Interim Results

St. James's Place PLC 25 July 2006 ST. JAMES'S PLACE PLC PRESS RELEASE 25 July 2006 INTERIM RESULTS FOR THE SIX MONTHS TO 30 JUNE 2006 St. James's Place plc ('SJP'), the wealth management group, today announces its new business and financial results for the half year ended 30 June 2006. The text of the announcement is attached: Enquiries: Mike Wilson, Chairman Tel: 020 7514 1985 Andrew Croft, Group Finance Director Tel: 020 7514 1985 Nitya Bolam, Brunswick Tel: 020 7404 5959 ST. JAMES'S PLACE GROUP ANNOUNCEMENT OF THE INTERIM RESULTS FOR THE SIX MONTHS TO 30 JUNE 2006 NEW BUSINESS UP 55% AND OPERATING PROFIT UP 52% St. James's Place, the wealth management group, today announces its interim results for the half year to 30 June 2006. European Embedded Value highlights include: â€¢ Group operating profit at Â£80.3 million (2005: Â£53.0 million) up 52% â€¢ New business profits of Â£51.5 million (2005: Â£28.1 million) up 83% â€¢ Net asset value per share 196.5 pence (2005: 162.5 pence) up 21% over the twelve months International Financial Reporting Standards highlights include: â€¢ Profit before shareholder tax of Â£43.3 million (2005: Â£19.2 million) up 126% â€¢ Net asset value per share 68.1 pence (2005: 54.0 pence) up 26% over the twelve months Other highlights include: â€¢ New business at Â£160.9 million up 55% â€¢ Funds under management increased to Â£13.5 billion since the start of the year up 10% â€¢ Size of Partnership at 1,170 up 2% since the start of the year â€¢ Interim dividend increased to 1.5 pence per share up 15% Mike Wilson, Chairman, commented: 'We are delighted with the strength of the financial results in all areas driven by our 55% growth in new business. Particularly pleasing is the growth in investment business, up 57% and pensions up 70%, benefiting from the Pensions A Day changes. 'In the first six months, we have considerably outperformed our new business objective in favourable market conditions. Although our longer term objective of 15 - 20% growth in new business remains, the Board now expects (subject to no unforeseen circumstances) the new business growth for the year to exceed this stated range, despite the 34% growth in the second half of 2005.' CONTENTS PART ONE NEW BUSINESS FIGURES PART TWO CHAIRMAN'S STATEMENT AND FINANCIAL COMMENTARY PART THREE EUROPEAN EMBEDDED VALUE BASIS PART FOUR INTERNATIONAL FINANCIAL REPORTING STANDARDS BASIS PART ONE ST. JAMES'S PLACE GROUP NEW BUSINESS FIGURES FOR THE SIX MONTHS TO 30 JUNE 2006 LONG-TERM SAVINGS Unaudited Unaudited 3 Months to 6 Months to 30 June 2006 30 June 2006 NEW PREMIUMS 2006 2005 Change 2006 2005 Change Â£'m Â£'m % Â£'m Â£'m % New Regular Premiums Pensions 21.9 12.1 81% 31.2 19.3 62% Protection 5.9 6.0 (2%) 11.5 11.6 (1%) 27.8 18.1 54% 42.7 30.9 38% New Single Premiums Investment 299.9 210.1 43% 588.8 377.0 56% Pensions 161.0 90.7 78% 274.0 152.4 80% 460.9 300.8 53% 862.8 529.4 63% Unit Trust Sales 176.1 114.1 54% 319.5 200.4 59% (including PEPs and ISAs) ------- ------ ------- ------- ------ ------- Unaudited Unaudited 3 Months to 6 Months to 30 June 2006 30 June 2006 NEW 2006 2005 Change 2006 2005 Change BUSINESS (RP + 1/ Â£'m Â£'m % Â£'m Â£'m % 10th SP) Investment 47.6 32.4 47% 90.8 57.7 57% Pensions 38.0 21.2 79% 58.6 34.5 70% Protection 5.9 6.0 (2%) 11.5 11.6 (1%) ------ ------ ------- ------- ------ ------- Total 91.5 59.6 54% 160.9 103.8 55% ------ ------ ------- ------- ------ ------- ST. JAMES'S PLACE GROUP WEALTH MANAGEMENT SERVICES KEY BUSINESS HIGHLIGHTS FOR THE SIX MONTHS TO 30 JUNE 2006 Unaudited Gross fees generated from Â£15.5m up 30% (2005: Â£11.9m) additional wealth management services New Mortgage Advances Â£2,679.3m St. James's Place Bank Â£237.7m Other lenders Â£2,441.6m Portfolio Management Services New portfolios Â£16.7m Trust and Estate Planning Services Number of cases 365 St. James's Place Bank - in-force business *Number of facilities 63,793 Number of accounts 26,962 Credit balances Â£741.7m Mortgages Â£1,489.3m Average mortgage value Â£176.1k Loans Â£7.2m *Number of facilities denotes the number of individual mortgages, personal loans, credit cards, current accounts and savings accounts, where one client may hold a number of facilities. The average number of facilities per client is 2.4. ST. JAMES'S PLACE GROUP NEW BUSINESS FIGURES FOR THE SIX MONTHS TO 30 JUNE 2006 Notes 1. New business from long-term savings is calculated in accordance with the life assurance industry convention by adding together new regular premiums and one-tenth of single premiums and unit trust sales. 2. Sales of manufactured business on an APE basis for the six months were 86% of the total reported (2005: 83%). Sales of non-manufactured pensions including stakeholder by St. James's Place Partnership have been included in the reported figures under Pensions. These amount to Â£9.5 million regular premiums (2005: Â£9.1 million) and Â£29.5 million single premiums (2005: Â£11.7 million) for the six months to 30 June 2006. This equates to Â£12.4 million new business premiums (2005: Â£10.3 million). Sales of annuities by St. James's Place Partnership have been included in the reported figures under Pensions. These amount to Â£17.4 million single premiums for the six months to 30 June 2006 and equate to Â£1.7 million new business premiums. The comparative figure has not been restated to include equivalent sales in the first half of 2005. Sales in this period were Â£15.8 million single premiums (Â£1.6 million new business premiums). Sales of protection business by St. James's Place Partnership through a panel of providers have been included in the reported figures under New Regular Premiums Protection. These amount to Â£7.2 million of new regular premiums (2005: Â£7.1 million) for the six months to 30 June 2006. This equates to Â£7.2 million new business premiums (2005: Â£7.1 million). Sales of non-manufactured single premium investment business amounting to Â£5.3 million have been included in the reported figures under investments for the six months to 30 June 2006 (2005: Â£nil). This equates to Â£0.5 million new business premiums. PART TWO CHAIRMAN'S STATEMENT I am delighted to report that the strong performance achieved over the last two years has continued in the first half of 2006. The major contributor to this has been the substantial growth in new business. New business from long-term savings and investments (measured on the industry basis of annual premium plus one tenth of single premium) was up 55% over the period. FINANCIAL PERFORMANCE The financial results have been presented on both an IFRS (International Financial Reporting Standards) basis and an EEV (European Embedded Value) basis. As shareholders will be aware the Board believes the EEV basis provides a more meaningful measure of the Group's performance. The operating profit, before shareholder tax, on the IFRS basis was Â£43.3 million (2005: Â£19.2 million) and total pre-tax profit for the period was Â£48.0 million (2005: Â£38.5 million). On the EEV basis the pre-tax operating profit, which is the best indication of the underlying performance of the business, increased by 52% from Â£53.0 million to Â£80.3 million. Total pre-tax profit for the six months, including the investment variance, was Â£84.6 million compared with Â£75.2 million for the same period last year. The Financial Commentary on pages 10 to 15 provides further details on the results for the year. DIVIDEND The strong performance and significant cash generated has continued in the first six months of 2006 and the Board has therefore resolved to increase the interim dividend to 1.5 pence per share (2005: 1.3 pence per share) representing an increase of 15%. The dividend will be paid on 18 September to those shareholders on the Register at the close of business on 4 August. As with recent dividend payments, shareholders will be offered an alternative of a scrip dividend. Barring unforeseen circumstances, shareholders can expect a similar increase in the full year dividend. NEW BUSINESS As shareholders are aware we have two key new business objectives, firstly to grow new business (measured on the basis of annual premiums plus one-tenth of single premiums) by 15-20% per annum over the longer term and secondly for our own manufactured products to represent at least 80% of new business. After reporting a first quarter new business increase of 57%, I am delighted that we have maintained a similar level of growth in the second quarter with new business up by 54% for the three months to Â£91.5 million. This is our highest ever quarter of new business and gives us an increase of 55% for the first six months of the year. Our own manufactured products represented 86% (2005: 83%) of the total APE of Â£160.9 million. We have therefore surpassed both our new business objectives over the period. Pension business was up 79% for the quarter as we start to see the effects of the Pensions A Day changes and particularly pleasing is the strong growth we are experiencing in investment business which is up 57% for the six months. Gross fees from our wealth management services rose by 30% to Â£15.5 million. THE ST JAMES'S PLACE PARTNERSHIP The substantial growth in productivity per Partner has driven our new business growth in 2004 and 2005. This has continued in the first six months of 2006 with productivity per Partner increasing by 51% compared with the same period last year. The Board believes that the quality of the existing Partnership provides scope for further growth in productivity in years to come. I am pleased to say that we are beginning to see the results of the measures taken to improve performance in the growth of the Partnership numbers, which were highlighted in the Chief Executive's Statement in the 2005 Annual Report. The Partnership grew by some 2% in the first half of the year to 1,170. With the recent turmoil in the advice market place, we remain convinced that St James's Place is one of the best homes for high quality, trusted financial advisers and we offer a financially secure and stable home for their business. We are more committed than ever to recruiting the highest quality Partners and to retaining only those who are profitable to the Group in the longer term. INVESTMENT MANAGEMENT It is pleasing to report against the background of the more recent volatile market conditions, that our distinctive approach to investment management continues to deliver superior performance in both the short and the longer term. Money spread equally across our five Managed funds has significantly outperformed the peer group over both the short and long term. This adds strength to our core message of the benefits of spreading investments across a range of different managers, asset classes and sectors. As part of the ongoing evolution of our investment proposition, we have undertaken intensive research into finding a replacement for Ted Williams, manager of the SJP / Schroder Managed portfolios, who recently announced his intention to retire. I am pleased to say Ted will be replaced by Nick Purves. In addition we are launching two new managed funds to replace the SJP / Select Fund with effect from 31 July 2006. The SJP / AXA Framlington Managed will be managed by Richard Peirson and the SJP / Newton Global Managed will be managed by Paul Butler. As at the 30 June 2006, our funds under management were Â£13.5 billion, up 10% since the start of the year, and 29% higher than the same time in 2005. BOARD CHANGES As I commented in my last statement Sir James Crosby and John Edwards stepped down from the Board on 31 May 2006 and were replaced by Andy Hornby, James's successor as Chief Executive of HBOS, and Jo Dawson, the HBOS director responsible for Insurance and Investment. I would like to welcome Andy and Jo to the Board and thank John for his contribution during his directorship. I particularly want to thank James for his immense contribution to the development of SJP over the years from his initial involvement as a director between the years of 1992 to 1994 and since his reappointment as a director in 2000, when HBOS acquired 60% of St. James's Place. PARTNERS AND STAFF Following on from a very strong performance in 2005 the continued growth in new business and profits could only have been achieved with the on-going enthusiasm, commitment and dedication of the Partnership and our staff. On behalf of the Board and shareholders I would like to thank all members of our community for continuing to excel in their individual roles. OUTLOOK In the first six months, we have considerably outperformed our new business objective in favourable market conditions. Although our longer term objective of 15 - 20% growth in new business remains, the Board now expects (subject to no unforeseen circumstances) the new business growth for the year to exceed this stated range, despite the 34% growth in the second half of 2005. The social, economic and demographic conditions remain positive for our proven adviser based approach to wealth management. The new pension rules introduced in April of this year together with the recent changes in the inheritance tax rules announced in the Budget, make the need for advice more important than ever. The Board is confident that SJP is in a growth market. We remain convinced that our own dedicated distribution, the St. James's Place Partnership, gives us a real competitive edge to capitalise on these opportunities going forward. FINANCIAL COMMENTARY The Financial Commentary is as usual presented in two sections: a section providing a commentary on the results presented on both an IFRS and EEV basis, and a second section covering other matters of interest to shareholders and investors. SECTION 1: COMMENTARY ON THE RESULTS INTERNATIONAL FINANCIAL REPORTING STANDARDS ('IFRS') The IFRS result is shown on pages 23 to 34. The table below shows the pre-tax profit of the Group on this basis. 6 Months 6 Months 12 Months Ended Ended Ended 30 June 30 June 31 December 2006 2005 2005 --------- -------- ---------- Â£' Million Â£' Million Â£' Million Life business 36.5 18.3 29.3 Unit trust business 8.9 5.9 12.8 Other (2.1) (3.2) (4.1) IT systems development - (1.8) (4.3) --------- -------- ---------- Operating profit 43.3 19.2 33.7 Profit on sale of LAHC - - 9.5 --------- -------- ---------- Profit before shareholder tax 43.3 19.2 43.2 Policyholder tax 4.7 19.3 83.9 --------- -------- ---------- Total pre-tax profit 48.0 38.5 127.1 ========= ======== ========== Profit after tax 28.4 15.5 47.6 ========= ======== ========== The IFRS result requires the pre-tax profit of the life business to be 'grossed up' for policyholder tax with the corresponding amount then being deducted within the tax charge. This 'grossing up' does not reflect the shareholder return from the life business and consequently the results table below and the accompanying narrative have been presented after eliminating the 'gross up'. Life business The profit from the life business at Â£36.5 million (2005: Â£18.3 million) has doubled over the prior period. Shareholders will be aware the Company obtains tax relief for its expenses principally by offset against deductions on the income and capital gains arising in the unit linked funds. Included in the life result is an amount of Â£20 million (2005: Â£10.6 million) reflecting this relief on the life company's expenses for the period. Shareholders should be aware that some or all of this Â£20 million could reverse in the second half of the year in the event of capital losses being realised by the unit linked funds during this period. In addition to this tax relief obtained on the company's expenses, the life result has increased during the year which reflects the higher funds under management and the continued emergence of cash flows from prior years' business. The profits arising from new business are more or less neutral in the year of sale. Unit trust business The growth in new business and higher funds under management have seen unit trust profits increase by 51% from Â£5.9 million in 2005 to Â£8.9 million for the six months to 30 June 2006. Other 'Other' shows the earnings from the core business other than the Group's life and unit trust business. During the six months there was a loss of Â£2.1 million (2005: loss of Â£3.2 million). Including within 'other' is the cost of expensing share options in accordance with IFRS 2 of Â£2.2 million (2005: Â£1.8 million). The total net assets of the Group on an IFRS basis at 30 June 2006 were Â£312.0 million (31 December 2005: Â£274.5 million) resulting in a net asset per share of 68.1 pence (31 December 2005: 61.4 pence). EUROPEAN EMBEDDED VALUE BASIS The EEV result is shown on pages 16 to 22. The table below summarises the pre- tax profit of the combined business: 6 Months 6 Months 12 Months Ended Ended Ended 30 June 30 June 31 December 2006 2005 2005 --------- -------- ---------- Â£' Million Â£' Million Â£' Million Life business 64.3 43.8 92.3 Unit trust business 18.1 14.2 30.6 Other (2.1) (3.2) (4.1) IT systems development - (1.8) (4.3) --------- -------- ---------- Operating profit 80.3 53.0 114.5 Investment return 11.9 20.5 86.1 Economic assumption changes (7.6) 1.7 3.3 --------- -------- ---------- Profit from core business 84.6 75.2 203.9 LAHC - - 9.5 --------- -------- ---------- Total pre-tax profit 84.6 75.2 213.4 ========= ======== ========== Profit after tax 61.9 55.0 160.7 ========= ======== ========== The operating profit for the period was up 52% from Â£53.0 million to Â£80.3 million and within this figure the new business profit was up 83% from Â£28.1 million to Â£51.5 million. Section 2 of this commentary provides further detail on the development of the new business profit and the corresponding margin. Life operating profit for the period at Â£64.3 million (2005: Â£43.8 million) was up 47%, a full analysis of this result can be found on page 20. New business profits increased by 95% from Â£17.7 million for the prior year to Â£34.6 million. Unit trust operating profit for the period was up 27% to Â£18.1 million compared with Â£14.2 million for the corresponding period, a full analysis of this result can be found on page 20. Within this operating profit the new business profit increased by 62% from Â£10.4 million to Â£16.9 million. During the six months there has been a small deterioration in persistency rates and this is reflected in a Â£2.2 million negative experience variance. As a result of this negative variance the persistency assumption in the unit trust embedded value has been strengthened. This strengthening has had a Â£4.2 million impact on the unit trust operating profit and has been included in the analysis as an operating assumption change. Other costs are previously commented on in the IFRS section. Gilt yields have increased by 0.6% since the start of the year impacting the economic assumptions underlying the embedded value. This has resulted in a reduction in the embedded value by Â£7.6 million (2005: increase of Â£1.7 million). This movement has been shown under economic assumption changes. The investment return variance during the first six months of 2006 was Â£11.9 million (2005: Â£20.5 million). This reflects that the average after tax increase in our fund prices of between 1% and 3% above the growth assumed in the EEV calculation. The total net assets of the Group on a EEV basis at 30 June 2006 were Â£899.8 million (31 December 2005: Â£828.8 million) resulting in a net asset per share of 196.5 pence (31 December 2005: 185.2 pence). SECTION 2: OTHER MATTERS Noted below are a number of issues about the Group that are of interest to shareholders. (i) New business margin The development of the new business margin, (measured as new business profit divided by APE), is detailed in the following tables: Life business 6 Months 6 Months 12 Months --------------- Ended Ended Ended 30 June 30 June 31 December 2006 2005 2005 --------- -------- ---------- Life business profit (Â£' m) 34.6 17.7 48.4 APE (Â£'m) 129.0 83.8 183.5 New business margin (%) 26.8 21.1 26.4 ========= ======== ========== The life new business margin expanded to 26.8% from 26.4% achieved for the 2005 full year. Unit trust business 6 Months 6 Months 12 Months --------------------- Ended Ended Ended 30 June 30 June 31 December 2006 2005 2005 --------- -------- ---------- New business profit (Â£' m) 16.9 10.4 18.8 APE (Â£'m) 31.9 20.0 37.5 New business margin (%) 52.9 52.0 50.1 ========= ======== ========== The unit trust business margin expanded to 52.9% from the 50.1% achieved for the 2005 full year. Total business 6 Months 6 Months 12 Months ---------------- Ended Ended Ended 30 June 30 June 31 December 2006 2005 2005 --------- -------- ---------- New business profit (Â£' m) 51.5 28.1 67.2 APE (Â£'m) 160.9 103.8 221.0 New business margin (%) 32.0 27.1 30.4 ========= ======== ========== The total new business margin expanded from 30.4% for the 2005 full year to 32.0% in the first half of 2006. The new margin has been beneficially affected on the one hand by the rate of growth in APE, the proportion of manufactured business and the underlying business mix and on the other hand by maintaining the growth in the level of expenses to well below the growth in new business. (ii) Expenses This section provides a reminder to shareholders of categories and nature of expenditure incurred. Shareholders will recall that 'commission, investment expenses and third party administration costs' are met from corresponding policy margins. Any variation in these costs flowing from changes in the volumes of new business or the level of the stock markets does not directly impact the profitability of the Company. The 'other new business related costs', such as sales force incentivisation vary with the level of sales - determined on our internal measure. As production rises or falls these costs will move in the corresponding direction. 'Establishment costs' are the running costs of the Group's infrastructure and are relatively fixed in nature in the short term. The 'contribution from third party product sales' reflects the net income received from wealth management sales of Â£2.9 million (2005: Â£2.2 million), sales of stakeholder products of Â£0.5 million (2005: Â£0.8 million) and sales through the protection panel of Â£4.9 million (2005: Â£4.2 million). The table below provides a breakdown of the expenditure for the combined financial services activities. Table of Expenditure 6 Months 6 Months 12 Months Ended Ended Ended 30 June 30 June 31 December 2006 2005 2005 --------- -------- ---------- Â£' Million Â£' Million Â£' Million Paid from policy margins Commission 76.7 55.5 131.6 Investment expenses 25.0 17.6 35.1 Third party administration 9.8 8.9 19.2 --------- -------- ---------- 111.5 82.0 185.9 Management expenses Other related new business costs 15.3 9.5 20.5 Establishment costs 41.2 38.2 75.4 Contribution from third party product sales (8.3) (7.2) (16.4) --------- -------- ---------- 48.2 40.5 79.5 ========= ======== ========== 159.7 122.5 265.4 ========= ======== ========== As indicated in the 2005 full year Financial Commentary, we have a 2006 target of maintaining the growth in the establishment expenses in a range of 5 - 8%. The objective of setting this target was to create a 5 - 10% gap between new business and expense growth. If new business growth continues well above our 15 - 20% stated objective, then shareholders can expect establishment expenses to exceed the 5 - 8% growth target. However the gap between expenses and new business growth will widen. (iii) Analysis of Embedded Value The table below provides a summarised breakdown of the Embedded Value position at the reporting dates. 6 Months 6 Months 12 Months Ended Ended Ended 30 June 30 June 31 December 2006 2005 2005 --------- -------- ---------- Â£' Million Â£' Million Â£' Million Value of in-force - Life 549.4 445.5 503.0 - Unit trust 150.7 123.6 140.7 Net assets 199.7 150.7 185.1 --------- -------- ---------- 899.8 719.8 828.8 ========= ======== ========== (iv) Share options maturity Options outstanding under the various share option schemes at 30 June 2006 amount to 45.6 million (31 December 2005: 56.5 million). The total number of options including those in the SJP Employee Trust, together with their anticipated proceeds are set out in the table below: Earliest date of Average Number of Anticipated exercise exercise share options proceeds price outstanding ---------- --------- --------- Â£ Million Â£' Million Immediate 1.71 18.0 30.7 Jul - Dec 2006 1.37 3.5 4.8 Jan - Jun 2007 1.70 4.3 7.3 Jul - Dec 2007 1.55 4.2 6.5 Jan - Jun 2008 1.09 2.3 2.5 Jul - Dec 2008 1.33 0.3 0.4 Jan - Jun 20090 2.20 1.0 2.2 Jul - Dec 2009 2.33 11.2 26.1 Jan - Jun 2010 2.00 0.6 1.2 Jul - Dec 2010 2.00 0.2 0.4 --------- --------- 45.6 82.1 ========= ========= Included within those options that are immediately exercisable are 5.8 million options with an expiry date before the end of July 2007 with anticipated proceeds of Â£7.7 million. PART THREE EUROPEAN EMBEDDED VALUE BASIS The following information shows the result for the Group adopting a European Embedded Value (EEV) basis for reporting the results of its wholly owned life and unit trust businesses. CONSOLIDATED INCOME STATEMENT 6 Months 6 Months 12 Months Ended Ended Ended 30 June 30 June 31 December 2006 2005 2005 --------- --------- --------- Â£' Million Â£' Million Â£' Million Life business 64.3 43.8 92.3 Unit trust business 18.1 14.2 30.6 Other (2.1) (3.2) (4.1) IT systems development - (1.8) (4.3) --------- --------- --------- Operating profit 80.3 53.0 114.5 Investment return variances 11.9 20.5 86.1 Economic assumption changes (7.6) 1.7 3.3 --------- --------- --------- Profit from core business 84.6 75.2 203.9 Profit on sale of LAHC - - 9.5 --------- --------- --------- EEV profit on ordinary activities before tax 84.6 75.2 213.4 Tax Life business (16.4) (16.4) (42.7) Unit trust business (7.3) (6.0) (15.8) Other 1.0 2.2 5.8 LAHC - - - --------- --------- --------- (22.7) (20.2) (52.7) EEV profit on ordinary activities after tax 61.9 55.0 160.7 ========= ========= ========= Dividends 8.3 6.9 12.7 Proposed dividend per share 1.5 1.3 3.15 Basic earnings per share 13.8 12.5 36.4 Diluted earnings per share 13.1 12.0 34.8 EUROPEAN EMBEDDED VALUE BASIS Consolidated Statement of Changes in Equity 6 Months 6 Months 12 Months Ended Ended Ended 30 June 30 June 31 December 2006 2005 2005 ---------- ---------- ----------- Â£' Million Â£' Million Â£' Million Opening equity shareholders' equity funds on an EEV basis 828.8 663.4 663.4 Post-tax profit for the year 61.9 55.0 160.7 Dividends (8.3) (6.9) (12.7) Issue of share capital 18.3 7.0 14.9 Consideration paid for own shares (5.4) (0.5) (0.5) P & L reserve credit in respect of share option charges 2.2 1.8 3.0 P & L reserve credit in respect of proceeds from exercise of share options for shares held in trust 2.3 - - ---------- ---------- ----------- Closing equity shareholders' equity funds on an EEV basis 899.8 719.8 828.8 ========== ========== =========== EUROPEAN EMBEDDED VALUE BASIS CONSOLIDATED BALANCE SHEET 30 June 30 June 31 December 2006 2005 2005 ---------- ---------- ----------- Â£' Million Â£' Million Â£' Million Assets Intangible assets Deferred acquisition costs 354.6 305.6 325.0 Value of long-term business in-force - long-term insurance 483.3 405.6 460.9 - unit trusts 150.7 123.6 140.7 ---------- ---------- ----------- 988.6 834.8 926.6 Deferred tax assets 70.2 56.2 70.5 Property & equipment 6.5 6.2 5.9 Investment property 397.9 195.5 319.4 Investments 9,210.6 7,186.2 8,473.6 Reinsurance assets 81.1 81.5 77.9 Insurance contract receivables 12.5 9.2 15.1 Income tax assets 20.0 12.3 21.0 Other receivables 116.5 96.6 97.1 Cash & cash equivalents 1,480.2 1,168.8 1,337.7 ---------- ---------- ----------- Total assets 12,384.1 9,647.3 11,344.8 ========== ========== =========== Liabilities Insurance contract liability provisions 438.8 377.1 430.6 Other provisions 9.3 19.5 9.6 Financial liabilities 10,269.8 8,005.1 9,431.6 Deferred tax liabilities 202.9 123.0 192.5 Reinsurance payables 8.9 11.3 8.9 Payables related to direct insurance contracts 24.3 12.5 19.5 Deferred income 268.5 237.4 249.7 Income tax liabilities 13.7 6.0 9.9 Other payables 140.5 67.1 71.4 Net asset value attributable to unit holders 107.6 68.5 92.3 ---------- ---------- ----------- Total liabilities 11,484.3 8,927.5 10,516.0 ========== ========== =========== Net assets 899.8 719.8 828.8 ========== ========== =========== Shareholders' equity Share capital 68.7 66.5 67.1 Share premium 46.3 22.3 29.6 Other reserves 784.8 631.0 732.1 ---------- ---------- ----------- Total shareholders' equity 899.8 719.8 828.8 ========== ========== =========== Net assets per share 196.5p 162.5p 185.2p NOTES TO THE EUROPEAN EMBEDDED VALUE BASIS I. BASIS OF PREPARATION The interim supplementary information on pages 16 to 22 shows the Group's results for the six months ended 30 June 2006 as measured on a European Embedded Value (EEV) basis with reduced disclosure, for interim reporting purposes, from that which would be required under the EEV Principles. The results of the life, pension and investment business, including unit trust business, undertaken by the Group are measured on a basis determined in accordance with the EEV Principles issued in May 2004 by the Chief Financial Officers Forum, a group of chief financial officers from 19 major European insurers. The measurement of all other transactions and balances is unchanged from the statutory financial statements which are prepared on an IFRS basis. The objective of the interim supplementary information is to provide shareholders with more realistic information on the financial position and performance of the Group than that provided by the IFRS basis. Under the EEV Principles, profit is recognised as it is earned over the life of the products within the covered business. The embedded value of the covered business is the sum of the shareholders' net worth on an IFRS basis in respect of the covered business and the present value of this projected profit stream. II. METHODOLOGY AND ASSUMPTIONS The methodology used to derive the European Embedded Values at both June 2005 and June 2006 is unchanged from that used at the end of 2005 and set out in detail on pages 115 and 116 of the 2005 Report and Accounts. The June 2005 numbers have been restated onto the EEV basis in order to be comparable with June 006 values. Apart from the assumptions set out below, there have been no changes to assumptions from those used at the end of 2005 and set out in detail on page 117 of the 2005 Report and Accounts. Economic Assumptions The principal economic assumptions used within the cash flows at 30 June 2006 are set out below. 30 June 30 June 31 December 2006 2005 2005 Risk discount rate (net of tax) 8.0% 7.3% 7.3% Future investment returns: - Gilts 4.9% 4.3% 4.3% - Equities 7.9% 7.3% 7.3% - Unit-linked funds: - Capital growth 4.5% 3.8% 3.6% - Dividend income 2.8% 2.8% 3.0% - Total 7.3% 6.6% 6.6% Expense inflation 4.6% 4.3% 4.3% Indexation of capital gains 2.2% 2.0% 2.0% The assumed future pre-tax returns on fixed interest securities are set by reference to the yield on 10 year gilts. The other investment returns are set by reference to this assumption. A provision of Â£7.0 million before tax (31 December 2005: Â£7.0 million) has been included within the cash flows to provide for adverse morbidity experience on critical illness plans. III. COMPONENTS OF LIFE AND UNIT TRUST EEV PROFIT Life business 6 Months 6 Months 12 Months Ended Ended Ended 30 June 30 June 31 December 2006 2005 2005 ---------- ---------- ---------- Â£'Million Â£'Million Â£'Million New business contribution 34.6 17.7 48.4 Profit from existing business Unwind of discount rate 26.9 20.8 41.1 Experience variance 0.4 3.7 1.7 Operating assumption changes - - (2.5) Investment income 2.4 1.6 3.6 ---------- ---------- ---------- Life operating profit before tax 64.3 43.8 92.3 Investment return variances 6.3 14.5 63.6 Economic assumption changes (8.3) 2.0 3.8 ---------- ---------- ---------- Life profit before tax 62.3 60.3 159.7 Attributed tax (16.4) (16.4) (42.7) ---------- ---------- ---------- Life profit after tax 45.9 43.9 117.0 ========== ========= ========= New business contribution after tax is Â£25.3 million (30 June 2005: Â£12.9 million). Unit trust business 6 Months 6 Months 12 Months Ended Ended Ended 30 June 30 June 31 December 2006 2005 2005 ---------- ---------- ---------- Â£' Million Â£' Million Â£' Million New business contribution 16.9 10.4 18.8 Profit from existing business Unwind of discount rate 7.6 5.7 11.2 Experience variances (2.2) (1.9) 0.6 Operating assumption changes (4.2) - - ---------- ---------- ---------- Unit trust operating profit before tax 18.1 14.2 30.6 Investment return variances 5.6 6.0 22.5 Economic assumption changes 0.7 (0.3) (0.5) ---------- ---------- ---------- Unit trust profit before tax 24.4 19.9 52.6 Attributed tax (7.3) (6.0) (15.8) ---------- ---------- ---------- Unit trust profit after tax 17.1 13.9 36.8 ========== ========== ========== New business contribution after tax is Â£11.8 million (30 June 2005: Â£7.3 million). 6 Months 6 Months 12 Months Ended Ended Ended Combined life and unit trust 30 June 30 June 31 December business 2006 2005 2005 ----------- ----------- ----------- Â£' Million Â£' Million Â£' Million New business contribution 51.5 28.1 67.2 Profit from existing business Unwind of discount rate 34.5 26.5 52.3 Experience variances (1.8) 1.8 2.3 Operating assumption changes (4.2) - (2.5) Investment income 2.4 1.6 3.6 ----------- ----------- ----------- Operating profit before tax 82.4 58.0 122.9 Investment return variances 11.9 20.5 86.1 Economic assumption changes (7.6) 1.7 3.3 ----------- ----------- ----------- Profit before tax 86.7 80.2 212.3 Attributed tax (23.7) (22.4) (58.5) ----------- ----------- ----------- Profit after tax 63.0 57.8 153.8 =========== =========== =========== New business contribution after tax is Â£37.1 million (30 June 2005: Â£20.2 million). The operating assumption changes in 2006 relate to a strengthening of the repurchase assumptions for the unit trust business. IV. SENSITIVITIES The table below shows the estimated impact on the combined life and unit trust reported value of new business and EEV to changes in various EEV calculated assumptions. In each case, only the indicated item is varied relative to the restated values. Change in new business Change in contribution European Embedded Value Note Pre-tax Post-tax Post-tax ---------- ---------- ---------- Â£' Million Â£' Million Â£' Million Value at 30 June 2006 51.5 37.1 899.8 100bp reduction in risk rate 1 7.3 5.3 54.6 discount 100bp reduction in risk free rates, with corresponding change in fixed interest asset values 0.5 0.4 5.7 10% reduction in withdrawal rates 4.4 3.2 38.3 10% reduction in expenses 6.4 4.7 12.3 10% reduction in market value of equity assets n/a n/a (56.3) 5% reduction in mortality and morbidity 2 0.5 0.3 6.1 100bp increase in equity expected returns 3 - - - Note 1: Although not directly relevant under a market-consistent valuation where the risk discount rate is a derived disclosure only, this sensitivity shows the level of adjustment which would be required to reflect differing investor views of risk. Note 2: Assumes the benefit of lower experience is passed on to clients and reassurers at the earliest opportunity. Note 3: As a market consistent approach is used, equity expected returns only affect the derived discount rates and not the embedded value or contribution to profit from new business. V. RECONCILIATION OF IFRS AND EEV PROFIT BEFORE TAX AND NET ASSETS 30 June 30 June 31 December 2006 2005 2005 ---------- ---------- ---------- Â£' Million Â£' Million Â£' Million IFRS profit before tax 48.0 38.5 127.1 Movement in life value of in-force 21.5 22.8 46.5 Movement in unit trust value of in-force 15.1 13.9 39.8 ---------- ---------- ---------- Total EEV profit before tax 84.6 75.2 213.4 ========== ========== ========== IFRS net assets 312.0 239.1 274.5 Less: acquired value of in-force (65.8) (69.0) (67.4) Add: deferred tax on acquired value of in-force 19.6 20.5 20.1 Add: life value of in-force 483.3 405.6 460.9 Add: unit trust value of in-force 150.7 123.6 140.7 ---------- ---------- ---------- EEV net assets 899.8 719.8 828.8 ========== ========== ========== PART FOUR INTERNATIONAL FINANCIAL REPORTING STANDARDS BASIS CONSOLIDATED INCOME STATEMENT 6 Months 6 Months 12 Months Ended Ended Ended 30 June 30 June 31 December Note 2006 2005 2005 ---------- ---------- ---------- Â£' Million Â£' Million Â£' Million Insurance premium revenue 47.9 49.7 104.6 Less premiums ceded to reinsurers (14.7) (12.7) (31.2) ---------- ---------- ---------- Net insurance premium revenue 33.2 37.0 73.4 Fee and commission income 44.3 39.2 82.4 ---------- ---------- ---------- Profit on sale of investment in Life Assurance Holding Corporation - - 9.5 Other investment income 465.0 593.1 1,812.0 ---------- ---------- ---------- Total investment income 465.0 593.1 1,821.5 Other operating income 2.5 0.3 1.9 ---------- ---------- ---------- Net income 2 545.0 669.6 1,979.2 Policy claims and benefits incurred (32.4) (30.6) (60.9) Less reinsurance recoveries 14.4 15.2 26.2 ---------- ---------- ---------- Net policyholder claims and benefits incurred (18.0) (15.4) (34.7) Change in insurance contract liabilities Gross amount (1.8) (20.6) (75.4) Reinsurers' share 0.8 4.2 9.2 ---------- ---------- ---------- Net change in insurance contract liabilities (1.0) (16.4) (66.2) Investment contract benefits (331.4) (472.9) (1,480.9) Fees, commission and other acquisition costs (122.2) (98.9) (218.8) Administration expenses (22.8) (26.0) (48.4) Other operating expenses (1.6) (1.5) (3.1) ---------- ---------- ---------- (146.6) (126.4) (270.3) ---------- ---------- ---------- Operating profit 2 48.0 38.5 127.1 Financing costs - - - ---------- ---------- ---------- Profit before tax 2 48.0 38.5 127.1 ---------- ---------- ---------- Tax on policyholders' return 3 (4.7) (19.3) (83.9) Tax on shareholders' return 3 (14.9) (3.7) 4.4 ---------- ---------- ---------- Total tax expense (19.6) (23.0) (79.5) ---------- ---------- ---------- Profit for period attributable to shareholders 2 28.4 15.5 47.6 ========== ========== ========== Dividends 4 8.3 6.9 12.7 Pence Pence Pence Proposed dividend per share 1.5 1.3 3.15 Basic earnings per share 5 6.3 3.5 10.8 Diluted earnings per share 5 6.0 3.4 10.3 INTERNATIONAL FINANCIAL REPORTING STANDARDS BASIS CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 6 Months 6 Months 12 Months Ended Ended Ended 30 June 30 June 31 December Note 2006 2005 2005 ---------- ---------- ---------- Â£' Million Â£' Million Â£' Million Opening equity shareholders' equity 274.5 222.2 222.2 funds Profit for the financial period, being total recognised income for the financial period 28.4 15.5 47.6 Dividends 4 (8.3) (6.9) (12.7) Issue of share capital Scrip dividend 6.3 4.3 8.4 Exercise of share options 12.0 2.7 6.5 Consideration paid for own shares (5.4) (0.5) (0.5) P & L reserve credit in respect of share option charges 2.2 1.8 3.0 P & L reserve credit in respect of proceeds from exercise of share options for shares held in trust 2.3 - - ---------- ---------- ---------- Net increase to shareholders' equity funds 37.5 16.9 52.3 ---------- ---------- ---------- Closing equity shareholders' equity funds 312.0 239.1 274.5 ========== ========== ========== INTERNATIONAL FINANCIAL REPORTING STANDARDS BASIS CONSOLIDATED BALANCE SHEET 30 June 30 June 31 December Note 2006 2005 2005 ---------- ---------- ----------- Â£' Million Â£' Million Â£' Million Assets Intangible assets Deferred acquisition costs 7 354.6 305.6 325.0 Acquired value of in force 65.8 69.0 67.4 business ---------- ---------- ----------- 420.4 374.6 392.4 Deferred tax assets 8 70.2 56.2 70.5 Property & equipment 6.5 6.2 5.9 Investment property 397.9 195.5 319.4 Investments Equities 7,802.1 6,090.3 7,317.3 Fixed income securities 629.6 623.7 573.1 Investment in Collective Investment Schemes 778.5 468.2 583.0 Currency forwards 0.4 4.0 0.2 Reinsurance assets 81.1 81.5 77.9 Insurance contract receivables 12.5 9.2 15.1 Income tax assets 20.0 12.3 21.0 Other receivables 116.5 96.6 97.1 Cash & cash equivalents 1,480.2 1,168.8 1,337.7 ---------- ---------- ----------- Total assets 11,815.9 9,187.1 10,810.6 ========== ========== =========== Liabilities Insurance contract liability 438.8 377.1 430.6 provisions Other provisions 9 9.3 19.5 9.6 Financial liabilities Investment contracts 10,254.0 7,980.6 9,411.9 Borrowings 15.4 20.7 17.2 Currency forwards 0.4 3.8 2.5 Deferred tax liabilities 10 222.5 143.5 212.6 Reinsurance payables 8.9 11.3 8.9 Payables related to direct insurance contracts 24.3 12.5 19.5 Deferred income 11 268.5 237.4 249.7 Income tax liabilities 13.7 6.0 9.9 Other payables 140.5 67.1 71.4 Net asset value attributable to unit holders 107.6 68.5 92.3 ---------- ---------- ----------- Total liabilities 11,503.9 8,948.0 10,536.1 ========== ========== =========== Net assets 312.0 239.1 274.5 ========== ========== =========== Shareholders' equity Share capital 12 68.7 66.5 67.1 Share premium 46.3 22.3 29.6 Other reserves (8.2) (8.5) (8.7) Retained earnings 205.2 158.8 186.5 ---------- ---------- ----------- Total shareholders' equity 312.0 239.1 274.5 ========== ========== =========== Net asset per share 68.1 pence 54.0 pence 61.4 pence INTERNATIONAL FINANCIAL REPORTING STANDARDS BASIS CONSOLIDATED STATEMENT OF CASH FLOWS 6 Months 6 Months 12 Months Note Ended Ended Ended 30 June 30 June 31 December 2006 2005 2005 ---------- ---------- ---------- Â£' Million Â£' Million Â£' Million Cash generated from operations 13 139.7 272.8 445.1 Interest paid - - - Income taxes (paid)/received (0.4) 1.7 (2.4) ---------- ---------- ---------- Net cash from operating activities 139.3 274.5 442.7 Cash flows from investing activities Acquisition of property & equipment (2.0) (0.7) (1.9) Proceeds from sale of plant & equipment 0.1 0.1 0.2 Investments: Proceeds from sale - - 3.8 ---------- ---------- ---------- Net cash from investing activities (1.9) (0.6) 2.1 Cash flows from financing activities Proceeds from the issue of share capital 12.0 2.6 5.7 Consideration paid for own shares (5.4) (0.5) (0.5) Proceeds from exercise of options over shares held in trust 2.3 - - Repayment of borrowings (1.8) (1.7) (5.2) Dividends paid (2.0) (2.7) (4.3) ---------- ---------- ---------- Net cash from financing activities 5.1 (2.3) (4.3) ---------- ---------- ---------- Net increase in cash and cash equivalents 142.5 271.6 440.5 Cash and cash equivalents at 1 January 1,337.7 897.2 897.2 ---------- ---------- ---------- Cash and cash equivalents 1,480.2 1,168.8 1,337.7 ========== ========== ========== INTERNATIONAL FINANCIAL REPORTING STANDARDS BASIS NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS 1. BASIS OF PREPARATION The consolidated interim financial statements for the six months ended 30 June 2006 comprise the interim financial statements of St James's Place plc (the 'Company') and its subsidiaries (together referred to as the 'Group'). This interim financial information has been prepared applying the accounting policies and presentation that were applied in the preparation of the Group's published consolidated financial statements for the year ended 31 December 2005. The comparative figures to 30 June 2005 differ from those initially published on 26 July 2005, principally as a result of the further refinement of the Group's approach to the analysis of contracts between investment and insurance and the treatment of tax within the Group's UK unit linked funds. The restated profit after tax and net assets have increased by Â£9.5 million. 2. SEGMENT REPORTING 6 Months 6 Months 12 Months Net Income Ended Ended Ended 30 June 30 June 31 December 2006 2005 2005 ---------- ---------- ----------- Â£' Million Â£' Million Â£' Million Life business Net insurance premium 33.2 37.0 73.4 income Movement on deferred (8.0) (1.7) (7.8) income Investment income - unit linked policyholders 463.7 585.0 1,787.2 ---------- ---------- ----------- Total life business 488.9 620.3 1,852.8 Unit trust business Fee income 34.2 22.8 49.0 Movement on deferred (10.8) (3.9) (10.1) income ---------- ---------- ----------- Total unit trust business 23.4 18.9 38.9 Other business Commission income 28.9 22.0 51.3 Investment income - sale of investment in LAHC - - 9.5 Investment income - other shareholders 3.1 2.7 5.4 Investment income - other (i) (1.8) 5.4 19.4 Other operating income 2.5 0.3 1.9 ---------- ---------- ----------- Total other business 32.7 30.4 87.5 ---------- ---------- ----------- Total net income 545.0 669.6 1,979.2 ========== ========== =========== (i) Investment income - other relates to investment income on minority interest holdings in the St. James's Place unit trusts which are subject to consolidation (the minority interest holdings are disclosed as 'net asset value attributable to unit holders' within the balance sheet). This income is offset by a change in investment contract benefits within the income statement. Segment Result 6 Months 6 Months 12 Months Ended Ended Ended 30 June 30 June 31 December 2006 2005 2005 -------- --------- --------- Â£' Million Â£' Million Â£' Million Life business Shareholder profit 36.5 18.3 29.3 Policyholder tax 4.7 19.3 83.9 gross up Unit trust business 8.9 5.9 12.8 -------- --------- --------- Profit on sale of investment - LAHC - - 9.5 Other loss (2.1) (5.0) (8.4) -------- --------- --------- Total other business (2.1) (5.0) 1.1 -------- --------- --------- Total operating 48.0 38.5 127.1 profit Financing costs - - - -------- --------- --------- Profit before tax 48.0 38.5 127.1 Income taxes Policyholder tax (4.7) (19.3) (83.9) Shareholder tax (14.9) (3.7) 4.4 -------- --------- --------- Profit after tax 28.4 15.5 47.6 ======== ========= ========= 3. INCOME TAXES 6 Months 6 Months 12 Months Ended Ended Ended 30 June 30 June 31 December 2006 2005 2005 -------- --------- --------- Â£' Million Â£' Million Â£' Million Policyholder tax Overseas withholding 4.6 4.6 7.1 tax Deferred tax 0.1 14.7 76.8 -------- --------- --------- Total policyholder 4.7 19.3 83.9 tax charge for the period ======== ========= ========= Shareholder tax UK corporation tax 3.7 0.2 (17.3) Group relief (0.5) 0.8 17.2 Overseas tax 0.3 - 0.4 Deferred tax charge/ (credit) On unrelieved 5.2 - (8.7) expenses Other 6.2 2.7 4.0 -------- --------- --------- Total shareholder tax charge/(credit) for the period 14.9 3.7 (4.4) ======== ========= ========= 4. DIVIDENDS The following dividends have been paid by the Company: 6 Months 6 Months 12 Months Ended Ended Ended 30 June 30 June 31 December 2006 2005 2005 ---------- ---------- ---------- Â£' Million Â£' Million Â£' Million 2004 final dividend - 1.60 pence per ordinary share - 6.9 6.9 2005 interim dividend - 1.30 pence per ordinary share - - 5.8 2005 final dividend - 1.85 pence per ordinary share 8.3 - - ---------- ---------- ---------- Total dividends paid 8.3 6.9 12.7 ========== ========== ========== The directors have resolved to pay an interim dividend of 1.5 pence per share (2005: 1.30 pence). This amounts to Â£6.9 million (2005: Â£5.8 million) and will be paid on 18 September 2006 to shareholders on the register at 4 August 2006. 5. EARNINGS PER SHARE 6 Months 6 Months 12 Months Ended Ended Ended 30 June 30 June 31 December 2006 2005 2005 -------- -------- -------- Pence Pence Pence Basic earnings per share 6.3 3.5 10.8 Adjustments - disposal of - - (2.2) LAHC -------- -------- -------- Basic adjusted earnings per 6.3 3.5 8.6 share ======== ======== ======== Diluted earnings per share 6.0 3.4 10.3 Adjustments - disposal of - - (2.1) LAHC -------- -------- -------- Diluted adjusted earnings per 6.0 3.4 8.2 share ======== ======== ======== The calculation of diluted earnings per share is based on the following figures: 6 Months 6 Months 12 Months Ended Ended Ended 30 June 30 June 31 December 2006 2005 2005 -------- -------- -------- Pence Pence Pence Earnings Profit after tax (for both basic and diluted EPS) 28.4 15.5 47.6 Adjustment - disposal of LAHC - - (9.5) -------- -------- -------- Adjusted profit (for both basic and diluted EPS) 28.4 15.5 38.1 ======== ======== ======== Weighted average number of shares Weighted average number of ordinary shares in issue (for basic EPS) 448.7 m 438.6 m 442.0 m Adjustments for outstanding share options 25.3 m 19.6 m 20.4 m -------- -------- -------- Weighted average number of ordinary shares (for diluted EPS) 474.0 m 458.2 m 462.4 m ======== ======== ======== 6. ASSETS HELD TO COVER LINKED LIABILITIES Included within the balance sheet are the following assets and liabilities which represent the net assets held to cover linked liabilities. The difference between these assets and liabilities and those shown in the consolidated balance sheet represents assets and liabilities held outside the unit-linked funds. 30 June 30 June 31 December 2006 2005 2005 ---------- ---------- ---------- Â£' Million Â£' Million Â£' Million Assets Investment property 397.9 195.5 319.4 Investments Equities 7,696.4 6,024.7 7,230.8 Fixed income securities 561.7 571.2 507.5 Investment in Collective Investment Schemes 635.0 378.8 460.4 Currency forwards 0.4 4.0 0.2 Other receivables 60.7 44.7 57.6 Cash and cash equivalents 1,365.4 1,074.3 1,240.8 ---------- ---------- ---------- Total assets 10,717.5 8,293.2 9,816.7 Liabilities Financial liabilities Currency forwards 0.4 3.8 2.5 Deferred tax liabilities 99.8 36.9 100.8 Other payables 80.3 22.7 24.6 ---------- ---------- ---------- Total liabilities 180.5 63.4 127.9 Net assets held to cover linked liabilities 10,537.0 8,229.8 9,688.8 ========== ========== ========== 7. DEFERRED ACQUISITION COSTS 30 June 30 June 31 December 2006 2005 2005 -------- --------- --------- Â£' Million Â£' Million Â£' Million Life business - insurance 27.8 32.0 28.7 DAC Life business - investment 263.5 225.1 242.4 DAC Unit trust business - 63.3 48.5 53.9 investment DAC -------- --------- --------- Total deferred acquisition 354.6 305.6 325.0 costs ======== ========= ========= The movement on deferred acquisition costs is reflected in the fees, commission and other acquisition costs line in the income statement. 8. DEFERRED TAX ASSETS 30 June 30 June 31 December 2006 2005 2005 -------- --------- --------- Â£' Million Â£' Million Â£' Million Life business - unrelieved 10.8 7.3 16.0 expenses Life business - deferred 33.0 31.2 32.7 income Unit trust business - 20.1 15.0 16.8 deferred income Other 6.3 2.7 5.0 -------- --------- --------- Total deferred tax assets 70.2 56.2 70.5 ======== ========= ========= 9. OTHER PROVISIONS 30 June 30 June 31 December 2006 2005 2005 -------- --------- --------- Â£' Million Â£' Million Â£' Million At beginning of period 9.6 17.7 17.7 Movement in the period (0.3) 1.8 (8.1) -------- --------- --------- At end of period 9.3 19.5 9.6 ======== ========= ========= Other provisions at 30 June 2006 consist of Â£7.0 million to meet possible claims under the transaction warranties and indemnities for the Group's investment in LAHC, Â£0.7 million to meet obligations arising as a result of the closure of offices, Â£1.5 million in respect of the policyholder costs of redress for endowment business and Â£0.1 million in respect of the outstanding SJP obligation in connection with the Halifax acquisition of SJP plc in June 2000. 10. DEFERRED TAX LIABILITIES 30 June 30 June 31 December 2006 2005 2005 ---------- ---------- ----------- Â£' Million Â£' Million Â£' Million On deferred acquisition costs 97.0 82.0 88.7 On purchased value of in-force business 19.6 20.5 20.1 Within unit-linked funds 99.8 36.9 100.8 Other 6.1 4.1 3.0 ---------- ---------- ----------- Total deferred tax 222.5 143.5 212.6 liabilities ========== ========== =========== 11. DEFERRED INCOME 30 June 30 June 31 December 2006 2005 2005 ---------- ---------- ----------- Â£' Million Â£' Million Â£' Million Life business 201.6 187.5 193.6 Unit trust business 66.9 49.9 56.1 ---------- ---------- ----------- Total deferred income 268.5 237.4 249.7 ========== ========== =========== 12. SHARE CAPITAL Nominal Number value ----------- ---------- Â£' Million At 31 December 2005 447,431,123 67.1 Issue of shares 10,421,215 1.6 ----------- ---------- At 30 June 2006 457,852,338 68.7 =========== ========== 13. CASH GENERATED FROM OPERATIONS 6 Months 6 Months Year Ended Ended Ended 31 December 30 June 30 June 2006 2005 2005 ---------- ---------- ---------- Â£' Million Â£' Million Â£' Million Cash flows from operating activities Profit before tax for the period 48.0 38.5 127.1 Adjustments for: Depreciation 1.4 1.4 2.8 Amortisation of acquired value of in-force business 1.6 1.5 3.1 Fair value gains on non-operating investments - - (0.1) P & L reserve credit in respect of share option charges 2.2 1.8 3.0 Profit on sale of investment - - (9.5) Changes in operating assets and liabilities Increase in deferred acquisition (29.6) (11.2) (30.6) costs Increase in investment property (78.5) (65.6) (189.6) Increase in investments (737.0) (510.4) (1,797.8) Increase in reassurance assets (3.2) (11.2) (7.6) Decrease/(increase) in insurance contract receivables 2.6 (0.7) (6.6) Increase in other receivables (23.6) (6.4) (23.5) Increase in insurance contract liability provisions 8.2 25.7 79.3 (Decrease)/increase in provisions (0.3) 1.8 1.4 Increase in financial liabilities 840.0 785.7 2,215.6 Decrease in reinsurance - - (2.4) liabilities Increase in payables related to direct insurance contracts 4.8 1.3 8.3 Increase in deferred income 18.8 5.6 17.9 Increase in other payables 69.0 4.7 20.2 Increase in net assets attributable to unit holders 15.3 10.3 34.1 ---------- ---------- ---------- Cash generated from operations 139.7 272.8 445.1 ========== ========== ========== The cash generated from operations includes both policyholder and shareholder cash flows. Policyholder cash and cash equivalents held within the unit linked funds is set out in Note 6. 14. STATUTORY ACCOUNTS The financial information shown in this publication is unaudited and does not constitute statutory accounts. The comparative figures for the financial year ended 31 December 2005 are not the Company's statutory accounts for the financial year. Those accounts have been reported on by the Company's auditors and delivered to the Registrar of Companies. The report of the auditors was unqualified and did not include a reference to any matter to which the auditors drew attention to, by way of emphasis without qualifying their report, and did not contain a statement under section 237 (2) or (3) of the Companies Act 1985. 15. APPROVAL OF INTERIM REPORT This interim report was approved by the Board of Directors on 24 July 2006. This information is provided by RNS The company news service from the London Stock Exchange

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