Half-Year/Interim Report
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PRESS RELEASE
28 July 2022
ANNOUNCEMENT OF HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2022
STRONG NEW BUSINESS AND FINANCIAL PERFORMANCE
St. James ' s Place plc ("SJP") today issues its interim results for the six months ended 30 June 2022:
New investment and funds under management
· Gross inflows of £9.1 billion (2021: £9.2 billion)
· Continued strong retention of client funds at 96.5%
· Net inflows of £5.5 billion (2021: £5.5 billion), representing 7.1% of opening FUM (annualised)
· Group funds under management of £142.3 billion (31 December 2021: £154.0 billion)
Financial highlights and dividend
· Underlying cash result £198.8 million (2021: £189.3 million)
· EEV operating profit £914.2 million (2021: £844.8 million)
· IFRS profit after tax £205.6 million (2021: £120.9 million)
· Interim dividend of 15.59 pence per share (2021: 11.55 pence per share), representing 30% of prior full year dividend
Other highlights
· We are now represented by 4,626 qualified advisers across the Partnership, an increase of 70 year to-date
· EEV net asset value per share £15.74 (31 December 2021: £16.57)
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Andrew Croft, Chief Executive Officer, commented:
" After a year that saw global economies and investment markets rebound across the world, the first half of 2022 has presented fresh challenges for individuals looking to save and invest for the future. Sharply rising inflation, geo-political tensions, domestic political uncertainty and a more uncertain economic outlook, all present risks for those seeking confidence in their future. This is an environment in which our advisers can add real value for their clients, helping them to stay on track.
I am therefore very encouraged, but not at all surprised, by the strength of our business performance during the period, which is a testament to the qualities of our business model and the hard work of our entire SJP community.
During the first half we attracted £9.1 billion of new client investments as advisers continued to support clients in achieving their long-term ambitions despite a more challenging external environment. The importance of retaining a long-term mindset is also a key factor behind the continued strength of retention rates, which has underpinned net inflows of £5.5 billion, in line with the first half of 2021 and equivalent to 7.1% of opening funds under management on an annualised basis.
While our new business performance has been strong, significant reversals in global investment markets have impacted our funds under management (FUM), which closed the half at £142.3 billion.
Although FUM has fallen since the start of the year, our income has been supported by the maturing of funds in gestation during the first half. This, together with continued discipline around how we manage our resources, has supported a strong financial result for the period with an Underlying cash result of £198.8 million, up 5% period-on-period.
We enter the second half of the year with a growing Partnership ideally placed to continue helping clients in these uncertain times. Financial advice is needed now more than ever given the challenges facing individuals, both in the short- and long-term. Given current market conditions, we now expect full year gross and net flows of around £18 billion and £11 billion respectively, which would make 2022 our second highest ever year for flows and put the business even further ahead against our 2025 business plan objectives . "
The details of the announcement are attached.
Enquiries:
Hugh Taylor, Investor Relations Director, 07818 075143
Jamie Dunkley, External Communications Director, 07779 999651
Brunswick Group: Tel: 020 7404 5959
• Charles Pretzlik - Email: cpretzlik@brunswickgroup.com
• Eilis Murphy - Email: emurphy@brunswickgroup.com
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2022 Half Year Results Presentation
Date: 28 July 2022
Time: 08:30 BST
Duration: 2 hours
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Q&A session
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Accessing the telephone replay
A recording will be available until Thursday 4 August 2022 using the details below:
UK: 020 3936 3001
USA: 1 845 709 8569
All other locations: +44 20 3936 3001
Access Code: 307725
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CONTENTS |
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PART ONE |
Gross Inflow Figures |
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PART TWO |
Interim Management Statement |
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PART THREE |
Condensed Consolidated Half Year Financial Statements prepared under International Financial Reporting Standards (IFRS) as adopted by the United Kingdom (UK) |
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PART FOUR |
Supplementary Information: Consolidated Financial Statement on a Cash Result Basis (unaudited) |
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PART FIVE |
Other Information |
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Gross Inflow Figures
Gross inflows for the six months to 30 June 2022
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Unaudited three months to 30 June |
Unaudited six months to 30 June |
||||
|
2022 |
2021 |
|
2022 |
2021 |
|
|
|
£'Billion |
£'Billion |
|
£'Billion |
£'Billion |
|
|
|
Gross inflows |
|
|
|
|
|
|
|
Investment |
0.57 |
0.66 |
|
1.20 |
1.24 |
|
|
Pension |
2.57 |
2.29 |
|
5.10 |
4.98 |
|
|
Unit Trust, ISA and DFM |
1.24 |
1.45 |
|
2.81 |
2.97 |
|
|
|
4.38 |
4.40 |
-0% |
9.11 |
9.19 |
-1% |
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INTERIM MANAGEMENT STATEMENT
Chief Executive's Report
Introduction
After a year that saw global economies and investment markets rebound across the world, the first half of 2022 has presented fresh challenges for individuals looking to save and invest for the future. Sharply rising inflation, geo-political tensions, domestic political uncertainty and a more uncertain economic outlook, all present risks for those seeking confidence in their future. This is an environment in which our advisers can add real value for their clients, helping them to stay on track.
I am therefore very encouraged, but not at all surprised, by the strength of our business performance during the period, which is a testament to the qualities of our business model and the hard work of our entire SJP community.
Operating and financial performance
During the first half we attracted £9.1 billion of new client investments as advisers continued to support clients in achieving their long-term ambitions despite a more challenging external environment.
A particular topic of discussion for clients is undoubtedly inflation, which reached 40-year highs during the period and is forecast to rise even higher. Many people across the UK will not have experienced inflation running at such levels during their adult lives so our advisers have been working hard to ensure that clients understand how inflation might impact their finances and consider this in the context of their long-term financial plans.
The importance of retaining a long-term mindset is also a key factor behind the continued strength of retention rates, which has underpinned net inflows of £5.5 billion, in line with the first half of 2021 and equivalent to 7.1% of opening funds under management on an annualised basis.
While our new business performance has been strong, significant reversals in global investment markets have impacted our funds under management (FUM), which closed the half at £142.3 billion.
Although FUM has fallen since the start of the year, our income has been supported by the maturing of funds in gestation during the first half. This, together with continued discipline around how we manage our resources, has supported a strong financial result for the period with an Underlying cash result of £198.8 million, up 5% period-on-period.
Dividend
In line with our guidance that interim dividends will be set at 30% of the prior full year pay-out, the Board has declared an interim dividend for 2022 of 15.59 pence per share.
Strategic progress
In the first six months of the year we have continued to make good progress against the business priorities that underpin the strategic ambitions and objectives that we have set as part of our 2025 business plan. Some highlights during the first half include:
- Building community: we attracted a net 70 new advisers to the Partnership. We now have 4,626 advisers around the UK and Asia supporting and advising more than 900,000 clients so they can have confidence in their futures. Furthermore, the pipeline is strong with 358 individuals at various stages of their journey through the Academy.
- Being easier to do business with: as a key part of our programme to deliver a next-generation client experience, we soft-launched a new mobile SJP app for testing within digital app stores. We're pleased that feedback has been positive, and we remain on track to complete a full roll-out later this year.
- Delivering value to advisers and clients through our investment proposition : we made changes to our Global Growth and Emerging Markets Equity funds, appointing additional managers to those funds as well as amending other elements of the fund mandates, consistent with the seven beliefs that underpin our investment proposition. These investment beliefs are explained in the third edition of our annual Value Assessment Statements ( Annual Value Assessment Statement | St. James's Place (sjp.co.uk) ), which we published recently.
- Building and protecting our brand and reputation: we launched our refreshed brand identity early in the year and have made good progress in rolling out our new brand assets across the business and the Partnership, with our refreshed brand scoring well with all stakeholders.
- Our culture and being a leading responsible business: after two years where charitable fundraising activities were curtailed due to COVID-19 related restrictions, we are delighted that the St. James's Place Charitable Foundation (the Charitable Foundation) has been able to resume a fuller programme of activity in 2022. Inclusive of company matching the St. James's Place community raised £5.6 million for the Charitable Foundation in the period, of which £1.4 million is to support the people of Ukraine. Our financial education programmes continue at pace, with nearly 3,500 young people across the UK involved so far this year.
- Continued financial strength: this is covered in detail in the Chief Financial Officer's Report on page 7.
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Summary and outlook
The first half of 2022 has presented extraordinary challenges for businesses and individuals alike, creating an uncertain and unpredictable environment. However, ours is a business characterised by resilience, underpinned by the strength of relationships our advisers nurture with their clients, and our collective focus on helping clients have confidence in their long-term future. This has meant we have been able to deliver new business performance broadly in line with the very strong outturn we achieved in the first half of 2021, together with improved financial performance.
We enter the second half of the year with a growing Partnership ideally placed to continue helping clients in these uncertain times. Financial advice is needed now more than ever given the challenges facing individuals, both in the short- and long-term. Given current market conditions, we now expect full year gross and net flows of around £18 billion and £11 billion respectively, which would make 2022 our second highest ever year for flows and put the business even further ahead against our 2025 business plan objectives.
ANDREW CROFT
Chief Executive
27 July 2022
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Chief Financial Officer's Report
We are pleased to be reporting a strong set of financial results against the backdrop of macroeconomic and geo-political uncertainty that prevailed in the six months to 30 June 2022. This once again demonstrates the resilience of our business model.
As set out in the Chief Executive's Report, the Partnership attracted gross inflows of £9.1 billion (six months to 30 June 2021: £9.2 billion, year to 31 December 2021: £18.2 billion) and net inflows of £5.5 billion (six months to 30 June 2021: £5.5 billion, year to 31 December 2021: £11.0 billion) during the first half. Following the exceptional 27% growth in gross inflows we achieved in 2021, we are delighted that new business performance has been strong during 2022 despite the more challenging market conditions.
The strength of our new business flows has been offset by negative investment market returns during the period, resulting in funds under management (FUM) closing at £142.3 billion (30 June 2021: £143.8 million, 31 December 2021: £154.0 billion).
These results mean we are making good progress towards the goals we set out in our 2025 strategy at the start of 2021, aiming to achieve long-term compound new business growth of 10% per annum and consistent retention above 95% to reach £200bn of FUM by 2025, all whilst containing growth in controllable expenses to 5% per annum.
Our financial results are presented in more detail on pages 15 to 30 of the Financial Review, but we provide below a summary of financial performance on a statutory IFRS basis, as well as our chosen alternative performance measures (APMs). We also summarise key developments from a balance sheet perspective and provide an overview of our capital, solvency and liquidity.
Financial results
IFRS
As a result of significant movements in investment markets, our IFRS results have exhibited volatility period-on-period as the following table demonstrates:
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|
Six months ended 30 June 2022 |
Six months ended 30 June 2021 |
Year ended 31 December 2021 |
|
£'Million |
£'Million |
£'Million |
|
|
IFRS (loss)/profit before tax |
(298.4) |
482.6 |
842.4 |
|
Policyholder tax credit/(charge) |
555.0 |
(336.1) |
(488.6) |
|
IFRS profit before shareholder tax |
256.6 |
146.5 |
353.8 |
|
Shareholder tax charge |
(51.0) |
(25.6) |
(66.2) |
|
IFRS profit after tax |
205.6 |
120.9 |
287.6 |
The key driver of the volatility is distortion caused by policyholder tax impacts associated with market movements on policyholder investments held on the life company balance sheet. When markets fall as they did in during the first half of 2022, we are required to reflect refunds of fund tax deductions to clients as if they were an expense. This expense then effectively reverses through the policyholder tax line as a credit. When markets rise as they did in 2021, the opposite happens and fund tax deductions are recognised as our income, which then reverses as a policyholder tax charge. This dynamic has resulted in our IFRS result before tax moving from a profit of £482.6 million for the six months to 30 June 2021 to a loss of £298.4 million for the six months to 30 June 2022.
Our IFRS results have also been distorted by 'policyholder tax asymmetry', a feature we have highlighted in recent reporting periods. The market falls in the first half of 2022 have resulted in the asymmetry contributing a positive £39.4 million to the IFRS result for the period (six months to 30 June 2021: negative £29.2 million), but we expect this benefit to unwind over time as markets recover. Further detail on this asymmetry is included in the Financial Review on page 16 and in Note 4 Fee and commission income on page 44. The impact of the asymmetry together with growth in net income from FUM, are the key drivers behind the 70% increase in IFRS profit after tax from £120.9 million in the six months to 30 June 2021 to £205.6 million in the six months to 30 June 2022.
We continue to supplement our statutory reporting with the presentation of our financial performance using two APMs: the Cash result and the European Embedded Value (EEV) result. Taking each in turn:
Cash result
The Cash result, and the Underlying cash result contained within it, are based on IFRS but adjusted to exclude certain non-cash items. They therefore represent useful guides to the level of cash profit generated by the business. All items in the Cash result, and in the commentary below, are presented net of tax.
During the period, the net income from funds under management was £300.2 million (six months to 30 June 2021: £278.2 million), representing a margin within our range of 0.63% to 0.65% (six months to 30 June 2021: 0.63% to 0.65%) on average mature FUM, excluding Discretionary Fund Management (DFM) and Asia FUM, in line with prior guidance. It is only mature FUM that contributes to this net income figure and, at any given time, this comprises all unit trust and ISA business, as well as life and pensions business written more than six years ago.
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The development of mature FUM year-on-year is dependent on four principal factors:
1. New unit trust and ISA flows;
2. The amount of life and pensions FUM that moves from gestation into mature FUM;
3. The retention of FUM; and
4. Investment returns.
At 30 June 2022, the balance of gestation FUM stood at £44.5 billion (30 June 2021: £47.3 billion, 31 December 2021: £49.3 billion) with the reduction in the balance since the start of the year attributable to the impact of weaker investment markets during the period. Once this current stock of gestation FUM has all matured, assuming no market movements or withdrawals and allowing for the tax rate change in 2023, it will contribute over £390 million to annual net income from funds under management and hence to the Underlying cash result. Gestation FUM therefore provides a high degree of visibility of future income and earnings growth.
We also generate a margin arising from new business where initial product charges levied on gross inflows exceed new business-related expenses. The margin arising from new business tends to move directionally with gross inflows generated during the year but, as we've indicated in the past, the relationship between the two is not linear. This is because it contains some fixed expenses, such as a fixed fee in our third-party administration tariff, and some payments to Partners which are linked to prior year business levels to provide stability to Partner businesses. As a result, in periods of modest change in gross inflows following periods of high growth, such as the first half of 2022 compared to 2021, some degree of short-term operating deleverage can be experienced: the margin for the six months to 30 June 2022 was £67.4 million (six months to 30 June 2021: £73.8 million).
As part of our 2025 business plan, we set out our ambition to contain growth in controllable expenses to around 5% per annum. Controllable expenses, which are the categories shown in the table below (stated after tax), are a key metric for the business. We are committed to strong cost control and have good visibility over our controllable expense base in 2022, so while we currently face pressures from the inflationary environment, we remain committed to containing growth in controllable expenses to 5% for 2022.
Controllable expenses in the first half of the year were in line with our plan. Although this total is 10% higher than in the first half of 2021, this is simply a result of the unusual phasing of expenses we experienced in 2021, where we highlighted an 'underspend' in the first half of the year due to COVID-19 linked lockdown restrictions being in place during the period. We are expecting phasing for 2022 to be more consistent with our historic pre-COVID-19 average, where 47-48% of controllable expenses are recognised in the first half of the year.
|
|
Six months ended 30 June 2022 |
Six months ended 30 June 2021 |
Year ended 31 December 2021 |
|
£'Million |
£'Million |
£'Million |
|
|
Establishment expenses |
95.9 |
93.0 |
200.3 |
|
Development expenses (Operational and Strategic) |
29.7 |
21.3 |
54.0 |
|
Academy |
5.8 |
4.9 |
10.3 |
|
Controllable expenses |
131.4 |
119.2 |
264.6 |
T ax relief from capital losses has contributed £13.9 million to the Cash result in the six months to 30 June 2022 (six months to 30 June 2021: £4.3 million). This level of relief is greater than our guidance of £5-7 million per annum, which has been driven by market conditions. For further information see page 21.
As a result of the items noted above, the Underlying cash result for the six months to 30 June 2022 was £198.8 million (six months to 30 June 2021: £189.3 million).
Recognised below the Underlying cash result is the variance. In the Half-Year results this always includes a timing effect from fewer days of AMC in first half of the year, which unwinds by the year-end.
The Cash result for the period was therefore £194.1 million (six months to 30 June 2021: £175.8 million).
EEV
The EEV operating profit has increased by 8% from £844.8 million for the six months to 30 June 2021 to £914.2 million for the six months to 30 June 2022. The key driver behind this increase is the higher unwind of the discount rate in the current period, reflecting the larger in-force book at the start of 2022 compared to 2021, and an increase in the risk discount rate. As we did in the first half of 2021, we have made a small improvement to persistency assumptions, which enhances new business margin, as well as contributing a one-off improvement in the period of £230.6 million through an operating assumption change (six months to 30 June 2021: £249.4 million).
The EEV result before tax for the period has been significantly impacted by the negative investment return variance of £1,346.2 million. This negative return reflects reduced market values across our FUM as markets weakened significantly during the period. This is in contrast with the £593.6 million positive impact for the comparative period, which reflected market gains in the first six months of 2021.
As a result, the EEV loss after tax was £208.2 million for the six months to 30 June 2022 (£714.7 million EEV profit after tax for the six months to 30 June 2021).
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EEV net asset value per share was £15.74 at 30 June 2022 (30 June 2021: £15.31, 31 December 2021: £16.57).
Financial position
Our IFRS Condensed Consolidated Statement of Financial Position, presented on page 39, contains policyholder interests in unit-linked liabilities and the underlying assets that are held to match them. To understand the true assets and liabilities that the shareholder can benefit from, these policyholder balances, along with non-cash 'accounting' balances such as deferred income (DIR) and deferred acquisition costs (DAC), are removed in the Solvency II Net Assets balance sheet.
This balance sheet is straightforward and demonstrates that the Group has liquid assets of £1,652.8 million (30 June 2021: £1,601.2 million, 31 December 2021: £1,858.8 million), of which £1,370.5 million (30 June 2021: £1,295.3 million, 31 December 2021: £1,605.3 million) is invested in AAA-rated money market funds. This deep liquidity represents 53% of total assets on the Solvency II Net Assets balance sheet (30 June 2021: 46%, 31 December 2021: 52%). Further information about liquidity is set out on page 25.
Analysis of the key movements in the Solvency II Net Assets balance sheet during the period is set out on pages 24 to 26.
Solvency, capital and liquidity
We continue to manage the balance sheet prudently to ensure the Group's solvency is safely maintained.
Given the simplicity of our business model, our approach to managing solvency remains to hold assets to match client unit-linked liabilities plus a management solvency buffer (MSB). At 30 June 2022 we held surplus assets over the MSB of £714.4 million (30 June 2021: £607.2 million, 31 December 2021: £727.3 million). We also ensure that our approach meets the requirements of the Solvency II regime where we have an approach, agreed with the Prudential Regulatory Authority (PRA) since 2017, for our largest insurance company, the UK Life company, that targets capital equal to 110% of the standard formula requirement. This is a prudent and sustainable policy given the risk profile of our business, which is largely operational.
At 30 June 2022, the solvency ratio for our Life businesses was 139%. Whilst this solvency ratio has strengthened significantly from 119% at 30 June 2021 and 115% at 31 December 2021, the ratio at 30 June 2022 benefits from two temporary effects arising from the significant investment market falls during the period:
· a 10% positive impact from policyholder tax asymmetry, which benefits our own funds and hence solvency ratio in the same way as it benefits our IFRS result. For further details, refer to page 16; and
· a 3% positive effect of the equity dampener depressing the market risk capital component.
Excluding these temporary effects which will unwind as markets improve, the solvency ratio for our Life businesses was 126%, which is more closely aligned with prior periods. These effects are not normally significant, as the following table demonstrates.
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|
30 June 2022 |
30 June 2021 |
31 December 2021 |
|
£'Million |
£'Million |
£'Million |
|
|
Underlying solvency ratio for our Life businesses |
126% |
116% |
115% |
|
Impact of policyholder tax asymmetry |
10 % |
8% |
7% |
|
Effect of the equity dampener |
3 % |
-5% |
-7% |
|
Solvency ratio for our Life businesses |
139% |
119% |
115% |
Taking into account entities in the rest of the Group, the Group solvency ratio at 30 June 2022 was 155% (30 June 2021: 130% and 31 December 2021: 134%), with the current Group result also reflecting the positive equity dampener and impact of policyholder tax asymmetry effects noted above.
Dividend
As set out in our 2025 business plan, our dividend guidance includes making an interim payment set at 30% of the prior year total dividend. The Board is therefore declaring an interim dividend of 15.59 pence per share, equal to 30% of the prior year dividend per share of 51.96 pence.
CRAIG GENTLE
Chief Financial Officer
27 July 2022
-10-
Key financial information
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|
Page reference |
Six months ended 30 June 2022 |
Six months ended 30 June 2021 |
Year ended 31 December 2021 |
|
|
FUM-based metrics |
|
|
|
|
|
|
Gross inflows (£'Billion) |
13 |
9.1 |
9.2 |
18.2 |
|
|
Net inflows (£'Billion) |
13 |
5.5 |
5.5 |
11.0 |
|
|
Total FUM (£'Billion) |
13 |
142.3 |
143.8 |
154.0 |
|
|
Total FUM in gestation (£'Billion) |
14 |
44.5 |
47.3 |
49.3 |
|
|
|
|
|
|
|
|
|
IFRS-based metrics |
|
|
|
|
|
|
IFRS profit after tax (£'Million) |
16 |
205.6 |
120.9 |
287.6 |
|
|
IFRS profit before shareholder tax (£'Million) |
16 |
256.6 |
146.5 |
353.8 |
|
|
Underlying profit before shareholder tax (£'Million) |
17 |
262.6 |
166.0 |
384.4 |
|
|
IFRS basic earnings per share (EPS) (Pence) |
65 |
38.0 |
22.5 |
53.3 |
|
|
IFRS diluted EPS (Pence) |
65 |
37.6 |
22.2 |
52.5 |
|
|
IFRS net asset value per share (Pence) |
39 |
208.6 |
184.6 |
207.1 |
|
|
Dividend per share (Pence) |
|
15.59 |
11.55 |
51.96 |
|
|
|
|
|
|
|
|
|
Cash result-based metrics |
|
|
|
|
|
|
Controllable expenses (£'Million) |
20 |
131.4 |
119.2 |
264.6 |
|
|
Underlying cash result (£'Million) |
19 |
198.8 |
189.3 |
401.2 |
|
|
Cash result (£'Million) |
19 |
194.1 |
175.8 |
387.4 |
|
|
Underlying cash result basic EPS (Pence) |
|
36.7 |
35.3 |
74.6 |
|
|
Underlying cash result diluted EPS (Pence) |
|
36.4 |
34.8 |
73.5 |
|
|
|
|
|
|
|
|
|
EEV-based metrics |
|
|
|
|
|
|
EEV operating profit before tax (£'Million) |
27 |
914.2 |
844.8 |
1,545.4 |
|
|
EEV operating profit after tax basic EPS (Pence) |
|
126.3 |
121.6 |
219.9 |
|
|
EEV operating profit after tax diluted EPS (Pence) |
|
125.3 |
119.9 |
216.5 |
|
|
EEV net asset value per share (£) |
30 |
15.74 |
15.31 |
16.57 |
|
|
|
|
|
|
|
|
|
Solvency-based metrics |
|
|
|
|
|
|
Solvency II net assets (£'Million) |
31 |
1,247.3 |
1,113.3 |
1,245.3 |
|
|
Management solvency buffer (£'Million) |
31 |
532.9 |
506.1 |
518.0 |
|
|
Solvency II free assets (£'Million) |
31 |
1,790.2 |
1,128.5 |
1,323.4 |
|
|
Solvency ratio (Percentage) |
31 |
155% |
130% |
134% |
|
The Cash result should not be confused with the IFRS Condensed Consolidated Statement of Cash Flows which is prepared in accordance with IAS 7.
-11-
Financial Review
This Financial Review provides analysis of the Group's financial position and performance. It is split into the following sections:
Section 1: Funds under Management (FUM)
· 1.1 FUM analysis
· 1.2 Gestation
FUM is a key driver of ongoing profitability on all measures, and so information on FUM is provided in Section 1.
Find out more on pages 13 to 15
Section 2: Performance measurement
· 2.1 International Financial Reporting Standards (IFRS)
· 2.2 Cash result
· 2.3 European Embedded Value (EEV)
Section 2 analyses the performance of the business using three different bases: IFRS, the Cash result, and EEV.
Find out more on pages 15 to 30
Section 3: Solvency
Section 3 addresses Solvency, which is an important area given the multiple regulated activities carried out within the Group.
Find out more on page 31
Our financial business model
Our financial business model is straightforward. We generate revenue by attracting clients through the value of our proposition, who trust us with their investments and then stay with us. This grows our funds under management (FUM), on which we receive:
· advice charges for the provision of valuable, face-to-face advice; and
· product charges for our manufactured investment, pension and ISA/unit trust products.
Further information on our charges can be found on our website: www.sjp.co.uk/charges. A breakdown of our fee and commission income, our primary source of revenue under IFRS, is set out in Note 4 on page 44.
The primary source of the Group's profit is the income we receive from annual product management charges on FUM. As a result, growth in FUM is a strong positive indicator of future growth in profits. However, most of our investment and pension products are structured so that annual product management charges are not taken for the first six years after the business is written, so the ongoing benefit of these gross inflows into FUM for a given year will not be seen until six years later. This means that the Group always has six years' worth of FUM in the 'gestation' period. FUM subject to annual product management charges is known 'mature' FUM. More information about our FUM and the fees we earn on it can be found in Sections 1 and 2 of this Financial Review.
Initial and ongoing advice charges, and initial product charges levied when a client first invests into one of our products, are not major drivers of the Group's profitability, because:
· most advice charges received are offset by corresponding remuneration for Partners, and so an increase in these revenue streams will correspond with an increase in the associated expense, and vice versa; and
· under IFRS, initial product charges are spread over the expected life of the investment through deferred income (DIR - see pages 17 and 18 for further detail). The contribution to the IFRS result from spreading these historic charges can be seen in Note 4 as amortisation of DIR. Initial product charges contribute immediately to our Cash result through margin arising on new business.
Our income is used to meet overheads, pay the ongoing product expenses and to invest in the business. Controllable expenses, being the costs of running the Group's infrastructure, the Academy and development expenses, are carefully managed in line with our 2025 business plan ambition to contain their growth to 5% per annum. Other ongoing expenses, including payments to Partners, increase with business levels and are generally aligned with product charges.
-12-
Related party transactions
The related party transactions during the six-month period to 30 June 2022 are set out in Note 17 to the Financial Statements.
-13-
Section 1: Funds under management
1.1 FUM analysis
Our financial business model is to attract and retain FUM on which we receive an annual management fee. As a result, the level of income we receive is ultimately dependent on the value of our FUM, and so its growth is a clear driver of future growth in profits. The key drivers for FUM are:
· our ability to attract new funds in the form of gross inflows;
· our ability to retain FUM by keeping unplanned withdrawals at a low level; and
· net investment returns.
The following table shows how FUM evolved during the six months to 30 June 2022 and 30 June 2021, and the year to 31 December 2021. Investment return is presented net of charges.
|
|
Six months ended 30 June 2022 |
30 June 2021 |
31 December 2021 |
||||
|
Investment |
Pension |
UT/ISA and DFM |
Total |
||||
|
£'Billion |
£'Billion |
£'Billion |
£'Billion |
£'Billion |
£'Billion |
||
|
Opening FUM |
35.95 |
74.83 |
43.21 |
153.99 |
129.34 |
129.34 |
|
|
Gross inflows |
1.20 |
5.10 |
2.81 |
9.11 |
9.19 |
18.20 |
|
|
Net investment return |
(3.49) |
(8.76) |
(5.02) |
(17.27) |
8.89 |
13.61 |
|
|
Regular income withdrawals and maturities |
(0.15) |
(0.86) |
- |
(1.01) |
(0.97) |
(2.00) |
|
|
Surrenders and part surrenders |
(0.76) |
(0.73) |
(1.07) |
(2.56) |
(2.68) |
(5.16) |
|
|
Closing FUM |
32.75 |
69.58 |
39.93 |
142.26 |
143.77 |
153.99 |
|
|
Net inflows |
0.29 |
3.51 |
1.74 |
5.54 |
5.54 |
11.04 |
|
|
Implied surrender rate as a percentage of average FUM |
4.4% |
2.0% |
5.1% |
3.5% |
3.9% |
3.6% |
|
Included in the table above is:
· Rowan Dartington Group FUM of £3.23 billion at 30 June 2022 (30 June 2021: £3.24 billion, 31 December 2021: £3.52 billion), gross inflows of £0.25 billion for the period (six months to 30 June 2021: £0.28 billion, year to 31 December 2021: £0.55 billion) and outflows of £0.06 billion (six months to 30 June 2021: £0.08 billion, year to 31 December 2021: £0.14 billion); and
· SJP Asia Group FUM of £1.51 billion at 30 June 2022 (30 June 2021: £1.41 billion, 31 December 2021: £1.57 billion), gross inflows of £0.17 billion for the period (six months to 30 June 2021: £0.19 billion, year to 31 December 2021: £0.36 billion) and outflows of £0.04 billion (six months to 30 June 2021: £0.04 billion, year to 31 December 2021: £0.10 billion).
The following table shows the progression of FUM over recent periods.
|
|
Opening FUM |
Net inflows |
Investment return |
Other movements 1 |
Closing FUM |
|
£'Billion |
£'Billion |
£'Billion |
£'Billion |
£'Billion |
|
|
30 June 2022 |
154.0 |
5.5 |
(17.2) |
- |
142.3 |
|
31 December 2021 |
129.3 |
11.0 |
13.7 |
- |
154.0 |
|
30 December 2020 |
117.0 |
8.2 |
4.1 |
- |
129.3 |
|
31 December 2019 |
95.6 |
9.0 |
12.4 |
- |
117.0 |
|
31 December 2018 |
90.7 |
10.3 |
(5.4) |
- |
95.6 |
|
31 December 2017 |
75.3 |
9.5 |
6.2 |
(0.3) |
90.7 |
1. Other movements in 2017 related to the matching strategy disinvestment.
-14-
The table below provides a geographical and investment type analysis of FUM at the end of each period:
|
|
30 June 2022 |
30 June 2021 |
31 December 2021 |
|||
|
£'Billion |
% |
£'Billion |
% |
£'Billion |
% |
|
|
North American Equities |
46.0 |
33% |
39.0 |
27% |
47.3 |
31% |
|
Fixed Income Securities |
21.0 |
15% |
23.6 |
16% |
25.4 |
16% |
|
Asia and Pacific Equities |
18.8 |
13% |
21.2 |
15% |
18.6 |
12% |
|
UK Equities |
16.0 |
11% |
20.2 |
14% |
21.5 |
14% |
|
European Equities |
17.4 |
12% |
17.0 |
12% |
17.8 |
11% |
|
Alternative Investments |
11.9 |
8% |
11.0 |
8% |
11.9 |
8% |
|
Cash |
5.6 |
4% |
5.9 |
4% |
5.9 |
4% |
|
Property |
2.7 |
2% |
2.5 |
2% |
2.6 |
2% |
|
Other |
2.9 |
2% |
3.4 |
2% |
3.0 |
2% |
|
Total |
142.3 |
100% |
143.8 |
100% |
154.0 |
100% |
1.2 Gestation
As explained in our financial business model on page 11, due to our product structure, at any given time there is a significant amount of FUM that has not yet started to contribute to the Cash result.
When we attract new FUM there is a margin arising on new business that emerges at the point of investment, which is a surplus of income over and above the initial costs incurred at the outset. Within our Cash result presentation this is recognised as it arises, but it is deferred under IFRS.
Once the margin arising on new business has been recognised, the pattern of future emergence of cash from ongoing annual product management charges differs by product. Broadly, annual product management charges from unit trust and ISA business begin contributing positively to the Cash result from day one, whilst investment and pensions business enter a six-year gestation period during which no net income from FUM is included in the Cash result. Once this business has reached its six-year maturity point, it starts contributing positively to the Cash result, and will continue to do so in each year that it remains with the Group. Approximately 54% of gross inflows for 2022 to date, after initial charges, move into gestation FUM (six months to 30 June 2021: 51%, year to 31 December 2021: 51%).
The following table shows an analysis of FUM, after initial charges, split between mature FUM that is contributing net income to the Cash result and FUM in gestation which is not yet contributing as at 30 June 2022, as well as at the year-end for the past five years. The value of both mature and gestation FUM is impacted by investment return as well as net inflows:
|
Position as at: |
Mature FUM contributing to the Cash result |
Gestation FUM that will contribute to the Cash result in the future |
Total FUM |
|
£'Billion |
£'Billion |
£'Billion |
|
|
30 June 2022 |
97.8 |
44.5 |
142.3 |
|
31 December 2021 |
104.7 |
49.3 |
154.0 |
|
30 December 2020 |
85.9 |
43.4 |
129.3 |
|
31 December 2019 |
76.8 |
40.2 |
117.0 |
|
31 December 2018 |
62.1 |
33.5 |
95.6 |
|
31 December 2017 |
60.1 |
30.6 |
90.7 |
-15-
The following table gives an indication, for illustrative purposes, of the way in which the reduction in fees in the gestation period element of the Cash result could unwind, and so how the gestation balance of £44.5 billion at 30 June 2022 may start to contribute to the Cash result over the next six years and beyond.
|
|
Gestation FUM future contribution to the Cash result |
|
|
£'Million |
||
|
2022 |
22.1 |
|
|
2023 |
80.1 |
|
|
2024 |
146.8 |
|
|
2025 |
213.2 |
|
|
2026 |
280.5 |
|
|
2027 |
352.8 |
|
|
2028 onwards |
391.2 |
|
Section 2: Performance measurement
In line with statutory reporting requirements, we report profits assessed on an IFRS basis. The presence of a significant life insurance company within the Group means that, although we are a wealth management Group in substance with a simple business model, we apply IFRS accounting requirements for insurance companies. These requirements lead to Financial Statements which are more complex than those of a typical wealth manager and so our IFRS results may not provide the clearest presentation for users who are trying to understand our wealth management business. Key examples of this include the following:
· our IFRS Condensed Consolidated Statement of Comprehensive Income includes policyholder tax balances, which we are required to recognise as part of our corporation tax arrangements. This means that our Group IFRS profit before tax includes amounts charged to clients to meet policyholder tax expenses, which are unrelated to the underlying performance of our business; and
·
our policy is to fully match our liabilities to clients, and so policyholder liabilities increase or decrease to match increases or decreases experienced on the assets held to cover them. This means that shareholders are not exposed to any gains or losses on the £144.5 billion of policyholder assets and liabilities recognised in our IFRS Condensed Consolidated Statement of Financial Position, which represented over 97% of our IFRS total assets and liabilities at 30 June 2022.
To address this, we developed APMs with the objective of stripping out the policyholder element to present solely shareholder impacting balances, as well as removing items such as deferred acquisition costs and deferred income to reflect Solvency II recognition requirements and to better match the way in which cash emerges from the business. We therefore present our financial performance and position under three different bases, using a range of APMs to supplement our IFRS reporting. The three different bases, which are consistent with those presented last year, are:
· International Financial Reporting Standards (IFRS);
· Cash result; and
· European Embedded Value (EEV).
APMs are not defined by the relevant financial reporting framework (which for the Group is IFRS), but we use them to provide greater insight into the financial performance, financial position and cash flows of the Group, and the way it is managed. A complete Glossary of Alternative Performance Measures is set out on pages 80 to 82, in which we define each APM used in our Financial Review, explain why it is used and, if applicable, explain how the measure can be reconciled to the IFRS Financial Statements.
-16-
2.1 International Financial Reporting Standards (IFRS)
IFRS profit after tax was £205.6 million for the period (six months to 30 June 2021: £120.9 million, year to 31 December 2021: £287.6 million), with the result significantly higher period-on-period due to the volatile experience of policyholder tax asymmetry between the periods coupled with the strong underlying business performance. Policyholder tax asymmetry is described further in the following paragraphs.
Life insurance tax incorporates a policyholder tax element, and the financial statements of a life insurance group need to reflect the liability to HMRC and the corresponding deductions incorporated into policy charges. In particular, the tax liability to HMRC is assessed using IAS 12 Income Taxes, which does not allow discounting, whereas the policy charges are designed to ensure fair outcomes between clients and so reflect a wide range of possible outcomes. This gives rise to different assessments of the current value of future cash flows and hence an asymmetry in the IFRS Condensed Consolidated Statement of Financial Position between the deferred tax position and the offsetting client balance. This net balance reflects a temporary position, and in the absence of market volatility we expect it will unwind as future cash flows become less uncertain and are ultimately realised. Movement in the asymmetry is recognised in the IFRS Condensed Consolidated Statement of Comprehensive Income and analysed in Note 4 Fee and commission income. We refer to it in this Report as the impact of policyholder tax asymmetry.
In benign markets this asymmetry is small, however recent market volatility has resulted in significant swings. The market falls in 2022 to-date have resulted in the asymmetry contributing a positive £39.4 million to the IFRS result for the six months to 30 June 2022, whereas the market gains in 2021 resulted in the asymmetry contributing a negative £29.2 million in the six months to 30 June 2021 as some of the benefit built up due to market falls in 2020 unwound. This £68.6 million movement increases both IFRS profit after tax and IFRS profit before shareholder tax. The asymmetry on the IFRS Condensed Consolidated Statement of Financial Position currently stands positive £69.4 million (30 June 2021: £55.1 million, 31 December 2021: £30.1million). Over time this balance will reduce as markets increase.
To address the challenge of policyholder tax being included in the IFRS results we focus on the following two APMs, based on IFRS, as our pre-tax metrics:
· profit before shareholder tax; and
· underlying profit.
Further information on these IFRS-based measures is set out below and on the following page.
Profit before shareholder tax
This is a profit measure based on IFRS which aims to remove the impact of policyholder tax. The policyholder tax expense or credit is generally matched by an equivalent fund tax deduction or credit from the relevant funds, which is recorded within fee and commission income in the IFRS Condensed Consolidated Statement of Comprehensive Income. Policyholder tax does not therefore normally impact the Group's overall profit after tax. As a result, profit before shareholder tax, but after policyholder tax, is typically a useful metric, although it has been distorted by policyholder tax asymmetry as referenced above in both the current and prior periods.
The following table demonstrates the way in which profit before shareholder tax is presented in the IFRS Condensed Consolidated Statement of Comprehensive Income on page 37.
|
|
Six months ended 30 June 2022 |
Six months ended 30 June 2021 |
Year ended 31 December 2021 |
|
£'Million |
£'Million |
£'Million |
|
|
IFRS (loss)/profit before tax |
(298.4) |
482.6 |
842.4 |
|
Policyholder tax credit/(charge) |
555.0 |
(336.1) |
(488.6) |
|
IFRS profit before shareholder tax |
256.6 |
146.5 |
353.8 |
|
Shareholder tax charge |
(51.0) |
(25.6) |
(66.2) |
|
IFRS profit after tax |
205.6 |
120.9 |
287.6 |
IFRS profit after tax and IFRS profit before shareholder tax have both increased period-on-period, reflecting both the impact of policyholder tax asymmetry and growth in average FUM period-on-period leading to growth in income from FUM.
Shareholder tax reflects the tax charge attributable to shareholders and is closely related to the performance of the business. However, it can vary period-on-period due to several factors: further detail is set out in Note 6 Income and deferred taxes.
- 17 -
Underlying profit
This is profit before shareholder tax (as calculated above) adjusted to remove the impact of accounting for deferred acquisition costs (DAC), deferred income (DIR) and the purchased value of in-force business (PVIF).
IFRS requires certain up-front expenses incurred, and income received, to be deferred. The deferred amounts are initially recognised on the IFRS Condensed Consolidated Statement of Financial Position as a DAC asset and DIR liability, which are subsequently amortised to the IFRS Condensed Consolidated Statement of Comprehensive Income over a future period. Substantially all of the Group's deferred expenses are amortised over a 14-year period, and substantially all deferred income is amortised over a six-year period.
The impact of accounting for DAC, DIR and PVIF in the IFRS result is that there is a significant accounting timing difference between the emergence of accounting profits and actual cash-flows. For this reason, Underlying profit, which removes the impact of these accounting adjustments, is considered to be a helpful metric. The following table demonstrates the way in which IFRS profit reconciles to Underlying profit.
|
|
Six months ended 30 June 2022 |
Six months ended 30 June 2021 |
Year ended 31 December 2021 |
|
£'Million |
£'Million |
£'Million |
|
|
IFRS profit before shareholder tax |
256.6 |
146.5 |
353.8 |
|
Remove the impact of DAC/DIR/PVIF |
6.0 |
19.5 |
30.6 |
|
Underlying profit before shareholder tax |
262.6 |
166.0 |
384.4 |
The impact of movements in DAC, DIR and PVIF on IFRS profit before shareholder tax is further analysed as follows. Due to policyholder tax on DIR, the amortisation of DIR and DIR on new business for the period set out below cannot be agreed to those provided in Note 7, which is presented before both policyholder and shareholder tax:
|
|
Six months ended 30 June 2022 |
Six months ended 30 June 2021 |
Year ended 31 December 2021 |
|
£'Million |
£'Million |
£'Million |
|
|
Amortisation of DAC |
(39.8) |
(43.0) |
(86.1) |
|
DAC on new business for the period |
22.7 |
19.3 |
41.2 |
|
Net impact of DAC |
(17.1) |
(23.7) |
(44.9) |
|
Amortisation of DIR |
83.1 |
82.4 |
164.8 |
|
DIR on new business for the period |
(70.4) |
(76.6) |
(147.3) |
|
Net impact of DIR |
12.7 |
5.8 |
17.5 |
|
Amortisation of PVIF |
(1.6) |
(1.6) |
(3.2) |
|
Movement in the period |
(6.0) |
(19.5) |
(30.6) |
-18-
Net impact of DAC
The scale of the £17.1 million negative overall impact of DAC on the IFRS result (six months to 30 June 2021: £23.7 million negative, year to 31 December 2021: £44.9 million negative) is largely due to changes arising from the 2013 Retail Distribution Review (RDR). After this change, the level of expenses that qualified for deferral reduced significantly, but the large balance accrued previously is still being amortised. As deferred expenses are amortised over a 14-year period there is a significant transition period, which could last for another five to six years. During this time the amortisation of pre-RDR expenses previously deferred will significantly outweigh new post-RDR expenses deferred, despite significant business growth, resulting in a net negative impact on IFRS profits.
Net impact of DIR
Income released from the deferred income liability has remained largely static, and is offset in the overall balance by a similar level of addition reflecting new business volumes. Together, these effects mean that DIR has had a positive £12.7 million impact on the IFR S result in the six months to 30 June 2022 (six months to 30 June 2021: £5.8 million positive, year to 31 December 2021: £17.5 million positive).
2.2 Cash result
The Cash result is used by the Board to assess and monitor the level of cash profit (net of tax) generated by the business. It is based on IFRS with adjustments made to exclude certain non-cash items, such as DAC, DIR, deferred tax and equity-settled share option costs. Further details, including the full definition of the Cash result, can be found in the Glossary of Alternative Performance Measures on pages 80 to 82. Although the Cash result should not be confused with the IAS 7 IFRS Condensed Consolidated Statement of Cash Flows, it provides a helpful supplementary view of the way in which cash is generated and emerges within the Group.
The Cash result reconciles to Underlying profit, as presented in Section 2.1, as follows:
|
|
Six months ended |
Six months ended |
Year ended |
|||
|
Before shareholder tax |
After tax |
Before
shareholder |
|
Before
shareholder |
After tax |
|
|
£'Million |
£'Million |
£'Million |
£'Million |
£'Million |
£'Million |
|
|
Underlying profit |
262.6 |
209.3 |
166.0 |
139.5 |
384.4 |
315.6 |
|
Equity-settled share-based payments |
11.2 |
11.2 |
9.0 |
9.0 |
20.4 |
20.4 |
|
Impact of deferred tax |
- |
18.1 |
- |
(2.4) |
- |
(0.5) |
|
Impact of policyholder tax asymmetry |
(39.4) |
(39.4) |
29.2 |
29.2 |
52.9 |
52.9 |
|
Other |
(2.3) |
(5.1) |
1.5 |
0.5 |
2.9 |
(1.0) |
|
Cash result |
232.1 |
194.1 |
205.7 |
175.8 |
460.6 |
387.4 |
The increase in equity-settled share-based payments reflects the increase in expense from the impact on employee schemes of the Group's performance during the period.
The most significant impact of deferred tax in all periods presented is recognition in the Cash result of the benefit from realising tax relief on capital losses. This has already been recognised under IFRS, and hence Underlying profit, through the establishment of deferred tax assets. More information can be found in Note 6 on pages 46 to 49.
The impact of policyholder tax asymmetry is a temporary effect caused by asymmetries between fund tax deductions and the policyholder tax due to HMRC. Movement in the asymmetry can be significant in volatile markets. For further explanation, refer to page 16.
Other represents a number of other small items, including the difference between the lease expense recognised under IFRS 16 Leases and lease payments made.
The following table shows an analysis of the Cash result using two different measures:
·
Underlying cash result
This measure represents the regular emergence of cash from day-to-day business operations and the cost of a number of strategic investments which are being incurred and expensed in the year, but which are expected to create long-term value.
·
Cash result
This measure includes items of a one-off nature, for example costs associated with restructuring.
-19-
Consolidated Cash result (presented post-tax)
|
|
Note |
Six months ended |
Six months ended 30 June 2021 |
Year ended 31 December 2021 |
|
||
|
In-force |
New business |
Total |
Total |
Total |
|
||
|
|
|
£'Million |
£'Million |
£'Million |
£'Million |
£'Million |
|
|
Net annual management fee |
1 |
494.8 |
16.8 |
511.6 |
479.8 |
1,001.6 |
|
|
Reduction in fees in gestation period |
1 |
(211.4) |
- |
(211.4) |
(201.6) |
(424.1) |
|
|
Net income from FUM |
1 |
283.4 |
16.8 |
300.2 |
278.2 |
577.5 |
|
|
Margin arising from new business |
2 |
- |
67.4 |
67.4 |
73.8 |
146.4 |
|
|
Controllable expenses |
3 |
(9.6) |
(121.8) |
(131.4) |
(119.2) |
(264.6) |
|
|
Asia - net investment |
4 |
- |
(4.2) |
(4.2) |
(5.2) |
(13.6) |
|
|
DFM - net investment |
4 |
- |
(5.4) |
(5.4) |
(4.7) |
(9.6) |
|
|
Regulatory fees and FSCS levy |
5 |
(3.3) |
(29.6) |
(32.9) |
(33.2) |
(37.8) |
|
|
Shareholder interest |
6 |
4.1 |
- |
4.1 |
3.0 |
6.2 |
|
|
Tax relief from capital losses |
7 |
13.9 |
- |
13.9 |
4.3 |
9.2 |
|
|
Miscellaneous |
8 |
(12.9) |
- |
(12.9) |
(7.7) |
(12.5) |
|
|
Underlying cash result |
|
275.6 |
(76.8) |
198.8 |
189.3 |
401.2 |
|
|
Restructuring |
9 |
- |
- |
- |
(9.0) |
(9.7) |
|
|
Change in capitalisation policy |
10 |
- |
- |
- |
- |
(4.1) |
|
|
Variance |
11 |
(4.7) |
- |
(4.7) |
(4.5) |
- |
|
|
Cash result |
|
270.9 |
(76.8) |
194.1 |
175.8 |
387.4 |
|
Notes to the Cash result
1. Net income from FUM
The net annual management fee is the net manufacturing margin that the Group retains from FUM after payment of the associated costs, for example, investment advisory fees and Partner remuneration. Each product has standard fees, but they vary between products. Overall post-tax margin on FUM reflects business mix but also the different tax treatment, particularly Life tax on onshore investment business.
As noted on page 12 however, our investment and pension business product structure means that these products do not generate net Cash result after the margin arising from new business, during the first six years (the gestation period). This is reflected in the reduction in fees in gestation period line.
Net income from FUM reflects Cash result income from FUM that has reached maturity and this line is the focus of our explanatory analysis. As with net annual management fees, the average rate can vary between time periods with business mix and tax. For the six months to 30 June 2022, it represented a margin on average mature FUM that was within our range of guidance for the full year of 0.63% - 0.65% on an annualised basis.
Net income from Asia and DFM FUM is not included in this line. Instead, this is included in the net Cash result presented separately for Asia and DFM.
2. Margin arising from new business
This is the net positive Cash result impact of new business in the period, reflecting initial charges levied on gross inflows and new business-related expenses. The majority of these expenses vary with new business levels, such as the incremental third-party administration costs of setting up a new policy on our back-office systems and payments to Partners for the initial advice provided to secure the clients' investment. As a result, gross inflows are a key driver behind this line.
However, the margin arising from new business also contains some fixed expenses, and elements which do not vary exactly in line with gross inflows. For example, our third-party administration tariff structure includes a fixed fee, and to provide some stability for Partner businesses, elements of our support for them are linked to prior-year new business levels.
Therefore, whilst the margin rising from new business tends to move directionally with the scale of gross inflows generated during the year, the relationship between the two is not linear.
-20-
3. Controllable expenses
|
|
Six months ended 30 June 2022 |
Six months ended 30 June 2021 |
Year ended 31 December 2021 |
|
£'Million |
£'Million |
£'Million |
|
|
Establishment expenses |
95.9 |
93.0 |
200.3 |
|
Development expenses (Operational and Strategic) |
29.7 |
21.3 |
54.0 |
|
Academy |
5.8 |
4.9 |
10.3 |
|
Controllable expenses |
131.4 |
119.2 |
264.6 |
As stated in the Chief Financial Officer's Report, as part of the 2025 business planning assumptions we set our ambition to contain growth in controllable expenses to around 5% per annum. Controllable expenses, which are the categories shown in the table above (stated after tax), are a key metric for the business. We are committed to strong cost control, and so despite the current inflationary environment we expect to contain growth in controllable expenses to 5% across 2022 as a whole. Controllable expenses in the first half of 2022 have been 10% higher than they were in the first half of 2021, however this is a result of the unusual phasing of expenses we experienced in 2021 only, where approximately 45% of our full-year controllable expenses were recognised in the first half of the year. We are expecting phasing for 2022 to be more consistent with our historic pre-COVID-19 average, where 47-48% of controllable expenses are recognised in the first half of the year.
Establishment expenses in the six months to 30 June 2022 were £95.9 million (six months to 30 June 2021: £93.0 million, year to 31 December 2021: £200.3 million). This outcome reflects the return of a more normal pattern of connectivity across our community in a post-COVID-19 world.
Development expenses were £29.7 million (six months to 30 June 2021: £21.3 million, year to 31 December 2021: £54.0 million) reflecting recent periods of considerable investment in the business, laying the foundations for long-term growth and a drive to secure future operating efficiencies. This included further development in our collaboration with Salesforce, our next-generation client experience including our new client app, and projects focused on intelligent automation. These projects will all contribute to improved efficiency, enhancing the experience for advisers and clients and making SJP easier to do business with.
Reflecting its critical role in providing a source of future organic growth in our adviser population, we continue to invest in building our Academy programmes to accommodate additional capacity with greater geographic reach. The transition to a hybrid format, where we combine in-class learning with greater digital content, has meant we have been able to scale up our Academy programmes efficiently.
4. Asia and DFM
These lines represent the net income from Asia and DFM FUM, including the Asia and DFM expenses set out in the reconciliation between the expenses presented separately on the face of the Cash result before tax and to IFRS expenses on page 22.
We have continued to invest in developing our presence in Asia, as well as discretionary fund management via Rowan Dartington both in the UK and overseas. Both have achieved outcomes in line with prior guidance, positioning them well for the years ahead.
5. Regulatory fees and FSCS levy
The costs of operating in a regulated sector include regulatory fees and the Financial Services Compensation Scheme (FSCS) levy. On a post-tax basis, these are as follows:
|
|
Six months ended 30 June 2022 |
Six months ended 30 June 2021 |
Year ended 31 December 2021 |
|
£'Million |
£'Million |
£'Million |
|
|
FSCS levy |
27.1 |
28.7 |
28.1 |
|
Regulatory fees |
5.8 |
4.5 |
9.7 |
|
FSCS levy and regulatory fees |
32.9 |
33.2 |
37.8 |
Our position as a market-leading provider of advice means we make a very substantial contribution to supporting the FSCS, thereby providing protection for clients of other businesses in the sector that fail. Whilst the FSCS levy across the industry has fallen significantly for the current year, our charge has only reduced modestly due to substantial gains in our market share.
6. Shareholder interest
This is the income accruing on the investments and cash held for regulatory purposes together with the interest received on the surplus capital held by the Group. It is presented net of funding-related expenses, including interest paid on borrowings and securitisation costs.
-21-
7. Tax relief from capital losses
In recent years, a deferred tax asset has been established in IFRS for historic capital losses which are regarded as being capable of utilisation over the medium term. The tax asset is ignored for Cash result purposes as it is not fungible, but instead the cash benefit realised when losses are utilised is shown in the tax relief from capital losses line.
Utilisation during the period of £13.9 million (six months to 30 June 2020: £4.3 million, year to 31 December 2020: £9.2 million) is significantly ahead of our £5-7 million per annum guidance, which has been driven by market conditions. Utilisation is determined on an annual basis based on the market conditions prevailing at 31 December each year.
8. Miscellaneous
This category represents the cash flow of the business not covered in any of the other categories. It includes, among other things, movements in the fair value of renewal income assets and contributions from the Group to the St. James's Place Charitable Foundation.
9. Restructuring
In 2021 we recognised the one-off cost of a restructuring exercise associated with an employee redundancy programme in the year.
10. Change in capitalisation policy
In 2021 we recognised a further one-off cost following the guidance released by the International Financial Reporting Standards Interpretations Committee in relation to the recognition of software configuration costs.
11. Variance
The variance recognised at the Half-Year reflects an allowance for fewer days of AMC income in the first half compared to the second half.
Reconciliation of Cash result expenses to IFRS expenses
Whilst certain expenses are recognised in separate line items on the face of the Cash result, expenses which vary with business volumes, such as payments to Partners and third-party administration expenses, and expenses which relate to investment in specific areas of the business such as DFM, are netted from the relevant income lines rather than presented separately. In order to reconcile to the IFRS expenses presented on the face of the IFRS Condensed Consolidated Statement of Comprehensive Income on page 37, the expenses netted from income lines in the Cash result need to be added in, as do certain IFRS expenses which by definition are not included in the Cash result. In addition, all expenses need to be converted from post-tax, as they are presented in the Cash result, to pre-tax, as they are presented under IFRS.
Expenses presented on the face of the Cash result before and after tax are set out below.
|
|
Six months ended |
Six months ended |
Year ended |
|||
|
Before tax |
After tax |
Before tax |
After tax |
Before tax |
After tax |
|
|
£'Million |
£'Million |
£'Million |
£'Million |
£'Million |
£'Million |
|
|
Controllable expenses |
|
|
|
|
|
|
|
Establishment expenses |
118.4 |
95.9 |
114.8 |
93.0 |
247.3 |
200.3 |
|
Development expenses (Operational and Strategic) |
36.7 |
29.7 |
26.3 |
21.3 |
66.7 |
54.0 |
|
Academy |
7.1 |
5.8 |
6.1 |
4.9 |
12.7 |
10.3 |
|
Total controllable expenses |
162.2 |
131.4 |
147.2 |
119.2 |
326.7 |
264.6 |
|
Other costs presented separately on the face of the Cash result |
|
|
|
|
|
|
|
Regulatory fees and FSCS levy |
40.7 |
32.9 |
41.0 |
33.2 |
46.6 |
37.8 |
|
Restructuring |
- |
- |
11.1 |
9.0 |
12.0 |
9.7 |
|
Change in capitalisation policy |
- |
- |
- |
- |
5.1 |
4.1 |
|
Total expenses presented separately on the face of the Cash result |
202.9 |
164.3 |
199.3 |
161.4 |
390.4 |
316.2 |
-22-
The total expenses presented separately on the face of the Cash result before tax then reconciles to IFRS expenses as set out below:
|
|
Six months ended 30 June 2022 |
Six months ended 30 June 2021 |
Year ended 31 December 2021 |
|
£'Million |
£'Million |
£'Million |
|
|
Total expenses presented separately on the face of the Cash result before tax |
202.9 |
199.3 |
390.4 |
|
Expenses which vary with business volumes |
|
|
|
|
Other performance related costs |
77.6 |
71.5 |
145.0 |
|
Payments to Partners |
516.0 |
491.0 |
988.0 |
|
Investment expenses |
37.5 |
44.8 |
88.0 |
|
Third-party administration |
62.8 |
66.1 |
128.0 |
|
Other |
26.1 |
19.2 |
64.3 |
|
Expenses relating to investment in specific areas of the business |
|
|
|
|
Asia expenses |
7.9 |
8.8 |
23.3 |
|
DFM expenses |
17.0 |
15.0 |
31.0 |
|
Total expenses included in the Cash result |
947.8 |
915.7 |
1,858.0 |
|
Expenses which are not included in the Cash result |
|
|
|
|
Amortisation of DAC and PVIF, net of additions |
18.7 |
25.3 |
48.1 |
|
Equity-settled share-based payments expenses |
11.2 |
9.0 |
20.4 |
|
Other |
(2.3) |
2.3 |
4.8 |
|
Total IFRS Group expenses before tax |
975.4 |
952.3 |
1,931.3 |
Expenses which vary with business volumes
Other performance related costs , for both Partners and employees, vary with the level of new business and the operating profit performance of the business. Payments to Partners, investment expenses and third-party administration costs are met through charges to clients, and so any variation in them from changes in the volumes of new business or the level of the stock markets does not impact Group profitability significantly.
Each of these items are recognised within the net annual management fee or margin arising from new business lines of the Cash result, depending on the nature of the expense.
Other expenses include interest expense and bank charges, operating costs of acquired independent financial advisers (IFAs) and donations to the St. James's Place Charitable Foundation. They are recognised across various lines in the Cash result, including shareholder interest and miscellaneous.
Expenses relating to investment in specific areas of the business
Asia expenses and DFM expenses both reflect disciplined expense control during the period, whilst continuing to invest to support growth. Such investment will continue going forward.
The Cash result on page 19 presents the net investment in Asia and DFM. This comprises the income that these business generate, net of the Asia and DFM expenses as set out in the table above.
Expenses which are not included in the Cash result
DAC amortisation, net of additions, PVIF amortisation and equity-settled share-based payment expenses are the primary expenses which are recognised under IFRS but are excluded from the Cash result.
-23-
Derivation of the Cash result
The Cash result is derived from the IFRS Condensed Consolidated Statement of Financial Position in a two-stage process:
Stage 1: Solvency II Net Assets Balance Sheet
Firstly, the IFRS Condensed Consolidated Statement of Financial Position is adjusted for a number of material balances that reflect policyholder interests in unit-linked liabilities together with the underlying assets that are held to match them. Secondly, it is adjusted for a number of non-cash 'accounting' balances such as DIR, DAC and associated deferred tax. The result of these adjustments is the Solvency II Net Assets Balance Sheet and the following table shows the way in which it has been calculated at 30 June 2022.
|
30 June 2022 |
Note |
IFRS Balance Sheet |
Adjustment 1 |
Adjustment 2 |
Solvency II Net Assets Balance Sheet |
Solvency II Net Assets Balance Sheet |
|
|
30 June 2021 |
31 December 2021 |
||||||
|
£'Million |
£'Million |
£'Million |
£'Million |
£'Million |
£'Million |
||
|
Assets |
|
|
|
|
|
|
|
|
Goodwill |
|
33.2 |
- |
(33.2) |
- |
- |
- |
|
Deferred acquisition costs |
|
362.6 |
- |
(362.6) |
- |
- |
- |
|
Purchased value of in-force business |
|
12.8 |
- |
(12.8) |
- |
- |
- |
|
Computer software |
|
31.7 |
- |
(31.7) |
- |
- |
- |
|
Property and equipment |
1 |
148.0 |
- |
- |
148.0 |
162.6 |
154.5 |
|
Deferred tax assets |
2 |
13.8 |
- |
(10.8) |
3.0 |
- |
5.0 |
|
Investment in associates |
|
1.4 |
- |
- |
1.4 |
- |
1.4 |
|
Reinsurance assets |
|
74.7 |
- |
(74.7) |
- |
- |
- |
|
Other receivables |
3 |
6,513.9 |
(5,232.8) |
(15.9) |
1,265.2 |
1,692.6 |
1,587.6 |
|
Income tax assets |
|
65.8 |
- |
- |
65.8 |
- |
- |
|
Investment property |
|
1,647.6 |
(1,647.6) |
- |
- |
- |
- |
|
Equities |
|
97,583.2 |
(97,583.2) |
- |
- |
- |
- |
|
Fixed income securities |
4 |
27,222.1 |
(27,214.3) |
- |
7.8 |
7.8 |
7.8 |
|
Investment in Collective |
|
|
|
|
|
|
|
|
Investment Schemes |
4 |
5,175.2 |
(3,804.7) |
- |
1,370.5 |
1,295.3 |
1,605.3 |
|
Derivative financial instruments |
|
1,861.9 |
(1,861.9) |
- |
- |
- |
- |
|
Cash and cash equivalents |
4 |
7,483.5 |
(7,209.0) |
- |
274.5 |
298.1 |
245.7 |
|
Total assets |
|
148,231.4 |
(144,553.5) |
(541.7) |
3,136.2 |
3,456.4 |
3,607.3 |
|
Liabilities |
|
|
|
|
|
|
|
|
Borrowings |
5 |
371.8 |
- |
- |
371.8 |
478.2 |
433.0 |
|
Deferred tax liabilities |
2 |
105.8 |
- |
(27.4) |
78.4 |
506.7 |
624.4 |
|
Insurance contract liabilities |
|
516.1 |
(439.1) |
(77.0) |
- |
- |
- |
|
Deferred income |
|
550.0 |
- |
(550.0) |
- |
- |
- |
|
Other provisions |
6 |
44.4 |
- |
- |
44.4 |
37.6 |
44.1 |
|
Other payables |
1,3 |
5,842.8 |
(4,448.5) |
- |
1,394.3 |
1,236.9 |
1,254.4 |
|
Investment contract benefits |
|
102,396.5 |
(102,396.5) |
- |
- |
- |
- |
|
Derivative financial instruments |
|
2,397.6 |
(2,397.6) |
- |
- |
- |
- |
|
Net asset value attributable to unit holders |
|
34,871.8 |
(34,871.8) |
- |
- |
- |
- |
|
Income tax liabilities |
7 |
- |
- |
- |
- |
83.6 |
6.1 |
|
Preference shares |
|
- |
- |
- |
- |
0.1 |
- |
|
Total liabilities |
|
147,096.8 |
(144,553.5) |
(654.4) |
1,888.9 |
2,343.1 |
2,362.0 |
|
Net assets |
|
1,134.6 |
- |
112.7 |
1,247.3 |
1,113.3 |
1,245.3 |
Adjustment 1 nets out the policyholder interest in unit-linked assets and liabilities. For further information, refer to Note 8 of the IFRS Financial Statements.
Adjustment 2 removes items such as DAC, DIR, PVIF and their associated deferred tax balances from the IFRS Condensed Consolidated Statement of Financial Position to bring it in line with Solvency II recognition requirements.
-24-
Notes to the Solvency II Net Assets Balance Sheet
1. Property and equipment
£115.2 million (30 June 2021: £125.2 million, 31 December 2021: £120.3 million) of the property and equipment balance represents the right to use leased properties. It has decreased period-on-period mainly as a result of the depreciation charge. Lease liabilities of £120.0 million are recognised within the other payables line (30 June 2021: £126.5 million, 31 December 2021: £124.1 million).
2. Deferred tax assets and liabilities
Analysis of deferred tax assets and liabilities, including how they have moved period-on-period, is set out in Note 6 Income and deferred taxes within the IFRS Financial Statements.
3. Other receivables and other payables
Detailed breakdowns of other receivables and other payables can be found in Note 9 Other receivables and Note 10 Other payables of the IFRS Financial Statements.
Other receivables on the Solvency II Net Assets Balance Sheet have decreased from £1,587.6 million at 31 December 2021 to £1,265.2 million at 30 June 2022, principally reflecting a decrease in outstanding market trade settlements in the life unit-linked funds and the consolidated unit trusts due to decreased volumes of business close to the period end date.
Within other receivables there are two items which merit further analysis:
Operational readiness prepayment asset
One of the items within other receivables is the operational readiness prepayment asset. This arose from the investment we made into our back-office infrastructure project, which was a complex, multi-year programme. In addition to expensing our internal project costs through the IFRS Statement of Comprehensive Income and Cash result as incurred, we have been capitalising Bluedoor development costs as a prepayment asset on the Statement of Financial Position. The asset, which stood at £283.9 million at 30 June 2022 (30 June 2021: £305.8 million, 31 December 2021: £296.3 million) has been amortising through the IFRS Statement of Comprehensive Income and the Cash result since 2017 and will continue to do so over the remaining life of the contract, which at 30 June 2022 is 11.5 years.
The movement schedule below demonstrates how the operational readiness prepayment has built up since 1 January 2021.
|
|
£'Million |
|
Cost |
|
|
At 1 January 2021 |
406.6 |
|
Additions during the period |
4.1 |
|
At 30 June 2021 |
410.7 |
|
Additions during the period |
2.8 |
|
At 31 December 2021 |
413.5 |
|
Additions during the period |
- |
|
At 30 June 2022 |
413.5 |
|
Accumulated amortisation |
|
|
At 1 January 2021 |
(92.7) |
|
Amortisation during the period |
(12.2) |
|
At 30 June 2021 |
(104.9) |
|
Amortisation during the period |
(12.3) |
|
At 31 December 2021 |
(117.2) |
|
Amortisation during the period |
(12.4) |
|
At 30 June 2022 |
(129.6) |
|
Net book value |
|
|
At 30 June 2021 |
305.8 |
|
At 31 December 2021 |
296.3 |
|
At 30 June 2022 |
283.9 |
The amortisation expense is recognised within third-party administration expenses in the IFRS result, and within the net annual management fee and margin arising from new business lines of the Cash result. It is more than offset by the lower tariff charges on Bluedoor compared to the previous system, which grow as the business grows, benefiting both the IFRS and Cash results.
-25-
Business loans to Partners
Facilitating business loans to Partners is a key way in which we are able to support growing Partner businesses. Such loans are principally used to enable Partners to take over the businesses of retiring or downsizing Partners, and this process creates broad stakeholder benefits. First, clients benefit from enhanced continuity of St. James's Place advice and service over time; second, Partners are able to build and ultimately realise value in the high-quality and sustainable businesses they have created; and finally, the Group and, in turn, shareholders, benefit from high levels of adviser and client retention.
In addition to recognising a strong business case for facilitating such lending, we recognise too the fundamental strength and credit quality of business loans to Partners. Over more than ten years, cumulative write-offs have totalled less than 5bps of gross loans advanced, with such low impairment experience attributable to a number of factors that help to mitigate the inherent credit risk in lending. These include taking a cautious approach to Group credit decisions, with lending secured against prudent business valuations. Demonstrating this, key loan-to-value (LTV) information is set out in the table below.
|
|
30 June 2022 |
30 June 2021 |
31 December 2021 |
|
Aggregate LTV across the total Partner lending book |
32% |
29% |
29% |
|
Proportion of the book where LTV is over 75% |
10% |
8% |
7% |
|
Net exposure to loans where LTV is over 100% (£'Million) |
5.5 |
5.5 |
4.6 |
If FUM were to decrease by 10%, the net exposure to loans where LTV is over 100% at 30 June 2022 would increase to £9.1 million (30 June 2021: increase to £7.7 million; 31 December 2021: increase to £6.6 million).
Our credit experience also benefits from the structure of business loan to Partner repayments. The Group collects advice charges from clients. Prior to making the associated payment to Partners, we deduct loan capital and interest payments from the amount due. This means the Group is able to control repayments.
During the period we have continued to facilitate business loans to Partners. Our focus is primarily on securitised loans and so this balance has increased, with a reduction in business loans to Partners directly funded by the Group as repayments received have exceeded new loans advanced.
|
|
30 June 2022 |
30 June 2021 |
31 December 2021 |
|
£'Million |
£'Million |
£'Million |
|
|
Total business loans to Partners |
514.5 |
502.6 |
521.6 |
|
Split by funding type: |
|
|
|
|
Business loans to Partners directly funded by the Group |
291.2 |
322.2 |
307.6 |
|
Securitised business loans to Partners |
223.3 |
180.4 |
214.0 |
4. Liquidity
Cash generated by the business is held in highly rated government securities, AAA-rated money market funds, and investment grade bank accounts. Although these are all highly liquid, only the latter are classified as cash and cash equivalents on the Solvency II Net Assets Balance Sheet. The total liquid assets held are as follows.
|
|
30 June 2022 |
30 June 2021 |
31 December 2021 |
|
£'Million |
£'Million |
£'Million |
|
|
Fixed interest securities |
7.8 |
7.8 |
7.8 |
|
Investment in Collective Investment Schemes (AAA-rated money market funds) |
1,370.5 |
1,295.3 |
1,605.3 |
|
Cash and cash equivalents |
274.5 |
298.1 |
245.7 |
|
Total liquid assets |
1,652.8 |
1,601.2 |
1,858.8 |
The Group's primary source of net cash generation is product charges. In line with profit generation, as most of our investment and pension business enters a gestation period, there is no cash generated (apart from initial charges) for the first six years of an investment. This means that the amount of cash generated will increase year-on-year as FUM in the gestation period becomes mature and is subject to annual product management charges. Unit trust and ISA business does not enter the gestation period, and so generates cash immediately from the point of investment.
Cash is used to invest in the business and to pay the Group dividend. Our dividend policy is set such that appropriate cash is retained in the business to support the investment needed to meet our future growth aspirations.
-26-
5. Borrowings
The Group continues to pursue a strategy of diversifying and broadening its access to debt finance. We have done this successfully over time, including the creation and execution of a securitisation vehicle. For accounting purposes, we are obliged to disclose on our IFRS Condensed Consolidated Statement of Financial Position the value of loan notes relating to the securitisation. However, these are secured only on the securitised portfolio of business loans to Partners, and hence are non-recourse to the Group's other assets.
This means that the senior tranche of non-recourse securitisation loan notes, whilst included within borrowing, are very different from the Group's senior unsecured corporate borrowings, which are used to manage working capital and to fund investment in the business.
|
|
30 June 2022 |
30 June 2021 |
31 December 2021 |
|
£'Million |
£'Million |
£'Million |
|
|
Corporate borrowings: bank loans |
38.6 |
229.5 |
106.8 |
|
Corporate borrowings: loan notes |
163.8 |
113.8 |
163.8 |
|
Senior unsecured corporate borrowings |
202.4 |
343.3 |
270.6 |
|
Senior tranche of non-recourse securitisation loan notes |
169.4 |
134.9 |
162.4 |
|
Total borrowings |
371.8 |
478.2 |
433.0 |
Further information is provided in Note 12 Borrowings and financial commitments of the IFRS Financial Statements.
6. Other provisions
Further information on other provisions, including how the balance has moved period-on-period, is set out in Note 11 Other provisions and contingent liabilities.
7. Income tax liabilities
The Group has an income tax asset of £65.8 million at 30 June 2022 compared to an income tax liability of £6.1 million at 31 December 2021. This is due to a current tax charge of £37.4 million and tax paid of £109.3 million during the period. Further detail on the current tax charge and tax paid is provided in Note 6 Income and deferred taxes.
Stage 2: Movement in Solvency II Net Assets Balance Sheet
After the Solvency II Net Asset Balance Sheet has been determined, the second stage in the derivation of the Cash result identified a number of movements in that balance sheet which do not represent cash flows for inclusion within the Cash result. The following table explains how the overall Cash result reconciles into the total movement.
|
|
Six months ended 30 June 2022 |
Six months ended 30 June 2021 |
Year ended 31 December 2021 |
|
£'Million |
£'Million |
£'Million |
|
|
Opening Solvency II Net Assets |
1,245.3 |
1,218.6 |
1,218.6 |
|
Dividend paid in period |
(218.9) |
(267.5) |
(329.9) |
|
Issue of share capital and exercise of options |
12.8 |
21.6 |
29.0 |
|
Consideration paid for own shares |
(0.3) |
- |
- |
|
Change in deferred tax |
(18.1) |
2.4 |
0.5 |
|
Impact of policyholder tax asymmetry |
39.4 |
(29.2) |
(52.9) |
|
Change in goodwill, intangibles, non-controlling interests and other non-cash movements |
(7.0) |
(8.4) |
(7.4) |
|
Cash result |
194.1 |
175.8 |
387.4 |
|
Closing Solvency II Net Assets |
1,247.3 |
1,113.3 |
1,245.3 |
- 27-
2.3 European embedded value (EEV)
Wealth management differs from most other businesses, in that the expected shareholder income from client investment activity emerges over a long period in the future. We therefore supplement the IFRS and Cash results by providing additional disclosure on an EEV basis, which brings into account the net present value of the expected future cash flows. We believe that a measure of total economic value of the Group's operating performance is useful to investors.
As in previous reporting, our EEV continues to be calculated on a basis determined in accordance with the EEV principles originally issued in May 2004 by the Chief Financial Officers Forum (CFO Forum) and supplemented in both October 2005 and, following the introduction of Solvency II, in April 2016.
Many of the principles and practices underlying EEV are similar to the requirements of Solvency II. Our EEV methods and assumptions are aligned as closely as possible to Solvency II.
The table below and accompanying notes summarise the profit before tax of the combined business.
|
|
Note |
Six months ended 30 June 2022 |
Six months ended 30 June 2021 |
Year ended 31 December 2021 |
|
£'Million |
£'Million |
£'Million |
||
|
Funds management business |
1 |
985.9 |
915.6 |
1,662.9 |
|
Distribution business |
2 |
(33.5) |
(34.2) |
(24.4) |
|
Other |
|
(38.2) |
(36.6) |
(93.1) |
|
EEV operating profit |
|
914.2 |
844.8 |
1,545.4 |
|
Investment return variance |
3 |
(1,346.2) |
593.6 |
894.5 |
|
Economic assumption changes |
4 |
166.9 |
22.8 |
4.2 |
|
EEV (loss)/profit before tax |
|
(265.1) |
1,461.2 |
2,444.1 |
|
Tax |
|
56.9 |
(338.0) |
(578.7) |
|
Corporation tax rate change |
5 |
- |
(408.5) |
(412.7) |
|
EEV (loss)/profit after tax |
|
(208.2) |
714.7 |
1,452.7 |
Notes to the EEV result
1. Funds management business EEV operating profit
The funds management business operating profit has increased to £985.9 million (six months to 30 June 2021: £915.6 million, year to 31 December 2021: £1,662.9 million) and a full analysis of the result is shown below.
|
|
Six months ended 30 June 2022 |
Six months ended 30 June 2021 |
Year ended 31 December 2021 |
|
£'Million |
£'Million |
£'Million |
|
|
New business contribution |
525.6 |
525.6 |
1,002.2 |
|
Profit from existing business |
|
|
|
|
- unwind of the discount rate |
216.2 |
138.5 |
275.8 |
|
- experience variance |
9.9 |
1.1 |
89.5 |
|
- operating assumption change |
230.6 |
249.4 |
293.0 |
|
Investment income |
3.6 |
1.0 |
2.4 |
|
Fund management business EEV operating profit |
985.9 |
915.6 |
1,662.9 |
The new business contribution for the period at £525.6 million (six months to 30 June 2021: £525.6 million, year to 31 December 2021: £1,002.2 million) was consistent with the prior period. Whilst this primarily reflects the consistent new business levels, there has been a favourable impact from the change in persistency assumptions for unit trust and ISA business (see operating assumption change below) which has been offset by higher expenses.
The unwind of the discount rate for the period increased by 56% to £216.2 million (six months to 30 June 2021: £138.5 million, year to 31 December 2021: £275.8 million). This reflects both a higher opening value of in-force business and a higher discount rate for the period (4.2% in 2022 versus 3.4% in 2021).
The operating assumption change during the period was £230.6 million (six months to 30 June 2021: £249.4 million, year to 31 December 2021: £293.0 million). The change in the current period arises from a small improvement to the persistency
-28-
assumptions for unit trust and ISA business, similar to the change in the prior period which arose due to a small improvement to the persistency assumptions for onshore bond and pension business. Both of these changes reflect positive experience over recent years. No further changes to persistency assumptions are planned in the short- to medium-term.
2. Distribution business
The distribution loss includes the positive gross margin arising from advice income less payments to advisers, offset by the cost of building the distribution capabilities in Asia and the FSCS Levy, which is a significant charge within the distribution business result. The latter has reduced modestly to £23.8 million in the period (six months to 30 June 2021: £25.9 million, year to 31 December 2021: £23.6 million), leading to modest decrease in the overall reported loss.
3. Investment return variance
The investment return variance reflects the capitalised impact on the future annual management fees resulting from the difference between the actual and assumed investment returns. Given the size of our FUM, a small difference can result in a large positive or negative variance.
Due to the significant market falls experienced during the period, the typical investment return on our funds was negative 10.9% after charges, compared to the assumed investment return of positive 1.7%. This resulted in a negative investment return variance of £1,346.2 million (six months to 30 June 2021: positive £593.6 million, year to 31 December 2021: positive £894.5 million).
4. Economic assumption changes
The positive variance of £166.9 million arising in the period (six months to 30 June 2021: positive £22.8 million, year to 31 December 2021: positive £4.2 million) reflects the positive effect from the increase in gilt yields, and the decrease in the long-term inflation rate from the position at 31 December 2021.
5.Corporation tax rate change
The corporate tax rate change recognised in the prior period reflects the impact on the relevant deferred tax balances from the increase in the main rate of corporation tax from 19% to 25% with effect from 1 April 2023, as substantively enacted on 24 May 2021 within the Finance Bill 2021.
New business margin
The largest single element of the EEV operating profit (analysed in the previous section) is the new business contribution. The level of new business contribution generally moves in line with new business levels. To demonstrate this link, and aid understanding of the results, we provide additional analysis of the new business margin (the margin). This is calculated as the new business contribution divided by the gross inflows and is expressed as a percentage.
The table below presents the margin before tax from our manufactured business.
|
|
Six months ended 30 June 2022 |
Six months ended 30 June 2021 |
Year ended 31 December 2021 |
|
£'Million |
£'Million |
£'Million |
|
|
Life business |
|
|
|
|
Investment |
|
|
|
|
New business contribution (£'Million) |
72.5 |
73.1 |
153.0 |
|
Gross inflows (£'Billion) |
1.20 |
1.24 |
2.62 |
|
Margin (%) |
6.0 |
5.9 |
5.8 |
|
Pension |
|
|
|
|
New business contribution (£'Million) |
256.7 |
277.9 |
512.0 |
|
Gross inflows (£'Billion) |
5.10 |
4.98 |
9.86 |
|
Margin (%) |
5.0 |
5.6 |
5.2 |
|
Unit Trust and DFM business |
|
|
|
|
New business contribution (£'Million) |
196.4 |
174.6 |
337.2 |
|
Gross inflows (£'Billion) |
2.81 |
2.97 |
5.72 |
|
Margin (%) |
7.0 |
5.9 |
5.9 |
|
Total business |
|
|
|
|
New business contribution (£'Million) |
525.6 |
525.6 |
1,002.2 |
|
Gross inflows (£'Billion) |
9.11 |
9.19 |
18.20 |
|
Margin (%) |
5.8 |
5.7 |
5.5 |
|
Post-tax margin (%) |
4.4 |
4.4 |
4.2 |
The overall margin for the period was higher at 5.8% (six months to 30 June 2021: 5.7%, year to 31 December 2021: 5.5%) reflecting the change made to persistency assumptions for our unit trust and ISA business.
-29-
Economic assumptions
The principal economic assumptions used within the cash flows are set out below.
|
|
Six months ended 30 June 2022 |
Six months ended 30 June 2021 |
Year ended 31 December 2021 |
|
£'Million |
£'Million |
£'Million |
|
|
Risk free rate |
2.4% |
0.9% |
1.1% |
|
Inflation rate |
3.7% |
3.6% |
4.0% |
|
Risk discount rate (net of tax) |
5.5% |
4.0% |
4.2% |
|
Future investment returns: |
|
|
|
|
- Gilts |
2.4% |
0.9% |
1.1% |
|
- Equities |
5.4% |
3.9% |
4.1% |
|
- Unit-linked funds |
4.7% |
3.2% |
3.4% |
|
Expense inflation |
4.1% |
4.0% |
4.4% |
The risk-free rate is set by reference to the yield on ten-year gilts, and so has increased significantly period-on-period as 10-year gilt rates have increased. Other investment returns are set by reference to the risk-free rate.
The inflation rate is derived from the implicit inflation in the valuation of ten-year index-linked gilts. This rate is increased to reflect the potential for higher increases in earnings-related expenses.
EEV sensitivities
The table below shows the estimated impact on the reported value of new business and EEV to changes in various EEV calculated assumptions. The sensitivities are specified by the EEV principles and reflect reasonably possible levels of change. In each case, only the indicated item is varied relative to the restated values.
|
|
Note |
Change in new business contribution |
Change in European Embedded Value Post-tax |
|
|
Pre-tax |
Post-tax |
|||
|
£'Million |
£'Million |
£'Million |
||
|
Value at 30 June 2022 |
|
525.55 |
398.23 |
8,558.85 |
|
100bp reduction in risk-free rates, with |
1 |
(15.28) |
(11.70) |
(120.19) |
|
10% increase in withdrawal rates |
2 |
(37.75) |
(28.54) |
(446.79) |
|
10% reduction in market value of equity assets |
3 |
- |
- |
(834.40) |
|
10% increase in expenses |
4 |
(9.70) |
(7.44) |
(106.95) |
|
100bp increase in assumed inflation |
5 |
(16.26) |
(12.43) |
(138.32) |
-30-
Notes to the EEV sensitivities
1. This is the key economic basis change sensitivity. The business model is relatively insensitive to change in economic basis. Note that the sensitivity assumes a corresponding change in all investment returns but no change in inflation.
2. The 10% increase is applied to the withdrawal rate. For instance, if the withdrawal rate is 8% then a 10% increase would reflect a change to 8.8%.
3. For the purposes of this sensitivity all unit-linked funds are assumed to be invested in equities. The actual mix of assets varies and in recent years the proportion invested directly in UK and overseas equities has exceeded 70%.
4. For the purposes of this sensitivity only non-fixed elements of the expenses are increased by 10%.
5. This reflects a 100bp increase in the assumed RPI underlying the expense inflation calculation.
|
|
Change in new business contribution |
Change in European Embedded Value |
|
|
Pre-tax |
Post-tax |
Post-tax |
|
|
£'Million |
£'Million |
£'Million |
|
|
100bp reduction in risk discount rate |
67.02 |
50.63 |
676.68 |
Although not directly relevant under a market-consistent valuation, this sensitivity shows the level of adjustment which would be required to reflect differing investor views of risk.
Analysis of the EEV result
The table below provides a summarised breakdown of the embedded value position at the reporting dates:
|
|
30 June 2022 |
30 June 2021 |
31 December 2021 |
|
£'Million |
£'Million |
£'Million |
|
|
Value of in-force business |
7,311.6 |
7,149.7 |
7,712.1 |
|
Solvency II net assets |
1,247.3 |
1,113.3 |
1,245.3 |
|
Total embedded value |
8,558.9 |
8,263.0 |
8,957.4 |
|
|
30 June 2022 |
30 June 2021 |
31 December 2021 |
|
£ |
£ |
£ |
|
|
Net asset value per share |
15.74 |
15.31 |
16.57 |
The EEV result above reflects the specific terms and conditions of our products. Our pension business is split between two portfolios. Our current product, the Retirement Account, was launched in 2016 and incorporates both pre-retirement and post-retirement phases of this investment in the same product. Earlier business, written in our separate Retirement Plan and Drawdown Plan products, targeted each of the two phases separately and therefore has slightly shorter terms.
Our experience is that much of our Retirement Plan business converts into Drawdown business at retirement, but, in line with the EEV guidelines, we are required to defer recognition of the additional value from the Drawdown Plan until it is crystallised. If instead we were to assess the future value of Retirement Plan business (beyond the immediate contract boundary) in a more holistic fashion, in line with Retirement Account business, this would result in an increase of approximately £340 million to our embedded value (30 June 2021: approximately £400 million, 31 December 2021: approximately £395 million).
-31-
Section 3: Solvency
St. James's Place has a business model and risk appetite that results in underlying assets being held that fully match with our obligations to clients. Our clients can access their investments 'on demand' and because the encashment value is matched, movements in equity markets, currency markets, interest rates, mortality, morbidity and longevity have very little impact on our ability to meet liabilities. We also have a prudent approach to investing shareholder funds and surplus assets in cash, AAA-rated money market funds and highly rated government securities. The overall effect of the business model and risk appetite is a resilient solvency position capable of enabling liabilities to be met even through adverse market conditions.
Our Life businesses are subject to the Solvency II capital regime which applied for the first time in 2016. Given the relative simplicity of our business compared to many, if not most, other organisations that fall within the scope of Solvency II, we have continued to manage the solvency of the business on the basis of holding assets to match client unit-linked liabilities plus a management solvency buffer (MSB). This has ensured that, not only can we meet client liabilities on a standardised basis at all times (beyond the Solvency II requirement of a '1 in 200 years' event), but we also have a prudent level of protection against other risks to the business. At the same time, we have ensured that the resulting capital held meets with the requirements of the Solvency II regime, to which we are ultimately accountable.
For the year ended 31 December 2021 we reviewed the level of our MSB and increased the MSB for the Life businesses to £355.0 million, reflecting business growth and market conditions. It remains at this level for 30 June 2021.
The Group's overall Solvency II net assets position, MSB and management solvency ratios are as follows:
|
30 June 2022 |
Life |
Other regulated |
Other |
Total |
30 June 2021 Total |
31 December 2021 Total |
|
|
£'Million |
£'Million |
£'Million |
£'Million |
£'Million |
£'Million |
|
|
|
Solvency II net assets |
567.3 |
342.3 |
337.7 |
1,247.3 |
1,113.3 |
1,245.3 |
|
|
Management solvency buffer (MSB) |
355.0 |
177.9 |
- |
532.9 |
506.1 |
518.0 |
|
|
Management solvency ratio |
160 % |
192% |
|
|
|
|
|
Solvency II Balance Sheet
Whilst we focus on Solvency II net assets and the MSB to manage solvency, we provide additional information about the Solvency II free asset position for information. The presentation starts from the same Solvency II net assets, but includes recognition of an asset in respect of the expected value of in-force cash flows (VIF) and a risk margin (RM) reflecting the potential cost to secure the transfer of the business to a third party. The Solvency II net assets, VIF and RM comprise the 'own funds', which is assessed against a solvency capital requirement (SCR), reflecting the capital required to protect against a range of '1 in 200' stresses. The SCR is calculated on the standard formula approach. No allowance has been made for transitional provisions in the calculation of technical provisions or the SCR.
An analysis of the Solvency II position for our Group, split by regulated and non-regulated entities at the period-end is presented in the table below:
|
30 June 2022 |
Life |
Other regulated |
Other |
Total |
30 June 2021 Total |
31 December 2021 Total |
|
|
£'Million |
£'Million |
£'Million |
£'Million |
£'Million |
£'Million |
|
|
|
Solvency II net assets |
567.3 |
342.3 |
337.7 |
1,247.3 |
1,113.3 |
1,245.3 |
|
|
Value of in-force (VIF) |
5,240.4 |
- |
- |
5,240.4 |
5,315.5 |
5,640.1 |
|
|
Risk Margin (RM) |
(1,450.9) |
- |
- |
(1,450.9) |
(1,578.1) |
(1,622.9) |
|
|
Own Funds (A) |
4,356.8 |
342.3 |
337.7 |
5,036.8 |
4,850.7 |
5,262.5 |
|
|
Solvency capital requirement (B) |
(3,128.2) |
(118.4) |
- |
(3,246.6) |
(3,722.2) |
(3,939.1) |
|
|
Solvency II free assets |
1,228.6 |
223.9 |
337.7 |
1,790.2 |
1,128.5 |
1,323.4 |
|
|
Solvency ratio (A/B) |
139 % |
289 % |
|
155% |
130% |
134% |
|
The solvency ratio after payment of the proposed Group interim dividend is 152% at 30 June 2022 (30 June 2021: 129%, 31 December 2021: 128%).
We continue to target a solvency ratio of 110% for SJPUK, our largest insurance subsidiary, as agreed with our regulator, the PRA. As SJPUK grows, the weighting of the balance sheet towards SJPUK will result in a gradual dilution of the Group solvency ratio, but this will not reflect any change in risk appetite, nor risk inherent in the business.
-32-
Principal Risks and Uncertainties
The Group's approach to risk management continues to provide assurance of SJP's financial and operational resilience.
The Risk and Risk Management section on pages 86 to 95 of the 2021 Annual Report and Accounts provides a comprehensive review of the principal risks facing the business, and the Group's approach to managing these risks. The section below highlights the key developments in the risk environment since the year-end Annual Report and Accounts.
Risk environment
Inflation has risen rapidly since the year-end, well beyond the Bank of England's 2% target and it is forecast to continue increasing. This pressure on consumer goods prices is reflected globally, with central banks across the world continuing to tighten monetary policy with various degrees of strength. Many central banks are aiming for a 'soft landing' by not increasing interest rates too aggressively so as to avoid a recession or stagflation. The key risks for SJP arise through:
· increases in expenses;
· reductions in asset prices;
· changes in new business levels due to market sentiment and/or reduced investible income; and
· changes in withdrawals rates to maintain living standards.
We expect and have shown in the stress and scenario testing carried out as part of our Own Risk and Solvency Assessment (ORSA) and Group dividend assessment that the Group continues to remain resilient (from a solvency perspective) to macroeconomic shocks (including inflation, interest rate shifts and increased withdrawals) as well as more extreme and prolonged events.
The invasion of Ukraine has had tragic consequences for those in the region and raised tensions between Russia and the West. Globally it is exacerbating a cost-of-living crisis and contributing towards supply chain issues. The Group has carefully considered any relevant exposures arising from our invested assets, government sanctions, our supply chain and from any change in the cyber threat landscape. When the invasion began we were quickly able to take comfort that we were well positioned to manage these risks to an acceptable level through limited exposure and/or our existing control environment. This remains the case.
The Board has been and continues to be actively involved in defining responses to macroeconomic trends, emerging risks and threats as they arise. Timely and targeted risk-based information has been provided to the Board to continue to support decision making and help in the understanding of key issues to ensure risks are mitigated and opportunities are identified. The risk activity undertaken in the past 12 months demonstrates that SJP continues to remain resilient to the potential threats it faces.
A summary of the principal risks and uncertainties which could impact the Group for the remainder of the current financial year have been provided in the table below.
-33-
Principal risks table
Our principal risks in the table below have been linked to the primary business priorit ies which they could impact. We recognise however that they could also have a secondary impact on other business priorities.
|
|
Risk description |
Business priority |
Key risks |
Example controls |
|
|
Administration |
We fail to deliver good quality administration services to advisers and clients. |
Being easier to do business with |
· Clients and advisers receive poor policy administration · Failure of key administration system change projects · Administrative complexity |
· Oversight of service levels by our third-party administration provider · Management of administration centres to ensure key service standards are met · Continuous development of technology · Effective planning of large-scale change projects · Ongoing activity to reduce administrative complexity and ensure operational resilience |
|
|
Client proposition |
Our product proposition fails to meet the needs, objectives and expectations of our clients. This includes poor relative investment performance and poor product design. |
Delivering value to advisers and clients through our investment proposition Our culture and being a leading responsible business |
· Investments provide poor returns relative to their benchmarks and/or do not deliver expected client outcomes · Range of solutions does not align with the product and service requirements of our current and potential future clients · Failure to meet client expectations of a sustainable business, not least in respect of climate change and responsible investing |
· Monitoring of asset allocations across portfolios to ensure they are performing as expected in working towards long-term objectives · Monitoring funds against their objectives and to ensure an appropriate level of investment risk · Ongoing assessment of value delivered by funds and portfolios versus their objectives · Where necessary, managers are changed in the most effective way possible · Continuous development of the range of services offered to clients · Engagement with fund managers around principles of responsible investment
|
|
|
Conduct |
We fail to provide quality, suitable advice or service to clients. |
Building and protecting our brand and reputation |
· Advisers deliver poor quality or unsuitable advice · Failure to evidence the provision of quality service and advice |
· Licensing programme ensuring appropriate standard of advice and service from advisers · Technical support helplines for advisers · Timely and clear responses to client complaints · Robust oversight process of the advice provided to clients delivered by Business Assurance, Compliance Assurance, Field Risk and Advice Guidance teams
|
|
|
Financial |
We fail to effectively manage the business finances |
Continued financial strength |
· Failure to meet client liabilities · Investment/market risk · Credit risk · Liquidity risk · Insurance risk · Expense risk |
· Policyholder liabilities are fully matched · Excess assets generally invested in high-quality, high-liquidity cash and cash equivalents · Lending to the Partnership is secured · Reinsurance of insurance risks · Ongoing monitoring of all risk exposures and experiences · Acceptance of market and persistency risk impact on profit · Setting and monitoring budgets · Implementing new systems to allow for future cost reductions · Monitoring and management of individual entities' solvency to minimise Group interdependency |
|
|
Outsourcing |
The third-party suppliers and outsourcers activities impact our performance and risk management. |
Building and protecting our brand
|
· Operational failures by material third-party suppliers and outsourcers
|
· Oversight regime in place to identify prudent steps to reduce risk of operational failures by material third-party providers · Ongoing monitoring of performance, risks and assessments of operational resilience.
|
|
-34-
|
|
Risk description |
Business priority |
Key risks |
Example controls |
|
|
|
|
and reputation Our culture and being a leading responsible business |
· Failure of critical service, significant areas include: · Investment administration · Fund management · Custody · Policy administration · Cloud services |
· A risk-based due diligence process, which is in line with the recent update in our Regulator's requirements, is carried out on suppliers and outsourcers.
|
|
|
Partner proposition |
Our proposition solution fails to meet the needs, objectives and expectations of our current and potential future Partners. |
Building community Being easier to do business with |
· Failure to attract new members to the Partnership · Failure to retain advisers/Partners · Failure to increase adviser productivity · Available technology falls short of client and adviser expectations and fails to support growth objectives · The Academy does not adequately support adviser growth |
· Focus on providing a market-leading adviser proposition · Adequately skilled and resourced population of supporting field managers · Reliable systems and administration support · Expanding the Academy capacity and supporting recruits through the Academy and beyond · Market-leading support to Partner businesses |
|
|
People |
We are unable to attract, retain and organise the right people to run the business. |
Building community Our culture and being a leading responsible business |
· Failure to attract and retain personnel with key skills · Poor employee engagement · Failure to create an inclusive and diverse business · Poor employee wellbeing · Our culture of supporting social value is eroded
|
· Measures to maintain a stable population of employees, including competitive total reward packages · Monitoring of employee engagement and satisfaction · Employee wellbeing is supported through various initiatives, benefits and services · Corporate incentives to encourage social value engagement, including matching of employee charitable giving to the St. James's Place Charitable Foundation · Whistleblowing hotline
|
|
|
Regulatory |
We fail to meet current, changing or new regulatory and legislative expectations. |
Building and protecting our brand and reputation Our culture and being a leading responsible business |
· Failure to comply with changing regulation or respond to changes in regulatory expectations · Inadequate internal controls · Failure to respond to regulatory-driven changes to the industry in which we operate · Solvency risk |
· Compliance functions provide expert guidance and carry out extensive assurance work · Strict controls are maintained in highly regulated areas · Maintenance of appropriate solvency capital buffers, and continuous monitoring of solvency experience · Clear accountabilities and understanding of responsibilities across the business · Fostering of positive regulatory relationships
|
|
|
Security and resilience |
We fail to adequately secure our physical assets, systems and/or sensitive information, or to deliver critical business services to our clients. |
Building and protecting our brand and reputation
|
· Internal or external fraud · Core system failure · Corporate, Partnership, or third-party information security and cyber risks
|
· Business continuity planning for SJP and its key suppliers · Focus on building operational resilience · Clear cyber strategy and data protection roadmap for continuous development · Data leakage detection technology and incident reporting systems
|
|
-35-
|
|
Risk description |
Business priority |
Key risks |
Example controls |
|
|
|
|
· Disruption in key business services to our clients
|
· Identification, communication, and response planning for the event of cyber crime · Executive Board level cyber scenario session to test strategic response · Internal awareness programmes · Identification and assessment of critical business services
|
|
Strategy, competition |
Challenge from competitors and the impact of reputational damage. |
Building and protecting our brand and reputation Our culture and being a leading responsible business |
· Increased competitive pressure from traditional and disruptive (non-traditional) competitors · Cost and charges pressure · Negative media coverage · Failure to meet our commitments to net zero |
· Clear demonstration of value delivered to clients through advice, service and products · Investment in improving positive brand recognition · Ongoing development of client and Partner propositions · Proactive engagement with external agencies including media, industry groups and regulators · Clear interim targets to be tracked towards meeting our final net zero targets
|
-36-
Condensed Consolidated Half Year Financial Statements prepared under International Financial Reporting Standards (IFRS) as adopted by the United Kingdom (UK)
-37-
Condensed Consolidated Statement of Comprehensive Income
|
|
Note |
Six months ended 30 June 2022 |
|
Six months ended 30 June 2021 |
|
Year ended 31 December 2021 |
|
£'Million |
|
£'Million |
|
£'Million |
||
|
Insurance premium income |
|
15.7 |
|
17.1 |
|
36.5 |
|
Less premiums ceded to reinsurers |
|
(10.8) |
|
(11.0) |
|
(23.2) |
|
Net insurance premium income |
|
4.9 |
|
6.1 |
|
13.3 |
|
Fee and commission income |
4 |
715.2 |
|
1,424.2 |
|
2,737.2 |
|
Investment return |
5 |
(17,023.1) |
|
9,560.5 |
|
15,275.4 |
|
Net (expense)/income |
|
(16,303.0) |
|
10,990.8 |
|
18,025.9 |
|
Policy claims and benefits |
|
|
|
|
|
|
|
- Gross amount |
|
(25.0) |
|
(24.8) |
|
(62.8) |
|
- Reinsurers' share |
|
9.3 |
|
12.6 |
|
16.9 |
|
Net policyholder claims and benefits incurred |
|
(15.7) |
|
(12.2) |
|
(45.9) |
|
Change in insurance contract liabilities |
|
|
|
|
|
|
|
- Gross amount |
|
56.2 |
|
(9.2) |
|
(9.7) |
|
- Reinsurers' share |
|
(7.7) |
|
(7.1) |
|
(9.9) |
|
Net change in insurance contract liabilities |
|
48.5 |
|
(16.3) |
|
(19.6) |
|
Movement in investment contract benefits |
|
16,947.2 |
|
(9,527.4) |
|
(15,186.7) |
|
Expenses |
|
(975.4) |
|
(952.3) |
|
(1,931.3) |
|
(Loss)/profit before tax |
3 |
(298.4) |
|
482.6 |
|
842.4 |
|
Tax attributable to policyholders' returns |
6 |
555.0 |
|
(336.1) |
|
(488.6) |
|
Profit before tax attributable to shareholders' returns |
|
256.6 |
|
146.5 |
|
353.8 |
|
Total tax credit /(expense) |
|
504.0 |
|
(361.7) |
|
(554.8) |
|
Less: tax attributable to policyholders' returns |
6 |
(555.0) |
|
336.1 |
|
488.6 |
|
Tax attributable to shareholders' returns |
6 |
(51.0) |
|
(25.6) |
|
(66.2) |
|
Profit and total comprehensive income for the period |
|
205.6 |
|
120.9 |
|
287.6 |
|
Profit attributable to non-controlling interests |
|
- |
|
- |
|
0.9 |
|
Profit attributable to equity shareholders |
|
205.6 |
|
120.9 |
|
286.7 |
|
Profit and total comprehensive income for the period |
|
205.6 |
|
120.9 |
|
287.6 |
|
|
|
|
|
|
|
|
|
|
|
Pence |
|
Pence |
|
Pence |
|
Basic earnings per share |
15 |
38.0 |
|
22.5 |
|
53.3 |
|
Diluted earnings per share |
15 |
37.6 |
|
22.2 |
|
52.5 |
The results relate to continuing operations.
The Notes and information on pages 41 to 67 form part of these Condensed Consolidated Financial Statements.
-38-
Condensed Consolidated Statement of Changes in Equity
|
|
Note |
Attributable to equity shareholders |
Non- controlling interests |
Total equity |
|||||
|
Share capital |
Share premium |
Shares in trust reserve |
Misc. reserves |
Retained earnings |
Total |
||||
|
£'Million |
£'Million |
£'Million |
£'Million |
£'Million |
£'Million |
£'Million |
£'Million |
||
|
At 1 January 2021 |
|
80.6 |
185.3 |
(14.8) |
2.5 |
859.4 |
1,113.0 |
(0.9) |
1,112.1 |
|
Profit and total comprehensive income for the period |
|
|
|
|
|
120.9 |
120.9 |
|
120.9 |
|
Dividends |
15 |
|
|
|
|
(267.5) |
(267.5) |
|
(267.5) |
|
Issue of share capital |
15 |
0.1 |
10.2 |
|
|
|
10.3 |
|
10.3 |
|
Exercise of options |
|
0.2 |
11.1 |
|
|
|
11.3 |
|
11.3 |
|
Shares sold during the period |
|
|
|
6.4 |
|
(6.4) |
- |
|
- |
|
Retained earnings credit in respect of share option charges |
|
|
|
|
|
9.0 |
9.0 |
|
9.0 |
|
At 30 June 2021 |
|
80.9 |
206.6 |
(8.4) |
2.5 |
715.4 |
997.0 |
(0.9) |
996.1 |
|
At 1 January 2022 |
|
81.1 |
213.8 |
(8.5) |
2.5 |
830.3 |
1,119.2 |
- |
1,119.2 |
|
Non-controlling interests arising on the part disposal of subsidiaries |
|
|
|
|
|
4.9 |
4.9 |
0.1 |
5.0 |
|
Profit and total comprehensive income for the period |
|
|
|
|
|
205.6 |
205.6 |
|
205.6 |
|
Dividends |
15 |
|
|
|
|
(218.9) |
(218.9) |
|
(218.9) |
|
Issue of share capital |
15 |
0.1 |
5.6 |
|
|
|
5.7 |
|
5.7 |
|
Exercise of options |
|
0.4 |
6.7 |
|
|
|
7.1 |
|
7.1 |
|
Consideration paid for own shares |
|
|
|
(0.3) |
|
|
(0.3) |
|
(0.3) |
|
Shares sold during the period |
|
|
|
4.7 |
|
(4.7) |
- |
|
- |
|
Retained earnings credit in respect of share option charges |
|
|
|
|
|
11.2 |
11.2 |
|
11.2 |
|
At 30 June 2022 |
|
81.6 |
226.1 |
(4.1) |
2.5 |
828.4 |
1,134.5 |
0.1 |
1,134.6 |
Miscellaneous reserves represent other non-distributable reserves.
-39-
Condensed Consolidated Statement of Financial Position
|
|
Note |
30 June 2022 |
30 June 2021 |
31 December 2021 |
|
£'Million |
£'Million |
£'Million |
||
|
Assets |
|
|
|
|
|
Goodwill |
7 |
33.2 |
32.5 |
29.6 |
|
Deferred acquisition costs |
7 |
362.6 |
400.8 |
379.6 |
|
Intangible assets |
|
|
|
|
|
- Purchased value of in-force business |
7 |
12.8 |
16.0 |
14.4 |
|
- Computer software |
7 |
31.7 |
28.1 |
27.0 |
|
Property and equipment |
|
148.0 |
162.6 |
154.5 |
|
Deferred tax assets |
6 |
13.8 |
13.7 |
20.6 |
|
Investment in associates |
|
1.4 |
- |
1.4 |
|
Reinsurance assets |
|
74.7 |
85.1 |
82.4 |
|
Other receivables |
9 |
6,513.9 |
2,271.6 |
2,923.0 |
|
Income tax asset |
|
65.8 |
- |
- |
|
Investments |
|
|
|
|
|
- Investment property |
8 |
1,647.6 |
1,495.5 |
1,568.5 |
|
- Equities |
8 |
97,583.2 |
97,862.3 |
106,782.3 |
|
- Fixed income securities |
8 |
27,222.1 |
29,668.3 |
29,305.9 |
|
- Investment in Collective Investment Schemes |
8 |
5,175.2 |
5,157.1 |
5,513.2 |
|
- Derivative financial instruments |
8 |
1,861.9 |
838.0 |
1,094.6 |
|
Cash and cash equivalents |
|
7,483.5 |
7,089.9 |
7,832.9 |
|
Total assets |
3 |
148,231.4 |
145,121.5 |
155,729.9 |
|
Liabilities |
|
|
|
|
|
Borrowings |
12 |
371.8 |
478.2 |
433.0 |
|
Deferred tax liabilities |
6 |
105.8 |
529.7 |
649.8 |
|
Insurance contract liabilities |
|
516.1 |
571.8 |
572.3 |
|
Deferred income |
7 |
550.0 |
574.4 |
562.6 |
|
Other provisions |
11 |
44.4 |
37.6 |
44.1 |
|
Other payables |
10 |
5,842.8 |
2,233.5 |
2,604.5 |
|
Investment contract benefits |
|
102,396.5 |
102,930.3 |
110,349.8 |
|
Derivative financial instruments |
8 |
2,397.6 |
1,014.6 |
1,019.5 |
|
Net asset value attributable to unit holders |
8 |
34,871.8 |
35,671.6 |
38,369.0 |
|
Income tax liabilities |
|
- |
83.6 |
6.1 |
|
Preference shares |
|
- |
0.1 |
- |
|
Total liabilities |
|
147,096.8 |
144,125.4 |
154,610.7 |
|
Net assets |
|
1,134.6 |
996.1 |
1,119.2 |
|
Shareholders' equity |
|
|
|
|
|
Share capital |
15 |
81.6 |
80.9 |
81.1 |
|
Share premium |
|
226.1 |
206.6 |
213.8 |
|
Shares in trust reserve |
|
(4.1) |
(8.4) |
(8.5) |
|
Miscellaneous reserves |
|
2.5 |
2.5 |
2.5 |
|
Retained earnings |
|
828.4 |
715.4 |
830.3 |
|
Equity attributable to owners of the Parent |
|
1,134.5 |
997.0 |
1,119.2 |
|
Non-controlling interests |
|
0.1 |
(0.9) |
- |
|
Total equity |
|
1,134.6 |
996.1 |
1,119.2 |
|
|
|
Pence |
Pence |
Pence |
|
Net assets per share |
|
208.6 |
184.6 |
207.1 |
-40-
Condensed Consolidated Statement of Cash Flows
|
|
Six months ended 30 June 2022 |
Six months ended 30 June 2021 |
Year ended 31 December 2021 |
|
£'Million |
£'Million |
£'Million |
|
|
Cash flows from operating activities |
|
|
|
|
Cash generated from operations |
42.7 |
727.7 |
1,741.0 |
|
Interest received |
18.3 |
8.3 |
19.2 |
|
Interest paid |
(6.0) |
(4.6) |
(10.2) |
|
Income taxes paid |
(109.3) |
(162.0) |
(319.1) |
|
Contingent consideration |
(0.8) |
- |
(1.3) |
|
Net cash (outflow)/inflow from operations |
(55.1) |
569.4 |
1,429.6 |
|
Cash flows from investing activities |
|
|
|
|
Payments for property and equipment |
(1.9) |
(0.4) |
(3.4) |
|
Payment for software development costs |
(9.1) |
(8.3) |
(19.2) |
|
Payment for acquisition of subsidiaries and other business combinations, net of cash acquired |
(8.0) |
(7.5) |
(6.6) |
|
Proceeds from sale of subsidiaries and other business combinations, net of cash disposed |
4.0 |
4.1 |
4.1 |
|
Net cash (outflow) from investing activities |
(15.0) |
(12.1) |
(25.1) |
|
Cash flows from financing activities |
|
|
|
|
Proceeds from the issue of share capital and exercise of options |
7.0 |
11.3 |
18.7 |
|
Consideration paid for own shares |
(0.3) |
- |
- |
|
Transactions with non-controlling interests |
0.2 |
- |
- |
|
Proceeds from borrowings |
72.4 |
341.6 |
576.4 |
|
Repayment of borrowings |
(132.8) |
(205.8) |
(486.1) |
|
Principal elements of lease payments |
(7.2) |
(6.8) |
(10.7) |
|
Dividends paid to Company's shareholders |
(218.9) |
(267.5) |
(329.9) |
|
Dividends paid to non-controlling interest in subsidiaries |
(0.2) |
- |
- |
|
Net cash (outflow) from financing activities |
(279.8) |
(127.2) |
(231.6) |
|
Net (decrease)/increase in cash and cash equivalents |
(349.9) |
430.1 |
1,172.9 |
|
Cash and cash equivalents at beginning of period |
7,832.9 |
6,660.1 |
6,660.1 |
|
Exchange gains/(losses) on cash and cash equivalents |
0.5 |
(0.3) |
(0.1) |
|
Cash and cash equivalents at end of period |
7,483.5 |
7,089.9 |
7,832.9 |
-41-
Notes to the Financial Statements
1. Basis of preparation
This condensed set of Consolidated Half-Year Financial Statements for the six months ended 30 June 2022, which comprise the Half-Year Financial Statements of St. James's Place plc (the Company) and its subsidiaries (together referred to as the Group), has been prepared in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the Financial Conduct Authority and with IAS 34 'Interim Financial Reporting', an International Financial Reporting Standard (IFRS) as adopted by the United Kingdom (UK). The Condensed Consolidated Half-Year Financial Statements should be read in conjunction with the Annual Financial Statements for the year ended 31 December 2021, which have been prepared in accordance with UK-adopted International Accounting Standards and with the requirements of the Companies Act 2006.
Going concern
The Group's business activities, together with the factors likely to affect its future development, performance and position, including the ongoing impact of sharply rising inflation, geo-political tensions and domestic political uncertainty are set out in the Chief Executive's Report and the Chief Financial Officer's Report on pages 7 to 9. The financial performance and financial position of the Group are described in the Financial Review on pages 15 to 30.
The stress and scenario testing carried out as part of our Own Risk and Solvency Assessment (ORSA) and Group dividend assessment demonstrates that the Group continues to remain resilient to macroeconomic shocks (including inflation and interest rate shifts) as well as more extreme events.
The Board remains confident in the Group's ability to withstand emerging challenges presented by rapidly rising inflation, contributing to pressure on consumer goods prices and the invasion of Ukraine, which is exacerbating a cost-of-living crisis and contributing towards supply chain issues. The key risks this presents to the Group are set out in the Principal Risk and Uncertainties section on pages 32 to 35.
The Group has undertaken a going concern assessment reviewing its current and projected financial performance and position including, profitability, liquidity, and solvency. Having assessed performance together with the principal risks, the Directors believe it remains appropriate to adopt the going concern basis of accounting in preparing the Financial Statements.
2. Significant accounting policies
(a) Statement of compliance
These Condensed Consolidated Half-Year Financial Statements were prepared and approved by the Directors in accordance with International Financial Reporting Standards as adopted by the UK.
The following amended IFRS standards effective for periods beginning 1 January 2022 have been applied:
· Amendments to IFRS 3 Business Combinations - Reference to conceptual framework; and
· Annual Improvement 2018-2020.
In preparing these Condensed Consolidated Half-Year Financial Statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those applied to the Consolidated Financial Statements for the year ended 31 December 2021.
(b) New and amended accounting standards not yet effective
As at 30 June 2022, the following new and amended standards, which are relevant to the Group but have not been applied in the Financial Statements, were in issue but are not yet effective. During the year IFRS 17 Insurance Contracts was endorsed by the UK endorsement board, all others are yet to be endorsed.
· IFRS 17 Insurance Contracts;
· Amendments to IAS 1 Presentation of Financial Statements - classification of liabilities as current or non-current;
· Amendments to IAS 1 Presentation of Financial Statements - disclosure of accounting policies;
· Amendments to IAS 8 Accounting Policies - definition of accounting estimates; and
· Amendments to IAS 12 Income Taxes - deferred tax related to assets and liabilities arising from a single transaction.
The Group is currently assessing the impact that the adoption of the above standards, amendments and clarifications will have on the Group's results reported within the Financial Statements. The only one expected to have a significant impact on the Group's Financial Statements is IFRS 17 Insurance Contracts. Further information on this standard is given below.
-42-
IFRS 17 Insurance Contracts including Amendments to IFRS 17
IFRS 17 incorporates revised principles for the recognition, measurement, presentation and disclosure of insurance contracts.
The Group closed to new insurance business, as defined under accounting standards, in 2011. At 30 June 2022, the Group has £77.0 million of non-unit-linked insurance contract liabilities, which are substantially reinsured, and £439.1 million of unit-linked insurance contract liabilities. As a result, the Group's net exposure on this business is not material.
The vast majority of the business written by the Life companies within the Group is defined as investment, rather than insurance, business under accounting standards. Investment business is outside the scope of IFRS 17.
Management is currently assessing the impacts of adopting the new standard. The effective date of the standard is 1 January 2023.
3. Segment reporting
IFRS 8 Operating Segments requires operating segments to be identified, on the basis of internal reports about components of the Group that are regularly reviewed by the Board, in order to allocate resources to each segment and assess its performance.
The Group's only reportable segment under IFRS 8 is a wealth management business - which is a vertically-integrated business providing support to our clients through the provision of financial advice and assistance through The Partnership and financial solutions including (but not limited to) wealth management products manufactured in the Group, such as insurance bonds, pensions, unit trust and ISA investments, and a DFM service.
Separate geographical segmental information is not presented since the Group does not segment its business geographically. Most of its customers are based in the United Kingdom, as is management of the assets. In particular, the operation based in south-east Asia is not yet sufficiently material for separate consideration.
Segment revenue
Revenue received from fee and commission income is set out in Note 4 which sets out the different types of revenue received from our wealth management business.
Segment profit
Two separate additional measures of profit are monitored by the Board. These are the post-tax Underlying cash result and pre-tax European Embedded Value (EEV), which are both alternative performance measures.
Underlying cash result
The measure of cash profit monitored on a monthly basis by the Board is the post-tax Underlying cash result. This reflects emergence of cash available for paying a dividend during the year. Underlying cash is based on the cash flows within the IFRS results, but with no allowance for intangibles, principally DAC, DIR, PVIF, goodwill and deferred tax, or short-term costs, for example restructuring. As the cost associated with equity-settled share-based payments is reflected in changes in shareholder equity, they are also not included in the Underlying cash result.
More detail is provided on pages 19 to 21 of the Financial Review.
The Cash result should not be confused with the IFRS Condensed Consolidated Statement of Cash Flows which is prepared in accordance with IAS 7.
|
|
Six months ended 30 June 2022 |
Six months ended 30 June 2021 |
Year ended 31 December 2021 |
|
£'Million |
£'Million |
£'Million |
|
|
Underlying cash result after tax |
198.8 |
189.3 |
401.2 |
|
Equity-settled share-based payments |
(11.2) |
(9.0) |
(20.4) |
|
Deferred tax impacts |
(18.1) |
2.4 |
0.5 |
|
Restructuring |
- |
(9.0) |
(9.7) |
|
Impact in the period of DAC/DIR/PVIF |
(3.8) |
(18.5) |
(28.0) |
|
Impact of policyholder tax asymmetry |
39.4 |
(29.2) |
(52.9) |
|
Other |
0.5 |
(5.1) |
(3.1) |
|
IFRS profit after tax |
205.6 |
120.9 |
287.6 |
|
Shareholder tax |
51.0 |
25.6 |
66.2 |
|
Profit before tax attributable to shareholders' returns |
256.6 |
146.5 |
353.8 |
|
Tax attributable to policyholder returns |
(555.0) |
336.1 |
488.6 |
|
IFRS (loss)/profit before tax |
(298.4) |
482.6 |
842.4 |
-43-
EEV operating profit
EEV operating profit is monitored by the Board. The components of the EEV operating profit are included in more detail in the Financial Review section of the Half-Year Report and Accounts.
|
|
Six months ended 30 June 2022 |
Six months ended 30 June 2021 |
Year ended 31 December 2021 |
|
£'Million |
£'Million |
£'Million |
|
|
EEV operating profit before tax |
914.2 |
844.8 |
1,545.4 |
|
Investment return variance |
(1,346.2) |
593.6 |
894.5 |
|
Economic assumption changes |
166.9 |
22.8 |
4.2 |
|
EEV (loss)/profit before tax |
(265.1) |
1,461.2 |
2,444.1 |
|
Adjustments to IFRS basis |
|
|
|
|
Deduct: amortisation of purchased value of in-force business |
(1.6) |
(1.6) |
(3.2) |
|
Movement of balance sheet life value of in-force business (net of tax) |
419.2 |
(396.3) |
(824.5) |
|
Movement of balance sheet unit trust and DFM value of in-force business (net of tax) |
(4.0) |
(176.9) |
(337.3) |
|
Corporation tax rate change |
- |
(408.5) |
(412.7) |
|
Tax on movement in value of in-force business |
108.1 |
(331.4) |
(512.6) |
|
Profit before tax attributable to shareholders' returns |
256.6 |
146.5 |
353.8 |
|
Tax attributable to policyholder returns |
(555.0) |
336.1 |
488.6 |
|
IFRS (loss)/profit before tax |
(298.4) |
482.6 |
842.4 |
The movement in life, unit trust and DFM value of in-force is the difference between the opening and closing discounted value of the profits that will emerge from the in-force book over time, adjusting for DAC and DIR impacts which are already included under IFRS.
Segment assets
Funds under management (FUM)
FUM, as reported in Section 1 of the Financial Review on page 13 is the measure of segment assets which is monitored by the Board.
|
|
30 June 2022 |
30 June 2021 |
31 December 2021 |
|
£'Million |
£'Million |
£'Million |
|
|
Investment |
32,750.0 |
34,460.0 |
35,950.0 |
|
Pension |
69,580.0 |
69,150.0 |
74,830.0 |
|
UT/ISA and DFM |
39,930.0 |
40,160.0 |
43,210.0 |
|
Total FUM |
142,260.0 |
143,770.0 |
153,990.0 |
|
Exclude client and third-party holdings in non-consolidated unit trusts and DFM |
(4,594.2) |
(4,444.2) |
(4,811.5) |
|
Other |
6,887.7 |
1,760.3 |
2,392.5 |
|
Gross assets held to cover unit liabilities |
144,553.5 |
141,086.1 |
151,571.0 |
|
IFRS intangible assets (see page 23 adjustment 2) |
541.7 |
579.0 |
551.6 |
|
Shareholder gross assets (see page 23) |
3,136.2 |
3,456.4 |
3,607.3 |
|
Total assets |
148,231.4 |
145,121.5 |
155,729.9 |
-44-
4. Fee and commission income
|
|
Six months ended 30 June 2022 |
Six months ended 30 June 2021 |
Year ended 31 December 2021 |
|
£'Million |
£'Million |
£'Million |
|
|
Advice charges (post-RDR) |
517.3 |
460.6 |
946.7 |
|
Third party fee and commission income |
64.4 |
66.9 |
135.8 |
|
Wealth management fees |
530.9 |
465.8 |
974.5 |
|
Investment management fees |
25.5 |
33.1 |
63.4 |
|
Fund tax (refunds)/deductions |
(555.0) |
336.1 |
486.9 |
|
Policyholder tax asymmetry |
39.4 |
(29.2) |
(52.9) |
|
Discretionary fund management fees |
11.7 |
10.7 |
22.4 |
|
Fee and commission income before DIR amortisation |
634.2 |
1,344.0 |
2,576.8 |
|
Amortisation of DIR |
81.0 |
80.2 |
160.4 |
|
Total fee and commission income |
715.2 |
1,424.2 |
2,737.2 |
For all post-Retail Distribution Review (RDR) business, advice charges are received from clients for the provision of initial and ongoing advice in relation to an investment into a St. James's Place product.
Where an investment has been made into a third-party product, third-party fee and commission income is received from the product provider.
Where an investment has been made into a St. James's Place product, the initial product charge and any dealing margin is deferred and recognised as a deferred income liability. This liability is extinguished, and income recognised, over the expected life of the investment. The income is the amortisation of DIR in the table above. Ongoing product charges for St. James's Place products are recognised within wealth management fees. This line also includes advice charges on pre-RDR business, for which an explicit advice charge was not made.
Investment management fees are received from clients for the provision of all aspects of investment management. Broadly, investment management fees match investment management expenses.
Fund tax (refunds)/deductions represent amounts credited to, or deducted from, the life insurance business to match policyholder tax credits or charges.
Wealth management fees recognises charges levied on manufactured business. These include some temporary effects relating to life insurance tax. Life insurance tax incorporates a policyholder tax element, and the Financial Statements of a life insurance group need to reflect the liability to HMRC, and the corresponding deductions incorporated into policy charges ('Fund tax deductions' above). In particular, the tax liability to HMRC is assessed using IAS 12 Income Taxes, which does not allow discounting, whereas the policy charges are designed to ensure fair outcomes between clients and so reflect a wide range of possible outcomes. This gives rise to different assessments of the current value of future cash flows and hence an asymmetry in the IFRS Condensed Consolidated Statement of Financial Position between the deferred tax position and the offsetting client balance. The net tax asymmetry balance reflects a temporary position, and in the absence of market volatility we expect it will unwind as future cash flows become less uncertain and are ultimately realised.
Market conditions will impact the level of asymmetry experienced in a year and may be significant where there is market volatility. Market falls experienced in the first half of 2022 have resulted in a significant positive movement, impacting both profit before shareholder tax and profit after tax. In contrast, at this point in 2021 we saw an unwind of prior year positive effects as a result of market growth, which resulted in a negative movement in that year.
Discretionary fund management fees are received from clients for the provision of DFM services.
-45-
5. Investment return
|
|
Six months ended 30 June 2022 |
Six months ended 30 June 2021 |
Year ended 31 December 2021 |
|
|
|
£'Million |
£'Million |
£'Million |
|
|
Investment return on net assets held to cover unit liabilities: |
|
|
|
|
|
Rental income |
35.1 |
38.8 |
74.7 |
|
|
Gain on revaluation of investment properties |
119.5 |
36.3 |
181.4 |
|
|
Net investment return on financial instruments classified as fair value through profit and loss |
(11,666.3) |
7,104.3 |
11,400.2 |
|
|
|
(11,511.7) |
7,179.4 |
11,656.3 |
|
|
Attributable to unit-linked insurance contract liabilities |
(61.2) |
21.6 |
52.8 |
|
|
Attributable to unit-linked investment contract benefits |
(11,450.5) |
7,157.8 |
11,603.5 |
|
|
|
(11,511.7) |
7,179.4 |
11,656.3 |
|
|
Income attributable to third party holdings in unit trusts |
(5,496.8) |
2,369.6 |
3,583.2 |
|
|
|
(17,008.5) |
9,549.0 |
15,239.5 |
|
|
Investment return on shareholder assets: |
|
|
|
|
|
Net investment return on financial instruments classified as fair value through profit and loss |
(25.3) |
2.7 |
17.7 |
|
|
Interest income on financial instruments classified as amortised cost |
10.7 |
8.8 |
18.2 |
|
|
|
(14.6) |
11.5 |
35.9 |
|
|
Total investment return |
(17,023.1) |
9,560.5 |
15,275.4 |
|
Included in the net investment return on financial instruments classified as fair value through profit and loss within investment return on net assets held to cover unit liabilities is dividend income of £547.9 million (six months ended 30 June 2021: £437.9 million, year ended 31 December 2021: £985.1 million).
-46-
6. Income and deferred taxes
Tax for the period
|
|
Six months ended 30 June 2022 |
Six months ended 30 June 2021 |
Year ended 31 December 2021 |
|
£'Million |
£'Million |
£'Million |
|
|
Current tax |
|
|
|
|
UK corporation tax |
|
|
|
|
- Current year charge |
31.9 |
207.0 |
294.1 |
|
- Adjustment in respect of prior year |
- |
0.2 |
(6.7) |
|
Overseas taxes |
|
|
|
|
- Current year charge |
5.5 |
6.4 |
6.1 |
|
- Adjustment in respect of prior year |
- |
- |
0.1 |
|
|
37.4 |
213.6 |
293.6 |
|
Deferred tax |
|
|
|
|
Unrealised capital (losses)/gains in unit-linked funds |
(552.7) |
151.3 |
266.7 |
|
Unrelieved expenses |
|
|
|
|
- Additional expenses recognised in the period |
(6.4) |
(5.3) |
(10.8) |
|
- Utilisation in the period |
5.7 |
5.8 |
11.6 |
|
Capital losses |
|
|
|
|
- Revaluation in the period |
- |
(1.4) |
(1.4) |
|
- Utilisation in the period |
13.9 |
4.3 |
9.2 |
|
- Adjustment in respect of prior year |
- |
- |
4.0 |
|
DAC, DIR and PVIF |
(5.0) |
(4.3) |
(8.9) |
|
Share-based payments |
5.1 |
(2.1) |
(8.7) |
|
Other items |
(2.2) |
0.1 |
(0.5) |
|
Overseas gains/(losses) |
0.2 |
(0.1) |
(1.1) |
|
Adjustment for change in tax rate |
- |
(0.2) |
0.4 |
|
Adjustments in respect of prior periods |
- |
- |
0.7 |
|
|
(541.4) |
148.1 |
261.2 |
|
Total tax (credit)/charge for the period |
(504.0) |
361.7 |
554.8 |
|
Attributable to: |
|
|
|
|
- policyholders |
(555.0) |
336.1 |
488.6 |
|
- shareholders |
51.0 |
25.6 |
66.2 |
|
|
(504.0) |
361.7 |
554.8 |
The prior year adjustment of £nil in current tax above represents £nil in respect of policyholder tax (six months to 30 June 2021: £0.2 million charge, year to 31 December 2021: £6.0 million credit) and £nil in respect of shareholder tax (six months to 30 June 2021: £nil, year to 31 December 2021: £0.7 million credit). The prior year adjustment of £nil in deferred tax above represents £nil in respect of policyholder tax (six months to 30 June 2021: £nil charge, year to 31 December 2021: £nil charge) and £nil in respect of shareholder tax (six months to 30 June 2021: £nil, year to 31 December 2021: £4.7 million charge).
In arriving at the (loss)/profit before tax attributable to shareholders' return, it is necessary to estimate the analysis of the total tax (credit)/charge between that payable in respect of policyholders and that payable by shareholders. Shareholder tax is estimated by making an assessment of the effective rate of tax that is applicable to the shareholders on the profits attributable to shareholders. This is calculated by applying the appropriate effective corporate tax rates to the shareholder profits. The remainder of the tax (credit)/charge represents tax on policyholders' investment returns. This calculation method is consistent with the legislation relating to the calculation of tax on shareholder profits.
-47-
Reconciliation of tax charge to expected tax
|
|
Six months ended 30 June 2022 |
|
Six months ended 30 June 2021 |
|
Year ended 31 December 2021 |
|
|
£'Million |
|
£'Million |
|
£'Million |
|
|
|
(Loss)/profit before tax |
(298.4) |
|
482.6 |
|
842.4 |
|
|
Tax attributable to policyholders' returns |
555.0 |
|
(336.1) |
|
(488.6) |
|
|
Profit before tax attributable to shareholders' returns |
256.6 |
|
146.5 |
|
353.8 |
|
|
Shareholder tax charge at corporate tax rate of 19.0% (2021: 19.0%) |
48.7 |
19.0% |
27.9 |
19.0% |
67.2 |
19.0% |
|
Adjustments: |
|
|
|
|
|
|
|
Lower rate of corporation tax in overseas subsidiaries |
(0.6) |
(0.2%) |
(0.6) |
(0.4%) |
(1.2) |
(0.3%) |
|
Expected shareholder tax |
48.1 |
18.8% |
27.3 |
18.6% |
66.0 |
18.6% |
|
Effects of: |
|
|
|
|
|
|
|
Non-taxable income |
(0.2) |
|
(0.2) |
|
(0.9) |
|
|
Revaluation of historic capital losses in the Group |
- |
|
- |
|
(1.4) |
|
|
Adjustment for change in tax rates |
- |
|
(0.2) |
|
0.4 |
|
|
Adjustment in respect of prior year |
|
|
|
|
|
|
|
- Current tax |
- |
|
- |
|
(0.7) |
|
|
- Deferred tax |
- |
|
- |
|
4.7 |
|
|
Differences in accounting and tax bases in relation to employee share schemes |
2.2 |
|
(2.5) |
|
(4.6) |
|
|
Impact of difference in tax rates between current and deferred tax |
(2.3) |
|
- |
|
(2.4) |
|
|
Disallowable expenses |
2.1 |
|
0.3 |
|
4.0 |
|
|
Provision for future liabilities |
0.2 |
|
(0.1) |
|
0.3 |
|
|
Tax losses not recognised |
1.0 |
|
0.9 |
|
1.2 |
|
|
Other |
(0.1) |
|
0.1 |
|
(0.4) |
|
|
|
2.9 |
1.1% |
(1.7) |
(1.2%) |
0.2 |
0.1% |
|
Shareholder tax charge |
51.0 |
19.9% |
25.6 |
17.4% |
66.2 |
18.7% |
|
Policyholder tax (credit)/charge |
(555.0) |
|
336.1 |
|
488.6 |
|
|
Total tax (credit)/charge for the period |
(504.0) |
|
361.7 |
|
554.8 |
|
The tax credit calculated on the loss before tax at 19% (2021: 19%) would amount to £56.7 million (six months to 30 June 2021: £91.7 million charge, year to 31 December 2021: £160.1 million charge). The difference of £447.3 million (six months to 30 June 2021: £270.0 million, year to 31 December 2021: £394.7 million) between this number and the total tax of £504.0 million (six months to 30 June 2021: £361.7 million charge, year to 31 December 2021: £554.8 million charge) is made up of the reconciling items above which total £2.3 million (six months to 30 June 2021: (£2.3) million, year to 31 December 2021: (£1.0) million) and the effect of the apportionment methodology on tax applicable to policyholder returns of (£449.6) million (six months to 30 June 2021: £272.3 million, year to 31 December 2021: £395.7 million).
-48-
Tax paid in the year
|
|
Six months ended 30 June 2022 |
Six months ended 30 June 2021 |
Year ended 31 December 2021 |
|
£'Million |
£'Million |
£'Million |
|
|
Current tax charge for the period |
37.4 |
213.6 |
293.6 |
|
Refunds due to be received/(payments to be made) in future years in respect of current year |
75.3 |
(80.1) |
(3.6) |
|
Payments made in current year in respect of prior years |
- |
27.0 |
27.3 |
|
Other |
(3.4) |
1.5 |
1.8 |
|
Tax paid |
109.3 |
162.0 |
319.1 |
|
Tax paid can be analysed as: |
|
|
|
|
- Taxes paid in UK |
98.7 |
155.0 |
306.0 |
|
- Taxes paid in overseas jurisdictions |
0.5 |
1.0 |
4.7 |
|
- Withholding taxes suffered on investment income received |
10.1 |
6.0 |
8.4 |
|
Total |
109.3 |
162.0 |
319.1 |
Deferred tax balances
Deferred tax assets
|
|
Deferred acquisition costs (DAC) |
Deferred income (DIR) |
Renewal income assets |
Share-based payments |
Fixed asset temporary differences |
Other temporary differences |
Total |
|
£'Million |
£'Million |
£'Million |
£'Million |
£'Million |
£'Million |
£'Million |
|
|
At 1 January 2022 |
(21.6) |
37.8 |
(19.4) |
16.2 |
7.8 |
(0.2) |
20.6 |
|
Reanalysis to deferred tax liabilities |
- |
- |
- |
- |
- |
(0.1) |
(0.1) |
|
Credit/(charge) to the Statement of Comprehensive Income |
|
|
|
|
|
|
|
|
- Utilised and created in period |
0.1 |
0.7 |
1.3 |
(5.1) |
(1.0) |
1.5 |
(2.5) |
|
- Impact of tax rate change |
- |
- |
- |
- |
- |
- |
- |
|
Total credit/(charge) |
0.1 |
0.7 |
1.3 |
(5.1) |
(1.0) |
1.5 |
(2.5) |
|
Impact of acquisition |
- |
- |
(4.2) |
- |
- |
- |
(4.2) |
|
At 30 June 2022 |
(21.5) |
38.5 |
(22.3) |
11.1 |
6.8 |
1.2 |
13.8 |
|
|
|
|
|
|
|
|
|
|
Expected utilisation period |
|
|
|
|
|
|
|
|
As at 30 June 2021 |
14 years |
14 years |
20 years |
3 years |
6 years |
|
|
|
As at 31 December 2021 |
14 years |
14 years |
20 years |
3 years |
6 years |
|
|
|
As at 30 June 2022 |
14 years |
14 years |
20 years |
3 years |
6 years |
|
|
-49-
Deferred tax liabilities
|
|
Unrelieved expenses on life insurance business |
Deferred acquisition costs (DAC) |
Capital losses (available for future relief) |
Unrealised capital gains on life insurance assets backing unit liabilities (BLAGAB) |
Purchased value of in-force business (PVIF) |
Other temporary differences |
Total |
|
£'Million |
£'Million |
£'Million |
£'Million |
£'Million |
£'Million |
£'Million |
|
|
At 1 January 2022 |
(39.1) |
28.0 |
(26.8) |
684.1 |
3.4 |
0.2 |
649.8 |
|
Reanalysis from deferred tax assets |
|
|
|
|
|
(0.1) |
(0.1) |
|
Charge/(credit) to the Statement of Comprehensive Income |
|
|
|
|
|
|
|
|
- Utilised and created in period |
(0.6) |
(4.0) |
13.9 |
(552.7) |
(0.3) |
(0.2) |
(543.9) |
|
- Impact of tax rate change |
- |
- |
- |
- |
- |
- |
- |
|
Total charge/(credit) |
(0.6) |
(4.0) |
13.9 |
(552.7) |
(0.3) |
(0.2) |
(543.9) |
|
Impact of acquisition |
- |
- |
- |
- |
- |
- |
- |
|
At 30 June 2022 |
(39.7) |
24.0 |
(12.9) |
131.4 |
3.1 |
(0.1) |
105.8 |
|
|
|
|
|
|
|
|
|
|
Expected utilisation period |
|
|
|
|
|
|
|
|
As at 30 June 2021 |
6 years |
14 years |
5.5 years |
6 years |
4.5 years |
|
|
|
As at 31 December 2021 |
6 years |
14 years |
5 years |
5 years |
4 years |
|
|
|
As at 30 June 2022 |
6 years |
14 years |
4.5 years |
6 years |
3.5 years |
|
|
Appropriate investment income, gains or profits are expected to arise against which the tax assets can be utilised. Whilst the actual rates of utilisation will depend on business growth and external factors, particularly investment market conditions, they have been tested for sensitivity to experience and are resilient to a range of reasonably foreseeable scenarios.
At the reporting date there were unrecognised deferred tax assets of £13.0 million (30 June 2021: £12.3 million, 31 December 2021: £14.0 million) in respect of £76.2 million (30 June 2021: £71.9 million, 31 December 2021: £82.2 million) of losses in companies where appropriate profits are not considered probable in the forecast period. These losses primarily relate to our Asia-based businesses and can be carried forward indefinitely.
In the UK budget of 3 March 2021, it was announced that the main rate of corporation tax will increase from 19% to 25% with effect from 1 April 2023. This change was substantively enacted on 24 May 2021 within the Finance Bill 2021 and as a result the relevant deferred tax balances were remeasured in 2021.
-50-
7. Goodwill, intangible assets, deferred acquisition costs and deferred income
|
|
Goodwill |
Purchased value of in-force business |
Computer software and other specific software developments |
DAC |
DIR |
|
£'Million |
£'Million |
£'Million |
£'Million |
£'Million |
|
|
Cost |
|
|
|
|
|
|
At 1 January 2021 |
31.0 |
73.4 |
43.8 |
1,233.9 |
(1,569.2) |
|
Additions |
1.7 |
- |
8.3 |
19.3 |
(74.7) |
|
Disposals |
(0.2) |
- |
- |
(65.7) |
57.9 |
|
At 30 June 2021 |
32.5 |
73.4 |
52.1 |
1,187.5 |
(1,586.0) |
|
Additions |
(1.2) |
- |
10.9 |
21.9 |
(68.4) |
|
Disposals |
(0.2) |
- |
- |
(65.2) |
55.3 |
|
Change in capitalisation policy1 |
- |
- |
(7.7) |
- |
- |
|
At 31 December 2021 |
31.1 |
73.4 |
55.3 |
1,144.2 |
(1,599.1) |
|
Additions |
3.6 |
- |
9.1 |
22.7 |
(68.4) |
|
Disposals |
- |
- |
(0.5) |
(63.6) |
51.6 |
|
At 30 June 2022 |
34.7 |
73.4 |
63.9 |
1,103.3 |
(1,615.9) |
|
Accumulated amortisation |
|
|
|
|
|
|
At 1 January 2021 |
- |
55.8 |
20.3 |
809.4 |
(989.3) |
|
Charge for the period |
- |
1.6 |
3.7 |
43.0 |
(80.2) |
|
Eliminated on disposal |
- |
- |
- |
(65.7) |
57.9 |
|
At 30 June 2021 |
- |
57.4 |
24.0 |
786.7 |
(1,011.6) |
|
Charge for the period |
1.5 |
1.6 |
6.9 |
43.1 |
(80.2) |
|
Eliminated on disposal |
- |
- |
- |
(65.2) |
55.3 |
|
Change in capitalisation policy1 |
- |
- |
(2.6) |
- |
- |
|
At 31 December 2021 |
1.5 |
59.0 |
28.3 |
764.6 |
(1,036.5) |
|
Charge for the period |
- |
1.6 |
4.4 |
39.7 |
(81.0) |
|
Eliminated on disposal |
- |
- |
(0.5) |
(63.6) |
51.6 |
|
At 30 June 2022 |
1.5 |
60.6 |
32.2 |
740.7 |
(1,065.9) |
|
Carrying value |
|
|
|
|
|
|
At 30 June 2021 |
32.5 |
16.0 |
28.1 |
400.8 |
(574.4) |
|
At 31 December 2021 |
29.6 |
14.4 |
27.0 |
379.6 |
(562.6) |
|
At 30 June 2022 |
33.2 |
12.8 |
31.7 |
362.6 |
(550.0) |
|
|
|
|
|
|
|
|
Outstanding amortisation period |
|
|
|
|
|
|
At 30 June 2021 |
n/a |
4.5 years |
1.5-4.5 years |
14 years |
6-14 years |
|
At 31 December 2021 |
n/a |
4 years |
5 years |
14 years |
6-14 years |
|
At 30 June 2022 |
n/a |
3.5 years |
5 years |
14 years |
6-14 years |
1. The March 2021 IFRS Interpretations Committee update included an agenda decision on 'Configuration and Customisation costs in a Cloud Computing arrangement' which was ratified by the IASB in April 2021. As a result of the decision the carrying value of computer software assets has been reassessed, and the impact of the revised capitalisation policy has been charged to the Statement of Comprehensive Income.
Purchased value of in-force business/DAC/Computer software
Amortisation is charged to expenses in the IFRS Condensed Consolidated Statement of Comprehensive Income. Amortisation profiles are reassessed annually.
DIR
Amortisation is credited within fee and commission income in the IFRS Condensed Consolidated Statement of Comprehensive Income. Amortisation profiles are reassessed annually.
-51-
8. Investments
Net assets held to cover unit liabilities
Included within the IFRS Condensed Consolidated Statement of Financial Position are the following assets and liabilities comprising the net assets held to cover unit liabilities. The net assets held to cover unit liabilities are set out in adjustment 1 of the IFRS to Solvency II Net Assets Balance Sheet reconciliation on page 23.
|
|
30 June 2022 |
30 June 2021 |
31 December 2021 |
|
£'Million |
£'Million |
£'Million |
|
|
Assets |
|
|
|
|
Investment property |
1,647.6 |
1,495.5 |
1,568.5 |
|
Equities |
97,583.2 |
97,862.3 |
106,782.3 |
|
Fixed income securities |
27,214.3 |
29,660.5 |
29,298.1 |
|
Investment in Collective Investment Schemes |
3,804.7 |
3,861.8 |
3,907.9 |
|
Cash and cash equivalents |
7,209.0 |
6,791.8 |
7,587.2 |
|
Other receivables |
5,232.8 |
576.2 |
1,332.4 |
|
Derivative financial instruments |
|
|
|
|
- Currency forwards |
1,145.5 |
527.7 |
806.8 |
|
- Interest rate swaps |
178.7 |
61.3 |
39.5 |
|
- Index options |
86.0 |
10.2 |
2.7 |
|
- Contracts for difference |
19.6 |
8.8 |
15.5 |
|
- Equity swaps |
14.6 |
9.5 |
4.7 |
|
- Foreign currency options |
85.5 |
0.3 |
2.1 |
|
- Total return swaps |
116.6 |
163.2 |
149.8 |
|
- Fixed income options |
158.0 |
- |
0.2 |
|
- Credit default swaps |
57.4 |
57.0 |
73.3 |
|
Total derivative financial assets |
1,861.9 |
838.0 |
1,094.6 |
|
Total assets |
144,553.5 |
141,086.1 |
151,571.0 |
|
Liabilities |
|
|
|
|
Other payables |
4,448.5 |
986.3 |
1,344.9 |
|
Derivative financial instruments |
|
|
|
|
- Currency forwards |
1,816.7 |
770.9 |
750.0 |
|
- Interest rate swaps |
232.9 |
100.9 |
106.7 |
|
- Index options |
84.8 |
6.8 |
2.7 |
|
- Contracts for difference |
32.3 |
16.5 |
3.5 |
|
- Equity swaps |
6.6 |
15.1 |
13.4 |
|
- Foreign currency options |
11.6 |
0.2 |
1.2 |
|
- Total return swaps |
88.2 |
79.3 |
109.7 |
|
- Fixed income options |
102.5 |
0.2 |
0.6 |
|
- Credit default swaps |
22.0 |
24.7 |
31.7 |
|
Total derivative financial liabilities |
2,397.6 |
1,014.6 |
1,019.5 |
|
Total liabilities |
6,846.1 |
2,000.9 |
2,364.4 |
|
Net assets held to cover linked liabilities |
137,707.4 |
139,085.2 |
149,206.6 |
|
Investment contract benefits |
102,396.5 |
102,930.3 |
110,349.8 |
|
Net asset value attributable to unit holders |
34,871.8 |
35,671.6 |
38,369.0 |
|
Unit linked insurance contract liabilities |
439.1 |
483.3 |
487.8 |
|
Net unit-linked liabilities |
137,707.4 |
139,085.2 |
149,206.6 |
Policyholder interests in other receivables and other payables are short-term in nature and can vary significantly from period to period due to prevailing market conditions and underlying trading activity. Market volatility in the period immediately prior to the reporting date has resulted in significant trading activity driving the increase in these balances.
-52-
9. Other receivables
|
|
30 June 2022 |
30 June 2021 |
31 December 2021 |
|
£'Million |
£'Million |
£'Million |
|
|
Receivables in relation to unit liabilities excluding policyholder interests |
94.9 |
540.9 |
433.6 |
|
Other receivables in relation to insurance and unit trust business |
91.5 |
93.5 |
71.7 |
|
Operational readiness prepayment |
283.9 |
305.8 |
296.3 |
|
Advanced payments to Partners |
78.8 |
63.1 |
71.0 |
|
Other prepayments and accrued income |
82.7 |
77.3 |
84.3 |
|
Business loans to Partners |
514.5 |
502.6 |
521.6 |
|
Renewal income assets |
113.9 |
105.9 |
102.5 |
|
Miscellaneous |
5.0 |
3.5 |
6.6 |
|
Total other receivables on the Solvency II Net Assets Balance Sheet |
1,265.2 |
1,692.6 |
1,587.6 |
|
Policyholder interests in other receivables (see Note 8) |
5,232.8 |
576.2 |
1,332.4 |
|
Other (see adjustment 2 on page 23) |
15.9 |
2.8 |
3.0 |
|
Total other receivables |
6,513.9 |
2,271.6 |
2,923.0 |
All items within other receivables meet the definition of financial assets with the exception of prepayments and advanced payments to Partners. The fair value of financial assets held at amortised cost within other receivables is not materially different from amortised cost.
Receivables in relation to unit liabilities primarily relate to outstanding market trade settlements (sales) in the life unit-linked funds and the consolidated unit trusts. Other receivables in relation to insurance and unit trust business primarily relate to outstanding policy-related settlement timings. Both of these categories of receivables are short-term.
The operational readiness prepayment relates to the Bluedoor administration platform developed by our key outsourced back-office administration provider. Management has assessed the recoverability of this prepayment against the expected cost saving benefit of lower future tariff costs arising from the platform. It is believed that any reasonably possible change in the assumptions applied within this assessment, notably levels of future business, the anticipated future service tariffs and the discount rate, would have no impact on the carrying value of the asset.
Renewal income assets represent the present value of future cash flows associated with books of business acquired by the Group. Typically, they arise through business combinations, where the asset represents the value of non-Group related business at the date of acquisition. See Note 13 for further information.
Policyholder interests in other receivables are short-term in nature and can vary significantly from period to period due to prevailing market conditions and underlying trading activity. Market volatility in the period immediately prior to the reporting date has resulted in significant trading activity driving the increase in this balance.
Business loans to Partners
|
|
30 June 2022 |
30 June 2021 |
31 December 2021 |
|
£'Million |
£'Million |
£'Million |
|
|
Business loans to Partners directly funded by the Group |
291.2 |
322.2 |
307.6 |
|
Securitised business loans to Partners |
223.3 |
180.4 |
214.0 |
|
Total business loans to Partners |
514.5 |
502.6 |
521.6 |
Business loans to Partners are interest bearing (linked to Bank of England base rate plus a margin), repayable in line with the terms of the loan contract and secured against the future income streams of the Partner.
The Group has securitised £223.3 million (30 June 2021: £180.4 million, 31 December 2021: £214.0 million) of the business loans to Partners portfolio. Legal ownership of the securitised business loans to Partners has been transferred to a structured entity, SJP Partner Loans No.1 Limited, which has issued loan notes secured upon them. Note 12 Borrowings and financial commitments provides information on these loan notes. The securitised business loans to Partners are ring-fenced from the other assets of the Group, which means that the cash flows associated with these business loans to Partners can only be used to purchase new loans into the structure or repay the note holders, plus associated issuance fees and costs. Holders of the loan notes have no recourse to the Group's other assets.
-53-
The securitised business loans to Partners remain recognised on the Group IFRS Condensed Consolidated Statement of Financial Position as the Group controls SJP Partner Loans No. 1 Limited.
The business loans to Partners balance is shown net of £3.8 million of expected credit losses (30 June 2021: £3.9 million, 31 December 2021: £4.0 million). Expected credit losses have been calculated using an expected loss impairment model, which is based on the levels of loss experienced in the portfolio with due consideration given to forward-looking information.
10. Other payables
|
|
30 June 2022 |
30 June 2021 |
31 December 2021 |
|
|
£'Million |
£'Million |
£'Million |
|
|
|
Payables in relation to unit liabilities excluding policyholder interests |
234.9 |
151.2 |
178.9 |
|
|
Other payables in relation to insurance and unit trust business |
576.5 |
513.2 |
448.9 |
|
|
Accruals for ongoing advice fees |
127.6 |
129.0 |
141.2 |
|
|
Other accruals |
85.2 |
97.2 |
103.6 |
|
|
Contract payment |
101.5 |
112.6 |
107.1 |
|
|
Lease liabilities |
120.0 |
126.5 |
124.1 |
|
|
Other payables in relation to Partner payment |
69.6 |
74.2 |
86.7 |
|
|
Miscellaneous |
79.0 |
33.0 |
63.9 |
|
|
Total other payables on the Solvency II Net Assets Balance Sheet |
1,394.3 |
1,236.9 |
1,254.4 |
|
|
Policyholder interests in other payables (see Note 8) |
4,448.5 |
986.3 |
1,344.9 |
|
|
Other (see adjustment 2 on page 23) |
- |
10.3 |
5.2 |
|
|
Total other payables |
5,842.8 |
2,233.5 |
2,604.5 |
|
Payables in relation to unit liabilities primarily relate to outstanding market trade settlements (purchases) in the life unit-linked funds and the consolidated unit trusts. Other payables in relation to insurance and unit trust business primarily relate to outstanding policy-related settlement timings. Both of these categories of payables are short-term.
The contract payment of £101.5 million (30 June 2021 £112.6 million, 31 December 2021: £107.1 million) represents payments made by a third-party service provider to the Group as part of a service agreement, which are non-interest bearing and repayable over the life of the service agreement The contract payment received prior to 2020 is repayable on a straight-line basis over the original 12-year term, with repayments commencing on 1 January 2017. The contract premium received in 2020 is repayable on a straight-line basis over 13 years and four months, with repayments commencing on 1 September 2020.
Lease liabilities represent the present value of future cash flows associated with the Group's portfolio of property leases.
The fair value of financial instruments held at amortised cost within other payables is not materially different from amortised cost.
Policyholder interests in other payables are short-term in nature and can vary significantly from period to period due to prevailing market conditions and underlying trading activity. Market volatility in the period immediately prior to the reporting date has resulted in significant trading activity driving the increase in this balance.
-54-
11. Other provisions and contingent liabilities
|
|
Complaints provision |
Lease provision |
Clawback provision |
Total provisions |
|
£'Million |
£'Million |
£'Million |
£'Million |
|
|
At 1 January 2021 |
20.4 |
10.4 |
3.5 |
34.3 |
|
Additional provisions |
14.7 |
- |
0.1 |
14.8 |
|
Utilised during the period |
(6.3) |
- |
- |
(6.3) |
|
Release of provision |
(5.2) |
- |
- |
(5.2) |
|
At 30 June 2021 |
23.6 |
10.4 |
3.6 |
37.6 |
|
Additional provisions |
19.4 |
- |
- |
19.4 |
|
Utilised during the period |
(9.3) |
(0.1) |
(0.3) |
(9.7) |
|
Release of provision |
(2.8) |
(0.3) |
(0.1) |
(3.2) |
|
At 31 December 2021 |
30.9 |
10.0 |
3.2 |
44.1 |
|
Additional provisions |
18.3 |
0.5 |
- |
18.8 |
|
Utilised during the period |
(7.8) |
- |
(0.2) |
(8.0) |
|
Release of provision |
(10.5) |
- |
- |
(10.5) |
|
At 30 June 2022 |
30.9 |
10.5 |
3.0 |
44.4 |
Total provision for the cost of redress for complaints is based on estimates of the total number of complaints upheld, the estimated cost of redress and the expected timing of settlement. The lease provision is based on the square footage of leased properties and typical costs per square foot of restoring similar buildings to their original state. The clawback provision is based on estimates of the indemnity commission that may be repaid. It is considered that any reasonably possible level of changes in estimates would not have a material impact on the value of the best estimate of the provision.
As more fully set out in the summary of principal risks and uncertainties on pages 33 to 35, the Group could in the course of its business be subject to legal proceedings and/or regulatory activity. Should such an event arise, the Board would consider their best estimate of the amount required to settle the obligation and, where appropriate and material, establish a provision. While there can be no assurances that circumstances will not change, based upon information currently available to them, the Directors do not believe there is any possible activity or event that could have a material adverse effect on the Group's financial position.
During the normal course of business, the Group may from time to time provide guarantees to Partners, clients or other third parties. However, based upon the information currently available to them, the Directors do not believe there are any guarantees which would have a material adverse effect on the Group's financial position, and so the fair value of any guarantees has been assessed as £nil (30 June 2021: £nil, 31 December 2021: £nil).
-55-
12. Borrowings and financial commitments
Borrowings
Borrowings are a liability arising from financing activities. The Group has two different types of borrowings:
· senior unsecured corporate borrowings which are used to manage working capital, bridge intra-Group cash flows and to fund investment in the business; and
· securitisation loan notes which are secured only on a legally segregated pool of the Group's business loans to Partners, and hence are non-recourse to the Group's other assets. Further information about business loans to Partners is provided in Note 9 Other receivables.
Senior unsecured corporate borrowings
|
|
30 June 2022 |
30 June 2021 |
31 December 2021 |
|
£'Million |
£'Million |
£'Million |
|
|
Corporate borrowings: bank loans |
38.6 |
229.5 |
106.8 |
|
Corporate borrowings: loan notes |
163.8 |
113.8 |
163.8 |
|
Senior unsecured corporate borrowings |
202.4 |
343.3 |
270.6 |
The primary senior unsecured corporate borrowings are:
· a revolving credit facility (RCF), which was renewed during the period. The facility increased from £340 million to £345 million which is repayable at maturity in 2027 with a variable interest rate. At 30 June 2022 the undrawn credit available under this facility was £305 million (30 June 2021: £110 million, 31 December 2021: £233 million);
· a Note Purchase Agreement for £64 million. The notes are repayable over 10 years, ending in 2027 respectively, with variable interest rates; and
·
a Note Purchase Agreement for £100 million. The notes are repayable in one amount in 2031, with variable interest rates.
The Group has a number of covenants within the terms of its senior unsecured corporate borrowing facilities. These covenants are monitored on a regular basis and reported to lenders on a bi-annual basis. During the course of the period all covenants were complied with.
As at the 30 June 2022, 31 December 2021 and 30 June 2021 the Group had sufficient headroom available under its covenants to fully draw the remaining commitment under its senior unsecured corporate borrowing facilities. As a result of the Group's business model and cash-flow profile, no additional borrowing facilities were required due to the economic conditions arising from the pandemic.
Total borrowings
|
|
30 June 2022 |
30 June 2021 |
31 December 2021 |
|
£'Million |
£'Million |
£'Million |
|
|
Senior unsecured corporate borrowings |
202.4 |
343.3 |
270.6 |
|
Senior tranche of non-recourse securitisation loan notes |
169.4 |
134.9 |
162.4 |
|
Total borrowings |
371.8 |
478.2 |
433.0 |
The senior tranche of securitisation loan notes are AAA-rated and repayable over the expected life of the securitisation (estimated to be five years) with a variable interest rate. They are held by third-party investors and are secured on a legally segregated portfolio of £223.3 million business loans to Partners, and the other net assets of the securitisation entity SJP Partner Loans No.1 Limited. For further information on business loans to Partners, including those that have been securitised, refer to Note 9 Other receivables. Holders of the securitisation loan notes have no recourse to the assets held by any other entity within the Group.
-56-
In addition to the senior tranche of securitisation loan notes, a junior tranche has been issued to another entity within the Group. The junior notes are eliminated on consolidation in the preparation of the Group Financial Statements and so do not form part of Group borrowings.
|
|
30 June 2022 |
30 June 2021 |
31 December 2021 |
|
£'Million |
£'Million |
£'Million |
|
|
Junior tranche of non-recourse securitisation loan notes |
63.6 |
54.0 |
61.2 |
|
Senior tranche of non-recourse securitisation loan notes |
169.4 |
134.9 |
162.4 |
|
Total non-recourse securitisation loan notes |
233.0 |
188.9 |
223.6 |
|
Backed by: |
|
|
|
|
Securitised business loans to Partners (see Note 9) |
223.3 |
180.4 |
214.0 |
|
Other net assets of SJP Partner Loans No.1 Limited |
9.7 |
8.5 |
9.6 |
|
Total net assets held by SJP Partner Loans No.1 Limited |
233.0 |
188.9 |
223.6 |
The fair value of the outstanding borrowings is not materially different from amortised cost. Interest expense on borrowings is recognised within expenses in the IFRS Condensed Consolidated Statement of Comprehensive Income.
Financial commitments
Guarantees
The Group guarantees loans provided by third parties to Partners. In the event of default of any individual Partner loan, the Group guarantees to repay the full amount of the loan, with the exception of Metro Bank. For this third party the Group guarantees to cover losses up to 50% of the value to the total loans drawn. These loans are secured against the future income streams of the Partner. The value of the loans guaranteed is as follows:
|
|
Loans drawn |
Facility |
||||
|
30 June 2022 |
30 June 2021 |
31 December 2021 |
30 June 2022 |
30 June 2021 |
31 December 2021 |
|
|
£'Million |
£'Million |
£'Million |
£'Million |
£'Million |
£'Million |
|
|
Bank of Scotland |
46.2 |
60.5 |
51.9 |
70.0 |
70.0 |
70.0 |
|
Investec |
30.8 |
35.2 |
33.1 |
50.0 |
50.0 |
50.0 |
|
Metro Bank |
35.3 |
41.0 |
37.0 |
61.0 |
61.0 |
61.0 |
|
NatWest |
40.3 |
29.7 |
28.8 |
75.0 |
50.0 |
50.0 |
|
Santander |
156.2 |
49.1 |
119.9 |
169.9 |
50.0 |
169.9 |
|
Total loans |
308.8 |
215.5 |
270.7 |
425.9 |
281.0 |
400.9 |
The fair value of these guarantees has been assessed as £nil (30 June 2021: £nil, 31 December 2021: £nil).
-57-
13. Fair value measurement
Fair value estimation
Financial assets and liabilities, which are held at fair value in the Financial Statements, are required to have disclosed their fair value measurements by level from the following fair value measurement hierarchy:
· quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1);
· inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2); and
·
inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3).
The following tables present the Group's shareholder assets and liabilities measured at fair value:
Shareholder assets and liabilities
|
30 June 2022 |
Level 1 |
Level 2 |
Level 3 |
Total balance |
|
£'Million |
£'Million |
£'Million |
£'Million |
|
|
Financial assets |
|
|
|
|
|
Fixed income securities |
7.8 |
- |
- |
7.8 |
|
Investment in Collective Investment Schemes1 |
1,370.5 |
- |
- |
1,370.5 |
|
Renewal income assets |
- |
- |
113.9 |
113.9 |
|
Total financial assets |
1,378.3 |
- |
113.9 |
1,492.2 |
|
Financial liabilities |
|
|
|
|
|
Contingent consideration |
- |
- |
13.9 |
13.9 |
|
Total financial liabilities |
- |
- |
13.9 |
13.9 |
|
30 June 2021 |
Level 1 |
Level 2 |
Level 3 |
Total balance |
|
£'Million |
£'Million |
£'Million |
£'Million |
|
|
Financial assets |
|
|
|
|
|
Fixed income securities |
7.8 |
- |
- |
7.8 |
|
Investment in Collective Investment Schemes1 |
1,295.3 |
- |
- |
1,295.3 |
|
Renewal income assets |
- |
- |
105.9 |
105.9 |
|
Total financial assets |
1,303.1 |
- |
105.9 |
1,409.0 |
|
Financial liabilities |
|
|
|
|
|
Contingent consideration |
- |
- |
4.1 |
4.1 |
|
Total financial liabilities |
- |
- |
4.1 |
4.1 |
|
31 December 2021 |
Level 1 |
Level 2 |
Level 3 |
Total balance |
|
£'Million |
£'Million |
£'Million |
£'Million |
|
|
Financial assets |
|
|
|
|
|
Fixed income securities |
7.8 |
- |
- |
7.8 |
|
Investment in Collective Investment Schemes1 |
1,605.3 |
- |
- |
1,605.3 |
|
Renewal income assets |
- |
- |
102.5 |
102.5 |
|
Total financial assets |
1,613.1 |
- |
102.5 |
1,715.6 |
|
Financial liabilities |
|
|
|
|
|
Contingent consideration |
- |
- |
8.3 |
8.3 |
|
Total financial liabilities |
- |
- |
8.3 |
8.3 |
1. All assets included as shareholder investment in collective investment schemes are holdings of high-quality, highly liquid unitised money market funds, containing assets which are cash and cash equivalents.
-58-
The fair value of financial instruments traded in active markets is based on quoted bid prices at the reporting date. These instruments are included in Level 1.
Level 2 financial assets are valued using observable prices for identical current arm's length transactions.
The renewal income assets are classified as Level 3 and are valued using a discounted cash flow technique. The effect of applying reasonably possible alternative assumptions of a movement of +100bps on the discount rate and a -10% movement in the lapse rate would result in an unfavourable change in valuation of £9.5 million (30 June 2021: £9.2 million, 31 December 2021: £8.9 million) and a favourable change in valuation of £10.5 million (30 June 2021: £10.9 million, 31 December 2021: £9.9 million), respectively.
The contingent consideration liability is classified as Level 3 and is valued based on the terms set out in the sale and purchase agreement. Given the nature of the valuation basis the effect of applying reasonably possible alternative assumptions would result in an unfavourable change of £nil (30 June 2021: £nil, 31 December 2021: £nil) and a favourable change of £13.9 million (30 June 2021: £4.1 million, 31 December 2021: £8.3 million).
There were no transfers between Level 1 and Level 2 during the period, nor into or out of Level 3.
The following tables present the changes in Level 3 financial assets and liabilities at fair value through the profit and loss:
Financial assets
|
|
30 June 2022 |
30 June 2021 |
31 December 2021 |
|
£'Million |
£'Million |
£'Million |
|
|
Renewal income assets |
|
|
|
|
Opening balance |
102.5 |
87.4 |
87.4 |
|
Additions during the period |
21.9 |
31.2 |
34.6 |
|
Disposals during the period |
(4.6) |
(9.4) |
(10.5) |
|
Unrealised losses recognised in the Statement of Comprehensive Income |
(5.9) |
(3.3) |
(9.0) |
|
Closing balance |
113.9 |
105.9 |
102.5 |
Unrealised losses on renewal income assets are recognised within investment return in the IFRS Condensed Consolidated Statement of Comprehensive Income.
Financial liabilities
|
|
30 June 2022 |
30 June 2021 |
31 December 2021 |
|
|
£'Million |
£'Million |
£'Million |
|
|
|
Contingent consideration |
|
|
|
|
|
Opening balance |
8.3 |
- |
- |
|
|
Additions during the period |
6.4 |
4.1 |
8.3 |
|
|
Payments made during the period |
(0.8) |
- |
- |
|
|
Closing balance |
13.9 |
4.1 |
8.3 |
|
-59-
Unit liabilities and associated assets
|
30 June 2022 |
Level 1 |
Level 2 |
Level 3 |
Total balance |
|
|
£'Million |
£'Million |
£'Million |
£'Million |
|
|
|
Financial assets and investment properties |
|
|
|
|
|
|
Investment property |
- |
- |
1,647.6 |
1,647.6 |
|
|
Equities |
96,145.9 |
- |
1,437.3 |
97,583.2 |
|
|
Fixed income securities |
6,879.1 |
19,963.9 |
371.3 |
27,214.3 |
|
|
Investment in Collective Investment Schemes |
3,801.2 |
- |
3.5 |
3,804.7 |
|
|
Derivative financial instruments |
- |
1,861.9 |
- |
1,861.9 |
|
|
Cash and cash equivalents |
7,209.0 |
- |
- |
7,209.0 |
|
|
Total financial assets and investment properties |
114,035.2 |
21,825.8 |
3,459.7 |
139,320.7 |
|
|
Financial liabilities |
|
|
|
|
|
|
Investment contract benefits |
- |
102,396.5 |
- |
102,396.5 |
|
|
Derivative financial instruments |
- |
2,397.6 |
- |
2,397.6 |
|
|
Net asset value attributable to unit holders |
34,871.8 |
- |
- |
34,871.8 |
|
|
Total financial liabilities |
34,871.8 |
104,794.1 |
- |
139,665.9 |
|
|
30 June 2021 |
Level 1 |
Level 2 |
Level 3 |
Total balance |
|
£'Million |
£'Million |
£'Million |
£'Million |
|
|
Financial assets and investment properties |
|
|
|
|
|
Investment property |
- |
- |
1,495.5 |
1,495.5 |
|
Equities |
97,285.5 |
- |
576.8 |
97,862.3 |
|
Fixed income securities |
7,780.6 |
21,529.5 |
350.4 |
29,660.5 |
|
Investment in Collective Investment Schemes |
3,860.2 |
- |
1.6 |
3,861.8 |
|
Derivative financial instruments |
- |
838.0 |
- |
838.0 |
|
Cash and cash equivalents |
6,791.8 |
- |
- |
6,791.8 |
|
Total financial assets and investment properties |
115,718.1 |
22,367.5 |
2,424.3 |
140,509.9 |
|
Financial liabilities |
|
|
|
|
|
Investment contract benefits |
- |
102,930.3 |
- |
102,930.3 |
|
Derivative financial instruments |
- |
1,014.6 |
- |
1,014.6 |
|
Net asset value attributable to unit holders |
35,671.6 |
- |
- |
35,671.6 |
|
Total financial liabilities |
35,671.6 |
103,944.9 |
- |
139,616.5 |
|
31 December 2021 |
Level 1 |
Level 2 |
Level 3 |
Total balance |
|
£'Million |
£'Million |
£'Million |
£'Million |
|
|
Financial assets and investment properties |
|
|
|
|
|
Investment property |
- |
- |
1,568.5 |
1,568.5 |
|
Equities |
105,735.2 |
- |
1,047.1 |
106,782.3 |
|
Fixed income securities |
7,712.1 |
21,277.9 |
308.1 |
29,298.1 |
|
Investment in Collective Investment Schemes |
3,904.0 |
- |
3.9 |
3,907.9 |
|
Derivative financial instruments |
- |
1,094.6 |
- |
1,094.6 |
|
Cash and cash equivalents |
7,587.2 |
- |
- |
7,587.2 |
|
Total financial assets and investment properties |
124,938.5 |
22,372.5 |
2,927.6 |
150,238.6 |
|
Financial liabilities |
|
|
|
|
|
Investment contract benefits |
- |
110,349.8 |
- |
110,349.8 |
|
Derivative financial instruments |
- |
1,019.5 |
- |
1,019.5 |
|
Net asset value attributable to unit holders |
38,369.0 |
- |
- |
38,369.0 |
|
Total financial liabilities |
38,369.0 |
111,369.3 |
- |
149,738.3 |
-60-
In respect of the derivative financial liabilities, £307.4 million of collateral has been posted at 30 June 2022, comprising cash and treasury bills (30 June 2021: £296.0 million, 31 December 2021: £192.7 million), in accordance with the terms and conditions of the derivative contracts.
The fair value of financial instruments traded in active markets is based on quoted bid prices at the reporting date. These instruments are included in Level 1.
The Group closely monitors the valuation of assets in markets that have become less liquid. Determining whether a market is active requires the exercise of judgement and is determined based upon the facts and circumstances of the market for the instrument being measured. Where it is determined that there is no active market, fair value is established using a valuation technique. The techniques applied incorporate relevant information available and reflect appropriate adjustments for credit and liquidity risks. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. The relative weightings given to differing sources of information and the determination of non-observable inputs to valuation models can require the exercise of significant judgement.
If all significant inputs required to fair value an instrument are observable, the instrument is included in Level 2. If one or more of the significant inputs is not based on observable market data, the instrument is included in Level 3.
Note that all of the resulting fair value estimates are included in Level 2, except for certain equities and investments in Collective Investment Schemes (CIS) and investment properties as detailed below.
Specific valuation techniques used to value Level 2 financial assets and liabilities include the use of observable prices for identical current arm's length transactions, specifically:
· the fair value of unit-linked liabilities is assessed by reference to the value of the underlying net asset value of the Group's unitised investment funds, determined on a bid value, at the reporting date; and
· the Group's derivative financial instruments are valued using valuation techniques commonly used by market participants. These consist of discounted cash flow and options pricing models, which typically incorporate observable market data, principally interest rates, basis spreads, foreign exchange rates, equity prices and counterparty credit.
Specific valuation techniques used to value Level 3 financial assets and liabilities include:
· the use of unobservable inputs, such as expected rental values and equivalent yields; and
· other techniques, such as discounted cash flow and historic lapse rates, are used to determine fair value for the remaining financial instruments.
There were no transfers between Level 1 and Level 2 during the period.
Transfers into and out of Level 3 portfolios
Transfers out of Level 3 portfolios arise when inputs that could have a significant impact on the instrument's valuation become market observable; conversely, transfers into the portfolios arise when consistent sources of data cease to be available.
Transfers in of certain equities and investments in CIS occur when asset valuations can no longer be obtained from an observable market price i.e. become illiquid, in liquidation, suspended etc. The converse is true if an observable market price becomes available. During the period £4.6 million of Russian equities (30 June 2021: £nil, 31 December 2021: £nil) transferred from Level 1 to Level 3 portfolios as the valuation has been calculated using a mark down to the quoted price. The mark down is a significant unobservable input.
-61-
The following table presents the changes in Level 3 financial assets and liabilities at fair value through the profit and loss:
|
Six months ended 30 June 2022 |
Investment property |
Fixed income securities |
Equities |
Investment in CIS |
|
£'Million |
£'Million |
£'Million |
£'Million |
|
|
Opening balance |
1,568.5 |
308.1 |
1,047.1 |
3.9 |
|
Transfer into Level 3 |
- |
- |
4.6 |
- |
|
Transfer out of Level 3 |
- |
- |
- |
(0.5) |
|
Additions during the period |
10.2 |
48.2 |
367.3 |
- |
|
Disposals during the period |
(50.6) |
(11.0) |
(70.4) |
- |
|
Gains recognised in the Statement of Comprehensive Income |
119.5 |
26.0 |
88.7 |
0.1 |
|
Closing balance |
1,647.6 |
371.3 |
1,437.3 |
3.5 |
|
Realised (losses)/gains |
(34.3) |
1.9 |
10.5 |
- |
|
Unrealised gains |
153.8 |
24.1 |
78.2 |
0.1 |
|
Gains recognised in the Statement of Comprehensive Income |
119.5 |
26.0 |
88.7 |
0.1 |
|
Six months ended 30 June 2021 |
Investment property |
Fixed income securities |
Equities |
Investment in CIS |
|
£'Million |
£'Million |
£'Million |
£'Million |
|
|
Opening balance |
1,526.7 |
309.4 |
465.8 |
1.8 |
|
Transfer into Level 3 |
- |
- |
- |
0.1 |
|
Transfer out of Level 3 |
- |
- |
(46.7) |
- |
|
Additions during the period |
11.1 |
79.9 |
123.6 |
- |
|
Disposals during the period |
(78.6) |
(34.9) |
(8.2) |
(0.2) |
|
Gains/(losses) recognised in the Statement of Comprehensive Income |
36.3 |
(4.0) |
42.3 |
(0.1) |
|
Closing balance |
1,495.5 |
350.4 |
576.8 |
1.6 |
|
Realised gains |
11.1 |
0.8 |
0.2 |
- |
|
Unrealised gains/(losses) |
25.2 |
(4.8) |
42.1 |
(0.1) |
|
Gains/(losses) recognised in the Statement of Comprehensive Income |
36.3 |
(4.0) |
42.3 |
(0.1) |
|
Year ended 31 December 2021 |
Investment property |
Fixed income securities |
Equities |
Investment in CIS |
|
|
£'Million |
£'Million |
£'Million |
£'Million |
|
|
|
Opening balance |
1,526.7 |
309.4 |
465.8 |
1.8 |
|
|
Transfer into Level 3 |
- |
- |
- |
2.3 |
|
|
Additions during the year |
19.2 |
135.0 |
568.2 |
- |
|
|
Disposals during the year |
(158.8) |
(132.5) |
(142.8) |
(0.2) |
|
|
Gains/(losses) recognised in the Statement of Comprehensive Income |
181.4 |
(3.8) |
155.9 |
- |
|
|
Closing balance |
1,568.5 |
308.1 |
1,047.1 |
3.9 |
|
|
Realised gains1 |
139.9 |
6.9 |
124.8 |
- |
|
|
Unrealised gains/(losses)1 |
41.5 |
(10.7) |
31.1 |
- |
|
|
Gains/(losses) recognised in the Statement of Comprehensive Income |
181.4 |
(3.8) |
155.9 |
- |
|
1 Realised gains and unrealised gains/(losses) have been re-presented to correct the classification of the categories.
Realised (losses)/gains and unrealised gains/(losses) for all Level 3 assets are recognised within investment return in the IFRS Condensed Consolidated Statement of Comprehensive Income.
-62-
Level 3 valuations
Investment property
At 30 June 2022 the Group held £1,647.6 million (30 June 2021: £1,495.5 million, 31 December 2021: £1,568.5 million) of investment property, all of which is classified as Level 3 in the fair value hierarchy. It is initially measured at cost including related acquisition costs and subsequently valued monthly by professional external valuers at the properties' respective fair values. The fair values derived are based on anticipated market values for the properties in accordance with the guidance issued by the Royal Institution of Chartered Surveyors, being the estimated amount that would be received from a sale of the assets in an orderly transaction between market participants. The valuation of investment property is inherently subjective as it requires, among other factors, assumptions to be made regarding the ability of existing tenants to meet their rental obligations over the entire life of their leases, the estimation of the expected rental income into the future, an assessment of a property's potential to remain as an attractive technical configuration to existing and prospective tenants in a changing market and a judgement on the attractiveness of a building, its location and the surrounding environment.
|
|
Investment property classification |
|||
|
Office |
Industrial |
Retail and leisure |
All |
|
|
30 June 2022 |
|
|
|
|
|
Gross ERV (per sq ft)1 |
|
|
|
|
|
Range |
£13.91 - £100.50 |
£5.00 - £20.00 |
£2.50 - £88.94 |
£2.50 - £100.50 |
|
Weighted average |
£42.30 |
£11.95 |
£13.29 |
£16.72 |
|
True equivalent yield |
|
|
|
|
|
Range |
4.1% - 12.0% |
3.0% - 4.9% |
4.7% - 20.1% |
3.0% - 20.1% |
|
Weighted average |
5.2% |
3.6% |
6.3% |
4.9% |
|
|
|
|
|
|
|
30 June 2021 |
|
|
|
|
|
Gross ERV (per sq ft)1 |
|
|
|
|
|
Range |
£15.00 - £96.04 |
£4.50 - £17.50 |
£2.50 - £99.98 |
£2.50 - £99.98 |
|
Weighted average |
£42.73 |
£9.67 |
£13.03 |
£15.59 |
|
True equivalent yield |
|
|
|
|
|
Range |
4.2% - 10.3% |
3.7% - 5.5% |
5.0% - 15.9% |
3.7% - 15.9% |
|
Weighted average |
5.4% |
4.3% |
7.5% |
5.6% |
|
|
|
|
|
|
|
31 December 2021 |
|
|
|
|
|
Gross ERV (per sq ft)1 |
|
|
|
|
|
Range |
£15.00 - £95.06 |
£4.75 - £19.00 |
£2.50 - £99.98 |
£2.50 - £99.98 |
|
Weighted average |
£42.19 |
£11.10 |
£13.18 |
£16.58 |
|
True equivalent yield |
|
|
|
|
|
Range |
4.2% - 11.5% |
3.1% - 5.2% |
5.1% - 20.3% |
3.1% - 20.3% |
|
Weighted average |
5.4% |
3.7% |
6.7% |
5.1% |
1. Equivalent rental value (per square foot).
-63-
Fixed income securities and equities
At 30 June 2022 the Group held £371.3 million (30 June 2021: £350.4 million, 31 December 2021: £308.1 million) in private credit investments, and £1,432.7 million (30 June 2021: £576.8 million, 31 December 2021: £1,047.1 million) in private market investments through the St. James's Place Diversified Assets (FAIF) Unit Trust. These are recognised within fixed income securities and equities, respectively, in the IFRS Condensed Consolidated Statement of Financial Position. They are initially measured at cost and are subsequently remeasured to fair value following a monthly valuation process which includes verification by suitably qualified professional external valuers, who are members of various industry bodies including the British Private Equity and Venture Capital Association.
The fair values of the private credit investments are principally determined using two valuation methods:
1. the shadow rating method, which assigns a shadow credit rating to the debt issuing entity and determines an expected yield with reference to observable yields for comparable companies with public credit rating in the loan market; and
2. the weighted average cost of capital (WACC) method, which determines the debt issuing entity's WACC with reference to observable market comparatives.
The expected yield and WACC are used as the discount rates to calculate the present value of the expected future cash flows under the shadow rating and WACC methods respectively, which is taken to be the fair value.
The fair values of the private equity investments are principally determined using two valuation methods:
1. a market approach with reference to suitable market comparatives; and
2. an income approach using discounted cash flow analysis which assesses the fair value of each asset based on its expected future cash flows.
The output of each method for both the private credit and private equity investments is a range of values, from which the mid-point is selected to be the fair value in the majority of cases. The mid-point would not be selected if further information is known about an investment which cannot be factored into the valuation method used. A weighting is assigned to the values determined following each method to determine the final valuation.
The valuations are inherently subjective as they require a number of assumptions to be made, such as determining which entities provide suitable market comparatives and their relevant performance metrics (for example earnings before interest, tax, depreciation and amortisation), determining appropriate discount rates and cash flow forecasts to use in models, the weighting to apply to each valuation methodologies and the point in the range of valuations to select as the fair value.
Sensitivity of Level 3 valuations
Investment in Collective Investment Schemes
The valuation of certain investments in CIS are based on the latest observable price available. Whilst such valuations are sensitive to estimates, it is believed that changing the price applied to a reasonably possible alternative would not change the fair value significantly.
Investment property
As set out above, investment property is initially measured at cost including related acquisition costs and subsequently valued monthly by professional external valuers at their respective fair values. The following table sets out the effect of applying reasonably possible alternative assumptions, being a 5% movement in estimated rental value and a 25 bps movement in the relative yield, to the valuation of the investment properties. Any change in the value of investment property is matched by the associated movement in the policyholder liability, and therefore would not impact on the shareholder net assets.
|
|
Investment property significant unobservable inputs |
Effect of reasonable possible alternative assumptions |
||
|
Carrying value |
Favourable changes |
Unfavourable changes |
||
|
£'Million |
£'Million |
£'Million |
||
|
30 June 2022 |
Expected rental value / Relative yield |
1,647.6 |
1,823.8 |
1,492.0 |
|
30 June 2021 |
Expected rental value / Relative yield |
1,495.5 |
1,644.8 |
1,363.3 |
|
31 December 2021 |
Expected rental value / Relative yield |
1,568.5 |
1,921.0 |
1,292.3 |
-64-
Fixed income securities and equities
As set out above, the fair values of the Level 3 fixed income securities and equities are selected from the valuation range determined through the monthly valuation process. The following table sets out the effect of valuing each of the assets at the high and low point of the range. As for investment property, any change in the value of these fixed income securities or equities is matched by an associated movement in the policyholder liability, and therefore would not impact on the shareholder net assets.
|
|
|
Effect of reasonable possible alternative assumptions |
||
|
Carrying value |
Favourable changes |
Unfavourable changes |
||
|
£'Million |
£'Million |
£'Million |
||
|
30 June 2022 |
Fixed income securities |
371.3 |
378.4 |
364.3 |
|
|
Equities |
1,432.7 |
1,546.6 |
1,303.5 |
|
30 June 2021 |
Fixed income securities |
350.4 |
358.9 |
342.4 |
|
|
Equities |
576.8 |
691.3 |
488.2 |
|
31 December 2021 |
Fixed income securities |
308.1 |
311.5 |
304.5 |
|
|
Equities |
1,047.1 |
1,193.4 |
943.4 |
14. Cash generated from operations
|
|
Six months ended 30 June 2022 |
Six months ended 30 June 2021 |
Year ended 31 December 2021 |
|
£'Million |
£'Million |
£'Million |
|
|
Cash flows from operating activities |
|
|
|
|
(Loss)/profit before tax for the period |
(298.4) |
482.6 |
842.4 |
|
Adjustments for: |
|
|
|
|
Amortisation of purchased value of in-force business |
1.6 |
1.6 |
3.2 |
|
Amortisation of computer software |
4 .4 |
3.7 |
10.6 |
|
Change in capitalisation policy |
- |
- |
5.1 |
|
Depreciation |
10.5 |
11.0 |
22.1 |
|
Impairment of goodwill |
- |
- |
1.5 |
|
Loss on disposal of property and equipment, including leased assets |
0.2 |
0.4 |
2.7 |
|
Share-based payment charge |
10.4 |
9.0 |
22.9 |
|
Interest income |
(18.3) |
(8.3) |
(19.2) |
|
Interest expense |
6.0 |
4.6 |
10.2 |
|
Increase in provisions |
0.3 |
3.3 |
9.8 |
|
Exchange rate losses |
- |
0.2 |
0.1 |
|
Changes in operating assets and liabilities |
|
|
|
|
Decrease in deferred acquisition costs |
17.0 |
23.7 |
44.9 |
|
(Increase)/Decrease in investment property |
(79.1) |
31.2 |
(41.8) |
|
Decrease/(increase) in other investments |
10,853.6 |
(15,188.1) |
(24,358.4) |
|
(Increase) in investment in associates |
- |
- |
(1.4) |
|
Decrease in reinsurance assets |
7.7 |
7.2 |
9.9 |
|
(Increase)/decrease in other receivables |
(3,571.9) |
324.0 |
(326.9) |
|
(Decrease)/increase in insurance contract liabilities |
(56.2) |
9.2 |
9.7 |
|
(Decrease)/increase in financial liabilities (excluding borrowings) |
(6,575.2) |
10,062.3 |
17,486.7 |
|
(Decrease) in deferred income |
(12.6) |
(5.5) |
(17.3) |
|
Increase in other payables |
3,239.9 |
203.1 |
574.3 |
|
(Decrease)/increase in net assets attributable to unit holders |
(3,497.2) |
4,752.5 |
7,449.9 |
|
Cash generated from operations |
42.7 |
727.7 |
1,741.0 |
-65-
15. Share capital, earnings per share and dividends
Share capital
|
|
Number of ordinary shares |
Called up share capital |
|
|
£'Million |
|
|
At 1 January 2021 |
537,343,466 |
80.6 |
|
- Issue of share capital |
850,985 |
0.1 |
|
- Exercise of options |
1,385,243 |
0.2 |
|
At 30 June 2021 |
539,579,694 |
80.9 |
|
- Exercise of options |
950,835 |
0.2 |
|
At 31 December 2021 |
540,530,529 |
81.1 |
|
- Issue of share capital |
459,028 |
0.1 |
|
- Exercise of options |
2,811,390 |
0.4 |
|
At 30 June 2022 |
543,800,947 |
81.6 |
Ordinary shares have a par value of 15 pence per share (30 June 2021: 15 pence per share, 31 December 2021: 15 pence per share) and are fully paid.
Included in the issued share capital are 2,312,387 (30 June 2021: 1,819,047, 31 December 2021: 1,685,250) shares held in the shares in trust reserve with a nominal value of £0.3 million (30 June 2021: £0.3 million, 31 December 2021: £0.3 million). The shares are held by the SJP Employee Share Trust and the St. James's Place 2010 SIP Trust to satisfy certain share-based payment schemes. The trustees of the SJP Employee Share Trust retain the right to dividends on the shares held by the Trust but have chosen to waive their entitlement to the dividends on 923,201 shares at 30 June 2022 (30 June 2021: 373,691 shares, 31 December 2021: 285,033 shares). No dividends have been waived on shares held in the St. James's Place 2010 SIP Trust in 2022 or 2021.
Earnings per share
|
|
Six months ended 30 June 2022 |
Six months ended 30 June 2021 |
Year ended 31 December 2021 |
|
£'Million |
£'Million |
£'Million |
|
|
Earnings |
|
|
|
|
Profit after tax attributable to equity shareholders (for both basic and diluted EPS) |
205.6 |
120.9 |
286.7 |
|
|
|
|
|
|
|
Million |
Million |
Million |
|
Weighted average number of shares |
|
|
|
|
Weighted average number of ordinary shares in issue (for basic EPS) |
541.8 |
536.7 |
537.7 |
|
Adjustments for outstanding share options |
4.4 |
7.6 |
8.5 |
|
Weighted average number of ordinary shares (for diluted EPS) |
546.2 |
544.3 |
546.2 |
|
|
|
|
|
|
|
Pence |
Pence |
Pence |
|
Earnings per share (EPS) |
|
|
|
|
Basic earnings per share |
38.0 |
22.5 |
53.3 |
|
Diluted earnings per share |
37.6 |
22.2 |
52.5 |
-66-
Dividends
The following dividends have been paid by the Group:
|
|
Six months ended 30 June 2022 |
Six months ended 30 June 2021 |
Year ended 31 December 2021 |
|
£'Million |
£'Million |
£'Million |
|
|
Withheld 2019 dividend - 11.22 pence per ordinary share |
- |
60.3 |
60.3 |
|
Final dividend in respect of 2020 - 31.22 pence per ordinary share |
- |
207.2 |
207.2 |
|
Interim dividend in respect of 2021 - 11.55 pence per ordinary share |
- |
- |
62.4 |
|
Final dividend in respect of 2021 - 40.41 pence per ordinary share |
218.9 |
- |
- |
|
Total dividends paid |
218.9 |
267.5 |
329.9 |
The Directors have resolved to pay an interim dividend of 15.59 pence per share (30 June 2021: 11.55 pence per share). This amounts to £84.8 million (30 June 2021: £62.3 million) and will be paid on 23 September 2022 to shareholders on the register at 26 August 2022.
16. Business combinations
During the year the Group acquired the following subsidiaries in line with the Group's strategic objective of growing and supporting the Partnership:
|
Business acquired |
Principal activity |
% Shareholding |
Date of acquisition |
|
JEWM Limited |
Provision of financial services |
60% |
18 May 2022 |
|
Thomson Private Clients Limited |
Provision of financial services |
100% |
17 June 2022 |
Thomson Private Clients Limited owns 40% of the share capital of JEWM Limited. From 17 June 2022, following its acquisition, the Group now hold 100% of the share capital of JEWM Limited.
Acquisition-related costs of £0.1 million have been charged to administration expenses in the IFRS Condensed Consolidated Statement of Comprehensive Income for the period ended 30 June 2022.
JEWM Limited
The acquisition contributed £nil to fee and commission income and a £nil profit before income tax for the period between the acquisition date and 30 June 2022. Had the acquisition been consolidated from 1 January 2022, the acquisition would have contributed £nil to fee and commission income and £0.6 million profit before income tax.
The net assets, fair value adjustments and consideration for this acquisition is summarised below (all values shown as at their acquisition date):
|
|
Book value |
Fair value adjustment |
Total |
|
£'Million |
£'Million |
£'Million |
|
|
Financial assets |
2.4 |
15.2 |
17.6 |
|
Cash and cash equivalents |
2.0 |
- |
2.0 |
|
Financial liabilities |
(0.4) |
(3.8) |
(4.2) |
|
Total |
4.0 |
11.4 |
15.4 |
|
Consideration |
|
|
|
|
Cash consideration on completion |
|
|
9.5 |
|
Shares issued on completion1 |
|
|
5.7 |
|
Deferred contingent consideration |
|
|
3.2 |
|
Total consideration |
|
|
18.4 |
|
Goodwill |
|
|
3.0 |
1. Shares issued refer to St. James's Place plc ordinary shares.
Goodwill comprises the future value generated from new business opportunities.
-67-
It is expected that the deferred contingent consideration will be paid in full on 1 December 2023 with no changes to the amount initially recognised.
Thomson Private Clients Limited
The acquisition contributed £nil to fee and commission income and a £nil profit before income tax for the period between the acquisition date and 30 June 2022. Had the acquisition been consolidated from 1 January 2022, the acquisition would have contributed £nil to fee and commission income and £0.3 million profit before income tax.
The net assets, fair value adjustments and consideration for this acquisition is summarised below (all values shown as at their acquisition date):
|
|
Book value |
Fair value adjustment |
Total |
|
£'Million |
£'Million |
£'Million |
|
|
Financial assets |
- |
4.0 |
4.0 |
|
Cash and cash equivalents |
- |
- |
- |
|
Financial liabilities |
(2.4) |
(1.0) |
(3.4) |
|
Total |
(2.4) |
3.0 |
0.6 |
|
Consideration |
|
|
|
|
Cash consideration on completion |
|
|
0.5 |
|
Deferred contingent consideration |
|
|
0.7 |
|
Total consideration |
|
|
1.2 |
|
Goodwill |
|
|
0.6 |
It is expected that the deferred contingent consideration will be paid in full on 16 December 2023 with no changes to the amount initially recognised.
17. Related party transactions
For the Half-Year to 30 June 2022 the following related party transactions were considered significant:
Transactions with St. James's Place unit trusts
In respect of the non-consolidated St. James's Place managed unit trusts that are held as investments in the St. James's Place life and pension funds, there were losses recognised of £nil (30 June 2021: losses of £11.0 million, 31 December 2021: losses of £11.0 million) and the total value of transactions with those non-consolidated unit trusts was £nil (30 June 2021: £14.1 million, 31 December 2021: £14.1 million). Net management fees receivable from these unit trusts amounted to £nil (30 June 2021: £1.8 million, 31 December 2021: £1.8 million). The value of the investment into the non-consolidated unit trusts at 30 June 2022 was £nil (30 June 2021: £nil, 31 December 2021: £nil).
Transactions with key management personnel
Key management personnel have been defined as the Board of Directors and members of the Executive Board. Total consideration of £18.4 million (30 June 2021: £nil, 31 December 2021: £nil) was agreed under normal commercial terms to key management personnel and their connected parties for the acquisition of JEWM Limited. As at 30 June 2022 there was deferred contingent consideration outstanding of £3.2 million (30 June 2021: £nil, 31 December 2021: £nil).
18. 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 2021 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 unmodified and did not include a reference to any matter to which the auditors drew attention to, by way of emphasis without modifying their report, and did not contain a statement under section 498 of the Companies Act 2006.
19. Approval of Half-Year Report
These Condensed Consolidated Half-Year Financial Statements were approved by the Board of Directors on 27 July 2022.
20. National storage mechanism
A copy of the Half-Year Report will be submitted shortly to the National Storage Mechanism (NSM) and will be available for inspection at the NSM, which is situated at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
-68-
Independent Review Report to St. James's Place plc
Report on the condensed consolidated interim financial statements
Our conclusion
We have reviewed St. James's Place plc's condensed consolidated interim financial statements (the "interim financial statements") in the Half-Year Report and Accounts of St. James's Place plc for the 6 month period ended 30 June 2022 (the "period").
Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with UK adopted International Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
The interim financial statements comprise:
· the Condensed Consolidated Statement of Financial Position as at 30 June 2022;
· the Condensed Consolidated Statement of Comprehensive Income for the period then ended;
· the Condensed Consolidated Statement of Cash Flows for the period then ended;
· the Condensed Consolidated Statement of Changes in Equity for the period then ended; and
· the explanatory notes to the interim financial statements.
The interim financial statements included in the Half-Year Report and Accounts of St. James's Place plc have been prepared in accordance with UK adopted International Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International Standard on Review Engagements (UK) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Financial Reporting Council for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.
A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the Half-Year Report and Accounts and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed in an audit as described in the Basis for conclusion section of this report, nothing has come to our attention to suggest that the directors have inappropriately adopted the going concern basis of accounting or that the directors have identified material uncertainties relating to going concern that are not appropriately disclosed. This conclusion is based on the review procedures performed in accordance with this ISRE. However, future events or conditions may cause the group to cease to continue as a going concern.
-69-
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the directors
The Half-Year Report and Accounts, including the interim financial statements, is the responsibility of, and has been approved by the directors. The directors are responsible for preparing the Half-Year Report and Accounts in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority. In preparing the Half-Year Report and Accounts, including the interim financial statements, the directors are responsible for assessing the group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or to cease operations, or have no realistic alternative but to do so.
Our responsibility is to express a conclusion on the interim financial statements in the Half-Year Report and Accounts based on our review. Our conclusion, including our Conclusions relating to going concern, is based on procedures that are less extensive than audit procedures, as described in the Basis for conclusion paragraph of this report. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
PricewaterhouseCoopers LLP
Chartered Accountants
Leeds
27 July 2022
-70-
Responsibility Statement of the Directors
in Respect of the Half-Year Financial Report
The Directors confirm that this consolidated interim financial information has been prepared in accordance with IAS 34 as adopted by the UK and that the interim management report includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R, namely:
· an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of consolidated Financial Statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and
·
material related-party transactions in the first six months and any material changes in the related party transactions described in the last Annual Report.
The Directors of St. James's Place plc are listed in the St. James's Place plc Annual Report for 31 December 2021. A list of current Directors is maintained on the St. James's Place plc website: www.sjp.co.uk
The Directors are responsible for the maintenance and integrity of the Group's website. Legislation in the United Kingdom governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions.
By order of the Board:
Andrew Croft Craig Gentle
Chief Executive Chief Financial Officer
27 July 2022 27 July 2022
-71-
Supplementary Information: Consolidated Financial Statements on a Cash Result Basis (unaudited)
-72-
Consolidated Statement of Comprehensive Income on a Cash Result Basis (unaudited)
|
|
Note |
Six months ended 30 June 2022 |
Six months ended 30 June 2021 |
Year ended 31 December 2021 |
|
£'Million |
£'Million |
£'Million |
||
|
Fee and commission income |
|
639.5 |
1,446.1 |
2,771.4 |
|
Investment return |
5 |
(14.6) |
11.5 |
35.9 |
|
Net income |
|
624.9 |
1,457.6 |
2,807.3 |
|
Expenses |
|
(947.8) |
(915.8) |
(1,858.1) |
|
Profit/(loss) before tax |
|
(322.9) |
541.8 |
949.2 |
|
Tax attributable to policyholders' returns |
|
555.0 |
(336.1) |
(488.6) |
|
Tax attributable to shareholders' returns |
|
(38.0) |
(29.9) |
(73.2) |
|
Total Cash result profit for the period |
|
194 .1 |
175.8 |
387.4 |
|
|
|
|
|
|
|
|
|
Pence |
Pence |
Pence |
|
Cash result basic earnings per share |
III |
35.8 |
32.8 |
72.0 |
|
Cash result diluted earnings per share |
III |
35.5 |
32.3 |
70.9 |
The Note references above cross refer to the Notes to the Condensed Consolidated Financial Statements under IFRS as adopted by the UK on pages 41 to 67, except where denoted in Roman numerals.
-73-
Consolidated Statement of Changes in Equity on a Cash Result Basis (unaudited)
|
|
Note |
Equity attributable owners of the Parent |
Non- controlling interests |
Total equity |
|
|||||
|
Share Capital |
Share premium |
Shares in trust reserve |
Misc reserves |
Retained earnings |
Total |
|
||||
|
£'Million |
£'Million |
£'Million |
£'Million |
£'Million |
£'Million |
£'Million |
£'Million |
|
||
|
At 1 January 2021 |
|
80.6 |
185.3 |
(14.8) |
2.5 |
965.9 |
1,219.5 |
(0.9) |
1,218.6 |
|
|
Cash result for the period |
|
|
|
|
|
175.8 |
175.8 |
|
175.8 |
|
|
Dividends |
15 |
|
|
|
|
(267.5) |
(267.5) |
|
(267.5) |
|
|
Issue of share capital |
|
0.1 |
10.2 |
|
|
|
10.3 |
|
10.3 |
|
|
Exercise of options |
|
0.2 |
11.1 |
|
|
|
11.3 |
|
11.3 |
|
|
Shares sold during the period |
|
|
|
6.4 |
|
(6.4) |
- |
|
- |
|
|
Change in deferred tax |
|
|
|
|
|
2.4 |
2.4 |
|
2.4 |
|
|
Impact of policyholder tax asymmetry |
|
|
|
|
|
(29.2) |
(29.2) |
|
(29.2) |
|
|
Change in goodwill, intangibles and other non-cash movements |
|
|
|
|
|
(8.4) |
(8.4) |
|
(8.4) |
|
|
At 30 June 2021 |
|
80.9 |
206.6 |
(8.4) |
2.5 |
832.6 |
1,114.2 |
(0.9) |
1,113.3 |
|
|
At 1 January 2022 |
|
81.1 |
213.8 |
(8.5) |
2.5 |
956.4 |
1,245.3 |
- |
1,245.3 |
|
|
Non-controlling interest arising on the part disposal of subsidiaries |
|
|
|
|
|
4.9 |
4.9 |
0.1 |
5.0 |
|
|
Cash result for the period |
|
|
|
|
|
194.1 |
194.1 |
|
194.1 |
|
|
Dividends |
15 |
|
|
|
|
(218.9) |
(218.9) |
|
(218.9) |
|
|
Issue of share capital |
|
0.1 |
5.6 |
|
|
|
5.7 |
|
5.7 |
|
|
Exercise of options |
|
0.4 |
6.7 |
|
|
|
7.1 |
|
7.1 |
|
|
Consideration paid for own shares |
|
|
(0.3) |
|
|
(0.3) |
|
(0.3) |
|
|
|
Shares sold during the period |
|
|
|
4.7 |
|
(4.7) |
- |
|
- |
|
|
Change in deferred tax |
|
|
|
|
|
(18.1) |
(18.1) |
|
(18.1) |
|
|
Impact of policyholder tax asymmetry |
|
|
|
|
|
39.4 |
39.4 |
|
39.4 |
|
|
Change in goodwill, intangibles and other non-cash movements |
|
|
|
|
|
(12.0) |
(12.0) |
|
(12.0) |
|
|
At 30 June 2022 |
|
81.6 |
226.1 |
(4.1) |
2.5 |
941.1 |
1,247.2 |
0.1 |
1,247.3 |
|
-74-
Consolidated Statement of Financial Position on a Cash Result Basis (unaudited)
|
|
Note |
30 June 2022 |
30 June 2021 |
31 December 2021 |
|
|
£'Million |
£'Million |
£'Million |
|
||
|
Assets |
|
|
|
|
|
|
Property and equipment |
|
148.0 |
162.6 |
154.5 |
|
|
Deferred tax assets |
|
3.0 |
- |
5.0 |
|
|
Investment in associates |
|
1.4 |
- |
1.4 |
|
|
Other receivables |
|
1,265.2 |
1,692.6 |
1,587.6 |
|
|
Income tax assets |
|
65.8 |
- |
- |
|
|
Fixed income securities |
13 |
7.8 |
7.8 |
7.8 |
|
|
Investment in Collective Investment Schemes |
13 |
1,370.5 |
1,295.3 |
1,605.3 |
|
|
Cash and cash equivalents |
|
274.5 |
298.1 |
245.7 |
|
|
Total assets |
|
3,136.2 |
3,456.4 |
3,607.3 |
|
|
Liabilities |
|
|
|
|
|
|
Borrowings |
12 |
371.8 |
478.2 |
433.0 |
|
|
Deferred tax liabilities |
|
78.4 |
506.7 |
624.4 |
|
|
Other provisions |
11 |
44.4 |
37.6 |
44.1 |
|
|
Other payables |
|
1,394.3 |
1,236.9 |
1,254.4 |
|
|
Income tax liabilities |
|
- |
83.6 |
6.1 |
|
|
Preference shares |
|
- |
0.1 |
- |
|
|
Total liabilities |
|
1,888.9 |
2,343.1 |
2,362.0 |
|
|
Net assets |
|
1,247.3 |
1,113.3 |
1,245.3 |
|
|
Shareholders' equity |
|
|
|
|
|
|
Share capital |
15 |
81.6 |
80.9 |
81.1 |
|
|
Share premium |
|
226.1 |
206.6 |
213.8 |
|
|
Shares in trust reserve |
|
(4.1) |
(8.4) |
(8.5) |
|
|
Miscellaneous reserves |
|
2.5 |
2.5 |
2.5 |
|
|
Retained earnings |
|
941.1 |
832.6 |
956.4 |
|
|
Shareholders' equity |
|
1,247.2 |
1,114.2 |
1,245.3 |
|
|
Non-controlling interests |
|
0.1 |
(0.9) |
- |
|
|
Total shareholders' equity on a Cash result basis |
|
1,247.3 |
1,113.3 |
1,245.3 |
|
|
|
|
|
|
|
|
|
|
|
Pence |
Pence |
Pence |
|
|
Net assets per share |
|
229.4 |
206.3 |
230.4 |
|
The Note references above cross refer to the Notes to the Condensed Consolidated Financial Statements under IFRS as adopted by the UK on pages 41 to 67, except where denoted in Roman numerals.
-75-
Notes to the Consolidated Financial Statements on a Cash Result Basis (unaudited)
I. Basis of preparation
The Consolidated Financial Statements on a Cash Result Basis have been prepared by adjusting the Financial Statements prepared in accordance with International Financial Reporting Standards adopted by the UK for items which do not reflect the cash emerging from the business. The adjustments are as follows:
1. Unit liabilities and net assets held to cover unit liabilities, as set out in Note 8, are policyholder balances which are removed in the Statement of Financial Position on a Cash Result Basis. No adjustment for payments in or out is required in the Statement of Comprehensive Income as this business is subject to deposit accounting, which means that policyholder deposits and withdrawals are recognised in the Statement of Financial Position under IFRS, with only marginal cash flows attributable to shareholders recognised in the Statement of Comprehensive Income. However, adjustment is required for the investment return and the movement in investment contract liabilities, which are offsetting and are both zero-ised.
2. Deferred acquisition costs, the purchased value of in-force business and deferred income assets and liabilities are removed from the Statement of Financial Position on a Cash Result Basis, and the amortisation of these balances is removed in the Statement of Comprehensive Income on a Cash Result Basis. The assets, liabilities and amortisation are set out in Note 7.
3. Share-based payment expense is removed from the Statement of Comprehensive Income on a Cash Result Basis, and the equity and liability balances for equity-settled and cash-settled share-based payment schemes respectively are removed from the Statement of Financial Position on a Cash Result Basis.
4. Non-unit-linked insurance contract liabilities and reinsurance assets are removed in the Statement of Financial Position on a Cash Result Basis. The movement in these balances is removed from the Statement of Comprehensive Income on a Cash Result Basis.
5. Goodwill, computer software intangible assets and some other assets and liabilities which are inadmissible under the Solvency II regime are removed from the Statement of Financial Position on a Cash Result Basis, however the movement in these figures are included in the Statement of Comprehensive Income on a Cash Result Basis.
6. Deferred tax assets and liabilities are adjusted in the Statement of Financial Position on a Cash Result Basis to reflect the adjustments noted above and other discounting differences between tax charges and IFRS accounting. However, the impact of movements in deferred tax assets and liabilities are not included in the Statement of Comprehensive Income on a Cash Result Basis.
-76-
II. Reconciliation of the IFRS balance sheet to the cash balance sheet
The Solvency II Net Assets (or Cash) balance sheet is based on the IFRS Condensed Consolidated Statement of Financial Position (on page 39), with adjustments made to accounting assets and liabilities to reflect the Solvency II regulations and the provision for insurance liabilities set equal to the associated unit liabilities.
The reconciliation between the IFRS and Solvency II Net Assets Balance Sheet as at 30 June 2022 is set out on page 23. The reconciliations as at 30 June 2021 and 31 December 2021 are provided on the following pages.
|
30 June 2021 |
IFRS Balance Sheet |
Adjustment 1 |
Adjustment 2 |
Solvency II Net Assets Balance Sheet |
|
£'Million |
£'Million |
£'Million |
£'Million |
|
|
Assets |
|
|
|
|
|
Goodwill |
32.5 |
- |
(32.5) |
- |
|
Deferred acquisition costs |
400.8 |
- |
(400.8) |
- |
|
Purchased value of in-force business |
16.0 |
- |
(16.0) |
- |
|
Computer software |
28.1 |
- |
(28.1) |
- |
|
Property and equipment |
162.6 |
- |
- |
162.6 |
|
Deferred tax assets |
13.7 |
- |
(13.7) |
- |
|
Reinsurance assets |
85.1 |
- |
(85.1) |
- |
|
Other receivables |
2,271.6 |
(576.2) |
(2.8) |
1,692.6 |
|
Investment property |
1,495.5 |
(1,495.5) |
- |
- |
|
Equities |
97,862.3 |
(97,862.3) |
- |
- |
|
Fixed income securities |
29,668.3 |
(29,660.5) |
- |
7.8 |
|
Investment in Collective Investment Schemes |
5,157.1 |
(3,861.8) |
- |
1,295.3 |
|
Derivative financial instruments |
838.0 |
(838.0) |
- |
- |
|
Cash and cash equivalents |
7,089.9 |
(6,791.8) |
- |
298.1 |
|
Total assets |
145,121.5 |
(141,086.1) |
(579.0) |
3,456.4 |
|
Liabilities |
|
|
|
|
|
Borrowings |
478.2 |
- |
- |
478.2 |
|
Deferred tax liabilities |
529.7 |
- |
(23.0) |
506.7 |
|
Insurance contract liabilities |
571.8 |
(483.3) |
(88.5) |
- |
|
Deferred income |
574.4 |
- |
(574.4) |
- |
|
Other provisions |
37.6 |
- |
- |
37.6 |
|
Other payables |
2,233.5 |
(986.3) |
(10.3) |
1,236.9 |
|
Investment contract benefits |
102,930.3 |
(102,930.3) |
- |
- |
|
Derivative financial instruments |
1,014.6 |
(1,014.6) |
- |
- |
|
Net asset value attributable to unit holders |
35,671.6 |
(35,671.6) |
- |
- |
|
Income tax liabilities |
83.6 |
- |
- |
83.6 |
|
Preference shares |
0.1 |
- |
- |
0.1 |
|
Total liabilities |
144,125.4 |
(141,086.1) |
(696.2) |
2,343.1 |
|
Net assets |
996.1 |
- |
117.2 |
1,113.3 |
-77-
|
31 December 2021 |
IFRS Balance Sheet |
Adjustment 1 |
Adjustment 2 |
Solvency II Net Assets Balance Sheet |
|
£'Million |
£'Million |
£'Million |
£'Million |
|
|
Assets |
|
|
|
|
|
Goodwill |
29.6 |
- |
(29.6) |
- |
|
Deferred acquisition costs |
379.6 |
- |
(379.6) |
- |
|
Purchased value of in-force business |
14.4 |
- |
(14.4) |
- |
|
Computer software |
27.0 |
- |
(27.0) |
- |
|
Property and equipment |
154.5 |
- |
- |
154.5 |
|
Deferred tax assets |
20.6 |
- |
(15.6) |
5.0 |
|
Investment in associates |
1.4 |
- |
- |
1.4 |
|
Reinsurance assets |
82.4 |
- |
(82.4) |
- |
|
Other receivables |
2,923.0 |
(1,332.4) |
(3.0) |
1,587.6 |
|
Investment property |
1,568.5 |
(1,568.5) |
- |
- |
|
Equities |
106,782.3 |
(106,782.3) |
- |
- |
|
Fixed income securities |
29,305.9 |
(29,298.1) |
- |
7.8 |
|
Investment in Collective Investment Schemes |
5,513.2 |
(3,907.9) |
- |
1,605.3 |
|
Derivative financial instruments |
1,094.6 |
(1,094.6) |
- |
- |
|
Cash and cash equivalents |
7,832.9 |
(7,587.2) |
- |
245.7 |
|
Total assets |
155,729.9 |
(151,571.0) |
(551.6) |
3,607.3 |
|
Liabilities |
|
|
|
|
|
Borrowings |
433.0 |
- |
- |
433.0 |
|
Deferred tax liabilities |
649.8 |
- |
(25.4) |
624.4 |
|
Insurance contract liabilities |
572.3 |
(487.8) |
(84.5) |
- |
|
Deferred income |
562.6 |
- |
(562.6) |
- |
|
Other provisions |
44.1 |
- |
- |
44.1 |
|
Other payables |
2,604.5 |
(1,344.9) |
(5.2) |
1,254.4 |
|
Investment contract benefits |
110,349.8 |
(110,349.8) |
- |
- |
|
Derivative financial instruments |
1,019.5 |
(1,019.5) |
- |
- |
|
Net asset value attributable to unit holders |
38,369.0 |
(38,369.0) |
- |
- |
|
Income tax liabilities |
6.1 |
- |
- |
6.1 |
|
Total liabilities |
154,610.7 |
(151,571.0) |
(677.7) |
2,362.0 |
|
Net assets |
1,119.2 |
- |
126.1 |
1,245.3 |
Adjustment 1 nets out the policyholder interest in unit-linked assets and liabilities.
Adjustment 2 comprises adjustment to the IFRS Condensed Consolidated Statement of Financial Position in line with Solvency II requirements, including removal of DAC, DIR, PVIF and their associated deferred tax balances, goodwill and other intangibles.
-78-
III. Earnings per share
|
|
Six months ended 30 June 2022 |
Six months ended 30 June 2021 |
Year ended 31 December 2021 |
|
£'Million |
£'Million |
£'Million |
|
|
Earnings |
|
|
|
|
Cash result after tax attributable to equity shareholders (for both basic and diluted EPS) |
194.1 |
175.8 |
387.4 |
|
|
|
|
|
|
|
Million |
Million |
Million |
|
Weighted average number of shares |
|
|
|
|
Weighted average number of ordinary shares in issue (for basic EPS) |
541.8 |
536.7 |
537.7 |
|
Adjustments for outstanding share options |
4.4 |
7.6 |
8.5 |
|
Weighted average number of ordinary shares (for diluted EPS) |
546.2 |
544.3 |
546.2 |
|
|
|
|
|
|
|
Pence |
Pence |
Pence |
|
Earnings per share (EPS) |
|
|
|
|
Basic earnings per share |
35.8 |
32.8 |
72.0 |
|
Diluted earnings per share |
35.5 |
32.3 |
70.9 |
The Directors have resolved to pay an interim dividend of 15.59 pence per share (30 June 2021: 11.55 pence per share). This amounts to £84.8 million (30 June 2021: £62.3 million) and will be paid on 23 September 2022 to shareholders on the register at 26 August 2022.
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Other Information
-80-
Glossary of Alternative Performance Measures
Within the Half-Year Report and Accounts various alternative performance measures (APMs) are disclosed.
An APM is a measure of financial performance, financial position or cash flows which is not defined by the relevant financial reporting framework, which for the Group is International Financial Reporting Standards as adopted by the UK (adopted IFRSs). APMs are used to provide greater insight into the performance of the Group and the way it is managed by the Directors. The table below defines each APM, explains why it is used and, if applicable, where the APM has been reconciled to IFRS:
Financial position related APMs
|
APM |
Definition |
Why is this measure used? |
Reconciliation |
|
Solvency II net assets |
Based on IFRS Net Assets, but with the following adjustments: 1. Reflection of the recognition requirements of the Solvency II regulations for assets and liabilities. In particular this removes deferred acquisition costs (DAC), deferred income (DIR), purchased value of in-force (PVIF) and their associated deferred tax balances, other intangibles and some other small items which are treated as inadmissible from a regulatory perspective; and 2. Adjustment to remove the matching client assets and the liabilities as these do not represent shareholder assets. No adjustment is made to deferred tax, except for that arising on DAC, DIR and PVIF, as this is treated as an allowable asset in the Solvency II regulation. |
Our ability to satisfy our liabilities to clients, and consequently our solvency, is central to our business. By removing the liabilities which are fully matched by assets, this presentation allows the reader to focus on the business operation. It also provides a simpler comparison with other wealth management companies. |
Refer to page 23. |
|
Total embedded value |
A discounted cashflow valuation methodology, assessing the long-term economic value of the business. Our embedded value is determined in line with the EEV principles, originally set out by the Chief Financial Officers (CFO) Forum in 2004, and amended for subsequent changes to the principles, including those published in April 2016, following the implementation of Solvency II. |
Life business and wealth management business differ from most other businesses, in that the expected shareholder income from the sale of a product emerges over a long period in the future. We therefore supplement the IFRS and Cash results by providing additional disclosure on an embedded value basis, which brings into account the net present value of expected future cash flows, as we believe that a measure of total economic value of the Group is useful to investors. |
Not applicable. |
|
EEV net asset value (NAV) per share |
EEV net asset value per share is calculated as the EEV net assets divided by the year end number of ordinary shares. |
Total embedded value provides a measure of total economic value of the Group, and assessing the NAV per share allows analysis of the overall value of the Group by share. |
Not applicable. |
|
IFRS NAV per share |
IFRS net asset value per share is calculated as the IFRS net assets divided by the year-end number of ordinary shares. |
Total IFRS net assets provides a measure of value of the Group, and assessing the NAV per share allows analysis of the overall value of the Group by share. |
Not applicable. |
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Financial performance related APMs
|
APM |
Definition |
Why is this measure used? |
Reconciliation |
|
Cash result, and Underlying cash result 1 |
The Cash result is defined as the movement between the opening and closing Solvency II net assets adjusted for the following items: 1. The movement in deferred tax is removed to reflect just the cash realisation from the deferred tax position; 2. The movements in goodwill and other intangibles are included; and 3. Other changes in equity, such as dividends paid in the year and equity-settled share option costs, are excluded. The Underlying cash results reflects the regular emergence of cash from the business along with the impact of the strategic investments we are making. The Cash result reflects all other cash items, including those whose emergence is volatile, varying over time and often influenced by markets, together with other short-term costs. Neither the Cash result nor the Underlying cash result should be confused with the IFRS Condensed Consolidated Statement of Cash Flows which is prepared in accordance with IAS 7. |
IFRS income statement methodology recognises non-cash items such as deferred tax and equity-settled share options. By contrast, dividends can only be paid to shareholders from appropriately fungible assets. The Board therefore uses the Cash results to monitor the level of cash generated by the business. While the Cash result gives an absolute measure of the cash generated in the year, the Underlying cash result is particularly useful for monitoring the expected long-term rate of cash emergence, which supports dividends and sustainable dividend growth.
|
Refer to pages 18, 19 and also see Note 3 - Segment Profit to the Condensed Consolidated Financial Statements |
|
Underlying cash basic and diluted earnings per share (EPS) |
These EPS measures are calculated as Underlying cash divided by the number of shares used in the calculation of IFRS basic and diluted EPS. |
As Underlying cash is the best reflection of the cash generated by the business, Underlying cash EPS measures allow analysis of the shareholder cash generated by the business by share. |
Not applicable. |
|
EEV profit |
Derived as the movement in the total EEV during the year. |
Both the IFRS and Cash results reflect only the cashflows in the year. However, our business is long-term, and activity in the year can generate business with a long-term value. We therefore believe it is helpful to understand the full economic impact of activity in the year, which is the aim of the EEV methodology. |
See Note 3 - Segment Profit to the Condensed Consolidated Financial Statements |
|
EEV operating profit |
A discounted cashflow valuation methodology, assessing the long-term economic value of the business. Our embedded value is determined in line with the EEV principles, originally set out by the Chief Financial Officers (CFO) Forum in 2004, and amended for subsequent changes to the principles, including those published in April 2016, following the implementation of Solvency II. The EEV operating profit reflects the total EEV result with an adjustment to strip out the impact of stock market and other economic effects during the year. Within EEV operating profit is new business contribution, which is the change in embedded value arising from writing new business during the year. |
Both the IFRS and Cash results reflect only the cash flows in the year. However, our business is long-term, and activity in the year can generate business with a long-term value. We therefore believe it is helpful to understand the full economic impact of activity in the year, which is the aim of the EEV methodology. Within the EEV, many of the future cash flows derive from fund charges, which change with movements in stock markets. Since the impact of these changes is typically unrelated to the performance of the business, we believe that the EEV operating profit (reflecting the EEV profit, adjusted to reflect only the expected investment performance and no change in economic basis) provides the most useful measure of embedded value performance in the year. |
See Note 3 - Segment Profit to the Condensed Consolidated Financial Statements |
|
EEV operating profit basic and diluted earnings per share (EPS) |
These EPS measures are calculated as EEV operating profit after tax divided by the number of shares used in the calculation of IFRS basic and diluted EPS. |
As EEV operating profit is the best reflection of the EEV generated by the business, EEV operating profit EPS measures allow analysis of the long-term value generated by the business by share. |
Not applicable. |
|
Policyholder and shareholder tax |
Shareholder tax is estimated by making an assessment of the effective rate of tax that is applicable to the shareholders on the profits |
The UK tax regime facilitates the collection of tax from life insurance policyholders by making an equivalent charge within the
|
Disclosed as separate line items in the
|
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|
|
attributable to the shareholders. This is calculated by applying the appropriate effective corporate tax rates to the shareholder profits. The remainder of the tax charge represents tax on policyholders' investment returns. This calculation method is consistent with the legislation relating to the calculation of the tax on shareholders' profits.
|
corporate tax of the Company. The total tax charge for the insurance companies therefore comprises both this element and an element more closely related to normal corporation tax. Life insurance business impacted by this tax typically includes policy charges which align with the tax liability, to mitigate the impact on the corporate. As a result, when policyholder tax increases, the charges also increase. Given these offsetting items can be large, and typically do not perform in line with the business, it is beneficial to be able to identify the two elements separately. We therefore refer to that part of the overall tax charge, which is deemed attributable to policyholders, as policyholder tax, and the rest as shareholder tax. |
Condensed Consolidated Condensed Consolidated Statement of Comprehensive Income on page 37. |
|
Profit before shareholder tax |
A profit measure which reflects the IFRS result adjusted for policyholder tax, but before deduction of shareholder tax. Within the Condensed Consolidated Statement of Comprehensive Income, the full title of this measure is 'Profit before tax attributable to shareholders' returns'. |
The IFRS methodology requires that the tax recognised in the financial statements should include the tax incurred on behalf of policyholders in our UK life assurance company. Since the policyholder tax charge is unrelated to the performance of the business, we believe it is also useful to separately identify the profit before shareholder tax, which reflects the IFRS profit before tax, adjusted only for tax paid on behalf of policyholders. |
Disclosed as a separate line item in the Condensed Consolidated Statement of Comprehensive Income on page 37. |
|
Underlying profit |
A profit measure which reflects the IFRS result adjusted to remove the DAC, DIR and PVIF adjustments. |
The IFRS methodology promotes recognition of profits in line with the provision of services and so, for long-term business, some of the initial cash flows are spread over the life of the contract through the use of intangible assets and liabilities (DAC and DIR). Due to the Retail Distribution Review (RDR) regulation change in 2013, there was a step change in the progression of these items in our accounts, which resulted in significant accounting presentation changes despite the fundamentals of our vertically integrated business remaining unchanged. We therefore believe it is useful to consider the IFRS result having removed the impact of movements in these intangibles as it better reflects the underlying performance of the business. |
Refer to pages 17 and 18. |
|
Controllable expenses |
The total of expenses which reflects Establishment, Development (both Operational and Strategic), and Academy. |
We are focused on managing long-term growth in controllable expenses to 5% p.a. |
Full detail of the breakdown of expenses is provided on page 20. |
1. As we explained in the Half-Year Report & Accounts 2021, for the year ended 31 December 2021 and all subsequent periods we have re-shaped our presentation of the Cash result to aid shareholders. This adapts our reporting to our guidance on expense growth, which has a new focus on controllable expenses. As a result, controllable expenses are a new alternative performance measure (APM), and the Operating cash result, an APM in previous years, has been removed. The Operating cash result no longer provides relevant information as it includes some, but not all, controllable expenses.
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