-covered business operating profit before tax¹	£6m	£4m	50%

¹ Comparatives have been restated to reflect an amendment to IAS 19 Employee Benefits.

² Comparative as at 31 December 2012.

Strategic overview

We continue to strengthen our leading long-term savings and investment business by providing high quality innovative propositions and investment solutions combined with excellent customer service and a highly scalable business model. Our strong market positions, along with demographic and regulatory changes in the UK, including auto enrolment and the Retail Distribution Review (RDR), are starting to have a positive impact on our business and provide us with significant opportunities to drive future profitable growth. Our European business is drawing upon our experience in the UK in order to meet growing demand as the market gradually shifts away from products with guarantees, against an environment of regulatory change and low interest rates.

Market update

In the UK, the start of 2013 saw the implementation of RDR and the continuation of the phased introduction of auto enrolment and pension reform. Our investment in technology and investment solutions has put us in a unique position to capitalise on these changes as their full impact continues to unfold. Markets in the first half of the year saw increasing investor confidence but nevertheless remained impacted by an uncertain global economic environment and the ongoing transition to a new long-term savings regulatory environment in the UK. We have continued to focus on driving consumer and employer awareness of the need for pensions and other forms of long-term and retirement savings.

Our Wrap platform continues to attract new advisers and will be key to deepening relationships with IFAs who are increasingly looking at platforms as not just transactional tools but as a means of streamlining their processes, reducing administrative costs and minimising risk in their business while allowing them to focus on their customers' needs. We continue to enhance our platform and have recently launched our Leading Platform Programme, which is part of our ongoing commitment to ensure that Standard Life Wrap remains the investment platform of choice.

Our investment solutions including MyFolio funds and Standard Life Wealth continue to prove popular with advisers and customers who are looking beyond specific products. Our acquisition of Newton Private Client business is expected to complete in the third quarter, strengthening our discretionary fund management capability and our presence across the value chain.

Our retail business has made a smooth transition to operating under RDR and we are encouraged by growing interest from advisors, many of whom we have not dealt with for several years. We welcome the increased transparency that the ban on cash rebates from fund management groups to platform providers will bring and have been leading the market by working to secure the best value for our Wrap customers through 'super clean' share classes. Following the HMRC announcement regarding taxability of such rebates, both advisers and customers have welcomed our decision to meet the customers' tax liability in respect of cash rebates arising in 2013.

Much of the attention across our industry has focused on auto enrolment as large employers reach their auto enrolment staging dates. Whilst the broader UK pension industry faces potential capacity issues, the investment we have made in our technology and processes in recent years means we are ideally placed to meet demand from employers. We have implemented 51 auto enrolment schemes in the first half of the year, adding 97,622 new employees in the process. We expect a total of 300 implementations this year and around 3,000 in 2014 as auto enrolment becomes a reality for smaller employers. We continue to have a very strong pipeline of new secured corporate pension business and further growth in customers is expected from auto enrolment implementations for our existing corporate pension clients. The regulatory changes impacting the corporate landscape are bringing unprecedented opportunities. We expect the ban on commission following RDR to be positive for our corporate business despite the short term impact of expected outflows from schemes secured by competitors on a commission basis prior to the implementation of RDR.

In addition to the auto enrolment activity, we continue to see a heightened level of interest from companies revisiting their overall pension provision helping us to ensure a strong pipeline of new business, which is increasingly making use of our investment solutions. There are further opportunities in the small and medium enterprise space where our packaged 'off the shelf' auto enrolment solution is sought by advisers such as Punter Southall. The recently announced ban on consultancy charging for auto enrolment schemes will see employers looking for help and support which we are ideally positioned to deliver.

In Germany, the market is slowly moving away from products with guarantees as providers are now offering significantly reduced guarantees for new business. This is reflected in a 78% increase in new business sales of our Maxxellence unit linked product.

Our excellence in customer service was recognised by an award from MLP, a leading German adviser firm. Commission continues to play an important role in both Germany and Ireland, however, we are beginning to see interest from advisers wishing to understand more about how we have managed to transform the way in which we do business in the UK and how we have supported IFAs in becoming new-model advisers. Market conditions in Ireland remain difficult, whilst the offshore bond product offers an equity-linked investment option at a time of continuing low interest rates.

Profitability

Operating profit before tax

	UK		Europe		UK and Europe
	H1 2013	H1 2012	H1 2013	H1 2012	H1 2013	H1 2012
	£m	£m	£m	£m	£m	£m
Fee based revenue	349	325	90	81	439	406
Spread/risk margin	78	56	5	-	83	56
Total income	427	381	95	81	522	462
Acquisition expenses	(86)	(84)	(22)	(13)	(108)	(97)
Maintenance expenses	(177)	(169)	(52)	(43)	(229)	(212)
Capital management	(3)	(2)	-	1	(3)	(1)
Operating profit before tax	161	126	21	26	182	152

UK and Europe operating profit before tax increased by 20% to £182m including a 28% increase in UK operating profit to £161m.

The key movements in the UK operating profit from H1 2012 are:

· Fee based revenue increased by 7% predominantly driven by higher AUA as our new style propositions continue to attract net inflows while our older style propositions continue to benefit from ongoing increments, market movements and our retention activity. The average revenue yield on fee based business fell slightly to 70bps (FY 2012: 72bps) reflecting changes in business mix.

· Spread/risk margin increased to £78m helped by steady new business annuity volumes and the benefit of positive experience, and a reserve release arising from investment strategy changes

· Acquisition expenses were £86m and expressed as a percentage of

PVNBP sales improved to 93bps (FY 2012: 133bps), reflecting the significant growth in sales and the scalability of our business model

· Maintenance expenses increased by 5% to £177m reflecting higher management fees payable. As a proportion of average AUA, maintenance expenses improved to 26bps (FY 2012: 31bps) as we continue to benefit from our scalable business model and cost discipline.

The Europe operating profit result fell by £5m to £21m. This reflected the higher strain from growing new business volumes, and included the impact of increased reserves held to cover new business sales in Germany.

UK profit contribution¹

UK profit contribution¹	H1 2013	H1 2012
	£m	£m
Retail - new	37	25
Retail - old	91	90
Retail fee based business contribution	128	115
Corporate	42	40
Fee based business contribution	170	155
Spread/risk	71	50
UK profit contribution	241	205
Indirect expenses and capital management	(80)	(79)
UK operating profit before tax	161	126

¹ Profit contribution reflects the income and expenses directly attributable to each of the UK lines of business. It differs from operating profit due to the exclusion of indirect expenses, such as overheads, and capital management.

UK fee business profit contribution increased by 10% to £170m (H1 2012: £155m).

Newer style UK retail propositions continue to show momentum which, combined with the benefits of scalability and growth in direct customers coming from our corporate business, helped to deliver a 48% increase in profit contribution to £37m. This, together with the stable contribution from older style propositions, helped to drive an overall increase in retail fee based business contribution of 11% to £128m (H1 2012: £115m).

1.3 Business segment performance continued

1.3.1 UK and Europe continued

In our corporate business growth in corporate AUA resulted in a 5% increase in profit contribution to £42m (H1 2012: £40m). Our corporate business continues to provide our retail business with a source of new customers and revenue.

Profit contribution from spread/risk products increased by 42% to £71m (H1 2012: £50m), helped by steady new business volumes

and the benefit of positive experience and reserve releases arising from investment strategy changes.

EEV operating profit

UK and Europe EEV operating profit before tax was lower at £293m (H1 2012: £350m), with the prior period benefiting from back book management actions taken to reduce the risk exposures of the UK business. Core EVOP increased by 15% to £264m

(H1 2012: £230m), primarily due to an increase in contribution from new business.

Operating return on equity

UK and Europe operating return on equity of 17.3% (H1 2012: 24.5%), reflects a £40m decrease in operating profit after tax to £142m (H1 2012: £182m) due to an increased tax charge. The prior year result benefited from a non-recurring release of deferred tax on a number of items. The total UK and Europe operating return on equity includes a return of 17.6% for the UK business and 15.9% for the Europe business.

Assets under administration and net flows

	Net flows		AUA
	H1 2013	H1 2012	30 Jun 2013	31 Dec 2012
	£m	£m	£bn	£bn
UK retail - new	1,730	1,542	31.7	28.7
UK retail - old	(1,357)	(1,430)	32.5	31.7
UK retail fee based business	373	112	64.2	60.4
UK corporate	534	763	26.5	24.5
UK retail and corporate fee based business	907	875	90.7	84.9
UK institutional pensions	1,849	880	24.0	21.3
UK conventional with profits	(690)	(635)	3.5	4.1
Europe fee based	570	517	14.9	13.6
Total fee based business	2,636	1,637	133.1	123.9
UK spread/risk	(310)	(295)	14.7	15.3
Europe spread/risk	-	6	0.6	0.5
Assets not backing products	-	-	6.1	6.5
Total UK and Europe	2,326	1,348	154.5	146.2

UK and Europe AUA grew by 6% to £154.5bn. Fee based business AUA, which accounts for 86% of total AUA, increased by 7% to £133.1bn reflecting a combination of higher net inflows and positive market movements.

In the UK, net inflows into our new style retail propositions grew by 12% to £1.7bn, reflecting stronger gross inflows of £3.1bn (H1 2012: £2.7bn). Net inflows in Q2 2013 increased by 31% compared to Q2 2012 and by 10% compared to Q1 2013, which typically benefits more from tax year end activity. These increases were despite a backdrop of subdued consumer sentiment, ongoing economic uncertainty and a continually evolving market environment following the introduction of RDR.

Retention in our older style UK retail business has reduced net outflows by 5%. We continue to engage with customers with maturing policies who wish to continue to save or annuitise with us.

UK corporate pension net inflows, excluding the trustee investment plan business of Standard Life Investments, of £0.5bn (H1 2012: £0.8bn) were affected by the short term impact of expected outflows from schemes secured by competitors on a commission basis prior to the implementation of RDR. We continue to secure new schemes and have a strong pipeline of new business wins which will migrate later on this year. Net inflows into institutional pensions more than doubled to £1.8bn (H1 2012: £0.9bn).

UK spread/risk business AUA decreased to £14.7bn due to net outflows driven by scheduled annuity payments and adverse market movements mainly due to the rise in yields on debt securities. Gross inflows into annuities were broadly in line with the prior period at £268m (H1 2012: £281m).

In our Europe business, fee based AUA grew by 10% to £14.9bn, driven by net inflows and favourable market movements. Net inflows increased by 10% to £570m (H1 2012: £517m) predominantly reflecting the Irish branch business, where sales and inflows have improved on 2012, driven largely by the quality of our investment proposition and our recent marketing campaign.

New business performance

Total UK and Europe PVNBP sales increased by 29% to £10,202m (H1 2012: £7,888m) reflecting resilient retail and strong corporate sales against a backdrop of subdued consumer sentiment and ongoing economic uncertainty. Sales of corporate pensions increased by 41% demonstrating the strength of our propositions within the corporate market.

Our business model

We have strategically positioned ourselves across the value chain, and we provide investment solutions through Standard Life Investments via funds such as MyFolio, and by our discretionary fund manager, Standard Life Wealth.

Maximising revenue

Our business continues to benefit from our expertise across the value chain as we embed our wider investment solutions across our customer base:

· Our MyFolio risk based funds range, managed by Standard Life Investments, help make investing in funds simpler for our customers and has more than doubled AUM to £3.1bn (H1 2012: £1.5bn). This has secured additional investment management margin for the Group.

· Standard Life Wealth continues to grow with assets on our higher margin propositions increasing 50% to £2.1bn (H1 2012: £1.4bn). We have also announced the acquisition of Newton Private Client business. This transaction will accelerate the development and growth of our discretionary fund management business and bring assets of c£3.6bn, with completion expected in September 2013.

· Our growing pipeline of corporate business is seeing increased take-up of Standard Life investment solutions and we are actively engaging with our existing clients about their default investment arrangements

· Our Maxxellence investment product continues to perform well, attracting £21m in assets since launch last year

· We made a smooth transition to operating under RDR, with 77% of Wrap clients now using adviser charging

Increasing assets

Our retail business continues to grow as we continue to strengthen relationships with both new-model advisers and our direct customers:

· The total number of adviser firms on our Wrap platform has increased by 10% to 1,192 (H1 2012: 1,087), while the number of adviser firms with assets on Wrap of at least £20m has increased by 38% to 191 (H1 2012: 138)

· Total platform AUA increased by 33% to £16.8bn (H1 2012: £12.6bn) with Wrap AUA up 39% to £14.2bn (H1 2012: £10.2bn)

· Our SIPP proposition continues to grow with a 15% increase in customers and AUA up 19% to £21.5bn (H1 2012: £18.0bn)

· Our distribution agreement with RBS Group private banking customers is now live. We have also launched an online feature allowing customers who have already taken advice from their RBS adviser to top-up online through their Wrap platform.

· In H1 2013 we are writing new business with 342 IFAs with whom we have either not dealt with for several years or ever before

· We continue to improve engagement with our existing customers through improved contact strategy including hosting pre-retirement workshops across the country, providing online information support and information on the range of retirement options

Our corporate pension business continues to build momentum through its leading workplace savings solutions and by its strong links and existing relationships with corporate benefit consultants and employers:

· We secured 108 new schemes (H1 2012: 105 new schemes), which will bring an estimated 41,400 new employees

(H1 2012: 43,651 new employees)

· Successfully implemented auto enrolment for 33 existing and 19 new schemes which, combined with regular joiners across the 35,000 schemes we already administer, means that we have secured 134,681 new employees resulting in the number of total employees increasing to 1.3 million

· Our early experience of auto enrolment remains encouraging with an average opt out rate of 11.6% of those auto enrolled

· We are continuing to see high levels of enquiries from employers as they revisit their entire defined contribution pension provisions

· Entered into a strategic arrangement with Punter Southall to offer a packaged 'off the shelf' solution to their new auto enrolment clients and we are ideally placed to assist SMEs following the recently announced ban on consultancy charging for auto enrolment schemes

Lowering unit costs

The scalability of our business and extensive use of technology continue to be the key enablers in delivering lower unit costs. Initiatives undertaken to manage the acquisition and maintenance expenses of our business are now showing results:

· Acquisition expenses in the UK expressed as a proportion of PVNBP reduced to 93bps (FY 2012: 133bps) as improvements in efficiency and absolute reductions continue

· Maintenance expenses in the UK expressed as a proportion of average AUA reduced to 26bps (FY 2012: 31bps). This reflects the scalability of our operations, improving efficiency of our processes and ongoing focus on cost control.

· The continuing trend towards online interaction with customers and self-servicing continues with 80% of opt-outs for auto enrolment being processed without manual intervention or interaction with our customer service representatives

· We have significantly increased our ability and efficiency with which we can take in new corporate clients at a time when the industry is facing possible capacity constraints. We have launched a simple, online, five stage auto enrolment solution aimed at helping existing schemes to quickly and easily convert their current arrangements to a qualifying workplace pension scheme.

1.3 Business segment performance continued

1.3.2 Standard Life Investments

Financial highlights

	H1 2013	H1 2012	Movement
Operating profit before tax	£93m	£68m	37%
Operating return on equity	63.0%	46.0%	17.0% points
Earnings before interest and tax (EBIT)¹	£92m	£68m	35%
EBIT margin¹	37.7%	35.2%	2.5% points
Third party assets under management (AUM)	£93.4bn	£83.0bn²	13%
Total assets under management	£178.8bn	£167.7bn²	7%
Third party net inflows	£7.1bn	£0.6bn	1,083%

¹ EBIT and EBIT margin are key performance metrics for the investment management industry.

²Comparative as at 31 December 2012.

Strategic overview

Standard Life Investments is a leading asset manager with an expanding global reach. Our 'Focus on Change' investment philosophy lies at the heart of our wide range of investment solutions and is backed by disciplined risk management and a shared commitment to a culture of investment excellence. This has proved itself to be robust and repeatable in both good and challenging market conditions. We have an unbroken record of positive annual net flows since inception and have delivered a strong track record of profitable organic growth. Earnings before interest and tax have had a compound annual growth rate over the last six years of 16%.

We have further expanded our range of investment solutions, with developments in real estate, multi-asset product portfolio and emerging market products being of particular note. We continue to broaden the diversity of our AUM with 51% (£3.6bn) of third party net inflows coming from outside the UK, including £1.4bn from the US, and 53% from the Institutional distribution channel.

We will continue to leverage our investment expertise and work closely with our strategic partners including other areas of the Standard Life Group, Sumitomo Mitsui in Japan, HDFC in India and John Hancock in the US, while exploring and capitalising on further opportunities for growth elsewhere.

Our 'Focus on Change' investment philosophy continues to drive the investment process, delivering strong performance with the majority of funds ahead of benchmark for all key time periods. We play a leading role in governance and stewardship. Strong corporate governance along with responsible stewardship of a business' assets, employees, customers and environment has a fundamental impact on long-term investment returns. During H1 2013, we voted at 1,578 shareholder meetings and undertook 287 environmental, social and governance engagements, promoting high standards of governance and stewardship.

During 2013, Standard Life Investments became the first designated Worldwide Partner in the history of the Ryder Cup, extending our brand reach and building our global growth strategy. The Ryder Cup's heritage, values and strong team ethos are an excellent match to Standard Life Investments' core beliefs and ambition.

Market update

The early part of 2013 saw gentle positive momentum behind the global economy. However, in the second quarter, markets faced renewed uncertainty about monetary policy and worries about the sources of future economic growth. These uncertainties led to increased volatility and the revival of high correlations between different asset markets.

With clients' short run attitude to risk very closely aligned to central bank provision of liquidity, and longer term desire to maintain exposure to the sustainable yield of equities and real estate, Standard Life Investments stands to benefit by providing robust and innovative investment solutions that satisfy changing client risk appetites. In the fixed income space, where there is a trend to diversify away from traditional solutions, our suite of products is well placed to capitalise on this.

Client confidence in the institutional space continues to grow and record inflows have been recorded across the global wholesale market. The advantages of our strategic positioning have been reflected in Standard Life Investments attracting flows across a range of higher margin products by providing a broad suite of investment solutions, continuing product innovation and expanding geographic reach.

Profitability

Operating profit before tax

	H1 2013	H1 2012
	£m	£m
Fee based revenue	244	193
Maintenance expenses	(164)	(135)
Share of joint ventures' and associates' profit before tax	13	10
Standard Life Investments operating profit before tax	93	68
Interest and exchange rate movements	(1)	-
Earnings before interest and tax (EBIT)	92	68

EBIT increased by 35% to £92m with a 2.5% points increase in EBIT margin to 37.7%. Operating profit before tax increased by 37% to £93m. Revenue rose by 26% reflecting the increased AUM, market levels and the shift in mix towards higher margin products such as UK mutual funds and multi-asset investment solutions. The changing mix helped to increase the revenue yield on third party AUM to 43bps (FY 2012: 40bps). The increase in expenses to £164m reflected the investment in growing the business and diversifying our sources of revenue both geographically and by product category. We have expanded our geographical footprint, invested in our operational and technology infrastructure while tightly managing our core cost base. HDFC Asset Management, our associate business, remains the largest mutual fund provider in India and contributed £13m (H1 2012: £10m) to operating profit before tax.

Operating return on equity

Operating return on equity increased to 63.0% (H1 2012: 46.0%), reflecting the increased profitability of our business and an efficient capital base.

Investment performance

The strong growth in H1 2013 was underpinned by excellent investment performance despite the return of volatility to markets in June 2013. 92% of funds were ahead of benchmark in the year to June with 91% ahead at 3 years and 82% at 5 years. It is particularly encouraging that equity funds performed strongly through stock selection during this recent period of turbulence with 87% of equity funds ahead of benchmark at 1 year. An impressive performance continues to be delivered by the credit teams with over 90% of funds ahead of benchmark at 1 year. Our suite of multi-asset funds outperformed their cash benchmark over all key time periods since inception. In addition, the strength of our mutual funds proposition is demonstrated by two of our funds being in the top three best performing in 2012 across 2,883 open ended investment funds available in the UK. A large proportion of eligible and actively managed funds (45 out of 60) were rated 'Silver' or above by Standard & Poor's.

Assets under management and net flows

We remain focused on meeting the needs of existing clients and securing new business backed by consistently strong investment performance, ongoing product innovation, high levels of client service and an expanding global distribution capability. After excluding the outflow of £1.8bn of assets relating to the expected loss of a single low revenue yield mandate in 2012, third party net inflows increased 196% to £7.1bn (H1 2012: £2.4bn) representing an annualised 17% of opening third party AUM. This continued our unbroken record of positive annual net inflows since inception. Our retention rates were some of the best in the industry, with redemptions at just 14% of opening AUM.

Third party AUM increased to a record £93.4bn (FY 2012: £83.0bn) representing 52% of total AUM (FY 2012: 49%). In-house AUM increased to £85.4bn (FY 2012: £84.7bn) with favourable market movements more than offsetting scheduled outflows from the with profits business. As a result, total AUM reached £178.8bn (FY 2012: £167.7bn).

Inflows during H1 2013 reflected the diverse nature of our product offering, our expanding global distribution capability and the increasingly international nature of our client base. Assets under management generated from sales in our Boston office broke through $5bn, with net inflows in H1 2013 increasing to £1.4bn (H1 2012: £0.6bn). In the UK and Europe we increased the institutional client base by 9%.

1.3 Business segment performance continued

1.3.2 Standard Life Investments continued

At an asset class level, we saw a broad mix of net inflows into fixed income, multi-asset, real estate and cash.

Our UK wholesale retail business continued to perform well with net inflows into our range of UK mutual funds up 80% to £1.8bn

(H1 2012: £1.0bn) and represented our highest ever market share of gross sales at 5.2% (FY 2012: 4.7%). We also recorded the highest net sales in the industry in Q4 2012, Q1 2013 and Q2 2013.

Our pipeline of institutional business remains strong with fixed income, real estate and multi-asset propositions continuing to attract considerable 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 and Asia Pacific.

Our business model

Maximising revenue

· Sales of high margin products enabled us to maintain the revenue yield on our third party gross sales at 51bps (FY 2012: 52bps) whilst the average revenue yield on third party assets increased to 43bps (FY 2012: 40bps)

· Continue to collaborate across the Standard Life Group to maximise the Group's share of the value chain, for example our MyFolio range of funds, which won 'Best New Fund Launch' at the Professional Adviser awards, now has AUM of £3.1bn

· Standard Life Investments announced the launch of a second Global Emerging Markets Debt fund, for retail and institutional investors in Europe

Increasing assets

· Achieved record third party AUM of £93.4bn driven by third party net inflows of £7.1bn

· Our share of the wholesale market in the UK continues to grow, with gross sales increasing to 5.2% (FY 2012: 4.7%). UK mutual funds AUM now exceeds £16bn, representing 17% of third party assets.

· Developing our multi-asset portfolio of products which comprises our suite of global absolute return strategies and balanced funds

· Market-leading range of MyFolio risk based funds, used extensively within our long-term savings and investments business, continues to be very popular with AUM of approximately £3.1bn

· Strong pipeline of new investment initiatives which positions us well to continue to meet the changing demands of our clients through new and innovative investment solutions

Lowering unit costs

· Maintenance expenses expressed as a proportion of average AUM were 18bps (FY 2012: 17bps). This reflects the ongoing development of our investment capability and expanding distribution and geographic reach.

· Extended our geographical footprint with expansion in Boston, Hong Kong and London

· Investment in core operational and technology infrastructure to support future growth

· Ongoing control over costs, combined with expansion in revenue margins, has resulted in a 16% compound annual growth in EBIT over the last six years

1.3.3 Canada

Financial highlights

	H1 2013	H1 2012	Movement
Operating profit before tax¹	£59m	£71m	(17%)
Operating return on equity¹	7.5%	10.3%	(2.8% points)
Assets under administration	£28.3bn	£27.8bn²	2%
Net flows	£54m	£56m	(4%)
EEV operating profit before tax¹	£144m	£210m	(31%)

¹ Comparatives have been restated to reflect an amendment to IAS 19 Employee Benefits.

² Comparative as at 31 December 2012.

Strategic overview

In Canada, we continue to grow our fee based business, capitalising on the opportunities created by demographic and market changes as we celebrate our 180^th anniversary. This is achieved through providing innovative retirement and investment solutions as well as exceptional levels of customer service.

Our corporate pension expertise is driving sponsor and member solutions to the market through technology innovation, a comprehensive investment platform and exceptional customer experience. In addition, our highly ranked retail sales team are providing advisors with solutions and tools to bring them closer to their customers, including our market-leading retail segregated funds, addressing customer needs for income and security. We are building on the strength of Standard Life Investments to provide global products in a Canadian market experiencing increased demand for investment diversification. We have expanded distribution across the corporate brokerage network, increasing our presence with investment advisors. We are engaging directly with our corporate pension members as we look to aggregate their assets on our investment platforms. We continue to focus on maximising the value of our back book of spread business, improving its profitability, capital efficiency and risk exposure.

Market update

Canada continues to be seen as a safe haven for international investors, however, consumer confidence remains below historic standards with individuals looking to reduce debt and increase household savings. Longer term, the combination of declining population growth and an ageing population in Canada is expected to increase the emphasis on private sector retirement and health benefit provisions. This brings with it increasing opportunities for providers of investment products, and decumulation and payout propositions.

The continued low interest rate environment and equity market volatility have left investors looking for alternatives to traditional investments and savings propositions. In the retail space, our complete suite of income oriented investment funds and a very well positioned retail segregated fund offering, along with the launch of Standard Life Investments' successful Global Absolute Return Strategies offering for the Canadian retail market, is aiming to meet the need of risk-averse customers for stable yields. Retail mutual fund regulation is evolving towards increased cost and performance transparency. While we do not expect that this will lead to the elimination of upfront sales commissions in the short term, we are leveraging the UK experience with RDR to take advantage of this evolving environment. We are working closely with Standard Life Investments to expand our retail mutual fund offering in Canada.

The need for greater private pension provision through employers is also very evident and we continue to engage with policy makers and employers, and to innovate in this area. The continued shift away from defined benefit pension plans, particularly by private sector employers, will increase demand for defined contribution retirement solutions. In addition, the introduction of Pooled Registered Pension Plans (PRPP) will make pensions saving much more accessible to employees of small and medium enterprises who represent the majority of employers in Canada. This development should also be positive for employers as a recent study conducted by Environics Research Group for us highlighted how small and medium-sized enterprises underestimate the value that employees place on workplace retirement solutions. Our easy to implement 'Pension in a Box' proposition was specifically designed with those customers in mind. Provincial legislation introducing PRPP has experienced delays however recently provinces representing over 50% of all businesses in Canada have enacted PRPP legislation and are in the stages of introducing guidelines and issuing licenses to providers. We continue to innovate to ensure that we have the right investment solutions, novel ways of engaging with employees and efficient scheme administration processes to succeed. Our innovative 'Plan for Life' program and our newly-created Retirement Centre are designed to facilitate plan members' savings and investments habits. Our corporate benefits business which provides health insurance, administration and disability management services is becoming increasingly important as more employers look for an integrated offering.

1.3 Business segment performance continued

1.3.3 Canada continued

Profitability

Operating profit before tax

	H1 2013	H1 2012
	£m	£m
Fee based revenue	95	83
Spread/risk margin	114	124
Total income	209	207
Acquisition expenses	(37)	(41)
Maintenance expenses	(125)	(114)
Capital management	12	19
Canada operating profit before tax	59	71

Operating profit before tax decreased by £12m to £59m (H1 2012: £71m) mainly due to the movement in one-off reserving changes of £17m. The key highlights are:

· Fee based revenue increased by £12m mainly from higher average AUA and new business inflows

· Spread/risk margin was impacted by one-off reserving changes relating to modelling changes which generated a loss of £9m compared to a gain of £8m in H1 2012. The result benefited from management actions to enhance the investment yield on assets of £20m (H1 2012: £9m). Spread/risk margin from existing business remained in line with the prior period. We continue to make progress on additional management actions to enhance spread/risk margin.

· Acquisition expenses decreased due to lower management expenses and a shift in product and technology development spend towards maintenance expenses

· Maintenance expenses increased by £11m mainly due to higher renewal commission and portfolio management fees from higher average AUA. In addition, technology and change spend increased as we enhanced our propositions and processes, with investments to develop our corporate pensions capabilities including PRPP. Maintenance expenses as a proportion of average AUA improved to 93bps (FY 2012: 95bps).

· Capital management decreased by £7m as surplus assets were invested in lower yielding bonds rather than properties following a de-risking exercise undertaken in 2012

EEV operating profit

EEV operating profit before tax of £144m (H1 2012: £210m) reflects a lower contribution from back book management compared to the first half of 2012.

Operating return on equity

Operating return on equity decreased to 7.5% (H1 2012: 10.3%) mainly due to additional capital currently being held in the Canadian business following the successfully executed management actions in H2 2012.

Assets under administration and net flows¹

Net flows¹		H1 2013	H1 2012
		£m	£m
Fee	F	107	91
Spread/Risk	S/R	(120)	(113)
Corporate pensions		(13)	(22)
Corporate benefits	S/R	42	44
Retail segregated funds	F	193	184
Retail mutual funds	F	(62)	(7)
Retail investment funds		131	177
Retail spread/risk	S/R	(106)	(143)
Total Canada		54	56
Fee business		238	268
Spread/risk business		(184)	(212)
Total Canada		54	56

¹Canada categories for AUA and net flows have been revised to align with other business segments. The main changes are that group products are now referred to as corporate and individual products as retail.

Total AUA increased by 2% to £28.3bn reflecting positive market movements and net inflows into our propositions.

Fee business AUA increased by 5% in constant currency to £17.0bn helped by positive net inflows into retail segregated funds and corporate pensions as well as positive market movements.

Spread/risk AUA decreased to £9.5bn as a result of scheduled net outflows.

Net inflows into fee based propositions of £238m were 11% lower (H1 2012: £268m) as growth in corporate pensions and retail segregated funds were offset by net outflows from retail mutual funds.

New business performance

PVNBP sales of £1,528m were 15% lower in constant currency (H1 2012: £1,780m). Strong performance in retail segregated funds where sales increased by 8% was offset by lower sales of corporate pensions and corporate benefits due to the uneven pattern of this business and a particularly strong performance in the first half of 2012.

Our business model

While we celebrate our long-standing heritage in Canada, we look to further enhance our position in the market and strengthen our relationships with customers and partners through innovative solutions, helping Canadians look forward to their financial future with confidence and optimism.

Maximising revenue

· The average revenue yield on our fee business remained stable at 113bps (FY 2012: 113bps)

· We are working closely with Standard Life Investments on distributing global investment products through our retail investment funds offering, securing a greater proportion of the value chain and driving future revenue growth

Increasing assets

· We launched 'Pension in a Box', a comprehensive and flexible retirement program targeted at small and medium enterprises, which offers the complete Plan for Life Programme member experience. This programme includes a comprehensive investment governance and monitoring programme, a full range of capital accumulation plans and online administration through our corporate pensions website, the VIP Room. By adding this innovative option to our retirement offerings, which includes the PRPP, we offer clients a wide spectrum of solutions to meet their specific needs.

· We are modernising our corporate pensions employer website to address clients' information and reporting needs through a centralised self-serve platform, and introducing new reporting capabilities and features

· We launched corporate pensions Target Liability Bond Funds, a sophisticated solution for employers looking to address the challenges of the low interest rate environment and help them manage the transition from defined benefit to defined contribution plans

· Global Absolute Return Strategies mutual fund and other global funds managed by Standard Life Investments are helping us to strengthen and build distribution relationships. We now have access to four of the top six Canadian banks' investment dealer platforms, allowing us to re-engage with advisors in this distribution channel.

· In corporate benefits, we expanded our range of health and wellness consulting services and tools, focusing on promoting sustainable health initiatives in the workplace. We have various programmes including drug and absence management, new consultancy services offering expert advice to develop a wellness strategy and new tools enabling customers to take charge of their health.

· We also enhanced our healthcare management approach by enabling the submission of claims directly from healthcare providers' point-of-care and introduced digital statements and invoicing through our client website

Lowering unit costs

· Acquisition expenses as a proportion of PVNBP sales increased to 242bps (FY 2012: 220bps) due to the impact of lower sales in the period

· Maintenance costs as a proportion of average AUA improved to 93bps (FY 2012: 95bps) as we continued to invest in our client propositions and improve efficiency and customer experience

1.3.4 Asia and Emerging Markets

Financial highlights - wholly owned

	H1 2013	H1 2012	Movement
Operating loss before tax	(£6m)	(£5m)	(20%)
Operating return on equity	(15.4%)	(14.3%)	(1.1% points)
Assets under administration	£262m	£215m¹	22%
Net flows	£39m	£30m	30%
EEV covered business operating loss before tax	(£1m)	-	-
EEV non-covered business operating loss before tax	(£4m)	(£6m)	33%

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

	H1 2013	H1 2012	Movement
Operating profit before tax	£5m	£8m	(38%)
Operating return on equity	6.7%	14.5%	(7.8% points)
Assets under administration	£1.6bn	£1.5bn¹	7%
Net flows	£125m	£140m	(11%)
EEV covered business operating profit before tax	£16m	£8m	100%

¹ Comparative as at 31 December 2012.

Strategic overview

Our Asia and Emerging Markets business consists of wholly owned operations in Hong Kong, Singapore and Dubai, and life joint ventures in India and China. We aim to accelerate our access to the high growth, high value markets within Asia and Emerging Markets. Our increased focus on Asia is gaining traction, leading to further expansion of our retail investments business.

Our business in Hong Kong continues to attract business from higher net worth customers resident in Hong Kong and the wider region. Based on new business sales, we are now the market leader in the Broker and IFA segment in Hong Kong.

The recently established branches in Singapore and Dubai have increased the number of brokers that have signed terms of business and are in discussion with potential bank partners.

Our joint ventures in India and China continue to demonstrate positive progress despite operating in challenging local environments. HDFC Life, our joint venture in India, is well positioned to take advantage of their brand strength and strong customer-focused business practices.

Market update

In Hong Kong, new regulations aimed at protecting consumers and requiring greater disclosure came into force on 1 July 2013. While this is likely to adversely affect new business volumes in the short term, we believe we are well placed in the market due to our customer-led strategy.

Singapore and Dubai are both high growth, high value emerging markets. Morgan Stanley Capital International share index has recently upgraded Dubai from 'frontier market' to 'emerging market' which will increase the interest of foreign investors.

In India, the continued regulatory and economic uncertainty has the potential to impact on the growth of the insurance sector in 2013. In this challenging market, HDFC Life continues to adopt a proactive approach to the regulatory changes and will aim to consolidate its standing and reputation in the market with quality a main focus.

In China, the insurance market has seen moderate growth with domestic companies continuing to dominate with over 90% of the total new business market. Our joint venture, Heng An Standard Life, continues to focus on growth in targeted segments by developing their distribution capability.

²As at 31 March 2013.

Profitability

Operating (loss)/profit before tax

Operating (loss)/profit before tax	H1 2013	H1 2012
	£m	£m
Fee based revenue	27	22
Acquisition expenses	(10)	(6)
Maintenance expenses	(23)	(21)
Total wholly owned	(6)	(5)
India and China JV businesses	5	8
Asia and Emerging Markets operating (loss)/profit before tax	(1)	3

Operating loss before tax is £1m (H1 2012: profit £3m). The key highlights are:

· Fee based revenue increased by 20% in constant currency resulting from strong growth in sales in Hong Kong

· Total expenses increased by 22% in constant currency to £33m mainly due to higher acquisition costs associated with commencing business in Singapore and Dubai

· The joint venture businesses delivered an operating profit before tax of £5m (H1 2012: £8m). A higher new business strain on profit was driven by the expansion of HDFC Life unit linked product sales in early 2013. This included the release of two new pension products to capitalise on opportunities within the market to improve long-term value generation.

EEV operating profit

Total EEV operating profit increased to £11m from £2m in H1 2012. The wholly owned businesses recorded a total EEV operating loss of £5m (H1 2012: loss £6m). This is the result of improved new business sales in Hong Kong offset by additional operating costs arising from new branches in Singapore and Dubai. EEV operating profit in our joint venture businesses increased to £16m (H1 2012: £8m) through improved profits from in-force business.

Operating return on equity

Operating return on equity for our total Asia and Emerging Markets operations was a negative return of 1.6%

(H1 2012: positive return of 4.3%) driven by lower operating profit after tax.

Assets under administration and net flows

AUA in the wholly owned businesses grew by 18% in constant currency to £262m (FY 2012: £215m). This was driven by strong net flows and favourable market movements. Net flows in the wholly owned businesses were higher at £39m (H1 2012: £30m) reflecting improved consumer sentiment across the markets we operate in and our efforts in promoting new product initiatives to capitalise on the market upturn.

AUA in the joint venture businesses increased by 7% to £1.6bn (FY 2012: £1.5bn) mainly due to net flows of £125m

(H1 2012: £140m).

New business performance

PVNBP sales in the wholly owned businesses increased by 64% in constant currency to £210m (H1 2012: £125m), driven by an increase in Hong Kong. Sales in Singapore and Dubai continue to rise, however their contribution to new business volumes reflects the early stage of their development.

In India, sales rose 6% in constant currency to £239m as HDFC Life continue to focus on quality and capitalise on their brand strength. In China, Heng An Standard Life sales are down 20% in constant currency to £42m with a positive start to the year in the individual channel outweighed by lower sales in the bank channel as the business focuses on higher margin regular premium sales.

Our business model

Maximising revenue

· Revenue increased by 20% in constant currency, reflecting good new business volumes, changes in business mix and the introduction of new products in Hong Kong in late 2012

· We are exploring opportunities for greater collaboration with Standard Life Investments in Asia

Increasing assets

· We continue to offer propositions that help our customers invest in volatile market conditions. In Hong Kong, the Harvest Wealth product launched in late 2012 has seen positive demand and is meeting the needs of internationally mobile clients.

· In Singapore and Dubai, our regular savings plan proposition has been well received by customers

· Our Indian joint venture, HDFC Life released their 2012/13 financial year end results at the start of May and reported a 16% growth in new business premium income and 11% growth in total premium income. These results demonstrate the significant success management have achieved in growing the business within the competitive and challenging Indian insurance industry.

Lowering unit costs

· As part of our continuing effort to drive efficiency, we have transitioned more shared functions to Hong Kong and our other businesses in the region. This will help to reduce the layers of decision making, bringing us closer to our markets and creating more customer facing roles.

· Total expenses increased to £33m (H1 2012: £27m), reflecting additional costs as we expand our business in Asia and Emerging Markets

1.4 Risk management

Risk management is an integral part of the Group's corporate agenda. Our risk management strategy is to manage long-term value creation, cashflow and risk in a holistic manner in order to make informed decisions to create and protect value in the Group's activities. We are proactive in managing and understanding the risks to our objectives at every level of the Group and ensuring capital is delivered to areas where most value can be created for the risks taken. Find out more on the main risks we face below.

	Market risk	Credit risk
Definition	The risk that arises from the Group's exposure to market movements which could result in the value of income, or the value of financial assets and liabilities, or the cash flows relating to these, fluctuating by differing amounts.	The risk of exposure to loss if a counterparty fails to perform its financial obligation, including failure to perform those obligations in a timely manner. It also includes the risk of a reduction in the value of assets due to a widening of mortgage, bond and swap spreads.
Appetite	The Group has no appetite for market risk exposures except where they arise as a consequence of core strategic activity. Business units are expected to limit market risk exposures by matching the features of liabilities to features of assets. Exposures may be incurred where there is an overriding business need and specific appetites will be established as necessary.	The Group has an appetite for credit risk to the extent that acceptance of this risk optimises the Group risk-adjusted return. However, the Group has limited appetite for significant losses arising from counterparty failures and maintains robust risk limits which Group companies must adhere to.
Main sources of risk	Equity and property risk · Changes in the value of future profits earned on unit linked funds and collective investment schemes where the funds are invested in equities and property · Burnthrough from the Heritage With Profits Fund (HWPF) and German With Profits Fund · Assets held to back annuities and surplus in Canada Fixed interest risk · Changes in the value of future profits earned on unit linked funds and collective investment schemes where the underlying funds are invested in fixed interest assets · Burnthrough from the HWPF and German With Profits Fund · Insufficient long-dated fixed income assets to match the longest dated liabilities in Canada Currency risk · Exchange rate movements that reduce the value of overseas operations and profits generated by them · Changes in the value of future profits on unit linked funds and collective investment schemes where the underlying funds are invested in overseas assets	The Group is exposed to credit risk through: · Changes in the value of future profits earned on unit linked funds and collective investment schemes where the underlying funds are invested in corporate bonds · Burnthrough from the HWPF Credit risk also results from holding the following assets: · Corporate bonds held to back annuities written by SLAL post-demutualisation · Assets held to back the subordinated debt in SLAL, a proportion of which are asset backed securities that are held for historical reasons · Corporate bonds and commercial mortgages held in Canada to back annuities Other holdings of cash and cash equivalents, debt securities and the reinsurance of certain insurance liabilities to reinsurance counterparties also results in credit risk.
H1 2013 summary	Concerns about sovereign debt levels in certain Eurozone countries have persisted leading to UK, German and Canadian yields remaining low relative to historical levels. In managing our market risks we have: · Introduced cashflow matching investment strategies for annuity business in Ireland and Germany which have reached sufficient size to make this feasible · Continued the dynamic hedging of guarantees provided for Canadian Segregated Funds · Monitored and managed the equity backing ratio of assets held within the HWPF in line with Principles and Practices of Financial Management and the need to treat with-profits policyholders fairly · Reviewed and affirmed our hedging strategy in respect of the currency risk arising from our overseas operations	We suffered no direct loss as a result of events in Cyprus during H1 2013 and our approach to managing credit concerns regarding debt issued by certain European sovereign states and banks remains the same. This includes: · Maintaining benchmarks for our fixed interest portfolios which exclude holdings in peripheral sovereign debt · Restricting holdings of cash and cash equivalents to banking counterparties that we assess to be of appropriate credit standing, taking into consideration both direct and indirect factors such as the potential impact of contagion risk on these banks UK sovereign debt credit ratings were cut by two major rating agencies in H1 2013. We had anticipated this and were well-prepared. We successfully restructured a number of reinsured external fund links which has resulted in reducing our potential credit exposures.

	Demographic and expense risk	Liquidity risk	Operational and strategic risk
Definition	The risk that arises from the inherent uncertainties as to the occurrence, amount and timing of future cash flows due to demographic and expense experience differing from that expected. This includes liabilities of insurance and investment contracts.	The risk that the Group is unable to realise investments and other assets in order to settle its financial obligations when they fall due, or can do so only at excessive cost.	Operational risk is the risk of adverse consequences for the Group's business, resulting from inadequate or failed internal processes, people or systems, or external events. Strategic risk is the risk associated with the robustness of the planning process and threats to achieving our strategy.
Appetite	The Group has an appetite for such risks since we expect acceptance of the risk to be value additive. Appetites will be established to reflect planned business activities in line with the Group's overall strategic objectives.	The Group has no appetite to fail to meet its liabilities as they fall due.	The Group has an appetite for operational risks where exposures arise due to core strategic activity. However, the Group will seek to put effective controls in place to reduce operational risk exposures, except where the costs of such controls exceed the expected benefits.
Main sources of risk	Persistency · Changes in the value of future profits earned on unit linked funds and collective investment schemes and future recourse cash flow payments from the HWPF · Changes in the value of future profits earned in respect of Standard Life Investment's third party AUM and segregated fund business Longevity · Annuity contracts written by the UK and Canada where the current experience differs from that expected, more volatility of experience than expected, or the rate of improvement in mortality is greater than anticipated Expense · Changes in the value of future expected expenses · Shareholder is directly exposed to risk of expenses being above expectation	The Group is exposed to liquidity risk from the following sources: · The type of business that is written, the assets and liabilities arising from that business and how the assets are managed to meet those liabilities · Operational aspects of the business, for example the management of cash as it flows into our business as premiums and out of our business as claims and the payment of corporate cash flows including dividends, coupons and debt repayment · Potential liquidity issues in unit linked funds due to the underlying asset classes · The collateralisation of derivatives which results in cash volatility as the value of the derivative changes	The key operational and strategic themes affecting the Group are: · Ability to deliver the strategic plan · The significance of adverse global economic volatility · The changes to the tax, legal or regulatory environment and resultant impact on our model and how our strategy is executed (e.g. auto enrolment, Solvency 2) · Inadequate control environment internally and in relation to third parties · Potential loss of clients from adverse customer experiences · Insufficient capacity and capability to deliver change programmes and projects · Insufficient people capabilities to deliver our strategy and plans · Reputational damage
H1 2013 summary	We have continued to monitor opportunities for enhancing back-book profitability via reinsurance or capital market solutions. We remain focused on developing propositions to increase the retention of funds when insurance and savings contracts reach maturity. We have continued to monitor emerging research into longevity, for example from the Office for National Statistics and the industry-wide Continuous Mortality Investigation, in order to inform our in-house view of likely future improvements in life expectancy. We have renegotiated the terms of certain reinsurance arrangements in Canada to assist with the management of our longevity risk.	We have continued to monitor the liquidity for various asset classes particularly in the context of developments in the financial markets. During H1 2013 we refinanced our £500m syndicated revolving credit facility for a further 5 years. To further assist with liquidity management we have continued to: · Centrally co-ordinate strategic planning and funding requirements · Maintain our Euro Medium Term Note Programme	The move to the new regulatory regime within the UK in April 2013 has had no significant impact on the Group to date. We have continued to work on implementing appropriate processes and controls to prepare for tax, legal and regulatory changes. In particular, aligned to regulatory developments, we have increased our focus on conduct risk management to ensure this is embedded across the Group and we meet, if not exceed, regulatory expectations. Our Solvency 2 project continues to respond to changes in requirements. We continue to monitor developments and prepare for possible outcomes regarding the constitutional arrangements for the UK and Europe given the potential impact these could have on our business.

1.5 Basis of preparation

Overview

Our Business review for the period to 30 June 2013 has been prepared in line with the Disclosure and Transparency Rules (DTR) issued by the Financial Conduct Authority (FCA). The DTR incorporates the requirement of the European Union (EU) Transparency Directive for all UK listed companies to report their half year results in accordance with IAS 34 Interim Financial Reporting. Under DTR 4.2.7R, 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 information, and a description of the principal risks and uncertainties for the remaining six months of the financial year. Principal risks are detailed in Section 1.4 - Risk management and Note 41 of the Group's Annual Report and Accounts 2012. Under DTR 4.2.8R we are also required to make certain related party disclosures. These are contained in Note 3.15 of the IFRS financial information. To provide clear and helpful information, we have also considered the voluntary best practice principles of the Reporting statement: Operating and Financial Review (OFR) issued by the Accounting Standards Board (ASB), now part of the Financial Reporting Council.

The Group's condensed consolidated half year financial information has been prepared in accordance with IAS 34 Interim Financial Reporting, as endorsed by the EU. However, our Board believes that non-Generally Accepted Accounting Principles (non-GAAP) measures, which have been used in the Business review, 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 operating profit, EEV operating profit and EEV operating capital and cash generation. All non-GAAP measures should be read together with the Group's IFRS condensed consolidated income statement, condensed consolidated statement of financial position and condensed consolidated statement of cash flows, which are presented in the IFRS financial information in Section 3 of this report.

Going concern

After making appropriate enquiries, the Directors have a reasonable expectation that the Company and the Group as a whole have adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial information.

IFRS and EEV reporting

The financial results, which are unaudited at the half year, are prepared on both an IFRS basis and an EEV basis. All EU-listed companies are required to prepare consolidated financial information using IFRS issued by the International Accounting Standards Board (IASB) as endorsed by the EU. EEV measures the net assets of the business plus the present value of future profits expected to arise from in-force long-term life assurance and pensions policies. The IFRS financial results in the Business review and in Section 3 have been prepared on the basis of the IFRS accounting policies applied by the Group in the IFRS consolidated financial information section of the Annual Report and Accounts 2012 as amended for new standards effective from 1 January 2013, as described in Note 3.1 - Accounting policies. The EEV basis has been determined in accordance with the EEV Principles and Guidance issued in May 2004 and October 2005 and the revised Interim Transitional Guidance issued in September 2012 by the Chief Financial Officers (CFO) Forum. The CFO Forum represents the chief financial officers of major European insurers, including Standard Life. EEV methodology has been applied to covered business, which mainly comprises the Group's long-term savings business. Non-covered business is reported on an IFRS basis. The EEV financial results in the Business review, and in Section 4 have been prepared in accordance with the EEV methodology applied by the Group in Note 4.17 - EEV methodology for H1 2013, and in the relevant EEV methodology notes included in the Annual Report and Accounts 2012 in respect of the comparative period.

Group operating profit and EEV operating profit

The H1 2013 reconciliation of consolidated operating profit to IFRS profit for the period, presented in Section 3, presents profit before tax attributable to equity holders adjusted for non-operating items. Further details on the calculation of Group operating profit is presented in accounting policy (jj) - Operating profit in the Annual Report and Accounts 2012. The H1 2013 EEV consolidated income statement in Section 4, presents EEV profit showing both operating and non-operating items. By presenting our results in this way, the Directors believe they are presenting a more useful indication of the underlying business performance of the Group.

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', 'pursues', '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.

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